What is Web3? Understanding the Decentralized Web

What Is Web3: The Decentralized Web's Future?

Final: What is Web3?

Web3 is not just a buzzword or a passing trend; it represents a seismic shift in how we interact with the internet.

The rise of Web3 has been fueled by a growing desire for a more democratic and inclusive internet, free from the influence and control of large tech companies.

As more and more people become disillusioned with the centralized nature of the current internet, Web3 offers a powerful alternative that puts users back in control.

But will it stand the test of time? Can it deliver on its promise of a more equitable and open internet? Will blockchain technology pass the scalability test?

Experts say Web3 will be worth $81.5 billion in value by 2030. Therefore, we expect continued growth and innovation in this space.


Key Highlights

  • Web3 represents a seismic shift in how we interact with the internet, where power shifts from centralized platforms to individuals, creating a more equitable and open internet.
  • The key technologies of Web3, like cryptography, decentralized networks, and smart contracts, offer significant benefits such as increased privacy, security, and interoperability.
  • Web3 has many potential applications, from decentralized finance (DeFi) to supply chain management, gaming, and social media, with new business models and revenue streams emerging.
  • The future of Web3 is full of exciting possibilities, including the increased adoption of decentralized applications (dApps), the emergence of new Web3-based social networks, and the development of new business models that prioritize privacy and security.
  • While Web3 offers many benefits, there are risks and challenges to be aware of, including the inability to delete information permanently, the potential for data breaches and hacks, and regulatory challenges.


What is Web3?

Final: What is Web3?

In simple terms, Web3 (Web 3.0 or the decentralized web) is a set of technologies and protocols that enable decentralized applications (dApps) and smart contracts to operate on a peer-to-peer network.

This network is built on blockchain and other distributed ledger technologies, which provide a secure and transparent means of exchanging information and value without intermediaries.

One of its key features is its focus on user control and autonomy.

With Web3, users have greater agency over their data, identity, and digital assets, which promotes a more equitable and inclusive internet that serves the needs of all users, not just a select few. This puts users back in control and promotes a more democratic and transparent internet that empowers individuals and communities.

Unlike Web 2.0, which relies on centralized platforms and intermediaries to manage our data and online interactions, Web3 offers a more decentralized and autonomous alternative.

With Web3, as an individual, you will not rely on centralized platforms to access content, transact, or interact with each other. Instead, you will be able to transact directly in a peer-to-peer network.

“Web 3.0 is the decentralized web, where the power will shift from centralized platforms to individuals, creating a more equitable and open internet.

—Joe Lubin, Co-founder of Ethereum

Key Technologies of Web3

How exactly does Web3 work, and what are the key technologies that make it possible?

Decentralized Networks

Decentralized networks are at the heart of Web3. They enable users to transact directly with each other in a peer-to-peer network without the need for intermediaries.

These networks are built on blockchain — distributed ledger technologies — which provide a secure and transparent means of exchanging information and value.

One key example of decentralized networks is peer-to-peer lending platforms, which enable borrowers and lenders to connect directly with each other without the need for traditional banking intermediaries.

Smart Contracts

Imagine a world where contracts are legally binding and self-executing, automatically enforcing their terms without the need for intermediaries.

This is the world of smart contracts. This groundbreaking technology can potentially revolutionize how we transact with each other.

A smart contract is a program that automatically executes the terms of a contract when certain conditions are met. These conditions can range from a simple exchange of value to more complex scenarios, such as transferring digital assets or fulfilling certain contractual obligations.


Cryptography sounds like something out of a spy movie or a science fiction novel.

And you may have heard of Caesar cipher, which involves shifting the letters of a message by a certain number of positions in the alphabet.

For example, if we shift the letters in the message “HELLO” by three positions, we get the encrypted message “KHOOR.” While this technique is very basic and easy to crack, it demonstrates the fundamental principles of cryptography: changing the form of a message to make it unreadable without a key.

Web3 uses more advanced and sophisticated cryptographic techniques, like:

  • Public-key and private-key cryptography
  • Hash functions
  • Digital signatures


Interoperability enables different blockchain networks and decentralized applications (dApps) to communicate and exchange data with each other.

