Web 3 for Dummies: A quick read to get you upto speed!
What is it and why it matters?
Web 1- Open protocols (HTTP, IP) this was when ecosystem of the internet was build.
Web 2- Closed protocols on top of internet open protocols, period of centralisation where facebook, google, Amazon were built. These are called centralised platforms.
Problem with Web 2- “If you are not paying for it, you’re not the customer. You are the product”. For example individuals don’t pay Google for gmail, but instead get targeted with ads specific to the user basis user collected data.
- Companies that own networks have unilateral power on important questions such as who gets the network access, how revenue is divided, whom to mute, what features are supported, how secure user data is.
- Centralised platforms keep changing rules which becomes issue for creators as platforms takeaway audience and profits. For example: It is getting tougher to make any money on youtube and amazon deletes verified reviews on the product.
Why not have decentralised platforms?
Problem with decentralised networks: Decentralised networks are public goods. Without the central authority to control decisions and capture profits, it is hard to incentivise maintenance and development.
Crypto solves this problem through decentralised coordination and providing economic incentives for development.
Web 3: Communities are incentivised and rewarded for maintaining and developing core infrastructure.
Putting power in the hand of communities and corporations.
DAOs- Decentralised Autonomous Organisations
DAOs are online member-owned communities governed by the consensus of their members instead of centralised leadership.
• Decentralized — rules can’t be changed by a single individual or centralized party.
• Autonomous — votes are tallied and decisions implemented based on logic written into a smart contract, without human intervention.
• Organizations — entities that coordinate activity among a distributed community of stakeholders
This is similar to an employee owned business such as Dabbawala, Indian coffee house in India or Publix grocery stores and Green bay packers. Principles of DAOs are similar to that of nonprofits, collectives and cooperatives.
In traditional corporate governance companies have bylaws that dictate policies such as how a board is elected. A DAO extends this concept into the digital world by encoding the policies into smart contracts. Smart contracts are like legal contracts that run on blockchain network, they are commitments written into computer code that executes automatically and autonomously.
DEFI- Decentralized Finance
DeFi refers to the decentralised finance such as saving, lending and exchange
dApps- Decentralized Applications
dApps are computer applications whose code is written in series of smart contracts. Series of smart contracts is called protocols. dApps are permanent while regular applications are not, they will exist as long as the blockchain hosting the protocol (series of smart contracts) exists and can’t be changed or manipulated. They are open which means any computer can participate in the network and access is not limited to a single/pre defined group.
Payment Blockchains
Payment blockchains enable peer to peer digital transactions. All transaction records are updated on the blockchain ledger and can’t be changed.Till now, Banks and credit card companies are the centralised record keepers of all the transactions be it Paytm, Venmo.
Cryptocurrencies
Crypto is the money considered as unit of account, store of value and medium of exchange within the system. Money can be transferred digitally without the centralised third party.
Crypto allows for low cost, instant, borderless, peer to peer transfers of actual value. Not subjected to rules of traditional financial institutions. Mobile wallets will make it cheaper to transfer money home for migrant workers. Crypto brings more diversity and inclusion into the financial accessibility. We still have 2 Billion unbanked people worldwide.
FinTech companies such as Paytm, Googlepay, Venmo have revolutionized the front end of the customer finance, DeFi revolutionises the backend such as audit, use, access, cheaper and faster payments.
Stablecoins
A stablecoin is a privately issued cryptocurrency that maintains a stable value relative to another asset such as the US Dollar or gold. Stablecoins have gain traction as they attempt to offer best of both worlds instant processing, security, privacy and volatility free stable valuations. Bitcoin and ethereum might experience huge price swings in single day, stablecoins are designed to maintain constant price. This makes stable coins as effective medium of exchange.
CBDC- Central bank digital currency- offers the benefit of stable stable coins but doesn’t solve for privacy and security concerns.
The Creator economy/NFT
The creator economy refers to emerging communities of creators- artists, music, ‘how to’ creators- who can directly connect with supporters and fans without a middle man such as Youtube. This helps creators to develop independent income streams.
NFT- Non Fungible Token
NFT is a digital asset that is non Fungible meaning that property is a unique good an artwork, collectible etc and attains its value due to its uniqueness for example a piece of real estate. NFT can be exchanged.
Gen Z want to own a Digital version of physical assets such as books, photographs, movies. NFT offers you similar control as of physical good- you can transfer it, sell it, collateralize it, lend it and keep it with yourself. Early use cases of NFT are digital arts, games, sports and collectibles. NFT offers creators ways to monetise and bypass traditional gatekeepers and give fans direct access to content. Creators can sell work directly without relying on middleman. NFT offers a unique benefit to track secondary sales of the assets that helps artists earn commission.
Play to Earn Games
The key difference between the blockchain based games (Axie Infinity, Decentraland, The Sandbox) and other popular games (Fortnite, Roblox) is that in blockchain based games players actually own the objects, work hard to acquire objects, buy or sell objects. The items in blockchain video games such as tools, upgrades, avatars and experience points are NFT that are owned by players and sold for real world money, traded on secondary markets and transferred between games. At Axie Infinity, people can earn real world money for playing video game.
METAVERSE
Metaverse is the seamless convergence of physical and digital lives, creating a unified, virtual community to work, play, relax and socialise.
The elements of the digital age are converging at scale. The metaverse is the driving force bringing these elements together in a unified immersive experience. Companies entering metaverse are Walmart, Nike, Gap, Verizon, PWC, Adidas and others.
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