DLT + AR: The Killer Blockchain App?

May 2018

Bridging the gap between protocols and people

by Harry McLaverty 

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DLT + AR: The Killer Blockchain App? Outlier Ventures

Hopefully, we’ll be able to see Tupac back on stage, but this time without the holograms or the smartphones 💯 (Source)

 

Moving towards a true DLT-based digital lifestyle

Recently it seems like everyone from C-suite corporate bankers to the local barber has been an expert on Ripple, Status, and regular old Bitcoin. But so far, distributed ledger technologies have not affected most people’s lives in any meaningful way. We believe one of the missing ingredients is augmented reality.

We can think about the missing ingredient through the idea of ‘digital lifestyle’ projects that use emerging technologies to solve problems for people. Their go-to-market strategy can either be through business-to-consumer (B2C) — see SoundCloud or business-to-business-to-consumer (B2B2C) — see Mira and Ultinous. We have been looking for ‘true’ DLT-based digital lifestyle startups: projects using decentralised infrastructure and tokenization to incentivise developers to build experiences and users to engage within the environment.

This piece explores the theme of DLT substrates that underpin augmented reality technologies. Specifically, on the protocol characteristics and consensus mechanisms that an AR environment would demand; existing distribution methods for application-layer projects, and finally, the positioning of augmented reality within the ‘decentralisation movement’ and what is still required to reach the vision of a consumer-centric Web 3.0.

 

Decentralised AR Protocols Require a Proof-of-Location

DLT + AR: The Killer Blockchain App? Outlier Ventures

Ethereum may not have the answers we’re looking for — at least not yet 😭 (Source)

Past theses on Web 3.0 typically imply that consumer-facing applications will not develop their own distributed ledgers — the majority assuming that app layer solutions can be built on top of protocols like Ethereum. Historically, inherent problems with the Ethereum protocol have been in its challenges to scale, although there have been other issues raised including lack of a native identity solution, high transaction fees, security concerns around solidity, and a consensus mechanism that is liable to centralisation of mining due to ASICs use and is prone to high energy usage. Since then, solutions like Raiden, Plasma, generalised state channels and sharding have been proposed to solve some of these scaling problems. 

rather than purely acting as a postage stamp to prevent excessive consumption. Our killer application will need a fundamentally different consensus mechanism.

The consensus mechanism that the protocol uses is often seen as a differentiator for blockchain 2.0 projects aiming to improve on existing proof-of-work implementations — examples include proof-of-work (PoW), proof-of-stake (PoS), delegated proof-of-stake, useful proof-of-work, proof-of-time, proof-of-space, proof-of-activity, proof-of-burn, and many others.

(more here). In a nutshell, it ‘allows users and autonomous agents to privately record authenticated location data at times of their choosing, and then reveal their personal information at their discretion, by presenting a fraud-proof location claim’. Consensus is reached in different ways in different Proof-of-Location mechanisms, but in the case of Foam, they use a ‘distributed network of synchronized clocks’ rather than relying on GPS. Other protocols like Platin may well use a different solution.

Proof-of-location is crucial for AR projects like ZeroTerra, Snatch, and FOAM which use processes like zoning to prove where people are engaging with content or where an advertiser could display advertisements. Protocols with PoW, PoS or hybrid consensus mechanisms are not designed to capture and validate location. Some have already pointed out that the data used to verify these locations is provided by centralised authorities which act as ‘data source oracles’. Proof-of-origin is another consensus mechanism used to incentivise several devices to validate the data behind these locations — the more devices that can reach consensus on the location, the more likely that location is valid. Nonetheless, DLT+AR protocols will either need refined consensus mechanisms that include validated location data.

 

Decentralised projects must find untapped markets to gain a foothold

For a protocol level project to build out a direct-to-consumer proposition, the team needs to serve isolated market verticals. A great example of this is Walker & Company brands – their founder Tristan Walker specifically created a shaving kit that stops people of colour from suffering from razor bumps, are seeing strong traction in that market, not to mention an enviable list of investors. The same as shaving, the application layer is where things become interesting because this is where consumer views matter — no matter how good your technology if your product isn’t useful to people then it will fail.

Deep tech startups typically develop relationships with corporate partners to scale quickly. Similarly, a consumer startup might look to build relationships with retailers, social media giants, and other lifestyle brands — the common denominator is that these are all business-to-business interactions.

