New Excavation Techniques in the Gold Rush for Digital Commodities
Presented by MoneroMahesh @ EthBoston'23
So this talk is titled: should Wireless networks have a crypto backbone? And given this is EthBoston, the answers is obviously yes, for a number of inevitable reasons as you’ll see.
That said, little has changed in 3 decades. Wireless networks: 4G, Wifi, Bluetooth, have been among the biggest catalysts for the last couple decade’s growth, and there’s no sign of that trend slowing down. But when you think of wireless you probably think of telco MNOs like AT&T, or fiber providers like Comcast. And you’d be right to. The last century has been defined by centrally scaled monopolies. But that’s all about to change with the coming of age of Decentralized Wireless, or DeWi.
But what even is a decentralized wireless network? Very simply, the DeWi movement is based on the idea that wireless networks make more sense for decentralized communities of motivated small businesses and people to deploy and maintain. What does that look like in practice today? Putting a router the size of a mango in your window, providing the people around you with strong internet connectivity, and getting paid instantly for doing so, usually in crypto. Pretty cool right?
Here's the kicker: If you can get enough people to do it, you can create infrastructure that is able to provide better service than incumbent telcos, at a significantly lower cost. DeWi is a massive democratic movement that aims to give millions passive income by monetizing assets they already have access to: like real estate and internet connectivity .
Some protocols are already operating at scale. To highlight some:
Helium reached a million nodes in their attempt to build a network for smart devices to communicate with each other. Why? Because nobody wants to buy an expensive phone plan for their smart Fridge – Helium is the first mover at scale, but there are others across a range opportunities
Wifimaps has bootstrapped the creation of a Wifi network with hundreds of millions of existing routers using a token model - they’ve created a community with over 4mm daily active users that are mapping and adding wifi hotspots globally to the network, and offer wifi powered phone plans on a pay as you go basis
Finally the trillion dollar prize, 5G: multiple players like Helium, Xnet and others are in the race to use this decentralized model to create a 5G footprint and really challenge the TelCos at their own game. It’s really early, but we are more confident by the day that they will win
At the highest level 3 characteristics of DeWi define its usefulness, which help us frame why this is important now. Networks are
- Open source and transparent
- Extremely resilient to physical attack
- Very powerful and cheap
So the biggest question mark is around timing and resources - but there’s never been a better why now for four different reasons:
Incumbent Challenges: TelCos have unprecedented and fundamental issues with their business models and levels of borrowing
Foreign Governments: Foreign sovereign countries (think China) are gaining hegemonic power, and use telecom infra as a form of economic colonialism to control foreign countries
Tech Progress: The move from a hardware defined to a software defined model requires a departure from the “tower” model that has dominated the industry for a century
Demand: A continued exponential increase in global demand continues to accelerate, and will only increase in scale as the internet grows
One:
Let’s start with the incumbent issues: COVID left incumbents in the US in a very tricky place because they borrowed. A LOT! And against this backdrop, subscriber growth has vanished, and switching costs are disappearing, leading to far less revenue certainty than ever before. These boring old companies are as risky as they’ve ever been, and their competitive advantages are evaporating. Looking at history helps one understand why.
First, these incumbents have borrowed to spend hundreds of billions on spectrum licenses in the last two years, the value of which they will never recoup unless they build out 5G capabilities. Dish alone borrowed 20bn for this.
Spectrum licenses help the government control scarce availability of spectrum, or radio bands that can be used to transmit signals. Decades ahead of actually building their network, Telcos are forced to buy these licenses to make certain that once their network is built, they will have the exclusive right to operate it. But till that network is built, the spectrum just sits idle on their balance sheet: there’s nothing they can do with it - they can’t finance against it, nor can they use it. They need 5G working to make it a productive asset.
Second, Telcos seen switching costs disappear, led by Apple’s move to mobile ESims. No longer do you have to go to a store, provide your passport, and wait for a person to activate your phone with a chip - you can just download an Esim and you’re good to go in 2 minutes, and there are hundreds of options. The effects are starting to show up in subscriber losses, which imperils the precarious position these companies already occupy. Things are going to get a lot worse for them before they get better, especially when you factor in the 300bn 5G buildout cost. And foreign governments aren’t helping the US’s cause.
Two:
Global economic conflict is on the rise, and cyber security is ground zero. Emerging market Governments can barely afford the infrastructure required to give citizens strong connectivity, but internet access is becoming a right like food and water in both developed and developing countries. India for example subsidizes [50]% of the total cost of bandwidth for its citizens. This emergence of the internet haves, and have nots has led to opportunities for other countries (read China) to pursue economic colonialism. If you’re an African country, In return for control and information, China will subsidize your telco build out today.
You’ve probably read something about this in the news recently which extensively covered bans for Huawei and ZTE – Chinese mobile connectivity companies. Why? Because under a program called the Belt and Road Initiative, China went to most of Africa and offered them completely subsidized hardware – and many countries took it. In the last few years these countries have realized China has back doors into all their wireless infra because the Chinese software operating the network is closed source, and the hardware isn’t modular. Some of the stories are horrifying, and if you’re curious I highly recommend Wireless Wars by Pelson.
The battle for wireless supremacy is out in the public – you probably saw the story about the Chinese spy balloon looking for vulnerabilities in our telecom infrastructure: the threat of network downtime is real. The first thing Russia did when they invaded Ukraine was take out key towers and their internet access.
But these problems: of national security and safety are solvable: open-source software, combined with decentralized footprint, makes it impossible to take down or surreptitiously steal information from our telecom systems. So incumbents are in trouble and foreign competition is on the rise. How do we fight back? Innovation.
