Web3 is at an inflection point. While we’re still early, creators and builders are amassing to construct a better, more optimistic future for society on the Internet. It’s the end of the beginning and the next building phase for broader user adoption.

As we enter a new chapter, it’s worth revisiting what web3 is and why it matters, some of the major problems it can help solve, and what’s required to make positive, durable change in the world. This is written through the lens of what we’re building at Highlight, but intended to address the broader movement driving web3.

Why web3 matters

To best understand web3, it’s worth putting it in historical context.

Every technology era has been about expanding access to new tools. Once mainstream, new tools create new paradigms and business models that bring seismic changes to industries, the economy, and society. Powerful new tools unlock powerful new possibilities.

Going back to the beginning, web1 (circa 1989 - 2005) mainly brought access to information tools. For the first time, all the world’s information was at our fingertips, and as the Internet became mainstream, giants like Netscape, Amazon, and Google emerged to help us access it in new ways.

Next, web2 (2006 - 2018) brought about the widespread adoption of communication tools.

Once a critical mass of people were online, social networks and mobile devices helped connect us in new ways. Many of the era’s major companies built platforms with profound effects on society still rippling through today. With web2, the communication tools provided by platforms from Instagram (photo filters) to Uber (last-mile networks) got users likes, followers, and gigs. Some users made significant money, and the sharing and creator economies were born.

But for every successful Airbnb host or YouTuber, the earnings of thousands of artists, writers, musicians, and other creatives dwindled as ad-driven web2 models made creative output into content, cheap and ubiquitous.

This brings us to web3 (2018 - ?), which is about economic tools. While the significant innovation is cryptography-powered blockchains, crystallized by the Bitcoin white paper a decade earlier, the tools are programmable tokens and smart contracts that establish digital ownership.

Unlike in previous eras, web3 is about expanding not just access but ownership. Ownership, an ancient concept that we perhaps take for granted, underpins everything we know about wealth and value. Yet we own incredibly little, or maybe even none, of our own online footprint. The earliest innings of web3 point to an explosion of economic opportunity on par with the communication surplus of web2. Web3 is about the individuals and communities empowered to thrive — relative to web2 — because of a widespread expansion of ownership.

In web2, the vast majority of the value accrued to a small handful of mammoth companies and their platforms. Web3 has the potential to introduce new forms of ownership to a much broader set of actors.

With sufficient decentralization, the value these tools create won’t be owned by individual companies but by creators. This will be enabled by dispersed, global blockchain networks, limiting the risk that a new set of centralized players will come and replace the old.

This is why many of us are excited to build in web3: we see the potential to put more value and rightful ownership back into the hands of artists, musicians, writers, filmmakers, entertainers, and others creating cultural assets, among other groups.

Core problems web3 can help solve

Much has been written about the often contentious relationship between creators and the gatekeepers of creative industries. But rather than put creators at odds with established players, web3 presents the potential for complementary new business models where the current ones seem increasingly inadequate.

At the core of traditional models, there are three structural problems at play:

• Creators capture a small percentage of the money generated by their work
• Creators don’t have direct access to data about their fan base; intermediaries do
• Mainstream social media is a double-edged sword and lacks the tools for building healthy, supportive fan communities

These three issues are interconnected, and we’ll explore each in turn.

1. Creators capture a small percentage of the money generated by their work

Because of one-size-fits-all business models like ads and streaming, creators rely on reaching wider audiences to help generate real income from other sources: sponsorships, merchandise, live events, and elsewhere. Meanwhile, super fans and enthusiasts have an untapped willingness to pay for creative work — meaning, a smaller group of highly engaged users will happily pay more money for more interesting, valuable, or exclusive work. But this is hard to capture in a world of unlimited, valueless content.

With web3 and NFTs, digital scarcity now exists. Superfans and collectors can purchase limited edition assets from creators, opening up a potentially valuable new revenue stream that complements existing web2 models. This new monetization can increase a creator’s overall margin and revenue from the same project, especially when traditional intermediaries aren’t required.

For many folks outside of web3, this sudden shift towards crypto might feel odd. Why buy an artwork NFT when you can right-click-save? Or a music NFT when you can stream it endlessly? In fact, this new model is a return to longstanding human behaviors: it’s only until very recently that we’ve stopped owning the art we love most.

For example, we used to own and collect music. Our tastes were always on display for friends and guests to explore. This direct monetization and connection with the art and the artist have faded with streaming. Web3 restores our history of collecting creative work and brings new, complementary revenue that helps creators earn higher margins for each creation.

