BitTorrent’s Lesson for Crypto: Decentralization Is Not a Business

I worked at BitTorrent Inc. for almost 10 years, in product, data science, strategy, and general management. In that time, the company deployed decentralized technologies for content delivery networks, folder synch, file sending, peer-to-peer communications, web publishing, live streaming, and other use cases. In the fall of 2017, it started developed a cryptocurrency integrated into the heart of the protocol — work that led, somewhat unexpectedly, to the company’s acquisition by TRON.

Having spent so much time close to what was perhaps the most broadly deployed decentralized technology yet, I’d like to share some thoughts on how the world of BitTorrent played out and what the lessons may be for the world of bitcoin and the wider crypto or blockchain industry.

Simon Morris

My takeaway: BitTorrent provided a truly decentralized system with no single technical or organizational point of failure. It was a perfect environment for breaking rules and censors struggled to control it. But, while BitTorrent was a great idea, it wasn’t a great business. Decentralization unleashes an unstoppable rule-breaking mob, but we shouldn’t mistake rule-breakers for the internet’s future winners.

A prominent political scientist once observed that political revolutions are great at state-breaking, but not so great at state-making, or replacing them with something better. The same might be true for the type of rule-breaking disruption that is unleashed by decentralized architectures. As I look at the rule-breakers, I’m especially interested in what the reaction might be — what paradigm might change (like the abstracting away of files in the media industry, as was the case for BitTorrent) — for it is here that the biggest winners may emerge.

If the objective was to secure billion-dollar exits and huge returns on capital invested, then BitTorrent Inc, along with every other enterprise in the BitTorrent ecosystem, failed.

BitTorrent quickly grew into a decentralized, slow-moving, almost ungovernable ecosystem. Yet it remained strongly censor-resistant as hundreds of millions of users continued to share all types of media files online. BitTorrent Inc. (whose founder Bram Cohen invented the protocol) built a modest-sized business distributing two of the most popular BitTorrent clients (uTorrent and BitTorrent) and putting ads in front of users. But if the objective was to secure billion-dollar exits and huge returns on capital invested, then BitTorrent Inc, along with every other enterprise in the BitTorrent ecosystem, failed.

BitTorrent was surely successful in this: it forced the media industry to think harder. After BitTorrent, it simply wasn’t possible to charge users to re-purchase all their music in MP3 format the same way people paid to transfer from vinyl to cassette to CD. In spite of ever-more sophisticated copy-protection technologies, revenue protection service offerings, and showcase trials and punishments, what actually happened as a result of this showdown between entrenched interests and technology wielded by the masses was not the victory of one side or the other, but the creation of something totally different and radically better.

In short, the whole concept of “the file” disappeared from sight and we watched the rebirth of old media in a new and better form (e.g. Spotify and Netflix) and the emergence of new media (e.g. YouTube and Instagram), all with experience-oriented value propositions and business models.

Related: Exclusive: Former BitTorrent Exec Says There’s “No Way” Its Token Can Run on Tron

Media everywhere stopped being about “the file” and started being about the experience. Consumers stopped fretting over ownership of music or movies, and are now concerned entirely with access — the experience of just listening to or watching whatever you want, whenever you want on demand. Files have been abstracted away almost everywhere and replaced with experiences. And I’m guessing the vast majority of us would agree this is a great thing for just about everyone.

But in spite of the scale and impact of the BitTorrent ecosystem, BitTorrent the company never succeeded in capturing any meaningful part of the upside from all the disruption. Perhaps a better (or luckier?) team could have found more success. There were many homegrown ideas, but we were always held back from addressing the biggest problems in the BitTorrent ecosystem (like the horrible discovery experience), as well as the most voted-for user request (anonymity), by legal concerns which might have exposed the company to vast liabilities—up to $150,000 for every file copied, or $50 trillion of potential liabilities every month.

