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Understanding Web3 Fundamentals

Session 1

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Coming up…

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Introduction to Web3.0

Understanding the History of Internet

Source - ZioNodes

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Introduction to Web3.0

Web 1.0: The Static Web

Definition:

Web 1.0 refers to the first stage of the World Wide Web evolution. Often called the "Static Web", it consisted primarily of static pages.

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Characteristics:

• Content was static, read-only, and had minimal user interaction.
• Websites were more like digital brochures.
• Information flow was one-directional, from content creator to user.
• Time Period: Early 1990s to early 2000s.

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Impact:

Revolutionized information sharing.

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Introduction to Web3.0

Web 2.0: The Interactive Web

Definition:

Web 2.0 represents the second generation of the internet, focusing on user-generated content, usability, and interoperability for end users.

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Characteristics:

• Dynamic content that responds to user input.
• Social media platforms rise, enhancing user interaction.
• Emergence of cloud computing.

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Impact:

Revolutionized how users interact with the web, making it a platform for collaboration and sharing.

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Introduction to Web3.0

Web 3.0: The Decentralized Web

Definition:

Web3 has become a catch-all term for the vision of a new, better internet built upon the core concepts of decentralization, openness, and greater user ownership.

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Characteristics:

Decentralization of data, removing the control from central authorities.

Use of blockchain technology to ensure transparency and security.

Enhanced user privacy and control over data.

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Impact:

Secure, transparent, and user-empowered internet experiences.

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Introduction to Web3.0

Why the Need for Web 3.0?

Data Privacy Concerns:

• Facebook’s Cambridge Analytica Scandal (2018): Data of 87 million users was improperly accessed for political advertising.
• Yahoo Data Breach (2016): Hackers accessed account information of approximately 500 million users, one of the largest breaches in history.

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Single Points of Failure:

• Facebook Outage (2021): A configuration error led to a nearly 6-hour global shutdown of Facebook, Instagram, and WhatsApp, impacting billions.
• AWS Outages: Multiple instances, such as the major outage in 2020, disrupted a significant portion of online services, highlighting risks of dependency on a single cloud service provider.

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Introduction to Web3.0

Why the Need for Web 3.0?

Monopolistic Practices and Market Control

• Apple App Store Litigation (Epic Games vs. Apple, 2020): Epic Games sued Apple over alleged anti-competitive practices on the Apple App Store, highlighting issues with app market monopolies and the 'Apple tax' (30% commission on sales).
• Google’s Search Engine Dominance: Google accounts for the vast majority of the search engine market share, influencing what information is most accessible to users worldwide. This dominance extends to advertising, browser (Chrome), and mobile OS (Android) markets, raising antitrust concerns globally.

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Introduction to Web3.0

The fall of traditional financial systems

Source - CNN

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Understanding Blockchain Technology

How blockchain enables immutability

Definition :

A blockchain is a shared, immutable ledger or database that facilitates the process of recording transactions and tracking assets in a network.

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Lets see the blockchain working using a demo

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Understanding Blockchain Technology

Blockchain Terminologies

• Consensus Algorithm
• Coin vs Token
• Genesis Block
• Coinbase Transaction
• Transaction Fee
• Miners / Validators
• Block Reward
• Fungible Tokens
• Non-Fungible Tokens

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Consensus Mechanisms

Bitcoin & Proof Of Work

Miners compete to solve a challenging mathematical puzzle that requires significant computational power. The first miner to solve the puzzle broadcasts their solution to the network. Other participants verify the solution, and if it's correct, the miner is rewarded with newly minted cryptocurrency and transaction fees from the transactions in the block.

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• More Network Computation = More Security, How ?
• Total Supply - 21 M, Why ?
• Avg Block Time - 10 Min, Why ?
• What happens to block reward after all the coins are minted ?

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Consensus Mechanisms

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Ethereum & Proof Of Stake

Validators are the participants on the network who run nodes (called validator nodes) to propose and attest blocks on a PoS blockchain. They do so by staking crypto (in the case of Ethereum 2.0, ETH) on the network and make themselves available to be randomly selected to propose a block. Other validators then “attest” that they have seen the block. When a sufficient number of attestations for the block has been collected, the block is added to the blockchain. Validators receive rewards both for successfully proposing blocks (just as they do in PoW) and for making attestations about blocks that they have seen.

- Consensys

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• More Validators = More Security , How ?
• How to become a validator ? Introducing Staking & Slashing
• What is the Max Supply of ETH ? Discussing EIP 1559

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Consensus Mechanisms

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Looking Into ETH transaction

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Consensus Mechanisms

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Let's discuss Solana

• What consensys mechanism does Solana uses ?
• How is Solana much faster than other blockchains ? - Understanding POH
• Why Solana goes down more often ?

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Introduction to Smart Contracts

What are smart contracts ?

