De-Mystifying the transition to Web3

Dec 19, 2022

Web2 to Web3 - Demystifying the transition to Web3

Meghan Tsitsuashvili, L3COS 
December, 2022

Defining Web2 and Web3
Web2 refers to the internet we all use every day, the backbone of email providers, social media sites, and traditional e-commerce. Essentially, Web2 internet service providers focus on providing spaces in which users can interact with web pages. 

Web2 revolutionized the way users collect, create, and share large amounts of content and data. Web2 enabled user created apps on the App stores, social media, search engines, and more. 

Web3 is a new structure of the web in which smart applications, decentralized multi user environments, 3D games, and regulated financial services. 

What exactly is new about Web3? 
Web3 is built on decentralization. The distinction lies in data ownership. Not only can users of Web3 create their own content, they will also maintain ownership of their content and personal data while they do so. 

Web3 arose out of limitations of Web2. While users are able to create and share content, there are issues with privacy and cybersecurity that arise when centralized entities (social media sites, e-commerce platforms, and search engines) store users personal information on their networks. 

Features of Web2

  • Encouraged collaboration and interaction among users in P2P transactions, setting the stage for e-commerce and social media platforms. 
  1. Enables free information sorting thereby enabling users to retrieve and classify information. 
  • Emphasis on user experience and design of web pages (front end revolution) 
  • Communication flow across channels (Omni channel interoperability) 
  • Creation and sharing of responsive content, vital in growth of virtual communities

Limitations of Web2
  • No security and protection of personal data
  • Validation of personal data for transaction processes is  complicated - need for trusted intermediaries (third-party involvement)

Features of Web3
  • Advanced metadata systems- innovation in the way data in structured and stored, making the data readable for humans and machines without compromising privacy 
  • No need for centralized intermediaries
  • Introduces the potential universality of information 
  • Allows for capitalization of potential for 3D graphics and visuals, more immersive virtual experiences 
  • Can support understanding the meaning of words- machines and humans can easily find, share, and analyze information  (search engine innovation) 
  • Improved privacy and security- secured user identities and data

Limitations of Web3
  • Scalability- potentially slow transaction speeds due to decentralization- we have gotten used to fast internet speeds
  • UX- multi-layer secure applications require more complex design processes— extra steps, potential barrier to adoption
  • Cost- dapps may be more expensive to develop because it is expensive to host full code on blockchain

Web2-Web3 Cheat Sheet
Comparing Web2 and Web3 at a glance

Moving from Centralization to Decentralization 
What are we talking about when we say centralization or decentralization? These descriptors can refer to a network, a business, society, and governments. 

In the context of moving from Web2 to Web3 we are speaking about transitioning from centralization to decentralization on a network level. 

Centralization refers to traditional hierarchical authority structures in which power of decision making is concentrated in the hands of top level officials. Every network participant in this structure is connected to the central authority. 

Decentralization refers to a structure in which multiple levels of organization make choices. Responsibility, authority and accountability are distributed across network infrastructure. 
L3COS Infographic

Decentralization in context
Okay, so we are decentralizing. What does that actually look like? 
Some examples of Web3 architectures include: 
  • Decentralized blockchain protocols 
  • Decentralized, non-profit social networks 
  • Decentralized exchanges & marketplaces 
  • Decentralized creation and distribution of owner issued digital assets 

What is a Digital Asset? 
The Swift Institute defines digital assets as “virtual records of value directly held on and transferred across a shared cryptographically secured ledger.” 

The institute presents a great discussion on the history of assets. They assert that in the past, most financial assets and money were held directly. I.e. holding cash, gold, or coins. With the advances of technology and commercial banking, we then moved to a system of “indirect holding,” (bank accounts reflecting your balance but held on fractional deposit schemes with banks acting as custodians of the assets.) 

Now, with innovations in semantic web technology and cryptography, we now have the opportunity to go back to direct holding of our assets, but in a virtual way- Digital Assets

I like to think of digital assets as being the next step in the evolution of cash, which is simply a medium of exchange. With digital assets, you have the security of holding cash, with the benefit of virtual holding and electronic payments without the need for intermediaries. 

But are digital assets limited to currencies? 
Well, let’s put it this way, assets include things like the deed to your house, intellectual property, and anything else that is a representation of value. 

Digital assets can be Intellectual property, currency, artwork, music, ownership certificates, concert tickets, and more. (This is content creation with data ownership.) What does this mean for the future of content creation? 

New Era of Creator Economy & Content Creation
Content creation is all the rage right now. We have seen massive shifts to short form video content as vlogs and YouTube have gained popularity. 

With the rise of digital assets, Web3 design, video content and social shifts away from agencies and other third party involvement for creators, I believe we are moving into a new creator focused economy. 

Content creators will continue to create value and are looking for new avenues to receive full value for their work. Through Web3, designers, musicians, writers, influencers, and other creatives, will be able to manage their own follower base and take advantage of P2P transactions through virtual communities.

Web3 may accelerate wealth creation for content creators and the freelance sector. Sites like Patreon, Bandcamp, and Etsy have seen huge popularity increases as creators see value in going directly to their consumers or fan bases. Web3 provides a perfect platform to decentralize those concepts and go even more direct to consumers. 

Contextualizing the current moment
Right now, we are collectively defining the regulatory perimeters of digital assets and ownership transfers. We are seeing the war of smart contract providers and the emergence of DApps. For example, marketplaces and exchanges are some of the first use cases to migrate to Web 3. 

