Will Crypto Flourish or Fail Debate
In case you missed it, Joseph Lubin and Nouriel Roubini faced off in a Debate hosted at the Fluidity Summit on May 10th, 2018. The main topic as over Decentralization hype versus reality, and the potential consequences that this radically disruptive technology could have on the future. I watched and summarized the main points of each speaker, as well as their rebuttals. While trying to be as accurate as possible, I encourage the community to leave notes on omissions or errata in case I missed it.
Setting the Stage:
“Decentralization means that you can’t be censored in your transactions, or even in your speech, and that you have control of aspects of your identity, and your tokens of value.” ~ Lubin
“There is a lot of talk about Decentralization. There is this utopian anarchist dream that we don’t need governments, we don’t need the institutions, that we don’t need the institutions that provide trust.” ~ Roubini
- Moderator Donna Redel
- Joseph Lubin, Canadian Entrepreneur, Cofounder of Ethereum, Founder of Consensys, Former Goldman Alum
- Nouriel Roubini, American Economist, Professor at NYU Stern, Chairman of Economic Consulting Firm, Senior Economist to the Council of Economic Advisors and the Treasury Department as well as the IMF, “Dr Doom”
Q1) For Rubini
What are your views on what is driving so much of the focus on decentralization and do you see ways to realign trust?
- Confusion in the crypto space: conventional wisdom is that Central Banks and Fiat money causes bubbles
- Financial crisis, inflaction, recessions were occurring well before fiat money.
- Volatility / extent of financial crisis was much more severe before Central Banks
- Need for revolution in financial services. There is a revolution: fintech, but it needs to be democratized.
- AI, IoT is revolutionizing right now, and there is digital money utilized, but zero solutions we use today use crypto.
Q2) For Lubin
A great deal of attention has been paid to financial applications of blockchain.
Would you speak about other sectors where you see other progress that’s being made?
- Blockchain is a next generation database technology
- Actors who don’t know each other are enabled to be able to trust each other in various transactions
- Ethereal — serving sushi — known source and location for food, tracking supply chain
- Internet has evolved for protocols — Web3
- We have built systems that have outgrown the old infrastructure; we need better trustworthy services
- There was no Identity construct and no Money construct before built into the internet
- Using OpenLaw system, legally enforceable blockchain based agreements
- Licenses — pay for music in real time, value gets distributed to artist in real time, consumer pays less
* Response? (From Rubini)
- There is a revolution in technology: AI/BigData/IoT will change how we operate completely, but most has nothing to do with Blockchain and nothing to do with cryptocurrencies.
- Point about centralization: “we dont believe in traditional institutions.” / “everything’s going to be peer to peer”
- I see the opposite occurring:
1) Centralization of Mining — Top 3 control > 60% of all mining. Top 5 control > 75%.
2) Proof of Work -> Proof of Stake becomes worse; become oligopoly.
3) 99% of all crypto transactions occurring in Centralized Exchanges, very hackable
4) Centralization of the development process; developers are the law — to determine the protocols
5) Vitalik Buterin is the Benevolent Dictator for life
7) DAO — change the code. Police, prosecutor, judge when something goes wrong
8) Total Concentration of wealth! Genie coefficeient 0.88 in BTC. Cryptoland is more unequal than North Korea.
“This is a totally centralized system! Talking of Decentralization is just nonsense.”
* Rebuttal (From Lubin)
- Mining Systems, the Proof of Work are susceptible to Centralization, especially in Bitcoin, partially in Ethereum — hardware arms race.
- Proof of Stake: will remedy many of the conerns with respect to wasted computation/energy, replace hardware infrastructure
- Barrier to entry to being a validator when we move to a hybrid Proof of Stake, will enable greater Decentralization
- You can fork the system if there is a malicous actor
- Exchanges are indeed centralized. AirSwap is a tremendous protocol / set of services that will enable P2P trustful atomic exchange. Will enable 1:Many, Many:Many, enable market makers.
- Governance — Vitalik is remarkable but he doesn’t really write the code.
- 10 different implementations of Ethereum Client, independent teams, fight with another.
- Set of protocols like the internet, we are all writing clients to.
- Open source. Actors: Core developers, EAA — 500 companies in working groups in banking, insurance, automotive, etc.
- Moving from a world of the benefit of this technology that are siloed walled gardens on the internet that could be manipulated. We are building systems that are fundamentally atomically about collaboration.
Q3) How do you see the landscape evolving now that regulated, Centralized exchanges with clearing systems are stepping into the unorthodox world of crypto? Can they coexist with the decentralized ones, and will this change scalability and security?
Lubin: WRT crypto it’s going to be more complicated than WRT securities.
