The Mobile Leviathan
Crypto's App Store Problem
Stuck on Level 2
“The final boss” became a popular meme on crypto twitter (CT) this past cycle referring to national governments as the last domino between crypto zealots and their decentralized utopia.
Crypto’s appeal - a transparent, encrypted ledger of record outside of the national regulatory purview - is the empowerment of individuals, retaking ground previously ceded to encroaching states.
Most people see these two systems as diametrically opposed. The “weary giants of flesh and steel” against the “new home of the mind”. Novel systems of human coordination which promise to usurp traditional institutions and replace arbitrary borders with a fragmented array of networks, joined by choice instead of birthplace.
Life is rarely so cut and dry.
As opposed to the extremists, I’m both a techno-optimist and a political realist. I believe society can change for the better while cognizant most dramatic economic and political shifts have ended in mass upheaval. I’m both a fan of national institutions and crypto networks; a proponent both can and will co-exist in healthy tension. I can appreciate the human flourishing enabled by states’ monopolies on violence while also embracing technologies which expand the freedoms which made those states tolerable in the first place.
Still, in a world of limited privacy and accelerating surveillance, it’s important to have a “check” on existing institutions - particularly in less liberally-inclined parts of the globe. A healthy option of “exit” or simply greater friction in confiscating individual property or rights. Alexander Hamilton and Vitalik Buterin cohabitating - each providing valuable services to citizens in their overlapping realms.
Today, however, crypto cannot credibly provide this “check” on nation-states. Not even close. Instead of hopping in the ring with “the final boss”, we are continually respawning back to the asteroid field on level 2…
There are plenty of lower tier rivals which have yet to be overcome.
Centralizing Inertia
Earlier this year, Moxie Marlinspike (another name of the year candidate) of Signal fame delivered one of the most comprehensive critiques of “web3”. The cryptographer’s takedown can be succinctly summarized as follows:
“PEOPLE DO NOT WANT TO RUN THEIR OWN SERVERS”
Marlinspike rightfully points out internet users have consistently chosen to outsource cumbersome infrastructure in favor of convenience. The story is familiar - centralized platforms move faster and offer better services to customers who consistently value convenience over more decentralized alternatives.
Crypto is naturally following suit with myriad examples available upon a surface level inspection. Client side applications (think user’s mobile phone or browser) rely on centralized platforms like Infura or Alchemy to intermediate a dApp’s interaction with the underlying blockchain. Retail’s favorite “immutable” JPEGs are often nothing more than a URL pointing to data on a server; subject to change by anyone with access. Users generally outsource staking to centralized exchanges.
Platforms like Coinbase, OpenSea, Infura and more move faster than decentralized protocols, better meeting the needs of end-users and, therefore, introduce “centralized” points of failure. These companies are not bad, they solve real user problems in an efficient way. However, they do present clear “choke points” for disapproving regulators in an industry claiming decentralization as a core tenant.
Will my Fraud-Proof-Bois please stand up!
While the critique is valid, crypto enthusiasts retain faith in the galaxy-brains on the space’s frontier; the successful merge another proof point for team human ingenuity.
Protocols like Pocket Network aim to challenge Infura and Alchemy
Protocols like Filecoin and Arweave are offering decentralized, redundant storage for NFTs and beyond
Liquid-staking protocols like Lido and RocketPool look to take staking share from centralized exchanges
Ethereum’s roadmap includes data availability sampling and history truncation, making the process of running a full node less cumbersome
All of these developments point to a future where core chokepoints can be de-risked in time. Vitalik himself joined the fray offering a buffet of counterpoints to Marlinspike’s assertions. (Sadly, if you are not technical or crypto native, the 8 point rebuttal may look like Elvin tongue).
In short, the points raised by Marlinspike about infrastructure’s natural tendency towards centralization - think Gmail, AI models, cloud computing, etc - may have an antidote on the horizon.
Alas, the cryptographers may not toil in vain but have a path to extinguish the troubling tendency towards platform aggregation for which Ben Thompson became a household name.
However, even in the rosy scenario where Vitalik’s rebuttal proves prescient, one giant elephant remains in the room…
The Mobile Leviathan
Today, mobile is the dominant interface.
