Web 3, Crypto and NFTs

Web3 or web 3.0 is referring to the third iteration of the internet.  A brief overview of what Web 1 and Web 2 are, is required to fully expound the definition, though there isn’t one unified definition from what I understand.  I suppose to get into the subject first we need to explore what the evolution of the internet was and what it means.


One, Two, Three, Internets

Web 1.0 which is classified as the time period from roughly 1991 to 2004 the web was a mostly static experience, where most users were not interacting or producing content, but rather were just observing content.  I can think of a few exceptions, like (MUDs) Multi-User Dungeons, text based role playing games, where users could interact.  This era, however, is overwhelmingly classified as the “read only” era.

Web 2.0 is primarily what we use today in our everyday interactions online.  This is the read write era of the internet.  With web 2.0 we are able to easily create our own content.  By content I don’t just mean publishing books, articles or videos.  Using Facebook for example you are producing content even if it’s just likes of pages, whether you created them or not you created the like.  It also allows for easy and safe online shopping, the downside of which is that the large shopping organizations control our data.  This centralizes control of data by just a few large organizations.

Web 3.0 is the read/write/own as in own your own content or own other content through (NFT) Non-Fungible Tokens. It exemplifies the idea of decentralized data, which includes financial transactions.  The breadth at which these ideas can be implemented is massive on scale.  Some argue that literally all your data could be stored this way, your passport, your mortgage, car loans, stocks, bonds and pretty much anything else you can think of that is a form of data.  The good thing about this is that it takes your data from the big corporations and governments; right?

What is a Cryptocurrency?

Essentially it’s a communal ledger, with a cryptographic hash function. A transaction is validated by a public key, a secret key, and a unique signature with a protocol to accept or reject transactions. Each key is a certain number of bits, normally 256, giving you a unique key that is 2^256. The ledger is the currency or cryptocurrency that is decentralized and not tied to a singular centralized currency.  The task or proof of work comes from the block reward, awarded in a finite amount of time, when a user of the ledger finds a unique key.  As more of the finite leger of cryptocurrency becomes available, the tasks become more computationally difficult and the rewards per block are smaller.  In some ways, it is community based encryption, where nobody has the decryption algorithm so the transaction needs to be discovered by guessing and it is then checked and verified by everyone in the chain, whoever shows the most work is the trusted authority of the ledger.

The entirety of this function only allows for a certain number of transactions to happen per block, like with bitcoin it is around 2400 transactions per block, when compared with modern transactional purchasing like visa, which does almost that amount of transactions per second, it leaves bitcoin unable to compete.  This leads to a high cost of transaction fees, tips to miners and validators in hopes that your transactions will get put through first, which adds to the lack of liquidity in the crypto market.

Blockchain, Crypto And NFTs

In Line Goes Up – The Problem With NFTs, On the youtube channel, Folding Ideas, Dan Olsen draws a comparison of the 2008 mortgage crisis to the modern crypto phenomenon.  He argues some of the same people and banks, involved in subprime mortgage scandals are some of the biggest promoters of Crypto.  Later going on to explain that it is a fools scam and that crypto currencies have a lack of liquidity.  The last person out is the fool holding the loot that isn’t worth anything, much like a ponzi scheme or other financial scams.

NFTs are a unique token that can’t be broken apart, a box of a “packet of code” with a unique serial number, consisting of a  microprogram called a “smart contract”  and backed by a crypto currency.  The smart contract can be anything from a link to a static image, to a sophisticated applet that executes commands. Olsen explains that NFTs lend undue credibility and tangibility to the crypto currencies on top of them and that there is no underlying cryptography that links the image of an NFT to the code.  This would make it easily changeable by anyone who has access to the server it is stored on.

Lobbying, Dan Olson details some of the vast amount of fraud that comes from front end crypto scams, ponzi schemes, pump and dumps, insider trading, gold brick or asset disguising, inflating an asset by selling it to yourself or a co-conspirator often multiple times, phishing scams, and link swapping.  With no punishments for misbehavior in crypto trading, there is no need for the man in the middle attacks they claim to be trying to prevent.  Being decentralized there is no authority you can go to and get your stolen items back.

You aren’t really anonymous to anyone that can navigate the waters of blockchain transactions.  It is of course harder when people are using it nefariously, by inflating the value of items by selling it to themselves across multiple accounts for hundreds of thousands of dollars.  We have already seen a number of wallet investigations exposing these things. Coffeezilla’s investigation into Faze clan, and the save the kids coin comes to mind.  Analyzing block chain wallets and transactions he was able to trace the wallets back to specific people.

The overarching theme of the video essay’s claim is that the goal of the “Infinite Machine”, making reference to the book of the same title by Camilla Russo and meaning web 3, cryptocurrency, NFT and anything on the blockchain is to financialize everything.  Everything you do is a transaction and a transaction is always financial. The ultimate form of getting nickeled and dimed, but some of the time or maybe even most of the time in cryptoland the nickels are thousands and the dimes are tens or hundreds of thousands of real dollars.  Dan Olson also argues that the system “disproportionately favors the dishonest”.

Crypto Thrives on a Deflationary Economy

The purchasing power of a currency goes up, acquiring the currency becomes more difficult, meaning it favors those who already have a large portion of the currency.  Those working and selling goods get very little for their efforts and the barrier of entry is untenable for those in that situation.   Hyper-deflation is built into the system and desirable to the creators and cheerleaders, but makes it an imperative for those at the bottom of the economy to lose.

“DAOs or “decentralized autonomous organizations” are basically smart contracts with a mission.” Tante

There is allegedly no hierarchy like a traditional organization, but humans are taken out of the equation and use the ideology that “code is law”.  One intentional consequence of this is that there is not currently a way to hold a DAO accountable as they don’t have a leader persay, but are voted on by shareholders with the most shares or sometimes with any shares.  This leaves trademarks and copyrights on the table, because if something goes up on the block chain, it cannot be easily taken down as it is a distributive network that is seemingly unassailable. This also makes it so other nuisance and even disgusting things could be very hard to track and regulate or take down without large scale investigations.  It would eliminate censorship, all of it, even the censorship most of us agree that we want to keep in place.

Enough of the Rabbit Hole

We started with the evolution of the internet and moved on to the overarching themes of web 3, Cryptocurrency, NFTs and DAOS, discussing mostly the harsh bits of web 3.  In our discussion we talked about what decentralization of data can do and what makes it dangerous in some ways.
Ultimately it seems it is here to stay, but it also seems to need more regulation, thus ending its ultimate goal of decentralization, if it even is really decentralization.  In many ways it just seems like re-centralization and a re-working of similar already existing systems where power seems to concentrate and you end up with collective groups of haves and have nots.  If they can’t find a way to regulate themselves in a way that is conducive to society then we might have to find a way to do it for them.

Thanks for taking the time to come on this journey with me.

Chris C.


Tech Yeahs Community

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