Web 3.0: Even Greater Network Effects (And Wealth Generation)

Why is incredible wealth going to be generated by Web 3.0?

The answer to this question can come in many forms. There is, however, one point that I think we need to focus upon. When compared to Web 2.0, the network effects can even be greater on Web 3.0.

How does this work?

This conclusion is derived simply from looking at the fundamental architecture of Web 3.0. What we see developing is giving us a clear indication of how things will unfold. This is compounded by the fact we are dealing with a different ownership model, something that is a game changer.

Here is where we happen upon the profound wealth generation that can arise. Using the concept of digital real estate, we have the framework to develop something completely different.

Source

Layer 1 AND Layer 2 Value

Since the introduction of Ethereum, with the smart contract technology, we saw the debate of where the value would reside. Would layer 2 applications be worth more than the base layer? Or would all the value be pushed down to the underlying network?

The settling of this discussion does not matter. What is crucial is that both potentially can have value. This is the radical game changer.

Tokenization allows us to capture value which previous was left unquantified. When we look at the structure of these system, we can see how it outpaces Web 2.0.

Layered value propositions add a completely new element to network effects. It also provides an interesting twist to the Flywheel Effect. The idea of nothing happening in a vacuum is placed on steroids.

Web 2.0 Value Creation

Many are familiar with the concepts employed by digital platforms. The tactics of Amazon, Facebook, and Apple are often discussion. Fundamental to the strategies employed is thenetwork effects that come from digital platforms. This can be both in terms of users along with the design. Incremental value can be garnered and spread to every user.

When we deal with social media, as an example, we are simply dealing with a single layer.

Let us use X as an example:

Like most platforms, this has network effects operating on many different levels. Like most social media, this depends upon the fact that people's contacts are located there. All information is provided by the community, enhancing the utility for the other users.

This is pretty straightforward. It is the way most understand network effects to be.

There is, nevertheless, another method that enters the discussion. With Apple, people, for the most part, are not using the ecosystem because their friends or family are there. Instead, it is what is offered that appeal to the customer base.

Part of this is the input of 3rd party developers. Apple would not have much of a business if applications were not available. If the growth in development on this level, by people outside the company, that enhance the utility for the users.

Again, we see the value captured by the platform, yet the efforts provided by the participants.

Going back to X, any activity that a user engages upon impacts that network. All data is resident on servers owned by the company. It is a siloed system. If one wants to use another application, it is like switching countries. One enters an entirely new system.

Web 3.0 - Exponential Network Effects?

Could we see the opportunity to have exponential network effects, thus driving even greater wealth creation because of the architecture of Web 3.0?

Looking at the laying, I believe this is the case.

We start with the premise of a platform. Building one on a blockchain does not appear to have a great deal of difference from Web 2.0. The main difference is authentication along with where some of the data is housed. Outside of this, we are looking at something similar.

That means Web 3.0 platforms can enjoy the same results as any other. It also says that users have the same impact.

One thing that is quickly noticed is that, through tokenization, individuals are able to have a piece of the platform. Here is where the concept of digital real estate enters.

Increasing the value of the platform means that one's holdings will see a similar appreciation in value. Since it is market traded, that could be reflected in the price.

This is a huge shift if the concept ended here. Fortunately, there is more to the story.

What about the base layer? In many instances, there is the potential to hold the coin associated with this network. That means users could hold stake in both.

Now we can start to see the greater impact. If our activity affects both the application and base network, both of what we have stake in, doesn't that equate to having a greater impact as compared to Web 2.0?

My conclusion is we are looking at this exact scenario.

Quantifying It

Let us do some quick quantification to see what we mean.

Suppose an activity in the physical world has a baseline score of 1. This means a physical action is worth 1 in terms of the effect.

On a digital platform, because of the nature of platform capturing and distributing value, each activity is worth 1.25. This is the Web 2.0 world we know.

It is easy to see why digital platforms are more valuable than other companies. Just using this simple exercise, we can see the exponential impact that is garnered.

What happens when we move to Web 3.0?

We start with the same digital platform impact, 1.25. Then we add in the base layer, let us assign .25 to that. Thus we come up with a total of 1.50.

Here we see how there is the potential for Web 3.0 to be even more valuable than Web 2.0 platforms. The added layer of value that is captured by the public network means that every activity done on any application has a greater effect.

For example, X has a certain value. Each activity undertaken on that platform has a certain impact (1.25). If that was placed on a public blockchain, another layer is added. The impact upon X by any user would still be the same. However, under this scenario, the user would also be adding to the value of the network beneath it.

It is where we see the nature of network effects expanding. With Web 3.0, we have multi-layer impact that is captured both at the platform and ecosystem level.

This is why the potential for wealth creation is so much greater than what we see with Web 2.0.

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