Web 3: Everything to Know

By  Beluga Research August 31, 2023

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  • Web 3 is a decentralized internet powered by cryptocurrencies, enabling trustless transactions, smart contracts and user ownership of data
  • This is also known as "the decentralized web," aims to distribute power and control among participants, leveraging blockchain technology and decentralized networks
  • It introduces concepts like "smart contracts," "decentralized applications" (dapps) and interoperability between different blockchains
  • Web 3 prioritizes user ownership and control of data, enhances privacy and security and promotes decentralization in finance, marketplaces and governance


Web 3 is a decentralized internet powered by cryptocurrencies, enabling trustless transactions, smart contracts and user ownership of data. Thisleverages blockchain technology to empower individuals with greater control over data and online interactions. It emphasizes data ownership and privacy, where users have greater control over personal information. This vision promotes the idea of a more open and inclusive internet, where users can engage in peer-to-peer (P2P) interactions and economic activities without intermediaries.

A Brief History

To understand web 3, it is important to look back at the origins of the internet. Web 1 was a static web where users could consume information but had limited interaction capabilities. Next came web 2, which introduced dynamic content, social media and user-generated platforms. However, web 2 still relied heavily on centralized platforms that controlled user data and monetized it through targeted advertising.

Web 3: Everything to Know

Web 3 represents a paradigm shift from the centralized nature of the current internet. It introduces several key concepts and technologies that enable a more decentralized and user-centric online experience.

Some of the fundamental aspects of web 3 are as follows:

  • Decentralization - Web 3 aims to distribute power and control among a network of participants instead of concentrating it in the hands of a few centralized entities. This is achieved through the use of blockchain technology, which allows for transparent and tamper-proof record-keeping.
  • Blockchain Technology - Blockchain serves as the underlying technology for web 3 applications. It is a distributed ledger that records transactions across multiple computers, making it difficult for any single entity to manipulate the data. Blockchain enables trust and transparency in web 3 by removing the need for intermediaries and providing a verifiable record of transactions.
  • Smart Contracts - "Smart contracts" are self-executing contracts with predefined rules encoded on the blockchain. They automatically execute when specific conditions are met, eliminating the need for intermediaries and ensuring trust and transparency in transactions. Smart contracts play a crucial role in web 3 by enabling decentralized applications (dapps) to operate securely and autonomously.
  • Dapps - "Dapps" are applications that run on a decentralized network, such as a blockchain. These applications leverage the transparency and security provided by blockchain technology to offer various services without relying on a central authority. Dapps can range from decentralized finance (DeFi) platforms to social media networks and gaming applications.
  • Interoperability - Web 3 aims to enable seamless interoperability between different blockchains and decentralized networks. Currently, many blockchain platforms operate in isolation, limiting the exchange of assets and data. Interoperability protocols, such as Polkadot and Cosmos, are being developed to bridge the gap between different blockchains and facilitate communication and collaboration.
  • Privacy and Security - Web 3 places a strong emphasis on privacy and security. In Web2, user data is often collected and monetized without explicit consent. Web 3 seeks to give users full control over data, allowing them to choose when and how personal information is shared. Privacy-focused cryptocurrencies, like Monero and Zcash, provide enhanced privacy features to protect user identities and transaction details.

Getting Started

To understand web 3, it is essential to grasp the concept of blockchain technology. At the core, a blockchain is a secure and transparent distributed ledger that records transactions across multiple computers, or nodes. This technology forms the foundation of web 3 and enables the creation of dapps and smart contracts.

Web 3 emphasizes user ownership and control of data. In the traditional Web 2.0 model, individuals often give up personal information to centralized platforms in exchange for services. With web 3, users have more control over data. They can choose to share it selectively or even monetize it directly. This shift empowers individuals and promotes privacy and data sovereignty.

Unique Aspects

Web 3 introduces several unique aspects. Firstly, decentralized identity (DID) systems are important in web 3 ecosystems. DIDs allow users to have self-sovereign control over identities and personal data. Instead of relying on centralized authorities, DIDs use cryptographic techniques to verify and authenticate users, enhancing security and privacy.

Another key aspect of web 3 is DeFi, which refers to financial applications and protocols built on blockchain networks that offer traditional financial services without intermediaries. These decentralized platforms enable users to access loans, earn interest, trade assets and participate in financial activities in a permissionless and trustless manner. DeFi has gained significant traction in recent years, showing the potential of blockchain technology to disrupt the traditional financial system.

Web 3 also promotes the development of decentralized marketplaces. These marketplaces use blockchain and smart contract technology to enable P2P transactions without intermediaries. By removing intermediaries, decentralized marketplaces reduce costs, increase efficiency and provide a more inclusive environment for buyers and sellers. They also facilitate the creation and exchange of unique digital assets like non-fungible tokens (NFTs), which have gained popularity for representing ownership of digital content, art and collectibles.

Furthermore, web 3 advocates for decentralized governance. Traditional centralized systems often lack transparency and accountability. In contrast, web 3 platforms use decentralized governance models, distributing decision-making among network participants. This ensures that platform rules and policies are collectively determined, promoting a more democratic and inclusive approach to governance.


  • Privacy - Web 3 allows users to have control over personal data by encrypting and storing it on the blockchain. This ensures that only authorized parties can access the data.
  • Security - This enhances security by eliminating single points of failure through the decentralized nature. Data is distributed across a network of nodes, making it more resistant to attacks.
  • Censorship Resistance - Web 3 reduces the ability of centralized authorities to censor or control content, promoting freedom of expression. Data stored on a distributed network is difficult to manipulate or restrict access to.
  • Interoperability - The concept of web 3 aims to create a seamless experience across different platforms and applications. It enables interoperability between dapps, allowing users to easily transfer assets and data between platforms.
  • Tokenization - Web 3 introduces "tokenization," representing real-world assets as digital tokens on the blockchain. This enables fractional ownership and trading of previously illiquid or inaccessible assets.
  • Economic Empowerment - Web 3 enables P2P transactions, reducing transaction costs and empowering individuals to directly engage in economic activities. This benefits individuals in underserved regions without access to traditional financial services.


  • Scalability - Web 3 faces challenges with scalability as more users join the network and transaction volume increases. This can lead to slower transaction times and higher fees. Scaling solutions like "layer 2" protocols and "sharding" are being developed to address this.
  • User Experience - Web 3's current user experience can be complex and challenging for non-technical users. Interacting with dapps requires understanding blockchain concepts and using digital wallets, which can hinder mainstream adoption.
  • Energy Consumption - Many blockchain networks, especially those using proof-of-work (PoW) consensus algorithms, require significant computational power and energy consumption. This raises concerns about the environmental impact and sustainability of web 3. Efforts are underway to explore more energy-efficient consensus mechanisms like proof-of-stake (PoS).
  • Regulatory Uncertainty - Web 3's decentralized nature presents regulatory challenges outside traditional governance frameworks. Governments are grappling with how to regulate cryptocurrencies and dapps, creating uncertainty for businesses and users.
  • Smart Contract Vulnerabilities - Smart contracts, fundamental to web 3, are not immune to bugs or vulnerabilities. Flaws in smart contract code can lead to security breaches or unintended consequences, emphasizing the need for rigorous auditing and testing processes.