In essence, Web 3 is a technology stack and a collection of basic programming elements or important building blocks. It also describes a new era of the Internet, including how it will affect business and society.
Broadly speaking, Web 3 is a collection of technologies that include blockchain, artificial intelligence, Internet of Things (IoT) and metaverse and will provide a foundation for new classes of digital services. It features greater instrumentation and automation. It will incorporate artificial intelligence predictions into many, if not most, systems. It will add a spatial dimension through augmented and virtual realities.
Most importantly, it will transition business and social life to an Internet of value.
Transition to Web 3
The main innovation of Web 3 is that the blockchain layer is “stateful,” meaning that it maintains the state of the network.
In a Web 3 world, decentralized applications (dapps) can run securely on open blockchain protocols instead of centralized corporate ones because of this shared network state. Dapps can operate autonomously and share data and coordinate transactions between multiple discrete parties.
Web 3 aims to replace today’s corporate mega-platforms with decentralized blockchain-based networks that combine the open infrastructure of Web 1 with the public participation of Web 2 and add stateful multi-party transaction and data storage capabilities. Web 3 will give creators, developers and users a way to monetize their contributions, involve them in the governance and decision-making of the platforms that support their work. It will also provide more privacy and greater control over their data by relying less on business models based on advertising and targeted ads.
Microsoft’s M12 unit led a $20 million strategic funding for decentralized data platform Space and Time, which will integrate with Microsoft Azure.
Mobile investment app Robinhood launched a beta version of its Web 3 wallet for 10,000 users, “steadily moving away from its original ‘walled garden’ approach to cryptocurrencies over the past year.”
London-based asset manager Fasanara Capital established a $350 million crypto venture capital fund to invest in Web 3 companies, and SoftBank and Deutsche Telekom have backed a $300 billion fund investing in Web 3.
The Walt Disney Company, which owns Marvel, is looking for legal counsel to help develop plans for NFT, and Warner Brothers is partnering with a crypto firm to launch NFT for DC Comics.
The transition to Web 3 will be profound. A stateful and decentralized Internet will encourage artists and inventors to realize a more entrepreneurial economy. They will imagine entirely new kinds of commercial applications and commercial configurations.
New Capabilities
In a Web 3 world, data and transactions are hosted on a distributed network of computing nodes rather than corporate servers. But hardware architecture is not the biggest innovation. Because of blockchain, Web 3 will include some extremely powerful computing primitives upon which completely new applications and entire business models will be built.
Web 3 will include the following technologies:
Blockchain – A data storage and retrieval system in which a typically immutable record of data and associated transactions, often involving cryptocurrencies but can be any type of data, is maintained. For this purpose, they are maintained on numerous distributed, multiple-owned computers that are linked point-to-point on the network.
Self-sovereign identity – Self-sovereign identity will allow single logins to websites and accounts, rather than individual logins for each site, as well as the ability to transport value and reputation between systems. It will also enable individuals to have much greater control over their personal data, including the ability to monetize the attributes associated with their identity. It will transform the way people interact with governments, businesses and each other.
Digital assets – Digital assets (e.g., tokens) come in many varieties and enable an economy that includes the concept of digital ownership. This means that value can be exchanged, preferences can be expressed, and individual contributions can be offset in peer-to-peer or multi-party ecosystem transactions.
Smart contracts – Smart contracts are distributed network-based applications that can coordinate transactions between multiple parties. They can automate multi-node processes and transfer assets between parties. In addition, because of the way they leverage blockchain technology, they can be trusted to an entire ecosystem.
Distributed governance – Distributed governance leverages tokens to enable communities to make collective decisions. Systems that rely on central coordinating authorities can be replaced with new distributed ecosystem entities, such as decentralized autonomous organizations (DAOs). These organizations democratize decision making based on the quality or volume of a user’s investment of time or material in a site, initiative or dapp. Distributed governance provides stability to developers, which reduces the risk of their investments.
Wallets – A digital wallet, usually associated with cryptocurrencies, a device, application or service that stores the public and/or private keys used in blockchain transactions. In addition to this primary function of securely storing keys, a cryptocurrency wallet, also offers the functionality to encrypt and/or sign information. Signing can result in the completion of a transaction or the execution of a smart contract.
Decentralized apps (dApps) – An application that uses smart contracts running on a blockchain. DApps provide a particular function or use to their users without technically being owned by any entity. DApps distribute tokens that represent ownership. These tokens are assigned according to a pre-designed algorithm to users of a blockchain-based system, diluting the ownership and control of the dApp. Since no single entity controls the system, the application is decentralized.
Metaverse – A deeply integrated virtual world, still mostly notional, that allows people to visualize, experience, formulate, publish and monetize digital information and content using virtual reality and other interfaces. For now, it is still in an early stage of evolution, but will enable seamless 3D experiences that will enable shopping, business/transactions, education, advertising and entertainment and many other forms of commercial activity with a complete multi-channel, multi-currency financial ecosystem behind it.
