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What is Web3 and why is it important?
Web3 is a term that is eclipsing Web2. It’s a term that’s become increasingly prevalent in mainstream press, but a lot of people still find themselves asking: what is Web3?
Web3 is about more than technology — it’s a new ethos about how the internet is built and used to deliver value to society. Primarily, Web3 (a.k.a. web 3.0) is regarded as the next iteration of the internet with a focus on decentralised, cross-border ecosystems, with promises of greater data controls for individuals, better privacy and security, and faster and borderless online transactions. It is important to note that these levels of ‘decentralisation’ exist along a spectrum, with some Web3 projects offering some, but not all of these promises, depending on the solution they aim to provide.
Information in traditional systems is usually opaque in siloed systems and assets are restricted to ownership by large corporations. One of the core ethos’ of Web3 is around greater transparency and decentralisation where assets can be transferred from peer to peer by trusting coded rules, instead of relying on human intermediaries.
But what exactly is Web3? The phrase Web3, in reference to decentralised ecosystems, was coined by Ethereum blockchain co-founder Gavin Wood and has since caught on. While there’s no firm definition of Web3 — it’s important to recognise that it’s not just an umbrella term for cryptocurrencies, blockchain, NFTs and the metaverse.
It’s more accurate to think of Web3 as a re-imagining of the purpose and structure of online spaces. The web of digital services and experiences that we depend on daily is changing, and Web3 is the term used to represent this latest, momentous evolution of the internet.
The evolution of the web
To understand Web3 and the future of the web, it’s helpful to consider how the internet has grown from its early days to now. Often, Web1 is described as ‘read-only’ while Web2 is ‘read-write’ and Web3 is ‘read-write-execute/own’. For someone who isn’t tech-native, these ideas may seem somewhat overwhelming and foreign. The good news is that it’s not as complex as it sounds. Let’s briefly explore the history of the internet and what Web1, Web2 and Web3 actually mean.
What is Web1?
Web1 describes the earliest iteration of the internet, which was based on a global communication tool developed for the US military in the ‘60s.
It wasn’t until the early ‘90s that the technology was advanced to the point where ordinary people could easily send peer-to-peer messages online and connect through the internet via rudimentary, static websites built using HTML code. Computer scientist Tim Berners-Lee is credited with coming up with the World Wide Web system and standards for URLs – the address in the taskbar you use for visiting websites which start with www.
Web1 is referred to as ‘read-only’ because the basic presentation of content meant it was hard for non-tech-savvy web users to do more than find information and read it.
In summary, when you think of Web1, think of static web pages that simply display information – the earliest application of the internet.
What is Web2?
Web2 is the internet most of us are familiar with today, with highly interactive websites, e-commerce, and apps that make it easy for individuals and businesses to collaborate, generate and share data.
That’s where the ‘read-write’ terminology comes in — Web2 has seen the rise of blogs and social media in particular, letting anyone interact online and publish content to the web without technical know-how. Web2 broadly captures the idea of the rich online experiences we’ve come to expect underpinned by tech advances like cloud computing and mobile phones.
Take a website such as Amazon and compare it to the original websites in Web1 – they couldn’t be more different. Today, they are data-rich, interactive and loaded with features absent from Web1. From video streaming to online payments, the manner in which prospective customers engage with Amazon has evolved in leaps and bounds.
But it’s also characterised by the rise of tech companies like Google and Facebook and how they ‘centralise’ data, content and communities through their commercial platforms and advertising-driven revenue models.
What is Web3?
Web3 is an emerging paradigm shift in how the internet works — driven by new technologies including blockchain and smart contracts inspired by Bitcoin, and a belief in a decentralised model that prioritises openness, self-sovereign identity, and community governance.
Unlike Web2 where platforms own your data and you’re beholden to their rules and restricted to their ecosystem, in Web3 the entire model is upended. With Web3, you have the capacity to not only own your data, but to participate in how the system is run from a governance perspective. When you think of governance, think of the rules of the system that determine how decisions are made.
