By Alex Tapscott

I was in New York last week for Mainnet, hosted by crypto data analytics firm Messari. Though most of my colleagues in the industry (especially in the U.S.) had long-ago returned to some form of ‘normal life,” the trip still felt like a novelty to me.

New York pulsed with the familiar energy of a city awakened from its Covid-19 induced catnap, and that energy carried over to the event. I left the event feeling invigorated and inspired and frankly more bullish on cryptoassets as a long-term investment and on Web3 as a transformational technology than ever before.

Hopium Springs Eternal

I was not alone in feeling this way. In fact, there was a sense amongst attendees that despite the drop in cryptoasset prices, “this time is truly different” from past bear markets. Of course, this crowd would very much like to see Web3 succeed, but this “hopium” is grounded in reality. While NFT volumes have dropped off and exchange activity has slowed, the number of Bitcoin wallets holding at least 0.01 BTC continues to hit new highs. The VC funding for start-ups has not let up. In fact, Messari announced at their own event a $35 million funding round led by Brevan Howard (the venerable tech VC) via their Digital group.

The drop in prices also didn’t derail The Merge where Ethereum upgraded to a proof-of-stake consensus mechanism. The receding tide of cryptoasset prices has exposed those groups “swimming naked,” such as the crypto lenders who went bankrupt and hedge funds who failed, providing cover for a more assertive regulatory response. But even this may not be a bad thing. Regulation is an inevitability of any serious industry. At the event, attendees heard from senior industry figures, including Kara Calvert head of Policy at Coinbase, Kristin Smith, Executive Director of the Blockchain Association, who are working with policymakers and government agencies to ensure any new laws are thoughtfully crafted and existing ones fairly administered, without harming innovation.

The Enterprise Strikes Back?

The biggest bull case for blockchains and Web3 may come from an unlikely source which got relatively little stage time at the event: large enterprises. Whereas most investors remain obsessed with institutional money flows, they pay less attention to the big companies who are experimenting with Web3 tools. Probably this is a legacy of the ‘enterprise blockchain’ period when companies would work with professional services firms and enterprise software companies to spin up closed-end proprietary blockchains, which generally didn’t work out.

There are two important differences with today’s enterprise blockchain efforts. First, in the past most enterprise interest came from IT or finance departments, and now it is coming from marketing and head office, thanks to the growing popularity of NFT’s. For relatively little cost and with low technical capability a brand can launch an NFT project which can have an outsized impact. As a result, we’ve seemed major fashion companies such as LVMH and household brands like Gucci and even Taco Bell launch projects. Nike has made over $150 million from NFT sales. To be sure, some of these are publicity stunts but others like Starbucks’s NFT rewards programs are meaningful innovations to the core business. Second, whereas in the past most enterprises were building on closed-loop systems purpose built for some narrow use case, now these companies are building on public blockchains like Ethereum, Polygon, Solana, and others.

Enterprise adoption of public blockchains is likely to accelerate rather than decelerate in this bear market. There are three reasons for this. First, the Ethereum Merge reduced the carbon footprint of the network by 99%. The ‘greening’ of Ethereum has made it easier for consumer-facing brands to build on Web3. The criticism that NFT’s are boiling the ocean (which was never credible) has now become obsolete. Second, the Merge removed a crucial overhang that may have prevented enterprises from leaning into public blockchains. Good companies plan for the long-term and having comfort and certainty on the technology they’re using is critical. Finally, the drop in price is unlikely to impact adoption as most of the initiatives in the pipeline would have begun months ago and won’t be derailed by a bear market. Also, the lower profile of crypto now creates room to experiment and play around.

Enterprise Adoption and the Investment Case for Web3

Enterprise adoption not only lends credibility and validates the thesis for Web3, it also directly benefits the investment case for the asset class, particularly Ethereum and another so-called Layer 1 blockchains. If significant business activity moves on-chain, then these platforms stand to benefit greatly. NFT’s are Web3’s Trojan Horse opening the gates to the Enterprise citadel.

In the 1990’s big companies built and implemented costly ‘intranets’ to try and mimic the benefits of the Web while cleansing it of its more unruly and anarchic attributes. Today nobody uses intranets, but the Web is more powerful than ever. In the 2016-2020 period, big enterprises tried to build their own ‘private blockchains’ which, much like the early intranets, looked good on paper but failed to scale. Soon, blockchains will be more powerful and more popular with enterprises than ever before. I believe that sooner rather than later, “What’s your Web3 strategy?” will just be “What’s your strategy?” as the technology gains mass adoption.