An overview of Web3 – what it is, how it works, and why it's a big deal. Plus, we'll cover what brands and marketers need to know about Web3, and how it could impact their business.
Web3 is an emerging version of the internet, with decentralization via blockchain at its heart.
Today’s internet is centralized – it’s owned and managed by a handful of companies that decide what content is valuable. With decentralization, Web3 would go some way to democratizing the internet ecosystem – the platforms we use, the content we share and the way we interact.
Web3 has the potential to radically change the way individuals and businesses operate.
This guide covers:
- Phases of the internet: from Web1 to Web3
- What Web3 is and how it works
- Why Web3 matters
- The philosophy behind Web3
- Applications of Web3
- What brands should know about Web3
The world wide web is commonly thought to have different phases, much like how people have generations – GenZ, Millennials, GenX, etc. In chronological order, the internet phases are: Web1, Web2 and Web3.
Web2 is the internet we know and use today, and Web1 was the first phase of the internet. The term “Web3”, also stylized as “Web 3.0”, was coined by Ethereum co-founder, Gavin Wood, in 2014:
“Web 3.0, or as might be termed the ‘post-Snowden’ web, is a reimagination of the sorts of things that we already use the web for, but with a fundamentally different model for the interactions between parties.”
– Gavin Wood, Insights into a Modern World
Let’s look at Web1 and Web2 so we can better understand what Web3 brings to the table.
Web1: Yesterday’s Internet
The first iteration of the internet, Web1, started around 1990. This was when British computer scientist Tim Berners-Lee created a protocol that could link hypertext documents into an information system.
Web1 had limited user interaction so it was more or less “read-only”. The content was rarely user generated. Instead, music, images and media were created by companies and then shared online for people to consume. Web1 was decentralized in the sense that anyone could host a server and information was open source.
Throwback websites from this time include Limewire for sharing music, MSN messenger for instant messaging, and Internet Explorer as a web browser.
Web2: Today’s Internet
Web2 is the version of the internet we use today and started around twenty years ago. It’s broadly defined by user-generated content and social platforms. The features of our current web are characterized by attributes like:
- User-generated content – users can create and publish their own content.
- User collaboration – users can interact with each other, and each other’s content.
- Dynamic, responsive content – search engines and social platforms use machine-learning algorithms to serve up best-fit content (provided that the content aligns with the company’s business goals and terms).
- User data as a commodity – Web2 is dominated by several multinational corporations that let you use their service in exchange for your personal information. User information is then used to create highly targeted advertising.
Though Web3 is still somewhat theoretical, it’s thought to be the internet of tomorrow because it has the potential to solve some of the problems that Web2 has created.
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Web3 is a culmination of recent technologies, namely blockchain, cryptocurrency and non-fungible tokens (NFT)s. To distinguish Web3 from Web1 and Web2, Twitter user @himgajria probably said it best:
If Web1 was “read-only” and Web2 was “read-write”, then Web3 is "read-write-own”.
When Etherem’s co-founder, Gavin Wood, introduced the notion of Web3 he described it as having four main components:
- Static content publication: a decentralized, encrypted way to publish information.
- Pseudonymous messaging: communication between people using fictitious names.
- Trustless transactions: no middleman or third party between transactions. Malicious interventions are near impossible.
- Integrated user interface: a browser that brings all the above together
Breaking down what that means in real terms, Web3 would allow its users to:
- Pay for goods and services without a third party via cryptocurrencies.
- Own their data via blockchain.
- Make decisions on how apps and platforms are managed via governance tokens.
- Prove ownership of digital assets via NFTs (non-fungible tokens).
The line between physical and digital ownership weakens as NFTs enable public, verifiable ownership of digital assets. And physical assets can be verified with digital assets.
How a Brand Could Use NFTs
Let’s say you’re a music producer about to release an artist’s second album. To help generate interest ahead of the album release, you could sell variations of the album artwork in an NFT collection. These NFTs could be purchased by fans to gain behind-the-scenes access to the artist’s upcoming tour, claim a signed vinyl copy of the album, or join an online event with the artist.
