This is the second book that I have picked up related to crypto and blockchain recently, after the great Defi primer, and another great one I would say. It’s less technical than the first book, and easier to read, yet it gives a very comprehensive view of Web3, both the good and the bad parts, and the authors managed to explain the concepts in a way that is approachable and comprehensible to the mass, making it a great introduction book for those who have little background but would like to understand Web3 in general. So, if you are one of those, go ahead and pick it up, or you can check out my summary below and see if it’s worth your time, and money.
- What is Web3?
The author went briefly through the history of the Internet, and identified the major differences:
- Web1: read only: little interaction with users
- Web2: read / write: user is the product, high centralisation, lots of social interactions, user data are hugely prized and protected by platforms. Big Tech monopoly.
- Web3: read / write / own: built on blockchain, users own their data, permission-less, decentralised, trust-less. Cryptocurrency as motivational factor. Built on existing community or create a new one. Community engagement is key. Nascent: lots of speculations, technological and environmental issues.
- Required a crypto wallet to interact with Web3 + technological knowhow: high barrier to entry
- Web3 major use cases: payment, international transfer, digital arts
- Regulations are coming to crypto
- Different blockchains have different level of security, scalability and decentralisation: Crypto trilemma
- High level of energy usage of POW blockchains lead to environmental concerns
- Crypto market is volatile, speculative and cyclical, so platforms and ecosystems may likely fail
- It may be best to have a hybrid solution, with some data stored on-chain and the rest stored off-chain, so that those data can be modified and deleted, due to the immutability nature of blockchain.
2. Why are blockchain’s ethical stakes so high?
- Risks of blockchain:
- Lack of 3rd party protection: Cutting out intermediary means customers have to interact with the services directly
- Lack of privacy: All transactions are viewable on-chain.
- Zero-state problem: If the information in the genesis block is wrong, it will be very hard to correct it and will lead to the wrong setup of the whole blockchain
- Blockchain governance: Bad actors can take control if they gather enough tokens, especially for smaller blockchains
3. What a DAO can and can’t do
- Characteristics of a DAO: autonomous and decentralised
- Setting up a DAO is a 2-step process:
- Develop a set of smart contracts to define the rules and operations of the DAO
- Raise funds for operation by issuing tokens, which is the DAO governance token
- A DAO is good for clear actions that are programmable and with defined steps and outcome, but not good for actions that require nuances as well as flexibility or pivot
- The legality of DAO is still unclear, as DAO is not regarded as a corporate entity and not subject to corporate regulations
4. Why build in Web3?
- Web2 has a lot of pitfalls that prevent it from achieving its original goals:
- Built around users and users’ data but without the necessary mechanisms to allow users to control their data
- Web2 companies greatly leverage their business success on network effects and the locked in users and their data, so they are not inclined to share data or make it easy for users to leave the platform with their extracted data
- What problems Web3 sets out to solve:
- Build open platforms that are open-sourced, interoperable and with open, transparent data
- Share values with users, enable users to own, control and benefit from their own created data, and easy to export data and switch platforms whenever they want
- Change the way platforms compete for users. Users can easily switch between platforms and pick the one that gives them the most values for their data and transactions. A side effect of that is vampire attacks are common in Web3 due to the ease of forking the platform’s open source codes and build a similar platform with more attractive value offer.
- Web3 platforms offer more than a zero sum game. It’s easy for platforms to scale due to interoperability. Platforms can overcome cold start problem where there is little data in the platform when the platform is newly launched (it’s easy for even a new platform to plug into the blockchain and display all the authorised data there).
- Thanks to blockchain, it’s easier to verify data ownership in Web3. Smart contracts are transparent and audit-able, and public key cryptography allows users to securely prove their ownership of their data.
- Having ownership of assets and data creates a new type of network effect and community engagement among users. The users have more stake in the success of the platform, and naturally becomes ambassadors and promoters of the platform. That in turn will lead to a bigger pie for everyone involved in the ecosystem.
- Current Web3 platforms are still not very user friendly, and not accessible to the mass due to the difficulty to on-ramp and fund transactions (need to set up and connect crypto wallet). Technical knowledge is required in order to onboard Web3. Moreover, UI / UX of Web3 platforms still has lots of room for improvement.
5. How brands are experimenting with Web3
- Virtual products
- Leverage on the popularity of the physical brand
- Examples include virtual footwear by Nike, virtual clothes by Prada
- More for customer exploration by the brand than a core revenue stream or monetisation channel
- Pros: Faster and cheaper to produce than physical goods
- Cons: Little value outside the platform, not portable to other platforms or blockchains
- Hybrid products
- Store information about physical products on-chain for authenticity verification or source tracing
- Sell digital collectibles of real products or events such as sports clip or music clip
- Sell digital ownership of physical arts or songs or movies. Owners can get a share of the value generated by those arts or songs or movies.
- Sell NFT that can redeem physical goods
- Store ticket information or attendance information on-chain for verification of attendance or participation or contribution. Tickets can be verified at the venue via the wallet address instead of physical printed hardcopies
- Pros: More value offer to customers, both online and offline. Build community of collectors online
- Cons: Environmental impact of minting NFT. Cost and effort required to create and maintain digital products
- Distributed ownership
- Partial ownership of big ticket item via tokenisation process
- Group buy: higher bargaining power for lower prices
- Partial ownership of brands and platforms via the purchase of equity or governance tokens: a fast and easy way to raise funds for launching new platform
6. Cautionary tales from crypto land
- Blockchain and crypto are not silver bullets that can solve all problems, especially social or societal or governmental ones. Also, many times it is the wrong solution to the problem. Many social problems cannot be solved by technology alone, or even not solvable by technology at all. It’s quite naive to try throwing technology at all kinds of problems.
- Slow speed of transactions supported by blockchains prevents it from being used in a lot of financial transactions and financial applications e.g. high volume real time trading. That leads to the need for a hybrid solution where certain actions happen on-chain, and others off-chain.
- Transparency and immutability characteristic of blockchain may lead to harassment, as all information can be found on-chain and not updatable or deletable.
- Crypto makes the rich even richer, and transforms more wealth to the wealthy minority. A lot of time, a privileged few have access to pre-launch tokens at cheap price before ICO, and sell them after ICO at huge profit, while the mass buy tokens at high market price after ICO, then suffer from losses due to token price drop post ICO or subject to price manipulation by crypto whales.
7. Web3 is our chance to create a better internet
- Web3 holds the potential for a fairer and freer internet where everyone can participate on a more level playing field
- In order to build it correctly, builders should listen to skeptics and avoid repeating the mistakes that plagued Web2 ecosystem
- Build Web3 on the principle of fairness and difference:
- Justice as fairness: Everyone in Web3 should have equal rights to access to social positions such as jobs or political offices, as well as equal rights to decide the direction and operations of the platforms or ecosystem. Web3 platforms should give a voice to everyone and as much as possible provide equal enfranchisement.
- Difference principle: Social positions should be allocated based on merit instead of social class. Moreover, Web3 platforms should reward participation, not just capital. For example, airdrops should be targeted towards those who contribute to the platforms / real users, instead just of token holders / investors.
- Inequality, if existed, should be designed to benefit the least well off. Web3 platforms should incorporate initiatives that benefit the disadvantaged in society and promote the distribution of wealth. For example, instead of paying the lion’s share to top content creators, the platforms should be designed to reward all content creators who contribute values to the platform.