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Web 3.0, or web3 was really envogue and the buzzword of 2021/22. This is a result of a perception that the previous iterations of the world wide web are broken.
Basically, over the past few decades, the internet has permeated every aspect of our lives. However, during this mass adoption, the data architecture remained stuck on computers with centralized infrastructure and control.
What this means is that, even though you are using several devices, data is still stored centrally.Furthermore, while value is created on the periphery by users (e.g. through connections between peers), value is captured centrally by the providers of platforms and marketplaces. One popular example is how in Web 2.0, we do not control nor benefit from (most of) our data.
As explained, the previous iterations of the world wide web present limitations and growing issues for most internet users. The prime issues found in Web 2.0, for example, are the lack of control of your data and the centralized database infrastructure run by a centralized institutions, oftentimes with conflicting incentives. Let’s dive into this.
Every time web users interact over the Internet, service providers get access to our data and we lose control over it. All the user generated content that's posted on platforms such as Facebook are then owned by those web technologies instead of the creator, again, this is peripheral value-creation and centralized value-capture. We are constantly hearing news of organizations losing their clients' information to hackers, which then distribute the data all over the internet.
But the problem is not only the loss of control over data but how centralized data is. In fact, a handful of companies are in control of all our data. Central authorities exercise greater control and make internet users powerless when it comes to the information they put online, which is something unavoidable in today's way of life. Large corporations are then able to use your data to sell data-driven advertising strategies to other companies. And the worst is that they don't necessarily disclose that to users, as seen in the Facebook and Cambridge Analytica scandal during the US elections. This demonstrates just how much dynamics such as this can work against the users’ own interests, reinforcing echo-chambers of controversial topics, fake news, and manipulation.
All of this results in an internet environment which lacks control and transparency for the use. Web 2.0 has been all about centralization and its’ predominant business model of advertisement. Furthermore, it lead to information silos, incomposable systems, information asymetries, and difficulties enforcing property rights since the current client-server model of web2 does not allow for unique digital assets. Pare this with the fact that more machines are coming online (robotics, artificial intelligence) and an ever-increasing digital economy, with people interacting and collaborating at an unprecedented scale and you have the perfect recipe for disaster.
This digital landscape, the future of the internet and ultimately, the global economy is in desperate need of a proper infrastructure, or, back-end that enables mew ways of collaboration powered by networks that provide credibly neutrality (i.e. not being controlled by a centralized party).
Enter web3.
As Balaji Srinivasan, former CTO of Coinbase and General Partner at a16z, perfectly summed:
“Web1 was one client, one server, Web2 was many clients, one server, but Web 3.0 is many clients, many servers. From peer-to-peer (P2P) to model-view-controller (MVC) to client-blockchain-client (CBC)”
Thus, even though Web 2.0 had a lot of progress throughout the years when it came to the front end of the user experience, little improvement was made on the back end of the overall structure. This way, while it looks like the internet evolved, not much in the structure of it all changed in a long time.
As mentioned before, Web 3.0 surged as a solution to the many issues that were being found in Web 2.0. As the third generation of services for the internet and applications, Web 3.0 enables a user-owned economy that is open, fair, and transparent. Put another way, web 3.0 resembles and empowers a stakeholder economy, rather than a shareholder one.
As it has been said, change is the only constant and, much like everything, the Internet is changing and evolving for the better. The latest shift, however, isn’t blatantly performance-based but is rather about power and how we collaborate. This is why, Shermin Voshmgir refers to blockchain and web3 as a ‘governance innovation’, which enables new forms of collaboration, rather than just a ‘information technology (ICT)’ innovation.
Specifically, power is being handed back from companies to users. Web 3.0 restructures the control over the internet and ranges from basic communication technology to finance and much, much more - such as NFTs or decentralized autonomous organizations (DAOs), and decentralized protocols, just to name a few. The way Web 3.0 manages to do all that is by touching on one of the weaknesses of Web 2.0.
Web 2 doesn’t have a native mechanism to transfer state - computer science lingo for the ‘status quo’. And if you can't hold the state of the internet, you can't transfer value without a centralized middleman. In the stateless protocol of the current Web, the sender and receiver of information are also unaware of the state of the other due to the simplicity of the protocol that the Web is built on.
