Blockchains and the emergence of the web3 ecosystem have promised to disintermediate centralized institutions, replacing them with user owned decentralized networks. Designed to be permissionless and censorship-resistant, blockchain networks’ raison d’être is to empower the individual and rebuild our financial institutions from the ground up.
Built for the people, owned by the people, and governed by all. At least, that is the vision perpetuated by developers and proponents of nascent open source protocols that are just starting to see initial glimmers of mainstream adoption.
However, the main gateways by which developers and users are able to access on-chain data have been captured by a small cohort of centralized service providers. These gateways are crucial for decentralized applications to check the state of the network, communicate with other applications, broadcast transactions, and perform any other type of designated on-chain activity.
This phenomenon has led to risks underappreciated and largely ignored by the broader web3 community.
The Remote Procedure Call (RPC) protocol is a mechanism that enables programs to execute procedures or functions on a remote server as if they were local. This concept has been essential for distributed computing, allowing applications to communicate seamlessly across different machines.
These communication protocols were first developed and implemented by leading companies such as Microsoft during the Dotcom boom of the 1990s. Emerging blockchain networks have implemented similar RPC methods for developers and users to interact on-chain through distributed nodes.
If a user holds ether on her non-custodial Metamask wallet and decides to swap her ether for another asset, bridge it over to a layer-2 network, purchase an NFT or access a loan through a DeFi lending application, all of these actions rely on the smooth functioning of the wallet’s, DEX’s, bridge’s and lending platform’s respective RPC node infrastructure.
If these nodes fail to operate, then access to the network and the data needed to support these transactions would be unavailable, rendering those applications unusable.
A Brief History of RPC Protocols
The idea of remote procedure calls can be traced back to the 1970s when computer scientists were exploring ways to enable communication between processes on different machines. The goal was to make distributed computing more transparent to developers.
The concept gained popularity in the 1980s with the development of the Network File System (NFS) by Sun Microsystems. Sun introduced the Open Network Computing Remote Procedure Call (ONC RPC) protocol, which became a widely used standard for communication between programs on a network.
Microsoft also developed its implementation of RPC as part of the Distributed Computing Environment/Remote Procedure Call (DCE/RPC) for Windows in the early 1990s. This technology played a crucial role in enabling communication between processes on Windows-based systems.
In the 2000s and running into the present, JSON-RPC, a lightweight remote procedure call protocol using JSON for data encoding, and Representational State Transfer (REST) have gained popularity, especially in web development. These approaches are simpler than traditional RPC mechanisms and are widely used in building web APIs.
JSON and REST persist as the dominant RPC protocols for both web2 and web3 development today.
Web3 Infrastructure Status Quo
At the start of web3 development, centralized RPC providers offered easy access to nodes and the tools to launch their applications quickly and efficiently. However, centralized systems are burdened with unsustainable costs and act as single points of failure by nature, posing security and reliability challenges.
For developers seeking to launch their first blockchain-based applications, they have the choice of running their own nodes or using a third party RPC node provider. Since it requires significant capital and technical expertise to hire developer operations (devops) engineers and maintain servers to run nodes, most developers choose to use RPC providers.
The closest analogy for these providers are web2 cloud hosting service providers such as Amazon Web Services (AWS), Microsoft Azure and Google Cloud (GCP). Whereas AWS and GCP offer cloud computing resources for websites and mobile applications, web3 RPC providers maintain node infrastructure for decentralized applications. A few of the market leading providers include Alchemy, Infura and QuickNode.
Ironically, these providers themselves are reliant on web2 cloud hosting providers to maintain their own server infrastructure, and the web3 space still sees regular outages whenever the large cloud providers experience downtime.
Similar to the web2 landscape, web3 RPC providers exhibit an oligopoly market structure, in which a few centralized providers dominate the industry. RPC nodes-as-a-service is an increasingly commoditized business, and the only way to succeed is to consolidate the market. Greater market share by a few competitors allows for economies of scale to drive down the price to win and maintain more market share for the first movers. This causes a vicious cycle of compounded centralization.
