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• The current state of Web 3.0 technology development. In the module "Understanding Web 3.0," I will explain the combination of public chain, account, and identity authentication technologies, and guide you on how to build a new infrastructure for Web 3.0, aiming to achieve an understanding of the foundational logic of Web 3.0 technology.

• Exploration: New gameplay and new species of Web 3.0. Here, you can learn how DeFi achieves further expansion through its integration with traditional finance; how NFTs, as a new data rights confirmation system, create a "digital Disney"; how new decentralized applications pioneer new business models in fields such as gaming, commerce, and social networking; and how DAOs create a new business format of "tools + communities."

• Insight: Future application trends of Web 3.0. Beyond blockchain, how do data technologies like artificial intelligence and the Internet of Things combine with Web 3.0 to bring new development space to the internet? How will traditional internet companies, government departments, financial institutions, and investment organizations integrate into Web 3.0 for self-upgrading? In the module "Risks and Opportunities," you will gain insights into the main paths for "getting on board" and various logics to avoid pitfalls through my analysis.

Decentralization is essentially a coordination mechanism, and it varies in degrees.

To understand what has driven the birth of Web 3.0, we need to revisit the development history and current state of the internet. We know that the development of the internet is a prerequisite for humanity entering the information society. After the internet emerged, on one hand, a vast amount of information could be recorded at low cost; on the other hand, information only impacts social and economic activities significantly when it reaches a certain scale. In the 1990s, the birth of the internet created a brand new communication channel beyond print media, giving rise to a batch of professional content production platforms (PGC), similar to Geek Time, which primarily focuses on content production. However, the internet during this period was unidirectional, and the data generated by the internet had little relationship with users. This was the era of Web 1.0. As time passed, users began to feel dissatisfied with the state of "only input without output," and the desire to express themselves led to the emergence of numerous platforms that provided opportunities for users to create and express, such as Facebook (Meta) and Twitter. Additionally, e-commerce platforms, video sites, and tech companies like Apple and Microsoft, which provided terminals and infrastructure for these activities, also emerged. At this point, we were gradually transitioning to the 2.0 era.

• User behavior generates a large amount of data, but the characteristic of this data is "storage equals ownership," rather than "who creates owns." The problem this leads to is that internet companies, by collecting and utilizing data, become "wealthy enough to rival nations," but the conflict between their private interests and public benefits becomes increasingly evident. For example, by the end of 2021, the internet giant Facebook, which has been renamed Meta, reached a market value of $1 trillion. If this value were to be ranked among the GDPs of various countries that year, it would likely place in the top 15 globally. Behind Facebook's trillion-dollar market value are 1.9 billion daily active users and 2.9 billion monthly active users, accounting for as much as 36% of the global population. However, within the Facebook-dominated internet, if you want to send a message to a friend or express a personal opinion about an event, you must strictly adhere to the various written or unwritten rules set by Facebook; if you are willing to "test the waters," you may end up silenced like Trump did when seeking re-election, or face "social death." Even if you leave Facebook, the situation is similar in other areas; for instance, if you want to initiate a payment, you essentially have to contact a financial institution to execute the transaction on your behalf. If it's outside that institution's business hours, your transfer cannot be completed; if an institution is willing to offer you free transfer services for part of the year, you will certainly continue to receive advertisements from that institution recommending loans.

• The space hijacked by internet companies needs to be more free and open. Recently, global media has been focusing on Musk's acquisition of Twitter, with the main concern being how the change in Twitter's equity structure might affect its operating style. However, the influence of internet companies dominating the internet goes far beyond this.

• On one hand, massive data leaks have caused significant distress in users' lives, and the dangers of online violence and "cyberbullying" arising from data leaks are increasingly drawing societal attention. In May 2022, Facebook publicly acknowledged that a data analysis company named Cambridge Analytica had illegally obtained information from 50 million Facebook users and used this information for the campaign of former U.S. President Trump. On the other hand, the business practices of internet companies may directly conflict with a country's government or the general public. For example, in February 2021, the Australian government announced the implementation of the News Media and Digital Platforms Mandatory Bargaining Code, which primarily aimed to charge fees to news media, including internet platforms, for using various information released by the Australian government. However, Facebook was unwilling to bear this cost.

• Therefore, in the absence of an agreement between the two parties, Facebook blocked various institutions, including government agencies, from publishing information on its platform. During the blocking period, even the meteorological broadcasting center, fire department, and even hospitals were unable to release information, and urgent information related to COVID-19 prevention could not be published, effectively cutting off Facebook's connection to the Australian government and all Australian citizens.

• Web 3.0: A bottom-up internet revolution! And this is what Web 3.0 aims to do! Open up the internet, achieving a form of openness from the level of technical architecture, and then change its "spiritual temperament" through the reconstruction of technical logic. However, so far, there has not been a universally accepted definition of Web 3.0, but many versions of descriptions reveal thoughts that are highly similar or close to the above ideas.

• For example, Gavin Wood, the former CTO of Ethereum and founder of Polkadot, proposed that Web 3.0 is a set of inclusive protocols that can build modules for applications; these modules replace traditional web technologies such as HTTP and MySQL, while also providing a brand new way to create applications. Another example is the well-known Silicon Valley venture capital firm A16Z, which defines Web 3.0 as "a set of technologies that include blockchain, cryptographic protocols, digital assets, decentralized finance, and social platforms."

Web 3.0 is the protocolization of internet functions, where protocols operate according to limited rules reflected in code, without more profit demands or social-level value propositions; protocols can achieve functional stacking through mutual combinations, reflecting a spirit of openness and collaboration.

In the Web 3.0 network, the role of Alipay is no longer borne by a specific institution, but by a protocol, allowing parties that do not trust each other to safely conduct transaction settlements even without a third-party institution as an intermediary. This protocol is called HTLC, which stands for Hash Time-Locked Contract, and it can also create a fairer competitive environment for other financial institutions (I won't elaborate on the specific principles and execution steps of this protocol here; if you're interested, you can check out this link).

Web 3.0 "full stack": From creation to ownership to incentives. Of course, the protocolization of functions is only the first step in building Web 3.0. Behind these protocols, a distributed computing network that supports protocol execution as a "hardware system" and a universal economic system centered around user identity verification, data recording, and usage authorization and incentives as a "software system" are also needed. The hardware system provides technical support for protocol execution, achieving communication, computing, storage, and interaction functions from the bottom layer to the application layer, and reflects a sense of "replaceability" at every stage. This means that these functions do not rely on any specific institution or organization to be realized, but the logic of the functions is accurate and trustworthy. This characteristic is also referred to as "trustless trust."

• For example, in the current internet, all our programs must solve the availability, reliability, and mutual authorization issues of inputs independently when executing computing tasks, and must spend additional resources to resolve various incompatibilities and security risks.

• The IC protocol is built on a blockchain consensus mechanism, creating a virtual subnet that includes multiple physical nodes between the TCP/IP protocol and the application layer; nodes within the subnet reach consensus on inputs and outputs and can mutually verify computing results; multiple subnets can communicate and significantly enhance computing capabilities through mutual combinations. In fact, similar design concepts to IC have also been explored in fields such as communication, computing, and storage. These protocols create a complete chain of data generation, storage, invocation, and privacy protection that does not rely on any specific institution, thus enabling the internet to possess a basic architecture that overcomes "single points of failure."

Economic System#

Beyond the "hardware system," a set of economic systems targeting identity verification, data recording, and usage authorization and incentives is also needed around users. This system needs to be embedded in the execution process of the protocols, and the implementation of the protocols does not require the participation or assistance of any third-party institutions. Based on this economic system, different protocols can stack and combine with each other, achieving coordination of economic interests.

