Web3 basics

Web3 Guide

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October 20, 2022

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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 your business.

What is Web3?

Web3 is a decentralized version of the internet that’s defined by its user-centricity, openness, and use of blockchain.

Much like how we categorize age groups into GenZ, Millennials, GenX, Baby Boomers, etc., the internet is sometimes categorized into different generations, each blurring into the next.

Web2 is the version of the internet we know and use today, it’s known for its user-generated content and open collaboration – think Facebook, Twitter, and Google. Web1 was the first version of the internet created in 1990. It was characterized by static pages and limited user interaction – think AskJeeves, MSN Messenger, and AOL. Web3 represents a shift from Web2 – an internet dominated by a few tech giants to a decentralized internet structure with user-owned content. 

The quiet emergence of Web3

If you’re somewhat familiar with Web3, you might have heard some people describe it as a “future version of the internet”, while others talk about it like it’s already alive and kicking. It’s a bit confusing. Is Web3 here or not

Truth is, we’re largely in the Web2 era. Yet Web3 is emerging like a swimming pool with varied participation: some people are splashing around, some are watching from the café, while others are completely oblivious that the pool even exists. As with any new technology, the journey towards widespread awareness takes time. 

A 2023 Consensys survey of 15,000 people from 15 continents found that 92% have heard of cryptocurrency, but only 24% are aware of Web3. The survey also revealed another gap: People want more control over their data and fair profit sharing, but they are unaware that Web3 could provide this solution:

“Many respondents felt they are building value online but not compensated fairly.” 

Web3 is a bit of a dark horse. As it currently stands, you could be using a Web3-powered platform without realizing it. Take Starbucks for instance, unless you read their press release you’re probably unaware that their hugely popular loyalty program, Starbucks Odyssey, is backed by Web3. 

Even Starbucks Odyssey members could be participating in Web3 without recognizing it. Many of the program's Web3 mechanisms masquerade as other things, like NFTs being called “stamps”.

Starbucks isn’t the only one integrating Web3. Various big brands are quietly, or loudly, rolling out Web3-enabled products and services, including Disney, Nike, Nivea, Porsche, Visa, NBA, Budweiser and L’Oreal

While Web3 can be misunderstood at best and demonized at worst, its potential for reaching new audiences, building communities and enhancing loyalty and membership programs is proving too exciting for many brands to pass up. 

The lead up to Web3

Web1: A short overview

Web1, the first iteration of the internet, started around 1990 when British computer scientist Tim Berners-Lee created a protocol for sharing text documents electronically. 

This marked a new era of productivity – information was now viewable anytime by anyone with the right address. 

Web1 had limited user interaction so it was largely “read-only” and content was rarely user generated. People most commonly shared music, images, and media from external sources. It was a more decentralized era, where almost anyone could host a server, and new websites were often found via word of mouth or directories.

Web2: A short overview

Web2 is the version of the internet we’re most familiar with – it’s the internet we know and use today and is characterized by:

  • User-generated content - Users can create and publish content.
  • User collaboration - Users can easily 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. 
  • Opaque operations - Corporate transactions and internal policy-making are conducted privately, away from public scrutiny. 
  • Commoditized user data - Companies let you use their service in exchange for your personal information which is often used for targeted advertising. 
  • Centralization - Web2’s infrastructure and services are managed by a handful of large companies.

Web2 evolved from Web1's limitations, introducing user-generated content and interaction. This shift transformed the static, “read-only” nature of Web1 into a dynamic, collaborative environment. It also brought responsive and personalized content, marking a significant advancement over Web1's manual search and basic browsing. However, these innovations introduced challenges of their own.

Now, Web3 is poised to address some of Web2's major challenges, including the increased centralization of control, reduced operational transparency, and concerns about personal data ownership.

The tech behind Web3

Web3 is a culmination of recent technologies, namely blockchain, cryptocurrency, and non-fungible tokens (NFTs). When Gavin Wood, co-founder of the cryptocurrency Ethereum, introduced the concept of Web3 he described it as having four main components: 

  1. Static content publication - A decentralized, encrypted way to publish information. 
  2. Pseudonymous messaging - Communication between people using fictitious names. 
  3. Trustless transactions -  No middleman or third party between transactions. Malicious interventions are nearly impossible.
  4. Integrated user interface - A browser that brings all the above together.

Breaking down what that means in ways we can all understand. Web3 can allow people to: 

  • Pay for goods and services without the need for a third party (via cryptocurrency)
  • Own their data and see how it’s being used (via blockchain). 
  • Make decisions on how apps and platforms are managed (via governance tokens). 
  • Prove ownership of digital assets via NFTs (non-fungible tokens).

Beyond direct benefits for users, Web3 is starting to change the way consumers and brands think about ownership.

