What is a Business Model Utilizing Web3? Explaining the Latest Trends and Use Cases

Innovative business models leveraging the benefits of Web3 are emerging worldwide. This new wave of the internet, founded on blockchain technology, is redefining the landscape across various industries, including finance, art, and entertainment.

However, many business leaders who sense the potential of Web3 may still have questions such as, “What specific business models are conceivable?” and “What are the latest trends?”

This article will clearly explain, from a legal expert’s perspective, the basic concepts behind business models utilizing Web3, the latest trends to watch, and specific case studies of its application.

What Is a Business Model Utilizing Web3?

According to a report by Emergen Research, the global Web3 market reached approximately $3.2 billion in 2021 and is projected to expand at an average annual growth rate of about 43.7%, reaching a scale of $815 billion by 2030.

Web3 (Web 3.0) refers to a historical period (generation) in the evolution of the World Wide Web, and it was first advocated by Ethereum co-founder Gavin Wood in 2014 as a “blockchain-based decentralized online ecosystem.”

It enables bidirectional data usage and decentralized management between users without the need for intermediaries such as platform providers. A significant personalityistic of Web3 is the decentralization of information and authority, preventing the concentration of power within a few large corporations.

The main trend technologies in the Web3 domain include crypto assets, NFTs, DeFi (Decentralized Finance), DAOs (Decentralized Autonomous Organizations), the metaverse, and Social Tokens. Web3 is considered the next generation of web technology, legal frameworks, and payment infrastructures. These initiatives are just beginning, and their future development is highly anticipated.

Utilizing Blockchain in Web3

Blockchain, also known as a “distributed ledger,” is a new type of database personalityized by its inability to erase, destroy, alter, or duplicate data, thanks to cryptographic technology.

Stored on the blockchain are records of contracts, financial transactions, and personal information (cryptographic addresses, public keys), allowing for the recording and management of data with a high level of reliability.

Web3 is garnering attention for the robust security provided by blockchain technology. Utilizing Web3 could potentially mitigate the risks of privacy breaches.

The Three Types of Blockchain Technology

Blockchain technology began around 2008 as the core technology behind Bitcoin, but today it is utilized across various industries including finance, healthcare, and real estate. There are three main types of blockchain:

Public Blockchain

A decentralized blockchain that is open for participation from anyone around the world, provided by crypto assets exchanges (such as SBI VC Trade, Bitcoin, Ethereum, etc.).

Private Blockchain

This type of blockchain is a closed network managed by specific organizations or groups, with restricted participants and permissions. It offers the advantages of high confidentiality and security, as well as ease in approving transactions and changing rules.

On the other hand, the disadvantages include lower transparency and public nature, and the system’s operation and safety depend on a select few individuals or organizations.

Consortium Blockchain

A collaborative network managed jointly by multiple organizations or groups, where participants and permissions are determined through negotiation. This type of blockchain sits between public and private blockchains, maintaining the benefits of confidentiality and security while also ensuring resistance to tampering and transparency.

For example, Hyperledger is an open-source blockchain platform where projects are organized by entities in sectors such as healthcare, foreign financial services, and foreign IT companies.

The Differences Between Web3 and Traditional Internet

Understanding Web3.0 is easier when you are familiar with the differences from the older versions of the Internet, namely Web1.0 and Web2.0.

Web1.0, which is contrasted with Web3.0, refers to the Internet used during its dawn period from around 1991 to 2004. It consisted of static content constructed with HTML, personalityized by a ‘one-way’ nature. Unlike today, it was not possible to post content or purchase goods and services.

Web2.0 emerged around 2004, marking the rise of Big Tech companies like GAFAM (Google, Apple, Facebook, Amazon, Microsoft). It is personalityized by dynamic content and a ‘two-way’ interaction, where users’ transactions also started to take place over the Internet.

Based on the concept of the ‘Web as a platform,’ it centered around user-generated content uploaded to forums and social media, and it is considered to continue to this day.

