Web3.0 : A beginners guide - Part 1
Hi All,
I hope you all are doing well and welcome to Dozen Worthy Reads. A newsletter where I talk about the most interesting things about tech that I read the past couple of weeks or write about tech happenings. You can sign up here or just read on …
I know I’ve been AWOL for the past few weeks with work and life! I hope you in the United States had a great thanksgiving break and welcome back! Today I’m going to cover the utmost basics of Web 3.0. I have been fascinated about Web 3.0 but honestly didn’t know where to get started. Having “owned” cryptocurrencies via FTX and Robinhood (which are both custodial wallets) I felt like I was missing out on whatever this cool thing Web3.0 is so this is my journey into trying to explain it to myself.
Growing up, the internet was a mystical thing. I was one of those lucky kids to have a computer and an (expensive) dial-up internet connection from VSNL (now Tata Communications). Dial-up as you know was slow. If I remember correctly the dial-up modem we had was 9600 baud (V.32) which is 9.6kbps (yeah you can laugh now). So after finally dialing in …. I didn’t know what to do. I had to figure out browsers on a Windows 3.0 PC and once I figured that out .. where do I go? I remember seeing a website URL for Khoday’s (an Indian Brewery) in a newspaper (yes we had those too) and funnily enough it looks like the website was exactly as I saw it many years ago :D. Ok so I was on the website and now what?
My recollection of Web 1.0 is vivid in my mind. Web 2.0 not so much and I remember all this while reading Chris Dixons’s Why Web3 Matters on Future. It dawned on me that I really had no clue about Web3.0 and if many of you are like me this article will be of some interest to you. Let's start off with a couple of things from Chris’ article on definitions
Web1 (roughly 1990-2005) was about open protocols that were decentralized and community-governed. Most of the value accrued to the edges of the network — users and builders.
Web2 (roughly 2005-2020) was about siloed, centralized services run by corporations. Most of the value accrued to a handful of companies like Google, Apple, Amazon, and Facebook.
We are now at the beginning of the web3 era, which combines the decentralized, community-governed ethos of web1 with the advanced, modern functionality of web2.
Web3 is the internet owned by the builders and users, orchestrated with tokens.
(Thanks to @packyM for this definition.)
If you haven’t read Packy McCormick’s The Interface Phase - by Packy McCormick, read it! It will be a bit complex to follow along but it really hit home a few weeks ago and last week again that I really wanted to dig in. I have been a crypto naysayer for the longest time and only recently started dabbling via FTX.US and Robinhood but I didn’t really still understand all this.
A key thing to note here is as Packy mentions:
While web3 apps like NFTs, DAOs, and DeFi are gaining popularity, we’re still interacting with web3 through web2 interfaces. If history is a guide, we’re going to need new web3-native interfaces and spaces to bring hundreds of millions of people into the ecosystem.
Web3.0 doesn’t yet have completely native interfaces yet but AR/VR/Glasses/Metaverses are all in progress. Web2.0 (phones, computers, browser, payment rails) all serve as starting points for familiarizing you with Web3.0. Entry points to be sure. Right now there are many experiments on what works and what doesn’t work
What is Web 3.0?
In order to understand Web3.0 you’re going to have to leave your existing understanding of Web2.0 (centralized, gatekeepers) and understand the key concepts
We’ll be digging deeper into NFT’s, DAO’s, Wallets, DeFi, Interfaces, Use cases today and in the future, example sites that you can visit. Web 3.0 is primarily about two things : Decentralization and Trust
Decentralization & Trust
The simplest way to understand this is to imagine an Amazon.com that is not owned by Amazon. On Amazon, buyers and sellers come to the platform and list their products to be sold and buy items and pay for items with trust being enforced by a central authority (in this case Amazon). On a decentralized network, there is NO Amazon. Just a bunch of decentralized computing owned by everyone on that network. So there is zero trust to begin with and creating trust (via smart contracts is key)
Here are some examples from Learn Web 3.0 by actually Deploying an Application on it: Hands-On Approach (IPFS + Ethereum)
As the example shows your app (built on localhost ie your computer) needs to be hosted on IPFS, which is a peer to peer intermediary protocol. However if you want to access the decentralized app you will need to connect a wallet (MetaMask, for example). I’ll talk more about wallets soon
Why do we need Web3.0 at all?
Well, every time you interact with Web2.0 your data is being collected by a central party (think Facebook) and we’ll most people don’t care (similar to how most people didn’t care about the internet in the 1990’s) This is where blockchains come in …The key advantages are
Privacy & Security — Building an improved web using the latest cryptographic technologies will make sure users of the internet are able to keep personal details private, far from the prying eyes of companies or hackers.
Decentralized Storage — It’s possible to split up large files into smaller chunks that can be individually encrypted and stored in other locations. The IPFS Network and similar protocols are designed in a way that would require you to hack into multiple devices around the globe simultaneously in order to breach them, each having their own security.
Identity & Reputation — If all this anonymity makes you wonder about how we’ll deal with trust and reputation online, you’re not alone. In fact, we already have digital identities online that consist of data uploaded to social media and other websites. The major problem is that we don’t own or control that data, something that gets changed on the new web.
dApps and Web3.0
These terms kinda mean one and the same thing. A decentralized app is just a Web3.0 app. These apps are built on peer-to-peer networks such as Ethereum and IPFS
Tokens & NFT
NFT is Non-Fungible Token, as opposed to just “Token” which is a Fungible Token. So what? Think of it this way, in web3.0 ownership and control is decentralized so users own pieces of an internet service by owning tokens, which are fungible and can be sold/bought as needed. Non-fungible tokens are well not one and the same - think a piece of art. No two pieces of physical art the same. As Chris Dixon says “NFTs give users the ability to own objects, which can be art, photos, code, music, text, game objects, credentials, governance rights, access passes, and whatever else people dream up next”
Enter coins and tokens
Put simply “coins” are cryptocurrency that are on an independent blockchain (Bitcoin, ETH, XRP). Tokens do not have their own blockchain but live on another blockchain (ERC-20 tokens on ETH) is an example of this
What the hell is the difference between coins and tokens??
