What is Web3 and Why Does it Matter

Last updated on July 23rd, 2023

Introduction what is Web3

What is Web3? : The internet is undergoing its next evolution, from web1 to web2 to now web3. This new era of the internet promises to revolutionize connectivity, community and ownership online. But what exactly is web3, and why does it matter?

In simple terms, web3 aims to create a more open, decentralized web that transfers power from big corporations back to individuals. It builds on blockchain technology to facilitate peer-to-peer transactions without intermediaries. This has huge implications for how we interact online.

While web3 is still in its early days, it has the potential to reshape the internet’s entire fabric. Understanding its core concepts can help navigate this brave new digital world.

From Web1 to Web2: How We Got Here

To fully appreciate web3, it helps to understand the prior evolutions of the internet.

In the early days of web1, the internet was mainly a read-only experience. Early sites were mostly static pages with information posted by individuals or companies. Users could read content but not engage much beyond that.

Web2 emerged in the early 2000s with the rise of interactive platforms like social media, blogs and e-commerce sites. Power shifted to a small set of huge companies like Google, Amazon and Facebook.

The defining traits of web2 are centralization, corporate control over content and monetization through ads. Users essentially rent digital services from these gatekeepers.

While web2 enabled greater participation online, it also consolidated power in the hands of a few platforms. This sets the stage for web3’s decentralized approach.

What Makes Web3 Different?

Web3 flips the script on the web2 model in 3 key ways:

1. It’s Decentralized

There is no central authority or private platform controlling the web3 ecosystem. Power shifts from centralized servers to distributed networks and blockchain governance.

Content and data is open-source across public ledgers. This reduces monopoly control and gives users more ownership.

2. It’s Permissionless

Anyone can participate in web3 networks without gatekeepers or middlemen. For example, artists can create NFTs and directly sell to collectors without galleries or agents.

User-owned crypto wallets replace platform accounts. Financial transactions occur directly with blockchain payments.

3. It’s Trustless

Web3 networks rely on cryptography, consensus mechanisms and blockchain records rather than trusting central intermediaries.

Transactions are verifiable through public distributed ledgers. Smart contracts automate processes that previously required third-party arbitration.

This structure increases transparency, reduces corruption and enables pseudonymous interactions.

Core Components of Web3

While decentralized governance is the overarching theme, web3 is composed of 3 core building blocks:

1. Blockchain Technology

Blockchain provides the underlying foundation for decentralization. It enables secure direct transactions through distributed ledger technology.

Different web3 platforms utilize blockchain in various ways specific to their model. But it removes third-party intermediation across digital ecosystems.

2. Cryptocurrencies

Digital currencies like Bitcoin, Ethereum and others enable new blockchain-based economic models.

Cryptocurrency replaces fiat money for frictionless value exchange in web3. It incentivizes distributed network participation through rewards.

3. NFTs (Non-Fungible Tokens)

NFTs digitize ownership of unique assets like art, collectibles and virtual worlds.

They prove authenticity and sole ownership using blockchain metadata. NFTs open new creator economies and business models.

Key Benefits of Web3

Web3 unlocks several advantages over the previous centralized web:

Increased Control and Ownership

Users control their own identities, data, wallets, and digital assets rather than platform intermediaries. This shifts power back to individuals.

Censorship Resistance

With no central entity controlling networks, censorship becomes extremely difficult. Ideas can be freely exchanged.

Reduced Fees

Disintermediation cuts out middlemen and their associated fees. Transactions occur directly between peers.

Improved Transparency

Public blockchains bring radical transparency to previously opaque systems and processes. Immutable records reduce corruption.

Permissionless Innovation

Anyone can create new web3 platforms and applications without requiring approval from an authority. This enables open innovation.

Enhanced Privacy

Pseudonymous blockchain interactions allow more privacy compared to web2’s pervasive data harvesting model. Users enjoy anonymity and control.

Major Web3 Sectors

Web3 will permeate across industries, but here are some key sectors driving adoption:


DeFi (decentralized finance) replaces traditional banks and financial institutions with blockchain-based applications for lending, trading, insurance and more.


Play-to-earn games allow players to truly own in-game assets as NFTs. They can also earn crypto rewards.

Social Media

Decentralized social networks like Mastodon allow users to own their content and data. No more corporate advertising models.


Self-sovereign identity gives users control over their digital identities and reputation across web3 versus web2’s platform-dependent profiles.


NFTs enable decentralized peer-to-peer marketplaces for digital collectibles, art and other unique goods.

Challenges Facing Web3

While promising, web3 still faces some hurdles on the road to mass adoption:

  • Onboarding complexity for crypto wallets and understanding blockchain.
  • Scalability limitations of early blockchains like Ethereum.
  • Environmental concerns around crypto mining energy usage.
  • Overhyped projects and “vaporware” dampening enthusiasm.
  • Lack of regulation posing risks for consumers.
  • UX design that lags behind web2’s polish and convenience.

However, the web3 community is actively working to address these challenges with innovative solutions while retaining core principles.

Web3’s Future Potential

Web3 unlocks an internet owned by users, controlled by communities, and without entrenched gatekeepers. While still nascent, its momentum is undeniable.

Just as web2 enabled public participation on web1’s closed informational foundation, web3 aims to hand ownership back to users on web2’s centralized participation layer.

The resulting web promises to be more open, transparent, and user-empowered. We are only beginning to glimpse web3’s full disruptive potential across industries and human collaboration.

Blockchain’s peer-to-peer model aligns with natural human incentives for cooperation. It could emerge as one of the defining technologies of the 21st century.

Of course, the future remains unpredictable. But the core vision behind web3 represents a hugely significant advance in how we interact and transact online. Adoption will steadily grow as applications mature.

No single entity will likely rule this next iteration of the web. Power will diffuse across decentralized communities, creating opportunity for unprecedented innovation to flourish.

Strap in, the web3 ride promises to be an exciting one!

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