2022 ended with a crypto winter, exacerbated by the collapse of the centralized crypto exchange FTX and the arrest of its founder and ex-CEO, Sam Bankman-Fried, (a.k.a. SBF), for fraud. This followed other major events earlier in the year: the fiasco of Terra (Luna) becoming worthless, the bankruptcy of Voyager and Celsius, and the contagion risk that spread throughout the crypto market. All these events made people doubt the value of blockchain technology, Web3 and the economic use cases of cryptocurrency and their benefits.
But we must differentiate between cryptocurrency as an asset class trading on a trading platform such as FTX and the technology – blockchain technology and Web3. The two are separate concepts and should not be confused. Trading, especially in the crypto space, is mainly based on speculation, hype, and influencers, not much on merit or value.
Technology, on the other hand, is about building applications and implementing it for valuable business use cases that can benefit the global economy and society. The developments of blockchain and Web3 applications across all industries are still ongoing and strong!
This crypto winter might be more beneficial for Web3 than most people think. We’ll see a healthier ecosystem thanks to the purge of money-grabbing projects sustained only by hype. With that noise being weeded out, it is time for builders who deeply understand the system and strive to create a better infrastructure to make their mark and get noticed.
2023 can bring a bigger adoption of Web3 as many will start to realize it has many benefits over traditional systems. Let’s look at the trends to expect in 2023 and beyond.
Regulation is coming
If something good can come from FTX, it is that more regulations are coming, especially for centralized crypto exchanges, along with stricter rules on investor protection in the crypto trading space. Even Congress is paying attention, having summoned SBF for a congressional hearing (he was arrested the day before the scheduled hearing). These regulations are overdue – I have advocated for regulating centralized crypto exchanges since 2017. However, it’s better late than never.
Legislators and regulators world-wide have zeroed in on the crypto market with an attempt to lay out rules, which hopefully prevents future catastrophes such as FTX. But legislators and regulators must be cautious in their approach, making sure not to stifle Web3 innovation. If they understand the difference between cryptocurrency as an asset class that trades on a centralized trading platform, and innovation that utilizes Web3 technology, and stick to investor protection while creating a welcoming environment for the development of Web3 applications, then we might be expecting a favorable legislative environment both for investors and developers.
We have started to see a Web3-friendly approach in 2022. In the U.S., states like Wyoming, California, Florida, Texas and Colorado have used their powers to develop and pass their own legislation to position themselves as “Web3-friendly” zones. The idea is that in exchange for accepting regulation and oversight, businesses involved in Web3 activity will receive favorable treatment and special tax considerations. Colorado also became the first state to accept cryptocurrency as payments for taxes and state fees.
Outside of the U.S., Dubai has demonstrated that it is keen to become a Web3-friendly society. The emirate has created economic programs designed to attract companies involved in Web3 work to set up operations in its territory and is also promoting itself as a natural home for innovation in the fields of artificial intelligence, cloud computing, and metaverse – all emerging technologies related to developments in Web3.
2023 (and forward) is likely to see other countries and U.S. states moving to position themselves as Web3-friendly environment.
Non-Fungible Tokens (NFTs) move beyond hype
NFTs have been mainly associated with digital art and “collectibles” sold for thousands, if not millions of dollars. Whenever there is money to be had, unscrupulous activity comes to the surface. Unfortunately, that’s human nature. We have observed all sorts of scams, from phishing scams to bidding scams to fake NFTs (OpenSea reported that over 80% of NFTs minted using its minting tool were fake). We must, however, look beyond the hype and towards the core power of NFTs: authentication.
The year 2023 will mark the year where NFTs are less about digital art and collectibles and more about viable business use cases (or utility NFTs).
Towards the end of 2022, Starbucks with its Odyssey Rewards program powered by Web3 technology demonstrated such a utility NFT use case. Members will earn collectible “Journey Stamps” (NFTs) to earn points that will open access to new benefits and immersive coffee experiences that they cannot get anywhere else. We’ll most likely see more companies experimenting with similar types of NFTs benefit rewards and immersive experiences.
The music industry may also change due to NFTs. LGND Music, scheduled to launch in January 2023, is designed to be a music and collectibles platform that supports “digital collectibles from any blockchain in a proprietary player,” thereby making it possible for users to play their digital collectibles on the go. Creators will also be able to interact with their fanbase via special content and curated experiences, creating valuable perks for NFT holders.
