Web3 and other aspects of our future
Do you know what the internet is? This was the main topic of the Today Show, an American news and morning talk show: “What is the Internet, anyway?” dated 1994. Today, in 2022, 28 years later, this question needs no answer. We rarely spend time without socials, Google searches, online entertainment or work. Most of us stay connected 24/7. But this question is very similar to the discussion we are having today about the blockchain. Or the metaverse. Or NFTs. These technologies (that we covered in our previous projects) are still gaining momentum. But if only a few years ago blockchain was something for “the next generation,” today it’s a multi-billion dollar sector and life-changing idea that may lead us to the new era of Web3 (or Web 3.0).
From hereon we will use Web3 following the idea on a popular internet forum: “You may notice that web 1.0 and 2.0 are spelled with decimals, while web3 is not. There’s no particular reason for this, other than expedience. While some do write “web 3.0,” the “web3” designation is just an additional indicator that things are different in the decentralized web.”
Does this statement give you any clearer picture of what Web3 is? Or rather, what people expect it to become? Even if this is the first time you’ve seen the words Web 1.0, Web 2.0 and Web3, and you have no idea what we’re talking about, there’s no need to worry! We will explain everything from the very beginning and after several minutes with us, you will be able to participate in any hot discussions on the future of the internet.
Well, yes. we’re going to share with you everything we know about Web3: what it is, why we need it, what issues Web3 solves and which it brings instead, when it starts, how governments react to the loss of control, related technologies and projects based on Web3, why we don’t need this, what people think about it, and simply what to expect from Web3 and how you can earn money with it.
Today’s article consists of five main parts, including the history of the internet’s evolution, technologies brought by Web3, Web3 drawbacks, controversial opinions on the future of the internet, and finally, investments. If you’re interested in specific sub-topics, you’re welcome to jump to the related part. Otherwise, let’s begin with the first chapter.
Part I. Web 1.0 → Web3
It’s widely believed that we are currently in Web 2.0. This term was introduced by Tim O’Reilly between 1999 and 2004. Web 2.0 is about the centralized internet, which has provided people with social networks and allowed them to create their own content. The previous term, Web 1.0, only appeared after Web 2.0 was distinguished. Web 1.0 is the decentralized internet where one could read texts from web pages, but there was nothing else to do. Web 1.0 is well-known as “read-only.” Web3 is the next generation of the internet. If we compare expectations from Web3 to that of earlier times, we will see how they vary greatly. Today we determine Web3 to be the decentralized internet, based on blockchain technologies, and with all the benefits of Web 2.0.
If you want to continue with Web3 and skip a more detailed explanation of Web 1.0 and Web 2.0 then you are welcome to scroll to the next chapter. But if you’re not in a hurry and would like to learn more then let’s continue.
Before the Web
The first workable prototype of the Internet came in the late 1960s with the creation of ARPANET, or the Advanced Research Projects Agency Network, originally funded by the U.S. Department of Defense.
On October 29 1969, ARPANET delivered its first message: a “node-to-node” communication from one computer to another. The first computer was located in a research lab at UCLA and the second was at Stanford. Each was the size of a small house. The message “LOGIN” was short and simple, but the Stanford computer only received the note’s first two letters “LO”.
In the 1970s, Robert Kahn and Vinton Cerf developed the Transmission Control Protocol and Internet Protocol, or TCP/IP, a communications model that set standards for how data could be transmitted between multiple networks. ARPANET adopted TCP/IP on January 1 1983 and from there researchers began to assemble the “network of networks” that became the modern Internet.
The online world then took a more recognizable form in 1990 when computer scientist Tim Berners-Lee invented the World Wide Web. While it’s often confused with the internet itself, the web is actually just the most common means of accessing data online in the form of websites and hyperlinks.
Web 1.0 (1991-2004)
Web 1.0 enabled people to reach online content published on websites by its creators and become users. A distinctive feature of that time was static content (rather than dynamic HTML). The websites were not really interactive, users could only read things that other organizations published. One other feature, which I’ve already mentioned above, was the decentralization of the internet, which meant the content came from different file systems rather than a database system.
Issues with Web 1.0
The internet of that time had technical issues and wasn’t affordable to many. It was also hard to load your own information since the internet wasn’t widely spread and there were no modern-like tools for developers. Content on the internet was created by just a handful of people and mostly represented an e-library.
Moreover, it was impossible to control or protect copyrights and intellectual property. If an article appeared in Web 1.0, no one could check where it came from: was it original or did somebody just copy the work of others and publish it on the internet?
It led to the understanding that content makers and content consumers needed an intermediary that would take the role of regulatory body.
Web 2.0 (2004-present)
For so long, if you wanted to invest in music you needed to fork over millions of dollars to purchase an artist’s catalog in order to reap the rewards and get paid every time a song is played. Today, blockchain technologies open up a new way to invest in the music industry.
As we’ve already mentioned, currently most people acquire NFTs not to profit but to support a favorite artist or to feel the ownership of a legendary item. If you want to buy an NFT as a lucrative investment, it’s important to find a product that you can purchase in the usual way, by going to one of the platforms selling NFTs (beware of scammers), choosing a digital asset, and paying with a cryptocurrency accepted by the service.
Then social platforms appeared and passing the registration process meant users losing their anonymity. Today we invite foreigners to stay in our homes via Airbnb, and are ready to get into a stranger’s car via Uber or car-sharing.
So, the development of smartphones with fast mobile internet attracted the world to always stay online. The development of social networks (mostly by giant corporations) + smartphones forced people to abandon their anonymity, though besides consuming, users began producing content. However, this still wasn’t enough to fully switch to the centralized model. The major role here was played by the cloud services.