Without interoperability, Web3 would be a fragmented and siloed ecosystem, with each blockchain network and dApp operating independently.

To ensure interoperability, Web3 relies on various protocols and standards that enable different networks and dApps to communicate seamlessly and securely. These protocols and standards include:

  • The InterPlanetary File System (IPFS)
  • The Ethereum Virtual Machine (EVM)
  • The Open Systems Interconnection (OSI) model, among others.

Interoperability enables greater collaboration and innovation among developers and entrepreneurs while also promoting greater user choice and control.

Decentralized Applications (dApps)

Unlike traditional applications that run on centralized servers and are controlled by a single entity, dApps run on decentralized networks like the blockchain. They are controlled by a decentralized community of users.

They represent a new paradigm for building and deploying applications on the internet.

Here are a few examples of Decentralized Applications, or dApps:

  • Uniswap – This decentralized exchange allows users to trade cryptocurrencies without needing a centralized exchange. It uses an automated market maker (AMM) model, where users can swap tokens using smart contracts.
  • OpenSea – OpenSea is a marketplace for buying and selling non-fungible tokens (NFTs), such as digital art, collectibles, and in-game items. Creators and collectors interact with each other directly without the need for intermediaries or centralized platforms.
  • Augur – Augur, built on the Ethereum blockchain, is a prediction market platform that enables users to create and participate in prediction markets on any topic, from politics to sports to finance.

These apps promote greater innovation and collaboration among developers and entrepreneurs. This is because they can be built and deployed on a global scale without having to worry about geographic restrictions or regulatory hurdles.


Challenges and Limitations of Web3

Despite its potential to transform the internet, Web3 still faces several challenges and limitations that must be addressed for it to reach its full potential.

Web3 also faces many skeptics who don’t give it a chance.

For example, Tim Berners-Lee, the inventor of the World Wide Web, says, “It’s a real shame, in fact, that the actual Web3 name was taken by Ethereum folks for the stuff that they’re doing with blockchain. In fact, Web3 is not the web at all.”

Let’s explore some of the key challenges and limitations of Web3.

1. Technical Complexity

Technical complexity poses a barrier to entry for many potential users and developers, as the learning curve for Web3 can be steep.

The decentralized nature of Web3 also means there is no central authority to turn to for technical support or guidance, making it challenging for users and developers to troubleshoot issues or get the help they need.

According to Electric Capital, at the end of 2021, Web3 projects had 18,000+ monthly active developers. For context, in Q3 of 2021, JavaScript had 16.4 million developers.

This is a very small pool of developers. However, the pool has been growing year over year, which is a sign of good things to come.

Web3 pool of developers

2. Scalability

Scalability refers to the ability of a blockchain network to handle large volumes of transactions and users without sacrificing speed or security.

While some blockchain networks have made significant strides in improving their scalability, the reality is that many networks still struggle to handle the demands of a global user base.

For example, Ethereum, one of the most popular blockchain networks, can currently handle around 30 transactions per second (TPS), compared to Visa’s capability to handle up to 24,000 TPS.

Therefore, as more users and applications join these networks, the strain on their limited capacity can lead to congestion, slower transaction times, and higher fees. These issues will make it difficult for developers to build scalable and user-friendly decentralized applications and for users to interact with these applications seamlessly and efficiently.

3. User Adoption

Web3 is still relatively unknown to the general public.

Harvard Business Review did a poll on LinkedIn asking, “Do you know what Web3 is?” The results showed that only 31% of the respondents knew what Web3 is.

Final: What is Web3?

This lack of awareness is partly due to the fact that blockchain technology and decentralized networks are still in their early stages of development, and many people are not yet familiar with their capabilities and potential.

Moreover, even for those aware of Web3, several barriers to entry can make it difficult to use effectively.

These include the need to hold and manage cryptocurrencies, which can be daunting for those unfamiliar with this technology, as well as the lack of user-friendly interfaces and applications.

