A simple user guide to web3, Part One
The decentralized web (aka web3) is an exciting nascent space that everyone should explore. This is Part One of a three part, no bullsh*t user guide to web3. You may be interested Part Two and Part Three.
I wanted to build this guide for friends to learn about the web3. A simple reference to take you as far into your web3 journey as you want.
Getting into crypto — or any part of web3 — is challenging. The terminology and acronyms can sound like a foreign language. Most concepts are confusing. Apps are designed with high technical or economic barriers to entry. It’s also dominated by males and is susceptible to toxic behavior (like everywhere online). All these factors are enough to remain skeptical and check out of the space entirely. However, the more time I spend in web3 — talking, participating, learning about new experiments and applications — the more I am convinced these are blemishes. Growing pains of a new internet frontier in its infancy stages. With enough diversity of thought and innovation, these will quickly become things of the past.
We are at beginning of an online shift that has been building momentum for a decade. I believe the collective money and brain power pooling into this space can make a profound impact on society for generations. web3 technology is still in its nascent stages and there are signs of promising use cases everywhere you look. Plus, it’s hard to bet against something this fun. The people, energy and technology are all together incredible, weird, and a little risqué. Being online, like in the dot-com boom of the 90s, feels like a playground again.
This guide aims to make web3 feel inviting and easy to understand. I hope you’ll read this and leave curious to do more.
Quick Start
What is web3? “web3” is the name given to services built on peer-to-peer (P2P) technology, namely blockchains. The internet was founded on shared technology (see HTTP), however what makes web3’s tech distinct is the value captured between investors, creators, and consumers. Projects grow and because they are built using open-sourced and decentralized technology, value gained is captured and split transparently to those involved.
If you only have a few minutes to spare, here’s some quick advice to get you started with web3:
- Security should be your #1 priority. We spend most of our time connected to the internet these days. Taking every reasonable step to ensure your privacy, personal information, and finances are protected is a really smart move. Download a mobile authenticator app, which allows you to do multi-factor authentication. Store your passwords and seed phrases offline. Don’t spend more than you’re willing to lose.
- Coinbase is the easiest onramp to “crypto”. 9-year-old Coinbase is the safest place to buy and store cryptocurrency. Logging into the website or app for the first time is a friendly experience — you’ll find click-through tutorials to teach you about different tokens and coins available to you. Most of these even give you free cryptocurrency to begin trading with! It’s perfect for beginners for two reasons: 1) they make it easy to get your first crypto and 2) they support 140 tokens, so you’re not immediately overwhelmed by the 10,000+ in circulation today.
- Explore dapps (decentralized apps) and have fun! Blockchains are the foundational layer of web3 that has unlocked thousands of applications to be built onto them. Visiting DappRadar is a great way to see what dapps are trending in the categories you’re most interested in. The website is especially helpful for learning about each dapp before clicking through to them — I love their simple descriptions and screenshots. Once you find your cup of tea, dive right in.
- You need a digital wallet to participate in web3 beyond trading crypto. web3 gives you complete ownership of your identity. You control how every bit of your information is collected and used online. This is done through ownership of a blockchain address. You can get one by signing up for a digital wallet. Metamask is the most popular and it’s easy to add as an extension to your Chrome browser. This will be your gateway to the Ethereum blockchain, which will allow you to interact with most of the popular dapps. Sign up and you’ll be given your own Ethereum wallet address to send and receive Ether (the cryptocurrency of Ethereum).
Explain it to me like I’m five… web3
Imagine that you have five golden stars to give. You could give them to whoever you wanted — your mom or your friends — anyone who makes you happy. It doesn’t even have to be a person! You could give a star to your favorite food or favorite place to play. You can keep stars for yourself.
Let’s say you give a star to your favorite action figure. Right away, you meet every other kid who also gave a star to that same action figure. Together, you and your new group of friends help decide what happens next: Should the action figure fly? Should it have stretchy arms? Should it talk? It’s not up to your parents or the toy store, only kids who gave away a golden star.
What if you learned every time that action figure got a golden star, the toymaker also got one? The more stars their toy gets, the more toys they can make for all your friends. And now, because you decided what you’d like your action figure to do next, it’s perfect for you. You give it a golden star and show it to your friends. They love it too and all give it a golden star! Shortly after, the toy store learns about you helping them get new stars and as a gift, they give you a golden star.
