TL;DR

Customer data in Web3 will be owned by a few centralised organisations, akin to Google and Meta, despite the space’s decentralised ethos. Web3's infancy reveals a glaring gap in utilising customer insights, but the lessons from Web2's data dominance are clear: harness user data or get left behind. Blockchain companies like Chainalysis and Arkham are already capitalising on this, but the field has a long way still.

Merging Web2 and Web3 data will revolutionise insights, birthing centralised blockchain data powerhouses that most decentralised protocols will need to stay competitive.

The stakes? Blockchain's privacy vs. transparency, tailored on-chain experiences, and a hybrid digital future shaped by both centralised and decentralised entities. For investors, this is the gold rush: back the emerging Web3 data titans and reap the rewards. The future is data-centric for Web3.

Introduction

The digital realm is evolving, transitioning from Web2's centralised architecture to Web3's decentralised vision. As this shift unfolds, we will witness the rise of new data behemoths in the crypto world, reminiscent of Google and Meta. Customer data’s influence will be crucial for both centralised and decentralised Web3 ventures, especially as on-chain user data becomes indispensable for delivering consumer value. Yet, these companies won’t likely be as decentralised as Web3 users hope.

First, we’ll uncover how Web2's data-driven triumphs can guide the growing Web3 domain. Then we'll delve into the existing gaps, the exciting potential of merging Web2 and Web3 data, and the ripple effects this will have on the industry.

The Current Gap in Web3

Despite the eight years since the Ethereum genesis block in 2015, the industry is still very much in its infancy. The decentralised nature of this space is giving birth to innovative business models. However, a universal blueprint for running crypto companies effectively still remains elusive. The industry's novelty, combined with the intricacies of blockchain tech, has led to a stark lack of data-driven strategies. Web3 businesses seldom leverage intricate customer data for product evolution, marketing, or decision-making, resulting in inefficiencies and much guesswork in the industry.

Peek into Web3's hiring trends, and the focus is glaringly on Engineering and Marketing. Data-centric roles are sidelined and not considered priorities for most crypto businesses. For instance, Crypto Jobs List reveals a whopping 78% of job listings in these types of roles, with Data Engineers and Data Scientists lagging behind. TrueUp's data echoes this sentiment, with a scanty 4.7% of 4,000+ jobs being in Data & Analytics. This disparity highlights Web3's current underestimation of data's power in the space.

Even when we dig into the current data landscape in Web3, the emphasis is mostly on platform, chain and investor-centric data analytics. Data analysis platforms like DeFi Llama, Nansen, and Dune Analytics, predominantly cater to these data segments while providing little on individuals’ holistic on-chain activities and behaviours. This leaves a large gap in the market for data-facing entities to unlock long-term value by understanding end-users at an individualistic level. As the line between investors and regular users blurs in the Web3 space, the customer data side appears to have been overlooked, since investor and token-related activities are presently more lucrative.

The Power of Customer Data in Web2

The digital emergence of Web2 underwent a transformational shift when personal data emerged as a pinnacle asset to businesses. Companies such as Google and Meta exemplify this transformation and how lucrative it became to gather customer information, while Big Data as a sector is projected to be $84 billion by 2024.

Google, with its ubiquitous search engine, meticulously analysed user queries, clicks, and customer behaviours to refine its algorithms, allows other companies to retarget incredibly granular marketing campaigns through its platform. Data brokers, like Acxiom, profited immensely by amassing and selling customer data, helping businesses fine-tune their strategies. By leveraging user data in such strategic ways, these data giants not only achieved remarkable commercial success but also wielded significant influence over the digital behaviours and preferences of billions worldwide.

Competitiveness of Data-Driven Web3 Protocols

Web3 companies that master the art of user data analytics are poised to lead the market. Tapping into decentralised data offers profound, nuanced insights. This treasure trove of data will lead to customised services, enhance user experiences, and streamline blockchain operations. As Web3 expands its reach, encompassing everything from finance to social networking, the data becomes even more invaluable. Those who mine this data effectively can predict market shifts, swiftly cater to user demands, and stay ahead due to network effects and economies of scale, effectively cornering the market. On the flip side, those ignoring the prevalence of sophisticated user data risk a huge opportunity cost and fading into obscurity.

Imagine a world where connecting a wallet to a decentralised protocol offers a customised interface, reflecting a user's on-chain history. This mirrors Web2's targeted landing pages, but Web3 can offer more extensive insights by collecting a variety of data points such as past transactions, staked assets, or governance votes. Such personalisation not only boosts user engagement but also heralds innovative business models, merging data insights with decentralised features.

