If asked to choose between doing it and doing it well, most would go for the latter. Doing it well benefits you and the user in the long run. But it’s easier said than done. Building a sustainable blockchain database doesn’t guarantee an efficient, cost-effective, and compliant product. So we settle for subpar. The result? Market downturns and hostility towards blockchain.

Successful blockchain projects are underpinned by technically sound, creative strategies.

In this article, we discuss the key variables that can determine the course of your blockchain project and how credible cloud providers help you improve its success rate.

Infrastructure Strategy: Frontend Vs Backend Blockchain Development

Thousands of IT creators fuel the booming blockchain market, both in the frontend and backend. Although the novelty of the technology opens up a lot of creative possibilities, it comes at the cost of efficiency. We’re talking about time, money, and energy. The industry can expand and penetrate users faster if project developers and sponsors clearly understand the key variables that go into the infrastructure strategy. It will help them keep the costs and management overheads low, without compromising efficiency, flexibility, or regulatory oversight.

Let’s get the basics right first. Here is a quick look at frontend and backend blockchain development.

Frontend – Area of app development that focuses on the visual aspects of a website. Frontend developers work on the part that users can see. Their role is to ensure that visitors can easily interact with the product and navigate using programming languages, design skills, and other tools. They develop layouts, designs, and menus for applications.

Frontend developers use computer programming languages like JavaScript, HyperText Markup Language (HTML), and Cascading Style Sheets (CSS) to design applications, where each language serves a unique purpose. Frontend development doesn’t require advanced programming skills.

Many innovators who work in the blockchain frontend are SaaS (Software-as-a-Service) providers and software houses. They specialize in decentralized applications (Dapps), decentralized exchanges (DEXs), Decentralized Finance (DeFi) applications consumed by large fintech and fin-ops companies, and Decentralized Autonomous Organizations (DAOs). The last few years have seen a surge in blockchain applications across gaming, metaverse, art, NFT, AI, and the Internet of Things (IoT) as well.

Backend: Area of app development that covers an application’s structure, system, data, and logic. As the name implies, backend developers engage in behind-the-scenes work. They design the application’s structure and overall functionality. Backend development is focused on a site’s operations, databases, and application programming interface (API). While we don’t see the backend elements of an application, they’re integral to blockchain development. Backend developers are often trained in server-side programming languages like Java, Python, and Ruby.

When it comes to the blockchain industry, backend developers work on mining pools – large clusters equipped with highly powerful, efficient, multi-GPU-based dedicated servers. Although staking businesses are similar, they are less resource-intensive, which translates to less cost and high efficiency for operators.

Proof-of-work requires miners to validate transactions using trial and error. Here, the first miner to solve the puzzle gets to add new blocks to the blockchain in exchange for mining rewards. This is how proof-of-work crypto coins are circulated into the market. Mining needs fast computers that use large amounts of energy.

Staking, on the other hand, is simpler and faster. Here, you need to stake cryptocurrencies to win a chance to validate blocks. Validators are selected at random by the algorithm in staking, as opposed to using a competitive rewards-based consensus mechanism like proof-of-work.

Blockchain-as-a-Service (BaaS) providers also fall under this umbrella. Their expertise involves utilizing ready-to-connect services with a creative approach. They have ready-to-go solutions based on nodes, equipped with a specific software stack interoperable with the P2P network. In addition to that, they also make use of automation nodes (API) that are ready to be integrated with both frontend and backend software layers.

Frontend and backend blockchain providers

Most blockchains offer a backend network. This includes private blockchain solutions like Hyperledger fabric and public blockchains like Ethereum. On the other hand, some networks like Cosmos offer inter-Blockchain communication protocols (IBC).

Apart from these, there are also businesses that operate in both frontend and backend. They work with private blockchains designed for specific use cases in industries like retail, healthcare, and logistics, to name just a few. These businesses, called System Integrators, bring together component subsystems into a whole and ensure that those subsystems function together.

System Integrators usually own the hardware in their data centers, build the frontend software layer, and tailor the backend functionality. The downside of private blockchains is their decentralized structure that spans across a few countries or continents. Decentralization may also be limited to a few nodes in a single data center, depending on the use case.

Financial Strategy: OpEx vs CapEx Expenditure

As a project grows, so does the expenditure. A business has to track an array of costs and expenses to understand if they’re profitable and by how much. A clearly defined record of expenditure helps managers slash unnecessary costs and improve profitability. Expenses can be primarily divided into two – one-time and recurring.

Businesses use OpEx (operating expenses) and CapEx (capital expenditures) methods to track their expenditure efficiently. To put it simply, capital expenditures are major purchases a project makes, which can be used over the long term. For example, mining equipment, buildings, machinery, and vehicles. And operating expenses are everyday expenses that a project makes to keep the operations up and running. It includes rent, employee salaries, utilities, and property taxes. While items that come under OpEx can be used for one year or less, benefits from CapEx extend to a few years. It is also interesting to note that operating expenses can be deducted from tax, whereas capital expenditures cannot be.

