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Web3 — a vision for the internet rooted in decentralization and transparency and built on technologies like blockchain and AI — is a new frontier for innovation and market disruption. Yet most companies don’t fully appreciate the potential use cases for Web3 or have a clear idea of how to start.

In a 2022 survey by the MIT Center for Information Systems Research, only 13% of executives characterized their companies as very effective at deploying fundamental Web3 technologies like blockchain, while another 36% said they were only slightly or not at all effective at it. This deficit could have long-term consequences for companies’ fiscal health: The research also found a correlation between growth and profitability and the successful deployment of technologies like blockchain.

Succeeding with Web3 depends on creating value with blockchain and managing the complexities of decentralized governance, according to a new research briefing by MIT CISR researchers Gayan Benedict, Ina Sebastian, and Stephanie Woerner. 

The benefits of decentralization

13%

In a 2022 survey, 13% of executives said their companies were very effective at deploying Web3 technologies.

Web3 provides the means to decentralize information, computing infrastructure, and the governance of internet-based systems across an ecosystem of distributed participants. “It gives ownership back to users and creators in a way that’s not addressed well with current internet models,” Benedict said.

Web3’s community-centric ethos lends itself to addressing a different class of problems. “These are problems not conventionally solved by any one organization and typically span multiple parties or even industries,” said Benedict, the former CIO of the Reserve Bank of Australia who is currently researching decentralized Web3 governance as a Fulbright Scholar. “Problems that are inherently decentralized or distributed are best addressed with Web3, as it uses distributed technology and incentives to coordinate participants to address issues that centralized solutions haven’t been able to solve.”

For example, in the financial industry, blockchain can be harnessed to decrease transaction fees and lower barriers to entry by broadly distributing infrastructure and operating costs. It can also enable data sharing in ways that maintain privacy while allowing industrywide problems, like insurance fraud, to be managed across organizations.

Four approaches to adopting blockchain

Some early adopters of blockchain technologies have experienced high-profile failures over the past 18 months, most notably in cryptocurrency and early enterprise blockchain rollouts. Those early entrants experienced both financial losses and reputational damage among investors and stakeholders.

In their research briefing, Benedict and his fellow CISR researchers outline four approaches to adopting blockchain that companies take as they weigh the value and risks of early participation. Companies should select one of these approaches based on their appetite for risk, regulatory acceptance, and competitive scenario, as well as the digital savviness of key executives.

1. Wait and see. This approach is suitable for companies in highly regulated industries that are risk averse. These companies are often content to leave early experimentation to others until there is greater clarity around profitability, regulations, and other market forces. One example is the Commonwealth Bank of Australia, which announced that it was jumping into managing cryptocurrency in its mobile banking app only to pump the brakes when market volatility and customer feedback gave it reason to pause. The upside to an early wait-and-see stance is learning from the experiences of others and allowing regulators to catch up. The downside is the potential to miss the boat on key talent, organizational experience, and other foundational capabilities when Web3 competencies become requisite for market success.

2. Experiment. An exploratory path enables companies to try out blockchain-based products and services on a small scale without risk to mission-critical operations. Companies use these projects to learn, develop strategic partnerships, finesse employee skills, and explore market acceptance of the new offerings without making changes to existing products, service offerings, or technology architectures. In the insurance industry, for example, pilot projects have sought to track motor vehicle repair claims across multiple insurers to minimize the practice of submitting multiple claims for the same accident. A blockchain-based approach is expected to solve the industrywide problem without the need for a costly centrally managed technology platform or requiring insurers to open up their books to competitors.

3. Provide targeted offerings. This approach goes beyond experimentation to expand blockchain into targeted areas — typically those that aren’t mission critical or where regulatory requirements require careful navigation. Mastercard took this path to provide payment services for the non-fungible token market, but rather than going all out and using cryptocurrencies, the company partnered with NFT marketplaces to support Mastercard-enabled payments. This helped the company manage regulatory requirements while meeting customer demands and building institutional Web3 knowledge.

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4. Go all in. This is the preferred route of startups or industry disruptors committed to building new businesses based on decentralized blockchain-enabled products and services. Unencumbered by legacy practices and infrastructure, these companies, such as Denmark’s ZTLment, aim to introduce decentralized Web3 offerings into markets dominated by conventional centralized businesses, such as payment-service providers.

Best practices for moving forward

Most traditional companies will start with experimentation as they build up requisite Web3 skills and gain clarity on market forces. At that point, they’ll graduate to targeted solutions where they can capture value. Benedict advises that they keep the following things in mind as they move along the trajectory:

  • Be careful about identifying the right problems that you hope to solve. Web3 is not a solution to every business problem and is best suited to problems that are shared by multiple parties that are motivated to come together to develop a collective solution.
  • Don’t focus only on technology. There are far more complex dimensions to a Web3 solution, especially around new decentralized governance and shared incentive models. It’s important to understand the competency gaps beyond technology challenges and make a plan to fill them, Benedict said.
  • Embrace an ecosystem mindset. Companies have to move beyond thinking about traditional competitors or long-standing organizational conventions. “You have to think broader than your organizational and system boundaries,” Benedict said. “You have to think in terms of ecosystem problems, which haven’t been solved well with our current centralized solutions. There are a range of challenges and opportunities out there that have been just too hard to solve until now.”

Read the researching briefing: Creating value from Web3 

Read next: Blockchain, explained

For more info Sara Brown Senior News Editor and Writer