Web3: A Proposed Blockchain-Based, Decentralized Web

Web3: A Proposed Blockchain-Based, Decentralized Web

April 1, 2022
Web3: A Proposed Blockchain-Based, Decentralized Web
Web 3.0, often stylized as Web3, is an evolving concept
data, and allow developers to build and integrate other
with practical implications for web architecture and internet
applications and services.
users. The World Wide Web (web) is the application layer
of linked resources that reside on the internet. Although
How Is Web3 Architecture Different?
there is no standardized definition, Web3 generally refers to
While Web 1.0 and 2.0 use the client-server model, Web3
a proposed decentralized architecture for the web, built on
proposals would use a blockchain-based, “peer-to-peer”
blockchain technologies, protocols, and applications such as
architecture. In a blockchain-based architecture, application
cryptocurrencies. A blockchain is a digital database that
code as well as data would be hosted across participating
records data on a decentralized network of computers,
nodes in a distributed network rather than on servers
without central administration. Cryptocurrencies are a form
operated by a company providing web applications or
of digital money without government backing that are
services, as is the case in Web 2.0. This would, proponents
exchanged through a blockchain network.
claim, address the concentration of services and data at
current online platforms, eliminate intermediaries, and
Since cryptocurrency developers adopted the term Web3 in
challenge existing businesses models. However, the
2014, it has garnered both support and criticism. Proponents
technical feasibility and scalability of a fully decentralized,
claim it is a new web architecture that could displace
blockchain-based web architecture remain unproven.
existing “big tech” platforms as the primary means of
accessing and storing data and content online, thereby
Web3 Applications
improving individual user privacy. Critics argue Web3 is a
buzzword that, if realized, would introduce new risks for
Most users interact with the web primarily at the
users and simply replicate existing online power structures
application layer. Some of the following blockchain
with new companies exerting control.
applications have been proposed as part of a possible
decentralized Web3 architecture.
This In Focus provides an overview of the existing web
architecture and development of Web3 applications. There
Non-Fungible Tokens (NFTs) are unique and non-
are multiple “layers” of the internet, ranging from physical
interchangeable assets recorded on a blockchain that can be
hardware to user applications. This In Focus examines
used to represent the ownership of physical or digital items.
Web3 at the application layer, through which most users
NFTs are commonly used to track the ownership of digital
interact with online content and services. It concludes with
works (such as image, video, or music files), verify their
a brief discussion of some issues that may be of interest to
authenticity, and enable their exchange. In a Web3
Congress.
architecture, NFTs or cryptocurrencies could be used to
purchase items online, represent digital ownership, pay
Web Architectures
royalties, or access certain applications and services.
Existing Web Architecture
Decentralized Applications (dApps) are applications that
There are two generations of the existing web: Web 1.0
operate and run code on a blockchain network rather than
(1990s) and Web 2.0 (2000s). Web 1.0 and Web 2.0 are not
the centralized servers of a company that provides a web
distinctly different web architectures, as Web 2.0 builds
application. Proponents believe Web3 dApps will replace
upon and augments Web 1.0. In both Web 1.0 and Web 2.0
existing centralized Web 2.0 platforms. Web3 users may be
architectures, users access a web browser installed on their
able to navigate among dApps using a blockchain-based
computers to connect to hosting servers, retrieve
identity or credentialing system. Developers of dApps may
information from webpages, and display content on their
also attempt to incentivize user engagement through
computers. This is called the “client-server model” since
financial rewards in the form of cryptocurrencies or NFTs.
the client (web browser) requests and displays data from a
server (a system that stores and processes information).
Decentralized Autonomous Organizations (DAOs) are
groups whose rules are encoded and transactions executed
Web 1.0. In Web 1.0, the majority of web-based content
using a blockchain and automated computer programs,
consisted of static webpages, with interactivity often limited
without intermediaries. Some existing Web3 proposals
to hyperlinks and asynchronous commenting.
assert that users and online communities may interact and
organize through DAOs. Membership may be determined
Web 2.0. Web 2.0 is characterized by platforms—the web-
by ownership of a specified “token,” such as a specific
based interface and technical infrastructure that allows
cryptocurrency or NFT. DAOs, alongside NFTs, dApps,
users to post content and interact with other users. These
and cryptocurrencies, may be used in Decentralized Finance
platforms enable connection to other sites, applications, and
(DeFi), which refers to the use of digital assets to deliver
https://crsreports.congress.gov

