This is a value for value post: see the explanation in the footer.
I've been listening to the Podfather, Adam Curry, for more than a decade and whilst I don't know when he first said it, for as long as I can remember he's said "you can't monetize the network".
Just yesterday I wrote the following on Nostr:
If Lightning works as designed I don't see how there will be enough money in to justify multi-million dollar development budgets and VC get rich quick schemes.
adamcurry : You can't monetize the network.
We can use it to move money, but running it won't be where the
Adam Curry's original statement was made long before Lightning was invented. Heck I think he may have been saying it since before Bitcoin. He obviously wasn't talking about Lightning so what was he talking about?
The original context of this statement, as I understand it, came from from his experience of setting up, fund raising and taking onto the public markets, a Podcast Network company called PodShow Inc. PodShow eventually became Mevio and from the Book of Knowledge we get this:
PodShow Inc. was founded in San Francisco, California in October 2004 by Adam Curry and Ron Bloom, as a digital media network, with the aim of helping people publish and market their podcasts, and to help listeners find podcasts that suit their interests.
In August 2005, PodShow received about $8.85 million in Venture Capital from the Sand Hill Road firms Kleiner Perkins, Sequoia Capital, and Sherpalo Ventures.
To cut a long story short, money went in, some podcasters made some money for a while but there was no real sustainable business model FOR THE NETWORK operator.
Yet to this day we see a pattern of attempts to gather up a stable of podcasts and monetize them as a "network" of shows. It hasn't worked yet.
There are monetized networks
Certainly there are networks that have been monetized. Originally the phone system was a network on which fabulous fortunes were generated: but that was usually while these remained government protected monopolies. Once privatization and competition are introduced, along with the movement from the plain old telephone system to digital communications, the network itself became less valuable.
Facebook is a network and they've obviously monetized the living daylights out of that network but we all know how. They jealously guard their network, they sell your information and they keep everything as closed as possible.
Visa and Mastercard: more examples of closed networks which make a lot of money for the network owners.
So which networks can't be monetized?
Open networks can't be monetized. In the blockchain world, permissionless and decentralised blockchains can't be monetized.
This doesn't mean you can't make money with or through these networks: but the money doesn't accrue to the owner of the network because the network isn't owned!
Obviously people have "made money" from Bitcoin, that's a decentralised, permissionless network. There are businesses using Hive which are earning money.
But what isn't happening is anyone making money at the center. This is what sets Open Networks apart.
Podcasting is still an open network and that's why it is different. I went into this in detail in my talk about Value for Value and Podcasting 2.0 and it is exactly why Adam Curry came to this conclusion years ago.
@theycallmedan and @starkerz get this
All of which is another way of saying exactly what Matt and Dan are always saying: if there is a centralizing party to a project, an ICO, VC funding, a corporation or even a foundation you won't be able to monetize it at the center. Or if you do monetize, at some point the SEC in the USA will call you a security and want to lock you up.
Yesterday I was specifically talking about Lightning. To its credit, Lightning actually is an open, permissionless system and that's why it will be unmonetizable at its core. Which may well be unfortunate for some who have pumped big bucks into core funding of Lightning:
Lightning Labs brought in $10 million from its Series A last September after its $2.5 million seed round in 2018, bringing its total raised to $82.5 million, including the fresh capital. The company has fewer than 30 employees today, Lightning Labs co-founder and CEO Elizabeth Stark told TechCrunch.
Lightning Labs is the creator and maintainer of one of the most important and widely used implementations of Lightning server software (the software is called LND and I use it). But they're not the only core software and they're running their own open source project.
Lightning's real problem comes from very poorly thought out incentivization for the routing hardware: this all links back to Bitcoin's fundamental issue of only incentivizing mining of course. Lightning requires a large amount of capital to be tied up in channels between Lightning Nodes. It requires always on servers usually with access to the complete Bitcoin blockchain history. It isn't clear that the routing fee system as proposed and in use will adequately compensate businesses which try to route payments.
Changing the Fee Structure of Lightning
Without going into technicalities, Lightning Labs are proposing a change to the way in which fees can be levied. My contention is this is ultimately because they are realizing their path to monetization and a return on the large investments they've raised, is very difficult.
However because they aren't the only game in town, and because Lightning is a permissionless network, anyone (especially if they have capital and don't need an immediate return) can show up and spoil their path to making money.
The question for Lightning is whether the network can have enough altruistic enthusiasts who are happy to invest their time and put their capital (in the form of Bitcoin) to work on beta software. If there aren't enough enthusiasts then either the network can't route enough payments or actors will step in.
Perhaps these large actors will see a way to monetize information about transfers (as has happened with everything in Web 2.0) to offset the capital and technical investment.
This is what @theycallmedan sees happening: a Chase bank or an HSBC stepping in with $30m and becoming the best free routing node on Lightning and totally destroying the business models of anyone trying to earn a return offering that service. Personally there are some hurdles to this as I'm not sure that even running a routing node in the USA isn't an illegal money transmission service.
The bottom line, however, is that the game theory aspects of Lightning and services around it don't seem to be very well thought out yet. And the dreams of building a business and making money from the core function of making rapid payments denominated in BTC seems lacking to me.
There will be businesses which use Lightning or Hive
I fundamentally believe there will be successful use case for Lightning and some of these will make money, but the money will come from offering a product or service that can't be done right now with existing payment systems, not from some kind of rent seeking at the protocol layer.
In this fashion I see Hive in a similar light. The money is in providing a service customers are happy to pay for, not directly from operating the protocol itself. For Hive, however, successful businesses which use Hive WILL drive up the value of the underlying protocol (Hive) and likely help all holders.
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"incentivization for the routing hardware" - bingo. running a blockchain isn't cheap.
"they are realizing their path to monetization and a return on the large investments they've raised, is very difficult" - they obviously didn't have their Accountant or Tax Attorney review their Business Plan very well, if at all.
"anyone (especially if they have capital and don't need an immediate return) can show up and spoil their path to making money" - spot on.
"This is what @theycallmedan sees happening: a Chase bank or an HSBC stepping in with $30m and becoming the best free routing node on Lightning" - exactly. I see that issue being very similar to the mining pool cetralisation issues. whoever can afford to buy (or even manufacture) the biggest baddest mining hardware wins, in most cases.
"the core function of making rapid payments denominated in BTC seems lacking to me" - ditto
"existing payment systems" - if @blocktrades bridge supports it, then PalmPay supports it automatically. i actually see/hear of more people using Hive, BTS and BCH though than any other point of sale currency used. they're fast and free (in the case of Hive at least). merchants don't have the patience for any transactions taking more than a few seconds and they're damn sure tired of all the fees they've paid to credit card companies.
Hive is where it's at when it comes to the point of sale.
You have our Support Brian! ❤️
Making blockchain cheap to run is the key to decentralization and one example in this regard is running a node on the Hive blockchain. The costs of running a node 1.5 years ago were so much higher than now. And the optimization continues with features like data compression, not storing the full database, and so on. Thus if the infrastructure is cheap, monetization flies over the window while true decentralization and support from different entities take place organically.
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