Buck Jordan here, and today, I want to spend some time on a topic almost everyone’s heard of, but not as many really understand.
By now, you’ve come across the term “Web3.”
At first glance, Web3 sounds like everything and nothing at the same time.
But if you do a little bit of research, you’ll learn that Web3 is a term that describes the universe of blockchain and cryptocurrency technologies that has exploded into life since the release of the Bitcoin Whitepaper in 2008.
But even then, Web3 is a confusing term, and it is not really clear what it means.
However, the technologies that underpin Web3 have blossomed into a multi-trillion-dollar industry in the last few years, and it’s important as an investor to pay attention to them.
That’s why this week I want to breakdown and walk you through what Web3 is and what the different pieces are.
What’s with the 3?
So, why the number 3 in Web3?
Well, the concept of Web3 is based on the idea that the world of crypto and blockchain is the third major wave of technologies contributing to the development of the internet.
Of course, this implies that before Web3 we developed and implemented Web2 and Web1.
Web1 refers to the origin and early days of the internet and is often called the “Static Web.” Most say Web1 lasted from 1991 to about 2004 or 2005. It involved the development and implementation of the early internet protocols, such as WWW and HTTP (webpages) and SMTP (email).
We also got the first primitive search engines during this time and some initial experiments with ecommerce toward the end of this period. Ultimately, the technologies behind Web1 remain very basic and foundational to the internet, but they weren’t particularly powerful.
If you remember browsing a website in the 90s, you know what I mean. The user experience was horrible, everything was very slow and clunky, and there were tons of bugs.
In those days, you couldn’t really do much on the internet besides find information and exchange messages.
This made the internet significantly faster and far, far more powerful, which unleashed an explosion of new internet services that would fundamentally change the world.
In 2004 Facebook was launched. In 2005, YouTube was launched. In 2006, Amazon Web Services was launched. The list goes on.
But most of the internet services we love and use as part of our daily lives were launched on the back of the new technologies powering Web2. This is the Social Web.
That brings us to today.
Is Change Really Necessary?
Despite the incredible achievements of Web1 and Web2, the internet still has a lot of unsolved problems, and some of them have really started to cause problems.
Fraud, IP theft, and crime have soared on the modern internet. Fake content and fake news have spread like wildfire, and this phenomenon continues to worsen. The list goes on.
Crime and misinformation aside, there are also parts of the web experience that remain clunky, such as payments, identity verification, and proving ownership.
As the third major wave of internet technologies, Web3 is focused on solving many of these unsolved problems and making the internet even more powerful. Web3 is composed of four main components:
- Blockchains: Distributed ledgers that are cryptographically authenticated to prove ownership and verify transactions
- Cryptocurrencies: Internet-native currencies powered by blockchains
- Decentralized Apps (DApps): Web2 products and apps redesigned in a decentralized manner and powered by blockchains
- Decentralized Finance (DeFi): Redesigning traditional financial services and institutions in a decentralized manner with community participation and powered by cryptocurrencies and blockchains
These are the main components of Web3.
Web3 technologists observed that there are no internet-native payment methods or currencies and that transacting on the internet involves pulling out your credit card, logging into your bank account, and other cumbersome steps.
Cryptocurrencies are designed to solve this.
Similarly, fake news, identity verification, and proving ownership are all major challenges in the current internet.
Blockchain technology, which uses very complicated cryptographic technology (that you don’t really need to know too much about), is designed to partially or completely solve all these problems.
Lastly, a major problem that emerged during Web2 was internet monopolies. Companies like Alphabet (Google), Apple, Facebook, and Microsoft dominate the internet and are some of the largest companies in the world.
In fact, four of the top 10 largest companies on earth are internet businesses. This has given these companies extraordinary power over our lives and unfair market power.
Web3 holds decentralization as a core ethos, and by using blockchains and cryptocurrencies, the Web3 industry is trying to redesign traditional Web2 services in a decentralized manner. Cue DApps and DeFi.
So, there you have it. That’s the history of the internet and the core components of Web3 in a nutshell.
While there’s a lot of complexity to these new technologies, how they interact, and how they may solve the major problems remaining on the internet, you don’t really need to know too much about the details.
Instead, all you need as an investor is conceptual understanding of all these pieces and the goals of Web3 to start to assess investment opportunities (and make money!).
That’s a wrap. See you next week!