Need help understanding Bitcoin DeFi?
Need help understanding Bitcoin DeFi?
Need help understanding Bitcoin DeFi?
Need help understanding Bitcoin DeFi?
Need help understanding Bitcoin DeFi?

Web2 vs. Web3 Apps: The Reign of Traditional Apps Is Ending

Despite the growing excitement around Web3 apps—also known as decentralized applications (dApps)—they are still the underdogs when compared to Web2 apps in terms of user adoption. But that will change in the long run.

Deep dive
November 16, 2022
Community Manager
Web2 vs Web3

As of October 2021, all live dApps had about 226 million total users. In contrast in 2021, streaming services alone had 1.7 billion users, mobile gaming had 2.6 billion users, and social media networks had 4.3 billion users. Factor in the user base of other apps across the mobile, desktop, and web categories; and centralized apps have an obvious long lead over decentralized apps.

Web2 apps may have a decades-long headstart on dApps, but these decentralized apps are poised to disrupt the app space. They provide new incentives for user adoption as they address concerns around Big Tech—particularly about censorship, AI biases, de-platforming, and data mining. Developers who build Web3 apps can leverage the disruptive DNA of these apps to build innovative solutions that will catch up with and outpace traditional Web2 apps in the long run. 

Web2 vs. Web3 Apps: What Are the Main Differences?

The main differences between apps in Web3 ecosystems and traditional Web2 apps relate to ownership, data storage, and how users interact with one another.

Decentralized apps (Web3 apps) are powered by open-source blockchain technology. The codebase is distributed across the nodes of blockchain networks such as Bitcoin, Ethereum Stacks, and Solana. Users interact directly with one another, and they can have trustless transactions managed by smart contracts. 

Apps in the traditional Web2 industry are either owned by central authorities or powered by infrastructure owned by corporations such as Amazon and Google. The codebase is stored on servers owned or controlled by a company. Also, interactions between users are managed and controlled by the company’s server, all behind closed doors.

Even when both a dApp and a centralized app serve the same function, the dApp will be inherently more user-oriented, democratic, and permissionless because it is not owned or controlled by any single user or organization.

Examples of Decentralized Apps vs. Centralized Apps

The battle between permissionless and permissioned apps and decentralization vs. centralization is already happening in a number of different industries and types of applications.

Web2 vs. Web3 Apps: What dApps Do Better Than Centralized Apps

While on the surface, the user experience between a dApp and a centralized app can be similar, they are quite different in the back end, structurally and technologically. Here’s how the differentiating features of Web3 apps can benefit consumers, giving dApps an edge over traditional Web2 incumbents.  

Create Composability

Decentralized applications create composability because their code is open source. This means that anyone can see the code and contribute toward improving the dApp. Developers can also combine code from different dApps to create entirely new Web3 applications much faster than it takes to start a new dApp from scratch.  

For instance, in 2020, developer(s) known as Chef Nomi forked Uniswap’s code to create a competing decentralized exchange (DEX) called SushiSwap. This exchange added many community-oriented features—such as staking, liquidity rewards, and governance tokens—to Uniswap’s original idea. SushiSwap received more than $250 million from users within the first 24 hours of launch, proof that users loved the community-oriented features; but above all, it showed how dApps benefit from crowdsourced innovation. 

The fact that developers can easily access open-source code to improve existing dApps or create new ones leads to more composability, progressive iteration, deeper collaboration, and faster innovation, all of which will fuel dApps to overtake traditional apps. 

Return a Share of Economic Value to Users

dApps can distribute economic rewards to all participants rather than a few stakeholders, such as the founders and early investors. In a decentralized app, users can buy, earn, and own the network tokens or cryptocurrency that the dApp runs on. Those tokens theoretically reflect the value of the dApp itself. 

In other words, dApps can give users a vested interest in the application because their very usage can make them an actual owner and stakeholder in the app.

Imagine if Uber gave $UBER shares to drivers every time they completed a ride. It’s not a perfect analogy, but it illustrates the concept of ownership being distributed to dApp users according to their usage. It’s a powerful idea, and many dApps have this as a core mechanism. For example, the Brave browser rewards users with Basic Attention Tokens (BAT) every time they watch an ad (effectively giving users some of the ad revenue) while using the web browser.

dApps give users skin in the game, which incentivizes users to keep using the app and spread positive word of mouth. Simply put, skin in the game unlocks the possibility of having a significantly stronger community.

