What is Web3? Separating Facts from Fiction
It’s easy to get an explanation of Web3. Everyone has one to offer. The trouble is, most descriptions are vague, amorphic, and only partially true. And another thing: they are full of buzzwords like Metaverse and NFTs and driven by euphoric self-interest.
But as a professional, you want to cut through the clutter and get the real thing. And you’re right. It’s time to understand the potential Web3 offers for you - or whether it offers any at all.
In this article, we’ll present the elements of Web3, the philosophy behind Web3, and analyze the potential benefits of Web3 applications. Are you ready for a brave journey into the possible future of the World Wide Web? Let’s start.
Web3 is a vision of what the web might look like in the future. Its core principle is decentralization. The underlying technology is a distributed ledger mechanism (blockchain technology) allowing for secured verifiable peer-to-peer computing and token-based economics.
O.k., that’s a pretty abstract definition. Packy McCormick defined Web3 as “the internet owned by its builders and users orchestrated with tokens”. That describes it pretty accurately.
Web3 removes the centralized power from internet monopolies and distributes it. Data transactions are authorized, validated, and stored by peer-to-peer computing in a network, instead. To ensure data security, the system uses practically irreversible cryptography. This enables users to store value safely and keep ownership of their data.
To get a deeper understanding of the technology behind it, read “What is a Blockchain?”. Tokens are an essential element of Web3. They can be leveraged in many ways - as a digital representation of value or to verify authenticity of products, certificates, contracts, and identities. Businesses and organizations can provide genuine value over the internet and create direct engagement with customers.
You might think that calling it the decentralized web would be more fitting. However, there’s a reason it’s called Web3, and that’s related to the genesis of the World Wide Web.
A brief history of the WWW
In the beginning, there was chaos. Sorry, no, that’s a different book. The beginning of the internet was actually pretty orderly. But there wasn’t a lot anyone could do on the internet. It was basically a huge digital library. No one controlled it, no one owned it, and no one regulated it. This was what we now call Web1 - a decentralized source of information for everyone to consume.
Web1 lasted from the 1990s to about 2004, when the internet turned into a means of communication. It became possible to send emails, add content and eventually like and share content. On this new web, you can actively interact with others, consume and create content, and exchange information. This is today’s Web2 as we know it.
However, the web has lost its original unique charms. Contradictory to the purpose of creating the World Wide Web, Web2 is no longer decentralized. It operates on platforms owned by a few mighty enterprises. You know the ones. Google, Amazon, and Facebook all make business off of everyone's data.
Web3 is the next phase and sets an end to the centralization of power. Using decentralized ledger mechanisms, smart contracts, and tokens, governance over data is returned to its rightful owners. Web users, app builders, and content creators own their data and produce. Let this sink in for a second. Whatever you put on the internet remains yours. You decide whether to disclose and to whom. All your interactions and transactions are between you and the party of your choice, without middlemen snatching a share of the fun or profit. If Web1 was read-only, and Web2 is read-write, then Web3 will be read-write-own. A complete Web3 internet is still a vision and it may never happen. But there are plenty of use cases for Web3 already running. We should also mention here that this is not the only vision of how the web might look in the future. You can, however, expect that elements of the decentralized Web3 version will be widely adopted.
Components of Web3
Cryptocurrencies are digital currencies to incentivize the verification of transactions on the decentralized ledger where there’s no central authority involved. The name is based on the use of cryptography in the process. These currencies are an alternative to the common fiat money regulated by governments and banks. Cryptocurrency enables peer-to-peer transactions, meaning directly from one web user to another.
Tokens are a digital representation of an asset, a value, or a physical or historical truth. Cryptocurrencies are a form of token mainly intended for exchange. Other tokens can be used as investments to raise funds or to grant voting rights. They can also function as a verification of authenticity. Read about the Lisk Token here.
NFT is an acronym for Non-Fungible Token. An NFT is a unique token that is not interchangeable and therefore holds high value potential. NFTs are often compared to artworks auctioned to the highest bidder. The value depends on how much someone will pay. Find out how NFTs work in this article.
DeFi stands for Decentralized Finance. It uses distributed ledger mechanisms and smart contracts to enable financial transactions. The system is not liable to any financial institution or authority but functions on automated rules and verification. Read more on DeFi here.
GameFi is a fusion of the words Gaming and Finance. In this type of gaming Web3 app, the winnings are paid out in cryptocurrency. This enables the player to use their earnings also outside the game. Find out more about GameFi in this article.
DeSci stands for Decentralized Science. The idea is to publish research findings on the blockchain to reduce self-interest. Records on the blockchain are immutable and ensure that scientific work remains unaltered for economic or political gain. DeSci reduces forgery and misuse of research.
Web3 apps stands for decentralized Apps and refers to applications built on blockchain. Read more about Web3 apps here.
DAO is an acronym for Decentralized Autonomous Organizations. We are talking about a community-like organization in which decisions are made by voting. Voting rights are granted with tokens. That’s it in a nutshell, but you can find more info on DAOs here.
