Will web 3.0 change the role of telcos?

Introduction

Over the past 12 months or so, the notion that the Internet is about to see another paradigm shift has received a lot of airtime. Amid all the dissatisfaction with way the Internet works today, the concept of a web 3.0 is gaining traction. At a very basic level, web 3.0 is about using blockchains (distributed ledgers) to bring about the decentralisation of computing power, resources, data and rewards.

STL Partners has written extensively about the emergence of blockchains and the opportunities they present for telcos. But this report takes a different perspective – it considers whether blockchains and the decentralisation they embody will fix the public Internet’s flaws and usher in a new era of competition and innovation. It also explores the potential role of telcos in reinventing the web in this way and whether it is in their interests to support the web 3.0 movement or protect the status quo.

Our landmark report The Coordination Age: A third age of telecoms explained how reliable and ubiquitous connectivity can enable companies and consumers to use digital technologies to efficiently allocate and source assets and resources. In the case of web 3.0, telcos could help develop solutions and services that can help bridge the gap between the fully decentralised vision of libertarians and governments’ desire to retain control and regulate the digital world.

As it considers the opportunities for telcos, this report draws on the experiences and actions of Deutsche Telekom, Telefónica and Vodafone. It also builds on previous STL Partners reports including:

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What do we mean by web 3.0?

The term web 3.0 is widely used to refer to the next step change in the evolution of the Internet. For some stakeholders, it is about the integration of the physical world and the digital world through the expansion of the Internet of Things, the widespread use of digital twins and augmented reality and virtual reality. This concept, which involves the capture and the processing of vast amounts of real-time, real-world data, is sometimes known as the spatial web.

While recognising the emergence of a spatial web, Nokia, for example, has defined web 3.0 as a “visually dynamic smart web” that harness artificial intelligence (AI) and machine learning (ML). It describes web 3.0 as an evolution of a “semantic web” with capacity to understand knowledge and data. Nokia believes that greater interconnectivity between machine-readable data and support for the evolution of AI and ML across “a distributed web” could remake ecommerce entirely.

Note, some of these concepts have been discussed for more than a decade. The Economist wrote about the semantic web in 2008, noting then that some people were trying to rebrand it web 3.0.

Today, the term web 3.0 is most widely used as a shorthand for a redistribution of power and data – the idea of decentralising the computation behind Internet services and the rewards that then ensue. Instead of being delivered primarily by major tech platforms, web 3.0 services would be delivered by widely-distributed computers owned by many different parties acting in concert and in line with specific protocols. These parties would be rewarded for the work that their computers do.

This report will focus primarily on the latter definition. However, the different web 3.0 concepts can be linked. Some commentators would argue that the vibrancy and ultimate success of the spatial web will depend on decentralisation. That’s because processing the real-world data captured by a spatial web could confer extraordinary power to the centralised Internet platforms involved. Indeed, Deloitte has made that link (see graphic below).

In fact, one of the main drivers of the web 3.0 movement is a sense that a small number of tech platforms have too much power on today’s Internet. The contention is that the current web 2.0 model reinforces this position of dominance by funnelling more and more data through their servers, enabling them to stay ahead of competitors. For web 3.0 proponents, the remedy is to redistribute these data flows across many thousands of different computers owned by different entities.  This is typically accomplished using what is known as decentralised apps (dapps) running on a distributed ledger (often referred to as a blockchain), in which many different computers store the code and then record each related interaction/transaction.

The spatial web and web 3.0 – two sides of the same coin?

Spacial-web-Web3-Deloitte

Source: Deloitte

For many commentators, distributed ledgers are at the heart of web 3.0 because they enable the categorisation and storage of data without the need for any central points of control. In an article it published online, Nokia predicted new application providers will displace today’s tech giants with a highly distributed infrastructure in which users own and control their own data. “Where the platform economy gave birth to companies like Uber, Airbnb, Upwork, and Alibaba, web 3.0 technology is driving a new era in social organization,” Nokia argues. “Leveraging the convergence of AI, 5G telecommunications, and blockchain, the future of work in the post-COVID era is set to look very different from what we’re used to. As web 3.0 introduces a new information and communications infrastructure, it will drive new forms of distributed social organisation…Change at this scale could prove extremely challenging to established organisations, but many will adapt and prosper.”