Big tech realized that the development of their services requires huge resources and that keeping and supporting such “rooms” with servers makes no sense. It’s much easier and more beneficial to rent needed server capacity and instead focus on the development of their own business. Facebook, Apple and Netflix use the services of Amazon, Google and Microsoft. Therefore, almost all the information and data these companies own are being stored in one place. This is centralization.
Issues with Web 2.0 (Today’s Issues with the Current System)
In the current system, the big companies are running the world by controlling users’ choices and behavior. All the platforms, providing various services, are focused on attention economics. This means their activities are aimed at grabbing your attention and keeping the user there for as long as possible. From this point of view, Steam and Netflix are competitors. Which company will grab your attention tonight: the one where you can play a game or the one where you watch a series?
The more attention the platform keeps, the more advertisements and recommendations it can show, the more influence with a certain agenda the company holds over different groups of users. With the power to predict and control human behavior, mood and preferences, it’s easy to sell anything to them.
One example would be the 2016 US electoral campaign involving Cambridge Analytica. The company says that its political wing “combines predictive data analytics, behavioral sciences, and innovative ad tech into one award-winning approach.” They were running targeted advertisements to Facebook users depending on their personality. The company aimed to persuade users to vote a certain way by showing different advertisements on the same issue, to different people. The persuasion was done by gathering information on the Facebook page likes of users and leveraging that data to create models that predict personality.
With such a system brands are capable of making us spend money we haven’t even earned yet on products we do not actually need. We see one advertisement and immediately want to make a purchase. Moreover, users are tools in this approach. After posting a comment, this comment no longer belongs to us and works for the platform, keeping users’ attention and making them participate in the discussion. We feel like expressing our opinion but it’s the company that earned money from it. We share an interesting moment with our followers on Instagram but again, it’s the company that made money from it.
The next problem is centralization. As already mentioned, 3-4 companies provide the major part of all server capacity which means all information from all platforms are stored in the data centers of these four companies. More precisely, the backend of 90% of all the websites on the internet are hosted by four providers. It’s beyond belief! And might also be unsafe. Annually, companies spend about $100 billion on cybersecurity. At the same time, the damage caused by cyberattacks is expected to reach $10-15 billion by 2025.
Besides hackers, the stored data can be used or blocked by the decisions of separate governments. Censorship is currently a relevant issue all around the world.
Web3 is expected to lead us once again to the decentralized internet. So, should we welcome slow connection and the complete loss of copyrights? Of course, not. We want to save all the benefits of Web 2.0 and solve the issue with regards user privacy. We don’t want companies to sell our personal data, we instead want to decide for ourselves which advertisements we want to see, and we would also like to track the use of our own content on the web. And get paid for it. Sounds crazy, right? Let’s now see if this is even possible as well as what new challenges Web3 creates.
Decentralization is expected to be reached with the use of blockchain technologies. Blockchain is a distributed database, or ledger, that is shared among the nodes of a computer network.
We may describe Web3 as the next age of the internet. A decentralized and therefore open, verifiable, trustless and permissionless age.
We may describe Web3 as the next age of the internet. A decentralized and therefore open, verifiable, trustless and permissionless age.
Verifiable means that any content, once published by you, can be tracked through the blockchain and your ownership is easily proved. A good example of ownership through the blockchain is NFTs, which we discussed previously in our article “WDH is music royalty NFT?”
Besides provable identity, Web3 relies on open-source software built by an open community of developers. You may have more thoughts on the subject of open source in our separate topic, but the long story short is that the code is publicly available, which means anybody can contribute to the development of the technology or verify the validity of the apps (or better to say DApps) they use. It also creates some additional risks, which we will discuss a bit later, but in general this approach comes in handy.
We also called the network of the future “trustless.” You don’t think it’s because you can’t trust Web3, do you? Well, it’s vice versa because Web3 eliminates a trusted third party during the users’ interactions, just like in the origins of Web 1.0 but now intellectual property can be protected better than ever. All the reached agreements are stored on blockchain and you don’t need any other person while making a deal with a user.
And finally, “permissionless” means that both users and content makers can participate without authorization from a governing body. It’s a controversial subject since there is a different point of view saying that without the participation of a regulatory body, there won’t be any global evolution of the internet. Companies and states don’t like losing control and income, nevertheless, as soon as they find a way to earn using a new business model, they will put every effort into making the internet decentralized. The same is happening with electric cars. Cars with ICE (internal combustion engine) generate a stable income but governments instead decided to support ecology and preserve natural resources. This prompted the same companies that yesterday sold cars only with ICE to promise to switch to electric cars as soon as possible because they found a way to earn more within the new business model. Big tech will also find a way to benefit from decentralization and will still keep a huge share of the niche.
Saying that, Web3 is permissionless, which means that any content, once published, stays available as long as there is at least one node in the blockchain network it’s on. Since there is no “center,” it means no one is able to delete any files from the blockchain or ban certain websites. At least, that is how we expect it to be.
Who decides how the internet should develop?
It’s probably still those deciding upon Web 1.0 and Web 2.0 — time and circumstances.
After Web 2.0 was described as a term, people expressed their beliefs on what Web 3.0 would be like. Tim O’Reilly assumed that humans, as an unreliable intermediary, are not required to publish information on the network and suggested understanding Web3 as already familiar to the Internet of Things. In 2006, Tim Berners-Lee, the one who created the World Wide Web, coined Web3 as the “Semantic Web” and until recently his theory was the leading one. Web3, as a semantic web, means that the content of the web pages is understandable for a computer, or machine-readable. In 2014, Gavin Wood, one of the cocreators of Ethereum, described Web3 simply as “Less trust, more truth.” Jason Calacanis, Head of Netscape, worried about the poor quality of content provided by users and looked at Web3 as the network where talented people will create high-quality content.
Today, to the concept of the pure semantic web the blockchain was added. And we understand Web3 as the decentralized internet built on blockchain technology.
