The technology underpinning cryptocurrencies will have a transformative effect across a variety of industries for years to come, speculation notwithstanding.
In the winter of 1998, a company was born that would come to define the excesses of the dotcom bubble — the infamous Pets.com
Made famous by its popular sock puppet advertising mascot, Pets.com sold pet supplies directly to retail customers through their online portal.
And while most of us may not make much of that today, in 1998, this was cutting edge stuff.
Instead of going to the store to buy pet supplies, pet owners could buy it through Pets.com and have their items delivered to their doorstep — it was revolutionary for the time.
But the mechanics behind the business model of Pets.com was somewhat flawed with the company selling merchandise for approximately one-third the price it paid to buy them, desperately trying to build a customer base by offering discounts and free shipping that bled it dry.
Pets.com ultimately imploded under its own weight and the dotcom bubble that inevitably burst, but the technology that underpinned it — the internet, as well as the industry it helped to foster, e-commerce, continues unabated to this day.
Fast forward to our present epoch, and another transformative technology is looking to disrupt everything from finance to furniture, agreements to art — blockchain technology.
To be sure, there are plenty of elements of the current internet ecosystem that could use improvement.
Content producers are held hostage by platform service providers whose powerful algorithms determine everything from who gets to become famous, to who gets paid.
Financial institutions exact their pound of flesh from merchants and customers alike for the privilege to transact value through the digital sphere.
And intellectual property rights have been observed more in their breach, than their observance in the vastness of cyberspace.
Society requires trust.
History has made clear that high levels of trust in a society are a prerequisite for economic development.
Economic beings will not build if they believe they will be robbed.
They will not lend if they do not believe they will be paid back.
And they will not invest if their investments are not secure.
Given humanity’s inherent flaws, those societies which have built the structures to create an ecosystem of trust have prospered, whereas those which have not, have languished.
But what if it was possible to remove trust entirely from the equation?
Would the world then be free to develop, secure in the knowledge that the system itself would negate the requirement for trust.
Blockchain technology attempts to answer that question.
Dubbed Web3, blockchain technology is a decentralized, grassroots-led attempt to build a world of assets in the form of tokens that would power everything that we do online.
With so much of our lives lived digitally (the metaverse is an extension of that), the idea is that cryptocurrencies riding atop blockchains could supplant corporations with decentralized organizations governed by software protocols and the votes of token holders.
Proponents argue that just as every company became an internet company in the sense that not having an online presence is not an option, blockchain may make every company one that transacts via digital assets.
But what is Web3?
To get to Web3, we first have to start with what Web 1.0 is, where the earliest interconnection of computer networks occurred in the 1970s and 1980s, with the Hewletts and Packards of the era and that developed into browsers and websites like Pets.com and its ilk.
The dotcom bubble and bust gave short shrift to the early euphoria and optimism over the internet and many remained disillusioned with the technology for years after that.
But from the ashes of Web 1.0, improving technologies like broadband internet and fiber optics cables enabled rich content to be delivered facilitating what has been termed Web 2.0.
Web 2.0 saw the wave of social media companies and search engines, with much of the content generated by users who received almost nothing in return, rise to prominence, culminating in allegations that their stranglehold on information has had the power to sway elections and prolong healthcare crises.
While anyone can start a website today, the network effect and critical mass of some of the digital sphere’s biggest companies mean that they are essentially indomitable gatekeepers to the cyber realm, extracting their toll from users who in an ironic twist, provide the very product for them to strengthen their chokehold.
Web3 is the proposed solution to some of the inequities of Web 2.0 with the idea being to create software and platforms that aren’t reliant on traditional companies and business models such as advertising — in other words, where users aren’t the product, but usage is.
To understand what makes Web3 different from all the other iterations of the internet, we first need to go back to the genesis block — bitcoin.
Bitcoin works off a decentralized database called a blockchain, that creates an immutable record of every transaction that’s ever occurred and is maintained and secured by miners who solve complex mathematical puzzles to have the privilege to do so.
In return for their effort, miners receive what’s known as a “block reward” for securing the blockchain, typically the cryptocurrency of that blockchain, in what is widely known as a proof-of-work protocol.
While some cryptocurrencies use a proof-of-stake protocol and Ethereum, the world’s second most valuable blockchain is moving toward that as well, most blockchains still use proof-of-work, which is often derided for consuming large amounts of electricity.
