The recent seemingly mass adoption of decentralized apps and ICO is really concerning. Please accept my apology if you’re a founder legitimately working on one. But this post is going to be a great rant of mine.
During conferences, I’ve been hearing people talk about the future of software decentralization, as if it is some kind of silver bullet that will magically make everything better.
It is eerily similar to the race to make clones of Groupon or Uber with some small twists. What’s the difference this time? Why would you want to decentralize any kind of application?
There’s really only 1 good reason.
NOT TRUSTING CENTRAL AUTHORITY / AVOIDING CENSORSHIP
Decentralized apps are really only good for this one purpose. It works in a way that does not rely on any central authority, because as a user, you don’t trust any central authority with it.
Given any other aspect, decentralized software sucks. It is already hard enough to write good software without having to cater to all the requirements needed to make things decentralized.
Decentralized apps suck?
If you are not a software engineer, this might not be obvious, but decentralized apps are worse than their centralized counterparts, for very logical reasons. When you do decentralized apps, in order to make things decentralized, you have to make huge trade offs.
Developments are slow, for example. Since it’s decentralized, your app is out in the wild and security is now a major concern. With centralized software, you can take just a little care. Going decentralized means there’s no “move fast and break things”. One wrong move and it could be extremely costly.
Have a hard time scaling normal apps? It’s much worse with decentralized apps. Why do you think it’s taking so long to scale Bitcoins or Ethereums, while Visa or Paypal have long achieved much higher throughput? Things are extremely inefficient in the decentralized world. Instead of having a couple of copy of your data, you have a network of them.
The User Experience is terrible. I’m slowly coming to the conclusion that nobody is really even trying to solve UX problems for decentralized apps. Maybe because the other problems are already hard enough and way more important. If you just look at even the most basic case, comparing someone trying to keep crypto in their own wallet, versus someone having a bank account. It’s been ~10 years since Bitcoin was invented, and what’s the situation today?
Wallet interface is still ridiculously cryptic. I thought banks have crappy UX. It’s still way better than most wallet interface.
Securing your private key is still a major problem. Lose the key and your funds are lost forever. So you better know where your key is. At the same time, you have to keep it away from other people. There’s no bank to secure your funds for you, so now you’re doing it yourself.
Good luck to you if you aren’t technologically inclined. Actually no, given hacks as sophisticated as the MEW DNS hack, I doubt even I would stand a chance if I was using MEW. There’s just very little user protection.
Finally, since we already remove the central authority, the software has to solve the question of governance. You’re relying on software to possibly mediate disputes and situations for you. I’m surprised many people don’t immediately see how this can be a problem. Let’s just say that the world is not black and white like in code.
What about removing middlemen?
I keep hearing about this argument. Removing the middlemen, taking away the fees, the ads, and therefore everybody wins! What a great promise. Except, we have to understand that it is what it is: A promise.
After all has been said about the challenges of creating decentralized apps, we are going one step further to remove a revenue source, making it even harder for the business to earn revenue as they pursue a tough route ahead of them. Oh, and they also don’t get to keep any users data because that would be against the idea of decentralization. Not a great competitive advantage there.
Without a valid reason to choose a decentralized app over a normal app, most people would choose the better service. Look at Diaspora, once a great promise of a Facebook decentralized alternative.
Why decentralized?
So to sum it up, decentralized apps really are a pain in the ass to even consider making. Unless you have this one good reason. Let’s take Crypto assets as an example (or crypto currencies as many may call it).
It’s easy to dismiss Crypto assets if you live in first world countries. But in countries where there’s little trust in the local currency, Cryptos aren’t a bad investment, or at least a hedge. Why? Despite all the previous shortcomings, the fact that it is censorship resistant trumps all. It is the only thing that matters. The governments can’t touch your crypto holdings. The banks can’t just issue a new currency and make your savings worthless. And thus I put up with all the BS I normally wouldn’t just so I can hold some crypto assets.
But I digress. The point is so that you understand what matters in a decentralized apps. And whether or not an app is even worth taking the route. And that most of the time, decentralized apps simply fare worse than normal apps.
So why would anyone want to play the game on Insane mode? Maybe they are playing a different game altogether. Let’s take a look at ICOs.
Understanding ICOs
Initial Coin Offering. Most people know about ICOs by now, but do they really understand what it means to buy into an ICO?
ICO is a type of crowdfunding through crypto assets, similar to Indiegogo or Kickstarter. However, there is a small difference. With Indiegogo or Kickstarter, the promise for your investment was usually the finished product, maybe at a discount, for example. With ICOs, your investment gets you some tokens, and the promise is that the tokens’ values would increase, kinda like investing in stock. This small difference is now being heavily exploited. Ah… the promise of riches…
First thing first, buying ICO tokens is very different from buying stocks in a company. Companies issuing tokens are issuing air to you at no cost. It’s not like shares/stock, where you get a piece of the cake when there’s a liquidity event. There’s no dilution when companies do an ICO vs when they are raising money from investors. There’s also not a form of debt like a convertible note.
It’s free money to the company, i.e the founders.
No contract in place to specify how the money should be spent. No way to sue the founders for spending the money on themselves.
There’s no report or financial data of the company for “investors” to make rational investment decision. No due diligence.
Only promises, hype and promotion. Of course, when the tokens increase in value, the investors reap profits, so there’s good economic incentives for early investors to hype the company even further. Meanwhile the company still holds at least half of the tokens; the product doesn’t even have to make good progress (this is natural, we already talked about how hard it is to make good progress in the decentralized world).
This further stress the lack of economic incentive to continue working once the money is raised. Why bother? Everything is going well, the token gets listed on some exchanges, more people buy into it, we’re playing with the world’s money after all.
But the question remains, what happens when the company die without really producing anything of value? And most of them will.
The founders will have already moved on to their next ICO.
The tokens become almost worthless.
Is it a problem? I don’t know. But hopefully what I’ve written makes it clearer whether you’re making sound investment or wild speculation.
