Is a decentralized Web3 a Utopian idea?

I’m not particularly fond of Starbucks coffee, but non-fungible tokens (NFTs) are a different cup of tea. Hence, when the company unveiled Starbucks Odyssey early this week, I was curious about the connection between coffee and a Web3 technology-powered experience. It turns out that the company will offer Starbucks Rewards members and partners (employees) in the US the opportunity to earn and purchase digital collectible assets to unlock access to new benefits and immersive coffee experiences.

     

But there’s a waitlist to be part of this Starbucks Odyssey experience, which will launch later this year. It reminds me of the Apple strategy to make users hanker for iPhones by making them stand in overnight queues.

Basically, Starbucks Odyssey will allow for playing interactive games or taking on fun challenges to deepen their knowledge of coffee and Starbucks. Members will be rewarded for completing journeys with a digital collectable ‘journey stamp’ (NFT). Members can also purchase ‘limited-edition stamps’ (NFTs) through a built-in marketplace within the Starbucks Odyssey web app experience. Another interesting fact is that Starbucks will utilize a “proof-of-stake” blockchain technology built by Polygon, which uses less energy than first-generation “proof-of-work” blockchains.

In the Web 3 context, it’s also interesting to note that JP Morgan is scouting for a vice-president for JPM Payments. The potential candidate will be part of JPM’s “Web3, Crypto, Fintech, & Metaverse” industry sub-vertical and “play a critical role in helping to grow the payments relationships with clients”, according to its LinkedIn post. The firm is bullish on Web 3 and the metaverse. It has a “lounge” (set up by Onyx -- the bank’s blockchain unit) in Decentraland (a 3D virtual world built on the blockchain) where visitors are greeted by a digital portrait of Jamie Dimon (which morphs into the image of the bank’s head of crypto) and a roaming tiger.

Source: Decentraland

Interestingly, the bank’s holding company, JPMorgan Chase & Co.’s, annual technology budget was $12 billion, more than the annual revenue of many small banks worldwide.

The Dubai government, on its part, aims to create 40,000 jobs in the metaverse over the next five years as well as add $4 billion to the economy through metaverse and Web 3.0 development. And there are many companies like Accenture that even do onboarding of jobs in the metaverse.

Source: Accenture

Closer home, the Telangana government said in August that it plans to launch a ‘Web 3.0 Regulatory Sandbox’ that aims at promoting and helping Web 3.0 startups to innovate in areas like blockchain, metaverse, and NFTs.

If you have not already noticed, there’s a profuse use of the words Web 3 and metaverse in the above paras. However, though these words are used interchangeably, they aren’t the same. Broadly speaking, when you talk about Web3, you’re talking about blockchain and its derivative technologies like decentralized finance (DeFi), decentralized autonomous organizations (DAOs), crypto, and more. The metaverse, on the other hand, is more about technologies like virtual reality (VR), augmented reality (AR), video games, and how virtual environments will connect with each other. The metaverse can be thought of as a subset of Web3 (you may liken it to machine learning, which is bandied about as artificial intelligence (AI) but is an AI technique or subset of AI).

But what exactly is Web3?

To be sure, there’s no one definition. Even Elon Musk, Jack Dorsey, and Marc Andreessen have been sceptical about this concept, with Musk even terming NFTs as “annoying” and Dorsey questioning the openness of Web3.

But let’s retrace our steps a bit. Web 1.0 refers to the first version of the internet that comprises a collection of links and pages with little interaction or input from the users. Of course, we were clear then that no one owned the internet, and no one’s data was at risk (at least, we did not give it much thought back then). Web 2.0 followed by enabling users to consume content, interact, and create their own. Today’s largest technology companies- Meta (earlier Facebook), Amazon, Netflix, Google, etc.- have built formidable businesses in this Web 2.0 era. But in this era, we realized that governments own sections of the internet, which they can switch on and off ostensibly to protect the country’s security. Essentially, geopolitics controls the internet, and the huge amounts of data generated can give companies extraordinary insights but also be misused by those companies and even governments. And, of course, Web 2.0 is characterized by a lot of centralized or proprietary databases.

Cutting out intermediaries Web3 broadly encompasses three elements: decentralization, blockchain, and ownership. Web3 platforms don’t rely on centralized servers but rather on a peer-to-peer network. This data is then arranged via protocols to ensure persistent availability. The second element, blockchain, ensures that content is immutable (cannot be changed), verifiable, and distributed. Lastly, unlike Web 2.0, Web3 ensures that users, and not intermediary platforms, own and control their data.

