What is Web3? Your Ultimate Guide

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Last updated Apr 09, 2024 | 09:42 AM UTC

As the name suggests, Web3 (or Web 3.0) is the next generation of the internet.

However, where Web2 ends and Web3 begins has been a mystery up until now. Since the introduction of extremely innovative technologies such as blockchain, the question is no longer ‘When?’ but ‘What?’. 

That is not to say that blockchain equals Web3. However, a key characteristic of Web3 is also one of the fundamental foundations of blockchain – and that is decentralization. Instead of centralized systems where power over access, data and privacy rests with a central authority or company (for example Facebook, X, and Google), Web3 tilts the scales in favor of individuals and communities.

In addition, other modern marvels such as machine learning (ML) and artificial intelligence (AI) will also play a significant role in shaping the Web3 space.

Cryptocurrencies, decentralized finance (DeFi), and non-fungible tokens (NFTs) are just a few popular examples of blockchain that have demonstrated the possibilities of decentralization and peer-to-peer (P2P) systems, though not to their fullest extent. 

What is Web3 used for?

You are probably wondering what Web3 is capable of. As mentioned, decentralization is at the core of Web3, an aspect that extends data ownership, privacy, and security to every aspect of the modern digital world.

Decentralized Applications (dApps)

Perhaps the easiest to understand of all would be decentralized applications, also known as dApps. These are crucial components of the Web3 ecosystem that, when explained, will give you a broader sense of what Web3 can do. Just like their Web2 counterparts, dApps encompass everything from social media to gaming. 

Notably, the key features of dApps are: increased distribution and control of data, greater accessibility, enhanced privacy, transparency, heightened security, and censorship resistance. 

  • Social media: Decentralized social media platforms aim to give users more control over their personal data while promoting censorship-resistant communication.
  • Finance: DeFi applications enable P2P financial transactions without intermediaries like banks or brokers. This reduces costs and time, making money more efficient than ever.
  • Gaming: Decentralized gaming platforms allow players to truly own their in-game assets and have control over their virtual economies.
  • Organizations/companies: Decentralized Autonomous Organizations (DAO) are self-governing democratic networks guided by their community, and are automated through smart contracts.
  • Banking: Decentralized banking solutions can provide financial services to unbanked populations, emerging markets, and anyone on Earth by leveraging blockchain technology for secure transactions and identity verification.

Governance: Decentralized Autonomous Organizations (DAOs)

DAOs are designed to replace a central authority within an organization with a transparent blockchain network, governed by a community. A DAO can be a book club, sports team, social media dApp, bank, ambitious enterprise, and everything in between. It is up to participants and stakeholders to govern the DAO.

The inherent immutability and transparency of blockchain can establish trust between members, and smart contracts can automate processes, guaranteeing the rules and pre-programmed conditions are never bent. 

Banking

Web3 holds great implications for the world of finance. With P2P transactions and DeFi platforms front and center, individuals have more control over their finances, reducing the need for intermediaries such as banks.

DeFi platforms and services let users lend, borrow, trade, and invest without traditional intermediaries. This lowers the entry barriers and costs, opening up opportunities for populations who may not have access to traditional banking services. They can now participate in the global economy and have greater financial inclusion, all the while having total control over where their funds are stored and how they are used.

Finance

The DeFi ecosystem lets users invest, trade, borrow, and lend without institutions and middlemen, meaning they can do so at greater speeds for lower costs. This will greatly impact regions of the world that lack quality banking services as well as those who are sending international/remittance payments, promoting significant financial inclusion around the world.

Gaming

Gaming is another booming sector that would be greatly complimented by Web3 innovations. For example, many popular video games allow for players to purchase in-game cosmetics and items, but the use of these digital assets is limited to one game, and lacks any tangible value for the player.

Web3 gaming uses NFTs for in-game assets with varying functionality. This can range from cosmetics, items such as weapons and armor, treasure, or virtual real estate.

Unlike traditional Web2 gaming where users have no control over the in-game assets, Web3 gaming assets are owned and controlled by the player who can then collect, trade, and monetize their NFTs. 