- There are great use cases in remittance in the ability for people to make payments across borders.
- There are many companies that will sell it to anyone / ship it, but there’s no way to pay for those purchases.
- There are many contexts around the world in which people need better money options. Many unbanked.
- Even in the United States, there are millions unbanked because they are getting dinged with $35 fees.
- On Ethereum there is a Token standard that enables us to, and many other projects around the world, to issue tokens.
- These tokens can be tokenized securities, and we’re going to be able to tokenize shares to do astonishing things going forward.
- Utitlity Tokens represent membership on platforms, consumption of scarce resources.
- Protocol based open platforms are a new way of creating ecosystems that deliver services to consumers
- You can use these tokens to operate these platforms
- Although we will see some negative news coming out in the ecosystem around some of the projects around tokens, we will also get some good positive news and we will get some real clarity in 2018.
Roubini: I believe there are reasons why we have institutions.
- Main point: for something to be money or currency: Unit of Account, Means of Payment, (not used for real txns. 5–7 txns/sec now)
- Inconsistency Trinity: Scalability, Decentralization, Security
- Not a stable store of value: Value goes up 50% up one day and 50% down the next.
- Imagine you are a merchant and you want to take Bitcoin for Payment of Transaction.
1) Take dollars, convert to BTC, txn cost
2) Take BTC to maybe another coin to goods and service
3) Take other coin convert back to dollar, because you can’t take the risk of +/-20%, you’ll lose profit margin.
4) Anyone who wants to use it for txn has a huge market risk and is NOT using it.
- Not a unit of account, Not a stable store of value, Not a currency
* Rebuttal (From Lubin)
- (Fiat) Currencies collapse. Argentina / Venezuela — prefer to have a token appreciating in value than their “legacy token” depreciating.
- Project on Ethereum that has a billion dollars of value in it, price stable token MakerDAO — token is a DAI, stayed at $1. complicated but has layers to keep the price stable to effectively function like an automated central bank.
- Trilemma is accurate for version 1 protocols, systems where every full node has to proess every txn and store the data. We’re building state channels, side chains, plasma, sharding; these handle a whole new swath of transactions.
- Blockchain traded the scalability that we see in the web for Trust, and many believe that’s incredibly valuable. Now up to us to build scalability back.
Q4) — What if it was crypto-asset rather than cryptocurrency?
* Roubini — There’s a whole symantic debate over whether it is a currency, commodity, if they are securities and so on.
- ICO: 1500+ most people believe these are non-compliant securities
- Recent study: of all recent ICOs, 81% are *total scams*, 11% are failing or dead, 8% are trading on exchanges, not even compliant securities
- Two fundamental problems with the world of coins, and why they are going to fail regardless of any legal issue:
1) If any venture wants to maximize profits by selling as many goods & services at the highest price, the last thing you will do is restrict the ability of anybody to buy those services by first having to buy the token? Why should I buy a token as opposed to buy $/Euro to buy good/service? Only reason is to create a Cartel that is gouging customers. Not only non-compiliant, but also illegal cartels.
2) Unit of account! In a world in which every good/service bought with a token, i have no idea the relative price of two goods?
What’s the relative price of Dentacoins and Dodgecoins? What’s the relative price of that? Create chaos.
No price discovery system, paradoxically instead of efficient low cost, you’re going in the Flinstone system of barter.
Might as well got back to stone age of barter. Totally inefficient and it’s never going to work.
* Lubin — I agree with a lot of that but have different conclusions.
- Many projects; many issue tokens or security / utility tokens. There are many fraudulent projects.
- For thousands of years, unscrupulous actors have been taking advantage of naive consumers; usually based on information asymmetries.
- Information Asymmetries are enormous, exacerbated by low barrier to entry for running these schemes & global context. Easy to take advantage of people. That global context and the ability for us to source that information that will be able to create a much better infrastructure to protect the consumer
- TrueSet building a database of these different projects; peer pressure will disclose salient data. Future: Self + External Regulation
- Spend a huge amount of time talking to regulators; much excitement amnog regulators. We need to bring these approaches into compliance with the way that society operates right now. We can build regulation into SmartContracts; regulators will need to get up to speed technologically. That’s happening. Regulators / Software developers work together to make specificiations and test suite to ensure compliance.
- We are not trying to force decentralization on everybody. We are trying to have intelligent discussions on how to make use of this technology.
* Nouriel — You spoke of preferring self-regulation. The reality is that the industry doesn’t self-regulate.
