A brief overview of cryptocurrencies and web 3. I’ve tried to keep it at a high level but with enough depth so you can understand it’s potential in your life and business.
The progression – Web 1, 2 and 3
I’ve been on the internet for a long time! My first time connecting with others online was in the days of BBSs, where you would dial in and everything was just text, when IRC chat was how you talked to others around the world.
Then came web 1, with netscape and single page slow loading pages (remember modems?). As things sped up and we added CGI programming with perl (and php) it became a bit more dynamic. Forms and collecting data, collocating servers and all that fun!
Web 2 is identified by much more interactive sites, e-commerce, cloud computing, client/server and micro services. This is where most of us are now. It’s a very active space and will continue to be far into the future. It is also more or less centralization, where the large internet companies own the big services, think google, youtube, facebook (meta) and twitter (maybe).
There is a big future for Web 3 and it’s already been in progress for quite some time. Web 3 is associated with client apps that talk to decentralized global virtual machines (more on that in a bit). The decentralized aspect of web 3 is one of the big advantages.
Cryptography is at the core of decentralized global currencies. It is what allows the system to know who owns what on the network. In it’s basic form, Public Key Cryptography provides a user with a Private Key. This key must be kept secret and secure from everyone except the owner. From this Private Key a Public Key can be generated. When someone encrypts a message with a Public Key, only the Private Key owner can decrypt that message. Your Public Key should be shared with anyone that might send you messages. Remember, always keep your Private Key secure.
Your Private Key also gives you the ability to sign digital content. This signature can be verified using your Public Key, verifying it was you who signed the content.
You would usually use a wallet to store your private key. You can use a browser based wallet such as metamask, a browser like brave with a wallet built in or an app. You can also use a service such as coinbase, which would act like your wallet.
The blockchain is a distributed, immutable chain of blocks, where each block has a group of recent transactions. The blocks are created by miners who verify the transactions and add the blocks to the global chain. The miner is rewarded with crypto for each block they successfully verify.
There are many different blockchains. There are public primary block chains like the Bitcoin blockchain or Ethereum Mainnet blockchain. There are consortium blockchains, where a group of companies or people run a blockchain for their specific purpose. Testing blockchains for developers and private blockchains.
The public blockchains are an immutable, distributed record that provides proof of ownership. These chains are run on a vast array of nodes on the network, which provides distributed durability. This is part of the value of the system.
Ethereum is a crypto network that uses the ether currency. Ethereum provides a global virtual machine (read computer) that can be programmed with smart contracts (Dapps, distributed applications). The global virtual machine is a distributed computer that runs on the ethereum network. A smart contract is a program that anyone can write and deploy to the EVM (Ethereum Virtual Machine). When your smart contract runs, it uses gas, priced in Wei (1 ether = 10^18 Wei), to pay for the resources used in executing your smart contract (program).
An example might be helpful, this is one I came across in my research. Imagine you wanted to ensure that you were the first one to create a specific document. You could create a notary service. When you upload your document, it would take a hash of the document (a unique signature) and call your smart contract. The smart contract would store that signature with your name and date on the blockchain. If anyone ever wanted to check that document in the future, they would upload it and your smart contract would respond with the information from when you originally uploaded it. The job of the smart contract would be the two functions, to initially store the information on the public blockchain and to retrieve the information in the future.
I’m sure you can imagine many other uses for a global virtual computer that stores its data in a distributed immutable blockchain. While Bitcoin is independent of Ethereum, bitcoin is essentially a specialized Dapp that provides decentralized value transfer as it’s primary function.
NFTs are one example of a smart contract that is similar to the notary service. Anyone can sign digital content using the NFT smart contract and receive ownership of the NFT, that NFT can then be transferred to someone else with its transfer history stored on the public blockchain. That NFT is verifiable on the public blockchain, along with it’s ownership history. The signature by the original owner or creator also provides provenance. While some of the early uses seem a little silly, this is a quickly emerging area that may eventually be tied to physical assets. Imagine real estate transactions where the deed transfer is only a matter of transferring an NFT!
