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Speaking as a longtime skeptic, A16Z has actually produced the single clearest answer I've seen to that question: blockchains may be good for bootstrapping new

Speaking as a longtime skeptic, A16Z has actually produced the single clearest answer I've seen to that question: blockchains may be good for bootstrapping new network effects by giving early participants in a network (in a Metcalfe's Law sense of network) an incentive to participate. Pure utility tokens can be like call options on the eventual value of the network if it gets off the ground. It's a novel way of solving a collective action problem. https://a16z.com/2017/12/08/summit-crypto-alex-rampell/ https://a16z.com/2017/12/08/summit-crypto-alex-rampell/ Kind of like Kickstarter or Groupon, at least in their original incarnations?

endlessvoid94 8y ago
Thanks for this!
cornholio 8y ago
Except the early adopters don't need to actually participate in the network, just acquire and hoard tokens. There's almost no connection between the profits and the actual advocacy, resources and risks required for the network to succed. So the incentive structure is quite different from, say, the stock market or even a kickstarter. It's more like a tradeable Ponzi with strong incentives to overpromise and overhype in the early phase, and to get out when the valuation approaches the claims without actually delivering anything more than yet another speculative asset.
- foota 8y ago
  You could find a way to associate someone's activity with positive signals, like give them credits for generating positive value in the network. Detecting positive value is difficult though.
  - mlthoughts2018 8y ago
    But organizing “payment” in the form of a cryptocurrency is no different than just depositing money in their bank account. In some cases it would be: payment that evades government detection, payment that allows network participation to be anonymous, etc. The trust issue would not be part of it in these cases, from a business perspective. I guess I mean that predicating some network-effect-needing business on blockchain, for these reasons, still just seems like hype. Unless the business is fundamentally about anonymously being compensated in some way, then other existing financial institutions solve the problem (with just as much trust in 99.99999% of scenarios) in a far simpler way.
- Jommi 8y ago
  Your final comment doesn't really work out. Yeah, by over-promising and hyping you could raise the price of your coin, but it doesn't mean your volume will rise as much. You cant just liquidate everything at once and get anything as close as what a simple Q * P calculation would do for you. So that's why you work on your network, create value in it. Then later on the line, you become obscenely rich as your token's liquidity is good enough to live with forever. That's what people calling Ponzi/scam are missing. The short-term profits are nothing compared to the LIFECHANGING profits of being the founder of a network protocol.
narrator 8y ago
The best thing I've seen blockchains used for, besides currency, is as an integration platform for a non-centralized supply chain. There's really no money in it, since there aren't any gatekeepers, but that's sort of the point. The idea is that the farmer picks his carrots, puts them in a box and sends them off to the carrot juice guy. When he does this he puts a upc code on the side of the carrot box and then puts the code into the blockchain as I shipped this thing to the carrot juice guy. Carrot juice guy receives carrot juice, makes carrot juice with carrots in box and then says, I used these carrots to make this juice in these 300 bottles. <Blockchain> Ships it to distributor. Distributor says I received these carrot juice shipments. <Blockchain> I then sold 1-30 to convenience store A <Blockchain>. End consumer bought one at 3:30pm and got sick. You have the record of how it got there and how much time it spent everywhere, etc. The thing here is there is no centralized supply chain company who controls everything, everyone just puts it on the blockchain that NO ONE OWNS. This is a net gain for everybody in the network, but there is no centralized profit there, except for maybe some systems integrators working at the edges. This is why blockchain will probably be this kind of subtle thing that doesn't make anybody a lot of money, but just seeps into industry over time. It's a bit like containerization in a way. Huge global impact, but not really any one company who made their fortune on the container technology itself, but all the companies around it benefited.
- deleted 8y ago
  [deleted]
- madeofpalk 8y ago
  This is solvable without blockchain though. Supply chain tracking already happens at the moment without Blockchain.
  - CPLX 8y ago
    Indeed. And more to the point blockchain doesn't do a damm thing to improve trust. If someone in step three tosses the carrots out the window and uses a different batch the blockchain isn't going to get that information. The blockchain in this example doesn't add or reduce trust at all it's just a time stamped database of stuff people said. We have those already.
adventured 8y ago
The problem with that approach, is it also destroys the network. You can never revoke the bribery once it becomes a core component of how the system functions and what drives it. The hyper contributor actions on the platform, which always make up a very large share of total contribution, ultimately drifts toward maximizing the gain of tokens and away from creating / contributing content solely based on quality. Simply put, the quality of contribution when monetary consideration isn't the primary, is going to be higher.
jhoechtl 8y ago
For those merely wanting to earn money from blockchain it is an instrument to convert electrical energy into money. All the other attached bells and whistles are a by-product.
hitekker 8y ago
>Blockchains may be good for bootstrapping new network effects by giving early participants in a network (in a Metcalfe's Law sense of network) an incentive to participate. Unless I'm being extra dense today, this is the un-clearest answer I've read yet. The 'may' qualifier also does not inspire confidence.
- progr4mmatic 8y ago
  If the tokens provide utility, e.g. this token is 500gb of storage and adoption, network activity, or technology productivity increases, the value of these utility tokens will go up in value on the market. So it’s basically like a new commodity. Ether is compared to gas on the Ethereum network for distributed compute for instance.
spanktosh1 8y ago
SpankChain - it's porn on the blockchain, check it out - beta.spankchain.com. If you accept the premise that blockchains are coordination platforms, because they dramatically reduce the cost of making credible commitments to future cooperation, then you should accept that the most disruptive opportunities will require unprecedented levels of coordination - coordination at a scale that most people think is impossible or infeasibly expensive, but that those who have mastered cryptoeconomics know is now feasible. Imagine the differences in coordination potential of two societies where only one has mastered time, and you start to get a sense of why this technology is so powerful.

