The massive adoption of DeFi, DAOs, and NFTs has opened the door to a new generation of the internet: Web3. Surfing the net currently involves accessing information within a heavily centralized environment controlled and monitored by companies and governments. Web3 aims to transform the internet by delegating power and ownership to users.
Crypto supporters have already decentralized the financial landscape by allowing investors to hold and control money on their own. They don’t have to engage with intermediaries to transfer cash or make payments. Now, Web3 aims to remove centralization on the internet as well. If done correctly, users will not only have the ability to read and write content but also own it.
The term Web3 was first coined in 2014 when Ethereum co-founder Gavin Wood proposed the idea of a decentralized internet backed by blockchain technology. Innovations in the crypto market over the past few years have led to the rise of Decentralized Finance (DeFI) – a new sector focusing on decentralizing traditional financial instruments.
DeFi saw a boom in 2020 and traders gradually switched to decentralized exchanges (DEXs). DEXs allow investors to execute trades by using a non-custodial wallet. These wallets allow you to control and move crypto assets on your own. And the biggest game changer is that they can interact with dApps. Non-custodial wallets, therefore, help us bypass CEXs.
More and more users joined DeFi after seeing the benefits of asset self-management. NFT has also gained huge popularity, leading people to believe that things outside finance can also be decentralized – in this case, art.
Web3 is the natural progression of Web1 and Web2.
Web1 has roots in CERN where scientists from Geneva launched the World Wide Web in 1989. Web1 is a period that lasted from 1989 to 2004, marked mainly by its read-only mode. What do I mean by read-only? Users couldn’t interact with each other or produce community content. They only had access to websites owned by companies and governments.
Web2 is a period marked by social media platforms. Users could suddenly communicate and share content on various social media platforms and forums. Companies gained tremendous power and monopoly over social media, whose users had the ability to share and produce content, but not own it.
Web3 is the next logical sequence to the internet’s evolution. Internet users should not only read, and write, but also own. Everything should ideally be owned by the community. Users should influence a platform’s future and hold a stake in it. They should also be free to monetize their own content – without paying fees to anyone.
Web3 (or Web 3.0) relies on the following core tenants:
All of the above aspects are backed by blockchain technology. Developers can build censorship-resistant, trustless, and decentralized networks on top of which dApps are created. These dApps mimic modern-day online applications and platforms, with the core difference being that they’re decentralized.
But who owns the dApp and controls its course or development? This is done by a DAO.
DAO is short for Decentralized Autonomous Organization. This organization is made of users and developers who use a dApp. Each app, or crypto platform, has its own community and therefore DAO.
DAOs are characterized by decentralized governance. Active participants receive or purchase a token that represents their stake in the project. Governance tokens also grant voting rights, allowing users to create governance proposals and vote on them.
Governance portals rely on smart contracts which execute certain tasks when a governance proposal passes. For example, a community might vote to invest $100,000 USDT from the project’s treasury to invest in another project. Developers will create a smart contract that swaps these funds on a decentralized exchange if the proposal passes.
Ownership plays a significant role in Web3. Users want to own whatever they create or generate using a platform. Doing so requires a special token that can represent certain digital items.
Let’s say you’re playing a blockchain game. You finally earn a rare sword after grinding XP for hours and hours. You can’t transfer the sword to another account or sell it in a typical game, but in a blockchain game, you can.
The in-game item will be represented by a non-fungible token stored on the project’s native blockchain network. The item can’t be any ordinary token because cryptocurrencies are fungible. One bitcoin is the same as any other Bitcoin and they’re interchangeable. NFTs lack that fungibility. Every single token is unique and cannot be exchanged for another NFT as we exchange Bitcoin or Ethereum.
No one can seize your NFT, not even the team. You can also sell it if you stop playing the game or give it to someone else. And if you want to create a new account, you can transfer the NFT. And if you’re a creator, like an artist or a musician, you can sell your art via the blockchain and avoid all 3rd-party platforms and their fees or rules.
Everyone leaves a digital footprint on the internet via their real or pseudonymous identity. You have dozens of accounts on various services, forums, and communities. But because these platforms are not unified, you have to make changes to all your accounts whenever you want to edit your account in one place.
Another problem with centralization is that companies can censor your account, remove posts, or ban you. And if you upset anyone you shouldn’t upset; you face having your entire online activity erased.
Such a form of censorship has no place in Web3. Users can create unified digital identities using blockchain addresses and ENS profiles. They can post and share content without fearing censorship, while also retaining control and information over their personal account data.
If Bitcoin decentralized finance, second-generation blockchains aided by smart contracts will decentralize the internet. A Web3 internet must be decentralized, permissionless, trustless, and own a native financial ecosystem.
Web3 is still at an early phase. Developers and users alike experiment with decentralizing the internet day-to-day. We have yet to remove obstacles such as centralized infrastructure, terrible UX, and poor accessibility. But given enough time, blockchain developers will ultimately convert the internet into a public property controlled, managed, and used by everyday people.
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