UNDP: #Web3For2030

How can Web3 help achieve the sustainable development goals

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The publication is authored by Rowan Yeoman and Kate Sutton.

Acknowledgement of Agnes Huller, Zainab Kakal, Ievgen Kylymnyk, Juergen Nagler, Kevin Petrini Jonathan Hodder Swetha Kolluri Ahamed Nishadh Najeem Sam Ng Max Semenchuk Alexander Wiese for their input during the report process.

The views expressed in this publication do not necessarily represent those of UNDP or its donor agencies/UN Member States; companies/organizations mentioned are not endorsed by UNDP.

All reasonable precautions have been taken to verify information contained in this publication but it is being distributed without warranty of any kind.

Information on uniform resource locators & links provided at time of issuance; no responsibility taken for accuracy or content of external websites.

Citation: UNDP (2022). #Web3for2030 New York City

-Copyright ยฉ UNDP 2022 All rights reserved

-UNDP is leading United Nations organization fighting injustice poverty inequality climate change working with experts & partners in 170 countries helping nations build integrated lasting solutions people planet -How to think about technological change 04 Executive Summary 01

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Introduction: Global community not on track to achieve Sustainable Development Goals; Web3 is a suite of technologies/trends that open up new possibilities.

Web1 vs. Web2 vs. Web3: Promised decentralised internet, allowed people to become creators, now offers secure web with powerful tools for individuals & communities

Mapping technology paradigms: Helps make decisions about opportunities & risks presented by these technologies

Examples of Use Cases/UNDP Role in Impact 07: Support innovation ecosystems, connective tissue between organizations, research & advocacy, support governments in engaging w/Web3 opport., change how UNDP works

Risks and Mitigation Strategies 08: Structural and technological challenges must be mitigated

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Web3 is the โ€œnext evolution of the internetโ€ and it will create powerful new dynamics in society

Web3 can be a polarizing term, with people either proclaiming its potential or denouncing it as nothing more than hype

It spans several different disciplines including computer science, finance, economics, governance design etc.

The report is written for international development and impact practitioners to help them understand Web3's possibilities

It seeks to answer how we leverage tools Web3 offers to create positive impact & support progress on Sustainable Development Goals (SDGs)

Part 1 introduces fundamentals of Web3 for non-experts; Part 2 outlines potential opportunity spaces for international development & how Web3 supports SDGs

Report also covers risks/challenges that come with using Web

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Web1 (1990-2005): Era of read only web, required technical skills to create a webpage and host on server. Empowered decentralized web with "credibly neutral" protocols.

Web2 (2005-2020): Era of read/write web/participatory or social web; blogging platforms made it easy for regular people to post content online; rise of social media & UBER/Airbnb type services; users gave up sovereignty in exchange for convenience, allowed companies like Facebook & Google to create walled gardens by claiming ownership over user generated content + data from interactions.

Lack of digital money in early Web led to advertising as the main business model -> winner-take-all dynamics favored large companies.

Term โ€œWeb3โ€ used throughout report to describe collection of related technology trends: participatory governance & other quantifiable things not clear yet.

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Democratizing access to powerful tools: Web3 promises to break the strangle-hold that Web2 tech giants have on the web and society.

Web3 offers scalability and ease of use, backed up by cryptographic trust on the internet.

Goal is to empower individuals/communities in opposition to centralization of money/power brought by Web2.

Web3 movement started with Cypherpunks (computer science/cryptography enthusiasts) who wanted technology to transform society.

Read, write, own capabilities of Web3 has implications stemming from cryptographic trust and decentralization concepts.

Cryptographic trust on internet means no need for trusted third parties like banks; Bitcoin blockchain was first example in 2009.

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Bitcoin Blockchain: uses complex cryptography to collectively reach consensus on accuracy of ledger; no centralized control, transactions can't be rolled back or frozen, open and transparent

Blockchains: Ethereum blockchain (2015); Solana scalable but less secure; Binance Smart Chain faster but less decentralized

Decentralized Finance (Defi): US$100 billion industry led by Uniswap & Curve Finance

Stable coins: crypto tokens pegged to traditional currencies like USD ($150 billion market) for everyday use cases

Non-Fungible Tokens (NFTs): not interchangeable, used for digital art ($41 billion), music industry, gaming etc.

