The World of Web3: The Basics

Web3 is an internet owned by users and builders orchestrated with tokens.

The History of The Internet

The internet is a hundred percent the most important invention of the century. Web3 is fundamentally re-thinking how money and power going to flow on the internet, and the new technology and incentives with Web3 will change this dramatically.

If you think of Web1 as read-only, largely read-only, and open. Then we have Web2 read-write, but it’s become more centralised with it being owned by large companies. Aside from maybe a domain name, you are not in control of your own destiny. You have very few rights. Your reputation is not transferable. If you are on a platform like Twitter, you can be de-platformed.

Tokens and How They Transform The Internet

A fundamental of Web3 is smart contracts, which are code that will continue to run in a certain way. There are also tokens and tokens can be fungible or non-fungible.

Tokens are important as they now provide a mechanism by which value and control can be given to users and builders, as opposed to simply to centralised companies.

The technology is available where you can now build something that looks and feels like Facebook or Twitter using open protocols and using this new kind of philosophy where the value and control accrue to the users of the network, not to a company, because there is no company. This means you’re going to see more and more products launched, where initially there’ll be some kind of R&D organisation that helps create these protocols, but over time they go away in the same way that there is no Bitcoin company, Ethereum has a nonprofit foundation that supports R&D, but there is no Ethereum company.

Tokens are better because, if you imagine all the drivers on the Uber network owned Uber and accrued the value and got to participate more in the value creation and also in the control and governance of that system, that would create a model that is clearly a better thing for society.

Another reason why this is a winning product, is that no money is ever spent on marketing. Because tokens are self-marketing. When somebody owns something and feels skin in the game, they want to go talk about it. They want to evangelise it.

More Benefits of Web 3

Ultimately digital private keys enable digital private property. So we finally have private property on the internet and we don’t need people like Spotify or even the studios and the labels to determine who owns what private property and hold it with their database entries and their lawyers.

We can create digital scarcity which can then be mapped to real-world scarcity because the real world is not completely abundant in everything. The real world does have scarce economic resources. So we can have digital scarcity and digital private property to match this.

In the current, normal model, we’re used to thinking of a computer program as an application run by a third-party where they control the code, they own the data and they own the platform and the economic benefits and then we get scraps. We put a tweet, we put a podcast, maybe we get a few pennies from Spotify. Maybe we get a few hearts on Twitter and a few retweets, but it’s not a lot. The owners of Spotify are getting far richer than the creators and the podcasters on Spotify and the musicians on Spotify.

And so we built this infrastructure around this. The internet now is powered by banner ads and search ads. And that has been great for a few companies. It’s generally been really bad for creative people. The Web2 companies convinced you to give away your creations in exchange for little hearts. Instagram pay out zero. Facebook, zero. Twitter, zero.

But the internet is not bad for creative people. Web2 is bad for creative people. Spotify advertises that it has eight million artists, 14,000 of them make $50,000 a year. The rest make less than that. Those are businesses, you have costs. Basically, it’s very hard to live below that. So 14,000 kind of make a living out of eight million. The logic of the model is at fault.

The beauty of Web3 is, for the first time, all the data is actually open. The data is living in the blockchain or in distributed systems, but it’s secured. It’s secured far better than these corporations can secure our data because each is secured by our own private key. So each of us has a safety deposit box now in the cloud that we can give selective access to with our private keys to people who need them when they need them and then close them off again. So, they’re not leaked in the next credit reporting hack or the next big company hack.

Developers also love this as Web3 flips applications from being closed-code, corporations own the platform and users are the data to open-code, contributors own the platform, and users own their data. So now these things become completely composable (see next section).

One of the reasons why the Web3 revolution is going to be so non-linear and so unexpected and so fast is because open code means these applications plug into each other like LEGO blocks. You go buy a LEGO for your kids. It connects to every LEGO piece that your kid already owns. It connects to all the other LEGO pieces of the kids down the block, and they can build anything they want out of it and that’s how code on Web3 works. That’s how data on Web3 works.

The Game-Changing Feature of Composability

Everything is open-source, so you only solve each problem just once. So if somebody has built a good version of how to solve a certain problem, you can just reuse that and reuse it again. Maybe you’ll fork it, maybe or improve it a little bit, maybe put it to a slightly different system, but essentially at the fundamental level, each problem only has to be solved once. So composable means that it’s like LEGOs or it’s actually digital LEGOs, where you can just copy the LEGO and then build on top of it.

It’s almost like building a civilisation or a city of interconnected apps instead of these silos in which the data’s not portable, the code isn’t portable, users aren’t portable.

Composability is to software as compounding interest is to finance. It’s sort of this magical thing where if you get it going, it has this sort of exponential hockey stick.

