As an entrepreneur in the crypto space, I have unshakable belief that decentralization is a disruptive innovation. Blockchain enables an entirely new token-based business model that is intrinsically disruptive to the equity-based business model used by centralized platforms. By combining this business model competitive advantage with the right product, right execution, and new to crypto, the right token economics design, decentralized networks will thrive long-term and eventually challenge and disrupt centralized platforms.
Internet disrupted commerce because it enabled a new business model, expanding shopping from physical retail (Commerce 1.0) to ecommerce (Commerce 2.0). Blockchain will disrupt commerce for the same reason, expanding shopping to decentralized commerce (Commerce 3.0). The token-based business model removes middleman fees charged by centralized corporations and more importantly incentivizes commerce participants to work together towards the continued growth of the Commerce 3.0 ecosystem. The inclusive power of a community oriented, owned and operated (c3o) cryptonetwork marks the most dramatic shift from traditional centralized physical retail and ecommerce platforms, expanding commerce to include all categories and communities to create a $100T economy.
Internet Has Disrupted Commerce
25 years ago, Jeff Bezos founded Amazon, marking the beginning of the Commerce 2.0 era. Ecommerce was initially discounted as no threat to the physical retail which had been thriving for centuries. Today, ecommerce sales worldwide reached $2.3 trillion in 2017 and are expected to double by 2021, and Amazon has become one of the most valuable companies in the world.
Fundamentally, the Internet has disrupted commerce because it enables a new business model for ecommerce that provides better economic value to consumers via low price. Ecommerce’s competitive cost advantage over physical retail allows consistently lower prices than physical retail — a critical factor for ecommerce to slowly but steadily steal consumers from physical retail.
When it started, ecommerce provided an inferior experience to the in-store experience that was very familiar and comfortable to shoppers. Amazon smartly chose to begin with the book category, where pricing plays a bigger role in product purchase decision making. “Low price” changed buyers’ behavior from the better experience of buying on the spot and immediately starting to read to the worse experience of ordering the books from Amazon and waiting 3–4 weeks. From there, Amazon improved the experience and expanded to other product categories, ushering in Commerce 2.0 as we know it today.
Blockchain Will Disrupt Commerce
History tends to repeat itself, and the movement toward decentralization marks the beginning of the Commerce 3.0 era. The token-based business model provides better economic value to commerce ecosystem participants because it does not take middleman fees from transactions whereas the equity-based business model incentivizes taking economic value away from participants whenever possible and especially as centralized platforms reach dominant positions. By enabling a business model with competitive advantages, blockchain will disrupt commerce the same way that Internet has.
Additionally, the token with well-designed economics is a brand new tool only available for Commerce 3.0. Tokens enable Commerce 3.0 to avoid raising venture capital to overcome two key challenges facing any network-based product : 1) the bootstrap problem, in which networks tend to only become useful when they reach a critical mass of users, solved by adding financial utility when application utility is low, 2) the user-acquisition problem solved by offering a low-price incentive using token inflation.
Commerce 3.0 — a $100T Community Oriented, Owned and Operated (c3o) Economy
Commerce 3.0 is defined by a community oriented, owned and operated (c3o) commerce cryptonetwork. Instead of few centralized storefronts, Commerce 3.0 is composed of millions of community-oriented storefronts, enabling product curation based on local interests, hyper-local pricing, and pay for promotions — very effective tactics used by physical retail stores to increase product purchases but hard to replicate by centralized ecommerce. Furthermore, network participants are owners of Commerce 3.0 by holding tokens and hence are incentivized to work together towards the continued growth of the network, overcoming the “continued cooperation” challenge which slows down the growth of centralized platforms when they reach dominant positions.
The community ethos enables commerce to become inclusive, marking the most dramatic shift from traditional centralized physical retail and ecommerce platforms which are inherently exclusive. The power of inclusiveness will propel Commerce 3.0 to expand to all categories globally, even those not currently served by or even considered “commerce”, from physical goods and digital products to digital assets, social selling, and peer-to-peer marketplaces as shown in Figure-1.
The critical requirement for blockchain to disrupt commerce is a middle-layer protocol on top of the blockchain layer that provides the communication infrastructure among participants and executes the token economics design to incentivize transactions and rapid growth of Commerce 3.0. Key to the success of any token-based project, well-designed token economics should create a “token economics network effect” that can kill category-specific middle-layer protocols that only enable smaller, more fragmented networks and economies.
Commerce 3.0 is fundamentally different from today’s landscape where different categories are dominated by separated centralized corporations and it will become the only ONE network to power the majority of all GLOBAL transactions, potentially reaching $100T in size. Decentralization, with a new business model that has fundamentally competitive advantages enabled by blockchain, is truly a disruptive innovation.