Modeling The Integration & Adoption of Web3 using Historical Data on Technology Adoption
Widespread adoption of digital technologies has been a driving force behind innovation, progressing the way humans communicate, access information, and interact. Consider the internet, officially understood to have been invented in 1983 (when TCP/IP became a part of the ARPANET) with the first web page uploaded by Tim Berners Lee in 1991. By 1999 there were less than 300 million people online, and by 2023 that figure is closer to 5.3 billion people. Predicated on this adoption there has been unprecedented invention across nearly all sectors, industries, and services: changing lives unimaginably by unlocking previously unenvisaged levels of productivity, efficiency, and utility for society.
Since Bitcoin was invented in 2009 by Satoshi Nakamoto, the adoption rate of cryptocurrencies has eclipsed that of even the internet with an average of 110% growth annually. Estimates contend that 4.2% of the world population are crypto holders as of 2022, equivalent to approximately 320 million crypto users globally. A milestone which took the internet 16 – 30 years to reach (depending on when you consider the internet’s inception, some consider it as being 1969 when the first ARPANET message was sent from this UCLA site to the Stanford Research Institute) took crypto 13 years.
Web3 is a term coined by Polkadot founder, and Ethereum co-founder, Gavin Wood in 2014. Web1, pioneered by Berner’s Lee in the 1990’s, pertained to three fundamental building blocks: HTML, URL’s, and HTTP underpinning services like email and web browsing via services like Netscape Navigator. Web2 refers to the era of user generated content, social connectivity and interactiveness ushered in by the proliferation of mobile phones, applications, and services such as Facebook and Google.
The third generation of the web, which includes decentralized finance (DeFi), NFT’s, and cryptocurrencies, has experienced rapid growth and adoption. DeFi’s market cap hit $90bn in 2021, rising to $174bn in 2022. This has more recently been characterised by usage growth from 4.7 million at the start of 2022 to more than 6.5 million in 2023. NFT market cap grew from $85m in 2020, to $22bn in 2021, dropping to $10bn in 2022 underpinned by 8.22 million ETH in trading volume across 2.46 million unique wallets. A report published by Verified Market Research (VMR) forecasts a compound annual growth rate of 33.7% for the next eight years which will increase this total market cap to $231 billion by 2030.
With the emergence of the web3 ecosystem, the integration of blockchain technology (alongside artificial intelligence) portends major disruptive cultural, economic, political and social ramifications with the capacity to fundamentally reshape financial systems, social networks, and centralized platforms. Five central axioms playing out in the market include the ideals of decentralization, transparency, security, accessibility, and efficiency:
- Decentralization: A core ideal of web3 is to mitigate (or do away with entirely) single authorities or points of control. Moving further along the spectrum away from centralization makes it more resistant to censorship, corruption, & other interference.
- Transparency: Blockchain technology offers a high degree of transparency, given all transactions are recorded on a public ledger accessible universally. This makes it easier to track & verify transactions, reducing the risk of financial crimes like fraud.
- Security: Web3 platforms typically offer cryptographically secure (typically self-custodial) alternatives to traditional systems, as they use advanced encryption and security protocols to protect against hacking and other forms of cyber-attacks.
- Accessibility: Unlike TradFi (traditional financial systems), which often requires extensive documentation and background checks to open accounts, Web3 platforms are typically accessible to anyone with an internet connection.
- Efficiency: Transactions can be processed in near real-time without the need for intermediaries or other third parties.
In service of forecasting the scope and envisaged timeline of commercial, regulatory, recreational, and communal ramifications as a result of these advances; this paper develops a simple qualitative model predicated on historical data, of the integration and adoption of these phenomena. Two lenses are adopted herein to disambiguate this new paradigm: economic and societal.
From an economic lens, the rapid growth of the web3 ecosystem can multifactorially captured by data points including the level of capital being allocated into the sector by professional, retail, and/or institutional investors; labour and employment figures; wealth distribution, income equality, etc.
Whilst this list is non-exhaustive, with the aim of developing a simple model of adoption based on historical data, investment by Venture Capital (VC) firms offers comparable data set with which to contextualise and contrast present adoption momentum.
With the advent of the internet, Venture Capital investments in the late 1990s skyrocketed to unprecedented levels.
The level of investment was reported by National Venture to reach as much as $48.3bn in the US in 1999, nearly tripling from $19.3bn the year before. Internet companies attracted approximately 66% of this funding in 1999, doubling their allocations from 1998, according to simultaneous reporting from VentureOne of San Francisco.
In a recent Tim Ferris podcast, Bill Gurley, partner at Benchmark Capital (early investors in Uber, Twitter, OpenTable, Yelp, Zillow, Dropbox, Instagram, and Snapchat) reveals a glimpse of the mental models and frameworks that need to change at the arrival of a new epoch to understand its potential impact and adoption. In this early web2 era one of those was network effects.
Bill Gurley: Oh, I mean, I would say in some of these verticals, both OpenTable and Uber, there were years and years and years where everyone thought the TAM (total addressable market) was too small. In fact, oh, here’s a great story. So this was in ’99, so this is a 23-year-old story, but I had successfully recruited a CFO from a public company, which you could do back in those glory days to come into OpenTable. And one day I showed up early for a board meeting, and the CFO comes to me and he says, “Bill, I’m going to quit.” And I said, “Okay.” I go, “Why are you going to quit?” And he goes, “This business will never work.” And I said, “Okay, why will it never work?” And he says, “Well, my model says it’ll never work.” So I said, “Show me your model.”
So we look at the model and I dive in, and he has frozen penetration in each city at 17 percent. And he had come from a retail business. And I go, “Why’d you freeze it at 17 percent?” And he said, “Oh, no one gets more than 17 percent market share, all the businesses I’ve worked with.” And because I believed in network effects, I was like, “We’re going to get 99. We’re not stopping at 17, we’re going to get 99 percent. You don’t understand how this is going to work.” And that’s because I believed in network effects and he didn’t. When we filed the S-1, I really wanted to FedEx it.
