This article will give a "vertical" introduction to web3 from an ideological point of view, and explain the three basic principles of Web3.
——Salute to Socrates' Law!
foreword
There are already so many articles explaining Web3, so why am I writing this one? Because as a programmer and as a philosopher, Web3 is very attractive to me. It is fundamentally an ideological revolution enabled by technological evolution.
The most critical technological foundation of Web 3 is blockchain. The blockchain is to Web 3 just like the steam engine is to the industrial revolution. This underlying technological innovation drives the birth of new mechanisms. Fundamentally, a blockchain is a publicly visible, append-only data structure. It is unique in that it combines three different fields: cryptography, distributed systems, and game theory [1].
Each of these three areas contributes a foundational principle to the ideological evolution of Web 3. Cryptography achieves trustlessness, distributed systems achieve permanence, and game theory achieves spontaneity. In this article, I'll use these three ideologies as threads to connect the myriad of Web 3 projects and relate Web 3's technological innovations to their philosophical implications.
1. Cryptography: Distrust
A long time ago, the word "crypto" was just an abbreviation for "cryptography" rather than "cryptocurrency". In a sense of the pun, cryptography was and will be the key technology underpinning cryptocurrencies. Public key encryption (or asymmetric encryption) allows users to send data anonymously without revealing the data.
Data encryption plays a vital role in building a decentralized or centralized financial system. This is because no one wants snoopers to be able to view and steal your funds. Imagine how infuriating and scary it would be to find out that your bank did nothing to protect personal financial information and that everyone could see your every financial transaction.
Data encryption is even more important when using a decentralized financial system such as Bitcoin. Because, it does not have a centralized entity that can go to court. If your funds are hacked in a transaction, they are gone. What luck! This is why the bitcoin protocol is so secure about public key encrypted transactions.
In order for a transaction to be considered a valid transaction, a user must provide a "digital signature". This is a cryptographic hash, created with the user's private key and verified with the user's public key [2]. In addition, the "wallet address" from which the user transfers funds is itself a hash of the user's public key. This provides an additional layer of proof of authenticity that the user signing the transaction is the owner of the wallet. Moreover, even the public key will not be leaked to the outside world before the user trades. [3] These tiny design strategies in the Bitcoin protocol demonstrate how blockchains operate on a trustless basis: trust the process, not the person. After all, mathematics is reliable and people are not.
Trustlessness can be used as an important discriminator to determine which projects are ideologically Web 2 and which are true Web 3 projects. Let’s illustrate with two stablecoin projects: Tether’s USDT and MakerDAO’s DAI. The core strategy of both is to peg cryptocurrencies 1:1 to the US dollar, but they do it in completely different ways.
Tether's model is very simple and easy to understand. Whenever I give Tether 1 USD, Tether will give me 1 USDT, promising that I can exchange 1 USDT back to 1 USD at any time. The thing is, I need to trust that Tether won't just leave me with worthless USDT and run off with my USD rolls[4]. So Tether is ideologically a Web 2 project because it relies on my trust. I have to trust Tether to keep my original USD safe and not run away suddenly[5].
MakerDAO's DAI, on the other hand, is ideologically a Web 3 project. It is arguably one of the most successful decentralized projects.
DAI is maintained through the MakerDAO over-collateralized lending protocol. To borrow 1000 DAI from MakerDAO, I need to lock up more than $1500 worth of ETH as collateral [6]. In the case of the DAI stablecoin, the "overcollateralized loans" used to mint these DAI become the solid backing of the currency.
When the price of DAI drops below $1, people buy DAI at a discount on exchanges to pay back their principal, reducing the supply of DAI and driving up the price. On the other hand, if the price of DAI exceeds $1, people stake more ETH to mint more DAI. Rising DAI supply and ETH collateral will lead DAI back to $1 [7]
Instead of trusting a single centralized entity such as Tether, people can simply go through the decentralized MakerDAO smart contract and check that it is functioning as expected. If you want, you can even copy the contract code into your own runtime environment and run a series of tests to make sure it works properly. This model will provide maximum transparency to the community and is a typical example of Web 3 ideology [8].
More importantly, decentralization is a means, and trustlessness is the end. Decentralization by itself does not constitute "first principles". Because decentralization doesn't make sense when there are economies of scale benefits. Let's use the "garbage truck" example to explain. Imagine each of us having to drive to the dump every week to throw out our rubbish instead of having centralized garbage trucks collect the trash and transport it to the dump. This would cause unnecessarily great inconvenience. Therefore, decentralization is not a panacea that can solve all problems.
