On Tech, Business, Society.

Tag: business models

Don't Fight Current Intermediaries with Blockchain Products, Circumvent Them Instead

I hear a lot of talk from blockchain companies and projects saying that they want to replace intermediaries. 

However, the dream of the blockchain is not just disintermediation. It is about creating new models and value chains where old intermediaries don’t even play in. 

Why go head-to-head against established players, if you can completely circumvent them and not even have to deal with them. Let them become a footnote in your model. 

Take DeFi (decentralized finance) as an example. It is a totally new system that is completely native to the blockchain and cryptocurrencies. It has no existing equivalency in the current financial system. Yes, it is tiny in comparison with the global financial system, but native businesses typically start very small, because their starting position is zero users. DeFi players are re-inventing financial products and instruments with a crypto-based infrastructure, and that’s very innovative.

Non-fungible assets and apps based on peer-to-peer networks are other segments that have native-based trajectories, and I’d like to see these evolve further with more users.

I’m not saying that replacing current intermediaries in existing systems is not an interesting goal for blockchain projects and applications. It is part of a segment that will grow as well. 

But I’m also very interested in new systems that are native, organic, original and start with nothing typically. These are generally more foundational projects that target a whole industry.

You can almost take every industry, and re-imagine it with a blockchain-based infrastructure. For example, in real estate, imagine if new homes ownerships could only be registered on the blockchain, and that a new jurisdictional system gets developed to support transactions that occur thereafter. Sadly, current laws haven’t crossed over into blockchain-based legal constructs, which means that value chains cannot be implemented end-to-end yet because we still need to interface with the current world where most of the friction remains. Hopefully, that will be developed over time.

If we can move (crypto-based) money around the world in less than 10 mins, there is hope that we can (and should) make thousands of processes more efficient as well.

The underlying infrastructure base of trust is already here. We just need to build more services on top of it.


The Consumer-to-Blockchain Paid Model Is Coming

Here’s a bold prediction: a consumer-to-blockchain revenue model will be emerging.

We know that the current publisher-driven content pay model sucks. Fred Wilson chimed on it again here, The Free and Open Internet. Paywalls are not a panacea.

We know that most ISPs are highway robbers. I don’t know any user that would admit they aren’t overpaying for Internet access services. Telcos profits and ISP monopolies are there to prove that point.

We know that public blockchains need a “continuously viable” economic model to ensure their ongoing decentralized independence. Today, the economic equation is driven by a mix of mining revenues, gas related tolls, transaction fees, and rising token prices,- all summing up to actual monetary value changing hands.

Today, miners are paid to validate transactions. Developers pay to run blockchain programs (smart contracts). Most processors (or central exchanges) charge additional fees (off-chain) to ensure the finality of transactions. Some blockchains have built-in on-chain fees as part of the transaction’s journey.

Sound economics of public blockchains depend on a delicate balance that needs to always be in place. That balance depends on actual stakeholders, sponsors, activity, validators, stakers, etc. all humming together.  

What if there was a consumer model where a user would pay something nominal, say $10/month to start with, in order to have access to a given public blockchain and all the goodies that are running on it?

Imagine if that type of revenue would then be divided-up programmatically (according to a known protocol) among the various stakeholders, including the node operators, core developers, storage resources, and related supporting peer to peer networks.

Incentive-driven blockchain payouts are emerging. We already have models that have provided those beachheads: Steemit pays users for publishing content, Blockstack’s App Mining distributes payouts to populars apps, and the Kin’s Reward Engine incentivizes successful developers according to their contributions.

Of course, not all blockchains will be able to practice a paid model. Only the truly open, decentralized, universal, scaleable ones that have a large enough ecosystem of applications and developers will be able to contemplate that model in their future. And I would envision this possibility only when a blockchain is stable, and not still in development. Ethereum is a good contender for that model. Perhaps Blockstack as well.

Imagine a new paradigm where mobile Dapps are not subservient to the Google or Apple stores, and rather retain a lot more of the value they earn, while still being rewarded for their overall contributions on a more fairly and equitable basis.

Imagine a new marketplace where we will find the next generation of decentralized apps there, the ones where privacy and data are in the hands of owners and not monopolies. I don’t believe Google or Apple will be the gateways to such a future because they are currently its gatekeepers.

If you think of the blockchain as a universal utility, just like the Internet or the telephone or water, then the idea of paying for it may not be a crazy one.


Cryptocurrency Will Re-Fuel the Attention Economy, Get Ready

THEN said a rich man, Speak to us of Giving. And he answered: 

“You give but little when you give of your possessions. It is when you give of yourself that you truly give.”

