What is Web3?

You have likely seen the phrase “Web3” pop up in either your news or social media feeds at least a few times over the past months. So what is Web3? Why do you often hear it mentioned with the term?metaverse? These are especially pertinent questions for businesses whose interactions with customers take place over the internet. We created this short brief to help you understand what Web3 is, how it differs from Web1 & Web2, and how it relates to other new technologies.

If there is a Web3, what were Web1 and Web2?

Web1?refers to the earliest stages of the public internet. During this stage, websites were widely relegated to being “read-only,” in the sense that there was minimal interaction between the website and the user. As a result, the Web1 era largely limited service providers to only be able to offer information to customers, rather than provide services such as shopping, entertainment, and so on due to the lack of?web enabled software.

Web2?has been the present state of the internet for roughly the past two decades, with this stage being known for “read-write.” Unlike the Web1 era, Web2 is centered around user interaction. Thanks to the proliferation of web enabled software, end-users now generate much of the content online (i.e. social media), and the internet is used for commercial opportunities such as retail, entertainment (i.e. streaming, gaming), networking, and advertising (not common during Web1).

What is Web3 then?

Web3 is the next stage of the internet, which has started to originate over the last couple of years due to the emergence of blockchain technology. Web3 is built over decentralized protocols, on blockchains such as?Bitcoin,?Ethereum, and?Avalanche?to name a few. These blockchains are powered by and maintained through the use of consensus mechanisms such as?Proof-of-Work?or?Proof-of-Stake, and through?nodes. These protocols are governed by participants and stakeholders, which is represented in a decentralized manner such as through mining power or through the ownership of?tokens?or?cryptocurrencies. Web applications built over these blockchains are?decentralized?applications?(referred to as DApps), whereas Web2 applications are controlled by centralized entities (i.e. Facebook/Meta or YouTube), thus data ownership is consigned to the centralized entity that hosts and owns the application the user is utilizing. In Web3, DApp’s are hosted on the previously mentioned decentralized blockchains through?smart?contracts, meaning the data storage is decentralized. Smart contracts are self-executing and irreversible contracts, which serve as the de facto terms and conditions for their respective application, operating in a fair and transparent manner.

While Web1 was read-only, and Web2 was read-write, Web3 is centered around?read–write-own. In Web2, users generated the content while the host had full control over the data. For instance, if you posted a comment on a social media page, you did not own the content – you could be booted from the platform or have your comment removed if the platform operator deemed you had violated their terms and conditions. Furthermore, the platform operator is usually free to monetize your data by selling it to 3rd parties. In Web3, data ownership is not retained by the platform operator but rather by the network and its stakeholders, hence read-write-own.

How does Web3 provide value for users?

Due to Web3 resting on blockchain technology, a cornucopia of opportunities exist for end users. Users can generate value by receiving rewards through helping secure the pertinent blockchain, either by participating as a miner, or by staking cryptocurrencies they hold. Through smart contracts, users can earn income through actions such as providing liquidity for trades, creating scarcity through NFTs, and more. There is also?interoperability?due to DApps sharing the same underlying blockchain (i.e. all DApps on the Ethereum blockchain). What this means is that functions of one application are able to interact with functions on other applications as long as they are based on the same blockchain.

NFT refers to non-fungible token, a non-fungible token is a unit of data that exists upon a blockchain (such as Ethereum). Non-fungible means that the token is unique – for an example of something that is fungible, you can exchange a Bitcoin with another Bitcoin and they are fundamentally the same thing. A non-fungible token cannot be swapped out with another non-fungible token. NFTs are commonly associated with digital art, however they can also be used to represent in-game assets for video games, such as digital plots of land or clothing for players’ avatars. Some services, such as?PartyBid, use smart contracts to allow individuals to pool their capital together when purchasing NFTs. This enables users to acquire partial ownership of assets they might not otherwise be able to afford.

One way this will provide value for users is through what is known as?play-to-earn. Play-to-earn is the concept of video game players earning income (in the form of tokens and NFT’s) by playing the video game. Completing actions in the game, or by holding certain in-game assets, rewards players with in-game tokens. These token and NFT assets can then be exchanged for other cryptocurrencies or fiat currencies. Tokenizing in-game assets empowers users by turning what was once a sunk-cost purchase (i.e. purchasing a?loot?box), into digital assets that the user solely owns. From there the user is able to trade or sell these digital assets to other players if they no longer want the digital items.

How does Web3 relate to other new technologies?

Newer technologies such as blockchain and metaverse are central to Web3. But while they share many characteristics, they do not necessarily mean the same thing. Web3 relies on blockchain technology, as Web3 is oriented around bypassing consolidated data silos (i.e. tech giants) through having data be distributed across peer-to-peer networks.

Blockchain technology does not rely on Web3 however. Many applications will likely be a crossover of Web2 and Web3. As an example, take the?Brave?web browser. Brave’s browser by default blocks advertisements – however users have the ability to toggle ads on, and in-exchange Brave shares 70% of the advertising revenue with the user. This is done through their BAT token, using a smart contract over the Ethereum blockchain. Another popular example is?OpenSea, which is the largest NFT marketplace.

Web3 does not necessarily rely on the metaverse and vice versa. As is the case with blockchain technology, there will likely be a substantial mixture of Web2 and Web3 with metaverse applications. Companies like Meta are focusing on offering centralized metaverse solutions for things such as workspaces in addition to the more talked about gaming metaverse applications. Much of the metaverse will certainly be Web3 and utilize blockchain technology due to the benefits of tokenizing digital assets.

Will Web3 impact iGaming?

We’re not sure what type of impact Web3 will have on iGaming as it’s not readily apparent. Rather than being exclusive built for Web3, the more likely outcome is that the iGaming industry adopts a mix of Web2 and Web3. This is in part because iGaming is inherently a centralized industry with regulations varying widely across the globe and with liquidity being an important factor for sportsbooks. However, Web3 is all about user empowerment and for most of the 21st century iGaming companies have focused their innovation efforts on back-end developments to boost data analytics and marketing capabilities – which are not inherently (or even usually) bettor-centric improvements. Due to the advancements in technology, iGaming companies have an excellent opportunity to heed the call of user empowerment and improve their offerings to bettors through the use of technologies such as?on-chain?wagering?and?Provably?Fair?mechanisms.

Web3 caveats

It is important to note that Web3 is not fully decentralized, which is in part by user choice. Most creators and users do not wish to run their own node on a blockchain due to the resources and time required to do so. Instead they focus their efforts on creating applications or for ease of use. Additionally, there is a power imbalance when it comes to?mining?power, and to?token?ownership, where centralized entities (such as companies devoted to crypto mining, or venture capital firms participating in coin offerings) can dwarf other stakeholders. Even so Web3 offers a drastic change in the power dynamics for users, as unlike in Web2 where a centralized entity is all powerful for their application, in Web3 centralized entities are competing amongst themselves in addition to all of the individual stakeholders on the network.

There is also a common public critique of NFT art from those unfamiliar with blockchain technology – which is that someone can simply save or copy the image, or even create a counterfeit NFT (i.e. creating a different NFT token utilizing the same image the original artist created). These critiques rarely take into account that forgery and trademark violations have been a perpetual issue in the physical world. Moreover these concerns when related to NFTs are a moot point – users are able to guarantee the authenticity of the NFTs they are acquiring thanks to the blockchain. Blockchains maintain an immutable record of ownership every time a token or cryptocurrency is transferred. Since these records are publicly accessible, a user is easily able to verify that their purchase is authentic. Those purchasing NFT’s should also ensure they are not running afoul of any relevant regulations. Some NFT’s are designed to be fractional, in a manner similar to a timeshare. This falls into a grey area of regulations, particularly in the US, as this potentially renders the given NFT a security.

TLDR

The next iteration of the web is here. Make sure your business is able to migrate from legacy technologies and contact?[email protected]?today