Think of a web where everyday users call the shots, not a tech giant like Google or Facebook. They own data, control interactions, and freely walk into a digital economy—which is censorship-resistant. You can buy expensive assets without incurring substantial transaction fees. That’s the bold Web3 dream. It’s a paradigm shift from the existing centralized Internet. And at the heart of this Internet revolution lies just one technology—blockchain.
Blockchain is a distributed ledger technology that acts as a fulcrum of the Web3 ecosystem as it’s decentralized, permissionless, and censorship-resistant. More than a technology, it powers the Web3 dream. Blockchain profoundly impacts finance (DeFi), gaming, social media, governance, data security, and other aspects of business operations. Without blockchain’s smart contract, building a decentralized user-centric web will remain a pipedream.
The Emergence of Web3
Harvard Business Review, touting Web3 as the future of the Internet, says, “the vision for this new, blockchain-based read/write/own version of the web, in which users have a financial stake. Web3 promises to transform the experience of being online.”
That’s a big and bold promise, as users have hardly any stake in the existing financial order. Everything is controlled by big corporations and governments who have their own vested interests.
Before Web3 emerged, the Internet had gone into various phases. In the beginning, it was a read-only Internet. Users could navigate from one web page to another with HTML and URLs.
Things started to change in the early 2000 when the web started to become more interactive. This was the era of the Internet, Web2, where user-generated content gained prominence. Twitter, Facebook, Pinterest, Wikipedia, and Tumblr social media platforms define the online experience. Centralization and control are the hallmarks of the Web2 era.
Web3, built on the top of the blockchain, smart contracts, NFTs, DAO, and dApp, dreams of building a new web that users can read, write, and own–which is also censorship-resistant.
“Web3 is the internet owned by the builders and users, orchestrated with tokens,” says Chris Dixon, a partner at the venture capital firm a16z and a foremost advocate and investor in Web3.
The Rise of Web3: How Blockchain is Changing the Internet Landscape
Put simply, Web3 runs on decentralized, immutable, and permissionless blockchain protocols. It doesn’t have any centralized authority that controls users’ freedom. Here is how it works:
- A blockchain stores tokens in a wallet based on a self-executing contract.
- On a “proof of stake” chain, it processes and validates transactions to confirm the transaction is legit.
Many use cases have emerged as the idea of Web3 has started coming to fruition. For example, blockchain-based Sound.xyz promises to offer better deals for artists. Web3-based Axie Infinity allows users to earn money while they play games. The emergence of stablecoins and cryptocurrency tokens makes cross-border payments more efficient.
Beyond Bitcoin: The Diverse Applications of Blockchain
Though blockchain is synonymous with Bitcoin and other cryptocurrencies, there are many real-world applications of blockchain. Some of them include:
1. Money transfer
Money transfer is slow and expensive in the traditional financial ecosystem, especially in cross-border payments. Blockchain technology promises to change this, and this is one of the strongest use cases of blockchain technology. While cross-border payments may take days, the same transaction through blockchain can be completed in minutes.
2. Financial Exchanges (DEX)
Investing in blockchain doesn’t require depositing money in centralized financial institutions. Cryptocurrency can be traded using decentralized exchanges based on blockchain. Using blockchain for exchanges allows for faster and less expensive transactions. Using blockchain means investors wield more control over and security over centralized authority.
Blockchain-based lending platforms can self-execute the disbursal of collateralized loans using smart contracts. These smart contracts can automatically trigger events like service payments, margin calls, or EMI payments and the release of collateral. Consequently, it takes less time to process a loan, lenders can offer better rates, and the process is less expensive.
Blockchain-based Web3 solutions can make the insurance process more transparent and less expensive for customers and providers. Claims can be recorded on blockchain protocols, and companies cannot deny or delay claims of claimants. Claim payments can be fast-tracked.
Preventing fraud and ensuring transparency in voting is critical for many countries. Using blockchain technology, greater transparency can be achieved in the election process while reducing the cost of elections and ensuring voters’ privacy.
6. Storing Public Data
Recently, the Estonian government’s Guardtime has collaborated with Ericsson to build a database to move the existing public data to a blockchain 2.0 system.
Web3 Growth And Future Trends
Blockchain-driven Web3 commands tremendous flexibility, and it can disrupt almost every function of the existing businesses, including accounting, corporate governance, human resources, payments, social media interactions, payment processing, banking, and real estate.
According to METAV.RS, the total market capitalization of Web3 has reached $27.5 billion, and it is expected to surpass $81.5 billion.
A Deloitte report pointed out increasing interest in Web3 adoption. The report says that more than 315 brands launched 526 Web3 projects till the first quarter of 2023.
Blockchain Adoption: Challenges Galore
Despite a clear trend toward the world’s renewed interest in blockchain-based use cases and tangible gains in this direction, multiple challenges to Web3 adoption prevent it from becoming mainstream.
To become mainstream, blockchain needs to address challenges and limitations, such as scalability, higher energy consumption, and issues related to security and interoperability.
McKinsey, in its report—Blockchain’s Occam Problem, points out a very pertinent issue. It says, “making decisions in a decentralized environment is never easy, especially when accountability is equally decentralized. It poses technical impediments in case of scalability, and data storage capability.”
The report further highlights a practical issue with blockchain. It is estimated that billions of devices will be connected in the future, requiring storage, management, and retrieval of data. Considering the current capacity of data processing, today’s blockchain network cannot handle even a tiny fraction of this data. As in a typical blockchain network, every node must process every transaction and maintain a copy of that, it becomes less responsive as more nodes are added due to latency issues.
However, fortunately, web3 development companies realize these issues and are making efforts to solve them to facilitate the mass adoption of technology.
For example, blockchain developers are working on innovative technologies like sharding that solve the issue of scalability to a great extent by breaking blockchain networks into tiny parts.
Additionally, some blockchain networks have moved towards exploring alternative consensus mechanisms to reduce energy consumption.
On a conceptual level, blockchain and Web3 show a promising future as they clearly envision a new world based on DeFi, DAO, NFTs, dApp, and digital identities that promise to disrupt how the world functions nowadays. However, to become Web3 truly mainstream, blockchain needs to address its limitations and challenges. The good news is blockchain is already moving in the right direction very fast.
If you are looking to explore blockchain for your business, speak to us. We will help you understand the value it can add to your business operations.