Debating with Balaji Srinivasan about Blockchain Use Cases
I’m repeatedly struggling to understand how Balaji thinks blockchain technology adds value to internet-enabled use cases
I’ve recently been debating with @balajis on Twitter about his various ideas for blockchain use cases. I’m posting a lightly-edited transcript here because I think it’s an interesting record of two opposing viewpoints circa 2021.
Balaji is an amazing Twitter account to follow, a regular source of smart and fresh takes on a dizzyingly broad range of topics. And unlike those guys who reach for the block button until their timeline is a perfectly resonant echo chamber [update Jul 2022: he blocked me], the way he engages in good faith with questions from the community is impressive. I hope more people learn from his example what high-quality discourse looks like.
On most topics I find myself nodding in agreement with Balaji; I’m just stuck on this one topic of blockchain use cases. I’m struggling to follow his logic about how blockchain technology adds any value beyond what the non-blockchain internet, “Web2”, already enables. Here are three conversations attempting to shed some light on why that is.
1. Does a blockchain improve company ownership record-keeping?
Balaji: It is obvious that the current angel investing system — Docusigns and Hellosigns, Clerkys and Cartas, contracts and valuations, emails and wires — will all go on-chain. Every aspect is simplified if you can simply send USDC to an ENS address and get digital assets back.
Liron: Why jump to Blockchain as a solution without trying to describe the solution that our existing powerful tools offer:
- A standard data schema, written into Delaware law, to represent state of a cap table
- Carta, AngelList, etc making APIs compatible with that schema
That’s it.
B: I wrote up a detailed piece on how we can combine web2 and web3 tools to automate the mess of angel investing. The key concept is a mirrortable, which is to a cap table what a stablecoin is to a fiat currency.
L: Investing within one platform, e.g. AngelList, already works smoothly. The problem you’re trying to solve is cross-platform interoperability. Your solution involves (1) defining a schema for all the relevant moving pieces and (2) a bunch of blockchain crap. We just need to do #1.
L: How about adding a FAQ section for this question:
What would the all-Web2 solution look like, just publishing the mirrortable schema and having Carta, AngelList, etc, expose open APIs consistent with it?
It seems like this should be a question that people ask about any “web3 differentiated use case” claim.
2. Does the blockchain enable a better crowdfunding solution than Kickstarter?
Balaji: This is a genius idea. Use the digital to materialize the physical. And you can parallelize the offline search for a permissive jurisdiction that will actually let you put up the statue. Visegrad countries are promising. Start with statues of science and tech pioneers.
The Statue of Liberty was partially crowdfunded. Buy the NFT to get your name in a plaque at the base of the monument. From buying JPEGs to moulding steel.
Liron: Gaslighting that Kickstarter isn’t already a thing.
B: NFT crowdfunding is to Kickstarter as Kickstarter is to a mail-order crowdfund. Money flows far more easily over programmable crypto rails than legacy banking rails. And NFT rights can be resold. Web3 > web2.
This post is three years old, but see the section on wires:
In 2018, a typical international wire transfer between two banks takes days.
But if two startups or contractors on either side of the world want to transact and if both parties are aware of cryptocurrency, Ethereum is increasingly their medium of choice. The reasons for this low-profile revolution in global money transmission are simple: An Ethereum transaction appears on-chain in seconds and settles in minutes, works 24/7 in any country, allows instantaneous generation of receiving addresses, and is now fairly well known in the tech community. Thus, if you can email someone, you can send them $50,000 in ETH about as quickly and easily as you can send them an attachment.
This allows medium-scale international deals to close in real time. The vendor emails over an Ethereum address, and the customer Docusigns a contract and sends the ETH. Receipt is confirmed over the phone as both parties hit refresh on Etherscan. The sheer speed of the transaction increases the velocity of business and the trust between geographically distributed partners. Forget same-day transfer; this is same-minute transfer (or same-ten-minute transfer if you want to wait for 30 confirmations).
We’ve personally seen this exact use case many times. While it’s not obvious how many people are using Ethereum in this way, it is obvious that it’s far better than wires for those that are. To gauge how widespread this use case is, we spoke to Peter Smith, CEO of Blockchain for this article, who noted that “a significant fraction of our tens of millions of users are using the Blockchain Wallet to enable large, fast cross-border transactions. We may publish statistics on this in the future.”
In theory, this use case will soon face competition from banks, who will adopt SWIFT gpi and bring settlement times down. But in practice, international wires still take multiple business days to clear while Ethereum reliably clears within minutes — and has for years. Ethereum also saves both parties a trip to the bank during business hours, as ETH transactions can be sent between any pair of devices at any time of day.
In this case, the real world utility of a blockchain-based technology has actually been underhyped. It is already 10X faster than SWIFT, and has been for some time.
L: But what’s the problem with Kickstarter for this specific monument-crowdfunding project?
L: You cite how ICOs drew lots more funding than Kickstarter. But IMO that’s just showing peoples appetite to invest to get a financial return without breaking the law, nothing about blockchain tech or about Kickstarter’s suitability for a project like this.
B: Here’s an exercise, engineer to engineer. Try writing code to accept $1,000 from 50,000 people worldwide with the legacy banking rails. Now try that with USDC on Ethereum.
L: Sure, but this particular monument-building project (and many like it) can be successfully funded by a Kickstarter powered by Stripe, which does an increasingly good job. If this project doesn’t happen, it’s not because of the limitations of Web2.
