Web3

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When a user accesses a Web3 application, they are interacting with a decentralized network over a blockchain. This graphic comes from: https://github.com/ethereumbook/ethereumbook/issues/376
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Web3 refers to a proposed new decentralized web architecture built upon the concept of blockchains and other related technologies such as cryptocurrencies to deliver a paradigm shift in the world wide web.[1] The original concept and naming of Web3 came about in 2014 from Gavin Wood, a co-founder of Ethereum, who saw the blockchain as the key to a new, decentralized, and democratic web. [2] Proponents of Web3 claim that the current state of the web (Known as Web2 or Web 2.0) is too centralized with massive organizations having total control of platforms necessary for daily life and that Web3 would alleviate these issues. [3] Critics of Web3 point to the energy inefficiencies of blockchain technologies, the security vulnerability of Web3 platforms to large-scale quantum computers, the issue of regulating a widespread decentralized network, and potential Web3-related scams.[4] [5] [1] High-profile figures in the tech industry including Elon Musk and Jack Dorsey have entered the debate and pointed out flaws in Web3. [6] Musk tweeted in December of 2021 to claim that "Web3" was a "marketing buzzword" currently. [6] In another tweet, Dorsey claimed that the vast majority of Web3 startups were controlled by venture capitalists, and Web3 would be centralized in a matter similar to Web 2.0 because of this. [6]

Concept

Web3 is an evolving concept regarding the future of the world wide web. [1] Definitions vary, but Web3 generally refers to the proposal for a decentralized web reliant on blockchain technologies including Smart Contracts, Decentralized Applications, Decentralized Autonomous Organizations, Cryptocurrencies, and Non-Fungible Tokens. [1] Some proponents of Web3 such as Gavin Wood, the co-founder of Ethereum and the individual who coined the term "Web3", see the current state of the web as broken with a significant imbalance of power between organizations and the web users. [2] These proponents look to Web3's decentralization and trustless model as a means to promote a more equal web. [2] Other Web3 proponents such as Li Jin, a crypto investor, and Kaite Parrot, a writer, see Web3 as a new version of the web where the scales of power and ownership can be shifted back towards individual web users. [7]

Evolution of the Web

Beginning in 1989 and throughout the 1990s, the majority of content online was static with little to no interactivity from the user's perspective. [1] [8]As an information delivery system, the web at this time encouraged the growth of some modern tech giants including Yahoo, Google, and Amazon to help web users sift through content online to find the most relevant information or products. [8] Due to its status as the first iteration of the modern, world wide web, this architectural format of the web is now defined as Web 1.0. [1] [8]
The next iteration of the web, Web 2.0, was first coined by Tim O'Reilly in 2005 and signaled the beginning of the cloud-based infrastructure necessary for dynamic web pages and user input. [8] These technological developments led to the emergence of user-generated content and inter-user communication. [9] Similarly, the emergence of social network platforms such as Facebook and Twitter emerged during this phase. [8]
Both Web 1.0 and Web 2.0 rely on the "client-server model" for users to access online content. This design involves the user's web browser making requests to a server and then displaying the response. [1] Proponents of Web3 claim that while this model facilitates interactions between users, the means of communication are controlled by a small number of technology companies. [9] Conversely, Web3 would introduce a "peer-to-peer" architecture built upon blockchain technologies which would create a decentralized web.[1] [9] Proponents of Web3 claim that this architecture would lessen the control of large corporations over the internet landscape. [1]
A decentralized world wide web architecture consistent with the vision held by proponents of Web3 has not been realized (as of February 2023). [1] However, there are a number of Web3-related projects such as Decentraland, Axie Infinity, and OpenSea in the works, and there are many projects with significant financial backing from private venture capital firms. [1] In response to these conditions, certain high-profile figures such as in the technology industry such as Jack Doresy have argued that the control which venture capital firms have over many Web3 startups and projects limits the future of Web3 and prohibits decentralization. [6]
While the vision of Web3 of proponents has not come to fruition, some organizations such as TBD, a subsidiary of Block Inc., are focused on the future beyond web3. [1] [10] According to TBD, where Web 5 will embrace the conveniences of Web 2 while providing control to individual users like Web 3. [11]

