Frequently asked questions

Web3 represents the next evolutionary phase of the Internet, empowering individuals with control and ownership over their own data, social connections, and user profiles. Together, these assets form a user’s “social capital”—something everyone possesses and values. In contrast, today’s Web2 experience is dominated by large corporations that own our social capital. Companies like Amazon, Facebook, and Google store user data on private servers and monetize it by selling to advertisers in exchange for “free” services. While this model delivers a user-friendly experience, it also creates privacy issues, data manipulation risks, and limited monetization options for users.

Web3 addresses these challenges through blockchain technology, which is founded on user ownership. When people truly own their own data, they can monetize it as they see fit, carry their digital identity (profiles, content, data) across platforms, and place themselves on equal footing with applications and networks. Web3’s mission is to build a more open, equitable Internet in which users have both voice and stake in its future.

To appreciate the contrast between today’s Web2 Internet and Web3, let’s step back to the origins of the Web.

Web1 emerged when accessing the Internet was cumbersome due to a lack of user-friendly applications. It was built on open, public protocols and standards—TCP/IP, SMTP, HTTP—upon which any developer could freely build applications or services without permission. These protocols remain the Internet’s fundamental building blocks, governing how computers communicate and how information flows. Today, by contrast, we are often locked into platforms that control our data.

A blockchain is a decentralized, distributed ledger system designed to record and verify transactions across a network of computers. Unlike traditional databases—hosted on private servers under the control of a single authority—blockchain operates peer-to-peer. Every participant (node) maintains a full copy of the ledger, enhancing security and transparency: every transaction is visible to all participants and cannot be altered without network consensus.

Transactions are grouped into “blocks.” Each block contains a list of transactions validated by the network. Once filled, the block is timestamped and appended to the existing chain in linear order. Each block references its predecessor, creating an immutable, chronological ledger. Altering any data in a block would require re-validating all subsequent blocks—a practical impossibility without consensus from the majority of nodes.

Smart contracts are self-executing programs that run deterministically on a blockchain. When an address interacts with a smart contract, the contract automatically carries out predefined actions—such as transferring assets or updating internal ledgers. This automation eliminates intermediaries, increases transaction efficiency, and reduces the risk of human error or manipulation. By relying on code rather than third parties, smart contracts enable trustless, transparent execution, instilling confidence in all parties.

Smart contracts are integral to many blockchain applications because they run on global networks like Ethereum. These networks validate and process each contract’s conditions, updating the contract state as new blocks are appended. This decentralized execution guarantees that contracts execute exactly as written, without interference, and remain publicly auditable, making them foundational for identity management, financial services, and other decentralized applications.

Decentralized Finance (DeFi) leverages blockchain and smart contracts to build an open, transparent, and permissionless financial ecosystem. DeFi’s core objective is to improve upon traditional finance by removing reliance on centralized institutions—banks, brokers, and other intermediaries—and providing financial services in a peer-to-peer manner.

DeFi protocols run on blockchain networks—Ethereum being the most prominent—and increasingly on Layer-2 solutions (Arbitrum, Optimism, zkSync). Unlike legacy systems where intermediaries validate transactions, DeFi protocols use decentralized networks to execute these functions, aiming to reduce costs, lower barriers to entry, and increase transaction efficiency.

Stablecoins are digital assets designed to maintain a stable value relative to a reference asset (typically a fiat currency like the U.S. dollar, euro, or yen). Unlike volatile cryptocurrencies (e.g., Bitcoin, Ether), stablecoins offer predictability and reliability, making them suitable for everyday transactions, remittances, and as a safe haven during market turbulence.

Stablecoins bridge traditional finance and the crypto world, enabling users to transfer value globally without significant price swings. Key use cases include:

Remittances: Faster, cheaper cross-border transfers than legacy systems.

DeFi: Essential collateral for lending, borrowing, and yield-earning.

Hedging: Allowing traders to exit volatile positions without converting back to fiat.

Payments: Merchants can accept stablecoins without exposure to price volatility.

Fiat-Collateralized Stablecoins are backed 1:1 by reserves held in bank accounts—for every token issued, an equivalent amount of fiat currency is held. Examples: Tether (USDT), USD Coin (USDC).

Decentralized Stablecoins rely on on-chain collateral and algorithmic mechanisms governed by smart contracts—without a central issuer. These contracts transparently manage collateral requirements and token issuance/redemption. Coin Flow’s USDT/USDC is an example of this model.

Algorithmic Stablecoins use algorithms and smart contracts to dynamically adjust supply to maintain a peg—issuing or burning tokens to stabilize price without direct collateral backing.