10 Reasons The Internet Computer Will Win
The Internet Computer is a beautiful project and a game-changing public network that is reinventing compute on blockchain. The network now incorporates more than 1000 person-years of R&D. There is nothing else like it on earth.
If you want to understand why it will succeed in its mission, and succed big, this article outlines 10 key reasons why.
This post is part of a bigger post — Red Pill, Blue Pill — The Hidden History Of The Internet Computer, And Why It Will Win.
Essential technical background can be obtained by quickly reading through sections 1, 2 and 8 in the preceding sub-post “The History of The Internet Computer In 10 Steps.”
Every section is preceded by a TL;DR section designed to give you the low down in a few words for those that wish to scan through quickly.
- Internet Computer Tech Is Years Ahead
- Third Generation Blockchain Functionality
- Trustless World Computer Multi-chain
- AI Models Will Run As Smart Contracts
- 3rd Generation DAOs and “Open Internet Services”
- The Foundations Of A DeFi 2.0 Ecosystem
- “Cost Per Acquisition” Can Beat Flywheels
- ICP hubs, Web2 Developers, and Tiger Economies
- The UTOPIA Project/The New Growth Engine
- Internet Computer Culture
1. Internet Computer Tech Is Years Ahead.
TL;DR — The technology of the Internet Computer, which enables blockchain to play the role of real crypto cloud, has been created through more than 1000 person-years of R&D effort. It is years ahead, and will stay ahead.
The Internet Computer has an immense technical lead with respect to full stack decentralization — revinventing compute on blockchain — which it continues to advance, even at the expense of other demands on resources. Parties wishing to quickly imbue traditional blockchain with the same capabilities face formidable hurdles.
Back in the summer of 2018, when people first started imagining a new third generation of blockchains, some major financial backers of the EOS project mistakenly advocated to those considering joining the Internet Computer project that: 1) those who raise the most money will win, which they would do after raising $4 billion, and 2) in the open source world of blockchain, technology is just copy/paste, so the advanced nature of the Internet Computer was irrelevant.
They were wrong on both counts. Firstly, placing money in the hands of people primarily concerned with profit doesn’t always work out well. Secondly, you can’t copy/paste entire blockchain architectures and hardcore crypto science. You also need an ecosystem of researchers and developers with the requisite skills and processes who will work on it.
Later, in 2021, many blockchain titans imagined that by funneling massive funding into their projects, while disrupting the Internet Computer, they could somehow catchup and overtake its ability to deliver full stack decentralization to web3. But again, they were wrong, and they are no nearer to achieving that today than they were back then.
The magic that goes into what makes the Internet Computer involves huge technical talent assembled over time with a culture dedicated to relentlessly advancing technology to better humanity without taking shortcuts that undermine overall progress.
A simple analogy is this. If you have a race involving builders of airplanes, money might make a difference. But if there’s a race to make airplanes fly as high as rockets, that can never be won by successively updating and improving the airplanes. You need to start from scratch, and start building a rocket, which will take years, during which time the rocket makers will also be advancing ahead of you, making it hard to catch up.
Another old trope I often hear, is that the best technology doesn’t always win, as demonstrated by the VHS vs Betamax video format wars. Yes, that is often true, but it doesn’t apply to airplanes vs rockets. If someone needs a rocket, then they need a rocket, and an airplane won’t do.
I’m incredibly excited that increasing numbers want to use the Internet Computer rocket — a blockchain that supports full stack decentralization, where you can build social networks fully on-chain, and even run AI as smart contracts.
This new generation of functionality belongs firmly to the Internet Computer, and it has huge potential.
2. Third Generation Blockchain Functionality
TL;DR — Blockchain playing the role of cloud is an inevitable destination of web3, since it enables full stack decentralization, which delivers incredible security and resilience, enables more seamless experiences with respect to tokenomics, and enables web3 services to devolve exclusive and direct control to communities, delivering on core web3 promises. Only the Internet Computer plays this role effectively today.
Linguistic norms used within the blockchain industry have widely confused many participants.
We did a survey of degens, crypto journalists, mainstream journalists, those at institutions involved in blockchain, and web2 developers looking at web3, and asked: what does it mean when somebody says a web3 service is built “on blockchain X?” The results were shocking. The overwhelming majority imagined they were already interacting with fully decentralized web3 services built from smart contracts running on the blockchain.
They did not understand that the web3 services they were using actually run in the main run on Big Tech’s clouds, which usually serves the user experience, and performs the serious data processing, with the blockchains involved only storing tokens, NFTs and executing the vastly more lightweight DeFi logic.
In a recent discussion with a leading crypto editor, when I explained that the innovation of the Internet Computer is that you can use the blockchain like a crypto cloud that hosts smart contract software that can build anything, he asked: “Aren’t blockchains X and Y also decentralized clouds [replace the letters with two leading blockchains], What are you doing that’s new?”
The source of blockchain hacks, and clunky user experiences in which users are bumped out of web3 services to perform things like NFT transactions using a crypto wallet, were a mystery to them.
