joel.mn

I blogged a bit about blockchain-based protocols at usv.com earlier today. It’s an exploration of how tokenized blockchain protocols shift value away from the applications layer to the protocol layer of the Internet.

What’s most exciting to me right now is how increasingly clear the business of blockchain protocols and applications is becoming to us as a firm. We’ve been believers, promoters and investors in (now five) blockchain companies since Fred invested in Coinbase in 2013. We’ve always had a big hunch that blockchains were going to be the future of the web and today we’re getting better at articulating exactly why and how as we continue to work with our blockchain portfolio and this (still nascent) market keeps developing.

For a while, we've been arguing in favor of Bitcoin as a protocol, on top of which a new architecture for internet applications is emerging. Fred likes to compare Bitcoin to e-mail by remembering the way e-mail used to work before SMTP. 

In the 80s we had e-mail services like AOL or Compuserve Mail that only allowed you to send email to other users of the same service, similar to how today you can only send a DM or Facebook message to another Twitter or Facebook user. Then in the early 90s e-mail became interoperable thanks to the adoption of SMTP. Suddenly, AOL Mail users could now e-mail Compuserve users and vice versa, and new services were instantly compatible with the established ones. 

Because SMTP is an open protocol, there is no barrier to entry. Anyone can create an e-mail client and participate in the network, and nobody can shut them down in the same way that Twitter or Facebook sometimes cut off applications built on top of their platforms that threaten their business model. As a result, despite its shortcomings, we have seen a lot of innovation in e-mail over the past decades, and it is one of the most popular internet applications.

Bitcoin is like SMTP in that it can be the bridge between different financial applications. A Venmo user could send money (in fiat, even) to a Square Cash user if these applications adopted the Bitcoin protocol in the background like AOL and Compuserve adopted SMTP in the early 90s. And just like with SMTP, Bitcoin will enable a lot of innovation by making it easier to create new kinds of global financial applications.

This is the same thesis behind all other emerging decentralized protocols. They too can be the bridge that connects the applications together to both create collective value and foster innovation. OpenBazaar could connect different marketplaces together, Openname could bridge your identity across social networks, and a Canonical Content Registry could link our content across all the different channels it travels through.

What's important to understand is that the collective value created by a network of networks is greater than any single individual network, and a decentralized protocol provides the perfect mechanism to make this possible. A Venmo that can send money to M-Pesa is more valuable than a Venmo that only works in the U.S.

This short story was introduced to me in junior high by my first Computer Science teacher. I stumbled upon it again today and re-read it. It’s just as wonderful today as it was when I was a kid. 

Isaac Asimov’s novels got me interested in the future, which got me interested in computers. I doubt I’d be working in this industry without them, so they occupy a special place in my heart. I had forgotten how great this story is. I am posting it here so that I may not forget it again. 

If you haven’t read it, or haven’t in a while, I encourage you to do so.

The last question was asked for the first time, half in jest, on May 21, 2061, at a time when humanity first stepped into the light. The question came about as a result of a five dollar bet over highballs, and it happened this way: Alexander Adell and Bertram Lupov were two of the faithful attendants of Multivac. As well as any human beings could, they knew what lay behind the cold, clicking, flashing face -- miles and miles of face -- of that giant computer. They had at least a vague notion of the general plan of relays and circuits that had long since grown past the point where any single human could possibly have a firm grasp of the whole.

Multivac was self-adjusting and self-correcting. It had to be, for nothing human could adjust and correct it quickly enough or even adequately enough -- so Adell and Lupov attended the monstrous giant only lightly and superficially, yet as well as any men could. They fed it data, adjusted questions to its needs and translated the answers that were issued. Certainly they, and all others like them, were fully entitled to share In the glory that was Multivac's.

For decades, Multivac had helped design the ships and plot the trajectories that enabled man to reach the Moon, Mars, and Venus, but past that, Earth's poor resources could not support the ships. Too much energy was needed for the long trips. Earth exploited its coal and uranium with increasing efficiency, but there was only so much of both.

But slowly Multivac learned enough to answer deeper questions more fundamentally, and on May 14, 2061, what had been theory, became fact.

The energy of the sun was stored, converted, and utilized directly on a planet-wide scale. All Earth turned off its burning coal, its fissioning uranium, and flipped the switch that connected all of it to a small station, one mile in diameter, circling the Earth at half the distance of the Moon. All Earth ran by invisible beams of sunpower.

Seven days had not sufficed to dim the glory of it and Adell and Lupov finally managed to escape from the public function, and to meet in quiet where no one would think of looking for them, in the deserted underground chambers, where portions of the mighty buried body of Multivac showed. Unattended, idling, sorting data with contented lazy clickings, Multivac, too, had earned its vacation and the boys appreciated that. They had no intention, originally, of disturbing it.

They had brought a bottle with them, and their only concern at the moment was to relax in the company of each other and the bottle.

"It's amazing when you think of it," said Adell. His broad face had lines of weariness in it, and he stirred his drink slowly with a glass rod, watching the cubes of ice slur clumsily about. "All the energy we can possibly ever use for free. Enough energy, if we wanted to draw on it, to melt all Earth into a big drop of impure liquid iron, and still never miss the energy so used. All the energy we could ever use, forever and forever and forever."

Lupov cocked his head sideways. He had a trick of doing that when he wanted to be contrary, and he wanted to be contrary now, partly because he had had to carry the ice and glassware. "Not forever," he said.

"Oh, hell, just about forever. Till the sun runs down, Bert."

"That's not forever."

"All right, then. Billions and billions of years. Twenty billion, maybe. Are you satisfied?"

Lupov put his fingers through his thinning hair as though to reassure himself that some was still left and sipped gently at his own drink. "Twenty billion years isn't forever."

