The network state tech stack

13 min readFeb 1, 2023

Introduction

The Network State is a concept proposed by Balaji Srinivasan, a venture capitalist, and entrepreneur that describes a new form of governance in which power is decentralized and distributed among the participants of a network. According to Srinivasan, the Network State represents a shift away from traditional centralized systems of government and toward a more decentralized, autonomous, and self-governing system that is based on the principles of blockchain technology. In this article, we will explore the concept of the Network State in greater detail and discuss its implications on applications to blockchain technology.

There are fundamental building blocks necessary to build any society–from energy and the internet to more advanced and complicated systems, such as Decentralized Finance and Social. In this article, I will deep dive into the following areas (in the figure below) that may be used to create a “web3 country”

See figure below:

Each part of the triangle builds on one another.

In particular, I will go into detail about

Fundamental Building Blocks

The fundamental building blocks–before we can build any other part of the network state is something we all take for granted: energy and the internet. We use these things unknowingly, but these two things are crucial to the development of a network state.

Energy

Decentralized energy refers to the generation and distribution of electricity from a variety of small, distributed sources rather than from a centralized power plant. These sources include renewable energy technologies such as solar, wind, and hydro power, as well as combined heat and power (CHP) systems that generate electricity and heat simultaneously. Decentralized energy systems can be more resilient and efficient than traditional centralized systems, and can also provide greater energy security and independence.

Currently, energy systems are dominated by centralized players that create bottlenecks for entire industries. If we take a look at the countries that control most of the oil and gas reserves, there have been bottlenecks since the crack of dawn. Take the Russia and Ukraine conflict, for example. Once Russia attacked Ukraine, many sanctions were placed on Russia. The price hike (40% increase), starting February 21st, reflects the hedging that traders anticipated due to supply shock.

The highlighted green area shows the price hike. Russia attacked Ukraine on February 24th, 2021. Prices of Crude oil jumped 40%+, reflecting the supply shock.

Decentralized Energy Market Map Analysis

Decentralized Energy Market Map

Most of the companies are primarily focused on building the infrastructure required for decentralization of energy systems to be owned and operated by people. Each of these companies is taking a different approach to building out this system. Primarily, energy markets are controlled by larger companies. By enabling decentralized markets, we can enable peer to peer markets with people trading energy amongst one another. In addition, with the shift to renewable energy, these companies enable people to have the power and control over large, monopolistic energy systems.

Energy

Powerledger: blockchain-based platform that allows for buying and selling of renewable energy among neighbors and communities. (Twitter)

Grid Singularity: open-source energy technology grid market platform that enables exchange of peer-to-peer energy. (Twitter)

Identity

Identity is not just a part of who we are. It represents a digital footprint. Currently, centralized parties control all aspects of your identity, including attestations. Attestations is a party making a claim on your identity. Like a passport allowing you to fly to a country.

Your digital identity is also important to the world of the decentralized network state. Imagine a country if a permissionless identity enabled you to access buildings, login anywhere (Decentralized Social, Decentralized Finance, etc.), and even travel. You don’t have to carry a physical passport. Everything that any system might possibly need to know is stored in your own wallet. Identity is the infrastructure to build that.

Before diving into the different components of the Decentralized Identity, let’s talk about why we should establish a permissionless identity system that gives controls to the end user. Traditional identity management systems control all aspects of a person’s identity. Decentralized Identity aims to provide management and ownership of identity back to the user.

There are three main components of an identity system: Backend, on-chain reputation, and user-facing applications.

Backend

The backend is composed of digital identity, social graph, and data infrastructure.

Data infrastructure enables permissionless facilitation of data across identity verification and attestation. Some protocols that are working in the space are Lit Protocol, Orange Protocol, and SpruceID. These protocols allow builders to build trustless credential services for identification for on-chain and off-chain authentication. Public Blockchains serve as a trustless database for open information access, which are harnessed by these data protocols. Orange Protocol, for example, offers the ability to connect to multiple blockchains, DeFi protocols, DAOs, and off-chain data to create a reputation system. The Orange Protocol is both decentralized and permissionless, meaning anyone can build with it.

The next step is Social Graph. These protocols (Lens, 5Degrees, CyberConnect, and relation labs) enable the development of user owned social media with full control of personal data and that data can be applied to any social network that is built on the Lens protocol. For example, Lenster is a decentralized and permissionless social network that can be accessed with a Lens profile. Social Graph protocols enable interoperability across applications.

Outside of social graphs, digital identity is part of the backend stack. Protocols like ENS, Litentry, and UnstoppableDomains are part of digital identity. Essentially, they enable decentralized naming for websites, wallets, and traditional (.com, .org, .net) websites. In addition, once you link your wallet to Ethereum Name Service, you can receive tokens, NFTs, and any “valued” goods to your wallet.

