Web 1.0 brought us the internet in its crudest form, a paradigm where communicating with computers was an uphill task. Then came Web 2.0, brandishing concepts we had yet to witness—user interactivity and engagement. We went from being passive viewers to very active participants.
Social media posts, videos, and blog articles, to name a few, are all examples of user-generated content that fuels Web 2.0. Compared to the one-way street of the static websites on Web 1.0, it was a massive leap. We learned how to utilise this interactive environment to connect with friends and family, work on projects, and share ideas in a whole new way.
Cracks in the Facade: Limitations of Web 2.0
Sadly, Web 2.0’s strength in user-generated content can also be considered its Achilles’ heel. From the days of the dot-com boom, a few large platforms have dominated the scene, concentrating power in the hands of a few companies.
And if you know anything about humans, you would agree that power tends to be abused. Centralization — which is inevitable in Web 2 — raises concerns about data privacy.
These platforms often collect and use your data, including your social media activity, photos, and even browsing habits. Sometimes, this is done in ways the average person doesn’t fully understand or consent to.
Imagine your private life stored on someone else’s computer, not yours! That’s right. This lack of control over our data and potential misuse fueled the search for a more secure and user-centric Internet model.
Blockchain: A New Chapter for the Web
To achieve this seemingly daunting task of taking back our private lives from the big bad wolves, a new kind of technology had to emerge. Blockchain was the game-changer. To fully appreciate this innovation, you have to understand what it truly represents.
At its core, blockchain revolves around three key concepts:
1. Distributed Ledger
The best way to describe this is a giant shared spreadsheet, not controlled by a single entity, but replicated across a network of computers. This is the essence of a distributed system. Transactions are recorded in “blocks” and chronologically chained together, creating a tamper-proof record.
2. Cryptography
To secure the blockchain, advanced encryption systems play a huge role. Think of cryptography as a sophisticated lock-and-key system. Each block is cryptographically linked to the previous one, making it nearly impossible to alter past records without detection.
3. Immutability
Once a transaction or other information is added to a blockchain, there’s no going back — it becomes virtually permanent. It can not be erased. This makes blockchain networks powerful tools for ensuring data integrity. An ideal solution for users seeking trust and transparency.
Hello, Web 3.0!
The three core concepts together lay the foundation for a decentralised internet model, which we now infamously refer to as Web 3.0. An internet where users have more control over their data, and luckily, this doesn’t come at the expense of security. Blockchain is poised to revolutionise our idea of the web; it is surely an interesting alternative to the exploitative system currently in place.
Fixing Web 2.0’s Broken Links with Blockchain
As I previously mentioned, Web 2.0’s reliance on centralised platforms creates several data privacy and safety problems. But blockchain technology has the potential to solve them.
Here are two key areas:
Trust and Transparency
In Web 2.0, we often rely on third-party platforms to verify transactions and store data. Lack of transparency can justifiably breed mistrust. Blockchain’s secure and public ledger system eliminates this issue. Every transaction is visible and verifiable, so the participants get what they see. Think of a self-regulating system where trust is built-in, independent of a central authority.
Data Privacy and Security
Web 2.0 data breaches are a constant concern — you hear about it in the news more often than you should. Blockchain’s cryptography and immutability change the game by offering a more secure way to store data. With blockchain, your data is locked away in a tamper-proof vault, accessible only by you or authorised parties.
All perfect?
Now, it’s not all smooth sailing with this technology, anyone who claims so is misinformed. Some limitations and bottlenecks come with decentralisation. But with the industry still in its early days, I reckon this rapidly exploding beast will see many more innovations. Now is a good time to key in.
By empowering users with control over their data, blockchain can potentially address privacy concerns and security risks in the current system. However, an inherent limitation of decentralisation is that it takes more time to process transactions. We will cover this in more detail shortly.
Demystifying Cryptocurrencies
Not All Digital Money is Created Equal
The terms “digital currency” and “cryptocurrency” are often used interchangeably, but they are not the same.
Digital currency is a broad term encompassing any electronic form of money. If you have used online banks — plausible, unless you are a caveman — your balances on those digital payment methods are essentially digital currencies.
And as you must have noticed, these digital currencies still rely on central authorities like banks or governments for issuance and management.
Cryptocurrencies, on the other hand, are a specific type of digital currency that operates on a decentralised system called blockchain.
Unlike digital currencies tied to traditional institutions, cryptocurrencies are not issued or managed by a central authority.
