Over the past months, I’ve taken the time to properly research and understand the world of decentralization. What a ride. There is so much conflicting info, making it hard to really grasp the value of this new technology. Even more, I notice people base their opinions on media cover stories emphasizing the money-grabbing nature of crypto, and currently NFTs. And for some parts, they are right. But behind this hype, there’s a new movement that eventually can become the foundation of doing business in the future. Building on the ideas of Chris Dixon and many other prominent names in the tech scene, I’ll try to explain my vision as simply and briefly as possible. More deep dives to come. First things first.
From Web1 to Web3
- When the internet did its entry (1990 – 2000) there were only static desktop web pages designed for information consumption. These were freely built on the open-source protocol ‘https’. We call this era Web 1.0 = ‘Read-only’ or, the ‘Information Economy’.
- With the rise of Web 2.0 we moved away from these static pages to interactive experiences and user-generated content. Think of Facebook, Amazon, Google, etc. All these platforms are served by centralized servers. We call this era Web 2.0 = ‘Read & Write’ or, the ‘Platform economy’).
- These web2 platforms are largely driven by three layers of innovation: 1. rise of the mobile, 2. social networking, and 3. the cloud.
- Due to the emergence of the blockchain technology a fundamental shift is happening: the existence of decentralized, open, and secure networks. We call this (current) era Web 3.0 = ‘Read, Write & Own’ or, the ‘Token economy’):
- Decentralized: the network itself allows participants to interact/transact publicly or privately without a controlling third party (i.e. central server).
- Open: the data transfers (not content) are publicly available, and the code is open-source built by an accessible community of developers.
- Secure: Since there’s no central authority/server there’s no single point of failure, which makes it much harder to corrupt.
- Web3 enables us to interact and collaborate with any individual (or computer) in the world, without having to pass through a chain of ‘fee-charging’ middlemen. Creators and users get back control and ownership of their digital assets (digital content & data). This is facilitated through tokens. Let me explain:
- First, we saw the rise of cryptocurrencies: Fungible (indistinguishable) Tokens that initially operate as a reward for those participants/computers that keep the decentralized network running. We need them since we don’t have a central operating server. These cryptocurrencies are eventually the digital/decentralized monetary system.
- Now, we see the surge of Non-Fungible Tokens (NFTs). These can be seen as digital ‘certificates’ (represented by a visual/video/sound) that give owners unique property rights with an underlying utility (I’ll elaborate below).
NFTs, just a jpeg?
- NFTs set a foundation for creators/organizations to grow their brand and establish collaborative communities. Some examples:
- People can own exclusive digital artworks since for the first time artists can be linked (encrypted) to their digital work. This wasn’t possible before because digital assets were easy to copy. Digital artists earn money via primary sales and automatically receive build-in (encoded) royalties for each secondary sale (secondary markets). When the artist gains traction, the increase in value of the NFT will benefit the NFT holders that are planning to sell at a later stage.
- NFTs can contain utility. Holders might receive early access to future NFT sales, voting rights (in conjunction with distributed governance tokens) to determine a project’s direction, real-life access to exclusive events, future monetary cryptocurrency rewards (airdrops), commercial brand rights (e.g. make and sell NFT-branded apparel or launch NFT-branded bars) etc.
- Owning an NFT will contribute to someone’s social status in a community (e.g. owning a unique NFT from a brand / top-tier personality). We are already seeing a huge trend in the importance of your virtual self (social profiles) and related ‘social currency’ (e.g. followers, likes, blue verified checkmarks, etc.). This also drives the emerging NFT profiling on existing social media, like Twitter, where you have the possibility to display your verified NFT as profile pic.
- Gaming combines these concepts using unique avatars, powers, scores, and perks. Sometimes interoperable between games. It’s a growing market because of the play-to-earn concept (sell the perks you gained through gaming).
- The concept of the Metaverse (a 3D virtual world) is pushing this even further. Clothing brands are already experimenting with the creation of virtual clothing lines for this virtual presence (e.g. D&G, Louis Vuitton, etc.). Others are building their own digital cities and stores for fans to visits (e.g. Nike that only allows access to ‘Nikeland’ for Nike NFT holders).
Collaborative communities?
- As the blockchain protocol is open source, it is composable: entrepreneurs, developers, and designers can freely build on top of the code of Dapps (Decentralized apps). This allows them to improve or expand these platforms with new concepts.
- Members that are part of a Dapp or NFT community are motivated to contribute, as it helps increase the value of (and interest in) the project-related tokens they hold.
- Subsequently, it increases the value of the Dapp/NFT, attracting new contributors, eventually growing the community (= viral loop).
- Organized Communities where its members have direct voting power are called Decentralized Autonomous Organizations – DAO. See it as a modern cooperative but with more functionality and flexibility.
- The real moat and competitive advantage eventually relate to the strength of your community. See it as a living eco-system where collaboration, transparency, and reciprocity thrive. It’s all about bringing value. As a consultant I reflect about all those organizations that wanted to create a community for their brand. Well, here’s their chance.
- From customer acquisition cost to community acquisition cost.
- From hierarchical-driven product roadmaps to design by consensus.
- From ad hoc user tests to user feedback ingrained in the develpoment process.
- From centrally recruited and trained employees to crowd-sourced professionals.
- …you get the idea.
- And yes, the concept of digital ownership did exist before (e.g. buying gimmicks in games) but the interest is now growing rapidly thanks to the blockchain’s increased property rights, security, and interoperability (= going everywhere on the web with your digital assets and plug it in vs. assets owned and controlled by a centralized/isolated platform).
Closing note
Centralized systems as we know now often start out fully baked, but only get better at the rate at which employees at the parent companies improve them. Meanwhile, decentralized systems start out half-baked (and without a definite use case) but can grow and pivot exponentially by the mass attraction of new contributors (given its open, self-sustaining, and rewarding mechanism). This will kickstart future community-owned/driven networks or startups” – C. Dixon.
Picture by Cash Macanaya
