Web 3 in Internet Industry Transformation

1. Background: The transition from Web 1.0 to Web 3.0

In 1993, before the emergence of Web 1.0, the United States released the National Information Infrastructure Plan (National Information Infrastructure Plan), which paved the way for the information age and gained the global leadership of Web 1.0 and Web 2.0. Today, 30 years later, the Internet is transitioning to Web 3.0. The size of this new market will reach USD 3.2 billion in 2021 and is expected to grow at a CAGR of 43.7% over the next 10 years. At the same time, capital markets are betting on related industries: In 2022, Web 3.0-related start-ups around the world will receive a total of $25.2 billion in investment, a 700% increase from the previous year.

Among the 679 financing events in the blockchain industry, the web3 industry’s annual financing totaled more than 5.6 billion US dollars, accounting for about 12% of the industry’s total financing.

Industries and innovations enabled by Web 3.0 technologies also benefit from government support and incentives, as countries compete strategically to lead the R&D landscape that drives the infrastructure of the future. According to Google Trends, online search interest in Web3/web3.0 has surged in recent years, mainly in countries such as China, the United States, and Singapore. In addition, data from Baidu, China’s leading search engine, also showed an increase in the term’s popularity.

1.1 What is Web 3.0?

Web 3.0 (also known as Web3) is a new version of the World Wide Web that combines ideas such as decentralization, blockchain technology, and a token-based economy. In 2014, Gavin Wood (former Ethereum CTO and founder of the Polkadot project) first publicly linked this new idea to the blockchain, forming a consensus around this emerging movement. In 2021, venture capital firms, cryptocurrency enthusiasts and big tech companies are all starting to show interest.

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As the concept of Web 3.0 is still evolving, there is not yet an officially recognized definition of Web 3.0. To be sure, Web 3.0 places a strong emphasis on the use of decentralized and blockchain-based technologies. It also includes AI and machine learning, which will serve Web 3.0, delivering more intelligent and adaptive applications. The Semantic Web is an extension of the Internet designed to provide programs with machine-interpretable metadata, another recurring element in the evolution of the Semantic Web definition.

1.2 Main Features of Web 3.0

Web pages in Web 1.0 and Web 2.0 technologies are designed and delivered using Hypertext Markup Language (HTML). In Web 3.0, HTML will still be the core layer on which the web is built, but its relationship to data sources and their placement may not be the same as in past web generations. In the era of Web 2.0, most websites and almost all applications rely on some kind of centralized database to provide data and support their functions. With Web 3.0, such services will employ a decentralized blockchain system rather than an arbitrary central authority.

In fact, the blockchain and Web 3.0 communities strongly support decentralized autonomous organizations (also known as DAOs) as an alternative form of governance. With a DAO, Web 3.0 technologies and communities will gain a form of self-governance that will allow them to move away from centralized control over platform operations.

At the same time, Web 3.0 is also expected to work with cryptocurrencies — built and enabled on top of blockchain technology, allowing financial activities in the form of decentralized payments. Finally, a key aspect of Web 3.0 will be an overall increase in automation, primarily driven by artificial intelligence.

1.3 Classification of Web 3.0 Applications

Web3 operating system: public chain, Layer2;

Web3 identity passport: DID (decentralized identity), wallet, domain name;

Web3 applications: SocialFi, GameFi, DeFi, Metaverse;

Digital commodities under the new Web3 economy: cryptocurrency, NFT;

The governance mechanism of Web3: DAO;

The underlying infrastructure of Web3: data storage, data indexing and management, privacy computing, oracle…

The field with the highest financing amount in the Web3 industry is NFT, followed by web3 applications and communities.

In terms of average financing amount, the average financing amount obtained by NFT and Web3 applications exceeds other fields, and is significantly higher than the average financing amount of the blockchain market. The average financing amount obtained by the web3 industry is also significantly higher than the average financing amount obtained by the market.

2. Web3 standing on the cusp

In the past year, Web3 has become the hottest word in the Internet industry in 2022. According to institutional statistics, since 2017, the publicly disclosed financing scale in the web3 field has exceeded US$36 billion, and top investment institutions have also joined in.

In 2022, the capital with the highest total financing amount and the highest number of financing transactions in the web3 field is a16z, and the number of financing transactions of jumpcrypto is relatively small, but the investment amount is far higher than the market average.

