What is a Decentralized App (“Dapp”) — and why is it a threat to oligarchy?
If you saw that episode of Silicon Valley where the main character says he’s going to re-invent the internet by having everyone’s phone and computer serving pages to each other and hosting little pieces of the internet (instead of it all being centralized in giant server farms and sent to your phone or computer as a receiver only) you have encountered the basic idea of decentralized apps. We all walk around with smartphones that have more computing power than NASA had on its first space missions — yet right now they are used only to receive the internet we experience. Why shouldn’t little pieces of the internet be stored across all the computers and devices in the world and served up to anyone on the network? Everyone would pay less in bandwidth, hosting costs would be fractional and anyone could make a tiny bit of extra money allowing the unused space and processing power of their devices to be used by the network, much as people with solar power can sell surplus energy to city power grids.
This concept — that something that is currently centralized (big server farms owned by giant companies send you internet pages when your phone asks for them) could be de-centralized (internet pages are stored and shared across a network of everyone’s phones and computers) ends up with the same result from the user’s perspective. After all, right now you don’t know where your web pages are served from and probably don’t care — as long as they show up when you type in an address. But the value created from storing and serving these pages is billions of dollars worth of hosting fees dominated by a few key players. According to Statista the current global cloud computing and hosting market brings in around $118B annually (and has been experiencing double-digit growth year over year for a decade).
Think about where that value comes from though; it’s mostly storing and serving other people’s content. Most of it doesn’t require high security or intensive processing power (two things that centralized hosting excels at). So when you build a website with great content that has a lot of traffic, hosting companies like GoDaddy, Amazon Web Services and Google Cloud are cashing in on the popularity of your content. That all seems fine, but what if instead of that $118 Billion going to them it was dispersed across everyone who used the internet? What if you received micro payments for the hosting space and processing power you allowed to be taken up on your mobile phone or computer? It wouldn’t be a lot of money but you’d get a small discount on your cell phone bill each month. Imagine the impact on the hosting companies though…. They’d have to innovate, provide better quality service, lower prices or build their own revenue sharing plans with customers to keep them from switching to distributed hosting.
If you think this is all hypothetical, check out IPFS (I don’t own any piece of this company — or any other company mentioned in this article except Ethereum), which is building a version of the distributed web. It likely won’t be ready for mainstream adoption for years but it and other startups could eventually create user-owned systems that invert the business models of existing companies.
The de-centralization (and democratization) of the platform business model:
Right now, many of the most successful businesses are platforms. A platform business is not a new idea; shopping malls and newspapers are platforms. They make money by being the place where buyers and sellers meet. Facebook is now the world’s most successful social platform, but Apple’s app store, iTunes and Apple Tv are all highly successful platforms owned by the world’s most valuable company.
Their business models work by being a closed ecosystem where content (newspaper articles, social posts, products, videos, music files) can be found and consumed by an audience. Sometimes the audience pays a subscription, as they do with Dropbox, Spotify and Netflix — other times advertisers pay to show ads to the audience (Facebook, Google Search, free versions of Pandora, traditional TV, etc.). In some platforms, it’s just a straight cut of the transaction itself (Ebay, Etsy, AirBnB, Google Play and Apple App stores).
So now imagine a world where all of these content distribution, storage and shopping platforms could be mimicked — with all the same features — but there’s no big company that owns the platform. Instead of the value being centralized and awarded to a few top executives and institutional shareholders, the value is distributed across the users of the platform. Huh? It’s like some unholy hybrid of Marxism and Capitalism where work and reward are distributed evenly, but the hardworking individual can still get rich by producing more and better work.
For example, what if there was a new blockchain version of Facebook where users were rewarded (in actual usable currency convertible to dollars) for their posts, engagements, time on page, etc…. All the things that Facebook currently rewards it’s employees for in the form of bonuses. But instead of the executives getting paid for your controversial, click-generating content, you are getting paid for it. Instead of Mark Zuckerberg stacking up billions more by selling ads that your mom views along with your family vacation pics, you get a small financial reward every time your friends and family engage with your wake-boarding videos and kids birthday party pics.