"Will, it will last our time, won't it?"

"So would the coal and uranium."

"All right, but now we can hook up each individual spaceship to the Solar Station, and it can go to Pluto and back a million times without ever worrying about fuel. You can't do THAT on coal and uranium. Ask Multivac, if you don't believe me."

"I don't have to ask Multivac. I know that."

"Then stop running down what Multivac's done for us," said Adell, blazing up. "It did all right."

"Who says it didn't? What I say is that a sun won't last forever. That's all I'm saying. We're safe for twenty billion years, but then what?" Lupov pointed a slightly shaky finger at the other. "And don't say we'll switch to another sun."

There was silence for a while. Adell put his glass to his lips only occasionally, and Lupov's eyes slowly closed. They rested.

Then Lupov's eyes snapped open. "You're thinking we'll switch to another sun when ours is done, aren't you?"

"I'm not thinking."

"Sure you are. You're weak on logic, that's the trouble with you. You're like the guy in the story who was caught in a sudden shower and Who ran to a grove of trees and got under one. He wasn't worried, you see, because he figured when one tree got wet through, he would just get under another one."

"I get it," said Adell. "Don't shout. When the sun is done, the other stars will be gone, too."

"Darn right they will," muttered Lupov. "It all had a beginning in the original cosmic explosion, whatever that was, and it'll all have an end when all the stars run down. Some run down faster than others. Hell, the giants won't last a hundred million years. The sun will last twenty billion years and maybe the dwarfs will last a hundred billion for all the good they are. But just give us a trillion years and everything will be dark. Entropy has to increase to maximum, that's all."

"I know all about entropy," said Adell, standing on his dignity.

"The hell you do."

"I know as much as you do."

"Then you know everything's got to run down someday."

"All right. Who says they won't?"

"You did, you poor sap. You said we had all the energy we needed, forever. You said 'forever.'"

"It was Adell's turn to be contrary. "Maybe we can build things up again someday," he said.

"Never."

"Why not? Someday."

"Never."

"Ask Multivac."

"You ask Multivac. I dare you. Five dollars says it can't be done."

Adell was just drunk enough to try, just sober enough to be able to phrase the necessary symbols and operations into a question which, in words, might have corresponded to this: Will mankind one day without the net expenditure of energy be able to restore the sun to its full youthfulness even after it had died of old age?

Or maybe it could be put more simply like this: How can the net amount of entropy of the universe be massively decreased?

Multivac fell dead and silent. The slow flashing of lights ceased, the distant sounds of clicking relays ended.

Then, just as the frightened technicians felt they could hold their breath no longer, there was a sudden springing to life of the teletype attached to that portion of Multivac. Five words were printed: INSUFFICIENT DATA FOR MEANINGFUL ANSWER.

"No bet," whispered Lupov. They left hurriedly.

By next morning, the two, plagued with throbbing head and cottony mouth, had forgotten about the incident.

Jerrodd, Jerrodine, and Jerrodette I and II watched the starry picture in the visiplate change as the passage through hyperspace was completed in its non-time lapse. At once, the even powdering of stars gave way to the predominance of a single bright marble-disk, centered. "That's X-23," said Jerrodd confidently. His thin hands clamped tightly behind his back and the knuckles whitened.

The little Jerrodettes, both girls, had experienced the hyperspace passage for the first time in their lives and were self-conscious over the momentary sensation of inside-outness. They buried their giggles and chased one another wildly about their mother, screaming, "We've reached X-23 -- we've reached X-23 -- we've ----"

"Quiet, children," said Jerrodine sharply. "Are you sure, Jerrodd?"

"What is there to be but sure?" asked Jerrodd, glancing up at the bulge of featureless metal just under the ceiling. It ran the length of the room, disappearing through the wall at either end. It was as long as the ship.

Jerrodd scarcely knew a thing about the thick rod of metal except that it was called a Microvac, that one asked it questions if one wished; that if one did not it still had its task of guiding the ship to a preordered destination; of feeding on energies from the various Sub-galactic Power Stations; of computing the equations for the hyperspacial jumps.

Jerrodd and his family had only to wait and live in the comfortable residence quarters of the ship.

Someone had once told Jerrodd that the "ac" at the end of "Microvac" stood for "analog computer" in ancient English, but he was on the edge of forgetting even that.

Jerrodine's eyes were moist as she watched the visiplate. "I can't help it. I feel funny about leaving Earth."

"Why for Pete's sake?" demanded Jerrodd. "We had nothing there. We'll have everything on X-23. You won't be alone. You won't be a pioneer. There are over a million people on the planet already. Good Lord, our great grandchildren will be looking for new worlds because X-23 will be overcrowded."

Then, after a reflective pause, "I tell you, it's a lucky thing the computers worked out interstellar travel the way the race is growing."

"I know, I know," said Jerrodine miserably.

Jerrodette I said promptly, "Our Microvac is the best Microvac in the world."

"I think so, too," said Jerrodd, tousling her hair.

It was a nice feeling to have a Microvac of your own and Jerrodd was glad he was part of his generation and no other. In his father's youth, the only computers had been tremendous machines taking up a hundred square miles of land. There was only one to a planet. Planetary ACs they were called. They had been growing in size steadily for a thousand years and then, all at once, came refinement. In place of transistors had come molecular valves so that even the largest Planetary AC could be put into a space only half the volume of a spaceship.

Jerrodd felt uplifted, as he always did when he thought that his own personal Microvac was many times more complicated than the ancient and primitive Multivac that had first tamed the Sun, and almost as complicated as Earth's Planetary AC (the largest) that had first solved the problem of hyperspatial travel and had made trips to the stars possible.

"So many stars, so many planets," sighed Jerrodine, busy with her own thoughts. "I suppose families will be going out to new planets forever, the way we are now."

