Published Date: November 7, 2024
Author: HANetf
Identifying emerging trends early and providing investors with opportunities to engage through thematic baskets is a recognized strategy. Even though the Web 3.0 trend is not yet fully defined, the scenarios described are used to gather relevant companies into thematic baskets and adapt as more is learned about the Web 3.0 journey. Currently, the focus is on companies in four key areas: NFT & Tokenization, Blockchain Technology, Metaverse, and Big Data & Artificial Intelligence. Custom blends based on client perspectives are also offered. This approach is just the beginning of exploring Web 3.0. Many questions remain, such as: • Is the metaverse a component of Web 3.0 or merely an aspect of Web 2.0?
• Even if users regain data ownership in Web 3.0, will the demand for convenience drive revenue back to the dominant players of Web 2.0?
Email, a quintessential application of Web 1.0, has seen significant transformation with the advent of Web 3.0. In Web 1.0, email services like Hotmail and Yahoo Mail were basic, offering simple sending and receiving functionalities. As we moved to Web 2.0, email services became more sophisticated, integrating features such as search, filters, and real-time collaboration. With Web 3.0, email is being reimagined as decentralized email services like Ethermail. These services leverage blockchain technology to provide secure, private, and user-controlled email communication. Ethermail, for instance, ensures that emails are encrypted and stored on a decentralized network, giving users control over their data and protecting their privacy from centralized entities.
• Decentralization: Web 3.0 moves away from centralized servers and platforms, instead utilizing a network of nodes that work together to maintain the integrity and security of the web. This decentralization reduces the risk of single points of failure and censorship.
• Digital ownership: Users have true ownership of their digital assets through technologies like non-fungible tokens (NFTs). This allows for unique digital artifacts that can be bought, sold, and traded independently of any platform.
• Enhanced security: The use of blockchain and cryptographic protocols enhances the security of transactions and data, making it more difficult for malicious actors to exploit vulnerabilities.
• Interoperability: Web 3.0 promotes the seamless integration and interaction between different platforms and applications, creating a more cohesive and user-friendly experience.
• User control and privacy: Users have greater control over their data and privacy. Technologies such as zero-knowledge proofs enable secure and private transactions without revealing unnecessary information.
Investments in Web 3.0-related companies promise outsized returns and growth opportunities. One of the reasons is that many Web 3.0 businesses are geared towards phenomena that exhibit exponential growth.
For instance, the number of global data currently stored worldwide is growing exponentially. According to a recent report by the International Data Corporation (IDC), by 2025, the global data sphere will grow to 175 zettabytes.
This is a significant increase from the 33 zettabytes generated in 2018, representing a compound annual growth rate (CAGR) of about 27%. IDC also highlights that the amount of data generated by enterprises alone is expected to grow at a rate of 42.2% per year.
Another report published by McKinsey on the digital economy, highlights the exponential increase in data generation and its implications for businesses and economies.
The exponential growth in data is due to many developments in IT such as the rise of IoT devices, adoption of cloud services, the growth of social media content, and ongoing digital transformations of businesses in general.
Moreover, the growth of Web 3.0 networks like digital assets also tends to follow exponential growth patterns as well especially at the very beginning of the technological adoption curve.
In this context, it is important to highlight that major digital asset networks essentially exhibit social networks of users that transact and store value via the internet.
Wang et al. (2015) have already demonstrated that the growth rate of social networks generally follows a power-law which is a moderated version of an exponential growth pattern with diminishing returns over time as the technological adoption increases.
In fact, major digital asset networks like Bitcoin show characteristics of a power-law. For instance, this power-law can be observed with respect to price (in USD), total number of users, number of transactions, and computational power of the network (“hash rate”).
Source: Glassnode; ETC Group. For illustrative purposes only.
Robert Metcalfe already stated in the 1960s that the value of a network tends to rise with the total number of users to the power of 2. This is often referred to as “Metcalfe’s Law”:
Metcalfe’s Law, which suggests a quadratic growth in network value with user numbers, remains one of the most prevalent valuation models today, in contrast to Sarnoff’s Law, which indicates a linear growth. In this context, the user growth of major networks like Bitcoin or Ethereum has increased significantly.
In the case of Ethereum, the number of users proxied by the total number of non-zero addresses, has increased from 0.2 million in 2016 to 117 million in 2024.
This implies an average compounded growth rate in the number of Ethereum users by approximately 122% p.a. over the past 8 years.
Thus, it is not surprising that companies leveraged to Web 3.0 have also experienced significant growth over the past years. For instance, the number of verified users on the Coinbase exchange has grown by an average of 50.2% p.a. compounded over the past 10 years. Likewise, the number of Graphics Processing Unit (GPU) orders from the semiconductor company Nvidia has almost doubled over the past 10 years.
Coinbase is the prime exchange for both retail and institutional crypto investors and also serves as the main custodian for most of the newly-approved spot Bitcoin ETFs in the US.
Nvidia has been profiting from increased demand for GPUs that are not only needed in the validation of cryptocurrency transactions through a process called “mining” but also on account of the rise of AI applications such as ChatGPT that require a very significant amount of computing power which is provided by GPUs.
Based on this blueprint, the total number of Web 3.0 users is most likely going to double over the next 5 years alone.
Bottom Line: Web 3.0 represents a paradigm shift in how we interact with the internet. By addressing the limitations of previous web iterations, it offers a more secure, private, and user-centric online experience.
The transition from static Web 1.0 pages to the interactive and social Web 2.0 platforms, and now to the decentralized Web 3.0, illustrates the ongoing evolution of the internet. As Web 3.0 continues to develop, it promises to redefine digital interactions, ownership, and security, paving the way for a more equitable and resilient digital future.
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