Wiser! #52 (Premium): Part 2 of the Web3 Series looks at the role of nascent decentralised technologies defining the next iteration of the Internet economy.

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DAOs, DApps and DeFi

Web3: Power to the People

In the vernacular of Web3, companies will be decentralised autonomous operations, communities will be tokenised, identity will be confirmed through your Web3 wallet, payments will be in cryptocurrency and digital assets will be minted as NFTs.

Say What!? If this sounds confusing, hang in there. I'm going to try and make sense of it for you. Because the way to think about Web3 is that it is the rebadging of the crypto economy. (BTW, remember that this is Part 2. Part 1 is here.)

To start with some definitions:

DeFi:  short for Decentralised Finance, DeFi is an umbrella term for peer-to-peer financial services on public blockchains, primarily Ethereum.

DApps:  DApps are decentralized apps. They are like normal apps, and offer similar functions, but the key difference is that they are run on blockchain networks.

DAOs:  Decentralised Autonomous Organisations are companies that are run by computer code to operate autonomously. In the same way that a vending machine can sell you stuff, take your money and keep count of its inventory, DAOs are organisations that operate without (much) human intervention.

Tokenisation:  A token is a piece of data that stands in for another, more valuable piece of information. Tokens have virtually no value on their own and are only useful because they represent something bigger (think poker chips in a casino).

NFTs:  Non-fungible tokens are unique records of ownership and provenance to digital assets that are stored on a blockchain.

Blockchain:  Blockchain is the underlyign technology to Bitcoin. It is a unique way of storing data in an open and transparent mechanism that is secured through cryptography.

The core narrative for Web3 is that this represents the next phase of the internet. Some even go as far as to say that Web3 will reshape many aspects of society. Meanwhile, others like Elon Musk thinks “Web3 is BS”.

I’m not with Elon on this and watching closely what Tim O´Reilly has to say (O´Reilly is the guy who coined the term "Web 2.0").

In a recent post, O´Reilly wrote this...

The term Web 3.0 was used in 2006 by Tim Berners-Lee, the creator of the World Wide Web, as a look forward to the next stage of the web beyond Web 2.0. He thought that the “Semantic Web” was going to be central to that evolution. It didn’t turn out that way. Now people make the case that the next generation of the web will be based on crypto.

Whilst I’m guarded about claims of a re-engineered social cohesion and redefining capitalism, to me the fundamentals of Web3 are already in play. They are already demonstrating the promise of new ways of doing things that will impact many aspects of life as we know it today.

At the most basic level, Web3 refers to a decentralized online ecosystem based on the blockchain. Platforms and apps built on Web3 won’t be owned by a central gatekeeper, but rather by users, who will earn their ownership stake by helping to develop and maintain those services.

Remember: Web 1.0 was everything on the Internet up until around 2006 in which most online activities involved navigating to individual static web pages. Web 2.0 is today’s Internet as we know it. This is interactive and social but also centralised, where online activity is run on closed platforms owned by a handful of super-powerful corporations, think Google, Facebook, Amazon.

In the world of Web3 world, the Internet economy is free from the monopolistic control of the likes of Mark Zuckerberg and the power is returned to the people through decentralised apps, organisations and finance.

Non-fungible means the token can not be exchanged for another token of the same value, unlike fiat money which is 'fungible'. I.E., I could give you my €1 coin and you could give me your €1 coin and we would still have €1 each. The €1 coin is a fungible token.

NFTs are the new way of owning digital assets

Most people think that NFTs have only been around in 2021. But that would be wrong to think that. Do you remember the CryptoKitties mania of 2017? This is when people started spending thousands of dollars on digitally generated, and blockchain-recorded, kittens. They were NFTs!

However, NFTs really kicked off in March this year after digital artist Beeple sold an NFT for $69 million. This sparked a feeding frenzy that has generated many headlines of huge sums being paid for jpegs and gifs and virtual land that only exists in a computer.

Whilst these stories are getting a lot of attention, the reality is that there is a relatively small number of people trading in these NFTs markets. And we don't know if these are genuine collectors or if they are folks that made a ton of paper wealth trading in cryptocurrencies and are now recycling that wealth into this new speculative asset class on the basis that they can make even more money. (Which, IMHO, is where I think a lot of this activity is coming from.)

But that doesn't mean NFTs are to be mocked. A mate of mine said to me the other day that he'd been listening to a podcast and they said that NFTs were a passing fad and wouldn't last. In the words of Chandler Bing, "could he be more wrong?"

NFT sales growth wiser newsletter

Playing games with Web3

The business model for games has shifted. Historically, players paid for games upfront when they bought a DVD or paid for a download. That has transitioned largely to an economic model around free-to-play. The idea is that the game is free upfront and it has virtual assets inside the game that players buy to enhance and improve their gameplay.

Gamers spend over $100 billion a year in this sector. And with the shift to the buying and owning of digital assets, NFTs are fast becoming the mechanism used for recording ownership of these assets within a game.

Take video game publisher Ubisoft. They have just launched a blockchain-based game called Quartz that lets players earn in-game rewards that come in the form of NFTs. The NFT assets in Quartz are free, but once they have been “won”, the digital assets can be bought and sold for money.

