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Unlocking Web3 – What Every Founder Needs to Know

Web 3 | Jun 26, 2024

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Closing the Knowledge Gap for Founders Transitioning from Web2 to Web3

As more and more innovators turn to the future of Web3, many Web2 innovators and builders may be feeling a widening gap of Web3 knowledge which confronts founders with a unique set of challenges and opportunities. The transition from Web2 to Web3 necessitates not just a new technology understanding, but also a change in how businesses interact with customers and monetize their platforms. Here's a summary of the fundamental differences between Web2 and Web3, as well as insightful and thought-provoking questions and answers to help businesses manage this transformation without falling behind.

Understanding Web2 vs Web3

Web2 and Web3 are key stages in the growth of the internet, each with unique characteristics and technological underpinnings.

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Web2 (Web 2.0)

Web2, often known as Web 2.0, is the second generation of the internet, focusing on user-generated content, usability, and interoperability for end users. This stage of the web is distinguished by the proliferation of social media platforms, blogs, wikis, and other interactive websites that enable users to participate, collaborate, and exchange content.

  • Users can interact with one another and the platform's content, as well as create and share their own.
  • Social networking sites such as Facebook, Twitter, and Instagram enable users to connect and communicate on a worldwide scale.
  • Websites update content in real time based on user activities, improving the user experience.
  • Web2 enables the integration of various applications and services using APIs (Application Programming Interfaces).

Web3 (Web 3.0)

Web3, also known as Web 3.0, is the internet's next generation, emphasizing decentralization, blockchain technology, and enhanced user privacy and security. Web3 aims to give people more control over their data and digital identities by leveraging decentralized networks and encryption technology.

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  • Decentralization is the deployment of data and applications over a network of nodes rather than centralized servers.
  • Blockchain technology facilitates Web3, enabling trustless interactions and the use of cryptocurrencies in transactions.
  • Self-executing smart contracts in which the terms of the agreement are directly encoded in code, enabling for automated and secure transactions.
  • Users now have more control over their data and digital identities, reducing reliance on centralized authority.

Considerations for Transitioning from Web2 to Web3

1.  Data Management

Web2 data is primarily housed on centralized corporate servers. This strategy has sparked questions about privacy, security, and data ownership. In contrast, Web3 improves data security and user privacy by utilizing decentralized storage technologies such as blockchain and decentralized nodes. Decentralized data management ensures that users retain ownership of their data, which may reduce breaches and unlawful data usage.

How can your Web3 project use decentralized data to increase user trust?

  • Decentralized data management ensures that no single entity controls all user data, which increases trust through transparency and security. Implementing technologies such as IPFS or Ethereum guarantees data immutability and user control over personal information. Decentralization lowers the reliance on a single point of control, lowering the risk of data breaches and illegal access. Using cryptographic hashes and storing data across numerous nodes assures that the data is untouched and secure.

What scalability issues may occur with decentralized storage, and how may they be addressed?

  • Scalability concerns in decentralized systems are frequently caused by network congestion and delayed transaction times. Solutions such as sharding, which divides the database to distribute the strain, and layer-2 solutions such as Lightning Network for Bitcoin or Plasma for Ethereum can assist address these concerns by lessening the stress on the main chain.

How will data portability and interoperability be handled in your decentralized framework?

  • To manage data portability and interoperability in Web3, employ standards and protocols like the InterPlanetary File System (IPFS) for storage and cross-chain bridges to connect multiple blockchain networks. These technologies ensure that data is not only transferable between systems, but also consistent and accessible.

2.  User Authentication

Web2's user authentication mechanisms frequently rely on usernames and passwords, which are vulnerable to security attacks. Web3 provides a more secure option by utilizing blockchain-based wallets and cryptographic keys, which give an additional degree of protection owing to their cryptographic nature. This transition not only improves security, but it also corresponds with the self-sovereign identity concept, which allows people to govern their personal data without the need for intermediaries.

How will blockchain-based authentication strengthen your platform's security?

  • Blockchain-based authentication increases security by eliminating traditional systems' central points of failure and employing cryptographic techniques such as public-key cryptography, which strengthens protection against unauthorized access.

Given Web3's self-sovereign nature, what methods will you put in place to retrieve user accounts?

  • Consider developing social recovery methods in Web3 that split a user's identity among trusted associates or a multi-signature technique that requires more than one key to authorize transactions.

What impact will this new authentication technique have on the user experience?

  • While blockchain-based authentication systems improve security, they can be difficult for users to understand. To minimize this, provide clear guidelines and user-friendly interfaces that make handling private keys and wallets easier, and consider integrating with familiar authentication mechanisms such as biometrics or mobile verification.
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3.  Monetization Strategies

Web2 revenue streams frequently include advertising and data monetization, which need considerable data collecting and user tracking. Web3 alters the game by providing innovative monetization strategies like token sales, transaction fees, and staking. These solutions offer direct means to monetize network involvement and can result in more aligned incentives for users and developers.

Can token economics be used as an alternative or addition to existing advertising approaches in your project?

  • Token economics can directly reward user involvement and platform growth, making it a viable alternative to advertising. Tokens can be used to reward users for their contributions, stake them to obtain access to extra services, or participate in governance, resulting in a more involved community.

What ethical issues should you take into account while monetizing user activity in Web3?

  • When monetizing user behaviour, it's critical to be open about how data is used and rewards are delivered. Ensure that token distribution is equitable and that consumers are fully informed of any dangers associated with token ownership or transactions.

How will you handle the regulatory landscape surrounding cryptocurrency and token sales?

  • Navigating the regulatory landscape necessitates staying current on the newest legislation and norms governing cryptocurrency. Consult with legal specialists to ensure compliance with securities laws, anti-money laundering (AML) standards, and other applicable legislation. It is critical that users and regulators receive clear, transparent information.

4.  Platform Governance

Web2 companies often use centralized governance arrangements, with decisions made by a small group of company leaders or stakeholders. Web3 takes a radically different approach by utilizing decentralized governance models such as Decentralized Autonomous Organizations (DAOs), which allow the community to make collective decisions. This paradigm encourages transparency and allows users to participate in the platform's growth and governance.

How can a DAO or other decentralized governance system help your platform?

  • A DAO can improve platform governance by democratizing decision-making and boosting transparency, resulting in greater user trust and participation. It allows stakeholders to directly propose, vote on, and execute changes, so aligning community interests.

What challenges can you encounter while establishing decentralized governance, and how can you assure fair and effective decision-making?

  • The challenges include assuring widespread participation, avoiding manipulation by big players, and dealing with low voter turnout. Implementing systems such as quadratic voting or delegated voting can help address these issues by balancing power and encouraging greater participation.  See: Addressing the Paradox of Governance Tokens)

How will you handle any conflicts and competing interests in the community?

  • To handle disagreements impartially, a decentralized community requires defined governance frameworks, conflict resolution processes, and, in some cases, a third-party arbitration system. Regular community interaction and updates can also help to align interests and resolve disagreements.

Conclusion

Businesses that use decentralized technology, support community-driven growth, and apply creative monetization and governance models can help lead Web3, the next wave of digital innovation and the internet.


NCFA Jan 2018 resize - Unlocking Web3 - What Every Founder Needs to KnowThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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