A simple guide to the Web3 stack

Web3 It’s the latest buzzword to see a slight spike in interest in recent months – what does it actually mean?

around the block From Coinbase Ventures sheds light on major trends in crypto. written by Conor DempseyAnd Angie Wang & Justin Mart.

Lots of definitions come up, but at Coinbase we generally think Web3 is a file Unreliable, unauthorized and decentralized internet that take advantage of blockchain technology.

Web3’s defining feature is ownership. While the first iteration of the commercial Internet (Web1) was just reads For most users, Web2 allows both users reading and writing On central platforms (Twitter, Facebook, YouTube, etc.), Web3 gives users full ownership of their content, data and assets via blockchains. It enables users to own reading and writing.

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When a third party such as Facebook owns your Web2 identity and data, your Web3 identity can move seamlessly between platforms without your data being captured and monetized by service providers. While Web2 applications are centrally controlled, tokens in Web3 give users the right to help manage the services they use, which are a form of ownership in the platforms themselves.

With this framework in mind, what does the Web3 package look like?

web stack 3

The Web3 stack is still nascent and fragmented, but with a lot of innovation over the years, it’s starting to get a focus. The following is not an exclusive or completely all-encompassing position of the Earth. Rather, it is a framework for thinking about this landscape as it continues to evolve.

Let’s start from the bottom up.

protocol layer

At the bottom of the stack, we have the protocol layer. This consists of the basic blockchain architecture on which everything else is built.

Bitcoin is the grandson of them all, and while it doesn’t play a major role in Web3 today, it pioneered the ability for someone to own a rare digital asset through the use of public and private key cryptography. After Bitcoin, a group of first-tier smart contract platforms such as Ethereum, Solana, Avalanche, Cosmos, and others emerged that serve as the basis for many Web3 applications that are currently in production.

Bitcoin and Ethereum both have additional protocols built on top of them. Bitcoin has networks like the Lightning Network (for fast and cheap payments) and Stacks (for smart contracts), among others. To alleviate capacity constraints, several Layer 2 scaling protocols have been created on top of Ethereum.

With the emergence of many Layer 1 and Layer 2 networks, the need for a value bridge between them has emerged. Enter cross-chain bridges that act as highways that allow users to move value from one chain to another (useful cross-chain dashboards can be found here and here).

Infrastructure / Primitive Class

The infrastructure layer is located on top of the protocol layer and is made up of interoperable building blocks (what we call “class fundamentals”) that are highly reliable to do a specific task.

This is a dense and diverse layer, where projects build everything from smart contract auditing software, data warehousing, communication protocols, data analytics platforms, DAO governance tools, identity solutions, financial priorities, and more.

For example, Uniswap allows one asset to be exchanged for another. Arweave enables data storage in a decentralized manner. ENS domain names can serve as a user identity in the Web3 world. The user cannot do much with each standalone application. However, when combined with these initial classes, they act like LEGO templates that a Web3 developer can use to build an app.

Use the status layer

Above the protocol and infrastructure layers is the use case layer, where they are all grouped together.

Take a blockchain-based game like Axie Infinity, which uses Ethereum and NFT tokens that can be linked to a low-cost/high-throughput sidechain called Ronin. Players often use Uniswap to exchange ETH for the tokens required to play the game. Similarly, the decentralized blogging platform Mirror uses the Arweave storage protocol to store data. Meanwhile, it takes advantage of Ethereum to allow publishers to get their money in crypto, often by pointing tokens to their ENS address.

You will notice Uniswap appearing in both the Infrastructure and Use Case sections. This is because, while Uniswap is at its core a chain of smart contracts, it also provides a front-end that users can interact with directly. In other words, it simultaneously works as a standalone user-facing application as well as an infrastructure for other Web3 applications such as Axie Infinity.

access layer

At the top of the stack is the access layer – applications that act as an entry point for all kinds of Web3 activities.

Want to play Axie Infinity or get paid for your content on Mirror? The first thing you’ll need is a wallet, which serves as the main entry point for most Web3 applications. Fiat onramps like Moonpay or Wyre or exchanges like Coinbase help users trade their fiat money for cryptocurrency in order to get started.

With some cryptocurrency in the wallet, users can head to an aggregator like DappRadar to browse and connect to all kinds of Web3 apps in one place. Other projects like Rabbithole help users discover and learn how to use different Web3 applications. There are also aggregators like Zapper, Zerion, and Debank that help users keep track of all their activities and assets across different apps.

Finally, we are close to a future where Web2 platforms where innovative communities already congregate, such as Reddit and Twitter, will serve as the entry point for Web3. Reddit’s long-awaited crypto initiative will allow some communities to encrypt tokens, rewarding users with tokens and likely NFTs for active participation. Twitter already boasts of integrating with the Bitcoin Lightning Network to allow users to tip others in BTC.

The stack is constantly evolving

The above protocols, infrastructure, user applications, and access points constitute the emerging and evolving world of Web3: the Internet owned by its users. In addition to ownership, Web3’s strength lies in its modularity and interoperability. Essentially, this means that there are countless ways the stack above can be combined to create new and interesting use cases – a feature we anticipate will lead to a Cambrian explosion of new, world-changing applications.

While the framework and layers we have highlighted will likely remain unchanged, we expect the projects and opportunities within them to evolve significantly in the coming years.

Web3 reads

  • A thoughtful review on Web3 by Moxie Marlinspike
  • Refutation of Moxy, by Vitalik Buterin
  • Are we doomed to repeat Web Record 2? by Sarah Jo
  • Web Application Architecture 3.0, by Preethi Kasirdi
  • Web3 in a nutshell, by Ishita
  • The World of Web3, by Grace Isford
  • The Renaissance of Web3: A Golden Age of Content, by Lee Jin and Katie Parrott

Web3 . Tweets

Previous versions of Around The Block

  • DAOs: The Social Networks That Can Rewire the World
  • Scaling Ethereum & crypto to 1 billion users
  • Coinbase Ventures 2021-Q3 activity and fast food
  • Coinbase Ventures Guide to NFTs
  • Project Loot: The first community-owned NFT gaming platform
  • Axie Infinity, Yield Guild games and the economy of play for profit

This website does not disclose material, non-public information regarding the Coinbase or Coinbase Venture wallet companies.

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