Blockchain & Web3 explained - Chapter 1

Introduction:

The purpose here is to give you an introduction about blockchain, cryptocurrencies and other aspects of what we call Web3. I will try to go as simple as possible:

• transform the technical aspects in fun and interesting ideas.

• go through imaginary or real-life examples

• talk about the existing tools and how to use them.

I do believe the technologies I am going to share about with you are and will have deep impacts on our society, on the way we live, think, and do business.

First of all let’s see why we call it Web3:

Web3 gathers all the technologies and concepts that evolve around decentralization. But to have a Web3 we need to have a Web1 and a Web2 so let’s talk about that first:

1. Web1 (or Web): refers to the beginning of the Internet (over the period from 1989 to 2004) where most sites consisted of static pages and users were only consumers (not producers of content). The first web browser was created in 1990. The idea was back then to target the access of information to everyone.

2. Web2 is based around the idea of the “web as platform” and pushed its users to be actors (content creators) on its platforms. It starts around 2004 with the creation of blogs and social networks (Facebook, Instagram, Youtube and many others). It enabled many people to create their own jobs as content creators (Youtubers, influenceurs, streamers, and many others). The target here is to be actor of information.

3. Last but not least, what is Web3 ? Web 1 & 2 granted us access and actions on the information, but we had to give up something in return: our data. We shared so much of our data through social networks, websites and even the contents we create is most of the time owned by the platform we use (we saw many people in Youtube lost their accounts and then the property of their contents for instance). We lost property/ownership of the information we give/our digital identity. The target of Web3 is to get back ownership.

And here are a few examples that we may develop more later:

• Cryptocurrencies (and first of all Bitcoin) targets to give back property over our money: managing our money without counterparties and intermediaries (banks mainly). Being able to use its money even if its bank has financial difficulties, is closed, controlled by an authoritarian state or is not available in your area/does not allow you to be one of its customers (According to the World Bank, about 1.7 billion adults remain unbanked globally, as a personal example in Hong Kong, I discussed with my helper and she told me that it is difficult to have access to banks here as a foreign domestic helper).

• Non Fungible Tokens (NFTs) are digital tokens (assets) that are unique (fungible tokens like Bitcoin can be exchanged one for one and are then fungible). They give you an immutable certificate that enable you to prove your ownership over many things: your art (digital or not), your event tickets, your diplomas/contracts/or other important documents (especially with the Soulbound token have the special feature of not being transferable/sellable) and even of the items you own while playing videogames (Gamefy may enable you to own your digital identity in-game and use it in other games, like in the movie Ready Player One).

• Decentralized ID (identity) targets to control the information you share both online and in real life: imagine a QR Code that you show before entering a nightclub and would share only the information that you are old enough to enter (through coding functions like If(datadif(birthdate, now)>18,OK, NOK) ) ⇒ so the bouncer would not know all the information on your ID (name, age, birth date, potential address) and same for what we share online (we register data on so many websites, data that could be used by hackers or other people up to no good). South Korea may become soon the first country to implement a decentralized ID card.

• Tokenization is the process of breaking down a large piece of data into smaller pieces called tokens. It can apply on real asset or virtual ones. By dividing assets into pieces, it enables people to access more easily some investments that were before reserved to companies or the wealthiest. You can for instance invest in only 1% of a building, a share, a startup and gain 1% of the rent associated to it. This technology also makes it possible to cut a lot of intermediaries and then of the costs associated to some operations, being then currently very much appreciated by banks and other financial institutions.

This is a course about blockchain and we did not even define it yet!

So, let’s take the time to define the three following concepts: Blockchain, Centralization and Decentralization; and for that let’s go through a fictional example.

Let’s imagine a small village, with 15 people. They want to implement a monetary system inside their village to go from a barter economy (where they exchange goods they produce) to a monetary one. They want to use money in order to buy and sell between each other's. They chose first to develop a centralized monetary system. Then, one of the villagers was chosen to create and handle the money for everyone else (Let’s call it the banker). Each villager received initially 15 coins stocked at the banker’s house. The banker has a notebook/a ledger where he registers each transaction for everyone. The villagers like this system because the banker can be trusted, and it is simpler for them: they don’t have to manage or store the coins themselves. But there are some limitations as well:

• What if the banker can’t be trusted and falsify transactions/steal the villagers money?

• What if he gets ill or die? (Equivalent of a bank going bankrupt or having financial difficulties)

• What if he makes a mistake while registering the transactions?

• What if he is no longer able to supply coins from its external sources (other villages)?

So yes, in this system, there is a huge dependency on the banker, the money providing, and storage is handled by one actor (in reality it can be several actors). It is a centralized system where all the villagers have to trust one stakeholder.

Let’s see what a decentralized system in this scenario could be. The villagers still want to implement a monetary system but do not trust each other enough to give the banker responsibility to one of the villagers. So, they came to a new idea: they are all going to play the role of the banker: each one will receive 15 coins and a notebook. For each transaction, villager A pays villager B for instance, they are all going to write it inside their notebook. At the end of the day, they will all show their notebook with the list of the transactions of the day and will agree to validate the page of the day. Once validated, they can have a view of how much money each villager has. In the situation of one or more of the villagers try to cheat and write down fake transactions, they will be identified by the others and will not be trusted anymore. Each one has the responsibility of the transactions (production, distribution and exchange of value), it is a decentralized system.

Each page of the ledger validated will be called a block. Upon the validation process, they will create a code containing the details of the transaction, the date/time of the validation and part of the code of the previous page/block ⇒ so the pages are linked/chained with each other. It is important because it makes the notebook/blockchain immutable. If we want (dishonestly or not) make modification on one of the pages, we will have to validate again each page/block (because the code used in the validation process will be different).

Let’s sum up and define what is a blockchain then: it is a notebook (through a computer program) where we write down everything (it can be monetary transactions or not, we could just write contracts or documents on it), where everyone can see what we wrote and in which we can’t modify any page (without agreeing to modifying everything).

But actually, all blockchains are not decentralized. Some are private/permissioned (opposed to public/permissionless). It means that a group of people or an organization control who can join, view and take part on the validation system of the network (for instance, a company implementing an internal blockchain to save its supply transactions but does not want people outside of the organisation to access it). On the opposite, with a public blockchain, everyone can access, view and participate in the network (validate transactions etc).

We often think blockchain was invented in 2008 by Satoshi Nakamoto, the creator of Bitcoin, but it is actually not true, the concept had been discussed since the 90s ; Bitcoin made it famous despite not using the word “blockchain”; It will be the project Ethereum that will use the word for the first time in 2015.