Two crypto projects that are doing this well are ZEN, and YOVO Mobile:

  1. ZEN is creating a new social media proposition targeted at 14–18 year old amateur videographers, think of it like decentralised Vine — acquired by Twitter before the former was scrapped, namely because Vine’s management team didn’t understand their core demographic (24% of American teens used the app, 31% of US users from a black, non-Hispanic background, 24% Hispanic, and 22% white, non-Hispanic in 2015), and the company had a weak revenue model, worsened by its acquisition by a company with even weaker inclusion.
  2. YOVO Mobile is a mobile service oriented toward crypto holders (but also well positioned for Generation Y & Z) whereby consumers earn money for using their mobile phone service, instead of paying for it. Although the concept is very appealing and applicable for all, as a mobile virtual network operator, their partnerships are based around using the infrastructure of existing network operators, rather than necessarily promoting the new service to their existing demographic.

We can hold off on Vine 2.0, ZEN is stepping things up with decentralisation.

Aside from age and ethnicity, the other major untapped market that most projects miss in this space are developing economies — particularly Latin America, Sub-Saharan Africa, South East Asia, rural China, and Central & Eastern Europe, which either have large, growing middle classes, or large populations that currently use feature phones, if they use phones at all (e.g. Uganda at 4% smartphone penetration, Pakistan at 6.5%, compared to South Korea at 88%, more here). Other propositions that are developing differentiated solutions include WorldWifi aiming to create a decentralised free wifi network, and Props aiming to build a virtual economy for video creators including live-streaming, video chat, and premium content. Either way, tapping a market not dominated by tech giants will be critical to gaining a foothold and building relationship with consumers directly.

 

Where does this fit into the bigger picture?

Neil knows a lot about building economies in large, untapped markets 🤔

To contextualise how this shift will happen and why let’s look back to the history of the web, and decentralisation within that (see here, and here for more in-depth explanations):

  • Web 1.0 was largely characterised by digitisation, infrastructure building, and one-to-many interactions between people — most were consuming written content through browsers, but not creating it. In its early days, the web was used for information access, often for academic purposes, and had a very high barrier to entry. One could call it a phase of ‘high materialisation’. The main way consumers could interact was through desktop computers. cNet, the New York Times, and ESPN are examples of companies that became successful during this phase.

A Cypherpunk’s Manifesto

Eric Hughes Privacy is necessary for an open society in the electronic age. Privacy is not secrecy. A private matter is…www.activism.net

  • Web 2.0 has been dominated by social — allowing people to create and share content with their friends, predominantly through photo and video. There was an increasingly large focus on collaboration, conviviality, and user accessibility — mostly through ‘feed-driven’ apps on mobile hardware. This phase gave way to the sharing economy, which in turn drove a movement toward global dematerialisation — almost repeated like a mantra, people no longer own their own vehicles, stay in hotels, or complete their own chores. Companies including Facebook, YouTube, Yelp, and Blogger saw success in this phase.

What exactly is the sharing economy?

It’s an umbrella term that is often misused, and China’s interpretation is very different from the West’s www.weforum.org

  • Web 3.0 is expected to be the era of the ‘Curated Web’. We are overloaded with content we don’t want, yet only a small number of people create it. We have seen only a handful of infrastructure improvements and much of it is centralised. The smartphone market is at a point of saturation, and we have reached ‘peak stuff’ — device addiction aside. To overcome these issues, we can expect the unbundling of the smartphone which will entail dematerialisation within the home and on a personal level, which in itself is underpinned by a new suite of ‘smart devices’ and a distributed software architecture to empower them. On the application layer, we can expect companies including Tumblr, Pinterest, and Twitter to success (presuming they are able to tokenise, more here), and on the infrastructure layer, we can expect market-specific data infrastructure to succeed configuring identity and reputation, consensus, ledger, and databases components to match the use cases requirement.
DLT + AR: The Killer Blockchain App? Outlier Ventures

Hopefully, this is just a minor blip in an otherwise screen-free future 

It is important to understand the notion of the ‘unbundling of the smartphone’ because, at the moment, most teams are optimising their AR services toward mobile, while the smartphone market is saturated. In fact, the IMF has found that in April, smartphone shipments declined for the first time on record, and Asia’s high-tech manufacturing sector is moving towards ‘car computers, smart appliances and wearable devices’.

Are We Going Off ‘Stuff’?

We already see this with the tablet, the watch, as well as speakers when at home, and earphones when on the move. In the future, we can expect the product that a significant portion of the population already knows how to use, are comfortable wearing in public, and are ultimately unobtrusive, will be the ‘smart device’ to move us toward a screenless world. With the added benefit that their prescription could be changed without their disposal, and ideally if they can also take photographs and record video, we believe that this device is the digital, AR-enabled contact lens.

 

What Comes Next?

To come back full circle, we believe that projects with their own protocols, differentiated by novel combinations of consensus mechanisms, that require decentralised applications built on top them early that target large markets untapped by the existing tech giants will be the ones that drive a fundamental paradigm shift and allow people to understand and appreciate the power of distributed ledger technologies.