More wealth for creators will lead to more creative output. And the system will reinvest in itself, as we’re already seeing from on-chain data. Music artists, for example, that have benefited from selling NFTs, are among the most frequent collectors of NFTs from other artists.

2. Creators don’t have full access to their fan base; intermediaries do

By cultivating an audience of superfans and collectors, both through token sales and rewards, creators can build a database of their top fans that exists independently of any platform or middleman. While this idea might seem subtle, consider that many of the most successful creators today can’t reliably identify or engage with their top fans. This has become so ingrained we fail to think of it as a problem.

Nowadays, we consider it standard for companies to use data to reach us in ever more sophisticated ways. But my favorite artists—who I’ve supported since their earliest days and whose music I’ve streamed for hundreds of hours—can’t distinguish me from a casual email list subscriber. Because third-party centralized services control all the user data, the capability does not exist.

3. Mainstream social media is a double-edged sword and lacks the tools for building healthy, supportive fan communities

Finally, it’s worth considering the effects web2 social media platforms have had on creators and society more broadly. Web2 gave us limitless content with fleeting value at seemingly nominal cost. For the last 20 years, everyone and everything has come online. Ads funded the process, and a small number of large companies centralized what most of us saw and felt. But there were costs. They just took time to reveal themselves.

We’ve never been more connected, but a scroll through our social feeds often feels like a hell-scape of anger, trolling, and extremism. Social scientists are only now seeing the full consequences of this shift in the aggregate.

For creators, web2 platforms unlocked massive reach, giving birth to the creator economy. At the same time, these platforms fuel a tendency for outrage and hatred. Many creators are too exhausted by the sheer amount of polarized, hostile reaction from web2 followings to engage much, let alone authentically. What’s been gained are platforms for the average person to wield global influence; what’s missing are means of trust, belonging, and shared incentives.

Meanwhile, in our physical communities, with our neighbors, our interactions are much more optimistic. Through COVID, we’ve been supporting each other. How can we create online systems that reward these better impulses?

Shut at home over the past two years, we’ve turned to less centralized online worlds. For many of us that fell deep down the rabbit hole of web3, the experience has been uplifting. The energy and excitement of creating and owning new cultural artifacts have been infectious. This shared enthusiasm that drives web3 is very hopeful and, after years of web2-centered polarization, even cathartic.

We believe this is because ownership creates incentives. Shared ownership builds bonds that don’t exist in web2, where most interactions are ephemeral and valueless. Tokens help creators maintain and transfer ownership and the upside of creative output with a community. NBA fans can now own a play and a piece of a player’s performance. Bored Apes own a stake in an enterprise that is rapidly evolving into gaming, media, and more.

The promise of user ownership is enticing. By arming creators and their communities with economic tools, and lasting records of fan engagement on distributed, public blockchains, we can build a future where creators and fans connect directly and where the incentives exist to not just cherish someone’s music or writing or art, but to be empowered, recognized, and rewarded for it.

What’s required for Web3 to make positive change in the world

For web3 to fulfill its potential, the technical and economic barriers to entry need to come down.

First, crypto transactions need to be more accessible, secure, and painless for everyday people. Access to an NFT shouldn’t require multiple crypto transactions and gas fees that keep average consumers on the sidelines.

Decoupling digital objects (NFTs) from digital currencies is one of the simplest ways to achieve this. Just as newcomers to crypto have traditionally purchased cryptocurrency to dip a toe, we should evolve so that NFTs bought with fiat are seen as equally valid entry points into web3. Crucially, this pragmatic approach doesn’t need to sacrifice the core ideals of web3 around non-custodial ownership, creator provenance, or interoperability.

Second, underlying blockchains and scaling solutions need to improve their overall speed, cost, security, and efficiency. The current challenges are well documented, and many initiatives are in progress to address these needs. There will be tradeoffs for different use-cases. But the underlying technology will be improved.

Next, for web3 to gain mainstream traction, both creators and fans will need more places and spaces to share and flex their digital assets. With the incredible talent jumping into web3, we expect to see more and more of this vast design space to become explored over the coming years.

Finally, user ownership can unlock a new world of creative empowerment, but sustaining these new models will take time. A decade ago, subscription models for individual creators — influencers, podcasters, newsletter writers — were nascent and the playbooks were unwritten. Similarly, the new economic models offered by web3 will take ongoing work to mature.

But when the future is written, these challenges will be overcome. The pull of web3 is too great, and the underlying problems it can help address are too pressing for us to ignore.