But as time goes on, more and more people are beginning to understand the differences. There are now three lanes in blockchain:
- Dedicated crypto ledger networks: this was pioneered by Bitcoin, with those following including Litecoin (“silver to Bitcoin’s digital gold”), and other long forgotten competitors, like Feathercoin.
- DeFi smart contract networks: this was pioneered by Ethereum, with those following including Solana, Avalanche and others, who have so far managed to eat into its market share (We would also include Layer-2 networks that optimize and scale-out Ethereum.)
- True world computer networks (the third generation): this was pioneered by the Internet Computer, which can even run AI models as smart contracts, and can add value to blockchains in lanes 1 & 2 using multi-chain functionality. Cypherspace is now cloud. Currently, there are no other blockchains in this lane (NEAR is most likely to gain some characteristics).
Just like Bitcoin pioneered Lane 1, just like Ethereum pioneered Lane2, the Internet Computer pioneers Lane 3. This new lane delivers stunning new functionality, and is fast becoming incredibly important.
For example, Lane 3 can revolutionize tokenomics. When an entire service is built using smart contracts, crypto wallets can be removed from the user experience. Tokens — including tokens from other chains like bitcoin integrated using trustless multi-chain functionality—can be sent using a chat message that is processed behind the scenes as a smart contract transaction. Moreover, token balances can be updated like scores in a video game. This can transform the user experience, and can add enormous value to other blockchain ecosystems too.
Another example is web3 ownership. When an entire service is built using smart contracts (which can include smart contracts on multiple chains), then its logic and data can be placed fully under the control of a new generation of advanced community DAO. These DAOs can have exclusive responsibility for configuring and updating the services. Security is increased, the algorithms become transparent, rug pulls are prevented, and projects can raise funds into their DAO from anywhere when they distribute their governance tokens — democratizing access to the tech economy, and unleashing worldwide talent.
The example set by modern web3 projects that are fully decentralized, like the TAGGR social network (fully on-chain and community controlled) and the Open Chat social network and instant messaging service (fully on-chain and community controlled), and all the other projects that combine full stack decentralization with the decentralization of control using a DAO, light the way towards the web3 future of the internet.
Third generation blockchain can also run AI as smart contracts, bringing intelligence on-chain and making it autonomous. The new possibilities are endless.
The future of cypherspace as cloud is here today, and we are just getting started.
3. Trustless World Computer Multi-chain
TL;DR — The Internet Computer supports a new “chain key” technology, which allows its smart contracts to directly and trustlessly process the asset of traditional blockchains, and interact with their smart contracts (this latter part is pending release). This enables developers to use Internet Computer smart contracts as trustless multi-chain glue. Web3 services can use this technology to achieve full stack decentralization by replacing cloud functionality with Internet Computer smart contracts. Internet Computer developers can develop DeFi 2.0 services and Bitcoin DeFi.
One of the most exciting aspects of the Internet Computer, is that it is powered by a “chain key” crypto engine that allows multiple blockchains to be combined trustlessly.
Third generation smart contracts —“canisters” in Internet Computer parlance — have access to APIs that allows their code to trustlessly and directly maintain accounts on traditional blockchains without the involvement of friction-creating insecure bridges, from which hackers have already stolen billions. The technology is developing fast, and will allow developers to both write code that processes assets on other chains, and interact with smart contracts on those chains.
Chain key will make it incredibly easy to create multi-chain systems and services, and fully decentralize existing web3 services built around traditional blockchains by replacing cloud infrastructure with smart contracts on the Internet Computer.
It’s important to understand where “chain key” technology comes from, because it lies at the heart of the Internet Computer.
The original purpose was to allow its internal subnet blockchains to maintain public keys they could sign messages against, allowing them to interact trustlessly. (The Internet Computer’s “subnets” are transparent organizations within its global network, which seamlessly scale its capacity, which are very different to the standalone private chains often given names like “subnets” and “parachains” on other networks.)
Although subnets can sign messages that can be validated against their public key, the groupings of node machines that form them do not maintain private keys that can be stolen — the subnets themselves acts as the private key, hence the terminology “chain key.”
(For technically-minded readers: When a new subnet is formed by the Network Nervous System/NNS, its ICP protocols use a NIDKG, or non-interactive distributed key generation sub-protocol, to trustlessly establish a “threshold” cryptography scheme in which each node holds a “private key share.” Using these shares, nodes can create “signature shares” on messages, which, when shared in sufficient numbers via P2P between themselves, can be combined to create a final signature that validates against the subnet’s public key. The private key shares are constantly “reshared,” which causes old material to be erased and re-created, without changing the public key, making it infeasible for “adaptive adversaries” to progressively collect key material from compromised nodes until they can forge signatures. The Network Nervous System signs the public keys of new subnets, authorizing them to interact with other subnets, to scale-out the network. Individual subnets scale their signing, for example on transaction results, using structures in the style of “Merkle trees.” If a message has a valid signature, which combines threshold signatures with hash paths, then this informs the recipient both that it was produced by a correctly functioning subnet, and that it was not tampered with during transmission).
Over the past couple of years, DFINITY has been working to extend the chain key engine, so that smart contracts can create unlimited numbers of public keys for their own use, for which they can sign signatures using chain key APIs.
Chain key now supports public cryptography schemes, such as ECDSA, which traditional blockchains such as Bitcoin and Ethereum use. This enables Internet Computer smart contracts to create accounts on those external blockchains, and sign their transactions.
Further support will allow Internet Computer smart contracts to directly interoperate with chains like Solana, and things like Bitcoin inscriptions and BRC20 tokens.
To make things seamless, the Internet Computer’s nodes now directly talk to Bitcoin and Ethereum nodes, making it incredibly easy for developers to leverage those chains. For example, the Internet Computer maintains Bitcoin’s UTXO set, allowing developers to easily send, receive and process bitcoin, without having to deal with that complexity, and issues like finality. Developers will also be able to directly process ERC20 and BRC20 tokens in the same way.
Smart contracts can directly process tokens on their origin chains, but the technology also makes it possible to leverage the huge efficiency of the Internet Computer. This has been realized in the form of trustless high-performance “twins” of assets on other chains. (Thus applying the Internet Computer rather like a Layer-2.)
“ckBTC,” or “chain key bitcoin,” was the first twin working, with support others expanding. These twins can be sent directly to addresses on their origin chains — without a bridge or any other complexity involved — and also to chain key addresses with 1–2 second finality and tiny cost. They can also be directly processed by canister smart contract code.
The Chinese community discovered the power of chain key bitcoin towards the end of 2023, creating more than a million transactions. This is just the start.
Chain key ether, or ckETH, has just been added, and chain key versions of ERC20 assets, such as ckUSDC, or ckUNI, are coming soon. Furthermore, it will also be possible to go the other way, and project ICP tokens such as HOT, say, onto Ethereum in the form of trustless ERC20 assets, so tokens in the Internet Computer ecosystem can be exposed to the liquidity of services like Uniswap.
Canister smart contracts will also be enabled to directly call into the functions of smart contracts on other chains, such as Ethereum — making it easier than ever to achieve full stack decentralization.
In the Internet Computer vision, the “World Computer” shall be composed of multiple blockchains combined trustlessly.
As this technology advances, we will see DeFi 2.0 services, which can resemble CeFi services like order book exchanges, but which are built using smart contracts in the mode of full stack decentralization, and transparently and securely devolve all control to a community DAO. These will enable all crypto assets to be traded, whatever chain they are located on — we can see this starting today with services like https://iclight.io/ (which will be joined by DeFi in more traditional forms, such as https://www.icpswap.com/, which also make use of multi-chain functionality) and even web3 social networks like https://oc.app/ whose users maintain crypto in their accounts that they can send in instant chat messages, which can potentially add other services too.
A new generation of Bitcoin DeFi is also enabled.
The Internet Computer’s multi-chain functionality also provides a way to reform the traditional crypto wallet model around a “brain wallet” paradigm.
Brain wallets will be hugely important in the developing world, where crypto holders face the constant risk of theft. For example, a robber might threaten violence to coerce a crypto-holder to open their phone, and then transfer crypto out from wallets found. Or, a corrupt policeman might do the same at a traffic stop. People need to be able to hold and process crypto without detection.
A nice brain wallet example, which is in alpha, but can probably already be trusted with small amounts of crypto (I do!) is the OISY wallet (https://oisy.com). Currently, this holds native Ethereum assets, such as ether, and ERC20 tokens, directly on Ethereum, but it is being extended to hold the assets on other chains, including “chain key twins,” and assets on the Internet Computer. It is a self-hosted wallet delivered into a web browser in the form of a service.
The wallet is delivered into the web browsers, but is fully compatible with Ethereum Defi like Uniswap thanks to the WalletConnect framework.
Users authenticate themselves to the wallet, which is a smart contract, using the Internet Identity framework. The smart contracts that serve the wallet hold the assets, and sign transactions using chain key.
(Internet Identity leverages private key material held inside the TPM chips embedded into nearly all modern end-user devices, like phones and laptops, to create secure sessions with smart contracts over the web. These key materials cannot be detected without entering an “identity number,” and are inaccessible even to the user, which prevents their theft.)
A user can open the wallet in a tab using their browser’s incognito mode, which ensures their access to assets becomes completely undetectable once the tab is closed. The user’s experience is be greatly improved, their assets are made more secure, and the wallet involved cannot be disabled, modified or blocked by Big Tech (as can phone apps, and web browser extensions).
(Those interested in the crypto asset custody applications of chain key technology, will also be interested to hear about the Orbit project. This will provide an open source canister smart contract framework that any organization can deploy on the Internet Computer to self-custody high-value crypto assets on different chains using a web experience that allows them to define complex rulesets governing their transfer. This framework will enable organizations to create or provide institutional-grade crypto asset custody services for free.)
Chain key goes far beyond asset custody, of course, and also enables developers leveraging traditional blockchains to pursue the full stack decentralization model by replacing cloud and centralized hosting with Internet Computer smart contracts, which can directly and trustlessly interact with the smart contracts on the traditional chain.
