Web3 for Dummies. Everything you wanted to know about Web3.

Everything you always wanted to know about Web3 but were afraid to ask because everyone around you is pretending that they DO know and now it feels too late to admit you don’t without losing face and you were already insecure because of your COVID depression and this is just too much to handle for one person.

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April 27, 2022
Technology

By Laurence Van Elegem who is equally confused as you about Web3 because she only studied Germanic languages for crying out loud and not engineering or coding (Why is this even happening to her? Please make it stop!)

Welcome, dear visitor of this document, to the wonderful and incredibly mysterious world of Web3. Here be dragons, but together we might try to understand them a little bit better. Or not. But that’s ok too, I guess.

No one knows (But don’t tell the others!!!)

First of all, let’s take away all the shame you might be feeling and make this a safe place. The reasons why you are so confused by all things Web3 are actually pretty simple and not at all a cause for ill repute:

  • Blockchain - the underlying architecture ofWeb3 - is one of the more complex technologies out there. Mostly because there aren’t many use cases yet and it’s still pretty hard to understand what it could exactly do and change. I’m going to be honest with you: I don’t and I do understand blockchain at the same time. And I refuse to be ashamed of that.
  • Web3 is still being built. It really resides in an experimental phase and few agree on what it will exactly turn out to be. Many are talking about it. Few are ‘doing’ it. So beware of people who claim to know“exactly” what Web3 is.

Lazy as I am, I’ll just throw the Wikipedia definition at you. Smack!:

Web3 is an idea for a new iteration of the World Wide Web based on blockchain technology, which incorporates concepts such as decentralization and token-based economics.

That’s the core most people agree about: blockchain + decentralization + token based economics. In fact, some say that Web3 is just a clever rebranding of “blockchain technology”, in order to bypass its bad rep of over hypedness, crypto scams or even negative environmental impact.

Now, If you are also of those people who does not exactly understand what blockchain is but fears it’s now too late to ask about it without looking ridiculous, here’s a definition that will definitely make you cry:

A blockchain is a form of digitally distributed, decentralized, public ledger, which is a series (or chain) of blocks on which transaction details are recorded after suitable authentication and verification by the designated network participants. It’s a distributed database that is shared among the nodes of a computer network.Blockchains are best known for their crucial role in cryptocurrency systems, such as Bitcoin, for maintaining a secure and decentralized record of transactions. The innovation with a blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.

If your mind’s still a blank after reading this (I know mine was), try this clip, from which you will learn a lot more than the obvious “Jacob has a weird obsession with blue cats” and “his parents are lying and deceiving jerks who will be lucky if Jacob does not grow up to become a psychopath”.

Ok. Let’s try again, but without Santa or all the tech babble: blockchain is a system of recording information in a way that makes it difficult or impossible to change or trick the system because each transaction is duplicated and distributed across the entire network of computer systems on the blockchain. Apart from this mostly agreed upon decentralized blockchain core as described above, defining Web3 is still pretty much the Wild West. Except for when it comes to what it’s NOT. This people do go along with:

  • It’s not the static Web1: Read: only a few people knew how to operate and use the internet back then. For users, it was mostly a read only environment.
  • It’s also not the “evil” Web2: Read + Write: Web2 is a read-write web based on social networks, wikis and blogs that let users create and share more of their own content, which increased their participation and collaboration. The dark side of this Web2was centralization of power in a few really big players like Facebook, Apple, TikTok, Amazon etc., which is supposed to be solved by the decentralized nature of Web3.

In many ways, Web3 is therefore still mostly a wish, a prayer and a Utopian view mostly built on a vision of how the new internet should NOT be.

So what would this Web3 utopia look like?

