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Touted as the next generation of the Internet, Web3 promises a decentralized, democratized online environment where everyday users are empowered to take more control over their personal data, financial transactions are trustless, and power is distributed among participants rather than centralized entities such as Big Tech companies.
The concept of Web3 builds on the principles of blockchain technology, aiming to create a more inclusive and transparent digital ecosystem in which anyone can participate —and all data is recorded on tamperproof decentralized ledgers.
At its core, Web3 seeks to address the shortcomings of Web2 — the current incarnation of the Internet — which is characterized by the dominance of tech giants, resulting in centralized control over user data and concerns about how that data is used.
By leveraging blockchain and cryptographic principles, Web3 envisions a future where users have greater sovereignty over their digital identities and assets via a combination of decentralized apps (dApps), cryptocurrencies, non-fungible tokens (NFTs), and the metaverse.
However, as the hype around Web3 continues to intensify, a critical question emerges: has this grand vision overpromised and underdelivered? Techopedia spoke to several industry participants for their perspectives.
Creativity Outpacing Technological Abilities
Žiga Drev, Founder and Managing Director of Web3 infrastructure developer Trace Labs, talked to us about expectations exceeding the current reality.
“The overpromising with Web3 came in a similar fashion as it happens with many of the new fundamental technologies — the early phases saw the creativity of possible routes getting ahead of the technology’s abilities or its appropriate route.
“One example from that era that sticks out was an attempt to create a blockchain for yoga classes — safe to say it didn’t really work out.”
“That said, it is important to note that the core value proposition of Web3 of delivering trust for the Internet was delivered as promised, and we continuously see it expanding with growing numbers of cases using it.”
One of the limitations in the ability of Web3 and blockchain technology to meet enthusiasts’ imaginations is the problem of scalability.
Piers Ridyard, CEO of RDX Works, told Techopedia:
“When Web3 jumped into the spotlight, it came with the promise to revolutionize the Internet by building a decentralized, trustless system aimed at empowering the everyday person.
But despite the various innovations such as cryptocurrencies, NFTs, and the metaverse, it has failed to deliver.”
He added: “Most importantly, the blockchain technology that powers Web3 simply cannot scale at a rate sufficient enough to facilitate widespread adoption while maintaining the key tenets of decentralization and security.
“While multi-chain solutions have become the popular answer to this, they are nothing more than a band-aid solution that breaks many of the core benefits of the technology by fragmenting data, assets, users, and dApps. A fundamentally different solution is needed for Web3 to reach its full potential.”
A Way To Go Before Web3 Drives a New Financial System
Web3 has promised to have a profound impact on financial inclusion through decentralized finance (deFi), bypassing the few centralized entities that currently control the world’s financial systems.
“However, building applications that facilitate DeFi is neither a quick nor easy task, and the user experience is inadequate,” Ridyard said.
“Web3 developers typically spend approximately 80 to 90% of their time developing the same basic infrastructures over and over again for different applications.
And despite the majority of developers’ time being spent on security and core functionality, the DeFi space still sees billions of dollars lost each year to hacks and exploits.”
“This, along with the high level of technical expertise needed to build these dApps has resulted in a low number of developers transitioning from Web2; slowing down the development of Web3 apps.”
Web3 applications such as DeFi platforms remain opaque for inexperienced users — the prospect of losing a private key or sending funds into a black hole by entering an incorrect wallet address deter all but the most tech-savvy users.
“With clear challenges for developers creating dApps, it’s not surprising that the user experience of Web3 is further behind than many expected it to be. For most consumers, transacting with cryptocurrencies is a confusing and often scary process,” Ridyard said.
“Complex factors such as backup keys, seed phrases, and transaction processes do very little to instill confidence in a user simply wanting to tap into the power of Web3, and traditional wallets typically look unfinished, with unclear checkout processes.
“As a result, those looking to enter the space often go to centralized entities instead — the very same structures that Web3 and DeFi envisioned disrupting and creating a new wave of risks.
“If Web3 is going to have the capacity and ability to build the decentralized worldwide system it promised, we must look towards alternative infrastructure, such as new independent L1s.
This new cohort of L1s avoided the EVM [Ethereum Virtual Machine], allowing them to scale infinitely and facilitate the quick and easy development of DeFi applications with an enhanced wallet user experience.”
Tokenization of RWAs As One Driver of Web3 Demand
The concept of tokenization — representing ownership of real-world assets with tokens on a blockchain — is increasingly viewed as key to the adoption of digital currencies and Web3 applications.
Miguel Buffara, lead financial engineer at RACE, said:
“The general perception of Web3 often centers on the vast potential to revolutionize asset management and ownership through the application of blockchain technology.
