Development and Opportunity of Web3.0
Web3.0 is seen as the next generation of the Internet that will bring significant innovations and reconstruct the current business model. In the previous year, the concept of Web3.0 has taken the world by storm, especially the cryptocurrency industry.
Google Trends data also shows a constant increase in the search volume of Web3.0.
Chart 1:LTM Web 3 Searching Trend (Data Source: Google Trends)
Although the exact definition of Web3.0 is still debatable, it’s usually compared with that of Web2. In Web2, the centralized platforms control users’ data and content, but this presents great risks of data leakage and other privacy issues. In addition, the data between platforms cannot be transmitted freely, and users may be subject to centralized review, closure and other penalties.
Web3.0 is expected to be the solution to the above-mentioned problems. The core idea of Web3.0 is to return the ownership of data to users, allowing users to control their own data, and realize data interoperability on the premise of ensuring security. Furthermore, users don’t need to worry about centralized reviews.
i. Infrastructure of Web3.0
a) Blockchain and Cross-chain technology
The concept of Web3.0 appeared earlier than blockchain. However, before the rise of blockchain, Web3.0 could only stay in the conceptual stage due to its lack of concrete solutions.
With the development of blockchain technology and the increase of cryptocurrency investors, a number of Web3.0 related projects have emerged in blockchain ecologies, such as Ethereum and Polkadot. From this point of view, we could say blockchain technology has laid the foundation for the development of Web3.0.
As far as the whole blockchain industry is concerned, the coexistence of multiple chains will continue for a long time. Web3.0 users from different blockchain ecosystems have the demand to interact, and cross-chain technology will play an important role in this process. Currently, the main cross-chain technologies include notary mechanism, side-chain or relay, hash time locking, distributed private key control, and so on.
b) Decentralized Identity
As for the whole Web3.0 architecture, the Decentralized Identity (DID) is a crucial part. DID is consistent with the core concept of Web3.0, allowing users to own and control their digital identities. DID contains the user’s identity information and privacy data, which can only be used with the user’s authorization, and also has the characteristics of security, verifiability, and interoperability.
The DID system realizes identity discovery, identification, and verification in a decentralized manner, and does not rely on the audit and permission of a centralized identity system.
c) Decentralized Storage
Web3.0 is committed to changing the current context of data control by the traditional centralized Internet platforms. Web3.0 projects will not store the data in the centralized server, and as a consequence, Web3.0 projects will have a massive demand for data storage, and distributed storage is an important infrastructure.
Compared with traditional centralized storage, distributed storage has the advantages of high security, privacy protection, and the mechanism against potential single-point failure problems. However, in real practical applications, distributed storage faces risks in reliability, user experience, and regulatory policies. Currently, the main distributed storage projects include Filecoin and Arweave.
d) Privacy Computing
In Web2, the business model of a centralized platform is generally to obtain platform traffic and profits through users’ data resources. In Web3.0, there are also usage scenarios and requirements for data use and analysis.
But Web3.0 will take data security and personal privacy more seriously, computing tasks will be completed when users’ data and privacy are protected and guaranteed. Multi-party security computing is a solution of privacy computing as it enables collaborative computing between untrusted participants to ensure the process is private.
ii. Advantage & Limitation of Web3.0
We can understand Web3.0 as the combination of web2 and the infrastructure mentioned above, or Web3.0 reconstructs Web2 through core concepts and infrastructure.
a) Advantage
The Web3.0 project is decentralized and distributed in nature, thus won’t be affected by single node failure. When some nodes in the system are disconnected, other nodes can still complete information transmission and value transfer, and the whole system will not be affected.
In Web2, the centralized platform obtains benefits from users’ data, but will not distribute the benefits to users. Web3.0 users have ownership of their own data, which is conducive to the realization of data equality. Web3.0 projects can design a more reasonable incentive mechanism, and users can participate in the development of the project and get benefits from it by sharing the data.
Compared to Web2, Web3.0 has better interoperability and portability and can realize cross-ecological interaction and break the islands-effect and barriers between data across platforms.