The way I understand it, this is the true beating heart of the utopian Web3 vision:

  • Decentralization: through the force of blockchain-based decentralization, a peer to peer approach and the cutting out of the middleman, Web3 is supposed to empower its users and protect them from the excessive power of Web2 giants like Facebook & Amazon. The result would be a more just, more equal, more democratic, more P2P community-driven and less polarized web.
  • (Identity and data) Ownership: Instead of our identity being kept prisoner onFacebook or LinkedIn and our data available for them to reap for causes we often know nothing about, Web3 will give identity & data ownership back to its users who can then choose who can use it and what for. That’s the reason why people are talking about the “Read-Write-Own” version of the web here. The result would be more privacy, more security, more safety, more interoperability & less manipulation.
  • User-centricity: all of the above is why Web3 is called user-centric, while Web2 is called application-centric.

How Will Web3 ensure that data stays with the owner and is not misused?

Easy! (Kidding. Nothing is ever easy in Web3. Remember that, kids!) Through Self-sovereign identity or SSI, an approach that gives individuals control over their digital identities. A very popular SSI method is through the use of a crypto wallet like MetaMask or Trust Wallet, where all the (identity) data and assets of the individual are guarded within the walls of their own wallet. This allows them to control who will and who can’t use their data.

Also, just to illustrate how little consensus there is about Web3, this:Wikipedia’s explanation about SSI says that “Most SSI systems are decentralized, where the credentials are managed using crypto wallets and verified using public-key cryptography anchored on a distributed ledger.” So crypto wallets are supposed to be a form of SSI here. But one of the biggest blockchain specialists of Belgium told me that they were not the same thing: SSI start from your identity and then connects everything to that. Web3 starts from your (crypto)wallet, and connects your identity to that.

So I’m sure us mortals are forgiven if we find all things Web3 “mildly”confusing. And I’m also sure that you’ll forgive me if you find sources on the wild west that is the world wide web which would contradict certain facts here.

What are the advantages of this decentralized and user-owned Web3?

  • Privacy: seeing that users have full ownership and control of their own data - safely kept on a blockchain via a crypto wallet – they can control who uses it and who not. They can choose for full privacy. Or to lift that privacy if they want to donate their data to e.g. a medical company performing cancer research.
  • User empowerment &democratization:users have full control over what happens to their data. The power is in their hand, rather than in the hands of centralized Big Tech giants.
  • Ownership, beyond data: users own the IP (intellectual property) on whatever they buy on the decentralized platforms, granting them full ownership not only of their data but also on building a business, game, museum... in the digital world.
  • Freedom of speech: content that is multiplied over a decentralized peer-to-peer network is very hard to change which makes it very hard to censor(the flip side of this coin is that online harassment, hate speech, disinformation will also be harder to censor).
  • Security: because it’s very hard to tamper with information that is authenticated over so many nodes (remember Jacob’s dad trying to change the blue cat into a cookbook), this makes Web3 a very secure place. Some say that the advent of a fully functioning quantum computer wouldobliterate this security, but we’re far from there yet.
  • Trust: Web3 is designed for trust seeing that it’s so private, so secure and so democratic without any need for a trusted third party(like a bank).
  • Interoperability: if users own their data this means that, theoretically, separate siloed platforms like LinkedIn and Facebook would be able to “speak” to one another and exchange data (see the separate point of interoperability below).
  • No single point of failure: in a decentralized system, it does not matter much if one server goes down, because all the rest stay up and keep the system running. Technically Roblox – which is a centralized type of metaverse platform - could go down, but Decentraland (a decentralized type of metaverse platform running on blockchain) couldn’t.
  • Community: Decentralized Autonomous Organizations or DAOs (see point below for more info) could change how we organize ourselves from a hierarchical into one that is bottom-up community driven.

Where will we see the most obvious changes (at first)?

Finance

Anything todo with decentralized finance, or DeFi, is the fastest-growing blockchain category and the most visible and well-known part of Web3.

DeFi is there invention of traditional financial products - like lending, borrowing, trading, payments, insurance, asset management etc. - by using smart contracts on a blockchain. The system removes the control banks and institutions have on money, financial products, and financial services. It challenges the centralised financial system by disempowering the middle men/intermediaries and focusing on peer to peer financial networks.

