What Is Web3 and Why Is Everyone Talking About It?

Web 3 represents the next generation of the internet, one that focuses on shifting power from big tech companies to individual users.

Web 3 – also known as “Web3″ or “Web 3.0″ – is a term you may have heard thrown around a lot lately. It simply refers to the next iteration of the internet that promotes decentralized protocols and aims to reduce dependency on large tech companies like Youtube, Netflix and Amazon. But what is it, and why is it on everyone’s minds?

What is Web 3?

To understand Web 3, it makes sense to understand what came before. The first version of the Internet – known as Web 1 – arrived in the late 1990s and comprised a collection of links and homepages. Websites weren’t particularly interactive. You couldn’t do much apart from read things and publish basic content for others to read.

Brian Brooks, the CEO of Bitfury, put it smartly in a speech to the U.S. Congress in December 2021: “If people remember their original AOL account, it was an ability to look in a curated ‘walled garden’ at a set of content that was not interactive, but was presented to you on AOL, the way that Time Magazine used to show you the articles they wanted you to see inside of their magazine, just you could see it on a screen.”

Web 2 came next. Some people call this the “read/write” version of the internet, in reference to a computer code that lets you both open and edit files rather than just view them. This version of the Internet allowed people to not only consume content but create their own and publish it on blogs like Tumblr, Internet forums and marketplaces like Craigslist. Later, the emergence of social media platforms including Facebook, Twitter and Instagram took content sharing to new heights.

After a while, the public became cognizant about the way their personal data was being harvested by tech giants and used to create tailored advertisements and marketing campaigns. Facebook has had the spotlight shone on it innumerable times for breaching data privacy laws and was hit with a $5 billion fine in 2019 – the largest penalty ever issued by the Federal Trade Commission (FTC.)

Although Web 2 has brought the world amazing free services, a lot of people have grown tired of the new “walled gardens” these huge tech companies have created and want to have more control over their data and content. This is where Web 3 comes in.

Web 3 can be understood as the “read/write/own” phase of the Internet. Rather than just using free tech platforms in exchange for our data, users can participate in the governance and operation of the protocols themselves. This means people can become participants and shareholders, not just customers or products.

In Web 3, these shares are called tokens or cryptocurrencies, and they represent ownership of decentralized networks known as blockchains. If you hold enough of these tokens, you have a say over the network. Holders of governance tokens can spend their assets to vote on the future of, say, a decentralized lending protocol.

Again, here’s Brooks: “The real message here is that what happens on the decentralized internet is decided by the investors versus what happens on the main internet is decided by Twitter, Facebook, Google and a small number of other companies.”

 What can you do on Web3?

Web 3 makes the proliferation of cooperative governance structures for once-centralized products possible. Anything at all can be tokenized, whether it’s a meme, a piece of art, a person’s social media output or tickets to Gary Vee’s conferences.

A great example of the paradigm shift is in the gaming industry. Gamers grumble endlessly about the bugs that developers leave in their favourite video game, or how the latest patch has upset the balance of their favourite weapon. With Web 3, gamers can invest in the game itself and vote on how things should be run. Large Web 2 companies, like Meta and Ubisoft, are creating virtual worlds powered in part by Web 3. Non-fungible tokens (NFT) will also play a huge role in reshaping the gaming industry by allowing players to become the immutable owners of the items they accrue.

Criticisms of Web 3

The main criticism of Web 3 technology is that it falls short of its ideals. Ownership over blockchain networks is not equally distributed but concentrated in the hands of early adopters and venture capitalists. A public spat recently erupted on Twitter between Block Inc. CEO Jack Dorsey and various venture capitalists over Web 3, bringing this debate to the forefront.

At the heart of the critiques is the idea of “decentralization theatre,” where blockchain projects are decentralized in name but not in substance. Private blockchains, VC-backed investments, or decentralized finance (DeFi) protocols where just a few people hold the keys to hundreds of millions of dollars are all examples of decentralization theatre.

And despite the supposedly leaderless community of protocols, there are clear figureheads. Izabella Kaminska, the outgoing editor of the FT blog Alphaville, pointed to the huge amount of power that Vitalik Buterin, the co-founder of Ethereum, continues to have over the network, even though he’s no longer involved in its development:

“Vitalik is a funny and contradictory phenomenon in his own right. He operates as the spiritual leader of a de facto headless system, while holding incredible sway and influence over the headless system he created and oversees,” Kaminska told The Crypto Syllabus.