We are heartened to see independent developers picking up on this opportunity.
4. AI Models Will Run As Smart Contracts
TL;DR — AI will be at the beating heart of the future Web3 ecosystem. The Internet Computer allows AI to run as smart contracts, on the blockchain itself, delivering game-changing advantages. The Internet Computer is unique in its ability to host AI running as smart contracts.
Recently, there has been a lot of chat regarding the intersection of AI, blockchain and crypto involving everyone from financiers to Layer 1 ecosystem leaders. To my eyes, many ideas derive from circuitous attempts to find value within the constraints of false assumptions about the technical limitations of blockchain networks.
Vitalik Buterin’s recent lengthy article on the subject contains many interesting ideas, but illustrates what I mean.
Some Layer 1s are shilling AI extensions to their platforms, which use misleading language to describe what is really involved, in a similar way our industry sometimes linguistically misuses the word “on” with respect to web3 services.
The Internet Computer will focus people on a much more powerful paradigm, which AI runs on-chain as smart contracts.
I’m really proud that ICP is trying to lead the charge by demonstration: many AIs, or more precisely, AI models such as LLMs, will in fact be crypto. I recently wrote a long-form tweet explaining how this paradigm delivers enormous value and why it will be hugely popular.
In the near future, this will be possible:
- AI smart contracts that can verify a person on video is holding a driving license that matches their face (autonomous blockchain KYC).
- AI smart contracts that verify the code of Ethereum smart contracts, producing a checkmark if they can’t find reentrancy and other bugs.
- LLM AI smart contracts — which enable you to interact with smart contracts using natural language.
- Web3 communities that control AIs through DAOs.
- Ready-trained AIs being traded as NFTs.
Some of these things are only a short while away on ICP, which has already hosted several simple LLMs.
Among the enablers of this paradigm, canister smart contracts can now hold up to 400GB of persistent memory each — which is enough to store the base weights and contexts of substantial AI models. (In the future, new “immutable storage” storage features will be used to store the base weights of models like Llama 2, allowing them to be shared among contracts, reducing the load involved with hosting very large numbers of AI models.)
The Internet Computer project is leaning into AI, and it will be at the heart of web3. This is what DFINITY is working on with partners to deliver for the Internet Computer community:
- ONNX support with optimizations. Support will be added for the Open Neural Network Exchange (ONNX) format, allowing nearly all models to be uploaded, and run as smart contracts, with ease. Several optimizations will enable them to perform inference with surprising efficiency. (We expect this will be delivered soon.)
- Support for CPU acceleration. It will be possible for smart contract AIs to export data for processing directly on the hardware of node machines. This involves optimizations that allow the models to run deterministically, using newly developed fundamental AI science, and security checks that ensure smart contracts can’t cause non-determinism, since this would cause subnets to stop running. (We already have these techniques working).
- Support for GPU acceleration. Building on the work of (2), it will be possible for smart contract AIs to export data for processing directly on GPU hardware. This will involve a new generation of node machines that pack GPU hardware. (We are already playing with a prototype node machine with 4 A100 GPUs, and hope to formulate a new node specification that we can propose to the node provider community via an NNS proposal.)
Our strong belief is that AI will live at the heart of blockchain.
We’re expecting that AI will rapidly become the main consumer of Internet Computer cycles (the equivalent of gas), and chain key will be used to integrate trustless, secure, unstoppable and autonomous AI with traditional blockchains too.
5. 3rd Generation DAOs and “Open Internet Services”
TL;DR — The Internet Computer carries the torch for a vision of an open internet. At the heart of this vision, are “open internet services” that run fully on-chain under the control of advanced DAOs — which provide communities with direct control and ownership, making updates and configurations totally secure and transparent. The paradigm also democratizes access to the tech economy, allowing projects to raise funding from anywhere. Social networks are already running as open internet services, but the paradigm has only just begun.
I believe a majority of new tech startups will be DAOs in just a few years.
In the future, DAOs will partially replace traditional companies, which are organizational structures formed by government-supplied legal frameworks (others include partnerships, foundations, trusts and funds). Their autonomous blockchain logic will provide enormous advantages with respect to things like efficiency, transparency, and the enforcement of rules without recourse to courts.
DAOs will simply be more suitable for our increasingly globalized and technological world.
The role DAOs will be play is broad and starting to emerge. They are essential to the success of the entire web3 and open internet undertaking: they will directly configure, control and govern blockchain networks, web3 services, and much more, in a paradigm where full automation and true autonomy becomes key. But what’s the history that led us to this moment?
To understand the importance of DAO techology on the Internet Computer, you have to start with “The DAO.”
Back in 2016 (8 years ago now, ahem) The DAO was a groundbreaking decentralized venture capital DAO being built on Ethereum that quickly rallied what the largest crowdfunding campaign in history.
The DAO had many flaws, but it will one day be notarized as a seminal moment in tech history.
