What is Web3? The Decentralized Internet of the Future Explained! Web3 Meaning!
If you’re reading this then you are a participant in the modern web. The web we are experiencing today is much different than what it was just 10 years ago. How has the web evolved, and more importantly – where is it going next? Also, why do any of these things matter?
If history has taught us anything, these changes will matter a lot.
In this article, I will lay out how the web has evolved, where's it going next, and why this matters.
Think about how the internet affects your life daily. Consider how society has changed as a result of the internet. Social media platforms. Mobile apps. And now the internet is going through another paradigm shift as we speak.
The Evolution of the Web
The web has evolved a lot over the years, and its applications of it today are almost unrecognizable from its early days. The evolution of the web is often partitioned into three separate stages: Web 1.0, Web 2.0, and Web 3.0.
What is Web 2.0?
Most of us have primarily experienced the web in its current form, commonly referred to as web2. You can think of web2 as the interactive and social web.
In the web2 world, you don’t have to be a developer to participate in the creation process. Many apps are built in a way that easily allows anyone to be a creator.
If you want to craft a thought and share it with the world, you can. If you want to upload a video and allow millions of people to see it, interact with it, and comment on it, you can do that too.
Web2 is simple, really, and because of its simplicity more and more people around the world are becoming creators.
The web in its current form is great in many ways, but there are some areas where we can do a lot better.
Web 2.0 Monetization and Security
In the web2 world, many popular apps are following a common pattern in their life cycles. Think of some of the apps that you use daily, and how the following examples might apply to them.
The dark side of web 2.0—Privacy
While web 2.0 is the web we’ve known and loved, there are some real downsides. First and foremost: It’s a nightmare for privacy.
Web 2.0 apps are often “free,” in that there’s no charge for users to use the service. But these companies have to make money somehow. So instead they “monetize” their users: They collect mountains of personal data about users and profit off it in the form of highly targeted ad space they sell to online advertisers.
Consider the example of online shopping. In web 2.0, if you shop for a pair of shoes online, you’ll be followed by disturbingly accurate ads for those same shoes on other websites, in your newsfeed, or even in your email inbox. The data collection that powers this following (or “retargeting”) have led to massive data leaks, where Big Tech gets hacked for millions of user credit cards or social security numbers.
The challenge with web 2.0 is users often have no control over whether their data gets collected, how it’s stored, or what tech companies do with it. You trade your data to use the app. Since tech companies aren’t making money directly from their products, you (or more specifically, your data) become the product they sell.
The dark side of web 2.0—Centralized authority
The other major downside of web 2.0 is that it relies on centralized authority. Think governments, Big Tech, and Wall Street. These central authorities verify your identity, authorize online transactions, control who can publish content (and what kind of content), and more. Essentially, web 2.0 companies act as a benevolent dictatorship: They decide who’s allowed in or out, how long they can stay, and what they can do.
Consider the example of online banking. Whatever bank you use for checking and savings holds your assets. They determine how you access it (think debit cards and ATMs, or mobile banking apps). They determine who you can transact with. And, most importantly, they validate your identity—and access—based on the info from other centralized authorities like the government (think of social security numbers or ID cards).
And this is just one simple example. Behind the scenes, Big Tech is used to validate your identity and grant you access to thousands of services. Most people have no idea how often Facebook and Google are used as authentication services for other apps.
In web 2.0, the individual has very few individual rights. Things like Europe’s GDPR and California’s CCPA do grant users more rights to disclose what’s collected, how, where it’s stored, and how it’s destroyed. But in the end, the core problem persists centralized authority.
Monetization of Apps
Imagine the early days of popular applications like Instagram, Twitter, LinkedIn, or YouTube and how different they are today. The process usually goes something like this:
1. Company launches an app
2. It onboards as many users as possible
3. Then it monetizes its user base
When a developer or company launches a popular app, the user experience is often very slick as the app continues rising in popularity. This is the reason they can gain traction quickly in the first place.
