A Comprehensive Guide to Web3: The Future of the Internet

BY Randy Ginsburg

February 24, 2022

By now, you’ve probably heard the phrase “Web3” more than a few times. Maybe it came up at work, at the gym, or at dinner during a friend’s ten-minute rant about why “Dogecoin is taking SpaceX to the Moon.”

All this talk about Web3 can be a little disconcerting. After all, most of us are still adjusting to the new socio-political reality that social media created, so the thought of a new version of the internet can be overwhelming.

But we’re here to define the necessary terms and unpack Web3 — the next stage of the internet. 

Before we begin, it’s important to note that Web3 is still in its infancy. As such, it’s rapidly evolving, and it will continue to evolve for quite some time. But although the full impact and ultimate form of Web3 won’t be realized anytime soon, we do have a firm understanding of its foundational principles. Namely, it’s centered on an ecosystem of technology projects that are: 

  • Decentralized
  • Trustless
  • Permissionless
  • Interoperable

To break down exactly what these concepts mean and why they’re so fundamental to Web3, it helps to take a trip down memory lane. Discussing the history of the internet makes where we’re going a lot clearer.

What was Web 1.0?

So far, there have been two previous iterations of the internet: Web 1.0 and Web 2.0. Web 1.0 was the dinosaur age of the internet, spanning from the mid-1980s to the early 2000s. It was born out of work that began in 1973 when the U.S. Defense Advanced Research Projects Agency (DARPA) started research on protocols that would allow computers to communicate over a distributed network. For the uninitiated, protocols are standardized, predetermined rules that let connected devices communicate with each other across a network. 

The earliest version of the web was decentralized, meaning that it was built on top of a series of free-to-use, open protocols. Unlike proprietary protocols, open protocols are not owned by a centralized authority or limited to a particular company’s products. Many of these early web protocols, such as HTTP (web), SMTP (email), and FTP (file transfer), serve as the foundation of the modern internet applications we know and love. 

During Web 1.0, the internet primarily consisted of a series of pages joined together by hyperlinks. There were no additional visuals or comment sections, like what we see when using the internet today. Internet users were nothing more than passive recipients of the information and couldn’t interact or respond to what they encountered.

In this respect, it was the “read-only” era. 

Website owners’ primary interest was disseminating information to as many readers as possible, not actively engaging with those who visited their site. When sites like IMDB were first born, web pages were just a smattering of links — and that’s pretty much all there was to the internet. 

What was Web 2.0?

For the past twenty years, we’ve been living with Web 2.0. It isn’t characterized by a technical shift. Instead, it stems from a change in how we use the internet. Web 2.0 is a version of the internet that enables everyday users to create, share, and publish content. The average individual isn’t a passive observer anymore. Instead, they play an active role in creating the internet.

To illustrate exactly what this means, an e-commerce store in Web 1.0 was just a long list of product names and prices. Readers scanned through them, and then they went to the physical store to make purchases. In Web 2.0, users can use an e-commerce site to make payments, track their orders, post reviews, request refunds, and more. In fact, Web 2.0 sites actively encourage users to participate and increase their engagement. Consider Facebook’s like button or their notification system. Both are aimed at enticing readers to like, comment, or otherwise engage. Google and Amazon encourage users to leave reviews in similar ways.

Sadly, Web 2.0 is largely characterized and defined by these intermediaries. 

To find a company or brand, people rely on a Google search. To find interesting artists, people rely on Instagram or Spotify. To find products, people rely on Amazon. Have you seen the trend yet?

Platforms like Google, Spotify, Amazon, Facebook, and all the other big names in Web 2.0 serve as centralized data aggregators. They are intermediaries between suppliers and consumers, capturing nearly all the value — in the form of data and money — in the process. 

These multisided platforms, which create value primarily by enabling direct interactions between groups, rose in popularity with Web 2.0. In fact, they now dominate the global economy and are some of the world’s most profitable companies. This came with some problems. 

The problems in Web 2.0

Eventually, it became profitable for these platforms to make it more difficult for groups to interact directly with one another, and so intermediaries became more of a roadblock than a thoroughfare. Let’s use Facebook as an example. 

At first, Facebook provided a valuable service: come to Facebook, connect with your friends and customers, and share your thoughts and goods with them. As more people flocked to Facebook to see what friends and companies they followed were up to, Facebook’s trove of user data grew. Every click, scroll, and like became a financially valuable data point. And Facebook recognized that businesses would be willing to pay to get their products in front of new (and even their existing) followers. So it started selling our attention in the form of ad space. 

