Blockchain is Not a Backend: What Not to Expect from Blockchain
The features of Web3 applications and what not to expect from them compared to backend capabilities
This article serves as a heartfelt appeal born from our extensive experience working with various products in the blockchain domain. We often encounter a significant challenge: clients not fully understanding the strengths and weaknesses of deploying products on Web3, and the fact that blockchain applications cannot do everything a traditional backend and database can. This misunderstanding can lead to unrealistic expectations for the final product. Through this article, we aim to clarify these nuances for future founders, making the capabilities and limitations of blockchain technology transparent.
Introduction
Blockchain technology has swiftly transitioned from a novel concept to a foundational element in the digital transformation of various industries. At its core, blockchain offers a revolutionary approach to data management and security, fundamentally distinct from traditional backend technologies. Unlike conventional databases that rely on a centralized structure for data storage and management, blockchain operates on a decentralized network. This architecture ensures data integrity, transparency, and security by distributing identical copies of the database across multiple nodes, making unauthorized data alteration nearly impossible.
The implications of blockchain extend far beyond its initial cryptocurrency applications. Today, it underpins a wide range of decentralized applications (DApps) that promise to redefine business models, governance systems, and value exchange without intermediaries. This decentralization brings about unparalleled levels of trust and security in data transactions, attributes that are increasingly crucial in a digital age characterized by data breaches and privacy concerns.
However, the transition from traditional backend systems to blockchain is not without its challenges. Blockchain's unique characteristics, such as its consensus mechanisms and the way it handles data storage and transactions, present a steep learning curve for founders and product owners. For instance, the concept of gas fees for transactions, the immutable nature of data on the blockchain, and scalability issues are critical considerations that significantly impact project development, operational costs, and user experience.
Understanding these differences is crucial for anyone looking to leverage blockchain technology in their projects. Founders and product owners must not only grasp the technical nuances of blockchain but also appreciate its potential impact on business models, user engagement, and the broader ecosystem in which they operate. This understanding will enable them to make informed decisions about when and how to incorporate blockchain into their projects, ensuring that they harness its benefits while mitigating potential drawbacks.
As we delve deeper into the blockchain landscape, this guide aims to equip founders and product owners with the knowledge needed to navigate this complex yet promising field. By highlighting the revolutionary potential of blockchain alongside its fundamental differences from traditional backend technologies, we set the stage for a comprehensive exploration of how to effectively integrate this technology into future projects.
Understanding Blockchain: Beyond the Backend
Blockchain technology, at its heart, represents a paradigm shift in how information is recorded, stored, and shared across a digital ecosystem. Unlike traditional backend systems that centralize data storage and management within a single entity or location, a blockchain is a distributed ledger technology (DLT) that disperses this data across numerous nodes in a network. This fundamental difference not only redefines data management practices but also introduces a new level of security and transparency previously unattainable with centralized systems.
A blockchain is essentially a chain of blocks, where each block contains a number of transactions or records. These blocks are linked together using cryptographic principles, ensuring that once a transaction is added to the chain, it is nearly impossible to alter or delete. This immutability is one of blockchain's core features, providing a verifiable and permanent record of transactions. In contrast, traditional databases can be modified or deleted by the database owner or if security is compromised, leading to potential data tampering or loss.
Decentralized Applications (DApps) are software applications that run on a blockchain or P2P network of computers instead of a single computer, leveraging the technology to decentralize data or operations. DApps are often open-source, operate autonomously, and have no central authority that oversees their function. This is a stark departure from traditional applications, which operate on centralized servers where a single entity has control over the app's functioning. DApps utilize smart contracts, self-executing contracts with the terms of the agreement directly written into code, to automate processes and transactions without the need for intermediaries.
The role of blockchain as an immutable, distributed ledger brings several advantages over conventional databases, particularly in terms of data management and security:
Decentralization
By distributing data across a network rather than storing it in a central location, blockchain eliminates single points of failure, making it more resilient to cyberattacks and data losses.
Transparency
With blockchain, all network participants have access to the same data, ensuring transparency and trust. In contrast, traditional systems often operate in silos, with data visibility restricted by organizational boundaries.
Security
The cryptographic linking of blocks makes the blockchain incredibly secure. Altering any single record would require changing all subsequent blocks and the consensus of the network, which is practically unfeasible. Traditional databases, however, are more vulnerable to hacking and unauthorized alterations.
Integrity and Trust
The immutability of the blockchain ensures that once data is entered, it cannot be altered or deleted. This creates a trustworthy environment where transactions and data are permanently recorded, providing a single source of truth.
Understanding these distinctions is crucial for founders and product owners considering blockchain for their projects. While blockchain offers significant advantages in security, transparency, and decentralization, it also requires a shift in thinking about data management, interaction, and the architecture of applications. This shift opens up new possibilities for innovation but also necessitates a thoughtful approach to integrating blockchain into existing systems and processes.