In fact, Metamask, the largest consumer-facing EthereumETH wallet with over 30 million active users, is entirely reliant on Infura as its sole RPC provider. Metamask and Infura have a close relationship as they are both products incubated within the blockchain venture studio ConsenSys. Infura experienced major outages in 2022 and 2020, causing Metamask and other top dApps to be nonfunctional.
Centralized infrastructure, either among RPC providers or the underlying cloud services they rely on, is susceptible to other risks such as the coercive attacks of governments and nation states. If a government unilaterally decides to prevent DeFi applications from operating within its borders, it can easily force the providers to disable service to those applications or throttle their access to blockchain networks.
Additionally, the leading centralized RPC providers all currently censor transactions from OFAC sanctioned addresses, defeating the censorship resistance critical to the value proposition of blockchain networks.
Clearly, this is not how the web3 ecosystem will build truly unstoppable, incorruptible and open applications.
Enter Decentralization
To address these centralization risks, decentralized RPC node providers have emerged. A few of the most popular decentralized alternatives include Ankr, Lava Network, dRPC and Pocket Network.
Launching its mainnet in 2020, Pocket Network was one of the first providers to attempt to create an open network of RPC nodes. POKT is the network’s native token, which serves as the mechanism to align incentives and compensate node operators.
Although the network’s growth has been impressive reaching about 35 billion monthly requests, this growth has been largely subsidized by new issuance of the POKT token, a model that may prove to be unsustainable. In fact, 97% of total node revenue on the platform is attributed to newly minted token rewards.
Pocket Network’s POKT token is 93% off its all-time high of $3.10, largely due to its high inflation rate. However, it has exhibited explosive price growth in recent months, gaining over 900% since its cycle bottom of $0.021 in September 2023. This recent price appreciation may serve as an adoption tailwind for the network over the coming months.
Even one of the centralized market leaders, Infura, flagged centralization as a major risk to the space, and indicated it is making steps towards launching its own distributed RPC node network, called DIN (Decentralized Infrastructure Network). However, this network is only expected to launch in 2025. Too little, too late?
In early 2023, P2P.org, a major player in web3 staking, collaborated with ~20 trusted web3 infrastructure providers to unveil dRPC.org, presenting a unique approach to decentralization. dRPC has established a network of providers offering high-performance nodes strategically distributed across various geographical locations.
Notably, dRPC abstained from managing its own nodes, focusing on software development and the creation of its load balancing system. In this model, providers maintain their nodes, and an automated rating system selects the optimal candidate to fulfill users’ requests. Equally significant is dRPC’s strategic decision to refrain from launching a token, relying instead on organic growth to compensate the providers within the network.
Compared to other decentralized providers mentioned above, dRPC may not be as decentralized as it takes a “permissioned” approach. To join the network, providers must demonstrate they meet certain quality and performance thresholds, operating nodes with low latency and high uptime. This manual approval process sacrifices a degree of decentralization in favor of performance.
Ultimately, the market will dictate which model of decentralization will succeed in the long run, especially as crypto networks and applications face ever larger existential threats.
Discloser: author is an employee of dRPC
RPC providers launching decentralized node networks and developers building on top of them should consider the following criteria to optimize for resilient web3 infrastructure. These considerations include pricing and incentive models to compensate providers (token issuance vs. organic usage), node performance (low latency and high availability), geographical diversity of the nodes’ locations, diversity among node client software (i.e. Geth, Erigon, Nethermind), and diversity of the underlying tech stack of their providers (i.e. AWS, Azure, GCP, bare metal servers, etc.). Focusing on these aspects of anti-fragility and resilience will best position the web3 ecosystem to withstand any coming challenges.
We find ourselves at the outset of a significant transition from centralized to decentralized infrastructure. Reflecting on the developments of 2023, it’s evident that an increasing number of web3 stakeholders grasp the inherent value of these solutions. This evolution is poised to play a crucial role in onboarding the next billion web3 users, fulfilling the promises that the ecosystem has advocated, all while preserving the essence of decentralization.
Disclosure: Author is an employee of dRPC, one of the companies discussed in the article
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