Web3 | Notion

This is a chapter from the book Token Economy (Third Edition) by Shermin Voshmgir. Paper & audio formats are available on Amazon and other bookstores. Find copyright information at the end of the page.

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Web3 is a term used to describe a version of the Internet that empowers users to co-manage public Internet infrastructure by rewarding them with native network tokens. Blockchain networks operate at the backbone, acting as a publicly verifiable and collectively maintained digital notary and accounting machine. AI tools can be used to make decentralized applications more intelligible and usable on the front end, and they can also be used in the design of blockchain protocols and their applications.

The term "Web3" is not completely new and has evolved over the past decades, encompassing various visions for the Internet's future. Similar terms, like "Web 3.0," were used before the emergence of Bitcoin to describe a more intelligent web. Web 3.0 was first used to refer to the “Semantic Web,” a version of the World Wide Web designed to make vast amounts of data more intelligible through the attribution of metadata. The manual nature of this process was not scalable and led to the realization that machine learning and artificial intelligence could play a more effective role in achieving this vision. However, the term never gained mainstream adoption. In 2014, Ethereum co-founder Gavin Wood coined a variation of the term—“Web3”—to describe a decentralized Internet infrastructure powered by blockchain networks and other decentralized protocols. Both Web 3.0 and Web3 share the goal of creating a more intelligent and user-centric web, but they differ in their approaches. Blockchain networks and other Web3 protocols reinvent how the back end is managed. AI applications can make the front end of applications smarter and more user-friendly.

However, in popular discourse, the term "Web3" has become somewhat interchangeable with "crypto" or "blockchain," which both reflect a narrower understanding of its broader vision. “Crypto” is often used to refer solely to cryptocurrencies, reducing Web3 to a single application: tokens that act as digital currencies or digital assets. Similarly, “blockchain” focuses solely on the technological infrastructure, overlooking other essential components of decentralized Internet infrastructure. Such a reductionist view risks confining Web3 to its technological components and financial applications, ignoring a wide array of non-financial tokens and the fact that crypto networks are socioeconomic systems, governed and used by people. To add to the confusion, AI is described as an isolated innovation—something completely different—as if there were two types of web that have nothing to do with each other: an AI-powered web and a blockchain/crypto-powered web.

In the context of this book, I therefore like to unite both concepts and show how blockchain infrastructure and AI applications work in tandem with each other to power Web3 applications. However, the main focus of this book will be the game-changing aspects of purpose-driven tokens that steer Web3 networks. While AI is not the focus of this book, the increasing role of AI agents both at the edges of Web3 networks and at the center of their protocols will be outlined in the use case chapters of this book, where applicable.

History of the Web

Before the emergence of the Internet, data exchange between computers was cumbersome. Electronic data exchange required manual transfer via some kind of hardware device—such as a floppy disk—upon which files were saved to be physically transferred to another computer. The Internet Protocol was a game-changer because it enabled seamless data transmission between computers over telecommunication networks, slashing the time and cost of data exchange and making it a breeding ground for many social and economic applications. However, the Internet we use today is still predominantly built on the idea of the stand-alone computer because the computer preceded the Internet, and this historic order of events also shaped the logic of how data was exchanged over the Internet.

Despite 35 years of mass Internet adoption, data today is mostly centrally stored and managed on stand-alone computers. Each time we interact over the Internet, copies of our data are created (in the form of emails, files, money), and these copies are sent to the server of a service provider. Every time that happens, we lose control over what happens to that copy of our data. As a result, system administrators are needed to manage identities, passwords, and security. Value settlement requires intermediary services. This raises issues of trust and introduces inefficiencies across the supply chain of goods, services, and assets.

Web1: The first wide-area computer-to-computer network—ARPANET—emerged in 1969. It was the predecessor of the current Internet, which was initially developed for military use. Though it was later adopted by universities, it remained a fringe phenomenon until the rise of the personal computer in the 1980s and the emergence of easy-to-create graphical interfaces in the 1990s powered by Hypertext Transfer Protocol (HTTP) and Hypertext Markup Language (HTML). These revolutionary protocols allowed anyone to create a website with a few lines of code and navigate the web by clicking on links instead of using command-line interfaces. What eventually became known as the World Wide Web (WWW) was predominantly read-only, with data hosted on centralized servers. Navigation of web pages relied on Internet browsers and search engines, both of which dominated early innovation of Internet applications.
Web2 can be described as a front-end revolution once Internet infrastructure and its applications became more sophisticated and widely adopted, and the smartphone era amplified usability. The term “Web2” was coined in the early 2000s as more Internet applications started to facilitate read-write interactions instead of read-only interactions, creating globally used social and economic networks. However, the operators of most of these Web2 platforms that emerged also got to dictate all network rules while unilaterally controlling their users' data. This was the result of the predominantly private ownership structures of the operators as well as the client-server nature of the web.
Web3 protocols can empower a more collaboratively managed and user centric web. They combine the Internet's networking capabilities with the computational functions of computers, incentivizing human participation. Anyone can become a node operator, contributing to governance, maintenance, and operations—without the need for a central coordinator. Cryptographic building blocks and token-based incentives are foundational components of a new type of Internet infrastructure that intends to shift control from centralized entities to individual users, emphasizing data ownership, privacy, and peer-to-peer interactions. Network rules are computationally encoded and enforced by all participants, who collectively manage the state of who is allowed to do what and when in the network. Participation is open to everyone. Access rights, property rights, management rights, information rights, or voting rights are represented by tokens that are collectively managed—which is why some refer to it as the “Internet of Agreements.” However, decentralized applications are not only fueled by their token-based economic systems but also increasingly leverage AI agents in the design and operations of these systems to make interactions more intelligible and usable.

While research and development of P2P computing are as old as the Internet itself, they only existed at the fringes of Internet mass adoption. Since the emergence of Bitcoin and subsequent blockchain networks, decentralized computing has experienced a renaissance. Blockchain networks have come to provide a native governance layer for the Internet and are the backbone of Web3 infrastructure networks.

“History of Web” from Token Economy (Third Edition) 2025, Shermin Voshmgir

“Web3 vs. Web3” from Token Economy (Third Edition) 2025, Shermin Voshmgir

History of the Web

Blockchain Concept in a Nutshell