The Golden Age
The 3rdNet was unlimited, without walls, boundaries, or borders. It was free. But that freedom came at a price. Political dissidents, terrorists, and criminals were able to easily function within the system. They created their own gated realms where their law was the law, and all the darkest pleasures could be bought and sold. But in than a cycle, it all came crashing down, a precision implosion orchestrated by the M12.
The 4th iteration, The CogNet was born, but it would never be as free, as open, or as powerful as the 3rdNet, because it had walls, police programs, defensive patrols, and countermeasures. It is still relatively free, but nothing on the scale of the majesty of the 3rdNet.
Being a construct of arcanotechnology, the outcomes of the system are nebulous and often undefinable. The 3rdNet created unchecked gateways to the Dreamlands, and soon hundreds of thousands of people were visiting the 3rdNet/Dreamlands composite realm. For a long time, this went unnoticed, an ant bed on a golf course, the sheer size of the net was miniscule compared to the true expanse of the Dreamlands. But eventually the 'net was noticed.
The Larvae of the Outer Gods were drawn to the 3rdNet, and this mindless divine dandruff ended up being grabbed, manifesting in the technological realm, where the ephemera was written into code, mindless potential given purpose and information. These formatted larvae metamorphized in the net. They became the Viral Intelligences, alien matter woven into familiar patterns. The larvae revealed their predatory nature as they started consuming, and then, replicating.
The Larvae/Virals quickly started devouring large swaths of the technological realm, causing server failures, corrupting the daemons and other programs, and even started spilling out of the 3rdNet into the real world. The virals infested hardware, contaminated droid cortices, and even infected a number of professional cybernauts. These people when they unplugged were completely new individuals, with shattered memories, missing motor skills and abilities, and demonstrating alien language, and often parapsychic abilities.
The M12 determined that the threat to the global system was severe. The O2 Towers could be damaged, the arcos could suffer catastrophic failure, and several pieces of military hardware had to be put down when they became self aware. The AISCs deliberately caused the 3rdNet to crash, doing so in a very thorough and precise manner, to cause as much virtual damage as possible. This was done with the intent of destroying as many infected zones as possible, as well as wiping as much hardware as possible to sanitize the system. The resultant chaos that followed was determined to be the lesser of the two evils.
Larvae and Machine Intelligence
Robots become sentient when a sufficiently sophisticated cortex is activated and there is a larvae in the vicinity. If the larvae is caught in the aura of the cortex powering up, there is a chance that it will become patterned into the machine as it activates. This destroys the larvae, and transfers its potential to the machine, rendering it intelligent.
This is why seibertronians, sentient droids, and such are rare, and cannot be reliably created.
The Ruins of the 3rdNet
Having been a hyperdimensional construct, the implosion of the 3rdNet didn't completely wipe it all out. There are many data vaults, archives, data dumps, hidden realms, and such that survived. It only takes time, patience, and knowing what you are looking for (and a bit of luck) to find virtual ruins. Much like old school dungeon delving, the ruins retain archaic security systems, and can still contain lurking larvae/virals, and more than one ruin hunting cybernaut has come back as a different type of biological organism. Some find things horrible enough that they simply die. Others come back with lostech, pulling buried treasure out of the ruins. High risk, high pay.