Provide Open Access

Anybody, from any part of the world can access and use Web3 apps without prejudice (as long as they have an internet connection) because dApps are permissionless. There are no geofencing restrictions on their web pages and fewer regulatory obstacles.

Web3 apps enable peer-to-peer interactions as there is no middleman who approves transactions. All transactions will go through if they meet the requirements of the network. Democratized access leads to a more equitable distribution of wealth, accelerates financial inclusion, breaks down prejudices, and promotes a more open version of the internet.

Centralized service providers often make decisions about who can or can’t access or use their apps. For instance, PayPal excluded much of Africa from participating in its global economy for more than a decade, and now, it only maintains a one-sided relationship that allows people living in many African countries to send but not receive funds.

Compare that to anecdotes from dApps: Afghans can receive remittances after Western Union abruptly suspended services in the country, Nigerian creators can sell their art on the international scene without going through gatekeepers, and thousands of Filipino people can earn income from a play-to-earn game. When the entire world can use your dApp, the growth ceiling is much higher than if you are only targeting U.S. consumers.

Enable Data Portability

Data portability refers to the ability of internet users to access, extract, and move their data from one service to another in a structured, tagged, and machine-parsable manner. Decentralized apps enable data portability because users own their data—giving them the freedom to choose what apps to use. 

Say you use Spotify. The app will eventually understand your music preferences enough to suggest playlists you like and suppress genres you don’t. However, if you switch to Apple Music, you’ll have to teach the new service your music preferences all over again. In contrast, dApp users retain ownership and control of their data, so they don’t have to worry about starting from scratch when they switch between apps that provide similar services.

While centralized apps often claim that you own your data, their terms of service include licensing clauses that give them liberal access to use your data as they see fit. For instance, Facebook, Twitter, and many other social media platforms have licensing clauses like:

“By submitting, posting or displaying Content on or through the Services, you grant us a worldwide, non-exclusive, royalty-free license to use, copy, reproduce, process, adapt, modify, publish, transmit, display and distribute such Content in any and all media or distribution methods now known or later….” 

And their access to your data doesn’t stop, even when you delete your posts or your account. For instance, some companies will keep anonymized versions of the data, and Google says data can remain on its backups for up to six months after deletion. 

Facilitate Community Input and Governance

Another feature that could help dApps displace centralized applications is their inherently democratic governance. Beyond simply using a dApp, the community is often required to participate in the decision-making process by debating and voting on new features, updates, and upgrades before they are implemented.

Community members can participate in the decision-making process using their staking rights, governance tokens, or governance NFTs. 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.

Owners of centralized apps don’t always make the best decisions. Google made a unilateral decision to redesign Google Finance, citing a need to integrate updates about the financial markets into Google Search. Users had no say in the decision, and many amateur investors and financial services professionals who had spent years curating screeners, portfolios, and watchlists couldn’t access their market data in a familiar format and were unhappy with the changes, to say the least.

With dApps, users have a voice. Web3 apps are built on open, decentralized networks, so community members can see on-chain events in real-time through block explorers. And it is impossible to sneak in changes because the majority of node operators must agree before changes can be effected on such networks.

Web3 users can propose changes or vote against decisions that they do not like. More so, users who disagree with any decisions can choose to fork the dApp to create a version of the dApp that is not subject to those decisions. The governance also extends to peer-to-peer interactions as the community of users employs democratic principles to punish/remove bad actors without any user wielding too much power that could be abused.

Enhance User Privacy and Data Security

dApps provide users with enhanced privacy because users do not need to create unique accounts with personal information for every app they use. Often, the only requirement for using a service on the decentralized web is for the user to connect their crypto wallet. Users can choose to have multiple wallets for multiple dApps (or just use one across all dApps), and they can choose to what extent any wallet or dApp account is to be associated/connected with their person.

On the other hand, centralized 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, gender, and other social media usernames. 

