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[liberationtech] Decentralization

R. Jason Cronk rjc at
Sun Feb 5 14:15:38 PST 2017

There are numerous issues with a "decentralized" company seeking
funding. Investors seek some sort of monopolistic control which allows
for rent seeking activity, which turns an investor's small investment
into a larger return. That's why you often find investor looking for
patentable ideas (government granted monopoly) or something that has
traction in the market (potentially market monopoly, switching effects,
network effects, economies of scale, etc). Decentralized startups almost
always lack these. 

Think about decentralization outside the world of software. As example,
consider family farming versus  factory farming. "Hello Ms. Investor,
I'm going to give chickens away and let everybody start their own family
farm and sell local eggs to their local market." versus "Hello Ms.
Investor, I've been granted a patent on my process to artificially grow
eggs in a lab. Nobody will be able to compete with me in the egg market
for the next 17 years." As an investor, where are you going to earn a

This funding problem is part of the reason, in my opinion, for Bitcoin's
relative slow adoption curve as a payment mechanism. Nobody has an
incentive to push it in the market because they ultimately won't be able
to reap the rewards. If I'm Paypal, I can give everyone $10 in their
account to send to other people, until I get a million users. If I'm a
bitcoin wallet provider and I tried that, everyone would get their $10
in bitcoin and go to another wallet provider. 

That being said, there are some potential business models for businesses
pushing decentralization 

1) Provide a centralized service to the decentralized businesses. All
McDonald's look the same because they are centrally controlled (though
not centrally owned). Many Chinese take out menus look the same not
because they are centrally controlled but because just a handful of
companies produce those menus. 
2) Find a way to extract rent from the decentralized businesses. The
technology for matching passengers and drivers could easily be
decentralized for an Uber competitor but people want consistency. The
competitor could license their name to driver's (and validate those
drivers for criminal background checks for instance). So any driver
could join the network but you can pay slightly more to have one that
has been verified. Of course their might be competition setting in but
there is where market penetration comes in. I even say I'm going to call
Uber when I mean Lyft. 
3) Best in class and support. Linux is open source software. Anyone can
run it. People still pay Red Hat for support. 
4) Control the initial supply of something. Anyone can mine ZCash but
the company has a quantity of pre-mined coins. Anyone can grow marijuana
but if you create a new strain and get demand there, you have the first
seeds to sell. 

That's all I can think of immediately. It is not an easy problem. 


On 2017-02-05 15:17, Yosem Companys wrote: 

> Hi All,
> One of the problems may decentralized startups are confronting in
> Silicon Valley is that venture capitalists are telling them that they
> need to be centralized because there is no business model in
> decentralization. 
> For an example, think Diaspora: The original vision of Diaspora was a
> social network where each person could have his or her own node in the
> network and connect to others to share data similar to how Napster
> connected people to download music. But the data would live in your
> machine, not Facebook's.
> Can anyone think of decentralized business models that are profitable
> so folks on this list who are struggling with pitching
> decentralization as a business model can succeed?
> Thanks,
> Yosem
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