What Web3 is doing is it’s taking that kind of that level of rapid innovation and applying it to web services in addition to the software. Because the one thing software couldn’t do is it couldn’t run itself, it relied on a company to run it. So a lot of the tech industry today is take open source software, add a little bit of extra proprietary software on top and then instantiate it, run it. And then charge for it. It’s software as a service, and that’s great. And they provide value and they should make money from that. But the kind of key thing driving underneath is this composability of open source software. And now we’re going to extend that to this new area.

Composability even goes beyond software. It even goes into media. So for example, today, if I want to build something on top of the Star Wars platform, I’ve got to go cut a deal with Disney, but in the open source composable NFT world, artists are basically giving away the concepts. Yes, you can always right click and save an image or the code and then modify it, but you can build on top of it. So people will be building games, they’ll be building cultural artifacts, new memes, new music on top of NFTs and more value accrues to the underlying NFT because now it’s becoming more popular. And at the end of the day, the value of a piece of art or media is directly proportional to the community around it and who’s using it and who’s promoting it and who’s working with it.

So it kind of blows away this idea of copyright intellectual property. And instead, it creates the most powerful memes in the world, memes in the broad sense of music and movies and books included in memes, not just little internet memes that we are familiar with. And media itself becomes composable. And the greatest artists are going to have the greatest distribution. The power of an idea, is determined by how many computers it’s running on. The power of program is how much computation power it has beyond it. The power of an idea is how many brains is it running in. So if you have good ideas, you want to spread them as far and wide as possible.

NFT’s

NFT’s allow us to define any object as having value that we believe has value. They will become the foundational building blocks of the Web3 internet.

You can do anything with NFTs that you can do with a webpage, because they are so programmable, but on top of it, you can have scarcity and ownership and allocation and rights associated with it. This is really big.

Think about the website. When it first comes out, people are like, “Oh, it’s a website!” and they try to kind of map it to the offline world. It’s like a brochure. But then as we saw over this sort of 30-year period, all of these clever people come and they innovate it. Website? It’s not a website, it’s a social network. It’s a SAAS tool. NFTs are going to be just as broad. It’s a core, new concept, the idea of owning something on the internet.

So NFT’s are these completely programmable objects that are now suddenly scarce that you can own and that you can transfer and you can link to the real world and you can link them to the digital world through smart contracts. You can link them to the real world through social contracts.

Another way to think about it is, imagine if in the real world we couldn’t own anything. And every time you go, this is kind of a wacky analogy, but every time you go to a hotel or a restaurant, they’re like, “Oh, you’ve got to change your clothes and buy a new outfit.” This is how the internet works today. And then you leave, they’re like, “Hey, you’ve got to give that stuff back.” And then one day somebody comes along and they say, “No, you can take it with you.” Imagine the amount of innovation that would kick off. That’s kind of what’s been going on on the internet. We had this sort of renting fiefdom design and we’ve just kind of broken it open.

Another example: Imagine the next Harry Potter, the future Harry Potter is owned by the NFT holders and they get to write all sorts of interesting fiction and then they get to vote and decide what comes next. Imagine the passion people have for like Star Wars and all these other kinds of communities. And now imagine they own a piece of it and they control a piece of it.

Why There is Value in NFT’s

You need to appreciate how there is value in NFT’s. A lot of people, when they first see NFTs, their reaction is, “Well, I can just right click and save that JPG. Why does this thing have value?” I can also photocopy any piece of art, right? Doesn’t mean that I have the actual art. There’s still provenance, there’s still like a linkage, there’s still authenticity to the art itself.

There is huge value when building the metaverse, a 3D virtual space. If I walk into two rooms, one room has the authentic Bored Ape Yacht Club, and it’s got the actual nice photos of the Apes or the CryptoPunks hanging on the walls. And my software tells me that. And then I walk into a different room, which has all fakes and copies. And my software immediately tells me “Now you’re in the fake one.” Where do you think the cool kids are going to hang out? Where are the rich kids going to hang out? Where are the parties going to take place? So all of a sudden having NFTs in this authentication gives spaces actual value. And so it allows you to create a metaverse, which then has a distinction between space A and space B, but that’s just the simplest level.

NFT’s are also a smart contract. It’s a thing that is usable within the game. And copy of the NFT is not if I have a special piece of loot or a special item that I’ve picked up in one game, and then the developer or the same blockchain or the same group of users went to a second game and I get to port my NFT over well, that authentic NFT is going to have some value, whereas the right, click, save JPG version is not going to have any value. And then finally, an NFT can also be a social contract between the creator of the NFT and the fans of the NFT so that it access a ticket for access to future rights and a fake one is not going to get you that, or it gives you access to future pieces by the artist first and so on and so forth.

