What can the Blockchain Industry learn from Napster?

June 2015

I recently watched Downloaded, a great documentary on the story of Napster. It really brought home how much the p2p / decentralisation movement owes to Napster and how much the Blockchain Industry can learn from its story.


Initially Napster was simply a free algorithm that allowed people to share their music libraries through a peer-2-peer network of computers with pseudo anonymity.


After over 30 million users a month and exponential growth it eventually ran into legal issues around copyright infringement. Something many people always said was a fundamental flaw that was its inevitable downfall. But in fact it was ultimately an email from Sean Parker from its very beginnings which acknowledged it knowingly enabled its users to commit piracy. It was semantics that brought it down.


Like Napster, many Blockchain startups will play in a legal grey area about what they will enable users to do in a p2p environment. You can think of these environments as regulatory sandboxes with ‘dark markets’ as the extreme case that will go on to challenge and redefine today’s laws.


Let’s say you create an entirely decentralised bank that uses crypto-currency only. In the UK do you need an FCA license? Probably. But only if you are marketing a financial service. So it’s the semantics of your offer. The same thing that killed Napster.


Let’s think of the similarities;

• Facilitation of peer to peer transactions / transfer
• Regulatory / business model sandbox
• Centralisation of servers was the legal weakness
• Napster legal case attacked Roles & Responsibilities (something still undefined with DAOs)


Like Napster it might take a couple of attempts to get new DApp (Decentralized Apps) models right. Barriers to entry have never been lower, with almost all blockchains being totally open source. The likelihood is, like Napster, the guys that will bring about the next disruption will likely have zero formal knowledge of, or experience in, the industry they are disrupting and certainly no contacts they would be wise to involve.


Yes, Napster disrupted the music industry forever, but it was iTunes that turned that disruption into a business model and Sean Parkers 2nd attempt with Spotify built on direct engagement with labels. As the documentary humbly points out it was the experienced ‘deal makers’ like Jobs that commercialised the opportunity. So history shows us that it’s less likely that a mature blockchain industry will be ran to the libertarian agenda of its early adopters from the hacker community and more so by those ‘deal makers’ that are able to involve incumbents in its evolution.


More renovation than disruption. More reformation than revolution.


Saying that, whilst the incumbent industry killed Napster and law enforcement agencies have killed Pirate Bay it was only because they had degrees of centralisation to attack. You can’t fight a totally decentralised entity and that’s what blockchains can potentially do. What if innovators where generous to release work purely for the social good which can then have its own life online. Much like The Web or the Bitcoin Blockchain. But if it’s totally decentralized then what’s the business model? It can’t be the code because thats open source. It’s not data because that’s public. So it’s got to be a service based model based on convenience or ancillary services.
Actually Napster, as argued in the documentary by musicians who backed what it represented, can be said to have brought music and the single back to its original roots as a promotional tool, not a form of revenue. It was only the mass industrialisation of music that centralised it into a controlled supply-chain and turned it into a form of revenue to protect. How many industries and markets will blockchains and cryptos rewind?


The obvious one is the financial services industry. Perhaps bringing banking back to more cooperative, member led vehicles with the consumer at the centre. It’s no wonder its coops like Fidor Bank that are becoming more relevant in a digital age.