Decentralization of the blockchain is achieved by ensuring that the immutable ledger isn’t maintained by a single entity, but by a vast network of computers (or miners) connected to the internet.
This ensures that there’s no single point of failure and no stranglehold on access.
Anyone can use the blockchain and anyone can secure it.
But more than just sending cryptocurrency from one wallet address to another, the blockchain enables things like smart contracts to operate autonomously and also to control how software and decentralized applications or dApps work.
While Web3 applications are most closely associated with Ethereum, a Turing complete protocol that enables smart contracts to be programmed into the blockchain and thus become immutable, others like Solana and Binance Smart Chain are also coming up.
Every dApp can have its own associated digital token which can be used not just to pay for services, but also act as voting shares that govern the app’s development and even fee structure, the way a share in a company could be used to vote at an Annual General Meeting.
Because smart contracts can programmatically control every aspect of a dApp’s development, in some ways the tokens that empower such voting or payment for service are far more powerful than ordinary shares in a company.
Consider that Grab Holdings, owner of Grab, a ride-hailing app out of Southeast Asia which now offers everything from food delivery to financial services, and which recently went public by way of a SPAC has its founder Antony Tan holding just 2.2% of the company’s shares but controlling some 60.1% of its voting rights and it becomes immediately apparent that the current system is flawed.
And it’s not just Grab Holdings, there’s no shortage of companies where ordinary shareholders have limited recourse or voting rights because of dual-class share structures — sure, these companies will take your money, just not your opinion.
Not so with the blockchain.
One digital token holder can exercise their vote just as much as the next and while some dApps and protocols do reserve a core voting block for their founders and development teams, these are usually made clear from the get-go.
And once in motion, it’s no longer possible to switch up the token issuance without a fresh consensus, whereas in a typical corporate structure, founders with the majority of voting shares can be assured they can go ahead with stock splits, fresh issuances and other dilutive practices that prejudice the ordinary shareholder.
But just like a company, the value of a dApp or protocol’s token depends very heavily on its community, in other words its usage.
Part of the reason outside of speculation, why cryptocurrency prices are rising so much is that more people and businesses are starting to utilize blockchain technology in real life.
And as bitcoin and other cryptocurrencies rallied earlier this year, venture capitalists poured billions of dollars into building and improving dApps, which is why so many rose in value, attracting more interest and creating a virtuous cycle.
According to tracker DappRadar, just 8,700 active dApps are listed, versus 1.96 million convention apps on Apple’s App Store and 2.87 million on Google’s Play Store.
In other words, it’s still very much early days in the dApp space and the potential for growth cannot be overstated.
And just like the internet in the early days, blockchain technology is slow and clunky.
Critics often point out how the blockchain can’t handle as many transactions as major card providers like Visa and Mastercard, pointing out that Visa can handle 1,700 transactions a second, while Bitcoin can handle just 7.
Had these same critics been around during the dawn of the internet, they no doubt would have also criticized the slow speeds for obtaining information versus the instantaneity of reading a book in the library.
But Web3 developers have scarcely any time to address critics as the ecosystem develops at breakneck speeds.
User experience, ubiquity and use cases are all rapidly expanding and not all of it is speculation either.
Take for instance Starling Lab, a research nonprofit hatched out of a mashup between Stanford University and the University of Southern California’s Shoah Foundation that’s working on using the blockchain to preserve and verify documents, including sensitive historical records.
One of Starling Lab’s projects includes uploading over 55,000 video testimonies of genocide survivors to Filecoin, where over 3,500 providers around the world store files on their computers using spare hard disk space, in return for FIL tokens.
According to Starling Lab, the nonprofit is now able to load three times more data per day into Filecoin than at the start of the initiative.
In similar vein, transfer speeds on the internet have gone from the stage where low resolution images took ages to load, to where we now expect instantaneous, high quality live streams that have enabled more media options than Tim Berners-Lee (father of the World Wide Web) could have ever imagined (side note Berners-Lee is also working on a decentralized internet project).
It’s unlikely therefore that blockchain technology and transaction throughput will stay slow indefinitely as well, with some of the world’s most talented developers working on everything from sharding to Layer 2, which will free up the main blockchain for only the most essential transactions.