Web 1.0→Web3 Summarized
Web 1.0 is characterized by static pages and content that came from a file system — not from a database system. Therefore, Web 1.0 was decentralized with websites limited in their functionality and only a handful of content creators.
Web 2.0 is most commonly considered where we are now and is the era of mobiles, socials and clouds. Users have received constant access to the internet and the power to generate their own content. However, they paid with their privacy and attention instead. Web 2.0 transitioned to the idea of “the internet as a platform.”
Discussions regarding the future of Web3 are still ongoing. We express our expectations based on the actual steps taken towards its development. Therefore, Web3 should solve the problem with the lack of user privacy and bring more control to them. Since Web3 is not here yet, there might be contradictory opinions about it, which we will discuss further. But still, it’s mostly believed that after coming through some challenges, blockchain will become the fundamental technology for the future of the internet.
When will Web3 arrive? No predictions here. But the technologies, applications and projects that already exist or are being developed we will discuss in our next chapter!
Part II. What Web3 brings
As we know, Web3 is a concept, an idea of the future, which today unites like-minded developers to create decentralized projects and features. This is what Web3 brings, and the list of startups in the decentralized web is constantly expanding. In this part we’re going to take a look at some of the browsers developed following the idea of Web3, consider decentralized applications and finance, acquaint ourselves with tokenomics and self-sovereign identity, and we’ll also discuss management principles in the decentralized world.
Brave Browser serves as a web browser to surf the internet like Google Chrome, but with several features. Brave promises privacy and security, a rewards system based on BAT (Basic Attention Token) and a crypto wallet built into the browser with no need to install any extensions. The description is really optimistic. It says that you can set Brave considering your needs by importing the history, bookmarks/favorites and extensions from your previous browser and that Brave Browser works faster and protects your “valuable attention” from salesy ads.
We used Brave whilst working on the current project to share a real user experience with you. After a month, it left a good impression. First of all, the import from Google Chrome works smoothly without any headaches. While surfing the internet you’ll face no ads, except those you consciously decide to watch in order to experience the reward system. How does it work? Brave offers you the chance to visit the websites of its partners to earn BAT. It’s hard to say that you’ll actually earn anything, but a small reward for spending seconds of your attention is a pleasant feature. For two weeks we were rewarded 130 BAT (a bit over $0.1), after which we disabled all advertisements.
It’s also worth noting that the currently offered advertisements are kinda monotonous and often useless. There are mostly crypto exchanges, crypto wallets or some virtual games to “win” crypto. For sure, it depends on partners that officially registered their activities in Brave Browser. So, if the browser continues to grow then we may see many more interesting ads with an opportunity to support our favorite creators.
As we said, you can switch off all advertisements entirely. Despite Chrome extensions that block ads (for example, Adblock), websites do not hide their content if you search using the active settings to block ads from Brave Browser. While free websites need ads to gain some income, in Brave Browser we can support confirmed creators with BAT earned on advertisements we already watched.
We cannot say much about the security of personal data but we noticed that sometimes you’re given a choice about whether or not to share your personal info with certain websites. We always refused and the websites still worked. That’s nice.
One more thing you might not be really happy about relates to the required CPU and RAM of the computer. Brave claims it requires less memory compared to other browsers. However, in case of a not super powerful laptop, Brave Browser takes from 800 to 2 thousand MB of memory, while Firefox requires only upto 800 MB. This may make the laptop quite slow. It happened only once during our research and there is a hope that developers will continue to improve their Brave technology.
To sum up, Brave Browser may be quite useful, fast and convenient. Brave currently has 62.4 million monthly active users (as of June 2022). Brave Browser and Basic Attention Token say that they’re focused on the popularization of crypto and DeFi (we will discuss this later). While it requires some knowledge and experience to use, with their browser it’s simple and natively understandable for everyone. Is this true? You decide. Besides Brave Browser, we have alternatives, of course. For example, see Opera’s new Web3 initiative.
It might be quite complicated to understand what Сyber is. It’s also something like a browser but not the type we are used to. It uses IPFS technology to store data decentralized (more detailed about IPFS further) and creates cyberlinks. Despite hyperlinks that connect links with information stored on the server, cyberlinks connect the search word and the content. Cyberlinks bring together information spread on IPFS. Since this data is stored on “different computers” (decentralized), nobody can replace the stored information, while this is still possible with information kept on the centralized server.
“Well, it’s a safe way to surf the internet!” you may think. Here is the link to the future miracle of Cyber technology: https://cyb.ai/search/help. It’s a half-baked idea still. If you know more about it, please share your knowledge with us in the comments. It would be really nice to learn how to use Cyber if it’s as safe and promising as described. However, the idea of Cyber proves the semantic focus of Web3.
IPFS + Filecoin
“The web of tomorrow needs IPFS today,” says the official website of IPFS. But what is it and how is it used?
Our expectations are really high when it comes to the web. We need content and web pages to load instantly and be constantly available. With the centralized model of today’s web, companies can easily control how fast their services work. So, the centralized internet has its benefits. We’re not ready to abandon all the benefits of the centralized internet and take a step back to slow but secure loading. The lack of alternatives is one of the reasons why we still share personal data with anyone who asks on the internet.
IPFS, the InterPlanetary File System, aims to surpass HTTP in building a better web for all of us. They want to make the web completely distributed by running it on a P2P network. When you want to download an image, HTTP shows exactly where this image is located by its IP. This is called “location-based” addressing. In the case of the location for a desirable file not being accessible (for example, it may be blocked in your country), you won’t get this image. However, there’s a high chance that somebody else managed to download this photo before the server went down. The issue is, however, that we can’t just grab the file from the other person’s computer.
To fix this, IPFS moves from “location-based” addressing to “content-based” addressing. Instead of saying “where” to find the file, you say “what” the file is that you want. This is the system explained in as simple a way as possible.
Every file has a unique hash (or name), called content identifier (CID). When you want to download the file, you ask users if they have the file with the same CID that you need, and someone on the IPFS network will provide it to you.
Moreover, the security is already built-in. When you receive a file, you just need to compare the hash you requested with the hash you received. If they match, then you received the confirmed version of the file you asked for. Another benefit is deduplication. This means that files with similar CIDs will be created only once, which makes the network very efficient.
Files in IPFS are stored in smaller chunks of 256kb maximum. After the file is loaded and cut into smaller parts, IPFS creates an empty object that links to all the other pieces of the file.
Once something is added to IPFS, it can’t be changed. When you upload another version of the document, the system updates your file and links to the previous version. Therefore, IPFS supports the versioning of your files. The process of updating can be repeated endlessly, and IPFS ensures that your file plus its entire history is accessible to the other nodes on the network.
However, nothing is perfect. The main problem of IPFS is keeping files available. For example, if a specific file is hosted by 4 nodes (computers), and all of these nodes go offline, then that file becomes unavailable and no one can grab a copy of it. To solve this problem, the team of IPFS has created Filecoin, which is basically a blockchain built on top of IPFS that wants to create a decentralized storage market. If you have free space on a computer, you’re welcome to rent it out and earn some coins. Filecoin creates a strong incentive for nodes to keep the files online for as long as possible because otherwise they won’t be rewarded. The system also makes sure that files are replicated on many nodes so they cannot become unavailable. It’s high time to find your old computer, connect it to the internet and leave it in the storage room sharing the empty memory with other users and producing for you some coins.
DApps (dApps, Dapps, or dapps)
A Decentralized Application is any program (not only a mobile app), the back-end of which is running not from a centralized server but is based on a blockchain (only a smart-contract network).
The back-end of a program is like the engine of the car. The driver doesn’t have to know how everything works, we just want the car to move when the gas is hit. However, we can imagine how many processes are necessary for this to happen. Same with software development. While surfing the internet and interacting with elements on the website, we only see the work of the front-end developer. An attractive animation, loading bar and a smooth scroll are the tasks realized by the front-end developer, but the heavy lifting processes that run the application and provide value to it, being invisible for the user, are prepared by the back-end developer, database and infrastructure engineers.
The front-end part of DApps can be displayed in our browsers, while the back-end computing is processed on the blockchain. We mentioned that only a smart-contract network is suitable for the development of a DApp. A smart contract is a code that makes up a program so that it can be run to do more complicated things. One of the smart contract features allows two parties to enter an agreement written as a piece of code, which will be automatically executed once particular agreement conditions occur, so they do not need to trust either each other or a third party notary, they just trust the code instead. Taking into account that the engine processes are hidden from users, we won’t see any difference using DApps if they look like a common website or application.
Now we’ll briefly explain what types of DApps already exist and why people use them (benefits of DApss). You will also find some links to the DApps so you can have your own experience.
We can use a decentralized application in DeFi, or Decentralized Finance. DeFi is a new monetary protocol that uses blockchain to allow investors to do new things with their money. DApps allow people to make transactions in DeFi, which include borrowing and lending, providing liquidity (a new form of relations between traders and investors based on the operations with tokens) and exchanges.
One of the most popular ways of trying DApps is Game DApps. Many of these are based on NFT assets, which can be earned or sold during the game. Along with games we have gambling applications, and there is an absolutely massive list of blockchain gambling websites out there. One more category is marketplaces where you can buy, sell and even create new NFTs.
There are a lot of projects already existing and still many new ones emerge every day. What is so special about DApps except for their safety and our personal data security?
The great benefit of DApps is open source development, which we will discover in more detail in one of our next projects. Open source allows anyone to get access to the code, which again leads to much more trust in the application. On the opposite side are centralized applications and platforms that do not disclose the code working behind their features, and we can’t check what types of personal information the company uses and where it goes, as well as where it came from.
One more feature is that DApps are censorship-resistant. Once the code is triggered, the program starts working and no one can interrupt it. This is both good and bad, depending on the purpose of the developer. But that makes a big difference in the financial sector. Government can control its citizens’ money in banks, and Facebook can control our accounts and block it if they wish. The decentralized application does not allow this.
And the final benefit worth mentioning is that DApps are built in a way to never go offline. Sometimes it happens to centralized platforms that they’re down for a short period of time. The reasons may be different: maintenance break, outage, ban due to official decision, or they simply do not work. The same might happen with the visible part (front-end) of most of the DApps, however, the idea of DApps is to be run on hundreds of thousands of computers all around the world. Since it’s infeasible to turn them all off, the data of an app, stored on the blockchain, is safely preserved and will never be lost. Therefore, applications can be easily restarted with all the information restored.
But before getting too excited we should also understand that there are still tough shortcomings. We will discuss all the disadvantages and challenges of Web3 a bit later. For now, let’s take a look at decentralized finance.
Decentralized Finance (DeFi) is another promising aspect of Web3. This brings new investment tools and opportunities to manage our money. We’ll quickly take a look at DeFi to understand what it is, its benefits and its principles. If you want to dive deeper into DeFi, just let us know and we’ll be sure to have more to discuss here.
First of all, there are no banks in DeFi, there are pieces of code instead. It’s open to anyone (again) and doesn’t ask you to trust the program — you can read the code and verify it’s not going to scam you. The code won’t limit your operations based on any conditions and it’s also believed to be much cheaper than centralized finance. It’s just a code that is set in a certain way.
DeFi is built on cryptography (secure communication), blockchain and smart contracts. DeFi consists of five main elements.
Stablecoins. We can understand this as a bridge between centralized and decentralized finance. Stablecoin is a cryptocurrency, which is matched to real-world assets like the US dollar. We may use them to avoid extra payments (fees) when we sell cryptocurrencies (like Ethereum) at a gain to something equal in dollars and then buy this crypto back when its price falls. We don’t want to withdraw them, therefore we don’t want to pay extra fees for the sell and buy transactions with ETH. We use stablecoins for this. By the way, this is much faster and the transactions (as well as the amount and quantity of transactions) are not limited.
A new way of lending and borrowing. In the blockchain, borrowing is based on smart contracts without a third-party interaction. However, it’s convenient (and actually reasonable) only if you borrow coins (not USD) to trade further in the DeFi and then pay them back. In the case of lending, coins and money work in the same way. You will receive your interest either way. Another tool for traders is a “flash loan.” By signing a smart contract for a flash loan, you may receive millions of dollars to buy tokens in one marketplace before immediately selling them in another marketplace in order to make a small profit. Taking into account the fact you operated using a large amount of money, the profit may be substantial.
Decentralized Exchanges (DEX) allow users to exchange their coins for, usually, tiny fees. Decentralized Exchanges also bring to the world a whole new variety of tokens and coins. Since the centralized exchange is regulated by the government and can only present tokens that comply with their requirements, DEX is regulated by anyone and is happy to introduce new coins as soon as they appear on the market.
Smart contracts also allow making insurance digital. They’re going to work the same as in the real world but the conditions will be written in a smart contract. If an insurance claim is made, the person gets paid. To verify the conditions that are happening in the physical world, we need oracles, which are another bridge between the physical and digital worlds. An oracle can be represented by a group of people who verify whether the insurance event complies with the set contract, and based on their decisions (made independently from each other), the person receives payment (or not).
Even though Web3 is not regulated by the officials or certain platforms, we still need somebody to determine and point to the direction of the development of separate projects, and partially the whole Web3 concept. DAO (Decentralized Autonomous Organization) is an organization, the participants of which are making decisions by voting with the coins issued within the project they are investing in.
Giant companies also hold meetings of their board of directors where guys in business suits are discussing the next steps their company will take. Then the CEO of the company takes control over the implementation of the set plans and regulates the working flow to achieve the goal.
DAO has no managers, CEOs, leaders, or board of directors. At first, a project is launched by several developers and they fully control how it goes. When the project becomes strong enough to be run autonomously, the initial developers give the right to make all further decisions to the investors. People who keep the tokens of the project can vote for its further direction of development. Usually one token is one vote. Some DAOs have a limit, which says that you need to own a certain amount of tokens to vote. Autonomy comes when the decision is set and written in the code. Everything then works without human participation.
DAO is based on open source, smart contracts and cryptocurrencies and, of course, everything is recorded in the blockchain. It leads us to the already well-known benefits.
First of all, the project doesn’t depend on the leading developer or founder. The code should keep running no matter what happens. External factors, such as the decision of the platform to block access to its services to certain countries, also can’t interrupt the process. Everybody, including the government, needs to come through the voting process to apply any decision.
Another benefit is open source, which we’ve already briefly discussed above. Besides the fact that code can be checked, it’s also contributed to by many developers interested in the project from all around the world. They can help to find bugs and even perform a solution.
We will discuss all the disadvantages in the next chapter. There are several examples of DAOs: Gitcoin (one of the ways to explore and join the development in open web), MakerDAO (a cryptocurrency project), and Aragon (a DAO that helps to create DAOs).
Self-sovereign identity (SSI) is a method of identity used in Web3 to return control over personal data back to the user. Simply stated, we want SSI to avoid storing personal information on a central database and control what pieces of information we want to share in order to prove our identity. Therefore, SSI is also known as a user-centric approach, which allows exchanging authentic and digitally signed information in a much more secure way.
We often need to prove that we are who we are claiming to be. In physical reality, we have paper documents that confirm our identity. We are used to trusting public organizations that issue passports, driver’s licenses, birth certificates and so on. The problem here is that sometimes we provide more information than the third party needs to confirm certain details. For example, you may be asked to use your bank statement to prove your living address. Therefore, the third party receives additional information they didn’t initially require and we don’t know where this information goes or where it is stored. Moreover, the current system doesn’t protect from forgery (e.g. fake COVID-19 vaccination certificates).
Digital identity may help us to overcome the stated issues. Gov.uk says that digital identity is an easy way to verify who we are without physical documents, and it can also help us to prove things about ourselves, such as our age or qualifications. However, the existing problems we have now with digital identity derived from similar problems using paper documents.
To set the system in the right way we appeal to self-sovereign identity, which is a more user-centric approach, as I’ve already mentioned at the beginning. With SSI we don’t need to keep information on a central database. We keep control over what information we want to share. Unlike the existing system, it’s a user-centric and user-controlled approach to exchanging authentic data in a much more secure way. Authentic data is information the source of which can be proven. McKinsey Global Institute research believes that the popularization of digital identity in the UK can lead to economic growth numbers in the country of 3-13% by 2030.
Without deep diving into technical issues, we just need to understand that SSI works on the blockchain (what a surprise…). The identity and other personal information can be trusted after the process of cryptographic verification is completed. It should be cryptographically secure, privacy-respecting, and machine-verifiable. It is all achieved through the use of decentralized identifiers and decentralized identifier documents. Where do we access self-sovereign identity?
While some haven’t heard about SSI at all, others are applying the technology to combat industry-specific challenges (e.g. IATA Travel Pass). SSI is receiving more support, and 2022 is expected to become the year for global SSI adoption. We can also find cases of SSI use in the banking sector. The technology improves a customer experience since it can simplify the repeating actions to prove the identity during a bunch of operations or transactions. Therefore, the KYC (Know Your Customer) process becomes easier for both banks and clients. The technology finds its place in the NFT industry as well. Self-sovereign identity helps to prove both the creator and current owner of an NFT. What SSI use cases can you come up with? Share in the comment section.