Key Considerations for Blockchain Projects
When embarking on blockchain projects, it's crucial for founders and product owners to consider several key factors that can significantly impact both the feasibility of the project and the user experience. Among these, scalability and transaction costs, data parsing and storage, and the limitations of smart contracts are paramount.
Scalability and Costs
Blockchain technology, particularly when it comes to public blockchains like Ethereum, faces scalability challenges. The number of transactions the network can process per second is limited, which can lead to congestion and higher transaction fees, known as gas fees in the Ethereum ecosystem. These fees fluctuate based on network demand, and during peak times, they can become prohibitively expensive, affecting both the feasibility of running blockchain-based applications and the user experience.
For example, a DApp that requires frequent transactions would be costly to operate during periods of high demand. This scalability issue is a significant barrier to adoption, as it can limit the types of applications that are viable on a blockchain. Projects need to consider these costs carefully, exploring scalability solutions like layer 2 rollups or sidechains, which can process transactions more efficiently and at lower costs.
Data Parsing and Storage
Another consideration is the challenge of parsing and storing large volumes of data from the blockchain. Blockchain's immutable nature means that all transactions are recorded on the chain, leading to a vast amount of data over time. For projects requiring analytics or the retrieval of historical data, parsing this information can be resource-intensive and slow, especially if the data is stored on a public blockchain where transactions per second are limited.
Moreover, storing large datasets directly on the blockchain can be impractical and expensive. Instead, many projects opt for a hybrid approach, storing large data sets off-chain and using the blockchain for verification purposes. This method requires a careful balance, ensuring data integrity and accessibility while managing costs and efficiency.
Smart Contract Limitations
Smart contracts are self-executing contracts with the terms of the agreement directly written into code. While they are a powerful feature of blockchain, enabling automation and decentralized decision-making, they also have limitations. One significant limitation is their inability to perform complex mathematical operations efficiently due to the gas costs associated with executing these operations on the blockchain. Moreover, there's a block gas limit, which caps the amount of computational work that can be done in a single block, further restricting what can be realistically implemented on-chain.
This limitation impacts the design of DApps, as developers must carefully consider the complexity of the operations they intend to execute within smart contracts. In some cases, it may be necessary to perform complex computations off-chain or design smart contracts to minimize computational requirements, ensuring that the application remains viable and cost-effective.
Understanding and navigating these considerations are crucial for the successful development and deployment of blockchain projects. Founders and product owners must balance the unique benefits of blockchain technology—such as decentralization, security, and transparency—with its inherent limitations. By carefully planning for scalability and costs, optimizing data parsing and storage strategies, and understanding the limitations of smart contracts, projects can leverage blockchain technology effectively while providing a positive user experience.
Combining Blockchain with Traditional Backend Solutions
Integrating blockchain technology with traditional backend solutions can offer the best of both worlds—leveraging the security, transparency, and immutability of blockchain while maintaining the scalability and efficiency of conventional databases. This hybrid approach can address many of the limitations inherent in using blockchain technology in isolation, such as high costs, scalability issues, and the complexity of data management. Here are some strategies and examples of how to effectively combine these technologies for enhanced efficiency and functionality.
Hybrid Models for Efficiency
A hybrid model typically involves using blockchain for critical operations that benefit from decentralization and immutability, such as transactions, identity verification, or supply chain tracking, while relying on traditional databases for heavy data processing, complex queries, and storage-intensive tasks. This approach allows projects to capitalize on the strengths of blockchain where it adds the most value, without being constrained by its limitations.
Example: A supply chain management application could use blockchain to record the provenance and transfer of goods, ensuring transparency and tamper-proof records. Simultaneously, it could use a traditional database to manage inventory levels, perform complex analytics, and handle user interfaces—operations that require speed and efficiency.
Data Management Strategies
Efficient data management in a hybrid blockchain model often involves using off-chain storage for large datasets, with on-chain pointers or hashes to ensure data integrity. This method allows for the storage of vast amounts of data without incurring the high costs associated with on-chain storage, while still leveraging the blockchain for verification and trust.
Strategies:
Off-Chain Storage with On-Chain References: Store data such as documents, images, or extensive transaction histories in a traditional database or a decentralized file storage solution like IPFS (InterPlanetary File System), and keep a hash of this data on the blockchain. This hash serves as an immutable reference to verify the data's integrity without storing it directly on the chain.
Layer 2 Solutions: Use layer 2 scaling solutions for data management, which can process transactions off the main blockchain (layer 1), significantly reducing costs and increasing transaction throughput. Periodically, the results or state changes can be recorded on the main blockchain.
Cost-Effective Analytics
Performing analytics directly on blockchain data can be prohibitively expensive and technically challenging due to the nature of decentralized storage and the cost of reads/writes. Solutions like The Graph or other blockchain data indexing services can provide cost-effective analytics by indexing blockchain data and making it queryable via a GraphQL API or similar interfaces.
