One of the greatest challenges in the web3 space right now is the messaging around it. So, I set out to create what I hope becomes an easy-to-use resource for onboarding non crypto-native people to the web3 world. As someone with only a handful of IRL friends that have started embracing crypto & blockchain technology, I figured that if I’m always trying to explain this space to people, others are encountering the same thing.

This post is meant to be a starting point for those new to the space, with a link to topic-specific sections at the end for those looking to go deeper. Those sections will continue to be updated which I hope will serve as a living, breathing, evolving resource for as many people as possible.

Feel free to share (that's the whole point, we want more people in web3!) & if you find great stuff that I haven't included, please let me know on twitter @0xsmac - my dm's are always open!

Here we go!

Blockchain, what is it?

This is a complicated question but the analogy I like best is that it’s really just a new type of computer. There’s plenty of more technical information around blockchains and how they operate, but in a very simple sense, blockchains do a few things:

• Store data
• Keep state
• Have a programming language that allows you to operate on that state

There's a great definition Chris Dixon gave during a talk where he defines a blockchain as “a virtual computer that runs on top of a network of physical computers that provides strong, auditable, game-theoretic guarantees that the code it runs will continue to operate as designed”. A virtual computer that runs on a network of physical computers. Simple enough for now.

Why blockchain though?

Computers run applications. The world we know today is one in which applications run on physical computers. This isn’t ideal for several reasons we’ll describe below. By contrast, running applications on these new virtual computers (blockchains) allows us to provide guarantees that the computer will continue to operate as designed; blockchains are immutable.  The developers writing code know that so long as some percentage of miners aren’t “evil”, their code will continue to run as designed. Pretty simple concept to be honest. (Don't worry there will be links to read more on who/what miners are but for now just think of them as the participants securing the virtual computer).

Yeah but who cares? What's wrong with the computers we have today?

Well, prior to these blockchain innovations, behind every computer network was a human/organization that could change its mind. We've been at the mercy of the product teams running giant tech companies for years now — a future where just 4-5 behemoths control the internet is not super appealing.

I’m not picking on Mark this is just an example, but if Mark Zuckerberg told the world tomorrow that Facebook Meta was going to create a $META token and every user was going to get 100 and that no more $META tokens would ever be created, would you believe him? You might! You might not! But because Meta is ultimately controlled by humans (i.e. Mark), in reality he could change his mind. We will come back to this example (and tokens) later.

If we step back and look at the world from a macro perspective, where does capital tend to gravitate towards? I would argue it flows to countries like the United States and other countries where there are well-established rules & governance in place. Closed-off countries led by dictators don’t garner the same influx of capital because the power is centralized, the governance is weak, and investors can get rugged at any moment. If the rule of law could change tomorrow, why would I risk my capital there? Resources flow to places where there are rules that can be trusted to remain in place and be enforced. By following a set of enforceable and immutable rules, blockchains have a decided advantage over the current rule of law that persists in today’s Web2 world (i.e. opaque product teams at giant tech firms).

Ok, so now you're hopefully starting to see why people should care about this & how blockchains are effectively a new type of computer. This is a simple idea, but it’s also incredibly profound.

New computer, who dis?

To appreciate the implications behind blockchains as virtual computers, it makes sense to look at historical computing cycles. Every computing cycle (Mainframes —> PCs —> Internet —> Mobile Computing / Smartphones) has brought about tremendous innovation, growth, economic prosperity & cultural significance.

There are the obvious first-order effects that take place during technological breakthroughs. The first-order effect of the telephone was speaking to people who weren’t physically present with you. But the more impactful things happened as second-order effects: business became more efficient, communication lines opened, globalization quickened, novel ideas spread faster, and society was pulled forward into the information age leading to the development of computers. Look, these second-order effects do not happen overnight and take years, decades & sometimes longer to play out. But they are inevitable, and we are only just beginning to realize some of the second-order effects of the internet.

So far this is sounding reasonable, but you haven’t said anything about cryptocurrency yet…isn’t that the whole point? Bitcoin. Ethereum. Digital money. What’s up with that?

Cryptocurrency is definitely one application of this technology. Bitcoin is the first and most well-known major blockchain innovation – big B Bitcoin is a peer-to-peer electronic cash system and little b bitcoin is the digital currency used on the Bitcoin network.

Bitcoin can be considered an application-specific computer. Similar to a Sony Playstation, for example, which has the capacity to do general purpose application but for various reasons its designers decided to constrain it to a limited set of things. These design constraints (among other reasons) have made bitcoin a type of digital currency or store of value. Bitcoin has these properties because of various commitments that the Bitcoin network makes, one of which is that there will only ever be 21 million bitcoin created. This isn’t enough to make it a store of value, but it is a necessary condition.

Remember our example of Mark Zuckerberg hypothetically creating a $META token? Well, since Meta is not built on blockchain technology, Mark could change his mind and decide that instead of 100 tokens per user he’s going to create 200 or 10,000 or 1 million per user. This would erode whatever value each $META token has. Bitcoin on the other hand, has become a store of value because of its commitment (among others) to a specific finite supply.

