Continuing with the posts on #Web3 and after a negative-trend period in terms of capital and investments in the crypto environment, it is reasonable to wonder about the future of the Web3. Our talk with Mike Lingle seems to be far away when developers and investment funds appeared to be highly attracted by this new technology.
Is this “new internet” attractive enough to be widely adopted and to dethrone the Web2? Is it “usable” despite its innovative features? Before reading this article, we suggest to read our previous posts What is the Web3 and the regulatory risks involved in DeFi and Regulation.
In first place, we’d like to point out that, in this ever-evolving digital landscape, the Web2 and the Web3 can live together. At present, the Web3 turns to be a complicated protocol for regular internet users but it is featured with a more sophisticated technology in terms of values and regarding safety and technical aspects compared to the Web2. As stated by Gabriel Paradelo, IT specialist and partner at Foresenics: “Conceptually a more safe service is pursued but, given the Web3 is a generic term encompassing different technologies, in terms of security, each concrete implementation should be evaluated considering the intervening elements. The Web3 label alone cannot be relied upon as a synonym for security.”
Some Web2 sites are likely to integrate blockchain protocols and to incorporate Web3 applications for their “backend”. Besides, there are developments in progress even in the bear market.
Can Web2 companies evolve towards Web3?
As already mentioned, the migration from Web2 to Web3 and/or the interaction between both technologies is completely feasible. We’d like to share this interesting post on the tech challenges and new business model to be faced by those projects intending to move to Web3. Even though this “new internet” provides a deeper interaction, companies shall shift towards a new paradigm relating its policies and data use, governance, control and users’ rights, both legally and technologically. Migration to Web3 poses a challenge in terms of ownership and control, vesting users with more autonomy and control whilst depriving platforms of such excessive power.
The migration from Web2 to Web3 provides multiple benefits such as transparency and data immutability and grants a smooth interaction with blockchain developments (as the case of Lens Protocol). Such tech evolution demands development and a strong investment in IT equipment, training and investigation. This can make the difference between a successful or unfortunate project.
This sector had a booming increase in the past bull market but now, this tendency has stepped back. Partly due to the lack of capital and, partly, because developers are focusing on other type of projects as digital assets’ value continue dropping.
However, from our Law Firm we have assisted and been part of several teams that, within hackathons, developed different initiatives in this sense, providing a supportive atmosphere for the design and development of good business models with good usability (from real estate business, wine and agro harvest to football players’ transfers and NFTs). We’ll see if developers can lead their MVP (Minimum Viable Product) into scalable companies with capital inflow. This sector is likely to grow if interest rates drop globally.
Growth opportunity for Web3
Basic business surveys reveal that any sustainable project or business must be projected to several years ahead. Besides, due to the consumers’ aging and as consumption is targeted to the new generations, companies need to innovate continuously aiming to capture the young public. More than 75% of Z Generation makes their shopping based on social media suggestions such as Tik Tok and on influencers’ recommendations, as reported by this study by Tinuiti.
As previously analyzed, the economic and reward model offered by Web3 is more convenient for content creators than those offered by the current platforms. If influencers could be “tempted” to change their platforms, their public would follow them alike. Success depends on usability; if the platform’s usability is good, it is a good chance for Web3 projects to succeed.
Social media. Lens.
In the same line, the Web3 opens the door for reshaped social media platforms. One of the main projects on the Web3 that aims to capture the users of traditional social networks like Twitter (now X), Facebook or even Tik Tok is Lens Protocol. As reported by BeInCrypto, this new concept enables users to improve privacy and content governance. This is a plus for this type of social network where intermediaries would not profit largely form advertising and, instead, revenue would be shared equitably between users and content creators. Lens is not a social network itself; it is a protocol that operates “behind the scenes” offering solutions with Web3 technology for the next social media generation (which pretends to change current ground rules) such as Lenster, Orb and Lenstube. This protocol, backed by AAVE, managed to raise USD15M during the crypto market contraction (April 2023) given the technological potential involved. We will soon make an update on Startups and financing for those seeking more information on this topic.
The Lens protocol utilizes blockchain technology, smart contracts and NFTs to replicate social media functionality in a Web3 context, allowing users with a universal profile to interact will other Web3 platforms through a reward model linked to their social interactions. Framed by a governance system and users’ “social capital”, this platform can prove to be a good income source for influencers due to its monetization opportunities. Every post can be transformed into an earning opportunity but the potential it brings has only one condition: mass adoption. No social network succeeds unless it is popular (at least in one niche). If this barrier cannot be overcome, this project cannot expand. Even though there are scaling solutions like Bonsai (now Momoka), they seem to be not attractive enough.
