Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Devcon 2 and the State of Ethereum

Episode Date: September 26, 2016

Last week the biggest blockchain-focused developer conference took place in Shanghai, China: Ethereum’s DevCon 2. Epicenter show host Meher Roy was at the conference and brought back his impressions and insights for a comprehensive discussion of the current state of Ethereum projects and the Ethereum community. Topics covered in this episode: What Ethereum’s developer conference DevCon 2 was like The big change in going from concepts to alpha version over the last year The continued lack of sustainable business models in Ethereum The lack of interest by Venture Capitalists and the big tech companies in Ethereum and blockchain technology The current state and incentive problems of crowdsales Three areas of focus in Ethereum: Scalability, Privacy and Governance The search for the next protocol Episode links: Ethereum Foundation Website Ethereum YouTube Channel Insanity and Brilliance at Ethereum's Developer Conference Melonport: Decentralized Asset Management on Ethereum Golem: Worldwide Supercomputer Metamask: Ethereum Browser Extension Cosmos Whitepaper This episode is hosted by Brian Fabian Crain and Meher Roy. Show notes and listening options: epicenter.tv/150

This is Epicenter Episode 150. This episode of Episcenter is brought you by the Bitfinity Conference taking place in Miami Beach from October 30th to November 2nd. Join industry thought leaders, investors, and leading blockchain companies to discuss and showcase how they use blockchains in a wide range of industries. Go to Bitfinity.com slash Epicenter for discounts on registrations and exhibitor packages. And by Jax. Jacks is the user-friendly wallet that works across all your devices and handles both Bitcoin and Ether. Go to JAAWX.io and embrace the future of cryptocurrency wallets. Hello and welcome to Epicenter, the show which talks about the technologies, projects and

startups driving decentralization and the global blockchain revolution. My name is Brian Fabian Crane. And I'm Meheroy. Now, you may be expecting a third person, but today there isn't one. Instead, it's just Meijer and myself. Now, Meijer just got back from Shanghai. He's been at DefCon, most of you probably have heard of it, or many of you, DefCon is the sort of annual Ethereum gathering. There was Zepcon Zero, two years ago at which I was as well briefly. And then there was DefCon one a year ago and now there's Saffron two, which was sort of all the, a lot of the people in the Ethereum community come

together, both ranging from the people working on their core protocol to Ethereum startups and had sort of a long big convention. So we thought we were going to speak a bit about the conference, what was going on at the conference, what's going on in the kind of larger Ethereum ecosystem. And yeah, do a bit of a state of Ethereum episode. Cool. So the mayor is still a bit tired. So thankful that he can muster the energy fortified with Amaretto to tackle this challenge. Yeah.

I mean, so I went to Shanghai last week and came back yesterday. it was man it was a really grueling journey like China is far and this was the first time I was in China and I realized like it's hard to navigate inside China because very few people understand English there everything is written in these Chinese characters and sometimes it's just hard to move around the place but I also felt that like I was in the future like Shanghai is it's like out of a that city is out of a science fiction movie. And it was like a perfect setting for,

for DevCon, which is, you know, the conference of, uh, of our technology, which is somewhat science fiction as well today, right?

For most people. So it was like the perfect setting to do this in China. And I'm really happy they did it there. But it also costs people like us from Europe and US, a lot of energy to go there and then come back. Cool. So, so what was the event like overall?

The one word that comes to my mind to describe the event is it was a nerd fest. There were like lots of, lots of developers, lots of smart people. A lot of talks, some of them not well prepared as well. And they were like there were talks spread across three days. And at one point, there was like so much intellectual content that I really got tired. And this was the experience like many people had. Like there were like just so many ideas in this space that you just couldn't keep up with all of them.

And I'll be actually going through all of the DevCon videos now to kind of distill key learnings from it. So today what I'm going to speak about is going to be like my subjective perception of DevCon. The event was like so big that no mortal mind could have digested at all. And so what's going to come out here is going to be a filtered version from my particular lens. So please bear that in mind. Maybe you can start here.

So you were also at DefCon 1, which was in London a year ago. How is this different? Yeah. So there were quite a few differences this time around. I think the biggest difference difference was that many of the projects, were conceptual projects at London last year. And this year, many of these projects actually demonstrated prototypes.

And we could see that they had built really cool IT tools. So what comes immediately to mind is Uport, which is an identity project from consensus. Like it's a way to link your real world identity to a pair of like a set of smart contracts. There are precisely three smart contracts. You link it to and then you can send transactions through these smart contracts.

So consensus is Uport identity system was demonstrated. It actually ended up winning an award at the demo day. So that used to be a conceptual idea one year ago and now it's like a fully working prototype at least. Similarly, you could think of like other things. The other project that comes to my mind is Metamask, which is a DAP browser. So it converts Chrome into a decentralized applications browser.

So your wallet, it's a Chrome plugin that converts Chrome into your wallet. It allows you to send Ethereum transactions right from Chrome itself. Otherwise, MIST has also come a long way over the last year. So we might go into other projects that also progressed along the way, but this was like one of one one one big difference between this year and the rest and the last. The other big thing for me was the focus on security. We had a lot of talks starting from Dr. Christian Wright-Wisner,

who heads the C++ client development at Ethereum and then from projects such as Imandra that are working to enable some form of formal verification in Ethereum smart contracts. So formal verification is this niche mathematical and programming field that aims to create a set of tools so that programmers and developers can predict accurately what their programs will end up doing. So when you have a smart contract that handles value, you want to know what the exact behavior of that program is going to be like. and you want to have mathematical proofs that certify that it's going to behave in a particular way.

And this field is kind of an old field, but not broadly applied. But we saw a lot of emphasis on this field with a lot of different talks. So the security focus was really strong. The third thing that the third big difference is, This year I felt that the race for the next big blockchain platform has heated up. I saw like a big set of projects starting from Zcash which is innovating on the privacy side to projects such as like Cosmos, String, Sign Aero, that are trying to build scalable blockchain architectures. two projects that are trying to innovate on the governance aspect.

