What Internet Can Teach Us About The Fundamental Forces of Web3? Amazing Description!

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The fundamental forces of web3, the early internet started as a network governed by standardized and open protocols. Protocols will be mentioned many times in this piece, so it’s worth clearly defining what they are. A protocol is a defined way of transferring data between computers to complete a particular task.

  • When a protocol is ‘standardized’ it means that it is the widely accepted, de facto way of accomplishing that task, like sending an email
  • When a protocol is open’ it means anyone can use the protocol to accomplish the task, like how we don’t need special permission to connect to the internet
  • The opposite of an open protocol is a proprietary one, where the rights to use the protocol are owned by private interests and companies

The early web, which we call Web1, was dominated by open, standardized protocols, like HTTP for connecting websites or SMTP for sending emails. These protocols still form the backbone of the internet but are no longer the whole internet.

Midway through the internet’s history (the early 2000s), there was a pragmatic and philosophical battle between those who saw the future of the web as open and companies who built proprietary solutions. In the end, proprietary development won, mostly due to two major challenges in building the open web:

The State Issue:

Web1 never developed open protocols capable of storing data about users and their online activity. Without capturing this data, known as the internet’s ‘state’, early web applications couldn’t rely on Web1 protocols for a wide array of tasks (i.e. payments, search, etc.)

The Challenges Of Open Fundamental Forces of Web3: 

The Challenges Of Open Fundamental Forces of Web3: 

The process of developing and ratifying new fundamental open protocols was incredibly arduous. Collaboration and alignment were required across huge stakeholder groups, slowing down the rate of progress on new internet standards

In contrast, companies easily overcame the state problem by storing data on centralized databases and could iterate on products without needing to move the entire industry with them. This advantage defined the current generation of the internet as being decisively led by companies and their proprietary internet solutions. We call this paradigm Web2.

Over time, Web2 companies grew to effectively become The internet. Nowadays, web3 majority of our online experience is routed through a handful of mega-platforms that own distribution. While consumers have certainly benefited from great products and better online experiences, there are also critical problems with Web2’s composition:

  1. Distribution Dependence: We rely on major platforms to provide the internet experience, and thus web3 is exposed to profit motives and other rent-seeking behavior
  2. Locked Value Chains: Winner-take-all network effects have centralized resources, enabling deep moats that prevent fair competition on most of the internet’s value chain
  3. Digital Islands: Web2 operates as though built on siloed, digital islands. Data and users can’t be transferred across platforms

Web3’s Essential Ingredients

The Necessary Ingredients For WEB3

Now that we’ve defined Web1 and Web2, what about the fabled Web3? How might we describe it?

Luckily, we don’t need to theorize about what Web3 might look like — the movement to create a new generation of the internet has already started and is relatively well-defined.

The current model for Web3 is a return to Web1’s vision for an open internet. It’s a digital experience where users and data can move more freely, enabled by open protocols that operate over a shared state.

As you might have guessed, the bolded words are important.

But even this description is filled with many promises. Open protocols for everything? Applications and users all share the same data? Didn’t we just outline crucial flaws that prevented these properties from existing on the open web?

You’re right. But much has changed over the past decade. New tools and platforms have rejuvenated our ability to collaborate over the internet. Breakthrough technologies like blockchain offer a solution to the open web’s technical shortcomings. In short, we can explain the rise of an open Web3 by answering the following two questions:

  • Have we solved the open state problem?
  • Is the process for open development now competitive with proprietary development?

We’ll answer both these questions, and along the way gain highly useful context for how Web3’s building blocks fit into the picture: blockchain, tokens, and a radical new approach to software development.

Shared vs. Fragmented State

Fragmented vs Shared State

The state problem we’ve defined here is specifically the challenge of managing network data using open protocols. 

When computers successfully work together to manage this data, they have a shared network state — a dataset that everyone on the network has access to.

In contrast, Web2 has what we might call a fragmented state. There is no one snapshot of the network as a whole. Instead, Web2’s view of the internet is partitioned across different company databases.

Let’s imagine that today we want to create a new standard protocol for managing states across Web2. Our greatest challenge would be that everyone who owns a slice of the internet needs to be convinced to adopt our protocol. 

But the companies that own the greatest pieces of the internet are the least incentivized to do so. They are better off holding onto their data advantage, and building solutions on top of their private databases (problem #3, digital islands).

A great example here is Gravatar. Gravatar is an open API that website owners can use to establish user identity. The value here is that a user only has to make one Gravatar profile to have a compatible account on many websites.

A Workaround for Open State

So just for fun, let’s picture the opposite: a massive database containing a network’s state, with every application on top having read/write access. To escape generalities, this particular database will be used to manage payments by keeping track of user funds.

To make this work, we’ll define an open protocol for debiting and crediting user accounts. No matter which application is used, whenever a user transfers funds, the transaction needs to be reflected in the shared state. Right off the bat, we can see that managing data in this way has a number of interesting implications.

  1. Any application that uses this database will have to honor the payment protocol. Otherwise, they risk separating users from their funds by inappropriately managing the state. In other words, an open state motivates adherence to open protocols
  1. Open protocols exist in the world as open-source code. This means anyone can make a better protocol for managing money simply by copying or ‘forking’ the code and adding useful new features. If successful, a better payment network could easily rise up overnight, meaning networks themselves become more agile
  1. Now that all apps obey the same rules
  2. To manage money, it’s much easier for users to move around between any app using the database. So we also see that an open state reduces switching costs for users.

A Digital Collectivism Tool

 Tool for Digital Collectivism

Since discovering that tokens are the key to an open state, we’ve been developing exciting new ways to encode networks with incentives. 

Each new mechanism, like Ethereum’s Proof of Stake, adds to our toolkit for building new open networks. That’s why today we have networks that can do far more than manage payments. It’s also why there’s no understanding of Web3 without understanding tokens. 

On a base level, tokens establish incentives for network participants to choose collective interest over individual interest. And it goes deeper than preventing bad behavior. It’s actually about encouraging stakeholders to engage in the best possible behavior for the network.

At this point in time, the best example of this is OlympusDAO’s OHM token. OlympusDAO has popularized the idea that if all token-holders act in the collective interest, it will enable peak financial return across the community of token-holders.

The table below is OHM’s Payoff Matrix — which is a visual tool used to express the game-theoretic results of players’ choices in a game. Notationally, the choices of player 1 and player 2 are represented by (#, #), where ‘#’ is the amount of benefit a player’s choices award the system.

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