Our species is moving from a pre-computing civilization towards a post-computing civilization in which the effects of this shift will be profound and widespread. Currently, software is literally eating the world and impacting every aspect of our lives. Long-term, technology will give rise to techno-humanism, where improvements in life will be enabled by advancements in technology.
This shift, however, will not occur overnight. Instead, it will unfold over the course of sequential technological eras, each of which can be characterized by distinct features. In this thesis, we outline the different eras of this shift with the emphasis on the previous era, Web2, its pitfalls, and how to overcome them. Furthermore, the significance and urgency of the new era, the so-called Web3, will be elaborated upon using the notions of trust and decentralization.
These shifts in trust and decentralization will allow entrepreneurs to develop self-sovereign platforms that will be open-source instead of relying on the infrastructure of tech behemoths. Self-sovereign ownership and control of data will come to full fruition in Web3. As Web3 is such a big necessity and its effects will be so profound, it became the raison d’être for AW3Labs (Accelerating Web3 Labs).
As the thesis about Web3 is rather long, we will publish it in three pieces.
Let’s start with some history. The first era (part of the shift towards a post-computing civilization) we will discuss is the Internet.
The Internet (1970-1990)
The Internet is about the physical wiring and network protocols that govern how computers communicate with each other. One of the most widely known protocols of the internet is the Internet Protocol Suite (TCP/IP). The internet hosts several services like the World Wide Web (which will be discussed in the next era), electronic mail (e-mail), and file transfer.
The internet originates from the ARPANET, which was used for connecting academic and military networks in the 1970s. In the 1980s substantial progress was made in making the internet more accessible and with the advent of commercial Internet Service Providers in 1989 in the US and the decommissioning of the ARPANET in 1990, the Internet slowly progressed towards the next era.
Web 1.0 (1990’s)
Web 1.0 coincides with the commercial opening of the Internet. The web is a document and application platform characterized by protocols we still use today like TCP, HTTP, and more.
Tim Berners-Lee, known as the inventor of the World Wide Web, built all the necessary tools for the Web1 by the end of 1990, like the Hypertext Transfer Protocol (HTTPS), HyperText Markup Language (HTML), web server, and the first web pages that described the World Wide Web. It began with pages connected to each other, thereby gradually creating the highly successful web of information that we still use today. The Internet became accessible to all through these new protocols and applications, where browsers like Netscape enabled anybody to access a webpage and early indexes allowed users to easily find these pages.
The Web1 was preliminary static and read-only content, where websites were built mainly with HTML pages to display information and hosted on ISP-run web servers, or on free web hosting services.
Web 2.0 (early 2000’s)
Web 2.0 is often referred to as the Participatory or Social Web. Contrary to websites in the Web1 era, where people could only view content passively, websites gradually became more interactive in the Web2 era.
One hallmark of Web2 is its dynamic and interactive nature, sometimes called the read-write web, where programs are linked to content. Most of the applications you use today can be considered to be Web2 applications, where the interactive nature allows you to upload pictures, sell goods, order food or a taxi, and more.
Within Web2, Web1 matured further; apps became easy to build, anyone could build a website or online business for relatively low costs. The web stack becoming accessible to all with an internet connection sparked unprecedented innovation. For instance, the big five tech giants came into existence during this period (Facebook, Amazon, Apple, Microsoft, Google). Although services in Web2 still accessed the open protocols built in the previous Web1 era, they increasingly became mediated by the tech behemoths. This is an important distinction to which we return later on.
Web3 (2008- in the making)
Briefly, Web3 is a new era of the Internet. In Web3, a new set of protocols are being built and utilized by new technologies and innovations. These new protocols introduce a degree of decentralization. However, Web3 is more than blockchains. People are working on a decentralized web, rethinking how browsers operate and changing the way in which we retrieve information. It is making the web integrate with blockchain networks while ensuring that this wave operates in a manner that mitigates the pitfalls of Web2. In this sense, the term Web3 is a bit misleading. Instead of merely building on a reiteration of Web2, Web3 can be seen as a reset; it offers a fundamentally different approach to digital communication and the underlying technology stack.
