Why We Web3
What is the value of smart contracts? What is the purpose of blockchain? What problems do cryptocurrencies, blockchain, smart contracts, and web3 solve? This is the article to send to your friends and family who don’t understand blockchain, or think that it’s just full of scams.
Introduction
At ETH Denver, Ethereum’s largest conference, I gave a talk titled Decentralized Data and Computation, which was about Chainlink, but also I felt I needed to give the audience a gift. Every time I give a talk about anything in web3, I feel it’s important to give context for why all of this matters. We all get questions a lot like:
- What is the purpose of blockchain?
- What problems do smart contracts solve?
- Are NFTs scams?
The NFT question I give a bit of a humorous answer to, but the first two are deeply important and many people still don’t know why we are working so hard with this new technology. Well, I’ll give you the answer right now:
Trust. Minimized. Agreements
That’s it, that’s why we are here. Now to a lot of people that might be a little confusing, so another way to say it is:
Unbreakable Promises
That’s right, the purpose of blockchain, relates to the age old elementary school unbreakable promise, the pinky swear.
We now have the technology to make unbreakable promises and, more accurately, trust minimized agreements. So in a way, we have uncovered a technology that makes pinky swears actually permanent!
Cryptocurrencies and blockchain fundamentally re-landscape agreements and markets as we know them. Unfortunately, you’ve probably only been bombarded with imagery of people screaming about money.
Some of the memes are fun, but let’s forget the bullshit, and get down to the essence. If you’re already in web3, this is the article to send to your friends to explain why we are here. And if you’re not in crypto, then you’ve come to the right place.
Also, if interested, I have a video version of this article.
Agreements, Contracts, and Promises
Nearly everything you do in life, is the result of an agreement or a contract.
- Your Chair was the result of an agreement to buy and sell lumber, to assemble and sell the chair to a retailer or amazon, then you made an agreement to buy the Chair for $40.
- The lights in your house are powered by electricity, which is an agreement from you and the electric company, you agree to pay them and in return they keep the lights on.
- With insurance you agree to pay them some amount of money every month, and in return they will do nothing, er I mean help cover your bills.
Almost everything you do is the result of an agreement/promise in some aspect.
- When you get an oil change, they promise to change your oil in exchange for money.
- When you put your money in a bank, they promise to keep it safe in exchange for them to use your money to give out loans.
- When you buy a lottery ticket, the lottery promises to give you a fair chance at winning a ton of money in exchange for you buying a ticket.
Whenever you make a one of these agreements, in a way, you’re asking them to make a pinky promise to not screw you over and treat you fairly — but this doesn’t always happen.
Trust Me, I’m a Big Company
Let’s look at a real world example of the pinky swear. Back in the 80s and 90s McDonalds ran a promotion for people to win money by collecting McDonalds Monopoly game cards.
The idea was simple, you buy McDonalds, and in return you get a chance to win $1,000,000! You can image McDonalds going: “Hey everyone, I promise if you buy our McFood, we’ll give you a fair chance of winning the money!”.
But they ended up breaking this promise.
Instead of having a fair chance of winning, your chance was in fact, zero.
In the mid 90s, between 13 and 24 million dollars went into the pocket of not people playing the game honestly, but a group of corrupt insiders who rigged it. Meaning when you played the McDonalds Monopoly game, you were buying in a set of lies and promises that 100% were going to be broken.
And it doesn’t matter if it was McDonalds “fault” or not, they were the ones making the promise that they ultimately broke, and they had the centralized control to allow this to happen. Anytime you have a single entity running a process or agreement, you are introducing single centralized points of failure. And all someone has to do is exploit 1 small area.
That’s $24 million dollars that they essentially stole. If this system was deployed on a blockchain with something called a smart contract, it would have been impossible to defraud $24 million dollars due to smart contracts being immutable, decentralized, and transparent. But I’ll get back to that in a minute.
Here, I’ve even code what one of these would look like. These aren’t myths, these exist today.
History Lesson
All the agreements we make, imagine making a pinky promise with them. Can you really trust that they will always do it?
Immediately you might get that worrying feeling in your chest. That feeling that something might go wrong. That feeling like you can’t breathe. That this ten year old might lose my money. You might be thinking:
How could I trust them?
Will they break their promise?
And this feeling of “I can’t breathe” we get when we get into an untrustworthy situation happens all the time.
- Can I trust this used car salesperson to give me a decent car?
- Can I trust this tag that says “machine washable” or will my shirt shrink?
- Will my insurance provider break their promise of covering me when I get hit by a car?
- Will my boyfriend remember my anniversary like he promised?
(That last one is a bit of a joke…)
The issue in our current agreements is that we have to trust the people who are making them. And often, we know that they don’t even want to keep their promise!
- With insurance, they promise to pay us when we get injured, but they don’t want to give out free money.
- With salespeople, they are often incentivized just to sell you no matter if the product sucks!
Let’s look at more examples where this has happened, where we as a collective have trusted a centralized entity and they have broken our trust, and broke their promise.
- The McDonalds lottery that we spoke of above.
- During the great depression with the run of the banks. Banks promise to have our money and keep it safe, but there have been times when they DIDN’T have our money or keep it safe.