While the current state of the internet has introduced lower costs and high throughputs, it only facilitates the transfer of information. While the current state of the internet has introduced lower costs and high throughputs, these only facilitated the transfer of information.
The invention of blockchain, or put more broadly, Decentralized Ledger Technology (DLT), on the other hand, paved the way for the participants of a network to hold and transfer value in a digital native format. In this context, cryptocurrencies, non-fungible tokens (NFTs), decentralized data networks, and other blockchain entities will increasingly be crucial to Web 3.0 to achieve its potential and provide users with a digital native form of collaboration.
“In Web 3.0, ownership and control is decentralized. Users and builders can own pieces of internet services by owning tokens, both non-fungible (NFTs) and fungible,” as stated by Web 3.0 investor Chris Dixon.
Blockchain has become the driving force of this next-generation internet by reinventing the way data is stored or managed. It provides a unique state layer that is collectively managed to enable a value statement, common ledger for the open internet.
It enables peer-to-peer transactions without intermediaries, which started with Bitcoin, was then taken forward with Ethereum, then Solana, and other networks. These brought us decentralized finance (DeFi), NFTs, decentralized autonomous organization (DAO), and the Metaverse.
Metaverse recently went mainstream after Facebook announced a rebranding to Meta to reflect its long-term vision of virtual and augmented reality. Already giants like Microsoft and Nike, which have tons of capital to deploy, are working on dominating the space. But many in the blockchain world are working on an open metaverses while Web 2 leaders strive to be a powerful institution on Web 3.0 as well. However, the decentralized nature and potential of this new internet iteration might be just what we needed to avoid these tech giants dominating the space like they do with Web 2.
In the current web, we have seen a few big firms like Facebook, Amazon, Google, and Microsoft owning and operating a digital centralized infrastructure on which much of the operations today are built.
As boring as it may sound, a thousand year old bookkeeping technology, namely that of double-entry bookkeeping through centrally managed ledgers are cornerstone to our global economy. Ledgers can be anything like your identity, bankaccount, a database, or a social network. Up until Bitcoin, it was only possible to manage ledgers in a decentrlaized fashion since the client-server model does not allow for unique digital assets - only copies of digital assets (i.e. bits & information) are being sent and it needed a central party to account this and manage the books for it.
In the past few years, we have seen how social media platforms have serious implications for democracy all over the world. Another pressing concern is around free speech, which has made these tech giants the gatekeepers of content. There is no transparency regarding what is being censored and why it is censored.
The debate around potentially dangerous content is also a critical matter. This concern is due to the influence of these big companies in shaping political discourse and increasing polarization through means such as targeted advertising.
Big Tech has grown out of being a mere corporate concern to become a public concern. The issue here is the core business model of these platforms. They thrive on viral engagement as it is in their interest. The ad-model is the defacto go-to business model of web2.
There is no doubt that the companies ruling the current Web have delivered substantial benefits in the form of better and cheaper products. But, at the same time, it has resulted in the concentration of market power among a few giants reducing the choices and stifling competition.
Not to mention the tons of data on billions of users these companies have at their disposal. This data is then used to manipulate consumers, markets, and ultimately countries, with known scandalous interference in elections. When it comes to logging most of your data, Google is at the top. This is not a surprise given that their entire business is based on data.
As for what type of data is collected by these giants, it mainly includes names, phone numbers, payment information, email addresses, videos, photos, stored documents, and much more. Besides personal information, other information collected by these companies covers your IP address, system activity, date, time, app usage, carrier name, browser and device type, application version number, and operating system. Not done yet, also your search terms, views, videos watch, and interactions with content and ads, purchase activity, browsing history, the calling and receiving party numbers, times and dates of your calls and texts, call durations, routing information, and much more are also part of it.
As far as location goes, they track you via GPS, sensor data from your device, and information about things near your device like cell towers, Wi-Fi access points, or Bluetooth-enabled devices. They may even obtain your information from your advertisers and third-party marketing partners.
Even all the data these companies have isn't safe in their hands. After all, data breaches are common nowadays. A new study from Cornell University and FreedomPay has found that stakeholders are almost universally satisfied with cybersecurity systems and internal risk assessment processes despite the fact that one in three companies has experienced a data breach in the past, while the majority of them had experienced multiple breaches in a single year alone.