To address these challenges, the Web3 community is working to develop more intuitive and accessible interfaces and tools, and resources to educate users on how to use these technologies effectively.

For example, decentralized finance (DeFi) protocols are being developed that offer more user-friendly interfaces and easier access to financial services, such as lending and borrowing.

4. Regulation

With great power comes great responsibility.

One of the key challenges of regulating Web3 is the lack of clear jurisdictional boundaries.

This is because Web3 operates in a decentralized and global environment. Therefore, this makes it difficult for regulators to establish and enforce clear guidelines across different jurisdictions. This creates regulatory uncertainty, which often is a barrier to investment and innovation in this space.

Web3 raises important questions about privacy, data protection, and the potential risks associated with using decentralized networks and smart contracts.

Therefore, some jurisdictions are taking a more proactive approach to regulating this technology, like developing sandboxes and other regulatory frameworks to encourage innovation while also managing risk.

For example, the UK government launched a regulatory sandbox for digital currencies and distributed ledger technologies. This allows startups and other businesses to test new products and services in a controlled environment.

The sandbox provides a framework for businesses to experiment with new technologies and business models while ensuring appropriate safeguards are in place to protect consumers and manage risk.

It’s my ambition to make the UK a global hub for crypto asset technology, and the measures we’ve outlined today will help to ensure firms can invest, innovate and scale up in this country.

—Rishi Sunak, Chancellor of the Exchequer, 2022

Applications of Web3

Final: What is Web3?

Web3 can potentially transform various industries and applications, from finance and commerce to social networking and online gaming.

Some of the potential applications of Web3 include:

1. Decentralized Finance (DeFi)

Decentralized Finance, or DeFi for short, is perhaps one of the most exciting and rapidly growing applications of Web3. It offers a glimpse into the potential future of the financial industry.

This is where smart contracts will replace intermediaries, and decentralized peer-to-peer networks will disrupt traditional financial institutions.

DeFi applications built on Web3 networks like Ethereum already offer various financial services, including lending and borrowing, trading, and asset management, without intermediaries such as banks or brokerages.

With DeFi:

  • You can send money around the globe without the hassle
  • You can borrow money with privacy – Unlike in traditional banking, where they need to know everything about you.
  • You can start your saving journey – Your crypto will start earning you interest
  • You have access to stable currencies

And as the DeFi ecosystem continues to grow and mature, we will likely see many more innovative and disruptive applications emerge. This will create new opportunities and challenges for businesses, consumers, and regulators alike.

2. Gaming

Web3-powered games offer players unprecedented control over their in-game assets and experiences.

In Web3-powered games, players truly own their assets, allowing them to be bought, sold, and traded on open markets, much like cryptocurrencies. This means that players monetize their time and effort spent in the game. This creates new opportunities for entrepreneurship and value creation.

For example, in Axie Infinity, players collect and breed fantasy creatures called Axies. These creatures can be bought, sold, and traded on a marketplace powered by the Ethereum blockchain. The game has its native cryptocurrency, AXS, which can be earned by playing it and participating in governance activities.

3. Supply Chain Management

Supply chain management may not be the first thing that comes to mind when you think of Web3, but the potential for this technology to transform supply chain management is significant.

One interesting example of Web3-powered supply chain management is the IBM Food Trust. This blockchain-based platform allows companies to track the origin and journey of food products from farm to table.

Amway Connections reports, “63% of 2000 Americans surveyed said they would pay up to 36% more for responsibly made and transparently sourced products.”

So by using blockchain technology, IBM Food Trust can provide a verifiable record of the product’s journey, ensuring greater transparency and accountability in the food supply chain. Additionally, the platform helps to prevent food fraud and contamination, which can have serious health and financial consequences.

Beyond the food industry, Web3-powered supply chain management can also enable more efficient and cost-effective operations in logistics, manufacturing, and retail industries.

4. Identity Management

Identity theft and data breaches are becoming increasingly common in our digital world.

In Web3, you won’t need separate usernames and passwords for every website or service you use. Instead, you’ll have a single digital identity that you can use to authenticate yourself across the internet.

