What Is Web3 and Why Is Everyone Suddenly Talking About It?

Technological advancements have followed a predictable pattern: initial excitement, failure, and then revival, also known as a hype cycle.

Then, the new technology is introduced or dreamed of, and everyone is captivated by how it will change everything. Many dismiss these buzzy claims as empty promises. A core group of believers keeps building and ultimately produces a solid standard. It may not be perfect but it does make life better. Then, the VC class sees the new thing, and it’s all over again.

Most innovations in the past decade or so—smartphones, the sharing economy, big data, machine learning, the Internet of Things, virtual reality, “blockchain technology”—has traveled more-or-less neatly along this cubic function of technology expectations.

You may have heard much about web3 recently. This is because you are now part of the growing hype surrounding tools for decentralization online. Many of the mentioned technologies fit in web3 in one way or another. Web3 is a part of everyday life, just like the now-stable tech boom darlings.

Web3 represents the concept of a web 3.0, in contrast with today’s internet and the more hobbyist/institutional web 1.0 before that. Web3 is meant to create a decentralized, accessible and open online environment.

While the first wave of web surfing was open in spirit, it was closed in practice. Although naturally limited by infrastructure access and ability—you basically had to be in academia or just a huge nerd to actively participate online—today’s concerns about censorship and content controls were virtually unheard of. Although there were small groups of bloggers, forums and lurkers and more people who created content and made money online than we have today, it was not the same as what you see now. There was still a large scale to which content disputes could be addressed by communities.

Web 2.0 was the next step in the evolution of the internet. It saw big technology companies create tools that made it easier to use, but also more “readable” and controllable. While the term “Big Tech”, is still a popular name, it was actually the advent of the web browser that created the notion of the internet as an open platform from which any person could create and extend existing functions.

Platforms were the problem. While the foundations of the internet itself were decentralized—upheld by community consensus-driven standards like TCP/IP—the platforms that flourished upon it were not. This irony at the heart of the old new internet is by now a cliché. 2006. Time Magazine person of the year—”you” and me—might best signify the ethos of that age. We are all aware today that Alphabet decides which “you” will stay on the “You”Tube.

Web3. Web3 is a suite of online tools that enhance your online sovereignty. It combines the simplicity of the internet’s early days with the power of large tech platforms. To give individuals more control, web3 technologies generally use peer-to–peer computing.

While the web3 meme may be new, Bitcoin, which is now a decade old is a great example. The first blockchain technology removed the need for a centralized platform—like a bank—to move money around. Bitcoin allows individuals to send money without the need for a bank or third-party, much like cash transactions.

Web3 technologies are designed to make this function more accessible to other types of data than just monetary transfer. All types has so far referred to DeFi or NFTs.

Decentralized finance (or DeFi) is blockchain-based, advanced finance. DeFi uses smart contracting platforms, such as Ethereum and competitors like Binance Smart Chain or Solana. But DeFi projects such Asvryn are also using Bitcoin. DeFi allows people to directly trade, invest, or lend out liquidity for a yield—often much higher than what is available with traditional centralized financial vehicles—and can be managed by an internet-native governance structure called a decentralized autonomous organization (or DAO) and held together by a native token.

DeFi is dependent on smart contracts. They are almost like a fancy virtual vending machine. Smart contracts are programmed to perform certain actions in response other items, much like vending machines that release specific goods when they receive a set amount of cash. Put in the dollar bill—or in the case of a smart contract, send the token to a multisignature wallet—and the apparatus automatically does what it was built to without any human operation. Until the vending machine breaks down…or the smart contract gets hacked.

Definanciers who are greedy for profits use smart contracts, DAOs, to invest in companies, lend money and liquidity, buy and sell stocks, manipulate price movements and, yes, sometimes, pull a rug and walk away with some n00b money. The risk is high, the reward can be very small, especially in these times of money printing problems. Discord intrigue is common as many “degens”, who conspire for maximum profits while ensuring that no one gets injured. It’s no wonder that the Biden administration is looking around.

