Editors Note: This article comes fromBlue Fox Notes (ID: lanhubiji)Editors Note: This article comes fromJonChoi.comBlue Fox Notes (ID: lanhubiji)
, 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. The author of this article, JonChoi, was translated by the Blue Fox Notes public account community realthinkbit.
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all about timing
Longer View: Different Arguments Are Not Competing
Over a long enough time frame, these arguments will eventually coalesce. Do a quick recap:
1. Solid money: Money is software.
2. Web3: “Own data yourself; use data to make money → data is money.”
3. Open Finance: “Financial services are software.”
There is no doubt that software will continue to eat the world for decades to come.Mid-term: game of grabbing chairsOf course, the ethos of decentralization can foster adoption by creating a beachhead with a more adaptable user base
(I like privacy, so Ill use Signal over iMessage despite the lack of features, I like local businesses, so Ill buy more at my local bookstore than on Amazon), but in order to gain mainstream adoption, traction on the beachhead must drive technological and product innovations that can reach a spiritually neutral mainstream audience.Early use cases with product market fit will account for the majority of early adoption, which in turn will get the most customers, mindshare, and resources. Early wins that share critical infrastructure with the next wave of intermediate utilities will become powerful incumbents(e.g. Coinbase building a decentralized exchange or custody solution). This Early Winner Feeds Back the Industry Model
(e.g. Binance harvests a significant amount of available funds which in turn are reinvested in the ecosystem)
Will repeat until mainstream adoption.
Since the end target user changes as the chasm is crossed, its like a repeated game of grabbing chairs, where the winner of the previous round has an advantage, but wont win any rewards until ultimate usefulness is achieved.
Given the adoption path of entropy, morally charged black and white questions wont solve the problem: dont you think bitcoin is better than fiat currency?, dont you think web3 is more trustworthy than google?, Don’t you think decentralized finance is better than JP Morgan?”. Such provocative questioning is of little use in seeking the truth.
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The conceptual framework described above helps us assess value propositions, customers and their needs. From there, we each need to explain the potential size of each market, and what makes each of them compelling. Id love to see more analysis, but heres my gut feeling:
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Reliable Money: In Code We Trust
Reliable money means:
(1) Money is just a ledger of how much stuff a person owns. Oddly enough, it essentially requires other people to be willing to exchange it for goods and services, and hold it.
(2) Perhaps more importantly, we have built extremely efficient and borderless information sharing and consumption platforms (such as search, social media, and instant messaging) over the past two decades.
Combining the above two points, now is a unique time to experiment with the concept of decentralized digital currency. It is now faster and cheaper than ever before to create an idea and distribute it widely to the world. Now, the currencies mentioned above can be currencies. To me, its still unbelievable.
Unlike web3 or open finance, currency use cases only require belief and reasonable scalability to succeed. So the ingredients for success are already within reach. The rest is up to consumers decisions, regulators decisions, and the communitys decisions on how the product concept is communicated.
Thats why one of the few high convictions available today is the concept of a non-sovereign digital currency, be it Bitcoin, Ethereum or something else. Barriers around the following seem reasonable here compared to the need to expand the core customer base: scalability, awareness, wealth distribution, regulatory framework.
If the above assumptions are correct, then there is high value in businesses supporting cryptocurrencies that support businesses related to decentralized stores of value. For example, insurance, hosting, security, any other UI and hosting services built on top of the core protocol.
This article talks quite a bit about wealth distribution (surprisingly one of my most opposed positions). Since the value of a currency changes throughout the adoption cycle, I think wealth distribution is actually an evolutionary feature of any currency. The distribution of wealth is one of the greatest sources of long-term vulnerability to any monetary system. The reverse is also true: when channeled correctly, it is an unstoppable source of growth and anti-fragility. I believe this will be one of the most fruitful areas of future encryption experimentation.
Web3: User Experience and Trust
Web3 faces a high barrier to adoption.
While it is imperative to recognize societys need for an internet that is not abused by centers, a customer-centric framework challenges todays adoption paths. It has a very significant small customer base with strong demand, but trying to win over an audience already content with existing platforms is hard. This is difficult to achieve, especially for those who are passionate about the principles of web3.
People will choose credible products when features are similar, but most are unlikely to sacrifice the convenience of their current product (unless there is a high-profile event that changes public perception). The fundamental challenge here is the cost/benefit asymmetry of censorship versus the target audience. Most people are used to smooth, fast, and manageable experiences, with easy access to the information they like (i.e., dopamine-inducing, worldview-aligned information).
While people all claim they like good spirits and healthy things, behavior often isnt like that (vice habits and impulses dominate internet services). So the regulated want web3, but the unregulated are already on web2 - despite potential problems (fake news, irresponsible data hosting, etc.) Works fine most days.
Furthermore, intermediate utility may be more difficult to achieve in web3 due to the atomic-unit-of-success nature of network participants. Monetary interactions consist of independent one-to-one transactions, while data interactions (network, internet usage) typically consist of many concurrent one-to-many data consumption streams.
More specifically, currency (reliable money/open finance) interactions focus on write operations (making transactions change state) and business models scale with writes (percentage of transaction value or number of transactions), while Internet/data Interaction focuses on reading (providing users with Instagram photos or articles), and its business model expands with reading (eyeballs→ads, subscriptions or equivalent).
It’s worth considering if and why web3 ethos must be combined with blockchain technology; whatever one’s opinion on the subject, articulating this would certainly help. For example, it would be interesting to see (a) Blockstacks bring your own data approach and (b) Secure Scuttlebutts blockchain-less and gossip-only protocol get less attention than Ethereum. Still an open question is whether a blockchain is required to compensate participants for the economic value they generate in the network, or whether incumbents can satisfy user demand without using a public blockchain (more on this a little).
From a social/public goods perspective, this is an incredible movement and should support continued experimentation with different information organization and communication architectures. It is also possible that there exists an alternative architecture (decentralization of all layers, applications, infrastructure) that can compete with todays fullstack approach. For example, reliable currency + centralized service is technically possible, and this centralized service is compatible with non-blockchain web3 solutions using P2P gossip protocol.
All this to say, I believe the companies working in the web3 space are fighting for an important ethos of empowering users and building utilities that work for all. There is no doubt that this is a spirit worth fighting for, and I hope this task will help these teams navigate the thought maze to the right place, even if the path is not very clear today. No matter what the future holds, teams working hard on important infrastructure RD will always play an important role in the wider ecosystem.
Open Finance: Bearer Holdings vs Registered Holdings
In the maze, there is another maze. Welcome to the recursive version of the encrypted maze.
bearer holding vs. registered holding
A bearer asset gives the rights provided by the asset (voting rights, income rights, etc.) to whoever holds the asset. Legal claims on assets held by registers are managed by a trusted intermediary who manages the rights to the assets on behalf of the legal holders (and those named owners only need to hold certificates).
bitcoin
With bearer holdings, you dont need to trust anyone, with registered holdings, you need to trust that they will support your interests in good times and bad. On the other hand, with bearer holdings, if you lose it, then you cant call for help. With registered holders, losing a certificate just means you need to go to an intermediary and get another one.
bitcoin
Bitcoin is an irreversible digital bearer asset, essentially like cash; whoever holds it owns it.
Bitcoin is cleverly designed because its prioritized functionality makes it ideal as a bearer-held digital asset. No ID required, no refunds. Instant settlement. The bearer-held digital asset use case has the unique quality that all components of the transaction occur at the same moment (no future promises to fulfill).
Debt, Equity and Open Finance
Debt and equity capital are the driving forces of the economy.
With credit, reputation can be leveraged to take a resource today and pay someone back tomorrow. If we are successful and honest, we pay interest to our stakeholders. However, if we are unsuccessful or dishonest, we will be held accountable later.
With equity we can give/sell partial ownership of a business for a resource today and in return we promise it will be a more valuable asset tomorrow. If we fail and are honest, no harm, no foul. However, if we play a bad role as trustees, we will need to be held accountable later.
Most of these securities are registered rather than bearer held.
Money and Securities
Because credit and equity retain scenario-specific value over time, reputation and identity are more important than instant settlement instruments such as cash or Bitcoin, which can be used for all transaction terms and at any time.
The value of the currency does not depend on the behavior of previous holders or transactions (i.e., once a $100 note is in your possession, the previous holder cannot somehow affect the value of the note), but only on the management The actions of the authorities, which run the economy as a whole. Currencies are therefore unique bearer assets that rely on only one thing to maintain value: trust in the curators of the currency.
In contrast, registered securities (stocks, credits, property) in name require not only a belief in the law (property rights in the issuing jurisdiction, security laws, etc.), but also the good faith of their counterparty. This is likely why users will continue to demand registered assets in bearer, which provide protection as a service to equity owners. Thus, while sound money does not require active government involvement, most forms of real-world assets on blockchains require the integration of reliable enforcement (e.g., binding legal contracts that include reference to colored coins, ERC20 tokens, etc.).
find the right market
Another consideration here is that meaningful adoption is most likely to occur first in marginal markets rather than developed markets. Developed markets have fairly mature financial infrastructures, making the bar for change higher. Appealing open finance use cases would support basic forms of lending, commerce, identity in fringe markets that lack identity systems, and already use foreign currencies as stores of value.
compared to existing alliances
As a thought exercise, alternative outcomes can be studied in terms of what happened to Visa. Visa, which began as a bank-owned non-profit that was the alliances credit card infrastructure, is now more valuable than all but one of the other banks (Visa $323B, JPMorgan $385B). As such, an open finance consortium led by various banks and internet giants (anyone with distribution and regulatory advantages) would be credible players competing for the vision of open finance.
