Web1, Web2, Web3: What’s the difference?

This next phase of the Internet's evolution is known for its speed, security and transparency in preserving the fiscal value of digital media.

The term Web 3.0 was originally coined by Dr. Gavin Wood in a blog post describing the breakthroughs that a decentralized internet would bring. As governments and tech giants continue to overstep the boundaries of privacy and trust granted to them, developers are attempting to replicate the centralized, cloud-based model with reduced privacy risks and greater resilience against DDoS cyberattacks.

Web3 is a set of protocols that provide building blocks for decentralized application builders. These building blocks replace traditional web incumbents like HTTP and MySQL and provide new ways to create web applications. Web3 provides secure and verifiable guarantees to users about the information they receive, the information they provide, and personal sovereignty over their economic transactions. By giving users more autonomy online, single points of failure (SPoF), censorship, and breaches of trust related to data can be minimized.

Readers may ask what previous versions of the Web might be defined as, so a brief history is in order. Web1 was the first generation of the Internet as we know it today, essentially a set of static HTML pages that didn’t have much to brag about in terms of user experience .

Furthermore, payments could not be made on Web1 — the infrastructure had not yet been developed . In fact, for some time it was common to talk to an operator and have credit card information read out over the phone. The first era of the Internet can be said to have ended in the mid-2000s with the rise of mobile phones and apps.

Thus, social media, search engines, financial transactions, music and video sharing, and mobile applications are all representatives of Web2. Fundamentally, Web2 is about interactivity, file sharing, and financial connectivity . Additionally, as hardware and software continue to improve over time to become faster and smaller, the user experience becomes clearer and more intuitive.

However, these experiences are filtered through internet service providers, directing users to third-party platforms that collect and store their personal data, often selling it without their knowledge or permission until later. As a result, the lack of privacy, risk of data centralization, management, or thorough censorship, and the lack of digital ownership infrastructure inspired developers to work on solving these problems, and with the release of the Bitcoin whitepaper, Web3 was born.

Instead of relying on trusted third parties to protect our personal data and financial assets, Web3 is known for protecting financial scarcity through cryptography, individual sovereignty over personal data, and eliminating single points of failure through a decentralized and distributed network.

Because digital scarcity can now be preserved and verified on blockchains, powerful and complex financial interactions can now take place online, increasing global liquidity and opening up the possibility for new forms of economic activity and collaboration. Ultimately, Web3 makes the internet more similar to the real world, as users are not trapped in data silos and are not at risk of censorship due to gatekeeper behavior.

The Web3 stack: blockchains, crypto assets, dApps, and oracles

First, blockchains are secure, decentralized networks with shared financial ledgers that allow people to store and exchange value without the need for a third-party host. Blockchain networks are the foundation of the Web3 stack because they provide a secure settlement layer for crypto assets and decentralized applications (dApps).

Cryptocurrencies serve as an economic incentive system that governs the blockchain and provides accountability among its stakeholders. These assets and their ownership are cryptographically secure and verifiable on a transparent ledger shared by network participants, providing a tamper-proof medium of exchange and digital value preservation. Other crypto assets can be programmable and may even be useful when using protocol features (e.g., indexing on The Graph).

Stablecoins are also very useful as crypto assets because they allow users to exchange more volatile crypto assets without leaving the Web3 ecosystem. Non-fungible tokens (NFTs) are also a fantastic invention of Web3. Because blockchains, digital assets, and smart contracts are immutable and transparent, they protect digital property in such a way that the Internet can arguably protect and transmit value better than anything we have experienced before.

Decentralized applications are different from the mobile and desktop applications (apps) that most people are already familiar with. Instead of a single entity maintaining data as a separate task, it is supported by a decentralized infrastructure of network participants, each of which has its own copy of the blockchain ledger and the accompanying activity history.

Although seemingly harmless, the decentralized trend of Web3 is promoting the proliferation of automated P2P financial services such as decentralized exchanges, NFTs, smart contracts, blockchain games, the metaverse, the tokenization and financialization of assets, etc.

Despite the optimism, there are still challenges to overcome in harnessing the full potential of Web3. In order to harness its full potential, blockchains and their dApps require accurate data from sources external to the blockchain network so that the blockchain is not limited to the data stored in its own ledger history. Oracles are therefore needed to connect blockchains to external data, making their security essential to building a robust, interoperable Web3 network.

Oracles therefore fetch and verify financial data for blockchain and DeFi applications, but they can also provide secure off-chain computations such as verifiable randomness to enable dynamic NFTs and automated dApps or DAOs. Furthermore, SupraOracles are inherently interoperable, meaning that our oracle network will help ensure compatibility of various blockchains and layer 2 scaling solutions to conduct transactions securely and increase their network effects through their synergy.

