logo
  1. Blog
  2. Crypto News
  3. What’s at the bottom of Web 3.0 and DeFi that you see every day, and how will it evolve?

What’s at the bottom of Web 3.0 and DeFi that you see every day, and how will it evolve?

  1. Web 1.0
  2. Web 2.0
  3. Information is money
  4. The Web 3.0 Revolution
  5. Web 3.0 offers many advantages
  6. DeFi
  7. What sets these DeFi dapps apart from their traditional bank or Wall Street counterparts?
  8. So, what’s next for DeFi?
  9. So what’s next?

Why was Web 3.0 created and what will it bring? To understand this, it’s necessary to turn back the clock and take a closer look at its predecessors, Web 1.0 and 2.0.

Web 1.0

Just like the Middle Ages, Web 1.0 was not given its name until it was obsolete. As we all know, the ‘World Wide Web’ was just a set of static websites containing lots of information and no interactive content. And being connected meant dialing through a rickety modem and preventing anyone in the house from using the phone. It was a network of AltaVista and Ask Jeeves’ AOL chat rooms and MSN Messenger. It’s maddeningly slow. Streaming video and music? Oh. It takes at least a day to download songs.

Web 2.0

Gone are the dull modems and tedious interface memories for the most part. Faster Internet speeds have paved the way for interactive content, and the Web is no longer about observation, it’s about participation. The global sharing of information has given rise to the era of ‘social media’; Youtube, Wikipedia, Flickr and Facebook have given voice to the voiceless and provided a means for like-minded communities to flourish.

Which begs the question, as great as Web 2.0 is, what’s the problem?

Information is money

The United Nations estimates that from 2000 to 2015, Internet users increased from 738 million to 3.2 billion. That’s an incredible statistic, and as large digital companies are realizing, personal information is an extremely valuable asset. As a result, massive amounts of data began to be stored in central servers, with the biggest ‘custodians’ being Amazon Amazon, Facebook and Twitter. people sacrificed security for the convenience of convenience; whether they knew it or not, their identities, browsing habits, search habits and online shopping information were potentially being sold to the highest bidder.

The Web 3.0 Revolution

At this stage, the advocates of Web 2.0 are already envisioning a successor. They envision the next Web site moving nostalgically toward the vision of Web 1.0: more “human” and more privacy-protective. Instead of concentrating power (and data) in the hands of these companies, it should be returned to the rightful owners.

The vision of a fairer, more transparent web actually dates back to around 2006, but the tools and technology weren’t available at the time. Bitcoin brought the concept of a distributed ledger or blockchain for peer-to-peer digital storage. So decentralization was the main idea; blockchain was the means.

While Web 2.0 has democratized many power structures and created new opportunities, the economic engine has been largely privatized and monopolized. Many large companies have created private networks of public infrastructure that they dominate. Web 3.0, however, is the opposite, involving multiple profit centers sharing value on an open network.

Web 3.0 offers many advantages

No central point of control: Removing the middleman from the equation, blockchains such as Ether provide a trust-free platform with unbreakable rules and data that is already fully encrypted.

Data ownership: End users will regain full control of their data with encrypted security and can then share information as circumstances and permissions dictate. Currently, large companies have a large number of servers for storing information about dietary preferences, income, interests, credit card details, etc.

Significant reduction in hacking and data breaches: As data is decentralized and distributed, hackers will need to shut down entire networks, making it more difficult and costly.

Just as Web 2.0 does not automatically extinguish Web 1.0, the transition to 3.0 will take time and integration with existing online systems.

DeFi

The promise of digital currency is to make it universally available to all people, no matter where they are, for collection and payment.

The decentralized finance (DeFi) or open finance movement takes this promise a step further. For example, what would the end look like if someone offered global open solutions for every financial service we use today (savings, loans, transactions, insurance, etc.) that anyone in the world today could access through a smartphone and Internet connection?

This can now be achieved on smart contract blockchains such as Ether. A “smart contract” is a program that runs on the blockchain and can be executed automatically when certain conditions are met. These smart contracts enable developers to build more complex functions than just sending and receiving cryptocurrencies. These programs are what we now call decentralized applications or dapps.

Users can think of a dapp as an application built on decentralized technology rather than one built and controlled by a single centralized entity or company.