From the perspective of the functions of the "hardware and software" systems, blockchain is a technology that Web 3.0 highly relies on. Blockchain can achieve trustless collaboration without relying on any third-party institutions and can incentivize system members through a token system.

However, blockchain is not everything in Web 3.0, because the main role of blockchain is to establish a trusted shared ledger and cannot provide solutions to all the problems that Web 3.0 needs to solve; Web 3.0 will also gain greater development space through the combination of blockchain, privacy computing, artificial intelligence, and even IoT technologies.

Although we have discussed many combinations of "hardware and software," from the user's perspective, Web 3.0 may not seem significantly different from Web 2.0. However, you should see that Web 3.0 will create a brand new business model and a highly interconnected, borderless digital economy through the construction of distributed technology architecture and economic systems, generating a large number of bottom-up innovation opportunities.

• The emergence of Web 3.0 reflects a transformation in underlying technology that brings new functional divisions to the industrial chain, and new functional divisions often mean new business models and new industrial opportunities. Therefore, Web 3.0 is a "disruptive innovation" of the existing internet based on technology, and from this innovation, we have gained the opportunity to create, own, and be incentivized for our own data for the first time. Web 3.0 endows the internet with an open spirit through the construction of distributed technology architecture and economic systems, creating a brand new business model, a highly interconnected, borderless digital economy, and generating a large number of bottom-up innovation opportunities.

The main issue is that data resources are monopolized, and development has become a castle in the air. I believe the opportunities for Web 3.0 entrepreneurship are far greater than before, especially in the early window period.

1. Web 3.0 seems to conflict with the vested interests of some internet giants. Will it face significant obstacles from them?

2. One of the core technologies of Web 3.0 is blockchain. Who provides the underlying infrastructure? How do infrastructure providers benefit? The author's response: For the first question, it will definitely face obstacles, but the trend will not change! For the second question, for example, the business model of public chains is...

We will delve into the internal structure of the Web 3.0 world and take a detailed look at its main structure. In the last lesson, we also mentioned that Web 3.0 primarily promotes internet upgrades by breaking horizontal monopolies through vertical layering. Today, we will start from the most basic layer of the Web 3.0 structure, which is the computing layer that provides general computing services.

• The computing layer of Web 3.0 is open for everyone to use. It does not operate on dedicated servers like most websites we currently log into. In Web 3.0, the computing layer is separated, similar to the 5G network, water supply system, and power grid we use today. So, why does Web 3.0 emphasize the independence of the computing layer? It primarily aims to avoid data monopolies through this layered approach, allowing data to be publicly available in the form of a public ledger. Of course, the openness of data is not the end goal; the ultimate goal is to return data to the creators of that data, but everything must start with breaking free from data monopolies. Ethereum is such an infrastructure that provides general computing services. Since Ethereum's computing network can be accessed at any time without restrictions and does not affect the output of computing functions, we generally refer to networks like Ethereum as "public chains." Today, we will start from Ethereum to see how this public chain provides computing services. Starting from Bitcoin, however, to introduce Ethereum, we must first talk about Bitcoin. Because Bitcoin first achieved a deterministic computing service based on a decentralized network, although people refer to this computing result as "digital gold," from a technical perspective, Bitcoin is actually a "state transition system," where the transaction information of Bitcoin serves as input and converts these inputs into a new Bitcoin ledger as output. This process looks very similar to a bank's process; the state of Bitcoin's ledger at different times corresponds to a bank's balance sheet at different points in time, and the "state transition function" corresponds to the bank's accounting processing system. For banks, they only need a software system to complete accounting processing. However, for Bitcoin, it needs to combine "state transition" with "consensus mechanism" to give Bitcoin all the attributes of "trustless digital gold."

The "digital gold" model of Bitcoin is destined to not go far because Bitcoin's architecture is too tight and lacks necessary scalability. You may know that Bitcoin's scalability mainly manifests in scripts, but scripts can only achieve some simple contract functions. For example, it does not support complex loop operations, making it impossible to achieve Turing completeness.

Moreover, in the Bitcoin system, the UTXO representing unspent balances can only perform logical functions similar to 0 or 1, which leads to Bitcoin being able to construct only simple one-time contracts and cannot achieve functions such as multi-stage option contracts or decentralized trading quotes. Ethereum, on the other hand, is built on top of Bitcoin's framework, allowing client computing performance to be more powerful, making development easier, and allowing applications to share the security of the blockchain. Why is Ethereum called the "world's universal ledger"? Ethereum has a built-in Turing-complete programming language, allowing anyone to write smart contracts based on Ethereum, develop decentralized applications, and freely set ownership rules, transaction forms, and state transition functions. However, if we analyze Ethereum from the perspective of Bitcoin's "state transition system," we find that Ethereum's state is no longer reflected through "ownership," but is represented as "accounts." "Accounts" not only contain asset balances but can also interact with contracts. With "accounts," the execution of smart contracts becomes more lightweight and faster, thus creating conditions for its scalability. Therefore, based on the above design, Ethereum can achieve more refined control.

For example, in terms of transfer functions, Bitcoin can be set to require three out of five accounts to initiate a transfer payment, while Ethereum can be set to require signatures from three out of five accounts to withdraw up to 80% of the amount in the contract. If only two signatures from the five accounts are gathered, then a maximum of 10% of the amount in the contract can be withdrawn daily.

Additionally, Ethereum can provide computing support for many decentralized applications, especially those that require rapid development, high security, and frequent interactivity between protocols, such as financial applications, which can provide users with services like token issuance, savings and lending, and financial derivatives. A typical example is DeFi. It can be said that Ethereum is the foundational layer providing general computing functions for decentralized applications. Since it emphasizes strict synchronization of account states, Ethereum is also referred to as the "world's universal ledger." IPFS: Reconstructing the file retrieval system based on content. OK, let's continue to look at this structural diagram. If Ethereum provides the general computing layer for Web 3.0, then decentralized storage projects represented by IPFS provide the general storage layer.

IPFS stands for InterPlanetary File System, which is a file storage and retrieval system based on content addressing. Based on the IPFS protocol, we can break the files we need to store into units of 256KB and store them separately. At the same time, IPFS will generate a hash value for each file, which, when bundled with the file, forms a complete index structure that is uploaded by nodes to the entire network for user retrieval. From this basic process, we can see that based on the IPFS protocol, there is no direct correspondence between the stored content and the storage nodes. For already fragmented files, encryption methods can also be used to encrypt the file content, and miners will only find the corresponding file in the IPFS index structure after a user issues a retrieval request. We know that the basic characteristic of data is "storage equals ownership." When we store our behavioral data on the servers of internet companies, we are also implicitly "granting" the usage rights of that data to the internet companies. To obtain the qualification for "granted" data usage rights, internet companies are willing to provide free services to attract users. The design of IPFS clearly breaks this model. Based on the IPFS protocol, we users can retrieve data based on the content of the files, detaching the storage of data and files from specific websites providing services, and also making the retrieval of data no longer dependent on the continuous operation of that website. We will no longer be unable to download data due to website failures, attacks, or IP address deletions, nor do we need to worry about data being tampered with during storage. At the same time, IPFS can also integrate and utilize storage spaces distributed in different regions, thus finding an economic monetization opportunity for personal and decentralized storage spaces.

If these images are still stored on centralized websites' servers, theoretically, the images can be tampered with or permanently disappear at any time; however, if the images are directly uploaded to Ethereum, the Gas fees may be very expensive. Therefore, many NFT projects choose to store these images through IPFS. Another example is that on April 1, 2022, Ethereum announced that its official website, ethereum.org, has been deployed on IPFS, allowing users to browse the etheretherum.eth website through ENS. Such news dynamics also illustrate the composability of different protocols in Web 3.0. Internet Computer: A public chain born for Web 3.0 applications. Now let's look at another public chain, Internet Computer. If decentralized storage focuses on data storage, then relative to "general computing services," it belongs to a "branch." Internet Computer continues to advance on the main battlefield opened up by Ethereum. We now know that Ethereum achieved Turing-complete smart contracts based on Bitcoin, theoretically supporting any form of decentralized application. However, theory and practice are different. In fact, Ethereum can only support a limited number of decentralized applications. Why does this happen?

