If you dive into the information available on Steemit, Medium, or Reddit, it seems like the potential of decentralized technologies and applications are endless. Unfortunately, so is the information available. One of the main reasons that I started writing Steemit posts is to connect the information from different sources in a structured and coherent format. In the current post I will try to explain my perspective on the value of decentralization and the challenges it faces. In short, I wonder about the possibilities decentralization offers and the value provided by decentralized services in the domains of ownership and empowerment. While glancing over some views and sources, questions arise which will be a guide for future posts and projects.
Disclaimer: These few lines skim over a complex matter as their sole purpose is creating a framework for my future research. I am not an economist or historian.
The value of the internet
To understand why there is so much buzz around decentralization, it is important to have a basic understanding of the history of the internet. In the 80's, Internet in a more primitive form was developed by Tim Berners-Lee as a communication tool for researchers at CERN and other institutes. A couple of years later, the Internet was released to the public domain. With the public release of the internet, CERN handed the world a tool for open, direct and global communication. Information was transferred across continents with the push of a button between who-ever was connected to the net.
The internet, even though quite primitive, quickly gained popularity and from the second half of the 90's there was a proliferation of internet companies. The dot-com bubble was the result of the increasing hype around these novel tech companies. Investments were made on the very optimistic promise of large future profits whilst currently operating at a significant loss. You might think 'Hey, that's investing', but some of these companies had never turned profit, didn't have a plan for profit or weren't even operational. Additionally, because of the novelty of this market it was hard to properly value company shares. Internet corporations started booming, internet stock started booming and enormous investments were made in infrastructure and services. Investors believed in a network effect, where more users result in more value. Unfortunately, this value proved difficult to realize for a lot of companies and eventually the bubble burst.
Even Bart Simpson was offered some stock
The dot-com bubble is a great example of how a hype fueled by overestimations and irrational exuberance can result in global economic disarray. Nevertheless, significant investments were made in infrastructure which we still enjoy to this day. But, a new challenge arose for the tech companies; how could they gain tangible value? And how could they be the one gaining that value, and not their competitor? To answer this question, we first dive a little deeper in the network effect.
The value of networks
In the ideal situation, a network driven business model strives to connect everybody that can be connected. Inherently, this implies a monopoly on your network. Others could build upon that network or create a niche version aimed at specific target-groups, but there will still only be one dominant network, e.g. Facebook. Game developers, media personalities and advertisers all have gotten rich of access to the Facebook network. And if you look at the current business landscape, one could argue that the market is dominated by technology monopolies. Facebook for social networking, Google (Alphabet) for search and advertisements, Amazon for shopping and hosting, Microsoft for operating systems and services, YouTube (Alphabet) for video, and the list goes on. And don't forget that these companies own or are owned by other large players in the digital world. Furthermore, these companies have shown the drive to connect everybody and everything, thus increasing their network. Google bought Android and developed project Loon, Facebook developed Free Basics and bought Instagram and WhatsApp. One of the most impressive ones, Tencent, simply does everything.
In general, internet companies have created ecosystems wherein more consumers generate more value as they utilize the services more and more. But what is this value generated by these ecosystems? It can not be monthly fee, since consumers don't pay for Instagram, Facebook, and WhatsApp. Advertisers provide income, but that's an effect of the consumers using the services offered by the ecosystem. When consumers move away from the ecosystem, so will the advertisers. But of course this isn't the other way around. It must be something else then. These ecosystems fulfill a demand created by consumers, offer supply via services or provide access to third-party products through their ecosystem. The value of these ecosystems lies in the valorization of using the platform, investing in advertisements or gaining access to channels for marketing your own product or service.
But, to stay ahead of the game these companies started gathering large amounts of consumer data.
For an interesting piece illustrating the corporate view on data and value, read The Rise of Data Capital with a self-explanatory title from MIT Technology Review and Oracle.
The value of data
The availability of consumer data is beneficial for all parties involved. Data, for the company, provides valuable insight in the behavior and opinions of consumers. Data, for the consumer, makes the product of the company 'smart' and useful. Data, for the advertiser, increases campaign efficiency.
Data is also an important contributor to the enormous advances in AI. Facebook, Google, Apple, Amazon and Microsoft are all invested in AI programs and have showcased impressive applications. AI's are also used to determine consumer demand at an almost personal level. Just think about how Google always seems to know what you want to buy, read, or watch, even if you misspelled it.
Google's Assistant recently gave an impressive showcase of modern AI capabilities
But this isn't a bad thing per se. Personally, I'm a sucker for these services. I like it when I receive my itinerary when I wake up, I stay up to date on a plethora of topics via blogs and videos and I only listen to music in the cloud. But more importantly, I prefer to selectively control who gets my data and for what purpose it is used. The internet in it's current shape, focused around centralized servers and data lakes, is not suited for these kind of interactions. For a nice overview on the limitations of the current internet by one of my favorite decentralization frontrunners, check out this TED Talk by Juan Benet of Protocol Labs.
