William Smith – Page 3 – Augmented & Virtual Reality Confabulation

February 21, 2022

Overcoming the Ethereum Blockchain Trilemma

As the use cases of blockchain technology have ballooned in recent times (with everything from NFTs to oracles), a significant problem has emerged with protocols such as Ethereum. The high demand for making transactions on the blockchain has led to the gas fees which are necessary to power them becoming increasingly expensive. At the same time, the algorithms that must be performed to add to the blockchain are proving wasteful and slow. In short, blockchains have a major throughput problem – one that could even scupper the arrival of Web3. So just what is being done about it?

The Blockchain Trilemma

Vitalik Buterin, co-founder of the Ethereum blockchain, has postulated a so-called “blockchain trilemma” that means developers have to make trade-offs between decentralization, scalability and security – without being able to deliver all three at the same time. In its current incarnation, Ethereum is arguably prioritizing the latter two.

The long-awaited Ethereum 2.0 is a response to these concerns but has been in gestation for so long (since 2014!) that even its name has been deprecated. The ideas behind the upgrade are to make Ethereum simultaneously more scalable (with an ambition of supporting thousands of transactions per second), secure, and sustainable – all while still remaining decentralized.

As it currently stands, Ethereum nodes (the computers powering the blockchain) struggle to handle the transactions per second required. It may surprise you to learn that Ethereum can only handle somewhere between 15-45 transactions per second – severely limiting what decentralized applications are capable of. To remedy that, Ethereum wants to increase the number of nodes rather than increasing the size of nodes (which would restrict access to only those with the most powerful and expensive computers).

Vitalik Buterin - Ethereum — Vitalik Buterin – Ethereum

Proof-of-Stake

Let’s take a closer look at the technology behind the Ethereum upgrades. One of its major innovations is moving the way it validates transactions from proof-of-work to proof-of-stake. The former involves miners solving complex mathematical problems in order to add new blocks onto the chain – which as we mentioned before is slow and expensive. Proof-of-stake instead sees users staking cryptocurrency to become validators. They are then randomly chosen to create new blocks as well as check and confirm blocks created by others.

You’ll remember that Buterin’s trilemma means that decentralization should suffer at the expense of security and scalability. But Ethereum is betting on the power of proof-of-stake to allow it to overcome that problem. That’s because proof-of-stake ensures that the barriers to entry are low. Users are able to stake the ETH token to become validators who process transactions and create new blocks on the chain – something far easier to get into versus the mining that currently secures the network.

Shard Chains and Rollups

Along with the proof-of-stake upgrades is another crucial feature for scalability: shard chains. The idea is to help Ethereum process more transactions and store data more efficiently by creating new chains known as shards.

Those shards are part of efforts to simultaneously preserve the golden goose of Web3 – decentralization. Stakers will be randomly assigned to validate the shard chains, which are planned to number 64 in total. The shard chains will only require validators to store and run data for the shard they are validating, rather than the whole network – making becoming a validator more accessible and less hardware-intensive.

The initial plan is to have the shard chains only provide data to the network, being incapable of handling transactions. The key to using them to boost throughput is via technology known as rollups. These allow transactions to be executed outside the main Ethereum chain, before being resubmitted alongside cryptographic proof – essentially taking computation off-chain while the data stays on.

All upgrades combined, Ethereum is targeting 100,000 transactions per second – an exponential increase on what it currently achieves. In terms of delivering these upgrades, however, Ethereum is taking a slow approach – opting to roll out improvements over time. The proof-of-stake element, in the form of the Beacon Chain, shipped in December 2020. Actually merging it with the main Ethereum Network is scheduled for 2022, while shard chains are targeted for release in 2023.

Outside of Ethereum

Despite its popularity, Ethereum is of course far from the only blockchain, and others are attempting to solve the problem of throughput and scalability in different ways. Sidechains are one prominent example, a practice whereby a blockchain is linked to another, allowing tokens to move between the two. Liquid Network, for instance, pairs with Bitcoin as the main chain. It works by enabling users to send coins to an output address on the main chain, at which point coins will show up in Liquid Network instead. After their business is done, assets can be moved back onto the main chain.

Solving the blockchain trilemma is continuing to prove a very difficult task – but only once it is achieved does the full potential of Web3 have any chance of being unlocked. What is clear is that no one approach will suffice – and even in combination, estimated speeds remain a tiny fraction of what we are used to in traditional computing.

February 18, 2022

The Pros and Cons of Hot and Cold Wallets

In the cryptocurrency world, a wallet is a piece of software or hardware that stores the cryptographic keys necessary to access your assets stored on the blockchain. Those keys consist of a private and public pair. The latter identifies the wallet, allowing it to receive tokens without revealing the identity of the owner. The private key, meanwhile, is what gives you access to the wallet – whether that’s to check balances or perform transactions.

While asking someone the temperature of their wallet in the real world might draw some blank stares when it comes to crypto wallets that’s perfectly appropriate, as they fall into two categories: hot and cold. So just what is the difference between the two and why would you favour one over the other?

Metamask - Shutterstock — Image credit – Shutterstock

Hot Wallets

This category ranges from mobile wallets to desktop programmes and web-based solutions such as accounts with crypto exchanges. Think MetaMask or Coinbase Wallet, to name two popular examples. The key defining feature is that they are connected to the internet, meaning all are vulnerable to online attacks. Levels of security differ hugely within the category, however, with web-based wallets generally being deemed among the least secure as they are vulnerable to security breaches.

That being the case, why use a hot wallet? Ease-of-use. The fact that a hot wallet is always online means there is no impediment to making cryptocurrency trades, purchases and transactions – unlike with a cold wallet, which needs to be plugged in and currency moved out of before a purchase can be made.

