It seems everyone is talking about Web3. But beyond the buzzword, what exactly is Web3?
Many define Web3 in terms of components: cryptocurrencies, NFTs, blockchain, decentralized domains, DAOs, etc. But to my mind, that does not explain in a clear way what makes Web3 fundamentally different from the web of the present and past. Nor does it fully answer what new opportunities Web3 may bring, or new risks it may pose.
So I set out to find answers to questions like the following. How will our online experiences be fundamentally different under Web3? What new things does it make possible? Will Web3 be good or bad for domain name investors?
Web1
Let’s first look at earlier iterations of the web. Web1, usually written as Web 1.0, covers the period from the early web of the mid-1980’s up until about 2004.
The structure of Web1 was influenced by pioneering Internet work at DARPA and key work by the acknowledged inventor of the web, Sir Timothy John Berners-Lee. The basic idea was that different computers could communicate with one another using open protocols, such as HTTP and FTP.
That early web was decentralized, no one owned the protocols, the hardware was in many physical locations, and the content was determined by those who operated the various servers as opposed to a few central authorities.
Commerce under Web1 was in some ways similar to individual physical storefronts, but now serving a global market.
Web1 included the dot com bubble. Accelerating after 1995, funding poured into online businesses, culminating in a peak during 1998-2000, followed by a dramatic collapse, the so-called dot-com bubble. Read more at Investopedia on the dot-com bubble and collapse.
While the early web had some level of interactivity, such as bulletin boards, Web1 was more about reading content, or making purchases, rather than contributing content as an active participant.
Media and interactivity were both limited due to the technologies of the time.
Connections were largely through hyperlinks.
This was an era where type-in traffic was important, and product and service domain names were in hot demand.
While there were numerous search engines in Web1, some of us remember products like AltaVista, they were far different from current search products. Search engines did not drive web traffic to the extent they do today.
In many ways Web1 was a golden era for domain name investment.
Web 2
While the transition to Web2 happened gradually over many years, starting in the early 2000’s, a number of aspects characterized the shift.
Personal data was recognized as having great value for online advertising. Recent years have seen increasing concern over both the misuse of personal data and the regulation of social media. Some have argued that platforms like Facebook and Twitter are over-regulated, while others feel they are not regulated enough.
A small number of tech giants have grown to dominate the stock markets during the second half of Web2. Before the recent pullback, much of the returns in the total stock market in recent years were through valuation increases in less than a dozen tech companies.
The control of the tech giants posed a hazard to those using their services in commerce. It was possible to lose audience and access overnight due to one misstep. This should have been a major push for the need for independent websites on business-owned domain names, to be in control of your business destiny.
Over almost two decades of Web2, it gradually became a rather centrally controlled place, with a handful of tech giants in charge of proprietary protocols, servers, devices, search, and the software that most of us use in our online activity every day. The decentralized world of Web1 became a much more centralized and controlled Web2.
The Roots and Nature of Web3
The roots for Web3 were in blockchain technologies and the cryptocurrency movement. First use of the term Web3 is often attributed to Ethereum co-founder, computer scientist Gavin Wood. In 2014 he said
One definition of Web3 is:
Another way to define Web3 is more tied to some of its elements:
Concern over the power wielded by the tech giants, and support for decentralization ideas in general, set the stage for Web3.
Defining Features Of Web3
To get a bit deeper into understanding Web3, let’s look at its defining characteristics. In writing this section, I found the NFTnow Comprehensive Guide To Web3 really helpful.
Decentralization:
Probably the key characteristic of Web3 is that it is decentralized. Under Web3 there are not centralized servers controlling the traffic and data, but rather blockchain will be used across distributed devices. In a sense, Web3 moves us back to the decentralized nature of Web1, but now with the advances of modern technology.
Individual Ownership:
If not a handful of tech giants owning the hardware, software, protocols, data and more, then who does have ownership? A key idea of Web3 is that individuals own their data and content, and the protocols are open and not proprietary.
I found this description in the article by Randy Ginsburg helpful:
The Wallet:
As you move around Web3 you need a seamless way to be paid and to pay in Web, the wallet, whether for providing a tip for a contribution, buying or selling a creative work, or something else.
Right now it appears that Ethereum is on track to fill that role in Web3, but whether Ethereum or something else, your wallet is a key part of Web3.
The wallet is uniquely and directly associated with you, and it works seamlessly with all or most of the services on Web3. The wallet holds your cryptocurrency, but also your data and digital content.
One graphic to explain Web3 vs Web 2 illustrates it as attaching your Ethereum wallet, instead of signing into an account at one of the tech giants in Web2.
Permissionless:
Right now when you do commerce on Web2 a large entity, in fact several typically, decide whether to permit that transaction. In Web3
Truly International
Currently the tech and financial giants constrain possible activity for some. We do not live in a truly equitable digital world. Where you reside will not influence what you can do on Web3, unless governments figure out a way to overcome the aim of Web3.
