The Enterprise Opportunity for Web 3
In 2020 we experienced the DeFi summer and 2021 brought us the NFT summer: NBA top shots, Beeple’s $69 million NFT, Crypto Punks and Bored Apes. The trend reached the mainstream, there was no escape.
But NFTs polarized. There was excitement in the technology and crypto-capitalist crowds: the future is bright, we will disrupt the Web 2 monopolies, global finance will be re-invented. Another camp showed resentment pointing to excess, speculation, and money grabs.
But it doesn’t matter anymore. The party is over, and we are in the trough of disillusionment.
There’s debate about the validity of the Gartner’s Hype Cycle Model, but so far, we certainly had the technology trigger and the peak of inflated expectations. The question is if there will be a slope of enlightenment which will lead us to a plateau of productivity: Can there be substantial and sustainable business value?
In many aspects, Web 3 technology has been a crypto-anarcho movement. However, a libertarian revolution seems not to be too likely. Instead, I think the Web 3 technology must mature, for example legal and social identities are needed, NFTs must be associated with well-defined usage rights and / or utility, and crypto currencies and assets must be integrated with the existing accounting and taxation regulations. Likewise, the user experience of the products and services involved must improve significantly so that NFTs would become accessible to the broad masses of users.
Let’s have a closer look at this in the context of the “web 3 industries”, art, gaming and decentralized finance, and the broader range of enterprises.
NFT Art
Most NFTs sold so far have been a very abstract concept: the ownership of a digital certificate without a formally established identity of the minter and the creator of the art, without clarity about the provenance of the digital art and without clear usage rights. Such NFTs have been called bragging rights by the New York Times and others. Bragging rights, however, do not seem to be the right foundation for a substantial and sustainable business.
Formal and social identity should be established and connected with NFTs via wallets. This would enable the provenance of the digital art certified by the NFT. Metadata should have permalinks to terms and conditions which define the usage rights and / or utility the holder of an NFT has on the objects which is certified by the NFT.
Gaming
Virtual currencies and digital assets and services are a core concept in modern games. Transferring these to distributed ledgers makes only sense if they are transferrable to other games. Interoperability between games is, however, not a given. Game studios use different game engines and UI concepts and esthetics. This makes interoperability challenging and questions the usefulness of distributed ledgers.
Decentralized Finance
Large segments of the traditional, centralized finance industry are lagging in technology, provide barriers to entry and are ripe for disruption. Decentralized finance promises the disempowerment of middlemen and gatekeepers, and empowerment everyday people via peer-to-peer exchanges.
This promise, however, comes with serious risks. The traditional financial industry is, for good reasons, heavily regulated. The regulations have typically been responses to major financial crisis ofthe past.
While a largely unregulated decentralized finance system might be beneficial to the very sophisticated investors, it seems unlike that everyday people will be benefit.
Additionally, there are risks from hacking attacks and programming errors in smart contracts which already caused massive losses.
Financial market regulators and consumer protection agencies are already addressing the issues. It will be interesting to see how much progress decentralized finance can really bring in the context of the currently forming regulations for crypto finance.
Enterprise
In the general enterprise segment, there is potential for smart contracts in two areas. There is the potential for completely new business processes and the future will show what entrepreneurs can dream up. Then there is simplification and massive cost reduction of existing complex business processes.
Let’s have a look at a specific use case: music production. Music production typically involves a number of independent contributors (musicians, vocalist, studio operators, cover artist, video producers etc.) and existing assets such as music samples.
For the productions of major stars, the labels provide lawyers, managers, accountants, tax advisor etc. for handling contracts and dealing with operations. For everyone else, this approach is cost prohibitive.
Standardized smart contracts can simplify the contractual issues and operations. Contributors agree and sign smart contracts and funds will be distributed automatically while the distributed ledger provides complete transparency.
Smart contracts provide a massive opportunity to make sophisticated multi-player business processes available to the long tail by simplification and massive cost reduction.
I expect that these will be areas where substantial and sustainable business value will be created in the coming decade.
I would like to thank Hira Siddiqui (Twitter: @identityonchain) and Kai Schmitz-Hofbauer for their reviews and valuable inputs.
