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Deconstructing the Blockchain Ecosystem
Product, Design and Development
December 5, 2018
Introduction: The hero’s journey
We all remember what it was like to
get started with blockchain…
A veritable hellscape of
misinformation, prognostication and
conflicting points of view.
Right: Dante’s Descent into Hell >>
2
It’s a 5-step process for everyone
We all remember what it was like to get started with blockchain…
1. Denial: I refuse to even be bothered with another nonsense technology.
2. Anger: Why is this even a thing? It’s stupid and everyone in it is dumb.
3. Bargaining: Maybe it works but only for criminals and scammers.
4. Depression: Idiots are getting rich and the world’s gone crazy.
5. Acceptance: This is real and the smartest people in the world are in it.
3
Once you’ve accepted, you still need to get your bearings
Learning the technology component is now pretty straightforward, but...
● What’s the context for where we currently are?
● What is the lay of the land?
● What problems can I actually solve?
● What information sources can I trust?
It’s difficult to build a picture of what’s going on out there.
Let’s fix that.
4
What it feels like every day
5
Today is about the context and ecosystem AROUND the tech
We’ll look at the narrative arc
that brought us here and how
you might find yourself shaping
the future.
You normally pick this up in
1000 different places.
6
Dog years ain’t so bad
7
About Me
I’m Erik Trautman and I run operations at NEAR Protocol, a
scalable mobile-first blockchain on a mission to bring the
technology to a billion mobile devices around the world.
I also care deeply about creating great products, educating people
and building rich ecosystems.
My background is in markets, open-source software development,
startups and education. And general nerdery.
8
Roadmap
1. Visions of the Future
2. Historical Narratives
3. Use Cases and Adoption
4. Key Problems
5. Bridging to the Future
9
Roadmap
1. Visions of the Future
2. Historical Narratives
3. Use Cases and Adoption
4. Key Problems
5. Bridging to the Future
10
Two supertrends to pay attention to: Data and Control
Data: Everything is becoming data.
Control: The gatekeepers of the future are
those who control the data.
11
Money is becoming data
12
We’ve moved from chunky physical money to purely digital money:
1. Barter: We started with barter and exchange
2. Coinage: Moved to a central medium of metal bars and coins
3. Banking: We put the metal into safes to receive direct IOUs
4. Fiat: Central banks started issuing paper currency (fiat) that
was decoupled from assets
5. Cloud Data: Paper became data in the cloud and now we trust
that it’s moving between our accounts among banks
Assets are becoming data
13
We’ve progressed from whole physical assets to pieces of
digital ones:
1. Finders keepers: I own it if I can defend it.
2. Physical titles: We trust the book in the town library
3. Aggregated digitized goods: Private companies
aggregate and sell cash flows against the assets via
securitization pools
4. Pieces of digitized goods: Break up goods into smaller
pieces of data (tokens)
People are becoming data
14
We’ve progressed from meatspace to digital space:
1. Total Privacy and Anonymity: Remember that?
2. Digital Vapor Trails: Now every action you take,
even your heartbeat, becomes a trail of data.
3. Human Data Points: You are tracked everywhere
on the web and in person for ad targeting. Your
identity is passed among unknown third parties.
Who controls the data?
15
We’ve progressed from meatspace to digital space:
1. Uncontrolled Data: Data used to disappear
2. Hoarded Data: Corporations started sucking up all
the data, using it to build product moats
a. You’re left vulnerable to rent-extracting moats
b. They can be co-opted or censored by governments,
intelligence agencies or hackers.
c. Frequently, your data is just sold to the highest bidder.
3. Individually Controlled Data: It’s out there in a
decentralized way that only you can fully access.
?
Control the data, control the world
16
The world’s most valuable companies
are all data controllers and aggregators.
2001: 1 tech company in the top 5
2016: 5 tech companies in the top 5
“Data is the new oil.”
Are we at a global maxima or a local maxima?
17
● Future 1: The more data, the
better! Apply machine learning to
build a stronger competitive moat
and lock in users.
● Future 2: Control of data is
re-decentralized, returning power
to the people and opening up
new paths of interaction.
The path to the decentralized future has potholes
18
Do users actually WANT control back? They
like centralization! It means immediately better
products, smoother experiences... and
difficult-to-measure future risks.
We’ll only succeed if we can create an
individual incentive to re-decentralize or
perform a collective action which achieves
this (eg GDPR). Photographer: Debbie Egan-Chin/NY Daily News
Archive/Getty Images
Roadmap
1. Visions of the Future
2. Historical Narratives
3. Use Cases and Usage
4. Key Problems
5. Bridging to the Future
19
History and narratives
20
To know where you are, you
must know where you’ve been.
The challenge is finding the
right narrative to follow.
Let’s take a journey.
Satoshi’s 2008 Bitcoin white paper was just the catalyst.