- Robinhood made the promise of giving you fair access to the stock market, and then rug pulled us all by only allowing users to sell certain assets.
- The 2008 Financial crisis where shady deals behind closed doors combined with lies about financial products caused the entire world to go into economic meltdown.
- Hyperinflation in Zimbabwe.
- Hyperinflation in Brazil.
History is a relentless lesson of “trustworthy” entities that end up being notorious promise breakers.
And we finally have a way to fix it, with smart contracts and blockchain.
What is a Smart Contract? What is Web3?
Smart Contracts
A smart contract is an agreement that is deployed to a decentralized blockchain, and unlike traditional agreements, once a smart contract is deployed, it:
- Cannot be altered (is immutable)
- Automatically executes
- Everyone can see the terms of agreement
All you need to know, is the the code is executed by a decentralized body, meaning no 1 person or entity can alter it. Typically this is with a decentralized blockchain, combined with a decentralized oracle network. And if those worlds sounds like I’m conjuring a magic spell, you can learn more about the technicals of smart contracts in my smart contract coding course, or learn more from this link, and hybrid smart contracts as well.
For those less technical, you can think of it a little like https with the internet. The vast majority of people don’t even know what https stands for, and yet they use it everyday, it’ll likely be the same with blockchain based smart contracts.
Web3
Web3 is the “next generation of the web” powered by decentralized services, instead of the centralized ones we know.
- Web1: Users interact with “static” sites.
- Web2: Users interact with dynamic sites that run off centralized servers on the backend — which often use the services to profit in backdoor ways.
- Web3: Users interact with dynamic sites that run off decentralized services, where everything is transparent.
Now how does this fix the McDonalds monopoly issue?
In its traditional form, the lottery was executed behind closed doors. Someone operated and owned the code that ran the lottery, and they had the power to alter it, and no one could audit this altering.
If this code was deployed onto a blockchain EVERY time a hacker even attempted to alter it, everyone would be notified.
Not only that, but you couldn’t even alter it, because the terms of a smart contract cannot be altered.
Combine the smart contract with a Chainlink VRF oracle to get verifiably random numbers, and presto, you now have a perfectly decentralized, unalterable agreement that is impossible to hack, commit fraud on, or manipulate. We have just saved the common people over between $13M and $24 million dollars.
In fact, tamper proof lotteries like this already exist, like PoolTogether.
How does this fix Robinhood?
Well, actually, the problem of Robinhood is already fixed. Robinhood had the issue of an exchange being 100% owned and operated by a single entity, the Robinhood company.
But guess what, we have decentralized exchanges already right now, like Uniswap. You can swap ERC20 tokens which are sort of the blockchain equivalent of stocks (I say sort of, because some of them are not like stocks, but I digress). This would have saved retail investors hundreds of millions of dollars.
How does this fix run of the banks?
With transparency built-in and automated solvency checks, you can automatically built a bank-like smart contract where it’s impossible for them to get greedy and become insolvent (insolvent means “broke af”.)
And oh? What’s this? We already have protocols that can make loans in a 100% decentralized context? Who would have guessed! Yes, you can use Aave to deposit funds, gain some interest, and take out loans.
Truth > Trust
This is why smart contracts are important. Now, especially in a time where big money runs, owns, and controls everything, we need to move to a world where someone can’t just “flip a switch” and go back on their promise when they stop making money hand over foot.
We can move to a world away from brand based promised to a math based. Right now, if we don’t like the service or promises someone makes for us, all we can do is walk down the street to the next brand and we have to cross our fingers and hope they are going to actually deliver on their promises.
Or, we just could just use a smart contract where it’s impossible for it to not do as it says. Because it’s a decentralized autonomous agreement, has no incentive to be evil, and everything is out in the open.
If I’m a big company, maybe I want to fudge some numbers behind closed doors to make 1+1=3… But with a smart contract, it’s impossible.
Now, given the choice between two agreements:
- One where you have to trust a human being is going to actually deliver.
- Vs a decentralized collective of automated peers?
Which one are you going to pick?
I’m picking the one that can’t screw me over every time, for every agreement I can.
How close are we to this future?
Now this technology is still relatively new and we are already seeing it reshape entire markets. The traditional financial world is already getting its lunch eaten by the new world of DeFi (Decentralized Finance). There is already over $200B in the Defi world, and more and more people are quickly joining the cause that is more transparent, immutable, accountable, and more fair for the average person.
We desperately need to rework the financial world so that everyday people can stop having their chance for wealth robbed by people bend the rules to suck out every last cent out of the people they work with — and this is our ticket to this better world.
We are still working on more and more industries, but this where we start.
Conclusion
Smart Contracts give rise to “Trust Minimized Agreements” and this is what we are here for.
Now, blockchains and smart contracts do more than just “trust minimized agreements”. They have security benefits, execution speed benefits, uptime benefits and so much more, but it’s a lot easier to boil it down to one and then learn about the others later.
So this is why we are here, and this is why we are so excited. If you learned something here, and have a friend who thinks cryptocurrencies are just a stupid scam world, you need to send them this article or video! NFTs and ERC20s are fun, but the real value that is going to last beyond the hype is this revolutionary way to conduct agreements.
This is why I make so many of these tutorials. And I’ll see you next time.
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