"Not forever," said Jerrodd, with a smile. "It will all stop someday, but not for billions of years. Many billions. Even the stars run down, you know. Entropy must increase."

"What's entropy, daddy?" shrilled Jerrodette II.

"Entropy, little sweet, is just a word which means the amount of running-down of the universe. Everything runs down, you know, like your little walkie-talkie robot, remember?"

"Can't you just put in a new power-unit, like with my robot?"

The stars are the power-units, dear. Once they're gone, there are no more power-units."

Jerrodette I at once set up a howl. "Don't let them, daddy. Don't let the stars run down."

"Now look what you've done, " whispered Jerrodine, exasperated.

"How was I to know it would frighten them?" Jerrodd whispered back.

"Ask the Microvac," wailed Jerrodette I. "Ask him how to turn the stars on again."

"Go ahead," said Jerrodine. "It will quiet them down." (Jerrodette II was beginning to cry, also.)

Jarrodd shrugged. "Now, now, honeys. I'll ask Microvac. Don't worry, he'll tell us."

He asked the Microvac, adding quickly, "Print the answer."

Jerrodd cupped the strip of thin cellufilm and said cheerfully, "See now, the Microvac says it will take care of everything when the time comes so don't worry."

Jerrodine said, "and now children, it's time for bed. We'll be in our new home soon."

Jerrodd read the words on the cellufilm again before destroying it: INSUFFICIENT DATA FOR A MEANINGFUL ANSWER.

He shrugged and looked at the visiplate. X-23 was just ahead.

VJ-23X of Lameth stared into the black depths of the three-dimensional, small-scale map of the Galaxy and said, "Are we ridiculous, I wonder, in being so concerned about the matter?" MQ-17J of Nicron shook his head. "I think not. You know the Galaxy will be filled in five years at the present rate of expansion."

Both seemed in their early twenties, both were tall and perfectly formed.

"Still," said VJ-23X, "I hesitate to submit a pessimistic report to the Galactic Council."

"I wouldn't consider any other kind of report. Stir them up a bit. We've got to stir them up."

VJ-23X sighed. "Space is infinite. A hundred billion Galaxies are there for the taking. More."

"A hundred billion is not infinite and it's getting less infinite all the time. Consider! Twenty thousand years ago, mankind first solved the problem of utilizing stellar energy, and a few centuries later, interstellar travel became possible. It took mankind a million years to fill one small world and then only fifteen thousand years to fill the rest of the Galaxy. Now the population doubles every ten years --"

VJ-23X interrupted. "We can thank immortality for that."

"Very well. Immortality exists and we have to take it into account. I admit it has its seamy side, this immortality. The Galactic AC has solved many problems for us, but in solving the problems of preventing old age and death, it has undone all its other solutions."

"Yet you wouldn't want to abandon life, I suppose."

"Not at all," snapped MQ-17J, softening it at once to, "Not yet. I'm by no means old enough. How old are you?"

"Two hundred twenty-three. And you?"

"I'm still under two hundred. --But to get back to my point. Population doubles every ten years. Once this Galaxy is filled, we'll have another filled in ten years. Another ten years and we'll have filled two more. Another decade, four more. In a hundred years, we'll have filled a thousand Galaxies. In a thousand years, a million Galaxies. In ten thousand years, the entire known Universe. Then what?"

VJ-23X said, "As a side issue, there's a problem of transportation. I wonder how many sunpower units it will take to move Galaxies of individuals from one Galaxy to the next."

"A very good point. Already, mankind consumes two sunpower units per year."

"Most of it's wasted. After all, our own Galaxy alone pours out a thousand sunpower units a year and we only use two of those."

"Granted, but even with a hundred per cent efficiency, we can only stave off the end. Our energy requirements are going up in geometric progression even faster than our population. We'll run out of energy even sooner than we run out of Galaxies. A good point. A very good point."

"We'll just have to build new stars out of interstellar gas."

"Or out of dissipated heat?" asked MQ-17J, sarcastically.

"There may be some way to reverse entropy. We ought to ask the Galactic AC."

VJ-23X was not really serious, but MQ-17J pulled out his AC-contact from his pocket and placed it on the table before him.

"I've half a mind to," he said. "It's something the human race will have to face someday."

He stared somberly at his small AC-contact. It was only two inches cubed and nothing in itself, but it was connected through hyperspace with the great Galactic AC that served all mankind. Hyperspace considered, it was an integral part of the Galactic AC.

MQ-17J paused to wonder if someday in his immortal life he would get to see the Galactic AC. It was on a little world of its own, a spider webbing of force-beams holding the matter within which surges of sub-mesons took the place of the old clumsy molecular valves. Yet despite it's sub-etheric workings, the Galactic AC was known to be a full thousand feet across.

MQ-17J asked suddenly of his AC-contact, "Can entropy ever be reversed?"

VJ-23X looked startled and said at once, "Oh, say, I didn't really mean to have you ask that."

"Why not?"

"We both know entropy can't be reversed. You can't turn smoke and ash back into a tree."

"Do you have trees on your world?" asked MQ-17J.

The sound of the Galactic AC startled them into silence. Its voice came thin and beautiful out of the small AC-contact on the desk. It said: THERE IS INSUFFICIENT DATA FOR A MEANINGFUL ANSWER.

VJ-23X said, "See!"

The two men thereupon returned to the question of the report they were to make to the Galactic Council.

Zee Prime's mind spanned the new Galaxy with a faint interest in the countless twists of stars that powdered it. He had never seen this one before. Would he ever see them all? So many of them, each with its load of humanity - but a load that was almost a dead weight. More and more, the real essence of men was to be found out here, in space. Minds, not bodies! The immortal bodies remained back on the planets, in suspension over the eons. Sometimes they roused for material activity but that was growing rarer. Few new individuals were coming into existence to join the incredibly mighty throng, but what matter? There was little room in the Universe for new individuals.

