By Nico Lethbridge
Web3: it’s a phrase that seems to be everywhere at the minute. You may not have heard the exact term itself, but you’ve probably come across all the relevant bits that make up this new era of the web: things like cryptocurrencies, non-fungible tokens and blockchains. Given that its advocates say it’s the future of mankind, it’s probably worth getting our heads around. In truth though, the concept is still pretty vague and many of the things people talk about don’t fully exist yet. But this is exactly the reason why it’s important to get to grips with Web3 - so that hopefully we can all have a say in where it’s heading.
So what is it? Well, the clue is in the name: web three. It’s best to think of it as an era and its name carries on from the two ‘web’ eras before this. Web1 or Web 1.0. (to use its full name) was what was invented by Tim Berners-Lee back in 1991. It allowed people to access static pages of information, like news or articles, on websites. Many people saw this as an extraordinary invention that would allow humanity to escape government tyranny and truly democratise information. “This is for everyone”, Berners-Lee famously said.
If Web1 was about reading and Web2 about writing, then Web3 is all about owning. In the words of venture capitalist and Web3 advocate Chris Dixon, “Web3 is the internet owned by the builders and users, orchestrated with tokens.” Its aim is to decentralise the internet, moving the power away from controlling corporations and ‘middlemen’. By using blockchain it would hand the ownership of personal data back to the people who created it - namely, us.
This all sounds great, so let’s take a little look at exactly how this great revolution is going to happen. The main backbone of Web3 is the blockchain, so it’s worth knowing a bit about it.
Blockchain is a chain made up of blocks (makes sense!). Each block contains the data from any new transactions and when that block is full it closes and creates a new block. As a result, you end up with all the data from every transaction securely stored in these blocks. They can’t be altered so it’s not only secure but it’s also accurate. The chain is stored across all the many computers in the network so no one company or government can control it. In other words, it’s decentralised.
Lots of things can be run on the blockchain, things like decentralised apps or ‘dapps’. According toEthereum themselves, these are apps “that allow anyone to participate without monetising their personal data.” However, the most important elements running on the blockchain are the tokens. There are two types of tokens and both will be central to Web3: fungible tokens aka currencies (Bitcoin, Ethereum etc) and non-fungible tokens or NFTs. Because of the secure data storing of the blockchain, any transactions or proof of ownership are hardwired into the chain and can be easily proved. That means that if I buy a massive new sword in a game, no one can tell me it’s not mine.
There are several different ways people might attain said tokens - you can buy them on platforms like Coinbase or you can earn them. Many decentralised autonomous organisations (or DAOs for short) which are basically member-owned companies, central to the fabric of Web3, reward content creation with their own special tokens. This means that you get rewarded for being involved in the organisation, and for doing things like posting regularly or helping write the code. Tokens can be used to access voting rights in company decisions, buy digital assets, or they can be traded for different tokens. If you’re old fashioned or just fancy a couple of quid to get a pint, you could even trade them out for physical currency.
On top of that, any data that users accrue while using the internet - things like their shopping history, music tastes or political opinions - are owned by that person. They can sell it or protect it, but the decision is entirely theirs. In theory - that means no government or corporation can access it without their outright permission.
So, all in all, it sounds brilliant. Out with Facebook and Google and in with collectively owned decentralised organisations. So where’s the catch?
Well, there are several. However, many of them come down to a matter of perspective, and since Web3 is so undefined and much of it doesn’t fully exist yet a lot of fear is just speculation. Nevertheless, there are definitely elements of Web3 that very much do exist. Cryptocurrencies and NFTs both have their flaws and might give indications of what’s to come if left unchecked.
