Decentralization and token-based economics are concepts that have started to reach far beyond the Blockchain industry. Web 3.0 - check about what the world’s biggest tech and venture capital companies are talking about today.

Read about:

Web 2.0
Semantic web
Decentralized web
AI and web 3.0
Change of user experience

Web 2.0 - How does the World Wide Web work today?

If you wonder which technology benefits from over 3 billion users, here is the answer: the World Wide Web. Today it’s difficult to imagine the modern world without it, even for people who remember times before its creation. This technology changed and defines how we share, create and consume information. It's present in every industry, shaping the way we work, learn and play - for many the internet became the central point of their lifestyle.

Web 1.0 and web 2.0

Essentially terms web 1.0 and web 2.0 refer to time periods in the web's evolution as it evolved through different formats and technologies.

Web 1.0, also known as Static Web, was the first version of the World Wide Web created in the 1990s. Back then user interaction wasn't a thing and searching for information was extremely inconvenient for internet users, because of the lack of search engines.

Thanks to more advanced web technologies, such as Javascript or CSS, web 2.0 made the internet far more interactive. From that moment social networks and interactive platforms have been flourishing.

Growth of the web 2.0 was largely driven by 3 factors:

mobile technology
social networks
cloud solutions

Mobile technologies

Smartphones creation resulting in mobile internet access drastically increased both the number of web users and time of its usage. Since then we’ve started living in an always-connected state. Reaching your pocket - that’s all it takes to get access to the web.

Social Network

Meta isn’t the 11th most-valuable company for no reason. Before Facebook or Myspace, the internet was largely anonymous with limited interactions between users. Social media platforms brought revolutionary possibilities. User-generated content, sharing, and commenting disrupted the information circulation.

What’s more, our internet persona became an extension of the real one. Thus, not only did social life partly move to the web, but we started to trust each other there, having tools that to some extent enable us to verify each other's identity. Without it, the success of companies such as Airbnb or Uber would never be possible.

Cloud solutions

This article was created, reviewed, and edited using Google docs - a part of the cloud solution provided by Google, that most of the readers are probably familiar with.

Cloud providers redefined how we store and share the data. It is the cloud that enables the creation and maintenance of most web pages and applications we know today. Companies were able to move from possessing expensive infrastructure to renting data storage, tools, or even computing power from dedicated companies.

Disadvantages of Web 2.0

Web 2.0 definitely shapes how the current society functions, giving us possibilities we couldn’t even dream about before. Yet, it's not free from disadvantages.

centralization
abundance of information
non-sufficient verification
monopolization
low personalization

With more and more issues that we’re grappling with, one question has become inevitable: What will be next?

Semantic Web

The semantic web is a concept formulated in 1999 by Tim Berners Lee, the World Wide Web creator:

I have a dream for the Web [in which computers] become capable of analyzing all the data on the Web – the content, links, and transactions between people and computers. A "Semantic Web", which makes this possible, has yet to emerge, but when it does, the day-to-day mechanisms of trade, bureaucracy, and our daily lives will be handled by machines talking to machines. The "intelligent agents" people have touted for ages will finally materialize.

The vision of an intelligent internet that can understand the users and work without external governance back then was far from being realistic. Yet, today, with new technologies that we’ve developed, it may become reality sooner than we could ever predict. This is the moment to introduce you to the phenomenon of web 3.0.

An original concept of Web 3.0 was coined by Gavin Wood, Ethereum, and Polkadot creator, somewhere around 2019, that refers to a "decentralized online ecosystem based on blockchain." The idea of the web which instead of using centralized servers relies on scattered nodes quickly gained a significant number of supporters.

Web 3.0 - key features

Semantic Web
Artificial Intelligence
Decentralization
3D Graphics

Semantic web and web 3.0

In the semantic web, computers are able to analyze data with an understanding of its content, including text, transactions, and connections between users or events. In such systems, machines are able to accurately read our emotions, feelings, and intentions just by analyzing our input. Applying it would greatly increase data connectivity, and in consequence, provide a better experience to the web users.

Artificial intelligence

Machine learning and artificial intelligence are key technologies for web 3.0. Currently, Web 2.0 already presents some semantic capabilities, but they are in fact most human-based. Therefore it is prone to biases and manipulations.

Let’s take online reviews as an example. Today, any company can simply gather a large number of users and pay them to write a positive review of their product or service. Implementing AI, that would be able to distinguish fake from real, would increase the reliability of data available online.

Essentially, AI and machine learning will not only enable computers to decode meanings contained in data but also provide a more personalized experience to web 3.0 users. Online platforms will be able to tailor their appearance or content to an individual web user. This will bring a revolutionary change to the e-commerce sector as targeted advertising will become routine.

