In my Death By Node Rewards, Part 2 article I mentioned that a node reward death spiral wouldn’t even make my top 5 worries for the Internet Computer. I got a surprising amount of response from that article asking me what my top 5 worries are. This has led me to reflect a bit and here are my thoughts…
First, it’s important to stress that these are my 5 top risks and these are based on my understanding of the Internet Computer and the crypto markets (or lack thereof). Humans fear what they don’t know and don’t understand. For most of these risks, it’s my lack of understanding or lack of meaningful data that leads me to weight them heavily on my risk register. It could very well be that, with a little more understanding, I would see that some or all of these risks are mis-represented and aren’t actually worthy of attention. This list reflects my thoughts as of today and could change as I learn more or as conditions change.
Please read the below risks from the perspective of me simply answering a question that was asked. I’m still very bullish on the Internet Computer and ICP and do not consider any of these risks to be likely in the near or medium term.
Here are my top 5 Internet Computer worries (in no particular order):
Crypto is a fad - This may sound ridiculous, given crypto has become an ~$2T market, but it is still possible that the promises of crypto (decentralization, autonomy, security) are just fads. Consider the following:
It’s possible that the tech doesn’t produce the value the market expects and blockchain technology becomes a niche player in the overall economy.
It could be that legacy players (Big Tech, traditional finance, etc.) stranglehold the technology… they certainly are trying (albeit, unsuccessfully… hi Facebook Libra!).
We live in an anti-authoritarian time in history, but that could change. Perhaps a decade from now there isn’t as much of a desire for decentralization or autonomy. Read The Fourth Turning for more on this concept.
DFINITY’s runway - The Internet Computer is designed to live separate from DFINITY; a platform that can be modified by any and all organizations. In the future, we will hopefully see multiple organizations shepherding the IC’s code base. While we’ve started that journey with ICDevs, the IC is still heavily reliant on DFINITY. Should DFINITY run low on cash and should it effect their operations it could be disastrous for the Internet Computer. While we don’t have data on DFINITY’s cash position, we can tell if this is a worry worthy of our attention by judging DFINITY’s actions, particularly around hiring. Given that DFINITY’s employee base is growing, including many high-profile hires, it appears that DFINITY doesn’t consider this a concern at this time.
Venture Capital within the Ecosystem - Venture capital is the lifeblood of a growing platform, as many projects and ideas will be money-losers for many years as they build and gain their revenue base. Venture capital is needed to help businesses bring talent into their company (and to the IC platform!), to build infrastructure and to build investment trust within the ecosystem. Frankly, the Internet Computer ecosystem can not grow quick enough without sufficient venture capital. I consider it a risk if not enough venture capital is focused on the Internet Computer ecosystem. This is particularly worrisome at this time given the macro economic conditions (increasing interest rates, falling valuations). However, the flip side of that argument is that many IC businesses have recently completed fund raises and are actively hiring.
Scalability - The Internet Computer is argued to be built on a network that is infinitely scalable through the build out of additional subnets and nodes. I’m not sufficiently skilled to evaluate this claim. One worry I have is that as the IC grows, particularly exponentially, we may encounter data points that show that the network is not infinitely scalable. For example, it could be determined that a subnet has a maximum threshold for throughput that is lower than what the market desires, leading to poor app performance. Or it could be that the network can scale infinitely, but not in a profitable manner. Again, I lack the technical understanding to fully evaluate this concept, so that places it on my list of worries. Obviously this worry will be reduced as the Internet Computer scales without service interruption and in a profitable manner (burn rate starts exceeding node inflation rate).
Security - In the 21st century, cyber security should be a worry within any investment, particularly any investment in crypto. For that reason I include security (the risk of hacks) as a worry of mine. However, this is probably my lowest worry on this list because DFINITY is home to some of the most accomplished cyrptographer talent and because recent hacks have shown that they are tolerable from an investment perspective. In fact, I worry that my particular account will be hacked more than I worry that their is a hack in general on the Internet Computer.
So there you go, those are my top 5 worries in relation to my ICP investment. What have I missed? Which of these worries are ridiculous from your perspective? Let me know on Twitter: @kylelangham.
Thanks for the brief analysis. I think being dependent on a single entity is potentially the most worrisome one, which can produce an exponential destructive pattern.