A blog and newsletter containing my ruminations about blockchains.

Uncensorable Marketplaces

Marketplaces for goods and services in the age of blockchains

A core value proposition of cryptocurrencies is that they are uncensorable. That isno single actor controls these currencies and no single actor can censor payments made using them. To be specific, the government cannot stop you from sending anyone money at anytime anywhere around the world. Nor can they seize your funds. The only way for someone else to gain access to your money is for them to steal your private key somehow.

The property of uncensorability is fundamentally a very important thing for money. But it equally important for markets as well. Platforms like Ethereum and EOS are powering new types of businesses, economies, and services; these are also uncensorable. If you create and deploy a service on these platforms there is nothing anyone can do to stop them from operating.

What will these new types of businesses, economies, and services look like? It’s difficult to tell, but decentralized autonomous organizations (DAOs) are a good place to begin. DAOs are organizations governed by smart contracts. They take traditional governance structures and turn them into hard code that is automatically executed, in turn this creates an auditable and decentralized entity that operates in a predictable way. A high profile example of a DAO was “The DAO”, an investment vehicle that raised millions of dollars and was hacked early on in Ethereum’s history.

There is an endless list of potential applications for DAOs but I’m particularly interested in their ability to act as a coordinating mechanism to create a marketplace between parties. For example, a DAO could be made that pairs drivers with rideseekers, or a DAO could be made that pairs physicians with patients. I draw upon a lot of healthcare examples here, but the concepts are applicable beyond healthcare.

How would that work?

Token curated registries (TCRs) could be used to create two classes of actors within a DAO, consumers and service providers. The TCR could be a list of service providers who have the appropriate credentials. In turn, those who are verified can verify others and have the incentive to only do so in the case that it is proper to do so.

Using a TCR like this, you could create a decentralized market for medical second opinions. To do so you would need two parts: 1. a TCR that manages a list of verified physicians and 2. a DAO that paired verified physicians together with patients and enables some line of communication between them.

Patients would share their electronic health record with their paired physician and some payment would be held in escrow by a smart contract. After the physician reviewed the files and gave their opinion the funds would be released.

If a group of people believed they could perform these services they could start their own token curated registry as well as corresponding DAO and take their case directly to consumers. Different groups of people with varying levels of credentials, assuming they self-segregated into different TCRs (see footnote for further thoughts on this), would then compete for consumers based off of their preferences.

As an example, let’s assume I had some scans done and I want several opinions on the right way to interpret them. I could consult the specialist network, the primary care physician network, or perhaps the bespoke algorithm network, which is populated by people who have created AIs specific to interpreting my type of scans. Depending on my preferences, the nature of the scans, and the prices each network offers their services for, I’d choose who I want to go with.

Here’s the problem

In order to protect consumers it is necessary to wall off niche services such that they are only performable by a individuals with the appropriate level of credentials. Healthcare systems rightfully go to extensive length to ensure that their providers meet these credentials, and it is a scandal when this process goes wrong.

Theory tells us the incentives exist for curators in a TCR to apply the same level of scrutiny on their applicants that healthcare systems give their providers. In practice I doubt this is going to cut it for regulators. But what can they do about it? If you tried to practice medicine without the proper credentials in real life you will be aggressively pursued by regulatory bodies. If you had a physical location that too will be pursued. Meager teeth whitening kiosks ended up resulting in a Supreme Court case because they didn’t have the proper credentials.

The rules change with blockchain technology; DAOs for niche services cannot be shut down because they are uncensorable. You might be able to target individual professionals providing their services but you would not be able to shut down the coordinating mechanism that paired people together. Even the strategy of targeting those providing services seems untenable in the long term; privacy technology like zk-SNARKs could be used to protect their identities. It’s going to be really, really difficult to uproot these uncensorable marketplaces once they are established. That’s going to really surprise and scare regulators as well as industry incumbents. I would anticipate a regulatory crackdown in response to the first uncensorable marketplace that provides services that are usually walled off by regulations.

In a perfect world we would each have an interoperable digital identity that included any of the credentials we have acquired in real life; that means your schooling, degrees, professional credentialing, online MOOCs, etc. You could then hard code a requirement for a particular qualification in as a prerequisite for providing a particular service. There are several blockchain based digital identity projects underway but we are a long ways away from having Universities or medical societies issue credentials that tie to these. It’s likely that there will be a number of scandals and scares before things get better.

There are a lot of challenges to be faced here. But what an exciting time it is to be facing these challenges.

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Crypto Moats

What are the defensible competitive advantages that blockchains can have and cultivate?

We are in the early stages of designing and deploying cryptocurrencies, and if you believe the Fat Protocol Hypothesis, there are billions of dollars at stake. Naturally, cryptocurrencies and their adherents will seek to defend their positions from challengers. Fundamentally this is a very different game in the crypto space than it is in traditional business because of the open source nature of cryptocurrencies and the ability to fork blockchains. Together, these things mean the cost to compete with cryptocurrencies is extremely low.

In this environment how do cryptocurrencies seek to defend themselves from competition? What are the defensible competitive advantages, or moats, that cryptocurrencies have and can cultivate? These are questions that I seek to answer in this article.

Defensible competitive advantages

Here is a list of moats that give a cryptocurrency a defensible competitive advantage. Please comment on any blind spots I’m missing here.

