It’s a 1,400 word essay arguing the important distinction between the “governance of blockchains” and “governance by blockchains.”
Five years ago, I had outlined an An Operational Framework for Decentralized Autonomous Organizations. More recently, I have been involved in a DAO experiment, the Ethereum Marketing DAO, in addition to closely following the key projects in that space, and doing my ongoing research on decentralized governance and decentralization in general. So I have a lot of perspective, and a lot to say on that topic.
I’m supportive of the concept of decentralized autonomous organizations, aided by blockchain technology. But I believe that we are still tinkering with its application in the realm of business. We are at ground zero.
The first thought that came to my mind is that I wished Plaid would have rather been acquired by a large blockchain company, like Coinbase. The only issue is that $5.3 Billion is a hefty price for even the largest of blockchain companies, whereas it’s only a digestible bite for a behemoth like Visa.
Many analysts referred to Plaid as “FinTech plumbing”. For me, Plaid symbolized more than plumbing. It was an essential on-ramp/off-ramp component that enabled consumers to loosen their reliance on banks. I have previously written about and continue to believe that FinTech, DeFi, and blockchain-based financial services are allowing us to gradually depend less and less on large banks as our primary financial services providers. In Banks as Back-ends: The Decentralization Has Started (January 2016), I gave examples of that trend, asserting that the decentralization of banking is already here, but it hasn’t been evenly distributed yet.
I became aware of Plaid in the past years as it is used by some cryptocurrency wallet providers to provide an essential on-ramp to bank accounts. Basically, Plaid users connect their bank account to participate in off-banks personal finance, payments, lending, brokerage, wealth management, and a plethora of ancillary financing services. Plaid’s metrics were impressive: they signed-up 11,500 banks/credit unions and touched more than 20 million consumers via popular apps like Venmo, Robinhood, Betterment and 2,500 others.
Of course, FinTech broadly is a big culprit in this unstoppable finance decentralization trend, but I had wished that the companies leading this trend (such as Plaid) would not be swallowed by incumbents.
I don’t know the Plaid team, and I congratulate them on this amazing exit. At the same time, I’m a little apprehensive because we all know too well how these types of acquisitions typically end. Will Plaid services continue to flourish as before providing more freedom to consumers, or will that service become eventually suffocated and dictated by what’s important for Visa before what’s important for decentralized finance?
When big companies think of innovation, it doesn’t mean the same as when startups do. Big companies are restrained and chained by their current business models, and everything gravitates towards, and aligns behind their existing strategies and direction. This means that innovation will be boxed-in instead of flying according to its own path.
Just imagine for a moment how different the significance of this acquisition might have been if Coinbase had acquired Plaid, and not Visa.
I see this acquisition as another successful FinTech company that was supposed to give users freedom from big banks, yet it is brought back under the claws of big Fin.
Although YouTube has not officially acknowledged the reasons why so many crypto-related videos are being targeted, it is assumed that the reasons were “harmful or dangerous content” or “sale of regulated goods”.
At Token Summit, we have been notified that the following 2 videos were indiscriminately removed from our YouTube channel for “policy violations” without citing which policy they violated.
It’s ironic that Naval’s video was just a fireside chat with my Token Summit partner Nick Tomaino, and it was mostly an intellectual conversation about the future of cryptocurrency and what the underlying philosophical implications this new technology has on society, business or government. It was actually one of the most widely viewed videos from our San Francisco Token Summit II in December 2017. The other video dated from May 2017 from our first Token Summit at the NYU campus, again a highly educational conversation about the governance of blockchain. Nothing about ICOs there.
It is a good thing that these two Token Summit videos and all others (from the past 4 events) are also available on the SlideLive site. SlidesLive is the company we hire to shoot the Token Summit videos.
You can still watch Naval’s video on the SlidesLive site at this location and the one about Governance is here.
What is interesting about this situation is the revelation that YouTube’s algorithm were not perfect by any means, as they ended-up removing some good content in one fell swoop.
What just happened is a strong tipping point for moving to decentralized / uncensored solutions, whether it’s video or other. It showed what big and powerful companies can do to shut us down, or shut us up based on their own whims or rules.
Emerging Decentralized Solutions Are Here
Luckily, decentralized alternatives are emerging, and we need to give them a boost.
In search we have DuckDuckGo as an alternative to Google. In e-commerce, we have OpenBazaar (and their Haven App) as an eBay or Amazon alternative. For private browsing, we have Brave. In private chat, we have Telegram or Signal. In private money, we have Monero and Zcash.
There is nothing available on Blockstack yet, but their CEO, Muneeb Ali told me he has just received dozens of inbound requests following this new YouTube development. I’m sure a Blockstack alternative will eventually emerge.