These data breaches frequently happen in centralized apps. But since dApps don’t require users to provide personal data on sign-up, there is no database of personal information or user data to be compromised in the first place.

The data that dApps do collect and keep, such as transactions and transactional metadata, are stored securely on the blockchain and are pseudonymous. And while blockchains can also be hacked and their data overwritten, it becomes theoretically impossible to do so for established blockchains because of the computing and financial requirements needed to hack them.

For example, you’ll need to spend at least $13.5B on mining equipment (if you could find it) and electric power to double Bitcoin’s existing hash rate and have a theoretically-viable shot at a 51% attack on the Bitcoin network. And the demand and supply dynamics of Bitcoin's price and value will make an attempt impractical. It’s more beneficial for the hacker to be an honest participant in the network than it is to follow through on the attack.

Resist Censorship 

Traditional centralized apps are at the mercy of big tech, and big tech is at the mercy of governments and their agencies. Centralized apps must meet certain requirements to be accessible to users; otherwise, they risk being suspended, permabanned, or de-platformed (e.g., Apple removing the app from the App Store or GoDaddy shutting down its web hosting). Centralized apps can also censor users by removing or deleting their content or accounts, such as centralized social networks that ban, delete, or remove users’ content.

Web3 apps are resistant to censorship because blockchains are immutable. Data stored on the blockchain can’t be deleted. A government and its agents also can’t shut down blockchain networks once they are fully propagated. So, dApps hosted on a blockchain can continue to function for as long as the underlying blockchain exists.

 dApps promote transparency because all blockchain activity is visible on explorers, and users can review what actions the developers and other stakeholders take on the dApp. Where edits are possible, they will be stored as new records, but the older records will still be available to interested parties.

Because of these features, decentralized apps are unlikely to face censorship issues—such as Facebook moderation bots mistakenly deactivating accounts belonging to Palestinian journalists and activists or YouTube machine-learning algorithms erroneously disappearing documentation of war crimes in Syria. 

With Bitcoin, Web3 Apps Can Enjoy Faster User Adoption 

Bitcoin holds the key to the mainstream adoption of Web3 apps. The crypto industry created almost $3 trillion of liquid value (at its height in 2021) in 10 years, comparable to the valuation of all private venture-backed unicorns combined, and that value creation is led by Bitcoin. There is an incredibly large but still untapped opportunity to bring dApps to the Bitcoin ecosystem. 

Tap Into an Existing Community

When you build on Bitcoin, you’ll have an army of advocates ready to adopt your app. Bitcoin has a large and dedicated community of users. More than 60% of Bitcoiners have been holding BTC for more than a year. Whether they are Bitcoin centrists or Bitcoin maximalists, one thing that Bitcoiners all have in common is a passionate and vocal belief that Bitcoin is a powerful force for positive disruption. 

Access Patient Latent Capital

Developers who build Web3 apps in the DeFi vertical can create opportunities for Bitcoin holders to put their assets to work. Currently, Bitcoin mostly functions as a store of value. Bitcoin has a market cap of over $400 billion, but only about $5.1 billion worth of Bitcoin is deployed in Bitcoin DeFi through WBTC. The rest of that capital is waiting to be unlocked by new Bitcoin DeFi apps.

Accelerate Through Flywheel Effects

There’s already a large community of Bitcoin users, but the flywheel effect could cause the community to grow exponentially faster. New Bitcoin dApps encourage more users to participate in the Bitcoin network. More participation leads to an increase in the value of Bitcoin. Increased value attracts more developers to build new apps, which attracts new users, and the cycle goes on. Through this flywheel, Bitcoin dApp growth could accelerate, further establishing Bitcoin’s market dominance and enhancing the popularity of Web3 apps built for Bitcoin. 

Stacks Enables You to Build dApps for Bitcoin

If you want to build Web3 apps that can compete with centralized apps and win, look to Bitcoin. The cryptocurrency’s popularity, capital, security, and network effects can supercharge the ability of your dApps to displace traditional Web2.0 apps.

Stacks blockchain is the programming layer of the Bitcoin network, and it enables you to write fully expressive smart contracts to create decentralized apps secured by Bitcoin. Want to learn how to build dApps for Bitcoin? Download our free guide to developing smart contracts.

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