Will Web3 take off?
What is Web3?
Web3 is a new vision for the web that will be built on blockchain technology. This vision of the internet will move past the current age where data and products are consolidated around a few technology gatekeepers like Google and Meta and be redistributed to individuals. There will no longer be these digital gatekeepers, but instead, users will be in control as they reclaim their data.
Reclaiming data while maintaining privacy and control is central to the realization of Web3 vision; blockchain technology will enable this. While blockchain technology has been mostly associated with cryptocurrencies like Bitcoin and Ethereum, blockchain technology will also enable the diffusion and encryption of information. At a high-level, a blockchain is a digital database that distributes information among nodes of a peer-to-peer network. Therefore, this technology rids the need for large, centralized networks owned and protected by the tech giants of the current Web 2.0 era.
Benefits of Web3
Web3 enthusiasts are excited about Web3 for two main reasons. The first is that decentralizing data will empower users. In theory, users will be able to carry around their data will them in a “virtual backpack.” For example, as a user visits app to app or site to site in web3, they will have all the information they need with them. The second benefit of decentralizing data on the blockchain would be more secure. With so much user data consolidated to fewer databases, users are more vulnerable to security breaches.
Why hasn’t Web3 taken off?
Despite these clear benefits, Web3 adoption and development has stalled. Ethereum, the most prevalent blockchain for running apps, was launched almost seven years ago. Since then, the first wave of Web3 developers that were drawn to crypto peaked in 2018. Furthermore, in 2022, Ethereum could only handle around 30 transactions a second-a bottleneck that results in large transaction fees.
There are two distinct reasons why Web3 has not taken off and may not take off in the next 5–10 years: 1) the execution of web3 and application of blockchain technology has fallen short of expectations and 2) users may be willing to adopt Web3 over the next best alternative.
The execution of Web3 relies on capital and developers. Web3 has had sufficient capital, with venture capitalists and crypto investors riding the initial wave of enthusiasm surrounding blockchain technology. Bain & Company estimates that the Web3 ecosystem has received approximately $94B in funding. However, much of this funding has been from venture capital firms hoping to profit from Web3 start-ups, which are risky and likely not to have payoffs at all, let alone in the foreseeable future. Furthermore, economic conditions have made lending and flow of capital more restricted. Continued Web3 development is also reliant on sufficient human capital. Since the vision for Web3 is largely webapp and app based, it would be reliant on Web3 developers familiar with blockchain technology to develop these apps and sites for Web3 users to visit. However, estimates indicate that roughly 21,000 Web3 developers were active last month, which was a drop from a peak of 27,000 in June of 2022. These 21,000 developers represent a minority of the 27 million overall software developers in the world. That said, the growth rate for Web3 developers, 25% over the past two years, is outpacing the overall growth rate of developers worldwide, 3% in the past year. Without sufficient developers to build the Web3 infrastructure, there will be nothing to attract users.
The second challenge to widespread Web3 adoption is user behavior. Perhaps attracting users is reliant on Web3 infrastructure reaching a certain point of functionality and usability. However, the lack of developer focus on Web3 might be indicative of the reverse problem. To develop a product that reaches general adoption and widespread enthusiasm, it’s important to understand who the product is for and how the product fills an unmet need. In the case of Web3, the product is for everyone. This makes it hard for Web3 to differentiate itself and find its role in the worldwide web and internet market. Additionally, how does Web3 fill an unmet need; is Web3 better than the next best alternative? Enthusiasts would argue that Web3 is better because it will democratize data and be more secure, traceable, and private. However, large incumbents like Apple are shifting their focus towards increased security and privacy. Furthermore, most web users have fallen into the comfort of not needing to worry about their own privacy; many users like being cared for by the information gatekeepers. While democratizing data and returning power to users sounds like a great idea, it would require a complete paradigm shift to how data and information has been handled for the past twenty years and how the web has functioned since its inception.
While Web3 sounds like an ideal way in which data is handled and disseminated, it still seems too early. More realistically, the next era of the web will represent something closer to its current infrastructure where data is gatekept by a select few trusted entities, but technology like blockchain will be employed for increased security. It’s possible that the arguments above for why Web3 will not take off are largely pessimistic and unable to see the application of an innovative technology like Blockchain. It’s possible that other technological advancements like generative AI can help with Web3 development by eliminating the bottlenecks in the Blockchain to lower transaction costs. Finally, it’s possible that Web3 might follow the model of “Build it and they will come” where users will readily adopt the new paradigm once Web3’s infrastructure is finally complete.
