Yao Qian on Web 3.0: The New Generation of Internet Approaching Gradually

Author: Yao Qian "Director of the Science and Technology Supervision Bureau of the China Securities Regulatory Commission"
Source: China Finance, Issue 6, 2022

The internet is a significant revolution in human communication technology, profoundly impacting human society. With the iterative innovation of various information technologies, the internet is showing a trend of evolving towards the next generation of the internet. This evolution may trigger a new round of information revolution, further deeply changing various aspects of people's lives, work, and society. On the eve of the emergence of Web 1.0 in 1993, the Clinton administration in the United States launched the "National Information Infrastructure" strategic plan, vigorously constructing the "highways" of the information age, thereby gaining global leadership in Web 1.0 and Web 2.0.

After 30 years of development, the internet is now at a crucial point in the transition from Web 2.0 to Web 3.0. Strengthening forward-looking research and strategic foresight on Web 3.0 is undoubtedly of great significance for the future construction of internet infrastructure in our country. This article aims to analyze the possible forms of Web 3.0 and conduct related reflections in conjunction with domestic and international internet development practices and technological evolution trends.

Web 3.0 is an internet infrastructure owned and trusted by users and builders

Tech entrepreneur and investor Chris Dixon describes Web 3.0 as an internet for builders and users, with digital assets serving as the bond connecting builders and users. Researcher Eshita from the research institution Messari describes the evolution from Web 1.0 to Web 2.0 and then to Web 3.0 as follows: Web 1.0 is "read" (read), Web 2.0 is "read + write" (read + write), and Web 3.0 is "read + write + own" (read + write + own).

Web 1.0 was the early internet, where users could only passively browse text, images, and simple video content, acting as consumers of content, viewing whatever the internet platform provided. In the era of Web 2.0, users could not only read but also write, especially with the development of mobile internet and platforms like YouTube, Facebook, and WeChat, allowing users to create and disseminate their content (including text, images, videos, etc.) and interact with other users. However, whether in Web 1.0 or Web 2.0, users' online activities depended on specific internet platforms; even in the Web 2.0 phase, while users could be content producers, the rules were still set by the internet platforms, leaving users lacking autonomy.

First, users lack autonomy over their digital identities. Users can only have a digital identity to participate in corresponding online activities if they open an account on an internet platform; once they close their account, they lose their permissions. Each time an account is opened, users must repeatedly fill out personal information. Different internet platform companies establish different account systems, with varying rules, requiring users to manage numerous accounts and passwords. Different account systems are mutually independent, easily forming "islands," which is detrimental to the development of the internet ecosystem and leads to issues such as monopolies and unfair competition. In recent years, the Federated Identity Management (FIM) model has gradually gained popularity. Although this model reduces the number of times users need to open accounts and gives users a certain sense of identity autonomy, it does not fundamentally change the drawbacks of the internet platform's identity management model. Digital identities are still tied to specific accounts on internet platforms.

Second, users lack autonomy over their personal data. In the face of large internet platforms, individual users are relatively weak. Under the "agree or no service" clause, users can only agree to have their personal data collected, even excessively. Nowadays, internet platforms are deeply embedded in all aspects of society, providing users with various services such as communication, social networking, online shopping, information, and entertainment. To access these services, users have no choice but to relinquish their rights as data subjects. A large amount of user data is concentrated on internet platforms, and once leaked, it can cause significant harm to user privacy, as seen in cases like Facebook. Some internet platforms may also abuse their technological advantages to guide and entice users, collecting and using data without users' knowledge and using technical means to evade legal constraints.

