What is Web3 and How Does it Work?


The evolution of web 2.0 brings the promise of decentralization, blockchain technology and turning users into owners. What is web3, where has it missed its point and why is everyone in the crypto world talking about it?

I’m sure at every Christmas dinner this year there will be someone mentioning it. If you’re already up to date with the concept of the metaverse and blockchain, now it’s time to find out about web3. The word has gained traction in 2020 and continues to be dropped into articles talking about NFTs, cryptocurrencies or decentralized finance. But it’s quite a bit more than that.

Web3 refers to the evolution of the internet as we know it, and its main characteristic is that it will be a decentralized internet and for that it will use blockchain technology.

History of the web

If the web of the beginnings, called 1.0, revolved around hyperlinks, and web 2.0 revolves around social networks; web 3.0 is based on tokens, the digital units of exchange of blockchain technologies.

This new web model has many services based on the token economy, so that the ownership and control of these services would be shared among the owners of the tokens, who are also users. Tokens, as we know, have exchange value, so this implies that users can cash in their money whenever they want.

The history of the Internet is usually divided into these three stages, which now help us to understand where the Internet is going. Web 1.0, which runs from 1991 to 2004, is read-only: most participants were consumers of content. Protocols were open, decentralized and under community governance.

The explosion of Web 2.0 brings social networks and interactivity with the user, who creates much of its content. It is the era of companies like Facebook, Google, Apple, Amazon, which create silo services, centralized, dependent on these corporations.

Here arises the paradox that users create but it is the technology companies that monetize. Chris Dixon, ex-Ebay, entrepreneur and venture capitalist, has explained that the life cycle of these companies starts with a stage where they do whatever it takes to attract users and external collaborators (such as complementary apps), using the network effect.

When the adoption of use of these platforms reaches a plateau, the relationship with participants goes from positive-sum to zero-sum. To continue to grow, they need to extract data from users and start competing with the external parties that were collaborating with them until then.

After this ill-fated Web 2.0, where technology companies let us play until they needed to charge us in private data for services rendered, here comes Web 3.0 or what is web3: the promise of a web where the user is once again at the center as creator, but above all as owner, as owner of those tokens. It is a web that, according to Samuel Gil, investor and partner in JME Ventures, “has the best of the two previous ones. Users create, programmers create and they are the ones who monetize”.

Broadly speaking, it could be said that in Web3 the machine will “collaborate” more effectively with the human being.

But its main value is the decentralization of the Internet: creating a more equitable network and taking power away from the “Internet giants”, as those behind the concept emphasize.

It is already resonating in Silicon Valley and has been in development for years.

The term was coined in 2014 by the co-founder of the cryptocurrency ethereum, Gavin Wood.

Just as Tim Berners-Lee is considered the “father of the internet”, Wood is often referred to as the “father of etherum” for being its co-founder and disseminator.

Etherum is the second most widely used blockchain protocol in the world. And this technology is the foundation of Web3.

Wood, creator of the Polkadot open source project, started from the idea that it was necessary to “reshape the Internet”: to create a new architecture with a specific protocol to make services decentralized.

To carry it out, the British software engineer founded the Web3 Foundation – to “fund research and development teams that are building the foundations” of Web3 – and created Parity Technologies, a Berlin-based blockchain infrastructure company for the “decentralized web.”

What is Web3, and is it the future of the internet?

But what does that decentralization mean?

“The Internet in its beginning was an open, decentralized protocol. It started to centralize in the 1990s with the big technologies we know today,” Ursula O’Kuinghttons, director of communications at Parity Technologies, explains to BBC Mundo.

“What we want with Web3 is to return to the essence, to the beginning, of what the Internet was: that no one controls to a large extent this communication tool that is so present in our daily lives,” adds O’Kuinghttons.

A key part of the Web3 structure is blockchain technology, which makes it possible to create “blocks” and form data chains, and which we know above all from cryptocurrencies.

If Web 1.0 (Web1) was based on hyperlinks and Web 2.0 (Web2) is based on social networks, Web 3.0 (Web3) will be based on blockchain technology.

“We have to keep an open mind because blockchain is much more than a cryptocurrency. Web3 is much more interesting than the value of a token,” says O’Kuinghttons.

In fact, the elements that make Web3 possible have been developing over the past few years and, in some ways, it is already a reality.

