Unlocking the Potential: How Cryptocurrency is Fundamentally Transforming Business Operations and…

What is the Web3 Stack? A Beginner’s Guide to the Decentralized Technologies Powering Web3 Applications

As blockchain technology rewires the digital fabric of money, identity, community, ownership, and more, the term Web3 has emerged to describe this unfolding paradigm shift. But what exactly comprises the Web3 technology stack enabling this evolution?

In this comprehensive guide, we’ll demystify the decentralized protocols, components, and subsystems that collectively form the technical foundations of Web3. You’ll learn the purpose and inner workings of each layer in the Web3 stack including blockchain, decentralized storage, decentralized identity, cryptocurrency tokens, wallets, and more. Let’s dive in!

What is Web3? A Primer

First, a quick primer on Web3. At its core, Web3 represents the next phase of internet evolution based on decentralization, blockchain-verified trust, user control, and machine incentives.

Web3 aims to progressively shift power and control away from centralized intermediaries and server farms owned by governments, corporations, and tech gatekeepers.

Instead of today’s Web2 model dominated by these institutions, Web3 uses open source blockchain protocols, decentralized apps (dApps), verifiable credentials, non-fungible tokens (NFTs), decentralized autonomous organizations (DAOs), and cryptocurrency tokens to return ownership of digital networks, platforms, and economies to users.

In a nutshell, Web3 promises to transform how we exchange value, consume information, express identity both personal and professional, participate in virtual worlds, coordinate around shared goals, and more in a way that transfers influence from centralized intermediaries to collectively stewarded communities.

You can conceptualize this gradual move towards Web3 as migrating the internet’s technical architecture from closed proprietary systems controlled by powerful third parties to open participatory networks governed by users. This requires a vastly different technology stack — the Web3 stack.

The Role of the Web3 Stack

The Web3 stack refers to the layers of complementary decentralized technologies and subsystems that collectively enable this paradigm shift toward user-controlled internet applications outlined above.

At a high level, these open source technologies allow online services, platforms, marketplaces, social graphs, and even cultural experiences like games to run in a peer-to-peer manner without central intermediaries that exert excessive power over users.

They introduce capabilities like user-controlled digital asset ownership, verifiable identity, community governance, native incentives, transparent processes, interoperable programs, and other Web3 properties through symbiotic technical building blocks.

Just as Linux, Apache HTTP Server, MySQL and PHP formed the “LAMP” stack powering Web1 and AJAX, HTML5, JavaScript, cascading style sheets and REST APIs formed the Web2 stack, specialized Web3 technologies form the Web3 stack powering next generation decentralized apps and ecosystems.

Let’s explore the core components comprising today’s Web3 technology stack and how they interact to enable a decentralized internet reclaimed by users:

Blockchain Protocols

Blockchain technology sits at the base layer of Web3 as the fundamental decentralized ledger for recording verifiable events, transactions, and state changes in a transparent, resilient, auditable manner without centralized intermediaries.

Public blockchains like Ethereum, Solana, Polkadot, Cosmos, and others establish trust through open source code and cryptography rather than third parties. Their capacities include:

• Distributed consensus mechanisms like proof-of-work or proof-of-stake for validating state changes
• Cryptographic hashes and Merkle trees to ensure tamper-evidence and data integrity
• Decentralized networks of validator nodes operated by various parties to avoid centralized control
• Embedded virtual machines enabling decentralized computation (smart contracts)
• Cryptoeconomic token incentivization patterns powered by the native cryptocurrency
• Permissionless models allowing anyone to build uncensorable applications

In essence, base layer blockchain protocols provide the secure foundation enabling trust minimization, coordination, interactions, and exchange of value between users in the Web3 stack.

Decentralized Data Storage

While blockchains offer a tamper-proof record of state, raw data like documents, media files, genomic sequences, 3D models etc. cannot be feasibly stored directly on chain. This is where decentralized storage solutions come in. Major approaches include:

IPFS — InterPlanetary File System uses a p2p distributed hash table (DHT) and content addressing to split, replicate, and verify data across a decentralized network of nodes.

Filecoin — An incentive layer atop IPFS in which storage miners earn tokens for providing disk space for data. This pooling provides a decentralized alternative to cloud storage services.

Arweave — A “blockweave” system that permanently stores data into an ever-growing chain of data blocks collectively held by a decentralized network of nodes.

Sia — Leverages smart contracts to orchestrate decentralized cloud storage based on sharing excess capacity between peers. Users spend tokens to access shared, redundant storage pools.

Storj — An open source cloud storage network in which peers can earn tokens for leasing excess storage and bandwidth to collectively store data shards in a decentralized, encrypted manner.

Decentralized storage allows dApps to persist large datasets and content without relying on centralized servers. It introduces provable integrity, redundancy against outages, and user control absent in traditional storage.

