Protocols building the infrastructure of the future ππ
From Disruption to Advancement: How Blockchain Protocols are Reshaping Industries
Blockchain technology is no longer just a buzzword. It is a powerful tool that can reshape the way we do business, and its potential applications are endless. In the past few years, blockchain technology has gained significant momentum, and with the advent of Web3, it has become more versatile and efficient than ever before. In this article, we will discuss the protocols building the infrastructure of the future and the sectors that could benefit the most by making use of this technology. I am excited to see what the future holds and I am confident that the infrastructure being built today will pave the way for a more efficient and decentralized tomorrow
π Context.
π Protocols building the infrastructure of the future. (Disruptive sectors (and protocols) and their technology)
How web3 infrastructure protocols can transform the industry?
Fault-tolerance, Alignment of economic incentives and Game Theory.
Challenges and opportunities for the adoption of Web3 infrastructure protocols
π Data behind the industry.
β Conclusion.
Whether you're an industry expert or simply looking to learn more about the technologies shaping our future, this article has something for everyone.
πContext.
As the world becomes increasingly digital, companies are looking for ways to build more efficient and cost-effective service models. Two emerging models that are gaining traction are Web and Crypto (Web3) service models. These models differ in their production and data models, with web services often being centralized and custodial, while crypto services are typically decentralized and non-custodial
Web3 infrastructure, a decentralized platform that enables secure and transparent data sharing, transaction processing, and value exchange. Unlike traditional web infrastructure, which relies on centralized servers and gatekeepers, Web3 infrastructure leverages distributed ledger technology, smart contracts, and consensus algorithms to create a decentralized network that is resistant to manipulation, censorship, and fraud.
Decentralization = Broad Distribution of Value: Understanding the Relationship between Production, Data, and Cost Structures in Web and Crypto Service Models.
The production model ranges from centralized to decentralized, while the data model ranges from custodial to non-custodial. The more decentralized and non-custodial a service, the more distributed its cost structure. This is important because markets tend to allocate value along the line of costs. So the more we decentralize the cost structure of a service, the more broadly we distribute its value.
How It Works:
The Web model is like a single company building and controlling a highway, while also owning and managing all the vehicles that travel on it. In contrast, the Crypto model is like a network of independent drivers building and maintaining a highway together, with a shared set of rules and incentives to attract more people to contribute in the future of the protocol.
The Distribution of Costs:
Under the Web model, companies bear all the costs associated with the production of their services, such as hiring employees and building data centers, as well as the liability associated with the centralized data. This creates a centralized cost structure, with all the expenses borne by a single entity. In contrast, the costs of production are distributed across the network of independent participants in the Crypto model, incentivized to contribute by the cryptoeconomic protocol. This creates a more distributed cost structure, with the expenses shared across a larger group of participants. This in turn leads to a more broadly distributed value, as markets tend to allocate value along the line of costs.
How costs are distributed matters because value accrues to wherever the costs are. Imagine you're building a house with your friends. Instead of just one person paying for everything, you all chip in to cover the costs of the building materials and labor. This is similar to how cryptonetworks work. Instead of just one company bearing all the costs, everyone who uses the network contributes by holding and using the network's token.
The more people who use the network, the more valuable the token becomes, and the more people want to use it. This is like when a neighborhood becomes more popular and the value of the houses goes up.
When you use a cryptonetwork, you own your own data, and it's not controlled by any one person or company. Instead, it's stored on many different computers all over the world. This makes it much harder for anyone to take control of it.
By using a token to represent ownership in the network, everyone who uses the network becomes a part-owner and helps cover the costs of running it. So, the more people use the network, the more valuable the token becomes, and the more everyone benefits. Every participant who assumes a cost and a risk β by working, providing liquidity, injecting capital or taking care of their own security β earns a stake in the network, and is entitled to a piece of its future value.
Now that we are in context, letβs get into how protocols are leveraging the cryptoeconomic model to incentive and build better infrastructures.
π Protocols building the infrastructure of the future.
The sectors we are going to deep dive are the following:
Cloud Computing. ππ»(First part)
Storage π₯
Supply Chain βπ’
Smart Contracts π€π
When it comes to decentralized technologies, it is crucial to keep in mind that decentralization requires both: Consensus and Alignment of Incentives. These two aspects are fundamental to ensure that network participants work together efficiently and in the same direction, thus achieving common objectives. What you gain and what you donβt gain when choosing blockchain, without diving into technology.