The main reason is the well-known CAP theorem. In other words, in a distributed system, among the three characteristics of consistency, availability, and partition tolerance, only two can exist at most. Simply put, consistency (C) refers to whether all nodes' data remains consistent. Based on the different degrees of data consistency, we can divide it into strong consistency, weak consistency, and eventual consistency. Here, strong consistency means that after all nodes complete write operations, the data is completely consistent; weak consistency can tolerate partial or complete inconsistent data after write operations; and eventual consistency only requires that the data be consistent after a period of time. Then there is availability (A), which refers to whether the system can respond to requests sent to non-failed nodes every time. In other words, nodes are in a responsive state, and computing tasks that need to be processed can be completed in a timely manner. As for partition tolerance (P), it refers to the ability of nodes to transmit information with errors or delays without affecting the overall operation of the system. For blockchains, partition tolerance is a prerequisite. Therefore, different blockchains can only make trade-offs between consistency and availability. For example, Bitcoin and Ethereum are representatives that pursue strong consistency at the cost of sacrificing some availability.

Take Bitcoin as an example. From a data structure perspective, each node and each transaction verification in Bitcoin requires traversal operations. In other words, before initiating a transfer, we first need to verify whether the person has enough Bitcoin to transfer. So how do we determine whether this person has enough Bitcoin? Bitcoin's setting is to check whether the person receiving the transfer has enough Bitcoin. Following this method, every time we transfer, we must trace back to which block this Bitcoin was mined from and by which miner, and through how many transfers it reached our name. We can only confirm whether this transfer is valid after verifying it all. Therefore, this query method will be very inefficient. From a data storage perspective, each node in Bitcoin needs to download the complete data package, so as transactions increase, the storage space of nodes becomes another bottleneck for blockchain processing efficiency.

From a computational perspective, all transactions in Bitcoin can only be processed through serial computation without parallel computation, so all nodes need to perform repeated calculations for all tasks, which significantly affects computational efficiency. Now let's look at Ethereum. First, although it has set up "accounts," from a data query perspective, it no longer requires "traversal" operations. However, Ethereum's storage space is limited to 1MB per block, and the limitation of block size is still very evident. Moreover, Ethereum also only supports serial computation and does not support parallel computation. Therefore, Ethereum still belongs to a public chain with strong consistency and low availability. Strong consistency is very important for financial-related applications, but it appears insufficient for other types of applications. Currently, applications based on Ethereum often adopt a "hybrid structure," where operations related to assets are executed on-chain, while asset-unrelated businesses are executed off-chain. The advantage of this approach is economic in terms of cost, but the downside is that decentralized applications still rely on centralized nodes to some extent, and issues such as "single points of failure" and "data leaks" remain unresolved.

Now we are talking about Internet Computer (IC), which aims to create a "computer for the internet" and provide a full-stack development and operation system for decentralized applications, extending decentralized applications to broader scenarios.

IC consists of a set of cryptographic protocols that connect independently operating nodes to a blockchain network. At the same time, it overcomes the limitations of traditional blockchains in terms of speed, storage costs, and computing for smart contracts, allowing smart contracts to run at speeds close to centralized networks. Additionally, unlike the Ethereum ecosystem, which often leans towards financial attributes, IC establishes a "full-stack" decentralized application that can be realized through different containers from front-end to computing to back-end, thus achieving a "no single point of failure" operational state. Moreover, based on IC, we can not only realize various applications that have already appeared on Ethereum but also build a complete node for both Bitcoin and Ethereum, enabling atomic-level interoperability between IC, Bitcoin, and Ethereum. However, although IC's technical architecture is more suitable for decentralized applications, it is still in the early stages of ecological development, and various infrastructures need to be improved. For example, the atomicity of transfers has not yet formed a unified technical standard. Therefore, from this perspective, it also lacks sufficient security for financial-related applications. Ethereum remains at the forefront of the competition. However, if the innovations of other public chains aim to surpass Ethereum, Ethereum's self-breakthrough has not stopped. As early as 2018, Ethereum proposed a clear "upgrade roadmap," which means it will convert the PoW consensus mechanism to the PoS consensus mechanism and comprehensively expand through sharding technology. The main idea of this sharding technology is to support Ethereum in achieving parallel computing to improve computational efficiency.

Beyond the Ethereum 2.0 roadmap, Layer-2 solutions have also emerged. The idea of Layer-2 is to move some computing work off-chain and achieve shared security between off-chain and on-chain through some mechanism. Currently, technologies such as ZK Rollup (ZKR) and Optimistic Rollup (OP) have emerged, but they have not yet entered a large-scale application state. You should also be cautious of risks when using them, but from another perspective, this may also represent an investment opportunity. Summary: The evolution of technology has no endpoint, but the evolution of public chain technology must revolve around the core goal of providing general computing services. In this lesson, we learned that in Web 3.0, to avoid data monopolies, a general facility is needed to provide computing services, and this general facility is the public chain. We adopted a general framework to describe the main issues that need to be solved in the public chain track, as well as how various public chains like Bitcoin, Ethereum, and IC have provided solutions to these issues. However, we must also be clear that they each have unresolved problems. In addition, I also introduced you to the latest developments in this track, namely Layer-2 and sharding. I hope you can gain a deeper understanding of the public chain track through today's lesson and can propose your thoughts on the continuous improvement of the public chain track, at least not remaining in the cognitive state of "the faster the public chain, the better."

Identity refers to your background and social status, which is the specific carrier you use to communicate or interact with others. In Web 3.0, identity refers to the specific carrier of your participation in various activities as a user, which is the account. Incentives, whether in the real world or Web 3.0, refer to guiding organizational or individual behavior through institutional design. From the perspective of the Web 3.0 ecosystem, various decentralized applications differ greatly in functionality, but every application relies on the role of accounts and economic incentive mechanisms.

Next, let's take a look at how identity and incentives play a role in the world of Web 3.0.

DID: Universal Independent Identity!

First, let's talk about identity. Users in decentralized networks need a brand new, "independent" identity. The so-called "independent" identity is one that can identify oneself without relying on any third-party institution. This identity is different from the "identity card" in the real world because the identity card is an introduction letter issued by a government agency, valid only within a country. This identity is also different from accounts registered on various internet platforms or social media, such as "Big Vs" or Twitter accounts in daily life. Although a popular "Big V" on social media has significant influence and some can even earn a lot of money, this "identity," like an identity card, also relies on the "recognition" of the internet platform to continue to exist. Once restricted by the platform, no matter how influential the identity is, it may "disappear."

Web 3.0 users need a universal and platform-independent personal identity, which is the decentralized identifier, or DIDs (Decentralized Identifiers). So what exactly are DIDs? According to the World Wide Web Consortium (W3C), DIDs are a new type of identifier for verifiable decentralized digital identities, designed to enable the issuer of the DID to prove control over personal identity independently of any institution, including registries or certificate authorities.

On July 19, 2022, the W3C Distributed Identifier Working Group's "Decentralized Identifiers (DIDs) v1.0" specification officially became a W3C recommended standard, granting DIDs a foundational status in international technical standards equivalent to HTTP and CSS. This also indicates that DIDs will play a more direct role in promoting the development of Web 3.0. The application of DIDs, from identity integration to effective use, will be explored in detail, as understanding the background information of DIDs is essential for anyone wishing to have their own DID and navigate the world of Web 3.0.

