FREED Technology – Economics and Social Good of Decentralization

In 2001 I started a Peer to Peer (P2P) company, RazorPop, that used the Internet to free media from the control of giant entertainment conglomerates and give the power of choice back to consumers.  Since the late 90s there have been waves of Internet decentralization with terms like P2P, Saas (Software as a Service), cloud computing, and now blockchains.

The utilitarian nature of technology leads to an ongoing process of creative disruption.  Accelerating returns can quickly create monopolies.  Competitors out innovate them or disaggregate the business or technology.  The market becomes redefined.  And the cycle starts anew.

Technology being evil was first attributed to Microsoft, and then in addition and more recently, Google, Apple, Facebook, and Amazon.  The evil refers to the inevitable problems of such monopolies. As the companies focus on revenues they increasingly lock in their business ecology, including customers, platform, technology, and data.  Despite their size, actual innovation slows as resources are redirected to reinforcing the market and existing products.  Both overtly and indirectly monopolies co-opt government, inhibit natural creative destruction, and crowd out actual and would-be competitors.  Economically this effect is called the monopoly rent.

Monopolies are contrary to the social good of a free and fair market, whether they’re tech or not.  It’s why technology should be freed and decentralized.

Chris Dixon has an updated take on decentralization for cryptonetworks in Why Decentralization Matters. Here is a key excerpt.

Decentralization is a commonly misunderstood concept. For example, it is sometimes said that the reason cryptonetwork advocates favor decentralization is to resist government censorship, or because of libertarian political views. These are not the main reasons decentralization is important.

Let’s look at the problems with centralized platforms. Centralized platforms follow a predictable life cycle. When they start out, they do everything they can to recruit users and 3rd-party complements like developers, businesses, and media organizations. They do this to make their services more valuable, as platforms (by definition) are systems with multi-sided network effects. As platforms move up the adoption S-curve, their power over users and 3rd parties steadily grows.

When they hit the top of the S-curve, their relationships with network participants change from positive-sum to zero-sum. The easiest way to continue growing lies in extracting data from users and competing with complements over audiences and profits. Historical examples of this are Microsoft vs Netscape, Google vs Yelp, Facebook vs Zynga, and Twitter vs its 3rd-party clients. Operating systems like iOS and Android have behaved better, although still take a healthy 30% tax, reject apps for seemingly arbitrary reasons, and subsume the functionality of 3rd-party apps at will.

For 3rd parties, this transition from cooperation to competition feels like a bait-and-switch. Over time, the best entrepreneurs, developers, and investors have become wary of building on top of centralized platforms. We now have decades of evidence that doing so will end in disappointment. In addition, users give up privacy, control of their data, and become vulnerable to security breaches. These problems with centralized platforms will likely become even more pronounced in the future.



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