April 25, 2018

Good Artists Copy. Great Artists Steal.

by Kyle Samani

Cryptocurrencies and blockchains are not yet mature. Like computers from the 80s and 90s, although they technically work, they’re fragile in practice. As such, most of their users are technical, and tend to focus on technical challenges rather than go-to-market challenges.

The technical people building these systems tend to believe, either wholly or at least partially, “if you build it, they will come.” Against all odds, this actually worked for Bitcoin after its creator left the project without providing any future guidance in 2011.

Many think this was also true for Ethereum, but this is patently false. Despite being worth hundreds of million of dollars, Vitalik Buterin, the leader of Ethereum, basically lives in an airplane, flying around the world evangelizing, even though he obviously prefers deep research over public speaking. He works insane hours while perpetually fighting jet lag. While building what would be the first release of Ethereum, he somehow found the time and energy to learn Chinese in an effort to bring Ethereum to China. Beyond Vitalik’s evangelizing, the Ethereum Foundation pours resources into grassroots community building around the world.

People did not just organically come to Ethereum. The Ethereum Foundation brought Ethereum to market.

Given that all of these technologies are fundamentally open source, competitors will begin to copy one another’s code much more aggressively, and turn foundations’ own platforms against them. This is accelerating. In approximately chronological order:

  1. Litecoin forked from Bitcoin.
  2. Monero forked from BitMonero, which forked from Bytecoin. Today, Monero is the most widely used and most valuable privacy coin. Bytecoin and Bitmonero have been relegated as footnotes in crypto history.
  3. Ethereum forked in the wake of the DAO hack, leaving Ethereum Classic, a directly competitive smart contract platform with identical feature set, in its wake.
  4. Zclassic forked from Zcash, removing the founder reward.
  5. Bitcoin Cash forked from Bitcoin, splintering the community, code-base, ledger, and ASIC hash power.
  6. The Ethereum team worked with the Zcash team to bring SNARKs to Ethereum, enabling Zcash style privacy on Ethereum.
  7. Cosmos is making it simple to spin up an Ethereum VM (EVM) on top of their Tendermint consensus algorithm, with the express purpose of drawing Ethereum dapps to build on Ethermint chains in the Cosmos universe rather than on Ethereum directly.
  8. ForkDelta forked EtherDelta, and in just a couple of months, appropriated nearly all of EtherDelta’s liquidity.
  9. Bitcoin Private forked Zclassic and Bitcoin, bringing SNARKs to the Bitcoin ledger.
  10. Hedera Hashgraph, an Ethereum competitor, adopted the EVM in an attempt to co-opt Ethereum’s development community.
  11. Monero has recently undergone two forks, MoneroV and Monero Classic.
  12. EOS, an Ethereum competitor, is continually placing downwards price pressure on Ethereum by selling its massive hoard of ETH into the market.
  13. WAX is forking the EOS software to launch its own WAX chain.
  14. Multiple sets of block producers will launch EOS chains, not all of which will adhere to the EOS ERC20 token distribution.
  15. People are already discussing using EOS software inside of Ethereum plasma chains.

And these are just some of the publicly known examples. The pace of copying, forking, and stealing is accelerating. There will be hundreds of examples by the end of 2018.

Given that all open-source code can be copied without permission, achieving network effects as quickly as possible is the only thing that matters. Achieving network effects is mostly a function of go-to-market strategy and execution. Therefore:

The logical conclusion is that the key to long-term, sustained success is go-to-market strategy and execution, and that technology and product are almost irrelevant.

For almost all crypto teams, this should be a scary thought.

I suspect if you asked every crypto team “Which function is strongest in your organization, technology and product, or go-to-market?” less than 1% would say go-to-market.

How might this play out in the real world? Some simple examples:

  1. Let’s say that threshold relay, invented by Dfinity, comes to be recognized as the best consensus model in that it most elegantly solves the scalability trilemma. At that point, EOS could rip its DPoS consensus algorithm out and replace it with threshold relay. It wouldn’t be trivial, but it wouldn’t be inconceivable either. (As a point of reference, a single Apple engineer ported Mac OS from PowerPC to Intel. If one person can literally rip-and-replace the metal and instruction set underlying an OS, a small team can rip-and-replace the consensus layer.)
  2. A stablecoin starts to achieve meaningful success. The stablecoin team sets its sights on large scale merchant adoption. They reach out to Square as the ideal distribution partner. Square takes the battle tested code and economic model, and deploys its own stablecoin, keeping a large fraction of the “equity” of the stablecoin system for itself.
  3. Telegram published a laughable 130-page paper asserting that they would solve every major technical hurdle in crypto: privacy, scalability, distributed compute and storage, incentivized bandwidth routing, and more. Telegram doesn’t need to create any of these technologies in-house. Rather, they’ll just steal from the teams that solve these problems, each of which is a massive undertaking. Then they’ll incorporate other people’s open-source technology into the Telegram app, which has over 200Mmonthly active users (MAUs). Moreover, Telegram will literally print money — their own proprietary currency — to incentivize behaviors and accelerate adoption.
  4. See #3, but replace “Telegram” with “Facebook” or “Snapchat” or “Android” or “iOS.”

Competing with incumbents who have massive distribution advantages is going to be incredibly difficult. In most cases, this will require raising a tremendous amount of capital, and deploying it aggressively to bring protocols to market.

As it turns out, software doesn’t bring itself to market. People have to bring software to market.

Up until this point, most of the entrepreneurs who got into crypto were largely ideologically driven. But the next wave of entrepreneurs and executives getting into crypto are not ideologues. They’re experienced operators who know how to bring software to market.

Over the next few years, we’re going to see many teams get wiped out by competitors who literally steal all of the inventor’s technology. The hedonic treadmill that is capitalism dictates that this will happen. It’s going to be brutal.

There is already precedent for this. The concept I’ve described above is Rocket Internet’s business model. They watch for teams that achieve product/market fit in the US, and then fast-follow in Europe. Their model works.

As crypto matures, expect to see more Rocket Internet clones (oh the irony). Given the open-source nature of crypto, it will be even easier to copy protocols than companies.

Teams need to prepare to ramp up go-to-market functions aggressively as soon as they’ve achieved product/market fit. Fast-followers will use inventors’ tech to try to beat them at their own game.

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