Web3 is the name for a version of the internet built on public blockchains such as Ethereum. Users hold their own assets and identity in a wallet they control, and no company account holds them. Payments use cryptocurrency, and the rules of an app sit in code that anyone can inspect, not in one company's servers. ethereum.org, the Ethereum project's own site, calls Web3 "a catch-all term for the vision of a new, better internet." It is a vision, not a finished system. Today the main tradeoffs are high transaction costs for many people, difficult wallets, payments that cannot be reversed, and heavy reliance on centralised services.
Where the term came from
Ethereum co-founder Gavin Wood set out the idea in a post dated 17 April 2014, titled "ĐApps: What Web 3.0 Looks Like." He described a web where "all interactions will be carried out pseudonymously, securely and for many services, trustlessly." ethereum.org also credits Wood with coining the premise of "Web 3.0."
Web1, Web2 and Web3
ethereum.org divides the web's history into three stages:
- Web 1.0 (1990–2004): "mainly static websites owned by companies," with "close to zero interaction between users."
- Web 2.0 (2004–now): the web became "read-write," so users create the content. But in ethereum.org's words, they "didn't own it or benefit from its monetization," and this era "birthed the advertising-driven revenue model." A few large companies control most of the traffic and value.
- Web3: ownership and control are meant to move to the people who build and use the apps.
The four core ideas
ethereum.org describes Web3 with four properties:
- Decentralized: "ownership gets distributed amongst its builders and users."
- Permissionless: "everyone has equal access to participate in Web3, and no one gets excluded."
- Native payments: cryptocurrency is used "for spending and sending money online," without banks and payment processors.
- Trustless: it "operates using incentives and economic mechanisms instead of relying on trusted third-parties."
ethereum.org gives a game as an example. In a Web2 game, items are tied to your account and disappear if the account is deleted. With Web3 items, "No one, not even the game's creators, has the power to take away your ownership."
How the pieces fit together
Blockchains
A blockchain is a shared ledger that a network of computers (nodes) keeps, not one company. ethereum.org says Ethereum is "a public and transparent ledger by design." That openness lets anyone check activity, but ethereum.org also calls it "its own privacy challenge."
Smart contracts
Smart contracts hold the rules of a Web3 app. ethereum.org calls them "the fundamental building blocks of Ethereum's application layer": programs that run "if this then that" logic. Its metaphor is a vending machine, where "specific inputs guarantee predetermined outputs." Nick Szabo introduced the concept in 1994. ethereum.org says the code "cannot be changed once created," so a bug or a bad rule cannot simply be patched later.
Wallets and keys
You use Web3 through a wallet. ethereum.org says "Wallet providers don't have custody of your funds" and "You are responsible for keeping your keys safe and secure." Wallets usually give you a seed phrase to write down, and ethereum.org calls it "the only way you'll be able to recover your wallet." It also warns that "there's no customer support in crypto."
How decentralised is this Web3 app?
Answer three questions about an app you use to see where control actually sits and what that means for you.
Who holds the keys to your assets in this app?
- I do, in my own wallet → next question
- A company holds them for me → A company holds control, as in Web2
Have you written down your wallet's seed phrase and stored it safely?
- Yes → next question
- No, or I am not sure → Your access depends on a phrase you have not secured
Can the app's rules be changed, or are they fixed in a smart contract?
- They sit in a smart contract that cannot be changed → next question
- A team can change them, or I don't know → Someone else may control the rules
Does the app reach the blockchain through its own node or through a hosted node service?
- Through a hosted node service, or I don't know → Decentralised in part, centralised in the plumbing
- Through a node it runs itself, or one I run → Control sits mostly with you, and so does the risk
Web3's main idea is that you hold your own keys. If a company holds them, it holds your account, the same way a Web2 service does.
ethereum.org calls the seed phrase the only way to recover your wallet, and says there is no customer support in crypto. A wallet with a lost seed phrase can't be easily recovered.
Ask who can change the code. If a team can, the rules depend on that team, not only on code anyone can inspect.
Ethereum's developer documentation says using a node service centralises the infrastructure side of a product. You hold the keys, but the data you see may come from one provider.
You hold the keys, the rules are fixed in code and the infrastructure is not one provider. Payments still can't be reversed, a bug in fixed code cannot simply be patched, and activity on a public ledger can be seen by anyone.
This sorts your answers into the article's three questions only: it does not check any real app, its code or its servers, and it is not a security audit or advice on using any app.
What changes for the user
On a Web2 service, the company holds your account. It can reset a password, reverse a charge or close the account. In Web3 those powers sit with whoever holds the keys, so there is more control and also more responsibility:
- Lost seed phrase: ethereum.org says wallets "can't be easily recovered."
- Mistaken or fraudulent payment: ethereum.org says "transactions can't be reversed." The US Federal Trade Commission (consumer guidance, May 2022) says "Cryptocurrency payments typically are not reversible" and "do not come with legal protections." It contrasts this with credit and debit cards, which do.
- Public records: activity on a public ledger can be seen by anyone, as ethereum.org notes above.
Where Web3 falls short
Problems ethereum.org itself lists
The Ethereum project's own page (last updated 22 October 2026) names four limits:
- Accessibility: transaction costs are still prohibitive for many people, which makes use in lower-income countries less likely. The page points to the Ethereum roadmap and layer 2 networks as the fix.
- User experience: the entry barrier is high. Users have to understand security, technical documentation and interfaces that are hard to use.
- Education: Web3 "isn't difficult, but it is different," and it runs on different mental models from Web2.
- Centralized infrastructure: the ecosystem still relies heavily on GitHub, Twitter and Discord, and building decentralised alternatives "takes time."
Decentralized in name, centralised in practice
On 7 January 2022, Signal founder Moxie Marlinspike published "My first impressions of web3." He wrote that "Almost all dApps use either Infura or Alchemy in order to interact with the blockchain," and that these client APIs do not verify the blockchain data they return. His conclusion: "Once a distributed ecosystem centralizes around a platform for convenience, it becomes the worst of both worlds." That is one developer's view from 2022. Ethereum's developer documentation makes the same structural point: "By using a node service you are centralizing the infrastructure aspect of your product."
So when an app calls itself decentralised, three questions still apply: who runs the servers it depends on, who can change its code, and who holds the keys.
How regulation is catching up
Web3 is no longer outside the rules in every major market, but the rules cover crypto assets and service providers, not "Web3" as a whole:
- European Union: the Markets in Crypto-Assets Regulation (MiCA, Regulation (EU) 2023/1114) entered into force in June 2023 and has applied in full since 30 December 2024. It covers authorisation, disclosure and supervision of crypto-asset services and public offers. According to ESMA, firms already providing services under national law could continue under a transitional regime until 1 July 2026 at the latest.
- United States: the President signed S. 1582, the GENIUS Act, into law on 18 July 2025, according to the White House. It sets up a federal framework for payment stablecoins.
Bottom line
Web3 offers real ownership, open access and programmable money, all on public blockchains. In exchange, the user carries the security, there is no undo button, and decentralisation is often only partial. ethereum.org's own list of limitations is a fair starting point for anyone trying it.
Limitations: this explainer is based on project documentation, one regulator, one government statement and one developer essay. It does not measure adoption, fees or network speed.
