Author: Zach Lorance

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How Decentralized is Web3?

The term “decentralization” has become a significant and reiterated buzzword throughout the Web3 space as it is immediately paired with being favourable. Often, blockchain protocols, applications, and networks utilize the term to establish successful marketing tactics. This helps to attract capital and users to an ecosystem.

The problem here is that many of web3’s top projects are not fully decentralized. To investigate this, decentralization must be defined and separated from a distributed system. Many cryptocurrency protocols and Web3 projects are distributed – but not all are decentralized.

Defining Decentralization 

Decentralization refers to a form of organizational structure in which decision-making power is delegated from top management to middle or lower-sitting parties. In the case of Web3 protocols, decision-making power is given from founders and developers to the protocol’s supporters, users, node operators, and/or liquidity providers.

This differs from a distributed system. In a distributed system, the system itself is not concentrated but rather spread out across multiple locations and entities – most commonly nodes securing a network. This has nothing to do with decision-making, it just relates to the network infrastructure itself.

This is a very common misconception in many different projects’ functioning tokenomics and governance models. To achieve decentralization, it is not enough to simply distribute a portion of the tokens to the community or public. Those tokens must also carry an equivalent voting power to sufficiently give the community a respected voice within the Web3 project.

Investigating Core Web3 Protocols

To investigate which Web3 protocols are the most decentralized, it is necessary to measure the level of decentralization versus the level of distribution. 

Organizations/protocols can be rated in the following matrix:  

There are four key quadrants that emerge from the above matrix. They are:

  • Concentrated & Centralized
  • Distributed but Centralized
  • Concentrated but Decentralized
  • Distributed & Decentralized

Factors & Variables

It is important to acknowledge that the amount of variables necessary to accurately classify protocols is extremely high. Distribution relates to how accessible & widespread a project’s base asset is – generally its cryptocurrency or token. In this study, any entities that are not tokenized and rely on shares or privatization are classified separately as concentrated & centralized.

The more valuable a protocol’s market cap and the number of unique holders, the higher the reward level of distribution on the matrix.

Decentralization is much trickier as it combines multiple dynamic elements of a protocol, including:

  • Token Distribution – This relates not just to the number of unique wallets for a protocol but the number of unique, real-life holders of a project. Keep in mind that a single entity can control multiple wallets. So for example, Web3 projects that launched with pre-mined tokens for a group of seed investors, token distribution is naturally lower.
  • Governance & Decision-Making – True decentralization lies with the amount of decision-making power the average user has over a Web3 protocol. A key point to emphasize here – participation in governance is not sufficient enough by itself to make a protocol decentralized. For most protocols, token ownership is directly related to voting power. An unequal distribution makes for a centralized governance model.
  • Protocol Functionality – For many protocols, governance isn’t necessarily immensely important to functionality and the average user’s ownership of a token. If a protocol is immutable, meaning the core functionality cannot be changed through governance, it has a higher degree of decentralization versus a project that can be controlled entirely through a token.
Token Allocations for Web3 Projects – Messari

Classifying Web3 Projects by Decentralization

Web3 protocols can be broken down into one of three core categories. Those categories are:

  • Centralized
  • Decentralized
  • In the Middle

Centralized

Projects that fall here are generally lacking adoption and protocol governance is typically highly skewed towards large holders (generally early backers). Many projects, such as a number of Layer 1 smart contract platforms, were initially funded through privatized token sales. This allowed venture capitalist firms, hedge funds, and institutional investors to obtain a significant share of the outstanding tokens of these projects prior to public launch.

Additionally, limits in governance typically go along with these private token sales. A popular form of Proof-of-Stake (PoS) consensus is that of Delegated-PoS. This means that users holding a token can choose to be delegated through validators on the blockchain, generally being the largest token holders running nodes. This allows the majority of users to “participate” in governance but gives them little direct influence over the protocol.

This is similar to direct governance models that delegate voting power based on the number of tokens staked. So, the holders with the greatest amount of tokens (generally early backers, developers, etc.) have considerably more voting power than the average user.

There are quite a few Web3 protocols that fall into this category, including:

  • Solana (SOL)
  • NEAR Protocol (NEAR)
  • Algorand (ALGO)
  • MakerDAO (MKR)
  • Internet Computer (ICP)

Within the centralized category also falls centralized exchanges (CEXs) for obvious reasons. There is separation between Coinbase and other exchanges like Binance solely due to Coinbase not offering an actual token. 

Along with Coinbase are other corporations *& companies that utilize tall (centralized) organizational structures such as:

  • Coinbase
  • Apple
  • Intel
  • IBM
  • Meta
Example of a Tall Organizational Structure – ResearchGate

Decentralized

Web3 protocols that are more decentralized give the users more control over how they utilize the protocol and to what decision-making power they have over its functionality. The two assets here that are the most obvious are Bitcoin and Ethereum. Bitcoin is the world’s first peer-to-peer electronic payment network and is secured through Proof-of-Work consensus requiring computational power to mine new bitcoins.

Ethereum is the world’s most highly distributed and decentralized blockchain smart contract network – the original Layer 1. With thousands of nodes participating in securing the network and thousands more applications already built on top of its blockchain, Ethereum is the best example within the crypto economy of a decentralized Web3 protocol.

Other projects that function with a high degree of decentralization – regardless of overall adoption – are the following:

  • Chainlink (LINK)
  • The Graph (GRT)
  • THORChain (RUNE)
  • Aave (AAVE)
  • Ampleforth (AMPL)
  • Uniswap (UNI)
  • Polygon (MATIC)

In the Middle

There are a number of projects that fall right into the middle in terms of their level of decentralization. There are a large number of variables that come into play, making it more difficult to classify these projects wholeheartedly one way or the other.

