Blockchain vs. Internet – Where is the revolution? Searching for traces in the history of the Internet and a decentralized technological future.
Although it is partially forgotten today, the beginnings of the Internet are in many ways reminiscent of the developments we see today in the blockchain industry. By that I do not mean the often addressed hype cycle of the burst bladder and the subsequent resurrection. Rather, I mean the ideological and infrastructural similarities.
In the early years of the Internet, a dedicated and idealistic developer community created open protocols. These protocols (such as TCP / IP, HTTP, SMTP) promised a simple exchange of information at the global level. To this day, they are the foundation of the Internet.
Fair competition and open data exchange
In the initial phase of the Internet fair conditions of competition prevailed. Any talented developer could use internet protocols to create services like search engines, browsers, online stores, etc. But the internet protocols were not extensive enough. They did specify a standard for open data exchange, but not for the storage and monetization of data.
In the absence of such standards, Internet companies have a strong interest in storing data centrally. Because Internet applications start as empty scaffolding, they only become useful when they are fed with users and data. Thus, the popular Internet companies of this time quickly developed competitive advantages, they can hardly catch up today. Pure applications became platforms and app stores on which other companies built services and became increasingly interdependent.
Facebook, Yelp, Google & Co.
The problem is not only that oligopolies (“GAFA”) originated, but that these platforms began to act like top dogs. Proof of this can be the seemingly endless list of Facebook scandals, or Google’s removal of Yelp recommendations to promote its own Places service, or the change to the Twitter API Terms of Service and the associated expulsion of over 143,000 applications that relied on Twitter. The list of such examples is long.
The point is that platforms have a strong interest in behaving in the interest of users during the build-up phase, but may later behave arbitrarily and distort competition as they wish, due to the high dependency. Today hardly anyone talks about Internet protocols, about the applications as well as anyone. It is clear that value creation in Web 2.0 arises at the application level.
Blockchain – The Age of Logs
The technology revolution that accompanies the proliferation of crypto-networks has the potential to turn this dynamic upside down. Crypto networks are networks that build on the Internet and
- Use consensus mechanisms to maintain and update a decentralized database;
- Use tokens to persuade miners / validators to participate in the consensus process.
These characteristics could herald the age of the Protocols. The first characteristic, the public database, is the decisive one. Instead of individual information silos, the network-wide storage of the data breaks a competitive environment. It allows users to take their data from one application to another without any friction.
Once you’ve exported your keys from one blockchain wallet to the next, you’ll notice that the wallets only act as user interfaces that use the same public data on the blockchain (transactions, account balance, etc.) and graph them to the user.
The same phenomenon can be observed when looking at the development around the Ethereum-based, peer-to-peer lending protocols such as Maker or Compound. These protocols provide the core functionality needed for decentralized lending and are integrated by dozens of applications.
The status of his credit can be viewed by the user in each of these applications. The user interface becomes a commodity that the user can easily exchange. Much more valuable is the underlying protocol. Unlike the Internet, value creation in the blockchain era is largely at the protocol level and not at the application level. Just compare the market value of Ethereum (protocol) with that of Coinbase (application) to see that markets rate the protocols higher than the applications.
Incentive systems in crypto networks
The second characteristic that makes crypto networks superior to central platforms is the incentive mechanisms. They are created through the interaction of tokens and miners / validators. These mechanisms guarantee a voice in the development of the network. For example, each subscriber may sell his network token if he is not satisfied, and even copy the code base of the network (a fork) to create a rival network.
Unlike the central platform, a blockchain can not offend its users overnight. Even if it were technically possible for a handful of profit-minded decision-makers to undertake non-democratic changes to the protocol, the rest of the community could force the code. Without a significant developer community and continuous innovation, the value of the “old” blockchain would quickly decline.
Furthermore, crypto networks are revolutionizing the financing of open source software. For example, there was some horror from the Internet community when it became public that just one full-time developer was working on the maintenance of a critical and maintenance-needing Internet infrastructure project. Vinton Cerf, the inventor of the Internet, recently spoke up in an interview and warned that the Internet was still very far from the original vision and needed more basic research.
In the blockchain area, network participants have a financial interest in financing long term infrastructure as well as application projects to increase the value of tokens. This interest in public infrastructure projects has never existed and will lead to an unprecedented performance of protocols.