Fat Protocols Boost Blockchain Startups
Blockchain and distributed ledger technologies could upend the Internet as we know it. Big tech companies like Google, Facebook, and Microsoft may find themselves out-competed by nimble startups, who are taking advantage of blockchain technology to blow up the tech market.
Sounds like a pipe dream? I read a convincing article called “Fat Protocols” that argues otherwise. The article is by Joel Monegro, previously of the VC firm Union Square Ventures, who left to found his own crypto fund. Talk about putting his money where his mouth is!
In the article, Monegro argues that distributed ledger technologies really are different from previous iterations of the Internet, because they provide value through their protocols – hence the term, “fat protocols.” The owners of these technologies can both generate lots of value and capture that value, through the sale of tokens or coins.
Monegro contrasts this new value generation with the previous Internet technologies, like TCP/IP, HTTP etc, which provided a lot of value – but not for their creators. For these older technologies, the value was captured by the application layer, through companies like Google. The bigger the application layer company, the more value captured by the large companies – starving startups of oxygen and leaving them with no room to grow.
But, with distributed ledger technologies, the playing field just got leveled. Tons of startups will be able to create their own applications on these platforms. The distributed ledger owners have no reason to restrict others from using their platform – the more the merrier, as the more valuable their tokens will be. Everyone wins!
There is a dark side though. With this new, open playing field, it will be harder for startups to generate exclusive value. Since barriers to entry are so low, an innovative blockchain startup could quickly find that its best ideas have been stolen!
Fortunately, there’s a solution. Startups can apply for a patent to protect their valuable ideas. A patent is a form of property – the property of ideas. Patents are a property that can be bought, sold, and rented just like any other form of property. And, filing for a patent can increase your startup’s valuation by $1 million.
If you file for a patent for your blockchain idea, then you can defend it against copycats. Patents can be used to block others from entering your market niche. If done properly, patents will protect the heart of the business – even against others who use different blockchain platforms.
If you're a startup or entrepreneur looking to profit from the tailwinds of distributed ledgers, you'll want to make sure that you're paying careful attention in a crowded playing field. While a level playing field may be good news in that it reduces the barriers to entry, it also means that you're going to need to differentiate and protect your idea in a sea of undifferentiated copycats. But, you'll need to make a decision quickly, as the number of blockchain startups exploded in 2017--and we expect to see the same trend in 2018.
Wondering if your idea is patentable? Have a question about this article? We can answer all of your questions — just hit "contact us" down below!