From the things we buy to the news we consume, from our jobs to how we communicate and what we believe in, there is almost no part of our lives that the Internet doesn’t influence. And it’s going through its next major change.
The third generation of the World Wide Web, known as Web3, introduces an entirely new technology suite built on the blockchain, a decentralized and distributed architecture to increase privacy, security, and transparency. This new era of social interdependence is blurring the lines between communications and finance — and compounding an already complex regulatory ecosystem.
While this creates tremendous new opportunities, the implications of Web3 are also at the heart of major social, economic and national security issues.
The White House’s recent executive order to “ensure the responsible development of digital assets” is a welcome first step in addressing these concerns. The agencies are calling for measures to address consumer and investor protection, financial stability, finance, and US leadership in the global financial system. However, to achieve the desired outcomes of the Executive Order, there is a need to ensure that these currency-focused measures are part of a comprehensive national Web3 strategy, which will be necessary for the United States to maintain a democratic Internet, advance the public good, and mitigate potential problems.
The first generation of the web, which originated nearly 40 years ago, was largely driven by static content developed and published primarily by companies, universities, and governments on websites. With the advent of search engines, the information on these sites became discoverable, and a whole new knowledge economy was created where we could share information quickly.
Our current generation, Web 2.0, has led to the centralization needed for expansion. Search, cloud, and social media companies have become the backbone of the Internet, setting up massive data centers and fiber optic infrastructure to serve their users. Advertising has become a business model to underwrite infrastructure expansion costs, leveraging user-generated content to drive engagement and user data to target ads.
There are several lenses through which Web3 can be viewed.
From a technical perspective, it creates an immutable, distributed, and secure transaction ledger as the basis for a new Internet. Instead of the data being centralized and owned by the platform companies, the transaction data is publicly available and owned by the users.
Another financial lens. Cryptocurrencies are powered by Web3 and cryptocurrencies can be bought and sold – through a cryptocurrency exchange – using traditional currency. This allows Web3 users to essentially pay in their own way for use of the Web3 services and the ownership rights in those services. This establishes an alternative to advertising as a supportive economic model for the Internet. Recent thought leadership from the Hoover Institution on cryptocurrency provides additional context for this lens from the perspective of geopolitical and global power competition. However, Web3 transactions extend to the larger realm of commerce based on tokenized smart contracts.
The last lens is the verdict. Web3 seeks to democratize the rules by which the Internet and its services operate, and makes use of smart contracts as mechanisms for managing transactions. Instead of decisions being made by the management team and the board of directors, smart contracts are based on a mutually agreed-upon algorithm residing within the blockchain itself.
But while Web3 embraces democracy and transparency in its approach, early deployment of the technology lacks the financial, legal and regulatory safeguards that would be required to ensure greater adoption.
To create a national Web3 strategy, we must foster a regulatory environment and investment system that enables the development, deployment, and adoption of US-based Web3 technologies at home and abroad. This includes promoting policies that stimulate the decentralized implementation of Web3 to maximize security and democratize governance.
We must also create and advocate at the international level technology and economic policies that promote Web3 based on transparency and democracy. This means minimizing the influence of authoritarian regimes that have a significant impact on their development and functioning. We must also combat the use of the Web3 infrastructure for fraud and illicit financing – and promote social justice.
In order to advance the goals of the latest executive order, the White House should lead the creation of a national strategy in Web3 that engages market participants in developing an integrated regulatory framework, a national security strategy, and explore the application of Web3 to transform e-government functions.
As part of the process of developing measures to address digital asset design challenges, independent departments, agencies, and regulators within the broader US government should:
- Conduct a review and analysis of the current legal landscape of the United States and international treaties on key issues related to Web3.
- Engaging internationally, and through allies, to standardize emerging regulatory frameworks, software and open source standards.
- Create a comprehensive program that works with market participants to combat fraud and illicit financing on Web3 technologies.
- Build on the working groups established by the Federal Reserve to address broader developments in cryptocurrency and financial technology, and establish a regulatory sandbox and other mechanisms that encourage innovation. The private sector must have input into the process, and foreign partners must be able to collaborate in building public support and inform the legislative process.
- Continuing to monitor developments in Web3 and implications for federal and international taxation and the ability to detect and combat financial crime and impose effective penalties.
- Actively promote global adoption of Web3 technologies based on Proof of Stake or other energy-efficient approaches.
- Adopt policies that emphasize the role of the private sector and open source communities in driving the innovation, development, deployment and operation of Web3.
- Address emerging challenges and opportunities with Web3 to ensure that existing equity and access initiatives continue.
In addition, the multi-stakeholder group (organized through a non-profit organization) should support Web3 management and self-regulation. And federal science agencies should include Web3 under the broader umbrella of “Advance Communications” as they plan their larger applied research agendas envisaged under legislation such as the Endless Frontiers Act.
This is an okay list, I know. But it is impossible to overestimate how much Web3 has affected our lives. The best way to think about it is to think about how the first two eras of the web really changed our world in the past few decades.
We now need to move on to a national Web3 strategy that includes the diversity of innovations in this distinct new economy.
Charles Clancy is Senior Vice President and General Manager of MITER Laboratories and President of Futurists. For more information, read his white paper, “A call to action: developing a national strategy for web 3.“