Web3: The Economy of Value Transfer

Since its inception, the Internet has undergone some major transformations. Web 1.0 introduced the ability to disseminate information by posting “readable” content on static web pages. It allowed for a “one-to-many” form of communication. Web 2.0 came next and ushered in the era of social networking and e-commerce. It allowed for “writable” content where people could communicate freely and have a more personalized experience. Web 1.0 was static while Web 2.0 made the Internet dynamic.

Web 2.0 has improved functionality and user experience, but it has also made users the product to monetize. Technology companies have been able to collect user information and sell that data to advertisers. Users created the content, but it was the tech companies that captured the majority of the value — not the creators. The evolution of the Internet continues with Web 3.0 or Web3 technology. At its core is the blockchain, a decentralized peer-to-peer network that enables anyone to freely transfer tokenized assets as a form of value.

Magic Internet Money

When people hear the word ‘cryptocurrency’, it usually calls up comments about the ‘future’ or ‘hype’. In fact, both are correct. While a cryptocurrency like Bitcoin has proven to be a great store of value against the US dollar, other currencies have proven to be nothing more than hype. It is easy to launch cryptocurrency with some technical knowledge, but most of them fail due to lack of basic engineering or lack of network effects to raise awareness and mainstream adoption.

Cryptocurrencies transact on the blockchain – a distributed network of ledgers – allowing anyone to freely transact or exchange value with anyone else without the need for an intermediary such as a bank. If a bank-to-bank transfer is a double-entry accounting, then the blockchain provides a form of triple-entry accounting. Each ledger on the network independently records a copy of a transaction between any two parties. Most importantly, the blockchain provides a cheaper and faster way to exchange value. Most people do not know that the most used cryptocurrency is not Bitcoin or Ethereum, but rather the US dollar in the form of a stablecoin (a cryptocurrency linked to the US dollar).

For example, a bank transfer takes a few days to settle and costs $30 to get started. If it is an international bank transfer, you can add a foreign exchange fee to swap from one currency to another. Compare that to using the blockchain, where a stablecoin can be sent for fractions of a penny and settled in seconds. It’s a better, faster and cheaper customer experience – all made possible thanks to the blockchain.

Millions of dollars in JPEGs

NFT stands for Non-fungible Token and it has been in the headlines lately. When people hear NFT, they usually think of JPEGs selling for millions of dollars. In fact, Justin Bieber just bought Bored Ape Yacht Club NFT for $1.3 Million. For those unfamiliar, the Bored Ape Yacht Club (BAYC) is a group of cartoon monkeys digitally registered on the blockchain that has rapidly grown into the most popular NFT project, beating Crypto Punks. One photo is now selling for at least 80 ETH (at the time of writing). Adidas has also partnered with BAYC for its new metaverse initiative.

BAYC is a cultural phenomenon. The community is made up of people who have put a value to owning a piece of this group through ownership of a JPEG certifier on the blockchain. Similar to how source is used to prove ownership of traditional art, the blockchain-verifiable BAYC JPEG is a status code in Web3. However, NFTs are more than just multi-million dollar JPEGs. It is any form of tokenized asset that cannot be exchanged in a 1:1 ratio for another such as cryptocurrency.

NFTs can be more than just digital art. It can be a ticket, which gives the user access to an event. They can be digital, collectible similar to sports cards. It can also be ownership in a business or rights to a song that gives the person a percentage of royalties. It can also serve as a voting form of governance within the DAO (Decentralized Autonomous Organization) where the NFT owner votes on the direction of the DAO and the use of treasury funds. In short, NFT can come in many forms because its value is unique (non-fungible) – unlike a cryptocurrency that is exchangeable (interchangeable) with others (1 Bitcoin = 1 Bitcoin).

value speed

The foundation of Web3 is built on the blockchain and enables anyone to exchange digital assets with each other in a seamless and borderless manner, while at the same time enabling content creators and network contributors to gain more value for themselves. What is important is that the definition of value has become more flexible. These tokenized digital assets can come in many forms, such as cryptocurrencies such as Bitcoin or Ethereum or smaller altcoins. It can also be a stablecoin backed by the US dollar, the euro, or other fiat currencies. Alternatively, the tokenized asset could be a cryptocurrency backed by gold, or a digital security such as Apple Stock, NFT from Ape or Punk.

A decade ago, it was hard to imagine dealing with digital gold backed by physical gold to pay for a product or give someone partial ownership of the art as a way to pay for a service. While the speed with which value can be exchanged between two parties has increased, the shift in value that goes to creators versus businesses is also accelerating. Besides the fact that value is ultimately in the eye of the beholder, we will begin to see a shift from payments in government-issued currencies to tokenized assets that come in many forms.

Web3 takes advantage of Web 2.0 but democratizes access. It enables all participants to get value for themselves to build the network. At the same time, it simplifies the way value is exchanged. A new value-transforming economy has arrived. It is limitless and safe. Best of all, it is just getting started and will influence the internet for decades to come.