The Real Benefits of Blockchain Are Here. They’re Being Ignored

Roham Gharegozlou is the CEO of Dapper Labs, the company behind the viral blockchain game CryptoKitties. Brian Flynn works on the Dapper Labs product team. 

Introducing as many people as possible to the benefits of decentralization is a cause almost everyone in this industry shares. The issue is that, in making the technology more accessible, many developers are sacrificing the benefits of decentralization for the sake of convenience.

A decentralized product should keep three key promises to its customers:

• Censorship-resistant: your stuff is safe and can’t be tampered with
• Self-sovereign: you own and control your assets, identity, and data
• Open ecosystems: everyone gets value from new contributions

Dapper Labs has a few horses in this race: we started with CryptoKitties, still the most popular blockchain game by transaction volume, and recently announced NBA Top Shot, a new blockchain-based ecosystem being developed in partnership with the NBA and NBPA. We also shipped Dapper, one of the first ‘smart wallets’ for ethereum.

The value of censorship resistance and customers owning their own data is relatively well understood. Less attention is being paid to the other big benefit of crypto that centralized approaches compromise: open ecosystems.

Open ecosystems are the cornerstone

Open ecosystems enable anyone to contribute to a platform or someone else’s work on the platform and receive rewards for their work. On ethereum, we’re seeing open ecosystems appear in the realm of decentralized finance (DeFi).

MakerDAO’s DAI, an algorithmic stablecoin, is used by dapps like Dharma, Compound Finance, and many others. These decentralized lending applications provide competitive rates using Dai to attract borrowers while enabling lenders to earn from assets they already own.

Compound Finance and Uniswap make MakerDAO stronger when combined together as opposed to existing individually. These open ecosystems are even multi-layered, using smart contracts from multiple primitives to create infinite possibilities. For example, Opyn is a non-custodial trading platform built on top of Ethereum, Compound, Uniswap, and MakerDAO’s DAI.

Without Compound or Uniswap, Opyn wouldn’t be able to exist.

“The combination of Primitives will enable the creation of protocols and systems that weren’t possible prior to their existence. These emergent systems will be greater than any of the individual primitives on their own.” — The Emergence of Cryptoeconomic Primitives by Jacob Horne

Turning creators, users and developers into stakeholders

In an open ecosystem, users, developers, and the original creators can all capture value.

Users get more choice (because anyone can add features on anything), and users ultimately decide what’s important. The speed of software innovation increases because developers can use each others code like lego blocks.

Developers who build on existing code are, in many ways, marketing the original creator’s product for them, further increasing the reach of the brand. In return, developers tap into an existing and qualified user base.

As a result, trust is built through a cyclical relationship between all participating parties.

“I feel like we’re in a unique position where the users of the platform have an incentive to work hard to see the platform succeed, and if given the opportunity, we would move mountains.”

– kabciane, a KittyVerse developer creating numerous utility contracts

In the context of MakerDAO’s DAI, every developer using DAI in their dapp is preaching what MakerDAO has done for the decentralized finance ecosystem.

Why aren’t there more blockchain games?

Open ecosystems have significant long-term benefits, but as CoinDesk’s Brady Dale recently pointed out, they’re difficult to create in games. By using sidechains or centralizing the data that matters most to third-party creators, dapp developers are inhibiting potential open ecosystems tied to their experiences.

Developers are building full-stack games, with most of the data existing off-chain, resulting in less composability, less shared data, and effectively closed ecosystems.

One of the major design decisions for CryptoKitties was to compute and store the genes on the ethereum blockchain. It would have been far easier not to do so, and the resulting experience would have been more accessible — but many of the things that make CryptoKitties interesting or valuable to this day would have been possible.

Developers need access to these genes to make third-party games like KotoWars and Mythereum, both of which create more utility and value for specific genes (i.e. certain cats are more valuable because these experiences exist).

If CryptoKitties had decided to reduce the decentralized value of the game for the sake of accessibility, The KittyVerse wouldn’t exist, the game wouldn’t be as trustworthy, and the tokens wouldn’t have nearly as much value or utility to players as a result.

Open ecosystems are important outside of DeFi

Cheeze Wizards, Dapper Labs’ newest game, attempts to leverage as many lessons as possible from CryptoKitties.

It’s specifically designed as an open ecosystem: third-party developers can utilize the Cheeze Wizards API and art assets before the game launches its first official tournament later this summer. Cheeze Wizards is further encouraging developers to play in the open ecosystem via a month-long hackathon, with $15,000 in cash prizes and a whole host of other rewards as incentives.

Cheeze Wizards itself is composed of “tournaments” hosted by either Dapper Labs or third-party developers. The contract and logic for these tournaments are entirely on-chain, which means any developer can create their own tournament and take a percentage from the amount raised.

The tournament contract is a built-in business model for developers to build on top of existing IP, something that has never been possible before with second-layer experiences.

Acknowledging the reality that ethereum doesn’t scale today, CheezeWizards is really by and for the crypto community.

Blockchains and dapps can be designed so developers can earn their fair share in contributing to an ecosystem. Rewarding developers for maintaining or improving a network is the hidden treasure that’s yearning to be discovered by open ecosystems.

“In the same way that the vibrant ecosystem of exchanges and consumer experiences around bitcoin, ether, and ERC20 drove liquidity for the assets, the ecosystem created by [third party] experiences will be what drives consumer excitement and confidence in digitally scarce assets.”

– Blockchain Gaming, Separating the signal from the noise by Devin Finzer

Choices we make now will shape the future

Many developers are turning to so-called “Layer 2” scaling solutions (e.g. sidechains, Lightning network) to reduce the load on the base blockchain and provide a better user experience. Major corporations are also beginning to build on blockchain technology, compromising decentralization in favor of performance.

The pendulum for blockchain games in particular seems to be swinging towards more centralized solutions in a bid to attract mainstream users.

Unfortunately, while this means that while developers will have users interact cheaply and easily with their application, the major benefit of building software in an open ecosystem — like the network effects of other developers — will be impossible to realize.

Apps on sidechains and sharded blockchains will have a difficult time communicating with each other because of the friction and lack of standards to transport digital assets across networks.

On the other hand, applications on networks that support open ecosystems can build on each other freely and transparently, creating more choice for consumers and compounding network effects for the system as a whole.

“Decentralized systems start out half-baked but, under the right conditions, grow exponentially as they attract new contributors.”

– “Why Decentralization Matters” by Chris Dixon

We want to push the pendulum back in the other direction, toward open ecosystems and permissionless composability. Open ecosystems empower customers as well as developers, ultimately creating more value for everyone involved.

Swings image via Shutterstock