Tokens are unique to smart contract platforms (as far as my understanding goes). Etheremum enables users to create, issue, manage tokens that are derivatives of the primary block chain based on the ERC-20 token standard. The best way to think about this is to go back to Web2.0 and Roblox. Roblox has Robux which are “tokens” for a Roblox user to pay/use in games. So now if there is a new token on ETH, that specific ETH project will generate or create these tokens from thin air as a native token which can be used in that project. You can exchange these back. But project specific tokens are used by early adopters/believers to buy into a specific project. Lets take an example. You are creating a dating app and your pool of believers who would like to use this decentralized app buy tokens that you have issued to use within the app. Lets say the app is called DeDate (decentralized date lol) and as a user you can buy these tokens to use with DeDate. You can spend your “utility” token to match with potential dates or send them messages and if you get tired of the dating pool you can exchange your utility tokens back to ETH to Fiat (USD). Think of this as “paying” to the platform to use the platform, similar to how you’d use Tinder.
A real example of this might be Dai (the token) as part of MakerDAO (the dApp) on Ethereum (the peer-to-peer network). In the real world you can think of the Robux (in app currency) paid to Robux(App) which sits on top of the App Store (not an exact example but you get the idea). MakerDAO allows users to access credit instruments (Decentralized Finance, DeFi) such as lending/borrowing and Dai can be exchanged back to ETH and to fiat currency. The dApp earns money (in this case) when lending/borrowing happens and you can also exchange Dai for any other ERC-20 token (not just ETH!). Now consider this a business. If the business does well, well the token price goes up (and remember in this case tokens might go up for no reason other than herd mentality and there are a LOT of fraudulent tokens out there so be careful)
In order to buy DAI for example you will need a MetaMask wallet (or any of the ones below). In other words to participate on MakerDAO you will have to fund a wallet.
So if you want to try this go to makerdao.com and click on “use Dai” (at your own risk!)
This takes me to oasis.app and asks me to connect a wallet:
There’s tonne’s of wallets
I’ll come to wallets in a bit but the key point to note is that you cannot do much without a wallet. Similar to when you go to a store to buy groceries you can’t “checkout” without your wallet. When I click on “Connect Wallet” and Choose “MetaMask” because I have a MetaMask wallet (With very little money - im still a bit scared)
Now my wallet is connected to MakerDAO and as you can see my wallet is on the ETH Mainnet
Once connected I have to (for MakerDAO) create a Maker Vault and move ETH from my wallet and borrow Dai(based on how much I have in wallet)
Once I do this I’ll be using Dai on MakerDAO and can earn money and participate in Web3.0 Key thing to note is that a wallet is the central part of your identity. MakerDAO/Oasis didn’t ask me to create an account or sign in. Just connect my wallet. Similar to how Google Sign On works, the wallet functions as my “Google Sign On” and I’m in. All transactions I do on MakerDAO will be recorded to my identity/wallet. So, really, the first thing you need is to create a wallet.
Going back to Why Web3.0 matters, Chris Dixon says:
Tokens give users property rights: the ability to own a piece of the internet
The Dai token gives me ownership of the MakerDAO (similar to a share in FB)
NFTs give users the ability to own objects, which can be art, photos, code, music, text, game objects, credentials, governance rights, access passes, and whatever else people dream up next.
NFT’s give me ownership to a specific piece of art (best way to think about is that its another form of token on another application)
NFTs exist on top of blockchains like Ethereum. Ethereum is a decentralized global computer that is owned and operated by its users.
This is similar to what I said above for a token
Blockchains are special computers that anyone can access but no one owns.
This is Ethereum, for example
Ethereum is powered by a fungible token, ETH, which is used to incentivize the physical computers that underlie the system. ETH is also the system’s native currency for transactions, like NFT purchases.
This is the main ETH token
There are many ways for users to acquire fungible and non-fungible tokens. You can buy them, but there are also ways to earn them.
Key point here. You either work for the NTF/FT or buy them!
Uniswap famously retroactively airdropped 15% of its governance tokens to early users of the protocol. Community grants like this have become common in web3 as a way to build goodwill and incentivize adoption.
Community grants are in some ways “free shares”. This helps communities grow/adopt as once you own something you are likely vested in it!
You can also earn tokens through creative and entrepreneurial activities. For example, people are earning roughly $100 million worth of ETH per day selling NFTs.
You can sell your product (art in this case even though this is a “jpeg”)
Tokens align network participants to work together toward a common goal — the growth of the network and the appreciation of the token.
As I mentioned above, if you own a token you want the value to go up!
This fixes the core problem of centralized networks, where the value is accumulated by one company, and the company ends up fighting its own users and partners.
You, the shareholder, own the company and have voting rights in some ways on a DAO (I’ll talk about DAO’s more soon)
We’re very early on in this game but if Web1.0 and Web2.0 has taught us any lessons, its time to start understanding Web3.0 (and owning a piece of it now!)
In the next part of this I’ll cover some more ground though please expect it to be all over the place as Web3.0 is not a nice clean problem to understand and there are new things happening everyday which I can barely wrap my mind around!
Thank you for reading. Stay safe, be well! If you enjoyed reading this please consider sharing with a friend or two (or sign up here if you came across this or were forwarded this)
Thanks for reading Dozen Worthy Reads! Subscribe for free to receive new posts and support my work.