Key Technologies

Blockchain

A blockchain is a decentralized digital database that operates across a network of computers. [1] Transactions on blockchains allow agents to transfer value (usually cryptocurrency) without the use of a third-party such as a bank to transfer said assets. [9] Blockchains are dependent upon consensus, peer-to-peer networks, and cryptography. [9] Bitcoin is representative of a prototypical blockchain system and was the first decentralized ledger. [9]

Smart Contracts

Smart contracts are self-enforcing agreements written as immutable programs, where the execution of the smart contract enforces its terms. [9] Since they are stored on a blockchain, smart contracts are public, transparent, immutable, and decentralized. [9] As a result of these factors, after deploying the software to the public blockchain, no one can revise the logic of the program. [12] The use of smart contracts has grown to such a point in recent years that billions of dollars are exchanged daily using them. [12]

Decentralized Applications

Where Web 2.0 applications were centralized and ran on servers, Web3 makes use of decentralized applications (DApps) which are designed to run over a blockchain network. [1] These applications are characterized as being open source to ensure the possibility of third-party audits, internally supporting cryptocurrency, leveraging decentralized consensus to prevent centralized control of the system, and having no central point of failure since the hosting and execution of the app will be decentralized. [12]

Decentralized Autonomous Organizations (DAOs)

A Decentralized Autonomous Organization or DAO is an online group formed for a common purpose and built with blockchain technology. [13] By being built upon blockchain, transactions in the DAO can be completed on the chain, and the governing rules can be encoded with it as well. [1] One well-known DAO is PleasrDAO which is a group of dozens of crypto enthusiasts with the common goal of bidding on and acquiring NFTs and other items from high-level digital artists. [13] PleasrDAO has previously bought works for millions of dollars including an Edward Snowden affiliated NFT and the Wu-Tang Clan Album, "Once Upon a Time in Shaolin". [13] Additionally, an individual's membership in a DAO is often linked to ownership of certain NFTs or cryptocurrencies. [13]

Cryptocurrencies

Cryptocurrency refers to digital currencies where transactions occur over a blockchain network, and the currency itself is not backed by a government. [1] This differs from traditional currencies with are either backed by some underlying, intrinsic value or by a government. [14] Additionally, electronic transactions of traditional forms of currency require a trusted third party (typically a bank or other financial institution) to validate the transaction by ensuring the source owns the commodity being transferred and the recipient actually receives the commodity.[9] [14] Cryptocurrencies differ from traditional currencies in this regard with peer-to-peer transactions where the network users validate each transaction by looking tracing ownership through the blockchain. [9] [14] This validation is commonly referred to as "mining" where members on the network perform the difficult, computationally-intensive task of validating transactions in exchange for cryptocurrency. [14] This process is the mechanism for the creation of new coins. [15]

Bitcoin

In 2008, an anonymous computer programmer or group of computer programmers built created Bitcoin, the first known cryptocurrency, under the name of Satoshi Nakamoto. [14] With a market cap of 447.4 billion dollars (as of February 8th, 2022), Bitcoin is the most valuable cryptocurrency.[16] Bitcoin miners use proof of work as the consensus mechanism for the validation of new transactions. [15] Such mechanisms first group new transactions in blocks, they then have miners compete to solve complex math problems to earn the right to process the block, the miner who wins the right to process the block then processes it, and the miner is awarded bitcoin. [17] The total number of Bitcoins is limited to 21 million, and there are currently 19 million coins in circulation. [17]

