Compared with the market's certainty of new consumption in the past two years, almost no one has mentioned the word 2022.
In the past few months, when brand managers and many entrepreneurs and observers discussed the future development of the industry, going overseas and Web3 were almost the two most mentioned keywords. The former is not a new topic, but due to the superposition of multiple factors such as the policy and economic external environment, 2021 is more considered to be an inflection point for Chinese companies to go overseas, and it will further accelerate in 2022.
But Web3 is still a new term for most people, and it is even a concept with more hype than practical application prospects. Although in the past six months, a large number of institutions and entrepreneurs have entered the new track, there are also opponents who believe that this is just another money-making game.
Objectively speaking, the ideal world advocated by Web3 is indeed still in the conceptual stage, and it is difficult to describe clearly whether it is the underlying consensus, infrastructure or application ecology.
The separation of viewpoints creates more room for discussion. We believe that no one will not pay attention to the future shape of economic and technological social development, and every exploration in the business field will have a real impact on practitioners.
We welcome more Web3 practitioners, investors, and even opponents to share your understanding and opinions with us.
This is the first article in our series of focusing on new trends and discussing Web3. It is shared by a former media person and current overseas investment researcher from an institution.
In the context of frequent news of layoffs from traditional Internet giants, investment institutions reducing investment scale and changing investment trends, Web3 seems to be an alternative.
First, there were reports that the post-2000 generation was crazy about Web3 and regarded Web3 as a career choice; then venture capital institutions were betting heavily on Web3. Both traditional VC institutions and relatively young cryptocurrency investment institutions began to set their sights on the Web3 track.
Where does the Web3 investment trend come from? What exactly does Web3, which is being discussed in the Internet venture capital circle today, mean? What is the relationship between Web3 and blockchain?
01. The investment scale during the year exceeded US$17 billion, and leading Internet VCs turned to Web3
Just at the beginning of the third quarter of 2022, more than 30 investment institutions have announced the establishment of Web3 investment funds, with a total investment scale of more than US$17 billion, including well-known institutions such as Sequoia Capital, Qualcomm, and Ark Ventures.
In terms of the investment scale of a single fund, Sequoia Capital’s investment fund is close to US$3 billion, making it the second largest company currently investing in Web3. The investment fund that has bet the most on Web3 is a16z, with an investment scale of nearly US$8 billion.
a16z is a Silicon Valley venture capital firm founded in 2009 and has invested in a series of technology giants such as Facebook and Twitter. In less than 10 years, a16z quickly surpassed a series of established investment companies and became the third largest Internet investment institution in the United States. To a certain extent, we can say that a16z plays an indispensable role in the development of mobile Internet.
But in the tenth year since its establishment, a16z suddenly realized that the golden age of mobile Internet had passed, at least for investors, as the stock prices of the core targets in its investment portfolio plummeted.
a16z had to start looking for a new track. Not only to discover new trends and gain wealth, but also to continue the glory of the past.
This time a16z put its chips on the blockchain. In June 2018, a16z established the a16z crypto fund, a crypto fund worth US$300 million, and has successively invested in star projects in the blockchain field such as CoinBase, Uniswap, Solana, and maker Dao. Up to now, A16z has invested in more than a hundred blockchain projects, and has gained a lot from it. It is called the "vane of investment in the currency circle".
In 2021, a16z publicly sounded the clarion call to march towards web3, and the high returns it achieved also set off an investment and entrepreneurship boom in this field.
Different from the strictness in the past, a16z seems a bit "urgent" when betting on Web3. According to the "Yuanverse Investment and Financing White Paper for the First Quarter of 2022" released by Sina, in the first quarter of 2022, a16z's total investment in the Yuanverse field reached US$592 million, accounting for 18% of the total investment in the first quarter.
The madness of a16z has become a microcosm of the Web3 craze. According to statistics, almost 95% of the Web3 investment funds currently on the market have been established for less than one year. In addition, more and more major Internet companies at home and abroad are also accelerating their deployment in the Web3 field, such as Meta, Google, Alibaba or Tencent.
But the paradox is that, on the one hand, there is a crazy influx of capital, on the other hand, investors are ambiguous about web3, coupled with intensive media reports, everyone is talking about Web3, but no one can tell what exactly Web3 is.
02. The conceptual boundaries are blurred, and the core of Web3 is freedom.
Tracing the history of Web3, we can see that Gavin Wood, the co-founder of the leading cryptocurrency Ethereum, was inspired by the "Prism Gate" and proposed the concept of Web3 in 2014, hoping that a new generation of Internet residents could independently control their own digital assets and digital information.
However, for a long time after the concept was proposed, neither investors nor speculators hyping the concept paid much attention to Web3, let alone believed that Web3 would become the next trend.
At that time, people were in the period of rapid development of the Internet, and the Internet had already provided unlimited imagination to the capital market. Capital was enthusiastic about the Internet, not Web3, which had no clear concept, development direction, and business model. Even Gavin Wood himself has not defined the concept of Web3 very clearly, and only put forward a core idea of "allowing users to have ownership of their own digital assets."
This directly leads to the formation of an atmosphere of "Web3 must be spoken" at the beginning of 2022, but no one can say with certainty what Web3 is and gain unanimous approval from everyone.
