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Welcome to the new frontier of the internet.  Web3 represents opportunity. Opportunity for new forms of entrepreneurship, opportunity for new ways of communicating, and opportunity for new ways of seeing, experiencing, and interacting with the world—literally! While an increasing number of people have heard some of the terms associated with what is collectively called web3 (metaverse, A.I., virtual reality), the majority of the population still draws a blank when asked if they have heard about web3 or to explain what they think it is. 

For those of you who are ready to migrate from web3 novice to metaverse master having a strong foundation to layer building blocks on to is essential.  This article aims to provide that foundation by demystifying some of the complexities of web3, and outlining its core principles, technologies, and the transformative potential it holds.

Table of Contents

• What is Web3?

  • Core Principles

    • Decentralization: The Heart of Web3

    • Transparency and Trust

    • User Sovereignty and Empowerment

  • Comparison with Web1 and Web2

• The Building Blocks of Web3

  • Blockchain Technology

  • Smart Contracts

  • Cryptocurrencies and Tokens

  • Decentralized Applications (DApps)

• The Significance of Web3

• Challenges and Criticisms

• Conclusion: Looking Forward

What is Web3?

Web3 represents the third generation of the internet, where decentralized networks take center stage in an effort to foster peer-to-peer interactions and replace the centralized platforms that dominate our current digital landscape.  This shift is supported by the use of blockchain technology, that ensures transactions, contracts, and data are secure, transparent, and free from central control. The goal of web3 technology is to enhance security and trust and return control and ownership of the digital world back to users.

Core Principles

Web3 is guided by three core principles that tie the various forms of technology, ideas, and uses together to form the umbrella term “Web3.”  Those principles are decentralization, transparency, and user sovereignty. Let’s take a look at each a little more in depth.

Decentralization: The Heart of Web3

Decentralization stands as the cornerstone of web3, a principle that moves away from the centralized models of data storage and management epitomized by web2's tech giants. In a decentralized web, information and power are spread across a distributed network of users rather than being hoarded within siloed repositories. 

This structure not only enhances security by eliminating single points of failure but also democratizes access to information and services. Blockchain technology enables this decentralization, facilitating a space where users can directly interact, transact, and collaborate without the oversight of central authorities. 

For instance, decentralized finance (DeFi) platforms allow users to lend, borrow, and earn interest on their assets in a trustless environment, showcasing the practical application of decentralization in creating alternative financial systems. 

This means that rather than being forced to trust that Big Traditional Bank is safe, sound, and ethical in how it does business, a decentralized platform allows users to make transactions directly with other users.  The blockchain technology creates an environment where the users can be anonymous to each other (protecting your identity) and proceed with complete confidence that the transaction will occur exactly how the agreed terms stated it would.

My introduction to the world of DeFi has been Coinbase, which I have used as my crypto bank and allows for easy transfer between traditional finance and the DeFi version.

Transparency and Trust

Transparency is another foundational pillar of web3, closely tied to the blockchain's immutable nature, meaning it cannot be altered. Every transaction on a blockchain is recorded in a way that is publicly verifiable, creating an environment where actions and data are open and transparent. 

This level of visibility promotes trust among participants in the network, as all transactions are traceable and immutable once confirmed. It's a stark departure from the practices of many web2 platforms, where users often have little insight into how their data is used or how decisions are made. In web3, smart contracts play a critical role in this transparent ecosystem, executing predefined conditions openly and without bias. This transparency not only builds trust but also paves the way for innovative applications, from transparent supply chains to verifiable voting systems.

User Sovereignty and Empowerment

At the core of web3 is the empowerment of individual users, a shift towards giving users control over their data, assets, and digital interactions. 

This empowerment is facilitated by cryptographic keys that grant users ownership and control over their digital identities and assets, without the need for intermediaries. In the web3 world, users can manage their personal information, control who has access to it, and directly monetize their online activities if they choose.  As an added bonus, the use of things like cryptographic keys makes one feel as if they are starring in a Mission Impossible movie (just don’t lose your passphrase!!!).

(OK, so you’re not getting a car, but empowerment is pretty cool too!)