So on the governance aspect, the project that comes to my mind is Tesos, but Arthur wasn't present at the Devcon. He was, I think, in St. Louis in the United States at a different conference at the same time. But the governance space is also kind of heating up with the people from the backfeed, the backfeed project being the premier a governance focus project out there. So there are, so these innovations are happening in these three areas like privacy,

scalable blockchain architectures and governance. And my feeling is that we are going to have another blockchain platform that even manages to challenge Ethereum in some way by really nailing down it on one of these aspects. So this kind of next next frontier for blockchain technology was clearly visible in the conference this year. So that's my short summary. So there were many projects from conceptual to alpha.

There was a lot of security focus. And then the competition for the next big blockchain platform was quite visible in the air. That's interesting. Let's stay a little bit on that topic. Even with Bitcoin, right? A lot of people had this idea early on that, okay, Bitcoin is going to be the winner, right?

Bitcoin has the biggest market cap, the biggest network effects has a big advantage, a lot of startups funded in that ecosystem. And then there was this assumption, Bitcoin's going to be the win. It's going to be super hard for somebody else to overtake that, which is that true or not? I guess we still don't know. But it's certainly not such a prevalent view anymore. And I think with Ethereum, there's been a similar perspective in that, well, if you at this conference now, there were 700 people there all working in this field.

With Bitcoin, the last time there was a conference like that was in Amsterdam in 2015. And that's a long time ago. And since then, nothing like that has happened. And it doesn't seem like there's that momentum anymore there. So now we have that in Ethereum. But yet there's all these people coming and thinking, okay, we're going to do the next, the next thing, the next thing. do you think so what are the factors here do you think it will be enough to to be better in scalability for example than ethereum to really have a chance to move some of that community over because if you don't have the community it's not going to be sufficient right I think what we have is the traditional interplay between switching costs and order of magnitude jumps in technology. So there are always like two dimensions to adopting any new technology and maybe in Ethereum there are more. So one of the one of the key aspects is like switching costs.

Now there are many developers that have. maybe spent the past year learning solidity, getting really familiar with the tools around Ethereum. And it might be just very hard to switch this whole community over to the next platform, even if that platform is a lot better. With Ethereum, there's also the case that many people theorize, and this is just a hypothesis today, that in Ethereum you have some strange kind of synergy where

A lot of different projects can build their tools and all of their tools will be interoperable just because they're operating on one unified world computer. So maybe one application of it, like one instantiation of it is you might have a lot of different coins on top of Ethereum and then you might have a decentralized fund management platform that allows mutual fund managers or hedge fund managers to create their own portfolio is very cheap. And so there's some kind of synergy between these two applications. like fund management and creating new coins. And once this ecosystem is locked inside Ethereum, it's very hard to migrate to a new one. So it might be the case that you might have like very high switching costs and like improvements in key properties

such as scalability and privacy may not be enough for the community to move to a next platform. But on the other side, with blockchain technology, What I've always felt even before Ethereum existed is that this technology is it is in its like infancy With Bitcoin we can do maybe seven transactions a second with Ethereum. We could do 15 transactions a second There's no there the privacy features are not that good the scalability features are not that good Governance features are also not not that good. I mean today we really have no governance process whether it be Bitcoin or Ethereum or any other crypto coin. Perhaps the exception is dash. Dash has a good governance process.

So I've always felt that as we go along, they're going to be order of magnitude improvements, like not, not like 2x or 3x, but like 100 fold order of magnitude improvement in scalability, or maybe 10 times better governance features, or maybe 10 times better privacy features in the future. And because of this view of mind that we are going to have these order of magnitude jumps, I have always kind of try to keep an open mind when it comes to the alt-coin space. Maybe it's one of these alt-coins that are going to realize these order of magnitude improvements, and maybe that's going to be the eventual winner. And so I have been less fixated personally on the idea of one digital scarcity, Bitcoin, ruling over it all.

Now, so this tension really exists in this space, the tension of switching cost versus potential order of magnitude improvements, right? And this tension also exists between like Bitcoin and Ethereum. Many people would say the switching costs are just too high because the switching costs of Bitcoin to Ethereum are just too high because of the network effects of Bitcoin. And I think there's going to be like a vocal community of people that's going to say that the switching costs from Ethereum to something else. is going to be very high by that same logic that people in the Bitcoin community were postulate high switching costs but my my personal feeling is the race for to be the to the public world computer or the public blockchain platform is still wide open and it won't be settled in my mind at least until like several years have passed

and we have really seen how how scalable blockchain architectures look like. So that's at least my thinking. Yeah, I think the dynamic here as well is, if you look at something like Bitcoin, for example, Bitcoin never actually succeeded at what it's allowed to do, right? You never got widespread adoption as this payment system and meth. And what I found quite interesting is when I got into Bitcoin,

I really wasn't interested in gold. like I never I never thought about gold and then later I was never a gold buck no and then people were talking about it as this digital gold and and I just I couldn't relate so much to that fascination of gold and then later I started reading more about gold and I was like wow that really has enormous network effects there and just as a store of valley it has such a penetration right which even much beyond the FIA currency, that it really is, would be extremely hard for anything to supplant gold, right? So now, Bitcoin could, of course, have a similar thing, but, well, it never got anywhere, like, you really never reached any kind of mass adoption or even minor adoption,

which we'll use. So, of course, the only place where it could have some of these switching costs is on the developer side and then just given how hard it was to develop apps on Bitcoin, I guess also that wasn't really a factor. And now with Ethereum, so you're right that there's the tool side and that's one factor and knowing solidity and all those things. But if you look at it purely from a network thing, again, none of these applications actually have real users or are actually doing anything really of value in this world, right? Like literally zero at this point. So from that perspective, right, it would be very easy to switch. I think only once there's a lot of traction there, you start having these effects. I mean, even if you talk about the fund management

thing, now there's going to be like five coins or something, or 10 or 20. And so that's not a big factor. And then at that point, the question will really be about interoperability to significantly extent, right? So if there is these effect that a lot of these steps are just much more valuable when they're on the same chain with other applications, then maybe that's going to make it hard to switch. But I, you know, we mentioned the big problems being security, governance, scalability, probably interoperability we should add there. Or maybe that's not such an issue at the moment. It's actually because we are at this premature state.

