Understanding the Evolution from Web1, Web2 to Web3
Web1 was the early stage of the internet, characterized by static, read-only web pages. It was a one-way street where users could only consume information. Web2 introduced interactivity, enabling users to generate content and interact with websites, giving rise to social media, e-commerce, and other dynamic web applications. Web3 is the next phase, focusing on decentralization, user ownership, and trustless systems. It leverages blockchain technology to create a more secure, private, and user-controlled internet.
Core Principles and Goals of Web3
Web3 aims to decentralize the web, eliminating intermediaries and giving power back to users. Key principles include:
Decentralization: No central authority controls the network.
User Ownership: Users own their data and digital assets.
Interoperability: Different systems and platforms can seamlessly work together.
Definition and Working Principles of Blockchain
A blockchain is a decentralized, distributed ledger that records transactions across many computers. This ensures that the record cannot be altered retroactively without altering all subsequent blocks and the consensus of the network. Each block contains a list of transactions, a timestamp, and a reference to the previous block, forming a chain.
Consensus Mechanisms (PoW, PoS, DPoS, etc.)
Proof of Work (PoW): Miners solve complex mathematical problems to validate transactions and create new blocks. It’s secure but energy-intensive (e.g., Bitcoin).
Proof of Stake (PoS): Validators are chosen based on the number of coins they hold and are willing to "stake" as collateral. It’s more energy-efficient (e.g., Ethereum 2.0).
Delegated Proof of Stake (DPoS): Coin holders vote for a small number of delegates who validate transactions and maintain the blockchain. It aims to be more democratic and scalable (e.g., TRON).
Overview of Major Cryptocurrencies Like Bitcoin and Ethereum
Bitcoin: The first cryptocurrency, designed as a digital alternative to traditional currency. It uses PoW for transaction validation.
Ethereum: A decentralized platform that enables smart contracts and decentralized applications (dApps). It introduced the Ethereum Virtual Machine (EVM), a powerful virtual machine that executes smart contracts.
How to Acquire and Store Cryptocurrencies
Acquisition: Cryptocurrencies can be bought on exchanges (e.g., Coinbase, Binance), earned through mining or staking, or received as payments.
Storage: Cryptocurrencies are stored in digital wallets. Hot wallets are connected to the internet (e.g., mobile wallets, web wallets), while cold wallets are offline and more secure (e.g., hardware wallets, paper wallets).
The EVM is the runtime environment for smart contracts in Ethereum. It is a decentralized, Turing-complete virtual machine that processes transactions and runs code exactly as programmed. The EVM allows developers to create and deploy complex, programmable money and various dApps on the Ethereum blockchain.
Definition of Smart Contracts
Smart contracts are programs stored on the blockchain that execute predefined actions based on "if this then that" logic. Once created, their code cannot be changed, ensuring they follow the rules exactly. This concept, coined by Nick Szabo in 1994, enables secure, automatic transactions without intermediaries.
Benefits and Use Cases
A smart contract works like a digital vending machine: you input a specific amount of money, and you get a product. Similarly, smart contracts automatically execute actions when specific conditions are met. This eliminates the need for trusted intermediaries and ensures predictable outcomes. Applications include:
DeFi protocols: Swap, bridge, borrow and lend, staking, liquidity pool.
NFTs: The creation, transfer, and ownership verification of NFTs.
Legal agreements: Automating contract execution.
Basic Concepts of DeFi
DeFi is a financial ecosystem built on blockchain technology that operates without traditional intermediaries. It includes various financial services such as lending, borrowing, and trading.
Decentralized Exchanges (DEXs)
DEXs allow users to trade cryptocurrencies directly with each other without intermediaries. Examples include Uniswap and aggregator 1inch. They use smart contracts to facilitate transactions and liquidity pools to provide trading liquidity.
Lending and Borrowing Platforms
Platforms like Aave and Compound allow users to lend their cryptocurrencies to others or borrow against their crypto assets. Lenders earn interest, while borrowers pay interest on their loans.
Decentralized Stablecoins
Stablecoins are a type of cryptocurrency designed to maintain a stable value. Unlike other cryptocurrencies, which can be highly volatile, stablecoins aim to provide a reliable store of value by being pegged to traditional assets like fiat currencies or using algorithms to control supply.
Fiat-Collateralized Stablecoins: Backed by traditional currencies like USD (e.g., USDT, USDC), these stablecoins maintain a 1:1 peg with the fiat currency held in reserve.
Crypto-Collateralized Stablecoins: Backed by other cryptocurrencies (e.g., DAI), these are often over-collateralized to account for price volatility.
Algorithmic Stablecoins: Use algorithms to adjust supply based on market demand, maintaining price stability without direct backing by assets (e.g., AMPL).
What are Decentralized Applications (dApps)?
Decentralized Applications, or dApps, are applications that run on a blockchain or a decentralized network. Unlike traditional apps that operate on centralized servers, dApps leverage smart contracts to function without a central authority, providing enhanced security, transparency, and resilience.
