Web3 describes a version of the internet where data will be interconnected in a decentralized way. Web3 is an umbrella that comprises various fields like semantic web, AR/VR, AI at scale, blockchain technologies, and decentralization. The core idea of Web3 moves along the lines of enabling decentralized ownership on the web.
To better understand Web3, it may be helpful to first describe a little internet history.
The evolution of the internet is often separated into three distinct stages: Web 1.0, Web 2.0, and Web 3.0.
Web 1.0 was the first iteration of the internet, with most users consuming content on websites that contained information in the form of text and images. These sites were served from a static file system and featured low levels of interactivity. Many call Web 1.0 the read-only web.
Web 2.0 is, for the most part, the internet in its current state. This iteration is social and interactive and there are more users creating content as opposed to simply consuming it. Web 2.0 gave rise to several sites that were more interactive and built upon user-generated content. Here, content is siloed, centralized, and run by corporations such as Google, Amazon, Facebook, and Airbnb. Web 2.0 is often referred to as the read-write web.
The Web 3.0 era is now beginning to emerge and is a key component in solving many of the problems associated with a centralized Web 2.0. Instead of the internet being controlled by a few organizations, Web 3.0 favors privacy, transparency, data ownership, and digital identity solutions. This functionality is underpinned by decentralized networks, blockchain technology, and a tokenized economy.
What are the core characteristics of Web3?
Though the shift from Web 1.0 is Web 2.0 is relatively simple to define, the shift from Web 2.0 to Web 3.0 is less clear.
To provide clarity on Web 3.0, consider the following specific innovations and practices that define it:
Semantic web – Web 3.0 improves web technologies to generate, share, and connect content through search and analysis based on an ability to understand the meaning of words. This differs from Web 2.0, which relies on an understanding of keywords and numbers.
Artificial intelligence – Web 3.0 is also able to decrypt natural language and understand intention in much the same way humans do. What’s more, it can recognize real information from fake information. This results in faster, relevant, reliable, and more intelligent results which meet user needs.
3D Graphics – the third generation of the internet also integrates 3D and VR technologies to blur the line between the physical and digital world. Examples include museum guides, geospatial applications, computer games, and eCommerce product guides.
Connectivity – information within Web 3.0 is more connected via semantic metadata, enabling the user experience to be enhanced by leveraging all available information.
Ubiquity – in the Web 3.0 era, the internet is accessible to everyone, everywhere, all of the time. At some future point, internet connectivity will no longer be restricted to Web 2.0 devices such as computers and smartphones. Internet of Things (IoT) will facilitate the creation of novel types of connected devices.
Web3, decentralization, and Blockchain
A Blockchain Business Model according to the FourWeekMBA framework is made of four main components: Value Model (Core Philosophy, Core Values and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics/incentives through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.
The desire for decentralization started to grow after users on centralized networks began to fear for the privacy of their personal data. At more or less the same time, the popularity of Blockchain and cryptocurrency also began gathering momentum.
As a result, Blockchain in the Web 3.0 era incorporates the five characteristics mentioned in the previous section on a decentralized, peer-to-peernetwork. Using Blockchain technology and its immutable encrypted data, the need for centralized corporate operators is made redundant.
The Ethereum platform is currently the Blockchain platform most closely resembling the characteristics of Web 3.0.
An imaginary flywheel of the development of a crypto ecosystem, and more in particular, the Ethereum ecosystem. As developers join in, and the community strengthens, more use cases are built which attract more and more users. As users grow exponentially, businesses become also interested in the underlying ecosystem, thus investing more in it. Part of these resources are invested back on the protocol to make it more scalable, thus reducing gas fees for developers and users, and therefore facilitating even more the adoption of the whole business platform.
Key takeaways:
Web3 is a version of the internet where data will be interconnected in a decentralized way. It emerged in response to the limitations of a centralized Web 2.0, where a few large corporations control the internet.
Web3 is perhaps best described by the specific innovations and practices that define it. These five characteristics include semantic web, artificial intelligence, 3D graphics, connectivity, and ubiquity.
Web3 and Blockchain incorporate the five characteristics of a decentralized, peer-to-peernetwork with immutable and encrypted data. Ethereum is arguably the Blockchain platform embodying most aspects of Web3.
Web3 Business Models Examples
The history of Bitcoin starts before the 2008 White Paper by Satoshi Nakamoto. In 1989 first and 1991, David Chaum created DigiCash, and various cryptographers tried to solve the “double spending” problem. By 1998 Nick Szabo began working on a decentralized digital currency called “bit gold.” By 2008 the Bitcoin White Paper got published. And from there, by 2014, the Blockchain 2.0 (beyond the money use case) sprouted out.Ethereum was launched in 2015 with its cryptocurrency, Ether, as an open-source, blockchain-based, decentralized platform software. Smart contracts are enabled, and Distributed Applications (dApps) get built without downtime or third-party disturbance. It also helps developers build and publish applications as it is also a programming language running on a blockchain.Solana is a blockchain network with a focus on high performance and rapid transactions. To boost speed, it employs a one-of-a-kind approach to transaction sequencing. Users can use SOL, the network’s native cryptocurrency, to cover transaction costs and engage with smart contracts.The Graph is an ERC20 Utility Token (built on top of Ethereum) to enable consumers to freely query the blockchain through a fully decentralized database kept by indexers, incentivized by the payment of tokens (called GRT). The network is also ministered by curators and delegators that help maintain a high-quality index.BAT or Basic Attention Token is a utility token aiming to provide privacy-based web tools for advertisers and users to monetize attention on the web in a decentralized way via Blockchain-based technologies. Therefore, the BAT ecosystem moves around a browser (Brave), a privacy-based search engine (Brave Search), and a utility token (BAT). Users can opt-in to advertising, thus making money based on their attention to ads as they browse the web.
Web3 Business Model Types
Protocol (Layer 1) – Proof of Work/Proof of Stake/Hybrid
Proof of Work (A Proof of Work is a form of consensus algorithm used to achieve agreement across a distributed network. In a Proof of Work, miners compete to complete transactions on the network, by commuting hard mathematical problems (i.e. hashes functions), and as a result, they get rewarded in coins.)
Bitcoin was the first digitalized and decentralized cryptocurrency, released as open source software in 2009. It uses an underlying technology called Blockchain, which works as a digital, distributed ledger, that can be used as a mechanism for disintermediating trust in transactions. The Blockchain Technology, underlying Bitcoin is enabling new business models to emerge.
Proof of Work (ETH 1.0), switching to Proof of Stake (ETH 2.0). A Proof of Stake (PoS) is a form of consensus algorithm used to achieve agreement across a distributed network. As such it is, together with Proof of Work, among the key consensus algorithms for Blockchain protocols (like Ethereum’s Casper protocol). Proof of Stake has the advantage of security, reduced risk of centralization, and energy efficiency.
Ethereum was launched in 2015 with its cryptocurrency, Ether, as an open-source, blockchain-based, decentralized platform software. Smart contracts are enabled, and Distributed Applications (dApps) get built without downtime or third-party disturbance. It also helps developers build and publish applications as it is also a programming language running on a blockchain.
ERC-20 Utility Token: Ethereum is the underlying protocol. An ERC-20 Token stands for “Ethereum Request for Comments,” a standard built on top of Ethereum to enable other tokens to be issued. Based on a smart contract that determines its rules, the ERC-20 enables anyone to issue tokens on top of Ethereum. As they are using a standard, those are interoperable. ERC-20 Tokens are critical to understanding the development of Ethereum as a business platform. Utility Tokens enable users’ participation in the network. Thus they work as a sort of built-in incentive mechanism for users to help the network grow.
The Graph is an ERC20 Utility Token (built on top of Ethereum) to enable consumers to freely query the blockchain through a fully decentralized database kept by indexers, incentivized by the payment of tokens (called GRT). The network is also ministered by curators and delegators that help maintain a high-quality index.
Brave is an open-source, privacy-centric web browser developed by Brave Software Inc. The company was founded by Brian Bondy and Brendan Eich in 2015. Brave makes the bulk of its revenue through banner advertising. In a rather unique arrangement, Brave users take 70% of the advertising revenue with the company taking the remaining 30%. Brave sells subscriptions to its video conferencing, VPN, and firewall products. It also makes money through affiliate commissions and merchandise sales in its decentralized web store.
Arbitrum Layer 2 Leveraging Ethereum’s protocol
A layer 2 solution can be applied as an additional protocol layer to solve various issues that the primary protocol can’t handle at scale. For instance, when it comes to Ethereum, when too many transactions go through the primary protocol, they can hardly go through, thus slowing down the main Ethereum protocol and making it not usable. In the case of Arbitrum, this works as a Layer 2 scaling solution. Meaning it helps manage transactions on top of this extra layer to help further scale the volume of transactions handled by the main protocol. Arbitrum works as the middle layer for various applications. For instance, Uniswap decentralized exchange is also, in part, relying on Arbitrum to scale the transactions that go through Uniswap.
One of the most popular Ethereum scaling solutions, Arbitrum aims to speed up transaction times and cut fees on the Ethereum blockchain
Uniswap is a decentralized exchange that enables users to exchange any ERC-20 token and more. Uniswap is a DeFi application and protocol which sits on top of Ethereum’s main protocol, and it leverages two Layer 2 scaling solutions (Optimistic Ethereum & Arbtrum). These underlying scaling solutions enable many transactions to go through the platform smoothly. When looking at Uniswap, it’s essential to distinguish between Uniswap as a token (which allows crypto users to exchange the UNI token) and Uniswap. This decentralized platform sits on top of Ethereum and leverages Optimistic Ethereum & Arbtrum to enable millions of transactions on top of the platform.
Uniswap is a decentralized cryptocurrency exchange founded by former Siemens mechanical engineer Hayden Adams in 2018. The exchange utilizes an automated market-making system rather than a traditional order book for transactions on the Ethereum blockchain.
Axie Infinity is a Non-fungible token (NFT). NFTs are cryptographic tokens that represent something unique. Non-fungible assets are those that are not mutually interchangeable. non-fungible tokens contain identifying information that makes them unique.
Axie Infinity is an NFT-based online video game developed by Sky Mavis, a Vietnamese game studio founded by Trung Nguyen in 2018. Nguyen combined his interest in blockchain accountability and the CryptoKitties craze to launch the game in August 2018. Sky Mavis generates the bulk of its revenue via the 4.25% fee it charges on all in-game purchases. This includes land purchases, monster NFT trading, and monster breeding. Axie Infinity requires that all new players purchase three monsters to get started. Since the cost can run into hundreds of dollars, Sky Mavis will lend players the monsters and collect a 30% interest fee once the player starts earning currency.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
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