Discover more from Dematerialzd – Web3 for Business
The State of Web3 in 2023: Nothing Has Changed... Right?
"The NFT bubble is bursting," says the street. Interest has hit rock bottom. Big-brand NFTs are losing relevance. What's happening and what comes next? Here's everything you need to know.
Eight months later, the Web3 community is again in turmoil:
NFT markets are tanking. Blue chip collections like Bored Apes, Azuki, Pudgy Penguins, Moonbirds, and CloneX have shed up to 80% of their value in recent weeks.
OpenSea recently ended mandatory royalty fees for artists, leaving their community wondering how sustainable business models for artists and brands could look like in the future.
If that wasn’t enough, interest in NFT collections of big brands is at all-time lows:
“The NFT bubble is finally bursting”, declare the skeptics. “I told you so, remember?!”
We’re in the midst of crypto winter action, folks.
But the situation is more nuanced. Here’s my thesis. 👇
⚡️Hit the inbox of 7k+ Web3 leaders👀
Advertise in this newsletter and get your brand in front of thousands of Web3 industry leaders every week. Get in touch today.
Why we’re here
Let’s remind ourselves why we’re even here in the first place. I won’t repeat what I wrote here, but here’s a brief.
In their essence, NFTs enable:
Permanent data storage
That’s all there is to it. And that’s a lot already.
This means that if the NFT is stored in a company’s wallet and you can’t transfer it out of your customer account (cf. it’s “non-transferable”), you don’t “own” it and you don’t need an NFT for it.
It’s that simple.
A quick detour on ownership
What does “owning” mean?
“Ownership” is a term used loosely, but it has a clear legal definition.
What Web3 natives mean with “owning” an NFT is: You hold the private key of the wallet in which the NFT is stored.
What lawyers mean with “owning” an NFT: It depends. In most cases, you don’t actually own anything. And if you do, it’s complicated.
An example: Warner Bros recently announced a NFT and AR-based movie experience with its upcoming movie “The Flash”. In the T&C, they write:
“(1) you will Own the NFT associated with that Collectible and (2) you will receive the limited license to the NFT Media associated with that Collectible per the terms in the User License. […] You do not own the NFT Media and you will not have any legal ownership, right, or title to any copyrights, trademarks, or other intellectual property rights thereto. […] You acknowledge and agree that the NFT Media is provided under a license and not sold.”
“Owning” just became a lot more complex.
I won't delve into it now, but it's crucial and often neglected. And regularly overlooked. Or ignored. Surprising, given that ownership is a cornerstone of Web3.
For those interested in exploring further, Galaxy offers an excellent primer.
So, let’s keep that in mind: Ownership in Web3 is far from guaranteed. Yet, it’s promise stands.
What brands are doing with NFTs
So, what are brands doing with NFTs? A lot.
A quick reminder: Almost 40% of Interbrand’s Top 100 Global brands have already experimented with Web3 tech across the full spectrum of brand touch points.
Join 7,000+ Web3 business leaders who are already benefiting from our weekly, high-signal, obsessively curated field notes & receive the list of brands for free!
The most popular use cases include (list of brands is non-exhaustive):
Verifiable rarity / limited collections (Prada Crypted)
Most often, brands use a combination of those use cases.
Ultimately, all those brands aim to increase one/a combination of the following:
Brand awareness (top of funnel marketing)
What’s in it for the users? What can they do?
Receive utility in an ecosystem (e.g. virtual land; coupons; loyalty points; etc.)
Accessing (e.g. ticketing, proof of attendance)
Belonging to a community (e.g. membership passes)
Self express identity & social status
Participate & own in co-creation & “own” brand IP (e.g. Nike OurForce 1 challenge)
Verify provenance of products
Trading & re-sale
In theory – at least.
In reality, many challenges remain to achieve consumer mass adoption. No brand has made NFT-based experiences mainstream, and no Web3 app has won over mainstream consumers yet.
The recent buzz around friend.tech, a marketplace that allows users to buy and sell tokenized shares of other users, and the quick growth of decentralized social media protocols such as Lens, hint at Web3’s potential for consumer apps.
But we’re not there yet.
The challenges to mass adoption
In my article “Web3: Beyond the hype” published in January 2023 I said that the biggest challenges to be solved are:
I believe that we’ve solved 1 of 4.
The good news first.
Layer 2s (L2s), chains that extend the underlying layer 1 chain to enhance scalability, are booming:
In February this year, Arbitrum, one of the biggest L2s by volume, counted more transactions per day than the Ethereum main layer (L1). 🤯
Just recently, DeBank, most well-known for its crypto portfolio tracker product, announced its own Ethereum based layer 2 chain built for social.
Base from Coinbase just launched.
Linea, a zkEVM from Consensys, just completed their Alpha mainnet launch.
opBNB from Binance just launched.
And the number of L2’s is likely going to increase in the coming months.
Layer 2s will be important enablers for the mass adoption of Web3 tech, as they’ll solve scalability while maintaining adequate security and decentralization (not all of them though).
But scalability alone is not enough. We need more.
Now the bad news.