A16z has launched a fund with a total of 3 billion US dollars around web3, and investment institutions such as Sequoia Capital, Griffn, Bessemer, and Haun have also invested hundreds of millions of dollars in the web3 industry.

With the influx of hot money, developers and start-up companies in the web3 field have sprung up like mushrooms. According to data released by Electric Capital, in 2021 alone, the total number of web3 developers has increased by 75%, and more than 34,000 developers have submitted new codes in 2021, reaching an all-time high.

Among the web3 companies that will receive financing in 2022, 49% are in the seed round, and the number of rounds of B round and later accounts for less than one-third.

Not only start-ups are paying attention to web3, traditional Internet giants will not miss this new opportunity either. In May 2022, Google established the web3 team to provide back-end services for blockchain developers and focus on the field of web3 infrastructure. In June, a Meta spokesperson tweeted that it had begun testing NFTs on Facebook for select U.S. creators, running on Ethereum and Polygon. Soon, it will also add support for Solana and Flow NFTs. Other giants have followed suit. Last year, eBay announced that it would allow NFT to be bought and sold on the platform. In June this year, eBay completed the acquisition of KnowsOrigin, an NFT trading platform. Shopify also launched a service for selling NFT items, and sellers can create and sell NFT items.

Although the web3 industry seems to be full of flowers, behind the scenes of burning oil, there is a lack of benchmark applications in the entire market, new projects are difficult to gain market recognition, and web2.0 enterprises are difficult to transform.

2.1 Difficulties in financing

Li Nan, a Web3 entrepreneur, told ChainDD App that there is a huge gap in the web3 industry, and the market, start-ups, and investment institutions have different understandings of web3.

The web3 project created by Li Nan after leaving Ali in 2021 aims to create a decentralized cross-chain liquidity platform, using a threshold signature scheme, built on top of Tendermint and Cosmos-SDK (TSS). It doesn’t bundle or wrap assets; instead, it chooses how to move assets based on user activity. To put it simply, this is a decentralized asset management protocol, and Li Nan hopes that it can become Alipay in the encrypted world.

At the beginning of 2022, Li Nan received US$3 million in financing from private investors, and he also took this opportunity to expand the team to 11 people. A larger team brought greater financial pressure, and Li Nan had to travel frequently to Hong Kong, Singapore and the United States in order to obtain financing. Due to the restrictions of the epidemic, the cost of returning to China is huge, so he has not been home for nearly a year. Li Nan’s efforts have not yielded any results. Although many investment institutions have shown strong interest in his project, none of them are really willing to confirm their investment intentions.

Therefore, Li Nan had to constantly meet with partners from various investment institutions. What bothered him the most was that in the face of traditional investment institutions, Li Nan had to explain to them what web3 is. Li Nan provided ChainDD App with a copy of his PPT, which he specially prepared for traditional investment institutions, covering blockchain technology popularization, web3 industry preliminary exploration and star project introduction.

From the communication, he clearly felt the interest of these traditional investment institutions in web3, but the paradox is that although the roadshows were held one after another, investors kept asking questions about the web3 industry, but they still could not get investment. Li Nan smiled bitterly and said, “They consulted me as an expert in the web3 industry.”

This is not his trouble alone. Although investment institutions pay attention to web3, their investment actions are very cautious. With the arrival of the cold winter in the blockchain industry, investment institutions have adopted strategies to reduce investment amounts.

The average amount of financing in the blockchain industry for the whole year of 2022 is about 31 million US dollars. From June 2022, the average financing amount of the blockchain industry has begun to decline sharply, and the average financing amount in December was only 18.15 million US dollars. Corresponding to this is the increase in the number of financings. The average number of financings per month in the first half of the year was 50, and the average number of financings in the second half of the year was 63.

2.2 The decline of Web 2.0 enterprises

Why is it difficult for web3 applications to gain market recognition? This starts with web2.0.

First of all, it must be clear that the terms Web2.0 and web3 are not technical standards, but just a term used to describe technological transformation. Web2.0 provides users with a two-way message protocol, thus giving birth to new services and new formats such as blogs, rss, wiki, SNS, Weibo, and instant messaging. Correspondingly, Web2.0 was born in the first fifteen years of this century A large number of Internet giants, such as Google, Meta and Amazon mentioned above.

These giants maintained a very high growth rate in the first two decades of this century when the Internet became popular, and continued to expand their fields, developing into groups that monopolized most of the technology and data. But with the advent of the epidemic and economic downturn, the giants have also shrunk.

