My first encounter with the term Web 3.0 reference was years back when Web 2.0 only started. As humans, we get bored quickly and don’t always appreciate what’s happening in front of us so we try to predict the next big thing!
All jokes aside. Tim Berners-Lee, the father of the worldwide web coined the term “Semantic Web” in a scientific paper, back in 2001. A semantic web seemed promising. The goal was to have pages on the world wide web be machine-readable!
Machines can read and share data in a standardized manner with each other in much the same as humans do. Siri, Google, and Alexa’s jobs could have made it easier to find information. Imagine we ask them for information and there was less snarkiness from humans when returning with the wrong answers!
Truth be told, I would have preferred Web 3.0 this way. It would have been a massive yet worthy endeavor. This endeavor is large and requires a lot of really smart people to work together.
Sadly, it is still a pipe dream somewhere on a scientific paper.
Now, Imagine my surprise when I first read Web 3.0 is referred to as the “Decentralized Web”. Cryptocurrency came and turned what we know upside down.
Because the decentralized web is more recent and the semantic web had its chance I will acknowledge that the latter can proudly wear the Web 3.0 badge…for now.
The problem was Web 2.0
Web 2.0 is amazing! The web made strides in improving the user experience enabling data collection from users over time and as computing capacity became cheaper it was easier to scale, more users signed up and “gave away” their personal information for these free services.
The companies became data collection agents. Think Facebook, Google, and Twitter…these are centralized applications meaning all our data flows to their central location they have full control over. These are free services though where we spend much of our free time! Maybe too much? As we know better by now free is never free. It came at a cost. Our precious data gets collected and sold to interested buyers. How else would these companies survive?
The other problem that raised its ugly head is censorship. Don’t get me wrong, I have no time for racism, harassment, and bullying of any kind. I despise it! These companies took care of these problems not perfectly but nobly. However, these platforms gave people a voice they never had before.
These platforms or companies have the power to remove any posts they do not agree with. There is a bias built into the system where freedom of speech is hard to practice because the pre-configured algorithms in accordance with the company’s bias don’t agree with you.
This is a control that should concern us. On these platforms, we are not masters of our data and we don’t have the freedom to speak our minds about whatever we feel strongly about. Or you can try and hopefully, the platform “agrees” with you.
Nevertheless, Web 2.0 is still awesome! It brought much more good into the world.
How will Web 3.0 be different?
There are 2 problems I want to focus on in explaining the existence of the decentralized web. The problem I previously identified, was users don’t have full control over their data. Another problem is how can I prove I own a specific digital asset like a photo or a video. Digital Ownership!
Think about the inverse of these problems. I own my data and I can find and prove that it is mine.
A Decentralized what
Instead of having centralized servers in one location, there can be nodes – a set of servers in a location – in multiple locations ideally all over the world. Each node has equal privileges. This prevents a node from becoming a single point of failure as well as promotes fairness. In other words, if the servers crash the data is still available. When that server comes back up again the data is easily restored.
The Blockchain
A distributed model as was described above can easily prove that an event took place like a transaction or a conversation or an opinion (think Twitter and Facebook). With the inception of bitcoin, the world’s first successful digital currency and important to note it is a digital asset, the idea was to make a transaction anywhere on a peer-to-peer network or decentralized network visible on a public shared ledger.
There are multiple nodes (servers) on this network and what makes blockchain powerful is the algorithm it provides for all nodes to reach a consensus on the authenticity (state) of a transaction before it is posted. As of today, there are more than 1000 blockchains supporting 4 types of blockchain networks.
Smart Contracts
Nick Szabo, a computer scientist, and lawyer in the 1990s coined the term smart contract. A smart contract is a digital agreement by all parties. Once all conditions have been met the transaction or event is permanently stored on the blockchain. This is effectively the terms of the agreement. These conditions are computer code that runs to automatically check all the conditions that were created before the agreement.
This programmatic and automated condition removes the need for a manual intermediary, in other words, a human with expensive skills to facilitate the flow of value. Once a smart contract is deployed on the blockchain it is very difficult to alter the conditions. The last important note is that there may be a fee involved called gas to be paid. This helps pay for the blockchain infrastructure and is not expensive at all.
The Blockchain network
A blockchain network is an infrastructure providing access to the ledger and smart contract services. These networks are created by a consortium which can be individuals or companies and is governed and protected by a set of rules this group creates before the launch of such a network. There are various types of blockchains, for example, public, private consortium, and permissioned. For this article, it is not important to understand the various types. We will just focus on the public blockchain network as this is the most decentralized of all.
Blockchain Protocol Layers
Blockchain technology consists of multiple layers as part of the blockchain architecture. These layers are for hardware, data, network, consensus, and application. One thing I noticed while doing my research was the differences in the number of layers.
I want to encourage you to read up on the architecture and I want to shift the focus to the blockchain protocol layers. The protocol is the important set of rules governing the blockchain. It dictates how the blockchain must operate. I want to focus on 2 layers out of a couple in the protocol layer.