On-chain reputation

A key component of building an identity is also how reliable it is. You can have an identity, but it needs to be reputable. Trust systems are an integral part of building digital identity. For example, if a protocol wants to grant an undercollateralized loan to a user, how can we verify their “creditworthiness”? It comes down to their on-chain activity, transaction history, size of trades, and net worth. There are two main types of reputation: Financial and Credential.

Financial Reputation serves as the rails for transacting within financial institutions on-chain. Companies like Goldfinch, Spectral, Etherscan, and Rocifi all serve to create a safer and trust-minimized environment. Some factors that go into creating these reputations include DeFi Transaction history, Liquidation history, Loan Safety margin, Age or time based factors, and General Wallet history. A problem with these protocols is not enough data points. Overtime, as users obtain an “on-chain credit score”, it will become easier to assess risk.

The other component is Credentials. The purpose of credentials is to provide reputation for all other purposes other than financial, including proof of activity and collecting rewards for on-chain activities. Some companies that are working on these features include POAP, DegenScore, and Layer3. These protocols aim to build a resume for web3. Eventually, all your accomplishments will be on-chain and recorded through these credential-issuing protocols directly to your wallet.

User-facing applications

Know-your-customer (KYC) is a key part of building infrastructure for The Network State. Each person or entity should be verified through a KYC process. These KYC processes enable protocols and applications to filter out real people. KYC is a user-facing application because they have to complete it in order to onboard applications. Some examples of KYC companies include BrightID, Proof of Humanity, and iden3. Each of these applications have key shared components: works on trust-minimized environments, transparent and open-sourced, and privacy-enabled. These companies enable verification through human social networks and without the reliance of a centralized entity. In addition, some (like iden3) are using Zero Knowledge (zk) technology to prove they are human with control over the information they provide. A centralized provider, like Google and Facebook, have identifiers they use to validate an identity. Self Sovereign Identity grants control and power over identifiers to humans.

Other components of user-facing applications outside of KYC include Profiles and Aggregators. Profiles serve as a social method to display your identity. It provides a more “fun” interface to see a user’s NFT collection, POAPs, etc. Some companies working in this space include Backdrop, Nametag, and SpringRole. Finally, Aggregators are an addon to profiles because they provide aggregated information on profiles through connections across wallets, blockchains, and even traditional social media (Facebook, Twitter). Some companies working in the aggregation space are Self.ID, DAS, and lvl Protocol.

Decentralized Data/Storage System

Decentralized storage refers to a type of data storage system where data is distributed across a network of devices rather than being stored on a centralized server. This type of storage is often used in distributed systems, where data is replicated across multiple devices to provide redundancy and ensure that the data is available even if some of the devices fail. Decentralized storage systems are designed to be resilient, scalable, and secure, and they can be used in a variety of applications, including cloud computing, file sharing, and distributed databases.

There are three main reasons why decentralized data systems are more powerful than traditional databases: performance through parallelism, privacy via encryption and ownership, and resilience of data through sharding. Decentralized data is cheaper, faster, and more secure.

Storage Systems

To build out the data ecosystem within web3, we have to start with storage systems. Currently, there are many key players, including IFPS, Filecoin, Arweave, and Storj. Their main objective is to enable permanent, decentralized, and efficient storage systems. Outside of storage, data also becomes composable, allowing developers to build on top of protocols and networks. Essentially, these storage systems have become the new standard for building resilient, decentralized backend systems in web3.

Data Interoperability

There are two main sub sectors within this area–Oracles and Data Infrastructure. Oracles serve as the middleware between off-chain and on-chain. They provide a connection between the blockchain and the real world. Some examples of oracle blockchain technologies include Chainlink, Band Protocol, and Teller. All of these serve similar functions.

Next, there is the data infrastructure. The infrastructure for developers to build Decentralized Applications (dApps), tools, and dashboards fall under this category. This is a wide ranging category, with differing range of specifications and objectives. For example, Alchemy and Infura both allow developers to leverage APIs and developer tools to have the necessary infrastructure to build applications. Infrastructure enables developers to innovate without having to worry about data access or nodes to ensure dApp uptime.

Data Analytics

With the vast number of data points available on-chain, there are platforms that make it easier to digest on-chain data. Platforms like Dune and Nansen enable users to extract valuable insights in the form of dashboards, tables, charts, and other visualizations. Meanwhile, some companies specialize in certain industries, like DeFiLlama, which is focused on DeFi specific metrics.

Data Marketplace

Currently, Data is a largely untapped market. Most people don’t have control over the data that they provide to services on web2. Many web2 companies have data monetization models that collect user data in exchange for revenue. Within The Network State, users will have control over how they want to use their data. There are a few Data Marketplaces in the industry, including Ocean Protocol, Databroker, and IOTA that serve an emerging market. It allows for exchange of data P2P.

