Web3 The dezentralized Revolution on the Internet

Web3

Why

we need it

What

it can do

How

it works

The Subject

Web3, is a buzzword that keeps cropping up in the mainstream media.

Sometimes with sensational news about the prices achieved by NFTs. 69 million US dollars for Beepl's Everydays, 6 million US dollars for a CryptoPunk and a few more.

However, NFTs, non-fungible tokens, are only one aspect of Web3, important, no question, but they are not Web3. With this book, I would like to introduce you to Web3.

I will explain the difference to WEB 2.0 and take a short detour into today's currency system.

What for?

The oldest application on the Web3 is Bitcoin. Bitcoin is a counter-proposal to the current currency system and aims to replace the weaknesses and injustices inherent in the system.

To understand Bitcoin and the Web3, it is essential to know the current system, only then is it possible to grasp the unimagined possibilities and draw your own conclusions.

The blockchain is the underlying technology of Bitcoin, which plays an essential role in Web3 and makes things possible that were previously impossible.

Of course, in this book, you will also learn about the concept of a blockchain and how it basically works. I can reassure you at this point that this will not be a digression into cryptography and mathematics. Nor will I bore you with technical details. It is important to me that you understand the concept, and that is possible without formulas and technical terms.

I will then introduce you to the various applications that are already being used in Web3. These include NFTs, DeFi, decentralized financial applications, DAOs,

decentralized autonomous organizations and, of course, the metaverse, the virtual worlds.

I would also like to introduce you to some blockchain applications that are used in real life. These applications can automate and simplify various processes in the business world.

Web 1.0, Web 2.0, Web 3.0, Web3

In this chapter, I would like to explain the differences between these three Internet eras.

Web 1.0 Read

WEB 1.0 is commonly referred to as the beginnings of the Internet.

At that time, users could only actually read. In other words, you could view texts on the websites. It didn't matter whether it was news, instructions, or research results on a wide variety of topics.

It was not possible to interact with these websites. Social media as we know it today was therefore not possible.

Web 2.0 Reading and Writing

WEB 2.0 is the term we use to describe today's Internet.

Today, it is possible to interact with websites. This began with the forerunners of today's social media, continued with the opportunity of uploading images and videos, and also made it possible to process payments via third-party providers. WEB 2.0 also marked the birth of online commerce.

At this point, it is important to understand that centralized institutions are always involved in payment processing.

I would like to cite PayPal as an example here. PayPal debits the amount from the buyer's bank account or credit/debit card and sends the amount, minus a processing fee, to the seller's account. In very simplified terms, as the amount can also be temporarily stored on PayPal.

This means that at least three centralized institutions are always involved in these transactions. The buyer's bank, PayPal, and the seller's bank.

Why do I pay particular attention to this?

It works differently in Web3, more on that later. In WEB 2.0, you always interact with a centralized company. Be it the social media platform, an online retailer, your bank and possibly offers from the government.

This contains some advantages, but also many disadvantages.

Advantages

You always have a contact person.

If you lose or forget your access data, you will receive new access data. If there were problems with a bank transfer, you can contact the relevant bank. If a delivery is faulty, can you contact the retailer and complain about the goods.

I think you can see what I'm getting at — you are relieved of almost all responsibility, and you almost always have someone to help you out if you mess something up, in terms of access to data.

Disadvantages

The biggest disadvantage is probably your data.

With every website and every service you want to use, you have to disclose data about yourself. Depending on the service you wish to use, this can range from your name and e-mail address to your address, telephone number, bank account and tax number.

The fact that this data is often not stored securely or is even traded with is nothing new. In addition, you pay for every service you use. The fees charged by the payment processor, bank charges, subscription fees and much more.

If you think that if an offer costs nothing, it is free, I have to disappoint you. In such cases, you pay with your data. Have you ever wondered why company XY is contacting you?

This is the price you pay for a supposedly free offer on WEB 2.0.

The biggest problem, however, lies in the dependency on these institutions. Your bank balance can be frozen at any time. A payment service provider can block your account at any time.

In October 2022, parts of PayPal's new terms and conditions appeared online, leading to mass account terminations and putting the share price under severe pressure. This was triggered by PayPal's statement that it would withhold up to 2,500 US dollars in penalties if the account holder disseminated opinions online that contradicted PayPal's views.

In the real world, this is called censorship. PayPal immediately rowed back and explained that this was never the intention.

Almost identical things happened during the truck strikes in Canada. Bank and PayPal accounts of the striking truck drivers were frozen. The same applied to supporters of the strikes. Anyone who supported the strikes financially had to expect their bank accounts to be blocked.

Web3 Read, Write, Transfer Values

I would like to start by saying that there are different views on Web 3.0 and Web3.

Some describe Web 3.0 as a technical extension of Web 2.0. Cloud computing, SaaS (Software as a Service), logging in via your Google account and many other new applications, such as the Internet of Things, which are based on Web 2.0, are considered Web 3.0.

Web 3 describes the decentralized approach.

