Key points
- Web3 (Web 3.0) is a label for the next generation of the internet, spanning both infrastructure and applications.
- There is no precise definition. The idea of Web 3.0 emerged in the 1990s and included notions such as the semantic web. In recent years Web3 has become associated with decentralisation.
- Modern Web3 applications feature attributes such as DAOs, cryptocurrencies, blockchains and decentralised data storage, self-sovereign identity (SSI), the internet of things, metaverses, NFTs and other technologies.
What are Web 1.0 and Web 2.0?
Web 1.0 was the first iteration of the World Wide Web, which began to take off in the early 1990s after the introduction of the HTTP communication protocol. Sites were static pages with text, links and images. Tim Berners-Lee, credited as the web’s inventor, described Web 1.0 as “read-only”. Interaction was limited to simple forms of communication such as forums.
Web 2.0, which spread in the early 2000s, centred on interactive platforms and services connected to the web. Unlike the first generation, sites became web applications that users could operate themselves. Later came social networks and cloud services. Well-known exponents of Web 2.0 include Amazon, Facebook and Twitter.
How does Web3 differ from previous versions of the internet?
In Web 1.0 data were presented to users statically—the web was essentially informational. In Web 2.0 users actively interact with online resources, create content and communicate with one another.
The notion of Web 3.0 dates back to the 1990s. Berners-Lee called it the semantic web. The architecture of the next generation was meant to include several core components. A central idea was to translate human-written content into machine-readable form so that algorithms and programmes could recognise meaning and build connections.
Perceptions later shifted. In 2014 Ethereum co-founder Gavin Wood published an essay recasting Web 3.0 as a more decentralised version of the internet built on blockchains. He proposed changes to data storage and greater user anonymity.
In 2021 the term re-entered the spotlight amid the rise of decentralised applications and NFTs. In the ensuing online debates, the shorter label “Web3” gained currency.
So what, exactly, is Web3?
The crypto community still lacks a settled definition. Its distinguishing feature from Web 2.0 is greater decentralisation at every level, including data storage and application use. Apps of the Web3 era often exhibit one or more of the following:
- a blockchain and smart contracts embedded in specific product functions;
- open-source code with scope for third-party contributions;
- use of virtual (VR) or augmented (AR) reality technologies;
- front-end tools for paying with cryptocurrencies;
- use of non-fungible tokens (NFTs);
- use of the IPFS protocol for data storage;
- project governance via a decentralised autonomous organisation (DAO).
Web3 also envisages the extensive use of artificial intelligence (AI), enabling highly personalised user experiences. That principle underpins the business models of large web platforms such as YouTube, Netflix and Amazon—even though, organisationally, they remain centralised.
Web3 is also closely linked to the notion of the metaverse.
Another key phenomenon in Web3 is self-sovereign identity.
How do Web3 applications work?
Developers of “next-generation” applications aim to decentralise data organisation, including storage. At least some of an app’s data are stored on a blockchain, and thus decentralised.
Product development is undertaken not only by an owner but by a distributed community, which governs the project through a DAO (decentralised autonomous organisation).
Decentralisation underpins what cryptocurrencies and smart contracts have brought to the economy: the removal of trust assumptions, and with that the ability to dispense with intermediaries and centralised structures.
The ideal state of Web3 is freedom from censorship and constraints, and business models that work without hierarchical structures or traditional financial instruments.
Which blockchain projects operate in Web3?
The crypto industry abounds with projects that position themselves as part of the Web3 movement. A few of the largest:
Filecoin (FIL) is a global marketplace for decentralised data storage, an alternative to centralised cloud services. It unites a network of computers whose users can rent out spare disk space. Competitors include Storj (STORJ) and Siacoin (SC).
Data transmission and the internet of things (IoT) also boast successful examples. One is Helium, a decentralised network of specialised modems that provide fast, resilient connectivity for IoT devices, notably smart sensors and meters.
Another is IOTA, built on a type of distributed ledger that eschews blocks and mining. Each new transaction confirms two previous ones. IOTA targets smart devices capable of making near-free microtransactions on the network.
Some projects propose new ways to organise and search for content on the web. The Graph (GRT), a decentralised open indexing protocol for querying blockchain data, serves as an analogue to an internet search engine. It groups information from a given network into so-called subgraphs, which are accessed via an API. Applications can fetch any data from subgraphs using SQL queries.
Polkadot has long positioned itself as a platform for Web3 and, in particular, decentralised applications. Its Substrate toolkit lets developers create individual blockchains (“parachains”) interconnected within the Polkadot ecosystem.
An obvious contender for the main Web 3.0 blockchain is Ethereum, already the leading platform for decentralised applications. Beyond myriad DeFi and NFT projects, a notable service is Ethereum Name Service, which generates domain names tied to on-chain addresses.
Other platforms for decentralised applications used in Web3 include Solana, Avalanche, Polygon and more.
Why do cryptocurrencies matter in Web3?
Many next-generation internet projects issue a native cryptoasset that confers specific functions or user benefits.
One common function is governance. Token holders participate in app governance via a DAO—a decentralised decision-making body powered by smart contracts.
The number of tokens held determines voting weight. DAO members draft and debate proposals and vote on them. Ballots can cover anything from funding a specific initiative to changing an application parameter.
Thus a DAO steers a project’s development and its tokenomics.
Are big internet companies building Web 3.0 too?
The Web3 concept attracts not only crypto projects and startups but also Web 2.0 incumbents—large technology firms.
In May 2022 Google Cloud announced tools for blockchain developers. Former Google chairman and CEO Eric Schmidt called Web3 an interesting idea and highlighted two changes it could bring: user ownership of content and compensation for activity. Ethereum co-founder Joseph Lubin emphasised the decentralisation opportunities offered by the “new version” of the internet.
YouTube plans to introduce Web3 elements into its products. The Opera browser team is adding native support for decentralised applications.
According to Grayscale, annual revenue in the Web 3.0 metaverse sector will reach $1trn. Big firms such as Uniswap Labs, Pantera Capital and Dragonfly Capital have set up venture units focused on developing Web 3.0 applications.
Electric Capital estimates that the number of Web3 developers grew by 75% in 2021.
Why is Web 3.0 criticised?
The fuzziness of the term and its ubiquity have made Web3 a popular target.
For example, entrepreneur Elon Musk said in late 2021 that Web 3.0 is “more a means of promotion than something real”.
Has anyone seen Web3? I can’t find it.
Twitter founder Jack Dorsey criticised the concept for being overly influenced by venture investors, arguing it will therefore never be decentralised.
His company later unveiled its own “new internet” effort, Web5—a platform that lets developers add decentralised data storage and user digital identity to applications.
Cryptographer and Signal founder Moxie Marlinspike noted that ostensibly decentralised apps still rely on centralised services in practice, notably servers and APIs.
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