Dec 13, 2022

Why Every Web2 Business Will Become a Web3 Business

by Niall O'Higgins
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Developments in blockchain technology over the past few years—meaning permissionless, decentralized public ledgers with smart contracts—have led to a resurgence of the internet’s original values. Values like: 

  • Decentralization (DNS, SMTP -> ENS)

  • Open Protocols & APIs (TCP/IP, HTTP, FTP -> Uniswap)

  • Composability (Web = HTTP + DNS -> Yearn)

  • Freedom

  • Ownership and self-sovereignty

As web2 matured and grew, these principles were largely left behind. In their place, web2 became all about social connection and participation. Will web3 reverse all of that now? 

No. There won’t be entirely new web3 platforms that compete with today’s web2 platforms. Instead, we’ll see web3 simply expand the participatory and social aspects of web2 by leveraging crypto primitives. 

In other words: Web3 = web2 + crypto. 

Let me explain.

Where will web3 businesses come from? 

While web2 created highly interactive, participatory, and scalable internet experiences—all through the convenience of your phone—this came at a cost. That massive centralization of Big Tech—along with the proliferation of data harvesting operations, monetization strategies that hijacked our attention spans, privacy leaks, and walled gardens—held back innovation. 

Decentralization—a cornerstone of web3—does the opposite by encouraging innovation. Decentralization leads to more competition. Smaller teams can bring new products to market quickly by utilizing components that others built. People will have more choices in the tools they use. There will be more control over the data we share. 

In addition, businesses that incorporate decentralized models will benefit from: 

  • New customer acquisition and marketing channels (e.g. Airdrops, on-chain user segmentation)

  • Seamless, low-cost, low-friction global payments rails (e.g. USDC)

  • Interoperability with myriad crypto protocols and services (e.g. Defi lending markets such as Compound)

  • Portable identity and user reputation systems (e.g. DID, on-chain credit scores)

  • Improved security and privacy by avoiding handling customer PII through third-party on-chain attestations.

  • Highly engaged communities (e.g. DAOs).

Blockchains also add a secure asset transfer layer to the web that has never been possible before. Internet-native financial instruments such as NFTs, governance tokens, and staking rewards have opened up possibilities far beyond those available in the world of traditional finance. These web3 mechanisms allow existing businesses to: 

Where will the next billion web3 users come from? 

The majority of web2 users were entirely new to the internet—it mostly included people who had limited access to web1. But the rise of the smartphone, improved computer accessibility, and the viral growth of social media brought billions of new people into web2.

Web3 is different. Every existing web2 business will want to leverage the technical capabilities and new revenue opportunities offered by web3, bringing their huge user bases along with them.

We are already seeing this in the market with Big Tech. A sampling:

  • Paypal added support for crypto payments. Paypal is one of the original digital payment platforms with 426 million users and merchants who can now easily buy, sell and transfer cryptocurrencies.

  • Instagram introduced digital collectibles to showcase NFTs on its platform. This means that the 2 billion people who use Instagram can now connect digital wallets like Metamask or Coinbase Wallet to the platform in order to trade NFTs in-app. 

  • Twitter introduced verified NFT profile pics via Twitter Blue. This is interesting as it leverages the ‘provable ownership’ aspect of web3 and may increase the number of paid Twitter users (and therefore Twitter’s revenue) by giving folks a way to be able to show that they are the verified owners of a particular NFT. There are estimated to be 100k subscribers to Twitter Blue at the time of writing.

If we look at the above integrations alone, we can assume that close to 1.5 billion people will soon be seamlessly brought over into web3 via the well-known platforms they already use. 

Where are the startup opportunities in web3?

The security, infrastructure, data, and UX requirements needed to build products in web3 are more challenging than in web2. Web3 also lacks mature solutions, vendors, and experienced builders with the appropriate domain expertise to get the job done.

Furthermore, there isn’t a clear blockchain standard (although EVM is becoming something of a standard in terms of smart contract implementation), and supporting integrations with tens of different blockchains is extremely expensive in terms of engineering effort.

It took decades to build a mature application stack for web2—will the same be true for web3? Here are some of the areas where TheGP sees opportunities for founders:

Infrastructure

  • Key management. Think: MPC solutions, policy engines, APIs, and compliance tooling.

  • Blockchain data and indexing, especially with higher-level enriched data across multiple chains.

  • Transaction fulfillment. Think: Efficient ecosystem wrapper for block builders, validators, searchers, etc. in the MEV space.

Developer Tools

  • Secure no-code/lo-code dApp builders. Smart contract development is complex and prone to security holes.

  • Web3 growth/marketing/analytics platforms. We're looking at tools to extend the web2 growth playbook to web3.

  • Smart and embeddable wallet SDKs. Let application builders (such as game studios) trivially onboard their customers to web3, efficiently and securely.

Application Layer

  • Web3 messaging. We're looking for the ability to communicate efficiently with arbitrary wallet addresses.

  • Security and fraud prevention. Blockchain transactions are immutable, and people need to be better protected from hacks and scams.

If you’re building in any of these areas, please feel free to reach out to us directly on Twitter.

Edited by Taylor Majewski

Image: DALL-E

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