Web3 is a term used to describe the next iteration of the internet, one that is built on blockchain technology and is communally controlled by its users.

What technologies support Web3?

Web3 describes what the internet could look like built on new types of technology. Here are the three main ones:

Blockchain. A blockchain is a digitally distributed, decentralized ledger that exists across a computer network and facilitates recording of transactions. As new data are added to a network, a new block is created and appended permanently to the chain. All nodes on the blockchain are then updated to reflect the change. This means the system is not subject to a single point of control or failure.

Smart contracts. Smart contracts are software programs that are automatically executed when specified conditions are met, like terms agreed on by a buyer and seller. Smart contracts are established in code on a blockchain that can’t be altered.

Digital assets and tokens. These are items of value that exist only digitally. They can include cryptocurrencies, stablecoins, central bank digital currencies (CBDCs), and NFTs (nonfungible tokens). They can also include tokenized versions of assets, including real things like art or tickets to concerts or sporting events.

Later, we’ll see how each of these technologies is used in practice, with real-world examples of Web3-supported products.

How is Web3 different from Web2?

In the Web2 era, control—over transactions, content, and data—is centralized in tech corporations. In theory, that will change with the advent of Web3. Evangelists believe that in the Web3 era, users will have the power to control their own information without need for the intermediaries we see today. Web3 could change how information is managed, how the internet is monetized, and even, maybe, how web-based corporations function.

Another difference between the two is how they approach trust. In Web2, a transaction—whether it’s an exchange of money or information—relies on two parties (and usually a central facilitator as well) trusting each other with the information that’s being shared. By contrast, Web3 doesn’t ask users to trust one another. Instead, the technology is designed so that a transaction goes through only if certain criteria are met and data are verified.

Here’s a theoretical example to help illustrate how a Web3 transaction might work. Imagine that someone is looking to buy a concert ticket on the resale market. This person has been scammed before by someone selling a fake ticket; she trusted that the person was selling a real ticket and sent the person money, which the person then stole. This time, she decides to try a Web3-enabled, blockchain-based ticket exchange service. On these sites, every ticket is assigned a unique, immutable, and verifiable identity that is tied to a real person. Before the concertgoer purchases her ticket, the majority of the nodes on the network validate the seller’s credentials, ensuring that the ticket is in fact real. She buys her ticket and enjoys the concert.

Crypto has faced some trouble. What does this mean for Web3?

The cryptocurrency market is facing an uncertain future: in 2022, it lost more than 50 percent of its market capitalization, as several currencies lost value and multiple cryptocurrency exchanges closed. It’s true that cryptocurrencies and Web3 are both built on blockchains. But don’t throw the Web3 baby out with the cryptocurrency bathwater: other areas of Web3 experience continue to push forward. Check out these 2022 numbers:

The sales count for NFTs increased 68 percent, despite a slowdown in the second half of the year. NFTs are digital representations of an asset stored on a blockchain. Because an NFT is, by definition, nonfungible, meaning it can’t be replicated, it serves as digital proof of ownership that can then be bought or sold.

Core tool downloads for Ethereum increased by 87 percent. Ethereum is a smart-contract blockchain; core tools are what developers need to work with it.

On-chain stablecoin payment volume grew more than 50 percent. A stablecoin is a private, stabilized cryptocurrency pegged to another currency, commodity, or financial instrument.

The number of active users of Web3 gaming increased 60 percent.

The global tokenization market grew by about 23 percent. Tokenization is the process by which NFTs are created and has the potential to affect the structure of financial services and capital markets.