What is Web3? Everything You Need to Know

What is Web3? This is a common question asked by users who are new to the cryptocurrency space or blockchain technology. Web3 is a term coined by Gavin Wood, a co-founder of Ethereum, a blockchain-based software platform. It is a decentralized, future version of the internet built on blockchains, which are distributed ledgers controlled by participants.

Web3 reduces the influence of centralized corporations, such as Google or Amazon, and signals a new era of the internet where it is used and controlled by community-run networks.

Let’s explore what Web3 is, its foundational technologies, and several effective ways to utilize it.  

What are Web1 and Web2?

Before exploring Web3, it is crucial to understand Web1 and Web2. The first version of the internet was Web1, which dates to the 1990s and early 2000s. It was built on open protocols through which users exchange information that anyone can use, rather than relying on a single entity or organization. With time, companies and individuals start using the internet for e-commerce, as well as academic and scientific research.

Web2 began in the mid-2000s, when new companies like Twitter (now X), Facebook, Google, and Amazon empowered users to create their own content. These technology companies leveraged the power of Web 2.0 to develop an infrastructure that holds significant power. These companies monetized user data and activity to sell them to advertisers, while retaining control over proprietary decisions about governance and functionality.

What is Web3?

Web3 represents the future of web technologies, aiming to deliver a more decentralized, user-centric, and transparent internet experience. It is associated with cryptocurrencies and blockchain technology, encompassing a set of protocols and tools that enable users to interact with digital assets and decentralized applications (dApps) on the internet.

With Web3, you can connect and transact in a more peer-to-peer way that is less centralized. This version of the internet is designed to give users greater control over their data, rather than sharing it with companies that monetize personal information.

As a result, many believe that Web3 offers users an interactive internet experience and increased ownership of their personal data.

Main Components of Web3

Web3 is a decentralized form of the internet designed to offer users greater freedom and autonomy. It has the following components.

1. Blockchain Technology

Web3 relies on blockchain technology, which is a public ledger system powered by a decentralized network of computers. It is open to anyone, and all submitted information is stored in its database, which is entirely transparent and verified by most computers in the network. When data is added to a network, it creates a new block that is appended permanently to the chain. It means that all blockchain nodes reflect this data to ensure no one can change or remove it.

Some of its benefits are transparency, immutability, high security, and decentralization.

2. Smart Contracts

Smart contracts are self-executing agreements that are executed upon meeting specific conditions, such as terms agreed between buyers and sellers. Once the conditions are met, these contracts are executed without any intervention from a central authority. Smart contracts are established in code on a blockchain, which cannot be altered or tampered with.

The benefits of smart contracts include automation, efficiency, and accuracy.

3. Decentralized Applications (dApps)

Another crucial component of Web3 is decentralized applications (dApps), which use a series of smart contracts to operate. These apps perform various functions, including peer-to-peer transactions, decentralized finance (such as borrowing and staking), digital ownership through games and NFTs, and more.

dApps hold the potential to replace centralized services with smart contracts for managing payments and listings. Some popular dApps include Aave, OpenSea, Axie Infinity, and more.

Important Reads: What is DEX? – A Guide to Decentralized Exchanges

4. Decentralized Autonomous Organizations (DAOs)

Decentralized Autonomous Organizations (DAOs) are community-led groups that collectively manage a blockchain project. It eliminates the need for a top-down governance model in which a central authority makes decisions. Instead, holders of a project’s governance tokens participate in its management and can review, submit, and vote on proposals to change the project's direction.

DAOs foster a greater sense of ownership among the community, ensuring that each decision is in the best interest of the project. Some leading examples are MakerDAO, Compound, and Uniswap.

Advantages of Web3

Web3 offers a decentralized structure that is free from the control of any central or regulatory authority. The following are some of its unique advantages.

• Ownership: All participants of Web3 are owners of their personal data. No Web3 platform asks users to trade their personal data to access the services.
• Interaction: Users in Web3 experience a higher level of engagement with the community. Since anyone can participate in Web3, it offers users a progressive way to interact with one another.
• Decentralization: A considerable advantage of Web3 is that it offers decentralized governance. It means no single authority can control data or make decisions.
• Privacy: In Web3, users' identities are linked to their digital wallets. Their activities are open to the public, but they can keep their identities a secret.
• Financial inclusion: Anyone with internet access can participate in Web3. You can buy, sell, and store digital assets without needing a bank account.
• Speed: The use of machine learning, smart contracts, and artificial intelligence enables users to access data quickly and efficiently.

Challenges of Web3

There are some negative impacts of Web3 that you should consider. The following are some of its disadvantages.

• Scalability: Utilizing blockchain requires substantial computing power, which demands speed and high costs. This can restrict the participation of those who cannot afford it.
• Complexity for beginners: Users new to Web3 may struggle to manage wallets, gas fees, and private keys.
• Higher energy consumption: Blockchain networks typically use proof-of-work (PoW) mechanisms, which are criticized for higher energy consumption. It raises environmental concerns, making adoption challenging.
•  Limited adoption: Still in its early stages of development, Web3 has fewer mainstream applications than Web2.
• Scams and frauds: Phishing attacks and fake projects in the Web3 ecosystem can harm your investments. 

Valuable Tips to Enter Web3

Web3 is an exciting and transformative digital phenomenon. From decentralized finance (DeFi) and smart contracts to decentralized autonomous organizations and NFTs, Web3 is reshaping the way users interact and create value.

The following are some crucial tips to enter the Web3 realm.

1. Learn the Basics

Educate yourself about the basics of blockchain, cryptocurrency, digital wallets, and DeFi before diving into Web3. Stay up-to-date on the latest developments on prominent blockchain platforms, such as Ethereum.

2. Develop Skills

You can acquire various skills to achieve better results in Web3. Some technical skills that can be helpful include data structures, front-end web development, programming languages like JavaScript and Golang, UX design, and more.

3. Set Up a Secure Wallet

Download and set up a trusted non-custodial wallet, such as Trust Wallet or MetaMask. Always keep the keys securely.

4. Start small

Begin with small investments and try low-cost blockchains. It provides you with experience without incurring significant risk.

5. Prioritize security

Use strong and unique passwords for your wallets to avoid unwanted access. By using hardware wallets and avoiding unknown links, you can protect yourself from scams.

6. Join Web3 communities

Engage with developers on platforms like Discord to share knowledge and get advice. It helps you learn, increase your network, and spot new opportunities.

Final Thoughts

Web3 is the third generation of the World Wide Web (WWW) and holds significant potential for driving technological advancements. It emphasizes data ownership and the use of blockchain technology and digital assets. However, it is currently in its early stages of development and comes with challenges. Therefore, you need to develop a comprehensive understanding of Web3 to address its challenges and utilize it to your benefit effectively.

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