But once we get a bit further, then intraoperability is going to be one of those two. And I would think that interoperability is also going to be something that gets solved. So you probably will have that dynamic that you can run your dab elsewhere. and there aren't these huge network effects from having everything on Ethereum. But it will be interesting to see for sure. Let's take a short break to talk about Bitfinity, the Miami Blockchain Conference to be held this year from October 30th until November 2nd.

Blockchain technology has been exiting the world of nerds and hackers and entering the mainstream. We're at the beginning of a big revolution that's going to fundamentally change how the world works. At the Bitfinity Conference, we're going to have the heavyweight speakers such as Don Tapscott, who wrote the book The Blockchain Revolution or Joe Lubin of the startup consensus. But we're also going to have the industry panels that focus on real-world use cases and bring together both the tech expert, who really understand blockchain,

and the kind of key decision makers that will help blockchain become a real commercial success. Now you may just want to pack your bags and buy a ticket to Miami, and that's certainly a good idea. But if you're involved in a project or startup, there's something even better. Bitfinity will feature dozens of presentations by starting startups so you can apply for the presenter package, get an exhibitor stand, and speak on the main stage to an audience of 500 to 1,000, high level people, including many VCs and top decision makers. And of course, all that while sipping in martini in a luxury hotel in Miami Beach where Frank Sinatra once staying on stage. To learn more how you can join startups like

factum, consensus, Everledgeer, and Stellar. Visit them at Bitfinity.com slash Epicenter and find out how you can get 10% off the company presenter package or your $200 discount code to attend. We'd like to thank Bitfinity for their support of Epicenter. So one thing that's kind of stuck out to me on the interoperability space is, so in the Ethereum system, we have this notion that there's going to be some form of sharding. And that's going to allow these systems to do scale like it's like a commonly held view right that they're going to be that these like hundreds of blockchains that are somehow going to be able to share their security with each other right so if you have like Bitcoin there's

like the individual Bitcoin blockchain and that has its own security infrastructure which is which is the miners now the reason why you don't want in the Bitcoin ecosystem a lot of different blockchains is that these different blockchains will need to have their own security infrastructure. And we don't have a way by which individual blockchains can share their security infrastructure really well. So we had the concept of merged mining before,

but that has some problems. So the fundamental idea of sharing security infrastructure between blockchains hasn't been resolved. Now the idea of sharding is that we are going to figure out a way, or some people would say we have already figured out a way by which hundreds of blockchains can share one common security infrastructure so that you could have hundreds of computation threads

running in parallel in the world, but then secured by the same security infrastructure that can scale globally. But if you really solve that sort of problem, that sharding, then it somehow seems to me that you're gonna also solve the problem of interoperability. So at the conference I met these, I met Ethan and Jay from the tender mint team. They are now developing a cryptocurrency called Cosmos, which is supposed to be this very scalable blockchain architecture.

And the core idea seems to be essentially essentially that you might have a protocol by which you could, you can move value between blockchains very quickly once you have proof of stake architecture. and that's all that's needed to really nail down interoperability and scalability. So maybe scalability and interoperability are somehow connected problems as well. So we'll see how it turns out. There are a lot of different ideas in this space and I wouldn't be able to guess which one is going to win out. Yeah, I agree. Another interesting point you made when we talked before the show.

was your point that Ethereum was good for prototyping, right? But then there's possibility that people will just kind of run their prototype, their beta, alpha on Ethereum. And then afterwards, say, you know, we're going to move to our own blockchain, which could make sense from a variety of reasons. One could be that, right, you take the token and use that as a proof of stake thing. And then, of course, you could potentially save the transaction fees that you have to pay in Ethereum, maybe,

get better scalability, better features. Otherwise, if you can kind of mold it according to that the particular needs. So it will be interesting to see if that happens as well. Yeah, yeah, definitely. So right now, Ethereum hasn't found a killer app. There isn't really any application that could count more than a million users.

And some would say even a million users isn't a killer app for a killer app you need. But there's no Ethereum app with it. million users. There's none, right? Like, so I'm saying, like, right now Ethereum hasn't found a killer app. And some people would say for a, for something to qualify as a killer app, you need 100 million users.

Right. And Ethereum hasn't, doesn't have even one application with like a million users, right? So we are like far, far away from the first killer app. Now, it might be the case that when you, when we do discover the first killer app, provided it exists, then, you, you. the people building that killer app might have their own token to inside their app. And then once they succeed on these hidden platform, they might choose to build their own blockchain. Because like they have 100 million users, even if they make a dollar a day from a dollar a year from these users,

you could easily see them moving to their own blockchain. And the question is, on that day, what's going to prevent them from creating their own blockchain? and migrating away from Ethereum. So is there like some kind of hidden synergy that these people are going to have by staying on Ethereum even though they have 100 million users? Or is it going to be the case that they have no synergies inside Ethereum and it just makes sense to move outside?

Personally, I think we don't have the They know how to answer questions like this today and I think the best approach is to just keep an open mind and study these concepts of interoperability and switching costs. Did you see any kind of trends in terms of the startups that were there? Maybe, first of all, this conference on its own, but then also compared to last year, I don't know if DefCon 1, there was a lot of starters. But at this point, what are startups looking like?

