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What is Web3?
Web3 refers to a movement that will use crypto wallet addresses as online identities to access blockchain-based web platforms.
A central principle of the Web3 movement is to shift control and ownership of data and online identities back to individual users and away from large, centralized platforms. By using decentralized technologies like blockchain, users will be able to maintain direct custody of their digital assets and have a greater say over how (and with whom) their data is shared.
It’s often said that web3 combines the best parts of previous Internet generations: the community-governed spirit of Web 1.0 and the interactive, high-engagement nature of Web 2.0.
- Web 1.0 = read
- Web 2.0 = read/write
- Web 3.0 = read/write/own
Key Takeaways
- Web3 is a proposed version of the Internet that will have a decentralized architecture supported by blockchain technology.
- Web3 will allow users to maintain direct control over their data and digital assets instead of corporations.
- Most of the technology that will support Web3 already exists, but the implementation of Web3 concepts is still ongoing.
- If Web3 concepts become widely adopted, crypto wallets will provide the user’s online identity, and smart contracts will power decentralized applications (dApps).
- The research firm Gartner predicts that by 2026, 500 million smartphone users will regularly use a digital identity wallet.
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How Does Web3 Work?
Web3 uses crypto wallet addresses as identities rather than real names or usernames that can be deleted or banned by site administrators.
A Web3 wallet is a crypto wallet that can be used to sign into Web3 services and interact with smart contracts using the wallet’s private keys. They prove ownership of the Web3 identity (wallet address).
It’s important to understand that the wallet needs to support the blockchain network for a given Web3 application. For instance, you might use the MetaMask wallet to interact with the Decentraland metaverse using the Polygon network.
On the decentralized finance (DeFi) platform Aave, for example, anyone can interact with the platform to lend or borrow cryptocurrencies by connecting their crypto wallet address (their pseudonymous identity).
Web3 platforms use blockchain networks that host smart contracts, which are self-executing computer programs that run on the network.
Early iterations of Web3 platforms focused on dApps, metaverse projects, and games. Eventually, Web3 may include social media platforms and more complex applications that offer granular control over user data. For example, you could choose to sell the metadata your smart TV collects and earn monthly micropayments issued in cryptocurrency.
Proponents of Web3 believe that traditional business models on the Internet will change significantly as data controls become decentralized and distributed data marketplaces gain popularity.
Other predictions about Web3 include the following:
- Organizations of all types will use smart contracts to automate administrative tasks, manage supply chain risk, and verify that contracts are being executed according to their terms.
- Web publishers will request payment when AI researchers web scrape their content.
- Banks will either use blockchain to improve security or become obsolete.
- The metaverse will become pervasive in all aspects of everyday life as headsets, smart glasses, and controllers improve.
- Decentralization will make potential attack surfaces significantly smaller and more difficult to identify.
Web3 Layers
To explain the different types of infrastructure, protocols, and applications that make up the emerging Web3 ecosystem, Web3 community members have proposed several different versions of a layered framework.
Just as the layers in the OSI framework helped educate users and ensure interoperability between different network devices, Web3 community members hope that a layered framework for the decentralized Internet will help speed the adoption of different Web3 systems and technologies.
For example, the no-code blockchain Infrastructure automation platform Zeeve has published a four-layer technology stack for Web3:
- Layer 1 controls the distributed computing, nodes, tokens, and storage of the Web3 infrastructure
- Layer 2 acts as a bridge between the backend and the front end of distributed apps
- Layer 3 manages the flow of data on the distributed network
- Layer 4 provides the front end that allows users to interact with Web3 dApps
Web3 vs. Web 3.0
The terms Web3 and Web 3.0 are often used as synonyms, but they do not always share a common meaning. Web3 (a term coined by Ethereum co-founder Gavin Wood) is used to describe a decentralized ecosystem built on blockchain technology.
In contrast, Web 3.0 is used to describe all the technologies and trends that are expected to shape the future of the Internet.
