The Fifth Protocol

“Wait a minute… Make up your mind. This Snow Crash thing—is it a virus, a drug, or a religion?”

Juanita shrugs. “What’s the difference?”

– Snow Crash

Cryptocurrencies will create a fifth protocol layer powering the next generation of the Internet.

Humans don’t *need* math-based cryptocurrencies when dealing with other humans. We walk slowly, talk slowly, and buy big things. Credit cards, cash, wires, checks – the world seems fine.

Machines, on the other hand, are far chattier and quicker to exchange information. The Four Layers of the Internet Protocol Suite are constantly communicating. The Link Layer puts packets on a wire. The Internet Layer routes them across networks. The Transport Layer persists communication across a given conversation. And the Application Layer delivers entire documents and applications.

This chatty, anonymous network treats resources as “too cheap to meter.” It’s a giant grid that transfers data but doesn’t transfer value. DDoS attacks, email spam, and flooded VPNs result. Names and identities are controlled by overlords – ICANN, DNS Servers, Facebook, Twitter, and Certificate “Authorities.”

Where’s the protocol layer for exchanging value, not just data? Where’s the distributed, anonymous, permission-less system for chatty machines to allocate their scarce resources? Where is the “virtual money” to create this “virtual economy?”

Cryptocurrencies like Bitcoin are already trustless – any machine can accept it from any other, securely. They are (nearly) free. They are global – no central bank required, and any machine can speak the language. And they’re one to two steps from being quick, anonymous, and capable of authentication.

Suppose we had a QuickCoin, which cleared transactions nearly instantly, anonymously, and for infinitesimal mining fees. It could use the Bitcoin blockchain for security or for easy trading in and out. SMTP would demand QuickCoin to weed out spam. Routers would exchange QuickCoin to shut down DDoS attacks. Tor Gateways would demand Quickcoin to anonymously route traffic. Machines would bypass centralized DNS and OAuth servers, using Coins to establish ownership.

Why stop at one Coin? Let’s posit a dozen new Appcoins. Using application-specific coins rewards the open-source developers with a pre-mined quantity. A TorCoin can be paid to its developers and gateways and by Tor users, achieving consensus via proof-of-bandwidth. We can allocate any scarce network resource this way – i.e., BoxCoin for Storage, CacheCoin for Caching, etc.

Lets move on to other networks. Can a completely distributed grid of small generators trade power with each other, using a decentralized and trustless cryptocurrency? Can a traffic jam of self-driving cars clear itself as the computerized vehicles bid for right of way? Can a mass of people crossing a street take priority over a single car waiting at the traffic light, as their phones vote, trustlessly and reliably, for their presence? Can we efficiently route networks of assets like water and power, and liabilities like pollutants and sewage, across a distributed grid? Can we trade stocks and financial assets with no brokers, custodians, or agents?

Cryptocurrencies are electronic cash, and as such, will be used by electronic agents to exchange value, verify contracts, and track identity and reputation. All of a sudden, the computing resources spent by the Bitcoin miners doesn’t seem wasted – it seems efficient, given that it can be used for congestion control and routing of other network resources.

Cryptocurrencies are an emergent property of the Internet – almost a fifth protocol in the Internet suite. If Satoshi Nakomoto did not exist, it would still be necessary to invent them. Someday, they will be used by the machines in our network, on our desk, in our garage, and in our pocket to exchange value and achieve consensus at blinding speeds, anonymously, and at minimal cost.

When that day arrives, large distributed networks that we rely upon will change. Starting with the Internet, they will become de-centralized market economies, far more intelligent than they are today. Just as human brains co-evolved with our ability to trade and exchange goods with people who weren’t related to us, so the network will become more intelligent as it learns to trade currency and contracts with unrelated nodes.

Eventually, there will be no functioning Internet or Internet of Things at the protocol layer without deep cryptocurrency integration. Turning off this fifth protocol will be impossible. Cryptocurrencies also remain mediums of exchange and stores of value. Nation states that are used to imposing capital controls will face a quandary – ban cryptocurrencies, and live in the technology dustbin. Enable them, and this virus, this religion, this protocol – will enable the free flow of money and language, along with packets, around the globe.

66 thoughts on “The Fifth Protocol

  1. it seems like we are inevitably heading in this direction Naval. but i’ve got a few questions. why is this the fifth layer and not another set of application layer protocols to supplement http, smtp, etc? and are each of these “coins and blockchains” yet another protocol or is there one protocol that implements all of them?

  2. You are correct in that it’s technically another set of application layer protocols – I was just being provocative with the title 🙂 Although in theory it could be a resource allocation layer on top of SMTP, HTTP, etc. Semantics…

    It’s likely one protocol in most cases except where needs conflict:
    – Anonymity is desirable in some cases, undesirable in others
    – Speed of confirmations vs security of confirmations
    – Need to reward developers vs need to reward early adopters (Mastercoin v Bitcoin)
    – Flexibility (Ethereum Turing Complete scripting language) vs Security (Bitcoin scripting)

    But really, I don’t know. I wrote this to get the conversation started so I could have others help me figure it out.

