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The idea of transmitting personal data and accessing our browsing habits to be able to access online services is something we have become so used to that we don’t even question it anymore. However, the dawn of Web3 introduces a new paradigm of data ownership, one where we own our personal data and can determine who accesses it and how it is used. But what does this mean for the vast global economy that exists around data in Web2?
How big is the data economy?
Quantifying the scale of the global data economy is a gargantuan task. Statista estimates the value of the data economy in the UK and EU in 2020 to be around $440 billion and estimates it could reach $1 trillion over 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 made possible by digital technologies”.
But as has been pointed out in the past, every business is a data business because the Web2 model evolved around the idea of middleware platforms that really only exist to harvest data. It’s a pattern that’s become ubiquitous, taking over entire industries, and it’s almost universally detrimental.
Marketplaces like Amazon and Etsy have taken over e-commerce, much to the chagrin of small sellers who are seeing their profits shrink due to ever-increasing fees. Uber has taken over personal transportation 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 sets up, creates a virtual monopoly, then starts raising fees knowing that people will pay for convenience, and sellers have no other choice because they cannot compete on a large scale. But in addition to turning the screw on fees, these companies also make a roaring trade in the vast amounts of user data they collect.
Rethinking the privacy of personal data
In light of the evolution of this model, the idea of data privacy seems somewhat laughable. When we enter our details into an online form, we usually have no idea where that data will end up, eagerly clicking on terms and conditions or cookie banners to get to what we need. The laws that are supposed to exist to protect our personal data are woefully weak in the face of the tidal wave of companies claiming our data.
Web3 introduces a different way of managing data between parties, which could effectively address the challenges of the current Web2 model. Web3 applications are based on blockchains, allowing peer-to-peer interactions between individuals, attested and verified by a decentralized network of nodes. On the one hand, blockchain transactions are transparent and visible to everyone. On the other hand, the blockchain allows for a level of pseudonymity as the names are not associated with a wallet address.
However, technology has evolved significantly over the past few years to allow for compromises that provide a greater level of transaction privacy. Conversely, off-chain measures can be put in place to ensure businesses can perform compliance checks such as know-your-customer if necessary.
But the peer-to-peer capabilities of blockchain and Web3 applications represent a fundamental shift for the Web2 data model. For example, the DeFi ecosystem allows users to start earning token rewards by lending their crypto. You can provide liquidity for DeFi applications, generate fees and pay them as rewards to users who facilitate various currency exchanges. Transactions are visible on the blockchain and can be analyzed in aggregate. The user data involved may still be limited, as most blockchains are public ledgers. On-chain data is open and accessible to everyone.
A growing ecosystem
DeFi is just one discipline, but others are becoming evident as Web3, and now the Metaverse, begin to integrate and take shape. In a metaverse app like Decentraland, you can already connect your wallet and purchase digital goods as NFTs without having to go through a registration process.
Innovators are already building decentralized marketplaces that will allow users to trade a range of digital and physical goods, while developments such as zero-knowledge proofs provide increased privacy while allowing for an additional layer of verification.
For example, zero-knowledge proof could allow a seller to verify that someone is over 18, but without the buyer needing to hand over a copy of their identification documents for the seller to keep.
A long way to go
Although Web3 offers the ability to transform and streamline the Web2 data model, there is still a lot of work to do before providing a viable alternative. Investment in Web3 startups has grown 2,400% to $500 million in 2021, indicating a bright future, but the space is unfortunately still in its infancy. With no centralized authority in charge of a blockchain, there is no one to hold to account if things go wrong.
In today’s landscape, this really is a case of buyer beware. Users are responsible for keeping their wallet credentials secure, otherwise anything in it – cryptocurrencies, NFTs, or personal data – can be stolen. Thus, hackers and fraudsters congregate wherever Web3 users congregate, making platforms like Twitter, Telegram, and Discord ripe for scams. Even if a user manages to secure their wallet, there is always a risk that the underlying applications could be hacked or the project itself could be a toss-up, where founders dump tokens in the market and run.
User experience is another issue. Ethereum remains the most popular public blockchain platform, but the fees for executing a transaction are high, making it unsuitable 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 when the front-end can be an afterthought.
Still, many of these issues are startup issues and shouldn’t detract from the fact that Web3 represents the first real opportunity to tackle the many-headed hydra of Web2 data mode. If Web3 innovators can establish a safe environment with an optimal balance between privacy and security, it will establish a new paradigm where users and data collectors both benefit from the data but users increasingly control the experience.
Michiel Van Roey is co-founder and legal director of Profila.
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