27.02.2023 IT Farvest Decrypt Tech Web3

Web3: only a speculative bubble?

web3 only a speculative bubble

Not a day goes by without hearing news about cryptocurrencies, blockchain, or the Metaverse, but very few know the technology behind these trendy technologies, being Web 3.0. The latter is generally seen as a nebulous concept, which both definition and utility are often overlooked, or simply misunderstood. So let’s rewind, and dive into these (not so) unclear waters.

One of the first trends directly linked to Web 3.0 was Bitcoin, the first digital asset (cryptocurrency) maintained by a decentralized system relying on cryptography. From a vague concept it soon became mainstream, as other digital assets emerged in the meantime. The underlying technology behind is called blockchain – which experienced a similar success.

This technology is called “distributed ledger”, and is actually a database that is universally shared and synchronized across a network of computers – and not a single computer. As Web 3.0 – also known as Web3 – is often reduced to simply blockchain (and by extension crypto and NFTs), it actually encompasses them all. It is therefore to understand that Web3 promises to considerably change how information is stored, shared, and owned. 

To offer an overview, Web3: 

  • is decentralized, meaning that ownership get distributed among its builders and users
  • is permissionless, meaning that everyone has equal access to take part
  • has native payments, meaning that it uses cryptocurrency for spending and sending money
  • is trustless, meaning that it relies on incentive and economic mechanisms

In other words, it appears like Web3 is the logical next step when it comes to the Internet – or simply technological – evolution, following Web1 and Web2. 

Ethereum Co-Founder Gavin Wood – who coined the term Web 3.0 – explained back in 2014 that Web3 is a “reimagination of the sorts of things we already use the web for”, in the sense that it is built upon a different model which shifts interactions between parties. 

As Web3 relies on blockchains, cryptocurrencies, and NFTs, it aims at giving power back to the users in the form of ownership. The latter is what makes this technology different from the previous web versions. As a reminder, Web1 was read-only, Web2 is read-write, and now Web3 will add the term “own”. This means that users will have full control over data they (choose to) share, which Web2 did not allow. 

This hence enables users to decide, for the first time, whom they share their data with. But anything shared on the blockchain is immutable which simply means that there is no way to delete it – there are no mistakes allowed

On top of this, they will be able to store their own data (personal information) at one single place, being their crypto wallet. The latter could for instance serve as a centralized identity to visit sites – hence turning the Internet  as a passwordless space. What makes this possible is the nature of DApps (Decentralized Applications) – applications lying under Web 3.0 – which are built on peer-to-peer networks, such as Ethereum. 

Besides, not only users can own their data, but they can also own a Web3 platform as a collective, using tokens that can be compared to shares in a company. These online member-owned communities – supervised by their members’ consensus and not a centralized leadership – are called Decentralized Autonomous Organizations (DAOs). 

A smart contract rules the DAO, aiming at designing the rules of the organization and holding the group’s treasury. Changes to the smart contract can only be brought through a vote process, just like any decisions to be taken. This ensures that everyone has their voice heard within the organization, and every decision happens transparently on-chain. 

Many brands, such as Microsoft or PayPal, have accepted to introduce themselves slowly to Web3. Their way to first experiment with Web3 is through cryptocurrencies, and second through NFTs – which refer to a”digital deed” ownership records of unique digital objects. A lot of projects were built around this, so as to deliver exclusivity to customers; these assets are nevertheless only valuable if users believe in their value. Not to mention that Web3 does not prevent scams or security breaches as – for instance – some brands like Nike or OpenSea experienced issues with unauthorized or imitated NFTs. 

Although Web3 promises more security, more transparency, and overall more freedom compared to the previous web versions – while it is still under development – it does already present hazards, as understood above. A statement that Molly White, software engineer, underlines in her blog posts. She reminds that Web3 – in spite of the rhetoric regarding its many advantages – remains a speculative bubble, based on belief. 

In one of her blog posts, she mentions that “the primary successes of web3 have been in shiny marketing selling people the opportunity to invest in vaporware. In regulatory arbitrage, exploiting the fact that regulators have been slow and hesitant to act on unregistered offerings”. 

On paper, no one can ignore that Web3 does open up new possibilities to create new communication channels, new connections, and an unprecedented governance. And in reality, the ecosystem must address the current Web3 set of flaws, especially when it comes to security. 

Blockchain use comes at a cost. Decentralization is great but it complexifies technology, which hence jeopardizes users’ digital experience security. Two key features of Web3 are immutability and decentralization: this means for instance that users cannot overturn a transaction – even done by mistake. Similarly, fraudulent transactions cannot be undone as there is no centralized authority controlling exchanges achieved on blockchain. 

Furthermore, “imagine if, when you Venmo-ed your Tinder date for your half of the meal, they could now see every other transaction you’d ever made—and not just on Venmo, but the ones you made with your credit card, bank transfer, or other apps, and with no option to set the visibility of the transfer to ‘private’”, wrote Molly White. In other words, every transaction done on the blockchain is public, and then jeopardizes users’ both anonymity and privacy. This could also arouse abuse and harassment from ill-intended individuals. 

The overall problem lies in the immutability nature of the blockchain – for any type of data – which hence causes legal problems, notably in terms of respecting General Data Protection Regulation (GDPR) as it enshrines the right to erasure. 

And this is only the tip of the iceberg when citing hazardous behaviors and practices on Web3. For now, it will be difficult to say whether or not this new technology will truly take shape. This is to be defined with new legislations to regulate Web3 features and its future (use). 

For now, so as to still comply with GDPR and other similar regulations, companies that decided to jump in Web3 choose to take the best of both worlds by adopting a hybrid approach. This enables them to select which information they put on the blockchain. 

In spite of all these concerns, Ethereum cofounder Vitalik Buterin is willing to keep optimistic about Web3 future: “I think the properly authenticated decentralized blockchain world is coming and is much closer to being here than many people think”. While there is room for improvement, Web3 is still young and evolving, and actually aims for creating a better Web.