What is Web3? and How will it Work?

Web3 refers to the next version of the internet, which will focus on decentralization and user ownership. Find out how this future development may impact the internet and investing.
To better understand Web3, it can be helpful to review current and past phases of the internet. Unlike the current Web 2.0 phase, where platforms and apps are owned by centralized entities, such as large tech companies, the Web 3.0 platforms and apps will be developed, owned, and maintained by users.

Key points about Web3

1. Web3 is a protocol for publishing and consuming data, first and foremost prepared to be distributed peer-to-peer
2. It’s a software package designed to create interfaces, tools, and services
3. This radically simpler approach to elevating promising new models of internet

Understanding Web3

Put simply, Web3 is a future, decentralized form of the internet, where users become owners. Rather than using free apps and platforms that collect user data, as in the current phase of Web2, users in the future Web3 phase will be able to participate in the creation, operation, and governance of the protocols themselves.

In Web3, ownership can be represented by digital tokens or cryptocurrencies, through decentralized networks known as blockchains. For example, if you hold enough digital tokens for a particular network, you could have a say over the operation or governance of the network. This is similar to the way stockholder voting rights allow shareholders of record in a company to vote on certain corporate actions.

Web3 will be bigger than Web2 because Web2 is all about companies trying to extract value from people, while Web3 is all about communities creating value for their people.

Web3 is a future, decentralized phase of internet development, where users become owners. This contrasts from the current Web2, which is dominated by large, centralized players that capture most of the internet’s monetary value. While Web3 is still in its infancy stage, it is likely to impact the investment community and broader economy in the years ahead.

Why Web3 is different

Web3 is attractive because it enables peer-to-peer interactions without centralized platforms and intermediaries.

“The idea behind the Web was to make publishing possible for anyone; the idea in Web 2.0 was that readers should be writers too,” says Whit Andrews, Distinguished VP Analyst at Gartner. “Web3 is intended to give any participant in the web their own autonomous power and control.”

Web3 uses a stack of technologies, based on decentralized blockchains, that enables new business and social models. Users own their data, identity, content and algorithms and participate as “shareholders” by owning the protocol’s tokens or cryptocurrencies. That ownership shifts power and money away from centralized Web 2.0 “gatekeepers,” such as big tech companies and governments.

Tokens and cryptocurrencies power the business models and economics of Web3, which supports new business opportunities in relation to, for example, the monetization of nonfungible tokens (NFTs) in new metaverse applications.

The terms “metaverse” and “Web3” are often conflated, but they actually describe distinct — yet related — concepts. Metaverse denotes an evolving vision of a digitally native world in which we will spend our time working, socializing and engaging in all types of activities. Web3 provides decentralized protocols and a technology stack that can be used to build parts of a metaverse and the new communities and economies that it will enable.

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