A Web3 Primer: 7 Concepts You Need to Know

Like earlier iterations of the internet, the arrival of Web3 has the potential to change business and society in any number of ways, from the rise of cryptocurrency to the proliferation of truly user-owned content

First, though, it is important to understand what exactly Web3 is.

Here are seven concepts that you need to know, as described by University of Virginia Darden School of Business Professor Dennie Kim, who co-authored the paper “The Promise of a Decentralized Internet: What Is Web 3.0 and How Can Firms Prepare?”

Web3

Web3 is essentially the next iteration of the internet, made up of internet applications built on blockchain technology (more on that in a minute), which can securely store data. The distinguishing characteristics of Web3 are decentralization and user ownership — an important shift from decades of digital power being concentrated in the hands of a few companies.

Web3 is also called Web 3.0. It’s preceded by Web 1.0 of the 1980s and early 1990s, which was relatively decentralized but did not meaningfully capture data or easily allow users to create content, and our present-day Web 2.0, with which companies have learned to store and use vast quantities of data — and therefore tend to hold more power than individual users.

“The definition of Web 3.0 is still evolving as it is being created,” Kim notes. “For our purposes, it is important to note right now that it is focused on empowering users and businesses to co-create things and mutually benefit.”

Blockchain

Blockchain technology, also known as distributed ledger technology, is the backbone of Web3. Kim and his colleagues define it as a “decentralized, public database that allows information to be securely recorded on a network of computers rather than verified and controlled by centralized entities.”

“Essentially, blockchain is a digital accounting system that records ‘who owns what’ and maintains all state changes over time,” they write. It does this by storing “blocks” of data, which are “chained” to the previous blocks, digitally building on each other each time they transfer between users.

Because these digital ledgers are maintained on a decentralized network of computers rather than a single server, they tend to be secure — and are not owned by any one company or individual but instead collectively managed. Many blockchains are also open and transparent, allowing anyone to access records, unlike, say, Meta, the Facebook parent company, which is notoriously opaque and rarely shares data.

A blockchain can support things like smart contracts — software code that can run automatically once predetermined conditions are met. Kim offers the example of Modum, a startup company that integrates blockchain technology into pharmaceutical supply chains, using smart contracts to maintain important conditions like temperature during the transit of perishable medication. Without human involvement, it can analyze and approve shipping conditions and send synchronous updates. Because these scripts are executed “on chain” (i.e., on the blockchain), they are much more difficult to manipulate or alter, and interactions can be made more transparent than code executed on enterprise software or centralized servers.