Just over two decades later, in 2022, total US VC deal value reached $238.3 billion, down 30% from $344.7 billion a year earlier, according to a report by Pitchbook and the National Venture Capital Association (NVCA). Estimates are the approximately 5% – 10% of US VC dollars were directly invested into blockchain and crypto startups in 2021 with over $33 billion of investment in blockchain companies in 2021. This dropped to $23bn in 2022 according to KPMG.
VC dollars serve to accelerate research, development, and productization of the technology for wider use cases and applications. Web3, comprising up to 10% of total VC capital investment in 2022, relative to 66% of VC dry powder being allocated to the internet in 1999, offers tangible signal in regards to adoption. Record amounts of funding pouring into the sector harbours predictive potential of the capacity to scale innovative ideas into viable products and services.
From a collective and societal lens, the web3 ecosystem has struck a chord in the cultural zeitgeist with 94% of crypto investors being of the Gen Z and Millennial generation. Moreover, of millennial investors, nearly 60% hold digital currencies with 15% of millennials saying they own a non-fungible token (NFT).
From a labour perspective this is playing out akin to the talent exodus from Wall Street to Silicon Valley propagated by the financial crisis. Concerns on ethical, workplace culture, moral, and governance grounds precipitated heightened disinterest in joining the sector, with Columbia Business School data showing only 14 per cent of MBA graduates chose an investment-banking career in 2016, compared with 27 per cent in 2011. A belief in the potential for digital transformation to disrupt, as well as growing employment opportunities relative to the financial sector were some of the reasons cited in 2015. Moreover the capacity to match or exceed salary demands, on account of VC backed dollars as well as growing adoption, set the stage for this shift.
Web3 related job postings on Linkedin grew 395% in the U.S. from 2020 to 2021, relative to a 98% increase in the tech sector. This rose again by 80% in the year to June 2022, with early signs of a similar shift from the tech sector into web3, as there was from finance to tech. Particularly as greater legitimacy is earned from a regulatory perspective. Reports from executive recruitment firms interviewed by media outlets such as Business Insider, CNBC and Blockworks as suggestive of this trend. Moves from companies such as Meta, AirBnB, Uber, Google, and Amazon are being precipitated to companies such as Coinbase, Circle, Gemini and OpenSea. Yet given the volatile, cyclical, nascent nature of the industry, many can lose those jobs just as quickly as they are procured.
The US Infrastructure Investment and Jobs Act was amended in November 2021 for instance, including a set of crypto “digital asset” provisions defined as “any digital representation of value which is recorded on a cryptographically secure distributed ledger or any similar technology as specified by the Secretary.” The U.S. Financial Crimes Enforcement Network (FinCEN) defines cryptocurrency exchanges as “Money Services Businesses (MSBs)” that must keep documents proving the identity of their customers. The Security and Exchange Commission (SEC) has undertaken legal action against bad actors in the space, enforcing accountability as well as working alongside the Treasury Department and Bankruptcy courts to set new precedents in dealing with entities like FTX, and Celsius.
The confluence of such economic and societal factors, where sufficient capitalisation meets satisfactory jurisprudence, technological progress is adopted at increasingly advancing speeds. Globally, it took
- 129 years for the toilet to reach 100% of households in 1989.
- 120 years for drinking water to reach 100% of households in 1980.
- 99 years for fixed telephony to reach its highest peak of 95% in 2002.
- 78 years for the automobile to reach its highest peak of 92% in 1993.
- 48 years for electricity to reach 100% of households in 1956.
- 47 years for the radio and the refrigerator to reach 100% of homes in 1971.
- 25 years for the cell phone to go from 10% to 96% adoption in 2019.
- 24 years for the computer to go from 20% to 89% adoption in 2016.
- 23 years for the internet to go from 10% to 88% adoption in 2016.
- 14 years for social media to reach 80% adoption in 2017.
And as skilled labour reaches a minimum viable threshold within a particular industry to become adapted to its ecosystems, optimisation that delivers value to customers accelerates adoption further. For instance with digital media entities, to reach the million user mark it took Facebook (2004) ten months, Spotify (2008) five months, Instagram (2010) two months, and ChatGPT (2022) five days.
This is akin to the automobile industry wherein the Ford Motor Company Model T was introduced in 1908 taking till 1913 to produce over 300,000 cars per year: an incredible revolutionary feat at the time. Yet for the Chrysler Corporation founded in 1925, over the same time period it was producing over 500,000 cars per year in 1929.
For Web3, key trends propagating engagement and discovery include tools such as Layer3 – curating interactive gamified experiences using bounties (aka Quests) for users to explore web3 products such as DeFi, Web3 Gaming, Layer 2 Networks, Web3 Social, and more. Furthermore walletless onboarding tools are being developed by entities such as Flow to remove typical impediments to engaging with web3. Minimising user attrition from actions such as procuring self-custody wallets, securing seed phrases, purchasing cryptocurrency, and signing transactions enables enough usage to explore and define any intrinsic value.
The adoption and integration of web3 is expected to have a significant impact on the way we interact with the world both digitally and experientially. By leveraging historical data on technology adoption, this simplified model demonstrates a familiar trajectory to that of the internet albeit at a slightly earlier stage from the economic and societal perspectives – with faster growth rates.
This article has been written and prepared by @papajimjams and GCR Research Team, a group of dedicated professionals with extensive knowledge and expertise in their field. Committed to staying current with industry developments and providing accurate and valuable information, GlobalCoinResearch.com is a trusted source for insightful news, research, and analysis.
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