I am delighted to publish a 15-video series dedicated to my book, “Blockchain + Antitrust: The Decentralization formula”. You can access all the chapters over here, and all the video transcripts over here.
In this video, I’d like to talk about the blockchain future. Like Yogi Berra once said, prediction is hard, especially when it’s about the future. But I will try my best, or, rather, I will expose the key elements that I think will define blockchain’s dynamism and future.
(1) First, I want to talk about external factors, meaning forces that come from outside blockchain ecosystems but play a central role in defining these ecosystems. And here, I need to talk about the competitive pressure put by centralized platforms and aggregators.
Three elements will define this competition between blockchain vs. non-blockchain products and services. One, public permissionless blockchains do not have a single pilot in the cockpit. This could be a plus, but also a limit. Consider two famous pilots: Steve Jobs and Mark Zuckerberg. Steve Jobs was able to introduce products before people knew they needed them. This is what you get with a great pilot. But if you analyze the surveys exploring why non-Facebook users are refusing to use it, they say the first reason is that they do not trust Mark Zuckerberg and how he handles data. This shows the limits of having a pilot when he is not trusted. Blockchains won’t face this issue.
Two, blockchains benefit from what we could call the “token effect”. Many online firms rely on network effects, that is, users’ ability to derive value from a product based on the number of users. The more users, the more they can derive something from the service. Think social media. Without users, they have no value. Now, blockchains also benefit from network effects, but, on top of it, they benefit from token effects, that is, the ability to capture the future value of tokens and, therefore the willingness to join a network without users. To make it concrete, blockchains can issue tokens at no cost and convince users to acquire them… also at no cost. Should users have reasons to think they could become valuable, they would acquire them even though they cannot derive value from the product itself. This explains why we see serial monopolies in the blockchain space.
Now, I shall mention that financial regulation has an important role to play here. To make it simple, tokens can be classified as utility or securities. Utilities are tokenized right to access a future product or service. Securities are tokens whose value depends solely on the efforts of a third party. They are more heavily regulated. All that to say that calling tokens a security may reduce the willingness to acquire them, and therefore the token effect. Let us remember that when enacting financial regulation.
Third, blockchain adds financial value to digitalized things that are otherwise non-valuable. NFTs’ CryptoKitties are a good example. NFT stands for non-fungible tokens, to put it simply, a unique token. Look at this CryptoPunk. It has been put on a blockchain by its creator. It got automatically assigned a hash value, that is, an identity on the blockchain. You can buy that identity for a price of 12 million dollars. Why would you do that? Because you may feel good about being the “owner”, or… because you may want to sell it again in just a few weeks and hope to make a profit. That’s the idea, and it’s quite a powerful one because it creates scarcity in an online environment. I believe that it will play a central role in the competition between blockchain and big tech by creating an incentive to join blockchain networks to capture this value. Big tech is trying to recapture it; for example, Meta announced that users will be able to facture these NFTS in their online houses. But even that ends up benefiting blockchain ecosystems because interoperability creates an incentive to acquire more NFTs.
OK, let me move on to the second type of external factor: cooperation with other technologies. Blockchain can indeed be used for other technologies to function on top of it. For example, the internet of things and AI systems could take blockchain data out, and they can put new data in. This will incentivize blockchain infrastructures to facilitate this kind of data flow. To be concrete, blockchain immutability could prove helpful when auditing data if the AI system has misbehaved, as it will prevent data handlers from changing the database after the fact.
(2) Alright, let me explore blockchain internal factors. You may have heard about blockchain trifecta, but if not, here it is in a nutshell. The idea is that ensuring blockchain’s decentralization, scalability, and security entails tradeoffs, at least in the short term. Let me explain why. For example, should someone find a bug in blockchain code, it cannot patch it unilaterally. It needs to offer an update and convince users to adopt it. This may create a security problem.
That being said, In the long run, I believe these three objectives are mutually reinforcing. The more a blockchain is decentralized, the more it stands out from the centralized platforms and services that readers know only too well. By differentiating themselves, blockchains attract users by offering a different value proposition. In turn, this generates scalability. And the same goes for security, as the more participants use a public blockchain, the harder it becomes to alter the registry or perform a 51 percent attack. So, in a nutshell, blockchain trifecta is useful when making short-term decisions, but that’s about it.
Something that could very well define blockchain’s future is interoperability between them. To this day, you cannot create a smart contract on top of Ethereum and use Bitcoin as a payment method. This kind of interoperability would make all blockchains more attractive. But imposing interoperability from above often proves to be a great way to reduce competition. It proves to be better when it emerges, so… let us all take part in this emerging process.
Overall, I believe blockchain will increasingly be at war with itself. Technical solutions will come to the issues I just raised, but important governance choices will have to be made. In the end, it all comes down to human interactions and choices to be made in the context of uncertainty. Let us always remember that blockchain’s ability to survive depends on its ability to differentiate itself from other digital infrastructures. Ensuring survival will prove tricky, often complex, but possible. Let us push together for the “law + technology” approach – whether it concerns blockchain + antitrust, AI + privacy law, or technologies that do not yet exist.
That is all. Thank you so very much for watching this series of videos. Take care of yourself, and, if you can, someone else too. Cheers.