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What Is Web3?

Posted on Oct 10, 2023
What Is Web3?

Do you recall when Bitcoin first made headlines? For many, it started as a distant murmur about a revolutionary technology with immense potential. Over the years, despite the frequent price crashes and critics quick to dismiss it, Bitcoin continued its resilient journey, gradually seeping into the mainstream. Today, it's not just Bitcoin that captures the world's attention but a plethora of cryptos that have emerged to shape a decentralized future.

Enter Web3 cryptos - the new wave of digital currencies that are pushing forward the boundaries of what we know as the internet. These aren't just coins for speculative investment; they are the bedrock of a transformative movement. By fusing blockchain technology and smart contracts, Web3 cryptos aim to offer individuals unparalleled control over their data, enabling transactions without the reliance on centralized intermediaries.

While crypto is the flag bearer of this revolution, the essence of the transformation lies in the technology beneath it: blockchain. This distributed ledger system, characterized by its immutability and transparency, is being utilized for more than just transactions. From establishing ownership records for unique digital assets, known as nonfungible tokens (NFTs), to creating decentralized autonomous organizations (DAOs) that operate without a hierarchical leadership, blockchain is reshaping the way we perceive value and trust.

All these efforts coalesce under the term "Web3" - the next evolutionary phase of the internet. This isn't just about a new set of tools or platforms; it's about revamping how information is stored, shared, and owned. Advocates believe that, if realized, Web3 would decentralize power and control, breaking the monopolies that currently dominate the digital realm.

However, like any paradigm shift, the journey towards a decentralized web isn't without its challenges. Technological, environmental, and ethical questions remain, and there's an ongoing debate on whether Web3 can truly live up to its utopian promise or if it's just the next speculative bubble.

Businesses, innovators, and everyday users are all trying to navigate this rapidly evolving landscape. And while the future of Web3 remains uncertain, one thing is clear: it's a space that demands our attention. As we venture deeper into this decentralized realm, it's crucial to understand its nuances, potentials, and pitfalls.

In essence, Web3 cryptos are not just digital assets; they represent a promise — a vision of a more transparent, decentralized, and democratic digital world. The question remains, however: is the internet ready for this transformation?

Internet Revolution: The Shift from Web1 to Web3

From the outset, the internet was a groundbreaking invention—a maze of wires and servers that enabled computers, and their human operators, to communicate. Originating from the U.S. government's ARPANET in 1969, the contemporary web only truly began to take shape in 1991 with the advent of HTML and URLs, facilitating the navigation between static pages. This era can be coined as the "read-only" web or Web1.

As the 2000s rolled in, the digital landscape underwent significant transformations. The web started evolving from a passive information tool to an interactive platform. This was the age of the "read/write" web characterized by the boom in user-generated content. Giants like Facebook, Twitter, and Tumblr epitomized the Web2 experience. Moreover, platforms like YouTube, Wikipedia, and Google, coupled with the option for users to comment, revolutionized how we consumed content, sourced information, and engaged in conversations.

However, Web2 wasn't without its pitfalls. Centralization became its defining feature. Dominant platforms leveraged network effects and massive economies of scale, accumulating unprecedented wealth by harvesting user data and promoting targeted advertisements. While these platforms provided services at no apparent monetary cost, users slowly began to fathom the real trade-off— their privacy. Nevertheless, Web2 also democratized income sources, introducing opportunities like the gig economy and influencer branding.

This era of the internet hasn't been without criticisms. Companies with outsized influence frequently mishandled their power. As consumers began recognizing their role as the "product" discomfort grew around surrendering personal data control. Moreover, the sustainability of a targeted ad-driven economy began to face scrutiny. With the internet's increasing corporatization and centralization, a quest began for a more equitable digital frontier.

Enter Web3—a proposed antidote to the issues plaguing Web2. Its proponents champion Web3 as a foundational upgrade, addressing the inherent flaws of its predecessor. Concerned about privacy breaches? Web3 brings forward encrypted wallets safeguarding your digital identity. Fearful of censorship? Its decentralized nature ensures data is stored transparently and indelibly, eliminating unjust content moderation. Distressed by centralization? Web3 promises genuine participatory decision-making and tangible stakes in platforms. In Web3, users aren't merely products—they are stakeholders. This presents a triad web paradigm: read, write, and own.

Unpacking Web3: How does it fit into the cryptocurrency equation?

In 1991, a revolutionary technology took its initial steps when W. Scott Stornetta and Stuart Haber initiated the first blockchain project, aiming to time-stamp digital files. Its significance, however, skyrocketed with the 2009 launch of Bitcoin by the elusive figure, Satoshi Nakamoto, who sought a decentralized currency solution in response to the global financial crisis. This cryptocurrency operates on a shared public ledger. Here's how: to transfer currency, users rely on "miners" to validate the transaction by solving intricate mathematical puzzles, consequently adding data blocks to the chain and receiving Bitcoin as compensation. While Bitcoin focused solely on currency, newer blockchains, like Ethereum (introduced in 2015), serve as platforms for creating diverse blockchain endeavors. Ethereum's co-founder, Gavin Wood, envisioned it as a "global computer" - a system where computational power is dispersed worldwide and uncontrolled by any single entity. This decentralized dream has culminated in the rise of Web3.

