Towards Defensible Infinite Scale 

The Rise of Protocol-Based Models

Network - Author Image - BlueWillow Ai Generated


Traditional scaling methods that have long driven business growth face limitations related to regulatory hurdles, capital concentration, control, and network effects. As privacy concerns and demands for fair value distribution increase, an alternative landscape is emerging that reverts back to protocols (as opposed to platforms) that prioritise privacy, community ownership, and participation. EdgeFi and tokenomic models provide opportunities to build defensible infinite scale by aligning incentives, empowering communities, and leveraging the power of networks. This is disruptive, with sustainable projects being established that address the evolving needs of users in the digital age.

Louis Von Ahn sold two companies to Google before building Duolingo. His thesis: that humans at scale can perform tasks that computers cannot. 

His first was the ESP game wherein two users are instantly connected at random when visiting a website. They are both shown the same picture, such as a fish, and asked to guess what the other person is typing. As both are seeing the same image, they both naturally type words that have an affinity with said image in the hope of matching what their counterpart is typing. Through these crowdsourced human computation efforts, millions of people generated valuable metadata that google integrated into its image recognition & labelling products upon acquisition. ESP was bought in 2006, turned into Google Image Labeller, and closed in 2011. 

His second was reCAPTCHA, estimated to generate over $200 million in revenue each year, and acquired for between $10 to $100m by Google in 2009. The idea being to prevent spam bots by distinguishing between human and automated access to websites. Initial versions were based on correctly reading text embedded in images to prove humanity and gain access. This crowdsourced human computation could also be used to digitize books that were too illegible to be scanned by computers. Upon acquisition this mass collaboration tool was directed towards decoding street view addresses as well as improving AI research.

His thesis played out. Why sell?

  • To raise money strengthening his company's ability to invest in its competitive advantages, build barriers to entry, and defend its market position.

  • To focus on other projects he was more passionate about.

  • To partner with a company that could help him scale. 

On his supply side there was a scaling bottleneck. 

Bottleneck - Author Generated - Stable Diffusion

To expand horizontal business functions (marketing, product development etc) necessary to support growth he would need to raise money, build teams, & pivot towards monetization; or sell the company to an entity with the resources to scale the game and make it available to a wider audience. Scaling constraints ameliorated through equity dilution to investors with a view towards exit (via IPO or acquisition); or value accretion and distribution via cash or intangible benefits. 

These traditional scaling modes promote defensibility, and diversification, but are limited.

  • Capital concentration: power in the hands of a select group of shareholders, limiting broader participation and community involvement.

  • Control and decision-making: loss of autonomy and decision-making authority as the acquired company integrates into the acquiring entity's structure.

  • Network limitations: Traditional scaling methods may not leverage the power of network effects, where the value of a product or service grows exponentially with the number of participants. This can hamper the ability to reach mass adoption.

In the asymptote towards defensible infinite scale the advantages of access to capital, investor alignment, and market visibility as well as legitimacy are weighed against alternatives that reduce costs, enable price discovery, and offer community ownership. 

Innovations like SPACs and Direct Listings offer some flexibility here yet there were also bottlenecks on his demand side. Whilst Von Ahn was able to scale to millions of users, enabled by leveraging a cloud based tech stack that optimised server access on a just-in-time basis, his models capitalised on and accelerated the perpetuation of the “sins of web2” as characterised by Tushar Jain at the Multicoin summit in 2021. 

  • Free labour: for instance with UGC (User-Generated Content) where internet platforms like Facebook, Twitter, and Instagram heavily rely on unpaid labour to thrive (see class action lawsuit). Users contribute valuable data, content, or services without receiving direct economic benefits proportional to the value they generate. This disconnect between value relative to economic rewards is a prominent example of the sins of Web2. The approximately 30,000 map editors that build out mapping for Waze for example, yet have no economic participation in the outcome.

