What is Web3 and How Does It Work?
There are two variants of the Web 3.0 concept. This situation reflects the growing role of the Internet and digitalization.
Web 3.0 was first talked about when it became clear that some of the Web 2.0 business models should be improved. Web 2.0 is a human-readable broadband internet of social networking and blogging. Web 3.0, also called the Semantic Web, should improve the processing of information from the Web by machine systems.
But there is also web3 as an idea for a new iteration of the WWW, also sometimes referred to as Web 3.0.
WWW means World Wide Web, a global network of web servers using hypertext technology. Web3 is a completely different Internet, based on the concept of decentralization using blockchain, cryptocurrencies like bitcoin and Ether, coins, and tokens. It turned out that personal data and user-created content in Web 2.0 are controlled by a small group of companies, the so-called Big Tech. This censorship hardly can be accepted by users, especially by somebody who calls himself a Libertarian.
Web3 was proposed in 2014 by Gavin Wood, a legend of crypto, the co-founder of Ethereum, and Polkadot founder, to face this challenge. Gavin Wood, along with Nick Szabo and Satoshi Nakamoto, is one of those it-scientists who had created algorithms for cryptocurrency, cryptocurrency wallet, and distributed ledger.
Web3 solves several problems at once: data security, regulation of the Internet, the integration of cryptocurrencies into all Internet services, as well as the use of smart contracts to eliminate an intermediary and central government. Web3 is also decentralized finance and non-fungible tokens (NFTs). Enthusiasts claim that web3 is the next generation of Internet infrastructure. The biggest revolution in our History since the Internet.
Essential Web3 Concepts
Web3 involves the use of several important and popular concepts. One of them is sovereign identity with the self-identification of users without an intermediary.
This greatly enhances data privacy. The user does not have to send his data to a central server, as it is in traditional client-server architecture. The main problem of Web 2.0 is the problem of trust. Users lose control over their personal data and the content they create. But not only that. Centralization with the client-server architecture also puts at risk the entire supply chain of goods and services, which is opaque and time-consuming to process documents.
A decentralized network formed by interconnected blockchains is a key to solving this problem because it adds solidity.
In web3, all actions are transparent. But this does not mean that privacy is lost. The sequence of actions of a particular user is not related to his real personality. Only the actions of a specific user who is associated with a particular cryptocurrency wallet via his public key are transparent. He has full control over the wallet with his private key. The user’s identity is not disclosed, and he does not experience problems with privacy-preserving and anonymity.
Another essential concept is the Decentralized Autonomous Organization (DAO). It offers new business models that are managed without a dedicated center but by the users themselves through smart contracts. Token holders can propose and approve any decisions made in the organization, and decisions are made instantly.
Criticism of web3
Critics of web3 argue that control from Big Tech could be replaced by control from a few large investors. Under the DAO, control is given to those who own the largest number of tokens, and ordinary community members are removed from decision-making. To increase their influence, whales, that is, rich investors, can even buy up tokens and get maximum powers in the DAO.
This point was made by Jack Dorsey, the co-founder and former CEO of Twitter. It has been taken up by critics of the web3 concept in general. They point out that currently most new blockchains are created with the Proof-of-Stake (POS) consensus algorithm. Over 200 cryptocurrencies operate on POS. Even old blockchains are moving from Proof-of-Work to POS, as the Ethereum team is doing, promising to make this update as early as September.
POS is considered to be an energy-efficient consensus mechanism and scaling solution with a higher number of transactions. Today it is a kind of mainstream adoption. Network validators in this case are investors who hold cryptocurrency in their accounts. The more cryptocurrencies a validator has, the more chances he has to confirm the transaction and earn a reward. Thus, rich investors continue to get richer.
In addition, critics point out the vulnerability of web3 services that open source create. Hackers easily attack platforms or smart contracts to withdraw funds. This was the case in 2016 with a venture fund called TheDAO when 3.64 million ETH was withdrawn, about $53 at the exchange rate of that time. According to Chainalysis, about $14 billion worth of cryptocurrencies were illegally withdrawn in 2021, almost twice as much as a year before. Decentralized finance platforms are also regularly hacked. The weak point is the bridges between different blockchains that ensure their interoperability.
Web3 proponents claim that security is getting stronger all the time, and hacks are just growing pains of the young industry.
Merging web3 and Web 3.0
Further development of web3 is likely to follow the path of merging the two concepts, Web 3.0 and web3. This means that five characteristics of “the Semantic Web” that are considered critical can be implemented based on a peer-to-peer decentralized network. They are Semantic Web, Artificial Intelligence, 3D Graphics, Connectivity, and Ubiquity.
Web3 is also expected to support Web 2.0 and work with existing sites. Some platforms and social networks like Reddit and Discord have already announced the possibility of integrating web3 technologies. However, the reaction of users to these initiatives is not always positive. Meanwhile, it is clear that in Web 2.0, users have become products as well as consumers. Centralized companies collect personal data and share it with advertisers to monetize it.
Web 2.0 does not mean Internet freedom anymore and web3 can make the internet free and open again. An internet built by everyone for everyone and at Tozex we will continue to add our contribution.