NFTs may also change the concert experience. Instead of having a digital ticket, concerts tickets will be minted as NFTs. NFT tickets have all the features and benefits that underline blockchain technology. It is immutable. It cannot be changed or deleted or forged. It is traceable and trackable. As a result of these features, it may reduce, or even eliminate, ticketing scams and scalping – a great benefit both to users and creators.
Also, NFT tickets can act more than a ticket. These tickets could be resold as memorabilia of an historic event or concert sometime in the future.
The possibilities and the opportunities of NFTs are boundless and go beyond collectibles and celebrities’ tweets or photos. The future of NFTs lies in the business and economic applications, and we’ll see more of that in 2023 and beyond.
Decentralized metaverse and immersive technologies
Decentralization:
Decentralized virtual spaces are a major part of what Web3 is aiming to achieve in the coming years. A Metaverse built using decentralized blockchain technology provides a unique sense of community, where the power dynamics are reversed — instead of a centralized organization controlling and benefiting from the growth of a community, a decentralized system allows users to control their own content.
Within a decentralized metaverse, the idea of sharing benefits is more visible since the hierarchical system is replaced by a flat structure. This allows the user to take control of their assets, mainly their data and earnings.
Immersion:
Web3 enables people to work together by combining physical and virtual spaces. Brands are making use of extended reality (XR) and the metaverse to achieve this. Such interactive spaces also have a positive effect on economic activities. Immersive technologies have a major influence on how brands and customers interact, leading to a true increase in engagement. In addition, they take advantage of real-time data to offer clients highly tailored services and products, enhancing their satisfaction.
Virtual Reality (VR) requires intensive developments in hardware, and it may not seem like a viable application soon. Augmented Reality (AR) may be a more practical and widespread solution, at least until VR development makes significant strides.
One recent example of AR can be found in the performance of the award-winning virtual band Gorillaz on December 17 and 18, when they transformed Times Square and Piccadilly Circus into live stages for ground-breaking performances. We will see more AR applications not only in the music industry but across all industries.
Decentralized social network
One of the goals of the Web3 movement is to create a decentralized social network. Web3 social media opens a variety of channels for influencers and brands to reach out to their customers, making sure that they have maximum exposure. This enhances the interaction with their fans, thus contributing to their profit. Decentralized social media platforms also provide creators with better monetization systems through NFTs for fair pricing.
Since decentralized social networks are not controlled by a specific entity but are governed by the community, Web3 users will have control over what can or cannot be said/published on these platforms. This could be achieved by incorporating a decentralized autonomous organization (DAO).
Examples of such Web3 social media in the works are: BlueSky, Steem, Decha and Crew, and we would probably see others in the coming years.
Decentralized identity
Our identity already lives in a digital form, but we lack the privacy and security needed to protect it.
Web3 offers individual users their own digital wallets that serve as distinct identities in contrast to virtual identities in Web2. This provides a simpler and more convenient way to log into and out of web-based applications. It also allows the user to determine which information to disclose and with whom when using Web3 platforms.
The decentralized identity space is still in its infancy. However, with the advancement of avatars in the form of NFTs serving as users’ digital identities within virtual spaces, Soulbound tokens, blockchain, biometrics and related cutting-edge technologies, decentralized identity will soon reach the masses in the evolving Web3 ecosystem in the coming years.
Zero-Knowledge (ZK) Proof technology
ZK methods allow one party to prove they have certain data without revealing any information about it. This allows for greater privacy and security when using blockchain technology and it would be of special importance when utilized with decentralized identity.
ZK rose to prominence in 2022 with ZK-Rollups, gaining visibility as the dominant tool for Ethereum scaling. In 2023, a much broader set of use cases will be unlocked by adoption of software development kits that allow ZK smart contracts to be programmed into applications executed off-chain (that is, off the blockchain), with verification and settlement back on-chain.
Off-chain execution opens a whole new world for data privacy, verification, and efficiency. It will bridge the gap between Web2 and Web3, and will enable new identity use cases, social networking, voting and compliance in regulated industries.