Third:
Technological progress genuinely necessitates a different model for 5G, that no longer relies on specialized hardware. Like almost every industry, telecom is moving from a hardware defined model to a software defined one. We saw it at scale for Media and FinTech in the last decade, and sleepier industries like telecom are in for a reckoning.
Moats for telecom businesses used to relate to the specialized hardware required for the network. In that world, towers were everything, and their complexity was a massive Barrier to entry.
Historically, a cell tower has a different box for switching vs. routing vs receiving calls, and requires specialized hardware to enable each function. Hundreds of thousands of employees are required to diagnose and fix hardware related issues. And importantly, that tower needs to be perfectly positioned to maximize signal, which required TelCos and tower companies to spend a lot of money on real estate, that they locked up long term.
But today All those functions - recieving, switching etc. are done by software - which means these networks need 90% fewer people, and don’t need specialized hardware any more. This is a massive headache for incumbents.
Even if Verizon builds 5G, they still have to run their LTE and 3G networks, which have completely different cost footprints and require significant additional resources. This diverts those resources away from growth. Even if Verizon does build 5G, they will continue to be on the hook for redundant land and employees which will make their cost structure completely untenable. Under this framework, TelCo’s will put off their own hardware build out.
We’ve talked a lot about transformation, but what do these new 5G networks look like? The next generation of telecom is called open ran (radio access networks), which use of commoditized, closely distributed, radios to provide connectivity.
For 5G to provide quality of bandwidth that it promises, towers are just too far apart to make the math work - you need consumer radios and antennas to achieve high speeds consistently and have probably started seeing these antennas pop up in your neighborhood already. Building 5G will require going into peoples homes and convincing them to host these, and we are confident a token-incentivized, blockchain based permissionless model is more powerful than AT&T hiring 100k people to go door to door
That’s a lot of doom and gloom for the incumbent industry, but this brings us to the most important point. We are in a new gold rush: and the size of the prize is 1000x that of gold. No I’m not talking about Bitcoin - this isn’t even a crypto point.
As you’ve heard numerous examples of today, the internet continue to will power exponentially increasing economic productivity including:
- Internet driven financial system
- Ai powered work
- Virtual reality powered experiences
All of these have the potential to drive exponential increases to labor force productivity because they make it easier for humans to do basic things. So why aren’t we growing faster? The venture capitalists may tell you capital is constrained, but we’ve never been able to do so much with so little. The anarchists may tell you the government conflict is stopping progress, but despite all the China noise we’re actually in a period of relative global détente.
The right answer is that the internet is constrained by the supply of: compute, storage, bandwidth - the three digital commodities that power the internet. These will be the building blocks on which the new economy will be built, and there a gold rush underway to lock up access.
Commodities driven growth is nothing new: one fitting analogy is to Coal in mid-19th century which powered the growth of railroads. Economically the headline was cheap transportation for goods, but the effect was supercharging cross national trade which set off growth and the creation of our capital markets and broader financial system.
The second commodity powered boom in recent memory was Oil, which unlocked the automotive revolution. A third and arguably more ground breaking revolution is the one powered by silicon and cobalt in the last 40 years, which led to the creation of extremely powerful hardware like supercomputers. And with that came the emergence of the digital world, and a whole world of possibilities outside the physical realms of time and space.
Growth of this internet native digital world is powered by new commodities altogether, most fundamentally: compute power, storage, and bandwidth.
But the potential of the internet is nothing new, and a generation of super-innovative big tech behemoths continue to drive rapid increases in access to these scarce resources.
Amazon and Microsoft have created monstrous cloud services businesses focusing on the provision of compute and storage. Even google now has seriously entered the fray and is pouring billions into these capabilities. Then you have the crypto newcomers: using blockchain based infrastructure to create and provide these commodities using distributed compute frameworks.
But what about bandwidth? The truth is people hate their TelCo - they consistently have the lowest NPS of any company - people hate AT&T more than they hate rent collectors. But to date new approaches pioneered by Big Tech have been largely unsuccessful, driven by a key fact - these businesses always required specialized hardware… Until today.
Clearly, there are an infinite number of reasons why the world needs faster, more secure, and more resilient telecom systems. But just to hit a last, extremely important one - they are night and day cheaper than TelCos. Helium /Xnet are thinking about pricing 1GB of data transfer between 50c and $1. How? Because they have structurally lower costs. Three biggest cost buckets of a telco are: spectrum licenses, rent, and salaries. DeWi reduces each by a factor.
On spectrum, these radio networks operate on a band of spectrum called CbRS which was privatized for use by the public in 2020, so they avoid the massive upfront spectrum cost
On Salaries, as previously discussed the software defined nature of the networks significantly reduces need for maintenance and support staff, you need 100 people vs 100k
Finally on rent, because people are deploying these in their home and office where they already pay rent, DeWi networks completely avoid rental costs vs. telcos that pay tower companies tens of billions a year for hosting their hardware
The result of all of this is a pricing model that is structurally 80% lower than incumbents, who let’s not forget also still have to maintain their old networks and have debt-laden balance sheets. Make no mistake, winter is here for the legacy MNOs.
There you have it: for national security, cost, innovation, capital structure related reasons, the next generation of telcos will be built in a distributed way, and the crypto model of instant payments seamlessly distributed is the perfect complementary product. We are extremely bullish on bandwidth, and the new approaches to create access to it - we suspect if these networks work they will quickly become some of the most valuable companies worldwide. The revolution is underway, and by the time this is all over, we see market structures changes on par with the original emergence of big tech.
Building infra is hard, decentralized infra can be even harder. For anyone trying to reach escape velocity for their network, we’re here to support you.