We are excited to bring Transform 2022 back in-person July 19 and virtually July 20 – 28. Join AI and data leaders for insightful talks and exciting networking opportunities. Register today!
The idea of handing over personal data and access to our browsing habits to be able to access online services is something to which we’ve become so accustomed, we don’t even question it anymore. However, the dawn of Web3 is introducing a new paradigm of data ownership, one where we own our personal data and can determine who accesses it and how it’s used. But what does that mean for the vast global economy that exists around data in Web2?
Just how big is the data economy?
Quantifying the scale of the global data economy is a gargantuan task. Statista estimates that the value of the data economy in the UK and EU in 2020 was around $440 billion and estimates it could grow to as much as $1 trillion within the next three years. But how do you define the boundaries of the data economy? Statista’s definition is the value derived from the “generation, collection, storage, processing, distribution, analysis, elaboration, delivery and exploitation of data enabled by digital technologies.”
But as it’s been pointed out in the past, every company is a data company because the Web2 model has evolved around the idea of intermediary platforms that only really exist for harvesting data. It’s a model that’s become pervasive, taking over entire industries, and it’s almost universally detrimental.
Marketplaces like Amazon and Etsy have taken over ecommerce to the chagrin of small sellers who see their profits diminished thanks to ever-rising fees. Uber has taken over the personal transport and now food delivery businesses, inflating the cost of a takeout meal by more than 40% in some cases.
In each case, it’s the same pattern – the platform moves in, creates a virtual monopoly, and then starts hiking fees in the knowledge that people will pay for convenience, and sellers have no other choice because they can’t compete on scale. But as well as turning the screws on fees, these firms are also doing a roaring trade in the vast amounts of user data they collect.
Rethinking personal data privacy
In light of the way this model has evolved, the idea of data privacy seems somewhat laughable. When we enter our details into an online form, we generally have no idea where that data will end up, eagerly clicking through terms and conditions or cookie banners to access what we need. The laws that supposedly exist to protect our personal data are woefully fragile against the tidal wave of companies clamoring for our data.
Web3 introduces a different way of handling data between parties, one that could effectively address the challenges of the current Web2 model. Web3 applications are based on blockchains, enabling peer-to-peer interactions between individuals, witnessed and verified by a decentralized network of nodes. On the one hand, blockchain transactions are transparent and visible to everyone. On the other, blockchain permits a level of pseudonymity as names aren’t associated with a wallet address.
However, the technology has evolved significantly over recent years to allow for compromises that offer a greater level of transaction privacy. Conversely, off-chain measures can be put in place to ensure that firms can carry out compliance checks like know-your-customer as required.
But the peer-to-peer capabilities of blockchain and Web3 applications represent a fundamental game-changer for the Web2 data model. For example, the DeFi ecosystem allows users to start earning token rewards from lending their crypto. You can provide liquidity for DeFi applications, generating fees and pay them out as rewards to users who facilitate various currency swaps. Transactions are visible on the blockchain and can be analyzed in aggregate. There might still be limited user data involved, as most blockchains are public ledgers. The on-chain data is open and available to everybody.
A burgeoning ecosystem
DeFi is just one discipline, but more are becoming evident as Web3, and now the metaverse, are beginning to embed and take shape. In a metaverse app like Decentraland, you can already connect your wallet and buy digital merchandise in the form of NFTs without needing to go through a sign-up process.
Innovators are already building decentralized marketplaces that will allow users to trade a whole range of digital and physical goods, while developments like zero-knowledge proofs provide enhanced privacy while allowing an additional layer of verification.
For instance, a zero-knowledge proof might allow a vendor to verify that someone is over 18 years of age, but without the buyer needing to hand over a copy of their identity documents to be retained by the seller.
A long road ahead
While Web3 offers the opportunity to transform and streamline the Web2 data model, there’s still plenty of work to do before it provides a viable alternative. Investment in Web3 startups increased by 2,400% to reach $500 million in 2021, indicating a bright future ahead, but the space is unfortunately still very much in its infancy. With no centralized authority in charge of a blockchain, there’s nobody to hold to account if things go wrong.
In the current landscape, it’s very much a case of buyer beware. Users are tasked with keeping their wallet credentials secure, or anything in it – cryptocurrencies, NFTs or personal data – can be stolen. As such, hackers and fraudsters congregate anywhere Web3 users gather, making platforms like Twitter, Telegram and Discord ripe for scams. Even if a user manages to keep their wallet secure, there’s still a risk that the underlying applications can be hacked or that the project itself is a rug pull, where founders dump tokens on the market and run.
User experience is another issue. Ethereum remains the most popular public blockchain platform, but the fees to execute a transaction are high, which does not make it suitable for low-value transactions. User interfaces also fall short of their centralized counterparts, as it’s still relatively common for blockchain developers to focus on the back end of an application while the front end can be an afterthought.
Nevertheless, many of these issues are teething problems and shouldn’t detract from the fact that Web3 represents the first real opportunity to address the many-headed hydra of the Web2 data mode. If Web3 innovators can establish a safe environment with an optimal balance of privacy and security, it will establish a new paradigm where users and data collectors both profit from data but where users increasingly control the experience.
Michiel Van Roey is cofounder and general counsel of Profila.