Decentralized finance (DeFi) is a blockchain-based method for performing financial transactions. Unlike a bank, which pays consumers interest for deposits, which it uses to make loans at a slightly higher rate, a DeFi transaction is mediated by a protocol, not an intermediary who collects additional fees for Services. DeFi removes the bank and instead executes transactions through a marketplace, theoretically saving money, speeding up the transaction, and adding security with a blockchain-based transaction.
The characteristics of the emerging technology are twofold: many lectures and confusion over language. The immersive computing folks continue to reject the XR catchall, instead emphasizing AR/VR. No one cares anymore, honestly. And there are far fewer conferences on augmented reality and virtual reality. They now concern Metaverse and Web3.
Current uses of web3 technology
web3 is an approach to decentralizing the Internet using peer-to-peer protocols to create a decentralized open network without gatekeepers like Apple, Amazon, Meta, and Google. The term was introduced by Ethereum co-founder Gavin Wood in 2014 and popularized last year when major tech venture capital firms created multi-billion dollar funds for new Web3 projects.
A good example of the decentralizing power of web3 technologies is Otoy, a company you’ve probably never heard of as they work quietly in the background of the games and entertainment industry, helping to transform the work of artists, captured as code, in 60 frames per second of high resolution 2D or 3D images. This process is called “rendering”. Otoy adds an exclusive “secret sauce” of AI and machine learning to make the process faster and cheaper while eliminating the “noise” or errors that sometimes spoil the output. While you’re not using your computer at night, Otoy rents out your processing power. Producers pay for processing with render tokens (RNDR) which can be sold for cash on a crypto exchange and fluctuate in value based on demand.
Another notable web3 application is the Helium Wi-Fi network, which provides public Wi-Fi hotspots to customers who are paid to share their connection. These hotspots can reach 200 times farther than most Wi-Fi hotspots. Owners collect $HNT, a cryptocurrency that they can exchange for cash. Lime Scooters is a major user of the Helium wireless network.
The disruptive potential of Web3
We are already seeing web3 being used in the world of art and entertainment, which could be one of the biggest and most visible uses of NFTs or tokens, in the near future. The token gives users access to, and even financial interest in, the artwork, movie, or music. Studios and labels and distributors like Spotify and Netflix would be replaced by protocols that disintermediate them. The Bored Ape Yacht Club just raised $320 million through a virtual land sale to build a virtual world, Otherside, that doesn’t yet exist.
Finally, depending on the smart contract embedded in the blockchain record of the transaction, the owner may have to compensate the artist when the work is sold. Artists can now benefit if the value increases. Studios and labels could avoid Google and Amazon. Andreessen Horowitz just created another $4.5 billion web3 fund. It’s the fourth. They are doubling down on their crypto investments despite the market downturn in the spring of 2022.
Web3 and an open metaverse
For the better part of a decade, web3 had nothing to do with the 3D spatial internet, which is now called the metaverse. web3 and VR recently converged in Space Somniumwhich has its own cryptocurrency, CUBE and virtual land, just like Decentralized, whose currency is MANA. There are crypto games like Axie Infinity and the open-world game Sandbox, where users also buy “land” and own digital assets. We navigate these 3D worlds through our 2D interface, like a traditional video game like the Fortnite game metaverse.
Boson Protocol has created a retail system on Somnimum Space that they hope to expand to a wide range of metaverse retailers. Luxury goods manufacturers were among the first to seek web3 solutions. Their middlemen get a huge slice of their expensive goods and own the customer relationship.
Many people advocate an open metaverse, replete with protocols to enable e-commerce, user-generated content, and an open marketplace for the cross-platform sale of digital goods and services. These types of disintermediation technologies are not good news for companies like Meta. It will be much harder to monetize users without their data. On the other hand, consumers derive many benefits from centralization. Google and Apple charge for services that can be provided more cheaply than others, but not as easily or even as well.
An alternative meaning to web3
Shel Israel and Robert Scoble, in their influential 2016 book The Fourth Transformation, outline four phases in the development of (1) PC (2) Internet (3) Mobile, and (4) new emerging space computing. This is distinct from web3, which sees three phases of the Internet, distinct from computing. Web1 (or is it Web 1.0?) was protocol-based (and a hassle to use) but open and decentralized. web2 (the current internet) is controlled by the centralized power of big tech companies like Amazon and Google, who make fortunes on our data, and user-generated content that we freely contribute. web3 seeks to change all that.
I was having lunch yesterday with a Microsoft executive who used “web3” so often in our conversation that I finally had to ask him what he meant. “To be perfectly honest,” he said. “I’m not sure. Everyone I talk to uses web3 instead of the word metaverse. The Metaverse is now owned by Meta. That’s why they chose that name. So true. Every time you say ‘metaverse’, you have to say Meta. Ironically, minutes before Facebook’s name change announcement, Zuckberg said his company was approaching its work in The Metaverse with “humbleness and openness,” not realizing he was doing the opposite by appropriating the word Meta a few minutes later.
In a May 2022 interview with Protocol, Janko Roettgers asked Zuckerberg if Meta’s brand “signals a desire to monopolize the metaverse.” Zuckerberg insisted that “in doing this and choosing this name, we were pretty clear about what we wanted the company to focus on.” Zuckerberg went on to explain that Meta is not a monopoly because Fortnite and Nvidia are working on their own versions of the Metaverse.
The alternate meaning of web3 seems to have been born out of the visceral reaction to the Meta Metaverse, as my contact at Microsoft did. It feels a bit like a capitulation to write “Meta Metaverse”. Web3 comes out of the language. For these reasons, the expression web3 can still subsume the word Metaverse.
Unlimited potential, unprecedented risk
Centralization exists for a reason. Apple, Google, Meta, Amazon, Microsoft, have invested billions in centralizing platforms. I pay $2.99/month to Google and Apple respectively. I would pay more willingly. Also, incumbents aren’t going to sit idly by and do nothing. They have the resources and are also working on projects using this technology.
At the same time, it’s not hard to see how financial markets could be disrupted. There are trillions of dollars, if not entire economies, at stake. A market disruption of this magnitude would potentially create the next Google. These opportunities create powerful incentives for innovation. Web3 seems to be gaming-focused or have something to do with e-commerce, but it’s much more than that.
“There’s everything happening in what’s called web3. This is genius marketing, given that blockchain was in the tank and rising from an abyss a few years ago. Says Tony Parisi, a former Unity executive turned web3 consultant. “Yes, there is the usual marketing hype, but that’s because these massive and disruptive uses of blockchain are real. Great technology is being created right now. Crappy UX hinders mainstream adoption. Add to that all the theft and fraud. It’s hard to analyze everything. »
The very nature of cryptography is anonymity. It’s not the best thing for a market, because it removes liability. The creators of the Bored Apes tokens won’t be harmed if they take years to build a cheap, unattractive world you wouldn’t live in if the earth were free. Vietnam-based Web3 game Axie Infinity had to issue more digital currency to avoid a token crash following a $650 million crypto heist. Venture capitalists also got a share of their sales, generating revenue for them much sooner than they would be entitled to in a regulated market. The perverse incentives and lack of transparency have made cryptocurrency one of the most volatile and risky bets an investor can make, but it won’t be that way forever. And it is based on web3 technology.
This is a chapter of my next book Dissect the Metaverse (Fall 22) from quintess.