1. Cypherpunks: Freeing cryptography from the government
2. Digital money: Solving centralization and double spends
3. Open/closed internet: Swinging the pendulum back to “open”
4. Open source: Infrastructure finding a business… or bootstrapping... model
5. Social trends: Turning against corporate data hoarding and governments
6. Peer-to-Peer: File sharing is the cockroach that can’t be killed
...We can’t track them all but I’ll dip into the most relevant unifying threads.
Blockchain convergences multiple long term narratives
21
For example: open/closed cycles
Early 1990s [CLOSED]: Private networks, gatekeeping… the AOL days
Late 1990s [OPEN]: We have a new distributed, decentralized, permissionless
network where anyone can build applications. The future is ours!
Late 2000s [CLOSED]: Gatekeepers and aggregators (Google, Facebook)
become the toll takers and smartphones created walled gardens (Apple store)
20?? [OPEN]: We AGAIN have a new distributed, decentralized, permissionless
network where anyone can create applications.
Credit: Benedict Evans for the verbiage 22
2008: Bitcoin arrives and spends 10 years on top
23
Bitcoin has been driven by multiple incompatible narratives
1. E-Cash proof-of-concept (digital money)
2. P2P payment network
3. Censorship-resistant digital gold (store of value)
4. Private and anonymous darknet currency
5. Reserve currency for all of crypto (and unit of account)
6. Programmable shared database (providing security layer)
7. Uncorrelated financial asset
Credit: Nic Carter in https://medium.com/@nic__carter/visions-of-bitcoin-4b7b7cbcd24c
24
The evolution of Bitcoin narratives
25
2013: Rise of the currency coins
2013: Litecoin,
Ripple, Dogecoin
2014: Monero
2015: Dash
2016: ZCash
26
But how do we value a currency?
What’s the TAM of *Money*?
● Remittances are $400B/yr
● US M1 (Cash) supply is ~$4 Trillion
● US M2 (Cash+Current Assets) is ~$14 Trillion
● Global money is ~$90 Trillion
...So is a new currency worth $90T?
$90T/velocity?
27
M1 and M2: 1980 - Today
2014: Ethereum
2015: NEM
2016: ETC (DAO)
2017: EOS, IOTA,
Tezos, NEO,
Cardano, TRON...
2014: Ethereum and the rise of the smart contract platforms
28
How do we value a global infrastructure platform?
No one really knows…
● Global GDP is ~$80 Trillion
● The internet drives ~6% of US GDP
So… ~$4 Trillion of value creation on the
web, how much could be captured?
29
2017-2018: The ICO and appcoin bubble
Anyone can launch a coin,
let’s tokenize everything!
● Most built on top of the
base protocol Ethereum
● New funding is “outside
traditional oversight”...
Irrational exuberance!
30
How do we value a protocol token?
Best guess is the Fat Protocol Thesis
(USV/Montenegro 2016):
● Old: 90% of value is captured by the
application layer, 10% by the infra.
● New: 10% value captured by app
layer, 90% by the infrastructure.
The race is on to build tokens… but we
don’t actually know what works.
31
2018: The ICO bubble implodes
...taking Ethereum with it.
● Scams, bad incentives,
pump-and-dump schemes and
regulatory uncertainty
● Coins with no value capture
model and no team
What went up, then came down.
32
2018+: Bear market brings law... and adoption?
● Securities law is back!
○ Utility token? App token?
○ How decentralized are you?
○ What does your token DO..?
● SEC is prosecuting
○ Outright fraud
○ Unregistered securities offerings
33
Regulatory clarity is slowly coming
Who regulates this stuff?
1. SEC: New securities
issuance
2. CFTC: Commodities
3. CFPB: Money transfers
Can it start as a security but
become decentralized?
CTFC....
34
Rays of hope
35
● “Sandboxing” environments in
Switzerland and Britain
● Flexible governments in Singapore,
Japan, Hong Kong, some in Europe
● Banking is slowly coming aboard
test-driving the tech
● Enterprise custody is a key entry
point for institutional money
● Scammers have been shaken out?
We’ve seen this cycle before
36
Today?
Roadmap
1. Visions of the Future
2. Historical Narratives
3. Use Cases and Adoption
4. Key Problems
5. Bridging to the Future
37
Use Cases and Adoption
38
What does adoption look like? Two theses.
1. Killer App Thesis:
a. Success == breakout app
b. We already kind of have it… Bitcoin!
c. Partial rebuttal: “Myth of the Infrastructure Phase” (USV 2018)
2. Hidden Blockchain Thesis:
a. Success is when we don’t know we’re using it
b. Need to surface the unique value
...We really don’t know yet.
39
The Internet’s true adoption wasn’t obvious either in 1993
40
Credit: Benedict Evans
Adoption for new technologies follows an S-curve
41
1. Prototyping / R&D
a. Uninformed optimism
2. Early Adoption
a. What do we do with it?
