Once perceived as hype, Web3 is starting to cement itself as a legitimate alternative to the centralized control of the Web2 era.
What does this mean?
Web2 was defined by the emergence of user-generated content, thanks in large part to social media. It is also the era of the internet where centralization was established as companies made millions by capitalizing on user data. We gave away our data and essentially became the product.
Web3 aims to take control of information away from the few and give it back to the many by creating a more democratized, transparent approach to information. How does it do this? Through ‘permissionless’ blockchains, which are not controlled by one centralized entity but allow anyone to be involved in the process used to validate data and transactions made with that data.
By fracturing the information monopoly and those few who control it to instead create a more democratic web, Web3 aims to create new economies, product classes and online services. As Harvard Business Review put it, Web3 is “rewiring how the web works” in the next iteration of the internet from:
Web1 – read-only
Web2 – read-write
Web3 – read-write-own
As with any new technological evolution and particularly one where the digitization of assets, products and processes is central, Web3 brings with it the need for robust infrastructure.
But what does the infrastructure that underpins Web3 look like?
There are two principal technologies that sit at the heart of Web3:
Blockchain technology – distributed ledgers that record data and transactions securely, transparently, and permanently. The data and transactions are stored in blocks that are duplicated and shared across the network of nodes (computers) within that blockchain. Each transaction is authorized with the digital signature of the owner to prevent it from being tampered with. Anyone can see the data, but they can’t do anything to it making blockchain technology highly secure.
Decentralized applications (dApps) – a new way of building applications that run on peer-to-peer networks using smart contracts (a piece of code that carries out a set of instructions and removes the need to trust multiple parties when buying something). dApps can’t be controlled by a single authority and there’s no downtime because they rely on a peer-to-peer network.
They are joined by a range of other technologies and protocols that enable the decentralization and accessibility of Web3 infrastructure, including:
Protocols – the emergence of Web3 protocols has been pivotal to the development of this next era of the web. Examples of protocols include:
Ethereum, which introduced the idea of programmable blockchain
Web3.js and Ethers.js provide a bridge between modern decentralized applications (dApps) and traditional web browsers
IFPS (The Interplanetary File System), a distributed and decentralized file system
Cryptography – the practice of coding or hiding information so that only the person the information is intended for can read it. Cryptographic algorithms are a crucial part of helping Web3 protocols ensure security and privacy.
Decentralized storage – a unique blockchain protocol where data is saved on nodes in a decentralized network. Unlike a centralized storage solution, where data is stored on a single server operated by an organization or company, operators in the peer-to-peer network hold a portion of the overall data. It gives consumers complete control and ownership of their data and confidence that it’s totally secure. Filecoin is one of the biggest decentralized storage networks currently in the market.
Consensus mechanisms – ever heard of Proof of Work (PoW) and Proof of Stake (PoS)? They’re Web3 consensus mechanisms that validate transactions on the network and secure the network to ensure the integrity of Web3 infrastructure.
Servers – the blockchain needs to be built on something and that something is servers. Specifically, scalable, stable, high-performance servers that support Web3’s founding values of decentralization and transparency. These can either be hosted as bare metal machines or virtual machines in the cloud.
Identity management – aimed at giving people more control and privacy over their personal data, identity management systems like DID (Decentralized Identity) and SSI (Self-Sovereign Identity) create a unique online identity for an individual that is self-sovereign (controlled by the individual).
Oracles – are a way to bring external (off-chain) data into a decentralized network/blockchain (on-chain), which cannot access information stored outside the network. They provide blockchains with access to real-world data by finding it, verifying it, and submitting it to smart contracts. For example, when the price of a commodity reaches a certain value, the oracle will trigger a smart contract to make a decision based on that data.
Each of these is an essential piece of making the decentralized Web3 ecosystem a viable player in the future of the internet.
It’s no secret that the world of Web3 has faced some challenges. The cryptocurrency market lost just over $2 trillion in 2022 and crypto prices, while better, remain low. NFT trading has slowed. And of course, there have been some spectacular scandals like the fall of FTX.
But, as McKinsey put it, “business leaders shouldn’t confuse market fluctuations or bad actors with the potential uses of digital assets and the technologies that underlie them…applications for the next generation of the internet continue to spring up in a growing number of industries with potentially transformative effects.”
Applications such as:
EnviroBLOQ, a blockchain startup providing greater insights into a home’s energy efficiency to help lower costs and reduce our carbon footprint
FarmaTrust, a project that uses the blockchain to detect counterfeit products in the pharmaceutical supply chain
Braintrust, a decentralized talent network that aims to connect knowledge workers with some of the world’s biggest companies
Chainalysis, identifies fraud, scams and hacks by analyzing publicly available blockchain data
And of course, there are the developments of NFTs and peer-to-peer marketplaces for digital assets, decentralized finance (DeFi), cryptocurrencies and their integration into industries like gaming, metaspaces and virtual real-estate.
