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What is Web3? Understanding Its Ecosystem and Pros and Cons

The term ‘Web3’ has become so popular that you are almost regarded as old-school if it still sounds new and strange to your ears. While Web3 has quickly gained popularity among Gen Z and other age groups, many are still in the dark about Web3, its ecosystem, and its potential to positively overturn the Internet. 

Since its inception in the 1960s, the internet has advanced significantly, transitioning from Web1 to Web2, and now to the developing Web3. Also known as the decentralized web, Web3 differs in many aspects from its predecessors Web1 and Web2 and has opened up more opportunities to internet users.    

Web3 is the latest evolution of the internet. As its name implies, Web3 refers to the third generation of the World Wide Web, which is primarily based on blockchain technology. Apart from blockchain, other technologies associated with Web3 include 

artificial intelligence, and machine learning. The Web3 concept is focused on creating a digital space that is more secure, private, decentralized, community-driven, and trustless. 

Leveraging the concept of Web2 and various distributed ledger technologies, Web3 enables users to interact with one another and exchange value via a peer-to-peer network or decentralized platform. It has also introduced countless job opportunities, contributing to the reduction of unemployment around the globe. 

The Web3 ecosystem consists of many participants from different backgrounds, including developers, entrepreneurs, investors, and users. These stakeholders work together to build a new internet that is more decentralized, censorship-resistant, secure, and beneficial to everyone, including the end-users.

Does the term Web3 sound strange to you? Do you lack sufficient knowledge about it and its ecosystem? Worry no more as this article reveals to you the basics of Web3 and its core components. Stick around to learn more! 

Understanding Web 1.0 and Web 2.0 

Before discussing Web3, it is important to have an understanding of what Web1 and Web2 represent. 

Web1 or Web 1.0

The term Web1 or Web 1.0 is used to describe the early days or first generation of the World Wide Web when the internet was mainly text-based and read-only. Web1  provided only information with no interactive experiences for users. Notably, the origin of Web1 can be traced back to the invention of the World Wide Web (www) in 1989 by Sir Tim Berners-Lee.  

Some of the core features of Web1 included static websites, limited multimedia, dial-up connections, and search engines. Hypertext Markup Language (HTML) was the primary coding language during this time. The first search engines and browsers, such as Yahoo, Mosaic, Netscape Navigator, and AltaVista, were developed during the Web1 era. 

Although Web1 only lasted until the mid-2000s, it laid the foundation for the modern web and set the stage for the development of Web2 or Web 2.0. 

Web2 or Web 2.0

Arising in the early 2000s, Web2 or Web 2.0 represents the second generation of the World Wide Web. Unlike Web 1, which was static and read-only by design, Web2 gave rise to dynamic and interactive content on the internet, allowing users to socialize, participate and collaborate online.

Web2 is characterized by social media such as Facebook, Twitter, Instagram, and LinkedIn; user-generated content sites such as blogs; and multimedia-content platforms such as YouTube and Spotify. 

APIs and Mashups are other notable features of Web2. Unlike Web1, Web2 allows for the integration of different web applications and services, enabling developers to create new and innovative applications by combining existing technologies. 

Overall, Web 2.0 ushered in a new era of interactivity and collaboration online, enabling users to not only consume content but also contribute to it and shape it in real time. 

However, there are several challenges with this second generation of the Web. These challenges, due to centralization, includes censorship, low privacy for end-users and personal data breaches, little or no incentives or rewards for end users, among others. To tackle these and many more issues, the third generation of the internet known as Web3 was introduced. 

What is Web3? 

Also known as the ‘Semantic Web’ or ‘Decentralized Web’, Web3 is the latest iteration of the internet, which introduces a community-driven, decentralized, transparent, and reward-giving digital space. This decentralized approach to the internet provides users with robust security, greater privacy, and transparency.

Decentralization entails the transfer of control, governance, and authority from a single entity (project founders) to the community (users). In contrast to Web2 which is based on a centralized infrastructure where authority and governance of a social platform are performed solely by an entity or selected individuals,  Web3 is founded on a decentralized infrastructure where a network of computers stores a platform’s data with users having a say in the operations and decision-making process of a social platform. 

These computers known as nodes cooperate to maintain a platform’s integrity, ensuring that users’ data is safe. This decentralization approach adopted by Web3 developers also improves users’ privacy and transparency on a social network.

Notably, at the heart of Web3 is blockchain technology. A blockchain is a transparent and secure distributed ledger which holds the record of all transactions performed on a platform. It is also based on several distributed ledger technologies, including decentralized file storage systems, smart contracts, and decentralized applications (dApps), among others. 

These technologies enable peer-to-peer transactions, provide users with greater control over their data and digital assets, and facilitate the development of new business models that are more inclusive and transparent.

Web 3.0 aims to create a more semantic web, where data is not only connected but also annotated with meaningful metadata that makes it easier to understand and use. This allows for more advanced searching, recommendation, and personalization.

Likewise, Web3 aims to create a more connected web, with systems that can communicate and share data across different platforms and networks. In particular, Web3 is designed to be more intelligent than Web2, with the ability to understand and interpret data in a more meaningful way. Machine learning, natural language processing, and other artificial intelligence technologies are being integrated into Web 3.0 platforms to enable new types of applications and services.

Read also: What are the top 5 blockchain projects you should know?

Components of Web3 Ecosystem

Web3 has a sophisticated and rapidly evolving ecosystem. Some of the key components of the Web3 ecosystem include:


A blockchain is a distributed ledger that provides a secure and transparent way to store and transfer data and assets. It is the backbone of the Web3 evolution and all decentralized applications and projects. 


