September 17, 20255 minute read

What is Web3?

Web3 represents the next stage of the internet’s evolution. Unlike the traditional web, it is built on blockchain technology, enabling decentralization, transparency, and user ownership. Instead of being controlled by a few central authorities, Web3 is designed to be governed collectively by its users, creating a more open and community-driven digital ecosystem. Third time’s the charm? The internet is constantly evolving—not just in terms of websites and platforms rising and fading, but also in the underlying code that powers it. In recent years, some tech futurists have highlighted Web3, a term coined by computer scientist Gavin Wood , as a glimpse of the future. Web3 envisions a decentralized internet built on blockchains—distributed ledgers managed collectively by participants. Because of this communal structure, if and when Web3 fully takes shape—parts of it are already emerging—it could mark a new era where use and access are governed by community-run networks rather than the centralized model dominated by a few corporations in Web2.
Momentum around elements of Web3 has grown significantly since 2018, spanning areas such as equity investment, online searches, patent filings, scientific publications, job postings, and press coverage. The financial services industry has been at the forefront of emerging Web3 technologies and assets; at one point, the daily transaction volume on so-called decentralized-finance exchanges exceeded $10 billion . Still, progress has unfolded in fits and starts.
If you’re unsure what Web3 actually is, you’re not alone. A 2022 Harvard Business Review poll found that nearly 70 percent of more than 50,000 respondents admitted they don’t know what Web3 is. In this explainer, you’ll learn more about Web3—its risks, its potential, and whether it will ultimately come to fruition.

What is the difference between Web1 and Web2?

What is different between web1 and web2 image by Khogendra Rupini

Before diving into Web3 , it helps to know what Web1 and Web2 are. Web1 was the internet’s first stage, which took shape in the 1990s and early 2000s. It was largely built on “open protocols”—standards for sharing information that anyone could use, rather than being controlled by a single organization. During this period, the internet was mostly used for reading static web pages and chatting with friends or strangers. Over time, Web1 expanded as individuals and businesses began using it more for e-commerce, along with academic and scientific research.

The technologies behind Web3

Web3 describes what the internet could look like if 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 to record transactions. When new data are added, a new block is created and permanently appended to the chain. All nodes on the network are updated to reflect the change, ensuring the system is not controlled by a single authority or vulnerable to a single point of failure.
Smart contracts. Smart contracts are software programs that automatically execute when specific conditions are met, such as terms agreed upon by a buyer and seller. They are written into blockchain code and cannot be altered once deployed.
Digital assets and tokens. These are items of value that exist only in digital form. They include cryptocurrencies, stablecoins, central bank digital currencies (CBDCs), and NFTs (nonfungible tokens). They can also represent tokenized versions of real-world assets, such as art, concert tickets, or sporting event passes.

Later, we’ll explore how each of these technologies is applied in practice through real-world examples of Web3-supported products.

How does Web3 differ from Web2?

In the Web2 era, control over transactions, content, and data is largely centralized in the hands of major tech corporations. Web3 , in theory, aims to change that. Advocates believe that with Web3 , users will be able to manage their own information without relying on the intermediaries that dominate today’s internet. This shift could transform how information is handled, how the internet is monetized, and potentially even how online businesses operate.

Another key difference lies in how trust is managed. In Web2 , a transaction—whether involving money or information—requires two parties, and often a central facilitator, to trust one another with the exchange. Web3 takes a different approach: instead of relying on trust, the technology ensures that a transaction proceeds only when specific criteria are met and the data have been verified.

Here’s a theoretical example. Imagine someone wants to buy a concert ticket on the resale market. In the past, she was scammed by a seller offering a fake ticket; she trusted the seller, sent the money, and never received a valid ticket. This time, she uses a Web3 -enabled, blockchain-based ticket exchange . On such platforms, each ticket carries a unique, immutable, and verifiable digital identity tied to a real person. Before she purchases the ticket, most of the nodes in the network validate the seller’s credentials to confirm that the ticket is authentic. Once verified, she buys the ticket—and this time, enjoys the concert without worry.

Crypto has faced challenges - what does that mean for Web3?

The cryptocurrency market faces an uncertain future: in 2022, it lost more than 50 percent of its total market capitalization as several currencies declined in value and multiple exchanges shut down. While it’s true that both cryptocurrencies and Web3 are built on blockchains, Web3’s potential extends far beyond crypto. In fact, other areas of Web3 continued to grow in 2022. Here are some key numbers:

NFT sales increased by 68 percent, despite a slowdown in the second half of the year. NFTs are digital representations of assets stored on a blockchain . Because they are nonfungible-meaning they cannot be replicated-they serve as digital proof of ownership that can be bought or sold.
Ethereum core tool downloads rose by 87 percent. Ethereum is a smart-contract blockchain , and these tools are essential for developers building on it.
On-chain stablecoin payment volume grew by more than 50 percent. A stablecoin is a private, price-stabilized cryptocurrency pegged to another currency, commodity, or financial instrument.
Active Web3 gaming users increased by 60 percent, reflecting growing adoption of blockchain-based games.
The global tokenization market expanded by about 23 percent. Tokenization is the process of creating NFTs and has the potential to reshape financial services and capital markets.

Real-world examples of Web3

What is the real world example of web3 image by Khogendra Rupini

The number of Web3-supported transactions continues to grow. Here are four real-world examples highlighted in the McKinsey Technology Trends Outlook 2023:

JPMorgan Chase cross-border blockchain transaction. In November 2022, JPMorgan Chase completed its first cross-border blockchain trade using tokenized Singaporean dollar and Japanese yen deposits. The transaction was part of Project Guardian, a partnership with DBS Bank.
Securitize and KKR tokenized fund. Securitize, a digital-asset securities firm, partnered with global investment company KKR to launch a tokenized fund on the Avalanche blockchain. Tokenization allows private equity to be more accessible by digitizing operations and lowering investment minimums.
100 Thieves NFT campaign. The esports and lifestyle brand 100 Thieves offered fans a free NFT of a diamond necklace if they created a digital wallet within 75 hours. More than 300,000 people redeemed the NFT.
Nike’s .Swoosh platform. After acquiring the Web3 studio RTFKT in 2021, Nike launched its own Web3 platform called .Swoosh in 2022. The platform has since offered blockchain-based NFTs to customers and serves as a hub for new product launches and virtual apparel design sharing.

Web3 vs. the metaverse: Are they the same thing?

Not exactly. As technologist Matthew Ball explains, Web3 refers to decentralized databases and systems architecture, while the metaverse represents a new paradigm of computing and networking. Both may eventually succeed the internet as we know it today, but there is still a long way to go before that becomes reality.

What are the concerns about Web3?

What is the risk of web3 image by Khogendra Rupini

Web3 technologies are already being adopted by tech pioneers. However, early Web3 adopters face several challenges—and more are likely to emerge as Web3-enabled tools become more widespread. Current challenges include:

Evolving regulation: Authorities are still developing frameworks for issues such as consumer and investor protection, the legality and enforceability of blockchain-based contracts, and compliance with know-your-customer (KYC) and anti-money-laundering (AML) standards.
Value proposition and user experience: Compared with Web2 products—refined over two decades—Web3 often delivers a weaker user experience. The utility of Web3 products, such as NFTs, also remains unclear to many consumers and businesses.
Consumer protection: Following recent failures of several Web3 projects, both regulators and the general public are increasingly concerned about protecting consumers and investors.
Persistent challenges: Web3 is not a cure-all for the issues that affect Web2. In fact, it may require even greater effort to address old problems in new ways shaped by this next generation of the internet.

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