If you’re like many Americans, you’ve probably heard the term “Web3” and wondered what it’s all about. Is it just hype or a real thing destined to change the way we live? As often happens with the promise of new technology and innovations, the answer isn’t quite clear yet. If Web 1.0 was where we’ve been, and Web 2.0 is where we are now, Web3 is where we are going – maybe.
But before we get into the details, let’s define our terms and set some context.
World Wide Web history
The first stage of the World Wide Web, more commonly referred to as the internet, is known as Web 1.0 and mostly consisted of individual websites like blogs, message boards and static pages. For the most part, these websites were not interconnected.
A good analogy is to think of how civilization was organized hundreds of years ago when most people lived in small villages and towns spaced far away from each other. The vast majority of the commerce was transacted within the village itself and some inhabitants lived their whole lives without venturing beyond its borders.
But with the rise of innovations like web browsers and search engines, internet users were able to find and connect around ideas and topics for the first time. This new interconnected online world was dubbed Web 2.0 and gave birth to centralized, social-based communities like Facebook, as well as commerce-based communities like Amazon.
To continue the analogy, Web 2.0 is like the growing infrastructure of towns and cities. It marked the point in time when the villagers left their hamlets and moved to larger, centralized cities and could easily travel to and transact with similar cities.
Web3 and its connection to Ethereum
Web3 is often associated with things like cryptocurrency, non-fungible tokens, or NFTs, and digital assets, but just like Web 1.0 and Web 2.0, Web3 is not a thing as much as it is an idea based around how we will live and transact online in the future.
First coined by Ethereum co-creator Gavin Wood in 2014, Web3 refers to a decentralized online ecosystem based on blockchain technology. In some ways, this is a throwback to Web 1.0 where people and groups worked and interacted online independently. The difference is that they will still be connected, however, not by large technology companies and platforms as they are currently in Web 2.0, but by the blockchain.
The blockchain is an online ledger that stores digital information across a distributed database. This information is recorded in groups or “blocks” across the database. Because the blocks are redundant, secure and cannot be altered, deleted or destroyed, they provide a decentralized way of recording transactions that can’t be controlled by a single entity, company or government.
The promise of Web3 – and as of now it is still very much a promise – is that it will streamline interactions and commerce because there will no longer be a need for centralized gatekeepers. For example, right now you can transfer money to your friend using an app in what seems like a very seamless process. But behind the scenes, that transaction still has to go through a central entity like a bank or payment processing company.
In the world of Web3, you could theoretically transfer funds to your friend on the blockchain, in a truly peer-to-peer fashion, without going through any central entity. And whereas before that centralized entity would become the record keeper for the transaction, it would now reside on the blockchain.
But its proponents believe that Web3 will offer much more than just faster financial transactions. One of the more interesting aspects of Web3 is the ability to create smart contracts and establish ownership using cryptocurrency and NFTs.
Smart contracts for blockchain
A smart contract is a digital contract in which the terms between the buyer and seller are written into a program using lines of code. This agreement is then distributed across the blockchain and recorded as a trackable and irreversible transaction. One of the main advantages of a smart contract is that there’s no need for a broker or intermediary to validate and facilitate the contract, which lowers costs and speeds up transaction times.
Much of the discussion about NFTs has to do with people buying digital artwork like Bored Apes, a collection of animated images of, yes, you guessed it, bored apes. But NFTs in Web3 could potentially have other use cases around proof of ownership and proof of work.
For example, instead of having to record a grant deed at the county assessor’s office to prove that you hold the title to your home, it could be recorded on the blockchain using an NFT. Or instead of having to provide a potential employer or business partner with your resume, which they have to rely upon your word for accuracy, you could provide them a token in which all of your previous work experience or business transactions have been recorded and verified on the blockchain.
As with all emerging technologies, it’s easy to talk about their future potential, but not as easy to figure out exactly how we get from here to there, and it’s no different with Web3. We don’t even know why it’s called Web3 instead of Web 3.0, let alone if it will truly transform the way we interact online. But it’s important to keep an open mind and remember that everything from email to the internet, to social media, and thousands of other things we now take for granted in our daily lives, once seemed impossible.
If you have additional questions about these technologies or digital assets, consider submitting a question to our weekly podcast, Everyday Wealth ™. Every week, our co-hosts Jean Chatzky and Soledad O’Brien discuss relevant topics that impact our lives and personal economy.