Crypto 101. What is...Web3?

Exploring an often used but little understood term.
WRITTEN BY
Daniel Taylor
21/11/2022
4 min

Web3 is the next iteration of the world wide web. Proponents of web3 argue that this next stage in web innovation will be characterised by greater decentralisation, blockchain integration and token economies, wrestling power – and in some cases profits – from tech giants and placing it in the hands of the people.

While web3 has yet to find its final form, many of its constituent components are already with us in the form of blockchain technology, smart contracts (programmability) and non-fungible tokens (NFTs).

Background

During the first iteration of the web, the majority of internet users consumed content in a largely passive manner. No single search engine had achieved complete dominance, with competitors such as Lycos, Yahoo and AltaVista battling it out for supremacy. Many users bypassed search engines entirely by navigating from “links” pages, hopping from one site to another, in a relatively potluck fashion called “web surfing.” Interactivity was more limited to bulletin boards or chat rooms.

Web 2.0 (also known as “web2”) is the second and current epoch of the internet age, and it is marked by active participation, content creation and the emergence of social media. Google is by far the dominant search engine with a market share of 83%. Through social media, anyone can easily create a personal profile, upload content and media, comment on it, and interact in a variety of ways. 

Due to the networking effects of social media sites (people want to find and talk with friends) there are a limited number of winners in each field e.g. Facebook, Instagram, YouTube, Twitter. In short, Web 2.0 offers users a more dynamic web experience, but it is a zero-sum game. In each field, the power is monopolised.

In summary:

Web 1.0: A passive, but decentralised web of many linked pages - the ‘world wide web.’

Web 2.0: An active, but centralised modern internet. Users are creators. Social media rules.

Web 3.0: An active, decentralised internet powered by blockchain and related technologies.

Web3 for all

Web3 looks to the future by building on the past; combining the very best elements of the early and modern internet. It is active, decentralised, interoperable, transparent and user-centric. 

Ideally, according to its espoused ideals, web3 should wrestle control from monopolies and tech giants and place power back in the hands of users. Without the intervention of intermediaries and centralised bodies, users retain control of their personal information and data. The final form of web3 is yet to emerge but the green shoots of this better web are found in the cryptocurrency and blockchain sectors.

Web3 and blockchain

In a decentralised network, the power is shared. No single user or individual has outright control. A decentralised network is what powers Bitcoin and many other cryptocurrencies – although the specific architecture varies. 

Every user on the network can see all the transactions on that network. That chain of transactions, processed in individual blocks of data, is what we call the blockchain.

The integrity of the Bitcoin network is maintained by a large number of miners who reach network consensus through a computing-heavy problem-solving process known as Proof-of-Work, while Ethereum is maintained by a smaller number of trusted validators who stake Ethereum in a consensus mechanism known as Proof-of-Stake. 

Bitcoin offers greater decentralisation but is slower, while Ethereum is comparatively more centralised and faster. Although there are differences between these networks, their fundamentals are broadly the same. 

The similarities may offer some clues as to the shape of the future web3.

One important similarity is that both Bitcoin miners and Ethereum validators are rewarded for their work on the blockchain by receiving the native cryptocurrency of that network. Bitcoin miners receive Bitcoin (BTC). Ethereum validators receive Ethereum (ETH). In each instance, participants have a financial stake in the wellbeing of their respective networks. 

Lastly, because all of the information is held on a public blockchain, anyone can examine the data. These attributes provide a strong foundation not only for cryptocurrency but for a decentralised web.

Ethereum, programmability and web3

While Bitcoin pioneered blockchain, Ethereum helped to further popularise blockchain technology by expanding its use cases. While Bitcoin focuses solely on being sound money, Ethereum offers smart contract technology and programmability. 

Smart contracts are code that is executed if a set of pre-programmed conditions is met. Like monetary transactions on the Bitcoin network, smart contracts are executed in batches known as blocks. When a condition of a contract is met it must be processed on the blockchain.

While paper contracts are enforced by the law, smart contracts are enforced by the code embedded in the document. This leads to the popular cryptocurrency maxim that “code is law.”

In reality, if the code fails or is exploited by hackers, the real law tends to become involved – and in the case of a truly catastrophic network failure, the network can be rolled back and branched off through a fork to resume ‘normal service.’ While exploits in smart contract code do occur (as they do in code everywhere), such catastrophic failures are mercifully rare.

On the positive side, programmability opens the door to a huge number of additional use cases for blockchain and makes the promise of web3 a possibility.

Developers on Ethereum and a host of competitor blockchains are already leveraging this technology for decentralised applications, decentralised finance (DeFi), cloud computing, data storage and more. 

Blockchain networks can also host unique tokens or non-fungible tokens (NFTs). While art and digital collectables have been the primary use case of such tokens to date, NFTs can be leveraged across multiple industries from gaming to real estate – both in the real world and the metaverse.

The future

Predicting the future is a tricky business that makes fools of advocates and sceptics alike. While the exact scope and shape of web3 is as yet unknown, the trends that underpin it are already taking shape.

The ideals of web3 are certainly noble but in practice the notion of “power to the people” is often compromised by selfish self-interest. 

Whether web3 can overcome these problems will only be discovered many blocks from now. Thanks to the immutability and transparency of the blockchain, at least historians will have a clear record of when and how this great breakthrough was achieved.