Facilitator: Kitti Borissza, Adoption & Community, TZ Connect
Jantine Derksen, Co-director, TZ Connect
Dani Jozsef, Blockchain expert, TZ Connect
📜 Course Description
In this session, we’re going to go over the basics of what ‘Web3’ even means, become familiar with the innovations of distributed ledgers and cryptocurrencies, find out what a wallet is, and how a ‘Web3’ application is different from a ‘Web1’ or ‘Web2’ one.
On the internet, nobody knows you are a dog
As we endeavor to understand Web3 and its applications and potentials in the Arts & Culture sector, it is important to understand the journey from Web1 to Web2, what was lost along the way, as well as what was learned. Web1 was characterized by a culture of knowledge sharing via dedicated chat forums and internet anonymity — hence the saying at the time, ‘on the internet, nobody knows you’re a dog’. Online identity was fragmented and there was no way to connect the identity of a user from one website to another. In the shift to Web2 large websites monopolizing a few social networks increasingly began displacing these small forum communities. These systems meant that users identity could only be managed by centralized entities. As the saying goes, the one who enrolls, controls.
Discussion point 🧐 What does Web3 mean to you?
We posed the question to our fellows during the discussion portion of our lecture and here is what you had to say:
- acts as a tool for community building
- offers possibilities for new ways of networking and interacting with people
- decentralization of power, individual ownership and control over your data
So what does Web3 even mean?
In unlearning methods of internet ownership as we saw in Web2, we can think about the rise of bitcoin and blockchain to flesh out examples of de-ownership in practice. In 2008 a pseudonymous person named Satoshi Nakamoto published a white paper describing bitcoin, which was introduced as a digital currency that could be exchanged on a peer-to-peer network. Crucially, the paper discussed how these transactions could take place without the regulation of an intermediary body, such as a centralized financial system. The first ever bitcoin transaction published gives indication to its mission, which contained text in the metadata: “Chancellor on brink of second bailout for banks”. The bailouts at the time shook the world’s confidence in centralized banking systems and decentralized cryptographic systems promised to be a trust-less, immutable system which acted as both a store of value and an instrument of payment.
Discussion point 🧐 How do you feel about Satoshi’s ideas?
A number of fellows posed very interesting points in response to the tenants put forth by Satoshi’s white paper:
- There is value in the ideas, but what happens if the code is malicious? What happens when we trust code that may be sabotaged?
- Do we trust human beings and their creation of intermediaries (banks)? Or do we rely on blockchain and trust that to act as an intermediary for humans?
How is a Web3 application different from Web2?
DApps, or decentralized applications, have relics of Web2 components in terms of the front-end visible and navigable to the user, but the back-end, or the systems that run the application, are entirely different, namely in terms of their decentralized architecture. Let’s take the anecdote of Hic et Nunc, an early NFT marketplace on the Tezos blockchain for decentralized digital assets, to untangle how an app differs from a dApp. When the website was suddenly ‘discontinued’, meaning its interface previously published on the world wide web could no longer be found, many users were under the impression that the whole dApp marketplace was lost too! Of course, because of the modular and decentralized foundation of the dApp, one interface could just be switched out for another. By their nature, dApps are autonomous once deployed; they can be altered or modified in the interface, but cannot disappear if a single actor decides to pull the plug when an owner says ‘I’ve had enough’. Does this mean they are unstoppable once launched? Well, that depends on the smart contract behind the dApp!
Tools of the new world: distributed ledgers, smart contracts, and wallets
Owing to the immutable, trust-less, and decentralized system cryptographic currencies promised, conditions typically characterized in the banks — such as access to transactions needing to be limited and only granted to very trusted parties — become obsolete. Bitcoin offers a transparent system of transaction tracking via a distributed and decentralized ledger.
- Decentralized ledgers: relies on computing and maths; the network as a whole is in a majority controlled by benevolent and non-malicious players; facilities cooperation; truly offers a digital cash
As we see, bitcoin can only handle monetary transfers. In the case of non-monetary transactions, such as casting votes for governance procedures or playing the digital cat game CryptoKitties, these actions can still be recorded on the blockchain but are facilitated by a smart contract.
- Smart contract: a coded piece of script that acts as a mechanism for realizing a business logic (i.e. a soda vending machine: if I pay for a soda by giving the machine money, I will receive the soda and the change I am due). To understand more, check out this expert from the creator Nick Szabo.
What is a wallet in Web3?
