The Next Blockchain Paradigm Shift: 100% Zero Fees
The idea of 100% zero fees in blockchain has existed for a long time. A blockchain network doesn't use fees as incentives for node operators but block rewards. Instead, fees help to manage the blockchain's permissionless and publicly accessible resources, in other words, to mitigate spam.
Every current blockchain has faced the fee problem, and most have successfully navigated to a near-zero fee environment. Unfortunately, the paradigm shift only occurs at zero and not near zero.
A 100% zero-fee environment will not require users to own tokens to pay for fees when using DApps. This simple idea is why the rules change and will allow an era of mass adoption to ensue. Zero fees will allow DApp developers to reach users in a way that wasn't possible before because users will have as fewer barriers to entry as possible.
While these paradigm shifts are rare, we often look back at the# m as obvious highlights in history. Past paradigm shifts include the inception of Bitcoin itself, the creation of smart contracts, the DAO, and the DEX.
The 2018 ICO and recent NFT craze are just by-products of these paradigm shifts. Without the creation of the DAO, the ICO craze wouldn't have happened. Similarly, the DEFI and NFT craze would not have occurred without DEXs.
I assume mass adoption can't and won't happen without zero-fee blockchains.
How can we understand this paradigm shift better? What are the tell-tale signs, and how can we spot them?
What is Zero-Fee?
Zero fees or fee-less is a misunderstood term because blockchain terminology is confusing and inconsistent, especially across different platforms. For the novice user or the developer new to blockchain, the most common definitions they may see are:
- free token transfers
- free execution of smart contracts
- free access to platform features
A successful paradigm shift occurs when you have the trifecta of all three combined with ease of use. The transition has not yet occurred, so it is safe to say that no blockchain has been able to offer all three in an accessible way.
Few blockchains resemble proper zero fees, but the one that stands above all is the STEEM blockchain which once graced the top 10 charts by market cap. STEEM was a purpose-built blockchain for social blogging and offered a recognizable web 2.0-like experience.
Although it had a short period of success, it ultimately failed to capture mass adoption. Instead, it has become a crucial case study in the coming paradigm shift and what is necessary for a successful mass adoption scenario.
Note: STEEM continues to exist today as the more popular HIVE blockchain fork. I will keep using the name STEEM for historical accuracy; however, if users wish to try this chain, they should refer to HIVE instead since it is significantly more developed. STEEM has largely remained unchanged since the fork.
"When the users come, you must be ready."
In the current fee system, when users want to utilize a blockchain network, they must acquire the native token of that network. This is a multi-step process, but it is also complicated because it requires fiat onramps. Everyone knows an access procedure that takes multiple steps can quickly foil curiosity.
STEEM was both a success and a failure at step one. A blockchain novice could sign up with an email address, begin using STEEM within minutes, and earn tokens without friction. This successful experience is still unique to STEEM despite its inception in 2016 because current fee-based chains force their potential users to go through a complicated first step.
However, STEEM also failed at step one by limiting daily account creation. STEEM used human-readable names, so resources were required to create accounts, and someone needed to provide those resources. Many users were frustrated with the signup process and eventually gave up. If you got an account, you were lucky or persistent.
You will lose most users with a poorly designed first step, so make sure it's as simple and accessible. Implementing the zero-fee paradigm is such a simplifaction because a zero-fee blockchain doesn't require users to obtain gas tokens first.
All Users Should have Their Needs Met
"Once users are in the door, you must be ready to give them what they want."
A zero-fee environment will quickly bring users onto the platform, and each of them will have their wants and needs. Some will be developer-users wanting a bootstrapped userbase, and others will want to try DApps due to the promises of zero fees.
STEEM was both a failure and a success at addressing this. After the signup process, the user can do everything when logged in. Write their first post, read other users' posts, upvote, and comment with no restrictions.
This was a great success compared to fee-based chains, where users would need to transfer their newly acquired gas tokens from their fiat onramp (CEX) to a self-custodial wallet before being able to experience any DApps.
While STEEM lacked smart contract functionality, developer-users were able to create off-chain programs that did not require consensus to run (made possible with the STEEM API). While these programs were not actual DApps, they gave users additional functionality. They became an intensely popular way for users to engage with the platform as they learned how to navigate STEEM.
Any developer could write a program, and they knew that every user had access to them. The success of these programs was far-reaching because developers eventually learned how to monetize them, and users were willing (i.e., not forced by the blockchain) to pay for them.
Ultimately, the lack of smart contracts on STEEM meant that any significant feature could not be added by developers as a general-purpose smart contract platform could. The developers relied on the STEEM engineers and the DPoS witnesses to create and approve hard forks for anything beyond what the users could do with the information provided by the API.
This frustrated users and ultimately caused many to abandon the platform for not meeting their needs.
When there is a zero-fee environment, users will come, and developers must have the tools to fill their needs.
Users are an Unpredictable Bunch
"A zero-fee environment will bring users whose behaviors cannot be predicted."
Because STEEM was a crypto social blogging website, certain features were hardcoded with some base level assumption of how users would behave. These assumptions were valid during the early days of STEEM. Still, as users began to learn the social algorithm and its crypto-specific features, they started to operate beyond what was predictable. Although users operated within the platform's rules, developers did everything to maximize their experience through custom applications, and users soon followed suit. Some of these programs were quite damaging to the community because they focused on value extraction rather than value creation.
Without smart contracts, other developers were powerless to change or improve the user experience to create as much value as possible. Everyone relied on the platform engineers and the DPoS witnesses to propose and approve hard forks to upgrade STEEM. While many of the hard forks did improve the experience, they did not always please everyone; also, the design of the STEEM blockchain limited them.
While narrowing the use to crypto social blogging made it easier for STEEM to create a zero fee environment in 2016, we now know that the more narrow the use case becomes, the smaller the potential audience. The inability of developers to customize and improve user experience meant that the platform could not address the needs of different types of users.
The lesson learned from this was that you could not predict how users would behave, and you cannot rely on hard forks to improve the user experience. Instead, it would be best if you give developers the flexibility to address the needs of their specific audience.
The team behind the STEEM blockchain worked tirelessly to add functionality but time was ultimately not on their side. The Tron Foundation eventually bought Steemit Inc, and the entire engineering team left shortly after the sale, taking all of their engineering knowledge and zero-fee experience.
While STEEM ultimately failed to bring on mass adoption despite being a zero fee blockchain, the lessons learned from its explosive growth and accessibility became the starting point for the engineering team's next project.
From Steemit Inc, Andrew Levine, Steve Gerbino, Michael Vandeberg, Natheniel Caldwell eventually met Ron Hamenahem, formed Koinos Group. They began developing a new zero-fee, general-purpose smart contract blockchain specifically designed to be forklessly upgradeable, developer-friendly and suited for mass adoption.
This blockchain is called Koinos and will launch in late 2022.
Stay tuned for my next article for what I believe Koinos's early success will look like and what is necessary to sustain its ability to cause the next paradigm shift in the blockchain industry.