1 min read

The death of platforms

Businesses are often created to act as a platform between "people who have X" and "people who want X". If these two groups of people aren't able to efficiently communicate and consistently trade X for a fair price, then there's a business opportunity.

Creating that platform has always been a centralized effort. You build the infrastructure, convince producers and consumers to use it and it becomes a self-feeding growth engine. Producers want more consumers on the platform so demand goes up. Consumers want more producers on the platform so supply goes up. Over time, the market becomes efficient and the price consumers are willing to pay normalizes.

As the creator of the platform (if the market you're addressing is large enough), you stand to make a lot of money. So, why would you want to build your platform on a decentralized blockchain? A successful blockchain business doesn't own the market. You're building something and then handing over control to the community. You can't charge a large percentage on every transaction because either:

  1. the community will lower the fees
  2. someone will copy you and compete on price

The second scenario happens with centralized platforms as well, but being the first-mover in a market carries an advantage. It's hard to steal producers and consumers from the platform they're already doing business on.

So why? Why bother with blockchain?

Because blockchain enables significantly lower fees for producers and consumers. If you don't adopt the technology now, your centralized platform will be replaced by a decentralized community, and the producers and consumers on your platform will move because they can transact more efficiently without a middle man.

Back on Monday,


P.S. Layer 1 blockchain fees are an issue, but layer 2 and alternative L1s (like Koinos) are changing this. It's just a matter of time before centralized platforms can't compete in the race to the bottom.