Discover the real value of Web3 from multiple angles

This article is approximately 3612 words,and reading the entire article takes about 5 minutes
How far are we from killer DApps?

Original Author: Louis Liu

Original editor: MiX

Discover the real value of Web3 from multiple angles

Regarding the commercial value of Web3, there are two extreme views: one thinks that it has no commercial value and is all hype, or it only recognizes that Bitcoin has value and is a super-sovereign cryptocurrency. Entering the Web3 stage, it has no value since Ethereum; another extreme point of view believes that Web3 is the next mainstream stage of the Internet, that is to say, Web3 will become the protagonist of the Internet sooner or later, and will replace the Web2 platform economy and become the main Internet digital economy coordinator.

The truth is usually somewhere between extreme optimism and extreme pessimism, and this is no different for Web3. My point is that Web3 already has great commercial value and is still developing rapidly. At the same time, the development of Web3 is also facing a very serious and obvious bottleneck. We dont yet see a way to replace mainstream Internet platforms with the Web3 approach. For example, platforms like WeChat, Taobao, Facebook, and Google that we use daily for basic necessities of life, how Web3 will replace them is unknown.

Discover the real value of Web3 from multiple angles

Talking about Web3 has to start with Crypto, that is, with Bitcoin. Bitcoin is the most widely known outcome of the cypherpunk movement, which aimed to protect individual privacy in the electronic age, doing so through widely accessible encryption.

In the cypherpunk movement, electronic cash can be called the crown jewel. Because the purpose of electronic cash is to remove the intermediary in the Internet age, to remove the bank intermediary, so that people can transfer value point-to-point between people. Protect personal privacy and protect individuals from scrutiny and surveillance by governments and large corporations.

Cash is an invention of liberalism. As long as two people are face to face, transactions can be completed with cash without the participation of a third party, and the mutual exposure of privacy between two people is controllable and can be minimized. But in the electronic age, the premise of face-to-face transactions no longer exists, and we can only transfer value through intermediaries.

Bitcoin provides a peer-to-peer electronic cash system or a decentralized means of payment, or currency.

Inspired by Bitcoin, Ethereum has established a state space and a Turing-complete virtual machine on the PoW network. It was also around the birth of Ethereum that Dr. Gavin Wood, CTO of Ethereum at the time, proposed the concept of Web3, so Web3 is an extension of Crypto. The inspiration Web3 got from Crypto is: since people can transfer value on the Internet without intermediaries, why cant they do other types of transactions? For example, interactions like WeChat, or transactions like Ebay or Taobao, can they also be coordinated on the Internet through a decentralized encryption protocol instead of a centralized platform. Thus Dr. Gavin Wood foresees the future of Web3.

From the beginning of Ethereum to the emergence of various application layer protocols on Ethereum, we also learned one thing from Bitcoin, which is Incentive. All encrypted networks, whether at the application layer or the infrastructure layer, are networks with network effects: as the number of participants increases, the value of the network will increase for users.

When a decentralized protocol is just beginning to appear, how can everyone come in without participants? So it is necessary to find a way to verify and quantify the contribution of protocol participants to the network effect, and give them Token rewards within the protocol. Moreover, Token must be used in the network, thereby creating a demand for Token, or Token must be able to capture the value of the network economy.

This is a bit like a circular argument: you recognize the value of Token, so you will come, and then the result of your coming is an increase in the value of the network, which increases the value of Token. Much like the process of self-fulfillment of financial expectations. In the era of Bitcoin, because everyone does not know whether this thing will be valuable, there is no way to use Bitcoin for public or private placements, so the network startup is very slow. It took nearly two years from the start of the Bitcoin network to the first transaction (a pizza). Until then, some people gradually believed that Bitcoin had economic value, and some people began to mine Bitcoin for profit rather than for fun. This constitutes a positive cycle, that is, the more people dig, the greater the computing power, and the more secure the Bitcoin network will be.

Everyone agrees that it is reliable to store assets or transfer assets with Bitcoin. Moreover, the larger its market value, the more perfect its trading system, and its liquidity is constantly improving, and the utility of Bitcoin as a value storage currency is also constantly improving. After Ethereum has a virtual machine, we can develop an encrypted network at the application layer. The first batch to really rise is DeFi, the core of which is Liquidity Mining/Liquidity Mining.

