The considerable hype surrounding Web3 and related developments shouldn't be ignored, especially by financial advisors. Whether it's as big as advocates say it is, with tremendous potential for investors, or if Web3 is just a buzzword describing the natural progression of the Internet, you can bet people will ask you about it.
Web3 is a concept describing the state of the Internet, with massive implications on how advisors conduct virtual meetings, the level of financial intermediary participation and the opportunities available to investors. And while Web3 may very well be the next version of the web, that doesn't mean it's inherently a good investment — nor does the hype immediately disqualify it.
In any case, you'll need to understand what Web3 is, how it's different from previous iterations, and what it means for your advisory business moving forward. But first, let's properly define what Web3 is.
What is Web3?
Web3, or web3 and Web 3.0, is the ensuing form of the Internet. We can think of the early days of the Internet as Web 1.0 and the current version as Web 2.0.
To understand why Web 3.0 is a distinguishable phase rather than a mere variation of Web 2.0, let's have a look at the main drivers per Internet wave.
Web 1.0
Web 1.0 covered the period from the 1980s to the late 90s. Although the infrastructures for interconnected networks — or the “Internet” — began in the prior decade, Web 1.0 saw wide adoption during this period as more people went online. Companies like Microsoft, Apple, AOL, IBM and Cisco dominated the space, but overall control was largely decentralized.
During this time, websites were static pages, much like magazines you could read on a computer screen. Photos and high-resolution graphics were discouraged, and publishing video content was out of the question as existing bandwidths made them impossible.
Web 2.0
Computing power improved exponentially at the turn of the century, and data storage became significantly cheaper. This phase presented the rise of smartphones and mobile apps. Whereas mobile phones used to be the secondary connectivity device for most people, companies like Facebook, Apple and Google showed how mobile could be the primary means for connecting online.
Amazon, Twitter, Netflix and Uber came with disruptive breakthroughs, too. It’s hard to imagine a world without these companies and their contributions.
Today, control is centralized mainly around these innovators and disruptors. They own your data, including your lists stored on their platforms, which is why collecting emails to store offline is smart. These large companies can change their API, and there's very little we can do about it.
But for the most part, these capitalist incentives have favored us (as users). Websites have been more interactive and engaging. Social presence is so easy that it's now a prerequisite for most businesses. And startups have created more jobs than they've destroyed.
Combining the best of both
Web3 combines the best of both Web 1.0 and Web 2.0. Specifically, Web3 preserves the interactive and engaging platforms, but it is decentralized with no large corporation having excessive control. (At least that’s the promise.)
The decentralized nature of Web3 services and apps is possible because of blockchain technology.
Blockchain is essentially a public ledger — a book where all transactions are recorded — maintained by many computers. The support by several, possibly unrelated, computers is in contrast to large tech companies' reliance on their systems. If you've read about downtimes and hacks on any of the popular sites of today, that is a manifestation of company-specific risks. Blockchain's structure and autonomy mean it's very secure and stable.
Umbrella term of new tech
Web3 covers many of the new technologies discussed in the market. In a way, Web3 is a mere rebranding of the collective that includes blockchain technology, cryptocurrency, Non-Fungible Tokens (NFTs), Virtual Reality (VR) and Augmented Reality (AR). Every one of these has been hyped in the past.
Is it baseless hype?
Some people have called the Web3 trend a marketing tool by venture capitalists (VCs) to maximize the value of their bets. They argue that the decentralization concept is really for businesses and not consumers.
To be clear, the concept of decentralization is still a win for consumers. But maybe its implications have been hyped up by biased parties? Time will tell.
Why Web3 matters to advisors
Web3 and its developments either sound promising or like bogus, depending on whom you ask. There are proponents on both sides coming from all different backgrounds and experiences — including tech founders like Jack Dorsey of Twitter and Elon Musk of Tesla, as well as a long list of VCs.
