# Diving into "Web 3" By [Jeff ](https://paragraph.com/@jeff-4) · 2022-04-26 --- By: [Jeff Tsang](https://twitter.com/jtsang0) Web3 is a term that describes the vision of a decentralized internet. It consolidates this complex idea so that it can be easily propagated throughout our social networks. It includes the aspect of ownership in the digital universe. It encompasses massive changes to the way we interact with the internet and how it interacts with us… crazy right? But, before we dive into understanding what decentralization means or why these changes matter, it’s nice to have a brief primer on the History of the Web. History of the Web ------------------ **Web1, We Read:** The first generation of the web can be characterized as static and open. I was still too young to understand what it was back then, but I remember using the phone to connect to the internet and going to websites like AOL and Yahoo. Most websites provided static content and information that users could only read and it was built on the open protocols (HTTP, IP, etc…) that we still use today. As the internet grew and databases evolved to store more content and interact with the user, the types of websites that could be built evolved — leading to the next generation of the internet. **Web2, We Read and Write:** Web2 has defined the majority of the world’s internet usage in the past two decades. It’s what I use every day to message my friends, see what they’re doing, and share my thoughts. This is the distinguishing factor, now I can not only read but also write information on these websites. The ability for users to create content for websites has been a game-changer and has also created the world’s biggest companies. It has led to the rise and dominance of social media platforms like Facebook, where users share information instantaneously with massive amounts of people. Smartphones have accelerated this trend by making the internet accessible to billions. Smartphone integrations like the camera and GPS have enabled companies like TikTok and Uber to develop novel ideas and expand worldwide. This adoption has allowed companies to build products that have rapidly outpaced open protocol development. **Existing Web 2 Relationships** Web2 companies have enabled rapid adoption of technology for billions of people, but control of these technologies lies solely in the hands of these centralized platforms. Leaving any of these platforms for a competitor is very difficult. For example, it’s so hard for me to ditch the Apple ecosystem because if I ever try to leave iMessage, all my friends would hate me for ditching our iMessage groups. I’d have a breakdown trying to move everything off of my limited iCloud storage, even though I desperately want to because Stanford gives me unlimited cloud storage. That’s because these companies have an incentive to design their products and services in such a way that keeps me trapped in their ecosystem and buying more of their products. (iCloud storage, Apple Music, Apple TV, etc…) ![Chris Dixon](https://storage.googleapis.com/papyrus_images/de7618073f456c702b787830cb93e0d5e8fff78c16888a74cb406790b007f40a.png) Chris Dixon Web2 platforms start like this: They try to attract as many users, developers, creators, and businesses as they can, making their services and network more valuable. This growth comes at a cost. These companies burn through cash trying to acquire customers and grow market share. They are willing to make this trade-off because they know at any point they can flip off the growth switch and turn on profit mode to start extracting value from their platform. There are classic examples of this happening where companies turn on their profit models to start extracting value from users \[Facebook, Uber\]. _Takeaway: Web2 platform companies inevitably go from value creation to value extraction and work against market participants._ **Web3, We Read, Write, and Own:** In my very first sentence, I said Web3 is the vision for the decentralized internet. This vision exists to solve the centralization problem of Web2. The decentralized web creates a web of data so that no centralized platform can consolidate all the data and control it. This next generation of the internet allows for the emergence of decentralized applications (dApps). These are open source apps that are built on top of blockchains, secured by the blockchain, and contain a native economy powered by cryptocurrencies. dApps can be forked and built off of each other for rapid adoption and adaptation. If a dApp ever starts misbehaving, such as exploiting users’ data or pulling support from developers: * Users can take their assets and community to another platform. * Developers can fork the dApp code and check the power of the existing developer team. * In Web3, ownership and interoperability allow anybody to join and leave with minimal sunk