Understanding Web3: The Next Evolution of the Internet

To understand Web3, it helps to revisit the earlier stages of the internet’s evolution.

Web1, which emerged in the 1990s, was the original, read-only version of the internet. It was based on open protocols, meaning that anyone could use the foundational code to publish and access information. Websites mainly were static, with limited interactivity. Users primarily consumed content — reading pages, sending emails, and conducting simple research.

Then came Web2 in the mid-2000s, transforming the web into a participatory, social environment. Platforms like Facebook, Twitter (now X), and YouTube allowed users to create and share content. However, this interactivity came at a price: large tech corporations gained enormous power by collecting user data and monetizing it through advertising. Web2 gave us the social web — but also the era of surveillance capitalism and centralized control.

Web3 introduces a technological foundation that aims to decentralize the digital world. Three main technologies make this shift possible:

A blockchain is a digital ledger distributed across a network of computers. Each time a transaction occurs, it’s recorded as a “block” and added permanently to the chain. This means there’s no single point of control — or failure.

Smart contracts are self-executing agreements written in code. Once predetermined conditions are met, the contract automatically triggers an action — such as transferring funds between users — without requiring an intermediary.

Digital assets exist entirely online and include cryptocurrencies, stablecoins, central bank digital currencies (CBDCs), and NFTs (non-fungible tokens). Some assets even represent physical objects, like tokenized art or real estate.

Together, these technologies could allow users to interact online in trustless, transparent, and community-driven ways.

In the Web2 era, power and control lie with centralized organizations that store user data and oversee digital transactions. Web3, by contrast, seeks to replace this model with one where ownership and decision-making are distributed among network participants.

In Web2, users must trust companies to protect their personal data and act in good faith. In Web3, trust is replaced by verification. Blockchain nodes rather than intermediaries validate transactions.

Imagine purchasing a concert ticket through a blockchain-based platform. In Web2, you might have to trust a seller not to scam you. In Web3, however, the ticket’s authenticity is verified automatically by the blockchain network before your payment is completed — ensuring transparency and security.

Interest in Web3 technologies has surged since 2018, with rapid growth in investments, research publications, patents, and developer activity. The financial sector has been particularly active — at one point, decentralized finance (DeFi) platforms processed more than $10 billion in daily trading volume.

However, the journey has been uneven. While enthusiasm remains high, adoption is still developing, and many users are just beginning to grasp what Web3 truly entails. A 2022 Harvard Business Review survey revealed that nearly 70% of respondents didn’t fully understand the concept.

Though still emerging, Web3 use cases are appearing across industries:

• Banking and Finance: In 2022, JPMorgan Chase executed its first blockchain-based cross-border transaction using tokenized yen and Singaporean dollar deposits as part of Project Guardian, in partnership with DBS Bank.
  
• Tokenized Investments: Digital securities firm Securitize partnered with KKR to issue a tokenized private equity fund on the Avalanche blockchain, opening institutional investment opportunities to smaller investors.
  
• NFT Community Engagement: Esports organization 100 Thieves distributed digital collectibles to fans who created wallets within 75 hours — over 300,000 NFTs were claimed.
  
• Consumer Brands: Nike launched its Web3 platform, .Swoosh, offering NFT-based virtual products and user-generated designs after acquiring Web3 studio RTFKT.

These examples show how Web3 is moving beyond theory and beginning to reshape how value, identity, and ownership are managed online.

While often mentioned together, Web3 and the metaverse are not the same.

Web3 refers to the decentralized infrastructure — the underlying system of blockchains, tokens, and smart contracts that power the next version of the internet.

The metaverse, on the other hand, describes immersive digital environments where users can interact in virtual worlds. Think of Web3 as the foundation that enables ownership and transactions within these virtual spaces.

They are complementary but distinct concepts — Web3 provides the architecture, while the metaverse offers the experience.

Despite its promise, Web3 faces several challenges before it can achieve widespread adoption:

1. Regulatory Uncertainty
   Governments are still developing frameworks around issues such as consumer protection, anti-money laundering (AML), and the legality of smart contracts.
   
2. User Experience and Accessibility
   Web3 applications are less intuitive than their Web2 counterparts. Managing digital wallets and understanding token mechanics can be daunting for newcomers.
   
3. Consumer Protection and Risk
   The collapse of high-profile crypto projects has raised questions about how users can be protected from fraud, hacks, and project failures.
   
4. Value Proposition
   Many users still don’t see clear utility in NFTs or decentralized applications, which limits adoption beyond the crypto-savvy.
   

While Web3 aims to fix the flaws of Web2 — such as centralization and data exploitation — it also introduces new challenges in usability, scalability, and governance that must be resolved.

The cryptocurrency market has been volatile, but its fluctuations don’t necessarily reflect the future of Web3. While both rely on blockchain technology, Web3 extends far beyond digital currencies.

For instance:

• NFT sales rose 68% in 2022 despite market headwinds.
  
• Ethereum developer tool downloads grew 87%, indicating ongoing ecosystem development.
  
• Stablecoin transaction volumes increased more than 50%, showing rising use in digital payments.
  
• The Web3 gaming sector expanded by 60%, and tokenization markets grew by 23%.
  

These figures suggest that while crypto prices may fluctuate, blockchain adoption continues to advance steadily.

Web3 is still in its early stages — a frontier being shaped by innovators, developers, and policymakers. It holds the potential to redefine how we use the internet, how ownership is managed, and how online communities operate.

However, for this vision to become reality, Web3 must balance decentralization with regulation, innovation with security, and freedom with accountability.

If it succeeds, the internet’s next era could be one where users truly own their digital lives — data, identity, and assets alike.