A simple user guide to web3, Part Two
The decentralized web (aka web3) is a exciting nascent space that everyone should explore. This is Part Two of a three part, no bullsh*t user guide to web3. You may find Part One interesting too.
El Salvador is planning a Bitcoin city.
President Nayib Bukele has recently embraced the cryptocurrency as part of his country’s future. Besides real estate planning, he’s repeatedly added Bitcoin to the country’s treasury. Locals will soon be able to buy and sell goods using Bitcoin as tender.
These moves are radical and polarizing. It is a gamble on the longterm success of Bitcoin — a bold decision that will ruffle some feathers, but could pay off massively. It’s also seen as antithetical to the “decentralized” nature of web3 tech — a government is clearly a centralized body. Whichever side you land on, these moves are undoubtedly fascinating and a sign of the times.
Beyond the political sphere, we’re seeing the presence of web3 technology all across the “real world.” What that was once limited to the corners of the internet is now everywhere.
Technology that nobody owns (decentralized) and everyone can re-use (open-sourced) has a magical way of creating rampant ideas and experimentation. An emerging web3 technology invented for one reason, can be applied to a thousand more. People share these inventions with their communities and it gets interpreted in a new context. This compound effect means that in web3, there’s an infinite number of use cases and they all move quickly.
In this section, we’ll explore use cases taking shape across nine major industries. web3 is exploding with creativity and I hope this list gets you inspired.
1) Financial services
Lending, investing, derivatives, and payments.
How is web3 changing… lending? In the traditional finance world, lending is usually done by banks. In the DeFi (decentralized finance) world, the lending can be done directly by individuals. This means, you and I can be quickly approved to borrow large sums of cryptocurrency. I can also lend my own money to liquidity pool and earn APY (annual percentage yield), in a process that’s called staking. As a result of the wild growth levels some cryptocurrencies have seen in 2021, lenders are offered high APYs (I’ve seen companies claim as high as 4000%) and borrowers can leverage up to 100x their available balance. One interesting project getting creative with lending is ThorSwap.
How is web3 changing… investing? Getting in on a company early is one of the best returns on investment — the right choice could be life changing. Traditionally, investing in early stage companies is limited by economic barriers to entry (accredited investors must have a net worth of $1MM+). web3 is shifting that power dynamic away from the banks and financial elite, to the founders and communities they create. Now, through coin offerings and token sales, founders can bring in investment from retail customers via decentralized platforms. The ‘founders’ set the price and decide the financial barrier to entry. In many ways, a successful NFT or cryptocurrency launch is like a completed round of funding for a startup. Everyone who put in money becomes invested in the future success of that project.
How is web3 changing… derivatives? Derivatives trading has never seen creativity like it’s experiencing in the crypto world. Blockchains allow tokens to be created easily, which allows anyone with enough capital to create contracts tied to underlying assets, at the snap of a finger. You can bet on futures and options for every type of cryptocurrency, or you can trade for derivatives pegged to traditional stocks. There are even derivatives based on the value of large asset pools — aggregates of various tokens (cryptocurrencies and NFTs). FTX is one of the leading centralized exchanges experimenting in this area.
How is web3 changing… payments? Blockchain technology has the potential to reinvent how a lot of the world makes and receives payments. Many new companies have been created for the purpose of innovating in this space — for both DeFi and traditional finance transactions. For example, Solana and Terra. Both companies have developed protocols used for fast settlement speeds at very low costs, which makes for excellent customer experiences. Even Ethereum with its expensive gas fees, provides far cheaper and/or faster solutions for sending large sums of money, then traditional methods like ACH or direct wire.
In-game economics, gameplay, and shared intellectual property (IP).
How is web3 changing… in-game economics? web3 has the power to bridge in-game economics to real world currencies. One emerging market is play-to-earn gaming. This is a new category of video games where players can earn money for playing. One such example is Axie Infinity. This game, reminiscent of Pokémon, is a pioneer in the category and has seen extensive growth this past year (300k DAU Dec-20 to 1.6MM Dec-21). Players must invest some money to buy into the game, but they can earn money for playing and swap it later into local currency. The most impactful example comes from Axie’s most popular demographic, The Philippines. Individuals are able to earn more playing Axie Infinity than they can make via hourly wage at other jobs in the country. Packy McCormick has a fantastic deep-dive on the game if you want to learn more.
