Web3 Interoperability: The Hard Parts

An overview of web3

The web3 stack includes tools and protocols that enable decentralized apps to function. Web3 refers to a set of technologies that power decentralized applications or dApps. These sorts of applications offer users more control over things like identity and value. Additionally, they provide decentralized control and use a distributed infrastructure. All of these factors combine to create a more secure internet that is not as reliant on central authority. The web3 stack contains all of the necessary tools and protocols to make dApps possible.

The internet as it currently exists is very centralized and has more problems than many people realize. Users have to deal with data breaches and being locked into using certain vendors. Web3 is a proposed new version of the internet that is designed to address some or all of these problems. It would remove power from central intermediaries and promises a better user experience. It would also increase data safety and provide fail-resistant services.

Some features that web3 allows are:

Decentralized web infrastructure
Ownership (of data, content and platform)
Native digital payments
Self-sovereign identity
Trust-less, distributed and robust infrastructure
Open, public, composable back-end

The web3 stack

The web3 technology stack is different from the web2 technology stack because it uses open, decentralized technologies instead of databases and centralized technologies. This transition is complex and intrinsic. Web3 technology stack can be divided into the following layers :

Layer 0 – Infrastructure
Layer 1 – Protocols
Layer 2 – Utilities
Layer 3 – Services
Layer 4 – Applications

Let’s take a closer look at them.

Layer 0 – Infrastructure

At the bottom of the web3 stack is infrastructure layer that is made up of underlying blockchain architecture on top of which everything else has been built. This layer of web3 stack serves the following:

Mining as a service

People in the cryptocurrency world are talking a lot about mining. Mining is necessary for the decentralized web, and many companies are offering it as a service (MaaS) to investors and individuals who want to use it on a large scale. This is a new way for companies to do business, thanks to the decentralized web.

Network

The web3 stack network is designed to be distributed and decentralized, without the need for a central authority. This allows users to maintain their privacy. The network operates similarly to a blockchain network, but with increased scalability. The network enables the web3 stack to run its own web3 browser, which can also be distributed. In addition, the network allows blockchain applications to run decentralized. As such, the blockchain application stack will have a similar structure to dApps.

Virtualization

Virtualization is the creation of virtual resources, such as desktop, server, OS, storage, or network. It can revolutionize traditional computing and make it easier to manage more scalable workloads.

Computing

A concept where multiple computers work together on a single problem to solve it is referred to as distributed computing. The main advantage of distributed computing is that it can save time by breaking down one problem into multiple parts. These parts can be distributed throughout a network, and the problem will be solved by a group of connected computers. All computers work together to solve the problem, connected by a lightweight software program.

Nodes

There are thousands of nodes in the decentralized web. They are the main points of interaction in a network. They keep track of each transaction and can make decisions instantly. They all have the same information, so if any node is lost, it won’t affect the network much. That’s how the web3 stack has been designed.

Tokens

The web3 stack infrastructure layer includes tokens which can be used to access features offered by the network. These tokens are assets that can be traded and transferred.

Storage

The new infrastructure features a decentralized storage unit, which is more secure than existing solutions. Blockchain technologies allow for decentralized cloud storage, which is more cost-effective, resilient, and widely distributed. This storage solution on the infrastructure layer would keep users’ personal data safe without the need to trust a third party.

Layer 1- Protocols

The web3 stack’s protocol layer includes various consensus algorithms, protocols, participation requirements and virtual machines.

Consensus algorithms

Reaching an agreement through a consensus algorithm is a great way to increase the efficiency of a blockchain network. Below consensus and protocols are available:

ASIC-optimized proof of work (POW)
ASIC-resistant POW
POW and POS with fallback
Proof of elapsed time (POET)
Proof of space and time (POST)
Braided POW
Casper TFG proof of stake (POS)
Hybrid POS/ POW
Delegated proof of stake (DPOS)
Proof of History (POH)
Byzantine agreement with leader election (BA?)
Stellar Consensus Protocol
Ripple Consensus Protocol
Leader-centered blockchain consensus

Side chains

The sidechain mechanism allows tokens and other assets to be transferred from one blockchain to another. Sidechains offer a great deal of potential for developers, as they can create decentralized applications without having to interact with the main chain. Sidechains are independent cells of a different blockchain network that provide security themselves. If one sidechain is compromised, it will affect only that particular sidechain and not the entire network.