These are digital assets or digital forms of money that are used as a means of payment or store of value. Cryptocurrencies rely on blockchain technology or cryptographic techniques to secure and verify transactions. With cryptocurrencies, individuals can settle transactions anytime and anywhere without needing banks or financial institutions. Some of the top cryptocurrencies include bitcoin (BTC), Ether (ETH), Binance Coin (BNB), XRP, Cardano (ADA), Bitcoin Cash (BCH), Litecoin (LTC) etc. 

Digital Wallets

One of the most essential components of Web3 is digital wallets. Users can safely store and manage their cryptocurrencies and other digital assets using digital wallets. These wallets are of various categories, including hot wallets and cold wallets. Digital wallets serve as Web3 banks where individuals can self-custody their assets

Non-fungible tokens (NFTs)

NFTs are unique digital assets that live on a blockchain network. They are often used to represent ownership of digital content including music, videos, artwork, collectibles, and other unique items.

Decentralized Finance (DeFi)

Here’s another key component of Web3 which is commonly known as DeFi. It refers to a range of financial applications that are built using blockchain technology. These applications enable users to access financial services such as lending, borrowing, and trading without the need for intermediaries such as banks. Stablecoins, decentralized exchanges, and lending and borrowing protocols are a few of the most popular DeFi applications. 

Decentralized Applications (dApps)

These are applications that run on blockchain networks and enable peer-to-peer transactions, such as decentralized exchanges, social networks, and play-to-earn platforms.

Decentralized Exchanges (DEXs)

DEXs leverage Automated Market Makers and smart contracts to allow users to trade cryptocurrencies and other digital assets instantaneously. The most well-known DEXs include Uniswap, PancakeSwap, and SushiSwap. 

Smart contracts

Smart contracts are self-executing contracts that run on top of blockchain technology. They enable developers to create decentralized applications that can automate complex processes and transactions.

Decentralized File Storage Systems

This component of Web3 enables users to store and access data in a decentralized and secure manner. This helps to eliminate the need for centralized data storage providers, which can be vulnerable to hacking and data breaches. An example of a decentralized storage project is Filecoin which has a native cryptocurrency represented as FIL.

The ecosystem also incorporates several cutting-edge technologies, such as distributed computing, machine learning, and artificial intelligence, in addition to these key elements. These technologies are essential for enabling Web3 to realize its full potential and open up new avenues for growth and innovation. 

Related: Top 5 Decentralized Crypto Exchanges You Should Know

Web3 vs. The Metaverse

Both Web3 and the metaverse are sometimes commonly confused or interchanheably used. While some Web3 platforms are being integrated with the metaverse, both are not the same. The point Web3 integrates the metaverse is the introduction of a virtual space, a key feature of the next-generation web, with 3D graphics components. The relationship between Web3 and the metaverse—just like blockchain and AI—will continue to evolve.

Pros and Cons of Web3

As with every innovation, there are both pros and cons. Highlighted below are the major ones:


  • User Control: Unlike Web1 and Web2 platforms where project founders control most things and maximize profits for themselves, users enjoy control on Web3 platforms. This user-control advantage helps avoid censorship, privacy breaches, and undue exploitation.
  • Transparency: By leveraging blockchain technology and smart contracts, governance and transactions on Web3 platforms are more transparent, reducing abuse and manipulation.
  • Security: Web3 introduces cryptographic keys for digital wallets as well as the concept of decentralization, ensuring that there is no central point of failure. 


  • Complexity: Combining blockchain, smart contracts, and in some parts AI makes Web3 infrastructure complex to build and manage. This currently affects user experience on Web3 platforms, thus slowing down mass adoption. It also makes Web3 an easy weapon for scams in the hands of bad actors.
  • Security: While Web3 infrastructure is relatively more secure than Web1 and Web2, Web3 users are not immuned from cyber attacks, particularly through social engineering techniques. In other words, users take on more personal risks and responsibilities for their own security.
  • Regulation: Because Web3 platforms do not have central authorities, they are difficult to regulate. This also means consumer protection and investment safety on Web3 is presently limited.
  • Interoperability: With billions of users already on Web1 and Web2 platforms globally, introducing Web3 platforms that can easily integrate with or communicate with earlier versions of the web remains a challenge.

Read also: 

What is Decentralized Finance (DeFi) and How to Benefit from Its Ecosystem?


Web3, also known as the Semantic Web or the Decentralized Web, is the latest evolution of the World Wide Web. The vision of Web3 is to create a more intelligent, decentralized, and connected web that enables new types of applications and services. Though still in its early development, Web3 is already changing the internet positively. By promoting community-driven decentralization and transparency with the use of blockchain technology primarily, Web3 is creating a more secure, trustworthy, and equitable digital environment.  But, there are various drawbacks related to Web3. Scalability and interoperability are among the top concerns with Web3. Also, Web3 may face regulatory challenges since current regulations are (largely) intended for Web1 and Web2 platforms. It is expected that as the Web3 ecosystem evolves, developments will set in that would address these challenges. Users and investors should focus on Web3 projects that offer real products or services, not mere Web3 coins and coins without products or services.

Read also: Understanding the Metaverse and Top Metaverse Coins in the Crypto Market

Credit: Ndianabasi Tom 

A crypto journalist and content writer who has been talking about cryptocurrency and blockchain technology since 2018, Ndianabasi is a Writer at Crypto Asset Buyer (CAB).