It’s good practice to not store too much in a hot wallet, however, owing to the aforementioned security concerns. The analogy that is often deployed is to treat a hot wallet as you would the one you store in your pocket – just enough cash to get by without it being a devastating loss if you lose it.

Cold Wallets

If a cold wallet is connected to the internet, it stands to reason that a cold wallet is not. Cold wallets include physical cryptocurrency with private keys printed under tamper-proof stickers, or even simply writing down your private and public key pair and storing it on a piece of paper.

When you hear cold wallets being discussed, however, usually what’s being referred to is a hardware wallet. These devices often look like USB sticks only with a screen and buttons – as popular examples from Ledger attest. Such devices store cryptocurrencies internally, meaning a bad actor would need to physically have the cold wallet as well as the PIN code to gain access to them.

Adding and removing currencies is a question of connecting it to a computer. You might think this would be the moment of greatest vulnerability, but all transactions are completed in-device, meaning it is impossible to hack remotely.

So far, so good, but there are downsides. Firstly, you have to stump up the funds, and as a physical object, cold wallets open up the danger of the keys to your cryptocurrency being stolen or even accidentally discarded – we’ve all heard the horror story of the guy who threw away a hard drive containing a fortune in Bitcoin.

With hardware wallets, that wouldn’t be the end of the world, however. Recovery phrases allow the funds held inside hardware wallets to be restored elsewhere – meaning protecting the recovery phrase is almost more important than the wallet itself.

Ledger NanoX — Ledger Nano X. Image credit Ledger.

The Verdict

The exact amount you might be comfortable with storing in a hot wallet depends on the reputation of the exchange you are using. Reputable exchanges will be using a system of cold wallets in the background, keeping their customers’ funds offline, with a certain amount stored online for withdrawals.

It’s worth also considering providing some means of accessing your wallets, hot and cold, to loved ones if you are incapacitated for whatever reason. After all, if you are the only one who knows how to access your cryptocurrency, then those funds could well die with you.

Ultimately, it’s a combination of both hot and cold wallets that is the best approach. The actual balance of hot and cold will be dependent on your approach – and how much you value security versus functionality. For those who want to sit on vast amounts of cryptocurrency, clearly, there is an incentive to maintain cold, hardware wallets, while frequent traders of smaller amounts will favour hot wallets they can quickly move coins in and out of.

Not only that, but it might be a good idea to have multiple examples of each category for different purposes – storing a certain amount with an exchange you frequently use, storing currency you plan to hold for a long time on a hardware wallet and using a mobile or desktop wallet for more speculative purchases. The choice is yours!

February 16, 2022

How Important is VR to the Metaverse?

At this stage, pinning a definition onto what the metaverse actually is is a mostly foolhardy endeavour. Variously the next, decentralized generation of the internet, individual virtual world platforms or an augmented version of the real world, the fact is that until the metaverse is actually built, there won’t be an agreed-upon definition. Look around at depictions of “the metaverse” in popular culture, however, and you will be flooded with one common theme: accessing the metaverse requires wearing a virtual reality (VR) headset.

The idea that the metaverse and VR are inseparable is well-founded. The earliest formulation of the term, in Neal Stephenson’s 1992 science fiction novel Snow Crash, described a virtual space accessed by VR displays. That dystopian vision of the metaverse is very different to the one that is being sold today, and yet the core fact of it being accessed via VR lives on in platforms such as Somnium Space or Horizon Worlds. But is it true that VR is a prerequisite for entering the metaverse?

Just look at two of the most popular virtual worlds in the form of The Sandbox and Decentraland. Both have described themselves as “metaverses” and they offer virtual spaces which users can interact with in the form of virtual avatars. What they don’t offer is a way of embodying that avatar in virtual reality as of yet, instead favouring a more traditional, game-like experience.

The Videogame Template

There are signs that this approach will lead to the development of the metaverse, at least in the short term. As an example, when Microsoft acquired videogame publisher Activision recently, it framed the move as helping it enter the metaverse, suggesting that it sees the metaverse in much broader terms than some. It’s possible that the virtual worlds we are currently more familiar with, in the form of videogame maps, maybe the engine for making the metaverse go mainstream.

“Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms,” said Satya Nadella, chairman and CEO, Microsoft, discussing the acquisition. “We’re investing deeply in world-class content, community and the cloud to usher in a new era of gaming that puts players and creators first and makes gaming safe, inclusive and accessible to all.”

It’s no surprise, then, that some of the biggest metaverse stories of recent years have come from traditional games that have introduced methods of repurposing their worlds for more social pursuits. Just look at the NIKELAND space created within Roblox or the music events taking place within Fortnite.

Videogame firms as a whole are seeing the metaverse as a tantalizing opportunity, with Bandai Namco the latest to announce plans to enter the space. Outlining a plan for the next few years, the company equated its metaverse offering with other traditional forms of entertainment, saying: “One of [Bandai Namco’s] strengths is the ability to foster connections with both digital elements, such as games and the metaverse, and physical elements, such as amusement facilities.”

The Embodied Metaverse

That gaming-led conception of the metaverse serves as a counterpoint to the kind of social, embodied, virtual reality experiences others are pioneering.

Indeed, the VR-led approach to the metaverse is showing some signs of weakness. Just look at the recent travails of the company formerly known as Facebook, Meta. Despite renaming itself to show its confidence in its VR-led approach to the metaverse (with its Meta Quest 2 headset and social platforms such as Horizon Worlds) it was revealed in early February that its Reality Labs division lost over $10bn in 2021. Added to poor performance in other parts of its business, such as its daily active users falling for the first time in its history, the news sent its share price tumbling by over a quarter.

Perhaps recognizing that a change in approach might be necessary, Meta CEO Mark Zuckerberg said on an earnings call with investors: “This year, we plan to launch a version of Horizon on mobile too, that will bring early metaverse experiences to more surfaces beyond VR. So while the deepest and most immersive experiences are going to be in virtual reality, you’re also going to be able to access the worlds from your Facebook or Instagram apps as well.”

