What Is Web3?
New to blockchain? Looking for a refresher on some key terms and ideas? Upstate Interactive has your back.
Web3 is a decentralized network of distributed applications governed democratically and developed by a diverse coalition to empower individual ownership. In short- Web3 is the future of the internet. If that answer left you with more questions than answers, don’t sweat it- this is the perfect article for you.
Over the past few years, blockchain has gained enormous traction as a functional tool and a sound investment. Maybe you’re thinking it’s time to get on board, maybe you’re wondering if you’ve missed the boat- no worries there- we’ll make some more room on the ship.
A quick note before we dive in- this article assumes that you understand what blockchain and Web2 are. If you don’t, this video from Forbes is a pretty good 2-minute tutorial on blockchain, and this Investopedia entry is as good as any Web2 definition. If terms like hash, proof of work, and node are part of your everyday understanding and vocabulary, welcome to Upstate Interactive’s Web3 Primer.
Why should businesses care about Web3?
In a 2020 Deloitte survey that polled nearly 1,500 senior executives across 14 countries, 55% of respondents noted that “blockchain technology has become a critical priority for their organizations in 2019.” On top of that, 83% of respondents feared that their, “organization or project would lose a competitive advantage,” if they did not adopt blockchain tech. It’s indisputable that a deep understanding of blockchain capabilities and technology will be critical for the future of business development. Web3 is a conduit for non-specialists to interact with and build on the blockchain. It’s the connective tissue that allows an easy entry, so you don’t have to know how to code or trade to enjoy the benefits of this emergent technology.
On Web3, an open and equitable internet is possible.
You saw our short, sweet, and (if I don’t say so myself) appropriately bullish definition above, but unsurprisingly, the devil is in the details. With so many potentially earth-shaping and paradigm-shifting questions at play with the future of a distributed internet, we should probably lay out a quick foundation just to make sure we’re speaking the same language.
Definitions
If you’re up on the latest language in the space- feel free to cruise down to the next section. If you think some of your blockchain language skills could use a brush-up, pull up a chair and stay awhile.
Decentralization
A word that is tossed around more than almost any other in the space. On the surface, it seems obvious, you take something that’s all in one place and spread it out, simple enough- right? That’s actually pretty close to correct. Instead of internet control, validation, rule creation, and auditing stemming from individual actors or companies, on a decentralized network, all of those actions are automatically performed by every node. This prevents one person, actor, or contributor the power to alter, break, or cheat the pre-established rules.
Why is decentralization so important?
Web decentralization’s noble mission is to establish a more trustworthy system. It achieves this by eliminating three critical threats to centralized internet operations: resistance to collusion, resistance to failure, and resistance to outside attacks. In theory, pre-established rules of the road insulate a decentralized system from abuse and collusion. Decentralized network’s failure resistance and a natural defense against attacks are born out of the absence of a single point of weakness. It would be difficult for a decentralized network to suffer such extreme outages as the major AWS and CenturyLink breakdowns of late 2020.
How is the blockchain decentralized?
According to co-creator of Ethereum, Vitalik Buterin, “Blockchains are politically decentralized (no one controls them) and architecturally decentralized (no infrastructural central point of failure), but they are logically centralized (there is one commonly agreed state and the system behaves like a single computer)” This foundation creates a space with the ideal amount of freedom, with the smallest number of free radicals.
Token (Fungible and Non-fungible)
What does this ancient meme, internet artist Beeple, and your favorite new blockchain startup have in common? You guessed it- they all use tokens to determine the values of their offerings. A fungible token is a cryptoasset with fiat value (aka $ value) typically built on an existing blockchain. These tokens can be traded like Bitcoin or Ethereum and provide functionality like automation capabilities for decentralized apps (DApps). Non-fungible tokens are unique cryptoassets that serve as proof of ownership with no intrinsic fiat value until assigned by an individual or marketplace. There are also Security, Governance, and DeFi tokens, which I’d encourage you to Google at your leisure.
Protocol
You might be thinking that blockchain tech is a bit like the wild west; you can hang up those cowboy hats because, in reality, there are more rules and guardrails in place than meet the eye. Those rule sets that govern the scope of what you can do on the blockchain are called protocols. Let’s take one of the most famous examples, a protocol designed around smart contracts which trigger actions or transactions when contract criteria are met. If that sounds familiar, that’s because it’s the Ethereum blockchain protocol.
Alright, now that we’ve got a foundation set. Let’s talk about the big questions.
Why do we need Web3?
Seriously! Isn’t Web2 good enough?
