The term Web3 has been floating around for over a decade. As market, it's estimated to grow from roughly $3.5 billion this year to more than $40 billion by the end of the decade, according to Mordor Intelligence. Yet many people still struggle to define the term and exactly what are the new benefits from this phenomenon.
Understanding Web3: The Decentralized, Democratic Internet
31 October 2025 - 09:54 CET
By Clemens Burleson
Web1
Web1 marked the dawn of the internet. In the 1990s, people around the world with a computer and an internet connection could access what is now termed “Web1”, the first generation of the web. Web1 acted as a sort of “read-only” version of the web, a one-way flow of information, where users could only search for and consume content. It was difficult for normal users to create content and truly participate in the web. No blogs, no comments, and no reviews; it was a static, one-dimensional, and purely informational experience.
Amazon.com homepage in 1995
Web2 (and its issues)
Web2 is the web we know and use today. In the mid-2000s, Web2 made its debut with platforms such as YouTube, Facebook, and Twitter offering users the chance to create their own content: sending likes, posting photos, videos, reviews, comments, and chatting with one another. The read-only web became a read/write world. This interactivity, however, came at a price: centralization. This led the web to eventually become the near-monopolistic centralization of information and control over user data that we see today, with just a handful of tech titans collecting, owning, and controlling users’ data.
Tech giants such as Alphabet (Google) and Meta (Facebook) have to cover the cost of developing and maintaining the network they created and turn a profit. To do so, these firms would collect user data, build user profiles based on whatever information they could collect on each user (age, gender, location, hobbies, pets, etc.), and effectively sell this information via targeted ad space to the highest bidder.
Essentially, Web2 is “free” because, rather than paying for the product, users are the product, via their data. Who cares? Well, with this centralization of data and information comes concentrated power. These few large corporations can delete users’ content, without their consent, at their discretion, which can elevate the risk of censorship, one of the biggest threats to democratic systems.
Youtube homepage in 2005
What is Web3?
Web3 presents itself as the next phase of evolution of the web, promising to offer a decentralized (not owned or controlled by a single company or server), private, and democratic version of the web, allowing users to both own and control their data: a “read/write/own” web.
The term Web3 was coined back in 2014 by Gavin Wood, one of the co-founders of Ethereum.
“Centralization is not socially tenable long-term”
The vision is for the web to be run and controlled by a global community (a democratic system) of web users, replacing enormous servers run by just a few companies, and instead using the aggregate power of everyone using the web. Web3 aims to remove the middleman, a key pillar of trust in the system. Essentially, Web3 would unlock a new level of transparency and security for transactions and agreements online, as its infrastructure will be built on the blockchain, with all actions recorded on public ledgers that anyone can see, while allowing individuals to retain control of their own assets.
Those who help maintain the web, through actions such as reporting bugs and approving transactions, are rewarded with payment, via cryptocurrency, such as Ethereum’s native token Ether, which is also decentralized by nature.
The costs of Web3
Someone has to pay for the smooth running and maintenance of the web, so this falls on its users. As Web3 is still but a vision, there is no consensus on how much it would cost, but this would need to be borne by the community and would mainly include gas, cryptocurrency, and data storage fees.
Gas fees: Ethereum is currently the main blockchain on which Web3 services are built and hosted. Gas fees are the cost on the Ethereum blockchain for each action users take. On Web2, it is free for a user to follow someone on Instagram or subscribe to a YouTuber. On Web3, there are decentralized versions of these apps (called dApps). Each time users would, for example, follow one another, that action can be written and saved on-chain as a non-fungible token (NFT) for everyone to see, and each action would be associated with users’ unique (and pseudonymous) wallet address, a long string of random numbers and letters. This cost what is called “gas”. Essentially, gas fees are like the postage stamps of on-chain actions in Web3. As gas prices tend to spike during high traffic periods (when many users are all making actions at once), these fees can skyrocket.
Data and asset storage fees: Storing users’ data and digital assets in a decentralized way also comes at a cost. Solutions such as Arweave and Filecoin have appeared in recent years, offering decentralized storage solutions where users may either pay a one-time fee for essentially permanent storage, or pay a rent-like recurring fee.
Adoption of Web3
Web3 is still in early adoption compared with the mainstream internet. While traditional platforms like Facebook have billions of users, Web3 projects remain tiny, in the range of hundreds of thousands to a few million users. Projects are growing in numbers, however, with alternatives to the mainstream platforms popping up. Social media alternatives have emerged, such as Farcaster, which at currently has roughly 50,000 daily users.
The problems and future of Web3
Sure, Web3 is complicated at first glance and its benefits aren’t clear to everyone. If users don’t understand what this digital revolution is proposing – and why it’s better than the easy-to-use and financially free of charge offering of today – Web3 may never make it off the ground.
Today’s tech giants (Amazon, Alibaba etc.) benefitted most from scale, allowing them to offer virtually everything on the web in a single place, in exchange for personal information on the users that generate, on average, nearly 10 billion searches a day on Google alone. In this regard, Web3, too, will need scale to gain the traction it needs to take off.
Web3 hasn’t gone without facing controversy by high profile characters in the tech space. Tesla CEO and Chairman of X Elon Musk criticized Web3 in late 2021, stating Web3 “seems more marketing buzzword than reality right now.”
“You don’t own web3,” responded Jack Dorsey who had just stepped down from Twitter, X’s original name. “The VCs and their LPs do. It will never escape their incentives. It’s ultimately a centralized entity with a different label.”
Much of the Web3 movement is indeed backed by a herd of Bay Area venture capital funds, such as Andreessen Horowitz (also known as a16z), Pantera Capital, and Paradigm. When VC firms invest in Web3 projects, they typically, in contrast to the traditional process of buying up a project’s equity, amass a share of the project’s tokens, giving the fund both a stake in the project’s growth, as well as a share of its voting rights. This threatens the very pillar of Web3’s promise: decentralization. A truly decentralized Web3 cannot have a large pooling of voting rights.
The question remains: is privacy, ownership, and decentralization important enough to us for Web3 to become the next generation of the internet?