Also, by eliminating the need for multiple usernames and passwords, Web3-powered identity management simplifies the user experience and makes navigating the internet easier.

5. Social Media

Web3 also has the potential to revolutionize social media by creating more open and decentralized alternatives to traditional platforms like Facebook and Twitter.

Today’s social media is concentrated in the hands of a few large tech companies. These companies have faced significant criticism for their handling of user data, privacy, and content moderation. This has led to concerns about the centralization of power and the potential for these companies to abuse their position of dominance.

In 2018, it was revealed that Cambridge Analytica, a political consulting firm, had harvested data from millions of Facebook users without their consent. This led to a major scandal and raised questions about Facebook’s data protection practices.

In contrast, Web3-powered social media has the potential to create a more decentralized and user-centric approach to social networking.

For instance, some Web3 social media platforms use blockchain-based token incentives to reward users for creating and curating content. This provides an alternative to the traditional advertising-based revenue model of centralized social media platforms.


Future of Web3

What does the future hold for Web3?

Some believe that Web3 will become the dominant paradigm for the internet, ushering in a new era of decentralization and democratization.

Web3 will house our financial institutions, social interactions, personal identities, and much, much more in the not-so-distant future.

—Lior Messika, founder and managing partner, Eden Block

Others are more skeptical, pointing to the technical and regulatory challenges that must be overcome before Web3 can achieve widespread adoption.

Once a distributed ecosystem centralizes around a platform for convenience, it becomes the worst of both worlds: centralized control, but still distributed enough to become mired in time.

—Moxie Marlinspike, founder of Signal

Below are some potential developments that could impact the future of Web3:

Decentralized Applications (DApps) Could Become The Norm

As more developers and users become familiar with the benefits of DApps, it’s likely that we will see an increase in their adoption and usage.

In addition, developing interoperability protocols and standards will make it easier for DApps to communicate and work together seamlessly, further fueling their growth and adoption.

However, there are still challenges that must be addressed, such as scalability and user experience, before DApps can become the norm. But with continued innovation and investment in this area, we may see a future where DApps are the go-to applications for users across the internet.

The Rise Of Web3-Based Social Networks

When you’re using traditional social media platforms like Twitter or Facebook, you just scroll through your timeline, consuming content without getting any compensation.

But with Web3-based social networks, users will potentially earn rewards for their contributions to the network, whether through creating content, curating it, or providing feedback. This has the potential to create a more sustainable and equitable model for social media, where users are not just passive consumers but active participants with a stake in the platform’s success.

Additionally, the decentralized nature of Web3-based social networks could help address some issues with centralized social media, such as data privacy concerns and censorship.

The Emergence Of New Business Models

As the world continues to embrace Web3, we’re likely to see new business models emerge that challenge the traditional ways of doing things.

This could include innovative approaches to funding and revenue generation, as well as the development of new decentralized marketplaces and platforms.

Some of the new business models enabled by Web3 technology include:

  • NFT Marketplaces - NFT marketplaces like OpenSea and SuperRare allow creators to directly sell their unique digital creations, such as artwork or collectibles, to buyers.
  • Decentralized Exchanges (DEXs) - DEXs allow users to trade cryptocurrencies without the need for centralized exchanges, which can be vulnerable to hacks and have a history of poor customer service. DEXs operate on decentralized protocols and use smart contracts to facilitate trades.
  • Decentralized Autonomous Organizations (DAOs) - DAOs are organizations run entirely on a blockchain with no central authority or management. They use smart contracts to automate decision-making processes and allocate resources. DAOs like MolochDAO and MetaCartel are exploring new community-based funding and governance models.
  • Content Monetization - Web3 technology enables new content monetization models, such as microtransactions and pay-per-use. Platforms like Brave browser and Coil allow users to pay content creators directly for their work, bypassing traditional ad-based revenue models.

With Web3, the possibilities are endless, and we’re only just scratching the surface of what’s possible.

Increased Privacy And Security

Web3 offers a more secure and private internet experience. In Web3, data is encrypted and stored on a distributed network, making it much harder for hackers and bad actors to access and exploit.

