Aug 10, 2022
Web3, what is it good for?
There are many articles, tweets, blog posts, and commentary that draw parallels with the early 2000s and how the summer of 2022 crypto crash resembles the dot com crash. The perceived wisdom is that what followed the dot com crash was the tech giants and this, as the pundits say, is what will happen now with the advent of Web 3.0.
This needs some further examination.
The dot com crash and the recent crypto crash do share some similarities, there was a lot of froth and hype, eye-watering valuations, and huge optimism around a technology that is going to change the world.
There are of course also many differences, and being old enough to remember both help with trying to bring some valuable perspective.
The dot com excitement was all about the promise, imagining what was possible, and devising new ways to do business.
This was underpinned by a slow infrastructure, a pre-broadband world of dial-up modems, 56kbps connections, and if your mum rang the connection dropped. The browser wars of Internet Explorer vs Netscape Navigator were in full flow and for the average HTML/javascript developer there were many <if then else> branches to make the websites work. This creaking and underdeveloped framework made it very hard for the new economy to deliver on the promises made, not that it mattered in the hype cycle.
The recent crypto hype cycle was very different, the technology is maturing, and the infrastructure is constantly improving but the focus has been mainly on financial products such as lending, derivatives, leverage, and trading of tokens. The innovation has been breathtaking in what has been achieved in such a short period of time. We have also seen the emergence of DAOs and NFTs into the mainstream as genuinely new ideas backed by strong communities. I would argue that most of the energy and ideas were concentrated in a crypto bubble where the only fuel was new (retail) money coming in. We did not see the equivalent of Boo.com or Pets.com or Garden.com that are solving real-world problems, instead we had Terra, Celsius and 3 Arrows Capital all focused on finance powered by leverage. Seen from this perspective we have a different set of circumstances.
After the dot com crash, we saw the hard work going into building the technology, the rollout of broadband, the smartphone with the new apps, and the emergence of the big tech players. The logic follows that crypto we see a similar industrious phase of building the next generation of platforms and infrastructure. The Ethereum Merge could be a “broadband” moment which greatly increases the throughput, and sorting out the user experience of interacting with a blockchain could be the type of advance that would bring the blockchain world to a wider audience.
The question is still in the air, is blockchain a solution looking for a problem, or will even bigger and better crypto/token trading platforms emerge within the frameworks being legislated for such as MiCA in Europe as the sector doubles down? Is financial speculation the only use case for blockchain?
What is the purpose of Web3?
The energy of Web3 is focused either on the virtual with Gaming, NFTs, and Metaverse along with trading tokens or leveraging the technology to solve real-world problems, and it is clear that this will not be an “either-or” but rather two streams with some common elements.
In a recent article, I wrote about how Tgrade has been built as an infrastructure designed for business, and initially, the focus was on regulated finance as there are barriers around the origin of funds and KYC compliance with pseudo-anonymous addresses, however, when speaking with businesses these are the same issues that every business face. The potential to businesses of smart contracts, through the possibilities of automation, and the ability to run on a robust decentralized infrastructure, is massive. There are many opportunities to restructure how things are done and innovate with new ways of doing business.
What stands in the way of mass adoption?
The user experience for a non-crypto native is terrible. There is no other way to dress it up. Download a browser extension, write down and secure 12 or 24 words or risk losing your holdings, buy some native tokens from some exchange or other (after you have done your onboarding and pleaded with your bank not to close your account as you are sending money to an exchange). Businesses will need to address these issues as no matter how innovative, safe, or cheaper they are these entry points are high barriers. Solving these issues will be the “broadband” or “smartphone” moment for crypto.
There are moves to address usability with verifiable credentials and with the identity managing wallets in the context of Trusted Circles and onboarding customers.
The regulatory uncertainty has been a further constraint as businesses are unwilling to commit to building until there are a clear set of rules. The recent passing of the European Union legislation Markets in Crypto Assets (MiCA) brings certainty and regulatory clarity, even if there are some debatable points in the details. There are also moves in other jurisdictions to bring clarity to the blockchain space.
There is a barrier, a circular dependency, where people are paid and use fiat to buy goods and services, and until crypto-currencies are widely accepted then people will resist being paid (and spend) in crypto-currencies. As an interim solution there has been the issuance of stablecoins which represent the underlying fiat currency, however, not all of these are the same and the asset backing of the stablecoins can vary. The new MiCA legislation has limits on how much stablecoins can be traded/used daily and bans them from paying interest which has implications, especially now that the Central Banks are putting up interest rates. There have been discussions that follow the lines of now that there is regulatory certainty, innovative solutions will emerge that find a way of representing the fiat currency and pay interest to depositors.
Will Web3 see monopolistic tech companies flourish?
In the early days, the internet was decentralized and we did not see any one organization dominating, the evolution followed that convenient services, which were free of charge, allowed the big companies to emerge as they were able to monetize the vast amount of data collected to grow an advertising industry which adopted the new technologies thus disrupting the traditional advertising sector.
There is a chance that the blockchain could follow, we already see this with centralized exchanges such as Coinbase and Binance which offer a service to people who are not confident enough to manage their tokens, sign transactions, and delegate their tokens to validators, or trading using decentralized exchanges. These platforms could grow to become the interface to the blockchain for finance, and in the same spirit, the opportunity arises for other sectors such as gaming or e-commerce?
Public blockchains are by design decentralized and cannot become monopolized unless control is taken by buying or controlling tokens to gain voting power which is a whole other topic. The next layer where the customers interact with the chain is a possibility where monopolies can form, unlike a blockchain where all the code is open sourced, websites can be proprietary code and network effects can concentrate the offerings where people migrate to the most popular.
The other view is that blockchains facilitate peer-to-peer interactions and eliminate intermediaries while mitigating risks. In an environment of peer to peers what it is questionable that intermediaries could offer valued services and could these become monopolies?
Tgrade and Web3
What does Web3 mean to Tgrade? A business-focused blockchain is at the heart of Web3, as businesses solving real-world problems using Tgrade as an infrastructure will be building rich applications with a mobile and web focus.
Tgrade will remain decentralized by design and a stable platform to run a business on. The central tenet of Tgrade is about collaboration, and we will see businesses collaborate (not collude or build cartels) to build key components such as enterprise wallets, stablecoins with compliant on/off-ramp, and form standards for smart contracts.
Web3 on Tgrade is not hype, it is where businesses build. If you are working on a business idea and are curious to learn more about how Tgrade would work for you, then we would love to hear from you. Please reach out to martin.worner@oceanblue.foundation
