The Story of Web3 - Reimagining the WebJul 15, 2021·Last updated on Jul 15, 2021
Share this article:
The internet was created to bring us together. But somewhere along the way, that vision was lost. We have handed over our data to centralized figures, allowed big tech to thrive off of our creations, and accepted our place in a system that is seemingly out of our control.
Over the past couple of decades, this has been the narrative.
However, in the far corners of the internet, a new story is being written. The authors are not Amazon and Apple, Facebook and Google. No. The authors are you and me.
If this is news to you, don’t worry, there is still much to be written. In all honesty, it has just begun. Let this be your on-ramp to the future of the digital world.
This is the story of Web3.
Web1 - How Did We Get Here?
To truly comprehend what the internet has become, we must first understand how it began.
What started as a tight-knit network for scientists and scholars has evolved into much, much more. For all of the incredible advancements that have been made, a series of missteps has followed. Today’s web is riddled with issues that can only be fully appreciated by digging down to its roots.
Before we begin exploring Web3, let’s venture into the past and find out how we ended up with today’s internet that we know, love, and loathe.
Birth of the Internet
The origins of the internet can be traced all the way back to 1966, when the US Department of Defense began working on a project known as ARPANET.
ARPANET, or the Advanced Research Projects Agency Network, set out to create a system for remote computer access and communication. The earliest iteration of ARPANET was a decentralized, peer-to-peer network made up of a handful of computers at American universities.
While ARPANET gets a lot of credit for pioneering the internet, they were not alone. Similar networks were being created in other parts of the world around the same time, but they were unable to communicate with one another. This was mostly due to differences in how these networks formatted information and assigned web addresses. Instead of the global web we have today, these early networks existed as separate intranets.
We can think of the “internet” at this time existing as small villages, all self-sustained and unaware of each other. Members of the same village could exchange information amongst themselves, but had no way of communicating with outsiders. Even if they managed to make contact with a neighboring village, they wouldn’t have spoken the same language. This created a fragmented series of small networks dotted around the globe.
This all changed in the 1970s, mainly with the introduction of TCP/IP.
TCP/IP, or Transmission Control Protocol / Internet Protocol, established standards for formatting information and structuring web addresses. By adopting these new guidelines, networks that were formerly separate became compatible with each other. All of our little villages learned the same language and opened their doors to each other.
As more and more networks adopted the TCP/IP standards, they began to form one large network. This was the birth of the internet.
Even with this breakthrough in connectivity, the internet was still very difficult to navigate. Information could be sent from one computer to another, but “surfing” the contents of the internet was not yet possible. Sure, our villagers could now speak the same language, but they still had a hard time finding each other. That is, until Tim Berners-Lee entered the picture.
In 1989, Berners-Lee was a computer scientist at CERN with a unique professional history. Having worked with new technologies like hypertext and computer networking, Lee was uniquely equipped to solve this issue plaguing the early internet. He recognized how inefficient navigating the net was, and thankfully, proposed a remedy.
Pulling from his knowledge of hypertext, and marrying that with the new connectivity resulting from TCP/IP, Lee formulated a method of linking internet documents directly to one another. Instead of simply sending information to someone, it became possible to display that information on a public web page. Users could then navigate the internet by searching for web pages and clicking from page to page, site to site.
This was the beginning of the world wide web - a way of linking and accessing information on the internet. Thanks, Tim.
To go back to our villagers, the invention of the web connected their individual villages with a robust road system. They could now easily travel from one village to the next, consuming content and picking up information along the way.
While this was a big step in the right direction, Web1 still consisted mostly of static web pages and offered almost no user interaction. For this reason, Web1 has been dubbed the “read-only web.”The average Web1 user was limited to sending emails and reading information published on web pages. But at the time, this was revolutionary.
Handing Over Ownership
As groundbreaking as this may have been, the creation of the web came with a catch.
The earliest iteration of ARPANET existed as a decentralized, peer-to-peer network. This meant there were no middlemen to store web addresses, relay messages, or manage anything else — everything was left up to the network’s individual computers to handle. This worked fine when networks were small, but as the web grew, this quickly became unmanageable.
