Decentralized Disruption — Who Dares Wins? — Bittorrent Lessons for Crypto (4 of 4)

This is the last part of a series of four posts — the previous ones are here:

1 — Why BitTorrent Mattered

2 — If Your Not Breaking Rules You’re Doing it Wrong

3 — Intent, Complexity and the Governance Paradox

The Bittorrent ecosystem grew into a decentralized, slow-moving, almost ungovernable network. Yet it has remained strongly censor-resistant as hundreds of millions of users continue to share all types of media files online. BitTorrent Inc built a modest-sized business distributing two of the most popular Bittorrent clients (uTorrent and Bittorrent) and putting ads in front of their users. There were a number of other VC-backed companies which became involved in different parts of the ecosystem, all hoping to find a way to capture some of the copious amounts of value that had clearly been created for consumers. But if the objective of the game was to secure billion dollar exits and huge returns on capital invested, then every one of them failed. With the wonderful benefit of hindsight, here is what actually happened:

Revolution and Reaction

Bittorrent was surely successful in this: it forced the media industry to think harder. In the light of the Bittorrent ecosystem, it simply wasn’t going to be possible to charge users to re-purchase all their music in MP3 format the same way they taxed users who wanted to transfer from vinyl to cassette to CD. In spite of ever more sophisticated copy protection technologies, ‘revenue protection’ service offerings and showcase trials and punishments, what actually happened as a result of this grand showdown between entrenched interests and technology wielded by the masses was not the victory of one side or the other, but the emergence of something totally different and radically better. In short, the whole concept of “the file” disappeared from sight and we watched the rebirth of old media in a new and better form (e.g. Spotify and Netflix) and the emergence of new media (e.g. YouTube and Instagram) all with experience-oriented value propositions and business models.

Media everywhere stopped being about the file and started being about the experience. Consumers stopped fretting over ‘ownership’ of music or movies, and are now concerned entirely with access — the experience of just listening to what you want whenever you want, and watching great engaging shows and channels on-demand. Consumers don’t want to worry about where the digital file is, how long it will take to get, whether their device can play the file, or how often they can listen or watch. All these concerns are satisfied and the experience becomes a simple discovery mechanism and a play button. A similar story played out in software as all types of software (games and apps) have become increasingly experience-oriented rather than file-oriented. Almost everywhere now you pay to subscribe to the experience rather than paying a fee for a copy of the file.

The Bittorrent ecosystem was obviously not the only force at work. The relentless upgrade of internet bandwidth by ISPs, the proliferation of screens with powerful computers in every part of our lives and the emergence of rich new ways of interacting digitally, largely funded by ads from the emerging ‘data industrial complex’. What’s clear is that today the whole concept of ‘files’ is increasingly anachronistic. Files have been abstracted away almost everywhere and replaced with experiences. And I’m guessing the vast majority of us would agree that this is a great thing for just about everyone.

Who Dares Wins?

In spite of the scale and impact of the Bittorrent ecosystem, BitTorrent Inc never succeeded in capturing any meaningful part of the upside from all the disruption. Perhaps a better (or luckier?) team could have found more success?

There were many home-grown ideas but we were always held back from addressing the biggest problems in the Bittorrent ecosystem (like the horrible discovery experience) as well as the most voted-for user request (anonymity) by legal concerns which might have exposed the company to vast liabilities (up to $150k for every file copied — we’re talking $50 trillion of potential liabilities every month!)

Pushing the rule-breaking theme harder than BitTorrent Inc was prepared to led to nothing durable — for example there was but a short-lived explosion of popularity for Popcorn Time — a sort of combination of both torrent site and Bittorrent client into a Netflix-like experience for pirated movies. The Argentine development team was ‘leant on’ and the project abruptly disappeared as developers decided that an actual career in tech was more interesting than a lonely and one-sided battle against copyright lawyers.

So if the revolution was led by the Bittorrent ecosystem, there were no clear winners who emerged directly from that ecosystem. Although BitTorrent Inc was one of the key protagonists, its clear that neither BitTorrent Inc nor any other Bittorrent ecosystem participant succeeded in achieving a meaningful reward from its position. Perhaps one of the most far-sighted winners here was Daniel Ek — CEO and Founder of Spotify — who preceded his Spotify success with the sale of the uTorrent client to BitTorrent Inc. Although early versions of Spotify used a Bittorrent-like P2P protocol to try to save money on bandwidth, they quickly realized that the main point of Bittorrent had little to do with saving money, and decentralization of their architecture was actually counter-productive to their aim. Perhaps it was apparent to them way back then that leading a revolution is exciting, but it’s far better to build the thing to save incumbents from the unleashed mob.

