Web3, A complete breakdown: Beginner's POV

Breaking down the 3 in web3

Web3 from an entry POV looks overwhelming and scary. You will be able to learn and make progress when you make peace with the fact that you will not know every project and concept and feel like a newbie every day where you will end up spending your time researching and learning about new concepts and that’s the beauty of entering an early stage ecosystem which continues to be in if not “stealth” mode but building mode.

The user experience SUCKS in bold letters but the fact is, UX & knowledge sharing will be broken, the onboarding will look scary and there will be a huge inflow and outflow of projects and concepts every single day.

Now, if you’re reading this, you would have been introduced to web3 in a different shape and form which end up building your experiences and social circle in the space.

[Personally, NFTs were my entry point and back then, without understanding the use case and utility I saw it as a quick method to mint some coins and get rich, mistaking the bull run for my success did give me a much-needed lesson- but that’s a story for some other day]

Based on my experiences and observations- this is how introduction and learning happen- You get introduced by the top layer of an ecosystem, intrigued and curious you end up exploring more and understanding what it takes to build it and thus, you seep in deep, starting from the protocol layer, end up moving/ building bottoms up.

For web3, I have categorised the space into 3 broad categories:

1. Protocol layer

   1. Layer 0: Referred to, as the “data transfer” layer, think of layer 0 protocols as a building block for the rest of the protocol world. How at the most basic layer, Amazon or google needs a hardware system to share the various services and enable different components of the ecosystem like big organisations, etc. layer 1 blockchain and beyond needs internet, hardware and many other connections which are enabled by layer 0 protocols like Polkadot, Cardano & more.

   2. Layer 1: This layer enables distribution and interaction and is referred to as the “implementation layer”. As an advancement to layer 0, it enables processing and finalising transactions which further acts as a public ledger source making the entire space truly “decentralised”

      Almost all layer 1 chains host their own coin which is used to cover their running cost which is an oversimplified term for “gas fees”

   3. Layer 2 & scaling: Layer 2 and other scaling solutions came from the limitations layer 0 and layer 1 have in terms of “scaling” or to be precise the “Blockchain trilemma” as coined by the OG, Vitalik, founder of the Ethereum network which says out of scalability, security and decentralisation a network can only provide two out of three benefits at any given time.

      Also referred to as the application layer, it hosts DApps & other user-facing interfaces that can be integrated with third-party solutions and provides scalability to layer 1 network. Eg: more transactions per second (TPS) and lower gas fees

      

2. Infrastructure layer

   1. Cloud and security: For applications to build out, cloud and security are the two most important components in web 2 and 3. For a DApp building out for a mass audience and providing various functionality, like selecting the network to build on, selecting the right player in the infra layer becomes all the more important.

      Decentralisation takes cloud and security to another level of Decentralised cloud or Decloud where all the customer data is stored on-chain.

   2. Analyse: Amongst the “n” number of transactions happening every single day on-chain with transparency, there comes a ton of opportunities to study the data every single minute and build on it. Eg: Studying transaction behaviours of the whales, predicting coin movements, tying it to the social data and analysing sentiment etc. The on-chain analysis enables researchers, journalists, builders & more personas in web3 to stay updated on the micro and macro market/ VC behaviour with methods such as wallet tagging.

   3. Govern: With a large number of decentralised organisations, comes decision-making. To have a centralised authority making decisions would be a violation of the law of decentralisation and therefore, the Decentralised Autonomous Organisations (DAOs) exist and so does tolling options to make the process efficient.

   4. Identity: Tying identities to different wallets and accounts help build transparency and make analysis easier- managing digital identities in a decentralised way and being able to control your own data & information and protect your privacy is key in web3.

   5. DeFi: DeFi is too long and vast to cover in a few lines and thus, a deep dive is another for the blog but, DeFi is by far one of the most valuable use cases the blockchain world has gotten into. Giving users the power of their assets on the public blockchains without the involvement of any centralised authority or to simplify it can also be called a P2P financial service on a public blockchain.

      Like traditional finance, DeFi has various elements to understand, build on and opportunities to make money, being:

      1. DEXes

      2. Borrow/ lend

      3. Swap

      4. Payments

      5. Yield farming

      6. Staking

      7. Insurance

      8. Market makers

3. Access & use-cases

   1. Access: Access and identity are tied together in, I use identity to build out the naming convention in a soft manner but access to applications allows the user to log in and tie different DApps with one identity. Building out as fundamental elements to shape the digital future, applications are being built out in an inclusive and trustworthy manner to enable users to log into various DApps with a single identity- a step towards a better user experience.

      Here, information aggregation is a classic way to enter the space and enable knowledge sharing and thus, I have classified them into the third category i.e “access to the ecosystem"

      1. Wallet

      2. Information aggregators

   2. Use Cases: On all the layers, there are several use cases and models being built and tried out, some of the most common being the “Metaverse ecosystem”, decentralised browsing like brave, decentralised blogging platforms like mirror, single etc and decentralised social media like lens protocol.

      Apart from the most wide knowns ones, there are blockchain use cases being built for the public sector as well such as giving out grants, recording public financial transactions and more.

      1. Marketplaces

      2. Gaming

      3. Connect

      4. Other use cases

While I was trying my hand at summarising the web3 ecosystem, I came across a lot o new projects which I was unable to categorise into my layers and were building out into multiple layers of the ecosystem.

Thus, for any high growth and new space, at times it becomes tough to constrain a project to one category.

[POV: I have written out this article as per what as a beginner I would have appreciated reading as a macro way to understand the space, and will continue to write out in this perspective with the acknowledgement that I continue to learn about the sector as I make my way up and will continue to share my learnings here. Will be posting edits, if any here]

I would be happy to chat in the context of collaboration, edits and suggestions, Please feel free to write to me at mishika.work@gmail.com