The pursuit of scalability in blockchain networks has spurred the emergence of Layer 2 solutions, aimed at overcoming the limitations of Layer 1 blockchains like Bitcoin and Ethereum. These Layer 2 networks offer enhanced transaction speeds, lower fees, and improved scalability by processing transactions off-chain and settling them on the main blockchain, thereby extending Layer 1’s capabilities while retaining their security features. This is a crucial technological step forward to bring blockchain technologies to mass adoption.
However, the emergence of Layer 2 solutions introduces a new set of considerations for startups. In addition to evaluating the characteristics of layer 1 blockchains, startups must now assess the compatibility, performance, and security of various layer 2 solutions. Layer 1 blockchains, such as Ethereum, Bitcoin, or other alternatives, typically have more distinct characteristics and features that developers can compare directly. Factors such as transaction speed, security, consensus mechanism, developer tools, and community support are relatively clear-cut and well-defined for layer 1 blockchains.
On the other hand, evaluating different layer 2 solutions can be more complex due to the variety of approaches and technologies involved. Layer 2 solutions, such as Rollups, State Channels, Plasma Chains, and Validiums, each offer unique trade-offs in terms of scalability, security, decentralization, and compatibility with layer 1 blockchains. Furthermore, the distinctions between these layer 2 solutions can sometimes be less apparent, requiring a deeper understanding of the underlying technology and its implications for specific use cases.
For startups, deploying a decentralized application (dApp) requires substantial resources. Consequently, the decision of which blockchain platform to build on carries significant implications for the success of their dApp. Deploying a dApp on the wrong chain can result in wasted time, effort, and resources, with the cost of migrating to a different solution or chain being substantial. When deciding which chain to build on, most developers often consider both mass adoption prospects and technical features. The chain’s technical design has consequences on the ecosystem and distribution model of the blockchain, which is beyond the scope of this article. All things being equal, developers tend to gravitate towards chains with large user bases, active communities, and robust developer support.
To achieve these features, and subsequently mass adoption, layer 2 blockchains can draw inspiration from the success of the Apple App Store and accelerate their network effects by embracing key strategies. Prioritizing streamlined user experiences, curated content, developer engagement, and ecosystem integration are crucial for replicating the App Store's success and driving widespread adoption. By adopting these strategies, layer 2 blockchains can propel their growth and pave the way for mainstream acceptance of blockchain technologies.
Compared to the early 2000s, when downloading software always came with the risk of infecting the device with a virus or becoming victim to a scam, the App Store has brought peace of mind to users downloading apps. Apple's rigorous review process requires every app to comply with its guidelines before they are allowed on the store. Apple’s policies and rules, such as those for App Review, ensure the App Store remains a safe marketplace. The company has heavily invested in the development of policies to foster user trust and has deployed resources to enforce them. Many of these rules apply even before apps are released on the App Store. Before submitting new apps for review, Apple requires developers to provide detailed information about how the apps, and any third-party products integrated into them, deal with privacy and user data. Once developers submit their apps, Apple’s screening mechanisms ensure that apps and all in-app content meet the App Store Review Guidelines, are periodically updated, and do not represent a privacy risk for users. Additionally, automatic app updates make it easy and seamless for users to have the latest and safest app versions. Apple has also developed multiple mechanisms to remove bad actors and prevent fraud on the App Store, including the removal of fraudulent reviews, users, and developers, as well as preventing payment and credit card fraud.
In contrast, the decentralization ethos of dApps opposes any form of centralized approval or control. That doesn’t mean decentralized layer 2 blockchains can’t control the quality of their ecosystem. Implementing quality control mechanisms such as peer reviews, rankings, audits, and community feedback through well-designed incentive programs can ensure the integrity and reliability of dApps listed on the platform.
First of all, grants should be designed to attract killer app solutions that solve mainstream problems 10x better leveraging on-chain technologies. Payment and remittance use cases with well-established FinTech/Financial Institution partnerships, interoperable gaming, and open-source social media are promising avenues for attracting users to decentralized platforms.
Next, establishing clear developer guidelines and incentives is essential to maintain consistency and quality across applications on the platform. These guidelines outline best practices for developers to follow when designing and deploying applications, emphasizing aspects such as security, usability, and compliance with platform standards. For example, developers can be required to undergo smart contract audits conducted by reputable auditing firms before their applications are deployed. Additionally, certain incentive mechanisms reward developers who prioritize user experience and security in their applications. These incentives can take various forms, including grants, bounties, or revenue-sharing arrangements for developers who receive high ratings and positive feedback from users.
To maintain quality, a standardized and transparent developer reputation mechanism on the blockchain can ensure that app approval processes are not only verifiable but also resistant to tampering or manipulation. For example, app developers can be assigned reputation scores based on various factors such as the quality of their code, user feedback, and adherence to platform guidelines. Through cryptographic techniques like zero-knowledge proofs, developers can prove certain attributes about themselves (such as their credentials or past contributions) without revealing sensitive information. Users can provide feedback and ratings for apps based on their experiences, which are then recorded on the blockchain and factored into the overall reputation scores of developers and their apps. A well-designed decentralized governance model in which community members can vote to approve or reject new applications based on predefined criteria can incentivize developers to prioritize the quality of their applications, help control the quality of the ecosystem while keeping the decentralized ethos .