The crypto industry is always bustling with several digital assets, tokens being one of them. The study of the economics of crypto tokens, or cryptocurrencies, is called tokenomics. It fundamentally involves studying the factors that impact the demand and supply of tokens. These factors include the quality, distribution and production of crypto tokens.
Seth Klarman, an adherent of value investing, writes in his book “Margin of Safety” that, “In the short run supply and demand alone determine market prices.” If we consider this to be true and that it applies to crypto-assets, then understanding the factors that will impact either supply or demand are of vital importance to both speculators and investors. In that case, there are several factors to consider when looking at crypto tokenomics. Perhaps the most important is to understand how the digital currency will be used. Is there a clear link between the usage of the platform or service and the asset? If there is then there is a strong chance that a growing service will require purchases and usage that ultimately support the price. If there is not then what can the token be used for?
Here we just wanted to say that the development of a whole new industry requires the development of a new study to understand how the former operates. Tokenomics may provide us with some theories and knowledge and can help us to save and earn money through investments in this fast-growing sector of the economy. If you want to know more about tokenomics then let us know by leaving a comment below.
Part III. Web3 has its issues
Nothing is perfect. Some people believe Web3 will change everything for the better and others say Web3 is no more than a picture to fool us. “It’s a bunch of fluff!” they claim. We will call its advantages and disadvantages. The first group we have already discussed: all these hopes for the next generation of the internet, new jobs and entertainment, data security, convenient services and revolutionary apps. It’s now time to look at the opposite side. What’s wrong with Web3?
Decentralization is the main pillar of Web3. At the same time, it’s one of its biggest concerns. To understand some of the aspects we need to take a look at how blockchain and servers work, and we’ll try to explain everything in simple phrases.
Decentralization is the main pillar of Web3. At the same time, it’s one of its biggest concerns.
The first thing we want to discuss is decentralized management. As you remember, we have DAOs (instead of CEOs and boards of directors) that are responsible for the further development of the projects in Web3. DAOs adopt decisions based on voting. Everyone who owns tokens of a certain project may vote. One coin = one vote.
While preparing the project there was one example, which aimed at proving the efficiency of DAOs. It was said that governments can’t influence Web3 projects without voting. So, if you want to implement any changes in the code, your suggestion has to be supported by most of the votes. But what if you’re extremely rich? You found a startup with a DAO management system. Since the project is young, its coins are cheap. You buy the greater share of a project at the time it’s been announced as a DAO. And now what? Any decision needs your approval and any of your initiatives are automatically approved? Sounds quite centralized.
Of course, both DAOs and the Web3 projects use different tools to avoid such a scenario, and it currently looks democratic enough. Through this overplayed example, we just wanted to point out that we need to keep an eye on who and how many tokens are owned to preserve the decentralized and democratic management in Web3.
If you think: “It’s impossible to own most of the issued coins,” then let us recall that the digital world has already inherited some of the realities of the physical one. Among them is that 80% of the $41B market value of NFTs on Ethereum is owned by the top 9% of accounts. Furthermore, the top 2% of accounts hold 95% of the $800B supply of Bitcoin, and just a scanty 0.1% of Bitcoin miners provide half of all mining output.
Some people believe that the Web3 initiative is aimed at taking power out of the hands of the few richest people, enabling everyone on the web to have equal power instead. Therefore, they claim that Web3 has already failed. However, Web3 was never about to become Robin Hood. The introduction of the blockchain, DApps and decentralized management into our everyday lives is aimed at (at least it’s said it does) returning control over personal data back to the user.
The situation that 20% of people control 80% of the money is not new and it’s here to stay. Even looking globally, the theory says, the more resources you have the more values you’ll have access to. It sounds logical but you might have never heard of the social thermodynamics theories before. It’s correlated with the exchange of resources. Nothing comes from nowhere and nothing just disappears. Its nature tends to minimize non-equilibrium energy distributions, however, humans can invest their resources to attract more. At the same time, trying to save as much as possible, driving toward non-equilibrium states, will end up in the return to equilibrium being a dramatic event. This explains why the rich become richer, not because they’re talented in saving but because they know where to place their efforts.
We should emphasize once again: Web3 is not here yet, and we might be wrong as well since we operate with the existing technologies to predict what the future brings. However, in Web3, we need to ensure the management is decentralized and not to allow the leak of users’ data by the decision of a separate company to attract more income.
Besides issues with management in Web3, there are also other issues with decentralization in general. Blockchain works as a network of peers (P2P, peer-to-peer). This is an important part of the blockchain since it makes the system safe and powerful. P2P is a decentralized communications model in which each party has the same capabilities and either one can initiate a communication session. Users share their data amongst each other without the use of a centralized administrative system. The network itself serves as a transmitter and doesn’t control the users’ information.
When you’re connected to the blockchain, your computer may work as a node, and it will provide part of its resources and memory to support the work of the chain, so you use the data stored on the blockchain and make some invisible computations to make the system go.
It’s a very simplified explanation of how the blockchain operates. This system leads to several Web3 issues, which are not often revealed. The first is that people are not ready (and don’t want) to run their own servers. The second is that a mobile device or web browser can’t work as a node but we want them to connect to the blockchain to display the information contained there. Now for some more details.
If we appeal to the evolution of the web, we will find out that Web 2.0 became centralized and popular because companies offered a solution for people not to run their own servers — centralized databases. The greatest part of all information on the planet is stored by 2-3 companies. But people do not need to run servers, and companies that managed to benefit from the new centralized system became even more successful than those running servers for them.
So, why now will people launch their own servers?
Moreover, platforms (as one of the major aspects of the centralized Web 2.0) ensure the fast development of the technologies, vice versa if something becomes truly decentralized because it becomes very difficult to change and often remains stuck in time. To succeed, Web 2.0 took a 90s protocol that was stuck in time, centralized it, and iterated quickly.