What kind of problems are they tackling? So I think there's like a wide variety of problems that these startups are tackling. At the top of my head, I can count identity. So many, many startups are working on this problem of how do you link somehow individual people in the real world to digital objects on a blockchain and have a very tight one-to-one mapping between them. Then I would count all of these startups that are building scalable blockchain architectures also as startups because they do want to do their own crowd sales. I saw quite a few exchanges. I saw one space that I saw a lot of innovation in is this idea of a desetalized application browser.

So Ethereum users would know missed that in the Bitcoin world we have. have just wallets, right? Like these software's where you can store your private keys and sign transactions and send transactions. But in the Ethereum space, these wallets need to be way more complex because the process of composing a transaction is more complex. You might want to send specific amounts of data. You might want to create very custom transactions.

So you start to need wallets that are way more complex in what they can do. And these way more complex wallets are called DAP browsers in the Ethereum ecosystem. So we saw a lot of startups building new kinds of DAP browser. So like MIST comes to mind, MetaMass comes to mind. But then I think there was this startup called status. I might not have the name right.

That's building a DAP browser that works like WhatsApp. So imagine like all of these DAPs were to be like one conversational on your WhatsApp client. And then in order to interact with the DAP, you open that conversation, you type in something in English language, and then once you press enter, that transaction goes to a smart contract on the blockchain.

I found this idea mind blowing, because this kind of user interface plays really well with the transaction latency of a blockchain. So when you use an internet browser, like a normal internet browser, browser, we have been trained to expect immediate response from it. Like you click a button like a pop-up appears, you click a button and some new data appears. You click a button and you go in like maybe a second to the new page.

But if you look at the field of like WhatsApp and V-Chat, humans are intuitively trained to expect transaction late, like latency. Right, like I send a message to a friend and the message and the friend and the friend reply is only like maybe two minutes later, right? And this is what the blockchain is also like, right? So if I send a transaction, it might only be confirmed like in say a minute, depending on how much security I want inside that confirmation. So if you could build a Dab browser that works like WhatsApp, you're kind of tapping into the, I would say, psychological adjustment we have already done to deal with a client such as WhatsApp. So this kind of DAP browser that's just like a chat client where I could enter messages in English language and have transactions sent to DAPS and confirmation received from DAPS looked very powerful to me.

Then the other field in addition to identity scalable blockchain architectures exchanges and Dab browsers was state networks. So our viewers might recall that we have had, we have had, um, episodes on the Lightning Network. So Lightning Network is what you would build on top of Bitcoin in order to scale Bitcoin by having off-chain transactions that are just settled on the blockchain. But in the Ethereum ecosystem, we have this notion which is called a state network, which is a more general form of the Lightning Network. So in addition to just pure transactions, me sending money to Brian, who's sending money

to Sebastian, we might have more complex transactions where I am sending, let's say, the move in a chess game to Brian, and then Brian is replying to me by another next, the next move in a chess game. So these state networks can be way more complex than lightning networks, and we saw a lot of activity around that. So the radio network seems to be like one startup doing that, but then there was another startup from the creators of lightning. And then I am also aware that the Zcash folks have their own version of an anonymous lightning network. So that seems to be like another space that's heating up. The next space that I found personally very interesting was this space of fund management on a blockchain.

So the idea here is, hey, you're going to have a lot of tokens on Ethereum. And then there are going to be people that want to be fund managers on Ethereum. Right. So suppose Meher wants to be fund manager. So he wants to create a portfolio. and hold these tokens on the Ethereum blockchain and then have investors invest in this portfolio. So I saw personally like, I think three startups

that were tackling the problem of fund management on the blockchain, how to build IT tools so that the life of these fund managers is easier. Maybe we might want to interview a few of these. And this seems to be like one space that has really come up in the past. year. And then finally you saw the space of developer tools, right? So these span from like formal verification to IDE's to even companies like that are like trying to create educational

materials for these developers. So so I would say these are the interesting areas. Identity, scalable blockchain architectures, exchanges, fund management, dab browsers, state networks and developer-focused tooling. Today's magic word is China. That's C-H-I-N-A. Head over to let's-stockbidcom to sign in, enter the magic word, and claim your part of the listener reward. One thing I find interesting, and we also briefly talked about this before the show,

was how there's been basically no VC investments into the kind of, you know, pure Ethereum startups. Essentially, I think it's almost zero, at least from major VCs. And if you look at these classes of categories that we mentioned here, so, you know, with that browser, very unclear how you monetize that, although I guess there is a certain precedent with monetizing browsers, as in like Firefox getting paid by Google to put that as the search bar. So there may be some way to monetize that.

Or exchanges, of course, that is probably the one business model in the cryptocurrency space that really seems to work. New blockchains, yeah, I guess that can work as well in some way. Of course, whether it's a sustainable business model, there's a difficult question, but at least you can work in general. generating some money. Fund management, very hard to see how that's going to work, I think, because even if I say I'm going to make this portfolio, I'm going to invest and people are willing to give me money. So I manage that and I want to take, you know, this sort of traditional

fund management fee. Well, anybody else can just replicate that portfolio because it's kind of visible on the blockchain. So you, I mean, maybe privacy things will deal with that. I don't know. But so that's hard to do. Developer tools, of course, there can be some money in there. But I still think there's a lot of these things are essentially almost no, the business models very unclear.

Do you think that has something to do with there being, you know, very, very little VC interest at this point? Yeah, so like I concur like it at Devcon. I didn't see a lot of VC interest at Devcon. So I think the two VC firms that stood out is USV, who sent representatives to Devcon, which is based out of New York. And then there's this other VC firm which is based out of Chad, which is called Fenbushie.

And apart from these two VC firms and maybe some small angel investors based out of Hong Hong Kong and Europe. I didn't see a lot of Sandhill Road VCs sending representatives there. And to me this was a bit surprising because I think if I look at all the other technology areas, you would expect to see a lot of Sand Hill VC firms sending representatives into such an event. And maybe we can go into this kind of strange geographical split that we observe later. But I do think that this space in general lacks very clear business models. And the hard part about this space is your code is open, your execution is open, and your data is open.

