Overview of Web3 infrastructure framework, which infrastructure applications deserve attention

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Original author: Eric Hu, translated and edited by defi road.

The Internet has fundamentally changed society, individuals and economy. As a tool to unlock unprecedented knowledge transfer, it has led the information age and become a basic platform for supporting applications, networks and services.

The network has developed over time and will continue to develop - today, we are changing from "web2" to "Web3", which is the next development of the Internet. Let 10 people define Web3, and you will get more than 10 different answers. However, the Internet is changing, which is the result of multiple technologies becoming mature, globalization and social transformation.

Web3 embodies many principles - but it is expected to become a more decentralized and collaborative data and value Internet. Blockchain and encryption are the core, but they are only one of many technologies adopted by this new Internet.

The explosive growth of blockchain and encryption experiments has demonstrated novel structures and business models: strong network effects, more distrustful coordination of stakeholders to achieve common goals, adjustment of incentive mechanisms, transformation of governance models, definition of agreed ownership, and perhaps most importantly - the value of interconnected data, all of which are done in a digital native way.

Although blockchain and encryption help create new applications and businesses, it is important to emphasize that Web3 is the evolution of front-end applications / UX and back-end technologies. Web3 highlights greater composability and smarter networks in the technology stack. Whether through smart contracts or machine learning driven decisions, the upgraded computing network is more suitable for automation and management of high-throughput analysis or monitoring technologies (NLP, computer vision, Internet of things) and data intensive use cases (AR / VR, automatic driving, smart city). In parallel with the bandwidth explosion in the 2000s to support the growing Internet, 5g deployment and edge computing in hardware will be integrated into processing capabilities (whether through extended blockchain driven computing and / or the next generation cloud), opening up new possibilities for applications and services.

Another point that needs to be emphasized is the cultural and social transformation (instant machine) that is indispensable for the success of new technologies. In the past few years, the acceleration of the COVID-19 pandemic has supported many trends. We have seen significant growth in digital transformation, cashless payments and migration to the cloud. As a society, we are more and more used to trading and experiencing our life in digital way. Cryptocurrency has entered mainstream culture and has grown into a real (though still nascent) asset class. After so many years of saying "when will the organization enter?" now the organization finally enters.

Today's "Web3" is still heavy and full of friction. The next step is the induction experience, better UX / UI, proper supervision and excellent or novel use cases. However, it is foolish to bet on a technology in the light of today's situation. A lot of basic work is being laid. Start with the appropriate building blocks.

In the past two years, there has been an explosion of innovation - from teams building layer 1 or extension protocols, new applications and projects, and novel governance or token models. Where talents and innovation go, capital will follow. In 2021, US $25 billion of funds flowed into blockchain based projects. Among these projects, those classified as "infrastructure" are the most critical.

So why is infrastructure the key today, not applications?

As moxie, the founder of signal, rightly pointed out, no one wants to run their own servers. As Web3 matures, abstract complexity, like other iterations of the web, is a key driver of growth. Managed services and tools enable teams to leverage their strengths and innovate without having to spend a lot of resources on the back end (security, reliability, scalability). When the next billion users join Web3, most people do not need to care about what blockchain or token standard the protocol uses, or skip obstacles (and fear!) Interact with the application. That's why the right infrastructure, architecture, and tools are key. This has broad prospects in Web3, so in short, we can use the framework of Web3 infrastructure as a mental model of what is happening.

Evolution of web and Web3 principle

Overview of Web evolution

Before we delve into infrastructure, it might be useful to talk more about Web3 principles -- after all, that's the goal of all these projects.