Decentralized Finance (DeFi)
The Web3 system replaces traditional financial systems and operates through Decentralized Finance or DeFi. This peer-to-peer method allows users to execute transactions through smart contracts without the need of intermediaries such as banks or brokers and thus significantly reduces transaction cost to almost no cost.
DeFi allows peer-to-peer applications for all sorts of financial transactions like loaning, borrowing, or staking, which supplants traditional investment instruments. The NFT market likewise propels the development of DeFi solutions because of the developing interest for NFTs among makers and fans.
Furthermore, DeFi provides exceptionally secure exchanges and immediate cross-border payments. These progressions, joined with current advances in blockchains, will improve the proficiency of financial exchanges.
We should bear in mind that DeFi has nothing to do with the recent bankruptcies that we’ve seen with FTX, Celsius, Voyager, and others. These companies are centralized companies, and are not part of the Web3 ecosystem. While some have used decentralized protocols, those were not the cause for their collapse. Instead, these companies collapsed because they overleveraged themselves and took on excess risk — essentially, it was greed that led to their downfall, not the technology.
Terra (Luna) is indeed a DeFi but it is not representative of the majority of applications being built and developed. Due to the events in 2022, DeFi developers are mindful of building applications that are economically sustainable and secure.
A Greener Web3
With the state of New York enacting a 2-year ban on crypto mining operations, and other countries voicing environmental concerns, even the most enthusiastic Web3 advocates have to face up to the fact that the technology has issues when it comes to sustainability.
There have been concerted efforts to reduce the amount of energy used while retaining the usefulness of blockchain and associated Web3 technologies. Most notably, the Ethereum network successfully completed its switchover from proof-of-work to proof-of-stake algorithm – leading to a reported 98% reduction in the overall amount of energy used on the network.
In 2023, we can expect increasing efforts to be put into using the technology to achieve green goals. The World Economic Forum has highlighted potential the technology holds to enable organizations to coordinate and build collaborative technology designed to accelerate climate change mitigation.
One avenue that is currently being explored is known as “regenerative finance” (ReFi). ReFi focuses on the creation of systems that restore and preserve physical resources and mitigate the effects of carbon emissions. Therefore, it is expected to play an important role in the Web3 innovation and projects that are looking to achieve a positive environmental impact.
Web3 for fashion and beauty players
There is no one approach to how the leading fashion and beauty companies are embracing Web3, though most are primarily experimenting through partnerships to discover the best strategies for their brand, as partnerships offer a low-cost way to test and learn.
L’Oréal is focused on reaching new audiences in digital environments through moves like offering digital assets on metaverse platforms and exclusive NFT drops. The company has heavily focused on working with startups that create interoperable virtual goods, digital assets used across different virtual worlds.
Nike has been one of the first movers among large retailers to explore virtual goods as a new revenue stream and to establish its stake in the metaverse. The company acquired virtual sneaker startup RTFKT in December 2021, positioning the sportswear giant as a leader in adopting Web3 tech.
Moët Hennessy Louis Vuitton’s main priorities are using blockchain to authenticate luxury goods, tracing product journeys from raw materials to distribution.
If fashion and beauty brands, especially the luxury brands, want to remain competitive and relevant, we expect to see more brands to make investments in Web3, the metaverse and related technologies in 2023 and beyond.
Decentralized Governance
Vitalik Buterin, the founder and brain behind Ethereum, wrote a blog in December “What in the Ethereum application ecosystem excites me.” One of the things that excites him is the ability of Decentralized Autonomous Organizations (DAOs) to build more democratic, resilient, and efficient forms of governance.
DAO offers a new way of governance. It’s a “faceless” governance mechanism. This feature is critical if one wishes to create an unbiased and diverse community, allowing for every member to express themselves and have equal rights freely and unbiasedly.
In 2023 and beyond we’ll see the integration of DAO in different applications to govern communities – whether in rewards applications such as Starbucks Odyssey, or decentralized social media, or gaming, or DeFi protocols.
Final Thoughts
Although these technologies are in their infancy and there is still a lot of work to be done, 2023 will bring exciting new developments and continued growth. The developments of blockchain and Web3 applications across all industries are strong and ongoing, and there is much to look for in the year 2023 and beyond.
SOURCE: https://www.nasdaq.com/articles/web3-the-metaverse-and-crypto:-trends-to-expect-in-2023-and-beyond