Solutions:
The Graph: This service allows developers to build and publish open APIs, called subgraphs, that applications can query using GraphQL. By indexing blockchain data, The Graph enables efficient, real-time data retrieval without the high costs of on-chain operations.
Blockchain Data Indexing Services: Similar to The Graph, there are other services that index blockchain data to make it easily accessible for analytics purposes. These services provide APIs that allow for the efficient querying of blockchain data, enabling complex analytics without the direct computational and financial costs of on-chain processing.
By adopting these hybrid models and strategies, projects can significantly enhance the efficiency, scalability, and cost-effectiveness of blockchain applications. This approach not only mitigates some of the key challenges associated with blockchain technology but also opens up new possibilities for innovation and value creation in the decentralized ecosystem.
Real-World Applications and Case Studies
The integration of blockchain technology with traditional backend solutions has led to the development of innovative projects across various industries. By navigating the challenges of scalability, costs, and data management, these projects have demonstrated the potential for blockchain to enhance security, transparency, and efficiency. Below are case studies of successful blockchain projects that highlight their strategies for overcoming these challenges and achieving optimal results.
1. DeFi Protocol: Compound
Background: Compound is a decentralized finance (DeFi) platform that enables users to earn interest on their cryptocurrencies or borrow against them without a traditional financial intermediary.
Challenge: The platform needed to manage high transaction volumes and ensure data integrity while providing a user-friendly experience.
Solution: Compound uses smart contracts on the Ethereum blockchain to automate its lending and borrowing processes, ensuring transparency and security. To address scalability and high gas fees, Compound integrates layer 2 solutions and off-chain computations for complex calculations and queries, resorting to the blockchain primarily for final settlement and record-keeping. This approach allows Compound to offer fast, cost-effective services without compromising on the benefits of decentralization.
2. Supply Chain Management: VeChain
Background: VeChain is a blockchain platform designed to enhance supply chain management and business processes. Its goal is to streamline these processes and information flow for complex supply chains through the use of DLT.
Challenge: Supply chain management requires the processing of vast amounts of data, including tracking and verifying the authenticity of products across a global network.
Solution: VeChain combines blockchain technology with traditional data management systems to offer a robust solution for supply chain management. It uses blockchain to securely record the movement and authenticity of products at various points in the supply chain. Simultaneously, it employs traditional databases for handling extensive data analytics and storage, using blockchain hashes to ensure the data's integrity. This hybrid approach has enabled VeChain to significantly improve transparency, efficiency, and trust in supply chains.
3. Identity Verification: Civic
Background: Civic is a blockchain-based identity verification platform that provides businesses and individuals with the tools to control and protect personal identity information.
Challenge: Identity verification requires a delicate balance between accessibility and the protection of sensitive information, all while maintaining user privacy.
Solution: Civic uses blockchain to create a decentralized identity verification system where personal information is encrypted and stored on the user's device, not on a central server or the blockchain. The blockchain records attestations to this information without exposing the information itself. For larger data storage and complex processing tasks, Civic relies on traditional technologies, ensuring that the blockchain is used primarily for verification purposes. This model enhances security and privacy, reducing the risk of data breaches while allowing for efficient identity verification processes.
4. Media and Entertainment: Audius
Background: Audius is a decentralized music streaming platform that aims to give more power back to artists and fans, cutting out middlemen in the music industry.
Challenge: Streaming platforms require the ability to handle large datasets and files, ensuring quick access and data integrity, all while maintaining a fair distribution of revenues.
Solution: Audius leverages blockchain technology to manage copyrights and direct transactions between listeners and artists, ensuring transparent and fair compensation. For storage of large audio files and metadata, Audius utilizes a decentralized network, with blockchain serving as the ledger for transactions and copyright ownership. This approach allows for scalable data management while harnessing blockchain's benefits for secure and transparent operations.
These case studies demonstrate the versatility and potential of combining blockchain with traditional technologies to address specific industry challenges. By leveraging the strengths of both, these projects have been able to enhance their offerings, providing solutions that are secure, transparent, and efficient.
Conclusion
By setting realistic expectations and understanding the unique challenges and opportunities presented by blockchain technology, founders can navigate the Web3 space more effectively. This balanced approach ensures that blockchain projects are both innovative and practical, maximizing their potential while minimizing inefficiencies and resource consumption.
Whether we like it or not, the insights shared in this article are essential considerations for any blockchain application development project. Ignoring these advisories could lead to an inefficient product that consumes an unacceptable amount of resources or fails to function correctly. It is my hope that this article has illuminated the often-misunderstood aspects of blockchain technology, clearing any ambiguities you may have had. Best of luck, and I look forward to our next encounter in a new article, dear founder!
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