The Holy Matrimony: Combining Web2 and Web3 Data

Web3 data is in some ways akin to the intricate financial data banks possess, detailing customers' purchase history, investment choices, and spending locations. Given the public nature of most blockchain data, extracting insights from wallets is straightforward; anyone with a 500GB hard drive and a node can download the whole Ethereum blockchain to their laptop. The challenge lies in linking these wallets to real-world identities, a puzzle companies like Chainalysis are already solving. Now, fuse this with Web2's social media data, and you have possibly the most comprehensive digital footprint of a user known to mankind. The convergence of these data realms paints a holistic picture, merging financial decisions, social tendencies, and identities. A scary thought for consumers but a likely eventuality.

Combining Web2 and Web3 data is not just a fairytale; it’s already happening and will become a necessity for forward-thinking Web3 enterprises. As companies recognise the immense value of this data synergy, it's likely we'll witness the emergence of several centralised blockchain data organisations with information asymmetry. These companies, while operating within the Web3 framework, will harness the combined power of Web2 and Web3 data with the ethos of predecessors like Google or Meta, marking a significant and transformative shift in the decentralised landscape of Web3.

Emerging Web3 Data Giants

We are already seeing a few players laying the foundations for this new data landscape, such as Chainalysis with its advanced business data tools and Arkham with its goal of “deanonymising the blockchain”. Chainalysis has one of the most thorough blockchain datasets linked to real-world identities, which it has been collecting for over half a decade to use for compliance-related business, such as working with world-class banks and government entities to combat anti-money laundering. However, recently, it has started to reuse this data for more commercial, marketing purposes, such as with its new product Playbook. Arkham, on the other hand, is a relatively newer player in the Web3 data game yet has set a precedent with its Intel Exchange, where individuals and companies can buy and sell data freely.

Given the open-source nature of most blockchains, these companies face no hurdles in accessing on-chain data, freely analysing and leveraging it for their clientele.

Implications for the Web3 Industry

De-anonymising the Blockchain: For many, the allure of blockchain technology has often been its promise of anonymity and privacy, while for others, it has been transparency. However, presently, companies are developing tools and platforms that can analyse blockchain transactions, effectively "de-anonymising" activities on the chain. While this offers benefits such as combating illicit activities and ensuring regulatory compliance, it also challenges the foundational privacy-centric narrative of blockchain, whereby governments and organisations will have access to vast amounts of on-chain customer data. Users and stakeholders will need to navigate this evolving landscape, balancing the benefits of transparency with the ethos of decentralisation.

Personalised On-Chain Experiences: The integration of advanced data analytics within the Web3 space is set to revolutionise user experiences. By harnessing the wealth of data generated on-chain and linking with Web2 and identity data, platforms can offer tailored experiences to users. This could range from content curation on decentralised social media platforms to financial product recommendations on DeFi platforms. Such personalisation not only enhances user engagement but also paves the way for more efficient and user-centric decentralised applications.

The Collaboration of Centralised and Decentralised Entities: The rise of centralised Web3 data companies, with their vast data repositories and analytical capabilities, will be uniquely positioned to collaborate with both Web2 companies and decentralised Web3 platforms. For instance, they could partner with Web2 companies to target products or services to customers using crypto, e.g., PayPal encouraging the adoption of its new stablecoin PYUSD. As the blockchain industry grows, it will only be natural that more traditional companies look to target the space. For Web2.5 and Web3 native products, individuals’ on-chain data will have to be used if they are to beat the competition. It is highly likely that many decentralised platforms will have to incorporate extensive personal data of customers, despite it being against their moral code, in order to stay competitive. Such partnerships signal the emergence of a hybrid digital landscape, where centralised and decentralised entities coexist and collaborate, driving innovation and user value, while diminishing user privacy.

A Lucrative Investment Opportunity for VCs: The trajectory of Web3 data companies mirrors the early days of now-tech giants like Google and Facebook. Just as these Web2 heavyweights capitalised on the data revolution of their era, Web3 data companies are poised to harness the untapped potential of on-chain data. For venture capital firms, this presents a golden opportunity. Investing in these emerging data entities will be investing in the next wave of digital titans. As Web3 continues to mature, the demand for data analytics, personalisation, and enhanced user experiences will skyrocket. Companies that can adeptly navigate this space, offering innovative solutions and platforms, have the potential to become the next data-centric billion-dollar companies.

Navigating the Data-Centric Future of Web3

The rise of Web3 user data analytics signals a transformative shift in the digital realm. Drawing lessons from Web2, it's evident that harnessing this customer data isn't just a strategic advantage—it's an imperative. As competitive landscapes evolve and user demands intensify, the Web3 industry will inevitably gravitate towards a data-driven approach, blurring the distinctions between the decentralised promise of Web3 and the sophisticated data models of Web2, resulting in the creation of several Web3 data goliaths within the next decade.

How will your company navigate this data-centric future?