How corporations can profit from the Web3 revolution in 2024

In brief, Web3 is the imaginative and prescient of a decentralized, user-owned Web constructed on three foundational applied sciences: blockchain (a distributed ledger); sensible contracts (the flexibility to execute agreements with out third occasion oversight); and tokens or tokenization (digital representations of belongings, reminiscent of nonfungible tokens, or NFTs, stablecoins, cryptocurrencies or tokenized real-world belongings). Regardless of the disillusionment of the previous 12 months, there are inexperienced shoots of worth on this area, with a shift away from the on line casino mindset that pervaded in Web3’s earliest days and towards chasing real-world worth. 

The rise of stablecoins, cryptocurrencies pegged to a real-life foreign money or asset, which now tops $130 billion in world circulation, is enabling corporations to make transactions sooner and cheaper. The digital trade platform Airtm, for example, makes use of Circle’s U.S. dollar-tethered (USDT) coin to ship low-cost cross-border funds, saving as much as 35% when paying distant staff. Blockchain and sensible contracts are enabling the monitoring and tracing of supplies—from gold to airplane components to carbon—throughout advanced ecosystems. Tracr, a De Beers firm blockchain, now tracks greater than 100,000 gold stones a month, roughly 15% of the world’s manufacturing. Manufacturers such as Nike and Puma are additionally demonstrating success leveraging Web3 applied sciences at the side of bodily campaigns for buyer engagement. 

This quiet shift in direction of extra sensible, value-based purposes of Web3 has led {industry} leaders like Citi to estimate that $5 trillion of central bank-issued digital currencies, or CBDCs, may very well be circulating by 2030, with tokenization of real-world belongings approaching $4 trillion. That’s a far cry from the Web3 obituaries which have been written over the previous 12 months.

From revolution to real-world worth

The early variations of Web3 had been born out of a revolutionary ideology of insurgents with a imaginative and prescient of a substitute for established establishments. However the actuality that has emerged is that Web3 is now being embraced by savvy incumbents, like JPMorgan Chase, Nike, and BlackRock, and even being built-in into the material of present establishments it was as soon as meant to destroy. The objective is now extra sensible: embedding Web3 expertise in processes, belongings, and worth chains that purpose to resolve world issues that aren’t potential with Web2 alone. (Web2 refers back to the second period of the Web, emphasizing person collaboration and interplay, with centralized possession and management of knowledge by main tech corporations.)

To be able to notice that potential, nonetheless, corporations outdated and new first have to rethink how they method Web3 and derive worth from it. Many giant corporations are already engaged on this course of. However many extra corporations of all stripes may and ought to be doing the identical. For that to occur, their leaders have to replace their Web3 understanding in 3 ways: 1) Web3 have to be seen as an accelerator, not a substitute; 2) it should transfer away from general-purpose expertise in direction of centered, value-proven use instances; and three) ecosystem methods should shift their focus from dominance to networked partnerships. 

An accelerator, not a substitute

This key change in Web3’s outlook as a way of enhancing present Web2 propositions and infrastructure signifies that as an alternative of specializing in creating distinct digital worlds reminiscent of Meta’s Horizon Worlds, Web3 must be embedded in corporations’ tech stacks and built-in into enterprise methods.

The Starbucks loyalty program Odyssey is a chief instance of a contemporary Web3 loyalty program embedded inside present journeys and real-world experiences. Odyssey members earn stamps (NFTs) redeemable for unique rewards, reminiscent of invites to actual and digital occasions; the stamps may also be traded on NFT marketplaces. The beta program is estimated to have generated over $1 million in income, regardless of focusing on solely a fraction of Starbucks clients. That return, if extrapolated out, may imply tens if not lots of of tens of millions of {dollars} in extra income. 

Enterprise instruments are additionally more and more integrating Web3 elements to match corporations’ curiosity. Salesforce now gives sensible contract templates, Web3 information fashions, and pockets threat scoring, to make it simpler for corporations to launch Web3 loyalty packages. Solana Pay, a decentralized fee protocol, is offering clients near-zero-fee Web3-native funds via integrations with world commerce giants reminiscent of Shopify.

Audius, a decentralized music streaming platform that attracts between 7 million and eight million month-to-month customers, has been profitable providing a extremely built-in, user-friendly expertise that features custodial wallets for followers operated by the corporate. Reasonably than anticipating music lovers to be Web3 aficionados, Audius’s CEO says the purpose is for followers to get “the benefits of decentralization without having to be super aware of using a wallet.” 

There has additionally been a current wave of curiosity within the convergence of Web3 and GenAI, as corporations discover how blockchain’s immutable ledger and decentralised digital identities may create larger belief in and verifiability of AI-generated content material. Web3’s recordkeeping of knowledge may assist decide whether or not content material is human-generated or AI-generated. Aptos Labs and Microsoft are exploring the convergence of the applied sciences to find out whether or not coaching information is bias-free and whether or not LLM-generated outputs are genuine and reliable. Shortly after the launch of ChatGPT, OpenAI co-founder and CEO Sam Altman introduced the launch of recent firm, Worldcoin, to supply “proof of person” digital identification for the AI age. 

Artists, in the meantime, are combining AI and Web3. Singer and songwriter Grimes has merged the 2 to permit customers to remodel their vocals into Grimes’s distinctive vocal fashion. Ensuing royalties could be mechanically break up—utilizing sensible contracts—between the collaborating artists and Grimes. The generative energy of AI mixed with the pay-out capacity of sensible contracts supply a strong built-in resolution. 

