Protocol, Dapp, Wallet: Which One is The Fattest?

Protocol, Dapp, Wallet: Which One is The Fattest?

An explanation on the concept and arguments for every theory

Today we are unpacking the Fat Protocol vs. Fat Dapp debate.

But before we do that, let’s make sure you know what protocols and applications are.

A protocol is a set of rules that tell devices how to communicate with each other. For example:

  • TCP/IP and HTTP are the main technologies behind the Internet;
  • SMTP is one that powers email;
  • and VoIP makes voice calls possible over the Internet.

An application is a service built on top of the protocol. Facebook, Amazon, Netflix and Google services are all applications.

Fat is a metaphor.

Fat protocols

The fat protocol thesis originated from an article published by Joel Monegro in August 2016. The fat protocol thesis refers to the idea that most of the wealth created in cryptocurrencies will be concentrated in the protocol layer.

To understand this statement, let’s take another look at Facebook and Google. These companies make more money than anyone on the Internet. This means that the protocols themselves are not very valuable without the applications. If you picture protocols and applications as layers, the application layer will sit on top of the protocol layer and will be way thicker. That is why we can say that the Internet is ‘fat’ applications on ‘thin’ protocols.

Now cryptocurrencies, according to Monegro, may be the other way around. If you look at Ethereum’s market capitalization, you will see that it is $22.5 billion at press time. Now head over to the table of ethereum dapps: most applications do not even have a thousand daily users. Though market cap is not the most direct metric of measuring the value of the platform, the numbers nevertheless make it pretty obvious: the fat protocol theory holds true to this day.

Fat dapps

However, it is still too early to dismiss dapps because most protocols are not even ready to carry applications. There is much work to be done in the scalability department, but many predict a bright future for distributed applications.

Opponents of the fat protocol theory suggest that with the abundance of emerging protocols the chances for any single protocol to capture a large portion of the collective value are becoming slimmer. Indeed, such solutions like Polkadot enable cross-chain interaction and allow users to easily switch blockchains.

Fat wallets

Another idea that gets thrown around in this context is the fat wallet thesis. It suggests that wallet companies will be the ones to get the most out of this deal. This makes sense as wallets provide access to both protocols and dapps.

Wallets house private keys, which in turn represent ownership of tokens. Tokens are crucial to the blockchain ecosystem, as they allow people to use protocols (send transactions and rent computing power) and applications (buy Cryptokitties?). This means that wallet companies may win in either outcome.

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