(Shubham’s Web3/Unsplash, modified by CoinDesk)
We at Blockdaemon predict that the future of Web3 will be built on a foundation of seamless user experience: seamless use, seamless monetization and seamless governance. The success of any Web3 project is dependent on its ability to deliver this seamless experience to all users, including developers and enterprises within the blockchain space.
We believe that blockchain-based solutions are the future of digital infrastructure. In order for them to take off, however, we need to ensure that the user experience is of high quality. This means that both users and developers need an easy way to access Web3 infrastructure and apps built on top of it.
Friedrich “Freddy” Zwanzger is the Ethereum ecosystem lead at Blockdaemon, a leading independent blockchain infrastructure platform. This story is part of CoinDesk’s Crypto 2023 outlook.
A year to prepare for the future
The work developers perform in 2023 will lay the foundation for the next wave of crypto adoption. This foundation will be based on the building blocks of cheap, modular, scalable and reliable blockchain infrastructure. The Ethereum protocol will serve as a manifest example to prove our point.
We predict that this critical infrastructure, developed next year and beyond, will onboard billions of new users and hundreds of institutions in the future.
However, this can only be achieved through great crypto products and use cases.
The strong market conditions we’ve seen play out between late 2020 and 2021 revealed this need for solid infrastructure to support such applications.
Unlike previous market cycles, 2021 saw large-scale institutional and developer adoption take place. Both financial institutions and decentralized application (dapp) creators needed a simple way to build on top of secure blockchain infrastructure.
Many of the companies who built during the bull market will now struggle during the market downturn. This is mainly due to not having positive cash flow combined with insufficient treasury management skills.
Well-thought-out, properly funded projects will survive and thrive during this crypto winter, while those that aren’t will struggle or fail.
The Ethereum protocol is by far the most revenue-generating blockchain network. The Merge from the energy-intensive proof-of-work to the significantly more efficient proof-of-stake laid important groundwork for the future and in turn achieved 0% inflation since September, when the Merge took place..
The importance of reliable blockchain infrastructure
Over the past 20 years infrastructure services have dramatically reshaped the way online businesses are built.
The dawn of cloud-based infrastructure radically reduced overheads for web companies. Consumers enjoyed faster, more responsive applications while developers could focus their time building innovative products.
While the need for reliable blockchain infrastructure has technically existed since the introduction of Bitcoin, it is only relatively recently that builders have had access to the tools needed to support the growth of this decentralized future.
Cloud infrastructure brought powerful benefits to the web. Blockchain follows the same deflationary route of other technologies, radically reducing costs associated with legacy systems. However, developing the killer apps of blockchain relies on the same high-quality infrastructure that Web2 enjoys.
Such infrastructure support is needed to meet the growing demand for dapps, spanning complex needs across a wide range of use cases.
However, projects in 2023 will need to focus and double down to set themselves up for later success, to meet these complex needs and use cases.
How crypto projects can prepare for future success in 2023
This coming year will be a tipping point for crypto projects that are looking to position themselves well for the next wave of crypto growth.
We predict that to excel under current market conditions, Web3 companies will need to focus on three core essentials:
1. Focus to find product market fit
Companies must tighten their product offerings in order to win. This concentrates scarce resources, both time and money, on key value-adding areas. It means knowing the market deeply and finding product market fit.
Many large-scale institutional investors seek to invest in companies that are product oriented. Web3 companies should focus on building products that create better, seamless experiences for their customers using blockchain.
Enabling withdrawals of staked ether (ETH) can be seen as such a feature and will be delivered to retail and institutional stakers alike around March 2023. It eliminates the previous capital lock-up on the Ethereum PoS network, thus eliminating the biggest point of friction.
2. Integrate for vertical strengths
True long-term value is created when a company is a vertical domain expert across one (or many) of the rising categories of the future.
A practical focus on product should fuse with a vision of what clients in the future will look for. By building value in these fertile fields, companies gain a powerful vantage point for the future. Being vertically integrated in key growth areas creates competitive moats.
A company’s ability to create deep tech solutions in any one (or several) of these fields truly adds value to customers in the long term.
3. Prepare the infrastructure for growth
History has shown us that companies with the right product offering can grow exponentially when the markets turn up.
However, for blockchain businesses that experience exponential growth in a short space of time, it is very impractical to scale the physical node operations themselves. Service outages across popular blockchain platforms is a common occurrence during a bull market, which is equivalent to a power cut at a big retail store on Black Friday.
What this means is that blockchain businesses must also prepare their infrastructure for that potential wave of customers that could occur at any moment, while managing the associated costs and overhead.
Again, Ethereum serves as an example by scheduling EIP-4844 proto-danksharding in the fall of 2023 as a scaling solution for its thriving layer 2 ecosystem. Without taking sides on which of the layer 2 variations will be successful, the infrastructure enhancement will increase capacity by 10 to 100 times as an important step towards the 100,000 TPS goal.
This coming year will be a time for building. When markets return, companies that take advantage of this time will be ideally positioned.
The Holy Grail for the next wave of crypto adoption will be when customers use blockchain seamlessly, without needing to know or understand the underlying tech. Just as we use video calls without knowing the underlying protocol, VOIP, so too will blockchain become a frictionless, user-friendly and branded transfer of value and data. We’ll see social media giants incorporating crypto payments without users ever needing to know it’s blockchain behind the scenes.
Ultimately, reliable access to robust and scalable blockchain infrastructure will make all of this possible.