In 2021, venture capital firms invested over $30 billion in "Web3" startups. Andreessen Horowitz launched a $2.2 billion Web3 fund. Every tech conference featured panels about "building the ownership economy." And yetbe honestwhen was the last time you actually used a Web3 application instead of just regular old Twitter, YouTube, or Gmail?

Web3 is the idea that we can rebuild the internet using blockchain technology to give users ownership and control instead of renting access from platforms. It's a vision where your identity, data, and digital assets belong to you, not Facebook or Google. Where creators capture more value instead of platforms taking massive cuts.

It's also, depending on who you ask, either the most important technological shift since the original internet or the most successful crypto marketing campaign in history.

The three acts

Web1 (1990-2004): read-onlystatic websites. Web2 (2004-present): read-writesocial media where platforms own everything. Web3 (supposedly now): read-write-own. You control your identity through crypto wallets. You own digital assets platforms can't confiscate. Smart contracts enforce rules transparently.

That's the vision. Reality is messier.

Core technologies

Wallets become identity. Connect your crypto wallet (MetaMask) instead of creating accounts everywhere. Smart contracts replace backend servers with transparent code on decentralized networks. Tokens align incentives—contributors earn ownership instead of platforms extracting all value. Decentralized storage (IPFS, Arweave) makes content censorship-resistant.

What exists today

DeFi (decentralized finance) is Web3's killer app. Uniswap, Aave, MakerDAOthese protocols let you trade, lend, and borrow without banks. They're genuinely decentralized (mostly), globally accessible, and process billions in volume.

NFT platforms brought Web3 to art and collectibles. OpenSea and Blur are marketplaces for trading digital assets with provable ownership. Artists like Beeple made millions selling directly to collectors.

Web3 social media exists but barely anyone uses it. Lens Protocol and Farcaster aim to be censorship-resistant alternatives to Twitter. The problem? Your friends aren't there, the UX is clunky. Lens has under 100k active users compared to Twitter's 500+ million.

DAOs (decentralized autonomous organizations) coordinate through token voting instead of traditional corporate structures. Some DAOs manage billions in assets. Others are glorified Discord servers with token-weighted polls.

Gaming mostly flopped. Axie Infinity hit 2.7 million daily players in 2021 with "play-to-earn" mechanics. Then the token price collapsed and players lost money. Turns out most gamers want fun games, not blockchain mechanics.

Infrastructure

Ethereum processes 15 transactions per second and charges dollars per transaction. Layer 2 rollups (Arbitrum, Optimism, Base) provide 10-100x higher throughput and cheaper fees. Alternative blockchains like Solana trade decentralization for performance. Bridges connect ecosystems but get hacked constantly.

Ownership economics

Web2 platforms extract value: Instagram gets your photos and attention, sells ads, and gives you nothing. Uber takes 25-30% of driver earnings.

Web3 flips this with ownership. Users who contribute value receive tokens. Early Uniswap users got UNI tokens worth billions collectively. The theory is if you help build a platform, you should share in its success.

The reality is messier. Most Web3 tokens launch with 40-60% allocated to team and VCs, maybe 10-20% to community. Governance participation is typically under 5%, meaning VCs effectively control decisions.

And here's the uncomfortable question: do most users actually want ownership and governance responsibilities? Instagram users probably don't want to vote on algorithm changes. They want to post photos and browse. Ownership has costsresponsibility, cognitive load, financial risk.

Censorship resistance

Strip away the tokenomics hype, and Web3's strongest argument is censorship resistance. Governments and corporations can't easily shut down decentralized protocols. Your crypto wallet can't be frozen by Visa. Smart contracts execute according to code, not executive decisions.

This matters enormously in certain contexts. Activists in authoritarian countries can fundraise via crypto when banks freeze accounts. Sex workers can accept payments when PayPal bans them. For people facing censorship or financial exclusion, Web3 offers genuinely valuable tools.

But most Web3 apps still have centralized components. OpenSea can delist your NFT from their frontend even if it exists on-chain. True decentralization is expensive and slow, so most projects compromise.

And censorship resistance cuts both ways. It protects activists and journalists, but also scammers and illegal marketplaces.

The UX problem

Web3 user experience is terrible. You need to understand wallets, seed phrases, gas fees, transaction confirmations, and network switching. Lose your seed phrase? Your assets are gone permanently. Send tokens to the wrong address? Irreversible.

Compare this to Web2: click "Sign up with Google," create a password, and you're in. Forget your password? Reset it. Get scammed? Charge back the credit card.

The fact that "Web3 onboarding" is an entire industry vertical tells you everything. Companies like Privy and Magic build tools to abstract away wallet complexity. They're essentially recreating Web2 UX on top of Web3 infrastructure. Which raises the question: if you need to hide all the blockchain stuff to get normal people to use your app, is it really delivering on Web3's promises?

The VC problem

Web3 is massively funded by the same Silicon Valley VCs who built Web2. Andreessen Horowitz, Sequoia, Paradigmthey've invested tens of billions. These VCs typically get huge token allocations (20-40% of supply) at discounted prices. When tokens launch, VCs dump on retail investors while preaching "decentralization."

Many Web3 projects are decentralized in name only. The frontend is hosted on AWS. The team controls the multisig wallet. Token distribution favors insiders. Users technically own tokens, but VCs control the protocol.

The cynic's take: Web3 is VCs rebranding crypto to attract capital. The realist's take: most projects will stay semi-centralized, but a few will genuinely decentralize and those will matter.

Where it works

Web3 works for finance (DeFi), digital ownership (NFTs), and censorship-resistant use cases. DeFi gives millions access to financial services without banks. These are functioning today with billions in value.

Web3 doesn't work (yet) for social media or consumer applications. Network effects favor incumbents. UX is too bad.

The future: critical infrastructuremoney, identity, ownershipdecentralizes to Web3. Consumer apps stay Web2 but integrate Web3 elements.

The honest assessment

Web3 is simultaneously real and overhyped. It's real in that blockchain enables genuinely new capabilitiespermissionless finance, digital ownership, censorship-resistant applications. DeFi processes billions in volume. NFTs created new markets.

But Web3 is overhyped in its promise to replace Web2 entirely. Most people don't want to manage private keys or worry about gas fees. Network effects favor incumbents like Facebook and YouTube. UX remains terrible. Most Web3 projects are VC-controlled.

The realistic future is coexistence, not replacement. Web3 wins for applications where decentralization mattersmoney, identity, ownership, censorship resistance. Web2 continues dominating consumer applications where UX and network effects matter more.

If Web3 becomes infrastructure that users don't even realize they're usingwallet login abstracted away, blockchain underneath but UX on topthat's probably success. If it remains a niche for crypto-natives while everyone else uses TikTok, that's failure.

The cynic says Web3 is VCs rebranding crypto to exit on retail. The realist says it's infrastructure for specific use casesvaluable but not revolutionary. Five years from now, we'll probably use some Web3 tools without thinking about them while still spending most of our time on traditional platforms.

And honestly? For the use cases where Web3 actually mattersfinancial access for the unbanked, censorship resistance for activists, direct creator economicsthat outcome would still be pretty valuable. Even if most of us keep using Gmail.

Further Reading:

• Ethereum Foundation - Web3 Vision - Official Web3 explanation
• The Web3 Playbook - a16z - Comprehensive resource guide
• Web3 is Bullshit - Stephen Diehl - Critical analysis
• My First Impressions of Web3 - Moxie Marlinspike - Technical critique
• The Web3 Renaissance - Messari - Market analysis
• ENS - Ethereum Name Service - Decentralized identity system
• The Defiant - Web3 News - Leading Web3 publication