What is this Web3 all about?

It's more than a buzzword – and it may become a better version of the current internet

Hi all,

Have you come across the term "Web3"? It has been thrown around for a couple of years but nobody really knows what it means.

That's not different than other buzzwords. What really is "cloud computing", "artificial intelligence" or even "Web2" (when that was still a thing)?

So what’s up?

It's very likely that you'll come across the term Web3 a bit more often in the coming months (we'll get to the reasons later). That's why we'll look at:

  • Where does the term come from?

  • How do you explain it without tech jargon?

  • What are current and potential problems?

Let’s get started! 🤓

The idea for Web3 sounds great. In a nutshell, it's supposed to be nothing less than a better internet. "Better" in this context means by and large less centralised around social media giants and large tech corporations.

In an ideal world, Web3 gives users direct ownership over their digital identity. Your Instagram or TikTok profiles are perfect examples. Are you creating content and have lots of followers? Then you can't just move to another platform and take them with you. With Web3-based social media platforms, that becomes possible.

You're not an influencer (yet)? You still have a profile which is your digital identity. That's used by Instagram, TikTok and other platforms to show you ads. After all, that's how social media companies make money.

And when you use one account to sign in to another website, it's convenient – but you're also handing over a lot of data in the background.

If the service is free, you're the product. Companies make money with data gathered from your behaviour.

In Web3, users are much more in charge about what data they want to share. That leads to interesting questions about who can earn money and how that's supposed to work in the first place. Let's not get ahead of ourselves though; we'll look at the basics first.

Where does the term come from?

It's not clear when "Web3" was used for the first time. According to Wired, it was coined by Gavin Wood in 2014. In any case, it only really took off in 2021

Even then, it remained largely an idea. For enthusiasts, that's attractive because there are a lot of possibilities. For sceptics, there wasn't much around to judge – and that hasn't changed a lot until today.

The reason is simple. Web3 is heavily linked with decentralisation and therefore with blockchains and cryptocurrencies. In the wake of the Covid-19 epidemic, cryptocurrencies took off in 2021 (parallel to stock markets). The hype suddenly stopped in November 2021. Prices crashed, funding for innovative projects quickly dried up.

In recent months, cryptocurrencies have once again gained a lot of attention. In January, the approval of Bitcoin ETFs in the US provided further credibility to the industry as a whole. By extension, Web3 has become fashionable once again. Investors are more optimistic, even though they remain cautious.

How do you explain Web3 in simple terms?

In an ideal world, Web3 combines the first two versions of the internet. The modern web has brought us easy-to-use apps and slick user interfaces. That's largely because tech giants like Google, Meta and others are really good at providing a great user experience. Why are they so good at it? Because it leads more or less directly to even higher profits – and to even more centralisation.

That's not how the internet was supposed to look like in the late 90s and early 2000s. Back then, it was largely built on open-source protocols. Every user had the same opportunities. You had to be quite tech-savvy to publish content though.

For most people, the early internet was therefore read-only. Web2 was then read and write: you could post thoughts or pictures without your own website. In exchange for maintaining servers and providing a free-to-use platform, Web2 companies began to gather huge amounts of data about users.

In Web3, the users of a platform are supposed to own a piece of it. Blockchain-based apps can – for example – issue tokens to their users. These tokens could provide them with a share of the profits or with governance rights, similar to traditional stocks. They could also be used for payments within the respective ecosystem, similar to a traditional currency.

This version of the internet would be read, write and own. It's a catchy description that has even become the title of a book.

Some issues with Web3

The idea sounds great – but the world is rarely ideal. Some important issues with the ideas mentioned above are:

  • Lack of decentralisation: Most current Web3 components are still heavily centralised. Bitcoin, for example, is responsible for around half of the market value of all cryptocurrencies. In many blockchain projects, early investors and/or adopters gain a huge advantage over regular users.

  • Regulation: Cryptocurrencies are not controlled by a central bank, tokens are not the same as traditional stocks. At the same time, they share a lot of characteristics, leading to questions over how (and if) they should be regulated. Uncertainty complicates the situation for users and developers alike.

  • Interoperability: Blockchains offer a lot of potential. In fact, they offer so much potential that a lot of blockchain projects have popped up in recent years. That makes the tech side more complicated which is often a very practical issue for users.

  • Understanding and adoption: The idea of Web3 may be appealing, day-to-day usage is often complicated. Crypto wallets have come a long way but potential users face more complexities than on traditional Web2 websites. For tech-savvy enthusiasts, that's not a major issue. For mainstream adoption, it must be more intuitive.

 Tech problems may be complicated, yet those issues can be solved if the incentive is big enough. Regulation poses an extremely different set of challenges. Progress has been made, but it remains slow.

Whether Web3 will bring all the idealistic visions into life, however, depends on other factors as well. It's easy to find promising signs as well as reasons to be wary. We'll cover both sides in our upcoming newsletters.

Make sure you don’t miss anything: Subscribe now so that you’ll get our content as soon as it’s ready. We’ll really try not to be boring.

That’s the end for today! 😢

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