For some people, Web3 is the metaverse.

To others, it is completely mysterious, bound-up in a lot of crypto systems that seem opaque to newcomers.

As I’ve written about in the past, the metaverse is the real-time, activity-based Internet. Real-time activities (like games and videoconferencing) have existed for some time — but like any generational change, the seeds of the future already exist in the present.

The metaverse will elevate the sense of the digital self. It will bring new forms of personal expression, creativity and prepare us for entirely new experiences.

This article will explain what Web3 is — and why this creativity and expression in the metaverse needs it.

Web1 was the original World Wide Web, built upon open-source (such as Linux), permissionless development (such as PC software) and open standards (HTML/HTTP). Some of the largest Internet companies that exist (e.g., Amazon, Netflix, Google) were built on this ecosystem, or benefitted from expanding into it (Microsoft, Apple).

Web2 was largely about asynchronous, user-generated content: blogs, wikis, social networks, etc. Most of Web2 was built on Web1 technologies, or benefitted from search to acquire audiences. The largest Web2 companies were built on the same open and standards-based environments that enabled Web1, but created walled-garden ecosystems to enable social connection and content creation. The most prolific examples are Facebook/Meta — the youngest of the FAANG companies — as well as YouTube (owned by Google) which created walled-gardens for social networking and user-generated content. Roblox would be an even more recent example.

Walled gardens are successful because they can make things easy to do — and offer access to very large audiences.

But walled gardens are permissioned environments that regulate what you can do, and extract high rents in exchange. It’s very telling that, while many successful companies have been created within the Web2 ecosystems provided by companies like Twitter or Facebook — there isn’t really an example of a true titan that has formed a durable, extremely-scalable business (greater than trillion-dollar market cap) entirely inside any of these Web2 walled gardens.

Let’s move on to the features of Web3 that will change this paradigm:

• Value-Exchange (rather than simply information exchange)
• Self-Sovereignty
• The Re-Decentralization of the Internet

If you take nothing more away from this article, I want to impress upon you how transformative it is that Web3 enables value-exchange between applications.

The enabling technology for value-exchange is smart contracts on blockchains. The blockchain is a shared ledger that allows companies, applications, governments, and communities to programmatically and transparently exchange value (assets, currencies, property, etc.) with each other, without requiring custodians, brokers, or intermediaries — all of which constrain innovation while extracting massive rents. In contrast, smart contract blockchains enable a high degree of emergent creativity, rather than the hub-and-spoke model of innovation where applications revolve around permissioned ecosystems.

The ability to programmatically exchange value between parties is just as transformative for human civilization as the original internet was: this is like going from America Online — an online platform controlled and managed by a single party — to all the emergent creativity of the World Wide Web.

As Balaji Srinivasan explained in an epic podcast with Tim Ferris: we tend to think of countries, communities, companies, etc. as different things; in the future, these will all become projections of social networks (and not social networks in the sense of Facebook — but our actual set of social connections we bring into different contexts).

Blockchains become the enabling software stack for this. Blockchain provides an interoperable means of storing, exchanging and programming property rights, currencies, assets, and identity. Communities and companies become software applications in this ecosystem.

Right now, you probably use Facebook Login or Google Login to interact with a large number of online applications. These are user databases run by large, centralized authorities.

An important part of Web3 is inverting this model: instead of having a company own your identity and then granting you access to other applications — you will own your identity and choose which applications to interact with. This is accomplished by using a digital wallet such as Metamask (for Ethereum and ETH-compatible blockchains) or Phantom (used on the Solana blockchain). Your wallet becomes your identity, which can then allow you to use various decentralized applications on the internet that need to interact with your currencies and property. This includes decentralized finance applications — as well as metaverse experiences that will draw upon interoperable avatars, items for self-expression, game items, etc.

Currently, there are massive dependencies across the internet on a small number of highly centralized applications. The identity systems provided by Google and Facebook are only two examples.

But with Web3, the power shifts back to individual users, creators and application developers. This is because there are far fewer centralized authorities to extract rents or ask permission from. This will lead to an explosion of new creativity in the form of applications, algorithms, artwork, music, AI/robots, virtual worlds and metaverse experiences… and more of the rewards in the hands of the owners and creators.

This chart from Messari shows how functionality may migrate from some currently-centralized platforms to more decentralized versions built on blockchain:

Serverless software is a bit of a misnomer: it is a software development pattern that allows data storage and other server-authoritative functions to occur in the cloud — while relieving builders from having to think about DevOps, backend scalability, deployment, and many of the other IT functions typically associated with full-stack Internet software development.

