Talk to any web3 Venture Capital firm nowadays, and they will mention their focus on infrastructure. When you delve deeper into the specifics of what they are interested in, you often hear an expansive elaboration of applications, rollups, and layer 1 solutions. It almost seems like everything and anything can be categorised under infrastructure.
Acknowledging the lack of clear distinction and classification in this nascent field is important. Unlike traditional industries, web3 is an emergent space that lacks well-established and ossified infrastructure pillars. In contrast, innovation within the web3 realm constantly pushes the boundaries and challenges the existing notions of infrastructure.
Given the immense potential of web3, investing in proper infrastructure that can capture the market can show much lucrative potential. While it is very difficult to foresee radical innovations, having a point of reference is still helpful when looking at the market and technical innovation.
For infrastructure investment, each fund has a different approach. Notable ones like Multicoin Capital and Jump, have written their own web3 infrastructure stack articles.
In this article, we aim to reassess the web3 infrastructure landscape and distinguish the different types of infrastructure in the space. Using this information, we will create our web3 infrastructure stack to evaluate the project’s positioning.
Understanding Blockchain Architecture and Comparing Frameworks
Currently, the web3 space broadly categorises the blockchain stack into three layers:
- Application layer
- Middleware layer
- Blockchain layer
Given the broad categorisation, it makes it difficult to identify the positioning of individual projects. To address this, our team will examine existing technical blockchain standards to gain insights into the underlying architecture. This will serve as a foundation for conceptualising web3 infrastructure stack.
Similar to the Internet standards, there are multiple national and international standards for reference. There are a few meta-studies on technical standards for blockchains such as König et al.,2020.
For the first comparison, we will look at the World Economic Forum’s 2020’s Global Standards Mapping Initiative whitepaper. In the WEF paper, two popular standards were compared, Institute of Electrical and Electronics Engineers (IEEE) and International Telecommunication Union (ITU).
Given the broad categorisation, it makes it difficult to identify the positioning of individual projects. To address this, our team will examine existing technical blockchain standards to gain insights into the underlying architecture. This will serve as a foundation for conceptualising web3 infrastructure stack.
Similar to the Internet standards, there are multiple national and international standards for reference. There are a few meta-studies on technical standards for blockchains such as König et al.,2020.
For the first comparison, we will look at the World Economic Forum’s 2020’s Global Standards Mapping Initiative whitepaper. In the WEF paper, two popular standards were compared, International Telecommunication Union (ITU) and International Organization for Standardization (ISO).
Above is a general overview of the architecture of blockchain or distributed ledger technology based on the Institute of Electrical and Electronics Engineers (IEEE) 42010 systems and software engineering standards, which are part of ISO. This overview presents five main architectural viewpoints for a blockchain:
- Platform Domain: Hardware technology, including chipsets, devices, nodes, and the network.
- Data Domain: Record and storage of information within the blockchain.
- Process Domain: Consensus mechanism for ledger formation.
- Services Domain: Information sharing and calling, including services like DNS, Oracles, and APIs.
- Application Domain: User interface for interacting with the blockchain.
In contrast, the International Telecommunication Union (ITU) identifies five functional components of the blockchain:
- Core Layer: Consensus, network and infrastructure, hardware, node management, and storage.
- Service Layer: Manages information, data, protocols, and governance.
- Application Service: Covers DApp development tools, accounting, authentication, data privacy, and operation and maintenance.
- DLT Applications: Refers to user-facing front-end applications.
- External Services: Includes off-chain extensions for operations and resource management.
Both standards define blockchain architecture in terms of five layers. However, the ITU standard clearly distinguishes interoperability and off-chain aspects within the external services component, while the IEEE standard focuses more on the individual blockchain framework. For better comparison, here is a table to align the ITU and IEEE Standards layers together.
Although these standards provide a comprehensive overview of blockchain architecture, the practical understanding of the relevant layers for application remains ambiguous, particularly the importance of governance throughout the various technology layers in order to decentralise the blockchain.
With that, the team will also look toward the recent paper by Bokolo.,2023 which covers the blockchain framework of implementation in virtual enterprise or DAOS.
In total, there are ten components to this framework. The first seven are architectural components of a blockchain while the last three components are on governance.
- Application layer: Integrates traditional applications with embedded blockchain for communication.
- Trust layer: Ensures security and stability with contract scripts and smart contracts.
- Consensus layer: Manages transaction validation and ledger consistency.
- Data layer: Stores data using structures like Merkle trees and linked lists.
- Network layer: Facilitates communication and information exchange among nodes.
- Infrastructure layer: Manages permissions and access controls with physical and virtual nodes.
- Physical layer: Includes hardware devices requiring middleware for integration.
- Decision rights: Specifies roles and power distribution within the platform.
- Control mechanisms: Establishes rules for collaboration and consensus among stakeholders.
- Incentives: Motivates actors’ involvement and innovative outputs, including pecuniary (financial) and non-pecuniary (reputation, privileges) incentives.
In comparison with IEEE and ITU, the framework by Bokolo.,2023 introduces additional layers, such as the Governance Dimensions, that are not explicitly addressed in the ITU and IEEE standards. These layers play a crucial role in the design and operation of blockchain platforms, facilitating decentralised and secure transactions and enabling collaboration among diverse actors.
A notable distinction among the standards and frameworks lies in the emphasis placed on either the blockchain technology stack or the applications stack. It is distinct that the ITU focuses more on the applications stack and other services while IEEE and Bokolo.,2023 focus more on the blockchain technology stack.
Web3 Infrastructure through the Lens of DWF Ventures
After comparing the blockchain framework and standards available in the academic field. We will attempt to build a framework as a guiding mechanism to understand different projects’ positioning.
For our infrastructure framework, we consider three main points:
- Focus on Application stack vs. blockchain stack and emphasise specific layers.
- Limiting middleware definition to software, excluding hardware.
- Significance of governance layer and its inclusion in the framework as seen in Bokolo.,2023
Based on these considerations, we have developed our web3 infrastructure stack overview.
At DWF Ventures, we maintain a balanced approach by emphasising equal importance to both the application and blockchain stack.
Based on the above diagram, we will be focusing on four main layers and one conditional layer :
- Application Layer
- Data & Privacy Layer
- Network, Consensus & Infrastructure Layer
- Middleware Service Layer
- (Conditional) Governance & Incentive Layer
The main distinction is that we have separated out Data & Privacy as a distinct layer by itself as we believe having a dedicated layer for Data & Privacy is essential. As the web3 community expands with more users and services, the significance of the data and privacy layer will grow over time.
For middleware, we are focusing on software applications as we believe they should remain rooted in their traditional use case within internet infrastructure, serving as services across/within different architecture layers.
Lastly, we recognize governance and incentives as vital components of the stack, given the decentralised nature of web3. However, we acknowledge that the need for this layer may vary across scenarios, hence its representation with a dotted line denotes its conditional requirement in the stack.
The layers of DWF Ventures web3 infrastructure stack can be further explained in the following diagram:
Conclusion
In conclusion, the development of our infrastructure framework at DWF Ventures has provided us with valuable insights into understanding the positioning of various projects. It allows us to assess projects more effectively and make informed decisions.
Moving forward, we are particularly interested in exploring middleware solutions, and advancements in data & privacy to network, consensus & infrastructure layers.
If you are looking for an investor and collaborator to build together, send your pitch to our website at https://www.dwf-labs.com/ventures !
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