Things aren’t much better within decentralized finance protocols. They’re rife with voter absenteeism, often rely on centralized infrastructure and the barrier to entry in creating them is still high, given that creating blockchains seems to be arcane magic reserved for only the most highly specialized engineers.

But despite its problems, Web 3 has a lot of potential. Whether it’s too idealistic to put into practice will be something that everyday users will discover over the next decade.

What does it mean for brands?

Let’s start with NFTs. It’s been nearly impossible to avoid the news around NFTs over the past few months. Headlines touting multimillion-dollar sales for ownership stakes in digital images have been unavoidable. And, just as quickly, headlines have emerged questioning the validity of NFTs as markets have cooled and sales prices have dropped.

What feels like a rocket launch and subsequent plunge into the ocean is just a blip on the NFT radar. NFT tech has existed for half a decade, but only started to take off in the past year. Regardless of the news cycles, the reality is that NFTs are here to stay.

 

For brands that deal in collectibles like Topps and Funko, there is a natural connection to NFTs. Topps started releasing NFT baseball cards in April. Packs could be bought online and opened virtually, giving buyers the traditional element of surprise, and an online marketplace makes for easy trading and selling on the secondary market.

But the secret Web3 sauce here is the blockchain that the NFT cards live on. Because of the blockchain, there is no fear of counterfeiting or theft. Card scarcity is built in. And, when one collector purchases a card from another, the funds are verified, and the asset is swapped automatically in a “trustless” system. Everything is verifiable and virtually impossible to hack.

While trading cards might be a no-brainer for the NFT market, others are starting to see the much larger utility here. Social marketing “guru”, Gary Vaynerchuk, launched his own line of NFTs in May called VeeFriends. The cards themselves are just digital versions of Gary’s doodle drawings. But, every NFT serves as a ticket to his upcoming VeeCon conference. And different tiered NFTs grant additional real-world benefits like one-on-one time with Gary or regular gift drops. Any owner of the NFT can easily sell it to someone else while passing on the NFT features to the new owner. Again, this is all verified on a blockchain and doesn’t require a human to input data and potentially mess something up for the end-users.

 

Over the next couple of years, we will see NFT and smart contract tech-infused into all kinds of digital transactions, from concert tickets to micro-investments. Brands will be able to verify the authenticity of the digital assets they create and track them throughout their journey around the web.

 

Another place where decentralization, blockchain tech, and NFTs will help usher in the Web3 era is in the Metaverse. I know, this sounds like something out of Ready Player One. And, it’s not that far off. A number of online platforms are already vying to be the prominent platform for our virtual lives. There’s The Sandbox, Decentraland, and Cryptovoxels just to name a few.

Forward-thinking brands are already claiming their stakes, quite literally. In The Sandbox, brands can buy land plots and build entertainment experiences on them. Atari is one example that’s leading the way here.

While Atari pioneered the personal video game space and seemed years ahead when it rose to fame in the 1980s, it largely fell into being a nostalgia brand over the past couple of decades. But Atari has fully embraced the Web3 movement, buying up land in The Sandbox, partnering with NFT companies like RTFKT to release digital wearables, and even launching its own blockchain and ATARI tokens to try and be a leader in this new space.

There is no doubt that we are early into the next era of the internet and the digital economy. Many of the examples above may not even be here in 3 years, but it’s safe to say that there is a massive change coming. It will affect brands on virtually every level, and the sooner brand stakeholders start experimenting and connecting with their audiences in these new ways, the better.

 

How can brands use Web3 to transformative value to its consumer and new experiences?

Web3 involves sharing data across a network of computers in a fully distributed manner. Web3 enables users to be in control of their data and identity instead of big corporations. Unlike third-party servers and databases, Web3 applications are built on peer-to-peer networks to allow users to interact directly.

Blockchain technology and cryptocurrencies make Web3 possible through direct peer-to-peer transactions and data exchanges. This means users can trade with each other without a central intermediary, such as a bank or company.

