What is Web3?

Web3 is a term used to describe the next iteration of the internet, one that is built on blockchain technology and is communally controlled by its users.
3D illustration of a human hand and a digital hand reaching through geometric portals and touching finger tips at the center of the frame

Third time’s the charm? You know that the internet is always growing and changing. But it’s not just websites and platforms that are falling in and out of favor; the very code on which the internet is built is constantly in flux. In the past few years, some tech futurists have started pointing to Web3, a term coined by computer scientist Gavin Wood, as a sign of things to come. Web3 is the idea of a new, decentralized internet built on blockchains, which are distributed ledgers controlled communally by participants. Because of the collective nature of blockchains, if and when Web3 fully arrives—elements of it are already in place—it will, in theory, signal a new era of the internet, one in which use and access are controlled by community-run networks rather than the current, centralized model in which a handful of corporations preside over Web2.

Get to know and directly engage with senior McKinsey experts on Web3

Michael Chui is a partner with the McKinsey Global Institute and a partner in McKinsey’s Bay Area office, where Robert Byrne and Marie-Claude Nadeau are senior partners and Roger Roberts is a partner; Homayoun Hatami is the managing partner for global client capabilities and a senior partner in the Paris office, where Eric Hazan is also a senior partner.
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Momentum around elements of Web3 has increased significantly since 2018, in areas like equity investment, online searches, patent filings, scientific publications, job vacancies, and press reports. The financial-services industry has been at the vanguard of emerging Web3 technologies and assets: at one point, the daily volume of transactions processed on so-called decentralized-finance exchanges exceeded $10 billion. As we’ll see, though, progress has come in fits and starts.
If you’re still not sure what Web3 is, you’re not alone. According to a 2022 Harvard Business Review poll, nearly 70 percent of the more than 50,000 people who responded admitted they don’t know what Web3 is. In thisExplainer, you’ll learn more about Web3, its perils and possibilities, and when—or if—it will come to fruition. 
Learn more about McKinsey’s Digital Practice.

What are Web1 and Web2?

First, if there’s going to be a Web3, you should understand what Web1 and Web2 are. Web1 was the first draft of the internet, the one that proliferated in the 1990s and early 2000s. Much of Web1 was built using “open protocols,” which are ways of exchanging information that can be used by anyone, rather than just one entity or organization. Back then, people mostly used the internet to read web pages and chat with friends or strangers. As Web1 progressed, individuals and companies began using the internet increasingly for e-commerce, as well as for academic and scientific research.
Web2 came about in the mid-2000s, when a new crop of internet companies—upstarts like Facebook, Twitter (now X), and Wikipedia—empowered users to create their own content. But there was a cost to these free-to-use “emergent social software platforms,” as MIT research scientist Andrew McAfee described them in a 2009 McKinsey Quarterly interview—a cost many users weren’t aware of. These companies monetized user activity and data by selling them to advertisers, while retaining control over proprietary decisions about functionality and governance.

What technologies support Web3?

Web3 describes what the internet could look like built on new types of technology. Here are the three main ones:

• Blockchain. A blockchain is a digitally distributed, decentralized ledger that exists across a computer network and facilitates recording of transactions. As new data are added to a network, a new block is created and appended permanently to the chain. All nodes on the blockchain are then updated to reflect the change. This means the system is not subject to a single point of control or failure.
• Smart contracts. Smart contracts are software programs that are automatically executed when specified conditions are met, like terms agreed on by a buyer and seller. Smart contracts are established in code on a blockchain that can’t be altered.
• Digital assets and tokens. These are items of value that exist only digitally. They can include cryptocurrencies, stablecoins, central bank digital currencies (CBDCs), and NFTs (nonfungible tokens). They can also include tokenized versions of assets, including real things like art or tickets to concerts or sporting events.

Later, we’ll see how each of these technologies is used in practice, with real-world examples of Web3-supported products.

How is Web3 different from Web2?

In the Web2 era, control—over transactions, content, and data—is centralized in tech corporations. In theory, that will change with the advent of Web3. Evangelists believe that in the Web3 era, users will have the power to control their own information without need for the intermediaries we see today. Web3 could change how information is managed, how the internet is monetized, and even, maybe, how web-based corporations function.
Another difference between the two is how they approach trust. In Web2, a transaction—whether it’s an exchange of money or information—relies on two parties (and usually a central facilitator as well) trusting each other with the information that’s being shared. By contrast, Web3 doesn’t ask users to trust one another. Instead, the technology is designed so that a transaction goes through only if certain criteria are met and data are verified.
Here’s a theoretical example to help illustrate how a Web3 transaction might work. Imagine that someone is looking to buy a concert ticket on the resale market. This person has been scammed before by someone selling a fake ticket; she trusted that the person was selling a real ticket and sent the person money, which the person then stole. This time, she decides to try a Web3-enabled, blockchain-based ticket exchange service. On these sites, every ticket is assigned a unique, immutable, and verifiable identity that is tied to a real person. Before the concertgoer purchases her ticket, the majority of the nodes on the network validate the seller’s credentials, ensuring that the ticket is in fact real. She buys her ticket and enjoys the concert.