Superior brand

Cryptocurrencies have reputations just like firms do. The actions they take, the people associated with them, and the language used to describe are important in shaping user’s preferences. Describing Bitcoin as digital gold has salience to the average person, which has made the narrative stick. In turn, this narrative has driven millions of dollars into Bitcoin. Likewise, Litecoin being the “digital silver” to Bitcoin’s digital gold significantly contributes to its success.

Moreover, teams of developers and defacto leaders of projects are important. Ethereum is inexorably tied to Vitalik Buterin, Zcash is tied to Zooko Wilcox-O’Hearn, Bitcoin Cash to Roger Ver, and Bitconnect is tied to this guy.


These connections color investors’ choices. An investment in Ethereum right now is, in part, a bet on Vitalik and co shepherding Ethereum through its scaling pains. Likewise, how you feel about a particular person might dictate whether you buy the original currency or a forked version. The future of the crypto space is more political than we like to admit.

Lastly, cryptocurrencies are constantly under intense competition and there is pressure to either evolve or die. The ways that cryptocurrencies respond to this competition will give them a reputation. When a new cryptocurrency encroaches on an old one’s territory, what did it do? Was it accommodating and did it extend an open hand? Or did it take aggressive action and invite provocation? The old cryptocurrency could fork the desirable parts of the new one, strategically dump its assets, or even buy out any newcomers. In this way, a cryptocurrency’s reputation can act as a moat that keeps new entrants away.

Superior developers

Cryptocurrencies will die or thrive as a result of their developers. Whether they are a cohesive team an initial coin offering brings, acting under the purview of a foundation, or are simply anonymous contributors, these are the people who will drive the future direction and upgrading of their respective cryptocurrencies. In a nascent and fast moving space developers who are able to separate signal from noise and execute are highly desirable. Moreover, a lot of technology in the space will be open sourced. Knowing how to navigate the complex tradeoffs inherent in many of the new technologies in the space, having a clear vision, being able to articulate that and deliver on it are more just as important as the technologies themselves. Due to this developing talent as well as critical thinking and execution ability will demand a premium.

Partially/fully closed source code

Cryptocurrencies might withhold some or all of their code in the future to keep competitors from taking their code. Spencer Noonan touches on this in his post The Persistent Forker but developers could put their code in a “black box” that was able to prove the code did not change over time. That way competitors would not be able to fork a working copy of the aforementioned cryptocurrency.

Rightfully Spencer points out this is anathema to a core tenet of cryptocurrency: no trusted third parties. I agree and I think that in the long term this isn’t a tenable position, but I think that people are willing to to accept a “black box” in the short term if a team will credibly commit to open source at a later date. The reason being is that gives teams a chance to entrench their cryptocurrencies through launching a product, driving adoption, and establishing network effects. In turn these should have a positive effect on their expected returns.

An important caveat here, as Spencer points out, is that this wouldn’t be acceptable for stores of value. Part of what makes Bitcoin Bitcoin is that you can have absolute certainty in its properties. A hidden section of the code could introduce centralization, add inflation, etc. A number of ICOs are inadvertently doing this right now. To some degree this reflects how new these platforms are, but I think there will be a reckoning when some teams launch a product and try to keep some/all of their code closed source.

Life span

Nassim Taleb introduces the idea of the Lindy Effect in his book Antifragile. The Lindy Effect states the future life expectancy of non-perishable assets is proportional to their current age. In other words, the longer something has been around the longer we can expect it to stay around.

For cryptocurrencies this is important for a few reasons. The entire industry is still nascent with dozens of new assets emerging daily, all of them intensely fighting for users, developers, and the attention of the community. To survive a meaningful amount of time in this competitive environment is itself valuable and a defensible competitive advantage.

Further to this, the longer an asset has been around the more it has been battle tested for vulnerabilities. Cryptocurrencies are the largest bug bounties ever created. An enterprising hacker could in theory grift off billions of dollars if they were to successfully exploit a vulnerability. So far, the primordial Bitcoin has survived for nearly a decade. In the long view of history that isn’t very much time, but it is worth something when compared to its fledgling month old competitors, especially when you take into account the amount of money that has been at stake for Bitcoin.

What’s more, a cryptocurrency being around for longer allows for norms to be soundly established. Norms are the unwritten rules of society which shape the behavior and expectations of agents within a system. They are often nebulous, hard to define, and even harder to establish. That is why it can be valuable when a cryptocurrency has a track record and clear norms can be identified.

As an example, after a decade the rather unintuitive number of 21 million coins is hard coded into the culture of Bitcoin. Bitcoin’s community is passionate, even religious at times, and any proposal to change the 21 million limit would be vehemently defeated. There is something inherently valuable that comes with that certainty.

Something that is unfolding in real time is the response to the failure of Parity’s smart contract. In the case of large scale failures, like the DAO hack or the lockup of nearly half a billion dollars in Parity’s case, it is tempting to execute a bail out and reverse the events that transpired. But with each time this is done a norm is increasingly solidified that if enough money is at stake immutability can be swept away to recover that money. Depending on how important you believe immutability is, that can be value adding or value destroying.

A last example and a cautionary message, there is a very real chance that some technologies might break in the future. Zcash uses a technology called zk-SNARKS, which are new and relatively unproven. One participant in the Zcash ceremony highlighted this in the quote below:

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