Silicon Valley tech has prided itself on being “disruptive” but cryptocurrency and distributed systems may very well disrupt Silicon Valley out of business—as crypto introduces new architectures of innovation, corporate governance, funding, and value distribution that run against the very grain of Silicon Valley.
Silicon Valley Echoes the Economic Design of the Dollar
There’s no doubt that Silicon Valley has been the center of tech innovation. Think about the opening sequence of HBO’s show —half satire, half love affair — entitled simply, “Silicon Valley.” Look at all the logos of all those tech companies all housed within miles, if not blocks, of each other..
And reigning over all of them are the folks on Sand Hill Road where almost every major venture capital firm funding these tech companies resides. (I am excited at how new modes of capitalization are growing such as non Silicon Valley home offices and crowd sourced funding; this expands the kinds of innovations coming to market.)
This model of tech innovation echoes the structure of the current financial system: a small set of vast centralized wealth funnels money to projects they select. I’ve worked in Silicon Valley for the past 25 years — I’ve developed brands for dozens of tech companies including FitBit, Adobe, Dolby, this very Medium, and many that are not consumer facing. And I can’t help but notice that this money is often funneled to folks who come out of projects that the same VC funded—the number of well funded start ups led by a former engineer from Google, Apple, Stripe approaches 100%.
This makes sense from a business perspective—you go with folks you know who’ve made you money in the past. But it’s not the ideal model for society as innovation is defined by the interests of a few people who all know each other. This, of course, skews the kinds of innovations we see in market.
The HP Garage — the so-called birthplace of Silicon Valley. This model —this myth—of the genius in the garage who will change the world is most definitely not how Silicon Valley runs today. If there was ever a meritocracy of innovation, it has been replaced by an oligarchy — innovation by the few that generates as much wealth for as few people as possible.
Which is just to say, tech funding in Silicon Valley is decidedly not a democratic system. To be fair, it’s never really pretended to be. That said, there is this lingering myth of the genius in the garage who changes the world and gets rich in the process based on the power of this tech—which echoes the American myth that any individual with the right determination can make it! That’s, alas, not how it works.
The reality is it works much as our economic system does. Just as the Federal Reserve decides when and how much money to print and then gives it to banks —not to citizens—, Silicon Valley VC firms give money to their cohorts to make products that fit their portfolio needs. They are private firms so have every right to give money to whomever they want. I’m just pointing out that the architecture of Silicon Valley echoes the architecture of the US economic system: money is kept systemically at the top (perhaps with some vague notion that this wealth will trickle down as jobs for we plebes — but that’s not in the purview of VCs, nor should it be).
Mind you, I’m not blaming VCs or Valley CEOs. I’m merely pointing out how innovation works—it echoes the model of the US dollar: a few people with great wealth fund projects that propel their wealth. This is smart business. But it’s less than ideal for the rest of us—and for society in general. I’m not suggesting at all that we somehow force change on Sand Hill Road through regulation. In fact, I’m suggesting the very opposite: we tone down regulation to open up other modes of funding that can propel modes of innovation that are not designed solely to grow the value of a few funds.
Silicon Vally Constricts Innovation
The reality today is that tech innovation is defined by the needs and desires of a small cohort of the very wealthy. We may think companies like Facebook are simply genius, tapping into the needs and desires of everyday people. And, to some extent, that’s true. designed solely to grow the value of a few funds.
But this mode of innovation is defined, and limited, by one criteria: what will make as few people as possible as much money as possible. Silicon Valley has controlled so much of tech innovation and this innovation has been crafted to line the pockets of very few. That’s a great model for some but a rather limiting model if it’s the main model for a society’s innovation.
In today’s world, innovation is not meritocratic; it’s oligarchic. It’s not what tech is best for the most number of people; it’s what tech can extract the most money from the most people for the good of a few. This of course dramatically limits innovation itself. People are not incentivized to create new tech that helps the most number of people; they’re incentivized to develop technology that will make their investors the most money possible. (There are, of course, non Valley VC funds—such as Unicef Venture Fund and the UN Capital Development Fund — which focus on innovation that helps as many people as possible.)
Please note— and I cannot emphasize this enough: I’m not blaming VCs or Silicon Valley companies. They’ve operated brilliantly, taking advantage of a system to generate wealth for themselves. There is nothing wrong with that at all. And many of the innovations are fantastic. My point is that our society’s model of innovation has been defined, and severely limited, by an economic system designed to keep wealth in the hands of the few. And that it’s a good thing to see new modes of innovation that are incentivized differently—and not just to generate profits for a few.
Enter Crypto to Disrupt the Would-Be Disruptors
Enter the technology of distributed systems and non-national digital money, such as blockchain and cryptocurrency. Crypto and distributed systems undermine this very architecture of innovation, governance, and wealth that define Silicon Valley, opening up new models of innovation, brining products to market that are not designed to benefit the few.
Here are some of the fundamental changes that have “disrupted” the Silicon Valley model which of course fancies itself “disruptive” — when in fact Silicon Valley is simply echoing the dominant economic model.