• First, from a structural perspective, DIDs mainly consist of a foundational layer and an application layer. The foundational layer includes DID identifiers and DID documents. The DID identifier is a standard expression for identifying DIDs, including identifier methods and identifier content. As of the first half of 2022, approximately 100 identifier methods have been registered, with institutions like Microsoft, IBM, and Tencent registering relevant identifier methods, and public chains like Ethereum also being one of the identifier methods. The DID document is an explanatory document written for specific DIDs.

The foundational layer of DIDs constructs DIDs themselves, but it does not specify personal information, so we need to fill in specific content through the application layer. The application layer of DIDs mainly consists of DID resolvers and Verifiable Credentials (VCs).

Through professional verification institutions, such as public chains and dedicated apps, encrypted information from issuing institutions is verified, providing explanations for personal identities. In fact, from a technical principle perspective, VCs are applications of asymmetric encryption technology in file management systems. Asymmetric encryption algorithms involve knowledge of information security and cryptographic principles, which we will not elaborate on in this course; if you need, you can refer to this link for further understanding.

From the above content, we can see that DIDs are a comprehensive system that links the real world and the virtual world through technical means, and it also requires the collaborative efforts of different participants to achieve the system's goals. The ecological architecture of DIDs can be summarized based on the well-known crypto fund Amber Group's overview of the DIDs ecosystem, which divides the DIDs ecosystem into four levels: the standard layer, infrastructure layer, integration layer, and application layer.

The standard layer is at the most fundamental position of the DIDs ecosystem. In the standard layer, international organizations such as W3C and DIF (Decentralized Identity Foundation) are responsible for formulating standards related to DIDs and promoting the integration and fusion of DIDs with other relevant standards, while also providing a basic framework for various technological developments. Moving up from the standard layer, the second layer is the infrastructure layer, which includes various institutions and projects that provide services for DID identification and verification, such as Ethereum, Hyperledger, and Ontology, which focuses on DID integration, as well as ENS, which provides domain name services based on blockchain. The functions of issuing, verifying, and storing data for VCs are mainly realized through the infrastructure layer. Here, we will focus on ENS. ENS is the domain name service system of the Ethereum ecosystem, which can be compared to Web 2.0's DNS.

It can integrate with decentralized storage IPFS, and we can also use ENS to store files in the IPFS system, thus building a layered decentralized network. Compared to DNS domains, the biggest feature of ENS is that users own their domain names, and ENS has no authority to revoke any domain names. Moreover, although ENS only provides domain name services, its profitability is quite considerable. ENS charges annual membership fees based on different levels of domain names, and in just over a year since its launch, it has already achieved over $50 million in revenue, with a team of only a dozen people. So you see, Web 3.0 is still full of many "bottom-up" entrepreneurial opportunities. The third layer is the integration layer, which mainly realizes off-chain identity verification, on-chain identity aggregation, and on-chain behavior proof through various technical means, and then integrates off-chain and on-chain data into DID identifiers and identification documents.

For example, BrightID verifies identities through personal photos and videos, achieving the goal of "one person, one account" to help various decentralized applications prevent "Sybil attacks." However, it should be noted that off-chain identity verification does not mean a "strong binding" between real-world individuals and on-chain accounts; it simply unifies "on-chain accounts" based on personal biometric information to avoid one person opening multiple accounts to initiate "Sybil attacks." However, we also need to understand that based on on-chain accounts, there is no direct correspondence to specific individuals in the real world. For instance, Spruce (a heavyweight project in the DID identity track) helps users directly use Ethereum accounts to register and log in to Web 2.0 applications. By sharing accounts between Web 2.0 and Web 3.0 applications, the traffic from Web 2.0 social media can be integrated with Web 3.0 traffic. This way, those "Big Vs" on Twitter can expect to obtain lower loan interest rates on DeFi platforms. Additionally, Spruce has set up a dedicated SpruceID, which can not only realize functions such as signing, verifying, and sharing messages but can also be applied in cross-product and cross-chain scenarios.

The fourth layer is the application layer, which mainly refers to various applications realized based on DIDs, such as credit scoring and lending, social networking, access control, DAOs, and donations.

Let's look at a few cases. For example, based on Guild, access conditions can be set in Discord and Telegram communities, such as requiring ownership of a certain NFT to join a specific Discord channel. Another example is ARCx, which can conduct credit ratings based on on-chain data, such as accounts that have borrowed from Compound, Aave, or MakerDAO for an extended period without being liquidated, being regarded as "creditworthy." Accounts that receive good evaluations can obtain loans at more favorable "collateral rates." Now, the development of DIDs has gained widespread attention from all sectors of society, and among many large tech companies, Microsoft stands out for its emphasis on DIDs. As early as 2018, Microsoft announced that DIDs would be the entry point for the company's blockchain business. On May 13, 2019, Microsoft released the Identity Overlay Network, or ION beta, allowing anyone to create their own DID through ION. Additionally, to strengthen technical coordination, Microsoft joined DIF and collaborated with institutions such as Consensys and Transmute, which are also members of DIF, to develop a protocol called sidetree that supports the large-scale creation of DIDs, with ION being built based on sidetree.

So why is Microsoft so enthusiastic about DIDs? In fact, in their published book "Decentralized Identity," Microsoft openly stated that their primary goal in developing DIDs is to apply them on Microsoft's cloud computing platform, making it a unified identity identifier for all cloud computing users. This way, Microsoft can provide users with data authorization functions based on DIDs.

Token System: A More Refined Incentive Tool. Now, after discussing identity, let's look at incentives. First, we need to know that tokens are the main tools that play an incentive role in decentralized networks. So what are tokens? Tokens are rights certificates that exist in digital form. From a morphological perspective, tokens are similar to passwords; they both signify a type of right in a specific context, but passwords are used in centralized scenarios, while tokens exist in decentralized contexts.

From a property perspective, tokens are a type of rights certificate that can represent all rights that can be digitized. For example, equity can exist in the form of tokens, but not all tokens represent equity; tokens can also represent debt rights, voting rights, usage rights, and so on. Let me give you a simple example. In the previous public chain course, we introduced a type of project called decentralized storage, such as Filecoin. The main goal of these projects is to establish a user-shared storage market, so the token FIL in Filecoin represents the right to use a certain amount of storage space. Anyone holding FIL can use others' storage space to save their files. In the case of Filecoin, the token FIL only represents usage rights and has no relation to equity, dividend rights, or bonds. Therefore, as a type of rights certificate, the nature of the rights represented by tokens is highly dependent on the context. To understand the essence of tokens, we need to start from two properties.

• First, tokens are formed based on specific blockchain ledgers and smart contracts, and the laws of cryptography are the technical foundation that allows tokens to serve as rights certificates. Second, programmability is a prominent feature of tokens; programmability allows tokens to simulate various digital scenarios through their combination with smart contracts and can represent various complex rights. Based on the technical properties of tokens, they possess the basic functions of confirming rights, pricing, and being tradable. Because tokens are essentially a type of rights certificate, the quantity of tokens represents the quantity of rights, and the demand for rights manifests as the demand for tokens. This is the supply and demand of tokens, and the balance of supply and demand forms the price of tokens.

The technical properties of tokens.

Based on the technical and economic properties of tokens, when tokens serve as digital rights certificates, they themselves will evolve into a type of digital asset. This is also an important feature of blockchain among a series of digital technologies. Blockchain can create a sense of scarcity for data, thus allowing data to become an asset. In the real world, tokens as assets have been widely accepted by governments and laws. The asset properties of tokens stem from their natural attributes, which are not subject to the will of any person or institution. However, apart from small economies like El Salvador (the first country to make Bitcoin and cryptocurrencies legal tender), tokens cannot yet be considered currency. Although Bitcoin was initiated with the goal of establishing a "peer-to-peer electronic cash payment system," currency still belongs to the realm of social governance, and without the recognition of monetary authorities in various countries, tokens are unlikely to become currency. Of course, every coin has two sides; tokens have significant advantages as digital rights certificates, and they can exist independently of the rights behind them as assets. However, tokens also face significant risks in both technical and economic fields.