Participation requirements

layer blockchain networks. There are two types of infrastructure-layer blockchain networks on the new decentralized platform of the web3 stack.

Public/ Permissionless blockchain
Private/Permissioned blockchain

Virtual machine

Virtual machines are designed to provide security and to execute untrusted codes from all computers in the network. Different blockchain systems make use of different types of virtual machines and state transition machines.

Ethereum 1.0, Wanchain, Hashgraph, Ethermint and others – Ethereum virtual machine (EVM)
Solana, Cardano – Direct LLVM exposure
Ethereum 2.0, EOS, Dfinity, Polkadot – Web Assembly Virtual Machine (WASM)
Kadena, Corda, Tezos and Rchain use their own state transition machines.

Layer 2 – Utilities

This layer of web3 stack comprises of the following:

Multi-signature

Multi-signature is a key part of the web3 stack. It provides security for transactions by requiring a unique signature from each user. To send a transaction, all users must sign it online. You can choose how many signatures are required when you create an address. This new technology was first introduced by BitGo and is now widely used in the web3 stack.

Oracle

Oracles provide data that can be used to support smart contracts on a blockchain network. They act as an agent, discovering information about the real-world situation and then carrying it to a smart contract. This is necessary because the blockchain network has no access to the outside world. If the network needs to run a smart contract or access any other information, it will need to access that information through another means. An Oracle provides a specific value that is needed to unlock certain conditions in a smart contract. Once it has all the necessary Oracles values, the contract can proceed as instructed. Without an Oracle, the web3 stack cannot function properly.

Wallet

Blockchain networks use programs to store users’ public and private keys. These programs also allow communication with other blockchain networks. This way, digital assets, such as Bitcoin, Ethereum, and Litecoin, can be tracked.

Digital assets

Digital assets can include cryptocurrencies, images, multimedia, and textual contracts.

Smart contracts

Smart contracts are agreements between two parties that are written in code and stored on a blockchain. If the conditions in the contract are met, then the transaction will automatically occur. Since it is all automated, there is no need for a third party or intermediary.

Digital identity

Everyone will be connected online, so digital identity will be crucial to the web3 technology stack. You will need a digital identity that defines you or authorizes you on different platforms. This will protect your privacy and security.

Distributed file store

A server’s storage space is called its ‘resource.’ To access a server’s resource, you must be an ‘authenticated client.’ An authenticated client is a user who has been granted access to the server by the server’s administrator. Once you are an authenticated client, you will have full control over the server’s resource.

Layer 3 – Services

This technology layer provides all of the tools necessary to create and manage dApps. This layer often includes data feeds, off-chain computing, governance, state channels and side chains.

Data feeds

Data feeds, also known as web feeds, are an important part of any web3 stack. They are a mechanism for receiving updated data from reliable sources. In the new technology stack, data feeds will be decentralized and used to update the information of nodes.

Off-chain computing

Off-chain computation is a process that takes place outside of the blockchain application stack. It is cheaper and more efficient than on-chain computing. Off-chain computation guarantees the integrity of the values and ensures that they can’t be reversed. It adds privacy and provides the perfect backbone for developing a decentralized app.

Governance

Governance is necessary in order to manage the web3 stack effectively. Developers can use a decentralized autonomous organization to manage their projects. These organizations work with smart contracts. A DAO uses the decentralization protocol for the blockchain technology stack.