In October, Dish Network partnered with startup Helium for 5G wireless connectivity, with hotspot providers getting paid in the HNT token for offering coverage.
In response, the city of San Jose will be setting up 20 Helium hotspots to earn HNT tokens to help subsidize internet access for its low-income residents.
Twitter’s engineers are also working on Bluesky, a decentralized version of social media and a direct response to many of the allegations and controversies that continue to dog current social media giants.
Video gaming giant Ubisoft announced this month that it will let players in one game get NFT collectibles such as vehicles for their characters — NFTs or non-fungible tokens are unique blockchain tokens that are typically tied to a digital work such as an image.
And as the number of real-world demands for blockchain applications go, so it is expected, will the demand for the cryptocurrencies that ride atop them.
Like most people who don’t question the workings of an internal combustion engine when they start their non-electric car, the vast majority of users may not immediately appreciate the difference between a dApp and a centralized one because such effects take time to be felt.
Because dApps transfer some of the power and necessarily, some of the value extraction back into the hands of users, the difference between centralization and decentralization will eventually and inevitably be drawn into sharp focus.
Take for instance projects like the Basic Attention Token, which pays publishers for their content and users for their attention to such content.
Right now, if you watch an ad on any one of the legacy platforms, you don’t get paid, even if you do eventually purchase a product as a result of an ad, or recommend that product to someone else, projects like Basic Attention Token aim to right that unfairness.
But tokens like the Basic Attention Token are just the tip of the iceberg when it comes to the prospect of creating a more egalitarian digital realm, Decentralized Finance or DeFi is also redistributing financial power back to the people.
DeFi enables anyone to borrow, lend, trade, insure and invest cryptocurrencies with each other via smart contracts without the need for trusted third parties in the form of banks or financial institutions.
From trade financing to flash loans, DeFi has unlocked an entire plethora of possibilities, enabling even the most modest of investors to carve out the lion’s share of the value that they bring into the ecosystem.
As it currently stands, the value of money locked away in savings accounts is being actively eroded by central banks debasing their face value through monetary stimulus, and inflation eroding their purchasing power.
Money in deposits is then repurposed by banks who exact their pound of flesh at every turn in the financial plumbing, requiring transactions fees at every juncture and taxing every indiscretion with penalties and late fees.
Using DeFi, liquidity providers or depositors, can obtain a higher return simply because there’s no middleman to cream their share of the spoils or to act collusively to keep down deposit rates.
In DeFi, liquidity provision (depositing) is a function of demand and supply, when demand increases, yields increase and depositors get paid more, and when supply outstrips demand, depositors are better off deploying their assets elsewhere to add value and generate returns from the ecosystem.
Nonetheless, it’s still early days for Web3.
And more likely than not, a Web3 sock puppet equivalent will eventually rear it’s ugly head in a sure sign that the promise has gotten ahead of the product.
Yet even if and when such a sharp correction in cryptocurrencies eventually occurs, the transformational and foundation technology that it leaves behind will endure.
Just like the internet didn’t disappear in the aftermath of the dotcom bubble bursting, blockchain technology and Web3 won’t either.
Patrick is an innovative entrepreneur and a lawyer passionate about cryptocurrencies and the business world. He is the CEO of Novum Global Technologies, a cryptocurrency quantitative trading firm. He understands the business concerns of founders and business people helping them to utilise the legal framework to structure their companies to take advantage of emerging technologies such as the blockchain in order to reach greater heights. His passion for travel, marketing and brand building has led him across careers and continents. He read law at the National University of Singapore and graduated with Honors in the Upper Division and joined one of Singapore’s top law firms, Allen & Gledhill where he was called to the Singapore Bar as an Advocate & Solicitor in 2005. He created Purer Skin, a skincare and inner beauty company which melds the traditional wisdom of ancient Asian ingredients such as Bird's Nest with modern technology. In 2010, his partner and himself successfully raised $589,000 from the National Research Foundation of Singapore under the Prime Minister’s Office. He has played a key role in the growth of Purer Skin from 11 retail points in Singapore to over 755 retail points in Singapore and 2 overseas in less than a year. He taught himself graphic design, coding, website design and video editing to create the Purer Skin brand and finished his training at a leading Digital Media Company.