Are institutional investors paying attention to Web3? They should be.
Some institutional investors only recently started incorporating crypto-assets in their portfolios. The smartest are already looking ahead to the next phase of technological innovation set to disrupt the world — Web3.
In a nutshell, Web3 or Web 3.0, refers to the decentralisation of the World Wide Web. It is a term that gets thrown around a lot, yet there remains confusion about what this new era of computing entails and the value it is creating as it unfolds.
What exactly is Web3?
Most investors are aware of the first two iterations of the internet. First there was Web1, where information was shared mostly via websites in a read-only fashion.
Then platforms that we all know and love such as Google, Facebook, Apple, Amazon, Alibaba came along, providing the digital infrastructure of Web2.
While Web1 had democratised information, Web2 allowed for the ease of participation and personalisation — enabling individuals to join the internet en masse.
However, the monopoly power of some of the aforementioned tech giants has triggered a number of concerns with Web2 relating to:
- the centrality of data
- lack of privacy
- content creators often being unjustly demonetised.
Enter Web3.
Web 3.0 is the third generation of internet protocols, services and applications. It describes the move towards a decentralised internet experience, with Web3 protocols working on delivering the functionality of popular traditional applications but in a distributed and secure way where users retain total ownership of their data and identity.
What are the factors driving Web 3.0?
The rise of Web3 is primarily being driven by a realisation that we’ve placed our data and enormous power into the hands of a few giant companies. There is no better example of this than the search engine, with Google accounting for 63% of all searches and 94% of all mobile and tablet search traffic. Internet behemoths are also moderating more and more content, raising concerns about freedom of speech.
Copper CEO, Dmitry Tokarev, says the concentration of power by a handful of companies is now widely recognised as a critical risk in our new digital lives.
“The internet was supposed to be a decentralising force that connects people from all over the globe and democratises access to a variety of products and services. While this vision has been realised to a great extent, the internet has also come to be heavily dominated by a few multi-trillion dollar companies.”
There then is the issue of privacy. Despite having been elevated to the forefront of most organisations’ priorities, individuals are instead turning their attention to protocols that achieve privacy from the infrastructure.
“People are starting to realise that centralised services can never confirm the privacy and security of your data with absolute certainty. When there is a single point of failure where a central controller is compromised, this means data is at risk as well.”
With data leaks now becoming so common that they hardly make headlines, decentralised organisations embracing zero-trust based technologies are gaining serious traction.
According to Tokarev, this increased demand for decentralised infrastructure has the potential to not only significantly transform core internet services today, but also bring about an inclusive internet with the potential of wealth distribution based on personal data. He added: “Crypto networks, while still very nascent, have demonstrated a lot of potential for building a secure and private Web3. Bitcoin, for instance, has never been hacked at the network level.”
He also notes that although the shift toward decentralisation will not happen overnight, it is clear that we are on the cusp of a great innovation boom.
“Those who take on the early risk of investing in such protocols will reap the rewards.”
“Just like what we saw happen with Bitcoin, Web3 has the potential to accelerate the pace of change but with even more enormous game-changing innovations. I believe that this year we will see more services and apps underpinned by Web3 innovation than ever before. Once more applications become available for users, Web3 will enable them to be able to take control of their data in a way that’s not currently possible.”
Tokarev also believes that the opportunities and disruption that could play out as a result of Web3 will materially impact institutional investors’ portfolios.
“Digital assets underpin the global financial system within Web3, meaning that every investor will need to re-evaluate asset allocation. And naturally, those who take on the early risk of investing will reap the rewards.”
He adds that traditional banking institutions which opt to not engage with the digital asset ecosystem will be disrupted by structural changes in digital infrastructure. “A number of countries and central banks are waking up to the possibility that failing to engage in the digitisation of financial services may result in sharing the same fate as traditional retailers and media companies.”
He concludes that the path towards Web3 will of course be paved with obstacles, especially given that access to data is the key source of wealth for many organisations. But in the same manner that Bitcoin often receives pushback from those in control of the money supply, a growing number of central banks and governments are also starting to invite some of this technology in because the demand for it is not going away. “I think we will likely see a similar scenario play out in the push towards Web3.”