3D graphics

According to some theories, with the introduction of web 3.0 borders between the real and digital world will begin to fade. The constant development of graphic technologies may even enable us to create whole 3D virtual worlds in web 3.0.

This concept is closely related to another issue that recently has gained significant popularity: metaverse. 3D graphics in web 3.0 will revolutionize sectors such as gaming, e-commerce, healthcare, and real estate.

Decentralized web

Current web infrastructure is based on data stored in centralized locations - single servers. That can potentially make it prone to manipulations or attacks. Furthermore, most of the databases are controlled by a limited number of companies such as Meta or Google. Web 3.0 aims to change that by introducing decentralized networks.

In web 3.0 data will be stored in multiple locations - nodes. Any change of data will have to be authorized by every node in the infrastructure. The exchange of information will be taking place in peer-to-peer networks. It will not only take the data from the central authority but also make it more immune.

Digital assets in 3.0

Web 3.0 is expected to bring a totally new approach to digital assets. Tokens economy based on blockchain technology will become an even more common phenomenon.

Even today we can observe how blockchain technology is shaping the exchange of goods, investments, or ownership rights. Fungible and nonfungible tokens constantly find new applications that provide users with groundbreaking possibilities in industries such as gaming, real estate, or even healthcare.

On the internet of future ownership, control will become an even more vital issue. Blockchain technologies, and NFTs to be more precise can bring significant improvement in this area. What if assets, such as digital art or virtual land plots, were already carrying data about their owners and creators? Data that would be impossible to manipulate because it will be stored and confirmed in distributed ledgers.

What will change for web pages with web 3.0

Where web 3.0 will take us? According to many experts, we shouldn't treat web 3.0 as a totally new internet. It's just another stage of its evolution. Some of the solutions on which web 3.0 will be based already exist and function. In many cases, it's just about the scale.

Yet, the new web will definitely make a place for revolutionary business models. Personalized web pages or shops in 3D virtual spaces are just some examples of new possibilities that web 3.0 will form.

Token Engineering Process

Kajetan Olas

13 Apr 2024

Token Engineering is an emerging field that addresses the systematic design and engineering of blockchain-based tokens. It applies rigorous mathematical methods from the Complex Systems Engineering discipline to tokenomics design.

In this article, we will walk through the Token Engineering Process and break it down into three key stages. Discovery Phase, Design Phase, and Deployment Phase.

Table of Contents

Discovery Phase of Token Engineering Process
Design Phase of Token Engineering Process
- Objective Function
Deployment Phase of Token Engineering Process
Time Duration
Required Skills for Token Engineering
Summary
FAQ

Discovery Phase of Token Engineering Process

The first stage of the token engineering process is the Discovery Phase. It focuses on constructing high-level business plans, defining objectives, and identifying problems to be solved. That phase is also the time when token engineers first define key stakeholders in the project.

Defining the Problem

This may seem counterintuitive. Why would we start with the problem when designing tokenomics? Shouldn’t we start with more down-to-earth matters like token supply? The answer is No. Tokens are a medium for creating and exchanging value within a project’s ecosystem. Since crypto projects draw their value from solving problems that can’t be solved through TradFi mechanisms, their tokenomics should reflect that.

The industry standard, developed by McKinsey & Co. and adapted to token engineering purposes by Outlier Ventures, is structuring the problem through a logic tree, following MECE.
MECE stands for Mutually Exclusive, Collectively Exhaustive. Mutually Exclusive means that problems in the tree should not overlap. Collectively Exhaustive means that the tree should cover all issues.

In practice, the “Problem” should be replaced by a whole problem statement worksheet. The same will hold for some of the boxes.
A commonly used tool for designing these kinds of diagrams is the Miro whiteboard.

Identifying Stakeholders and Value Flows in Token Engineering

This part is about identifying all relevant actors in the ecosystem and how value flows between them. To illustrate what we mean let’s consider an example of NFT marketplace. In its case, relevant actors might be sellers, buyers, NFT creators, and a marketplace owner. Possible value flow when conducting a transaction might be: buyer gets rid of his tokens, seller gets some of them, marketplace owner gets some of them as fees, and NFT creators get some of them as royalties.

Incentive Mechanisms Canvas

The last part of what we consider to be in the Discovery Phase is filling the Incentive Mechanisms Canvas. After successfully identifying value flows in the previous stage, token engineers search for frictions to desired behaviors and point out the undesired behaviors. For example, friction to activity on an NFT marketplace might be respecting royalty fees by marketplace owners since it reduces value flowing to the seller.