“Yet, as we progress, it becomes evident that the leap from theoretical applications to tangible outcomes has been slower than anticipated. This period should serve as a catalyst in shifting the focus towards the practical tokenization of real, physical assets like real estate, fine art, or airplanes.
The essence of tokenization lies not merely in digitizing assets but in unlocking new realms of accessibility and liquidity in markets previously confined to a select few.”
“The challenge and opportunity for Web3 lies in transforming how we engage with, invest in, and realize value from the physical world, making it imperative to move beyond prototypes to deliver real-world applications, and real-world benefits for consumers and investors.”
The Need for the Web3 Industry to Mature
Moving beyond prototypes to real-world applications is key for the Web3 ecosystem to progress.
Lars Seier Christensen, Chairman of Layer 1 blockchain Concordium, said: “As we turn the corner on the latest market downturn, we are seeing similar, albeit more contained, hype-based conversations and excitement as we did in previous cycles.
“This being said, the industry is moving in the right direction, and the surge of enterprise-use case-focused projects is reassuring. It is just surprising that we have had 15 years with this technology and are just now beginning to expose the real-world potential.
“To continue moving in the right direction, it is crucial for the industry to mature. The stakes are higher, and we are on the verge of seeing an even broader range of traditional players commit to incorporating blockchain tools into everyday life.
To do this, we need to focus on establishing clear, comprehensive regulatory frameworks for blockchain projects and DeFi platforms, which will help protect investors and reduce the appeal of speculative schemes.”
“Additionally, the industry needs to focus on projects with practical, real-world applications and demonstrable utility that can help shift attention away from speculative ventures. Companies need to identify problems before offering solutions.
“Limiting hype-based projects in the blockchain industry requires concerted efforts from regulators, industry participants, investors, and the wider community.”
“By promoting transparency, accountability, education, and regulatory compliance, the industry can foster an environment that values substance over speculation, leading to more sustainable growth and innovation in the long term.”
The Distraction of Cryptocurrency Speculation
Naveen Agnihotri, founder and chief executive officer (CEO) of content verification platform Trust App.
“Blockchain technology comes with the promise of representing information in a cryptographically secure, immutable manner. This includes facts, entities, relationships, ownership — anything.
“While this offers tremendous potential, initial use cases focused on creating tokens, establishing ownership of these tokens, and then speculating on their value going up or down.
“This has led non-tech circles to widely believe that the technology itself has no other function or has been under-delivering.”
“But true innovations arising from blockchain technology are in applications that bring the other capabilities of blockchains to the front. How can we leverage blockchain to represent essential facts, map key relationships, foster collaborations, and define ownership?”
One of the sectors that could potentially benefit most from Web3 approaches in gaming, which can use cryptocurrencies and NFTs to introduce new gameplay features but has been bogged down by speculative frenzy over volatile token prices.
“As someone with over 25 years spent in games, I’ve witnessed the gap between Web3’s promise and reality firsthand,” said Steve Wade, CEO of gaming, social hub, and NFT marketplace Midnight Evergreen.
“There’s no denying the innovation and benefits that trustless and decentralized networks offer but somewhere along the way, we deviated from tangible utility and the concept of making it fun and enjoyable, something that truly attracts end users.
“We’ve become so preoccupied with chasing the next big token high that we’ve overlooked what it takes to craft enjoyable, exciting experiences that give users a reason to journey into the unknown.”
“Throughout 2023, the Web3 gaming scene experienced a lull, and projects struggled to live up to their ambitions, but as we enter 2024, there’s a palpable sense of re-emergence.
“More smart contract and blockchain protocols are integrating Web3 gaming into their ecosystems such as Moonbeam Network and Stardust, which have signaled a renewed interest in realizing Web3’s promises.
“But before we get too carried away, we must acknowledge the challenges ahead and approach innovation with a pragmatic mindset.
“It’s not enough to simply ride the wave of hype; we must demonstrate a commitment to creating games with lasting appeal and real, unique utility.
“By prioritizing longevity over short-term gains, we can rebuild trust and credibility among the Web3 gaming community. This means designing experiences that resonate with players on a deeper level and fostering a sense of community and belonging.”
The Bottom Line
It is clear that despite its challenges and criticisms, it would be premature to dismiss Web3 as mere hype or speculation. The underlying principles of decentralization, trustlessness, and individual data ownership still hold promise for reshaping the Internet and addressing its systemic issues.
However, realizing this potential will require concerted efforts from developers, innovators, regulators, and users alike. Don’t be a solution in search of a problem!