Tie in some economics, sprinkle in an online database or two, and you have a rough visual for an application of web3 in 2021.
This space is nebulous and vast, which mean the Five Star Flywheel is an analogy that barely scratches the surface. Your interpretation of web3 technology, systems, and relevancy to you will be totally your own. Your playground, your rules.
Understanding web3
Level 1: Basics
In this section, explore the core concepts of web3.
What is a blockchain? Think of a blockchain as a super computer that stores data for every transaction on a public ledger. Each blockchain uses a unique algorithm to verify transactions and establish trust without the need for third-parties. Transactions that occur on this technology are recorded as “blocks”, which are verified and “chained” together with every other transaction that has occurred on the blockchain. Software developers can build applications that also store data on these ‘super computers’ and leverage their protocols (for example, trustworthy financial payment rails). Today, there are hundreds of blockchains.
What is Bitcoin? The groundbreaking technology was the first-ever blockchain created in 2009. Miners solve computationally intensive puzzles using the Bitcoin blockchain to create Bitcoin (Bitcoin’s cryptocurrency is called “Bitcoin”). Many web3 enthusiasts believe Bitcoin is a concrete store of value (like owning gold) and the blockchain provides a safe gateway for large transactions. On the downside: the price is volatile at times, the blockchain is slow for transactions, and it lacks flexibility for added layers of innovation. Every blockchain invented since is influenced by Bitcoin and builds upon its ethos of decentralization and verifiable trust.
What is Ethereum? The most popular blockchain for builders is Ethereum. It is in essence, programmable money. It was invented to be a highly composable system (flexible and reusable components), allowing developers to create all sorts of decentralized apps. In many ways, Ethereum and its cryptocurrency Ether are the lifeblood of the web3 movement — as it’s momentum builds, so does the new internet.
What is cryptocurrency (crypto)? A cryptocurrency is a secure type of virtual currency that is extremely hard to counterfeit. Typically, a cryptocurrency is created as a reward for participants in a network. Server hosts, contributors, and investors are rewarded and once that token or coin is made available on an exchange, the market determines its value. Blockchains are an essential component for most cryptos.
What are stablecoins? Price volatility is a huge challenge for crypto. Most of them fluctuate wildly on a day to day base. Enter, stablecoins. Stablecoins are cryptocurrencies pegged to the value of a more stable asset in the traditional financial market, such as the value of the US dollar. Pioneers in web3 are experimenting by extending this model to peg value against sports teams, the stock market, and more.
What are smart contracts? Smart contracts are the foundational framework for agreements made across web3. These are self-executing contracts that are written in code, with fully transparent terms and transactions between buyers and sellers. Any smart contract built on a blockchain like Ethereum can be replicated and reused by anyone else. The most popular smart contracts are built around exchanging tokens, like crypto and NFTs.
What is a “crypto winter”? As you spend more time in web3 you are bound to hear a predictions about the next crypto winter. This refers to extended periods of a cold market, where value and activity lowers, slowing innovation from some previously established peak. The last one started in 2018 and lasted for 3 years. Some in the community believe web3 is due for another winter soon. Who’s to say?
Level 2: Becoming a user
If you’re feeling comfortable with the basics, this next section will take you one step deeper. Know enough to start rolling up your sleeves, and seeing what’s being built.
What are NFTs? NFTs, which stands for non-fungible token, are unique and non-interchangeable tokens of data recorded using blockchain technology. NFTs can be associated with any type of digital file, like photos, video, and audio. Why are people paying for files you can easily download? Because the ownership can be publicly verified, these tokens are becoming valuable symbols of status and individual expression. Purchasing and owning an NFT can mean getting access to exclusive perks, joining communities, or funding a favorite creator. Three popular NFT collections include Art Blocks, Bored Ape Yacht Club, and Creature World.
What are crypto wallets? Wallets are where you keep and own your online identity, cryptocurrency and NFTs. Specifically, a wallet is an address that appears as a long series of letters and numbers, and it is totally unique to you. In the way that an IP address enables your computer to send and receive data online, your wallet address allows you to send and receive information on the blockchain. Wallets are blockchain specific, which means you’ll have a separate address for each blockchain you use. Three popular wallets in the US are Metamask, Authereum, and Phantom.