3. Will the average person have a reason to make thousands of Blockchain microtransactions every day?
Balaji: Go and try to send $1,000 to 1,000 different people in 100 different countries via a banking API, then try to do it via web3. The value prop for power users of money — devs and investors — is very clear at this point.
Liron: It seems like the crux of our disagreement is that you think this particular example is a good comparison to my example of Mapquest. I’ve never had the need you’re talking about here. Who does? If enough demand for it, then I’d assume it would already be pretty convenient and cheap.
B: If you are doing international payments at a two-sided marketplace, like Brian Armstrong was at AirBnB prior to founding Coinbase, you feel this problem first hand.
Because it is hard to do, people don’t do it. If it was easy, it would enable new models. Payments like packets.
L: My company Relationship Hero is a managed marketplace that does international payments with Wise (fka TransferWise) at the scale of 100 transfers per payroll and it’s not a pain point at all. Sure it gets more complex at scale but now we’re not talking about something with Mapquest-like broad appeal.
I guess the crux of our disagreement, the whole reason I’m not able to go down your rabbit hole, is that I don’t see the average person making thousands of international micropayments constantly?
B: Do they make thousands of international microcommunications constantly? They do, via packets over the internet.
Did they do so in 1990? No.
Did the ability to do so change the world? Yes.
That’s the case for why programmable money is on par with programmable information.
L: Ok so you really are claiming that the average person needs to be making thousands of micropayments…
Web’s bits flying around support a use case: searching, social media, etc. What’s a compelling use case where we need to go implement tons of micropayments to make it happen?
B: Go to web inspector & see how many different international communications are made to different countries on one web page :)
The most obvious application of scaled programmatic microtransactions is DeFi trading via bot, which is already happening. See e.g. hummingbot.io:
There are likely thousands of other applications for programmatic microtransactions beyond just trading, just as there were for programmatic microcommunications, but this is like predicting every internet co in 1995. That said, tasks are another application:
B: LinkedIn is a shadow of what crypto LinkedIn could be. Every person with an on-chain resume, receiving a feed of tasks optimized to their skills, anywhere in the world. Liquid micro-work … I think there are going to be a lot of those folks who work in what I call the new digital blue-collar jobs, which are Mechanical Turk-type jobs.
We’re doing some of that with Earn.com, where you have labeling of images: is this a cat, this a dog, or determining if there are two clusters or one cluster in an image. That’s what I think of as the new digital blue collar, like worldwide machine learning-type stuff. You’re going to have a lot of those from Nigeria, Brazil, India, places like that.
L: To clarify: your claim is that most regular people on the internet will soon have their devices participate in thousands of token microtransactions per day, and as supporting examples, you’re choosing (1) DeFi trading bots and (2) liquid micro-work?
B: Defi is at $100B in two years. Many power users — developers and investors — already use it constantly. Things with that characteristic tend to get really big. (Btw, liquid micro-work is already billions too. See scale.ai, mturk, etc.)
L: Your Evidence:
- Median internet user’s device sends millions of packets
- DeFi trading volume is trending toward $100B/yr
- Current micro-work market is $Billions/yr
Your Conclusion:
- By 2030, median internet user’s device makes thousands of token microtransactions per day
Accurate?
B: I try to express my predictions in one of two ways:
- As a literal P(Y|X)
- As an investment
In both areas that has worked out well. Betting on random numbers doesn’t make sense, or money. Betting money on (say) Helium to grow from 160k hotspots does.
L: Ok but can you try to address my last tweet more directly? I think the crux of our disagreement may be that that you see a significant Evidence <> Conclusion relationship there, while I see a non-sequitur.
My Reflections
This blog, Bloated MVP, is dedicated to rigorously answering the question, “Does X have any freaking use case at all???” for various ideas X. It’s always important to be specific about the details of X, and then compare X to its current next-best alternative. That’s what I tried to do in my conversations with Balaji. I’m currently feeling unconvinced about the various ideas that he seems to think constitute blockchain use cases. I will grant some of what he claims in this post, which I’ve covered in my cryptocurrencies make sense as mediums of exchange post.
Consider how easy it normally is to explain logically-valid use cases. Like explaining Monero’s value prop for buying illegal drugs: Instead of buying drugs on the street, you can now buy them from the comfort and safety of your own home, because Monero transactions are much harder for law enforcement to trace — as compared to any non-blockchain digital currency transaction. That’s it. That’s how simple the explanation of a logically-valid use case should be.
To me it’s a red flag that after this many conversations with industry thought leaders like Balaji, it seems like the buying-illegal-drugs use case still has the #1 most compelling value prop story by a pretty wide margin.
More Crypto/Blockchain/Web3 Posts
If you want to read more about Web3 from the perspective of “what’s the use case”, check these posts out:
- Web3 is Vision-LARPing
Role-playing as a visionary when you don’t have a coherent vision - Cryptocurrencies Make Sense As Uncensorable Mediums Of Exchange
Cryptocurrencies are useful because millions of people want to make transactions that their governments want to prevent - Why Web3’s Shared Data Across Applications Doesn’t Matter
The ability for applications to read and write their data to the blockchain will be inconsequential - Chris Dixon’s Crypto Claims Are Logically Flimsy
Crypto discourse has turned into the ultimate Bloated MVP - Naval Ravikant and Chris Dixon Didn’t Explain Any Web3 Use Cases
Their web3-themed episode of Tim Ferriss’s Podcast didn’t provide the one thing I was hoping for
Hit me up @liron on Twitter.