The more you post and the more engaging your content, the more you earn. And the executives and engineers who helped build it would still get rich… after all, they received a stack of the platform’s tokens to launch it and each time a new user joins the platform, everyones’ tokens rise in value with demand. In such a scenario, the company that maintains the platform is incentivized to keep the most number of people on it; the incentive to get the most engagements per post would shift completely to the users… So the company is incentivized to act as a check on the offensiveness of user content by curating an all-inclusive space where all are welcome rather than a click-generation machine that promulgates divisiveness because its KPIs are driven by engagements per post or time on page.
In this decentralized platform world, why would you go through AirBnB to book someone’s apartment for a vacation? The only reason you do it now is because you don’t trust a total stranger across the world. In exchange for a trusted platform, AirBnB charges 3% to the host and another 6% — 10% to the traveller, which resulted in $2.6 Billion in revenues last year. What if everyone hosted their own apartment for rent on a shared platform that allowed peer-to-peer transactions instead — with no transaction fees? Blockchain was built to verify and escrow no-trust transactions like this. Bee Token is currently building something like this. That money could one day be absorbed by renters and property owners instead of a massive intermediary.
What if, instead of all your photos and videos being held in Apple’s Icloud in exchange for a monthly fee, they were instead encrypted and distributed across a network of hard drives in data packages for a fraction of the cost and only for the exact amount of storage space you are using? Instead of paying Apple for Icloud, Google for Drive, or Box or Dropbox you could easily rent spare hard drive space securely in automated micro-transactions from people across your city — with your data unreadable to each hard drive owner. Check out Filecoin to quell your skepticism.
What if you were a musician and could post your music on a platform that had the same features as Spotify, but instead of getting a tiny royalty you were paid most of its value? (Spotify has again lowered it’s payment per stream to $0.00397 on each stream of your track. With an average of 154 streams per track, you could expect a check for 61 cents in 2017… Try not to spend it all in one place!).
Music and entertainment in general are famously centralized industries where artists, authors, film makers and musicians capture only the tiniest sliver of the value of their creative work products. What if, instead of being beholden to one of the big 3 music labels (Warner Music, Sony Music and Universal Music Group) which control nearly 80% of the publishing rights streamed, you could crowdfund your own album production and concert tour, retaining ownership of your own intellectual property and selling royalty stakes to fans who commit to investing in your band? What if you could use the same platform to sell tickets to shows and merchandise without a label, ticketing platform or licensor taking a cut? Soundeon is trying to build this.
These are not pie-in-the-sky ideas. These are actual real-life companies who have funding, offices, flavored waters and softball teams. They all use blockchain technology to replace the traditional role of middle-men companies with direct transactions distributed across a network of computers and phones — instead of centralized in one company’s platform. They are all powered by a cryptocurrency (each blockchain platform requires a medium of exchange for computers in their network to conduct micro-transactions… this is the reason why there are so many different types of cryptocurrency tokens). And yes, the founders of these companies hope to get fabulously wealthy from their efforts… but the difference is that in order to participate in a blockchain platform, you have to own some of that platforms tokens… so the value of the tokens increases with more participants. The creators of the blockchain platforms get paid a percent of the total available tokens — and are gambling that enough people will join the platform and start using it that their tokens will continue to grow in value.
…Or the big companies can do it
All of this is excitingly democratic and disruptive — but of course there’s no reason why a large company that already dominates a market couldn’t build the same thing and shut out the startups before it gets toppled as this McKinsey report recommends they do and, one might argue, China just did.
Since the value of a platform primarily lies in its size (buyers join a platform with the most sellers and sellers join platforms with the most buyers), unseating any incumbent platform is an uphill struggle at best. For example, even TIDAL, helmed by Jay Z and Beyonce who bring massive press opportunities, investors, fans and talent still claims less than 2% of marketshare penetration of streaming services and is rumored to be running out of cash. Microsoft’s Xbox Music recently announced it was exiting the streaming music space. Even offering a much better deal for artists and subscribers alike, mounting a serious competitor to Spotify, Pandora and Apple Music is an uphill struggle at best.