
Fat Protocols - jackgavigan
https://www.usv.com/blog/fat-protocols
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ruddct
A fun read, but to me it ultimately speaks to why blockchains are best suited
to internal use by large enterprises (not consumer, small businesses, etc).

The web flourished due to its lightweight, comparatively easy-to-implement
protocols. Applications could be built cheaply and easily on top of it. VCs
and many entrepreneurs profited handsomely. Much of the past 20 years in tech
has been pushing this concept to literally every person on earth.

Compare to the 'fat protocol': The protocols are tough to write, and tough to
implement. The value is captured at the protocol level, not the app level, so
there's little incentive to create inventive apps.

Few apps will be created on such systems, so few successful consumer
applications will created with them. Seems like the winner here is in
business-facing systems. For USV, it strikes me as peculiar to favor the 'fat
protocol' and back other types of businesses (e.g. consumer).

~~~
repomies691
> Compare to the 'fat protocol': The protocols are tough to write, and tough
> to implement. The value is captured at the protocol level, not the app
> level, so there's little incentive to create inventive apps.

I think the basic claim of this article is wrong. The false comparison comes
from comparing the market cap of bitcoin and ethereum to "market cap" of
existing protocols. There is no way to measure value of protocols before
bitcoin. Therefore the whole basis of the article sounds like bullshit to me.

It is quite easy to write apps which use bitcoin protocol. Also many bitcoin
businesses are quite profitable. Not billion-dollar businesses but very good
businesses when you compare to the capital invested etc. Also they might be
even better businesses longer-term, as the market develops. There is also
loads of smaller brokers, gambling sites, atm operators etc who make small
living out of bitcoin.

~~~
jmonegro
> There is no way to measure the value of protocols before Bitcoin

The point is not to compare the market cap of Bitcoin or Ethereum to the
market cap of previous protocols at all. The point is precisely that the
previous generation of protocols created immense value but most of it got
extracted at the application layer while, as you said, there are many small
but highly profitable Bitcoin businesses, but the bulk of the economic value
is in Bitcoin itself, not in those.

Contrast that to the web where there is little economic value in the protocol
and a lot of economic value in web applications.

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zubat
What blockchain products, in particular, tend to lack is a complete "economic
engine" \- there isn't a good or service built in the equation, just a
marketing promise that transacting goods and services through the protocol is
somehow better, or failing that, some form of investment instrument that is a
step removed from goods and services, and consequently less mission-critical
for conducting business.

When there is a good or service, you usually find a situation where a
centralized monopoly platform - "use our API, use our UI, feed off our
database, speak with our sales and CSRs" \- is more straightforward to build
and more advantageous for the stakeholders who will build and operate such a
system. There are only certain niches where there's a definite and ongoing win
to build and participate in a decentralized protocol. This rock and hard place
has made it hard for the field to break away from purely speculative activity.

While the tech is maturing and growing an impressive set of features, I don't
see big breakthroughs coming without a major initiative from a big player.

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cocktailpeanuts
Reminds me of cult religions where they promise people true purpose in life,
but in reality only the ones at the top and the ones who started believing
first are the ones who get the benefit. In their case, the rich of the high
class always grows faster than the combined value of the group of sheep who
start believing later

~~~
woah
Sounds like the stock market, or really any investment in business or land.
The world isn't perfect.

~~~
cocktailpeanuts
You don't win in stock market by bringing in more members. In a cult you do.

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j2kun
Is this a fair comparison? How long did it take before the Internet got its
first application whose market cap exceeded the cost of the protocol? Have we
given blockchain technology long enough to mature?

~~~
jmonegro
The difference here is that you can have a stake in the protocol itself by
purchasing the token whereas you couldn't do that with the web protocols.

Imagine an HTTPCoin in 1995: how would it's price be affected by the constant
stream of web IPOs?

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panic
Yes, let's make all our technologies as "fat" as possible so other people
can't "capture" and "re-aggregate" our "value". The VC-oriented approach to
protocol design!

 _What’s significant about this dynamic is the effect it has on how value is
distributed along the stack: the market cap of the protocol always grows
faster than the combined value of the applications built on top, since the
success of the application layer drives further speculation at the protocol
layer._

That also goes the other way: failure at the application level can bring the
token value down as speculators sell, and a lowering token value affects all
applications.

~~~
jmonegro
100% on it also going the other way, as we've seen repeatedly whenever there
is a hack at the application layer. The market cap of the protocol drops at a
higher rate than the "actual loss", e.g. last week's Bitfinex hack of $70mm in
BTC knocked 20% off the price of bitcoin.

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repomies691
This just doesn't make any sense. What was the market cap of protocols before
bitcoin? LOL

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cloudjacker
Love seeing articles like this, attempts at being objective or analyzing the
hyped technology. Blockchain land is very peculiar in the way that information
amongst market participants exists, where investment is largely necessary to
understand the functions available but naturally creates a mental conflict for
objective thought. All the while everyone self-segregated from the blockchain
arena largely dismisses the mere concept of the available functions.