The most well-known blockchain-based game that uses NFTs for in-game digital ownership is Axie Infinity. Axie accounted for 90% of the $2.3 billion that blockchain games generated in Q3.

The point is this...these are games being played over the Internet, that are built on a blockchain, and with assets that come in the form of NFTs, which can then be traded using a cryptocurrency as the payment means. 

Further Reading

Ethereum, Non-Fungible Tokens & the $500k cat
Wiser! #4 (Premium): The emerging world of NFTs and its connection to digital art and artists.
The Metaverse Part 1; Facebook’s big bet
Wiser! #43 (Premium): When Facebook, the world’s largest social network, renames to “Meta”, it positions the Metaverse as the Next Computing Platform, aka Web3, the next generation of the Internet.
The Metaverse Part 2; what it virtually means in reality
Wiser! #45 (Premium): All of a sudden, everyone is talking about the Metaverse. Thanks Meta! In this 2 part series, Part 1 explained what it is and Part 2 looks at what it does.

Tokenisation, DAOs and the Rise of CityCoins

I'm not a gamer myself and so the whole subject of NFTs in blockchain games leaves me with a sense of "so what?". So, here's a different take on the use of DAOs, tokenisation, blockchain and NFTs.

It starts in Cities and the use of elements of Web3 for the benefit of local communities.  There are now dozens of examples where local communities are innovating in the use of crypto tokens, NFTs, DAOs and blockchain to raise money and give their community a greater say in the running of the local government.

Called CityCoins, here's how the concept works.

The city/community/province issues a token on a blockchain network (which is most likely to be the Ethereum network) and residents buy the tokens for hard cash. Think of tokens like a casino chip that has no value or utility in the outside world but is a unit of value that can be used inside the casino.  

The residents put their newly acquired tokens to work on the network in support of the mining of new tokens. The mining process not only generates new tokens (to be sold to raise funds for the City), it also earns rewards. These rewards are shared between the miners (as payment for doing the mining), the local authority (to raise funds) and the resident who bought the tokens in the first place. Remember, the resident is not buying the tokens as a speculative investment, only to support the local authority.

The financial return for residents may be small, but that's not the point because the tokens come with a bunch of privileges and benefits that are all locked up in a smart contract inside the token. A smart contract is computer code that is written into each token.

For example, the resident could have free public transport or free entry to public events, all controlled through the smart contract on the token (which is held in a digital wallet and managed and operated autonomously by the organisation).

Facebook’s World Domination Strategy: Novi, a connected wallet for a connected world
Newsletter #28 (Premium): Novi is Facebook’s digital wallet. It allows users to move digital money between Facebook’s apps for free and easily. And it’s is going to be hugely disruptive. You only have to look to China and WeChat to see what is going to happen.

Now, let's say there's a major incident and the authorities need to provide instant assistance to their residents and into the community. For example, the town is hit by a hurricane which has knocked out all the services and utilities, as well as causing massive damage. Authorities and/or agencies could immediately send relief and assistance in the time it takes to write some new computer code (which is not long). The new code would immediately update all of the smart contracts for their City Token which is targeted specifically to the people most affected by the incident. Let's say everyone who lives within a 5-mile radius of the epicentre of the storm. The new code could give each token access to food stamps or vouchers to stay at nearby hotels or whatever is needed in terms of aid. This could be instantaneous and effective in reaching everyone affected.

A smart contract is a self-executing contract. The terms of the agreement are directly written into lines of computer code that is held in a blockchain network. The computer code controls the execution of the smart contract, whilst every transaction is irreversibly recorded on the blockchain.

Here are some of the real-world examples of the use of crypto, NFTs, DAOs and blockchain technology in cities:

  • CityCoins.co is a project that sets up coins specifically for the use of local government in a City. This is what the MiamiCoin looks like.
  • In the USA, Reno Mayor Hillary Schieve has laid out plans for a city-wide blockchain project that includes a RenoDAO with RenoCoins issued to local residents. The wide-ranging vision from Mayor Schieve includes raising revenue from renting out government properties, running blockchain-secured lotteries, and democratic elections based on a blockchain voting system.
  • Seoul is developing the 'S-Coin,' and has experimented with NFTs as a way of funding local artists.
  • Also in South Korea, the city of Busan held a virtual conference using NFTs, blockchain and smart contracts.
  • CityDAO is "building a city on the Ethereum blockchain" and will be physically located in Wyoming.  
  • President Nayib Bukuele plans to build a Bitcoin City in El Salvador.

Further Reading

Source of Insight and Information

Crypto Cities. Source: Vitalik Buterin's website

What Every Crypto Buyer Should Know About OpenSea, The King Of The NFT Market. Source: Forbes

There’s a platform war brewing in NFT gaming. Here’s what it means. Source: Protocol

What is Web3? Source: The Wired

Crypto, DAOs, and the Wyoming Frontier. Source: JDSupra

Niantic Raises $300M Investment at $9 Billion Valuation to build “real-world metaverse(Niantic are the firm behind PokemonGo). Source: RoadToVR

South Korea's Capital Is Planning to Launch Its Own Cryptocurrency. Source: Coindesk

Beeple sold an NFT for $69 million. Source: The Verge

In case you missed it...

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