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As the blockchain ecosystem grows, so does the amount of data it contains and generates. As such, the challenge of storing, querying and retrieving data becomes exponentially more complex in a more fragmented and multi-layered landscape. However, necessity is the mother of innovation and the web3 community is rising to the challenge.
Here are four key trends currently shaping the web3 data segment and some ideas on how they could develop.
1. Data availability is the next frontier in solving the ethereum scalability trilemma
As the ethereum community has solidified its transition to a rollup-centric ecosystem, crypto/what-is-data-availability#:~:text=Data%20availability%20in%20crypto%20refers,transactions%20without%20relying%20on%20trust.” target=”_blank” rel=”noopener”>Data availability (DA) has come into the spotlight as the next challenge to solve the scalability trilemma. A network's validators rely on the availability of blockchain data to validate transactions, but block space on ethereum comes at a premium compared to many other platforms. ethereum's planned upgrade to proto-danksharding will go some way to addressing the issue, but implementation has been delayed until later in 2024.
Modular blockchains such as Celestia, Avail, and Eigenlayer DA have emerged to address the problem, providing a platform for rollups to publish transactions at a lower cost but with security guarantees similar to ethereum.
However, having data distributed on less tested blockchains can end up presenting risks. If a data layer fails to deliver accurate or timely data, the entire infrastructure of a dapp could collapse as all of the dapp's data will remain in that layer. Platforms will therefore be prepared to demonstrate that their offering is faster, more resilient, and has a verifiable ability to return valid data.
2. Data APIs become rivals to oracles
Getting data off-chain onto chain used to be one of the key challenges faced by blockchain developers. However, the rise of decentralized oracle networks like Chainlink offered a solution by creating a means by which a network of nodes could trustlessly verify off-chain data before adding it to the chain.
Decentralized APIs are now proving that a third-party oracle is no longer necessary to get data off-chain in a blockchain environment. A decentralized API service like API3 or Airstack provides access to on- and off-chain data such as transactions, nft metadata, social interactions, and more. Each data provider signs chain submissions as verification of their accuracy and authenticity.
These solutions offer distinct advantages over oracles, such as transparency of data sources, lower costs, and lower latency. Therefore, we can expect the rivalry between decentralized APIs and legacy oracle providers to increase in the coming months as both compete for the same audience of dapp developers.
3. Indexers overcome complexity
In recent years, the blockchain data landscape has become increasingly complex as the space grows. The expansion of dapp development and user activity to platforms such as Solana, Polkadot, and Cosmos was followed by an increasing prevalence of Layer 2 and data availability layers to support ethereum. While that growth is undoubtedly good news for the sector as a whole, it has led to greater fragmentation of blockchain data, making things more difficult for developers who rely on the availability of data from multiple ecosystems.
To further compound the problem, as web3 finds more and more use cases, it is increasingly common for not even all data to be stored on-chain. For example, many interactions on decentralized social networks like Farcaster do not occur on-chain, but instead data is stored in off-chain storage centers.
With increasing amounts of data being generated all the time, stored in multiple locations and layers, and often in a non-standard format, there is a growing need for reliable indexing services. Graph was one of the first to enter the market, has been active for three years and has taken several steps to move towards a more decentralized model. However, since an API (or “subgraph”) only works for a single chain, there are limitations for data users looking to leverage data from multiple chains and sources.
However, the project paved the way for its rivals, notably Subsquid, to enter the market with a decentralized, multi-chain data lake and query engine, giving developers and analysts seamless access to blockchain data. of the entire web3 sphere using a variety of programming languages.
Indexing is therefore another critical development area in the web3 data sphere, where projects will differ on factors such as multi-chain support, integration with other decentralized parts of the stack, speed, accessibility, and cost.
4. Enrollment Launches Produce Diminishing Returns
The launch of bitcoin Ordinals in February 2023 created one of the biggest shocks in a relatively quiet year. Ordinals allow data to be “written” into units of btc, allowing users to create their own fungible and non-fungible assets. In less than 12 months, more than 55 million entries were published. coined on the bitcoin blockchain, generating a significant windfall for miners and causing many other blockchain communities, including ethereum, Avalanche, and NEAR, to launch enrollments on their networks.
However, it seems likely that the future availability of enrollment functionality on smaller networks will follow the law of diminishing returns. On newer platforms that don't suffer from ethereum's legacy scalability issuers, there isn't necessarily any benefit to signing up instead of using established token standards, meaning the launches have little to sell beyond hype.
For bitcoin, ordinals are another chapter in the protracted Block Size Wars, which are unlikely to be resolved anytime soon. However, given continued enthusiasm for greater utility from the granddaddy of blockchains, signup-based traffic appears to be a key revenue driver for miners for the foreseeable future.
While advances in the scalability of ethereum and the utility of bitcoin have been positive developments for the web3 ecosystem, they have brought new challenges for data consumers. However, far from slowing down new advances, these challenges are giving rise to a new wave of innovation and creating healthy competition between pioneering projects to establish market share in their respective segments. In turn, dapp developers and users will benefit from the fruits of this competition, along with the options it offers.