These include:
- Machine learning (ML)
- Artificial intelligence (AI)
- Augmented reality (AR)
- Virtual reality (VR)
- Generative AI (i.e. ChatGPT)
- Advanced Networking (i.e. 5G, 6G)
- Geolocation Services
- Responsible AI governance frameworks
Web3 Gaming
Web3 gaming refers to blockchain-based games, many of which feature in-game economies and use non-fungible tokens (NFTs) to manage in-game assets such as property, equipment, or avatars. For example, Axie Infinity features digital pet NFTs called Axies.
Artificial Intelligence (AI) and Web3
In the future, Web3-based AI platforms may allow users to control how their data is used for AI training and pave the way for creators to receive micropayments in exchange for sharing their data with AI platforms.
The Difference Between Web 1.0, Web 2.0, Web3
| Comparison | Web1 | Web2 | Web3 |
|---|---|---|---|
| Web experience | Static pages | Dynamic content | Dynamic content |
| Centralized or decentralized web hosting | Centralized | Centralized | Decentralized hosting using peer-to-peer (P2P) file-sharing or similar tech |
| User interactivity | Read-only | Read or write content, interact with other users | Read or write content, interact with users, interact with smart contracts |
| Privacy | User IDs owned by site admin and may be linked to real-world identities | User IDs owned by site admin and may be linked to real-world identities | Pseudonymous wallet addresses act as online identities |
| Access | Read-only | Read/Write | Read/Write/Own |
Key Features of Web3
Web3 has several key characteristics that differentiate it from current Web2 platforms:
What Technologies Support Web3?
Under the hood, Web3 depends on several key tools and technologies:
Key Applications of Web3
Web3 promises a new way of interacting, potentially replacing or supplementing many traditional applications and platforms, including:
- Social media
- Finance
- Insurance
- Storage
- Messaging
- Marketplaces
Real-Life Example of Web3 Applications
The Decentraland (MANA) metaverse world offers a popular example of Web3 in action. Decentraland is owned by its users and governed through decentralized voting. Users can own property, earn cryptocurrency, and interact with others using a wallet address to power their in-world persona.
Other examples of Web3 include:
Pros and Cons of Web3
Pros
- User ownership and control of data
- Transparency in transactions and decision-making processes
- Pseudonymous wallet addresses provide privacy by default
- Smart contracts provide permissionless and inclusive access
Cons
- Requires knowledge of crypto wallets and wallet safety
- No consumer protections
- Smart contract or blockchain flaws can threaten assets or privacy
- Limited interoperability between other blockchains, Web2, and traditional finance
Web3 Challenges
As Web3 becomes more widely adopted, there is likely to be increased regulatory scrutiny from governments. Laws around data privacy and sovereignty will have to be updated to protect user-owned data.
Ensuring that Web3 technologies and applications comply with existing regulations – while also developing new regulatory frameworks that are appropriate for the decentralized nature of Web3 – is expected to be a significant challenge.
Other challenges include the following:
- Blockchain technology can be slow when tasked with handling large volumes of transactions, and latency issues could prevent the technology from being scalable at the enterprise level.
- Companies and Internet service providers will have to make huge investments in edge computing to move computing capacity closer to users.
- Interoperability standards and protocols will need to be developed to enable real-time communication between different blockchain systems.
- Non-technical users will need to be taught how to use cryptocurrency and other Web3 technologies.
Future of Web3
Essentially, the concept of decentralization is a double-edged sword that is impacting the future of Web3.
The absence of a central authority fosters innovation, but it also makes it difficult to explain Web3 in a way that everyone agrees upon. Until clear standards for Web3 have been established, it’s likely that Web3 will remain “the wild, wild West,” and widespread adoption of Web3 concepts and technologies will be slow.
The Bottom Line
One of the biggest issues with Web3 definitions is that the concept of a decentralized Internet is still evolving, and there’s no central authority to say, “Yes, this is a Web3 technology” or “No, this is not a Web3 technology.”
Potentially, decentralized autonomous organizations (DAOs) will be able to establish standards for Web3. Their influence will depend on community participation and consensus, however, and as history has shown, there’s a reason why people say “a camel is a horse designed by committee.”