How is web3 changing… gameplay? “On-chain” is a term you’ll hear used around the web3 world quite a bit. It refers to any interaction that occurs directly on the blockchain, as opposed to some interaction occurring at an abstracted layer (for example, a dapp built using Ethereum). Developers have started to get really creative and are building gameplay mechanics on-chain. One recently popular game, Wolf Game, uses staking and chance as the gameplay. To give you a stripped down explanation, you start the game with a random chance of getting a wolf or a sheep. Then you can stake your wolf/sheep and begin earning a token native to the game (it’s called $WOOL, of course). Let’s say you wanted to unstake a sheep to sell, there’s a 50% chance that when you do it will be stolen by a wolf and given to that player. This is an entirely new horizon for gaming.
How is web3 changing… shared IP? Intellectual property rights is somewhat of a sensitive issue for the gaming industry. Famed gaming consoles — like Sony’s Playstation and Microsoft’s Xbox — gated their IP for decades, preventing players from being able to transfer achievements or cosmetics acquired for the same game, from one console to another. That has started to change as the players increasingly value a personalized online presence. Popular game Fortnite was one of the biggest drivers for changing how IP is shared across devices. web3 technology is a likely candidate to accelerate momentum further. After all, if you totally own your identity in this new internet, anything you purchase should persist across worlds.
Player compensation, contracts, and using data to make decisions.
How is web3 changing… player compensation? With the new generation of star athletes coming into their primes, players are showing a desire to be compensated with cryptocurrencies. NFL quarterback’s Trevor Lawrence and Tom Brady are being compensated partially in crypto. NBA Kings ownership offered to pay their players in Bitcoin. FTX and Crypto.com both purchased naming-rights to NBA stadiums, which means these trends are likely to grow as crypto businesses ink more deals with teams.
How is web3 changing… contracts? Beyond payments, professional athletes are rethinking the way contract ownership is defined. Tokens provide a unique way for athletes to fractionalize ownership of their contract and likeness. This provide opportunities for fans to “invest” into their favorite players. NBA Nets player Spencer Dinwiddie has plans to tokenize his $34MM contract with the Brooklyn Nets.
How is web3 changing… how data is used to make decisions? Financial modeling is a strength for web3. Tokens can be created to be real financial stake into totally hypothetical scenarios. Entire communities are being built around these kind of concepts. There are DAOs pooling funds to build technology that simulates professional sports leagues. “Owners” will draft players and inputs change based on the player’s real world performance during the season. The goal is to have data and earn enough money to eventually purchase their own team, where the community can govern decisions as a group, using data from their historical results.
Royalties, distribution, and super-fan engagement.
How is web3 changing… royalties? Music royalties have been hemorrhaged since the dawn of music streaming. Radio distribution and physical sales used to be profitable for the industry — that’s no longer the case. Now, because of licensing rights and distribution costs, the actual creators of the music you consume see very little of the actual value earned. web3 technology has the power to change that dynamic. For instance, using smart contracts, artists can get investment from fans and allow them to partake in the royalty split. Distribution pathways for this content remain limited, as we’ll get into in the paragraph below, but the concept is starting to gain traction. Early crypto enthusiast and musician 3LAU has started a company called Royal, built for this very purpose.
How is web3 changing… distribution? Current distribution channels for getting music “out there” are TikTok, YouTube, and music streaming platforms (Spotify, Apple, etc). New services are emerging that leverage blockchain technology to distribute content. One example, Audius, rewards tokens to both creators and consumers on the dapp. This create interesting economic incentives and presents an alternative option for artists to distribute their own content — one without barriers.
How is web3 changing… super-fan engagement? The music industry has always understood that super fans pay more. VIP packages, meet & greets, and front row tickets are marketed for this very reason. Being able to capture those high-value fans in a digital context has proven to be elusive. NFTs offer a potential way for superfans to invest into their favorite artists and stay engaged. Tokens could be used for the fan to have intimate access to an artist, while knowing the money goes directly to the artist — a win-win.
Extending this concept further, we could see a world where fans can invest into artists early in their career trajectory. Fans believe an artist is going to be successful and the artist gets money to grow — if they’re successful, everyone earns from the profits. Music NFTs have yet to catch on, but many believe 2022 will be a landmark year for the category.
Writers and visual artists.
How is web3 changing… writers? Writing online has changed a lot since blogs become popular in the late 2000s. Now writers have a lot of ownership over their audiences and can have direct relationships via subscriptions or social followings. web3 provides new ownership structures for written content. New companies like Mirror allow writers to publish articles as transactions on a blockchain, and you can be paid via cryptocurrency tip or by selling tokens of the content to readers.