To remedy this, intermediary figures began to enter the new digital world, such as the DNS.
The DNS, or domain name system, was created to handle the naming and routing of web addresses. In order to create your own website, you had to go through them. To this day, the DNS and their parent organization, ICANN, effectively own most of the websites we use. We simply rent our domain names from registrars like GoDaddy and Namecheap who are authorized by ICANN. But at the end of the day, we are not actually taking ownership of these domains. This is why it is possible for websites to be censored, transferred, and seized entirely.
This means that we do not own our websites. And that is just the beginning.
We are not trying to imply that organizations like these are evil, but this introduction of intermediary figures did set a dangerous precedent for the web. Decentralized networks quickly went out the window and were replaced by closed systems controlled by centralized figures. At the time, this was really just a scaling issue. Without the technology to sufficiently scale the peer-to-peer system, centralization became the solution.
Instead of the free and open landscape its inventors imagined, the web has become a field for harvesting personal data, with centralized giants reaping the rewards. As our real lives have become increasingly intertwined with our digital world, this issue has been magnified.
This brings us to the web that we are familiar with today - Web2.
Web2 - The Web of Today
Web2, referred to as the “read-write web,” gave users the ability to contribute to websites by writing their own content. The web transformed from a passive platform into a place to chat with friends, collaborate with peers, and share original work. Web2 took the static content of the Web1 days and made it dynamic. By pairing content with applications and introducing better user interfaces, the web became an interactive experience.
All of this resulted in the “achievement” that Web2 has become synonymous with — social networking.
Starting with GeoCities in 1994, many websites began shifting from simple information sources to what would be more accurately described as aggregators.
Like the many social networks that followed in its wake, GeoCities was largely created by its users. These users, known as homesteaders, created their own pages within the neighborhoods of GeoCities. These pages covered everything you could imagine — movies, fashion, pets, politics, conspiracy theories, anime. You know, the typical internet stuff. There were no likes or comments yet, but you could send an email to the page’s creator. Rad!
With users handling the content creation, web developers began to focus more on improving user experience and incentivizing participation. As thousands of new homesteaders flocked to the site to set up camp, the real estate of GeoCities started to look particularly valuable. This was not due to scarcity or intrinsic value. It was due to attention. As it would turn out, attention is an immensely valuable asset.
And how do you monetize attention? With ads, of course.
We Become the Product
GeoCities was certainly not the first business or website to monetize attention, but they were the first social network to do so. It cannot be overstated — this changed things.
This combination of social networks and advertising created a perfect storm which we are barely managing to weather today. Why is this such an issue? To examine how this relationship works, let’s look at the company who has perfected it — Facebook.
Okay, let’s say you go and open a new Facebook account. You enter your name, your age, your phone number, maybe your gender. Then you connect with some friends, join a few groups that you’re interested in, and Like the pages of some of your favorite brands.
And just like that, you have given Facebook a virtual version of you. With the power of AI, this virtual version of you is constantly updated as you interact with the platform. Every click, Like, and swipe is recorded and used to learn more about you. Your virtual identity is built out by algorithms and sold to the highest bidder.
Now equipped with billions of these virtual identities, Facebook owns a treasure trove of data that it rents out to advertisers. To be clear, Facebook does not necessarily sell this data. Instead, they use this data to create highly-accurate models, which marketers then target with ads. This is a double-edged sword (for us) as this data collection also contributes to Facebook’s ability to make its platform even more addicting, thus bringing in more attention. This process feeds into itself, creating the multi-billion dollar behemoths that we know today. On the off chance that you are still unaware, they have gotten really good at this. In 2020, Facebook brought in $85.96 billion in revenue, $84.2 billion of which was from advertisements.
Unfortunately, harvesting our data and using it to sell ads back to us has become the primary business model of Web2. This is by no means limited to Facebook and social media. Google, YouTube, Twitch, and countless other platforms rely heavily on data collection and advertisements to keep the lights on and the yachts afloat.
On the web, advertisers have taken our spot as the customers. And as users, we have become the product. Advertisements are the lifeblood of today’s web.
On that note, let’s return to GeoCities one last time.
