Web3 101 An Introduction to the Next Generation Web

Web3: The Third Stage of Internet Evolution

Web3 is not just a technological term; it represents the third significant stage in the development of the internet, a fundamental restructuring of the current internet model. The emergence of Web3 is a response to the growing need for decentralization, privacy protection, and user empowerment in the digital age.

What is Web3?

The core of Web3 can be summarized in four key concepts: decentralization, permissionless, native payments, and trustless.

These concepts collectively form the foundation of Web3, aiming to create a more open, fair, and user-driven internet environment.

1. Decentralization:
   • Definition: Data and services are no longer controlled by centralized entities but distributed across the entire network, with ownership belonging to builders and users.
   • Advantages: Enhances system censorship resistance, reduces single point of failure risks, and strengthens user control over data.
2. Permissionless:
   • Definition: Anyone can participate in the network, create and use applications without approval from a central authority.
   • Advantages: Lowers barriers to innovation, promotes fair competition, and increases network diversity.
3. Native Payments:
   • Definition: Payment functionality is directly integrated into the network protocol layer, not relying on traditional banks or third-party institutions.
   • Advantages: Enables seamless, low-cost global value transfer, supports micropayments and new economic models.
   • Example: The Bitcoin network natively supports value transfer without relying on traditional financial systems.
4. Trustless:
   • Definition: The system's operation does not rely on trust in specific entities or third parties but is based on cryptography and economic incentives.
   • Advantages: Reduces fraud risk, increases system transparency and auditability.
   • Example: Decentralized exchanges like Uniswap, where all trading logic is executed by smart contracts, eliminating the need to trust centralized exchanges.

Real-world Applications of Web3

Web3 is not just a theoretical concept; it has already demonstrated practical value in multiple fields. Here are some representative application scenarios:

1. Decentralized Finance (DeFi):
   • Definition: An emerging financial system that reconstructs traditional financial services using blockchain and smart contracts.
   • Application areas: Lending, trading, insurance, asset management, etc.
   • Advantages: Permissionless, globally accessible, efficient, highly innovative.
   • Representative projects:
     • Aave: A decentralized lending platform supporting deposits and loans in various cryptocurrencies.
     • Uniswap: A decentralized exchange based on the Automated Market Maker (AMM) model.
   • Market size: As of 2023, the Total Value Locked (TVL) in DeFi exceeded $40 billion.
2. Non-Fungible Tokens (NFTs):
   • Definition: Blockchain tokens representing ownership of unique digital assets.
   • Application areas: Digital art, virtual real estate, game items, identity credentials, etc.
   • Advantages: Ensures scarcity and authenticity of digital assets, supports new creator economies.
   • Representative projects:
     • CryptoPunks: An early NFT art project that has become an icon of digital collectibles.
     • Axie Infinity: An NFT-based game where players can breed, battle, and trade unique creatures.
   • Market impact: In 2021, the NFT market transaction volume reached $25 billion, sparking widespread social attention.
   • Future development: Huge potential for applications in identity verification, supply chain tracking, virtual reality assets, etc.
3. Decentralized Autonomous Organizations (DAOs):
   • Definition: A new form of organization based on blockchain technology, achieving autonomous management through smart contracts.
   • Operation: Members participate in decision-making by holding tokens, with all rules and execution processes defined by code.
   • Advantages: Highly transparent, global participation, reduced management costs.
   • Representative projects:
     • MakerDAO: A decentralized organization managing the Dai stablecoin system.
     • Uniswap Governance: The governing body responsible for Uniswap protocol upgrades and parameter adjustments.
   • Innovation: DAOs are exploring new organizational management models, challenging traditional corporate governance structures.
4. Metaverse and Web3:
   • Concept integration: The metaverse, as a concept of virtual reality worlds, highly aligns with Web3's decentralization ideology.
   • Key features: Persistence, real-time, interoperability, user-generated content.
   • Web3 contribution: Provides decentralized identity systems, economic systems, and governance mechanisms for the metaverse.
   • Representative projects:
     • Decentraland: An Ethereum-based virtual reality platform where users can purchase virtual land.
     • The Sandbox: A game ecosystem allowing users to create, share, and monetize virtual experiences.
   • Development prospects: The metaverse market size is expected to reach $5 trillion by 2030.
   • Technical challenges: Need to solve technical issues such as large-scale concurrency and low-latency interaction.

