Web 3.0: more than just the Internet
More than 500,000 tweets, 700,000 hours of YouTube videos, 5.7 million Google searches and 44 million Facebook Live views.
This is the staggering amount of activity that currently takes place online every minute.1 It is a digital blitz that adds to the 44 “zettabytes” of data – 44 followed by 21 zeros – that the world has generated since the beginning of the Internet era.
Data is now the backbone of our social and economic lives. And big data in particular has become an indispensable resource that allows businesses to transact with customers and governments to interact with their citizens.
Yet there’s a growing concern that, in its current form, the digital economy – built on platforms controlled by a handful of big tech firms – is increasingly unequal and persistently fails to deliver the societal gains it promised.
Pressure is growing for a rethink of how the world operates and governs the internet. And the ideas taking shape amount to much more than a mere upgrade.
The new generation Web 3.0 is slowly emerging, and it could transform the digital realm. It holds the promise of an entirely new framework through which society and technology can interact in a more democratised, inclusive and secure way.
This re-imagining of the internet might also speed up the transformation of digital networks into fully functioning economic systems that incorporate ever larger parts of the physical world.
If Web 3.0 lives up to its billing, it will inevitably reconfigure the investment landscape too. Economic value and capital could shift away from today’s tech behemoths towards a new breed of companies and digital asset classes.
Birth of the next Internet
In today’s Internet, also known as Web 2.0, users generate content on a centralised ecosystem that is operated and controlled by a handful of tech giants.
Those firms – household names such as Meta, Twitter and Alphabet – have effectively bent the Internet to their will, profiting enormously from this set-up, financially and otherwise.
The combined market share of top six tech firms at one point reached USD11 trillion, equivalent to more than a quarter of the value of the S&P 500 equity index; their revenues dwarf the output of many of the world’s economies.
During the initial phases of their expansion, the Internet powerhouses managed to evade scrutiny as both consumers and governments also benefited from their success.
Yet in recent years, the damaging side-effects of their outsized economic and socio-political influence – erosion of privacy, censorship, increased surveillance and monopolistic business practices and profits – have become more obvious, leading to calls for their break-up.
It is against this backdrop that efforts to build a completely different version of the Internet are gathering pace.
First proposed by English computer scientist Gavin Wood in 2014,2 Web 3.0 aims to combine the merits of early, open-source versions of the Internet with blockchain technology,3 giving users more freedom and ownership of data.
Unlike the Internet in use today, the future version will do away with centralised gatekeepers such as search engines and social media platforms.
It will instead emphasise peer-to-peer interactions, giving any user complete autonomy and control.
To help achieve this, Web 3.0 comes with a built-in mechanism to incentivise users to contribute and participate in the network through the payment of tokens.
New applications are built on networks such as Ethereum while the exchange of tokens is made possible thanks to digital currencies, such as Bitcoin.
Tokens offer users the ability to own a piece of the network – in other words, they confer digital property rights. They also allow users to join forces and work towards a common goal, such as the expansion of the network.
The growing popularity of token-only transactions and emergence of non-fungible tokens (NFTs) could prove significant developments – not just for Web 3.0 but also for the broader digital economy.
Just as the emergence of private property rights in the 19th century laid the foundation for private asset ownership, transfer and the basis for secured borrowing, tokenised digital property rights could enable the digital, virtual networks to become a fully functioning economic system in their own right.
Web 3.0 and hyperreality
It’s been more than 40 years since French sociologist Jean Baudrillard first introduced the concept of “hyperreality”, or the blending of physical reality and a simulated reality.
Numerous attempts have since been made to turn his ideas into something more tangible, none of them particularly successful.
Yet thanks to the emergence of Web 3.0 and tokenisation, Baudrillard’s ideas now look decidedly more plausible.
Together, these new operating systems and technologies have the potential to erode the dominance of today’s tech giants, and create new avenues for investment as they do so.
Yet for that to happen, several obstacles need to be negotiated.
One is legal. Digital property rights and ownership have yet to be defended in a court of law. And legal experts are unclear whether they will enjoy equal status to physical property rights.
Another concern is security. The cyber security risks of Web 3.0, where assets sit in an open and decentralised cyber world, are potentially greater than those faced by owners of physical assets.
The threats posed by hacking, data manipulation and privacy violations are considerable. Gaming-focused blockchain platform Ronin Network, for example, saw some USD600 million of its digital tokens and coins stolen in one of the biggest hacks to-date in the cryptocurrency industry.
A third worry is the sheer amount of capital that is pouring into the industry.
In an echo of the dot.com boom of the late 1990s, fears are growing that many of the technologies attracting investment are not as commercially viable as they appear. A bubble is threatening to form.
But despite the risks, the stakes are high.
An Internet that is more open, immersive and prevalent than the existing version could revitalise the technology industry and open up a wealth of new investment opportunities.
While "pure-play" Web 3.0 and metaverse investments remain in short supply, opportunities are already emerging in gaming and digital infrastructure.
- Gaming. The video games market was already straddling the virtual and physical worlds before the outbreak of Covid. But the pandemic proved transformative as social restrictions encouraged more players to connect with one another via in-game events and activities. The gaming market is expected to grow 8 per cent a year to become a USD200 billion-plus industry by 2023, having registered a compound annual expansion of some 13 per cent in the three years to 2020. The number of global gamers is set to reach 3.2 billion by 2023, up nearly 60 per cent from 2015.
- Edge computing. Web 3.0’s vision of a fairer society is also democratising the way data is handled. Its management is moving away from centralised data centres to “the edge”, or facilities nearer to the source of data generation to overcome latency of cloud computing. Data is encrypted and stored across multiple locations, or nodes, that are run by individuals or organisations that share their extra disk space for a fee. By 2025, some 50 per cent of enterprise-managed data is forecast to be created and processed outside traditional data centres or the cloud, up from 10 per cent in 2018.
- Virtual Reality (VR). Already a USD22 billion market, the VR industry is expected to grow 15 per cent a year between 2022 and 2030. The technology provides users with an immersive experience using gadgets such as headsets, gloves or glasses, expanding from the gaming and entertainment sectors to education, real estate and healthcare and the aerospace and defence industries. Asia accounts for the largest revenue share of some 40 per cent, while Europe is expected to be the fastest-growing regional market over the next few years.
- Advanced semiconductors. Advances in semiconductors are crucial to the development of the next iteration of the Internet. Despite experiencing raw materials shortages and other supply chain bottlenecks, the semiconductor market is expected to grow 6-8 per cent on average a year to 2030 to become a USD1 trillion industry by the end of the decade. Asia, once again, is well positioned to gain share; China, Taiwan and Korea together command a 32 per cent of the world chip market with hundreds of billions dollars of R&D investment in the pipeline.
(Source: Newzoo, Goldman Sachs, Gartner, Grand View Research, McKinsey)