The disruptive premise of Web3 is built on three fundamentals: the blockchain that stores all data on asset ownership and the history of conducted transactions; “smart” contracts that represent application logic and can execute specific tasks independently; and digital assets that can represent anything of value and engage with smart contracts to become “programmable.” Each of these three fundamentals has layers of complexity and nuance, and each is evolving in an effort to overcome startup troubles and structural weaknesses. In this primer, we mainly cover the high-level aspects of these fundamentals (Exhibit 1):

Blockchains as open-data structures. In Web3, application data are no longer stored in private databases but rather on an open-data structure that anyone can write to and read from. This open-data structure is the blockchain. Blockchains operate as public databases that store and secure all relevant and transactional data. They are often referred to as “distributed digital ledgers,” meaning that the core databases are duplicated and spread among multiple participants in a network of computer servers called “nodes.” The “blocks” in blockchain are individual segments of data that are interlinked or chained together. As new data are added to the network, a new block is created and attached permanently to the chain. All nodes are then updated to reflect the change. The lack of central data storage is a critical differentiator from traditional databases. Among other advantages, this means that the system is not subject to a single point of failure or a single point of control or censorship. User data are no longer fragmented across platforms, nor are they proprietary or for sale.