Blockchain and Emerging Technologies

Lesson 25

8 min

What is Web3?

Web3, also known as Web 3.0, represents the next generation of the internet, aiming to decentralise power and give users more control over their data and online interactions. Unlike the current Web 2.0, which is dominated by centralised platforms, Web3 leverages blockchain technology, decentralised finance (DeFi), and smart contracts to create a more open, secure, and user-centric internet. Web3 seeks to eliminate intermediaries, providing direct and transparent interactions between users.

Common Components of Web3

Web3 encompasses several key components that make it distinct from previous iterations of the internet. Decentralised Applications (dApps) are applications that run on a blockchain or peer-to-peer network. These applications operate without a central authority, offering greater security and transparency. Examples include decentralised exchanges (DEXs) and blockchain-based social networks. Smart Contracts are self-executing contracts with the terms directly written into code.

These contracts automatically enforce and execute agreements when predefined conditions are met, eliminating the need for intermediaries. Non-Fungible Tokens (NFTs) are unique digital assets representing ownership of specific items or content. NFTs are used in various domains, such as digital art, gaming, and collectibles, providing a verifiable proof of ownership. Decentralised Finance (DeFi) refers to financial systems that operate without traditional intermediaries. DeFi platforms enable peer-to-peer financial services, such as lending, borrowing, and trading, through decentralised protocols.

A Brief History of Web3 (and the Internet)

The Evolution of the Web

The internet has undergone significant transformations since its inception, evolving through several distinct phases that have each brought about profound changes in how we interact with digital content. The first phase, known as Web 1.0, represents the early static web. During this period, websites were primarily read-only, characterised by static pages that offered limited user interaction. Web 1.0 was essentially a one-way information highway, where users could only consume content without contributing or engaging much with the site or other users. The user experience was passive, and the role of the web was mainly informational, providing a platform for displaying text and images without any form of dynamic interaction or content creation.

What is Web 2.0?

The transition to Web 2.0 marked a significant shift, bringing about the dynamic, social web that we are familiar with today. Web 2.0 introduced interactive content, social media, and user-generated content, fundamentally changing the way people use the internet. This phase allowed users to create, share, and collaborate through platforms like Facebook, YouTube, and Wikipedia. The emergence of these platforms enabled a more participatory web, where user engagement and interaction became central. Users could now publish their own content, comment on others' contributions, and form online communities. This evolution democratized the creation and dissemination of information, making the web a more vibrant and interactive space.

The Emergence of Web3

As Web 2.0 matured, its limitations and centralisation became more apparent, leading to the conceptualization of Web3. Web3 emerged as a response to the dominance of centralized platforms and the lack of user control over data and digital identities in Web 2.0. The advent of blockchain technology played a crucial role in the development of Web3. Blockchain, the underlying technology behind cryptocurrencies like Bitcoin and Ethereum, provided a decentralised framework that inspired the creation of Web3. Blockchain's ability to create immutable and transparent ledgers of transactions laid the groundwork for more complex decentralised applications (dApps), fostering an ecosystem where control and ownership could be distributed among users rather than centralized entities.

Key figures and groups have been instrumental in championing the concept of Web3. Gavin Wood, co-founder of Ethereum, coined the term "Web3" and has been a prominent advocate for this new vision of the web. Vitalik Buterin, another Ethereum co-founder, has also been influential in promoting blockchain technology and its potential applications. Numerous developers and organisations within the blockchain ecosystem have contributed to the advancement of Web3, pushing forward innovations that aim to decentralize the web and enhance user autonomy.

Web3 vs. Web2

Understanding the differences between Web2 and Web3 is crucial for grasping the transformative potential of the latter. Web2 is characterised by its centralisation, where control is concentrated in the hands of large corporations. Users rely on intermediaries such as social media companies, cloud service providers, and financial institutions to interact online. These intermediaries control data, manage digital identities, and often monetize user interactions, leading to concerns about privacy, security, and data ownership.

In contrast, Web3 is decentralised, with control distributed among users through blockchain technology. Web3 aims to provide more privacy, security, and control over personal data and digital assets. By leveraging decentralised networks, Web3 eliminates the need for intermediaries, allowing peer-to-peer interactions and enabling users to have greater control over their online presence. This shift promises to create a more equitable and transparent digital environment, where users can own and manage their data without reliance on centralized entities.