None of this is to say that virtual reality doesn’t have a significant part to play. Platforms that currently don’t support VR could always add such functionality in the future. And the association of the metaverse VR will be hard to overthrow, in part because it is so ingrained In fictional depictions of metaverses. After all, immersive technology is nearly always necessary to access virtual spaces in works depicting metaverse-like experiences, from the visors and haptic gloves of Ready Player One to the cybernetic implants that connect people to the simulated reality of The Matrix.

Of course, in the much longer term, this opposition of traditional and VR experiences may become a moot point as technologies such as brain-computer interfaces come into play and we can plug into our very own matrix (just without the killer robots), rather than requiring the intermediary of VR devices.

The Future

The shape the metaverse ends up taking will be driven by market forces – with a lower barrier for entry meaning non-VR metaverse experiences have a distinct advantage. While a killer VR app might yet come along that gets your grandparents into the metaverse, in the short term it’s a safer bet that much of the heavy lifting to get the masses onto the metaverse will be done by more traditional experiences.

February 11, 2022

Regulating Web3

The regulation of the web as it currently stands is in a state of flux. The big beasts of Web 2.0, the likes of Google, Amazon and Facebook, have repeatedly locked horns with governmental organizations around the world in recent times – usually coming off the worst. The platforms’ poor record on disinformation and misuse of data has led to crackdowns ranging from huge fines being levied in the EU to burgeoning antitrust cases in the United States.

As Web 2.0 gives way to Web3, are we doomed to experience an intensification of the problems that plague the web today, or is this an opportunity to reset the status quo? Just what are the priorities when it comes to safety, privacy and antitrust, and who is leading the way?

Web3 - Metaverse — Image credit – Shutterstock

The Problem with Decentralization

With efforts to regulate disinformation on centralized platforms having proved hard enough, a whole new spanner is thrown in the works when one considers the inherently decentralized nature of Web3. The growth of blockchain and cryptocurrency technology which has made a move away from centralized platforms possible precisely what is fuelling the question of who the task of regulating Web3 should fall too.

On today’s internet, we can be relatively assured that our activity is private(ish), that illegal and unsavoury content will (eventually) be removed and that miscreants can be banned from platforms. But the decentralized nature of the blockchain removes all those safety nets by making all transactions public and unchangeable. By moving wholesale to Web3, not only will existing approaches to safety be rendered unusable, but whole new problematic worlds could emerge – imagine governments or even companies being able to scan blockchain transactions to discriminate against certain users.

There’s another wrinkle associated with Web3 too in the form of the Metaverse – a bevvy of platforms offering virtual land populated by anonymous users who are free to make of their spaces what they will. That decentralized creator economy means that users can enjoy the fruits of their creations, but what sort of behaviour can be expected in these anonymous virtual spaces? Virtual groping is just one unsavoury example – with the mooted solution, in that case, being a deployable “safety bubble” in which no one can touch, talk or interact until it is suspended.

Existing Approaches

Despite decentralization perhaps being the holiest of holies for Web3, workable answers to these issues all seem to fall back on incorporating some sort of centralized regulatory body. But there are attempts to address all these issues in the spirit of Web3.

On the privacy side of the equation, privacy-centric blockchain platforms are emerging such as Aleo, which is using a cryptographic technique known as zero-knowledge proofs (ZKPs) to enable the development of private applications on blockchain. That technology allows transactions to be executed off-chain while remaining verifiable by allowing a statement or fact to be proved true without revealing what makes it so. Similarly, Zcash offers a digital currency with shielded transactions to keep financial information private using similar technology which makes use of viewing keys to selectively disclose data.

Potential Regulatory Bodies

Despite such initiatives, off-chain organisations from investment groups to nations states are already outlining ways of approaching these issues – for good or for ill, depending on your viewpoint. Look no further than the U.S. Securities and Exchange Commission (SEC) is making a concerted push into regulating cryptocurrencies with litigation against Ripple Labs and its digital currency XRP, for instance.

Meanwhile, venture capital firm Andreessen Horowitz (a16z), one of the largest Web3 investors, has outlined its vision of Web3 regulation and its eagerness to work with policymakers to make it a reality. Among its suggestions are bringing in legislation to make decentralized autonomous organizations (DAOs) an official mode of organization as a potential successor to corporations. Similarly, they advocate not treating the whole of Web3 as a monolith, saying “policymakers should focus on calibrating regulatory activities to the specific applications and their associated risks.”

Another approach is that of the OASIS Consortium, which is advocating building safety procedures into the infrastructure of next-generation internet platforms at their core. The consortium is formed of members from metaverse builders, industry organizations, academia and non-profits, government agencies, and advertisers, with the group having just released a set of standards for ethical online behaviours in Web3 prioritising openness, accountability, security, innovation and sustainability.

Its standards were developed with input from existing gaming, dating and social applications in an effort to get platforms to self-regulate via pledges to user safety standards. While the full extent of the adoption of such standards is yet to be seen, the consortium has secured the pledges of luminaries such as advertising and PR giant Dentsu, as well as The Meet Group, Fandom, Pandora and others.

Ultimately, successfully regulating the metaverse may require collaboration between all of the approaches mentioned so far – whether platforms, users, governments, or decentralized tools. What seems clear is that Web3 platforms will have to consider the best approaches to operating ethically early, learning the lessons of Web 2.0 in order to avoid the fallout that is currently engulfing the giants of today.

February 9, 2022

Owning the Internet

One of the great paradoxes of the internet economy today is that while most of its building blocks are derived from the efforts of individuals, the profits are largely seen by intermediary platforms. From open-source code to user-generated content to the labour a gig worker provides, it’s usually the platforms hosting their contributions that see the lion’s share of the reward.