In May 2016, after The DAO began to collect massive amounts of ether, I was regularly suggesting technical improvements that could be made. (These were focused on algorithms, rather than addressing the use of “curators,” and other aspects of its design, which made it somewhat centralized in nature.)
Working on ways to improve The DAO got me thinking, see https://dominic-w.medium.com/how-the-daos-first-proposal-should-fix-critical-holes-and-secure-150mm-550186668cab#.9agvkbivw. Later I proposed algorithms like Wait For Quiet, see https://dominic-w.medium.com/using-wait-for-quiet-voting-in-the-dao-12ecd9d9ccc3
Scrolling forward to today, the Internet Computer has made it possible to build much more sophisticated DAOs, which make decisions in highly reliable ways, and perform tasks with full automation. Evolutions of that early learning could be applied.
The first signs of this new science, was the permissionless Network Nervous System (NNS) DAO that is integrated into the ICP protocols of the Internet Computer. (This itself was an evolution of the “Blockchain Nervous System” idea I described years earlier.)
The NNS has a dapp, which makes it easy to interact with governance, and the Internet Computer dashboard has a dedicated page providing easy access to its processes.
The NNS allows people to stake ICP tokens to create “voting neurons,” which they can use to vote on proposals manually, or automatically, by configuring them to follow other neurons. As well as coalescing the Internet Computer community around general governance issues, proposals do things like configure new subnets within the network, and push protocol upgrades onto nodes with complete automation — which groundbreaking capability enabled the network to be upgraded 145 times in its first year, ensuring it evolves at a rapid rate.
Today, the NNS supports hundreds of thousands of participants, who have currently locked substantial value inside “voting neurons,” delivering tremendous security, and it currently processes hundreds of proposals a year, in the role of an autonomous trustless community custodian of the network.
It has been proven in production: although the NNS is permissionless, and essential to the functioning of the network, it has consistently processed proposals in a timely way, and has proven highly resistant to governance attacks. The NNS bootstrapped a new generation of DAO technology that is far more advanced than what went before.
The learnings from this technology was used to develop the Service Nervous System (SNS) framework, which allows new DAOs to be spun up that take complete control of web3 services that are built from smart contracts and run on-chain, by making a proposal to the NNS.
Today, SNS DAOs are now being used to run tens of web3 services that have reached a sufficient stage of maturity, with large numbers of projects now working their way towards a state of maturity that will allow them to successfully make a decentralization proposal to the NNS.
After the full decentralization of control, the web3 service runs as a true “open internet service,” helping to realize the open internet dream. Thereafter, the holders of governance tokens become part of an industrious virtual team, which works to advance the project. This is the antidote to Big Tech centralization, the lack of transparency, rug pulls, and the lack of security that web3 services built on cloud exhibit.
As part of the decentralization process, these DAOs can swap their governance tokens for ICP tokens, and soon, bitcoin and ether too, which is thereafter held inside the DAO and can only be applied according to the will of the community.
The process provides a means for projects to raise funds directly from the internet into a community. Today, it is still hard for entrepreneurs and engineers in many parts of the world to raise funds to build their dreams — and the mechanism thus democratizes access to the tech economy, and allows people to succeed from anywhere.
We are already seeing projects hailing from tiger economies, like HotOrNot, taking advantage. As this trend continues to accelerate, it will unleash an army of talent from around the world, because talent is borderless.
I recently wrote a long-form tweet discussing how DAOs on the Internet Computer enable a new paradigm:
6. The Foundations Of A DeFi 2.0 Ecosystem
TL;DR — In a sense, the Internet Computer came to DeFi last, as development focused first on reinventing compute on-chain. Now, new capabilities such as “chain key,” and emerging Internet Computer standards, have been laying the groundwork for a new DeFi 2.0 on the network. For example, Internet Computer smart contracts can now power a new generation of Bitcoin DeFi, and we are now seeing the emergence of full order book exchanges running on the network, which provide secure and transparent CeFi-like functionality in the fully decentralized setting.
Traditional blockchain ecosystems are powered by DeFi, but this far, this has not been the case on the Internet Computer. However, things are changing, and DeFi is set to play a much more important role.
Today, the pan-chain DeFi ecosystem is characterized by meme coins, NFTs, token swaps, staking, and lending and borrowing. Sometimes it can resemble a primordial financial soup that’s a cross between a gambling den for degens and a financial game— which is, nonetheless, spurring innovation that will be incredibly impactful.
So how can it be good for the Internet Computer to be late to this party? Firstly, let’s note how DeFi on traditional blockchain has become fairly generic, involving code that’s often copied and pasted between chains. There are degrees of commoditization and artifice too, with today’s selling points including how low fees are, and how much liquidity there is, which depends on behind-the-scenes activities. These organizations behind these ecosystems even sometimes buy and sell meme tokens to add liquidity and ferment them.
While this ecosystem has been evolving, the Internet Computer has focused on reinventing compute. Now, however, that reinvention of compute can be used to reinvent DeFi.
