Web3 Technology: What It Is and Why It’s Important

The internet has come a long way since its inception. Now it’s a powerful and influential tool that is an integral part of our lives. Yet, it’s not without its flaws. Many people recognize its pressing problems, and that is the lack of privacy, security, and centralized power.

Web3, the idea of a new version of the internet, is set to resolve those issues by bringing the power back to the user and revolutionize the whole internet as we know it today.

Being in its infancy, Web3 already has a great disrupting potential for both people and businesses if it goes mainstream. That’s why it’s essential to understand this new concept to be aware of a potential revolution in the Web.

In this article, we look at what Web3 really is, along with Web3 features and structure, see why it seems so appealing, discover its limitations and learn how it evolves these days.

Without further ado, let’s deep dive into Web3 basics.

Content

1. What does this fuzzy Web3 mean?
2. Web1, Web2, Web3 explained: evolution in overview
3. What will Web3 look like: Web3 vs Web2 comparison
4. Building blocks and elements of Web3
5. Web3 advantages or why it’s so appealing
6. Web3 disadvantages or why it is sometimes criticized
7. Web3: use cases
8. Looking ahead

What does this fuzzy Web3 mean?

You’ve probably already come across various definitions of Web3, and it might seem quite fuzzy to you. That is because this concept is relatively new, and Web3 is still being built. Currently, public awareness of Web3 is not high, yet it is growing even despite the crypto winter. 

Ok, now let’s quickly define Web3.

In a nutshell, Web3 is a new iteration of the internet which aspires to be a fair and transparent network where all web applications, sites, etc., will no longer be controlled by a few big tech companies like Google and Amazon who own the content we create on their infrastructure and who collect our personal data without our consent and monetize it to their own favor. 

Instead, they will run on the blockchain and be decentralized and termed as dApps (decentralized applications). “Decentralized” in Web3 context means that our activities and data would be hosted and stored by users with their computers acting as servers rather than hosted on servers of centralized big tech companies. 

Web3 is a true revolution of the internet. That’s why when we talk about Web3, we also mean by it the technological infrastructure on which it’s grounded: blockchain, smart contracts and digital assets (crypto tokens and NFTs). We’ll elaborate on this later in the article.

What does Web3 mean for the users?

Put briefly, it will give users power once stolen by centralization. 

Web3 will ensure permissionless (no gatekeepers control the network), censorship-free (no one can block you), and trust-worthy(no middleman) access to the network and return the users full control over their own data. Users become the sole owners of their data and may choose to sell it to earn tokens or keep it private(encrypted) if they want to.  

Why is Web3 important?

It’s important for two main reasons:

1. Not only will Web3 change how users experience the internet, but it will also uplift their status in the network. Now big tech companies won’t have access to user data so easily and can’t trade it to marketers.
2. Such a shift in user status will inevitably bring major changes in business models and force businesses to adapt and seek new ways of approaching consumers in the new digital landscape.

Web1, Web2, Web3 explained: evolution in overview

Every good explanation of Web3 meaning points out what previous versions of the internet looked like. 

If you’re already familiar with this, you may skip it; if not, here’s the gist.

Web3 is a blend of the previous two eras of the internet – Web1 and Web2. 

Open protocols and decentralization(Web1) + advanced tech and massive user interaction (Web2) = Web3

Now, you might have a quick idea of how different Web3 is from the internet of other eras. 

To better understand what will change, let us see the difference between current Web2 and what Web3 promises.

 What will Web3 look like: Web3 vs Web2 comparison

Infrastructure

Web2: applications run on centralized databases or web servers provided by big tech companies.

Web3: applications run on a decentralized public ledger/database (blockchain) and are distributed across a network of computers (nodes) on the blockchain. Thus, in Web3, web applications become dApps.

Ownership and Profit

Web2: big tech companies provide infrastructure for web applications we use and, in fact, own our content there. If they decide to restrict access to some platform, for example, users will be left with nothing.

Because they provide us with infrastructure, they also collect our personal data, store it in their private databases and sell it for their own financial benefit.

Web3: only users own the content they generate, and their ownership is recorded on the blockchain and can’t be somehow manipulated or deleted. 

Users own their personal data and can set it private. That’s why it’s assumed that in Web3, companies might pay users to get their data. 

Digital identity

Web2: users don’t own their digital identities and need to create a username and a password whenever they sign up for a website. 

Web3: users own their digital identities, which are tied to their crypto wallet. The private key and wallet address will ensure smooth user interaction across different platforms.

