Wiser! #49 (Premium): Web3 is everything crypto and the economy that is forming around it; DeFi, DAOs, Dapps, Decentralised, NFTS. It's on the same course as the Metaverse, just taking a different route. In this 2 Part series, I make sense of what's happening and what's next for the Internet.
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In times to come, people will look back at 2021 as a turning point in the evolution of the Internet and how we use it.
In the same way that the launch of the iPhone in 2006 is seen as a pivotal moment in the transition to the 2nd generation of the Internet. This year, 2021, is going to be seen as the year the Internet moved into its next phase.
Some call it Web3. Some call it the Metaverse. Some think it's just about wearing an Oculus 2 headset and living life as an avatar in a virtual game world. Some think it's a bunch of overblown hype and will never happen. Somewhere in the middle of all that is the destiny of the Internet. Because one thing is for sure, nobody really knows what it is going to be like when we get there.
So, for this issue of Insights, I am going to try and make some sense of it for you. Building on the recent two-part series on the Metaverse, in this issue I will focus on the so-called 'Web3' and explore the ways in which it is different to the Metaverse.
Web3 and the Metaverse; two sides of the same coin
'Web3' and the 'Metaverse' are the 2 terms most used to define what's coming for the next era of the Internet.
Neither are new terms, but 2021 is the year when all the pieces appear to be falling into place and there's nothing better than a social media label to hang the conceptual hat on. Essentially, Virtual Reality and Augmented Reality have been rebranded into this ephemeral thing called the Metaverse, and now encapsulate a whole bunch of tech that centres around an immersive online experience. (Go here to read Parts 1 and 2 of The Metaverse.)
On the other side of the coin is a whole bunch of innovations and creativity in the cryptocurrency space. These include non-fungible tokens (NFTs), decentralised autonomous organisations (DAOs) and smart contracts running on blockchain technology.
The distinction between the two becomes clearer if you think of one as immersive tech ('Metaverse)' and the other as the crypto economy ('Web3'). However, the point is that the distinction is, in many ways, irrelevant. Because what matters is the destination. These are just the vehicles that are going to get us there as we see the shape of the Internet for the next 15-20 years take shape.
In other words (and oversimplifying the subject);
All things Crypto have been rebranded as Web3, and all things Virtual Reality have been rebranded the Metaverse.
Evolution of the Internet
To put this evolution of the Internet into context; the first generation of the Internet was from the early 1990s to mid-2000s. In this 1st generation, anyone could publish data and information on a website on a static page in a uni-directional experience. By today's standards, it was not very sophisticated and relied on a lot of manual operations and human intervention behind the scenes.
Then came the 2nd era of the Internet, aka Web2.0 (pronounced web-two-dot-O). This was a term coined by Tim O'Reilly in the aftermath of the dot-com collapse of 2000. Whilst many analysts saw the collapse as the inevitable conclusion to the over-hyped dot-com expectations, O´Reilly argued that the Internet was more important than ever. And he was right as the next generation of the Internet saw a shift towards a bi-directional experience that led to a dynamic Internet, with social media and user-generated content.
Just think of the difference between Britannica Online (static pages posted on a website in Web1) and Wikipedia (a user-generated, dynamic, and self-moderated online dictionary that symbolised the shift to Web2.0) to get a sense of the difference between the 2 generations.
Now, the building blocks for the 3rd generation of the Internet are falling into place (although not everyone agrees, Elon Musk just tweeted "web3 is BS" followed by this cartoon.)
The democratisation of the Internet
The Web3 narrative goes something like this.
Today's Big Tech platforms, like YouTube, Twitter and Facebook, are making their money off the back of the user-generated content that people like you and I create. It's time to turn this model on its ahead and reward for effort and creativity, not pay rent for the privilege of doing it.
This was the war cry in the early days of Bitcoin, which was seen as a currency for the people out of the reach of central governments. It was anarchy. However, 13 years on and it is clear that Bitcoin, and all of the cryptocurrencies that followed, are not here to replace gold or fiat money. What has become clear is that Bitcoin is best as a store of value ('digital gold') and that cryptocurrencies are best as programmable units of exchange (imagine giving your child some money for lunch and saying "don't spend it at MacDonald's". You've got no chance of enforcing that condition. But with a cryptocurrency, it would be possible to make the token unspendable at MacDonald's.)
The other point about Satoshi's Bitcoin is that it has showcased the underlying technology, which is called blockchain and given us the world's first digital signature that could not be counterfeited.
The point is that you now have a generational clash between the advertising fuelled business models of today's Big Tech giants and the open-source, decentralised networks of tomorrow's blockchain-based supercomputers. The result is that the next generation of the Internet will be a giant open-source supercomputer.
It's like this. Today, I use my own resources, time and creativity to make Youtube videos or write posts on Facebook or create content on Instagram. I do all the work and the users can see them all for free. That's great, right? Well, no.
Because here's the rub. The tech platform controls everything. They decide who to promote my video/post/tweet to. They control the analytics of who is watching and engaging. And their black-box algorithms make the decisions on what they want you to watch next. They control who is making the money whilst wrapping ads that pay them around every piece of content I create. Unless a post or video goes viral, the creator makes nothing from their efforts.
