Thread by @backus

🏦 Tokens are always presented alongside speculative decentralized tech. How can we understand tokens if we don't get the product?

Let's talk about tokenizing a protocol you know: BitTorrent

Getting tokenization right could create an efficient market for content.

Thread 👇

Do you know why BitTorrent is so fast? The protocol uses game theory in interesting ways to make sure others upload while they download.

In other words, it already uses economics as a tool for optimizing protocol incentives

https://twitter.com/backus/status/999519259628732416

BitTorrent's game theory is a bandwidth-only barter scoped to users still downloading. Adding an in-network currency would:

• Incentivize seeding after downloading is over
• Encourage long term seeding (file hoarding)
• Create a profit incentive for improving the ecosystem

Wait! Don't @ me yet. I am aware that…

• Private trackers enforce ratio requirements
• You can use BTC/ETH (I’ll argue later it’s not equivalent)
• BitTorrent was acquired
• Projects are working on this

I’ll cover private trackers and BTC/ETH. This isn’t about projects

BitTorrent clients could negotiate a token exchange rate for download speeds. An uploader might say

> my rate is 1 TRNT/Mb per 100 Kbps

So 50 Mb at 500 Kbps would cost 250 TRNT

I'm simplifying a lot; this stuff is HARD. Basically, clients price transfer speed and content value

Tokenizing BitTorrent would fail if users had to buy from an exchange first. Assuming new users don't have tokens, clients could negotiate a short term token loan. For example:

> My usual rate is 1 TRNT/Mb per 100 Kbps. For every Mb I give you, you owe me 1.1 TRNT (10% interest)

Short term token loans could make tokenized BitTorrent feel identical to today. Users never deal with the negotiation, it all happens behind the scenes!

If others are downloading the same file the new user could just upload to others and quickly pay off the loan.

So, we’ve tokenized BitTorrent behind the scenes. Now what?

If we can convert the tokens to fiat, we have a profit motive to seed! We might see:

1. Strategic seeders speeding up downloads for all
2. Better long term file retention
3. Bounty markets for desired content

🔥🔥🔥

Private torrent tracker users pay for servers (“seed boxes”) w/ fast upload speeds to improve their ratio

Tokens for seeding would bring seed boxes to public trackers with the same goal of being first seeder on popular torrents.

First seeder on GoT? Fast server? Easy money!

In the early days of file sharing, members of "The Scene" raced to copy new music from one FTP server to another to improve their ratio.

With a tokenized profit incentive to seed, people would race to mirror content to public trackers.

Good for decentralization and redundancy

If racing to seed new torrents in order to earn tokens is the equivalent of Wall Street’s high frequency trading, what is long term value investing?

Look for content that is unpopular enough that no one else might be seeding in a year, but popular enough someone WILL want it!

File storage is cheap

Amazon Glacier charges $0.004/GB per month. Storing a standard def movie for 10 years would cost $0.336

Want to long term value invest by seeding in the tokenized BitTorrent market? Find unpopular files someone will want where it is worth storing for years

In financial markets…

• News is quickly priced into stocks
• Firms buy undervalued stocks
• Investors arbitrage between markets

Tokenizing BitTorrent is similar:

• Popular downloads becomes faster
• Hoaders find undervalued content
• Seeders arbitrage between trackers

Imagine if you could place a bounty on a certain file you want.

> I'll pay 1,000 TRNT for a leak of the new Star Wars

Private torrent trackers have success with this using upload credit. A decentralized token bounty would take this to another level. Huge incentive to share!

Private trackers enforce centralized upload ratios. Tokenized BitTorrent decentralizes and improves on this:

• Tokens are portable between trackers
• Token rates can be negotiated based on demand. Private trackers manually adjust requirements when current ratio is too hard

Tokenizing BitTorrent introduces global and decentralized upload ratio-like incentives even if you can’t cash out to fiat

Even without a profit motive, global upload incentive means you can benefit everywhere and you don’t lose big if OiNK or what.cd is shut down

Fitting network payments to user incentives is hard!

By using a token instead of ETH/BTC, the protocol designer can experiment in early phases and decentralize proportional to risk tolerance. A BitTorrent token fork is reasonable, BTC not.

Big reason to consider tokens IMO

Building decentralized protocols is hard. Historically, file sharing businesses are hard to profit from.

I think the fat protocol paradigm is a strong argument for tokenizing BitTorrent, specifically. Launching a protocol isn’t just tech. Network effects require marketing.

As mentioned, using a token instead of BTC lets you hedge risk while experimenting by keeping the possibility of a fork open

You can also use a token to incrementally experiment w/ incentives. Start with a closed network token you can’t cash out then support fiat exchange later

PayPal scaled past network effects by giving $5 to every invited user.

Decentralization liberates, right? Tokens provide a low cost alternative that let you try things like tokenizing BitTorrent and overcoming network effects without $100M in VC funding

Yeah, you can fork a tokenized protocol and add Ethereum or Bitcoin.

Who is footing the marketing bill for bootstrapping your hostile yet philanthropic fork? It’s not about greed driving protocols, it just doesn’t cost $0 to get users.

I intentionally didn’t cover a few topics:

• Scaling blockchains
• Decentralized identity and Sybil resistance
• Fraud resistance

These are what crypto companies will spend years building. I just wanted to share the vision for tokens I think others might be missing

👆 Is you enjoyed this thread, I also have a blog post on tokenizing BitTorrent.

The post goes into more detail while this thread clarifies and expands on some things I didn’t cover in the post.

Thanks for reading!

medium.com/@jbackus/what-…