Decoding the Web3 universe – key trends and definitions
By Early Metrics Team - 04 April 2023
In 2014, Ethereum co-founder Gavin Wood first introduced the term “Web3” to describe a decentralised internet based on blockchain technology. This web is the evolution of the previous two versions of the internet we’ve known thus far and aims to address the problems currently experienced with Web2: a centralised collaborative web managed by Silicon Valley giants. NFTs, blockchain, smart contracts, cryptocurrency, and decentralised applications (Dapps) are all integral technologies and solutions when it comes to Web3. Other technologies, such as the metaverse, are developing in parallel, and their place is sometimes confusing for users who struggle to understand the difference.
Decoding Web3 technologies
Web3 has become somewhat of a trendy catchword used in many marketing campaigns. Many users have been left confused about what exactly it is and what people mean when they talk about the technologies that work in tandem with Web3 such as blockchain or Dapps. Let’s have a look at 5 key trends and technologies associated to Web3 and explain what exactly each of them consists of.
Let’s start with the cornerstone of Web3: blockchain. Blockchain is a technology that allows data to be stored and transmitted in a decentralised manner, without a controlling body. The data is arranged linearly, one after the other, and structured in blocks. The blockchain can be compared to a large anonymous and transparent ledger, where each transaction is recorded as a line and cannot be erased. It is accessible to all connected users, allowing them to view transactions in real-time.
Blockchain technology can be used in three main ways: to securely transfer assets, to create decentralised applications, and to ensure information traceability. As an example of this third use, Circulor (a startup rated by Early Metrics) uses blockchain to bring traceability to industrial supply chains. Circulor uses a series of technologies to track materials, emissions, and compliance. All of Circulor’s solutions are developed on a private enterprise SaaS platform, based on permissions, which includes intuitive user interfaces, built-in business logic, clear dependencies, and integrated operations that are multilingual.
Blockchain technology has opened up new perspectives. We can expect a strong growth in the number of projects based on this technology and the diversification of its use cases. However, companies face difficulties in hiring engineers specialised in this field, which impacts strategic plans and technical roadmaps. In addition, blockchain requires support to be implemented in business operations.
Bitcoin and Ethereum, both belonging to the cryptocurrency market, have helped popularise blockchain technology. Cryptocurrencies are decentralised digital currencies that use cryptographic algorithms and blockchain technology to ensure the reliability and traceability of transactions. They allow for secure exchange of value between two parties, without the need for an intermediary, and their value is determined based on supply and demand on online exchange platforms. In France, the number of individuals owning cryptocurrencies increased by 1.2 million between Q4 2021 and Q4 2022 according to Statista.
There are several types of cryptocurrencies with varied uses beyond buying goods or services:
- Altcoins are alternative cryptocurrencies to Bitcoin that have been developed after it. There are over 5000 altcoins to date, mainly based on the basic functioning of Bitcoin.
- Tokens have the particularity of using blockchain technology that is not their own. They are often based on the Ethereum blockchain technology.
- Stablecoins are cryptocurrencies backed by a safe-haven value such as the dollar, euro, or gold. Note that the crash of SVB in March 2023 took with it one of the safest assets of cryptocurrency, USDC (theoretically indexed to the dollar). Confidence in these cryptocurrencies is thus being reconsidered by many.
Strong media attention always brings its share of skepticism. Cryptocurrency fraud and volatility show that there is still a long way to go before they can compete with traditional currencies. The recent crash of the FTX platform, a centralised cryptocurrency marketplace, affected nearly a million users and estimated losses are between 10 and 50 billion dollars. In 2022, the Web3 ecosystem lost a total of 4 billion dollars due to cryptocurrency fraud. The results observed and discussions that occurred following the adoption of cryptocurrencies as official currency by governments such as El Salvador and the Central African Republic also highlight the perceived risks associated to cryptocurrencies.
Ultimately, investing in cryptocurrencies can generate high returns, but it also comes with inherent risks such as hacks, hijackings, and scams. We can expect to see more liquidity flowing into insurance products against cryptocurrency-related risks. In 2023, out of 1,000 billion dollars in cryptographic assets, less than 1% are insured.
The power of blockchain technology goes far beyond its simple use for cryptocurrencies. In fact, blockchains now have the ability to store documents, prove a person’s identity, and give value to digital objects.
An NFT is a unique and non-fungible digital token that represents an asset, whether physical or virtual, and is authenticated by a certificate of authenticity secured by the blockchain. By buying an NFT, the buyer becomes the exclusive owner of that digital asset (a painting, a video, a photograph, a meme, a video game item, a movie, etc.).
French startups focused on NFTs are well-represented in the Web3 market: Cohort, Arianee, and Oval3 are a few examples. The latter is a fantasy rugby game developed in France that allows anyone to create their rugby team using real players represented as NFTs. Managers can then participate in competitions and win rewards.
However, the ability to sell NFTs quickly has long been a challenge in the Web3 world. These assets are known for their lack of liquidity, which makes it difficult to convert them into cash for their owners. Currently, NFTs are still largely perceived as a speculative object or a marketing tool, and a large part of the population does not yet fully grasp their true utility. A survey by Odoxa showed that 85% of French people are not interested in NFTs.
4. The Metaverse
The Web3 and the metaverse have often been confused. Although closely related, they are not the same thing. The metaverse is a network of immersive and shared virtual worlds where users can interact, create, play, work, and shop. To allow users to connect and interact in an immersive way in a virtual world, metaverse developers use decentralised communication technologies, advanced artificial intelligence, and encryption.
Big brands are increasingly drawn to the idea of being represented in these digital universes. Metav.rs (a startup rated by Early Metrics) helps them manage their presence in virtual worlds. The company has designed tools to help its clients manage their own virtual universe and sell dematerialized goods such as NFTs or digital identities. This allows users to discover the brand in an immersive way by interacting with the created virtual universe. Metav.rs has already managed to attract a prestigious clientele, including about ten international key accounts from the luxury and retail sectors.
5. DeFi (decentralised finance)
Decentralised finance is a fully digital financial infrastructure that does not rely on banks, insurance companies, or governments to operate. Citizens can be independent of these traditional financial institutions thanks to decentralised platforms based on blockchain and smart contracts, which allow for borrowing, exchanging, lending, and insurance.
Bitcoin is a form of digital currency that has also evolved into an innovative payment system, considered the first application of decentralised finance. With Bitcoin, users can own, control, and transfer their money anywhere in the world without the need for a trusted third party. On the other hand, Ethereum offers more advanced features than Bitcoin by enabling the programming of smart contracts. These smart contracts can be used to perform a variety of financial operations similar to those found in traditional financial systems.
Coinhouse (a startup rated by Early Metrics) offers a range of services for individuals, businesses, and institutions to facilitate the purchase, management, and security of their cryptocurrency assets. They can also make payments in cryptocurrency and access investment and savings products.
Decentralised finance is still emerging and faces difficulties, as demonstrated by the fall of FTX. However, it seems likely that all sectors of traditional finance will soon have their equivalent in decentralised finance, whether it be for payments, transactions, liquidity, data, or identification.