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The growing market size of Web3 has become too tempting to ignore for the legacy Web2 infrastructure providers, especially smaller players that don’t have the resources to compete with the likes of Amazon Web Services (AWS). According to Prophecy Market Insights [subscription required], the global Web3 blockchain market accounted for $1.23 billion in 2020, but it’s estimated to be worth $87.76 billion by 2030, reflecting an anticipated annual growth rate of 45.2%.
There’s no official definition of Web3. The general understanding in the industry is that Web1 was decentralized, even though the functionality was limited. Then Web2 led to the centralization of data and power into the hands of a few corporate giants. In Q1 of 2022, the top three cloud infrastructure providers — AWS, Microsoft Azure, and Google Cloud — collectively controlled 62% of the global cloud computing market, hosting most of the Web applications in their servers. They act as the web’s gatekeepers.
Web3, then, aims to decentralize everything again using blockchain technology to put control over data and privacy directly in the hands of users. It’s a new internet where apps, services and communities are built and owned by users.
The Web2 players, both large and small, have already been exploring ways to provide tools, storage, security and other underlying pieces of infrastructure to blockchain developers. Here are three things that they need to know before transitioning to Web3.
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1. Decentralization is not the goal. It’s a means to an end
Decentralization is the idea that no single entity controls or has the capability to control what users can and can’t do. It can help address one of the biggest problems that haunts the legacy platforms — centralized control, meaning the platform’s power to target or ban users.
With so much chatter in the Web3 community about decentralization — decentralized finance, decentralized apps and whatnot — it’s easy to assume that decentralization is the holy grail of Web3. However, it’s just a means to an end. The real goal of Web3 is to give users ownership over their data and avoid a single point of failure, and decentralization happens to be the way to achieve it.
The Web3 infra-providers enable dApps (decentralized apps), wallets, crypto games and other projects to connect to the blockchains to record and verify transactions. The InterPlanetary File System (IPFS), for instance, is a protocol for storing and sharing data in a distributed file system. It enables dApp developers to host their front end on a decentralized storage network efficiently.
To ensure that the dApps, wallets and exchanges relying on your infrastructure are giving users a taste of data ownership, two elements are essential:
A decentralized node network
Decentralized apps need to communicate with blockchains to read and write data to chains. Setting up a new node — a device authorized to serve as communication hubs for various network tasks — is a costly and time-consuming affair. So, most dApps turn to dedicated node providers. It’s imperative for node providers to run a geographically distributed and fundamentally decentralized node infrastructure where independent parties are incentivized to serve the network traffic.
Decentralized autonomous organizations (DAOs)
Decentralized autonomous organizations (DAOs) are operated via a token, where community members get to vote on key decisions to avoid a single point of failure. Many times, an infrastructure platform starts as a centralized entity consisting of the founding members. But as the community grows and they launch a token, they transition to a DAO.
It not only helps build trust with dApp developers, but they might even be inclined to become major contributors to the DAO because…
2. Web3 talent is driven by ideology
Most consumers might still be oblivious to Web3’s benefits and, thus, don’t care much about what’s happening in the background when they are using an app or service. But the Web3 developer community is different. Developers love to be at the forefront of innovation, and they are keen to help build the blockchain-powered internet where users have full control over their data.
In Web2, you could attract the best talent with your brand power, corporate culture, fat paychecks and a plethora of perks. The Web3 talent, in contrast, is driven by ideology and community. Of course, the freedom to work from anywhere and other benefits do have a role, but the ideology is very close to a Web3 developer’s heart. They build in the open and contribute to initiatives that they believe are building the future.
As someone who has worked in both the Web2 and Web3 infrastructure space for a long time, I’ve seen my Web2 friends participating in building protocols and contributing to DAOs in their spare time.
They are obsessed with building a decentralized, censorship-resistant internet with enormous possibilities. They play with ideas, concepts and code to explore the possibilities blockchain has to offer. And they are often ardent supporters of DAOs that nurture space for the community members to grow and innovate.
3. In Web3, security means prevention
Data privacy and security are among the many benefits of blockchain technology. However, the dApps, wallets and decentralized exchanges might not be as secure. Between 2011-2021, approximately $12.1 billion worth of cryptocurrencies were stolen through 120 security attacks, 73 DeFi protocol exploits and 33 fraudulent schemes.
Only in rare instances, such as Poly Network’s $600 million attack last year, do the hackers return the stolen cryptocurrencies. Blockchains are immutable, meaning the history of transactions cannot be altered. While immutability is one of the biggest benefits of blockchain technology, it also means that there is no intermediary to step in to help in the event of an attack or security compromise.
So, the security mechanisms and tools in Web3 must be designed to prevent, rather than respond as is common in Web2, to an attack. The security risks in Web3 are only increasing with the growing volume of cross-chain transactions. As users seek the freedom to seamlessly transfer value between different blockchains, an interoperable Web3 ecosystem will have a wide surface area for attacks.
Preventive security measures in Web3 are crucial because the Web3 projects carry value, not just information. The stakes are much higher in Web3 compared to a data breach at, say, Facebook, where only your personal details are leaked.
As we transition from Web2 to Web3, dApp developers and users are going to need decentralized, secure and reliable tools to build and interact with the new internet. The single biggest risk to the future of Web3 is a centralized backend. Even though it may reduce the barrier to entry, it will take us back to the same problem that Web3 is supposed to solve. As Moxie Marlinspike pointed out in his blog, many so-called dApps run on cloud servers, relying heavily on the legacy infrastructure.
I believe it would take dedicated efforts from dApp developers and infrastructure providers to truly decentralize the Web3 ecosystem. For Web2 infrastructure providers transitioning to Web3, those that can demonstrate to the community that they are going to become a Web3-first organization would find it easier to win the trust of dApp developers. It’s easier said than done for larger players like Google Cloud and AWS. But it could give the smaller players that couldn’t compete with the giants in Web2 an opportunity to outsmart them in Web3.
The transition from Web2 to Web3 is going to be a long journey. Let’s provide the dApp developers with the right tools, services and infrastructure to help them build a truly decentralized internet where users can feel the benefits of the ownership economy.
Stanley Wu is cofounder and CTO of Ankr.
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