What is Web3?
Web3 simply proposes a new structure for the world wide web - a structure that is defined by a decentralized network of data servers, secured by a peer to peer system which is incentivized to develop and maintain the network through tokenization.
What was simple about this definition? Absolutely nothing.
So , let’s break it down.
What is decentralization and why is it important?
Web2, the current “version” of the internet, is defined by centralization, i.e, all the data that has been uploaded by any user on the internet, is most likely stored in a central or main data server which is owned by one of the few “big tech” companies. What this essentially means is that the ownership of user data is vested in a few companies, who use this data at their discretion in exchange for their services , often compromising user privacy in order to earn revenue.
Web3, on the other hand, is based on blockchain technology. A blockchain is :
- A public ledger - Data in this ledger, or “block” is transparent, and free to be viewed by any user in the network. It is not owned by any single entity.
- Secured by a P2P system - Data contained in each block is encrypted by hash encryption functions, immutable, and verified by a peer to peer system through either a proof of work or a proof of stake model. The bottom line is that it is mathematically unfeasible to attempt to falsify data in the blockchain.
- Transactions are encapsulated in smart contracts - A smart contract is a piece of blockchain code which is automatically executed when certain predefined conditions are met. This greatly reduces the need for intermediaries, arbitration and transaction related costs.
All caught up? Good. Let’s get going then.
What are tokens and why are they a valuable incentive?
A token is blockchain data which has no intrinsic value. Token’s derive their value from , and represent , sensitive and valuable information, such as credit card numbers. Tokens can only be traded when they are converted back to their representative value, separating sensitive information from business systems. When such a system is breached, there would be no sensitive data at risk of being stolen.
Tokens differ between different blockchain platforms. For example, the Bitcoin blockchain rewards it’s miners with tokens in the form of Bitcoins.
Web3 in our daily lives - why should you care?
- DAOs : These are blockchain based communities which undertake specific projects or funding activities. The rules of a DAO are coded in it’s blockchain through smart contracts, alterable through voting. Voting rights in a DAO are obtained by buying either project specific cryptocurrencies, known as governance tokens, or any other cryptocurrency which powers the blockchain a DAO operates on. DAOs are increasingly being considered as the web3 version of corporations - transparent and participatory.
- DApps : These are blockchain based applications whose backend code runs on a decentralized system of servers.
- DeFi : Decentralized finance enables users to participate directly in financial transactions by using blockchain technology to remove intermediate centralized financial institutions such as banks. Cryptocurrencies such as BitCoin are a part of the DeFi system.
- Social Tokens and the creator economy : Social tokens deserve a special mention in the context of Web3.These are cryptocurrencies directly issued by content creators, to their followers and supporters, in a blockchain based community system. This provides an added avenue of monetization to content creators that is completely under the control of the creator. Social tokens give fans a direct stake in the creator’s work and when they are used as investment, they create personal interest in the future value of a creator’s work. NFTs are a form of social token which have become extremely popular in recent years.
While this is not an exhaustive list, as developments in the blockchain technology scene are manifold and ever increasing, the rising popularity of blockchain based digital systems points at the increasing desire of users to shift towards more transparent, secure and decentralized ways of information exchange.
Thus, it is important for us to consider how web 3 will enable further mainstream adoption of Bitcoin and other cryptocurrencies.
Web3 and the future of BitCoin
In the future, cryptocurrencies which use blockchain technology at its most innovative and efficient c, consequently contributing the most toward the Web 3.0 ecosystem, will inevitably be the most popular on Web3 internet. Bitcoin embodies privacy and monetary freedom from centralized governance. Being the first cryptocurrency, it automatically enjoys a head start in the crypto race against altcoins. However, The pseudo anonymity warranted by Bitcoin transactions has often led big players in politics and finance to express mistrust, leading it’s value to plummet. Bitcoin is still not accepted as a legal tender in most nations. The sudden closure of MtGox, following a major theft by hackers, is a testament to Bitcoin's vulnerability as a currency. As cryptocurrency gains more popularity, big corporations might develop their own currencies, which would automatically garner higher levels of trust from the public.
Public trust in the intrinsic value of Web3 - and BitCoin, as an extension, will ultimately define it’s worth as the currency of the future.
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