These companies and applications are no longer a futuristic concept, they already exist. Many industries are now looking at how they use Web3 to revamp business structures, products and services, and how people connect.
To do that, businesses and organizations will need infrastructure that is robust, scalable and reliable. Bare metal dedicated servers are a good option for Web3 because they are high-performance, easy to scale, low-latency and secure.
There are a few options when it comes to implementing bare metal dedicated servers available, including:
On-premise – involves buying the hardware, finding a location (usually in an office or basement of the office building), setting up the hardware, developing relationships with various service provider needed to power the hardware, and managing and maintaining it.
Co-location – involves buying the hardware, renting space in a data center (includes power, bandwidth, physical security, cooling), setting up the hardware, developing relationships with various service providers needed to power the hardware (that are not included in the co-location agreement), and managing and maintaining it.
Infrastructure-as-a-service - removes the need to purchase hardware. With infrastructure as a service, companies can rent dedicated servers from an IaaS company, who will deploy the servers including the operating system, security and internet connections and then manage ongoing maintenance.
To deliver on the promise of decentralization, it’s important that Web3 infrastructure avoids the centralization mistakes of Web2. This is achieved by ensuring the network is distributed across multiple servers, in different locations, hosted by separate providers.
Server hosting providers that fit best with Web3, therefore, are the ones that have:
Multiple data centers in different locations worldwide
Data centers in low node-density locations
Hosting Web3 infrastructure with one Web3 hosting partner isn’t an option. It flies in the face of the decentralized dream that is Web3. Which means that any infrastructure hosting provider needs to be willing to be part of a wider ecosystem of other providers so that companies can put in place multi-vendor blockchain hosting.
There’s nothing more frustrating than not being able to get in touch with your infrastructure hosting provider when something goes wrong. And unfortunately, with technology, it’s highly likely that at some point it will.
Ensure that the Web3 infrastructure provider you choose to work with can demonstrate the right level of support for you. The best way of testing the provider’s support before committing to working with them is during the proof of concept (POC) stage. Once the infrastructure is set up in POC, break something on purpose and see how the provider responds to a support ticket. Try buying or cancelling something through the customer portal to see how easy it is. And test what access you can get to senior decision makers.
There are plenty of off-the-shelf hardware options in the market. However, the options that are available aren’t always going to exactly fit your specific requirements. Trying to work around a solution that isn’t quite right for you can be time consuming and frustrating. Find an infrastructure provider that knows the Web3 space, makes the effort to understand your needs and will work with you to design a solution that meets those needs.
Uptime is crucial when it comes to Web3 infrastructure, which means maintaining the highest performance for each decentralized node as possible. So, make sure that the infrastructure provider you choose to work with offers up-to-date hardware.
As an evolving technology, Web3 faces some ongoing challenges that it will need to overcome before it becomes more accepted by institutional bodies and figures, as well as consumers. For some of these, infrastructure is a part of the solution.
Challenge: After fighting against it for many years, (most) of the Web3 community is starting to accept the inevitability of regulations. Particularly with crypto scams on the rise and crypto staking coming under siege in the US. The EU is leading the regulatory charge and Web3 companies that set up home in the US are starting to consider a move across the pond.
Solution: Moving operations from the US to the EU is going to require a shift in infrastructure location. Infrastructure providers with data centers located in Europe can help customers move nodes from outside of the US and into European locations so that they can take advantage of a more regulatory-supportive and generally Web3-friendly outlook.
Challenge: The current bear market is putting pressure on Web3 companies with prolonged price declines. Meaning optimizing costs is top of mind for most. Infrastructure is a significant overhead and hardware prices have gone up thanks to manufacturing delays, chip shortages, rising energy costs and inflation.
Solution: There are ways that companies can reduce the cost of their hardware. Work with an infrastructure provider to look at what your current infrastructure stack looks like and where spend could be lowered. For example, bare metal servers are lower in price than cloud servers so you could move your predictable baseline infrastructure needs to bare metal and retain only burst capacity in the cloud.
Challenge: While decentralization may be the foundation of Web3, it’s very easy to slip into centralization, in some cases without even realising it. There are three mistakes Web3 companies often make when looking to decentralize:
Unintended node monopoly: Did you know that AWS owns more than 50% of the Ethereum network?
Centralized locations: Hosting companies often share data center space with competitors. Meaning that when that data center goes down, your node providers that are in the same data center all go down together
Working with the same third party: You could be buying all of your hardware from one central provider without realizing it because the infrastructure provider you’re sourcing from might not be selling their own hardware
Solution: Being aware of the three unintended centralization traps will help you firstly check your current infrastructure set up to make sure you haven’t fallen into any the traps. It can also help if you are looking to set up a partnership with any new infrastructure providers to ask the right questions.
So, what’s next for Web3? Which areas of development are likely to require robust Web3 infrastructure in the not-too-distant future?
