Theres already a web5? | The Ethereum Rollercoaster

June 13, 2022 | Read Online

Theres already a web5? | The Ethereum Rollercoaster

Jack Dorsey's new project

Jack Dorsey is a prolific entrepreneur. He's the founder of Twitter, Square and most recently, he has been diving into the world of web3. Now... he's going straight to Web5 because he's always two steps ahead.

Jack has one very big, very valid criticism about web3, which is that it is not as decentralised as it seems. He makes the point that VCs and other early investors own a large proportion of some of the biggest networks. For example, investors own around 37% of the Solana network.

The Timeline

Web2: The big tech companies we are used to now: Amazon, Facebook, Twitter, Netflix, Google. When you give these companies your data, they own that data and store it on their private database.

Web3:Crypto/DeFi. In the web3 world, a publicly available blockchain is used to store data, so no one organisation owns it. There are many different blockchain networks such as Bitcoin, Ethereum, Solana etc.

Web5: This is where your data and identity become completely decentralised using ONE blockchain - Bitcoin. In this scenario, you have full control over your data

The Use Case

Imagine this - you've used Twitter for years, but now you're bored. You want to switch to a new social network. The problem is if you switch, you lose all your followers, you lose all your previous posts and any other history - you have to start from scratch. In the web5 world, you can just take all of this data (because you own it) onto your new social platform of choice. You'll still have all of your followers, posts, photos and likes.

No Tokens?!

Since "Web5" will all be built on the Bitcoin blockchain, there will be no extra tokens that are created and traded. The upsides to this are that there will be no scams and rug pulls, which are commonplace in web3. This is where a scammer creates a new token and runs off with investors' money before building anything of value. However, tokens are also used to incentivise people to invest in and build on top of new projects. Without this motivation, it might be a challenge to get people adopting and building on web5.

The Ethereum Rollercoaster

Last week, ETH had days where it was up 5/6% in a single week, and suddenly today, it's down 15%. This is what has been going on:

The Merge

The Ethereum network is moving from Proof of Work to Proof of Stake. This will make the network faster, more environmentally friendly and more scalable (in theory - this hasn't been proven in the real world yet).

The Ropsten Testnet Merge

Last week, the merge occurred on one of Ethereum's test networks - the Ropsten test network. And things went smoothly!

There are two more test merges on test networks still to come. After that, we finally get the full merge on Ethereum's mainnet, at which point the real network will switch to Proof of Stake.

When the Ropsten testnet merge went smoothly, the price of ETH shot up, as people saw it as a positive sign for the REAL merge

But then...

Today a delay has been announced to the merge. And the market has reacted.... badly. ETH is down more than 15% at the start of today. Ethereum developers met and decided to delay dealing with the "difficulty bomb', which is a crucial pre-requisite for the merge.

The "difficulty bomb" is a way to phase out Proof of Work on the Ethereum network. Proof of Work currently requires miners on the Ethereum network to solve complicated mathematical puzzles in order to record and validate transactions on the network. The difficulty bomb exponentially increases the difficulty of these puzzles over time, so it becomes impossible for validators to solve them and mine new transactions, meaning that proof of work is completely phased out and replaced by proof of stake. If done wrong, the difficulty bomb could halt the Ethereum network before the merge is fully completed, which would be a disaster.

It is yet to be seen if this is a minor hiccup the market is overreacting to or if this is a fundamental setback for the Merge. One thing is for sure - there is plenty of price action coming soon in ETH. Hold on to your hats people.

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