Is the popularity of Runes a regression of encryption technology or a reflection of the value of Web3?

Author: @Web3Mario

Introduction: Yesterday, I accidentally learned from a friend that he had obtained a considerable return on investment in the field of BTC inscriptions, which deeply aroused the author's mentality of stepping into the void. I was anxious for two consecutive days, which was really shameful. Recalling that the Ordinals technical architecture had just been released earlier, the author studied the relevant documents, but as a developer, I was quite dissatisfied with this technical path. At that time, I judged that this was simply a step backward in encryption technology, because its design concept seemed to be similar to a distant altcoin project Color Coin, that is, how to use the BTC technical architecture to issue some independent tokens, but the difference is that Ordinals did not redevelop a chain, but chose to reuse the current BTC network that has been widely agreed upon. Compared with the proposal of on-chain virtual machines (such as EVM or other WASM), this architecture has been proven by the market to be somewhat crude and non-scalable. Due to the fact that BTC does not have a Turing-complete execution environment, the development of related application layers is relatively difficult, and it is also very expensive! Even after the release of the so-called orthodox Runes technology, the author was quite dismissive after reading the relevant documents. It just determined some standards to make the so-called BRC-20 look less crude, and these are simply not worth mentioning in the on-chain virtual machine solution, because designing an ERC-20 is really something that a novice Web3 developer can accomplish... However, these judgments are so pale and ridiculous in the face of the real wealth effect. After calming down, I have some related thoughts to share with you and explore what the core value of Web3 is.

The tangible fact at the root of all our thought-distinctions, however subtle, is that there is no one of them so fine as to consist in anything but a possible difference of practice. To attain perfect clearness in our thoughts of an object, then, we need only consider what conceivable effects of a practical kind the object may involve—what sensations we are to expect from it, and what reactions we must prepare.

----William James

Anarchist Post-Snowden Web3

In the previous introduction, we have reviewed the development history of the Web. In the classical liberal network era, the Internet protocol design principles of openness, inclusiveness, globalization and neutrality were gradually formed. However, with the emergence of a large number of Web applications, the composition of Internet users has changed greatly. From the previous user, the subculture group of coders, it has become a universal mainstream culture group covering all kinds of people. Pragmatism with high efficiency and low cost as the priority has prevailed.

But this does not mean that the principle of open protocol disappears completely. Unlike political revolution, the evolution of technology is non-violent, so the evolution of the corresponding ideology is a gentle fusion process. In fact, some developers, whom we can call the remnants of classical liberalism, have been adhering to the principle of open protocols to carry out technology research and development and related concept promotion work. We can easily find them, such as the Free Software Foundation, the Electronic Frontier Foundation, the Wikimedia Foundation and other organizations. They have successively funded and promoted many interesting technical solutions, such as Tor, VPN, SSH, etc., and they are also the earliest users of Bitcoin, using Bitcoin for fundraising. Therefore, there is reason to believe that the design of Bitcoin must come from this group of people, and the initial purpose is to develop an unregulated, anonymous electronic cash system for payment for organizations.

With the huge success of Bitcoin, it has attracted the interest of some computer experts. I believe Vitalik and Gavin Wood belong to this group of people. With the help of Bitcoin's most important original technology: the POW consensus algorithm, it has become possible to build a decentralized, anonymous computer system, and thus completely change the classic C/S Web development paradigm.

With the outbreak of the sensational "Prism Incident", the credibility of technical and political authorities has been greatly reduced, which provides an excellent opportunity for the promotion of new concepts. Therefore, we can see the emergence of Web3 with the latest semantics, that is, Web3 proposed by Gavin Wood. Here I think it is necessary to quote this classic description again:

Web 3.0, or as might be termed the "post-Snowden" web, is a re-imagination of the sorts of things we already use the web for, but with a fundamentally different model for the interactions between parties. Information that we assume to be public, we publish. Information we assume to be agreed upon, we place on a consensus ledger. Information that we assume to be private, we keep secret and never reveal. Communication always takes place over encrypted channels and only with pseudonymous identities as endpoints; never with anything traceable (such as IP addresses).

The core vision of this version of Web3 is to build a decentralized, uncensored, and fully privacy-protected online world, which can be seen as a classic interpretation of anarchism in the online world, so I would like to call it anarchist Web3. It is worth noting that the significance of making such a clear distinction is that we need to figure out what principles should be used to guide our application design in order to achieve the ultimate vision, so as to complete the construction of the network, which is most in line with our demands.

Under the guidance of such an ideology, the ultimate pursuit of decentralization and privacy has spawned a series of interesting Web3 projects. The successful cases in such projects are usually based on the underlying infrastructure. Recalling those exquisite cryptography and consensus algorithms, I will not give specific examples, because you can find many famous projects, but there are not many projects involving the application layer and protocol layer. Perhaps ENS is an exception.

Hyper-financialized Free Capitalism Web3

Since MasterCoin designed the ICO crowdfunding method in 2013, the crowdfunding financing model with cryptocurrency as the underlying asset has gradually become popular, and with the improvement of the protocol layer such as ERC20, the threshold for issuance and participation has been greatly reduced. In 2017, the development of ICO reached its peak.

Let's review that period of history. Coin (that is, Token) as the underlying asset has also evolved into different types, the most representative of which are practical certificates and ownership certificates. The former is similar to an admission ticket. Only by owning this certificate can you have the right to use the target project. In fact, in the early days of ICO development, most of the tokens issued by projects belonged to this type, including Mastercoin, NextCoin, and even Ethereum (the early design of Ethereum did not include POS planning).

The emergence and rapid development of ownership certificates, I think, are inseparable from two opportunities. The first is that a geek named Sunny King proposed Proof of Stake (POS) in 2012 and developed Peercoin. I think the greatest contribution of this concept is that it was the first time to propose a paradigm design that uses Tokens to carry a certain exclusive network ownership (although here, Tokens carry more of a dividend right). Then the paradigm design around network ownership became a hot topic, and in 2018, EOS's ICO reached its peak of development. However, the excessive development bubble and the explosion of applications that have been delayed in fulfilling their promises have caused the development to stagnate.

The second development opportunity of ownership certificates, I think, can be traced back to the issuance of Comp by Compound, which completely opened the era of ultra-financialized free capitalism Web3. For a long time before this, the focus of the development of ownership certificates was on the allocation of ownership of the underlying network, and the application layer did not seem to respond. In fact, some of the well-known Dapp projects were born very early. At that time, "administrator governance" + "payment system" was basically the mainstream model. Until the emergence of Comp, the Dapp development model of "community co-governance" + "Mining incentives" around the key uses of Dapp, which realized the ownership of the application through Token, gradually gained wide recognition and developed rapidly. Due to the rich financial returns, smooth exit mechanism and free market environment, investors of all sizes have brought massive amounts of funds into Web3. Similar to the changes in the classical liberal network, the industry has once again ushered in changes along with the changes in the main user composition. The meaning of Web3 has also undergone a great transformation. Let us recall the definition given by Chris Dixon:

Web3 is the internet owned by the builders and users, orchestrated with tokens. In web3, ownership and control is decentralized. Users and builders can own pieces of internet services by owning tokens, both non-fungible (NFTs) and fungible. 

The difference is now very obvious. Web3 has gradually shifted from its original pursuit of decentralization and personal privacy to carrying network ownership through digital assets, thereby realizing the redistribution of network resources. Under this vision, the private ownership of digital assets and an absolutely free market are the ultimate goals, while de-authorization and the degradation of personal privacy become means to ensure the above two goals. This is an important change, which is basically equivalent to the political pursuit of liberal capitalism (in fact, in political philosophy, liberal capitalism is basically equivalent to a specific and concrete anarchism). Under the guidance of such an ideology, the innovation of the value categories and ownership distribution methods carried by digital assets has become the main evolutionary direction. Basically, before the recent intense wave of deleveraging, the main innovations in the Web3 industry were concentrated here. We need to be very clear about the difference between the two, because this will bring two completely different evaluation criteria. Some Web3 projects are very good in the eyes of anarchist Web3 supporters, but they seem meaningless to liberal capitalist Web3 supporters. Of course, there are also completely opposite situations. In the final analysis, it is because of ideological differences.