However, the major difference lies in the accounting treatment of each category of expenditure. It is important to understand the financial implications of expense reporting for the long-term health of a blockchain project.

Here is a quick look at how OpEx stacks up against CapEx:

OpEx (operating expenses) CapEx (capital expenditures)
  • Short-term value
  • Doesn’t offer long-term benefits for the company
  • Reported as an expense
  • Reported on the income statement
  • Needs to be reported immediately
  • Can’t be depreciated regardless of the useful life
  • Usually comes at lower costs than CapEx.
  • Flexible
  • Long-term value
  • Offers future benefits for the company
  • Reported as an asset
  • Reported on the balance sheet as an asset
  • Can be depreciated over its useful life
  • Typically, costlier than OpEx
  • Labor-intensive
  • Takes time to reap rewards

Management can approach these two expenditures strategically for better decision-making. Projects increasingly opt for OpEx expenditure, as CapEx requires large capital sums up-front. OpEx also offers higher elasticity during the start-up and scale-up phases, where projects are constrained on budget. Moreover, the OpEx pricing model features transparent operational costs for infrastructure.

The best part about cloud-based blockchain infrastructure is that it’s not only available as monthly expenditure costs, but is also highly scalable. It helps contain management overheads and improve efficiency. By choosing OpEx, companies can decrease their financial risk and eliminate the need to invest in infrastructure that exceeds demand.

It provides the need for minimal users per profitable project, providing the ability to set the margin per end-user or consumer. Moreover, it allows early-stage blockchain adopters to maximize cost-effectiveness with just a small pool of users. OpEx is best suited for businesses that face high uncertainty or volatile demand.

Transparency & Compliance

It is important for European companies to follow GDPR (General Data Protection Regulation) and ensure digital sovereignty. Most people think that data should be stored locally in data centers within the EU region. Some businesses, especially those operating in the healthcare sector with HIPAA (Health Insurance Portability and Accountability Act) or HDS certification, put additional infrastructure security layers in place. Fintech businesses that require PCI-DSS (Payment Card Industry Data Security Standard) certified solutions are also a good example.

Another cause of concern for projects, especially those with limited operational budgets, is increased regulatory oversight for specific blockchain use cases. An increasing number of regulations aimed at protecting end-user data may come into action in the next few years. If that’s the case, small-scale projects will struggle to comply with the regulations.

Only cloud providers that offer practical, cutting-edge solutions keeping in line with the appropriate regulatory safeguards will thrive in the new market. They will have an easy time forming strategic partnerships and expanding their operations. The strong regulatory grip will phase out incompetent projects.

Design Your Blockchain Infrastructure Strategy Early

With growing demand, the blockchain industry is exploring creative ways of building infrastructure without compromising quality, security, and profitability.

One of the most popular methods involves buying semi-managed or fully-managed cloud products with ready-made software layers and additional functionalities to enhance network management. They come with integrated automation features, monitoring, as well as out-of-the-box backup solutions and functionalities that can ensure high availability, such as disaster recovery options.

When going for cloud-based infrastructure, it is important to put a lot of thought into whether you should choose a multi-product, multi-cloud, or hybrid-cloud solution. Choices made during the early stage of infrastructure development can make or break a business. When done right, it positions the business on the road to growth and expansion. The right blockchain development strategy requires less infrastructure management, giving your team the flexibility to focus their energy and talents on research and development.

Bare-metal servers usually come with root access and cloud-integrated security layers. But they can be highly demanding in terms of the internal workforce required to build and maintain the right infrastructure functionality.

What to Look for in a Cloud Provider

Estimating the ingress and egress traffic for infrastructure is challenging when working with major cloud service providers. It’s especially true when it comes to operating blockchain infrastructure. One major hurdle is the lack of predictability since it is almost impossible to estimate the operating costs of blockchain infrastructure. For example, most cloud providers charge fees in addition to the cost of the infrastructure.

A credible cloud provider will help you navigate the market with ease and power your solution as per your vision. You need to partner with providers who support your business ambition while optimizing the costs and management overheads. It is also important to analyze their stance on regulatory policies. Many overlook industry-specific compliance guidelines and data sovereignty regulations, such as GDPR within the EU. Open-source solutions are also an advantage, which can help you with interoperability, reversibility, and multi-cloud strategies.

In essence, the key factors to look for in a cloud provider are hybrid/multi-cloud strategy enablement, compliance measures, transparency in pricing, openness and reversibility, security and scalability, and Service Level Agreements (SLAs).

Summing Up

Businesses need to consider some key variables before technical decision-makers design their ideal infrastructure setup. The first of these is the infrastructure strategy, which deals with the connectivity and interoperability of products and services. Financial strategy is next, which mostly centers around OpEx (operational expenses) and CapEx (capital expenditures). You also need to decide how transparent the solution is going to be, concerning data traffic fees and predictable billing. And compliance comes last, which future-proofs your solution against upcoming regulatory requirements.

To learn more about Blockchain in the Cloud, speak to industry expert Omar Abi Issa:

Email; [email protected]

LinkedIn; https://www.linkedin.com/in/omarabiissa/