What is Web3? Decentralized Internet of the Future
Internet evolution

The web has evolved a lot over the years, and today's applications are completely different from their ancestors. The evolution of the Internet is often divided into three distinct phases: Web 1.0, Web 2.0, and Web 3.0.

web3 decentralized internet

What is Web 1.0?

Web 1.0 was the first iteration of the web. Most of the participants were content consumers, and the creators were generally developers who created websites containing information presented primarily in text or graphic format. Web 1.0 lasted roughly from 1991 to 2004.

Web 1.0 consisted of sites serving static content instead of dynamic HTML. The data and content was provided from a static file system, not a database, and the sites weren't very interactive.

Web 1.0 can be called the read-only web.

What is Web 2.0?

Most of us have first encountered the Internet in its current form, commonly referred to as web2. You can think of web2 as an interactive and social internet.

In the world of web2, you don't have to be a developer to participate in the creation process. Many applications are designed in such a way that anyone can become a creator.

If you have an idea and you want to share it with the whole world, you can do it. If you want to upload a video and let millions of people see it, interact with it, and comment on it, you can do that too.

Web2 is very simple, and because of this simplicity, more and more people around the world are becoming creators.

The Internet in its current form is really good in many ways, but there are some areas where we can do much better.

Web 2.0 monetization and security

In the web2 world, many popular applications follow a common pattern in their lifecycle. Think about some of the apps you use on a daily basis and how the following examples might apply to them.

Application monetization

Imagine the early days of popular apps like Instagram, Twitter, LinkedIn or YouTube and how different they are from today. The process usually goes something like this:

  • The company launches the application.
  • It attracts as many users as possible.
  • She then monetizes her user base.

web2 monetization

When a developer or company launches a popular app, the user experience is often very simple as the app continues to grow. That is why it is possible to quickly gain popularity.

At first, many software companies don't worry about monetization. They are solely focused on growing and attracting new users, but eventually they need to start making a profit.

They also need to think about the role of outside investors. Often, the limitations associated with raising venture capital adversely affect the lifecycle and ultimately the user experience of many of the applications we use today.

If the app company raises venture capital, its investors often expect a return on investment of tens or hundreds of what they invested.

This means that rather than opting for some sustainable growth model that can be sustained in a somewhat organic way, a company is often pushed down two paths: advertising or selling personal data.

For many web2 companies such as Google, Facebook, Twitter and others, more data leads to more personalized ads. This results in more clicks and ultimately more ad revenue. The exploitation and centralization of user data is fundamental to the functioning of the Internet as we know and use it today.

Security and Privacy

Data leaks happen all the time in Web2 applications. There are even websites dedicated to tracking down such leaks and letting you know when your data has been compromised.

In web2, you have no control over your data or how it is stored. Moreover, companies often track and store user data without their consent. All this data is then owned and controlled by the companies in charge of these platforms.

web2 security and privacy

Users living in countries where they have to worry about the negative effects of free speech are also at risk.

Governments often shut down servers or seize bank accounts if they think a person is expressing an opinion that runs counter to their propaganda. With centralized servers, it's easy for governments to intervene, control or shut down applications as they see fit.

Because banks are also digital and centrally controlled, governments often step in there as well. They may shut down access to bank accounts or restrict access to funds during times of instability, extreme inflation, or other political unrest.

Web3 aims to address many of these shortcomings by fundamentally rethinking how we build and interact with applications from the ground up.

What is Web 3.0?

There are some fundamental differences between web2 and web3, but they are based on decentralization.

Web3 improves the Internet as we know it today and adds a few more features:

  • Verifiability
  • Trusted centers are not required
  • self-management
  • No permissions required
  • Distribution and reliability
  • Presence of state
  • Native payments

In web3, developers typically do not create or deploy applications that run on the same server or store their data in the same database (usually hosted and managed by the same cloud provider).

Instead, web3 applications run either on a blockchain, or in decentralized networks of multiple peers (servers), or a combination of the two technologies that form a cryptoeconomic protocol. Such applications are often referred to as dapps (decentralized applications).

To achieve a stable and secure decentralized network, network members (developers) are incentivized and compete to provide the highest quality service to all who use the service.

When you hear about web3, you may notice that cryptocurrencies are often part of the conversation. This is because cryptocurrency plays a big role in many of these protocols. It provides a financial incentive (tokens) for those who want to take part in the creation, management, contribution or improvement of one of the projects.

