What does Web3 mean for the world?

What does Web3 mean for the world?

A simple explanation of what all this “crypto” stuff is.

Before we talk about blockchain, consensus, non-fungible or fungible, smart contracts, self-custody wallets, or any other part of what makes up “Web3”, we should try to understand why any of this matters in the first place.

What does all of this enable and why should we care?

Well, as Sergey Nazarov, Co-Founder of Chainlink, put it: “Would you, all things being equal, choose a less reliable agreement or a more reliable agreement?”

Well, the answer for any normal human being or group, be it your client, your company, or your government will always be to choose the more reliable agreement. That is what blockchain technology provides. A cryptographically guaranteed agreement based on verifiable truth secured with decentralized consensus. Simple as that.

Now, most people seem to be looking at the blockchain space today thinking it’s all about decentralized finance (DeFi). That it’s all about having an alternative currency to the US dollar. “Crypto” began to disrupt our global financial system built upon centralized control, yes. However, I will explain in this article how these cryptographic agreements bring so much more to the table. It enables a complete transformation in every aspect of our society, not just our easily manipulated fiat currency and in giving the finger to central banks.

Why do people want to change the system we have today?

Blockchain technology allows us to take out the middle man. To address the challenges and security concerns that come with our dependency on utilizing expensive inefficient intermediaries. Removing the need for a central bank in the case of currency, or Zuck’s Facebook in the case of our social media interactions.

Today the world is centralized in how we operate. From our financial system to our big tech companies and for many of us, even in our household hierarchy or our children’s school PTA. People somewhere make decisions on our behalf that affect our personal lives. We think we have a say and maintain control being that we participate in a democratic society and get to cast our vote, but we all know how well this is working out for everyone. This cryptographically driven revolution has been created out of an effort to push back. To cut down on corruption and overreach of governments, big banks, and greedy corporations. To bring transparency and inarguable truth to the entirety of global society. To allow us to not only control our data but to actually own it. And this was just the original focus. The sum of its parts has become far more powerful…

This sounds great right? Power back to the people, a more fair and transparent society, no Zuck’s leaching off our data. Sign me up!

So, what is a blockchain?

Well, simply put, it is a network protocol enabling a decentralized global and transparent ledger. In other words, it’s a database spread across many different computers throughout the world that no one person or group controls. It lives on top of the internet we have today. Blocks are added sequentially to the chain of previous blocks like a piece of paper is added to a stack to create a ledger. Blockchains like Bitcoin are immutable, meaning that they can never be altered. Once data is written into the ledger, it is permanent, cannot be altered by any one person or central group, and the on-chain transaction data is available for the world to see.

Just think what that would mean if we used this system today. The 2008 financial crisis never would have happened. We all would have been able to see and call out the inexcusably irresponsible and criminal behavior within our banking system trading mortgage-backed credit swaps as they were. Madoff’s ruse to the tune of nearly $65B would have been stopped the moment he stopped executing trades. Instead our system today allowed his ponzi scheme to go unchecked for over 17 years. Hell, even the Trump voting debacle of the 2020 election would have been a non-issue. With Web3 capabilities, we would have had a 100% accurate count of the votes cast the moment the polls closed.????

Okay, but how do we know the data that is written to the blockchain is accurate?

Well, this is where cryptographic consensus comes into play. Blockchains use consensus protocols, a way for a distributed group of users to come to an agreement. There are many different types that we will not go into today, but they are essentially a way to verify within a group that the information is correct.

Wait, we already have consensus in our system today. How is this any different?

Are you familiar with the Byzantine generals problem? The generals that are spread out all over the land needed a way to come to consensus, or agreement. The consensus protocols (e.g. Proof of Work or Proof of Stake) allow for decentralized consensus. Therefore, so long as the majority of the people within the network are good actors, everything is safe. There is a whole lot more to this but for now, just understand that the consensus mechanism allows the community to come to an agreement that the information is true. So, consensus protocols tell us the data is accurate and no one person or distinct group within the network can affect this. So long as the mechanism truly is decentralized. Simple!

Awesome, so what’s a smart contract?

A smart contract is a self-contained program that provides the logic needed to execute an agreement within a defined set of parameters. These are used to execute transactions and provide utility to the digital assets written to the ledger. Simply put, it’s a little bit of code that is told to do X, Y, Z if A, B, C parameters are met. You tell it to do something and if everything checks out then that thing is done. Pretty simple.

Wait, isn’t an NFT a smart contract?

Nope. Einhorn is not Finkle! An NFT is what’s known as a non-fungible token. It is a non-interchangeable unit of data stored on a blockchain. So, an NFT is a one-of-a-kind digital asset. Its “cousin” if you will, is the fungible token. An example of this is 1 BTC. It is able to replace or be replaced by another identical item, so it is mutually interchangeable. All BTC are the same and hold the same value. Both non-fungible and fungible tokens are digital assets. The smart contract is then the program that allows those assets to be traded or provide other services as in the example below.

So, do I have digital assets that I hold or trade from my banking app?