Proof-of-Work vs Proof-of-Stake
Layer 1 is responsible for ensuring the security of the chain by using a consensus algorithm protocol like proof-of-work (PoW) or proof-of-stake (PoS). Bitcoin uses PoW to validate blocks of transactions while Ethereum 2.0 migrated to PoS in September of 2022 away from PoW.
The main difference between proof-of-work and proof-of-stake is that proof-of-work consumes an exorbitant amount of energy and has become inefficient and expensive. At the time of this article, it costs more to mine a bitcoin than the current price of one!
With the computations becoming more complex and time-consuming as we are moving closer to the 21 millionth coin, with the last bitcoin to be mined in 2140, one can only imagine the electricity bill a large corporation will need to fork out to mine one bitcoin!? Only a few individuals and organizations can afford these efforts today which is negating the decentralized focus of cryptocurrency.
Proof-of-stake requires an individual or organization to purchase large amounts of a particular cryptocurrency to qualify to become a validator of transactions and stake it on the blockchain. This is more environmentally friendly but it has its own challenges. Unfairness on the chain by these validators results in penalties and loss of stakes coins.
A huge amount of load is placed on layer 1 and as it grows it becomes slower to execute and validate transactions. In order to address, the scalability issues on layer 1 layer 2 were built on top of layer 1. Layer 2 provides off-chain solutions to help address issues and reduce the bottleneck of the first layer by creating contracts and transactions before these are written onto the blockchain. Introducing layer 2 lowered transaction fees and reduced the load on layer 1. Layer 2 provides utility where smart contracts are created and decentralized applications can be used.
Decentralized Autonomous Organization (DAO)
A centralized system typically is governed by a company or organization which is its own and can be said that it is simpler to manage in a sense because it only has to meet the needs of that organization and its interested parties.
A DAO is a group of humans incentivized through a token mechanism to agree on, create and abide by rules. These rules are then programmed into smart contracts. The consensus on these rules is reached via a majority vote. Once these contracts are executed when all the conditions are met it is written into the blockchain forever. The rules are visible and can never be disputed. DAOs have no hierarchy.
DAO’s vision is to operate using Game Theory principles where cooperating usually brings out the best outcome for all instead of individuals defecting. This encourages rational thinking and removes selfishness from the equation. Any person defecting has the worst possible outcome for everyone.
Decentralized Finance (DeFi)
DeFi challenges our way of thinking about our money and the management thereof. Instead of intermediaries such as brokerages, banks being the gateway for lending and borrowing, and other financial services, people rely on other people via a peer-to-peer mechanism for all these services. The key component in DeFi is smart contracts because it is automated, immutable (cannot change), and transparent. DeFi already boasts a $200b turnover in 2022. Decentralized app or DApps enables all these financial functions on the blockchain.
Non-fungible tokens (NFTs)
The word fungible means that an item can be traded for a similar item like money for example. Non-fungible means that an item is unique and cannot be replaced by something else. It is not interchangeable.
A non-fungible token is a digital asset that represents a real-world item like a digital picture, video, a tweet (Jack Dorsey’s first tweet). This digital signature uses smart contracts and programmable rules and is stored on the blockchain. This is mathematical proof of ownership and authenticity. NFTs are in their infancy and initially, it was more a meme than a real-world application.
The NFTs craze happened and now the bubble popped so to speak. It had to start somewhere. We aren’t sure what to do with NFTs yet. It is an important component in Web 3.0 and is paving the way for digital ownership on a decentralized network there making large strides in solving the copyright problems that are running rampant on the internet today.
Challenges and Beyond
Creating a “new internet” requires many people to collaborate toward the same goal. That will be challenging. Jack Dorsey famously argued against Venture Capitalists funding projects towards web 3.0 development. This poses the question if a web can be decentralized when a corporate is buying into its development? When I fund someone I expect some return, right? Same in this case. If corporations have a majority interest in decentralized networks aren’t we back to being centralized again? Self-interest is the biggest threat to the decentralized web.
Another challenge is geolocation jurisdiction. These networks will be on different nodes all over the world but you have to respect that countries have their own rules with regard to the digital space.
The decentralized web and blockchain may solve the General Data Protection Regulation or GDPR which is concerned with the protection of the personal data of European citizens. It remains to be seen.
Conclusion
I hope you enjoyed my first journey exploring the fascinating yet complicated landscape that is Web 3.0. One of the biggest challenges today for this complicated geolocated system is its energy consumption and initial costs for the validation of transactions. Another challenge as I previously mentioned is self-interest from a small group of individuals and corporations threatening decentralization. Crypto fraud on exchanges and blockchains is rampant. Think Luna, SBF_FTX, Mt. Gox to name a few.
Blockchain is widely used but we have not seen the mass adoption and utility that was promised by all these companies with their tokens and coins. BTC and Ethereum seem to stand the test of time. I hope there will be more adoption from the government and corporations of the blockchain.
Non the less the evolution of Web 3.0 is fascinating and it could be an important stepping stone toward whatever Web 4.0 may become.