Phenomenon
Estimated reading time 7 min

Web 3.0 and progress towards a new internet – What is it about and what does it offer us?

The data economy is undergoing a transformation towards the next stage of internet applications, known as Web 3.0 or the decentralised web. Here we summarise the key background information on this development.

Writers

Kristo Lehtonen

Director, Fair data economy, Sitra

Marja Pirttivaara

Leading specialist, Fair data economy, Sitra

Heikki Aura

Leading specialist, Competitiveness through data, Sitra

Published

The data-driven society and economy is undergoing a transformation towards the next stage of internet applications, known as Web 3.0 or the decentralised web. In Web 3.0, data is stored in blockchains instead of databases managed by businesses and organisations. It provides tools for people and organisations to share data fairly.

Web 3.0 is based on decentralisation, meaning the managing of data so that that there is no need for a central entity or intermediary to carry out various transactions. Decentralisation can benefit all sectors of society and the economy, such as the finance, healthcare, food supply and sustainable development.

In this article, we review key background information and issues about Web 3.0.

Evolution towards decentralised solutions

The shift towards Web 3.0 is a result of the challenges of privacy and data management from an individual perspective, plus the new opportunities for business and competitiveness in the use of data. It is therefore about trust and fairness.

Technological developments, such as the use of blockchains, combined with semantic content, have opened up completely new opportunities to meet these challenges.

How did we get here? Let’s look back for a moment at earlier developments.

First generation

The 1990s saw the birth of the first-generation of the web, Web 1.0. At that time, websites were static, meaning their content remained and looked the same until the author changed it. Email was important, and the era saw the dot-com boom and bubble burst. Regulation focused on opening up the telecoms sector to competition. Online anonymity proved legally tricky.

Second generation

The next generation, Web 2.0, came in the early 2000s. In Web 2.0, websites are dynamic and interactive. A dynamic page is created on the fly when the browser requests it, and dynamic pages can appear differently to different people at different times. Different marketplaces and platforms became available, such as Facebook and Uber. At the same time, the data collected from users began to accumulate in the hands of the digital giants.

Businesses use the collected data for profiling and ad targeting. In particular, the users of free services became a product rather than a customer, a modern data proletariat. In 2016, the European Union issued the important General Data Protection Regulation (GDPR), providing protection to personal data and ways to manage your own data.

Third generation

The transition to Web 3.0 began in the late 2010s. We are moving towards decentralised online systems and interoperability, based on automated trust and human-centred design.

The change is also giving rise to new businesses and business models. For example, blockchains and the metaverse are part of Web 3.0. Web 3.0 is also seeing record levels of venture capital being channelled into it. Problems have been identified, such as the energy consumption of first-generation cryptocurrencies.

As Web 3.0 progresses, the use of data collected by space technology and satellites, especially location data, is also increasing significantly. The European Space Agency ESA, for example, has launched projects on blockchains. Blockchains allow transactions via satellites without intermediaries.

In the decentralised model, data must be shareable. This requires ecosystems, ground rules, data protection and trust in a whole new way. Unlike the previous Web 2.0 stage, Web 3.0 has a strong privacy focus.

The European Union is building a comprehensive data regulation framework that includes the Data Governance Act, Digital Markets Act, Digital Services Act, Regulation on artificial intelligence and Data Act, as well as the eIDAS Regulation on electronic identification, authentication and trust services.

Why decentralisation?

In the current model, we pay various intermediaries to create trust, such as a bank to transmit and secure transactions.  There are situations, though, where decentralisation without intermediaries, implemented on a blockchain, creates added value. Examples include smart contracts and e-voting. Smart contracts are codes stored in a blockchain that act as digital contracts. Not only do we save time and money, but the quality and reliability of transactions can be improved.

In time, the market will show where blockchain-based implementation is needed. Often, a decentralised solution is also enough. In Finland, for example, people trust banks. We are used to using strong bank authentication in our everyday lives without any problems.

In practice, centralised and decentralised systems will work side by side.

Is decentralisation fairer?

Decentralisation reduces the power of centralised platforms and corporate gatekeepers. Moreover, decentralised services do not need to be implemented using only one technology. The result is more innovation and competition.

The decentralised web can be a fairer model where individuals can trust that they can control the use of their own data. On the other hand, decentralisation can make it more difficult to find the responsible party in case of any problems.

Because decentralisation requires open interfaces and ground rules, data hoarding becomes more difficult.

Blockchains as enablers

Blockchains could be described as ledgers of transactions between parties. Blockchains are usually public and transparent, which contributes to trust. Blockchains are also the operating system of the future.

Blockchains are often equated with cryptocurrencies. But this is not so.

Bitcoin was the first cryptocurrency. It is still by far the largest in terms of value and the best-known. Bitcoin is also criticised on the subject of its energy use, which is linked to the first-generation consensus algorithm.

Other significant blockchains include Ethereum, Solana and Cardano, which are software and innovation platforms. They can be used to create a variety of decentralised applications. The computer programmes built on a blockchain are called smart contracts. For example, thousands of applications have been developed on Ethereum.

Interesting applications have emerged

Three major application areas for Web 3.0 are currently identified.

Management of digital assets (Non-Fungible Tokens, NFT). The NFT approach to digital asset management has gained great popularity in the area of culture, such as in the digital distribution of photographs and works of art. Digitalisation has created data that can be copied almost infinitely. Current legislation does not recognise the ownership of data, but rather the management of data. So while we can own a physical painting, we cannot own a data file of the painting.

NFT can be a solution to this and is expected to play an important role in the digital society, where virtual things have their own individual identity. The value of the NFT market was approximately USD 25 billion in 2021.

Decentralised finance (DeFi), such as smart contracts, is another area of application. Trust is automated without the need for intermediaries. This sort of decentralised service works much like a vending machine where the user inserts money and the machine automation releases the product without the involvement of a salesperson.

A very large number of different financial services have already emerged on blockchains, for example in relation to loans and trading. There is about USD 200 billion tied up in decentralised finance services.

There are almost two billion people in the world who do not have access to conventional banking services. Decentralised finance services on blockchains are accessible to all and have low transaction costs.

Distributed autonomous organisations (DAOs). These enable the creation of new kinds of autonomous organisations without a centralised authority. You could call them the “Co-op 2.0” of the digital era. DAOs are already being used for various purposes, such as raising funds to help Ukraine.

What opportunities does Web 3.0 offer Finland?

Web 3.0 provides a lot of new business and services. It also offers opportunities for existing businesses and public administration reform. It can also enable and accelerate the digital and green transition. Environmental sustainability issues must be taken into account throughout the lifecycle of new services.

Finland was a pioneer and trendsetter in the development of the internet and web. We have been able to make use of the early-stage technology and create a national success story. By also being active contributors and protagonists in the next stage of the internet and web, we will be well placed to shape the transformation towards a people-centred fair data economy.

Sitra held a related “Next Generation Internet – towards Web 3.0” event on 29 March 2022. 

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