The Golden Age of Open Protocols
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Underlying this wishful thinking I smell a frustration that investors can't make money from open standards. But the reality is that open standards bring an incredible amount of value to companies and individuals that rely on them. Think about the transaction volumes happening over HTTP or SMTP, let alone TCP/IP. The value is immeasurable, it's just that finance can't get a piece.
This is one of those areas where we have to recognize that economics and GDP do not tell the whole story of human value. Blockchain tech is really cool, and I don't think we've scratched the surface of where it will eventually go, but I just feel dirty when I see how excited VCs and finance guys get about it.
The way to make money from open standards is to sell products and services that implement those open standards. SMTP is an open standard but Microsoft still makes money by selling exchange to corporate clients, and Google presumably manages to make money from Gmail.
The crypto-token model Fred describes is Ethereum with the serial numbers filed off. It's a model to support the provision of a decentralised, distributed platform, not an open standard.
This is true, but in the other direction from your statement's surface meaning:
Open standards are in great us, but count as $0 in GDP, since they are free. You might say that means that GDP undercounts value. but really, no one derives value from open standards -- open standards enable valuable activities, some of which are GDP (for example, ecommerce), and some of which are not (for example, emailing pictures to my grandma, which is negative GDP compared to printing and mailing).
GDP overcounts:anything we spend money on is GDP, even if it is just a means to an end; and undercounts: many valuable things have no price, and more generally, most purchased end-user products are worth more than their price.
It's not as if they are blind to the problem.
Economists understand this, but laypeople tend to, out of a desire for simplification, subconsciously conflate the concept of GDP with "health of the economy". There is an old joke about how when an economist marries his housekeeper, the GDP of his nation goes down.
There's a raft of different metrics that economists have devised to get around the problem that not everything that's measured is relevant, and not everything that's relevant is measured. Of course, you have to be an economist to really understand them.
Throwing blockchain technology into the open protocol mix will stop companies from changing their API at a pace that exceeds the public's ability to bear the cost of keeping up with the required software changes on their end.
Till now, VC funding provided the incentive to rapidly version a company's APIs, which actually runs counter to other company's needs as a consumer.
At the same time, the blockchain will allow software vendors to offload their clunky old revenue models with new ones. New payment models for software is always how the next revolution starts, after all.
With the blockchain's ability to provide contractual relationships, traditional software models will be transformed into contracted on-demand software deployments to various infrastructure providers who accept payment using Bitcoin. Or Ethereum.
Plenty of people make money from this: your ISP, the utility company that pulls cables under the road, the construction company that dug up the road to put them in, the owner of the site where your ISP's network equipment is located, and many of the websites that you interact with.
I believe that the source of the confusion here comes from trying to slice the world into "VC monetization" and "human value", as if these were different or opposed things. I have a different way to look at this space which reveals useful insights:
We see lots of technologies go past that people seem to be excited about, but which then fail in the market. It is currently popular to imply that this means "the market" is some alien thing which is not aligned with what people want. A more realistic view is that people have multiple levels of interest. We can order some of them from lowest to highest:
- willing to read an article - willing to write a comment on the article - willing to blog about the technology - willing to open their wallet - willing to pay the full cost of making it
What we see is that a lot of technologies can only reach levels 2 through 4: people are interested, but not interested enough to cover the cost of making it. By any reasonable standard, that means we shouldn't make the thing: its value to people is less than the value of the raw materials that went into it. "Failed in the market" is a way of summarising this decision, but it gets a lot of negative press because it hides all the details so people don't understand the value comparison being made here.
The neatest mnemonic to think about this is "money is the unit of caring: you can measure how much people care about a thing happening by measuring how much money they are willing to spend on it".
"VC monetization" fits neatly into this picture: VC want to know more or less immediately if people are going to reach interest level 4 or 5 on this scale. They do not want to burn time and money on things which can only reach level 3: those things never had a future. You cannot tell the difference without asking people to open their wallets.