In summary, the evolution from Web 1.0 to Web 2.0, and now towards Web3, reflects a continuous drive towards greater interactivity, user participation, and decentralisation. Each phase has built upon the shortcomings of its predecessor, striving to create a more inclusive and empowering internet. Web3, with its foundation in blockchain technology, represents the next step in this evolution, aiming to redefine how we interact with the digital world by prioritising user control and decentralisation.

How Does Web3 Work?

Integration with Blockchain and Decentralisation

Web3 relies heavily on blockchain technology and decentralisation to achieve its goals:

Blockchain: Provides a secure, transparent ledger for recording transactions and data. Each transaction is verified by a network of nodes (computers), ensuring that the data is immutable and tamper-proof.
Decentralisation: Eliminates intermediaries, allowing peer-to-peer interactions. This decentralisation is achieved through distributed networks where no single entity has control, reducing the risk of censorship and increasing system robustness.

Key Components

Smart Contracts: Automate and enforce agreements without intermediaries. These self-executing contracts operate on the blockchain, ensuring that all parties adhere to the agreed-upon terms.
NFTs: Represent ownership of unique digital items, authenticated via blockchain. NFTs enable the creation and exchange of digital assets, providing a new way to own and trade digital art, music, and other content.
DeFi: Offers financial services like lending and trading without traditional banks. DeFi platforms use smart contracts to create decentralised versions of financial products, such as loans, insurance, and exchanges.

The Role of Cryptocurrencies

Cryptocurrencies are integral to Web3, acting as native payment systems and incentivizing network participation. Examples include Bitcoin (BTC) and Ethereum (ETH). Cryptocurrencies facilitate transactions on decentralised platforms and often serve as the underlying assets for DeFi protocols.

Future Implications

Potential Benefits

Web3 promises several potential benefits that could transform the internet and various industries. User control will be enhanced, giving individuals greater control over personal data and privacy. Users can manage their digital identities and decide how their data is shared and monetised. Transparency will be improved through clear and verifiable transactions and processes. Blockchain's transparency ensures that all actions are recorded and accessible, reducing the potential for fraud and corruption. Innovation will be spurred by new business models and services that were not possible before. decentralised platforms enable innovative applications, such as decentralised autonomous organisations (DAOs) and tokenised ecosystems.

Practical Applications

Web3's practical applications span multiple domains. In finance, decentralised finance platforms offer banking services without traditional banks. DeFi enables users to earn interest, borrow funds, and trade assets in a decentralised manner. In content creation, NFTs and decentralised platforms allow creators to monetise their work directly. Artists and creators can sell their digital creations as NFTs, ensuring they receive fair compensation and royalties. In governance, decentralised autonomous organisations (DAOs) enable community-driven decision-making. DAOs use smart contracts to facilitate transparent and democratic governance, allowing stakeholders to vote on proposals and manage resources collectively.

Potential Downsides

Challenges and Concerns

Despite its promise, Web3 also presents several challenges and concerns. The anonymity and decentralisation of Web3 could facilitate illegal activities. decentralised platforms can be used for money laundering, illegal trade, and other illicit activities, posing regulatory challenges. The lack of regulation may lead to legal and ethical issues. The decentralised nature of Web3 makes it difficult to enforce laws and protect consumers, raising concerns about fraud and security. Scalability is another challenge, as current blockchain technologies face difficulties in handling large volumes of transactions efficiently. Scalability issues can result in slow transaction times and high fees, limiting the widespread adoption of Web3 applications.

Criticisms of Web3

Web3 has faced various criticisms, including:

Security: Concerns about the security of decentralised networks and smart contracts. Vulnerabilities in smart contract code can lead to exploits and significant financial losses.
Complexity: The technical complexity of Web3 can be a barrier to adoption. Users need to understand blockchain technology, manage private keys, and navigate decentralised platforms, which can be daunting for non-technical individuals.
Environmental Impact: The energy consumption of blockchain networks, particularly proof-of-work systems, raises environmental concerns. The high energy usage of networks like Bitcoin has sparked debates about the sustainability of blockchain technology.

Conclusion

Web3 represents a transformative vision for the future of the internet, promising greater decentralisation, user control, and innovation. However, it also faces significant challenges and criticisms that need to be addressed. As the technology evolves, it will be crucial to navigate its complexities with a balanced perspective, recognising both its potential benefits and drawbacks. The transition from Web2 to Web3 is an ongoing journey, with the potential to reshape how we interact with the digital world.