After two decades of what seemed like a boundless expansion on the internet, the past 5–10 years, we’ve all watched as the online experience has shrunk. Spaces of expression, communication, and education have been commodified, walled off, and outright sold. Menacing in the corner of this contraction is a distinct lack of trust for other online actors as bots (both real and accused), deepfake tech, and notably, fake news becomes content we have to cope with daily. Even if you’re the kind of person, who reads the Terms of Service for a social media platform, the rules of how the site operates and the data it collects are still obscure. These features push us further from control over our data, our connectivity, and our wallets.
Web3 builds on open-source protocols. This means the rules of the road are clear and permitted for anyone to follow. Because they build on blockchain networks- the sites are radically transparent, and transparency provides less incentive for businesses to leverage user data for profit. Everything is exposed and on the table.
Imagine what small companies, individual operators, and collectives could do with autonomy over their data stack. If an apple farmer has a harvest that somehow surpasses local output, they will have full enough agency over their data to monetize and drive a second stream of income. Music listeners could band together to form influencer collectives instead of relying on algorithms that synthesize millions of listeners. Long haul truckers and logistics enterprises would be able to leverage their efficiencies, and local banks and credit unions could give individuals better insights into community trends.
On Web3, an open and equitable internet is possible.
Web3 Roadblocks
Unfortunately, what gets us closer to a web utopia comes with drawbacks. Like the team here at Upstate Interactive, early adopters have to reckon with serious issues that threaten the useability and long-term adoption of blockchain technology. The biggest worry throughout the community is the two significant costs of operation.
PoS seeks to solve the gas problem by reducing the cost of validation and the energy consumption issue by providing a more robust hashing system at a fraction of the energy spend.
First, the real dollars and cents cost of completing transactions on the blockchain is high. Each transaction and validation on the Ethereum network uses “gas,” or “GWEI,” which is a valuation of the computational power needed to execute the transaction. You can think of it as akin to paying for an internet provider, but instead of a monthly bill you pay per transaction. As Ethereum’s popularity grows, so does the number of transactions on the blockchain, causing more congestion and raising the price of gas. Right now, gas prices fluctuate from manageable to unreasonably high causing instability, and difficulty projecting spend.
Second, blockchain tech has incredibly high levels of energy consumption. Massive amounts of computing power are required to mine the blockchain and create hashes. Although a report from Cambridge University’s Centre for Alternative Finance noted that 76% of hashers use renewable energy sources to fuel their activity, only 39% of total energy consumed by the process of hashing was renewable. These current percentages raise significant ethical questions.
Before there is widespread Web3 adoption, these two problems need to be solved. Without a solution, the cost of entry to Web3 platforms will be too high, and the energy usage will cause massive and deserved pushback. So how do we free ourselves from the barbed wire fences of Web2 without overspending or overexerting the planet’s resources?
Luckily, a pivot away from Ethereum’s current proof-of-work (PoW) hashing system to a proof-of-stake (PoS) system may be a solution to both of these problems. PoS seeks to solve the gas problem by reducing the cost of validation and the energy consumption issue by providing a more robust hashing system at a fraction of the energy spend.
Read more about why we locked up 32 ETH and our commitment to helping the blockchain move to PoS.
Recap
Do you feel like you just ran a marathon? Me too. Alright, let’s wipe the brow, grab one of those aluminum blankets, an ice-cold beer, and talk a bit about what we learned.
Web3 looks more like the future of how we’ll interact with each other online every day. Applications like Audius, Streamr, and OpenSea are laying the groundwork for ethical music streaming, owning our data, and buying/selling in a distributed marketplace. As a community and as a technology, blockchain has jumped out of the plane and is rocketing toward earth- the big question is if proof-of-stake will be the parachute that lowers us to the ground safely.
Here at Upstate Interactive, we’re confidently optimistic.
FAQs
We answered a lot of big questions above, but there’s no way we could get to everything. Here are a few common questions we get from friends and clients.
What is the difference between Web3 and Web 3.0?
From about 2010–2016, Web 3.0 referred to things like Artificial Intelligence empowered tech, advancements like IBM’s Watson and Wolfram Alpha. Although those technologies brought about significant advances, they did not replace Web2. Web3 is more than new technology; it’s a reimagining of how the internet functions.
What are some good resources for learning about blockchain & crypto?
There are several fantastic publications, podcasts, and learning series to help you get your knowledge up. The best place to start is the Ethereum website. Their starter packs of expertise are a great source of truth. For everything else, each month, we recommend our favorite articles and more in our newsletter.
How do I interact with apps built on the blockchain?
If you’re only interested in interacting with the apps built using blockchain tech, it should look just like anything else on the internet! If you want to complete transactions, you may need to download and create an online wallet like MetaMask.
Are Ethereum and Bitcoin the only blockchains?
No- Ethereum and Bitcoin are not the only blockchains. Although they are the two most popular, there are many alt-chains that companies can build on. Some companies, like Dapper Labs, develop on their own blockchain.
