What Is Web3?

February 15, 2022

Contributor: Jackie Wiles

Web3 won’t overtake Web 2.0 in the enterprise before the end of the decade, but you can start talking today about a world with less authority and more automated business execution.

The term Web3 was popularized by Gavin Wood, co-founder of Ethereum, who argues that centralization is not socially tenable long-term. Also called Web 3 and Web 3.0, Web3 eliminates the need for, and functions of, Web 2.0 central authorities and “gatekeepers,” such as major search engines and social media platforms

“Web3 innovations will take the internet into new realms and give rise to applications not previously possible,” says Avivah Litan, Distinguished VP Analyst at Gartner. “But Web 2.0 still has advantages in terms of scale, customer service and customer protections. Potential Web3 risks include lack of customer protections, new security threats and a swing back to centralized control, so organizations will want to shore up governance and risk management before replacing Web 2.0 applications.”

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Why Web3 is different

Web3 is attractive because it enables peer-to-peer interactions without centralized platforms and intermediaries. 

“The idea behind the Web was to make publishing possible for anyone; the idea in Web 2.0 was that readers should be writers too,” says Whit Andrews, Distinguished VP Analyst at Gartner. “Web3 is intended to give any participant in the web their own autonomous power and control.”

Web3 uses a stack of technologies, based on decentralized blockchains, that enables new business and social models. Users own their data, identity, content and algorithms and participate as “shareholders” by owning the protocol’s tokens or cryptocurrencies. That ownership shifts power and money away from centralized Web 2.0 “gatekeepers,” such as big tech companies and governments. 

Tokens and cryptocurrencies power the business models and economics of Web3, which supports new business opportunities in relation to, for example, the monetization of nonfungible tokens (NFTs) in new metaverse applications.

The terms “metaverse” and “Web3” are often conflated, but they actually describe distinct — yet related — concepts. Metaverse denotes an evolving vision of a digitally native world in which we will spend our time working, socializing and engaging in all types of activities. Web3 provides decentralized protocols and a technology stack that can be used to build parts of a metaverse and the new communities and economies that it will enable.

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Web3 use cases

Existing Web3 applications are limited in enterprises, but public applications are thriving. These include decentralized finance (DeFi), NFTs, play-to-earn games and community-organized decentralized autonomous organizations (DAOs). For example:

  • DeFi protocols such as Aave and MakerDAO provide users with lending and borrowing services run by smart contracts, which eliminate intermediaries so as to enable higher yields and returns, albeit with much more risk. 
  • Play-to-earn games using NFTs provide a means for users to earn income. Such games have also spawned nonprofit organizations that leverage gaming proceeds to fund scholarships for underprivileged users.
  • Content creators, such as artists, are selling their work using NFT smart contracts that ensure that they — and not intermediaries — are paid based on contract terms that they set themselves whenever, for example, they sell a piece of art.

Examples of Web3 success in well-established industries are sparse, and large enterprises will likely be slow to cede governance, oversight and control of applications they use in conjunction with other digital ecosystem participants in order to move to Web3. Nevertheless, most organizations will ultimately want to implement applications and processes that benefit from trust-minimized computing and new business models and opportunities that only Web3 promises to enable.

Enabling protocols and technologies

Some Web3-adjacent and evolving value-adding protocols and technologies include:

  • Privacy-preserving, trustworthy off-chain computing integrated with on-chain smart contracts
  • Cross-chain interoperability that enables assets to move easily across isolated blockchains
  • Middleware abstraction layers that make it easier for developers to implement portable applications
  • Scalability solutions that remove the computing burden from primary base-level (Layer 1) blockchains, such as Ethereum and Bitcoin
  • Distributed, persistent and secure storage systems for off-chain data linked to blockchains
  • Other technologies, such as privacy-preserving protocols like zero-knowledge proofs, that protect confidential information, and artificial intelligence (AI) models that can infuse NFTs with intelligence

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How Web 2.0 and Web3 compare

Aspect of protocol

Web 2.0

Web3

Trust model

Centralized services, servers and software

Trust the companies behind them.

Decentralized; peer-to-peer; no central authority; no single point of failure

Trust is minimized — trust the decentralized protocol.

Governance

Power consolidated among digital giants

Decentralized autonomous organizations (DAOs), where governance is distributed to stakeholders (governance token holders)

Business model

Digital giants and service providers own customer data, which is used to earn revenue.

The blockchain network pays transaction validators for their work.

Game theory is employed to maintain transaction integrity.

Content

Dynamic, user-generated

Source content can be duplicated.

User-owned and uncoupled from Web 2.0 services

User participation models

Free services in exchange for user data

Payments made to intermediaries for running services and software

Users own their data and content, and can monetize it.

Payments made directly to blockchain transaction validators

User interfaces

Web

Social networks

Mobile apps

Decentralized apps (dApps)

Centralized marketplaces or services

User authentication methods

User IDs

Passwords

Other authentication

Private key that unlocks access to owner’s records on a blockchain; the private key can be in a self-hosted wallet or a third-party wallet.

Financial system

Centrally managed by central banks and other financial institutions and networks

Run by smart contracts (basically “if, then else” scripts) and blockchain protocols

There is no centralized control and there are no intermediaries to pay.

Currency

Centrally managed, government-backed currency (e.g., currency managed by a bank or a stored-value account provider)

Cryptocurrency built into decentralized blockchain

Users act as their own bank, but can delegate to a centralized exchange.

In short:

  • Web3 makes peer-to-peer interactions the essence of a new generation of networked commerce and society. It retires centralized platforms, servers and authorities as the key managers of information and value flows.
  • Web3 will initially benefit large enterprises through applications that benefit from new blockchain-enabled business models and social and gaming networks.
  • The first step for business and IT executives is to understand the key ways in which Web3 differs from Web 2.0, the early Web3 use cases and related technologies.

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