What is Web3 Anyway?

A surprising revelation emerged from a survey (1) which was conducted not very long ago by Dentsu Inc., a leading global Web2 marketing agency based in Japan. The survey found that a staggering 91.5% of the 3,000 participants in the country were either completely oblivious to the transformative concept of Web3 or had not even heard about the term, as of November last year.

Figure 1. 9 out of 10 people in Japan either did not know ‘Web3’ existed or why it existed (November, 2022). Source: Consumer Awareness of Web3 Survey Visualized by m3talab.io 

While this finding may primarily reflect Japan's situation, it underscores a grimmer reality - the immense potential of Web3 is still a mystery to the masses, even in the globe's most thriving economies. Clearly, this indicates that the journey towards broader awareness and adoption of Web3 still has a long road ahead.

This article plans to counter such issue head-on by:

1. Tracing the evolution of the internet from Web1 and Web2 to Web3.
2. Exploring the technological differences between each iteration.
3. Highlighting the problems of Web2 that Web3 is designed to solve.
4. Discussing the potential implications of Web3 for companies and industries.

Yes, We're Counting Numbers Now.

To understand the concept of Web3, one must first pay tribute to the transformative evolution of the internet throughout Web1 and Web2 which has set the stage for the emergence of Web3 - the next generation of internet technology.

Figure 2. An ‘oversimplified' comparison of how we interact differently with Web1, Web2 and Web3. Source: Twitter account @SuhailKakar

Web1

• Action: consume
• Creator: web developers
• Content: static text and image
• Data: stored in a static file system
• Technology: web server, HTML, URL, IP address, programming language, HTML language, etc.

Web1 began with the experimental creation of the internet infrastructure in the late 1960s (2), allowing computers to have the most basic communication with each other. It introduced static web pages that users could read but not interact with. 1991 (3) marked the birth of the first website as we know many today.

This era, known as Web1, was characterized by static content and limited user participation. Information was king. Consumption was the only proof of interaction.

Figure 3. A 1992 replica of the very first webpage ever created. Source: NPR Photo: Fabrice Coffrini /AFP via Getty Images

Web1’s other alias:

• The read-only
• The syntactic web
• The web of documents

Web2

• Action: create, engage, monetize
• Creator: anybody, developers are to build and maintain the platform’s availability
• Content: dynamic hypertext mark-up language (HTML) - texts, images, audios, videos, multimedia, etc.
• Data: stored in a regularly updated central database
• Technology: programming language, search engine, web browser, etc.

In the early 2000s, the internet became more interactive, giving rise to the popularity of user-generated content and social media platforms such as Facebook and Twitter. Users could now create, share, and interact with content produced by others on the web. User experience became king. Digital presence under your corporeal identity was the proof of interaction.

Web2 also saw the dominance of centralized platforms that collect users' data for targeted advertising, resulting in a sustainable income stream for these companies for a while…

…until the centralization of power in Web2 raised concerns about privacy, censorship, and control over personal data. Users have become increasingly uncomfortable with the idea of being the product and have started questioning the existing system. This brings us to Web3.

Web2’s other alias:

• The read-write
• The social web

Web3

• Action: create, engage, monetize, own your data and digital assets
• Creator: anybody, developers are to provide a secure decentralized network
• Content: decentralized
• Data: stored on blockchains, decentralized networks of many peer-to-peer nodes (servers)
• Technology: edge computing, decentralized networks, artificial intelligence (AI), machine learning (ML), 3D graphics

Web2 often left users feeling powerless over their data, while also raising doubts about service sustainability. Enter Web3 - designed to tackle these issues head-on by countering centralization across the internet and multiple industries.

At the heart of Web3 is a core principle - decentralization. Web 3.0 applications, or DApps (Decentralized Applications), are built on peer-to-peer networks, inheriting the decentralized nature. The decentralization hinges on three pillars (4):

• Decentralized Networks: No central authority governs these networks; instead, they're maintained by participating ‘nodes’ (similar to how ‘servers’ function in Web2). This structure safeguards against single points of failure and data loss, and when you choose to exit, your reputation follows you.
• Decentralized Governance: Unlike Web2, users of DApps have influence over their development and decision-making. Often, Decentralized Autonomous Organizations (DAOs) facilitate this process. Key decisions in DAOs typically undergo open debate and are subjected to voting via blockchain technology, ensuring outcomes are sustainable, immutable, and verifiable by all.
• Permissionless Architecture: Everyone is welcome to add nodes to a blockchain, with no central authority required for approval. Yet, to ward off potential imbalances or conflicts, consensus algorithms such as Proof of Work (PoW) or Proof of Stake (PoS) are implemented at the foundational level. These ensure all nodes function as intended while upholding the integrity of the network.

With these three pillars in place, Web3 platforms are inherently resistant to censorship, empowering individuals over corporations, and valuing trust, control, and privacy.

Unlike websites hosted on isolated servers, DApps (Decentralized applications) of Web3 are developed and hosted on these decentralized networks using smart contracts, which are pieces of code that run on blockchain-based networks operated as a program. This arrangement offers the benefit of ‘interoperability’ since all DApps exist on a common network. Interoperability allows different functions within various applications to interact seamlessly, regardless of their differences.

Web3, in fact, is less about creating new sites or apps and more about revolutionizing the way people use existing platforms. It's a fundamental shift that puts power back into the hands of users.

