150 – Devcon 2 And The State Of Ethereum

Transcript

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cryptocurrency [Music] 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 pan Crane and I'm right now you may be expecting a third person but today there isn't one instead it's just Mayer and myself now Mayer just got back from 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 zon zero uh two years ago at which I was as well briefly and then there was sefon one a year ago and now there sefon

2 which was sort of all the a lot of the people in the ethereum community come together both ranging from the people working on the core protocol to ethereum startups and had sort of a long big convention so 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 uh and yeah do a bit of a state of ethereum episode cool so my mayor is still a bit tired so thankful that he can must the energy uh 45 fight with amaretto to to tackle this challenge yeah I mean so I I I I went to Shanghai last week and came back yesterday it was man it was a really

gruelling Journey um like China is far and uh 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 uh 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 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 cost 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 um there were like lots of lots of developers lots of lots of smart people a lot of talks some of them not well prepared as well and uh they were they were like there were talks spread across 3 days and at one point there was like so much intellectual content that I

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 the event was like so big that no mortal mind could have digested it all and so what's going to come out here is going to be a filtered version from my particular lens right so please bear that in mind maybe you can start here so you were also at Devcon 1 which was in

London a year ago how is this different yeah so there were there were there quite a few differences uh this time around I think think the the first the biggest difference difference was that many of the projects were conceptual projects at London last year and this year all of many of these projects actually demonstrated prototypes and we could see that they had built really cool it tools so what comes to 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 to a a 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 at the demo day so that 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 the other project that comes to my mind is metamask which is um which is a a dab browser so it converts Chrome into a

decentralized applications browser so your wallet um it's a chrome plugin that converts Chrome into your wallet and allows you to send ethereum transactions right from chrome itself uh 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 R Weisner 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 is going to be like and you want to have mathematical proofs that certify that it's it's going to behave in a particular way and this field uh is is kind of an old field but not broadly

applied but we saw a lot of emphasis on on this field with um a lot of different talks so the the security Focus was was really strong the third thing that the third big difference is um this year I felt that the race for the next big blockchain platform has heated up I I saw like a a big set of projects starting from zcash which is innovating on the Privacy side to projects such as like Cosmos uh string signo 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 uh the governance space is also kind of heating up with uh the people from the back feed the back feed project being the the premier uh governor 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're 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 uh next next Frontier for blockchain technology was clearly visible in in the conference this year so that's that's my 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 is was quite visible in the air that's interesting let's stay a little bit on on that topic even even with Bitcoin right A lot of people were had this idea early on that okay Bitcoin is is going

to be the winner right Bitcoin is has the biggest Market market cap the biggest Network effects had a big big Advantage a lot of startups F funded in that ecos system and then uh there was this assumption bitcoin's going to be the win it's going to be super hard for somebody else to take overtake that which is that true or not I guess we still don't know but uh it's certainly not such a prevalent view anymore and I think with ethereum there's been a a similar perspective in that well if you look at this conference now there was 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 uh 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 what are the factors here do you think it would 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 uh sufficient right I think what we have um is the traditional interplay between

switching costs and order of magnitude jumps in technology so there always is like two two Dimensions to adopting any new technology and maybe in ethereum there are more so one of the one of the one of the key aspects is like switching cost now there are many developers that have maybe spent the past year U 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 um many people

theorize and this is this is just just 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 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 who create their own portfolios 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 uh 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 um 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 um there's there no there are 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 cryptocoin perhaps the exception is dash dash has a good governance process so I've always felt that as we go along there are 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 mine that we are going to have these order of

magnitude jumps I have always kind of tried to keep an open mind when it comes to the altcoin space like maybe it's one of these alt coins that are going to realize these order of magnitude improvements and maybe that's going be the eventual winner and so I have been less fixated personally on the idea of uh 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 ethereum like many people would say the switching costs are just too high because um the switching

cost 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 cost from ethereum to something else is going to be very high by that same logic that people in the Bitcoin Community will postulate High switching costs but my 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 um how scalable blockchain

architectures look like so that's that's at least my thinking yeah I think the dynamic here as well is if you look at something like Bitcoin for example um Bitcoin never actually succeeded at what it set out to do right they never got widespread adoption as this uh as this payment system and and meth and what what I found quite interesting is when I got into Bitcoin I really wasn't interested in Gold like it never I never thought about gold and then ler gold I was never gold bu no h and then people were were talking about it as this digital gold and and uh and I just I couldn't relate so much to that fascination of gold and

then later I started reading more about gold and and I was like wow that really has enormous Network effects there and just as a store of valy it has such a penetration right which even much Beyond fiia 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 any anywhere or it like really never reached any kind of mass adoption or even minor adoption option which we'll use so of course it the only way place where it could have some of these uh switching costes 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 you know knowing solidity and all those things but if you look at it purely from a network thing is again none of these applications actually have real users or are actually doing anything really of value in this world right like literally zero uh at this point so from that perspective right it's it would be very easy to switch only I think only once there's a lot of traction there you start having these these effects I mean

even even if you talk about the fund management thing now there going to be like five coins or something or 10 or 20 and so that's that's not a big factor and and then at that point the question will will really be about interoperability to a significant extent right so if you if there is this effect that a lot of these stabs are just much more valuable when they're on the same chain with other applications uh then maybe that's going to make it hard to switch but I you know you we mentioned the the big problems being security governance scalability probably interoperability we should add there or it it maybe that's not such an issue at

the moment it's actually because we are at this a premature state but once we get a bit further then interoperability is going to be one of those two and I would think that interoperability is also going to be something that get solved so you probably will have that Dynamic that you can run your dab elsewhere and and there aren't these huge Network effects from having everything on ethereum but uh 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 Luben 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 a th000 highlevel people including many VCS and top decision makers and of course all that while sipping in Martini in a luxury hotel in mi Beach where Frank Sinatra want staying on stage to learn more how you can join startups like factum consensus everledger and Stellar visit them at bitfinity docomo 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 like one thing that that kind of stuck out to me um on the

interoperability space is so in e 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 scale like uh 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 this is 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 um that these these different blockchains will need to have their own

security infrastructure and we don't have a way by which individual blockchain CH can share their security infrastructure really well so we had the concept of merge mining before but that has some problems so the fundamental idea of sharing security infrastructure between blockchains hasn't been really solved 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 one common security infrastructure so that you 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 that sort of problem that sharding then it somehow seems to me that you're going to also solve the problem of interoperability so at at the conference I met these um I met Ethan and Jay from the tender Min uh team they are now developing a cryptocurrency called Cosmos which is supposed to be this U 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

architectures and uh that's all that's needed to to Really nail down interoperability and scalability so maybe scalability and inter inter operability are somehow con connected problems as well so we'll see we'll see how it turns out uh there are a lot of different ideas in this space and I I wouldn't 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 before the show was you point that ethereum was good for prototyping right but then this possibility that people will just kind of you know run their prototype their beta Alpha on ethereum and then after would say you know we're going to move

to our own blockchain which could make sense from a variety of reasons um one could be that right you take the token and use that as a proof of stake thing uh and then of course you could you could potentially save uh the transaction fees that you have to pay in etherum maybe get better scalability better uh better features otherwise if you can if you can kind of mold it according to that the particular needs so it would be interesting to see if that happens as well yeah yeah definitely so so right now ethereum hasn't found a killer app there isn't really any application uh that could count more than a million users and some would say even a million users isn't a

killer app for killer app un need but but there's no ethereum app with a million users no there's none right like so I'm I'm saying like right now ethereum hasn't found a killer app and some people would say for a for 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 the people building that killer app might have their own token to inside their app and then once they succeed on the ethereum platform they

might choose to build their own blockchain cuz like they have 100 million users even if they make a dollar a day from or 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 um 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 um the know how to answer questions

like these this today and I think the best approach is just keep an open mind and like study these concepts of interoperability and switching costs did you see any any kind of Trends in 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 one there was a lot of startups but at at this point what are startups looking like what kind of problems are they tackling so I think uh I think there's like a wide variety of problems that these startups are track like tackling uh at the top of my head I can count identity so many many many startups are working on this problem of how do you