The stirrings of a “DeFi 2.0” Spring can be felt in recent months and all kinds of interesting things are beginning to happen on the Internet Computer: projects like Bitfinity have created a fast, scalable, super low-cost EVM layer on the Internet Computer, enabling existing DeFi systems can be copied onto the network; projects like ICPSwap are recreating traditional DeFi swap paradigms using native Internet Computer contracts, while adding new twists; projects like ICDex are building fully-on chain order book exchanges (i.e. exchanges that work like Coinbase, rather than Uniswap) that run under direct DAO control; and projects like HELIX markets are building hybrid multi-chain exchanges that support high frequency trading.
All of these services are new, and I predict liquidity and interest will grow.
DeFi 2.0 will offer: higher speeds and vastly lower costs; seamless user experiences that don’t include traditional wallet software and browser extensions; far more privacy; services that run more securely using full stack decentralization; services that fully decentralize control to their communities using SNS DAOs, allowing them to rapidly and transparently evolve in production, while preventing rug pulls and thefts; services that process native assets sourced from multiple blockchains using chain key functionality, removing the need for cumbersome and insecure bridges, while incorporating the extra liquidity on other blockchains; services that provide functionality previously reserved for CeFi because of the compute intensity involved; and services that directly process the governance tokens and economic rails of the world’s first “open internet services.”
People trying to compare the enormous DeFi liquidity on traditional blockchains with the liquidity on the Internet Computer are missing the point. A new DeFi 2.0 is only just now emerging on the Internet Computer, where people had to work out how to leverage its unique technical capabilities. This has taken longer, not least because its smart contracts work in a different way and new standards were required, but it will create a whole new world of opportunity.
7. “Cost Per Acquisition” Can Beat Flywheels
TL;DR — The “flywheel model” involves financiers making inward investments into blockchain ecosystems, to create buzzy announcements that drive the value of their base tokens and create network effects. But what price must flywheels pay to bring developers into their ecosystem? The “Cost Per Acquistion” per developer within the Internet Computer ecosystem is often 100–200X lower, because developers choose to build on the network because of its technology. This advantage is beginning to show.
To understand blockchain ecosystem growth, you need to a) understand today’s prevailing flywheel model, and b) how the importance of “Cost Per Acquisition,” or CPA.
The flywheel model has been essential to the growth of many leading blockchain ecosystems.
As the bull run of 2021 unfolded, VCs joined forces with industry titans that had influence over markets, the press, industry research, social media bot farms, and other hidden levers, directing colossal investments into chosen blockchain ecosystems. The combination of capital and influence made for a formidable combination.
A new “flywheel” business model began to predominate over the old model, which focused on creating organic growth using advanced technology.
The flywheel model looked vaguely familiar in the venture capital world.
Uber, the ride-sharing app, seemed to provide a good model to some: after raising massive financing from investors, Uber was able provide heavily discounted rides, allowing it to grow its customer base, then increasing its valuation, enabling more money to be raised, so that it could provide more discounted rides, winning even more customers, and increasing its value, ad infinitum, in a virtuous circle.
The aim was that Uber would eventually monopolize the ride sharing niche, raise prices, and print money. Could this kind of thing be done with blockchain, for example to create the next Ethereum?
Some flywheels were plain dubious. Sam Bankman-Fried used flywheels to drive the apparent value of otherwise worthless assets he created, so he could justify swapping them for the more stable assets of FTX customers, such as bitcoin and ether. Two that come to mind are Serum, the token for a DEX, whose apparent value depended on Sam to buy the token and support its price, and FTT, a token whose apparent value depended on FTX purchasing them using a promised fraction of its revenues.
When Sam and his ventures stopped, so did his Serum and FTT flywheels. Solana has been called a “SamCoin” because Sam helped lead VC investment into the ecosystem, but they continued in their support, and Solana has gone on to great heights without him.
Flywheels tread a line between good and bad. But the Uber analogy isn’t really applicable.
While Uber’s primary fear might be Musk finally delivering fully autonomous driving, unleashing a storm of robot taxis, blockchains have many more competitors, and disruption can occur on far more technological axes.
Blockchain ecosystems are vastly more complex things, and in flywheel ecosystems, the projects they host are often also flywheels of a kind, which means the force required to sustain them can grow over time if the force is not endogenously derived from their technology and ecosystem activity.
As a result of the flywheel investment model, many blockchain entrepreneurs and developers have become transparently mercenary in search of funds, caring little for the technological merits of blockchains, and simply building wherever they receive the greatest investment.
At DFINITY, we have spoken to innumerable projects who wished to build on the Internet Computer, but ended up building on flywheel blockchains because the organizations behind them, and aligned investors, promised to invest gobsmacking sums to bring them onboard. Sometimes, these ventures would have struggled to raise even angel money, but received tens of millions of investment.
However, when projects choose to build using less suitable technology in exchange for funding, additional money will eventually be required to keep them there. Keeping the flywheels spinning can become more and more expensive.
We have seen blockchain organizations become the sponsors of world-beating racing car teams, top Premiership soccer teams, and racing yachts, with one paying $50 million to get their logo onto a yacht’s sail, which you can hardly see. Some organizations even pay enterprises tens of millions to build things on their chains, which enables them to loudly declare to the world they had been selected (Starbucks was famously involved in such a deal). This is not sustainable growth.
