Web2 vs Web3 Apps: The Reign of Web2 Is Ending

The internet has evolved dramatically since it was first introduced in 1993. Generally, there are three main milestones that mark these different eras - Web1, Web2 and most recently Web3.

• The first generation of the internet (Web1) was characterized by simple interconnected networks where users could read content.
• The next generation of the internet saw the rise of digital applications where users could both read and write (create).
• Today, Web3 is revolutionizing what ownership means in the digital sphere and putting power back in the hands of users.

Web2 has a decades-long headstart on Web3, and that shows up in the numbers. 5.4B people use the internet, but only 600M of them use Web3. There are 28.7M software developers in Web2, but only 26,000 in Web3. To use a well-worn phrase, we’re still so early.

Web2 may have a headstart for now, but Web3 is poised to disrupt the digital space and change the future. The reason for that is simple: Web3 creates a unique opportunity that simultaneously offers new incentives for user adoption and addresses concerns around Big Tech—particularly those around monopoly, centralization, censorship, data mining, and privacy breaches.

Let’s get into why Web3 is such an exciting opportunity for entrepreneurs and why Web3 will win the market in the long run.

Web2 vs. Web3 Apps: What’s the Difference?

The main differences between Web2 and Web3 relate to ownership, data, and user interaction. With Web2 apps, a company builds and maintains a centralized codebase offering some service (the app) to users, and users transact with that app in exchange for that service. Web2 apps custody their users’ assets, and control who, how, and when users can interact with whatever service they’re offering. Web2 applications are generally offered free of charge, in exchange for the terabytes of user data that are then sold off to advertisers, data brokers or other marketplaces interested in monitoring their customers’ every move. If you aren’t paying for the product, you are the product. 

Web3 embraces an entirely different architecture, in which the app is decentralized. The app may still be maintained by a core team (like in Web2), but the code base (or at least part of it) is distributed across the nodes of blockchain networks such as Bitcoin, Ethereum, or Stacks, making that codebase open-source and verifiable to the public. Users have the option to custody their own assets and interact directly with one another through trustless transactions managed by smart contracts.

“Trustless” comes up often in Web3 and refers to the concept that anyone can use an app or smart contract—you don’t have to “trust” the app provider to process your transaction. As long as you meet the criteria of the smart contract logic, you can use the app.

Whereas with Web2 apps, you have to “trust” that a) the app works as described (if it’s close-sourced) b) that the makers of the app will let you use the app c) that they will continue to let you use the app in the future and d) the app won’t take your money and run off into the sunset (or have their assets seized/stolen/hacked due to their own malpractice or negligence).

Even when both a Web2 and Web3 app serve the same function, the Web3 app will be inherently more global, user-oriented, and egalitarian because of that trustlessness.

Examples of Web2 vs Web3 Apps

The battle between trustless vs. trusted, permissionless vs. permissioned, and decentralized vs. centralized is already playing out in a number of different industries, showing just how quickly Web3 is gaining traction in the digital world:

• Robinhood vs. Uniswap (financial services)
  • Robinhood launched crypto support in 2018, and it recently expanded crypto support in Europe, showing their dedication to supporting new asset classes.
• Chrome vs. Brave (web browsers)
  • The Brave browser was the first browser to offer a fully integrated Web3 wallet, which it launched in 2021.
• X vs.  Farcaster (social networks)
  • While X has experimented with Web3 features in the past, Web3 native social network Farcaster is built for Web3 from the groundup and all user data is publicly available at the protocol level, enabling anyone to build a social app on top of the Farcaster protocol.
• Roblox vs. Sandbox (gaming)
  • Both Roblox and Sandbox aspire to be the “metaverse” of gaming, and Sandbox was originally a Web2 gaming company before relaunching in Web3 in 2018.
    
• Artsy vs. Magic Eden (art marketplaces)
  • Artists are often the first consumers to be exploited by marketplaces, but in the case of Magic Eden, Web3 features make it possible to  put the artist first, with an emphasis on low platform fees and creator royalties.
• PayPal vs. Lightning (payments)
  • Two Web2 giants in digital payments have adopted Web3. PayPal recently introduced its stablecoin PYUSD in 2024, and CashApp integrated Lightning to enhance its Bitcoin offerings in 2022. 