The majority of these projects utilized private funding to get started but are building out decentralized functionality or assisting ecosystem development catering to decentralized functions for everyday users. Project age, overall adoption, and market dynamics all play a role in these projects.

Examples of projects in the middle include:

  • Polkadot (DOT)
  • Cardano (ADA)
  • Avalanche (AVAX)
  • Axie Infinity (AXS)
  • Decentraland (MANA)

Final Analysis

Web3 projects have been placed on the original matrix above in relation to the following discussed factors:

  • Accessibility
  • Adoption
  • Token Distribution
  • Protocol Functionality
  • Governance Mechanisms

The following represents the Web3 matrix in terms of distribution versus decentralization:

Keep in mind that due to the extreme amount of variables, it is difficult to accurately gauge each and every project from the same lens. Also, the above matrix is not accurate to scale. Consider projects grouped together to be similar in terms of distribution and/or decentralization.

Overall, the majority of web3 protocols are working towards or actively contributing to the greater Web3/cryptoeconomic space. Some protocols are doing this in a much more decentralized way than others, such as Ethereum’s high rate of node participation versus Algorand’s more centralized governance mechanism. 

Web3 as a whole has a substantial number of actively contributing projects that hold appropriate levels of decentralization over the previous web2 iteration of the internet.

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Metaverse Weekly: Distinguishing Between Distributed & Decentralized Systems

Decentralization refers to the distribution of decision-making power from a centralized entity to a distributed network of entities. This is a common theme within the cryptoeconomy & blockchain applications.

There are a number of different technologies that can assist in the functional decentralization of the metaverse space. Some of the most prominent examples are:

  • Distributed Ledger Technologies (DLTs)
  • Edge Computing
  • Microservice Governance

The level of decentralization can vary depending on what is being distributed and how it is being distributed within a system. This will differ within specific organizations or companies versus critical infrastructure and networks. 

Many metaverse protocols within the cryptoeconomy (Decentraland, The Sandbox, etc.) utilize a type of distributed ledger technology (DLT) called a blockchain. However, not all DLTs are blockchains. This results in a high rate of variability in terms of decentralization even if the system itself is distributed.

Why Does the Metaverse Have to be Decentralized?

For the metaverse to truly flourish and remain accessible to everyone, it must be a highly decentralized system without any gatekeepers. This is what allowed the internet to grow into a unique, highly engaging, globally accessible interface. 

Centralization raises several issues for a system of global scale. Consider the internet – the wealth of exchangeable information is priceless for humanity. Nearly anyone is able to access the internet and receive a high-level amount of information on any topic.  

Of course, there are some major shortcomings in this regard that have been increasingly more noticeable over the last several years, including the monopolization of key web infrastructure and unequal, centralized access via internet service providers.

This is the major problem that web3 is trying to solve. A centralized global space results in:

  • Higher rate of monopolization
  • Greater censorship
  • Lack of accessible information
  • Reduced user privacy
Google’s Search Engine Monopoly – internethealthreport.org

What is the Difference Between Distributed and Decentralized Systems?

A common misconception is that distributed systems and decentralized systems are interchangeable terms. This is actually not the case – while decentralized systems (i.e. blockchains) are a type of distributed system, not all distributed systems are decentralized.

In addition to blockchains, here are three other examples of DLTs:

  • Hashgraph
  • Directed Acyclic Graph (DAC)
  • Holochain

Distributed Ledger Technologies

At its core, a DLT is a cryptographically secured record of consensus with a verifiable, validated trail. That trail is validated by a network of nodes. A DLT network can either vary in its level of decentralization. Designated rights on the networks between nodes can fall in a range from centralized to decentralized, meaning that not all nodes on the network must be equal.

Certain nodes on a distributed network may have much more prominent permissions than other nodes. For certain organizations, this is favourable as it allows for greater participation on the network without the organization having to give up control.

Blockchain Networks

Comparatively, a blockchain consists of unchangeable data pods referred to as blocks. These blocks are validated by nodes on the network and added to the previous chain, serving as a specific way to implement a DLT. 

The major distinction between blockchains and other types of distributed ledger technologies (DLTs) is that within a broad DLT network, every node does not necessarily need to have all of the information from the ledger. For a blockchain network, every single node has access to all of the information from the ledger.

How Blockchain Operates – ResearchGate

This is an important distinction to keep in mind when considering external companies like Meta and their own ambitions to build out a metaverse space. In Mark Zuckerberg’s 2021 Founder’s Letter, he explicitly states that privacy, safety, open standards, & interoperability need to be “part of the metaverse from day one” but offers no direct insight as to how Meta will provide these qualities in its own product.

For the purposes of decentralization & interoperability, it is exceedingly important that every participating node on a DLT network has access to and understands all of the available information. This promotes the highest degree of transparency and participation necessary to achieve a robust, decentralized, metaverse space.

Closing Analysis

It is important to counter the narrative that simply being distributed is equitable to being decentralized. This is completely untrue. The metaverse must be distributed AND decentralized to promote the healthiest space possible for the world to build upon. This reigns true for both individuals and brands/businesses.

Web3 and the emerging metaverse have some challenging obstacles ahead to ensure this vision becomes reality. Examples include problems with censorship & accessibility due to centralized internet service providers or simply the costs associated with building innovative computational technologies to actually power such a demanding system.

Nevertheless, what is highly achievable today is the implementation of decentralized distributed systems that allow for the free-flow of information to anyone who wishes to participate. This is what blockchain technologies add to the emerging metaverse.

