web3 use cases

What are the use cases for web3?

This is an extraordinarily simple question with an extraordinarily complex answer.

The reason is that it is relatively easy to frame the information we seek (ask the question) but difficult to organize and convey the response (provide a simple answer). That is because the question requires an understanding of how the future will unfold, which is infinitely harder than explaining how the past has unfolded. It is informed by hindsight and the clear value of mature Internet applications created over the last 30 years. But the response requires foresight and deep knowledge of a vast ecosystem that needs interdependent experimentation and has not yet unfolded. It would be like declaring in 2000 the specific importance and form of Amazon, Facebook, Netflix, Uber, and Airbnb by 2020.

Disclaimer: None of this is financial advice. Do your own research. I hope this is mildly helpful general information.

Before I go any farther, what is the TL;DR? Give me 15 use cases now.

• Asset speculation e.g. Bitcoin millionaires, BAYC minters, Luna bagholders
• Anti-inflation wealth preservation e.g. quality stablecoins
• Global borrowing and lending e.g. emerging market access to sustainable DeFi
• Capital and community formation for specific objectives addressing market failures e.g. media DAOs
• Agreements dependent on information transparency e.g. smart-contract based insurance
• Government data and participation on an open blockchain for developers to build better civic engagement e.g. presidential records on-chain to prevent destruction or budget data in an API to create everyday products tied to monetary value
• Social networking on an open protocol that leads to more applications than Facebook e.g. vertical apps for meeting new friends as a digital nomad, or relevant professional connections
• Digitization of assets like real estate and collectibles to improve credit scoring and creative digital applications e.g. getting a lower price on an online purchase if you have a strong financial history because the retailer expects repeat-buys
• Token-based, dividend-producing investment in promising artists and underfunded high-potential builders e.g. funding your sister to write a book with a year-long sabbatical and sharing in future royalties
• Ephemeral DAOs to invest in local restaurants and businesses, or verified borrowers, in exchange for partial ownership and perks e.g. helping rebuild a dry-cleaner that suffered a fire or community-funded, collateralized mortgages
• Dating apps based on opt-in verified social behavior to discover shared interests in certain concerts, locations e.g. matching NFTs from EthCC to show connection strength
• Marketplace of open-source software and labor where anyone can make any major Internet service better e.g. Wikipedia on-chain with incentivized editors and its own mini app store
• Funding homelessness reduction with transparent traces of how funds were spent such as on food and shelter e.g. neighborhood can contribute to help get someone back on their feet and have confidence in how funds will be used
• Smart-contract based insurance e.g. emerging market farmers to reduce need to travel or be extorted by middlemen who control the market with impunity
• Mobile-based labor through text and video-based medium with instant, low fee crypto-based compensation e.g. affordable, quality therapy from trained international support network

What are example use cases of the Internet today?

• Amazon: shop and buy anything whenever from wherever based on databases of real-time product information, an Internet-connected global logistics/payments network, and mobile applications (and more)
  
• Netflix: watch entertaining movies and television based on high-speed mobile media delivery, original content created based on global viewing data, and online subscription payment systems
  
• Facebook: share updates and see what your network is doing based on real-time photo and text uploads, data on who you are friends with and engage with the most, and consumer mobile applications (and more)

How did major Internet companies with clear use cases today start out 20-30 years ago?

• Amazon: put your credit card into a risky online portal to buy a book with slow delivery from a limited selection
  
• Netflix: instead of going to your neighborhood movie rental store, request online a DVD to be delivered by mail
  
• Facebook: enter your sensitive personal biographical information so your college classmates could look it up

Internet protocols like SMTP and HTTP were created in 1980 and 1990 after decades of foundational government and university research and development. The commercial Internet was unleashed when US President George H.W. Bush signed a 1992 amendment "to the Scientific and Technology Act, which allows the National Science Foundation to permit access to the Internet by organizations that want to use it for purposes 'in addition' to research and education in the sciences and engineering." Amazon, Netflix, and Facebook were founded in 1994, 1997, and 2004.

