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A newbie guide to Web 3

If you are asking yourself what is Web 3 after reading our other articles or going through some of our blockchain related courses, you might appreciate this article after reading it in entirety.

What exactly is Web 3?

Web3 is the internet of blockchains. The term web3 refers to anything related to blockchains, cryptocurrency, NFTs, DeFi, and DAOs. If it’s blockchain-enabled, it’s part of web3. The idea of “web3” came from Gavin Wood, co-founder of Ethereum. The “3” means that web3 is the third iteration of the internet. Let's take a step back and look at how far we have come.

The Different Phases of the Internet

In web 1, websites were read-only. Web 1 was essentially just books or text pasted onto the internet,  users couldn’t interact beyond building their own web pages. Everything was in a separate box. Web 2 is the internet we mostly know of today, which is the internet of writing rather than just reading. Users can interact with the internet, and thus write, rather than simply reading text. 

Social media and mobile phone apps made user interaction with the internet much easier. Everything from the Like button to web pages that adjust based on user interactions changed the way users interacted with the web.

Web 3 has built upon reading and writing to become the internet of ownership. That means pieces of the internet can be verifiably ownable via the blockchain. One of the crucial mechanisms of web3 ownership is tokens: cryptocurrencies and NFTs. Now, everyone can own a slice of a project, community, art piece, or organization. The capabilities of web3 extend beyond ownership. But the ability to own digital assets is a fundamental, underlying quality of web3.

A popular meme is read-write-own. Web 1 is the internet of reading, web 2 is the internet of writing, and web 3 is the internet of owning. That simple phrase can help you remember the difference between the past versions of the internet. 

The Ownership Landscape of Web 3

You may be wondering — You could own "things" in web 1 and web 2, so why do we need web 3? What makes ownership different now than it was then?

The answer: It’s all about the blockchain. 

Web 3 is powered by blockchain technologies. A blockchain is a distributed ledger that anyone can write on, but you can’t alter someone else’s entry. Think of it as a spreadsheet that is available to everyone, but others can’t alter your entries and vice versa. There are many different blockchains, including Bitcoin, Ethereum, Solana, Cosmos, and Avalanche.

These chains all write information on their own ledgers—there isn’t a universal ledger that everything is written in. Each of these blockchains contains a ledger of verifiable ownership within its blocks. Every time a new block is created, and consensus is reached, the chain is universally audited. That may sound confusing, so for now all you need to know is that the chain is checked over every 9 minutes to 30 seconds, depending on how long a block time the chain has.

Every block contains a list of transactions, which is essentially the list of different owners. Once you buy or claim a digital asset with your wallet on the blockchain, it’s there forever until you sell it. This means ownership takes on an entirely new life of its own in the web 3 space. No longer do you need to rely on others to keep ownership records for you. Now, you can trustlessly verify ownership.

We’ll also define the trustless aspect of web 3 below.

The lack of ownership in web 2 comes from the fact that platforms own everything, while creators don’t technically own it. Think of an Instagram influencer. None of the ad revenue from Instagram goes to them, because they don’t own the photos on the platform — Instagram does.

In Web 3, everyone’s an owner of their own assets because there’s a universally verifiable way to determine who owns each asset on the internet. This has never happened before. Ownership is a critical concept to understand in web3.

Have you received your own unique course completion NFT from us? We rewards our learners with NFTs and tokens for completing and going through our courses. Share a link to your NFTs with us here!

Defining trustless and permissionless

Trustless and permissionless are two words that underpin so much of what makes web 3 exciting. Without these concepts, blockchains wouldn’t be what they are today. 

When an interaction is trustless, it means you don’t need to trust anyone else in the system in order for the system to work. For example, when you hold your money in a bank, you rely on the bank to send money to a certain address when you ask it to. That’s a trusted system: you need to trust another actor to get the money sent and you can’t send it yourself. 

In a trustless system, you don’t need a middleman or third-party to do anything for you. You can interact with other parties without requiring a middleman. There’s no bank sitting between you and the friend you’re sending money to, and no Venmo or Paypal. It’s just two wallets that can directly send money to each other, much like exchanging real life cash. 

You may ask, why do I need this?

In many countries, the banking system is corrupt, the money is unstable, and people can’t take their savings with them. For example, Ukrainian refugees were able to take their savings with them in trustless money—aka cryptocurrency—because they didn’t need to rely on a third party to hold it for them. If they’d kept it in a Ukrainian bank, they likely wouldn’t have gotten the money out before needing to flee. 

Permissionless is the second piece of the puzzle. A permissionless system is one that doesn’t need to grant permission to use it. Unlike a bank account, which you need to share a lot of personal information to open, anyone in the world can use crypto, no matter what. This is liberating for people living under oppressive or totalitarian governments all over the world. Trustless, permissionless money is the root of cryptocurrency and builds the basis for web 3.

Check out Bankless DAO and understand what they are trying to promote with their efforts.