Zee Prime was roused out of his reverie upon coming across the wispy tendrils of another mind.

"I am Zee Prime," said Zee Prime. "And you?"

"I am Dee Sub Wun. Your Galaxy?"

"We call it only the Galaxy. And you?"

"We call ours the same. All men call their Galaxy their Galaxy and nothing more. Why not?"

"True. Since all Galaxies are the same."

"Not all Galaxies. On one particular Galaxy the race of man must have originated. That makes it different."

Zee Prime said, "On which one?"

"I cannot say. The Universal AC would know."

"Shall we ask him? I am suddenly curious."

Zee Prime's perceptions broadened until the Galaxies themselves shrunk and became a new, more diffuse powdering on a much larger background. So many hundreds of billions of them, all with their immortal beings, all carrying their load of intelligences with minds that drifted freely through space. And yet one of them was unique among them all in being the originals Galaxy. One of them had, in its vague and distant past, a period when it was the only Galaxy populated by man.

Zee Prime was consumed with curiosity to see this Galaxy and called, out: "Universal AC! On which Galaxy did mankind originate?"

The Universal AC heard, for on every world and throughout space, it had its receptors ready, and each receptor lead through hyperspace to some unknown point where the Universal AC kept itself aloof.

Zee Prime knew of only one man whose thoughts had penetrated within sensing distance of Universal AC, and he reported only a shining globe, two feet across, difficult to see.

"But how can that be all of Universal AC?" Zee Prime had asked.

"Most of it, " had been the answer, "is in hyperspace. In what form it is there I cannot imagine."

Nor could anyone, for the day had long since passed, Zee Prime knew, when any man had any part of the making of a universal AC. Each Universal AC designed and constructed its successor. Each, during its existence of a million years or more accumulated the necessary data to build a better and more intricate, more capable successor in which its own store of data and individuality would be submerged.

The Universal AC interrupted Zee Prime's wandering thoughts, not with words, but with guidance. Zee Prime's mentality was guided into the dim sea of Galaxies and one in particular enlarged into stars.

A thought came, infinitely distant, but infinitely clear. "THIS IS THE ORIGINAL GALAXY OF MAN."

But it was the same after all, the same as any other, and Zee Prime stifled his disappointment.

Dee Sub Wun, whose mind had accompanied the other, said suddenly, "And Is one of these stars the original star of Man?"

The Universal AC said, "MAN'S ORIGINAL STAR HAS GONE NOVA. IT IS NOW A WHITE DWARF."

"Did the men upon it die?" asked Zee Prime, startled and without thinking.

The Universal AC said, "A NEW WORLD, AS IN SUCH CASES, WAS CONSTRUCTED FOR THEIR PHYSICAL BODIES IN TIME."

"Yes, of course," said Zee Prime, but a sense of loss overwhelmed him even so. His mind released its hold on the original Galaxy of Man, let it spring back and lose itself among the blurred pin points. He never wanted to see it again.

Dee Sub Wun said, "What is wrong?"

"The stars are dying. The original star is dead."

"They must all die. Why not?"

"But when all energy is gone, our bodies will finally die, and you and I with them."

"It will take billions of years."

"I do not wish it to happen even after billions of years. Universal AC! How may stars be kept from dying?"

Dee sub Wun said in amusement, "You're asking how entropy might be reversed in direction."

And the Universal AC answered. "THERE IS AS YET INSUFFICIENT DATA FOR A MEANINGFUL ANSWER."

Zee Prime's thoughts fled back to his own Galaxy. He gave no further thought to Dee Sub Wun, whose body might be waiting on a galaxy a trillion light-years away, or on the star next to Zee Prime's own. It didn't matter.

Unhappily, Zee Prime began collecting interstellar hydrogen out of which to build a small star of his own. If the stars must someday die, at least some could yet be built.

Man considered with himself, for in a way, Man, mentally, was one. He consisted of a trillion, trillion, trillion ageless bodies, each in its place, each resting quiet and incorruptible, each cared for by perfect automatons, equally incorruptible, while the minds of all the bodies freely melted one into the other, indistinguishable. Man said, "The Universe is dying."

Man looked about at the dimming Galaxies. The giant stars, spendthrifts, were gone long ago, back in the dimmest of the dim far past. Almost all stars were white dwarfs, fading to the end.

New stars had been built of the dust between the stars, some by natural processes, some by Man himself, and those were going, too. White dwarfs might yet be crashed together and of the mighty forces so released, new stars built, but only one star for every thousand white dwarfs destroyed, and those would come to an end, too.

Man said, "Carefully husbanded, as directed by the Cosmic AC, the energy that is even yet left in all the Universe will last for billions of years."

"But even so," said Man, "eventually it will all come to an end. However it may be husbanded, however stretched out, the energy once expended is gone and cannot be restored. Entropy must increase to the maximum."

Man said, "Can entropy not be reversed? Let us ask the Cosmic AC."

The Cosmic AC surrounded them but not in space. Not a fragment of it was in space. It was in hyperspace and made of something that was neither matter nor energy. The question of its size and Nature no longer had meaning to any terms that Man could comprehend.

"Cosmic AC," said Man, "How may entropy be reversed?"

The Cosmic AC said, "THERE IS AS YET INSUFFICIENT DATA FOR A MEANINGFUL ANSWER."

Man said, "Collect additional data."

The Cosmic AC said, "I WILL DO SO. I HAVE BEEN DOING SO FOR A HUNDRED BILLION YEARS. MY PREDECESSORS AND I HAVE BEEN ASKED THIS QUESTION MANY TIMES. ALL THE DATA I HAVE REMAINS INSUFFICIENT."