An asset transaction protocol is meaningless without Liquidity. For example, building a centralized exchange now cannot compete with Binance, because there is huge liquidity on Binance. Someone has to come in to trade, and then everyone comes in to trade and bring liquidity at the same time. So in the early years, there was transaction mining, which was a way to start liquidity. In DeFi Summer, there is Liquidity Mining/liquidity mining starting from Liquidity Mining should be called Proof of Liquidity Providing, that is, you provide liquidity, and this contribution can be proven on the chain, so you can get Token to share the future value of the network. Conversely, the Liquidity you provide benefits other users, completing the cycle just mentioned.

Crypto from Bitcoin to Ethereum is the embryo of Web3. Even if there is only DeFi now, I think Web3 is valuable. DeFi is a more open financial system parallel to the current financial system. Of course it also has two main problems.

The first problem is the supervision of DeFi that everyone feels more and more. In fact, in the past few years, regulators in major countries around the world have made their regulatory attitudes towards DeFi very clear. That is, what technology you use is not important, what matters is what business you do, and what level of supervision you should accept for what business you do. That is to say, both DEX and CEX are the same, both are ATS (Alternative Trading System), and the regulatory standards are the same, but the implementation of regulation requires a process.

Therefore, in the next few years, the supervision of DeFi will definitely become stricter and stricter. Ultimately, what type of business must meet the corresponding regulatory requirements. For an industry that grew wildly in the early stage, there must be pains in the process of accepting supervision, which will affect people, teams, and users.

Another big problem is that we can build a parallel financial system on the chain. But the purpose of the financial system is to allocate capital for social production, but if DeFi assets or capital flow back to itself, as Vitalik said, we are always creating some Tokens, but their function is to trade other Tokens . All assets are idling in the system, which can only be a bubble. Because capital has not entered into a production-oriented management body to create something useful to people.

These are two problems with DeFi. At the infrastructure level, there are already many public chains, and with Turings complete virtual machine, it is theoretically possible to execute any application on the chain. At the application layer, there is a parallel financial system. More importantly, there is a huge, global Crypto Asset Market, which is a global system composed of tens of thousands of centralized exchanges, thousands of decentralized exchanges, and countless bots. The daily transaction volume reaches tens of billions of dollars, which is very impressive. The question now is, how to use the existing foundation to promote the development of Web3 to a broader field?

I listed several fields on the Slide. The part with the solid line is what I think has produced commercial value, and the part with the dotted line is still facing obstacles and needs to be verified.

Discover the real value of Web3 from multiple angles

The first thing to talk about is Blockchain base Game. Everyone, dont underestimate Game, Game is a huge market. And I dont think it will take too long, maybe 5 to 10 years, before the game industry will be completely changed by Blockchain. Blockchain base Game does not need to change the existing gameplay, but only needs to turn the assets in the game, whether it is interchangeable gold coins or non-interchangeable props, into Tokens on the chain, and connect them to the huge With the globalized Crypto Asset Market, you can get better liquidity and investment value.

All mainstream online games are platform in nature. That is, the more players there are, the more fun the game becomes. The tokenization of game assets will be utilized by more and more game manufacturers. Of course, there are some benefits, such as limiting the number of NFT or FT on the chain. In this way, game assets have a scarcity guarantee. The guarantee of scarcity is a prerequisite for investment or speculation. Investing or speculating on expectations is a new way for games to jump-start player communities.

The second is to talk about Crypto Native Art, which generally refers to PFP NFT. Crypto/Web3 has formed a subcultural circle and will have its own artistic expression. As long as Web3 is expanding, the influence of this subculture will only increase.

The third thing I want to mention is Tokenization, which is to turn assets under the chain into tokens. The benefit is to connect off-chain assets to the globalized and highly liquid encrypted asset market and obtain a liquidity premium. Especially some assets that were not easy to trade, such as apartments and so on. Tokenization already has huge commercial value, and the best thing is the stable currency backed by legal currency. USDC is actually the Tokenization of the U.S. dollar. After turning the U.S. dollar into a stable currency, it has achieved excellent global accessibility. Anyone with an internet connection can hold and trade USDC. The stable currency backed by fiat currency has a total market value of more than 100 billion US dollars, and it has also attracted the most regulatory attention in the Web3 field.

The development momentum of the above three parts is good, but they are not beyond the scope of Asset Trading. In essence, some kind of Asset is generated and then connected to the globally integrated market to obtain the benefits of liquidity. I want to focus on CSC Service for you today. I created this word myself because there is no suitable word yet. CSC is Computing, Storage and Communication, that is, computing storage communication service, which will be described in detail later.

