The concept of Web3 has recently become increasingly popular, as if glimpsing into the future (seems to also apply to current AI).
Here is a description of it by ChatGPT:
Web3 (Web 3.0) refers to the next generation of the internet, with the goal of building a decentralized and decentralized internet.
Unlike modern Web2, Web3 achieves decentralized and tamper-proof data storage through the use of blockchain technology, and provides new technological infrastructure such as smart contracts and cryptocurrencies, allowing people to have autonomous control over their own data and property.
The core concept of Web3 is to use blockchain technology to build decentralized applications, as well as support decentralized identity verification, decentralized storage, and decentralized transactions, and other functions.
Anyway, after reading a bunch of information, the concept of Web3 is still quite vague. It has changed many times without a unified definition. After all, unlike Web2, there is no authoritative organization to provide specifications. Perhaps being vague is the characteristic of Web3.
Speaking of blockchain technology, I learned a little bit about it a long time ago. The idea is indeed good, but I don't know what stage it has developed to now. However, I still maintain a neutral and somewhat pessimistic view of Web3. To avoid subjective bias, I plan to delve deeper and have a firsthand experience before making a judgment.
Development#
Let me briefly explain why it is called Web3:
- Web 1.0
Read-only, early internet portals, news websites, etc. - Web 2.0
Read-write, allows content creation, interaction, etc. Most websites today are in this stage, such as FB, INS, YouTube, etc. - Web 3.0
Read-write and ownership, we have control over our own information and created data.
Each stage can be discussed in much more detail, but for this article, I'll stop here and provide a basic understanding.
Web3 Ecosystem#
From the above, it can be seen that Web3 has a large ecosystem or economic system, and it is currently iterating and updating rapidly.
Since it involves transactions, the concept of currency is inevitably needed to maintain the value flow of the system. This is what we often hear as cryptocurrencies.
Currently, the most popular is the cryptocurrency market, and many concepts in the cryptocurrency market have been transferred from existing financial systems (such as cryptocurrency lending, insurance, clearing, financial derivatives, leveraged trading).
Blockchain and Cryptocurrencies#
I won't go into the details of the principles of blockchain here, as I have written about it before, and it should still help me understand the basic principles of operation.
We know that the biggest feature of blockchain is its distributed nature. It can and needs to operate autonomously. This raises a question: "How to incentivize everyone to actively maintain this system together?"
The answer is a set of incentive systems, which is cryptocurrencies.
Cryptocurrencies can be simply understood as tokens or medals within a blockchain system. If you help maintain the packaging and processing of information on the chain, you will be rewarded with these tokens as incentives, enabling autonomous operation.
Therefore, each blockchain corresponds to a digital currency or token. When more people use a particular blockchain, it gains more recognition, and more people will need that token, which leads to an increase in its value.
In this aspect, it is similar to stocks, making it an investment product. This has led to the development of various exchanges, coupled with people's speculative psychology and a relaxed trading system, resulting in rapid development.
DeFi#
DeFi stands for "Decentralized Finance." It is a financial model based on blockchain technology that aims to build an open and transparent financial system that does not rely on centralized financial institutions.
In the traditional financial system, financial institutions hold a lot of power and information, but DeFi breaks this monopoly through decentralization.
By using smart contract technology, DeFi allows financial transactions to be conducted without the need for trust in third-party institutions, thereby achieving a more open and transparent financial system.
Typical applications of DeFi include lending, trading, investment, insurance, etc. For example, users can obtain loans without centralized financial institutions through decentralized lending platforms, and they can also trade on decentralized exchanges. All these operations are automated by smart contracts.
This area can be further explored, but for now, I'll leave it as a topic for future discussion.
Smart Contracts#
Smart contracts were invented by computer scientist Nick Szabo. In 1994, he proposed this concept and used the term "smart contract" to describe this cryptography-based protocol. He believed that this protocol could automate the execution of contract terms and verify and enforce them in a secure and trustworthy manner.
The initial goal of smart contracts was to achieve automated execution in financial transactions, reducing contract costs and the possibility of human error. With the emergence and development of blockchain technology, smart contracts have been widely used in decentralized applications (DApps) and blockchain applications, such as cryptocurrencies, decentralized exchanges, decentralized identity verification, etc.
In blockchain, smart contracts are usually written in programming languages such as Solidity and executed by nodes in the blockchain network, without the need to trust centralized third-party institutions.
Smart contracts follow the pre-written program logic during execution and record the execution results on the blockchain in an immutable manner. This makes smart contracts highly secure and reliable, and simplifies many transactions in various fields, making them simpler, safer, and more transparent.