By contrast, Bitcoin (2008), Ethereum (2015), and other blockchains are much more recent Internet infrastructure. This is even more true for the application layer such as Metamask (2016), OpenSea (2017), and Uniswap (2018). If you combine those web3 applications to the aforementioned Internet companies, there is 15 years of existence compared to 71 years of existence, a difference of 56 years, or roughly 10-25 years of actual time passing for development.

web3 use cases won't look like replacements for Facebook, Uber, and Airbnb just like those companies were not replacements for the prior generation of technology that saw the personal computer, AOL, and Microsoft Excel. Technology morphs, rather than purely substitutes. Just look at the smartphone; it's not a better flashlight, but it is. Twitter didn't replace some real-world version of sharing status updates, but did inadvertently become a new global town square.

What would web3 evangelists argue are web3 use cases?

Lest we make an excuse for web3 by slyly and unaccountably just saying "It's still so early", what are the use cases?

There are 3 ways that people answer this question today that are all incorrect and insufficient as "use cases":

• Principles e.g. decentralized, permissionless, composable, user-owned
• Constructs e.g. NFTs, DeFi, DAOs,
• Products e.g. Metamask, OpenSea, Uniswap

These are not good answers. I love web3. But these are not good answers to "What are the use cases?"

By contrast, the answer we want to get to is:

• Use Cases e.g. providing access to capital, forming more genuine social connections based on verified interests, and enforceable agreements in low-trust economic environments

Remember that the use cases of the early Internet and Web 2.0 (e.g. look up your attractive college classmate) seemed completely sketchy (Amazon), infeasible (Netflix), and/or unnecessary (Facebook). Be patient, friend.

These web3 use cases should mostly make sense in simple terms but have 20% ambiguity especially on the last one because the use cases of new technologies (e.g. smartphone in 2005) aren't always fully understood before adoption.

By contrast:

Principles are ideas and the DNA of a solution - but not actual solutions to people's problems. In other words, you can't eat "decentralization" or "composability" on its own won't help you find information on the Internet.

Constructs are also ideas - either technical standards or a way to structure a system - but also not actual solutions to people's problems. In other words, "NFTs" alone do not create community. "DAOs" alone don't solve climate change.

Products are more than ideas; they are vehicles through which one can address use cases but not the use case itself. Failed products generally fail because they have the trappings of solving a use case without actually solving a real need that the market validates - think Juicero. Amazon is a product, ecommerce or buying things through the Internet is the use case. Netflix is a product, entertainment or streaming a show when you're bored is the use case. Facebook is a product, social networking or connecting with people is the use case. Successful products address key use cases.

OK so then what is a use case?

A use case is a situation where someone has a want or a need that can be fulfilled by a product or service

Here are some generic examples:

• Fire: I am cold. I need warmth. Fire generates heat by releasing thermal energy. Fire solves cold.
• Chair: I study and eat. I need a place to rest my body while I use a desk or a dining table. The chair solves this.
• Smartphone: I didn't need this. But now I need 24/7 access to email, information, and entertainment. Smartphones solve this.

In each case there is either an explicit need or want, or an opportunity to improve a situation when we don't know we have a want or a need, but could be living life in a better or different way. Those are use cases, solved by products.

OK, so stop delaying. What the hell are the use cases of web3?

One more caveat. If I knew all the use cases, I'd be a genius and a fortune-teller, and I'm neither. The reason web3 is still contrarian and has legitimate critics is because the outcome is non-obvious. Once there is a list of 100 use cases that all make sense to the average person, or 100 products with adoption by 100 million people, we will no longer be questioning the use cases of web3 just like eventually we stopped asking "Why would I post what I am eating for lunch on Twitter? I don't get it." That reaction will just fade from memory like it did with the Internet and Web 2.0. Who knows what will happen with the oft-discussed use cases of supply chains, remittances, public record-keeping, improving podcasts, real estate, and the many other attempted explanations of valuable use cases of web3.

The use cases proposed are either new ones to solve or existing areas where current applications could be greatly improved through the the principles, constructs, and culture of web3 coupled with the technology of blockchains. I would categorize the use cases into either proven or not yet proven. That is the fun of new technology.