So what makes for more sustainable and organic growth?
The key statistic is Cost Per Acquisition (CPA).
To calculate the statistic, we measure the sum of direct investments and capital inflows into an ecosystem, and then divide it by the size of the ecosystem (for example, as measured by the level of developer activity). The lower the number the better, since growth is less dependent on inflows of capital.
The DFINITY Foundation has only disbursed about $17.4 million in developer grants since launch, with some angels and brave funds investing more to help projects get to a place where they can decentralize control. But during the bull run, flywheel ecosystems benefited from billions in inflows from titans and aligned investors.
Despite this, developer stats are telling a different story to the one you might expect:
We calculate that the Internet Computer’s developer CPA is 100–200X lower than that of some leading blockchains. I recently talked about CPA in a long-form tweet:
As more and more investors turn their attention to the Internet Computer ecosystem, inflows will create massively more growth because of the low CPA.
The developer stats you see today only hint at what will happen as the winds continue to change.
8. ICP hubs, Web2 Developers, and Tiger Economies
TL;DR — The Internet Computer community has been decentralizing around ICP.hubs, which are independent, and leverage local connections and knowhow, while thinking globally. There are already 20 hubs, and the number is expected to double through 2024. The real battle for developers has only just begun, and will involve a battle for the hearts and minds of web2 developers, and in particular, developers in tiger economies, who will choose according to technology, and leverage decentralized fundraising rails on the Internet Computer.
ICP.hubs are independent organizations sprouting around the world to collect, engage and connect those developing on the Internet Computer.
I tip my hat to the people involved in bootstrapping the decentralized hubs ecosystem at DFINITY, and those taking on the challenge of running hubs around the world.
Many hubs are developing fast, and building our ecosystems of entrepreneurs, developers, and investors looking to get involved. They are not funded by flywheels, and are sustainable forces, which think globally, while leveraging local connections and know-how.
The low CPA I described in the previous section, is being driven lower by these hubs. Today, there are 20 hubs in different countries, and we expect there to be more than double that number by the end of 2024.
Crucially, ICP.hubs are successfully engaging Web2 developers, as well as developers already in Web3.
We see this as being incredibly important in emerging Tiger economies such as India, which contain vast numbers of talented developers and highly driven entrepreneurs, who often have a relentless determination to succeed — many of whom are now working their way towards creating fully decentralized projects using the SNS framework.
A great example is HotOrNot — a project I expect to astound us all with the forthcoming iteration of their service, which I glimpsed a few days ago. They may become one of blockchain’s massive multi-million user breakout “open internet services.” Their success building an incredible web3 service, raising funds first from angels, then decentralizing control using an SNS DAO, is already encouraging others to follow in their footsteps.
Blockchain is borderless, and armies of developers will enter the industry from all around the world thanks to ICP.hubs.
9. The UTOPIA Project/The New Growth Engine
TL;DR — Internet Computer (ICP) technology is being used to create a new private cloud technology for enterprise, which will drive value back into the Internet Computer ecosystem in multiple ways, and create a powerful new web3 business model.
Some Solana leaders have described blockchains as “cities striving to become civilizations.” This is a poetic and beautiful meme, which meshes with history, since civilizations are built using capital, just like their ecosystem, and plays to their strength developing culture and a sense of belonging. Gathering people around inward investments, they have built a tribe with an unrivaled culture — which the Internet Computer ecosystem must learn from.
However, with respect to the enterprise domain, the ability of blockchain technology to solve their problems is what will matter. The application of Internet Computer technology within this sector will greatly increase its total addressable market (TAM), creating network effects, and increasing its energy. This is where the UTOPIA project brewing in the wings is about to become very important.
UTOPIA is a virtual sovereign cloud technology, which makes ICP technology work for new domains — specifically for enterprises, NGOs, governments and militaries, who cannot build on the public Internet Computer network, and even web3 projects with have special technical needs. Each UTOPIA is a standalone network with its own secure management framework.
(For those interested, UTOPIA stands for Unstoppable Tamperproof Open Platform for Independent Autonomy.)
Each “UTOPIA” is essentially a private ICP network that acts as a sovereign serverless cloud that maintains data. The network is tamperproof and unstoppable, and allows systems and services to be built using advanced smart contract software frameworks that are also tamperproof and unstoppable, which can still be integrated with traditional IT infrastructure.
Naturally, UTOPIAs will also able to run AI models, just like the Internet Computer, addressing emerging enterprise needs for AI security and resilience.
Broadly speaking, the technology addresses all the fundamental challenges facing IT today. This not a niche play.
A UTOPIA cloud can be spun up over nodes that are either running on traditional cloud instances, or hardware run by the operator. Nodes can be added and removed at will using the management framework, without interrupting the UTOPIA cloud and its hosted services, freeing its operator from being the captive customers of IT infrastructure services.
The cloud they create is totally sovereign, and the owners can decide exactly where the data and processing of their systems and services lives, which they can change at will using their management framework.