  • Digitization: today, we are in the transition from physical information and assets to digitization. Web3 exists in the era of data flow. Physical data can be measured, combined and executed by digital information. Back end computing will process information from various sources - AR / VR, IOT sensors, autonomous devices, etc.
  • Integration and maturity of emerging technologies: no technology exists in a vacuum. Encryption and blockchain technology are key parts of the architecture and values. But other technologies are also maturing - 5g, artificial intelligence, edge computing, Internet of things. The combination of more efficient and intelligent processing of larger data sets, flexible infrastructure and new business models (such as tokens) will provide a foundation for the next generation of applications.
  • Ownership of data and assets: Web3 will help achieve true ownership of data, assets and work. Blockchains are revolutionary because they can track and prove digital ownership. Digital assets - whether fiat currency, cryptocurrency or NFT, can be controlled by users through wallets. Traceability (and zero knowledge of Privacy) allows for the measurement and control of the contribution of assets or individuals. Combined with digital identity, this is powerful.
  • Increase decentralization of control and Governance: cryptocurrency and blockchain are fundamentally based on decentralization, trust and coordination. Tokens not only represent assets, but also usually represent voting rights or membership cards. Decentralization will always be the scale of entities within a scope. Centralization has its own advantages, but with the first iteration of Dao, new models of corporate governance, network control and distributed decision-making are taking shape. More decentralized control will enable the platform builders, operators and users to have and have a say in the development of the platform.
  • Composability: before the advent of the Internet, all we had was the fence intranet. This is also happening more and more in the blockchain, and interoperability has become the focus. Through open source code, Web3 is built with composability in mind. This means that teams can take existing projects or plans and build on them. This allows faster development and communication (interoperability) across applications and through the technology stack.

More mature Web3 will lay the foundation for transforming the relationship between data, value and ownership on the network. Companies, users and networks can more freely share or interact with data or transfer value. So Web3 has a lot to do, and today we are observing a space in the throes of growth. This is why people care about the infrastructure services that lay the necessary foundation for Web3.

So what is the importance of infrastructure?

Infrastructure is the cornerstone of development. Today, we see it as roads, bridges and utilities, as well as the core "digital infrastructure". "Digital infrastructure" refers to the pipelines and services of the Internet today. In the past few years, digital infrastructure has developed from hard assets such as signal tower or optical fiber network to "upper layer" technologies such as cloud, data center and managed network software.

For Web3, we now define infrastructure as tools, services, and architectures that allow large-scale deployment, construction, and use of Web3 applications. After all, both businesses and retail must use Web3 in a smoother and more scalable way. There are many forms of Web3 infrastructure -- especially one in the context of decentralization. A large part of the Web3 project itself is decentralized. That is, using tokens or community-based governance. However, decentralization is a scope, and there are good reasons - there are trade-offs in terms of capital, user experience, and operational efficiency. In the Web3 infrastructure, projects and teams are building various fields, many of which adopt centralized methods and raise funds through traditional equity financing.

Some features of Web3 infrastructure make it attractive to builders and investors. More predictable revenue, similarity to existing platforms / software, more experienced management team and mission criticality to the ecosystem. This has led to capital from Web3 local / crypto capital, as well as growth or venture capital from traditional financial participants. Therefore, from 2021, these Web3 infrastructure tracks have begun to form.

Guiding issues of the framework

When we look at the infrastructure of Web3, there are few guiding questions to support the framework as a way to think about the future in the process of its continuous development:

  1. What Web3 services and tools ("architecture") and what data, storage, or computing ("core infrastructure") systems do project teams typically use to support these?
  2. What operational challenges do builders or organizations in Web3 face? What "mission critical" or solutions that abstract unnecessary complexity have been developed?
  3. What basic services have been and need to be established for some use cases (e.g. defi and NFT) to achieve large-scale success?
  4. What capabilities have the existing companies and projects invested in - whether through mergers and acquisitions or organic construction?
  5. How do the components of the Web3 "infrastructure" interact with each other? What is the degree of establishment of each component (i.e. the number of projects in the field, common standards, and the maturity of the solution)?

In Web3, people can consider the digital infrastructure in the three types of services and products above the basic computing (blockchain) layer - data, value / mobility and interplayers / blockchain support services.

Computing layer (blockchain and blockchain inspired technologies): the foundation of Web3 is the computing layer. This includes blockchain and blockchain inspired networks (layer 1, subnet / side chain and extension solutions), on which everything else is built. Because there are many blockchains today, cross chain / full chain protocols and on chain messaging projects have emerged to allow value and information to be exchanged from one chain to another. This is a very important point - the blockchain network interweaves the transmission of data and value among various stakeholders in a more trustless manner. There is a lot of information about the computing / blockchain layer being developed, but it can be said that this is a place where a lot of time has been spent and will continue to be invested.