endlessvoid94 8y ago

Thanks for this!

cornholio 8y ago

Except the early adopters don't need to actually participate in the network, just acquire and hoard tokens. There's almost no connection between the profits and the actual advocacy, resources and risks required for the network to succed. So the incentive structure is quite different from, say, the stock market or even a kickstarter. It's more like a tradeable Ponzi with strong incentives to overpromise and overhype in the early phase, and to get out when the valuation approaches the claims without actually delivering anything more than yet another speculative asset.

foota 8y ago
You could find a way to associate someone's activity with positive signals, like give them credits for generating positive value in the network. Detecting positive value is difficult though.
- mlthoughts2018 8y ago
  But organizing “payment” in the form of a cryptocurrency is no different than just depositing money in their bank account. In some cases it would be: payment that evades government detection, payment that allows network participation to be anonymous, etc. The trust issue would not be part of it in these cases, from a business perspective. I guess I mean that predicating some network-effect-needing business on blockchain, for these reasons, still just seems like hype. Unless the business is fundamentally about anonymously being compensated in some way, then other existing financial institutions solve the problem (with just as much trust in 99.99999% of scenarios) in a far simpler way.
Jommi 8y ago
Your final comment doesn't really work out. Yeah, by over-promising and hyping you could raise the price of your coin, but it doesn't mean your volume will rise as much. You cant just liquidate everything at once and get anything as close as what a simple Q * P calculation would do for you. So that's why you work on your network, create value in it. Then later on the line, you become obscenely rich as your token's liquidity is good enough to live with forever. That's what people calling Ponzi/scam are missing. The short-term profits are nothing compared to the LIFECHANGING profits of being the founder of a network protocol.

narrator 8y ago

The best thing I've seen blockchains used for, besides currency, is as an integration platform for a non-centralized supply chain. There's really no money in it, since there aren't any gatekeepers, but that's sort of the point. The idea is that the farmer picks his carrots, puts them in a box and sends them off to the carrot juice guy. When he does this he puts a upc code on the side of the carrot box and then puts the code into the blockchain as I shipped this thing to the carrot juice guy. Carrot juice guy receives carrot juice, makes carrot juice with carrots in box and then says, I used these carrots to make this juice in these 300 bottles. <Blockchain> Ships it to distributor. Distributor says I received these carrot juice shipments. <Blockchain> I then sold 1-30 to convenience store A <Blockchain>. End consumer bought one at 3:30pm and got sick. You have the record of how it got there and how much time it spent everywhere, etc. The thing here is there is no centralized supply chain company who controls everything, everyone just puts it on the blockchain that NO ONE OWNS. This is a net gain for everybody in the network, but there is no centralized profit there, except for maybe some systems integrators working at the edges. This is why blockchain will probably be this kind of subtle thing that doesn't make anybody a lot of money, but just seeps into industry over time. It's a bit like containerization in a way. Huge global impact, but not really any one company who made their fortune on the container technology itself, but all the companies around it benefited.

deleted 8y ago
[deleted]
madeofpalk 8y ago
This is solvable without blockchain though. Supply chain tracking already happens at the moment without Blockchain.
- CPLX 8y ago
  Indeed. And more to the point blockchain doesn't do a damm thing to improve trust. If someone in step three tosses the carrots out the window and uses a different batch the blockchain isn't going to get that information. The blockchain in this example doesn't add or reduce trust at all it's just a time stamped database of stuff people said. We have those already.

adventured 8y ago

The problem with that approach, is it also destroys the network. You can never revoke the bribery once it becomes a core component of how the system functions and what drives it. The hyper contributor actions on the platform, which always make up a very large share of total contribution, ultimately drifts toward maximizing the gain of tokens and away from creating / contributing content solely based on quality. Simply put, the quality of contribution when monetary consideration isn't the primary, is going to be higher.

jhoechtl 8y ago

For those merely wanting to earn money from blockchain it is an instrument to convert electrical energy into money. All the other attached bells and whistles are a by-product.

hitekker 8y ago

>Blockchains may be good for bootstrapping new network effects by giving early participants in a network (in a Metcalfe's Law sense of network) an incentive to participate. Unless I'm being extra dense today, this is the un-clearest answer I've read yet. The 'may' qualifier also does not inspire confidence.

progr4mmatic 8y ago
If the tokens provide utility, e.g. this token is 500gb of storage and adoption, network activity, or technology productivity increases, the value of these utility tokens will go up in value on the market. So it’s basically like a new commodity. Ether is compared to gas on the Ethereum network for distributed compute for instance.

spanktosh1 8y ago

SpankChain - it's porn on the blockchain, check it out - beta.spankchain.com. If you accept the premise that blockchains are coordination platforms, because they dramatically reduce the cost of making credible commitments to future cooperation, then you should accept that the most disruptive opportunities will require unprecedented levels of coordination - coordination at a scale that most people think is impossible or infeasibly expensive, but that those who have mastered cryptoeconomics know is now feasible. Imagine the differences in coordination potential of two societies where only one has mastered time, and you start to get a sense of why this technology is so powerful.