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Metaverse Weekly: The Challenge of Interoperability

One of the key challenges to a fully functioning metaverse is that of interoperability. Within platforms such as Decentraland or The Sandbox, there is coherence between that of the virtual worlds, users, and external blockchain networks. This is internal interoperability.

However, the problem here is that external interoperability between world-hosting applications is less clear. For off-chain platforms and applications, this bridge is even less visible. There have slowly been partnerships and integrations between off and on-chain applications, such as Minecraft joining forces with blockchain applications.

This is only the first step towards true metaversal interoperability. There are some key barriers to achieving interoperability for the metaverse.

They are:

  • Technology – The precise applications and computer programming solutions necessary to unite on & off-chain platforms within a single, open metaverse. Exactly what computer engineering breakthroughs are needed.
  • Economics – Aligning the appropriate economic functions & incentives that attracts users to move across worlds through the metaverse rather than staying within base applications or platforms. 
  • Persistent Connectivity – Ensuring the metaverse is always open & accessible is vital to achieving a growing user base. The metaverse must have uptime like the internet today while remaining decentralized and open so that anyone in the world can participate.
LeewayHertz

Blockers in Technology & Infrastructure

There are a number of areas, including both hardware and software, that must-see technological improvements or adoption of existing technologies that have not yet experienced widespread use in the market.

Some examples of components needing interoperability are:

  • Avatars / User Wallets
  • Application Programming Interfaces (APIs) & Hardware Components
  • Storage & Database Solutions
  • Assets (currencies, securities, etc.)

Avatars / User Wallets

In a full metaverse, it would be extremely inefficient and troublesome if users had to create a new wallet or avatar for all the different worlds that they may want to participate in. For example, say a user wanted to buy land in Decentraland while maintaining a profile through an external P2E gaming title. Having two different identities could get confusing to maintain. Now consider having to create a new avatar for every single platform in a full metaverse.

Comparatively, the internet (web2) has suffered in part from this challenge. Users engaged on multiple websites and platforms must store login information for dozens of different accounts. Solutions like Facebook, Google, and email sign-ins have assisted users with this issue, but it isn’t perfect.

Cryptocurrencies have also had this issue in the past. Each user would have to store the information for various wallets compatible with each cryptocurrency each user wants to invest in. Now, solutions like Metamask have offered cryptocurrency users the ability to store many different cryptocurrencies in a single wallet – regardless of the number of different blockchain networks that user is engaged in.

The metaverse faces this issue as well, albeit it is more closely aligned with the adoption of cryptocurrency wallet technologies. A user should be able to create a single avatar linked to their wallet of choice to transverse the metaverse space.

APIs, CPUs, & Hardware

As platforms are developed, there are many different APIs powering different metaverse projects. External APIs can be utilized by different projects for different purposes and open source projects can work, learn, & build collaboratively.

Additionally, advances in computing power and ability are necessary to run a connected metaverse space. Advances in quantum computing have made headway in this area, helping to push forward major advances in rendering speeds & processing power. Modern computers simply are not sufficient enough to carry the load of such a demanding space.

Storage & Database Solutions

One of the most important parts of the metaverse is that of data storage. Centralized databases simply will not be appropriate for the metaverse as the freedom of data is extremely vital. Therefore, decentralized data storage solutions will be a major functioning part of a true metaverse.

Solutions to global file sharing and database storage have emerged in recent years. For instance, blockchain-powered storage solutions such as Filecoin or Storj have assisted the space in utilizing decentralized storage where users can exchange surplus storage space for a fee. 

IFPS File Sharing Functionality – ResearchGate

Interoperable Assets

This aspect of the metaverse is arguably the furthest along. Assets in this circumstance would refer to cryptocurrencies, collectables, non-fungible tokens (NFTs), and other currencies or securities that would have value within a digital space like the metaverse. This is integral to the purchasing and trading of digital LAND within the metaverse.

NFTs and cryptocurrencies have been at the heart of decentralized virtual world hosts so far for on-chain applications. Additionally, the creation of bridges between on and off-chain assets like Germany’s breakthroughs assists in the future interoperability between blockchain applications & external platforms.

Aligning Economic Incentives

While technological interoperability is arguably the most difficult aspect of metaversal interoperability, proper meta-economics also requires a high degree of interoperability. This plays directly into the ability for digital assets to have bridging potential to external applications.

Tech giants such as Meta (Facebook) building out their own metaverse spaces could split on and off-chain users if there is no way for digital assets to be converted into usable assets for Meta. In a way, this is the barrier between blockchain and traditional financial markets today in terms of the cryptocurrency market. It is worth noting that many big tech companies are adopting principles of Web3 technology, but it is only a start.

Additionally, users are generally considered to be rational thinking and opportunistic. This is extractable from game theory. If there is no incentive to participate in external applications, then users will never migrate out of their home apps. This obviously creates competition within the market to fight for capital and user growth, but it is not all necessarily on projects.

Should users ever choose to transverse the metaverse space between projects, it must be:

  • Efficient to move between applications
  • Affordable to the user in terms of fees
  • Have an opportunity cost that incentives dynamic movement across the metaverse
Average Monthly Internet Prices by Network Technology – New America

These three points are also true for attracting actual users to the metaverse in the first place, including that of individuals and organizations. Within capitalist economies, entities are profit-seeking. If there is a reasonable expectation that those entities can join & transverse the metaverse in a monetarily productive way, they will.

Accessibility & Durability of the Metaverse

For the metaverse to work and interoperability to remain a feature, the metaverse’s base functionality must always remain accessible to all users and have unlimited uptime. These same qualities can be applied to the modern day internet.