While some of these concepts may sound ahead of their time – automatic loans negotiated directly between two strangers in different parts of the world, with no banks in between – many dapps are already in use with this scenario. There are DeFi dapps that allow users to create stable coins (whose value is pegged to the US dollar), lend money and earn interest on cryptocurrencies, take out loans, swap one asset for another, go long or short on assets, and implement automated advanced investment strategies.

What sets these DeFi dapps apart from their traditional bank or Wall Street counterparts?

At their core, these operations are not run by institutions and employees, but by code (or smart contracts) writing rules. Once a smart contract is deployed to the blockchain, DeFi’s dapps can run themselves with little or no human intervention (although in practice, developers typically maintain the dapp by upgrading or fixing bugs).

The code is transparent on the blockchain and can be reviewed by anyone. This builds another level of trust with users, as anyone has the opportunity to understand the functionality of the contract or find bugs. All transaction activity is also public and can be viewed by anyone. While this may raise privacy concerns, by default transactions are anonymous, i.e. not directly associated with the user’s real identity.

The dapp is developed for a global market – whether in Texas or Tanzania, users will have access to the same DeFi service and network. Of course, local regulations may be followed, but technically most people with an Internet connection can use most DeFi applications.

"No license” is required to create them and “no license” is required to participate – anyone can create DeFi apps and anyone can use them. Unlike today’s finance, there are no gatekeepers or lengthy accounts. Users interact with smart contracts directly through their cryptocurrency wallets.

Flexible user experience – don’t like the interface of a particular dapp? No problem – users can use a third-party interface or build their own. Smart contracts are like an open API for which anyone can build applications.

Interoperability – new DeFi apps can be built or combined by combining other DeFi products, for example stablecoins, decentralized exchanges and prediction markets can be combined to form entirely new products.

So, what’s next for DeFi?

Money and finance have been around in one form or another since the dawn of human civilization. Crypto is just the latest digital incarnation. In the coming years, we may see every financial service we use in today’s fiat money system being rebuilt for the crypto ecosystem. We’re already seeing asset issuance and exchange, lending, custody and derivatives built for cryptocurrencies.

So what’s next?

The first generation of DeFi’s dapp relied heavily on collateral as security. That is, the user needs to already own cryptocurrency and provide it as collateral in order to borrow more cryptocurrency. More traditional unsecured lending would need to rely on identity systems so that borrowers could build credit and increase their lending capacity, much like SSNs and FICO scores do today. However, unlike today’s identity and credit systems, decentralized identities must be both universal and privacy-protected.

We’re also seeing innovation in the insurance space. Today, many DeFi loans are overcollateralized (which means they are inherently safe because of the sufficient cushion of assets in reserves). But the black swan of DeFi is the smart contract vulnerability. If a hacker finds and exploits a bug in the dapp’s open source code, millions of dollars could be immediately depleted.

Another trend is a better user experience. The first generation of dapps were built by blockchain enthusiasts for blockchain enthusiasts. These dapps did a good job of demonstrating the exciting new DeFi possibilities, but usability left something to be desired. the latest version of the DeFi app prioritizes design and ease of use to open up financial services to a broader audience.

In the future, the hope is that the crypto wallet will be a portal to all of a user’s digital asset activity, much like today’s Internet browser is a portal for users to access the world of news and information. Imagine a dashboard that shows not only the assets owned by the user, but also how many assets are locked up in different open financial agreements (loans, asset pools and insurance contracts).

Across the DeFi ecosystem, we are also seeing a trend towards decentralizing management and decision-making. Despite the use of the term ‘decentralization’ in DeFi, today many projects have master keys for developers to turn off or disable dapps. This is done to facilitate escalation and provide an emergency shut-off valve in case of incorrect code. However, as the code goes through more testing, one would expect developers to drop these backdoor switches. the DeFi community is experimenting with ways to allow stakeholders to vote on decisions, including through the use of blockchain-based decentralized-style autonomous organizations (DAOs).

Something magical is happening in the open financial system – crypto is bringing money online, and people are seeing huge leaps in how money functions. This is a rare opportunity to see a whole new industry blossom from nothing. the DeFi space will be the first to catch up with today’s financial services industry. But as time passes, even if the power to build financial services is democratized to anyone who can write code, it’s hard to imagine what innovation will result.

Published on February 25, 2022

Tagged topics

share iconShare