Handing Over Identity
Just before the turn of the century, the GeoCities population had exploded, making it the third most visited site on the web. Like we just discussed, GeoCities was bringing in some cash with digital ads, which was going swimmingly. This all caught the attention of Yahoo, who then acquired GeoCities for $3.57 billion in January of 1999.
Shortly after the acquisition, Yahoo required GeoCities users to sign a new terms of service agreement. Part of this agreement stated that Yahoo would become the owner of all rights and content created on GeoCities. As you might imagine, there was an immediate backlash from homesteaders. Yahoo quickly responded by stating that this messaging was misconstrued. They went on to add a few sentences to clarify their intentions, but the damage was already done.
We can assume that Yahoo never intended to directly sell user-generated content, but that isn’t really the point. What they did intend to do was capitalize on the creations of the platform’s users. And while Yahoo may have fumbled this handoff, the businesses engaging in this work today have gotten it down to a science.
These businesses, the ones who control the majority of today’s web, are not out to add value to the users of their platforms - they are out to extract it. And as these platforms increase in size and influence, the network effect sets in, making it harder and harder for users to leave. You can’t simply delete your Facebook and move your followers, content, and clout onto another platform. Your identity is fragmented and locked into the various sites you use. And just like with domain names and digital content, this identity is owned by the platform, not you. It can be censored and seized.
On today’s web, you do not own your identity.
The Mess of Web2
This is not about the shortcomings of GeoCities, the mismanagement by Yahoo, or the greed of Facebook. Sure, these all play a role here, but they were just some early dominoes in this complex mess we have all gotten ourselves into.
The issue at hand is much larger. Today’s web is controlled by a small handful of companies and built on a system of extraction. This is not a foundation for growth, or community, or creation. The vision Tim Berners-Lee had when he gave away the source code of the internet for free is nowhere to be found. What was supposed to be an open and democratic platform for the many has become a highly centralized network owned by a few.
Okay, enough doom and gloom. We all see the holes in our ship. What now?
Without further ado, Web3.
Web3 - Reimagining the Web
Web3 is a movement to reclaim the internet.
It isn’t one single technology or advancement, but a complete rethinking of how the web should work. Web3 is decentralizing the web once again, and redistributing control and data ownership to its users. We are taking back our identities and regaining our freedom. Everything is being reimagined.
In a refreshing change of pace, this all starts with trust.
In Blockchain We Trust
When we look back at the issues that arose with Web1 and Web2, they very often share a denominator - middlemen. Facebook is a middleman for community. YouTube is a middleman for content distribution. The list goes on. This is nothing new, as we have been using intermediary figures long before computers came into the picture.
In a given transaction, the primary role of a middleman is to facilitate trust. But it is this reliance on intermediary figures that has created the centralized ecosystem that we are trying to escape.
In order to facilitate trust without the use of intermediaries, Web3 utilizes an ingenious solution called blockchain.
Blockchain is a decentralized, distributed, immutable ledger. Essentially, it is a secure way to record and keep track of information without the use of a central authority. This is kind of a big deal, so let’s unpack it.
- Decentralized: Blockchain has no centralized owner or manager. Instead, it is managed and maintained by its entire network of users. We can think of this as a giant shared computer, with individual devices, called nodes, replacing the data centers and server farms of Web2. This removes a single point of failure, as well as the potential for a centralized figure to assert control over the network.
- Distributed: With no single entity in charge, blockchain allows its users to add and verify transactions and information themselves. Blockchains are peer-to-peer networks governed by their users through a process called consensus. There are various consensus mechanisms, such as proof of work and proof of stake, but they all have the same goal — allowing a blockchain’s users to vote on the validity of transactions. This slices up control over the blockchain and spreads it out amongst its users, thus democratizing the network.
- Immutable: Once a transaction is verified by the network, it is added to the blockchain on what is called a block. And once a transaction is added to the blockchain, it is permanent. Users store copies of the blockchain on their own devices, effectively backing up its contents in thousands of places in real time. If you wanted to truly alter information that has been added to a blockchain, you would have to do so on at least half of the blockchain’s nodes at the same time. This is what is known as a 51% attack, and is usually incredibly difficult and expensive to pull off. This is by design, and disincentivizes these attacks by making them economically unwise.