Essentially what blockchains do is they allow open composability and programmability between all these objects on, in the digital domain. And there’s smart contracts that regulate those. And then social contracts that regulate it in the outside world. And NFT is no different. If Bitcoin can have value, if Ethereum can have value, then in theory, an NFT can have value as long as the smart contracts of the social contracts and the community enforcing it have value.

But let’s say you buy a piece of artwork that is in the form of a digital NFT. And then you need a loan, usually you might secure that loan with collateral, such as your home. People will be able to do that with collateral of high value that is secured and verified on the blockchain. You’re not going to have to go to Sotheby’s and get all the provenance, and the letters and the this, and the that, which is going to take forever. You’ll be able to instantly verify it, and then secure loans against something like a high value NFT. 

We own the NFTs. They’re simple, they’re portable, they’re programmable, they’re composable. And people are going to recombine them to create these complex systems that work. That are going to be impossible for larger companies to compete with.

NFT’s and How They Change How We Live

Today you buy a sneaker. And now maybe that sneaker was sponsored by Kanye or Jay-Z. And now there are variations in a sneaker. Well, in the future, maybe you’ll buy a unique sneaker and then you’ll get the NFT for that sneaker. And then you’ll have the unique copyright to the digital representation of that sneaker. If somebody wants to use that sneaker in a marketing campaign, if Nike comes along and says, “Hey, want to feature that sneaker?” Then maybe you get royalties.

An NFT is not really a digital object. It is a pointer, it is a channel, it is a link, a communication between you, the creator, and the community, and any kind of value can be funnelled down that. It can be access into things. It can be recognition and reputation. It can be royalties, it can be copyrights. It can be remix rights, or it could just be you are just sending them money because you want to support them.

Cultural Value in NFTS’s

Think about you go to the museum and you see a Roman statue, there’s sort of two ways you could interpret that. One is the piece of stone and that’s sort of just a JPG. The other, more sophisticated way is to see it as a community artifact. It has meaning and value, that statue as part of that community of ancient Rome. The same thing is true with NFTs, NFTs are artifacts of networks. So if you have your own community, and the NFTs you’re creating will be artifacts for that community. And they derive value to the extent that they kind of reinforce that community’s values and norms and language and memes.

You’re owning a piece of this community that has importance in the history of the internet and history of crypto. If you take it out of that, that’s when you get the “Just a JPG, right click and save” thing. These are artifacts of the community and by buying one, you are sort of buying both, you’re supporting your cause, but you’re also kind of buying into that community.

The Idea of Skeuomorphic Design - The Endless Possibilities of Crypto

An example of what Skeuomorphic Design means: if you remember the original iPhone had like a book app, and it had like wood grain bookshelves. And so it was this concept in design of taking something from the offline world, and using that design in the online world to make it look more familiar. Another example: When you go back and look at early films, and they look like plays. They put people on, and they would walk around, and they’d stage it like plays. And then over time film developed its own new style. You had a closeup, and you had an establishing shot. You go look at the old movies, they would just show Grand Central Station for 10 minutes. And then they learned over time, you could just show it for a second and the human brain would figure it out, right? And so it took them a long time to figure. And this happens with every new technology.

The early web was like brochures and magazines. Then people realised you can do web-native stuff, like having a social network, having — it can be a two-way medium. It’s code, you can do all sorts of other cool stuff. It wasn’t until the mid 2000s that people really started exploring the “native” web experience. The NFT’s and the new stuff is what will have people talking in 10 years time.

Initially you may think that we’re going to replace Uber, and Facebook, and Twitter with Web3-enabled primitives, and networks that come out of those. That is unlikely the case. We’re just going to create brand new things that we can’t yet even predict or identify. But we’re going to end up shifting our attention to those things. So Twitter and Facebook will still be fine, will continue to exist. But our attention will be on these new applications that are uniquely enabled by primitives like NFTs and tokens.

Weaknesses and Challenges With Web3

Security is a big issue. You can move all of your investments into custodians and funds. But this is only possible, because you can be your own bank. But the good news is you can be your own bank in very limited circumstances. You can take the majority of it. You can stick it with custodians, and just like there’s places you can store your physical art under guard, lock, and key. You’ll be able to put your NFTs, at least the valuable ones into NFT armories and repositories. There’s going to be a multi-signature, where multiple people have to agree to move something. There’ll be time delay where it can’t be moved for six months or a year, so we can help mitigate all that. But this isn’t around now. There is an immediate security problem that hasn’t yet been fully resolved.

