Richard and I are just back from a roughly two-week trip to California.
Richard wrote about our experiences with the Stanford Blockchain Conference.
Rather than rehash his opinions, I thought I’d share some broader thoughts on how Silicon Valley looks to someone from Asia.
The average developer we met in the United States was operating at a higher level than in any community in Asia except possibly Singapore. Most projects were being competently executed and people could discuss the technical aspects of their protocols clearly and coherently.
The common framework for understanding blockchain problems was similarly technical. In a protocol meeting on the Ethereum roadmap we attended, developers spent hours hashing out technical solutions to resource exhaustion attacks. No-one observed that the underlying problem could be solved by incentivizing nodes to regulate their peer-to-peer connections. A problem that could be solved on the incentive layer was treated as a whiteboard-style technical challenge.
This tendency may explain why Silicon Valley is funding so many proof-of-stake protocols, which accept limited network openness as a reasonable cost of higher throughput. The top-end developers we met were able to discuss technical trade-offs clearly, but seemed to lack an understanding of their underlying economic causes.
The delegation of protocol design to subcommittees is likely exacerbating this problem by forcing developers to treat all problems as self-contained. I suspect the resulting bias towards technical complexity is part of why proof-of-work is less popular in the Valley, given its preference to solving some technical issues by incentivizing collusion between miners.
In terms of actual development trends in the industry, most of the excitement we saw in the United States revolved around stablecoins. We did not run into any projects focused on fixing the underlying incentive problems within proof-of-work and proof-of-stake. There was a lot of technical work on scripting, sharding and smart contract execution.
There is a massive chasm between Asia and the West. The financial services sector in the United States is visibly slow and uncompetitive. Companies such as Circle, Square, and Coinbase appear to believe that they are protected by a regulatory moat and seem focused on fundraising and more fundraising. There is little real-time experimentation of the sort that is common in Asia.
The consumer-focused internet industry is also remarkably passive. Facebook and Google were notably absent from the events we attended. Facebook is known to be active in the space, although extremely secretive, and multiple people told us that the company is developing a stablecoin for integration in mobile services — a move clearly intended to compete with Tencent.
None of the major companies seemed to be doing anything with data-centric networks. One insider explained their lack of focus by pointing out that the sheer amount of data they manage is too large for blockchains to handle. This position fails to appreciate that there is no need for exabytes of data storage in a truly scalable blockchain.
On a closing note, we were surprised by the lack of regard for nChain and CSW in the Valley. Blockstream also occupies a much smaller role in the cryptocurrency industry than it would seem from Asia and also seems to operate under a veil of security much like Facebook.
VCS AND ACADEMICS
We didn’t meet a single person at Stanford who viewed blockchain as a PKI network layer. This tunnel vision was echoed at Berkeley, where a panel discussion with five guests did not include a single guest who discussed non-monetary uses of blockchains, an omission that is particularly striking given that one of the panelists was focused on human rights. A major part of the problem appears to be a pervasive assumption that Web3 will require smart contracts and virtual machines. Delays in the Ethereum scaling roadmap may be contributing to a sense of non-urgency on this front.
The pre-eminence of Ethereum in Silicon Valley has distracted people from the underlying nature of blockchain in more dangerous ways as well. Among the people we met who asked about Saito, only a single person was aware of the free-rider problems that distort spending in POW and POS networks.
One investor we chatted with at a bar actually turned ashen when we pointed out that transaction propagation is not incentivized in POW or POS. “Why is no-one else talking about this?” he asked. The lack of attention to underlying economics was pervasive and may explain the enthusiasm for proof-of-stake networks with complicated governance structures.
Despite the experience Silicon Valley has had watching the intellectual property battles in the telecom space over the last two decades, no-one seems to be paying much attention to intellectual property outside of financial services companies and industry-focused development powerhouses such as IBM. There is a general belief in the academic/investment communities that blockchain-powered applications will necessarily evolve into open API layers.
If proof-of-stake is the future and we are heading towards a permissionless open web then the United States is going to define the future. The proof-of-stake implementations that dominate Silicon Valley are more sophisticated than the versions currently being developed in Asia. These networks can be repurposed into private corporate blockchains.
My own reading is that we will have mass on-chain scalability within two years. Assuming this is true Silicon Valley is unprepared for the magnitude of the shift that is coming. American financial service companies will not remain competitive as other avenues emerge for users to sidestep the heavily regulated fiat-crypto channels that service monetary tokens. Consumer businesses are not ready for an assault on their core advertising models. And there is very little genuine thought leadership.
It is a fascinating time to be in the blockchain space.