How will dapps grow?

I’ve been imagining a blockchain-enabled future since a friend sent me some bitcoins in 2013. Now I believe that future is coming, and I’m starting a company to help make it accessible to everyone. With that goal in mind, I want to write out some of what I’m learning in a jargon-free way to help myself and others understand.

What is a dapp?

“A dapp is an application that has its back-end code running on a peer-to-peer network instead of a centralized machine.” In the peer-to-peer networks running dapps, no one node or central entity [middleman] tells the other nodes what to do.

Since there’s no middleman making sure everything happens the way it’s supposed to, many dapps rely on a special group of users (sometimes called miners) to verify user-reported in-dapp activity. These miners typically receive payment in the form of coins (cryptocurrencies), which they can trade for benefits within the dapp and/or for other coins or currencies in the outside world. Sometimes these coins are designed to increase in value when more people are using the dapp.

Why should anyone care?

The promise of dapps is “X without the need for the central network operator X. Uber without the need for Uber as a company controlling the network of drivers and riders. Reddit without the need for Reddit as a company centrally hosting and creating the platform. Facebook without the Facebook.”

There are ~1000 dapps today, and most are pretty rudimentary. It reminds of when Apple launched the iOS app store in 2008 with 500 apps and most of them sucked. For me the best one was the flashlight, which turned your screen white so you could waggle your phone around in the dark to find your keys. Today there are 2.2 million iOS apps, and about 10 that I use every day. Think about your favorite apps on your mobile phone. Do they make your life better?

Over time, if dapps overcome various technical, regulatory, UX, and strategic challenges, many more dapps will be created and some will make life better. Among other benefits, removing middlemen from transactions will make things faster and offer users a better deal. Imagine if instead of paying Facebook for the privilege to advertise to you, publishers could pay you directly. If instead of going through the electric company to get access to energy for your house, you had direct access to wholesale energy prices. If instead of paying Amazon to borrow access to digital storage space and computing power, you could borrow it from your neighbors, and get paid to loan out the space and power on your computer in return.

So why write about growth?

Three reasons:

1. Building great dapps isn’t enough to deliver the blockchain-enabled future. We need to help regular people discover, use, and benefit from them. If dapps don’t grow, developers won’t invest the time and money to make more dapps. And dapps won’t make life better for as many people as they could.
2. Decentralization alone doesn’t guarantee growth. When people say otherwise, I feel like I’ve seen this movie before. Internet distribution was supposed to transform the music industry by letting any independent artist find an audience for her songs. Working at Napster taught me that labels are still around not because they’re evil (though some are) but because they offer most consumers and most artists a better economic deal than dealing with each other directly. The most successfully innovative artists today still aren’t doing direct deals with fans — they’re working with labels and doing deals with YouTube.
3. I believe developers will build great dapps and earn the right to face a new problem: figuring out how to make them grow. And I love thinking about and working on growth. :)

Okay. So how will dapps grow?

Lets talk about how apps grow today. Who makes it happen? What are their incentives? How might those incentives change in a blockchain-enabled world?

App developers

Today: app developers have a direct incentive to make their apps grow. When more people are using and loving your app, it’s easier to come to work feeling inspired, to hire great people, to raise funding if you need it, and to make money.

Tomorrow: These incentives are similar in dapps. Many dapp developers also have a more direct financial incentive: they set aside a big chunk of coins for the team up front (similar but not identical to the equity in a startup), and if those coins increase in value when more people are using the dapp, they can see their fortunes grow in proportion to their dapp’s user base. However, the “pay-to-play” nature of most dapps presents a potential obstacle to growth: if users need to spend coins — possibly with escalating prices — to benefit from dapps and to incentive miners to keep verifying in-dapp activity, dapps will grow more slowly than if they were free to use, and less developers will make new dapps.

Platforms

Today: Mega-behemoths invest in app store platforms — sometimes as loss leaders— to sell more hardware, software, or advertising.

Tomorrow: This will be an interesting one to watch. You can only use iOS apps on Apple devices. In exchange for exclusive rights to app developers’ work, Apple provides tools to aid development and also helps with marketing, quality control, and growth. Will dapp developers, many of whom dislike centralized control, accept a similar deal? If not, how will most new users find out about dapps? Do dapp store platforms have a role to play in the future?

Users

Today: Most apps (e.g. Google Maps) are “single player” — you don’t need to interact with anyone else to get value from them — so users have no direct incentive to help them grow. Some apps like Facebook have network effects, meaning they generally get better for users when new users join. And some apps like Uber reward users with in-app benefits (free rides!) when friends they refer join the app.

Tomorrow: This will be another interesting one. Because dapps are built on peer-to-peer networks, they are more likely than apps to have network effects. And many dapps give users coins that increase in value when more people are using the dapp. So many dapps will benefit from a double network effect: as the network grows, the dapp will become more useful, AND the coins that power it will increase in value. The incentives are aligned for users to help dapps grow.