How Crypto Will Reshape Capitalism As We Know It

Cryptographically jumped peer-to-peer networks (henceforth called “crypto” for short) are likely to be one of the defining technology of our lifetimes. They allow fundamentally new forms of social organization.

After you “get” crypto, you’ll know how crypto empowers a new kind of social arrangement. I’ve tried to – and failed – to describe this concept to many men and women. Knowing the deepest and most profound consequences of crypto could be difficult as crypto challenges several basic tenets of modern social structures as well as capitalism.


A number of the best businesses in the world claim to be peer-to-peer (P2P) networks. These networks connect demand and supply in ways that was never possible before.

But there lots of other people: Apple joins programmers to customers, Amazon connects merchants with consumers, Google joins website owners to searchers, insurance companies and banks connect their customers through pooled capital.

Networks that link latent distribution and demand would be the basis of the economy. These networks have generated tens of trillions of dollars of financial value. These programs grow to be huge due to network impacts. After a system achieves critical mass, it becomes nearly unstoppable.

But there is a problem.

These networks aren’t really peer-to-peer, despite the fact that they claim to be. Instead, they are mediated by network operators, who levy a tax on network participants. Some of this tax is absolutely necessary.

But one portion of this tax isn’t necessary: gains (queue Uber jokes).

In time, all system operators become rent seekers.

When crypto libertarians talk about “trustless” commerce, they are talking about cutting out the middlemen and lease seekers: the community operators. They’re speaking about connecting network participants to one another – both consumers and businesses – with no middlemen extracting rents.

This can be hard to envision. Without a system operator, whose heading to build the program? Who’s going to run the servers? How are customers likely to join together? Who defines the rules of this transaction? How can you ensure equitable payment? Who oversees refunds, testimonials, and customer service?

The short answer: trustless, cryptographically bound network protocols.


Let’s walk through four increasingly subjective examples to illustrate this.

A significant majority of the planet’s computing resources (compute, storage, and bandwidth) are unutilized at a given point in time. Client and business hard drives lay largely vacant, and CPUs hum together at 3 percent use. That is bonkers.

Document owners can always retrieve files, and the people storing the documents have no clue what they are storing. At a high level, this is achieved this in a remarkably simple way: using standard file encryption, Shamir sharding, and distributed hash tables for content-based addressing.

Each protocol produces a marketplace where individuals with unused storage space and bandwidth can compete to store other people’s documents and generate income. Because these protocols leverage people’s surplus storage capacity that would otherwise sit unutilized and generate $0 revenue, these protocols will offer storage that’s much less expensive than that offered by large data centers who buy storage with the intent to let it out. I won’t dive into things like enterprise-grade support in this informative article, but it’s well worth noting that these protocols are designed to allow organizations to compete value-added layers such as support.

Each one of these protocols is really peer-to-peer. You save your content on other people’s hard drives. You do not have to care for who shops them. You store your files on the network and you pay the system.

Golem and Elastic do basically the exact same thing but for compute instead of storage.

For storage and compute, the mega opportunity is not “decentralized Dropbox.” Most people are about the free grade of Dropbox! The real chance for these protocols is in powering Internet programs. In time, most (possibly all?) Programs — to do lists, note taking programs, chat apps, finance apps, etc. — won’t need to run at a private data center; rather, apps will run on the worldwide mesh network of everyone’s computers.

What exactly does that mean? Let us contrast it with a famed centralized target market: Las Vegas sports betting.

Vegas casinos require about 10 percent of total stake quantity as a fee, called the take rate. They justify this fee by stating it’s crucial to arbitrate the outcome. You’re paying the casino 10 percent for three things: 1) to act as an escrow, 2) report who won the match, 3) and also to distribute proceeds to the winner. This shouldn’t price 10%. That is insanity.


The problem with a decentralized forecast market is that if nobody is in a room somewhere flipping a change to say who won the match, how can you solve the wager? You can’t simply leave it up to a vote of marketplace participants. If the likelihood of a bet are 9:1 along with the 1 ends up winning, then you do not want the 9s to simply outvote the 1s.

Exactly what Vegas does for 10%, the Augur protocol will do for approximately 1%. Network participants in the Augur system, $REP holders, will be compensated by the system to truthfully report event results.


The Augur system runs on clever contracts. Basically, smart contracts act as trustless escrow services which are obligated by code (no human intervention) and release money according to some predetermined criteria. You will not bet bets in the Augur network using Augur’s native’s REP token. Instead, you’ll bet stakes in other cryptocurrencies like Bitcoin and Ether. Services such as Oraclizewill automatically relay the outcome of the basketball game from to the Augur intelligent contract. Together with the score of the match, the smart contract will resolve the wager and distribute the funds to the winner.

If a person who was on the losing side of this wager considers that was wrong (e.g. it was hacked) or that Oraclize manipulated the data, they could challenge the outcome by staking more money. At this point, the Augur smart contract asks REP holders to vote on the results of the baseball match. If REP holders vote in a way that overrules the challenger, the challenger loses the bond put up to initiate the battle. Furthermore, REP holders who vote “incorrectly” – defined as people who vote against the majority of REP holders – also lose some REP. Thus, bet-losers are just incentivized to challenge the outcome reported by Oraclize should they think the majority of REP holders will report a different outcome than that reported by Oraclize. The same goes of REP holders: they are incentivized to vote in ways they believe the rest of the REP holders will vote.

Crypto Currency Advertising Networks

Even if REP holders did collude and intentionally misreported an event result, people would lose faith in the Augur community and the worth of REP tokens would plummet, harming the colluders.

All this logic is managed from the Augur protocol, which lives on the Ethereum blockchain. No one on the planet, including governments, can get rid of this wise contract or adjust the rules of this protocol. The protocol is similar to chemistry. You can’t violate the laws of chemistry.

Leave a Reply