In addition, the volatility of token market prices undoubtedly poses a "negative impact" on the use of tokens. The fact that Bitcoin is not accepted by the monetary authorities of various countries is an example.

Token Economy. With tokens, there will be a token economy. The main characteristic of the token economy is the coordination of creation and consumption based on tokens. Although tokens are not currency in essence, they play a role similar to currency in the token economy, especially serving as a medium of circulation and storage. In technical terms, code risks and contract risks will have a significant impact on the security of tokens.

• In economic terms, tokens can exist independently of the rights they represent, which leads to the inability to judge the existence of such rights through the tokens themselves, resulting in various "air coins" in the market. If you are not well-informed about the asset background, it may cause significant confusion.

• The design of the token system is a very important task in the token economy. However, just like economists from different periods and schools have significant disagreements about whether monetary policy has long-term effects on macroeconomic development, there are also different views on the role of token design in the token economy. Some believe that the design of the token system is crucial for Web 3.0 projects because the design of the token system directly affects the behavior patterns of various groups in the project community. However, others believe that the token system only plays an auxiliary role in the development of Web 3.0 projects and will not have a decisive impact, as "monetary neutrality" suggests that in the long run, excessive issuance of currency will not stimulate "social effective demand."

Regarding the value of the token system, we can conduct further analysis through the specific content of the token system design. In fact, the main content of token system design is to manage the supply and demand of tokens, which is concentrated in the "three distributions" of tokens.

The first distribution refers to the design of the token scheme. The design of the token scheme needs to specify indicators such as the total amount of tokens, single or multiple token systems, distribution ratios, and release rhythms. The total amount of tokens reflects the expected total economic scale, but since tokens generally have 18 decimal places, the specific data of the total amount of tokens does not have much practical significance. Therefore, for the total amount of tokens, it is more important whether the upper limit of the total amount is fixed, but whether to set the total amount of tokens as a fixed upper limit mainly depends on the functional positioning of the project. For example, Bitcoin simulates the properties of gold, so it sets a fixed upper limit.

However, for most public chains, since we need to continuously incentivize miners, a token inflation rate is often designed, with annual increases to incentivize miners. For example, after ETH transitioned to the PoS consensus mechanism, its annual inflation rate is about 5%. For non-public chain projects, the total amount is often set to be fixed.

• From the main content of the first distribution, we can see that it mainly involves the management of token supply. The second distribution refers to the distribution of tokens according to the project's business logic. The demand for rights behind tokens is the most critical factor determining the demand for tokens. If the project itself does not have external value output, then there is no way to talk about the demand for rights, and the demand for tokens cannot be established. Therefore, the business logic represents the most basic demand for tokens. If the token design is limited to the token level and cannot play a role in establishing token demand, we can determine that the design of the token system is actually auxiliary to the token economy.

• The third distribution refers to the adjustment mechanism at the token level. For example, various staking mining mechanisms, destruction mechanisms, and dividend mechanisms related to token design. It should be noted that the adjustment mechanism at the token level is not directly related to business logic, so for most projects, the design at the token level is generally similar. Its main form is generally based on sacrificing the short-term liquidity of community members to obtain more community token rewards. Therefore, the stimulating effect on token demand is relatively limited. In fact, the design of the token system is a relatively complex topic, and this content will be an important perspective throughout our analysis of various tracks.

The first point is the most basic trust: how can you prove that the materials you provide are not forged? If it is just based on unified certification within the enterprise or between enterprise alliances, there is no problem at all. But to prove oneself through an ID on the internet still requires an authoritative department to certify, but this no longer belongs to DID, so I understand that DID is just a pseudo-proposition. However, we can take a look at the digital identity ID (EID) from the Public Security Bureau's Third Research Institute.

• The total amount of ETH is not fixed, similar to the total amount of currency not being fixed, and its value comes from consumption demand. ETH and other public chain tokens all have actual usage demands.

Some say NFTs represent the latest trend in crypto art, while others say NFTs are a dark horse asset with unlimited appreciation potential. So, do NFTs belong to art or assets? What are the important characteristics of NFTs? And how do these important characteristics realize value in the world of Web 3.0?

NFT: The data rights confirmation system of the digital society. Essentially, NFTs are digital assets formed based on cryptographic technology standards, and their literal meaning is non-fungible tokens.

• In the Ethereum ecosystem, any digital asset generated based on the ERC-721 and ERC-1155 standards is called an NFT. Compared to fungible tokens (also known as FT), such as BTC or ETH, although they are all virtual assets, NFTs have a significant characteristic: each NFT is indivisible, so each NFT has uniqueness. Based on NFTs, we can mark various materials in the virtual world, including images, text, videos, animations, and even a piece of data, and establish a corresponding relationship with a specific account. Once the relationship is established, the private key of the account can transfer and trade the NFTs belonging to that account, granting or denying access to the data, thus gaining control over the NFT.

• However, it should be noted that the virtual world does not have the concept of property rights because property rights are a recognition from a third-party institution. In the virtual world, control rights equal property rights; having control rights over an NFT means completing the confirmation of the commodity. Through various technical details, the owner of the NFT can obtain income generated from transfers and authorizations. It is precisely because of this that NFTs have become the basic system for data rights confirmation in the digital society.

Based on low-cost and permanent property rights, NFTs serve as the foundational system for data rights confirmation. The primary characteristics are low cost and permanent property rights. Where does low cost manifest? First, it is reflected in the production cost; with a simple understanding, you can independently complete the production of NFT works. This process has a specialized term in the crypto community called "Mint." The Mint operation is very simple; you just need to complete the image design, open a decentralized wallet, set up the Mint website, and upload the work to complete the NFT "Mint." The work can be a painting, an image, a video, or even a sentence.

Registering through different processes, such as copyright and trademarks, etc. For NFT Minting, you only need to interact with the blockchain, and the types of works supported by NFTs are very diverse; any work saved in electronic form can be made into an NFT.

In addition to the advantage of low cost, another characteristic of NFTs is permanent property rights. However, at this point, you may also realize that in the process of creating NFTs, the absence of any institution or individual is very important because only property obtained in this way can be considered permanent property rights.

• For example, you may have played "Honor of Kings," where you spent a lot of time and money to obtain an "Honor Crystal" in the game. However, if you want to show this crystal to others, you must enter the game to achieve your "show-off" purpose. It's not just that you lack the ability to take this crystal out of the game to show others; rather, once you leave the game, this "crystal" may not exist at all. The fate of this "crystal" can be said to be the fate of the entire Web 2.0 world, where all assets and creations need to rely on others' "stages" to be presented. If others' "stage" stops operating, no matter whose performance it is, regardless of how wonderful the performance is, it will simply disappear!

And if you want to protect the data you create from being used by others? This is absolutely impossible because the data is stored on the servers of internet companies. Even if you want to access the data you created, the process and cost are very high, and the access rights to the data are solely determined by the internet companies.

• However, in the context of Web 3.0, this fate has been broken. Just like NFTs, as long as not all nodes exit the network simultaneously, your NFT will exist; as long as you hold the private key of the controlling account, the NFT belongs to you. Whether you want to trade or give it away, you do not need any institution's help or permission. This is the permanent property rights of NFTs, and this is the new paradigm of Web 3.0!

