What is Web3? The Future of the Internet Explained
Coined by blockchain pioneer Gavin Wood in 2014, the term Web3 describes the next iteration of the internet — one that isn’t controlled by a handful of powerful technology corporations, but instead by the masses.
Widely billed as the successor to today’s centralized web experience, Web3 is set to leverage a plethora of advanced technologies, including blockchain, smart contracts, artificial intelligence, and more to revolutionize the way we interact online.
Unlike traditional websites and web applications which are hosted on centralized servers, Web3 services will be hosted on decentralized blockchain networks — making them resistant to censorship while unlocking a huge array of new opportunities for developers, entrepreneurs, and users.
As a new, supercharged version of the internet, Web3 is set to experience a Cambrian explosion of investment and innovation in the coming years, much like the dotcom boom in the early 00s. Indeed, with the number of Web3 developers up more than 250% in a year and there now being upwards of 10 million Web3 wallet holders and 50+ million Web3 browser users, Web3 appears to be approaching an inflection point for adoption and may be set to gain major ground over Web2.
With more than a few major advantages over Web2, those that embrace Web3 early are set to benefit most from its explosive growth. Here’s what you need to know before diving in.
The Web3 Stack
The current internet protocol stack is relatively simple and includes the network access layer, internal protocol, transport layer, and finally the application layer — i.e., the variety of websites and online services users are accustomed to manually interacting with.
The Web3 stack is similarly multi-layered, each of which can be broken down as follows:
- Protocol layer: The deepest layer of the Web3 stack, the protocol layer is formed of the blockchain platform and protocols that are used to power all Web3 services, products, and applications. This layer is primarily comprised of layer-1 and layer-2 blockchains, including Ethereum, Solana, Arbitrum, and BNB Chain. But also includes a growing range of interoperability tools and protocols, including cross-chain bridges like Multicoin and pluggable cross-chain communication systems like the InterBlockchain Communication Protocol (IBC) and Polkadot.
- Infrastructure layer: The infrastructure layer provides the building blocks that applications can use to carry out specific functions. These include communication protocols, decentralized file storage solutions, DAO-based governance protocols, on-chain identity tools, and a wide array of novel financial primitives — such as stablecoins (e.g. USD Coin and TerraUSD), DeFi derivatives (e.g. Synthetix and dYdX), crowd-owned insurance products (e.g. Nexus Mutual and InsurAce), and on-chain identity (e.g. ENS and Unstoppable Domains).
- Use case layer/application layer: This is the array of Web3 services that leverage blockchain-based infrastructure to carry out their operations. This includes gaming applications like Axie Infinity and Star Atlas; DeFi tools like Uniswap, Mirror Protocol, and Compound; NFT marketplaces like OpenSea and LooksRare; and Metaverse platforms like The Sandbox and Decentraland. These leverage the modules, smart contracts, and standards set out in the infrastructure layer to provide some or all of their functionality, and are analogous to the web apps of Web2.
- Access point layer: These are the tools that provide access to the Web3 ecosystem, and generally take the form of Web3 wallets, browsers, and extensions. Some of the most prominent examples of Web3 access points include MetaMask (the most popular Web3 wallet), Brave (a privacy-oriented Web3 browser), and MoonPay (a popular fiat-to-crypto on-ramp).
Unlike today’s internet, which is built on an array of technological and methodological standards, Web3 is still in its infancy, and there is a great deal of competition among platforms and protocols looking to establish themselves as a de facto Web3 standard. This currently makes accessing and getting around the Web3 landscape a less than intuitive task for many people, even when using the most accessible access points.
Fortunately, significant progress is being made in this area, helping to reduce the friction that can come with navigating Web3. Thanks to a rapidly growing array of fiat-to-crypto on/off ramps, bridges, and other interoperability solutions, liquidity aggregators, multi-chain wallets, and accessible educational resources, getting around and extracting the full utility from Web3 services is now becoming easier.
Nonetheless, at least some familiarity with blockchain technology and cryptocurrencies is a must.
Web3 is also set to benefit from the next generation of non-fungible tokens (NFTs), aptly named “NFT 2.0”, which will go beyond simple blockchain-based art and collectibles, to more powerful examples of tokenized utility — like NFT-based domains, memberships/subscriptions, digital real estate, decentralized file access permissions, tokenized identity documents, and more. These will help enrich Web3 will features that cannot be replicated by centralized Web2 offerings, while helping to power its unique user-owned economy.
What Does Web3 Offer?
Similar to how the full-fledged internet offers a quantum leap in utility over typical a typical intranet, Web3 is set to provide a huge array of benefits over Web2. Leveraging the unique properties of blockchain technology, Web3 will radically change the way we shop, relax, work, and interact online.
The main advantages Web3 offers over Web2 include:
- Permissionless access: By leveraging blockchain-based protocols and related technologies, Web3 is set to be a far more permissionless place to access. With few to no identification requirements and a lack of centralized services, censorship is set to become a thing of the past, while government firewalls and internet restrictions are likely to be rendered far less effective at controlling access to information.