— From The Prophet (1923), by Kahlil Gebran

Attention-CryptocurrencyWe are increasingly spending our time in online activities that we don’t get paid for. Social media for example is a benevolent time consuming activity that has no direct financial paybacks, but plenty of indirect benefits (when used properly).

It was Alvin Toffler (who I had the pleasure to know) that first described this trend in his last book, Revolutionary Wealth (2007), calling it the “non-money economy”. He also rightfully predicted it was going to explode.

Here are some excerpts from his thinking that we can more easily relate to now, because these weren’t so obvious in 2007.

“The non-money economy may well create as much value as the money economy.”

“More and more companies in the money economy are externalizing labor by requiring customers to perform tasks previously done for them by employees.”

“We call this externalization of labor the “third job.” Your first job is the one you get paid for when you go to your office or factory and get a paycheck every week or month. Your second job is taking care of yourself, your kids, your parents or your home, cleaning up or doing the dishes. The third job is the work being “outsourced” by the producer not to India or the Philippines, but to you, the consumer, from the friendly companies all around you.”

Alvin Toffler was obviously referring to the multitude of self-service actions we perform on a daily basis, such as using ATMs, tracking a package, booking an airline ticket, and recently giving our attention to social media. He didn’t predict cryptocurrency, but he said this:

“Some consumer advocates are already starting to demand payment for the sale and use of their personal information, whether revealed by their purchases at the supermarket or a visit to a Web site.”

He continues with this:

“The revolutionary wealth system is all about decentralization, niches, flexibility and devolution to networked and distributed power.”

Alvin Toffler didn’t predict the blockchain either, but that last statement was as close as he got to it, considering that he (and his wife Heidi) were formulating these thoughts during the 1996-2006 period (it takes them a decade to write a book).

All this background ties to a theme I’ve been re-hashing: that we now have new opportunities to earn “currency” by doing some work online. Today, this currency is cryptocurrency and the difference with Toffler’s vision is that- what we earn can also be spent on transactions inside these new non-money economies. This means that you don’t need to go into the “money economy” to spend what you earned in the non-money economy.

However, finding the various methods of spending cryptocurrency and linking the earning aspect to a viable business model as a basic utility is still hard to figure out. The earning part might be a little easier, as it is the first step. Earning takes the form of active or passive work.

Active working could include delivering on bounties for specific projects such as finding bugs or developing software, both tasks that are from a technical perspective. Or, it could involve up-voting, promoting or commenting on social media.

Passive working is typically accomplished by sharing something, such as your computer processing cycles, Internet access, or storage; or something that you produce, like your own data.

In both cases, there is time involved, and there is value received.

If Facebook was re-invented today, we should all be partially compensated for letting them monetize our attention. The average user spends 50 minutes per day on Facebook, and time is that critical measure of engagement.

So, why do we have to give our time away for free? Granted that not all investments are of a financial nature, because we also invest our time in pleasure related activities. However, if the value received is paid for by a token currency, and if that token is worth more in the future, then the time invested translates into a lucrative return.

Today, it would be the anomaly if we are paid via cryptocurrency (e.g. on Steemit), but in the future, that may be the norm.

Tracing back history, the progression would be as follows for the average normal person:

  • First, we paid others to do a job (e.g. calling a travel agent to book a ticket)
  • Later, we did jobs ourselves without getting paid (e.g. tracking your own package)
  • Then, we spent time on social media without getting paid either
  • Now, we can earn a valuable token (e.g. social media attention that earns you cryptocurrency)

Spending time for value can go further. For example, how can you pay me for getting value from what I write? Here are 3 ways:

  1. You could write an Amazon review (with a 5-star rating, preferably).

  2. You could go to my Steemit page and upvote or comment on my posts.

  3. You could vote for me on the CoinDesk’s Most Influential Blockchain People survey (do it now, as voting ends Dec. 10th)


These were just simple examples that don’t cost you money, but they cost you time. Maybe in the future, I could issue Mougayar-currency for these actions, and the tokens would appreciate in relationship with the value of my work or notoriety, or I could allocate a share of my earnings to be distributed to my followers.

How do you participate in the cryptocurrency attention economy and what choices do you have to make?

You can decide where and how you want to spend your time.

Just as we choose our friends, communities and where we like to live, in the not-so-distant future, we will have options in making choices about the relationships we want to nurture and spend time in, via:

  • Choices of cryptocurrency we want to own, earn or transact with,
  • Choices of transactional non-money economies we want to participate in,
  • Choices of who you want to share your data with, in return for tangible value or tokens.

These are choices we will make.

The free labor economy will be over, because cryptocurrency will re-fuel the attention economy with value. We might finally get paid for that “third job” we have had for a while.