Web3: unfolding of decentralized trust into more sophisticated use-cases beyond money - transforming society

Early Landscape: Bitcoin 2009 gives people ability to buy/sell/speculate + smart contracts with Ethereum 2015

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Bitcoin allows for money to be recorded on its digital ledger, while Ethereum blockchain allows for computer code to run trust-freely.

This led to a whole host of innovations that form the foundations of Web3, including: Oracles (cryptographically secure mechanisms for bringing trusted data into Web3 world); Decentralized Autonomous Organizations (DAOs - tokenized funding and governance mechanism); Metaverse (virtual worlds).

Investment capital has fueled growth in these elements with US$ 33 billion invested in 2021.

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Web3 is driving an influx of talent and has increased by 76% year on year in 2022

Technological change will have an impact on the development sector, but people need to understand how new technology paradigms unfold

Web3 is a decentralized system that is open, transparent, censorship-resistant and permissionless

To maximize use of Web3 for UNDP projects, we must think "problem first" or "people first" rather than โ€œtechnology firstโ€

When evaluating a new technology paradigm ask: Is it powerful? Popular? Valuable? Happening at scale?

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Innovation is happening at a broad pace and with many different players

Early days of the web were technically limited, difficult to use, and mostly useless

Questions to ask when predicting mass adoption: 1. 2. 3. 4.

Major technology paradigms start with core tech shift then applied to existing use-cases; early versions are only marginally better than what they replace

Novel uses of tech become commonplace as it improves; leads to societal changes

Example: Steam engine was unreliable/dangerous/inefficient but more effective in narrow uses like pumping water out of mines

As steam power improved, drove development of larger factories & machines plus new transport paradigms

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Steam engine changed the organization of society

Early web was a novel technology to add to existing businesses, but now it is an enabling context for most modern businesses

Web3 follows same pattern and will yield unexpected change in society

UNDP and UN agencies have mostly early paradigm view on Web3, missing potential that is already here

Need to move beyond asking "what can I do with blockchain" and start asking about new paradigms/use cases emerging from blockchains

Progress in Web3 has led to evolution of tools across domains such as finance, economics, governance & innovation - creating opportunities for development

Bitcoin introduced new financial paradigm- cryptographic money with predictable issuance (21 million Bitcoin)

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Central bank manipulation and money supply induced inflation is a fundamental innovation with far-reaching consequences.

Cryptocurrencies have given people the ability to own and transact digital money, which was made possible by Ethereum blockchain & smart contracts in 2015.

Decentralized finance (Defi) has grown quickly, being accessible to anyone with a smartphone & vastly cheaper than traditional services.

Web3 allows discrete economic systems to be designed that incentivize specific activities for positive outcomes like climate change; these are based on cryptographically secured tokens.

This capability also makes it possible to design new governance models that attempt to solve entrenched coordination problems; example: Seeds regenerative economic system based around crypto token.

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DAOs (Decentralized Autonomous Organizations) are an emerging form of decentralized governance.

They are based on organic networks that distribute authority in a diverse and inclusive manner.

Examples include MakerDAO ($10 billion locked in smart contracts) & NounsDAO ($40 million treasury).

Mechanisms for decentralized governance range from token voting to experimental governance designs like Radical Xchange.

Case Study: Optimism DAO - two "houses" (Token House & Citizens' House), revenues go towards technical upgrades/spending, managed by token holders with economic interest in the protocol.

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Token House is funded by portion of Optimism's revenues

Citizens' House looks after long-term mission alignment of protocol and allocates other portion of blockchain revenues towards development of public goods over longer time horizon

Innovation Paradigm: Web2 centralizing dynamics leads to handful of mega tech companies gaining unassailable advantages; emerging paradigms in Web3 (Open Source, Open Protocols and Open Networks) have potential to support innovative landscape

Example: Uniswap - large decentralized financial exchange that has processed more than $1.2tn in transactions; code/governance processes open for anyone to copy

Open Protocols: Decentralized protocols tend to be open by design, meaning can interact without third-party gatekeeper; most blockchains are public so can map commercial activities taking place & identify wallet addresses of active users -> new competitors can innovate quickly

Open Networks: Organizations building/running open source/protocols themselves are also open - people from all over the world can see into inner workings, join conversations about future protocols, find ways to participate in operations or governance = learning/community building opportunities

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Open Networks democratize access to organizations (usually DAOs) by providing them with large, engaged networks of people who can contribute time, expertise and capital.