On the basic blockchain layer, we can divide services, tools, architecture and infrastructure into three categories:

  1. Data participant: provide core infrastructure, architecture and tools for teams to build and operate Web3 projects
  2. Value and liquidity participants: building block for capital flow between Web3 applications and participants, with less friction (i.e. high gas and sliding point fees)
  3. "Interplayers" or blockchain support infrastructure: stakeholders who support and maintain blockchain / computing networks

Note that there are endless nuances in how applications and projects leverage or build Web3 infrastructure, but we keep it at a high level. (see Appendix 1 for more details)

Data InfrastructureWeb3 will be the evolution of semantics. This means that machines and computers will need to analyze, send and calculate large amounts of data.

For data infrastructure, more "core" or established data infrastructure and "emerging" services and tools constitute the architecture of the development team. The data infrastructure here includes various tools, services and components that make blockchain data easy to use or build on.

A brief overview of these data centric building blocks:

  • Core data infrastructure:

Manage nodes and API providers interacting with the blockchain, decentralized data storage, block browser for tracking transactions, and index / query services for efficient access to data

  • Emerging / adjacent data infrastructure:

Tools and hosting services that interact with the development of applications; This includes everything from developer environments to assisted code transfer, code auditing, SDKs (e.g., privacy / zero knowledge kits) and digital identity services

Tools and hosting services to assist Web3 use cases: NFT related and Dao / community operation services. Examples include NFT analysis or low code NFT creation, organizational financial management, voting platforms, and community induction tools.

Value and liquidity infrastructure: one of the key innovations of Web3 is to link information and value at the most basic level - this may be due to agreed and verifiable ownership.

For Web3, value is intertwined with the core functions of the operating network, whether through governance, security or practical token incentives. But the value without liquidity is not worth money. For all types of capital flowing into Web3, value needs to be protected, accessed, distributed, converted and accessed, and allowed to flow in the ecosystem without too much friction (that is, gas, slippage or royalty should not be extremely destructive to the activity)

Therefore, many participants provide building blocks of "value or liquidity":

Today's "core" value infrastructure includes:

Wallet: the gateway of Web3. Wallet is the main interface for users to interact with blockchain, tokens and applications. Recently, we have seen the wallet become more like a "browser", which is a good step for entry

Custodians protect (institutional or large retail) capital, exchanges convert the value of the entire ecosystem and tokens, and access to existing payment infrastructure (e.g., fiat currency, credit cards)

Emerging value and liquidity infrastructure includes:

Dashboard and analysis for portfolio management; Defi or exchange aggregator to enhance liquidity and institutional trading infrastructure for efficient markets

Assist in neighboring services in capital operation - mainly tax, compliance, regulatory and cyber security (to maintain value)

"Interplayers" and infrastructure supporting blockchain: we have emphasized that the core tenant of Web3 is the combination of value and data allowed by blockchain technology. Therefore, there is an infrastructure supporting the blockchain computing layer, which promotes the ability of value and data services to succeed.

Interplayer / blockchain supporting infrastructure includes several subcategories:

  • Network maintenance: cryptocurrency miner (for workload proof network), stacking service and verifier service allow easier network support or maintenance; These facilitate transaction processing, voting (through delegation) and network incentive sharing (e.g. block rewards)
  • On chain analysis: these services are now popular in compliance or transaction use cases, providing dashboards and tracking for activities in the computing layer. It is very helpful for many hackers or security vulnerabilities in today's encrypted applications.
  • Emerging supporting infrastructure: on chain communication and messaging protocols have received more and more attention. As emphasized in ethcc 5 this summer, with their continuous development, we can include omnichain protocol or bridge here.