Innovation around digital assets will continue to be the core driving force of Web3

After clarifying the difference between these two propositions, I hope to explore what the core driving force of the next wave of rapid development of Web3 may be. Personally, I am more in favor of some views of pragmatism. In my opinion, the significance of judging a certain idea or concept of a thing lies in the effect of this idea on people's behavior and the value it produces. Relying on metaphysical top-down thinking is usually not conducive to the development of society. From this perspective, I also recognize socialism.

Under the guidance of such a concept, I think the development of the network world is likely to develop along an eclectic, low-friction path. Remember the network ideology map we mentioned in the previous article? Generally speaking, we can classify the classical liberal network, anarchist Web3 and free capitalist Web3 into the same area. This is the relative part of the technical authoritarian network, and the future network world ideology will burst out with greater energy in the blue shadow part. The core of driving this development lies in whether there will be new and more universal value propositions to be discovered. From some existing achievements, I think digital assets basically have such capabilities, or innovation around digital assets will continue to be the core driving force of Web3.

First of all, I need to state that I do not disagree with the value of work related to decentralization and privacy protection. On the contrary, I think the relevant achievements are usually enlightening. It’s just that from the current actual situation, these two goals are usually based on the evolution of cryptographic technology and are subject to the development of related technologies. Most of the products supported by this concept are not satisfactory in performance, or compared with some mature computer network technologies, these products still have a lot of room for improvement. Moreover, as a basic discipline, cryptography has the characteristics of large investment and long output cycle, which is not consistent with the current development status of Web3 enterprises, and I don’t think this situation will change in a short time.

However, the discussion on digital assets will be different. So far, I am still impressed by the ingenuity of the design of digital asset ownership (or encrypted assets) in the Web3 world, of which the most direct impact includes three aspects:

• A method of confirming ownership that relies only on technical guarantees;

• A method of realizing digital assets that ensures the owner's exclusive control over digital assets in physical form;

• A method of transferring digital assets based on the network;

It is no exaggeration to say that any technical solutions and specific products before this are not as perfect as the Web3 solution for the realization of digital assets, which also brings more practical value to digital assets in Web3, that is, high liquidity and low-cost trust guidance, injecting new vitality into the development of the network world. Therefore, I believe that the core driving force of the next wave of rapid development of Web3 will continue to be innovation around digital assets, and in simple terms, innovation may be carried out from the following aspects:

* Paradigm innovation: Similar to FT and NFT, the introduction of each new paradigm of digital assets has injected unprecedented development momentum into Web3, because the introduction of a new paradigm gives people a specific boundary for innovation and has guiding significance. On the surface, Fungible and Non-Fungible, a pair of opposite categories, are enough to cover all types, but what I want to express is that this is wrong. Imagine gender. We have taken gender binary for granted for a long time, and then look at what we have achieved now. In fact, I think it is interesting to propose some Token paradigms with different characteristics under specific conditions, and Fungible is just one of the dimensions. There will be more dimensions to be discovered. Of course, the premise of innovation is to propose specific application scenarios for the corresponding paradigm to be valuable. Recently, I think the introduction of new digital asset carriers such as Runes is a very good start;

* Value innovation: Through a certain economic model or a certain application design, combined with the existing FT and NFT paradigms, carrying a new type of value, this is also a very meaningful innovation direction. Taking FT as an example, I think the value currently carried by FT can be roughly abstracted into the following types: practical value, growth value, dividend value and governance value. In the following article, I will analyze the differences between these four types of value in detail. Combined with the current development of the industry, I think credit value is likely to be the fifth dimension to supplement this.

* Business innovation: This type of innovation usually takes specific business as a breakthrough, trying to solve old problems with new methods in the hope of achieving better results. Here I think there will be two potential innovation paths. The first is the transformation of traditional Internet business, using certain characteristics of digital assets to partially optimize or transform existing business models and form new competitiveness. The second is the optimization and transformation of existing usage models combined with digital assets, or it can also be called innovation in the token model. This type of innovation can usually act as a catalyst for industry development. Yield Farming, X-To-Earn, etc. all belong to this category;