Web 3

One commentator has also suggested that Web 3 can be utilized by the insurance industry which has been looking at an uncertain future with Covid, worsening climate change, ageing populations, and general geopolitical instability which are ushering in an age of anxiety in this industry. The combination of these volatile factors means that it is increasingly difficult for the insurance industry, which is built on risk management, to navigate, both in terms of dealing with new types of risks and building accurate projection models.  

Technological disruptions may also add to the turbulence. New risks such as ransomware attacks and personal data loss can present new challenges for insurers to address. Yet, they may see the creation of innovative solutions to help the insurance industry transition into the future. In response, insurance brands will need to learn to leverage Web 3 to supercharge what is now referred to as usage-based insurance, while also exploring other opportunities that Web 3 can bring.

Usage-based insurance is not a new idea and is most common in car insurance. In some countries, some auto insurance companies offer lower premiums to drivers whose driving skills are deemed low-risk, based on a host of data tracking. These programmes generally collect vehicle telematic data to measure speeding, acceleration, and harsh braking, along with mileage and the time of day you drive, which is then calculated into a driving score over a review period. Web 3, with is ability to handle vast quantities of data analytics, is the perfect tool for this type of insurance product.

If Web 3 can assist the insurance industry, other heavy data reliant industries should also be able to benefit. Even large supermarket chains now rely on instantaneous data flows to alert them of spending patterns and when items require urgent re-stocking.

While Web 3 can bring about positive change in the aforementioned industries, it comes with several inherent challenges and limitations. Implementing Web 3 and the necessary blockchain technology requires a level of technical expertise that is beyond the capabilities of many musicians, athletes, fashion designers, companies and perhaps even some insurance companies.

Web 3 developers are, as yet, in short supply meaning they are expensive to hire. This could create a barrier to entry by preventing smaller brands and personalities with lower budgets from fully enjoying the benefits of Web 3. 

Arguably, the vast majority of people haven’t (knowingly or unknowingly) interacted with Web 3. The majority of people were probably not even aware they had or were interacting with Web1.0 or 2.0. Hence the adoption of Web 3 remains a challenge.

One concern in this regard is that companies, brands, and personalities that want to embark on Web 3 projects will need to evaluate if the estimated revenue from adopting Web 3 justifies the costs attached to it. There may be a measure of FOMO (fear of missing out) but at present, it is not clear whether the benefits outweigh the revenue.

The aforementioned all presume that Web 3 will continue its evolution and there will be benefits for all users. However, Web 3 has some very vocal detractors and critics, and it is only right to examine those criticisms for the sake of balanced commentary.

Critics do acknowledge the arguments of Web 3 advocates concerning the creation of new economies, new classes of products, and new services online. They also note Web 3’s claim that it will return democracy to the web and that this democracy will define the next era of the internet.

Further, they acknowledge that energy, money, and talent are surging into Web 3 projects, as remaking the web is a major undertaking. But then the shutters come down.

Web 3 critics argue that for all its promise, blockchain faces significant technical, environmental, ethical, and regulatory hurdles between here and its intended market dominance. A growing chorus of sceptics warns that Web 3 is rotten with speculation, theft, and privacy problems, and that the pull of centralization and the proliferation of new intermediaries is already undermining the pitch for a decentralized web.

Meanwhile, businesses and leaders are trying to make sense of the potential, and pitfalls, of a rapidly changing landscape that could pay serious dividends to organizations that get it right. Many companies are testing the Web 3 waters, and while some have enjoyed major successes, several high-profile firms are, through market research, finding that they (or their customers) don’t even really know about or understand Web 3.

These same critics are just as critical of Web 2.0. They point to companies with concentrated or near-monopoly power that have often failed to wield it responsibly, consumers who now realize that they are the product and are becoming increasingly uncomfortable with their lack of control of their personal data. It is possible that the targeted-ad economy is actually a fragile bubble that does little to actually boost advertisers.

Whilst the critics are aware that Web 3’s aura of inevitability (and profitability) is winning converts, they believe it is important to consider what could go wrong and even recognize where it is already going wrong.

The major criticisms and concerns are:

• Web 3 is rife with speculation. That is, for all the rhetoric about democratization, ownership opportunities, and mass wealth building, Web 3 is nothing more than a giant speculative economy that will mostly make some already-rich people even richer.
• The technology isn’t practical (and it’s expensive). All technology comes with trade-offs and critics argue that the cost of a “trustless” system is that it is highly inefficient. Critics also argue that Web 3’s decentralization makes technology more complicated and further out of reach for basic users, rather than simpler and more accessible.
• It enables harassment and abuse. Skeptics argue that the potential for disastrous unintended consequences is very real, and they point out that the immutability of the blockchain (meaning the data cannot be changed) also means that data can’t be taken down. There’s no way to erase anything, whether it’s a regrettable post or as abhorrent as revenge porn. Immutability could also spell major problems for Web 3 in some places, such as Europe, where the General Data Protection Regulation (GDPR) enshrines the right to have personal data erased.
• It’s currently terrible for the environment. It is argued that Web 3’s environmental impact is vast and deeply damaging. It can be broken into two categories: energy use and technology waste. Running a network that depends on expensive supercomputers competing to solve complex equations every time you want to save data on a blockchain takes a tremendous amount of energy.
   

Whether and how these issues will be addressed is hard to say, in part because it’s still unclear whether Web 3 will really catch on. So, where exactly is Web 3 headed?

Some companies are adopting a hybrid approach to blockchain, which offers the benefits without the constraints. There is talk of a social network which could record your followers and who you follow on the blockchain, but not your posts, giving you the option to delete them. Hybrid models can also help companies address GDPR and other regulations.

For better or worse, regulation is coming, slowly, and it will define the next chapter of Web 3 and with so much of Web 3 still being hashed out, it arguably remains a high-risk, high-reward bet.

Perhaps we should listen, with one ear, to the hyperbolic claims around Web 3, that it will take over the internet, upend the financial system, redistribute wealth, and make the web democratic again and understand that we’ll be living with some form of it either way, but keep the other ear open to the ever-changing future of the digital economy and what life online will look like in the next internet epoch.

Paul Shelton is a consultant with 30 years of experience in the international financial services and related industries with skills in all aspects of legal and financial crime compliance and regulatory relationship advisory and management.