Advantages of Web3 in retail includes:

·      Empowering consumers with more privacy than ever before which also gives them more control over their shopping experience

·      Offering new ways for retailers to connect directly to consumers instead of through third parties

·      Improvements to customer service

·      Building new forms of brand value by enabling ultra-personalized shopping experiences

·      Offering greater transparency into product sourcing and manufacturing (I mean who doesn't like a good behind the scenes)

·      Rewarding customers for sharing information about their purchases with friends and family

How can brands avoid being left behind?

In the early days, brands who innovated first had a huge competitive advantage. Additionally, companies with the fastest development of digital capabilities and the best online experience could gain new customers and build loyalty.

With Web3, we're seeing a similar scenario play out. By understanding what Web3 is and acting fast, brands have a chance to differentiate themselves from their competitors.

With a view to the future, Web3 (built upon blockchain technologies) is designed to give users more control over their data, privacy, and security. It offers a way for marketers to build consumer trust in online systems and platforms that are now so often beset by authenticity, data security, and privacy issues.

Web3 brings a new set of possibilities for brands, retailers, and consumers.

Web3 will challenge brands to adapt their business models, embrace digital transformation and test the waters of agile marketing, as the new infrastructure yields new opportunities for brands to optimize their value.

 

Like the luxury brand, Gucci, for example.

Gucci goes deeper into the metaverse for next NFT project.

A new partnership with 10KTF includes a virtual world and mysterious Gucci Grail NFTs. But is it digital fashion? Fans must wait and see.

Gucci’s latest metaverse partnership is with 10KTF, an NFT project that includes a virtual floating “New Tokyo” world, fashion accessories for purchase by profile picture NFT owners and a fictional character called Wagmi-San, a play on the Web 3.0 phrase “wagmi”, short for “we are all going to make it”.

 

Gucci, via its experimental Gucci Vault off-shoot brand, has introduced the first of initial details that confirm the partnership with 10KTF on Twitter and Discord, where it has a Gucci Vault account, confirmed by Vogue Business.

 

The NFTs, called Gucci Grail, will be revealed on 23 March, minted on the Ethereum blockchain. Fans do not yet know what the ultimate reward will be, other than a “unique and personalised NFT envisioned by [Gucci creative director] Alessandro Michele and carefully crafted by Wagmi-san”. Already, 10KTF enables digital accessories such as sneakers and bags, so many fans are anticipating a Gucci NFT wearable, which would be a first for the brand.

 

In a tweet Wednesday, Gucci wrote, “In constant pursuit of precious wonders, #AlessandroMichele takes a trip from Rome to New Tokyo where he meets the famed digital artisan Wagmi-san from the @10KTFshop.”

 

Accessing the NFT is a lesson in creating luxury-level exclusivity and anticipation in the metaverse. On an information FAQ page, Gucci and 10KTF have shared a complex list of requirements. First, people need to register for an “allow list” to qualify for one of 5,000 “mint passes”. Some passes will be reserved for friends of Gucci and 10KTF. Otherwise, to redeem a mint pass, people need to own an NFT from one of a range of included previous NFT projects, and pay 1 ETH, or about $2,700. Allow list access is granted to those who have shown community involvement, including members of the Gucci Discord community who have achieved the title of “Explorer” (based on engagement), or those who own a 10KTF NFT or an NFT from a supported project. Supported projects read like a “who’s who” of popular PFP collections, including World of Women, Cool Cats, Bored Ape Yacht Club and Forgotten Runes Wizards Cult (excluding Forgotten Souls). And by the way, mint passes expire on 18 March.

Gucci's recent Milan runway show revealed pieces codesigned with Adidas, another metaverse early adopter that is developed virtual real estate in The Sandbox.

This isn’t an exhaustive list of requirements, either, and it's purposely complicated – the goal is to reward brand affinity, engagement in communities like Discord and build hype around access.

 

10KTF is a narrative experience designed to be a metaverse-style treasure hunt that rewards people for engagement and early adoption. It was created by Wenew, Inc., co-founded by artist Mike Winkelmann, known as "Beeple," who famously sold an NFT via Christie’s a year ago for $69 million. Wenew previously partnered with Louis Vuitton on its NFT project in August of 2021, which gave access to free NFT postcards as a reward for those who successfully engaged with Louis the Game, an independent game created in conjunction with the house’s 200th birthday.