Of course, selling sky-high priced artworks can indeed generate a lot of traffic, but if you think NFTs are a wealth-generating machine for creating sky-high priced artworks, you are mistaken. Because in the real world, traditional copyright protection systems and the art market can provide a nutrient-rich soil for "sky-high" artworks, while the value of NFTs lies in providing rights confirmation, circulation, and value discovery functions for more fragmented and even cheaper digital creations.

For NFTs, there is no such problem because the production cost and sales cost of NFTs are very low, and this tool is right beside everyone. We do not need any professional institutions' help; anything can be turned into an NFT anytime and anywhere. Therefore, a large number of low-priced artworks will emerge in the market, allowing artworks to transform from "high-end" luxury goods into "consumer goods" that enter ordinary households. Thus, compared to traditional copyright protection and art circulation mechanisms, NFTs are a more powerful challenger with lower costs, adaptable to almost all forms of digital creation. This "challenger" may have little use in the physical world, but it shows significant advantages in the digital world.

• It can be said that the significance of NFTs lies not only in providing low-cost and efficient rights confirmation functions for digital creations but also in playing a fundamental and systematic role in cultural discovery in the digital world. Here, I want to emphasize again the function of NFTs in cultural discovery. No matter how much it is emphasized, it is not excessive. Just like the promotion of papermaking and printing technology played a positive role in the European Renaissance, a low-cost rights confirmation system has played an important role in allowing cultural expression rights to move from the small circle of social elites to the "general public." Once the "general public" gains the right to express culture backed by market support, it means that the entire society will undergo comprehensive changes in cultural dissemination channels, forms, content, and value propositions, and these changes will inevitably accelerate the dissemination of humanistic thoughts and social changes.

For example, in medieval Europe, only "court painters" or painters serving the nobility could live an enviable life through their painting skills, so the creations of painters must revolve around the lives of royalty or nobility.

If simple creations can become popular due to gaining significant psychological recognition, then memes can also become popular commercial elements. If you're interested, you can learn about mfer and see how this little rascal in everyone's heart has become part of popular culture. OK, after understanding the two characteristics of NFTs—low cost and permanent property rights—let's move on to one of their main applications, PFP, to understand what the most classic original business model of NFTs looks like so far.

In 2017, the two founders of Larval Lab generated 10,000 pixel-style images through algorithms. These images are the same size but differ in skin color, facial features, accessories, or actions. The reason for using pixel style is partly due to the creators' preference for this style, and partly because the composition of pixel style is relatively simple, supporting algorithm generation. However, after generating the images, they did not sell them but allowed anyone to claim them for free through an Ethereum wallet. At that time, users willing to claim for free certainly did not predict that these avatars could sell for such a good price today; they participated purely out of curiosity for various crypto products. Therefore, five years later, holders of CryptoPunk are labeled as OGs (experienced veterans) in the crypto community. Entering 2021, the crypto market entered another prosperous cycle. Although CryptoPunk cannot be traded on multiple platforms like BTC and ETH, the emergence of specialized NFT trading platforms like Opensea has created some liquidity for it. With the boost of market sentiment, the transaction prices of CryptoPunk have reached new highs. On May 22, 2022, Sotheby's successfully auctioned CryptoPunk #7523 for $11.75 million, pushing its transaction price to a new height.

• For any asset, rapid price increases against the backdrop of a booming market are its best advertisement. However, anyone with a bit of knowledge about the capital market knows that the price of any asset will rise and fall. The narrative of CryptoPunk began as a tribute to the pioneers of the crypto community, but the price risks brought by speculative psychology have also become an undeniable label on it. We can hypothesize that in the future, no matter who spends $20 million to purchase a CryptoPunk avatar, we will not doubt their love and appreciation for pixel-style artworks, but we also won't doubt their strong impulse to sell this avatar at a higher price. Perhaps the pursuit of adventure and wealth itself is an inherent characteristic of the crypto community, and this can also be considered part of the cultural discovery of NFTs. In addition, NFTs not only reflect market attention through price performance but also express the subjective mindset of collectors. If you spend $12 million at an auction to acquire a CryptoPunk, you certainly gain ownership of that work, and you can naturally change it to your avatar. But does that mean others cannot use it as their avatar? If someone does so, does it constitute an infringement of your private property?

These facts illustrate that despite spending $12 million, you essentially only bought a link, which is packed in a certain block of Ethereum, indicating that you once paid a sum of money for your favorite "avatar." If someone else uses this image as their avatar, it indicates that they also like this avatar, and it also shows that they are "showing off someone else's equipment." However, regardless of whether you spent $12 million or not, anyone using this image as their avatar is telling a story about their experiences and feelings to the outside world. The longer people spend in virtual spaces, the higher the value of digital identity becomes, even surpassing the value of LV and Rolex in real life. Just as in real life, wearing a Rolex may earn you trust from certain people, in the virtual world, using an avatar frequently exposed by various media will also bring certain conveniences. For example, someone who changes their Twitter avatar to CryptoPunk may receive hundreds of friend requests on the same day, which can also be seen as evidence of CryptoPunk's extension from pure personal self-expression to cultural discovery.

• It can be said that CryptoPunk pioneered the direction of PFP, and its price fully reflects the effect of head projects. However, the rapid price increase has also brought obvious side effects, as high prices effectively reject the expansion of the user base. Therefore, after CryptoPunk, a large number of PFP projects emerged, and from the thematic perspective, they became more diverse. For example, the Bored Ape Yacht Club (BAYC) themed around a group of super wealthy individuals lounging in a country club; Cool Cats themed around cats; Pudgy Penguins themed around penguins; and World Of Women themed around women, etc.

• Focusing mainly on NFTs as the foundational system for data rights confirmation, we summarize its four main characteristics: low cost, permanent property rights, transparent expression, and programmability. Among these, the characteristics of low cost and permanent property rights enable NFTs to possess cultural discovery and value discovery functions that are completely different from existing copyright systems, and they may significantly impact popular culture and social psychology. However, you should also be aware that in the current market environment, PFPs generated based on these attributes face significant price risks, and you need to pay close attention.

We will continue to explore the other two characteristics of NFT data rights confirmation, namely "transparent expression" and "programmability." These two characteristics are completely absent in traditional property rights systems, and they share a commonality: they endow NFTs with richer commercial value. Next, I will specifically show you how they endow NFTs with commercial value. Transparent Expression: The Commercial Value of NFTs in Digital Marketing. Since NFTs are generated based on decentralized networks, all account and data information is transparent and visible to the outside world. Therefore, NFTs can play an important role in digital marketing. We know that the essence of marketing is consumer demand management. Whether in the physical world or the virtual world, the first step in marketing is to find your target customers. The traditional methods usually involve high costs, such as questionnaire surveys and channel surveys, and the accuracy of the survey results cannot be guaranteed. The high marketing costs ultimately need to be borne by users. If users' basic characteristics can be expressed through the NFTs they hold, then it becomes a very convenient channel for discovering user needs. Moreover, if users become tired of a certain NFT product, they will have long removed those labels from their accounts. Therefore, these internal activities expressed through NFTs are all proactive behaviors of users.

From this perspective, compared to advertising and other methods, the accuracy of user data obtained through NFTs will be greatly improved, which is undoubtedly very important for personalized marketing based on user profiles. In addition, the data displayed by NFTs is also multi-dimensional and three-dimensional. For example, an account can hold multiple NFTs, which actually reflects a comprehensive view of the account holder from multiple aspects and perspectives: for users, it is their self-expression; for manufacturers, it is the basic material for building customer profiles and can be used to explore deeper user needs.

