Web3 – a new Internet rev­o­lu­tion?

We tend to associate the blockchain with cryp­tocur­ren­cies such as bitcoin. Silicon Valley pioneers, however, have taken the concept a little further: with Web3, the Internet as we know it is being re­struc­tured and based solely on the blockchain. How does it work and what are the con­se­quences for Internet users?

The blockchain is a buzzword one en­coun­ters time and again in con­nec­tion with Web3. Roughly speaking, a blockchain is a public and dis­trib­uted database that can be used to record various trans­ac­tions in chrono­log­i­cal order. The data blocks that form part of the blockchain are, as the name suggests, chained together. Moreover, various cryp­to­graph­ic methods such as asym­met­ric en­cryp­tion ensure that the data in the blockchain is secure and cannot be read by third parties.

The vision of Web3 is to de­cen­tral­ize the entire Internet with the help of the blockchain. The Internet should not be con­trolled by large tech­nol­o­gy groups nor states or banks, but should be ex­clu­sive­ly managed by users. The blockchain is required to this end because here data is stored across various computers, elim­i­nat­ing the need for a single central instance that provides the required data and checks a trans­ac­tion for au­then­tic­i­ty.

Web 1.0 prevailed until the early 2000s. The Internet used to be a worldwide network of linked, primarily static documents. The first websites often consisted of simple HTML documents. Unlike today’s single page ap­pli­ca­tions, however, they provided no in­ter­ac­tion options for users. This de­vel­op­ment brought about Web 2.0, which cor­re­sponds to the web we use today. With the help of pro­gram­ming languages such as JavaScript, functions were gradually added to static websites, opening the door to the first de­moc­ra­ti­za­tion of the Internet in the form of social media or blogging.

Web3 pioneers crit­i­cized the monopoly position of tech­nol­o­gy groups and the central storage of personal data. Web3 aims to take the de­moc­ra­ti­za­tion of the Internet to the next level by shifting all control from tech­nol­o­gy companies to users with the help of the blockchain. Mo­nop­o­lies will be broken up as trans­ac­tions are de­cen­tral­ized and users them­selves become part of the network in­fra­struc­ture.

In terms of changes Web3 will introduce for users, a dis­tinc­tion must be made between the frontend and backend. Initially, not much will change for users. The frontend of websites will be virtually un­af­fect­ed by the new tech­nolo­gies. However, what happens in the back­ground, i.e., in the backend, will be very different in Web3. Cen­tral­ized servers are no longer re­spon­si­ble for providing websites and web apps. Instead, blockchain-based providers are at the center of provision.

It’s one reason why users will gain more control over their data than ever before. They will be able to decide which data they feed into the blockchain. Large data pools, such as those currently main­tained by Meta (formerly Facebook Inc.) or Google, would no longer exist. This would shrink the power of the big tech cor­po­ra­tions and allow for more flex­i­bil­i­ty for users. For example, they would no longer have to rely on external payment service providers as so-called trusted third parties, since trans­ac­tions would be validated directly via the blockchain.

A revival of new markets is also con­ceiv­able. The market for NFTs only recently ex­pe­ri­enced a real boom. NFTs are non-fungible tokens which act as cer­tifi­cates of au­then­tic­i­ty for unique virtual goods, e.g., digitally created art or unique items in computer games, which are stored in a blockchain.

As part of Web3, new types of domains are gaining im­por­tance, such as blockchain domains. A whole range of different Web3 domain endings exist, such as .bitcoin or .crypto. An extension es­pe­cial­ly for NFT domains exists, namely the .nft extension.

Blockchain-based domains offer several ad­van­tages over con­ven­tion­al domains. For one, reg­is­tra­tion is more anonymous. Ad­min­is­tra­tion of the domain is de­cen­tral­ized, as is common with blockchains. In this way, the risk of a “single point of failure” is minimized. In addition, it is possible to purchase domains per­ma­nent­ly, so that no ongoing costs are incurred. Purchase prices for blockchain domains are between $40 and $80. However, one serious dis­ad­van­tage is that con­ven­tion­al Web 2.0 browsers are not able to process Web3 domain ex­ten­sions.

There are a number of ap­pli­ca­tions based on tech­nolo­gies that are decisive for Web3. The perhaps most prominent example are cryp­tocur­ren­cies and NFTs. New concepts such as de­cen­tral­ized au­tonomous or­ga­ni­za­tions or computer games on the Ethereum chain are already among the ap­pli­ca­tions of Web3.

De­cen­tral­ized au­tonomous or­ga­ni­za­tions (also known as DAOs) are com­mu­ni­ties that use tokens based on a blockchain. Using these tokens, the par­tic­i­pants of an or­ga­ni­za­tion can take part in decision-making processes that are designed to be grass­roots de­mo­c­ra­t­ic. A token can thus be con­sid­ered a vote. How tokens are dis­trib­uted in DAO depends entirely on the nature of the or­ga­ni­za­tions. It is common here, for example, to earn tokens through active par­tic­i­pa­tion in the or­ga­ni­za­tion’s ac­tiv­i­ties.

An example of a DAO is the metaverse De­cen­tra­land. De­cen­tra­land is a 3D VR platform based on the Ethereum blockchain that allows users to purchase virtual land and virtual real estate stored as NFTs using the cryp­tocur­ren­cy MANA. The more prop­er­ties a user owns, the more tokens they receive. These, in turn, can be used to par­tic­i­pate in decisions in the digital world.

In per­spec­tive, however, DAOs can be seen primarily as a way to ensure trans­par­ent or­ga­ni­za­tion of companies or ad­min­is­tra­tions.

When it comes to gaming, some ap­pli­ca­tions based on Web3 tech­nolo­gies are available. A popular game based on the Ethereum blockchain is Cryp­toKit­ties. Similar to analog Tam­agotchis, it is possible for users to breed digital cats at Cryp­toKit­ties. The game is based on NFTs and each cat is unique and stored as a NFT in the blockchain. Users can sell their cats to other players. The cryp­tocur­ren­cy Ether is used for this purpose. In 2018, the most expensive Cryp­toKit­ty to date was sold for $180,000.

Web3 hasn’t even fully arrived but is already at­tract­ing plenty of criticism. As in all areas of life, in­creas­ing freedom and de­creas­ing reg­u­la­tion are ac­com­pa­nied by rising risks. One fre­quent­ly crit­i­cized point, for example, is financial trans­ac­tions. Existing payment services used in online commerce allow customers to turn to third-party service providers such as PayPal or credit in­sti­tu­tions such as banks if necessary. In the world of cryp­tocur­ren­cy, no such as­sis­tance services exist.

The energy con­sump­tion of es­tab­lished blockchain tech­nolo­gies is high and a point of frequent criticism. Bitcoin mining consumes more elec­tric­i­ty per year than the entire Nether­lands. However, sig­nif­i­cant­ly more energy-efficient blockchain tech­nolo­gies are available at this point in time, for example the cryp­to­coin Cardano.

Critics also question whether Web3 is all that suitable for pre­vent­ing mo­nop­o­lies. Because of the inherent lack of reg­u­la­tion, there is no guarantee mo­nop­o­lies won’t form in the future.