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The goal of this analysis today is to help you understand it better, understand what it means, and to talk to you about the unique investment opportunities within this developing trend.
By doing that, you can then understand much better how Web 3.0 came to be and what will come next. Let's get into it 👇
The first iteration of the modern internet (mostly built between 1991-2004) is known as Web 1.0. In Web 1.0, the internet was mostly static pages.
You can think of it similar to one massive linked read-only Wikipedia page.
In this version of the internet, content was published and what you saw was what you got. You couldn't log in, interact with the webpages, view analytics, or really do anything besides obtain information. This marked the first step in digitizing the modern collective of information that lives over the internet today.
And while this was definitely helpful, this was more or less the building stage -- which allowed us to get to Web 2.0.
Then from 2004 to present day, the era of Web 2.0 flourished.
This "version" of the internet was first modernized using many new types of programming languages -- which allowed users to start interacting with webpages and the mobile apps being built.
And these technologies started to get inputs from the user and collect data on what users were doing. This is when the rise of centralized technology companies really started to come into power (e.g. Facebook, Google, etc.).
At first these centralized companies had good intentions. This is because they initially started collecting data on us to help serve us better experiences.
But eventually these centralized companies became much smarter and realized they could package this data and sell it to advertisers at higher price points.
Gone were the days of pray and spray (e.g. buying ads and hoping for the best). This became known as the era of personalization which ultimately led to a lack of data privacy.
But the thing is that users knowingly gave away their data in exchange for free use of these platforms. Because initially the trade off didn't harm them.
For example Facebook, Youtube and other platforms are free to use but you get littered with ads -- a trade off consumers knowingly engage in rather than paying per video or page load.
But with smarter tech companies, more personalized services came. And at first they were great.
Because the experience got better and better as the content they were serving you (based off the information you gave them) got better and better.
But this exchange of data also changed the way advertisers ended up interacting with users online. And as the internet modernized, and users fired up their Facebook, Youtube, etc. pages, each user started getting different ads and experiences based off a ton of data, AI, and other advanced features.
And they were able to do this because the ads they served you was based off the information you gave them plus the information you weren't giving them.
This is because when you're doing things off their platform it ends up syncing with your online profile.
For example if you went to a certain restaurant the day before, advertisers and other platforms buy credit card, geo-location and other data sources to figure out who you are at a more granular level.
Pair that with the info you give them online, plus the insane AI they've built and these companies can often target you so closely with products you didn't even realize you subconsciously wanted.
While this made the advertising experience better, it also led to more data privacy issues.
And while many people think data privacy is overhyped and doesn't apply to them because they don't have anything to hide, there are many more issues beneath the surface than most realize.
And over the last few years, this has been becoming more of an issue as data started to get exploited -- look no further than Cambridge Analytica and the presidential elections.
Companies like these started using large data sets for malicious reasons -- such as influencing the general public.
The power of these platforms ended up stretching much further than anyone ever thought possible and due to having so much data, bad actors like these started finding other harmful use cases.
That's when data legislation started to pass and other companies began taking a stand against data privacy concerns (we've talked about this via Facebook a lot -- see it here).
And so in Web 2.0, this era was marked as the era where the internet became interactive and personalized. But in Web 2.0 the user was often the product whereas the promise of Web 3.0 is that the user will start to be the owner of their data, content, etc.
And in this upcoming version of the internet, the hope is that these bad actors will be unable to assert their influence on the general public. Additionally, the hope is that no centralized entity will be able to hoard the control of power like we see in today's society.
So now let's finally talk about what this will look like.
In Web 3.0, as we mentioned above, centralized companies will be a thing of the past and the user will be owners of their own online destiny. They won't have to worry about data leaks because everything will be secure and any wrongdoings will all be transparent as no middle men will own the "pipes of the internet".
And this all becomes possible through the use of blockchain technology. While this sounds amazing to some, and it is, right now Web 3.0 is still being built and no one knows what will eventually come of it.
You have people on both sides of the fence. Some say that this is nothing more than a fad and it will blow over while evangelists think this is the future of the internet where DAO's will end up running the entire internet (see more about DAO's here).
Notable Characteristics Of Web 3.0:
If you're still wondering how Web 3.0 differs from Web 2.0, here's some characteristics of the active projects going on:
Your digital identity does not equate to your real life identity. When you go to Facebook, your digital ID is a virtual representation of your real life identity. But in these decentralized systems, your avatar/profile/wallet can represent your identity. Therefore users of these technologies can remain anonymous.
In these decentralized projects, the entities have no CEO's or board of directors. In DAO's and distributed ownership systems, people make the decisions. The power of decisions lies in the people most invested in the future of these projects
While both of these examples are extremely broad, the takeaway here is that this framework can likely be applied to almost anything.