Right now, you don’t get a say in how Facebook is run as a user, but the vision for Web3 is that via asset ownership on blockchain networks, you can participate in the direction of a project. Only some projects offer this vision now, but it is believed to be the core goal of the industry.
This shifts the focus of a business to be community-led with bottom-up governance as opposed to that which is leadership-driven and top-down.
Web3 isn’t a term that can be neatly encapsulated in a single sentence. It’s about shifting power away from central entities with users being front and centre. But undoubtedly, decentralisation lies at the core that binds all elements of Web3 together, which manifests itself in numerous ways.
What is a Web3 example?
These are some of the more prevalent use cases for Web3 that we’re seeing today:
- Crypto wallets – you own your own assets (as opposed to having an IOU with a trusted third party) and your wallet is your identity in that you don’t have to provide any personal or private information to participate,wallet is your identity.
- Decentralised and centralised marketplaces bringing together buyers and sellers of digital assets allowing users to trade between their peers.
- Decentralised autonomous organisations (DAOs) – mission-led groups built around holding a token providing the holder with a vote, and often with the right to a return so that token holders can become stakeholders of a business.
- Decentralised finance (DeFi) – removing the need for trusted intermediaries for financial transactions making them permissionless and far more efficient than the legacy financial system. If you’re new to DeFi, be sure to check out our guide on what it is and how it works.
- Gaming – the ability to own your own in-game assets and have those traded in an open market.
- NFTs – from collectibles and digital art to fundraising, membership and communities, NFTs are much more than just a picture.
- Social media – being able to own your own identity and profile and take this wherever you go in the Web3 ecosystem (such as Lens Protocol).
Web3 is moving the internet towards peer-to-peer networks where users have full control of how their data is used and where user participation and ownership is a core part of how online applications function. Hence, Web3 is often associated with the term ‘read-write-own’.
A shift
Experienced NFT and metaverse advisor, Katherine Boiciuc, who is the CTO of Melbourne-based leadership consultancy Maximus, said Web3 represented a tectonic shift in technology that would change the way we work and live.
She said Web3 combines decentralisation with the advanced modern functionality of Web2 — enabling a genuine shift away from corporate ownership and letting people ‘vote’ with their time, money and attention by owning a stake in the network and choosing how to participate in it.
“And so what you’re seeing with decentralised value being created in Web3 is the opportunity of a blank sheet of paper. You’ve got the opportunity to create things that don’t yet exist, but in a way, that everyday humans like you and me can own a stake in and have a say in what’s being built”. In short, Boiciuc is arguing that the possibilities for Web3 are only just beginning and unlike in Web2, with Web3, it is the users who are in the driving seat able to participate through ownership of the underlying technologies.
She argues Web3 is a great equaliser, because unlike Web2 where large entities like Google and Meta have control, the new internet era allows more people to invest, participate and create value in ways that have never been seen before.
Changing
Lisa Teh, the co-founder of Australian Web3 marketing agency Mooning, which counts brands like Magic Eden and Neopets Metaverse among its clients, said Web3 has already changed social media, brand equity building, capital raising and loyalty programs and would result in more innovation within the next year.
“Blockchain technology will become the economic layer that underpins the internet allowing for more transparency and speed with transactions, plus it will redefine how we think of ownership of assets,” Teh said.
“We have barely scratched the surface with the utilisation of technology such as NFTs, but we are already seeing real life application of NFTs such as the purchasing of land in the physical world, ticketing for events, digital certificates of ownership and authenticity for objects and as access tokens to special benefits.”
Lisa Teh, Co-founder, Mooning
Why does Web3 matter?
Web3 matters because it represents a shift in how the internet shapes our economic and social realities.
Moving away from centralised platforms that depend on controlling users’ data and content may threaten the monopolies held by major tech companies, however Web3 creates the potential for an inherently more open, secure and equitable internet.
Katherine Boiciuc anticipates Web3 has the potential to impact all industries, with use cases appearing across fintech, education, entertainment and fashion. She said an obvious example of Web3’s transformative potential was the adoption of real-time transparent transactions on the blockchain within the financial services industry.
