How Do Web3, Blockchain, and Smart Contracts Work Together?
Web3, blockchain, and smart contracts represent the theory, technology, and practical application of new technology. See how they work together to form the next stage of the internet.
Whether you remember the screeching sound of dial-up and bulletin boards or you’re a digital native, sometimes you just have to take the time to clear away the foamy top of hyped-up technology and drink from the cup of actual possibilities.
No matter how much internet experience you have, you may not understand the next stage of the internet. Besides all of the new vocabulary words that are sometimes used interchangeably with each other, there are also theories, ideas, and pipe dreams that thought leaders throw out like they’re dreaming up new episodes for a sci-fi show.
So let’s remove the excitement and focus on three core concepts and how they’re tied together—Web3, blockchain, and smart contracts.
In a nutshell, Web3 is about decentralizing the internet.
Instead of giant corporations controlling users’ pictures, posts, videos, and articles, users will own and monetize their content across platforms.
Web3 is also a broad term that encompasses all kinds of unstructured ideas like the Metaverse, virtual reality, and any emerging technology. Some Web3 ideas are still just theoretical, while others are in the beginning stages of development. But it exists :waves hand: somewhere out there.
As the next stage of evolution for the internet, many ideas and theories about which tech trend will take off next get tossed into the Web3 bucket.
An example of a trend that’s still trying to launch is the Metaverse. The theory is that users will step into virtual reality and shop, build homes, buy property, listen to concerts, join work meetings, or meet with friends.
In reality, the Metaverse graphics, like many Web3 graphics, are mediocre. User adoption rates are hampered by the unfamiliar tech the public needs to learn. If your parents only have the tech skills to log into Facebook and email, then you can imagine the hurdle the general public needs to jump over to make it into the virtual world.
Harvard Business Review points out that in addition to its fragmented nature spread across different worlds, the Metaverse has many of the same problems as Web 2.0.
"The metaverse also brings a thicket of regulatory and HR compliance issues, for example around potential risks of addiction, or unacceptable behaviors such as bullying or harassment in the virtual world, of which there has been some concern of late.”
Still, experts and tech enthusiasts hope that Web3 and the Metaverse can solve some of the issues that exist in Web 2.0, especially around topics like privacy, anonymity, data monetization, and authentic communication.
Since Bitcoin and blockchain were so often mentioned together when they were first launched, they looked like a packaged deal. Wherever you’d hear about blockchain, you’d also hear about Bitcoin. After all, the original use for blockchain was cryptocurrency. Now, blockchain technology has evolved beyond cryptocurrency.
One of the original benefits promoted by cryptocurrency was its immutable ledger that kept track of transactions and prevented record alterations. City governments have realized that blockchain technology can help them with recordkeeping. Plus governments can store records in the cloud which citizens can easily access, thereby reducing the need for personnel, paperwork, and physical storage space.
Smaller cities, like Provo, Utah are using blockchain to record marriage licenses. Larger cities, like Reno, Nevada are using blockchain to completely overhaul its recordkeeping systems. From historical home records to permitting and licensing, Reno sees the opportunity to use blockchain as it was originally intended—a ledger.
The practical application
Smart contracts are like air traffic controllers. They sit in the middle of a process and control traffic flow around them. You can replace air traffic controllers with smart contracts, and planes can still land because the smart contracts will logically execute commands that steer a flight safely to the ground. Smart contracts replace all of the extra fluffy layers in a process that can be automated to remove human error.
Smart contracts are one of the practical applications of blockchain technology that innovators are already using. Instead of theories and thought leader pieces speculating on what might happen in Web3, smart contracts represent what is already happening with the new technology. You’ll also see them referred to as decentralized applications (dApps).
Planning a smart contract’s terms isn’t like smashing together a couple of if/then statements. The terms need to be considered very carefully. Once the contract is written, it’s like releasing an animal into the wild. Off it goes to do its thing, the moment you open the gate to its cage. The terms of the contract are executed automatically when the contract is fulfilled, so both parties should be in complete agreement before signing off on the final terms.
One way that companies are exploring automating processes with smart contracts is in the heavily form-filled insurance industry. Insurance companies are testing ways to use smart contracts to reduce steps in claim processing. Easily one of the most tedious and laborious processes in the insurance industry, claims processing can be streamlined.
For example, if a farmer purchases flood insurance and the national weather service reports that the farmer’s property receives 10 inches of rain in a single day, the insurance company could (theoretically) cut him a check that day.
Like most Web3 technologies, smart contracts are still in the beginning stages of real-world application. If you want to create a smart contract right now, you’ll need a developer to code it manually. In addition to planning the contract’s terms, the parties will need to identify the triggering events. These events signal the release of funds or documents and could be an expiration date, a due date, a signature, or in the case of the farmer, the amount of rain in a city.
Additionally, the terms of some smart contracts would be too complicated for developers to code. AI-enabled smart contracts, on the other hand, could be the next natural stage of evolution for smart contracts. Using artificial intelligence and machine learning, smart contracts could move toward automation and more elaborate contract terms. In the meantime, all of these barriers limit its adoption by the general public.
Building a Project on the Blockchain?
Ventive is already innovating in the Web3 space, with apps built utilizing blockchain technology in the media and fintech industries. We’ve seen the practical applications of this technology up close and personal, but we know it’s not right for every project. If you‘re curious about how you can use blockchain technology or smart contracts to innovate in the Web3 world, contact the Ventive team today.