# Background & Industry State

### The First Blockchain

In 2009, **Bitcoin** created the first blockchain that implemented a peer-to-peer digital payment network. This system was foundational and marked the beginning of the "web3" industry. While revolutionary, implementing blockchain technology has high barriers in practice:

1. It must be prohibitively expensive to take control of the network, which often requires significant capital to be raised to 
2. The tech is complex and requires a deep understanding to avoid execution failures
3. Adoption requires a rich ecosystem with developer tooling and liquidity paths
4. The operation requires diverse, experienced Validators to avoid centralization
5. The chain needs interoperability features to avoid community isolation

{% hint style="info" %}
To read more about the challenges of building an L1 - checkout: [The cost of independence](https://canopy-network.github.io/whitepaper/The%20Blockchain%20Incubator%20Model_%20Bridging%20Dependent%20Applications%20to%20Autonomous%20Networks.pdf)
{% endhint %}

### Defining a Blockchain

A blockchain is a **shared digital state** that is maintained by a group of **independent participants** called **Validators**. Transactions that update this state are grouped into **blocks** and **chained** together sequentially.

To determine the next block, Validators participate in **Consensus**, where they validate and finalize transactions together **without trust**. This process repeats every **block time**, ensuring the blockchain continues to grow in a secure and fraud-proof way.

{% hint style="info" %}
Click [here](https://www.ibm.com/think/topics/blockchain) for a comprehensive definition of a blockchain
{% endhint %}

#### Why build a blockchain?

Since no single party controls the network, a blockchain is **decentralized**; its rules and operation are enforced by the stakeholders rather than a central authority.

Key properties of decentralization include:

1. It cannot be censored or controlled by non-stakeholders
2. It self-governs and operates autonomously
3. It has no single point of failure

These properties are ideal for applications that need to be trusted by the public and tamper-proof, like payment systems, media platforms, and governance applications.

<figure><img src="/files/swTvb2lGUNqcx11W67wN" alt=""><figcaption></figcaption></figure>

{% hint style="danger" %}
The distinction between a Web2 app and a blockchain app is decentralization, along with its inherent benefits. Without decentralization, a blockchain app offers no significant advantages over a centralized web app.
{% endhint %}

#### Dependent Applications

In 2013, **Ethereum** attempted to solve the difficulties of building a blockchain by introducing a network that could support digital accounts capable of executing 'code' and storing 'state'. This innovation enabled the creation of apps hosted on blockchain, commonly known as dApps or Smart Contracts.&#x20;

Ethereum was able to make blockchain technology more accessible to developers by abstracting away the challenges involved with launching an L1. In doing so, it became the first **Security Root**: a chain that provides consensus, security, and communication for **Nested apps**.

{% hint style="info" %}
For a more comprehensive history, check out the [history section](https://canopy-network.github.io/whitepaper/The%20Blockchain%20Incubator%20Model_%20Bridging%20Dependent%20Applications%20to%20Autonomous%20Networks.pdf) in our paper
{% endhint %}

### Problematic Impact

However, Ethereum's success had some unintended consequences for the industry:

* **Dependent apps** were accepted as decentralized 'enough' - despite reliance on host chains
* **Security is** greatly centralized, as Ethereum is one of the few security roots
* **Innovation** was directed at dependent apps instead of independent networks
* **Sovereign** blockchains became increasingly rare
* **Layered** architecture became the default paradigm
* **Host** protocols trapping projects in their ecosystem became the norm

<figure><img src="/files/vJsLvyaKQRMd7VfjPSo1" alt=""><figcaption></figcaption></figure>

Because **Ethereum** exists as one of the **few** security roots for Web3, it quickly ran into scalability issues. These issues exploded in 2017 when a [game about digital cats](https://www.cryptokitties.co/) overwhelmed the network, bringing Ethereum and its apps to a halt.

{% hint style="warning" %}
⚠ CryptoKitties was not an isolated incident! Check out the full story in the [Canopy whitepaper](https://canopy-network.github.io/whitepaper/The%20Blockchain%20Incubator%20Model_%20Bridging%20Dependent%20Applications%20to%20Autonomous%20Networks.pdf)
{% endhint %}

The critical failure of 2017 ultimately led to the creation of **layered** technology (L2s/Rollups), which are dependent frameworks that host dApps to offload the weight of new applications.&#x20;

However, **dApps** and **layered technology** are not acceptable choices for a builder because:

| Aspect           | Consequence                                           | Notes                                                                                         |
| ---------------- | ----------------------------------------------------- | --------------------------------------------------------------------------------------------- |
| Censorship       | Can be censored by the host protocol                  | Non-aligned validator introduce potential censorship                                          |
| Sovereignty      | Lack true autonomy                                    | Dependent on the host                                                                         |
| Centralization   | Have single points of failure                         | The host protocol and/or sequencer introduces points of failure/censorship                    |
| Value Loss       | Lose value to the host protocols                      | Value leakage comes in the form of forever fees, lack of value accrual to native tokens, etc. |
| Interoperability | Lack native interoperability with external ecosystems | Recent protocols have mitigated this, but few do it well.                                     |
| Lock-in          | Are trapped                                           | Escape requires a ground-up rebuild.                                                          |
| Scalability      | Limited scalability                                   | Scalability is constrained by the host. Apps are in constant competition for scalability.     |
| Governance       | Are controlled by the host                            | Lack complete governance independence                                                         |

{% hint style="warning" %}
These weaknesses are not just theoretical: Read about the [Ethereum censorship of Tornado Cash in 2022](https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1112.pdf?sc_lang=en)
{% endhint %}

These flaws expose a fundamental question: What makes a dApp or Rollup better than a Web2 applicatio&#x6E;*?* The industry overlooks the fact that dApps, Rollups, and L2s lack meaningful decentralization and autonomy, making them not significantly different from Web2 in practice.


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