Blockchain, the Metaverse, NFTs: Making Web3 Work
by Grace Dillon, Hannah Dillon on 1st Feb 2023 in News
In association with Alkimi Exchange
While Web3 is on the horizon (if not already upon us), uncertainty about the value of some elements of this new phase of the internet remains. Technologies, including blockchain, NFTs, cryptocurrencies, and the metaverse, have emerged to varying receptions, with proponents extolling their revolutionary potential as loudly as opponents have voiced their incredulity, and many still sitting on the fence.
Yet the belief that Web3 could completely restructure the ad tech industry is strong, and with the metaverse expected to be worth USD$5trn (~£4.03tn) by 2030 and the ice somewhat thawing over crypto regulation, it appears that its technologies have a future. Here, we will analyse these aspects of Web3 to see whether they have the potential to be truly functional, or if they are ultimately fanciful.
As the technology that serves as the infrastructure for Web3, it makes sense to start with Blockchain. Blockchain is a type of distributed ledger technology (DLT), an encrypted digital database that serves as a permanent record of transactions. Information is available to all participants on the network at the same time, and updates can only be made if the majority agree to the proposed changes, and are added to the pre-existing information – they don’t overwrite it.
In a business setting, its secure, democratic, and transparent qualities mean that blockchain can be used to speed up processes while providing clarity to all parties. An example of this in practice are smart contracts – protocols on a blockchain network that automatically run upon the completion of certain preset conditions. Smart contracts are already being used to action business decisions that are otherwise dependent on some form of manual intervention – US retailer Home Depot are already using the technology to identify and rectify issues within their supply chain in real time, improving trust and efficiency between them and their suppliers.
Women of Web3’s Niamh Linehan believes “smart contracts will have a big year” and that blockchain will only become more valuable to businesses. Speaking to The MadTech Podcast, Linehan said that “more traditional industries, like banking and advertising, e-commerce and supply chain management” will begin to adopt blockchain technology to “help with efficiency, opening up a global market”.
One of the most divisive Web3 technologies, cryptocurrencies have been a hot topic thanks to the implosion of trading giant FTX late last year (among other troubling occurrences). Many have been wary of this technology’s utility, dubbing the excitement around currencies such as Bitcoin and Ethereum as something akin to Tulip Mania, and warning of the insecurity of investing in a volatile and almost completely unregulated asset.
Crypto proponents, meanwhile, assert that the technology has the potential to provide an enhanced monetary system. As they are hosted on blockchain networks, cryptocurrencies offer more secure transactions between participants, as individuals can only access the blockchain with the correct credentials. As the currencies of a decentralised financial system, the value of crypto is not dictated by a bank, but rather on the consensus of those who use it, something which some argue makes it more democratic than the fiat monetary system. Alejandro Gutierrez, CEO of Web3 firm Defactor Labs, argues that decentralised finance is the way forward: “DeFi IS the future of financial infrastructure. The benefits that it can bring to financial systems, such as visibility, democratisation of investment, efficiency and inclusion are, in fact, the antidote to the issues at the core of the FTX and Celsius collapses, where centralisation and the lack of transparency were central components of their downfall.”
Recent events may have stoked crypto scepticism, but they haven’t dealt a killer blow. Gutierrez is optimistic that the scandals of the past year will benefit cryptocurrencies in the long run: “There is no doubt that 2022 was a difficult year for crypto due, in part, to the fallout from the FTX and Celsius scandals, numerous crypto hackings, and the resulting loss of trust from investors. But, in my opinion, this has helped weed out the bad players and will allow those in the ecosystem who are able to solve real world problems to show their true value in 2023.”
Like cryptocurrencies, non-fungible tokens (NFTs) have drawn a great deal of ire, with many questioning their applicability. For some commentators, NFTs seem to be no more than virtual pictures that consumers have spent up to several millions to (so to speak) get their hands on.
However, others maintain that NFTs are more than just expensive collectibles. These tokens have a real potential to create a new avenue for consumers and brand interactions by offering exclusive rewards for loyalty and engagement. We have already seen some brands do this, like McDonald’s, who gave away ten exclusive McRib NFTs as part of a Twitter competition. Skincare brand Clinique, meanwhile, offered members of their Smart Rewards program a chance to win an NFT by uploading a short video to Instagram and tagging the company.
Another facet of NFTs is their use as proof of membership of a decentralised autonomous organisation (DAO). DAOs can issue their members with tokens, which evidence their involvement with the group and can be used as a voting right. Linehan suggests that this can give large brands an opportunity to give their fans a greater say over some aspects of the business: “you could have, for example, a DAO of super fans that sit on the board of a football team [...], that’s a fan vote at the board level”.
Similarly to NFTs, the metaverse has attracted derision from some. Meta boss Mark Zuckerberg’s efforts to introduce the metaverse to the masses, in particular, have generated more than a few raised eyebrows around how advanced the technology really is. Reports that Meta’s Reality Labs is burning through funds without turning a profit have further shaken investors’ confidence in the company. This apparent lack of enthusiasm for the metaverse appears to have extended outside of the US, with reports that only six people attended a virtual launch party the EU spent millions of euros on being a particular source of embarrassment.
Despite scathing headlines, however, the metaverse is growing in prevalence on a global scale. In APAC, for example, millions are engaging with virtual platforms such as Roblox, Decentraland, and Zepeto, prompting predictions that the metaverse’s impact on GDP in Asia could reach USD$1.4tn (£1.1tn) by 2035. In the US, a number of big firms have begun trialling Meta’s Horizon Workrooms, including NASA, where over 10% of their Jet Propulsion Laboratory workers reportedly use Quest 2 headsets.
This new plane has piqued the interest of big businesses, with some prominent brands already experimenting in the metaverse. High fashion brands Dolce & Gabbana and Estee Lauder, for example, participated in the first Metaverse Fashion Week in 2022, an event which accrued 108,000 unique attendees despite technical glitches. Entertainment powerhouse Disney has also dived head-first into virtual reality aspirations to use the metaverse to deliver immersive experiences to customers globally. As is the case for Web3 as a whole, the metaverse is certainly in its nascent stage, however how brands are already interacting with the virtual world paints a promising picture. With analysts now predicting that ad spend in the metaverse will reach between USD$144bn and USD$206bn (~£116.3bn and £166.3bn) by 2030, the space’s potential for brands is far closer than we may think.