But its technology has not yet been massively assimilated and used by the general public.

A faster, more secure, and open web

Colin Evran has been working on the development of Web3 for five years.

He runs the Filecoin and IPFS ecosystems, two protocols created by Protocol Labs, a blockchain technology company based in San Francisco, California (USA), whose goal is also to “decentralize the web.”

“Our goal is to upgrade the web to make it faster, more secure, more resilient to attacks and more open” said Colin Evran of
Procol Labs

“If we look back to the early days of the internet – in the 1960s and 1970s – we see that the internet existed even before the web itself: it was an amalgamation of wires and a network that ‘connected things,'” Evran recounts.

“Originally, it was a government project called Arpanet to transfer information.”

In the early 1990s, Web 1.0 took off, Evran continues. Sites like Yahoo were static Web pages that relied on hyperlinks.

In the 2000s came Web 2.0. The main improvement, Evran says, is that “it allows us to read and write interactively, that mobile and web applications can ‘talk to each other’ and that we can interact with them.”

“The development of Web 3.0 adds to all of that the establishment of trust because civil liberties will be embedded in its underlying structure,” he argues.

He also criticizes the “centralization” of Web2.

“A few cloud storage service providers, banks and big governments accumulate all the power and can control and manipulate data as they please to generate money and nurture their interests,” Evran explains.

“We can’t trust that these bodies are not manipulating our data,” he adds.

Web3 Explained 

What is Web3?

Web3 has become an umbrella term for the vision of a new and better Internet. In essence, Web3 uses blockchains, cryptocurrencies and NFT to give power back to users in the form of ownership.

A 2020 post on Twitter said it best: Web1 was read-only, Web2 is read-write, Web3 will be read-write.

Web 1.0: Read-only (1990-2004)

In 1989, at CERN (in Geneva, Switzerland), Tim Berners-Lee was busy developing the protocols that would become today’s Internet. His idea? We came here to create open, decentralized protocols that would allow information to be shared from anywhere on Earth.

The first version of the Internet, now known as “Web 1.0,” occurred roughly between 1990 and 2004. Web 1.0 consisted mainly of static websites owned by companies, and there was little interaction between users – individuals rarely produced content – which led to it being known as the read-only web.

Web 2.0: Read-Write (2004-present)

The Web 2.0 period began in 2004 with the emergence of social networking platforms. Instead of being read-only, the web evolved to be read-write. Instead of companies providing content to users, they also began to provide platforms for sharing user-generated content and engaging in user-to-user interactions.

As more people became connected, a handful of major companies began to control a disproportionate amount of the traffic and value generated on the Web. Web 2.0 also gave rise to the advertising-driven revenue model. While users could create content, they did not own it or benefit from its monetization.

Web 3.0: Read-Write-Propriety

The premise of Web 3.0 was coined by Ethereum  co-founder Gavin Wood shortly after Ethereum launched in 2014. Gavin verbalized a solution to a problem that many early cryptocurrency users felt: the Web required too much trust. That is, most of the Web that people know and use today is based on trusting a handful of private companies to act in the public’s best interest.

Core ideas of the Web3

Although it is difficult to provide a static definition of what Web3 is, some basic principles guide its creation.

  • Web3 is decentralized: instead of large tracts of the Internet controlled and owned by centralized entities, ownership is distributed among its builders and users.
  • Web3 has no permissions: everyone has equal access to participate in Web3, and no one is excluded.
  • Web3 has native payments: it uses cryptocurrencies to spend and send money online instead of relying on the outdated infrastructure of banks and payment processors.
  • Web3 does not rely on trust: it operates using economic incentives and mechanisms rather than relying on trusted third parties.

Why is Web3 important?

Although the salient features of Web3 are not isolated and do not fit into neat categories, for simplicity, we have tried to separate them to make them easier to understand.


Web3 gives you ownership of your digital assets in an unprecedented way. For example, suppose you are playing a game on Web2. If you purchase an item from the game, it will be linked directly to your account. If the creators of the game delete your account, you will lose these items. Or, if you stop playing, you lose the value you invested in the game items.

Web3 allows direct ownership through non fungible tokens (NFT). No one, not even the creators of the game, have the power to take away your ownership. And, if you stop playing, you can sell or trade your game objects on open markets and recover their value.