State channels

Channels are a two-way communication path between peers that are used to conduct transactions. In order to ensure that these transactions are authorized and authenticated, every user must sign them with their private keys. Only participants are able to access these channels. However, they are only available for a limited time and disappear after the pre-defined timeframe.

Layer 4 – Applications

The application layer of web3 stack will include the dApp browser, application hosting, user interfaces and dApp. This layer is responsible for the user experience and interactivity with the decentralized applications.

The dApp browser

The dApp browser is a web3 stack that allows you to access decentralized applications. An ordinary browser, such as Chrome or Firefox, doesn’t have enough infrastructure to allow you to browse the decentralized applications taking over the world. Some dApp browsers give us a fully featured desktop browser, such as MetaMask, which is a plug-in that we can add to Chrome, Mozilla, and Brave. It doesn’t require us to run a full node in order to use it. Trust browser and Cipher are two other browsers that also produce great web3 output. Cipher allows us to browse all decentralized applications on our mobile device and make our selections. We can compare it with the Google App store, except that we can find all decentralized apps in one place.

Application hosting

This is the hosting layer for dApps. It is a cloud storage that hosts the dApps so they can be run on a distributed network that uses Software as a Service (SaaS). This is a secure and reliable layer that makes it easy for users to access and integrate dApps with any device.

Decentralized application

dApps are among the most crucial layers in the web3 stack. The progress of blockchain technology has allowed dApps to supersede centralized applications. Rather than connecting through a centralized server, users can now connect to each other through a peer-to-peer blockchain network. To build a strong dApp, you’ll need data, computation, monetization, and file storage from external sources. The technology stack on the web3 stack is responsible for the development of this layer.

Where is the Utility?

In the 15 years since the Satoshi paper was written, mobile phones have transformed from a niche curiosity to a modern necessity. Thanks to smartphone adoption, almost everyone publishes photos online, on social networks like Facebook or Instagram. And you can order food, or books, or anything you need from your device and have it delivered within hours. That’s a lot of utility.

Although blockchain technology has a lot of potential, there are only a small group of people who are benefiting from it right now. Most people are only using it for trading or speculation purposes. Ethereum and other programmable chains have the ability to create tokens that can be used to grant access to certain communities or tools. However, the vision of a social metaverse that people can log into is still far from becoming a reality. Some people think that blockchain technology will never be practical and that it’s just a huge Ponzi scheme. What do you think?

Fraud and Fashion

The vast majority of individual projects will turn out to be Ponzi schemes or scheme where the creators just take the money and run. Many of these projects have tokenomics that are questionable at best, and depend solely on recruitment of new members to be successful. Others have roadmaps that are far too ambitious for the size and expertise of the team working on them. In many cases, the creators of these projects just burn out and quit.

This is especially true for NFT projects, since they are in an area similar to fashion. Fashion is an industry with a large number of players, but very few stars. Getting the attention of the right people at the right time, driving cultural conversations, and capturing the ethos of the current moment are all tricky endeavors. Nonetheless, regardless of the fates of individual players, the fashion industry as a whole is healthy, at 2% of the world’s GDP. This could be the direction of crypto, driven by the success of web3 by creating a robust online economy.

Still Early

Blockchain technology is still in its early stages of development. It is often compared to the development of mobile technology and wondered why blockchain hasn’t seen the same leaps and bounds forward. However, it’s important to remember that mobile technology was built on the foundation of the internet, which saw its first message board in 1979. The first social media platforms began appearing in 1997, but it wasn’t until the 2000s when platforms like Friendster and MySpace became widely used. Facebook didn’t become the giant it is today until 5 years later. So while Blockchain technology may seem like its behind, it’s actually on a similar timeline to other technologies.

Web3 is in its early stages, similar to when the internet was first created. We are only recently developing the basic components for transactions, token primitives, and interoperability of projects.

The Challenges of Interoperable Products

While the cryptocurrency industry is still working on developing the infrastructure of the market, there are also teams working on creating standards so that future projects will be able to interoperate more easily.

