If you’re reading this, you already are digging into the Web3 world.
Maybe you know some things about it and want to learn more – or maybe you just heard the expression and didn’t even know that there was a web1 and web2. It does not matter: if you are here and read until the end, you’ll be more updated about it and hopefully will see the importance of this topic to the world as we know it.
But why is that?
One good and solid reason relies on the most recent research done by Alchemy Insights, where it clearly states:
“Prices down. Devs up. Despite Ethereum decreasing 70% in price, verified smart contract deployments increased by over 40%”.
This means that, according to Alchemy, even though the market is pretty bearish in the most recent days, the building of a web3 world continues to grow strong.
Actually, for smart contracts, 2022 was the biggest year ever – yes, ever – for deployment. The numbers show 177,922 deployments in 2022, making it 36% of all verified smart contracts.
But before we go any further, let’s remember the key aspects that make Web3 a force of nature when it comes to the future of the internet.
Your Keys, Your Data
The functionality of web3 brings something good and greatly beneficial to the table: the total control of your data and your assets.
If you already have a decentralized crypto wallet, you know how it works: a cryptographic address where you own the keys to it and only you can authorize transactions with it.
But if you don’t have it yet, let’s make a quick example – when you wish to login in a new platform, it usually requests your basic info and, most of the times, to make it easier for you, it asks you to login into your Google account, Apple account, Outlook or others, right?
Regardless of which one you choose – or even if you wish to login with your email address – it will get your basic information (such as your email address, your name, sometimes phone number, your home address and more, depending on the platform).
According to the Chainalysis State of Web3 Report, “one of the biggest shortcomings of web2 is the precarity of consumers’ data, security and privacy”. Chainalysis points out the data collected from a data privacy startup, Mine, where it states that the average consumer’s personal data is held by 350 different brands.
“Unsurprisingly, not all of these companies prove to be trustworthy custodians of user data. Millions of people around the world have had their personal information compromised in data breaches, resulting in losses of billions of personal data records”.– The Chainalysis State of Web3 Report
With web3, this changes. By connecting your wallet, for instance, you do not send any personal information and even your address is a codified one.
It also protects your assets even more, with the blockchain technology and its consensus algorithms that make it harder to tamper with the network, ensuring more safety and efficiency (since you won’t have to face problems of the web2 world like ‘Hey, company X is down. Nothing is working!).
All of the benefits of a blockchain system are the basis and the foundation of web3 and all the perks of working with a blockchain technology comes along in the web3 world.
And although this system might not be perfect (yet!), education and the higher adoption of this decentralized way of network can bring even better solutions to the future.
Web3 Use Cases
The Chainalysis State of Web3 Report brought other significant numbers and information to support our theory. The report is ultimately very bullish, regardless of what the current numbers of the market say.
“We’ve only begun to scratch the surface of all that web3 can enable, but already we see a variety of use cases generating significant economic activity”.
– The Chainalysis State of Web3 Report
McKinsey & Company reinforces the use cases of Web3 as its true superpower.– McKinsey & Company “Web3 beyond the hype”
“Web3 effectively enables traditional revenue streams to accrue to the users of a platform, enhancing the user value proposition relative to their Web2 equivalents”.
Chainalysis then dissects the possibilities that are already unraveling in the web3:
Chainalysys mentions the popular DEXs (decentralized exchanges) that are being used for trading, speculating as well as staking and lending platforms to achieve stabler, more consistent returns.
The report also says that over the past five years, decentralized exchanges (DEXs) have emerged as a self-custodial, programmatic way for cryptocurrency investors to trade.
“DEXs allow users to swap between hundreds of trading pairs without an intermediary. And fifteen months ago, these DEXs for the first time eclipsed centralized exchanges (CEXs) in on-chain transaction volume”;
On-chain transaction volume on centralized vs. decentralized exchanges, January 2017–April 2022 (source: The Chainalysis State of Web3 Report)
• Borrowing and lending
On the other side of those lending contracts, the report mentions, the borrowers who put up their existing cryptocurrency as collateral to access capital.
