What's Valuable In Web3?

Preamble

Before I get to the point of this post, I want to start off by acknowledging that "Web3" is a terrible name. Then again, so was Web 2.0. When the whole Web 2.0 craze started, the joy and excitement centered around open standards like RSS and the belief that we were building a more connected and open Web. The end result was a bunch of walled gardens like Facebook, Twitter, and - well - LinkedIn. Self described Web3 gurus still try to explain what Web 2.0 was as if it actually had a clear definition or explanation. But it was just a buzz word we used when we went through a boom in technological evolution on the Internet that ended with the mass conglomeration of social platforms. Web3 is much the same. But that's okay, we had to give what's happening a name of some kind.

Summary

This post is about the real value drivers of what we're calling Web3 - which few people actually understand. Mainstream Current Web3 marketing is mostly hype with no substance. However, there really are authentic value drivers behind the madness and this post is about to point them out for you. Let's go!

A Quick History

Before we get too deep into Web3, let's first take a look at what the terms Web 1, 2, and 3 are referring to. As it turns out, behind each wave of the Web there's one technology that really drove the innovation. (By the way, while I mentioned RSS above, and it was awesome, it is not the actual technology that ultimately drove the wave of innovation in Web 2.0. It was something else listed below.)

Here are the three technologies that really mattered:

Web 1: Hypertext Markup Language or HTML.

The original World Wide Web came into existence because HTML allowed us to link documents together - creating a "web" of information. Kudos to Tim Berners-Lee for this making this happen. This nifty technology is so ubiquitous now that most people do not discern between the Internet and the Web.

Misconception: Some people will claim that Web 1 was the "read only" web. This is incorrect. We were able to submit forms and write to the Web long before Web 2.0 existed.

Web 2: Asynchronous JavaScript or AJAX

JavaScript began as a simple scripting language that allowed Web pages to have dynamic elements. After years of evolution, one single addition drastically altered the JavaScript landscape - the ability for the language to directly contact a server and request information without reloading the whole page. This one piece of functionality enabled a whole new era of "web apps" that felt much more like desktop applications.

Misconception: As mentioned above, Web 2 is often credited as the "read/write" web. While writing became more fluid to the user thanks to AJAX calls, this simply is not the differentiator. Long before social media came along and commodified user generated content, bloggers wrote enormous amounts of content for Web 1. It was a glorious time.

Web 3: Public Distributed Ledger Technology or DLT

This is where we are today, experiencing the proliferation of public ledgers on the Internet. Decentralized networks are not a new concept, but they historically failed due to lack of incentive for users to support them. Bitcoin introduced the paradigm of a decentralized public ledger that tracks a native Internet currency which is, in turn, used to pay people for running nodes that support the network. For the first time in history, we have a decentralized network that works.

Some people refer to this paradigm as "blockchain" which is an even worse name than Web3. A blockchain is a data structure invented in the 1980s and previously called a hashchain. Bitcoin and systems like it use a blockchain as part of the greater mechanism that helps to keep the public ledger in sync. Unfortunately, due to negative early associations toward the name Bitcoin among corporate-minded dopes, the term Blockchain proliferated as a generalized descriptor for ledgers. This is particularly ironic given that some DLTs, such as IOTA, don't even use a blockchain at all.

Misconception: Web3 is often called the "read/write/own" version of the Web. This is incorrect as ownership, digital scarcity, and electronic transactions, have been part of the Web (and online gaming) previous to Web3. What's actually novel about DLTs is that they are decentralized and no one central authority can manipulate or control the data stored on them.

Fundamental Public DLT Value Drivers

Now that we know what Web3 actually is, we can finally talk about the value drivers. Here are the fundamental value drivers of a DLT upon which other value drivers are derived:

Open: The code behind the network is open source, allowing anyone to audit what it does and look for security risks. Additionally, activity on the network is open.

Neutral: The network doesn't care who you are. Everyone is a first class citizen. Everyone is a member of the community.

Borderless: Being neutral, no government can decided how a public ledger functions within their borders.

Censorship Resistant: Without a central authority in control, content on a decentralized ledger can not be moderated or censored.

Secure: Being open source, the code behind a DLT network can be extensively audited. Using clever cryptography, consensus algorithms prevent bad actors from altering data on the network. In the rare event of a bug, the network can be rolled back or forked. These networks are some of the most secure pieces of software in human history.

Immutable: The mechanism that ensures no data stored on a DLT is altered also requires that all historical data is retained. Thus, any data recorded to a DLT is immutable and will remain accessible so long as the network is live.