  • Data Privacy Concerns: Web2 platforms often collect and monetize user data without providing users with sufficient control or compensation. Users' personal information and online activities are utilized for targeted advertising and other purposes, raising concerns about privacy and the fair distribution of the economic value derived from user data. The noCAPTCHA implementation of reCAPTCHA for instance, which on the one hand makes the process more frictionless but on the other hand solicits personal data and preferences via API calls

The penance being that half of users are choosing not to use certain products or services on account of privacy concerns. Users are increasingly willing to abandon digital platforms that demand personal information. Users beholden to platforms, with freedoms stifled under threat of exile, are reverting to protocols

EdgeFi represents a category of protocols, including DePin, TPIN, and PoPw, that upends traditional scaling systems by integrating decentralised networks, physical work validation, and tokenomics. What Googlemaps, Applemaps and TomTom do with specialised cars fitted with a tower on the roof; high-res cameras, Zeiss lenses and LiDAR scanners - Hivemapper are doing via dashcams that drivers are already using. Akin to the crowdsourced human computation model adopted by Von Ahn, dashcams that otherwise have value in mitigating insurance claims can also be used to drive incremental marginal income gains. 

This expands the scalability of networks by incentivizing participants to contribute their resources, such as hardware or storage, via means that closely align incentives and facilitate value exchange. Properly designed tokenomics in this context have the capacity to drive network effects that accelerate scaling exponentially.

Internet Of Things - Author Generated - Blue Willow AI

Taxonomy Of Operators

  • Wireless token rewards to participants (hotspot operators) to provide network coverage for IoT and 5G.

    • Helium (Semtech LoRa): working towards being the largest LoRa-based networks in North America as a blockchain-based network for IoT devices. Transitioning from Helium L1 to Solana. 

    • Pollen: decentralised network built on IOTA tangle for transfer of data/value

      “Many are racing towards 5g as it is estimated to be a 88x bigger opportunity than IoT.” Sami Kassab, Messari, Validated podcast

  • Mobility token rewards for contributing to decentralised map built by participants  

    • Hivemapper: using dashcams 

    • DIMO: attaching hardware to car

  • Environmental communities and networks for more accurate weather services

    • PlanetWatch: air quality monitoring to identify pollution hotspots

    • WeatherXM: a community powered weather network, that rewards weather station owners and provides accurate weather services to Web3 enterprises

  • Compute & Storage contributors provide their resource & get rewarded in return 

    • Rendr: GPUs

    • Filecoin: large-scale distributed cloud storage, especially for private data. 

    • Arweave: long-term distributed data storage.

    • Livepeer: video transcoding and verification services

Defensibility

Physical hardware is difficult to roll out so, unlike digitally native implementations, this induces a moat that protects incumbents. This has been dubbed the unforkable state, considering the ease with which communities have been able to fork entire blockchains. 

Incumbents, such as the American Tower 10,000 site cell tower infrastructure (which costs $5bn to operate), have centralised costs such as leasing land, training and regular maintenance via specialists, as well as upgrading. These confer advantages including benefiting from economies of scale, reliable established infrastructure, plus wide coverage.

However, when this platform based approach is overhauled towards deployment of networks from a protocol based perspective entities such as Helium are able to grow into the largest LoRaWAN network in the world within a decade of its inception, with almost one million Hotspots offering coverage in more than 77,000 towns and cities in 192 countries.

  • Decentralised

    • More resilient and less vulnerable to single points of failure.

    • Cost-sharing among participants i.e. more cost-effective than centralized 

  • Positive feedback loop 

    • Defensible as difficult for competitors to replicate network scale & benefits.

    • More hotspots means greater coverage, reliability, & usefulness. 

  • Incentivized Community Participation 

    • Token rewards align the interests of operators with the network's success

    • Vibrant ecosystem who actively contribute to expansion & maintenance. 

    • Defensibility via fostering loyalty and engagement among network operators.

The protocol-based approach of the Helium network enables near-infinite scalability potential compared to a platform-based approach. As more participants join the network by operating hotspots, the coverage and capacity of the network increase. This scalability is achieved without incurring the same level of capital expenditure and operational costs as a traditional centralised infrastructure.

Scaling Applications

The consensus view is that significant positive externalities will arise hereafter whereby the capacity for previously cost inhibitive, or unimagined, scalable business models become enabled for applications such as:

Drone Delivery

For Helium this includes physical asset tracking, air quality monitoring, water metering, wildfire detection, foot traffic monitoring, and package delivery by drones. This distributed approach could cost-effectively eliminate the need for traditional centralised delivery services and provide new possibilities for efficient and secure service delivery at scale.