Combination - illustrative NFT project:

Using this mental model on the Web3 infrastructure, let's look at how everything comes together through an illustrative example of a community managed NFT project. (for more technical readers, Appendix 1 has a deeper understanding of the components of the framework)

  • First, let's choose the Ethereum network to start the NFT project. Miners and pledge providers are used to protect and support the network by processing transactions.
  • Now we need to build NFT. The team may use NFT's developer toolkit or write its own smart contract in a standard development environment. They will use data storage providers such as IPFs to store the actual NFT information. If this is a large or complex project, a smart contract audit company may be hired before it is launched. At the time of release, the team will seek to provide the series in markets such as opensea.
  • Community participants will need a wallet to store NFT and pay using eth. They may enter the exchange or pay by card through another portal (such as moonpay). Please note that cryptocurrency exchanges, wallets and markets all use block browsers and API providers to exchange information with the Ethereum blockchain (for example, when you convert eth to NFT).
  • Finally, community and governance. NFT project teams may use MPC or multi signature wallets or hosting solutions as their vaults. Operational tools such as counting can be used to manage their community voting proposals. At the same time, mature participants may use chain or NFT analysis to measure activities, create dashboards, and manage their portfolios.

Concluding thoughts:

It may not be obvious today, but even if we look back on the past few years, the growth and innovation speed of Web3 is incredible. In the past few years, we have accepted a new asset class, and some of the smartest people, the largest companies and a lot of capital have joined this innovation. Large scale adoption will improve regulation, employment, new applications (with real income), business model, social structure and technological infrastructure.

For the critics, we haven't got there yet. But there are many things under construction and exciting. We are experiencing the development of a new industry in real time and interacting with social learning in the digital age. I definitely need criticism. However, as builders solve every iteration from privacy to scalability, we have seen experimental results of new governance models, digital or physical hybrid services, and the power to motivate aligned networks. Now is the best time to build. I'm glad to see the direction of things.

Author's note: for more detailed information about the Web3 infrastructure framework, see Appendix 1. For useful readings on this topic, see Appendix 2. If you have any ideas about the framework, please feel free to contact us to add or disagree with any content!

About me: a technology investor from New York City, currently in San Francisco. I fell into Web3 rabbit hole for the first time in 2016; This became Cornell blockchain, one of the first university organizations focusing on blockchain education, development and research, which was co founded and led in 2017. Previously, I was an investment banker of evercore, focusing on communication and digital infrastructure. I helped the company enter the Web3 space in this field and spent some time investing in credit at KKR. Keen to support the development of the network.

Appendix 1: Web3 infrastructure framework - Insight

Data Infrastructure:

Core data infrastructure:

  • Node and API infrastructure: the core of Web3 application function, the node provider provides API and RPC (remote procedure call, allowing the program to talk with the blockchain) through the revenue model based on the use. Example: Alchemy and infra
  • Data storage: for reasons of efficiency and cost, many types of data are meaningless on the blockchain (such as video and most front-end content). Decentralized storage solutions and services built to support extended use fill this gap. Examples: IPFs and arweave; Pinata and ceramic
  • Data flow - query, index and Oracle: data is distributed among nodes in the blockchain. Query and indexing protocols are critical to making these data easy to use through the API. Similarly, the Oracle provides data from external systems to the blockchain (such as weather data, token prices, etc.) and acts as an on-chain API for smart contracts. Example: the graph, chainlink
  • Block browser: the blockchain browser is a search engine that displays the data of capital flow or transaction status in the blockchain network. Metamask and other wallets will use API calls to prevent the browser from displaying recent transactions and other items. Example: Etherscan, blockchain.com

Emerging data services and tools:

  • Developer Platform / Toolkit: developer tools help teams create, test and debug their software. This includes tools that make it easier to develop applications such as SDKs. Although more developer environments have been established for EVM compatible chains, these chains use similar tools as developers build applications on non EVM chains. Example: hardhat, truffle, aleo
  • Smart contract audit: as a key part of the blockchain development process, auditors are relied on to ensure the robustness and security of the code before public deployment. Example: open Zeppelin, trail of bits
  • Digital identity: the core tenant of Web3 depends on digital identity - which may include key attributes such as KYC or permitted access. The project here is building services, such as single sign on (SSO) with wallet or Web3 identity, such as ". Eth" domain name. Example: ens, spruce
  • NFT tools and services: with the growth of NFT use cases, a variety of tools and services have emerged to support the ecosystem. Projects range from analytics to developer studios, NFT toolkits, aggregators and markets. Example: opensea, rarity sniper, nftrade, looksrare
  • Community construction and operation: with the increasing popularity of Dao (decentralized autonomous organization), many people have encountered challenges in logistics and operation. A number of projects have emerged to help with collaboration, discovery, operations, fund management, startup and analysis. Example: coordinatape, rabbithole, snapshot, deepdao, superdao, tally