Ethereum by contrast, is a general purpose blockchain (i.e. not application-specific). Ethereum has its own programming language which allows anyone to write their own smart contracts (code that automatically implements terms of agreement) and decentralized applications on top of it. The native token, or currency, of the Ethereum blockchain is ETH.

It's important to stress that the messaging around cryptocurrency & web3 in general hasn't been great. There are too many loud voices in the community that focus on trying to pump the latest coin. This doesn’t help our cause in legitimizing the real benefits of the technology. On the other hand, the dominant media outlets overwhelmingly focus on straw man arguments and ignore (or don't understand) the real technology & its applications. We need to better communicate the true technological advances while acknowledging this is still an emerging space subject to growing pains just as any frontier technology is.

Ok got it. So with Bitcoin I can send money around & it’s a store of value. That's easy enough to understand. What about these general purpose blockchains, how do they really work? What can they do?

We’ve never before had the trust guarantees/commitments provided by blockchains in previous computing cycles. Again, this is a simple but profound innovation. Let’s unpack what this is & what it means. First, a visual on how this blockchain concept actually works in practice:

• A transaction is initiated – this could be a work order, delivery record, invoice, etc.
• When a new transaction occurs, a block is created to permanently record the data of the transaction. Keep in mind, part of the data in that block will have reference to adjacent blocks which ultimately helps create the chain.
• That block is sent off to all the different network operators who use some consensus mechanism to approve the new transaction before it can be created & added to the chain.
• The end result is an immutable ledger of transactions.

This is an ongoing process so you can imagine with such a dynamically changing blockchain, there needs to be some efficient, real-time, secure mechanism to ensure all transactions are genuine and that all participants agree to the current status of the ledger.

This particular task is performed by the consensus mechanism. In simple terms, it’s a set of rules that decides on the legitimacy of all the contributions made by various participants. The two most common consensus mechanisms used today are proof of work (PoW) & proof of stake (PoS). There is a much deeper explanation of these (link at the end) but the output of the consensus mechanism is to come to some agreement on the current state of the blockchain.

Hmmmm, kind of picking up on some of this but how/why are all these participants trusting that the chain is right?

Aha! Great question! You’ll hear crypto people talk / meme about the Byzantine Generals problem, which is “how do you get people to coordinate & trust each other when there could be bad actors and nobody knows each other?”

Well, the PoW consensus mechanism does this by having participants say “hey I’ve done the work to have a credible vote here”. The result is that the centralized systems of today can be replaced with a vote of all the people who have done the credible work and are participating in the decentralized network. This works so well because the whole mining process (process by which a new block is added) involves competing to solve a cryptographic puzzle — solving this puzzle requires significant energy consumption and processing time. This discourages bad actors from trying to corrupt the chain. The juice is not worth the squeeze as they say -- whether or not that will always be the case is a topic for another day.

You still haven’t explained what these blockchains really mean. Like, what’s the output of this? What are the real-world examples?

Let me reference my friend Chris Dixon again: “these trust guarantees also enable the credible creation of new computing primitives such as digital money, digital goods, smart contracts, decentralized organizations, etc.” Remember when I said bitcoin is the currency used on the Bitcoin network? Well all 21 million of those bitcoin are fungible in that they're all created equal: none are unique and they’re all interchangeable. It doesn't really matter which BTC I own. However that’s obviously not the case for everything in the world, so we have the concept of non-fungible tokens.

Non-fungible tokens (NFTs) are tokens that are unique and not interchangeable. They can have one owner at any particular point in time and are fully secured by the blockchain. These tokens are used to represent ownership of unique items – this can be almost anything but popular ones include art, collectibles & gaming items. NFTs replicate properties of physical items, most notably uniqueness, scarcity & proof of ownership. Most things in the physical world are non-fungible; I would posit most things in the digital world will be non-fungible as well.

Ok, with that in mind, let’s get to some real-world examples:

• Digital Art – not dissimilar from physical art in many ways: provenance, scarcity, artist, and ownership history all play a part in how collectors value digital artwork. Previously the typical relationship between art & artist was: artist creates something —> sells it —> has no interaction ever again with it. If an artist's work became phenomenally valuable after the initial sale, the artist didn't get to participate at all in the value accretion. Through smart contracts, they now can. Smart contracts can be written such that artists are compensated each time a piece is re-sold for example, so that they can share in any appreciation of their art in the future.
• Gaming – each successive generation spends more time gaming than the previous one. There is rich data showing the gaming industry grows each time a new gaming medium is introduced. The new platform has always been additive – we’ve gone from arcade to PC to handheld to mobile, and now we have VR & cloud. This is already the biggest earning media sector and is a >$150bn/yr industry.