Simply put,DeFi allows you to lend, trade and borrow using software that records and verifies financial actions in distributed financial databases. Most DeFi projects currently rely on public blockchain Ethereum which offers intelligent features like smart contracts.

Is DeFi the same as cryptocurrency? Nope. Both use indeed blockchain technologies and are financy (look at me using finance jargon!). But cryptocurrencies - like Bitcoin and Ethereum - are just decentralized payment systems (and a way to store value) while DeFi refers to the entire suite of financial products as described above (lending, insurance, asset management…). So cryptocurrencies like bitcoin are just a small part of DeFi.

What about Stablecoins & Central Bank Digital Currencies (CBDCs)?

  • Stablecoins are just types of cryptocurrency like bitcoin, but they are more stable as their name indicates (because they rely on a more stable asset as a basis for its value: a fiat currency like theU.S. dollar, precious metals or even other cryptocurrencies). They are payment systems part of the DeFi branch of Web3.
  • CBDCs are inspired by Bitcoin and similar blockchain-based cryptocurrencies, but differ from such a virtual currency and cryptocurrency as they are issued by a state: by its central bank, rather than by a commercial bank. Most CBDC implementations will likely not use or need any sort of distributed ledger such as a blockchain. That is why they are often not a part of Web3.

And the Token Economy? What’s that, bruh?

The Token Economy is a decentralized economic model that is empowered by the crypto industry. It differs from the traditional economy as it reconstructs the way people create value and get rewarded, without being interrupted or coerced by centralised banks, big companies or governments. Different from the current internet economy, the Token Economy will hand over the ownership of privacy, data and value to the online user. Sing it all together now: poweeeer tot he uuuuuseersss.

Some other advantages of DeFi for consumers:

  • It eliminates the fees that bank sand other financial companies charge for using their services.
  • You hold your money in a secure digital wallet instead of keeping it in a bank.
  • Anyone with an internet connection can use it without needing approval.
  • You can transfer funds in seconds and minutes.

Governance: how we organize ourselves

Web3 has the power to completely change how humans organize themselves in systems, be it companies, institutions, communities or governments. And the reasons why are Decentralized Autonomous Organizations or DAOs.

A decentralized autonomous organization (DAO), sometimes called a decentralized autonomous corporation (DAC), is an organization - represented by rules encoded as a computer program - that is transparent, controlled by the organization members and not influenced by a central government. They are member-owned communities without centralized leadership or traditionally set up management structure. Their financial transaction record and program rules are maintained on a blockchain.

Simply put, a DAO is an internet-based organization that is wholly owned and managed by its members (who need to vote if they want to implement any changes) and that could theoretically operate autonomously. How? The organization's rules described above are written down in a smart contract, chunks of code on a blockchain that automatically execute whenever a set of criteria are met. So, in theory, a DAO could operate entirely autonomously without any humans needing to intervene. However, the technology and UX are not yet atthe point where this full automation is considered realistic.

Though few traditional companies are currently experimenting with DAO concepts, this could have a huge impact on how we organize companies or governments: in a bottom-up, flat, non-hierarchical decentralized and (partly) autonomous way. Just think of what that would mean for leadership, power, decision making, collaboration, reward systems, politics etc.

Business Models

One of the biggest differentiators of Web3 is the shift in data ownership from centralized data platforms to the user (Yes, I’ll keep repeating that so you’ll never forget and it will haunt you in your dreams. You’d be chillin’ in a bar with your homies in the Land of Nod, you’ll turn around and there I’ll be- looking fabulous as ever - whispering “Weeeeeb3 will empower its uuusers with daaataaaa ownershiiippp”.) And if you think about that for a moment (please do), you’ll realize that all the companies that are monetising data in one way or another or are using it for marketing and sales purposes will need to find another way to make themselves more profitable.

The first that come to mind are all the Big Tech companies that trace our footsteps online so that other companies can pay them to convince us to “buy things we don't need with money we don't have to impress people we don't like”(Tyler Durden in Fight Club, but really Chuck Palahniuk). Some people would subscribe this use of data as convenient and useful, but maybe it’s time to rethink our model of rampant consumerism that does not only have repercussions on our individual happiness (buyer’s remorse et all) but on the environment, society and even politics. Decentralized Social Media – DeSo – like Subsocial or Twitter’s Bluesky project are actually already a thing, but none of them have reached the scale of the Web2 social media giants (network effects are a b*tch, y’all).

