What Is Web3? How It Works, Metaverse, and DeFi Explained for Beginners

Web3 (Web3.0) is the collective term for the decentralized internet built on blockchain technology. Japan's Ministry of Economy, Trade and Industry defines Web3.0 as "an economy in which value is co-created, held, and exchanged through tokens such as crypto assets on the blockchain." This article explains Web3's mechanism, key technologies, use cases, challenges, and future outlook in an easy-to-understand way for beginners.

What you'll learn in this article

• The definition of Web3 and how it differs from Web1 and Web2
• Key technologies powering Web3: blockchain, DeFi, NFT, and DAO
• The relationship between the metaverse and Web3
• Web3's challenges and future outlook

Web3 is an internet framework where users themselves own and manage their data and assets, rather than having a specific company control them. In the conventional Web2 era, user data was concentrated in platform companies like Google and Meta, but Web3 achieves decentralized management through blockchain technology.

Organizing the evolution of the internet into three stages makes Web3's position clear.

If Web1 was the "read" internet and Web2 was the "read and write" internet, then Web3 is the "read, write, and own" internet.

During the Web2 era, user data became concentrated in social networks and search engines, and privacy issues and data monopolization grew serious. The 2018 Cambridge Analytica scandal, in which approximately 87 million Facebook users' data was misused, made the risks of data centralization globally recognized.

Web3 aims to solve the following issues through blockchain technology:

• Self-sovereign data management: No need to entrust personal information to specific companies
• Elimination of intermediaries: Users can transact directly with each other, reducing fees
• Improved transparency: All transactions on the blockchain are recorded and verifiable by anyone
• Censorship resistance: With no single administrator, unilateral account suspensions are less likely

The Japanese government also positioned Web3 as a national strategy in 2022, and the Liberal Democratic Party's Web3 project team released policy proposals regarding NFTs, DAOs, and crypto assets.

Web3 is built on a combination of multiple technologies. Here are five essential technologies for understanding Web3.

Blockchain — The Foundation of Web3

Blockchain is a technology that bundles transaction data into units called "blocks" and links them chronologically in a "chain." Data is managed in a distributed manner by numerous participants (nodes) on the network, eliminating dependence on a specific server. Ethereum operates with over 7,000 nodes worldwide, ensuring data reliability.

For more on blockchain, see "What Is Blockchain? How It Works and Key Features Explained."

DeFi (Decentralized Finance)

DeFi (Decentralized Finance) refers to financial services provided on the blockchain without intermediaries like banks or securities firms. Through smart contracts (auto-executing programs), services like lending, currency exchange, and interest earning are made possible. DeFi's total TVL (Total Value Locked) reached approximately $100 billion as of 2024.

For details on DeFi, see "What Is DeFi (Decentralized Finance)? How It Works and How to Get Started."

NFT (Non-Fungible Token)

NFT (Non-Fungible Token) is a technology that provides proof of uniqueness for digital data. It enables ownership rights for digital art and music, allowing buying, selling, and transferring. In 2021, Beeple's NFT art sold for approximately $69 million, attracting worldwide attention.

For more on NFTs, see "What Is an NFT? How It Works and Use Cases Explained."

DAO (Decentralized Autonomous Organization)

A DAO (Decentralized Autonomous Organization) is an organization without a specific leader, where all participants make decisions based on established rules. Rules are automatically enforced through smart contracts on the blockchain, enabling highly transparent operations. In Japan, the Yamakoshi Village (Nagaoka City, Niigata) has issued digital villager NFTs and practices DAO-style community building.

For a detailed explanation of DAOs, see "What Is a DAO? How Decentralized Autonomous Organizations Work and How to Join."

dApps (Decentralized Applications)

dApps (Decentralized Applications) is the general term for applications that run on the blockchain. They don't rely on a central server, and processing is executed by smart contracts. DeFi services and NFT marketplaces are types of dApps, with over 15,000 dApps operating across various chains as of 2025.

The metaverse and Web3 are often confused, but they are fundamentally different concepts. The metaverse refers to a three-dimensional virtual space built on the internet, where people communicate and conduct economic activities through avatars.

The reason they're discussed together is that combining them creates synergies. NFTs grant ownership to in-metaverse items, crypto assets establish an economy within virtual spaces, and DAOs enable user-driven governance. The metaverse provides the "space," while Web3 provides the "ownership and economic framework."

Here are specific examples of Web3 technology adoption in Japan.

