Cryptocurrencies and the wider blockchain ecosystem are helping to change the status quo of our daily lives. With these emerging technologies, Web3 is being introduced to permissionless and open innovation using middleware blockchain protocols. By doing so, they are replacing middleman software-as-a-service (SaaS) companies by capturing value at a higher level.
Middleware protocols are by no means new. After all, Web2 is supported by middleware applications, the most important being HTTP. Middleware enables users to interact with each other and with applications in a computing environment. With Web3, there are multiple protocols in the middle-tier stack of this new Internet to support applications. More importantly, however, do they really matter?
Creating Value Using Middleware Protocols
With the advent of blockchain technology, the way we conduct our day-to-day activities is changing. Whether through financial transactions, buying art, buying property or donating to charity, blockchain does this by providing a secure and trusted peer-to-peer (P2P) network between users. Now, instead of companies extracting value from users, developers extract value from protocols.
But how does this work? On the middleware protocol, developers can stake native tokens once for the equivalent network bandwidth during the lifetime of the stake. The longer an application is staked and the network is used, the closer the cost is to zero. After a few months, the service is essentially free and based on Staking’s token economics, with no monthly fees like SaaS fees.
Developers can always cancel their initial investment and sell their native tokens on secondary markets or other developer-purchased middleware protocols. They can also stake software-as-a-service nodes to get more protocol tokens to serve application requests.
Other middleware vendors include Arweave, a global hard drive that allows users to store data permanently. Arweave users pay 0.54 AR once for 1 GB of permanent storage, and while it provides a near-zero marginal cost, the initial cost is not recoverable. Graph is a pay-per-query on-demand indexing blockchain data model, which is done through micropayments, which can be costly to developers depending on the size and frequency of queries.
Each application-specific middleware protocol provides unique services at different layers of the stack. For example, the RPC layer is Pocket Network, the indexing layer is Graph, Akash is the cloud layer, the video transcoding layer is Livepeer and Arweave, and Filecoin and Storj are the storage layers. Because they are in different parts of the decentralized Web3 developer stack, these protocols are free. For example, the following ETHOnline 2020/2021 hackathon projects use both Pocket and Graph: ERCgraph, Proxy Poster, LiFinance Bridge Aggregator Analytics, and Balancer Chat. And, because they are in different parts of the decentralized Web3 developer operations stack, these protocols work synergistically.
It’s worth noting that Graph’s subgraph indexer needs to ping a base-layer Ethereum archive node, which can be expensive to run and maintain. To save money, indexers can leverage RPC endpoints for middleware protocols, providing users with maximum uptime and no single point of failure. Using Livepeer’s orchestrator, they need to ping an underlying Ethereum full node, which also comes with monthly running and maintenance costs. Similar to indexers, orchestrators can save money by leveraging RPC endpoints for middleware protocols. This in turn creates a two-sided market between consumers and suppliers.
Through this synergistic relationship, better services attract applications, more application usage generates more node revenue, and more node revenue attracts more nodes, thereby increasing redundancy, so the economic flywheel continues to exist.
Web3 index track Demand-side fees (DSFs) for service agreements across various layers of the decentralized developer stack. For example, Pocket generated $3.9 million in DSF in 30 days thanks to a novel deflationary payment model. This means that developers pay through dilution, and nodes get paid through inflation.
Graph generated $6,460, Livepeer $50,396, Arweave $171,406, Helium $7,591 and Akash $4,623. This novel economic approach has the potential to largely disrupt SaaS, while maintaining the “permanent fair launch” mechanism that crypto individuals seek when contributing to a growing community.
It also means there is no need to pay monthly rent to middlemen, allowing developers to reap the rewards for their efforts.
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The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Michael O’Rourke is the co-founder and CEO of Pocket Network. Michael is a self-taught iOS and Solidity developer. He also works at the grassroots level at Tampa Bay’s Bitcoin/Cryptocurrency meetup and consulting firm Blockspaces, focusing on teaching developers Solidity. He is a graduate of the University of South Florida.