Essays on Web3 First-Principles

The author suggests that understanding the core principles of Web3—such as inclusivity, interoperability, and transparency—is crucial for newcomers who joined after the 2020 bull run. They aim to demystify Web3 by breaking it down into accessible segments to promote comprehension and confidence among learners.

The evolution from Web1 to Web2 introduced interactivity, and now Web3 is introducing concepts of digital ownership and decentralized collaboration through tokens and DAOs. Grasping the transformative impact of Web3 is crucial and requires a collective effort to determine the future of collaborative work.

The article explains blockchain technology as a secure, chronological chain of transaction records linked by cryptographic hashes and managed across a distributed network. It explores key elements of blockchain such as tokens, protocols, cryptography, economic models, consensus systems, digital wallets, and tools for analyzing blockchain data, essentially describing it as a complex record-keeping system.

The article explains Proof of Work (PoW) as a security protocol in blockchain networks like Bitcoin, where it establishes trust by deterring malicious activity through computationally intensive tasks that are costly for attackers. It also acknowledges the limitations of PoW, such as its energy-intensive nature and the high costs associated with transaction validation.

The article examines how forks, which can be either hard or soft, contribute to the evolution and diversification of Web3 by enabling new functionalities and innovations, as seen with Ethereum's smart contracts and other blockchain platforms like Solana, Avalanche, Algorand, and NEAR. It highlights the importance of data decentralization in enhancing both public and permissioned blockchains, with practical applications such as Estonia's adoption of a permissioned blockchain model.

The article highlights cryptography's crucial function in ensuring secure communication and transactions, from historical wartime applications to modern blockchain technology. It details the use of hash functions and public-key cryptography in blockchain to improve security measures, emphasizing cryptography's necessity in establishing trust in digital interactions.

The article explains that blockchain wallets are software tools designed to store and manage the keys necessary for users to interact with blockchain networks, clarifying that the wallets hold keys indicative of token ownership rather than the tokens themselves. It also stresses the importance of private key security, as the loss or compromise of these keys can result in the irreversible loss of associated tokens.

The article contrasts the centralization and associated issues of identity management in Web2 with the promise of decentralized identity in Web3, highlighting the potential for enhanced security and user control. It advocates for the development of Web3 applications that empower users with ownership of their digital identities, aiming to transform how personal data is managed online.

Part one of this series focuses on how smart contracts are central to Web3's advancement, allowing for direct transactions between parties on the internet and creating a native settlement layer. The author examines initial uses of smart contracts, such as in decentralized finance and tokenizing real-world assets.

Part two delves deeper into smart contracts, discussing their immutable nature and the strategies for updating them, while also identifying common vulnerabilities in their deployment on platforms like Ethereum. The author emphasizes the critical need for comprehensive testing and awareness of these vulnerabilities to ensure the reliability of businesses built on smart contracts.

The author reflects on the Web3 bull market, noting its rapid investment growth and speculative nature, along with a critique of the decentralized finance sector's complex tokenomics and game theory models. Despite criticisms and challenges, the author believes in the enduring significance of Web3 and its potential for mainstream acceptance if developers meet key conditions.

The article provides a foundational analysis of Web3 tokens, explaining their role in decentralized systems and drawing parallels with tangible assets such as gift cards, while highlighting their unique dependence on code and decentralized networks. It also explores the diverse applications of tokens, from digital identity to the idea of non-transferable tokens.