Embedding Web3 applied sciences into Web2 infrastructure to boost relatively than exchange present propositions is important to drive adoption. However for extra widespread adoption, use instances should even be embedded inside regulatory guardrails. New laws, reminiscent of MiCA (EU Markets In Crypto-Property Regulation), had been launched in 2023, however stronger concentrate on regulation is required for Web3 expertise to proliferate extra broadly. 

Shifting away from general-purpose use instances

Reasonably than being deployed as all-purpose use instances, Web3 is efficacious when centered on particular situations the place it provides to what Web2 alone can already supply. One of the best examples of Web3 purposes shifting from general-purpose to particular applied sciences are within the realm of tokenization. When NFTs first launched, they had been used to drive speculative worth, however had restricted performance. Firms flocked, creating NFTs with restricted client worth, and in consequence the NFT market rapidly crashed.

We now see funding shifting in direction of utility-based NFTs. Firms like book.io are utilizing utility-based NFTs to remodel possession of digital content material, reminiscent of e-books. Presently, when readers purchase e-books, they don’t personal the e-book itself, solely a license to view the content material. Meaning they’ll’t resell, lend, or give it away. As well as, authors have restricted alternatives to make the most of secondary market royalties. The developments in NFT infrastructure and decentralized storage purpose to deal with these issues.

NFTs are additionally getting used as proof of possession for real-world belongings together with artwork and luxurious collectibles. The platform BlockBar makes a speciality of NFTs of luxurious liquor manufacturers that function proof of authenticity. The corporate Arianee permits manufacturers extra broadly to create digital product passports connecting bodily merchandise to a digital identification that may be tracked and traced. 

In the meantime, established corporations reminiscent of JPMorgan Chase now supply tokenized deposits to develop new buying and selling, borrowing, and lending companies via blockchain platforms reminiscent of JPMorgan’s Onyx. And fungible belongings reminiscent of stablecoins are making it simpler and cheaper to make digital transactions. Based on a recent report, in 2022, stablecoins settled over $11 trillion price of transactions onchain, nearly matching the fee quantity of Visa ($11.6 trillion) throughout the identical interval.

Altering ecosystem dynamics 

The rise and fall of Meta’s metaverse imaginative and prescient confirmed that attempting to exert market dominance whereas trampling ecosystem dynamics is counterproductive. To comprehend the advantages of Web3, co-opetition and partnership-building are important. In 2024, we anticipate that extra corporations will undertake decentralized expertise to advance options for collective, world issues. However what does that imply for a CEO seeking to extract worth from Web3? 

For CEOs, after we take into consideration the long run, it’s essential to recollect Web3 is now not about technological disruption, however about co-optation of the brand new with the outdated to create infrastructure and ecosystems that clear up issues collectively throughout a shared worth chain. We’re already seeing this assimilation throughout industries. 

One instance is Project Guardian, a collaboration between gamers throughout the worldwide monetary ecosystem, together with coverage makers and {industry} teams, to discover the feasibility of open, interoperable networks that allow digital belongings for use throughout world platforms for a number of use instances. This is a vital step to jumpstart the transfer away from closed ecosystems with siloed use instances. London Stock Exchange Group’s current announcement of a blockchain-based buying and selling platform, after it had decided the general public blockchain infrastructure was now “good enough” to construct on, is one other indication that the character of Web3 could also be shifting from non-public to extra open, public infrastructure.

Web3 constructing blocks have the potential to deal with vital challenges within the carbon market, reminiscent of carbon credit score credibility, standardization, and transparency throughout the worth chain. Blockchain, sensible contracts, and tokenization can contribute to offering the mandatory world buying and selling infrastructure to ascertain a unified, fluid carbon market. To make that occur, nonetheless, it’s important for members within the ecosystem to return collectively throughout the worth chain.  Startups like KlimaDAO and Toucan are already out there—Toucan alone has tokenized over 20 million carbon credit, producing $4 billion in carbon buying and selling quantity—and are being joined by incumbents like SAP, which is providing a “green token” utilizing blockchain. To actually unlock world worth, nonetheless, we nonetheless have to see a extra substantial shift in mindset to embrace ecosystem collaboration and open, public infrastructure.

What now?

The truth is that Web3, together with the metaverse, shouldn’t be useless, however it’s completely different. As we transfer from tech utopia to actual use instances, having a transparent technique of when and the way to use Web3 is essential. Firms ought to take a look at how the constructing blocks of Web3 can improve their tech stacks and enterprise methods, not exchange them, and do that with a laser-focus solely on use instances past what Web2 alone can supply. 

There are key questions corporations can pose to themselves to assist assess if and the way Web3 is required. Is there a deficit in transparency and belief that Web3 applied sciences, like blockchain, may handle? Can Web3 mechanisms reminiscent of tokenization unlock liquidity the place conventional strategies have failed? Within the age of limitless content material, how may utility-based NFTs and sensible contracts guarantee an efficient digital asset possession and reward technique for creators and shoppers? 

Beyond that, firm leaders ought to rethink how they method their ecosystem dynamics. Discovering the precise companions to construct stronger community results, from expertise collaborators to {industry} friends and cross-industry stakeholders, can be very important for a robust ecosystem for fulfillment.  

Learn other Fortune columns by François Candelon. 

François Candelon is a managing director and senior associate at BCG and the worldwide director of the BCG Henderson Institute. 

Michael G. Jacobides is the Sir Donald Gordon Professor of Entrepreneurship and Innovation at London Enterprise College, and an advisor at BCG and Evolution Ltd.

Urs Rahne is a managing director and associate at BCG X and a fellow on the BCG Henderson Institute.

Katie Spherical is a principal at BCG X and an envoy on the BCG Henderson Institute.

A number of the corporations featured on this column are previous or present shoppers of BCG.