3. Exponential Growth
a. P/M fit drives investment
4. Mature Adoption
a. Tech finds the edges
Crypto is still phase 2.
Credit: Benedict Evans
3 Key Use Case Areas
42
Almost every specific use case can be generalized into one of these three areas:
1. Currency
2. The Finance Stack
3. Web 3
Let’s look at each of them in turn.
Credit: Benedict Evans
Use Case: Currency
1. Unit of Account
2. Medium of Exchange
3. Store of Value
BTC is basically a Store of Value and sort of a Unit of Account…
ETH is a Unit of Account for many apps…
XRP and Stellar are Media of Exchange...
Privacy coins nip the edges...
43
Use Case: Rebuilding the financial system with fintech
The existing one was too slow and rent-seeking anyway so we rebuilt it.
● Some of it is crypto agnostic:
○ Cross-border transactions
○ Settlements
● Some of it is crypto-facing:
○ Lending
○ Trading (margin, derivatives)
44
Finance stack: Services dominate
We’re back to selling “picks and shovels.” The most successful businesses have
been service (or hardware) providers for crypto:
● Exchanges (Coinbase, Gemini, Binance)
● Institutional custody (Coinbase)
● Mining hardware companies (Bitmain)
Still need banking services.
45
Finance stack: Lending opens the door
Lending is the basis of everything in
finance. It’s moving on-chain.
● Benefits:
○ Creates interest rates
○ Monetizes assets
○ Allows derivatives + short sales
● Challenges
○ No credit without identity!
46
https://www.coinstaker.com/bitcoin-finance/lending/
Finance stack: Tokenized assets
Let’s put all of the real world assets onto
the blockchain!
● Benefits
○ Liquidity for illiquid assets
○ Democratize trading
● Lots of challenges
○ Ownership verification
○ Liens and equity
○ Dividends and cash flows
○ Is there a market for this?
○ Regulatory
47
https://launch.quantmre.com/asset-backed-tokens-th
e-game-changer-for-real-estate-investing/
Finance stack: Stablecoins
Need a stable store of value and
medium of exchange once in crypto.
1. Fiat Collateralized (IOU)
2. Crypto Collateralized
3. Not Collateralized (Seniorage)
This is a HARD problem… every
approach has severe weaknesses.
48
https://hackernoon.com/stablecoins-designing-a-pric
e-stable-cryptocurrency-6bf24e2689e5
Finance stack: new tools and benefits
Some things are blockchain-native
1. Accounts:
a. Separation of individual identity from
accounts and wallets (IoT)
2. Payments:
a. Viable micropayments
b. Rapid settlement
Your car can now pay its own tolls!
49
https://www.altoros.com/blog/automotive-blockchain-f
rom-manufacturing-to-security-to-insurance/
Future of the finance stack
● We stubbed our toe on outrunning capital formation with ICOs
● Need more institutional custody and management tools
● Need more lending and credit-extension
● Asset tokenization needs to weather challenges
● New areas are opened up…
○ Autonomous vehicles with accounts
○ IoT devices with accounts
50
Use Case: Re-decentralize the web with Web 3
A global computer combines the infrastructure of
AWS with the stubborn censorship resistance of
Bitcoin.
Smart contracts make your app:
1. Uncensorable: once launched, it’s out there
2. Transparent: everyone sees the code
3. Forkable: easily replicated and modified
51
Web 3: Return control to the users
A key feature of this new web is returning control to the user:
1. The user controls their money
2. The user controls their data
3. The user controls their identity
...but how much control do users really want?
52
https://goodselects.com/what-is-dapp/
Web 3: New primitives over Web 2
New primitives are available to users and devs:
1. Portability: Transfer your assets and data
at will, eg. game assets, money
2. Cryptography: Easily verify if someone
owns something, if a transaction occurred,
etc w/o exposing data.
3. Accounts: Identity is native
4. P2P: Permissionless interaction w/ others
53
Web 3: Current use cases are early
Adoption is almost nonexistent. Top use
cases:
1. Gambling
2. Exchanges
3. Gaming
4. …?
54
https://btcmanager.com/crypto-games-pro
vably-fair-gambling-with-cryptocurrency/
Web 3: It’s not all about the “web”
Not everything is a general-purpose smart
contract platform, for example:
1. Livepeer does video transcoding
2. Perlin does distributed commodity
computing
3. IPFS stores files in a decentralized way
Ultimately, there’s TONS of flexibility provided
by the general idea of blockchain systems.