Decentralized Compute

Closely related to decentralized data storage, decentralized compute refers to distributed processing capacity contributed by peers to run code, power applications, train ML models, render graphics, and more:

Golem — An open peer-to-peer compute network that enables decentralized sharing of computing resources for tasks like CGI rendering. Users buy and sell cycles using a blockchain-based market.

Dfinity Internet Computer — Leverages a revolutionary “reverse-gas” model where users pay for computation up front before deploying immutable decentralized applications which then run for free.

Theta — Incorporates decentralized edge compute resources from user devices to support low-latency blockchain-based video streaming and related workloads.

Aleph.im — A decentralized cloud platform built using Polkadot and IPFS where users contribute servers and bandwidth in return for token rewards and governance rights.

Ankr — Allows users to leverage idle desktops, servers, and data centers for decentralized cloud compute in return for token payments using Kubernetes container orchestration.

Decentralized compute pooled from user devices facilitates new blockchain-native apps and services not dependent on Big Tech hyperscaler clouds like AWS.

Decentralized Identifiers (DIDs)

DIDs allow users to create blockchain-based self-sovereign identities independent of fragmented siloed profiles imposed by apps and platforms. Core properties:

• User-controlled creation and management independent of external providers.
• Globally unique identifiers not assigned by any central authority.
• Cryptographic key management for signing and verifying claims and credentials.
• Selective disclosure of attributes like credentials, affiliations, reputations, etc.
• Decentralized metadata storage of identity records using IPFS, Ceramic and similar.
• Use of zero-knowledge proofs for privacy-preserving sharing of traits.

Leading standards like DIDcomm allow interoperability between DID methods from providers like Ceramic, Microsoft, and Metamask. DIDs overcome reliance on traditional centralized identifiers controlled by outside parties.

Decentralized Domain Name Services

In Web3, blockchain domain systems decentralize website name registration and resolution by using on-chain records instead of centralized DNS:

Ethereum Name Service (ENS) — Allows registering .eth blockchain domains tied to Ethereum wallets, content hashes, and metadata. ENS offers censorship-resistance and extensibility.

Unstoppable Domains — Provides .crypto, .nft, .dao, .wallet and other uncensorable top-level domain extensions mapped to blockchain addresses and content. Seamlessly integrates with wallets.

Handshake — An experimental decentralized root server system with blockchain-based top level domains to be operated by an open federated root group instead of ICANN.

Blockchain Domain Registry — Allows registering .blockchain domains and aliases using BNS and DNS protocols. Integrates with other blockchain naming services.

These decentralized alternatives remove reliance on traditional DNS which remains centralized and vulnerable to censorship or regulatory coercion.

Cryptocurrency Tokens

Tokens like Bitcoin, Ether, and stablecoins allow decentralized value representation, exchange, incentives, governance, and programmability atop blockchains:

• Cryptocurrencies natively represent value on blockchains as medium of exchange and store of value.
• Fungible tokens enable granular flows, pooling, staking, discounts, credits.
• Utility/Access tokens govern access to dApps and Web3 ecosystems via possession and staking.
• Non-fungible tokens (NFTs) prove ownership over unique virtual assets.
• Stable value tokens maintain pegs to external assets to minimize volatility.

Together, these blockchain-based tokens enable entire decentralized financial systems and incentive structures to exist natively on the Web3 stack.

Decentralized Oracles

Oracles enable blockchains to incorporate verified external data like asset prices, weather data, shipping info, etc to trigger conditional operations:

• Chainlink — Leading decentralized oracle network using delegated nodes staking LINK tokens to collectively source and validate data for smart contracts.
• API3 — Decentralizes API services using first-party oracles run by API providers themselves for data quality.
• UMA — Enables users to publish financial contracts as custom synthetic assets whose value depends on specified external data feeds.
• Band Protocol — Leverages delegated Proof of Stake to achieve high-speed data sourcing from whitelisted, tokenized data providers that share revenue.
• Witnet — A decentralized oracle model using trusted hardware enclaves for privacy-preserving public data requests and verifiable computation.

Oracles allow blockchains to react to off-chain events, enabling whole new categories of powerful dApps.

Zero-Knowledge Proofs

These cryptographic techniques enable privacy-preserving verification of claims or credentials without revealing actual underlying data:

• Zcash originated zero-knowledge succinct non-interactive arguments of knowledge (zk-SNARKs) for confidential cryptocurrency transactions.
• Coda Protocol leverages recursive composition of zk-SNARKs to enable a succinct blockchain that permanently compresses old state data.
• Matter Labs zkSync uses zk-SNARKs to scale Ethereum throughput and lower fees via ZK rollups that batch-process transactions off-chain using zero knowledge proofs.
• Qredo offers a ZK interoperability protocol to confidentially transfer value between any two supported blockchain networks.

