All you need to know about web3 (Patreon)

[This a transcript with links to references.]

Have you ever heard of Web3? If not, you’re not alone. In a YouGov survey in May this year, merely 24 percent of participants said they are familiar with the term. Elon Musk has taken shots at it, tweeting, “Has anyone seen web3? I can’t find it.” And the software engineer turned journalist Molly White runs a website called Web3 is going just great, that lists all the supposed innovations that didn’t quite go according to plan: crypto scams, startup failures, NFT hacks – it’s a very long list.

So what’s web3? Next big thing or a unicorn in cyberspace? That’s what we’ll talk about today.

The universe started with a Big Bang. Some time later, Tim Berners-Lee invented the world wide web. The rest is details, or so you might think if you look around today. But some of us are old enough to remember that the world wide web didn’t always look that way.

Yes, we normally say “internet” but technically the internet isn’t the same as the world wide web. The internet is the hardware, the world wide web is the software.

The web now has undergone a dramatic shift since the first online stores and homepages. The early web was static. People and companies put up websites. You looked at them. You hung out in chatrooms. Everyone had animated rainbow banners on their resume, was fluent in html, and a large image had about 50 kilobytes.

That was Web 1 point 0, roughly the period between 1994 and 2004. It’s sometimes called the “read-only web”.

Then came the rise of forums and the first scripted websites, css, perl, javascript and then php, content management systems, and with that, the sudden rise of user-generated content. Blogs, photos, videos, and podcasts driven by rss feeds. Image sizes went from kilobytes to megabytes, and into all that blasted facebook with the like button and twitter with its hashtags. Suddenly everything could be rated and tagged. That’s the web 2 point 0, the web that we still use today. It’s sometimes called “the participative web”.

But what’s next? Some of the coming changes are in hardware. Internet speed and screen resolution are still on the rise, and G6 is almost certainly going to push this further. And as much as I like to joke about Zuckerberg, I think he’s right that virtual and augmented reality are pretty much certain to come and will reach us all in the next ten years or so, whether we want that or not. And then there’s the internet of things that maybe I’ll talk about another time.

Today I want to talk about the impending changes to the web. What’s in the pipe?

Tim Berners-Lee, the inventor of web 1 point 0, has speculated that after web 2 point 0 there will come, wait for it, the web 3 point 0!

Okay, he had some more things to say about it. He said the web 3 point 0 would be a “semantic web”, in which all content on the web would be readable by computers and could then be digested by artificial intelligence. This is currently not the case especially for images, scans, and videos, that need intermediate steps to be interpreted by computers. He also wants data storage to be decentralized and distributed over the network, and is working on his own solution for that.

But the title of this video says Web3, not Web 3 point 0. That’s not a mistake. It’s because the Web3 is not Berners-Lee’s web 3 point 0.

The term Web3 was coined by Gavin Wood, one of the co-founders of the blockchain platform Ethereum, back in 2014.

Uh-oh, what’s this blockchain thing? A blockchain is basically a distributed database in which multiple participants maintain a shared record. New entries to the database can be proposed by individual participants, but doing the change requires consensus from all participants. The shared database is called the “chain” and each new entry is a “block”, hence the name “blockchain”.

If that doesn’t sound like groundbreaking technology it’s because it isn’t. The economist Nouriel Roubini famously called blockchains “glorified Excel spreadsheets”.  But then when it comes to technology, the real game changer is often simply the number of people using it. Think back to the like-button. That wasn’t exactly groundbreaking technology either. Nevertheless, today the lives of hundreds of millions of people seem to orbit around it.

The Web3 now is a vision by blockchain enthusiasts. They want to change the way we own and use data on the web. The key buzzwords of web3 that you need to know are “decentralized”, “user-centred,” and “open source”. The Web3 vision overlaps with Berners-Lee’s Web 3 point 0 in that they both want it to be decentralized, but they don’t agree on how to get there.

Let’s look at those terms a little closer.  To the web 3 people, “Decentralized” and “user-centred” means making use of blockchains. The best-known applications of blockchains are currently crytpocurrencies and NFTs, which I will talk about more in a moment. For now, let me just say that Web3 is supposed to expand the use of blockchains for many other things, for example identity checks, copyrights, contracts, supply chain managements, voting, governance, and so on.

“Open source” means what you think it means. The code for apps on the Web3 is supposed to be openly accessible which could vastly improve integration with other apps. No more sweating about how to get Windows to download images from an iPhone or how to make YouTube  display items from Shopify. There’s never been a grander vision than that.

Advocates argue that Web3 will offer a more democratized web experience. You would own your data, have more control over your digital identity, and could even participate in decisions about how platforms are run. It’s supposed to take the power out of the hands of tech giants like Google or Microsoft.

Aside from developers and tech enthusiasts, there are also an increasing number of investors and venture capitalists who believe in the potential of Web3. These private investors have poured roughly 94 billion dollars into Web3 technologies and startups. And even though investments dwindled after the crypto crash in 2021, the interest is still significant.

Let’s then have a look at what the blockchainers are up to. The best-known application of blockchains are certainly cryptocurrencies, where the “blocks” that are added to the “chain” are transactions of a digital currency, kept safe by a cryptographic protocol.

The first cryptocurrency, Bitcoin, was created in 2009. By now, there are almost ten-thousand different ones, though Bitcoin is still the most popular one, and the top 20 make up 90 percent of the market. You can change your good old-fashioned money into crypto and then try your luck at trading it. With that, you can get rich very quickly, or go bust very quickly. I’m kind of tempted now to create my own currency, the SabiCoin! What do you think?