According to Ethereum co-founder Gavin Wood, ‘Web3 is an inclusive set of protocols to provide building blocks for application makers. These building blocks take the place of traditional web technologies… but present a whole new way of creating applications’. Its significance can be counterintuitive for some but the implications will be widespread. Web3 isn’t only blockchain, but it encompasses a new set of technologies, like distributed ledger technology, Artificial Intelligence, Machine Learning, virtual- and augmented reality, and many innovations to come. Altogether, and especially when all these technologies work together, it will radically change how we view and interact with the Internet. The consequences are often misunderstood. The technologies that are combined in a decentralized matter, are hitting the peak of their adoption s-curve, and the convergence of so many technological innovations converging simultaneously is something that we previously only saw at the beginning of the 1900s (telephone, automobile, electricity). It will spark growth, unlike anything we have ever seen before.
To grasp what the impact of Web3 will be, we’ll first take yet another step back into the structures of the Web2 world to see how trust is formalized between parties and how data is shared.
Data sharing and ledgers in Web 2.0
The world and data underlying the world we live in are constituted by databases, sometimes referred to as ledgers. Governments and other institutions are authorized to maintain certain ledgers resulting from the relative reputation of the respective government/institution. Depending on where you live in this world, your government is the gatekeeper of the ledgers containing data on citizenship, property ownership, taxation obligations, and much more. Firms, in turn, also have proprietary ledgers containing data of intellectual property and information such as suppliers, customers, and more. Maintaining ledgers enables companies and institutions to operate more efficiently and, depending on reputation and authority, certain stakeholders are trusted to be the gatekeepers of specific ledgers.
Here is the important part: in order to cooperate between two parties, ledgers and the data need reconciliation on what the ‘truth’ is; what ‘state’ of the ledger is deemed to be true. An example is the data reconciliation between two banks occurring at the end of each day. Two banks reconcile the data with each other, all transactions are processed, and both banks agree on the state of the ledger. Although this process of reconciliation is inefficient and expensive, it is required to reduce the transaction costs- and thereby enables cooperation between two different parties, in this case, two banks. Although financial processes like these are notably archaic (often dating back to the ’70s), with innovations nowadays consisting solely of fancy front-end updates or other incremental improvements, these processes underpin our banking system. As we will discuss later in the paper, however, we can do much better.
To better grasp how we ended up with incredibly outdated processes on suboptimal data structures in the current version of the Web, it’s important to look into what transaction costs are and how this relates to ledgers.
Oliver Williamson, the 2009 Nobel laureate in economics, argued that people produce and exchange in markets, firms, or governments depending on the relative transaction costs of each institution. This transaction cost theory offers key insights into what institutions manage ledgers and why this is necessary.
According to Oliver Williamson, transaction costs can be divided into three categories;
All three are important to understand, so let’s discuss all three aspects of transaction costs in relation to ledgers.
If two parties need to interact with each other, it is paramount that both parties agree on what the truth is and what the definite state of a ledger is. Does party A indeed have the specific good that party B wants (search and information costs)? Is the representative of party A able to sign the contract to deliver the goods to party B (bargaining and decision costs)? How can we ensure that both parties stick to the agreements that were made for the transaction of the goods (policing and enforcement costs)?
All of these very rudimentary elements of cooperation between parties from transaction cost theory are affected by the state of the ledgers. The only way to know whether party A indeed has the goods that party B wants is to know the exact state of the ledger of inventory. The only way to efficiently negotiate a contract is to know the exact state of the ledger of employees entitled to sign the specific contract. And the only way to enforce the terms that both parties agreed upon is to monitor the state of ledgers – are the payments done, are the goods sent in a timely manner, etc.
The principal problem that thus arises pertains to how data is shared between parties and how ledgers operate, and the fact that you cannot simply trust another party, especially if stakes are high.
To reduce transaction costs and to enable two parties that cannot by default trust each other (due to arguments just discussed) to cooperate, centralization is required to foster trust.
