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The Yellow Blockchain Road to Web3 Financial Networks

· 10 min read
Yellow DeFi

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The Yellow Blockchain Road to Web3 Financial Networks

  1. Comparison of Web Frameworks (Web1 vs. Web2 vs. Web3)
  2. Web 3.0 Application Architecture
  3. Solutions for Bridging the Gap between the existing Web2 and Web3 Applications

The World Wide Web, commonly known as the Internet, has evolved quite a lot in the last three decades. The Internet as we know it has developed in various phases, commonly referred to as Web 1.0, Web 2.0, and lately, with the addition of the crypto industry, Web 3.0.

Web 1.0 referred to the first version of the Internet and was generally used until 2000 until the elastic cloud infrastructure replaced it.

After that, the newer Web 2.0 framework came into existence, representing the version of the Internet we use today. Web 2.0, dominated by monopolistic GAFA (Google, Amazon, Facebook, Apple) companies, has become more prone to data monetization.

To mitigate these privacy issues Web 3.0 framework came into the picture, which aims to provide more security and anonymity when compared with Web 2.0.

The"Web 3.0" semantic framework is vastly different from Web 2.0, but most organizations are confused regarding its reliability and adoption.

This blog aims to clear out those differences and provide organizations with context through the below-mentioned points.

Web1 vs. Web2 vs. Web3

Web Generations Timeline

Web1 - How It All Started

  • Static Read-Only Web: Web 1.0 only allowed users to read and search information on websites
  • Static Content: Web 1.0 didn't offer any interactive features to change website behavior. The websites are primarily created to showcase information.
  • WebForms: Hosting servers during the Web 1.0 framework required users to submit a form to use email capabilities. There was no support for server-side scripting.
  • Website Files: Website content during the Web 1.0 phase was stored in the website files. There was no integration for databases.

Web 1.0 was the first phase of Internet evolution which provided hosting of static content on the world wide web. The whole web was read-only, and the publisher could only use the internet for displaying the information. No image uploads /attachments can be done, and only text mails are available for communication between users.

During the Web 1.0 phase, only a few creators had many users visit their static website information hosted on free or ISP-hosted servers. The static website pages were served through the server’s file system and consisted of tables and frames to organize and align the page contents.

Web2 - The Web We Live In

  • Dynamic Read-Write Web: Web 2.0 provides the ability to contribute and share content while interacting with other Internet users.
  • Corporate Centralized Web Applications: The ability to change website behavior during the Web 2.0 phase gave rise to centralized web applications such as Wiki, Web API, and SaaS such as Dropbox, etc.
  • Database Integration: Using database technologies in the Web 2.0 phase allowed secure and fast retrieval of information.
  • Web Technologies: For improved user experience, Web 2.0 used different web technologies such AJAX, CSS, and Javascript.

The Web 2.0 phase of internet evolution was associated with the hosting of interactive websites. The information available on these sites is writable, which means users can publish their content(stories, music, and video clips) and collectively retrieve or sort that information.

The Web 2.0 phase was primarily responsible for developing Youtube, Twitter, WordPress, and Facebook websites. It used advanced javascript engines to manage many users concurrently for functions like Video streaming, collaboration, and server data storage.

While Web 2.0 provides a giant leap forward in terms of online features and engagement, the framework has certain disadvantages. Web 2.0 utilizes centralized systems to host dynamic user content, which can be easily controlled by a single authority to meet their requirements. For example, Twitter as a centralized social network can censor or delete your tweet if it does not comply with their terms, or web services such as Amazon can compel you to adapt to host a particular feature of your web application.

Web3 - The Smart Decentralized Internet

  • Smart Read-Write-Execute Web: Web 3.0 will allow automated sharing, collaboration, content analysis, and execution of scripts based on keywords or numbers.
  • Smart Applications: Web 3.0 applications can understand the sentiment of information shared to provide more accurate and faster search results
  • Metaverse: As social distancing grows, rich virtual worlds replace modern collaboration models with enhanced virtual environments and economic systems for work and leisure.
  • Decentralized: Web 3 0 users do not require any centralized entity to regulate information on the web. There is no single point of failure which provides freedom from censorship and control
  • Blockchain: Web 3.0 will make use of decentralized protocols that use blockchain technology.
  • Token Economy: Blockchain-based Web 3.0 applications will make use of crypto tokens for operations.

Web 3.0 framework focuses on implementing decentralized systems, and when compared with Web 2.0, there is a difference in how the data is regulated. There are no centralized databases that will store confidential user data. Instead, the information is stored and maintained by anonymous nodes on the Internet.