"Will there come a time," said Man, "when data will be sufficient or is the problem insoluble in all conceivable circumstances?"

The Cosmic AC said, "NO PROBLEM IS INSOLUBLE IN ALL CONCEIVABLE CIRCUMSTANCES."

Man said, "When will you have enough data to answer the question?"

"THERE IS AS YET INSUFFICIENT DATA FOR A MEANINGFUL ANSWER."

"Will you keep working on it?" asked Man.

The Cosmic AC said, "I WILL."

Man said, "We shall wait."

"The stars and Galaxies died and snuffed out, and space grew black after ten trillion years of running down. One by one Man fused with AC, each physical body losing its mental identity in a manner that was somehow not a loss but a gain.

Man's last mind paused before fusion, looking over a space that included nothing but the dregs of one last dark star and nothing besides but incredibly thin matter, agitated randomly by the tag ends of heat wearing out, asymptotically, to the absolute zero.

Man said, "AC, is this the end? Can this chaos not be reversed into the Universe once more? Can that not be done?"

AC said, "THERE IS AS YET INSUFFICIENT DATA FOR A MEANINGFUL ANSWER."

Man's last mind fused and only AC existed -- and that in hyperspace.

Matter and energy had ended and with it, space and time. Even AC existed only for the sake of the one last question that it had never answered from the time a half-drunken computer ten trillion years before had asked the question of a computer that was to AC far less than was a man to Man. All other questions had been answered, and until this last question was answered also, AC might not release his consciousness.

All collected data had come to a final end. Nothing was left to be collected.

But all collected data had yet to be completely correlated and put together in all possible relationships.

A timeless interval was spent in doing that.

And it came to pass that AC learned how to reverse the direction of entropy.

But there was now no man to whom AC might give the answer of the last question. No matter. The answer -- by demonstration -- would take care of that, too.

For another timeless interval, AC thought how best to do this. Carefully, AC organized the program.

The consciousness of AC encompassed all of what had once been a Universe and brooded over what was now Chaos. Step by step, it must be done.

And AC said, "LET THERE BE LIGHT!"

And there was light----

Over the past couple of weeks, I’ve been frequenting the deep web marketplaces most famously used for buying drugs online with Bitcoin.

I wanted to see if there was anything we could learn about how these illicit marketplaces work that could be applied to improve the legal marketplaces we invest in at USV.

As part of my research, I purchased an item on Evolution (no, not drugs – a pair of furry boots) in an effort to understand the dynamics of these marketplaces, from trust and safety to flow of funds. This is what I learned in the process. 

Privacy

Deep web marketplaces can only be accessed using Tor, a decentralized computer network that anonymizes traffic such that it’s harder to trace an individual user through their IP address. If you'd like to learn more about Tor and how it works, this is a good introduction.

Most if not all marketplaces force you to sign up before browsing the listings. The sign up process involves picking a username and password, and an account PIN number. You’re also expected to remember a mnemonic private key for your account, which is not stored on the marketplace’s servers.

Most sellers (particularly drug dealers) require all communications to be encrypted with PGP. Most marketplaces have a PGP key field at the profile setup level.

Some marketplaces automatically delete all order information from their servers 30 days after an order has been “finalized” by the user.

No e-mails are used, only Bitmessage (decentralized) or the marketplace’s messaging system (encrypted and periodically deleted).

Products

Lots of drugs. The drugs category is 10x larger than all others. You’ll find anything from Valium to cocaine and LSD.

You'll also find digital content, stolen credit card and user/password lists, hacking services (mostly DDoS), counterfeit goods (fashion, jewelry, etc.), lab equipment, electronics (I was tempted to buy a pocket-sized EMP pulse generator), high-end spy gear, forged documents (driver's licenses, passports), counterfeit currency, weapons and more.

Brand and Reputation

Brand and reputation means everything to sellers. Buyers guide themselves via eBay-style reviews of the sellers.

This is particularly important in an environment where there is no real identity shared between any of the participants. By contrast, I may not know who an eBay seller is but I take comfort in knowing that eBay does.

Most sellers have 95%+ positive ratings. Some sellers have been involved in over 10,000 transactions.

Many sellers have a presence across multiple deep web marketplaces, and oftentimes point to their profiles on different platforms as a way to further establish credibility.

The community moderates sellers beyond the eBay-style reviews. A lot of marketplaces have separate community forums where users review sellers and products.

A quick way for new sellers to establish credibility is to get reviewed by these community members.

These forums often have established members, to whom sellers frequently send review samples.

Sellers oftentimes link to these reviews as social proof, which are often rich in detail about the quality of the product (with pictures!), the seller, the packaging (good/bad stealth), speed, etc.

Flow of funds

You are given a bitcoin public key on to which you must deposit funds before making a purchase.

You'd buy bitcoin at an exchange, and use a mixing/tumbling service to anonymize them for a small fee. The need for these services in illegal transactions is interesting, since Bitcoin is frequently antagonized for its anonymity.

You are expected to trust the marketplace with holding your funds. Some users keep a balance on their account, while others only make a deposit when they intend to make a purchase.

Funds show up in your account once the transaction has been confirmed in the blockchain multiple times.

Once funds are in your account, checkout is familiar and straightforward.

Escrow

Escrow is provided by the marketplace operator and it is paramount to their business model.

Sometimes you'll find two service tiers: standard escrow (admins are the judges) or multisig escrow.

To finance this service (and make a profit), marketplaces charge a small fee.

Some sellers are very well established and have stellar reputations. This affords them the privilege of skipping escrow.

Oftentimes, sellers will give you a discount (up to 20%) if you skip escrow or finalize early for the benefit of getting paid upfront.

