There are two primary architectural distinctions to be made when comparing Web2 consumer applications to crypto-based consumer applications in terms of their main characteristics. To begin, cryptocurrency applications based user identities on on-chain addresses. This implies that all user activities, such as following, posting, and sending direct messages, are inherently connected to blockchain addresses. This makes it possible to have a unified user profile across many applications.

The modularity of different cryptographic designs is the second key distinction. For instance, Web2 social platforms are the only owners of all of the source code and databases that are required to host social media accounts and messaging experiences under a single umbrella. In cryptography, on the other hand, each of the many functionalities, such as social profiles, data storage, and direct messaging, are separated out into their own distinct protocols. Both of these changes in architecture bring forth unique competitive dynamics and market structures.

Within the context of the crypto application stack, which is modular in nature, decentralized social protocols like Lens and its identification systems have garnered a significant amount of attention. On the other hand, protocols for communicating haven't garnered quite the same kind of attention. To put it another way, how can addresses transmit messages in a fashion that is both scalable and private without the need to write state on the blockchain? One of the many projects that are currently working on the messaging function in crypto, XMTP is the one that sticks out as being particularly noteworthy. Users now have access to a portable inbox regardless of where they are on Web3, thanks to the generic messaging network's integration with Lens as the primary messaging solution.

XMTP overview

XMTP is a generic messaging protocol and network that makes it possible for on-chain addresses to communicate with one another in an encrypted manner from beginning to finish. The XMTP Software Development Kit (SDK) may be permissionlessly integrated into apps by developers in order to provide in-app direct messaging and alerts.

Messages sent by users are distributed through a peer-to-peer network that uses XMTP nodes. Developers have the ability to filter the kind of messages that are displayed on the front end of a particular app. On the other hand, an XMTP inbox, much like a Web3 social profile, is linked to a user's blockchain address and may be moved freely between apps. The final result is that a user may read and send their messages using any one of a number of different applications. Because it is important for users to be able to communicate with their existing circle of friends and view their past messages regardless of where they download a new app, developers of the following apps are likely to adopt XMTP for messaging. This is an illustration of how network effects may, on a larger scale, both fuel expansion and safeguard market position.

A straightforward and user-friendly unified messaging solution is offered by XMTP, which works to meet consumers and developers where they are. It is not necessary to construct a messaging infrastructure from the ground up in order for apps to connect with their users and enable users to communicate with one another; apps may do both. XMTP is able to swiftly attract new customers because it provides an agnostic software development kit (SDK) that any app may integrate. This allows for current applications that already have large user bases to interface with XMTP. The users gain from being able to keep all of their Web3 social contacts in a single, interoperable inbox, which allows them to avoid the status quo of Web2 communication, which is fragmented across several platforms.

The message layer of Web3 is essentially being constructed using XMTP. It is particularly suited for social apps since it enables users to have private and verifiable conversations that are related to their current social profile. However, it is also beneficial for a variety of other messaging use cases, including the following:

Users of games, streaming applications, and DeFi protocols, among other things, have the ability to speak with one another in real-time using a feature called "In-App Messaging."
AI chatbots like Relay that have been educated on project materials may address user inquiries as part of customer service and support.
Notifications: dApps have the ability to interact with their users within the application as well as via Web2 apps like Telegram and Slack when specific triggers occur (such as an approaching liquidation or a protocol upgrade, for example).
Token-Gated Communities: allow users to access direct or group messaging depending on their ownership of fungible tokens or non-fungible tokens.
Standalone Messaging: Apps such as Converse give a regular direct messaging experience and also operate as a catch-all where users can see all messages exchanged across apps that support XMTP. This type of texting is known as "standalone messaging."

The XML Messaging Transfer System (XMTP) is a universal and modular messaging system that may interface with any other protocol to provide direct messages and notifications. It has developed to attract a lot of collaborations and permissionless integrations due to the fact that its position is neutral with respect to its competitors.

Since the product's inception at the beginning of 2022, almost one million XMTP inboxes have been created, and more than 300,000 direct messages have been received. DeSoc protocols that are gaining popularity are performing an essential function in the process of bootstrapping XMTP's user base. When the Lens API was merged with XMTP in November 2022, all Lens users were given access to the network for the first time.

lens profile minted

Since its inception in the second quarter of 2022, Lens has generated more than 116,000 new profiles. Lens has not yet opened its platform to users who are not on its whitelist, despite the fact that the rise of new profiles has decreased since it reached its high in June 2022. On the other hand, the number of monthly active profiles has gone up, which indicates that the platform's current user base is becoming more engaged. It is hard to determine which Lens users have been utilizing the direct messaging capability due to the privacy-focused design of XMTP; nonetheless, XMTP stands to gain from the rising use of Lens and its growing user base once the protocol becomes permissionless. Due to the fact that it is competitively neutral and universally adaptable, XMTP will also benefit from the increased popularity and adoption of other decentralized sharing protocols.

The mechanism of XMTP

XMTP, also known as the "Extensible Message Transport Protocol," enables users of blockchain accounts to communicate securely with one another using end-to-end encryption. It now permits communications between wallets that are compatible with EVM, but because it was designed to be chain-agnostic, it will be able to interact with other networks in the future as well. It now functions as a uniform message layer between Ethereum, Arbitrum, Polygon, and other blockchain ecosystems, and in the future, it may also function as a unified messaging layer across blockchain ecosystems that do not use EVMs.

xmtp mechanism

XMTP Identities are message keys that serve as proxies for the blockchain accounts of their respective users. Users decrypt their XMTP identities and access their inboxes by signing a message. After then, the following communications are decrypted using these keys, and subsequent messages are encrypted using these keys. Because of the way this system was designed, it is impossible for the XMTP network to have access to the user's blockchain private key. Once the system is set to recognize multiple blockchain signatures, it also enables the possibility of supporting non-EVM blockchains in the future. This is made possible by the fact that it permits.

XMTP-based apps automatically deploy the XMTP Software Development Kit (SDK) in order to connect to the network and provide in-app messaging in addition to alerts. Users of these applications send messages to other addresses on the blockchain, and nodes transmit these messages by passing them along in encrypted "envelopes." The contents of the envelopes are end-to-end encrypted, and the message metadata is anonymized, so that an observer cannot determine the links between the participants. This prevents the observer from being able to access the envelopes. Apps are able to retrieve envelopes once a user has signed in with their blockchain private key, and a user's XMTP Identity is required in order to decode the envelopes.

At the moment, XMTP only provides messaging and notifications on a 1:1 and 1:many scale, but this will change very soon to include native support for group chats. In the interim, applications are able to create group messaging and other one-of-a-kind experiences by updating the software development kit (SDK). Other noteworthy features that are currently in development include native support for account abstraction and "secret conversations," a new conversation type that includes additional Signal-level security attributes such as forward secrecy and expiring message history. Both of these features are expected to be released in the near future. The timing for responses, reactions, and payments is rapidly approaching as well.

XMTP’s product market fit and positioning

New messaging initiatives are extremely vulnerable to network effects, as their worth and utility are primarily dependent on the number of people participating in the network. This makes gaining major adoption of these projects very difficult. The success of a messaging protocol is determined by its performance in the following four basic dimensions:

User Experience: Providing a simple and unbroken integration of Web3 across the entire process. It needs to be low-cost and high-performing to meet the criteria of existing messaging users.
Interoperability: the process of ensuring compatibility and communication across different computer platforms.e
Scalability and Privacy: Ensuring that communications are secure, efficient, and encrypted for the purpose of protecting the privacy and sovereignty of users.
Developer Experience - Providing powerful tools for simple integration and easy creation of third-party applications.

A communications protocol's competitive advantage can be increased by improving all of the aforementioned aspects. As the network expands, it will be increasingly difficult for rival companies to develop alternative messaging software that is both capable of fighting the network effects and capable of attaining a user base comparable to the existing one. The project's existing competitive advantage in the market is strengthened by the expansion of the network.

Even though the idea of decentralized messaging has been around for a while, early attempts to implement it have had trouble producing the network effects that are required for widespread acceptance. This might be a result of the old systems' lack of ease and compatibility, which results in significant switching costs. It is difficult, if not impossible, for a standalone messaging platform to compete with centralized alternatives since messaging works best as a part of a larger product. Without the adjacent product-market fit of consumer apps, which may drive consumers to a messaging protocol, it is difficult for a standalone messaging platform to compete with centralized alternatives.

XMTP stands apart from other standalone messaging apps because of its neutral attitude and strategy, which is partnership-driven. These applications are all competing for a portion of the market share. Because of its high level of interoperability, XMTP is able to meet consumers where they are, and just one significant integration can result in the acquisition of thousands of new users.

On the other hand, the Web3 messaging app Status was released in 2017, and it provides wallet-to-wallet messaging in a dedicated app. However, it does not provide an interoperable inbox. As a result, it is the responsibility of Status to attract people to its platform, but XMTP is able to profit from all of the applications that plug into it because it serves as a foundation message layer.

Neither XMTP nor its clients, who are all working to integrate messaging into their own applications, are in direct competition with one another. Rather, it has the potential to rapidly expand its user base as a result of numerous applications being built on top of it. While simultaneously providing its users with a portable inbox experience, XMTP is able to capitalize on the expanding consumer bases of all of its users.

