Web3 represents the next phase of the internet and, perhaps, of organizing society.
Web 1.0, the story goes, was the era of decentralized, open protocols, in which most online activity involved navigating to individual static webpages. This was in the late-90s and the internet was just starting to go mainstream. The Web1 era was highly decentralized for a couple of reasons:
• Low bandwidth infrastructure (up to 1Mbps) precluded the media-heavy internet as we know it today, with 4K video-streaming platforms.
• Underdeveloped infrastructure went hand-in-hand with simple coding practices. Everyone could learn HTML or copy a template to deploy a website, as they were built Server-side: generating web content and database query on servers.
As a result, Web1 was static, simple, and non-interactive, making it possible for everyone to create their own websites — blogs, news, forums, and yellow pages. Most internet content was centered around personal web pages hosted on ISP-provided servers, often for free.
Web 2.0, which we’re living through now, is the era of centralization, in which a huge share of communication and commerce takes place on closed platforms owned by a handful of super-powerful corporations—think Google, Facebook, Amazon—subject to the nominal control of centralized government regulators. Over time, these telecom companies built broadband infrastructure (above 10Mbps) and spurred entrepreneurs to develop new ventures that deepened the experience, and the economics, of the internet. In and around 2007-2009, ventures such as YouTube and Netflix scaled as they delivered streamed content to the mass market and more complicated software stacks began to emerge as the internet demonstrated it was a new channel for television, radio, and publishing.
In essence, Web2 is the merger of Server-side (programs executed on a server) and Client-side (programs executed in a browser) programming, with web browser languages as the starting point:
• Additionally, to scale up web development more easily and maintain large websites, Server-side web frameworks emerged: Django, Ruby on Rails, Laravel, and other scripting libraries.
Web2 was predicated on raising capital and traditional management of business. That meant centralization. Additional programming stacks made web content both labor and hosting intensive.
Moreover, no individual or small business could pay for vast months of data traffic delivered through video sharing and social media platforms. On top of that, the network effect took place. Even if someone could clone Twitter, the value of Twitter is not in its software, but in the number of people using it. Even former Twitter CEO, Jack Dorsey, admitted as much.
Web3 is supposed to break the world free of that monopolistic control.
At the most basic level, Web3 refers to a decentralized online ecosystem based on the blockchain. Platforms and apps built on Web3 won’t be owned by a central gatekeeper, but rather by users, who will earn their ownership stake by helping to develop and maintain those services.
Gavin Wood coined the term Web3 (originally Web 3.0) in 2014. At the time, he was fresh off of helping develop Ethereum, the cryptocurrency that is second only to Bitcoin in prominence and market size.
But it was Bitcoin’s blockchain technology that laid the groundwork for Web3. After all, if money can be made both digital and decentralized, it is a layer that can easily be integrated into the internet.
From file storage (IPFS) and video streaming (Livepeer) to monetization, smart contracts in chained data blocks are agnostic to which content is decentralized.
In other words, Web3 mirrors Bitcoin — it is a permissionless, trustless, and decentralized way of generating content, distributing it, and owning it.
How Does Web3 Work?
Just as different programming stacks defined Web1 and Web2, a new software stack defines Web3 to make decentralized internet happen. Web3 is in many ways a continuation of Web2 in terms of interactivity, but at the bottom of the stack is a blockchain protocol.
On top of the blockchain protocol are four layers that bind blockchain to the end-user experience:
• Smart contracts are embedded into each data block. Because they chain together, smart contracts are immutable, which is also what makes both NFTs and cryptocurrencies so valuable. Ethereum is the leading platform for deploying smart contracts written in Solidity. Other blockchains, such as Cardano, use Haskell.
• Web3 libraries that link smart contracts to dApp interfaces: ethers.js, web3.js, or web3.py
• Nodes as blockchain’s decentralization cornerstones, linking Web3 libraries to smart contracts. Instead of relying on a centralized cluster of servers, blockchain networks are dispersed across computer nodes. For example, Bitcoin has over 14,000 nodes, while IPFS (Interplanetary File System) for decentralized storage has over 200,000 nodes.
• Wallets that connect to blockchain networks and individual dApps on them. Wallets should not be considered as containers. Instead, crypto wallets like MetaMask unlock access to blockchains and their dApps, via private keys.
With these Web3 layers in play, it is possible to replicate every existing Web2 platform. They offer the same Web2 functionality but with decentralized monetization, funds/data ownership, and censorship-resistant content.
Web 3.0 Technologies
There are many different paths that the future development of Web 3.0 could take. Here are a few of the Web3 technologies we’re starting to see deployed today:
DeFi: Decentralized Finance
One of the most intriguing sectors is DeFi, which is short for decentralized finance.
DeFi aims to revolutionize the financial sector, removing the need for central authorities such as banks, payment processors and other intermediaries. In their place would be a peer-to-peer financial system that lives on the blockchain.
Advocates argue that this approach would reduce fees, boost transaction speeds and allocate capital more efficiently.
As with most Web3 applications, there would also be enhanced transparency, given all loan amounts, collateral and other data are available for anyone to see on publicly accessible blockchains.
Importantly for certain jurisdictions, accessibility is also enhanced. DeFi would be accessible to anyone with an internet connection, without the need for paperwork or a third-party verification.
Most of what banks and other financial intermediaries offer can be achieved through DeFi, argue its proponents. This includes bank deposits, lending and borrowing, asset trading and insurance, among others.
A few examples of popular DeFi protocols include Uniswap (UNI), Aave (AAVE) and Chainlink (LINK), which are designed to carry out financial transactions.
NFTs: Non-Fungible Tokens
Non-fungible tokens (NFTs) are a class of digital assets that live on the blockchain.
Each NFT is unique (non-fungible), and no two NFTs are identical. This is in contrast to, say, dollars, which are fungible—one dollar is exactly the same as any other dollar.
Advocates see a wide variety of potential use cases for NFTs, but to date the only widespread use has been for digital artworks. As the crypto market accelerated moonwards in 2021, multimillion-dollar sales of digital art NFTs were commonplace.
But as crypto winter set in in 2020, the NFT market crashed. Professional investors and art world critics derided NFTs as little more than a speculative bubble.
Crypto world has not given up on NFTs, and Web3 proponents see them as useful for verifying intellectual property, authenticating documents and various crypto gaming features.
Many types of traded cryptocurrencies support NFTs on their blockchains. A few examples include Ethereum (ETH), Solana (SOL) and Avalanche (AVAX), to name a few.
DAOs: Decentralized Autonomous Organization
Decentralized autonomous organizations (DAOs) may sound complicated, but the underlying concept is simple. A DAO is a group formed for a common purpose, with its rules, plans and objectives all encoded on the blockchain.
DAOs are controlled by their members. Proponents claim that a DAO has no hierarchy, no bureaucracy and no red tape. Most commonly they operate based on a democratic structure, where votes are cast in connection to how many crypto tokens users hold.
What makes a DAO attractive to many users is that all financial transactions are recorded on a blockchain, which eliminates any third-party involvement. Instead, the transactions go through uneditable, transparent smart contracts. Breaking away from the traditional vertical company structure of executives, board of directors, and investors, a DAO allows all members to be involved and vote if any changes need to be made.
Some believe that DAOs, in particular, could be chaotic. Without someone or something in control, hate speech and misinformation, for example, could get worse because there won’t be anyone to police it. Policies may help sort things out, eventually.
Now, even though DAOs reject the constraints of centralized control, they still need to adopt governance policies, including data governance. As DAO organizations operate entirely online, governing data effectively is critical for security, access, collaboration and more. DAOs are built on and work using digital information. Ensuring that this data is well managed using a dedicated tool should be at the top of the list when deciding on governance protocols.
What’s working so far?
Most successful forays by traditional companies into Web3 have been ones that create communities or plug in to existing ones. Consider the NBA: Top Shot was one of the first NFT projects from a legacy brand, and it offered fans the opportunity to buy and trade clips, called “moments” (a LeBron James dunk, for instance), that function like trading cards. It took off because it created a new kind of community space for fans, many of whom may have already been collecting basketball cards. Other front-runner brands, such as Nike, Adidas, and Under Armour, similarly added a digital layer to their existing collector communities. All three companies offer NFTs that can be used in the virtual world — for example, allowing the owner to gear up an avatar — or that confer rights to products or exclusive streetwear drops in the real world. Adidas sold $23 million worth of NFTs in less than a day and instantly created a resale market on OpenSea, just like what you might see after a limited drop of new shoes. Similarly, Time magazine launched an NFT project to build an online community that leverages the publication’s deep history.
Bored Ape Yacht Club is the biggest success story of an NFT project going mainstream. Combining hype and exclusivity, BAYC offers access to real-life parties and to online spaces, along with usage rights to the ape’s image — further reinforcing the brand. An ape NFT puts the owner in an exclusive club, both figuratively and literally.
One lesson from these efforts is that on-ramps matter, but less so the more committed the community is. Getting a crypto wallet isn’t hard, but it is an added step. So Top Shot doesn’t require a one — users can just plug in their credit card — which helped it acquire interested users new to NFTs. The Bored Ape Yacht Club was a niche interest, but when it took off, it became a catalyst for people to create wallets and drove interest in OpenSea.
Some companies have had rockier experiences with NFT projects and crytpo features. For example, when Jason Citron, the CEO of Discord, a voice, video, and text communication service, teased a feature that could connect the app to crypto wallets, Discord users mutinied, leading him to clarify that the company had “no current plans” to launch the tie-in. The underwear brand MeUndies and the UK branch of the World Wildlife Fund both quickly pulled the plug on NFT projects after a fierce backlash by customers furious about their sizable carbon footprint. Even the success stories have hit bumps in the road. Nike is currently fighting to have unauthorized NFTs “destroyed,” and OpenSea is full of knockoffs and imitators. Given that blockchain is immutable, this is raising novel legal questions, and it isn’t clear how companies will handle the issue. Further, there’s recent evidence that the market for NFTs is stalling entirely.
Companies who are considering stepping into this space should remember this: Web3 is polarizing, and there are no guarantees. Amid many points of disagreement, the chief divide is between people who believe in what Web3 could be and critics who decry the many problems dogging it right now.
How Web3 could affect your life
In the future, your data will be yours and you can use it to create a better life. Companies collecting your personal data every time you buy something or search for something online could be a thing of the past.
AI could work as your own personal butler, creating personalized experiences for you using the data you control. You may also be able to build custom games and environments using AI.
Though there is a lot that may come with Web3, there are some overall themes that are already emerging. The pull away from “big data” with an emphasis on giving the user more freedom and security is already happening.
While Web 3.0 may seem exciting, and a little daunting, it is important to remember that there won’t be a big change right away. Over time, the internet as we know it will slowly evolve into the new version, just like 1.0 evolved into 2.0. It will be easy for most to adapt, as earlier functionalities of the web will remain, and we may not even realize it’s happening. As for when that will be, some experts predict it will take a minimum of 5 to 10 years. Which is why I’m digging in right now.