Cloud Computing ππ»
In-depth article on DCC (Decentralized cloud computing) here.
Currently the market share is highly concentrated in only 3 cloud computing service providers:
Amazon (AWS)
Microsoft (Azure)
Google (Google Cloud)
Between them, the 3 add up to 65% market share but what is interesting is the development from 2018 to today of the revenues achieved by the companies, which have seen the industry go from generating ~$15B to +$60B in just 5 years. The global cloud computing market was valued at USD 483.98 billion in 2022 and is expected toΒ expandΒ at a compound annual growth rate (CAGR) of 14.1% from 2023 to 2030.
This underscores the high demand for such services as rapid digitization is compelling organizations to modernize their application and infrastructure landscape to drive cost-efficiency and business agility. By adopting cloud solutions and services, organizations can support their key business activities effectively, move business workloads to a cloud platform, and avoid the latency of the network.
Looking at this data you may come to wonder what % of decentralized protocols are using centralized hosting services to run their protocols. (*You can always interact with the smart contract at a low level. It is the frontend that has the risk of censorship*).
Now, how are decentralized protocols willing to penetrate the market. As we saw in the previous point (context) there are several aspects of the decentralized options that improve other options. But, are they enough? How many people actually now about this kind of options? Are they easy to use and to implement?
Unfortunately I couldnβt find that much info to answer the totality of the questions. The only source I could find that shows some kind of worthy data is from Akash with the following pages:
For the time being the data shows no sign of traction for decentralized options, with revenues (at least on Akash) showing poor numbers without counting the incentives paid to bootstrap the network and securing it.
The 3 protocols I based the analysis (almost no data at all) and am keeping my eye on are the following with their respective Coingecko links:
To conclude the sector of Cloud computing I have been especially impressed by the accuracy of the following academic paper (A Brief History of Cloud Application Architectures), since the few entities or protocols that opt for decentralized options do so in search of increased scalability, fault tolerance, and security. On the other hand, the lack of adoption may be due to the fact that implementing decentralized options can also introduce challenges such as increased complexity and difficulty in managing data consistency.
Storage π₯
Another sector that can be improved by including decentralized solutions is storage, and for me one of the most important, especially in these times of increasingly latent censorship in which we find ourselves where we donβt have the certainty that what we upload to the Internet will not last in time, that it will be deleted. Besides, who hasn't lost valuable files or information by not saving them using services with a single point of failure, like a pen-drive or you PC (without a back-up)?
Decentralized cloud storage is becoming increasingly popular, especially for people who want to keep their data safe from censorship, cyber attacks, and high costs associated with centralized cloud storage services. By exploring how decentralized cloud storage works and the benefits it provides compared to centralized options, developers can use these tools to enhance online security, reliability, and user experience.
How it works?
In a generic level, the structure and the functioning of decentralized storage protocols are similar (it is the storage mode and the utility of the token as well as the cryptoeconomic behind them where the differences occur) and can be explained in the following way: (i) How does the protocols work & (ii) How the user interact with it.
How does it work:
Decentralized storage protocols allow users to store and retrieve data in a decentralized and secure manner. These protocols typically use a network of nodes to store and distribute data across the network, rather than relying on a centralized server. Here's a simple overview of how these protocols work:
Data is broken up into small pieces and distributed across multiple nodes in the network. Each node stores a small portion of the data.
The network uses cryptographic hashes to link each piece of data to the previous one, forming a continuous chain of data that is virtually impossible to alter or delete.
When a user wants to retrieve their data, they send a request to the network. The network uses the cryptographic hashes to locate and retrieve the relevant pieces of data from the nodes that store them.
Incentives are used to encourage users to contribute storage space and bandwidth to the network. These incentives can come in the form of cryptocurrency rewards or other rewards, such as increased reputation or status within the network.
For an in-depth framework of a decentralized cloud storage see Storjβs PDF. Quick overview π
User interaction process:
Here's an ordered list of the things that happen when a user interacts with a decentralized storage protocol:
The user enters into a peer-to-peer (P2P) smart contract on a blockchain-based decentralized storage marketplace to enlist the services of a decentralized cloud storage provider.
The smart contract defines the terms of the storage service, including the amount of data to be stored, the duration of the storage, and the price to be paid.
The smart contract enables clients to ensure that their data is backed up with redundancy, which involves storing multiple copies of the same data in different locations.
The smart contract is stored on and enforced by various blockchains, which provides immutability and transparency to the storage service.
The storage provider stores the data and provides proof of storage through a PoStorage consensus mechanism.
