There are currently over 16’000 DApps deployed on different blockchains, with the number of daily users (unique active wallets) hitting 2.37 million in 2022, which is a 50% increase vs 2021 (source: DappRadar).
Web3 is young and ambitious, but to form an opinion about it, one first needs to define the main crypto notions: what is a native cryptocurrency? How is it different from tokens? Where does the value come from? What is a DApp? Let's find out:
Native coins vs tokens: looking for value
Basics first: blockchain is a shared distributed database run by independent nodes.
To incentivize the nodes, a blockchain issues a native coin – the first type of cryptocurrency.
Many blockchains enable users to issue their own cryptocurrencies (more broadly – cryptoassets), known as tokens, which can be either fungible, or non-fungible (NFT).
For example, Ethereum blockchain uses its native coin $ETH to motivate the nodes. The stablecoin issuer Circle – a company –creates tokens on Ethereum, to which it assigns a desired value (in this case $1).
The same with NFTs: a university can issue a diploma as an NFT, which will certify the student’s accomplishments.
Unlike native coins, whose value is tied to the value of their blockchains, tokens are mere conductors and their value depends on their issuer.
As it happens, both Circle that issues stablecoins, and the Korean Hoseo University that issues NFT diplomas are reputable institutions, but this is not always the case, and countless scammers flood the crypto market with their own worthless tokens.
What is web3?
Many traditional services use cryptoassets in one way or another, just like Circle or Hoseo University. However, a growing sector reimagines its business model and products by putting the blockchain at their core. This sector is called web3.
Why “web3”? The name follows the logic of the evolution of the internet:
Web1 (Google, MSN) allowed users to read (consume content),
Web2 (Facebook, Airbnb) allowed users to read and write (create content),
Web3 allowed users to read, write and own (control their assets and participate in value distribution).
The term web3 was coined in 2014 by Gavin Wood, Ethereum co-founder, who described it as a “decentralized online system based on blockchain”. Several years later, crypto investor Packy McCormick called it “the internet owned by the builders and users, orchestrated with tokens.”
it is often difficult to draw the line between web2 using crypto and web3. What degree of decentralization does a web3 service need? How should the governance be organized? How should the profits be split?..
These precisions will come with time, but for now the size of the web3 sector can be tracked with the number of DApps – decentralized applications, or programs that are built and executed on-chain. The rules by which a DApp operates are transparent (as is blockchain) and usually cannot be changed unilaterally (an agreement must be reached within the DAO, a decentralized autonomous organisation that manages it).
Here are some uses cases to get a better idea:
Web2 stablecoin: Circle, a centralized company that issues stablecoins ($USDC) and pledges to keep necessary reserves to guarantee their 1:1 redemption for dollar; profits go to shareholders,
Web3 stablecoin: MakerDAO, a DAO that issues stablecoins ($DAI) and manages the on-chain mechanism that guarantees an approximate 1:1 redemption for a dollar equivalent of ether; profits go to MakerDAO token holders.
Web2 social media: Twitter launching a special avatar shape for verified NFTs,
Web3 social media: Lens protocol allowing users to own their data and connections and to carry them across social platforms.
Web2 gaming: Ubisoft releasing additional gear for its Tom Clancy game as NFTs,
Web3 gaming: Axie Infinity, a game where all characters are conceived as upgradeable and tradeable NFTs; a community governance system underway.
The state of web3
Web3 is still in its infancy, and a number of problems are very real: insufficient decentralization, technological troubles, poor user experience, security issues… Many critics add exuberant VC money spending and excessive airdrops (sending DApp tokens for free to the first users to jump start the demand).
Still, web3 is well on its way, with DeFi leading in the number of DApps (48%) and gaming – in the DApp activity (49%). The fastest growing category are social media DApps (+105% DApps vs last year).
Written by D.Center
