Web3 and

Crypto

Discover the App Economy

Key Takeaways

1 The heart of Web3 is the decentralization of information

in an open, permission-less, user-oriented network.

2 Crypto assets are a key layer of Web3 frameworks, and

our membership supports legislation that regulates and
evaluates the risks associated with such assets.

3 ACT | The App Association aims to increase

policymakers’ technical understanding of blockchain
and crypto asset technologies as our members
utilize such technology to create jobs and expand in
the evolving digital ecosystem.
The Emergence of Web3
Over the last several years, regulators and industry leaders have monitored the rise of Web3, the “new” iteration
of the internet that incorporates elements of blockchain technology. The decentralized nature of Web3 raises new
questions about how government should deal with the risks associated with its use.

Web3 is a nascent technology, so small U.S. developers and industry leaders must work together to collaborate
on how this emerging technology can reimagine our traditional financial system, from supply chains to healthcare
management. ACT | The App Association encourages Congress to continue its efforts to address observed
harms and costs associated with the use of crypto assets and tools like blockchain ledgers. As a leading
voice on competitive technology and software developers, the App Association is eager to serve as a
resource on these emerging technologies and to enable small developers and users to enjoy the full
benefits of the growing crypto network.

Because Web3/crypto is not widely understood, we have prepared a crash course in the subject from the
perspective of U.S. small businesses: background, opportunities, and risks.
The Path to Web3 • In part to address the inherent costs of Web2’s
siloed foundation, developers created an emerging
• Web1 was the earliest version of the internet. set of protocols rooted in blockchain ledger
Web1 was a syntactic, or read-only, network. technology, referred to as Web3 or the Semantic
Most developers were companies like Web. Just as email protocols enable an Outlook
America Online (AOL), delivering information in account to email a Gmail account, Web3 provides
one direction to the network. That a common protocol allowing for the exchange of
information would display on the computer a much wider array of information types between
screen as a physical newspaper would, directly users, which enhances individuals’ autonomy while
to users through the internet. altering their relationships with intermediaries.
Accordingly, Web3 also allows for far faster and
• Then came Web2, which we use today. Web2 lower-cost operational capabilities. Developers like
set the stage for the platform-based our members have jumped at the opportunity to
economy (read-write) that included more harness Web3 to solve problems. Web3 capitalizes
interactive features for users and developers to on artificial intelligence (AI) and machine learning
communicate with one another. In this network, (ML) to enable web systems to analyze and
not everyone is necessarily a developer, but optimize data to users’ specific needs. The heart
most users became owners of their own of Web3 is the decentralization of information in an
content or ideas on specific websites or open, permission-less, user-oriented network.
platforms through this enlarged “network of
networks.” As a result, developers built upon
these websites and platforms to create and
design the mechanisms and systems around
users that enable them to engage with one
another. This gave rise to many of the prominent
Web2 applications with which we are familiar
today such as Google, Facebook, and Twitter. In
using these applications, traditional Web2
technologies (i.e., HTML, JavaScript, XML)
work with user interface software (i.e., ReactJS,
InternoJS, AngularJS) to create an interface on
the web for users to comment, like, and share
content within that connected network. This
relationship is known as a centralized network
as users submit information one way to a direct
platform, and vice versa.
The Two Layers of Web3 - Blockchain and Digital Assets
Blockchain

Blockchains are distributed, immutable ledgers that provide for the exchange of information or value, including
crypto assets. They are the rails of Web3. What is a distributed, immutable ledger?

• A ledger refers to a record book of all the transactions within a block

• Think of an old receipt book for cashiers to keep track of what was bought and what remains in stock

• Immutable refers to the fact that it is practically impossible for any person to tamper with a record of a
transaction (an exchange of assets or information) after it has been added to the blockchain
• Think of it as a shared vault among the community with specific passwords for each member to use for
their specific needs, but the shared vault is unmodifiable

• Distributed simply means available or accessible to all users within the network
Crypto Assets The growing potential use cases for blockchains and
crypto assets has paved the way for things like
Crypto assets—for example, cryptocurrencies like decentralized finance (DeFi), applications (Fintech),
Ethereum—are another key layer of Web3 non-fungible tokens (NFTs), and virtual reality apps
frameworks. These crypto assets are tokens that and games built on distributed, immutable ledgers.
allow users to stake ownership or value in the The controversial regulatory structure that tentatively
underlying network itself. In other words, whereas splits digital coins and tokens into commodities or
Meta owns the Facebook social media platform, securities along nebulous lines has left many Web3
Web3 provides verifiable and—thanks to the startups at a crossroads. Crypto assets that are
blockchain, incontrovertible—ownership stakes in a substantially analogous to already-existing assets
network like Facebook by its users. In some are likely to see the earliest successful attempts to
scenarios, an algorithm rewards users for impose a regulatory framework. For example,
dedicating their own computing power to reconcile stablecoins’ value is tethered to fiat currency, so
new transactions on the network (a function referred banking regulators readily recognize their fluctuations
to as “mining”) with compensation in the form of and the risks they present to American consumers
tokenized values. This gives miners an ownership and investors. The 117th Congress saw introduction
stake—along with proof of that stake—in the of the Lummis-Gillibrand Responsible Financial
underlying network, an arrangement that has Innovation Act (S. 4356), which would
previously been costly and unnecessary since comprehensively regulate crypto assets, assigning
individual companies tend to own networks on oversight jurisdiction to various federal agencies
Web2 and handle computing power in a centralized according to asset type and the character of risk
manner. In other scenarios, users simply exchange associated with each kind of asset.
other kinds of value for tokens signifying their
ownership stakes.

Either way, Web3 can potentially enable users

to own and safeguard their own information to a
greater extent, by virtue of their ownership of the
underlying networks and the concomitant absence
of centralized management of certain transactions.
Web3 is in Progress
Adoption of Web3 is uneven and still in progress. Developers and investors are continually grappling
with and investing in the best use cases for blockchain. As blockchain matures and more crypto token
projects proliferate, regulators and policymakers alike must recognize the potential benefits and risks of
altering the incumbent centralized system.

The common use cases of blockchain technology include:

• Financial management
• Procurement processes
• Supply chain management
• Smart Contracts
• Decentralized Autonomous Organizations (DAOs) and Decentralized applications (dApps) and
identifiers (DIDs)