Ethereum

Vitalik Buterin launched Ethereum in 2015 to create a cryptocurrency like bitcoin and a distributed network of computers that could be leveraged to perform certain computational tasks decentralized across the network. [18] According to Ethereum's website, a significant difference between Bitcoin and Ethereum is that while Bitcoin is only for performing transactions, the Ethereum network is a general-purpose blockchain capable of running decentralized applications. [19] With a market cap of 200.7 billion dollars (as of February 8th, 2022), Ethereum is the second most valuable cryptocurrency.[16] Like Bitcoin, Ethereum originally launched with proof-of-work as its consensus mechanism. [19] However, Ethereum went through The Merge upgrade on September 15th, 2022 to switch to the proof-of-stake consensus mechanism. [19] Where proof-of-work relies on miners solving computationally intensive math problems, proof-of-stake relies on validators locking up a portion of their cryptocurrency in a smart contract. [17] In exchange for this portion of cryptocurrency (known as the "stake"), the validator is able to validate new transactions on the blockchain and receive the corresponding reward. [17] If the validator improperly validates transactions, then they may lose a portion (or all) of their steak. [17] This switch between consensus mechanisms led to a significant drop in energy usage and carbon emissions. [16]

Wallets

In the context of cryptocurrency, a wallet refers to a store of cryptocurrency, and any owner of a cryptocurrency must use a wallet to store their coins. [15] These wallets can be hot meaning they are online and held by a third-party exchange or provider. [15] Cold wallets exist and refer to offline devices designed to store cryptocurrency. [15] From the perspective of a user of a hot wallet, the mechanisms for accessing, transferring, and accepting cryptocurrency act similarly to how websites may ask a user to log in with a username and password. [14]

Non-Fungible Tokens (NFTs)

Non-Fungible Tokens are unique and non-interchangeable assets whose transactions occur on a blockchain which allows for the ownership of the token to be traced back by any member of the network, verified, and enable their exchange. [1] Within the scope of blockchain technologies, tokens are the blockchain's unit of value. [20] Tokens can represent money in the case of cryptocurrencies, but they can also be attached to tangible or intangible goods. [20]

Criticism

Decentralization Concerns

Considering that a core part of the decentralized Web3 architecture is that decisions are made in a distributive manner and require the cooperation of multiple groups, lawmakers may have difficulty in creating and enforcing regulations. [1] Gary Gensler, chair of the Securities and Exchange Commission, has suggested that existing legislation regarding disclosures and investor protections surrounding traditional assets applies to many crypto assets as well. [7]

Security Concerns

If one's wallet were hacked or if the underlying cryptosystem was broken, then those affected may not be able of using their account and related services. [1] Additionally, both the National Institute for Standards in Technology (NIST) and the National Security Agency (NSA) have warned the public regarding the capability of large-scale quantum computers to break the public-key cryptosystems responsible for keeping internet communication and blockchain networks secure. [5] For reference, where classical computers utilize bits which can hold values of 0 or 1, quantum computers utilize quantum bits or qubits to represent a basic unit of information. [5] To potentially break current cryptographic standards, quantum computers are estimated to require somewhere between 1000 to 3000 qubits at minimum, while the most powerful quantum computer currently (as of November of 2022) houses 127 qubits.[5] One additional related concern is that if personally identifiable information or sensitive data were stored on a blockchain, users would not be able to correct erroneous records. [1]

Scam Concerns

Scams involving Web3 technologies such as cryptocurrencies, NFTs, and DAOs are commonplace, and online anonymity complicates remediation. [1] Molly White, a software engineer, runs a website titled Web3 Is Going Great which tracks instances of Web3-related scams and issues in the news.[21] One such event is the collapse of FTX, a major crypto exchange, as a result of mishandling customer funds.[21] An additional type of scam used involves investors creating excitement surrounding a project, to attract additional investors, and inflate the value of the assets before cashing out and creating a significant price drop. [1]

Web3 as a Buzzword

In December of 2021, Elon Musk wrote a tweet suggesting that while Web3 has an exciting future, it currently exists as a "marketing buzzword". [6] James Grimmelmann, a law and technology professor at Cornell University, has also criticized the Web3 movement by suggesting that Web3 promises to solve all the issues that currently exist in the current state of the internet, but it does so while contradicting itself. [22] Professor Grimmelmann goes on to claim that if the current concern is that Big Tech Companies have access to personal data, then putting said data on a blockchain would make an individual's personal data even more public. [22]