Decentralized Wireless

The Telecom Cowboys of the Decentralized Wireless Movement | Messari

Decentralized Wireless (DeWi) enables the sharing of data through a distributed network. Currently, T-Mobile, Verizon, and AT&T dominate 98.9% of all wireless services in the US. These companies spend billions of dollars to maintain and build network towers. Nonetheless, there are some areas of the world where these companies are unable to build. Wireless is an area that is fundamentally required for any functioning society. These protocols, tools, and Internet-of-Things (IoT) enable the development and deployment of decentralized wireless networks that enable an open system for the internet. Users are rewarded with tokens as incentive for participating in these ecosystems, with a sustainable model through cheaper data transfer and funding rates.

Decentralized Wireless Networks

Decentralized Wireless uses a token economy to reward participants for completing work. There are different types of networks, including Cellular, WiFi, Bluetooth, Hybrid, and LoRaWAN Networks (IoT). Each one of these networks has their own distinct advantages and use cases. A very popular example is Helium. Helium is a Long Range Wide Area Network (LoRaWAN), meaning it’s able to send small amounts of data over long distances. With Helium, the owners of the hardware are incentivized to purchase and maintain it as a hotspot. As users are boarded on the network, the owners benefit from people using the services and obtain a reward.

Hardware Mining Manufacturers

Enterprise

Service Providers, Marketplace, and Tools

Applications to make The Network State function

Decentralized Social

https://forefront.mirror.xyz/2QOw4QepMwBxItEag6jz27UA2SWKntPcPOsmd-NsqaQ

Social Graph:

Web3: users travel w data, social platforms access on-chain data to connect users

Reputation:

Open data based on social media interaction, investing, and participation in governance

Collective ownership:

Social DAOs ⇒ communities with shared values
Investment DAOs ⇒ shared ownership of investment and activist
https://www.prysm.xyz/
https://www.partybid.app/

Reputation-based social:

http://mirror.xyz/

Social Graph:

https://cyberconnect.me/mint

Infra:

DeSo → L1 blockchain for social media platforms

Crossbell → shared content storage

Middleware

Lens → everything is decentralized (content, social relations, and identity)

Farcaster → content and relations are not decentralized (stored in hubs), identity is decentralized

CyberConnect → decentralized social relations and identity, without decentralized content

RSS3 → Decentralized content without decentralized social relations and identity

Provide the API and infra to make calls for user facing applications

Actual user facing applications are product-first: this is due to building in the open and exploring product market fit instead of building out the infra in the dark.

There is a debate between creating a product that enables interoperability (Lens) through middleware versus taking a product-facing approach and building an application.

Social Profiles:

Decentralized Finance

Perhaps the best way to understand Decentralized Finance is through a real-life example demonstrating its very need. Imagine two characters, Winnie the Pooh and Tigger. Tigger possesses a pot of honey, which Pooh wants. Pooh on the other hand has $20 in cash which Tigger wants. They decide to meet up under the Bee Tree to make the trade. There’s 3 possibilities of this trade:

The trade goes smoothly. Pooh gets his pot of honey and Tigger gets his cash
Tigger turns out to be rather evil. When Pooh extends his hand to give the cash he grabs the cash but does not let go of the pot of honey, running away with both. Tigger 100, Pooh 0.
Pooh turns out to be evil. When Tigger extends his hand to give the cash he grabs the honey but does not let go of the cash, running away with both. Tigger 0, Pooh 100.

How do we solve this problem currently? We have middlemen who we trust to carry out the trade smoothly for us. So instead of meeting up at the Bee Tree, they meet up at the Jungle Bank. Here, Pooh and Tigger tell the bank teller they want to make the trade. The teller takes the pot of honey from Tigger and the $20 from Pooh. When he receives both, he just gives Pooh the honey and Tigger the $20. Both parties are satisfied with the outcome, and no one’s running away with anything. Well, at least till the time you can trust the bank. This was mostly true until we had the 2008 financial crisis, when we found out that banks can no longer be trusted. Irrespective of how much we trust banks or other such middlemen, the presence of a third-party in an essentially two-party transaction is redundant provided that we can ensure the ideal outcome without a middleman.

We can achieve this by harnessing the power of web3 and DeFi. Now imagine instead of meeting under the Bee Tree or the Jungle Bank, Pooh and Tigger meet at the Revolving Door of Web3. Standing on opposite sides of the revolving door Pooh places the cash his side of the door, and Tigger places the pot of honey. The door’s sensor figures that both sides have fulfilled their side of the transaction, and the door does a 180º turn, giving both parties their respective bought goods. No middlemen, no trust issues. 100 Tiger, 100 Pooh.

This is what DeFi aims to achieve, but on a much larger scale — creating a revolving door for all complexities in finance than the simple barter example I concotted above. By cutting out the middleman, DeFi eliminates the fees that bank, insurance providers and other financial companies charge for their services. It empowers individuals with peer-to-peer digital exchanges, upending conventional financial practices.

Aggregators

0x is an open protocol that enables the peer-to-peer exchange of assets on the Ethereum blockchain.

Do research on the industry and get an understanding of it before diving into due diligence.