What is a cryptocurrency exchange? Exchanges are online platforms used to buy and sell cryptocurrency. You can sign up and add funds from a typical checking account or transfer crypto from another wallet. There are two types of exchanges for trading:
- Centralized exchange. The most common way of managing cryptocurrency holdings is through centralized exchanges — a technical middleman for securing transactions across blockchains. Three popular centralized exchanges are Coinbase, FTX, and Kraken.
- Decentralized exchange (DEX). These exchanges are often community driven, open-sourced initiatives that allow buyers and sellers to trade crypto directly, without the need for a centralized intermediary. Three popular DEXs are Uniswap, Sushiswap, and 1inch.
What is a web3 marketplace? This refers to any platform where you buy and sell digital goods. NFTs are the most common types of web3 marketplaces that exist today. Creators come to these platforms to sell tokens through sites that feel reminiscent of e-commerce platforms. Marketplaces will continue to mature with the market and innovation is just getting started. Three popular marketplaces are OpenSea, NBA TopShot, and Foundation.
What is multi-factor authentication (2FA)? Gone are the days where you can only use a password for your most sensitive information. Multi-factor authentication is an added layer of security that you will need (and want) for many dapps in web3. This means downloading an authenticator app to your mobile device and capturing an onscreen QR code you’ll see during registration. Once connected, your phone will display a perpetually changing 6-digit code that will be required for access.
What is a seed phrase? Let’s say you forget your password and lose your phone for a crypto wallet you own. The only way to recover its contents is by using your seed phrase. This is typically a randomly assigned series of 10+ words. However you decide to store it, make sure it is offline and in a memorable spot. Most wallets and exchanges will provide these to you during registration.
What is gas? Transactions that occurs on or using blockchain typically comes with a fee called “gas.” This is because there is a cost to validating and confirming transactions. Ethereum has infamously high gas fees (ranges from $50–100) while alternative blockchains like Solana do not (averages $0.00025).
Level 3: Explore new worlds
Most of the projects you encounter in web3 today feel familiar. Visit a website, and instead of logging in with your email and password, you connect to your digital wallet for access. This is simply the result of new technology being applied to old designs. This progression makes sense, but that’s not what makes web3 exciting to me. That comes from the new thought and social experiments gaining momentum. They could very well change how we organize, interact, and earn in the future.
What are DAOs? DAOs are internet communities that share money and a vision for the future. DAOs (decentralized autonomous organizations) are made of individuals rallied by flat hierarchies and group coordination, instead of a single leader, like a CEO. These communities are funded by members and value is typically pooled towards a mission-defining goal. Every decision made is governed by vote and trusted because of transparent protocols and technology — Token based voting systems, shared treasuries, and governance protocols. DAOs are best understood through self exploration. Find a mission you’re passionate about and lend what time and money you’re willing. Three popular projects are Flamingo DAO (art collectors), Olympus DAO (finance), and Yield Guild Games (gamers).
What is a metaverse? The Metaverse is a network of 3D virtual world that is always on, always connected, and always updating. It can be experienced by an infinite number of users, each with their own unique set of data that persists across worlds. The emerging concept — which is still theoretical — was first introduced via Science Fiction books, but has since been championed by anyone building a virtual world. Facebook’s recent rebrand to Meta showcased their intention to bring about a metaverse through virtual reality (VR). In web3, countless projects cite building their own metaverses in future plans.
Truthfully, nobody knows how a metaverse will look. VR is one possible medium. Products built using blockchain technology is another. Only time will tell what wins out. For the foreseeable future, there will be multiple versions of “The Metaverse.” Early entrants are showing promise as social and economic experiments, but experiences are still sub-par. We’re decades away from a full vision of the metaverse, and it shows. They are nonetheless interesting to learn about and experience. Three popular web3 metaverse projects are Nike x RTFKT CloneX, The Sandbox, and Decentraland.
What’s the real world impact of web3? Virtual worlds and digital infrastructure sound impressive, but it’s valid to question their relevancy in the grand scheme of things. How does blockchain technology go from cool concept to making real world impact? How is it relevant to you? We’ll explore those answers in Part Two.
Read Part Two.
