Web3

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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.

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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

Illustration of three individuals surrounded by laptops and servers, symbolizing a decentralized Web3 environment that allows users to own and control their data.

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.

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).

Diagram explaining how Web3 works, showing a Web3 user interacting with multiple wallet addresses, smart contracts, and a blockchain for decentralized apps and data execution.

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:

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

Key Features of Web3

Web3 has several key characteristics that differentiate it from current Web2 platforms:

Openness
Content platforms will be built on open-source software.
Distribution
Web3’s blockchain technology will create a decentralized network stored on computers worldwide.
Trustlessness
Zero Trust (ZT) architectures will extend security to all Internet of Things (IoT) edge devices.
Data ownership
Users will own their data rather than corporations.
Censorship resistance
Devices, users, and services will be able to interact without requiring authorization from a central authority.

What Technologies Support Web3?

Under the hood, Web3 depends on several key tools and technologies:

Blockchain
Decentralized and immutable record storage forms the framework of Web3.
Smart contracts
Conditional computer programs that run on blockchain networks govern Web3 interactions.
Cryptography
Wallets and blockchains use cryptography to authenticate users and store data.
Cryptocurrency
Blockchain networks use cryptocurrencies as “fuel” to power transactions and interactions.
Tokens
Cryptocurrency tokens can act as governance tokens, giving control of protocols to users. Non-fungible tokens can grant ownership rights or confer usage rights.
Decentralized hosting
Technologies such as the Interplanetary File System (IPFS) use peer-to-peer file delivery to promote censorship resistance.

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:

Aave
Lend to earn interest or borrow against your crypto assets permissionlessly.
Farcaster
Interact with other users on decentralized social networks while maintaining granular control over your data.

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.”

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Margaret Rouse
Technology Expert
Margaret Rouse
Technology Expert

Margaret is an award-winning technical writer and teacher known for her ability to explain complex technical subjects to a non-technical business audience. Over the past twenty years, her IT definitions have been published by Que in an encyclopedia of technology terms and cited in articles by the New York Times, Time Magazine, USA Today, ZDNet, PC Magazine, and Discovery Magazine. She joined Techopedia in 2011. Margaret's idea of a fun day is helping IT and business professionals learn to speak each other’s highly specialized languages.