Dapps are experiments in incentivizing new behaviors0.02

Nathaniel Whittemore
@nlw

1/ Dapps are experiments in incentivizing new behaviors. Those dapps trying to replace centralized services have to create benefits that outweigh the immense costs of leaving current, dominant networks. To do this, we have to start by asking the right questions.

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2/ First, letā€™s look at dapps as experiments in incentives that organize behavior.
Experiment: can you design an economic community around people voluntarily participating in a transparently ponzi-style casino game?

twitter.com/eeril/status/1ā€¦

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twitter.com/KyleSamani/staā€¦

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3/ Experiment: can we translate the human impulse to collect and the psychological reward of ownership translate to digital goods, even when there is zero marginal cost of replication?

twitter.com/sarthakgh/statā€¦

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twitter.com/Disruptepreneuā€¦

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4/ Experiment: does adding a financial incentive to content curation + creation provide sufficient motivation to switch away the thoroughly established network effects of centralized services?

twitter.com/BitcoinPosse/sā€¦

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twitter.com/VitalikButerinā€¦

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5/ This last one has me particularly interested. A dapp meant to replace a centralized service is making an argument that the incentives it offers and the new value it creates are greater than the loss of leaving the mainstream network. Thatā€™s bold in the attention economy.

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6/ Dapps trying to do this have to answer 3 questions around 1) costs of centralization; 2) UX parity; 3) new value above and beyond the existing network.

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7/
1. Are the costs of the centralized service meaningfully high to a large group of users?
2. What aspects of the user experience require parity for those users to switch?
3. What additional value add (beyond eliminating centralized costs) are required to grow the network?

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8/ Each of these 3 questions reflect barriers to adoption. If costs arenā€™t perceived as high, there are no user prospects. If the UX is horrible, the dapp won't get traction. No new incentives beyond ripping out the bad stuff? Low growth incentive. twitter.com/APompliano/staā€¦

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9/ Looking at things through this lens, certain categories of ā€œcosts" that come with participating in centralized networks are going to be more able to convince users to switch than others, with privacy on one end of the spectrum and real $$ costs on the other.

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10/ This thread with @arjunblj talks about how even major data scandals have had almost no impact on consumers decisions to leave FB and other major social media networks. Privacy seems low on the spectrum of ā€œcostsā€ for centralized networks. twitter.com/arjunblj/statuā€¦

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11/ On the other hand, when network effects monopolies cost users actual money, there is more opportunity. The proportion of Amazon sales from 3rd parties just keeps going up, but so too do their transaction fees, squeezing margins. That feels disruptable. medium.com/@KMElle/how-amā€¦

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12/ Of course, there may also be some times when privacy costs and $ costs intersect - for example, private property owners who donā€™t want to let Google map their spaces because they know 3D data is an asset.

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13/ Itā€™s also worth noting that there is likely to be even more of a difference between most Dappā€™s crypto-native early adopters (who may truly care about privacy, etc) and their prospective mass audience than in previous consumer products (who likely don't).

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14/ Letā€™s be clear: this whole decentralization thing is really, really hard. In fact, @backus just published an essay on ā€œMinimum Viable Decentralizationā€ drawing from the lessons of the past 25+ years that shows just how hard it is. medium.com/@jbackus/minimā€¦

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15/ Summing up: companies that are creating decentralized versions of centralized services are running experiments in incentives. To have any chance of success, those incentives have to outweigh the costs of switching away from major networks.

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16/ Still, itā€™s early days and there are lots of reasons to be optimistic. Which of todayā€™s centralized services do you think has the most potential to be disrupted? What types of activity wonā€™t be possible until dapps get them right? twitter.com/AriannaSimpsonā€¦

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