A new mini series focused on answering the fundamental questions on crypto in bitesize chunks for your friends and family
What is crypto?
You might have heard it referred to as cryptocurrency, blockchain, web3 or something else. These terms are confusing in their own right but ultimately, these words are all generally used to describe the same thing — the future of the internet.
I don’t like the term cryptocurrency. It leads readers down a linear path of thinking such as:
“We have the £, $ etc… why do we need another currency?”
I prefer to use the terms crypto or Web3. Therefore to understand the future of the internet, we must understand the internet in its current design for its evolution to make sense.
Web 1
Early 1990’s and 2000’s internet where early users could do little more than read simple static web pages and exchange e-mails. Interaction was a one-way street.
Web 2
The internet as we know and interact with in our daily lives today. Where users of Web 1 could do little more than read simple content, Web 2 has seen the internet boom in popularity as user generated content has become king. Often called the ‘social web’, Web 2 is exemplified by social media giants such as FaceBook, YouTube and Tiktok. Users own data is the driving force of Web 2. Although this enables wonderful new user experiences, users don’t fully grasp the fact that they are signing over ownership of all their information to a few large dominant technology companies. This meant that the data has become centralised amongst a few big players in the industry. Google keeps the most, collecting over 39 different individual data points on you. This can include anything from basic information such as your name and e-mail address through to the websites you’ve visited, videos you’ve watched and messages on your phone.
Web 3
When Tim Berners-Lee invented the internet in 1989, he did so based on the key founding principle of Decentralisation.
“No permission is needed from a central authority to post anything on the web, there is no central controlling node, and so no single point of failure…and no ‘kill switch’! This also implies freedom from indiscriminate censorship and surveillance.”
While Web 1 was built with these principles in mind, Web 2 shifted the Web away from its intended design into a few monopolistic companies monetising its own users.
Web 3 is an attempt to fundamentally re-architect how the web works using blockchain technology as the underlying infrastructure to alter how information and value is stored, shared and owned.
The blockchain is the magical infrastructure that allows for this shift away from centralisation. Whether you know it or not, databases power nearly every service you consume on a day to day basis from access to your banking to the movies you watch on Netflix. While the details of blockchains and how they compare to traditional databases is the topic for another post, what is important to highlight is that a blockchain is simply a new type of database structure. While your bank or streaming service operate their own database (centralised), blockchains offer a new way to store and secure data in a way that is distributed and secured by cryptography and consensus mechanisms.
Think of a blockchain as a large excel document which records transaction data. Where you can change and edit a normal excel document, with a blockchain, data can only be added or read, never edited. Let’s say for example that If I sold my house to you. Because the blockchain is distributed, 1000’s of copies of the chain exist across a network of computers where the records all need to match. If you are the rightful owner of your home and that information is recorded on-chain then you will be able to sell me your home and that new information will be added to the excel document for all to see. The magic happens if you try and alter or cheat the system. The information stored across all the computers would not match and therefore the transaction will not be viable. The value therefore is in facilitating transactions across groups of non-trusted parties. While middle-men exist today operating as these ‘trusted’ parties, the promise of blockchains is to potentially eliminate and streamline how value is stored, shared and owned.
Web 3 aims to give the power back to the every day user and democratise the internet back to its Web 1 principles replacing rent-seeking middlemen with blockchains. A vision of new applications, use cases and online economies from cryptocurrencies to NFTs. Users are no longer the product and instead can create a world in which they are rewarded for their contribution rather than exploited. “Web3 is the internet owned by the builders and users, orchestrated with tokens,” says Chris Dixon of a16z. The Ethereum foundation defines the core principles of Web 3 below:
- Decentralised
- Permissionless
- Native payments
- Trustless
While the vision is ambitious, re-architecting the internet as we know it today is no small task. As per all new innovation attempts, there will be failure upon failure as builders tinker with new economic incentive design mechanisms as they endeavour to build out a better, more transparent and fair internet.
If you have any burning questions on the basics of crypto you want me to cover next, please reach out.
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