• For instance, Li Ning, a professional sneaker manufacturer, may have a large amount of data regarding the shoe sizes of Chinese citizens and specific wear and tear data on different parts of shoes for certain sports. However, they are likely to lack understanding of user characteristics in areas such as green environmental protection, fitness and health, and whether they enjoy challenges, seek excitement, or are adventurous. These factors significantly impact the exploration of user needs, which is the advantage of NFTs in "transparent expression."

At that stage, when a large amount of user characteristic data becomes transparent and visible, it means that the current ability of internet companies to monopolize channels and data will become meaningless. Instead, the ability to analyze public data and shape brand connotations will become the core competitiveness! However, I guess when you see this, you may have some questions: If at that time, our personal information data is almost completely transparent, does that mean our privacy is completely unprotected? In fact, it does not. Because the subject of information expression based on NFTs is the account, not our real selves. Moreover, from the current situation, the virtual account and the real person are "weakly bound," and there is no one-to-one correspondence between on-chain accounts and real-world individuals. In other words, individuals have complete control over their accounts, and it is almost impossible to trace back to the individuals behind the accounts. This issue still appears to be unsolvable at present. Why? Because binding on-chain accounts to individuals requires a centralized institution, and relying solely on the internet cannot solve this problem. This state may become a norm. In this case, the excavation of account characteristics cannot be equated with the excavation of personal information. However, we can indeed reflect some real states and preferences of individuals behind the accounts from multiple angles, although the difficulty of data analysis increases, the cost we incur may significantly decrease.

The control rights mean that the information you want others to know can only be known by them. If you choose to deny access, others cannot access any of your data. From this perspective, the data expressed through NFTs is essentially a form of proactive expression, where users have a clear subjective desire to have the information they wish to be retrieved by the outside world. This kind of proactive expression is evidently more valuable for manufacturers. For example, you may also actively set your avatar on some social platforms or disclose your past activity experiences and work resumes in your profile. These are all our proactive choices. It can even be said that users subjectively hope to find "like-minded" friends or solutions that meet their needs through such behaviors.

• Therefore, analyzing these data is still of significant value for our digital marketing efforts. It is precisely because of the commercial value of NFTs in digital marketing that major brands are now actively laying out NFTs. Some brands choose to create co-branded products with NFT projects, such as Adidas; some brands choose to acquire specialized virtual goods manufacturers, such as Nike; and others choose to build their own metaverse and create their own NFTs, such as LV. However, more manufacturers will choose to directly issue NFTs or digital collectibles. This way, they can achieve certain sales through the mutual exchange of physical and virtual products, while also gradually tagging their users, and at the same time using similar methods to acquire new users. If you have some experience in data mining and analysis, you can try to create some tools in this field, or if you are interested in brands and marketing, you can try to design some activity plans through this approach. In short, NFTs have become a compulsory course in digital marketing, and this is a brand new field. The earlier you take a step in this direction, the more likely you will have a significant advantage that others do not have for a considerable period of time. So why not give it a try?

• Programmability: Endowing NFTs with Infinite Possible Applications. As the foundational system for data rights confirmation, NFTs also have the characteristic of programmability. If low cost and permanent property rights endow NFTs with cultural discovery functions, programmability reflects the enormous commercial value of NFTs.

Rights to copyright income, opportunities to participate in investment plans, etc. It can be said that programmability creates infinite possibilities for the commercial value of NFTs. Let's look at a few simple examples. In the traditional copyright market, copyright income can only be realized through one-time transfers or authorizing others to use it. If the original author transfers the copyright to a professional publisher, regardless of how much profit the publisher makes from this work, it has nothing to do with the original author. This is also the main reason why many authors of world-famous works remain impoverished throughout their lives despite creating great works. So why can't the traditional copyright market establish a multi-level sharing mechanism for original authors? The reason is that the cost of supervision and implementation of this method is simply too high, and there is no necessary technical support. However, once NFTs emerge, original authors no longer need to worry about this situation. Because the transaction records of NFTs are completely stored on the blockchain ledger, and various rules can be set through smart contracts, it is also possible to establish a mechanism that pays royalties to original authors at a certain percentage for every transfer of the work, regardless of how many times the work is transferred. Moreover, this mechanism can be executed automatically; once a transaction occurs, the income that the original author and publisher should receive will be calculated clearly through smart contracts and automatically transferred to their accounts.

• For PFPs, the avatars have little independent value once they leave the account. However, for artworks, they are a complete cultural expression at the cultural level. For example, artworks need a name that reflects their cultural appeal, while avatars can simply use digital codes. HashMask also recognized this and creatively designed a process for collectors to name the artwork. So how do collectors name it? HashMask's approach is to introduce a governance token, rewarding collectors who purchase artworks from the primary market with governance tokens. Collectors earn a certain amount of tokens for each day they hold the artwork. However, to name or rename the artwork, collectors need to consume governance tokens, and each artwork only has two opportunities for renaming throughout its lifetime. Through this method, collectors can rename the artwork according to their understanding of it, which can also be seen as participating in the artistic creation. NFTs find new ways to realize the value of digital artworks through this approach. Additionally, NFTs can be combined with gaming, social, and financial aspects, generating new business models. For example, NFTs allow game assets to exist independently of the game, potentially establishing a more open virtual ecosystem where land, resources, characters, and outputs can be confirmed, priced, and traded based on NFT technology.

Active communities, celebrity effects, and directly monetizable commercial value have kept the secondary market trading of BAYC active, and the continuously rising community stickiness has also driven their secondary market prices higher. The continuously increasing secondary market prices have turned into a wealth effect for early holders. This led BAYC to reach its peak market value of $4.23 billion on April 23, 2022, ranking second in the global NFT market by market value, just behind CryptoPunk. Acquisitions, financing, issuing governance tokens, and selling metaverse land.

• Now, at this point, you might think that a story that started at $40,000 and created a market value of $4 billion in a year could end perfectly. There are indeed very few teams that can achieve such results, but BAYC has not stopped here; they have set a grand goal of becoming the "Disney of Web 3.0."

BAYC continues to adhere to its usual approach of continuously empowering community members. Although many teams recognize this model, it is clear that only BAYC executes it more thoroughly and goes further. In August 2021, BAYC distributed a bottle of "serum" to each community member. After mixing this "serum" with "bored apes," each community member could obtain a "mutant ape" (MAYC) that they "created." MAYC is currently the sixth-ranked PFP project by market value. In December 2021, BAYC collaborated with Adidas to launch co-branded products, positioning itself as a guide for the globally renowned sports brand to enter the NFT world. Then, in the second half of 2021, while Yuga Labs continued to advance community operations and expansion, their strategic thinking became increasingly clear. Entering 2022, Yuga Labs demonstrated to the world how they continuously moved towards the goal of creating the "Disney of Web 3.0" through a series of operations.

• On March 11, 2022, Yuga Labs acquired CryptoPunks and Meebits. With BAYC and MAYC, Yuga Labs has brought all the top-ranked NFT IPs into its portfolio. Then, on March 17, Yuga Labs issued ApeCoin and proposed in its planning that ApeCoin would serve as the governance token of ApeCoin DAO. This governance token will act as a medium of exchange to promote trading activities within its ecosystem and will serve as a participation certificate for accessing certain scarce resources or participating in exclusive community events. At the same time, ApeCoin will also be a contribution certificate for third-party developers to develop and create within the APE ecosystem. In other words, ApeCoin will become the underlying support that connects all Yuga Labs projects, such as BAYC, MAYC, and other collaborative projects.

(An open public blockchain platform with smart contract functionality) and other projects. It is evident that the participation of these institutions has undoubtedly gathered a group of the most experienced, active, and exploratory partners for Yuga Labs. Recently, on April 30, Yuga Labs released a preview of the metaverse game Otherside and launched land sales on the same day. Otherside is co-created by Yuga Labs and Animoca Brands, featuring a metaverse that gathers various NFT IPs while providing users with UGC creation opportunities. The revenue from this land sale was approximately $320 million, and this operation made Otherdeed the fourth-ranked project in the NFT market by market value. Therefore, you can see that from acquisitions to fundraising, from issuing governance tokens to selling metaverse land, in just two months, Yuga Labs has seamlessly turned every significant plan written by industry institutions into reality ahead of schedule.