  3. “Can a completely distributed grid of small generators trade power with each other, using a decentralized and trustless crypto-currency?”

    Why is a cypto-currency required?

  4. Only if decentralization has value in the context. Across state / national / utility boundaries.

  5. I expect there will be multiple protocols that complement each other. Some will be better suited to specific use cases, just like programming languages. Not all will succeed.

    These protocols will be able to interact with each other since trusted oracles will provide data to bridge the gap. The Bitcoin blockchain (or a subset of it) is itself an oracle that could be published to other Blockchains i.e an Ethereum contract listens for a Mastercoin transaction to a specific address on the Bitcoin blockchain & execute accordingly.

    This will create new business models & likely be disruptive to many industries and systems. It can affect everything from the funding of major projects to post-trade activities, & even how the democratic process functions (use a unique vote coin to provide or remove backing from politicians at will?). It’s really just a case of how far it goes!

  6. In No-Limit hold’em, the size of your stack can be as important as the quality of your cards or skill.

    Machine-fast network activity may have extreme network effects, consolidating power and disenfranchising an awful lot.

    May be a good case for a CryptoCurrency equivalent of a Hayekian minimum income and automatic monopoly/oligoply prevention: Direct transfer of Cryptocurrency from accounts with over max% of overall pool to accounts with less than minimum%


  7. It seems like a bootstrapping problem to have what must be a higher layer protocol attempting to control the workings of lower layers. Essentially, to be a control channel, it would have to be out of band. At which point you’re just inventing a second, parallel internet to govern the first internet.

    Also, how is value determined automatically? My inner evil hacker is rubbing his hands together at the new possibilities for gaming the system.


  8. This is exactly the sort of stuff that got a few Bitcoin startups, Ripple Labs, the US Federal Reserve, SWIFT, ING, Google, and a ton of other W3C member companies into a room in the old Paris trading floor for two days last week – to talk about this future and how we build it into the Web:

    The entirety of the two days was minuted and is available here:

    The work is happening here, for now (I’m the chair of this group):

  9. Ripple can already do this without using its own native currency.

    The reason why a crypto-currency is however useful for this task is that in that case no trust is required between the various parties transacting: each party immediately receives (and can immediately verify that they have received) the actual currency.

    If instead you were to use e.g. USD via Ripple you can only transact in USD IOUs so you have to trust whoever promises to redeem the IOU. With a cryptocurrency no such redemption and trust are necessary because you instantly receive the actual currency.

  10. I suspect a lot of this is still mathematically fair game in terms of determining what exactly is possible, and what these implementations/protocols will look like. The same way we spent previous years systematizing a mapping method to translate apps designed for local compute/network/storage to the cloud, we now have the task of mapping centralized ‘cloud’ apps to decentralized ledger-based (dare-I-say ‘mist’?) apps. I suspect as work and infrastructure picks up, we’ll see a single emergent block chain (‘aws for block chains’ – etherium, Bitcoin w/ an extended protocol?) and a long tail of unique ledgers built for highly specific custom use cases..

  11. As centralized cloud infrastructure evolved, we saw a ‘greenfield’ opportunities emerge. I suspect this is what will happen with decentralized ledger based app as well – *love* the creativity here in arguing for a few potential such apps!

  12. Thanks – I was just reading about it this morning. This space is moving so quickly…

  13. Excellent piece Naval.

    It’s a bit of semantics and a lot of marketing, but I strongly suspect there will be a Fifth Layer. New protocols of this ilk are going to be very difficult to integrate into the stack, and are going to require massive new hardware processing power. It’s unlikely the major network players will move fast enough, as smart mining companies are way ahead. The startups are going to be dropping expensive new boxes in every datacenter handling the new protocols, and it will be in everyone’s best interest to call it a new layer: The startup guys are selling a new box and need to justify it against the 50 protocols the network hardware already handles, the CIOs need to justify a bunch of new hardware costs, and Cisco is going to spend so much acquiring the startups they’ll want to call it a new internet let alone a new layer.

    Meanwhile the engineers won’t really care to quibble about layer semantics since they’ll all have retired on their cryptocoins. And you thought it was hard to hire now.

    *Note in the formal geek parlance the four “layers” are each comprised of multiple protocols, and there are way more than five. So the title should really be “The Fifth Layer”. The “The Fifth Protocol Layer” is passable but a bit flowery.

  14. Great stuff, very interesting to think about the future you describe – I’d just like to push back a bit on the apparent tradeoffs you present, though.

