Rubix Basics: Ever heard of Web3?
Let’s start this article as a follow on from a previous one — the Cost of Custody here. In that article I mentioned tech businesses owning customer data, and how that data is a key mechanism for these businesses to leverage their loss making customers to create future profits.
Basically, if you can own a customer for long enough, value (Lifetime value or LTV) increases. This approach requires that the business owns customer data and creates a walled, proprietary environment and large amounts of friction for that customer to switch.
Think about Facebook, you have all of your history and connections (data) within their closed system. One of the biggest money earners for Facebook (Meta) is data, specifically selling your data to advertisers. In exchange for giving away that data you get some features, but importantly the friction for finding a new social network is painful. You would need to start from scratch.
Banks have similar friction for moving. You have your life tied into that financial institution. Starting afresh is going to be painful.
How does this relate to Web3?
Now, Web3 as a term is rising as in popularity and you will see more and more mentions in 2022. Very loosely, it is a future world where the Customer owns their own data, using the blockchain, and can carry it across the internet from application to application.
The term itself was coined by one of the co-founders of Ethereum, Gavin Wood — now leading the Web3 Foundation and the Polkadot/Kusama platforms.
Where is data stored?
Simply, on the blockchain.
OK, that’s not simple to understand for most.
Think of blockchain as a shared place to store information generally. It’s shared, meaning it isn’t controlled by anyone in particular but each blockchain has a large number of trusted computers verifying the accuracy of the information that it holds (called Verifiers).
Instead of a bank, for example, counting up your account balance each day, Verifiers do this. When a transaction is processed, instead of asking the bank to change the amount of money you and the person you want to pay have, you submit to the blockchain. The Verifiers take care of the change in balances for you and the person you have paid. It is important that these Verifiers are indeed trusted, and independent (they are incentivised to protect the accuracy of the blockchain, and penalised financially if they don’t). That is why decentralised blockchains are so important.
How does Web3 relate to me?
Web3 is where you can take this Blockchain-based data and carry it with you, as though it is sitting in your digital pocket (a Web3 wallet).
When you digitally ‘walk-up’ to an application on the internet, you’re bringing key pieces of data with you. Initially this is financial data, like how many USDC tokens you have in your wallet (say if you want to deposit onto a Decentralised Finance (DeFi) platform and earn interest). In the future this could be much, much more, such as recording your financial affordability score, your identity, or the fact that you have a Gold Card at McDonalds.
The beauty is that you don’t need to supply this data every time you enter into an experience, reducing friction.
What are the Issues?
At this point there is a usability issue, and there is a trust issue.
In order to carry your blockchain data across from application to application, you need to have a Web3 browser (or browser extension such as Metamask) installed. This still requires an exploratory mindset to get up and running, with new concepts such as key phrases, multiple blockchains to deal with, and the risk of sending the wrong coin to the wrong place and losing it forever.
Also from a wider ecosystem point of view, the web applications/websites also need to have integrated their value proposition into Web3.
In all of my conversations with ‘normal’ people, blockchain and crypto specifically is still considered the Wild West, filled with tattoos and cowboy hats.
Yes, there are scams, there are meme coins (that do nothing of value but encourage pump and dumps), there are tattoos and sometimes cowboy hats.
That being said, there are real projects being built, huge ecosystems emerging and many highly intelligent, trusted people in the space.
Web3 is decentralised, which attracts all types of projects and people. It is up to everyone to ensure safe places for new adopters to congregate and if in doubt, turn to someone you trust.
Web3 is all about owning and controlling your own data and finances instead of trusting it to third parties. It will significantly change how applications are designed and how transparent businesses are about their revenue model. That is ultimately good for the user.
The challenge will be in creating safe, hybrid experiences that merge the ease of use and features of current applications with consumer Web3 wallets.