 

Clues and details for 10KTF are dripped out via social channels, airdrops of assets are given to those who hold certain NFTs, and access is limited to those who hold specific NFTs. Fans have been piecing together clues for weeks, and are expecting more “reveals” as this project progresses.

 

This sort of complexity has become a key theme in metaverse projects, engineered to increase hype and encourage engagement, particularly among those in the know. For example, Gucci recently granted Explorer status to certain highly engaged members of its Discord community, indicated by a different colored username.

 

Its recent collaboration with animated toy startup Superplastic, on a collection of “SuperGucci” NFTs, granted tiered access to purchase the NFT figures, which also came with a physical ceramic figurine. Those who were already owners of Superplastics first NFT drops were granted early access to purchase the SuperGucci NFTs. Most NFT projects feature similar “allow lists". Luxury digital fashion startup Cult & Rain, for example, rewards people who share the project on Twitter, while Adidas gave a special POAP, or proof of attendance protocol, badge to members of the Adidas drop app.

 

Among luxury brands, Gucci has been a leading early adopter of metaverse technologies. Most recently, it announced that it had purchased and was in the process of developing virtual real estate in The Sandbox, a metaverse platform and Decentralad competitor whose economy is centred around NFTs. Its recent Milan runway show referenced The Sandbox announcement, with grids and pixelated texts that were evocative of The Sandbox aesthetic. During the show, Gucci also unveiled a partnership with fellow metaverse adopter Adidas, which is also developing Sandbox real estate.

 

In February, Kering president and CEO François-Henri Pinault revealed that Kering, parent company of Gucci, had created a team fully dedicated to Web 3.0 and the metaverse, as well as individual teams for Gucci and Balenciaga. He recently told Vogue Business that he sees three potential metaverse opportunities for luxury: NFTs linked to physical products, virtual products and smart contracts that give revenue from secondary sales. “We are in an extremely early stage of what could happen. Nothing is certain; it might fizzle out,” Pinault said. “But, the philosophy of the group when it comes to innovation — rather than wait and see, which is often the posture of luxury houses — is to test and learn.”

 Meta versus TikTok: Who will win fashion?

The share price of Meta, owner of Facebook and Instagram, tumbled by 26 per cent yesterday as Mark Zuckerberg conceded a fall in daily active Facebook users, and said users were spending more time on TikTok. What does that mean for fashion?

Meta shocked investors by announcing the first-ever fall in daily Facebook users, while conceding rival Bytedance-owned TikTok was taking more of users’ time. In fashion circles, TikTokers are dominating the front rows of fashion week, but Meta is investing in the sought after metaverse. So who will win fashion?

 

Since rebranding from Facebook, Meta said revenue fell short of expectations in its fourth-quarter earnings call, leading to a more than $200 billion decrease in its market valuation. CEO Mark Zuckerberg admitted that TikTok was a key competitor (and taking more of users’ time) while Reels, Instagram’s short-form video answer to TikTok, was less mature. Video advertising is typically harder to monetise than the type of in-feed ads that sent Instagram and Facebook to dominance, he added. Facebook daily active users decreased by about half a million at the end of last year, and monthly active users also fell below analyst estimates. Slowed advertising revenue growth in part due to Apple’s 2021 privacy changes also weighed on the share price. Snap and Pinterest’s share prices also fell.

 

TikTok still has room to grow: TikTok reached 1 billion monthly active users in September, while Meta reported 2.9 billion in 2021. In advertising revenue, TikTok is far behind, making approximately $4 billion last year, compared to Facebook’s $100 billion.

 

Fundamentally for fashion, Meta and TikTok are competing for the attention span of younger users, while they also compete for fashion as advertisers. Already, TikTokers have joined fashion guest lists along with now-traditional bloggers and Instagram-first influencers. Meta’s one advantage — it hopes — is its aggressive push toward shopping; in recent years, it has rapidly rolled out technology that helps people buy what they see on Instagram especially, including in-app checkout, computer vision to find shoppable versions of goods seen on images and live video shopping. It’s also increasing the integration between Facebook and Whatsapp to enable brands to create storefronts, called Shops, and upload inventory and communicate with customers.

 

“Our strategy here since introducing Shops a year and a half ago has been to make it as easy as possible for people to make a purchase after discovering a new brand or product without having to switch over to a browser or re-enter their payment info,” Zuckerberg said.

