Since its invention the world wide web has never remained static. The internet has experienced constant change and kept growing remarkably as different use cases emerged. Venture backed startups built new services at breathtaking speed and more people got access as the network became more powerful.
From Web 1.0 to Web 3.0
While the foundations of the internet such as the TCP/IP protocol suite remained the same, people have described the evolution of the web through three technology waves. The first evolution of the internet is referred to as Web 1.0 which was read only. The majority of people accessing this early version of the internet could just browse certain pages and read them. They could not enter any data into databases or upload content themselves. This changed with the emergence of social media which marked the birth of Web 2.0. Furthermore, apps like Amazon and later Uber allowed users to interact with company databases and order goods and services online. Web 2.0 is basically when the commercialization of the internet occurred and highly profitable business models emerged. These trends led towards the formation of large monopolies and corporations that could successfully dominate a niche of Web 2.0. On the downside these large corporations would control all user data which raised serious privacy concerns.
The next evolution of the internet is referred to as Web 3.0 which essentially adds an ownership layer to the internet. Web 3.0 combines the ability to read, write and own on the internet.
The term “Web3” was coined in 2014 by Ethereum co-founder Gavin Wood.
Blockchain technology enables essentially the ownership of digital assets such as domains or tokens. At a later stage it is assumed that users will be able to gain back control of the ownership of their data as well.
A blockchain is basically a decentralized database that allows users to record and update state. There is only one truth on the blockchain and everyone agrees on that truth, e.g. how many Bitcoins one wallet owns.
The Categories that Define Web 3.0
One of the most remarkable inventions of Web 3.0 are NFTs. NFTs are non-fungible tokens which are unique in their nature and can be stored in a private wallet just as any other cryptocurrency asset. NFT prices have soared tremendously in 2021 and subsequently corrected with the market downturn that started in 2022. While NFTs are used to form communities and tokenize digital art they have also evolved into a popular investing and speculation object. Digital art such as Tyler Hobbs’ Fidenza has accrued tremendous value with the cheapest collection item typically not selling for less than 100,000$.
On top NFTs have emerged as a membership pass to exclusive communities. Anybody who holds a certain NFT can verify their ownership and in exchange get access to private discord channels and other exclusive venues. At the same time NFTs are used as modern day status symbols. From the beginning of 2022 users can verify the ownership of their NFT profile picture on Twitter. Furthermore, Facebook recently announced that it will support NFTs on its Instagram platform. In order to verify the ownership of their NFT users can connect their MetaMask or Coinbase Wallet to Instagram.
Eventually NFTs also serve as Web 3.0 native domains and allow for human readable addresses. Games are another promising use case for NFTs. However, as long as blockchain technology is not scalable it is difficult to gain traction for games on the blockchain. Gamers typically don’t want to pay various dollars of transaction fees just to participate in a game on the blockchain. The upcoming roll out of layer 2 scaling solutions on Ethereum could kick start NFT based games as fees are no longer a constraint. The advantage of owning in-game items in the form of NFTs is that those items become portable from one game to another and allow for more mobility among gaming ecosystems.
Decentralized Finance or in short DeFi is the oldest use case that emerged on Web 3.0. DeFi enables the blockchain native exchange of value through decentralized exchanges such as Uniswap. Furthermore, the introduction of stable coins enabled investors to generate yield in a stable unit of account. However, as we have seen during the collapse of UST every protocol and DeFi opportunity comes with a different set of risks that investors need to pay attention to.
Eventually as every asset is going to be tokenized on the blockchain and digital content is going to be monetized via NFTs it will be time for enterprises to move on the blockchain as well. The enterprise of Web 3.0 is called a DAO, a Decentralized Autonomous Organizations. A DAO essentially is a set of rules on the blockchain to serve a purpose. The DAO provides the structure for people to collaborate towards achieving its mission. The governance of the DAO is managed on-chain through voting mechanisms.
Will Web 3.0 Succeed?
Ethereum as the dominant smart contract platform has so far been at the center of Web 3.0. Yet until today it is lacking scalability and mainstream use cases. For these reasons Ethereum faces competition from various angles. On one hand there are alternative smart contract platforms such as Solana or Cardano trying to implement a technically superior version of Ethereum. On the other hand Bitcoin supporters such as Jack Dorsey are trying to expand on Bitcoin’s functionalities. Jack Dorsey recently announced that he is working on Web 5.0 as a substitute to the Ethereum centric Web 3.0. Dorsey’s vision of Web 5.0 will expand on Bitcoin’s functionalities and feature digital identities as well as store user data in a decentralized way. However, besides an announcement Jack Dorsey has not yet presented any meaningful prototypes for his project.
Despite all the progress and achievements that Web 3.0 obtained so far we are still at the very early days of adoption. There are no guarantees for the success of Web 3.0, nor is it already decided which technology stack will emerge as the winner.
How to Benefit from the Ascent of Web 3.0
The beginning of the internet, Web 1.0, was not very commercial yet. As the internet progressed towards Web 2.0 the area of Silicon Valley and venture capital arrived. The few people that had access to investing in early stage internet startups could benefit massively from the upside that some of these companies experienced. However, for the average retail investor there was no way to participate in investing in these businesses until they had their IPO often at already elevated valuations.
While the investment in Web 3.0 is also dominated by large venture capital players such as a16z crypto, Sequoia or Binance Labs it is still possible for retail investors to participate early on. Anyone could mine Bitcoin in the early days or buy Ethereum during the presale in 2014. The launch of a token typically happens way earlier than the IPO of a successful internet business.
For investors that prefer a broad market exposure and a proven strategy the BitBull fund of funds offers an excellent opportunity to participate in the growth of Web 3.0 and maintain a diversified portfolio across a variety of crypto assets.