the promise of the decentralized internet explained

After the metaverse, another term is making the rounds with Web3, which is supposed to stand for the future of the Internet. What exactly is behind the concept? What does it have to do with the blockchain and cryptocurrencies? And what exactly do the critical voices, some of which are prominent, criticize about Web3?

Web3 stands for a possible next development stage of the Internet and is based on blockchain technology. In contrast, Web1 describes the Internet until the early 2000s, which consisted mostly of static and barely interactive websites. Web2 stands for today’s age in which users create content themselves and interact with one another, but mostly via pages and apps that are controlled by large tech companies.

According to its proponents, Web3 should now decentralize and democratize the Internet again. Users should no longer have to rely on the large platforms controlled by Google, Meta or Amazon or have to fall back on the services of traditional financial service providers, but rather they should be part of the network infrastructure themselves.

The prerequisite for this is the blockchain. The technology enables information to be transmitted transparently and in a forgery-proof manner via a decentrally stored database that is shared and operated by the users. The blockchain database is completely or partially stored on different computers that serve as nodes (network nodes). These communicate with each other and verify the transactions that are carried out on the blockchain.

Since all participants use their own computing power to contribute part of the infrastructure that is necessary to process the processes, in theory there is no need for a central instance that manages the data and guarantees the authenticity of a transaction: this task is taken over by the blockchain.

The best-known Web3 application options include cryptocurrencies such as Bitcoin or Ether. Thanks to the blockchain, financial transactions can be carried out without having to rely on banks or state authorities. The idea is also known as Decentralized Finance (DeFi).

Another pillar of Web3 is NFT, Non-Fungible Tokens. These are basically certificates of authenticity for virtual objects, with ownership being recorded in the blockchain. These can be digital works of art or objects in video games.

Another concept is represented by decentralized autonomous organizations (DAO). These are self-governing communities without hierarchies that use tokens based on the blockchain to negotiate participation and decision-making processes. The tokens can be bought or earned through active participation and serve as a voice when decisions are pending.

DAO are seen as a way how administrations, companies or social networks can be organized transparently from the base. An example of this is the DAO of the Metaverse Decentraland. Here, users who own a crypto currency or virtual property from Decentraland and thus have the corresponding tokens can vote on issues relating to the digital world. This includes, for example, the decision on what clothes the avatars are not allowed to wear, as well as questions about the moderation of content.

Both terms are often seen as a vision for the future of the Internet, but they stand for different things. Metaverse is a virtual 3-D world in which you can immerse yourself and interact with other people. Web3, meanwhile, is a concept of how the structure and distribution of the content stored in the network could be designed differently.

This approach can also be applied well to the metaverse: NFT and cryptocurrencies would enable the trading of virtual goods, and DAO would determine what is and is not allowed in the metaverse. The big tech companies that would like to implement their own ideas of such 3-D worlds, as well as state actors, would be left out in the Web3 version of the metaverse.

The increased attention that Web3 received at the end of 2021 also attracted critics. One of the most prominent is the Twitter founder Jack Dorsey, now CEO of the payment service provider Block. In a tweet he expressed the conviction that Web3 is not controlled decentrally by a community, but by venture capitalists who have invested in Web3 applications. “It is ultimately a centralized entity with a different label,” he writes.

The Tesla boss Elon Musk, never at a loss for a provocative tweet on crypto topics, made a mockery of the topic. In response to Musk, Dorsey alludes to the venture capital firm Andreessen Horowitz, also known as a16z, which is currently investing a lot of money in Web3 applications.

Moxie Marlinspike, CEO of the Signal intelligence service until the beginning of January 2021, is less polemical a widely acclaimed blog post his criticism of Web3. In it, he describes how he created two blockchain-based applications and what he learned from them. Marlinspike comes to the conclusion that in order to be able to use the technology sensibly, one again depends on platforms that access the blockchain for one. Many users did not have the resources or the will to set up their own node, i.e. to maintain a server themselves. They simply don’t care whether a service is organized centrally or decentrally.

Marlinspike explains this centralization using the example of OpenSea, a marketplace for NFT, in which Andreessen Horowitz is also involved. As a little experiment, he creates an NFT that shows a different image depending on where it is viewed from. The NFT looks different with OpenSea than in a crypto wallet (a service in which the keys for Web3 applications are stored). This is possible because, in many cases, NFTs do not themselves store data on the blockchain, but only contain a link (URL) that refers to the data. Anyone who has access to the server to which the URL refers can change the picture or description of the NFT as desired without having the corresponding token on the blockchain.

Shortly thereafter, the NFT on OpenSea is removed, allegedly due to a violation of the terms of use. Marlinspike is astonished to find that the NFT has also disappeared from his wallet, although it is still stored on the blockchain. According to Marlinspike, the reason for this is that the wallet uses an OpenSea API to display the NFT. The blockchain is not designed to allow such wallet services to access it directly. From this he derives a trend towards centralization on a few platforms, which contradicts the promise of Web3 in principle.

Marlinspike’s post sparked a debate that also included a number of Web3 enthusiasts. For example, Ethereum co-founder Vitalik Buterin, who on Reddit wrote a contribution to it. He agrees with Marlinspike on a number of points, but stresses that his criticism relates to the current state of Web3. However, the vision of a fully decentralized blockchain world is closer than many people would think.

In addition to these technical aspects, there are also other points of criticism. Regulators have expressed concern that the decentralized nature of Web3 makes it easier to disguise financial transactions. There is also no bank whose customer service you can call if you have accidentally made a transaction on the wrong account. In addition, the high energy consumption of blockchain applications is another often cited point of criticism.