Third, users lack autonomy in the face of algorithms. Algorithms are at the core of internet platforms. Through "personalized" user profiles, unique customer insights can be formed, becoming a winning tool in the network economy. However, in recent years, issues such as algorithm abuse and algorithmic malfeasance have become increasingly prominent. For example, using big data to "price discriminate," where the same product or service is offered at a higher price to long-term customers than to new customers; recommending products that can bring potential commercial benefits, even counterfeit or inferior products, instead of the most suitable and appropriate goods for users; exploiting human weaknesses to excessively stimulate, persuade, and induce user consumption, leading people to become accustomed to being "fed" and unconsciously addicted to products pushed by algorithms; the specific principles and parameters of algorithms can only be known by a small number of people within the operating companies, which can lead to issues of interest infringement; some platforms even use algorithms maliciously to push low-quality, vulgar content or sensational false information to increase traffic.

Web 3.0 is user-centered, emphasizing user ownership (own) of autonomy.

First, users manage their identities autonomously (Self-Sovereign Identity, SSI). Users do not need to open accounts on internet platforms but can identify their digital identities through a public-private key signature and verification mechanism. To reliably verify identities without internet platform accounts, Web 3.0 can also utilize distributed ledger technology to build a distributed public key infrastructure (Distributed Public Key Infrastructure, DPKI) and a new trusted distributed digital identity management system. A distributed ledger is a tamper-proof trusted computing paradigm, where trust can be transmitted end-to-end between issuers, holders, and verifiers.

Second, empower users with true data autonomy. Web 3.0 not only empowers users to manage their identities autonomously but also breaks the natural monopoly of data controllers over data in a centralized model. Distributed ledger technology can provide a new autonomous and controllable data privacy protection solution. User data is stored on a distributed ledger after being protected by cryptographic algorithms. Users decide who to share their identity information with and for what purposes; only personal data authorized by user signatures can be legally used. Through the full lifecycle rights confirmation of data, the data subject's rights to informed consent, access, refusal, portability, deletion (the right to be forgotten), correction, and ongoing control are more effectively protected.

Third, enhance users' autonomy in the face of algorithms. Smart contracts are callable, fully functional, flexible, and controllable programs on distributed ledgers, with advantages of transparency, trustworthiness, automatic execution, and enforced compliance. When deployed on a distributed ledger, the program's code is publicly transparent. Users can check and verify any potential algorithm abuse, algorithmic bias, and algorithmic risks at any time. Smart contracts cannot be tampered with and will execute according to predefined logic, producing the expected results. The execution status of the contract will be recorded and monitored throughout, making algorithms auditable and providing strong evidence for user inquiries and appeals. Smart contracts do not rely on specific centers; any user can initiate and deploy them, and their inherent openness and open-source nature greatly enhance end-users' control over algorithms.

Fourth, establish a new trust and cooperation relationship. In the Web 1.0 and 2.0 eras, users had insufficient trust in internet platforms. For 20 years, Edelman Public Relations Worldwide has been measuring public trust in institutions (including large commercial platforms). The 2020 survey found that most commercial platforms could not consider their development from the perspective of public interest, making it difficult to gain the public's complete trust. Web 3.0, being decentralized, does not have a single platform that can control it; any service has multiple providers. Platforms are connected through distributed protocols, allowing users to switch from one service provider to another at minimal cost. Users and builders are equal, and there is no issue of who controls whom, which is a significant advantage of Web 3.0 as a distributed infrastructure.

Web 3.0 is a secure and trustworthy value internet

In the computer world, without a trustworthy mechanism, the value carried and transmitted by electronic information can easily be copied and tampered with, leading to value forgery and "double spending" issues. Web 1.0 and Web 2.0 are merely information networks; although they can disseminate text, images, sound, and video, they lack the technological support for secure and trustworthy value transmission. Therefore, they cannot send value (such as digital cash) point-to-point like sending emails or text messages, relying instead on the account systems of trusted institutions for the registration, circulation, clearing, and settlement of value.

The emergence of distributed ledgers has created a highly secure and trustworthy value transmission technology. Based on cryptographic technology, it records the entire process of value transfer (transactions) completely and immutably through a distributed consensus mechanism. Its core advantage is that it enables point-to-point value transmission without relying on specific intermediary institutions, transforming the internet from the information internet of Web 1.0 and Web 2.0 to the higher-level secure and trustworthy value internet of Web 3.0.

The value registered and transmitted in Web 3.0 can be digital currency or digital assets. Distributed ledger technology provides unique proof of rights for digital assets. Hash algorithms, combined with timestamps to generate serial numbers, ensure the uniqueness of digital assets, making them difficult to replicate. A distributed consensus algorithm that records by one person and is supervised and verified by many eliminates the possibility of digital asset forgery and "double spending" without a trusted intermediary. Digital assets can also be indivisible (Non-fungible), such as NFTs, which can exist, be owned, and be transferred in their complete state.

In addition to being native on-chain, digital assets can also come from off-chain physical assets, such as a painting or a house. How to ensure the value mapping between on-chain digital assets and off-chain physical assets is key. Consideration can be given to using data identification sensing technologies such as RFID, sensors, and QR codes, as well as global positioning systems, to connect objects, forming the Internet of Things (IoT), integrated with the internet and mobile networks to create a "heaven and earth, objects and people" integrated information network, enabling automatic data collection and reducing the possibility of false data being uploaded to the chain from the source.

Web 3.0 can achieve user-side autonomous identity management while also enabling autonomous management of addresses on the network resource side, truly achieving the de-intermediation of the end-to-end access process. The traditional internet, as a global open network, relies on a centralized Domain Name System (DNS) for resource access. As the most fundamental infrastructure of the internet, DNS has undergone systematic expansion and optimization from IPv4 to IPv6, but it can still be manipulated.

Web 3.0, as a new decentralized value internet, requires a new decentralized DNS root domain governance system. This can technically be achieved through distributed ledgers, allowing resource publishers to autonomously register and manage domain names, and users to autonomously query and resolve domain names. This not only supports traditional internet information resources but also allows for the naming and resolution of a broader range of digital asset resources, digital entities, and blockchains, enabling smart contracts to operate on digital assets in a more convenient and readable manner, thus better facilitating the interaction between digital space and real space in Web 3.0.

For example, the Ethereum Name Service (ENS) is a Web 3.0 domain service. It is a distributed, open, and scalable naming system based on the Ethereum blockchain. The job of ENS is to resolve readable domain names (such as "alice.eth") into identifiers that computers can recognize, such as Ethereum addresses, content hashes, metadata, etc. ENS also supports "reverse resolution," making it possible to associate metadata (such as normalized domain names or interface descriptions) with Ethereum addresses.

Like DNS, ENS is a hierarchical domain name system, with different levels of domain names separated by dots. We call the hierarchical names domains, and the owner of a domain can fully control its subdomains. The owners of top-level domains (such as ".eth" and ".test") are smart contracts known as "registrars," which specify the rules for controlling subdomain allocation. Anyone can obtain ownership of a domain according to the rules specified in these contracts and can configure subdomains for themselves or others as needed.

Web 3.0 is a new economic system co-built and shared by users and builders

A typical feature of the internet economy is that traffic is king— the more users there are, the higher the value. The simplest way to monetize user value is through advertising. Even now, advertising remains an important source of revenue for the internet industry. Internet platforms can also utilize big data analysis technology to mine user characteristics, habits, needs, and preferences from vast amounts of user data, thereby conducting targeted marketing and intelligent recommendations, or selling related data analysis products to third parties for profit. In the Web 1.0 and 2.0 eras, although users could use services for free and even received benefits like coupons and cash red envelopes during early user acquisition, users, as the source of internet value, did not enjoy the value returns of the internet. The user data accumulated from the ecosystem was also owned by internet platforms, and users, as important participants and contributors to the ecosystem, could not benefit from it.

