Why Web3 Is A Vital Part Of The Impact Future
Rosa Frehen, Fellow at Ananda Impact Ventures, throws some light on the next phase of the internet and discovers a vibrant, innovative market.
What exactly is Web3? It’s a question that, despite being a term increasingly dropped into both technology and investment-oriented conversations, many people are still asking. The average internet user may not have even heard of it yet — but that doesn’t mean it’s not important. After all, both Web1 and Web2 have completely changed our lives, marking as they do the internet’s progress from a static online publishing platform to the complex hub of commerce and interactivity that it is today.
Is it possible that Web3 might play an increasingly vital role in helping companies to deliver impact over the coming years, from combatting climate change to accelerating social mobility?
Web3 — a more democratised internet?
Very broadly, Web3 involves running applications on a decentralised digital infrastructure based on a technology called blockchain. While blockchain has been most visibly associated with cryptocurrency and the unique digital assets known as non-fungible tokens (NFTs), this is just a small example of what can be done with the technology.
The key idea behind Web3 is that of decentralisation, of creating ways to bypass the ‘Big Tech’ infrastructure that not only provides the conduit for most online business, but also controls and seeks to monetise the world of social media we now live in. The theory behind the Web3 model is that the servers and networks where applications are run will be owned by the users themselves, who will also have voting rights over how applications, and the data they generate, can be used. Proponents of Web3 believe that this model will ultimately create a more democratised internet.
As such, the motivation behind many of the first Web3 initiatives was idealistic, based on the desire to break free from the strictures of Big Tech and traditional institutions such as the global finance system.
Cryptocurrency overheats
The highest profile example of a Web3/blockchain-based application over the past few years has been the development of the cryptocurrency market. While still opaque to the majority of people, crypto insiders in the know have made a lot of money, resulting in a massive influx of VC investment into various crypto segments.
Unfortunately, this market recently overheated. May 2022 saw a big crash in crypto, with Terra — one of the biggest blockchains — collapsing and erasing more than $41bn in value. The cryptocurrency market lost more than $200bn in less than 24 hours, with many retail investors losing all their savings. It’s little wonder then that many commentators now describe cryptocurrency as a bubble and a scam.
The fact that crypto mining uses more energy than some countries, and is responsible for increasing carbon emissions, has also done little for its reputation, with the Web3 concept being dragged into the mud as a result.
Has the promise of Web3 stalled before it’s even properly got going?
A major opportunity for collaboration
Ananda has recently undertaken research into the Web3 space, and our answer to that question is absolutely not. Just because the cryptocurrency market has taken a hit doesn’t invalidate the Web3 model — and to use it as a reason to overlook the potential of this space would be in our view a grave error.
The first thing to point out is that Web3 is very much in its infancy, with most start-ups in the space still experimenting to find the best market fit for their products. As a result, initial setbacks are inevitable. While the cryptocurrency crash has certainly taken some of the shine off blockchain-based applications, it’s perhaps a necessary adjustment in the sector, as well as a lesson to those VCs that jumped into the crypto market without performing sufficient due diligence. The focus going forward will be on building back better, with greater scrutiny on start-ups’ value proposition.
Our other main takeaway is that there’s still a tremendous passion within the Web3 space, and a genuine sense of community. As well as being young and talented, people are open to sharing their knowledge and to collaborate. And although it’s still a predominantly male tech scene, initiatives such as H.E.R. DAO not only aim to bring more diversity to the blockchain ecosystem, but are also pursuing various projects to create social impact.
Web3 may seem like a complicated, overly technical space to those outside of it, but this is exactly what Web1 appeared like back in the early ’90s — and look how that turned out. In fact, there is a fantastic opportunity for non-technical founders and investors to influence and help shape Web3 from the ground up, and a community of specialists keen to partner with them.
How can Web3 deliver impact?
While Web3 is clearly at the cutting edge of technology in terms of innovation, how can it be used to deliver impact? Again, the idea of decentralisation is key, with the chance to break away from Big Tech and enable the internet’s users to better control their online lives and transactions — both financially and personally — is impactful in itself for many people. But there are more concrete examples as well.
For instance, the 100,000,000 Mangroves project is a collaboration between Regenerative Resources (RRC), Regen Network, Chainlink and Elevenyellow, where a vast number of carbon-sequestering mangroves will be planted with the proceeds of an ongoing sale of NFT artworks.
Outside of simple fundraising, Web3 also enables the creation of distributed autonomous organisations (DAOs), in which blockchain token-holders participate in the management and decision-making of groups created for a specific purpose. One such DAO is Impact NFT’s Carbonbase, the first Asian carbon registry for assigning value to CO2 removal and mitigation projects.
However, Ananda believes the most tangible impact potential that Web3 offers right now is augmenting and improving the products and services of existing Web2-based impact companies. Founders and technology teams should reach out to the Web3 development community to brainstorm and co-create ways in which blockchain can be used to build new applications and generate added value to existing customers and investors.
Similarly, impact VCs need to hold their nerve and rise above the fear that mention of crypto can create, and instead investigate how the alternative funding methods that Web3 makes possible can support and perhaps even replace in some cases more traditional equity-based financing. In fact, we need to come up with new equity valuation methods to cater for a new asset class (tokens) and distributed ownership.
This is only the beginning
Despite the cryptocurrency crash in May, Web3 M&A volumes are skyrocketing (+80% p.a. over the last three years) and have reached a significant size (>$120bn YTD). In other words, serious investment is still taking place in this space, indicating that Web3 is far from just a hype and is most definitely here to stay.
Ananda believes that Web3 will have the biggest impact on both society and business since the introduction of the internet itself. We are still only at the beginning of this next phase of the online world, and a huge opportunity exists for any interested party to get involved and help create new ways of solving the most pressing problems we face.
If you would like to find out more about the possibilities of Web3, please get in touch.