- Secure: Behind all of this is cryptography. More specifically, blockchain utilizes asymmetric key cryptography for the encryption and decryption of information. Cryptography is...complicated. So, let’s oversimplify. Say you want to send me a briefcase full of documents through the good ol’ fashioned USPS. But, those documents are sensitive and you don’t want anyone else to see them. Knowing the briefcase will have to pass through some other hands before it gets to me, you secure it with a combination lock that only I know the code to. Now, you can be comfortable with sending the briefcase out into the world, knowing nobody other than me will be able to read its content. This is cryptography’s role in blockchain. The ability to protect information while making transactions public is what allows blockchains to be both public and secure simultaneously.
This ability of blockchain to create trust between individuals is fundamental to the world of Web3. Trust is such an important piece of the pie that Web3 has been dubbed the “read-write-trust web.” Building trust into the web itself removes the need for intermediary figures and strips the ecosystem of the dangers that they introduce.
While democratization is great, it also means that we, the users, all become reliant on each other. So how can we trust a blockchain’s users to maintain the health of the network? The answer is actually baked into the blockchain itself - cryptocurrency.
Cryptocurrency - Aligning Incentives
Cryptocurrencies are the incentive mechanisms behind Web3. Instead of using ads to power everything (because that turned out great) cryptocurrencies are able to align the incentives of creators and users. Instead of passively using a network that is funded by someone else, blockchain networks are able to reward users directly, giving them good reason to support the network themselves. Where Web2 chooses to extract value from users, Web3 is able to redistribute value directly back to its users with coins and tokens. Let’s see this in action.
Bitcoin is a peer-to-peer network for storing and transferring value. Its goal was to allow two parties to transact online without providing their personal data or trusting an intermediary figure. It has achieved that and much more. In fact, Bitcoin created blockchain technology itself.
Bitcoin is referred to as a “trustless system,” which means that its users do not have to blindly trust one another. Instead, they are able to trust the system itself, removing the need for third parties.
Bitcoin showed us what blockchain was capable of, bringing the idea of a scalable, decentralized, peer-to-peer network back from its Web1 grave. It’s worth mentioning that some P2P networks, such as Napster, did exist before Bitcoin. However, they were not able to bring the same levels of security and decentralization to the network, nor did they incorporate an internet-native form of payments. By combining a secure P2P system with the ability to send and store value, Bitcoin has created a robust network that can operate entirely on its own. No middlemen, no centralized servers, no banks.
A Brief History
Bitcoin was created in 2008 by Satoshi Nakamoto. This name is actually a pseudonym, and to this day nobody knows the true identity of Satoshi. Whoever Satoshi is, they published their whitepaper on “Bitcoin: A Peer-to-Peer Electronic Cash System” on October 31, 2008. This now famous whitepaper proposed a way for two parties to send payments directly to one another without the need for a centralized financial institution.
On January 3, 2009, Satoshi mined the first Bitcoin block, known as the genesis block. In that block, Satoshi also included the message “The Times Jan/03/2009 Chancellor on brink of second bailout for banks.” This headline from The Times implies that Bitcoin’s development was, at least in part, a response to the financial fallout of 2008. It was a solution to the mismanagement of money by governments and banks.
Proof of Work
Because Bitcoin is a blockchain, it relies solely on its users to update, protect, maintain, and store the network. In order to incentivize users to do all this work, the network rewards users with its native coin, bitcoin.
A quick FYI, when referring to the blockchain network itself, you use “Bitcoin” with a capital "B." When referring to the cryptocurrency, you'll generally use “bitcoin” with a lowercase "b" or its abbreviation "BTC."
Bitcoin’s method of verifying information and updating the blockchain, called a consensus mechanism, is known as proof of work. The process of verifying transactions, organizing them into blocks, and adding those blocks to the blockchain is known as mining. Under the hood, mining involves solving complex cryptographic puzzles, which requires some pretty serious computational power. While this may seem like a “waste of resources,” what it is actually doing is requiring miners to prove that they have invested real resources, like money and electricity, into the Bitcoin network. This allows a miner to communicate their level of contribution, or work. In return for providing this work and maintaining the blockchain, miners are rewarded with bitcoin every time they successfully mine a block. These rewarded bitcoins are called the block reward. In addition to the block reward, the miner also receives all transaction fees associated with that block.