If the internet itself was not accessible or had catastrophic issues with uptime, the digital space would never work. Neither institutions nor individuals would invest time, money, or resources into something that is unreliable or inaccessible. Problems with accessibility can and do plague the internet geographically. 

Map of global internet usage – Our World in Data

Some areas of the world – like parts of the United States – simply do not have the infrastructure required to have reliable internet access. This is something that the metaverse will also face, just at an elevated level due to the higher demand it requires in terms of infrastructure capabilities.

Map of broadband access in the US – Federal Communications Commission

Additionally, centralized ISPs provide a barrier to entry for users wishing to access the metaverse in authoritative parts of the world. Corporations, governments, and other centralized entities can’t have immediate control over access or durability of the metaverse for it to remain truly open to all. The fight for net neutrality was indicative of this for the internet despite it being repealed in 2018 and never re-implemented.

Interoperability would ensure that even when individual applications or protocols go down, users within the metaverse will still have access to all other applications, guaranteeing that the space will always have some form of functionality.

Final Analysis

A fully interoperable metaverse is still many years away. Advancements are needed in many different aspects of the metaverse, including:

  • Technology & Infrastructure
  • Economics
  • Accessibility

The largest barrier to the metaverse resides in the ability of the world to innovate and upgrade infrastructure, something that will be costly moving forward, especially for end-users. The crypto economy has helped to provide missing economic incentives, helping to fuel such a mass interest from external organizations surrounding the metaverse.

Market Analysis Report (Metaverse) – Grand View Research

In a perfect world, the metaverse will end up being an open-source, highly durable base layer of what would essentially be the three-dimensional internet. Websites and applications would come to life in a highly connected, interoperable space. 

According to Citi Financial, the metaverse economy may be worth up to $13 trillion by 2030. So, while a true metaverse is potentially years to decades away, there is a sizable amount of investment and interest happening right now to add to its progress.

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Metaverse Weekly: The Rise of the Quantum Computing Era

Quantum computing is an emerging technology field that allows for computers to solve hyper-complex problems that are impossible on modern-day machines. 

The concept is leveraging the roots and properties of quantum mechanics –  the fundamental theory in physics that describes the physical properties of reality at subatomic levels.

Serious headway has been made over the last decade in determining the properties and mechanics of reality at the subatomic level, properties that differ significantly from classical physics and have actually led to a failure in the Standard Model. 

Nevertheless, the exponential growth rate in technology has allowed for deeper computation to be conducted at the quantum level, leading the world towards fully capable quantum computers.

Major players that are involved in the research and development of quantum computing include many heavy hitters in tech, such as:

  • IBM
  • Intel
  • NVIDIA
  • Microsoft
  • Google

As the idea and momentum behind the metaverse continues to take hold, leaders within the tech sector such as Intel’s Raja Koduri stated in an interview with Quartz in December 2021 that the metaverse requires computer chips to have 1,000x the power to support the demands of a true metaverse. 

Quantum computing is the natural progression in technological development necessary to achieve these requirements.

Present Day Computing Power

In 1965, Gordon Moore released a paper that famously predicted the exponential growth of transistors that could be packed into an integrated circuit – saying that this number would roughly double every 18 months.

This prediction has rung true for decades now, with the growth in computational power rising considerably. The world has seen an increase in the number of transistors per integrated circuit, rising from roughly 2,300 to over 50 billion transistors in the world’s most capable computers –  an increase of over  2 billion percent. The problem here is that exponential growth cannot increase forever and Moore’s Law is no different. We have already begun to observe the slowdown in computing growth.

Semi-log plot of transistor counts – Our World in Data

The End of Moore’s Law

There are multiple elements working against the continued hypergrowth of computational power. The first of these is the physical limitation of integrated circuit sizes. The technology can only go so small before it is impossible to shrink any further. Only so many transistors can be packed onto an ever-increasingly small space.

The other key limitation that computers are facing now is the physical limitations of reality, or better put, the speed of light. In essence, the electrons powering computers can only move so fast through matter. This means that computational speeds have a literal speed limit through traditional computing.

This leads directly into the motivations behind the rise of quantum computing and how researchers are hopeful it could provide a workaround.

Overview of Quantum Computing

Quantum computing is introducing a sophisticated new method in making parallel calculations using computing units called qubits. In traditional computing, bits are either on or off, one or zero. Qubits have the ability to exist in an “in between” state rather than a distinct on or off, allowing quantum computers to be exponentially faster at complex calculations.

This “in between” state is known in quantum physics as superposition. For particles, superposition means that one proton could simultaneously exist in two different states at once. This plays into the thought experiment behind Schrödinger’s cat & the Copenhagen Interpretation. The concept has also often been applied to photons (particles of light) acting as both a particle and a wave. This was physically demonstrated in the double slit experiment.

Double Slit Experiment – ResearchGate

Additionally, another important concept to note here is that of quantum entanglement. This is when two or more particles are in a single quantum state. For instance, using a particle accelerator, scientists were able to demonstrate this concept physically. Take two different protons that are in a state of quantum entanglement. Because they are entangled, any changes to one proton will instantaneously create the exact same effect in the opposite proton, no matter the distance between them. So, two particles that are entangled could theoretically share information instantaneously, quite literally outpacing the speed of light.

This is precisely what quantum computing is intending to leverage. A future quantum computer utilizing highly conductive nanomaterials (such as graphene or carbon nanotubes) could use the properties of quantum mechanics (superposition and entanglement) to solve hyper complex computational problems that traditional computers could never solve.

