I happen to think that the crypto boom and the blockchain hype have done a lot of good. They’ve driven capital into distributed ledger technologies (DLTs) (which could revolutionise how we interact as humans — but that’s for another post). But more critically, they’ve enticed legions of young talented individuals into exploring these potentially world-changing ideas.
These ideas are complex and their success fundamentally relies on a critical mass of people possessing sufficient understanding to partake in their scrutiny. This critical mass has not yet been reached, and not enough people have taken the time to think deeply about why DLT is exciting.
It’s analogous to describing Tinder as “mobile packet-switching for dating”
Lots of people have bought into the hype for its own sake. They’ll cite “trustless”, “distributed”, “immutable” or “censorship resistant” as the key points that make DLTs attractive. Some might not even bother, opting instead to just sell their idea as “blockchain for X”. The trouble with such an approach is that it’s analogous to describing Tinder as “mobile packet-switching for dating”. Yes, it’s technically correct, but it’s also largely irrelevant to those who matter the most — the consumers. Leading with a line like this isn’t necessarily wrong; it just focuses on the wrong thing.
People adopt what they want, not what they need
DLT is just another technology, and the best technologies enable us to do the things we want to do faster, better or more cheaply. We leverage technology to find the smoothest downhill path towards getting what we want, so the most relevant information is “how does this help me get what I want?”.
When it comes to wants, the vast majority of people don’t care about “trustless”, “distributed”, “immutable” or “censorship resistant”. To be clear, I happen to think society needs these characteristics in the networks in which we participate, and in the long run not having them is really scary. But people don’t adopt what they need, they adopt what they want.
So what do people want? Though this is a generalisation, it largely boils down to two things: a better experience and a lower cost. Due to inertia and the costs associated with switching or trying something new, you can’t just offer marginally better experiences, or marginally lower costs — the delta must be significant. This is why lots of venture funds talk about looking for “10X improvements”. How does this product or service offer a 10X improvement for the end customer? In 99% of cases, making something trustless or censorship resistant doesn’t come close to doing that, because the consumer doesn’t care. This is especially true if, for example, you’re trying to displace a network that is already facilitated through a rent-seeking marketplace, as you have the network-effect lock-in to compete with, not to mention a beautifully integrated UX.
Focus on the right thing
I’m certainly not saying that DLTs are useless because nobody wants the value that they can provide. I think they could provide tremendous amounts of value by introducing market-based incentives into domains in which none previously existed. Achieving this in a long-run-robust manner relies on building networks that are trustless, immutable and censorship resistant — but these characteristics in and of themselves will not get us there. Focusing on them takes attention away from where these distributed networks can truly add value. I fear that the wrong focus might delay or even preclude the mass adoption of these platforms in the long term.
So How Do We Get There?
Clearly there is still a multitude of technical hurdles in speed, scaling, governance, etc that are well-documented and I believe smart people will solve them in time. The big challenge thereafter is identifying compelling use cases in the context of society as it stands today. This is a lot harder than identifying and executing on compelling use cases in a vacuum. How do you create a network that provides a 10x improvement on existing centralised behemoths when UX relies to a large extent on speed and smooth integration? How do you create a network that provides a 10x cost improvement when centralised compute is so much more efficient than distributed compute?
Wherever there is an existing centralised network that does an okay job, it will be hard for a decentralised network to displace it because it likely will initially provide, at best, a marginal gain in areas customers care about. Sure, you could build a trustless version, but people actually already trust the existing centralised version and they’re locked in by the network effect.
To my mind one of the best paths to mass adoption of a distributed network is to tackle a market that meets 4 criteria:
- The asset or resource you want to allocate is highly distributed
- There is a high level of latent demand for liquidity
- The current price of the resource is super high because only a small proportion of its total supply is liquid and tradable (likely because no centralised player has yet opened up the market)
- You can verify transactions on-chain
For example, in a future where solar panels become widespread on the roofs of private homes and businesses, a tradeable asset attached to units of solar energy could become a really compelling proposition. If a network can shake up a market like this by opening access to the previously illiquid portion of assets, the price ought to crash, which should drive adoption rather quickly. (By the way, if you’re working on a project in an area that exhibits these characteristics, I’d be extremely interested in having a conversation — please get in touch!)
Actually, these characteristics are very similar to those that apply to markets in which centralised marketplaces will thrive. Think about the market conditions into which the likes of Uber and Airbnb launched. This is no coincidence, since both centralised marketplaces and marketplaces built on distributed networks rely on the same thing to succeed: their ability to give people what they want. I happen to think that distributed networks will, in the long run, do it better owing to several factors (for another blog post), but they won’t get a chance to prove it if a centralised marketplace is already good enough and well-protected by its network effects. The fact that Craigslist still exists is a testament to this power.
The Time is Now
Fundamentally I think that there are likely lots of green-field markets ripe for distributed networks, but I really hope they are found and tackled quickly. We’re at a critical juncture in our history: the internet is mature enough to support compelling centralised networks, but DLT is not yet mature enough to support robust and obviously compelling distributed networks. The longer this period lasts, the harder it will be for DLT to win in the long run. Good-enough centralised networks have gained adoption and are building their moats. It doesn’t help the good fight if a significant proportion of DLT projects are navel-gazing, obsessed with features that people don’t care about. Please build things people want.