You keep your various cryptocurrencies in a Digital Wallet, where you can exchange them and also buy other blockchain things with it. For example, NFTs.

NFTs, Non-fungible tokens, are the probably next-best known blockchain application, for which the blockchain keeps a record of ownership. NFTs are basically digital goods, in most cases they are images or music or collectibles in certain apps. Many NFTs now monetize “features”. This means that one NFT can be randomly modified to create variations that are more or less rare. NFTs that have rarer features are generally more valuable.

NFTs had a boom in 2021. At the time, the highest selling NFT sold for more than 69 million us dollars, before interest dried up and most NFTs fell in value.

The problem with publicly available NFTs is that there’s no legal basis for this type of “ownership”, so it’s basically just a status symbol within a certain community. This is why the value of these NFTs has been the target of much ridicule on social media.

It’s somewhat different for NFTs for which ownership is required to do something with them. Like for example you might own land in a virtual reality like decentraland or collectibles within certain apps.

Speaking of apps. In the decentralized world of Web3, apps are called Dapps, for “decentralized applications”​. These ​damned apps, excuse me, dapps are developed on blockchain platforms. The most popular one of those platforms is Ethereum. Its best-known application is a cryptocurrency that goes under the same name. But Ethereum can be used by developers to build all other kinds of blockchain apps, and there are now many other platforms for that, too.

The market for dapp development has grown considerably in the last few years. According to Emergen Research, the global dapp market is currently growing at a rate of more than 50 percent per year. While much of the development has been focused on financial apps involving the transfer of cryptocurrency there are some other things going on.

There are for example apps that gamify NFT ownership, like CryptoKitties. In this dapp, players can buy and sell cats and then breed them to get more rare kitties. The value of the cats is decided by their 256-bit ‘genome’. Players can then trade their cats to other players for Ethereum.

Or there is NBA Top Shot that offers sports enthusiasts a way to collect ‘Moments’. These Moments are video NFTs that capture player highlights and other memorable sports events, which you can collect and trade. The largest ever sale of a Top Shot Moment was 50 thousand dollars.

There are a lot of other gaming apps, for example Arc8 that lets you play a set of arcade-style mobile games. The better you do in matches and tournaments, the more you earn. There’s also the Step App that you can connect to your GPS and health apps. You earn points by taking steps, which can then be exchanged for cryptocurrencies, and so on.

As you can see, most of these dapps are centred around the collection of NFTs in exchange for cryptocurrency, so I think it’s fair to say that this isn’t exactly the world-changing revolution that we’ve expected.  

What else is going on with the web3? Another big buzzword is currently DeFi, short for decentralized finance. Those are platforms built on a blockchain where you can do financial transactions according to certain protocols and conditions, known as “smart contracts.” A smart contract might state for example under exactly which conditions you get a deposit back or you get paid for a service. All this is basically a way to go around the traditional financial system that web3 people think is evil.

There are a ton of decentralized finance platforms that are already widely used by crypto investors, such as PancakeSwap, UniSwap, dYdx, and many more.

Ok, so that makes sense, I guess, once you have decentralized currencies you want a decentralized financial system. A somewhat weirder thing that’s going on in the web3 community is DAOs, that’s decentralized autonomous organizations.

A DAO forms to support and maintain a common purpose. This can be a startup, a collection of NFTs, or really anything else. The members of the organization all weigh in on the actions the DAO will take and how shared funds are spent. Members typically use their voting power in the group through a specific coin. Is it just me or does this sound like the reinvention of communism?

One example of a powerful DAO is PleasrDAO. Members of the group pool money to purchase NFTs created by digital artists. PleasrDAO has purchased multiple NFTs created by the political refugee Edward Snowden. In 2021, they also purchased a piece of digital artwork for cryptocurrency that was at the time worth 560 thousand US dollars. What was the artwork, you may ask? A video about a unicorn in a forest that looks for the Ethereum promised land.

And that’s pretty much it. There’s a lot of talk about the potential of dapps for voting, healthcare, and data decentralization, but there aren’t really any dapps making major inroads in these areas. Sure, some developers are working on blogging dapps, but these seem to be rough around the edges. And in all those cases it’s somewhat hard to see why it’s an advantage to use blockchain.

This is the origin of Elon Musk’s ridicule and Molly White’s sarcasm. And there are many other critics. Tim Berners-Lee in particular is not amused that crypto fanboys have hijacked his term by dumping a point zero. He said in a talk last year: “It’s a real shame in fact that the actual Web3 name was taken by Ethereum folks for the stuff that they’re doing with blockchain. In fact, Web3 is not the web at all.”

He also said that while “Blockchain protocols may be good for some things” they’re not good for decentralizing data, because “They’re too slow, too expensive, and too public. Personal data stores have to be fast, cheap and private.”

Others question in which sense blockchains are even decentralized. Jack Dorsey, co-founder and former CEO of Twitter, believes Web3 will always be controlled by venture capitalists. “It’s ultimately a centralized entity with a different label.” And Cornell professor James Grimmelmann points out that “Instead of having lots of different applications and sites, we'll put it all on blockchains, which puts it all in one place.”

To me, web3 looks like a case of software enthusiasts who have lost perspective. The average user just wants their apps to work and doesn’t care about how that comes about or how centralized the data are. There will probably be some niches in which dapps will have their uses, but I strongly doubt it will be a world changing revolution. What do you think about this? Let us know in the comments.