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The Impact of Web 3.0 on Commercial and Legal Issues
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Web 3.0 (Web3) is the concept of a new version of the Internet built on the principles of openness, decentralization, and a fundamental shift in the course of “internet ownership.” It utilizes blockchain technologies, which enable distributed ledger technology (DLT) and decentralization. The evolution of the web has been gradual, with each era having distinct characteristics that allow us to define them separately.
In the beginning, users could only view information published on sites and interact with content that was pre-loaded onto servers. This was an early stage of development where users could only see what a web administrator had placed on the server. For businesses, the Internet in this form was little more than a tool for banner advertising and information distribution. In a sense, it could be compared to an internet newspaper. However, it was during this time that Amazon introduced the ability for users to add reviews to its products, sparking a change that would redefine the internet era.
The concept of Web2 emerged largely from the work of Tim O'Reilly, who published an article titled "What Is Web 2.0." The article clearly outlined the distinguishing features between the first and second versions, as well as the future development vectors for the idea. It is widely believed that the Web2 era is still ongoing, and the transition to the new standard has only just begun.
Logging in and creating user profiles became ubiquitous, appearing on nearly every corner of the internet, from taxi-hailing sites to crypto exchanges. In exchange for the convenience of these services, users voluntarily hand over their private data to businesses. Large corporations can now influence customer behavior through the information they hold about them.
Unlike the direct service delivery of Web1, businesses in the second iteration often make money by selling the information they collect about their customers over their usage period. Targeted advertising is the cornerstone of Web2.
As mentioned earlier, Jason Calacanis highlighted the main features of Web3, which include:
Therefore, the Internet has the potential to change in the near future, and there is evidence for this, including the development of the metaverse, cryptocurrencies, NTFs, and other resources that could form the foundation of the new Internet.
The answer to this question is quite simple – the better a business understands the environment it operates in and the processes for development, the easier and more successful its journey will be. Since we are seeing clear changes on the Internet, especially recently, it is necessary to be prepared for the new conditions of doing business and the challenges that surround them.
While advocates describe how quickly the Internet could change with Web3, I don't accept their positions as absolute certainties. Not everything that is proposed can be realized, so it's worth paying maximum attention to the developments that have already come to life.
The leading categories include:
Therefore, it is important to distinguish between what is being promoted by the community, what has potential viability, and what are merely ideas that won't lead to a major shift in the near future.
Even as the internet and technology as a whole change, it is always possible to identify categories that will remain fundamental. In this case, that means the business itself, its registration, management, distribution methods, and legal protection.
Technology brings new experiences for customers to use goods and services, and businesses need to leverage them for growth. But it's worth starting with the basics of the business:
All of these services will remain relevant in the future, including during a rapid transition to the Web3 version of the Internet. We therefore recommend understanding the main points above so that your business is ready for new challenges and changes.
As previously mentioned, there are things that will remain binding for a business under any change of circumstances. First and foremost, this pertains to the state regulation of business. Therefore, registering the company is a mandatory element. While you could consider entrepreneurship, it unfortunately doesn't offer significant advantages in the most popular jurisdictions for business, so it's not very common.
As an exception, we can mention Poland and Ukraine, which provide truly significant advantages for private entrepreneurs before registering a company. In the first case, this is the availability of crypto authorization (a crypto license) for this form of business. In Ukraine, a rather soft tax regime is being established compared to European countries.
FHC offers legal entity registration services in many profitable and relevant jurisdictions. Depending on the subject matter, we recommend choosing the most suitable jurisdictions for Web3 business topics.
These include Lithuania, Poland, Cyprus, Estonia (within the European Economic Area), and others. They are distinguished by the fact that they have recently created legal conditions for themselves that allow the country to develop as a hub for blockchain-based technologies. All of these countries allow for the opening of a license to conduct business with virtual assets, including cryptocurrencies and NFTs. This is the foundation upon which Internet version 3 will be developed.
Thus, by choosing the most suitable jurisdiction for registration, you allow your business to more easily adopt Web3-related technologies and advanced capabilities.
One of the unique features of modern bank accounts is that more and more companies are opting for EMIs (Electronic Money Institutions) instead of traditional banks. This is especially noticeable for small and medium-sized businesses that are developing. This may be due to several features, including:
Currently, for these reasons, EMIs are taking up more and more space in the global financial system. For example, Revolut, a well-known neo-bank, recently reported over 20 million customers.
In the context of Web3, it is crucial for businesses to become international and not be tied to host countries. Traditional banks often cannot offer this. On the other hand, EMIs, due to their mobility and online solutions, already allow for conducting business from anywhere in the world.