Of course, it’s not just the Big Tech Ad giants that will need to pivot. Think about all the companies that pay them so that they can sell more products and services. Think about their marketing departments. Think about all the marketing agencies, and anyone that has built a business on top of user data.

Will that mean that data monetization will disappear? Most likely not. It will probably just take on another form. Who knows, in some cases some people might even be content in their filter bubble on social media. And consumers will be able to choose who will use their data, so they might allow this to companies who really offer them advantages. I’m afraid that “we’ll recommend great stuff for you to buy”, won’t cut it at that point. To use Steven Van Belleghem’s Offer You Can’tRefuse model: companies that will try to become “Partners in the Life” of customers (by catering to their hopes, dreams and worries) or that have a“Saving the World” strategy will probably have a bigger chance of convincing people to open up their data. So they might choose to ‘donate’ their health data to medical or pharma companies to help them fight diseases they or their loved ones are struggling with. Another approach could be that users could even monetize their own data: companies could offer micro-payments to users opening up their data to them.

I guess we’ll only know how it will work when it actually happens.

What are the challenges? What is the dark side?

  • Power shift to VCs: Some people, like Twitter’sJack Dorsey, aren’t buying into the whole decentralized “Web3 will empower its users with data ownership”utopia. (Personally, I’m waiting for the day that I’ll finally be able to tweet“Web3 has decentra-lied to us!” Got it? Eh? Eh!?) Sure, he sold his first tweetas an NFT for over $2.9 million, but none of that Web3 BS for him, right? He believes users won’t own the next iteration of the internet: venture capital funds pumping millions into blockchain and Web3 projects will be the ones to hold the reins. Power will not shift from Big Tech to the user. But from BigTech to VCs - like Andreessen Horrowitz - according to him.
  • Power shift to the data repository?: The biggest question I have is this: if we hold the keys to all of our data (which reside on the blockchain) in 1 place - be it a crypto wallet or another place - will the platform offering that place not be the one to have the power, rather than us? And if it is indeed a crypto wallet gathering our online data and identity, will this further enhance our obsession with money (and broaden the gap between haves and have-nots)?
  • Environmental impact: Each time a cryptocurrency transaction (and that includes transferring an NFT) is made, consensus must bee stablished all across the distributed database (or at least 51%, for security reasons) through what is known as Proof-of-Work (PoW). This consumes a huge amount of energy. Bitcoin has a total annual energy footprint similar toThailand and emits as much carbon as Kuwait. Ethereum is better, but a single transaction still uses as much electricity as a US household over 8.32 days, or the same as 200,000 VISA transactions. Over the year, that’s as much power as the Netherlands.
  • Lack of regulation: A decentralized system like Web3 comes with some significant legal and regulatory risks. It would make policing cybercrime, including online harassment, hate speech and child abusei mages, even more difficult because of its lack of central control and access to data. Also, when something’s on the blockchain, it’s permanently on there.There’s nothing stopping someone for sending abusive content into your wallet, like spam, and then you can’t do anything to delete it.
  • Immutability & slowness: If something is truly decentralized, it becomes difficult to change, and often remains stuck in time. That is a problem for technology, because the rest of the ecosystem is moving very quickly, and if you don’t keep up you will fail. When a technology is more conducive to stasis than movement, that’s a problem.
  • Scalability: As transactions are slower on Web3 -because changes to state, like a payment, need to be processed by a miner and propagated throughout the network - this makes it harder for solutions to scale.
  • UX & accessibility: Web3 is not even remotely user-friendly: interacting with its applications (Decentralized applications are called dapps, by the way) requires tedious steps, software, and even education. You can’t just “go” to Web3 like you can go online. It’s complicated. For instance, if you want to buy an NFT, you need to download a crypto wallet like MetaMask, which will hold all of your crypto assets. If you lose your 12-word “seed phrase” (the only way to access your crypto wallet account if you forget your password) you’ll never be able to access your account again, … ever.  Once you have a crypto wallet, you’ll need to buy some cryptocurrency, often Ethereum, to put into your account. You can do that using services like Wyre, which often can’t be used everywhere in the world (eg. Wyre is not licensed inNY). You’ll understand how this might be a hurdle to adoption, even if some of these actions only need to be performed once.
  • Decentralization theatre: many so-called Web3solutions are not as decentralized as they seem as some blockchain projects are decentralized in name but not in substance. Also, due to consolidation in the cryptocurrency field, some services are pretty centralized: Blockchain application programming interfaces are currently mainly controlled by the companies Alchemy and Infura, cryptocurrency exchanges are mainly dominated by Binance, Coinbase, MetaMask, and OpenSea and the stablecoin market is currently dominated by Tether.