There is a close relationship between smart contracts and Ethereum. Ethereum is a blockchain-based platform that allows developers to build and deploy smart contracts.
The concept of this platform was proposed by Vitalik Buterin, the founder of Ethereum, who established the Ethereum Foundation in 2014. Unlike other cryptocurrencies like Bitcoin, Ethereum not only supports digital currency transactions but also provides a wider range of functionalities, such as DApps and decentralized autonomous organizations (DAOs) based on smart contracts.
Smart contracts on Ethereum are written in Solidity and executed based on the Ethereum Virtual Machine (EVM). Through smart contracts, developers can implement various functions on Ethereum, such as issuing digital currencies, voting, authentication, loans, etc. These smart contracts can be executed on the Ethereum network without the need to trust centralized third-party institutions.
The smart contracts of Ethereum provide a powerful and flexible platform for the development of decentralized applications and the application of blockchain technology and decentralized finance (DeFi), driving their development in various fields.
Both smart contracts and ETH are worth discussing in more detail, so I'll continue to explore them.
Stablecoins#
The emergence of stablecoins is a significant innovation.
One major problem with cryptocurrencies is their high volatility, which may be an advantage for speculation.
Simply put, stablecoins are pegged to the US dollar at a 1:1 ratio, similar to the Hong Kong dollar. The most mainstream stablecoins currently are USDT and USDC.
The algorithms behind stablecoins also have some differences. For example, USDC is 100% collateralized and pegged to the US dollar, theoretically making it more stable. However, recently, the collapse of a US bank has raised some concerns (different from the 2008 financial crisis, so there is no need to worry too much).
There is also Luna, a well-known algorithmic stablecoin, which faces consequences if something goes wrong...
Finally, USDT is currently the most popular stablecoin, which is a fiat-backed stablecoin. Tether, the issuing company of USDT, claims that each USDT is backed by equivalent reserves of foreign exchange, bonds, and other assets to ensure its 1:1 peg to the US dollar.
It is worth noting that the stability of USDT has been controversial and questioned, especially in the absence of transparency and audits (compared to USDC, which is more transparent). Some investors and regulatory agencies believe that Tether has not fully disclosed its reserve situation, and the market supply of USDT is too large, which may pose risks.
If you have traded stablecoins, you may have been confused by terms like networks, TRC-20, etc., during your first transaction. I'll continue to explore these topics.
NFT#
I first learned about NFT in the context of the metaverse. From the current perspective, the metaverse had a moment of popularity, but with the release of ChatGPT, AI has completely overshadowed the metaverse... Talking about the metaverse seems distant now.
NFT stands for Non-Fungible Token. It is a type of digital asset based on blockchain technology, and each NFT has a unique identity and metadata, making it non-interchangeable. NFTs can represent various digital assets such as digital artworks, music, videos, game items, etc. In simple terms, they are digital copyrights.
Unlike cryptocurrencies like Bitcoin, NFTs are not fungible and each NFT is unique. They achieve uniqueness and distinctiveness through smart contract technology and code. Additionally, NFTs can record the history and ownership information of digital assets, ensuring their authenticity and uniqueness.
I am currently not very interested in the metaverse and NFTs, so I'll briefly mention them and move on.
I have also noticed that many apps have made some progress in this area. For example, Bilibili (B 站) has launched an NFT wallet during the peak of the metaverse hype, but now it's hard to see anyone caring about it.
Drawbacks#
Blockchain is not perfect and has some issues, such as:
- Scalability limitations
Blockchain technology has performance and scalability limitations. The transaction speed and throughput of most public blockchain networks are relatively low, limiting their use in large-scale applications. - High energy consumption
The consensus mechanisms of blockchain technology usually require computationally intensive proof-of-work, which consumes a large amount of energy and is not environmentally friendly. However, Ethereum has made some improvements in this aspect, but I'll dig deeper into it later. - Privacy concerns
The decentralized nature of blockchain means that all transaction information is publicly visible, which may raise privacy and security concerns in certain scenarios. - Security risks
Although blockchain technology is considered highly secure, there are still some security vulnerabilities, such as code bugs, attack vectors, etc. Additionally, situations like forgetting passwords or writing the wrong transfer address are irreversible, and if a wallet is hacked, there may be no recourse. - Legal and regulatory risks
Personally, I think blockchain is a revolutionary technology, but currently, it seems that cryptocurrency trading is the most popular aspect. I look forward to seeing more practical projects in the future.
I also plan to bring an introduction to IPFS later.
Stay rational. Stay rational. Stay rational.