The most recognized definition in the market currently is: "In the Web1 era it was 'readable', in Web2 it was 'readable + writable', and in the Web3 era it was not only 'readable + writable', but also added the new feature of 'owning'."
In other words, in the Web1 era, the producers of the Internet were centralized organizations or companies, and users could only participate in the construction of Web1 as a recipient. However, in the Web2 era, based on the increase in mobile Internet bandwidth and the enhancement of algorithm technology, users can participate in ecological construction. The most obvious examples are Weibo and WeChat public accounts.
In the Web2 era, although users have certain production rights, they do not fully own the ownership of the content produced. For example, for some reason, the platform server where you publish content is attacked or goes bankrupt and shuts down, then the content will disappear out of your control.
In the Web3 era, this series of problems will be solved. The core concept of Web3 is based on a certain infrastructure. This infrastructure can be a public chain, a content distribution platform, or any functional virtual place you can imagine. Users can produce their own content and fully own the ownership of their content. They can decide whether to share it and who to share it with. In other words, the platform no longer has the right to control or delete your content.
Or we can use a more vivid metaphor to help understand this difference (just a superficial analogy).
For example, Web1 is a historical drama, so the direction of its characters and plots are established facts that the audience can only watch and cannot change. Web2 is an adapted drama or interactive drama. The audience can participate and even decide the direction and ending of the plot. However, the content still belongs to the publisher and film and television company. In essence, it only improves the audience's sense of in-depth participation. Web3 is based on an infrastructure where everyone can create characters and dramas, fully own and control the content, and decide whether to share it and who to share it with.
The above content reflects the public's emphasis on data privacy, but it cannot fully cover the current development direction and content in the Web3 field.
Like the concept of Web3, the current specific layered architecture of Web3 is still immature and fragmented, and there is no unified consensus, so there are many debates about this part.
I think the products that C-end users can see now, such as decentralized exchanges, NFTs (non-fungible tokens) represented by digital collections, and decentralized lending protocols, are all front-end products of Web3. The main purpose of these front-end products is to interact with C-end users. Their target customer group is the broadest general public, and they profit and realize through certain business models. The most intuitive manifestations of these products in the web2 era are various websites and apps.
Corresponding to the front-end is the back-end of Web3. The back-end is mainly the underlying facilities. This part includes smart contracts, public chains and other products. The target customer group of these products is the above-mentioned front-end products. For C-end users, there are few opportunities to come into contact with the back-end products of Web3, and they also have higher requirements for technical capabilities. In the web2 era, this part represents the underlying technology of the Internet, such as the TCP protocol.
But what can be confirmed is that in the eyes of all Web3 believers, the core of Web3 is "freedom", whether it is the freedom to manage one's own digital assets, or the freedom of senses or boundaries gained through new technological changes.
03. Web3’s blockchain background and new applications of decentralized technology
Although the scope of Web3 goes far beyond the direction covered by the current blockchain, an analysis of the current investment direction of Web3 investment funds shows that most startups in the Web3 field are related to blockchain tracks such as NFT (non-fungible tokens) and DeFi (decentralized finance). Combined with the background of the Web3 concept, most people regard Web3 as a native concept in the blockchain field.
At the underlying technology level, the current mainstream view is that the technical architecture of Web3 can be divided into basic layer technology, platform layer technology, and application layer technology. The basic layer technology is composed of blockchain technology. In addition, most of the current products in the Web3 field are concentrated in the blockchain field. Indeed, the current Web3 has a strong decentralization and blockchain flavor.
Existing network protocols divide massive data on the Internet and then store it on different servers. Once part of the data is lost, the data will become incomplete and tampered with relatively easily. All information in the blockchain system will be fully recorded on each server. Even if the data on a certain server is lost or damaged, the data on other servers can still remain intact. In such a multi-point distributed storage method, the data can be kept intact to the maximum extent and prevented from being tampered with by others.
The distributed and decentralized nature of the blockchain naturally fits the core requirements of Web3 believers for freedom and data ownership.
Therefore, to a certain extent, the development of Web3 is destined to not be separated from the blockchain.
Thanks to the blessing of blockchain technology, in the Web3 generation, it is possible for everyone to have their own platform, and developers can customize infrastructure for enterprises and individuals. These applications can be used for digital identity recognition and protection, as well as data protection and digital asset storage.
In addition, in the ecological construction of Web3, we also have to consider the incentive issue, that is, how to motivate users to participate in the ecological construction.
At present, in response to this problem, the industry generally agrees on the launch of a certain token with an incentive effect (token is mostly understood as a "token", but Q coins and points are also considered a kind of token), and the concept of token incentives was originally born out of the blockchain industry.
Perhaps in the future, more suitable technologies may emerge to help Web3 realize its vision, but currently, among all the relatively mature technologies on the market, only blockchain technology is the most suitable and close.
Conclusion:
In summary, in the current Web3 industry, there has not yet been any concept definition that can achieve the broadest consensus, but everyone unanimously recognizes the core concept of "freedom". At a technical level, Web3 does not yet have a fixed technical route, but the current blockchain technology is the closest and most appropriate technology.
The above is my basic understanding of Web3. Next, I hope to conduct continuous research and content discussion on the development status of web3, the opportunities and challenges of web3, etc.
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