Trust and Cooperation
Cooperation has been possible on a global scale giving rise to globalization due to the notion of trust. Trust, however, is an elusive concept that is often misunderstood and is such a vital element in the way we interact with each other that people aren’t fully aware of the notion. Trust essentially means having sufficient confidence that interaction with another party is going to end well. As hunters and gatherers, trust was based on facial expression and body language. This is social trust. In modern times, institutions like schools, nation-states, local governments, and corporations facilitate trust. Institutional trust has allowed societies to scale trust, thereby giving rise to wider spread cooperation and interaction. You can currently buy shoes shipped from a country on the other side of the world because you trust the merchant, such as Amazon, to ensure the interaction with the other party goes well. Thus, ‘institutions’ allow trust to go beyond our human nature of direct social interactions.
These trust mechanisms, however, are merely based on reputation and centralization. The fact that you trust the credit card of your bank is probably because your financial institution has a reputable name and is insured by taxpayer money. It’s surely not because the credit card system is secure (google credit card + hack/fraud). However, as there is a good chance that after fraudulent transactions with your credit card, you get a full refund from the bank, you have sufficient confidence that the interactions with your bank will end well. Moreover, as there are institutions supervising your bank, and these institutions are also supervised by other institutions, this confidence is increased by trusting the reputations of these authoritative bodies, hence centralizing the supervision process by introducing additional institutions: ‘institutional trust’. These structures are found in all elements of our society. The cost of trust is about 35% of the US economy and these findings can be extrapolated to most Western economies. It does not produce wealth, but it is merely an input condition for economies to work. With the increasing complexity of economies as well as the distance between exchanging counterparties in a globalizing world, we expect the cost of trust to only further increase.
Combining trust, ledgers, transaction costs
These centralized supervisory institutions foster trust by supervising ledgers. It’s the banking institutions that are guarding the proper working of ledgers when you make a transaction. As banks build a reputation or are granted the supervisory privilege of guarding these ledgers, transaction costs are reduced and cooperation becomes possible (in this case sending a transaction). To ensure that these ‘trustees’ act as expected, processes are increasingly centralized – centralizing centralization. By introducing institutional trust, we have been able to scale trust and therefore cooperation between parties.
There are, however, also huge drawbacks and it seems that, with technological advancements, the dawn of institutional trust might gradually diminish. The reason being that the centralization of trust, as well as how Web2 is characterized, results in many scandals like data hacks or car emission scandals, but also bigger scandals like institutional trust failing to prevent the financial crisis of 2017. It is the trust mechanism itself really that is failing and thus paving the way for economic opportunism. Current centralized, digital ledgers enabled dramatic increases in organizational size and scope, but rely entirely on trust in the centralized institutions – and as we will see, this is problematic.
In retrospect, Web2 has obviously benefited us enormously, it literally changed everything. The internet and the applications built on top of it gave rise to globalization and e-commerce, radically changing our social lives, and impacting the way we interact with each other. If we critically look into the applications built in Web2 though, we do see huge cracks in how society operates and parties interact. We’ll discuss the biggest cracks in this paper.
A handful of the biggest tech companies in the world have been able to monopolize essential services on their platforms. Since these services are increasingly becoming essential in the digital age, but simultaneously have enormous barriers to entry, the current landscape is characterized by an absence of healthy competition.
Cloud services for data retention and computation are limited to a subset of technical behemoths. Before the recent entry of Snowflake, you could only really choose between Google (GCP), Amazon (AWS), and Microsoft (Azure). Apart from the unfavorable multi-year contracts that are tailor-made to lock you in, they are often combined with a host of other services. The centralization of these services is also becoming more problematic as companies increasingly become digital and therefore become dependent on these cloud providers. The digital economy is severely impaired by the regular outages that occur on these platforms. Of course, you could pay for a better contract and improve the uptime, but it’s really a race to the bottom.
Along the cloud aspect, the infrastructure from other tech behemoths is also problematic as it becomes a critical dependency for many other companies. On the Programmable Web, big tech giants share their data and functionalities through APIs, which result in many companies innovating in new ways and becoming dependent on the companies providing the APIs. One notable example of the pitfalls of such dependencies is Zynga, which became the largest social gaming company – preliminary by publishing via Facebook and eventually even launching an IPO. Disaster struck when Facebook changed the rules of the game, which eventually led to a value worth billions of dollars that have been lost practically overnight. Another example is the many thousands of startups that were using LinkedIn’s APIs in their services and products, which were inhibited by the API access revoke of LinkedIn after being purchased by Microsoft. Obviously, this didn’t impact the huge tech giants like Salesforce, further strengthening our point that Web2 makes tech behemoths increasingly powerful. Mobile applications that are required to ship a substantial amount of their profit to Google and the Apple App store is another example of this.
