This article is part of the Internet vs Blockchain Revolution Series. If you are interested in reading the other articles, check out this post.
In the early stage of emergent technologies, there are often challenges around scalability, cost, and education, limiting the development of breakthrough applications and mass adoption. However, these challenges are generally solved over time as we have witnessed with the evolution of the Internet and we should expect a similar technological progression in Blockchain.
Scalability and Cost:
Despite today’s fast Internet connection, the early days of the Internet faced challenges in terms of scalability and cost. On August 7, 1996, AOL’s Internet service failed from supporting a high volume of Internet users and went down for nineteen hours. At that point, Americans were increasingly living their online lives every day, and AOL was the country’s largest internet service provider, among other competitors such as Prodigy, CompuServe and MSN. The Internet itself hasn’t crashed but the ability to access it temporarily stopped, and it was a big deal for many who started to get used to surfing the web in their daily life. This is similar to what happened in the blockchain world in December 2017, in which the of CryptoKitties spiked the on-chain transaction volume on ethereum and clogged the network. Most users couldn’t get their transactions through on the blockchain unless they were willing to bid a high amount of gas fees, which caused a lot of confusion and distress in the community. While the ethereum network jam made many of us realize the current lack of scalability of blockchain technology in servicing more complex use cases, both of these failures in scalability during the early days of Internet and Blockchain showed a validation of how important these technologies had become in a few years for the early adopters and the need for better scalability solutions to support the growing user base and demand.
The high network fees and costs for launching a startup during the early days of the Internet and the current state of the Blockchain industry are also similar. Back then, the process of getting online required a modem and a phone line, in which all the online services maintained a network of local modems for people to dial in. The most popular online service at the time, AOL, charged $9.95/month for 5 hours of unlimited access with each additional hour costing $2.95, which by today’s standard, was very restricting. However over time, the broadband connections with DSL eventually came, scaling up the Internet speed, and by 2014, the Internet speed was 200 times faster and 90% cheaper compared to 1999. Similarly, we have also witnessed an increase of wireless mobile telecommunication speed over the years, from less than 1Mbps with 2G technology to 25Mbps with 4G technology, enabling new services to be viable and practical through the mobile phone, such as music and video streaming. Over time, the limitations around the scalability and cost were gradually removed, allowing for more complex and bandwidth-intensive applications to be practical and viable.
In the blockchain world, we are still early in the development cycle of the technology, in which the challenges around scalability and cost are preventing the practicality of more complex use cases and large user base. Low scalability means that the developers or users would have to pay higher fees to outbid the other transactions in the queue to reduce wait time. As of February 2019, the average transactions fees are roughly $0.13 for ethereum, in which more complex dapps, such as on-chain games, would quickly rack up high transaction fees. Although not every action needs to live on-chain, there is still an urgent demand for blockchain to be scalable to support the growing number of dapps, and all the day to day transactions (Visa processes 24,000 transactions per second) living on the same ledger. Numerous projects are working on different means to scale the transaction speed of blockchain, with variable trade-offs between scalability, security, and decentralization. With the recent mainnet launches of EOS and TRON (4,000 and 750 TPS respectively), we have seen an increase of more complex dapps being released in the past couple months, and we expect this trend to continue as more scalable blockchains are being deployed in the space. Overall, the different scaling solutions being explored such as novel data structures (Sharding, Tangle, DAG, Coda etc.), layer 2 solutions (Sidechains, off-chains, hashed-time locks etc.), and more efficient consensus algorithms (POS, DPOS, Casper, Avalanche, Hashgraph etc.) will gradually increase the bandwidth and reduce the cost for transactions on the blockchain, enabling new use cases and services over the years.