Because the technology is open source, UTOPIA operators can be sure there are no hidden backdoors or kill switches, which is important for government and enterprises that need to exclude foreign powers and create truly sovereign infrastructures.
A UTOPIA network can be conceptualized as a robotic spider, whose legs stand on nodes (such as a Google compute instance, or a dedicated server machine) that hosts a serverless cloud on its back, which hosts secure and resilient services — which don’t even need the protections of fallible cybersecurity measures like firewalls.
If a node fails, the ICP protocols that power the spider, cause it to lift its leg automatically, while hosted services continue to function correctly. This holds true even when a node is commandeered by an all-powerful adversary, such as a hacker, who can corrupt the data there and change the behavior of the node — which will immediately cause the spider to lift its leg automatically, without falling over.
The paradigm of cloud created by a mathematically secure network addresses the great IT challenges of our times. Cyber crime is forecast to cost the world more than 10 trillion in a year’s time, in a trend that is being accelerated by advanced AI. UTOPIA makes it possible to build systems and services that are hackproof, and far more resilient.
Furthermore, IT personnel cost the world 1.8 trillion dollars last year, and most of their time is spent navigating complexity of traditional IT, rather than focusing on what systems and services do. The new serverless smart contract software model supported by UTOPIA clouds greatly reduces the complexity involved in R&D and system maintenance, unlocking huge productivity increases.
Because ICP smart contract software can serve interactive web experiences, without need for web servers and related systems, and maintains data without need for databases, and other platform software, UTOPIAs can also address the almost 1 trillion dollars a year that is being spent on software licenses.
(A recent USENIX paper explains how Internet Computer technology creates serverless cloud functionality.)
UTOPIAs can also be applied in numerous different ways. For example, they can create a consistent data and compute layer that glues together pre-existing traditional IT infrastructure built across different clouds, co-location centers, and on-premises data centers — providing “multi-cloud functionality.”
I recently shared screens of a recent UTOPIA prototype in operation.
It will be possible to register UTOPIAs with the Internet Computer’s Network Nervous System, by paying a fee in ICP tokens, which will be burned. Once this is done, fine-grained permissions can be specified that allow hosted systems and services to interoperate with other UTOPIAs, and with systems and services on the public Internet Computer (in a restricted way, which protects the guarantees that only a decentralized public network provides).
UTOPIAs will act as private extensions to the Internet Computer, bolstering and extending it.
Network effects will result: developers building within the public web3 ecosystem, who are tired of being entrepreneurial, will be able to choose to work within the enterprise ecosystem, and developers who are tired of working within corporate environments, will be able to become web3 developers or entrepreneurs. Internet Computer skills will become more valuable than ever.
Equally importantly, UTOPIA technology will unlock an entirely new business model for web3 developers.
The recent demo shown in the tweet included the installation of a repackaged version of OpenChat on a UTOPIA, in the mode of a private and sovereign version of Slack—which can for example solve for the needs of government and NGOs that don’t use such services because of their inability to provide guarantees regarding security, resilience, privacy and sovereignty of their communications data. There is already great interest.
The developers of services installed on UTOPIAs in this mode will be able to provide support services commercially — in a game-changing business model.
We see source code licensing being updated to require that anyone who modifies or comments on the open source code of a web3 service, and then sells support services to those running private copies, forward 10% or more of the revenues they earn directly back to the DAO of the web3 service involved — in a new paradigm that will act as an incredible engine of web3 and open source development growth, the likes of which have never been seen before.
Because Internet Computer technology broadly reinvents compute, it will be applied far beyond the web3 ecosystem, driving value back.
Here’s a sketch of a UTOPIA logo I like. You’ll hear much more about UTOPIA in 2024.
10. Internet Computer Culture
TL;DR — Internet Computer culture is unique, and was born in the fire of its colorful history and the immense R&D effort that created the network. It is focused on delivering real world value and impact and will achieve global scale within the web3 sector and beyond.
Internet Computer culture is global, diverse, technical in nature, and defined by camaraderie rather than tribalism, which reflects the nature of the project.
The community also carries ideals and aims that come from the earliest days of blockchain, and there is an increasing awareness that the project is doing something special.
The technology involved, and the new paradigms it enables, such as full stack decentralization, trustless multi-chain, and open internet services, can deliver impact and change that addresses pressing real-world problems. These range through solving for cybersecurity and resilience challenges, to making the development of compelling open experiences easier, to democratization access to the tech economy, unlocking global talent, giving web3 internet communities real power and ownership, and creating impactful new business models.
The extraordinary pressure placed on the ecosystem by adversity, has distilled the community, leaving people who are on a mission, who are quietly but relentlessly building with passion — because the success of the ecosystem is inevitable.
There is no other network that is the product of more than a thousand person-years of R&D effort, and today the Internet Computer provides the technological leverage to drive highly impactful change.
Our community is very inclusive and open, and welcomes newcomers. The Internet Computer project has already traveled an enormous distance, but this is still just the beginning.
We invite everyone to join our movement and our mission.
