I’ve been thinking about user-owned networks recently, and how covid has allowed their resiliency to shine. One example of user-owned networks are crypto networks. These networks rely on open source code, and anyone with a computer can participate. What does it mean to be a user-owned network? Here’s one definition.
User-owned / ownership, thus value, is distributed across participants.
Networks / a group or system of interconnected people or things
User-owned network / A group or system of interconnected users who are all also owners
The internet could be considered the best known “user-owned network.” There’s no CEO of the internet; its infrastructure abides by a set of common open-source protocols. All users of the internet contribute to the network effects it benefits from. You use the internet, and you also benefit from the fact that other people use it. However, the web is siloed, with value aggregated into applications built on these protocols.
Bitcoin is a true user-owned network. There are three attributes I believe are important for a user-owned network:
the ability to generate value
the ability to use shared infrastructure
the ability to secure the network.
On the internet, most of the value is generated by individual companies and applications built on top of internet protocols. In the bitcoin network, any user can generate value (by holding / using bitcoin), use its shared open infrastructure, and theoretically, secure the network.
User-owned networks are a powerful idea.
Many Web 2.0 companies have successfully built network effects: each additional user to the network contributes to the increasing value in the network itself. Facebook is a prime example. Every time a new user joins, the platform becomes more valuable. Most of the value, especially the monetary value, goes to Facebook.
Bitcoin and Ethereum are perhaps, truer user-owned networks. With these networks, individuals have monetary incentives to participate, without being part of an '“organization.” As Jesse Walden explored in Crypto Business Models, these incentives can further entrench the network effects. By tying financial participation with the network itself, the switching costs increase. If I leave Facebook, I don’t lose my friends. But if I leave the bitcoin network, I can’t benefit from bitcoin appreciation. This reinforces the ability for these networks to scale.
That said, there are a number of tradeoffs associated with UONs.
A lack of formal governance can lead to a ‘tragedy of the commons’ situation, where a few parties end up being responsible for most of the work.
Without proper incentive alignment, networks can struggle to scale.
The open-source nature of projects introduces a different competitive dynamic where ideas can be easily copied and modified, although it’s not as easy as copy & pasting code.
However, crypto networks as UONs might have mitigated some of these tradeoffs.
Crypto user-owned networks have strong incentives built into the system
In the bitcoin network, there are three types of users: miners, developers, and users. Each group has an incentive to participate in the network for its collective growth. Miners secure the network and make money from the fees associated with doing so. Developers, who usually also use bitcoin, maintain the code and make network / governance related decisions. Users can be defined as anyone who holds, buys, sells bitcoin, and believes in its value as a non-sovereign store of value asset.
Initially, bitcoin’s community was largely powered by ideology and values. There wasn’t much incentive to build or participate outside of philosophy. However, as the network grew, so did the monetary incentives. There are now financially motivated players; financial incentives are pushing people towards the network.
This makes the bitcoin network more resilient. Since it no longer simply belongs to a niche of the population, less depends on each individual user. Bitcoin means different things to different people, meaning there is a widespread incentive to sustain the system over the longer term. As long as these incentives continue to exist, bitcoin will have an inherent resiliency that will move the network forward as a whole.
The first decade of bitcoin was driven by a small group of hard-core believers whose belief in the system and commitment to securing the network, pushed the network forward. As the network continues to grow the diversity of its user base, in which every new user can share in the value generated from the network appreciation, I believe we will see a new era for the use of shared infrastructure and building on top of the bitcoin protocol. The resiliency of the network compounds over time, as users grow, network value grows and belief sustains.
Many thanks to Ellen Fishbein for working with me on this post!
A few links on ways to help given the turmoil in our country:
This past week has been incredibly difficult, and my heart hurts for everyone in pain right now. I’m working on finding ways to contribute, be actively anti-rascist and support black communities. Here are a few things I’m doing right now:
Call your representatives & sign the appropriate petitions
If you have any other reccs, please send them my way.
On building in tech:
Mike Maples Jr. outlined a useful framework of “backcasting” for discovering breakthroughs. Specifically, identifying inflection points in technology, adoption and regulation can lead to a host of possible futures.
Sarah Tavel, offers up an interesting “rocks, sand and water” framework to navigate the consumer experience during this time.
Lenny’s incredibly useful post on how the biggest consumer apps got their first 1000 users is an instant bookmark.
On crypto dollars & central bank digital currencies (CBDC):
The geopolitics around CBDC are increasingly coming under scrutiny and attention - this was an interesting read on China’s planned CBDC launch
JP Koning posted an update on Fedcoin, nearly six years after the initial idea. “Fedcoin” puts the spotlight on the messy role of anonymity in currency.
The digital dollar project released their white paper proposing a U.S. CBDC
Lastly this tweet from Nic is too real