“The blockchain is never asleep. It’s never off. It’s not like your bank, where you transfer funds to someone at eight o’clock on a Tuesday, and that transaction doesn’t show up until the next business day. Your money is always working for you,” Boiciuc said.
She said the trend of mainstream companies like Stripe and Visa exploring Web3 by integrating cryptocurrencies would not slow down, given the demand for autonomous and publicly verifiable transactions, but would need to be tempered by strong security.
How businesses reach and engage with consumers has already been widely influenced by Web3, with many mainstream Web2 brands like Tiffany & Co, Prada and M&Ms releasing NFT collections for example.
Web3 vs Web2
Lisa Teh said that unlike in Web2 where brands have traditionally maintained full control of their IP, Web3 enables rapid brand equity growth by bestowing commercial rights — as evidenced by the incredibly popular Bored Ape Yacht Club NFT project, which essentially created tens of thousands of brand advocates.
“This puts Web2 brands at serious risk of not only being drowned out by brands switching to this model, but losing market share to companies that have created hyper engaged audiences by making their audience/community feel like a genuine part of the brand building process,” Teh said.
She said brands could not afford to ignore the new reality of Web3 when it comes to how they engage consumers because, “the expectations around community management have totally shifted in Web3.”
“There is an expectation in Web3 that brands are building in front of their community. I like to say, the only thing harder to revive than a dead body is a dead Discord. Ignoring or not investing in your community equals guaranteed failure in Web3.”
Web3 demographics
Web3 developments will only grow in importance as society’s demographics change. Generation Z (now in their teens to late 20s) and Millennials (under 40) represent a significant chunk of the population, and are more likely to say they feel most like themselves online (compared to offline) according to a 2022 Consumer Trends Survey by Coefficient Capital.
These generations also feel more appreciated and creative online, with more than one-third of both Gen Z and Millennials saying they consider themselves a ‘digital creator’. They’re also much more familiar with ideas like the metaverse and NFTs, and inherently more comfortable with the idea that digital goods are valuable – you don’t necessarily need to be able to touch for it to have worth.
“I think that increasingly we are seeing younger generations already adopt and choose to spend their time in the metaverse multiple times a week.”
Katherine Boiciuc, CTO, Maximus
Despite the disappointing progress of projects like Meta Horizons, Katherine Boiciuc believes the metaverse, and experiencing digital environments through immersive AR/VR tech, will significantly alter how people spend their time and interact with each other.
“It’s so attractive to escape the four walls that you’re in and go and join some people on the other side of the world that you’ve made friends with, and go virtually hang out together, watching Paris Hilton DJ a concert in Decentraland, for example. That’s going to become more and more normal,” Boiciuc said.
How is Web3 regulated in Australia?
As of now, there has yet to be clear regulation surrounding Web3 in Australia. At the same time, governing a decentralised internet is a tricky task. This is because unlike Web2, Web3 is not “owned” by a single entity or conglomerate. However, businesses and VC funds that focus on Web3, such as a16z crypto, are typically in support of “clear, thoughtful, and responsible regulation of Web3.”
Cryptocurrency, however, is slowly coming under government scrutiny here in Australia. The Senate held a hearing on the Digital Assets (Market Regulation) Bill on July 25, which is expected to shake up Australia’s crypto industry.
How to use Web3?
How do you use, connect to, or start working on Web3? Depending on your interests and level of knowledge or experience, you can quickly and easily get involved.
The simplest and most accessible route for many users to enter Web3 is by creating a crypto wallet for holding and trading NFTs and cryptocurrencies.
How to create a Web3 wallet
Creating a Web3 wallet is relatively simple as most software-based wallets are accessed by downloading an app or browser extension. Other types of crypto hardware wallets exist, but for the moment, let’s keep it simple and focus just on the most accessible form of wallets, those that are software-based.
