Chapter 5 Guide to Innovate

Chapter Authors: Yulin Liu and Luyao Zhang

In this section, we provide a general guide to innovating on the IC and beyond. However, every innovator innovates in their way. The guide shall serve as a source of inspiration rather than a dogma that must be followed.

Project Review

As we started with a literature review for academic research, a project review for innovation will also be provided. The project review serves three primary purposes:

1. Categorize the current projects and identify the area on which to focus.

2. Comprehensively review existing projects in the area of focus to avoid duplication.

3. Identify advantages of existing projects to build upon and limitations to overcome.

Figure 5.1.1 categorizes IC projects into infrastructure, decentralized finance (DeFi), social media, nonfungible tokens (NFTs), and governance. Infrastructure projects provide basic facilities that support the sustainable functionality of the IC ecosystem, e.g., Fleek for web hosting, Motoko Playground as an integrated development environment (IDE), Plug as a decentralized wallet, Toniq Labs as an incubator, and Internet Identity for authentication. DeFi projects utilize canisters (similar to smart contracts) on blockchains to provide financial services without relying on central financial intermediaries, e.g., DFinance, Dank, Earth Wallet, and Agryo. Social media projects facilitate the formation of social networks and the creation and sharing of information, e.g., DSCVR, Distrikt, and Open Chat. NFT projects provide proof of ownership for digital assets and the mechanism for asset pricing and exchange, e.g., Orygin, IC Punks, Entrepot, Departure Labs, and Nuance. Gaming projects provide a blockchain digital reality in a collective virtual shared space, e.g., Reversi, Rise of the Magni, Welcome into the Metaverse, Saga Tarot, and HexGL. Governance projects provide decentralized governance or management solutions, e.g., NNS DApps, NNS Calculator, and Axon. Of course, one shall not limit his or her imagination by the categories listed above.

Which category should be focused on? As the Dutch Philosopher Spinoza stated, “passion without reason is blind, and reason without passion is dead.” Thus, the best category is the one that inspires enthusiasm and for which the user has expertise to leverage. After making a decision, a comprehensive review of the area of interest should be performed. Additional IC projects can be viewed in the Internet Computer Developer Ecosystem Program and DFINITY Developer Grant Program. To innovate, the project should be distinguished from existing projects.

Finally, to stand on the shoulders of the giants, existing DApps can be deployed on the IC. Users should ask themselves two questions: 1) What are the advantages to inherit? 2) What are the limitations to overcome? There are many aspects that can be evaluated. A general principle is to assess how efficiently the DApp creates value for stakeholders in the ecosystem, such as by user experience, decentralized governance, and security, scalability, and network effect as a whole.

II. Identify Unsolved Problems

Innovation solves unsolved problems. Thus, after determining the area to focus on, we shall identify unsolved issues. In general, efficient trust construction has been a historical issue across various industries, and blockchain technology has made breakthroughs in this area (Nakamoto 2008, Buterin 2013). In addition, privacy-preserving computation allows a trusted blockchain to protect privacy. Token economy further empowers blockchain technology with decentralized economic mechanisms. Thus, one method of identifying an IC solution for unsolved problems is to search existing industries and applications where trust, privacy, and financial incentives matter for all stakeholders. For example, current social media platforms, such as LinkedIn, Reddit, and WhatsApp, have led to concerns about third-party trustworthiness, user data privacy, and community incentive schemes. A DApp version of those social media platforms on IC would be a natural solution to those problems.

For example, as illustrated in Figure 5.2.1, Distrikt is the IC version of LinkedIn for a completely decentralized and community-owned professional network. DSCVR is the new version of Reddit for social news creation, where users are the owners of their data. Open Chat is a messaging application on the IC that makes peer-to-peer (P2P) conversations possible. Beyond social media, web hosting is another industry of privacy and security concerns. Web 2.0 relies too much on the trust of third-party centralized servers. Fleek on the IC is a Web 3.0 solution for web hosting that improves upon Netlify by utilizing blockchain technologies.

III. Initiate a Project

Blockchain technology has created a brand new platform for entrepreneurship, especially in decentralized finance (DeFi). The IC expands the blockchain infrastructure to support business beyond DeFi by increasing scalabilities and efficiency compared to other blockchains. The blockchain platform is a blessing to start-up firms. Conventionally, to progress from an idea to a profitable firm at scale, the founding team has to pitch their ideas to investors at different stages: Angel Investors from idea or demo to products, Venture Capital (VC) from products to maturity, Private Equity (PE) from Pre-IPO to IPO, and Investment Banking (IB) for IPO. In contrast, blockchain nurtures brand-new ways of wealth creation and distribution. The golden rule is to distribute wealth based on contributions to value creators rather than unnecessary intermediaries. The key to making the golden rule happen is transparency in the wealth creation process that blockchain enables. Figure 5.3.1 represents the core partners that can pilot a DApp project on the IC and beyond: a CEO for the business model, a CTO for software design, and an economist for blockchain economics, including token economy and governance mechanism design.

Furthermore, blockchain is inclusive and empowers all stakeholders to be entrepreneurial owners who contribute to value creation in project life cycles. For example, blockchain enables on-chain governance, which has been gaining momentum for a couple of years. The Network Nervous System is the on-chain governance system for the IC. On-chain governance allows users, developers, token holders, and other stakeholders to have a say on project developments. This desirable feature rarely exists in centralized applications on Google or Apple Store. Neither in early blockchain projects such as Bitcoin and Ethereum. Moreover, on-chain governance mitigates the dilemma between decentralization and efficiency. In centralized applications, stakeholders can enjoy fast decision-making processes but have no control of the platform. On blockchain projects with off-chain governance, stakeholders can express their opinions on forums but might suffer from years of debate before reaching a consensus on simple code updates. In contrast, on-chain governance empowers blockchain with a much faster turnaround time while preserving the advantages of decentralized decision-making.

Finally, we could design an algorithmic monetary policy to make tokenholders less concerned about unexpected inflations. Conventionally, it is costly, if not impossible, to monitor policy-makers: governments or central banks. Fortunately, smart contract technology on the blockchain allows algorithmic monetary policy to be tamper-proof.

“Who monitors the monitor” has been a historical question on mechanism design. Now, the question becomes, “who monitors the blockchain?” We hope that the answer could be a community of value creators. Governance “of the people, by the people, and for the people” has been a glorious pursuit of pioneers over the past century. Fortunately, blockchains provide an infrastructure to make our dream come true.