Decentralization, DAOs, and current Web3 concerns

What we call Web3 will center around a decentralized ecosystem of technology products based on blockchain networks that are interoperable and free of traditional trusted validators such as businesses, institutions, and government agencies. But what exactly does that mean?

What is Web3?

Web3, a term coined by Gavin Wood, chairman of the Web3 Foundation, is the next phase of the internet and perhaps the organizing of society as a whole. Web1 was an era of open, decentralized protocols where most online activity involved browsing individual static pages. The Web2 we are living through is an era of centralization, where most communication and commerce takes place on closed platforms, owned by a handful of technology companies and under the centralized control of regulators and government agencies.

In contrast, the goal of Web3 is to solve all the problems that arise in Web2, and put the power of data ownership and digital identity in the hands of individual users. Right now, digital identities belong to big technology companies.

In other words, Web3 is a decentralized online ecosystem based on blockchain. To understand this better, see the diagram below to compare the architecture of a Web2 application and a Web3 application.

This means that platforms and applications created on Web3 will not belong to some central gatekeeper, but to the real data owners: humans. In short, people will be the main focus of Web3.

Decentralization and trust in Web3

Rather than relying on a single centralized server, Web3 is built on top of a blockchain network, driven by cryptography, making it possible to store data on distributed devices (also called "nodes") around the world.

Such a distributed device could be anything - a computer, a laptop, or a more powerful server. These devices serve as the framework of the blockchain network, communicating with each other to enable the storage, dissemination and preservation of data transactions without the need for trusted third-party validators (such as institutions, companies or governments).

In other words, thanks to nodes running blockchain software, decentralized records of property transfers are now possible like never before. Now, based on the way Web2 is built, we have no choice but to hand over our data to technology companies, governments, and their respective centralized storage servers.

Therefore, we need to trust these traditional third-party verifiers to use our data in an ethical and secure manner. It’s just that we’re also surprised when scandals come to light, like the Facebook and Cambridge Analytica data scandal.

In the current web structure, our data is easily traded on "behavioral futures markets" without our knowledge of it or how it affects our lives. So it should come as no surprise that ownership of our data and decentralized identities, also known as self-sovereign identities, are considered prerequisites for Web3.

Automating Trust Through Web3 Interoperability

In Web3, individual users manage self-sovereign identities and data ownership through digital wallets such as MetaMask (compatible with the Ethereum blockchain) or Phantom (compatible with the Solana blockchain). These digital wallets are more or less like wallets in the real world. Therefore, a digital wallet can serve as proof of your Web3 identity and safely store your currency and data.

This wallet is interoperable, meaning it can be easily created on the Internet and work with a variety of products and systems, allowing users to choose which decentralized applications to access their data and identity. Additionally, all transactions and interactions on a blockchain network are permissionless; they do not require the approval of a trusted third-party validator to complete. But how important is that?

Today, individuals must log in with Facebook or Google to access many online applications, forcing them to hand over their data to these companies. In Web3, by contrast, individuals will have their own digital identities. By using blockchain technology to replace third parties, Web3 opens up a new business model and value chain, and centralized middlemen will no longer be favored. Ultimately, Web3 takes the power back from the middleman and back to the individual. Now, you must be wondering if such a shift in power is actually possible.

In fact, we’ve seen this firsthand with non-fungible tokens (NFTs). Content creators have recently started experimenting with a number of ways to generate the majority of their income from their work. And that’s thanks in large part to the functionality of smart contracts, especially NFTs, to enable a secondary royalty structure, meaning creators themselves get paid every time their work changes hands on the open market. Creators are earning more than ever because of this fundamental change in the value chain.

In addition to this new value chain, Web3 also created a brand new economic organization - DAO. These decentralized autonomous organizations are the central function of interaction across the Web3 space. Let's find out.

DAOs in Web3

DAO is a unique, self-governing organization that is completely run by blockchain smart contracts, has its own charter and procedural rules, and replaces daily operation management with self-executing code. The main advantage of DAOs is that, unlike traditional companies, blockchain technology makes DAOs completely transparent.