Network establishment

Web2: networks are established through massive investments into marketing to gather and grow the audience.

Web3: networks reward the users for engaging with the application and use various incentives to grow the audience.

Governance

Web2: big tech companies control and govern everything across the web and act as trustees. They can censor the content and approve network participants. 

Web3: users have a say through decentralized autonomous organizations called DAOs and vote on how dApps should operate. Anyone can join the network, and no content censorship is imposed.

Payments

Web2: users need a centralized intermediary company (bank) to execute a transaction that acts as a trustee between two parties.

Web3: payments are made directly in the browser, without intermediaries, using native tokens (cryptocurrencies of a specific blockchain).

As you can see, Web3 looks like a more democratized version of the internet – decentralized, more secure and transparent, free of FAANG power, and designed around the user.

Now that you see how Web3 differs from Web2, let us discover what Web3 consists of.

Building blocks and elements of Web3

Web3 is made up of three 3 tech fundamentals and that is blockchain, smart contracts and digital assets. Let’s briefly explore each of  theses Web3 concepts.

Blockchain

Put simply, blockchain is a big shared database. Any participant can read and add data to it, but nobody can change or delete anything there. That’s all because any shift affects the following blocks, and any change can be easily traced within multiple copies of the database. Thus blockchain is often called ‘immutable’ or resistant to change. 

Blockchain is used for recording and storing information on the internet. Currently, it’s mostly data on asset ownership (e.g., cash, land, intellectual property, etc.) and the history of transactions.

How Blockchain Works

Instead of a centralized entity, regular users of the network carefully validate blockchain transactions to earn rewards (tokens) and reach an agreement (consensus)  and authenticate transactions. Once validated, transactional data is added to the blockchain, and the new ‘block’ (data segment) is created and permanently linked or ‘chained’ to the previous blocks.

This original block is then duplicated across the network, and all nodes receive an encrypted copy of the block. Each time a new block is added, all nodes update to reflect the change.

Why Blockchain Is Revolutionary

1. decentralized and encrypted;
2. ensures transparency among all stakeholders;
3. can’t be hacked or manipulated.

Smart contracts

Smart contract  is software stored on a blockchain. It represents application logic and can perform tasks autonomously based on a predefined set of rules written in the code of the ‘contract’.

No one owns the code of the smart contract; it’s transparent for all stakeholders and can be changed if the users find it necessary. It will happen through a form of collective governance called decentralized autonomous organization or DAO. 

DAOs are blockchain-based organizations that operate towards shared goals: all users vote on changes and modifications and define dApps future direction in such a way.

How Smart Contracts Work?

When someone attempts to, let’s say, make a payment, smart contract checks whether conditions meet predefined criteria and executes the transaction if everything is alright. 

Smart contracts facilitate direct interaction between stakeholders without any central authority, in our case, without a bank.

Digital assets and tokens

Digital assets and tokens are the final element of Web3. They are verifiable and ownable digital items that represent units of value in the Web3 ecosystem. These assets are an indivisible part of the digital user experience as they exist on the blockchain across the dApps and can engage with smart contracts. 

Information on asset ownership is no longer stored in centralized databases but on blockchain as a decentralized database. This means they can be put to use, for example, traded, anytime without a third party being involved.

In general, there are five types of digital assets as of now:

1. Native tokens – digital monetary assets of a specific blockchain used to reward nodes for maintaining and updating the data on that blockchain.
2. Stablecoins – fixed-price cryptocurrencies that represent cash on the blockchain. Their value is backed by the market value of fiat currencies like the US dollar or central bank digital currencies (CBDCs), regulated by a central bank.
3. Governance tokens – a type of cryptocurrency that gives its holders the right to vote on proposed changes and shape the future of the platform.
4. Non-fungible tokens (NFTs) – are “one-of-a-kind” digital items that contain a unique digital signature that proves the user’s sole ownership; almost everything can be converted into NFT, even a tweet.
5. Digital assets – represent ownership of a real-world asset such as land, commodities, or intellectual property that is “tokenized” into divisible digital assets on the blockchain.

If you are looking for a trusted partner, experienced in blockchain, smart contracts, digital assets or any other crypto solutions development, consider Kindgeek. From ideation to deployment and beyond, our team guides you through the entire process of developing innovative cryptocurrency and blockchain-powered fintech products, with a focus on transparency, user experience, and bulletproof security.

Now that you have a brief understanding of the main blocks of  Web3 technology, let’s move on exploring this innovation further.

