To company or not to company: An Opinion on Augur and Ethereum
How to transform value based core technologies into actual innovative products
This week there were a couple of events that inspired me to think a lot about the current state of two projects I am super excited about: Augur and Ethereum. So instead of doing another weekly update for my project AugurInsider I decided to formulate some of my thoughts here.
Augur
Last week I got a little bit frustrated as I struggled to set up my local Augur client and was not even able to use the web based version linked on the official projects page. When I as someone who is a developer trying to build stuff on top of Augur struggles using the basic product, how hard would be for someone new to the community just trying to use it?
This caused me to formulate a bit of a ranting tweet to vent my frustration:
No other than Joey Krug, one of the leading figures in Augur, picked up on it and made quite a long statement:
My initial reaction independent from the actual content of Joeys statement was big relief, as the reaction to my rant primarily showed that the people behind Augur actually still seem to care about the project and are not frustrated and about to abandon it, of which I was afraid about when posting my tweet.
The main point of Joeys statement is that Augur is NOT a classic company or startup trying to build a commercial product, but primarily a community driven project that tries to create a decentralized protocol, that puts values like true decentralization above short term gains like focusing on usability issues.
Ethereum
Another piece of content that spurred me further to think about my favorite crypto projects was this interview with Fred Wilson (Ethereum rant starting at 38:30), where he points out all the things that go wrong in the Ethereum project in his opinion.
The gist of his rant is that Ethereum is lacking business leadership, a go-to-market strategy, has not enough resources and are about to loose their head start as a smart contract platform.
Joey Krug once again commented on this with quite a long twitter thread.
A comparison to Linux
The traditional narrative of “open source community driven projects versus business driven projects” is that the former works mainly for basis technologies like operating systems, programming languages, frameworks, but is traditionally not very strong in creating actual end user products, because these projects often lack a clear go-to-market strategy, good product management and business leadership, which are basically the points mentioned by Fred Wilson.
Let’s try to think about this looking at the Linux project. I tried to create a three layer model of technologies and products based on open community based products.
In reality this obviously is more of a scale where different companies and projects can be placed on, rather than three super distinct categories, but I think the rough distinction makes sense somehow.
Let’s go through the layers taking Linux as an example:
Layer 1: Linux Kernel aka “Core Tech”
On the first layer is the Linux kernel. It has a core dev team around strong technical leadership with Linus Torvalds and is based around solving technical issues around certain values like openness and transparency. It has no real go-to-market strategy, product management or traditional business leadership.
Values are put above short-term profit opportunities, people tend to be more idealistic to create the best open technical solution.
Layer 2: Linux as base for server aka “Technology Base”
The operating system coming from this project is the core for a lot of server and embedded operating systems.
On this stage economics start to play a bigger role, as the end users are mostly technical the focus here still is more on the best technical solution and not the one with most short term profit opportunity. Successful commercial companies exist in this space with Red Hat (Recentely aquired by IBM) as a prime example.
Layer 3: Linux for end user products aka “End user product”
An example where Linux actually achieved adoption by the end user is Android. Here the hybrid of the core technology coming from a community and the last mile on top of it being developed in a more business driven manor.
On this layer economics are the most important thing. It just makes sense for companies like Samsung to ship there products with the Android operating system instead of building their own. Values and the nature of the technical solution are not any more super relevant here. Whatever will promise the most business value will win.
The key to success? Going from Layer 1 to Layer 3
An attempt to summarize my thought process into a striking quote:
“To create paradigm shift level innovation it comes down to creating core technologies based on radically new values, that will in the end create undeniably high economic benefits even for people who do not actually care about the values the technology was based on.”
Coming back to Ethereum and Augur
The critical perspective
Mapping the Linux example back to crypto, you can basically say that the gist of the frustration I experienced with Augur and Fred Wilsons rant about Ethereum is that the projects are not behaving like layer 2 or 3 companies. The question is should they?
I guess it is clear from the statements of Joey Krug that Augur has a self understanding as a layer 1 community effort. I think Ethereum sees itself similarly.
Here lies a certain amount of risk, not all layer 1 open source projects in history ended up being successful in creating layer 3 success in the end. Maybe for many use cases the value of true decentralization will not be very crucial on the economic side and a project like EOS, that compromise and act more like a layer 2 company, will overtake Ethereum at some point. Although I personally argue if you do not have true decentralization why bother using a blockchain at all?
A lot of companies in the crypto world that could be argued about being at layer 3 like Coinbase, Bitmex or other exchanges and trading sites actually abstract away a lot from the layer 1 and layer 2 technologies, especially do they not carry over the values of decentralization and users being in control of their assets personally.
This could be a critical sign that end use cases might not care enough about the core values of crypto technologies and it does not yet make sense for layer 3 companies to actually embrace these values.
Most of the people who got involved in the crypto hype during the rally at the end of 2017 only use crypto assets from this layer 3 perspective, without actually experiencing or using their tokens in the way it was intended based on layer 1 values, which is the actual reason why crypto is supposed to be so innovative. So when even the most successful companies in this space do not actually see a benefit in the their own underlying values, is this a bad sign?
The optimistic perspective
But as I said in the first paragraph I am personally actually a big enthusiast about Ethereum, Augur, as well as other crypto projects. I think decentralizing trust and substituting big organizations with markets is such a powerful idea, that it has to have tremendous benefits in many use cases.
I think it is important that layer 2 projects will start to get successful and generate traction, which will then cause kind of a positive feedback loop back to layer 1 to create the pressure needed to speed up the work on scalability and usability to create something awesome and useful.
Here I can see projects like Veil creating a good user experience for accessing Augur, which than will draw in various people interested in financial trading and betting markets, who care more about the actual use case, than the underlying properties.
The next step will then be what the actual Layer 3 use cases will be for a project like Augur. Will some day private consumers at scale buy insurances or investment assets that have the Augur protocol underlying?
This obviously could be a many years journey (as it was for Linux as well, if you want to continue to draw the comparison). At the end this would mean that the technology created at layer 1 will at the end lead to actual economic benefits for a broad mass of people at layer 3.
Another more complex example that is often drawn is the history of the internet itself, where protocols and core tech was created during the 70s and 80s and the actual revolutionary layer 3 adoption happened in the late 90s.
Overall I am super excited about 2019 and how all these things will unfold. We should be grateful to live in such exciting times (Ending on a Christmas moment I guess 😛)
