Intro to Web3 and Why It’s Better (TLDR; It’s more secure and valuable)
The deeper I dive down the Web3 rabbit hole, the more I realize how important it is to help others understand what’s going on. If you’re looking for a crash course, I hope the below helps!
I’ll address two things,
- What Web3 is: Functionally, Web3 is rooted in secure transactions backed by cryptographic guarantees that enable digital asset ownership. It’s important to understand that shift, as well as how it’s being successfully used today.
- Why Web3 Data is better: There are 2 key reasons that Web3 data is superior: 1) it’s more secure, and 2) it allows you to extract increased value out of digital assets. It’s so much better that Web3 technology is going to deprecate its predecessors the same way physical media has been deprecated — using Web2 will feel as bizarre as using CDs.
I want to rally more people to be excited about, support, and adopt Web3 technology because the additional security and value will benefit all of us. For that to happen, it’s important to make it easy to get up to speed without the intense amounts of DYOR that many of us have done. It should be clear that cryptocurrency hustles like Dogecoin are just a byproduct of an incredibly important technological foundation of secure digital assets. And that while exciting things are happening in the permissionless, censorship-resistant parts of Web3, there’s also an evolution happening in permissioned enterprise environments with bank consortia like Spunta, automotive groups like MOBI, and even in healthcare and government credentialing.
What Web3 is
To preface, others have created high quality introductory materials that dive deeper into this complex space than I will, and I linked to some good ones at the bottom of this section.
The key evolution of Web3 is that all transactions are based on cryptographic guarantees, enabling digital asset ownership. This is commonly achieved by using blockchain networks, which are shared databases that are immutable, with a built-in currency to ensure fair network operations.
This is how I describe each Web epoch,
Web1: Read-Only, Browsing.
- Example: Sites like Yahoo serve content for consumers.
- Web1 deprecated physical media (ex. floppy disks, CDs)
Web2: Read-Write, APIs.
- Example: Platforms like YouTube allow users to create content and serve it to each other.
- Web2 deprecated siloed software without APIs (ex. Siebel vs. Salesforce)
Web3: Read-Write-Own, Smart Contracts.
- Example: Users can securely interact and exchange digital assets using cryptographic guarantees for high trust.
- Web3 is deprecating insecure data exchanges (ex. legacy APIs).
Bitcoin heralded the Web3 era by using cryptographic guarantees in blockchain technology to create a scarce digital asset that could be securely traded. Ethereum laid the true foundation for Web3 by creating a decentralized computer that operates via smart contracts, enabling developers to create a myriad of applications that are built in a world of cryptographic guarantees.
Here are some common Web3 use cases today,
- Investment (and speculation): Bitcoin established itself as a form of digital gold, a “cryptocurrency”. There are many cryptocurrencies out there that serve little purpose aside from being an investment vehicle.
- Decentralized Finance (DeFi): DeFi uses algorithms and protocols to create financial systems based on code as opposed to the complex infrastructure of a bank. For example some DeFi products return a yield for investment just like a bank loan.
- Non-Fungible Tokens (NFTs): NFTs are digital assets whose ownership can be verified on the blockchain, allowing them to be valued and traded on liquid markets. Many of these assets already exist today, like digital pictures and music.
Underlying all of these use cases is the premise that digital assets can be securely owned and traded. This wasn’t the case in Web2. If I make some data available to you via a Web2 API, once that data is consumed, I have lost all control over it and have to trust that you haven’t shared it with anybody else. If we wanted to trade digital assets in Web2, we would need a party to establish a bespoke central server to ensure that the trade is executed fairly. Web3 protocols instead solve for this natively, as a core specification.
For a deeper dive, I recommend,
- Blockchain / DLT: R3’s Blockchain 101 is a quick review of the technology that makes Web3 possible. OdysseyDAO’s What is blockchain? is an approachable deeper dive.
- Cryptocurrencies: Binance’s start here is great. I consider cryptocurrencies to be an application of Web3 technology, not the end-all be-all. Also understanding different token types is advanced, but important.
- Permissioned vs. Permissionless (advanced): Cointelegraph has my favorite article, with solid efforts from 101 Blockchains and TechTarget. Decentralization is incredible, but I think plenty of Web3 will still be centralized and that’s OK.
- Web3 Overviews: ConsenSys, FreeCodeCamp, Stefan Adolf’s post (deep, dev focused), GitConnected.
- Glossaries of terms: Unstoppable Domains is my favorite, Binance Academy is deep, CNET is approachable, Tom De Moor’s is for marketers, and The Tilt’s is for content creators.
- Other resources: a16z’s Crypto Startup School, Binance Academy, Gemini’s Cryptopedia, 101 Blockchains (with certifications), ConsenSys, dApp University (dev focused), OdysseyDAO.
Why Web3 Data is better (increased security, more value)
Cryptographically secured transactions are a fundamentally better way of dealing with data, and almost all data will move to Web3 as it becomes cheap and easy to do so. There will be no reason to use legacy data sets that can be easily tampered with, whose lineage is unknown, and whose interactions aren’t backed with cryptographic guarantees. And what’s most exciting to us is that you’ll be able to extract more value from data when it’s easier to use it in commercial collaborations.
