You have probably heard the terms “Metaverse” and “NFT.” Metaverse refers to virtual and augmented reality spaces that provide an immersive experience for internet users. NFT — which stands for non-fungible token — is a unique digital asset with intellectual property and programmable contracts that improve the process of owning, selling, and trading content such as art, games, music, videos, and much more. Both terms are becoming increasingly popular in our vocabulary, but their creation was only possible due to a third factor whose concept is even more blurred to many of us: Web3.
What is Web3?
When the internet was initially conceived back in the 1990s, it basically comprised read-only websites, with barely any interaction among users. This Web 1.0 naturally evolved until 2004 to a partially editable model made available through social media. The so-called Web 2.0, still widely adopted, enables users to interact with each other more actively, although it offers certain limitations regarding ownership over information.
Years later, in 2008, a person or group of persons known as “Satoshi Nakamoto”, whose real identity is still unknown, created Bitcoin as an attempt to give back to people control over financial transactions, enabling them to be executed without any intermediary and through a reliable and secure mechanism. In early 2009, Satoshi Nakamoto adopted the blockchain as the ideal mechanism for such, mining Bitcoin’s “genesis block” and starting up Bitcoin’s mining and Bitcoin transactions, which became popular not much later.
The creation of Bitcoin (as well as other cryptocurrencies) and blockchain was the main propeller for the conception of Web3, which couldn’t exist without the crypto mechanisms created years ago. In 2014, Gavin Wood, the co-founder of Ethereum and Polkadot, coined the term Web3 (or Web 3.0), envisioning four main core ideas:
Decentralization: Everyone has the right to own certain information, with ownership being distributed between users and builders;
Permissionless: No one needs permission to use Web3, and everyone has equal access to it;
Native payments: Payments are made using Web3 currencies, such as cryptocurrencies and NFTs. Banks aren’t accepted as intermediaries;
Trustless: The way Web3 was conceived allows it to be operated through incentives and economic mechanisms.
Web3 can be described as the newest version of the internet, aimed at putting ownership over information back in the hands of users, as opposed to centralized companies. Currently, much of the Web2 internet user data is still owned by large enterprises with advertising models, which is exactly what Web3 tackles. As the adage goes, “if the product is free, you are the product.” Unlike platforms that collect, own, and monetize users’ data, such as Facebook and YouTube, Web3 allows its users to own and use their data however they wish, which is stored in their crypto wallets and taken away with them once they log off.
How far has Web 3.0 already gotten?
Web3 includes important improvements over Web 2.0, offering unique possibilities for creating new business models that couldn’t be conceived without the decentralized blockchain-based technology on which Web3 is built. Some tangible Web3 improvements include no requirement for personal data to proceed with certain transactions, servers’ stability (which could hardly go down since they work over a decentralized network of thousands of computers as their backend), and increased data security, among other benefits.
And investors are buying into the promise of Web3 as the future of the internet. So far, nearly 16,000 Web3 companies have raised over $88 billion in funding, according to Crunchbase’s Web3 Tracker. Also, revenue from blockchain reached $2.9 billion globally in 2021 and is expected to grow almost 35% every year to $23.3 billion by 2028, according to Vantage Market Research.
The increasing popularity of Web3 can also be observed through the increasing popularity of cryptocurrencies with which it is directly correlated, despite some market volatility. Ethereum, the second most popular cryptocurrency after Bitcoin, has been increasingly attracting users since 2016 in an almost exponential trend that shows no interruption so far.
Even though Web3 is maturing and holds enormous potential, it still has a high level of risk. First, there are technical security issues to prevent hacks and losses. As indicated by Footprint Analytics, in the second quarter of 2022, 48 major attacks took place in Web3, generating losses that add up to approximately $718 million, after the losses equivalent to $1.2 billion during the first quarter of the year. Additionally, the legal and regulatory landscape is still developing, and many grey areas are now leading to litigation and fines from the authorities. This year, for example, BlockFi was fined almost $1 million by Iowa regulators for offering unregistered securities. Another concern faced by multiple Web3 companies is how certain rules apply given Web3’s decentralized attribute. In other words, would it be considered a jurisdiction on its own? If not, how would jurisdictional regulation apply?
Web3 has not yet developed to its full potential, and we’re still primarily living in a Web2 world. But we are getting there — in 2021 alone, more than 34,000 developers contributed code to open-source Web3 projects.
What is it used for?
Web3 aims mainly at decentralizing the internet and promoting a faster and safer way to navigate online, with users owning their own data and experiencing a more customized browsing activity, improved search, and more advanced app interfaces.
The number of Web3 companies and startups has increased substantially month after month. Examples of startups based on the newest version of the web include Braintrust, the first decentralized Web3 talent network that connects talent to companies, with the difference that the more than 700,000 talents are the creators and owners of the community (which ensures that the organization will always work in favor of the needs of its users), and Alchemy, which enables companies to create decentralized applications without having to manage in-house blockchain infrastructure.
Although crypto-exchange companies are still extremely popular in the Web3 universe, other applications based on the web’s latest version capabilities frequently emerge as it gradually becomes the new internet standard.
Limits and Perspectives
Web3 is obviously not flawless and faces some relevant limitations, such as the need for considerable computational power, which sometimes exceeds what most current machines can process. Also, discussions involving social interactions have started to come up in the sense that people will likely spend exaggeratedly more time online as the internet evolves into a whole new cyber-space. In addition, Web3 is not free of cybercrimes, which may be a relevant concern given that an important part of our lives may become digital, accentuating the consequences of one becoming a cyberattack victim.
However, Web3 features multiple essential improvements over its previous version. It has already started to show its potential of bringing structural changes to how we interact through the internet, opening doors to exploring business opportunities that would otherwise not be available. These improvements arise mostly due to decentralization, data protection, lower transaction fees, DeFi yield, and an improved user experience.
In the next few years, Web3 should gradually replace its two previous versions as cryptocurrencies, metaverse and other applications (some of them yet to be created) become increasingly popular. And, in the end, despite still being vulnerable to certain risks and limitations, the gains obtained with the technological improvements brought by Web3 should compensate by far its downsides, opening doors to possibilities that we’ll still discover soon.