Unblocked

by Alison McCauley

  Extreme Peer-to-Peer

  I start here because it is the idea of pure peer-to-peer exchange of value that has inspired so many blockchain pioneers. In Chapter 6 we saw how the unblocked customer will demand more from middlemen, and how we will see a next-gen middleman emerge. We explored examples like Open Garden and Decent. But “extreme peer-to-peer” models warrant an additional spotlight in any discussion of new blockchain business models.

  Extreme peer-to-peer envisions the near-total extraction of the middleman, to be replaced by a self-governed community, with users interacting with other users and the community through the safe haven of the protocol’s code and governance. It is these structures that give the entire community guardrails for interaction, and facilitate contracts, payments, and reconciliation. There are many entrepreneurs looking at using this approach for social media, news, and exchange of goods, among other areas. But let’s take a look at this approach through the lens of two areas that have a large and direct impact on our quality of life, day to day: commerce and transportation.

  Peer-to-peer global commerce

  OpenBazaar is looking to create a world of truly open commerce with no middleman between buyer and seller, and zero fees. Merchants, currently small businesses from over 30 countries, create their own store, and do not need a bank or credit card processing—all transactions take place with cryptocurrency.

  Especially for ecommerce executives, who know consumers abandon carts at a whiff of friction, OpenBazaar is easy to eschew. It’s clunky, and it’s awkward. The platform only uses cryptocurrency. Until recently, users have had to download a full node, and interact only through a hard-to-use desktop app (beta mobile versions were recently launched). Cofounder Sam Patterson helps to set expectations: “Existing centralized marketplaces like Amazon and eBay have had decades to build up an impressive suite of features for their users . . . it will be a long time before we are as feature-rich as the big platforms.”158

  However, OpenBazaar provides a fascinating vision of how a community could one day chip away at existing incumbents. You see, this is not a company; it’s not even an organization. It’s free, open source software. It was built to provide everyone with the ability to buy and sell freely. In fact, no one has control over OpenBazaar. Each user contributes to the network equally and is in control of their own store and private data. The creators envision an ecosystem of developers offering value-added services that work with OpenBazaar (for which these developers could charge), which also incents them to advance the OpenBazaar code itself. Success for the participants—including the creators—comes from the increasing value of the overall ecosystem. The creators founded a company, OB1, that is looking to develop and offer add-on services for both buyers and sellers, but doesn’t expect to have any proprietary advantage over competitive developers—every contributor benefits when the ecosystem expands with new members, adding value to the overall platform.

  Peer-to-peer ride sharing

  New ride sharing models have rapidly grown to change the way we move around cities over the last decade. Many of us think today that we are using a peer-to-peer model when we get in a Lyft or an Uber. We are, after all, exchanging currency for a ride from someone we have never met, even if that exchange is governed by a platform. However, blockchain models imagine pushing peer-to-peer to new levels. Israel-based La`Zooz developed a vision to use a blockchain to deliver more sustainable, smarter, and more collaborative ride sharing than has ever been possible. The team envisioned ride sharing with a mission: to maximize existing transportation infrastructure and vehicles through a direct peer-to-peer exchange. Uber drives revenue by extracting high fees from both sides of a two-sided network, and does not synchronize the desired routes of driver and passenger with the intent to benefit the extended community.

  In contrast, La`Zooz is user-driven, with the community collectively deciding what to reward each contributor through the support of sophisticated protocols. It was designed to help people that need a ride to find an empty seat in a vehicle going the same direction, giving the provider a “fair fare” (set by the community) and reducing miles driven across the universe of vehicles and users. Shay Zluf, who helped to create La`Zooz, sees a chance to make mobility more sustainable: “Thousands of empty car seats haven’t experienced any tush for years. Our road space and transport expenses are mostly used to move empty seats from one place to another. It’s time to change that.”159

  The Big Flip and “Super Platforms”

  In the blockchain community, there is much talk about “fat protocol, thin apps.” This concept—illustrated in Figure 11-1—was pushed into broader awareness in August of 2016 by then–Union Square Ventures analyst Joel Monégro through a post on the company’s blog.

  Figure 11-1. Fat protocol, thin apps. (Source: Joel Monégro, Union Square Ventures blog.)

  In the pre-blockchain internet, applications carry all the power. This is why today, we see quite a few “winner-take-all” markets dominated by giants (Amazon, Facebook, Uber). While the protocol layer (TCP/IP, HTTP, SMTP, etc.) produced immeasurable amounts of value, it was the companies that created applications, collecting and leveraging vast troves of data, that were able to capture this value in the form of revenue. Venture capitalists learned that investing in applications produced higher returns than investing in protocols, and that’s where the money and focus went. The protocols were “thin” and the applications were “fat.”