    1. A cryptocurrency protocol can support anonymity, pseudo-anonymity, and non-anonymity at the same time. Think mixing services (, stealth addresses (, etc.
    2. The tradeoff between speed and security is not clear – it seems that it’s possible to have very fast transactions with an extremely high level of security. Check out this proposal to accelerate transaction processing using Heaviest-Observed Sub-Trees:
    3. I think that eventually a standard accepted cryptocurrency launch model will emerge. It seems like the community still disapproves of the Mastercoin and Ethereum launch strategies (we won’t even get into Nxt or Ripple). One coin tried having a certain percentage of mining fees automatically go to the developers, where the developers proclaim their addresses and the protocol votes to confirm those addresses. People still complain about these practices, but I think eventually something will become socially acceptable. The key is to avoid the words “pre-mine” or “insta-mine” and launch your coin fairly on Bitcoin Forum.
    4. I completely agree here – there does seem to be a tradeoff between security and Turing Complete-ness.

    Just some things to think about. I think it’s quite possible to have a single coin serve several purposes at once, and the number of coins that we end up with might actually only be a handful.

    Also, the choice of a proof of work is always a challenge. How many different blockchains with different proofs of work can possibly coexist?

  15. Great discussion on how cryptocurrencies will change and/or work with the Internet stack and be core services themselves. Personally, I’m thinking about this a bit differently and would rather divide things into a) control plane and b) data plane. The current Internet stack does a great job for delivering data and can continue to do so. Crypto-currencies can/will provide a separate communication channel for “control” i.e., verification of identity, smart contracts, bidding on resources etc. Once the control channel (cryptocurrencies) establish what action needs to be taken, the data can be sent over the “dumb” Internet stack.

    The networking community is headed in the direction of a separation between the control and data plane anyway thanks to Nicira Networks and the Software Defined Networking (SDN) model.

  16. I believe the vision here points us towards right direction, but is not entirely correct. One major problem I see with cryptocurrencies is the creation of money by mining. This is straightforward in its’ way and for some purposes serves perfectly fine. But this does not map so well to the money creation people might truly prefer. I see this mostly as an ethics and fairness problem. If compelling alternative with different money creation mechanism appears I believe many will choose that option instead (or alongside) cryptocurrencies.

    Platforms like classic Ripple tried to approach this problem from different perspective. They failed for good reasons and everyone moved their focus to bitcoin. I still believe there is a third option and I’m actively working to realize this vision.

    I’m first to admit that my knowledge of cryptocurrencies is mostly superficial, so please tell me why I’m wrong 🙂
    If anyone is interested I have expanded on my arguments a bit in

  17. Not forgetting that Bitcoin isn’t at root a cryptocurrency, but a distributed ledger. Ledgers can be used for things other than money, e.g. Twister uses it for ensuring unique usernames, maybe distributed filesystems, etc. The key component of Bitcoin-alikes is the incentive for people to join the network.

  18. Bitcoin, in the way you describe it, is just a system proof of work; so the ‘value’ you want to transfer using the internet is just an abstraction for the same. Why create ‘app currency’? It seems like just an inelegant solution to the proof of work problem. In fact, most applications don’t even require proof of work so adding another protocol (or even building it on top of another) *seems* superfluous.
    You just want to use the proof of work concept from bitcoin. The ledger idea is basically of no use. All these different nodes are just wasting power and processing time doing work for the sake of work.
    Lets be efficient.

  19. This sounds like the same kind of techno-utopianism that we heard in the 90’s…that the internet would crush state power…how did that work out?

  20. > Can a completely distributed grid of small generators trade power with each other, using a decentralized and trustless cryptocurrency?
    That is just a special case of trading any other goods or services with a cryptocurrency. There is no need to create a new currency just for this purpose. You only need to create a marketplace to trade power, and use an existing currency as the accounting tokens. Users on the site created a “tip bot” to trade monetary tips for posting high quality comments. It used bitcoins as the accounting tokens, but tracked them internally as long as the tips stayed within reddit. Only when you withdrew your accumulated tips did it become a transaction on the bitcoin ledger. Keeping small transactions “off-chain” (the Block Chain) minimized transaction fees and allowed for faster clearing, at the expense of having to trust the tip bot.

  21. Fascinating concepts here. I do not disagree with the direction. I do wonder what happens to human agency as this fifth layer evolves. Many will be left behind. Does this simply replace current power structures with new power structures, run by coders rather than bureaucrats? How is an average citizen empowered to participate? Interesting stuff for sure.

  22. Naval,

    I’m curious that you stopped short of applying your reasoning to democratic representation. Did you consider that government and election cycles are one more network that will be made flexible by the distributed value network you discuss?

    Imagine a coin that can be leased to representatives at will, with representatives whom amass sufficient critical mass taking seats in congress. Further imagine that the lease can, at my will, be broken and my support shifted to another candidate. Political feedback systems would become immediate and accountability would become an almost instantaneous process.

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