How Cryptocurrencies and Blockchain-based Startups Are Turning The Traditional Venture Capital Model on Its Head

cryptocurrencyThe decentralization effects of blockchain-based cryptocurrencies are hitting the venture capital industry in more ways than one. Whereas the traditional venture capital industry is boring, the crypto-tech industry has become more exciting. Actually, I see the two models as diametrically opposed: one is a closed market, dominated by command-and-control practices, led by a few rich people on Sand Hill Road. The other is a widely open global market where anyone can play, and where the gains and risks are more evenly distributed.

This has led to a re-thinking of how startups who are operating in the blockchain space can raise money, and it has potential implications that will revamp the relationships that venture capital firms can hope to strike with these startups.

As an investor, advisor or board member, I have been closely associated with a variety of early stage companies that are tackling the innovation explosion around cryptocurrency and blockchain-based models, and have had the fortunate insights of seeing where we might be headed.

The upcoming shifts are encapsulated in the following table, covering 9 variables.

Changing Venture Capital

So, what is new about this environment?

Return Horizon. Whereas the return horizon for traditional VC funds is squarely in the 7-10 year horizon, we are currently at the beginning of an inflection point in cryptocurrency-led valuations, resulting in much shorter liquidity options for early investors, in the 1-5 year range. Ownership Model. Traditionally, VCs receive preferred shares by buying private equity. With the new models, they can acquire shares and/or tokens/cryptocurrency that have been issued by the startup.

Entry Phases. Angel, Seed, Early to Late Stages (A-F) are the known trajectories for conventional startup investments. The new continuum has another progression lingo with it: pre-mine, genesis, initial cryptocurrency offering (ICO), listing on an exchange, or private sale of crypto-tokens directly from the company.

Business Model. A traditional startup is typically focused on developing and marketing a tangible product or service. A blockchain-based startup could have a product/service as part of what they are developing, but their stride is best hit when they are also creating a self-sustaining circular economy that is supported by their own currency or tokens, and where there is a transactional loop between earning and spending these tokens within their ecosystem.

Legal Structure. Startups typically incorporate as a Limited Liability Corporation (LLC) or any other traditional way according to the corporate laws in their given jurisdiction. In the new environment, the LLC could be creating a base open source technology/protocol, but they will run a proprietary separate business on top of it or adjacent to it (e.g. IPFS and Filecoin), or they could create a valuable ecosystem around it (e.g. Ethereum). In extreme cases, the organization is non-registered and operates as a distributed autonomous organization on the blockchain (e.g. BitNation).

Limited Partners Mix. The same traditional mix of institutional, high net worth individuals, family offices and funds of funds that typically invest in venture capital funds will be attracted to this emerging segment, only if they are progressive, innovative and forward-thinking, with the ability to allocate discretionary funds under strategic considerations pretexts. In addition, given the more relaxed crowdfunding rules that exist in several jurisdictions around the world, a new venture fund could also get a mix of participation from a publicly crowdsourced segment of investors.

Fund Currency. In addition to fiat currency, a new VC fund could also accept cryptocurrency (especially from the crowdsourced segment), because of the frictionless capabilities that exist for accepting cryptocurrencies online. However, it would be prudent to immediately convert these funds into fiat as the initial reference currency for investment vehicles, in order to avoid being caught in cryptocurrency value downturns, and to remove any perceived intent of currency speculation which is outside the mandate of a venture capital fund.

Market Approach. The best candidates for this new model will be blockchain startups that are purposely creating new business models, and not supporting existing ones. The reason is that these new business models are more fertile grounds for innovative circular economies, new ecosystems, and new value creation, which are important conditions for success.

The nature of blockchain startups is changing, and this change should be accompanied by an evolution on how they are funded.

A new VC fund with the above characteristics has the luxury of having no baggage within an existing Limited Partners Agreement (LPA) where changes may be hard fought. Instead, these elements would be baked as part of the initial LPA, while properly addressing the legal and compliance considerations.

Disclaimer: In no way does this blog post represent an offer to sell securities or an advertisement of raising a new fund. I have yet to announce anything regarding a new fund that I might raise in the future.


The Networks They Are A-Changin’

time changeThe slow one now Will later be fast As the present now Will later be past – Bob Dylan (from the 1964 song, The Times They Are A-Changin’)

Technology is this amazing thing that keeps changing, and within these changes, it changes us. But amidst all the ongoing waves of technological innovation, there are typically lots of small changes, coupled with a handful of big changes. While small changes are like the individual trees in a forest, the big changes help us to see clarity through the fog of the future, as they reveal new fields where a new variety of crop and trees blossom.

Let’s take the concept of decentralization, as powered by peer-to-peer technologies. Decentralization is a meta-theme that is enabling a number of other big changes. We already know that peer-to-peer approaches offer a radical departure from the central, command-and-control hierarchical structures, and now that we’ve had over a decade of tinkering with some base technologies, we are starting to see the big waves of decentralization emerge more clearly.

Three such big changes come to mind. The decentralization of Money, Trade and Applications.

1. Decentralization of Money

I’ve said this before. Bitcoin is not just money on wings. It is wings for any money. Bitcoin’s blockchain offers a better network for moving money around, whether it is cryptocurrency or not. The biggest innovation behind Bitcoin may well be its network topology, not its currency. For the first time we have a globally overlayed financial network that is publicly available, and not owned or operated by the big financial institutions, like SWIFT or FIX. Money movements and multi-asset trading settlement and clearing can operate on blockchain-enabled networks, a lot more openly, and more “swiftly” than on the existing global networks.

2. Decentralization of Trade

E-commerce has brought the power of buying and selling anything via the Internet, and we are getting accustomed to buying and selling via powerful central e-commerce hubs. But as big as e-commerce is today, it has only made a dent into the global trade (about 6%). What if peer-to-peer commerce opened a new untapped market for e-trade around the world that could touch people who didn’t previously partake in the first wave of centralized e-commerce? What if there were no centers, or less centers, and all the activity, inventories, products, and services were evenly distributed, allowing anyone to discover them and engage in trade, without barriers, fees, or artificial regulations? The essence of that vision is actually embedded in the emerging standard e-trade protocol OpenBazaar. OpenBazaar will allow anyone to directly jump into peer-to-peer commerce by embedding information, trust, contract terms, payment and transaction processing inside single “smart containers” that know who they are, who manages them, and what they need to do.

3. Decentralization of Applications Development

Back to history, the mainframe brought us centralized computing when IBM introduced its first model in 1964. A few years later, mini-computers distributed that computing, but with less power. Then, client-server chopped it up by mixing and linking distributed networks of mini computers, coupled with less powerful workstations. Personal computing brought everything closer to the users. About ten years later, the Web mashed-up PC and client-server into a Web architecture where PC-based clients processed some code locally via Javascript, but interacted with web servers. With the blockchain, the latest evolution for writing software takes another step towards increased decentralization via a Web3 architecture, implemented by Ethereum, and focused on writing a new breed of decentralized applications, called DApps. A DApp can be viewed architecturally as being similar to a traditional web application, with one difference: the programs run smart consensus logic on the blockchain’s virtual machine code, and client-side code runs in a special client software inside the browser.

So, we have a new decentralized network for money, a new decentralized network for trade, and a new decentralized platform for software development.

New Protocols Enable New Networks

What is common to these 3 waves is that underlying each one of them lies a Protocol, as a key technical and organizational enabler.

Protocols aren’t just about connecting computers or technical stacks with one another. Protocols facilitate peer-to-peer relationships between autonomous entities, and decentralized protocols can take this to another level of depth and breadth.

Protocols rely on a key concept of layering, allowing data to find its way into the right application. Protocols are meant to be deployed over networks, and therefore they touch other entities laterally at the peer-to-peer level, and not only as a vertical stack. Newer protocols that specifically promote decentralization have a wider wingspan and reach new types of networks that overlay on top on the Internet. The end-result is a new generation of market players that might compete with the incumbents who are holding on to currently known web models.

Screen Shot 2015-09-15 at 8.31.02 AM

Therefore protocols are not just a software development enabler, but also as an enabler for business, and societal change. Protocols contain a political or philosophical message in addition to technical code. The 3 types of new protocols mentioned above are different than previous lower level technical protocols we know (e.g. IPv6, TCP/IP, SMTP, HTML, etc.), in that they are a little higher in the “stack hierarchy” sense.

Protocols are important because they are powerful. Protocols embed complexity but imbue simplicity. Protocols have relationships with the underlying networks, but they in turn create other networks on top of that, based on the protocol itself.

All these changes are based on the Internet as the underlying network that serves everything, but new user networks get formed on top of it. Protocols empower users, developers and all participants beyond the layers of the protocol itself.

Enabled by the blockchain, there are some other new protocols that are in the making and have potential, but they may not be as developed, matured or propagated yet:

  • decentralized content (publishing, storage, retrieval)
  • decentralized identity
  • decentralized reputation
  • decentralized messaging

There will be new businesses built on top on new protocols and some of them will threaten or replace existing businesses built on existing protocols.

Decentralized protocols are going to be very important in the future, and I plan to continue writing about their impact.

The protocols they are a-changin’.

And if you are reminiscing about that good old song, here’s a video of Bob Dylan singing, The times they are changin’ in 1964. He will always be right.

[Disclosure: I’m an investor and board member of OB1 (the company leading the development of OpenBazaar), a board advisor for Ethereum, and an investor in Bitcoin companies.]

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