From Web1 to Web3

Understanding the revolutionary nature of Web3 requires a review of the entire development history of the internet. Each stage has its unique characteristics and contributions, reflecting the changes in technological progress and social needs.

Web1: The Information Revolution of the Read-Only Era (1989-2004)

Web1 represents the initial stage of the internet, mainly characterized by static, read-only web content.

• Core Technologies:
  • HTML (Hypertext Markup Language): Used to create web page structures.
  • HTTP (Hypertext Transfer Protocol): Defines communication rules between clients and servers.
  • URL (Uniform Resource Locator): Used to locate resources on the network.
• Typical Applications:
  • Corporate official websites: Mainly used to display company information.
  • News websites: Providing digitalized news content for online reading.
  • Early search engines: Such as Altavista, Yahoo!, helping users find information.
• User Role: Mainly passive information receivers.
• Limitations:
  • Low frequency of content updates, mainly controlled by website owners.
  • Limited user interactivity, basically one-way information dissemination.
  • Poor interconnectivity between websites.
• Historical Significance:
  • Opened a new era of information acquisition, greatly improving the efficiency of information dissemination.
  • Laid the foundational infrastructure for subsequent internet development.

Web2: The Prosperity Era of Social and Platform Economy (2004-Present)

The Web2 era began in the early 21st century, marking the development of the internet towards more interactivity and sociality.

• Core Technologies:
  • AJAX (Asynchronous JavaScript and XML): Enabled dynamic content updates without refreshing the entire page.
  • Responsive design: Web design method adapting to different device screens.
  • Cloud computing: Providing scalable computing resources for web applications.
  • Mobile internet: The proliferation of smartphones brought the prosperity of mobile applications.
• Typical Applications:
  • Social media platforms: Facebook, Twitter, Weibo, etc.
  • Content creation platforms: YouTube, Medium, WordPress, etc.
  • Collaboration tools: Google Docs, Slack, Trello, etc.
  • E-commerce platforms: Amazon, Taobao, Airbnb, etc.
• User Role: Both content consumers and creators.
• Business Models:
  • Advertising revenue: Precise ad targeting based on user data.
  • Subscription services: Such as streaming services like Spotify, Netflix.
  • Platform commissions: Such as App Store's in-app purchase commissions.
• Main Features:
  • User-generated content (UGC) became mainstream.
  • The rise of social networks, connecting global users.
  • Big data analysis driving personalized services.
  • The popularization of cloud services lowered entrepreneurial barriers.
• Existing Problems:
  • User data privacy concerns.
  • Platform monopoly and algorithmic bias.
  • Uneven distribution of benefits between content creators and platforms.
  • Information bubbles and the spread of fake news.

Web3: The New Era of Decentralization and User Empowerment (Currently Developing)

Web3 represents the next evolutionary stage of the internet, aiming to solve problems accumulated in the Web2 era and provide users with more control and value.

• Core Technologies:
  • Blockchain: Providing decentralized data storage and transaction verification.
  • Smart contracts: Automatically executed, trustless programs.
  • Decentralized storage: Such as IPFS (InterPlanetary File System).
  • Crypto wallets: Serving as tools for user digital identity and asset management.
• Typical Applications:
  • Decentralized finance (DeFi): Such as Aave, Uniswap, etc.
  • Non-fungible tokens (NFTs): Digital art, virtual asset trading.
  • Decentralized autonomous organizations (DAOs): New organizational management models.
  • Decentralized social networks: Such as Mastodon, Minds, etc.
• User Role: Asset owners, ecosystem participants, and governors.
• Main Features:
  • Decentralization: Reducing dependence on centralized platforms.
  • Data sovereignty: Users have full control over their own data.
  • Token economy: Incentivizing system participants through tokens.
  • Composability: Different applications can be combined like Lego blocks for innovation.
• Potential Advantages:
  • Enhancing user privacy and data security.
  • Creating fairer value distribution mechanisms.
  • Reducing intermediary costs, improving efficiency.
  • Supporting new business models and organizational forms.
• Facing Challenges:
  • High technical complexity, high user barriers.
  • Scalability issues not yet fully resolved.
  • Uncertain regulatory environment.
  • Need to balance decentralization with efficiency.

The development of Web3 is still in its early stages, and its final form and influence are still evolving. However, it represents an important technological and ideological trend with the potential to reshape the internet's fundamental architecture and how people interact with the digital world.

What Problems Does Web3 Solve?

The emergence of Web3 is not accidental; it is a response to a series of deep-seated problems accumulated in the Web2 era. These problems involve multiple aspects such as data privacy, asset ownership, and value distribution, reflecting the structural deficiencies of the current internet model. The following discusses in detail how Web3 addresses these challenges:

Data Sovereignty: Redefining Digital Identity

Web2 Problems:

• User data is centrally collected and controlled by large tech companies.
• Personal privacy is frequently violated, and data breach incidents are common.
• Users lack control over their digital identities and data usage.

Web3 Solutions:

1. Decentralized Identity (DID):
   • Principle: Users create and control their own digital identities, independent of any centralized platform.
   • Technical implementation: Blockchain-based identity protocols, such as Ethereum's ENS (Ethereum Name Service).
   • Advantages: Improves identity portability and security, reduces the risk of identity theft.
2. Self-Sovereign Data Storage:
   • Technology: Decentralized storage systems, such as IPFS (InterPlanetary File System).
   • Working principle: Data is stored dispersedly in a global network of nodes, with users controlling access rights through encryption keys.
   • Benefits: Enhances data security, prevents single point of failure, improves data persistence.
3. Zero-Knowledge Proofs:
   • Concept: Allows one party to prove a statement is true without revealing any information beyond the fact that the statement is true.
   • Applications: Identity verification, privacy-preserving transactions, etc.
   • Significance: Achieves necessary information verification while protecting privacy.

Practical Application Cases:

• Civic: A blockchain-based identity verification service allowing users to securely share personal information.
• 3Box: Provides decentralized storage and identity management solutions, enabling users to use a unified identity across different applications.

Potential Impact:

• Reduces dependence on large tech companies, enhances personal data autonomy.
• Creates new data economy models where users might directly benefit from their own data.
• Improves cross-platform identity and data interoperability.

Digital Assets: From Virtual Items to Real Digital Property

Web2 Problems:

• Virtual items acquired by users in games or platforms do not actually belong to the users.
• Platforms can arbitrarily change rules, affecting the value of virtual assets.
• Lack of cross-platform asset transfer and usage mechanisms.

Web3 Solutions:

1. Non-Fungible Tokens (NFTs):
   • Definition: Blockchain tokens representing ownership of unique digital assets.
   • Characteristics: Uniqueness, indivisibility, verifiability.
   • Application areas: Digital art, game items, virtual real estate, collectibles, etc.
2. Blockchain Game Assets:
   • Concept: In-game items exist as assets on the blockchain.
   • Advantages: Players truly own game assets, can transfer and use them across different games.
   • Case: Creatures in Axie Infinity can be traded as NFTs in the market.
3. Metaverse Assets:
   • Definition: Digital items with value and functionality in virtual worlds.
   • Features: Cross-platform usability, scarcity, and market value.
   • Example: Virtual land in Decentraland exists as NFTs, can be bought, sold, and developed.

Technical Implementation:

• Smart contracts: Define asset attributes, transfer rules, and usage conditions.
• Cross-chain technology: Allows assets to transfer between different blockchain networks.
• Decentralized storage: Ensures the persistence and accessibility of asset-related data.