Now, Facebook is an intermediary that determines when and how users and businesses interact and engage. Google does much the same with their ad platforms and Amazon with their featured products.

If you still don’t see the problem with this, The Oatmeal summed things pretty well

In Web 2.0, these intermediaries hold all the power. They own all our data and dictate what we can and can’t do online, reserving the right to shut down our access to platforms whenever they please and at their sole discretion. Regardless of which side of the political line you fall on, you’ve all seen the power of these intermediaries first hand, such as with the suspension of former US President Donald Trump’s Twitter account.

The intermediaries also determine who we can interact with and when, selling our time and attention to the highest advertiser. Finally, as if this isn’t enough already, most of the tools and services we use on the internet are centralized through places like Amazon’s AWS cloud computing services. If you aren’t aware, nearly one-third of the internet runs through AWS.

For those concerned with data privacy, who fear the immense power that comes with such centralization, or who have no choice but to build businesses on the backs of social networks and commerce marketplaces, Web 2.0 has deeply troubling risks. 

Enter the blockchain and Web3.

What is Web3 and why you should care

The stage following Web 2.0 was known as Web 3.0 until Gavin Wood coined “Web3” around 2014. For better or worse, the short name stuck. So, what is Web3? In short, Web3 is about undoing all the problems that came about in Web 2.0. This next generation of the internet is focused on shifting power away from big tech companies and towards individual users.

As was mentioned at the beginning, Web3 is centered on an ecosystem of technology products that are decentralized, trustless, permissionless, and interoperable. Now it’s time to explain exactly what this means and why you should care about Web3.

The meaning of decentralization and trustless

Rather than relying on a single centralized server, Web3 is built on top of blockchain-powered crypto networks that enable data to be stored across distributed devices (also known as “nodes”) worldwide. Ultimately, these distributed devices can be anything, such as computers, laptops, or even bigger servers. They serve as the framework of the blockchain, communicating with each other to enable the storage, spread, and preservation of data without the need for a trusted third party. 

Thanks to these nodes, the blockchain provides an immutable record — it’s a decentralized proof of ownership vehicle that is unlike anything we’ve seen before.

With Web 2.0, we’ve had no choice but to hand our data over to big tech giants like Google and Facebook. We had no choice but to rely on AWS for many of our tools and services. Even further, we’ve needed to trust that these parties will use this data ethically. As we’ve seen with the Cambridge Analytica scandal, it’s very easy for our data to be used against us, and this can have global socio-political ramifications. 

Problems like this are why the decentralized ownership of our data and identity, also known as “self-sovereign identity,” is more important than ever before.

The meaning of interoperability and permissionless

This self-sovereign ownership is achieved through digital wallets like MetaMask (for Ethereum and ETH-compatible blockchains) or Phantom (for the Solana blockchain). A little like a “wallet” in the real world, a digital wallet serves as your Web3 identity, safely holding both your currency and your data.

This wallet is interoperable, meaning it can be seamlessly taken around the internet and work with various products and systems, allowing you to choose which decentralized apps have access to your property. Additionally, all transactions and interactions on the blockchain are permissionless, meaning they don’t require approval from a trusted third party to be completed. 

Let’s dig into why this is helpful and necessary.

Today, individuals must use their Facebook or Google login to access many online applications, which forces them to hand over their data. But in Web3, individuals will own their identities. By replacing third parties with the blockchain, Web3 unlocks entirely new business models and value chains, ones where centralized intermediaries are no longer favored. Ultimately, Web3 takes power from the intermediaries and gives it back to individuals. 

In fact, we are already seeing this firsthand with NFTs (non-fungible tokens)

Many artists, musicians, and other creators have recently started to experiment with ways in which they can receive the lion’s share of the revenue from their work. Much of this can be credited to the function of smart contracts, which are predetermined agreements programmed into a blockchain that automatically executes once specified terms are met. Specifically, with NFTs, smart contracts allow for secondary royalty structures, meaning creators get paid out every time their work switches hands on the open marketplace.

Thanks to this fundamental change in the value chain, creators are earning more than ever and slowly shifting the painfully true stereotype of the “starving artist.” That’s the essence of why you should care about Web3.

FAQs regarding Web3

What’s the role of DAOs in Web3?