How we use the internet today is markedly different to how we used it ten, or even two, years ago.
Today, the internet is a fundamental part of how we live and work. Some of us have colleagues or friends that we’ve only met virtually on Zoom or Slack. But as society evolves, so do our needs, and the internet has to keep up:
Web1 solved the problem of access to information (albeit via somewhat clunky search engines). Learning no longer required rummaging through some over-thumbed encyclopedias.
Web2 solved the problem of collaboration and creativity. People can communicate and share various aspects of their lives with anyone, anywhere.
What problems will Web3 solve?
Though most of us have come to rely heavily on Web2, it comes with its challenges – many of which are shouldered by the users.
Big tech accounts for more than half of all internet traffic, according to Sandvine. In 2021, 57% of all internet traffic could be attributed to Google, Facebook, Apple, Amazon, and Microsoft. Furthermore:
- Google owns more than 90% of the search market (StatCounter).
- Amazon and Microsoft combined control over 50% of public cloud market services (38.9% and 21.1% respectively) (Gartner).
- Meta boasts over 42% of worldwide social media users between its Facebook, Instagram, Messenger and WhatsApp apps (Statista).
- YouTube represents 20.4% of all downstream traffic on mobile networks (Sandvine).
Initially, these statistics may not seem problematic, but a few of the issues created by a website oligopoly are that:
- The content that best adheres to the platform’s monetary goals is the most successful.
- Billions of dollars are made from user data, without any compensation to the user.
- Data breaches impact millions, or sometimes billions, of people.
- Smaller companies find it increasingly difficult to enter the market.
Web3 seeks to address these challenges.
Web3 could give its users and content creators the following:
- Identity protection
- Ownership of digital assets
- Censorship resistance
- Native payments
Let’s look at each of these in turn.
1. Identity Protection
Social platforms and search engines make money by letting third parties use your personal data to create targeted advertising. LinkedIn, for example, can show specific ads to you based on your job title, seniority, location, and more.
Being used as a revenue source is one thing, but your personal data isn't even guaranteed to be safe. Despite a company's best intentions, your data could still be leaked, sold, stolen, or exploited. Some of the major data breaches over the last few years include:
- Yahoo (2017) - 3 billion accounts
- Aadhar (2018) - 1.1 billion people
- First American Financial Corporation (2019) - 885 million users
- LinkedIn (2021) - 700 million users
“In May 2020 EasyJet suffered a cyber-attack that affected 9 million customers. The majority had their email address and travel itinerary stolen, while more than 2,000 had their credit card details accessed.”
– British Assessment Bureau
With Web3, your wallet is your identity, and your identity is your behavior (i.e. your transactions). Web3 users operate under pseudonyms and don't have to share personal information to gain access to a platform. The use of pseudonyms creates new opportunities for artists, brands and entrepreneurs: users can continuously reinvent themselves, or release content anonymously without fear of becoming reviled or revered.
(Find out if your email accounts have been affected by any big data breaches on Have I Been Pwned.)
2. Ownership
Web3’s blockchain technology allows ownership to take on a whole new meaning. Artists and content creators especially welcome this shift as original work can be easily tracked and verified.
Digital assets: Digital assets can be sold or transferred without the intervention, permission, or facilitation of third parties. While physical assets can be verified with, or complemented by, the digital asset. For example, a digital copy of The Alchemist could be easily sold to a friend. Or a one-of-a-kind signed copy of the book could be verified with an accompanying NFT.
Web3 platforms: Platforms are owned and managed without centralized leadership. Their governance is determined by a contract that sets out the rules of operation.
3. Native Payments
Most transactions today are processed via Web2 and therefore occur through a conventional bank or payment provider. This infrastructure can be to the detriment of those who do not possess a bank account, or who are dependent on one payment processor to receive funds.
Because Web3 uses cryptocurrencies, payments are done via crypto wallets and do not require a third party.
4. Censorship Resistance
Much of the world’s traffic lands on a few platforms, owned by a few companies. Platform access can be revoked or restricted often with little explanation given. So when a user’s access to one of these platforms is reduced it can feel suppressive. Web3 platforms could change this.