At its core, Web3 extends blockchain beyond cryptocurrency, enabling diverse applications. Whether it's token balance, automated contract terms, or decentralized app (dApp) codes, blockchains can store varied data. Despite differences across blockchains, they generally employ coins as incentives for miners. For instance, Bitcoin uses "proof of work", an energy-consuming mechanism, whereas newer "proof of stake" chains operate efficiently by verifying transactions through stakeholder consensus. Crucially, once data is on a blockchain, it's there permanently—it's indelible.

The essence of Web3 and most cryptocurrencies lies in "permissionless" blockchains. These systems don't have centralized authorities, and participants needn't trust others to transact. As Chris Dixon of venture capital powerhouse a16z elucidates, "Web3 is the internet owned by its creators and users, harmonized through tokens." This transforms the current internet dynamic, countering the prevailing data extraction methods of central corporations. Tokens and collective ownership address the issue where immense value accrues solely to central firms, often causing friction with their user base.

Gavin Wood's seminal 2014 article delineated Web3's blueprint, emphasizing encrypted communication and concealed identities. He asserted the necessity for such a system, as conventional institutions might not always be trustworthy. Over time, this vision has expanded with emerging platforms like Sound.xyz, a Web3 streaming service, and blockchain games like Axie Infinity. Additionally, stablecoins and cross-border crypto transactions present novel financial solutions.

Dixon describes blockchain as a "new breed of computer". Mirroring how PCs and smartphones took time to redefine tech utilization, blockchain's transformative potential is only now reaching its zenith. "We might be in Web3's golden age", he suggests, emphasizing its community-centric evolution. While Web2 prioritized scalability, Web3 values genuine user engagement. Dixon and a16z's $2.2 billion investment in Web3 startups in the previous year attests to their belief in this paradigm shift. Notably, the number of Web3 developers doubled in 2021, reaching about 18,000. This growth, combined with the unmistakable buzz surrounding Web3 ventures, heralds an exciting digital future.

However, a cautionary note: as the tales of Theranos and WeWork illustrate, hype doesn't guarantee success. The trajectory of Web3's impact and its implications remain to be seen, warranting vigilant observation and critical analysis.

Major Web3 companies

Below are some revamped examples of Web3 crypto projects pioneering the next-generation internet:

Helium (HNT) - Dubbed "The People’s Network," Helium is forging a decentralized peer-to-peer wireless infrastructure, striving to democratize internet access.

Chainlink (LINK) – More than just a blockchain middleware, Chainlink creates bridges between on-chain and off-chain worlds. It facilitates smart contracts to tap into essential off-chain resources, be it data feeds, web APIs, or even conventional bank transactions.

Filecoin (FIL) – Venturing beyond traditional cloud storage, Filecoin introduces a decentralized storage ecosystem. Here, individuals can monetize their surplus hard drive capacity, offering it to the network in return for Filecoin tokens. It's akin to a decentralized blend of Amazon Web Services and Google Drive, ensuring data sovereignty.

Theta (THETA) – Redefining video streaming, Theta has established a distributed platform allowing users to mutually share bandwidth and computational resources. This approach not only reduces the strain on centralized servers but also promotes a more community-driven streaming experience.

Decentraland (MANA) - Venturing into the virtual reality landscape, Decentraland is an Ethereum-based project where users can purchase, develop, and sell plots of land within a virtual environment. In this digital realm, real estate has a new meaning. The users have complete control over the content they create, ranging from immersive games to digital art exhibits, making it an epitome of a decentralized metaverse.

Basic Attention Token (BAT) - Transforming the digital advertising model, BAT operates within the Brave browser. Users are rewarded with BAT tokens for viewing ads, creating an opt-in advertising system where users can choose to view ads and get compensated, thereby ensuring advertisers get genuine engagement.

Ocean Protocol (OCEAN) - Data is the new oil, and Ocean Protocol acknowledges that. It is a decentralized data exchange platform, allowing individuals and enterprises to monetize their data without compromising on security. This brings forth the prospect of a more democratized data economy, benefitting both data providers and consumers.

Aave (AAVE) - A pioneering name in the decentralized finance (DeFi) sector, Aave offers a range of financial services without intermediaries. From lending and borrowing to earning interest on deposits, Aave harnesses the power of blockchain to make finance more open and accessible.

ENS (Ethereum Name Service) - Simplifying the complex world of blockchain addresses, ENS assigns human-readable names in place of long alphanumeric Ethereum addresses. It's akin to a decentralized domain name system, ensuring easier and error-free transactions.

Arweave (AR) - Committed to permanent data storage, Arweave ensures that data, once uploaded, remains accessible forever for a one-time fee. This is especially crucial in preserving digital heritage, ensuring important information isn't lost due to server shutdowns or company bankruptcies.

