Table of content
Building the context
Many Web3 enthusiasts have had a rough few months in recent times as a result of the market prices of major cryptocurrencies falling sharply, a slowdown in the trading volume of non-fungible tokens (NFTs), and, most importantly, the bankruptcy of some industry pioneers due to poor risk management and misappropriation of investor funds. Business leaders should not confuse market volatility or dishonest individuals with the potential applications of digital assets and the technologies that support them, even as the debris keeps flying.
Applications for the next generation of the internet continue to emerge in an increasing variety of industries, with the potential to have transformative effects, despite the very real hazards associated with this developing technology and its uses.
The adoption of several of these emerging digital technologies and assets has been substantially driven by the financial services sector; at its height, the daily amount of transactions completed on so-called decentralized exchanges of finance approached $10 billion. Since then, the volume has mostly decreased in pace with asset prices, falling to around $2 billion. Real estate, gaming, carbon markets, and the arts, among other industries, are now using the lessons learned from the financial services experience—both the highs and lows.
We don't yet know how quickly or how widely these technologies and their applications will proliferate; the road ahead is proving difficult due to persistent problems like fraud and bad user experiences. Importantly, the regulatory landscape for Web3 is still unclear, with demands for more clarification on certain assets and other issues.
Despite all these issues, the fact is that Web3 has the singular potential to change the way data is created, transmitted, and now owned. And that is exactly the reason why you can afford to ignore Web3 and its associated technologies at your own peril. Thus it is always a better option to become an early adopter rather than lagging behind and playing catch-up later.
Recognizing Web3’s potential for disrupting the data digitization landscape
The decentralization of business models is the primary characteristic of Web3. In that sense, it ushers in a third stage of the internet (thus the name "Web3") and a change in users' perceptions of the status quo.
It differs significantly from a more centralized approach in which user data, including identity, transaction history, and credit ratings, are gathered, pooled, and often resolved to public and private entities through open protocols that made up the initial iteration of the web in the 1980s, on which anybody could build. Data applications were and are still being created, supplied, and monetized in a proprietary manner with all operational and governing choices being made by a small group of people with an ROI that is accrued to the senior leadership and key stakeholders.
With a shift back to users now transitioning to Web3 that power structure might now change. Open protocols and standards might reappear. The idea is that power will be widely distributed through "permissionless" decentralized blockchains and smart contracts, as we explain later in this article, rather than remaining centralized in big platforms and aggregators. One of the most challenging components of Web3 is governance, which is expected to take place in public rather than behind closed doors. With appropriate incentives, revenue can be returned to authors and users to help with user growth and acquisition.
Figure 1: How does Web 3.0 score over Web 2.0 (image source: 101 Blockchains)
What does this actually mean?
Essentially, by making disintermediation a key component, it could signal a paradigm shift in the business model for digital applications. With regard to data, functionality, and value, intermediaries may no longer be necessary. Through open-source rather than commercial software, users and producers might have the upper hand and be encouraged to create, test, build, and scale digital applications for a variety of use cases.
The foundational elements of Web3
Web3's revolutionary premise is based on three key elements:
The blockchain records all information regarding asset ownership and the history of completed transactions;
"Smart" contracts, which represent application logic and have the ability to independently carry out specific tasks; and
Digital assets, can represent anything of value and interact with smart contracts to become "programmable."
These three principles each have varying degrees of intricacy and complexity, and each is changing to address starting issues and structural flaws. The high-level elements of these fundamentals are mostly covered in this primer.
Figure 2: Three elements for Web3 implementations
Blockchain - Blockchains provide the structures to store and carry volumes of data openly accessible in a secure environment. Blockchains function as open databases that securely and comprehensively store all pertinent and transactional data. The fundamental databases are duplicated and distributed among numerous participants in a network of computer servers known as "nodes," which is why they are frequently referred to as "distributed digital ledgers." Blockchain refers to discrete data chunks that are linked or chained together as "blocks."
A new block is made and permanently linked to the chain as fresh data is uploaded to the network. Then, all nodes are updated to reflect the modification. A key distinction from conventional databases is the absence of a central repository for data. This has a number of benefits, one of which is that there is no one point of control, censorship, or failure in the system. No longer are user data scattered across many platforms, nor are they private or for sale.
Smart contracts are automated programs that run without human/machine intervention, based on previously established and mutually agreed upon criteria. Because they are frequently implemented as immutable programs, they require careful planning and setup, but once in place, they may be quickly and effectively operated without the need for intermediaries and their extractive fees. Once an application is deployed, it can be challenging to update the logic because it is predetermined in the contract.
A decentralized autonomous organization (DAO), a type of collective governance by users of the program who own governance tokens of the smart contract, frequently controls these applications. If the DAO is configured properly, no business can decide to change the application's functionality and specifications on its own. Web2 apps, in contrast, provide businesses with complete control over particular factors like pricing.