Quantum Computing & the Metaverse

The sheer demand of computational power and processing speeds that a full metaverse would require is unfathomable in terms of today’s computing limitations. Running a global metaverse is nothing short of literally powering a world-wide simulation. The metaverse will be tasked with powering a seemingly infinite number of worlds across the entire globe for billions of users in a three dimensional, highly interactive virtual space. 

Thus, coming back around to Koduri’s comments about needing 1,000x the power, to truly build out the metaverse requires a high level of innovation in other fields. Luckily, the demand for computing power is increasing at a profound rate which is leading to a high level of investment into the concept of quantum computing and nanotechnology. 

A number of powerful technology companies have been conducting research on the issue, including:

Increasing complexity in the applications and networks we develop requires an evolution in both computational abilities but also security. Unfortunately, quantum computing unlocks new problems for cryptographic hash functions that power the world’s leading cryptocurrencies such as Bitcoin. Bitcoin’s security model relies on the computations necessary to mine blocks and use the network to be difficult to solve. Quantum computers would be able to solve these hash problems exponentially faster than normal machines. 

Bitcoin’s SHA-256 hash algorithm – ResearchGate

Thus, Quantum computers powering the metaverse will have to leverage quantum-resistant security protocols and blockchains. For the metaverse to be successful and have longevity, security of the system must be considered a critical priority.

Summary

There are a high number of complex innovations that must occur for the metaverse to develop in the way many are envisioning. Quantum computing is arguably one of the most critical to long term metaverse development. At this point in modern history, humanity is experiencing rapid expansions in computer science and quantum mechanics that is allowing for research to be conducted and progress to be made.

As Microsoft says, quantum mechanics is the underlying “operating system” of the universe and is being used here to break through physical barriers in computing. It serves as a good model for something like the metaverse – nature requires immensely complex chemical & biological reactions, material formations, & other processes that take place through a seemingly infinite amount of individual data points (starting with plancks all the way up through atoms, particles, etc). The metaverse will require a similar level of complexity that quantum computers will undoubtedly help us achieve in the future.

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Metaverse Weekly: The Vulnerability & Bottleneck of Centralized ISPs to Metaverse Expansion

Billions of individuals around the world access the internet each and every day through internet service providers (ISPs). These ISPs have created partnerships and developed the infrastructure to power access to the internet around the world.

To access the internet, regardless of what equipment an individual may have, it requires a connection through an ISP. The ISP provides the necessary connectivity and bandwidth in which to interact with the internet. Without it, even a fully decentralized Web3 internet would be inaccessible.

How Do ISPs Work?

At a fundamental level, ISPs serve as major data movers by offering access through different connections (DSL or Dial-up, for instance) that come with different speeds, services, and accessibility. 

Some key examples of ISPs include:

  • AT&T
  • Comcast
  • Verizon
  • Cox
  • NetZero

All of these providers have one particularly key feature in common – they are massive, centralized entities with considerable power over the internet. This directly coincides with the concentration of cellular accessibility between the giants of AT&T, Verizon, and TMobile. 

Internet – tutorialspoint.com

This is due to the massive barrier to entry that has formulated due to the required infrastructure necessary to create a competitor. Many ISPs have concrete contracts in place with both major data centres (typically run by tech giants like Google or Amazon) and cities themselves to build out infrastructure like fibre optic cable lines.

In fact, there are thousands and thousands of miles of fibre optic cable that transfers data across the world on just the east coast of the United States alone. This centralized infrastructure also has secondary risks such as overload due to damaged infrastructure resulting in a massive amount of rerouted internet and telecommunications traffic.

Hyper-growth in Internet Demand & Technological Development

There are two separate laws famous in the technological development of computing & internet. The first of these is Moore’s Law which states that computing power grows at an annualized rate of 60% or 100x compounded growth over just ten years.

The other side of this coin is Nielsen’s Law which states that internet bandwidth roughly doubles each year, residing in a 57x increase in growth over ten years. However, bandwidth overall grows at a noticeably slower rate. 

For example, someone paying more for a bandwidth upgrade will only see improvements up to a certain point. Bandwidth doesn’t just rely on higher-level access but is limited by the speed of centralized ISPs in the upgrading of equipment and necessary infrastructure. Upgrading existing infrastructure for a 50% boost in bandwidth speed can cost upwards of billions of dollars and take considerable time to implement.

Additionally, as the technology improves, there is a higher demand for high-level internet access including a rise in things like streaming. The COVID-19 pandemic coincided with a growth in internet demand of roughly 70%. Per AT&T Labs, internet traffic is approximately doubling each year. When considering the building out of a metaverse, this demand could skyrocket and further outpace the expansion of ISP infrastructure and capabilities for the average user. 

Development of Decentralized ISPs

For the metaverse to truly function and remain as decentralized as possible, there must be unrestricted access available to it. This raises the question of how feasible decentralized ISPs could really be.

Distributed internet access has been sought after and researched for some time now. This has led to the development of different concepts, two of which have been highlighted below:

Microgrids for Distributed Internet Data Centers

Part of the systemic centralization issue falls directly on data centres themselves. With centralized ISPs creating strategic partnerships with centralized data storage providers, a decentralized ISP would still have to rely on those very same data centres and thus only partially solves the problem.

Diagram of a Microgrid – Dr. Leonard W. White / NC State University

There have been multiple proposals to plan and develop a microgrid to power distributed internet data centres. A microgrid is a concept for distributing the power grid itself. It works as a localized energy grid that can function in par or autonomously from the main power grid. These microgrids would have the durability and capacity to host localized data centres, ensuring that the stress of traffic overall on the local system is lower due to the smaller sample size.

