Hello again, in todays newsletter I will be giving an introduction to a topic some of you may have been hearing a lot about in the media, Web3 (or web 3.0). To give you an overview of Web3 and its benefits, you must first be given the roadmap that has led us to where we are and where we are going to go. To do that I will start at the beginning with Web 1.0 and then into Web 2.0 and the internet as we know it today. Hopefully you gain some insight from this post, so enjoy!
So the first iteration of the internet as we know it was known as Web 1.0 and lasted roughly from 1990 to 2005. This internet was built upon open protocols (HTTP for web and SMTP for email) which were decentralised and largely community-driven. Now the web at this time was completely open, no one person or entity had control and it was because of this that you saw a great deal of innovation (leading into the dot-com bubble and its subsequent burst). An example of people who took advantage of this were the founders of Google, they came along and saw that no one provided what they could offer, so they "took control" of that portion of the internet.
However in terms of content the internet during that time was almost completely static, like reading a magazine online. There was little-to-no interaction from the users endpoint. During this phase the internet was essentially read-only and it wasn't until Web 2.0 that that changed.
It was during Web 2.0 that we saw a shift from this decentralised, scattered web to a web which was run by a handful of large corporations who offered siloed, centralised services. The web evolved from largely static, read-only content to dynamically generated content based on user interaction. It was also here that a paradigm shift took place and the users were now not only consuming content, but simultaneously creating it at a rate which had not previously been seen before. You saw more streamlined, easy to use websites, taking the place of these older services which were previously scattered across various platforms. Companies that successfully pivoted and created this highly demanded social software saw their value explode.
The issue with this is that as these companies grew in size, the relationships that they held with their customers shifted. Chris Dixon has a great Article which best explains this and the graph below is from his post. As companies grow in size and hit the top of the S curve seen in the graph below the relationship shifts with its customers from a positive someone to zero-sum relationship. For the companies to grow even larger they must extract additional information from their customers so that they can in turn compete with former partners. To get a better understanding of this I recommend reading his article which I linked above.
Even though these platforms empowered the users to create content at a scale which was previously unseen, the power of control itself remained solely with the companies that provided the service (even though the users that created the content gave these companies their value to begin with). The price for using these "free" services was in fact our personal data which we are now only seeing has caused large issues surrounding data protection and governance. With the Introduction of legislation such as GDPR, governing bodies are hoping to put greater control of personal information in the hands of the individuals, as there is a shift in public perception of how these corporations handle and store our information.
Web 3 (or 3.0)
Web3 Definition + Problem it’s solving
Web 3 is an internet owned by users and builders orchestrated with tokens - Chris Dixon
So the concept of a token is central to Web 3 and it comes from the Bitcoin movement. However now a lot of the Web 3 content is built on the crypto network Ethereum due to the ability to fully programme the blockchain through smart contracts. This is something that no previous iteration of the internet had, as it enables you to automatically run code when trading information or content between users, removing the need for a middle-man. The problem itself is commonly referred to as the Byzantine Generals problem, which is a situation where the involved parties, who have no reason to trust each other, must agree on a single strategy in order to avoid complete failure. Smart contracts are programs that are stored on the blockchain network (Ethereum network for example) which run when predetermined conditions are met. The smart contract solves this problem and acts as an automated, trusted intermediary for a transaction. This lowers transaction costs and removes the need for arbitrators, intermediaries, etc.
Decentralisation of Services
Decentralisation of platforms/services are another cornerstone of Web 3. Currently, large corporations own large portions of the internet when it comes to consuming and creating content. The importance of decentralisation cannot be understated, as it pushes for an open and permissionless internet. It removes the need for centralised authorities and third-party intermediaries through consensus mechanisms on the blockchain to ensure there is a secure and flexible transfer of information between users. Say, for example, you have a decentralised Twitter system. Now on the "old" system a users access to their account or the ability to process payments (tips) is controlled solely by Twitter, the company, itself. On a decentralised platform there would be no company and therefore no one to censor or obstruct anyone from using the system provided they have the necessary token(s)/key to access it. You are essentially removing gatekeepers from the network which, although it has its positives and negative's, will largely be positive change for the community.
Owning pieces of the internet services by owning tokens
Another major benefit of Web3 (and the blockchain upon which its built) is the introduction of tokens. Now tokens themselves can be fungible or non-fungible, and you may have already heard of NFT's (non-fungible tokens). Now we don't commonly refer to things as "fungible" in day-to-day language which in turn can lead to a lot of confusion around non-fungibility and what NFT's actually are. Something that is fungible can be described as something that is interchangeable, with no difference in quality or value. An example of this would be gold. So let's say you had five 1KG gold bars and I had a single 1KG gold bar and, because gold is completely fungible, I can trade my single gold bar for any one of your 5 gold bars and they would hold the same value. Other examples would be our FIAT currencies we use today (5 dollar bill for another), shares, bonds, or crude oil. In the case of what is an NFT? They are digital assets that represent objects where verification and proof of ownership is stored on the blockchain. I will talk about NFT’s more later.
