4 min read

Understanding Web2 vs Web3

Understanding Web2 vs Web3
Photo by Joshua Sortino / Unsplash

Before diving into learnings, I wanted to shout out @EricJorgenson for his incredibly informative 'fireside chat' on web3 as part of his Jorgenson's Soundbox podcast. For those unfamiliar with Eric's work, it's worth a look. He's got a knack for interviewing interesting people across topics and synthesizing seemingly disparate topics into a fairly coherent view of the future.

Now, onto the main topic...

At first glance, web3 just sounds like yet another buzzword making its way through the websphere. Silicon Valley needed yet another topic to obsess over that's only marginally different than what exists today, right? I thought so too. But a quick dive into the fundamentals of what web3 is about reveals something different.

In short, if web2 what about democratization, it seems web3 is all about decentralization (another buzzword!). But to explain the differences, let me talk through some basics and, more interestingly, implications of what a fully realized web3 may lead to.

At the heart of web3 is something we've all heard about: the blockchain. An oversimplified (but sufficiently accurate) way to think about the blockchain that Jorgenson lays out is to imagine a massive database openly viewable by anyone, but only editable under certain circumstances. Specifically, a blockchain has near-perfect permissioning where a person can see the entire blockchain's data, but can only edit/append/erase a very specific 'block' based on what transaction they're party to. Because changes to the blockchain have to be verified by any N participants in the blockchain network, we can have faith in the blockchain's accuracy without having to trust any central authority.

A helpful counterexample is to think about transacting with a credit card at a shop: in order for a transaction to work, both the customer and the merchant have to trust the network behind the credit card (Visa, Mastercard, etc.) and the underwriting bank associated with the funds (Chase, BoA, etc.) to verify that the transaction is possible, has the funds to complete, and is recorded. These are 'centralized' parties that all take their financial cut of the transaction to provide 'trust as a service'.

The blockchain removes the need for these various central parties because the network itself (whether it's the Bitcoin network or the Ethereum network, etc.) verifies the occurrence and feasibility of the transaction and updates the single, unchangeable blockchain. In sum, transactions are simpler (less parties involved) and ultimately cheaper.

This is critical to understanding what Web3 is all about: cheaper transaction costs.

Web2, with the onset of social networks, user-generated content, etc. made communication infinitely cheaper. A person embracing web2 went from interacting with a handful of people they'd encounter in their physical world daily to interacting with tens (if not hundreds) of people in a day online. It became possible to maintain 'weak ties' with many more people online than the physical world, restricted by one's geography and access, allowed for.

So, if web2's cheaper communication enabled more interactions & relationships, what does web3's cheaper transactions enable? Let's throw out a few potential ideas:

  • Infinitely more transactions in a day. Imagine having the ability to pay for goods in smaller amounts more frequently. Costs associated with consumption of media (for example) currently setup as monthly subscriptions for access, like Spotify or Netflix, could evolve to 'pay per minute' or some other consumption based model
  • We could monetize more content. Tweets and photos we post online currently only benefit the networks hosting them (Twitter, FB). Web3 would enable you, as the creator of that content in an advertising-driven business, to get paid per impression for the work your content does to drive attention towards ads.
  • Fractional ownership becomes easier. A house, now typically owned and controlled by a single owner/entity, can be infinitely subdivided and owned by several owners. Use of the property, voting on how changes to the property are made, and how future earnings on the property are divided can all be defined by smart contracts (more on this in a future post) and transacted upon feasibly. Negligibly low transaction costs and trustless ownership enabled by the blockchain make this possible. What used to be defined in contracts can be captured in clearly-defined code.
  • Displacement of banks and financial institutions ultimately leading to lower costs for consumers. In a web2 world, we rely heavily on central banks and authorities to define lending terms, assume risk, and provide financial tools. As mentioned earlier, the services these institutions provide are trust and organization (among a few others). They make their money through fees, interest, etc. in exchange for providing this service. A web3 world takes on the role of providing these services in a decentralized manner, eliminating the need to pay for these services (or at least paying as much for these services as we do today) and lowering the cost to use financial tools. This is a core tenet of DeFi (again, deserves a future post).
  • Media and content distribution becomes simpler. Today, record labels, movie studios, publishers, etc. provide the essential service of distributing media and collecting payments for consumption of that media. They assume the central role of enforcing 'property ownership' (intellectual property, in this case). Web3 enforces ownership through the blockchain and can facilitate payment for consumption, too. Consequently, artists and creators are empowered to distribute their own creations and collect payment from consumers on their terms. This is perhaps the one web3 evolution I am most excited about.

If nothing else resonates from this post, let it be this: Web3 takes ownership and payments squarely out of the hands of big, centralized players and puts these functions squarely in the hands of individuals. The blockhain takes on the burden of providing security (trustless) and organization. As a result, everything (transactions, in particular) become substantially cheaper.

Needless to say, it's incredibly early days. What the web3 paradigm enables in our world is going to be one wild, exciting ride. Ā  Ā