We've all been there: you open Google looking for "Web 3" for the first time. You open the first credible article and read the first paragraph — you find the word “blockchain.” And you think, “What is that? Oh, it has a link!”.
You opened that link hoping you'd learn what a blockchain is. But then the “smart contracts” term comes up… And “tokens,” “fungible tokens,” “NFTs,” “ledger,” “hash,” “block,” and many more!
You keep opening the links and reading through the content. You now realize you have 30 browser tabs opened. Then 50 tabs. I feel you! That was exactly when I realized the need to summarise as much information as possible in a single place.
My take is to share a glossary of the key terms and then connect them. Are you ready? Welcome to the incredible world of Web 3!
The building blocks
Token
A token is a digital asset's ownership record, which gives users property right over pieces of media and the ability to transact them. And they can be of two types:
- Fungible: they're replaceable, i.e., two fungible tokens are worth the same, the same way a 10-dollar bill is worth the same two 5-dollar bills. Besides dollars, cryptocurrencies like Bitcoin or Ethereum are examples of fungible tokens.
- Non-fungible: well known as NFTs — one of the most trending concepts of Web 3 — they're records of ownership that give the user the ability to own digital assets, which can be of multiple types: art, photography, code, music, games (or game objects), access passes, or whatever piece of digital asset we can come up with.
Each of these assets has its own value — thus the non-fungibility — and the original is always worth more than a replica. As opposed to physical assets, we can mathematically prove the authenticity of a digital asset and ensure it hasn't ever changed or has been counterfeit.
Once they're given a unique ID within a blockchain (more on it ahead), each corresponding asset can be transparently identified along with their ownership by that same ID, for example, among replicas.
This is very powerful once it allows anyone to create, issue, own, and trade tokens using cryptocurrency in a very efficient, borderless way. People no longer need to introduce their creations into marketplaces or submit them to centralized platforms, where commissions, among other expenses, must be paid.
Virtual wallet
A virtual wallet is somehow like a container where we keep all our tokens, be it fungible — cryptocurrencies — or non-fungible, like NFTs. Additionally, they contain our personal and identity information that allows us to connect to platforms and third parties in the same way we previously used Facebook's or Google's single sign-on capabilities. The user can log in to multiple apps and websites with a single set of credentials — but, this time, we are the ones who control our data and decide which parts to share with which entities.
Virtual wallets don't truly store crypto assets, but rather store two essential keys that identify them:
- a public key that is linked to an address, which lets us send and receive transactions (more or less like an email address);
- a private key that proves that we own the tokens associated with our public address (like a password).
Blockchain
A blockchain, like Ethereum, Solana, or Filecoin, is the technology that allows peers (computers) to work together to form a distributed ledger. Imagine having a digital system where a list of immutable token transaction records is simultaneously maintained at multiple points throughout a network while being open to everyone, which is virtually impossible to be changed.
These are the three main characteristics of blockchains:
- decentralization: transactions are stored in a network of computers (nodes) and not in a centralized database;
- immutability: transactions can't be changed once they're committed;
- openness: transactions can be viewed by anyone.
Blocks
By definition, the blockchain comprises blocks, where each block is a list of token transactions. Every block has a reference to the previous block, allowing it to be linked chronologically, composing a chain of blocks. And each block contains:
- data: its composition varies depending on the type of the blockchain — for example, the Bitcoin blockchain stores transaction details like the sender, the receiver, and the amount transacted;
- hash: a unique identifier for a block and all its content, like a fingerprint that gets calculated once a block is created;
- previous block's hash: it turns the system into an incredibly secure chain of blocks.
Transactions
Transactions are how we transfer tokens between peers. Performing a transaction implies a few different steps. Imagining that I want to transfer 1 Bitcoin to John Doe, here's how that transaction would work:
- I communicate to my wallet that I want to send 1 Bitcoin from my public address to John's public address;
- I sign this transaction based on my private key, which proves that I own 1 Bitcoin (or so I dream 💭);
- my wallet sends the transaction to the nodes on the blockchain;
- these nodes then verify the transaction using my signature and public key;
- one of the node groups my transaction with other transactions into a block;
- that same node then works with other nodes to add the block to the blockchain;
- after completing all the steps, John will receive 1 Bitcoin in his wallet.