However, there is still a lot of work to be done in terms of product composition. This is because the underlying foundation is not completely ready yet and because of the incentives in the current web3 environment.

Most projects in Web3 lack collaboration and are done independently.

Assuming you want a summary: It is difficult to create projects that work well with others (are interoperable); this introduces new challenges for product development, and the systems that link different digital assets are not yet fully developed. Additionally, most people who create new content are not motivated to build upon someone else’s existing intellectual property.

By launching their own collections, creators can:

Reap more monetary/social rewards from driving the project from the genesis and
Have more creative control over the outcome, especially in the case where the art or lore of a project is copyrighted, and the creator must gain permission from the original project owners to extend the vision.

Many of these collections are poor imitations of successful existing projects and do not last long.

Some of the reason for the poor quality of projects in the cryptocurrency world is due to the “gold rush” culture. People are not always doing their research before investing their money into a project out of fear of missing out. There are hundreds of low-quality projects that are trying to trick people out of their money. Even projects that look like they might be high quality can be revealed as frauds. There is also a lot of bad stuff happening that is just cringe-worthy. all of this noise makes it harder to find honest creators who are doing things beyond the basic profile picture project.

New Protocols

Most of the established infrastructural work so far is around minting and fairly auctioning off NFTs:

Zora for Ethereum auction protocol
Metaplex for Solana NFT protocol and Shopify-like self-hosted platform

Although the protocols and infrastructure for inter-NFT projects haven’t been widely established yet,

There are a few projects tackling protocols:

Hyperlink– launched recently. Introduces the concept of an original mint linked to derivative editions
RMRK – Built on Kusama blockchain, this protocol defines NFTs that can own and equip other NFTs
DefiNFT– Project to allow NFTs to compose of other NFTs
ERC998 – Was proposed to allow NFTs to compose of other NFTs, but didn’t gain traction

And infrastructure:

Mural – Aims to seamlessly transfer NFTs across different blockchains.

I’m curious to see which solution the community will choose.

Hyperlink: Connecting Islands

The Hyperlink team has observed that today’s NFT collections are fragmented and is proposing a solution in the form of a new primitive for NFTs that would enable linking between collections. Under this system, an NFT could only be minted by someone who already possesses an NFT from the original collection.

The goal is to connect NFTs through an infrastructure so that remixes can be traced and new editions of popular NFTs that are too expensive for the general public can be created. For example, someone could create a second edition of a really hyped up NFT, and it would have lower value than the original. A project that uses the original popular NFT could decide to allow the second edition NFT holders to participate, but maybe without some perks that only original holders get. That project can use the hyperlink to verify that the offshoot is linked to the original (since only holders of the original can mint editions).

The Product Layer

The product layer of the web3 ecosystem consists of the apps and experiences that fill it out. This layer can be further broken down into several books worth of material, so I will just highlight a few projects here that focus on highly composable experiences.

Loot: The Ultimate Community Project

Loot is an NFT project that allows users to create their own text-based list of items. There is no artwork, no roadmap, and no promises of utility; users are free to interpret and use Loot in any way they want.

The first 8000 bags of loot were quickly taken by players within the first four hours of release.

Many similar projects have begun in order to make use of the plain text included in each loot bag. Artists have created illustrations of the items, writers have added lore, and developers have created simple RPG games for loot holders. Currently, even more projects are in development. These derivative projects are not simply “loot add-ons,” they ARE the loot. For example, Lootmart launched in December 2021. It is a project that allows loot owners to “unbundle” and trade the individual items listed in a Loot NFT.

The project was so popular that they ran out of the physical bags of loot and had to release a second tier of loot that was not physical. The second tier loot was digital and 1.5 million bags were made available. This digital loot was not exactly like the physical loot in that it was not backed by an ERC-721 token, but it did allow more people to participate.

Loot is a digital improv experiment that allows us to explore the different ways we can collaborate in this and future web3 worlds.