Introduction to Digital Assets and Web3

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What are Digital Assets?

In traditional finance, assets are anything that can be owned outright that have economic value. Examples include: 

  • Stocks
  • Bonds
  • Cash
  • Land
  • Oil
  • Food
  • Businesses
  • Equipment
  • Labor
  • Buildings, etc.

Digital assets are assets that exist in a digitized format like eBooks, music, videos, documents, event tickets, memberships, and…cryptocurrencies and NFTs. For the sake of clarity, mentions of digital assets refers to cryptocurrencies and NFTs in particular.

For some investors, true assets must be income producing. An example of this is a house that is being rented out. The house that you live in would not be considered an asset. Using this train of thought, income producing assets are seen as the holy grail of wealth building. Cryptocurrencies and NFTs unlock the possibility of generating a passive income through programmable monetary policies.

  • Cryptocurrency – any digital or virtual form of currency using cryptography to secure transactions
  • NFTs (non-fungible tokens) – uniquely identifiable, cryptographically secured assets on a blockchain
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The World Wide Web, Cryptocurrencies, and NFTs

To better understand where cryptocurrencies and NFTs fit in the pool of digital assets as a whole, it is important to look at the web and its evolution.

Web1

Web1 refers to the very first iteration of the World Wide Web (www.). At that time, there was not much content available online. Websites featured mainly static pages that were created by businesses using HTML. Users were generally passive consumers of content on these early websites. Advertisements were also banned while browsing.

Web2

Web2 is the version of the web that we are familiar with today. This iteration had a focus on the experience of the end-user. For example, the introduction of javascript allowed for dynamic content on web pages that responds to user interaction and APIs enabled web applications that did not exist before. This was also the beginning of massive social networks. Unfortunately, to use some of these platforms, this often required surrendering rights to your personal data. As the mantra goes, “if something is free, you are the product”.

Web3

Web3 is the next evolution of the World Wide Web that is currently being rolled out. It is characterized by a focus on the backend of the web that includes 3d graphics, web availability across all devices, artificial intelligence, distributed blockchain networks, and more. 

In the context of the greater web, public blockchains allow for decentralized ownership of goods and services, trustlessness in transactions, permissionless access to applications, pseudonymity, and a myriad of other benefits. 

As a web3 project investor, you will be focusing on public blockchain networks and their ecosystems. To own a stake of/or participate in these networks, you must have exposure to a cryptocurrency or NFT native to the specific blockchain.

Why Are Cryptocurrencies and NFTS Good Investment Opportunities?

In the modern world, more and more of our time is being spent in digital reality. That comes in the form of creating video content, blogging, participating on social media, ordering food, trading on marketplaces, voice calls and conferencing, ride sharing, dating, gaming, training, watching shows, banking…you get the idea. It is estimated that over half of the world’s population has access to the internet today and that number is growing.

As more people turn their attention to the web, more value will accrue in the digital realm as a consequence. With that in mind, if it still makes sense to collectively own companies that built the “real world”, it probably makes sense to collectively own the web that we all build on a daily basis. Cryptocurrencies and NFTs enable this idea of digital ownership and much more.

Ownership

Cryptocurrencies and NFTs make it exceedingly easier to trade digital ownership of goods and services. A great example of this is holding a proof-of-stake cryptocurrency (like Cardano’s ADA). Holding and staking the currency allows you to vote for protocol upgrades and ultimately the future direction of the ecosystem. It also gives you the ability to earn a passive income while securing the network. These privileges can be then traded to anyone in the world, without a central mediator, 24/7.

Other examples include owning and trading intellectual property rights, deeds, and stock derivatives on a peer-to-peer basis. Going further with this idea of ownership, let’s look at the incentives for companies that sell cryptocurrencies and NFTs as a means to raise funds.

Fundraising and Programmable Incentives

Traditionally, companies could only raise capital through private investors or by taking the company public (which is a major regulatory undertaking). Both of these methods require that the owners of a company give up some degree of control, through the sale of stock shares. Crowdfunding has since begun to become a popular means of raising pools of capital for business development. 

Crowdfunding allows the general public to fund early stage companies. In return, the company may offer some sort of reward to its funders that does not include giving up stock. By allowing anyone around the globe to participate in funding a project idea, digital assets take this idea of crowdfunding to the next level. The programmable nature of cryptocurrencies and NFTs also allows for the creation of varying levels of ownership privileges and incentives for holders.

Participation

Within decentralized applications, called dApps, cryptocurrencies and NFTs give a more efficient and immersive way to interact with web native products and services. For example, NFTs allow for exclusive membership access to ecosystems and the benefits those ecosystems generate. Cryptocurrencies are also a censorship resistant, immutable means of transacting within these ecosystems as well.

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Web3 Project Risk

There is risk involved with any investment. For example, you are a poor traveler who stumbled upon a lemon grove. When life gives you lemons, you invest your last dime into building the first lemonade stand the world has ever seen. 

The paint dries, the last nail goes into the teak board and suddenly a disease wipes out all the trees in your area. The venture is dead in the water. Remember the most well-intentioned, well-positioned investments still fail. Web3 project investing is no different.

With an industry that embraces privacy and censorship resistance, scams have been able to flourish and become more elaborate over time. What the space boils down to is computer code that can be written and deployed by anyone in a trustless manner. Founders randomly leave projects, malicious code can steal funds, price manipulation creates money printers for the few, etc. While it seems as though making money in web3 is easy, thorough due diligence and money management skills are paramount when it comes to minimizing losses.

  1. Encyclopædia Britannica, inc. (n.d.). Internet. Encyclopædia Britannica. Retrieved May 17, 2022, from https://www.britannica.com/technology/Internet 
  2. What is web3 and why is it important? ethereum.org. (n.d.). Retrieved May 17, 2022, from https://ethereum.org/en/web3/ 
  3. Web 1.0, web 2.0 and web 3.0 with their difference. GeeksforGeeks. (2022, January 27). Retrieved May 17, 2022, from https://www.geeksforgeeks.org/web-1-0-web-2-0-and-web-3-0-with-their-difference/ 
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