By building in a way to directly pay anyone who contributes to the maintenance of the network, blockchain effectively creates a distributed workforce. There is no need to hire a third-party or intermediary company to handle this work. And because there are no intermediary figures running the blockchain, it is free from the centralization issues of Web2.
Bitcoin is an incredibly secure store of value, earning it the nickname “digital gold.” Still, it is a bit limited in what it can do, being used for little else than transferring and storing value. To be clear, this is by design, as Bitcoin’s strict code is what makes it the airtight store of value that it is.
But, what if you wanted to do something a bit more complex on the blockchain? This is where a smart contract platform like Ethereum comes in.
First proposed in 2013 by Vitalik Buterin, Ethereum introduced additional functionality to the blockchain fundamentals established by Bitcoin. Where Bitcoin brought decentralization to money, Ethereum wished to extend that decentralization to applications. To achieve this, Vitalik and the Ethereum team created smart contracts.
A smart contract is self-executing code that lives on the blockchain. In the same way blockchain removes middlemen from the web, smart contracts remove middlemen from individual agreements, and replace them with code.
Once deployed to the blockchain, a smart contract is part of the shared network and cannot be changed or edited by either party. That means no tampering, no cancelling, and no backing out. This removes the need for one party to trust the other, as the smart contract will self-execute as intended once its specified conditions are met. The potential use cases for smart contracts are vast. But at their core they are fairly simple, operating on basic if-then statements.
Let’s say you wanted to send me some ether, Ethereum’s native coin, in exchange for a special new cryptocurrency I hold, which we’ll call Unstoppable Coin. We immediately run into an issue. Do you send me the ether first and trust that I’ll send you some Unstoppable Coin? Or do I send you some Unstoppable Coin first and trust that you’ll send me the ether? Either way, one of us will have to send our asset first and just hope the other person keeps their side of the deal. If we are good pals, then this may not be an issue. But, if we are complete strangers (which we probably are) then there is no reason for us to inherently trust each other. This is where we utilize a smart contract.
Instead of us sending our assets to each other directly, we send them to a smart contract. Once the smart contract sees that it has received the specified amount of Unstoppable Coin from me and ether from you, it will initiate the payout. I get your ether, and you get my Unstoppable Coin. What happens if I turn out to be super shady and never send the Unstoppable Coin? Then the smart contract will simply return your ether to you, no questions asked. All of this happens automatically, and because it is on the blockchain, it can be verified by anyone.
By utilizing a smart contract, complete strangers can enter into risk-free agreements without the need for a third party. Because of their public and tamper-proof nature, smart contracts are well suited to handle all sorts of transactions. In the future, it is very possible that we will be using them for loans, mortgages, insurance, and even voting. Actually, some of this is already happening, which we’ll explore later.
Let’s go a step further. After all, the web is much more complicated than standalone transactions. The goal of Ethereum is to allow anyone to program anything on the blockchain. While smart contracts can handle simple services like facilitating a trade, they can also be used to power the backends of fully-fledged applications.
Generally speaking, Web2 applications are stored and executed on centralized servers. As you may have guessed, Web3 handles this a little differently. Decentralized applications, or dapps, are open-source, created with smart contracts, and executed on the blockchain. Effectively, dapps bring together multiple smart contracts and add a user interface. The result is a new world of applications that look familiar but provide the trustless, decentralized, and secure nature of the blockchain.
Due to their decentralization, dapps are not vulnerable to hacking in the same way their Web2 predecessors are. This is because dapps, like anything else deployed to the blockchain, are maintained by the entire network. There is no centralized server holding a dapp’s code. Furthermore, there is no CEO or centralized company calling the shots. A dapp is powered by the blockchain on which it runs and, in turn, is owned and managed by the blockchain’s users.