Web3: A Proposed Blockchain-Based, Decentralized Web
financial services through a blockchain network. Some
may have an incentive to generate transactions. Prominent
proponents view DeFi as a central feature of Web3.
critics, such as Twitter co-founder Jack Dorsey and Signal
co-founder Moxie Marlinspike, argue there is centralization
Does Web3 Already Exist?
around certain cryptocurrency exchanges, digital wallet
Web3 proponents’ vision for an entirely decentralized
providers that allow a user to store tokens, and NFT
online architecture has not been fully realized, but certain
marketplaces—many of which are funded by the same
features associated with Web3 already exist. Many
small circle of venture capital firms. As part of their
cryptocurrency, NFT, DeFi, and other Web3 companies
investment, venture capital firms may receive a Web3
have received significant funding from private venture
project’s cryptocurrency, NFT, or special “governance
capital firms. There are thousands of different
token,” which grants the right to vote on a project’s
cryptocurrencies and NFTs in existence, albeit some more
development. This structure may incentivize investors to
actively traded than others. Certain DAOs and dApps, such
use votes to prioritize a project’s token value over other
as Decentraland, Axie Infinity, and OpenSea, are currently
interests, mirroring some current criticism of “big tech”
in operation. However, many of these applications and
companies prioritizing stock value over user interests.
services have some centralization in platform decision-
Investors may also be incentivized to create hype around a
making and are only accessible through a web browser.
project to attract other investors, inflate token value, and
then cash out, precipitating a massive price drop.
Since the concept of Web3 as a decentralized web is an
Considerations for Congress
amorphous and evolving concept, existing features,
applications, and companies currently associated with it
Depending on how Web3 develops, it could mitigate some
may not play a role in a more mature Web3 architecture.
of the existing issues associated with Web 2.0 or introduce
Additionally, some applications seen as cornerstones of
new privacy, security, and financial risks that could raise
Web3 may be developed by Web 2.0 companies, operate in
questions of interest for Congress.
tandem with Web 2.0 services, or be adopted and integrated
into Web 2.0 platforms.
Oversight Without Centralized Authority. A fully
decentralized Web3 architecture may make regulatory
Support for Web3
compliance difficult if decisionmaking authorities are
Web3 has developed alongside, and in response to,
distributed and require multi-party cooperation. Regulatory
concerns about centralized tech platforms and their
frameworks for existing blockchain-based applications,
implications for user privacy, data ownership, and data
such as cryptocurrencies and other tokens, are nascent.
security. Supporters believe Web3 applications and
Their development may shape how Web3 application
services will not be owned by a central company or
governance structures evolve. It is also currently unclear
authority, but rather by users, who will earn ownership
how Web3 platforms might address content moderation,
tokens by contributing to the development and
consumer safety, and fraud. Most Web 2.0 platforms can
maintenance of the services. Users could potentially
directly implement protections and ensure compliance with
monetize their web activity by receiving cryptocurrencies
existing regulations through corporate ownership and
and other tokens as a reward for posting, sharing, or
executive management structures. Congress may consider
leaving reviews for products and services. These tokens
what agencies, if any, should play a role in Web3 oversight.
may in turn grant membership to DAOs, access to dApps,
or voting rights on Web3 companies’ actions. Proponents
Privacy and Security. Decentralized blockchain networks
argue this structure could democratize data ownership and
and Web3 applications may create new security risks.
decrease the power of centralized Web 2.0 companies.
Cryptocurrency, NFT, and DAO scams have become

common, and the anonymity of many Web3 developers and
Criticism of Web3
users complicates remediation. If digital wallets are hacked
or encryption algorithms broken, users may be unable to
Proponents of Web3 highlight its intended decentralization;
access applications, accounts, or services. Most blockchains
however, a small number of companies associated with
are immutable, meaning records cannot be changed once
Web3 have accrued large market share, leading to the
added. If personally identifiable information or sensitive
criticism that Web3 shifts centralization to different hands.
data are stored on a blockchain, users may be unable to
Some critics claim that Web3 companies might simply take
correct these records if there are errors or falsifications.
the place of Web 2.0 platforms as business models change,
Congress may consider whether existing privacy and
retaining the same authority over content, transactions,
consumer protections adequately address these risks.
terms and conditions, and technical decisions.
Energy Consumption. Some Web3 platforms are built on
Critics also argue that Web3 represents a shift to a “token
economy” where the need to exchange cryptocurrencies and
energy-intensive blockchains, with the largest blockchain
networks consuming as much energy as small nations.
NFTs for most interactions and transactions results in the
“
Congress has previously conducted oversight of energy-
financialization of everything.” Tokens or
intensive cryptocurrencies, and may consider how Web3
cryptocurrencies may be required to access certain Web3
will increase future blockchain energy consumption.
platforms, creating services that are closed off to users
unless they meet certain, financial conditions. Web3
companies typically profit through the issuance and
Kristen E. Busch, Analyst in Science and Technology
appreciation of their tokens. If a token value decreases, it
Policy
may imperil the viability of their business, so companies
https://crsreports.congress.gov

Web3: A Proposed Blockchain-Based, Decentralized Web

IF12075

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https://crsreports.congress.gov | IF12075 · VERSION 1 · NEW