Kyber Network (KNC) – Acting as a decentralized exchange, Kyber Network facilitates instant token swaps with guaranteed liquidity. It stands apart due to its on-chain liquidity protocol that allows decentralized token trades to be integrated into any application.

Golem (GLM) – Golem is harnessing the power of a global, decentralized supercomputer. Users can rent their unused computational resources to those who need them, thus democratizing computing power. Whether for rendering complex graphics or solving intricate mathematical problems, Golem ensures tasks are performed efficiently and at a lower cost.

Status (SNT) - Not just a messenger app, Status is a portal to the decentralized web. Built on Ethereum, it’s an open-source platform allowing users to chat, browse, and make payments securely within its ecosystem.

Orchid (OXT) – In an era of increasing surveillance and censorship, Orchid offers a decentralized VPN service. Users can buy bandwidth from a global pool of service providers, ensuring private and unrestricted browsing.

Livepeer (LPT) – Taking on the streaming industry, Livepeer is a decentralized video broadcasting platform built on the Ethereum blockchain. It allows users to broadcast and transcode video at a fraction of traditional costs, making live streaming more accessible and cost-effective.

UMA (Universal Market Access) – UMA is revolutionizing financial derivatives in the crypto space. It enables DeFi developers to create custom-made synthetic assets representing real-world values, like commodities or stock indices.

MolochDAO – Emphasizing community governance, MolochDAO is a decentralized autonomous organization addressing crucial challenges in the Ethereum community. Members pool resources and vote on proposals, reflecting true democratic decision-making in the digital age.

The Wider Implications and the Web3 Promise:

Decentralized Governance – Projects like Aragon and DAOstack are redefining how organizations can be structured and run. Using decentralized autonomous organizations (DAOs), decision-making becomes a transparent process where all stakeholders can have a voice, potentially revolutionizing corporate hierarchies and the democratic process.

Web3 and Digital Identity - Projects like uPort or Civic allow users to control their digital identity. Instead of multiple platforms holding fragments of one’s identity, users can consolidate their personal data, providing access only to entities they trust.

Interoperability – As blockchain and crypto ecosystems evolve, there’s a need for seamless integration and communication between them. Polkadot and Cosmos are addressing this challenge, aiming to create a decentralized web where different blockchains can transfer messages and value in a robust way.

Challenges and Considerations:

Scalability – As Web3 applications aim for mass adoption, the issue of scalability becomes paramount. Layer 2 solutions, like Matic Network (Polygon) and zkRollups, are trying to solve the scalability riddle without compromising on decentralization.

Regulatory Hurdles – The clash between decentralized protocols and centralized regulatory bodies will be pivotal. While Web3 promises disintermediation, governments and regulatory bodies worldwide are keen on developing frameworks to ensure the technology isn't misused.

Educating the Masses – The transition from Web2 to Web3 demands a shift in understanding and mindset. Organizations like the Ethereum Foundation and the Web3 Foundation are investing resources in educational initiatives, ensuring a smoother transition for developers and users alike.

Environmental Concerns – With debates around the energy consumption of Proof-of-Work blockchains like Bitcoin, Web3 projects are exploring more eco-friendly consensus mechanisms. Ethereum's shift towards Proof-of-Stake with its Ethereum 2.0 upgrade exemplifies this trend.

Usability and UX – For Web3 to gain mainstream adoption, the user experience needs to be as seamless as traditional web platforms. Wallet integrations, intuitive dApps interfaces, and improved transaction speeds are all areas of relentless innovation.

These projects, each unique in its vision and scope, are shaping the underpinnings of Web3. Together, they're creating an interconnected tapestry of decentralized solutions, pushing the boundaries of what’s possible and challenging our very perceptions of the internet and online value. As the digital world grapples with issues of privacy, control, and centralization, these pioneering Web3 projects light the path toward a more transparent, participative, and user-centric online future.

In conclusion, as we stand at the cusp of a Web3 revolution, it's clear that this new wave of internet evolution is much more than just a technological upgrade. It represents a paradigm shift in how users interact with online platforms, redefining trust, value, and power dynamics in the digital realm. The road ahead is undoubtedly filled with challenges, but the potential benefits — a more inclusive, transparent, and user-controlled web — make the journey worth the effort.

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Any questions?

Build a Web3 website by integrating blockchain technologies: start with a traditional web framework, use Web3.js or ethers.js for blockchain interactions, and connect with a Web3 wallet like MetaMask for user transactions. Ensure you're familiar with smart contract development if needed.

To access Web3, you'll need a Web3-enabled browser or browser extension (like MetaMask) and connect to a blockchain network, often using a Web3 wallet for interactions.

A Web3 wallet is a digital tool that allows users to interact with decentralized applications (dApps) on the blockchain, store crypto assets, and manage their cryptographic identities.

Web3 technology refers to a decentralized internet era, utilizing blockchain and smart contracts to create user-centric online applications and services.

Research crypto projects, buy associated tokens via crypto exchanges, and consider diversifying across multiple Web3 initiatives. Always consult financial advice.

Web3 is the next evolution of the internet, emphasizing decentralization and using blockchain technology.