Fellow software developers: Stop building on blockchain tech
This is an open letter to all my fellow software developers, indie hackers and entrepreneurs: Stop building things on blockchain technologies.
This is a complex topic, and I will only touch on a few topics. If you remember one thing, let it be this: The growing popularity of cryptocurrencies makes the rich richer, promotes ultra-libertarian views and enables scams and ransomware. It does not lead to decentralization and empowerment of the little man.
By building on the blockchain, you are not a revolutionary for a better, more equitable world. You are merely a pawn in this selfish game of chess of the rich.
Why does it make the rich richer?
Cryptos are increasingly used by venture capitalists to create returns quicker than ever before. Simply said, they invest in new crypto startups that then list their crypto on a “reputable” exchange like Coinbase (which is of course also owned by VCs). Then, they create demand for the crypto and sell their initial holdings extremely high. After a while, the gullible fools who thought they are going to the moon realize that they were left holding the bag. There is an interesting analysis by Fais Kahn where he looks at the data and concludes exactly this.
By building and promoting blockchain, you become part of this hype cycle. Even if you personally don’t pump and dump or have bad intentions, every bit of activity in this space ultimately benefits the Mr. Andreessen and his buddies.
Why blockchain doesn’t lead to decentralization
Decentralization is just a pipe dream sold to you by institutions trying to enrich themselves. Blockchain does not lead to decentralization. It’s obvious if you look at major cryptos: a small number of people hold a large amount of the crypto wealth, and a few mining pools control the majority of the mining activity.
Why is this happening? The answer is economies of scale. Nvidia lead engineer David Rosenthal makes this point in his 2014 blog post Economies of Scale in Peer-to-Peer Networks. If you have some time, go have a read. But the main point is this:
Since then I’ve become convinced that this problem is indeed fundamental. The simplistic version of the problem is this:
- The income to a participant in a P2P network of this kind should be linear in their contribution of resources to the network.
- The costs a participant incurs by contributing resources to the network will be less than linear in their resource contribution, because of the economies of scale.
- Thus the proportional profit margin a participant obtains will increase with increasing resource contribution.
- Thus the effects described in Brian Arthur’s Increasing Returns and Path Dependence in the Economy will apply, and the network will be dominated by a few, perhaps just one, large participant.
And this is the same exact principle that applies to blockchain, too. Not only to blockchain, by the way. The internet is built on decentralized protocols like SMTP and HTTP. However, most people use Gmail for their email and most web services are hosted on AWS, Microsoft Azure or Google Cloud.
But don’t we need all this experimentation to find a game-changing use case for blockchain?
There will be no real use cases for blockchain. It’s true that it sometimes take a while until interesting use cases emerge for new technologies. But, this technology has been around as long as the iPhone, and look at the use cases that emerged for the iPhone. In fact, the iPhone (like the internet) had real use cases from the get go. Technologies may not be widespread or cost-effective at the beginning, but if it’s a good technology, it already provides a real value add to a small group of people in its early days.
Conclusion
All that blockchain is, is an intriguing intellectual exercise, that proved to be not viable in the real world. It does not solve the trust problem in a practical way.
All projects and apps that build on blockchains, be it DeFi or NFT, keep promoting cryptocurrencies, making the initial creators richer and the people that “get in” later are left holding the bag.
I’ll say it again to make it stick: By building and promoting apps and projects based on the blockchain, you become a pawn in this selfish game of chess of the rich. I’m not denying that there might be a few blockchain projects that do real good with the money raised, but they are the absolute minority and do so by promoting an incredibly destructive technology. The end does not justify the means.
My plea is: Don’t do it. Don’t be tempted by the devil to join this get-rich-quick scheme. Go back to building products and services that are not zero-sum games but add real value to the lives of people without fucking everything else up.
Recommended further reading: