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Blockchain technology

​Blockchain technology enables global services

Internet protocols transfer information between computers, but cannot store it. Internet protocols are only capable of transferring information between computers. For example, the SMTP protocol (simple mail transfer protocol), which is used in email communication, enables a near real-time and worldwide communication. The problems is that the SMTP protocol (and other Internet protocols) cannot store the messages sent through it. If the recipient of an email message does not write down the message (content, delivery time, relation to other prior messages, etc.), the message disappears into cyberspace. The user experience is very limited, even if the potential is significant.
Companies process and store information sent via Internet protocols directly into their own, closed, and proprietary databases. Since the SMTP protocol is unable to store the messages sent via it, a third-party company (e.g. Google) has economic incentives to build a database to store those messages. Based on the data stored, the companies build their own end user applications. On the current Internet, the primary business model is to gather data. The more data a company is able to gather, the better it can develop applications liked by end users. Better applications attract more users and their data, which in turn further enhances the companies’ abilities to create better applications. This is called the data network effect. The end result is that a majority of the population uses only a handful of services, and all the data gathered by those services is stored in the closed and proprietary databases of a few large incumbent companies.
Blockchain technology provides economic incentives for global communities to maintain open databases (the maintenance of a database is a prerequisite for being able to provide a service). The data concerning different services can now be stored in open databases that are collectively owned and maintained by worldwide communities. A blockchain protocol is made up of the protocol (business logic) that pertains to the service it provides, and the database that stores the data generated as a result of applications using it. Today, many industries have their databases siloed between thousands of different companies. A blockchain protocol can replace these proprietary databases with one universal and open database.
Blockchain protocols offer open services for application developers.

Applications are built on top of blockchain protocols

The open services of blockchain protocols serve as neutral tools for application developers. Application developers can use the open services of blockchain protocols as tools when building their own end user applications, without the fear of a third-party company closing their access to the service (platform risk). There are many examples of platform risk occurring in tech: Facebook/Zynga, Google/Yelp, Twitter/third-party developers. Open services promote innovation in society: the current popularity of blockchain protocols’ services among application developers serves as a proxy for the general demand that exists for open services. A single application may use the services provided by one or many blockchain protocols. As the services are open, they can easily be integrated with one another. Since the services are open, it is also in the interest of the developers of a blockchain protocol to have the protocol’s service being used by as many end user applications as possible. Compare this with the status quo, where cooperation between a platform and applications built on top of it eventually turns into competition.
Blockchain protocols eliminate platform risk from application developers.
Blockchain protocols introduce economic incentives to open source software development. A blockchain protocol contains programmed economic incentives for developers to develop the protocol. A developer of a blockchain protocol may be financially rewarded for open source development through tokens — developing the protocol to increase the demand for its service makes the tokens more valuable.
The services provided by blockchain protocols are intended to serve as reliable infrastructure for end user applications. Application developers use the open services of blockchain protocols in their own end user applications. Applications can be thought of as the marketing engine for a specific blockchain protocol, as their job is to increase the demand for the blockchain protocol’s service and thus also increase its value. Since anyone can build their application on top of the open services of blockchain protocols, worldwide competition will lead to better applications for consumers.

​Examples of services provided by blockchain protocols

The business logic of a service is programmed into the open source code of a blockchain protocol. Some important parameters for the service are often left open for the tokenholders to vote on during set intervals. Anyone can use the services provided by blockchain protocols by paying a fee and/or by depositing collateral. It is the responsibility of the tokenholders to maintain the usefulness (by voting on the parameters mentioned above) and reliability (by posting their tokens as collateral) of the blockchain protocol’s service.
Blockchain protocol
Service
Uniswap
Marketplace for tokens
Lido Finance
Non-custodial staking
Bitcoin
Digital gold
Ethereum
Compute
Filecoin
Storage
OpenSea
Marketplace for NFTs
Aave
Lending
Flashbots
MEV extraction
MakerDAO
Stablecoin
Nexus Mutual
Insurance
UMA
Contract of Difference (CfD)