I usually like Fred Wilson's essays, but I have to feel like he's on the wishful thinking hype train on this one. Through the lens of VC (and finance at large) monetization is always the question. However Fred is too quick to ignore that what usually makes open protocols successful is being free and relatively simple. Throwing blockchain tech into the mix is going to add tremendous complexity and friction to any protocol which will then be out-competed by a true open protocol.
Underlying this wishful thinking I smell a frustration that investors can't make money from open standards. But the reality is that open standards bring an incredible amount of value to companies and individuals that rely on them. Think about the transaction volumes happening over HTTP or SMTP, let alone TCP/IP. The value is immeasurable, it's just that finance can't get a piece.
This is one of those areas where we have to recognize that economics and GDP do not tell the whole story of human value. Blockchain tech is really cool, and I don't think we've scratched the surface of where it will eventually go, but I just feel dirty when I see how excited VCs and finance guys get about it.
> This is one of those areas where we have to recognize that economics and GDP do not tell the whole story of human value.
This is true, but in the other direction from your statement's surface meaning:
Open standards are in great us, but count as $0 in GDP, since they are free. You might say that means that GDP undercounts value. but really, no one derives value from open standards -- open standards enable valuable activities, some of which are GDP (for example, ecommerce), and some of which are not (for example, emailing pictures to my grandma, which is negative GDP compared to printing and mailing).
GDP overcounts:anything we spend money on is GDP, even if it is just a means to an end; and undercounts: many valuable things have no price, and more generally, most purchased end-user products are worth more than their price.
Using GDP as a measure is only ever done because we don't have reliable alternative measures. We set up economic systems not because they are good in themselves, but because they're a way of connecting productive capacity to demand with the ultimate aim of increasing well-being - the pursuit of happiness and all that. Some people seem to lose sight of that: capitalism too is not an end in itself, it is a means to an end. Financialization needs to be watched closely to ensure it's still hewing to society's best interest. Arguably Brexit, Trump et al are emerging from this gap.
> GDP overcounts:anything we spend money on is GDP
It's not as if they are blind to the problem.
Economists understand this, but laypeople tend to, out of a desire for simplification, subconsciously conflate the concept of GDP with "health of the economy". There is an old joke about how when an economist marries his housekeeper, the GDP of his nation goes down.
There's a raft of different metrics that economists have devised to get around the problem that not everything that's measured is relevant, and not everything that's relevant is measured. Of course, you have to be an economist to really understand them.
> Underlying this wishful thinking I smell a frustration that investors can't make money from open standards.
The way to make money from open standards is to sell products and services that implement those open standards. SMTP is an open standard but Microsoft still makes money by selling exchange to corporate clients, and Google presumably manages to make money from Gmail.
The crypto-token model Fred describes is Ethereum with the serial numbers filed off. It's a model to support the provision of a decentralised, distributed platform, not an open standard.
Exchange is a good example of making money despite open standards: it supports SMTP only reluctantly, much preferring to use its own non-interoperable protocols to speak to clients. Outlook has all sorts of features that are not exposed over IMAP and require MAPI.
> The value is immeasurable, it's just that finance can't get a piece.
Plenty of people make money from this: your ISP, the utility company that pulls cables under the road, the construction company that dug up the road to put them in, the owner of the site where your ISP's network equipment is located, and many of the websites that you interact with.
I believe that the source of the confusion here comes from trying to slice the world into "VC monetization" and "human value", as if these were different or opposed things. I have a different way to look at this space which reveals useful insights:
We see lots of technologies go past that people seem to be excited about, but which then fail in the market. It is currently popular to imply that this means "the market" is some alien thing which is not aligned with what people want. A more realistic view is that people have multiple levels of interest. We can order some of them from lowest to highest:
- willing to read an article
- willing to write a comment on the article
- willing to blog about the technology
- willing to open their wallet
- willing to pay the full cost of making it
What we see is that a lot of technologies can only reach levels 2 through 4: people are interested, but not interested enough to cover the cost of making it. By any reasonable standard, that means we shouldn't make the thing: its value to people is less than the value of the raw materials that went into it. "Failed in the market" is a way of summarising this decision, but it gets a lot of negative press because it hides all the details so people don't understand the value comparison being made here.
The neatest mnemonic to think about this is "money is the unit of caring: you can measure how much people care about a thing happening by measuring how much money they are willing to spend on it".
"VC monetization" fits neatly into this picture: VC want to know more or less immediately if people are going to reach interest level 4 or 5 on this scale. They do not want to burn time and money on things which can only reach level 3: those things never had a future. You cannot tell the difference without asking people to open their wallets.
> Throwing blockchain tech into the mix is going to add tremendous complexity and friction to any protocol which will then be out-competed by a true open protocol.
Throwing blockchain technology into the open protocol mix will stop companies from changing their API at a pace that exceeds the public's ability to bear the cost of keeping up with the required software changes on their end.
Till now, VC funding provided the incentive to rapidly version a company's APIs, which actually runs counter to other company's needs as a consumer.
At the same time, the blockchain will allow software vendors to offload their clunky old revenue models with new ones. New payment models for software is always how the next revolution starts, after all.
With the blockchain's ability to provide contractual relationships, traditional software models will be transformed into contracted on-demand software deployments to various infrastructure providers who accept payment using Bitcoin. Or Ethereum.
Underlying this wishful thinking I smell a frustration that investors can't make money from open standards. But the reality is that open standards bring an incredible amount of value to companies and individuals that rely on them. Think about the transaction volumes happening over HTTP or SMTP, let alone TCP/IP. The value is immeasurable, it's just that finance can't get a piece.
This is one of those areas where we have to recognize that economics and GDP do not tell the whole story of human value. Blockchain tech is really cool, and I don't think we've scratched the surface of where it will eventually go, but I just feel dirty when I see how excited VCs and finance guys get about it.