Web3 is one of the most discussed topics around the tech world. It’s the future of the Internet that is powered by blockchain, cryptocurrencies, and AI. Web3 brings a lot of opportunities but also threats. Get ready for our guide to Web3.

Introduction to Web3

You probably have already heard the buzzword ‘Web3’ countless times, but what does it actually mean? In short, it’s a transition from centralized to decentralized Internet. It’s the infrastructure, applications, business, and social media of the future.

Nowadays, billions of people have Internet access, thanks to centralized services and stable infrastructure. The World Wide Web, as we know it today, has come with a hidden cost – a handful of centralized companies control the majority of Internet traffic and, more importantly, the data. These companies unilaterally make decisions about the direction and rules of the Internet. They decide what is allowed and what is not.

The largest social media platforms represent the second generation of the World Wide Web – Web2. They have allowed people to actually share freely their life and thoughts across the globe. It seems obvious today, but 10-15 years ago, it was anything but that. The best part? Social media is free! Or at least that’s what we all thought. Using social media doesn’t necessarily cost money. The price we pay is much higher – our privacy.

We have only recently started to understand the threats of data monopoly. GDPR is one example of the backlash against it. But the answer to that problem doesn’t lie in the hands of legislators – it’s in the infrastructure we use daily. That’s why we need Web3. Web2 is the poison, and Web3 is the antidote. Web3 embraces decentralization – no single organization owns or controls it. Instead, Web3 is owned by its users.

But before we dive deeper into Web3, let’s explore how we got here.

Web1 vs Web2 vs Web3 – three generations of Internet

The Internet is a technology that is constantly evolving through innovation. We can separate the history of the Internet into three phases. The transition from one generation to another didn’t happen overnight, so it’s difficult to set an exact date for it. Still, we can clearly separate these phases from each other.

What is Web1?

Web1 (roughly 1990-2005) was the first generation of the Internet. It provided a static experience for users; it allowed us to read the content. We couldn’t create the content-rich websites we have today. Basically, Web1 consisted of a few people who created web pages and content. Large groups could access information and content, thanks to Web1. 

Although it was a read-only version of the Internet, it helped people worldwide to see the potential of digital communications.

If you’d need to describe Web1 with one word, it would be ‘read.’

What is Web2?

Web2 (roughly 2005-2020) was the start of the social media era. Web2 brought us together with timelines, feeds, social networks, and huge digital ecosystems on the Internet. Web2 allowed us to create content. In other words, it allowed us to write.

Majority of websites today, like social media platforms and e-commerce stores, belong to the Web2 category. It is the infrastructure behind a phenomenon we know today as the creator economy. Web2 allowed everyone to create massive amounts of content for a growing audience. It was all about the user’s experience, communities, collaboration, and social media.

Web2 is one of the greatest digital innovations in the world. Unfortunately, it came at the cost of centralization.

The keyword for Web2 is ‘write.’

What is Web3?

Now that we covered the history of the Internet briefly let’s move on. We now have ‘read’ and ‘write’ – do you see where we are going with this? Something is still missing from the picture and it’s owning. This is where Web3 comes into play.

The point of Web3 is to give us control of our online information. It makes the centralized Internet decentralized. That means virtual worlds, free digital identities, Internet native mediums of exchange (cryptocurrencies), and open digital economies. And take a guess what powers the next step in the Internet evolution? You got it right: blockchains.

The first known mention of Web3 was in a blog post, “Insights into a Modern World,” made by Ethereum co-founder Gavin Wood back in 2014. He wrote that Web3 is a new, decentralized iteration of the Internet that runs on blockchain technology.

The term became mainstream with the help of well-known investor and crypto advocate Packy McCormick: he defined Web3 as “the internet owned by the builders and users, orchestrated with tokens.”

Why Web3 matters?

Web3 is the next generation of Internet technology. It relies on machine learning, AI, and blockchain technology. To put it short, Web3 gives users more control of their online data and digital identities.

If we want to truly understand why Web3 matters, we first need to look at the problems caused by Web2. In other words, let’s dive into the reason why centralization is bad.

Problems with Web2

People’s digital identities are nowadays most likely built on top of centralized platforms like Facebook, Twitter, and Google. This means their online data and identities are also controlled by these companies.

The idea of a single entity controlling the personal data of billions of people is frightening. And we have already seen the consequences of this several times over the years. Just last year, the phone numbers and personal data of over 500 million people were leaked online in a Facebook security breach. 

If the centralized service crashes or is hacked, the digital identity of many users could be compromised. 

And it’s not only about hacker threats. A handful of companies set the rules – and can change them. TikTok – a China-owned social media platform that is popular, especially among Gen Z – updated its privacy policy in 2021. The update will give them the right to collect biometric data, such as faceprints and voiceprints of users.

This has caused a storm in social media. Just recently, the famous American podcaster Joe Rogan blasted the “crazy terms of service” and alleged TikTok is a way for the Chinese government to harvest users’ private data. U.S. government officials believe that TikTok ‘is spying’ on Americans and urge Apple and Google to remove the app from their app stores.

Centralized platforms are a threat not only to regular people but companies as well. Social media, SEO, and digital advertising are key building blocks for numerous companies. The ability of centralized platforms to change the rules is a major risk for many businesses.

Creator Economy

When we look at the operating models of today’s Internet giants such as Google, Facebook, Twitter, Uber and Airbnb, we can see that they all have something in common. All of them rely on the value created by their users. Over the past 20 years, the economy has moved away from a model where large players are responsible for collecting resources and providing services to a large group of consumers.

In the traditional model, the problem is that most of the time, the value created by users on a platform is not evenly distributed among those who have actually participated in creating the value. The platform owners reap the rewards. We provide all kinds of added value to social media services in the form of texts, images, reviews, and shares, but we don’t get anything in return. We are used to giving the services all our valuable information for free in exchange for being allowed to use the services “for free.”

