How advertisers need to get ahead of the Web3 evolution and its legal ramifications

2023 brought a great deal of hype around "Web3". But what exactly is it and how will we see the concept developed in a meaningful way in 2023?

Web3, web 3.0 and the metaverse

Web3 represents a vision of the next generation of the internet in which there would be a return to the more community-driven, decentralised ethos of the original Web 1.0. 

The internet has already evolved in critical ways from those early years, when it was in essence a "read only" experience, allowing navigation within a static, decentralised collection of flat webpages, governed by open technical rules put together by standards bodies.

Over time, user-generated content and interaction online have become defining features of the "read-write web", known as Web 2.0, leading to an unprecedented era of information sharing and participation. Market forces have naturally led to winners in this new data economy, with leading platforms emerging through which much of the online activity is enabled but also centralised.

The claim for Web3, at its simplest, is that it combines the decentralised aspects of Web 1.0 with the modern functionalities developed in Web 2.0, through the integration and application of blockchain technologies. This may, for instance, result in users not only interacting via the internet but also playing a role in its governance and ownership, rewarded with tokens or cryptocurrency.

Like many new technologies, Web3 has its own associated jargon; for instance, "dapps" are decentralised open-source applications that live on the blockchain – software without a centralised owner.

Web3 is conceptually somewhat different from the metaverse, although both are future visions of the online world – and many would see Web3 developments as underpinning the interoperability of different virtual worlds in the immersive visual online experience promised by the metaverse.

Web3 is also not the same as Web 3.0. While the two expressions were for a time used interchangeably, the latter has increasingly become associated with another future direction of the internet, namely the "semantic web" where artificial intelligence systems will enable information to be connected across different platforms.

Compliance issues for advertisers

One aspect of Web3 that may be particularly relevant for advertisers is the ability of users to manage their digital identities in a decentralised way – what is known as "self-sovereign identity". This may offer a mechanism for targeting online ads in a post-cookie world, subject to the control and consent of each individual. It may, therefore, lead to the growing use of "pay for consent" models of the kind that have already been championed by the likes of browser Brave, which offers tokens in return for attention to ads, or Permission.io, which enables advertisers to offer consumers crypto rewards in return for access to and use of personal data held in their online wallets. Web3 could also enable new market systems for real-time bidding on online advertising inventory. 

These advertising models potentially raise compliance issues. For instance, disclosures may be necessary as to the value of any token or other crypto reward, so as to ensure that consumers are not misled and are alert to potential fluctuation risks. Furthermore, the General Data Protection Regulation and other privacy laws will also need to be complied with wherever personal data is handled. Advertisers will also need to get comfortable that any consent obtained in return for a reward is valid. They may need to consider the controller processor status of any reward and real time bidding platforms, whether any data export mechanism may be necessary, and how requests to exercise data subject rights can be fulfilled.

DAO governance

Advertisers may also need to adjust to dealing with decentralised autonomous organisations (DAOs) rather than traditional companies. With DAOs, governance is meant to take place in the online community and not behind closed doors. This can make it harder for an advertiser to build a relationship around sponsorship of Web3 content and to get comfortable around brand safety. It may also be more difficult to negotiate changes once a sponsorship contract is running. Furthermore, there may be no realistic scope to seek to enforce rights through the courts, so remedies and potential future changes would need to be baked into any "smart contract" as far as possible.

New mindset

It remains to be seen whether Web3 will be as disruptive as some have predicted. However, some of these anticipated developments will require advertisers to consider compliance requirements and potentially adopt a new mindset. We expect to hear a lot more about Web3 in 2023.