However, Web2.0, being a centralized Internet where information is aggregated by specific large corporations, carries risks such as hacking and cyber-attacks aimed at data acquisition, as well as the risk of information leaks.

In contrast, Web3.0, unlike Web2.0, is based on a decentralized model, which makes it easier to avoid such risks.

Five Key Technologies of Web3

As previously mentioned, Web3 applications are a new iteration of the internet based on blockchain technology, leveraging the transparency and security of blockchain to enable users to directly trade and manage digital assets.

In this chapter, we will explain five technologies and related terms of public applications. Each application utilizes the core personalityistics of Web3—decentralization, transparency, and security—but they differ in their scope and purpose.

Crypto assets Assets (Virtual assets) Under Japanese Law

Crypto assets assets, essential for investments in Web3, are a collective term for digital currencies utilizing blockchain technology. On May 1, 2020 (Reiwa 2), the term was officially changed from “virtual assets” to “crypto assets assets” in Japan’s Payment Services Act, aligning with international standards.

FT stands for Fungible Token, which refers to interchangeable tokens with the same value or personalityistics, such as crypto assets assets, security tokens, and utility tokens. These tokens can be exchanged with other FTs and are also divisible and combinable.

There are over 9,000 types of crypto assets assets worldwide, each with different personalityistics and purposes. The choice depends on investment objectives and individual needs. Crypto assets assets registered with Japan’s Financial Services Agency and local finance bureaus through authorized exchanges and dealers are considered safe.

Below are some of the major crypto assets assets:

• Bitcoin (BTC): The first crypto assets to appear, boasting the highest recognition and market capitalization.
• Ethereum (ETH): A crypto assets equipped with smart contract functionality, holding the second-largest market capitalization after Bitcoin.
• Ripple (XRP): A crypto assets aimed at facilitating international transfers smoothly and at low cost.
• Bitcoin Cash (BCH): A crypto assets derived from Bitcoin, aiming to improve transaction speed and efficiency.
• Litecoin (LTC): Known for its fast transaction confirmation speed, Litecoin is based on the same technology as Bitcoin.

In addition to virtual assets, there are also what are known as security tokens and utility tokens in the realm of crypto assets assets.

Security tokens are tokens issued using blockchain technology that digitize rights to financial securities such as stocks, bonds, and real estate.

• Equity tokens: Crypto assets assets newly issued through IDOs, ICOs, IEOs, etc.
• Debt tokens
• Real estate tokens: Tokens representing real estate assets, allowing owners to have rights to rental income or profits from sales.
• Investment fund tokens

Utility tokens are tokens recognized for their practicality, granting rights or functions to use specific communities or services. Unlike security tokens, utility tokens do not have the nature of financial products and therefore do not require government permission for issuance. However, certain utility tokens (such as ETH & NFTs) may have personalityistics similar to security tokens.

Specific examples of tokens include:

• Tokens used for purchasing within a service or paying usage fees.
• Tokens issued to pay incentives for user actions.
• Tokens that allow involvement in community-wide decision-making by holding them.
• Tokens that generate rewards based on the amount and duration of ownership.

Understanding NFTs (Non-Fungible Tokens) in the Japanese Market

An NFT (Non-Fungible Token) is a digital asset issued using blockchain technology, representing a unique and non-interchangeable token.

By embedding unique identification information (a unique authentication code) into digital metadata, it is possible to demonstrate the ownership and uniqueness of the data, creating a token that cannot be replaced.

Specifically, each NFT is assigned a unique address, and all information about its owner and transaction history is recorded on the blockchain, making it a digital data that is immune to forgery, alteration, and duplication.

Leveraging its ability to guarantee authenticity and its traceability features (the ability to track transaction history), the sale and purchase of financial products, real estate, physical items equipped with NFC IC chips, and digital content are advancing.

Furthermore, new financial services and tools utilizing blockchain technology and AI are being developed.

According to a global market report by The Business Research Company, the world’s NFT market grew at a CAGR of 53.1%, from $21.48 billion in 2022 to $32.89 billion in 2023. The NFT market is expected to be the largest in North America, with the Asia-Pacific region growing the fastest.

