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The future version of the internet known as “Web3” has many definitions, but fundamentally they all boil down to a similar idea. It’s a vision of a decentralized internet, owned equally by its creators and users. The big motivation is to build an alternative web that isn’t controlled by massive corporations like Amazon, Google and Facebook, allowing internet users to define their own rules about how it works, what should be censored, and what things they can and can’t do.
Web3 is being bolted together with technologies such as blockchain, cryptocurrency, dApps and non-fungible tokens, and governed by decentralized autonomous organizations called DAOs. Together, they provide the tools for us to create alternative online spaces owned and run by their communities of users.
There is a lot of interest in this alternative internet. According to Emergen Research, the nascent global Web3 market was worth around $3.2 billion in 2021, and it is projected to grow at an incredible rate over the next decade as more people come around to the idea of an internet that’s private and free.
NFTs Becoming The Key To Access
The rapid projected growth of Web3 is driven by an extraordinary pace of innovation that few industries can match. One of the most novel new technologies in Web3 is the often-maligned NFT, which refers to unique tokens that live on the blockchain. They’re different from something like Bitcoin tokens, which are essentially identical coins. NFTs, on the other hand, represent something entirely unique.
NFTs have attracted a lot of scorn due to their association with digital art, with some of the tokens fetching unbelievably high price tags in the millions of dollars. Such a waste of money, so incredibly naive, what a load of crap! These are the often-heard cries of NFT critics, but while they might make sense with regard to digital art, they bely a lack of understanding of what this technology can do. NFTs can represent anything – not only art – making them incredibly useful. For proponents of Web3, the real value of NFTs is their ability to tokenize real world things, such as data, tickets to an event, stocks and shares of a company, the rights to a song, a day trip on a yacht, timeshares at a resort and just about anything else one could think of.
In the decentralized internet, NFTs will become the keys people use to unlock access to the next generation of digital products and services. NFTs already serve as the gateway to a new generation of play-to-earn games, and there are so many other experimental use cases, giving rise to the concept of “utility NFTs” that provide real-world value to their owners.
NFTs are used to represent ownership of digital land in the metaverse, which is another hot trend in the Web3 world. Technology giants Facebook and Microsoft have been fairly vocal about their vision of the metaverse and the role of virtual worlds in our future, but it could well be that Web3 ends up stealing the show.
The two most visible examples of decentralized metaverse platforms are Decentraland and The Sandbox. The data that binds these digital worlds together lives entirely on the Ethereum blockchain, and it ensures that only those users who own virtual assets are allowed to make changes to them. In this way, it becomes possible for anyone to buy virtual land, develop it in the way they want, and then sell those assets when they no longer wish to keep them. Blockchain ensures these worlds are kept accessible to anyone who wants to visit them, and prevents individuals from censoring other uses simply because they don’t like them, or disagree with their points of view.
The metaverse is becoming increasingly and inextricably linked to the blockchain and cryptocurrencies, as these technologies enable true, decentralized ownership and economies within virtual realities, and give rise to numerous kinds of experiences that a centralized metaverse cannot provide. Take Rebase, which is integrating augmented reality with the metaverse to create a gamified lifestyle application that lets users explore a real world overlaid with digital graphics. Within Rebase, people can collect and redeem all kinds of NFT-based digital objects, including tickets, coupons and tokens that can be exchanged for physical merchandise.
An application like Rebase gives brands the unique opportunity to explore geo-located marketing activities within the metaverse, without creating their own proprietary virtual world. By enabling users to own their digital assets, it provides an experience that’s completely different to a metaverse controlled by Facebook, which remains the undisputed owner and unchallenged authority within its own virtual world.
Anonymous, Trustless Transactions Improving Security
The underlying principles of Web3 promise to create a digital world that’s inherently more secure than Web2, as a place where users control their own data and are responsible for safeguarding their own assets. But we aren’t there yet, as the constant headlines reporting multi-million dollar crypto hacks constantly remind us.
