Web3: Marketing Buzz or Tech Revolution?

November 2022 - Cointelegraph Research

Public Access
Keywords :
web3, blockchain, cryptocurrency, decentralization, metaverse, nft, gamefi, defi,

The term Web3 is frequently used as shorthand to discuss the new phase of the internet. This report details the true nature of the Web3 by providing key insights that are invaluable for investors to understand in order to distinguish between facts and fundamental misconceptions.

Report Highlights:

Internet-based technology is commonly conflated with web technology in popular media, which has led to erroneous classifications, such as “Bitcoin is a Web3 technology.” We provide a thorough description of the layering of networking technology to clear up this misconception and give readers a technical foundation to understand the core of Web3.

There are two co-existing notions of Web3, namely the blockchain web and the decentralized web. The former denotes the integration of blockchains with the web, while the latter refers to a decentralized, permissionless and trustless alternative to the traditional World Wide Web.

The blockchain web has facilitated the creation of new ecosystems centered around scarce digital assets that lack a central authority. This is what much of Web3 marketing has focused on. We provide a brief overview of three new ecosystems that the blockchain web has enabled: NFTs, DAOs and GameFi.

The current blockchain web is still limited by centralization, first and foremost in its reliance on node provision services. We provide an overview of how node provision services, wallets and DApps work and to what degree they are centralized.

Any implementation of a decentralized web will likely rely on a technology called distributed hash table (DHT) to facilitate a decentralized storage layer. This technology allows the storage and retrieval of files from public networks with no dedicated, trusted servers, only peers.

Traditional peer-to-peer (P2P) systems, prototypes of a decentralized web, have succumbed to the tragedy of the commons. History shows that most P2P systems run by volunteers without an incentive layer have failed to scale and gain adoption. Blockchain based distributed file storage solutions have the potential to innovate on the first generation of decentralized web projects.

Decentralized name services are an important application of blockchain technology in the development of a decentralized web. The Ethereum Name Service (ENS) is the alternative to the traditional Domain Name System (DNS) that has gained the most traction so far.