What are some of the key aspects of Web3? How different are those from Web2?

While many people argue that VCs and their LPs control Web3 and not the users, many others believe that the blockchain platform will ultimately lead to decentralized Web3.

Decentralized apps or DApps are the apps built-in Web3. They either run on blockchains or decentralized networks or a hybrid of the two. In the Web3 ecosystem, for a DApp if the control over the network, protocol and data is with the users or governed by a set of rules driven by a governance body, we can say that its more decentralized as compared to the Dapps where these controls are with limited people or entities.

In the Web2 world, most companies exploit user data for ad revenue. In most cases, users don’t have control over their data and how it’s stored. We use a product for free and hence become a product. Web2 apps generally have hooks to collect our data including personal choices and behaviours. This data is then monetized in several ways. There is no free lunch in a capitalist economy. GDPR and other similar regulations have brought some control to users over their data. However, users don’t have 100% control yet. More recently, Google announce that they will do away with third-party cookies in Chrome which is a step in the right direction.

Let us now explore some of the key aspects of Web3 with some relative comparison to the world of Web2.

1. User Identity — Web2 apps generally use OAuth or similar tools or password/OTP based authentication. In the majority of cases, users are required to share some personal information. So you cannot use Web2 websites if you are not sharing personal information in some form. Some websites allow anonymous login for partial features. There is only a handful websites that allows full anonymous access. In the world of Web3, authentication is generally tied to a wallet address. So unless the users want to share publicly the wallets they hold, they can use utopian Web3 apps without sharing personal information. In cases where users plan to use the same wallet across different apps, they can transfer their identity. Ceramic and IDX are two tools that allow implementing user-centric authentication. “Secret Network is the first blockchain with customizable privacy. You get to choose what you share, with whom, and how. This protects users, and empowers developers to build a better Web3.”

2. Token Economy — As of now companies raise funds using private equity or debt or public sale of equity. VCs or the investors who own majority stake controls. the board and hence all major decisions of the company. Web3 provides another way of building the company. Entrepreneurs can give tokens to all stakeholders, tokens with voting rights. So, in a utopian Web3 world it’s possible that all stakeholders take key decisions and contribute to long term strategies instead of a few people (more decentralization). Also in this case the wealth created from the success of the company will be distributed to all stakeholders. In reality, VCs dominate this new way of building the company as the percentage of public participation is very less and the risk of companies failing is very high. Radicle has 50% of the token supply allocated for its community members. Gitcoin allows funding of Web3 based digital public goods projects that serve everyone, and solve our most immediate problems. Uniswap community members will get 60% of UNI (Uniswap protocol’s token). The Web3 goal of token economics is that all stakeholders enjoy benefits instead of a few centralized entities.

3. Application/Content Discovery — In the world of Web2, search engines are the primary source of application discovery. Indexing and curation are very important in the world of Web3 also. The Graph is a protocol for organizing blockchain data and making it easily accessible. What Google does for search, The Graph does for blockchains. It is also based on token economics. The graph protocol will challenge the monopoly of cloud providers and search engines if more and more small contributors implement it. Note that almost everything in space is still very much early stage and it’s expected to evolve in the next few years. There will be many providers and just like good SEO helps you get on top of search results, we will have something similar for Web3 discovery.

4. DAOs — DAOs stands for Decentralized Autonomous Organizations. As defined in Wikipedia — “A decentralized autonomous organization (DAO), sometimes called a decentralized autonomous corporation (DAC),[a] is an organization represented by rules encoded as a computer program that is transparent, controlled by the organization members”.

“DAO governance is coordinated using tokens or NFTs that grant voting powers. Admission to a DAO is limited to people who have confirmed ownership of these governance tokens in a cryptocurrency wallet, and membership may be exchanged. Governance is conducted through a series of proposals that members vote on through the blockchain, and the possession of more governance tokens often translates to greater voting power.”

DAOs are not legal yet in many countries and this space is also evolving. In the coming years, we will most likely have hybrid DAOs that adhere to governance rules of the country/state in which operate but also use DAO based rules.

5. Interoperability — This is a nightmare in the world of Web2. If you want to move from one platform to the other, your data will not go with you. Some of the recent policies and standards have enforced that the users can at least export their data. Blockchain interoperability has become an important feature of Web3 as a decentralized web cannot happen without this. Interoperability will allow the transfer of data and value across different networks. Web3 suffers from similar issues as Web2 as the majority of the projects are siloed as of now.

More and more Web3 enthusiasts are realising the importance of interoperability and as the space evolves, we can expect that some good solutions will come up. And we will see the adoption of protocols that enable interoperability at large in the Web3 ecosystem.

6. Payments — As reported in ET, “DeFi is a bottom-up innovation that takes the component of centralised finance and replaces human trust with math-based trust, paperwork with smart contracts, legal enforcement with cryptographic enforcement, and third party audit with open source code and public ledger.”

DeFi eliminates the fees that banks and other financial companies charge for using their services, saves money in a secured digital wallet, and allows anyone with an internet connection can transfer the funds in minutes/seconds.

Cryptocurrencies are the equivalent of fiat money in the Web3 payment world. Since many cryptocurrencies are highly volatile, stablecoins are many times used for transactions. Fast processing and low transaction fees make stablecoins a good choice for peer to peer or cross border transactions.

7. File/Media storage— In the world of Web2, HTTP protocol is used for the transfer of files between client and server. In the world of Web3, IPFS is a protocol for peer to peer transfer. As stated on ipfs.io, “IPFS is a peer-to-peer hypermedia protocol designed to preserve and grow humanity’s knowledge by making the web upgradeable, resilient, and more open”. When a file is added to IPFS, it is split into smaller chunks, cryptographically hashed, and given a unique fingerprint called a content identifier (CID).

Files stored on IPFS are resistant to tampering and censorship — any changes to a file don’t overwrite the original.

Web3 represents the next phase of the internet and is evolving everyday. It is built on open, trustless and permissionless networks. Web3 enthusiasts envision that the Web3 technology stack will be open-source where anyone can collaborate. Open-source protocols and decentralized blockchains in Web3 have already taken co-creation to a new scale. They have opened up ways of creating truly decentralized apps where the users own their data, the creators can leverage public funding to build what they actually want and the community/stakeholders can govern and can also get paid for their contributions.

References & Further Reading

1. Why is interoperability important for blockchain — Gemini Blog
2. Web3 Interoperability — The Hard Parts
3. Oracles, Web3 Interoperability, & the Emergence of IoT
4. Where will interoperability take Web3 — Axelar blog
5. DAO — Investopedia
6. DAO — Ethereum
7. How ‘Web3’ could evolve from a trendy buzzword to a better internet
8. Web2 vs Web3 — Ethereum
9. Why DeFi is the biggest thing in the history of finance — Economic Times
10. Stablecoins — Investopedia
11. Programmable Money for the internet.
12. The Architecture of Web 3 application.
13. Decentralized alternatives — Peertube, Activity Pub
14. The meaning of decentralization
15. Why Decentralization Matters
16. What is Web3 and Why It Matters?
17. What is the Decentralized Web?
18. Modeling Cryptoeconomic Protocols as Complex Systems

About the Author

Arpit is a seasoned technologist with vast experience in leading large cross-functional and cross-geography teams. Arpit also consults clients on competitive market analysis, defining MVPs, product ideation, product monetisation and go live strategies.

Arpit believes we should all contribute back to society. He has set his goals for social work in five broad areas. You can read more about the same in his blog post “Do Good, Together” on Tumblr. Arpit is interested in working with people who want to contribute towards the same goals.

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