From a crypto-native perspective, this is not an ideal solution. However, we cant ignore the possibility that banks and internet giants will increase minimum availability enough to make upstarts less visible on a relative basis (the bar is getting higher for US fintechs as were discussing same-day ACH automated clearing, by Goldman Sachs Offering high-yield savings accounting, various mobile-first strategies for banks. In fact, some giants are considering competing directly with blockchain technology (Facebook, Goldman) or capitalizing on its ethos (Airbnb is proposing that it can issue shares to homeowners). This argument extends to sovereign states as well, and attempts to create open-standard identity and financial infrastructure in countries that dont yet have it (Southeast Asia and Africa).
As such, Open Finance represents some of the most complex pieces of the crypto maze today. This section is not meant to argue one point over another, but rather an exercise in clarifying thoughts. Id love to know your thoughts, but before you get too excited or offended, lets discuss (1) the assumptions that can significantly alter the intuition above, and (2) how we can contribute from here.
Exploring Hypotheses and Refutations
It is worth discussing what assumptions can be changed, and change the meaning of cognitive dissonance discussed above.
2. The modularity of services and checks and balances provides value to participants. For example, if all three branches of government in the United States were concentrated in one person, it would certainly be more efficient than todays checks and balances of power, but the more important question is , which would be a fragile balance. Perhaps a decentralized bottom layer provides a way for trusted intermediary services to make tradeoffs that result in a net improvement for users. Currently this is vague, but as the infrastructure and product matures, I think maybe we can rethink the concept.
3. Reduce compliance and labor costs. The technology itself may be less efficient than its centralized counterparts, but perhaps reducing the intermediarys recurring operating costs (i.e. the compliance backend and various back office functions of the bank) would provide a net savings. Cloud infrastructure is optimized for efficiency and cost reduction, so the primary ways to reduce total cost are by leveraging underutilized hardware (zero capex, minimal opex) or by reducing recurring manual management costs for non-core/support services. This is an interesting argument to keep an eye on; there arent enough data points to confirm it yet, but its possible, and if verified to be true, its an important payoff.
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How can we contribute today?
Looking at the challenges mentioned above, and being uninspiring, is like writing about the Internet in 1990 and saying this isnt going to work. The productive response is be a surrealist, and get as close as it can be today. solved problem. For example:
1. Experiment. Keep experimenting with different tradeoffs (decentralization, scalability, security), levels of abstraction for user interaction, and different markets, niches, distribution channels required for mainstream use.
2. Build a product that can reach mentally neutral users. The first step is to build products for users who are willing to sacrifice user experience and are willing to promote for them, but the larger goal should be to build products for mentally neutral users. People dont use Google because of its algorithm; they just use it to quickly retrieve the information theyre looking for. That said, privacy features need to start with people who care about privacy, and decentralized technologies need broad support to compete meaningfully with incumbents.
3. Experiment outside the “physical world”. Purely digital assets and experiences can serve as a good early beachhead for experimentation. They have the advantage that no physical or legal enforcement is required. For example, a virtual building you build on SimCity can be constructed using borrowed digital currency that is collateralized by another digital building you own elsewhere in the game world. While this example is purely digital, this could be a path, and the infrastructure that powers the economy could be an early testbed for future real estate transactions.
4. Experiment in a friendly regulatory environment. Singapore and Malta have friendlier regulatory environments than other countries. Another example is that certain jurisdictions may treat cryptocurrency-related gains/losses differently in terms of taxation, which may inadvertently create an advantage in user adoption in favorable jurisdictions.
5. Marginal/developing markets. Nigeria, Indonesia, Malaysia, Argentina and other places have the potential to attract core customers. Some signs include: day-to-day use is cash-based, financial infrastructure is less mature and product acquisition is difficult, and non-native fiat currencies are used for better stability. Look for these basic indicators of finding your core customers.
6. Do more research. Make the right tradeoffs by building the most efficient and powerful primitives for privacy, decentralized computing, and more. For example:
Storing data. Reduce replication/computing overhead for decentralized architectures.
7. Better communication. Try to focus less on hype, ideology (unless you are creating base layer currency, in which case belief is more important) and focus more on product. Identify the technical features you are using. Whats new in this feature? What are the technical tradeoffs or innovations to enable this new functionality? What products can this feature uniquely support? Why is this product significantly better than the next best alternative? How is encrypted and distributed data more secure than data stored in Facebooks data centers? Excellent communication is vastly underestimated today.
8. Better identify customers and markets. The market is king, so figure out how a product meets customer needs (in 2017 it was ideology, curiosity, speculation, and get-rich-quick psychology). Articulate how new functionality provides users with a new service that is better than the customers current next best alternative. Trying to recommend it to a skeptical friend now. If it makes sense for them, its time to build it and attack that market.
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Right Values + Uncertainty = Opportunity
The crypto community is working extremely hard to shift the arc of technology adoption toward openness, economic mobility, and networks that serve participants.
