Written by Jean-Luc Shorey, or @JeanLuc_Koji on Twitter.
Global venture capital (VC) funding reached an all time high in November 2021. Last year saw a sharp increase in VC funding - which saw a doubling in capital funding in some months compared to its 2020 counterpart. Early 2022 saw the start of a decline in all types of VC funding - reducing in line with a global drawdown in equity valuations. Interestingly, however, funding of crypto projects bucked this trend. Funding for crypto projects soared to an all time high with firms embracing the Web3 narrative, driven by a search for premium yields (previously earned by early adopters).
DAOs, NFTs, metaverses, and DeFi entered the common vernacular, becoming buzzwords of 2021, as investors turned their focus to understanding these novel applications of blockchain technology. This entrance into the market may have proved poorly-timed for some with the recent market downturn. Specifically, the fallout associated with the collapse of the Terra-Luna ecosystem.
Irrespective of the recent downturn, it is important to analyze the paradigm shift in VC funding we’ve seen over the last 12 months and understand the underlying forces that drove this shift.
In the simplest of terms, Blockchains are a set of virtual computers agreeing on the same set of actions, and following the same rules. The set of rules they follow is commonly referred to as a consensus algorithm, with valid actions according to a virtual machine.
Inevitably, this leads to an unavoidable situation wherein Blockchains and the data they store are siloed from the outside world. Therefore, any interaction they have with an external data source introduces additional trust assumptions. The data that is available natively on-chain is held entirely by full nodes ‘running’ the blockchain. Where archival nodes are expected to store historical blockchain data and historical state changes, full nodes manage the current state of the blockchain. In addition, full nodes serve the chain data upon request to the agents that wish to interact with the blockchain.
This additional responsibility of full nodes is the central source of the “data availability” problem. In brief, when a new block is posted to the chain, how can full nodes be certain that the data is: