Cryptonetworks are networks built on top of the internet that: 1. use consensus mechanisms such as blockchains to maintain and update state, 2. use cryptocurrencies (coins/tokens) to incentivize consensus participants (miners/validators) and other network participants. Some cryptonetworks, such as Ethereum, are general programming platforms that can be used for almost any purpose. Other cryptonetworks are special purpose, for example: - Bitcoin is intended primarily for storing value, - [Golem](https://golem.network/) for performing computations, - [Filecoin](https://filecoin.io/) for decentralized file storage. > They keep state well, perform arbitrary transformations on that state and provide economic inventives for improvement & maintenance ### Key difference vs centralized networks - Stay neutral as they grow and prevent the bait and switch of centralized platforms 1. Contract b/w the cryptonetwork & the participant is enforced in open source code 2. Participants are given a voice through community governance (on-chain - via the protocol) and (off-chain via the social structures around the protocol) Participants can exit either by leaving the network and selling their coins, or in the extreme case by forking the protocol. > In short, cryptonetworks align network participants to work together toward a common goal — the growth of the network and the appreciation of the token. ### Cryptonetworks Limitations Today’s cryptonetworks suffer from limitations that keep them from seriously challenging centralized incumbents. The most severe limitations are around: **performance and scalability.** The next few years will be about fixing these limitations and building networks that form the infrastructure layer of the crypto stack. After that, most of the energy will turn to building applications on top of that infrastructure. ---- Cryptonetworks are Decentralized Information Networks co-ordinated by a scarce, programmable digital asset, who's supply is programmed and enforced by a blockchain or similar consensus network ## Differences - **Providers:** A network of independent peers, provide the services and collaborate to provide some utility in exchange of the tokens (vs central web services) - **Users:** To consume the services, users must hold and spend the tokens - **Tokens: **Tokens are priced by the market and freely tradable on exchanges, with value increasing with usage Open Technology Stack: - hardware - software - network - data Crypto collapses the cost of building and scaling information networks by replacing centralised co-ordination with universal financial incentives. Near zero capex for innovators. > Inefficiency of the joint-stock equity model in accounting for and distributing the real value created by online networks. The value of a share of stock is necessarily a function of profits ### Opportunity Crypto provides a **new mechanism for organizing human activity** on a global basis using programmable financial incentives. It’s an opportunity to **design information networks** which can achieve unprecedented levels of scale by: - decentralizing the infrastructure, - open sourcing the data, - distributing value more broadly. ### Value shift **Decentralization** and **standardization** at the data layer of the internet is collapsing the production costs of information networks, eliminating data monopolies and creating a new wave of innovation Shift of value away from equity in companies to tokens in decentralized networks. ### Market Structure - Infrastructure Protocols - Discrete services most useful for developers - The tokens within these protocols provide access to important components such as identity, compute, storage, bandwidth, transcoding, and so on. - At this layer we find low-level blockchains which are differentiated by scale, security and consensus mechanisms. - Some protocols are built on top of these low-level blockchains, providing an additional service provisioned by a different network of ‘miners,’ but using an underlying low-level chain for enforcing cryptoeconomic consensus. - For example, Bitcoin and Ethereum both have their own blockchains, while Filecoin, 0x and Aragon use Ethereum’s blockchain as infrastructure for their tokens. - [[DApps]] - Dapps rely on infrastructure protocols for key functionality but tie everything together with their own token. - They compete on the basis of community, governance and cryptoeconomics. - User Interfaces - For example, while Steem offers a decentralized Reddit style service as a dapp, there are other interfaces that also leverage Steem’s open data to provide their own interface. Similarly, Coinbase offers hosted wallets with additional buy/sell functionality. Wallets, mobile apps, exchanges, etc. fall into the interface category. They typically employ traditional business models such as advertising, transaction fees or subscriptions. Financial value and investment returns are distributed as described in Joel’s 2016 work on “Fat Protocols”: **tokens at the protocol and dapp layer** where services are decentralized and the data 5 is open source accrue significantly more value than the end-user interfaces on top, and provide the highest-leverage opportunities throughout the stack