I spent the last several weekends working on Buildspace projects. These projects are free learn-by-doing tutorials on building fully functional web3 applications – from writing smart contracts, deploying them onto the blockchain, to building the user interface that interacts with the smart contract.
The applications I learnt to build include a decentralised version of Twitter, a non-fungible token (NFT) generator (see the collection on OpenSea), and a simple game that uses NFTs to represent the game characters. Doing these projects have helped me connect the dots.
These projects are accessible to beginners (the only prerequisite is being comfortable with using the terminal/command line and knowing some basic React). They are also refreshingly enjoyable unlike a course I did which was heavy on smart contract coding.
I cannot recommend Buildspace projects enough; they are the perfect deep dives into the wonderful world of web3. In true web3 fashion, upon completing a project, you’ll receive an unique NFT as “proof-of-knowledge”.
But what is web3?
What is web3?
Web3 is an umbrella term that means different things to different people. In my mind, web3 encompasses blockchain-enabled use cases like decentralised finance (DeFi), non-fungible tokens (NFT) and decentralised autonomous organisations (DAO).
To others, web3 may mean “hyper-personalisation” – the use of machine learning/AI techniques to achieve highly contextualised output.
To set a base understanding, this blog post explains web3 as outlined by Chris Dixon in his famous Why Web 3 Matters tweet thread. Chris, a general partner at the venture capital firm, a16z, summarises web3 as follows:
Web 3 is the internet owned by the builders and users, orchestrated with tokens.Chris Dixon, Why Web 3 Matters
The evolution of the internet
To understand web3, let’s start with a short history of how we got here. Broadly and in a nutshell:
- The internet enabled the instantaneous exchange of information;
- Web 1.0 made the internet widely accessible. Users consumed information on static websites;
- Web 2.0 saw the rise of interactive platforms like Facebook, YouTube, and TikTok where creators publish their work and amass an audience. But there’s a catch; most of the value created accrues to the owner of the platforms and not the content creators. Worse, these platforms are usually monetised using adverts, often at the expense of users’ privacy. Users get hyper-personalised content but also highly targeted adverts.
Web2 companies convinced you to give away your creations in exchange for little hearts. Tell me how NFTs are the real scam?Chris Dixon, The Tim Ferriss Show
What’s different about web3?
Web3 is the web enabled by blockchain technology. It’s a collection of concepts unique to blockchain, manifested into use cases and applications which have created thriving communities and economies.
Let’s dig in.
Blockchain’s characteristics enable use cases that were previously impossible; key concepts unique to blockchain are:
- Decentralisation and disintermediation – blockchain removes the need for centralised entities. Facebook, for example, is emblematic of the problems arising from dominant centralised entities. Among other things, blockchain removes the centralisation of power/influence, and changes business models across industries beyond tech. Intermediaries exist in some form in web3 but the value they extract is materially lower due to a low barrier to entry for new competitors and low switching costs for users.
- Provable digital scarcity – blockchain enables digital scarcity. The nature of digital items is that they can be reproduced endlessly with zero cost. With digital scarcity, we now have internet native money/medium of exchange, virtual goods, and digital representations of real world items. This enables digital ownership and property rights, and creates a truly digital economy.
- Programmable ownership – On programmable blockchain platforms, tokens representing ownership can be conferred utility using rules coded in smart contracts. For example, a token holder can be given anything from access to a community to an income for life. The possibilities are limited only by imagination once current technical limitations (e.g. scalability trilemma) are solved.
Existing blockchain use cases are broadly grouped into:
- Decentralised finance (DeFi) – DeFi is an ecosystem of financial products and services (e.g. payments, lending/borrowing, investments, insurance etc.) built on programmable blockchain platforms. It promises financial inclusion and economic freedom. Putting aside the lofty ambition and virtue signalling, DeFi products and services have numerous benefits. For starters, once deployed, they are fully automated; operating cost is near zero. They are fully transparent; data – e.g. revenue, solvency ratio, risk exposure – is available in real-time, a game changer compared to the quarterly reporting cycles of traditional finance companies.
- Non-fungible tokens (NFT) – NFTs are crypto-tokens which represent something unique. They are used to represent digital collectibles, digital artwork, video game items, and even digital representation of real-world items. NFTs have been widely ridiculed as expensive JPEGs. It’s true that anyone can right-click-and-save the JPEG associated with a NFT; what gives a NFT its value is the social status, utility, or community access it confers.
- Decentralised autonomous organisation (DAO) – DAO is a tool for capital formation and human coordination. It provides a trustless way to pool money and facilitate collective decision-making without the need for a central authority. Most projects in the web3 space are governed by a DAO. There are also various special purpose DAOs formed for specific purposes. For example, PleasrDAO collects digital art. More recently, ConstitutionDAO pooled money in an attempt to buy a surviving copy of the US Constitution in an auction. This tweet thread by a ConstitutionDAO participant is one of many anecdotal examples of what a DAO is capable of.
Communities and economies
Passionate communities of developers and users have arisen around web3 projects. Community members usually hold tokens representing ownership or governance rights in the project, giving them skin in the game. This shared interests and aligned incentives hark back to the concept of mutuals/co-operatives.
The value that flows through a community creates an economy. A simplified example of a NFT-enabled economy goes like this:
- An artist creates value by minting his/her creation (artwork, music etc.) as a NFT.
- The NFT is bought and sold on open marketplaces which take comparatively smaller fees than their web2 counterparts (due to low barrier to entry and low switching costs).
- The artist gets royalty automatically per the rules coded in the smart contract. In a nutshell, the artist benefits directly from his/her work in perpetuity.
- Anyone can build on top of the NFT to create additional value. For example, a developer can create a video game in which the NFT holder has special abilities. The game would also have its own economy.
- Finally, the proceeds from trading the NFT are used in DeFi products and services, generating revenue that accrues to DeFi token holders.
Is web3 a fad?
If we were to believe the mainstream media, there are many reasons to dismiss web3; some valid but most are more nuanced.
Yes, crypto mining (i.e. proof-of-work) uses inordinate amount of energy but there are other less energy-intensive consensus mechanisms like proof-of-stake. Yes, there are bad actors in the web3 space but those who had fallen victim to scams ignored the time-worn adage “if it looks too good to be true…” in their attempt to get rich quick. Yes, criminals use cryptos but activities on public blockchains are fully transparent; on-chain data in the hands of skilled authorities is bad news for evil-doers.
Steve Jobs popularised the term skeuomorphism. He used the term in the context of graphical user interface (GUI) which mimics its real-world counterpart; for example, an ebook reader that looks like a bookshelf.
Most web3 applications available today are skeuomorphic in the sense that developers are applying the technology to make marginal improvement on existing solutions. These early applications look like toys and the genuinely innovative use cases are probably years away.
It’s early days for web3. The only way to truly understand its potential is to get involved. This means joining web3 communities on Discord, participating in DAO governance, and learning to build web3 applications. WAGMI.
The bottom line: Web3 is the web enabled by blockchain technology. It’s a collection of concepts unique to blockchain, manifested into use cases and applications which have created thriving communities and economies. It’s still at an experimental stage but once the technology matures, it’s going to change business models across multiple industries. The only way to truly understand its potential is to get involved.
- The Wonders of Web3 – The Tim Ferriss Show podcast episode featuring Chris Dixon and Naval Ravikant
- 5 Mental Models For Web3 – Bankless podcast episode featuring Chris Dixon
- Blog posts on DeFi, NFT, and DAO
- Understanding blockchain for insurance use cases