Nokia appears to have published that article in March 2021, but the changes it predicted are likely to happen gradually over an extended period. Distributed ledgers or blockchains are far from mature and many of their flaws are still being addressed. But there is a growing consensus that they will play a significant role in the future of the Internet.

Nokia itself is hoping that the web 3.0 movement will lead to rising demand for programmable networks that developers can harness to support decentralised services and apps. In June 2022, the company published a podcast in which Jitin Bhandari, CTO of Cloud and Network Services at Nokia, discusses the concept of “network as code” by which he means the creation of a persona of the network that can be programmed by ecosystem developers and technology application partners “in domains of enterprise, in domains of web 2.0 and web 3.0 technologies, in domains of industry 4.0 applications, in scenarios of operational technology (OT) applications.”  Nokia envisions that 5G networks will be able to participate in what it calls distributed service chains – the interlinking of multiple service providers to create new value.

Although blockchains are widely associated with Bitcoin, they can enable much more than crypto-currencies. As a distributed computer, a blockchain can be used for multiple purposes – it can store the number of tokens in a wallet, the terms of a self-executing contract, or the code for a decentralised app.

As early as 2014, Gavin Wood, the founder of the popular Ethereum blockchain, laid out a vision that web 3.0 will enable users to exchange money and information on the web without employing a middleman, such as a bank or a tech company. As a result, people would have more control over their data and be able to sell it if they choose.

Today, Ethereum is one of the most widely used (and trusted) blockchains. It bills itself as a permissionless blockchain, which means no one controls access to the service – there are no gatekeepers.

Still, as the Ethereum web site acknowledges, there are several disadvantages to web 3.0 decentralisation, as well as advantages. The graphic below which draws on Ethereum’s views and STL analysis, summarises these pros and cons.

Table of Contents

  • Executive Summary
    • Three ways in which telcos can support web 3.0
    • Challenges facing web 3.0
  • Introduction
  • What do we mean by web 3.0?
    • Transparency versus privacy
    • The money and motivations behind web 3.0
    • Can content also be unbundled?
    • Smart contracts and automatic outcomes
    • Will we see decentralised autonomous organisations?
    • Who controls the user experience?
    • Web 3.0 development on the rise
  • The case against web 3.0
    • Are blockchains really the way forward?
    • Missteps and malign forces
  • Ironing out the wrinkles in blockchains
  • Could and should telcos help build web 3.0?
    • Validating blockchains
    • Telefónica: An interface to blockchains
    • Vodafone: Combining blockchains with the IoT
  • Conclusions

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Blockchain: What’s in it for telcos?

To view the webinar click here, or download the slides under Additional files.

Introduction: What is blockchain?

Bitcoin beginnings

Blockchain was first created as the technology that powers the Bitcoin cryptocurrency. The aim of Bitcoin is to transfer value between remote parties securely and anonymously, without a traditional ‘trusted’ intermediator like a bank. The creator of Bitcoin’s aim was to circumvent the traditional financial services sector – central banks, commercial banks and governments – in order to protect privacy and prevent currency manipulation (e.g. through interest rates or printing money).

However, without a bank to broker trust between two parties, users needed new means of guaranteeing that party A will deliver ‘x’ amount of money to party B in exchange for ‘y’ services. Blockchains overcome this lack of trust by distributing a ledger containing the entire history of all transactions across thousands of end-points globally.

Figure 1: How the Bitcoin blockchain works

Source: Financial Times, via Reuters

By relying on a transparent record of all historical transactions to authenticate each user’s actions, where transactions are executed by a large, distributed and disinterested network of computers (nodes), users cannot renege on agreements, conceal past transactions for fraudulent purposes, and can depend on constant uptime. Thus, blockchain’s decentralised system offers two important advantages over centralised databases:

  1. Establishing trust through immutability: The shared ledger prevents anyone from tampering with historical records. Any change to a historical record will affect how all following transactions are logged in the blockchain (i.e. the corresponding hashes), and is thus highly conspicuous. Also, because the system is decentralised, it is impossible to change all stored copies of the blockchain.
  2. Resilience: The blockchain can ensure constant up-time because it doesn’t rely on any individual computer, but a network of thousands of computers.