Or, you can move to friendlier services like SlidesLive.
YouTube just handed the decentralized blockchain movement a big tipping point opportunity. They are making it easier for us to move to decentralized apps, platforms, protocols, and services that are censorship-free or privacy-minded.
YouTube is showing us that big companies will shamelessly flex their muscles at the whiff of regulatory pressure. This also shows that algorithms are not perfect, but they can be dangerously harmful in acting the wrong way and making mistakes. When a human makes a mistake, you can usually talk to them and reason with them, but when an algorithm goes willy nilly on something, good luck in reasoning with it. The good humans will hide behind bad algorithms.
How we wiggle our way out from central systems will be won the hard way, one censorship attempt at a time. The producers will move out first, then the end-users will follow.
Ethereum has attracted the world’s largest decentralized applications ecosystem behind it, with an estimated number of participating developers in the range of 250,000-350,000. This growth has been nothing but spectacular from a global and diversified reach perspective, only five years after its launch.
At this footprint magnitude, it is not surprising that Ethereum encounters some attrition from developers or projects for a variety of reasons. In startup terminology, the rate of attrition is called “churn”, and it simply refers to the % of users that leave. If a company wants to continue increasing the adoption of its products, its usage growth rate must exceed its churn rate. In human resources, this is also called “employee attrition”, and for mid-to-large companies, up 5-10% attrition rate is considered generally acceptable.
With this background in mind, let’s examine Ethereum’s churn and its significance (or lack of), both from a quantitative and qualitative perspectives.
At the quantitative level, Ethereum’s churn is apparently insignificant, just because its ecosystem continues to grow at quite healthy growth rates that are much higher than the reported churn along the way. Less than two years ago, the Ethereum ecosystem was estimated at about 100,000 developers. Today’s 250,000-350,000 numbers are a clear indication of net growth. At the most recent ETH Boston hackathon event that took place Sept 6-8 2019, 13% of the attendees were new to Ethereum, and another 21% were beginners, together being indicators that a lot more developers are coming to Ethereum than those who are allegedly leaving it. To get a sense of the continued growth of the Ethereum developers ecosystem, just follow ETH Global to track the impressive attendance and participation numbers at these events around the world. As I wrote previously, Ethereum meetups, hackathons and ETH Global events are the envy of other aspiring blockchains in that space.
It is not surprising that, according to Techstars, 95% of the blockchain projects applying to their program are building on Ethereum.
From a qualitative perspective, we tend to hear comments similar to this:
“Developers are immediately seduced by ETH promises, but they leave after a few months, at least those who actually tried to build on it. The projects that work run into trouble. It’s great for prototyping but not commercial release.”
However, one must examine the real reasons and motivations behind these anecdotal occurrences. Despite a few publicized cases, such as those enumerated by this misleading article (The Unbundling of Ethereum), this is not a pattern, but rather normal attrition from those that didn’t find Ethereum to be suitable for them.
As it turns out, not only the number of projects that left Ethereum is relatively small, most of them share a common thread: not being a fit for what Ethereum is very good at.
The fact is,- many projects used Ethereum’s ERC-20 token generation feature as the lynchpin of their genesis, without thinking further too much about whether they would be able to actually develop on Ethereum. Generating an ERC-20 token is a very low-barrier type of activity, and succeeding in it doesn’t mean that you have either figured out or committed to developing on the Ethereum platform.
Some other projects wanted to treat Ethereum like a database and record every single transaction on it. If you treated Ethereum like a database, you would have run into processing issues that only databases are optimized for.
Several projects didn’t really require the underlying decentralization infrastructure features of Ethereum. Decentralization comes at a price of course, specifically as transaction processing speed is compromised in favor of maintaining the sustainable economic security of the blockchain.
Other projects didn’t know how to use Ethereum’s scalability to their advantage. Namely, you needed to become quite familiar with Layer 2 scalability options in order to grow your applications on Ethereum.
Another segment of projects ultimately wanted to be on a separate chain they owned, so they could derive their own economic benefits, so Ethereum couldn’t provide that option to them.
Even for those projects that left it (or will leave it), Ethereum has most probably given them good benefits whether it was to generate the economic token, develop a prototype, or issue non-fungible assets on it. And for developers, it allowed them to gain their first experiences in decentralized applications development based on cryptographic blockchains, whether they were able to prototype something or not.
What Ethereum is Good At
The proverbial product-to-market fit process is inescapable for any product, technology, protocol, solution or movement. While Ethereum’s use cases and sweet spots are still evolving, and being refined as more of them get uncovered, we already know what Ethereum is really good at:
Easy developer on-boarding into crypto
Generation of new tokens to raise money and/or embed token functionality
An efficient medium of value exchange
Native creation of non-fungible assets
Pegging real-world/existing assets on its blockchain
Base layer for stablecoins
Operational platform for thousands of dApps
Omnipresence in the enterprise via dozens of forks and implementations (e.g. J.P. Morgan’s Quorum)
Generally, Ethereum is an excellent platform for managing relationships that can be (entirely) mediated by a universally trusted and openly decentralized blockchain that enforces the logic behind these connections.
Finally, when it comes to Ethereum’s most criticized weakness, its transaction processing speed, one needs to factor the existing Layer 2 capabilities that expand Ethereum’s transactional throughput beyond its on-chain’s limit of 15 TPS. Fast forward a few months from now, after Ethereum’s next hard fork, the Ethereum chain could reach up to 4,000 transactions/second via ZK roll-ups, shadow chains and chain witnesses. And once stateless clients are implemented, it will unlock a lot of built-in latency as clients will not be required to store large state data, instead they would just have to verify Merkle branches.
Ethereum’s criticism is often associated with a criticism of the Ethereum Foundation, its more visible artifact. However, just focusing on the EF is wrong because they are only co-ordinating perhaps 10% of what is actually going on within the broader Ethereum ecosystem. The rest happens on its own. When Ethereum got started, its Foundation was the key entity that was responsible for initially developing most of its core functionality. However, gradually, the Ethereum ecosystem started to grow around its Foundation to the point where the current estimated activity ratio is 10/90 in favor of a vastly decentralized ecosystem of contributors, influencers, developers, investors, research groups, companies, projects, and a variety of diverse stakeholders.
The end result has been, as Albert Ni of the Ethereum Foundation put it aptly: “independent flourishing within a massive, diverse ecosystem, as one of Ethereum’s superpowers”.
That didn’t happen by luck.
At the August 2019 ETHBerlin Zwei conference, Albert Ni explained Ethereum’s dogmatic “subtraction mindset” (versus the addition mindset), a direct contributing factor to its sprawling ecosystem. According to Albert, a subtraction mindset creates options, and allows them to remain focused on always distributing opportunities instead of capturing them.
To better understand the full context of how the Ethereum Foundation operates today, please listen to Albert Ni’s excellent presentation.
The Chinese Bamboo Tree Analogy
Maybe it’s just a parable, or maybe it’s partially true, but I had heard of this analogy during my previous years at Hewlett-Packard (in the early 90’s) in the context of getting indoctrinated in Hoshin Kanri, the Japanese strategic planning process. [Today, a simpler version of Hoshin has been popularized as the OKRs process (Objectives and Key Results].
The story back then referred to a Japanese plant that had a long seed gestation period, before it showed any signs of life above the ground. You had to keep watering it for these initial years, without seeing it grow visibly above the ground. Rather, the plant was growing its roots below the ground, first. The lesson here was that planning is like growing the roots first before starting to see visible results.
More recently, this analogy metamorphosed as the “Chinese Bamboo Tree” parable, and similarly to that mysterious Japanese plant, for the first few years there is no visible sign of above the ground activity, until finally in the fifth year, the Chinese bamboo tree starts to grow exponentially. Had the plant not developed a strong (yet unseen) foundation, it would not have been able to grow so rapidly thereafter.
The analogy with Ethereum is striking. Ethereum has been in this incredible formation period for the past five years, building strong community adoption roots as the basis for a solid foundation. Although a lot of Ethereum’s success is already visible, there is much more that’s ahead of it, not currently visible, but poised to suddenly grow further soon.
Ethereum Is Not a Monolithic Artifact
To further understand the impact of Ethereum and tie together the 10/90 concept with the Chinese Bamboo Tree analogy, one needs to understand that Ethereum is not a monolithic technology. The Ethereum Foundation is not a singular entity in the same sense that one would label a given organization.
Ethereum is not “one thing” that you can point at, shoot at, swing at, or pin down. It is a set of technologies, stack tools, infrastructure, currency, belief system and at least a quarter million self-indoctrinated developers that are stubborn enough to stick with it despite its imperfections because their collective actions are making it better in all of its aspects.
Ethereum has already sprawled into most of the nooks and crannies of what this new world of decentralized constructs might look like. Many other “competing” chains that are based on single feature theoretical superiority [e.g, speed] are not realistic about the omnipresent developers network effects that Ethereum already has.
If Ethereum fails, the whole crypto sector fails. I don’t think one can presume that projects behind Ethereum’s early lead would auto-magically morph or migrate unto other blockchain infrastructures that are aspiring to be “better than Ethereum”.
Will there be other successful blockchains that serve specific needs? Yes for sure. Has there been churn coming out Ethereum projects that were abandoned or didn’t materialize? Yes, of course (though the reasons need to be inspected and not generalized).
Ethereum’s ambitions and scope on the decentralization spectrum are orders of magnitude ahead of others, with the exception of Bitcoin, and certainly Blockstack who is carving itself a different but successful path along the data ownership / decentralization paradigm.
Ethereum’s Open Finance / DeFi footprint is real and not built on a house of self-referential use cases.
Whatever imperfections Ethereum or its Foundation seem to have, they are largely compensated by the sheer variety, vigor, vibrancy and scale of its ecosystem. Of course, in theory Ethereum can be attacked but in practice, and on the grounds of its reality, Ethereum’s lead is substantial. If you want to fight Ethereum, you are fighting its decentralized army of self-indoctrinated supporters that are self-motivated and committed to make it a success.
Don’t look solely at the Ethereum Foundation to judge the status of Ethereum. But if you do, you must understand the essence of its subtraction mindset which they have been perfectly executing upon for the past five years, and that is actually what caused Ethereum’s rapid decentralized to take place, and has become its best market defense mechanism.
If we’re going to stop complaining about tech companies exploiting our data to maximize their gains, then we need to stop giving them our information by leaving a multitude of digital breadcrumbs while using the usual social and web apps we depend on.
So far, we haven’t had too many good choices for “switching off data collection”, and even companies that give us those options aren’t completely letting users off the hook. An emerging choice will be to completely switch to using the products and services of a new breed of companies where user privacy is a key feature.
For example, DuckDuckGo, a Google alternative is one of the better known such apps for searching.
One by one, each segment is being targeted by this new generation of up-and-coming privacy-minded apps that are relying on blockchain infrastructures and peer to peer networks to deliver new experiences where the user owns their own data, and no else.
In the e-commerce space, that’s where OpenBazaar comes in.
Yesterday , OpenBazaar (the P2P protocol) launched their long awaited mobile app, Haven to place peer-to-peer commerce in the hands of consumers.
4 years ago, OpenBazaar got started on their vision for free commerce, and they had already delivered a desktop version that does that.
Today’s mobile version makes their vision more easily accessible to consumers, and with some added features.
What’s unique or interesting about Haven:
No listing fees. You’re not paying to list your products.
No credit card fees. As a merchant, you are not penalized due to the fees being deducted by credit card companies.
Choice of cryptocurrencies. Currently, the platform supports payments in Bitcoin, Bitcoin Cash, Litecoin, Zcash (and soon Ether).
Escrow services. The presence of escrow services (optional) basically is a kind of reputational feature that gives an added level of confidence between a buyer and seller that don’t know each other, while preserving their anonymity.
Private chat. You can instantaneously engage with a seller, buyer or any user over a private chat channel to discuss your transaction or anything related.
Social stream. I can’t think of any other e-commerce application that has a built-in social feed to let users engage with each other, discover new content or publish related material and thoughts, again within a private and secure environment, not available for Google indexing. You can follow users, stores and allow others to follow you.
Technically, there is a breakthrough worth mentioning about the Haven implementation. Every install of the App maintains its own connection to the network and connects directly to other participants. We take this for granted in other mobile apps that typically rely on a Web server, but this is not the case in peer-to-peer networks. In essence, when you’re buying or selling or chatting, it’s all done end-to-end encrypted directly over P2P rather than through the OB1/OpenBazaar servers. The good thing is that users will be actually on a P2P network without even knowing it, because their experience will be similar to that of being on a normal mobile App. This is a breakthrough because most other decentralized App (aka Dapps) typically require the user to first install an add-on like Metamask for example. The future of Dapps will include embedding all the connection logic inside, in order to insulate users from the technical barriers they would have to jump through otherwise.
You might think,- how about Craigslist where you can sell (almost) anything, pseu-anonymously. True, Craigslist and classifieds in general are quite open and cheap to use, but most sellers still need to pay to list their products, and there are no built-in payment capabilities, therefore fraud is difficult to control, especially when selling over distances when the buyer and seller are not meeting in person, or when the product is a digital good. With Haven, you have the benefits of an integrated payment capability alongside an escrow agent to secure the veracity of your transaction and protect you against bad actors.
If you are interested in seeing where the future of e-commerce might be headed, particularly as enabled by blockchain, cryptocurrency, decentralized peer-to-peer technology, and where privacy is a primordial feature, then it’s worth experiencing it by downloading the Haven App.
Once you are there, here is the link to my profile where you can follow me as I plan to be an active user, both as a seller and buyer.
About 13,000 products are currently listed by a few hundred sellers catering to a few thousands worldwide buyers, but this is only the beginning and a good foundation to grow from.
Welcome to the future of privacy-minded peer-to-peer e-commerce!
