Pioneers of new technologies must raise large amounts of capital to build infrastructure, which can lead to overinvestment and speculative bubbles. When these bubbles burst, weak businesses fail and market forces consolidate around industry leaders and their paradigms. Through this integration process, we can identify common elements in the application and isolate them into standard modular components that can be open sourced or sold as separate services. These abstractions make it easier to build more complex applications and enable a shift from a capex-led to an opex-driven cost structure, allowing new products to be launched faster and lower startup costs. This pattern is now unfolding in Web 3, as new "modular" technologies (such as Rollup) accelerate development and usher in an era of lean startup innovation.
Capital Expenditure vs. Operating Expenditure
As technology infrastructure becomes more standardized and widely available, it becomes more powerful and easier to use. But before that happened, early entrepreneurs had to invest heavily in building their own infrastructure before they could distribute their applications, like Edison inventing the grid to sell light bulbs or early internet startups deploying data centers to run web pages. As the market matures, the emergence of open standards and on-demand infrastructure services provides more efficient business models for companies that adopt them because they do not need to spend as much time and money bringing products to market.
For example, after the Internet bubble burst in 2000 , the Internet industry shifted from buying servers and building data centers ( capital expenditures ) to renting servers from the cloud (operating expenditures ). Many open source frameworks (such as the LAMP stack , Ruby on Rails , Django , and NodeJS) emerged to simplify web development, while industry leaders such as Microsoft, Amazon, and Google used their scale to establish new standards and low-cost infrastructure services. This grew alongside the API boom that began in the late 2000s , further simplifying the complexity of the Internet by providing specialized backend functionality under a pay-as-you-go business model. Within a decade of the crash, these abstractions enabled small teams to build and scale new applications quickly and cheaply, accelerating innovation and fueling an era-defining golden age of startups.
Web2 infrastructure has become so abstract that modern web applications don't even run directly on physical servers, but in server emulations: virtual machines , often wrapped in containers that can be easily moved or replicated across many environments, Requires minimal reconfiguration. The technology helps scale Web 2 by allowing a single powerful server to run multiple applications simultaneously, and computing resources can be easily added or subtracted to applications as needed to meet demand and control costs.
The concept of virtualization illustrates how abstract infrastructure can become, but I emphasize it here because Web 3 infrastructure follows a similar path to the invention of Rollups, which also did so by allowing blockchains to support multiple "virtual blocks" on top. chain” to help blockchain expand.
abstraction layer
Early-stage blockchain startups must build all the infrastructure — including custom blockchain protocols, front-ends, wallets, SDKs, APIs, and more — before they can get started. Smart contract networks like Ethereum reduce the need to build proprietary blockchains for many applications, but they impose significant constraints on cost, programming conventions, and scalability, limiting the range of possible applications. More ambitious ideas require a level of flexibility and throughput that is often unachievable on public chains, so many of the most exciting applications fail to scale.
Platforms such as Cosmos and Polkadot later provided tools to create custom blockchains with shared security and interoperability features, making it easier to launch secure chains. However, they still require significant resources and expertise to use, and therefore remain out of reach for most developers. But just as more layers of abstraction simplify the cloud, emerging Layer 2 (L2) standards such as Rollup allow developers to deploy blockchain environments quickly and cheaply.
Rollup executes transactions and smart contracts off-chain and bundles the results of multiple operations into periodic, cryptographically verifiable transactions on the main blockchain, thereby inheriting the security of the underlying network. This is similar to how credit card networks process many payments and settle them via weekly batch wire transfers to merchants. Through this technology, a single blockchain can simultaneously secure many high-performance virtual blockchains, greatly increasing throughput while minimizing transaction fees.
Importantly, Rollup is not a blockchain, at least not in the same way that a virtual machine is not an actual machine. Rollup is a virtual blockchain , a simulated environment where smart contracts run as if they were on the real chain, abstractions ignored. As long as operators regularly settle outputs on a trusted blockchain and do not corrupt data, Rollup can be centralized as needed for performance, control, or compliance. But it can also be decentralized by using "shared sequencer " technology.