This is also throttling innovation. Looking at the average pitch deck, chances are that you’ll see ‘platform threat’ popped up prominently in the SWOT analysis. Companies, whether incumbents or more mature, live and die by the services provided by a few big tech companies. Companies can be dependent on google search recommendations, social media ads, and artists and entrepreneurs can be de-platformed instantly from the platforms on which they depend e.g., YouTube, Spotify, Instagram, etc. Just as humans became increasingly dependent on the services of just a few companies, this now increasingly applies to companies themselves.
In multiple products and services, tech monopolies are aggregating data, which are in turn used in other applications, continuing the data collection cycle. Today, we increasingly see companies building their IP not solely on technology, but rather on proprietary data and its derivatives. For example, the interface of Google Maps can be copied easily, but a key part of Google’s added value is its ability to predict real-time traffic and optimal routes. This is very difficult to copy unless you can leverage real-time user data from other devices. Apple can do so in the US (Apple Maps is closing in on Google Maps in the US), but not in certain countries where the user base of Apple is smaller.
In other words, data has become a barrier to entry for certain markets, thereby preventing competitors from entering the market due to insufficient data. This inequality is aggravated as the proprietary data that is being gathered is giving tech companies advantages in other markets too. This is the very reason many markets fear disruption by tech companies, exemplified with Apple introducing a credit card or Google building self-driving cars. The WEF concluded that big tech corporations pose a bigger threat to banks’ underlying business model than the more diverse fintech sector.
Data is not solely a proprietary asset that creates a barrier to entry, hence fostering the monopolization of these tech behemoths, it also positions companies to disrupt other markets, thereby increasingly threatening incumbents in many industries.
This concern is also exemplified by several extensive government investigations into four of the world’s most valuable tech companies, paving the way for new legal proposals that will drastically alter antitrust enforcement in the years to come.
Against Google, for example, four antitrust lawsuits are ongoing as of 2021. The third one, coming from a coalition of over 30 US states, is covering both the infrastructure monopolization as well as the data monopoly. Google has used its monopoly over general search (‘Googling’) to discriminate against other vertical search results. In essence, Google displays search results in an order to keep traffic flowing to its own properties thereby discriminating against other companies. It’s incredibly hard to get out of the Google loop when you search. The fourth lawsuit that was recently filed, alleges the company of market abuse related to its Play Store on Android.
Fig 3: Antitrust law against Google
Fortunately, we are seeing a similar trend in Europe, where the European Commission proposed new legislative initiatives to adjust the rules governing digital services in the EU. However, the real underlying problem is inherent in the way Web2 is constructed.
Autonomy and identity
In Web2.0, autonomy is not in the hands of the users. If you want to pay a friend, you’ll have to authorize (and pay astonishing fees) a third party to perform such an innocuous task, which should be within direct reach for all.
The companies we utilize to run (increasingly critical) services for us, whether it’s a financial institution to send money, or Instagram to contact your friends, or even maintain your online digital identity (such as a google log-in), do not have obviously malicious intentions. However, they are only occasionally acting in line with principles that promote the interests and wellbeing of their users.
Besides only occasionally acting in accordance with such principles, there is also a concerning trend toward what is commonly described as an S-curved adoption diagram, where with increasing adoption of a platform, the tendency of companies changes from attracting users towards extracting value from the users. On top of the S-curve, the relationship of companies with network participants changes from positive-sum to zero-sum and there are numerous examples of this (Microsoft vs. Netscape, Google vs. Yelp, Facebook vs. Zynga, and Twitter vs. its 3rd-party clients)
Fig 4: S-curved relationship between platform and users/complements
A person’s autonomy, in essence, one’s ability to act in accordance with one’s own values and interests, is often absent in Web2 applications. This lack of autonomy is in large part due to the fact that the internet does not have a native Identity layer, as the purpose the architects of the Internet had in mind was authenticating computers, not authentication of natural persons. Resulting from this, we collectively ended up with the creative solutions of companies, often hurting the natural person itself. Recall how often you have uploaded a picture to register yourself for a service or needed to make yet another account on a new website using the same email address. The lack of a native identity layer goes beyond such practices, it also engendered more hazardous events. As your data is stored in dozens of databases scattered around the Web, these data silos are susceptible to a company’s own security (mal)practices. Moreover, they are often referred to as honeypots for fraud, which is painfully demonstrated with frequent and notorious data leaks. The lack of a native identity layer on the Internet harms a person’s autonomy and results in an undesirable dependence on others to create digital identities (logging us with Google or Facebook) as well as leaving our personal data susceptible to malpractices. More Information about digital ID will be published in a sequential thought-piece dedicated to this specific problem.