The emergence of Web3 and the metaverse, however, promises to upend that status quo and allow individual users to retain full ownership of their digital assets, without the involvement of a third party. That in turn means users will be able to enjoy all the benefits that ownership confers, from holding items as they grow in value to freely selling your digital possessions. All of that is enabled by blockchain technology.

Blockchain and the Keys to Ownership

A blockchain is essentially an ever-growing ledger recording information and storing it securely, verifying its authenticity with cryptography. It grows via a process known as mining, whereby computers on the network solve increasingly complex mathematical problems in order to securely add new records – meaning that new transactions are verified and recorded without the interference of one central authority. While there’s far more to delve into on the subject, to get involved with digital ownership, that’s about as much as you need to know.

Blockchain has traditionally been most associated in the public consciousness with cryptocurrencies such as Bitcoin, which uses it to maintain a record of every transaction that is both decentralized and secured by cryptography. But that is far from the technology’s only use and with the introduction of new Web 3.0 opportunities underpinned by blockchain currently underway, that perception is shifting.

For instance, it’s blockchain technology that is powering the next stage of the internet and the emergence of new virtual worlds known collectively as the metaverse. Without huge platforms acting as gatekeepers, a new decentralized creator economy is emerging, allowing users to create and own a host of digital items. So what will those ownership opportunities look like?

NFTs

NFTs (non-fungible tokens) have experienced an explosion of popularity in recent years. Just like cryptocurrency, they are powered by blockchain, from which proof of their ownership is derived. The key difference is in their non-fungibility, however – or to put it more simply, they are non-interchangeable and therefore unique. While cryptocurrency functions as a monetary system, with any individual unit being exchangeable for another, an NFT is a unique asset.

And NFTs really can be anything, from a piece of digital art to a weapon in a videogame, to a trading card. It’s worth pointing out that while NFTs are sometimes believed to be the digital items themselves, that isn’t true. Anyone can copy and paste a jpeg of a piece of digital art, but the NFT itself is simply an entry on the blockchain keeping track of who has ownership of the original.

Depending on your outlook, you might struggle to see where the value is coming from, but it’s helpful to equate an NFT-owner with an art collector. The technology gives ephemeral digital possessions the exclusivity of real-world art objects. The Mona Lisa, for instance, is endlessly reproduced, but it’s the copy in the Louvre that is, by some estimates, worth $50bn.

It’s far from purely digital artists making the most of the technology, with the world of sports just one of the sectors exploring the area. The NBA, for instance, is offering collectable highlights sold as packs much like trading cards and football clubs such as AS Roma are working on metaverse fan experiences that include ownership of digital collectables.

Cryptopunks - NFTs — Editorial credit: mundissima / Shutterstock.com

Avatars

With the metaverse emphasizing decentralization as it does, one exciting possibility is for a user’s digital representation or “avatar” to carry over between different worlds. Indeed, services are already emerging with that exact functionality, and with that comes an opportunity to maintain a digital wardrobe.

Anyone who has played a video game in recent years will be familiar with the digital items that have long been part and parcel of the form, such as cosmetic items that change the appearance of your character. Some developers have opened up creation tools to users, allowing them to create items and sell them in a marketplace – albeit one that isn’t controlled by users.

The next stage is for digital items that aren’t just limited to one game, but instead, stay with your avatar wherever it goes. That future, as it turns out, is already here – with Nike just one of the companies already betting big on the desire for digital accessories.

Digital Land

It stands to reason that if you can own the items decorating your avatar as you explore a digital space, you can own the space itself. As such, a host of companies have recently emerged offering users the opportunity to claim a piece of the metaverse for themselves. Take Somnium Space, which offers users ownership of virtual spaces via the Ethereum blockchain, or Upland, which maps NFT properties in the metaverse to the real world.

The incentives to own digital land are many and are not so different from the incentives for owning physical land. Owning land in any specific digital world means you can benefit when that platform grows, for instance, turning you from a spectator to a participant. At the same time, that land is yours to do whatever you want to attract others and monetize – from building experiences to advertising.

The bottom line is that the metaverse, powered as it is by the creativity of users, will allow users to own anything that can be imagined. For creators, that means accessing the full value of their creations. For buyers, it means a truer form of digital ownership that more closely tracks the real-world definition – instead of being dictated by the terms and conditions of any one digital platform.

To find out more about NFTs, Web3 and the metaverse at large, take a look at gmw3’s other guides.

February 7, 2022

How Oracles Connect Reality to the Blockchain

Trust makes the world go round. From the trust you place in an online retailer to deliver your order to the collective faith we have that our currencies are worth something. But just because we believe something will happen doesn’t make it so. Many believe that exposing yourself to scams and fraud is just the cost of doing business, but what if instead of agreements relying on trust between individuals, there was a way to ensure that something happened when certain conditions were met?

Enter oracles, technology that serves as a bridge between reality and the blockchain. As such, they are constructed from both on-chain smart contracts (essentially programs built on the blockchain) and off-chain hardware capable of updating the data available to the smart contract, such as a sensor.

Crypto — Photo by © stockphoto-graf – Shutterstock.com

What are Smart Contracts?

To understand how they work, it’s first necessary to explain the on-chain part of the oracle: the smart contract. The key draw of smart contracts is that they are tamper-proof programs, unfailingly executing once the conditions built into them have been met. That’s because they exist on a blockchain, most commonly Ethereum, with programs written in the programming language Solidity.

“Smart” contract is actually somewhat of a misnomer. They don’t make any decisions of their own, instead, following the rules built into them to automatically execute an agreement. In the case of oracles, those rules are reliant on data input by the off-chain part of the technology. Oracles, then, are methods of connecting external systems to digital smart contracts, feeding them data of any type that the smart contract needs to understand before executing. That execution can authorize a transaction, but it can also issue an NFT, for instance.

