Web3 – a new Internet revolution?

We tend to associate the blockchain with cryptocurrencies such as bitcoin. Silicon Valley pioneers, however, have taken the concept a little further: with Web3, the Internet as we know it is being restructured and based solely on the blockchain. How does it work and what are the consequences for Internet users?

The blockchain is a buzzword one encounters time and again in connection with Web3. Roughly speaking, a blockchain is a public and distributed database that can be used to record various transactions in chronological order. The data blocks that form part of the blockchain are, as the name suggests, chained together. Moreover, various cryptographic methods such as asymmetric encryption ensure that the data in the blockchain is secure and cannot be read by third parties.

The vision of Web3 is to decentralise the entire Internet with the help of the blockchain. The Internet should not be controlled by large technology groups nor states or banks, but should be exclusively managed by users. The blockchain is required to this end because here data is stored across various computers, eliminating the need for a single central instance that provides the required data and checks a transaction for authenticity.

Web 1.0 prevailed until the early 2000s. The Internet used to be a worldwide network of linked, primarily static documents. The first websites often consisted of simple HTML documents. Unlike today’s single page applications, however, they provided no interaction options for users. This development brought about Web 2.0, which corresponds to the web we use today. With the help of programming languages such as JavaScript, functions were gradually added to static websites, opening the door to the first democratisation of the Internet in the form of social media or blogging.

Web3 pioneers criticised the monopoly position of technology groups and the central storage of personal data. Web3 aims to take the democratisation of the Internet to the next level by shifting all control from technology companies to users with the help of the blockchain. Monopolies will be broken up as transactions are decentralised and users themselves become part of the network infrastructure.

In terms of changes Web3 will introduce for users, a distinction must be made between the frontend and backend. Initially, not much will change for users. The frontend of websites will be virtually unaffected by the new technologies. However, what happens in the background, i.e., in the backend, will be very different in Web3. Centralised servers are no longer responsible for providing websites and web apps. Instead, blockchain-based providers are at the centre of provision.

It’s one reason why users will gain more control over their data than ever before. They will be able to decide which data they feed into the blockchain. Large data pools, such as those currently maintained by Meta (formerly Facebook Inc.) or Google, would no longer exist. This would shrink the power of the big tech corporations and allow for more flexibility for users. For example, they would no longer have to rely on external payment service providers as so-called trusted third parties, since transactions would be validated directly via the blockchain.

A revival of new markets is also conceivable. The market for NFTs only recently experienced a real boom. NFTs are non-fungible tokens which act as certificates of authenticity for unique virtual goods, e.g., digitally created art or unique items in computer games, which are stored in a blockchain.

As part of Web3, new types of domains are gaining importance, such as blockchain domains. A whole range of different Web3 domain endings exist, such as .bitcoin or .crypto. An extension especially for NFT domains exists, namely the .nft extension.

Blockchain-based domains offer several advantages over conventional domains. For one, registration is more anonymous. Administration of the domain is decentralised, as is common with blockchains. In this way, the risk of a ‘single point of failure’ is minimised. In addition, it is possible to purchase domains permanently, so that no ongoing costs are incurred. Purchase prices for blockchain domains are between £40 and £80. However, one serious disadvantage is that conventional Web 2.0 browsers are not able to process Web3 domain extensions.

There are a number of applications based on technologies that are decisive for Web3. The perhaps most prominent example are cryptocurrencies and NFTs. New concepts such as decentralised autonomous organisations or computer games on the Ethereum chain are already among the applications of Web3.

Decentralised autonomous organisations (also known as DAOs) are communities that use tokens based on a blockchain. Using these tokens, the participants of an organisation can take part in decision-making processes that are designed to be grassroots democratic. A token can thus be considered a vote. How tokens are distributed in DAO depends entirely on the nature of the organisations. It is common here, for example, to earn tokens through active participation in the organisation’s activities.

An example of a DAO is the metaverse Decentraland. Decentraland is a 3D VR platform based on the Ethereum blockchain that allows users to purchase virtual land and virtual real estate stored as NFTs using the cryptocurrency MANA. The more properties a user owns, the more tokens they receive. These, in turn, can be used to participate in decisions in the digital world.

In perspective, however, DAOs can be seen primarily as a way to ensure transparent organisation of companies or administrations.

When it comes to gaming, some applications based on Web3 technologies are available. A popular game based on the Ethereum blockchain is CryptoKitties. Similar to analogue Tamagotchis, it is possible for users to breed digital cats at CryptoKitties. The game is based on NFTs and each cat is unique and stored as a NFT in the blockchain. Users can sell their cats to other players. The cryptocurrency Ether is used for this purpose. In 2018, the most expensive CryptoKitty to date was sold for $180,000 (approx. £150,000).

Web3 hasn’t even fully arrived but is already attracting plenty of criticism. As in all areas of life, increasing freedom and decreasing regulation are accompanied by rising risks. One frequently criticised point, for example, is financial transactions. Existing payment services used in online commerce allow customers to turn to third-party service providers such as PayPal or credit institutions such as banks if necessary. In the world of cryptocurrency, no such assistance services exist.

The energy consumption of established blockchain technologies is high and a point of frequent criticism. Bitcoin mining consumes more electricity per year than the entire Netherlands. However, significantly more energy-efficient blockchain technologies are available at this point in time, for example the cryptocoin Cardano.

Critics also question whether Web3 is all that suitable for preventing monopolies. Because of the inherent lack of regulation, there is no guarantee monopolies won’t form in the future.