• Art, entertainment, and culture
The hypest darlings of the web3: the possibility of truly owning and getting fairer shares from the creativity effort of many creators. “NFT collectors have spent billions to own art they love, while in the more nascent web3 gaming space, users are monetizing their leisure time with play to earn”.
Number of active NFT buyers and sellers, Q1 2020–Q2 2022 (source: The Chainalysis State of Web3 Report)
Another segment to keep our eyes on. The growth of companies that provide protocols to connect disparate parts of the web3 ecosystem are undeniable. According to the report, they are “setting the stage for future growth” and “raking in billions”;
Chainalysis explains it very well when it says that “many of the protocols powering the use cases described above are governed by DAOs”. The Decentralized Autonomous Organizations are bringing another level to ownership and shared governance in the web3.
They are “receiving billions in exchange for governance tokens, separate from funds received by the protocols themselves”, explain the report.
For Chanalysis, “Decentralized autonomous organizations (DAOs) are a staple of web3. Internet-native and blockchain-based, DAOs are intended to provide a new, democratized management structure for businesses, projects, and communities, in which any member can vote on organizational decisions just by buying into the project”.
Total assets held and number of DAOs by web3 category (source: The Chainalysis State of Web3 Report)
The world of DeFi
Many of the solutions above are included in the DeFi concept.
Decentralized Finance is the boat that fits each component already mentioned here and its growth has not been shaken by the uncertainties of the market.
Chainalysis defines DeFi as the “backbone of the web3 ecosystem”, where an increasing transaction volume continues to happen, with a special participation of individual investors.
“DeFi activity exploded in 2021, peaking in Q2 at nearly $4 trillion in transaction volume. While growth has since leveled off, in part due to price declines for Ethereum and other assets, the number of individual transfers has stayed level and even increased in some quarters, which suggests that more individual investors are still entering the ecosystem”– The Chainalysis State of Web3 Report
Total value received, number of transfers, and number of services by DeFi service type (source: The Chainalysis State of Web3 Report)
The challenge of the Web3
As the Web3 revolution keeps on the rise, problems also start to appear where the independent and third parties-free aspect of it all can, sometimes, become its worst enemy.
McKinsey & Company highlights this issue as “regulatory scrutiny and outlooks”.
“Regulators in many countries are looking to issue new guidance for Web3 that balances the risks and the innovative potential, but the picture remains unsettled. For now, there is a lack of clarity—and jurisdictional consistency—about classifying these assets, services, and governance models”– McKinsey & Company “Web3 beyond the hype”
One example that McKinsey & Company brings up is related to smart contracts. Even though they are an autonomous way to create a settlement between parties in the blockchain system, the lack of legal regulation and enforcement makes it harder for institutional adoption, especially by heavily regulated entities.
However, the issue that concerns some enthusiasts (the author herself) is how to make this entire world more user-friendly.
The tools and methods of web3 are still very confusing for the broader audience and this stops the technology from being massively adopted sooner.
Even though it might seem better for some to have this wider audience later, the market continues to feel shaky and more insecure while there is not a big and solid number of users.
The tendency, with massive adoption, is to become popular and regular, allowing really good projects to stand out for the solutions they bring to the table as well as giving even more space to embryonic projects too.
So regardless of other difficulties such as the technology itself or the cost of it all, a recent McKinsey survey can be as exciting as Alchemy’s (mentioned in the beginning of this article) if we look up ahead at the behavior of the consumers of the future.
The company finishes its analysis by reinforcing the need of the market to be aware of what’s happening in Web3 because of the power of assets’ ownership can have.
“[…] the value proposition for consumers at the heart of it—one that unifies data, functionality, and value, and in doing so creates opportunities for new and more efficient forms of applications and asset ownership—is a powerful one. If history is any guide, companies large and small, as well as the public and social sectors, may want to take note of the inroads Web3 is already making and start thinking about responsible ways to interact with it. Incumbents that fail to do so may suddenly find themselves overtaken by a fast-moving set of new technologies, new assets, and new ways of doing business”.– McKinsey & Company “Web3 beyond the hype”