Like that's what we want. We want startups to build and put the code on a blockchain as a smart contract. So the code can be infinitely copied. Perhaps not. There's there might be nuance to this. We want them to put their data on IPFS and Ethereum, some form of decentralized file storage and Ethereum, where it can,

where the network effects can be data of data can be taken over by your competitors and you want the execution of computation to also be open. And like sort of these three is unclear how these three requirements that we as nerds or we as tech nerds want matches to the needs of businesses which is to have a sustainable stream of cash flows. And there's no clear way by which these two kind of opposing requirements really match. Now in the in the present web you might think that like advertising has been a very successful stream of cash flows right.

So the notion behind advertising is that you you sell attention for capital. So when you have an application, your users use that application. What you have as a resource as an application building? is the attention of users. And this attention of users is a valuable commodity for various forms of advertisers. And these applications end up becoming a marketplace to match these advertisers with these users.

YouTube works like that, Google works like that, Facebook works like that. And it's a very successful, it has been a very successful business model there. But we don't have any equivalent of this in the Ethereum ecosystem. And maybe if, I was a conservative, slightly conservative venture capital firm, this would really bother me that there is no, there's no defined business model.

A couple of things that I see coming and we don't know how, we don't know how to address their impact yet is the notion of state networks. So whenever you have like blockchain protocols on top, like a lightning network or a state network, we always start to need some form of locking money. Right. Like so if if you want to build a lightning network between me and Brian, then maybe I need to lock some funds in a smart contract. Same is true for state network. And now if you want to lock funds, we must remember that there's always a financial cost of locking funds, right? Like so if you don't lock funds, you can earn interest on it. But

if you lock funds, you will not be able to own interest on it. So maybe there's going to be a set of business models that open up because they're able to lock big chunks of funds at particular instances of time. So maybe the difference, maybe the business model is going to be, hey, I will allow these state networks to exist, but then I'm going to like lock a million ether in the state network. and very few people can lock a million ether in a state network. So this gives me some kind of defensibility against other businesses,

trying to do the same thing. And I can therefore sort of charge for my services of providing this liquidity of a million ether. So state networks might be one of these things that kind of bring a good business model. It also turns out that I personally have a theory of how, what would be a good business model, but that's not a topic for this show. Because I'm trying to convey the idea. I'm working with a guy called Macha Ulpinski, and we have our own idea of what makes a good business model.

But perhaps that's a topic for later. But in generally, I completely agree with you. Today, apart from crowdfunding, there's no really good way to make stable streams of revenue, building a decentralized application. So if you talk about some examples, though, right? So for example, you know, you also work for validity, right, doing training, right? So training, that's something that makes sense, right?

And that's a good business model in this environment. If you accept the premise that this is a new paradigm, all these people are going to have to switch over, then, you know, training is going to be something that's needed. And of course, that sort of points to another thing where there's a ton of interest, ton of activity, which is consulting. So all these companies that essentially advise on digital strategy help organizations reinvent themselves, restructure themselves, know how everything their IT systems work. You know, they are very interested in this.

And there's a lot of opportunity there. Again, if you assume that kind of thing, that organizations are going to transform because of blockchain. And then, you know, for example, ERAs, well, we do some of that, right? And then we also do some software licensing. Now, how well software licensing is going to work in this environment? It's hard to know in the long term. But if you look at some other technologies, some other examples where you've seen a sort of decentralization trend. Airbnb might be an example, right, where you all of a sudden bring together people renting out their rooms with people wanting to stay somewhere,

then there's certainly a business there, but the business is, the platform. So as soon as you distribute ownership of the platform, well, where's the business left, right? If you subtract that from Airbnb, if nobody owned their platform that would have made Airbnb possible, there's no business left. Yeah. Like all of this change would have happened and there's no way for a VC to make big money, right? Of course, if you have an inbuilt token in the network, then maybe that will be, have some of that role. But so it's, it is very, very hard to see, I think, how this is going to turn out. And I think if you look at crowd sales, a lot of times it's not very clear what's going to,

the relationship going to be between the value of these tokens and the success of the application. I think it is very feasible that many of these applications will become very successful. And it doesn't result in a big return for the investors. It's hard to know, but I think it's at least possible. and a lot of it depends on the really the intricate economics of these tokens. And I don't think they are particularly as much thinking goes into that economics often. Or the thinking is more towards how can I, as a creator of that platform, make money soon as opposed to how can that provide a value 10 years down the line, assuming it's widely adopted? And I think we also, when we have crowd sales, right, we really see, I read this article where we'll

post it in the show notes, kind of about the defcon. And one of the points he was making there was that just how inefficient VC funding is and how much better this crowdfunding. That's the, it was going to be a standard way of funding companies. And there's certainly some aspect of truth to that. But at the same time, I think if you look at VC funded startups, incentives are actually better structured than in these crowd funds and token sales in general, I think. To take Ethereum as an example here, Ethereum crowd sale was two years ago. July of 2014. Yeah. So roughly two years ago. And at this point, I think of all those people who received money in the crowd sale, probably 70, 80%, maybe more have left.

They're not working on the protocol anymore. I mean, okay, they work in the larger environment. But the incentive isn't there, right? So you get your tokens, your money up front. It becomes valuable. You can sell it. You can leave. Do the next thing.

And if you look at, on the other hand, as a traditional startup, you know, you you have this locked up for generally four years. And you can't cash out. Even if it's vested after those four years, you have those shares. Well, there's no market for it. So you really have a very backloaded reward. And in a way, unless the thing actually becomes a success,

you're probably not going to make a lot of money. And that's a totally different situation that we have in the cryptocurrency space at the moment. That is so true. I mean, so let me actually frame the problem a bit differently. Like when you're in the Ethereum ecosystem, at some level, you are relying on the Ethereum foundation. You are relying on them to build the next generation of clients to scale this platform. You are relying them to fight attacks like the one that recently happened. Right. Now, but if you really look at the incentives of Ethereum foundation itself.