The blockchain gaming space is in its infancy but already some of the best talent from major studios are turning their attention to it. The most successful and widely played games today are multiplayer social games where the studios give the game away for free & figure out some adjacent way to make money. Fortnite is an easy example – it’s free & users pay for in-game items like skins. The problem is, when they leave the game they can’t take the skins (or items) they purchased with them to other games. This is an interoperability & ownership problem. NFTs fix this for blockchain gaming because those skins/items/etc. can be designed & created as NFTs. In this case, there’s a unique owner of each particular NFT. It can be verified on the blockchain. That user can then potentially earn in-game tokens by using certain items, or gain access to different parts of the game universe. These are all design decisions but the general break-through is that users can uniquely identify the items they own and transport them across games/worlds/etc.

The other break-through that tokenization & NFTs create is the development of in-game economies. If all the players in the game can now carry their kit of owned items around, it's very easy to envision mini-economies developing; marketplaces for items, trading, lending, and plenty of other use-cases I'm not smart enough to think of right now.

• Decentralized Autonomous Organizations (DAOs) – a DAO is just a kind of community that exists on the blockchain and follows its own rules/laws/terms/methods of operation. They’re completely independent of centralized finance systems and can be social/investment-focused/single-goal oriented/etc. DAOs are owned and governed by their token-holders who determine how the organization should function. An important distinction as well is that the token-holders are true owners of the network: think about the big networks that exist today in web2 world like Uber, Meta, Twitter, Snapchat, etc. The early adopters of these platforms weren’t able to benefit from all the value they helped create alongside the founders, entrepreneurs & early employees. With DAOs, participants are owners who can contribute as much (or as little) as they choose. The most well-known DAOs today deploy strong code (the rules of the DAO) and have a dedicated community driving toward building something meaningful. An interesting one (of which I was a proud participant) that gained a lot of attention recently was ConstitutionDAO — a group of people who came together to raise funds to purchase a rare original first-edition printed copy of the U.S. Constitution up for auction at Sotheby's. PleasrDAO did something similar for Wu-Tang's famous unreleased album (https://cointelegraph.com/news/pleasrdao-adds-4m-og-nft-wu-tang-clan-album-to-its-collection).
• Music – this is a category I’m especially excited about. People f’ing LOVE music. Everyone you know probably has a favorite indie band or some lesser-known musician that they stan for. Blockchain opens up new avenues for musicians to connect directly with their fans and allows fans to support the artists they love. The music industry has historically been pretty much the complete opposite of the gaming industry; it is centrally controlled, the record labels and studios refuse to give up licensing rights and as a result, the majority of musicians have suffered and struggled. Spotify advertises that only 7,500 artists earned more than $100,000 from the platform in 2020. Not good. Blockchain can and will disrupt this space. It's already happening — a common example is the 3lau drop: 3lau (musician & blockchain enthusiast) sold $11.6mn worth of NFTs over a 4 day period to commemorate the anniversary of his 'Ultraviolet album'. 33 NFTs were auctioned off with winners able to redeem them for special edition pieces of vinyl, unreleased music, unique experiences & bonus song NFTs. This is just the beginning, and an industry that is ripe for disruption after decades of stagnation.
• Real Estate – Ryan Selkis of Messari included this in his recent Crypto Theses for 2022 regarding real estate: “The ‘real world’ version of an NFT might be something like the deed to my house (verifiably scarce), if I could prove ownership to my insurance company by signing a transaction in a wallet that holds the receipt of my deed (digital representation of property). I could grant access to the house for Airbnb guests with the NFT (programmable), or I could take out a home equity line of credit and pledge the NFT as collateral on a peer-to-peer lending platform (portable).” (pg. 92; https://messari.io/pdf/messari-report-crypto-theses-for-2022.pdf)

These are just some examples of how innovation in blockchain technology is creating a paradigm shift referred to broadly as web3. Web3 is the next frontier of the internet, where users & builders are the owners, and tokens facilitate that reality. This token concept is key — it's what opens up so much white space for builders to create the next generation of killer apps. Some of the things I mentioned could evolve and birth these apps but there's no doubt that people far smarter than I am will come up with things I can't even imagine right now. When we got GPS on smartphones, very few predicted the emergence of Uber. The point is, the technology is new, it’s powerful and we’re about to see an explosion of innovation. That's what's so exciting!

Next Steps For You – GET INVOLVED!

There are so many incredible resources & people out there willing to educate and bring new folks along in the web3 space. I know it can be daunting at first, but I promise you we are all excited to have you. Everyone in the community has been in your shoes before and we all know what it feels like to dive in. I love Web3 because I'm constantly learning, it's legitimately impossible to get bored and the people I've met along the way are genuinely kind (and super dope)! We want to have you! We need you if the future we all envision is going to get built! There’s a link below that will take you to my living, breathing resource hub for those who want to go deeper (it even includes a crypto-slang guide to get you up to speed on common lingo too).

Please feel free to reach out to me directly on twitter — my dm’s are always open!

@0xsmac on twitter

WAGMI

More Reading & Resources:

0xsmac web3 stuff