- 81% of ICOs are Total Scams
- 50% of Dapps are essentially decentralized exchanges where nobody uses, there’s no liquidity, nothing’s happened
- 25% of them are casino cames or silly games like cryptokitties
- Total transaction volume of bitcoin has totally collapsed while cost of transaction has gone through the roof
- In a developed market like equity market goes up, cost of transaction falls with volume.
- In the case of crypto, transaction costs are up, transaction volumes are down.
- Most are pryamid schemes, ponzi games. Meant to be such. If you want to self-regulate, you would stop it.
- All this stuff is on your Ethereum foundation and you’re doing nothing about it.
- Final point about Custodial stuff: first of all even decentralization ones have been hacked.
- Every individual has to have custodial of his own things.
- Think of it this way: billions are supposed to be using BTC or ETH. Everybody can be hacked, every phone/system whatever.
- How are you going to secure it? You have to write on a piece of paper and put it in a safe box, in what? In a bank!
- Rats eat currency, Gunpoint demand for private key. Total Nonsense! Total lunatic as a system.
* Lubin — Let’s quickly address self-regulation.
- We’re working with regulators. We are building systems to enable us to self regulate, incentivize analysts to share their findings widely.
- Even if you look at a system like Reddit: there are so many maniacs that scrutinize whitepapers. Lots of projects get outed.
- The Chinese govt and the SEC are doing things.
* Roubini — to throw the bad actors out you have to register these securities, you have to register the Issuer, KYC/AML/Anti-Tax Evasion
* Lubin (to Roubini) — Do you suggest we throw the baby out with the bathwater? Is Blockchain Bad?
* Roubini — it’s not a question of being bad and good. There are lots of technologies that are successful, and some of them are not.
People say ‘this is the beginning of the internet.’ It’s not! Txns are collapsing, costs are going up.
* Lubin — Ethereum network isn’t collapsing, we are growing exponentially. More than 2x the # of transactions across all other Blockchain systems and does so much less expensively.
* Roubini — 7 txn/ sec. Visa does 20,000/sec.
Moderator: Dot-com boom/bust comparison. Is there a possibility that there is something here, or not?
* Roubini — I don’t believe so.
- I was one of the very first to adopt the internet from the web to email / started website / was booming / business.
- Even if businesses fail, I have a registered security and could take over some of the IP. I know who is the issuer. I have some rights.
- There’s a huge market for trading the IP of failed internet companies. I have some assets even if there is default. With tokens I have no rights.
* Lubin — Mentions tokenized currencies. Makes comparisons from 1989 Tim Burners Lee/ Corporation Intranets.
- Argues that Bitcoin started as an experiment in monetary theory, shouldn’t start there, we should start with Ethereum (not 3 years old yet)
- Do you believe 10 years from now Blockchain systems like Ethereum won’t be systemically important?
* Roubini — I honestly don’t know. I believe certainly the cryptocurrency space is one that there is no way you’re going to have hundreds of different tokens. Definition of money is that everyone’s using the same thing.
- Cryptocurrencies are not currencies, and I’m skeptical. I’ve not seen one in which you have Scalability+Security+Decentralization
- You’re talking about an Anarchic world in which everything’s decentralized, everything is tokenized.
- There may be PRIVATE applications … <gets cut off by moderator’s whistle>
Q5) Where could you be wrong?
* Lubin — Might be wrong in that it might make more time. The pace of adoption is astonishing.
- It’s difficult being a human being living in exponential times like this.
* Rubini — I would first of all separate Blockchain as a technology from cryptocurrencies and all the rest.
- There could be some successes in the Blockchain space, but probably some corporation and enterprise using it will create semi-private blockchains because there is no reason to put on a public ledger every single transaction.
- There are billions of transactions that occur in any major corporation. There are good reasons you don’t want that information to be public.
- Even this technology, a more sophisticated version of having spreadsheets or distributed systems will be private blockchain with a trustee,
* Lubin — Web 1 — Static, Web 2 — Ecommerce, orders of magnitude, Web 3 — adding scalability, privacy mechanisms
- 2018 will usher in the internet of blockchains. different systems with different levels of decentralized trust.
- Technology is evolving quickly and is going to move us away from centralized systems.
Q6) Anything that keeps you up at night?
* Rubini — Fraud in financial markets, but I don’t think that we are around the corner from another global financial crisis.
- Fintech revolution will create a reduction of those crises. BigData + AI will help.
* Lubin — Too much work to do, too much incoming ineterest, too much excitement.
Dan Emmons is owner of Emmonspired LLC, a Certified Bitcoin Professional, Certified Ethereum Developer, Full Stack Developer and Advisor on Cryptocurrency projects. He is also the creator of a Youtube Channel and iTunes Podcast called #ByteSizeBlockchain.
