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The Internet has transformed the way we connect, work and play. During the first stage of development on the World Wide Web (Web1), we consumed content and information via static, simple websites. Years later, the web matured into Web2 and was characterized by user-created content via social media platforms, blogs and networks.
Today, we find ourselves at the edge of Web3. To get to this point, we’ve experienced transitions purpose-built to meet the evolving needs of users.
And while these transitions have been thrilling and brought benefits beyond imagination, there have been inherent mistakes and flaws through each stage.
Web2 in particular has some important lessons to teach us. This phase has been dominated by a handful of extremely large technology companies that were driven and owned initially by venture capitalists and then massively fueled by public markets, expansionary monetary policy, lax regulation and privacy concerns.
The future of the Internet is so close that we can touch it. But before allowing history to repeat itself with Web3, we need to closely examine and learn from some of the biggest mistakes of Web2.
A closer look at Web2
First, there’s the basic business model, which is based on advertising revenue as the main incentive. This model is predicated on ownership of personal data in exchange for revenue. For example, Waze built its navigation app, not for users, but to capture data on driving habits and then sell the information to advertisers. As a result, ownership of personal, behavioral data is controlled by a few central authorities and privacy is severely compromised.
Another problem is the Big Tech monopoly. Proprietary solutions from companies such as Apple, Google, Facebook and others have driven clients to stay on these providers’ platforms, within their walled gardens. The risk is shared among participants, but not the returns. Web2 is driven by the entities that have the most data and can easily monetize the information they hold. Facebook might have been built as a social networking tool, but today Meta is essentially the top global data powerhouse. Web2 firms are trying to hang on to this business model.
And then there is cybersecurity, for which Web2 has had its share of flaws. The universal access to applications has created security risks. For instance, having private data controlled by individual companies has led to an increased risk for hacking by bad actors. One sizable hack could lead to millions of dollars lost in compromised data. And indeed there have been numerous examples of such attacks over the last 10 to 15 years.
Hindsight is 20/20, but could these and other mistakes have been prevented? Perhaps. Think of it this way, the technology in Web2 was not where it needed to be to scale for a one-to-one relationship and true ownership of data. The technology morphed to fit the feed, vs. the other way around. And we are already seeing a lot of this behavior repeat itself in Web3.
Where Web3 is heading
For example, Web3 enthusiasts and participants are doubling down on their cryptocurrency of choice between Bitcoin and Ether. These have already earned the reputation as the protocol of choice, and many single protocol investments, partnerships and ecosystems are being built by private market funding from venture capitalists and market participants.
In addition, the user experience bar is being set too low. Projects are focused on speed and capability, with little attention paid to actual user experience. Or, they are focused on solving a particular problem — such as transaction throughput, smart contracts, etc. — but not on how the problem could be solved with a horizontally integrated approach.
Given the single protocol approach to crypto, it would be impossible for someone to learn, use, and be proficient in each decentralized finance (DeFi) application within all protocols. Big central authorities, meanwhile, are fighting hard to keep their business.
In one of the most recent developments in crypto, the U.S. Securities and Exchange Commission (SEC) in February charged BlockFi Lending (BlockFi) with failing to register the offers and sales of its retail crypto lending product. The SEC also charged BlockFi with violating the registration provisions of the Investment Company Act of 1940.
To settle the charges, BlockFi agreed to pay a $50 million penalty, cease its unregistered offers and sales of the lending product, BlockFi Interest Accounts, and attempt to bring its business within the provisions of the Investment Company Act within 60 days. This is the first case of its kind about crypto lending platforms, according to the SEC.
It’s not too late to resolve the issues emerging with Web3. Experts think we are heading for a hybrid world of centralized and decentralized, with multiple protocols needed for long-term success. Web3 has the power to democratize data and assets. Even more important, it can help people maximize financial yield.
Where do we go from here?
Here are some things to consider while trying to resolve these issues:
- A multi-asset, noncustodial wallet (which allows users to own and control the private keys to their cryptocurrency), is critical to Web3 adoption.
- The new paradigm is real ownership in the network. Most big-name centralized platforms don’t actually enable users to own their assets. They are recreating the IOU system that is in place today at well-known custodian platforms such as Fidelity and Schwab. This “not owning your assets” is a major problem. Many Web3 users don’t realize that they don’t truly own their digital assets.
- Ownership of the network/project gives users a real say in how they are operated. Tools will be needed to facilitate this new form of ownership and return.
- We need a platform and technology to facilitate that, offering a user experience that is consistent, trusted and spans multiple protocols.
Fortunately, the technology now exists to turn the model around in Web3, and consumers can actually “own” the data themselves and monetize it as they see fit.
It’s going to take a lot of coordinated work. But when it comes to Internet phases, it looks like the third time might be the charm.
Tim Tully is the CEO of Zelcore.