Web 3.0 will reconstruct the organizational form and business model of the internet economy. Web 1.0 and 2.0 are centered around internet platforms, which organize information production and collection through the platform, generating network effects through connections, reducing search costs between producers and consumers, and optimizing supply-demand matching, thus being called platform economy. In contrast, Web 3.0 utilizes distributed ledger technology to create an incentive-compatible open environment, which we call Decentralized Autonomous Organization (DAO).

In such an environment, numerous individuals who do not know each other voluntarily participate in "unorganized" distributed collaborative work, investing, operating, and managing projects like traditional enterprises, and jointly owning stakes and assets. Project decisions rely on democratic governance, determined by participants' votes, and matters after decision-making are automatically executed using smart contracts. DAO is a "formless organizational power," without a board of directors, corporate bylaws, strict hierarchies, or centralized managers, achieving de-intermediation and peer-to-peer equality. Users co-create, co-build, and share governance, being both participants and builders of the network, as well as investors, owners, and value sharers.

In the Web 3.0 era, developers can create any consensus-based, scalable, standardized, Turing-complete, easy-to-develop, and collaborative applications. Anyone can establish their freely defined ownership rules and transaction methods in smart contracts, leading to the development of various distributed business applications, thus constructing a new type of programmable finance and programmable economy. A smart contract may represent a business model, possessing limitless imaginative potential, and users will jointly share the benefits brought by the growth of various programmable business projects.

As mentioned earlier, Web 3.0 also grants users true data autonomy. Personal information will become data assets that users can control autonomously. Users can genuinely benefit from the flow and transaction of data, ensuring that their data is no longer a free resource for internet platforms.

Web 3.0 is a three-dimensional intelligent holographic internet

Hypertext and web browsers are the key technologies of Web 1.0 and Web 2.0. World Wide Web (WWW) servers organize information into visually rich hypertext using Hypertext Markup Language (HTML). The WWW browser and server use Hypertext Transfer Protocol (HTTP) to transmit various hypertext pages and data. The WWW browser displays HTML files in a readable manner on its graphical user interface (GUI).

As a result, users can read or browse HTML files on the interface and can use the hypertext links attached to HTML files to jump from one HTML file on one computer to another HTML file on another computer on the network. The collection of countless information websites and web pages connected through hypertext technology is the World Wide Web. The World Wide Web allows people worldwide to connect across geographical limitations like never before, enabling them to search, browse, transmit, and share information through the internet. However, people are not satisfied with this. With the rapid development of information technology, the new generation of the internet will be even smarter.

The current information internet organizes information through standard machine language, although it is displayed in human natural language on the browser interface, the underlying structure remains machine language, and browsers do not understand the true meaning of web content. The new generation of the internet will not only be able to combine information but also understand information like humans, autonomously learning and reasoning knowledge in a human-like manner, thus providing more accurate and reliable information to humans, making interactions between people and the internet more automated, intelligent, and user-friendly. Tim Berners-Lee, the inventor of the World Wide Web, proposed the concept of the Semantic Web in 1998. The Semantic Web is an intelligent network capable of making judgments based on semantics and is considered one of the characteristics of Web 3.0. Under the promotion of the World Wide Web Consortium (W3C), the architecture and technical standards of the Semantic Web are currently being developed, such as RDF/RDFS, OWL, SPARQL, etc.

Web 3.0 is not only an intelligent internet but also a three-dimensional holographic internet, providing users with unprecedented interactivity and a high degree of immersion and participation, which is what people are currently discussing as the Metaverse. The Metaverse can be imagined as a physical internet, where people are not just spectators but actors within it. Achieving such a high level of authenticity and immersion requires support from various advanced technologies.

First, virtual reality technology. To provide users with a more realistic, immersive, and sensory-rich virtual reality experience, Web 3.0 needs advanced devices such as immersive AR/VR terminals, brain-computer interfaces, haptic gloves, haptic bodysuits, as well as related technologies like avatars, motion capture, gesture recognition, spatial awareness, and digital twins. Just like in the movie "Ready Player One," players wear VR devices and step onto a movable base to enter a virtual world. In the virtual world, every action mirrors the physical actions of the player, and in addition to visual and auditory experiences, players can even feel tactile sensations transmitted through special materials in their clothing. In contrast, Web 1.0 and 2.0 can only convey visual and auditory experiences.