Decentralized Domain Names
Decentralized naming systems outside the ICANN system have existed for a few years. The main contenders are probably Handshake HNS and Ethereum Name System ENS. This is a helpful comparison of HNS and ENS. Unstoppable Domains is another option outside the centralized ICANN system.
Will Web3 use mainly decentralized domain names? That is not clear. The ENS system allows you to link your Ethereum wallet and ENS name. XYZ was the first ICANN TLD to work with ENS, starting in 2018, but now a number of other extensions, including
While being free from the regulations and control of ICANN is desired by many, without that centralized control there is also potential for various forms of abuse.
Is Web3 The Metaverse?
While the metaverse and Web3 are both being talked about a lot these days, they are not the same thing.
Web3 could support a metaverse experience, but so could a centralized Web2 system. Companies like Meta are banking on playing a big role in the metaverse, while certainly remaining in the centralized Web2 world.
I provided an introduction to the metaverse last year on the NamePros Blog.
Smart Contracts
If you are operating in Web3, the way many things are done will be different. For example, centralized advertising, how you get paid, how you find clients, etc. will all be different.
Fortunately, smart contracts offer the possibility of far more robust, transparent and efficient ways to achieve the same thing.
Smart contracts will play an essential role in Web3, and be particularly advantageous for creatives. As the NFTNow article explains,
If we applied this to the domain world, it is possible to have a smart contract that would pay someone for name expertise, or to compensate traffic flow akin to parking contracts today. It would also make it easy for a name expert to compensate individuals on Web3 who participated in the equivalent of focus groups or affiliate activity.
Some domain name sellers entertain the idea of being partly compensated for a high-value domain name through some interest in the business that will be built on the name. Smart contracts may make it easier to do this with Web3 businesses in a transparent and secure fashion.
Another way that smart contracts might positively impact the domain aftermarket world is through a transparent, efficient way to fractionally share a basket of high-quality domain names. The NamePros Blog recently covered fractional ownership and domain names as an asset class.
DAOs
The key idea of a decentralized autonomous organization (DAO) is simple: a group of people agree to work on some task, all coordinated with transparent progress through a blockchain.
The blockchain contains the rules, steps, funding, and authentication. Smart contracts can check when certain things have happened, and when they are verified, take some action, such as make payments.
Crowd funding of new ventures, even though not Web3 per se, paved the way for DAOs. They typically involve many people from diverse locations, contributing to a central goal, and often indicate intermediary steps that will happen when a certain level of funding is achieved.
Web3 Storm Clouds
Lack of centralized control and permissions is not necessarily a positive, however. Already in the NFT and cryptocurrency worlds we have seen various forms of abuse. In the decentralized name systems some have purchased domain names that seem in conflict with intellectual property rights of third parties. While UDRP is not applicable in the decentralized naming system, all of the other legal protections still apply.
Web3 will need to worry about issues such as prevention of illegal activity, protection of minors, and much more.
Will Web3 Be Good For Domain Investing?
To me it is far from clear whether Web3 will be good or bad for domain investing.
On the positive side, the return to a less centralized web, absent of domination by a handful of tech giants, can definitely drive the need for domain names.
Also, if the Google stranglehold on search and online advertising is lessened, that could herald increased demand for quality domain names.
Smart contracts can be creatively used in a number of ways that might help compensate domain name owners.
Certainly early-stage Web3 startups have helped drive new interest in
On the other hand, will Web3 evolve in ways that, outside a name connected to a wallet, will lessen the importance of domain names?
Will decentralized name systems lessen interest in the centralized domain names held by most investors? Will they lead to confusion that will harm the domain name aftermarket?
Recommended Reading
Here are some resources that I found particularly helpful in researching this article. Share your thoughts on Web3, whether you view it positively or negatively. Do you think it is just a buzzword and will have little true impact, or will it fundamentally change the web?
Many define Web3 in terms of components: cryptocurrencies, NFTs, blockchain, decentralized domains, DAOs, etc. But to my mind, that does not explain in a clear way what makes Web3 fundamentally different from the web of the present and past. Nor does it fully answer what new opportunities Web3 may bring, or new risks it may pose.
So I set out to find answers to questions like the following. How will our online experiences be fundamentally different under Web3? What new things does it make possible? Will Web3 be good or bad for domain name investors?
Web1
Let’s first look at earlier iterations of the web. Web1, usually written as Web 1.0, covers the period from the early web of the mid-1980’s up until about 2004.
The structure of Web1 was influenced by pioneering Internet work at DARPA and key work by the acknowledged inventor of the web, Sir Timothy John Berners-Lee. The basic idea was that different computers could communicate with one another using open protocols, such as HTTP and FTP.