After the theoretical part, let’s now take a look at the practical problem. To be rendered on mobile or the web, a DApp needs to interact with the blockchain, however, we recall how this is impossible for a client to do since the blockchain is unable to live on your mobile device or in the desktop browser. So the only alternative (for now) is to interact with the blockchain via a node that is running remotely on a server elsewhere. Therefore, we are witnessing companies that sell API (remote) excess to a blockchain node, which they run as a service. To expand their business, they also provide analytics, additional services built upon the default blockchain APIs, and access to transaction history. Almost all DApps use either Infura or Alchemy to interact with the blockchain. These companies work as intermediaries to provide DApps with information stored on the blockchain. They talk to the blockchain and return the responses back to the application.
So much work, energy, and time have gone into creating a trustless distributed consensus mechanism, but virtually all clients who wish to access it do so by simply trusting the outputs (system responses or results) from certain companies without any further verification.
Once a distributed ecosystem centralizes around a platform for convenience, it becomes the worst of both worlds. It receives centralized control but is still distributed enough to be “trustless.” Some companies are just trying to develop a solution so everybody can use decentralized services without a need to run their own servers. However, the Web3 community may expect some other outcome than what we’re already seeing. For a truly decentralized future, we have to resist the temptations of instant user interface gratification and extremely simple API integrations that depend on data centers. Currently, even the most successful DApps only put very small portions of their code on the blockchain as it’s too expensive.
Unfortunately, the situation with NFTs is ambiguous as well since they challenge almost familiar problems. But people will not give up so easily and we hope for new solutions to be introduced soon.
Along with new technologies, we often bring to the world a new way of scamming people. We are presently in the gold rush stage where the technology is not yet perfect (and in some cases is far from being perfect) and some individuals are glad to use the human desire to make a fast buck in order to trick them and take their money. Fake projects do not help attempts to reach the future and because of them many people are afraid of trying new things.
However, this is our reality — be it physical or digital. What we need to do is to be careful (not scared (!) ) with attractive new applications and coins. Projects are appearing every day! Many developers are interested to feel how DApps work and create one on their own. Many projects are really promising and useful for society, but for ordinary users, it might be hard to distinguish the startups that are valuable.
“They can read the code to know how it works! Web3 is based on open source development,” Web3 partisans may claim.
And they’d be right. The code is open for everyone. But not everyone can understand it. However, it’s still your personal responsibility not to be tricked or scammed. The main thought here is just to be careful and try to avoid the gold rush.
State and Law
Projects and coins built on the blockchain are hardly following any of the existing law systems. This allows speculation with crypto assets that are almost out of the control of any state (despite the traditional exchange, the participants of which have to strictly follow the set rules).
Some governments may also be unhappy with the technology that exists to avoid taxes, hide personal information and which does not follow their standards. However, they have no idea what to do with this technology. Some states accept the game and expand payment systems so people can pay using cryptocurrencies, and take some ordinary taxes instead. Others have launched state projects to help startups in Web3 to address real-world problems. Others still try to restrict the blockchain to stop uncontrolled data exchange.
Sooner or later, governments will tighten control over cryptocurrencies and crypto markets. It is likely they will reduce the amount of scammers and, therefore, the total number of projects as well. Currently, there exists only 159 physical currencies vs more than 17,500 cryptocurrencies. It’s a similar situation with companies listed on the stock exchange. There are currently 2,800 companies listed on the NYSE, which is only a small portion of the total number of existing crypto tokens.
Let’s hope that in the end governments, big tech and innovative developers will work together to bring the best of Web3 into our world and that all scammers will be taken down.
Part IV. Opinions
There are still many questions to ask and theories to prove or counter related to what Web3 will be like. We’re going to share the controversial opinions of different people, who expressed their guesses about this question based on their beliefs and knowledge. Some of them are famous for their contribution to the development of the internet, and others are average users. If you agree or disagree with any points of view of an author, or if you have your own vision of Web3 and future technologies, share your opinion in the comments!
As we remember, Tim O’Reilly is the person who defined “Web 2.0” over 15 years ago. On December 13, 2021, he claimed that it’s too early to get excited about Web3.
Tim O’Reilly believes (based on his experience) that we are now in the cycle of decentralization and recentralization. He says that with every step taken towards decentralization, there is one to appear to centralize everything back. E.g. Bitcoin is a purely decentralized system, isn’t it? Tim O’Reilly says “the rapid consolidation of bitcoin mining into a small number of hands by way of lower energy costs for computation indicates one kind of recentralization. There will be others.”
He also considers that Web3 is now a big hype in terms of finance. Cryptocurrencies aim at becoming the future of finance. But at the moment, it’s more like trades of speculative assets that may be wildly overvalued. At the same time the author expressed his opinion that crypto democratizes access to investments, making it possible to invest directly in over 1,150 crypto assets worldwide. In theory, the only true barrier to entry in crypto should be awareness while no accreditation is required. However, Tim O’Reilly claims that neither venture capital investment nor easy access to risky, highly inflated assets predicts lasting success and impact for a particular company or technology. It means that fund managers will still be demanded in Web3, helping you to make conscious choices upon your investments. What has changed is that your 10 USD is enough to start, while previously investments were available only for more wealthy people.
Tim O’Reilly notes that he’s trying to avoid making comments on the future, since “most prognostications about the future turn out to be wrong.” So, we should remember that it’s only his opinion and in his article, Tim O’Reilly refers to investors and developers who are of one mind with him. Therefore, we will consider that the opinion of Tim O’Reilly has combined and introduced the main idea of several investors with a familiar point of view.
Another opinion that may be added to the group “against Web3” was shared by Paul Brody. As far as I know, Paul Brody isn’t a “famous” person (yet), so, for context, he is Ernst & Young’s global blockchain leader and an author on CoinDesk.