How is web3 changing… visual artists (photographers, painters, designers)? Visual artists are no longer stuck monetizing solely by way of prints and direct purchase. With web3, and namely the trading of NFTs, visual artists can sell art to fans for real money and buyers can verify that ownership. Additionally, royalties are written into most contracts, so artists continually earn as their content is sold and re-sold. Artists that struggled to make ends meet for decades, are now finding financial freedom because of web3.
6) Real estate
Property ownership and definition.
How is web3 changing… property ownership? Tokens allow for individual investors to purchase fractional shares of certain assets, property is an interesting application. Communities can divide ownership and create rules around earnings or voting rights, defined by smart contract. There’s a DAO formed for the sole purpose of raising funds, purchasing a plot of land in Wyoming, and then building a town.
How is web3 changing… property definition? Owning real estate is no longer limited to the physical world. Digital property ownership is becoming a trending investment for individuals and companies, as popularity of metaverse platforms grow. Over the past few months, plots of lands in games like The Sandbox and Axie Infinity have sold for millions of dollars. Mainstream brands are even getting into the mix, like Adidas who recently purchased some digital land. The utility of digital land plots are mostly limited to ‘show and tell’ for now, but these investments show willingness to bet on their future value.
Environmental activism, charity. and humanitarian efforts.
How is web3 changing… environmental activism? The environmental impacts of Bitcoin are well know — the process of mining is energy and creates a lot of waste. In contrast to this practice, blockchains and organizations are being formed to combat this image — rallied behind goals of improved energy efficiency or a specific cause. Climate activists, for instance, are behind communities like KlimaDAO whose charter focuses on carbon credits.
KlimaDAO tracks the impact their community has had on the climate.
How is web3 changing… charity? web3 enables charitable organizations of all sizes to raise funds can be raised for charities without the need for middleman. This lowers the barrier for niche initiatives and reduces the risk of funds being misallocated. With blockchain technology, you won’t need to host a fancy dinner with big doners to raise money — you could simply offer sales of a token. Charities that need money, can get it. An added hypothetical benefit is that since transactions are stored on a public ledger, donors could track who contributes and how those funds are used.
How is web3 changing… humanitarian efforts? Similar to the impact on charities, humanitarian efforts can raise funds quickly and bring attention to certain issues. DAO structures allow these efforts to be decentralized and transparent, which reduces the chance of bad-actors, but they can also illicit negative “mob mentality” side effects. These passionate, globally connected initiatives can have profoundly positive impacts too.
Classrooms and research.
How is web3 changing… classrooms? Online education is a growing category that will reap the benefits of web3 technology. As metaverse platforms figure out better ways to have immersive experiences, classrooms will become more realistic online. Blockchain provides a way to create shared value and limitless distribution of successful education systems. For instance, programs that are successful with early age or developmentally challenged students could be deployed globally, strengthening trustworthy networks of specialized educators.
How is web3 changing… research? Being able to own 100% of the research you publish and earn royalties as that information is used by future projects, would be a game-changer for academia. It has been long time since scientific research was a profitable field. Even the most popular scientific papers don’t lead to much money for the scientists doing the work (it usually just means money for the publisher). Blockchains could be used for validating usage and paying royalties to the researchers for any future use of that data. Value created downstream could be returned to the researchers.
Fundraising, transparency, and voting.
How is web3 changing… fundraising? Creating a verifiable system of trust during an election cycle sounds like a dream, but that’s the potential of web3. A politician in a progressive country could, in theory, raise money via a token offering or NFT sale. All of that information could be available to the public, on a site where donors could see in real-time how funds are spent. This could seed candidates to run and threaten political seats without access to traditional political funds or social connections.
How is web3 changing… transparency? Beyond electing officials, blockchains can create more trusted, transparent and verifiable versions of existing processes. Wallets could be made publicly available for anyone to see what transactions are occurring with government funds. Want to see what the budget for a particular committee is doing? Check it on the public ledger. In the US, many governing bodies are supposed to be transparent and provide regular updates to the public, but few do. These hypothetical innovations would force a much needed improvement.
How is web3 changing… voting? A system where you own and can easily validate your identity online, has the potential to marginalize voter fraud and create instantly verifiable results. Voting can become better and more efficient with web3. Blockchains present opportunities for new voting mechanics, where the amount of money and time contributed by an individual weighs into their ability to vote on governance proposals. DAOs are where most voting system experiments are taking place today.
It’s amazing — you can spend years learning about web3 technology and still feel like a fish-out-of-water most of the time. Such is the nature of this beast. It is impossible to keep up with everything, but it’s so fun to get started. In Part Three, we will walk through some of the easiest ways to get involved with web3.