That early web was decentralized, no one owned the protocols, the hardware was in many physical locations, and the content was determined by those who operated the various servers as opposed to a few central authorities.
Commerce under Web1 was in some ways similar to individual physical storefronts, but now serving a global market.
Web1 included the dot com bubble. Accelerating after 1995, funding poured into online businesses, culminating in a peak during 1998-2000, followed by a dramatic collapse, the so-called dot-com bubble. Read more at Investopedia on the dot-com bubble and collapse.
While the early web had some level of interactivity, such as bulletin boards, Web1 was more about reading content, or making purchases, rather than contributing content as an active participant.
Media and interactivity were both limited due to the technologies of the time.
Connections were largely through hyperlinks.
This was an era where type-in traffic was important, and product and service domain names were in hot demand.
While there were numerous search engines in Web1, some of us remember products like AltaVista, they were far different from current search products. Search engines did not drive web traffic to the extent they do today.
In many ways Web1 was a golden era for domain name investment.
Web 2
While the transition to Web2 happened gradually over many years, starting in the early 2000’s, a number of aspects characterized the shift.
- Online media gradually became richer as bandwidths improved, and devices had color support and better resolutions.
- Users interacted and created content, from online reviews and comments to blogs, along with image and video sharing.
- While many of the tech giants have roots in Web1, or even earlier, their dominant positions emerged in Web2. For example, Amazon, although started in 1994, gradually emerged in Web2 as the diverse dominant marketplace that it is today.
- Google, founded in 1998, quickly rose from startup in to become the world’s most used search engine prior to 2004, and also a dominant player in web advertising. Google has fundamentally changed how people use the web, and which sites get visited.
- The era of user creation of video content was encouraged by the arrival of YouTube in 2005.
- Probably no single service signalled the Web1 to Web2 transition more than Facebook, founded in 2004. The era of social interaction was very different from the Web1 internet.
Personal data was recognized as having great value for online advertising. Recent years have seen increasing concern over both the misuse of personal data and the regulation of social media. Some have argued that platforms like Facebook and Twitter are over-regulated, while others feel they are not regulated enough.
A small number of tech giants have grown to dominate the stock markets during the second half of Web2. Before the recent pullback, much of the returns in the total stock market in recent years were through valuation increases in less than a dozen tech companies.
The control of the tech giants posed a hazard to those using their services in commerce. It was possible to lose audience and access overnight due to one misstep. This should have been a major push for the need for independent websites on business-owned domain names, to be in control of your business destiny.
Over almost two decades of Web2, it gradually became a rather centrally controlled place, with a handful of tech giants in charge of proprietary protocols, servers, devices, search, and the software that most of us use in our online activity every day. The decentralized world of Web1 became a much more centralized and controlled Web2.
The Roots and Nature of Web3
The roots for Web3 were in blockchain technologies and the cryptocurrency movement. First use of the term Web3 is often attributed to Ethereum co-founder, computer scientist Gavin Wood. In 2014 he said
(Web3 is a) decentralized online ecosystem based on blockchain.
One definition of Web3 is:
A blockchain-integrated internet or an internet where cryptocurrencies and NFTs are built into the platforms you use.
Another way to define Web3 is more tied to some of its elements:
One way to think about Web3 is an internet owned by users. That's the dream of crypto boosters, who say the integration of blockchain technology will lead to an egalitarian internet.
Concern over the power wielded by the tech giants, and support for decentralization ideas in general, set the stage for Web3.
Defining Features Of Web3
To get a bit deeper into understanding Web3, let’s look at its defining characteristics. In writing this section, I found the NFTnow Comprehensive Guide To Web3 really helpful.
Decentralization:
Probably the key characteristic of Web3 is that it is decentralized. Under Web3 there are not centralized servers controlling the traffic and data, but rather blockchain will be used across distributed devices. In a sense, Web3 moves us back to the decentralized nature of Web1, but now with the advances of modern technology.
Individual Ownership:
If not a handful of tech giants owning the hardware, software, protocols, data and more, then who does have ownership? A key idea of Web3 is that individuals own their data and content, and the protocols are open and not proprietary.
I found this description in the article by Randy Ginsburg helpful:
By replacing third parties with the blockchain, Web3 unlocks entirely new business models and value chains, ones where centralized intermediaries are no longer favored. Ultimately, Web3 takes power from the intermediaries and gives it back to individuals.
The Wallet:
As you move around Web3 you need a seamless way to be paid and to pay in Web, the wallet, whether for providing a tip for a contribution, buying or selling a creative work, or something else.
Right now it appears that Ethereum is on track to fill that role in Web3, but whether Ethereum or something else, your wallet is a key part of Web3.
The wallet is uniquely and directly associated with you, and it works seamlessly with all or most of the services on Web3. The wallet holds your cryptocurrency, but also your data and digital content.
