There has been a lot of buzz lately regarding Web 3.0 and the metaverse, but not much explanation of why this technology is groundbreaking and what it means for the payments space. Consider this a guide to the perplexed, providing an entrée in the world of Web 3.0 and Web 3.0 payments.
In general, the vast technological advance fueled by the Internet has been divided until now into two eras: Web 1.0 and Web 2.0. From roughly 1991 to 2004, Internet technology existed in its Web 1.0 iteration. As described by World Wide Web inventor Tim Berners-Lee, Web 1.0 was largely “read-only.” It allowed web users to search for information and read it, but there was little opportunity for user interaction or content generation.
Web 1.0 websites were company-centric and focused on a unidirectional flow of information to consumers. A variety of other traits characterize Web 1.0 pages including, for example, static design.
Web 2.0 is distinguished from its predecessor in a number of ways but primarily by its encouragement of user engagement, what Berners-Lee calls the “read-write” web. Online companies like YouTube and Twitter are Web 2.0. This version of the web also saw the development of the application programming interface (API) economy, which enabled automated usage of site services via web app. Other features include dynamic content, and folksonomy, which is the free classification of information by enabling users to collectively classify information via tagging of images, videos, links, etc. This era of development saw the web become a platform for user generation content. In theory, Web 2.0 still continues to this day.
The term Web 3.0 has shifted in meaning over time. Web 3.0 originally referred to the evolution of web interaction that includes turning the web into a database. Data is shared, not owned, and services show different views for different individuals based on the same web data. Web 3.0 in its original meaning incorporates artificial intelligence, 3D graphics and a high degree of information connectivity. This means computers can distinguish information like humans to provide faster and more relevant results, which can be represented to humans in more realistic/intuitive ways.
Talk of Web 3.0 began already around 2007, while Web 2.0 was still maturing.
Below is a table from geeksforgeeks that presents the differences between Web 1.0, Web 2.0 and Web 3.0.
However, a new conception of a web based on a decentralized online-based ecosystem utilizing blockchain technology was given the term Web3 in 2014. This has become the new meaning of Web 3.0 as the concept achieved widespread use in 2021.
Web3 enhances the Internet as we know it today with some added characteristics, such as:
In Web 3.0, developers build applications that run on blockchains, decentralized networks of many peer to peer nodes (i.e. servers). These apps are referred to as dapps (decentralized apps).
Web 3.0 is supposed to take control of the Internet from Big Tech. The key is that you become the owner of your data and not data aggregators like social media giants, Google, etc. This is what crypto enthusiasts call “self-sovereign identity.”
Another key concept in Web 3.0 is interoperability, which means among other thing the existence of decentralized finance (DeFi). This is the attempt to build a new financial system without central financial institutions. It means attaching each user’s data and money directly to them, creating a public record that they own what they own on the blockchain, and letting them take it with them and profit from it wherever they go on the web.
It’s interoperability that is key to flowering of the related invention of the metaverse. We already spend hours every day online using different services like Zoom, Twitter, Amazon and spend our free time in gaming environments like Fortnite. However, today, all of these pieces are disconnected, like walking around a city and changing outfits and ID every time you enter a new building. Web3, AKA Web 3.0, will allow you to go from one building to another with the same clothes and ID.
The metaverse is an immersive three-dimensional space powered by augmented, virtual, and mixed reality, which allows users to interact with 3D objects.
Companies like Decentraland, The Sandbox, and Meta Platforms Inc are currently developing their own metaverses. Their goal is to replicate the real world with the capability to work, play and socialize within a virtual world. For example, in February the bank JP Morgan opened a virtual lounge in the Decentraland metaverse called Onyx lounge.
According to JP Morgan, the metaverse as a whole presents a market opportunity of $1 trillion in annual revenue. That means stitching together the fabric between different services or environments in the metaverse with Web 3.0 could have significant financial ramifications for a lot of people.
While Web 3.0 and the metaverse are interrelated concepts they are not the same.
The key to incentivizing the work necessary to make Web 3.0 a success is the use of cryptocurrencies or digital tokens. They will fund dApp developers activities, reward content creators and generally be used to transact value between all stakeholders in the ecosystem.
However, to acquire cryptocurrency most people today need to convert fiat money to their token of choice via an exchange, AKA an onramp. In most markets, purchasing crypto via credit or debit card is the most convenient option in terms of the time it takes to access funds.
However, this use of payment cards also opens up the exchanges to the problem of chargebacks and friendly fraud. Users can claim that the purchase of cryptocurrency was not authorized and demand their money be returned to them even after the cryptocurrency has been spent.
Often, in our experience at Justt working with crypto exchanges, a cardholder will file for a chargeback when they aren’t satisfied with a purchase they made with crypto. However, because there is no chargeback mechanism for crypto purchases, instead of seeking the money back from the person or business they bought a product or service from, they seek it from the crypto exchange.
Because crypto exchanges operate on small margins, the damage these chargebacks can do to their business is significant. It can easily reach 20 percent of net profits and if the chargeback ratio is high it can lead to a loss of card processing privileges.
This lack of a built-in payment dispute mechanism in the smart contracts built atop cryptocurrency blockchains is an issue that will have to be resolved as cryptocurrencies become more popular. In the meantime, growing numbers of dissatisfied crypto consumers are likely to try their luck filing chargebacks against exchanges with their credit card issuer.
Hitting the exchanges undermines the infrastructure on which Web 3.0 is being built. Luckily, these businesses can turn to a company like Justt, which can address chargebacks on a large scale and with great accuracy. Thanks to our full-service solution’s use of automation and AI technology we eliminate the operational costs crypto exchanges face in handling chargebacks with internal teams. Our experts vast expertise in handling chargebacks in the crypto space combined with our machine learning, means that we achieve the high success rates in the industry and are constantly optimizing results for the variables that go into a chargeback dispute, including the preferences of the specific card issuer.
Expect professional chargeback mitigation to play an important supporting role as the crypto market deepens and Web 3.0 becomes a reality.
Ex-journalist and major fan of fintech and OSINT, I write regularly for leading industry outlets in finance and fraud prevention. Outlets I contribute to include Payments Dive, Finextra, and Merchant Fraud Journal, and I have been cited by PYMNTS.com
