We define Web3 as “a collection of open technologies, including blockchain, and protocols to support the natively trusted use and storage of decentralised data, knowledge, and value” (IDC Market Perspective, March 2022). Based on blockchain, Web3 is often associated with NFTs and cryptocurrencies.
2022 Web3 Market Outlook
2022 was definitely the year of cryptocurrencies, for better or worse. Tech companies and VCs heavily invested in Web3/metaverse powered solutions — Web3 startups raised more than $7 billion in investments, focusing on NFTs in the first half and metaverse in the second and third quarters (Crunchbase).
NFTs were the next big thing to place data and content ownership on users and eliminate the need for big corporations’ intermediary role for a more decentralised web.
Highly volatile crypto valuation and regulatory issues arising from fraud and bankruptcy scandals (FTX as the most outstanding example) raised questions about the true added value that these applications of Web3 and the Metaverse can provide to industries. Cryptocurrency valuations critically shrunk throughout 2022. Bitcoin lost over 60% of its value (CoinMarketCap), and after the “honeymoon2” phase ended, NFT creators were forced to look for alternative solutions to monetise their work.
The markets remain fluid, however, with some IDC predictions calling for the global crypto lending market to reach $5 trillion by 2026, as cryptocurrency adoption becomes more commonplace (IDC FutureScape, October 2022). Recent developments in venture capital funds and international banks may provide new life and opportunities for cryptos and NFTs as markets show resilience.
So, one may ask, was it just hype?
Investment Drivers: Excitement vs. Use Cases
Investment in technology has been highly influenced by exaggerated excitement over new tech, boosting the hysterical race to find the “next big thing”. In 2022, there were cryptos and NFTs; 2023 is the year of generative AI.
However, investments were not always tied to applicable use cases or strategic business purposes, blurring the scenarios that new technologies can create and be applied to.
Web3 DApps
Web3’s applications are widely perceived as “just” cryptocurrencies and NFTs, to be exploited in trading and gaming. Sustaining the new version of a decentralised internet requires the deployment of several technologies whose interoperability allows interactions to be performed in a digital world.
Blockchain is the foundational technology of Web3. When applied to Web3, blockchain provides new ways of managing and owning digital data: token-based economics that supports digital assets allows interactions and transactions between users and entities.
Web3 apps, also known as dApps (decentralised applications), work on blockchain and decentralised users’ networks with direct interactions between users and direct access to data.
Smart Contracts
Smart contracts created with blockchains are expected to contribute to more transparent, cost efficient and secure transactions than conventionally regulated financial interactions. Decentralised infrastructure is aimed at decreasing threats of disruption and cyberattacks — the key benefits of decentralised control that potentially generates use cases in finance, supply chain and digital identity.
However, the scarcity of blockchain-based use cases in industries other than finance and supply chain management complicates the further development of the technology; the current use of smart contracts does not completely fulfil the potential of decentralisation.
Decentralised Infrastructures
Decentralised infrastructures, although a pillar of Web3 and blockchain, are increasingly showing flaws. A sort of U-turn back to centralised infrastructure of data and content has taken place, and the need for regulatory entities is revealed once again. While networks and infrastructures are decentralised, decentralised autonomous organisations (DAOs) were established to replace conventional regulators, as servers will inevitably be run by external players, not directly by users.
All these deficiencies, one may argue, could have been avoided by focusing less on what was trendy, and studying more all the features of these technologies that, if fully exploited, can benefit several industries besides finance.
Looking Forward: Was it Just Hype Then?
Web3 Use Cases
Hype cannot be the sole driver behind the growth and investments in Web3 and the related technologies. Too much weight was put on the explosion of cryptocurrencies, while more industry-specific use cases were often ignored.
The potential growth and development of Web3-based technologies (decentralised applications, the metaverse) could truly revolutionise the ways in which businesses operate and people live. The focus should be placed on concrete applications for these solutions, as well as on the other technologies and infrastructures that are foundational for the full implementation of Web3 technologies.
The rush towards the next big thing is already ongoing and well advanced, with Generative AI already on the horizon. But one may hope that the same urgency that was applied to Web3 and blockchain, whose potential for businesses can be truly disruptive, would leave room for a more strategic assessment of the full capabilities of the technology, if we look beyond the hype.
Web3 technologies are and should still be very much on the radar of tech companies — the one good thing resulting from the hype, as it keeps IT vendors interested and alert on the latest technology trends. The ultimate goal though needs to be to transition from hype to defined use cases and business outcomes.
Structured investments in new technologies should be driven by business goals and use cases that the technology can offer; the role that Web3 and blockchain-based technologies will play in the longer run needs to be defined by their effective applicability across sectors.
We constantly monitor what’s on the horizon, staying at the edge of the latest technology developments.
If you want to learn more about IDC’s take on Web3 and the metaverse, find the latest report here.