Reference: The Business Research Company｜”Non-Fungible Token (NFT) Global Market Report 2023 (gii.co.jp)“

Below are some specific use cases for NFTs.

DeFi (Decentralized Finance) Under Japanese Law

DeFi (Decentralized Finance) refers to a “financial decentralization system,” a new form of finance that operates on blockchain technology without intermediaries such as banks or governments, including transactions with crypto assets (crypto assets). On DeFi platforms, users can manage their assets and conduct transactions using smart contracts on the blockchain, which automatically record and approve transactions.

DeFi has the following personalityistics and is expected to be an alternative to the existing financial system:

• High Transparency: Blockchain technology makes transaction tampering impossible.
• Control Over Asset Management: Users have control over the management of their assets.
• Elimination of Geographical Restrictions: Access to DeFi products is possible regardless of the country.
• Elimination of Temporal Restrictions: Operates 24/7, allowing for immediate settlement.
• Composability: Users can select DeFi projects and applications according to their needs and utilize financial products and services.

DAO (Decentralized Autonomous Organization)

A DAO (Decentralized Autonomous Organization) signifies an organizational structure aimed at autonomous operation by participants on the blockchain.

Individuals can participate according to the goals of the project, and have access to publicly available guidelines and charters that outline the governance and mission statements.

Holders of governance tokens are involved in decision-making processes related to the development and operation of the DAO and DApps (Decentralized Applications), and are granted voting rights.

The blockchain data (such as encrypted ownership, holdings, issuance numbers, and transaction histories of tokens and NFTs) is tamper-proof. Both participants and non-participants of the organization can view this data, and anonymity is ensured, which contributes to the high level of transparency in organizational management.

As listed in the NFT catalog, it is utilized in various initiatives, including regional revitalization projects and Ukraine donation projects.

The Metaverse

The term “metaverse” refers to a “three-dimensional (3DCG) virtual reality space” constructed on the internet and the services associated with it. In this virtual digital space, users can act as they do in the real world or have new experiences beyond it, enabling a variety of experiences such as business and user communication, and even space travel.

A metaverse environment that mimics the real world is known as a digital twin, and the combination of these is leading to a “Meta-Industrial Revolution.”

The demand for the metaverse has increased during the COVID-19 pandemic, and its application is being considered in various fields.

For example, in the business sector, employees can attend a virtual office as avatars (personalitys that represent the users) and engage in remote work and internal communication.

Meta Corporation offers “Meta Horizon Workrooms” as a virtual office where users can participate through VR headsets or video calls, allowing for meetings, presentations, brainstorming, and more.

Additionally, the use of virtual exhibitions, events, internal education and training, and shopping experiences is expanding.

According to the “Information and Communications White Paper, Reiwa 5 (2023)” published by Japan’s Ministry of Internal Affairs and Communications, the global metaverse market was valued at 65.51 billion dollars in 2022 and is expected to grow to 936.57 billion dollars by 2030, with many companies entering the market in anticipation of future growth.

Four Advantages of Leveraging Web3

We introduce four key benefits personalityistic of business models that utilize the blockchain-based Web3.

Enhanced Security through Decentralized Transaction Records

In Web3, thanks to blockchain technology, even service providers cannot delete or alter transaction records, offering higher security than existing systems.

Furthermore, instead of entrusting information to a specific company’s server, users manage data in a decentralized manner, allowing everyone to view the transaction history, which enhances transparency.

Centralized internet systems managed by servers are prone to information leaks due to troubles such as hacking and cyber-attacks aimed at data acquisition.

The decentralized nature of Web3 avoids these risks, which is why its application is being advanced in sectors that require high trust, such as finance, healthcare, and education.

Direct Transactions Eliminate the Need for Fees

As mentioned above, Web3 is an “autonomous decentralized system” that operates as a P2P network without going through servers, enabling users to conduct fair and direct transactions. Direct transfers via blockchain and sales or data exchange through NFTs are also possible with secured transactions.