Summary

• Asset speculation e.g. Bitcoin millionaires, BAYC minters, Luna bagholders
• Anti-inflation wealth preservation e.g. stablecoins
• Global borrowing and lending e.g. emerging market access to sustainable DeFi
• Capital and community formation for specific objectives addressing market failures e.g. media DAOs
• Agreements dependent on information transparency e.g. smart-contract based insurance
  

Details

• Asset speculation: You can purchase a token with a story (e.g. digital gold, world computer, or exclusive, verified communities that will generate value through live events, intellectual property licensing, and more) and hope that the price goes up based on either speculative or financial value in order to hold or sell for profit
  
  Many people have generated (or lost) wealth betting on BTC, ETH, and NFTs. This is hard to dispel.
  
• Wealth preservation (or destruction): You can buy a digital asset like BTC or USDC/USDT (or previously UST) and have a risky path to preserving the value of an Argentine Peso, Turkish Lira, or Sudanese Pound. Many people have lost money on Bitcoin expecting it at some point to be a store of value that holds steady, or bet on an algorithmic stablecoin like the Luna/Terra UST token given the 20% yield through Anchor Protocol. However, it's undeniable than many people see wealth constantly inflated away due to unstable fiat currencies and that unfettered access to digitally-native, irrevocable, transportable wealth could decouple people around the world from damaging economic policies but no one knows whether capital controls and regulation are simply lagging and will mirror the analog world to avoid capital flight from fiat currencies or if it will be permitted. Despite the unsteady prices and economic / technological failures to date, stablecoins have a legitimate need.
  
• Incremental wealth creation through global digital borrowing and lending: Most people in the world don't have bank accounts and can't invest into traditional US equities and bonds and mutual funds and indexes like the S&P 500 to gradually grow a nest egg from wage labor. Not only do they see their capital inflated away, they do not have a bank to store cash in, a credit card to access the bank balance, or a financial services ecosystem to generate passive income from active income savings. With a digital global financial system emerging in decentralized finance where people borrow for everything from mundane purposes to make a purchase like we all do with credit cards for convenience and credit card points to mortgages to much more risky things that exist in TradFi too like leveraged trading, there is yield generated. People are willing to pay a borrowing rate and that creates opportunity for lenders. Once the financial system is global and digital, anyone with a smartphone and a web3 Ethereum/Layer 2 wallet can lend funds (as small as $1 given there's virtually no overhead labor or expenses) and earn a growing yield on those funds. These funds benefit from global liquidity and borrowing needs otherwise unavailable, and are immutable. It's not inconceivable that people in poor countries could have more income generation potential through an efficient global financial market than low-wage labor even with small lending given the yield on global capital. This is especially valuable because many around the world don't have time to work two jobs or may suffer from a disability or disease; this gives passive income opportunity to those who can't afford rental vacation homes. Admittedly many of those people need that very capital to provide for themselves and pay their own bills. But there's often time between getting paid and using it, so they can earn. Also, there's admittedly not enough "real world borrowing" happening yet, and there's massive risks in current DeFi protocols that someone could lose funds entirely; these are problems to solve. People also didn't trust putting credit cards online with Amazon, connecting bank accounts to Paypal, or paying bills online at first.
  
• Digital capital and community formation for a specific objective: You can launch an NFT with a stated goal to write a book (Jenkins the Valet), acquire a golf course (LinksDAO), or buy a copy of the US Constitution (ConstitutionDAO). Theoretically you could get a small business loan or raise venture capital (but those only serve use cases like neighborhood restaurants and future $1B companies) or start a GoFundMe for this (but they could shut you down, there's no digital asset - other than a GoFundMe receipt - representing ownership that can interact with some logic in future smart contracts, etc.). Crowdfunding opened floodgates to community investments and now that everyone who isn't an accredited investor early in Uber has lost 70% on high growth tech stocks, it's hard to argue that investing $1K in a project or creator that you believe in is actually that much more risky. Imagine DAOs that let us invest in acquiring land and creating public parks where there are market and government failures that give us community ownership in public goods and could become self-sustaining through incentive-aligned, digitally-native experiences like bookings for birthday parties or baseball games. This could go into a treasury invested in low-risk DeFi for low-risk borrowing, that then uses yield to pay expenses and grows an endowment; this is only possible if it's digitally native given the treasury is publicly auditable and the funds are managed by multi-sigs and smart contracts, and doesn't require time / overhead. You could do something similar for funding a sabbatical for your cousin who really wants to write a memoir but needs the funds to take a year off, a local restaurant that burned down in an accidental fire and needs to rebuild, or funding the travel for young web3 builders who can't afford attending a hackathon otherwise. We can always argue for existing alternatives; the same was true of radio vs. video streaming a baseball game. Projects like Gitcoin, Syndicate, and Goldfinch are related ecosystem infrastructure for funding public goods, enabling digital investment clubs, and trustable global undercollateralized lending systems.
  