Web3 technologies are enablers for achieving the Sustainable Development Goals (SDGs).

Examples of Web3 enabling systems change to achieve the SDG include: Universal Basic Income (UBI), Good Dollar UBI experiment, Rightful Share segmented UBI experiment in South Africa, Impact Market supporting 46K people in 30 countries & Circles supporting people in Berlin.

Decentralized Credentialing is driving innovation in education which is relevant to a development context as it makes information more freely available than before.

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Online educational content (MOOCs) has been available, but there is limited innovation in academic credentialing due to lack of identity layer.

Credentialing system remains exclusive and inaccessible for those without wealth/opportunity.

Novel credentialling systems based on decentralized identity can allow individuals to prove their achievements to employers with NFTs.

Example: Web3 University provides training & POK NFT credentials.

Maharashtra State Board of Skill Development issuing digital diplomas on Polygon blockchain, providing access & efficiency to quality education.

GoodDollar protocol making infrastructure available for free including secure digital wallet, regular funds, network of others etc., enabling businesses & projects built around G$ token like community lending groups etc.

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Goal 9: Industry, Innovation and Infrastructure

Web3 can help build stable, resilient economies in places where financial systems, rule of law and infrastructure are lacking.

1.4bn people worldwide lack access to banking, money transfer and basic payment infrastructure

People tied into unstable local currencies subject to high inflation/financial shocks

First adoption of Web3 technologies has been use of Bitcoin as a money system in inaccessible areas

Price volatility is an issue but still provides store of value & means of exchange immune to local economic conditions

Defi has expanded range of financial tools accessible by those financially marginalised (need for digital infrastructure & education)

- Includes innovations like stable coins, crypto loan mechanisms & investment products that support innovation/growth (GoodDollar case study) - Ability for population to operate on global standards despite local context presents big step forward for inclusive economic participation/development/innovation - Functioning Web3 finance infra also provides onramp for development orgs directing funding into local economy better - Adoption seen in countries like Nigeria w/ 33.4m people owning or trading crypto currencies past 6 months due to high inflation rationale Achieving Goal 13: Climate Action through New Climate Financing & Systems Design - Exciting opportunities using Web3 as enabler even with challenges around Bitcoin's energy usage - Carbon-backed currencies (Klima case study) have potential to provide incentive mech needed making real impact on climate change via carbon positive transactions

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Kolektivo is driving a Web3 systems approach to building local regenerative economies.

Regen Network is exploring different ecological asset classes and their potential to support the development of regenerative finance.

ReSeed supports farmers to capture data about carbon stocks, which can be recorded on-chain and turned into carbon protection credits that can be sold.

KlimaDAO creates a digital currency based on carbon credit reserves; it mints one Klima token for every 1 tonne of CO2 purchased from the market, boosting prices and sequestration.

Klima has launched retirement mechanism & offsetting front end for businesses.

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Klima's code is open-source, allowing anyone to make their own version of the Klima token.

Having access to a money system that cannot be controlled by state actors protects people from persecution and allows them to donate to human rights causes without risk of sanction.

The Human Rights Foundation has invested $1.5 million into twenty projects working on privacy features for Bitcoin as a human rights tool.

Web3 offers opportunities for more equitable participatory governance models (e.g., GoodDollar) where tokens are distributed evenly among stakeholders who have full democratic rights in decision making processes related to future direction.

Crypto offers new SDG financing opportunities, with companies like The Giving Block helping organizations accept donations in cryptocurrency so there is new money available for achieving the SDGs.