Self-custody in Web 3

One of the most important elements of understanding web 3 is to know what self-custody means. This is a topic we cover at length in our courses on wallets, but it’s critical to understand when learning about Web 3

Self-custody means you are the sole owner of your assets. Instead of needing a bank to hold your money, a social media platform to hold your images, a publisher to hold your articles, an investment fund to hold your stocks, or an art dealer or gallery to hold your art pieces, you hold everything on your own. There’s no middleman holding anything for you, and no one sitting in the center taking their cut every time you want to do something with your asset. There’s just you and your digital property, with no one in between you.

That can be incredibly liberating. There’s no real estate agent taking a cut when you sell a house, and no bank setting limits on what you can and can’t do with your money. It’s a feeling of pure freedom. But on the other hand, there’s immense responsibility. If you lose your private key, there’s no help line to call or “reset password” link to click. There’s no FDIC insurance or government safety net. Everything is up to you. 

The way you custody your assets is by having a crypto wallet, or decentralized wallet. This wallet is simply open-source code that interacts with the blockchain. Your currency is stored on the blockchain and your wallet simply interacts with it for you. You hold a seed phrase, which is a secret passcode to unlock your wallet in case you lose it. This is a proxy for your private key, which is a long string of letters and numbers that you typically won’t need to access, but should never share with anyone or store online. 

The public key, a string of numbers and letters that identifies your wallet, can be shared around freely. This is like your phone number or your home address: you share it with people. Self-custody is a liberating feeling, but comes with great responsibility. Being able to own your own assets, and truly own them with no middlemen, is a huge piece of what makes web3 so unique. 

Fun fact of the day: When you sign up for an account on our app, we will create a custodial wallet that links to your account. When you participate in our ambassador program or earn $UUM (our native token), we provide you a unique link where you can reveal your own private keys to your wallet.

Digital Scarcity

One of the unique qualities of the internet is its abundance. Everything can be screen-shotted, copy/pasted, forked, and duplicated. Unlike physical goods, everything is basically open to the commons. This makes it difficult to make money on the internet, because everything is available and open with no scarcity. Web 3 introduces digital scarcity. When something is scarce, it cannot be duplicated or forked because it is unique.

Think of a Picasso painting from the Blue Period: that item is scarce because there are only a certain number of Picasso’s from that era, and they can’t be duplicated or replicated. But, a digital artist has a different situation. If they make digital art in the web 2 world, it can be infinitely screen-shotted and duplicated. If they want to make money on that print, they need to sell prints or items with the art on it, like on Etsy. 

Crypto changes this because of the concept of digital scarcity, which is the ability of items on the internet to be scarce just like in the physical world. This concept is what led to the explosion of the NFT space. When you mint a one-of-one NFT (meaning you don’t mint multiple copies of it) there is only one single version of that NFT. While it technically can be screen-shotted, there’s only one true owner of the NFT, which is recorded on the blockchain.

Just like you can go to a museum and take a picture of a Picasso Blue Period painting, and then use that image to sell prints of the painting online, there’s still only one true owner who makes money when they sell the ownership. 

In summary, digital scarcity allows you to own items on the internet.

Previously, in web 2, there were no actual owners of anything on the internet because it was impossible. The unique qualities of the blockchain make internet ownership possible because everything is tagged with a unique piece of code and the ownership is trustlessly, universally verified on the blockchain. 

Censorship Resistance 

Crypto is quite literally unstoppable. No one can shut down a crypto network: it just runs on its own.

This is another critical concept in web 3: censorship resistance. 

Say the government of North Korea didn’t like that Bitcoin exists because they feel it’s a threat to their own currency. They want to find someone to arrest for owning the network or a team of developers to shut down and therefore shut off the whole network. They start digging in….and they realize that it’s impossible to do. Because blockchains are decentralized, they cannot be shut down.

There’s no owner of the network or set of people who are absolutely necessary for the network to continue functioning. This makes cryptocurrencies censorship resistant.

They can’t be sanctioned by governments or “turned off” by someone who doesn’t like them. They’ll keep running on their own, forever. This is important because many people live in areas that aren’t very friendly to cryptocurrency. So, their government may think they can shut them down. However, that’s not actually possible, because of the decentralization. Think of a grassroots political movement that has spread to many different individuals.

There’s no way to shut that movement down, because there’s no centralized provider to even shut down. 

The censorship resistance of crypto makes it appealing to people living with controlling or totalitarian governments. Crypto runs on its own as long as there’s a network of individuals keeping it going. A decentralized network is also more resistant to things such as internet outages or technical problems. For example, some validators use AWS as their webhost. If AWS shut down tomorrow, the entire network would not shut down because others would still be there to run it. Censorship resistance, however, can be criticized because governments can still try to censor the individuals, and punish those who use the network. It’s not a perfect solution, but it’s one major step forward in giving individuals an alternative to restrictive and totalitarian governments. 

What's the deal with Bitcoin?

Bitcoin (BTC), often called “digital gold,” is the cryptocurrency that started it all. The white paper, or the technical documents explaining how it would work, was released in 2008 by someone going by the pseudonym Satoshi Nakamoto. The white paper gained traction in cryptography circles, since the study of cryptography has been around since at least Roman times. Caesar’s Cipher, an encryption device that could be used to pass secret messages, was one of the first known examples of encryption. 

