Protocols as Minimally Extractive Coordinators

A recent Flipside Crypto post alarmed me when it stated the following: “Despite labeling themselves as decentralized networks, protocols, foundations, and frameworks, cryptocurrency projects are, in fact, businesses – that will fail to succeed if they don’t start thinking of themselves that way awfully fast.” I respect Flipside and what they’re working towards with the Fundamental Crypto Asset Score (FCAS), but fear that encouraging protocols to think of themselves exclusively as businesses will defeat the promise of protocols in the first place.

Protocols provide structure for businesses, but are not businesses themselves; they are systems of logic that coordinate exchange between suppliers (businesses) and consumers of a service.  As coordinators of exchange, protocols should be minimally extractive, whereas businesses are incentivized to be maximally extractive (that’s profit, and a business is valued as a multiple of its profit). 

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Ethereum and The Seven Dwarfs

People in the 1960s computer industry would say the market was IBM “and the seven dwarfs” in reference to the other popular computer makers: Burroughs, Control Data, Digital Equipment, RCA, Univac, Honeywell and GE. They all poured fortunes into developing newer and better technologies than IBM, yet none could compete with its massive distribution advantage. Ethereum is the IBM of the smart contract blockchains: it may not be the “best” technology, but it works well enough and has amassed a distribution advantage that will be hard to overcome by its competitors. 

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Web vs. Crypto Service Models, Cost Structures and Value Distribution

We compare web vs. crypto service models across two dimensions: the production model (from centralized to decentralized) and the data model (from custodial to non-custodial). The more decentralized and non-custodial a service, the more distributed its cost structure. This is important because markets tend to allocate value along the line of costs. So the more we decentralize the cost structure of a service, the more broadly we distribute its value.

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Cryptonetworks and Governments

Public cryptonetworks have some unique features that put them in an ambiguous position vis-à-vis existing legal and administrative systems, especially governments. What should governments make of these emerging systems, and how might their societal role evolve in a cryptonetworked world? On the one hand, crypto represents an important and effective tool against authoritarianism, and certain aspects of it can arguably be framed as competitive with the State. On the other hand, it is also possible to envision a more symbiotic relationship in which well-intentioned governments are both active participants in and direct beneficiaries of public cryptonetworks.

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Sovereign Cryptonetworks

A state is sovereign when it has supreme authority to govern its territory without interference from a foreign power. Similarly, a cryptonetwork is sovereign when it runs in a way that resists outside influence. But instead of managing the rules and politics of a geography, cryptonetworks use blockchain protocols to govern the production and exchange of information services over digital space. Achieving sovereignty is necessary to fulfill crypto’s ultimate promise of independent online networks that distribute value more broadly across its participants, instead of concentrating it in a particular company or jurisdiction.

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