Welcome to this week’s deep-dive. We’re going to dive into what Web3 can do for users.
A quick digression: curated web3 reading list
Monday was my last day at Deliveroo after 5 years. When I told people I was leaving, two things struck me. First, there’s a bunch of people who are curious about Web3. Second, getting started in web3 is challenging.
To help, I’ve curated a listed of Web3 articles for anyone new to the space.
Okay, back to business.
WTF is web3?
At it’s heart, Web3 allows you to own what is yours. Think of anything you produce on the internet: Instagram posts, Twitter threads, a Google review etc. Web3 enables users to retain ownership of everything they produce and do what they want with it (e.g. monetise it).
Blockchain is the underlying technology that enables this. A technical explanation of how the blockchain works is out of scope for this essay (read this if you’re interested). But the key takeaway: blockchain helps users interact without trust. If this doesn’t make sense to you, don’t worry, the examples below will help flesh this out.
Why should I care?
The internet as we know it today isn’t that. Instagram’s product is owned and operated by Facebook. If you built a following on Instagram, you are tied to the platform. If you don’t like the product, you have two choices: you either deal with it, or leave and start from scratch. In other words, you don’t actually own your followers or content.
As platforms build their product, they are incentivised to attract users. As the product scales and accumulates network effects, they are incentivised to extract value. Once you build your following on Instagram, your propensity to leave is low.
Okay, so what’s the big deal?
The truth is none of the above matters to consumers. Consumers use a product to solve a specific problem or pain point. Customers move from one product to another for one or more of the following reasons:
- Better user experience
- More value to the user: cheaper to use or I can make more money using it
- Save time, because time is money
Let’s look at what Web3 can add using the vectors above.
A caveat: we’re still very early in Web3. Treat the below as something we’re building towards rather than something that’s happening today. For each of the points below, Web3 has its flaws and I’ll try to expand on those in future essays.
#1 Better user experience
Web3 will offer a better user experience because of lower switching costs and accelerated innovation.
Lower switching costs
With a decentralised version of Instagram, all your content — followers, posts, likes and comments is owned by you. If a user was unhappy with their experience of Instagram, they’d move to a different platform as long as the data is stored on a blockchain. This is because the blockchain is a public database that anyone can access. There are limitations to this today (time and cost of transactions) but these will be overcome. Web3 reduces the switching costs for users. This increases competition and forces platforms to fight for users by offering the best user experience.
#2 More value to users
Web3 will generate more value for users by removing third parties and making them owners.
Removing third parties = lower take rates
Every platform charges a fee to buyers (content consumers) and / or sellers (content producers), commonly referred to as a take rate. The graph below shows the take rates for popular marketplaces. For a platform like Instagram, the take rate is 100% as it shares no advertising revenue with its users.
Web3 can help reduce take rates and generate more values for buyers / sellers.
Blockchains like Ethereum and Solana allow you to run programs on their network using “smart contracts”. Think of this as logic that is written into the blockchain. For example, pay Jane $10 when X happens. We’ve been able to do this for decades, but we can now do this on a decentralised, trustless network.
Let’s say Jill and Joe had to split $100 equally. To date, Jill and Joe needed to trust each other because one of them would receive the $100 and pay the other $50. With a blockchain, this is not required because the split can be built into the program. And most importantly, the contract is immutable — Jill and Joe cannot change the proportion in which they split unilaterally. If they wanted to, they’d need to issue a new smart contract. As a result, Jill and Joe can interact without a third party and capture more of the value.
Consider a talent marketplace like Upwork. Based on the chart above, Upwork’s average take rate is 14%. A Web3 talent marketplace like Braintrust charges no fees for freelancers. Braintrust charges 10% to the companies who post the jobs, which is used to fund community programs. Crucially, the users of the platform can help determine what this take rate should be — more on this below.
Users become owners & governors
Web3 enables users of a product or service to become owners and governors of the platform.
In the example above, freelancers who own and work with Braintrust earn a token called BTRST. The token currently trades at $4. Users can also earn interest on their tokens using a process called staking.
The downward price trend post launch for a token is common. See here for why this happens.
Aside from accruing value through the token, users can use their tokens to vote on proposals within Braintrust. This is an example of a proposal to determine the interest rate that should be paid to users for staking their tokens.
#3 Save time
Web3 can help save time.
With cryptocurrency, you can send $1 million to an address in an instant. Critics will argue that this isn’t true for blockchains like Ethereum. And they’re right. But it is true for other blockchains like Solana and Avalanche. The point is I can send money to my friend in India within minutes using crypto. I need go through a bunch of hoops if I wanted to send money through the banking system, and wait for a couple of days before the transaction is settled. A part of me thinks the above will go away for 2 reasons: a) the global banking system will catch up, and b) the user experience of using crypto, at least today, isn’t great.
There’s another part of web3 that is truly revolutionary in my opinion: NFTs. They unlock digital ownership. Think about the transfer of property and the number of steps you need to go through. NFT technology can simplify this process. When you pay someone for a property, you inherit ownership of the property immediately without paper work. Your ownership is recorded on the blockchain. It’s just like the property registry but it’s digital, more secure and more efficient. It saves users time.
I’ve attempted to cover a lot of ground in this piece. The intent is to demonstrate that Web3 can solve serious user problems. Like I caveated, we’re very early and there are lots of challenges holding Web3 back — UX being the biggest one which I discussed in my previous article. These challenges are big opportunities for builders in Web3, and I’ll dive into them in future essays.