Other nodes on the network verify the proof of storage provided by the storage provider.
The user can access their data at any time, and the decentralized storage protocol ensures that multiple copies of the data are stored redundantly.
Some of the key characteristics of decentralized storage protocols include:
Censorship: Data is stored on a distributed network of nodes, making it much harder for any single entity to control or censor the data. This makes decentralized cloud storage a popular choice for individuals and organizations that prioritize free speech and open access to information.
Security: Decentralized storage protocols use cryptographic hashes and other security measures to ensure that data is secure and immutable.
Incentives: To encourage users to contribute to the network, decentralized storage protocols often use economic or other incentives.
Reliability: Decentralized storage protocols are designed to be reliable and always available, even in the face of network disruptions or attacks.
By distributing data across a network of nodes, these protocols provide greater security, privacy, and control over data, while also encouraging users to contribute to the network in exchange for rewards. Overall, decentralized storage protocols offer a secure and reliable alternative to traditional centralized storage solutions. Decentralized storage providers power the Web3 economy, but adoption still underway
There are numerous decentralized cloud storage options available today, each targeting different sectors of the cloud services market and utilizing various technologies and methodologies. Some platforms cater to individual consumers, while others are B2B solutions or focus on specific use cases such as privacy. In the following sections, we will delve into some of the most popular decentralized storage providers in the blockchain space.
Protocols: How they work β & How they make moneyπ°
I am going to focus just on Filecoin as itβs the leader of the ecosystem and itβs the protocol with the most data to analyze.
Filecoin
β How it works?
To make it easy to understand, 2 concepts must be taken into account:
IPFS
Incentives
To be honest, decentralization is not relatively new. What is relatively new is the alignment of incentives to promote the decentralization of services making it sustainable and efficient. Well, that's Filecoin in broad strokes: The introduction of $FIL on top of IPFS as a way to reward and incentivize miners to keep data available, and a way to allow users to pay in the Storage Market
π‘ An essential part of the Filecoin economy is the fact that Storage Providers participate in a marketplace where they offer their storage space to clients directly. The network matches these Storage Providers with clients who choose them according to the information they provide about their price, location, and storage time periods.
Once a client has made a storage deal on the Filecoin network, they will transfer their data to a Storage Provider. To make sure the Storage Provider fulfills their end of the deal, they must lock up some of their cryptocurrency, Filecoin, as collateral. This ensures that they will take their responsibility seriously and provide proof that the client's data is being stored securely and on time. If they don't fulfill their obligation, they risk losing their collateral/get slashed.
In short, Filecoin works by allowing people to store and access data in a decentralized way, using a cryptocurrency ($FIL) to incentivize miners to store and retrieve data securely and efficiently.
π Filecoin in numbers.
Data as of 4th May 2023:
12,582.8 PiB means that the Filecoin network has a total raw storage capacity of 12,582.8 million gigabytes. This storage capacity is provided by Storage Providers who contribute their hard drive space to the network and are rewarded with $FIL for providing storage and retrieving data.
πΈ Filecoin - Revenue share:
Fees can accrue to (i) the supply-side participants and (ii) the protocol (and its tokenholders).
Supply-side (Miners)
An essential part of the Filecoin economy is the fact that Storage Providers participate in a marketplace where they offer their storage space to clients directly hence they earn $FIL. Storage Market
Another way Storage Providers are able to earn FIL is through the retrieval of information theyβve stored. They are able to offer users with data theyβve requested in exchange for small amounts of FIL. Retrieval Market
Block-rewards: 15.4 FIL/block
Token holders/users:
Share of fees that are burned (accrue to FIL holders. Similar to a share buyback).
Both groups generate revenue through a fee system that is similar to Ethereumβs gas fees, with the Filecoin protocol burning network fees to compensate for the resources used.
Now, Filecoinβs revenue consists of the following:
Base fees: these are paid for any storage deal or proof. These fees vary based on message congestion on Filecoin.
Batch fees: these are paid for adding storage capacity.
Overestimation fees: these are paid for optimizing gas usage.
Penalty fees: the network collects penalty fees from those who fail to provide storage as promised.
Letβs see this data into a graph π:
We can see that since February the base fee has been growing steadily, reaching a position of +80% of revenue on March 27, which can be interpreted as an increased demand for using the protocol.
Moreover, incentives have been steadily decreasing, having paid miners as much as $4.5M/day in the form of block rewards. Today those rewards have decreased ~75% to ~$1.5M/day. Digging a little deeper into the incentives, since a year ago +$580M has been paid to the miners.