The following three, Social Network, Creator Economy and DAO, have thousands of projects in each direction. But on the whole, no substantive breakthrough has been made, and each has some basic obstacles.

The biggest problem with decentralized social networks is that there is no widely used self-sovereign identity. Also, the Blockchain database structure is very unsuitable for data-intensive applications. The latter problem is expected to be resolved with the development of a new generation of decentralized databases such as Ceramic/OrbitDB.

The core issue of Creator Economy is how to efficiently form a micro-community around a certain Creator. So Creator Economy has a dependency on Social Network. If Web3s Creator Economy can only rely on Web2s Social Network, there will be great limitations. Because apart from Twitter, other mainstream Web2 Social Networks are not friendly to Web3. In other words, it is impossible to form a community in the Crypto Native environment and then form Engagement. This is the biggest limitation of Creator Economy.

Although many projects do DAO, in fact DAO is the most difficult. Because the experience of the development of the entire human society is to explore how to cooperate and what methods can be used to create value through cooperation and win-win between people. DAO wants to promote collaboration in a completely open and anonymous environment, which puts the problem of human collaboration in a new environment. I think only Crypto Native DAO, a DAO that solves the governance problems of Crypto Protocol, is more realistic. Because when the Protocol reaches a certain level, the participants already have interests, so everyone must sit down to solve some things, and interests will be damaged if they do not participate. At least have the motivation to seriously participate in DAO first, and then solve other issues such as a fair and transparent mechanism. For other types of DAO, my view is more pessimistic.

I just mentioned the basic model of Crypto: the encryption protocol defines a decentralized encryption network, and the encryption network coordinates certain economic activities, and must have a network effect. So the network needs someone to participate, especially in a two-sided market type of network, usually one party is more difficult to obtain. For example, in the case of e-commerce networks, merchants are difficult to obtain. In the taxi network, drivers are the hardest part to obtain. In the early stage, merchants/drivers need to be subsidized before they will come in. When enough merchants/drivers enter the network, buyers/passengers will naturally be attracted to join the network. Web2 uses income to subsidize drivers/merchants, and Web3 uses Token, that is, ownership to subsidize.

Therefore, Web3 needs to verify the contribution of participants on the chain, and then reward Token to participants through the agreement, so that participants can share long-term benefits, and start the network in this way. The core of this process is how to verify the contribution of participants to network value on the chain. When you enter Crypto or Web3, you always hear Proof of XXX, Proof of Work, Proof of Stake, etc., precisely because these methods of verifying contributions are the core of Web3. In other words, every new proof-of-contribution method can push Web3 into a new field.

At the same time, proof of contribution is precisely the bottleneck of Web3, because the types of contributions that can be proved on the chain are still very limited. The most easily verifiable contributions are themselves on-chain, followed by online. On-line, it can be proved by off-chain calculation and then submitting proof. Proof methods fall into two categories, valid proofs and fraud proofs. A valid proof is proof that I have done a good deed. Fraud proof is that I cant prove that I did a good deed, I can only claim that I did a good deed. If no one proves that I am fraudulent within a certain period of time, the system will reward me accordingly.

All current fraud proof-based networks are stuck in the trap of centralization. The challengers (also known as fishermen) of each network are run by the project party. Because there is a paradox here, which I call the Paradox of A World Without Thieves. That is to say, if no one does evil in the network, challengers cannot make money and cannot survive. Over time, the challenger will drop out of the network. But if all challengers withdraw from the network, perpetrators will appear, so it is a paradox. You can imagine that we build a small town and hire a group of policemen. We dont pay these policemen, they can only catch bad guys to earn bonuses. Under the current social conditions, the police will not come because the crime rate is too low. But that was the way it was done in the western United States in the past. At that time, there were many criminals, so there were professional bounty hunters. Therefore, to achieve a truly decentralized fraud proof, a further design mechanism is required. For example, is it possible to automatically generate malicious behaviors from time to time in a random way on the chain, maintain the survival of challengers, and encourage competition among challengers.

Below we no longer distinguish between valid proofs and fraudulent proofs. Anyway, contributions can be verified on the chain. Just now Mr. Song mentioned that ZK can be used to do very complex calculations off the chain. As long as it is a problem that can be solved by calculation, it can be verified on the chain through ZK. Therefore, the development of ZK will open some new doors for Web3. , is very worth looking forward to.

