One of the hottest buzzwords in investing in recent months is “blockchain”. Companies are hyping it up as a revolution to business and investors are trying to sift through what’s under their façades.
Buying up cryptocurrencies like Bitcoin is one way to go about it, but in reality, that likely won’t yield sensational results for your portfolio. However, the blockchain technology that cryptos are built upon is highly versatile and is actually powering something far more revolutionary.
Web 3.0
The internet as we know it is shifting drastically. The U.N. has estimated internet users increased from 738 million to 3.2 billion from 2000–2015. This amount of data floating around is practically unfathomable and within that data is something very valuable for giant digital corporations – personal data. This is where mass stockpiling of data began, in centralised servers, specifically among FANG (Facebook, Amazon, Netflix, Google) companies, as well as Twitter. Security was sacrificed for convenience, even unbeknownst to those using it. Personal habits, shopping information, even whole identities are up for grabs to the highest bidder.
But how did we get here? First, a quick history lesson: Web 1.0 wasn’t given its name until it met its digital grave. The “World Wide Web” as it was known, was just a set of static websites with a load of information and no interactive content. To connect, a user had to dial through a modem and wait for the connection, hogging anyone in the house from using the phone. This was the playground of chat rooms, AltaVista and Ask Jeeves. Accomplishing tasks that we take for granted today, such as streaming videos or music were incomprehensible in this maddeningly-slow era.
… Then there was 2.0
Bleepy-bloopy modems and text-based interfaces were quickly replaced by quick internet speeds on cable modems and interactive content. This phase of the internet was much more interactive and gave birth to the age of social media. YouTube, Wikipedia and Facebook gave everyone a voice and brought together countless like-minded communities. It wasn’t long before the vision of the next stage of the web was being envisioned, something more human and private, like web 1.0, something that puts the control of power back into the hands of the people, rather than corporate behemoths.
This vision for a more transparent internet dates back to around 2006, but only as a theory. The technology to give birth to things like Bitcoin and its distributed blockchain ledger offering peer-to-peer storage was still three years out. However, the idea was there, creating a human-centered internet.
As far back as 2016, an analyst with Union Square Ventures, Joel Monegro published a blog titled Fat Protocols, where he predicted that blockchain technology would turn internet value is captured on its head.
He explained that in the current internet, HTTP or TCP/IP captures zero value and investors aren’t putting their money there, but FANG makes billions. The new “blockchain” internet flips this on its head, as the protocols capture the majority of the value, while companies only capture a slice.
Bitcoin is worth over $137 billion, while Coinbase, the most valuable Bitcoin company, is only worth $1.6 billion. In fact, in 2015, had DFJ Venture Capital and others invested their $75 million equity investment directly into Bitcoin instead of Coinbase, it would have been worth $2.5 billion, much more than their undisclosed share of $1.6 billion. The Fat Protocol theory has caused many investors to believe “the lower the better” and thus prioritise investing into “base protocol” layer coins (such as Ethereum, EOS, Tezos, etc.) because this is where they believe major value will be captured.
However, protocols have evolved, this way of thinking has quickly become outdated. Application Tokens are the real value trap.
Redux of Fat Protocols diagram via Medium.com
The Layers of Protocols
Web 3.0 or the new blockchain stack has projects with multiple layers of protocols. Very few projects have just a single layer. One of the layers is the application protocol which holds the token economy of the decentralised application.
For example, Civic has multiple layers.
· The “processing layer”, either Ethereum or RSK
· A file storage layer (possibly FileCoin in the near future)
· Other critical infrastructure layers (such as inter-protocol connectors)
· The “$CVC layer”, which governs the crypto-economies surrounding the identity verification economy
All of these layers are protocols in their own right and will make up the identity verification value stack in this case.
On the surface, the learning curve from 2.0 to 3.0 will be smooth. However, behind the scenes, the framework connecting users with digital services are markedly different. Users will still use a web browser to access the internet, and visually it will be as user-friendly as Web 2.0. Transactions are signed and verified manually, to prevent platforms from siphoning away personal information without due cause. Web users will opt in rather than trying to opt out, which is often an exercise in futility.
How can we expect things to change as we use the internet?
- As opposed to Skype, we have platforms like Experty.io
- Evolving from WhatsApp and Wechat, there is Status
- Operating systems such as iOS and Android will be pushed aside for frameworks such as Essentia.one and EOS to provide a gateway to the new web
The concept goes like this: Right now, the decentralised apps, wallets, platforms, and other digital assets that make up Web 3.0 are scattered. To bring these interfaces together, separate seeds, logins and identities will need to be brought together, much like how Web 2.0 presents multiple interfaces to users in one place.
Essentia.one will link these diverse platforms together via a single seed. Because this will operate as an encrypted key that can be associated with its owner, Essentia will provide proof of identity but without giving up any more of that individual’s identity than is necessary.
The Internet of the Internet
A common comparison that companies that use blockchain like to make is something along the lines of “This is like the dawn of the internet in the mid’90s!” However, a key point about this is that back in the day, there was no internet. A major reason this is significant is because 99% of the infrastructure needed for decentralized applications already exist in a centralized manner. This will change in the very near future under the decentralized nature of blockchain, but for now centralize systems will work fine.
So, what do the FANG internet giants have in common? The answer is aggregation of users. The means and protocols that aggregate users will be a dominant factor in Web 3.0, since its main reason for being is to “remove the middleman” to create decentralized and efficient markets in any vertical.
Information is money
The way companies manage their business and customers is changing. How a protocol manages to aggregate these value stacks will determine how much value it can capture. Aggregation theory dictates that layer protocols for an application should aggregate in their respective verticals. If these verticals adopt blockchain technology, then the value of transactions in the application protocol economy should exceed fees based off transactional volumes.
Image via Stratechery.com
When assessing the dozens and dozens of tech companies utilizing blockchain technology, or even companies that aren’t tech-focused that are using blockchain, a key element to keep an eye on is three key parts: base protocols, application protocols, and consumers / users.