_{source: https://www.canva.com/design/DAFDTNKsIJs/8Ky9EoJJI7p98qKLIu2XNw/view#7}

Design Phase of Token Engineering Process

The second stage of the Token Engineering Process is the Design Phase in which you make use of high-level descriptions from the previous step to come up with a specific design of the project. This will include everything that can be usually found in crypto whitepapers (e.g. governance mechanisms, incentive mechanisms, token supply, etc). After finishing the design, token engineers should represent the whole value flow and transactional logic on detailed visual diagrams. These diagrams will be a basis for creating mathematical models in the Deployment Phase.

Token Engineering Artonomous Design Diagram — _{Artonomous design diagram, source: Artonomous GitHub}

Objective Function

Every crypto project has some objective. The objective can consist of many goals, such as decentralization or token price. The objective function is a mathematical function assigning weights to different factors that influence the main objective in the order of their importance. This function will be a reference for machine learning algorithms in the next steps. They will try to find quantitative parameters (e.g. network fees) that maximize the output of this function.
Modified Metcalfe’s Law can serve as an inspiration during that step. It’s a framework for valuing crypto projects, but we believe that after adjustments it can also be used in this context.

Deployment Phase of Token Engineering Process

The Deployment Phase is final, but also the most demanding step in the process. It involves the implementation of machine learning algorithms that test our assumptions and optimize quantitative parameters. Token Engineering draws from Nassim Taleb’s concept of Antifragility and extensively uses feedback loops to make a system that gains from arising shocks.

Agent-based Modelling

In agent-based modeling, we describe a set of behaviors and goals displayed by each agent participating in the system (this is why previous steps focused so much on describing stakeholders). Each agent is controlled by an autonomous AI and continuously optimizes his strategy. He learns from his experience and can mimic the behavior of other agents if he finds it effective (Reinforced Learning). This approach allows for mimicking real users, who adapt their strategies with time. An example adaptive agent would be a cryptocurrency trader, who changes his trading strategy in response to experiencing a loss of money.

Monte Carlo Simulations

Token Engineers use the Monte Carlo method to simulate the consequences of various possible interactions while taking into account the probability of their occurrence. By running a large number of simulations it’s possible to stress-test the project in multiple scenarios and identify emergent risks.

Testnet Deployment

If possible, it's highly beneficial for projects to extend the testing phase even further by letting real users use the network. Idea is the same as in agent-based testing - continuous optimization based on provided metrics. Furthermore, in case the project considers airdropping its tokens, giving them to early users is a great strategy. Even though part of the activity will be disingenuine and airdrop-oriented, such strategy still works better than most.

Time Duration

Token engineering process may take from as little as 2 weeks to as much as 5 months. It depends on the project category (Layer 1 protocol will require more time, than a simple DApp), and security requirements. For example, a bank issuing its digital token will have a very low risk tolerance.

Required Skills for Token Engineering

Token engineering is a multidisciplinary field and requires a great amount of specialized knowledge. Key knowledge areas are:

Systems Engineering
Machine Learning
Market Research
Capital Markets
Current trends in Web3
Blockchain Engineering
Statistics

Summary

The token engineering process consists of 3 steps: Discovery Phase, Design Phase, and Deployment Phase. It’s utilized mostly by established blockchain projects, and financial institutions like the International Monetary Fund. Even though it’s a very resource-consuming process, we believe it’s worth it. Projects that went through scrupulous design and testing before launch are much more likely to receive VC funding and be in the 10% of crypto projects that survive the bear market. Going through that process also has a symbolic meaning - it shows that the project is long-term oriented.

If you're looking to create a robust tokenomics model and go through institutional-grade testing please reach out to contact@nextrope.com. Our team is ready to help you with the token engineering process and ensure your project’s resilience in the long term.

FAQ

What does token engineering process look like?

Token engineering process is conducted in a 3-step methodical fashion. This includes Discovery Phase, Design Phase, and Deployment Phase. Each of these stages should be tailored to the specific needs of a project.

Is token engineering meant only for big projects?

We recommend that even small projects go through a simplified design and optimization process. This increases community's trust and makes sure that the tokenomics doesn't have any obvious flaws.

How long does the token engineering process take?

It depends on the project and may range from 2 weeks to 5 months.

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What is Berachain? 🐻 ⛓️ + Proof-of-Liquidity Explained

Karolina

18 Mar 2024

What is Berachain? 🐻 ⛓️ + Proof-of-Liquidity Explained

Enter Berachain: a high-performance, EVM-compatible blockchain that is set to redefine the landscape of decentralized applications (dApps) and blockchain services. Built on the innovative Proof-of-Liquidity consensus and leveraging the robust Polaris framework alongside the CometBFT consensus engine, Berachain is poised to offer an unprecedented blend of efficiency, security, and user-centric benefits. Let's dive into what makes it a groundbreaking development in the blockchain ecosystem.