Corporations make a living from the monopolization of services, which on occasion even involves cutting people off entirely. This has been the case with many Twitter accounts where people are banned for raising their voices; or bank that are blocked if banks don’t like their customers cashing out some crypto profits. PayPal blocking WikiLeaks is another prominent example. Combine this with the increasing power of the tech behemoths due to data monopolization, and their ability to decide what you get to see on your news feed due to impenetrable algorithms or changing perspectives, and you should grasp the worsening situation. An important side note here is that counteracting misinformation is sometimes required in societies where misinformation is a chronic problem without an obvious solution. However, the risk of rampant censorship is tremendous if we continue to tread the current path.
While centralizing power in the hands of a few can work relatively well for some use cases, the subjective nature of such decisions is troubling. Examples not related to big tech but other actors include the recent blocking of certain internet services by Ugandan authorities or the flow of seemingly endless fines of corporate misbehaviors like the Libor scandal. With great power comes great responsibility, and this sometimes conflicts with making as much money as possible for one’s shareholders. Your internet searching data being resold dozens of times without your consent is an example of the Internet being open, but the services on top being corrupted, or at least not benefiting the community as a whole. Furthermore, the hallmark of the previous eras after the Internet has been coined the ‘Internet of Information’, but even here it falls short as information increasingly becomes unreliable, siloed, and sometimes even harmful – as when, for instance, fake news affects elections.
The inconvenient truth here is that these problems are inherent to the way we built Web2, and will thus become increasingly problematic as our lives become increasingly digitized. Consolidation is making the situation worse as the largest monopolies buy up the smaller monopolies.
Despite its initial promise of democratization, the digital architecture of Web2 will only solidify and further magnify society’s inequalities while it could be a force of change. We’re giving the full ownership of trust to these tech giants who have shown a consistent track record of infringing on our user data to benefit their own agenda. In the Web2 space, there are no options that offer sovereignty of identity/data to the users. That is why things need to change.
Bitcoin arrived in 2008, sparking off a new wave of innovations in computing and leading to the formation of Web3. In his white paper, Satoshi Nakamoto combined the existing internet protocols with robust cryptography. Through his genius, Bitcoin’s pseudonymous founder proved the possibility of achieving mathematical trust without involving the intermediaries typical of Web2, thereby overcoming the possibility to overcome the problems discussed in the previous chapter. To some extent, Satoshi’s innovation was a homage to Tim-Berners Lee’s conception of a global peer-to-peer network. But beyond that, it paved the way for resolving Web1’s most significant limitation—that is, incentivization and self-sustenance. Therefore, we must begin our analysis of Web3 by thanking Satoshi Nakamoto for showing us the way with Bitcoin.
The problem with Bitcoin, though, is its limited functionality. It was designed for one and only one purpose: peer-to-peer money. However, Ethereum co-founder Vitalik Buterin, among others, soon realized that decentralized networks had a much broader scope, which led to the formation of distributed computing platforms like Ethereum. The coinage of ‘Web3’ in 2014 was an outcome of Ethereum’s evolution, and Ethereum co-founder Gavin Wood later popularised the term in 2018. On this note, we must mention that Web3 entails a lot more than cryptography and distributed ledgers (blockchains). Similar to Web2, it is an interconnected network of protocols and applications, with the distinction of being predominantly decentralized. Because Ethereum facilitates the development and deployment of decentralized applications (dApps), it has been pivotal to the formation of Web3. Even today, most Web3 projects are based on Ethereum, although potent alternatives have arrived on the scene.