We, therefore, give up our valuable data without compensation when we actually should receive incentives – other than just the right to use the service.

Web3 and its underlying blockchain technology will change business models and monetization logic to meet the demands of the future Internet. At the same time, opportunities arise for both new and old operators.

How does Web3 work?

Web3 works so that instead of being in databases managed by centralized companies and organizations, the data is in the blockchain. Users have their own safe locker on the Internet. The safe is visible to everyone, but only the user can open it or grant someone access.

Your own digital keys enable your own digital assets. Thus, ownership can be built on top of the Internet. It is possible to connect cryptocurrencies to physical assets, and the need for third parties is reduced while doing so. With Web3, no intermediaries or middlemen are needed anymore.

For example, the artist no longer has to let Spotify manage his music, nor does the artist have to upload his file to Spotify’s database.

Web3 can take many forms, including decentralized social networks, play-to-earn games that incentivize players with crypto, and NFT platforms that allow people to buy and sell digital art & culture. Web3 transforms the Internet into a middleman-free digital economy.

What does Web3 mean to Internet users?

Web3 is on its way to replacing centralized corporate platforms with decentralized networks that are run by open protocols and communities. Web3 combines the open infrastructure of Web1 and the public participation of Web2. Blockchain-based Internet could improve the current web in many ways.

Creator incentives

Web3 platforms could give creators new ways to monetize their activity and contributions to the platform. We are not seeing this yet with today’s massive social media platforms.

Facebook, for example, makes money by harvesting user data and using it to sell hyper-targeted ads. Facebook’s Web3 doppelganger could allow users to monetize their own data or earn tips from other users for creating valuable content.

The Web3 version of Spotify, on the other hand, could make it possible for fans to buy “stakes” in upcoming artists and kind of become their direct sponsors. The investor here could receive a percentage of the artist’s streaming royalties in exchange for their investment.

Democracy

The majority of Web2 platforms are owned by single organizations, which makes them centralized. That means they are autocracies that can seize usernames, ban accounts, or change their rules quickly.  

Web3 platforms could be democratically governed. A blockchain-based social network could issue governmental tokens that would give users a vote. Users can vote about important decisions regarding changes. After all, it’s the users who determine whether a platform succeeds or flops.

More privacy

Web3 could be less reliant on business models that are based on advertising. With fewer trackers and targeted ads, users would have more privacy. No giant companies would harvest and harmfully use their personal data. However, Web3 will be monetized. Advertising is a multi-billion industry, and many companies rely on targeted ads. That means if Web3 doesn’t allow that, it needs to have an even better alternative. That doesn’t fully exist yet.

Web3 faces criticism

As you can imagine, Web3 is facing a lot of criticism. Some naysayers might be just afraid or don’t understand the tech, but there are also those who make good points. There is certainly a lot of hype, marketing, and FOMO around Web3. No wonder some people are reluctant and skeptical. 

Some critics believe that Web3 is just a rebranding effort for crypto to convince that blockchains are the natural next phase of the Internet. Some believe Web3 is a dystopian vision of a pay-to-play Internet, where every activity and social interaction is a financial instrument that can be bought and sold.

For some, Web3 represents a decentralized world where we all have a kind of reputation score that consists of a blockchain history of the events, jobs, and projects we have done in the past. These would essentially be permanent records of our online lives. The employers or our potential dating partners could look them up and make decisions on that basis. That truly sounds terrifying, a Black Mirror type of portrayal of our future lives.

Former CEO of Twitter, Jack Dorsey, has openly criticized Web3, saying that it’s “ultimately a centralized entity with a different label” and implied that people wouldn’t own it – big venture capitalists would.

Some skeptics also think that Web3 doesn’t make sense from a technical point of view. They claim that blockchains are significantly slower and less capable than standard databases. According to them, blockchains couldn’t handle the amount of data that Uber, Facebook, or YouTube use daily. The main argument here is that you’d have to build centralized services on top of decentralized networks. That would defeat the whole purpose of Web3.

Examples of Web3 applications

Although the vast majority of websites today are based on Web2, there are some successful endeavors among Web3 applications. 

Axie Infinity

Axie Infinity is a blockchain-based video game that uses in-game assets like NFTs and crypto tokens. Players are rewarded with real money for making progress in the game. They can also collect and own virtual land in the form of NFTs. It’s one of the most successful existing play-to-earn games, with millions of players worldwide. Some players even make a full-time living from playing the game. 

Helium

Helium is a crypto-powered, crowdsourced wireless network. Users can sign up to share their bandwidth from homes or office Wi-FI networks using Helium. They have a device that plugs into their computer or router. In exchange, the users are rewarded with Helium tokens when nearby devices use their bandwidth. 

Conclusion

If you feel like your head is spinning right now, don’t worry. Most of the Web3-related stuff is still theoretical, and it’s meant to provoke thoughts or to demonstrate the possibilities of the future Internet. 

The reason you’re seeing this term a lot nowadays is a result of the amount of capital, talent, and energy pouring into crypto and blockchain startups. New York Times estimated that venture capitalists invested nearly 30 billion dollars into crypto-related projects in 2021 alone. Much of that capital has gone to Web3 projects. There are thousands of recruitments going on in Web3 as we speak – companies try to attract the best talent with ridiculous offers. And then there’s the hype, of course.

Web3 can seem a bit terrifying, but you’ve got plenty of time to study it before it makes a breakthrough. It definitely has its pros and cons, but one thing is for sure. You’ll be hearing the term a lot in the upcoming years.

Frequently asked questions about Web3

Learn more: DeFi and Metaverse: Virtual Worlds of the Future

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