The list goes on, and you can even abstract the debate between Web2 vs. Web3 to primitives that go far beyond just apps. Web3 isn’t just a new paradigm for apps—it’s a new paradigm for currency and data infrastructure too.

But that’s beyond the scope of this post. In this post, let’s focus on why Web3 apps will beat Web2 apps in the long run and why Web2 apps are evolving to introduce Web3 functionality.

Web2 vs. Web3: How Web3 Apps Will Win

We’ve established at a high level that Web2 and Web3 apps are different. One exists in a centralized codebase, the other is decentralized across a blockchain network. One custodies user assets for them, the other does not. Let’s unpack how that plays out in practice, starting with the code.

Creating Composability for Faster Innovation

Decentralized applications create network composability, meaning developers can easily build off of and integrate with other projects on the network. This is enabled by the fact that app code that is put on the blockchain is open source. This means that anyone can see that code, contribute to that code, integrate with that code, or even take that code and build something entirely new with it.

Composability means Web3 can move faster than Web2.

For example, in the world of DeFi (decentralized finance), one Web3 app could launch a new financial derivative, and that derivative could instantly trade on another popular exchange app just by nature of that derivative following ecosystem standards for formatting. There’s no additional partnership or integration work needed.

The fact that developers can easily integrate with other projects and access open-source code leads to more composability, deeper collaboration, and faster innovation, all of which will accelerate Web3’s growth. Simply put, composability means Web3 can move faster than Web2.

Aligning With Users

Unlike Web2 (in which economic incentives are usually reserved for founders, investors, and employees), in Web3, apps commonly distribute economic rewards to users. In a decentralized app, users can earn, buy, or sell the network tokens or cryptocurrency that the Web3 app runs on. In some sense, those tokens reflect the value of the app itself. 

Web3 can give users a vested interest in the apps they use because that very usage can make them actual owners and stakeholders in those projects.

Unlike a generic loyalty program that offers some form of financial reward corresponding to use, Web3 can offer something closer to stock: a token that can fluctuate in value as the adoption of that app goes up or down.

In other words, Web3 apps can give their users skin in the game, aligning their incentives with the app creators: both parties now want to see the app grow. It’s a powerful idea, and many Web3 apps have this as a core mechanism to create a significantly stronger and more active community.

Providing Global Access

Anybody, from any part of the world, can access and use Web3 apps (as long as they have an internet connection) because Web3 is permissionless. In principle, there are no geofencing restrictions or arbitrary denials of service (though it’s worth noting that in practice many Web3 apps enforce local regulations at the UI level).

Web3 apps enable peer-to-peer interactions directly because there is no middleman approving transactions. All transactions will go through if they meet the requirements of the network (e.g. does your account have the right balance, did you send assets to a valid address, etc). This egalitarian access to apps leads to better pricing discovery (caused by deeper liquidity), a more equitable distribution of wealth, and a more open internet.

When the entire world can use your app, you unlock new use cases and greater market efficiency.

To put that ideal into perspective, centralized service providers often make decisions about who can or can’t access their app. For example, a payment platform as ubiquitous as PayPal still isn’t available in every country, and in 81 countries that it is “available” residents can only send money—they can’t receive or withdraw funds.

That’s inefficient, and you can already see that inefficiency playing out in the market. The cost of sending $200 internationally is 6.35% on average, but the cost of sending that same amount via stablecoins in Web3 is far lower at 0.5-3%.

When the entire world can use your app, not only do you unlock new use cases and greater efficiency, but the growth ceiling is much higher than if you are only targeting a single country too.

Enabling Data Portability

Data portability is an internet user’s ability to access and move their data from one service to another. Web3 apps enable data portability innately because users own their data already—it’s onchain and tied to their onchain address, giving them the freedom to choose what apps to use and when.

For Web3, this means it’s painless for users to switch from one app to another, embodying the principle of free markets and preventing apps from exploiting users. This is in contrast to Web2, where it can be painful for users to switch services. For example, you can imagine someone building a large following on X and creating a business with that following as one of its primary distribution channels. It would be very hard/damaging for that user to switch from X to some other service: they would lose those followers and that distribution they’ve built up over many years.