They, I think the, so the Ethereum foundation does, there's a, there's a, there's a, there's a, there's a, there's a, there's a, there's a, this is a, it's a, right. But if you, if you didn't have somebody like that heading the foundation, and it was a pure game of selfish optimization for the foundation, then the kind of problem you have is these guys have already done the crowd sale, they have collected the money. they have made a 30x return for their for their investors and now they might have a capital base of like a few million dollars right now what incentive really exists for the foundation to go out and build the next thing so today we might think that okay the incentive is i think there's there's people like vitalic or the top and they're they're playing this game for their reputation right they're they're doing this so that they can solve these problems and build a stellar reputation from themselves.

But if you had some other kinds of people that really weren't in the game for this reputation, what incentive exists for these people to continue building once they have done the crowd sale? They can't do another crowd sale to raise money. So they are not going to get even more money from the community. They already have a pot of money. So the natural economic incentive would be to just enjoy and spend this money, right? Whereas in a normal startup, you might think that there's some form of vesting where the money that that these crowd sale creators have access to only gets released over a long span of time.

And then even when these shares get released, they are not freely tradable in the market and they have to work in order to do make the company big enough so that they can do an IPO and make these shares freely treatable. So I think the crowd sale model has has problems. On the other side, perhaps we can design smart contracts that can be better crowd sales. Yeah. Or the other thing you of course might do is say, well, we talked about security, scalability, some of these other issues, maybe starting, maybe one can start competing protocols. So, you know, my sense to say, okay, well, let me just work on one of those, right? Because that gives you another chance to have an Ethereum crowd sale type event.

And I think right now we are still in a way in the fortunate situation that there is this, you know, enthusiasm and a lot of energy and stuff. But if you're going to have two years, like with Bitcoin we have, right, where it's a long time and it doesn't seem like a lot of progress is happening and people are kind of losing motivation, then the incentive to stick around and they go through that, you know, value of that desperation or whatever, it's going to be called. It's not very high. But I agree. I mean, in principle, of course, you could do that, right? In principle, you could have a time long. I mean, you probably are always going to have the things being tradable. I mean, as soon as these protocols launch.

But you could have that anybody who gets awarded coins as part of a sale, that those are locked up for a while. And that would at least, or that there's some vesting on that. And I think that would at least partially deal with this issue. Yeah. And I also suppose that in order to really deal with this issue, we need better governance architectures. So if you have things that west over a long time, you're assuming that there's going to

be like a governance structure that like can allocate these things well. And we haven't solved the fundamental governance problems of having these decentralized community so I'm hopeful that these problems are going to be solved but yes if I were to look at it today many of these crowd sales have really bad incentives where the creators are incentivized to like launch a crowd sale do everything well until it launches get the money and then if they're only to technical problems then just you know stop stop working hard because all the money has already all the influx of money has already been there and there's no sustainable business model that you see.

So if I'm like a crowd sale creator and I do this crowd sale five months from now, I get this huge influx of a few million dollars today. Maybe 10 months down the line I run into technical problems and it turns out that the architecture I proposed is not good. And I also don't see a sustainable business model for my architecture in the future. then my incentive just might be to, you know, just relax and have the money and get my monthly salary for the next year and not build this thing. And this is a problem of incentives around cloud sales. And we really haven't solved this yet. Now, I do see that like there are like around seven or eight crowd sales that are upcoming. And none of them have really attacked this problem of incentives.

So it's a very valid criticism of this space, I think. Yeah, yeah. And you can also ask about, you know, when you start having something tradable very early on, and when you assume that the value is really going to be in the long term, then all of a sudden you have these people kind of watching because they're trying to speculate on your project sort of as it's in this immature state in developing. and I'm not always sure if that's going to lead to the best outcome

and the right kind of pressure on people. Let's take a short break to talk about Jacks. Jacks is a multi-coin wallet created by the people at the Central. Now, in the past, if he had a whole bunch of cryptocurrencies, it was a pain to handle them. You either had to leave the money on an exchange, which was insecure, or you had to have all these different wallets, which was a hassle. Fortunately, now with Jacks,

those medieval days of darkness, misery, and suffering are over. Jack supports multiple cryptocurrencies and new ones are being added. But it's not just storing cryptocurrencies you can do with Jacks, but you can also exchange them directly from within side the wallet, thanks to their shape-shift integration. And since there's only one seed, Jacks makes it super easy to back up and sync to the other devices. Jacks works with Windows, MacOS, Linux, Android, iOS,

and has browser extensions for Firefox and Chrome. So go to jacks.io, that's j-a-doublex.io, to download the wallet and get started today. We'd like to thank Jax for the supportive epicenter. Microsoft is sponsoring this event. And an interesting thing is that Microsoft has been quite active in this space, with Microsoft Azure and them running a variety of things such as block apps or Ares or Ripple and I think a bunch of other stuff, right? So they've been active on that front with Azure and exploring it.

And I think some Microsoft Ventures was there and they're sponsoring this. So they're very active. But then if you look at the other cloud companies, the other big tech companies, Google, Facebook, Apple, they've never announced anything, doing anything with cryptocurrencies or. Bitcoin or anything like that. What do you think, Mayor? What's the reason for this?

Why is there no interest? Or is it all happening behind closed doors? Yeah, like this is one of the very interesting parts of what I feel about the space. So the big five software companies in my mind are like Google, Facebook, Apple, Amazon and Microsoft, right? So if you were to make a list of the top five with over 100, billion dollars in market gap, we would end up at these five. And maybe then you have these companies like Uber and Alibaba and Tencent.

Alibaba and Tencent that I think Alibaba is already past the hundred billion dollar range, but all of these others are lower than a hundred billion dollars, but about to break it. Maybe we should include Alibaba in this list also the sixth. And out of all of these six, um, it's only. Microsoft that's investing in blockchains today. So at the conference I met, I met a few people from Microsoft actually and they have, they have Microsoft ventures, which is supposed to be this venture funding arm for the blockchain space. I mean, maybe it's a more general arm, but they're also looking for opportunities in the blockchain space.