Instead, decentralization only makes sense if the advantages of trustlessness, permanence, and spontaneity outweigh the foregone benefits of economies of scale. Now, let's get back to the "trustlessness" aspect. In the "garbage truck" example, the parties involved did not actually have any conflicts of interest. People don't want to know what's in your trash, and it won't contain your most secret or most precious things. Therefore, the risk of trusting a centralized entity (such as a community garbage truck) is very low, and the benefits of economies of scale from centralization far outweigh the costs.
But in the case of banking data and financial transactions, the opposite is true. Putting money in a bank or in your own safe doesn't really pay off that much in terms of economies of scale. At the same time, many people are coveting your money. Thus, a decentralized financial system can ensure that the benefits of a trustless network far outweigh its costs. This is why Bitcoin as a blockchain project makes sense.
2. Distributed systems: permanent
In essence, scale brings huge economic dividends but also brings huge security risks. Single points of failure are very fragile and are not conducive to data permanence. Just like how animals multiply to increase the chances of their DNA surviving in uncertain environments, people make data more resistant to bugs, hacks, and system failures by replicating it to multiple locations and nodes. Decentralization achieves permanence by storing the same data on different machines than on a single machine.
But coordinating data across distributed systems is a difficult problem [9]. How do you deal with data corruption and bad behavior in a distributed network? The core concept adopted by modern blockchain is "Byzantine Fault Tolerance", which indicates that as long as bad behavior accounts for no more than 1/3 of the total nodes of the network, the blockchain should continue to operate [10].
When a node on the network proposes to append a block to the blockchain, it needs to collect signatures from at least 2/3 of the node's validators to be considered valid. This signature gathering process is called "consensus". Although each blockchain achieves "consensus" in different ways (such as: Bitcoin's PoW, ETH's PoS, Solana's PoH), they all belong to "Byzantine Fault Tolerance". Most importantly, as the number of nodes increases, a "Byzantine Fault Tolerant" blockchain will have a decentralized scale effect, making it more difficult for hackers to control enough nodes to attack the blockchain at the consensus level.
Through the above, we have identified how to achieve "permanence" through a distributed system in the blockchain. Now we need to ask: what information should be stored on the blockchain to achieve its permanence?
Let's revisit the garbage truck example. You obviously don't care if your junk disappears (in fact you would very much like it to disappear). At the same time, you obviously don't want your money to suddenly disappear one day. Therefore, financial transactions (like the Bitcoin ledger) are clearly an area where permanence is important. But that's not all. Whether it is religion, legend, sculpture, or monument, humans have always had an innate drive to craft a kind of eternity out of our impermanent lives[11]. Digital memorabilia such as personal websites, photo albums, and gaming achievements all represent this longing for permanence amidst ever-changing lives. These things are even more precious to people than money.
Currently, we mostly store this information on hard drives or cloud backups, but these are fundamentally unreliable. What if the hard drive is lost? What if Google or Dropbox gets hacked? What if they steal your data? These Web 2 solutions fundamentally rely on trust. These companies can review and delete your data at any time. But Web 3 solutions that support distributed consensus are quite different. This is the promise of "permaweb": it can preserve your most valuable digital assets according to your own wishes, without fear of censorship [12].
One of the most famous projects on Permaweb is Arweave, which promises permanent distributed storage for a small upfront fee. While Arweave's design is heavily blockchain-inspired, it's technically very different from blockchain.
Essentially, a blockchain is a one-dimensional linked list where one block only points to the next block. Arweave, on the other hand, uses a "blockweave" structure, where each "block" can point to multiple blocks, forming a two-dimensional graph, similar to the "filesystem tree" on your computer [13]. This design can improve the efficiency of accessing content. In the consensus mechanism, Arweave also adopts the method of "proof of random storage" to ensure that each node can randomly access the data stored on blockweave.
Predictably, Arweave and other decentralized permaweb protocols such as IPFS have a natural affinity for non-fungible tokens (NFTs) [14]. If the permaweb assets on Arweave and IPFS are compared to a house, then NFT is the title deed of the house. Anyone who visits it or passes by the street can see the "house" itself. But only the landlord owns the title deed to the house. And when a homeowner sells the house to another homeowner, she doesn't do anything with the house itself: she just hands it over to the buyer. Owning a "title deed" NFT makes asset ownership and ownership transfer more operational in practical applications and ensures its security in data encryption.
Therefore, NFTs are not just "cryptocurrency decorations", they have practical use as title deeds to digital assets. However, title deeds are only equivalent to the property to which they refer. So let's focus on some NFTs other than Boring Ape.