Presently, there are games such as Axie Infinity. It is similar to Pokemon in that users can collect, battle, breed, and trade little monsters, but instead they can be used across a number of play-to-earn (P2E) gaming experiences through which they can also earn rewards. Popular sandbox games that focus on player-created experiences, such as Roblox and Minecraft, are already beginning to experiment with blockchain technology in order to bring greater value to their players.

Digital identity: Accessibility

In terms of access, Web2 it is common practice to have multiple different logins across various platforms, all of which are tied to one or more email addresses you hold. These addresses act as one of the main signifiers of our digital identity but lack any real versatility.

Instead, our identity would be tied to a singular decentralized wallet/NFT that we have total control over, allowing for seamless interactions with any Web3 platform. There are Web3 projects working to securely simplify our credentials using NFTs, which could soon replace the need for multiple email addresses and logins.

Taking this idea further. An NFT could soon encompass everything from passports and driving licenses, to healthcare records and emergency contacts. With the addition of Zero-Knowledge-Proof (ZKP) embedded in the NFT, you would only ever provide the exact information requested of you and nothing more. 

Why Web3?

The many shortcomings of Web2 such as accessibility, data privacy, security, and censorship have become increasingly apparent in recent years. The introduction of decentralized technologies to the web will be incredibly transformative.

So what benefits does Web3 actually offer?

Universal access and interoperability

Imagine a world where you no longer need to sign up for each and every platform or service online. Advances in Web3 technologies now mean that by using an NFT or decentralized wallet, you can skip creating multiple accounts across multiple platforms, and gain access to whatever you need with a unique and secure identifier that you control.

Accountability and transparency

The 2008 financial crash is the most prominent example of what happens when too much trust is placed in centralized systems. The world wasn’t questioning the global economy and its inner workings and as a result, regular people all over the world suffered whilst banks were bailed out with billions of taxpayer money. 

Market manipulation and corruption were to blame. As a result, support for decentralized systems grew, hence the advent of Bitcoin in January of 2009. Blockchain-based cryptocurrencies cannot be manipulated, there can be no corrupting influence as all transactions are viewable on public ledgers. 

The blockchain cannot lie, and that removes the ‘need’ for trust by simply being trustworthy from its inception. If blockchain technologies such as ZKPs were implemented in 2008, banks would not have been able to offer loans or mortgages to people with bad credit, a debt that they would then sell to other institutions claiming they were good credit debts.

Data sovereignty and ownership

Web2 is dominated by centralized entities that control access, governance, and what data they choose to use, exploit, or sell. 

These services and platforms have offered a wealth of services that are often free to use, although in exchange for our privacy and data. Centralized platforms profit from your data by gathering and selling your personal information, browsing history, spending habits, and even your attention span. There is no such thing as a free lunch in Web2, we are the lunch.

On top of that, these platforms are especially vulnerable to hacks, leaks, and individuals with malicious intent. Data breaches pose a threat not only to the digital space but also to our everyday lives. Blockchain’s inherent immutability, encryption, and decentralized nature vastly mitigate such risks.

In Web3 ecosystems, your digital footprint will be yours to control. We will be able to decide what pieces of personal data we want to share, who we share it with, and how that data is controlled, which includes the ability to monetize your own data, if you wish. 

Automation

Web3 technologies offer a wealth of solutions that can reduce the number of steps and intermediaries that are usually required. In tandem with blockchain technology that verifies data, AI and smart contracts allow for this data to be reliably processed in a myriad of ways.

The time it would take to complete labor-intensive or lengthy processes will be dramatically reduced, and this holds great promise for governments, healthcare settings, and financial institutions. 

Innovation and creation

With the advent of the web, anyone with an internet connection was able to broadcast their vision around the world. This included content creation of all shapes and sizes, the introduction of new businesses that had never existed before, and an unprecedented number of innovations that have reshaped our world.

Web3 rekindles the spirit of innovation thanks to blockchains typically being open-source. This makes it possible for creators to copy a source code and improve on it, as opposed to one entity limiting the growth of a certain digital platform or creation.

Written by

Eddie is a seasoned crypto writer and Bitcoin maximalist.