link somehow like in individual people in the real world to uh digital objects on a blockchain and have a very tight onetoone mapping between them then uh I would count all of these startups that are building scalable blockchain architectures also as 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 in is this idea of a decentralized application browser so ethereum users would know missed that in the Bitcoin world we have just wallets right like these these softwares where

can you can store your private keys and like 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 is more complex you might want to send specific amounts of data you might want to uh create very custom transactions so you start to need uh wallets that are way more complex in what they can do and these way more complex wallets are called dab browsers in the ethereum ecosystem so we saw a lot of startups building new kinds of dab browsers so um like M comes to mind metamask comes to mind but then I think there was this startup called called status I might not have the name right

that's building um a dab browser that work works like WhatsApp so imagine like all of these daps were to be like one conversation 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 uh this kind of user interface uh plays really well with the transaction latency of a blockchain so when you use uh an internet browser right like a normal internet browser we have been trained to expect immediate

response from it like you click a button and like a popup appears you click a button and some new data appears right 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 EXP expect transaction late like latency right like I send a message to a friend and the message and the friend replies only like maybe 2 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 this kind of dab browser that's just like a chat client where I could enter messages in English language and have transaction 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 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 offchain transactions that are just settled on the blockchain but in the ethereum ecosystem we have this notion which is called a state Network where uh 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

uh activity around that so um the ret Network seems to be like one startup doing the that but then there was another startup from the creators of lightning and then I am also aware that the that the zc cas 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 like so suppose Mah wants to be a 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 we we might want to interview a few of these and uh this seems to be like one space that has really come up in the in the past year and then finally you saw the space of developer tools right so these these span from like formal verification to idees 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 browser state state networks and developer focused tooling today's magic word is China That's c h i n a head over to Let's bitcoin.com to sign in enter the magic word and claim your part of the listener [Music] reward one thing I find interesting and 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 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 presec with monetizing browsers as in like you know Firefox getting paid by Google to put that as the search bar so there there may be some way to monetize that exchanges of course that is probably the one business model in the cryptocurrency space that really uh seems to work uh new blockchains yeah I guess that can work

as well uh in in some way of course whether it's a sustainable business model is a difficult question but at least it can work in 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 uh 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 um on the blockchain so you I mean I I maybe privacy things will deal with that I don't know but um so that's that's hard to do developer tools of

course there can be some money in there but I I still think there's a lot of these things are essentially almost no the business model is very unclear do you think that has something to do with there being um you know very very little VC interest at this point yeah so like I I concur like at Devcon um I I didn't see a lot of VC interest at Dev so I think uh the two VCS that VC firms that stood out is USV who sent repres representative to to Devcon which is based out out of New York and then there's this other VC firm which is based out of China which is called fenbushi and apart from these two VC

firms and maybe some small Angel Investors based out of Hong Kong and uh and Europe I didn't see a lot of Sand Hill Road VCS sending represent representatives there and to me this was a bit surprising because like I think if if I look at all the other other technology areas um you would expect to see a lot of sandill VC firms uh sending Representatives into such an event and maybe we can go into this uh this kind of strange geographical split uh that we observe later but I but but I do think that this space in general

lacks very clear business models and uh the hard part about this space is um your code is open your execution is open and your data is open right like that's what we want we want startups to build and put their code on a blockchain as a smart contract so the the code can be infinitely copied perhaps not let there there might be Nuance to this we want them to put their data on ipfs and ethereum or some form of decentralized file storage and ethereum where it can where the network effects can be 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 the these three requirements that we as um 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 um like advertising has been a very successful

stream of cash flows right so the notion behind advertising is that you you sell uh attention for Capital so when you have an application your users use that application what you have as a resource as an application Builder 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 mar 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's it has been a very successful business model there but we don't have any equivalent of this