Take your favorite IKEA mug, for example. It's clearly yours: you keep it in your cabinet, use it for your morning coffee, and wash it yourself. Even though it looks identical to many others in IKEA, it's uniquely yours. In the digital world, Web3 uses NFTs to create a similar sense of ownership. With NFTs, a digital item you own is unique and linked to your digital wallet, not just an account with a company. 

This type of digital ownership can also be used to prove ownership of physical items, further blurring the line between the physical and digital. 

The 4 pillars of Web3 

1. Identity protection

A 2023 study revealed that 81% of Americans are significantly concerned and confused about how companies use their data. This concern highlights a disconnect between user perceptions and the practical use of data in marketing. While data often drives ads related to users' recent web searches, the average internet user remains skeptical. They lack assurance that their data is being handled ethically and fail to see the immediate benefits. 

From a marketer’s perspective, this is perplexing – intuitively, a user might prefer a relevant ad over a random one. Yet, internet users often feel like they’re treated as mere revenue sources. And unfortunately, even with the best intentions, user data has, in the past, suffered from breaches, sales, theft, and exploitation. Some of the biggest data breaches in the last few years include: 

  • Alibaba (2022) - 1.1 billion users
  • Lastpass (2022) - 30 million users
  • Facebook (2021) - 530 million users
  • Yahoo (2017) - 3 billion users

With Web3, a user’s digital wallet is their identity, and this identity isn’t their job, name, personal address or bank details – it’s just their behavior (i.e. their transactions). Web3 users operate under pseudonyms where an individual doesn'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. Personal data can be shared by users in exchange for direct, tangible benefits to them. If they’d rather remain private, it’s their choice to do so. 

2. Ownership

Web3's blockchain technology changes the way ownership works, moving beyond just accessing digital content on websites. This shift is particularly advantageous for artists and content creators, offering easy tracking and verification of their original work.

Digital assets can be bought, sold, or transferred without requiring third-party intervention or permission. All the while, physical assets can be verified with, or complemented by, the digital asset. For instance, you could easily sell a digital copy of a book like "The Alchemist" to a friend, or verify the authenticity of a one-of-a-kind signed copy through an accompanying NFT.Though perhaps the largest shift is the possibility for platforms to be owned and managed without centralized leadership. A platform’s governance could be determined by a board of users that follows an automated contract that lays out the rules of operation.

3. Trustless transactions

Most transactions today are processed via Web2 and therefore occur through a conventional bank or payment provider. This infrastructure can exclude those who don’t 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 to verify transactions. This is enabled by the blockchain’s unique building blocks that allow transactions to occur automatically when certain conditions are met. It’s like walking right out of a grocery store with your food and your payment automatically being deducted without having to check out!

4. Democratization

Although anyone can make any website, most of the world’s web 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 oppressive. Web3 platforms could change this.As blockchains are maintained by decentralized users, instead of centralized entities, the chances of censorship are greatly reduced. It's important to note that this reduction in censorship could have both positive and negative implications depending on the context.  Additionally, since your data resides on the blockchain, seamless data transfer between platforms becomes possible. This ensures that if need to leave a platform for any reason, you won't incur data loss.

Why Web3 matters to brands and marketers (right now)

Web2 has surfaced some bad blood between users and marketers.

Digital marketers have come to rely on personal data collection, like third-party cookies, for targeted advertising. For users, incessant data collection can be confusing and obtrusive. As a result, marketers have come to have a love-hate relationship with personal data: We don't want our own data to be commoditized or exploited, but we appreciate being able to target potential customers based on their demographics and preferences. No matter which way you square it though, customer acquisition today isn’t what it was a few years ago:

  • The average cost per lead has increased significantly, with 21 of 23 industries seeing an increase in Google CPL year over year, with an average overall increase of 19% (Wordstream). 
  • Customer acquisition costs have increased by more than 20% since 2013 (SimplicityDX).
  • Cost per click in Google search has also increased, with a rise from $4.01 in 2022 to $4.22 in 2023 (Wordstream).

Research by Sandvine found that the "Big 6" (Facebook, Microsoft, Amazon, Google, Apple, and Netflix) still generate almost half of all internet traffic, with Google and Netflix pulling in the largest share. Google owns more than 90% of the search market (StatCounter). Meta boasts over 42% of worldwide social media users between Facebook, Instagram, and WhatsApp (Statista). And YouTube represents 20.4% of all downstream traffic on mobile networks (Sandvine).

These platforms are hypercompetitive and it’s little wonder why. The company that spends the most on advertising typically wins and smaller companies find it increasingly difficult to enter the market. 

Web3 has the potential to reshape this marketer-user dynamic and decentralize control. In a Web3 environment, marketers can still process user data for targeted marketing, but users gain newfound control and transparency over the data’s usage. 

The connection between Web3 and NFTs

Non-fungible tokens (NFTs) are one of the more famous elements of Web3. But, it’s also a large part of how Web3 can be so decentralized. So what are NFTs? And how are they connected to Web3? 

