Introduction
What is WEB3
Why is WEB3 important?
WEB3 Applications
DeFi
NFT
DAO
WEB3 Growth in Numbers
DeFi
NFT
Business Use Cases
Conclusion
In this post, which I will talk about WEB3 Applications, I would say that you don't have to know nothing specific to blockchain to understand the it all. On the end of the day WEB3 applications will evolve to a point that they will be transparent to end users, which means they could easily be used my majority of people without any specific previous knowledge. This is the only way the mass audience will be reached and my mission here is to help get to this stage.
I just would like to mention that, as shown on previous post, WEB3 is possible due to the technology emerged by Ethereum: automated actions coded on Blockchain (Smart Contracts). The main most popular applications so far are related to finance and authentication and here is our start point.
Simple answer: Instead of an internet monopolized by large technology companies, Web3 embraces decentralization and is being built, operated, and owned by its users. Web3 puts power in the hands of individuals rather than corporations.
Just like Industrial Revolution, the WEB has been through different stages throughout its history. Let's take a look in how we got here in order to understand why WEB3:
Web 1.0: Read-Only (1990-2004)
The first drafts of the internet had the intention to create open and decentralized protocols that allowed information-sharing from anywhere on Earth. The actual main results were static websites owned by companies and there was close to zero interaction between users, since individuals seldom produced content, leading to it being known as the read-only web.
Web 2.0: Read-Write (2004-now)
The Web 2.0 period began in 2004 with the emergence of social media platforms. Instead of only companies providing content to users, the users also began to provide platforms to share user-generated content and engage in user-to-user interactions. As more people came online, a handful of top companies began to control a disproportionate amount of the traffic and value generated on the web. Web 2.0 also birthed the advertising-driven revenue model. While users could create content, they didn't own it or benefit from its monetization.
Web 3.0: Read-Write-Own
The idea of WEB3 was created by Ethereum co-founder Gavin Wood. He put into words a solution for a problem that many early crypto adopters felt: the internet required too much trust. That is, most of the internet that people know and use today relies on trusting a handful of private companies to act in the public's best interests. At its core, Web3 uses blockchain's trust value to create applications that give power back to the users in the form of ownership. The network gives ownership to users by being:
Decentralized: instead of large swathes of the internet controlled and owned by centralized entities, ownership gets distributed amongst its builders and users.
Permissionless: everyone has equal access to participate in Web3, and no one gets excluded.
Embedded with native payments: it uses cryptocurrency for spending and sending money online instead of relying on the outdated infrastructure of banks and payment processors.
Trustless: it operates using incentives and economic mechanisms instead of relying on trusted third-parties.
Now that you understand the core values of WEB3, it is now possible to understand what solutions are being built with based on these principles.
Decentralized Finance is the term used to dapps (decentralized applications) built to provide financial solutions. With DeFi, the markets are always open and there are no centralized authorities who can block payments or deny you access to anything. Services that were previously slow and at risk of human error are automatic and safer now that they're handled by code that anyone can inspect and scrutinize.
Here is a quick comparison between traditional finance and DeFi:
Due to the logic that can be created on Smart Contracts, financial institutions can be removed from the equation. A contract that's designed to hand out an allowance or pocket money could be programmed to send money from Account A to Account B every Friday. And it will only ever do that as long as Account A has the required funds. No one can change the contract and add Account C as a recipient to steal funds.
There's a decentralized alternative to most financial services and also financial products that are completely new created due to blockchain capabilities. This is an ever-growing list:
To understand better the how it works and the players involved in DeFi, you can separate the environment into 4 layers:
The blockchain – Ethereum contains the transaction history and state of accounts.
The assets – ETH and the other tokens (currencies).
The protocols – smart contracts that provide the functionality, for example a service that allows for decentralized lending of assets.
The applications – the products we use to manage and access the protocols.
Non-Fungible Tokens are tokens running in a specific compatible blockchain that have an infungible format and that allows to have some kind of media on their content. Their goal is to represent the ownership of unique items and currently they are commonly used to represent digital collectibles.
Infungible
Cryptocurrencies are tokens created in a fungible format that allows the exchange of a cryptocurrency by the same cryptocurrency. For example a bitcoin that could be exchanged to any other bitcoin and both leave with the same value.
For a Non-Fungible asset you don't have an exact pair of it that could be considered the exact same value (they can be similar values) because of different characteristics it carries. Making a parallel to houses, two very similar houses don't have the same exact value due to due to different characteristics, such as previous owners, condition of the house, etc.
Media carry
One of the NFTs properties is that it allows us tokenise things like art, collectibles, even real estate. Along with that, it can only have one official owner at a time and they're secured by the running blockchain, which means no one can modify the record of ownership or copy/paste a new NFT into existence.