And I wondered why this would be the case. And like, personally, I've been I've I'm kind of interested in a lot of alternative technologies and I think that all of these other companies are sort of busy in other technological fields so you have virtual reality and augmented reality as a field and you see Facebook spending a lot of time there so if you look look at the recent interviews of Mark Zuckerberg he's really investing in virtual reality because he thinks the future the social platform of the future in 10 years from now will be built inside virtual or augmented reality and so

they have bought Oculus for a few billion dollars and they're really pushing mainstream commercialization of that technology so I personally think that Facebook's attention is invested in that technology if you look at Google like Google seems to me to be the company that's focusing on machine learning autonomous cars and then through Google X on like healthcare and robotics. So if you look at some of the recent developments that Google has come out with, they have come out with this machine learning

platform which is called TensorFlow. So TensorFlow essentially allows you to create deep learning neural networks very easily. So it really, it's really like, it makes it a no brainer. So you can build your own deep learning neural network very easily using Google TensorFlow And Google is also investing heavily, not into VR, AR or blockchain, but into autonomous cars.

And I think autonomous cars make a lot of sense for a few different reasons that we might get into later. But Google's attention is kind of diverted into that space. Then you have Amazon. And Amazon has been, like Amazon probably is, like all of these companies are also very secretive. and what we see is only the tip of the iceberg, right, from our vantage point. But with Amazon, I see them investing in the areas of human-computer interaction. Like how do you make it easy for humans to give orders to computers? So I think their latest product, Amazon Fire, is I think it's called,

it's a very interesting product, hardware product, where it listens to all of the conversations in your house and you can send it in a command in normal voice and it will say play play a song for you. It's investing in that direction. And Amazon is also interesting in the direction of drones. So it turns out that drones can really improve how logistics works. And Amazon is investing in like drones and delivery robots because they could reduce the cost of logistics inside large cities by a factor of 10. So Amazon's attention is kind of diverted into those areas.

And then Apple. So Apple is like traditionally a super secretive company, but the rumor mill, at least in, at least the Silicon Valley rumor mill is that Apple is investing A into like its own car. So Apple wants to build its own Apple car and compete with Tesla head-on. And this car might also have its like a travel-less feature. and have very different ergonomics to the current car.

So once you have driverless cars, you can completely change design inside these cars. Like if you're a driverless car, you could have a car where two people sit in front of each other with a table in the middle, having dinner while it car drives itself. So Apple might just come out with a new concept around these driverless cars where you have a completely different experience traveling inside a car. And that could be something Apple pioneers. Or Apple might also work in the areas of augmented and virtual reality, but most probably augmented reality. So I don't know if you've been following, but there's this very interesting technology

that allows augmented reality to be very easy to set up and paint free. So you can have like glasses and these look like normal glasses, but they can give you an augmented reality experience. So we have the technology by which we can get rid of these huge bulky VR glasses or AI glasses or these Google glasses and have like a very natural human experience in augmented or virtual reality and most probably Apple is also investing in in this direction. I have no idea what Alibaba is doing and perhaps

this is just because like in the Western world we have very little idea of what the Chinese firms are doing just because the language period but it seems like all of these companies are are kind of investing in other alternative fields, leaving solely Microsoft an open technological field to itself. And I find this like super fascinating that maybe if the blockchain field were to become really big, Microsoft is going to be a massive player because it's going to have connections and expertise and ideas that all the other players. are not going to have.

And we just might see this early informational advantage of Microsoft play itself out in the next decade. What do you think, man? Yeah, it's a good question. I mean, you were asking about Alibaba. I was just listening to a book about Alibaba. So I think they are also investing,

especially in messaging and AI and stuff like that. machine learning but also there was no talk about blockchain there so I don't think that's on their radar I mean at least as what far as I know I think with all of those other technologies if you look at something like Google if you look at something like Apple if you look at Apple self-driving cars and cars kind of make sense to me it makes sense why Apple might want to do a car makes sense why they might do a good job at a car it makes sense that people would want to buy an Apple car like there's just so much about that that seems to make sense And with Google, machine learning is completely an obvious fit.

And I think with drones, Amazon, obvious fit. And with blockchain, we were talking before, like even the business models are so unclear that, and if you believe that thing that is going to lead to this decentralization where it's actually going to be harder to make money in many ways, then it's just hard to see how those companies can, really utilize blockchain effectively. And in a way, maybe it's also just because they see these other technologies,

they see a way to strengthen their position, they see a way to make more money and have a better business. And then you see blockchain and you just see, okay, if that becomes really big, it would be a threat to us, right? It could actually undermine us. So then you just focus on the opportunities instead of the threats. maybe that's something that's going on here. But I don't know.

It's a good question. Yeah, I think maybe blockchains are just hard to figure out. I mean, me personally, I struggle with the problem of explaining how blockchains deliver an order of magnitude improvement in some metric that a customer cares about. So in the 90s, before Ray Kurzweil hit the scene as a futurist, so we might know, listeners might know of Ray Kurzweil, who has these very optimistic predictions about the future, that we are going to hit a singularity of some kind. So before Ray Kurzweil was famous,

there were other futurists on the scene, right? And there was one called like Stephen Schnars. And Stephen Schnars has this notion of a Schnazner's, What he says is that imagine like a filter, so there's the filter things that cross the filter and then there's things that need to be filtered. So he said like imagine all of the technologies that are upcoming, all of them as like as a filterate. Like these are things that need to be filtered. And then as a futurist your job is to understand which one of these technologies, you're, your job is to understand which one of these techniques. technologies crosses the filter and can actually become mainstream.