The Importance of Web 3.0 then is to offer users control over their data, while making transparency unavoidable. That is because everything on the blockchain is public information. Thus, companies would have a hard time hiding their moves because all transactions on the blockchain are verifiable and public.
Web 3.0 is an internet in which users will have power in many ways, from being their own banks, owning their own data, and reducing the amount of middleman to facilitate transactions. It also enables unique, digital identities, smart economic agents (machines/AI) than can manage real value, and facilitate ungamable trust based on cryptography - characteristics needed for the backend of a hyper-connected digital economy comprised of oftentimes unknowing, untrusting parties of humans and machines.
The rise of distributed ledger and blockchain technology is allowing for a new form of managing ledgers as well as common good management in the digital realm (and beyond).
A distributed ledger is a database shared consensually and synchronized across multiple sites, institutions, or geographies. It is accessible by multiple people. In it, transactions have public “witnesses”. Participants of the network can access the recording shared on the network and own an identical copy of it.
These underlying distributed ledgers are powered by blockchain technology, which is one type of distributed ledger used by cryptocurrencies such as Bitcoin and Ethereum. Cryptocurrencies have grown a lot over the past decade and have now become trillion dollar market. By solving the ‘double-spending’ problem, DLT enables unique digital assets, which has not been possible before and opens up a plethora od opportunities such as identities, credentials, payments, collectibles, certification, or IP and property rights management - just to name a few.
As web 3.0 investor, Dixon explains that centralized platforms of the current Internet start with recruiting users. Then, 3rd-parties like creators, developers, and businesses complement to strengthen their network effect. However, over time, “their relationships with network participants change from positive-sum to zero-sum.”
In this scenario, companies such as Google, Twitter, and Facebook continue growing by extracting data and ultimately, value from users. But what Web 3.0 is doing is to allow users to have a part of the network through tokens, giving them the ability “to own a piece of the internet.” Hence, they become stakeholders of the network.
In crypto, many cases have been seen, such as Uniswap and recently ENS, where early users of a platform are awarded a percentage of network tokens, making them participants in the growth of the network. In some cases, a percentage of the fees earned by the platform also goes to those token holders who stake their tokens to secure the network. In some cases, these tokens can offer voting rights to token holders for the governance of the platforms.
Another popular component of Web 3.0 is Non-Fungible Tokens (NFTs). NFTs are unique and non-interchangeable units of data stored on a digital ledger that uses blockchain technology to give proof of ownership. These made many artists rich and successful without the need for validation from the traditional art ecosystem or any middleman to sell their creations. On top of that, it allowed creators and users to own "objects", be it art, music, code, text, or anything else.
The introduction of tokens on Web 3.0 platforms is aligning the network participants to work towards a common goal: the growth of the network and, hence, the appreciation of the token - a stakeholder economy rather than a shareholder one.
A analogy for this is McDonalds, a shareholder company. Typical share holders of McDonalds might not be the typical customers of it. They want low cost and high prices in order to make a profit. Customers on the other hand want good ingredients and fair prices - they, together with employees, municipality, farmers etc are actually also stakeholders of the whole McDonalds empire and are an integral part of its’ value creation, yet they have little to no say in how McDonalds evolves nor do they profit from its’ appreciation.
Price appreciation is surely a prime aspect. While the dramatic increase in crypto prices is a big feat in and of itself, the rising of inflation in many fiat currencies in the past decades might make owning crypto almost a necessity. Cryptocurrencies are one of the very few asset classes rising faster than the price of your food, clothing, and other necessities. That is part of the power of decentralizing power from a few giant institutions that don't have the collective well-being in mind.
Web 3.0 will impact our lives in many ways. While most people still connect it to cryptocurrencies and finance, there are many ways in which Web 3.0 will impact the way we live – if it is not doing so already.
Finance is probably the most popular way Web 3.0 will change how things are done – and it has already started, big time. Did you know the crypto space offers very high yields on crypto holdings and fiat-pegged crypto called stablecoins? Sounds interesting in the current environment, especially since in some countries, the saver actually has to pay interest to fees to the bank to deposit their money.