55
https://www.slideshare.net/DaphneChong1/video-tr
anscoding-at-scale-for-abc-iview-ndc-sydney
Web 3: Not all chains are even the same type
Blockchains have been fractured based on the
needs of specific parties (eg enterprises):
1. Public chains: everyone can see
everything (though can encrypt)
2. Private chains: nodes operated by a
single entity (not decentralized)
3. Consortium chains: collaboratively
operated by multiple industry players
56
https://cryptocurrencynews.com/public-vs-private-bl
ockchain/
Roadmap
1. Visions of the Future
2. Historical Narratives
3. Use Cases and Adoption
4. Key Problems
5. Bridging to the Future
57
Key problems with decentralized apps (DApps)
58
https://blog.prototypr.io/disruptive-ux-of-blockchain-what-you-should-focus-on-647cf5f9de89
Remember: problems become opportunities.
1. Too many steps to onboard and use
a. Go to an exchange, sign up, enter financials, buy crypto, move to wallet, activate wallet…
b. Enable wallet, pay for every transaction, figure out how to convert back to fiat...
2. Too much knowledge required
a. What is a wallet? What is a private key? What is gas?
3. No user protections or common design patterns
Problem: Blockchain user experience (UX) sucks
59
This is a highly technical toolset so our first
customers are actually the developers but...
1. Tools are all different and made by
different people
2. Little education or support for errors
3. Too much required token thinking
4. Fragile tooling
This is normal so early but frustrating.
Problem: Blockchain developer experience (DevX) sucks
60
https://medium.com/the-opsee-blog/let-s-talk-about-
developer-experience-dx-design-f62ee4c2ee05
Problem: This doesn’t scale
Bitcoin processes 4 transactions/second.
Ethereum 14tps.
One DApp (cryptokitties) essentially took
down the whole platform. Your app gets
slowed by another app’s success.
New platforms make many promises...
61
Problem: This doesn’t scale (solution narratives)
We’ve tried to solve the scaling problem
with a number of narratives:
1. We’ll figure it out with fixes…
a. Only achieved constant improvements
2. We’ll use layer 2
a. Eg. State channels, sidechains
b. But so complex, not getting usage
3. Back to layer 1!
a. Try re-centralizing the system (EOS)
b. Try sharding the system (NEAR, Eth 2.0)
62
https://cryptoreview.guru/what-are-sidechains/
How do you build a system when costs are both high and totally variable?
Problem: Cost
63
https://coinmetrics.io/charts/#assets=btc_log=false_right=averageFeeUsd_zoom=1496371709387.755,1546872886792.2305
New technology can’t grow without incentivizing entrepreneurs! Web 3 makes
most existing models more difficult.
● ICOs were a regulatory hack that failed
○ Tokens are only viable in very few cases
● The ecosystem is held up by investment $
○ This is NOT sustainable… need biz models!
● SAAS-style models aren’t viable yet
○ Regular payments suck
So what is my incentive to build a business?
Problem: Business models
64
Problem: The education gap
Incentives are to build not educate. The
typical wave for a new ecosystem:
1. Makers build the cutting edge
2. Thought leaders and makers informally
teach via blogs and docs
3. Jobs are created, incentivizing both
teachers and students.
We are still in stage 2.
65
https://hackernoon.com/blockchain-education-challen
ge-98a98e360315
Problem: De-re-decentralization
Let me get this straight...
1. Give everyone the freedom to own
their own wealth. Success!
2. People just give it all to Coinbase to
hold on to.
3. Coinbase becomes a centralized
player with tons of market power.
...do people actually want this??
66
https://cryptoreview.guru/what-are-sidechains/
Problem: Diversity and inclusion
This isn’t just skin deep.
1. Function -- who is talking to designers,
product people, marketers?
2. Gender -- yes, that problem...
3. Industry experience -- noobs dominate
Luckily there is more geographical diversity
than typical but we have a long way to go.
67
http://fintechnews.ch/blockchain_bitcoin/inaugural-ico
-summit-confirms-switzerlands-leading-role-crypto-fin
ance/13105/
Roadmap
1. Visions of the Future
2. Historical Narratives
3. Use Cases and Adoption
4. Key Problems
5. Bridging to the Future
68
Bridging to the Future
69
Your to-do list is simple: Fix #allthethings
Bear market? Time to #BUIDL.
1. Fix UX and DevX (invisible chain?)
2. Build out the ecosystem (find that app!)
3. Fix scaling
4. Explore the cutting edge
a. Governance
b. Alternate consensus mechanisms
c. Business models
d. Competitive moats
e. Valuation models
70
https://typto.co/products/just-buidl-cotton-cap-issue-1
Your upside: Help kick this into exponential growth mode
71
Where to start
If you have any skills, they’re applicable.
1. Follow the high signal leaders
2. Learn the technology
3. Find the problem that fits your skills
4. Read the 12 blog posts about it
5. Start helping out by applying your
existing skills -- for free or for hire
6. Write and teach
72
Image: Spongebob Squarepants
Thank you!