Additionally, users have greater control over their data and can choose to share it only with trusted parties, creating a more secure and private online environment.

One example of this is the use of zero-knowledge proofs, which allow users to prove that they have certain information without actually revealing that information. This technology has the potential to revolutionize online identity verification, allowing users to prove their identity without having to share sensitive personal information.

Final: What is Web3?

Overall, Web3 promises to address many privacy and security concerns plaguing the current Web 2.0 internet. As more and more people become aware of the risks of centralized platforms and the potential of Web3, we can expect to see greater demand for a more secure and private internet experience.


What Lies Ahead

Web3 is a revolution that promises to transform how we interact with the internet.

However, the road to the decentralized web has challenges and limitations. Technical complexity, scalability, user adoption, and regulatory issues are just a few of the obstacles that must be overcome.

Nonetheless, many experts believe that the potential benefits of Web3 outweigh the challenges and that it’ll continue to gain momentum in the years to come.

So, as we move towards a Web3 future, it’s important for you, as a website developer and other stakeholders, to stay informed about the latest developments in this space.

For the best website builders and web hosting services, check out HostAdvice for helpful advice and guidance on building your Web3 presence.


Next Steps: What now?

  • Educate yourself further on the key technologies of Web3, including decentralized networks, smart contracts, cryptography, interoperability, and decentralized applications (dApps).
  • Stay up-to-date with the latest news and developments in the Web3 space by following reputable sources such as industry blogs and newsletters.
  • Explore some potential applications of Web3, including decentralized finance (DeFi), gaming, supply chain management, and identity management, to see how they could benefit you or your business.
  • Consider investing in Web3 technologies or cryptocurrencies, but do your research and seek professional financial advice before making any decisions.
  • Join online communities and forums dedicated to Web3 to connect with like-minded individuals and learn from experts in the field.
  • Get involved in the development of Web3 by learning how to code or contributing to open-source projects.
  • Support the growth of Web3 by spreading awareness and advocating for a more decentralized and equitable internet.


Further reading – Useful Resources

Frequently Asked Questions

What are the differences between Web3 and Web2?

Web2 is characterized by the dominance of large tech companies and a centralized approach to data management, whereas Web3 prioritizes decentralization and user control over data.

Web3 also utilizes new technologies like blockchain and smart contracts to facilitate trustless user interactions. On the other hand, Web2 relies on centralized intermediaries to facilitate transactions. Ultimately, Web3 represents a shift towards a more open, democratic, and secure internet, where users have greater control over their digital lives.

What are the benefits of using Web3?

Web3 offers several benefits over Web2, including:

  1. Decentralization – Web3 is built on decentralized networks, giving users more control over their data and digital assets.
  2. Increased privacy and security – Web3 uses advanced cryptography and other security measures to protect user data and prevent hacking and data breaches.
  3. Improved user experience – Web3 applications are designed to be more intuitive and user-friendly than traditional web applications.
  4. New business models – Web3 enables new forms of value creation and exchange, such as decentralized finance (DeFi) and non-fungible tokens (NFTs).
  5. Open and transparent – No central authority controls the network or its users.
What are the key elements of a successful Web3 project?

To rate a Web3 project as successful, it should strongly focus on decentralization, privacy, security, and a commitment to user control and data ownership.

The project should also prioritize using key technologies such as cryptography, smart contracts, and interoperability.

Additionally, a successful Web3 project should have a clear use case value proposition and a well-designed user interface to ensure ease of use and adoption. Finally, collaboration with the wider Web3 community is also important for a successful project, as this can lead to sharing ideas, knowledge, and resources.

What are the risks?

Like any new technology, Web3 also comes with its own set of risks and challenges.

One of the risks associated with Web3 is the inability to delete or remove content once published on the decentralized network.

This means social media posts, for example, may remain online indefinitely and can be difficult to remove or edit once uploaded. This poses a particular challenge for individuals who may want to remove or delete content they find objectionable or harmful, such as revenge porn or other harmful content.

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