Moreover, crypto assets transactions are faster and can reduce server costs, offering a low-cost advantage compared to sending money through SWIFT (international payment system) or intermediary bank payment systems.

Proof of Ownership through NFT Utilization

NFTs serve as proof of ownership, similar to certificates of authenticity. Since they utilize blockchain technology, transaction data cannot be deleted, replicated, or forged.

Due to their ability to prove authenticity and uniqueness, there is growing interest in the use of NFTs for transactions on the blockchain.

Transactions Unrestricted by Domestic or International Boundaries

Web3, powered by blockchain, allows for transactions that are not limited by national or international borders, ensuring anonymity and confidentiality.

With the existing Web1.0 and Web2.0, there were cases where administrators restricted access or use of services. However, with Web3.0, such restrictions do not exist, providing the benefit of free usage.

Examples of Utilizing Web3 in Business

We will introduce examples of how Web3 business models are being utilized in three sectors: finance, education, and healthcare.

Flexible Transactions Targeting Investment Opportunities

In the realm of Web3, transactions involving crypto assets, NFTs, and other digital assets, as well as DeFi, are thriving. The financial sector, in particular, is expected to grow rapidly, creating a variety of investment opportunities.

For instance, under the Japanese Law on Limited Partnership Agreement for Investment (LPS Law), the scope of business activities that a limited partnership for investment can engage in is defined. As of April 2023, the acquisition and holding of security tokens (digitized securities) have been explicitly included as part of these activities.

In light of this backdrop, one of the main examples of Web3 business models in financial institutions is JP Morgan Bank’s establishment of the first bank in the metaverse in February 2022, advancing the digital twin transformation of banking.

Furthermore, in February 2023, Mizuho Financial Group, in collaboration with ten other companies, signed a basic agreement to build an open metaverse platform called “Ryugu Kingdom,” as advocated by the Web3.0 advisor of Japan’s Digital Agency, aiming to realize the “Japan Metaverse Economic Zone.”

For examples of business models of various financial institutions, please refer to the table below.

Utilizing the Metaverse in Education

The application of Web3 technology is garnering increasing interest in the field of education, with new initiatives being launched.

For instance, educational institutions are conducting classes, research, and guidance through XR (Extended Reality), which includes AR (Augmented Reality), VR (Virtual Reality), and MR (Mixed Reality).

In February 2018 (Heisei 30), the University of Tokyo established the Virtual Reality Education Center (commonly known as the VR Center) to consolidate cutting-edge VR research from multiple departments within the university, create a global hub for VR research, and promote the introduction of advanced educational systems utilizing VR.

Furthermore, since 2021, Stanford University has been offering a course called “Virtual People,” which utilizes Meta’s VR headset, the Meta Quest 2.

Examples of applications include the following:

• Activities such as open campus events, participating in overseas classes, and fostering international exchanges
• Conducting experiments and practical training, and preparing medical students for exams such as the OSCE (Objective Structured Clinical Examination)
• Language acquisition
• Experiential learning in nature, including overseas, as well as cultural and artistic learning, and vocational experience learning
• Disaster prevention training and evacuation drills

Beyond the use of the metaverse in universities, there are methods such as employing blockchain technology in e-learning services to prevent tampering with individual learning records, and systems for paying for teaching materials and instructor fees using crypto assets.

Because blockchain prevents the alteration of recorded data, it is also a key point that universities and research institutions can build authentication systems for student IDs and graduation certificates, and ensure the transparency and reliability of research data.

The Massachusetts Institute of Technology (MIT) became a pioneer in “NFT for Education” by being the first in the world to tokenize academic transcripts and diplomas as NFTs in 2017.

Additionally, the Ministry of Education, Culture, Sports, Science and Technology in Japan launched the “GIGA School Concept” in 2019, aiming for “Global and Innovation Gateway for All,” and started initiatives to enhance ICT environments in educational institutions up to high school level.