73

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Start here! Deconstructing the Blockchain Ecosystem

  • 1. Deconstructing the Blockchain Ecosystem Product, Design and Development December 5, 2018
  • 2. Introduction: The hero’s journey We all remember what it was like to get started with blockchain… A veritable hellscape of misinformation, prognostication and conflicting points of view. Right: Dante’s Descent into Hell >> 2
  • 3. It’s a 5-step process for everyone We all remember what it was like to get started with blockchain… 1. Denial: I refuse to even be bothered with another nonsense technology. 2. Anger: Why is this even a thing? It’s stupid and everyone in it is dumb. 3. Bargaining: Maybe it works but only for criminals and scammers. 4. Depression: Idiots are getting rich and the world’s gone crazy. 5. Acceptance: This is real and the smartest people in the world are in it. 3
  • 4. Once you’ve accepted, you still need to get your bearings Learning the technology component is now pretty straightforward, but... ● What’s the context for where we currently are? ● What is the lay of the land? ● What problems can I actually solve? ● What information sources can I trust? It’s difficult to build a picture of what’s going on out there. Let’s fix that. 4
  • 5. What it feels like every day 5
  • 6. Today is about the context and ecosystem AROUND the tech We’ll look at the narrative arc that brought us here and how you might find yourself shaping the future. You normally pick this up in 1000 different places. 6
  • 7. Dog years ain’t so bad 7
  • 8. About Me I’m Erik Trautman and I run operations at NEAR Protocol, a scalable mobile-first blockchain on a mission to bring the technology to a billion mobile devices around the world. I also care deeply about creating great products, educating people and building rich ecosystems. My background is in markets, open-source software development, startups and education. And general nerdery. 8
  • 9. Roadmap 1. Visions of the Future 2. Historical Narratives 3. Use Cases and Adoption 4. Key Problems 5. Bridging to the Future 9
  • 10. Roadmap 1. Visions of the Future 2. Historical Narratives 3. Use Cases and Adoption 4. Key Problems 5. Bridging to the Future 10
  • 11. Two supertrends to pay attention to: Data and Control Data: Everything is becoming data. Control: The gatekeepers of the future are those who control the data. 11
  • 12. Money is becoming data 12 We’ve moved from chunky physical money to purely digital money: 1. Barter: We started with barter and exchange 2. Coinage: Moved to a central medium of metal bars and coins 3. Banking: We put the metal into safes to receive direct IOUs 4. Fiat: Central banks started issuing paper currency (fiat) that was decoupled from assets 5. Cloud Data: Paper became data in the cloud and now we trust that it’s moving between our accounts among banks
  • 13. Assets are becoming data 13 We’ve progressed from whole physical assets to pieces of digital ones: 1. Finders keepers: I own it if I can defend it. 2. Physical titles: We trust the book in the town library 3. Aggregated digitized goods: Private companies aggregate and sell cash flows against the assets via securitization pools 4. Pieces of digitized goods: Break up goods into smaller pieces of data (tokens)
  • 14. People are becoming data 14 We’ve progressed from meatspace to digital space: 1. Total Privacy and Anonymity: Remember that? 2. Digital Vapor Trails: Now every action you take, even your heartbeat, becomes a trail of data. 3. Human Data Points: You are tracked everywhere on the web and in person for ad targeting. Your identity is passed among unknown third parties.
  • 15. Who controls the data? 15 We’ve progressed from meatspace to digital space: 1. Uncontrolled Data: Data used to disappear 2. Hoarded Data: Corporations started sucking up all the data, using it to build product moats a. You’re left vulnerable to rent-extracting moats b. They can be co-opted or censored by governments, intelligence agencies or hackers. c. Frequently, your data is just sold to the highest bidder. 3. Individually Controlled Data: It’s out there in a decentralized way that only you can fully access. ?
  • 16. Control the data, control the world 16 The world’s most valuable companies are all data controllers and aggregators. 2001: 1 tech company in the top 5 2016: 5 tech companies in the top 5 “Data is the new oil.”
  • 17. Are we at a global maxima or a local maxima? 17 ● Future 1: The more data, the better! Apply machine learning to build a stronger competitive moat and lock in users. ● Future 2: Control of data is re-decentralized, returning power to the people and opening up new paths of interaction.
  • 18. The path to the decentralized future has potholes 18 Do users actually WANT control back? They like centralization! It means immediately better products, smoother experiences... and difficult-to-measure future risks. We’ll only succeed if we can create an individual incentive to re-decentralize or perform a collective action which achieves this (eg GDPR). Photographer: Debbie Egan-Chin/NY Daily News Archive/Getty Images
  • 19. Roadmap 1. Visions of the Future 2. Historical Narratives 3. Use Cases and Usage 4. Key Problems 5. Bridging to the Future 19
  • 20. History and narratives 20 To know where you are, you must know where you’ve been. The challenge is finding the right narrative to follow. Let’s take a journey.