By incentivizing developers and community to prioritize quality and security, layer 2s can encourage the creation of applications that meet the highest standards. Processes for continuous monitoring of applications will be needed to ensure the platform remains a trusted and reliable ecosystem for all stakeholders.
Since 2008, Apple has released over 40 SDKs and 250,000 APIs for developers, providing an extensive toolkit that lowers technical barriers and streamlines app development processes. These tools encompass various functionalities, from design aids to testing and debugging utilities, along with robust data collection and optimization features. Moreover, the App Store offers developers diverse monetization options, including subscription models and various business structures like free, freemium, or paid. Additionally, it facilitates payments in multiple currencies, supports carrier billing for user convenience, and integrates seamlessly with Apple Pay and other third-party payment platforms. Apple's holistic approach to product integration, encompassing hardware, software, and services like secure payment options, has contributed to the success of its ecosystem. The App Store seamlessly integrates with other Apple services and devices, creating a unified environment where users can effortlessly discover and utilize new applications.
In a similar vein, blockchain ecosystems can enhance user experiences by prioritizing interoperability and compatibility across different platforms, wallets, and services. Collaborations with other blockchain projects and platforms can further enrich this interconnected ecosystem, offering comprehensive infrastructure support that enables developers to build seamless solutions. This includes features such as integrations with major exchanges and wallets, easy-to-use bridges, software development kits (SDKs), and solutions for privacy and security. Consistent with this perspective, zero-knowledge networks such as Starknet and zkEVM are becoming increasingly popular for their capability to protect user data while upholding the transparency of blockchain technology.
Providing resources for developers to simplify the current clunky Web3 onboarding experience is one of the most pressing matter for broader adoption. Layer 2s can partner with Web3 SDK providers to help developers abstract away complex blockchain interactions, making it easy for users to onboard. In fact, many developers have migrated their projects to Starknet due to the chain’s native account abstraction. Similarly, Base (Coinbase’s Layer 2 blockchain) outlines in their 2024 roadmap the plan to make smart wallets the default on their chain, including transitioning existing wallets to smart wallets, and simplify the on-ramp/off-ramp experience. I believe this strategic move will significantly enhance Base's ability to onboard more users on-chain.
Unlike the iPhone, which represents a significant investment and tends to foster user loyalty within Apple's walled garden, the stickiness of blockchain ecosystems lies even more heavily in cultivating developer retention. To achieve this, Layer 2 solutions can focus on fostering strong relationships with developers through robust support, intuitive tools, and collaborative partnerships.
From airlines to traditional banks to grocery stores and museums, the app-based innovation unlocked by the Apple App Store has significantly boosted customer engagement and reduced operational costs. Just as the Apple App Store unlocked new use cases for many traditional businesses, blockchain technology has the potential to do the same for Web2 brands and bring more users into the on-chain economy.
Partnering with established consumer brands holds immense significance for layer 2 blockchains as they strive to achieve widespread adoption and mainstream recognition in the rapidly evolving landscape of web3 technologies. These partnerships offer a multitude of benefits, ranging from enhancing credibility and trustworthiness to expanding user bases and driving innovation. By aligning themselves with well-known brands, Layer 2 blockchains can leverage the brand equity, reputation, and existing customer base of their partners to gain visibility, credibility, and traction in the competitive marketplace.
In this vein, Polygon has partnered with top brands like Nike, Starbucks, and Disney to introduce NFTs and Web3 experiences. These collaborations aim to revolutionize industries by leveraging Polygon's blockchain technology for digital collectibles, loyalty programs, and community engagement. These partnerships not only foster trust to the ecosystem, but also bring on-chain technologies to solve real-world use cases, catalyzing the next wave of users.
The layer 2 blockchain Base is in a unique position when it comes to leveraging well-known brands. As a blockchain platform backed by Coinbase, Base has a unique opportunity to leverage the consumer brand and reputation of Coinbase to achieve mass adoption and become the premier marketplace for Web3 applications, akin to the Apple App Store of the decentralized world. Coinbase is one of the most trusted and reputable names in the cryptocurrency industry, known for its commitment to security, compliance, and user experience. By association, Base inherits the trust and credibility of Coinbase, which can be instrumental in attracting users and developers to the platform. Base can tap into Coinbase’s existing user base and introduce them to the world of decentralized applications (dApps) by providing seamless integration with Coinbase accounts and easy access to Web3 services.
When considering layer 2 solutions, we can draw parallels with the network effects seen in the Apple App Store ecosystem. Just as the success of the App Store is fueled by a growing number of popular apps attracting more users, L2 solutions aim to entice top-tier dApps to join their scaling solutions. Therefore, it's crucial to establish robust policies and support systems to attract leading dApps to the ecosystem. As brand awareness of dApps within a protocol increases, so does user engagement, creating a virtuous cycle where more dApps are drawn to the platform, reinforcing its growth and appeal.