Web 3.0 — The New Innovation Ecosystem
This article explains the background and motivation for moving towards Web 3.0, what it means in practice, and my prediction for the technological foundation for this emerging innovation ecosystem.
It’s a Revolution
We are in the middle of an industrial revolution that profoundly changes how society organizes and does business. For a few times in history, we’ve seen similar developments where innovation has hugely impacted how we manage, power, and move economic activity.
The first industrial revolution around the 1800s introduced the steam engine powered by coal. It led to trains and a vast railroad network that enabled factories to produce and move products from a distance. The telegraph system was developed to communicate between stations.
The second industrial revolution around the 1900s was driven by the internal combustion engine and cheap oil, which put us on the road with cars. Telephone networks with radio and TV brought communication to our homes.
The third industrial revolution is all about the internet — the internet of energy, communication, and transport. Renewable energy is moving us towards distributed energy production. The world wide web and cellphones have made us more connected than ever, and transportation is moving towards autonomy and automation. All of this is enabled by a new technological platform — the internet of things.
Whether we consider ourselves in the middle of the third industrial revolution or moving towards the fourth, this interplay of energy, communication, and transport helps us understand where we are headed.
In his book The Zero Marginal Cost Society, Jeremy Rifkin dives into the third industrial revolution and in 2014 he predicted many of the developments we are seeing today. If you want a short introduction to the topic, I recommend watching this video.
The Future is Decentralized
We connect billions of devices with sensors to send us data and help us manage, power, and move our economic activity more efficiently. We’re heading towards a ubiquitous super internet where devices communicate with each other autonomously.
All this critical activity and data processing requires speed, security, and scalability from the underlying technology platform where central points of failure need to be minimized.
Distributed ledger technology (DLT) enables us to move away from centralized databases to write data on a ledger that is shared and secured by code. It’s like moving from double-entry accounting to a technology-enabled triple entry accounting (or even quadruple!).
The internet and the web 2.0 economy rely on centralized servers and service providers and permission for access. The ecosystem has seen explosive growth during the last decades and has given birth to the big tech companies like Google, Facebook, and Amazon — all of which have designed their services for profit and stakeholder value.
As we have recently seen with the social media giants, this does not always serve people or society in the best way.
Web 3.0 is an evolution of the network infrastructure that will allow a more democratic and decentralized ecosystem to flourish. An infrastructure built on DLT enables permissionless participation, is shared and collectively run, and supports decentralized operations.
Permissionless means anyone can join the network at any time. Shared and collectively run means anyone can set up and run their server nodes and validate transactions in the network. Decentralized operations mean you can run services or even organizations (DAOs) autonomously that are secured by code without a central point of authority.
The Blockchain Trilemma
Blockchain is a distributed ledger technology first introduced to the masses through Bitcoin, a network designed for value transfers. The second generation of DLTs was started by Ethereum, a blockchain that brought programmability to the network through smart contracts.
Most of the DLTs that have come after are more advanced blockchain based networks trying to optimize for performance. The fundamental challenge these networks are trying to solve is called the blockchain trilemma.
The blockchain trilemma means that it is challenging (if near impossible) to solve three network features without compromising one of them: security, scalability, and decentralization. This is one of the reasons why blockchain technology hasn’t seen wide enterprise-level adoption.
You may have read about rising transaction fees in the Ethereum network (scalability). Some networks are solving performance issues in the second layer of the network with the cost of decentralization.
The problem is that some of the fundamental features of blockchain technology create these issues: transfer of data and value in chains of blocks and the third parties needed to validate the transactions. These issues create theoretical limits for the network’s throughput and an additional cost structure to the network by design.
The new generation of DLTs utilizes directed acyclic graph (DAG) for the network architecture. They aim to solve the issues of the older generations by introducing parallel data processing. Instead of processing transactions in sequential blocks, the transactions are processed simultaneously.
To verify a transaction in the network, two previous transactions must be validated. This simple approach enables the network to scale as it grows. The network is also feeless by design as there are no third parties to reward for validating transactions.
IOTA — The New Novel Approach
IOTA is a next-generation DLT that uses a directed acyclic graph called the Tangle for its network architecture. IOTA is fast, feeless, secure, and built to support the internet of things.
The value and data transfers in the network are separated, allowing data to be transferred without any fees. This fundamental feature is needed for the technology platform that will be the backbone of the ongoing industrial revolution.
IOTA is being developed by the IOTA Foundation, a German non-profit organization. I have been following the project closely since 2017, and I believe the technology has matured to a point where they are in a place to provide one of the first enterprise-ready, secure, scalable, and decentralized networks.
IOTA has worked with the European Union through several grants and performed well in the European Blockchain Services Infrastructure (EBSI) initiative. The EBSI is funding DLT projects with the potential of being the new technological infrastructure for the European Union. The growing number of patents based on the technology is ever impressive.
IOTA recently announced its plans to launch a second layer network called Assembly which will enable permissionless smart contract chains to run on top of the IOTA network. The new network will provide cross-chain interoperability and more versatile smart chain programmability. This will solve interoperability and scalability issues once and for all.
Bridges to existing ecosystems like Ethereum and Binance are already being built into the network. Several prominent VC funds have come together to provide 100 million of funding to support the ecosystem. Assembly is the missing piece of the IOTA ecosystem that will enable explosive growth of innovation.
Web 3.0 Is on its Way
Has anyone seen web3? I can’t find it.
Elon Musk recently tweeted about Web3. The thing is, we can’t really see Web 3.0 yet because it’s still being built. But it is on its way, and I believe 2022 is the year we will start to see the decentralized web come together with new business models and wider adoption.
Many startups and companies are already building on the IOTA and Assembly networks, and the first movers will have an incredible advantage from the growth of the ecosystem. Are you already active in the space or settling for watching from the sidelines? It’s time to start innovating.
Kimmo Nurmisto is a growth leader working at the intersection of innovation, technology, and business. He has over a decade of experience in consulting and has worked with the energy and logistics industries. He is the founder and Director of Growth at Grolea, a consulting agency providing growth leadership services for technology-driven companies.