In Web3 we need to stop thinking in terms of products, and start thinking in terms of economies, because a Web3 startup does not generate sales from selling products and services, it generates revenue from… (read the full article to find out what it is).
In this article, I would like to elaborate on four main topics that are deeply connected to each other:
1) Digital connection, reputation, and ownership
2) Blockchain in simple words
3) Middleman companies and trust
4) Web2 vs Web3 companies
But first, let me start with an introduction:
We spend easily about 50% of our time awake looking at digital screens. The physical world and the digital world are melting together more and more. Although people try to actively reduce screen time, the reality is that even with less screen time, we will be even more dependent and connected to the digital world. This trend is growing, has been growing, and will be growing for a long time.
Whatever we do on the internet and whatever we post, we are creating something I call a digital reputation. We are leaving behind a digital trail.
In Airbnb, your digital reputation is what people actually trust when they decide to host you. The consequences of bad reviews might be that you are not even allowed to stay.
Your digital reputation can get you a date, but more drastically, it can fail a potential date before it starts. Who can resist the temptation of quickly scrolling through the public information and images of the other person?
A solid digital reputation is also what might land you a well-paying job, assuming the human resources department successfully checks your public social media channels and doesn’t find a red flag during the deep dive into the Google search results.
Over the last two decades, we all have been building a reputation in the digital world, whether we wanted it or not. We are constantly making more connections with people, companies, and to so-called online knowledge sources.
Imagine you meet a new person in a co-working space, during a business event, or anywhere in your life. You meet him physically, shake hands, and then exchange the contact details for the digital connection. But more importantly, right after you separate again, you will probably take a quick look at his profiles, his LinkedIn, Facebook, and google his name.
Your digital identity, your digital data, and even more important, your digital reputation is slowly becoming more important to you than your physical one.
But ask yourself, when everything depends on your digital reputation and your online connections, the one question you need to ask yourself is: who owns it?
An average internet user has 150 different accounts. Yet, you own none of the data. Even with GDPR, the general data protection regulation from the EU, you still own none of the data.
Now it is time for a thought experiment: Imagine you lose access to your water supply in your house. Most likely you will buy some water elsewhere, get it fixed, and continue with your life. What about when your power connection breaks down? Same story, eventually, you will somehow get it fixed and then just continue with your life. But what about if you lose your digital reputation and all your online connections? The reality would be devastating. You will almost need to rebuild 20 years of the reputation you created over that time and will have to make all the connections once again.
All the creative content you created over the years: lost.
All the followers and subscribers: gone forever.
It is one big illusion that we are in control of our digital life.
Who owns you when you’re logged into your computer? Who owns your data when you are building your reputation online and connecting to all the interesting people, companies, profiles, blogs, and knowledge sources?
If you spend half of your life in the digital world, but you don’t own what you have built on the internet over all the years, then half of your life is not yours.
This is happening because in today’s world all the data is on centralized databases, owned and operated by corporations, not by you. There is a systematic risk for each and every one of us who stands for a free and open world, and this is where blockchain and Web3 can make a huge difference.
Blockchain in simple words
At its core, a blockchain is nothing else than a database. It is a public ledger. Imagine an Excel sheet that is open for everyone to contribute. However, a blockchain is not owned by a single company or a person, it’s owned by millions of people across the world whose personal computers verify each transaction or each new line that is added to this database. Essentially, a blockchain is a ledger of digital transactions.
Every person with an internet connection can add data to the blockchain, but no one can manipulate it. If you want to change the data, you’ll have to send a new transaction, which will add a new line to the database, and that will connect to the previous one. All transactions will be bundled into blocks, cryptographically secured, timestamped, and connected to each other. If someone tries to manipulate any parts of the database, the other 99.9% of computers will realize that something is not adding up and won’t allow it to happen. This feature, and a cryptographic part of it, makes the blockchain very secure.
This was a very simplified explanation of blockchains and there is a variety of different blockchains with very diverse specifications.
To better understand why blockchains are such a groundbreaking innovation, let me give you a bit of background about the history of the internet. It all started with something that is now called Web1. In the 1990s, websites were rather static and, from today’s perspective, visually not very appealing. People accessed websites mainly to find basic information. It was more about replicating the information of the physical world to the new digital world. Many websites functioned like business cards, containing some core information like address, phone number and opening hours on their homepage.
Then, around 15 years later, for the first time users could easily create and upload content online — from text and images to videos. This phase of the internet is considered Web2 now.
Facebook and other social media platforms started to gain momentum. Users connected with other users, followed and subscribed to each other, and started to build something like a reputation in the digital world. Web2 essentially allowed people to connect and create communities. It allowed them to be digital creators and create the multi-billion creator’s economy we know today.
