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Placeholder: The modular revolution of Web3, shifting from capital expenditure to operational expenditure.

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Virtual blockchain may become the default backend infrastructure for all online applications, as blockchain and smart contract interfaces replace Web2's 'cloud and API' paradigm.

Original Title: "Virtual Blockchains In The Modular Era"

Original Author: Joel Monegro, Placeholder

Translated by: Luccy, BlockBeats

Editor's Note:

After the burst of the Internet bubble in 2000, APIs flourished, and the Internet industry shifted from purchasing servers and building data centers (capital expenditures) to renting from the cloud (operating expenditures). This is the abstraction of Web2 infrastructure, where modern web applications do not run directly on physical servers, but rather in simulations of servers, i.e. virtual machines.

Web3 infrastructure is now following a similar path by inventing rollups, allowing them to run multiple "virtual blockchains" on top of them. The first wave of Rollups was mainly composed of "faster Ethereum" services. However, the flexibility provided by modular architecture makes virtual blockchains particularly suitable for creating application-specific environments or networks tailored to specific ecosystems, industries, or geographic locations.

Joel Monegro, Managing Partner at Placeholder, delves into the importance of modularity in the blockchain space. By abstracting common elements and creating standardized components, it is possible to lower startup costs, accelerate product launches, and drive the industry towards greater flexibility and scalability. This abstraction makes it easier to build more complex applications, achieves a shift from capital dominance to operation-driven cost structures, and enables new products to be launched more quickly and with lower startup costs.

The pioneers of new technologies must raise a large amount of capital to establish infrastructure, which may lead to overinvestment and speculative bubbles. When these bubbles burst, weaker companies will go bankrupt, and market forces will concentrate around industry leaders and their paradigms. Through this integration process, we can identify common elements in applications and isolate them into standardized, modular components that can be sold as open-source projects or separately. This abstraction makes it easier to build more complex applications and promotes a shift from capital expenditure dominance to operating expenditure dominance, enabling new products to be launched more quickly and at lower start-up costs. This pattern is now happening in web3, where new "modular" technologies such as rollups are accelerating development and ushering in a new era of lean startup innovation.

From Capital Expenditure to Operating Expenditure

With the technology infrastructure becoming more standardized and widely available, it has become more powerful and easier to use. However, before this, early entrepreneurs had to invest heavily in building their own infrastructure before they could distribute their applications, just like Edison invented the power grid to sell light bulbs, or early internet startups deployed data centers to run web pages. As the market matures, open standards and on-demand infrastructure services emerge, providing more efficient business models for companies that adopt them, as they do not need to spend too much time and money pushing products to market.

For example, after the bursting of the dot-com bubble in 2000, the internet industry shifted from purchasing servers and building data centers (capital expenditures) to leasing from the cloud (operating expenditures). Many open-source frameworks such as the LAMP stack, Ruby on Rails, Django, and NodeJS emerged to simplify web development, while industry leaders such as Microsoft, Amazon, and Google leveraged their scale to establish new standards and low-cost infrastructure services. This evolved in tandem with the API boom that began in the late 2000s, which largely simplified the complexity of the internet and provided professional backend functionality through a pay-as-you-go business model. Within the decade of the bubble burst, these abstractions enabled small teams to quickly and inexpensively build and scale new applications, accelerating innovation and driving the golden age of startups that defined the era.

Web2 infrastructure has become so abstract that modern web applications do not even run directly on physical servers, but rather in simulations of servers, known as virtual machines, typically packaged in containers that can be easily moved or replicated across multiple environments with minimal reconfiguration. This technology has helped scale Web2 by allowing a single powerful server to run many applications simultaneously, and making it easy to add or reduce computing resources to meet demand and control costs.

The concept of virtualization explains how infrastructure can become so abstract, but I emphasize it here because web3 infrastructure is following a similar path by inventing rollups. Similarly, rollups help to scale blockchains, enabling them to run multiple "virtual blockchains" on top of them.

Abstraction Level

Early blockchain startups had to build all the infrastructure themselves, including custom blockchain protocols, front-ends, wallets, SDKs, APIs, etc., just to get started. Smart contract networks like Ethereum reduced the need to build proprietary blockchains for many applications, but they impose important limitations on cost, programming conventions, and scalability, limiting the range of possible applications. More ambitious ideas require a flexibility and throughput that is often not available on public chains, so many of the most exciting applications cannot scale.

Platforms similar to Cosmos and Polkadot subsequently provided tools for creating custom blockchains with shared security and interoperability features, making it easier to launch secure chains. However, they still require a lot of resources and expertise to use, making them inaccessible to most developers. But just as more abstraction layers simplified the cloud, emerging L2 standards such as rollups enable developers to quickly and inexpensively deploy blockchain environments.

Rollups execute transactions and smart contracts off-chain, bundling the results of multiple operations into periodic, encrypted and verified transactions on the main blockchain, inheriting the security of the underlying network. This is similar to how credit card networks process many payments and settle them in weekly batch transfers to merchants. With this technology, a single blockchain can protect many higher-performance virtual blockchains at the same time, greatly increasing throughput capacity while minimizing transaction costs.

It is important to note that rollups are not blockchains, at least not in the sense that virtual machines are not actual machines. Rollups are virtual blockchains where smart contracts run in a simulated environment, just like on a real blockchain, without any knowledge of the abstraction. Rollups can be centralized in terms of performance, control, or compliance, as long as the operator settles outputs frequently on a trusted blockchain and has incentives to prevent data corruption. However, decentralization can also be achieved through the use of "shared sequencer" technology.

除了扩展之外，将「执行」层从「数据可用性」、「结算」和共识层解耦，为开发者提供了他们所需的灵活性，同时利用了主链的安全保障。例如，如果你不喜欢 Solidity 但想利用以太坊的安全性或生态系统，你可以将一个使用 Python 编程语言但在以太坊上结算的应用部署为一个 Rollup。开源框架如 OP Stack、ZK Stack、Polygon 的 CDK、Arbitrum 的 Orbit 或 Rollkit 等，已经让开发者能够轻松部署具有不同信任级别的定制 Rollup，而像 Espresso 和 Astria 这样的去中心化排序器项目则为需要时提供了去中心化执行层的选项。与此同时，越来越多的低代码「Rollup 即服务」（RaaS）产品，如 Dymension、Conduit、Caldera 和 Gelato，允许任何人在几分钟内启动定制的虚拟区块链。

Translation:

Aside from expansion, decoupling the "execution" layer from the "data availability", "settlement", and consensus layers provides developers with the flexibility they need while utilizing the security of the main chain. For example, if you don't like Solidity but want to leverage the security or ecosystem of Ethereum, you can deploy an application that uses the Python programming language but settles on Ethereum as a Rollup. Open-source frameworks such as OP Stack, ZK Stack, Polygon's CDK, Arbitrum's Orbit, or Rollkit have made it easy for developers to deploy customized Rollups with different levels of trust, while decentralized sorter projects like Espresso and Astria provide options for decentralized execution layers when needed. At the same time, more and more low-code "Rollup as a Service" (RaaS) products, such as Dymension, Conduit, Caldera, and Gelato, allow anyone to launch a customized virtual blockchain in minutes.

Through the development of common standards and services, the more extensive "modular movement" covers other areas of the stack, further reducing the cost of building and expanding blockchain applications. Ethereum's EVM dominates the "operating system" of smart contracts, while Solana's SVM is rapidly emerging as a high-performance alternative (both can be used in independent rollups). Protocols such as POKT standardize the RPC/API layer between networks, while platforms like Syndicate abstract all the complexity of building complex blockchain applications behind a simple API that any developer can use. Frameworks like Polywrap abstract multiple protocols into a single frontend SDK; bridges like Across allow liquidity to flow between networks, while wallet standards like SAFE or Squads and "Wallet as a Service" (WaaS) companies like Magic make it easy to create custom wallet experiences for any on-chain user. There are even a batch of new L1s, such as Celestia, built specifically for virtual blockchain environments.

Millions of Virtual Blockchains

The current strategy of Web3 startups is to first launch on high-performance, low-cost networks (such as Ethereum L2 or Solana), and focus on migrating to custom, application-specific environments if larger scale is needed. Even existing protocols that have built their own chains, such as Celo or POKT, are also turning to L2 architecture to simplify their infrastructure costs, echoing the era of internet companies adopting the cloud for business needs after owning data centers. If you don't embrace new changes, you are vulnerable to threats from competitors who embrace change.

Many people believe that applications running on high-throughput networks, such as Solana, can achieve "web scale" without L2, but they greatly underestimate what "web scale" means, as most activities on the internet happen in the background. Every click you make triggers hundreds of hidden HTTP requests; loading Twitter alone triggers over 300 background requests to different APIs and service providers in less than 2 seconds, and that's just one user's single action. Achieving web scale means millions of transactions per second for every application, and even then, it's not enough if internet demand increases by a million times. Virtualization is necessary to achieve this scale, but we also need ultra-high-performance L1 underneath it. In addition, blockchains that optimize data availability throughput, such as Celestia, and high-performance networks like Solana and Monad, have the potential to become interesting testbeds for rollups.

However, scalability is not the only reason why virtualization is important for blockchain. Virtualized blockchains are a powerful standard for Web3 generation online services. The first wave of Rollups was mainly composed of "faster Ethereum" services. However, the flexibility provided by modular architecture makes virtualized blockchains particularly suitable for creating application-specific environments or networks tailored to specific ecosystems, industries, or geographic locations. You can also create "virtual private blockchains" for use cases with strict access control or compliance requirements. The bigger idea is that virtualized blockchains may become the default backend infrastructure for all online applications, as blockchain and smart contract interfaces replace the "cloud and API" paradigm of Web2.

We will delve deeper into these ideas in future articles, but from a business perspective, the most important point I want to emphasize is that modularity represents a shift in web3 from capital expenditures to operating expenditures, which means we can expect the next generation of blockchain applications to rapidly expand. Operating expenditures mean that costs increase as growth occurs, rather than being paid upfront through large-scale capital raising before launch. This means that entrepreneurs can iterate faster, applications can expand at lower costs, and investors can fund businesses with less risk. Just like the internet after the dot-com bubble, this is the best condition for entrepreneurship and innovation in the crypto industry.