Chainlink

To illustrate the possibilities of oracles, let’s use one of the leading oracle networks as an example. Chainlink’s services allow users to connect smart contracts on any blockchain to real-world information such as price feeds, weather data or off-chain computation. Think of them as an application programming interface to the real world.

In order to motivate nodes to provide accurate data, those wishing to create nodes must stake Chainlink’s LINK token into a smart contract, with LINK also being used to pay for services on the network.

Chainlink itself decides what data sources it offers. The company has formed partnerships with a number of dataset owners such as independent news organization the Associated Press, which has made its economic, sports and race call datasets available via a Chainlink node. That data can in turn be used to trigger a trade when a company’s quarterly financials are released, for instance.

A lot of the excitement around oracles stems from their possible uses in decentralized finance (DeFi) applications, such as insurance. Imagine farmers being reimbursed automatically for reduced crop yields caused by drought after a weather sensor detects low levels of rain, for instance. That’s one of the possibilities inspiring its use of Google Cloud’s Public Datasets Program and the weather and climate data contained within.

Chainlink’s oracles secure over $75bn of crypto assets as of December 2021. Indeed, 2021 proved to be a bumper year for the service and oracles in general, with a total of 772 oracle networks in Q4 2021 compared to 139 in Q4 2020. That’s led to over 1.1bn off-chain data points being delivered on-chain.

Types of Oracle

It’s worth distinguishing between a few different types of oracle which are specialized for different purposes. Inbound or input oracles are the kind we have already discussed, in that they bring real-world data to the blockchain. There also exist outbound or output oracles that can bring blockchain data to the real world, informing physical items that an event took place on-chain. That might be useful for triggering a physical smart lock once a cryptocurrency payment has been made, for instance.

There is also a difference between hardware and software oracles. The latter will deliver data from digital sources such as price data, while the former interfaces with physical sensors such as a thermometer. Finally, there are cross-chain oracles that are capable of exchanging information between blockchains, enabling information from one to trigger an action on another.

The Oracle Problem

Significant hurdles remain before oracles go truly mainstream, though, not least the issue of bad data. Whether that’s from a malfunctioning sensor or malicious actor, bad data can find its way onto the blockchain. Possible solutions lie in having multiple sources and cross-validation, though if an oracle service is able to limit the sources available, that becomes less useful.

In the absence of regulation, there are also significant questions about the extent to which the actions of smart contracts should be considered final. That exact issue led to the splintering of the Ethereum blockchain into Ethereum and Ethereum Classic after users exploited a poorly secured smart contract to drain the decentralized autonomous organization investment group known as The DAO of funds. Once Ethereum realised what had happened, its developers decided to undo its actions, creating a split between those who believed that the actions of a smart contract should be taken as writ and those that didn’t.

The Possibilities

Assuming those hurdles are overcome, the possible use cases for oracles and smart contracts, in general, are vast. Issuing or editing NFTs automatically is one exciting avenue of exploration. Imagine an oracle that takes information in from a fitness tracker and issues rewards based on the number of steps you’ve taken. In another direction, services such as Betswap have emerged using oracles to power decentralized betting exchanges. For businesses, meanwhile, there is interest in using oracles in quality control and counterfeit reduction – as with IBM’s partnership with Sonoco which tracks temperature-controlled pharmaceuticals through the supply chain.

One of the most revolutionary uses might come in the form of parametric insurance. While not a new idea in itself, the emergence of oracles has led to a new approach to insurance that doesn’t require loss assessment. Instead, an oracle could pay out a pre-agreed sum based entirely on data from real-world sensors.

Oracles are an important step towards integrating the outside world with blockchain technology As tamper-proof, traceable systems, they provide a secure and irreversible way of moving off-chain data on-chain – the tricky part is verifying that data in the first place. Overcome that, and oracles could eventually replace the third-party arbiters that today have so much control over transactions.

February 3, 2022

Demystifying Ethereum Token Standards

The Ethereum blockchain has risen to popularity on the back of its programmable nature, allowing for the construction of decentralized applications, smart contracts, NFTs (non-fungible tokens) and cryptocurrencies.

Those seeking to better understand the platform will doubtless have come across terms such as ERC-223 and ERC-777 and wondered what they refer to. Simply put, they refer to community standards that have been officially adopted by the blockchain, allowing developers to build interoperable tokens that behave in predictable ways.

If you’re still scratching your head, read on to avoid the crushing embarrassment of confusing your ERC-20s for your ERC-721s.

Why Have Different Token Standards?

The list of things that can be accomplished on a blockchain is ever-expanding. Left alone, however, every new innovation would have to rebuild from the ground up. Token standards are there to ensure the foundations are already laid and to ensure compatibility between tokens on the same standard and the smart contracts that issue them. That way, when a new token is issued, it remains compatible with existing decentralized exchanges, for instance.

The prefix ERC itself stands for “Ethereum Request for Comments”, and refers to application-level standards and conventions. Token standards are just one type among more than 20 finalized standards contained within the category, with many more in the review and draft stage. Aside from tokens, they cover everything from wallets to smart contracts.

Let’s take a closer look at some of the token standards to see how exactly they differ from one another.

ERC-20

First proposed in 2015, ERC-20 is perhaps the most important standard, a basic understanding that fungible (interchangeable) tokens on the Ethereum network rely on – whether they are virtual currencies, voting tokens or anything in between. Popular ERC-20 tokens include Chainlink ($LINK) and Tether ($USDT).

The standard contains a list of rules dictating things like the total token supply, how tokens can be transferred, and how transactions are approved. The six mandatory code functions of the standard are: totalSupply, balanceOf, transfer, transferFrom, approve and allowance.