At first, many software companies do not worry about monetization. They strictly focus on growth and on locking in new users – but eventually, they have to start turning a profit.
They also need to consider the role of outside investors. Often the constraints of taking on things like venture capital negatively affect the life cycle, and eventually the user experience, of many applications that we use today.
If a company building an application takes in venture capital, its investors often expect a return on investment in the order of magnitude of tens or hundreds of what they paid in.
This means that, instead of going for some sustainable model of growth that they can sustain in a somewhat organic manner, the company is often pushed towards two paths: advertisements or selling personal data.
For many web2 companies like Google, Facebook, Twitter, and others, more data leads to more personalized ads. This leads to more clicks and ultimately more ad revenue. The exploitation and centralization of user data is core to how the web as we know and use it today is engineered to function.
Security and privacy
Web2 applications repeatedly experience data breaches. There are even websites dedicated to keeping up with these breaches and telling you when your data has been compromised.
In web2, you don’t have any control over your data or how it is stored. Companies often track and save user data without their users' consent. All of this data is then owned and controlled by the companies in charge of these platforms.
Users who live in countries where they have to worry about the negative consequences of free speech are also at risk.
Governments will often shut down servers or seize bank accounts if they believe a person is voicing an opinion that goes against their propaganda. With centralized servers, it is easy for governments to intervene, control, or shut down applications as they see fit.
Because banks are also digital and under centralized control, governments often intervene there as well. They can shut down access to bank accounts or limit access to funds during times of volatility, extreme inflation, or other political unrest.
Web3 aims to solve many of these shortcomings by fundamentally rethinking how we architect and interact with applications from the ground up.
There are a few fundamental differences between web2 and web3, but decentralization is at its core.
Web3 enhances the internet as we know it today with a few other added characteristics. web3 is:
• Verifiable
• Trustless
• Self-governing
• Permissionless
• Distributed and robust
• Stateful
• Native built-in payments
In web3, developers don't usually build and deploy applications that run on a single server or that store their data in a single database (usually hosted on and managed by a single cloud provider).
Instead, web3 applications either run on blockchains, decentralized networks of many peer-to-peer nodes (servers), or a combination of the two that forms a crypto-economic protocol. These apps are often referred to as apps (decentralized apps), and you will see that term used often in the web3 space.
To achieve a stable and secure decentralized network, network participants (developers) are incentivized and compete to provide the highest quality services to anyone using the service.
To achieve a stable and secure decentralized network, network participants (developers) are incentivized and compete to provide the highest quality services to anyone using the service.
When you hear about web3, you'll notice that cryptocurrency is often part of the conversation. This is because cryptocurrency plays a big role in many of these protocols. It provides a financial incentive (tokens) for anyone who wants to participate in creating, governing, contributing to, or improving one of the projects themselves.
These protocols may often offer a variety of different services like compute, storage, bandwidth, identity, hosting, and other web services commonly provided by cloud providers in the past.
People can make a living by participating in the protocol in various ways, at both technical and non-technical levels.
Consumers of the service usually pay to use the protocol, similar to how they would pay a cloud provider like AWS today. Except in web3, the money goes directly to the network participants.
In this, like in many forms of decentralization, you'll see that unnecessary and often inefficient intermediaries are cut out.
Many web infrastructure protocols like Filecoin, Livepeer, Arweave, and The Graph (which is what I work with at Edge & Node) have issued utility tokens that govern how the protocol functions. These tokens also reward participants at many levels of the network. Even native blockchain protocols like Ethereum operate in this manner.
Native payments
Tokens also introduce a native payment layer that is completely borderless and frictionless. Companies like Stripe and Paypal have created billions of dollars of valubyin enabling electronic payments.
These systems are overly complex and still do not enable true international interoperability between participants. They also require you to hand over your sensitive information and personal data to use them.
Crypto wallets like MetaMask and Torus enable you to integrate easy, anonymous, and secure international payments and transactions into web3 applications.
