How Web 3.0, Decentralized Token Economy, and Blockchain Technology Can Revolutionize the Current Business
Author: Seeyounxtsummer Syns(Jaeha Shin)
UK Block Masonry Academy
Short summary
1.In the context of Web 3.0, digital asset creators can now securely receive their due rewards and compensation through transparent and open protocols, under the decentralised blockchain technology and token economies.
2. As a decentralised application, blockchain technology stands alone as a politically and architecturally decentralised system, free from the limitations of centralised agencies and organisational infrastructures. Despite this, the system maintains a logical centralisation through a commonly agreed-upon state, allowing it to function akin to a single, cohesive computer. This insight comes from none other than Vitalic Buterin, the founder of Ethereum.
3. In the pursuit of designing and implementing a Token Economy for businesses, it is essential to prioritize transparency and establish trust in decentralised organisational structures. These critical steps pave the way for a revolutionary economic framework that will shape the future of business as we know it.
1.0 Introduction-A Call for a trust in a trustless society
Throughout human history, the issuance and control of currency/fiat money have been the domain of public organizations such as central governments or powerful authorities. However, fiat money, which is not backed by physical commodities like gold, gives central banks or other powerful entities greater control over the economy. This centralization has resulted in problems and risks, including loss of trust among the general public. For example, the 2008 world economic recession, which was caused by dysfunctional lending practices and subprime mortgages, resulted in a bubble that burst from the central bank Lehman Brothers. More recently, in 2022, the FTX bankruptcy highlighted the centralization failure of the banking system. In this case, customer exchange deposits were used for speculation on the account of trading firm Alameda, in violation of the Glass Steagall Act of 1933.
In the real-world application of blockchain and crypto industry, the power of central actors remains. There are still uncontrolled and illegitimate power centers, and traditional political processes have no substitutes. Despite the promise of trustless blockchain technology and its Web 3.0, it does not effectively solve real-world centralized crises. Therefore, there is a call for real trust in a trustless society.
In light of this, this article explores the vision of the crypto economy on blockchain technology and how it can revolutionize current businesses in the near future. The power of blockchain technology can help to decentralize businesses, ensuring that trust is placed in the system rather than any central authority. This new approach could address the problems of centralization that have plagued traditional economic systems.
2.0 The evolution of Web 1.0 2.0 3.0
The distinctive features of blockchain technology, which serves as the underlying technology of cryptocurrencies like Bitcoin and Ethereum, are anticipated to foster a novel economic system that is currently penetrating the Web 3.0 digital industry, thereby revolutionizing it.
Web 2.0 (2004-Present/Users can read and write), in contrast to the traditional days of Web 1.0 (1991–2004/One way and Read Only), enables more users to interact and participate in the creation of web-based content, thus expanding the facilitation of more engaging and social online experiences. This has led to the emergence of various new business models, enabled by advanced network effects, crowdsourced content, and multidirectional data flow.
The transition from Web 1.0 to Web 2.0 was marked by the growth of User-Generated-Contents (UGC), the wealth generated by which is, however, primarily captured by a few monopolies. A good example of this is YouTube content creators(users). Just a handful of firms own the majority of market shares in this centralized YouTube platform, with the majority owned by YouTube.
Despite providing all the actual content, content creators(users) do not fully capture the net revenue generated by their social platform, resulting in the big tech companies losing the trust of the public. This problematic centralized organizational structure of Web 2.0 is a significant concern.
Web 3.0, on the other hand, signifies a new era of the internet, effectively resolving many of the underlying issues inherent in Web 2.0. It can be defined as a value-linked internet platform powered by transparent, open protocols, and token economy on a decentralized blockchain, illustrating the decentralized ecosystem of blockchain (transparent and open protocols on the distributed ledgers), which creates the concept of a token-based economy. In this way, the community’s revenue can be appropriately allocated to the actual content creators who generate digital values or assets.
Thus, Web 3.0 is not a sort of brand-new technology, yet it is a set of philosophical values toward the current businesses’ organisational architecture. Reshaping the new forms of an economy that is associated with a transparent governance, autonomous and decentralised community owned by community, and interaction between the users and their digital values transaction on the distributed- blockchain technology.