Additionally, we expect that the cost of launching blockchain startups will also decrease over time. During the Internet revolution, the average cost of starting a startup also drastically reduced over the years, from $5m in 1999 to $500k in 2005, and $50k in 2010. The first wave of cost reduction was due to the appearance of open source (which meant no license for UNIX, web servers and Oracle databases) and horizontal computing (which meant no need to buy expensive Sun servers & EMC storage). Then, the second wave of cost decrease was due to the maturation of cloud computing, popularized by AWS, providing web storage (S3), processing power (EC2) and the ability to scale up or down depending on traffic (auto-scaling) on the cloud. According to Gartner, deploying enterprise blockchain proof-of-concepts has a starting cost of $275,000 and can go up to several millions of dollars. Depending on the blockchain (ethereum, NEO, EOS, etc), the deployment and transaction fees of simple dapps on public blockchains can cost you $30–85k (interesting breakdown here), and current blockchain talents are in shortage and expensive ($150k on average). Similar to the evolution of the Internet, we also expect a cost reduction in launching blockchain projects as the blockchain transaction speed becomes more scalable and cheaper, more full-stack platforms on the enterprise side (BaaS hosting — Kaleido, AWS, Azure, Oracle, etc), development platform (NoOps — Esprezzo), middlewares (Omnitude) and developer tools (Mist, Geth, Truffle, Remix, etc) are being released, and more development talents migrate into the blockchain space.
Education is an essential driver for the adoption of new technologies, lowering the barrier to entry, and helping “crossing the chasm” (a term created by Geoffrey Moore). Before the chasm, technology is usually treated as a foreign object, and once it has truly crossed, it is perceived as safe to consume. During the early days of the Internet, Jan Brandt from AOL was hired as VP of marketing to grow its user base. During market research, she realized that people didn’t know how to use the computer as “someone took a computer mouse and started pointing it at the computer like the remote control”, so it was important to go back to the basics. Selling consumers on the virtue of one online service over another was not as important as educating consumers on what an online service was. The marketing strategy implemented by AOL was to send out trial disks and CDs for people to try out, and the results proved to be extraordinary, with people signing up and providing their credit cards. AOL re-invested so much into the strategy that CDs were found everywhere, in people’s mailboxes, on new computers, in magazines, given away with movie rentals, etc. so that at one point, 50% of the CDs produced worldwide had AOL’s logo. This initiative helped AOL leapfrog its competitors and grow its user base from 200k to 25M clients over the years. Overall, AOL’s campaign is a good example of a successful initiative that helped drive the adoption of the “less tech-savvy” early users by actively lowering the barrier of entry.
To draw a parallel with the cryptocurrency world, we have seen many initiatives in educating the next generation of crypto and blockchain adopters, with large conferences, such as Consensus, corporate education, taken by Deloitte or IBM, developer education, such as ConsenSys Academy, and university education, such as Blockchain Education Network (ben). Many companies are also attempting to in give out tokens or cold wallets for free through events and marketing campaigns. Recently, Coinbase launched a learn and earn crypto program, offering cryptocurrency rewards for completing their educational courses. Currently, interacting with blockchain still has a lot of frictions, and require you to have some foundation knowledge (private/public keys, gas/transaction fees etc.) compared to traditional payment solutions such as Venmo, or Paypal, not to mention the irreversible risks that come with key management and transactions. We are still early in the industry with less than 1% of worldwide adoption, and educating the general population about cryptocurrency, blockchain and key management will be very important for the industry to grow. Large companies such as AOL and Coinbase are well positioned to offer extra incentives through giveaway CD trials and cryptocurrencies to actively help lower the barrier of entry and further drive adoption.
Overall, it’s undeniable that the Blockchain industry has been making significant progress towards solving the challenges around scalability, cost, and education over the past few years. Although we are still early in this technological cycle, we are confident that Blockchain will mature in a similar fashion as the Internet, gradually becoming more scalable, affordable and practical for mass adoption.
The Internet Revolution facts are based on the book “How the Internet Happened”, written by Brian McCullough. Mark Twain once said, “History doesn’t repeat itself, but it does rhyme”. We are attempting to draw some similarities between the Internet and Blockchain Revolutions, to help entrepreneurs and investors better understand technological life cycles. Please leave your thoughts and comments below, and hope this article series will have provided some valuable perspectives about the Blockchain industry.
Author: Remi Gai
Book “How the Internet Happened”, written by Brian McCullough.