Why Web3 Is Important

1. Data Control

Web3 allows users to truly own their own data rather than centralized systems collecting, capturing, and monetizing it. By utilizing decentralized identity and blockchain, users will be able to better control what data they share and how it is processed – and in turn decrease reliance on big tech’s centrality and fragmentation, while promoting privacy, transparency, and control.

2. Financial Inclusion and DeFi

Decentralized finance (DeFi) removes many barriers to access and the traditional obstacles in the finance world. With DeFi, anyone with an internet connection will be able to save, borrow, invest, and trade without the need of a bank account or credit score. DeFi will offer the billions of underbanked and unbanked people around the globe an open and censorship resistant alternative to the old world of finance, without the reliance on trust by leverage standing on a public blockchain.

3. New Innovations and Business Models

Web3 allows for new forms of participation and ownership altogether. With the rise of tokens, NFTs, and DAOs – users will be able to own, govern, and benefit directly from the platforms they engage with, and creators will be able to monetize their creations directly to consumers with no middlemen. Communities will be able to pool funds together to develop and manage projects collaboratively. Overall the direct transition will enable a wider range of user-focused innovation and inclusiveness.Web3 advantages or why it’s so appealing

Web3 advantages or why it’s so appealing

Web3 has a lot of advantages that make it so much better than Web2 currently is.

Let’s have a quick look at each of the Web3 benefits together.

Privacy 

In the Web3 world no central entity can control the digital environment – only users have control over their personal data and digital identity, and only they are to decide what to do with it (set private, sell, etc.) 

Users empowerment 

Beyond data, users can also own digital assets and content they create (intellectual property), and this ownership is recorded and easily proved through blockchain. 

Freedom of speech

Once people add content to the network, it cannot be changed or deleted as blockchain records are chained to the previous ones and are all copied across the network. 

Security 

As blockchain records are being encrypted, duplicated, and spread across the network of computers, it becomes impossible to hack or manipulate them. Any change will be easily detected due to multiple copies of the database stored across the network.

User centricity 

The role of users is leading: they are the ones who shape and grow the network of a dApp and they also receive incentives for that. In Web3, instead of a central entity, each dApp has a DAO where users collectively govern and decide its future.

Peer-to-peer finance 

Instead of a bank, financial infrastructure in the Web3 industry relies on blockchain and smart contracts. It is powered by cryptocurrencies, thus ensuring more transparency, security, lower fees, and better interest rates. Users deal with finance directly in the browser without any middleman facilitating the whole process.

Interoperability 

Whenever users move from platform to platform, their data always stays with them, as well as the digital assets and audience – all of that is due to the crypto wallet, which represents users’ digital identity and is independent of the platform.  

No server downtimes

dApps run on the blockchain, which is maintained by a large network of computers participating in the blockchain. If one server goes down, the whole system still runs, as all the rest stay and keep the blockchain up and running.

So yeah, that’s why Web3 seems so appealing and praised.

Web3 disadvantages or why it is sometimes criticized

However, like every new technology, Web3 also has challenges to conquer and risks to be addressed for it to go mainstream.

All in all, the main Web3 challenges as of now are issues with regulations, user experience, and risks concerning underlying infrastructure.

Currently, investments and strenuous efforts are being made to conquer these challenges, and the regulatory landscape could eventually brighten up one day, as the number of Web3 enthusiasts is growing and many people find the idea of decentralization quite appealing.  

Web3: use cases

Here’s your brief web3 guide on key use cases within this innovative space.

DeFi

Decentralized Finance (DeFi) is a fast-growing financial system within the Web3 sector that holds immense potential to improve traditional finance. 

The appeal of DeFi propels its adoption and global market growth, which is projected to reach an astonishing $231 billion by 2030, expanding at a mind-blowing CAGR of 46%.

The DeFi ecosystem utilizes cryptocurrencies and encompasses a full suite of financial services:

• payments;
• loans;
• investments;
• trading;
• etc.

Unlike traditional finance, DeFi has a decentralized financial infrastructure – leverages blockchain and smart contracts – and thus can offer financial services in a decentralized way. 

In this context, DeFi completely cuts out middlemen (banks, financial organizations) who facilitate financial operations and charge fees for their services.   

This means that users can send money, lend, borrow, etc., using a dApp where financial services are managed in a peer-to-peer way and transparently recorded in decentralized financial databases maintained by all stakeholders.

The benefits?

