To read the first installment of this DeFi Series, click here to learn more about stablecoins, what problems they solve, why we need them and what are some of the associated risks.
Web 3.0 is a fluid concept without a specific definition. It refers to the evolution of the internet from its current state into a new decentralized state by using blockchain technology.
But is this transition even possible? Is it already taking place? Is Web 3.0 the next online Utopia, or is it just a repackaged version of the current Web, designed by Big Tech and VCs (Venture Capitalists) to retain control?
As they say, you can’t move forward without looking back, so let’s take a quick look at how the internet has changed since its inception.
The Evolution of the Internet
Web 1.0: The “Read Only” Internet
It emerged during the PC revolution in the 1990s and enabled users to consume information, news, and write emails. Websites were basic and resembled online brochures, and there were no dynamic links, just the static state of information. During the initial years of Web 1.0, advertising was strictly prohibited.
Web 2.0: The “Read and Write” Internet
Also known as the social web, this enabled users not only to consume, but also to interact and create. This era started around 2005, and it is the current state we know today.
But as the amount of content exploded, a subtle shift of power was beginning to encroach on the space. Open-source protocols such as HTTP (Hyper-Text Transfer Protocol), the standard application-level protocol used for exchanging files on the World Wide Web, started to be replaced by closed APIs such as Facebook’s Open Graph Protocol (which is far from open). Big Tech started collecting and selling personal data to advertisers, essentially making users the product. The network effect escalated fast, feeding on people’s addiction to gratification, online convenience, and free services.
Web 3.0: The “Read, Write and Own” Internet
The migration has begun. Web 3.0 (also referred to as Web3) is all about taking back control, using the internet on our terms, and creating value by realigning incentives. It is about transforming the current state of the Web and turning it into a censorship-resistant decentralized space, where participation is fostered, and financial inclusion is created through an alternative asset and token-based ecosystem.
The consensus seems to be that this can be accomplished by leveraging blockchain technology as the backend infrastructure.
Blockchain technology can be described as a trustless and fully decentralized peer-to-peer immutable data storage that provides an indelible and transparent record of data. The data is stored in a self-regulating digital ecosystem, distributed globally and with no single point of failure. It is decentralized as the entries are not controlled by any one party.
In simple terms, this means there is no intermediary, which removes the need for trust. You do not need to upload private and sensitive data about yourself unless you desire to do so. You can essentially stay completely anonymous, thereby mitigating any risk of your data being shared or sold.
There is no central authority, no one to block, censor, or pull your access due to your opinions, statements, or which camp you belong to.
Web 3.0 data is stored on decentralized ledgers instead of centralized databases, and in essence, just as Apps (applications) use APIs (Application Programming Interface), the dApps (decentralized Applications) use dAPIs (decentralized Application Programming Interface). These are implemented by smart contracts that run on the blockchain.
Decentralized websites, browsers, marketplaces, exchanges, financial products, social media platforms, gaming infrastructure, and so much more has already been developed, launched and is live.
Perhaps the key to the success of Web3 lies within its decentralized token-based ecosystem. This can be said to be true, both in regard to tokens on the underlying blockchains, layer 2 protocols and the ones that are incorporated with the dApps. Thousands of dApps are currently being built for the Web3 environment, and most of these come with native tokens that add value to the ecosystem. It enables users to own part of the network, share the value generated by it, and make decisions that impact that specific protocol ecosystem. This is achieved through governance tokens and DAO Decentralized Autonomous Organisations. The dApp Radar is an excellent resource for those interested in the dApp space.
If you want to learn more about the Token Economy, join us in part 4 of this DeFi Series, where we deep dive into the topic. Stay tuned for the upcoming installments and keep up with the latest updates by following ARYZE on LinkedIn.
Adoption and Limitations
As the space matures and gains traction, it is not only individual users who are set to benefit from it, but also enterprises creating disruptive business models at lightning speed.
In a February 2021 article by Megan Doyle titled “Building A Decentralized Future With dApps”, she highlighted that since 2013 more than $23.7 billion had been invested into early stage blockchain start-ups, and what was more indicative of the disruptive potential was the calibre of the companies investing, such as Oracle, Amazon, Roche, Goldman Sachs, and many more.
Her article went on to talk about what she called “The dAppening” and highlighted that “As dApps opened up more doors for operating companies, businesses no longer needed to ask,
Will the technology work? but instead focused on the question, “how can the technology work for us?”— Megan Doyle
However, these statistics fuel the sentiment of some Web 3.0 critics such as Jack Dorsey, former Twitter CEO, who created a storm in December 2021 when he tweeted,
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. Know what you’re getting into.— Jack Dorsey
His comments are thought to be based on the fact that if blockchain is fueled by its tokens, and decisions are made based on voting rights allocated to those tokens, then the power would essentially be in the hands of those who hold the most tokens. Therefore, large token holders would have a centralized control via a decentralized governance voting mechanism, enabling them to make changes against the community.
The underlying problem lies in regulations preventing non-accredited investors from contributing to early fund-raising rounds. This automatically means that initial investors are high-net-worth individuals or companies who are allocated a large share of the tokens for a low cost.
VC firms such as Andreessen Horowitz have recently been accused of trying to control the supply of tokens in many new blockchain networks, in order to give themselves the same power that the Web 2.0 companies currently have.
Recently, there have been mounting concerns over how decentralized some platforms and ecosystems really are. This concern gained momentum after the decentralized marketplace Opensea helped freeze and recover stollen NFTs (Non-fungible Tokens) and when the Dex (decentralized exchange) Uniswap removed specific tokens due to the possibility that they may be viewed as securities. If these platforms were truly decentralized, this could not have taken place.
The reality is that Web 3.0 in its current state still relies on some of the infrastructures from Web 2.0, such as needing to connect with DNS (Domain Name System) servers to locate decentralized front-end applications in some instances. In addition, by default, many ecosystems need to start out centralized and then, as they mature over time, transition into a more decentralized state.
Many challenges need to be overcome to gain mass adoption. The UX (User Experience) is unfriendly, and interaction is currently reserved for those who have the skill to handle non-custodial Web3 wallets, store private keys, approve crypto transactions and stomach the countless human errors that can be associated with the process.
There are also issues regarding scalability and cost. Decentralized networks are currently slower than centralized servers, and they require a small fee to be paid by the user. The question arises, can people readjust to slower network speeds and are they willing to pay for the services when they have been accustomed to use the web for free.
Updating Web3 dApps requires ecosystem consensus, which will happen slower than adjustments made to centralized applications. But will this be a sustainable structure?
Monica Long, the General Manager of RippleX, spoke at NFT Los Angeles in In March 2022 and said that Web3 had the potential “to empower everyone to retake ownership of their digital identities”. She highlighted her belief that a seamless UX (User Experience), as well as a blend of DeFi (Decentralized Finance) and CeFi (Centralized Finance) is the key to achieving full Web3 adoption. This could very well be what shapes the future of web3.
Blockchain is facilitating a more free and decentralized future. Still, it will most likely incorporate elements of centralization, whether through regulation, tactical token acquisitions or other routes that haven’t even been envisioned yet. One could argue that a complete reset of the current Web 2.0 would not only foster innovation and financial inclusion, but also take back control from those who have held it for too long. Nevertheless, staying updated, current, and informed will be key.
The views and thoughts expressed herein are those of the author taking part in the ARYZE Ambassador Program. They do not necessarily reflect the views of ARYZE or its employees.
Check out our blog or visit our website to learn more about ARYZE, crypto, blockchain, and tokenization. If you liked this article, please comment and share it with your network.