Web3 – a new Internet re­volu­tion?

We tend to associate the block­chain with crypto­cur­ren­cies such as bitcoin. Silicon Valley pioneers, however, have taken the concept a little further: with Web3, the Internet as we know it is being re­struc­tured and based solely on the block­chain. How does it work and what are the con­sequences for Internet users?

The block­chain is a buzzword one en­coun­ters time and again in con­nec­tion with Web3. Roughly speaking, a block­chain is a public and dis­trib­uted database that can be used to record various trans­ac­tions in chro­no­lo­gic­al order. The data blocks that form part of the block­chain are, as the name suggests, chained together. Moreover, various cryp­to­graph­ic methods such as asym­met­ric en­cryp­tion ensure that the data in the block­chain is secure and cannot be read by third parties.

The vision of Web3 is to de­cent­ral­ise the entire Internet with the help of the block­chain. The Internet should not be con­trolled by large tech­no­logy groups nor states or banks, but should be ex­clus­ively managed by users. The block­chain is required to this end because here data is stored across various computers, elim­in­at­ing the need for a single central instance that provides the required data and checks a trans­ac­tion for au­then­ti­city.

Web 1.0 prevailed until the early 2000s. The Internet used to be a worldwide network of linked, primarily static documents. The first websites often consisted of simple HTML documents. Unlike today’s single page ap­plic­a­tions, however, they provided no in­ter­ac­tion options for users. This de­vel­op­ment brought about Web 2.0, which cor­res­ponds to the web we use today. With the help of pro­gram­ming languages such as JavaS­cript, functions were gradually added to static websites, opening the door to the first demo­crat­isa­tion of the Internet in the form of social media or blogging.

Web3 pioneers cri­ti­cised the monopoly position of tech­no­logy groups and the central storage of personal data. Web3 aims to take the demo­crat­isa­tion of the Internet to the next level by shifting all control from tech­no­logy companies to users with the help of the block­chain. Mono­pol­ies will be broken up as trans­ac­tions are de­cent­ral­ised and users them­selves become part of the network in­fra­struc­ture.

In terms of changes Web3 will introduce for users, a dis­tinc­tion must be made between the frontend and backend. Initially, not much will change for users. The frontend of websites will be virtually un­af­fected by the new tech­no­lo­gies. However, what happens in the back­ground, i.e., in the backend, will be very different in Web3. Cent­ral­ised servers are no longer re­spons­ible for providing websites and web apps. Instead, block­chain-based providers are at the centre of provision.

It’s one reason why users will gain more control over their data than ever before. They will be able to decide which data they feed into the block­chain. Large data pools, such as those currently main­tained by Meta (formerly Facebook Inc.) or Google, would no longer exist. This would shrink the power of the big tech cor­por­a­tions and allow for more flex­ib­il­ity for users. For example, they would no longer have to rely on external payment service providers as so-called trusted third parties, since trans­ac­tions would be validated directly via the block­chain.

A revival of new markets is also con­ceiv­able. The market for NFTs only recently ex­per­i­enced a real boom. NFTs are non-fungible tokens which act as cer­ti­fic­ates of au­then­ti­city for unique virtual goods, e.g., digitally created art or unique items in computer games, which are stored in a block­chain.

As part of Web3, new types of domains are gaining im­port­ance, such as block­chain domains. A whole range of different Web3 domain endings exist, such as .bitcoin or .crypto. An extension es­pe­cially for NFT domains exists, namely the .nft extension.

Block­chain-based domains offer several ad­vant­ages over con­ven­tion­al domains. For one, re­gis­tra­tion is more anonymous. Ad­min­is­tra­tion of the domain is de­cent­ral­ised, as is common with block­chains. In this way, the risk of a ‘single point of failure’ is minimised. In addition, it is possible to purchase domains per­man­ently, so that no ongoing costs are incurred. Purchase prices for block­chain domains are between £40 and £80. However, one serious dis­ad­vant­age is that con­ven­tion­al Web 2.0 browsers are not able to process Web3 domain ex­ten­sions.

There are a number of ap­plic­a­tions based on tech­no­lo­gies that are decisive for Web3. The perhaps most prominent example are crypto­cur­ren­cies and NFTs. New concepts such as de­cent­ral­ised autonom­ous or­gan­isa­tions or computer games on the Ethereum chain are already among the ap­plic­a­tions of Web3.

De­cent­ral­ised autonom­ous or­gan­isa­tions (also known as DAOs) are com­munit­ies that use tokens based on a block­chain. Using these tokens, the par­ti­cipants of an or­gan­isa­tion can take part in decision-making processes that are designed to be grass­roots demo­crat­ic. A token can thus be con­sidered a vote. How tokens are dis­trib­uted in DAO depends entirely on the nature of the or­gan­isa­tions. It is common here, for example, to earn tokens through active par­ti­cip­a­tion in the or­gan­isa­tion’s activ­it­ies.

An example of a DAO is the metaverse De­cent­ra­land. De­cent­ra­land is a 3D VR platform based on the Ethereum block­chain that allows users to purchase virtual land and virtual real estate stored as NFTs using the crypto­cur­rency MANA. The more prop­er­ties a user owns, the more tokens they receive. These, in turn, can be used to par­ti­cip­ate in decisions in the digital world.

In per­spect­ive, however, DAOs can be seen primarily as a way to ensure trans­par­ent or­gan­isa­tion of companies or ad­min­is­tra­tions.

When it comes to gaming, some ap­plic­a­tions based on Web3 tech­no­lo­gies are available. A popular game based on the Ethereum block­chain is Cryp­toKit­ties. Similar to analogue Tamag­otchis, it is possible for users to breed digital cats at Cryp­toKit­ties. The game is based on NFTs and each cat is unique and stored as a NFT in the block­chain. Users can sell their cats to other players. The crypto­cur­rency Ether is used for this purpose. In 2018, the most expensive Cryp­toKitty to date was sold for $180,000 (approx. £150,000).

Web3 hasn’t even fully arrived but is already at­tract­ing plenty of criticism. As in all areas of life, in­creas­ing freedom and de­creas­ing reg­u­la­tion are ac­com­pan­ied by rising risks. One fre­quently cri­ti­cised point, for example, is financial trans­ac­tions. Existing payment services used in online commerce allow customers to turn to third-party service providers such as PayPal or credit in­sti­tu­tions such as banks if necessary. In the world of crypto­cur­rency, no such as­sist­ance services exist.

The energy con­sump­tion of es­tab­lished block­chain tech­no­lo­gies is high and a point of frequent criticism. Bitcoin mining consumes more elec­tri­city per year than the entire Neth­er­lands. However, sig­ni­fic­antly more energy-efficient block­chain tech­no­lo­gies are available at this point in time, for example the crypto­coin Cardano.

Critics also question whether Web3 is all that suitable for pre­vent­ing mono­pol­ies. Because of the inherent lack of reg­u­la­tion, there is no guarantee mono­pol­ies won’t form in the future.