Web3 is the name technologists gave to the idea for a new type of internet service. It is built using decentralized Blockchains, the shared ledger systems used in cryptocurrencies like Bitcoin or Ether.
Although the term is not new, it has become more popular in the last year. Packy McCormick is an investor who helped popularize web3, . He defined it “the internet owned and controlled by users and builders, orchestrated using tokens.”
Web3 advocates envision it taking many forms. They include decentralized social networks and “play-to earn” video games that pay players with crypto tokens. NFT platforms allow people to sell and buy fragments of digital culture. Some believe web3 will revolutionize the internet, removing traditional gatekeepers and introducing a new digital economy that is free from middlemen.
Some critics think web3 is nothing more than a rebranding effort of crypto with the goal of getting rid of some of the industry’s cultural and political baggage. They also want to convince people that blockchains will be the next phase in computing. Others see it as a dystopian vision, where every social interaction and activity becomes a financial tool to be sold and bought.
Why is web3 so popular?
It is part of the normal mix of hype, marketing, and fear of missing out on the next big thing.
The web3 boom is also indicative of the capital, talent, and energy being poured into crypto start-ups following a long crypto bull market. Venture capital firms have invested more that $27 billion in crypto-related projects alone in 2021 — more than any of the previous 10 years combined. A large portion of this capital has gone to web3 initiatives. Reddit and Twitter are two of the largest tech companies that have started to experiment with web3 projects.
The industry is a magnet for tech talent . Many employees of large tech companies have left their stable, secure jobs to seek their fortunes online.
I would like to learn more about web3. First, could you please remind me of web1 and Web2?
Sure. Web1 is the internet of 1990s and early 2000s, according to traditional definitions. It was the internet of blogs and message boards and early portals such as AOL and CompuServe. The majority of web1’s activities were passively viewed static web pages. Many of these web pages were built using open protocols like HTTP, SMTP, and FTP. (Don’t be concerned about the details — just know that an “open protocol” is a piece or web infrastructure that is not owned by one company and that the idea of open protocols will reappear in a few sentences.
Web2, as the story goes was the next phase in the internet’s evolution, which began around 2005. It was the one that has been dominated by social media giants such as Facebook, Twitter, and YouTube. Web2 (or Web 2.0 as it was commonly called) was when people started creating and publishing their own content. They also began actively participating in the internet, rather than just passively reading it. However, most of this activity was distributed and monetized primarily by large companies who kept most, or all of the money and control.
Web3, according to the story, will replace these corporate platforms with open protocols. These open protocols will be replaced by decentralized community-run networks and open protocols. Web3 combines the open infrastructure of internet1 with web2’s public participation.
Li Jin, a crypto investor, and Katie Parrott , a writer, sketched the web3 vision as follows: “If publishers were favored in the pre-internet/web1 age, and platforms were favored in the web2 era, then the next generation innovation — collectively called web3 — is about shifting the balance of power and ownership towards creators and users.
It sounds exciting, but it is vague. What do web3 advocates actually see that happening?
Web3 supporters argue that a blockchain-based Internet would be a significant improvement on the current one in many ways.
They say that web3 platforms can give creators and users a way of monetizing their contributions and activity in a way that mega-platforms don’t.
Facebook, for instance, makes money today by selling targeted ads and aggregating user data. Users could be able to monetize their data or earn crypto “tips,” by posting interesting content on Facebook’s web3 platform. A web3 Spotify would allow users to purchase stakes in emerging artists and become their patrons, in return for a portion of their streaming royalties. Drivers on the web3 Uber network could own a web3 Uber.
Matt Levine, a Bloomberg columnist stated that Web3’s basic principle is that each product is simultaneously an opportunity for investment.
Proponents also argue that web3 platforms can be democratically managed in a manner web2 platforms cannot.
Internet giants such as Twitter and Facebook are basically autocracies. They can unilaterally take usernames , ban users or modify their rules at will. These decisions could be delegated to users through a blockchain-based social network, which could allow them to vote on how they should be handled.
They also claim that web3 will be less dependent on advertising-based business models as web2. People would enjoy more privacy with fewer tracking and targeted ads following them and less data being gathered by giant corporations.
This is web3’s idealized version. It was created mainly by people with a financial stake. Reality could be very different.
Which web3 app is an example that’s currently available?
Axie Infinity is a videogame developed by Sky Mavis in Vietnam. It uses NFTs as well as Ethereum-based cryptocurrency to reward players for achieving specific objectives.
Players can create Axies and fight against other players by “breeding” them. You can also earn virtual money, called Smooth Love Potion or SLP. These can be traded on cryptocurrency exchanges. It was called “Pokemon on blockchain” by Casey Newton in an article.
Axie Infinity is a popular game that has attracted millions of players. This includes many people from the Philippines, who earn a living playing the game. However, the game’s dependence on crypto tokens makes it volatile. Players can lose their money if token value drops, as did last year.