NFT Tickets and Digital Certificates

Recochoku offers "Recochoku Ticket," an NFT-based ticketing and sales solution. Using dynamic NFT technology, it handles everything from digital ticket issuance to venue entry management. It's also effective at preventing ticket scalping and is increasingly used for music and sports events.

Web3 Platforms

KDDI operates "αU (Alpha U)," a Web3 service platform that provides an environment where users unfamiliar with NFTs can easily trade digital assets. They also offer metaverse utilization support for businesses.

Regional Revitalization

Tokyu Corporation's "Shibuya Quest" is a participatory project using NFTs set in Shibuya. It's attracting attention as a co-creative initiative that creates connections between the real world and Web3, building the city together with participants.

While Web3 holds great potential, there are currently the following challenges:

1. Scalability issues: Ethereum's L1 processes about 15–30 TPS (transactions per second), a significant gap compared to credit card processing (thousands of TPS). Layer 2 technologies (such as Arbitrum and Optimism) achieve over 1,000 TPS, and improvements are ongoing
2. Usability challenges: Setting up wallets and managing private keys requires technical knowledge. Account Abstraction technology is being developed to enable Web3 usage with the familiarity of traditional ID/password systems
3. Regulatory landscape: Japan's 2023 revision of the Payment Services Act established a regulatory framework for stablecoins, and discussions on DAO incorporation are underway. The regulatory environment is steadily improving
4. Security risks: Unique risks exist, including smart contract bugs and phishing scams. Private key management requires careful attention

On the technical front, Layer 2 adoption and Ethereum upgrades are improving scalability. With major companies like KDDI, NTT, and Rakuten entering Web3, the shift from "speculative technology" to "practical infrastructure" is accelerating.

⚠️ When using Web3 services, always access them through official websites and never share your private keys or seed phrases with anyone.

Q: What do I need to get started with Web3?

You can start by setting up a crypto wallet (such as MetaMask) and acquiring a small amount of ETH. Open an account at an exchange like OKJ (OKCoinJapan), purchase ETH, transfer it to your wallet, and you'll be able to use Web3 services like DeFi and NFT marketplaces.

Q: Is Web3 safe?

The blockchain itself has very high tamper resistance, but if you lose your wallet's private key, your assets cannot be recovered. You also need to watch out for phishing scams and fake websites. The basic precautions are: never connect your wallet on non-official sites, and never share your private key with anyone.

Q: Will Web3 completely replace Web2?

A complete replacement is not expected. Web3 is positioned as a technology that complements and extends Web2. Existing social media and cloud services won't disappear; rather, Web3 technology will be used alongside them in areas like data ownership and financial transactions.

Q: Are Web3 and cryptocurrency the same thing?

They are different. Cryptocurrencies (Bitcoin, Ethereum, etc.) are digital currencies used in the Web3 ecosystem, but Web3 refers to the entire internet concept built on blockchain. Including NFTs and DAOs, cryptocurrency is one component of Web3.

Q: Can I find Web3-related jobs in Japan?

Job opportunities are increasing. Major IT companies like KDDI, NTT, and Rakuten, as well as Web3 startups, are recruiting blockchain engineers, NFT marketers, and more. Job listings frequently require smart contract development skills in Solidity and DeFi knowledge.

The first step into the world of Web3 is acquiring cryptocurrency. Open an account at OKJ (OKCoinJapan) and complete identity verification (KYC) within one month to receive 1,000 yen worth of Bitcoin for free. Plus, if you open your account through the link in our OKJ Account Setup Guide and complete identity verification, then click the "Opened an OKJ account and completed KYC" button on your Candy Drops profile page, you'll also receive 50,000 Candy Drops points. These points can be used to enter premium giveaways for cryptocurrency and Amazon gift cards. → Get 1,000 yen worth of Bitcoin by opening an account! OKJ Account Setup Guide for Beginners

Key Takeaways!

• Web3 is a decentralized internet built on blockchain technology, where users can manage and own their data and assets themselves
• DeFi, NFTs, DAOs, and dApps power Web3, and combining it with the metaverse creates new economies
• Despite challenges, practical adoption is accelerating through Layer 2 evolution, regulatory development, and major corporate participation

---

Want to learn more? CandyDrops delivers the latest on crypto assets and Web3. If you'd like to learn blockchain basics, check out "What Is Blockchain" as well. → Check the latest on CandyDrops

References:

• Ministry of Economy, Trade and Industry — "Perspective on Web3.0 Business Environment Development"
• Ethereum.org — What Is Web3
• Financial Services Agency — Information on Crypto Assets