You have some number of days (15-30) to finalize the order (at which point the funds are transferred to the seller) or dispute it, at which point the staff gets involved.

Shipping

This was not really relevant for my purposes, so I'm not entirely sure how shipping works for drugs. But I did some reading and wanted to share the most creative (emphasis on creative) method for anonymously receiving a package:

One user put down the address of his local post office as a shipping address instead of his home. As a recipient, instead of his name he submitted “Holder of Federal Reserve Note number #NNNNN”, #NNNNN being the serial number of a dollar bill in his possession. Apparently he went to the post office holding the bill, correctly identifying himself as the holder of that federal reserve note, and was given the package (which I can only assume contained drugs).

Network effects

There are no data network effects in the platform. In fact, deep web marketplace operators want to hold on to as little data as possible, as the opposite increases their exposure to prosecution.

The network effects are in the seller’s reputation across many different forums, marketplaces, and websites (including “clear” web services like Reddit).

Brand and product drive defensibility. Because the popular sellers are present in all major marketplaces, users mostly make decisions based on product. When new users ask for recommendations, they are oftentimes sent to a particular marketplace because of its ease of use.

Lessons learned

A seller’s brand and reputation are extremely important in a system where the intermediary (the marketplace) does not guarantee trust and safety.

This is largely decentralized in deep web marketplaces, as vendors make sure their brand is spread across multiple websites and forums.

Marketplaces come and go (or get seized by the FBI) but sellers need maintain their reputation.

Marketplaces can extract value where they incur costs. Because Bitcoin transactions are a commodity, high take rates and complex fee structures are unsustainable business models. This leads marketplaces to become very thin layers between supply and demand, which commands much smaller transaction fees – as low as 2% – to finance the small set of crucial services (enforcing contracts).

The network regulates itself with relatively little involvement from its administrator (if networks are like governments, this is similar to a very small libertarian one).

Peer to peer commerce, with no intermediary, can work: it depends on the reputation of the supplier and the size of the discount.

There's a lot to learn from these platforms as we continue to think about how the Blockchain and other new technologies might impact traditional business models. For example, marketplaces with cost structures that command high take rates are vulnerable to Bitcoin-driven business models with very low or non-existent transaction fees. It could be that what drives adoption of unbundled services is competition by lowering costs. 

I’m also wondering how applications could build network effects while defaulting to decentralized open data through the Blockchain Application Stack. While deep web marketplaces don’t fit this model, periodically purging the database has similar implications to giving up control of your user’s information by using decentralized data stores. Perhaps the answer is to have the best product and user experience. 

This brings about a very interesting set of questions for both entrepreneurs and investors.

How do you monetize a decentralized network? Is it SAAS on top of the network?

How can you build build network effects while relinquishing control of the data? Do you compete on product and user experience? Is that defensible?

This is a follow up to The Blockchain Application Stack. I suggest giving it a quick read if you haven't already. It'll provide useful context for many of the thoughts contained in this post. There were many insights left out of that post that I hope to articulate in the ones that will follow. If I didn't get to answer your question, please bear with me as I'll try to do a deeper dive on the more recurring ones after we're done going through the stack in detail. Today's post is about the Shared Data Layer. 

Let's talk about the Shared Data Layer of The Blockchain Application Stack. This the image we used on the original post describing the stack:

(It's decent, but it's not great. My colleague Jonathan is designing an updated version of this graphic that we'll publish soon. He's much better at this than me so I'm very thankful for his help.)

Imagine a global database (or a set of global databases) that every application plugs into. That's the general idea behind the Shared Data Layer. As the name suggests, it's a data storage layer that is decentralized and open to everyone.

Decentralized means that no single entity, individual, or company owns this database, and it is maintianed by millions of computers around the world. You could also help maintain it, and maybe you even get paid automatically for doing so according to how much your computer contributes to the network.

Open means that anyone – whether it's a person, a company or an application – has permissionless access to this database. Your personal data is encrypted, and can only be decrypted and interpreted by those you give access to with your password (or more accurately, your private key). You can allow certain applications access to your data, but they don't own it and you can deny them access at any time, or move to a competitor without losing control of it.

This is made possible by a combination of what I'm calling Overlay Networks and the Blockchain.

Storing Data on the Blockchain

In 2013, a feature was introduced into the Bitcoin protocol that allows us to do just that: create a special kind of transaction (called an OP_RETURN transaction) inside which you can embed tiny amounts of data, 40 bytes, in transactions. Originally it was intended to be used for attaching contextual information to Bitcoin transactions, such as shipping information. A more creative way of using the feature is to create the smallest possible transaction (0.00000001 BTC, or a satoshi, plus the transaction fees) and embed whatever information you want that can fit inside it.

Because the Blockchain is great at timestamping and distributed consensus (meaning that most of the nodes in the network agree that a piece of information is true – in Bitcoin's case, transactional information and the time at which they happen), you can take advantage of the irreversiblity of the information saved in it to hold a permanent record of something else.

40 bytes isn't much, but oftentimes constraints are great at catalyzing creativity. One of the first interesting applications that made use of this feature was Proof Of Existence. Given any file, it creates a hash of it – basically an uniquely-identifying ID as opposed to the entire file – and inserts it into the blockchain. Later in time, you can use that transaction's timestamp and the hash stored in it to prove that that exact file existed at that time by comparing the hash stored in the blockchain with the hash of the file you have in hand. If they match, you now have proof that that file existed at the time of the transaction.

Another, more consumer oriented application that came up is Blocksign, which is a digital signature service similar to Docusign or Hellosign that uses the same technique to store signed documents in the Blockchain.

Both of these are interesting but relatively trivial uses of OP_RETURN transactions. Thankfully, developers from all over are coming up with clever ways of putting those 40 bytes to good use.