Networks like Solana offer several hundred digit millisecond latency and transaction costs of a small fraction of a penny. Unlike the current financial system, users do not have to go through the traditional numerous, friction-filled steps to interact with and participate in the network. All they need to do is download or install a wallet, and they can start sending and receiving payments without any gatekeeping.
A new way of building companies
Tokens also bring about the idea of tokenization and the realization of a token economy.
Take, for example, the current state of building a software company. Someone comes up with an idea, but to start building, they need money to support themselves.
To get the money, they take on venture capital and give away a percentage of the company. This investment immediately introduces misaligned incentives that will, in the long run, not align well with building out the best user experience.
Also, if the company ever does become successful, it will take a very long time for anyone involved to realize any of the value, often leading to years of work without any real return on investment.
Imagine, instead, that a new and exciting project is announced that solves a real problem. Anyone can participate in building it or investing in it from day one. The company announces the release of x number of tokens, give 10% to the early builders, put 10% for sale to the public, and set the rest aside for future payment of contributors and funding of the project.
Stakeholders can use their tokens to vote on changes to the future of the project, and the people who helped build the project can sell some of their holdings to make money after the tokens have been released.
People who believe in the project can buy and hold ownership, and people who think the project is headed in the wrong direction can signal this by selling their stake.
Because blockchain data is all completely public and open, purchasers have complete transparency over what is happening. This is in contrast to buying equity in private or centralized businesses where many things are often cloaked in secrecy.
This is already happening in the web3 space.
This is already happening in the web3 space.
One example is the app Radicle (a decentralized GitHub alternative) which allows stakeholders to participate in the governance of their project. Bitcoin is another that allows developers to get paid in cryptocurrency for jumping in and working on Open Source issues. Yearn allows stakeholders to participate in decision-making and voting on proposals. Uniswap, SuperRare, The Graph, Audius, and countless other protocols and projects have issued tokens as a way to enable ownership, participation, and governance.
DAOs (Decentralized Autonomous Organizations), which offer an alternative way to build what we traditionally thought of as a company, are gaining tremendous momentum and investment from both traditional developers and venture capital firms.
These types of organizations are tokenized and turn the idea of organizational structure on its head, offering real, liquid, and equitable ownership to larger portions of stakeholders and aligning incentives in new and interesting ways.
For example, Friends with Benefits is a DAO of web3 builders and artists, is about a year old, has a market cap of around $125 million as of this writing, and recently received a $10 million round of investment from a16z.
DAOs could encompass an entire post in and of themselves, but for now, I'll just say that I think that they are the future of building products and (what we in the past thought of as) companies. Here is a good post outlining the current DAO landscape.
How Identity Works in Web3
In web3, Identity also works much differently than what we are used to today. Most of the time in web3 apps, identities will be tied to the wallet address of the user interacting with the application.
Unlike web2 authentication methods like OAuth or email + password (that almost always require users to hand over sensitive and personal information), wallet addresses are completely anonymous unless the user decides to tie their own identity to it publicly.
If the user chooses to use the same wallet across multiple apps, their identity is also seamlessly transferable across apps, which lets them build up their reputation over time.
Protocols and tools like Ceramic and IDX already allow developers to build self-sovereign identity into their applications to replace traditional authentication and identity layers. The Ethereum Foundation also has a working RFP for defining a specification for "Sign in with Ethereum" which would help provide a more streamlined and documented way to do this going forward. This is also a good thread that outlines some of the ways that this would enhance traditional authentication flows. Web3 concepts – the DAO
The Decentralised Autonomous Organisation (DAO) is a web3 concept describing a group, company, or collective that is bound by rules and regulations coded into a blockchain. For example, in a DAO-based shop, the price of all of the items, as well as details on who would get pay-outs from the business, would be held on a blockchain. Shareholders in the DAO would be able to vote to change prices or who gets the money.
