Web 3.0 is a token economy

Web 3.0 is a token economy
Photo by André François McKenzie / Unsplash

As I begin yet another journey of blogging (this time a serious one), I've been reflecting on how Web 3.0 will change our world for the better by increasing decentralization, moving the power of computing and data from corporations to the people who own it & dare I say it, making the world a better place through the token economy.

History

I was too young to realize the existence, and recognize the significance of the first form of the internet. Web 1.0's early life coincides with mine, roughly from 1991 to 2004. While I didn't fully get access to the internet until my immigration to Canada in 2006, I was aware of this thing called The Net while growing up in India during the late 90s and early 2000s. It looked something like this image from where I was sitting in a small apartment in suburban Mumbai. Except it wasn't as dusty.

Photo by dogherine / Unsplash

The internet back then was just Hotmail, Yahoo mail, chain mail and chat applications like Yahoo & MSN messenger. Remember Yahoo? They still exist. I guess there were a couple of search engines too.

Archie is a tool for indexing FTP archives, allowing users to more easily identify specific files. It is considered the first Internet search engine.

My experiences were fairly limited, but it seems Web 1.0 consisted of static pages, clunky interfaces specifically designed for computer people and not the general public at large. For the most part, people were consumers of the internet as opposed to producers of it, apart from a few privileged groups.

Where Web 2.0 fell short

The next few years saw the advent of file sharing (remember LimeWire?), social media, streaming and the first wave of the Creator Economy where the average user was creating content on the internet.

Centralization of data, and network effects helped a handful of corporations such as Google, Facebook, Apple, Microsoft and Amazon grow tremendously. To the point where space travel, an activity of nations, is now being done by a handful of bored billionaires.

Monopolies around this creation of products, mechanisms and systems that collect your data is another massive reason why people distrust the current form of the web which is largely still in its 2.0 form.

By far the worst of it all though is the ad revenue driven business model, which naturally results in a user engagement at all costs approach to product development. I was guilty of this too. I started a couple of video gaming YouTube channels about a decade ago despite not having a deep interest in the process of Youtubing at the time just for the sake of making some ad dollars.

Chamath Palihapitiya, a former executive at Facebook said the following in his criticism of social media networks.

“The short-term, dopamine-driven feedback loops that we have created are destroying how society works. No civil discourse, no cooperation, misinformation, mistruth.”

It seems Web 2.0 exacerbated humanity's core problems. Lack of trust is rampant.

Power of Decentralization and the Token Economy

With leaking data swaying elections (through targeted ad campaigns), misinformation around public health issues during the COVID-19 pandemic, and the general lack of trust that comes with the advertising and user engagement at all costs model of the internet's current affairs, it's safe to say decentralization was a long time coming.

In fact, the term Decentralization "entered written English in the first third of the 1800s" according to Wikipedia.

In the context of the internet, Decentralization refers to moving control and power of informational and commercial systems away from central entities like governments and corporations, to people. People in the sense of computing entities, like personal phones and computers which may be sitting around doing nothing when not being used.

Imagine hailing a cab from Lyft or Uber these days, where the ride pricing for that specific day, month, year, city and neighbourhood is decided by a machine learning model. This ML model and code is run on a centralized (albeit distributed) computing entity owned and operated by a corporation when in reality most of the work is done by the driver who's driving you, and their vehicle which is incurring some wear and tear.

In exchange for their services, the driver gets a fee but the centralized computing entity also gets their cut. In some cases, it's a large cut. In most cases, they're exploitative central entities.

Uber and Lyft drivers strike over pay, gig-work conditions

Enter Ethereum

Ethereum is a decentralized, open-source blockchain with smart contract functionality. Ether is the native cryptocurrency of the platform. Amongst cryptocurrencies, Ether is second only to Bitcoin in market capitalization.

That's a lot of words, we'll unpack these slowly in separate posts. I like to think of ETH and most cryptocurrency tokens as CroissantEth on Twitter:

Imagine the same ride sharing transaction where you hail a ride from your decentralized application, that's hosted on a bunch of blockchain servers run by ordinary people like you and me lending their computing power on chain. Here's what happens:

  1. You open crypto ride sharing app
  2. You hail the cab or Limo or a Toyota Prius (Climate Change is real yo!)
  3. Ride share driver arrives to your pickup location
  4. Ride share driver drops you to your destination
  5. A small amount of Ethereum automatically goes to the application** based on the parameters of the smart contract, in this case perhaps the distance travelled and how long you used the ride share application for
  6. A slightly larger amount of Ethereum goes to the ride share driver, no middle man central entity exploits anyone

**really the ordinary people's wallets, for serving you with computing power for steps 1 and 2, through whatever spare computing means they might have. Whether it's a spare desktop laptop computer, cell phone, tablet, TV, Roomba or smart fridge.

via GIPHY

We'll dive deep into the how of blockchains later but the key insight here is that this all happens automagically based on code that runs on accepted parameters that are set by the smart contract.

And the problem of trust is solved by consensus protocols of that blockchain which removes the need for any third party trust system and entirely relies on the nodes (aka people, aka their computers) that run the code on a distributed ledger that calculates and tracks these transactions on the chain. Cryptocurrency mining happens in a similar way, specifically using the Proof of Work consensus protocol.

Visualize it like this.

Now imagine if every transaction runs this way. Everything from public transit, to how you buy groceries, to real estate deals, to supply chain logistics, to mergers and acquisitions, to the purchase and exchange of digital art like Non Fungible Tokens (NFTs) or any investment vehicle.

A block chain replaces any third party trust entity and decentralizes it.

Web 3.0 is here. Thank you for reading this adventure!

farezv.com is for informational and educational purposes. It's not investment or financial advice. Please do your own research before investing in any companies, securities or digital assets discussed here.