This level of control represents a significant shift from the data monetization practices common in web2, where companies harvest user data often without consent or fair compensation. (That’s right Facebook, Google… we’re looking at you!) Web3's emphasis on user sovereignty is also evident in the rise of DAOs, where organizational governance is decentralized, allowing members to vote on decisions directly based on their stake or contribution. This principle not only ensures that users have a say in the platforms and communities they are part of but also aligns incentives across the ecosystem, creating a more collaborative and equitable digital environment.

Quick Brain Break! If there are terms like “smart contracts” or “DAOs”, among others, that throw you for a loop, don’t fret, if they aren’t explained later in the article, they will likely be the full feature of an upcoming Hashed Out, so make sure you subscribe, keeping reading, and share widely.  Ok, break over, back to the article!

These core principles of decentralization, transparency, and user empowerment are what set web3 apart from its predecessors, promising a future where the internet is more secure, equitable, and aligned with the interests of its users. As we continue to explore and develop upon these principles, the potential for innovation and transformation within the digital world is boundless, offering exciting opportunities for creators, consumers, and communities alike.

Comparison with Web1 and Web2

To appreciate the innovation of web3, it is helpful to understand how the internet has evolved.  Web1 was the original version of the mainstream internet. This was a time when Netscape was the go-to browser and Yahoo was fresh and innovative. (How fast time flies!)  Web1 is often referred to as the “read-only” internet, that is users consumed static content.  Websites were primarily one-way informational streams with very limited interaction. Sounds a bit boring, no?

Web 2 is often referred to as the “read-write” internet.  This new iteration of the internet brought forth blogs, e-commerce, and social media.  Rather than a one-way street of information, flows now went in two directions. This new interactive internet brought some degree of democratization and expanded reach to our digital lives, but it also fueled the rise of large, centralized tech conglomerates with control of vast amounts of our personal in data in exchange for “free” access to their platforms.  Web2 is the version of the internet that we primarily use today, but that is starting to quickly change. 

The Shift to Web3

Web3 represents a shift to the “read-write-trust” internet, where those core principles of decentralization, transparency, and user empowerment come to the forefront.  Unlike the previous versions of the internet, web3 is built on blockchain technology, enabling peer-to-peer interactions, secure transactions, and decentralized governance.  This shift aims to address the privacy concerns rooted in web2’s centralization, while introducing new levels of user control over their digital assets and online identity.

Where value in web2 is consolidated in the large, centralized platforms, value in web3 is generated through community participation and content creation that is returned to the users themselves.  This brings forth the promise of a more equitable and user-centric internet.

The Building Blocks of Web3

Web3 is built on a core set of technologies, including blockchain, smart contracts, cryptocurrencies and tokens, and decentralized applications (dApps). Let’s take a closer look at each.

Blockchain Technology

Blockchain technology is the foundation of web3 technology, offering a secure and decentralized way to record transactions. Unlike traditional ledgers, a blockchain is distributed across numerous computers (or nodes), making it highly resistant to tampering and fraud. This technology supports not just cryptocurrencies but also a wide array of decentralized applications and systems.

Each “block” in the chain contains a number of transactions; once a block is filled, it is added to the chain in a linear, chronological order. The innovation lies in the cryptographic hashing of each block, lining them together in a way that ensures any attempt to alter transaction data is easily detectable by network participants.

This immutability is what makes blockchain an ideal ledger for transactions, underpinning not just cryptocurrencies but also a myriad of other applications that require secure, transparent recordkeeping.  

Beyond financial transactions, blockchain technology is enabling new forms of decentralized applications (DApps) and smart contracts, disrupting industries from supply chain management to intellectual property rights. For example, blockchain can be used to create transparent supply chains, where each step of a product’s journey is recorded and verifiable, enhancing consumer trust and corporate accountability. Similarly, artists and creators can use blockchain to protect and monetize their works, issuing digital certificates of ownership that prove authenticity and allow for secure, direct sales.

Smart Contracts

Smart contracts are a transformative feature of blockchain technology, offering self-executing contracts where the terms are directly written into lines of code. These contracts automatically enforce and execute the terms of an agreement as conditions are met, eliminating the need for intermediaries. This not only reduces transaction costs but also significantly speeds up the process of executing agreements across various sectors, from finance to real estate. Despite their name, without specific added provisions, smart contracts are not legally binding. 