Value and liquidity infrastructure:

Core value infrastructure:

  • Wallet provider: as the main interface of most of Web3, the wallet can not only store value (digital assets), but also realize the identity on the chain and interaction with dapps (such as defi). There are several types according to the specific needs of security and user experience. Example: metamask, rainbow, coinbase Wallet
  • Custodians: qualified custodians are critical to the widespread adoption of digital assets. Trusted custody, record keeping and management of assets are the first step for an organization to enter Web3. Example: anchorage digital, fireblocks, Gemini, qredo
  • Exchanges and markets: value cannot be maintained without liquidity. Exchanges and markets are essential. As the company seeks to establish a complete set of asset management products, many mergers and acquisitions have taken place in the exchange field. Example: coinbase, FTX, uniswap
  • Fiat currency entry and exit: many users enter through a centralized exchange (i.e. exchange fiat currency for cryptocurrency), but with the development of Web3, the track of fiat currency and cryptocurrency must become more seamless. Today's platform provides integration for dapps, allowing the use of credit cards to purchase NFT and other operations. Example: moonpay, Wyre

Emerging value and liquidity services:

  • Liquidity and defi tools: defi has gone through many iterations, and the importance of proper liquidity and portfolio management in the ecosystem cannot be underestimated. Projects range from dashboards to decentralized exchange aggregators to trading infrastructure. Example: 1inch, bloxroute labs, Talos
  • Tax services: with the development of tax guidelines, accurate tax and accounting tools for Web3 or defi activities are critical to any organization. Example: koinly, taxbit
  • Compliance: it is particularly important for defi. The projects here focus on transaction monitoring, KYC, AML and regulatory compliance. E.g.: elliptic, coinfim
  • Security: the current network security service in Web3 is still in the initial stage, mainly for bounty platform or crowd sourcing threat detection. Example: immunefi, polyswarm

Interplay infrastructure (infrastructure and architecture supporting blockchain)

  • Cryptocurrency mining and stacking provider: infrastructure supporting the computing layer (blockchain and similar technologies) in Web3. These transactions are processed and verified through mining or pledge to help protect the network. These providers run the node infrastructure and allow users to participate in pledge rewards by allocating funds. E.g.: core scientific, foundry, whinstone, blockdaemon, figure
  • On chain analysis: the blockchain contains a large amount of data, providing useful information for all participants in the ecosystem from the government to traders. Indicators include transaction data, wallets and user activities. The on chain analysis service aggregates useful indicators and provides dashboards to visualize blockchain data for due diligence, discovery, market sentiment, etc. Example: chainalysis, Nansen, dune analytics
  • Cross chain bridge, on chain message and full chain protocol: in the traditional Internet infrastructure, "message / network" is a key concept. Since Web3 may contain the future of Multi Chain / computing, protocols that allow blockchain interoperability are the foundation of a unified ecosystem. This can take many forms, from single chain bridges to multi chain bridges to interoperability protocols. On chain messaging is also under development (for example, between wallets, combining transactions with direct messaging for use cases such as reconciliation). Example: wormhole, CCIP (chainlink), layer zero, walletconnect, Epns (Ethereum message notification service)

Appendix 2: more useful resources and frameworks

Web3 stack developer's Guide:https://alchemy.com/blog/web3-stack

Jump crypto: the key pillar of encryption infrastructure:https://jumpcrypto.com/peeking-under-the-hoodโ€Œ

ใ€ŠWeb3 Report Q3 2021ใ€‹๏ผšhttps://consensys.net/reports/web3-report-q3-2021โ€Œ

Canvas ventures: Web3 world:https://www.canvas.vc/blog/the-web3-worldโ€Œ

My first impression of Web3:https://moxie.org/2022/01/07/web3-first-impressions.htmlโ€Œ

Web3 application architecture:https://www.preethikasireddy.com/post/the-architecture-of-a-web-3-0-applicationโ€Œ

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