What Exactly Is Web3? Explanation of the Confusing Term

Who knew there were sequels on the internet? You’ll almost certainly come across the hazy term “Web3” if you read anything about Bitcoin, NFTs, or the metaverse. Web3, as coined by Ethereum’s co-founder, is what crypto fans refer to as the internet’s next phase.

Web3 can be defined in two ways. A blockchain-integrated internet, or an internet where cryptocurrencies and NFTs are incorporated into the platforms you use, is a simple and clear definition. Web3 can also be seen of as a user-owned internet, which is a more difficult but more specialized way of thinking about it. That’s the hope of cryptocurrency supporters, who believe that integrating blockchain technology would result in a more equal internet.

The argument is the following: The present internet is controlled by a small number of organizations, the most prominent of which are Facebook, Amazon, and Google, resulting in e-feudalism, in which internet users toil on the holdings of a few large corporations. Web3, which eliminates the intermediary by utilizing decentralized technology, is the solution.

In a 2018 blog post, ethereum co-founder Gavin Wood noted, “Take how we pay for goods online.” “You do not have the authority to make payments on your own. In truth, you’ll have to ask your banking institution to do it for you. You can’t be trusted to accomplish anything as simple as paying your water bill. You’re treated as if you’re a youngster pleading with a parent.”

When it comes to cryptocurrency Web3 payments, money can be moved from one wallet to another using an open-source protocol rather than through a banking institution.

Some go even further, envisioning a decentralized internet with platform ownership distributed among users. Take, for example, Facebook. An initial public offering would not be held for a hypothetical Web3 version of the social network. It would instead create a cryptocurrency token and distribute it to early adopters as an airdrop. People would be rewarded if their content became viral. Perhaps engagement would be rewarded with tokens. Those coins might also serve as governance tokens, allowing users to vote on content moderation and other policy decisions.

Because the value of those tokens is tied to the platform’s success, everyone who owns them has an incentive to make Facebook as enjoyable as possible.

When proponents of Web3 talk about “decentralization,” a word that makes your eyes glaze over, they’re essentially talking about taking a web controlled by a few companies and spreading that power among users. Critics, on the other hand, term it a pipe dream that is technically impossible to realize.

What are Web1 and Web2?

A Web3 necessitates the existence of a Web1 and a Web2. These definitions, thankfully, are a lot easier to comprehend.

The original version of the internet is known as Web1. It’s the internet of the 1990s and early 2000s, dubbed the “read” internet by some. It refers to static webpages where users may only view and (slowly) download information.

It was at this time that the internet started attempting to mimic established media, such as computerized copies of periodicals, newspapers, and newsletters. It was also important to note that the protocols it used were open source.

Web2 was the first “read/write” internet, which debuted in 2004. The term “read/write” refers to people’s ability to both upload and download data. Consider sharing updates and photographs on Facebook, as well as posting videos to YouTube. Web2 can be thought of as the social media period, when the internet transitioned from a digitized version of current media to its own entity. However, this paved the door for the growth of platforms, which have come to dominate the internet.

In fall 2021, Chris Dixon, a partner at renowned Silicon Valley venture capital company Andreessen Horowitz, wrote, “We are now at the beginning of the web3 age, which blends the decentralized, community-governed ethos of web1 with the advanced, modern capabilities of web2.”

Is Web3 Related to the Metaverse?

Yes. Many believe the metaverse will be the face of blockchain technology, much as platforms like Facebook and YouTube were the result of technological developments that permitted data uploading and cloud storage. The transformation of Facebook into Meta in October indicated the business’s shift from a Web2 to a Web3 company.

Metaverses like Decentraland and Sandbox, on the other hand, embody the Web3 spirit. These are virtual worlds with a fixed amount of virtual land that can’t be increased or decreased. People can purchase the land and do whatever they want with it, like creating games, businesses, and fashion districts, selling advertisements, or simply building a house. (For example, Snoop Dogg owns a mansion in Sandbox where he hosts parties and concerts.)

Are There Downsides?

Depends to whom is this question asked, the answer can vary from one person to another. Many argue that tokenizing involvement on social media sites such as Facebook and Twitter will generate detrimental incentives to interact at all costs. Others, such as Elon Musk, doubt that Web3 exists at all. “More marketing jargon than reality,” says the Tesla and SpaceX creator.

Beyond conceptual differences, there is skepticism about whether a full Web3 can be implemented technically. Critics say that the Web3 utopias commonly imagined by proponents would necessitate the very centralization that is being criticized.

Ethereum, the blockchain that underpins the majority of this, is infamously inefficient. Transactions are both time and energy consuming. People are working on alternatives, such as programs developed on top of Ethereum to make it more efficient and the adoption of carbon-neutral blockchains like Solana, but some people believe that widespread blockchain activity is technically impossible.

“On a compute basis, blockchain networks don’t scale except by becoming the very same plutocratic and centralized systems they allegedly were designed to replace,” programmer Stephen Diehl said in December. “Blockchain solutions are vastly more expensive to maintain than centralized solutions, and centralization always wins purely from its ability to physically serve data over a network to customers more efficiently.”

Concerns have also been expressed regarding how economically decentralized Web3 can be. Big venture capital firms have poured money into Web3 technologies, with a total investment of just about $18 billion last year. These big firms, according to Twitter co-founder Jack Dorsey, will own the industry.

“It’s ultimately a centralized entity with a different label,” Dorsey tweeted in December. “Know what you’re getting into.”

Disclaimer: The opinion expressed here is not investment advice – it is provided for informational purposes only. It does not necessarily reflect the opinion of EGG Finance. Every investment and all trading involves risk, so you should always perform your own research prior to making decisions. We do not recommend investing money you cannot afford to lose.