What is web3 and why does it matter?

Web2 moved on to 'read and write', meaning web developers can allow users to publish their own content, comments or ratings, alongside the emergence of social media platforms. With web2, it became easier for consumers to make their own websites, even without knowing HTML or what a web server was. But still, centralized social media companies have the ability to manipulate, store and sell user content and private data they have collected on their users, generating staggering levels of income.

Web3 is the future internet that we're moving toward. It's defined as 'read, write and execute', using decentralized blockchain-based platforms that give control to users. This means that no one can gain access to private user data, or remove users’ content. Under web3, the internet is shared online and governed by the collective 'we', rather than owned by centralized entities. And the shift to blockchain technology will make it open, transparent, decentralized and peer-to-peer.

Web3, cryptocurrency and blockchain

Some skeptics in the industry have been quick to label web3 as a scam, but it seems a bit premature to label an entire ecosystem as a hoax.

A challenge is that the terms 'web3', 'crypto', 'blockchain' and 'decentralization' are all used interchangeably but often mean hugely different things, with the debate focussing on ideologies rather than technologies.

Some of the biggest questions surrounding web3 center on how cryptocurrency is involved. Decentralized apps using different crypto tokens are considered to be part of it, in addition to decentralized autonomous organizations (DAOs), NFTs and even Reddit community points. Whatever a finished web3 will exactly look like, crypto will probably have a big part to play.

Do we really need web3?

Blockchains excel when two very narrow criteria are met: the system must be decentralized; and participants are adversarial. Most candidates fail on criteria one. If multiple organizations or people need a shared system, creating a third-party administrative governing body with an API and structured query language (SQL) database tends to be sufficient, while having vastly higher efficiency and reliability. And even if a system must be decentralized, if the participants trust each other, you don't need a blockchain, you need a consensus algorithm.

Creating a non-governmental currency governed solely by code, like Bitcoin, is a good use case. It must be decentralized, or any government could either control or exert pressure on whomever they like. And, with money is involved, many participants have an incentive to cheat the system or others in the industry.

Establishing a decentralized finance application (essentially a savings account and lending platform) is another great use case - with no minimum deposits, account freezes, or signup requirements.

There are very few other good use cases. The ratio of terrible to good ideas in Web3 is 10000:1, if not more.

Riding the web3 trend

Web3 is anticipated to help people have more control over their data, creating a decentralized version of the internet. It’s also set to be more user-specific, which will aid data security and privacy while avoiding the risk of hacking.

But it’s vital to remember that not everything needs to be decentralized or built on a blockchain. As always, businesses should look to use the right tool for the job to achieve the best results and drive long-term success. Nonetheless, I predict that the 'regular' web and blockchain will coexist in the future.