CSC Services provides some homogeneous services. These services are online, but not on-chain. Because it is a homogeneous online service, Web3 entrepreneurs have found a corresponding method to prove the contribution of participants, so that they can use the decentralized encryption protocol to start the network. Below we introduce several typical CSC Services projects.

Livepeer is for video transcoding. The user uploads the video and tells the network what format and bit rate it needs to convert. The network will automatically coordinate and then assign tasks to nodes. These nodes complete the transcoding and upload the result. The verification of the result is done through Truebit Protocol, which needs to cut the transcoding result into small segments, then randomly select several segments, and hand them over to Truebit to judge whether they meet the transcoding requirements. If not, the node will be slashed. Livepeer network users pay ETH, the more LPT Token the node pledges, the higher the probability of obtaining the task, so as to earn more service fees.

Render Network was very popular last year, and Multicoin voted. This project is for rendering, currently in batch mode. The user submits the rendering task through the Web Portal, the Portal calculates the price, the user pays with RNDR Token, and the network assigns the rendering task to the nodes. The role of RNDR Token is Medium-of-Exchange, which is used as currency, and value capture is not very effective. The project team is not particularly Crypto Native, and currently there is no on-chain verification mechanism.

In the field of Storage, Filecoin is the largest. Filecoins service is Contract-based. That is, the user asks the network for storage requirements, such as the size, how many copies, and how long to store. The network will calculate the price, and after the user pays, the network will find a node to execute the contract. Nodes must prove that they are faithfully fulfilling the contract through copy proofs and space-time proofs. Proof-of-replication is a complex calculation that takes storage data and node public keys as input, and the design deliberately makes the calculation very complicated. After the calculation is completed, the result hash submitted by the node to the network can be verified that the data is indeed stored. After that, during the contract period, the network periodically sends challenges to the nodes. If the nodes do not store the sealed data, there is no way to respond to the challenges in time, because sealing requires long-term calculations. If the node can correctly respond to the challenge, it means that the sealed data is still stored on the storage, which is the so-called proof of space-time.

Arweave is permanent storage, and its proof is simpler. It is a mining mechanism. Every time the next block is dug, the network will randomly select a block in the history of the block. Only by saving this block can miners calculate the result in time and obtain mining rewards. If the stored blocks are incomplete, mining opportunities will be lost proportionally. This is Proof of Accessibility access proof.

Helium is a decentralized wireless access network. At present, there is already a certain scale of LoRaWAN network. Anyone can buy a hotspot device, connect to their home WiFi, and provide wireless network coverage for the surrounding area. LoRaWAN is a low-speed and large-coverage network, and a well-established hotspot can cover a range of more than ten kilometers around. Each device has GPS, will report its location, and will also prove each other with surrounding hotspot devices. Each hotspot is reporting who is around to the network, and finally mutually proves that the coverage is provided for the corresponding location, so it is called PoC, Proof of Coverage.

The last two networks, The Graph and Pocket Network, are the key infrastructures of Web3. Decentralization can reduce Web3s dependence on centralized service providers.

The data structure of the blockchain is very unsuitable for querying. If you are doing a blockchain browser or a complex front-end, you usually need to use an indexer to turn the data on the chain into a two-dimensional table. The Graph is a decentralized Indexer network. Anyone can run a node and join it to be an Indexer. The proof method is Proof of Index index proof. It is to index a Subgraph (on-chain data view), and it is necessary to arrange the transactions related to the block and this view into a Merkle Tree, and submit the Root to the chain. The challenger can challenge an Indexer to provide proof that it is wrong, and the Indexer will be Slashed.

Pocket Network decentralized RPC service. In the Web3 field, a large number of clients rely on RPC services, and usually they do not deploy nodes by themselves, but use public services. Pocket Network tries to decentralize RPC services. Anyone can join the network to provide RPC relay for a chain. PoR relay proof is relatively easy to implement. The client signs the request, the node signs the response, and then compresses and submits it to the chain with Merkle Tree.

To sum up, various Proof Of Contributions are the core and frontier of Web3 expanding new areas and realizing business value.

Disclaimer: This article is for informational purposes only and should not be construed as legal, tax, investment, financial or any other advice.

Original article, author:章鱼网络Octopus。Reprint/Content Collaboration/For Reporting, Please Contact;Illegal reprinting must be punished by law.

ODAILY reminds readers to establish correct monetary and investment concepts, rationally view blockchain, and effectively improve risk awareness; We can actively report and report any illegal or criminal clues discovered to relevant departments.

Recommended Reading
Editor’s Picks