But, again, the one question you need to ask yourself is: who owns the data?
The short answer is, to no surprise, the big tech companies.
There is this famous saying that if you’re not paying for a service, you’re not a user. You are the product. Companies profit from your data with their private database. They monetize the traffic and attention that you generate for them. In return they give you little to nothing.
Although it is not a secret anymore that tech companies have become slightly too powerful and earn money off of our content, most people are not aware that there is a solution. This is where Web3, Bitcoin, Ethereum, and blockchains come into play. Essentially, Web3 is about digital ownership. And with digital ownership countless new possibilities emerge.
Instead of being a passive user on all those websites and platforms, blockchain technology allows people to become something like their very own tiny little micro-company that owns their data.
We can all own our content, our posts, and our identity. We can allow others to make use of our data and generate us money, just like the big tech companies have been doing it. We have the potential to build a world in which we really own our data, reputation and our connections. And of course, it will not be rocket science to transform yourself into your own micro-company and to allow all this to happen. My prediction is that in most cases, it might require just a single click. It might become the new normal.
For the next part of this article, I’ll talk about why blockchains have so much potential by explaining two very important concepts: information and value. I have also written about blockchain’s potential in a previous article. Feel free to check it out here
Technically, there are two major things humans exchange with each other:
The main difference between information and value lies in its functionality.
One can be copied, the other can’t.
The Internet is the global standard for the exchange of “information”. Before that, we had private networks, like the “Intranet” in a company. Those were already useful networks, because you could send messages to your colleagues, you could share files, you could do many things — but all within your private network. It was the global Internet protocols that changed the game because it connected each and every person on this planet who had access to it.
Before that, all those networks were isolated networks — or data islands.
However, what we didn’t have for a long time was something like a global database for the exchange of “value”. This is the blockchain.
Up until this time the world needed to rely on middlemen to exchange value, as it wasn’t easily possible to keep track of value ownership collectively, globally and securely.
Think about the thousands of banks that exist today. Think about Paypal, Wise, Revolut, stock brokers, exchanges, Visa, Mastercard, and all the players in the finance sector. They all operate their very own databases for value and track all the users’ funds in their own data islands that are connected through APIs with some other players in the industry so you can send the value to someone else. However, not everyone and everything is connected.
The solution would be a public database that enables the exchange of “value”, a new standard that secures our privacy and allows every person on the planet to participate. It must not be controlled by a single person, a company or organization. This is what a blockchain is.
Instead of connecting millions of data islands through APIs, people will just connect their back end to a blockchain. This technology will have implications on our lives as big as the ones created by the invention of the internet.
Let me give you one more practical example: Think about a digital advertising banner at the top of your blog. It could also be considered “value”, because it can generate money. The reality is you don’t really own the post, and you don’t even own the advertising space. In EventScouts, the web3 Startup we are building right now, you will be able to own your post as well as the ad banner, trade it, and earn money with it. There will be no middleman like Google Adsense in between who takes a hefty cut. Essentially, we give power back to creators, as we try to connect ad banners to the blockchain and make it tradeable and exchangeable with all the other values in the blockchain ecosystem.
About Middlemen companies
If we analyze all the fintech companies mentioned above in this article, we should realize that they offer nothing else than what is called a middleman service. The goal of sending money from point A to Point B is to deliver it to Point B as fast and cheaply as possible. It is not the goal for the end user to go through the hands of a middleman service like a bank or Paypal. As humans, we just accept these methods today because we didn’t have a better solution — until now. Such middleman services don’t add much value to our world, and there are costs of running those trusted third parties. They create a tax on the entire society.
Blockchain will be the solution to this problem, because it allows peer-to-peer transactions, in other words, it allows transactions from people to people directly. It literally removes the middleman company. Web3 is a revolution in how we exchange value with each other and how we are looking at and how we are managing trust.
But let’s quickly look at why trust is so important
People will only buy goods and services from each other if they can trust each other. Naturally, we do not trust each other as human beings. So, over the years we started to create governments, systems, and frameworks and most importantly we created companies.
Before Airbnb, it would have been absolute madness to let a stranger sleep in your house. Airbnb completely changed the game. The reason for this is, that you don’t trust the stranger, you trust Airbnb, the middleman company.
The tech company Uber is actually only connecting two users, a driver who looks for a passenger and a passenger who looks for a driver. They use their own central database to store and manage this data. Again, hopping into a stranger's car was unthinkable only a decade ago. The reason people do it is because they trust Uber and the digital reputation of the participants in the application.