In July, it was reported that Apple plans to slow down some departments’ hiring plans and budgetary investment in 2023 in response to a potential global economic recession. Affected by this news, the share price of Apple and some other US technology stocks dived. Last month, Microsoft also just announced that some employee positions would be eliminated due to “corporate strategic adjustments.” Oracle is considering a $1 billion cost-cutting plan, including layoffs of thousands of people, and Twitter has laid off a third of its employees. Recruitment team, while canceling the logistics service outsourcing contract of its Silicon Valley headquarters. Companies such as Alphabet, Amazon, and Snap have announced measures to control their budgets in the past few weeks, including reducing hiring, and Microsoft, Tesla, and Meta have already taken layoffs.

Li Nan’s team has a total of 11 people. Almost all of the five employees living in China have worked in large factories. The three back-end engineers all left their original positions during the layoffs of major Internet companies in the first half of 2021. Li Nan’s technical director, Zhang Yuming, stayed at home for three months after resigning, and finally joined the team.

For Zhang Yuming, switching to web3 backend development has both advantages and disadvantages. The advantage is that he has gained practical experience in high availability in a large factory, and is no stranger to high concurrency and big data. The salary of Web3 back-end development positions is also much higher, and there are many positions that do not even need to be on duty. Of course, the disadvantage is also obvious: although he has been exposed to the Solidity language, he has almost zero experience in blockchain development. What finally prompted him to join was Li Nan’s words during the remote interview: “The ultimate goal of web3 is to kill all the big Internet companies.”

Zhang Yuming, who has worked in a big factory for three years, does not like these giants. As a programmer with the highest degree of education, Zhang Yuming’s process of joining a big factory is tortuous: he first moved to several start-up companies in the entrepreneurial wave after 2015, and finally entered a domestic first-tier Internet company through internal promotion in 2018 Work as a backend engineer. Although he successfully joined a first-tier factory, he soon discovered that his job was different from what he had imagined: after joining the job, his overall code volume decreased, and his main job became responsible for leading newcomers, back-end interviews, and working with The project workload is not much related.

An important reason for Zhang Yuming to leave Dachang is that he does not want to continue to be a screw on this huge roaring harvester. Dachang is harvesting users while harvesting him. When Zhang Yuming returned home during the Spring Festival holiday, he discovered that his parents had purchased a large number of “IQ tax” products on a short video app, including energy savers, hydrogen-rich water and various health care products. It is this App. Therefore, Zhang Yuming decided to join Li Nan’s team after spending a week understanding what web3 is.

In 2021, my country’s Web3 investment and job posting will both increase by more than 400%. The forms include full-time, part-time, and telecommuting. The vast majority of practitioners come from the Internet industry, and many of them are employees from major Internet companies.

2.3 Why web3 will impact Internet giants?

Internet-based technology companies have generally entered a bottleneck period of innovation and development. Whether it is the globalization of the market, the exploration of business depth, or technological innovation, Internet companies that have gained dominance based on web2.0 development have already entered the platform stage.

Although the home office during the global epidemic has created huge business growth for the Internet industry and greatly promoted the rise in the stock price of Internet concepts, as the world enters the post-epidemic era, normal social production activities resume and the demand for remote office decreases. Sexual tightening, cyclical changes and other issues, the superposition of multiple factors has led to varying degrees of recession in the global Internet industry.

In this context, the pursuit of web3, which is known as the development direction of the next-generation Internet, has naturally become the focus of the Internet industry. Among them, meta is undoubtedly the one with the strongest determination and the largest pace: compared with Apple and Amazon, the former Facebook is the most dependent on the web2.0 format, and its basic SNS will undoubtedly be the most severely impacted by the wave of web3.

In November 2021, Zuckerberg announced at Facebook’s Connect Developer Conference that he would change the company’s name to “Meta” and fully enter the metaverse field. As one of the world’s largest Internet companies, Meta’s transformation undoubtedly makes the entire Internet world full of doubts. Why is Zuckerberg in such a hurry to turn such a large ship around?

What is indisputable is that Zuckerberg sensed a crisis. The crisis comes from various aspects, and the first to bear the brunt is the birth of new Internet formats.