• Agreements dependent on capital and information transparency: Suppose you're a rural farmer in an emerging market and want to have crop insurance. This is a very onerous and corrupt process today that charges high fees and relies on a middleman to tell you if it rained enough or not for you to qualify for a benefit. Imagine a global system powered by smart contracts and fluid capital that provided more competitive rates and used an off-chain oracle to agree objectively on the weather data. Or imagine a company that makes a pay equity commitment; today that rely on a law firm to do an annual audit and publish a report. What if there was anonymized data connected to the enterprise resource planning software like Workday that linked to a smart contract and deducted from a dedicated fund of $10M annually to auto-rectify pay discrepancies and flag root causes based on the information now accessible publicly and by open source developers who can build on top? There are many circumstances when the legal structure doesn't exist, or the system enforceability is too expensive to be practical, just like Internet writing would be impractical if everyone had to publish thoughts in one of five top newspapers - rather, blogging reduced the barrier to creation and distribution and created new unforeseen possibilities of global conversation, influence, and freely accessible information and learning.

Longer List

• Government data and participation on an open blockchain for developers to build better civic engagement
• Social networking on an open protocol that leads to more applications than Facebook
• Digitization of assets like real estate and collectibles to improve credit scoring and creative digital applications
• Token-based, dividend-producing investment in promising artists and underfunded high-potential builders
• Ephemeral DAOs to invest in local restaurants and businesses in exchange for partial ownership and perks
• Dating apps based on opt-in verified social behavior to discover shared interests in certain concerts, locations
• Marketplace of open-source software and labor where anyone can make any major Internet service better
• Funding homelessness reduction with transparent traces of how funds were spent such as on food and shelter
• Smart-contract based insurance for emerging market farmers to reduce need to travel or be extorted
• Mobile-based labor through text and video-based medium with instant, low fee crypto-based compensation

How did you form these use cases?

• Benefits from existing always-on, global internet infrastructure paired with desktop and mobile consumer usage
• Compatible with, builds on top of, or is a useful / partial substitute for existing Internet and Web 2.0 products
• Uniquely requires (or isn't harmed by) the transparency or immutability or decentralization of the blockchain
• Aligned with and/or accelerated by the composable and generally open-source nature of web3 applications
• Taps into new potential by embedding trust and execution capacity in computers rather than flawed humans
• Leverages digitally-native constructs like tokens with economic value, NFTs, DAOs, protocols, smart contracts
• Trying to solve problems related to incentives, coordination, or reputation that blockchains and tokens help with
• Accept that there will be valid criticism or execution-risk for every use case like any new idea by definition
• Depends on interrelated behaviors and product development that have not happened but could theoretically
• Solves problems that were unsolvable by existing Internet applications and adoption patterns
• Addresses populations and problems largely ignored by centralized western technology corporations
• May use vs. decouple from existing monetary and Internet apps e.g. USD/USDC, AWS, DNS, Meta/Twitter
• May be initially associated with centralized entities e.g. Vitalik, VCs, core teams, 3-person multi-sigs, etc.

Concluding thoughts

• It's early but it can't always be early
• Use cases that only make sense if you use crypto are OK
• Use cases that rely on or augment web2 or existing financial systems are OK

Remember mobile photo sharing didn't make sense without mobile adoption. NFT liquidity protocols don't make sense without NFT adoption. It's OK. Likewise, stablecoins today rely on the US dollar. I'm not an Internet or financial system anarchist. It's OK. Likewise, NFTs are getting integrated into Facebook and Instagram. That's OK too.

This was a really difficult post to write. I have had it in draft for more than 2 months. I didn't want to just list well-funded companies, or dream use cases people have been talking about since 2013 or 2017.

I hope this helps move the conversation forward and provides some perspective to the critics, humility to the advocates, and fuel to the builders.