The value of a NFT
We are entering the transition to the era where we value assets more digital assets than physical assets (and this is called the Metaverse). You don't have to think about virtual lands to understand that, but instead think about how you value your cellphones, how gamers value skins within games, etc.
When it comes to copying digital content available on the internet for free instead of buying something, remember that value is subjective. If you were offered replica of Mona Lisa's painting for free, would you feel it has the same value as the original one? Just like Mona Lisa's painting, the value of an NFT goes beyond the media: there are labels of creator, current owner and market history.
It is also important to understand that NFTs are not just used as scarce assets, but also they can be used as utility items to develop a variety of business models. For example: holding a specific NFT allows you to buy clothes for a cheaper price, have access to a specific clothing collection, attend to private events, etc. Below it is listed some examples of use cases:
Decentralized Autonomous Organizations are groups organized in a democratic way that allows members to directly vote into the group decisions by proposals and ensure everyone in the organization has a voice.
Being straight forward, its goal is to be a company with a decentralized modus operandi. They are able to do that due to Smart Contract capabilities of creating built-in treasuries that no one has the authority to access without the approval of the group. There's no CEO who can authorize spending based on their own whims and no chance of a dodgy CFO manipulating the books. Everything is out in the open and the rules around spending are baked into the DAO via its code.
There are different models for DAO membership, with different voting mechanisms and other key parts:
Token-based membership
Simply holding a specific token grants access to voting. Depending on each project, to earn a token you can get on decentralized marketplaces or through liquidity provisioning or some other “proof-of-work”.
Typically used to govern broad decentralized protocols and/or tokens themselves.
Share-based membership
Any prospective members can submit a proposal to join the DAO, usually offering a tribute of some value in the form of tokens or work. Shares represent direct voting power and ownership and members can exit at any time with their proportionate share of the treasury.
Typically used for more closer-knit, human-centric organizations like charities, worker collectives, and investment clubs. Can also govern protocols and tokens as well.
Reputation-based membership
Reputation represents proof of participation and grants voting power in the DAO. Unlike token or share-based membership, reputation-based DAOs don't transfer ownership to contributors. Reputation cannot be bought, transferred or delegated; DAO members must earn reputation through participation. On-chain voting is permissionless and prospective members can freely submit proposals to join the DAO and request to receive reputation and tokens as a reward in exchange for their contributions.
Typically used for decentralized development and governance of protocols and dApps, but also well suited to a diverse set of organizations like charities, worker collectives, investment clubs, etc.
If in one hand you have the visibility and system that prevents robbery, on the other hand you have open sensible data that companies would rather let it private. If in one hand you have people in the whole company having voice on companies decisions, on the other hand you have decisions that are better to be made by senior managers instead of a democratic voting of non-specialized people.
This new way of organizing companies is a new paradigm and lots of discussions happen in this way. The creator of Ethereum himself writes a lot about this topic on his personal blog.
Below I provide some links to internet available charts related to WEB3 statistics.
DeFi Users Over Time (Ethereum)
Decentralized Exchangers Metrics
OpenSea Users Over Time (Ethereum)
WEB3 is not the only thing emerging based on blockchain technology; traditional markets are also taking advantage of this. They are reinventing their business by not only adapting to WEB3 solutions, such as DeFi, but also by creating value with blockchain core capabilities. Among several applications that are being developed, I would like to highlight SAP's solution green-token.
Green Token by SAP is a system that enhances companies efforts on tracking production chain and is able to determine whether it was produced with the sustainable characteristics desired. By applying NFT principles into the logistics system, it is possible to track each phase of production chain on production supplier. It not only helps with the conscious consumption of people and with the trust between companies and their suppliers, but also enables a faster and cheaper way to audit reporting and fixing issues along the production chain.
WEB3 is slowly being incremented in people's lives and being braked by current world economic scenario with high inflation and high interest rates. Since high interest rates tend to puncture bubbles, it will be interesting seeing many outstanding solutions overcome this period, increasing people's confidence in them, and many other solutions disappear, proving to be a bubble. In the general WEB3 scenario, I think that this trend certainly came to stay as throughout time many more solutions are being built, more people are joining WEB3 and more governments are joining this world with regulations and Central Bank Digital Currencies (CBDC).
If you reader decide now to join this new era, it is interesting to review how WEB3 applications vary from one Blockchain to another by taking into consideration the Blockchain trilemma. Among other characteristics, you can evaluate an application based on the Blockchain it is attached with and decide if it is worth using it or not. If you decide to use it but don't know how to start, in the next post I will teach you how to surf on the internet WEB3.