Web3 is a decentralized ecosystem of technology products, which will be based on blockchain networks and interoperable without the use of traditional trusted validators (such as government agencies, corporations, or institutions). What does all this actually mean?
What is Web3?
Web3, the term Gavin Wood, president of Web3 Foundation, coined the term. It is the next phase in the internet, and perhaps the most important step towards organizing society. Web1 was an era of open and decentralized protocols. Most online activity consisted of browsing static pages. Web2, the current era, is one of centralization. This is when a lot of commerce and communication takes place on closed platforms.
Web3 however, aims to address all of the issues that arise in Web2 and gives individual users data ownership and control over their digital identity. Currently, large technology companies own Web2.
Web3 is a decentralized online ecosystem that uses blockchain. This is illustrated in the following figure. It shows the architecture of Web2 applications compared to Web3 applications.
Web3 platforms and applications will be created by people, not a central gatekeeper. Web3 will focus on humans.
Trust and decentralization on the Web3
Web3 will not rely on one server. Instead, it will be built on top blockchain networks. This is powered by cryptography, which makes it possible for data to be stored across multiple devices (also called “nodes”) all over the globe.
These distributed devices can be any type of device, including computers, laptops and even more powerful servers. These devices are the foundation of blockchain networks and communicate with one another to allow the storage, dissemination, preservation, and transmission of data transactions without the assistance of a trusted third party validator (such a corporation, institution, or government).
It is possible to create a decentralized record of property transfers thanks to nodes that run blockchain software. This is unprecedented. Because Web2 was built, it was inevitable that we would have to give our data to technology companies and governments as well as their respective centralized storage servers.
We had to be sure that the traditional third-party validators would treat our data ethically and securely. Surprised when we learned of the Facebook Cambridge Analytica data scandal.
Related: A letter from Zuckerberg: The Metaverse may not be what you think.
It is easy to have our data transacted via “behavioural futures market” in the current web structure. This is without our knowledge or understanding the impact it has on us. It is not surprising that Web3 requires data ownership and decentralized identity (also known as self–sovereign identity).
Automate trust through interoperability via Web3
Web3 allows self-sovereign data ownership and identity to be managed by individual users via digital wallets like MetaMask (compatible for Ethereum blockchain) or Phantom, (compatible with Solana Blockchain). These digital wallets function much like a real wallet. A digital wallet acts as proof of your Web3 identity and securely holds both your currency, and your data.
Interoperable means that this wallet can be easily created online and used with multiple products and systems. This allows the user to select which decentralized applications have access and control their identity and data. All transactions and interactions made on the blockchain network can be done without permission. They don’t need to be approved by a trusted third party validator. How important is this?
Individuals must log in to Facebook or Google to access many online apps. This forces them to give their data to companies. Web3 will allow individuals to own their digital identities. Web3 replaces third parties with blockchain technology to unlock new business models and value chains that are not dominated by centralized intermediaries. Web3 ultimately takes power from intermediaries and gives that power back to the individuals. You might be asking yourself if this power shift really is possible.
This is actually what we’re already witnessing with nonfungible tokens (NFTs). Content creators are now exploring new ways to get the majority of their revenue, as I mentioned in another article in this column. Smart contracts are a key factor in this. They enable secondary royalty structures that allow creators to get paid for every work that is sold on the open market. Creators now earn more than ever thanks to this fundamental shift in the value chain.
Web3 has also created new economic organizations, the DAOs. These autonomous, decentralized organizations serve as a key function in interaction within the Web3 space. Let’s find out why.
Related: DAOs form the foundation of Web3, the creator economic and the future work
DAOs are a self-managed, unique organization that is solely managed by blockchain smart contracts. They have their own rules and bylaws, which replace the day-to-day management with self-executing code. A DAO has the advantage of being transparent, unlike traditional businesses.
Anyone can see and analyze all actions and funding of the DAO. Transparency reduces corruption, fraud and illicit activity by making sure that important information is not censored.
It is also blockchain technology that ensures the DAO’s purpose remains intact. Because DAOs work with smart contracts, just like NFTs. These smart contracts can trigger an action when certain conditions are met. A smart contract, for example, can be used to ensure that DAO proposals receive at least a certain number of affirmative votes.
DAOs are not like traditional organizations, which operate from the top, and allow all members to participate in key decisions that affect the wider group, rather than the primary shareholders.
DAOs are also more accessible for the average person because the entry barrier is lower. Most often, wealthy and well-connected individuals are the only ones who can invest early in an organization and reap the greatest financial returns.
This is not true for DAOs. They are easily accessible worldwide and much cheaper than traditional DAOs.
DAOs can be used to manage communities and to fund projects. for example, managed a NBA basketball team and tried to purchase a first-edition printed copy of the U.S. Constitution. It is not always an easy path to Web3.
Related: Day trading your favorite team’s fan tokens
What are the main concerns about Web3?
Web3 technology users must learn and experiment a lot. Web3 applications lack user-friendly design, which can lead to a difficult learning curve.
These factors can be a major barrier to entry for many people. When we look at the time needed to explore and develop software code, as well the current focus of developers we see how far away the user experience is from being a priority.
Web3 platforms can be difficult to use. However, this is because most developers are still working on the underlying technologies.
What is the future of the internet?
Each significant change is fraught with high risks. Web3’s greatest advantage is its intention to give data ownership back to the true owner, the human being. However, this is Web3’s biggest challenge.
It is clear that the mature Web3 space is still far away and no one knows what its final form will be. The Web3 infrastructure will be completely decentralized and utilize peer-to-peer networking, so people will be responsible for their data as well as their crypto actives.
This will require users to overcome cultural barriers and change their behavior. They will need to understand digital wallets and how public and private keys function, what cybersecurity practices are best, and be alert for phishing scams. Users will not allow third parties to secure their identity or data. They will have to be vigilant and responsible for their security at all times.
Security is not yet a universal truth on Web3. The blockchain may be trusted, but can you trust yourself? There are also scaling issues. Although decentralization is not a bad thing, Web3 transactions are slower because decentralized networks don’t scale well at this stage in development in blockchain structures.
There are also gas fees, which are payments made by users to use Ethereum blockchain, one the most popular and widely used blockchain platforms. In other words, gas is the cost to conduct a successful blockchain transaction. During peak times, these fees can increase the transaction’s value to hundreds of dollars.
There is also the problem of decentralization. Although blockchain networks and DAOs are decentralized, many Web3 services that use them currently have limited control. There are legitimate concerns that the Web3 industry, which is supporting the decentralized web, is highly centralized.
Web3 is still young and people are working hard to solve current problems.
How about you? Are you optimistic that we will see a new era of a decentralized, privacy-focused internet? If the Web3 developers are successful, do you believe we will get there?
Knowledge is power
This article is not intended to provide investment advice. Every trade and investment involves risk. Readers should do their research before making any decision.
These views, thoughts, and opinions are solely the author’s and do not necessarily reflect the views or opinions of Cointelegraph.
Tatiana Revoredo was a founder member of the Oxford Blockchain Foundation. She is also a strategist in Blockchain at Said Business School, University of Oxford. She is also an expert on blockchain business applications at The Massachusetts Institute of Technology. The European Parliament invited Tatiana to the Intercontinental Blockchain Conference. In Brazil, Tatiana was also invited to the public hearing about Bill 2303/2015. She is the author two books, Blockchain: Tudo O Que Voce Saber as well as Cryptocurrencies In the International Scenario – What Is the Position Of Central Banks Governments And Authorities Regarding Cryptocurrencies?