Resisting censorship

The power dynamic between platforms and content creators is hugely imbalanced.

OnlyFans is a user-generated adult content site with more than 1 million content creators, many of whom use the platform as their primary source of revenue. In August 2021, OnlyFans announced plans to ban sexually explicit content.

The announcement sparked outrage among the platform’s creators, who felt they were being robbed of an income on a platform they helped create.

After the sudden backlash, the decision was quickly reversed. Although the creators won this battle, it highlights a problem for Web 2.0 creators: you lose your reputation and accumulated followers if you abandon a platform.

In Web3, your data lives on the blockchain. When you decide to leave a platform, your reputation follows you, connecting you to another interface that aligns more clearly with your values.

Web 2.0 requires content creators to trust platforms not to change the rules, but resistance to censorship is a native feature of a Web3 platform.

Decentralized Autonomous Organizations (DAOs)

As well as retaining ownership of your data on Web3, you can also own the platform as part of a collective, using tokens that act like shares in a company.

DAOs allow you to coordinate decentralized ownership of a platform and make decisions about its future.

DAOs are technically defined according to agreed-upon smart contracts that automate decentralized decision making over a set of resources (tokens).

Users with tokens vote on how resources are spent, and the code automatically calculates the results of the votes.

However, people define many Web3 communities as being DAOs. All of these communities have different levels of decentralization and automation through code.

We are currently exploring what DAOs are and how they might evolve in the future.


Traditionally, you would create an account for each platform you used. For example, you could have a Twitter account, a YouTube account and a Reddit account. Want to change your name or profile picture? Well then, you have to change it on all accounts.

You can use social logins in some cases, but this presents a known problem: censorship. With one click, these platforms can block you from your entire online life. Worse, many platforms require you to trust them with personally identifiable information to create an account.

Web3 solves these problems by allowing you to control your digital identity with an Ethereum address and ENS profile. Using an Ethereum address provides a single sign-on across all platforms that is secure, censorship-resistant and anonymous.

Native payments

Web 2’s payment infrastructure relies on banks and payment processors, excluding people without bank accounts or those living within the wrong country’s borders.

Web3 uses tokens such as ETH to send money directly in the browser and does not require trusted third parties.

Limitations of Web3

Despite the many benefits of Web3 in its current form, there are still many limitations that the ecosystem must address for it to flourish.


Important Web3 features, such as Ethereum login, are already available for anyone to use at no cost. But, the relative cost of transactions remains prohibitive for many.

Web3 is less likely to be used in less wealthy, or developing countries due to high transaction fees. In Ethereum, these challenges are being solved through network upgrades and layer 2 scalability solutions.

The technology is ready, but we need higher levels of adoption at layer 2 to make Web3 accessible to all.

User experience

The technical barrier to getting started with Web3 is currently too high. Users must troubleshoot security issues, unravel complex technical documentation, and navigate unintuitive user interfaces. Purse vendors, in particular, are working to resolve this, but more progress is needed before Web3 is adopted en masse.


Web3 introduces new paradigms that require learning different mental models than those used in Web 2.0. A similar educational push occurred when Web 1.0 was gaining popularity in the late 1990s; proponents of the World Wide Web used a host of educational techniques to educate the public, from simple metaphors (the information highway, browsers, web browsing) to television networks.

Web3 is not difficult, although it is different. Educational initiatives that inform Web2 users of these Web3 paradigms are vital to its success.

Ethereum.org contributes to Web3 education through our Translation Program, with the goal of translating important Ethereum content into as many languages as possible.

Centralized infrastructure

The Web3 ecosystem is young and rapidly evolving. As a result, this is currently and primarily dependent on centralized infrastructure (GitHub, Twitter, Discord, etc.).

Many Web3 companies are rushing to fill these gaps, however building a reliable and high quality infrastructure takes time.

A decentralized future

Web3 is a young and evolving ecosystem. Gavin Wood coined the term in 2014, but many of these ideas have only recently come to fruition. In the last year alone, there has been a significant increase in interest in cryptocurrency, improvements in Layer 2 scalability solutions, massive experiments with new forms of governance, and revolutions in digital identity.

This is just the beginning of creating a better Internet with Web3, and as we continue to improve the infrastructure on which it will be based, the future of the Web looks promising.

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