The Other Side of the Coin
A different perspective on cryptocurrencies
Most people think about cryptocurrencies this way:
So, that’s the normal way of looking at things: the point of all that stuff on the left is to make that shiny coin on the right. People in Venezuela, for example, are finding crypto currencies quite useful this way.
But there’s also another way of looking at it:
This is the perspective that has quite a few technologists buzzing: the point of the coin on the left is to create all that stuff on the right. But this way around is a bit of a head-scratcher.
How the heck does a coin…. “create” something? What does that even mean? And even if it did — what is it creating?
It’s all about this guy…
This little guy is actually a very interesting thing. You might take it for granted but the world hasn’t seen anything like it.
Some people have referred to this new species as autonomous software. Or a World “X” (replace with ledger, computer…). But let’s just call this a kind of decentralized application.
A decentralized application is an application that works the usual way — except nobody really “owns” it.
Why would you want to make something that no single entity operates in the first place?
Well some common reasons that have been tossed out before: resiliency, persistence, true user ownership (ironically)… and maybe for the simple reason that this is the first time we can do something so rad like this. Indeed, it’s a long list of benefits and trade-offs — nothing’s perfect. A long, interesting debate by itself.
But for now, I think we might be able to agree that it’s at least a pretty fascinating idea, no? Aren’t you curious how this is even possible?
A case study in making something nobody owns
For example: we’ve got our iClouds, our gDrives, our Dropboxes. You upload stuff. You download stuff.
One obvious thing to notice is for each of these “apps” we can point to the one thing that owns it. Google. Amazon. Dropbox Co. In the case of iCloud, Apple.
Now what if I told you that there was an application — just like iCloud. It’s got a friendly interface, and you can upload and download stuff too— except unlike iCloud, you can’t point to the one thing that owns it. Spooky.
Let’s call this decentralized file storage application iCloud-X.
Building it in our heads: 3 challenges
How is iCloud-X possible?
Well. If nobody owns it, that means iCloud-X app must be something closer to a protocol that was just let loose into the world. Basically, a set of rules that functions on its own and that people agree to.
But…there’s a big problem. A cloud storage application requires some serious physical infrastructure. Apple’s iCloud doesn’t exactly live in the clouds — it’s massive server farms on the ground, gobbling up electricity — all for the sake of hosting our digital goodies.
1) How does something that isn’t owned by anyone… get its own infrastructure?
How about this: we’ll make it P2P. We’ll let anyone contribute their spare storage and connect to this weird digital thing. The infrastructure is : anybody.
It works whether you’re some random kid with an extra GB on your laptop, or a hobbyist that can build a small micro-farm. It’s open to all. We’ll call them Sharers.
Users can then upload files and those files will be encrypted and hosted across this network. Take that iCloud! We don’t need you!
2) Why would anyone contribute to this iCloud-X protocol?
Storage is a finite resource that has a real cost. I can see a world where a few people contribute some space just because. But that doesn’t really scale to the level we’re imagining. I don’t want to host 10TB of cat videos on my laptop for free — I’ve got my own to store! We’re talking massive hardware here on a global scale.
Well, come to think of it…these resources just need to be paid for. Just like how Apple pays for its global infrastructure.
So, these contributors need to be compensated for their work. Somehow.
3) How does a thing that isn’t owned by anybody…. pay you?
Huh. Now this is tricky.
It definitely can’t pay you dollars. Because (you guessed it)…nobody owns it!
Let me say it again. Nobody owns it! Remember, there is no company in the middle getting paid for hosting your files. There’s no CFO, no accounting department…it’s an autonomous piece of code.
What if it pays out with a digital token that is built into the protocol itself.
This token represents the amount of contribution you have put into the network (in this case: storage space). The payout system is part of the code.
More importantly this token has a use. The token is also the only way you can pay for storage and using the protocol.
This token can then float on the markets — where its value will be determined by the usual forces of supply and demand. The sharers, users, developers, even the speculators, will feed off this token and create this new ecosystem — a new kind of application.
Let’s call this token: X Coin.
One final catch. Where the heck will the ledger of X Coin live if there’s nobody operating it?
Well, see, let me tell you about this thing called the blockchain….
I think you get the gist. This is why some people use the words “this token powers the network”, or the term “fuel”. It’s what makes “iCloud that nobody owns” with all its bits and pieces come alive. It’s the reason why “decentralized” is now a buzz word.
Bonus question: Is X coin a “currency”?
I’ll leave that for you to decide.
Btw, iCloud-X actually exits in some form today: Storj, Swarm, Filecoin, IPFS… (although my theoretical example doesn’t match up exactly). To be clear, this is not an endorsement of the above projects — and many tokens out there don’t even represent anything! Maybe the above issuance details aren’t well thought out. Maybe the economics don’t add up for file storage. And that’s fine.
The point is that this idea is new — thanks to the blockchain. We can now imagine what other interesting applications we can instantiate with tokens. We have just solved the chicken and the egg.
Many of these ideas will fail. But now we can explore. How about a decentralized payment system (the idea that started it all)? Distributed graphics rendering farm? Or how about this: an application…to easily create decentralized applications!
Viewed the other way, the token has a purpose. It’s there for a reason — and maybe it’s not just for buying coffee or stuffing under your (digital?) mattress. “Currency” starts to sound a bit weird — like calling an automobile a horseless carriage. Which I guess it technically is. But it’s all semantics. In the end, the token is just what allows for this strange magic to happen: the birth of these weird things that nobody owns. Or should I say — that everybody does?
I also highly recommend the post “A Letter to Jamie Dimon” which I borrowed heavily from and inspired me to revisit the topic. Enjoy!