Thanks to the ever-changing and ever-evolving technologies, there are constantly new buzzwords these days. Web3 is the new kid on the block and aims to “decentralise” management of the internet, reducing the power of large corporations like Google and Meta and making it more democratic and open. Because of the “open-source” and “community” nature of the software, it is defined as being trustless, that is, requiring no third-party support and permissionless since it has no governing body.
Web3 is called what it is because it is the internet’s third iteration. The first version of the internet was a collection of static, read-only pages that could not be updated (backtrack to the early 2000s). The second era, Web 2.0, had websites that enabled people to make their own content and interact with others, which essentially gave birth to social media, online banking, shopping, and the likes.
Ethereum co-founder Gavin Wood coined the term “Web3” in 2014, and it has been around since then, taking small yet significant steps. As blockchain technologies proliferated the online world and NFT markets expanded, venture capital investments poured in at a serious scale. This resulted in very vocal calls to rein in the power of big tech companies, and the movement was at its peak in 2021.
Web3’s underlying technology and features
As part of the Web3 revolution, the concepts of nonfungible tokens (NFT) and decentralised autonomous organisations (DAO) were introduced, along with decentralised finance (DeFi), which aims to create a financial system that is free of intermediaries.
Ideally, there would be no need for corporate servers in a Web3-controlled world since activities and data would be hosted on a network of computers using blockchain. Decentralised applications, or dapps, as they are now called, would represent your internet activities, at least initially, and your wallet and websites would be hosted on a blockchain network. Although different definitions of Web3 exist, the following features are projected to be incorporated into the system:
Single-sign-on for anonymity
Anonymous single-sign-on eliminates the need for multiple logins by allowing a single username and authentication method across multiple websites and accounts. Therefore, you don’t have to give up control of your sensitive personal data to use this login.
In contrast to the current single-sign-on features offered by Facebook and Google, this one allows you to control who has access to your personal data and for how long. The general public can view a wallet’s assets, and data since all transactions on the blockchain are publicly accessible. This openness is also why wallets can only be identified by an address, not a person’s name unless the user chooses to provide personal information.
Self-governance and smart contracts
Distribution of ownership and decision-making power go hand in hand. In the absence of a central authority, blockchains rely on the consensus of the entire network to verify an action. A user’s level of commitment to a site or dapp, regardless of its quality or quantity, can be used to democratically influence decision-making in decentralised autonomous organisations.
Users, for example, can vote on the rules that govern a site based on their ownership stake in the platform (e.g., what classifies as misinformation). The smart contracts then carry out these rules.
Tokenisation and individual ownership
If you do something that contributes to the development of Web3, you get a token (either an NFT or a fungible, like a cryptocurrency).
For example, when a user posts a new social message, a “minted” (created) NFT would be stored in a crypto-wallet as an asset. Using this token, you can transfer ownership of the message to other wallets. The token owner will get the money if the post is popular rather than the platform that hosts it.
While all these features seem extremely interesting on the surface, there are chances of severe lapses because the blockchain, the primary underlying technology itself, is not free from problems. I have discussed it at length in my previous blog.
Why Web3 may be just another hype
As of this today, there is no widely available Web3 infrastructure like the current internet. If the Web3 vision is to be realized at all, it will require a significant amount of development, consolidation, and accessibility effort.
And even if all that work is put in, Web3 may not live up to the hype surrounding it. A few lingering questions might still remain: Is Web3 sustainable? Is Web3 capable of delivering online autonomy? Is it possible to change the general public’s perception of Web3 by educating and motivating them?
Wharton professor Kevin Werbach, author of “The Blockchain and New Architecture of Trust,” says the technology may not be as advanced as the hype, and the current popularity of digital assets does not yet directly correlate to a threat to Big Technology.
“Web3 is, to some extent, a meme or marketing brand around a variety of blockchain and cryptocurrency activity, which was already happening. Like the enterprise blockchain wave of a few years ago, web3 is being hyped as much farther along in adoption than it truly is. Lots of people are trading crypto and buying NFTs, but that doesn’t necessarily mean they are adopting distributed alternatives to major tech platforms.”
Peer-to-peer blockchains are supposed to make Web3 decentralised. Still, the mining process that facilitates transactions on the blockchain is highly centralised, as I have referred to in my earlier writings. As recently as 2020, two mining pools controlled more than half the computational power for both Bitcoin and Ethereum, with only about 50 miners (0.1 per cent of the total number) controlling half of Bitcoin’s mining capacity. It’s possible for a coordinated group of miners to interfere with adding new blocks, stopping other miners from finishing them, and doing whatever they want with transactions on a given chain once they control more than 50% of the power.
Don’t start believing everything about Web3, just yet
Web3 proponents want the rest of us to believe that this is the true liberating version of the internet. But that can’t be because there’s a big difference between the lofty goals of freedom and decentralisation and the interests of venture capitalists who are flocking to Web3 in an attempt to monopolise the technology.
Also, scammers stole $14 billion worth of crypto last year, and there’s been a growing admission that crypto trading is like gambling, which leads to a type of addiction where people lose money. So it is already known that when the larger crypto pyramid schemes finally collapse, there will be serious consequences for the people that get caught in their web.
There are many reasons why we should be skeptical of the hype surrounding the Web3 movement, including rampant financialization, the creation of artificial scarcity by extending property rights to digital goods, and massive energy requirements causing blackouts in many countries. For example, Ethereum, the current Web3 blockchain of choice, consumes the same amount of energy as the Netherlands. The bitcoin blockchain processes just under three transactions per second, which needs an enormous amount of electricity.
Systems built from the ground up, such as DeFi (decentralised finance), do not have the problems associated with legacy firms; however, they do face the challenges of scaling and widespread adoption. It’s possible that some of the so-called Web3 solutions don’t have the scalability, security, and accessibility needed for widespread use.
We may not have reached some long-awaited goals with Web3 and blockchain, but there is reason to be slightly hopeful: the cost of data storage and bandwidth is steadily decreasing. As a result, there will be new business models and opportunities in a world where data storage and bandwidth are no longer expensive.
Unfortunately, whatever the true nature of Web3 is, it’s clear that there’s a lot of money and technology invested in it. The road to Web3 is far from smooth, and only time will tell if the hype will ever be justified.
This article only presents the tip of the iceberg, there’s a bit more to it that I have spoken about in my podcast, which can be found here.