Regen Library #5 - "Why Ethereum" - Paul Brody

Transcript

welcome to another edition of the regen Library I believe this is episode number five now and I've got a treat for you Paul Brody has a new book out uh Paul Brody and I have been good friends for a number of years and his book is entitled ethereum for business and the subtitle here a plain English guide to the use cases that generate returns from Asset Management to payments to supply chains if you want to pick up the book it's available on Amazon but it's also available at the University of Arkansas press and I think Paul prefers you go through that route all of the proceeds from this book are going to public goods which is why I think it's an important topic for today's regen Library entry for green pill

if you take your picture next to the book like this email it to Paul and the team you can mint a limited edition nft on the polygon Network that's going to be available through the rest of this year and with that let's get into this man I'm gonna need some reading glasses for this one Prince kind of small that's how you know you're getting your money's worth there you go oh much better let's see chapter eight nope that's not it nope that's not it here we go chapter eight why ethereum when I was a young IBM executive my boss

once explained IBM's leadership philosophy is dictatorship tempered by assassination I think I got the message I needed to either get with his program or have him assassinated there are not a lot of assassinations in the IBM offices but you can be reassigned overseas it's cleaner and just as effective it turns out to be a pretty good explanation of how technology ecosystems work as well over and over again we see ecosystems where there is a single large player and then perhaps a few smaller ones Clinging On with specialized applications in the case of blockchains we now have a clear winner ethereum to understand how we got here and where

things are likely to go it's useful to look at the history of other technology ecosystems the evolution always starts with some early innovations that appear to create an entirely new category of product not long after the first computers came into existence the need to connect them created the business of computer networking computers themselves went through multiple phases from mainframes to many computers to PCS and then to phones smartphones make a great case study of how early ecosystems grow explosively and then how they mature into hardened categories with dominant Market leaders the early stage explosion of smartphone

Innovation began in 1995 long before we knew to call them smartphones IBM built the world's first called Simon and marketed in cooperation with Bell South it had limited functionality and cost an absurd amount of money IBM Simon came out in 1995 and just sold 50 000 units Nokia followed suit in 1996 with the Nokia 9000 Blackberry launched its 850 model in 1996 as well though it was not yet a phone just a 2A email device in 2001 smartphones represented less than five percent of the global mobile phone market but Research In Motion the maker

of BlackBerry phones was taking off by the time the iPhone launched in 2007 the market was just over a decade old and blackberry and palm and Nokia led the market the first Android phone arrived in 2008. at that time about a quarter of all phones sold were smartphones and the market was accelerating rapidly the period between 2008 and 2012 was the peak of the market Evolution when a huge number of different options were available to Consumers it was not going to last however today's Android share of the smartphone market is greater than 75 percent worldwide Apple's share is about 24 percent and all the other choices amount to under one percent of total

smartphone sales worldwide software economics and network effects two key laws Drive the technology Market towards dominance by just one or two entities the first is metcalf's law metcalf's law says that the value of any network is equal to the square of the number of users on the network that means quite simply that networks with more users become exponentially more valuable than their competition This was meant to apply to actual computer networks but it turns out to work equally well for anything that has Network effect app stores and instant Messengers are both good examples indeed the immense popularity of BlackBerry Messenger is

thought to have done much to slow blackberries collapse after Android and iOS became so powerful as DieHard users held on to their messaging networks of friends and family the second law is one that says that the marginal cost of software is zero that means if you're an incumbent in the markets and have already spent the sunk cost to develop high quality software you can add new members to your network by selling your product at a very low price since it costs you nothing more to make one more copy the combination of low entry pricing and sticky Network effects makes it exceptionally hard to dislodge incumbents in a Marketplace once they get a significant lead on others in an

ecosystem the greater your value that comes from others in the market and the larger the share of your product that is software the faster you can achieve sustainable Market dominance blockchains tend towards the more extreme end of this spectrum they are really valuable only as networks for transferring products and services and they are entirely composed of software for that reason I expect that ethereum will indeed become the dominant blockchain ecosystem and it's also why I don't believe in the multi-chain hypothesis you often hear from quote industry experts unquote that's why I have never invested in cross-chain connectivity

at some point the market seemed to shift from an experimental phase and absorbing new technology towards one where a single standard or market leader starts to take off and become more dominant I believe this happens when the use case starts to take precedence over the technological novelty and the buyer's Behavior changes in the world of Enterprise Mainframe Computing this seems to have happened when mainframes were widely adopted for handling large-scale transaction processing IBM's first big hit with early mainframes were utilities insurers Banks and Airlines all looking to officially handle millions of customers doing routine repetitive transactions

mainframe computers drastically reduce costs and increased reliability in many technology ecosystems Market leaders seem to emerge within about a decade of the product category being born MS-DOS soon to be Ms Windows was the leading PC operating system by 1984 about eight years after the first PCS emerged iOS came into existence just about a decade after the smartphone category emerged from Office productivity such as Microsoft network equipment Cisco took Cloud compute such as Amazon the pattern repeats my hypothesis here is that once