 

Part of the plan to combat a loss of attention is a major pivot to a metaverse platform, an area that is also crowded and will take time to catch on. The metaverse is widely regarded as the next stage of the web, and expected to be as influential as websites and social media for fashion, especially because of the opportunity to sell digital items for avatars. Already, leading brands such as Gucci and Ralph Lauren are signing on to metaverse experiences on platforms such as Roblox, Zepeto and Decentraland, and Morgan Stanley predicts social gaming could add up to $20 billion to luxury’s total addressable market.

 

Virtual worlds and virtual commerce also mean the opportunity for virtual ads, informed by behavioural data that far surpasses what Instagram or Facebook could measure via tapping and scrolling. In its pivot to the metaverse, Meta is heavily investing in augmented reality, virtual reality, artificial intelligence and the necessary talent to build hardware and software to do this, a cost further eating into profits.

 

Meta’s vision is a virtual world in which realistic-looking avatars, wearing digital clothing that people bought via one of its properties, congregate to work and play. It hopes that all of its properties are integrated, and that people jump between its virtual worlds and augmented worlds using a range of its hardware, including AR glasses and high-end headsets. But “this fully realised vision is still a ways off,” Zuckerberg admitted, and there are already a range of players who have a head start in building immersive virtual worlds for commerce, including Roblox, Decentraland and The Sandbox.

 

Discord is another competitor, Zuckerberg noted, as the gamer chat platform quickly evolves into a destination to discuss Web 3.0 and NFT projects.

 

When the company announced that it was changing its name to Meta in October, searches for the term “metaverse” soared. Already, people mistakenly think that Zuckerberg and Meta have invented “the metaverse”. But if this is a positive for Meta is unclear: Many people already distrust Facebook. As many as 87 per cent of Americans expressed privacy concerns if Facebook succeeds in creating its proposed metaverse, according to a recent study from VPN service provider NordVPN. It also found that more than 41 per cent think it will be hard to safeguard their real identity from their metaverse identity.

 

Additionally, the concept of “the metaverse” is inherently interoperable, meaning that a dominant platform approach is discordant with the premise of early adopters.

 

Thus, Facebook might face a challenging couple of years ahead as it pursues its metaverse vision while retrofitting Instagram to compete with TikTok. “Meta is sacrificing its core business model for its fascination with the metaverse," said Rachel Jones, associate analyst at data and analytics company GlobalData, in a statement. “Betting big on the metaverse isn’t a bad thing, but it will take at least another decade to really get going, and Meta’s underwhelming number of daily users on both Facebook and Instagram signify intensifying competition for user engagement with other platforms.”

 

The Benefits of Web3 For Brands and Retailers

Build meaningful relationships with consumers

One of the primary benefits for brands and retailers is connecting directly with customers. By removing the middlemen, brands can cut out expensive fees, access more data from their customers, and communicate more effectively with their audience.

Data Quality and Trust

For brands and retailers, Web3 introduces a new level of data quality and trust because consumers have to opt-in before any data is shared. The data is inherently more trustworthy. This improves marketing efforts across the board by providing better insights into consumer behavior.

In addition, the brand-to-consumer relationship can be strengthened through transparent engagement at scale, as well as providing a more direct connection with your customers.

The result is improved marketing ROI for brands and retailers.

Privacy and Ownership of Data

With Web3, consumers benefit from blockchain technologies. They gain privacy and ownership of their online data while also earning rewards for sharing it with brands they care about. This incentivizes users to share their data in exchange for real value that they can use in the real world.

Additionally, each consumer has full control over how others use their data - they can choose to set privacy policies around how long their data is accessible or who has access to it.

Complete Control Over Products

Imagine a world where brands have complete control over their products on the secondary market, where consumers can buy authentic goods with confidence and get rewarded for it.

A world where everyone from the manufacturer to the reseller can verify that a product is genuine, track it throughout its lifecycle, and collect data to improve processes and increase value.

Using decentralized technologies like blockchain, Web3 enables brands and retailers to create an ecosystem of traceable, authentic products verified at every touchpoint in their lifecycle.

This means full transparency, total security, and complete control over your product economy. It’s a powerful proposition with far-reaching implications for businesses and consumers.

