Editor’s note: this is a slightly modified and extended version of the analysis I wrote in the Last Week in the ATmosphere newsletter.
Last week, Bluesky announced their series A funding round, raising $15M in a round that is led by a venture capital fund Blockchain Capital. The seed round already had investors from the crypto world, but this drew much more attention with the series A, as the headline of Blockchain Capital as a lead investor made the connection loud and clear. Bluesky is aware of the negative connotations that many people have regarding blockchains and crypto, explicitly stating that “the Bluesky app and the AT Protocol do not use blockchains or cryptocurrency, and we will not hyperfinancialize the social experience (through tokens, crypto trading, NFTs, etc.).”
The negative associations that people have with both blockchains and venture capital made that a common response to the news was that “the enshittification has started”. This response was dominant on the fediverse, and less so but still present on Bluesky. It’s been such a common response that I think it deserves a closer look at ‘enshittification’ and how it relates to Bluesky taking investment from a blockchain VC firm. The meaning of the term enshittification has shifted over time, and both meanings provide an interesting lens to look at the news.
When Cory Doctorow coined the term enshittification in 2022, he used it to describe a process of platform decay. A platforms subsidises growth by operating at a loss, and places themselves in between the suppliers and customers on a two-sided marketplace. Once suppliers and customers are locked in on the platform and cannot easily leave, the enshittification cycle happens: the platform uses their control of the marketplace to take an ever increasing part of the value while while making the experience on the platform worse, for both suppliers and consumers.
What is interesting here is that in earlier interviews, Jay Graber has mentioned the idea of building marketplaces on Bluesky as a way to make money. If enshittification is used to describe platform decay, it stands out that a marketplace is not present in the Series A announcement as a way for Bluesky to monetise. For a platform to become enshittified in this meaning of platform decay, a platform needs to have exclusive control of a marketplace on the platform. However, Bluesky is currently not taking the direction of a marketplace for monetisation, instead opting for subscriptions and payment processing. This is still open to change at a later point, as Graber has expressed interest in it before.
Doctorow also mentions two principles to combat platform enshittification. Platforms should be interoperable, allowing users to switch to a different provider. Users should also have the ability to control the content they see, and not be dependent on an opaque algorithm owned by the platform. As both of these principles are deeply embedded in the design of ATProto, Bluesky is an interesting case study if the principles that Doctorow mentioned are indeed good enough to stave off enshittification.
The meaning of the term enshittification has drifted and expanded over time. Enshittification is now commonly used to refer to any business practice that makes the company or product, well, shit. There is a fairly widespread negative attitude towards both venture capital as well as blockchains and crypto. People perceive that these systems have not brought benefits they promised, and enriched a small elite instead, all the while degrading the experience of using the internet. This is not a newsletter to deconstruct blockchains or VC (I’m sure you can find your own sources for that), but I do want to point out that public perception of both venture capital and blockchains matter here. Bluesky is in an active growth phase, and part of the sales pitch to get people to join the network is that Bluesky is a ‘better’ place, for various interpretations of ‘better’.
Getting people to join Bluesky while also being associated with technologies and organisations that many people perceive as ‘not better’ is much harder. People want to join a new network because they hope that the new network is a better experience for them. Judging from the outside if a network is a suitable place is hard, so people tend to fall back to simple heuristics to determine if a network is a good place for them. BlockChain Capital might provide valuable support to Bluesky, but this hard to see as an outsider that is considering joining Bluesky. Instead, it is more likely that they will fall back on their preexisting opinions about startups that take VC money or affiliated with blockchains.
Neither the crypto industry or venture capitalists have build up a track record over recent years that make it easy for people to trust them to deliver technology that meaningfully improves people’s lives. A skeptical assessment of why (crypto-based) VCs are investing into a company is warranted. Blockchain Capital’s investment thesis is clear about why they are investing into Bluesky: their interest is in an expanded ecosystem, where developers can build new products, while leveraging the social graph that ATProto provides. Their investment thesis falls far outside the framework of enshittification, both as a way to describe platform decay as well as a more generic ‘products gets bad’. Critically evaluating the positive and negative impacts that Blockchain Capital can have on Bluesky and the ATmosphere, might just require a different framework than ‘enshittification’ can provide.