Step 6 is key in this transition for the whole system to work. The other nodes must agree to add a block to the blockchain. And for the other nodes to agree, they need to reach a consensus by one of two means:
- Proof of Work: used by Bitcoin, nodes called “miners” compete to solve a math problem using brute force (e.g., rolling a dice thousands of times to get the right number). The first miner to solve the problem gets to create the block.
The other nodes check if the block is valid; if it is, all nodes add the new block to their copy of the blockchain, and that specific miner gets rewarded with cryptocurrency. The other miners will have wasted time and energy for nothing.
- Proof of Stake: nodes called validators stake some cryptocurrency — i.e., commit an amount of cryptocurrency to win the right to do the transaction. And this is where Ethereum is transitioning to. The validators with more stake are more likely to be selected to process the transaction and create a block.
The other validators will then check if the block is valid, and if it is, all nodes add the new block to their copy of the blockchain, and all participating validators earn a transaction fee. If not, the validator that created the block might lose its stake.
What's the Web 3?
We've looked at some of the most relevant building blocks of Web 3 but haven't figured out why they're so important yet. What do they bring to the table that changes the game? What's the novelty? What's different?
The introduction of Web 2 opened the space for content creators to start creating and propagating their own content, rather than just being able to consume professional content.
But while this opportunity was given to content creators, they still didn't get the means to ensure their content would be properly and fairly profitable. On the other hand, big tech companies like Facebook, Twitter, or Google could capitalize on all the user-generated content by selling personal data, generating astronomic revenue.
Web 3 provides the foundation to create an open, shared, and decentralized version of the Internet. Users and content creators control their own data, assets, and creations, having an active and democratic voice over their content governance — they're now the real owners.
Thus, organizations no longer act as middlemen for the commercialization and exhibition of this content, taking huge profits from the intermediation (the so-called middlemen tax) and drastically affecting the actual creators' profits from their own creations.
A new paradigm for data ownership
On Web 3, companies, also known as DAOs (Decentralized Autonomous Organizations), are supposed to be decentralized and transparent. They're no longer the owners of digital content, whose ownership gets transferred to their creators.
The companies are represented by rules encoded as transparent computer programs controlled by their own members, not directly or indirectly influenced by a central government. Besides that, their financial transaction record and program rules are maintained on a blockchain. Their members have the autonomy to independently and transparently rule their company based on a shared set of rules and on the openness to having a say in the organization's future.
DAOs and traditional companies in the same industries may have similar goals — but they differ on transparency or the way they make decisions. Business and smart contracts fulfill the same purpose but vary in transparency and reliability. Web Apps and decentralized apps (also known as dApps) may function the same way at the surface, but while the first ones are centralized, the latter is wholly decentralized, not hosted on a single server but in nodes worldwide.
Some good examples of the switch of mindset are mirror.xyz or audius.io. They're decentralized alternatives to well-known, directly comparable platforms such as medium.com or spotify.com — where writers and music producers get full ownership over their work and earn directly from their consumers.
What's next?
Despite all the hype around it, we cannot say that Web 3 has completely arrived; on the other hand, great products and services are already operating on top of Web 3 principles. And while they might look very similar to the products used in the context of Web 2 — to the naked eye — it's the way they function under the hood and the principles they're built upon that are the real game changers.
"Web 3 offers a new way that combines the best aspects of the previous eras. It's very early in this movement and a great time to get involved.
— Chris Dixon, via Twitter
Now, we understand more about what's going on and what to expect from this new decentralized web. If you got hyped or are willing to know more, you can check some of these awesome Web 3 products:
Data storage and web hosting
Data processing and information markets
Domain name systems
Applications
If you’re interested, you may also consider connecting with other people on this topic:
Discord
References:
