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Decentralized Identity as a Meta-platform: How Cooperation Beats Aggregation

Samuel M. Smith Ph.D.

version 0.1

Abstract

One important economic implication of a new network scaling law for meta-platforms is that the network effect benefits of cooperation may be advantageous to centralized aggregation (non-cooperation) [1][2]. An open interoperable portable decentralized identity framework is a prime candidate for a meta-platform. Significant momentum has been developing behind a universal decentralized identity system based on open standards. A proto-meta-platform as it were. The standards include the W3C supported DID (decentralized identifier) and verifiable credential standards. Associated industry groups include the Decentralized Identity Foundation (DIF) and HyperLedger-Indy/Aries/Ursa. A meta-platform is a platform that enables and fosters participant controlled value transfer across and among other platforms. Because platforms are a type of network, a meta-platform enables network of network effects. Network-of-network effects may be the most valuable kind of network effects especially for participants on the associated platforms.

The purpose of this paper is to foster awareness of the economic benefits of cooperation and the crucial role decentralized identity may play in unleashing historic new sources of value creation and transfer.

Introduction

Meta-platforms are enabled by technology that provides contextual value transitivity, in other words, value transfer between platforms. Contextual value transitivity includes interoperability both intra-context (same) and more importantly inter-context (cross). By context we mean some combination of application domain (set of products and services), and network of participants. Typically compatibility is a type of interoperability that only applies to the same context (intra-context) i.e. competing products and services on the same network of participants. Meta-platforms leverage interoperability between platforms that allow the transfer of value not just within the same set of applied products, services and network of participants (intra-context) but between different applied products, services and networks of participants (inter-context). In this sense, one could say that meta-platforms enable trans-contextual value creation and capture.

The final essential feature of meta-platforms is that the value transfer between platforms is under the control of participants not the platform administrators. It is the antithesis of lock-in. Participant control implies some degree of decentralization. More simply, contextual transitivity measures the ease (transaction cost) to which participant value in one context is transferrable to another by the participant. The unique feature of contextual transitivity is that even with different application domains including incompatible products and services, participant value transfer between platforms may still occur. In this sense meta-platforms also benefit from cooperative value transfer and hence cooperative network of network effects. Another way to think of it is that a meta-platform enables user controlled cooperation among a cooperating set of platforms.

An open decentralized identity (reputation) system is a prime candidate for a meta-platform. Significant momentum has been developing behind a universal decentralized identity system based on open standards. A proto-meta-platform as it were. The standards include the W3C supported DID (decentralized identifier) and verifiable credential standards. Associated industry groups include the Decentralized Identity Foundation (DIF) and HyperLedger-Indy/Aries/Ursa.

A meta-platform is a platform of platforms that enables network of network effects. Participant control means that participants may form customized or bespoke virtual platforms of their own choosing. These virtual platfroms aggregate and/or amplify their value across multiple platforms. Participant control better balances the interests of participants and platform operators. It provides a check on exploitation while increasing the value of the platform to both participants and operators due to increased attractiveness.

The concept is that value can be aggregated from extreme customization in the long-tail. This is contextual value capture within a tail. Meta-platforms provide long-tail meta-network effects by enabling participants to extract or provide value on multiple long-tails (inter-tail-context). This is a network effect that enables value capture from multiple long-tails each which in turn is enabled by a network effect on a context specific long-tail value distribution. In other words a type of network of networks effect.

Blockchain technology has the potential to truly revolutionize network computing and associated markets such as finance, supply chain, social etc. One of its main attractions has been its promise of bringing more virtuous and trustworthy governance as a result of more decentralized control of the underlying systems. Decentralized control has the potential to cause a leveling effect that more fairly distributes value to users, limits exploitation, removes barriers to entry, and increases opportunities for disruptive innovation and value creation. But like any new technology that portends to provide such a leveling effect, blockchain has so far failed to live up to many of its promises. It’s still really early however and this article explain one way those promises may be fulfilled.

A concern comes from the fact that other leveling technologies, such as communication networks, first started as decentralized but then become more centralized over time with the associated value capture eventually becoming concentrated into a few very large business entities with higher rates of value extraction. This historic cyclic behavior is well documented in The Master Switch and The Square and the Tower. One can argue that the internet which started as a great leveler due to decentralized networking has now resulted in most of its value being concentrated in a handful of companies, namely, Google, Apple, Facebook, Amazon, and Microsoft each with valuations near one trillion dollars. Once centralization occurs innovation and value creation decrease and value extraction increases to the detriment of the average user.

One way to combat such centralization is with regulation. The breakup of AT&T is a largely successful example of a regulatory approach to restoring more decentralization that resulted in more innovation, lower costs and overall greater benefits to telecommunication users. Regulatory approaches, however, often come with very large deleterious side effects. What would be better instead is market driven decentralization. Appropriate applications of blockchain technology may enable such market drivers.

This paper examines one blockchain enabled technology and market driver for decentralization called an identity meta-platform. It defines and discusses how an identity meta-platform may provide a potent force for decentralization. Meta-platforms benefit from network of networks effects. The paper discusses how those may occur and the value they may bring via an identity meta-platform. It also discusses the network scaling law for meta-platforms and examines why the cooperating members of a decentralized identity meta-platform may eat (out-compete) a centralized identity platforms [1]. With a decentralized identity meta-platform technology we may for the first time in history be able to break the cycle of centralization.

An early paper outlined the potential for identity to be a meta-system 3. The difference is that a meta-platform enables value transfer between platforms whereas a meta-system enables interoperability between systems. Because interoperability or portability may be essential to meta-platforms, a meta-platform might therefore be a super set of a meta-system. More specifically, a meta-system is a system-of-systems whilst a meta-platform is a platform-of-platforms for economic transactions.

References

1. Smith, Samuel M., Meta-Platforms and Cooperative Network-of-Networks Effects: Why Decentralized Platforms Will Eat Centralized Platforms. 2019/03/25 https://medium.com/selfrule/meta-platforms-and-cooperative-network-of-networks-effects-6e61eb15c586

2. Thomson, Ben, Aggregation Theory. https://stratechery.com/aggregation-theory/

3. Cameron, Kim, The Laws of Identity. http://www.identityblog.com/stories/2005/05/13/TheLawsOfIdentity.pdf

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