As autumn descends, it is popular to talk about crypto being in the midst of a new ‘winter’ caused by the fall-out from the market turmoil, as well as some high-profile collapses and hacks. The situation overall has been sobering for users, challenging for innovators and motivating for regulators.
Lee A. Schneider, Andreina Himy, Wee Ming Choon and Olta Andoni are the co-founders of Owl Explains.
We believe this narrative only scratches the surface of the changes that will be wrought by blockchain and Web3. This is why this week we are launching Owl Explains – a new initiative to explore and explain the new world of blockchain and Web3.
Market downturns and volatility are characteristic of periods of intense innovation in underlying technologies and systems. With the arrival of Web1, the headlines were all about the ‘dotcom’ boom and bust, while behind the scenes, many were working to deliver remarkable innovations straight into the phones in our pockets such as a world map street by street, all the music ever recorded, and instant translations from any language.
Similarly, the Web3 revolution built on blockchain quietly continues despite the hype about crypto. Blockchain databases continue to function, forming the basis for smart contracts, applications and businesses based on the digital uniqueness afforded by the tech. The innovation underway goes far beyond the headlines – often turbocharging peer to peer activity and reclaiming ownership of the digital space that has been so dominated in recent times by powerful intermediaries.
Consider the Lemonade Crypto Climate Coalition, which is bringing weather insurance to farmers in developing countries utilizing public blockchain as the core infrastructure. Lemonade, a modern insurance company, recognized that traditional insurance tools and methods simply could not serve this market. So they rethought the system, leveraged the global nature of blockchain and its ability to financially connect anyone around the world, and launched newly designed insurance fit for purpose. Now insurance against drought will be available anywhere.
Brave offers a browser and search engine that allows users to turn their internet search history into an asset that they can either protect or monetise by trading it for a ‘basic attention token’ (BAT) paid to them by an advertiser that wants to target them. In this new world, the user is no longer ‘the product’ – they are back in control of their own data.
That same user could then spend that BAT token to listen to their favourite artist on Audius, a Web3 music streaming platform that allows musicians to keep a greater share of their earnings by cutting out intermediaries.
Or they could use it to purchase surplus energy from their neighbour’s solar panels through microgrid initiatives like this one in New York.
All of these innovations rely in part on tokenisation, the process of digitising assets through a digitally unique item on a blockchain. Think of a token as representing a bundle of rights. In Lemonade’s initiative, those rights might be to an insurance pay-out if your crops are destroyed by drought. For the BAT, those rights might be closer to a means of exchange of value. Blockchains like Avalanche bring these bundles of rights into existence and make them transferable everywhere on the planet and very quickly. On a macro level, tokenisation releases trapped capital, increases productivity and furthers economic inclusion.
And that is where regulators come in.
Currently, responsible players who want to operate within the rules face a patchwork of different and often unclear regulations governing tokens in different territories around the world. The EU’s Markets in Crypto-Assets Regulation (MiCA) is a good start in defining and setting rules for various types of tokens. Other countries, such as Japan, Switzerland and Singapore, continue to develop their regimes but more needs to be done both in the EU and around the world to define and create sensible, consistent regulation to provide the clarity and legal certainty about the core of what tokenization is and how it works.
Policy makers should not stop there. They should recognize and encourage the change that blockchain and Web3 brings to the way ownership is established and value is transferred. By adopting policies and incentives that embrace good actors and marginalize bad actors, they will facilitate the next stage of the internet.
The first step towards sensible policies and regulation is understanding the technology, how it works and what it can do. At Owl Explains we will provide practical explainers of the technology itself, such as consensus mechanisms and personal wallets, and its applications, such as NFTs and DeFi, and put forward some foundational principles to shape policy thinking. We do not plan to do this alone. By building a ‘parliament’ of owls, we intend to bring the best experts into the conversation about blockchain and Web3.
We will also host regular ‘Hootenanny’ sessions on Twitter Spaces bringing industry and regulators together to talk about progress in the sector, highlight good use cases, and bust some myths. The first of these will be on Wednesday 19th October at 11 am ET / 4 pm BST / 5 pm CET when we will be discussing ‘Will Web 3 be better than Web2?’ with speakers from industry, the media and the European Commission. Join us by setting a reminder here.
For more information, visit our website and follow us on Twitter and Linkedin.