The Web 3.0 framework is built on the blockchain network, maintained with public rules and consensus. No centralized entity can control these rules, and the network is collectively managed by the blockchain members.

Web 3.0 Application Architecture

Web 3 App Architecture

The architecture for a Web 3.0 application comprises of different blockchain layers :

Blockchain Layer

Blockchain is often referred to as the base layer, often referred to as Layer-1 or root chain. It is responsible for the basic functionality (state changes, mechanisms) of the blockchain network maintained by a network of nodes that follow a certain consensus. An essential property of the base layer is its immutability which means the data written on the root chain cannot be updated or modified.

Usually, a base layer is often connected to Layer-2, which provides scalability improvements to the main base chain. Having two different layers allows the blockchain network to handle large amounts of transactions while keeping the transaction costs minimal.

In reality, however, if we compare to the Web2 Internet transport, in Web3 applications, Blockchain functions as the Protocol layer, which brings us back to the Web3 architecture drawing board since technically Blockchain is not the Layer-1 most developers claim it to be.

Sidechain Layer

The sidechain layer often comprises Layer-2 (L2) solutions that work as an overlay network on top of the base layer. L2 solutions boost scalability by taking away most of the work from the base layer. The main base layer only takes part in operations when absolutely necessary, for example, in case of disputes.

There are various Layer-2 technologies available, such as nested blockchains and rollups (ZK rollups, Optimistic rollups), that mitigate the base layer limitations and significantly reduce the load on the root chain.

Smart contracts Layer

A smart contract layer consists of programs that run on the main blockchain and defines the logic behind the state changes happening on the network. The code for smart contracts is written using languages like Vyper and Solidity and stored on the blockchain.

State Channels Layer

A state channel layer(layer 3) works by creating a two-way communication channel between blockchain network participants, enabling them to interact on or off the blockchain. State channels can significantly cut down the transaction waiting time as they do not have to be verified by miners. Once the transaction set is done, the final state is posted to the main blockchain.

Application Layer

The application layer, aka the frontend of the application, is where the UI logic communicates with code defined in your smart contracts.

Current Web 3 Limitations

Web3.0 applications in the context of decentralization allow anyone to participate in the network, which is why many developers have chosen to build decentralized applications (dApps).

While there are many places where Web 2.0 services can be easily turned into a dApp, due to the limitations mentioned below, the Web 3.0 framework can become tough to adopt.

  • Scalability issues: Web 3 transactions are slower as information has to propagate across the entire decentralized network.
  • Complexity: Protocols for web3 applications are complex to implement and require extra steps and workforce.
  • Lack of control and moderation: There is no realistic way to reliably control and censor decentralized networks, which can become cumbersome to maintain and debug in case of faulty or malicious actors.
  • Expensive: Deploying a large amount of application code on the main blockchain can incur high transaction costs.

Bridging the Gap between Web2 and Web3 dApps via State Channels

Note these are general limitations that might not hold on every blockchain network. Still, wherever these issues exist, companies have to implement blockchain solutions that do not sacrifice decentralization while providing scalability, affordability, and ease of use.

But how do organizations implement these solutions?

That’s where State Channel tech comes in.

State-channel technology can bridge the gap between Web 2.0 and 3.0 applications by providing a standardized logic that allows the opening of communication channels between various parties on different blockchains. In this manner, the total load on the main blockchain gets reduced, enabling better scalability for legacy applications requiring high performance and output.

State Channels always work on decentralized networks, which means the applications can quickly implement blockchain systems while not sacrificing trust and safety.

Conclusion

Blockchain networks must be capable of exponential scalability to compete with established social and centralized payment processing systems.

The decentralized systems must incorporate State-channel technology solutions that combine the best of both decentralized (DEX) and centralized (CEX) worlds to provide ultra-high transactional output, security, and transparency.

Want to Learn More About Web3 and upcoming Internet of Finance technology?

If you'd like to learn more about Web 3.0 crypto technologies, High-Frequency Trading, State Channels, and non-custodial Blockchain-agnostic software technologies, we will be adding more stories to Yellow.org Blog as we unfold the technology.

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Follow the Yellow Blog for more updates, and make sure to stay in touch on Yellow Twitter, as we are working on something truly monumental to disrupt the crypto industry.

The latest development of the Yellow Group is a worldwide financial information exchange network combining order books of all participants, designed for the Web 3.0 Internet of Finance scale powered by state channels technology.

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