Concentration of Control

While decentralization is core to Web3, a small number of companies control large market shares in the Web3 landscape. [1] In 2021, venture capitalist firms had invested over 27 billion dollars in projects related to Web3. [7] This has led some critics to suggest that the future of Web3 is not leading towards a decentralized future, but towards shifting centralization into different hands. [1] Among these critics is Jack Dorsey, the founder of Twitter and Block (formerly Square), who criticized the Web3 movement on Twitter by suggesting "You don't own 'web3.' The VCs and their LPs do. It will never escape their incentives. It's ultimately a centralized entity with a different label." [6] Dorsey has also pointed out the Andreessen Horowitz venture capital firm as one of the most significant backers of Web3 projects in a tweet by saying "It's somewhere between a and z," in response to a tweet by Elon Musk asking "Has anyone seen web3?" [6]

Environmental Impact of Blockchain

Certain Web3 platforms can use a significant proportion of energy depending on the energy efficiency of the blockchain. [1] The Bitcoin blockchain was estimated to be responsible for approximately 110 Terawatt Hours per year in 2021, equivalent to 0.55% of global energy usage. [4] However, energy consumption does not necessarily equal carbon emissions with the difference varying significantly between regions with global predictions for the proportion of Bitcoin's energy usage ranging between 39 and 73 percent. [4] The Ethereum Blockchain has switched from proof-of-work to proof-of-stake to help alleviate energy usage concerns and reported a decrease from approximately 78 Terawatt Hours per year to 0.0026 Terrawatt Hours per year. [23] These figures were confirmed by a report released by the Crypto Carbon Ratings Institute which estimated that proof-of-stake Ethereum used approximately 2,625.48 Megawatt Hours per year (0.0026 TWh) [16]