Mesh Networks

Another working concept is that of mesh networks –  a way of distributing WiFi connectivity more efficiently. Mesh networks have models that work from the individual household up to entire cities. The network is formed through distributed nodes that are interoperable, meaning that they can communicate to share a wireless connection with each other. This covers larger areas with coverage.

Signal Boosters

This is a truly wireless distribution of internet connectivity. When considering this concept for smart cities, it would vastly cut down on the necessary infrastructure required to distribute internet access across a city among many thousands of residents. Fewer infrastructure requirements mean all of the following:

  • Lower upgrade costs
  • More distributed access
  • Smaller barrier to entry for new participants
  • Less systemic risk due to environmental factors

Wireless mesh networks are projected to have steady growth through 2026 based on a research report released in February 2022.

Blockchain-based Solutions

There are a handful of different cryptocurrency-powered projects that are working on the idea of decentralized ISPs. With bootstrapped crypto-powered funding rounds, it can assist the project in being funded through community building and would also help distribute ownership over the ISP.

One such example is Nexus (NXS). The Nexus Protocol aims to provide decentralized routing services for users to bypass traditional ISPs and is “driven by a security-focused operating system (LX-OS), utilizing the immutability of Nexus to verify its internal states, making it resistant to most known operating system level exploits”.  To achieve this, Nexus Protocol aims to establish a robust network built up from a combination of tokenized micro-satellites and ground stations in which to interact with said satellites, similar to Elon Musk’s Starlink (but decentralized).

The micro-satellites are to be launched into low Earth orbit and run the Nexus Protocol operating system.  The ground stations are established through phased array antennas, which are “electrically steered and are capable of realizing high gains and mobility“.  These antennas may be installed on top of buildings or vehicles, and “connect to transceivers on the 5.8 GHz ISM (Industrial, Scientific, Medical) band, commonly used in Wi-Fi routers”, per the Nexus Protocol website.

The successful launch and implementation of such a technology, should it work appropriately, would take the concept of Starlink and distribute ownership of it throughout Web3. Other examples of decentralized ISP development include Blockstream (Bitcoin) and Althea.

Summary

Accessibility to the internet will remain a major challenge for the development of a global, decentralized metaverse and Web3 in general. Censorship through ISPs obviously has some workarounds (take the explosion in popularity of VPNs for example), but a large percentage of the global population lives with at least some restrictions to internet access.

Decentralized internet access puts the power of the internet fully into the hands of the users themselves. While development is sluggish for decentralized ISP technology, concepts and ideas are emerging that have adequate examples of how to potentially do it. Should Web3 and the metaverse ever reach their full adoption and developmental potential, unrestricted access to both is vital.

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Metaverse Weekly: Exploring the Infinite Metaverse with Deep Technologies

With the rise of metaverse protocols such as Decentraland and The Sandbox, the cryptoeconomy has seen a tremendous surge in demand for digital land, space, & access to the metaverse.

Much of this demand has been driven by digital scarcity – whether artificial or simply from a barrier to entry for everyday individuals not having the ability to build out their own plots and worlds within the metaverse.

Take The Sandbox for example – 

Heat Map of The Sandbox – CFTE

There has been a significant demand surge for the plots that exist within the protocol that fluctuates depending on the location of that land. Higher prices for land are being minted where more individuals, brands, & organizations are choosing to be concentrated.

The Limitations of Scarce, Digital Land

For many metaverse investors, the substantial rise in metaverse land prices creates a lucrative investment opportunity. After all, the metaverse land boom has rivalled that of the real-world economic housing boom. Both single-family housing AND digital land have morphed into investments rather than commodities.

With certain pieces of digital land going for hundreds of thousands if not millions of dollars, even average cryptocurrency retail investors are already forever priced out.

Much of the demand for digital land is being led by companies, organizations, and brands. This leaves out the typical individual who may be interested in acquiring property in something like The Sandbox.

Not a Coder? Not a Metaverse Builder

The other side of this problem arises through the obvious barrier to entry for creating worlds, building out properties, or sometimes even having the ability to access the metaverse entirely. As Tom Casano, founder of Deep Technologies, puts it: “You can’t have a metaverse without worlds. And you can’t have worlds without an easy way to build them.”

Tom draws comparisons between the emerging metaverse today and the rise of the internet back in the 1990s. In the early days of the internet, there was a massive barrier to entry for most normal people from ever participating in the world wide web as publishing a website required intense, in-depth knowledge of coding & computer programming.

Image credit: Daily Mail – Source

This created a massive bottleneck in both available websites as well as overall adoption. The same problem exists today with the metaverse. Scarcity of worlds and digital land is preposterous when you consider the fact that, like the internet, the metaverse itself is infinite. This is especially true when considering the exponential growth of computing power.

Image credit: Research Gate – Source

To have a sprawling metaverse, everybody needs the ability to become a builder and it needs to be as easy as creating a website is today versus creating one in the late 90s.

Powering a World of Metaverse Builders

Tom Casano’s Deep Technologies has been developing a simple solution to the digital world scarcity problem. Their thesis is simple – building worlds in the metaverse should be simple, easy, and accessible for all.

Deep Technologies has produced a VR app that allows users to do exactly this – create worlds in an infinite metaverse that can even be played with communities and explored by others. Deep Technologies was initially founded in November 2021 and has since launched a usable VR application via Meta Quest (Oculus) in March 2022.

Since the initial launch of the Deep VR app, over 1,000 unique worlds have already been created by a spread out user base –  no matter the ability level, age, or knowledgebase of the user.

Startups like Deep Technologies are helping the metaverse get to that next step in global adoption –  just as website creation solutions did to fuel a boom of internet activity leading into the 2000s. As technologies like the Deep VR app improve accessibility to building worlds in the metaverse, further innovations could see the metaverse as an even more expansive digital space than the internet itself.