*Keynote (1)- Generation of Web 1.0 2.0 3.0
Web 1.0 1991–2004 — Static/User read-only (FGC) ex) Yahoo
Web 2.0 2004-Present- User can read and write (User generated contents (UGC) based on the centralised organisational structure/platform ex) GAFA/ Facebook, Twitter, YouTube
Web 3.0 — A value-linked internet platform powered by transparent, open protocols and token economy on a decentralised blockchain. ex) Blockchain/Defi/DApps
*Keynote (2)- 3 Characteristics of Web 3.0
- Open — Open-source software will be utilised to generate content platforms.
- Trustless — public would be Zero Trust, and network protection will reach the edge.
- Distributed — Interaction between creators (Users, and their services) would be enabled without a centralised authority(platform)’s approval.
3.0 Features of Web 3.0
As we have defined Web 3.0 as incorporating three defining notions — Blockchain technology, Decentralization, and the Token Economy — the following sections will break down each concept and explore its meaning and applications in the contemporary Web 3.0 era.
3.1 Blockchain
According to The Economist (2015), blockchain is the “trust machine” that is recolonizing our future society. In 2008, following the world’s largest economic recession, an anonymous developer using the pseudonym Satoshi Nakamoto published the Bitcoin white paper, titled “A Peer-to-Peer Electronic Cash System,” to the public.
A white paper is a document that outlines the key features and technical specifications of a specific cryptocurrency or blockchain project.
So, what is blockchain and how does it work in the context of Web 3.0?
As described in the Bitcoin white paper, blockchain is a distributed ledger system in which information on transaction details is shared and verified by users in a peer-to-peer network. The consensus mechanism ensures that transactions are valid and recorded accurately, and once added to the chain, the block cannot be changed or modified. This eliminates the need for a trusted central entity or authority.
As blockchain technology continues to evolve, it is expected to expand its disruptive potential to tokenize and decentralize not only currencies but also other tangible and intangible digital assets or values within the revolutionized Web 3.0 era.
3.2 Decentralization
Decentralization is a fundamental principle of Web 3.0 in addition to the preceding concept of blockchain. In the case of Web 2.0, computers and servers use HTTP to search for information stored at a specific location, usually a single server. However, data in Web 3.0 is stored in multiple locations (distributed ledgers within the blockchain system) while simultaneously rendering it decentralized.
In fact, even before Bitcoin gained significant public attention, there were attempts to create a decentralized network for digital cryptocurrencies. Examples of such attempts include Digicash (1992), Cybercash (1994), and e-Gold (1996), which contributed some core technological findings that Bitcoin later utilized for its invention.
Nevertheless, the reason why Bitcoin and its underlying technology, blockchain, have revolutionized businesses and redefined companies and economics is that blockchain was the only technological structure that was politically and architecturally decentralized without the need for centralized agencies or organizational infrastructures. Moreover, with that being said, it did trigger the opening of a new era of Web 3.0. However, according to Vitalik Buterin, it is logically centralized (with one commonly agreed state (Consensus), the system behaves like a single computer).
Vitalik Buterin Medium-the meaning of Decentralisation
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3 types of Decentralization
To provide a more comprehensive understanding of decentralisation, Vitalik Buterin elaborated on its three categories: Architectural, Political, and Logical decentralisation. The definitions of these categories are as follows:
Definition of Decentralisation- The meaning of Decentralization- Blockchains are politically decentralised (no one controls them) and architecturally decentralised (no infrastructural central point of failure) but they are logically centralised (there is one commonly agreed state and the system behaves like a single computer
Architectural Decentralisation refers to the distribution of infrastructure and data across multiple nodes in a network, rather than relying on a single central entity. This ensures that there is no central point of failure and the network is resilient against attacks.
Political Decentralisation, on the other hand, refers to the absence of a central authority that controls the network. In a politically decentralised network, decision-making power is distributed among its participants, rather than being concentrated in the hands of a few.
Logical Decentralisation refers to the state of a network where all nodes agree on the same information and behave as a single entity. Despite being architecturally and politically decentralised, the network behaves as if it were a single computer due to a commonly agreed state.
As Vitalik Buterin notes, blockchains are politically and architecturally decentralised, but logically centralised due to the need for a consensus mechanism. By understanding the different categories of decentralisation, we can better appreciate the nuances and complexities of decentralised systems and their potential impact on various industries.