From the perspective of resource aggregation, Yuga Labs has achieved a dream start. However, what lies ahead for Yuga Labs is still a path that no one has ever ventured into. From a product perspective, successful fundraising does not necessarily mean product success, and Yuga Labs has achieved the integration of market resources solely by seizing market timing.

• The three "thresholds" for landing a business model. Of course, if they can realize the landing of the business model later, it will truly form a business closed loop. Currently, at least three major "thresholds" stand in front of Yuga Labs before the business model can be realized. First, Yuga Labs lacks experience in game operations. The success or failure of the Otherside project hinges on operations, and Otherside is actually the key to Yuga Labs' goal of creating a Web 3.0 version of Disney. Second, there is insufficient user scale. Although a series of IPs represented by BAYC have high market values and prominent brand advantages, the number of users holding various IP assets under Yuga Labs is only about 100,000+, which is still a significant gap compared to large-scale games, and the gap to achieve the goal of building a metaverse is even larger.

For instance, the OtherDeed land auction also conducted airdrops for early users, and this "the rich get richer" operation increasingly resembles the CryptoPunk they acquired. Therefore, how to balance protecting the interests of early community members while expanding the community scale is another issue they need to face directly. In summary, Yuga Labs cannot yet be considered a complete success story; it can only be seen as a perfect start. However, this start has opened up new ideas for the development of the industry, and we look forward to more exciting presentations from them in the future.

Axie Infinity: The Pioneer of Play to Earn! Axie Infinity is a turn-based strategy game that primarily offers two gameplay modes: battling and breeding. In terms of the battle mechanism, Axie has set up both PvE (player vs. environment) and PvP (player vs. player) modes, with winners in both types of battles receiving token rewards.

In terms of pet breeding, Axie is designed to produce mutations in six body parts controlled by three genes. Players can profit not only by selling pets but also have a chance to generate extremely rare super pets, and this "lottery" mechanism increases the playability of the game and has spawned a group of loyal professional players.

Among them, AXS is a governance token, similar to a company's equity. The breeding process in the game requires consuming AXS, but players ranking high in monthly player rankings can receive AXS token rewards; SLP is a utility token, similar to a ticket, where players can earn SLP tokens as rewards through PvP and PvE battles, but players must first own three Axie pets to qualify for battles, and breeding pets requires consuming SLP. Each account has a daily limit on the amount of SLP it can earn, and newly obtained SLP has a 14-day lock-up period.

Additionally, Axie's "play-to-earn" model has given rise to a new business model: gaming guilds. Gaming guilds differ from traditional gaming guilds primarily in that they provide leasing services based on in-game NFT assets (while traditional gaming guilds only facilitate team formation and strategy exchange). For example, the entry barrier to the Axie game is the requirement to own three Axie pets, and gaming guilds can lend pets to players for gold farming and take a share of the profits. Thus, with gaming guilds, players can participate in the game at "zero cost," only needing to invest their time and effort to earn income.

STEPN: The Fleeting X to Earn. So, if playing games can earn money, can running do the same? STEPN's answer is, of course. Launched in February 2022, STEPN is a game that focuses on "earning money by running." Although STEPN has moved the scene of users earning money to offline fitness, its economic model is very similar to Axie's: on one hand, users need to purchase "virtual running shoes" first, and after the running data is synchronized through GPS and the "virtual running shoes," they can start "earning money by running"; on the other hand, the main game mechanisms are also designed around the rewards and consumption of game tokens.

In terms of game token rewards, holding virtual running shoes is a prerequisite for earning token rewards, and the type and quantity of running shoes directly affect the output of the shoes. Users holding one "shoe" can earn 2 energy points daily, and they can only run within those 2 energy points. Although these 2 energy points can only be used on the same day and expire if not used, there is no limit on the number of shoes a user can hold. Holding multiple shoes can even allow energy points to exceed 100. In terms of game token consumption, STEPN divides all "virtual running shoes" into four major categories, each further divided into 30 levels. Running consumes one energy point, but the output gradually increases from low to high according to the level, thus creating a consumption scenario for game tokens in the process of game token supply. Since everyone wants to earn a little more, the basic logic is like this.

In addition to upgrading running shoes, "Minting shoes" is also a consumption scenario for tokens. "Minting shoes" simply means "old shoes give birth to new shoes." Although it may sound a bit contrary to life experience, it actually aligns with the psychological needs of gamers, so users find it easy to accept this rule. Compared to Axie, STEPN's user base is actually broader, with a higher proportion of pure players. Many people initially came to earn money, but after running for a while, they gradually developed the habit of exercising daily and thus became long-term users of STEPN. Therefore, in the first half of 2022, STEPN became a phenomenon upon its launch, with daily active users peaking at over ten thousand. Unfortunately, during the period of increasing STEPN users, the virtual asset market experienced a sharp decline, with Bitcoin prices dropping by 60%. Many users who bought shoes at high prices found that the rewards tokens earned from running were worth very little, turning "earning money by running" into "paying to run," and the game's traffic saw a significant drop within less than half a year after its launch.

I want to say that from the above two cases, whether it is card battles or running for fitness, there is actually a common mainline running through the entire gameplay: players need to invest a portion of capital first. So, from the perspective of capital flow, can players earn money by playing games or running? If so, is this earning effect universal, or does it require certain conditions to be met?

Next, let's step out of the specific gameplay of the games and explore these issues from an economic perspective. Why can Play to Earn work? Before analyzing the sources of income for Play to Earn, let's review how traditional game developers make money. Currently, paid games mainly fall into two categories: one is to pay upfront to buy the game, and the other is to play for free but can purchase better experiences and more content, known as Free to Play. The "pay first, then experience" model has become history, and Free to Play is the universal model adopted by most games today. Game developers generate revenue through various paid scenarios under the free game model, such as paying to unlock levels/maps, purchasing skins, etc., to enhance character abilities, reduce waiting times, or pay to remove ads in games.

Thus, from the revenue model of free games, we can see that only advertising revenue comes from outside the game, while all other revenues must rely on converting new players or existing players into paying players. In other words, developers need to focus their efforts on attracting new players, improving player retention and activity, and enhancing conversion rates to paying players.

So, what impact does the emergence of the play-to-earn model have on the "free model" of games? Let's start by exploring how NFTs empower game assets. First, NFTs can endow game assets with value through rights confirmation. Based on NFT confirmation, players can truly own these game assets. This "ownership" is reflected not only in control rights but also in creative rights. As a universal data rights confirmation system, players can showcase the time and skills they spend in the game through NFT assets, and for the first time, they gain "creative rights" over game assets, along with associated transfer and income rights. This is also a key point we have been emphasizing in previous courses.

Thirdly, NFT assets have external value. This means that the NFT assets and game tokens obtained by players can circulate on-chain, rather than being limited to circulation only within the game, thus generating liquidity premiums and social value. Especially rare NFT assets represent a display of wealth, skills, and even social relationships. Additionally, the openness of on-chain data allows project parties to easily identify accounts holding rare attribute assets and conduct targeted marketing.

So, as we can see from the above content, the second and third attributes of NFT assets directly increase the attractiveness of game assets to players, while the first attribute fundamentally changes the structure of supply and demand for game assets. The change in the business model of games occurs naturally. Based on these characteristics, the logic of "users invest time and data, so they should also be rewarded" becomes the theoretical foundation for the establishment of P2E (Play To Earn