This may seem like a lot of money spent on incentives but in my opinion it is the price to pay to compete in a market with such big players and as John Gleeson, COO of Storj said:
Starting a service to compete with AWS, Google or Microsoft in Web2 requires billions of dollars. Through crowd-sourced capacity, trustless abstraction layers and token-based incentives, decentralized infrastructure can provide more private, secure, performant and economical infrastructures than Web2 hyperscalers.β
Comparing (Revenue) Filecoin with other Decentralized and Centralized options we get the following:
To wrap the storage section up I recommend an article and a podcast that have been my precursors to understand everything related to this sector, from simple features to the core functionality of a storage blockchain.
Podcast about KYVE (Cosmos Storage Blockchain) and Arweave (I really like this 2 protocols and Iβm excited about what they can bring to the table.)
Supply Chain βπ’
Building a Transparent Supply Chain
Finally, I want to talk about supply chains and how it can be a sector highly improved by technology that implements the automation of processes alongside the removal of trust issues in third parties, lack of transparency and fraud and counterfeiting among others. And yes, smart contracts and blockchain technology are ideal to address these types of problems. Lets dig in:
π΅οΈββοΈ Transparency: Blockchain technology can provide a tamper-proof and transparent record of transactions and movements along the supply chain. This allows for greater traceability and accountability, improving quality control, environmental impact, and ethical sourcing.
β±οΈ Efficiency: Smart contracts can automate various supply chain processes, such as verifying transactions and enforcing agreements. This reduces the need for manual processes, leading to fewer errors, faster delivery times, and reduced costs.
π΅οΈββοΈπ‘οΈ Fraud and counterfeiting: Blockchain's immutability and transparency make it difficult for fraudsters to alter records or falsify documents, reducing the risk of fraud and counterfeiting.
π±π Sustainability: Blockchain can be used to track the provenance of materials and products, allowing consumers to make more informed purchasing decisions. Additionally, smart contracts can be programmed to incentivize sustainable practices and compliance with environmental regulations.
And honestly, given the number of intermediaries that interact from the raw material supplier to the client, it is normal that certain types of problems occur in between.
As for costs, more of the same. The more intermediaries there are, the more costs associated with the product and therefore for the customer, to whom the inefficiencies of the industry are passed on. But let's not stop at just mentioning the problems but also look at the possible and potential solutions that are being implemented.
Protocols:
Example of smart contract and blockchain implementation:
An important use of smart contracts and blockchain technology could be in the food and beverage industry. By using RFIDs and blockchain, a food supply chain can provide traceability of the products to their origin and document their operations based on the rules specified by regulatory and governing bodies. Another sector that could benefit from the use of blockchain is the agriculture sector, which could prevent counterfeit and unethical suppliers from operating and restrict supplies to authorized entities.
Similarly, blockchain technology can benefit an organization by improving its economic and fiscal performance through the disintermediation and reduction of bureaucratic processes. This could reduce the lead times for new products by minimizing human factors and transaction times. Blockchain ensures the safety, security, and reliability of stored data, enhancing transparency for all stakeholders, including governing bodies and end consumers.
One of the projects that specializes in this area is Morpheus Network, which is the protocol that we are going to research for this sector.
Morpheus.Network
β How it works?
This protocol focused on helping companies and Government organizations remove barriers to optimize and automate their global supply chain operations, furthermore helping clients maximize revenue through digitization and process automation, protecting sensitive data, and untangling complex issues with the legacy supply chain system while delivering effective, equitable, and efficient global trade solutions.
π Blockchain & Smart Contracts: Automate and secure supply chain transactions with self-executing agreements. π‘
π Real-Time Tracking: Gain complete visibility and traceability of products throughout the supply chain. π
βοΈ Workflow Automation: Streamline operations by automating tasks and reducing manual effort. π€
π° Secure Payments: Ensure secure and efficient payment settlements with predefined conditions. π³
π Data Integration: Collect and verify real-time supply chain data from trusted sources. π
π Analytics & Insights: Leverage data for valuable insights, optimization, and informed decision-making. π
How would this look like in an example?
Imagine a global pharmaceutical company that needs to distribute temperature-sensitive vaccines to various locations worldwide. They want to ensure the integrity and safety of the vaccines throughout the entire supply chain. Here's how Morpheus.Network can assist them:
Workflow Creation:
The pharmaceutical company creates a customized supply chain workflow on the Morpheus.Network platform.
