The potential of Web3 lives in its ability to provide decentralized control and trust, which can democratize access. To better understand this, it’s important to explore the core concepts, use cases, and challenges associated with Web3.
The internet began with every participant being more or less equal in what is now known as Web 1.0. This period, which lasted from roughly 1990 to 2005, was characterized by users mostly consuming information, with minimal content being produced. It consisted of static web pages connected by hyperlinks.
Around 2005, things changed as centralized firms such as Facebook, Google, and Amazon grew, fueled in part by the adoption of smartphones and cloud computing capabilities. Users began creating and posting their own content on online platforms, and these large firms started monetizing user data, accumulating disproportionate amounts of information and power. Although they initially provided user value to gain adoption, they shifted over time to extract as much attention and value as possible from users and competition. This period is known as Web 2.0, and the quote “if you’re not paying for it, you’re the product” summarizes it well.
Recently, the term Web3 has been introduced as a buzzword with many interpretations. Ultimately, Web3 is a broad term describing a future iteration of the internet with blockchain technologies woven in and other advanced technologies such as artificial intelligence and virtual reality. The goal is to help re-democratize ownership of the internet, enabling a more egalitarian system where participants have greater control over their data and privacy.
The following piece aims to clarify what Web3 is and what it isn’t. It will use examples to make things clear and to show why this is a vision worth caring about. It’s important to keep in mind that big movements happen gradually, and this space is still in its early stages. Web3 in five years is likely to mean something very different from Web3 today.
What is Web3?
Web3 is a movement that aims to increase trust and democratize control of the internet rather than simply improving speed and performance. It envisions a future where personal information isn’t required to be handed over to big tech firms for the use of their services. Web3 also aims to empower global users to take control of their own funds, rather than relying on outdated financial infrastructure and being subject to financial exclusion.
The core ideas of Web3 include:
- Decentralized Ownership: Instead of large entities like Google controlling and monetizing user data, Web3 puts users in charge of creating and distributing information as they see fit. For example, using Lens Protocol, a user could take their social media profile data from one platform to another.
- Trustless: No central intermediary is needed for Web3 to function, making it more trustworthy and secure.
- Permissionless: There are no barriers to usage, making it accessible to everyone. This is particularly relevant to the 1.7 billion unbanked people globally.
- Native Payments: Web3 is built on blockchain and cryptocurrencies, making payments integrated and much more efficient than traditional banking infrastructure.
Example 1: Google Chrome is a Web 2.0 browser that manages your data. Advertisers are aware of your profile and pay for your attention, but you receive none of the value. In contrast, the Brave Browser allows you to choose the amount of advertisements you would like to see. If you choose to view ads, your anonymity is ensured, and you receive a portion of the advertisement fees.
Example 2: Web 2.0 application Dropbox is a trusted service for managing private information securely. However, Web3 Storj encrypts your data and distributes it globally in a secure manner, making it difficult for any single party to breach or shut it down. Anyone can monetize their empty data storage space by storing encrypted data on their computer.
Example 3: When sending funds overseas using traditional online banking, one would need to enter various banking details of the recipient, pay applicable currency exchange and transfer fees, and wait several days for the transaction to complete. However, with Web3, funds can be held in a wallet such as MetaMask, allowing for instant and inexpensive transfer to anyone worldwide.
Web3 represents a paradigm shift in the way we interact with the internet and each other. It has the potential to revolutionize how we store, share and manage information. As the movement gains traction, we can expect more innovative applications empowering individuals and communities. It’s an exciting space to watch as it develops.
Web3’s Immense Potential to Transform
Web3 has immense potential to transform the way we interact with the internet, and while many use-cases have yet to be invented, there are already several exciting areas being explored:
- Decentralized finance (DeFi): is one such area, where financial services are integrated with the internet, allowing users to borrow, lend, trade, and more without intermediaries in a permissionless manner. This creates a more democratic and accessible financial system for everyone.
- Non-Fungible Tokens (NFTs): which allow ownership of unique assets to be proven over the blockchain. This has many implications, from enabling creators to market and monetize their work directly to the market in new ways, to providing medical records and event tickets.
- Decentralized autonomous organizations (DAOs): are also gaining traction as a new form of organization without central leadership. Ethereum is an example of a DAO, and many more are expected to emerge, offering transparent and democratic decision-making.
- Payments: payments, as we know them, will also change fundamentally. Stablecoins are already growing incredibly fast, and provide a much more efficient means of transferring funds globally. This helps to modernize global payment systems and to help on-board the currently 1.7 billion unbanked people globally. Considering that global remittances alone reached $773 billion in 2021, this is a huge opportunity for Web3.
- Privacy: Web3 promises to give users greater control over their data, allowing them to monetize it or use it as they wish. It also offers a new take on social networking, where cryptocurrency monetization takes place.
Although Web3 is still in its early days, it has already attracted over 900 million users believed to have made crypto transactions by the end of 2022. As with the early days of the internet, the potential for innovation is vast, and it is expected to take time for adoption to become widespread.
The trend tends to be in line with Internet growth, as illustrated below.
