Aficionados of maintain that the next phase of the internet is just around the corner
In the Nineties, the internet was a nascent thing with an uncertain future. Economist Paul Krugman even suggested it would fizzle out.
“The growth of the internet will slow drastically”, he said, “as the flaw in Metcalfe’s law – which states that the number of potential connections in a network is proportional to the square of the number of participants – becomes apparent: most people have nothing to say to each other!
"By 2005 or so, it will become clear that the internet’s impact on the economy has been no greater than the fax machine’s.”
The latest evolutionary version of the internet – dubbed web3 – is prompting similar predictions. The hype around decentralised finance, non-fungible tokens (NFTs) and decentralised autonomous organisations (DAOs) is derided by many commentators. But there’s also a school of thought that sees web3 as an evolutionary step that will facilitate new ways of working and creating economic value.
So what is web3? And is it a fax machine or the future?
From 1990 to 2005, the first iteration of the internet was about open and decentralised protocols that were community governed.
However, since 2005 the web has been controlled by siloed services operated by the likes of Facebook, Google and Amazon. This is web 2.0 – the internet we know and love today.
But the rise of technologies like blockchain could break down these walled gardens to create something more democratic – and web3 aficionados maintain that the next phase of the internet will be owned by the builders and users of new services.
These new decentralised structures are made possible thanks to unique tokens on the blockchain, which can give users a host of different rights.
Uh-oh. We’re getting into the territory that some people feel is purest snake-oil. NFTs have made waves in the art world and are often presented as worthless digital receipts for non-unique digital assets. But tokens can be much more than that.
“It clicked for me when I started framing NFTs as simply ‘digital property rights’,” says Zoe Scaman of Bodacious, an agency that works on web3 projects with the NBA and EA Games.
“For years and years, we’ve been conditioned to see digital content – music, art, memes – as being free and available, but that has crippled whole industries. As more of our lives shift to being online, it makes sense to explore attaching property rights to digital goods. It’s the next unlock for the global economy.”
How does Scaman encourage potential clients to engage with web 3.0?
“What companies should be exploring are the component parts that make up the web3 shift and how they might be relevant to their individual categories and use cases," she says.
“Blockchain and crypto should never be the central premise. Instead, you need to think about how you can leverage it to augment and build better customer experiences based on their existing behaviours.
"How can you introduce more community-oriented practices? How can you reward contributions? How can you endow status in new ways? How could NFTs offer new forms of access, or exclusive goods?”
One sector where web3 adoption is moving quickly is the $200bn global gaming industry. Axie Infinity is the poster child of NFT-based games – it’s like pay to earn Pokemon with around two million monthly active players. Sky Mavis, the Vietnamese studio that makes the game, was founded in 2018 and is now valued at $3bn.
Another firm at the cutting edge of web3 and gaming is Carbon Based Lifeforms, a Scottish studio that just announced a player-owned, sci-fi game called Gateway. Theo Priestly, Carbon Based Lifeforms’ CEO, believes that by using Bitcoin and encouraging the creation and commercialisation of unique items, players get skin in the game – literally.
“Using bitcoin, blockchain and NFT markets open up new financial opportunities for people who enjoy creating within a large game, and also allows game studios to explore business and partnership models well beyond tired subscription models,” he says.
The economic modelling is so important to the functioning of Gateway that Priestly employs two economists.
“If you’re building a game economy that mirrors the real world, then you need a team of economists,” Priestly says. “Their job is to model, balance and define everything that will be a part of that economy – whether it’s a financial instrument or a tradable commodity, right down to the value of the currencies and scarcity of items, and how they would interact with the blockchain layer.
"I see a lot of new blockchain or tokenised games being released, but there’s no real economic vision behind it, other than ‘make as much money pushing the value of our game token as high as possible’. So it drives all the wrong behaviours, mainly tied to speculative gambling. It says to me that the token is more important than the game.”
Priestly believes that web3 won’t put web 2.0 out of business.
“We all know certain larger tech companies want to ‘own’ what web3 means,” he says. “Decentralisation is the dream, the reality is that it’ll still be majority controlled by the few."
Scaman agrees. “Decentralisation and ‘power to the people’ are the driving philosophies of crypto, but that doesn’t mean we have to become socialists overnight,” she says.
“This is simply about lowering the gates a little, sharing in the upside and creating more of a fair dynamic when it comes to value creation and distribution.”
The true value of web3, it seems, isn’t technological. It’s the fact that the technology can be used to incentivise different types of behaviour, unlock new ways of working and create different forms of economic value.
If web3 amounts to nothing, it will be because it’s a failed experiment in behavioural science, not because it’s a technological dead end – like the poor fax machine.