09 Aug What You Need to Know About the Web 3.0 Revolution: Bitcoin, Ethereum, and NFTs
What is Web 3.0, and how will it shape the future of finance? In the second chapter of my guest lecture “Decoupling Blockchain & Crypto” at the Berlin School of Economics and Law, I talked about “Web 3.0 & Blockchain in Finance”. In this article, I elaborated on the journey of Web 3.0 industry advancement in the past decade from Bitcoin to NFTs and the types of token designs available in the market.
The first chapter of the lecture, where I covered the fundamentals of blockchain and cryptocurrency, is discussed in my previous newsletter.
Author’s note: This article suits newcomers who have already started navigating the Web 3.0 industry.
Web 3.0 is the next generation of the internet, where users are in control of their data and transactions. In other words, it brings about a more democratic internet.
Blockchain technology is set to revolutionise the way we interact with the internet, as applications on Web 3.0 will be more user-centric as opposed to platform-centric. Users will have more control over their data and information and be able to own and manage their digital identities, as I mentioned in my previous article. The finance industry will experience more efficient and transparent solutions with blockchain technology; it records transactions permanently on an immutable ledger and, therefore, could provide trustless infrastructure for finance applications.
Bitcoin was the first web 3.0 application, utilising blockchain technology to create a peer-to-peer payment system, enabling transactions without needing a third party, such as a bank or credit card company. It was built in 2009 in response to the global financial crisis, which resulted in the collapse of Lehman Brothers and the near-failure of Bear Stearns and AIG.
The total circulating supply of Bitcoin is 21,000,000, with the last block mining in appx. 2140. The fixed supply makes Bitcoin a scarce digital asset that prevents it from inflating. Bitcoin is often seen as a store of value and an alternative to traditional fiat currencies.
As you can see in the technology life cycle diagram on the slide above, Bitcoin was the first use case that initiated the innovation phase by introducing blockchain technology into the market.
The second generation, Ethereum, is a programmable blockchain technology that enables smart contracts and decentralised applications, created by Vitalik Buterin. The invention of Ethereum’s smart contract was a game-changer as it offered new web 3.0 capabilities – online platforms that are more interactive and personalised than Web 2.0 platforms. Ethereum held a successful initial coin offering in 2014 and attracted developers to build Web 3.0 applications on the Ethereum blockchain. The ICO boom fuelled by Ethereum drove the market hype; Bitcoin price surged from $1,000 to almost $20,000 in 2017 as the successful ICO stories spread out among the tech startup community quickly. Unfortunately, many of the projects proved to be scams or had poor execution, which led to the crypto winter, where the cryptocurrency market crashed in the subsequent year.
Despite that, Ethereum 2.0 is still in work towards improved sharding scalability solutions and staking features. In the long term, these features would make web 3.0 applications on Ethereum more user-friendly with reduced fees (or free). In the finance industry, this means the abundance of mobile apps for banking, investments and payments, which are decentralised, trustless and secure – everything web 2.0 cannot serve. At the time of writing, Ethereum 2.0 release is expected to happen in August 2022.
With the advent of web 3.0, a new era of blockchain technology has come. While Bitcoin and Ethereum enabled trustless, peer-to-peer transactions, it was slow and expensive if you wanted to build a business on top of its network. The 3rd generation of blockchain protocols like Near (NEAR) and Solana (SOL) introduced fast and affordable infrastructure solutions to the world, accelerating the path for everyone to access the world of crypto, whether through NFTs or DeFi, or the Metaverse.
The rise of NFTs (non-fungible tokens) provides a new way for people to utilise digital assets connecting the dots between the crypto and art community. Who would have imagined a piece of graphic file like Bored Ape Yacht Club NFT worth more than $1 million?
Metaverse powers up another story. One of the use cases created by Sandbox is a virtual twin of the natural world where people can trade digital real estate in the centre of New York City.
In my opinion, the current state of Web 3.0 development is right in front of The Chasm moment, which will then move forward to the mass adoption stage next.
As Web 3.0 technology advances, there are variants of token designs available in the market. I’ve summarised the token types into five different categories.
Tokenisation is one of the most exciting aspects of Web 3.0 as a new paradigm shift in the world economy. Different types of tokens exist on the web 3.0 infrastructure. The two most common are payment tokens and utility tokens. Payment tokens, such as Bitcoin and Litecoin, are designed to serve as a medium of exchange. They store value and can be used to purchase goods and services. Utility tokens like Ethereum and Solana give users access to blockchain-based applications. These can be used to buy or sell goods and services or to perform other functions on the blockchain where the fee is incurred (e.g. Ethereum Gas). There are also hybrid token design strategies, which combine the features of both payment and utility tokens.
And there are security tokens and non-fungible tokens (NFTs). Security tokens represent traditional assets like stocks and shares converted into digital form. They derive their value from an underlying asset and are regulated by securities laws. On the other hand, NFTs are unique digital assets with no standard value. The most popular use case for NFTs is in games and art projects, where they can represent in-game items like weapons or a piece (or a fraction) of the art itself. Furthermore, there are many other potential uses for NFTs, such as proving ownership rights or identity verification.
Stablecoins are designed to provide stability in the cryptocurrency market. Stablecoins are pegged to a federal reserve asset, such as the US dollar or Euro. There are various stablecoin designs today, such as stablecoins backed by collaterals (e.g. MakerDao (DAI)) and algorithmic stablecoins. Its most significant contribution to the token economy is that stablecoins provide a choice for the token holders whether or not to keep it in a stable value. Some countries where their reserve currency value fluctuates could also benefit significantly from stablecoins.
Token types are essential to web 3.0, as they provide a way to monetise and incentivise participation in decentralised applications (dApps). In the future, we will likely see many more token types emerge, each with its unique function and purpose.
This new era of the internet presents several advantages for the financial sector.
1. It enables near-instantaneous transactions at a fraction of the cost of traditional methods.
2. It gives users greater control over their personal data and finances.
3. It provides a more secure and resilient infrastructure for conducting financial transactions.
With Web 3.0 and blockchain technology still in their early stages, as we could see in the technology life cycle, there is a lot of potential for growth in this space. We are just beginning to scratch the surface of what is possible with these new technologies. And as more people gain control over their own data and finances, we will see a shift toward a more decentralised and participatory economy.
In the following article covering chapter 3, I will elaborate on the world’s and Europe’s market outlook, together with some use cases in Web 3.0.
You can see the presentation here if you are interested in reading the entire session.
This article is also posted on LinkedIn shechain.co newsletter.
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