As cryptocurrencies and blockchain technology mature, it’s easy to forget the cultural roots that spurred their development. This text thoroughly examines how early Bitcoin enthusiasts, cypherpunks, and technologists converged to create the decentralized communities and digital assets we see today. From the beginnings of peer-to-peer music sharing to the evolution of non-fungible tokens (NFTs) and on-chain social structures, the story of Web3 culture is one of continual experimentation and boundary-pushing.
Foundations of Web3: Perception of Value and On-Chain Communities
As digital assets and blockchain technology become more mainstream, understanding the culture that gave rise to these technologies is more important than ever. Only by understanding the promise which drove the thinkers and builders behind Web3, can we anticipate the directions these technologies will take us. This article focuses on the foundations of Web3 culture, the historical growth of on-chain communities, and the key metrics to watch for when evaluating a project’s potential.
Web 3 culture traces back to the early years of Bitcoin in 2009 and the cypherpunk movement of the 1980s and 1990s. Both Bitcoin and the cyberpunk movements played a significant role in shaping the ideological foundations of Web3. The philosophy of the cypherpunks advocated for privacy, encryption, and individual sovereignty, believing in the power of cryptography to protect individual rights in the digital age. As the philosophy evolved, the need for a more efficient monetary system free from centralized authorities became clear. The financial crisis 2008 further fueled this movement by spotlighting the vulnerabilities of centralized financial systems.
The early 2000s saw the rise of Napster, a peer-to-peer (p2p) music platform. Napster showed that a decentralized data (music) transfer model was viable without reliance on a third party, such as media corporations or subscription platforms. This spirit of techno-capitalism would influence early believers to consider decentralizing financial institutions and banks using a new global network. They hoped their actions would disrupt the legacy market model that depended on centralized industries and corporations.
In parallel with the rise of Web3 ideals, the creation of modern electronic financial markets, shaped by Wall Street bankers and quantitative analysts (quants), played a pivotal role in shaping the movement’s ethos. These individuals revolutionized finance by introducing stock and futures exchanges that operate 23 hours a day, 5 days a week, and high-frequency trading (HFT), which made the dollar travel at hypervelocity. These innovations made transactions faster, more efficient, and more reliant on complex trading algorithms. Modern finance had already moved away from tangible assets towards digital representation of 0’s and 1’s, in this case, to a centralized database at the Federal Reserve. As Federal Reserve member Neel Kashkari states, “There’s enough cash in the financial system, and there is an infinite amount of cash at the Federal Reserve.”
While undeniably impactful, the rise of centralized digital finance did not occur without criticism. This shift concentrated significant power in the hands of a select few bankers and bureaucrats, raising concern among the public. The potential risk of extreme surveillance, debanking, and seigniorage, a long-standing issue in finance since its inception, suddenly became more immediate and actionable, often only requiring a couple of keystrokes.
As social networks grew in the 2010s and the cloud became more relevant, platforms like YouTube, Twitter, and Reddit became central hubs for discussing cryptocurrencies and decentralization. It was here that the esoteric concerns of economists and technologists, mixed with internet culture, transmitted the “magic internet money” meme to a mainstream audience.
Bitcoin, Ethereum, and the technologies that followed, like decentralized computing, expanded on earlier innovations in digital assets by eliminating the need for centralized entities. Politicians and thinkers who embraced liberalism, capitalism, and technological innovation also helped foster the new Web3 ideas through digital communication channels. The union of these influences, including cypherpunks, Wall Street bankers, forward-thinking politicians, and freethinkers, laid the framework for a financial system where users had control of their data, assets, and digital identities.
NFTs as the First Phase: Social Real-Time Experiment
In 2015, a pivotal development was made by creating a token standard that enabled data files to be uploaded onto the blockchain, primarily images and digital art. Initially implemented on Bitcoin and Ethereum ecosystems, this marked a critical moment in Web 3 history. Early on-chain projects started on Bitcoin, using early versions of smart contracts, explored blockchain’s potential to support more than financial transactions.
The actual activity began when the ERC-721 token standard was introduced on the Ethereum network, which enabled a unique representation of digital assets. Later, these unique tokens would become referred to as non-fungible tokens or NFTs. Iconic collections such as Rare Pepes, Cryptopunks, Bored Ape Yacht Club, and “Cryptoart” defined the initial trajectory of the Web3 cultural relevance.