Taken together, these act as a standard interface for enabling all aspects of the sending and receiving of ERC-20 tokens. But the standard was found to have some issues, not least the existence of a bug in the transfer function where tokens can be transferred to an incompatible account and destroyed in the process.

ERC-223

That spurred the development of new standards such as ERC-223, which has the capacity to display errors and cancel faulty transactions. A new function is included in the standard, tokenFallback, which ensures that tokens can only be sent to smart contracts with the appropriate functionality. If they are not, only the gas fee is wasted.

ERC-721

Both aforementioned token standards are for fungible tokens, but ERC-721 is the standard interface for non-fungible tokens. That means tokens that are non-interchangeable and therefore unique. They are typically used to prove ownership of a particular digital asset, with the technology powering the boom in PFP series such as CryptoKitties.

The standard enables smart contracts to issue tokens that have different values to other tokens issued from the same smart contract. As such, NFTs have a variable tokenId that makes them unique. Web 3 applications are able to read that and convert it into a unique output such as the combination of accessories on a character, or a specific seat for a physical event.

ERC-777

ERC-777 is another fungible token standard improving over ERC-20. Instead of mostly being about fixing bugs like ERC-223, ERC-777 actually extends token functionality with new features. It was designed to make token transfers easier, allowing developers to know whether a smart contract can receive tokens before they are sent, for instance. The standard also offers more control to users with the ability to black- and whitelist addresses, as well as being backwards compatible with ERC-20.

ERC-1155

Finally, ERC-1155 is notable for being a token standard that can contain both fungible and non-fungible assets, allowing a smart contract to deal with a combination of token types such as ERC-20 and ERC-721. The thinking behind the standard is to simplify transactions involving both kinds of token while also fixing problems with ERC-20 and ERC-721 standards. That means more efficient trades and the bundling of transactions to reduce gas fees.

All these standards originated as Ethereum Improvement Proposals which are creatable by anyone but must garner support from the community before being adopted. If you have any ideas for the next generation of Ethereum token standards, get involved!

February 1, 2022

Web3 Glossary

From airdrops to NFTs to smart contracts, the jargon that is part and parcel of Web3 can be hard to comprehend – even for seasoned veterans of the space. If you’re interested in Web3 and its many facets, read on to get a better understanding of some of the more unusual terms floating about the metaverse.

Metaverse — Image credit: Chaosamran Studio, Shutterstock

Airdrop: The practice of distributing free cryptocurrency tokens in order to kickstart the launch of a new currency.

Augmented reality: Any technology that enhances a real-world environment with additional digital information such as 3D graphics.

Avatar: A digital representation of a user’s character within a virtual world, typically highly customizable in terms of appearance.

Blockchain: A digital ledger recording information and storing it securely while verifying its authenticity with cryptography. It grows via a process known as mining, whereby computers on the network solve increasingly complex mathematical problems in order to securely add new records – meaning that new transactions are verified and recorded without the interference of one central authority.

Cryptocurrency: Frequently abbreviated to “crypto”, cryptocurrency is a digital form of currency secured by blockchain technology.

Cryptography: The practice of securing information during transmission. The communication is first encrypted to prevent third party interference, before being decrypted on the other end with the help of a key – ensuring only the sender and receiver can access the information within.

Decentralization: A method of organization that doesn’t rely on the control of a central authority, instead distributing decision making among participants.

Decentralized applications (Dapps): Decentralized apps are pieces of software built and hosted on blockchain technology. Examples include cryptocurrency wallets, games and financial services applications.

Decentralized autonomous organizations (DAOs): A DAO is a new form of distributed organization controlled by its members, with its rules and activity recorded on blockchain technology.

Exchange: A platform enabling users to buy, sell and trade cryptocurrency – either for other forms of digital currency or traditional fiat currencies.

FOMO: An acronym for “fear of missing out”, the phrase refers to buying into an NFT or cryptocurrency to avoid the regret that would occur if it ballooned in value.

Gas: A fee that must be paid to validate and confirm transactions on the Ethereum blockchain and similar platforms. The price is related to the amount of work required to include transactions in a new block.

GM/GN: An abbreviation of “good morning” and “good night” respectively, the greeting is a common feature of crypto communities.

Governance: In a Web 3.0 sense, governance refers to the the structuring of a blockchain and how it is led, with popular approaches including on-chain governance, where rules are encoded into the blockchain protocol, and off-chain governance, where decisions are made away from the blockchain itself.

IRL: an abbreviation of “in real life”, referring to the real world as opposed to the metaverse or cryptocurrency community.

LAND: A non-fungible token that represents ownership of virtual land in the Decentraland platform.

Layer 1: A term used to describe the base blockchain architecture, with a layer 1 network serving as a source of truth and the authority for transactions via consensus mechanisms.

Layer 2: A term describing a network building on top of an underlying blockchain, intended to extend its functionality and reduce gas fees and transaction times.

Metaverse: A term referring to a virtual 3D world in which users can interact, socialise and play, as well as an imagined future wherein the internet can be accessed as a virtual world.

Mining: The process by which new cryptocurrency units are created and transactions confirmed. Computers solve complex mathematical problems to verify transactions and add them to the blockchain network as a new block, with the first miner to solve the problem rewarded with new items of cryptocurrency.

Minting: The practice of issuing a new piece of art as an NFT, by turning it into a digital token that’s recorded on the blockchain. The process is typically handled by a marketplace.

NFTs (non-fungible tokens): An NFT is an entry on a blockchain establishing who has ownership of a digital item such as a piece of art or a trading card.
Peer-to-peer networking: A peer-to-peer network allows users to communicate with each other without resorting to a central server, as with blockchain.

PFP: An abbreviation of profile picture, the term typically is used in relation to images that can be bought as part of an NFT series and used on social media profiles.