Now you’re wondering why we didn’t list the Metaverse here, right? The answer is simple. The metaverse isn’t unique to the decentralized Web3. It’s a digital space that resembles the real world or part of it. Even though many people view it as part of the Web3 vision, a metaverse isn’t necessarily blockchain-enabled.
We can envision Web3 as one big metaverse that runs on blockchain, though. But for now, that’s the stuff science fiction movies are made of.
The philosophy of Web3 in a nutshell
Let’s get back to the here and now. As a user of the internet - whether consumer, website owner or publisher - you depend on large enterprises and their servers. You also need to follow their rules and that includes letting them sell usage data, charge for storage, and apply their own censorship.
And why not? As long as they are trustworthy and provide you with the service you need…. fair enough, maybe. Until the trust is broken, something goes wrong or data gets stolen. In these cases, the consequences are quite unwelcome (to put it gently) and more far-reaching than you might spontaneously think. Actors on Web2 are represented by data on Google, Amazon, Facebook & co. That data has become a product sold and traded by these behemoths. Everything you create on the platforms becomes a product you don’t own. You have no control over how the product - your data or content -, is handled, protected, and passed around on Web2.
Web3 changes the equation. “A basic premise of Web3 is that every product is simultaneously an investment opportunity.”, claims Matt Levine, a Bloomberg financial columnist. And that includes your data and everything you create on the internet.
Levin explains in one sentence what differentiates Web3 and points out its economic potential. Web3 allows you to maintain ownership of all your digital data and assets and make money out of them. No one needs to give anything away for free, not even data.
Mortem Rand Hendrikson, a lecturer and web developer, puts it in similar terms. He explains the technical side of how everything on Web3 becomes a transaction with value. Everything you do, a thumbs-up on social media, a blog post, an interactive community campaign, becomes monetizable. The creator of the content owns it, can put a price on it, and decide what to do with it. An app builder owns the Web3 app and determines where the revenue goes and how much to share with the users.
According to Chris Dixon, a partner at the venture capital firm a16z and Web3 advocate, there’s a lot happening, but it’s more about small initiatives built around community. That makes sense. The benefits of blockchain technology are more evident to communities and SMBs who often find it easier to adopt radical changes than enterprises. Individual builders create Web3 apps to serve a community need. Entrepreneurs start small or medium business initiatives without relying on the web giants.
What are the opportunities for businesses?
Imagine the entire web running on blockchain - decentralized. Every internet user has a digital identity that is stored in what we now call a crypto wallet. It is similar to a profile on a social platform. The difference, on the blockchain it’s not accessible to anyone but the owner. The owner chooses what to reveal, when, and to whom. Also, the wallet can include any type of information the user chooses. We are talking about tokenized, encrypted health information, finances, and certificates.
With this wallet or secured, digital identity, users can carry out any kind of transaction, including financial. No need for separate passwords on each app.
What’s the use of NFTs?
People view NFTs as collector items and brands are using them for marketing and customer retention. According to METV.RS, Nike generated the highest revenue from its NFT project in 2022, followed by Dolce & Gabbana, Tiffany, Gucci, and Adidas.
High-priced NFTs are currently stealing the show. But they are only the tip of the iceberg - the part above the surface. What matters is mostly invisible beneath the surface (remember the Titanic?) Web2 titans can’t steer clear of the Web3 apps that are poking holes into the current structure.
Practically speaking, NFTs are a mixture of a certificate of authenticity, a deed, and a membership card. They can, therefore, be useful in loyalty programs. Customers can buy NFTs that grant them special benefits such as discounts, entrance to member events, etc. One example of how that works is Starbucks Odyssee.
But that still isn’t all there is to the popular digital tokens. As you dig deeper, you realize NFTs will soon outgrow the playground of rich celebrities.
The higher potential of NFTs
NFTs can represent physical assets such as equipment for a recording studio or the studio itself, a fleet of delivery trucks, or a piece of property. These are stored away securely and untouchable to anyone but the owner of the wallet. The same goes for certifications, contracts, and intangible assets such as intellectual property. An NFT can function as an authenticator for university degrees, sales contracts, vaccination certificates, and any other official document prone to forgery on Web2.
This means NFTs have the potential to significantly improve data security and integrity. And eventually they could revolutionise how we do business altogether. Are you with me, still? Then this is the time to let your imagination take over.
The next step to realizing Web3
Skeptics argue that only cryptocurrency speculations drive Web3. These are only as valuable as people perceive them to be. But speculation is, and has always been, a market driver. When venture capitalists invest in start-ups, they do so because they believe in the vision. Investors speculate based on their belief in the potential future return.
Web3 is no different. At the moment, it’s a matter of how much people believe in it. Ultimately, Web3 will have to produce real value in return. This will happen when people start building useful and beneficial applications on Web3 that leverage the benefits of blockchain technology. And that’s only a matter of time. The possibilities are vast and the sooner you start, the higher the potential to secure a significant market share.