So what will eventually come of it?
Near Term Projections of Web 3.0:
Our take on it is that it is way too early for these promises to pan out anytime soon.
The reality of it is that in the more immediate term you can start using crypto to transact on the open internet.
For example, you can start buying more things with your crypto wallet and your friends can post things online from anonymous accounts so people do not know it is them.
The other real chance is that legislation ends up ripping apart these massive companies like Google and Facebook while DAO's continue to grow in popularity (but they'll be met with legal troubles and legislation too -- the bigger they get).
If we're using an analogy, right now in Web 3.0 it's sort of like 1908 when the Model T was first invented by the Ford Motor Company.
Ford and the general public could have never predicted that one day everything would be electric and powered by autonomous vehicles.
The vision of a fully decentralized internet is likely still many years away, if ever. The likely outcome is somewhere in the middle of the naysayer and the evangelist.
But as investors it is our job to understand both of their perspectives. We need to fully admit that no single person knows how this massive social experiment will shake out. But what we can do is invest in the projects we believe show early promise in the hopes that these pan out over the longer term.
The common crypto investment strategy today is akin to the VC (venture capital) model where you make a lot of small bets on projects you like with the hope that one of these 100x over time. That way if just 1 out of 100 pans out, it more than pays for the 99 other losses in your portfolio.
Therefore our favorite crypto projects right now are:
Before we show you our favorite coins, we need you to realize that they're not all treated equally. For example, while Bitcoin is still a risky asset, it is not nearly as risky as basically all other crypto's.
Therefore within the crypto sector, we've diversified our investments across all different risk and return profiles. Let's discuss some of them below.
Keep in mind that these risk tolerances are relative. For example low risk, in crypto is still high risk relative to investing in general. Therefore when we discuss risk levels below, this is in the context of the crypto space only.
Sitting at $722B in market cap, Bitcoin still has a ton of upside left (see our $100k thesis on it here). But Bitcoin is already a very "mature asset". What we mean by that is even if Bitcoin hits $10T in market cap one day, thats only a 14x return. And while a 14x return is still insane, it is too big to see those 100x returns you saw in the early days of Bitcoin. And while Bitcoin surely comes with significant risk, the bet on bitcoin is a bet on crypto in general. If you believe crypto will always be around/relevant, Bitcoin is essentially a way to index into that strategy!
Polkadot has been around since 2017 and is "more mature" than many other projects in the crypto space (see our research on it here). While they're only 4-5 years old, in the crypto space, that's grandpa status relative to many current projects today. While Polkadot (similar to Bitcoin) comes with significant risk, the project has gained serious traction over the last several years. Even with the sell off across crypto, this is a project that we still continue to love.
This coin should be familiar to most people who are Premium members (see it here). Similar to the rest of the coins on this list and the crypto space in general, Avalanche is a coin we continue to love even amidst the volatility. This could be one of the biggest winners of the crypto space over the long run and comes with significant upside potential. These are the types of investments that end up making your portfolio money even if everything else goes down in the long run.
Ridiculously High Risk: Olympus DAO
If you're looking for an investment that has merit but also has ridiculous return potential look no further (see more on it here). Olympus DAO is essentially as risky as it gets without it being a total gamble (e.g. Dogecoin, Shiba Inu, etc.)
But with all these great ideas and projects, we need to talk about the risks that most people are taking that they do not even realize.
And what most people aren't talking about is that the people propping up Web 3.0 and evangelizing it are the VC's who often own majority stakes in these coins.
Depending on the project, when you own a lot of the underlying coin, you often have say in what is happening.
Many of these projects are just replacing stocks for coins and remaining anonymous, thereby calling it "decentralized".
For example, Jack Dorsey (Founder of Twitter and Square) says these crypto companies are still as centralized as ever but just operate under the guise of being decentralized.
And so when looking at the picture below, we can see that many popular projects today have massive funding amounts from the very VC's who are saying it is the future of the internet.
But what we can see above is that their interests in Web 3.0 are highly motivated as many of these projects are largely owned by the founding team and early investors who basically own large majorities of these projects.
So when you see projects throwing around the buzzwords, like decentralized, blockchain, etc. just know many of these are marketing tactics employed in order to pull in the most amount of money.
While the internet will likely change over the coming years, human nature won't and people are often highly motivated by money.
So be careful of the risks and try to avoid any traps out there. We think 90% of the projects will likely go to 0 while the 10% will shine above the rest!
Therefore while there are some very viable projects that we have invested in, the reality is that most of the active projects out there will end up fluttering.
Be careful and do your diligence! We will continue to release research on projects we like and roll out more quantitive based strategies on trading opportunities. Stay tuned.
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