Understanding Web3—a primer on the emerging digital asset ecosystem
Preview
The purpose of this primer
The technology underlying Web3 and emerging digital assets enables new ways of transacting and brings with it new models of participation and innovation. Understanding how these models and capabilities differ from traditional commercial and financial practices requires familiarity with some new concepts and terminology.
This primer will provide an overview of digital assets, and related terms and technology. Its aim is to equip the reader with the foundational understanding necessary to appreciate the potential impact on the future of the financial industry, but also on economies and society more widely. This document does not pre-suppose any technical knowledge but rather is aimed at individuals who are curious and looking to understand more. There are also additional publications that may prove useful once the foundational concepts are clear. These include all articles on technology and disruption at the Franklin Templeton Institute: Disruptive Technology web page. Specifically,
Technology-driven megatrends part I: The evolution of commercial technologies and impact on business delivery
Technology-driven megatrends part II: 5 tech-driven megatrends transforming society.
Introduction
Web3 and the emerging digital asset ecosystem represent a departure from traditional commercial and financial practices. Understanding the basics of the new domain may require some level-setting for those less familiar with this space.
At its core, Web3 and the emerging digital asset ecosystem look to replace intermediaries and empower users directly. This marks an extension of trends begun back with the launch of the internet. Web1 laid the rails of the information superhighway, providing users direct access to websites offering previously unimagined amounts of data, access to knowledge, and connectivity. Web2 shifted the customer experience of the internet, combining new mobile technologies with information networks to allow the upload of user-generated content and leveraging the power of big data and nascent AI technologies to personalize and tailor the delivery of content via specialized apps.
Web3 looks to change the participation model, rewarding those that contribute time, resources and effort to drive internet activities and eliminating the frictions, costs and controls that intermediaries may layer into transactions. To accomplish this aim, the emerging Web3 digital asset economy has set up a new way of doing business. Those that have developed the protocols and apps that are defining the space use a variety of tokens to orchestrate activity and then record the resulting transactions on a new type of ledger that distributes information simultaneously across a whole network of participants.
It is initially useful to think of the ecosystem having four fundamental elements: blockchains, tokens, smart contracts and wallets.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested.
Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions.
Investments in fast-growing industries like the technology sector (which historically has been volatile) could result in increased price fluctuation, especially over the short term, due to the rapid pace of product change and development and changes in government regulation of companies emphasizing scientific or technological advancement or regulatory approval for new drugs and medical instruments.
Buying and using blockchain-enabled digital currency carries risks, including the loss of principal. Speculative trading in bitcoins and other forms of cryptocurrencies, many of which have exhibited extreme price volatility, carries significant risk. Among other risks, interactions with companies claiming to offer cryptocurrency payment platforms or other cryptocurrency-related products and services may expose users to fraud. Blockchain technology is a new and relatively untested technology and may never be implemented to a scale that provides identifiable benefits. Investing in cryptocurrencies and ICOs is highly speculative and an investor can lose the entire amount of their investment. If a cryptocurrency is deemed a security, it may be deemed to violate federal securities laws. There may be a limited or no secondary market for cryptocurrencies. The opinions are intended solely to provide insight into how securities are analyzed.
The opinions are intended solely to provide insight into how securities are analyzed. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio. This is not a complete analysis of every material fact regarding any industry, security or investment and should not be viewed as an investment recommendation. This is intended to provide insight into the portfolio selection and research process. Factual statements are taken from sources considered reliable but have not been independently verified for completeness or accuracy. These opinions may not be relied upon as investment advice or as an offer for any particular security.
Any companies and/or case studies referenced herein are used solely for illustrative purposes; any investment may or may not be currently held by any portfolio advised by Franklin Templeton. The information provided is not a recommendation or individual investment advice for any particular security, strategy, or investment product and is not an indication of the trading intent of any Franklin Templeton managed portfolio. Past performance does not guarantee future results.
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