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[liberationtech] Decentralization

Zachary Stickney zstickney at live.com
Sun Feb 5 14:33:02 PST 2017


please take me off this list, the unsubscribe didn't work


________________________________
From: liberationtech <liberationtech-bounces at lists.stanford.edu> on behalf of R. Jason Cronk <rjc at privacymaverick.com>
Sent: Sunday, February 5, 2017 3:15 PM
To: liberationtech
Subject: Re: [liberationtech] Decentralization

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 return?

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.

Jason






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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