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This section explains how it is economically feasible for Pocket Network to compete with centralized infrastructure alternatives. |
If blockchain protocols and DApps (“Web3”) want a chance of being successful, acquiring a mainstream customer base, they must provide services more effectively and/or cost-efficiently than existing Web2 alternatives.
Unfortunately, Web3 currently has a cost of coordination that exceeds the costs incurred by Web2 applications. The first generation of Web3 infrastructure, centralized node providers, were designed to layer on Web2 infrastructure - which is not optimized for Web3. Further, each of the centralized providers incur costs such as backup nodes, and salaries are passed directly to Web 3 applications that use their service. To make matters worse, centralized providers provide a single source of failure for applications creating a paradox of applications having to rely on centralized infrastructure to connect to decentralized networks.
Web3 applications that require a high amount of Relays, such as wallets, decentralized exchanges, or games, must decide whether to run their own infrastructure or use a third-party Web3 API provider. Based on our research, Web 3 application executives typically choose third-party Web3 API providers in the name of reliability and scalability attempting to focus on their user experience.
It is infeasible for these Web3 API providers to purchase data centers, build server farms, and put in the hardware research to support the thousands of Web3 applications being built today. As a result, Web3 API providers typically run on existing Web2 cloud platforms like Amazon Web Services (AWS) - centralizing their services further and creating another weak link. Because Web2 infrastructure is a commodity service, by leveraging economies of scale, Web2 cloud platforms like AWS can provide enterprise-grade infrastructure at much greater efficiency and at a lower cost than a Web3 API provider could on its own through the building of data centers and server farms.
In pursuit of scale, Web3 has had no choice but to pay an expensive tax to the Web2 infrastructure monopoly and in doing so, sacrifice cost efficiency. Web3 applications must compensate Web3 API providers for their Relays, who must, in turn, compensate Web2 cloud platforms for their server costs. By the time an end-user accesses a Web3 application many middlemen have already charged rent for the infrastructure services provided, leading to Web3 users bearing the brunt of the cost of coordination in the form of fees.
With this in mind, we can describe the cost of coordination for Web2-powered Web3 mathematically as:
- C = cost of coordination
- P = electricity, bandwidth, hardware, data centers, salaries
- F = continuous payment transaction fees, Web3 API provider fees, Web2 cloud platform fees
Cost is a massive barrier to scaling Web3. When added to the additional problems with downtime, centralization, and privacy concerns, the first generation Web3 infrastructure providers are an existential threat to the success of Web3.