On June 30, MIT hosted the Imagination in Action Web3 Summit, an event jointly organized by MIT Connection Science, Forbes, and Link Ventures. The Summit brought together almost 600 developers, entrepreneurs, investors, and academics to discuss the present state and potential evolution of Web3. The agenda featured a number of panels and talks. Speakers included Alex (Sandy) Pentland, - MIT professor and Connection Science Director, Michael Federle, - CEO of Forbes, John Werner, - Managing Director at Link Ventures, and Esther Dyson, - investor, journalist, and philanthropist.
The MIT Summit is the first in a series of Imagination in Action conferences. The next one will take place on October 6 in San Francisco, followed by one on January 17 at Davos, and back to MIT in June of 2023. The summits aim “to take us from reflections on the last major social and economic transformation precipitated by the arrival of the Internet era, to the economics to build and the governance to sustain Web3,” as well as to envision the possibilities of a Web3 future and to try to discern hype from reality in these early days of a potential new internet era.
I wasn’t able to attend the Summit in person, but I watched the recordings of a number of the sessions, where I heard a variety of opinions on what Web3 is about. This is not surprising. In their early years, major new technologies are generally accompanied by a mixture of excitement, speculation and confusion, as people sort out what the technology might be about and how it’s likely to evolve. Something important is going on out there, but it takes time and marketplace experience to sort things out.
I’ve seen this play out a few times throughout my long career in the IT industry, especially in the early 1990s as the internet was transitioning from a DARPA-sponsored project in the research community to an initiative that was starting to take the broader marketplace by storm. A lot was happening around the internet, but it wasn’t at all clear where things were heading, and in particular what the implications would be to the world of business. Let me share some of the lessons learned in the 1990s while formulating IBM’s internet strategy in our newly formed Internet Division.
As the dot.com frenzy started to pick up intensity, people were experimenting with many new applications and business models - some of which turned out to be very innovative, while others didn’t quite work out. Amidst the cacophony of opinions, it was not so easy to sort out hype from reality. Part of the buzz in the air was that in the internet-based “new economy”, born-on-the-net startups had an inherent advantage over established companies, whose physical assets were a noose around their neck in the emerging, fast-moving digital world. But, by closely examining what was actually going on in the marketplace, it became clear that every organization, not just startups, would benefit from embracing the internet.
The universal connectivity of the internet was enabling access to information and transactions of all sorts for anyone with a browser and an internet connection. Any institution, by integrating its existing databases and applications with a web front end, could now reach its customers, employees, suppliers, and partners at any time of the day or night, no matter where they were. Businesses were thus able to engage in their core transactional activities in a much more productive and efficient way. Thus was born our e-business strategy, which we succinctly described as e-business = Web + IT.
What is the marketplace now telling us that could help us formulate a thoughtful, realistic Web3 strategy? A few key Web3 objectives come quickly to mind: usher a more entrepreneurial, decentralized internet; safeguard our identity and personal data; find the right balance for life and work in a hybrid digital-physical world; and create a blockchain-based internet of value. I’d like to focus my discussion on this last Web3 objective.
Over the past few decades we’ve seen the rise of the virtual enterprise, as the internet has enabled organizations to improve their efficiency by relying on business partners for many of the physical and service tasks once done in-house. Increasingly, the unit of competition is no longer the single enterprise, but a collection of institutions working closely together to get things done. The networked ecosystem is now the unit of competition.
But while the internet has significantly increased the volume of transactions taking place among institutions around the world, the processes to manage the conduct of business among companies have not kept up with the economy’s digital transformation, adding significant frictions and costs to their operations.
“Contracts, transactions, and the records of them are among the defining structures in our economic, legal, and political systems,” wrote Harvard professors Marco Iansiti and Karim Lakhani in a 2017 Harvard Business Review article. “They protect assets and set organizational boundaries. They establish and verify identities and chronicle events. They govern interactions among nations, organizations, communities, and individuals. They guide managerial and social action. And yet these critical tools and the bureaucracies formed to manage them have not kept up with the economy’s digital transformation. They’re like a rush-hour gridlock trapping a Formula 1 race car. In a digital world, the way we regulate and maintain administrative control has to change.”
The key problem is that participants in network operations don’t have access to the information that’s required to coordinate and manage their transaction. Intermediaries are then needed to help them deal with the growing scale and complexity.
We saw a similar problem in the early decades of the IT industry. US labor productivity grew at only 1.5% between 1973 and 1995, a period of slow productivity that coincided with the rapid growth in the use of IT in business. “You can see the computer age everywhere but in the productivity statistics,” said MIT Nobel Prize laureate economist Robert Solow in 1987, in what’s become known as the Solow productivity paradox.
The problem then was that companies used IT to automate processes within each of their separate functions, but the fundamental structure of the organization remained the same. In particular, there was no common data base for sharing information among those various functions which would enable them to reengineer their business process to take advantage of the new technology capabilities. The rise of enterprise resource planning (ERP) in the 1990s made it possible to share information across business functions, redesign the flow of work and automate or eliminate processes that did not add value to the firm, and thus significantly increase productivity across the organization.
We now need to similarly restructure and reengineer the processes involved in the interactions among the institutions working together in a networked ecosystem, - a kind of ERP 2.0. How can we do so?
“With blockchain, we can imagine a world in which contracts are embedded in digital code and stored in transparent, shared databases, where they are protected from deletion, tampering, and revision,” said Iansity and Lakhani. “In this world every agreement, every process, every task, and every payment would have a digital record and signature that could be identified, validated, stored, and shared. Intermediaries like lawyers, brokers, and bankers might no longer be necessary. Individuals, organizations, machines, and algorithms would freely transact and interact with one another with little friction.”
The current internet is stateless, that is, there’s no stored knowledge or reference to past transactions among processes or applications interacting over the network. As a result, applications rely on the individual servers of the many institutions connected to the internet, - e.g., banks, e-commerce platforms, government agencies, - to keep track of information and process transactions, each one doing it its own way while requiring highly inefficient intermediaries to help resolve problems and disagreements.
This is one of the major issues that Web3 aims to address by creating a blockchain-based stateful internet, that is, an internet of value that remembers preceding events and user interactions and is thus able to significantly reduce the various frictions that occur in interactions among multiple participants.
Such a blockchain-based stateful internet hold great promise for global supply chains ecosystems, for example, - increasing the speed, security and accuracy of financial and commercial settlements; tracking the supply chain lifecycle of any component or product; securely protecting all the transactions and data moving through the supply chain; and providing an immutable, non-revocable record of all the transactions through the entire supply chain cycle, which will be of great help in the timely resolution of errors or disputes among supply chain partners.
A stateful, blockchain-based internet of value would enable the restructuring, reengineering, and automation of the business processes involved in the rapidly rising interactions among institutions around the world. Although several years away, this is one of the most important promises of Web3.
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