Shortly after the launch of Ethereum in 2014, Gavin Wood, the co-founder of Ethereum, proposed the concept of “Web3”. The core of Web3 is to return power to users in the form of ownership through blockchain, cryptocurrency and non-fungible tokens. Simply put, Web1 is read-only, Web2 can read and write, and the future Web3 can read, write and own. Web3 is decentralized, and most of the Internet is not controlled and owned by a centralized entity, but the builders and users assign ownership. Web3 is also permissionless, everyone has equal rights to participate in Web3, no one is excluded. At the same time, Web3 has a native payment function, which uses cryptocurrencies for online consumption and remittance, instead of relying on the outdated infrastructure of traditional banks or third-party payment institutions. This means that Web3 is trustless and works through incentives and economics rather than relying on trusted third parties.

Judging from the above characteristics, there are no giants in the world of web3, or in other words, the ultimate goal of web3 is to eliminate giants. Whether they admit it or not, the Internet giants are giants because they monopolize most of the data on the Internet.

Specifically, giants known as “monopoly enterprises” tend to build “moats”: while controlling upstream and downstream enterprises in the industrial chain, they use patents and technological advantages to form tight barriers, so that competitors cannot survive.

Among Internet companies, this kind of monopoly is more convenient: the core technology mastered by the company will become the company’s moat and industry entry barriers. Under the background that the value of data has gradually been valued in recent years, data has also become part of the moat of enterprises.

Take Google as an example. Since its establishment in 1998, Google has first monopolized the Internet search engine market through its advanced search technology. Services derived from search engine services such as advertisements, cloud services, e-mail, video sites, and social networks have gradually occupied a dominant position in the market. The data generated by users flows between different business lines of Google, generating more value, and finally creating an Internet trust that spans the world.

For example, user A searches for a product on Google and watches a video of the product on YouTube. This behavioral data will be stored by Google and used for precise advertising. In the following period of time, users will see content customized by Google ads when browsing different web pages. Based on these data, Google can also create portraits for users through analysis and apply these data to different services. These data also include a lot of sensitive data, such as the user’s social relationship, health data, location information, etc.

In the system established by Google, the technology developed by Google itself and the data generated when users use its products together form Google’s moat. It is difficult for other Internet companies that cannot obtain user data to provide the same services as Google. On the other hand, in addition to using user data to provide users with differentiated services, Google can also use these large-scale data to generate additional value. In this process, the status of Google and users is unequal. Google has full control over user data, but users cannot obtain the value generated by their data.

2.4 How far is it from Web2.0 to web3?

This model is the common practice of web2.0 Internet giants. It can be said that web3 was born to break this monopoly, and it can be said to be a natural conflict with the Internet giants. The direct consequence of this conflict is that it is difficult to directly apply the product logic of web2.0 to web3 products, resulting in conflicts between business practice and implementation. Therefore, it is always difficult for giants to realize the real implementation of web3 products. One of the most typical examples is Meta after the name change. Its stablecoin and wallet plan repeatedly hit a wall and was eventually aborted. In addition to constantly trying to display NFT on Twitter and Instagram, it has not launched any web3 applications so far.

Other Internet giants are also facing the same difficulties. Except for infrastructure, they are hardly found in the web3 industry.

Not only giants are facing these problems, but the entrepreneurial team also has different views on web3 and web2.0.

Li Nan’s dream is to turn his project into Alipay in the web3 era, but in Zhang Yuming’s view, this idea itself is problematic. Zhang Yuming told ChainDD App that in his opinion, the development of the web3 industry is not much different from the start-up wave in 2015. Start-up companies emerged in batches and then fell out in batches, full of fanatical gold diggers and speculators : “web3 based on decentralized blockchain technology cannot be realized with the governance experience and product logic of web2.0. Both web2.0 companies and start-ups need to break through the cognitive gap to build web3 projects recognized by the market. One step is to abandon the traditional corporate structure and use DAO for management.”

But Li Nan thinks Zhang Yuming is too idealistic. Although DAO is sufficiently decentralized, it also brings about low efficiency, which is almost unbearable for Li Nan, who comes from a big factory and is used to rapid iteration and agile development.

In fact, the differences between the two have almost brought the development of the project to a standstill, and the launch of the project demo has become far away. Zhang Yuming intends to take a few engineers to switch to other projects that use DAO as the governance model. Li Nan’s persuasion made him hesitate: “No one can guarantee that DAO must be right. The project itself has room for development. Without lessons learned from the past Startups can only cross the river by feeling the stones, and the web3 turmoil will pass when it is uncertain.”

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