The (Bitcoin) Blockchain's Shortcomings

Many members of the Bitcoin ecosystem have (legitimate) concerns regarding the overuse of OP_RETURN transactions to store data on the Blockchain. Chief amongst them are increasing miner fees, bloating the Blockchain with useless information, and long transaction confirmation times.

You can store information in the tiniest of Bitcoin transactions, but you still need to pay the miners who do the work of confirming and entering it into the Blockchain. Right the minimum fee is 0.0001 BTC, or just under $0.04 USD. It may not look like much, but it increases alongside Bitcoin's price and writing many records (say, 500 million tweets a day) is very expensive. Some also feel that creating these tiny transactions with the purposes of storing non-transactional information puts unnecessary pressure on the network and adds bloat to the Blockchain. Finally, it takes about 10 minutes for a transaction to be confirmed and recorded in the blockchain, which is certainly not quick enough for the needs of modern applications.

These are all valid concerns, and traditionally the way to address these has been to fork and create new cryptocurrencies and protocols for faster confirmation times, additional storage, etc. However, many teams have been developing creative ways around those by creating Overlay Networks and using the Blockchain sparingly, only for the more critical operations. I believe this is the right approach, and it has historically worked out for different protocols, as Chris Dixon recently put it in a tweet:

Many people tried to fork IP, TCP, HTTP, SMTP, etc but turned out it was better to build on top. Same with BTC.

— Chris Dixon (@cdixon) October 13, 2014

Overlay Networks

Overlay Networks are systems that extend (or complement) the Bitcoin Blockchain with additional functionality, such as storing certain kinds of data or even files. Together with the Blockchain, they form the Shared Data Layer.

Initially, developers would fork the Bitcoin protocol, extend it to support certain features, and release an alternative cyptocurrency (an altcoin) with its own blockchain. However, it's increasingly apparent that there are many advantages to building on top of the Bitcoin Blockchain. By building on top of Bitcoin you can benefit from its significant liquidity and network effects – which you don't get when bootstrapping a new cryptocurrency on a separate blockchain.

"Overlay Network" is an intentionally broad term. Most of these systems are still emerging and they're bound to have vastly different architectures. Regardless of the form they take, what they have in common is their connection to the Bitcoin blockchain to serve their purpose (such as by using BTC as an incentive token, timestamping their work, validating data, etc.) and that they are, like the Blockchain, decentralized and accessible to anybody.

Piggybacking on Bitcoin's network is an effective way to develop your own currency (which some like to call metacoins) and protocol without having to create your own Blockchain. Counterparty and Mastercoin are two existing examples. Counterparty's protocol documentation does a great job at explaining how it works and it's connection to Bitcoin. In essence, even though Counterparty has it's own coin (XCP), every XCP transaction is backed by a small BTC transaction. Mastercoin is not exactly the same, but it works in a similar fashion.

Another approach is to use Sidechains. Blockstream is the company developing the technology to make this happen. The general idea is that sidechains would, in theory, allow developers to create their own specific-purpose cryptocurrencies, or sidecoins, on their own blockchains but which, unlike altcoins, can be transferred freely between the Bitcoin blockchain and its own, thus benefiting from Bitcoin's liquidity.

It's too early to tell whether or not Sidechains will be successful, but Blockstream's $21M seed round should give them a fair shot. If your interested in learning more, their whitepaper provides an in-depth, albeit highly technical explanation of the system.

One last example of an Overlay Network is Factom, a "data layer for the Blockchain" that can be used to encode and audit large amounts of records in real time. Factom is an independent network with it's own nodes that make use of Distributed Hash Tables for storing data, which is periodically hashed and recorded into the Bitcoin blockchain so that it may be at any point in time. There are different aspects to this approach that makes it useful for certain applications, and not so much for others, but it's a great example of the kinds overlays you can build.

There are plenty more emerging Overlay Networks, and I suspect we'll see a lot more sophisticated ones come out in coming years (one overlay I'd like to see is a decentralized MongoDB-compatible database). An abundant supply of these overlays – each providing different services – will give developers instant access to low cost, secure and decentralized infrastructures for their applications.

Personal Data Ownership and Security

One of the most important concepts behind The Blockchain Stack is personal data ownership and the inversion of the User model in internet applications. We'll expand on this subject as we move up the stack, but I want to briefly touch on the concerns about storing personal or sensitive data stored in what will become a global database maintained by millions of unknown computers.

The short answer is encryption. Yes, information stored on Dropbox might be encrypted – but Dropbox holds the encryption keys and has access to your files. If Dropbox gets hacked, your data is compromised.

Under this stack, the user data model is inverted: instead of a third party holding your data and your keys, the network holds your data and you hold the keys. Nobody can access it without your permission, and you're in total control. Applications are reduced to thin interfaces on top of your data, and through common protocols different apps can interact with each other. Just like how you can e-mail someone from Gmail to Yahoo Mail, you'll be able to read your friends' posts without using the same apps they do.

There's an argument to be made that users don't want to – or even shouldn't – have so much control, but I think there's a more important point we should think about. It's not about whether users should be able to have control, rather, it's about whether they can if they want to. The vast majority will opt to have a third party be the custodian of their private keys, such as they do at Coinbase. But Coinbase will cede back your keys at your request, and with it you can move to another service – or host your own wallet – and your balance will remain intact.

I can't wait for this model to spread beyond Bitcoin and into all other internet services.

If you liked this post, you should follow me on twitter here to be notified when the next one in the series is up. Next week we'll talk about the Shared Protocol Layer.

Last week I led a workshop at NYU’s Bitcoin Hackathon, HackBit, where I talked about Bitcoin as a Protocol, alternative uses for the Blockchain, and a little bit about the challenges and opportunities that lie therein. I tried to share everything we’ve been learning about this space, but unfortunately time coinstraints prevented us from doing a deep dive. To compensate, I’ll be writing a series of short blog posts explaining some of the ideas in that workshop, starting with a look at what I’m calling The Blockchain Application Stack.

The first thing Brad taught me when I joined Union Square Ventures is that one of the greatest things about working in the Venture Capital business is that you get to look at markets from a very different vantage point. Every day, we have the privilege to learn what the future is going to look like from the companies and entrepreneurs who are building it. It’s thrilling, especially if you’re a technology geek like we are.

We spend a lot of time looking at everything that’s going on with Bitcoin and the Blockchain. This involves e-mailing, tweeting, texting, calling, skyping and meeting with teams all over the world who are building next-generation technologies and applications that leverage the blockchain to undo many of the paradigms that dominate the software business today. Some are just ideas, some are products already in the market. Some have flopped, and some have gone on to raise millions of dollars in funding. Being exposed to all these has allowed us to identify certain patterns and trends that are helping us build an image of what’s coming. I’d like to begin sharing with everyone, as well as invite you to help us think through this.

This is what I think the architecture of internet applications is going to look like in 10 years. This is just a simple illustration and it leaves a lot of important insights and issues out. I’ll try my best to explain the thinking behind it below. To keep things short, we’ll run through every part of the stack from the bottom up, and do a deep dive on each in the posts that will follow.

The basic idea is that everything inside the gray rectangles is decentralized and open source. For now I’m calling these the Shared Data and Protocol Layers. Nobody controls these parts of the system, and they’re accessible by any person or company. If we use Bitcoin as an example, the Blockchain is the shared data layer and the Bitcoin protocol is a Decentralized Protocol that’s part of the Shared Protocol Layer.

You’ll notice that each layer gets thinner the higher up you go. You’ll also notice that the Shared Data and Protocol Layers cover about 80% of the entire stack. Internet applications today are built on top of open, decentralized technologies like TCP/IP and HTTP, but if you were to graph the current internet application stack like above, those open, decentralized protocols would probably only make up about 15% with everything on top being private and centralized.

1. Miners and the Blockchain.

If you know a little about how Bitcoin works, you know what miners are. In a nutshell, miners are the nodes in a network of computers who, together, verify all Bitcoin transactions. In exchange, the algorithm rewards them with Bitcoin. Because Bitcoin has real-world value, the operators of these machines are incentivized to keep them running. If you’d like to learn more about mining, this is a great explanation of how they work.

The Blockchain is the public ledger that holds a permanent record of all Bitcoin transactions, and is maintained by the miners. It’s not controlled by a single entity and it’s accessible by everyone. You can read more about the Blockchain here.

2. Overlay Networks

This is where things start to get interesting. Developers are starting to build networks that work in parallel to the Bitcoin blockchain to perform tasks that the Bitcoin network can’t, but that make use of the Bitcoin blockchain to, for instance, timestamp or validate their work.

One example is Counterparty. Another might be Side Chains. Whatever form these overlay networks take, the one thing they have in common is their connection to the Bitcoin blockchain, and how they benefit from its network effects to achieve liquidity without having to bootstrap their own alternative cryptocurrency and/or blockchain like alternative solutions such as Ethereum require.

3. Decentralized Protocols

Thanks to the Blockchain, for the first time we can develop open source, decentralized protocols with built-in data (thanks to Overlay Networks and The Blockchain), validation, and transactions that are not controlled by a single entity. This is where the traditional architecture of software businesses begins to break down. The best example of a decentralized protocol on top of a Shared Data Layer is Bitcoin, and we’re already well aware of how it’s affecting money and finance.

Companies like Ebay, Facebook and Uber are very valuable because they benefit tremendously from the network effects that come from keeping all user information in centralized in private silos and taking a cut of all the transactions. Decentralized protocols on top of the blockchain have the potential to undo every single part of the stacks that make these services valuable to consumers and investors. They can do this by, for example, creating common, decentralized data sets to which any one can plug into, and enabling peer to peer transactions powered by Bitcoin.

In fact, a number of promising teams have already begun working on the protocols that will disrupt the business models of the companies above. One example is Lazooz, a protocol for real-time ride sharing and another is OpenBazaar, a protocol for free, decentralized peer to peer marketplaces.

4. Open Source and Commercial APIs

Protocols are hard for the average developer to build on top of, so there’s an opportunity in making it easy to connect to them. Whether it’s a good business in the long term is up for debate, but I think it’s a very important part of the stack. Making it quick and easy for developers of any skill set to quickly build an application and experiment on top of these decentralized protocols is paramount to their success.

These will be either commercial services or open source projects. Good examples of this trend are Chain.com’s APIs and Coinbase’s Toshi for Bitcoin. They both serve the same purpose, but Chain is a hosted, commercial service, and Toshi is Open Source.

5. Applications

This is the consumer-facing part of the stack. Applications built atop this architecture will, in most cases, work very similarly to the ones we have today – just like Coinbase works similarly to PayPal. The big difference to consumers, however, is that because they are built on decentralized protocols, they will be able to talk to each other, just like different e-mail applications and bitcoin wallets can interoperate.

One thing I like about this stack is that it’s growing from the bottom up. First we had miners, the blockchain, and Bitcoin, and now we’re building everything else on top. As far as I know, the most significant revolutions in technology have been built this way.

This imposes a very interesting set of challenges for developers, entrepreneurs, and investors as so much of the value in the current Internet stack will be commoditized by this architecture. But the best thing about this stack is that the user is better off thanks to lower or nonexistent take rates, switching costs, individual ownership of data, and consumer market power. This is the part I’d like to focus more on in the posts that follow.

If you liked this post, you should follow me on twitter here to be notified when the next one in the series is up.