Learn more about how Deep Technologies is building for the future metaverse here

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Metaverse Weekly: Terra Luna Loses Nearly $20 Billion in Crypto’s Largest Collapse in History

Terra Luna, the protocol behind the TerraUSD (UST) and the LUNA token effectively collapsed after back to back trading sessions that saw its stablecoin UST lose its 1:1 peg with the dollar.

The project is infamous for its use of the widely controversial algorithmic stablecoin model. Algorithmic stables work to maintain dollar pegs through code rather than simply backing the coin with collateral like USDC or DAI.

Collapse of UST peg – Messari

How Terra Luna Works

Terra operates by creating an equilibrium between the UST and LUNA tokens through the incentives of arbitrage. 

This is how that works. Say an investor wants to mint UST. To do that, LUNA must be purchased and swapped for UST with the LUNA being burned afterwards. This constricts the supply of LUNA, placing upwards price pressure on the token.

Opposite of this, LUNA can be minted by converting over UST tokens which are then burned. This puts upward price pressure on UST. The key here is the gains made through arbitrage, the core incentive for willing investors to take on the associated risks with the tokens.

Arbitrage is simply when a trader is able to profit from slight price discrepancies. For instance, if UST is trading at $0.99, traders have the incentive to burn LUNA for UST at 0.99. When the price of UST rises above $1, traders can then flip that small profit into buying more LUNA.

Image credit: The Tie

Anchor Protocol

An additional Terra ecosystem incentive that encouraged traders to join the ecosystem in the first place was the extremely generous 20% APY on Anchor Protocol that UST holders could earn. This attracted a tremendous amount of growth to the protocol.

The problem here was that such a high APY was completely unsustainable long term. The Luna Guard Foundation (LFG), an associated organization, were managing Terra’s treasury fund to inject liquidity into Anchor to artificially keep rates high.

Why Terra Failed

The short answer to why Terra failed is nothing short of a rapid loss of confidence followed by a bank run on the protocol.

The UST stablecoin went through a major stress event in January 2022 after the unravelling of the Frog Nation DeFi ecosystem. This plunged the price of LUNA and forced UST from its dollar peg. The event actually prompted Terra to raise $1 billion in Bitcoin (BTC) to provide additional collateral to the UST peg. Additional purchases were also in AVAX.

On May 9th, the cryptocurrency market began experiencing more extreme selling pressure which led to a significant decline in LUNA and in Bitcoin. This created a massive problem for Terra. As selling occurred, it depegged the price of UST.

UST and LUNA achieve equilibrium through the redemption power of burning/minting tokens. If there are more UST tokens in circulation, there are less LUNA and vice versa. The problem that occurred here is because of the depegging and the price of LUNA falling, the redemption cost of gaining LUNA was high.

Put simply:

  • Markets declines, causing LUNA to decline and UST to depeg
  • Panic ensues and UST tokens are burned for LUNA
  • The LUNA is immediately sold due to the collapsing price
  • This further destabilizes the UST peg, creating more panic
  • Repeat

A ton of LUNA tokens were being minted and then thrust back into the market as investors left UST. This made the supply expand rapidly, creating enormous downward pressure on price.

Even worse, LFG sold their Bitcoin at a substantial loss to inject more money into the protocol to help save the UST peg. This obviously failed and the protocol fell into a total meltdown. 

Collapse of LUNA price –  Messari

The price of UST fell to as little as $0.19 at one point, with LUNA collapsing in price from an all-time high of $119 USD just one month ago to a price point of $0.90 – a 99% collapse in value. In total, Terra Luna saw some $20 billion disappear from the protocol in just 24 hours, making this the single largest cryptocurrency collapse of all time.

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Instagram Adding NFT Integration with Multiple Blockchain Networks

Widely used social media platform Instagram has a coming NFT integration, part of Meta’s push to align its own products and services with the emerging Web3 space. The pilot for this new integration is reportedly coming as early as Monday.

As reported by CoinDesk over the weekend that Instagram is looking to directly add support from multiple blockchain / NFT platforms, including the following; Ethereum, Solana, Polygon, and Flow. Today, Instagram head Adam Mosseri confirmed the news on a Twitter video, with Meta CEO Mark Zuckerberg also posting: “This week we’re starting to test digital collectibles on Instagram so creators and collectors can display their NFTs on their profile.”

Web3 Coming to Instagram

This Instagram upgrade will feature true web3 connectivity, with users being able to connect their own cryptocurrency wallets like MetaMask. This, in theory, will create a seamless process that will allow users to showcase their own NFT collections, verify their ownership, and even tag creators.

With a user base of one billion individuals and a dominant focus on art & aesthetics, the move for Instagram and Meta to utilize the platform for NFTs comes as no surprise.

Twitter’s integration with NFTs back in January generated conversation as users were able to upload and connect their NFTs to showcase as their profile pictures. 

Source

Of course, users must be subscribed to Twitter via Twitter Blue to have access to these features. Instagram will reportedly not charge users to link their NFTs, an improvement on the feature versus Twitter.

Questions have arisen about the security of such an integration with Instagram, as just last month it was reported that the Bored Ape Yacht Club (BAYC) official Instagram account was hacked and exploited. This led to the theft of $2.8 million USD in NFTs.

This emerging NFT pilot on Instagram has been hinted at by Mark Zuckerberg to be the first step in also launching minting and sharing options on Meta’s other platform Facebook. For continued updates on all the latest Web3 news, keep reading gmw3.

