# 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.
{% 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. 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
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. 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 application*?* The industry overlooks the fact that dApps, Rollups, and L2s lack meaningful decentralization and autonomy, making them not significantly different from Web2 in practice.