It took a few years for it to take off, but by the mid 2010’s, Bitcoin had become a name that many were familiar with. The concept of a fully trustless, permissionless, internet-native currency without any middlemen taking their cuts along the way started to catch on. Bitcoin uses a Proof of Work model, meaning miners (high-powered computers run by people or businesses) compete to see who can break the algorithm first. Whoever cracks the code mints the next block, which includes all the transactions waiting in the queue. All the validators (more computers run by people) check to make sure there are no malicious transactions. As soon as the block is signed, the race to mint the next block begins again. 

Bitcoin is stored on the blockchain, and wallets are used to interact with the blockchain to move the Bitcoin. Every time someone wants to move some BTC, there must be a transaction, which goes through the process of getting included in a block. Bitcoin is so enticing for so many people because many individuals live in countries without a stable currency, or without a reliable banking system or government to hold their funds. They need a separate option to secure their funds, and Bitcoin provides that. 

Bitcoin also cuts out all the middlemen taking their cuts.

For example, if you want to send money overseas, you need to jump through tons of hoops and take many steps to make sure you can send the money. Instead, you simply send it to your friend or family member in a few minutes. Bitcoin has faced criticism for opening up an opportunity for money laundering, but because the entire blockchain is transparent and therefore easily traceable, money laundering still mainly happens through the traditional banking system. However, as with any new technology, there will always be critics and late-adopters. 

What about Ethereum?

Ethereum (ETH) is quickly becoming a household name like Bitcoin. If Bitcoin is crypto’s digital gold, or reserve currency, Ethereum is crypto’s oil, or source of energy that makes the world run. Ethereum is a blockchain that is often called the new world computer. Ethereum is different from Bitcoin because applications are not built on the Bitcoin network because it’s not smart contract compatible. Ethereum, however, is the home for many decentralized applications. 

Ethereum was founded in 2015 by a group of individuals, most notably Vitalik Buterin, who is still heavily involved in the ecosystem, and Gavin Wood, who went on to found another chain called Polkadot. Ethereum supports smart contracts, which are pieces of code that execute actions when certain parameters are met. Think of a smart contract as an “if, then” statement that does an action only “if” something is met. 

Ethereum’s functionalities led to an explosion in smart contract development, which led to decentralized applications (dApps), decentralized finance (DeFi), decentralized autonomous organizations (DAOs), and Non Fungible Tokens (NFTs). Ethereum started out using a Proof of Work model like Bitcoin, and is transitioning to Proof of Stake, which is when no one needs to operate a miner. Instead, each validator needs at least 32 ETH to participate in the alternative to mining, but doesn’t actually have to compete in solving the problems. 

A validator is chosen to mint a block each time rather than the miners needing to compete. Then, all the other validators check to make sure the block doesn’t have a malicious transaction in it. 

Proof of Stake is much more environmentally friendly than Proof of Work, because it uses much less energy. It is also simpler and more efficient, because you don’t need to own mining equipment to be a validator. Ethereum is the network that underlies so much of what we consider to be web 3 today. While Bitcoin laid the foundation and created hard money for the crypto ecosystem, Ethereum allowed for the explosion of business and innovation via smart contract development.

Intro to Alt Coins + Governance Tokens

Thousands of other cryptocurrencies exist outside of the powerhouses of Bitcoin and Ethereum. Possibly the most famous is DogeCoin, a coin that, with the help of Elon Musk and his Twitter followers, rose incredibly high before falling back down with its fellows. Alt coins (alt for “alternative”) is a phrase used to describe any coin except Bitcoin or Ethereum. These alt coins are often governance tokens for different networks or DAOs. Or, they might be DeFi coins with complicated tokenomics plans.  

Alt coins usually change prices in a very volatile way. They might make a huge gain one day, then crash much lower than anyone thought possible the next day. Alt coins are typically very risky investments, but are useful for governance and DeFi. A governance token is a token that gives you voting power in a network. In a DAO, a decentralized autonomous organization, you typically need a certain number of tokens to be able to cast votes. These governance tokens are like voting chips that you need to hold in your crypto wallet. 

There are also many tokens that are used in DeFi, such as tokens that a network airdrops or emits over time to users as an incentivization mechanism. Or, there are DeFi tokens that accrue value or represent your stake in a network, such as the stETH token you receive from Lido when staking ETH. There are many alt coin scams out there, so you need to be aware of the potential to lose money on a scam if you buy a token you’re not familiar with. It’s best to do research to find out if the token is legitimate. 

One of the problems with many alt coins is that they may be considered unregistered securities. A security, or stock, represents a piece of ownership in a company and must be registered by the SEC and follow certain standards, such as quarterly reporting. 

This makes holding and trading some alt coins riskier than you may want. Do your research and be aware of the possible risks and benefits of holding alt coins. 

What else should I know about Web 3?

This article was adapted from one of courses — Intro to Web 3. The course will gives you insights on cryptocurrencies wallets, NFTs, DAOs, DeFi and GameFi. You can also test your knowledge and earn tokens(money) on the subject after completing the entire course with interactive quizzes inside the course.

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