Video games and eSports
As covered in previous posts, one of the niches exploring more the Web3 technology is the gaming universe, mostly in the “play-to-earn” projects. In this sense, SEGA and Line Next have partnered to provide blockchain technology to SEGA games. As reported in this article, this partnership aims to a sort of revival of the classic SEGA games with new Web3 features and graphics, appealing to the longing sentiments of a more mature public as well as the upcoming gamers’ generations. SEGA attempted to make this development internally but, finally, it was carried out through a partnership. The information released announces the launching in the Game Dosi platform. No further details for the time being. Something that drew our attention is the fact that Sonik Coin ($SONIK), a meme coin that is based on the popular Sonic The Hedgehog character from Sega, seems to be disconnected from this alliance and/or with the games to be developed. Anyway, we wonder if any legal action for Copyright will be brought in the future and, in such case, which court will be competent to decide in such matter (because, as mentioned in other posts, blockchain and cryptocurrencies are everywhere and nowhere at the same time).
Privacy and copyright
In line with the above, the Web2.0 is addressing some kind of transformation. In the same way cryptocurrencies prompted some changes in banks, currencies and in the traditional financial system, something similar is being observed on the internet. The current internet is being reshaped in terms of governance, data use and content ownership (and their related economic rights). One of the “revolutionary” aspects underlying the Web3 is the whole integration of “money”/assets to internet. A survey by ConsenSys revealed that, even though 92% of the public is aware of the existence of cryptocurrencies, only 8% of that percentage is acquainted with such technology (which is the same needed to navigate in Web3). This opposes to the desire of 79% of the survey respondents of having more control of their identities on line (one of the improvements of this new technology). Obviously, ConsenSys’ vision is partial since it is an Ethereum tech supplier but, anyway, conclusions are quite relevant. It remains to be seen if that 79% (or which proportion) is ready to sacrifice usability or easy access to enhance more ownership rights and control over their data.
Regulation and Innovation
Web3 technology poses legal and regulatory challenges and faces the challenge of a new and improved technology more easy to be adopted.
The Web3 is aligned and coopeting (mix between “cooperation” and “competence”) with Artificial Intelligence developments, mostly those with web use attracting much attention within the tech space: from developers, users, capital, investment, income, uses, applications, etc. At this current early stage, both technologies are in development process and it is uncertain whether they shall compete for the same space or if they are likely to be integrated. Anyway, both technologies will open the path for a new internet use.
In this sense, the European Union is at the forefront regarding regulation. First, through the adoption of the MiCA regulation for crypto-assets and, in second place, the European Commission adopted a new strategy to lead on Web 4.0 and virtual worlds, integrating legislation regarding Artificial Intelligence (AI). The rest of the countries are likely to follow this model in the coming years.
The press release reports that “this strategy aims to ensure an open, secure, trustworthy, fair and inclusive digital environment for EU citizens, businesses and public administrations”, allowing an integration between real and digital objects. The Commission is one step ahead of digital evolution and foresees that, before 2030, citizens’ lives will develop in immersive virtual worlds (with a global virtual worlds market size estimated over 800 billion Euros by 2030), addressing basic rules for the future ahead. Rules seek to anticipate the possible risks these technologies can bring to our everyday lives.
Another obstacle to be overcome globally is the causal link between action and individuals/legal persons. Even though this topic has already been covered in our article on Crypto Jurisdiction, it is interesting to make a double click.
Decentralization (mostly Decentralized Autonomous Organizations or DAOs) are complicated with respect to liability issues. As stated by Martín Elizalde, partner at Foresenics: “One thing is to trace the making-decision process of a Board and another different thing is to deal with a players’ community in terms of liability and compliance.” This is a challenging topic for regulators and security agencies as well upon determining individual liability.
Web3’s vast potential is limited by the lack of mass adoption (due to its complex use). Also, by the collapse of the cryptocurrencies’ and digital assets’ markets, leading investors to turn to other more trustworthy markets. Besides, high interest rates globally attracted more capital than risky investments.
Web3 brings innovation and improvements to the internet current use and it is likely to flourish in a new bull market landscape for crypto and risk capital with new projects. This technology will continue to have great impact in the gaming sector and assets tokenization and is likely to spread over social media networks as well.
We can conclude that the Web3 ecosystem needs “to be usable” for the common public in the short term to be able to compete with the Web 2.0 updates and before the Web 4.0 emerges with new disrupting features.