No. As of now, you will use what is being called a Web3 wallet. This is a self-custody wallet allowing access to the Web3 world and the use of dApps (decentralized applications). It’s simple. When you use a dApp, like an NFT marketplace where you trade these digital assets, you will connect your Web3 wallet. The application is then able to verify that you indeed have the NFT or funds in your wallet to meet the parameters of the smart contract and execute the trade.

Makes sense. Now, what is a decentralized application, or dApp?

Well, it is just like a normal application, just now it runs autonomously via smart contracts on a decentralized computing, blockchain system. Just like traditional apps, dApp’s provide some function or utility, typically through the use of smart contracts.

Okay, Let’s recap.

????So, a blockchain is a database that is spread across the globe on different computers that no one person or group can control or alter. A decentralized database.

????The chains use a consensus protocol to come to consensus, or truth, in a decentralized manner. Once they all give the thumbs up, the transaction is executed and data is written to the blockchain.

????NFT’s and currency units like BTC are the digital assets that are written into the database, securing digital ownership and value.

????Web3 wallets are self-custody wallets used to store digital assets.

????A smart contract is a small program that allows us to exchange value or give assets additional utility. We can tell them what to do in a way that automatically executes once all parameters are met.

????dApps are applications that are decentralized and leverage smart contracts to provide utility, or make things happen.

Cool, right?! Now you understand what a blockchain is, how it’s decentralized, how we come to an agreement on the data, what digital assets are, how smart contracts allow us to get work done, and the decentralized applications that use those smart contracts.

Are there other parts to this?

Yes, there are many other pieces that ultimately make up the greater Web3 ecosystem, These are things like oracles, Layer-2 blockchains (blockchains mentioned above are Layer-1), AMM’s, DEX’s, bridges, and even Layer-0's… it can get a bit complex so right now we are keeping the focus high level.?

So, what is Web3?

Finally! Web3 is the term being used right now to describe the greater blockchain ecosystem. It is a collective of all the competing blockchains, the oracles that allow access to off-chain data, smart contracts, bridges, wallets, and dApps.

????Web1 was the more mainstream adoption of the internet in the late 90’s.

????Web2 is the age of social media and leaching data, or the internet we have today.

????Web3 is the next iteration of the internet. An inevitable evolution of the technology connecting us all. New communication protocols living on top of our traditional internet enabling digital ownership and trust-less agreements.

Okay, this all makes more sense now, but I was told that NFT’s are all hype and this stuff will never take hold. Why would I want to own a JPEG that someone could just screenshot and have on their phone?

Great question. There is some misunderstanding of why NFT’s have value. If you take a picture of a Rembrandt or hang a print of it on your wall, do you own a Rembrandt? Of course not, all you have is pic on your phone or a $5 paper poster from Target! You do not own the Rembrandt or its value. Just like if you screenshot an NFT, you simply have a pic on your phone, you do not own that digital asset or its value. Your screenshot is not a digital asset on the blockchain tied to a smart contract providing utility. It does not allow you to do anything.?

Okay, that makes sense, but I do not understand art and was never into trading cards when I was younger so I do not understand why I would ever want to own one. How can we use these digital assets in everyday life and business?

Well, the new capability of programable assets, allows for entirely new business models that have never before been possible. Something like parametric insurance for farmers within developing countries, providing access to the same or better services farmers in first world countries utilize. A simpler example is one that I came up with for a company membership card.

You can create different NFT’s of the company logo. Each one has a different utility provided by the smart contract. Some may be programmed to provide a 5% discount, whereas others may provide a 30% discount and exclusive access to the first look at new product. It can really be any benefit that a company wants to provide to its customers.

You purchase the NFT, go to the site, connect your wallet, then your discount is automatically applied to your purchase without you having to do anything.

The coolest part is that you have true ownership of the NFT and can sell it on the secondary market if you do not use it. You get money back and so does the shop because in this example there is a 5% royalty for the shop programmed into the smart contract as well. I will go into detail on the benefits and how this works at a later time. For now, just understand that this creative new revenue stream is not possible without blockchain technology.

Closing Argument

In closing, this is very exciting technology. It is new, powerful, and disruptive to every part of our lives both professionally and personally. It is my personal belief that this technology is inevitable and will change the lives of every person on the planet. It is the best tool we have to fight back and create real positive change in the world. The level of change the vast majority of us want to see. A society where everyone thrives and everyone contributes. Where accountability is high. The people that contribute to a community the greatest, will see the greatest reward. This levels the playing field and brings power back to the people. I actually think it brings actual power to the people of this world for the first time in organized society.

It is important to understand that these systems are still in their infancy. We need more developers building within the Web3 ecosystem. There are still tools and infrastructure needed to enable us to get to a place where real mainstream adoption and everyday integration of this technology is possible. If you are able to see the value I have laid out today, then I encourage you to learn as much as you can about this new world, begin interacting with the community, and work to understand where you can contribute the most. We are all in this together and the change will not come without us putting in the work.

Also, understand that purchasing any blockchain-based digital asset is akin to casting a vote. Literally putting your money where your mouth is. I encourage you and everyone else to conduct their own research and to invest in the projects that you want to see succeed; the projects that you believe will bring the greatest change.

I hope this helps to bring some simplicity and a little clarity into a new world that is so very beautiful in its complexity.

-Adam