One of the better ideas was micropayment email, as a solution to spam. You have to pay the recipient to get an email through, unless they've whitelisted you as a friend. A centralized service could do that. (One could see Gmail or Facebook doing that. LinkedIn already does. So do some dating services.)
Doing it in a distributed way is hard. Blockchains probably won't help; the cost of a Bitcoin transaction is too high and the network capacity is orders of magnitude too low for mail. Local proof-of-work systems have been suggested, but never caught on. (Probably not a good idea in the era of battery-powered devices.) Worth thinking about, though.
Urbit has a scheme where identities are anonymous but not free. That's an anti-spam measure, because spamming results in negative reputation for a paid-for identity. It thus make spamming expensive. Urbit is probably too weird to get much traction, but there are good ideas in there.
> The trouble with micropayments is that all the enthusiasm for them comes
> from the people who want to collect them, not the people paying them.
Micro-payments enable applications that were not possible before, like trustless pay-per-view, where you pay 0.1 cent per second of video. So the excitement is understandable, I think. The execution just hasn't been all that impressive.
I think the Stroem protocol [1] will be the winner in the short term (within the next decade), enabling a form of micro-payments that are not trustless, but with so little barrier to entry for micro-payment issuers and so huge benefits (send money to anyone anywhere instantly and incredibly cheap), I think it's inevitable. But just as with Bitcoin, we have to accept that it's not what some crypto enthusiasts envisioned. With Bitcoin, many people thought some cryptographic construction would solve the double spend problem, but in the end it was brute force - proof of work - that (partially) solved it. I think the same will be the case for micro-payments. We want trustless micro-payments, of course we do, but in the end I think a promissory note-based system will be stable enough that its lack of complete trustlessness (á la Bitcoin) won't be a deal-breaker.
We've been doing commerce for millennia; it is profoundly boring.
The best parts of my life are already voluntary, cooperative, and social - people working together to make things better for each other. I want more of this, not less. Micropayments just drag the old way into the new. Why waste our time on that? Let's build the future we actually want to live in.
That assumes that micropayments appear as an improvement over the status quo to payers. However in an internet where most things are "free" and existing payment solutions work "good enough" for the remaining cases, I don't see that.
In fact, many micropayment solutions can feel even more oppressive than more coarse-grained payments to consumers. For example, I would feel much better about a video that I pay once and then can watch however often I'd like than one where I have to pay again for every second that I watch, even if it's likely that latter price would be less. (provided that's the case)
To tell it with the car analogy, selling cars to a society of coach drivers is one thing; Selling cars to a society of winged people is something else.
> That assumes that micropayments appear as an improvement over the status quo to payers.
> However in an internet where most things are "free" and existing payment solutions work "good enough"
> for the remaining cases, I don't see that.
Ads aren't the revolution of the internet. They're a poor man's replacement for proper financing. And all the companies who can't deliver a product that can be financed by ad revenue are cut out. The only truly victorious player, in the end, is Google, who've become the world's private banker, financing internet pages all around the world, because no one understand the root problem lies in poor financing opportunities. Consumers are happy because they think they get something for free, when they're just paying with personal information, because no proper online means of payment exists.
The way things currently work is as much a symptom of what is missing as it's a symptom of what is there.
Basically the point is to give every interested party separate address to write to. Giving user a button to generate new random address (120-160bit random number encoded with Crockford's Base32). A bit like user+whatever@gmail.com that gmail supports, but my idea can't be easily gamed by not having constant part (like user@gmail.com). User can register to various services with different address and can detect when his email address was compromised.
Inconveniences: giving address to friends, writing them down on paper forms, dictation via phone. Maybe it would be a bit like having multiple telephone numbers - separate for every one.
For leaving out address for random people like on mailing lists or blog posts, there could be additional step of sending introductory e-mail with certain subject prefix required that would work a bit like CAPTCHA. Than you could reply from new address - designated for this person.
