Web3

Easy for skeptics to dismiss, impossible for enthusiasts to ignore

In 2021 and into 2022, Web3 and its companion buzzwords have been everywhere. What’s the promise beyond the hype?

The first generation of the internet was largely made up of static websites where users could simply view content. The second generation was sparked by the growth of e-commerce and social media sites, enabling users to consume, interact with, and create online content themselves.

The rise of Web3 is being driven by the desire for users to own their content, data, and personal information rather than surrender it to big tech companies. It promises a decentralized internet that is shared and governed by the collective “we.” This internet would be powered by AI, stored on the network, and recorded and verified by the blockchain rather than large tech companies. Proponents believe this would prevent the misuse of data and effectively democratize the internet.

How we got here

Web1

First phase of the internet - consumers had access to static content and information

Web2

The internet we know and use today – user can consume, interact with and create content

Web3

The internet we’re moving towards – creators and users own and share a decentralized internet based on blockchain technology

Why Web3 and why now?

Some of the key components necessary to turn the vision of Web3 into reality are already gathering critical mass – namely, development talent and capital. Furthermore, companies benefitting from the focus of those developers and the influx of capital are growing at a rapid rate, resulting in increased maturity and credibility of the sector.

Development

In an emerging platform such as Web3, developer engagement is a key early indicator of value creation. With over 34,000 new open source crypto and Web3 developers, 2021 was not only a banner year for Web3 in terms of traction, but also for building infrastructure.

Developers committing code in open source crypto & Web3 projects

18K+

Monthly active developers

34K+

New developers in 2021

65%

Active developers joined in 2021

45%

Full-time developers in Web3 joined in 2021

Tweet Stat

Source: 2021 Electric Capital Developer Report

Fundraising

2021 was similarly a record breaking year for Web3 on the fundraising side. According to Galaxy Digital Research, venture capitalists invested more than $33 billion into crypto/blockchain startups, more than all prior years combined. Also of note, while the deal size increase for Web3 companies was comparable to other sectors, the valuations for Web3 companies were significantly higher – 141% greater. These investments are necessary for supporting infrastructure improvements across the interlocking technologies and applications in the nascent but growing Web3 ecosystem, including investments in cross-chains, DAOs (decentralized autonomous organizations), NFT (non-fungible token) marketplaces, and the metaverse, among others. While some skeptics still tout Web3 as futuristic hype, these numbers serve as a proof point that significant resources are being invested to make it a reality.

The tremendous growth of Web3 companies and the overall ecosystem, in both complexity and size, is accompanied by the introduction of new terms essential to understand. The commonly used term “crypto” typically refers to the protocol layer (L1), while “Web3” refers to the application layer (L3). The layers build up the ever-growing infrastructure. L1 refers to the actual blockchain and its architecture (e.g., Bitcoin or Ethereum). L2 is a third-party integration that attaches to L1 in order to improve a blockchain’s functionality or scalability – examples would include the Lightning Network for Bitcoin or Arbitrum for Ethereum. L3 typically refers to the application layer and is where the crypto consumer is generally interacting. Companies targeting multiple use cases across each layer continue to be created, funded, and expanded, making it more certain that Web3 and continuous enterprise digital transformation promise to shape the next decade.

$33B

Invested in Web3 companies in 2021

Tweet Stat

Source: Galaxy Digital Research

Looking Ahead

Web3 is still largely theoretical and requires a relatively deep dive to understand its nuances – and alternative options to help with privacy concerns related to personal data use by large corporations do already exist. There are also concerns about a transition to a system where everything is recorded on the blockchain – can anonymity be maintained? Will harmful content proliferate with no one party ultimately responsible?

Web3 founders, investors, and proponents want a web that democratizes access and opportunity. We’re still at the early stages of a transition, a remaking of business models, and a shift of data ownership from companies to users, which will all change how we interact with the internet in the future. This transition is both exciting and full of promise, but also complex and full of questions. But the shift is happening, as is clearly evident by the astounding level of developer, investor, and consumer activity. There is momentum to build and to grow.

While Web3 will likely operate in tandem with Web2 rather than replace it, Web3 is more than a buzzword – it could represent the next major technological and social shift in our society.