Alex Tapscott: “Web2 enriched financial intermediaries, so we need Web3”

The Cryptonomist interviewed Alex Tapscott, author of the upcoming “Web3: Charting the Internet’s Next Economic and Cultural Frontier” to be published on September 19th.

What’s the book about? Can you give us a preview as it will be published in a week?

The Web, and with it the Internet, is entering a new era, known as Web3.

The Web of the 1990s democratized access to information and other content.  Later, new software and smart phones brought us a web where we can all create our own content and collaborate together.  

While this “Web2” revolutionized the media, retail, and other industries, the data and value that everyone generates is captured by giant corporations and intermediaries including a new species of business called digital conglomerates like Facebook, Google, and Apple. 

They became gatekeepers, enacting barriers, imposed tolls, and extracting wealth from everything we do, in turn stifling innovation, prosperity and economic freedom. As a result, the Web’s promise has gone unfulfilled – until now.

Enter Web3—a decentralized web where individuals own their own identities and can securely trade assets like money, securities, intellectual property, and art peer to peer.

Web3 has the potential to reimagine cultural industries, transform money and markets, restore privacy to users online, strengthen digital property rights, usher in new kinds of assets and organizations, and support greater global participation in our digital economy. If the spread of technology truly makes the world flatter, then Web3 can be a steamroller. If we do it right. 

Like all revolutionary technologies, Web3 comes with immense promise and potential peril for business and for our society. In fact, this new digital age may be remembered as the “web3 era” – let me explain: just as the term Internet has expanded from its original internetworking definition to describe an era that comprises many technologies, business models, and social behaviors, so too is the term Web3 evolving to characterize an era composed of groups of technologies including AI, extended reality and IoT, with new models and behaviors. These will define the next era of the Internet.

How do you see the future for Web3? What went wrong in Web2?

How did Web2 fall short? First, in the absence of an Internet-native ownership and transaction layer, advertising became the primary revenue model. 

Second, Web2 enriched financial intermediaries: they did not need to innovate to stay relevant because Web2 did not change their role as intermediaries. As we have shown, most fintech innovations proved to be digital wallpaper on the old edifice of finance. 

Third, as the Web went mostly mobile, two companies—Apple and Google—controlled the primary gateway to the Internet via the Android and Apple ecosystems and began to charge exorbitant monopoly (or duopoly) rents for developers on their platforms. Mobile app stores have become bottlenecks for new development. Not only are they gatekeepers, but they extract rents for almost all economic activity in apps themselves.

Fourth, users have no control over the platform and, in some cases, no visibility into how they are run. Platforms could also change without community input: some Web2 businesses that began as open-ended networks became closed-ended platforms in pursuit of greater ad revenue. 

Fifth, Web2 became a winner-take-all model that created monopolies stifling competition. Bootstrapping a competitor network in the Web2 economy became too costly and risky—a Sisyphean task destined to struggle for eternity. 

Web2 giants have dual classes of shares that empower executives and reduce accountability from shareholders and the board, exacerbating this dynamic. Elon Musk’s willy-nilly decision making at Twitter has driven away users, advertisers, and corporate value. 

Sixth, Internet users were hooked by recommendation engines that, while often useful in helping people find what they were looking for, also pushed them into self-reinforcing echo chambers. Web3 algorithms learned that extremism increased engagement, as did misinformation. The fragmentation of public discourse and the growing extremism in our politics can be attributed in part to this phenomenon.

Seventh, these large platforms became chokepoints for the Internet and targets for government pressure to track citizens. In China, the state co-opted its Web2 giants, turning them into an extension of the state’s surveillance system, and then moved quickly to co-opt Web3 innovation. 

What do you think about this AI hype? Is it a new bubble?

To those who don’t follow new technologies, innovations can sometimes look like overnight success stories. More often, they are decades in the making. Artificial intelligence is a perfect example. In 1965, researchers promised that AI would fulfill all human tasks in the next 20 years. AI’s first winter came in the 1970s after ten years of AI investment yielded precious few results. Research and development continued for decades through balmy AI summers and AI ice ages lasting decades.

In other words, it’s not a bubble, but it is an overnight success story decades in the making. 

What do you think about the NFT market, will it grow up again?

Yes. My favorite quote on NFT’s in the book comes from Yat Siu of Animoca Brands. 

He says, “If bitcoin is a store of value, then NFTs are a store of culture” that will profoundly alter the creative industries. I love that. To be sure, individual NFT projects have failed as financial investments. But NFTs have so much promise! They simplify how we fund creative ventures. 

They remove industry gatekeepers and amplify underrepresented voices. In a few short years, more than three hundred different NFT projects have generated at least $1 million  in royalties for creators, who can continue to earn money instantly and frictionlessly when their works are resold. Thailand boasts more NFT holders than the U.S., Canada and Germany combined. 

On Ethereum, the largest network in Web3, creators have earned more than $1.8 billion in royalties!

How do you see web3 regulation?

We need it! Or more specifically, we need a comprehensive policy framework for Web3. Silicon Valley was once called a tech Galápagos for the unique blend of talent, money, technology, culture, and government research and development that led to the diverse species of tech entrepreneurs who went on to found today’s mammoth Internet companies. 

The World Wide Web was invented by English computer scientist Sir Tim Berners-Lee at CERN, or the European Organization for Nuclear Research, in Switzerland, but it was commercialized in America.This time is different! Web3 is emerging at a time when technology tools and human capital are more distributed than ever. 

If Web1 and Web2 democratized access to information and made it easier to meet and collaborate online, Web3 equips us with a more powerful toolset to earn money, own assets, and build wealth on a globally level playing field, decentralizing power and influence in the process. If the spread of technology truly makes the world “flatter,” then Web3 will be a steamroller. 

That means the ‘Silicon Valley’ of the future won’t be a place at all! It will be everywhere and all around us. That means countries who see the potential and create the conditions (which includes regulations! But sensible ones) for industry to succeed and stand to benefit.