India has started to see some very interesting Web 3 startups emerge (e.g. Polygon / CoinEarth/ Biconomy / Fire, etc.). Investors, too, are aggressively infusing capital into blockchain and Web3.0 startups. Last year, Indian crypto and blockchain startups raised over $600 million from global investors, an increase of more than 15 times the $37 million raised in 2020. India has the unique opportunity to become the global leader in Web3 and has started to see some very interesting Web 3 startups emerge, but it needs to get the regulatory and legal frameworks in place, said Rajan Anandan, managing director, Sequoia Capital at the Hindustan Times Leadership Summit (HTLS) 2021 on 3 December 2021. As an example, India’s regulators are very sceptical about cryptocurrencies, but they like blockchain (though their idea of blockchains appears to be more the ‘permissioned’ or ‘closed’ ones rather than the ‘open’ blockchains like Bitcoin and Ethereum).

To be fair, Web3 as a concept has many positives -- at least in theory. DeFi, to begin with, is likely to be the first killer app of web3, which could dramatically increase the level of control borrowers have over their data. The Data Empowerment and Protection Architecture (DEPA) aims to give citizens and businesses control over their data, which currently still sits on bank platforms with a complicated account aggregator structure to release this to users of this information. The national blockchain roadmap proposed by MEITY (December 2021) recommends several NFT-related use cases, from land records, student certificates and patient health records. NFTs, which represent ownership of digital assets in Web3, could also change how we think about virtual property. Already digital art and music are successful use cases of NFTs.

Unfortunately, though, Web3 itself seems to be getting very ‘centralized’, with a large part of the funding of successful Web3 companies being by large corporate-controlled VC firms. Even a blockchain-based Web3 metaverse will be an “open metaverse” only if built on open standards. Further, it is not easy to get information and insights out of blockchain systems. Experts also note that centralized identity databases such as Aadhar and KYC regulations do not co-exist naturally with pseudonymous accounts on a blockchain. Moreover, Web3 cannot prevent cybercrimes. About $1.7 billion worth of cryptocurrency was stolen from January to April, with 97% of those crimes taking place on DeFi protocols, according to Chainanalysis. Last but not least, the valuations of Web3 startups are rising without any clear business models for monetization.

In sum, while the landscape is still evolving, we are likely to see hundreds of companies trying to leverage words like Web3 and metaverse. Like in the dotcom era, some will survive, and some will flourish. The rest will fall by the wayside. But, then, investors already know this. Don’t they?

(The correct answer is given below)

In Charts

Decentralized Autonomous Organizations, or DAOs, run as code on blockchains and are operated by members who typically hold tokens that provide decision-making rights and/or economic rights in the organization. The number of participants in DAOs grew in 2021 from 13,000 to 1.7 million people around the world, and DAOs are increasingly a hot button issue. DAOs allow members to pool capital from anywhere in the world and code rules for how they would allocate the capital. However, DAOs, too, can be highly centralized. For example, the governance token distribution of 10 major DAOs, according to Chainalysis, revealed that 90% of voting rights were concentrated in the hands of less than 1% of users.

CUTTING EDGE

Dall-E’s new tool, Outpainting, can expand famous artworks by adding new elements

OpenAI has added a new feature called Outpainting in the Dall-E neural network, allowing users to expand the boundaries of an image using “visual elements in the same style,” the AI non-profit company announced in a blog post. Launched in January 2021, Dall-E can convert text-based instructions into images and artwork using GPT-3, a natural language processing (NLP) model. NLP is a subset of AI, which allows the software to read, understand, and derive context from text and spoken words just like humans.

Credit: OpenAI

According to OpenAI, Outpainting can imagine what is outside the frame of an original image and add them to a larger version of it based on its interpretation of existing visual elements such as textures, shadows, and reflection. For this, it uses something called a natural language description.

IIT Mandi develops a method to study the internal structure of substructures of living cells

Researchers at the Indian Institute of Technology Mandi (IIT Mandi) partnered with the University of Cincinnati to develop a method to study the internal structure and functions of an important component of living cells. A lysosome is an essential component of living cells and is involved in various cellular processes and interacts with other cell components like the mitochondria. Lysosomes destroy invading viruses and bacteria. If the cell is damaged beyond repair, lysosomes can help it self-destruct, which is why it’s also called a “suicide bag”. Lysosomal dysfunction can cause a wide range of diseases, including neurodegenerative disorders, immune system disorders, cancer, etc. Therefore, the analysis and tracking of lysosome structure and function can help predict risks for certain diseases and guide the development of new pharmaceuticals for those diseases. IIT Mandi researchers used a technique called Structured Illumination Microscopy (SIM) to discern the internal structures of lysosomes. While SIM is not a new technique, the researchers used metal nanoclusters instead of lysosomal dyes to improve the technique significantly, according to a press statement on 13 September. The results of this work have been published in the American Chemical Society Materials Letters. .

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