cost. Additionally, a decentralized network spreads ownership and control amongst many. The decentralized network is organized and controlled by tokens. And these tokens put ownership in the hands of the users. * Tokens give users the ability to own a piece of the internet. Recently, Ethereum Name Service (ENS), airdropped ENS tokens to users that had bought an ENS domain. If you have seen people around Twitter with a “.eth” in their username like mine — that is an example of somebody owning an ENS domain. People who received ENS tokens were not only given free “money” for using the product but also were given the responsibility to vote on proposals that will dictate the future of ENS. ![Brantly Millegan, Director of Operations @ ENS](https://storage.googleapis.com/papyrus_images/9e66dac214e7f6f4b86be4b0739a1cac8e7981bf4f54361a5c4ab6ca5d70301e.png) Brantly Millegan, Director of Operations @ ENS By having users own a token of the platform that they use, the incentives of the user and platform are permanently aligned. Users will want to grow the platform and extend it into the future. Platforms will want to continuously attract new users and attract new talent to build on top of them. And if the biggest shareholders of ENS decide to start extracting value from ENS users, developers can fork the ENS development and users can take their “.ens token” onto a competing platform. _Takeaway: Web3 provides an alternative with public goods that are owned by network participants, running on forkable protocols. This ability to fork/exit is critical in checking the power of any good we rely on._ Web3 Platforms -------------- On Web3, we are seeing tons of different types of projects ranging from finance, games, exchanges, marketplaces, commerce, etc…. ![](https://storage.googleapis.com/papyrus_images/ea87ec8510c8c8f4507ebdfa9686e1acc78e3d57838af6d4c1a2f7358aed5ef1.png) **DeFi (Decentralized Finance)** Finance is one sector where we have seen massive growth. There are tons of financial products to borrow, lend, exchange, and more. Total Value Locked represents the number of assets deposited onto protocols, similar to the amount of money deposited in bank accounts. On defipulse.com, you can see the amount of value locked onto Ethereum’s decentralized finance apps. This growing value represents the increasing number of people depositing money into and using Defi. ![](https://storage.googleapis.com/papyrus_images/54ccc5cd8188fde3af9ac23fe0f94d27bb8df640613151b16b12da73ae00ace0.png) [https://www.coindesk.com/markets/2021/08/25/some-filipino-merchants-prefer-payment-in-axies-slp/](https://www.coindesk.com/markets/2021/08/25/some-filipino-merchants-prefer-payment-in-axies-slp/) **Crypto Games → Metaverse?** Another example I’ll use is the dominance of the NFT-based video game: Axie Infinity. It has nearly 2 million daily active users and over $2.5 Billion in trading volume in the game. It has developed an in-game economy that rivals small countries. And with their business model, 5% of this trading volume goes to the developer team and 95% of the volume is transferred among the different players. Compare this 5% take rate with the 100% take rate of platforms like Instagram, TikTok, and nearly all video games and we can see why the Axie Infinity economy has grown exponentially. The growth of the Axie economy is encouraged by this low take rate. Also, game players feel like true owners so on top of the fun they have and they are economically motivated to grow the ecosystem. Its in-game currency (SLP) is so ubiquitous in certain countries, that the people denominate products they sell on craigslist in SLP. Contrast this with traditional games where the developers hold all of the value, nothing like this could ever happen. **Disneyland** A mental model for describing the differences between the old Web and Web3 is Disneyland vs. a city block. Disneyland is a happy, beautiful little resort. Mickey Mouse and his friends have complete control over everything that comes in and out, but they create a unified experience for you. A city block is where you can create something and own what you create. Builders and creators create stores that attract new talent and visitors. As it develops, it creates more value in this city block and causes more people to come and build more shops and restaurants. It grows onto another city block and eventually to a city like NYC. This is the feedback loop that makes a city so much more diverse, exciting, and valuable than Disneyland. These feedback mechanisms exist on Web3 protocols and all the layers that you can build on top of each other, spawning the next generation of creativity and innovation. This is the next generation of the internet, it is just starting and it’s about damn time we graduate from Disneyland. --- *Originally published on [Jeff ](https://paragraph.com/@jeff-4/diving-into-web-3)*