in the ethereum ecosystem and and maybe if I were a conservative slightly conservative Venture Capital firm uh this would this would really bother me that there is no um there's no defined business model a couple of things that I see coming uh and we don't know how we don't know how to address their impact yet is uh 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 networks 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 earn 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 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 the state Network so this gives me some kind of defensibility against other businesses trying to do the same thing and uh I can therefore sort of charge for for my services of providing this liquidity 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 um I personally have a theory of what would be a good business model but that's not a topic for for this uh this show uh CU like I'm trying to convey the idea uh I'm working with a guy called Mach

willinsky and we have our own idea of what makes a good business model but perhaps that's a topic for later but in general I completely agree with you uh today apart from crowdfunding there's no really good way to make U stable streams of Revenue building a decentralized application so if you talk about some examples though right so for example you 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 Mall in this environment if 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 uh Consulting right so all all these companies that essentially advise on digital strategy help organizations reinvent themselves restructure themselves know how everything the it systems work uh 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 era 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 um but if you look at some other Technologies some other examples

where you've seen uh 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 right so as soon as you distribute ownership of the platform well where's the business left right if you 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 course if you have an inbu 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 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 uh hard to know but I think it's at least possible and a lot of it depends on the really the integrate economics of these tokens and I don't think there 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 line assuming it's Wily adopted and I I think we also when we have crowd sales right we really see I read this article we will post in the show notes kind of about the the Defcon and one of the points he was making there was that uh just how inefficient VC funding is and how much better this crowdfunding that's the was going to be a standard way 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 and token sales uh 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 and at this point I think of all those people who receed uh money in the crowd sale probably 70 80% uh maybe more have left right they're not working on ethereum the protocol anymore I mean okay they work in the larger environment but the

incentive isn't there right so you you get your tokens your money up front it becomes valuable you can sell it you can leave do the next thing um and if you look at on the other hand as a traditional startup you know you have this locked up for you know generally for years and and you can't cash out even if it even if it's rested after those four years you have those shares well there's no market for it right so you really have a very backloaded reward uh 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 in 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 um 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 allely them to fight attacks like the one that recently happened right now but if you really look at the incentives of ethereum foundation itself um they I think the so ethereum Foundation does does a does a great job because vitalic heads it 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 investor 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 the incentive is I think there's there's people like vitalic or the top and they they're playing this game for their reputation right they they're doing

this so that they can solve these problems and like 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 spend enjoy and spend this money right whereas in normal startup you might think that uh 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 those these shares get released they're not freely tradeable 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 tradable so I think the crowd sale model has has problems on the other side perhaps we can design smart contracts that can be better Crow sales yeah or uh the other thing you of course might do is say well we talked about security scalability uh some of these other issues maybe starting maybe one can start competing protocols so you know might 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 and I think right now we are still in a way in the fortunate situation that there is this um 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 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 then go through that you know Valley of Des spiration or whatever it's going to be called it's not it's not very high but I agree I mean in principle of course you you could do that right in principle you could have a

Time La I I mean you probably are always going to have the the things being tradable uh I mean as soon as these protocols launch but you could have that the the anybody who gets awarded coins as part of a a sale that those are locked up for a while and and would at least or or that there's some vesting on that and I think that would at least partially deal with this issue yeah and and I also suppose that um 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 communities 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 run into technical problems then just you know stop stop working hard because all the money has already been 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 5 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 this is a problem of incentives around crowd sales and we really haven't solved this yet now I do

see that like there are like around seven or eight CR Crow sales that are upcoming and none of them have really attacked uh this this problem of incentives so um it's a very valid criticism of of the space I think yeah yeah and you can also ask about um 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 on your project sort of as as it's in this imature state and and developing and and I'm not always sure

if that's going to lead to the best uh the best outcome and the right kind of pressure on people let's take a short break to talk about Jax Jax is a multi-coin wallet created by the people at the central now in the past if you had a whole bunch of cryptocurrencies it was a pain to handle them you either had to leave them on an exchange which is insecure or you had to have all these different wallets which was a hassle fortunately now with Jax 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 with inside the wallet thanks to their shape shift integration and since there's only one seat Jax makes it super easy to back up and sync to the other devices Jax works with Windows Mac OS l Linux Android iOS and has browser extensions for Firefox and chrome so go to ja.io that's jx. to download the wallet and get started today we'd like to thank Jax for their support of epicenter Microsoft was sponsoring this event and an interesting thing is that Microsoft has been quite active in this space right with Microsoft aour and um running a variety of um variety of

things such as a block app or SS or Ripple and I think a bunch of other um stuff right so they've been active on that front with Reser and exploring it and and I think someone Microsoft Ventures was there and they're sponsoring this so they're very active but then if you look at the other the other Cloud companies the other big tech companies uh Google Facebook Apple they they've never announced anything uh doing anything with crypto currencies or Bitcoin or anything like that what do you think mayor what's what's the reason for this why is there no interest or is it all happening behind closed

doors yeah like this is this is one of the very interesting parts of I feel about this space so the big five software companies in in my mind are like Google Facebook Apple Amazon and and Microsoft right so if you were to make a list of the top five with over hundred billion dollars in market cap we would end up at these five and maybe then you have these companies like uber and Alibaba and 10 cent alib Alibaba and 10cent that I think Alibaba is already past the100 billion range but all of these others are lower than100 billion but about to break it right maybe we

should include alib Baba 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 um at the conference I met I met a few people from Microsoft actually and they have uh they have Microsoft Ventures which is supposed to be this Venture funding arm for the blockchain space uh I mean maybe it's it's a more General arm but they're also looking for opportunities in the blockchain space and I I I wondered why why this would be the case and um like personally I've been I've been I've I'm kind of interested in a lot of alternative Technologies

um and I 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 zukerberg he's really uh investing in virtual reality because he thinks the fut 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 um mainstream commercialization of that technology so I personally think that Facebook's attention is uh invested in

that technology if you look at Google uh 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 uh developments that Google has come out with they have come out with this uh machine learning um platform which is called tensor flow so tensorflow essentially allows you to create uh deep learning neural networks very easily so uh it really it's really like it it makes it a no-brainer so you can build your own deep learning neural network very easily using Google tensor flow and Google is also investing

heavily not into VR AR or blockchain but into autonomous cars and um I think autonomous cars make a lot of sense for for a few different reasons that we might get into later but uh Google's attention is kind of diverted into that space then then you have Amazon and Amazon has been um like Amazon probably is 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 uh human computer interaction like how 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 in normal voice and it will say play play a song for you so it's investing in that direction and Amazon is also interesting in the direction of uh of drones so it turns out that like drones can really improve how Logistics works and Amazon is investing in like drones and delivery robots because they could uh reduce the cost of uh Logistics inside large cities by a factor of 10 so Amazon's attention is kind of diverted into those

areas and then and Apple so apple is like traditionally a super secretive company but the rumor mail at least in at least the Silicon Valley Rumor Mill is that um apple is investing a into like its own car so Apple wants to build its own Apple car and compete with the Tesla headon and this car might also have its like a driverless feature and have very different ergonomics to to the current car so once you have driverless cars you can completely change the design inside these cars like if you have 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

the car drives itself so like apple might just come out with a new concept around these driver lless 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 a M mented reality so uh I don't know if our um if you if you if you've been following but there's this uh very interesting technology that allows augmented reality to be very easy to set up and painfree 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 AR 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 alib Baba 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 of the language barrier but it seems like all of these companies are kind of invest investing in other alternative Fields leaving solely Microsoft an open uh technological field

to itself and I find this like super fascinating that maybe if like if the blockchain field were to become really big uh 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 uh we just might see this early informational advantage of Microsoft play itself out uh in the next decade what do you say man yeah it's it's a it's a good question I mean you were asking about Alibaba I was just listening to a book about uh about Alibaba so I think they are also

investing especially in uh messaging and and Ai and stuff like that machine learning but also there was no talk about blockchain there so I I don't think that's on there 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 makes 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 and if you believe that thing that is going to least lead to this decentralization where it's actually going to be harder to make money in anyways then it's just hard to see how those companies can really utilize blockchain effectively and 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 U 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 uh I don't know it's it's a good question yeah yeah I think maybe blockchains are just hard to figure out I mean me personally I I I I struggle with the problem of uh explaining how blockchains uh deliver an order of magnitude Improvement in some Metric that a customer cares about so uh so in the '90s uh before Ray cowi hit the scene uh as a futurist so you might know U listeners might know of Ray ksw who