Many Web3 software projects are built on a serverless backend. For example, Moralis provides an SDK that lets application developers build Web-based software that integrates digital wallets with serverless, server-authoritative data storage.

My company Beamable provides a serverless framework for live games so that developers can shift their focus back to making games rather than writing server code and scaling them, and one of our goals is to bridge the gap between traditional game development and future Web3-native digital wallets.

Serverless architectures typically run on top of SaaS frameworks operated from within centralized architectures. However, serverless architectures have the opportunity transition to a fully-decentralized future. Here’s why:

• Serverless architectures decouple the responsibilities of designing-in operations/scaling/availability from the functionality of the software (e.g., the microservices that invokes functions like payments, social features, game rules, world state, etc.)
• A further step beyond that is to open up a distributed computing environment behind the microservices that adds new functions to the ecosystem — or even additional computing nodes to provide server-authoritative functions. The benefit is that customers would have less dependencies on centralized vendors, and the cost of providing these microservices can be optimized according to what would be effectively an auction for the lowest-cost/highest-availability computing that’s available (as opposed to choosing one cloud service provider like Azure or AWS, who would also be welcome to bid on computing horsepower in this ecosystem). These distributed computing nodes would most likely utilize on-chain methods for resolving rules and storing data.

SaaS companies that provide serverless backends will have an opportunity in the coming years: will they decentralize?

It’s a radical change in business model for many companies, and that will probably present a huge barrier for many — but those who chart a path to get there, as well as new startups designed to be Web3-native in the first place — have an opportunity to add enormous value to the entire ecosystem.

WebAssembly is a new standard designed to allow bytecode to be delivered directly to your web browser: think of it as a means of shipping “apps” to your browser, rather than depending on app store ecosystems. These apps could run anywhere that a web browser runs — computers, smartphones, VR/AR headsets.

WebAssembly doesn’t even need to be limited to web browsers — it could even run on backend servers for a whole new class of portable server code.

Containers and WebAssembly (WASM) are well positioned to leverage the new paradigm of distributed and decentralized computing since they are highly portable, bundle their own dependencies, and provide maximum flexibility in the type of workload that can be run.

WebAssembly built around Web3 patterns of self-sovereign identity, programmatic value-exchange and decentralization have the potential to radically change the landscape of the various application store ecosystems.

Web3 replaces the need to create or integrate a large number of services (such as those related to asset custody or identity) that are currently time-consuming and expensive and result in dependencies on centralized services that may or may not align with your own interests.

That means many application developers will be able to create software with much smaller teams, taking on large incumbents who had built their businesses around expensive legacy technologies and/or dependencies on software partners that required permission and negotiation.

James Barksdale, the CEO of Netscape, once said that he only knew how to make money by either bundling or unbundling.

An example of unbundling is the way iTunes unbundled individual songs from the album. Then, Spotify arrived to rebundle songs into playlists.

Today, almost every video game is a highly bundled experience; but in the metaverse era of the Internet, we’re going to see some of this unbundled and rebundled.

Digital identity — who we are and how we express ourselves online — is going to become even more important than it already is. Taking our avatars with us from experience to experience will depend on an interoperable framework. An avatar’s property is one example of unbundling; new types of online experiences (not only games, but music, theater and many other applications in the metaverse) will become ways of rebundling these forms of self-expression. To enable that to the widest range of applications, we’ll need an interoperable framework for identity and property: that is just one of the use cases for Web3 in the metaverse.

Beyond that, Web3 provides the creative framework for the next generation of “play-to-earn” (P2E). Right now, P2E means some version of crypto gold-farming or power-leveling (such as happens in Axie Infinity). Of course, people have also been playing to earn money for years — outside of the crypto/blockchain context — via esports, livestreaming on Twitch, or some forms of modding games. We know that millions of players are eager to turn their hobby into a livelihood — and all of these are examples of the nascent unbundling and rebundling that is already happening in games.

In the future, P2E is going to cover all of this: not just farming a game for currencies — but performance, creativity, competition, guiding, dungeon-mastering, level-designing, live roleplaying, etc. We will start to see a blurrier distinction between who is a player and who is a designer. We’ll see new forms of bundling and unbundling.

We need an interoperable framework for all of these disruptive economic exchanges.

That framework will be Web3.