web3 is coming in one shape or another
It can be difficult to wrap one's head around just what the internet is, wait till you realize we've had three of them
Over the last ten years, it feels like every bit of our lives has been impacted by innovation. The way we order takeout, the way we talk to coworkers, the way we shop; everything seems to change annually. But the platform this has all taken place on, the internet, has largely remained the same - at least to its surface users. You open up Google Chrome and go to Google to search for something, your parents open up Internet Explorer and check Facebook, etc. Whatever it is, it often results in a user headed to some sort of major corporation.
Due to Covid-19, or maybe something else entirely, we’ve been pulled more quickly into a new version of being “online”. One where creators have gained power in value capture (I highly recommend Li Jin’s seminal piece on the Passion Economy. Recent advents like Substack (the host of this newsletter), Clubhouse, NFTs, and more have shown a glimpse of where the internet may be headed. We may no longer be seeking corporate aggregators for consumption, aka platform distributors and monetizers of UGC, but instead individualized aggregators who share content that we value. Packy McCormick wrote about this succinctly in one of his best newsletters, The [Value Chain of the Open Metaverse, which I’ll be referencing frequently here.
Essentially, the first phase of the internet, Web 1.0, was built on protocols or the way that one person or computer would communicate with another. It was about “reading and not writing”. The second and current phase, Web 2.0, combined a gap-fill of the holes from Web 1.0 with easy-to-use data capturing tools and pleasant UX. This was built by platforms that hosted content. It was participatory, but also required our data. The simpler term for these companies would be aggregators. Network effects powered both the usage and the value for aggregators and Web 2.0.
Coming back to innovation, the current state of the internet has set things up perfectly for a new paradigm. Web 3.0, our future “new” internet, is a natural destination for consumers and enterprises based on what achievements we have reached so far. According to Packy and Chris Dixon (emphasis their own):
Web3 is the next version of the internet, built on top of crypto-economic networks, like Bitcoin and Ethereum. According to [Chris] Dixon, “Cryptonetworks combine the best features of the first two internet eras: community-governed, decentralized networks with capabilities that will eventually exceed those of the most advanced centralized services.”
I’ll try to explain that simply. The next “phase” of the internet will happen on a network that is pieced together by contracts, trust, and internet money (e.g. bitcoin and ethereum) all coded into its infrastructure. It will driven by data owned by its users instead of the Facebook’s and Google’s of the world, and the lack of reliance on corporations will lead to a creative revolution and brand new technologies. The network will be fortified by the mass of Web3 participants who exchange and act on information over the internet.
Essentially it’ll lead to broad “cooperation” across the web that will simplify and power the way we’re online. Different participants can contribute new tools across this infrastructure, receive payments for them, and know that those tools won’t be used without permission. Each Web3 participant will own their own tools, data, and information. That means that each Web3 participant creates and modifies their own value chain, or whatever activities go into producing their special value.
Similar to the nodes I talked about in my post about Cloudflare (who will be a major player in this space), web3 will feature a group-managed set of data, as displayed in the image. It will live over the blockchain, which essentially provide a settlement layer for the internet that’s both secure and without some centralized intermediary that could fail.
A key piece to note about web3, though, is that it’s unfinished. Decrypt covered this, in their piece on the subject, so all of this discussion is technically hypothetical. But as web3 starts to take shape, after a few more major shifts, it will come to fruition quickly. As this new form of the web takes over, we’ll barely notice a difference at first. We’ve seen it with companies like Facebook, where as they have built up supply quickly and dominantly, they won demand and become behemoths. In web3’s case, that rapid growth in supply of nodes would quickly result in a global network effect. These network effects will help overpower one of the biggest constraints to web3’s current roadmap, the building blocks of the network, Ethereum’s blockchain. Building on Ethereum currently is slow and, in some ways, expensive. Hopefully Eth2, which is under development now, paired with a large network of users, will resolve some of the price and speed limitations. And while this may seem like more blockchain and bitcoin hype, I like to look back at this amazing and prescient clip from Silicon Valley:
As the user base of web3 gets larger, the lack of centralized data aggregators and seamless passage of secure money and data becomes foundational. The more participants using web3, the more secure the data is that gets passed across the network, protecting its users. The high volume of participants also leads to more money exchanged, and therefore different business and economic models than we have today. This is already evident with bitcoin, dogecoin (RIP?), and other DeFi (Decentralized Finance) applications.
New projects have been popping up on Ethereum regularly and expansion has gone beyond “dapps” aka decentralized applications. This has even extended into new and differentiated blockchains, all of which will have to be able to communicate with each other in this new version of the web. This interoperability, or computer to computer communication and exchange, is one of many problems facing web3. But as different niche needs get met, the network effects will snowball into a surging demand for a new internet. web3 is coming in some form, and it will be completely different than what we currently experience.