However, no individual could change the rules without having permission to do so. And no one who owned the physical infrastructure, such as the server owners, or the owners of the facilities where the profits were stored, could interfere in any way, like running off with the takings
Crucially, DAOs - in theory - eliminate the need for many of the “men-in-the-middle” needed to run an organization – such as bankers, lawyers, accountants, and landlords.
Artificial intelligence (AI) and web 3.0
Most people believe that AI will play a big part in web3. This is due to the heavy involvement of machine-to-machine communication and decision-making that will be needed to run many web3 applications.
How does the metaverse fit with web3?
The last important concept of web3 that we have to cover is the metaverse. About web3, the term “metaverse” covers the next iteration of the internet’s front-end – the user interface through which we interact with the online world, communicate with other users, and manipulate data.
Just in case you’ve missed all the hype – the idea of the metaverse is that it will be a much more immersive, social, and persistent version of the internet which we all know and love. It will use technologies like virtual reality (VR) and augmented reality (AR) to draw us in, enabling us to interact with the digital domain in more natural and immersive ways – for example, by using virtual hands to pick up and manipulate objects, and our voices to give instructions to machines, or talk to other people. In many ways, the metaverse can be thought of as the interface through which humans will engage with web3 tools and applications.
It’s possible to create web3 applications without the metaverse being involved – Bitcoin is one example – but it’s thought that metaverse technology and experiences will play a big part in the way many of these applications will interact with our lives
Some examples of web 3.0 applications
Let’s look at some examples of web3 in practice:
Bitcoin – The original cryptocurrency has been around for more than ten years, and the protocol itself is decentralized, although not all of its ecosystem is.
Diaspora – Non-profit, decentralized social network
Steemit – Blockchain-based blogging and social platform
Augur – Decentralised exchange trading market
OpenSea – A marketplace for buying and selling NFTs, itself built on the Ethereum blockchain
Sapien – Another decentralized social network, built on the Ethereum blockchain
Uniswap – Decentralised cryptocurrency exchange
Everledger – Blockchain-based supply chain, provenance, and authenticity platform.
Don’t we already have Web3?
The idea of a decentralized Internet has been in the works for the last decade with the explosion of cryptocurrencies and blockchain, and there are arguably some early Web3 applications that already exist. Big tech companies are already betting big on it and even assembling Web3 teams. But we are not officially in the Web3 world.
Can Web3 be egalitarian?
A decentralized and egalitarian Internet may sound far-fetched but it already appears doomed to fail.
The people currently pouring in tens of billions of dollars into Web3 services are tech companies, software developers, venture capitalists, and hedge funds.
Meanwhile, many current blockchain networks are not equally distributed and are in the hands of venture capitalists and early adopters. Crypto company Hashed raised €175 million and venture funds Kraken Ventures Fund and Brinc have also raised millions.
What are the challenges?
Experts have expressed concerns over how to regulate a decentralized internet, which would make it even more difficult to prevent cybercrime, hate speech, and misinformation.
Web3 can also be hard to use but Gauthier says the challenge is not if people can access it easily but if they know how to manage their data securely.
Web3 is an umbrella term for an online ecosystem that cuts out the big middlemen on the Internet.
“Anyone on the planet can access Bitcoin or Ethereum today, as long as you have an internet connection. So billions of human beings can access Web3 systems while the same human beings cannot necessarily access the banking system,”he said.
“To understand how Web3 works, there are some mistakes you should be aware of and you have to pay attention to your safety.
“Before, in the financial world, security was provided by your bank. All of a sudden, now, you have to do it yourself since you own the privileges and you can manage your money online. So that means that there is a whole education and understanding part of the important security issues.”
Building the technology to make Web3 fully decentralized, which has never been done before, is also one of the challenges.
What Next Article Do You want About Web3?
- Web3 Jobs
- Web3 Crypto Projects
- Web3 Industry Revolution
- Negative Side of Web3
- Positive Side of Web3