Users still don’t know about Web3 & NFTs
According to a global study, largely 75% of people are completely unaware or don’t know what Web3 means.
Another global study by ConsenSys showed that while 92% are aware of cryptocurrencies, only 8% were very familiar with the concept of Web3.
I wouldn’t entirely trust those numbers based on the sample size (10-15k respondents). But based on personal experience, that seems fairly accurate.
We still have a disconnect between public perceptions of Web3 and its potential as a solution to issues around privacy, identity, and digital ownership.
and/or they don’t get it (yet). Understandably so!
The UX of interacting with NFTs is still too complicated, cumbersome and non-sensical for the average user.
In this article, I went through the whole process of purchasing a National Geographic NFT. Without a digital wallet, it took me over 30 clicks – including KYC verification through Blockpass before I could even attempt to purchase an NFT.
Sneaking into a customer’s head being confronted with a NFT-based experience, the same questions come up over and over again:
“What’s the difference between a jpeg and this… jpeg?
“Why do I need to open a “wallet” or whatever the heck this thing is?”
“Can’t I just keep my loyalty points on my customer account?”
“Where do I log in with my email? With a password I forget but Safari autofill remembers for me?”
“Why do I need this?”
Quite a few start-ups are building on onboarding solutions to simplify this process. They allow users to create wallets without private keys or passwords just with an email alone (e.g. Web3Auth, Dynamic, Magic, Tweed, etc.).1
Others, such as Mojito, Arianee, or Whal3s, are building on infrastructure to easily integrate token-gated experiences into existing brand front-ends. This is helpful as users remain within their familiar interfaces.
A brand who simplified the UX quite a bit is IWC (powered by Arianee). Instead of requiring users to install a third party wallet, they created their own wallet that automatically creates a wallet upon opening the app.
No seed phrases, no passwords. And very easy to use.
Moreover, IWC explains the process of joining their “Diamond Hands Club” and earning rewards very well. A user who has never heard of Web3 or blockchain before gets this.
Compared to National Geographic, IWC’s experience is tightly integrated into their brand and customer engagement strategy.
Interoperability crucial for what is commonly referred to as the “open metaverse”. Without it, Web3 is basically worthless.
Digital spaces must not resemble the walled gardens of the current internet era, built and circumscribed by Big Tech platforms that prevent the free movement of individuals and their data, assets, and social connections. The promise of an immersive, real-time virtual world can only be built upon technology that allows data exchange between segregated ecosystems.
In short, interoperability enables assets like NFTs to move freely across various chains and platforms, enhancing their value (cf. Transferability)
This means, for example, that I could port an NFT I bought in Decentraland to Sandbox and wear it there. Or that I could take my Adidas virtual gear with me in whatever digital space I go. Or that assets that run on one blockchain can be transferred to another.
Progress is slow, but industry-wide efforts are underway (e.g. Metaverse Standards Forum, OMA3, Metacircle). Recently, Apple and its Vision Pro platform formed the “OpenUSD” alliance together with NVIDIA, Adobe, and Autodesk and Pixar to push a standard format for interoperable 3D tools and data.
According to studies, privacy is one of the most important features users expect from Web3. Wallet and on-chain data can be used to:
Track user behavior for personalized experiences & ad targeting
Identify illicit activities or transactions
In today’s Internet, giants like Google or Facebook monetize user data collected through “third-party cookies”.
Third-party cookies are small pieces of data stored on users devices by web browsers. They track user behavior and preferences on websites, and are used for targeted advertising.
Many in Web3 argue that the era of “third-party cookies” is ending.
No more cookies means: no more ad-targeting, i.e. no more monetization of personal data through ads.
This is an existential threat to business model of modern internet companies like Google, Facebook, or Twitter. It would shift power back to the users, the “rightful owners” of their data.
What’s the alternative?
Instead, brands could target users based on the NFTs in their wallets and past interactions with decentralized apps. This opens doors for a more intimate and granular customer engagement.
For monitoring transactions and identifying illicit activities, Chainalysis sets the industry standard in on-chain data tracking.
So again, what about privacy?
In Web3 (at least for now) nothing is private. It’s all pseudonymized.
Your wallet stays anonymous until it's linked to you, a link that then becomes permanent.
Today, we’ve left the worst behind us. Weathering a crypto winter is no small feat. I’ve experienced it once already. It feels daunting and never ending. People are thirsting for positive news.
But the community has come such a long way. Remember that we didn’t even have DeFi, or NFTs in 2019 during the last crypto winter?
That’s how fast the space is moving.
Now, we’re soul-searching and trying to find answers to:
How do we make this tech mass-market friendly?
How does it mesh with the current Internet?
What apps are actually useful for consumers?
Areas like ticketing, loyalty, digital/physical and decentralized social media have shown promise.
Yet, the challenges remain the same.
With a space blessed with so many smart, passionate, and visionary people, I’m optimistic.
I believe that Web3 is not just a technology but a transformation that's reshaping the Internet and brands around the principles of ownership, community, and decentralization.
Nothing has changed.
Thanks for reading Dematerialzd – Web3 for Brands! Subscribe for free to receive new posts and support my work.