Frequently asked questions and answers about swarm fund blockchain technology

Swarm and the Blockchain Technology

Can you provide some introductory material on Ethereum and the comparison to BitCoin?

Some articles worthwhile reviewing: What is Ethereum? A Step-by-Step Beginners Guide
BitCoin vs. Ether – video series
Blockchain is Eating Wall Street | Alex Tapscott | TEDxSanFrancisco

What is your relationship with Ethereum and the Ethereum Foundation?

Joel Dietz created two important early contributions to the Ethereum project. He created the first and most popular independent media channel for smart contract creation (EtherCasts) and bootstrapped and facilitated the growth of the Bay Area Ethereum community. For these and other contributions he was awarded Ether in the premined.

Joel Dietz also was involved in the genesis of several key projects in the Ethereum ecosystem. Most notably BTC Relay (which was formulated in our Palo Alto offices), Metamask (which he pitched at DevCon 0 and turned into its funded project via a DevGrant proposal) and Boardroom/Weifund, which received their first capital from Swarm. Several Ethereum core team members have also stayed at the "Holon" hacker house that Joel Dietz set up in Palo Alto.However, Joel Dietz has never had any formal relationship with the Ethereum Foundation and has deliberately decided to stay independent and generalized. For example, the Decentralized Autonomous Society is the largest independent group on decentralized governance, and although it takes much of its founding inspiration from Ethereum, it focuses on general innovations in decentralized governance technology.Joel’s opinion on Ethereum, shared by other technical architects he has spoken with, is that it shares the strengths and weaknesses of other large open source projects.

Why are you planning to use Ethereum as a platform?

Ethereum is the first fully implemented smart-contract capable platform and the one with the most liquidity. It is also arguably the best maintained and robust. For example, as of the writing of this the total market cap of Ethereum is approximately $900M with over $100M in tradable assets issued on the Ethereum blockchain. Additionally, although there are other platforms which contain some element of asset issuance and tradability, only smart contract capable platforms like Ethereum have the ability to dynamically control funds via embedded governance protocols. For example, the stake-weighted liquid democracy system we have created would be considerably more difficult on a different platform.

What do you think of the DAO?

The DAO was a fascinating experiment that appropriately garnered a lot of attention for doing something that was extremely ground-breaking. Unfortunately, it may have attempted to do too much too quickly. Our implementation has started with a more robust governmental model and has several checks and balances that prevent technical failures from causing damage to real assets.

How is this different from the DAO?

The DAO was an ownerless venture capital fund driven by majority consensus deployed as a DAO. It shows, among other things, the enthusiasm in the market for such a solution. Its major flaws included a rush to market, an overly centralized single implementation, a lack of a solid governance model that allowed for evolution, and distributed economic incentives that did not allow for individual achievement.

Our model is different from the DAO in that each project resembles a traditional company in its ownership structure. Ownership is gradually sold off over time to the crowd and it becomes autonomous in stages as the technology and model are proven. This allows rapid decision making and iteration during the early stages of the project when this is necessary and some degree of pivoting and technological upgrades that may be necessary during the implementation.

Our model is deliberately modular in the sense that funds are pooled around projects and that each project has its own set of incentives and can succeed or fail without affecting the overall network. This means that each individual can decide on the value of various offerings on their own without an extensive or complicated consensus process.

Our model also has an 'innovation tax' which is taken from each project and goes back to fund public goods that can benefit the overall network,

Is the June 17 2016 DAO hack relevant to Swarm? Does it have a similar vulnerability?

As with all software systems, you are potentially vulnerable to problems in poorly written code or in the underlying system infrastructure (e.g. compiler/interpreter). In the case of the DAO Hack there were elements of both which turned out to be particularly explosive in combination.

Additionally, as with all prominent and open elements of high financial value, the DAO made itself the subject of intense scrutiny and attracted sophisticated attackers. In this sense, we expect that our system will over time attract the same level of attention.

Consequently, it is our desire to make sure that all of the different levels of our stack are adequately trialled and audited before release and make sure there are adequate safeguards in the case of technical failure.

To this end, we have adopted a tiered roll-out mechanism similar to the Ethereum versions, in which the first implementation exists on a private blockchain and goes through versioning and release cycles in which the functionality is tested and made available. Additionally, all source code is open source, following industry best practice, undergoing multiple levels of third-party auditing.

Additionally, we have introduced Szaboian-nested intent clauses in our non-profit to enforce intent even in the case of smart contract failure.

What is a Szaboian-nested intent clause?

It is a concept coined by Nick Szabo based on the legal systems of the middle ages in which there was a standard interpretation of a legal clause including an "override function". This means a third party could interpret whether ethics and intent had been appropriately followed. This was possible due to the difference between feudal and religious court systems and their different domains. Within the world of smart contracts this effectively means that the intent is codified first then the smart contracts represent an implementation of the intent. It also means that at a point in which the implementation diverges from the intent, the third party can make sure that the intent is followed. In our case, an Estonian non-profit serves as the third party to the smart contract implementation, acting as both custodian and enforcer of intent.

How is this better than other decentralized marketplaces?

Up until now there have not been any decentralized marketplaces that were governed by their members, nor any that evolved alongside a reputational system. Additionally, all decentralized marketplaces have looked primarily at internal blockchain types of assets rather than structured real assets with unique financial instruments that lend themselves to automated investment.

We believe that the combination of real value, automation, and reputation is a generalizable model that can provide clear short-term value and can evolve into an industry standard for all investment systems that benefit from increased trust and transparency.

What is your opinion on Ethereum and Ethereum Classic?

As one of the ostensible values of blockchain smart contract systems is immutability, we are strong supporters of the idea behind Ethereum Classic. That said, we think the current state of this system warrants a gradual iterative attempt towards a more stable overall system state and that, due to the need for technical upgrades and bug fixes, some sort of generalizable upgrade path is necessary. At the moment "hard forks" are one major necessary component in iterating on the technology.

Also, there would have been severe regulatory and other repercussions if all the investors in the DAO had lost their finances which would have set back general Ethereum-related development. Consequently, we supported both the decision of the hard fork for the Ethereum Foundation and the continued existence and maintenance of Ethereum Classic by other parties. An added benefit of Ethereum Classic is that it removes any general liability concerns for "projects gone wrong" (such as clearly was the case with the DAO).

The development of Ethereum Classic, including whatever methods will be used to create decentralized consensus, still remain somewhat undefined. It is possible, however, that the community will rally behind the liquid democracy solution we have created, which would give us a good reason to deploy first in the Ethereum Classic world.

Is miner centralization a concern and are you exploring other types of consensus?
The current standard model of securing blockchains is highly dependent on certain economic models that are still experimental. Most problematic is the idea that over time block rewards can be superseded by transactional costs. Also problematic is the high degree for which incentives are weighted towards early adopters. These two, in conjunction with the high cost, the otherwise uselessness of mining, and the centralization of mining operations themselves, do lead one to look for other methods for securing blockchains.

Consequently, we are actively following all types of consensus mechanisms that have been proposed, including sharding, proof of stake, tendermint-style consensus, and various types of quantum-inspired consensus, without any definite conclusions, except that we wish to remain engaged at the protocol level as well as the technological level.

Our general process is effectively two-pronged. For our implementations we look for stable production-ready blockchains that can run related technology with the expectation that the blockchain will still be working in roughly the same fashion in five years. This is a significant upgrade from our 1.0 implementation which was more able to be deployed on technologies that themselves were in prototype form.

Website: http://www.swarm.fund
Twitter: http://www.twitter.com/theswarmfund
http://swarm.fund/blog

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