3.3 -Token Economy
*Keynote Token Economy- it is a small and circular economy with the supply and demand characteristics of cryptocurrencies (Tokens) utilities on the decentralised blockchain-application ecosystem.
Hashed 3 Fundamental investment criteria
- How strong is the projects, or teams (Business)
- How does the project plan or unique technology get involved in solving or revolutionising problems.
- Healthy Community- does the project try to build-up a healthy token-based economy toward the users (Transparency).
As many people are aware that Bitcoin and cryptocurrency is not everything about decentralised blockchain applications. There are many other businesses and a bunch of new crypto projects around the world, are coming up with new services using blockchain.
One of the most important features for the successful blockchain-based business model in the web 3.0 era is the healthy community of a compensation system. Under this ideal design of the token-economy for participant’s behaviour enhancement/engagement in the blockchain network, it gives a multitude of different benefits which contributes to building a healthy community.
Thus, in other words, a properly designed token economy would be considered for the healthy community building: the amount of token insurance, compensation for users, redistribution of wealth and users’ ongoing service engagement.
This means that blockchain developers must solve various problems in addition to simply implementing services through approaches.
Here are 6 considerations to build healthy tokenomic (community)
1. On what criteria will the reward (token) be given to which participant?
2. How token will have a value to their participants
3. What are the incentives for people to hold tokens?
4. What is the amount of token insurance and how will they be distributed?
5. How do you link network growth with token value growth?
6. How do we solve the price volatility of tokens?
The importance of a token economy lies in its ability to align the interests of all stakeholders and incentivize desired behaviours. A well-designed token economy can help to create a virtuous cycle where the growth and success of the platform is directly tied to the value of the tokens. This, in turn, drives more users to participate in the business platform and increases demand for the tokens. It can help to create a sustainable and self-reinforcing ecosystem where the success of the platform drives demand for the tokens, and the growth of the token value drives the success of the platform.
Transparency is essential for establishing trust in the underlying assets or usefulness represented by tokens. Because a token represents a share of a firm, users must have access to accurate and accessible information about the company’s financial performance, operations, and governance.
Therefore, a transparent token based economy will play a significant role in fostering trust and confidence among users and stakeholders within the community, which can boost token acceptance and usage and contribute to the token economy’s overall success and its well-growth.
4.0 what is next in 2023- Importance of DAO for the Trust in a Trustless society, a step for blockchain mass adoption.
Taking into account the crucial concepts of Web 3.0, including the trust crisis faced by FTX and the economic recession of 2008, the advancement of Decentralised Autonomous Organisation (DAO) would be of utmost importance in rebuilding the crypto market after a meltdown. Keynote DAO is an entity without centralized authorities, using a bottom-up decision-making process, and governed by democratic community governance on a decentralized blockchain network. Many believe that 2023 will be the year of DAO, as crypto businesses and projects face a trust crisis and seek more transparent governance for a healthier community.
DAO operates via computer codes, generating decisions faster and in a more transparent manner than traditional businesses that rely on central shareholders. It utilizes consensus algorithms through digital smart contracts existing on the blockchain network, which contain rules and regulations, guidelines, functionalities, and contract addresses. DAO offers immediate trust and transparency for organizations to focus on achieving collective goals, encouragement, and interests based on open-source blockchain records. Its democratic bottom-up decision-making approach is quite the opposite of traditional organizational structures, where each individual has the right to vote.
There are several DAO projects that exist today, such as MakerDAO, Compound, Aragon, Gnosis, DAOstack, and Uniswap. Each project has its own unique set of features and focuses on solving different problems within the blockchain and decentralized space. While DAO may not fit all types of businesses today, its distinct features and implemented/appealing function towards the “trustless” society would revolutionize current businesses and organizations in more efficient manners.
5.0 Conclusion
In conclusion, this article has explored the evolution of the Web from 1.0 to Web 3.0 and its relevant features, including the remarkable notion of blockchain technology, decentralization, and the token-based economy (Tokonomas). Trust is crucial for the upcoming generation after the crypto market meltdown from its extreme winter. The advancement of Decentralised Autonomous Organisation or Decentralised finance would be a necessary call for trust in the trustless society in 2023.
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