What is Web3, and how does it work?

If you exist in the world, you’ve likely come across the term Web3 in recent times. You’ve also probably heard that it’s the future. But is it really? That’s up for debate.

In this article, we’ll go through the ins and outs of Web3, what people envision for it, as well as a few common critiques. We’ll be touching on blockchain and cryptocurrency in this article, so feel free to read this blog post first if you need a more in-depth refresher. 

What are Web1 and Web2?

Before we explore what is meant by Web3, it’s necessary first to define Web1 and Web2. All three describe different iterations or eras of the Internet. Web1 is, naturally, the first iteration of the World Wide Web, which came to be in 1991. Commonly referred to as the read-only web, Web1 was mostly made up of static websites where businesses and organizations displayed information that users simply read rather than interacted with. 

The current era of the web, Web2, began in the early 2000s. This is when we saw the rise of user-generated content — blog posts, comments, photos, videos, etc. — and more interactivity across the web as a whole, which has exploded in the decades since. Social media sites were created, becoming integral to most people’s everyday lives. This is why it’s known as the read-write web.

Web2 can also be defined by centralization, a fundamental critique of proponents of Web3, which you’ll read about in just a minute. The rise of social media and search engines also meant the rise of Internet monopolies, with just a few companies holding the lion’s share of the market. This relatively new type of economy, with its targeted ads and dubious utilization of user data, has left consumers uncomfortable with their relationship with these sites, especially when the content created on these sites tends to be owned by the sites themselves rather than the creator. However, it’s hard to find an alternative when people’s lives have become so entwined in these social media sites. 

That’s where Web3 comes in (well, in theory.)

Defining Web3 and how it would work

A key difference between Web1 and Web 2, and Web 3, is that Web3 hasn’t actually happened. While Web1 and Web2 were named after the fact, Web3 is currently more of a theory of how the Internet could evolve and not how it will. As such, it’s kind of a vague idea, and its feasibility remains unclear. But here’s the short of it: 

Web3 aims to create a decentralized Internet entirely underpinned by blockchain technology, free of the influence of large corporations. Essentially, online content created by the people and owned by the people (the read-write-own web). Web3 advocates believe that it will democratize the web, helping create new online services, products, and types of corporations and economies so that everyone controls the flow of information and everyone makes money, not just those at the top of monopolies. Encrypted crypto wallets will ensure privacy, while content is transparent and can’t be deleted, so you don’t have to worry about censorship. 

Okay, sounds good. But how exactly will it work?

In a blockchain-based Internet, advocates claim there are no gatekeepers or moderators. Anyone can take part. But how? Essentially, a blockchain is a public ledger that records transactions by adding blocks to a chain, currently through either proof of work or proof of stake. No one person is in charge of approving a block or keeping anyone off. Blocks are permanent and can’t be deleted. Trust is not a requirement. Adding a block is a collective effort. For example, proof of work is how cryptocurrency blockchains like Bitcoin work. When someone wants to make a transaction, a group of miners on a network adds it to the ledger by solving a complex mathematical equation that adds a block to the chain. They earn a new bitcoin in the process. Proof of stake is a more efficient means of adding a block. Rather than solving complex mathematical equations, only those who have a stake in the chain need to verify the legitimacy of a new block. 

It can be hard to imagine how exactly Web3 can work beyond crypto-mining, but several more use cases for blockchain technology have recently appeared. The most high profile of these is non-fungible tokens or NFTs. An NFT is a sort of digital deed or proof of ownership for anything from digital art, club memberships, or even video clips of iconic moments. The content itself isn’t hosted on the blockchain but a link to a separate server where it’s hosted. Beyond that, there are blockchain-based games that allow users to earn cryptocurrency, music streaming services, and whatever Board Ape Yacht Club is.

Common Web3 critiques

While its proponents may be passionate, many are skeptical about the practical application of blockchain technology in relation to everything we use the Internet for now. Some key critiques are:

There’s already a monopoly

Despite proponents decrying Wall Street big wigs, it’s difficult not to see Web3 as an extension of the current capitalist system, favoring the already privileged and helping wealthy people get richer. After all, the top 0.01% of all bitcoin holders currently control 27% of the digital currency. Apart from that, to take part, you need to have the means to buy the equipment required for mining, the money to purchase cryptocurrency, or the technical literacy to actually understand the technology. That’s without even mentioning how rife the whole market is with speculation. Critics argue that crypto coins and NFTs have no intrinsic value, with speculators merely buying for clout and hoping their value will rise so they can sell them for more to the next person. 

The environmental impact

Blockchain requires a massive amount of energy, especially when it comes to the proof of work model. Unsurprising when you consider it involves millions of computers on a worldwide network competing to solve an equation. According to Dr. Pete Howsen, a senior lecturer at Northumbria University, Ethereum — the leading cryptocurrency used for the transaction of NFTS — uses more energy annually than the Netherlands. 

Lack of privacy

While many applaud the anonymity of blockchain technology, it’s actually pseudonymous rather than anonymous. You use a pseudonym, sure, but every transaction you make will be public, permanent, traceable, and linked to that name. If people ever learn your real identity, everything you’ve done will be plain to see. However, there has been a recent uptick in privacy coins, which worries experts due to their potential use for illicit activity. Speaking of…

The prevalence of scams and theft

Direct theft and social engineering are rife within the crypto world. In 2021, thieves stole $3.2 billion directly from crypto wallets, a fivefold increase on 2020’s numbers. Scams relating to phishing, investment, and romance are also common. Regulators like the IRS have also shown concern over the potential for tax evasion and money laundering in the NFT market. 

Conclusion

For now, it’s hard to say if Web3 is the future. There are a lot of wrinkles to be ironed out before it can be adopted widely, a huge one being energy consumption. At the same time, the recent crypto decline in market value and widespread layoffs at digital asset exchanges don’t bode well for its immediate future. How people imagine Web3 may not be the exact solution for the current state of the Internet, but its concerns about the centralization and monopolization of the online sphere are legitimate. Only time will tell how Web3 will actually manifest.