Limitations of Web3
Despite the many benefits of Web3, there are still some limitations that the ecosystem must address.
Accessibility – Features such as the relative cost of transactions may lead to a higher likelihood of Web3 usage in developing countries due to high transaction fees. Although the technology is ready, higher levels of adoption are needed at layer 2 to make Web3 accessible to all.
User experience – The technical barrier to entry to Web3 use is currently too high. Users must understand security concerns, complex technical documentation and navigate unintuitive user interfaces. Wallet providers, in particular, are working to address this, but more progress is needed before Web3 is adopted en masse.
Education – Web3 introduces new paradigms that require learning different mental models than those used in Web2.0. A similar educational push happened when Web1.0 was gaining popularity in the late 1990s; World Wide Web advocates used a host of educational techniques to educate the public from simple metaphors to television broadcasts. Web3 is not difficult, but it is different. Educational initiatives that inform Web2 users about these Web3 paradigms are vital to its success.
Centralized infrastructure – The Web3 ecosystem is young and evolving rapidly. As a result, it currently relies primarily on a centralized infrastructure (GitHub, Twitter, Discord, etc.). Many Web3 companies are rushing to fill these gaps, but building a reliable, high-quality infrastructure takes time.
Impact
The impact of new Web 3 primitives will be profound, similar to major technological advances, such as the printing press. We see early signs of the potential that AI-driven autonomous transportation will bring. We see early examples of innovative augmented reality (AR) and virtual reality (VR) applications, and we are experiencing the impact of IoT devices on many aspects of our lives, including our health and fitness. For example, Google explored whether its Google Glass AR software and Microsoft’s Hololens could help with infection control. The larger, more systematic impact of Web 3 is only now beginning to emerge.
The resulting explosion of innovation, productivity enhancement and social wealth may become extraordinary.
An extremely important feature of Web 3 is its high degree of composability. Composability refers to the ability to assemble, configure and connect various services with very little friction. High degrees of composability change the economics of experimentation and address economic niches, accelerate innovation and expand the opportunity for value creation.
The high composability of Web 3 is the result of extreme degrees of standardization, the efficiency of skill propagation and collaboration, open libraries of code assets, easily accessible on-demand distributed computing resources, digital assets, and a stable governance model. The use of this high composability is largely responsible for the tremendous innovation and value creation in the Decentralized Finance (DeFi) space.
At the domestic level, Web 3 will likely lead to a huge expansion in the variety of services we can access. Autonomous ID and tokens will allow us to interact with government services, the healthcare system and businesses in a way that enhances our privacy, gives us more control over our data and allows us to participate in any economic benefits associated with our identity or the content we create.
At the enterprise level, we will see a progressive move toward an ecosystem-driven economy. Smaller, more focused and more agile economic actors will combine and compose their collective goods and services and execute smart contracts to coordinate their activities.
Managed by smart contracts, payments and assets will move through the ecosystem with little friction and in efficient alignment with value creation and stakeholder interests. Smaller companies that leverage the trust, transparency and automation of Web 3 can compete like a large enterprise, challenging megacorporations as they formulate their own strategies.
Supply chains must be more efficient, resilient and adaptable to standards, much better environmental, social and governance (ESG) rating systems, shared tools for tracking and measurement, and the ability to better understand the source and social impact of a product, its components and its raw materials. Our social networks will likely feature improved wealth distribution, greater trust in the identities of contributors and the security of our own, and greater truth in labeling.
With the skills to establish ownership and transfer ownership of assets, we will experience the emerging metaverse as a place not only to socialize and play, but also to engage in commerce and build complex businesses. Our interactions with governments should become more secure, more integrated and more flexible. Our choices should become even more secure and accessible. Most likely, we will write, negotiate, agree and live the next social contract on Web 3 technologies.
Key conclusions
Web 3 is an important group of technologies that will have a profound impact with far-reaching consequences. Companies are investing considerable amounts in the technology and deploying large teams of high-quality talent to develop and exploit it.
Web 1 already offers great efficiencies in communication and collaboration to investors, developers and entrepreneurs, and many digital incumbents have a vested interest in Web 2 business models. The transition to the Web 3 era will likely evolve more rapidly than other historical foundational technologies. Its adoption will be gradual and steady over the next two decades, and it will eventually permeate much of our economic and social infrastructure.
Web 3, and especially its blockchain component, is a foundational technology, has the potential to support a new economic and social order.
The impact of Web 3 is not simply technical in nature; it will have profound effects on society, on people’s lives. As a result, leaders in business, education, healthcare, government, intergovernmental agencies and civil society must investigate and participate in the flow of information and ideas around this space.
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