There's Plenty of Room at the Bottom

Humans, Infrastructure, Government

Vinay Gupta has been called “the original cypherpunk.” He’s an Irish entrepreneur with a background in sustainable thinking and development.

His focus on infrastructure as the role of governments and corporations opens new ways to think about blockchains and bitcoins.

Why, he asks, do we have governments and corporations? Well, if you’re a “mountain man” happy to live in the woods of Idaho, your needs are few and you can solve most of your own problems.

Larger problems quickly exceed our individual capacity. Organizations help us use our collective resources by sharing and coordinating:

• Sharing expertise. We can now use many skills, not just mine.
• Sharing resources: money, infrastructure like buildings or cars.
• Sharing local resources, whether natural beauty or rocks
• Assisting communication, getting people synchronized
• Coordinating by resolving or mitigating disagreement
• Coordinating by providing and enforcing common standards (quality and communication)

So a central organization uses our excess capacity to help solve our shared individual problems.

Small is Beautiful

Now, the size of the coordinating entity - the solution to all these problems - is a function of the size of the problem and of the efficency of the coordinator.

For instance, building places for people to stay - clean, quiet, affordable, warm, inviting - is a big problem. Governments are big, lumbering, inefficient, and hotels are more efficient. When each attacks the same problem, we end up with a larger government than hotel solution. Building government-sponsored housing costs the taxpayer staggering sums; a global hotel chain also costs a lot but much less than government does!

Because governments are inefficient, government bureacracy has to get big.

In turn, the inefficiency of the coordinator drives how much resources are required. We will all need to pony up a lot of money if the one organization that can get the job done must have a lot of financial fuel. In America, this is the classic conservative complaint!

Unfortunately, if we have not got a lot of money, we will make do with small-scale, individual or community-level solutions. For many problems, eliminating coordination just isn’t an option.

A Smaller Solution

If you want to found a billion-dollar company, solve a problem for a billion people, they say. The foregoing suggests one way to figure out how to solve a problem for a billion people: find a coordination problem, and create a way to solve it for a penny per person.

Easy to say, you might think, but almost impossible to do. How can we solve goal and interest alignment, expertise sharing, communication, common standards, in a way that benefits each investor/customer and yet requires that investor to provide almost no money?

Exhibit A: AirBnB provides many of the benefits we require from our coordinator: it shares expertise (they provided expert photos when they first started), and by assistinc communication and coordination, AirBnB helps people share excess resources in the form of all those spare bedrooms the kids moved out of when they went to college.

AirBnB is solving the same large problem, but because AirBnB is much more efficient than government or hotels, they are much smaller and we each have to contribute much less (pay less) to build our global network of reliable housing.

The Blockchain Cometh

We can take our new perspective about reducing transaction and coordination costs to solve shared problems, and our example of AirBnB, and extend it to blockchain technologies.

An immutable, peer-to-peer, distributed, decentralized, public ledger can coordinate all sorts of things. It can coordinate flight landings (replacing the central tower), transact business (replacing the bank), or start the process of dispute resolution (partially replacing the mediation agreement or mediator)

In the process each of these tasks becomes much cheaper. More resources turn into excess resources, and fewer people paying less money can solve their problems at a larger, more-coordinated, more-effective scale.

Summary

If the developing world suffers partly because solutions to their problems cost too much to coordinate, then we can try to find a way to help them get more money, or we can make coordination cheaper (optimally, of course, both).

In the developed world as well, we can understand why peer-to-peer companies like AirBnB and Lyft have succeeded so quickly by viewing companies as (a) distributing and coordinating resources more effectively by (b) coordinating more cheaply.

There is plenty of room at the bottom, the bottom of the price point, if we can work cheaply enough and reach broadly enough.

In the short run innovations are overestimated, in the long run they are underestimated. We need to be thinking about how blockchain technology can impact the developing and developed world over the course of the next two decades.