DAO – decentralized autonomous organization
DAOs are a new form of organization that allows like minded people to work together. They are like businesses that are collectively owned and managed by its members. The members of the group propose ideas and they are voted on by all the members. Everything is open and the rules of spending for the organization are built into its code. Sometimes membership is based on owning the organizations NFT, only approved members are allowed to own NFTs which come with organizational rights.
Web 3 ties all these technologies together. Your Private/Public keys, web or mobile front-ends, smart contracts and the backing blockchain. As you can imagine, there are a lot of possibilities. There are many companies in the space doing new and innovative things. Some rethinking old services and some building entirely new products. What would you build now that you know a little about this field?
Crypto started as a backlash against centralized finance. Technologists saw that there was a way that didn’t centralize all the power to a small group of elite bankers. It has it’s roots in open source software, which was a backlash to the closed software development of the past. Ethereum and the EVM is the next step, a backlash against the big internet companies with their closed systems where a majority of the control is in their hands. In a global decentralized computer, one company can’t decide what is allowed and what isn’t. No doubt this has it’s issues also and will need to be figured out over time. In the long run though, I vote for freedom and decentralization.
A lot of people ask, why does it have value? The value comes from it being a decentralized network of computers that store an immutable record of data. This does several things.
- It provides security, if one node is hacked, it doesn’t effect the other nodes (because the nodes have to agree on the on the blocks, there is no way to hack it from one node. It is very unlikely that anyone can take over enough nodes to provide an invalid consensus).
- It provides reliability, if one node fails or a group of nodes fails, it continues to run uninterrupted.
- It provides scalability, it’s run on many nodes around the globe.
- It is decentralized, meaning no node or group of nodes has significant influence.
- It provides accessibility, you can connect to the network by connecting to close by pools of nodes.
To build a network of this scale requires the buy in of many nodes, this only happens if the node operators see value in running a node.
This was a whirlwind tour with a lot of details being glossed over. I hope you find it valuable in your exploration of crypto. I didn’t touch on any of the many other crypto currencies, which offer features that might be useful to your application (more privacy of transactions for instance). The web 3 movement is happening with our without you. I think you should be part of it. It will give power back to individuals in a way we’re only just beginning to imagine.
Acronyms and Crypto Slang
airdrop – a way for projects to distribute coins to holders of certain coins
altcoin – any coin other than bitcoin
aml – anti money laundering
ape – invest in something without doing you’re own research
ath – all-time high
bags – what you’re holding (your investments)
btd/btfd – buy the f***ing dip, buy when the market is red
bpd – bitcoin pizza day, big pay day
capitulate – sell
cbdc – central bank digital currency
cex – centralized exchange (e.g. coinbase)
dao – decentralized autonomous organization
defi – decentralized finance
degen – degenerate as in a degenerate gambler
diamond hands – not going to sell
dex – decentralized exchange (e.g. 1inch)
dyor – do your own research
erc-20 – any coin built on ethereum is an erc-20 token
fomo – fear of missing out
fud – fear, uncertainty, and doubt
hodl – a misspelling of “hold” or “hold on for dear life”
hold – don’t sell
kyc – know your customer
lp – liquidity provider
moon – when coins drastically rise in price
nft – non-fungible token
ngmi – not gonna make it
nyknyc – not your keys, not your coins
paper hands – someone who sells easily
poh – proof of history, to measure time before consensus used by solana
pos – proof of stake, a consensus mechanism used by ethereum 2.0
pow – proof of work, a consensus mechanism used by bitcoin
pump and dump – artificially inflate the price of an asset and sell high
rekt – when you lose a bunch of money
rug pull – get scammed
satoshi – the pseudonymous founder of bitcoin and 0.00000001 BTC
shill – to peddle a coin
shitcoin – a useless coin or a coin with poor fundamentals
tor – the onion router, a browser used to access the “dark web”
tps – transactions per second
wagmi – we’re all gonna make it
whale – an investor with a large amount of crypto
when lambo – when will you have enough money to buy a lambo
xbt – an alternative abbreviation for bitcoin (btc)
Here are some links to projects that I’ve found interesting, either on the crypto currencies themselves or web 3 projects:
https://metamask.io (browser based wallet)