In recent years, anyone who’s interested in crypto has heard the term “web3”, but it gets thrown together with other terms, like the metaverse, etc. Let’s take a closer look at what Web3 actually means.
Web3, a term coined by computer scientist Gavin Wood, has been cited by many in the tech and crypto industry as the next big iteration of the internet. The concept of Web3, or a new decentralized internet, is based on distributed ledgers known as blockchains that are collectively managed by users. Due to the collective nature of blockchains, Web3 will, theoretically, herald a new era of the internet, one in which use and access are governed by community-run networks rather than the current, centralized model in which a small number of corporations oversee Web2. If and when Web3 fully materializes—parts of it are already in place.
Ok, wait. Let’s first define Web1 and Web2.
The initial version of the internet, known as Web1, was widely used in the 1990s and early 2000s. A large portion of Web 1 was constructed with "open protocols," which are means of information exchange that are available to everyone, not just certain businesses or organizations. The primary uses of the internet back then were for web page reading and communication with friends and strangers. As Web1 developed, more people and businesses started using the internet for e-commerce, academic, and scientific research.
In the mid-2000s, a new wave of internet startups, including Wikipedia, Twitter (now X), Facebook, and others, gave users the ability to produce their own content, giving rise to Web2. However, these open-source "emergent social software platforms" came at a price. These businesses kept control over proprietary choices regarding functionality and governance while making money off of the sale of user behavior and data to advertising. That’s why a lot of people have said things such as, “if the product is free, then you are the product.”
Web3 envisions the potential architecture of the internet based on emerging technologies. These three are the principal ones:
Blockchain technology: A blockchain is a decentralized, digitally distributed ledger that is present throughout a computer network and makes transaction recording easier. A new block is made and added permanently to the chain whenever fresh data are uploaded to a network. After that, the modification is reflected on all blockchain nodes. This indicates that there isn't a single point of failure or control in the system.
Smart contracts: Smart contracts are computer programs that, when certain requirements are satisfied—such as terms agreed upon by a buyer and seller—automatically take action. On a blockchain, smart contracts are created in unchangeable code.
Digital Assets and Tokens/Crypto currencies: These are valuable objects that can only be found digitally. NFTs (nonfungible tokens), stablecoins, cryptocurrencies, and central bank digital currencies (CBDCs) are a few examples of these. Tokenized representations of actual assets, such as works of art or event tickets for concerts or sports, may also be included.
Later on, we'll examine the practical applications of each of these technologies through actual instances of Web3-enabled goods.
How is Web3 different, other than the technologies associated with it?
In the Web2 age, digital companies have concentrated control over data, content, and transactions. With the introduction of Web3, that should theoretically change. Evangelists predict that consumers will be in charge of their own information in the Web3 age and won't require the middlemen we do now. Web3 has the potential to transform the way we handle information, monetise the internet, and perhaps even operate web-based enterprises.
How the two handle trust is another area of distinction. In Web2, the success of a transaction—whether it involves exchanging money or information—depends on the mutual trust between the two parties involved, as well as typically the central facilitator. In contrast, Web3 doesn't require users to have mutual trust. Rather, the system is built in such a way that a transaction can only be completed if specific requirements are fulfilled and data is validated.
This is a hypothetical example to assist explain the possible operation of a Web3 transaction. Let's say someone is trying to purchase an item, any item, be it a movie ticket, a collectible, etc. In a normal Web2 setting, the user worries about things like, is this website “legit”? How do I know I will get things delivered. If it’s a platform, then we worry, will this seller, whomever he/she is, really deliver my good? Will the platform guarantee or step in if things go wrong? This sort of trust is a non-issue in the Web3 space because items being sold will have some sort of verifiable and unchangeable record associated with the item - written on the blockchain ledge that is publicly viewable by anyone. Smart contracts will ensure that the information of any transaction for the item gets recorded when certain actions are taken, such as purchases. Finally, crypto currencies will facilitate the transfer of monetary value from buyers and sellers. The trust is essentially built into a transparent system, so that users don’t have to wonder or pay a premium for that trust.
Is Web3 the same as the metaverse?
Not exactly. Many have trouble trying to understand what it is because we want to look at one definitive thing as the metaverse, so we can just say “yeah, THAT’S the metaverse.” But of course, it’s impossible to define it that way, and hence it can be confusing. As the term and the industry is still evolving, a flexible definition may be something more along the lines of a more interactive form of the internet that allows users to experience a unique version or interpretation of the world. And it’s not gonna be one thing, or one website, or one place. Sandbox, Decentraland, etc could all be considered metaverses, or just parts that make up the metaverse, similar to how Amazon, Google, etc. are all websites that collectively make up the internet.
Are there any concerns surrounding Web3?
Of course, nothing is perfect. Tech innovators are already adopting Web3 technologies. However, early Web3 adopters face a number of difficulties, which are likely to get worse as more tools with Web3 support become available. Currently, difficulties consist of the following:
Regulations. Governments are refining their strategies for managing matters like investor and consumer protection, know-your-customer and anti-money laundering regulations, and the enforceability and legitimacy of blockchain-based transactions.
User experience and value proposition. In contrast to Web2 goods, which have undergone twenty years of research and refinement, Web3 products have comparatively low user experience requirements. Many businesses and customers are also still unsure about the value of Web3 goods like NFTs. This is to be expected as new technologies will often need to go through many iterations.
Consumer protection. The public and authorities are beginning to focus more on investor and consumer protection in light of the recent collapses of multiple Web3 ventures.
Web2's issues aren't entirely resolved by Web3, and the new level of freedom and ease of access that is possible with the underlying Web3 technologies can be a double edged sword.
However, even with the concerns, Web3 has the potential to become a valuable new paradigm, when used correctly and responsibly. The regulations will inevitably catch up, and things are moving at a much faster pace than even Web2.