Web3 wallets require a seed phrase comprised of 12 or 24 words which you need for backup — think of this as a spare set of keys to your crypto. If for whatever reason you lose your phone or laptop, you can restore access to your crypto simply by inserting the 12 or 24 seed phrase in a newly-downloaded wallet. This seed phrase needs to be securely stored offline because it’s the only way to recover assets in your wallet if you lose access to your computer or account.
Setting up your own Web3 wallet makes it possible to buy and swap NFTs and crypto tokens but be aware that fees apply and can vary significantly depending on the network the wallet uses to handle transactions. For example, a popular wallet called Metamask uses the Ethereum network. There are many wallets to choose from, so it pays to do some research into the functionality you’ll need.
How to invest in Web3
There are multiple ways to invest in Web3, including through buying cryptocurrencies and NFTs, and investing via decentralised finance (DeFi) apps. It’s important to note that crypto, NFT and DeFi markets remain largely unregulated and highly volatile in nature, with rapid upswings and downswings in value. Not advice, just saying. Those keen on entering the world of Web3 would be advised to do their research – including analysing what the product is and its growth potential, what its unique selling point is, who is behind the project and whether they have a track record of success.
A popular way to engage in Web3 financial assets is to earn yield through stakin. This is where you effectively loan your crypto to a third party and you earn interest on it. If you’re more into traditional investing, you could explore things such as exchange-traded funds (ETFs) backed by crypto, or invest in the stocks of publicly-listed companies that invest in crypto or are building on Web3 technologies.
Reading the news of reputable projects allows you to better understand how much money is going into specific spaces of the industry. For example, the Ethereum blockchain has congestion issues. So, L2s (additional infrastructure layers to alleviate congestion) are witnessing greater investment as they provide a vital solution to the industry.
Gaming
Gaming is also receiving investment as countries across the world, particularly across the Asian region, see opportunities within the blockchain gaming space. You should always do your research.
Joining a DAO that focuses on a mission you care about is a great way to get involved. You can easily put your hand up in a DAO’s Discord channel to say you’d like to contribute to the project in a range of ways, whether that be through content writing, social media management, or simply being an investor of the project.
In each case, there are simpler and more complex ways to get involved. There is no right answer as to how you can participate. It comes down to your level of knowledge and experience, which differs in each case. For newbies it’s worth starting small and keeping things simple.
How to build on Web3
To build on Web3, you can take advantage of open source developer tools and templates provided by major blockchains.
To start off with, an understanding of blockchain basics and smart contracts will be critical for building on Web3. And like any product or service, you also need to ensure your idea is viable, solves an actual problem and then you have the age-old question: where and how to find customers or a community.
You don’t need to launch a product or app to build on Web3. For example,you could adapt existing business models, like adding crypto micropayment functionality to a blog rather than using an advertising model. Other ways to become an active creator in the Web3 economy is by minting NFT collections, or using NFTs to authenticate offerings or unlock exclusive benefits for customers.
Again, there are simple and more complex ways to build on Web3. The key takeaway though is you don’t need to be a software developer to build in the space, but at the very least you should have a basic understanding of blockchain and smart contracts.
The Web3 community is for the most part among the most generous in terms of knowledge sharing. There are a ton of different groups you could join to learn more about the specific space you are interested in – from content creation to community management to simply understanding the different options, there is likely a Telegram, Discord or Reddit group for you.
The current status of Web3
Web3 is still maturing and at present, it lacks the seamless online experience users have come to expect – like being able to click and purchase goods quickly using Apple Pay. User experience drove the adoption of Web2 and it’s likely that the same phenomenon will play out in Web3.
However, many Web3 applications already exist and new apps and experiences are being built in droves. Some will succeed and others will fail. It took time for Web2 to become what it is today and as we see more applications built out, Web3 is likely to witness greater global adoption. In 2022 alone, we’ve already seen some US$23 billion of investment poured into Web3.
That doesn’t mean the internet we know today will become obsolete — if anything it will be advanced by Web3 tech such as through crypto payment options or by incorporating NFTs. Other use cases that no-one has conceived of yet will likely emerge too, as the multitude of Web3 advances underway expands the realm of possibilities.
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