Meta-verse

If you look at the Metaverse, there is property there, and some people own property, and there’s jurisdiction in that property. And it’s not just, you can enter into my room, because I can just right click and copy, and save your room. There’s authenticity around, this is my room, these are my objects in my room, and I can shuffle them around. I can control who comes in and out, and I can control what happens when someone tries to “sit on my metaverse couch.” Are they allowed to do that or not?

So all of this programmability comes from ownership. We will each be able to own our own room, our own space, our own property in the metaverse. So denying and pushing back against NFTs and cryptos is basically saying, “We’re not going to have a collectively owned future. We’re going to have a corporate-owned future, and we’re going to have a government-owned future.”

I can see why the Chinese Communist Party wants to ban crypto, because it is antithetical to the idea of users owning things. But for a capitalist society, for democratic society, for a collective society to ban crypto or create financial regulations around it makes no sense. If we’re to ban NFTs, it’s basically saying, “No, you artists are not allowed to own your own output, and deal directly with the fans. You have to be serfs working on Spotify’s farm or working on YouTube’s farm.”

Web 3 and Politics

Web3 is very aligned with the left’s views of a better distribution of wealth and reigning in some of the power of some of the big tech companies. The difference is we’re arguing to do it through innovation and competition, not through regulation. Regulation won’t be the solution, as if they cut up Facebook into three networks. It’s not going to change anything. It’s exactly the same thing. Instagram is still going to be Instagram and the economics are going to be the same and it’s going to be just as centralised. The solution is letting innovators and entrepreneurs go build a better internet. This is not a political movement. It’s a technology movement.

The big challenge is the communication around these ideas. But the good news is that crypto has truth its side. Everything is mathematically provable, including the fact that a blockchain’s a computer and the power of this new paradigm.

A Fundamental Change in Our Model

An explanation of how the model changes.

Our old model was, go back to Marx, and the Theory of Labor there, which is that capitalists own the means of production, labor has to seize the means of production. And then now what someone still has to run the factories. But then we hand them to the state. Now the state runs the factories and you get these horrible cars coming out of the Soviet Union. That didn’t work.

So the solution is allowing workers to own the means of production and the users the means of production in proportion to how much value they’re providing, essentially they should all be shareholders. And there should all be shareholders in an open system with no corporate overlord and no state overlord in proportion to the value they’re providing into the system.

And that’s really what Web3 is enabling with tokens at the core. And it would be a mistake to just think of this as securities law, investor protection and derivatives. Because now that we have internet native money, we can start creating true internet, native corporations, internet native collectives, internet, native projects, internet native platforms that are owned by the users and nipping it in the bud at this point would be a huge mistake because all we would’ve done is would’ve created the internet native money, but we would not have allowed it to have all of its use cases. We would not have allowed it to create the new internet that we need to live in.

Being in Crypto - Creating a Community

You can now say, “Okay, if you have a passionate group of believers, you can spread ownership amongst them. You can spread governance amongst them. You can build a DAO. You can issue NFTs. You can have an online gaming community. You can have a conversational community. You can have a real world community that maps to each other with NFTs. You can even have digital bake sales” It’s innovating like crazy. But for the first time we’re seeing DAOs, which are these distributed autonomous organisations, take off in Web3, and DAOs are sort of these, they’re not quite corporations, they’re not quite communities. They’re not quite networks or platforms. They’re like their own new thing that are a mixture of all of the above.

A couple of years from now, we likely going to see a lot of thriving communities on the internet that are now linked together, economically intrinsically and are doing, not just making money, but also governance, like who gets to make wish decision who gets credit for the decision who gets to join the company who gets to leave the company, gets to join the community, gets to leave.

The Revolution for Creators

Web3 is going to create a better business model for art & music. Step one will be: you take the existing artists and they get more money. Step two is: you’re going to incentivise a whole new generation to go do these cool things. With the generative art, now you have a way to make money on it. 

Now we’ve figured out a way to pay creative people properly, that’s going to lead to a huge new wave of creative activities, not just technology. And not just paying existing musicians; maybe we enter a world where there’s, instead of eight million musicians on Spotify, there’s a billion.

Maybe there’s a billion musicians, there’s a billion artists, there’s millions of generative artists. I think this is the right kind of evolution of the internet. This should be a golden period for creative people. There are eight billion people and six billion or whatever internet connected. You only need a thousand to make a living. This should be the greatest time in history for creative people.

A New World

Web3 is here to stay. The incentives are so strong. The potential is endless. A community owned, shared, open-source internet will transform everything. A collectively owned, distributed, decentralised internet sounds good to me. This is Web3.

This article has been largely constructed from thoughts from Tim Ferriss’ podcast with Naval Ravikant and Chris Dixon.