“Probably nothing”: A phrase typically used ironically to infer that an opportunity is in fact “probably something”.

Proof-of-stake: One of two popular approaches to validating transactions on the blockchain, proof-of-stake sees users staking cryptocurrency to become validators. They are then randomly chosen to create new blocks as well as check and confirm blocks created by others.

Proof-of-work: One of two popular approaches to validating transactions on the blockchain, proof-of-work relies on the efforts of miners solving complex mathematical problems in order to add new blocks onto the chain.

Public key: One of two pairs of keys within a cryptographic system. The public key can be known to others and allows the owner to receive cryptocurrency from another user.

Private key: One of two pairs of keys within a cryptographic system. The private key must be kept a secret to everyone except the owner and allows them to send cryptocurrency from a wallet.

Smart contract: A smart contract is a program stored on a blockchain that executes when certain conditions are met, allowing transactions and other operations to happen without the involvement of an intermediary.

Token: A slightly nebulous term for cryptocurrencies in general, token is also frequently used to describe crypto assets that piggyback on another, more popular cryptocurrency’s blockchain.

Virtual land: Created by the developers of a given metaverse platform, land is parcelled off to users who are free to utilise it within the limits of that platform’s features. Owning virtual land involves buying an NFT that confers ownership of a digital space.

Virtual reality: A simulation typically accessed through a virtual reality headset, allowing the user to interact with a digital world.

WAGMI: An acronym for “we are gonna make it”, the term is used to show fellowship with holders of a given cryptocurrency by asserting that their investment will be successful
Wallet: Unlike a physical wallet that stores currency itself, a cryptocurrency wallet stores the keys to access your cryptocurrency on the blockchain.

Web3: A successor to the current model of web 2.0, Web3 represents a new era for the internet emphasizing decentralization and user ownership – alongside new methods of interaction in virtual worlds.

“Wen moon”: Also found in other forms such as “wen lambo”, the intentionally misspelt phrase asks how long it will take for the price of a given digital asset to rise as high as the moon.

January 20, 2022

The History of the Web

The Web as we know it today is the product of decades of innovation, spanning two distinct eras. With Web 1.0, the world experienced a period of rapid internet adoption, piquing the interest of companies which then rapidly ballooned in value on the back of new-fangled business models. It wasn’t until Web 2.0, however, that the modern internet as we know it today began to take shape, one built on user data and dominated by a relatively small number of giant tech companies.

Now we stand on the precipice of Web3, a new model still in the process of being built, emphasizing decentralization and user ownership. So how did we get here, and just what will Web3 offer that the previous web generation didn’t?

Web 1.0: In the Beginning

First, let’s define our terms. Web 1.0 is a more recently coined term referring to the Web as it originally emerged. It’s important to note that the Web, or World Wide Web to give it its full name, and the internet are not synonymous, despite common usage. The Web is the system by which information is accessed over the internet, the underlying raft of interconnected computer networks.

Invented in the late eighties by scientists Tim Berners-Lee and Robert Cailliau, the Web was initially intended for mostly academic purposes. Soon enough the emergence of web browsers with graphical user interfaces made the previously daunting task of browsing the web far simpler for the average person.

And as the Web garnered interest from the general public, so too did it begin to attract attention from businesses. Despite the then generally static nature of Web pages, so-called “dot-com” companies were able to pioneer new business models which are now commonplace, such as e-commerce, building their services largely on open protocols which they did not themselves control. That resulted in a global internet population of 412.8 million people in the year 2000.

It all ended in tears, however, with the dot-com bubble bursting in the same year. The big beasts of the Web 1.0 era pre-dot-com bubble are largely forgotten today. Companies such as Pets.com, Webvan, and eToys.com all went bust, while the likes of Amazon were severely wounded. It was out of the ashes of Web 1.0 that a new idea for the internet coalesced, emphasising interactivity and participation – Web 2.0.

Web 2.0: The Platform Era

Much has happened since the Web 2.0 era began in the mid-2000s. Technologies such as JavaScript, Flash and HTML5 have made the user experience progressively more interactive. The way people access the Web has itself changed, with smartphones becoming the most prominent gateway to the internet. And Apple and Google’s near-monopoly on smartphone operating systems led to centralization in the ways people accessed the Web, helping give rise to a few supremely dominant platforms. At the same time, social media sites blossomed, pioneered chiefly by the likes of Facebook and YouTube, bringing whole new ways of communicating and sharing content. Their rise was powered by a symbiotic relationship between the platforms and creators, with user-generated content attracting the eyeballs they needed to sell to advertisers.

The basic agreement we sign up to as users of Web 2.0 is that our personal data grants us “free” access to a wealth of services via the cloud. As part of that agreement, businesses are free to change the rules (such as the percentage of advertising revenue given to creators) whenever they feel like it. That approach has undoubtedly been a success in terms of uptake – with 4.66 billion active internet users across the globe at the start of 2021, representing 59.5% of the world’s population. There are signs the contract is wearing thin, however.

The latter period of Web 2.0 has involved a backlash against the dominance of centralized platforms and the perceived societal ills they have created. An increase in political tensions between groups algorithmically fed content that aligns with their biases and the rise in disinformation and fake news have focused the attention of governments on the ways businesses might be abusing their place on the Web. The stage is set for another paradigm shift in the way the Web operates: Web3.

Web3: Decentralization

The single concept most important to bear in mind when comparing Web 2.0 with Web3 is decentralization. The maturation of blockchain and cryptocurrency technology has made a move away from centralized platforms possible by ensuring open access and offering in-built traceability. Indeed, it’s little surprise the concept of Web3 is intimately entwined with blockchain technology, with the term itself coined by the co-founder of the Ethereum blockchain. In many ways, this move towards decentralized digital networks actually represents a return to the aforementioned open and community-led protocols common during Web 1.0.

