Cryptobuzz Report: No. 13
The Big News: Tech Monopolies vs. Decentralization, Round 1
Spend a bit of time in the crypto space, and you quickly come away with this type of emotion:
Let’s decentralize everything! But wait, why? Do we really want to take on the Facebook, Uber and Airbnb of the world? The services they offer are pretty amazing, the user experience is nearly flawless, and they control massive monopolies. Plus, didn’t all these companies just disrupt their incumbents? Are we ready to disrupt the disruptors?
If the answer is yes, then we should explore what’s wrong with these companies and how decentralization offers a better solution. In essence, the problem is that all of these companies are rent seekers. Facebook controls your social graph and makes money off your data. The other large tech companies are variations on the same theme: build a powerful siloed network and then extract rent from the users.
On the flip side, shouldn’t Airbnb be compensated for the value they provide? Shouldn’t I be willing to pay Facebook (using my data) for the service they provide? This is true to some degree, however the danger lies in the fact that the real price we pay is often very opaque and much higher than we realize. But, what other options do we have?
At the moment, besides avoiding the system altogether, we don’t have much choice. This is why decentralization has so much potential - it offers an alternative and brings openness to a siloed system. Naval Ravikhant talks about three of the most important benefits to decentralization:
You control your own data. A recent study found that 95% of Americans surveyed are concerned about how companies use their data. Unfortunately, we’re left without any viable alternatives and we continue to accept terms and “click” our privacy away. Imagine a world where you control your data, you have the option to profit from it, and switching costs make it easy to take your data wherever you want.
Censorship resistant. In a lot of Western Civilization this might not seem like a breakthrough, but much of the world is still told what they can and can’t say, read, or watch. In addition, it’s a fine line when we start deciding who should police the internet. Racism and violence should not be tolerated, but it’s also scary that companies have the power to control what is and isn’t said.
Open Systems and Permissionless Innovation. Innovation happens best in open environments. The internet was built on top of open protocols and innovation happened freely without approval from others. Today, things are siloed. I can’t innovate on the social graph of Facebook without their permission. Decentralized and open systems foster more innovation.
So, is the world ready for decentralized Facebook, Uber, and Airbnb? Probably not yet, due to the constraints of the decentralized technology stack. Fred Ehrsam shows that given the current throughput of blockchains, we’re about 25,000x off being able to run massive applications like Facebook on chain.
But let’s take a look at what a decentralized application might look like. We’ll use Airbnb as an example. If we break down their ecosystem, Airbnb provides several centralized components such as search, identity, payment, dispute resolution, etc. Rolled together Airbnb is a formidable competitor sitting on top of a powerful network monopoly.
Decentralized systems can’t compete yet, because we first need fully scalable and decentralized versions of each of those components. This is why we see so much emphasis on decentralized infrastructure (decentralized identity, decentralized storage, and so on). Once we have a fully robust Web 3.0, decentralized technology stack, then we will see new types of networks and organizations that can compete with Airbnb, Facebook and Uber.
These new organizations will look less like corporations and more like protocols, and protocols have proven very difficult competitors for centralized companies. We saw this with the Napster and BitTorrent phenomenon which left traditional file distribution companies unable to compete. (The problem was legally monetizing these protocols which is where blockchains and tokens show a lot of promise). We also see this today when you compare the incredible computing power of the Bitcoin protocol to Google - it’s currently 100 times more powerful than Google and continues to expand.
This is a slow process and making predictions about the future guarantees that we will be wrong. Imagine sitting around in the early ‘90s and predicting P2P apartment sharing and disappearing selfies on Snapchat. However, if we squint enough, you can see a future where as Naval says:
“Blockchain-based market networks will replace existing networks. Slowly, then suddenly. In one thing, then in many things.”
We saw everything correct in a big way over the weekend on the China ICO Ban, and Bitcoin was down 20%. However, the long term bull trend is still intact. And this TA suggests potential for a revisit to record highs around $5,000 if the prices rise above the daily high of $4,611.6 (which it did briefly yesterday). Link
You probably heard that China imposed a ban on all ICOs. This caused quite the stir with prices spiraling downward, and several upcoming ICOs postponing their sale. Fred Wilson offers some commentary on the issue that I think is spot on. Link
More regulatory fuel for the fire. Protostarr, a recent ICO, is shutting down and refunding investors after they say they were contacted by the SEC. Link
Interesting Twitter Poll and results about the crash over the weekend. Yes China banned ICOs, but Holiday Weekend in the US kept cash from exchanges. Here’s what happened. Link
Apartments in Dubai selling for Bitcoin. Link
Robert Schiller wrote the book “Irrational Exuberance” all about bubbles. He says Bitcoin is the best example right now. (He has no clue what an ICO is, so not sure how credible he is to provide commentary on the crypto space, but his thoughts about the broader market are very poignant). Link
Chris Burniske “The real #crypto bubble will occur when we are well into the trillions. Effects will be felt on a macro scale. We won't be close for years.” Link
ICO Update from Tokendata.io. 184 ICOs YTD have raised over $2.22 Billion. And we have 343 active and upcoming ICOs. Link
Chart of the Week
Bitcoin: A bubble unlike any other. A comparison of different bubbles and their rise over time. A critique however, if you’re showing Technology since ‘94, starting Bitcoin in 2015 is a bit unfair. 2013 saw a massive correction which would make this chart look different, but still… this bubble is unique!