Bitcoin, Ethereum, and USDT are all examples of cryptocurrencies. These decentralised networks rely on cryptography for security and verification. So, you are dealing with a unique digital store of value.
TLDR: Unlike digital currencies, cryptocurrencies do not rely on banks and are secured by a vast network of computers. That’s the core difference between the two.
Bitcoin: The Original Disruptor
It is, perhaps, ludicrous to discuss cryptocurrencies without tracing things back to where it all began. So, sit tight for a short history class.
Bitcoin’s story began in 2008 with the publication of a white paper by the pseudonymous Satoshi Nakamoto. He still remains unknown.
In this paper, he outlined an outlandish concept: a digital currency that operates without a central bank or intermediary. And in 2009, the first Bitcoin was mined, marking the birth of a new asset class.
Early Days and Utility
Bitcoin’s initial years were deservedly marked by scepticism and a lack of clear utility. But its core features — decentralization, transparency, and limited supply — attracted a cult following.
Early birds saw Bitcoin as a way to bypass traditional financial systems and potentially hedge against inflation. At the time, Bitcoin transactions were primarily limited to online marketplaces and tech-savvy individuals.
Popularity and Price Surges
Public awareness of Bitcoin grew throughout the 2010s, leading to significant price volatility. But it was in 2011 that Bitcoin experienced its first major price surge, reaching over $30 (LOL) before crashing back down.
This boom-and-bust cycle continued, with Bitcoin capturing headlines in 2017 for reaching a record high of nearly $20,000. Fueled by increased mainstream media attention and growing investor interest, this surge in popularity was inevitable.
Advancements and the Future
Bitcoin had limitations. Specifically, the energy consumption of mining Bitcoin through its PoW consensus and the scalability bottlenecks that developed as the network rapidly grew.
The ecosystem continues to evolve and innovate. Advancements in scaling solutions, coupled with the emergence of all kinds of decentralised finance (DeFi) applications, are expanding Bitcoin’s potential utility.
Regardless, its future role as a mainstream currency is given, and its legacy as the first successful cryptocurrency and a pioneer of blockchain technology is undeniable.
Going Beyond Bitcoin
Bitcoin may be the most well-known cryptocurrency, but it’s just the tip of the Web 3 iceberg. Bitcoin and Ethereum’s success ushered in a sea of other ecosystems. Every day, new projects emerge, brimming with innovative ideas. And some of them go on to raise millions in funding phases as smart investors and VCs know what is ahead and fear being left out. The cryptocurrency landscape is still young, rest assured, there’s more to come.
These altcoins (alternative coins) can be broadly categorised by their function:
Utility Tokens
Utility tokens provide access to a specific product or service within a blockchain ecosystem. For instance, a token may grant users access to a decentralised storage network or voting rights within a blockchain-based governance system. In summary, utility tokens fuel the operation of decentralised applications (dapps) built on various blockchains.
Security Tokens
These tokens represent ownership of a real-world asset. This may include stocks, bonds, or even real estate that’s been tokenized on a blockchain. A company’s shares can be represented as a security token, facilitating fractional ownership and smoother trading. Security tokens, aka RWA (real-world assets), are a developing interest area, with both blockchain loyalists and traditional corporations keenly watching its growth.
Meme Coins
Web3 isn’t all boring stuff; meme coins are a fun escape. These tokens often emerge from internet jokes or social media trends. The Shiba Inu-themed cryptocurrency, Dogecoin, is a prime example. Note: meme coins are highly volatile and speculative because they are driven more by hype than any underlying utility. However, some of them have surprisingly large communities and continue to evolve beyond their comedic origins.
Suffice it to say that this categorization isn’t always clear-cut, and some projects may possess characteristics of multiple categories. However, with this framework in mind, you will navigate the diverse and rapidly growing world of cryptocurrencies with more nuance.
Where Do You Keep Your Crypto? Exploring Wallets and Exchanges
So, you are ready to dive into the promising waters of crypto. Let’s say you have some capital ready (not a must), Where do you go? You need somewhere to buy the coins, and you need to consider storing them safely. This is where cryptocurrency wallets and exchanges come in.
Cryptocurrency Wallets
Think of your wallet as a digital vault for your crypto holdings. There are several types, each with its own advantages and drawbacks:
Hot Wallets
These are applications that allow you to store, send, and receive cryptocurrency. They offer convenient access but can be more easily compromised since they’re constantly connected to the internet. Popular hot wallet options include browser extensions and mobile wallets like MetaMask, TrustWallet or Coinbase Wallet.