These protocols often offer various services such as computing, data storage, bandwidth, identity, hosting, and other web services that were typically provided by cloud providers in the past.

People can make a living by participating in the protocol in a variety of ways, both on a technical and non-technical level.

Service consumers typically pay to use the protocol, similar to how they pay a cloud provider like AWS today. With the exception of web3, the money goes directly to network members.

In this, as in many other forms of decentralization, you will see unnecessary and often inefficient intermediaries cut off.

Many web infrastructure protocols such as Filecoin, Livepeer, Arweave and The Graph (which I work with in Edge & Node) have issued useful tokens that govern how the protocol functions. These tokens also reward participants at many levels of the network. Blockchain protocols like Ethereum work in a similar way.

Native payments

Tokens also create their own payment layer, which has no boundaries and no friction. Companies like Stripe and Paypal have created billions of dollars of value to enable electronic payments.

These systems are overly complex and still do not provide true international interoperability between participants. In addition, for their use it is necessary to transfer confidential information and personal data.

web3 dapps

Crypto wallets such as MetaMask and Torus make it easy, anonymous and secure to integrate international payments and transactions into web3 applications.

Networks like Solana offer delays of a few hundred milliseconds and transaction costs for pennies. Unlike the current financial system, users do not have to go through the traditional multiple, friction-filled steps to interact with and participate in the network. All they need to do is download or install a wallet and they can start sending and receiving payments without any restrictions.

A new way to create companies

Tokens also give rise to the idea of ​​tokenization and the implementation of the token economy.

Take, for example, the current state of affairs with the creation of a software development company. Someone comes up with an idea, but in order to start construction, money is needed.

To get money, they raise venture capital and give a percentage of the company. These investments immediately create the wrong incentives, which in the long run will not play well with creating the best user experience.

In addition, if the company is successful, it will take a very long time before all participants can get at least some return, which often leads to years of work with no real return on investment.

Instead, imagine that a new and exciting project is announced that solves a real problem. Anyone can take part in its creation or invest in it from day one. The company announces the release of n-number of tokens, gives 10% to the first creators, puts up 10% for sale to the public, and saves the rest for future payments to contributors and project financing.

Stakeholders can use their tokens to vote on changes to the future of the project, and people who helped create the project can sell some of their shares to earn money after the tokens are issued.

People who believe in the project can buy and own it, and people who believe the project is going in the wrong direction can signal it by selling their stake.

Since all blockchain data is completely public and open, buyers have complete transparency of what is happening. This is in contrast to buying shares in private or centralized companies, where many things are often hidden from prying eyes.

And this is already happening in the web3 space.

One example is the Radicle app (a decentralized alternative to GitHub) that allows stakeholders to participate in the management of their project. Gitcoin is another example that allows developers to earn cryptocurrency for contributing and working on Open Source issues. Yearn allows stakeholders to participate in decision making and voting on proposals. Uniswap, SuperRare, The Graph, Audius, and a host of other protocols and projects have issued tokens as a way to secure ownership, participation, and control.

DAOs (Decentralized Autonomous Organizations), which offer an alternative way to build what we traditionally think of as a company, are gaining huge momentum and investment from both traditional developers and venture capital firms.

These types of organizations are tokenized and turn the idea of ​​organizational structure on its head, offering real, liquid, and fair ownership to more stakeholders and aligning incentives in new and interesting ways.

For example, Friends with Benefits, a DAO of web3 creators and artists, has been around for about a year, has a market value of around $125 million at the moment, and a16z recently received a $10 million investment round.

How authentication works in Web3

In web3, identification also works in a completely different way than we are used to today. In most cases in web3 applications, identification will be tied to the wallet address of the user interacting with the application.

Unlike web2 authentication methods such as OAuth or email+password (which almost always require users to submit sensitive and personal information), wallet addresses are completely anonymous unless the user chooses to publicly associate their identity with them.

If a user decides to use the same wallet across multiple dapps, their identity will also be easily transferred between apps, allowing them to build their reputation over time.

Protocols and tools such as Ceramic and IDX already allow developers to build self-sovereign identity into their applications to replace traditional layers of authentication and identity. The Ethereum Foundation also has a working RFP (Request for Proposals) mechanism that defines the “Login with Ethereum” specification, which will help provide a more streamlined and documented way to conduct identification in the future.