  • 21. Satoshi’s 2008 Bitcoin white paper was just the catalyst. 1. Cypherpunks: Freeing cryptography from the government 2. Digital money: Solving centralization and double spends 3. Open/closed internet: Swinging the pendulum back to “open” 4. Open source: Infrastructure finding a business… or bootstrapping... model 5. Social trends: Turning against corporate data hoarding and governments 6. Peer-to-Peer: File sharing is the cockroach that can’t be killed ...We can’t track them all but I’ll dip into the most relevant unifying threads. Blockchain convergences multiple long term narratives 21
  • 22. For example: open/closed cycles Early 1990s [CLOSED]: Private networks, gatekeeping… the AOL days Late 1990s [OPEN]: We have a new distributed, decentralized, permissionless network where anyone can build applications. The future is ours! Late 2000s [CLOSED]: Gatekeepers and aggregators (Google, Facebook) become the toll takers and smartphones created walled gardens (Apple store) 20?? [OPEN]: We AGAIN have a new distributed, decentralized, permissionless network where anyone can create applications. Credit: Benedict Evans for the verbiage 22
  • 23. 2008: Bitcoin arrives and spends 10 years on top 23
  • 24. Bitcoin has been driven by multiple incompatible narratives 1. E-Cash proof-of-concept (digital money) 2. P2P payment network 3. Censorship-resistant digital gold (store of value) 4. Private and anonymous darknet currency 5. Reserve currency for all of crypto (and unit of account) 6. Programmable shared database (providing security layer) 7. Uncorrelated financial asset Credit: Nic Carter in https://medium.com/@nic__carter/visions-of-bitcoin-4b7b7cbcd24c 24
  • 25. The evolution of Bitcoin narratives 25
  • 26. 2013: Rise of the currency coins 2013: Litecoin, Ripple, Dogecoin 2014: Monero 2015: Dash 2016: ZCash 26
  • 27. But how do we value a currency? What’s the TAM of *Money*? ● Remittances are $400B/yr ● US M1 (Cash) supply is ~$4 Trillion ● US M2 (Cash+Current Assets) is ~$14 Trillion ● Global money is ~$90 Trillion ...So is a new currency worth $90T? $90T/velocity? 27 M1 and M2: 1980 - Today
  • 28. 2014: Ethereum 2015: NEM 2016: ETC (DAO) 2017: EOS, IOTA, Tezos, NEO, Cardano, TRON... 2014: Ethereum and the rise of the smart contract platforms 28
  • 29. How do we value a global infrastructure platform? No one really knows… ● Global GDP is ~$80 Trillion ● The internet drives ~6% of US GDP So… ~$4 Trillion of value creation on the web, how much could be captured? 29
  • 30. 2017-2018: The ICO and appcoin bubble Anyone can launch a coin, let’s tokenize everything! ● Most built on top of the base protocol Ethereum ● New funding is “outside traditional oversight”... Irrational exuberance! 30
  • 31. How do we value a protocol token? Best guess is the Fat Protocol Thesis (USV/Montenegro 2016): ● Old: 90% of value is captured by the application layer, 10% by the infra. ● New: 10% value captured by app layer, 90% by the infrastructure. The race is on to build tokens… but we don’t actually know what works. 31
  • 32. 2018: The ICO bubble implodes ...taking Ethereum with it. ● Scams, bad incentives, pump-and-dump schemes and regulatory uncertainty ● Coins with no value capture model and no team What went up, then came down. 32
  • 33. 2018+: Bear market brings law... and adoption? ● Securities law is back! ○ Utility token? App token? ○ How decentralized are you? ○ What does your token DO..? ● SEC is prosecuting ○ Outright fraud ○ Unregistered securities offerings 33
  • 34. Regulatory clarity is slowly coming Who regulates this stuff? 1. SEC: New securities issuance 2. CFTC: Commodities 3. CFPB: Money transfers Can it start as a security but become decentralized? CTFC.... 34
  • 35. Rays of hope 35 ● “Sandboxing” environments in Switzerland and Britain ● Flexible governments in Singapore, Japan, Hong Kong, some in Europe ● Banking is slowly coming aboard test-driving the tech ● Enterprise custody is a key entry point for institutional money ● Scammers have been shaken out?
  • 36. We’ve seen this cycle before 36 Today?