One of the most popular dapps today is Uniswap, a decentralized exchange (DEX) built on top of Ethereum. Uniswap allows users to trade cryptocurrencies without using banks or intermediaries. Instead, Uniswap’s users provide the exchange’s liquidity and govern the dapp themselves with Uniswap’s UNI token.
Coins vs. Tokens
Let’s back up for a sec and differentiate between coins and tokens. They are very similar, but not one in the same. A blockchain’s native cryptocurrency is referred to as a coin. This includes bitcoin, ether, litecoin, and many others. As we’ve discussed, these coins are the incentive mechanisms behind these blockchain protocols.
In a similar fashion, dapps may issue their own cryptocurrencies. These are referred to as tokens. While dapps could just accept their underlying blockchain’s coin, creating a token of their own offers a handful of benefits.
First, issuing a token allows a dapp’s developers to raise capital for their project. When a dapp first makes its token available to the public it is known as an initial coin offering, or ICO. Individuals are able to invest in the dapp by buying their token in a process similar to a traditional IPO. This also gives the buyers of these tokens, known as token holders, further incentive to support and promote the dapp. As adoption of the dapp grows, so too does the value of its token (ideally), increasing the value of the token holder’s investment. Tokens made specifically for this purpose are referred to as security tokens.
Aside from just acting as investments, tokens can have utility of their own. These are, unsurprisingly, called utility tokens. Just like tokens at an arcade, these tokens may be required to interact with the dapp from which they are issued.
Then, there are governance tokens. These are held by users of a dapp or decentralized organization and used for voting purposes. We’ll circle back to these soon.
The lines between these different types of tokens are becoming increasingly blurred, as many incorporate one or more of these use cases. What they all have in common, though, is the ability to align the incentives of individuals around a unified cause.
Other Smart Contract Platforms
Ethereum may be the premiere smart contract platform, but it is certainly not the only one. Other smart contract blockchains include Polygon, Solana, Tezos, EOS, and Zilliqa. All of these blockchains enable smart contracts and dapps just like Ethereum, and are growing in adoption as we speak.
Have you realized we haven’t said anything about data yet? It was a big deal in Web2, so where is it in Web3?
It’s safe and sound in your own wallet.
In the Web2 world, data is collected and sold to advertisers in order to fund websites and applications. Thankfully, Web3’s implementation of cryptocurrencies has created a system where that is no longer necessary. Handing over your name, number, date of birth, and other sensitive information in order for a dapp to trust you is unnecessary, as blockchain has built trust into the system itself. Because of this, dapps do not require you to create an account with them to use their services. Instead, Web3 users access dapps with what is called a wallet.
Your wallet is your tool to interact with the blockchain. It holds your data as well as your cryptocurrencies and other digital assets, acting as your portal to the blockchain. When you create a wallet, you are generating a pair of cryptographic keys - a public key and a private key. Your public key points to your wallet address on the blockchain and can be given out to anyone. Anyone can use your public key to send coins, tokens, and other assets to your wallet. Your private key, on the other hand, is used to access the contents of your wallet. It is also used to sign transactions on the blockchain, verifying that you are indeed the owner of that wallet and its contents.
Your private key should never be given out to anyone. Web3 has a saying, “not your keys, not your coins.” Anyone who knows your private key can steal or transfer the contents of your wallet, so keep it safe. A private key is similar to your bank account’s PIN number or password. If someone knows that password they can log in and steal your funds.
While wallets take a little getting used to, they are becoming easier to use every day. One of their most exciting attributes is that they work across dapps on the same blockchain network. Unlike Web2, you don’t need to make different accounts and fragment your identity across separate dapps. On Web3, you just find a dapp you want to use and connect your wallet. And that’s it, the dapp has everything it needs from you. This is similar to Web2’s single-sign on, where you may use a Facebook or Google account to sign into other websites. Using a Web3 wallet is much more secure, though, as it is not connected to a data goldmine like a Facebook or Google account.
Data on Web3
At this point, we’ve discussed data ad nauseam. The importance of retaining ownership of your personal data cannot be overstated. As we’ve seen with Web2, handing over our data effectively allows companies to monetize us. Removing this practice from the web is one of the core goals of Web3.