An NFT is a digital item registered on a blockchain database that handles its ownership automatically. If that digital item is traded, exchanged, bought, or sold, the blockchain will have an account of it. These digital items are also verifiably unique with a piece of code attached that makes it different from other digital items that may, on the surface level, look similar. The uses of NFTs go beyond pixelated avatars and memes.

NFTs essentially solve the issue of uniqueness we outlined earlier with the coffee mug example. Some existing use cases of NFTs include: 

How a brand could use NFTs for a membership program
Let’s say you’re the Head of Marketing for Taylor Swift, gearing up for her next album launch. (Nice job btw!)You could create an NFT collection based on Taylor’s new album’s artwork. These NFTs would act like digital passes, offering her fans special perks. They could give fans early access to merchandise, discounts on tour tickets, exclusive rights to a signed vinyl album, or even an invite to an online event with Taylor herself. You’ve essentially created a VIP membership club for Taylor’s most devoted fans.

What should brands know about Web3?

Web3 gives you a competitive advantage

45% of new businesses fail within the first five years. It’s incredibly difficult to make your brand stand out from the herd. This is compounded by the changes in how customers interact with their favorite brands. It wasn’t too long ago when a shop front was a company's main point of contact with its customers. Now, people expect you to be available via Whatsapp, email, Facebook Messenger, Twitter, phone, and more. 

Delve into your USP and strategize how your brand will keep in contact with customers while incentivizing their loyalty. Web3-backed loyalty and membership programs can:

Customers don’t want to be treated like numbers

Faceless, inauthentic, strictly transactional relationships between your brand and your customers just won’t cut it in the long run. Many people have become disillusioned with how their data is used and are actively seeking out brands that can engage with them on their terms. People want deeper relationships with their brands. Wunderman’s “Wantedness” study found that 79% of consumers said they would only buy from brands that demonstrate they care about consumers before they are going to consider a purchase. 

Certain companies could become redundant

The decentralized nature of Web3 means that third parties could be eliminated from certain transactions. These crucial business decisions could instead be implemented via self-executing contracts. When you consider that some companies' core business models – for example, a payment processor, social media marketing company, or a ride-sharing company –  rely on providing a middle-man service, their future could be in jeopardy if diversification via Web3 is not considered. 

A new dawn in loyalty and membership programs is here

According to Salesforce's State of the Connected Consumer report, 56% of consumers are more inclined to buy from brands with a loyalty program. But beyond that consumers want loyalty programs to offer personalized rewards through a seamless customer experience. The 2022 North America Customer Loyalty Report highlights three key trends in loyalty marketing:

  1. Personalization
  2. Utilizing/leveraging loyalty data
  3. Offering a seamless omnichannel loyalty experience

With the advent of Web3 and NFTs, brands are finding innovative ways to reward customers, offering new possibilities for creating seamless, interoperable loyalty programs. Leading brands are already utilizing Web3 and NFTs to enhance their loyalty and membership programs, setting a new precedent.

How a small brewery could create a unique loyalty program
If an independent brewery wanted to reward its fans, it could set up an exclusive Web3-powered membership program. In this program, customers receive a virtual token (NFT) in return for a monthly subscription fee. With this token, the customer can enjoy exclusive benefits like discounts, complimentary drinks, and access to brewery tours and events. The brewery could also easily explore collaborations with other local businesses to expand the membership program, allowing customers to redeem rewards from various establishments. Thanks to blockchain, the program would seamlessly integrate with other Web3-powered programs, requiring minimal effort or infrastructure on the brewery’s part.

Customers are becoming partners

In a democratized business model, users can have stakes in the platforms that they use and effectively become partners just as much as customers. In this business model, the decentralized infrastructure of Web3 is utilized to give each token holder of a business some amount of voting power on decisions that the business makes. It creates the opportunity to turn a passive customer into an engaged, participating collaborator who could even receive direct payments for their efforts.

Customer data points are changing 

Web3 has the potential to reshape the advertising landscape. Marketers will need to adapt to interpreting Web3 metrics and data. This includes understanding customer wallet activity, transaction history, NFT holding duration, and their other NFT holdings. Customers have the option to link their digital wallets and share personal data in return for tangible benefits. 

Co-marketing opportunities are growing

‍Brand collaborations continue to be a powerful, mutually beneficial way for multiple brands to tap into one another’s customer bases. Of course, brand collaborations certainly aren’t new. But the exciting ways that Web3 enables collaboration certainly are. For example, brands that have created NFTs that have been bought and sold can look at what other NFTs their customers own. If there’s a shared audience they didn’t know about before, new brands, new opportunities, and conversations can be started that eventually lead to powerful collaborations.

How can your brand 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 uses. Using our platform, NFT holders can get access to unique perks like event passes, digital goods, physical merchandise, discount codes, and more.

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