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Metaverse Weekly: BAYC Land Sale Rocks Markets, Reverses NFT Volume Collapse

The company behind the very popular Bored Apes Yacht Club (BAYC) NFT line collected an estimated $320 million USD through the minting of Ethereum-based virtual land deeds. 

The land being sold is to be part of a coming BAYC-led metaverse project. 55,000 different land parcels were minted by Yuga Labs and brought to auction.

Example Land Parcels from Otherside Mint – OpenSea

Just the Yuga Labs mint alone has completely reversed the negative trend of volume within the NFT market. 

Struggling NFT Market

New studies have identified that the NFT market as a whole has been struggling for months, with the daily amount of NFT sales plummeting from highs in 2021. From August 2021 until November 2021, the NFT market was posting daily sales routinely near 1.2 million. This was generating an outstanding $500 million – $1 billion in daily sales.

NFT Market Sales – NonFungible

Since the cryptocurrency market peaked in November 2021, NFT sales had ground to a near halt. For a time, sales volume remained elevated on diminishing sales, showcasing the potential NFT value bubble popping in real-time.

Many NFTs that were purchased for millions of dollars just months prior could barely get bids worth even a percentage of the prior NFT’s price.

At its market bottom, daily sales had fallen an estimated 92%. The resurgence in the market came from the Yuga Labs’ virtual land drop that saw ~443,000 total NFT market sales bringing in $1.4 billion in total sales.

Resurgence in NFT Market Volume – NonFungible

Ethereum Slowdown

The land sale itself single-handedly brought Ethereum to a halt, with the Ethereum blockchain posting historically high gas prices. It is important to distinguish that Ethereum never went offline, just because it was far too congested for normal wallet holders to use.

Gas prices on the Ethereum network spiked to over 6,000 GWEI on May 1, quite literally making the blockchain unusable for the majority of the Ethereum ecosystem. This effectively priced out nearly the whole market, with basic transaction fees posting gas fees upwards of $9,000 USD.

Ethereum Gas Charts – ethereumprice

This major slowdown in Ethereum usability prompted Yuga Labs to state on Twitter that it “seems abundantly clear that ApeCoin will need to migrate to its own chain in order to properly scale” and would like to “encourage the DAO to start thinking in this direction”.

Some users attempting to mint BAYC land spent literally thousands of dollars worth of Ether just to have their transactions fail due to the mass congestion. Part of their public statement, Yuga Labs stated publicly that they would take responsibility and pay back users who lost funds attempting to mint land.

Summary

With the majority of the cryptocurrency market extending its overall downtrend into its seventh month, NFTs should and are also declining with the broader market. This also includes the recently released ApeCoin which is down from its all time high of $26.70 (-48%) just one week ago.

Whether the BAYC community will actually launch an alternative L1 blockchain network exclusively for BAYC holders remains to be seen. Additionally, gas prices on Ethereum have since normalized once again.

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Metaverse Weekly: An Overview of the Digital Real Estate Boom

The metaverse is firing on all cylinders so far in 2022, with numerous global corporations flocking to the space. A particularly valuable part of this new emerging digital economy is none other than real estate.

Land ownership inside the metaverse is becoming exceptionally popular, with some virtual land plots selling for millions of dollars. Land plots in Axie Infinity (AXS), The Sandbox (SAND), and Decentraland (MANA) have been appreciating in value considerably over the course of 2021 and 2022.

Daily Average Prices for Metaverse Land Sales – CFTE

Some organizations such as the World Economic Forum have speculated that land in the metaverse could become worthless in the future, so what virtual and what is driving high prices?

What is Virtual Land?

Virtual land is bought and traded as non-fungible tokens (NFTs). The NFT records precisely who owns the land directly on the blockchain, minting ownership for everyone to be able to verify publicly.

Each piece of virtual land within a protocol like The Sandbox is a small section of the protocol represented by the NFT. This land can then be traded or sold on secondary markets.  In fact, virtual properties are highly transactable with an average of 8,000 properties changing hands every month at an average price of 3.5 ETH (~$10,000).

Virtual, purchasable land is broken down into parcels of which the number available varies between platforms. The Sandbox, for example, has just over 166,000 parcels of land presently available. Each parcel is a 96×96 meter plot.

Current Map of The Sandbox (SAND)

These parcels of land can be developed to create buildings, gaming experiences, advertisements, and other use cases that mimic real-world activities.

How Land in the Metaverse is Driving Passive Income

Purchasing and building out land in the metaverse is becoming increasingly more popular. While risky, this is comparable to developers buying and developing land in places that are speculated to have substantial future growth. The metaverse is no different.

Since the onset of the real estate boom in the metaverse, properties have gone for hundreds of thousands of dollars. As of January 2022 per the Centre for Finance, Technology, and Entrepreneurship (CFTE), virtual land sales represent $100 million of the $2 billion per month spent within the NFT market.

All Time Value Spend on Metaverse Sales – Grayscale

Individuals and companies alike are investing in metaverse land – and generating income. The valuations vary depending on location and use case. There are a few different use cases that metaverse landowners can explore.

Examples include: 

  • Becoming a landlord
  • Developing infrastructure
  • Hosting virtual events
  • Integrating advertisements
Heat Map of The Sandbox – CFTE

Land ownership gives the user the ability to explore multiple revenue streams, the most obvious being as a landlord that rents the land out to developers or other users. The idea of hosting digital events inside the metaverse is also an arising concept, just like the Travis Scott concert held entirely on Fortnite that saw 27 million users attend.

Summary

The metaverse real estate boom has showcased the increasing demand for both users and companies to secure their own parts of the arising metaverse space. While individual land parcels are still highly speculative in relation to their prices, the overall trend of institutional investment into metaverse real estate shows that the trend is real.