Modelling Bitcoin Economics for Autonomous Drone Networks
Bitcoin Economics aren’t what you think. Here’s how it will apply to the autonomous aviation future.
We have a lot to thank Bitcoin for. Most of which hasn’t happened yet. I’m going to show how the underlying technology behind Bitcoin (blockchain), will change the aviation industry forever.
Let’s take a closer look at what Bitcoin has done in its 9 year history, starting with fundamental changes in how value is distributed within an ecosystem of contributors.
Fundamentals — A value reversal
The internet was a game changer for the world. It allowed information collation and distribution at massive scale, almost instantly. But the technologies that power it (HTTP, TCP/IP protocols) remained under-celebrated. The reason? There’s no way to capture value at the protocol layer. So why should we invest and innovate here?
But then we come to the application layer, which sits neatly on top of the protocol layer. Here, the innovation and investment is nothing short of tremendous.
Born was; Google, Facebook, Amazon and Apple.
The big 4 are in the game of capitalism. Never before has it been easier to control the worlds flow of data and monetise it. The outcome of a ‘fat’ application layer is disparate silo’s of information, centralised and controlled by a (very) powerful few.
Enter the fundamental difference with Blockchain. Data is now controlled at the protocol layer, and open for all to access and innovate on. We now have a ‘Fat Protocol’ layer, and a ‘Thin Application’ layer.
I am of course describing the Fat Protocol Thesis, first clearly defined by Union Square Ventures in 2016.
But why is this important?
Because free and open access to data lowers the cost of innovation and access to information. Vibrant ecosystems ensue because the barriers to enter markets and produce applications that add value are significantly reduced. Competition increases and markets become fairer whilst huge efficiencies are gained. Add trustless peer to peer payments and economic ecosystems evolve that rapidly accelerate network growth.
How does that all apply in aviation today?
Today’s Fat Application Layer in Aviation
Airmop is a Universal Traffic Management (UTM) solution for drone operators. A booming industry segment as drone use cases and markets grow at unprecedented rates. They provide drone pilots with all the information one might need in planning and executing a flight within the National Airspace System.
The information presented is collected from multiple disparate silo’d sources. An example of these sources is the Eurocontrol EAD. But there are many more sources, some of which are crowd sourced like weather cams and traffic. The value is being created by the collation, organisation and presentation of that data to the aviation operator.
For this service a fee can be charged ($$), and value has thus been captured at the application layer.
But does all the value lie at the application layer? Or can some value be attributed to the data itself?
The answer to the latter is of course a resounding yes.
But one could go even further and argue most of the value lies in the data itself.
How does the Bitcoin network economy work?
Blockchain (the underlying technology behind Bitcoin) is hugely disruptive to traditional Capitalism. Of course the stigma currently attached to cryptocurrencies like Bitcoin, fuelled by mainstream media coverage of the consistent scams, high volatility (causing crippling capital loss for poorly timed investments) and uncertainty around Bitcoin helps greatly to slow mainstream acceptance of the new models that are redistributing the control of data and information in a significantly fairer and openly transparent way.
The degree to which blockchain and their associated cryptocurrencies disrupt the old business models based on capitalism, and transfer value to the protocol layer, remains to be seen. But there is no doubt that this transfer of value is well underway.
Here is the basic, ingenious economic policy which drives innovation, network growth and external capital investment to increase the Bitcoin network value over time. We start with the fact that Bitcoin has a finite money supply of 21,000,000 tokens:
- Miners (computer nodes running the Bitcoin software) contribute to the security of the network by competing to solve the Bitcoin consensus mechanism (Proof of Work).
- Roughly every 10 minutes, a Minor solves the complex mathematical equation hard coded into the protocol, earning the right to commit a ‘block’ of transactions to the network. In turn they are rewarded with a Block Reward (currently 12.5 Bitcoins)
- Every 4 years, the block reward is reduced by 50%, halving the ‘revenue’ paid to minors and reducing the supply (or inflation rate). This will next occur in the year 2020.