The important takeaway is that the actual architecture of the internet itself is being disrupted in innovative ways meant to be more egalitarian for participants, with blockchain technology providing the infrastructure for making it possible.
Money Will Become Native to the Internet
One of the major outcomes of Web3’s growth, leading to the increased integration of cryptocurrencies on the internet. Currently, the transfer of value across the internet relies on outdated financial infrastructure that comes with high fees, delays, and fraud risks. It’s no surprise that companies like PayPal are investing in blockchain projects or integrating its functionality as they’ve made small fortunes from supporting digital payments.
In the future, transferring value using cryptocurrencies will be as easy as sending a message. Any software will be able to do this, and new currencies will emerge, like the Reserve Protocol’s decentralized currency backed by real-world assets such as gold and real estate, making it resistant to inflation.
Web3 users will need cryptocurrencies to take full advantage of its possibilities. Every user will require assets like stablecoins or a project-specific cryptocurrency, as well as major tokens like Ethereum to pay network fees. Although buying or selling cryptocurrencies still has significant friction, on/off ramps such as Stably Ramp will help users to participate in the space.
One likely consequence of this will be the growth of stablecoins, serving as an ideal bridge between traditional finance and Web3 due to their lack of volatility. In fact, they’ve already been growing exponentially, with the supply on the Ethereum network alone exceeding $100B.
Graphs from StableCamel show the extent of their whopping growth since early 2021.
While it’s definitely possible to use one’s fiat currency to purchase a volatile asset like Bitcoin, this doesn’t make sense unless the goal is to hold this volatile asset for a while. If one is interested in maintaining one’s asset value, transferring it to others, engaging in DeFi activities, and so on, stablecoins make the most sense. They’re essentially digital cash that you can hold unless ready to deploy one’s funds.
In the future we need the world of traditional finance to be better integrated with the Web3 world in order to onboard more users, integrate financial activities, and ultimately scale farther and faster. The efficient buying and selling of stablecoins through crypto ramp providers is one great way of doing so.
The Challenges Ahead
Many barriers and limitations stand in the way of progress for Web3, and it’s important to recognize the nascent nature of this industry.
The first major barrier is education. In order to accelerate adoption, mental models must change so that people understand why it makes sense. Similarly, this happened in the old days when metaphors (“surf the web!”) were used to help users to better grasp and become comfortable with the Internet, something that we now take for granted. There’s currently too much confusion which must be managed in order for adoption to grow.
The next challenge is accessibility. There is currently too much friction when it comes to buying/selling cryptocurrencies, a challenge that companies such as Stably are trying to solve. If users around the world are to become onboarded, we need significantly lower costs and time delays in purchasing. Additionally, gas fees on networks like Ethereum remain much too high, meaning that Layer 2’s must become more widely adopted.
Last of all, Web3 is much too fragmented and challenging to use. User experience is a large barrier that must be addressed. In the future, using Web3 should not even be seen as using Web3, it needs to be made simple and seamless, with a better experience that draws in more users than the status quo.
Some other challenges worth mentioning include:
- Government Regulation: It’s unclear how governments will react, and which actions they will take. The recent FTX downfall has illustrated the need for greater consumer protection and we can expect regulations to be introduced in the near future.
- Existing Infrastructure: Most Web3 projects depend on existing infrastructure like Twitter and Discord. Many consumers have no reason to make the switch over to Web3 themselves, so there will need to be compelling reasons that slowly onboard Web3 users over time.
- Complexity: This ties into several of the above points mentioned. In order for billions of users to use Web3, they can’t really think of it as Web3. To actually learn all about blockchain systems would be a significant challenge for users globally, and instead it must be simplified to the point that anyone can use it. This is comparable to how one doesn’t need to understand how the internet works in order to use it.
- Centralization: the goal is that it will be decentralized, but in reality, power may accumulate to the venture capitalists that made large, early investments into the space.
Challenges are inherent in the rise of any new technology but are nonetheless important. Successful adoption of Web3 requires a clean user experience that’s accessible to all, supportive governmental regulation, and a user base that is educated and able to use the technology.
The term Web3 has now become a catch-all term for an improved and new vision of the internet. Its foundation is based on blockchain, cryptocurrencies, NFTs, and decentralized finance, among other similar concepts that enhance the user and creator experience.
Instead of relying on free platforms at the cost of one’s data, users will now be able to participate in the creation, management, and governance of entirely new iterations of platforms and protocols. The ultimate aim is to distribute value to developers, creators, and users while keeping user data privacy.
One significant result of this movement is that money, in both its current and future forms, will become native to the internet and will be utilized to interact with Web3 more seamlessly. That implies users will need to purchase cryptocurrencies, with stablecoins being the best approach to do so while preserving the value of funds. Crypto on/off ramps that specialize in stablecoins, like Stably Ramp, will be crucial in making this buying and selling of cryptocurrencies a reality.
However, this is a challenging task, and it is years away from true adoption. Some of the brightest minds in tech are currently working in the area, and progress is being made at an exceptional rate, but patience is critical. There will be periods of mania when everyone is discussing the space and investing in it, as well as downturns such as the present.
If you’d like to learn more about Web3, we recommend some of the following resources: