According to Statista, in 2022 the number of Internet users surpassed five billion. Of them, 4.7 billion people hold social media accounts — more than half of the world’s population.
Significant segments of the World Wide Web are dominated by large tech companies that censor user content and reap enormous profits from personalised advertising.
In response to the resulting oligopoly, the next generation Internet is confidently developing — Web3. It rests on decentralisation and aims to empower ordinary people, making them full owners of digital content and removing censorship.
- The concept of Web3 originated several decades ago, but interest in it has revived in recent years amid the popularity of cryptocurrencies, DeFi and NFT.
- The core principles of the ‘new Internet’: decentralisation, universal accessibility, native payments, and the absence of the need to trust a third party.
- There are several obstacles on the path to mass adoption of Web3. Yet developers are working to improve user experience, scalability, composability, reduce dependence on centralised services, and lower technical barriers for ordinary users.
A look into the past
The Internet is firmly entrenched, a familiar element of modern life. Many may think it has existed since time immemorial. Yet the current form of the World Wide Web differs markedly from its origin. To better understand Web3’s essence and distinguishing features, one should look to history.
In 1989, while at CERN, Tim Berners-Lee proposed the global hypertext project, now known as the World Wide Web. The project was approved and implemented.
The first version of the World Wide Web — Web 1.0 — began gaining popularity in the early 90s, after the adoption of the communication protocol and HTTP. Websites of this version were accessible ‘read-only’ static pages with text, links and images.
The Web 2.0 era began in 2004 with the emergence of social networks, interactive platforms and services. Websites transformed into web applications that users began to use independently, interacting with other participants in the World Wide Web.
Cloud services also emerged. The largest provider of these is the American company Amazon.
«As more and more people connected to the Internet, a few leading companies began to control an outsized share of the traffic and value generated on the network», noted the experts at Ethereum.org.
According to them, Web 2.0 also gave rise to an advertising-driven revenue model. Under this model, users could create content but did not own it and did not benefit from its monetisation.
Web3
The concept of the next generation Internet originated in the 1990s. In 2014, soon after the launch of Ethereum, Gavin Wood published an article. In it he described Web3 as a more decentralised version of the network built on blockchain. His proposals primarily concerned changes to the data storage system and increasing user anonymity.
«Gavin articulated a solution to a problem that troubled many early cryptocurrency followers — the Internet demanded too much trust», emphasised the authors of the article on Ethereum.org.
Interest in the new concept revived in 2020-2021 amid the surge in popularity of decentralized applications and NFT.
The term Web3 is rather blurred, which leads to confusion in the community, and the idea itself attracts criticism.
Has anyone seen web3? I can’t find it.
— Elon Musk (@elonmusk) December 21, 2021
«Has anyone seen Web3? I can’t find it», quipped Elon Musk.
The term has become something of a universal definition of the new, better Internet. Perhaps the best articulation came from Equation Capital’s Investment Director Khim Gadzhriya.
Web 1: Read
Web 2: Read-Write
Web 3: Read-Write-Own— him.eth (@himgajria) May 29, 2020
«Web 1: чтение
Web 2: чтение-запись
Web 3: чтение-запись-владение», — написал он.
To better understand the features and to identify the main differences from earlier iterations of the World Wide Web, the following principles can be highlighted:
- Decentralisation. Users own the content, not large corporations;
- Universal accessibility. Everyone has equal access to Web3, no one can be excluded from the ecosystem;
- Native payments. Using decentralised protocols instead of banks and payment systems built on outdated infrastructure;
- No need to trust a third party thanks to the use of various economic incentives and other mechanisms.
Now consider the main killer features of Web3 that determine the importance of the new concept.
Web3 endsows users with ownership rights to their digital assets.
Suppose you are playing a Web2 game. An in-game item you acquire is bound to your account. If the publisher deletes your account — you will lose it. If you stop playing, you might lose the value invested in the digital object
Web3 opens up the possibility of direct ownership of items via non-fungible tokens. In this case neither game creators nor anyone else can deprive you of digital ownership. If you stop playing, you can sell in-game items on the market, recouping the costs.
Web2 platforms require trust in themselves from content creators. The latter must also adhere to certain rules. A key distinguishing feature of Web3 platforms is resilience to censorship.
Beyond secure ownership of data in the new ecosystem, you can also act as owner of the platform. This uses governance tokens, performing functions similar to shares.
DAOs allow everyone to participate in the development of projects, voting on a wide range of decisions—from integration with new blockchains to changes in monetary policy.
DAO features exist in many Web3 communities. The latter, however, differ in the degree of decentralisation and automation by code.
Most Internet users have accounts on major Web2 platforms such as Twitter, YouTube, Facebook or Reddit.
«With a single click of a mouse these services can block your online life. Worse still, many platforms require you to share personal information to create an account», emphasised the analysts at Ethereum.org.
Web3 solves these problems by giving users the ability to control their digital identity through tools such as ENS.
The payments infrastructure of Web 2.0 relies on traditional financial institutions and processors, excluding people without bank accounts and those living in sanctioned countries.
Web3 applications use cryptocurrencies and tokens, requiring only a browser and a suitable extension such as MetaMask to interact.
Unresolved (so far) problems
When discussing the benefits of the “new Internet,” it is fair to mention the drawbacks and issues that still require resolution.
Important features like Web3-wallet logins are free and have long been available. However, transaction costs, especially on the Ethereum network, are relatively high. This can hinder the mass adoption of cryptocurrencies and dapps in developing countries.
Nevertheless, developers are tirelessly addressing the scalability problem, which pushes up gas prices during periods of on-chain activity. We see the development and refinement of layer-2 solutions (L2).
In Ethereum’s roadmap there are other optimisations planned to make transactions cheaper and reduce the cost of interacting with complex smart contracts.
Another issue is the user experience, tied to relatively high technical barriers. Participants need to understand what a private key is and why it should be kept secret, understand the basics of cybersecurity and navigate the interfaces of decentralised applications.
Developers are not sitting idly by, building more intuitive services. Yet, there is still much work to do before Web3 becomes a truly mass phenomenon.
The ecosystem of the \”new Internet\” is rapidly evolving, but still largely relies on centralised infrastructure (GitHub, Infura, etc.). Some services like Lido and Flashbots are trying to fix this, but building a reliable foundation for trustless Web3 applications requires significant effort and time.
For example, Animoca Brands head believes that building a 3D Internet based on metaverses will take ten years or more. In his words, virtual worlds require content interoperability.
Founder of ConsenSys and one of the creators of Ethereum, Joseph Lubin described today’s virtual worlds as the Internet of 1994. He believes that in many years metaverses will transform everyday life.
CEO of Aave Stani Kulechov is convinced that Twitter will not move to the blockchain. In his view, Web3 social networks will be a network of new projects rather than an upgrade to existing platforms.
Current trends in Web3 development
The relentlessly bearish market has hit the crypto industry hard; the DeFi segment was no exception.
Compared with late-2021 levels, the total TVL of decentralized applications fell by about 75% — from $180bn to $44bn.
The graph below shows that the largest category Games remained buoyant — active user numbers fell only slightly.
The other segments fell significantly in this metric. Notably, DeFi and NFT (Collectibles). There was notable growth in High risks and Gambling.
Over the year, the total number of users (across all categories) declined by just 3.5%. Weekly transaction volume, however, rose by 8.13%.
On the other hand, the total turnover of Web3 platforms fell by more than 85%.
Ethereum remains the leader in TVL, by a wide margin ahead of rival ecosystems such as BNB Chain, Tron and Polygon.
Notably, there is a rapid rise in addresses in the NEAR Protocol ecosystem. A similar dynamic can be seen in daily transaction volume and developer activity metrics.
Against the backdrop of broad declines in TVL, the Tron ecosystem grew by more than 50%.
The amount of funds in Justin Sun’s supported platforms began to grow after the collapse of Terra and nearly simultaneous launch of the algorithmic stablecoin USDD.
Experts from CoinMarketCap and TokenInsight noted growth of the ecosystem based on Optimism’s Layer-2 solution — 161.62% in Q3. They observed that the platform significantly narrowed the gap to the segment leader — Arbitrum.
Researchers also concluded that, in a bear market, stablecoins have become more actively used as collateral in lending protocols.
Key takeaways from DappRadar’s October report:
- Dynamic of unique active Web3 wallets shows signs of recovery, though the figure remains 31% below year-ago levels;
- Arbitrum and Optimism, thanks to integration with Lido, increased active wallets by 501% and 83.31% respectively;
- Google Cloud integration with NEAR Protocol positively affected NEAR’s key metrics — active wallets rose by 1332.85% versus September;
- Despite substantial declines in NFT trading and selling volumes, the number of unique NFT traders rose by 18% in October.
Developers are pressing on, regardless of price dynamics.
The Web 3 concept attracts not only crypto projects and startups but also traditional Web 2.0 players — large tech companies.
In May 2022 Google Cloud announced the start of development of tools for blockchain developers. Eric Schmidt, former Chairman and CEO of Google, called the idea of Web3 interesting and highlighted two changes the new generation of the Internet will bring — user ownership of content and compensation for activity.
In November the cloud platform announced the launch of a Solana node and the addition of blockchain support to the Web3 developers service Blockchain Node Engine.
The co-founder of Ethereum Joseph Lubin noted the potential for decentralisation and the transformation of conventional business models offered by the \”new version\” of the Internet.
YouTube plans to implement Web3 elements in its products. Support for decentralised applications at a native level is being developed by the Opera browser team.
Despite mass layoffs and huge losses of Reality Labs, Meta remains mulling the metaverse as the future of humanity.
According to Grayscale, annual revenue growth for the metaverse sector will reach $1 trillion. Notable firms such as Uniswap Labs, Pantera Capital and Dragonfly Capital have established venture units focused on Web3.
According to Electric Capital’s study, in 2021 the number of developers of the \”new Internet\” increased by 75%.
Conclusions
Web3 is a young, evolving and expansive ecosystem. While the origins of the \”new Internet\” trace back to the 1990s, the concept has only recently become truly topical.
Large companies are investing substantial sums, experimenting with NFTs and metaverses, assessing their potential. Developers are working on solutions for scalability and decentralised data storage, improving the user experience of applications. New forms of governance and community organisation are being tested, with SSI being introduced.
Nevertheless, on the path to mass adoption of Web3 there remain many obstacles. A key challenge is dependence on centralised platforms. Many projects are trying to fix this, but building a robust foundation for trustless Web3 applications requires considerable effort and time.
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