Value Distribution: Restructuring the Creator Economy

Web2 Problems:

• Unbalanced revenue distribution between content creators and platforms.
• Centralized platforms control traffic distribution and monetization channels.
• Creators lack a say in platform rule changes.

Web3 Solutions:

1. Token Economic Models:
   • Principle: Directly reward content creators and platform participants through token incentive systems.
   • Implementation: Projects issue their own tokens for governance and value distribution.
   • Case: The Steemit platform rewards content creation and curation through STEEM tokens.
2. Decentralized Content Platforms:
   • Features: Content is directly stored on decentralized networks, reducing dependence on centralized platforms.
   • Advantages: Creators have more control over content, can independently choose distribution and monetization methods.
   • Example: The Audius music platform allows musicians to directly connect with fans and earn revenue.
3. Smart Contract Royalty Systems:
   • Function: Automatically execute royalty distribution, ensuring creators continue to benefit from their works.
   • Application: NFT secondary sale royalties, music copyright sharing, etc.
   • Technical implementation: Define royalty rules through smart contracts, automatically executed with each transaction.
4. Fan Tokens and Community Currencies:
   • Concept: Creators or communities issue their own tokens to incentivize fan participation and support.
   • Role: Enhance connection between fans and creators, create new interaction and monetization models.
   • Case: The social token platform Rally allows creators to issue personal tokens.

Potential Impact:

• Reshapes the relationship between creators, platforms, and fans, creating more direct value exchange mechanisms.
• Increases economic returns for creation, potentially leading to prosperity in creative industries.
• Gives users more participation rights, blurring the line between creators and consumers.

Challenges and Considerations:

• The sustainability of token economic models needs long-term verification.
• Regulatory environment uncertainties may affect the development of certain models.
• Need to balance economic incentives with content quality, avoiding over-commercialization.

Trustlessness: From Relying on Platforms to Relying on Protocols

Web2 Problems:

• Users have to trust centralized platforms to handle data and transactions.
• Platforms may abuse power, such as censoring content or freezing accounts.
• Centralized systems are easy targets for hacker attacks.

Web3 Solutions:

1. Blockchain Technology:
   • Core features: Decentralization, immutability, transparency.
   • Working principle: Records transactions through distributed ledgers, maintained by network consensus.
   • Significance: Provides a trustless foundation layer, ensuring data integrity and verifiability.
2. Smart Contracts:
   • Definition: Self-executing, pre-programmed protocols.
   • Function: Define and execute complex business logic without third-party intervention.
   • Application: Automated contract execution, core logic of decentralized applications (DApps).
3. Decentralized Governance:
   • Concept: Let communities participate in decision-making processes through mechanisms like token voting.
   • Implementation: Decentralized Autonomous Organizations (DAOs) as a new form of organization.
   • Advantages: Increases transparency, reduces the abuse of centralized power.
4. Zero-Knowledge Proofs:
   • Technical principle: Allows one party to prove the truthfulness of a statement without revealing any other information.
   • Application: Privacy-preserving transactions, identity verification, etc.
   • Significance: Achieves necessary information verification while protecting privacy.

Practical Application Cases:

• Uniswap: A decentralized exchange where all trading logic is executed by smart contracts.
• Compound: A decentralized lending platform where interest rates and liquidation processes are automatically managed by algorithms.
• Aragon: Provides DAO creation and management tools, supporting decentralized governance.

Potential Impact:

• Reduces dependence on intermediaries, lowering transaction costs.
• Increases system transparency and auditability.
• Creates new trust mechanisms, potentially reshaping social and economic interaction models.

Challenges and Risks:

• The security of smart contracts is crucial; code vulnerabilities can lead to severe losses.
• Error handling and correction mechanisms in decentralized systems are relatively complex.
• Complete trustlessness may bring some unexpected social impacts, requiring careful evaluation.

The Technological Cornerstones of Web3: Core Components for Building a New World

The realization of Web3 relies on a series of innovative technologies that collectively form the infrastructure of the next-generation internet. Each technology has its unique functions and contributions, jointly supporting the vision of Web3. The following explores these core technologies in detail:

Blockchain

Blockchain technology is the core infrastructure of Web3, providing a decentralized, immutable system for data storage and transaction verification.

