Editors Note: This article comes fromBlue Fox Notes (ID: lanhubiji)Blue Fox Notes (ID: lanhubiji)JonChoi.com, by JonChoi; reprinted with permission by Odaily.
, translator realthinkbit; original text from
, by JonChoi; reprinted with permission by Odaily.
Foreword: Its time to get out of the myth of technology. For the blockchain to be successful and to reach the mainstream, it is ultimately inseparable from the real needs of users. Well, our blockchain project, no matter whether you are a public chain, or a DApp, or others, in the end, the real needs of users carried by this network are the basis of value. This article puts forward a very profound thinking. To do a project, we must start from the basic logic and return to what the world needs, rather than simply superior technology or a powerful game mechanism.
While all three share the same ethos of disintermediation, they require different capabilities to succeed, and they compete on different options. Not only inheriting the spirit of decentralization, but also inheriting the technical trade-offs of its predecessors, leading to potential cognitive dissonance.
The solution to this dissonance is to forget the familiar narratives and dive in instead: what is new about the technology, who is the core customer, who is failing to serve that customer well, and why a competitive new product can be launched today. Lets enter the thought maze of the crypto world.
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thought maze
The thought maze metaphor stems from the fact that technology trends have different adoption paths, leading to different levels of success (h/t Balaji Srinivasan and Chris Dixon).
Good startup ideas are well-rounded, with multi-year plans, considering as many paths as possible based on the way the world is changing.
In a dynamic era, its often easy to run straight to the entrance to gain the lead, but for those teams that have an overview map to guide them, the odds of ultimately succeeding are greater. As students of the technology, the history of the technology and learning from other mazes will help us map out and navigate the maze. It will give the team a clearer understanding of which target customers, product features, and go-to-market strategies to pursue or avoid.
A good founder can predict which transitions will lead to treasure and which transitions will lead to death. A bad founder just runs to the entrance of (say) the Movies/Music/File Sharing/P2P maze or the entrance of the Photo Sharing maze without knowing anything about the history of the industry, the players in the maze, past casualties Feelings, and also being clueless about techniques for jumping over hurdles and changing assumptions.
This is especially true in the cryptocurrency industry as it is multidisciplinary and requires collaboration between many stakeholders across industries and geographies. Furthermore, mapping out the maze of ideas seems to be more important early in a platforms lifecycle (eg, web, social media, mobile). Since the current vision and ethos are ahead of adoption, it is unclear from this perspective which approaches are on the way to a market with strong demand and a sustainable economy, and which are heading towards a dead end.
From this, here I share the beginning of the crypto thought maze (open sourcing everything!). Now that there are core assumptions of various crypto arguments, we will focus on the challenge of reconciling these assumptions, and we will save the specific adoption path (go-to-market + position) and depth of application for another time. So, its not the complete maze, but I hope youll lend a hand as we continue to refine the maze.
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Before the Maze: Bitcoin
In the beginning, there was Bitcoin.
The original intention of Bitcoin is very clear.
Pure peer-to-peer electronic cash that allows online payments to be sent directly from one party to another without going through any financial institution.
This is an experiment in creating a payments network that removes the need for intermediaries so that (1) digital commerce is cheaper and (2) no more identity information needs to be shared.
Because financial institutions cannot avoid mediating disputes, completely irreversible transactions are practically impossible. Mediation costs increase transaction costs, limit the minimum practical transaction size, and cut off the possibility of small ad-hoc transactions, and are more expensive to pay due to the loss of the ability to provide irreversible payments for irreversible services.
Due to the existence of reversibility, more trust is required. Merchants have to be wary of their customers and get more information than they need to. A certain percentage of fraud is considered unavoidable. These costs and payment uncertainties can be avoided by using physical currency, but mechanisms for making payments over communication channels without a trusted third party do not yet exist.
Bitcoin was created to provide a way to transact without an identity or trusted middleman. It started out as the currency of choice for technologists and hackers, libertarians, black market users, cross-border money transfers, and users in inflated countries. This is especially timely given the governments bailout of banks that were too risky.
To be fair, Bitcoin is an improvement on Digicash (Chaum 1989) and Bit Gold (Szabo 1998).
Smart Contract Platform
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Smart Contract Platform
A smart contract is a computerized transaction protocol that enforces the terms of a contract. The overall goal of smart contract design is to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement), minimize malicious and accidental anomalies, and minimize the need for trusted intermediaries. Related economic goals include reducing fraud losses, arbitration and enforcement costs, and other transaction costs.
The concept of smart contracts has been around for quite some time (coined and popularized by Nick Szabo in 1994, cited above), and through the Bitcoin community (RSK, Colored Coins, Mastercoin), the need for smart contract capabilities has arisen. Vitalik Buterin initially made improvements on Mastercoin. He thinks that the idea of extending the Bitcoin protocol is exciting, but it cannot unleash the full potential of smart contracts. His idea was so different from the Mastercoin teams priorities that it couldnt be implemented on it, and Ethereum was born.
While Bitcoin achieves consensus on the state of the transaction ledger, this offshoot of the movement began by attempting to achieve consensus on the state of computers (i.e., distributed virtual machines) replicated in a globally distributed network.
It is worth noting that while cloud computing focuses on getting distributed computers to do work quickly and efficiently for demanding applications in trusted settings (i.e., data centers controlled by one party), decentralized is to allow computers that do not necessarily trust each other to agree to the shared state of the computer.
While adding computers to a cloud infrastructure makes the network computationally more productive (to varying degrees depending on the technical architecture), decentralized infrastructures are optimized to maintain a level of trustlessness (or to increase the evil threshold). Therefore, adding computers to a decentralized network adds complexity without increasing the computational throughput of the network (if at all).
If Bitcoin was born in the context of the financial crisis, Ethereum was born at a time when consumers lost trust in various intermediaries, such as banks and technology giants. This concept of distributed computing is exciting because the architecture has the opportunity to reshape those middle industries that require trust. Some representative early ideas/examples are decentralized Uber and Airbnb (“web3”) and decentralized lending, derivatives and venture capital platforms (“Open Finance”).
Today there are various forms of distributed computing (e.g. Ethereum, EOS, Dfinity, Tezos, Stellar) that attempt to replace the simple transaction ledger experiment in Bitcoin. This sets the stage for the crypto thought maze (2018 vintage).
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Into the Maze: Three Arguments
The maze of ideas in the crypto world in 2018 has already presented a fascinating part: the proliferation of smart contract platforms, the excitement around web3 and open finance, and the convergence of the Bitcoin and privacy coin communities around the sound money narrative.So what are these arguments for the crypto world? There are three different directions.
Web3 reliable currency
—— Trustless currency, no third party can overissue.—— Trustless Internet, in which the Internet architecture gets rid of the monopoly of centralized data and service providers. Users have more control over their data and internet usage. These networks also compensate participants for the economic value they generate in the network.
open finance
So the word encryption means different things to different people, but we call the word a cage (sorry, cryptographers! all inside). Its a boon for a budding interdisciplinary community, but its also a blind eye, seeing only part of it.
While all three share the same ethos of disintermediation (banks, big internet giants, and merchant banks/fintechs respectively), we will find that there is a shared set of technical trade-offs required when implementing different arguments with different needs , there is significant cognitive dissonance.
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cognitive dissonance
Cognitive Dissonance - A state of having inconsistent thoughts, beliefs, or attitudes.
As time goes by, more people gradually realize that Web3 and open finance are not easy in the same technical downgrade and reliable currency. This may be due to differences in the underlying assumptions of the arguments.
Problem: Adding this feature on a platform optimized for removing said feature
Reason: Inherited a tradeoff designed for another requirement.
On a more fundamental level, this dissonance exists (cognitive dissonance) because many smart contract public blockchains inherit trade-offs made by Bitcoin: network architecture, replication schemes, incentive mechanisms. These tradeoffs absorb many orders of magnitude of replication inefficiencies and SLAs (e.g., throughput, availability, predictable pricing), which make it difficult to (1) not require identity and (2) eliminate the need for auditability needs of the central entity. (Blue Fox Note: Doesn’t this mean that other distributed ledger technologies, such as Holochain, will have opportunities? It is worth continuing to observe)
The question now becomes why something with different goals for different users (i.e. web3/open finance) should share the technical tradeoff of another product requirement (i.e. reliable money) vs. infrastructure. There may still be compelling reasons (since even a single change in assumptions can quickly change the outcome), but its definitely not easy to come by.
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means to an end
These are excellent new features for the currency use case. No one can change the rules of the game, no matter who you are, where you are, the value you own will not be diluted, because there is no unforeseen increase in the money supply, and it will not be blocked by any party, and there is no need to know who you are .
However, these functions do not have value in themselves; they are only valuable because they satisfy a specific user need. In fact, these functions are only as good as they are based on what kind of service one is trying to provide. For example, the downside of introducing identity is the potential for discrimination, but the upside is that a users reputation (credit history) is valuable. Similarly, the downside of having a centralized entity is auditability/accountability, but the upside comes with premium service and convenience.
While having various shared technology archetypes and ethos of disintermediation, we will explore what that means for end users in the context of different needs. This is the key to todays maze.
The Way Out: Customers, Substitutes, and Intermediate Utility
Therefore, the importance of independent thinking has never been higher. The maze is compounded by the conflicting assumptions that emerge from our daily Twitter chatter (and to some extent this article!). The only way out of the maze is to think independently about what your customers want and what features are needed to meet those needs.
Well discuss that in more detail in the sections below, but lets first look at the criteria in the title: A Guide to Customer-Centricity.
Who are the customers and stakeholders?
1. Customer
Who are the core customers? (define role/market)
How many people in the world are affected?
How much is the pain point affected by each person?
How do people join the network, and why do they stay?
2. The clients counterparty
This is one to one? Or one-to-many?
Does the counterparty need to have the same product needs as the main customer?
3. Trusted intermediary
Who do you rely on to enforce the rules? Who can be against you?
For a product as ambiguous and multifaceted as cryptocurrency, it is important to clearly define the basic metrics of customer satisfaction. For Google, thats a full search. For Uber, its been a full journey. Owning a stake in Apple, probably return on equity and earnings per share.
But what does it mean for the dollar? For cryptocurrency, what is it? Well discuss that below.
For example, web searches offer a quicker and easier alternative to finding information from afar. Google Search provided a simpler and faster internet search experience than Alta Vista, which was powerful and customizable but slower (perhaps feature-optimized for early average users in the wrong direction). Early versions of Uber offered a convenient way to hail a black car to a location other than your office and travel in style. Uber Pool currently offers an alternative to daily driving or taking the bus/subway (SF).
The tangible advantage of the next best alternative in terms of meeting user needs is the forward-looking drive that the product needs to improve and expand to adjacent services.
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intermediate utility
Intermediate utility refers to the usefulness of the network before it is fully saturated (If it only accounts for 5% of the target market, does this 5% of users still have utility at the same time?). (Blue Fox Note: For example, if most of your friends do not use social networks, then the intermediate utility will be relatively low. If there are few early users, but they are all users of a certain type, then the intermediate utility will be relatively high. )
Two aspects help creating a network at an early stage: (1) active peers can be discovered despite the networks small size, and (2) how compelling these experiences are before the network is fully mature. These were key factors in the intermediate utility of the early network. The early adoption path with intermediate utility is often the only way to achieve the desired end state. Contradiction: Some desired end states are impossible/expensive because it is difficult to have intermediate utilities to bootstrap the network.
Thus, the fact that a fraction of a larger target network can gain utility from an early iteration of the technology has huge benefits, allowing it to sustain a moderately sized network without one-off iterations and viral growth.
Intermediate utility acts as a checkpoint for the network to save progress as it grows. More broadly, a series of step function gains in intermediate utility will eventually set the stage for mainstream adoption/crossing the chasm.
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Waiting for Catalysts: How Much Do They Need You?
While the rationale for the argument is spiritual, customer needs and external catalysts will be the biggest drivers of how this maze of ideas unfolds. Lets see how the criteria above describe the three sub-branches.
reliable currency
Value Proposition: A currency that can be used to buy goods and store value, unaffected (and unprotected) by special monetary policies. For example, protecting users from excessive monetary easing, bad economic policies, corruption and any other risk (issuer risk).
Core innovation: Internet money generally means that it is not bound by the physical realm (Digicash and Paypal also have this property, but they solve it in a centralized way). POW allows the settlement layer to be distributed, making it independent of any one jurisdiction.
Core Clients: People who do not have access to a stable store of value (e.g. Venezuela/Argentina/Zimbabwe inflation. Another example is investors buying offshore real estate to park funds.)
Counterparty: The person who provides them with the desired good/service (rent, food, other).
Next best option: SWIFT/ACH/Western Union and cash (wealth transfer). Gold and dollars (store of wealth).
Next best options for providers: government registered banks, money transmitters, independent offshore banks (to store and transfer wealth). Central bank + executive government (provides instruments and trusts).
Tradeoff: Between peer (merchant/peer) acceptance and issuer trust.
Atomic units of success: (1) ability to pay for goods/services, (2) peace of mind savings around future goods/services (no loss, low volatility)
Web3
Intermediate utility: Only two parties are needed for a transaction. Store of value requires everyone to buy passively (everyone else believes it), but only requires single player mode (you hold it).
Challenge: Game-theoretic gridlock makes merchants and supply chains buy-in to accept new currencies. The lack of stability is caused by the difficulty of matching monetary policy (supply) with the forecasted adoption curve (demand).
Value Proposition: Users have more ownership over their digital data. Users are less susceptible to misplaced value from service providers like Google and Facebook.
Core innovation: An Internet where users are less dependent on centralized services to protect user data to provide the fastest, smoothest, and most convenient experience, and an Internet where data ownership and service provision are decoupled (such as public p2p blocks Chain architecture: Ethereum (+IPFS)), BYOData: Blockstack, gossip protocol: Secure Scuttlebutt).
Core customers: People who are currently underserved by the internet: people who cant express what they want, people who dont have access to all information due to censorship/obfuscation, and people who dont trust their service provider to keep their data safe (Facebooks Cambridge Analytica scandal ).
Counterparties: Other users who consume and produce data online
Next best option: Google, Facebook, Twitter, Instagram (product).
Providers of the next best choice: Google, Facebook, Twitter, Amazon, Tencent, Alibaba, Baidu, etc., (their products are profit-maximizing entities).
Tradeoff: Between user experience and trust.
Intermediate utility: Closed-loop networks with a core customer base (“we’re all under scrutiny”) are likely to be small. More interesting is somehow distributing web3s write demand to web2s existing read traffic. A strong indicator is to see how much the web3 community can feed and gain utility for its technology (people working full-time in the crypto industry are still using Twitter and Venmo). (Blue Fox Note: The author means that, let’s not talk about other people’s use of distributed network applications, the web3 community can see if they can use them first. Currently, web2.0 applications are still the mainstay.)
open finance
Challenges: (1) The cost of Web3 does not mean that it is only slightly more expensive. In fact, its storage and service costs are many orders of magnitude higher, which means that the price drop may come, but it is not imminent. And (2) how to make common It is imperative that users choose web3 over the more convenient and familiar web2 products.
open finance
Value proposition: Financial tools and products that were previously only available to high net worth individuals and large corporations are now available to everyone (or financial products/access that are available in developed markets are available in marginal markets). Ability to smoothly access your wealth/assets between financial service providers. Benefit from foreign economic growth frictionlessly by participating in its financial markets, as easily as data/information can be shared across borders today.
Core Innovation: Unified data sources and protocols across financial institutions. Reduce compliance, back office and duplicate ledger management costs through shared data structures/sources and governance. Financial products can be better underwritten by making the financial system more interoperable with the rest of the internet. This will help unlock cost of capital and cost of living arbitrage opportunities, thereby transferring wealth from rent seekers to network participants.
Core Customers: People who do not have access to core wealth-creating financial products (overpriced, inaccessible, or unaware).
Counterparty: Someone else who is trying to bet against you on the future and wants to exchange resources and risk/reward.
Next best option: Existing financial and banking services (characterized by higher fees, stronger lock-in, slower service, trust, and little incentive to improve service quickly).
Providers of the next best option: regional banks, national banks, multinational banks, specialized fintechs (SoFi, Robinhood, Simple).
Tradeoffs: between (a) legal protections, enforceability and compliance versus (b) lower costs, less exposure to intermediaries, more access and more openness.
The atomic unit of success: being able to receive money today, with the promise of paying back more money tomorrow. Ability to loan/invest today and be able to recover funds with future financial returns within agreed risk parameters.