Distributing Advertising Rewards in NFTs and Crypto assets Assets

DAD (Decentralized Advertising) is an advertising platform powered by blockchain technology, which implements a token incentive scheme. As a result, users who view ads can earn advertising rewards in the form of crypto assets assets or NFTs, known as airdrops (registration campaign tokens) or ‘candy.’

This system benefits users by providing them with an incentive to view advertisements, while advertisers benefit from improved ad matching rates. For platformers, it enables ‘Token Graph Marketing,’ which can stimulate purchasing behavior.

‘Token Graph Marketing’ refers to a marketing method that delivers more affinity-based NFTs and promotes companies’ products and services to users based on their token graph (token ownership information) on the advertising platform.

This approach allows for effective marketing while respecting user privacy.

Online Medical Consultations via the Metaverse

In the medical field, innovative initiatives are being undertaken through Web3, covering a wide range of applications.

For example, Web3 is being utilized for medical education (seminars and practical training), surgical assistance, streamlining drug discovery and pharmaceutical processes, and digital therapeutics.

Currently, projects are underway to realize ‘Virtual Hospitals’ using the metaverse, where online visits and consultations can be conducted, and the concept of ‘Hospital DAO’ is also within the scope of consideration.

The use of blockchain technology is anticipated in areas such as improving interoperability of medical data, streamlining clinical trials, preventing medical insurance fraud, and combating counterfeit drugs through pharmaceutical supply chain management, with new markets expected to emerge.

As for the direction of the ‘Meta-Industrial Revolution (Metaverse × Digital Twin)’ in the medical and healthcare sector, the following areas are highlighted:

• Creating digital twins and simulations of the body using DICOM (Digital Imaging and Communications in Medicine) data from CT and MRI scans
• VR-based skill inheritance and training for surgeries and physician expertise
• Realization of remote robotic treatments using VR
• Support for mental health and communication in the digital space through VR therapy
• Behavior modification through droplet and infectious disease simulations
• Digital Interactive Rehabilitation Systems

Key Considerations When Developing Business Models in Web3

With the evolution of decentralized systems in Web3, there is an expectation for the realization of fairer and more transparent business models. However, a significant challenge for Web3 is that the related legal framework has not yet been sufficiently developed. While legal developments are underway in various countries, efforts to promote Web3 are also progressing in Japan.

In particular, for crypto assets, there are challenges such as the lack of clear legal regulations on insider trading, the need for accounting standards suited to Web3, and the establishment of a tax system. Consequently, some companies starting Web3 businesses are incorporating in locations like Singapore and Dubai, which offer tax incentives and national support.

The Japanese government recognizes the importance of Web3 and published its first “Web3 White Paper” in April 2023, but it has also announced the “Web3 White Paper 2024” to present the latest trends and policy directions in 2024 (2024).

Reference: Web3 White Paper 2024 (Liberal Democratic Party Digital Society Promotion Headquarters Web3 Project Team)

International discussions are also lively, as evidenced by the American venture capital firm Andreessen Horowitz advocating for Web3 principles in 2022. These movements suggest that the regulatory environment for seizing new business opportunities in Web3 is being developed.

Related article: What is Web3 Law? Explaining Key Points for Entering Companies

Conclusion: Consult with an Attorney on the Legality of Web3 Business Models

We have explained business models utilizing Web3, related technologies, and practical use cases.

When considering a Web3 business model, it is crucial to understand the possible fields of deployment and their personalityistics, ensuring that the introduction is legal.

As mentioned above, legal frameworks are being developed in Japan for Web3. Related laws are frequently revised, and staying up-to-date with the latest information is indispensable. We recommend consulting with an experienced attorney for advice on Web3 business matters.

Guidance on Measures by Our Firm

Monolith Law Office is a law firm with high expertise in both IT, particularly the internet, and legal matters. Our firm provides comprehensive support for businesses involved with crypto assets and blockchain. Please refer to the article below for more details.

Areas of Practice at Monolith Law Office: Crypto assets & Blockchain