Web3 can make this method of having to trust a middleman company obsolete. Some blockchains come with something called smart contracts. Basically, smart contracts are programmable code that executes itself on a blockchain. In other words, it can connect those two parties mentioned above in the Airbnb and Uber example automatically, without the interaction of other humans. Smart contracts are capable of handling everything from bookings, and payments, to ratings.
Parts of the core business of tech giants like Google and Facebook, who both earn a lot of money through collecting data from users and selling it to advertisers, could technically be replaced through different blockchain applications. A big part of their business is the digital middleman business. Imagine the advertising business model, where on one side is content and traffic, and on the other side are businesses who want to have exposure to it.
Now, for the last chapter, let’s look at the economic side of things:
We already know who owns our data today. Big tech.
Now, let’s see how Web2 social networks earn money, how it is different from Web3 and what trends we can see in the industry.
Web2 social networks build platforms that let users create content and generate traffic to their domains. The revenue comes either from businesses or from users. They are allowing users to build communities but don’t allow them to be truly the owners of their creations and connections. If the platform dies, so does the content. If they want to censor you, they have the power to do so.
Users get zero percentage of the monetization that Facebook and other social media platforms are making off of them. The one and only reason some platforms like YouTube redistribute a tiny percentage of their revenue to the users is to motivate their power users to create even more content that they don’t own.
Ten years ago, Facebook was the ultimate undisputed center of social activity on the internet. It had literally a monopoly. Ten years later, we are having our own digital spaces for very different environments, for example, work environments, leisure, social activities, education, gaming and much more. Let me explain: most apps have some kind of social part built in that allows you to connect, subscribe and contribute. Finance apps let you follow other traders. Book apps let you follow interesting Authors or other readers, and travel apps let you connect to people or content you may like. We have dozens of apps on our mobile phones for all of our interests, and we joined multiple social networks even if they don’t feel like social networks.
People even use multiple Twitter accounts to follow both, work-related content creators and hobby-related creators. There is a clear trend towards more social connectivity across more platforms. Facebook is losing active users, and new social media platforms are popping up in all shapes and forms.
Our connections, which are built on our reputation, will continue to grow in the digital and virtual world and transform into something that is currently called Metaverse. Maybe best described as a place that merges the physical world and the digital world.
Blockchain will give ownership of the data to people. Users of the internet should own their data, and deserve to earn money with it.
The future is to let people collaborate directly with each other, through the use of blockchain technology. Web3 will create a decentralized environment in which a user can do transactions and interact with another user, without the need of a middleman. Imagine the long-term implications this may have to our society if countless Web2 companies become obsolete, simply because users can send money and value peer-to-peer.
This also means that Web3 startups are fundamentally different from Web2 startups because we are not offering products or services to end users or businesses. Web3 startups are creating economies and the tools to allow people to interact with each other directly, peer-to-peer, through smart contracts.
The token holders, the owners of those smart contracts, collect a minor transaction fee. That’s where the value is. A smart contract is not bound to a single website, a single platform or a product. There can be multiple websites, multiple front ends, all connected to the same public database, the blockchain. A Web3 Startup can and should grow into an online economy, not into a company. It is part of a much bigger decentralized ecosystem.
New decentralised social networks in the creator economy will probably reach mainstream attention only in a few years. Rewarding users with ownership can help attract enormous user bases that have the potential to outcompete the existing, centralised counterparts. The reason for this assumption is that ownership for end-users eliminates the conflict between the centralized company behind a social network and the participants, the end-users. It ensures that all stakeholders (investors, users, businesses) are better aligned.
In Web2, platforms strive to earn as much as possible, while users want to discover relevant content and information. This misalignment is dangerous. Because of network effects and because of the lack of ownership, it is hard for end-users to leave a social network for a better alternative. This all could change if the user is in possession of his data.
We see the job as a Web3 platform to provide the users with the means to transact with each other in a secure and trustable way, not through us and our central database. We create the tools and frameworks that allow users to create and own the assets and then trade them with other users directly.
Web3 is not about selling products or services. It’s about creating economies. The smart contracts that power those economies will collect a part of the value that is traded in those economies. And those decentralized economies could grow much bigger than everything that we can imagine right now.
If you enjoyed this article please also DM me and let me know your thoughts.
My name is Andrin, I’m the founder of EventScouts. I’m here because we are building a blockchain protocol that will allow users to upload information (in our case lists containing activities and events) to a shared database, the blockchain. The content created by users will be owned and controlled by the users, and allowing them to earn money with it directly. It basically is the first blockchain based, user-owned, event and activity database.
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