Paul Brody begins his article with the phrase “Web 3.0 is too complicated” (from the technical and user-behavior point of view). He warns that if we are not careful, we risk repeating some of the dark patterns of Web 2.0 in the Web3 era. It’s close to one of the issues with Web3 we described in the previous chapter. The main technical issue, in his opinion, lies in building good blockchain interaction tools. While the major user-behavior problem is that we’re used to quick responses from servers, which is hard to achieve with a truly decentralized approach.
Elon Musk & Jack Dorsey
Tesla CEO Elon Musk and Twitter co-founder Jack Dorsey also shared their views of Web3.
Long story short, Elon Musk said: “I’m not suggesting Web3 is real — seems more like a marketing buzzword than reality right now.” The statement of Jack Dorsey has already been spread and discussed on the web thousands of times. Our turn! The opinion that Web3 is a scam is also among the most shared. We will consider how Jack Dorsey explained it in a polite way by stating that Web3 is “ultimately a centralized entity with a different label,” and that venture companies “will never escape their incentives,” and they will be the ones who ultimately end up owning Web3.
Of course, opinions are based not only on the quotes of like-minded people, but there are also counter-arguments. We will now take a look at the positive thinking regarding Web3.
Investor Chris Dixon
One of the most popular opinions that supports the development of Web3 is based on the existing technologies and the hope that we will manage to apply them in the right way.
“Before Web3, users and builders had to choose between the limited functionality of Web 1 or the corporate, centralized model of Web 2. Web3 offers a new way that combines the best aspects of the previous eras. It’s very early in this movement and a great time to get involved,” said twitted investor Chris Dixon.
Such opinions often go with the phrase “it’s too early.” Well, yes, nobody ever said that Web3 is a completed product, and all opinions, both for and against, are built on predictions and history.
Most investors, developers and users who believe that the Web3 benefits will overtake its weaknesses are already putting their efforts and money into the development of the technologies and services. Their opinion is expressed in the best possible way through their actions.
Web3 needs a more user-centric approach and vice versa, users who are eager to protect their data and take control over their information need to contribute to Web3 (and not necessarily money). Web3 may change the way we use the internet. It will bring new services and may become a new reality. We will watch the process and do our best to ensure it moves in the right direction.
Part V. Investments
Please be advised that the presented information is not investment or financial advice, trading advice or any other type of advice. The author does not take responsibility for any decision made based on the provided content. This content is purely for information purposes and the author does not take responsibility for any missing or wrongful information. Any information included should be used at one’s own risk.
As usual, there are several ways to earn with new technology. First of all, we want you to remember that many of the coins, NFTs and any other assets in Web3 may be speculative and meaningless. Be careful choosing your token.
We can invest in certain coins. There are many “Top-5 (10, 15) cryptos to blow in Web3” on the internet, but it’s always important to determine the business model standing behind it.
There are also several indexes watching the development of the technology and real engagement in Web3. One of them is The Web3 Index. This currently includes only 8 projects (at time of writing), while there are a lot more of them in Web3. It’s said that the index reports on the demand-side fees being paid into Web3 networks, which showcases real usage. The feature of The Web3 Index is the use of a fundamental index methodology. While most indexes in DeFi are based on market capitalization or “total value locked (TVL),” the fundamental index methodology is believed to provide more accurate estimators of a network’s intrinsic value, rather than the listed market value of the project. Therefore, indexes that use a composite of several fundamental factors attempt to average out sector biases that may arise from relying on a single fundamental factor.
DeFi Index (DFX) provides a market-cap-weighted benchmark for a representative basket of DeFi sector cryptocurrencies. It was launched by “professional investors” operating from regulated jurisdictions that are integrated with global financial markets. DFX is composed of 5 assets (at time of writing) suitable for long-term holding based on their measured liquidity, their support by “reliable” service providers and their longevity among the most-valued crypto assets.
Web3 is a somewhat ambiguous term, which makes it difficult to rigorously evaluate what the ambitions for Web3 should be. Today, we understand Web3 as the internet built on the blockchain. The general thesis seems to be that Web 1.0 was decentralized, Web 2.0 centralized everything into platforms, and Web3 will decentralize everything again. Web3 should give us the richness of Web 2.0, but decentralized.
Web3 relies on three main pillars. The first is decentralization, which is achieved through the blockchain. Then open-source development to provide transparency to the system. The resources are accessible for everyone but owned by no one. Web3 also needs a provable identity. It means that everything (ownership and partners’ relations) is written in the code and run by the code. Therefore, partners in Web3 do not need a third party to prove the identity of an item or its owner.
New projects appear under the Web3 label on an everyday basis. We may distinguish those that already contribute to the development of the technology: IPFS, DeFi, DAO, SSI and DApps. The latter, being any program, may exist to solve any task. The future of all companies in Web3 is the interaction with the blockchain to protect users’ data.
Web3 surely has its issues and it’s because of them that many people do not believe this technology deserves to be called “revolutionary.”. The list of problems includes hard-achieved decentralization, fake and speculative projects, and issues with the legislation.
As I’ve already mentioned, not everybody is excited about Web3. While some people are already spending millions of dollars purchasing a land plot in the metaverse (more about metaverse in our recent projects), others call Web3 the gold rush and a huge bubble. Who is right? Time will tell. But innovative people put their work and money into making a better future for all of us. Let’s hope to witness the result. Moreover, progress never stops. Futurists are already dreaming about what Web4 will bring. Will people reach complete decentralization by providing connection for anybody anywhere by becoming independent self-sufficient nodes? How will we solve the problem with the lack of memory to store our data and not having to rely on the servers of large corporations? Maybe Web4 will start when we manage to produce more energy with less resources, which will bring more opportunities for each of us? Or it might be that decentralization is not much fun and we will return to what we have now. At this stage it’s hard to predict but we’ll definitely find the answer and new investment opportunities with every new step of world development. Stay with us for more stories and be sure to check our latest projects.
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