- True ownership: Web3 is set to power a huge variety of new business models centered around the concept of “true ownership” — allowing users to own their data, assets, content, and more through the creation and transfer of digital tokens including utility tokens and NFTs. Unlike Web2, where user data, community creations, and content are generally owned by the platform it is uploaded to, Web3 will provide a fairer playing field that better rewards participants and balances incentives between stakeholders.
- Improved privacy: Blockchains are pseudonymous by design since users do not generally need to link their real-world identity to their payment methods in order to use blockchain-powered services. This attribute also extends to most decentralized applications (DApps) which do not collect or require any personal information about their users — a stark contrast to the data mining standard set by most Web2 services.
- Decentralized storage: Thanks to the advent of decentralized storage solutions like Filecoin, the InterPlanetary File System (IPFS), and Swarm, Web3 will provide users and businesses with access to truly permissionless, immutable, and resilient decentralized file storage — eventually at a fraction of the cost of existing cloud-based storage services.
- 100% uptime: Unlike traditional web services, which are hosted on centralized servers that are susceptible to government censorship, denial of service attacks, and other outages, Web3 services are likely to benefit from 100% uptime. This is thanks to the unique resilience of decentralized systems like Ethereum and Solana, which distribute files and applications across a network of potentially thousands of nodes. This makes it extraordinarily expensive to attack the network while making most attempts futile due to the sheer redundancy.
Trustless operation: Thanks to the use of self-enforcing smart contracts, users can interact with Web3 applications in a trustless manner — allowing them to shop, interact, and transact online without relying on centralized intermediaries to carry out their duties. Since the operation of these smart contracts is guaranteed by the underlying blockchain technology, users can be sure that the code they contain will be executed to the letter if the required conditions are met.
Gaming as the First Frontier
The gaming industry has been undergoing an evolution in recent months, with a major break away from the top-down revenue generation approach used by most games, to a fairer player-owned economy that rewards players for their time and triumphs.
In the last few years, a huge number of games have emerged that leverage the unique properties of blockchain technology, smart contracts, and digital tokens to provide an incentivized playing experience that sees players rewarded in cryptocurrency tokens and provided with a real say over how their favorite games operate and develop through on-chain governance.
Thanks to the advent of blockchain technology, games can now provide deeply engaging experiences and operate as an entire ecosystem unto themselves. With games like The Sandbox providing a powerful outlet for player-made content, and rewarding participants with digital currencies for the content they produce and revenue they generate, the balance of power is beginning to shift in favor of the player.
NFTs represent a pivotal technology not only in the blockchain gaming sector but also in Web3 in general. Today, they’re already being used to represent digital real-estate in metaverses like Decentraland, space ships, and in-game items in Star Atlas, and collectible digital critters in games like Axie Infinity, Genopets, and My Neighbor Alice — and the number of use cases for NFTs is continually expanding.
As an example of Web3 applications, blockchain-enabled play-to-earn games are rapidly demonstrating the advantages that decentralization can provide to one of the most popular and lucrative industries. Indeed, some of the most popular play-to-earn games have achieved multi-billion dollar valuations and onboarded upwards of 1 million active players, making them one of the biggest on-ramps to Web3.
The rapidly blossoming play-to-earn sector represents arguably the first major Web3 frontier, since it provides a clear step forward in utility and opportunity for both users and developers while being among the most accessible Web3 services.
What to Expect
Web3 is, without a doubt, one of the most promising industries right now. With a flood of talent moving into the space and genuinely impressive innovations cropping up left, right, and center, it appears to be on the cusp of a Cambrian explosion of adoption.
With great strides being made in the composability of Web3 building blocks, interblockchain communication, and blockchain scaling, major businesses and early Web3 pioneers are beginning to pile into the industry and lay down the foundations for further growth. With many centralized applications (DApps) quickly gaining market share and some now beginning to rival their centralized counterparts, the merits of Web3 are becoming more apparent.
However, due to a great deal of tribalism in the blockchain space, layer-1 scalability challenges, and a lack of defined standards for Web3 development, there remain several hurdles to overcome before Web3 will achieve mass adoption. Nonetheless, with rapid progress and a massive influx of capital from well-known funds and enterprises being highly likely, we can expect to see the most popular brands and services making the jump to Web3 within the next decade.
Now, the only question is, when will you take the leap?
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About Master Ventures
Master Ventures is a blockchain-focused venture studio helping to build the next generation of blockchain-based Web 3.0 system innovations within the crypto industry. Launched in 2018 by Founder and CEO Kyle Chassé, the company’s ethos can best be summarized in the acronym #BeBOLD: Benevolent, Open, Love, Decentralized.
Master Ventures co-creates with entrepreneurs and businesses worldwide to turn the best ideas into innovative and disruptive products. They do this by investing as strategic partners through offering advisory services to the projects they believe in. To date, Master Ventures has invested in over 40 crypto projects, including the likes of Kraken, Coinbase, Bitfinex, Reef, DAO Maker, Mantra DAO, Thorchain, and Elrond.
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