Core Features:

1. Decentralization: No single authority controls the entire network.
2. Immutability: Once data is written, it is extremely difficult to alter.
3. Transparency: All transaction records are publicly viewable.
4. Consensus Mechanism: Algorithms ensure network participants agree on transaction validity.

Main Types:

1. Public Chains: Such as Bitcoin, Ethereum, open to anyone to participate.
2. Consortium Chains: Controlled by pre-selected nodes, often used for enterprise-level applications.
3. Private Chains: Controlled by a single organization, used for internal systems.

Technical Details:

• Data Structure: Blockchain is a chain of blocks containing transaction information linked in chronological order.
• Cryptography: Uses public key encryption and digital signatures to ensure transaction security.
• Consensus Algorithms: Such as Proof of Work (PoW), Proof of Stake (PoS), etc., used to validate transactions and create new blocks.

Application Cases:

• Cryptocurrencies: Bitcoin as digital gold, Ethereum supporting smart contracts.
• Supply Chain Management: Walmart using blockchain to track food sources.
• Digital Identity: Microsoft's Decentralized Identity (DID) project.

Challenges and Development Directions:

• Scalability: Improving transaction processing speed and capacity.
• Energy Consumption: Developing more environmentally friendly consensus mechanisms.
• Cross-Chain Interoperability: Achieving value and data transfer between different blockchain networks.

Smart Contracts

Smart contracts are self-executing programs that run on blockchain, defining behaviors that should occur under specific conditions.

Core Features:

1. Automatic Execution: Once trigger conditions are met, the contract executes automatically.
2. Immutability: Contract code cannot be changed after deployment, ensuring deterministic execution.
3. Transparency: Contract code and execution results are visible to all.
4. Disintermediation: No need for third-party intermediaries to execute or verify contract terms.

Working Principle:

• Writing: Contract logic is written using specific programming languages (e.g., Solidity).
• Deployment: Compiled contract code is deployed to the blockchain network.
• Execution: Users or other contracts can call contract functions, triggering execution.

Main Application Areas:

1. Decentralized Finance (DeFi): Automating lending, trading, insurance, and other financial services.
2. Non-Fungible Tokens (NFTs): Defining attributes and trading rules of digital assets.
3. Decentralized Autonomous Organizations (DAOs): Encoding organizational governance rules.
4. Supply Chain Management: Automating contract execution and payment processes.

Technical Challenges:

• Security: Smart contract vulnerabilities can lead to severe economic losses.
• Upgradability: How to allow contract upgrades while maintaining immutability.
• Oracle Problem: How to securely and reliably obtain off-chain data.

Development Trends:

• Formal Verification: Using mathematical methods to prove contract correctness.
• Cross-Chain Smart Contracts: Implementing contract interoperability across different blockchain networks.
• Privacy Protection: Developing smart contract platforms that support privacy computing.

Decentralized Storage

Decentralized storage solves the centralization problem of data storage, providing a more secure and persistent data storage solution.

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Core Features:

1. Distributed: Data is stored dispersedly in a global network of nodes.
2. Redundancy: Multiple data copies ensure availability and persistence.
3. Incentive Mechanism: Rewarding storage providers through tokens.
4. Encryption: Data is encrypted on the client side, ensuring privacy and security.

Main Technologies:

1. IPFS (InterPlanetary File System):
   • Working Principle: Content-addressed P2P file system.
   • Features: Decentralization, version control, deduplication.
2. Filecoin:
   • Relationship with IPFS: Incentive layer based on IPFS.
   • Function: Incentivizing storage providers through token economics

Application Scenarios:

• Decentralized Website Hosting: No need to rely on centralized servers.
• NFT Metadata Storage: Ensuring persistence and accessibility of digital artworks.
• Distributed Social Media: Users have full control over their own data.
• Backend Storage for Decentralized Applications (DApps).

Technical Challenges:

• Retrieval Speed: Data retrieval may be slower compared to centralized storage.
• Data Privacy: How to protect sensitive data in public networks.
• Economic Model: Designing sustainable incentive mechanisms to ensure long-term storage.

Future Development:

• Integration with Traditional Cloud Storage: Creating hybrid storage solutions.
• Improving Data Retrieval Algorithms: Enhancing retrieval speed and efficiency.
• Developing Specialized Storage Networks: Optimizing for specific types of data.

Crypto Wallets

In the Web3 ecosystem, crypto wallets are not just tools for storing and managing cryptocurrencies, but also serve as users' digital identity markers and interfaces for interacting with decentralized applications.

Core Functions:

1. Asset Management: Storing and transferring cryptocurrencies and tokens.
2. Identity Authentication: Serving as user identity credentials in Web3 applications.
3. Transaction Signing: Digitally signing blockchain transactions.
4. DApp Interaction: Connecting and interacting with decentralized applications.

Main Types:

1. Hot Wallets:
   • Features: Connected to the internet, convenient and quick.
   • Forms: Browser extensions (e.g., MetaMask), mobile applications.
   • Security: Relatively lower, suitable for small amounts of daily use.
2. Cold Wallets:
   • Features: Offline storage, highly secure.
   • Forms: Hardware wallets (e.g., Ledger, Trezor), paper wallets.
   • Suitable for: Long-term storage of large amounts of assets.
3. Smart Contract Wallets:
   • Features: Advanced functionality wallets based on smart contracts.
   • Advantages: Support multi-signature, social recovery, transaction limits, and other advanced features.
   • Examples: Gnosis Safe, Argent.

Technical Details:

• Key Management: Using public key cryptography, private keys for signing transactions.
• Mnemonic Phrases: A group of words used to recover private keys.
• Multi-Chain Support: One wallet can manage assets on multiple blockchain networks.

Innovation Directions:

• Social Recovery: Recovering lost wallet access through designated trusted contacts.
• Abstract Accounts: Simplifying user experience, hiding complex blockchain operations.
• Biometric Integration: Using fingerprint or facial recognition to enhance security.

Security Considerations:

• Private Key Management: Losing private keys means permanent loss of asset control.
• Phishing Attacks: Users need to be vigilant against fake websites and applications.
• Smart Contract Risks: Smart contract wallets may have code vulnerabilities.

Challenges Facing Web3

Despite showing enormous potential, Web3 faces a series of technical, social, and regulatory challenges before achieving widespread adoption.

Technical Challenges

1. Scalability:
   • Problem: Mainstream blockchain networks have limited speed and capacity for processing transactions.
   • Impact: High transaction fees and long confirmation wait times degrade user experience.
   • Solution Directions:
     • Layer 2 Solutions: Such as Ethereum's Optimistic Rollups and ZK-Rollups.
     • New Generation Blockchains: High-performance public chains like Solana, Avalanche.
     • Sharding Technology: Dividing the network into "shards" for parallel processing.
2. Interoperability:
   • Problem: Limited interoperability between different blockchain networks and Web3 applications.
   • Impact: Fragmented user experience, difficulty in cross-platform asset and data flow.
   • Solutions:
     • Cross-Chain Bridges: Such as Polygon Bridge, Wormhole.
     • Cross-Chain Protocols: Cross-chain communication protocols like Polkadot, Cosmos.
     • Universal Standards: Establishing cross-platform data and asset standards.
3. User Experience:
   • Problem: Current Web3 applications have high usage barriers, unfriendly to average users.
   • Impact: Limits large-scale adoption of Web3 technologies.
   • Improvement Directions:
     • Simplifying Wallet Management: Developing more intuitive user interfaces.
     • Abstract Accounts: Hiding complex blockchain operations.
     • Education and Guidance: Providing better user education and onboarding processes.
4. Security:
   • Problem: Smart contract vulnerabilities, private key management risks, hacker attacks, and other security threats.
   • Impact: Can lead to large-scale fund losses, damaging user trust.
   • Coping Strategies:
     • Formal Verification: Using mathematical methods to prove smart contract correctness.
     • Security Audits: Comprehensive code audits by professional teams.
     • Insurance Mechanisms: Providing asset protection for users.

