Since its inception, the internet has gone through a few major transformations. Web 1.0 introduced the ability to disseminate information by posting “readable” content to 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 networks and e-commerce. It allowed for “writeable” 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 improved functionally and user experience, but it also made the users the product to be monetized. Tech companies were able to harvest user information and sell that data to advertisers. Users created the content, but the tech companies were the ones that captured the majority of value — not the creators. The evolution of the internet continues with Web 3.0, or Web3, technology. At the foundation is 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 “cryptocurrency,” it usually invokes comments about either “the future” or “hype.” In reality, both are correct. While a cryptocurrency like Bitcoin has proven to be a great store of value against the U.S. dollar, others have proven to be nothing more than hype. A cryptocurrency is easy to launch with some technical knowledge, but most fail due to a lack of underlying engineering or they lack the network effects to garner mainstream awareness and adoption.
Cryptocurrencies transact on a blockchain — a distributed network of ledgers — allowing anyone to freely transact or exchange value with anyone else without the need for an intermediary like a bank. If a bank-to-bank transfer is double-entry accounting, then blockchain provides a form of triple-entry accounting. Each ledger on the network independently records a copy of a transaction between any two parties. More importantly, blockchain provides a cheaper and faster means to exchange value. Most people don’t know that the most utilized cryptocurrency is not Bitcoin or Ethereum, but rather the U.S. dollar in the form of a stablecoin (a cryptocurrency pegged to the U.S. dollar).
For example, a bank wire takes a few days to settle and costs $30 to initiate. If it’s an international wire transfer, you can add in a foreign exchange fee for swapping from one currency to another. Compare that to using blockchain, where a stablecoin can be sent for fractions of a penny and settled in seconds. It’s a better, faster and cheaper experience for the customer — all made possible by blockchain.
Million-Dollar JPEGs
NFT stands for non-fungible token and has been making headlines lately. When people hear NFT, they usually think of JPEG images being sold for millions of dollars. In fact, Justin Bieber just bought a Bored Ape Yacht Club NFT for $1.3 million. For those not familiar, Bored Ape Yacht Club (BAYC) is a collection of cartoon apes digitally recorded on the blockchain that has quickly grown to be the most popular NFT project, beating out Crypto Punks. One image now sells for nothing less than 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 of people who placed value in owning a piece of this collection through ownership of a JPEG authenticated on the blockchain. Similar to how provenance is used to prove ownership of traditional art, a blockchain-verifiable BAYC JPEG is a status symbol in Web3. However, NFTs are more than just million-dollar JPEGs. They are any form of tokenized asset that is not 1:1 exchangeable with another like cryptocurrencies.
NFTs can be more than digital art. They can be a ticket, granting a user access to an event. It can be a digital, collectible similar to sports cards. It can also be ownership in a business or rights to a song that gives a person a percentage of royalties. It can also act as a voting form of governance within a DAO (decentralized autonomous organization) where the NFT owner votes on the direction of the DAO and the use of treasury funds. In short, an NFT can come in many forms as its value is unique (non-fungible) — unlike a cryptocurrency that is interchangeable (fungible) with others (1 Bitcoin = 1 Bitcoin).
The Velocity of Value
The foundation of Web3 is built on blockchain and empowers anyone to exchange digital assets with each other in a seamless and borderless way, while simultaneously enabling the content creators and contributors of a network to capture more value for themselves. The important thing is that the definition of value has become more fluid. These tokenized digital assets can come in many forms, such as cryptocurrencies like Bitcoin, Ethereum or smaller altcoins. It can also be a stablecoin that is backed by USD, EUR or other fiat currencies. Alternatively, the tokenized asset can be a gold-backed cryptocurrency, a digital security like Apple Stock or an NFT of an Ape or Punk.
A decade ago, it would have been hard to imagine transacting with digital gold that is backed by physical gold in order to pay for a product or giving someone fractional ownership of art as a means to pay for a service. While the speed at which value can be exchanged between two parties has increased, the shift in value going to the creators vs the companies is also accelerating. Combined with the fact that value is ultimately in the eye of the beholder, we will start to see a shift from payments in government-issued currencies to tokenized assets that come in many forms.
Web3 takes the benefits of Web 2.0 but democratizes access. It enables all participants to capture value for themselves for building the network. Simultaneously, it streamlines the way value is exchanged. A new economy of value transfer has arrived. It is borderless and secure. Best of all, it is only getting started and will influence the internet for decades to come.