Through the use of cryptographic keys, wallets, and decentralized networks, Web3 is removing the need for personal data to be collected, along with the potential for it to be abused. This also takes centralized data hubs out of the equation. Data hubs like those owned by social media and ecommerce sites are a constant prime target for hackers. Why hack into one person’s account when you could hack into an entire warehouse full of them? By creating systems that no longer collect sensitive data, Web3 is creating a safer, user-focused web. It is returning ownership of our data and putting us in charge of our identities once again.
Creating the Web We Want
Okay, we’ve covered a lot of ground. Let’s regroup and assess what we’re working with here.
We have decentralized networks with no intermediary figures. We have user owned and operated applications. We no longer need to hand over our data to use the web. And we have regained ownership of our digital identities.
As we peel back the layers of Web3, we begin to realize that it is a much different place than Web2. It is a place that rewards the user and embraces innovation. It opens its doors to everyone and calls upon us all to create the web that we want. Now that we understand how Web3 works, let’s see what people are doing with it.
There are a couple of token types that we didn’t discuss earlier - NFTs and social tokens. These are building blocks for the user-owned economies of Web3.
NFTs, or non-fungible tokens, are distinct assets that exist on the blockchain and carry with them their own certificates of authenticity. At their core, they are unique identifiers used to assign ownership of digital assets, similar to barcodes. Unlike ether or dollar bills, one NFT is not exchangeable for another NFT, as they are digitally unique. And because they are stored on the blockchain, they are secure and immutable.
Turning an asset into an NFT is done through a process called minting. When you mint an NFT, you are adding it to the blockchain and signing it with your private key. By adding your digital signature to an NFT, you are able to prove that you are the original creator. This also shows that you are the owner, giving you the right to transfer or sell the NFT. As always, all of this is open for anyone to verify for themselves.
NFTs have solved a problem that digital creators have been struggling with for a long time - how to bring scarcity to digital assets. While someone else could still copy and paste the file associated with an NFT, they would not be duplicating its proof of ownership. That exists solely in the owner’s wallet.
While digital art has captured most of the attention in this space, NFTs are not limited to just images and videos. Books, video game assets, songs, virtual pets - all of these can be minted as NFTs.
Social & Creator Tokens
Web3 allows fans and investors to support creators directly with social and creator tokens. These are tokenized versions of an artist, brand, or even a community. At first this can seem a bit....pretentious? But these tokens hold the promise of allowing creators to actually capitalize on their content. Over the years, this has become much more difficult than it should be.
Web2 took the idea of social currency - the influence a brand or individual has over their network - and raised it to new heights. Social media gave us influencers and self-proclaimed “gurus” who were able to capture large amounts of attention and create dedicated followings. As we’ve already seen, this attention is very valuable. But as we have also seen, turning this attention into monetary value is tricky. This becomes especially tricky when the platforms these creators use effectively own their content.
To capture some of this value themselves, creators have turned to crowdfunding platforms like Kickstarter and subscription services like Patreon. This has allowed for dedicated followers to contribute to their favorite creators, but still requires intermediary figures to facilitate the transactions.
By tokenizing creators and allowing fans to invest in them, Web3 takes social currency out of the hands of platforms and gives it back to the creators themselves. Social tokens may just be the keys to freeing creators of all types from the confines of centralized platforms.
Creator & Ownership Economies
When you put NFTs, social tokens, and their communities together, you get a revitalized version of the creator economy. But creators capturing the value of their work is only half of the equation here. In true Web3 fashion, the game is no longer just about capturing value. It’s about distributing value.
Musical artists like 3LAU and RAC, entrepreneurs like Alex Masmej, and curators like WhaleShark have all issued their own creator tokens. Holders of these tokens are not only supporting these creators, but they are now along for the ride. Similar to a company’s shareholders, a creator’s token holders receive a slice of the value they generate. They become partial owners of the creator’s body of work.
Mirroring blockchain’s ability to turn users into distributed workforces, creator tokens give fans added incentive to support and promote their favorite artists because they now have their own skin in the game. Creators can even build additional perks into their tokens, like access to community groups, real world events, and exclusive content. This ability to fractionalize ownership and spread wealth is still in its infancy, but has the potential to create healthier, more accessible financial ecosystems.
