By Alex Tapscott
The internet is entering a new era, known as Web3. Web1 was the read web, a way to consume information digitally. Web2 was the read/write web, a way to consume information but also communicate and collaborate online. Web2 was programmable, meaning users could upload information. Web2 was dominated by social media companies who captured user attention and sold it to the highest bidder- advertisers. The Web is taking another leap forward: Web3 is the read/write/own web, meaning users can now also own their own digital goods, their identities and their data and have a say in the governance of the services and products that they use. Internet users already spend $100 billion buying virtual goods online. In a Web3 world they actually own them. Ownership becomes part of the user-experience.
Imagine if early users of Web2 social media companies earned an ownership stake in the platform by contributing to their success at the beginning. My alma matter, Amherst College, was among the first 34 schools invited to join Facebook in 2004, and I was an active user of the platform in its early years. Despite adding critical value to the platform in the form of data, photographs, connections and so forth, we (that is, early users) did not earn a stake in the network. Instead we suffered the same fate as everyone else, becoming the subject of hyper-targeted ads leveraging our personal data.
Now let us imagine a “Web3” version of a social network. In the Web3 version, we still use the platform to connect with friends, share photos, and create communities, but we also earn a stake in the network and have some say in its direction. This ownership incentive helps the start-up network to compete against better funded and more entrenched Web2 competitors. Slowly but surely, the user-owned social network siphons off users from established ad-based social networks, and the network’s native token (owned by users and founders alike) increases in value. It’s a win-win. Or is it?
Web3-based models can lead to perverse incentives, where early users (and perhaps knowledgeable insiders like VCs and other influencers) try to exploit early token rewards, indifferent to what the underlying service does. Once those incentives dry up, they move on to the next thing. Everyone becomes a mercenary in the hunt for the next unicorn from which to extract a token reward before moving onto the next hunting ground. The underlying application suffers.
It's hard to argue that ownership in and of itself is ‘bad.’ After all, ownership is a way to participate in wealth creation and have a say in how things are run. A user-owned network may decide to only generate enough profit to ensure the network is well run, creating a better experience. Instead, the issue is on designing ownership mechanisms so that they enhance, rather than overwhelm, the inherent user experience. The solution, therefore, is twofold: first, build an equitable and sustainable token distribution model that incentivizes long-term holding if you prefer. Second, make the underlying application or service inherently useful where ownership is an important feature. Too often, developers have launched Web3 applications seemingly to justify the existence of a token and little else. Make both ownership and utility essential to the experience.
I doubt that a user-owned Facebook would have chosen an ad-driven model, but perhaps 2023’s version of 19-year-old Mark Zuckerberg is a token-obsessed Web3 entrepreneur preoccupied with building a model where users harvest value from token distributions rather than build lasting network effects. Such counterfactuals are impossible to prove. Ultimately, if Internet users are going to continue to create value, we should have a model for them to capture some value from useful services. The two must go hand in hand.