How dApps Work
dApps use smart contracts to execute their operations. These contracts are self-executing codes stored on the blockchain, which automatically enforce the rules and conditions written within them. Once deployed, smart contracts cannot be altered, ensuring that dApps run as programmed without interference.
Benefits of dApps
Transparency: All transactions and processes are recorded on the blockchain, making them visible to all users and ensuring trust.
Security: Decentralization reduces the risk of single points of failure, making dApps more resistant to hacks and downtime.
Censorship Resistance: Without a central authority, dApps cannot be easily censored or controlled by any single entity.
Basic Concepts of NFTs
NFTs are unique digital assets representing ownership of a specific item or piece of content. They are indivisible and stored on the blockchain, ensuring verifiable ownership and provenance.
Applications of NFTs
Art: Digital artists sell their work as NFTs.
Gaming: In-game items and characters can be owned and traded as NFTs.
Virtual Real Estate: Ownership of virtual land in digital worlds.
Self-custody means having full control over your digital assets without relying on third-party custodians. You manage your private keys and are solely responsible for securing your assets.
Understanding Self-Custody
Self-custody means you have full control over your own assets without relying on a third party. Think of it like keeping your cash under your mattress instead of in a bank. You manage everything yourself, including security.
Why Self-Custody Matters
By choosing self-custody, you ensure that only you have access to your funds. This reduces the risk of third-party breaches or mismanagement.
How to Practice Self-Custody
To practice self-custody, you'll need a secure way to store your private keys. Hardware wallets are a popular choice for this.
A wallet is a digital tool that allows users to store, send, and receive cryptocurrencies. It can be software-based (hot wallet) or hardware-based (cold wallet).
A wallet is like a digital safe for your crypto. Your private key is the secret code to unlock this safe, while the mnemonic phrase is a backup key in case you lose the original. So, your wallet holds your assets, the private key gives you access, and the mnemonic phrase helps you recover everything if needed.
Types of Wallets
Smart Contract Wallets: These wallets use smart contracts to manage funds and provide additional features like multi-signature transactions.
Hot Wallets: Connected to the internet, convenient for frequent transactions.
Cold Wallets: Offline storage, more secure for long-term holdings.
How to Use a Wallet
Using a wallet involves creating an account, securing your private keys, and making transactions. Always back up your wallet to prevent losing access.
What is Swapping?
Swapping is exchanging one cryptocurrency for another. It’s like converting dollars to euros but with digital currencies.
How to Swap
You can swap cryptocurrencies using decentralized exchanges (DEXs) or centralized exchanges. Make sure to check the exchange rates, fees and slippage before swapping.
Slippage happens when the price you expect to pay for a trade is different from the price you actually pay. It often occurs in fast-moving markets where prices change quickly, leading to a higher or lower final price than anticipated.
What is Bridging?
Bridging connects different blockchain networks, allowing you to transfer assets between them. It's like building a bridge between two islands so people can move freely.
How to Use a Bridge
To use a bridge, select the networks you want to connect, choose the asset to transfer and follow the instructions. Be aware of the fees and the time it might take.
Decentralized Identifiers (DIDs) allow users to create and manage their digital identities independently. They are used in social networks to establish trust and authenticity without central authorities.
Technical Standard
A technical standard is a set of guidelines and specifications that ensure different technologies or services can work together smoothly. For example, email services like Gmail and Yahoo follow common standards to ensure emails can be sent and received across different platforms.
DID Standard
The DID standard, also known as self-sovereign identity, is an open framework that uses digital identifiers and verifiable credentials. It aims to protect privacy and enable secure online interactions by leveraging blockchain, distributed ledger technology, and cryptography. This ensures that identities are self-owned and independent, facilitating trusted data exchange.
Use Web3.bio to check the relationship between DID and Web3 social accounts
Understanding Web3 Social Relationships
Web3 social relationships refer to how people interact and connect within decentralized, blockchain-based platforms. Unlike traditional social networks controlled by central entities, Web3 enables direct, peer-to-peer connections with more control over personal data.
Benefits of Web3 Social Relationships
Web3 social relationships enhance privacy and ownership. Users have control over their data, can choose who to share it with, and even monetize it. This reduces reliance on centralized platforms that often exploit user information for profit.
Examples of Web3 Social Network & Platform
Farcaster: a sufficiently decentralized social network built on Ethereum. It is a public social network similar to Twitter and Reddit. Users can create profiles, post "casts" and follow others. They own their accounts and relationships with other users and are free to move between different apps.
Lens: Lens is an open social network that allows users to own their content and connections. Developers can build on the network, leveraging its audience and infrastructure. Users can seamlessly switch between social apps without losing their profiles, content, or connections.
Firefly: Firefly is a Web3 social aggregator app built by Mask Network. Imagine one app with one feed to connect with all your friends across Twitter, Lens, Farcaster, NFT communities, and the rest of Web3.