The workflow includes specific steps, such as temperature monitoring, customs clearance, and delivery tracking.
Integration and Data Connectivity:
The company integrates their existing systems, such as their ERP and temperature monitoring devices, with Morpheus.Network.
This enables seamless data connectivity and real-time information exchange.
Smart Contract Deployment:
Smart contracts are created and deployed on the blockchain, ensuring transparent and secure transactions.
The contracts contain conditions related to temperature thresholds, customs requirements, and delivery milestones.
Temperature Monitoring:
The vaccines are equipped with IoT temperature sensors that continuously monitor and record temperature data.
This data is securely transmitted to the Morpheus.Network platform, ensuring real-time visibility and control.
Customs Clearance:
As the vaccines reach different countries, customs documentation is automatically generated by the platform.
The necessary customs forms and regulatory requirements are met, streamlining the clearance process.
Delivery Tracking:
The vaccines are tracked throughout the entire distribution process using QR codes or RFID tags.
Each movement, from warehouse to transportation and final delivery, is recorded on the blockchain.
Payment Settlement:
Upon successful delivery and verification of the vaccines, payment is automatically triggered through smart contracts.
Payment terms and conditions are pre-defined, ensuring secure and efficient transactions.
Analytics and Optimization:
The pharmaceutical company can analyze supply chain data through the Morpheus.Network platform.
They gain insights into temperature excursions, delivery timelines, and potential bottlenecks for process optimization.
By leveraging Morpheus.Network, the pharmaceutical company achieves end-to-end visibility and control over their supply chain. They ensure proper temperature management, comply with customs regulations, track deliveries, and streamline payment processes. This not only enhances the safety and efficiency of vaccine distribution but also builds trust among stakeholders.
Through the power of blockchain, smart contracts, and seamless integration, Morpheus.Network transforms supply chains by enabling transparency, efficiency, and security in complex global operations. See example of Food Supply Chain Optimization
πΈ How Morpheus make money?
Morpheus.Network generates revenue through several avenues within its business model (SaaS). Here's an overview of how Morpheus.Network accrues and earns money: (I couldnβt find the numbers behind the project so Iβm sticking just to the methodology of its revenue model)
Revenue comes from its software as a service (SaaS) structure business model. It integrates legacy and emerging technologies while also providing supply chain managers with a digital footprint.Β
Subscription Fees:
Morpheus.Network offers subscription plans to its users, including businesses and enterprises.
These subscription fees provide access to the platform's features, functionalities, and support services.
The fees can be structured based on factors such as the size of the organization, usage volume, or specific requirements.
Transaction Fees:
The $MNW token is needed for all transactions and payments in its ecosystem.Β
Each transaction processed through the network incurs a small fee, which can vary based on factors such as transaction complexity and network congestion.
Value-Added Services:
Morpheus.Network may offer value-added services to its users, such as analytics and data insights, custom integrations, or specialized support.
These additional services provide enhanced capabilities and customization options, allowing businesses to optimize their supply chain operations further.
Fees for value-added services are typically based on the specific requirements and scope of the service provided.
Partnership Collaborations:
Morpheus.Network may enter into partnerships with other companies in the supply chain ecosystem.
These partnerships can involve joint initiatives, co-development projects, or integration of Morpheus.Network's technology into existing systems.
Revenue sharing or licensing agreements with partner companies can contribute to Morpheus.Network's overall earnings.
It's important to note that the specific revenue model and pricing structure of Morpheus.Network may evolve over time based on market demands, competitive landscape, and customer feedback. The company aims to strike a balance between providing value to its users and sustaining its own operations and continued development.
So there you have it, three sectors that, as we saw, could be extensively improved with the implementation of this type of disruptive technologies. The truth is that the blockchain infrastructure still has room for improvement as both scalability and interoperability between chains are two features that are currently under development and which are necessary for adoption by more companies, individuals and government structures.
β Conclusion
While writing this article I have been able to experience the amount of quality research I wasn't aware of that is being carried out on the impact that both blockchain and smart contracts (two of the concepts I personally focus on, but you could talk about IoT and others) can have on industries that (i) are in full growth and (ii) are stagnant and this would offer them a boost and eliminate personal bottlenecks that do not allow them to scale.
While some people see just crypto as some random βinternet coinsβ investment driven by nothing more than speculation, there are some quality projects out there that are going to revolutionize some industries, so stay tuned for what is going to come in the recent years. You wonβt want to miss out.