Embedding Trust & Securing Networks Mathematically
Trust is the cohesive force of social systems, and cyberspace is no exception. Individuals prefer to use services (and protocols) that they trust. We have previously mentioned that Web2 adopts an institutional model of trust, where institutions are trusted intermediaries and the gatekeepers to maintaining the state of ledgers. This, however, introduces many additional problems as previously discussed. If we do not change the way ledgers work, increasing centralization to monitor the central gatekeepers will inevitably lead to a vicious circle that only exacerbates the problems we currently face.
Web3, on the contrary, implements a reversed model of trust, positing individuals at a primary position relative to service providers. This is achieved by changing the way ledgers work and what actors maintain the state of the ledgers.
In the new era of the Web, Web3, the decentralized Web eliminates the need for centralized intermediaries and governance, replacing them with mathematics and game theory principles. Globally distributed networks of computers (nodes) collectively verify, secure, maintain, and upgrade the database algorithmically while recording changes immutably on the base layer (blockchain), as elaborated later. It puts the gatekeeper’s role of maintaining ledgers in the hands of many actors instead of a few selected tech behemoths and providing innovative incentives for all actors to act in a desirable manner.
Bitcoin, for instance, implements the Proof-of-Work (PoW) to achieve decentralized consensus among the network’s members, besides verifying and recording transactions (states) on the blockchain. Ethereum is in the process of changing it’s consensus mechanism, but the spirit of decentralization is the same. Therefore, under this new model, trust is embedded in Web3 systems due to the way it operates and remains the state of ledgers.
This innovative and radically new way of operating ledgers is often compared to the invention of double-entry bookkeeping in Northern Italy in the 15th century. This invention likewise promoted a new way of maintaining ledgers (with double-entries), enabling a way of scaling economic coordination, and ultimately leading to Florence becoming the cradle of the Renaissance. Nowadays, however, blockchain technology allows for a systematic way of unprecedented global economic coordination over the Internet. It’s not a city that facilitates a way of scaling economic coordination, but it is computer protocols powered by decentralized crypto-economic networks that are the protagonists in this revolution. This is even more astounding as the Internet protocol is a stateless protocol (meaning it reads every interaction afresh without mapping it to any previous or simultaneous interaction), so global economic coordination over the Internet has been a challenge that we previously weren’t able to solve without introducing more intermediaries.
Innovations in blockchain technology are pivotal to the evolution and functioning of Web3. Additionally, the development of public-key cryptography and digital signatures has enabled individuals to control, manage, and store their data (states) without giving up control and access. In public networks like Bitcoin and Ethereum, they can even verify the overall transaction (state) history – thereby agreeing on the shared state and thus further contributing to the transparency of the technology (contrary to what many media outlets tend to write). With regaining data ownership, the application logic and data ownership will be unbundled, contrary to packing up both by tech behemoths in Web2.
An important point to make here is related to the not to be underestimated strength of open-source software development. Yes, since blockchain, there is now a way to foster unprecedented global economic coordination, and, with that, the opportunity to overcome disadvantages introduced by tech behemoths. The result could be argued to make the world a better place. But an often-overlooked driver of Web3 will be the open-source movement that was also prevailing in the Web1 era. With rivaling technologies, an important factor to consider is who will win the hearts of developers and entrepreneurs.
This exactly happened in the 2000s between Wikipedia and its centralized counterpart Encarta, which was built by Microsoft. Encarta had a better product, broader topic coverage, and even higher accuracy. With a passionate community behind it that was attracted by decentralization, Wikipedia was able to improve rapidly and became more popular than Encarta in 2005. Encarta was shut down in 2009. In the end, even Microsoft wasn’t able to compete with the power of community and a shared vision.
This is exactly what is happening in Web3 at the moment, which could be viewed as a movement that is driven forward by an intrinsic passion to better the world (and accompanied by a high degree of greed). There are countless examples of the biggest names in computer science, cryptography, AI, ML, and distributed systems that quit their safe jobs to work in Web3, and they are collectively designing and building technologies that will shape the world of tomorrow. Moreover, the adoption rate of Bitcoin has been outpacing the internet’s user growth, so Web3, which is much more than Bitcoin only, is strongly outpacing the Internet’s growth. Developers are further incentivized to jump on the Web3 ship as they can be incentivized with tokens, which will only further accelerate the Web3 movement and can supercharge the rate at which crypto communities develop. Let us now look at how Web3 will look like.