  • 37. Roadmap 1. Visions of the Future 2. Historical Narratives 3. Use Cases and Adoption 4. Key Problems 5. Bridging to the Future 37
  • 38. Use Cases and Adoption 38
  • 39. What does adoption look like? Two theses. 1. Killer App Thesis: a. Success == breakout app b. We already kind of have it… Bitcoin! c. Partial rebuttal: “Myth of the Infrastructure Phase” (USV 2018) 2. Hidden Blockchain Thesis: a. Success is when we don’t know we’re using it b. Need to surface the unique value ...We really don’t know yet. 39
  • 40. The Internet’s true adoption wasn’t obvious either in 1993 40 Credit: Benedict Evans
  • 41. Adoption for new technologies follows an S-curve 41 1. Prototyping / R&D a. Uninformed optimism 2. Early Adoption a. What do we do with it? 3. Exponential Growth a. P/M fit drives investment 4. Mature Adoption a. Tech finds the edges Crypto is still phase 2. Credit: Benedict Evans
  • 42. 3 Key Use Case Areas 42 Almost every specific use case can be generalized into one of these three areas: 1. Currency 2. The Finance Stack 3. Web 3 Let’s look at each of them in turn. Credit: Benedict Evans
  • 43. Use Case: Currency 1. Unit of Account 2. Medium of Exchange 3. Store of Value BTC is basically a Store of Value and sort of a Unit of Account… ETH is a Unit of Account for many apps… XRP and Stellar are Media of Exchange... Privacy coins nip the edges... 43
  • 44. Use Case: Rebuilding the financial system with fintech The existing one was too slow and rent-seeking anyway so we rebuilt it. ● Some of it is crypto agnostic: ○ Cross-border transactions ○ Settlements ● Some of it is crypto-facing: ○ Lending ○ Trading (margin, derivatives) 44
  • 45. Finance stack: Services dominate We’re back to selling “picks and shovels.” The most successful businesses have been service (or hardware) providers for crypto: ● Exchanges (Coinbase, Gemini, Binance) ● Institutional custody (Coinbase) ● Mining hardware companies (Bitmain) Still need banking services. 45
  • 46. Finance stack: Lending opens the door Lending is the basis of everything in finance. It’s moving on-chain. ● Benefits: ○ Creates interest rates ○ Monetizes assets ○ Allows derivatives + short sales ● Challenges ○ No credit without identity! 46 https://www.coinstaker.com/bitcoin-finance/lending/
  • 47. Finance stack: Tokenized assets Let’s put all of the real world assets onto the blockchain! ● Benefits ○ Liquidity for illiquid assets ○ Democratize trading ● Lots of challenges ○ Ownership verification ○ Liens and equity ○ Dividends and cash flows ○ Is there a market for this? ○ Regulatory 47 https://launch.quantmre.com/asset-backed-tokens-th e-game-changer-for-real-estate-investing/
  • 48. Finance stack: Stablecoins Need a stable store of value and medium of exchange once in crypto. 1. Fiat Collateralized (IOU) 2. Crypto Collateralized 3. Not Collateralized (Seniorage) This is a HARD problem… every approach has severe weaknesses. 48 https://hackernoon.com/stablecoins-designing-a-pric e-stable-cryptocurrency-6bf24e2689e5
  • 49. Finance stack: new tools and benefits Some things are blockchain-native 1. Accounts: a. Separation of individual identity from accounts and wallets (IoT) 2. Payments: a. Viable micropayments b. Rapid settlement Your car can now pay its own tolls! 49 https://www.altoros.com/blog/automotive-blockchain-f rom-manufacturing-to-security-to-insurance/
  • 50. Future of the finance stack ● We stubbed our toe on outrunning capital formation with ICOs ● Need more institutional custody and management tools ● Need more lending and credit-extension ● Asset tokenization needs to weather challenges ● New areas are opened up… ○ Autonomous vehicles with accounts ○ IoT devices with accounts 50
  • 51. Use Case: Re-decentralize the web with Web 3 A global computer combines the infrastructure of AWS with the stubborn censorship resistance of Bitcoin. Smart contracts make your app: 1. Uncensorable: once launched, it’s out there 2. Transparent: everyone sees the code 3. Forkable: easily replicated and modified 51
  • 52. Web 3: Return control to the users A key feature of this new web is returning control to the user: 1. The user controls their money 2. The user controls their data 3. The user controls their identity ...but how much control do users really want? 52 https://goodselects.com/what-is-dapp/
  • 53. Web 3: New primitives over Web 2 New primitives are available to users and devs: 1. Portability: Transfer your assets and data at will, eg. game assets, money 2. Cryptography: Easily verify if someone owns something, if a transaction occurred, etc w/o exposing data. 3. Accounts: Identity is native 4. P2P: Permissionless interaction w/ others 53
  • 54. Web 3: Current use cases are early Adoption is almost nonexistent. Top use cases: 1. Gambling 2. Exchanges 3. Gaming 4. …? 54 https://btcmanager.com/crypto-games-pro vably-fair-gambling-with-cryptocurrency/
  • 55. Web 3: It’s not all about the “web” Not everything is a general-purpose smart contract platform, for example: 1. Livepeer does video transcoding 2. Perlin does distributed commodity computing 3. IPFS stores files in a decentralized way Ultimately, there’s TONS of flexibility provided by the general idea of blockchain systems. 55 https://www.slideshare.net/DaphneChong1/video-tr anscoding-at-scale-for-abc-iview-ndc-sydney
  • 56. Web 3: Not all chains are even the same type Blockchains have been fractured based on the needs of specific parties (eg enterprises): 1. Public chains: everyone can see everything (though can encrypt) 2. Private chains: nodes operated by a single entity (not decentralized) 3. Consortium chains: collaboratively operated by multiple industry players 56 https://cryptocurrencynews.com/public-vs-private-bl ockchain/
  • 57. Roadmap 1. Visions of the Future 2. Historical Narratives 3. Use Cases and Adoption 4. Key Problems 5. Bridging to the Future 57
  • 58. Key problems with decentralized apps (DApps) 58 https://blog.prototypr.io/disruptive-ux-of-blockchain-what-you-should-focus-on-647cf5f9de89 Remember: problems become opportunities.
