Introduction to Web 3.0
A (very) beginner's guide into the new internet
What is Web 3.0?
Web 3.0 (also known as Web3) refers to an internet without intermediaries that allows users and builders to accrue most of the value creation. Pretty simple right?
I recently listened to The Tim Ferriss Show’s recent podcast about Web3. Tim hosted two people with extensive backgrounds in technology. One of the guests is Chris Dixon, a general partner at famed venture capital firm Andreessen Horowitz. The other guest is Naval Ravikant, an angel investor that has invested in more than 100 companies including Twitter, Uber and Postmates. It was quite eyeopening and inspired me to write this blog post. I embedded the link below for reference:
The History - Web1, Web2 & Web3
Chris Dixon defines Web1 and Web2 and Web3. I added some additional info to provide context to the Web3 definition:
Web1 - Existed between roughly 1990-2005. Everything was built on top of the web. It had a predictable rule of law so that if you built something on it, you were in control. This encouraged innovation and investment, but the products and functionality were limited. Pages were static; it was similar to taking a magazine and putting it online. Web1 is formally known as the “information economy”.
Web2 - Starting in 2005, the internet became more interactive. Applications were built that allowed anyone with an internet connection to participate. With just a few clicks you could interact with anyone on Twitter. This is considered a closed model because the provider has control over the content. An open model existed, but you had to buy a domain name, get your website hosted etc. and that took time and was inconvenient. Mobile phones accelerated the trend of using apps built on closed models, and as a result now only a handful of companies control the internet. Web2 is formally known as the “platform economy”.
Web3 - The internet is owned by users and builders and orchestrated with tokens. This a radical departure from Web2. The concept of tokens is key to understanding Web3. Builders deploy applications on the blockchain, or a decentralized network of computers, and users can interact with these decentralized applications. The blockchain network acts a public ledger. Each blockchain has its own protocols and issues tokens, or units of value, that are built on top of the blockchain network. The tokens provide the mechanism by which value and control can be given to users and builders (and not centralized companies). Web3 is formally known as “The ownership Economy”:
Expanding on Web3
Ethererum, conceived in 2013, is the second most popular open-source blockchain behind Bitcoin, and one of the reasons behind Web 3.0’s development. Unlike Bitcoin, which is purely a decentralized digital currency, Ethereum (which also has it’s own cryptocurrency called Ether) was specifically designed to enable people to deploy decentralized applications and to be a Turing Complete programming language. In other words, Ethereum’s scripting language allows people to write smart contracts on the Ethereum blockchain. A smart contract is an agreement between a buyer and seller without utilizing an intermediary such as a bank. The smart contract, based on mutually agreed terms, is automatically executed once the criteria is met. Smart contracts provide a lot of benefits including:
Immutable - terms cannot be altered once the agreement is executed
Transparency - terms can be easily viewed since transactions are publicly available on the blockchain
Secure - blockchain transactions are not only encrypted, but each record is connected to other records on a distributed ledger. A hacker would need to alter the entire chain to change a single record.
Tokens, or units of value built on top of the blockchain, can be fungible like crypto or non-fungible. A fungible token, such as Bitcoin, Ether or physical currency, is replaceable and can exchange for something with equal value (all $1 dollar bills are equal). Non-fungible tokens, or NFTs, represent ownership of unique digital assets that are not directly replaceable.
Ethereum.org, a non-profit organization that supports Ethereum’s development, provides a great overview of NFTs. Some additional items to note about NFTs:
Non-fungible tokens are minted through smart contracts that assign ownership and manage the transferability of the NFTs. Ownership is easily verifiable via transfership of a unique token
NFTs can represent digital art, such as music or videos, and real world items such as legal documents or deed to a car
NFTs live in Ethereum and can be bought and sold on any Ethereum-based NFT market
NFTs can be used as collateral in a decentralised loan (loans provided without an intermediary).
One of the popular NFTs that exists today, Bored Ape Yacht Club, which consists of cartoon ape drawings and founded only in April 2021, has already generated around $1 billion in transaction value. Many celebrities such as Jimmy Fallon, Stephen Curry and Snoop Dogg all own a Bored Ape Yacht Club NFT. Famous music producer Timbaland recently launched Ape-In-Productions, an entertainment company that will create music and animation around user-owned Bored Ape Yacht Club NFT avatars. Timbaland states that this new platform “…puts creative control and long-term ownership back in the hands of artists, a concept that is incredibly important to us.”
Web 3.0 is about ownership and control being decentralized. Facebook and Google are well known for being ‘walled gardens’, companies that operate closed ecosystem and do not openly share their data. In Web 3.0 the the data is open and living on distributed systems (i.e. blockchain). Users and builders can own pieces of the internet with tokens. Dixon uses Uber as an example in the podcast - imagine drivers as token owners being able to participate in Uber’s direction and goverance at the corporate level. Naval discusses Spotify and record labels and the role they play as intermediaries between listeners and artists. This article from from the NYT illustrates how many artists struggle to make money on streaming platforms. Will Spotify and record labels’ business models even be relevant now that digital private keys, via token ownership, enable ownership of digital private property? Digital scarcity can match real world scarcity in ways that were not possible.
Dixon unequivocally believes that Web 3.0 is better for the world and will beat Web 2.0 because everyone participates in its success. The world’s most important internet products in the future will be created using this new framework. Why? Because people are motivated to promote a product when they have skin in the game. The internet is the most important invention of our time. Web 3.0 will bring money and power back to the users and builders and society will benefit as a result.