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Definition:

Smart contracts are computer programs stored on the blockchain that follow "if this then that" logic, and are guaranteed to execute according to the rules defined by its code, which cannot be changed once created. - Ethereum.org

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• Nick Szabo coined the term "smart contract" in 1994
• Smart Contracts in Bitcoin
• Smart contracts in Ethereum

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Introduction to Smart Contracts

Use Cases for Smart Contracts

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• Creation and distribution of digital assets
• Voting Systems
• DeFi
• DAO
• StableCoins
• Supply Chain Management
• Gaming

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And much more…

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Blockchain Scaling

The Trilemma Problem

The Blockchain Trilemma is the concept that decentralized networks can only achieve two out of three key benefits at any one time: decentralization, security, and scalability.

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Decentralization - Blockchains decentralize authority across all users rather than centralizing it under a single entity, eliminating intermediaries and embodying the core principles of the Blockchain movement.

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Security - Blockchain networks are expected to have robust defenses to block any attempts by malicious entities to compromise them.

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Scalability - Blockchains need to handle a vast volume of transactions and users efficiently without succumbing to increased fees and slower transaction speeds.

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Blockchain Scaling

Scaling Solutions

Onchain Scaling

Offchain Scaling

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Blockchain Scaling

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Understanding Layer 2

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Layer 1 - Base blockchains. Eg Ethereum, Bitcoin etc

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Layer 2 - Collective term to describe a specific set of scaling solutions for the base chains

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Use Cases

• Lower fees - Combining multiple off-chain transactions into a single layer 1 transaction
• Security - Using security of base blockchain as a settling layer
• Better UX - With a higher TPS, user flow would be much more smoother

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Blockchain Scaling

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Lightning Network

Lightning is a decentralized network using smart contract functionality in the blockchain to enable instant payments across a network of participants.

- Lightning Network

Source - Researchgate

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Blockchain Scaling

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Introduction to Rollups

Rollups bundle (or ’roll up’) hundreds of transactions into a single transaction on layer 1. This distributes the L1 transaction fees across everyone in the rollup, making it cheaper for each user.

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The transaction data in the rollup is submitted to layer 1, but the execution is done separately by the rollup. By submitting transaction data onto layer 1, rollups inherit the security of Ethereum. - Ethereum.org

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• Optimistic Rollups
• ZK Rollups

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Tokenomics

Token Economics

Definition: Tokenomics, a portmanteau of “token” and “economics,” focuses on the design and structure of a cryptocurrency token system. It delves into:

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• Token Supply: How many tokens exist, are they capped (finite) or inflationary (continuously created)?
• Distribution: How were tokens initially distributed? (e.g., ICO, mining, team allocation)
• Utility: What are the token’s uses within the project’s ecosystem? (e.g., payments, governance, staking)
• Economic Incentives: How does the tokenomics model incentivize desired behavior? (e.g., holding tokens, participating in the network)

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Web3 Applications and Innovations

DApps

A dapp or decentralized application has its backend code running on a decentralized peer-to-peer network. Contrast this with an app where the backend code is running on centralized servers.

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• What are Hybrid DApps ?
• Hosting frontend on decentralized storage

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Web3 Applications and Innovations

DAOs (Decentralized Autonomous Organizations)

Definition: A DAO is a collectively-owned organization operating without a centralized leadership, governed entirely by its members.

• No central authority (no CEO or CFO)
• Operations and funds are managed through pre-defined rules on a blockchain
• Built-in treasuries accessible only via group approval

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Need of DAO

• Trust Issues in Traditional Collaborations: Challenges of trusting people in internet-based collaborations.
• Code-based trust: Operations are transparent and verifiable.

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Web3 Applications and Innovations

DAOs (Decentralized Autonomous Organizations)

Governance - Voting and Proposals: Mechanisms for decision making.

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Examples of Governance Models:

• Delegation
• Automatic Transactions (Nouns DAO)
• Multisig Governance

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Web3 Applications and Innovations

DeFi (Decentralized Finance)

Problems with Traditional Banking

• Some people aren't granted access to set up a bank account or use financial services.
• Lack of access to financial services can prevent people from being employable.
• Financial services can block you from getting paid.
• A hidden charge of financial services is your personal data.
• Governments and centralized institutions can close down markets at will.
• Trading hours are often limited to business hours of specific time zone.
• Money transfers can take days due to internal human processes.
• There's a premium to financial services because intermediary institutions need their cut.

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• Ethereum.org

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Web3 Applications and Innovations

DeFi (Decentralized Finance)

DeFi is a collective term for financial products and services that are accessible to anyone with an internet connection. With DeFi, the markets are always open and there are no centralized authorities who can block payments or deny you access to anything. Services that were previously slow and at risk of human error are automatic and safer now that they're handled by code that anyone can inspect and scrutinize.

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Use cases of DeFi

• Borrowing
• Lending
• Swapping or Exchanging Tokens
• Asset Buying
• Flash Loans - Key to Arbitrage Trading

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Web3 Applications and Innovations

DeFi (Decentralized Finance)

Source - hacken.io

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