Track Products Throughout The Supply Chain With Certainty

Currently, supply chains are tracked through paperwork and databases. This can lead to errors and counterfeit goods. With Web3, companies can create a shared ledger that all parties involved in production can update in real-time as the product moves from one stage to another.

Blockchain technology has the power to completely transform retail and e-commerce by providing consumers with greater confidence in their purchases.

For example, blockchain can allow customers to purchase from retailers whose supply chains have been audited for social and environmental impact or whose product components or materials are traceable back to their origin.

This transparency makes it easier for companies to ensure that high-quality products are delivered without any issues.

Facilitating Easier And Seamless Financial Transactions

The future of crypto promises to take this one step further by bringing together commerce and blockchain technology.

Web3 will bring services like digital identification, micropayments, and commercial transactions to consumers who will be able to connect with brands and shops on a global scale without paying excessive fees or waiting days for funds to settle in their accounts.

As more of these technologies become available, it's possible to see how they can help create new customer experiences leading to better outcomes for everyone involved like more convenient shopping experiences for customers, more efficient business operations for brands and retailers, and innovative new ways of capturing value for creators.

Challenges of Web3 include:

·      New technologies need to be understood, and their impact on current business models assessed.

·      The industry will be forced to adapt to new business models and introduce new technologies that potentially affect the way they operate.

·      Brands will have to join a blockchain or create their solutions and work with partners in the ecosystem to effectively implement Web3 across their supply chains.

Brands such as Coca-Cola and Nestle are already involved in pilot projects with IBM Food Trust, but they have no incentive to share their data with their competitors. Thus, the challenge lies in getting all brands to use a single blockchain platform.

Similarly, on the retailer side, while Walmart is one of the biggest backers of blockchain technology, smaller retailers may find it difficult to afford the technology needed to get onboard.

Tokenizing digital scarcity allows brands to create digital collectibles like physical objects with unique intrinsic qualities. Brands need to consider how this affects their approach toward creating brand value and cultivating consumer relationships.

With the world moving away from centralized networks to decentralized networks, what does that change for brands?

In the same way that e-commerce changed the retail game forever, Web3 is set to change the brand and retail game forever.

While many assume blockchain technology is just for crypto, it’s much more than that. It’s a technological shift that will have a huge impact on everything from finance, logistics, healthcare, and retail and brands.

Why? Because people trust brands less and less. And brands are starting to realize consumers are looking for something different. They don’t want to rely on brands alone anymore, they want to build their own trustworthy communities.

So what does this mean for brands?

Brands will need to change their approach with consumers if they want to stay relevant in the future. It won’t be enough anymore for brands to sell products or services; they will need to create an experience for the consumer that goes beyond just buying something.

Brands will need to build communities around their products. Communities where people can learn from each other and make informed decisions together. This will give them more value than just buying a product or service from a brand ever could.

 

Impact of Web3 on brands and retail in the future

The possibilities of Web3 blockchain technology are exciting. The data, insights and transparency that it can provide for both brands and retailers will no doubt lead to the creation of more effective marketing campaigns, which will ultimately lead to higher satisfaction levels among customers.

The fundamental shift taking place with decentralized technologies like blockchain and cryptocurrency is going to take a while to play out. The use cases we’ve covered in this article will take time to develop and reach mainstream adoption (if ever).

However, there are already signs of a transformation in how brands interact with consumers — and vice versa — taking place. It’s easy to see how these trends can cause disruption in retail, marketing, and loyalty programs.

While it may be too early for a retailer or brand to start adding crypto payments or implementing blockchain-based loyalty programs, getting involved with the latest tech developments is essential for those companies looking to keep up.

 

Sources:

https://www.coindesk.com/learn/what-is-web-3-and-why-is-everyone-talking-about-it/
https://blog.thisiselevation.com/web3-is-coming-what-does-it-mean-for-brands
https://www.linkedin.com/pulse/how-web3-transforming-future-brands-retail-claudia-pilgrim-icp-mkg/?trk=public_profile_article_view
https://www.voguebusiness.com/technology/gucci-goes-deeper-into-the-metaverse-for-next-nft-project
https://www.voguebusiness.com/technology/meta-versus-tiktok-who-will-win-fashion
https://www.linkedin.com/pulse/how-web3-transforming-future-brands-retail-claudia-pilgrim-icp-mkg/?trk=public_profile_article_view