So his idea is that most new technologies are going to fail because they don't solve a big enough consumer problem for them to overcome the natural inertia of humans. Any new technology hits, it encounters inertia, it encounters regulatory inertia, it encounters business model inertia, it encounters commercial inertia, it encounters user inertia. Users don't really want to learn about a new technology. like even with this space it's hard to understand private keys keeping them safe people don't want to do it so generally new new technologies face a lot of inertia and only those and in his opinion in Stephen Schnars's opinion only those technologies are going to succeed on a massive scale that improve some metric that a normal consumer cares about like by a factor of

tenfold so if you look at like historical examples you know vaccines it's going to reduce my chance of dying from smallpox by a factor of ten that's something a cons you can hundreds of millions of people care about or you look at something like cars is going to allow me to travel ten times faster than a horse that's something like hundreds of millions of customers care about or in the notion of autonomous cars. This is a technology that's going to allow me to travel inside the city 10 times cheaper than current taxis. In Basel it costs

three francs per kilometer for a taxi for autonomous cars going to be like around 12 cents a kilometer. Or virtual reality, right? That it costs me $2,000 to visit Egypt and see the pyramids but inside virtual reality I can have half or my experience is poor than really visiting the pyramids, but then it's a thousandfold cheaper. So if it costs $2,000 for me to visit the pyramids, in virtual reality, I can see them for $2, but the experience is half as good. But then the value, the experience per cost is like a hundredfold better, right?

Or something like that. So you can see virtual reality also crossing this filter, right? Like hundreds of millions of people are going to care about this. With the blockchain, my fundamental doubt is that we don't have a really good articulation of why, of what we really improve to such a drastic degree that like billions of people are going to care about it. And we don't have this, we don't have a really good answer to this problem today. And maybe this is what also these companies are seeing at their own levels. And Microsoft, maybe they know. something the others don't. Well, let's do one last topic. I don't want to add anything to your

beautiful explanation at this point. So this was in China and yeah, China has also quite a vibrant tech scene, which is a little bit in its own universe, right, because it's such a different, a different space, right? There's a great firewall. There is a very different culture. There's language barriers. So I think a lot of stuff has developed independently there and in very different ways. It's also the mobile first place where a lot of people have smartphones, but they don't have computers yet. Whereas I think in the West we've had the other way around where people, this may be changing to mobile more, but still there's this desktop computer paradigm or laptop paradigm. So a very different space now. This took place in China. Did you see any?

significant interest from Chinese Chinese startups. Do they understand this? Blockchain stuff, is that something that they appreciate? Do you think there's going to be a lot of traction there for Ethereum and blockchain in general?

Let's kind of look at the numbers. I think out of 700 attendees, around 70, like between 70 and 140, 10 to 20% were Chinese. It was very low. than I expected it to be. And the Ethereum Foundation actually made a lot of effort to reach out to Chinese people. Like there was like real-time translation for Chinese attendees.

They could hear all of the talks in real time in Chinese. But in terms of people that were presenting, the only China-based project I could see was there was a guy who was building a Ruby client for Ethereum and he was building to so that the Ruby on Rails ecosystem could plug into Ethereum and build applications here. And that was the only presentation that I think was given by a developer resident in China working on Ethereum. Maybe I missed something else that was there, but certainly out of all of the maybe 40 or 50 presentations, there was just one like that. So it kind of goes to show that there isn't a huge developer talent pool. pool. That's what I felt. Maybe I'm wrong here. Um, but you could, I could also see that

there was, uh, there were like significant amounts of angel investors and VC interest out of China, unlike Sand Hill Road. So there's this VC, VC called, uh, Fing Bushi. And it's associated with these, uh, with this huge company called Wang Siung Labs. And they held a two day event after the DevCon which was called a demo day where like people could come like startups would come and present their projects and then they would give awards to these startups they gave awards to I think Uport and Cosmos and then some kind of funding line might also open for startups demoing on demo day from China so this is the part of the ecosystem that I saw really well but with the Chinese

In the Chinese ecosystem, what I also realized is it is very hard for people like me to understand what's going on there because of the language barrier. Maybe there's like lots of developers building things, investors funding them, and we just might not get it because like all of it happens in the Chinese language. So this might be a case of some form of selection bias. I don't understand Chinese and therefore my attention doesn't go towards things happening there. and therefore I underestimate what's going on in there. Yeah, so that's my answer. Probably it's not a satisfactory answer, but I really think I'm not the right person to answer about what's going on in the Chinese ecosystem.

And maybe we should have some interviews of people based out of China. We did have at the meetup in Berlin a talk a while ago from somebody who was a Western who is working for a Chinese Bitcoin company called the Big Bank. It was quite interesting because that company actually has like 100 employees. So it's there's maybe Coinbase and Ripple might be the only companies in the West that are of that size, blockchain companies. Yeah, it's essentially mining and Bitcoin, right? So I think Bitcoin did seem to catch on quite a bit in China also because, evading capital controls, of course, big topic there, speculation, big topic there, right, where you have very little outlets, and then mining being the perfect environment there.

But yeah, in terms of even there, right, I think Bitcoin never really got used as a payment system because that wasn't allowed. So even there, for Bitcoin, it was a very limited usage. So, yeah, we'll see what's going to happen there. but I guess one could imagine that it could be a good environment for developing countries, right, blockchain. So, well, thanks so much, Meher. I think we're at the end of our episode, but thanks so much for reporting to us all about what's going on in Ethereum land and how DefCon was. I think that was very interesting.

And I'm sure DevCon 3 will be interesting to see how much the community evolves by then. And I look forward to having you over as well. the next step one. Yeah, absolutely. No, next one I'm definitely going to make it. Yeah, so thanks so much. EpiCenter is part of the Let's Start Bitcoin network. You can find this show and many others on let's talk bitcoin.com. And yeah, so we're putting out these episodes every Monday. You can, of course, get it on any of the podcast applications or find the videos on YouTube.com slash Epicenter Bitcoin. So thanks so much, and we look forward to be back next week. I'm