They introduced a new revenue model where digital assets did not have only to represent numbers but could represent any type of data, such as digital art and media. Then, in 2018, a milestone event occurred during the Codex art auction when a “Cryptokitty,” an NFT from a Web3 game where players collect, breed, and trade virtual cats, was sold for 600 ETH, around $140,000 at that time. This landmark event showcased how on-chain verification empowers a digital community to form around digital collectibles, legitimizing digital assets as a new asset class for investors.
By providing a new profitable digital ownership and asset transfer model, this token auction cemented blockchains’ utility as a platform for decentralized communities, redefining how people perceive and interact with digital value. In the short term, this led to an overvaluation of most digital collectibles, similar to the buying mania that occurred in the early 1970s with physical collectibles such as baseball cards and comic books or in the early 2000s with Beanie Babies. The inevitable correction did not mean that blockchain technology had failed. On the contrary, it had successfully demonstrated the ability to draw Web2 users onto Web3 rails by promising a new means of digital social organizations.
Wallet holders or users of specific smart contracts could still transfer assets among themselves, speculate on the value of digital collectibles, and support project creators. Interactions between the creators’ and users’ wallets became a crucial indicator of a project’s reach and engagement. A key metric for evaluating any project is the number of active daily wallets and the frequency of contract interactions with the creator’s primary wallet. This growth in wallet activity is one of the reasons Bitcoin has thrived, with the number of wallets and daily transactions expanding exponentially. The next phase of this cycle will focus on deeper analysis of individual wallets within the network, unlocking new insights and opportunities for its community.
Source: A16zcryptoWei’s Social Capital and Status-as-a-Service Model
To understand how we assess the validity of tokens and their value within digital communities, one can refer to Eugene Wei’s status-as-a-service (SaaS). Wei’s framework focuses on how social capital plays a vital role in the behavior and participation of online communities, where users gain utility by accumulating status. Social capital is built through reputation, perceived value, and status earned from active interactions within a particular social network. Wei suggests that social capital is a leading indicator of financial capital. Where the open interest goes, the liquidity flows.
Wei evaluates the strength of social networks using three key dimensions:
social capital entertainment utilityUtility refers to the practical, problem-solving aspect of a platform, such as LinkedIn, where users can find available jobs and interact with individuals in their professional network. Social capital is more complex than utility because it is tied to how platforms generate revenue for such users while they gain status and recognition.
Wei describes social platforms as the accumulation of status through interactions in the platform, with status being the currency. Wei specifies when a social network creates structures where users can earn recognition, build reputation, and feel values, which drives engagement as a “successful status game.”
Web 3 Social Wallet Graphs Arise from On-chain Activities and Transfer of Value
A social graph visually represents the connections and interactions between individuals, groups, and organizations within an online social network. These social graphs consist of various components, including the following:
Nodes: actors in the network such as users or data points, the shared content between the nodes; Edges: lines that signify the relationship between the nodes, such as followers, subscribers, or pay-per-stream connections; Jumping: mechanisms for transmitting data across subgroups within the network, such as reposting or liking).Social graphs are essential for the utility of a platform, as small ripples within the network can influence trends and affect users’ access to physical and digital privileges.
There are three categories for social graphs: centralized, decentralized, and distributed (p2p).
Centralized networks include many large firms. These platforms host the users’ data on their company’s servers. Decentralized networks, in contrast, operate on independently run autonomous servers and are usually enabled by blockchains. Users can connect to a particular network for access while users have many different servers. Finally, using a peer-to-peer network (P2P), an individual user’s device becomes a server that interoperates with others in the network. Using this model, each node can work as both the owner and user. While some have a special role, every node still has weight in the network.
With the rise of digital and Web3 communities, where users could have ownership of a project and participate in such a network, wallet interactions have grown substantially in the last decade due to the rise in smart contracts and Web2 to Web3 migrations.
Digital States: Next Step in Web3?
One of the most fascinating corners of the Web3 cultural movement is the emergence of network states. These are digitally driven, distributed communities that operate beyond traditional geographic boundaries. These states are frequently, though not exclusively, powered by decentralized organizations that use smart contracts to embed functions directly on-chain, enabling transparent and autonomous governance, resource management, and decision-making.
The goals of these communities range from civic engagement to forming societies centered around shared interests. These decentralized societies are still in their very early stages and serve as experimental laboratories for future governance models powered by real-time blockchain-based protocols. Similar to how a written constitution defines the structure and functioning of a government, pre-programmed smart contracts establish the protocols of a network state, distributing power through the management of a shared treasury.
The innovations of Web3 culture can potentially restore trust in real-world democracies during times of turbulence and division. By enabling greater transparency and audibility while protecting privacy through encryption, these technologies offer a path toward increased accountability and renewed public confidence in democratic institutions.
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