Work History

The aperture for on-chain verification of work experience, contributions, and qualifications opens up, expanding upon the work of entities such as Velocity Network Foundation’s (non-profit) blockchain-based network which aims to verify a job candidate's diplomas, certifications, and work experience almost instantaneously.

For me Linkedin’s core thing is hiring e..g. Thousands of people get laid off from a company like Twitter and Elon says they were useless, there is no way to verify their contributions. Currently this is a manual process (referencing).

Howard Lindzon (multicoin LP) speaking to Josh Brown, Panic With Friends Podcast 

Virtual Power Plants

Virtual Power Plants (VPPs) are networks of decentralized, medium-scale power generating units. A VPP is composed of households and businesses that offer the latent potential of their thermostats, electric vehicles (EVs), appliances, batteries, and solar arrays to support the grid. These devices can be flexibly charged, discharged, or managed to meet grid needs. 

Current implementations are centred on cash rebates e.g. for adding energy storage to solar arrays (Hawaiian Electric), to install a new battery and allow use up to 80 percent of capacity during peak hours (Arizona Public Service), etc. A protocol-based token incentivized approach unlocks defensible boundless scaling potential through the incentive alignment, cost efficiency, and network effects outlined above.



However, despite the convergence of EdgeFi, tokenomics, and decentralized protocols towards defensible infinite scale key challenges remain including achieving standardisation and interoperability among various networks and protocols, regulatory frameworks and compliance requirements, and ensuring compatibility and integration with existing systems. 

If a Tesla falcon X or Model S is the iphone, the supercharger network is the app store, establishing the operating system for charging.

Scott Galloway, Office Hours,
Prof G Pod

As with Tesla, or Apple, establishing commonality requires high level coordination and communication for widespread adoption and efficient scaling. Additionally, regulatory and policy frameworks need to adapt to the decentralized nature of these models, ensuring a fair and supportive environment for innovation while addressing concerns related to privacy, data security, and consumer protection.

The concept of defensibility in investments and operations will change. Platforms relied on data advantages and lock-in effects to establish defensibility. However, this approach often came at the expense of privacy and relied on free labor from users. In a landscape where protocols enable privacy-preserving, compensation-incentivized, and frictionless user experiences, the traditional notion of defensibility based on data advantages will weaken.

These models prioritize privacy, fair value distribution, and community engagement, offering disruptive alternatives to traditional scaling methods. By harnessing the power of networks, aligning incentives, and empowering communities, these approaches pave the way for projects that address the evolving needs of users.

Despite these challenges, there is room for various approaches to coexist enabling consumers, operators, businesses, and societies to choose the models that best align with their preferences and values. By leveraging decentralized networks and token incentives, these models have the capacity to create environments where users have greater control over their data and receive economic rewards proportional to the value they generate - a compelling value proposition. 

Build by Dan Cristian Pădureț


Definitions

EdgeFi is a category of protocols that includes those using DePin, TPIN, and/or PoPw

  • DePiN: Decentralised Physical Infrastructure Networks

  • TIPIN: Token Incentivized Physical Infrastructure Networks

  • PoPw: Proof Of Physical Work

Flawed Tokenomics (tokens not a panacea)

  • Advertising: Basic Attention Token (BAT) and Brave Browser are designed to incentivize user attention and engagement with digital advertising. The Brave Browser, built on BAT, aims to provide a more privacy-focused and efficient ad ecosystem. However, challenges arise in ensuring fair distribution of tokens to users and accurately measuring user attention, which can result in flawed tokenomics and issues in aligning token rewards with user contributions.

  • Steemit: Steemit is a blockchain-based social media platform that rewards users with tokens for creating and curating content. While it aimed to disrupt the centralised social media model, it faced challenges in fair distribution of rewards, with early adopters and whales accumulating a significant share of SMT tokens, potentially leading to imbalanced tokenomics and limited participation.

References

#edgefi#depin#popw#scaling#iot#blockchain