This enables user exploitation: at some point, that service can decide to squeeze its user base, and because switching costs are so high, those users are forced to stay. With Web3 you avoid that exploitation because there is less friction for users simply migrating to something else. This is because users own their data and their assets the whole time, and this creates an ecosystem that incentivizes putting the users and community first and creating more sustainable business models from the beginning.

Facilitating Community Input and Governance

Another trait that helps Web3 apps win in the long run is their more democratic governance. Beyond simply using the app, the community is often involved with decision-making and can vote on outcomes, such as the technical roadmap, upgrades, and more.

With Web3 apps, users have a voice.

Community members can participate in the decision-making process using governance tokens. With this community participation, Web3 applications evolve in the best interests of the majority of users—unlike centralized apps where a handful of people in a corporation make decisions for all users.

Those decisions can reduce the power of users (such as Reddit’s recent policy change making user protests harder) or simply be product changes that users don’t actually want. For example, Google made a unilateral decision to redesign Google Finance in 2018, and users hated it. Or look at the Sonos app fiasco from this summer. 

With Web3 apps, users have a voice. If there isn’t an explicit voting process,Web3 apps are still built on open, decentralized networks. Users can see the code before and after the upgrade, and if users disagree with choices made by a core team, they can refuse to upgrade or they can fork the app to create a new version that isn’t subject to those changes.

Improving User Data Security

Web3 apps offer a different paradigm of user data security. While all transactions on a blockchain are public by default (which introduces a new set of privacy tradeoffs), many apps themselves don’t collect personal data directly.

Instead, users just connect their wallet, and the only information apps have is their public address and what assets are held by it (and users could choose to use unique addresses for every app they use, offering more privacy).

On the other hand, Web2 apps require users to create accounts with verified credentials, which are often stored in a database. Their centralized nature often creates a single point of failure that can be vulnerable to attacks. In 2021, the personal information of more than 700 million LinkedIn users was compromised and put on sale for a paltry sum of $5,000. The data leak contained a wealth of information—including full names, phone numbers, email addresses, physical addresses, and more. These kinds of data breaches happen all the time.

And while blockchains are only pseudonymous and not anonymous, this is still a step forward in user data security because apps never have personally identifiable information (such as contact information and physical address) that can be hacked, stolen, or sold in the first place. Though it’s worth noting that an important exception here are the on/off ramps where users convert fiat to crypto and vice versa. These services, like any bank or financial service in Web2, often require forms of ID verification in order for you to use those services.

Resisting Censorship 

Web2 apps are at the mercy of big tech, and big tech is at the mercy of governments. This means that Web2 apps must meet certain requirements to be accessible to users; otherwise, they risk being suspended, permabanned, or de-platformed whether at the Big tech level (e.g., Apple removing the app from the App Store) or the government level (e.g. Meta removing its AI services from Europe due to EU regulation). That level of censorship also occurs at the individual account level where users can be banned and their accounts deleted without warning.

Users can leverage Web3 without fear of being deplatformed.

Unlike Web2, Web3 apps are resistant to censorship because blockchains are decentralized and immutable. A government can’t shut down a blockchain network, nor can a Web3 app refuse service to a particular individual. Data stored on the blockchain can’t be deleted.

Because of these features, users can leverage Web3 without fear of being deplatformed, which happens all the time in the real world, whether it’s Canada freezing the bank accounts of protestors or Brazilians being blocked from X, and they can also use it as a means for global activism, whether it’s donating to Ukraine war relief or Venezuelan democracy.

With Bitcoin, Web3 Apps Can Leverage a More Secure Foundation

At Hiro, we believe that Bitcoin holds the key to the mainstream adoption of Web3 apps. In 15 years, the crypto industry created almost $3 trillion of liquid value, comparable to the valuation of all private venture-backed unicorns combined, and that value creation is led by Bitcoin.

There is an incredibly large opportunity to bring Web3 apps to Bitcoin, and from there to the world. To put that opportunity into perspective, there is $1.2T in Bitcoin capital, but less than $12B of that capital is deployed in apps. 

With that amount of latent capital, the most brand recognition of any blockchain, and the largest user base, building apps for Bitcoiners is one of the largest opportunities in Web3 today.

Want to learn more about the opportunity of building on Bitcoin? Check out our book covering Bitcoin’s evolution into an ecosystem for Web3 apps.