So what don’t most people agree on?

  • Some people regard Web3 as some sort of collision/convergence of certain technologies, other than blockchain: like AI, 3D, immersive/metaverse tech, edge computing ( a distributed computing paradigm that brings computation and data storage closer to the sources of data). This convergence will happen of course (Meta is investigating the convergence of blockchain and metaverse tech), but not sure if we should see all of this other tech as part of Web3. See below.
  • Web and Web3.0 are (not) the same. Web3.0 is Tim Berners Lee vision of the Semantic Web of linked data, which has the goal of making internetdata machine-readable. The aim of Web3.0 is not just to connect the documents(like in the classical internet), not just to create links between these documents but to connect, to link the data at a lower level. The tech backbone ofWeb3 and Web3.0 are not the same nor are their vision (even though they’re not mutually exclusive). See below.

Metaverse +Web3: it’s complicated

People often include the metaverse in their version of Web3. And this might very well happen one day, if we think about Meta looking into blockchain and crypto for its metaverse vision (Meta’s metaverse is currently still in centralized Web2mode, though).

Strictly speaking the metaverse and Web3 are two different things, though there are links:

  • Some types of metaverse (there is not one metaverse, but there are several, siloed metaverses living next to each other) - like Decentraland & The Sandbox - run on a decentralized blockchain platform and are therefore a part of the decentralized vision of Web3. Most other metaverses, like the ones from Meta (Horizon), Epic Games (Fortnite),Microsoft & Roblox Corporation (Roblox), are still very much centralized & thus currently NOT strictly Web3.
  • Metaverse platforms often use cryptocurrencies (fungible tokens) - digital currencies that use blockchain technology to record and secure every transaction - asa form of payment. And many of them offer NFTs or non-fungible tokens (one-of-a-kind digital token that represents ownership of a unique digital item) as well trousers. It goes without saying that anything crypto is a part of Web3. Eg: An avatar on Roblox could buy and wear a unique NFT gown or sneaker.

Web3.0 +Web3: also complicated

(What? It took too long to find a song with semantic in it and I just happen to like this song.)

Web3.0 isTim Berners Lee’s vision of the Semantic Web of linked data, which has the goal of making internet data machine-readable. The aim of Web3.0 is not just to connect (or create links between) the documents (like in the classical internet) through URLs or links, but to connect, to link the data at a lower level. Why? Because if that happens, changing your information on LinkedIn(like a new job), would also for instance change it simultaneously on Facebook.

Currently, all this data is spread over siloed platforms. Linking them would be beneficial for efficiency (you don’t need to update your profile on all your platforms), for accuracy (all the info over all the platforms will be the same)and for intelligence (the more data is connected, the more people can access it and the more insights we’ll be able to mine from that). So the idea would be not to have URLS between documents, but URLs between facts.

Simply put, where Web3.0 is a linked, a semantic web that strives for efficiency and intelligence than Web3 is a decentralized web which wants to break the monopoly of Web2 giants. But both do want to “cure” the internet which they feel is broken.

