Welcome back to another issue of Vault. This week, we’re covering the differences between Web 2.0 and web3. The newest era of the internet, web3, is challenging to understand, as multiple cycles overlap at once. There is the Technology Adoption Curve—where we are still between the Innovator and Early Adopter phases. Then, combine the tech adoption curve with the Gartner Hype Cycle. Add in Chris Dixon’s Financial and Product Cycles on top of both for good measure.

All of these cycles are happening at once, making it very difficult to know where exactly we are at any time. The sheer amount of information that web3 combines and brings together exposes it to more types of cycles. web3 is subject to technology and financial cycles—which can overlap and magnify each other.

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Gartner Hype Cycle

Note: Web 2.0 is how the term was written in prior years. I’ll be referring to web2 below because it’s easier to write—and is consistent with web3.

Web 2.0

The second era of the internet began with Tim O’Reilly’s Web 2.0 conference in late 2004. Although Darcy DiNucci coined the term in 1999, the Web 2.0 (web2) conference in 2004 began to separate the static websites of the early internet from the participatory websites that would come later. Early internet pioneers built with an open-source mindset. Their version of the internet encouraged the sharing of information and tools. The next wave of entrepreneurs dropped open-source in favor of walled gardens populated with user-generated content. These entrepreneurs created the web2 era.

This shift in internet culture from web1 to web2 brought millions of new users onto the internet. Social media companies, especially, could reach non-technical users by mapping onto their existing social networks (see: Facebook’s launch on Harvard’s campus, requiring a harvard.edu email address to sign up). Once the network was running, word of mouth through existing social channels did the rest.

These new users flooded onto the internet and into productized experiences, which provided intuitive and engaging new digital experiences. But it also siloed them within a corporation’s terms and conditions. The open-source technologies that had allowed those very corporations to come into existence began to fade out of sight of the average internet user. The era that has been retroactively called web1 was over. The culture had moved on to the web2.

web2 brought many valuable innovations to the public, building upon the technology pioneered during the web1 era. Massive corporations sprang up and brought new and novel value to consumers. The web2 wave created the current set of the largest companies in the world: Amazon, Meta (Facebook), Google, Netflix, and Apple. These companies are collectively called the Big Five or the FAANG companies.

web2 also brought centralization. As the FAANG companies got bigger, they became more centralized, and they began to concentrate more power and control in the hands of fewer people. Eventually, individual founders, or small leadership teams, directly controlled the data of hundreds of millions of users who existed within trillion-dollar market-cap corporations.

This is the core ethos of the web2 era: Centralized platforms provided in exchange for user data. Most are free—because you are the product.

Consumers are willing to make this trade because it’s become the cultural norm and the platforms generally provide a good experience. Problems emerge when users disagree with the company's decisions—and realize that their power as a consumer was eroded in exchange for free products. When users understand what they have given away and want to leave for better alternatives—they realize there is nowhere to go.

There is no official designation for the line between web2 and web3. I believe web2 ended when Facebook changed its name to Meta, and web3 began when “Sign in with wallet” became a common UX element.

Facebook’s name change was the first significant signal that the era of centralized web2 power and control was ending. Facebook was the company that pioneered the web2 style of value creation and capture. Mark Zuckerberg is one of the most prolific founders of all time. When he and the company he founded abandoned the web2 ethos—it marked the beginning of the end of that era. Now, it’s up to web3 to develop the next phase of the internet.

web3

It’s common online to see people debate the definition of web3. Some believe it’s a VC-created marketing term, and others think it’s the future.

I believe web3 is this:

1. User ownership and control of data.

2. Persistent data portability between applications.

3. Integrated online identities (social, financial, cultural, etc.).

4. An ethos of decentralization.

At the moment, web3 is a beacon for this collection of traits. Anyone who believes the internet should be steered in this direction will use the term web3 to describe this ethos. It’s a signal to work with a group of startups and DAOs aligned on a common mission. In that way, it’s a helpful word. We need some way to talk about ourselves.

It is still very early. People have trouble understanding macro tech shifts because most of what they have known over the past ten years has been product iterations and launches. Apple releases new products twice a year, every year. Once in the spring and once in the fall. People have come to expect these kinds of pre-planned timelines, while web3 is a macro tech shift. There are no planned timelines. Startups in the web3 space are experimenting in real-time with new technology primitives and finding (through trial and error) ways this new tech can be brought to market. The best practices are also being iterated in real-time as well. The rules aren’t set in stone—yet.

Some products in the web3 space have been too early to market. UX is still not where it needs to be. For most people, setting up wallets and moving tokens between wallets (or chains) is beyond what they can reasonably understand. The tech-native will be able to figure it out, but there is still a large portion of the population that didn’t grow up on the internet. This is changing, but we’re not there yet.