Oracles will serve as the Web2 and Web3 composability backend, acting as an interoperability layer and guardian of data security as it flows back and forth from blockchains and their dApps. Essentially, oracles are able to extend cryptographic guarantees to financial arrangements beyond blockchains, dApps, and crypto assets, thereby exponentially increasing the composability and economic potential of Web3.

Web3 Banks, Crypto Exchanges, and Money Markets

With Web3's decentralized model and permissionless P2P infrastructure, advocates aim to create a fairer and more transparent Internet. Fundamentally, the technology enables individuals to participate in complex global financial arrangements with unprecedented security, transparency, and fair access. Web3 dApps leveraging the above technology stack have already enabled disruptive use cases in finance, gaming, real estate, insurance, education, healthcare, and more.

Contrary to the centralized, trusted entities of traditional finance, Web3-based DeFi protocols leverage distributed networks and data sovereignty to disrupt banks and asset trading through trustless, decentralized algorithms. Applications such as Metamask and Uniswap allow users to hold crypto assets and trade them in pure P2P markets. Even more, some companies like Celsius essentially provide high-interest savings accounts and lending services for crypto assets, offering more attractive interest rates than even the most generous fiat financial institutions.

In addition to DeFi exchanges and wallets, lending markets like Aave enable users to access non-custodial lending products. Users deposit crypto collateral and borrow other crypto assets, such as fiat stablecoins, at different interest rates based on the loan-to-value ratio of the borrower's collateral. Web3 lending products typically require users to over-collateralize before borrowing, unlike banks that only hold a small portion of the lent funds.

Crypto lending may not seem like technology “for the people,” but healthy, collateralized money markets encourage investment and proper resource allocation because money must be repaid to avoid huge losses, compared to a hit to an individual’s credit rating. P2P money markets like Aave incentivize dormant assets to become liquid and provide more equitable access to capital, especially for those outside of traditional loan underwriting guidelines.

Web3 Games and Non-Fungible Tokens

While fintech products and services are the most obvious use case, Web3 goes beyond DeFi and lending protocols. From gaming to privacy-focused internet browsers to the minting and trading of NFTs, Web3 is entering nearly every aspect of online experiences and interactions.

First, earn-to-play games like Axie Infinity are leading a seismic shift in the way the gaming community views crypto assets. Players mint their characters as NFTs and “train” them to improve their abilities throughout the game.

These NFT characters can then be sold on the secondary market to new players who want to experience the game at an advanced level without having to spend time training their own game characters. As a result, entire economies are born within the gaming community, with some players earning enough from the game to sustain themselves financially, especially in low-income areas.

NFTs are essentially unique items that can be verified on the blockchain. They can be as simple as digital art with a unique identifier, such as the Bored Ape Yacht Club NFT, but can also grant their owners interesting privileges, such as access to live events. Their immutability and ownership on the blockchain make them provably rare and potentially even more powerful than those found in the real world.

By minting unique tokens on the blockchain, one crypto asset can be distinguished from another, just as a genuine Apple iPhone can be distinguished from a manufacturer's cheap knockoff. With NFTs, this verification can be easily performed, recorded, and maintained even if ownership is transferred thousands of times. For brands that are often counterfeited, the application for this authentication purpose should be obvious.

The impact on artists and creative types couldn’t be greater. In fact, the innovation of non-fungible tokens could spark a renaissance of sorts, as they can now effectively monetize their content. Major players in the video game industry are also making plans to adopt crypto assets such as NFTs. With Microsoft announcing plans to acquire gaming giant Activision Blizzard, there’s no doubt that NFTs and the Metaverse will be on an upward trend for the foreseeable future.

Is it the era of Web3 FOMO?

Web3 is already changing the way users interact online, from the way we invest and exchange value to the games we play to our artistic and creative expression on social media, or whatever comes next. We are witnessing the implementation of cryptographic guarantees in mainstream consciousness and industrial operations, which provides an accountability layer for the internet.

More and more users and institutions around the world are looking to Web3 for the power of trustless, immutable and verifiable financial protocols; however, most people still don’t know what blockchain is. Because we know that we are still early in the Web3 timeline, which should be inspiring, but on the other hand, most people don’t need to fully understand it, and we won’t.

Just as the underlying technologies that underpinned Web1 and Web2, the next generation of the digital sphere will increasingly hide much of the complexity beneath stunning and intuitive interfaces. While Web3 is still in its infancy, history may simply look back on this period as humanity reaching a major globalization threshold and discovering fair and transparent financial markets for the first time.