What is Web3 - McKinsey Insights Explains

We dug through some of the best market analytic groups - and stumbled on a gold mine in the Mckinsey Lab. Here is Mckinsey's explanation of Web3.

Without further ado - here is a better understanding of Web3.

Building in Web3?

What is Web3?

Web3 is the next iteration of the internet, built on blockchain technology and controlled by its users.

Background:

The internet is always growing and changing, not just in websites and platforms, but in its very code. Web3, a term coined by computer scientist Gavin Wood, represents a new, decentralized internet built on blockchains. These distributed ledgers are controlled communally by participants. When fully realized, Web3 will signal a new era where use and access are controlled by community-run networks instead of centralized corporations.

Momentum

Since 2018, momentum around Web3 has increased significantly in areas like equity investment, online searches, patent filings, scientific publications, job vacancies, and press reports. The financial-services industry has led the way in emerging Web3 technologies. For instance, at one point, decentralized-finance exchanges processed over $10 billion in daily transactions.

Understanding Web1 and Web2

Web1

Web1 was the internet's first draft in the 1990s and early 2000s. Built using open protocols, it allowed people to read web pages and chat. Over time, it was used for e-commerce and academic research.

Web2

Web2 emerged in the mid-2000s with platforms like Facebook, Twitter, and Wikipedia, allowing users to create content. However, these companies monetized user activity and data, retaining control over functionality and governance.

Key Technologies Supporting Web3:

Blockchain

A blockchain is a digitally distributed, decentralized ledger existing across a network, facilitating the recording of transactions. Each new data entry creates a new block that is permanently added to the chain, updating all nodes in the network.

Smart Contracts

Smart contracts are automatically executed software programs when specified conditions are met. They are established in code on a blockchain that can't be altered.

Digital Assets and Tokens

These include cryptocurrencies, stablecoins, central bank digital currencies (CBDCs), NFTs, and tokenized versions of real assets like art or concert tickets.

Differences Between Web2 and Web3

In Web2, control over transactions, content, and data is centralized in tech corporations. Web3 aims to change this by giving users control over their information without intermediaries. Web3 could revolutionize information management, internet monetization, and corporate functionality.

Trust

Web2 relies on trust between parties and central facilitators. Web3, however, ensures transactions only go through if certain criteria are met and data are verified.

Example

In Web3, a concert ticket resale service would use blockchain to validate the seller's credentials, ensuring the ticket is real before purchase.

Challenges for Web3

Cryptocurrency Market

The cryptocurrency market faces an uncertain future. In 2022, it lost over 50% of its market capitalization. However, other areas of Web3 continue to progress.

Examples of Progress

  • NFT sales increased by 68% in 2022.

  • Core tool downloads for Ethereum rose by 87%.

  • On-chain stablecoin payment volume grew by over 50%.

  • Active users of Web3 gaming increased by 60%.

  • The global tokenization market grew by 23%.

Real-World Examples

  • JPMorgan Chase's cross-border blockchain transaction.

  • Securitize's partnership with KKR for a tokenized fund.

  • 100 Thieves' NFT offering.

  • Nike's Web3 platform, .Swoosh.

Web3 vs. the Metaverse

Web3 refers to decentralized databases and systems, while the metaverse is a new computing and networking paradigm. Both may succeed the current internet, but much development is needed.

Concerns Around Web3

Authorities are developing regulations for consumer and investor protection, blockchain-based contracts, and anti-money laundering standards.

Value Proposition and User Experience

Web3 has relatively poor user experience standards compared to Web2 products. The utility of Web3 products, like NFTs, remains unclear to many.

Consumer Protection

Failures of several Web3 projects have heightened the focus on consumer and investor protection.