This sounds like gambling.
It is. Gambling is a hugely successful business! Web3 folks would argue that even if you spend hours playing video games, it should be possible to make a living from it.
Is there another app that can help me understand the web3 hype and how it works?
Although it’s not as glamorous as a videogame, I think Helium is a great example of a web3 project which demonstrated how it differs from other technologies.
Helium is a crowdsourced, crypto-powered wireless network. You can sign up to share bandwidth with the Helium network from your home or office Wi Fi networks using a special device that plugs into your router or computer. They get Helium tokens for sharing their bandwidth with nearby devices. They get more tokens the more hot spots they use. Helium currently has over 500,000 hot spots, many of which power connected devices such as electric scooters and parking meters.
A similar network could be built without crypto by going door to door and trying to persuade people to share some of their internet bandwidth with other devices. You could also spend billions of money to create such a network if you are a large telecom company, like Verizon or AT&T. Helium, however, was able to create a network with minimal upfront costs. It allowed people to earn crypto tokens to add coverage to the network. This effectively used crypto’s popularity as a way to finance the construction.
One of the many benefits of web3 is its incentivizing people to do things that they may not normally do.
This is part of the deal. Web3 advocates believe that examples like this are only the beginning.
We’re now venturing into the realm of the theoretical. However, some believe that web3 could be the backbone for a new tokenized society.
“Web3 will host our financial institutions and social interactions as well as personal identities in the not too distant future,” Lior Messika (a crypto investor) told TechCrunch .
There has been much discussion about “decentralized identification”. This is the idea that we all could have a reputation score that is based on a blockchain-based record of our jobs, contributions to projects, and events. These records could be used to record our online lives and allow others to look at them to determine if they want to hire us, date us, or trust us with a task.
This sounds scary. Is there an episode of “Black Mirror” about this?
Yes, existed before. The persistence of web3 and its dependence on volatile crypto market is why the larger web3 vision has met with such resistance.
Robin Sloan, a technologist and writer, stated that the ability delete things was a desirable feature of internet services.
Stephen Diehl, a computer programmer and outspoken crypto detractor, went even further, calling web3 “the hyperfinancialization of all human existence.”
Strong words! Are there any other objections to web3’s functionality?
Some skeptical people believe web3 isn’t practical from a technical standpoint. Some skeptics point out that blockchains can be slower and less efficient than standard databases. They also claim that the most popular blockchains today are not capable of handling the volume of data used by Uber, Facebook, and YouTube every day. They argue that web3 services must perform as consumers expect. To do this, you need to build centralized services over them. This would defeat the purpose of web3 services.
Some people believe web3 is a scheme by wealthy investors to give lip service to decentralization and build new, central services they control, making them the new middlemen.
Was that Jack Dorsey’s Twitter fight about?
Yes. Yes. He is also skeptical about other cryptocurrency, such as Ethereum, which most of the web3 ecosystem uses.
In a series of tweets from December, he criticised web3, saying it was “ultimately central entity with a new label”. He also attacked Andreessen Horowitz (a well-known venture capital company that invests heavily into web3 projects), implying that web3’s vision would remove users from the control and place it in the hands wealthy investors and centralized tech platforms.
What are regulators saying about web3?
However, the topic was brought up at a recent congressional hearing.
The industry may face obstacles if regulators pay more attention. The fact that crypto tokens, which are crucial to many web3 applications, currently exist in the United States’ regulatory gray zone is a potential problem. Gary Gensler (chief of the Securities and Exchange Commission) has stated that tokens are not registered securities and that platforms that offer tokens should follow the same rules as those that issue stocks and bonds.
Tokens , which crypto companies argue should be considered a new type of asset and not covered under existing securities laws, are countered by them. It’s unclear if they will win this argument. Many of the U.S. web3 startups will have to treat their tokens like securities if they are required to do so.
What is web3’s relationship to the metaverse?
If you have been following, the metaverse is the term we use these days to describe immersive digital worlds where users can socialize and play games together. This is the vision Mark Zuckerberg set out when he changed Facebook’s name to Meta. Some crypto supporters believe web3 is an important part of the metaverse because it would allow the creation of metaverses not controlled by one company or governed under a single set rules.
If the web3 crowd is successful, many metaverse objects could also be crypto tokens. A metaverse avatar could be a NFT. You might be able to join a DAO or receive governance tokens for your metaverse house. You might be able to bundle the mortgage from that house into a security token that is mortgage-backed and sell it on a decentralized exchange.
Okay, my head is spinning.
That’s fine. This stuff is mostly theoretical. You have plenty of time to research it if it does come to fruition.
Web3 is a term you will hear a lot over the next few decades as people attempt to understand the new world of platforms, experiences, and moneymaking opportunities that crypto enthusiasts are creating.