From the things we buy to the news we consume, from our careers to how we communicate and what we believe, there is almost no part of our lives that the internet does not affect. And it is undergoing its next fundamental change.
The third generation of the World Wide Web, known as Web3, is bringing an entirely new technology stack built on blockchain, a decentralized and distributed architecture to increase privacy, security, and transparency. This new epoch of social interconnectivity is blurring the lines between telecommunications and finance — and compounding an already complex regulatory ecosystem.
While this is creating tremendous new opportunities, the implications of Web3 are also at the center of major social, economic, and national security issues.
The recent White House Executive Order on “Ensuring Responsible Development of Digital Assets” is very much a welcome first step in addressing these concerns. It calls on agencies to develop measures to address consumer and investor protection, financial stability, finance and U.S. leadership in the global financial system. However, to achieve the desired outcomes of the executive order, there is a need to ensure these currency-focused measures are part of a comprehensive national strategy for Web3, which will be essential for the U.S. to preserve a democratic internet, promote public good, and mitigate potential problems.
The first generation of the web, which arose almost 40 years ago, was driven heavily by static content primarily developed and published by companies, universities, and governments onto web sites. With the rise of search engines, the information contained on these web sites became discoverable, and an entirely new knowledge economy was created where we could rapidly share information.
Our current generation, Web 2.0, led to centralization necessary for scale. Search, cloud, and social media companies became the backbone of the internet, building out vast data centers and fiber optic infrastructure to service their users. Advertising became the business model to underwrite the infrastructure scaling costs, leveraging user-generated content to drive engagement and user data to target ads.
There are many lenses through which to view Web3.
From a technical perspective, it establishes an immutable, distributed, secure, transactional ledger as the foundation of a new internet. Rather than data being centralized and owned by the platform companies, transactional data is publicly available and owned by users.
Another lens is financial. Cryptocurrencies fuel operation of Web3 and — through cryptoexchanges — can be bought and sold using traditional currency. This allows Web3’s users to essentially pay their own way for using Web3 services and own equity in those services. This establishes an alternative to advertising as the underpinning economic model for the internet. The recent thought leadership from the Hoover Institution on digital currencies provides additional context to this lens from a geopolitical and global power competition perspective. Web3 transactions extend however into the larger domain of tokenized smart contract-based commerce.
A final lens is governance. Web3 seeks to democratize the rules by which the internet and its services operate, and it leverages smart contracts as transactional governance mechanisms. Rather than a management team and board of directors making decisions, smart contracts rely on a mutually agreed upon algorithm that is resident within the blockchain itself.
But while Web3 espouses democratization and transparency in its approach, early deployments of the technology lack the financial, legal, and regulatory safeguards that would otherwise be required to secure greater adoption.
To create a national strategy for Web3, we must foster a regulatory environment and investment ecosystem that enable development, deployment, and adoption of U.S.-based Web3 technologies at home and abroad. That includes promoting policies that incentivize decentralized implementations of Web3 to maximize security and democratization of governance.
We must also establish and advocate internationally for technology and economic policies that promote Web3 based upon transparency and democratization. That means minimizing the impact of autocratic regimes that have outsized influence on their development and operation. We must also combat the use of Web3 infrastructure for fraud and illicit finance — and promote social equity.
In order to advance the goals of the recent Executive Order, the White House should lead creation of a national strategy in Web3 that engages market participants in developing an integrated regulatory framework, national security strategy, and explores application of Web3 to transform electronic government functions.
As part of the process to develop measures for addressing the design challenges of digital assets, the appropriate departments, agencies, and independent regulators within the broader U.S. Government should:
Conduct a review and analysis of the current U.S. legal landscape and international treaties on key issues associated with Web3.
Engage internationally, and through allies, to homogenize emerging regulatory frameworks and open-source software and standards.
Establish a comprehensive program working with market participants for combatting fraud and illicit finance on Web3 technologies.
Build on the working groups established by the Federal Reserve to address broader cryptocurrency and financial technology developments, and create a regulatory sandbox and other mechanisms that encourage innovation. The private sector must have input into the process, and foreign partners should be able to collaborate in building public support and informing the legislative process.
Continue to monitor developments in Web3 and the implications to federal and international taxation and the ability to detect and counter financial crimes and levy effective sanctions.
Actively promote global adoption of Web3 technologies based on proof-of-stake or other energy-efficient approaches.
Adopt policies that emphasize the role of the private sector and open-source communities in leading Web3 innovation, development, deployment, and operation.
Address the emerging challenges and opportunities with Web3 to assure that existing equity and access initiatives carry through.
In addition, a multi-stakeholder group (organized through a non-profit organization) should support Web3 governance and self-regulation. And federal science agencies should include Web3 under the broader umbrella of “advanced communications” as they plan their larger applied research agendas envisioned under legislation such as the Endless Frontiers Act.
This is quite a list, I know. But it’s impossible to overestimate how much Web3 will impact our lives. The best way to think about it is to consider how much the first two epochs of the web have already changed our world in the past few decades.
We need to move now on a national strategy for Web3 that encompasses the diversity of innovations in this new tokenized economy.
Charles Clancy is senior vice president, general manager of MITRE Labs, and chief futurist. For more information, read his whitepaper, “Call to Action: Developing a National Strategy for Web3.”