Proponents of Web3 describe the current business model of Big Tech as feudal and authoritarian. Like monarchs and dictators, the Big Social platforms limit access, hoard information and enrich their own coffers
However, in the world that is Web3, this all changes. Because the YouTubes, Facebooks and Twitters in Web3 will be replaced by democratised, decentralised and shared platforms where the users own their data and control how they are used.
IMHO, by the end of this decade, many of today's Big Tech platforms will be unrecognisable from what they are today.
And if you think that is far fetched...do you remember AOL? My point is that Social Media, as we know it today, is broken.
This is why you will see a host of decentralised social media platforms emerge that turn the business model on its head. Instead of the platforms monetising you (the user), the decentralised platforms put allow the users to monetise themselves.
Take DISEO for example. (I'm currently looking at this to set up my own "Circle" using Diseo.)
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Building the Internet of Value Exchange
Critical to Web3 is the new generation of platforms like Ethereum. Ethereum has a massive first-mover advantage over the lookalike followers like Polkadot, Cardano, Solana, or Avalache (there are lots of them BTW). What Ethereum does is to provide the rails for Web3. This is the foundation layer for a global decentralised network, a kind of global supercomputer that processes and authenticates data in a single giant spreadsheet that everyone has access to.
A fundamental concept to understand with Ethereum (and any blockchain platform) is this notion of "trustless". This means that there is no need to "trust" the computer because it is inherently trustworthy. This is because instead of the data being on a single, central computer (such as your bank), it is held in an open and transparent network that is shared across thousands of computers. No single entity is in control.
Think of it like this. You're doing your monthly accounts and your personal spreadsheet says you have €100 in your bank account. But your bank reports that you only have €99. Which one do you trust, your own methods to track every € on a spreadsheet or the bank's ledger that you can not see? In many ways, it's irrelevant which one is right because the bank has control and so you only have €99 in your account to spend. Whereas in an open, decentralised network running on a blockchain, your spreadsheet and the bank's ledger can not be different because you and the bank will be keeping track of every transaction on a common, shared "spreadsheet" (which is called a blockchain.)
As a result, the question of trust never comes into the equation.
Ethereum, where the magic happens
Ethereum is the foundation layer for Web3. Which is not entirely accurate because there are other platforms besides Ethereum. But these other platforms are all playing catch-up and don't have the scale that Ethereum has established. So, for the purposes of this essay, I'm only going to focus on Ethereum.
Because this is where the magic happens when you think about Web3. Essentially Ethereum is the operating system for a whole new generation of apps and tools and trade and exchange and ownership.
Think of it like this. When the iPhone came out it was seen as the platform for a bunch of cool new things that were not possible before. Take Uber, for example. Before the iPhone, the taxi-ride experience was hit and miss. Then Uber came along and gave you the option to choose your taxi with real-time maps to show where your cab was, with ETAs and ratings and cashless payments. But it wasn't the iPhone per see that gave us Uber or these cool features. It was the GPS inside the iPhone that made it all possible. The iPhone was the enabler but it was the tech build ontop of the iPhone that made the magic happen.
Ethereum is like the iPhone in this regard. It is the enabler for a whole bunch of cool new things that simply could not be done before.
Like these cool things called DeFi, Dapps and DAOs (which are the abbreviated forms for 'decentralised finance', 'decentralised apps and 'decentralised autonomous organisations'.) With Ethereum it is now possible to now create a whole range of new services and products that work without any human intervention at all. They are completely autonomous operations that are totally controlled by computer code in, what is called, a smart contract.
For example, in financial services, it is possible to create a completely 'driverless' insurance company, or a financial exchange, or a fixed income marketplace. By 'driverless' I mean that there is no human involvement in these autonomous operations of the company.
These digital organisations would be run entirely by computer code. Instead of a claims handler processing your insurance claim, the computer code does it instead. And all of the transactions and smart contract operations are recorded on a blockchain for complete transparency.
There are significant benefits to be had from this approach that make the new financial services products better than their modern-day equivalents. It is just a matter of time before DeFi becomes mainstream and replaces conventional financial services. DeFi products operate at atomic speed, which means instantly, with no friction, delay or cost. They are also flexible and compostable, which means that components are like lego bricks and can be co-cojoined and built on top of each other, creating the possibility of many new opportunities and innovations.
To give this some context, according to DeFi Pulse, there is $107 billion of value locked up in DeFi networks.
Part 2 coming up
In Part 2 of this Wiser! Insights series on Web3, I will go into more detail about DeFi, Dapps and DAOs, the future for NFTs and how Cities around the world are creating their own cryptocurrency to run their local communities.
Part 2 will be emailed to Premium Members (like you) on December 21st.
What did you think of this issue of Wiser! Click the link and let me know. There's a comments section if you'd like to write down any suggestions or feedback. Thank you.
Sources of Insight and Information
DeFi Statistics. Source: Exploding Topics