Others equate Web 3.0 with Web3.

I prefer the distinction between Web 3.0 and Web3. I can't tell you what is right or wrong. My point is that you have heard this once to clarify things.

Depending on where you obtain information from, the terms can have different meanings.

The transfer of values is now added to the characteristics of WEB 2.0.

Centralized institutions such as banks or payment processors are no longer necessary. These transactions are peer-to-peer, i.e., from user to user. This is comparable to cash payments.

You receive the goods and pay with cash, again without the need for a third party.

For the first time, Web3 makes it possible to clearly prove ownership of digital assets. This doesn't just have to be cryptocurrencies; it works for any digital and real value.

What's more, it doesn't matter how high the amount to be sent is. If you want to transfer 100,000, the fee is just as high as if you only would like to transfer 100.

Depending on the blockchain, we are talking about cent amounts.

The registration or use of services is also entirely different. You link your digital wallet, which contains your authorization, usually in the form of an NFT or in the form of your personal data. In the case of an NFT, the use of the offer can be completely anonymous. When it comes to your data, it remains in your digital wallet and is only checked but not saved.

This also results in advantages and disadvantages.

Advantages

You are and remain the owner of your data.

You decide which data you wish to disclose and which you do not. If the desired offer is activated via NFTs, you can use the offer anonymously. I will go into NFTs and decentralized identities in much more detail later.

I hope you can still follow my explanations.

A centralized third party is no longer required for value transactions. This means that for now, nobody knows how much you have transferred to whom. Later in the book, you will see why I wrote for now.

More transparency than on a blockchain is hardly possible. You may already be aware that the Web3 gives you back your privacy, restricts access from outside and does not require any control instances. At least not necessarily.

That sounds very positive, but it also has disadvantages.

Disadvantages

Since centralized institutions are no longer necessary, no one can help you if you lose your account access data.

If that happens, your money is gone. More precisely, it's still there, but you no longer have access to it. The same applies to your NFTs and your digital identity. Whereby you can get your identity back, but it can be a bit of a hassle.

In short, if you lose the access data to your digital wallet, you have a serious problem.

By extension, this means that Web3 requires a high degree of personal responsibility.

This is the price you pay for your privacy and the freedom that comes with it. We will see later in the book that there are of course also hybrid solutions.

There you can delegate your responsibility to third parties.

Today's Monetary System

Let's now take a look at how today's monetary system works.

I'm not going to delve into the infinite depths. Here, too, I would like to explain the concept to you without using fancy formulas and technical terms.

Why do I think it is important to explain the existing currency system?

The first Web3 application, Bitcoin, is basically the antithesis of today's currencies. To understand the idea behind it, it is necessary to know the system behind our currencies. I am not trying to proselytize, but to show you the two systems.

You can only form your opinion if you are familiar with both approaches.

Money

Foremost, we need to define what money actually is and what characteristics money must have.

Means of Exchange and Payment:

Money is used to settle debts.

To this end, it is necessary for money to be accepted by all economic participants. Acceptance is either voluntary or coercive. In the case of voluntary acceptance, the market participants have agreed on a commodity which they accept as a means of payment. Money that must be accepted by force is all state currencies.

In this case, the state specifies which money may be used and which the state accepts for the payment of taxes and duties.

Store of Value:

Money must serve as a store of value and therefore must not lose its purchasing power over time.

Calculation Unit:

Money is used by market participants as a vehicle for setting prices. With the help of money, the value of a good can be depicted, making it possible to compare goods with each other via the price.

Divisible:

Money must be divided into smaller units.

€1 corresponds to 100-euro cents. There are also some practical aspects.

Money should be durable, easy to transport and forgery-proof. I will go into two points in more detail below.

I would like to show you the impact of supposedly small changes. I would also like to show you the difference between money and currencies.

Means of Exchange and Payment

In this section, I would like to show you the effects that occur when a means of payment is introduced by coercion and not on a voluntary basis. It is not relevant whether this means of payment is a gold coin or paper. The effects are always the same.

Voluntary

Let us assume that in our example, gold coins are used as a means of payment that were not introduced by coercion.

What would happen if the issuer of the coins or other fraudulent market participants started to manipulate the gold coins?

They mix another cheaper metal into the gold, copper, for example.

This allows the players to produce more coins with the same amount of gold, as the missing gold is replaced by copper. This reduces the gold content in the coins and thus the value of the coin.

In addition, this manipulation puts more coins into circulation, as they are no longer 100% gold. This is called inflation, from the Latin inflare to inflate.

The consequence of this inflation is a loss of purchasing power of the respective coins.

Now let's look at what would happen to market participants when they realize the hoax.

The first reaction will be to raise prices, as the original prices were based on the assumption of 100% gold in the coin. This is known as consumer price rise. If the fraudulent market participants overdo it with the addition of copper, these coins are no longer accepted as a means of payment, become worthless and are discarded.

They are replaced by other gold coins made of 100% gold.

The same applies if confidence in a means of payment is lost.