Alongside this new value chain, Web3 has birthed entirely new economic organizations. Decentralized autonomous organizations (DAOs) are a core function of interacting across the Web3 space. As Linda Xi explains, a DAO is a group of individuals organized around a mission that “coordinates through a shared set of rules enforced on a blockchain.”

The primary advantage of a DAO is that, unlike traditional companies, the blockchain provides DAOs with complete transparency. All the actions and funding of the DAO can be seen and analyzed by anyone. This transparency significantly reduces the risk of corruption and prevents important information from being censored. It also ensures that the DAO upholds its promise. This is because, like NFTs, DAOs also run on smart contracts that can trigger an action whenever certain conditions are met. For example, in the case of a DAO, a smart contract can ensure that proposals that receive a certain amount of affirmative votes are automatically enacted. 

And unlike traditional top-down organizations, which nearly all corporations or non-profits are, DAOs operate with a flat hierarchical structure, allowing all members a say in crucial decisions that affect the broader group — instead of just the primary shareholders. 

What’s more, DAOs are far more accessible to the average individual, as the barrier to entry isn’t as high. Typically, the only people who are allowed to invest in an organization early on — and who, as a result, reap most of the financial returns — are incredibly wealthy, well-networked individuals. Not so in DAOs. They are globally accessible and available at a far lower cost. 

Several crypto projects can also be considered DAOs, as many of them are managed by a decentralized form of governance in which token holders vote on the project’s future. To date, DAOs have been used to crowdfund projects, govern communities, and have even attempted to buy the U.S. constitution

How is Web3 connected to the metaverse? 

While the terms “Web3” and “metaverse” are often used interchangeably, they shouldn’t be. They are not the same. 

The metaverse is best defined as a blending of the physical and virtual world. Proponents of the metaverse argue that such a future is inevitable and that humans will one day spend the bulk of their waking hours in a world that is augmented in some way. The idea gained a lot of traction recently, as Facebook’s founder, Mark Zuckerberg, bet big on the metaverse by renaming his social media company “Meta”.

Web3 is a decentralized version of the internet and doesn’t have anything to do with augmenting physical reality. While many Web3 protocols, such as NFTs or peer-to-peer cryptocurrency transactions, may be used in the future metaverse, Web3 is not the metaverse. 

What are the problems with Web3?

Today, a great deal of learning and experimentation is a necessary part of the average user’s Web3 journey. The lack of user-friendly design doesn’t do us any favors and makes the journey arduous and the learning curve long. In truth, it is a significant barrier to entry for most. However, when code exploits and downtime are at the forefront of every developer’s mind, as they very much are today, user experience is far from a top priority. It does make many Web3 platforms finicky and very tough to use, but that’s only because things are so new, so most developers are still focused on the underlying technologies.

That said, there are more serious concerns with Web3.

To begin with, with significant changes comes significant risk. One of the best parts about Web3 is having full ownership of your data. It’s also the worst part. The Web3 space is still very much a Wild West, filled with bad actors. Without reliance on a centralized authority, you are fully responsible for keeping your data and currency safe. This means practicing proper wallet safety, constantly being alert for phishing schemes, and never (never ever!) giving out your seed phrase. Even the most trusted Web3 protocols and platforms have been hacked and exposed, so it’s crucial always to have your guard up.

In short, trustlessness isn’t a universal truth in Web3. You need to trust yourself.

Screenshot showing a phishing attack against users on OpenSea

There are also scalability issues. While few would argue that decentralization is a bad thing in and of itself, transactions are slower on Web3 precisely because they’re decentralized. Changes need to be processed by a miner and propagated throughout the network, which takes time. 

Then there are the gas fees. Gas fees are the payments that users make to use the Ethereum blockchain, the world’s most popular blockchain. Specifically, “gas” is the fee required to conduct a blockchain transaction successfully. These fees can soar to hundreds of dollars a transaction during peak times. 

Then there is the decentralization conundrum. Even though blockchains may be decentralized, many of the Web3 services that use them are currently controlled by a minuscule number of privately held companies. And there are valid concerns that the industry that’s emerging to support the decentralized web is highly consolidated.

And in truth, this is far from an exhaustive list of concerns. However, as mentioned, Web3 is still in its infancy, and many developers are actively working on solving the present problems. 

So, the main takeaway (if there is one) is this: Web3 is envisioned as the next stage of the internet. It’s a decentralized, privacy-first internet age where users own their data and profits are shifted away from centralized intermediaries and into the hands of creators and their communities. If the developers working on the current problems are successful, we might just get there.

Web3 explained with simple examples

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