Hopefully we will continue to see creators prioritize giving back to their communities. If not, they could simply become smaller versions of the centralized platforms they are trying to escape.
At this point, you may be asking yourself how deep this rabbit hole goes. This brings us to the bleeding edge of Web3, where we are taking all of these new technologies and organizing them in exciting new ways. We are also finding new ways of organizing ourselves.
Blockchain’s open nature allows users from all over to come together around a unified cause. While creator tokens are one result of this, more complex systems can be built with the same fundamental ideas. This brings us to DAOs, or decentralized autonomous organizations.
DAOs are still very new, and their mechanics may differ from one to the next. So, take this high-level overview with a grain of salt.
DAOs are a new way of organizing communities, allowing collective ownership over a group’s assets and decision making process. Instead of concentrating control in a single person or small subset, a DAO distributes governance amongst all of its members. DAOs also take certain business elements, such as budget allocation, and convert them into code. All of this lives on the blockchain as smart contracts, so as usual, everything is transparent and open for anyone to verify.
Upon joining a DAO, members are awarded governance tokens. New members may also contribute funds to the DAO in the form of a cryptocurrency. All of the funds added go to a treasury, which is managed by a smart contract. Governance tokens then allow members to vote on how those treasury funds are used. Because the treasury is managed by a smart contract, it cannot be spent or allocated without this voting process. Voting also extends to other decisions the DAO makes, such as how to carry out tasks and changes to its structure.
DAOs may utilize different methods of voting, distributing voting power, and other core practices. But they all have essentially the same objective - to create a group of people working towards a common goal, and give them all a say in how the collective should operate.
Metaverse and Beyond
Our final stop takes us to the outer rim of Web3 - the metaverse.
The metaverse is a collective digital space, made up of interconnected virtual worlds. This naturally conjures up Ready Player One inspired images of immersive virtual reality, but let’s take it one step at a time.
Platforms like Decentraland, Somnium Space, and The Sandbox allow users to meet with friends, buy plots of land, and set up shops and galleries, all in a virtual space. This might sound similar to something like Roblox or World of Warcraft, but there are some key differences.
Virtual Worlds, Real Economies
With the advent of cryptocurrencies and NFTs, it is now possible to bring user-owned assets from one digital space into another, along with the value that they hold. Decentraland users transact in MANA, a cryptocurrency built on the Ethereum blockchain. This use of cryptocurrency connects the “in-game” economy of Decentraland to our real world economy. This also allows for creators of in-game assets like skins, accessories, and avatars to build legitimate businesses around virtual platforms. For the first time, digital spaces can tap into an economy outside of their own walls.
The shops and galleries created in these virtual worlds are also closely tied to the real world. Right now, you can boot up Decentraland, load into the world with a virtual avatar, walk to an art gallery, and purchase an NFT. It’s easy to see the similarities between this and purchasing something from a traditional website.
Because these worlds all exist on the blockchain, instead of separate locked systems, users can jump between them at will. This is what creates the idea of the metaverse - a network of connected virtual worlds.
We are already comfortable talking online with Facetime and Zoom, shopping on our phones, and navigating the web to find information. The metaverse will gradually digitize these interactions, and more, even further. From a virtual Travis Scott concert inside of Fortnite attended by millions, to virtual reality businesses meetings in Somnium Space, it's easy to see where all of this is headed. Digital worlds will continue to expand and become more immersive, and the technology on which they're built will continue to advance. We can expect for the metaverse to seep further into our lives.
Web3 Is Here
The internet was created to bring us together. And somewhere along the way, that vision was lost. The free and open internet was taken from us. We handed over our data, our identities, and our freedom. The worst part? We hardly noticed.
But now, we have the opportunity to change that. We are back to square one, and everything is being reimagined. We, the users, are building a decentralized system that we own and operate. Where we control our data and identities. We have the opportunity to create a web that is free from its current constraints.
With Web3, we are regaining our freedom.
As we continue to build out this new frontier, it is crucial that the ethos of Web3 is not lost in the process.