(And Coinbase Doesn’t Count)
It’s not surprising that the one big “crypto” company out of the valley is Coinbase. While Coinbase is no doubt helping the crypto industry by providing a relatively simple on ramp, it is nevertheless not a crypto company. True to the way of Silicon Valley, Coinbase is a centralized seller of goods — which the valley loves so much — meets a bank (which every tech company, from Apple to Facebook, is now becoming). Coinbase is not decentralized. Its cryptocurrency (USDC) is a centrally controlled stablecoin; the company’s governance is corporate through and through. Coinbase stays true to the Silicon Valley model of turning people into products, extracting and hoarding vast profits for itself. (And, again, power to them. They’re being smart about exploiting the system to their advantage. What I’m suggesting is that crypto initiates a different model of innovation that serves society—that is, that serves the rest of us.)
Five Key Changes in Tech Innovation Thanks to Crypto and Distributed Systems
1
VC-free funding. Back in 2017, we saw a flurry of ICOs — initial coin offerings. As in the early days of the internet, projects only needed a vision (a white paper) to launch a currency. These ICOs raised tremendous capital — one project, EOS, raised $4.1 BILLION (that’s billion with a B)—without infusion from VCs and banks. And without a live project. Of course, the SEC couldn’t allow these ICOs anymore. It needed to “protect” investors (even if these weren’t investments, that’s how the SEC decided to see it). So the SEC, in the name of “consumer protection”, sued crypto project after crypto project (Kik, of course, and now LBRY and Ripple). After all, in this country, only the wealthy can invest in private companies, “protecting” the rest of us from making money. Still, even with this SEC crackdown, the fact that an organization can bring a digital good to market relatively quickly—a utility token, NFT, rewards token—inherently limits the need, and hence control, VCs and banks have over innovation.
2
No CEO heroes. Silicon Valley loves its CEOs, those warriors of industry —Elon Musk, Jack Dorsey (note that while Dorsey is into crypto, he’s actually only into one cryptocurrency, Bitcoin; a SV product, he seems locked into thinking in terms of a monopoly), Mark Zuckerberg, Marc Benioff, Larry Page, Tim Cook. We all know their names, these presumed geniuses (and some of them indeed are). Crypto projects, however, are often of another nature. Rather than heroes at the top wielding their power, crypto projects generally have no center—they are, after all, decentralized. And with governance modules layered over blockchains, “users” — users in fact become participants—can have ready say in what an organization does. Some founders of crypto projects even remain anonymous —not because they’re “shady” (a term people love to use to describe crypto which is odd seeing as the blockchain is transparent; if anything is shady, it’s how the Federal Reserve works) but because it doesn’t matter who they are: what matters are the merits of the project whose code is open for all to view.
3
No corporations, in fact. Today’s corporations mimic the institution that grants them corporate status, the government. (Weird that people believe corporations are “capitalist” when they are a federal tax filing status; without the state, there would technically be no corporations. Just saying.) They have a centralized ruling body that extracts from employees and customers alike. Distributed systems introduce a new mode of organization—the DAO, a decentralized autonomous organization. A DAO is not “owned” by anyone. It runs as algorithm and smart contracts maintained by an ever emergent set of decentralized validator nodes (becoming a validator is open to all within the ruleset of that network). Through governance modules, participants can vote on key network activities including assigning the dev team that supports the network’s continued build and maintenance. There’s no need for corporations anymore.
4
Forget IP. Meet open source. Silicon Valley most certainly did nothing to disrupt the key tenets of ownership and control that define modern life. VCs love IP—intellectual property it owns and hence prevents others from adopting. Blockchain projects operate fundamentally differently: it’s, for the most part, open source. This accelerates innovation by an exponent. And removes the very question of having the “best” technology from the whole business equation as that same tech is available to everyone. This not only accelerates innovation, it alters how we think about innovation and business models. (For example, at Anatha, we see our innovation in multiple ways, most notably in our economic design which is a crypto sharing economy that returns value, including a percentage of inflation, to community participants, thereby creating a bottom-up universal basic income (UBI). Which is to say, the company is constantly innovating ways to create more value for the community.)
5
The end of platforms that turn people into products. Silicon Valley sure does love platforms that don’t produce anything but rather let users provide the content while the company keeps all the profits. Facebook, Uber, Spotify, Yelp, Twitter, DoorDash: they are platforms that allow others to transact —which is great, of course—and yet these corporate bodies keep all the value for themselves. It’s quite odd, in fact. Why does a company like Facebook get to keep all the money that’s generated through other people’s activity? Sure, Facebook spent money building the platform and so no doubt deserve money in return. But all of it? Cryptocurrency, DAOs, and smart contracts eliminate this cornerstone of today’s internet. Suddenly, there can be robust, elegant, powerful platforms in which there is no central body extracting all the revenue for itself. Instead, users become participants; and rather than being products that platforms sell to marketers, these people become partners, seeing money in return for their information, attention, and creativity. Imagine Spotify without Spotify: artists would be paid directly and immediately by listeners (crypto delivers automated peer-to-peer payments at near-zero marginal cost). Now imagine Uber without Uber: you call for a ride, the driver gets the money. Sure, there are trust issues in any online community but those issues can, and will, be addressed with the technology of distributed systems (there are already many such “trust” networks which are not KYC —Know Your Customer; having someone’s ID is not the only way to establish trust).
Blockchain, distributed systems, and cryptocurrency are a tech revolution that will eclipse the Internet revolution. If the Internet decentralized information and communication creating new modes of social interaction and commerce, distributed systems and cryptocurrency are decentralizing money and governance, thereby radically recasting how value itself is created, assigned, and distributed. As crypto takes aim at the very way innovation itself is framed, fomented, and funded, the very way innovation happens is changing. Welcome to the future.
DANIEL COFFEEN
Chief Communications Officer