Zero-knowledge proofs provide the confidentiality needed for many Web3 workflows involving personal data or commercially sensitive logic.

Wallets

Wallets securely manage users’ blockchain assets including cryptocurrencies, NFTs, tokenized assets, identity credentials, and governance rights:

• Software wallets like MetaMask, Coinbase Wallet, and Phantom operate on laptops, mobiles or the cloud using encrypted keys.
• Hardware wallets like Ledger and Trezor provide isolated offline private key storage and transaction signing for security.
• Mobile app wallets enable Web3 asset control via dedicated iOS and Android apps like Trust Wallet, Rainbow, D’CENT.
• Browser extension wallets add Web3 wallet functionality directly into Chrome, Firefox and Brave for simplified access to dApps and metaverses.

Wallets securely control access to scarce blockchain-based assets and permissionlessly provide gateway to participate in Web3 ecosystems.

Decentralized Exchanges

Decentralized trading eliminates intermediary risk from crypto asset exchanges:

• Automated market makers (AMMs) like Uniswap and Pancake Swap rely on liquidity pools and algorithms to enable peer-to-peer exchange directly between counterparties.
• Order book protocols like Serum, Loopring, and dYdX mimic traditional exchange order matching models but use blockchain for trade settlement.
• Cross-chain bridges like Thorchain, Celer, and Connext enable trading assets across separate blockchains by temporarily locking them and issuing proxy tokens.
• Decentralized brokers like Paradigm allow peer discovery and negotiation but settle trades on-chain. This provides a middleground between DeFi and CeFi.

Decentralized exchanges broaden access and reduce intermediary risks involved in cryptoasset investing and trading.

Synthetics and Stablecoins

These on-chain assets maintain value pegged to external dollar or gold reserves to offer price stability:

• Overcollateralized stablecoins like Tether and USDC back tokens 1:1 with bank reserves to maintain $1 pegs.
• Crypto-collateralized types like DAI and Frax Mint use overcollateralized lending pools instead of fiat to maintain minimum 1:1 collateral ratios.
• Seigniorage share models like Basis Cash use algorithmic monetary policy and fractional reserves to automatically expand and contract supply as needed to retain target price.
• Synthetic stocks/commodities issued by Synthetix, UMA, and Mirror Protocol track equities, indexes, forex, and commodities using oracles.

Stablecoins and synthetics allow decentralized finance applications to flourish by avoiding volatility.

Decentralized Governance

On-chain voting enables community-driven stewardship of Web3 protocols and DAOs:

• Liquid democracy combines direct e-voting with optional delegated proxy voting. Used by Aragon.
• Quadratic voting uses vote weighting to maximize voter satisfaction and prevent tyranny of the majority. Used by Commonwealth.
• Conviction voting weights votes by duration tokens are locked to reflect commitment. Used by MakerDAO.
• Ranked choice methods allow voters to designate backup choices to better reflect preferences.
• Confidential voting leverages zero-knowledge proofs to keep individual votes private while ensuring only authorized participants can vote.

Decentralized governance shifts decision-making authority from centralized third parties directly into the hands of Web3 community members.

Decentralized Messaging & Social

Censorship-resistant social graphs using metadata secured on IPFS and blockchain:

• Whisper — Private encrypted messaging for Ethereum dApps using the DEVp2p wire protocol.
• Status — Open source mobile messenger combining encrypted chat, P2P payments and decentralized app browser.
• Mask Network — Allows pseudonymous signaling and messaging overlaid on traditional social media platforms using digital masks tied to blockchain IDs.
• Lens Protocol — Facilitates building decentralized social graphs on blockchain using profiles, followers, content sharing and incentives.
• Bluesky — A protocol backed by Twitter for decentralized social networking currently in development. Promotes data mobility.

Decentralized social and communication frees users from platform risk such as arbitrary account suspensions while improving transparency.

Conclusion

While still emerging, the Web3 technology stack has progressed far beyond early blockchain protocols to now include countless complementary layers enabling decentralized versions of databases, identity, storage, commerce, communications, governance, finance, and more.

When woven together, these discrete blockchain innovations establish the technological foundations for permissionless user-driven internet applications and platforms not dependent on any single custodian or third party.

Although adoption is nascent, the exponential growth seen in decentralized building blocks like smart contract platforms, NFTs, DAOs and wallets suggests the Web3 stack could progressively rearchitect not just code but society’s most vital digital systems and communities. Just as LAMPStack and MEAN transformed Web1 and Web2, the emergent Web3 stack seems poised to unlock the next frontier phase of human collaboration and connection online.

What is the Web3 Stack? was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.