Regardless, financial advisors need to understand the basics. Clients will be asking about Web3, not to mention the great opportunities and threats that lie ahead.
Clients will be asking about it
Web3 is trending, and people will be asking about it sooner rather than later. Some individuals have already become millionaires in the cryptocurrency and NFT space – making it an increasingly appealing concept. Anytime an investment makes a lot of money for a group of people, other investors become intrigued.
People who seek your advice as a financial advisor will want to know about Web3. Considering the enormous upside potential, would recommending, say, five percent in total portfolio value be prudent? Can we classify investments in Web3-centric technology as asymmetric bets?
Clients will expect you to have an opinion, so get ready to explain Web3, your outlook, and recommendations.
Great opportunity and threat
On the one hand, the general upward trend in Web3-related investments like cryptocurrencies, NFTs, and DeFi (Decentralized Finance) apps can be to your advantage. Many investors have successfully surfed these giant waves. On the other hand, the move towards decentralization and the elimination of intermediaries may affect your advisory business. Algorithm-based models could place financial planning services at the hands of computers.
Cryptocurrencies like Bitcoin could let you do away with intermediaries like banks since transactions are peer-to-peer. The rationale is that you don't need to trust the other party as long as you trust the system it's running on.
Investment opportunities can yield returns similar to Internet stocks of the early 2000s. Of course, that also means investors must take heed. When the Dot-com bubble popped, stocks dropped in value by around 80%. The same could hold for these new investments. History might not repeat itself, but results could probably rhyme.
And while Web3 may be the future, that doesn’t mean it’s automatically a good investment. Investment’s returns are indirectly related to its price — the higher the price, the lesser the returns, all things the same. Needless to say, the pertinent question is if today’s prices already account for these promises or not.
Algorithm-based models replacing advisors?
Advances like Robo-Advisors and Zestimates are machine learning-based services that provide automated financial planning and appraisal services with no human intervention. Are these real threats to the livelihood of financial advisors?
Detractors of algorithm-driven financial planning services say computers will never outsmart the human brain — that intuition is still a vital component. Conversely, proponents say it's only a matter of time. Some machine learning-based methods even have hidden steps — like a black box — that are virtually impossible to work back. Can we call them computer intuition?
The future of virtual meetings could be disrupted
The idea of a Virtual Financial AdvisorTM has never been more true. For the most part, real-world meetings have been displaced by virtual meetings. These Zoom meetings save time and money, with many advisors accepting them as part and parcel of the job. More importantly, clients have adopted them, too.
We've yet to see if face-to-face meetings can make a comeback, and promises of the Metaverse are already at the door. The concept of virtual meetings has been disruptive to the industry. And virtual meetings through the Metaverse could be an even bigger step.
The Metaverse combines VR, NFTs and the human being's natural desires for social connection.
VR lets you see an avatar of yourself and others. These avatars could be realistic, lifelike representations of ourselves. Futurists predict it'll be hard to distinguish between your authentic self and an avatar. These avatars could meet in a predetermined place, like online gamers playing together.
Furthermore, NFTs allow you to own personal properties online. They do so by identifying unique tokens on a blockchain with specific digital assets like, say, the clothes your avatar wears. These private properties bring authenticity to our virtual selves, further blurring the lines between your offline and online existence.
Could this be the future of virtual meetings?
Be in the know
There are strong advocates and detractors to the Web3 train. Who knows which side will ultimately prevail. Nevertheless, it is in the financial advisor's best interest to stay current. We're in the very early stages of what Web3 promises to be. But the possibilities and perils to intermediaries like financial advisors are immense. That alone should be enough reason for you to care.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Jeremiah Desmarais
Jeremiah is the founder and CEO of Advisorist® and is a 23-time award winning financial marketer, a TED speaker and philanthropist. He’s been featured on Forbes, CNN, and Worth. His work has generated over $2 million insurance leads and helped advisors in over 51 countries generate over $300 million in sales commissions. He is the author of the best selling book, SHIFT.
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