Social and Economic Challenges

1. Popularization and Education:
   • Challenge: Web3 concepts and usage methods are still unfamiliar to most people.
   • Impact: Low adoption rates, widespread misunderstandings and biases.
   • Strategies:
     • Public Education: Popularizing Web3 knowledge through various channels.
     • Simplifying Concepts: Explaining complex technologies in easy-to-understand ways.
     • Practical Application Demonstrations: Highlighting the practical value of Web3 in daily life.
2. Sustainability of Economic Models:
   • Problem: Token economic models of many Web3 projects have not yet withstood long-term tests.
   • Impact: May lead to project failures or user interest losses.
   • Considerations:
     • Long-term Value Creation: Focus on solving real problems and providing value.
     • Incentive Mechanism Design: Balancing short-term incentives and long-term sustainability.
     • Economic Model Research: In-depth research on token economics, optimizing model design.
3. Balance between Decentralization and Efficiency:
   • Challenge: Fully decentralized systems may be less efficient and user-friendly than centralized systems.
   • Impact: May limit the practicality of certain application scenarios.
   • Thinking Directions:
     • Hybrid Models: Combining advantages of decentralization and centralization.
     • Layered Architecture: Core layer decentralized, application layer flexibly handled.
     • Technological Innovation: Improving performance and efficiency of decentralized systems.

Regulatory and Legal Challenges

1. Regulatory Uncertainty:

   • Problem: Regulatory attitudes and frameworks for Web3 technologies are still unclear globally.
   • Impact: Hinders enterprise and investor participation, increases compliance costs.
   • Responses:
     • Active Dialogue: Maintaining communication with regulatory bodies, promoting reasonable policy formulation.
     • Self-Regulatory Mechanisms: Establishing self-discipline standards and best practices within the industry.
     • Compliance Innovation: Developing technical solutions that meet regulatory requirements.

2. Cross-border Regulatory Coordination:

   • Challenge: The decentralized nature of Web3 makes traditional territorial regulation difficult to apply.
   • Impact: May lead to regulatory arbitrage or cross-border disputes.
   • Approaches:
     • International Cooperation: Promoting coordination and cooperation among regulatory bodies of different countries.
     • Global Standards: Establishing globally recognized standards for Web3 technologies and applications.
     • Smart Regulation: Utilizing blockchain technology itself to achieve automated regulation.

3. Legal Framework Adaptation:

   • Problem: Existing legal frameworks struggle to fully cover new situations brought by Web3.

   • Impact: Legal gray areas exist in aspects such as property rights, contract execution, and liability determination.

   • Development Directions:

     • Legal Innovation: Developing new legal concepts and frameworks to adapt to Web3 characteristics.

     • Case Studies: Gradually improving legal interpretations through specific case accumulation.

     • Interdisciplinary Collaboration: Joint research by experts in law, technology, economics, and other fields.

Conclusion

Web3 represents a new paradigm for the internet and digital economy. It is not just a technological advancement but a rethinking of power structures and value distribution in the digital world. Although Web3 is still in its early stages and faces many challenges, the concepts and potential it embodies will undoubtedly have a profound impact on our digital lives.

As participants and witnesses of this revolutionary change, we have a responsibility to deeply understand the essence of Web3, actively explore its applications, while also rationally viewing its limitations. Only by fully recognizing and balancing the pros and cons can we truly promote the healthy development of Web3 and create a more open, fair, and prosperous digital future.

The development of Web3 will be a gradual process, requiring the joint advancement of technological innovation, business model evolution, legal framework adjustment, and social cognition. In this process, maintaining an open, critical thinking, and continuous learning attitude is crucial. Web3 may not completely replace existing internet models, but it will undoubtedly become an important force in shaping our digital future.