It is also important to note that working with cryptocurrencies will play a significant role in Web3. Cryptocurrencies are based on blockchain technology, which decentralizes the world of finance and thus changes the way businesses pay for goods and services. Although the regulation of cryptocurrencies as a payment method is not considered a legal means of payment in most countries, it is rapidly developing worldwide.
Modern banks are often cautious or even negative about businesses based on cryptocurrencies. In this case, it is easier and more profitable to turn to EMIs that offer crypto services. They provide separate cryptocurrency accounts, the ability to convert fiat currency to cryptocurrency and vice versa (cryptocurrency exchange services), and much more.
Speaking of the financial side of business, in the Web3 era, it is important to be able to accept and send payments using cryptocurrencies. Even now, many companies use cryptocurrencies because it is simply faster and more profitable.
As mentioned earlier, Web3 will be based on Cryptocurrency and NFT technology. At the time of this writing, cryptocurrencies are going through a crisis - the price of the main cryptocurrency, bitcoin, has dropped to $20,000 per coin. Consequently, NFT prices are also falling rapidly. For example, OpenSea, the most famous exchange for NFTs, has lost about 90% of its transaction volume in the last six months.
According to DappRadar analysts, in July 2022, the trading volume on the OpenSea NFT marketplace was about $500 million, whereas at the beginning of the year, this figure was $4.5 billion.
This can be directly attributed to a temporary crisis in the management of the market, which arose against the backdrop of world events, and specifically the sharp drop in the price of cryptocurrencies. Based on the historical development of events, we can assume that these phenomena are indeed temporary.
Market analysts often point out that cryptocurrencies are genuinely viable in today's world, which cannot be said for NFTs yet. At the same time, it is noted that with the growing popularity of assets in the metaverse, they may become truly useful in the near future. This presents a direct practical conclusion. Many jurisdictions already equate cryptocurrencies (and NFTs in particular) with securities. This means they are now regulated as such by law. Additionally, there is regulation in world practice (for example, in Japan) for them as a means of payment for goods and services.
Turning directly to the issue of licensing and permissive activities in the Web3 sphere, it is worth noting that with the recent growing popularity of virtual assets, governments have begun to regulate the state. This is based on the factors described below.
The regulation of virtual assets by international organizations. Among them are the FATF, BEPS, ESMA, and others. The biggest impact, in this case, comes from the FATF Recommendations, which introduced concepts such as KYC – Know Your Customer, and AML/CFT policies for businesses using virtual assets. They allow states to demand transparency from businesses.
Currently, these countries require a license to do business with virtual assets:
Based on the fact that many regulators in the world have not only introduced but also tightened requirements for businesses built on virtual assets in the last few years, it is worth obtaining the necessary licenses. This will allow your business to develop in a completely transparent manner, and the credibility of a licensed business is higher than that of the same business without a license.
As in previous stages, the protection of intellectual property, especially copyrights and trademarks, is crucial, especially as Web3 brings in even more Internet users. World statistics show that every year, more than 200 million people start using the internet. More and more businesses are going online and providing online services and products.
Therefore, protecting and securing your rights on the Internet is also extremely important. Most of the brands used in goods and services are registered through the Madrid Agreement and Madrid Protocol system, which makes it faster and more profitable. It currently covers most of the jurisdictions a business might need (125 countries).
A trademark allows a business to assign certain text, images, colors, or combinations thereof for advertising purposes. If you register it successfully, you will have legal protection in the countries of interest.
Regarding copyrights, these (from a Web3 perspective) mainly apply to texts and designs placed on websites. In such a case, legal protection usually involves placing special protection marks, as well as warnings in the Terms and Conditions, privacy policies, and other accompanying documents.
As mentioned earlier, legal documents that regulate the rights and obligations of businesses and customers, as well as relations with regulators, will become even more important with the advent of Web3. Since everything offered by businesses in an online commerce or service delivery environment mostly takes place without the direct involvement of individuals explaining customer rights and obligations, web resources need to create a set of legal documents that customers can familiarize themselves with.
Among the usual set of such documents, the most common is the following scheme:
Thus, with the help of the documents described above, it is possible to establish the rights and obligations of both the business and the customers. This will allow you to conduct business without fear.
Based on the specificity of Web3, it is not possible to talk about the future in detail, so we have fully understood the legal aspects directly related to business - its registration and subsequent development steps, which will be relevant both now and during the wider introduction of Web3 standards.
Therefore, seeing the current picture of the world, it is worth considering the news and trends that may affect the development of business tools in the future.
Users voluntarily provide confidential data to businesses in exchange for ease of use of their services. Large companies can now influence customer behaviour through the information they hold about them.
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