I. What is Web3?
1. Basic Definition of Web3
At the most fundamental level, Web3 refers to a decentralized online ecosystem based on blockchain. As a new Internet that’s decentralized, automated, and smart, Web3 allows individual users to regain control over their personal digital identities, digital assets, and data. In Web3, every user interaction should be recorded and quantified, enabling users to own and utilize their own data and earn their fair share of the data profits.
2. Key Differences Between Web3 and Web2
In the Web2 era, the rise of social media catalyzed a new model of interaction driven by content generated and shared by users. In Web2, users could either view content or create and publish content to build up their personal reputation and even influence the data and traffic of the platform. However, the traffic and data generated ultimately belong to Web2 platforms, and users couldn’t directly share the economic benefits derived from their own creations.
In the Web3 era, however, with the use of blockchain technology, all data and traffic will be owned by users. This will grant users complete control over their content, allowing them to participate in the distribution of the relevant economic benefits.
II. Innovations in Web3
A Non-Fungible Token (NFT) is a unit of data that exists on the blockchain ledger. Each NFT represents a unique, indivisible digital asset. NFTs often appear as artworks and collectibles.
Decentralized Finance (DeFi) functions as a blockchain-based financial institution or banking system, allowing people to trade digital assets or cryptos without the need for intermediaries such as central banks.
A Decentralized Autonomous Organization (DAO) is an all-new form of human collaboration. DAOs bring together community members through shared goals or consensus and decide the organization’s goals and operating model through democratic voting mechanisms. A DAO can be regarded as a highly autonomous community or organization, where internal decisions are made through voting by members under a consensus mechanism, and the voting right is often based on the size of the token holdings of each member.
III. Unique Business Models and Opportunities in Web3
1. Opportunities for Artists with NFTs
NFTs have brought a novel way for artists to generate income, enabling designers to easily profit from their creations. Additionally, the boom of NFTs also means that art collections can be turned online, and like social media, NFT platforms help designers instantly reach a global audience.
NFTs also represent a collaborative mechanism. In the past, most artists work independently, yet the sales of any artwork involve complex collaboration spanning a whole industry chain. In this respect, NFTs could better protect artists’ rights and make it a lot easier for them to collaborate with each other.
2. How DeFi Disrupts the Legacy Financial System
Common scenarios in the legacy financial system include transfers, lending, cross-border transactions, and securities investments. While Centralized Finance (CeFi) is indispensable in our lives, it also has its drawbacks, including cumbersome account opening procedures, lengthy cross-border transactions, and expensive fees.
Compared to CeFi, DeFi primarily offers the following advantages:
1) High transparency and reliable trust mechanisms: The immutability of blockchain technology ensures the authenticity and reliability of transaction information, which helps build trust. For instance, the parties to a transaction could make a deal without pre-existing relationships or a third-party intermediary. This avoids issues such as limited information access and fraudulent information in the legacy financial system, while also reducing risks relating to trust.
2) Reduced transaction costs and improved efficiency: Decentralized blockchain technology lowers the costs associated with search, contracting, and execution for both parties involved in a transaction.
3) Expanded transaction scale: As it reduces the involvement of central institutions and the possibility of monopoly by any single entity, DeFi allows everyone to benefit from the network effect, thereby expanding the scale of transactions.
4) Enhanced interoperability: The legacy financial system tends to operate in silos, with transaction barriers between different financial institutions due to information islands. DeFi, on the other hand, is built on public blockchains and open standards, which improves the interoperability between different service platforms.
When it comes to DeFi, the areas of application include transactions, loans, borrowings, renting, and other blockchain-based banking operations. It’s safe to say that DeFi already offers the core functionalities of traditional financial institutions, challenging the dominance of the legacy financial system.
3. Content Creation in the DAO Model
The DAO model provides creators with their own platforms. DAOs help creators break free from the cage built by centralized platforms, allowing them to collaborate with one another without external rules and terms.
Under the DAO model, revenue generation is closely tied to stakeholders, leading to a democratic, decentralized content industry. Here, creators have full control over their works, how they are distributed, as well as their value.
IV. The Future of Web3
Web3 is best defined by its insistence on decentralization, transferring power from Internet service providers to users. As a result, Web3 not only enhances user privacy and information security but also allows us to exercise control over our digital identities, data, and digital assets. Moreover, this new web eliminates the monopoly of platforms over information management and algorithms. In the future, Web3 will reshape the boundaries of economic and social activities in both cyberspace and reality, driving the integrated development of physical and digital industries.