Tokens in the context of the Bitcoint protocol itself have no value - The value is derived from the popularity of the infrastructure, not from the popularity of the protocol.
If I forked the Bitcoin repo tomorrow and started my own altcoin based on it, my tokens would be worth $0 because nobody would know about or want to buy my virtual coins - Even if my network was based on the Bitcoin protocol.
The monetization does not occur at the protocol level - It occurs at the implementation/infrastructure level. You don't need tokens to monetize an open source project - The root of the strategy is merely to leverage the popularity of your open source project (and your status as its 'leading expert' - Since you built the thing) to offer a hosted/managed implementation of that open source project.
The value of tokens merely represents a stake in a specific implementation of a hosted/managed service - There is nothing open about that. It's the equivalent of paying a monthly fee for using a hosted SaaS.
Using the Twitter example, I can't imagine how a service that makes you pay for Tweeting can grow larger than a service that's completely free. The only motivation I can think of is people actually making money (in the blockchain currency) by Tweeting or any value generating activity, but this is also based on the assumption that this network becomes huge, otherwise stacking up these points won't matter that much anyway. Which goes back to my first point--I can't think of how this decentralized Twitter can be larger than its centralized counterpart.
Just trying to understand if I'm missing something. Can anyone enlighten me?
Blocking the ads is cheaper.
This is especially important for the ad business model you mention, since online ads only make sense as a business model when a service reaches a meaningful scale. In 2016, having less than a million users won't make you lots of ad revenue. Basically it's a catch 22.
Why do you think that the decentralized model is inferior when it comes to user acquisition? A team with enough tokens in their pocket would have enough incentive to do the same kind of user acquisition as the centralized counterpart.
A lot of services and apps we take for granted today work because the usage itself doesn't involve any monetary interest (at least among most casual users). As soon as the primary focus becomes money, the network's main purpose becomes money (vs. communication for example) and people will optimize their behavior towards that. And this is how it becomes inferior to the centralized (yet financially neutral) models.
Summary
1. Quality of service is inferior because everything involves money.
2. The assumption is that you will need to pay for certain things (that's how people make money). If I have to pay to post a tweet, I would rather post on a centralized twitter where it's all free.
3. I don't want to share my storage with the world (If you really wanted to be a contributing user of this decentralized twitter network, you should function as one of the nodes, which means you will be sharing your storage with the world. Again, personally I would rather opt for a centralized service.
4. Looking at all of the above, this decentralized twitter is pretty shitty compared to centralized version when it comes to end-user experience. Which brings up the question: Why would I invite my friends? Only reason I can think of is so that I can make money off of them, which is shady (and which is why I wouldn't invite friends).
I think posting and reading tweets could be handled off-chain.
Protocols should not be monetized. They exist for interoperability. Monetizing protocols is bad, because it's aimed at monopoly which always results in stagnation rather than progress.
Of course lock-in crooks like using closed / non-free protocols to control the market. But it's evil.
> OSS projects have been able to gain a foothold in many server applications because of the wide utility of highly commoditized, simple protocols. By extending these protocols and developing new protocols, we can deny OSS projects entry into the market.
> In this emerging model, Twitter could have adopted a
> protocol-based approach and issued a crypto-token,
> Twokens, that users could earn from things like amassing
> followers, reporting abuse, etc. Twokens could also be sold
> by the Twitter founding team to finance their operations.
> Crypto-exchanges could make a market in Twokens so that
> anyone who wanted to speculate on the future value of the
> Twitter protocol could do so.
Common stock in Twitter is a financial instrument that gives you part ownership of Twitter. It has value because Twitter, as a company, has value. Twokens would be a financial instrument that gives you nothing, except the hope that other people will misunderstand this fact and buy them, pushing up the (offer) price. Great for speculators, useless for everyone else.
That's why I am dubious about this logic because there needs to be a clear relative up-front value compared to other alternatives (not some religious belief), yet the intrinsic barrier to usage baked into the model makes it inferior to its centralized alternatives.
> [...] redeem them for a share of the audience on Twitter.
In the situation he's proposing, Twitter's product wouldn't be an API; it would have to be a blockchain protocol.
> You have to determine how many "tokens" to charge and that price won't be stable like the dollar.
I agree, pricing is a problem. Do you poll exchanges for the current rates, every time you make a transaction? It's not ideal.
I think Twitter is a bad example, also. Twitter and file-hosting are already free, within usage constraints. Why would people want to start paying for it? Also, all of the blockchain clones of Twitter have been much less efficient, and provided little benefit over the central model.
- edited for brevity -
Blockchains do not solve the human problem, people wanting others to run software they provide and not any other. This, like Apple and Google locking down devices and Facebook and Google discontinuing XMPP, is about power.
A SaaS value add "orbit" is another way to monetize. Personally I think going all cryptocurrency on this is overthinking it in most cases.
> innovative new protocols emerge that are based on this new business model.
I think it is wrong to think about it in terms of "business model". Protocols (such as HTTP) do not have any business model, but they evolve just fine.
Replacement for twitter will eventually emerge, but I do not think it will be controlled by single entity. Why use crypto-currency to pay for tweets, if you can embed entire twitter into blockchain?
"reserved for future use"
I don't understand exactly what the proposed business model is or how it works here. If the business model is for Company X to develop and release a new open protocol which requires that implementations pay them cryptocurrency upon use, what's to stop implementers from just not implementing that part of the spec?
Or if the business model is that the protocol is both open and free, and Company X issues some new cryptocurrency in the hopes that people will speculate on it, why would they do that? By this article's own admission business models built around open protocols have disadvantages versus those built around closed protocols. So why would anyone want to bet on this company's future by buying its currency?
I guess the one thing I could see working would be if the company built not only the open protocol, but the initial user base to go along with it. If that user base was large enough before other implementations appeared, subsequent implementers might go ahead and pay whatever taxes the original implementer imposes in order to gain access to that user base. But this would imply that companies shouldn't launch with open protocols, they should only open up their protocol after it has succeeded; and also if the originator of the protocol controls such a large part of the user base, I don't see what stops them from moving those users to new versions of the protocol which progressively raise the fees they charge other implementors.
It bears mentioning that few if any of the open protocols we enjoy today were commercial projects which originated in the private sector and had a profit motive. If we can come up a way to align maximum profits with being open then that is great but it's worth considering other approaches as well. For example if a single, entrenched company controls a particular protocol with a large user base then developing an open alternative might be a good way for a consortium of competitors and other interested parties to collaborate and build a user base large enough to compete. Government might be justified in supporting such efforts as well. If there aren't already examples of governments getting involved when they view their national security to be at stake, we will see this soon.
OpenGL is another I can think of. I'm sure there are many more.
In my opinion, we are in the golden age of open source, with the caveat that big companies have subverted it, realizing that open sourcing a popular project and controlling the repo is tantamount to controlling an ecosystem, forking is not an option in practice.
But if the protocol (and code) is really 'open', others can use it without needing any of the rationed tokens.
Sometimes, exclusion/scarcity will be part of the value-proposition on the 'genesis' network. Then – and perhaps only then – many parties have aligned motivations for continuing to enforce a dominant, original token regime. This may only be the case for cryptocurrencies.
Consider instead an adversarial, spam-and-abuse-prone protocol/platform like "fast & wide microbroadcast" (Twitter). That wouldn't necessarily need one access-token – Wilson's 'twokens' – whose value accrues to core or original developers, or early adopters. It could support many competing token/trust roots, for different schools of thought on communication/conduct tradeoffs. That's good on many axes of diversity and adoption! But it also again raises the public-good problem, of how to fund initial development (and continued wise evolution) of the 'common protocol'.