5 min read

Vellir #3 → The functions of web3

web3 is the most powerful paradigm shift in the internet's history - changing infrastructure, access and functionality.
Vellir #3 → The functions of web3
Photo by Richard Horvath / Unsplash

The core web3 thesis is that the next paradigm of the internet means that we will move from read, to read-write to read-write-own.

  • Web1 = read only → browsers allowed users to surf the web and access information more easily.
  • Web2 = read and write → interactive applications allowed users to connect, create content and communicate, while mobile enabled this to happen from anywhere.
  • Web3 = read, write, own → blockchain technology means that users will own their own data, aligning value creation and capture, and giving people a stake in society and the capital economy.

This is a helpful framework and there are others that take a deeper look at the evolution of the internet, which describe how we have reached the decentralisation era.

Source: Fabric VC

In order to consider why web3 has the potential to be particularly disruptive to everyday life, it’s worth thinking about another framework, which applies to technology developments more generally.

  1. Infrastructure - the process of digitisation enabling the physical world to move online. This involved primarily infrastructure and networks across hardware, connectivity, databases, platforms and payments. For instance, online lectures were the same product as before, but delivered through a different medium; mental health advice was the same, but became listed online and searchable; and you could access existing financial information through online portals.
  2. Access - the process of increasing access to existing digital products and services, though apps and platforms. For instance, moocs provided a different way to access online learning; apps like Calm expanded access to mental health products; and companies like Nutmeg increased access to less widely used financial services.
  3. Function - the process of digital technologies changing how products and services work or are used. For instance, Outschool is changing the process of how we learn itself using digital techniques, networks and feedback; and companies like Replika are reinventing what mental health services look like.

There may still be investment opportunities in the infrastructure stage, but incumbents and existing networks will make this more difficult to challenge. But building the application layer above this infrastructure will only get easier, not least through improved access to developer and no-code tools. Access is on a non-linear trajectory already and there still remains significant scope for improving it in different verticals e.g. climate, legal or health related tech. However, functional changes are in their infancy and we will see considerable growth and innovation in this space in the next few years. Overtime, many of the access winners will be those that also change functionality in a meaningful way. And this is where web3 comes in.

So how does this apply to web3?

Mapping the read-write-own framework against the infra-access-function framework highlights the opportunity.

Source: Project Vellir

Each paradigm has been based on a new set of underlying infrastructure → for web1 this was hardware, connectivity and new operating systems like windows; for web2 it was cloud, mobile and more sophisticated databases; and web3 is based on blockchain technology rails.

Each paradigm has also developed new forms of access, enabling this new technology to be adopted by many more people → for web1 this was browsers like Netscape; for web2 is was search functions like Google and apps like Facebook and Twitter; and for web3 it is currently wallets, but will soon be wider profiles, curation tools and sophisticated interfaces.

Packy McCormick wrote eloquently in September 2021 about the role of infrastructure and apps, as well as interfaces in the rise of web3.

First, builders build apps, then other builders build the infrastructure to support those apps, then that infrastructure supports new apps, which in turn requires new supporting infrastructure, and so on. That’s how it worked historically, from the lightbulb to the airplane to the iPhone, and it’s exactly what was happening in web3.

Packy continued by noting that ultimately, it might be interfaces that move us up the adoption curve/chasm.

After enough app and infrastructure iteration to prove early demand for a new paradigm, a new interface is needed to bring it across the chasm.
Source: Geoffrey A. Moore

I think Packy is right that interfaces are a critical component. But this access element is only half of the story → functional changes also matter for the extent to which technology will impact positively on our lives.

Here, web3 has a compelling advantage over previous web eras.

1. Composability → there has been much written on how software is increasingly able to snap together like lego bricks, enabling a rapid increase in innovation.

2. Incentives are aligned → web3 means that users can own their own data, rather than being forced by platforms to give it up for free and have it sold back to them via adverts, as is the case in web2. Alongside social tokens, which will mean that people are rewarded for the value they add to brands and communities, there will be a realignment of value creation and value capture.

3. Inbuilt payments → web3 is built with blockchain technology, which enables cryptocurrencies to provide a native internet money. Alongside data ownership, this creates a novel method to earn, spend and use money.

4. New ways of organising activity → through DAOs there is now an entirely new way to organise and coordinate economic and social activity or people and capital.

Each of these factors will have an impact on incentives and human behaviour.

So what are the functional changes that web3 might being?

The potential is endless for new applications that were not possible in the web3 era. As we wrote in a previous article on ‘the world in web3’:

Is possible to see how the web3 stack will start to penetrate into large parts of modern life.

We can break this into a three elements, which relate to our core thesis.

Financial inclusion

  • Creating a new capital structure based on equity, debt and tokens.
  • Moving intangible assets onto balance sheets → effectively financialising intangibles like brand and community, and enabling people to own, contribute to and participate in this value creation.
  • Financialisation of everything via tokens → things that were previously un-tradable will now become tradable, from public and private assets, to funds, to brands and to people and communities.
  • Democratise access to finance through DeFi and new infrastructure like investment DAOs.

Participatory processes and institutions

  • Enabling new forms of governance based on participation and community not top town control.
  • Enabling new forms of voting - for instance, quadratic systems where the weight of your vote is proportional to the amount that you care about the issue.
  • Enabling new and more direct forms of democracy, which are not based on geographic or proportional representation.

Protecting and rewarding data, privacy and security

  • Real ownership of personal data based with permissions based access.
  • Gaining value from the insights your personal data provides.
  • Embedded privacy and encryption into applications, rather than bolted on as an afterthought.
  • Decentralised rather than centralised systems that distribute risk.

This is only just beginning to explore the functional changes that could be brought about through web3. Capital and expertise is pouring into the space to explore all of these and many other areas.

This new internet paradigm has the potential to have a far greater impact on our lives than previous eras of the web.

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