Digital assets and tokens are key for establishing decentralized ownership. Digital assets are ownership-rights-encumbered intangible goods. The legal context surrounding these digital assets and their ownership rights is still not adequately defined in many locations, despite the fact that they are expected to represent verifiable and ownable digital values in those areas. These assets can interact with smart contracts and are present on the blockchain across several applications.
Although each digital asset has a distinct role, asset ownership data is now kept on the blockchain rather than on regulated, private ledgers (like those of a bank), allowing for the storage, verification, and exchange of user-owned value without the involvement of third parties. These assets can also interact with smart contracts and be used "productively."
Understanding DAOs or decentralized autonomous organizations
The term "Decentralised Autonomous Organization" (DAO) refers to a group, business, or collective that is constrained by laws and regulations written into a blockchain. For instance, in a DAO-based store, the price of each item and information on who would receive payouts from the company would be stored on a blockchain.
DAOs are the best bet to prevent organization fraud or data manipulation; since DAOs essentially store data on immutable and decentralized ledgers or blockchains and enable data transfer and manipulation through well-defined and known smart contracts.
Most importantly, DAOs theoretically do away altogether with the need for many of the "middlemen" necessary to run a business, including bankers, attorneys, auditors, and landlords.
Web3 and metaverse: building an inclusive business ecosystem
The next version of the internet's user interface commonly referred to as the “metaverse”, would transform the manner through which we interact with the online world, converse with other users, and manipulate data.
Figure 3: Metaverse and Web3 and their impact on how you search & consume data
The metaverse is designed to be a far more immersive, social, and lasting version of the internet that we are all familiar with and adore. It will draw us in by utilizing tools like virtual reality (VR) and augmented reality (AR), which will allow us to interact with the digital world in more immersive and natural ways.
For instance, we will be able to pick up and manipulate objects with virtual hands, and we will be able to speak to machines or other people. The metaverse can be seen as the interface via which people will interact with web3 tools and apps in numerous ways.
How does identity work on Web3?
When web3 usage becomes the ‘norm of the day the concept of ‘user identity’ would be vastly different from what it is today. In most web3 apps being built as we speak, identities are already connected to the wallet address of the user using the application.
Wallet addresses are fully anonymous unless the user chooses to publicly link their own identity to them, unlike web2 authentication techniques like OAuth or email + password (which nearly invariably demand users to divulge sensitive and personal information).
The user's identity is seamlessly transferable between apps if they wish to use the same wallet across various DApps, allowing them to gradually construct their reputation.
Developers may have included self-sovereign identification into their apps in place of conventional authentication and identity layers thanks to protocols and technologies like Ceramic and IDX.
A working RFP for developing a specification for "Sign in with Ethereum" is also available from the Ethereum foundation; if accepted, it would assist in giving a better organized and documented method of doing this moving forward. This discussion is also good because it details various ways in which it could improve conventional authentication processes.
What the future holds for Web3?
Web 3.0 is still in its infancy considering DApps or Decentralized Apps have only recently started to draw more attention. On the other hand, the undeniable benefits of several web3 use cases demonstrate their potential to completely transform the internet in the future.
For instance, the metaverse might allow access to a three-dimensional internet, and DeFi applications might allow for decentralized financial management. Users may decide what to do with the money on their own, without having to rely on centralized intermediaries like banks.
In addition, the growing acceptance of non-fungible tokens may have a significant impact on asset ownership in the future of web3. People can become more familiar with the fundamental principles of the web3 vision, such as decentralization, ubiquity, and cryptographic security, by learning about how the metaverse is expanding.
It will only be a matter of time until fresh inventions emerge as the conversation of web3 picks up steam.
Will web3 be the last milestone in the internet's evolution? Already in technology circles, debates surrounding web 4.0 and web 5.0 have begun to pick up steam recently.
Web 4.0 or the "symbiotic web," would be an independent, proactive, collaborative, and self-learning system, transitioning from the "semantic web" characteristic of Web 3.0. In essence, it would expand on web3's metadata arrangement to support symbiotic interactions between machines and people. One of the most potentially impressive aspects of web 4.0 would be how it will combine AI with fully developed reasoning and semantic technologies.
The singular focus of Web 5.0 would be to enable users' singular digital identity across networks and platforms, eliminating the need for them to create separate usernames and passwords for each service they wish to access.
Whether it be Web 3.0, Web 4.0, and Web 5.0; the key leveraging aspect for enterprises and businesses would be on early adoption; rather than playing ‘catch-up’ when these technologies would be the ‘norm of the day and shape internet usage both at an individual level and at an enterprise level. Stay tuned to this blog stream to learn more about Web3 and its allied technologies.