In the rapidly growing decentralized finance (DeFi) space, young and old minds alike are revolutionizing finance. DeFi is being seen as an alternative to traditional banking, as well as a better and improved version of it. Since less intermediaries such as banks and governments are not needed, users have total control over their assets and funds. Users can be their own bank. While Ethereum is still the largest blockchain for DeFi, networks like Solana, Cosmos, Avalanche, or Polkadot, and others are emerging and fast-growing.
Since open-source is a widespread theme in crypto and projects make use of a common, shared state or database (the blockchain), they are composable and can be used as ‘lego bricks’ to build upon each other, cross polinate, and use synergies - resulting in an unprecedented speed of innovation.
Gaming is also already being extremely impacted by Web 3.0 applications due to the play-to-earn ecosystem. These are games in which playing allows users to earn tokens or NFTs that can be traded for money. A popular example is the NFT-based game Axie Infinity, whose 40% of users are in the Philippines. The impact this game is having in the Philippines is astonishing. 25% of the game’s players in the Philippines did not have a bank account before starting to play Axie. Regardless, for some in the country, the game became an income-earning opportunity at a time of low wages and lockdowns, so much so that the country’s Bureau of Internal Revenue announced that players must register to pay taxes.
While the gaming sphere on Web 3.0 is still in development, with many hyped games still to be launched, it is already clear that it will change the overall gaming industry. From playing to earn, to trading skins and gaming tools as NFTs, Web 3.0 has the potential to highly change this market by enabling true, digital ownership and identities.
When thinking about NFTs, the mind goes primarily to art. That is because the art industry of Web 3.0, which is traded in NFT format, has been extremely loud, even in mainstream media. In fact, NFTs simply exploded into popularity and went mainstream this year. From celebrities like Stephen Curry, Snoop, Dogg, Naomi Osaka, JayZ, Doja Cat, to big brands such as Nike or Adidas, everyone has jumped on this bandwagon. NFTs are becoming the digital identities of people, starting with profile pictures on Twitter - allowing creators and brands to build and reinforce their communities.
Music also leverages NFTs to connect musicians and fans. From platforms such as Audius, on the Solana blockchain, to smaller projects.
These are just some of the examples of how Web 3.0 is working for better and stakeholder-oriented systems. Overall, Web 3.0 is improving the internet by being open, trustless, and permissionless.
Web 3.0 is basically combining the decentralized, community-governed ethos of Web 1 with the advanced functionality of Web 2.
It is working on bringing a fairer internet by enabling the individual users to be part of an ecosystem, contribute to its growth, and be properly compensated for control instead of being exploited for someone else's gains.
It doesn't mean, it is without issues. There is yet to be found the proper answers to the incentivization of builders to build decentralized applications utilizing digital assets, appropriate balance between centralization and decentralization for cheaper fees, better UX, scalability, and directed and timely decisions, simplifying the cryptographic components such as private keys, the governance system of decentralized applications, regulatory hurdle, and others.
We are, however, just at the beginning of the Web 3.0 era, and much is to be done. But the promise of an internet owned by the creators/builders and users is worth fighting for.
On a final note: web 3.0 or web3 still lacks a proper, universal definition. We see it as the cumulation of different exponential technologies such as artificial intelligence, internet of things/robotics, and decentralized ledger technology. While the latter has often-times hijacked the term web3 for its own, we believe that it goes beyond simply being a DLT phenomenal and that DLT ‘only’ plays a part in an overall bigger picture.
DLT plays a central role in it all by enabling a new form of collaboration through a novel approach to collaboration, value creawtion, transfer and capture - it is the back-end and bookkeeping technology of a hyper-connected, digital economy comprised of humans and machchines. While bookkeeping tech maybe sounds a bit boring, it is it is impossible to put into words how powerful this is and difficult to assess the far-reaching implications it has. It literally presents us with a new way of managing ledger, which are a central part of our global economy.
Web3 enables us to build better systems -it’s still ‘just’ technology so it highly depends on what we humans do with it. Let’s not fuck this up.
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Please note that none of this is to be considered financial nor investment advice. We highly advise you to always do your own research (’DYOR’) before interacting with any of the projects or tools we write about. Crypto is a highly dynamic and fast paced environment with lots of moving parts that can quickly change.