Web 3.0 – From Data Monarchy to Data Democracy

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Web 3.0 is seen as the next evolution of the internet. From blockchain to AI, humankind is set to transition into the next phase of the digital revolution via Web 3.0 – the next iteration of the web. You’ve probably heard about Web 3.0 unless you’ve been living under a rock. Web 3.0 has emerged as a new tech buzzword which is the next step in the web’s growth. It aims to change our current web and make it more decentralized, open, and trustless, giving control over content and audience back to users. Some see Web 3.0 as the future of the internet, while some caution against being overly optimistic about what it can potentially deliver. Let’s take a deep dive into the topic.

Exhibit1: Comparison of Web. Source: Forumias

What is Web 3.0?

We can see a comparison of the Web from the above table where the first major iteration of the Web, also known as Web 1.0, began as Static Pages and has been rapidly evolving since then. But the main agenda still remains: Why should we care about Web 3.0? What’s so unique about it?

Simplistically, it can be described as a Decentralised Internet on Blockchain. Breaking it down further, Web 3.0 is basically a bridge that has the potential to shift users from data monarchy to data democracy. For instance: Twitter will not be able to censor posts, and Facebook will not be able to maintain a database of billions of users that can potentially be used to influence elections.

In short, people will control their own data and will be able to move around from social media to email to shopping using a single personalized account, creating a public record on the blockchain of all that activity. The global rise in cryptocurrencies, Non-Fungible Tokens (NFTs), has led to the evolution of smart contracts, DAOs, and DeFi, which are forming the base for rising of Web 3.0. 

Exhibit 2: Evolution of Web. Source: Fabric Ventures

Why DeFi Will Reshape The Future Of Finance?

Decentralized Finance or DeFi is a relatively new idea even in the fintech world, but it has gained traction over the past few years. DeFi offers a distinct yet vivid experience in comparison to traditional banking and opens up a world of possibilities previously closed to consumers. It is an umbrella term for Ethereum and blockchain applications. As DeFi uses blockchain, it allows several entities to hold a copy of transactions. This means that nothing is controlled by a single source. It’s all decentralized instead!

This is crucial because conventional centralized systems can limit the speed, flexibility, and transparency of transactions, giving users less autonomous control over their money. For example, when you make a purchase at a grocery store, there’s a financial institution that sits in between you and the business. That third party has almost complete authority over the transaction and can pause it or record it in its own private ledger. While this is not the case with DeFi, as that middleman is eliminated due to decentralization and one thing that stands out is that it removes the need for financial bureaucracy.

Exhibit 3: Total Value Locked in DeFi. Source: Cointelegraph

The total value locked in DeFi till October 2021 was a record $253.8 billion. In general, the Total Value Locked (TVL) figure is one of the most important indicators to assess the overall growth rate of DeFi. TVL reflects the value of funds users have collectively locked into DeFi projects. This exponential growth of the DeFi market reflects the potential of digital currencies and decentralized platforms. It offers an alternative to the paradigm of traditional finance that for decades has seen steady consolidation, stagnant innovation, and neglected financial inclusion. 

DeFi is creating a foundational layer of permissionless, blockchain-based financial services within the emerging digital economy. More and more retail investors and institutions are realizing the potential of DeFi as an investment opportunity and as an ecosystem that can host financial services in a decentralized manner. Most DeFi apps run on the Ethereum blockchain, and they operate without a central control service over the entire system.

DeFi’s Addressable Market Size

Exhibit 4: DeFi’s Addressable Market Size. Source: Cointelegraph

Transaction Volume: Ethereum network processed over 1.3 million transactions each day in 2021, encompassing remittance, trading, lending, borrowing, and various other types of transactions. This is a tiny number as compared to over 1 billion daily global credit card transactions and around 5.5 billion daily trading volume in NASDAQ. Capturing 1% of the credit card transactions on the Ethereum chain is at least 8x-ing its current volume.

Protocol Revenue: The annualized protocol revenue in all DeFi protocols is estimated at $5 billion. This, again, is a fraction against the $2.3 trillion global retail banking revenue, $2 trillion global cross-border payment revenue, and $35 billion global stock exchange revenue. The traditional finance industry is so lucrative that seizing a 1% market share means 10x-ing the DeFi revenue.

Crypto Crackdown Accelerates DeFi Trend: Even though countries like China continue to crack down on crypto, it will only accelerate the use of DeFi. Active Ethereum wallet and browser extension MetaMask users have 10x-ed to 10 million in August 2021. While this is a seemingly high number, it represents only a 5% penetration rate amongst the 221 million global crypto users. This shows that the general crypto users, who are used to frictionless centralized services such as Robinhood, are a massive untapped market for DeFi and can be captured as the UI/UX is improved.

What’s All This Hype Around NFTs?

A Non-Fungible Token, also known as an NFT, is a type of digital token or an asset. A common analogy is to think of these as digital trading cards or digital paintings. When you buy an NFT, you are buying the rights to that specific asset. In simpler terms, Non-Fungible means that it cannot be changed after it has been created, unlike one bitcoin, which is the exact same as a bitcoin. A token is just a small piece of data that you own. Together, an NFT is a token you can own that doesn’t change throughout time, making it ‘irreplicable.’

Exhibit 5: NFTs Interest Over Time (Past 12 months). Source: Google Trends

The hype around NFTs is also supported by the past 12 months of Google trends data which shows a rising upward trend indicating an increased interest over time. The tail end of 2021 saw NFTs take the world of art and gaming by storm, and they show no sign of slowing down as we head into 2022. Whether you think they’re a speculative fad or a great new possibility for artists, they continue to make the headlines when they sell for millions of dollars.

An easily reproduced digital file can be stored as an NFT to identify the original copy, like photography, art, music, videos, tweets, and even memes. You can make NFTs from almost anything unique that can be stored digitally and holds value. They’re like any other collector’s item, like a painting or a vintage action figure, but instead of buying a physical item, you’re instead paying for a file and proof that you own the original copy.

Exhibit 6: Jack Dorsey’s First Tweet Sold as NFT. Source: TechCrunch

Non-fungible tokens are the epitome of success which is creating thunderstorms in the digital space. According to application tracking firm DappRadar, people bought and sold more than 85,000 NFTs in just one month—May 2021, amounting to a total trade value of $5.8 million per day. Thus, we can safely assume that going forward, NFTs will eventually displace industries like record labels that love to take ownership of other people’s hard work. Who knows, NFTs may become somewhat of a status symbol for the future of decentralized social media, just like a checkmark on Instagram.

 Exhibit 7: Taco Bells GIF as NFT. Source: Creative Bloq

NFTs are having a moment among artists, gamers, and brands across the spectrum of culture. They are becoming an attractive revenue stream for brands, and various companies are jumping on the bandwagon. For instance, Taco Bell’s 25 taco-themed GIFs and images (you can see one of them above) sold out in just 30 minutes. Each NFT contained a $500 gift card, which may explain their initial popularity, but the TacoCards are now selling on the secondary market for up to $3,500 (and to clarify, that no longer includes the gift card!).

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