  In contrast, in the blockchain world, this thesis (which is yet to be definitively proven, and is somewhat controversial) promotes a reversed relationship. Value concentrates at the protocol layer, and only a fraction of that value is channeled to the applications layer. These are “fat” protocols and “thin” applications. This happens because shared data layers (as we explored in Chapter 10) are at a meta layer, not the application layer.

  The introduction of cryptoassets also fuels the flip. Tokens make it possible to monetize the protocol layer, incentivizing protocol development, as well as functioning as a tool to increase protocol adoption. Even entrepreneurs that create nonprofit foundations to manage a protocol stand to benefit if their protocol wins, assuming they hold a good deal of the token (as the ecosystem and utility of the protocol expands, so does, theoretically, the value of the token). While there was no business model for internet protocols, money and resources are now pouring in to the development of blockchain protocols. It will be fascinating to watch how this investment—which has never happened at this layer at this magnitude—will feed new breakthroughs that will impact us all, eventually, downstream.

  What are the implications of this direct flip? In addition to making protocol-layer entrepreneurs potentially very wealthy, it now puts the user at the center. Applications built on these protocols are like constellations of compatible products or services, each providing a specific function for the user. Each application accesses the same secure, private data layer. And this access is turned on—or off—at the user’s discretion.

  With user data in an open and decentralized network rather than siloed in individual applications with access gated by large companies, new applications have lower barriers to entry. This enables a more vibrant and competitive ecosystem of products and services on top of this protocol and its shared data layer.

  James Glasscock, a founder of both a blockchain consultancy and a crypto venture fund, describes it like this: “In the future decentralized world of applications, there may be no 800-pound gorillas like Facebook and YouTube. They will be replaced by 800 gorillas that are one pound each, operating across different sectors with microeconomic fairness for all participants, including audience, creators, widget providers, curators, analysts, writers, and much more. Those smaller gorillas,” James continues, “are going to solve different issues within their respective ecosystems. They’re going to be hyper-focused on providing solutions to their niche cohorts. And they will be independently profitable—this is a game changer.”160

  But these
smaller players would theoretically access something more by plugging into a fat protocol, and it’s vital: because in the blockchain world good protocols attract ecosystems, even niche players could get the benefit of network effects by building on top. People using applications on that same protocol would already have their information in the shared data layer. They already use the tokens. For them, it could be practically frictionless to add one more thin app into their lives. When larger companies start plugging into that ecosystem too, network effects only get amplified more. Everyone benefits.

  Joel summarizes it like this: “The market cap of the protocol always grows faster than the combined value of the applications built on top, since the success of the application layer drives further speculation at the protocol layer. And again, increasing value at the protocol layer attracts and incentivizes competition at the application layer. Together with a shared data layer, which dramatically lowers the barriers to entry, the end result is a vibrant and competitive ecosystem of applications and the bulk value distributed to a widespread pool of shareholders.”

  He also warns that “many of the established rules about building businesses and investing in innovation don’t apply to this new model and today we probably have more questions than answers.”161 For example, to bend your mind a little more, different protocols could be interoperable, as innovators work on things they call “cross-chain atomic swaps” and other hard-to-wrap-your-head-around terms.

  Despite this uncertainty, this is where entrepreneurs and investors are heading. There is a general feeling in the community that eventually models will emerge that enable profitability at the application layer, although very different models than those today, and that this will incent further innovation.

  Blockstack is a startup with a particularly ambitious mission: to create a new internet for “decentralized apps” where users own their own data. They encourage users to get started by installing the Blockstack Browser, and envision developers creating an ecosystem of applications on top of it (and they have a handful available today). Users access the apps through the browser and a single account (much like Google products work today), but retain ownership of their own data (unlike with Google). Users give (or revoke) explicit permissions to their data. Information is encrypted and stored on users’ personal devices. There are no middlemen, no passwords, and no data silos to breach.

  Eric Ly, the cofounder of LinkedIn, is building a new protocol called Human Trust Protocol, or Hub. Hub uses a cryptoasset, the Hub token, to incentivize users to verify and build reputation. Eric sees reputation as key for creating economic value for users. With reputation, he explains, we have a sense of why someone, or something, is valuable. With a good reputation, users can gain more opportunities, command higher premiums for their products and services, and get more cooperation from others. “We want to get that piece right for users,” he explains.

  The Hub token lets users earn trust as a result of successful interactions. Verifiable and portable across applications, users own their own reputation data. To demonstrate the utility of the protocol, Eric and his team have built Hub app, a professional network where users connect in communities and marketplaces. The app integrates with the protocol to deliver more trustworthy engagement and opportunity than nonblockchain platforms can deliver. However, Eric envisions developers using Hub wherever reputation is important to interaction, evolving the ecosystem of apps over time. “We see Hub being used for anything from sharing economy to online communities and even messengers—anywhere that people interact in a larger context with people they don’t know.” He continues, “It would be really great if we could rearrange economic mechanisms so the benefit of reputation data is redistributed from centralized corporations to the edges, where the users could benefit from the value of this data—that is a pretty big thing to happen, and it would be neat to be a part of that transformation.”

  As Things Get Smaller, Value Gets Bigger

  There is an Alice in Wonderland–like spell flowing through the blockchain space. As you get deeper, you spot it in many different areas. Time and time again, a common theme emerges: things are shrinking and it makes new things possible. We just saw that as applications shrunk in respect to protocols, they could deliver more value to the people using them.

  Blockchains and cryptoassets lend themselves extremely well to breaking down pieces of something into fragments—I call this effect atomizing—and providing immutable verification and tracking of that something, embedding terms and conditions with it, or enabling trades with it. They also make even small transactions possible and worthwhile. Micro-payments are an incredibly important use case and are integrated into many projects. We’ll likely see an evolution in micro-lending as well. But, with the assistance of complementary technologies, there is not much that can’t be atomized and used in new ways, whether it’s a house, a work of art, or even airspace. What follows are a few diverse examples of how atomization manifests. As you spend more time in this space, keep an eye out for this shrinking effect; you will spot more. Here are just some of the interesting—and diverse—areas in which this concept is emerging.

  Education: atomizing credentials

  Years ago, I conducted an in-depth study of what was holding back broad-scale adoption of exciting new technology-enabled education solutions. One barrier, specifically in higher ed, particularly frustrated me: the lack of a trusted cross-platform mechanism for tracking, verifying, and thus using “micro-credentials,” certification that a specific course has been successfully completed. There was no widely accepted way to certify that someone had gained knowledge or a skill without the wrapper of the familiar, widely accepted, but expensive and time-consuming, degree. New, technology-driven courses were available to give high-quality, low-cost (or even free) content to anyone who could access an internet connection. But their utility, and thus value, was limited without universally accepted recognition that the course was indeed completed successfully. And if this could be figured out, it would help so many that didn’t have the money or time for a full degree. Blockchains promise a solution.

  Learning Machine, which we met in Chapter 7, uses Blockcerts, an open standard, to establish a lifelong learning record. The team sees education as a critical pathway for upward mobility and economic improvement—and credentials earned on that journey serve as important markers of skill, competency, and accomplishment. But education providers don’t always have a secure way of issuing these credentials that students can take with them and build upon. With Blockcerts, student data ownership is attainable: learners can receive their official records in a digital format that is tamper-proof and immediately verifiable by others.

  While the initial use case is focused on verifying traditional university degrees, the protocol could be leveraged to support micro-credentials and the “unbundling” of education. “Not all micro-credentials need to be on a blockchain,” explains Learning Machine Vice President Natalie Smolenski, “but any skill or experience that needs to be verified with a high level of certainty, across space and time, should use a blockchain. For many people without access to higher-level degrees, or those switching careers or fields, micro-credentials may very well be the most valuable credentials they achieve over a lifetime, and being able to own and independently verify those credentials anywhere can mean the difference between stagnation and access to opportunity.”162

  Insurance: atomization of time and space

  A discussion of new blockchain models is incomplete without a close look at insurance. As we saw in Chapter 10, blockchain-driven identity can be the cornerstone of many new businesses and models. Insurance is also a great enabler. Gopi Rangan is the founder and general partner of the first insurtech–focused venture capital firm in Silicon Valley, Sure Ventures, is an adjunct professor at INSEAD, and has coauthored over 30 patents. We sat down over a glass of wine to explore how the combination of blockchains and insurance could change lives.

  Gopi painted an eloquent picture of
how insurance, something many of us think of as—I’ll say it—boring, is actually a crucial safety net for society that makes it possible for all people to aim for long-term prosperity and key to supporting our universal quest to maintain a high quality of life over time. Pooling and distributing risk among a community makes the entire community better off. “The quality of life of one individual does not descend, for long, by a single unfortunate event,” Gopi explained. “Instead, they are supported and protected.”

  One of the challenges in the industry is that the need for protection changes not only from person to person, but over time and circumstances too. Insurance products have been relatively rigid—you can insure a car, but it’s much harder to insure it just in those moments you need the insurance, or find someone willing to insure something of much lower value—say, a computer or a bike.

  Blockchains (along with a new flood of IoT-driven data that can be used to calculate risk and monitor assets) could make it easier for insurers to offer granular protection that flexes and changes with individual needs. It drives costs down and enables unique identifiers, immutable tracking, and contracts that can be executed without a human—making it possible to make insurance work for smaller and smaller things or periods of time.

  In a blockchain future, it could be possible, for example, to get insurance just for those times when you take that bike and computer outside of your home. It also makes it easier to integrate that insurance into an ecosystem, offered as an add-on service to a range of products. “It could influence us to be more open to sharing,” Gopi explained. “Now you can lend that bike to a neighbor without a worry. As a community we are better off—it brings us together.”163