Mindset for the Internet Computer

Who is the IC's biggest competitor?

This will be a different style article for me; one with almost zero data analysis. However, I think there’s a question that I’d love to get the community discussing, one that gets at the heart of what the Internet Computer is trying to become. Who is the Internet Computer’s biggest competitor? How you answer that question probably frames how you view the IC and its progress.

Competitor 1: Ethereum

It makes sense to think of Ethereum as the main competitor to the Internet Computer. Both are smart contract blockchains. Both operate in the general crypto-space. The Internet Computer’s origin story stems from the creation of Ethereum.

In this mindset, the Internet Computer is superior in many aspects compared to Ethereum’s technology platform and the products built on Ethereum should be built on the Internet Computer in a more efficient and value-add manner. This would include applications and products like NFTs, gaming, identity management and DeFi.

The Internet Computer has many technological advantages over Ethereum, so it seems feasible that the IC could compete. Some technical advantages include orders of magnitudes faster finality and block speed, infinite scalability, a reverse-gas model favorable for adoption, significantly lower transaction costs and the ability to run WASM in a smart contract.

There are reasons why the IC might not succeed in a competition with Ethereum. First, and foremost, Ethereum has a strong first-mover advantage, with almost seven years since it’s original deployment. There is already a plethora of developers and applications on the Ethereum network and there is a cost for those to jump chains to the IC. Network effects are strong on Ethereum. Ethereum is far more decentralized than the Internet Computer at this time. However, I think the biggest hurdle to the Internet Computer in its competition with Ethereum is there is already heavy competition to replace Ethereum, chains like Solana, Cardano and Avalanche. The Internet Computer, in this model, is not competing with just Ethereum, but with all of Ethereum’s competitors.

Competitor 2: AWS (and other cloud-storage)

I see a lot of comparisons between the Internet Computer and cloud-storage/computation offerings like AWS and Azure. I personally use this comparison for understanding the market opportunity for the Internet Computer. It’s easy to conceptualize the Internet Computer as a vast data warehouse with data and computational services built on top, very similar to how Amazon Web Services and Azure operate.

In this mindset, the Internet Computer is a more decentralized and more secure platform that introduces less platform risks due to the improved security model because it lacks the need to trust a third-party like Amazon or Microsoft. Under this view, the Internet Computer should attract developers building any type of web application that would typically host on AWS, which is to say almost all current web applications.

There are a few really good argument that the Internet Computer can compete on this field, including:

• Internet Computer apps can’t be shut down by third parties (however, the NNS could, in theory, vote to shut down a canister)

• The IC is a natively more secure platform through cryptography.

• The Internet Computer is better at data replication

There are also reasons why the Internet Computer will struggle to compete with Amazon Web Services and its likes. It is unlikely, due to blockchain inefficiencies, that the Internet Computer will be able to compete on storage and computational costs (although, a reduction in development effort and developer costs might make this point moot). Amazon, Microsoft and Google have vastly more resources to compete and have established relationships with almost every major software company. There is a much deeper bench of developers for the cloud-hosting services than there is for the Internet Computer. Finally, service offerings are far more expansive for AWS. For these reasons, I believe it is unlikely that the Internet Computer will be an AWS killer (at least not in the next 10 years).

My take is that any competition that the Internet Computer will provide AWS and their like is on these fronts:

• Applications that risk being de-platformed. This includes applications that could be considered questionable content (such as OnlyFans, alt-political websites, etc) and crypto apps using a cloud-hoster (like AWS) for its front end. It also includes any application that might find itself in competition with a cloud-hoster (would Amazon allow a direct competitor to remain hosted on AWS???).

• Applications that require higher-level security. This includes applications with highly-confidential data and applications that perform disaster recovery.

• Smaller applications that can go to market faster on the Internet Computer through a reduction of the technology stack required.

Competitor 3: Web 2

I hate using the Web 2 / Web 3 nomenclature because I don’t think that context captures what I am trying to say. When I say Web 2 is a competitor to the IC, I don’t mean that Distrikt should replace Twitter or DSCVR should replace Reddit (although, I think both of those statements are true). Rather, the technology stack that Web 2 is built on is a competitor to the Internet Computer. Web 2 products are close to reaching the bounds of what is capable on the Web 2 technology stack and it is time for another option to be available.

In this mindset, the Internet Computer opens up areas of innovation that were previously not possible in the Web 2 technology stack and those innovations attract users. This results, not in a clone of web 2 products deployed on-chain, but rather in new innovative end-user experiences and options that were never possible.

Here’s an example of innovation on the Internet Computer that would be extremely challenging on the Web 2 tech stack: DSCVR recently airdropped “OG Medal” NFTs to early users (designed by @DKLORD89). These tokens provide access to DSCVR portals and features for which other users don’t have access. These tokens are also transferrable and are currently able to be listed for sale on Entrepot. That whole technology stack (airdropping NFTs, gating features and access based on the NFTs, allowing inter-operability between apps) is extremely challenging on Web 2. And what value does it have? The OG Medals have a current market cap of 66,000 ICP ($1.1M). All of that value is created because of the innovation possible on the Internet Computer.

When thinking of the Internet Computer as a Web 2 replacement (or a complement) it’s challenging to identify the value of such a switch because it depends on the innovations that are discovered and deployed. Could someone have predicted the eventual value of the internet back in 1992?

The main reason why the Internet Computer can compete against the Web 2 stack is that it introduces technology solutions that are not possible on Web 2 or in which a Web 2 solution would have significantly more friction. Transfer of money and digital property is a clear example of a use case that the Internet Computer offers a competitive advantage over the Web 2 stack. Other use cases include identity management, group collaboration and decision-making, cross-application functionality, data portability and security. However, the most pertinent use cases are the ones that innovators will come up with in the future… the ones that we haven’t thought of because they are outside the realm of possibility of the Web 2 technology stack.

There are reasons to believe that the Internet Computer will struggle to replace some or most of Web 2. Those reasons are mostly tied to the amount of developers capable of programming on Web 2 vs. the Internet Computer and the ubiquitous and network effects of Web 2 applications.

Market Potential

Your answer to the question regarding the Internet Computer’s biggest competitor probably shapes your view of the market potential of the IC.

If you think Ethereum is the bigger competitor then it would make sense that the absolute largest market potential for the Internet Computer (as of today) is the market value of all alternative coins (Ethereum, Solana, etc) combined, currently around $1 trillion.

If you think AWS is the bigger competitor then it would make sense that the absolute largest market potential for the Internet Computer (as of today) is the market value of all cloud-host services (AWS, Azure, etc.) combined, currently around $1.5 trillion. Note - this is an estimate of the market value of the cloud-hosting offerings for these companies, not the market value of these companies. This estimate was based on AWS having a third of the cloud-hosting market share and being valued at $500 billion.

If you think Web 2 is the biggest competitor then, as discussed above, it’s very challenging to estimate the maximum value of the Internet Computer. Could someone fairly evaluate the market potential of the internet in the early 1990’s? However, a rough estimate could be a percentage of the world’s total GDP. If the IC contributed just 1% to the world’s GDP (I saw many estimates that the internet currently contributes between 3-8% of the world’s GDP) then that would mean the IC produced about $0.8 trillion in value every year, which might make the maximum market potential of the Internet Computer (as of today) around $15 trillion using an 18x multiplier (similar to a P/E ratio in stocks).

Final Thoughts

I would love to hear your thoughts on who the IC’s main competitor is. Let me know at @kyle_l on Distrikt or @kylelangham on Twitter.