- As network adoption grows (thanks to the sound money Store of Value properties of Bitcoin), the value of each Bitcoin goes up, increasing the incentive for more miners to join the network.
- Increased profits, drives mining competition, drives computer processing innovation and hardware investment. Like all hard money (Eg. gold, silver, copper) before it, the profits promote the capital investment in mining.
In this fashion, new money (Block rewards being the only way to mint new Bitcoins) goes to only those who commit the processing power to securing the network.
And what comes out the other end?
New industries containing companies like Bitmain, who recently filed for an IPO on the back of $2B (‘B’, for Billion) revenue in Q1, 2018 alone.
Yes, it’s a powerful mechanism. It’s new, it’s game changing at the most fundamental levels of economics, and you can see it now.
Let’s move on.
Modelling Bitcoin economics for Autonomous Drone Networks
Video streaming, cloud storage, the gig economy, and digital marketing (let’s not mention the financial markets for now) are all experiencing the transformative effects of crypto-economics.
Aviation will not be excluded.
In an automated drone network, the power of this model is unique because there are many contributors (direct and indirect) that combine to make the ecosystem work. All of those actors need to be incentivised to behave in the best interest of the ecosystem.
In this example we are only exploring the facets relevant to the participants of the network external to the protocol.
Let me explain what is happening here:
The client pays for the service, however this time instead of all the funds flowing direct to the Application Layer (and controlled at the Application Layer), the protocol is capturing a very small percentage of the transaction.
The protocol is now earning income directly proportional to the size of the ecosystem, and can distribute funds instantly to good network actors to incentivise further contribution to the network. To support the growth of the network the protocol invests in these areas:
- Data contributors (those adding bulk value, are now being paid)
- Network security (the internal protocol mechanisms)
- Furthering application layer innovation and development (ecosystem seeding/investment)
- Research & Development (Hey, let’s build better drones!)
The Application Layer is earning revenue for providing services, but a few key things have changed:
- The applications share the same single source of data truth, heavily reducing overheads, equaling (much) lower product costs
- Drones can now become the application layer thus interoperable, large-scale, fully-autonomous networks are now possible. The drone can access all the data necessary to conduct a mission, without needing any 3rd party intermediary. Consider an investment drone, perhaps? Amazon is.
- Further Application Layer activity includes everything from Landing pads, to UTM providers. All of which contribute value to the network and are paid for doing so.
- Market barriers to entry have come down meaning greater innovation & entrepreneurship, which is good for the entire ecosystem, particularly the end users.
The Data value is now being captured at the protocol layer which is owned by no-one, yet accessible to everyone. It is freely available as a public good, used to innovate and build on for the betterment of the network.
To attempt to put absolute numbers on how much lower costs will be for the end user would be naive at this point. But do not be disillusioned, the efficiencies being gained are large orders of magnitude improved over what exists today.
Because crypto-currency is the only way to permit near instant small (sometimes micro) and large payments, peer to peer, cryptographically enforced without a trusted 3rd party, Blockchain is instrumental in such an ecosystem. If a bank were injected into the ecosystem, it would instantly lose huge efficiencies, value would be extracted from the network by the bank (without adding any value back) and it would of course break.
The final point I want to make is to not underestimate the size and complexity to which such an ecosystem can grow. With good governance and smart implementation of the protocol in specific areas of the industry at the appropriate time (and airspace), the ecosystem can scale to global levels.
Conclusion
It’s early days for the Bitcoin model. But make no mistake, the Bitcoin freight train is only gathering speed whilst 95% of the world is yet to take notice.
Here I have shown how the innovations behind Bitcoin can be applied to aviation for the betterment of the entire industry. Over the next 30 years, the world is going to see radical changes in the way we use the world’s airspace, and at the core of this change will be autonomy. Like trains, cars, motorbikes, rockets and robots before it aviation is going fully autonomous. A necessary prerequisite in order to achieve essential levels of scale. Considering that fact, it doesn’t take a second thought to understand that the Skyy Network World Computer built on blockchain simply has to exist.
#skyynetwork