Second, technologies such as 5G, edge computing, cloud computing, AI, and image rendering. To convey an interaction experience identical to reality, Web 3.0 requires advanced high-bandwidth network communication technologies, enabling various terminals to access the network anytime and anywhere with low latency. For example, through image rendering and AI technology, the real-time realism of users in the virtual world can be enhanced, eliminating distortion; cloud computing can provide users with smooth, instant feedback, stable, lasting, and virtually shared large-scale interaction and sharing experiences. Third, chips. To support massive data computation and transmission, Web 3.0 requires strong computational power, which fundamentally relies on powerful chips.

Web 3.0 Innovation Development Strategy

Web 3.0 is expected to significantly improve the existing internet ecosystem, effectively addressing issues such as monopolies, lack of privacy protection, and algorithmic malfeasance that existed in the Web 2.0 era, making the internet more open, inclusive, and secure, and innovating towards a higher-level trustworthy internet, value internet, intelligent internet, and holographic internet. As a public infrastructure, the construction of Web 3.0 not only requires the innovative spirit of the private sector, through mass innovation and competitive selection, but also needs national top-level design and a governance framework that balances leniency and strictness for regulation and guidance.

First, build high-quality distributed infrastructure. Many industry insiders refer to Web 3.0 as the "Cambrian innovation explosion." However, many technical elements and infrastructures are still not perfect, such as development tools, technical standards, business models, and distributed identity management, all of which are at a preliminary stage. It is recommended to increase investment in research and development of related technologies such as chips, cryptography, and the Internet of Things, and based on this, build a new type of data infrastructure with clear ownership, defined responsibilities, secure and controllable, and efficient utilization.

Second, promote well-governed technological innovation. Through innovative pilot mechanisms, provide a "safe" innovation space for new types of programmable finance and programmable economy, reducing innovation costs and policy risks. During the pilot process, continuously improve and refine regulatory focuses, tools, means, rules, and institutional arrangements to achieve a balance between innovation and safety. Explore the construction of a new regulatory framework centered on users, focused on builders, and emphasizing smart contracts, enhancing anti-money laundering and anti-terrorist financing measures. Strengthen Web 3.0 network governance, maintain national digital sovereignty, and prevent distributed networks from becoming dark webs, illegal trading networks, or "paradises" for money laundering.

Third, establish universal standards to enhance interoperability. TCP/IP, HTTP, SMTP, and TLS/SSL, as the standard protocols of Web 2.0, are the foundation of current internet open collaboration. Similarly, Web 3.0 also needs to establish universal standards to prevent various distributed networks from becoming new islands. The government should support standard-setting and play an active role in industry, national, and international standard formulation.

Fourth, establish clear and fair tax rules. Strengthen theoretical research and practical exploration of digital taxes, closely track international reforms in digital taxes, actively participate in the formulation of international tax rules, and establish a standardized, fair, scientific, and reasonable digital tax system based on the actual development of our digital economy.

Fifth, establish a legal framework for DAOs. DAOs are "organizations" in a formless state and represent a new economic collaboration mechanism in Web 3.0. It is recommended to establish a clear legal framework for DAOs at the national level, requiring them to fulfill legal obligations and rights similar to ordinary enterprises, such as reporting, paying taxes, opening bank accounts, and signing legal agreements, thereby fully expanding the compliance innovation space of the distributed economy.

Currently, the connotation and extension of the Web 3.0 concept are continuously enriching and expanding, representing a dynamic evolution process. How to keep up in a timely manner, discern direction, compete in an orderly manner, and lead innovation requires the industry, academia, and regulatory departments to brainstorm and jointly promote progress.
(This article represents only personal academic views)