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Disrupting the Disruptors

Technology founders are often obsessed with disruption, and the reason why is obvious. Disruption attracts venture capital. It generates massive amounts of money. It defines the biggest winners of previous generations. Lyft/Uber, Amazon, Craigslist, Netflix, Airbnb, and Facebook all either devastated previous industries or furthered the ongoing devastation of industries that were already going down like the Lusitania. They "disrupted" taxis, brick-and-mortar retail, classified advertising, video rentals, hospitality, and interpersonal communications, media, and advertising respectively. They also made their founders pretty wealthy in the process.

All but one of them has had issues, however, in the long-run. Lyft and Uber are still having issues achieving profitability, and are no longer cheaper and better than taxis, but at least the drivers make less money of the greater fee you pay. Craigslist has had its share of issues with connections to sex trafficking, which has, in turn led to other issues. It also had an increasing amount of competition from other marketplaces such as Facebook's. Netflix is in crisis due to the increased competition in streaming and the difficulty securing the older prestigious content. COVID did a number on Airbnb from which it will probably never recover. Facebook was in so much trouble that it has rebranded to Meta to create better press for itself.

That's why everyone is so into Web3. Web3 promises disruption constantly. Cryptocurrency is based on a promise to disrupt cash. NFT's are promising to disrupt everything anyone can think of to disrupt. This has included collectibles and videogames (as promises, though neither promise has been delivered upon). Current promises include medical research, real estate, and public records. No one working in Web3 ever acknowledges the forces at work that will resist this, or the limitations on the technologies that are likely to hamper any of this promised disruption.

The truth is that disruption requires mass adoption, and mass adoption requires managable transaction fees, rapid transaction time, a medium with a reliabile valuable, and the ability to transact business through mediums widely available such as checking accounts, credit cards, wired funds or similar means. Crypto is still far from widely adopted or available, its transaction fees are high and unpredictable. Transactions can take hours or longer, and cryptocurrency is so volitile that its value can change between when the transaction begins and when it ends. This has created the need for an entire type of currency whose whole purpose is to avoid the volitile value, stablecoin. This has led to new regulations on stablecoin.

One recent regulation in the State of California only permits licensed banks and similar financial institutions to issue stablecoin. So this "disruptive" technology that is supposed to break the stranglehold banks have on money has, instead, resulted in another means for banks to profit on transactions. In this case, transactions the whole purpose of which is keep off of bank ledgers.

I'm not calling Web3 a bad idea categorically, or even say disruption is always a mistake. But disruption shouldn't necessarily be the goal of all companies, not that disruption is the sole desirable end of any startup. I also think disruption is a bad goal for blockchain companies. I think disruption is a bad goal for any company whose technology isn't either there or clearly going to be. And here's the reality, there are people saying that blockchain just needs the technology to catch up, but decentralized computing is inefficient by definition. Tesla had inventory control for its factory in Hayward on a decentralized database. Said database was on three systems. The system was so slow and inefficient that it has been abandoned. Anecdotes are not necessarily evidence of a position, but this is a clear parallel of inefficiency given the relative simplicity of Tesla's system over what blockchain is trying to do. Tesla is a single company. It was tracking inventory for one factory. That factory was building cars that are much simpler in terms of the components that keep them running than any other company's cars.

The number of parts, pieces, people, players, and things that were being tracked by Tesla were nothing compared to the number of financial transactions performed on any Black Friday. And Tesla was running its database on three computers. A large blockchain like Etherium requires a lot more than three computers and a lot more transactions than the number of parts transactions that happen in the Tesla factory per day. Every time you increase the number of transactions or computers it becomes more complicated and, as transactions get more complicated, all of the problems I noted above become worse.

Now, when you talk to the proponents of the "Future-is-Blockchain" theory of reality will respond to these facts by saying those are all issues with the technology that will be fixed. That would be true if the problem with the technology was a lack of processing power or information transfer speed. That's why a company that worked just like YouTube wasn't viable in the early aughts, but YouTube was so successful in 2005 that it sold for 1.65 Billion 18 months after it was founded. Lack of transfer speed or processing power are not the issue though, it's the inherent complication in the nature of blockchain transactions. When you need literal hundreds of computers to signal to document every transaction that has ever happened, you are going to find that every transaction gets bogged down by that. It creates a string of transactions every time someone wants to do anything. Each transaction chain is then delayed to wait until the transaction before it is completed before it can execute.

Transactions get backlogged, things back up, and there are inevitable delays. Pretty soon, nothing is working. There is no fixing that without taking the extra computers out of it, and once it's not a whome buch of computers, it's not blockchain, it's just block.

I think there are use cases for the technology. But I think the technology is best used for purely localized, preferably intra-organizational applications. Outside of those, the technology isn't just not-ready-for-prime-time.

It's the wrong technology.

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