In addition to scaling, separating the “execution” layer from the “data availability”, “settlement” and consensus layers gives developers the flexibility they need while leveraging the security guarantees of the main chain. For example, you could deploy your application as a rollup application using Python as the programming language, but if you don't like Solidity but want to take advantage of Ethereum's security or ecosystem, choose Ethereum. Open source frameworks such as OP Stack , ZK Stack , Polygon’s CDK , Arbitrum’s Orbit or Rollkit already make it easy for developers to deploy custom Rollups with different trust levels , while decentralized sequencer projects such as Espresso and If necessary, Astria has the option to decentralize the execution layer. Meanwhile, a growing number of low-code "rollup as a service" (RaaS) products, such as Dymension , Conduit , Caldera and Gelato , allow anyone to spin up custom virtual zones in minutes Blockchain.
The broader “ modularity movement ” further reduces the cost of building and scaling blockchain applications by providing developers with co-evolved standards and services covering other areas of the stack. Ethereum's EVM dominates as the "operating system" for smart contracts, while Solana's SVM is rapidly emerging as a high-performance alternative (both are available in standalone rollups). Protocols like POKT standardize the RPC/API layer across the network, while platforms like Syndicate abstract all the complexity of building complex blockchain applications behind simple APIs that any developer can use. Frameworks like Polywrap abstract multiple protocols into a single front-end SDK ; bridges like Across enable liquidity to flow between networks, and wallet standards like SAFE or Squads coupled with “wallets as a service” (WaaS) like Magic Companies can easily create custom wallet experiences for users on any chain. There are even new L1s like Celestia , built specifically for virtual blockchain environments.
Millions of virtual blockchains
The current strategy for Web 3 startups is to launch first on a high-performance, low-cost network such as Ethereum L2 or Solana, with an eye toward migrating to a custom, application-specific environment if greater scale is required. Even existing protocols that have built their own chains, such as Celo or POKT , are transitioning to L2 architecture to simplify infrastructure costs, echoing an era when Internet companies with data centers had to adopt the cloud as a business. If you don't embrace the new, you'll be vulnerable to competitors who do.
Many people believe that applications running on high-throughput networks like Solana can reach "web scale" without the need for L2, but people greatly underestimate what network scale means because so much of the activity on the Internet happens in the background. Each of your clicks triggers hundreds of hidden HTTP requests; just loading Twitter.com triggers over 300 background requests to various APIs and service providers in 2 seconds, and that's just a single action by a user . Achieving web scale means each application can handle millions of transactions per second, but if internet demand increases by a million, that's not enough. To achieve this level of scale, virtualization is necessary, but we also need ultra-high performance L1 underneath to achieve it. In addition to blockchains optimized for data availability throughput such as Celestia, high-performance networks such as Solana and Monad are potentially interesting aggregation playgrounds.
That said, scalability isn't the only reason virtualization is important. Virtual blockchain is a powerful standard for Web 3 generation online services. The first wave of Rollup mainly consists of "faster Ethereum" services. However, the flexibility provided by modular architecture makes virtual blockchains particularly useful for creating application-specific environments or networks that target specific ecosystems, industries, or geographies. You can also create a "virtual private blockchain" for use cases with strict access control or compliance requirements. The bigger idea is that as blockchain and smart contract interfaces replace the "cloud and API" paradigm of Web 2, virtual blockchains may become the default backend infrastructure for all online applications.
We will explore these ideas in more depth in future articles, but the most important point I want to emphasize from a business perspective is that modularity represents a shift from CapEx to OpEx for Web 3 and, therefore, what we can expect in the next generation Rapid scaling of blockchain applications. Opex means costs scale with growth, rather than being borne up front through large-scale financing before launch. This means entrepreneurs can iterate faster, applications can scale cheaply, and investors can finance businesses with less risk. Just like the web after the dot-com crash, these are prime conditions for a golden age of innovation in cryptocurrency startups.
