By Siddharth Pai
Just a few years ago, Web3.0 emerged as a new technology. This technology is based on the decentralised version of peer “proofs” that blockchain technology allows. It was supposed to revolutionise the internet. Instead of having domain names that are registered via the Internet Corporation for Assigned Names and Numbers (ICANN), a central body that manages domain names such as .(dot) coms worldwide, this function was to be managed by a loose, decentralised community that would verify Web 3.0, domains, transactions, and other traffic going across this new network using proof-of-work (PoW) blockchains, much like today’s cryptocurrencies.
This promised a future where digital spaces are not governed by a handful of tech behemoths but are instead built upon the bedrock of blockchain technology, ensuring transparency, security, and most importantly, user sovereignty. Yet, despite its revolutionary potential, Web3.0 seems to have hit a pause. Its progress is less rapid and less talked about than its initial entry onto the scene suggested. The question arises: Why has further development on Web3.0 taken a back seat?
To parse through this apparent slowdown, it’s essential to understand that Web3.0 faces many challenges, from technological hurdles to regulatory uncertainties and a broader lack of mainstream adoption. One of the most significant roadblocks to Web3.0 becoming ubiquitous is the technological complexity and scalability issues inherent in blockchain technology. The user experience in Web3.0 applications can be dismal. The average user finds navigating Web3.0 platforms to be less intuitive than their Web2.0 counterparts. The requirement for digital wallets, understanding of “gas” fees, and the very process of interacting with decentralised applications can be daunting, hindering broader adoption.
Last year, I tried to set up and use a decentralised Web3.0 domain myself. I soon found I was reliant on start-ups that would ease my foray into the Web3.0 world, since setting up a domain and using the features became ultra-complex. While I could manage the complexity, the repeated processes were complicated and required me to be in control of a variety of factors. It was easier to outsource. And once outsourced, I forgot about it. This is in stark contrast to Web2.0. Most of us (including me) have tools at our command that will allow us to set up and establish a website in a few hours, even one with an e-commerce portal.
While blockchain is feted for its security and decentralisation, these features come at a cost. Transactions can be slow. The energy consumption of PoW blockchains is immense. Projects like Ethereum have been working on transitioning to proof-of-stake (PoS) from PoW to mitigate these issues, but the path is fraught with technical difficulties and delays.
The decentralised nature of Web3.0 poses a significant challenge to traditional regulatory frameworks. Governments and regulatory bodies worldwide are grappling with how to oversee systems designed to operate outside central control. This regulatory uncertainty has led to a cautious approach from investors and developers, who are unsure of the legal landscape.
Security concerns also loom large. Despite the inherent security features of blockchain, the Web3.0 ecosystem has been plagued by high-profile hacks and scams, shaking confidence in the technology. The decentralised finance (DeFi) sector, which I have written about before in this column, has seen numerous exploits due to vulnerabilities in smart contracts, leading to substantial financial losses.
The initial boom in Web3.0 development was probably ill-timed since it ran parallel to the Covid-19 epidemic. It was fuelled by speculative investment and the promise of high returns rather than a focus on creating sustainable and user-centric applications. The 2021 bull market saw an influx of capital into the space, but much of this investment was driven by speculation on cryptocurrency prices and “bored ape” type non-fungible-tokens (NFTs) rather than a deep belief in the potential of decentralised technology to change the internet. As the speculative bubble burst, funding became harder to secure. And no one talks about NFTs nowadays. This downturn has forced many in the Web3.0 space to reassess their priorities, focusing on solidifying the foundations of their projects rather than rapid expansion.
Despite these challenges, it’s too early to write off Web3.0 as a passing trend. The principles of decentralisation, transparency, and user empowerment are too compelling to ignore. For Web3.0 to move beyond the current impasse, several key developments are necessary. Advances in blockchain technology and the continued development of more efficient consensus mechanisms are critical. Equally important is the need for Web3.0 applications to become more user-friendly, lowering the barrier to entry for non-technical users.
Governments and regulatory bodies must develop clear, consistent guidelines that protect consumers while fostering innovation. A balanced regulatory approach can provide the stability and certainty needed for the Web3.0 ecosystem to thrive. Most importantly, for Web3.0 to achieve long-term success, the emphasis must shift from speculative investment to the development of applications that solve real-world problems and enhance the digital experience for users. Building a knowledgeable and engaged community around Web3.0 is essential, which some start-ups are trying to do. Education initiatives that demystify blockchain technology and highlight its potential applications can drive wider adoption and participation.
The journey of Web3.0 from a niche concept to a foundational component of the next generation of the internet is fraught with challenges. However, these hurdles are not insurmountable. With a focus on technological innovation, regulatory clarity, and genuine user value, Web3.0 can overcome its current stagnation and fulfill its promise as a decentralised, secure, and user-centric digital future. Hopefully, this lull is merely a pit stop on Web3.0’s road to revolutionising how we interact with the digital world.
Siddharth Pai, technology consultant and venture capitalist
By invitation
Views are personal