While the definition of a wallet as we know it may be useful for understanding its functionality, it should not be confused as it applies in the blockchain world. For example, we don’t really hold physical or digital coins in a wallet, rather it acts as a sign-in device which allows a user to interact with the ledger and is used for signing some transaction on the blockchain. Accordingly we are not talking about exchanging coins, but rather recognizing interactions on the ledger.
- As an example, if I want to transfer 100 TEZ to a friend, I then ‘sign’ with a wallet using my key. The key then belongs to the account number where the TEZ, ETH, etc is stored.
For this reason, a wallet can also be thought of as a keyring: your assets are on the blockchain and the wallet is the key that opens your account. The wallet is attached to the private key you have, and the key is what allows you to access assets on the blockchain.
- For instance, your NFT is not in the wallet but the key is, which proves you own that NFT. When you buy an NFT you are recording ownership on the blockchain. It doesn't mean ‘transferring a jpeg’, or ‘right-click-save-as’ typical in Web2 ownership contexts. Rather the transaction entails transferring ownership by way of records on the blockchain (or proving that record rather than ‘owning’ the digital asset). We need to let go of ‘place’ in Web3.
In the case of institutions or DAOs (decentralized autonomous organizations), they may need multi-sig wallets - which is essentially a smart contract - in order to allocate approval for transactions among different people.
- For example, to vote in a governance procedure, a smart contract may dictate that 5 people can sign but 3 of those 5 need to sign. Each person then signs with their individual keyring to fill those conditions before a smart contract comes into effect.
Back to ownership and means of identity
If you log in via Web2 to a centralized exchange as a user, you will receive a wallet but it is controlled. You are not the owner, it is a custodial wallet. We see then that there are already decisions to be made about the type of wallet one should use; you need to always question if you are the owner or if you are using a wallet as a service. Is it something you won? Are there conditions attached to its use? Is it connected to the internet? Is it a software wallet? Hardware? Hot? Cold? These are questions we should be asking ourselves as we engage with various platforms and open wallets.
The following variations of wallet types is useful to recognize:
- cold wallet - not connected to internet
- hot wallet - connected to internet
- software wallet - in browser extension
- hardware wallet - connect to internet via bluetooth, usb
Pretty much all wallets are so called hierarchically deterministic wallets. They provide a comfortable tool that allow us to have a single secret (seed phrase) which then can generate an infinite list of blockchain addresses. Creating a new blockchain account on most chains does not involve transactions being recorded on that ledger. You simply now have an address that belongs to a secret key. Institutions or businesses using blockchain should be careful to avoid, or fight off the temptation, of treating the blockchain account as an identity. Rather, it might instead act as a telephone number, so that there are multiple ways to reach the holder of that account that don’t contain highly sensitive data.
Protecting your assets
It is important to understand that owning a blockchain account does not inherently translate to a proper identity as one person can (and most often does) have multiple blockchain accounts. These can be lost, stolen, or forgotten and therefore, it is highly recommended to be very careful with securing your sensitive private key. One piece of advice is to write out the seed phrase (which is used to store and retrieve the secret key) on a physical piece of paper - or several! - seal it in an envelope and store it in a secure location. Additionally, care should be taken into understanding what data is exposed when engaging with the various tools found in Web3. For example when making use of dAPP, the user should be aware that the underlying tech is public and accessible to everyone - this includes the wallets conducting transactions on the dApp!
Challenges yet unsolved
At this moment we do not have a self-sovereign identity system, and therefore, cannot ensure a digital identity is not controlled by a 3rd party. In the blockchain world, this is still yet unsolved however, we can see that simultaneously developing alongside blockchain is self-sovereign identity. This approach addresses the difficulty of establishing trust in an interaction, and would give individuals control of their digital identities. In the meantime, we rely on signing devices as means of proving identity.
A final theme that emerged during the discussion was whether we can view the move from Web2 into Web3 as organic or whether it is being pushed. Is the interest in touting blockchain as the ‘next big thing’ really grassroots? We can see a number of examples play out, where crypto-technology does offer a means of circumventing a current faulty system - for example, Swift blocks Russian users and cancels governmental involvement in the payment system, and crypto pop up. Another example is an unstable banking and loan system in Africa leading to leap-frogging solutions and moving straight into digital currencies. In fact, it would follow that multiple centralized committees may rather push against decentralized solutions, so as to retain control over globally occurring transactions, both monetary and otherwise. It is empowering tech which ultimately carries no agenda, however, there are schemers everywhere. But there are also dreamers.
Discussion point 🧐 Are you more positive or fearful??