Although the vision presented is bold, we need to ensure that it works for everyone — otherwise, what’s the point? Specifically, considerations into age, manufacturing monopolies, and wealth distribution must be taken into account, without even mentioning the current technological limitations.

Better Vision for the Poor (SSIR)

Estimates for the number of poor people worldwide who need eyeglasses are startling. The World Health Organization…ssir.org

Thinking about age, how would this work for those unable to put contact lenses on to their eyes? They may be able to wear digitised glasses like the ones that EyeCo are rumoured to be developing, perhaps even fitted by a company like Mira, but then again the AR functionality may make it difficult to discern between reality and fiction, which is potentially disastrous for infants and the elderly. Furthermore, many people still don’t like the idea of putting a contact lens on their eye, so those people will need to use smart watches as a stepping stone and to use their mobile phone for photography and gaming. Otherwise, people in the poorest regions like East Timor still have a significant barrier to entry. They already suffer greatly as a result of poor eyesight, but with material developments to the economic viability of such lenses and ensuring that engineering and manufacturing talent is nurtured in such regions to build out this new economy, we may even see optical and technological leapfrogging take place in tandem — that would be truly remarkable.

Leapfrogging is only so good. Africa needs to make things. – African Arguments

Africans remain consumers of technologies invented elsewhere, not their creators. Investment in infrastructure can have…africanarguments.org

From a technological perspective, 

(e.g. for location verification) wherever possible. Token distribution mechanisms such as airdrops could be used to build out the new economies by allowing people to make a living from it.

The spectacular power of Big Lens | The long read

If you have been wearing glasses for years, like me, it can be surprising to discover that you perceive the world…www.theguardian.com

In the spirit of free market movement, avoiding centralisation where possible is crucial to ensure we do not enable the next phase of coca-colonisation — in this case, both from a protocol and a hardware perspective. At the infrastructure layer, companies could buy swathes of tokens and buy up large amounts of advertising space (which could be countered by mechanisms such as quadratic voting), and at the device layer, Big Lens is already an oligopoly, arguably more so than Big Tech by lens manufacturer Essilor, and frame manufacturer Luxottica which are in the process of merging. Given that Luxottica already has a distribution network covering over 150 countries, so finding new markets for a foothold will be a monumentally difficult challenge — we can assume that ‘Luxottica protocol’ is not in development for the time being.

Taking a step back away from lenses, we must also entertain the idea that this is not necessarily the only use case which requires a new protocol and consumer-oriented distribution. Consider the example of theme parks; at Disney World, children use their MagicBand to unlock their hotel room, for fast-track access to rides, and even to buy food and merchandise. The MagicBand can only be used inside the theme park (a closed ecosystem) and the children are using the devices to spending points (the ecosystem’s currency) that are tethered to fiat currency. It is not a stretch of the imagination to imagine a scenario where the children spend tokens and each transaction is recorded on a distributed ledger. It is unlikely that the Ethereum blockchain can scale to support enough transactions per second without the aforementioned scaling solutions or without state channels, so they will likely have to develop their own solution — in fact, they already are.

Naturally, the contact lens solution has its faults — namely, despite the fact that these lenses could adapt to people’s worsening eyesight, especially in tandem with laser eye surgery, it is very likely that screens themselves are making people’s eyesight worse, it does little to solve the greater issue. If I were to hazard a guess on how we will solve this, I would look to implants like Altman-backed Neuralink to enable the dematerialisation of sight correction and for us to eventually go completely screen-free, but this will most likely take place in a Web 4.0 world complete with the ubiquity of reservoir computing to handle the significant computational overhead, where we could biologically modify our vision, and perhaps other senses as well.

There is clearly work to be done on a technological and optical level long before the vision becomes a reality. To achieve a people-centric Web 3.0, we will need infrastructure-layer protocols that are either underpinned by new consensus mechanisms or novel combinations of existing ones, that require token distribution to software engineering teams or independent developers that directly serve customers, to underpin a suite of screenless devices, most importantly the digital, AR-enabled contact lens.

We believe that

and so developing protocols to build new economies that encourage people to build augmented reality dapps is the first step.

As usual, any analysis of tokens or token sales does not constitute investment advice or an endorsement from Outlier Ventures.

This is the first of several blogs that will explore the ‘Convergence Ecosystem’. For a deeper insight into how augmented reality fits, read through the Convergence 2.0 vision paper. Also, take a look at this post from Fred Ehrsam who has spoken on DLT+AR/VR convergence at a high level in the past. If you believe that you can help build toward this vision either as a protocol, startup, corporate, NGO, fund, as an individual or in some other way then please leave a comment. 

With thanks to Michael, Artur Safaryan, Elizabeth Lam, Carole Egerton, Richard Skaife, and Lawrence Lundy-Bryan for valuable conversations that shaped this piece!