has these very optimistic predictions about the future that we are going to hit a singularity of some kind so before Ray CR was famous there were other futurists on the scene right um and there was one called like Steven schnars and Steven schnars has this notion of a schnars filter what he says is that uh imagine imagine like a like a filter so there's filtrate 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 fil rate like these are things that need to be filtered and then as a futurist your um

your job is to understand which one of these 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 it's hard 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 Steven sar'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 10-fold so um if you look at like historical examples you know vaccines it's going to reduce my chance of dying from small pox by a factor of 10 that's something a cons hundreds of millions of people care about or you look at something like cars is going to

allow me to travel 10 times faster than a horse that's something like hundreds of millions of customers care about or the the notion of autonomous cars this is a technology that's going to allow me to travel inside a city 10 times cheaper than current taxi like in Basel it costs 3 Franks per kilomet for taxi autonomous car is going to be like around 12 cents a kilometer or virtual reality right that it costs me $2,000 to vit visit Egypt and see the pyramids but inside virtual reality I can have half of my experience is poor than really visiting the pyramids but then it's a

thousandfold cheaper right so if it cost $2,000 for me to visit the pyramid in virtual reality I can see them for $2 but the experience is half as good but then the value the The Experience per cost is like 100 fold 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 but with the blockchain my 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 and Microsoft maybe they they know something the others don't well let's do one last topic I don't want to add anything to to your beautiful uh explanation of this point but 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 uh a different space right there's the the great firewall there is a very different culture there's language barriers so I think a lot of stuff has developed uh independently

there and in 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 in the west we've had the other way around where people it's maybe 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 uh interest from Chinese Chinese startups do they understand this the blockchain stuff is that something that they appreciate um do you do you think there's going to be a lot of traction there for ethereum and and blockchains in general let's

kind of look at the numbers um I think out of 700 attendees um around 70 like between 70 and 140 10 10 to 20% were Chinese it was way lower than I expected it to be U and the ethereum foundation actually made uh a lot of effort to reach out to Chinese people like there was like realtime translation for Chinese attendees they could hear all of the talks in real time in Chinese but in terms of uh people that were presenting the only China based project I could see was um there was a guy who was building a ruby client for ethereum and he was building tools so that the Ruby on Rails

ecosystem could plug into ethereum and build applications here and that was the only presentation that I I think was given by a developer resident in China uh working on ethereum and maybe 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 uh there are there isn't a huge uh developer talent pool that's what I felt Maybe I'm Wrong yeah um but you could I could also see that there was U 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

um fing Bushi and it's associated with these uh with with this huge company called wangang labs and they held a two-day event after the Devcon which was uh 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 from China so this is the part of the ecosystem that I I saw really well but with 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 he just might not get it because like all of it happens in the Chinese language so this might be a case of U some form of selection bias I don't understand Chinese and therefore I 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 I I really think I'm not the right person to uh to answer about what's going on in the chin ecosystem and maybe we should

have um some interviews uh of people based out of China we did have at the at the meet up in Berlin a talk a while ago from somebody who was uh a Westerner who was working for a Chinese Bitcoin company called bitbank it was quite interesting because that that company actually has like 100 employees right so it's uh there's maybe coinbase and ripple might be the only companies uh in the west that are of that size um blockchain companies yeah essentially Mining and and Bitcoin right so I think Bitcoin uh 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 um and then mining uh being the per 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 there was a very limited usage so yeah we'll 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 Mayer I think we're at the end of our episode but thanks so much for reporting to us all about uh the what's going on in etherum land and

how Defcon was I think that was very interesting and uh I'm sure Devcon 3 will be interesting to see how how much the community evolves by then definitely and I look forward to having you over as well in the next next Deon yeah absolutely no next next one I'm definitely going to make it yeah so thanks so much EP Center is part of the let stop Bitcoin Network you can find this show and many others on let stop 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 video on youtube.com/ epicenter Bitcoin so thanks so much and we look forward to being back next week [Music]

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