New forms of partnering (like DAOs) and quadratic funding (where small community donations can be matched with larger contributions from donor pools) offer novel ways of innovating towards impactful goals set out by the UNDP and other traditional development actors

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GitCoin Grants has facilitated $50 million in grant funding to 3401 projects, many with environmental sustainability focus

Skillsets, mindsets, partnerships and resources need to be developed alongside technology for positive impact

Organizations like UNDP should build on top of others' open work rather than creating their own infrastructure

Web3 development opens discussion around how organizations are organized/governed and how to ensure people come first

UNDP leaders see Web3 as potentially significant but struggle to focus on new areas that could accelerate SDGs

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Donors should have foresight and fund future-focused projects

Organizations like IMF providing advice on crypto currency regulation

Papers outlining use cases for blockchain, experiments by UNICEF, UNEP, World Food Programme

Main criticism of standalone blockchain projects is siloed nature not seen as part of systems change/enabler of development responses

Web3 can be an enabler in financial, economic, governance and innovation systems change which cross cuts SDGs & all development areas

UNDP & other organizations need to ensure ethical Web3 development: supporting innovation ecosystems; partnering to develop education/training/acceleration programs; capitalizing local ecosystems; supporting experimentation with Web3 solutions; developing high leverage infrastructure.

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Decisions about funding are based on methodologies and heuristics

UNDP can play a key role in facilitating transition to decentralized context

Research & advocacy needed to ensure ethical, inclusive development of Web3 technology

Support for governments to understand/engage with Web3 opportunities/risks

Variance in attitudes towards regulation of crypto currencies

Japan developed experimental space & gov't dept. for innovation, capturing value & regulation

Island nations experimenting w/Web3 projects: Palau (digital citizenship), Tuvalu (identity projs.), Marshall Islands (legal mech. for DAOs)

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Governments will need to legislate and regulate for Web3, balancing the desire to capture value with enabling innovation.

Legislation needs to be anticipatory of rapid changes in technology and use cases.

Civil servants/policy makers may lack information about benefits of tech, leading to experts dictating decisions.

Governments must find ways to collect taxes while supporting local innovation without exacerbating inequalities.

Decentralization at heart of Web3 presents challenges as governments used to power & control; moving towards decentralisation & SDGs through local government but authority remains an issue if solutions built outside official frameworks.

Trend toward localization of change & impact due to Web3 decentralization

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Projects underway, some well-designed but risky for governments

Lack of reliable expertise for design and implementation

Governments need support to understand risks associated with Web3

Opportunities that Web3 can create for organizations like UNDP (e.g. registry of solutions, fundraising)

Web3 technology could underpin beneficiary tracking and improved ODA

People trust tech more than gov'ts but fear foreign tech & lack of focus on social issues/impact

Risks: Systemic risk - exclusion; Structural vs Technology

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Exclusion regarding infrastructure and usage could be exacerbated in Web3

Promise of Web3 is that it will be more inclusive and empowering

Need to ensure this happens by engaging in the development of technology/solutions early

Systemic risk due to underlying financial systems, decentralized finance easier to assess risks but can still fail unexpectedly (Terra market crash example)

Risk of centralization derailing ethos of Web3: DAOs are centralized companies, advantages with scalability/speed/cost but removes positive benefits for society

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Web3 is more transparent than traditional world, can analyse projects to determine if centralizing mechanisms are being built

Technological risks often depend on timing, need to anticipate technological progress

Proof of Work (POW) is energy intensive but Ethereum moved from POW to Proof of Stake system which reduced energy usage by 99.8%

Bitcoin still using proof of work so requires large amounts of electricity

Privacy, security and ethics risk when technology released especially for vulnerable people due to openness of data

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Public ledger blockchains can be used to store identity information about vulnerable people like refugees, providing vital services

GoodDollar uses a face scan ID system that verifies users without keeping identifiable information on public ledgers or servers

Performance & cost must be assessed before using Web3 technology; it is rapidly improving and should close gaps with existing tech soon

Hacks, scams & terrorism: US$ 3 billion stolen in 2022; new norms/tools for custodianship and usability needed; tracking bad actors will reduce illicit activity

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Conclusion: Web3 has many opportunities to achieve impact, but there needs to be an effort from the impact community. Pullback in markets due to hype and global trends, but innovation continues despite this. Impact organisations need to respond & shape space for SDGs.

Online programme (db.team/undp/web3) created - readers encouraged to engage with it & use technology tools for achieving SDG goals

Appendix i: Graphic showing how new tech paradigms unfold from initial core shift through influencing broad changes across society; Web3 plotted on right side as it evolves through process from basic starting point towards opportunities for furthering SDGs & creating impact

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