Cold Wallets
These prioritise security by storing your cryptocurrency offline. Hardware wallets like Ledger or Trezor are popular choices. They are essentially physical USB drives where you store the private keys needed for accessing your crypto. While they are more secure, cold wallets can be less convenient for frequent transactions, so consider the tradeoff.
Paper Wallets
Paper wallets, as the name suggests, are essentially physical printouts containing your public and private keys. While offering excellent security due to their offline nature, they can be cumbersome to use and pose a risk of loss or damage. Once again, tradeoffs!
Now that we understand where to store cryptocurrencies, how about where to actually get them? It’s noteworthy to mention that some of the wallets above also come with built-in features to purchase cryptos. However, there’s far more to this industry than locking up a few tokens in your MetaMask.
Cryptocurrency Exchanges
These platforms function like marketplaces where you can buy, sell and trade cryptocurrencies. There are two kinds of exchanges: centralised and decentralised exchanges. More on these in the next section.
Here’s the interesting part: most centralised exchanges offer built-in wallet functionalities. Nevertheless, it’s generally recommended to transfer your crypto to a personal wallet for enhanced security.
Popular centralised exchanges include Coinbase, Binance, and Kraken. These platforms cater to various experience levels and offer a range of cryptocurrencies for trading.
Choosing the Right Option
The ideal choice depends on your needs. If you’re a beginner, ease of access is important, a hot wallet might be suitable. For larger holdings or those needing security, cold storage solutions are preferable. Finally, exchanges are great for buying and selling crypto but may not be the most secure option for long-term storage. Remember, it's no good to make all the money in the world only to lose it all.
The next section will consider the different kinds of exchanges and what they offer.
Centralised vs. Decentralised Cryptocurrency Exchanges: Choosing Your Platform
If you are reading this article, chances are you are looking to make money in crypto. The crux of that endeavour lies in the buying and selling of tokens. Two main exchange types emerge to facilitate this — centralised (CEX) and decentralised (DEX).
Centralised exchanges (CEXs)
CEXs are like traditional (sadly) stock exchanges, with a company overseeing transactions. They’re user-friendly but can limit your control over your crypto. They are also known as custodian wallets for the explanation above.
Examples: Coinbase, Binance, and Kraken
Advantages:
- User-friendly interfaces
- Beginner-friendly features
- A wide variety of cryptocurrencies
- High liquidity (easier to buy and sell quickly)
- Customer support
Use Case:
Ideal for beginners or those seeking a user-friendly platform for buying, selling, and trading various cryptocurrencies.
Considerations:
CEXs act as custodians, holding your crypto on their servers. This can raise security concerns and limit control over your assets. If you have been paying attention, this partially defeats the decentralisation goals of Web3.
Most of them even require standard KYC procedures. However, they are a great starting point for anyone migrating from Web 2, regardless of their trading fees or restrictions.
Decentralised Exchanges (DEX): Peer-to-Peer Power
DEXs, on the other hand, operate purely on specific blockchains, allowing peer-to-peer trading without a middleman or central authority. They offer greater security and control, as you have to connect your personal wallets. But DEXs are usually more complex to navigate.
Examples:
Uniswap, SushiSwap, PancakeSwap
Advantages:
- You retain control of your crypto through your wallet
- Censorship resistance
- Potential for anonymity
Use Case:
DEXs are appealing to experienced users or those prioritising security and control. People mostly use them to trade niche tokens or DeFi applications. Sometimes, tokens are first launched via DEXs before they get to CEXs.
Considerations:
- DEXs can have complex interfaces
- Lower liquidity (may be harder to buy or sell quickly)
- Require users to manage their own wallets
- Transaction fees can also be higher on DEXs
The best exchange depends on your priorities and experience. For a user-friendly experience with a wide range of coins, a CEX might be ideal. For those seeking maximum security and control over their crypto assets, a DEX may be the better option.
As the crypto space continues to evolve, both CEXs and DEXs will likely continue to play their part in facilitating fast transactions.
Conclusion
Web 3.0 turns up where our current internet model is lacking — transparency, data integrity, and privacy. Shortcomings like poorer UX experience exist.
But the industry is still growing, and it has been able to rise to an impressive $5 Billion market size projection. In the coming years, we can expect to see more widespread adoption.