The next iteration of NFTs, utility NFTs differ from regular NFTs because they offer the buyer immediate value and practical application upon purchase. Rather than carrying value in relation to market demand (like artworks), utility NFTs give the buyer access to events, products, memberships, content, and communities that are locked behind the NFT.
Some of the most popular applications of utility NFTs include:
Access to exclusive in-person or online events - such as the ‘Coachella Keys’, which are 10 unique NFTs that give lifetime, VIP access to Coachella
Offers and discounts – such as G-Star RAW’s 25% discount to NFT holders
Premium content – such as Kings of Leon’s NFT album When You See Yourself
Products – such as Adidas’s NFT collaboration with Bored Ape Yacht Club (BAYC) which allowed buyers to claim exclusive merchandise
In response to apparent corruption from some of the big, centralized exchanges (CeXs) – the ongoing sagas with FTX and Binance for example – interest in DeX’s is on the rise.
DeX’s are non-custodial, meaning cryptocurrency stays in each user’s wallet and they don’t hold any legal identity because their operational footprint is reduced to the program code on a public blockchain. CeX’s by contrast hold cryptocurrencies in centralized repositories called “hot wallets” and are unlocked by private cryptographic keys that the CeX holds.
People are interested in DeX’s because they:
Don’t hold the cryptocurrencies in “hot wallets”, meaning the cryptocurrencies are better protected against theft
Charge lower fees that CeX’s
Are not subject to regulations. As a global peer-to-peer network, they don’t have to be formally registered in any jurisdiction
It’s only recently that DeX’s have evolved enough to become a genuine alternative to CeX’s and are predicted to rapidly change digital asset trading.
Predicted to become a $16 trillion industry by 2030, Real World Asset (RWA) tokenization is the process of converting the rights to an asset into a digital token on the blockchain. For example, the deed to a house is no longer a physical piece of paper but ownership sits on the blockchain. The asset (house in this example) can then either be traded between two people directly (with no middleman) or the asset can be split up (fractionalized) and multiple people can purchase a part of that asset.
Why is this exciting?
Items can be traded 24/7 rather than being restricted to working hours
It creates more liquidity by lowering the barrier to entry to assets that are generally very expensive to buy (like a painting by a famous artist)
It removes the middlemen
It’s a completely transparent process
It’s even got traditional finance organizations excited with the Bank of America saying RWA tokenization is a “key driver of digital asset adoption”.
The US Securities and Exchange Commission (SEC) is litigating crypto exchanges and decentralized finance at an incredible pace. This year its gone after Coinbase, Binance and Ripple for violating securities laws and has confirmed that it is “going to continue to conduct investigations” into other businesses.
The ongoing attack and lawsuits are causing pain for the crypto market in the US. Binance’s trading volumes have dropped considerably since the lawsuit and Ripple’s XRP share price isn’t fairing much better.
If the SEC continues in this way, it’s likely we’ll see crypto companies looking to move operations elsewhere to more crypto-friendly jurisdictions.
servers.com provides dedicated bare metal hosting in key locations around the world, to enable our Web3 customers to keep their infrastructure decentralized and distributed without sacrificing performance. By adding us to your pool of node providers, we can help you eliminate single points of failure and maintain the highest node performance possible.
Our knowledge and understanding of the Web3 industry enable us to build bespoke dedicated server solutions around the needs of individual businesses. All upheld by support from dedicated account managers on your platform of choice.
Contact us to learn more.
The fundamental tenet of Web3, decentralization aims to transfer control and ownership of the internet and distribute it amongst a network of participants. To give individuals back control of their own data and fracture the power monopolies that have been created between a small group of companies. It is:
Permissionless (no central authority)
Trustless (interactions and transactions can take place without needing to ‘trust’ a third party)
Open to anyone (equal access)
Web3 is not currently as decentralized as it would like it to be. That said, the decentralization that does exist is hugely impactful and can and will be built on.
There are already ideas circling to help achieve optimal levels of decentralization such as Layer-2 solutions, consensus mechanisms through Proof of Stake (PoS) and sharding.
With just a few simple due diligence measures that can be carried out with infrastructure hosting providers (discussed above), the Web3 industry can work towards avoiding unintended centralization and a decentralized future.
Web2 remains the standard state of the internet. However, Web3 is already radically transforming certain industries, experiences and interactions. Ultimately, Web3 is likely to evolve every aspect of our digital lives, but for now there are certain use cases that are already seeing success with Web3, including:
Decentralized finance (DeFi) – uses blockchain and cryptocurrency technology to offer lending, investing and exchange services without a centralized intermediary
Web3 games – hosted on the blockchain, they are unhackable, rely on consensus to change anything in the game and offer players the opportunity to own game assets that they can sell or trade
Decentralized Autonomous Organizations (DAOs) – a legal structure with no governing body. Instead members or tokenholders all participate in the management and decision-making
Metaverse – connected virtual worlds where assets can be carried from one to the other