Web3 has a multi-layered architecture. It is similar to Web2 in this regard, but this is more or less where the similarities end. That being said, the current Web3 stack has the following layers:
State Layer: This is the base layer, predominantly comprising blockchains. The layer may be public (permissionless), like Bitcoin and Ethereum, or private (permissioned) like Hyperledger and Corda, or even hybrid, like XinFin. As the name suggests, this layer (immutably) records the states (and their changes) from the other layers. In this sense, the state layer is also the final settlement layer for interactions on Web3.
Computation Layer: This layer executes the inputs from the end-users, thereby instructing the state layer to perform the relevant actions. In other words, the computation layer of Web3 interprets state changes and records them on the layer below. Examples of this layer are Script (Bitcoin) and the Ethereum Virtual Machine or EVM. Whereas the former has limited functionality, the latter is a full Turing Complete programming language capable of handling highly complex computations.
Component Layer: This layer comprises cryptoeconomic primitives that serve as native digital assets, enabling the integrated nature of Web3. Such assets may be of various types, ranging from currencies—like bitcoin, ether, and so on—to decentralized, self-sovereign identities.
Protocol Layer: This layer comprises standardized frameworks across domains, including trading, lending, derivatives, and so on. The protocol layer enables the use of Web3’s components and enables automatically sharing of information across blockchain networks.
Transfer Layer: This layer facilitates the transfer of assets and states, either within the network—from one address to another—or between networks, thereby enhancing scalability. Payment Channels, State Channels, and Side Chains are some common elements of this layer.
User Interaction Layer: This layer serves the purpose of storing and managing the user’s keys (addresses and signatures) and is also known as wallets. Ordinary users can interact with Web3 networks at this level since the layers below are accessible only through a Command Line Interface (CLI).
Applications Layer: This is the topmost layer of Web3 systems, comprising decentralized (or centralized) applications with diverse functionalities. These applications can range from simple payment tools to complex social media platforms. Similar to Web 2, most user interactions occur at this level.
Out of these layers, the first three are the core layers of the Web3 architecture. Therefore, the four layers built on top must be compatible with the layers below. Presently, this results in siloed Web3 systems, but substantial work is already in progress to make them more interoperable. For instance, Polkadot has shown great potential for embedding interoperability (within its ecosystem) as well as Cosmos’ Inter Blockchain Communication (IBC) protocol and the technology stack of Quant. Additionally, some exciting new protocols, like Axelar, are aiming to solve the current challenges of interoperability by building a protocol that could make it easy for all blockchains to connect with and utilize.
The Elements of Web 3.0
The Web3 infrastructure has multiple elements, some of which are enhanced, decentralized versions of their Web2 counterparts. However, other elements, especially the core ones like blockchains, have been built from scratch over the past two decades. In this section, we mainly discuss decentralized domain names and storage networks as an example, as it is pivotal to the functioning of Web3, and also perfectly exemplifies the shortcomings of its Web2 counterpart (highly centralized gatekeepers ensuring the functioning of domain names and storage networks).
Domain Names map IP addresses, such as 10.111.18.190, to human-readable addresses such as bitcoin.org, google.com, and so on. The current Web enlists these names on the Domain Name System (DNS), which the ICANN regulates and coordinates. The DNS is a public registry, but the ‘registrars’ who assign domain names, such as GoDaddy or Verisign, are often centralized, for-profit companies, and they exercise immense control over this multi-billion dollar industry.
Proponents of Web3, including Satoshi Nakamoto, have realized the need for decentralizing domain names. Beginning with Namecoin, there has been much technical evolution in this regard. Instead of the DNS, decentralized domains are represented on the blockchain as crypto-assets deployed on the network’s component layer. They map blockchain addresses (06f1b66ffe49df7fce684df16c62f59dc9adbd3) to human-readable domain names like samuel.rsk or alice.btc, similarly to their traditional counterparts. Individuals can store and manage their decentralized domains from their wallets, just like any other crypto-based asset. Consequently, they enable sovereignty as the individual has exclusive control. Furthermore, Web3 domains enhance privacy and minimize security risks through homomorphic encryptions, distributed resolution, etc. The Ethereum Name Service and RIF Name Service are some examples of decentralized domain name providers.