And this is the main conclusion — decentralization may be great for disruption, but if the experience of Bittorrent is anything to go by it is not at all clear that it has a role in whatever comes next. Blockchain architectures are great for unleashing unstoppable rule-breaking mobs, but we shouldn’t mistake the rule-breakers for the winners. A prominent political scientist once observed that political revolutions are great at ‘state breaking’, but not so great at ‘state making’ or replacing them with something better. The same might be true for the type of rule-breaking disruption that is unleashed by decentralized architectures. As I look at the rule-breakers, I’m especially interested in what the reaction might be — what paradigm might change (like the abstracting away of files in the media industry) leading to a whole new way of doing things — for it is here that the biggest winners may emerge.

Recap — Lessons From Bittorrent For the Blockchain

In summary, I realize that Bitcoin and Bittorrent are wildly different in so many ways, yet I’m struck by a number of similarities. In hopes of helping people avoid a repeat of history, I’d suggest that the following lessons from the experience of Bittorrent are relevant to new participants in the blockchain revolution:

  1. Don’t worry about what decentralization is, worry about what it does. In particular worry about whether it enables rules to be broken that unlock new ways of doing things or new opportunities that were previously prohibited directly or indirectly by rules. Bluntly, if you’re not breaking rules, you’re doing it wrong.
  2. If you are breaking rules, watch out! Rules of various types have many defenders, guardians and enforcers. A good way to tell if you’re breaking the rules are if there’s anyone out there that actually cares and wants you to cut it out. There are many examples of rules that have outlived their usefulness, and rule-making is often slow and can be helped along by a good dose of well-intentioned rule-breaking.
  3. Intent is an extremely dangerous signal to send, and yet for companies trying to get established and funded it is hard to see how they can be silent about their intent. Bittorrent succeeded by chance. Bitcoin disclosed its intent but protected itself with anonymity. I’m not sure what to recommend for newly starting companies in this space except to remember that your stated intent will likely follow you forever.
  4. Truly decentralized projects are extremely complex and complexity is costly. Those costs may be differently allocated in a decentralized system, but we should be very cautious of projects that are either overly optimistic about how quickly they can get things done, and especially of those who promise decentralization as a way to make things cheaper.
  5. Governance of a decentralized system is extremely hard. If you have good decentralization then the coordination costs are going to be very high and the process will be very slow and often ineffective. (Bitcoin? Ethereum??) But if you have strong coordination and an ability to execute a plan with tight discipline, you may not have a very decentralized system and are quite likely exposed to the long arm of rule-enforcement.
  6. The ICO boom is the best example yet of successful rule-breaking. Capital formation via the boom around ICOs was the first and maybe only strong example of rule-breaking that has taken place in the blockchain space so far. It has also seems to have been effectively stopped by the rule enforcers, somewhat calling into question how well designed the entire decentralized system was to support this use case.
  7. Rule-breaking is not sustainable without bounds. States (and even ISPs) have enormous power. The stated intent of Bitcoin to undermine rules around government control of sovereign currencies sets an interesting challenge to governments in the case that it ever looks like it might succeed. China and North Korea have both demonstrated pretty clearly that if you control the pipes of the internet then you control the internet. Bittorrent could have been eradicated by state intervention, but most states chose a lighter touch approach. The same is mostly true so far for crypto-currencies, but the scope is so much greater and time will tell at what point a state actor will feel compelled to intervene. (For example if you invent a way for no-one to have to bother paying taxes any more… well good luck with that…)
  8. The ‘winners’ created in the wake of Bittorrent disruption (Spotify and Netflix) shed any semblance of decentralization — it simply wasn’t necessary any more, and actually made things harder. But their success was the result of a paradigm shift where files were abstracted away. In the wake of disruption brought by Bitcoin or other cryptocurrency systems, what will be abstracted away? What will be the paradigm shift? And will a decentralized architecture become irrelevant once the ‘new’ way is identified?

Post Script:

I’ve had some interesting discussions in the course of sharing this series — one regarded the most compelling promise of crypto being the possibility of digital money without trusted third parties; another is a range of questions about my thoughts about the recently announced BitTorrent Token (BTT). I may write a little more on these subjects in the near future…

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