The Internet Computer Provides a Solution to Platform Risk by@cryptonomicon

The Internet Computer Provides a Solution to Platform Risk

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The Internet Computer allows platform developers to plausibly promise that they will not revoke API access from applications that build on top of their platform. Twitter, Facebook, and LinkedIn all benefitted early on from third-party developers who built applications on top of their platforms. Yet when those platforms reached maturity, they all changed the rules surrounding their APIs—throttling the very applications that helped them grow years before. The precedent set by Twitter, Facebook, and LinkedIn means that application developers today will think twice about building on top of the new generation of platforms, because they know that they are actually building on sand if they do. The Internet Computer solves this problem because it has a feature that allows (but does not require) developers to designate their canisters’ APIs as “permanent:” meaning that nobody can later revoke or degrade access to them.

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The Internet Computer is a new computing platform that uniquely enables developers to reap the benefits of blockchain technology without sacrificing performance. This is the second article in a series of six articles that outline why developers should build their applications on the Internet Computer. The first article, which briefly explains what the Internet Computer is, can be found here.

Platform Risk

One of the core dynamics in technology is that there are platforms and there are applications that are built on top of those platforms. Under this dynamic, application developers shoulder a unique risk—commonly referred to as “platform risk”—that the platform upon which they’ve built will revoke their access at any time, for any reason. While this risk has always existed, it has become particularly acute in recent years as major technology platforms have slowly revoked or limited access to their APIs. Today, it represents a major problem for platform and application developers alike as few people are willing to build on top of new platforms, and those who do know that they face an existential threat to their business.

The Internet Computer provides a unique solution to this problem: it has a feature that allows (but does not require) developers to make their software’s APIs irrevocable. Platform developers who utilize this feature can attract people to build applications on top of their platform because it allows them to plausibly promise that their platform will remain open forever. And application developers can have peace of mind knowing that the foundation upon which they are building their business is not made of sand.

The Flywheel Effect

At the beginning of a platform’s life, its relationship with the applications built on top of it is mutually beneficial: the applications attract users to join the platform, and the platform provides applications with access to users or data. This dynamic can create a positive feedback loop commonly referred to as the “flywheel effect.”  The flywheel effect is a phenomenon where the growth of a new platform compounds because the applications built on top of it attract new users to the platform, which in turn attracts developers to build new applications.

Facebook, LinkedIn, and Twitter are all prime examples of platforms that grew quickly because of the applications built on top of them. Games like Farmville helped draw in tens of millions of users to Facebook, and kept them engaged on the platform. And dozens of third-party websites drove traffic to the platforms through their APIs.

Indeed, in a 2007 interview, one of Twitter’s founders (Biz Stone) explained just how important applications were to the platform’s early success: “The API has been arguably the most important, or maybe even inarguably, the most important thing we’ve done with Twitter. It has allowed us, first of all, to keep the service very simple and create a simple API so that developers can build on top of our infrastructure and come up with ideas that are way better than our ideas, and build things like Twitterrific, which is just a beautiful elegant way to use Twitter that we wouldn’t have been able to get to, being a very small team. So, the API, which has easily 10 times more traffic than the website, has been really very important to us.”

Problem Today: Lack of Trust

When a platform reaches maturity, its relationship with the applications built on top of it begins to change. Historically, when a platform reaches maturity, the company behind it changes gears from trying to grow the platform to trying to maximize its profits. This typically involves extracting rent from the applications built on top of the platform—or removing them from the platform entirely.

Twitter, for example, changed its API policy in 2012 to throttle the way certain application developers could use the platform’s APIs. They are not alone: Facebook and LinkedIn have each also famously revoked API access from countless applications that were built on top of their platforms once they decided that they no longer needed their help to grow. These platforms thus turned their backs on the same applications that helped them grow so quickly in their youth.

The decisions made by Twitter, Facebook, and LinkedIn have eroded trust that new platforms will remain open once they reach a certain threshold of success. This lack of trust discourages entrepreneurs from building applications and investors from funding the ones that are built: they know that building on top of platforms is akin to building on sand. With few applications being built on new platforms, those platforms struggle to grow the way the tech behemoths did in the mid-2000s.

The Internet Computer Provides a Solution

The Internet Computer has a feature that allows platform developers to plausibly promise they will not revoke access to their platform’s APIs. If a developer designates their platform’s APIs as “permanent,” the Internet Computer prevents the developer from later revoking access to those APIs, or even constructively revoking API access by degrading the functionality they provide.

This feature is uniquely enabled by the Internet Computer’s architecture. The Internet Computer is a distributed network of independent data centers that uses something called the Internet Computer Protocol to create what is effectively a single world computer. That protocol can be thought of as a list of rules that must be followed by the data centers that comprise the network. One such rule is that when a canister’s APIs have been designated permanent, the data centers that comprise the network automatically reject any updates to the canister that would revoke access to its APIs.

Separately, the Internet Computer has a robust governance system that allows a diverse group of stakeholders to make changes to its composition or protocol. Anyone is allowed to participate in governance: the only requirement is that you must “stake”—i.e., lock up—the Internet Computer’s native token (ICP) to receive a vote. This governance system can be used to revert changes to canisters that constructively revoke APIs that have been designated permanent.

Examples on the Internet Computer

Sonic. Sonic is a decentralized exchange built entirely on the Internet Computer. Sonic’s functionality is similar to Uniswap’s on Ethereum. However, unlike Uniswap—where a simple transaction can cost over $40 in fees alone—transactions on Sonic are virtually free thanks to the Internet Computer’s unique performance characteristics.

Decentralized exchanges like Sonic are useful because they allow users to exchange different types of tokens for one another. For example, a user could exchange a token that is pegged to the US Dollar (such as USDC) for one that is pegged to the Euro (such as EURT). Or a user could exchange one application’s governance token for the governance token of another application.

If Sonic’s APIs are designated permanent, developers could confidently incorporate Sonic into their application. This would enable application developers to offer a feature that would allow payments to be made in one token and received in a totally different token. For example, a merchant who sells digital goods for an online game could allow users to make purchases in any token and have Sonic automatically convert that token to one that is pegged to the merchant’s native currency (such as USDC).

OpenChat.  OpenChat is a chat application built entirely on the Internet Computer. In its current form, OpenChat is akin to WhatsApp or Telegram. But the developers behind OpenChat intend to incorporate features into the platform that are uniquely enabled by blockchain technology—such as allowing users to send money to each other via messages.

If OpenChat’s APIs are designated permanent, developers could confidently incorporate OpenChat into their applications. This means that developers who build on the Internet Computer could add a chat feature to their application by simply calling OpenChat’s APIs, instead of building one from scratch.

Disclosure: The author of this article owns ICP, which is the native token for the Internet Computer.


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