(2017-06-01) Dixon Crypto Tokens A Breakthrough In Open Network Design

Chris Dixon: Crypto Tokens: A Breakthrough in Open Network Design

The dominant Operating Systems — iOS and Android — charge 30% payment fees and exert heavy influence over app distribution. The dominant social networks tightly restrict access, hindering the ability of third-party developers to scale. Startups and independent developers are increasingly competing from a disadvantaged position.

A potential way to reverse this trend are crypto tokens

Crypto tokens: unbundling Bitcoin

In retrospect, Bitcoin was really two innovations: 1) a store of value for people who wanted an alternative to the existing financial system, and 2) a new way to develop open networks. Tokens unbundle the latter innovation from the former, providing a general method for designing and growing open networks.

Networks — computing networks, developer platforms, marketplaces, social networks, etc — have always been a powerful part of the promise of the internet

The current state of the art of network development is very crude.

Tokens offer a better way.

Ethereum is inspiring a new wave of token networks. (It also provided a simple way for new token networks to launch on top of the Ethereum network, using a standard known as ERC20)

Below I walk through the two main benefits of the token model, the first architectural and the second involving incentives.

Tokens enable the management and financing of open services

in 2007, Wired magazine ran an article in which they tried to create their own social network using open tools

Some developers proposed solving this problem by creating a database of social graphs run by a non-profit organization:

Had the token model for network development existed back in 2007, the playing field would have been much more level. First, tokens provide a way not only to define a protocol, but to fund the operating expenses required to host it as a service.

Second, tokens provide a model for creating shared computing resources (including databases, compute, and file storage) while keeping the control of those resources decentralized (and without requiring an organization to maintain them)

It would have been easy for the Wired author to create an open social network using the tools available today

Tokens align incentives among network participants

Some of the fiercest battles in tech are between complements

Token networks remove this friction by aligning network participants to work together toward a common goal— the growth of the network and the appreciation of the token.

Moreover, well-designed token networks include an efficient mechanism to incentivize network participants to overcome the bootstrap problem that bedevils traditional network development.