Marry that with ever more intelligent machine learning algorithms and increasingly affordable and popular routes into augmented and virtual reality, and some are forecasting a new type of collaboration, unmediated by gatekeepers and taking place in new virtual worlds: the Metaverse. Indeed, much of the excitement about Web3 is less about the underlying technologies and more about the new experiences that will be able to be built on top (for instance virtual land ownership). And motivating the creation of these experiences is the existence of a new decentralized creator economy, one that means users can be the prime beneficiaries of their creations, rather than the platforms which host them.

Of course, don’t expect everything in Web3 to be a totally unfamiliar new world. Web 2.0 has brought new levels of convenience to many of our daily activities such as mobile banking or shopping online, and existing Web 2.0 methods of accessing those services are unlikely to be transformed purely for the sake of it. But Web3 has the potential to allow more direct forms of interaction between entities, be they individuals, businesses, collectives or machines, by cutting out the middlemen and deriving its authority from the blockchain.

The eventual form of Web3 is yet to be fully understood, as the tools that power it are in their infancy. As adoption grows and users migrate over, however, there is every opportunity that the Web’s latest incarnation will be its most transformative, bringing a new era of openness, personal ownership and mutual collaboration. As it stands, Web3 is pure potential – it is the users who will ultimately help decide what shape it takes.

To find out more about NFTs, Web3 and the metaverse at large keep reading gmw3.

January 17, 2022

In the Metaverse: What is Virtual Land?

An explosion in the popularity of digital assets known as NFTs (non-fungible tokens) has led to virtual items of all shapes, sizes and formats being bought and sold – from video art pieces to trading cards and even memes. But what if you’re looking for something on a slightly grander scale?

Enter virtual land, existing in a dizzying array of digital worlds that collectively form the metaverse. Already, there is no shortage of organisations offering users the opportunity to claim a piece of the metaverse for themselves. Platforms such as Decentraland, Somnium Space or The Sandbox have all sprung up in recent times to offer users the opportunity to own spaces within their individual virtual worlds.

If the concept of virtual land is a head-scratching proposition, consider that many already pay good money for virtual locations in the form of websites – distinct locations upon which anything can be built within the limits of the form. Buying virtual land, then, can be thought of as the Web 3 [link to History of the Web article] equivalent of purchasing a domain name. But what exactly is it you’re acquiring when you purchase virtual land?

So You’re Thinking of Buying Virtual Land?

Virtual land is essentially just an NFT that confers ownership of a given digital space. For more information on NFTs as a whole and how they are built, visit our explainer, but suffice it to say that virtual land is created by platform developers who parcel off land from a large map of potential properties for users to buy using cryptocurrency. Proof of ownership is then assured by the blockchain technology on which the NFT exists, a ledger secured by the efforts of a network of computers solving complex mathematical problems in order to verify and record transactions without resorting to one central authority.

It is then acquired either directly from the seller or on a secondary NFT exchange such as OpenSea. The particulars of how virtual land is bought and sold differ slightly per platform. An average land parcel in Somnium Space sold for 6.57 ETH (the cryptocurrency also known as Ether) in June 2021 while Decentraland uses a dedicated token known as MANA to buy virtual land as well as goods and services. With the metaverse as a whole benefitting from positive trends such as the renaming of Facebook to Meta, it’s little surprise that the virtual land market has been experiencing significant growth of its own – with all-time users of virtual worlds up to nearly 50,000 as of November 2021, according to one report.

Who is Buying Virtual Land?

While both retail and institutional investors (there are even some funds focused exclusively on investing in virtual real estate) have bought into virtual land as speculators, others have found longer-term uses for virtual spaces. That includes companies such as PwC which bought a plot in Decentraland to act as a hub for its Web3 advisory offering, and celebrities such as Snoop Dogg, who has created an experience on The Sandbox known as the Snoopverse.

The price of virtual land is inherently changeable, dictated as it is by factors common to other non-fungible tokens, as well as those that drive the price of real-world land such as scarcity. Land on different platforms will differ in terms of what can be built upon it, for instance, as well as the tools that are available to produce those creations. At the same time, the popularity of the platform itself will drive prices up or down.

How Can it Be Used?

Virtual land can be used for anything that the owner wishes, be that socializing, gaming or any other experience that is supported by the digital world in which the space is situated. The landowner might wish to host a brand experience of the sort pioneered by Nike with its NIKELAND game within Roblox. Competitor Adidas has duly bought a plot of land within The Sandbox to produce its own experiences.

And Just as Web 2.0 websites utilize advertising space to capture the attention of users, similar opportunities can exist on virtual land – albeit in less intrusive and annoying forms. Consider Admix’s recent NFT billboard partnership with Somnium Space, for example.

What are the Risks?

As much as virtual land can be compared to its real-world equivalent, there are, of course, huge differences. While the value of real-world property might also plummet, at the end of the day you are still left with a tangible possession that exists in the same reality as everyone else – and thus has every chance of increasing in value again.

If a piece of digital land resides in a platform that falls out of favour or even potentially closes, however, that investment may well be dead in the water. Such volatility in the digital land market has opened up opportunities to rent virtual spaces rather than purchasing them outright, in order to mitigate the risk of being left with a useless asset. By working with landowner partners such as Admix, which holds property across a range of metaverses, brands can lease land for as long as is necessary. That might coincide with the duration of a particular marketing campaign or event, for example, allowing brands flexibility while ensuring they aren’t exposed to the risk of holding virtual land themselves.

Summary

The new frontier of virtual land in the metaverse, then, offers a new and tantalising opportunity, one that allows individuals and organisations to own virtual property anywhere imaginable. Just like real-world spaces, these new worlds of virtual real estate represent both a place for enjoyment as well as a financial opportunity for owners and brands alike – and the race to capitalize on them is well and truly underway.

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