Ethereum was the first blockchain to introduce smart contracts, and it has since become the leading platform for developing DApps that utilize smart contracts.  Smart contracts can be used for a wide range of purposes, including DeFi services like lending and borrowing platforms, automated insurance payouts, and decentralized marketplaces. 

Cryptocurrencies and Tokens

Cryptocurrencies and tokens are perhaps the most widely recognized elements of web3. They facilitate secure, peer-to-peer transactions without the need for traditional banking systems. Beyond cryptocurrencies, tokens can represent a variety of assets and rights within the web3 ecosystem, from digital art and ownership in decentralized finance (DeFi) projects to voting rights in decentralized autonomous organizations (DAOs).

Perhaps the most well-known cryptocurrency is Bitcoin.  Its release in January 2009 introduced the world to the possibility of a decentralized and global digital currency.  The next major coin addition came in July 2015 with the launch of Ethereum.  What distinguished Ethereum from Bitcoin was the introduction of ERC-20 tokens. ERC-20 tokens allowed tokens to represent a wide range of assets and rights beyond simple currency. For instance, utility tokens provide access to a specific service or application, while governance tokens give holders the right to participate in decision-making processes within a DAO or platform. 

The flexibility of tokenization opens up new avenues for investment, crowdfunding, and ownership models, enabling everything from fractional ownership of real estate to raising capital for new ventures. This token economy is a key component of the decentralized finance (DeFi) ecosystem, providing a programmable layer of financial instruments and services that operate without centralized intermediaries. This opens up possibilities for faster, safer, and more cost-efficient digital transactions across a wide array of industries.

Decentralized Applications (DApps)

Decentralized Applications (DApps) are applications that run on a blockchain or peer-to-peer network of computers, rather than a single computer, offering a level of resilience, censorship resistance, and control that traditional apps cannot match. DApps are typically open source, operate autonomously, and have their data and records maintained on a public blockchain. This ensures that DApps are transparent in their operations and resistant to control from any single authority.

The scope of DApps extends far beyond financial applications, encompassing social media platforms, online marketplaces, games, and more, all benefiting from the inherent properties of blockchain technology such as security, transparency, and the ability to make and receive payments directly within the app. For example, decentralized social media platforms can offer users control over their data, alleviating privacy concerns associated with traditional social media networks. Similarly, decentralized marketplaces can facilitate peer-to-peer transactions without the need for a central authority, reducing fees and increasing efficiency.

The development and adoption of DApps are still in the early stages, facing challenges such as scalability, user experience, and regulatory uncertainty. However, the potential of DApps to redefine internet applications—making them more secure, user-friendly, and equitable—is a fundamental aspect of the web3 vision.

The Significance of Web3

The emergence of web3 is not just a technological evolution; it represents a paradigm shift in how we interact, transact, and organize digitally. This section delves deeper into the transformative impact web3 aims to have on various aspects of the digital and real-world landscapes.

User Empowerment and Data Ownership

Web3 reimagines the concept of digital ownership and user empowerment. In web2, user data is often siloed within corporate databases and used to drive profits with little benefit to the user. Web3's decentralized architecture ensures that users retain control over their personal information and digital assets. This shift could redefine online identity, privacy, and ownership, enabling individuals to decide how their data is used and potentially be compensated for its use. 

Decentralized Finance (DeFi)

DeFi represents one of web3's most significant breakthroughs, challenging traditional financial systems by offering peer-to-peer financial services. DeFi platforms enable lending, borrowing, and trading without the need for banks or brokers, using smart contracts to automate transactions. This not only makes financial services more accessible but also opens up opportunities for innovation in financial products and services.

Enhanced Privacy and Security

Web3's decentralized nature inherently enhances privacy and security. With data and transactions distributed across a blockchain network, hacking and data breaches become much more challenging. Additionally, the use of encryption and privacy-focused protocols ensures that users can interact with greater anonymity compared to traditional web services. This last point can be both a benefit and a drawback.

