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Inside ‘Web3,’ Crypto’s Plan to Retool the Internet: QuickTake

Inside Crypto’s Plan to Retool the Internet

Crypto enthusiasts don’t only dream of revolutionizing the world of money. They want to reinvent the World Wide Web. That vision, which goes by the name of “Web3,” is of a decentralized environment built on crypto technology in which swarms of collaborators take back control of the web from giant tech companies. It’s a threat that those tech firms -- including Facebook owner Meta Platforms Inc. and Twitter Inc. -- are starting to take seriously. 

1. Why Web3?

The idea is this: The early web was composed of static pages of text and simple images. In what became known as Web 2.0, users began to interact with one another, sharing pictures and videos that they could upload quickly now that bandwidth was plentiful. But users needed to coalesce around big platforms for anyone else to see their stuff. So a development that seemed to put us in charge instead created today’s landscape of giant corporations sucking up data from the activity on their sites and using it to make billions by selling ads. Web3 advocates -- many of them anti-establishment libertarians -- argue that governments can’t force the tech giants to serve our interests through regulation, so it’s time for a new model where we create and own the web experience we want. 

2. How would it work?

Proponents of Web3 say blockchains and related technologies reduce the power of intermediaries like Amazon.com Inc. or Instagram, and facilitate direct relationships between people who want to collaborate with colleagues, communicate with friends, or buy and sell goods and services online. Indeed, it was the co-founder of the Ethereum blockchain, Gavin Wood, who coined the term Web3 in 2014. Blockchains record information in a way that is very difficult to hack or alter. Their most obvious use right now is in cryptocurrency transactions. But blockchains can be used for all manner of peer-to-peer interactions. Users can come together to develop anything from apps to knowledge bases or search tools. The functionality would be supported by a multitude of users so no single entity gets to control them. 

3. What’s in it for me?

If you create or help to develop an app in Web3 (known as a “dapp,” or decentralised app), you can receive tokens that give you a say in the fees it charges, how it evolves or the working groups formed to oversee it. Tokens can also be sold or given to a dapp’s users, for example to reward them for winning a battle in a blockchain game, or sharing their computing bandwidth. Token owners can form communities known as decentralized autonomous organizations (DAOs) and get to vote on how the dapp’s funds are distributed. The rules are set via a “smart contract,” effectively a line of code that triggers an exchange of value once a set of mutually agreed conditions are met. The transaction is irreversible and in theory dispenses with the need for a centralised authority to oversee and enforce it. There are already places where you can see Web3 apps in practice, such as Helium’s decentralized wireless network. The network has grown to cover 240,000 hotspots across 21,000 cities by paying people to deploy their wireless hotspots in exchange for Helium’s token. 

4. What else can I do in Web3? 

More than 9,100 active dapps are listed on tracker DappRadar. They include lots of crypto trading platforms and video games. Game developers have been early adopters of Web3’s open technologies because they make it easy for players to earn tokens and in-game items that can be traded via decentralized exchanges. Many dapps allow you to buy and sell non-fungible tokens -- things like digital monsters and dragons. 

5. What’s not to like? 

With many Web3 apps, it can be difficult for users to get help when they have a problem: there’s no customer-service number. Regulators also face a challenge when it comes to identifying ownership and responsibility in a Web3 world. Governments already struggle to suppress harmful or illegal online content and identify cybercriminals. Yet Congress can at least summon Facebook founder Mark Zuckerberg to answer for his company’s actions. Imagine never knowing who to blame when something goes wrong. Web3’s supporters argue it can’t be any worse than the status quo, in which the tech giants track our every move online. They say handing responsibility to communities of users and developers will drive up standards. Not everyone is convinced. In a January blog, ex-Signal CEO Matthew Rosenfeld questioned whether the current dapps are better or different enough from Web 2.0, though he didn’t dismiss Web3 entirely. “It is, at the very least, something new on the nerd level -- and that creates a space for creativity/exploration that is somewhat reminiscent of early internet days,” he wrote.

6. Who’s investing in Web3? 

It depends on who you ask. To Web3’s earliest proponents, one becomes a financial backer by building something and buying or earning ownership of it as it grows. The reality today is that the big money is coming from investment firms such as Andreessen Horowitz. VCs invested $30 billion in crypto-related projects including Web3 in 2021, according to research company PitchBook. The growing involvement of venture capitalists has led some important industry figures to dismiss the idea of Web3 as a democratic online utopia that benefits only users. Jack Dorsey, Twitter’s former chief executive, has mocked it as the creature of Silicon Valley VC firms and limited partnerships. “You don’t own ‘web3’,” he tweeted in December. “The VCs and their LPs do. It will never escape their incentives.” 

7. How are the big tech firms responding? 

They are trying to create services that offer Web3 features but aren’t really decentralized. Twitter has been looking at ways to let you tweet from a crypto account. In December, Meta’s newly-designated technology chief Andrew Bosworth laid out a vision for its social networks to achieve “deep compatibility” with blockchain or cryptocurrency technologies ahead of rivals, according to an internal post cited by the New York Times. Norwegian web developer Opera said in January it was releasing a Web3 browser compatible with major operating systems with features like built-in crypto wallets and support for dapps. Web3 is also driving mergers and acquisitions: In January, Take-Two Interactive Software Inc. announced an $11 billion deal to acquire Zynga Inc., a mobile game maker that’s been exploring blockchain-backed games. The deal, said Take-Two CEO Strauss Zelnick, is an opportunity to address new “Web3 opportunities.” 

The Reference Shelf

  • Bloomberg Opinion columnists discuss Web3 economics, and how the rhetoric compares to the reality
  • Signal founder Matthew Rosenfeld’s skeptical analysis of Web3.
  • A Bloomberg Businessweek article on the multiple uses of blockchains.
  • More on the potential of Web3 by venture capital firm Andreessen Horowitz.

©2022 Bloomberg L.P.