On its own, a distributed ledger is a good way to prevent anyone from tampering with a historical record, but part of the revolution of blockchain is its combination of distributed ledgers with other technologies that help increase security and privacy, and which have protected Bitcoin from any significant manipulation since its inception. (Notorious attacks in the Bitcoin ecosystem have compromised the exchanges that trade Bitcoin for real-world currency, rather than the actual cryptocurrency.) Below we outline three of the main technologies underpinning blockchain:

Asymmetric cryptography: Each user has a public and private key, which is unique to them and impossible to alter or forge. The public key is visible and searchable to anyone and is linked to the private key. The private key is confidential to the user, and allows them to decrypt information sent to the public key. This means that the specific contents of a transaction can remain private, while the fact that it occurred is public. This is a widely-used technology, for example in end-to-end encryption of WhatsApp messages.

Hash functions: This is a technology that compresses larger pieces of data into a much, smaller unique numerical code called a hash value or a hash code. If any part of the data contained within a hash code is changed, then so will the hash code. Hash codes can also be programmed with asymmetric cryptography, so that they can only be decrypted by specific private keys. So, hash codes are useful for spotting any attempts to tamper with data and for keeping information, such as the details of a transaction between two parties over a blockchain, private. In a blockchain, each new block has a hash value, which is linked to all the previous blocks in the chain.

Proof of Work: In the Bitcoin blockchain, before a new block of transactions can be added to the chain, a computer must work out a hash value to identify it by. Proof of Work is the mathematical process used to determine possible hash values for new blocks of transactions. Essentially, it is a system that sets very strict conditions that every new hash value must meet. This means that the probability of finding a suitable hash value is very low, making it a time and energy intensive process, i.e. requiring a lot of computing power. It is also a random process, so the likelihood of discovering a suitable hash code to process a new block of transactions is evenly distributed across all participating nodes. When a node discovers an acceptable hash code, it can then create a new block and add it to the chain. In exchange for this ‘work’, the node receives newly created Bitcoin. This system makes it impossible to manipulate the Bitcoin cryptocurrency, and acts as an incentive for organisations to provide the computing power to add new transactions to the blockchain.

Throughout this report, we will discuss how these technologies have evolved as blockchain technology has matured, and their practical application within specific use-cases.

Contents:

  • Executive Summary
  • What is blockchain?
  • Why is blockchain important for telcos?
  • What are the pros and cons of blockchain?
  • What should telcos do about blockchain?
  • Introduction: What is blockchain?
  • Bitcoin beginnings
  • Moving beyond Bitcoin and cryptocurrencies
  • Blockchain is experiencing some growing pains…
  • …But the benefits outweigh the risks
  • Telco investments in blockchain
  • The why and how of blockchain
  • Understanding when blockchain is the appropriate technology
  • How will blockchain ecosystems develop?
  • How can blockchain help telcos?
  • Financial transactions between opcos
  • Identity management
  • Roaming and settlement
  • IoT
  • Conclusion
  • Recommendations for telcos
  • STL Partners and Telco 2.0: Change the Game

Figures:

  • Figure 1: How the Bitcoin blockchain works
  • Figure 2: How smart contracts work
  • Figure 3: Public vs permissioned blockchains
  • Figure 4: Blockchain’s strengths and weaknesses
  • Figure 5: Comparing blockchain with TCP/IP evolution
  • Figure 6: Blockchain applications for telcos
  • Figure 7: Blockchain technology for settling commercial transactions between opcos
  • Figure 8: How blockchain enabled cross-border mobile money transaction settlement works
  • Figure 9: Blockchain for identity management
  • Figure 10: Using blockchain to validate ID attributes
  • Figure 11: Blockchain for managing roaming agreements and settlement
  • Figure 12: How blockchain-enabled subscriber authentication works
  • Figure 13: Managing WiFi roaming with blockchain
  • Figure 14: Blockchain applications in the IoT
  • Figure 15: Tracking IoT devices from inception to ensure data integrity
  • Figure 16: IBM predicts a shift to distributed IoT networks