One graphic to explain Web3 vs Web 2 illustrates it as attaching your Ethereum wallet, instead of signing into an account at one of the tech giants in Web2.
Permissionless:
Right now when you do commerce on Web2 a large entity, in fact several typically, decide whether to permit that transaction. In Web3
all transactions and interactions on the blockchain are permissionless, meaning they don’t require approval from a trusted third party to be completed.
Truly International
Currently the tech and financial giants constrain possible activity for some. We do not live in a truly equitable digital world. Where you reside will not influence what you can do on Web3, unless governments figure out a way to overcome the aim of Web3.
Decentralized Domain Names
Decentralized naming systems outside the ICANN system have existed for a few years. The main contenders are probably Handshake HNS and Ethereum Name System ENS. This is a helpful comparison of HNS and ENS. Unstoppable Domains is another option outside the centralized ICANN system.
Will Web3 use mainly decentralized domain names? That is not clear. The ENS system allows you to link your Ethereum wallet and ENS name. XYZ was the first ICANN TLD to work with ENS, starting in 2018, but now a number of other extensions, including
.com, .net, .app and many others, can be used with ENS. The TLD needs to be DNSSEC enabled – read details here. While being free from the regulations and control of ICANN is desired by many, without that centralized control there is also potential for various forms of abuse.
Is Web3 The Metaverse?
While the metaverse and Web3 are both being talked about a lot these days, they are not the same thing.
Web3 could support a metaverse experience, but so could a centralized Web2 system. Companies like Meta are banking on playing a big role in the metaverse, while certainly remaining in the centralized Web2 world.
I provided an introduction to the metaverse last year on the NamePros Blog.
Smart Contracts
If you are operating in Web3, the way many things are done will be different. For example, centralized advertising, how you get paid, how you find clients, etc. will all be different.
Fortunately, smart contracts offer the possibility of far more robust, transparent and efficient ways to achieve the same thing.
Smart contracts will play an essential role in Web3, and be particularly advantageous for creatives. As the NFTNow article explains,
Smart contracts are predetermined agreements programmed into a blockchain that automatically executes once specified terms are met. Specifically, with NFTs, smart contracts allow for secondary royalty structures, meaning creators get paid out every time their work switches hands on the open marketplace.
If we applied this to the domain world, it is possible to have a smart contract that would pay someone for name expertise, or to compensate traffic flow akin to parking contracts today. It would also make it easy for a name expert to compensate individuals on Web3 who participated in the equivalent of focus groups or affiliate activity.
Some domain name sellers entertain the idea of being partly compensated for a high-value domain name through some interest in the business that will be built on the name. Smart contracts may make it easier to do this with Web3 businesses in a transparent and secure fashion.
Another way that smart contracts might positively impact the domain aftermarket world is through a transparent, efficient way to fractionally share a basket of high-quality domain names. The NamePros Blog recently covered fractional ownership and domain names as an asset class.
DAOs
The key idea of a decentralized autonomous organization (DAO) is simple: a group of people agree to work on some task, all coordinated with transparent progress through a blockchain.
The blockchain contains the rules, steps, funding, and authentication. Smart contracts can check when certain things have happened, and when they are verified, take some action, such as make payments.
Crowd funding of new ventures, even though not Web3 per se, paved the way for DAOs. They typically involve many people from diverse locations, contributing to a central goal, and often indicate intermediary steps that will happen when a certain level of funding is achieved.
Web3 Storm Clouds
Lack of centralized control and permissions is not necessarily a positive, however. Already in the NFT and cryptocurrency worlds we have seen various forms of abuse. In the decentralized name systems some have purchased domain names that seem in conflict with intellectual property rights of third parties. While UDRP is not applicable in the decentralized naming system, all of the other legal protections still apply.
Web3 will need to worry about issues such as prevention of illegal activity, protection of minors, and much more.
Will Web3 Be Good For Domain Investing?
To me it is far from clear whether Web3 will be good or bad for domain investing.
On the positive side, the return to a less centralized web, absent of domination by a handful of tech giants, can definitely drive the need for domain names.
Also, if the Google stranglehold on search and online advertising is lessened, that could herald increased demand for quality domain names.
Smart contracts can be creatively used in a number of ways that might help compensate domain name owners.
Certainly early-stage Web3 startups have helped drive new interest in
.xyz domain names of late. See the NamePros Blog article Past 12 Months of XYZ for an analysis. On the other hand, will Web3 evolve in ways that, outside a name connected to a wallet, will lessen the importance of domain names?
Will decentralized name systems lessen interest in the centralized domain names held by most investors? Will they lead to confusion that will harm the domain name aftermarket?
Recommended Reading
Here are some resources that I found particularly helpful in researching this article. Share your thoughts on Web3, whether you view it positively or negatively. Do you think it is just a buzzword and will have little true impact, or will it fundamentally change the web?