  • 59. 1. Too many steps to onboard and use a. Go to an exchange, sign up, enter financials, buy crypto, move to wallet, activate wallet… b. Enable wallet, pay for every transaction, figure out how to convert back to fiat... 2. Too much knowledge required a. What is a wallet? What is a private key? What is gas? 3. No user protections or common design patterns Problem: Blockchain user experience (UX) sucks 59
  • 60. This is a highly technical toolset so our first customers are actually the developers but... 1. Tools are all different and made by different people 2. Little education or support for errors 3. Too much required token thinking 4. Fragile tooling This is normal so early but frustrating. Problem: Blockchain developer experience (DevX) sucks 60 https://medium.com/the-opsee-blog/let-s-talk-about- developer-experience-dx-design-f62ee4c2ee05
  • 61. Problem: This doesn’t scale Bitcoin processes 4 transactions/second. Ethereum 14tps. One DApp (cryptokitties) essentially took down the whole platform. Your app gets slowed by another app’s success. New platforms make many promises... 61
  • 62. Problem: This doesn’t scale (solution narratives) We’ve tried to solve the scaling problem with a number of narratives: 1. We’ll figure it out with fixes… a. Only achieved constant improvements 2. We’ll use layer 2 a. Eg. State channels, sidechains b. But so complex, not getting usage 3. Back to layer 1! a. Try re-centralizing the system (EOS) b. Try sharding the system (NEAR, Eth 2.0) 62 https://cryptoreview.guru/what-are-sidechains/
  • 63. How do you build a system when costs are both high and totally variable? Problem: Cost 63 https://coinmetrics.io/charts/#assets=btc_log=false_right=averageFeeUsd_zoom=1496371709387.755,1546872886792.2305
  • 64. New technology can’t grow without incentivizing entrepreneurs! Web 3 makes most existing models more difficult. ● ICOs were a regulatory hack that failed ○ Tokens are only viable in very few cases ● The ecosystem is held up by investment $ ○ This is NOT sustainable… need biz models! ● SAAS-style models aren’t viable yet ○ Regular payments suck So what is my incentive to build a business? Problem: Business models 64
  • 65. Problem: The education gap Incentives are to build not educate. The typical wave for a new ecosystem: 1. Makers build the cutting edge 2. Thought leaders and makers informally teach via blogs and docs 3. Jobs are created, incentivizing both teachers and students. We are still in stage 2. 65 https://hackernoon.com/blockchain-education-challen ge-98a98e360315
  • 66. Problem: De-re-decentralization Let me get this straight... 1. Give everyone the freedom to own their own wealth. Success! 2. People just give it all to Coinbase to hold on to. 3. Coinbase becomes a centralized player with tons of market power. ...do people actually want this?? 66 https://cryptoreview.guru/what-are-sidechains/
  • 67. Problem: Diversity and inclusion This isn’t just skin deep. 1. Function -- who is talking to designers, product people, marketers? 2. Gender -- yes, that problem... 3. Industry experience -- noobs dominate Luckily there is more geographical diversity than typical but we have a long way to go. 67 http://fintechnews.ch/blockchain_bitcoin/inaugural-ico -summit-confirms-switzerlands-leading-role-crypto-fin ance/13105/
  • 68. Roadmap 1. Visions of the Future 2. Historical Narratives 3. Use Cases and Adoption 4. Key Problems 5. Bridging to the Future 68
  • 69. Bridging to the Future 69
  • 70. Your to-do list is simple: Fix #allthethings Bear market? Time to #BUIDL. 1. Fix UX and DevX (invisible chain?) 2. Build out the ecosystem (find that app!) 3. Fix scaling 4. Explore the cutting edge a. Governance b. Alternate consensus mechanisms c. Business models d. Competitive moats e. Valuation models 70 https://typto.co/products/just-buidl-cotton-cap-issue-1
  • 71. Your upside: Help kick this into exponential growth mode 71
  • 72. Where to start If you have any skills, they’re applicable. 1. Follow the high signal leaders 2. Learn the technology 3. Find the problem that fits your skills 4. Read the 12 blog posts about it 5. Start helping out by applying your existing skills -- for free or for hire 6. Write and teach 72 Image: Spongebob Squarepants