The decentralized domains retrieve resources stored on blockchain-based storage networks, constituting another crucial element of the Web3 infrastructure. They serve as the alternative for the cloud hosting offered by Google or Amazon, or Dropbox. In doing so, they provide a decentralized, cost-optimized, and censorship-resistant means for individuals to store and share data. Websites, as well, can host their resources on these networks, rather than relying upon centralized hosting servers. IPFS, Filecoin, Storj, Ceramic, Cere Network are some of the popular Web3 storage protocols.
Besides domain names and storage networks, Web3 will have (or already has) decentralized alternatives for almost every existing service or platform on the Web. Let us look at some of these before concluding this section.
Computation: Elastic, Golem, Dfinity, SONM, Enigma, etc.
Artificial Intelligence: Singularity Net, Ocean protocol, Fetch.AI, etc.
Platform: Solana, Ethereum, Polkadot, Cosmos, Avalanche, Algorand, etc.
Digital Currency: Tether, Litecoin, Monero, UST, etc.
Exchange: Uniswap, IDEX, Bancor, Pancakeswap, 0X, Kyber, DYDX, etc.
Banking & Payments: BitPay, Amp, Ripple, Paxos, Matrixport, etc.
Identity: Cheqd, Kilt, uPort, RIF Identities, Persona, IDX (Ceramic), etc.
Logistics: Vechain, Origintrail, CargoX, TradeFinex, ShipChain, Origintrail, etc.
Social Media: Akasha, Steemit, etc.
Note that the list is far from exhaustive, both in the listed categories and their members.
We have come a long way since the early days of the internet, but we still have much ground to cover to make Web3 a reality for all. At present, interoperability and scalability are among the biggest challenges facing Web3 developers, who are responding promisingly with a variety of innovations within the different layers of the technology stack. What innovations will become the de facto standard, however, remains to be seen just as there were many competing protocols and solutions back in the ’90s.
Web3 also has less user-friendly solutions than the current Web, which is a hindrance to its mainstream adoption. Niche communities, mainly including ‘techies’, are able to leverage the robust, user-centric, and privacy-prioritized protocols and their related benefits like higher yields on their assets. Given the rapid pace of innovations on the user interaction layer, this will soon become a problem of the past. We already have fully decentralized and non-custodial solutions with intuitive UIs and seamless UX for ordinary users. Web3 has entered a phase—both in terms of development and adoption—where innovators can focus on building usability-oriented solutions simultaneously as they perfect the core components.
To conclude, we may look forward to a promising future in Web3 as the ongoing wave of computation gathers steam and delivers results consistently, unlike earlier booms. Besides bullish markets, we are also witnessing steady adoptions at the institutional levels both within corporates and countries. But above all, individual users are increasingly waking up to the perils of the centralized Web and shifting to Web3 platforms across domains, partly spurred on by widespread data hacks, increasing awareness of tech behemoth’s power, inflation, and increased digitization due to COVID-19.
Arguably, the increased adoption by individuals is the most hopeful sign for the Web3 movement, for its ultimate goal is to reform cyberspace such that it is built, owned, and secured by individuals. According to the Web3 vision, the future has no place for profit- and power mongers, be it oligarchs or despots. Tim-Berners Lee imagined the Web as an egalitarian and decentralized terrain, which is how it shall be.
Utilizing technology for the better is a goal AW3L commits itself to. We believe that the paradigm shift to Web3 is not only a response to big-tech and corporate consolidation, but also will be paramount in resolving generational challenges. With so many technologies (robotics, AI, blockchain, energy storage, etc.) maturing at a high pace, and with these technologies being combined in a decentralized manner under the Web3 umbrella, we couldn’t be more excited for the next decade to come. Our mission is to build a more equitable and inclusive society through these disruptive digital technologies. More information can be found on our website.