Anyone can see and analyze all DAO actions and funds. This transparency greatly reduces the risk of corruption, illegal activity or fraud by preventing critical information from being censored.

Furthermore, it is the blockchain technology that ensures that the DAO maintains its purpose. This is because, like NFTs, DAOs also work with smart contracts that can trigger actions when certain predetermined conditions are met. For example, in the case of a DAO, a smart contract can ensure that proposals that receive a certain number of affirmative votes are automatically passed.

And, unlike traditional organizations that operate from the top down, DAOs employ a flat, hierarchical structure that allows all members to have a say in key decisions that affect the wider group — not just key shareholders.

Additionally, DAOs are more accessible to ordinary individuals because the barrier to entry is not as high. Typically, the people who are able to invest early in an organization and ultimately reap the lion's share of the financial returns are extremely wealthy and well-connected individuals.

In DAO, this is not the case. People all over the world can participate, and the cost of participation will be much lower.

Already, DAOs have been used to manage communities and fund projects such as managing a basketball team in the NBA and even trying to buy the first printed version of the U.S. Constitution. However, the road to Web3 has not always been smooth.

What are the current problems with Web3?

Today, ordinary users need to do a lot of learning and experimentation in the process of using Web3 technology. The lack of user-friendly design in current Web3 applications hampers user experience and leads to a steep learning curve.

In fact, these factors represent a significant barrier to entry for most. When we consider the time required for software code exploration and development, as well as the current focus of developers, we realize how far from the priority user experience is.

While the Web3 platform is difficult to use, it's worth noting that this is only because things are so new and most developers are still focused on developing the underlying technology.

Where is the future of the web?

Every major change comes with high stakes. One of Web3's greatest strengths is its intention to return ownership of data to its true owners—humans—but this "advantage" is also its greatest challenge.

A better explanation is that a fully fledged Web3 space is still a long way off, and no one knows what exact form it will take. Since the Web3 infrastructure intends to be completely decentralized and use a peer-to-peer network, without traditional trust verifiers (or intermediaries), people will be fully responsible for their own data and encryption activities.

This means that for users, cultural barriers and behavioral changes must be overcome, understanding what a digital wallet is, how public and private keys work, which cybersecurity practices are most appropriate, and constant vigilance against phishing scams , never give your private key to third parties, etc. In other words, users will not entrust the security of their identities and data to third parties; rather, they themselves will be responsible for vigilance at all times.

In short, security is still not a universal truth in Web3. You may believe in the blockchain, but do you believe in yourself? There is also the question of scalability. While few would argue that decentralization itself is a bad thing, transactions on Web3 are slower precisely because decentralized networks cannot scale satisfactorily at the current stage of blockchain structure development.

In addition, there are gas fees — fees that users pay for using the Ethereum blockchain, one of the two most popular blockchain platforms in the world. In other words, "gas" is the fee required to successfully conduct a blockchain transaction. During peak trading times, these fees can drive transaction values into the hundreds of dollars.

Then there's the decentralization conundrum. Although blockchain networks and DAOs are decentralized, many of the Web3 services that use them are currently controlled by a handful of private companies. There are reasons to worry that the emerging industry behind the decentralized web (Web3) is highly centralized.

Regardless, it's important to remember that while Web3 still has plenty of concerns and hurdles to overcome, it's still in its infancy, and talented people are actively working to solve current problems.

And you? Do you think we will enter a new era of a truly decentralized and privacy-focused web? Do you think we will eventually reach this goal if developers can successfully solve the current Web3 problems?

knowledge is power!

Cointelegraph Chinese is a blockchain news information platform, and the information provided only represents the author's personal opinion, has nothing to do with the position of the Cointelegraph Chinese platform, and does not constitute any investment and financial advice. Readers are requested to establish correct currency concepts and investment concepts, and earnestly raise risk awareness.