Though the ideas behind Web3 and Web3 are not mutually exclusive, for me, one of the biggest differences is this (which also does sound mutually exclusive (actually, some aspects of Web3 seems to be permanently suspended in a quantum state where things “are” and “are not” at the same time)):

  • For reasons of safety and security, Web3 makes it hard to tamper with information because all of this information is linked and authenticated via the blockchain.
  • For reasons of efficiency and accuracy, Web3.0 or the semantic web makes it easy to change information because it is linked at the data level.

The other difference is that – in this initial vision (which might change) – the underlying technology of both is different:

  • Web3: let’s shout it all together now: nananaaa, nananaaaa, yeah yeah yeah … blockchain!
  • Web3.0: “Linked data are empowered by technologies such as RDF, SPARQL, OWL, and SKOS”. I’m not going to go deeper into that because A. I have no idea what that means. B. This document is already technical enough. C. Does anyone really care at this point? (Sorry, nerds!)

Just to add some further confusion to your muddled brain, even Wikipedia mixes Web3 and Web3.0 but let’s just agree thatwe will use Web3 when we talk/write about the blockchain based internet:

Web3 (also known as Web 3.0 and sometimes stylized as web3) is an idea for a new iteration of the World Wide Web based on blockchain technology, which incorporates concepts such as decentralization and token-based economics.

Interoperability: boring at first (second, third and fourth) sight but both hot and cool at the fifth

The great equalizer between Web3 and Web3.0 is perhaps the concept of interoperability, which they would theoretically both enable.

First: why ever would I call interoperability hot and cool? Because it’s one of the biggest issues of the web. Example: if you buy a dress in the ‘real world’ you can wear it wherever you want. It’s not going to disappear when you leave the shop(except maybe in those annoying stress nightmares you sometimes have at night).

But if you buy a sword on a Roblox metaverse game, you can’t take that with you into Meta.We seldom think about this “because it’s always been that way”, but as our lives are increasingly moving online and now that NFTs are making digital assets collectibles as well, people will want to bring what they own with them from platform to platform. Just think of what this ability to easily move data/digital assets over devices and platforms could look like in a smart city or smart home environment.

So how will each ensure interoperability?:

  • Web3: seeing that all your data, your identity and all that you own is kept on the blockchain via your own crypto wallet, which is independent of the platform you find yourself in, you will theoretically be able to “take” an NFT with you from platform to platform.
  • Web3.0 or the semantic web: seeing that all your information is linked at the data level, changing something in one place, will change it in others too. And so your Facebook data would be able to communicate to your Twitter data.

A short recap for the confused

So. That’s it. I hope that the Web3 dragons seem less scary to you know. I tried to keep this guide as short as possible, but I know that there was still a lot of information to digest. Don’t worry about that. The most important things to remember are these:

  • Web3 is still being built. More than anything else it’s an idea, a dream, a utopia and it will most likely turn out quite different than the vision people are projecting today. But that’s probably ok. On the other hand, remember the utopian vision of Web2 and how that turned out …?
  • Web3 is user-centric because data and therefore power will no longer lie - centralized - in the hands of big tech platforms but - decentralized- in the hands of users who will own their own data. The impact could be huge: power shifts, privacy, security, trust, equality, interoperability, less polarization etc.
  • Web3 has great potential to change how we handle money (DeFi), how we organize ourselves (DOAs) and how we perform business (business model change).

That’s it. If you have any questions, you know where to find me. I’ll probably not be able to answer them, but I might be able to find someone who can.

In the meanwhile: Stay Hungry. Stay Foolish. (These parting words were written on the back cover of the final issue of the Whole Earth Catalog. The latter was considered- among others by John Markoff - as "the internet before the internet”: “It was the book of the future. It was a web in newsprint.")


WRITTEN BY
Laurence Van Elegem
Laurence Van Elegem
Laurence has more than 10 years of experience in marketing, communications and disruptive innovation. Passionately curious, she is fascinated by the impact of technology and science on the way we work, consume and live our lives.
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April 27, 2022
Technology