the technology reaches a good enough stage better technological foundations don't Trump the killer use case spreadsheets and word processing on Windows worked well enough and the companies that made and sold PCS which was primarily IBM in 1984 were good at serving the main buyers other Enterprises the combination of good enough technology and Enterprise Services was enough to tip the scales the same kind of experience is being repeated today in the world of blockchain over and over again new layer 1 blockchain networks are launched that claim to offer vastly better performance than ethereum more transactions lower costs and faster finality in the end

this doesn't seem to matter compared to the value that is locked in the ethereum ecosystem with thousands of applications and developers and billions of dollars of capital the world of blockchain and smart contract platforms is now over a decade old Bitcoin is t13 and the earliest versions of ethereum date from 2014 and 15. in the last year ethereum has seen off nearly all its main challenges and executed a major upgrade from proof of work to proof of stake short of a major screw-up by the collective leadership of the ethereum ecosystem it's likely to continue in the dominant Market position one thing to note however is that losers don't go

quietly or quickly Microsoft may have emerged as the market leader for office productivity Suites all the way back in 1993 but IBM didn't give up on Lotus one two three until 2013. as late as 2015 when I left IBM for the second time I was still getting the occasional one two three spreadsheet from Old Timers instead of excel blackberry's market share of the global mobile business actually peaked two years after the iPhone debuted and didn't fall below five percent until 2013. for those same reasons we can expect many of the unsuccessful quote ethereum killer to be around for years to come it won't change the outcome but

it will contribute to a lot of noise in the market once a new technology finds a set of use cases that drive initial adoption a technology ecosystem enters a period of mainstream adoption but the evolution of that ecosystem doesn't in there at some point the network itself becomes the use case the fact that quote everyone is on it and has access to the same core infrastructure becomes more important than the original use case spreadsheets are still widely used but most people have PCS for a huge variety of tasks and new applications are often launched on PCS or over the Internet because they are widely available indeed the value of a network is so great that

it can overpower other challenges phone calls and video conferences over the internet are a great example the internet doesn't have quote quality of service or any foundational way to prioritize one kind of information over another that's terrible for calls but because everyone has a PC or phone with a network connection and a camera it's easier and simpler to put up with Spotty connections than build a new network and so it will be with ethereum the existence of a vast Global Network where millions of people and companies have assets and can make business transactions with each other will over time become more important than the

particular other features of the network and so the use cases will continue to grow and evolve ethereum today has accrued the most capital and has the most active developers participants and infrastructure providers this means that it is already the easiest ecosystem in which to develop and in which to find skills and assets that speed up the solution development process and on which people can build evolving use cases some monopolies are better than others if all network-based businesses are natural monopolies then why does it matter which one wins the answer is that open decentralized

monopolies are not the kind of Monopoly that users and Enterprises need to worry about centralized web 2 monopolies turned out to be great at building the infrastructure of digital markets and connecting buyers and sellers but once they matured into a stable monopoly-like market leader their business models tended to turn towards extracting value from the ecosystem digitizing Commerce is immensely valuable and in the economic model that drives stock market valuations growth is always required the most profitable way to grow is to extract more value from your customer base if you run a market that connects buyers and sellers that

means charging more but it also means mining the data in the transaction information to develop new businesses from consumer auctions to retail to ride sharing it's a familiar pattern the internet itself is a form of Monopoly that has gotten cheaper over time we're not used to thinking about the internet as a monopoly but it is in the 1990s there were many available Network choices today there's only one and while people do complain about the cost of internet access often delivered by Monopoly cable TV and Telecom operators the internet itself is only getting cheaper and better and it has no serious Challengers the difference is that the

internet is an open permissionless and decentralized Monopoly anyone can join contribute and use it there's no Central Authority in a position to control access decide which applications can be used or to mine or Access transactional Data the result is an endlessly Innovative ecosystem public blockchains like ethereum follow the same model as the internet they are public permissionless and decentralized systems because it is a network model it is destined to be a monopoly but if we are going to end up putting our business models on a monopoly Network a public and permissionless Monopoly is the only

kind worth having of course nothing is forever I think ethereum like many major technology standards could be around for a very long time that being said eventually something drastically better newer or just entirely different and more useful will come along then the market leader will be replaced as my old boss said dictatorship tempered by assassination thank you Paul Brody excellent that's chapter eight or portions of Chapter eight out of his new book ethereum for business all proceeds go to public goods people this is a Region Library favorite of mine I hope you enjoy this book as well if you could grab it at the

University of Arkansas press don't forget to take your picture next to the book shoot them an email and they will shoot you a limited edition nft good through the rest of the year on the polygon network if you know somebody that has some writings you would like for us to put into the Region Library simply reach out thanks for listening thanks for subscribing hitting a like and sharing within your communities are you interested in having a green pill chapter hit us up at greenpill.network make sure you follow us on Twitter at greenpill net on behalf of the Region Library green pill and Paul Brody's book my name is JT cheers and big hugs from Kansas City damn that's a big [Music]