92% of internet users access the internet on mobile
62% of internet traffic comes from mobile devices (up from 11% in 2012)1
80% of social media browsing is done on smart phones2
The globe boasts 4.32 billion active mobile internet users
The dominance will only accelerate.
The largest, fastest growing markets are mobile-first. Africa has the highest portion of mobile internet traffic at ~69%. The continent’s largest country Nigeria stands at a world-leading 82%. India - soon to be the world’s largest country - boasts 76% mobile internet usage on the back of plummeting data costs. In contrast, the US stands at a mere 48%.
The present is mobile. The future more so.
Inconveniently for crypto, the mobile operating system market is a duopoly. Outside of Google’s Android and Apple’s iOS, no competitor even registers.
Source: statistica
After grinding for the last ~7 years, web3 infrastructure may have a credible path to decentralization, consumer applications are just emerging, and crypto’s “fourth wave” promises a budding array of non-financial use cases: from gaming to social to decentralized identity to physical proof of work and beyond.
Unfortunately, the “decentralized” benefits of many applications must come into question if they serve at the pleasure of big tech’s gatekeepers. In a savage twist of fate, step changes in adoption are largely bottlenecked by two of the giants web3 is hellbent on “disrupting”.
Let’s examine the facts:
the dominance of mobile is accelerating
users have an expressed preference to access mobile via applications
applications are distributed through a duopoly
Web3’s vision of “onboarding the next billion” onto new rails promoting a “free, open internet of value”, challenging the data monopolies of big tech, and providing extra-national state-level censorship… has a problem.
Decentralize the… Operating System?
Apple and Google are effectively the gatekeepers to reaching global internet users and are subject to local regulation. The boiler plate language from Coinbase’s own filings is illustrative of many others:
“Further, these distribution platforms [App Store / Play Store] often contain restrictions related to crypto-assets that are uncertain, broadly construed, and can limit the nature and scope of services that can be offered. For example, Apple App Store’s restrictions related to crypto assets have disrupted the proposed launch of many features within the Coinbase and Coinbase Wallet apps, including our Earn services and access to decentralized applications.”
Aside from distribution being subject to mobileOS terms, the ~30% tax on in-app purchases presents a roadblock for anyone looking to monetize users via an in-app economy. Sure, we can all walk around with 24 word mnemonic seed phrases burned into our hippocampi sovereignly accessing the peer-to-peer networks of the future, but if every exchange is taxed at 30% , the viability of these “digital economies” is crippled significantly.
Sadly, all of the hard work of decentralizing web3 infrastructure will simply be subject to censorship at the level of distribution channel: a hostile duopoly, taxing aspiring digital economies, and decidedly answerable to government regulations in any jurisdiction.
That Being Said…
Many of the initial consumer applications in crypto are unlikely to need “state-level censorship resistance”. A game with ownable digital goods? A new social network with digital gifting and exchange? A fun running app fueled by token incentives?
These applications - outside of money, base layer infrastructure, and very valuable works of digital art - seem perfectly fine with “sufficient” levels of decentralization. Developer assurances the platform cannot kick them off over time. User assurances of a limit to rent extraction as the ecosystem grows. “Utility” tokens which do not trip securities laws. Open data for more thriving digital economies. In short, the necessary intermediate step between perfectly efficient centralized databases and extranational security.
For most applications, nuclear grade guarantees are not essential.
However, until crypto cracks the mobile operating system conundrum, it’s hard to see it taking on “the final boss” in the mass market. Centralized exchanges and mobile operating systems appear to be the easiest “off-switches” for governments to easily stall mass adoption. Conservatively speaking, this is probably a good thing. While often slow to evolve, laws - passed by legislators serving at the pleasure of constituents - generally provide essential guard rails.
Ironically, crypto’s road to 5 billion users may depend on regulatory anti-trust to break up the world’s largest duopoly. Crypto zealots at the mercy of the final boss to remove the penultimate one...
What a funny world in which we live :)
“Internet Traffic from Mobile Devices (2022) by Josh Howarth
Broadbandsearch.net