As a generic communication protocol, XMTP may be utilized by a wide variety of apps, ranging from group chat apps like Discord to marketing systems like Mailchimp. Because of this, XMTP has the potential to acquire significant value from the developers that permissionlessly implement the protocol in order to provide their consumers with messages and alerts. This is also useful to the XMTP developer ecosystem since many different types of builders engage with the open-source codebase and may generate one-of-a-kind features that may later be incorporated into the protocol.

When it comes to the building up of the value, making use of XMTP at this moment does not incur any costs, and conversations between users that opt-in will never incur any costs at all. It is expected that "postage" fines would be applied to unsolicited messages. This indicates that users will be required to either pay a nominal fee or stake a native asset in order to send a message to a particular user for the very first time. It is anticipated that these fees will be introduced, despite the fact that the specifics of their rollout are not yet known in their entirety. When businesses reach a certain level of size, platforms often have greater freedom in their methods of generating money if they have realistic approaches to network effect moats. This is especially true when it comes to e-commerce platforms.

Challenges and the future ahead

Due to the fact that XMTP is still in its infancy in terms of its development, the features that it can now offer are fairly limited when compared to those that are available in more traditional messaging applications. It is expected that this will change during the life of the project as the project team and the developer community collaborate to make improvements to the protocol.

In addition, in order to enhance and decentralize the protocol, it is necessary to surmount a number of technological challenges, the following of which are included in this category:

Key Storage: Users are able to access their Encrypted Identity keys whenever they log in to their respective inboxes. The Encrypted Identity keys are held by network nodes. Because there is presently no method through which an individual may safely save their own keys, it is necessary for the user to sign in each time they access the service. A more recent version of the software development kit (SDK) included the functionality to compartmentalize keys in order to make local storage more secure. This was done for the purpose of preventing unauthorized access.

Message Storage: At the moment, the task of storing messages falls under the purview of the network nodes. The creation of additional systems that will provide the user a choice regarding the storage site of their communications is now underway. These new systems are currently in the process of being built.

In an effort to reduce the number of unwanted communications known as spam, network nodes now place restrictions on the number of messages that may be sent by individual clients. Other approaches, like the cryptographic detection of spam addresses and block lists, are also currently being researched as part of this project.

Network Nodes: At this point in time, the team working on the project is accountable for operating each and every node in the network. The creation of an incentive system is now taking place in order to facilitate the functioning of nodes without the need for authorization. On the path toward decentralization, XMTP has just lately announced that donors would be granted the right to run testnet nodes on the network.

xmtp tetsnet announcement

Getting a handle on these challenges will be absolutely necessary if you want to bolster the network's resistance to disruption and its utility. In conclusion, betting on XMTP is comparable to betting on the achievement of the successive consumer apps that use the protocol. Eventually, the extension of XMTP will be based on the increase of the separate user bases of its users. However, in the end, XMTP will depend on its users to design successful applications in order to bring long-term growth to the network. The fact that XMTP is both generalizable and agnostic is a positive in terms of user acquisition; however, this also means that XMTP will depend on its users.

Some bottom lines

As our journey together draws to a close, we’d like to take a moment to share a few reflections on the technological landscape that is currently unfolding before us. In the ever-evolving world of Web3 applications, a new contender has emerged as the favored communication protocol - XMTP. Its increasing popularity and broad application demonstrate the profound impact this protocol is having on the digital world.

Web3 applications have greatly enriched our experiences in the digital realm. One of the key contributing factors to this advancement is the simplification of collaborative efforts within the crypto economy. The interplay of communication, financial transactions, and identification have been streamlined, ensuring that our interactions in this space are smooth and seamless.

The brilliance of XMTP is in its ability to bring a higher degree of adaptability and interoperability to the table. With these characteristics, developers are finding it easier to incorporate messaging features into their products. Furthermore, these features offer the added advantage of being able to service customers across an array of applications, platforms, and devices that they already use. It's an ingenious approach to both broadening the user base and improving the user experience.

One thing is certain: the future looks bright for XMTP. It is poised for exponential growth, thanks to permissionless integrations and strategic alliances with other organizations in the tech industry. These developments are not only increasing XMTP's visibility but also its usability and application in the wider world.

An important factor in this anticipated rapid uptake is the rise of Decentralized Social Media (DeSoc), which is seeing increasing adoption. Simultaneously, more and more popular applications and digital wallets are beginning to integrate XMTP. This suggests that the protocol will see widespread adoption in the near future.

In the grand scheme of things, technological advances like XMTP are transforming our digital landscape. They are reshaping the way we work, communicate, and transact online. This transformation carries with it great potential and exciting possibilities for the future. As we part ways for now, I hope that this brief reflection leaves you with a sense of optimism and curiosity about the direction our digital world is headed.

Disclaimer:
This article is intended for and only to be used for reference purposes only. No such information provided constitutes advice or a recommendation that any investment or trading strategy is suitable for any specific name.

XMTP: The messaging layer for Web3