Perhaps one of the most far-sighted beneficiaries of BitTorrent’s success was Daniel Ek — CEO and Founder of Spotify — who preceded his Spotify success with the sale of the uTorrent client to BitTorrent Inc. Although early versions of the Spotify app used a BitTorrent-like P2P protocol to save money on bandwidth, Spotify quickly realized that there was no good return on their investment in decentralizationit just added complexity that made it harder to deliver the most important thing, which was a flawless user experience. Perhaps it was apparent to Ek and company back then that leading a revolution is exciting, but it’s far better to build a new service to save incumbents from the unleashed mob.

Truly decentralized projects are extremely complex, and complexity is costly.

Bitcoin and BitTorrent are wildly different in so many ways, yet I’m struck by the similarities. In hopes of helping people avoid a repeat of history, I suggest the following lessons from the experience of BitTorrent are relevant to new participants in the blockchain revolution:

    1. Don’t worry about what decentralization is, worry about what it does. In particular, worry about whether it enables rules to be broken that unlock new ways of doing things or new opportunities that were previously prohibited directly or indirectly by rules. Bluntly, if you’re not breaking rules, you’re doing it wrong.
    2. If you are breaking rules, watch out. Rules of various types have many defenders, guardians, and enforcers. A good way to tell if you’re breaking the rules is if there’s anyone out there who actually cares and wants you to cut it out. There are many examples of rules that have outlived their usefulness, and rule-making is often slow and can be helped along by a good dose of well-intentioned rule-breaking.
    3. Intent is an extremely dangerous signal to send. And yet, for companies trying to get established and funded it is hard to see how they can be silent about their intent. BitTorrent succeeded by chancecopyright infringement on an epic scale was not what it was invented for. Bitcoin disclosed its intent but protected itself with anonymity. For any new companies in this space, remember that your stated intent will likely follow you forever.
    4. Truly decentralized projects are extremely complex, and complexity is costly. Those costs may be differently allocated in a decentralized system, but we should be very cautious of projects that are either overly optimistic about how quickly they can get things done, and especially of those that promise decentralization as a way to make things cheaper.
    5. Governance of a decentralized system is extremely hard. If you have good decentralization, then the coordination costs are going to be very high and the process will be slow and often ineffective. (As is the case for bitcoin and Ethereum.) But if you have strong coordination and an ability to execute a plan with tight discipline, you may not have a decentralized system and are quite likely exposed to the long arm of rule-enforcement. (If you’re not breaking any rules, then of course you don’t care; but, in that case, why are you even building something decentralized?)
    6. The ICO boom is the best example yet of successful rule-breaking. Although some may point to buying drugs on the Silk Road or paying off ransomware crooks, I believe these were crypto sideshows with marginal impact. Capital formation via the ICO boom was the first and maybe only strong example of rule-breaking that has yet taken place in the blockchain world. It also seems to have been effectively stopped by the enforcers, calling into question how well designed the entire decentralized system was to support this use case.
    7. Rule-breaking is not sustainable without bounds. States (and even ISPs) have enormous power. The stated intent of bitcoin to undermine rules around government control of sovereign currencies creates a challenge to governments in case it ever might succeed. China and North Korea have both demonstrated that if you control the pipes of the internet, then you control the internet. BitTorrent could have been eradicated by state intervention, but most states chose a lighter-touch approach. The same is mostly true so far for cryptocurrencies, but the scope is so much greater and time will tell at what point a state actor will feel compelled to intervene. If you invent a way for everyone to avoid paying taxes forever, well, good luck with that.
    8. The “winners” created in the wake of BitTorrent disruption shed any semblance of decentralization. For companies like Spotify and Netflix,  it simply wasn’t necessary any more, and the added complexity actually made things harder. But their success was the result of a paradigm shift where files were abstracted away. In the wake of bitcoin or other cryptocurrency systems, what will be abstracted away? What will be the paradigm shifts? And will a decentralized architecture still be relevant once the new way is identified?

A version of this post first appeared on Medium.