Web 3.0’s other alias:

• The programmable web
• The web of apps
• The web of things
• The new web
• The decentralized web
• The semantic web
• The read-write-execute

The Implications of Web3 for Companies

The full-scale realization of Web3 is still uncertain as some companies have faced challenges and backlash in their NFT and crypto-related endeavors. Discord faced user rebellion when teasing a crypto wallet integration feature, leading to a clarification that no immediate plans (5) were in place. Brands like MeUndies (6) and the UK branch of the World Wildlife Fund (7) faced significant backlash and canceled NFT projects due to concerns about the environmental impact (8).

However, there are notable projects that have achieved significant growth. For instance, NFT communities (9) such as the Bored Ape Yacht Club (BAYC), NBA Top Shot, and Dapper Labs' cryptogaming have successfully built thriving ecosystems. Additionally, clearinghouses like Coinbase and OpenSea (9) have made Web3 accessible to individuals without extensive technical knowledge, providing entry points for participation in the decentralized web.

Currently, NFTs have become a primary focus for companies experimenting with Web3. These unique tokens serve as digital certificates of authenticity, ownership deeds, or membership cards. NFTs are being used to confer ownership of digital art, grant access rights to exclusive groups, or enable participation in specific communities. The value of NFTs lies in creating ecosystems where individuals find worth in owning and trading these digital assets, similar to the way collectors value limited-edition physical items. In fact, there were some NFTs that were sold at ridiculous prices (10).

Traditional companies have found success in entering the Web3 space by either creating new communities or integrating with existing communities centered around collectibles. For example, the NBA's Top Shot (11) introduced NFTs that allowed fans to trade and collect basketball moments, leveraging the existing collector community. Brands like Nike, Adidas, and Under Armour (12) have also entered the space by adding a digital layer to their existing collector communities, offering NFTs that provide virtual world assets or exclusive real-world products.

Acknowledging the immense potential and transformative power of Web3, an increasing number of forward-thinking venture capital firms have wholeheartedly embraced this groundbreaking technology. Venture arms such as 1kx, a16z crypto, Coinbase Venture, Jump Crypto, and many others have fervently invested significant amounts of capital in this nascent field, recognizing the incredible opportunities that lie ahead.

1kx (13), whose representative is also going to feature at a KBW 2023 speaking session, has been actively engaging in Pre-Seed and Seed funding since the beginning of this year. The firm's investment portfolio stretches across diverse Web3 projects — from scalable Layer 2 technologies and cross-chain swaps for EVM chains, to popular NFT collections like Pudgy Penguins. The concerted efforts of 1kx and other like-minded firms have injected a remarkable $60M (14) into these promising Web3 ventures, underlining their commitment to shaping the future of the crypto landscape.

Figure 4. Global Anticipation for Web3 Transition. Source: Equinix 2022 Global Tech Trends Survey Visualized by m3talab.io

As a matter of fact, according to the Equinix 2022 Global Tech Trends Survey (15), which consulted 2,900 IT decision-makers across various industries in the Americas, Asia-Pacific, and EMEA regions, it is evident that approximately 47% of IT decision-makers worldwide anticipate the transition from Web2 to Web3 within the next one to five years. Interestingly, a mere 28% of global digital leaders hold the belief that the establishment of Web3 will take six years or longer, suggesting a lower level of skepticism than expected.

Conclusion

To answer the multi-million dollar question posed by this article, Web3 is a transformative evolution of the Internet that seeks to shift power back to the users. It is a decentralized, permissionless digital landscape, poised to deliver enhanced privacy, data ownership, and freedom from censorship.

While Web3 remains a relatively unfamiliar concept to many, it is worth noting the remarkable advancements made by Web3 companies across diverse domains, including but not limited to art and sport. Despite encountering numerous obstacles along the way, Web3 companies have exhibited a sharp understanding of the potential that Web3 holds and expect that Web3 will be the evolution in the near future.

Reference

1. Dentsu Inc., Dentsu Posts Findings of web3 Consumer Awareness Survey, March 23, 2023
2. Internet Society, A Brief History of the Internet
3. NPR, The World's First Website Launched 30 Years Ago, August 6, 2021
4. Kong Inc., Web3 basics: What is decentralization?, August 19, 2022
5. Twitter, @jasoncitron on Twitter, November 11, 2021
6. Glossy, MeUndies reverses course on NFTs after customer backlash, March 15, 2022
7. Futurism, World Wildlife Foundation Cancels NFT Project After Critics Point Out That It Was Actually a Huge Polluter
8. The Verge, The climate controversy swirling around NFTs, March 15, 2021
9. AB Newswire, Web3 Is Coming – What Does It Mean for The Future of Brands? – ABNewswire, June 16, 2022
10. METAV.RS, The 29 most expensive sold NFTs in the world
11. Forbes, What Is NBA Top Shot? – Forbes Advisor, January 30, 2023
12. The Wall Street Journal, Nike and Adidas Are Dipping Toes Into the NFT Market. The Sneakerheads Are Into It., January 14, 2022
13. 1kx, Architecting Network Success
14. Crunchbase, 1kx - Investments, Portfolio & Company Exits
15. Equinix Canada, Equinix 2022 Global Tech Trends Survey | Equinix infopaper, 2022

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Writer & Reviewer: Research Analysts & Content Writers at M3TA Analytics

#Web3 #Decentralization #Web3 VC #M3TA Analytics