You may have heard of NFTs. They allow you to purchase a token which points to specific data. It is possible to buy the monkey for a lot of money. They won’t mind if it is saved and sent. They own the cryptographic keys, so dangit!

Ok, now how can DeFi or NFTs “decentralize” the internet? It’s an interesting question. Although these technologies make it possible to transfer advanced data without the involvement of a third party, in reality this sounds more like financial speculation. While we can’t downplay the benefits of unlimited financial opportunity, and without overlooking the associated perils, it is hard to believe that a MetaMask Ethereum browser extension which lets me buy NFTs in Discord without needing to access a separate credential screen from the wallet would be that groundbreaking. What about an persistent communications space that people actually use?

It’s important to remember the hype cycle in technology. A startup that calls itself a web3 company, an NFT platform or a metaverse company can attract a lot of VC attention right now.

Many web3 projects from the past were marketed differently than they are now. Ethereum is an example of a world computer. It has evolved to also power DeFi and DAOs that should be decentralized. It just so happens that a lot of the “decentralization” in the web3 world relies on a handful of very-expensive-to-run nodes hosted on Amazon Web Services and maintained by insiders. This is what hype does.

web3 is itself a marketing term. DAOs, smart contracts and NFTs date back years. They were previously known as opcodes or multisignature digital wallets. In fact, the lobbying effort for federal web3-friendly laws is being led by the same individuals who helped to propel Web 2.0’s rise with Netscape. Partly this is why the new name for old tech is so popular right now.

This does not mean that web3 technology doesn’t have a place or aren’t being used in new ways. You can say the exact opposite. Some of the most popular elements, which attract criticism and commentary, are outweighing the benefits that decentralization technologies may bring.

Think NFTs. As easy as it is to make fun of NFT investors—and it is very easy—the core idea of an NFT is secretly very useful. Differentiated tokens may be used to provide a permanent decentralized identity. This is in stark contrast with the current “login via Facebook” model.

The scowling monkey, which is currently a Twitter avatar with a few anti-NFT jokes and a Twitter avatar, could theoretically become a universal login credential. Separate logins would not be required for each site. Instead, you could outsource authentication work to Facebook and Google which would also have access to the data. It could be as easy as signing a password. A cryptographic key could also be used as a username and password. Our monkey brains could remember the monkey’s scowling face as an identifier. As a reward for creating value, reputation, work opportunities and cryptocurrency payments may accrue to specific NFTs. You might also want to use different identities in different contexts. These are already taking place at the fringes of active web3 community.

We can also take it all out. Many projects address the issue of identity using “decentralized identities”, or DIDs.

Microsoft’s ION has a Bitcoin-based DID. Recent comments were made by the leader of that project. decampedJack Dorsey’s Square will help you to create a Bitcoin-based alternative DID product. The product doesn’t necessarily have to be Bitcoin-based. Many other options are available that use the Consensys suite, which includes Ethereum offerings.

Urbit is another initiative that aims to make computing more user-oriented, across all levels of the stack (servers and social media). The Urbit Visor decentralized identity tool was recently revealed by the dcSpark team. It would incorporate DID functionality within the Urbit ecosystem. Anybody can install Urbit Visor from the Chrome Store to transform their Big Tech browser to an extension to the Urbitverse in a single click.

Web3 technology has many problems and there are still many issues to be solved. Most significant are the “gas prices”, high fees and congestion on Ethereum’s network. There is also “decentralization by name” which characterizes smart contracting platforms. As you might expect, this section of the cycle is filled with hype and money.

The seeds of change in computing can lead us to become more independent in the internet. If you notice your browser suddenly offer a native cryptocurrency wallet—like the privacy-focused Brave Browser recently did with its Brave Wallet—that’s web3. There is an undercurrent movement that aims to take back control of the internet for individuals, despite all the chaos of Constitution-bidding DAOs.