One of the biggest security challenges for Web3 is “blockchain bridges”, which are an essential element of the crypto economy. They provide a way for users to exchange assets between the many different blockchains that host Web3’s eclectic mix of dApps and metaverse, but they have emerged as one of the industry’s biggest vulnerabilities. According to Chainalysis, more than $2 billion in cryptocurrency was stolen during 13 separate cross-chain bridge hacks in 2022 alone.
Securing blockchain bridges has become an area of focus lately, with one of the most recent innovations being the concept of “trustless bridges”. The alternative, centralized bridges, requires users to trust a custodian when they bridge their assets onto a second chain, but doing so creates a single point of failure that history shows us is all too easy to exploit.
Trustless bridges do away with the need for custodians that keep all of the locked funds in one place, and instead rely on smart contracts to store these assets instead. One of the most promising examples is Harmony Bridge, which is an entirely decentralized protocol that links Ethereum to multiple blockchain platforms.
However, the Wormhole bridge attack last year showed us that trustless bridges can be vulnerable themselves, leading to further innovation from Namada, a privacy-focused blockchain that is pioneering the concept of shielded transactions for blockchain bridges.
Namada, which is built atop of the Anoma protocol, makes it possible to transfer any type of digital asset between any blockchain, in a way that obfuscates all of the details of that transaction. Users can transfer assets via a trustless bridge from any EVM or IBC-based chain, keeping both the asset type and amount entirely secret from prying eyes, and it does so in a way that still allows the blockchain to remain publicly verifiable.
Namada refers to this capability as “shielded transfers”, and uses a cryptographic technique called zero-knowledge proofs that also incorporates a reward-generating mechanism to incentivize its use. The feature is based on the ZK-proof technology first developed by ZCash, the privacy coin. Recently, Namada announced plans to conduct an airdrop of its native token NAM, giving 20% of its total supply to ZEC holders to reward that project for contributing to its underlying technology.
Regulation Rapidly Takes Shape
Readers may be surprised to learn that one of the hottest areas of Web3 innovation right now is the regulatory landscape. There is a growing realization within the industry that governments will require the means to regulate the impact of Web3 on the economy as its influence grows. Moreover, some states have recognized there is an advantage to being perceived as “crypto friendly” jurisdiction.
In the U.S. for example, the state of Wyoming has passed legislation that intends to create a more welcome environment for Web3 development. It’s trying to tempt Web3 startups to accept greater oversight in return for favorable treatment in order to boost its local economy. In a similar light, Colorado has announced it will now allow citizens to pay their taxes and state fees in cryptocurrency.
One of the most welcoming nations for Web3 development is the United Arab Emirates city of Dubai, which has established various economic programs and benefits in order to convince startups to set up base there. It has worked hard to promote itself as a center of blockchain development, granting licenses to a number of new cryptocurrency exchanges. In May for example, MaskEx was given preliminary authorization by Dubai’s Virtual Asset Regulatory Authority to begin setting up its operations there, and the following month Bybit was awarded a Minimum Viable Product [MVP] Preparatory License from the same governing body.
Also this year, we have seen a number of other countries open the door to Web3, with India and Japan both accelerating plans for the adoption of national central bank digital currencies.
Conclusion: Web3 Innovation Looks Unstoppable
Web3 is still a very nascent concept and it has plenty of work to do if it wants to surpass the highly centralized Web2, but there can be no doubt that the pace of innovation is coming on in leaps and bounds.
It will require much more development and consolidation, as security concerns are still to be addressed and improvements to accessibility are still desperately needed. There are questions about the ability of Web3 to scale sustainably, too. At the same time, there’s a need to educate netizens and foment a cultural shift for Web3 to achieve greater adoption.
These challenges will not be solved anytime soon as there is no quick and easy fix for any of these problems, but the industry is striving to do so all the same. The pace of innovation in Web3 is accelerating constantly, and its momentum has already carried it far beyond the point of no return.
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