Let’s examine why that is: 

Decentralized Exchanges & Marketplaces: 
Let’s say you have lots of digital assets: ranging from NFT’s, cryptocurrencies, and certificates of ownership. Where will you sell them, hold them, or buy more? 

I give you: the transition from e-commerce to Marketplaces and Exchanges

Zurab Tsitsuashvili, founder of L3COS, once said to me, “e-commerce ends where regulation begins.” I.e. you can’t buy anything online that requires regulated certification like a car or a house.

Imagine a marketplace that has built in regulatory infrastructure. A digital marketplace built into the Department of Motor Vehicles for example. You could buy a car, register your driver’s license, and license plate all in one place. 

Decentralized APPs / DApps…What are they running on?
DApps are smart applications that are built on decentralized networks. They combine smart contracts with front-end user interfaces. 

DApps provide innovation to traditional apps in the form of improved privacy and security, resistances to censorship, total data ownership and validity, and trustless peer-to-peer interactions/ transactions. 

DApps are in the early stages of development and implementation. As such, there are some initial limitations: 
  • Complicated implementation of hybrid centralized services built on decentralized networks 
  • User experience less like to be intuitive because of complex back-end code
  • Scaling of DApps requires high cost and speed improvements 

Let’s say someone did want to develop a car marketplace with built in DMV capability. Who would build it and where? 

Apps in our current world run on Operating systems. Apple Apps run on IOS, google on android, etc. So what will DApps run on? 

DApps run on the decentralized networks they are layered on top of. For example, OpenSea and Uniswap are two of the top DApps built on the Ethereum network. There are lots of DApps running on various different blockchain protocols. 

Here at L3COS, we believe that DApps need a robust blockchain based operating system to run in an efficient, user friendly way. As such, there needs to be a layer of a blockchain protocol that makes it accessible to all potential users. I.e. an Operating System layer. 

What is a Blockchain Based Operating System?
A Blockchain based Operating system would capture all commands, operations, and transactions, from a user’s device when executing, and record everything on the blockchain. What does that mean? 

Operating systems like Apple’s IOS, Android, or Windows require a local installation to run computer programs. You can’t use IOS without an iphone. This is the combination of hardware and software. All actions and user activity is recorded through their centralized OS logs, which are encrypted but still centralized. 

With a blockchain based Operating system, users can access network topology as a service. 

The L3COS system runs all commands, executions, transactions through a 3 layer consensus (backbone of L3COS blockchain) basically providing a consensus network topology as a service to provide validated data throughout the decentralized network. 

Enabling a smoother transition to Web3
At L3COS, we believe that blockchain technology, in its essence, should be about empowering individuals. We don’t see this empowerment without mass accessibility. To make blockchain accessible to everyone, it needs an Operating System. 

Regulated blockchain Operations?
The initial phases of blockchain saw decentralized, anonymous, revolutionary activity. De-regulation is a core philosophy of cryptocurrency movements. 

However, we live in a structured, regulated society. There is always room for regulation reform and proactive regulation. Right now, we are seeing shifts in attitude regarding regulation of crypto and underlying blockchain technologies. 

The International Journal of Computational Intelligence systems published an article about Regulatable Blockchain Transaction Models. It states: “With the use of encryption technology, the regulators can supervise blockchain transactions without storing the users' information, which greatly reduces the pressure on storage, computing and key management.” 

We look forward to advances in the conversation surrounding regulatable blockchain technology. 

Digital Governance
First off, what is governance? Governance refers to the system or process in which rules are applied to an entity and the entity is directed. There’s public governance, corporate governance and project governance to name a few. 

Let’s talk corporate governance: 
Corporate governance refers to the set of processes, customs, policies, and laws affecting the way people direct, control or administer an organization. It includes the relationships between people within an organization, I.e. stakeholders such as: shareholders, management, and board of directors, employees, regulators, and consumers. 

Corporate governance in the context of a public company with shareholders and a board of directors aims to be somewhat decentralized, in that there are a certain number of checks and balances of power within the organization. 

Can corporate governance be digitized in an effort to enhance decentralization and operational efficiency? 

Blockchain based operating systems will be able to support permissioned network infrastructures, complex governance structures, decentralized autonomous organizations and other regulatable structures. 

“With blockchain based digitalization processes, as the level of stakeholder participation in information and processes for business decisions increases, accountability will improve for executives, and a much fairer corporate governance process may emerge. (Wright & De Filippi, 2015) 

Decentralized Autonomous Organizations (DAOs)
The idea of DAOs as a new type of corporate governance framework has gained a lot of attention recently. So what is a DAO? 

A Decentralized autonomous organization is one whereby any stakeholder has voting rights into the direction of the organization, project, or company. 

In theory, a DAO would be run by the group of people within the DAO without any one individual having final say. Many DAO frameworks these days are centered around providing stakeholders with a governance token, in which ownership of the governance token would be proportional to voting share. 

DAOs are still in the early stages of adoption but we will continue to see new use variants as use cases for new corporate governance structures. 

Imagine how far decentralized digital governance infrastructures can go! 

There’s so much to explore in the transition from Web2 to Web3. If you are reading this right now, you are a stakeholder in the Web world.The growth of Web3 will be community driven, with individuals bringing their own unique knowledge and specialties to it whether that be through a DApp, a marketplace, an exchange, an Operating System, artwork, content, a DAO, or an asset. 

Wright, A., & De Filippi, P. (2015). Decentralized blockchain
technology and the rise of lex cryptographia. SSRN
Electronic Journal.
Milne, Alastair (2022). Defining Digital Assets. Loughborough