As blockchains are maintained by decentralized users, instead of centralized entities, the chances of censorship are greatly reduced. Because your data lives on the blockchain you can easily transfer it between platforms. This means if you have to leave a platform for any reason, you won’t lose anything.
Non-fungible tokens (NFTs) are one of the main applications of Web3.
An NFT is a digital item registered on a blockchain that keeps track of who owns and trades the digital item. The digital item is also verifiably unique with a code attached to it that makes it different from other digital items that may, on the surface level, look similar.
NFTs essentially solve the issue of uniqueness.
NFTs will oftentimes be a digital item, piece of art, or other file or asset attached to the unique digital code that makes the NFT unique. Many pieces of digital NFT art are randomly generated by programs from a series of individual components and then combined into a single picture.
Some of the other applications of Web3 are:
- Decentralized finance (DeFi)
- Decentralized autonomous organizations (DAOs)
- The Metaverse
To find out more about NFTs, check out our NFT guide.
Businesses are made up of people so the points above remain relevant. But there are other elements that companies should consider.
Web3 is a competitive advantage. Just as social media and customer reviews changed the way we shop, so will Web3. It wasn’t too long ago when a shop front was a company's main interface with its customers. Now, people expect to be able to interact with you via phone, email, text, instant messaging, social media and more. Consumer expectations fall in line with existing technology. Web3 will add additional touchpoints through its communities. Brands should develop a Web3 strategy to remain competitive.
Consumers expect more from brands. Faceless, inauthentic relationships between brands and consumers just won’t cut it in future. People have become disillusioned with how their data is used and are actively seeking out brands that can engage with them on their own terms. Businesses should take a long hard look at how they build relationships. User privacy and rewards for loyalty are a must.
Certain processes or entire businesses could become obsolete. The decentralized nature of Web3 means that third parties can be eliminated from certain transactions. Decisions instead could be implemented via self-executing smart contracts. It follows that if a company’s core business model relies on providing a middle-man service – for example, a payment processor, social media marketing company, or a ride-sharing company – the future could be precarious if diversification via Web3 is not considered.
A new dawn in customer loyalty is here. Brands can reward their customers in novel ways with NFTs, and have new opportunities to create brand advocates. Advocates can in turn help the business to develop by building a super-fan community. A loyal community that aligns with your product or service has the power to develop and nurture your brand in myriad ways.
How a Brand Could Use Web3 for Customer Rewards
If an independent coffee shop wanted to reward its customers and community via Web3, the shop could set up an NFT-based loyalty program. This program could give its customers a virtual coffee (NFT) that could be used to claim discounts and free drinks or get access to in-person events. The more loyal the customer, the greater the reward. If the NFT holder moved to a new area, the NFT could be sold or traded so nothing was lost!
Users become partners. Marketing models fundamentally change as Web3 adoption increases and platform ownership is democratized. People will have a stake in the platforms they use and could receive direct payments from them. Advertising can no longer be highly targeted based on user data so brands must rethink their integrated marketing strategy.
New business models are emerging. Various revenue streams become available with Web3. The most obvious is the sale and trade of digital assets, but there is also potential for companies to earn ongoing royalties as creators when their NFTs are sold and traded. Companies can reward their customer base with token-based loyalty programs where loyalty points can be bought or sold between users. NFTs can also be given utility, acting as tickets for events or providing exclusive access to products or services.
How Can You Make the Most of Web3?
Step3 is a leading Web3 platform that helps creators, brands, and marketers bring NFTs to life with engaging rewards and real-world utility. Using our platform, NFT holders can get access to unique perks like event passes, digital goods, physical merchandise, discount codes, and more.
We also offer consulting and development services to help brands and marketers create and execute a winning Web3 strategy.
Whether you're a creator looking to take your NFT game to the next level, or a brand wanting to take your first steps into Web3, Step3 can help.
Get the latest tips, ideas and case studies from the best of Web3.
Book a 20-minute call with our team to learn how we can help you plan and execute a winning Web3 strategy.
Book an intro call