A Global, Inclusive Economy

Web3 has the potential to create a more inclusive global economy. By removing intermediaries and lowering barriers to entry, it can provide unbanked or underbanked populations access to financial services and economic opportunities. This democratization of access extends beyond finance, offering new ways for creators, consumers, and communities to connect and exchange value directly.

Innovation in Digital Identity

Web3 technologies introduce more secure and private ways to manage digital identities, utilizing cryptographic proofs and blockchain records. Users can prove their identity and credentials without exposing sensitive information, enhancing privacy and security online.

The Potential for a Decentralized Internet

The broader vision of web3 is a fully decentralized internet, where users can interact freely, creators are rewarded fairly, and digital communities thrive on equitable terms.This vision includes not just financial transactions but also decentralized content platforms, marketplaces, and social networks, all operating without centralized control.

Challenges and Criticisms

While web3's potential is undeniable, it also faces a host of challenges and criticisms that must be addressed to realize its vision fully.

Scalability and Performance

One of the most pressing issues facing current blockchain networks is scalability. Many blockchains struggle to handle high transaction volumes quickly and cost-effectively, leading to bottlenecks and increased fees. Although solutions like layer 2 networks and sharding are in development, achieving the scale required for global adoption remains a significant hurdle, though one that will likely be overcome in the future.

Usability and Accessibility

For many, the complexity of blockchain technologies and the lack of user-friendly interfaces are significant barriers to entry. The learning curve for securely managing wallets, understanding transaction fees, and navigating DApps can deter mainstream users. Improving the usability and accessibility of web3 technologies is crucial for widespread adoption.  

Hashed Out seeks to break down these complexities and give non-technical users interested in participating in the web3 future a roadmap to the information, skills, and resources needed and available to make web3 work for them in the ways they need. Know anyone who might be interested in a roadmap to the future? Send them on their way by sharing this newsletter!

Regulatory Uncertainty

The regulatory landscape for cryptocurrencies and blockchain technology is still evolving, with governments and financial institutions grappling with how to integrate these innovations within existing legal frameworks. This uncertainty may hinder the development and adoption of web3 technologies, as both businesses and users navigate a patchwork of regulations that vary significantly across jurisdictions.  Governments are getting on board quickly though and this is another hurdle with a solution on the horizon.

Environmental Concerns

The environmental impact of certain blockchain technologies, especially those relying on proof-of-work (PoW) consensus mechanisms, has been a point of contention. The energy consumption associated with mining activities for cryptocurrencies like Bitcoin has raised concerns about their sustainability. Although alternatives like proof-of-stake (PoS) are more energy-efficient, the transition and adoption of greener technologies are ongoing challenges that many platforms are working to solve.

Addressing the Challenges

Overcoming these challenges requires ongoing innovation, collaboration, and dialogue among developers, users, regulators, and other stakeholders. By prioritizing scalability, usability, regulatory clarity, and sustainability, the web3 community can advance towards a more decentralized, secure, and equitable digital future.

As web3 continues to evolve, its significance and the challenges it faces will undoubtedly shift. Yet, the underlying promise of a decentralized internet, driven by the principles of transparency, user empowerment, and innovation, remains a compelling vision that guides its development.

Conclusion: Looking Forward

The journey into web3 is still new, with fresh developments, challenges, and opportunities regularly emerging.  Yet a lot has happened in a short period of time and the pace forward is accelerating faster than many thought possible.This article is merely a primer to get you started.  In the issues to come we will include more primers to all the web3 aspects introduced here. Be sure to read through the other articles in this edition and explore some of the curated links to other sources that can help broaden your introductory knowledge.

If you haven’t already, be sure to subscribe to Hashed Out and forward us to others you think might be interested.  We appreciate the opportunity to be a part of your Web3 journey, so all of our emails and content will provide you value and respect your time.  Lastly, if you think your business might benefit from exploring web3 opportunities (and it almost certainly would!) contact us at Argot and set up a free 20-minute Discovery Call without obligation to see the specific ways a web3 strategy could grow your business.

Other Articles In This Issue:

• Case Study: Ethereum

• Editorial: The Promise of Web3

• Hashed Out Main Home Page