3. Game Theory: Spontaneity
The third fundamental principle of Web 3 is spontaneity underpinned by game theory. People don't become network nodes out of altruism or kindness. They are for money. This game theory-induced spontaneity manifests itself in various ways, most notably in the “proof-of-stake” consensus model that underlies many top blockchains, including Ethereum, Polygon, and Binance Smart Chain (BSC) [15] .
As shown, you stake a certain amount of tokens (eg 32 ETH on Ethereum) onto the network to become a validator and participate in consensus. If you are a loyal participant, you will receive a staking reward of about 10% APY. However, if you have bad behavior, your pledged tokens (32 ETH) will be slashed and all rewards will be lost. Therefore, based on game theory, you have sufficient motivation to become a more active and loyal network node.
Another strong example used to demonstrate game theory-spontaneity is decentralized exchanges (DEX), such as Uniswap, Curve. They use smart contracts as an exchange station for cryptocurrencies.
Where does the money for these decentralized exchanges (DEX) come from? They come from volunteers, known as Liquidity Providers (LPs). LP provides the cryptocurrency it owns to the exchange for trading. In return, LPs waive part of the transaction fees in order to effectively earn interest from pool coins [16].
Crucially, unlike the Googles and Facebooks of Web 2 where algorithms were imposed on users, no one is forcing you to stake on Ethereum or become a Uniswap LP. People use it on a purely voluntary basis, because everyone knows that you have the opportunity to make a lot of money from it. Ideologically, the Web 3 community is completely spontaneous. All community action is fundamentally driven by game theory.
This idea of game theory-driven spontaneity exists not only in decentralized finance (DeFi) projects, but throughout the Web 3 community, most notably in the form of decentralized autonomous organizations (DAOs). These organizations bring together a group of people with similar goals (such as ConstitutionDAO’s purchase of the U.S. Constitution)[17] and allow people to use governance tokens to vote democratically on proposals, or issue tokens to track members and discuss how community resources should be used. Make collective decisions.
Unfortunately, truly decentralized DAOs with a genuine Web 3 ideology are currently rare. Many projects can claim to be DAOs simply by having governance tokens. But since the company that runs the project tends to hold the majority of tokens, even with voting, the project is effectively centralized. So even though they have a decentralized skin, these “pseudo-DAOs” with governance tokens are still Web 2 in their underlying ideology.
Therefore, Game Theory-Spontaneity provides us with another foundational principle to differentiate Web 2 and Web 3 projects on an ideological level. The former is characterized by having a single, centralized entity that decides how users will interact with it, while the latter allows users to vote democratically on the collective decisions of the community.
in conclusion
Web 3 is still in its infancy and has a long way to go. Nonetheless, we are already starting to see its revolutionary vision of the future, with an ideology based on trustlessness, permanence, and spontaneity.
Of course, Web 3 still needs to face many structural problems. For example, how does a project go forward when the company behind it and its community hold diametrically opposed opinions? Should companies suppress communities or stop delegating power? Also, how can blockchain be used to connect offline to offline? And a more interesting question: Are financial penalties (such as slashing) enough to deter bad behavior? Do we need to resort to violent means to punish users? I'm sure that in the future, more Web 3 projects will give a more satisfying answer.
But there is a pressing and lingering question: what should Web 3 be about Web 2? How will the centralized and decentralized internet relate to each other? Web 3 projects on an ideological level are spontaneous. It relies on spontaneous participants, motivated by game theory, to participate in the active maintenance of a decentralized community. If no one is willing to vote, participate, and commit, the DAO will dissolve or turn into a de facto centralized entity. After all, democracy doesn't work if no one votes. But everyone has a finite amount of time, energy, and effort, and not everyone cares about community. So a lot of times, people might actually prefer that someone else make the decision for them because it doesn't take their brains off. For example, many algorithms of Web 2 essentially let artificial intelligence make choices for users.
So I envision a world where Web 2 and Web 3 coexist.
In areas that we really care about, maybe it's communities, art collections, or online gaming, people can actively participate and monetize in Web 3 DAOs or communities. But in other areas, we can use Web 2 solutions and artificial intelligence systems to make decisions for users. Most importantly, Web 3 gives us a choice, a viable alternative. Instead of letting a totalitarian AI control every aspect of everyday life, people can choose their own destiny in areas that really matter. Remember, in Web 3, we don't need to rely on anyone's trust. People can be confident that what they do will not be deleted, and define their own priorities.
The wind of freedom will blow.