June 28, 2022

What is Web3 (and why should I care)?

hero image for blog post

Let’s start with the basics: what does the 3 mean?

Do you remember the early days of the internet, back when we used to get AOL CDs in the mail and the Space Jam website was peak web design?

That was Web1. Most of the stuff on Web1 was static web pages, and individual people didn’t usually produce their own content.

We can think of Web1 as a “read-only” period.

About 10 years in, things started to change. New websites like YouTube popped up to let users host their own content, Wikipedia started crowdsourcing an entire encyclopedia, and social media let us share cat videos at warp speed.

In short, the entire internet was overhauled to be more collaborative. This trend became known as Web 2.0: a read-write period.

Web3 predicts that the internet could undergo a similar seismic shift, thanks to blockchain technology, a digital ledger that stores data on a secure network of multiple computers rather than in one central source.

Proponents think Web3 will be a read-write-own period, meaning that users will take power back from big companies by having a financial stake in the content they create.

Okay, I’m following you. So what else makes Web3 different? 

  1. It’s decentralized. Large companies no longer have a monopoly on data, and ownership is distributed among builders and users.
  2. It’s permissionless. Everyone is allowed to participate, and big actors can’t unilaterally decide to exclude anyone.
  3. It has native payments. Cryptocurrency is used to spend money online, rather than banks and payment processors.

What kind of changes can I expect with Web3? 

Under Web3, data will be stored in a decentralized network outside the authority of big tech companies like Google or Amazon.

This shift could undermine the leaders of Web 2.0. and upend the status quo.

Let’s look at Facebook as an example. Right now, Facebook makes money by selling your aggregated data to advertisers, who then use it to target you with subscription razor kits and period underwear (no, just me?).

Under Web3, users could potentially own and monetize their own data, or receive payment for contributing to the platform.

Web3 could also see some current trends, like cryptocurrency and non-fungible tokens (NFTs), become parts of our daily life. For example, you might start buying concert tickets with Bitcoin and receiving an NFT, stored on the blockchain, that confirms you’re the owner.

Since all of this will be taking place on a decentralized network that updates in real time across all touch points, Web3 proponents argue that these transactions will be next to impossible to hack.

Wait, so Facebook and Twitter will lose control with Web3? Then why is Mark Zuckerberg so excited about it?

Mark Zuckerberg is excited about building the Metaverse – a virtual space where people will be able to have social experiences via VR and AR. Just as Facebook dominated social media starting in 2004, they’re hoping to play a huge role in sharing and developing the virtual world.

But Meta will also face revenue challenges if users gain more control over their data through Web3. Right now, more than 97% of Facebook’s global revenue comes from advertising.

In a Web3 world, Meta would have to replace that revenue with another source – probably why they’ve said they’ll take a 50% cut on virtual asset sales in their metaverse.

A future where the big tech companies aren’t the major online players sounds interesting. But can Web3 really be decentralized?

Web3 proponents share a rosy picture of a future internet that empowers creators and consumers by reducing the power of big tech.

Critics, however, aren’t as optimistic. NYU Stern professor Scott Galloway (hey, that's our founder!) predicts that new actors could step in to fill the power vacuum — especially now that venture capital sources are rushing in to put their stakes in the ground.

Web3, he warns, could actually result in fewer players controlling the network. In essence, the network would be re-centralized rather than decentralized.

To ground his point, Galloway cites the early shift from IBM to Microsoft and Apple. The upstart companies had goals of breaking down the old guard but ultimately became the establishment themselves — and in many cases, even larger and more powerful than the companies they set out to replace.

This all sounds pretty chaotic. Will Web3 be standardized?

Ian Rogers, the Chief Experience Officer for the crypto hardware wallet company Ledger, believes that standardization will be a natural part of the shift to Web3.

“The internet is based on standards,” he said during a recent Section4 event. “Those standards are always evolving.”

Noting that current standards like Hypertext Transfer Protocol (the HTTP:// you see at the beginning of URLs) make the web universally usable today, Rogers said that new standards will inevitably be proposed and adopted.

Some standards are actually already coming into place, like ERC721 on the software platform Ethereum, which covers the transfer of NFTs.

If someone’s interested in embracing Web3 but still a little skeptical, how should they start? What should they be wary of?

Like with any new tech movement, it’s wise to approach with caution.

Similar to the dotcom bubble in the early oughts, there are a lot of snake oil salesmen. A lot of Web3 offerings are likely overhyped right now but there may be winners.

According to Rogers, this doesn’t mean you have to miss out or stay on the sidelines. Whether you’re a consumer or in marketing, you can dip your toe into the web3 waters to be prepared for when things firm up in 10 years.

If you’re selling a product, providing an NFT as a proof of purchase is a low-risk entry point that may excite some customers. If you’re on the consumer side or looking to eventually invest, Rogers suggests acquiring an NFT or a small amount of crypto to better build your understanding.  

Want to dive deeper into Web3? Check out Section4’s guide to NFTs.

Greg Shove
Section Staff