Web3 and DeFi are two important concepts in the blockchain and cryptocurrency space, often used interchangeably. However, they have distinct differences and similarities. As a crypto and blockchain expert, let me explain these concepts in simple language, with references from industry experts.
Web3 (Web 3.0)
Web3, also known as Web 3.0 or the decentralized web, refers to the next generation of the internet that aims to create a more decentralized, secure, and user-centric digital ecosystem. It envisions a world where users have control over their data, privacy, and digital assets, rather than being controlled by centralized entities like governments and corporations.
Gavin Wood, the co-founder of Ethereum and founder of Polkadot, described Web3 as “an inclusive set of protocols to provide building blocks for application makers” that would “enable a new breed of applications that can be created and operated by users themselves without any central authority” (Wood, 2014).
DeFi (Decentralized Finance)
DeFi, short for Decentralized Finance, is a subset of the Web3 movement that focuses specifically on the financial sector. It involves the creation of decentralized financial applications built on top of blockchain technology, particularly smart contract platforms like Ethereum. DeFi aims to replace traditional financial services like lending, borrowing, and trading with trustless, transparent, and permissionless alternatives.
Cameron Winklevoss, the co-founder of Gemini, said, “DeFi is the future of finance, it’s a new financial system built on public blockchains like Ethereum that will replace the old financial system built on intermediaries” (Winklevoss, 2020).
Differences between Web3 and DeFi
- Scope: Web3 is a broader concept that encompasses the entire decentralized internet, while DeFi is focused specifically on the financial sector. DeFi is considered a part of the larger Web3 movement.
- Applications: Web3 applications can include various decentralized services like decentralized social networks, decentralized storage solutions, and decentralized identity systems. DeFi applications, on the other hand, are limited to financial services like lending platforms, decentralized exchanges, and stablecoins.
Similarities between Web3 and DeFi
- Decentralization: Both Web3 and DeFi promote decentralization, aiming to reduce the reliance on centralized entities and intermediaries.
- Blockchain technology: Both Web3 and DeFi are built on blockchain technology, particularly on platforms that support smart contracts, like Ethereum.
- Empowerment of users: Both Web3 and DeFi focus on empowering users by giving them control over their data, privacy, and digital assets.
In conclusion, while Web3 and DeFi share common goals of decentralization and user empowerment, they differ in their scope and applications. Web3 is the overarching concept of a decentralized internet, while DeFi is a specific subset that focuses on transforming the financial industry.