References

  1. ↑ 1.00 1.01 1.02 1.03 1.04 1.05 1.06 1.07 1.08 1.09 1.10 1.11 1.12 1.13 1.14 1.15 1.16 1.17 1.18 1.19 1.20 1.21 1.22 1.23 1.24 Busch, K (2022, April 1). Web3: A Proposed Blockchain-Based, Decentralized Web (CRS Report No. IF12075). Retrieved from https://crsreports.congress.gov/product/pdf/IF/IF12075/2
  2. ↑ 2.0 2.1 2.2 Kharpal, A. (2022, April 19). What is 'Web3'? Here's the vision for the future of the internet from the man who coined the phrase. CNBC. Retrieved January 26, 2023, from https://www.cnbc.com/2022/04/20/what-is-web3-gavin-wood-who-invented-the-word-gives-his-vision.html
  3. ↑ Wood, G. (2018, September 12). Why We Need Web 3.0. Retrieved January 26, 2023, from https://gavofyork.medium.com/why-we-need-web-3-0-5da4f2bf95ab.
  4. ↑ 4.0 4.1 4.2 Carter, N. (2021, March 5). How Much Energy Does Bitcoin Actually Consume? Harvard Business Review. Retrieved January 26, 2023, from https://hbr.org/2021/05/how-much-energy-does-bitcoin-actually-consume.
  5. ↑ 5.0 5.1 5.2 5.3 Wintermeyer, L. (2022, November 3). The Silent Quantum Thread to Web3 Cyber Resilience. Forbes. Retrieved January 26, 2023, from https://www.forbes.com/sites/lawrencewintermeyer/2022/11/03/the-silent-quantum-threat-to-web3-cyber-resilience/?sh=646ecd1f7227.
  6. ↑ 6.0 6.1 6.2 6.3 6.4 6.5 6.6 Shead, S. (2021, December 21). Elon Musk and Jack Dorsey are talking about ‘Web3’ – here’s what it is and why it matters. CNBC. Retrieved January 27, 2023, from https://www.cnbc.com/2021/12/21/elon-musk-and-jack-dorsey-are-talking-about-web3-heres-why.html.
  7. ↑ 7.0 7.1 7.2 Ephrat, L. (2021, December 5). Welcome to 'Web3.' What's That? The New York Times. Retrieved February 9, 2023, from https://www.nytimes.com/2021/12/05/business/dealbook/what-is-web3.html.
  8. ↑ 8.0 8.1 8.2 8.3 8.4 Wassamer, S. (2022, September 26). Web3: More Than Just The Metaverse. Forbes. Retrieved January 26, 2023, from https://www.forbes.com/sites/forbesbusinesscouncil/2022/09/26/web3-more-than-just-the-metaverse/?sh=126f252079ab.
  9. ↑ 9.0 9.1 9.2 9.3 9.4 9.5 9.6 9.7 9.8 9.9 Ragnedda, M., & Destefanis, G. (2021). Blockchain: a disruptive technology. In M. Ragnedda & G. Destefanis (Eds.), Blockchain and web 3.0: Social, economic, and technological challenges (pp. 1–10). essay, ROUTLEDGE.
  10. ↑ WEB5. TBD. (n.d.). Retrieved February 10, 2023, from https://developer.tbd.website/projects/web5
  11. ↑ Jones, A. (2022, July 1). What is Web5? [web log]. Retrieved February 10, 2023, from https://developer.tbd.website/blog/what-is-web5.
  12. ↑ 12.0 12.1 12.2 Cai, W., Wang, Z., Ernst, J. B., Hong, Z., Feng, C., & Leung, V. C. (2018). Decentralized applications: The blockchain-empowered software system. IEEE Access, 6, 53019–53033. https://doi.org/10.1109/access.2018.2870644
  13. ↑ 13.0 13.1 13.2 13.3 Roose, K. (n.d.). What are DAOs? New York Times. Retrieved February 8, 2023, from https://www.nytimes.com/interactive/2022/03/18/technology/what-are-daos.html.
  14. ↑ 14.0 14.1 14.2 14.3 14.4 14.5 Perkins, D (2020, April 9). Cryptocurrency: The Economics of Money and Selected Policy Issues (CRS Report No. R45427). Retrieved from https://crsreports.congress.gov/product/pdf/R/R45427/3
  15. ↑ 15.0 15.1 15.2 15.3 15.4 Ashford, K. (2022, June 8). What Is Bitcoin And How Does It Work? (F. Powell, Ed.)Forbes. Retrieved February 8, 2023, from https://www.forbes.com/advisor/investing/cryptocurrency/what-is-bitcoin/.
  16. ↑ 16.0 16.1 16.2 16.3 CCRI Crypto Sustainability Indices. Crypto Carbon Ratings Institute. (2023, January 26). Retrieved January 26, 2023, from https://indices.carbon-ratings.com/
  17. ↑ 17.0 17.1 17.2 17.3 17.4 Napoletano, E. (2022, April 8). Proof of Work Explained. (B. Curry, Ed.)Forbes. Retrieved February 8, 2023, from https://www.forbes.com/advisor/investing/cryptocurrency/proof-of-work/.
  18. ↑ Popper, N. (2017, June 19). Move over, Bitcoin. ether is the digital currency of the moment. The New York Times. Retrieved February 8, 2023, from https://www.nytimes.com/2017/06/19/business/dealbook/ethereum-bitcoin-digital-currency.html
  19. ↑ 19.0 19.1 19.2 What is Ethereum? ethereum.org. (2023, February 7). Retrieved February 8, 2023, from https://ethereum.org/en/what-is-ethereum/
  20. ↑ 20.0 20.1 Kevin, R. (n.d.). What are NFTs? New York Times. Retrieved February 8, 2023, from https://www.nytimes.com/interactive/2022/03/18/technology/nft-guide.html.
  21. ↑ 21.0 21.1 White, M. (n.d.). Web3 is Going Just Great. Retrieved February 10, 2023, from https://web3isgoinggreat.com/
  22. ↑ 22.0 22.1 Ashford, K. (2022, June 8). What Is Bitcoin And How Does It Work? (F. Powell, Ed.)Forbes. Retrieved February 8, 2023, from https://www.forbes.com/advisor/investing/cryptocurrency/what-is-bitcoin/.
  23. ↑ Ethereum Energy Consumption. ethereum.org. (2023, January 23). Retrieved January 26, 2023, from https://ethereum.org/en/energy-consumption/
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