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web3 value exchange and network effects
How a decentralized network of radio transmitters designed for powering IoT devices has the potential to disrupt the 5G telecoms industry.
Ahoy. I’m just back from stuffing my face with breakfast tacos at Joes in Austin / SxSW, it was fun to see everyone out again this year ✌️
The one thing that’s super annoying is that 99% of the projects in the space are replicas of each other, and I just don't see the long term value in these copycat PFP NFT projects, sorry.
To me it’s not about owning a JPG, it’s about something larger than that — it’s about value exchange, how participation in a network gets rewarded, facilitated by the Blockchain.
I think the Blockchain is the single largest upgrade to the internet, and one that allows us to break away from centralized platforms.
It’s hard to see the wood for the trees, and I’ve been immersed in this space for a while now. While a lot of the discussion around NFTs, community and utility is intoxicating, it’s good to figure out what’s actually going on.
To break it down, the internet got a magic-mushroom power-up, The blockchain. And with it a lot of new features available to all users of the internet.
1) web3 is a concept facilitated by technology:
2) Which provides new functionality for the internet users:
3) Adding new features available for everyone on the internet to use:
Non fungible Tokens (NFTs)
Web3 uses the blockchain to track the value exchange between users, this is the internet’s new super power.
Taking the new features out for a test drive
The majority of the web3 projects being launched now are the beer / fart app equivalent of web3. This is the standard, initial exploration of the features, to see how things work.
It’s not that these projects are bad, or wrong. It’s that we need to launch those ideas so everyone can see what works so we can build better ideas on top of them.
So what does this mean for businesses? How is technology providing new ways for us to communicate, engage and transact with each other?
My hunch, is that value exchange will be the new currency between brands and consumers and this is the secret sauce of web3.
No longer is it about brands creating products for people to buy, it’s about rewarding participation and engagement. It’s the engagement that gets recorded for future acknowledgement in the blockchain. Creating opportunities for new types of business models that help network participants share in the value being created.
Unlike Web2, the platform economy where the aggregators of the internet and social networks make the lion share of the money (MAAMG). In web3 we have the ability to identify individuals on the network, and through smart contracts and blockchain their participation is recorded and rewarded
This allows for a more decentralized, open and transparent business relationship and exchange of value.
So what is happening to platforms?
One great example of brand/ consumer value exchange, using blockchain and decentralized applications is Helium.
Helium is trying to fix a very hard problem, create a global telecommunication network to provide connectivity to IoT device companies at a cheaper price than traditional mobile phone networks.
Think about those Lime scooters in Austin (luckily I survived injury for another year..), they need to connect to the internet in order to be unlocked or to be found etc - Helium provides this connectivity to these types of devices:
Using a value exchange model and the blockchain they have managed to create a user-installed network for those devices in only a few years with a fraction of the capital expenditure of a traditional telco.
What is Helium?
The Helium Network allows anyone to participate in building a communication network by buying or building low powered radio transmitters or hotspots (think miniature cellular towers).
The hotspot is a combination LoRaWAN (low power wide area network) router and Helium blockchain miner. These hotspots or nodes can turn their Wi-fi into long-fi or something that can connect IoT devices. In return the owners of these hotspots are able to mine crypto currency (HNT) each time someone uses their nodes via a smart contract.
At the end of 2021, the Helium Network was in over 34k cities and 161 countries thanks to nearly 450k hotspots deployed by the community. Approximately 3k Hotspots being added daily (https://blog.helium.com/2021-helium-breakout-year-cd90ebc843fa), this accelerated growth is almost all community-driven around the world.
How did this happen?
Prior to Helium there was no global infrastructure, and IoT connectivity was being offered by traditional Telcos, at expensive rates
Helium built a cheap and scalable network for IoT devices, think air quality sensors, scooter rentals, etc
They open-sourced the hardware, smart contract and software required to create a decentralized network, today the Helium network is built almost entirely on open source code
Over 20 hardware manufacturers created compatible hardware devices, you can even build one yourself
Anyone can buy a piece of Helium compatible hardware, place the device in their windowsill and according to Helium if you have 200 devices in a city the size of Austin you pretty much have full coverage.
When IoT devices connect to your Helium node/ hardware then earn you tokens on the blockchain
So how has a private group of individuals beaten global comms companies to build a global network?
The communications industry is worth over 1.6T and there is no Telco in the world that has done what Helium have done, with over 28k+ Hotspots with over 200k on backorder.
That’s right the money and power behind one of the most valuable sectors in the world was out-paced by a few thousand consumers, and the blockchain.
This has happened because:
Network participants were rewarded for their participation in creating a network of nodes
Heliums token, “Helium Network Tokens” (HNT) are connected to the hotspots, once a node is turned on and traffic from devices runs through it, that starts mining HNTs which are deposited in the wallet of the node owner
IoT companies then paid to use the network, providing liquidity in the network on a pay-as-you-go internet connection
The incentive for hotspot owners varies based on factors that include local hotspot density. The more the hotspot is used to transmit data, the higher the incentive
The community driven network worked because people felt a sense of ownership like they see their hotspot and think hey I am a part owner of a telco
Example of a Helium node in Belfast that is generating 21UTC/ month ~ $400
This blockchain application creates locked in value, network effects and a virtuous circle, where the more nodes you have the more network capacity you have, the more nodes you need.
PS: I do love a good flywheel.
Introducing Helium 5G
IoT is cool and fun and everything, but not everyone has a device. However, I would place a bet to say that you have a 5G device in your pocket.
Last year with its community’s approval, Helium rolled out its second major wireless peer to peer network called Helium 5G. This opens the door for any compatible 5G phone to connect and send data over the network.
The original Helium node setup costs less than $500. The 5G set up is expected to cost between $1-5k depending on the strength of the radio transmitter. This is still just a fraction of the cost that legacy companies will spend in shifting to 5G. Plus this cost will drop over time as 3rd party manufacturers will enter the Helium 5G hardware market and compete on differentiated Hotspots in the same way they did for the IoT connectivity devices.
Anyone who owns a node can now place it in their window and create a 5G telecommunication network in their neighborhood, where they will earn HNT rewards via its smart contract depending on their location, radio power, and amount of data transmitted by their hotspots.
Wait so now traditional companies can’t compete?
AT&T spent $22.5 billion on just getting permission to use the 5G wavelength, this doesn't include the capital required to buy the new equipment and negotiate new leases, licenses etc etc.
So now, for $5k anyone can participate in creating a global 5G network by allowing network participants to setup a network along with machines, which allows them to receive tokens in their wallet for participating.
There’s no complicated local government approval on getting permission to build towers, there’s no payment required to the land owners that the towers sit on. Just buy the device, put it in your living room and plug it into your router.
The network is built by people in a decentralized way instead of going through centralized platforms.
An application of the web3 value exchange in full effect
This network would probably not exist or certainly happen as quickly and cheaply as it has if it wasn’t for blockchain. A new business model where all participants are rewarded.
YES. I get it that it sounds scary for a network to be run by randoms people, security fears and control issues come to mind. However I think that over time the rewards of this type of system will outweigh the risks.
Maybe it reminds me of people being afraid to check in on Foursquare while they were away from their home in case it got robbed, I think that we’ll get more comfortable with decentralization and trust more in encryption.
Or perhaps we have too much blind faith in the security and protection of centralized organizations and global telcos.
I believe the best applications of web3 are going to be new business models that could not have existed without the blockchain, excited to build the future.
Thank you to Jay for the inspiration!