Blockchains Do Work
While there are many different ways to think about what blockchains do — ranging from the hyper-technical to digital money — there is value to reverting to a utilitarian model and think of each blockchain as doing a specific type of work.
In this model, every blockchain is a P2P mesh or network that strives to organize economic activity related to the work. Multiple people or entities who do not know each other can become a part of this P2P network to either offer money for work or make money by doing work. Note: “Blockchain” here refers to application protocols though the definition can also be broadly applied to base protocols. [1]
Each blockchain then is defined by the following questions and their answers:
What is the Job?: A job is the “work to be done” and can vary from storing documents to video encoding to buying power on demand to finding advice or suppliers — i.e. any use case where hard assets (compute, storage, bandwidth, energy producing equipment, etc.) or soft assets (like knowledge, attention, or intention) are decentralized, and used to accomplish the job without any central coordination.
Who are the Initiators and the Fulfillers? Typically, there are at least two classes of parties in every network: a) Job Initiator: The party who initiates the request for the job (i.e. the one who wants storage, bandwidth, computation, energy, etc.), and b) Job Fulfiller: The party who fulfills the request by doing work. There can be multiple initiators and fulfillers in a blockchain each doing their specific bit. [2]
Who are the Relayers and Facilitators? Between the job initiator and the job fulfiller, there can be job relayers and job facilitators of different kinds who are seeking to help the initiating party find, engage, and transact with one or more fulfilling parties. Relayers and facilitators are not mandatory, but often necessary. They need to be transparent to the initiator to make the experience seamless. [3]
Who are the Validators and Miners? Some networks have Layer 2 job validators to confirm that the job was done correctly without foul play. This is distinct and different from miners who validate transactions and secure the ledger.
What is the Unit of Work? Each blockchain tracks the work that is being done using its own currency with the transactions kept on an open ledger: For example a storage blockchain tracks storage being exchanged for monetary value; an attention blockchain tracks user attention earned and sold; a solar power blockchain tracks the trading of solar power.
Who is the Payer? Who pays whom and on what basis and when? This goes to the heart of what the blockchain does and how it can be measured objectively. Answers vary by specific use case and its mechanics.
What is the Relative Value to Each User?: Relative Value is the surplus or deficit in value that accrues to the user by using the blockchain vs. alternatives. For example, a storage blockchain makes sense only if the trade-offs the user makes in a n-dimensional space of value drivers (Average price/GB, uptime %, access time, risk of data loss, user control, censor resistant, etc. ) results in a local maxima where the user accrues more value than traditional solutions like Dropbox, Box, or Google Drive. The real question then is if there are enough of these users and how best to reach them.
How is the Work Coordinated?: How does the protocol make decisions on matching and communication? Are these baked into code used by all participants, or are there parties who have disproportionate control?
How is the Work Incentivized?: What are the monetary incentives for the varied parties and how does this change over time?
How is the Work Governed?: What are the parameters driving coordination and incentives in the protocol? Who has influence on determining these parameters and changing them, and how?
What is the Path to Network Liquidity?: How does the protocol seek to attain critical mass? Can the founders articulate the strategy for sustainable user acquisition and retention?
What is the First Niche Market? What is the first beachhead for the protocol? How can that lead to the larger market opportunity? Can they kindle the network in the early days when there is not enough liquidity? How?
Let us try to translate some specific blockchains using these semantics:
Live Peer
Job: Live Streaming | Initiator: Broadcaster | Fulfiller: Transcoder | Relayer: Livepeer Relay Node | Layer 2 Validators: Transcoders, Truebit Protocol | Miners: Ethereum Miners (Base Protocol) | Unit of Work: Video Segment | Payer: Broadcaster using LPT| Relative Value: Censor-less Live Video | First Market: Live Video within dApps; distributed through developers.
0x Protocol
Job: Enabling decentralized exchange of ERC20 tokens| Initiator: Maker | Fulfiller: Relayer + Taker| Relayer: 0x Relayers| Layer 2 Validators: None | Miners: Ethereum Miners (Base Protocol) | Unit of Work: Order |Payer: % of transaction goes to relayers as ZRX| Relative Value: Non-Custodial, Direct Exchange, Lower Fees |First Market: Alt-coin holders seeking non-centralized and lower fee exchange; order books hosted and distributed through a handful of early relayers.
Pulse
Job: Enabling buyers FIND content, sellers, and experts for high-value products and services:| Initiator: Buyer| Fulfiller: Relayer + Sellers + Experts| Relayer: Buy-Side + Sell-Side Pulse Relayers| Layer 2Validators:None | Miners: Ethereum Miners (Base Protocol) | Unit of Work:Intent |Payer: Seller Pays PULSE to engage with leads| Relative Value:Faster, More Effective FIND for Buyer, Higher Quality Leads at Lower Cost for Seller, Monetization for Experts — all without any middle-men. |First Market:Connecting Blockchain startups with Blockchain Service Providers; intent books hosted and distributed through existing publishers.
In the ideal end state, a blockchain will be a pluggable service like Twilio or Send Grid that can get work done faster, smarter, cheaper, and more effectively.
However, if an application protocol is “decentralized”, “permission-less”, or “censor-resistant”, but does not fundamentally change the unit economics for the user, the chasm might turn out to be just too wide to cross. There are simply not enough mainstream users who will accrue relative value in surplus, thus banishing the blockchain solution to the margins.
Bottom Line: Make your blockchain based protocol and dApps do real, transparent, and better work with a compelling user experience. And continue to expand the number of users who will accrue relative value in surplus in the n-dimensional space of value drivers.
And one day, you just might find your protocol being used by millions of users without even thinking of it as a “blockchain” solution.
When it does great work, who really cares what it is made of?
[1] In its essence, a blockchain is fundamentally a new way to organize the economic activity of human beings in a specific domain. For example, the Pulse protocol helps organize marketing and FIND related activities in specific verticals.
[2] It is possible that a fulfiller can outsource a part of the work to another party and thus becomes an initiator for that sub-job.
[3] Likely that we will see multiple categories of relayers and facilitators catering to varied market niches. Some will transport and match orders or intents; some might provide storage, compute, or other utilities; and others like 0x might make inter-operability of blockchains using multiple tokens seamless.
[4] Thanks to Naval Ravikant whose short video is the inspiration for this post.