Now back to tokens! So why are they important for Web 3? Well these tokens (primarily non-fungible) provide a mechanism by which value and control can be given to users and builders of the system, rather than giving it to these centralised multi-national companies. These decentralised systems will be built using the open protocols from Web 1 and offering the services commonly seen in Web 2, with the shift in power favouring the communities on and around said services. It's now possible to build something like Facebook and Twitter where the value of the network is no longer placed on the company but on its users, because there is no company (due to it being decentralised)! Now yes all of these projects will have some team that initially builds out the systems, but once they go on the blockchain network the users will have complete control and be sole value measurement of the system.
We will (potentially) see a shift towards models where instead of there being an Uber, with executives, shareholders, and drivers, you will have a network of people (drivers etc.) who will own the network through owning its tokens and be able to participate in the governance of the system and further value creation.
So if you take nothing else away from this, note that the tokens will provide the users of the system with a mode of governance and the value creation will shift from the companies that build these services to the users/developers of the services themselves.
More on NFT’s
Denying and pushing back against NFT's and crypto is basically saying: "we're not going to have a collectively owned future. We're going to have a corporate-owned future, and we're going to have a government-owned future" - Naval Ravikant
So we now understand the importance of tokens in the Web 3 world so now let's take a better look at what was an NFT is and its impact will be. Simply put, an NFT (non-fungible token) Is a digital asset that links ownership to a unique physical or digital item, such as art music videos or physical real world items. So really anything can be an NFT. Tickets to a football game? Can make that an NFT. Your son or daughters paintings? Can make that an NFT. Collectibles or in-game cosmetic items (as discussed in my previous newsletter)? Yup, you guess it, it can be made an NFT.
It's important to expand our view of an NFT past what we are initially seeing now, which is mainly art and JPEGs (cryptoPunkz, BAYC, etc.). What an NFT enables you to do is something that was not previously possible on Web 2.0, it gives you the ability to have digital private property. It in turn creates digital scarcity which can increase the value of goods and services online.
Web 2.0 so users creating content for likes and hearts, while also giving a portion of their income from these creative endeavours to the corporations who developed these platforms. Web 3 shifts the power of content ownership back to the creators. To give you an example of the current pay model, Spotify has around 8 million artists with only 14,000 of them making $50,000 or more each year, The rest of the artists make less than that. When you look into how little artists are paid for streams of their music on these services, you will see how important this shift to digital private property will be for them. Artists can now create NFT's of their work and sell it directly to their fans, Cutting out the middlemen like Spotify, Apple Music, YouTube, or even the record label itself. Independent artists with a strong fan base can now completely fund projects without having to give up a cut of their sales or ownership of their masters.
Another important property of NFT's are the royalty features. When creating an NFT the creator is allowed to set the percentage of royalty fees they wish to receive what are user sells on their work. This gives the creator a source of income from subsequent sales on secondary markets. An example of an artist that did this successfully is 3lau, who recently had an NFT drop for fans and made roughly $11 Million in sales, and again that was just the initial drop and doesn't include any royalties they will be receiving in perpetuity!
And that's only one example, another example from the creative space is the Mila Kunis and Ashton Kutcher created cartoon, "Stoner Cats". The show is produced by her production company Orchard Farm Productions. It's a series of animated shorts which are voiced by Ashton and Mila, with some help from their celebrity friends. They sold NFT's which enable those who held them to watch the series. The token drop netted them about $8.3 million which can in turn be used to further fund the development of the series.
Artists and creators alike are now making life changing amount of money all through the power of the block chain, NFT's, and secondary markets like OpenSea and soon, Coinbase NFT.
From the developer standpoint
This decentralised future will also have a huge impact on developers and the development process itself. You're already seeing a shift towards open-source software (OSS) and with blockchain technologies it will be easier than ever to collaborate and solve problems. What open source software means that the code developed is freely available for anyone to read and use in their own projects. This by nature means that all problems will only have to be solved once, as developers can plug in previously developed solutions to solve their issue(s). It also means that developers can build upon the work of others and add or improve the functionality of a platform. These developers now essentially "own" the platform as they contribute to it, in the same way that contributors and creators own the content they produce.
Previously, platforms such as Twitter or Facebook had publicly available APIs which developers could integrate into their platforms. However the issue with this is that these companies can revoke access at any given moment, and when you're a developer and it's your business to create software, this naturally creates an issue for you and it is not a sustainable power dynamic. With OSS and Web 3, this problem will be completely solved, resulting in more collaboration and the more rapid development of problems and projects.
Although it is early days, it's an incredibly exciting time to be a part of the larger internet community. Although this shift is going to take many years, it's a shift that will need to take place, restoring the balance of content ownership and moderation.
I hope you enjoyed this piece, please share it with the link below if you did! Again, if you saw any grammar issues, no you didn’t!
P.S. None of this is to be deemed financial advice and all of this is my own opinion.