The world has seen lots of inventions and innovations, but the introduction of the internet has been so far one of the greatest gifts to humanity. Web 3 is the latest wave of the internet that is already changing how users utilize and interact with the web.
Web 3 in layman’s language is a decentralized internet that is user-owned and user-controlled.
Some of the features that define Web 3 include:
This new shift focuses on introducing decentralized apps (dApps) that seek to improve backend functionality. However, before we discuss Web 3, we must first check how we got here by analyzing the internet’s evolution from Web 1 to Web 2 and finally to Web 3.
This version of the internet ran from 1990 to 2005. This phase was all about providing information and online content. Web 1 websites mostly allowed users to read information. This phase consisted of sites serving static rather than dynamic content. The sites in that era didn’t have much interactivity as content and data were served from a static file rather than a database. It was more of a read-only web.
This version of the web was dominant from roughly 2005 to 2020. Web 2 was all about siloed and centralized services controlled by corporations. Some of the big companies that became dominant during this phase are Facebook, Google, Amazon, Twitter, and Apple.
The phase was largely associated with the rise of social media platforms with a focus on ‘frontend’ usability and interactivity. The users could now consume and also create information in this phase. Web 2 allowed internet users to create content without having to be a developer. Users could craft a thought and share it with millions of followers using Web 2.
When Web 2 upgrades to Web 3, this is what happens:
With Web 3, builders and users can now own pieces of internet services by owning tokens, both fungible and non-fungible (NFTs). Tokens give web users property rights, which simply means that they have the power to own a piece of the internet. On the other hand, NFTs allow web users to own objects which can be pieces of art, music, code, in-game items, governance rights, credential rights, texts, and much more.
Non-fungible tokens (NFTs) exist on top of a blockchain, such as Ethereum. Ethereum is a decentralized blockchain network that is owned and operated by users. Blockchains are decentralized special computers that anyone can access, but no one can claim ownership over the entire network.
A perfect example to understand how blockchain and Web 3 work is when we evaluate how Ethereum works. ETH is a fungible token that powers the Ethereum network. ETH is the token that incentivizes all the physical computers that run the network. ETH also acts as the system’s native currency, which is used in transactions such as NFT purchases. Fungible and non-fungible tokens can be acquired through purchasing or even earned through a variety of approaches, such as play-to-earn or build-to-earn.
Web 1 and 2 made information and data accessible. Web 3 is now making it easy to own content and information on the internet. The modern centralized web platforms focus on creating network effects that attract builders, users, and partners. Control over these groups rises as the adoption of these platforms increase. The relationships also grow as platforms such as Google and Facebook extract value from their users with valuable data. Web 3 decentralizes communities, and the value of the tokens is what aligns participants with the network. The following are some of the roles that a community plays in a Web 3 setup:
The modern web space has programmable blockchains like Ethereum. In simple terms, programmable blockchains are virtual computers that keep state and run on code. When a code is deployed on Ethereum, this code will run autonomously and perpetually. The author or creator of the code can decide that the code and all the data it operates on are controlled by an individual, a community, or no one at all.
Code in most Web 3 projects is autonomous (controlled by no one) or controlled by a community. Therefore, Web 3 allows people to create advanced protocols like RSS that are open. On top of that, users can also store things like usernames, posts, and social graphs credibly and neutrally.
Web 3 is already impacting various industries such as gaming, music, finance, and entertainment.
To understand better, we will analyze how Web 3 is changing the music sector. The modern world has over 8 million musicians that are spread across different streaming platforms. The sad news is that less than 0.2% (about 15,000) of musicians make more than $50,000 per year. The reason behind this is that the streaming services and record labels keep most of the revenue generated. NFTs allow artists to keep over 90% of sales as it cuts down on intermediaries. Musicians with about 1,000 true fans can thus support themselves and move to the next level.
Social media can be described as an exit from reality. Web 3 helps design systems that respect people and do not come with reverse incentives. Data dignity and ownership is what Web 3 is all about. Web 3 introduces a universal identity system where there are no more usernames and passwords.
The modern world is dominated by large corporations where users must log in using in-house logins. Decentralized Identities (DIDs) enable users to trust code and not the big corporations that control their data. Web 3 introduces a digital journey where you are the guide. All the incentives in such a system will be aligned between users and builders. You can always take your data and identity with you if you are not happy with an application.
Networks can be described as the killer apps of the internet. Networks are very broad, and they include things like the web, email platforms, marketplaces, and social media platforms. Networks get more valuable as they get more participants. Getting such participants is easy when these networks scale. However, it is always a challenge when they are starting out, and that is where the bootstrapping issue arises.
Those who wanted to overcome the bootstrapping challenge in the Web 2 era had to employ heroic entrepreneurial efforts and spend loads of money on sales and marketing. Bootstrapping networks is hard, which leads to a situation where we need many networks. Such networks could improve our well-being, but they don’t exist simply because no one has figured out how to bootstrap them.
Web 3 introduces token incentives as a powerful tool for bootstrapping various networks. The approach is simple, whereby users are provided with financial utility via token rewards during the bootstrapping phase and before network effects have kicked in. This approach makes up for the lack of native utility.
As the native utility and network effect grows over time, the token incentives will eventually taper off and go to zero, and the world will be left with a new and scaled network.
Helium is a perfect example of a project that is trying to compete with big telecommunication companies by incentivizing homeowners to install basic networking equipment in their homes. The idea has been a perennial techie fantasy, and Web 3 might be the solution. Helium is already using token incentives to bootstrap the supply side. Helium network has over 200,000 functioning nodes.
Token incentives are not only effective but also fairer when compared to centralized Web 2 models. The approach allows people who help build a network to own a meaningful share of it. In Web 3, there is no need to spend money on marketing when the users are genuine owners, love telling other people about it, and love what they do.
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