The outspoken critic Professor Scott Galloway of NYU Stern School of Business is a good person to consult on this. One of his main issues is the crazily unequal distribution of all this newfound digital wealth. “If it were a country”, he points out, “Bitcoin would have the greatest inequality in the world.” In fact, roughly2% of bitcoin owners own 71.5% of the entire cryptocurrency. To be fair, equality was never one of the main arguments in favour of Web3 technologies. Removing the ‘middleman’ was, yet it doesn’t seem to be doing that much justice. In December 2021 - Coinbase, the platform used by many for trading cryptos, oversaw53% of all transactions. In UK law a firm only needs 25% of market share to be legally a monopoly, so that’s hardly the great decentralisation that was promised.
It is even worse in the world of NFTs. In the last year while NFTs have been exploding, trading platform OpenSea captured a whopping 97% of the market. That’s even more than Google has of the search engine market (it has 92%). The traditional art world, for all its many faults, employs millions of people worldwide, giving each one of them a tiny piece of agency in the industry. OpenSea, as of November 2021, employs 93 people. Sounds like instead of removing the gatekeepers, there’s just been a changing of the guard.
Then there is the fact that the decentralised nature of the main cryptocurrencies requires enormous amounts of computing power, which in turn requires enormous amounts of energy. This has been a headline contention for the crypto world and one which advocates promise will sort itself out. Nevertheless, the facts are shocking. Buying an NFT on Ethereum has been estimated to use the same amount of energy as the average EU household consumes in a whole month. Likewise, Bitcoin alone consumes more energy than the entire country of Norway (133.38 terawatt hours per year). There are solutions to this issue but with the frightening threat of climate change already damaging large swathes of the world, it’s difficult to trust the benevolent intentions of the main cryptocurrencies when they display such a blatant disregard for the environment.
The money side of things also suggests it’s not all as benevolent as it’s made out to be. One of the most progressive ideas in the space is that the users own the sites they contribute to and are given tokens in return for their content creation - that’s what we were talking about earlier. These tokens are used to vote in company decisions. Again, this sounds rosy, but when you consider the fact that the investors behind the companies will own significant chunks, their votes will naturally hold more sway. As a result, the shocking wealth inequality that already exists in the crypto sphere would be comfortably enshrined. Jack Dorsey, founder of Twitter and usually a big crypto advocate, raised eyebrows when he alerted his 6 million followers by saying, “You don’t own Web3. The VCs [venture capitalists] and their LPs [limited partners aka investors] do. It will never escape their incentives. It’s ultimately a centralised entity with a different label.”
This sounds very much like Web2 and indeed the normal world of corporations, and it sounds even more familiar when you see the traditional big players wading in investing millions: Goldman Sachs, JP Morgan and of course Meta with its grand designs of a metaverse among them. The Forbes top 12 crypto billionaires is somewhat revealing: one third went to Harvard or Stanford, all are men, and all but one are white.
Critics see the hopes of positive change dwindling in the face of these established giants, but the issues don’t stop there. There are worries about money laundering, hacking, privacy issues, regulation (or lack thereof), exploitation, and even that crypto trading fuels addiction much like gambling does. The list could go on.
But all is not lost. As I mentioned earlier, Web3 is still young. It is teething but there is some extraordinary potential in blockchain, cryptocurrencies, NFTs, smart contracts and all the rest of it. It is possible to imagine this not only changing the world but actually changing it for the better. Within the huge umbrella of ‘Web3’ there will be some amazing ideas that really do make a positive impact - the same was true of Web2 and for all the bad things there have been some remarkable breakthroughs for humanity. For instance, Wikipedia did live up to the internet’s original intentions of democratising free information. Separated from profit incentives, it has become an astonishing open resource for anyone and everyone.
Opinions on what we want the emerging Web3 to look like are divided, as all opinions usually are, and the spectrum reflects attitudes already present in our normal society. Some see it as a way to empower ordinary people, others as a great way to get rich, and others still as just another tool for exploitation. Some see it as an excellent way of proving land ownership for farmers in rural Africa, while millions more see it as a cool way to earn money gaming. The possibilities for positive change are endless as are the possibilities for negative change. There is no one right answer but engaging with the issues is the only way to ensure that we can be involved in building the future of the internet and of our world.