The centralized internet is concentrated on communicating through certain nodes controlled by the largest internet companies to facilitate data hoarding as a means to increasing network value. Even though financially this seems like a valid business model there are some drawbacks. For example, the string of hacks acquiring vast amounts of consumer data from companies is one of many examples displaying why collecting of data by a single entity is not the brightest of ideas. And what happens if internet companies shut down or governments decide to block access to these services? Well, the service just disappears.
When you think about it, it is pretty strange that I lose access to the data I generated like my entire mail and messaging history, location data, pictures, and videos when access is cut off. Returning the ownership of data to the consumer seems like a logical solution providing persistence and control. When a service like Google Maps loses my preference, I would be able to provide my historic location data to a competitor like MapQuest to improve the quality of their services and therefore my experience when using it. A digital free market could emerge.
The value of decentralization
Decentralizing data storage and applications could lead to a mesh network that creates a permanent distributed web independent of large central nodes. Think of it as AWS meets BitTorrent using a blockchain ledger by combining distributed apps hosted on distributed storage and accessed via blockchain technology. These implementations are referred to as Web3.0, a term adopted by Ethereum founders to fittingly describe the possibilities of their platform. Decentralization is a real possibility in the present day, where fast internet on mobile devices capable of massive storage is becoming the norm.
To get a grasp of the possibilities I will try to describe from the perspective of different stakeholders.
As a consumer, I want to be able to enjoy the possibilities the internet offers while still having in control over the data I produce. The datacenters of large internet companies are like honeypots. Access to the datacenter means access to the data of millions of consumers. To reach such enormous amount of data in a decentralized web, hackers would need to hack millions of nodes instead of gaining access to one central point. Furthermore, I would prefer to sell or contribute my data to projects that I want to support, instead of supporting the Candy Crush addiction of some of my peers. For example, I could host my data via IPFS and register the contents in a blockchain. Next, I can give distributed applications access to my data by sharing a key in exchange for services. The consumer is in control of his data, who has access to it and the value it generates.
Remember Tim Berners-Lee? During the process of writing this post, he publicly launched Solid. Solid can be described as a decentralized personal data storage system.
As a group of consumers, we want to continue enjoying the services offered by ecosystems even while not being directly connected to the main nodes. Modern phones and laptops are powerful machines with large storage capabilities. If a government disconnects cross-border internet connections, a node representing the Twitter service within the borders should enable us to remain tweeting. What matters is being connected a node, instead of being connected to a central node. These services go beyond Twitter; Wikipedia, MOOCs, blogs, personal websites, maybe even banking, all of these need to be permanently stored and accessible without dependency on on-line server access.
As a company, it is hard to deny the value of platforms in the current climate. Companies like Amazon have demonstrated that opening-up your ecosystem to competitors can facilitate market dominance. In Q1 of 2018, more than half the units sold on Amazon were sold by third-party vendors. Large profits are made by taking a small cut of the majority of online sales. I can think of two main reasons why internet corporations would think about incorporating the distributed web; economic growth and consumer demand. Firstly, it is difficult to deny that consumers are becoming more aware of their privacy and the value of the data they produce. Therefore, consumers might seek novel ways of valorization. Additionally, in the online world, if somebody provides a better service people tend to switch. Before Facebook there was MySpace, GeoCities, and Friendster. Before Google there was Yahoo, Lycos and Ask Jeeves. With the current developments in distributed technologies, consumers can transparently control the availability of their data and easily switch service provider. Secondly, incorporating distributed solutions enable innovative ways of providing communication, trade and other services. Technological innovations have historically been a major force in economic growth. Coincidentally products like cryptocurrencies challenge the definitions of the current economy, so let's reframe this as welfare growth for the sake of the argument.
Questions
All of this brings up a lot of questions. For instance, what happens if the party with whom I shared my data via the decentralized web re-shares the key and address? Is there a solution so I can prevent this breach of trust (or solve after the first incident)? Can I delete or limit access to my data on this permanent web?
And what happens when, e.g. due to a flight, you are only connected to a subnetwork of the decentralized network? What happens to all the mutations that took place on both the 'main' and 'sub' network? When thinking about blockchains, if I mine all transactions or file-transfers in my nodes, what happens when we reconnect to the main-net?
And how will the status-quo face these changes? Is there a need for the big companies to change? Because as long as the services provided remain top of the bill and users remain, how could these alternative ecosystems become a threat?
More importantly, how will consumers receive the concept of decentralization? The fact remains, privacy-friendly alternatives for Google (DuckDuckGo), Facebook (Diaspora) or WhatsApp (Telegram) are still unknown to the masses compared to their biggest competitors.
In the near future, I want to explore different applications and technologies which can be generalized as Web3.0 technologies. I've already set-up an IPFS server and am joining multiple services like Steemit, Dock and Filecoin to find out what Web3.0 has to offer for the future.