Web3's Killer Features

The Bitcoin network's ledger was designed to only track the exchange of the Bitcoin currency. Long ago, the creator of Bitcoin expressed the still-maintained desire to keep Bitcoin focused on this one primary goal. However, derivative networks such as Ethereum allow arbitrary code and data to be stored and executed on the network. And it is this paradigm that opened the door for all things Web3.

Unstoppable Code: Programs written to run on networks such as Ethereum have one killer feature: they can not be shut down. Because the code and data are immutable, no one person or authority can decide that an application must be altered or turned off unless the author of that code explicitly builds in a mechanism to allow it. And since the code itself is open, any such mechanism can not be hidden from users of the system. For the first time in history, it is possible to write and share applications that can not be stopped.

Tokenomics: Platforms such as Ethereum now make it possible for anyone to easily create and manage what we call "tokens." A token is fundamentally similar to the native currency to the network itself. However, as an abstraction, it is possible for people with a minimal knowledge of how the network itself functions to create and deploy their own tokens and use them however they wish. Any community can now create it's own "currency" system and create custom rules around how that currency function.

dApps: Ethereum and many other networks like it provide a programming language that is referred to as "Turing Complete." This means it has a subset of features that enable the full breadth of computation required for modern computing. As such, it is possible to build applications, unstoppable applications, that run entirely on the network itself. These applications are only limited by the constraints of the network's own virtual machine.

Web3's False Hype

The excitement and profitability that came from these new value drivers have been exploited and used to market concepts and ideas that fail to embrace the fundamental value drivers of distributed public ledgers. Thanks to poorly conceived and ill defined industry terms such as "Blockchain" and "Web3", the true value drivers behind the revolutionary technology often gets obfuscated. New users are lured into the space by the promise of personal profit only to find they've been scammed, tricked, or rug pulled in the process. The resulting negative sentiment then gets applied to the entire ecosystem since most people never really understood why any of it even mattered to begin with.

Blockchains: One of the first misconceptions is that the "magic" behind this new wave of technology is the use of a blockchain. In a decentralized network such as Bitcoin or Ethereum, it takes time for the network to process transactions and reach a consensus as to what order those transactions should be recorded in. Furthermore, the blocks in the blockchain used to store these transactions have limited space. As more and more people attempt to use a decentralized public ledger, the speed of transactions and the cost for recording data can become prohibitive. The impulse for many is to build a "new blockchain" that is faster and cost less to use. The shortcut to such a system is often a more centralized version of the network. However, taking this shortcut also removes the fundamental value drivers that are provided by decentralization. While these centralized blockchains may be faster and cheaper than the decentralized ones, without the same value drivers they become nothing more than overly complex, slow, inefficient databases.

NFTs: An NFT is a non-fungible token. A fungible token is a token where you can't tell one from another. Alternatively, non-fungible tokens are individually explicitly tracked. These tokens, if managed on a decentralized public ledger, inherit the same kind of value drivers behind the native network currencies. If coded correctly, they are immutable and secure. They offer guaranteed ownership that can not be taken away. However, a token is an abstract concept and the value of that token is based on what that token represents. If the token is used to operate a dApp, then the value of that token is digitally enforced by unstoppable code running on the network. Very cool! Alternatively, if the token represents an asset that exists outside of the network, then while the token is secure, what it represents may not be. Most NFTs used today contain a URL that points to a digital asset stored outside of the network. In this case, if that asset were to move or disappear, what you own is a digital token that points to nothing. In most cases, NFTs fail to provide any of the value drivers expected from Web3. With this in mind, it would be just as effective as well as considerably less expensive to simply track ownership in a centralized database.

Conclusions

I hope this overview serves to educate some number of people in where true value is derived in the Web3 space and what is actually just smoke and mirrors. The vast majority of assets and applications being built today fail to meet the paradigm that actually provides any significant value over centralized systems. In the long run, the applications that fall short will be washed out.

If your goal is to invest, be very mindful of what you are investing in. Consider this example: if every ERC20 or ERC721 token on the Ethereum network requires the use of the network's native currency to use, what is the better long term investment strategy - the token or the native Eth currency?

Personally, I recommend playing, exploring, and learning before even considering investing. You will likely find more value in the knowledge you obtain than the return on what you invest in. Probably. But, you might also get lucky and make huge amounts of money. It does happen and wow, does it make people crazy.

While this overview may seem somewhat complex, there's still much more depth to be explored and understood. For example, a less centralized blockchain might still provide value if the data in that chain is provably correct based on hashes stored on a more secure blockchain. However, that is a post for another time.