Based on the user permitted data usage mechanism, users can provide corresponding data according to their actual situation, and complete the interaction between ecosystems. Meanwhile, users have the permission and access rights to data, which allows Web3.0 to better protect users’ privacy.
b) Limitation
Firstly, the Web3.0 project is developed based on the blockchain, but the performance bottleneck of the blockchain technology restricts the development and performance of the overall Web3.0 projects.
From the experience of past projects, users do not want to improve the platform’s security level at the cost of lower user experiences. Compared with centralized platforms, the TPS of the blockchain determines that it’s currently unsuitable for application scenarios that require low latency.
Secondly, social networking and other types of Web3.0 projects have a strong network effect, which means that the whole ecology will develop on a large scale only when it has already accumulated a certain number of users. But the challenge is, the use cost and technical barriers of blockchain remain high, and users’ educational cost is very high.
Consequently, many users are reluctant to enter the blockchain ecology, and the scope of usage of Web3.0 projects is limited. Therefore, we need to find a better balance between user experience and security to attract more users to participate in and use Web3.0 projects.
Thirdly, different blockchain ecosystems have different DID systems, which is not only caused by the choice of technical route but also involves the complex benefit distribution system among participants. Different DID systems have different standards and require different verification methods. This may hinder the sharing of data, resulting in isolated islands of data and information transmission, which goes against to Web3.0 concept.
Fourthly, the core concept of Web3.0 has made a major breakthrough in protecting users’ privacy, but it also increases the difficulty of regulatory supervision. In the future, the Web3.0 projects may be affected and restricted by regulatory policies, because the regulatory authorities will not fully approve an anti-censorship platform.
iii. Opportunity in Web3.0.0
Participating in the infrastructure projects of Web3.0 is the most intuitive investment opportunity at this moment. As no matter which Web3.0 projects stand out, they all need the support of infrastructure. There is room for further improvement in the fields of the public chain, cross-chain, identity system, distributed storage, and privacy computing.
For example, the blockchain hosting the Web3.0 project must have higher performance and scalability. The cost of the distributed storage project must be low enough while retaining the similar user experience of centralized cloud storage.
Aside from the infrastructure, the following fields are also potential development and investment paths of the Web 3 project.
a) On-chain data analysis
Accurate data analysis can reconstruct the business model of the blockchain project. During the analysis process, DID, privacy computing, and other technologies will make an impact on privacy protection.
With the increase of blockchain users, the volume of data on the chain has increased exponentially. Those data plays an important role in analyzing user profiles. Accurate data can provide reliable insights for other projects, and then complete the industrial reconstruction and upgrading of other projects.
Through precise data analysis, we can get effective metrics such as on-chain credit. Take the DeFi project as an example, currently, many of them use mortgage loans instead of credit loans, and the low utilization rate of funds has always been a problem for many DeFi projects.
If there is accurate on-chain data introduced as input, we can bring in users’ credit into the chain based on his/her previous data, which provides index and aggregation of user-related data such as identity, credit, and user profile in the Web3.0 system. Therefore, borrowers can be accurately screened and credit lending or unsecured lending can be approved for users with high credit profiles with a much higher utilization rate of funds.
b) Identity Data Service Provider
Theoretically speaking, there is no need for multiple sets of DID systems to coexist in Web3.0. However, for various reasons, different blockchain ecosystems have different DID systems, and a unified DID system is not expected in the short term.
In this instance, an identity aggregation project that can be compatible with and integrate most DID standards will bring great convenience to users. The identity aggregation project supports connecting user DID identity information across multiple ecosystems to help users view, manage and aggregate identity information on different blockchain networks. Meanwhile, identity aggregation projects can also be combined with data index projects and application projects to further have a more diversified impact.
c) Privacy Enhancement Technology
Currently, despite a strong desire for a better privacy-protected online environment, users start leaving more digital footprints on the blockchain without paying enough attention to their identities, accounts and other information security. Because everyone can access it without permission and that brings potential security risks.
In Web3.0, people will have a stronger awareness of data and privacy protection. Users no longer want to obtain convenience at the expense of privacy. Hence, the current business model can no longer fit the needs of Web3.0 landscape, especially after the rise of DeFi, many users do not want their trading behaviors on the chain to be monitored by others.
