Introduction
Web3 is the next evolution of the internet where people have control and ownership over their data, the relationships they form online, and their user profile. Together, these make up "social capital:" Everyone has it, and it's valuable. In contrast, today when we get on the internet, we go to sites owned by large companies, who own our social capital. These "web2" companies like Amazon, Facebook and Google store user data on privately-held servers and sell it to advertisers in exchange for providing free services. This has lead to a good experience for users (free, easy-to-use networks and applications) but has also caused privacy issues, data manipulation, and limited monetisation options. Web3 addresses these issues by using blockchain technology. This technology is based on user ownership. When people own their data, they can monetise however they want, take their digital information with them (profile, content, data) when they switch networks, and it has the benefit of putting people and apps/networks, on an equal footing. Web3 enables a more open and balanced internet, where people have ownership, control, and a stake and a voice in the future of the internet.
To understand the significant difference between the internet we know today (web2) and web3, take a step back.
When the internet first came about, it was hard to access because there were no easy-to-use applications. Web1 was built on open, public protocols or applications such as TCP, IP, SMTP, and HTTP that builders could develop on top of, plugging into these protocols to create whatever applications or platforms they wanted. Nobody needed permission to use these foundational protocols or standards to build user-friendly applications like email browsers and marketplaces. These standards are the basic building blocks of the internet. They govern how computers interact with each other and the flow of information. Today, in many senses, we are locked into platforms that own our data.
Web3 is digital ownership
The core idea of web3 is to give users ownership of their social capital and spur new innovation. Based on blockchain technology, web3 allows for a multitude of monetisation models and allows builders to create new user experiences and monetisation models that are not necessarily dependent on user data mining and advertisers.
Instead of relying on centralized web2 platforms, web3 enables peer-to-peer exchanges. This approach not only improves security but also creates a more open and fair internet where users have more control over their experiences online. With web3, users can choose to take their social capital (profile, content, relationships and data) to any other web3 platform, so they are not locked into centralized servers and large platforms that control monetisation and their social capital. Web3 blockchain technology is decentralised, meaning data is stored across multiple servers, but user social capital is owned by the user.
Websites or applications that use wallets to manage identity and value are referred to as ‘dApps’ (decentralised apps). DApps run on decentralised blockchain networks rather than traditional servers. One of the key reasons for apps to be decentralized is so that they are more resistant to censorship and technical failures, such as data breaches. This decentralised nature supports a more resilient, fair and balanced online environment, where users are not constrained by large companies that mine and control data and make all governance decisions, whether it is an interest rate or an algorithm.
Web3 is a better option for creators
Many web2 platforms promise users freedom to earn directly from their fans instead of relying on ad-driven, attention-based monetisation models, but don’t give their creators power over the economics of the platform. Web3 supports more creator-centric models for monetisation and distribution. The content they create on one platform, connected by a wallet identity, can travel with them to other websites. With fungible (non-unique) or non-fungible (one of a kind) tokens, creators have a number of ways to connect with their fan base. Most importantly, creators retain their relationship with their followers and fans if they decide to move to another platform.
Decentralised Finance is a category of Web3
Web3 opens up the opportunity for many types of new user experience, networks or user application. One such use use case is decentralised finance, or DeFi. DeFi brings significant advancements to the financial sector, creating greater access as well as enabling faster, more cost-effective, transparent, and secure transactions globally. DeFi protocols or applications like Aave Protocol enable access to financial features or primatives such as supplying cryptographic assets (liquidity) into a market (pool) to earn yield on those assets, and it also enables users to borrow agains their assets in an overcollateralised way without requiring centralized intermediaries. DeFi utilizes 'smart contracts,' or self-executing digital agreements that run on blockchain technology, allowing for trustless execution of transactions. DeFi provides greater transparency, lower costs, and broader access to financial services and as a result, democratizes financial systems, making them available to anyone with an internet connection and cryptographic assets.