Web3 data is going to deprecate Web2 data, and laggards will be bringing knives to gunfights.
Web3 Data is More Secure
This entire movement was built on applications of secure cryptography.
- Permissionless public systems are possible because of a complex architecture that is secured by nothing but its operational algorithms. It doesn’t matter that anybody can spin up an Ethereum node with effectively “administrator privileges”, the system has shown itself to be hacker-proof in spite of being open.
- Permissioned private systems use similar architectures in combination with classic enterprise security techniques.
I’ll focus on permissioned private systems, because they represent the world’s most secure data systems with the best of everything. Today, secure enterprise data has the following key properties: 1) Behind a firewall, 2) Restricted access even from within the network, 3) Encrypted at rest, 4) Encrypted in transit.
Web3 gives secure data two new awesome properties though,
5) Immutability through a recorded history. Every transaction has a cryptographic guarantee that it was done by a validated actor, so somebody can’t just slip in through a backdoor and delete logs or tamper with data. Even if a validated actor is compromised or spoofed, the data provenance / lineage features give perfect visibility into what happened.
6) Distributed Defense through a trust network. With this, there’s no single honeypot, intruders are forced to compromise for example 51% of your trust network to engage in bad behavior. Without it, if a malicious actor compromises your admin credentials, even your append-only S3 bucket isn’t safe from somebody changing permissions and tampering with the data.
It may be weird to think that sharing data can actually make it more secure. If you want to get technical, I find it interesting how consensus algorithms like Proof of Work and Proof of Stake make it impractical to achieve a Sybil attack or 51% attack even in permissionless systems.
In permissioned systems though, I’d analogize it to having secure backups with separate providers. I’ve chatted with security teams who’ve had their local environments compromised, but who were saved because they had backups in for example their Azure cloud, or Splunk cloud. Most people don’t consider a cloud provider like Azure as an external party, so in this case the trust network is with a second point of presence managed “internally”. But it’s markedly more difficult for a malicious actor to compromise both a local environment and an Azure environment as they’re often secured differently. Similarly, compromising Splunk cloud would be incredibly challenging! There is value to complexity hurdles in defense, and we’re going to see new standards and ways to describe this soon.
(P.S. Nakamoto Coefficients are close, but quantifying decentralization is not the same as quantifying distributed security).
Web3 Data is More Valuable
The lion’s share of Web3’s value comes from the economic systems built on top of that foundation of digital asset ownership and built-in currencies. When it comes to cryptocurrencies, DeFi, or NFTs, I’ll bet monetary appreciation comes to mind more than security benefits.
The increased value of Web3 digital assets is primarily due to their inclusion in priced, liquid markets. This has been supported natively with Web3 technology since Bitcoin started algorithmically preventing double spending, establishing digital asset ownership. It creates a foundation for digital economics, with myriad applications that parallel the myriad applications of conventional economics.
Tradable assets are more valuable than non-tradable assets because those who demand the assets can compete to own them. Let’s take stocks as an example, where after publicly listing in the US the average first-day gains after an IPO listing is over 16%. But it doesn’t matter whether that asset is a stock, a collectible like a trading card, a scarce bit like Bitcoin, a token with a fancy purpose, or a cartoon poop NFT, once something is tradable it can benefit from marketplace network effects that drive new potential buyers.
Incentives can also be designed at the protocol level in Web3 to encourage ownership and support the network effect flywheel. DeFi is a great example, where the goal of the system is to convince you to park your money with it, and it incentivizes that by promising more money in the future. Bitcoin incentivizes network operators with mining rewards. Steemit creates economic incentives for publishing popular content, and Ocean allows markets to dynamically price any data asset.
Digital economics is a complex subject, but I hope you takeaway that Web3 makes digital asset trading possible, and that incentivized Web3 systems will make digital assets more valuable than ever.
It’s time to get involved
When I ask most professionals what their Web3 story is, 95% of the time the answer is either ‘I have no idea’ or ‘I trade crypto’. It’s time to change that. I don’t think everybody needs to be spinning up protocols and DAOs, but I do think it’s a great time to be exploring how Web3 can benefit you and your industry.
Do you have data assets that would benefit from increased security? Or that you want to extract more value from? Or that you think deserve a better ownership model? If so, or even if you’re not sure, now is a great time to go and talk to experts to figure it out. Others are likely building what you need, and it’s just an issue of applying their work to solve your problems. Again, feel free to ping me on Twitter or LinkedIn, I’d love to brainstorm with you!
I’ve spoken to many already about what I’m working on next, and I’ll do another post soon to describe it in detail (hint: it’s not CryptoPoops). If I can help to build a future with stronger data ownership rights, increased collaboration, and more trust in technology, I will be stoked. Hopefully these notes help others learn so that they can contribute to that future as well!
Special thanks to Ioan Moldovan, Leticia Shaaban, and Alexander Golding for their contributions.