Privacy enhancement technology can solve the problems of confidentiality and privacy protection of transaction information. Privacy enhancement technology can safely share, collect and analyze data without costing security and privacy.
d) Bridge between Web2 and Web3.0
Presently, a large number of users are still concentrated on centralized platforms, and they are used to these platforms and already formed responsive user habits. Middleware projects can act as a bridge to help users migrate from Web2 to Web3.0. By developing a series of tools on the Web2 platforms, users can send encrypted information and digital currency on their familiar platforms, which reduces the user’s threshold for Web3.0 projects.
iv. Representative Project
a) ComingChat
ComingChat is a Web3.0 project with blockchain as the carrier, which integrates the functions of wallet, digital identity, private social networking, NFT creation platform and so on to realize users’ control over their own data and ensure data security.
Users communicate through ComingChat to prevent information and data from being stolen by the platform or other users. It fundamentally prevents the risk of user data and privacy leakage. Meanwhile, users can also transfer digital assets through ComingChat.
Users of ComingChat can register to obtain a digital ID, which will not be associated with other kinds of user information, such as mobile phone numbers. The same ID can be used on different platforms and applications, and has strong privacy attributes.
At the same time, ComingChat stores data in a distributed storage system. ComingChat helps users realize end-to-end privacy encryption. Additionally, it realizes the interaction between chains based on cross chain technology and supports multiple types of digital currency transaction payment.
b) RSS3
RSS3 is a social project based on Web3.0 that aims to build a new content social network, and integrates different modules and enables people to truly grasp the autonomy of content, so as to get rid of the control of user data and content by the centralized platform.
As an open ecosystem, RSS3 is designed to have different extensible modules. Developers can create different modules for the system without any permission required. In order to support applications for different purposes, the RSS3 team has proposed some possible middlewares that can be built on RSS3, which opens up great possibilities to build a decentralized Internet content social platform.
From Ethereum to Instagram, from NFT to Twitter, RSS3 is designed to provide an index for any given network element. Through RSS3, users can establish their own social map and generate their own social network. RSS3 can aggregate the network into the user-controlled indexes, allowing users to add related files.
Chart 2: RSS3 architecture diagram (Data Source: RSS3 Deck)
c) Web3.0Go
Web3.0Go provides a series of data services related to Web3.0 and provides necessary technical infrastructure for various types of data applications in the Polkadot ecosystem. The service functions of Web3.0Go mainly include cross chain asset transaction, parallel chain slot auction, analysis and visualization of DeFi activities.
As a data analysis project, Web3.0Go can improve the address annotation system, create user portraits according to the on-chain behavior data, accumulate user identity databases, and can be used along with other projects. Web3.0Go uses an underlying smart contract to deploy the rewards system to encourage users to publish data tasks and review data.
Web3.0Go can process and search data in the data query module, and provide custom data display format on specific events. By using the interface of Web3.0Go and writing SQL, users can automatically generate charts and publish them to the community for members’ reference. Behind this, it exemplifies the concept of data equality and value sharing, so that all users can really grasp the huge potential value behind blockchain data from the simplest operation.
Chart 3: Architecture Diagram of Web3.0Go (Data Source: Web3.0go Deck)
v. Summary
While the centralized platform brings convenience to people, they also present many challenges.
At the current stage, the development momentum of Web3.0 has attracted the attention of many giant companies. Some companies, including Twitter and Reddit, are exploring to integrate the concept of Web3.0 into their platforms. They are trying to discover the characteristics of creator incentive economy, improvement of centralized identity, ownership of data and content, so as to shape the future of decentralized platforms.
In the future, Web3.0 will bring a different experience to users, and will fundamentally change the relationship and interaction mode between users and the Internet. The recently rising DAO will also play an important role in this aspect.
Author: Kevin (Analysts)
CLAIM: The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cipholio Ventures and should not be intepreed as investment advice.
For more information:
About Cipholio Ventures:
Cipholio is a team of professional investors and analysts focusing on blockchain and crypto projects. Cipholio will serve as a bridge to connect people, technology, and capital in the decentralized world. We aim to seek opportunities in Web 3.0, DeFi, GameFi, Metaverse, and Layer 2 based on deep understandings of the industry and data-driven decisions.
Contact us:
Website: www.cipholio.com
Email: contact@cipholio.com
Twitter: https://twitter.com/cipholio
