The web today is not the same as it was 10 or 20 years ago. And if all the buzz around Web3 (or Web 3.0) as the ‘next phase’ of the internet is any indication, it won’t be the same tomorrow either. In fact, some people claim that the dawn of Web3 will have an impact that is comparable to that of the invention of the internet itself. But what is Web3 actually about? And what does it mean for you and your business? Let’s take a closer look.
Dr. Gavin Wood, founder of the Web3 Foundation, co-founder of the open-source, decentralized, smart contract blockchain platform Ethereum, and founder of the Polkadot and Kusama blockchain networks, first coined the term Web3 in 2014. At its core, it is a new paradigm for the internet based on the idea of decentralization, driven by open blockchain technology. Some of its main ideas are about putting power and agency back in the hands of online users instead of Big Tech platforms. Wood, and other proponents of Web3, believe that this will not only change how we interact online, but will have far-reaching consequences on society as a whole as well – comparable to the way smartphones and mobile apps have changed our lives over the last 20 years.
A tale of three webs
As you’ve probably guessed, the term Web3 suggests the existence of two older ‘webs’. To understand how Web3 came about, it’s helpful to know a little bit about the previous stages of the internet as well.
- Web 1.0 (1989 – early 2000s): The first iteration of the internet, the one launched by Tim Berners Lee, consisted of information that was put online in a decentralized way and connected via hyperlinks. It was also characterized by ‘read only’, static consumption: interactivity between users and online content was virtually non-existent.
The downside of Web 2.0’s increased interactivity via easy-to-use tools and platforms, however, is the centralization. Capitalist economic logic, and online advertising as a central revenue model, have resulted in the consolidation of ‘power’ with a handful of ‘tech giants’ – Facebook, Google, Amazon, etc. These companies have mastered the art of data harvesting and became unimaginably rich in the process, often with dire consequences: from privacy and security breaches to increased polarization and radicalization across the globe.
Another result of this centralization are the so-called ‘walled gardens’. The mobile web, for example, is dominated entirely by Apple and Google. And in some parts of the world, Facebook is synonymous with the internet – meaning people depend on the platform for news consumption, social media, private messaging, e-commerce and other online services. Web3 can be seen as a reaction against this process of centralization and a move towards a more ‘human’ internet.
Web3: a torrent of ideas
Technologically, Web3 has its origin in decentralized, peer-to-peer file sharing (P2P) technologies like BitTorrent. Because of piracy backlash, P2P and torrents were largely forgotten by the general public. Satoshi Nakamoto, the enigmatic inventor of bitcoin and the blockchain, later rekindled the technology and its idea of decentralization by combining P2P, blockchain technology and a revolutionary consensus mechanism to realize their vision of a ‘purely peer-to-peer version of electronic cash’.
On a very basic level, the Web3 tech stack consists of three main layers that need to work together to deliver on the promise of decentralization and reach mass adoption:
- Protocol layer: Layer 1 blockchains like Ethereum and Bitcoin, which are responsible for consensus and validation by providing an immutable truth and core protocols on which the foundations of Web3 are built.
- Infrastructure layer: Scaling (for example through roll-ups) and connecting the outside world and off-chain transactions (for example through the Chainlink oracle network).
- Application layer: The user-facing layer makes it possible – and efficient and convenient etc. – for anyone to interact with Web3’s tech stack. Lately, a growing range of popular blockchain-based applications, including the OpenSea NFT marketplace the Axie Infinity or Decentraland game platform and others, have caused Web3 to become the spotlight of attention.
Web3: a glossary of terms
In our last Beyond the Buzz about the metaverse, we already talked about some of the core tenets of Web3. Let’s take a closer look at some of these terms, while introducing a couple of new ones.
Just like on Web 2.0, users interact with Web3 via a plethora of applications called ‘decentralized applications’ or dapps. The main difference, however, is that dapps run directly on the application layer and aren’t hosted by Big Tech. Today, we’re witnessing a true dapp-revolution, with new applications emerging virtually every day.
DeFi or decentralized finance is a global financial system where financial institutions, banks, or other intermediaries don’t have any more control than regular users. This means that anyone with an internet connection can open a bank account, loan or lend money, participate in futures and securities trading, etc. Communities can even establish their own functioning economies - all without the need for a central authority.
DAOs or decentralized autonomous organizations are a new breed of community-led entities with no central authority. Here, decisions are made through smart contracts and tokenization. DAOs are founded and registered on the blockchain, and a number of tokens is issued. By participating in the company, users can get a hold of these tokens, which represent a vote in company decisions.
Smart contracts – along with a concept called ‘cryptographic truth’ – allow Web3 users to interact without a middle man. They are essentially transaction protocols, hardwired into the technology, that ensure that certain prerequisites are met between two parties. Nick Szabo, the computer scientist who coined the term, uses the vending machine analogy: When you put enough money in the vending machine and select a snack, you’ll get the snack. In other words: with the right input, the right output is guaranteed. Smart contracts are what makes DeFi possible.
One of the key implications is that trust is no longer needed – which is why the term ‘trustless’ is so often used in reference to Web3. Breaches of promises simply become impossible. And since the promise is hardwired into the code of the contract, nothing is left open to interpretation. Ethereum is currently the largest smart-contract blockchain, with Solana and Avalanche as its fastest-growing challengers.
Because intermediaries have become superfluous, there’s no need to get permission either.
In Uniswap for example, anyone with a MetaMask wallet can start trading. Permissionless doesn’t equal lawless, however. In Web3, most blockchains are public, which means there are always traces as to where the money is moving. As a result of blockchain analytics, a growing number of addresses are being flagged due to illegal activity.
New web, new touchpoints
We’re glad you asked. For now, it’s important to realize that the Web 2.0 revenue model is experiencing increasing pressure. Companies who are very advertising-minded will likely face multiple challenges in the near future. Which is why it’s important to start thinking in terms of Web3, user-centeredness, and how you can participate. Nike, for example, recently acquired NFT maker RTFKT Studios and is producing virtual sneakers, while Samsung opened a metaverse version of its flagship store on Decentraland.
The best thing you can do right now, is to at least try and understand the ‘experience layer’ of Web3, and start thinking about your organization’s role in that. Dapps and DeFi introduce new customer touchpoints, and as more and more people find their way to these applications, they will inevitably become a key part of your customers’ journey as well. After all, you need to be where your clients are.