Table of Contents

What is Berachain?
- Overview
- Key Features
EVM-Compatible vs EVM-Equivalent
Berachain Modular First Approach
Proof Of Liquidity Overview
- High-Level Model Objectives
Proof-of-Liquidity vs Proof-of-Stake
Berachain EVM and Modular Approach
- Polaris EVM
- CometBFT
Conclusion
Resources
FAQ

What is Berachain?

Overview

Berachain is an EVM-compatible Layer 1 (L1) blockchain that stands out through its adoption of the Proof-of-Liquidity (PoL) consensus mechanism. Designed to address the critical challenges faced by decentralized networks. It introduces a cutting-edge approach to blockchain governance and operations.

Key Features

High-performance Capabilities. Berachain is engineered for speed and scalability, catering to the growing demand for efficient blockchain solutions.
EVM Compatibility. It supports all Ethereum tooling, operations, and smart contract languages, making it a seamless transition for developers and projects from the Ethereum ecosystem.
Proof-of-Liquidity.This novel consensus mechanism focuses on building liquidity, decentralizing stake, and aligning the interests of validators and protocol developers.

MUST READ: Docs

EVM-Compatible vs EVM-Equivalent

EVM-Compatible

EVM compatibility means a blockchain can interact with Ethereum's ecosystem to some extent. It can interact supporting its smart contracts and tools but not replicating the entire EVM environment.

EVM-Equivalent

An EVM-equivalent blockchain, on the other hand, aims to fully replicate Ethereum's environment. It ensures complete compatibility and a smooth transition for developers and users alike.

Berachain's Position

Berachain can be considered an "EVM-equivalent-plus" blockchain. It supports all Ethereum operations, tooling, and additional functionalities that optimize for its unique Proof-of-Liquidity and abstracted use cases.

Berachain Modular First Approach

At the heart of Berachain's development philosophy is the Polaris EVM framework. It's a testament to the blockchain's commitment to modularity and flexibility. This approach allows for the easy separation of the EVM runtime layer, ensuring that Berachain can adapt and evolve without compromising on performance or security.

Proof Of Liquidity Overview

High-Level Model Objectives

Systemically Build Liquidity. By enhancing trading efficiency, price stability, and network growth, Berachain aims to foster a thriving ecosystem of decentralized applications.
Solve Stake Centralization. The PoL consensus works to distribute stake more evenly across the network, preventing monopolization and ensuring a decentralized, secure blockchain.
Align Protocols and Validators. Berachain encourages a symbiotic relationship between validators and the broader protocol ecosystem.

Proof-of-Liquidity vs Proof-of-Stake

Unlike traditional Proof of Stake (PoS), which often leads to stake centralization and reduced liquidity, Proof of Liquidity (PoL) introduces mechanisms to incentivize liquidity provision and ensure a fairer, more decentralized network. Berachain separates the governance token (BGT) from the chain's gas token (BERA) and incentives liquidity through BEX pools. Berachain's PoL aims to overcome the limitations of PoS, fostering a more secure and user-centric blockchain.

Berachain EVM and Modular Approach

Polaris EVM

Polaris EVM is the cornerstone of Berachain's EVM compatibility, offering developers an enhanced environment for smart contract execution that includes stateful precompiles and custom modules. This framework ensures that Berachain not only meets but exceeds the capabilities of the traditional Ethereum Virtual Machine.

CometBFT

The CometBFT consensus engine underpins Berachain's network, providing a secure and efficient mechanism for transaction verification and block production. By leveraging the principles of Byzantine fault tolerance (BFT), CometBFT ensures the integrity and resilience of the Berachain blockchain.

Conclusion

Berachain represents a significant leap forward in blockchain technology, combining the best of Ethereum's ecosystem with innovative consensus mechanisms and a modular development approach. As the blockchain landscape continues to evolve, Berachain stands out as a promising platform for developers, users, and validators alike, offering a scalable, efficient, and inclusive environment for decentralized applications and services.

Resources

For those interested in exploring further, a wealth of resources is available, including the Berachain documentation, GitHub repository, and community forums. It offers a compelling vision for the future of blockchain technology, marked by efficiency, security, and community-driven innovation.

FAQ

How is Berachain different?

It integrates Proof-of-Liquidity to address stake centralization and enhance liquidity, setting it apart from other blockchains.

Is Berachain EVM-compatible?

Yes, it supports Ethereum's tooling and smart contract languages, facilitating easy migration of dApps.

Can it handle high transaction volumes?

Yes, thanks to the Polaris framework and CometBFT consensus engine, it's built for scalability and high throughput.