Understanding Web 3 From a Technical Perspective — AAX Academy
Since its inception, the internet has gone through major changes.
The read-only internet, Web 1.0, was replaced in the early 2000s with Web 2.0, allowing users to not just view but also interact with and generate content on a platform.
However, while Web 2.0 introduced some excellent features, it has some serious issues that provide increasing amounts of control to tech giants, advertising networks, and other large service providers.
In addition to cryptocurrencies, blockchain networks started a movement to democratize the internet, eventually leading to the development of Web 3.
Problems With the Current Web Version
In general, Web 2.0 has two main issues, both of which relate to something called state.
State refers to the information the receiver (the server) retains about a client (computer hardware or software used to access a service).
Due to the web building protocols’ (e.g., HTTP, SMTP) simplicity, in its basic form, the internet operates on a stateless basis, meaning that a server doesn’t keep data about a user’s interactions or the history of his sessions.
To see why this is an issue, imagine creating a new account every time you want to watch a show on Netflix or listen to your favorite songs on Spotify. And that might be the case in a stateless internet.
As illustrated in the above example, state adds tremendous value to the internet, and the web needs it to function efficiently. For that reason, service providers started using cookies, which are small pieces of data a web browser stores on a user’s device to collect information about his state and activity.
While cookies helped the web become stateful, providers are in charge of creating and controlling them, which gives them power over their users’ state.
Furthermore, on the road to a stateful web, large internet companies (e.g., Google, Facebook) started to hold their users’ state on centralized servers. As a result, they have ultimate control over the value consumers create on their platforms.
Since users are not in control of their state, they are also unable to transfer it. Despite that it’s now very easy to transfer information due to the development of the internet, both consumers and small businesses are unable to benefit from this value-trading activity.
As an alternative solution to make a profit, companies have turned to advertising.
While this business model could work in theory, it’s highly inefficient in practice since tech giants like Facebook and Google dominate the digital advertising space, taking their cut from every transaction as intermediaries.
Web 3: the Solution to an Efficient Stateful Internet
To fix the issues introduced in the previous section, any user on the internet should be able to create, control, and transfer state — and the value generated with it — to any participants natively, without any intermediaries or centralized providers that could prevent them from doing so.
Blockchain networks, such as Bitcoin and Ethereum, had made this possible. Crypto projects have already started to build their applications and services on them with the goal of creating Web 3, the next version of the internet.
In a move towards a more fair and open web, blockchain networks operate via different layers with the following stack:
- State layer: Positioned at the top, the state layer captures and preserves the state of every activity, interaction, or events that happen in the layers below. The state layer is provided by the blockchain (e.g., Ethereum, Bitcoin), which can be either public or permissioned.
- Computation layer: With the computation layer, developers can interact with the state layer and give it instructions, the complexity of which varies by the blockchain network. In Bitcoin’s example, the computation layer is the Bitcoin Script, while the Ethereum Virtual Machine (EVM) is responsible for this task in Ethereum’s case.
- Component layer: The component layer includes those elements that are built on top of the computation layer. Examples of such include native cryptocurrencies, fungible and non-fungible tokens (NFTs), stablecoins, and digital identity solutions.
- Protocol layer: For the components to work, developers have to add functions and create a standardized set of rules in the form of a protocol. This is dYdX for derivatives, Kyber Network for trading, and Aave for lending.
- Scalability layer: Compatible with the computation layer, the scalability layer can include side chains and other solutions to improve the blockchain network’s performance. Examples include Bitcoin’s Lightning Network and Ethereum’s Raiden.
- User control layer: The user control layer’s primary functions include managing the users’ private keys while providing them the ability to sign transactions via the state layer. For that reason, both hosted (e.g., AAX) and user-controlled wallets (e.g., MetaMask) reside on this layer.
- Application layer: The application layer includes the third-party decentralized applications (DApps) built on top of the layers above. For example, this is the web application of the Ethereum-based CryptoKitties game or UniSwap’s platform (where you can connect your wallet to interact with the service).
In addition to the above stack, Web 3 uses a decentralized architecture where blockchain networks are maintained by the miners, storing data on thousands of computers instead of the centralized servers Web 2 solutions utilize.
As a result, users have direct control over Web 3 platforms and their content, allowing state and value to be created, preserved, and transferred natively while providing access to any participant who follows each network’s rules.
Originally published at https://academy.aaxpro.com on November 11, 2020.