1. Much lower barriers to entry finance;
2. Agility and full control over personal assets and data;
3. Global reach without any intermediaries;
4. Unprecedented transparency;
5. Reduced fees

NFT and asset tokenization

Hardly anyone hasn’t heard of NFTs yet. They’ve caused a real buzz in 2021, and the global market revenue is expected to reach $1,6 billion by the end of 2023. 

Basically, NFTs represent verifiable one-of-a-kind digital goods that one can own and trade securely using blockchain technology. 

Most likely, you’ve first heard of NFTs within the art and collectibles context. 

They’ve created massive opportunities for artists and creators to showcase and monetize their works beyond the physical world and even earn royalties. 

Some quick facts: 

• Christie’s, a world-leading British auction house, has launched its own NFT marketplace after successful efforts with their NFT artworks, such as Beeple’s Everydays: The First 5,000 Days sold for $69.3m in March 2021.
• A handful of luxury brands like Gucci and Burberry have tapped into the NFT space, launching their own digital collectibles. Several car brands like Porsche and Ferrari also joined the game and released exclusive NFTs featuring their iconic vehicles for their loyal fans.
• Many Hollywood celebrities have generated substantial value by selling their own NFTs, further driving public interest and adoption. 

However, NFT use cases go far beyond art and collectibles.

Due to their digital nature, tamper-proof quality, and public interest, NFTs fostered many other innovative applications and monetization opportunities.

Here are a few prominent ones:

NFTs to incentivize purchases and customer engagement 

Several companies, including Starbucks and Nike, experiment with NFTs to offer special discounts and exclusive access to product features, combine them with physical items, gamify brand interactions, and more. Just recently airline giant Lufthansa launched their loyalty program Uptrip which allows passengers to collect digital cards from their trips, complete collections and redeem cool rewards, like business lounge vouchers.

NFTs to tokenize physical assets 

Real-world items, like real estate and luxury goods, can be easily tokenized and divided into ownership fractions through NFTs. This empowers investors to easily diversify their portfolios with many fractional assets, which can be later traded and sold.

NTFs to facilitate financial services 

Within the DeFi space, NFTs can serve as collateral for obtaining loans, facilitate borrowing and lending, and be used as an asset in betting markets.

Supply chain management

With blockchain and smart contracts, we’re witnessing a shift towards decentralized data control, heightened transparency, and streamlined complex processes.

And all of that is poised to transform industries that largely deal with logistics and supply chains.

Web3 seamlessly connects multiple stakeholders and allows them to engage and transact with a great degree of transparency and security without the involvement of intermediaries:

• track the flow of goods from the production stage to delivery;
• access and verify detailed product history;
• validate supplier data;
• record and securely store data and transactional details;
• automate lengthy processes like monitoring, transportation compliance, etc.

Proof of authenticity

Web3 technology stack allows for the creation of immutable digital certificates that aid in verifying the authenticity of physical items and digital assets, from art and collectibles to documents and luxury goods. 

Lifewallet is a blockchain-powered solution for secure storage and validation of critical educational credentials (diplomas, certificates, etc.) pivotal for users’ career advancement and employment prospects. These records can be easily shared with prospective employers and educational institutions for verification of users’ expertise and qualifications.

Consider Kindgeek to seamlessly navigate the Web3 landscape

Kindgeek, a one-stop-shop fintech software development company, can help your business enter the Web3 world with clarity and take advantage of the latest advancements in the industry.

Whether you need a custom blockchain solution, smart contract development, or a decentralized finance (DeFi) platform, our team of experts has the skills and experience to deliver results. 

Choosing us, you can also leverage our expert partner network to enhance your product while streamlining the development process and speeding up time to market.

Looking ahead

As technology advances we may one day wake up in the whole new era called Web3. It’s a better version of the web which has a large list of advantages. As Web3 is still immature, it has its drawbacks, but lots of investments and efforts are being made to reduce them.

For some new iteration of the web might seem alien or unrealistic. For some, it might seem superfluous, but let’s remind ourselves at first place that the idea of the internet itself seemed very much the same. 

Because who could have thought back then that technologies would reach so far and disrupt our life so exponentially?

And coming back to our present-day reality, who can be sure of what the future holds? Maybe in 10-years time this ‘Web3’ thing will be a new norm. 

Reality check: big tech companies are investing in blockchain and many businesses all over the world are already in the process of figuring out the ways to approach Web3.

That’s why it is crucial for businesses to not stay aside, keep an eye on the latest trends in digital transformation and prepare for the disruption unless they want to be left behind one day.