Day 1 at Distributed: TCRs, Tokenization, and More
Thursday, July 19 was Day 1 at the Distributed conference in San Francisco. Check out summaries of enterprise adoption, social impact, identity, TCRs, and more below.
Panels and talks summarized in this post:
Global State of Blockchain: Current Impact and Future Challenges [Tomio Geron, WSJ; Nick Kritikos, ConsenSys; Sheila Warren, WEF; Brian Behlendorf, Hyperledger]
The Future of Digital Media [Matthew Iles, Civil; Jarrod Dicker, Po.et; Kia Kokalitcheva, Axios]
Tokenized Securities [Jay Thakrar, Token Foundry; Josh Stein, Harbor; Nadav Hollander, Dharma; Rafael Cosman, Trust Token]
Curation Markets and TCRs [David Turner, Po.et; Ken Brook, MetaXchain, Felipe Sant Ana Pereira, Paratii; Yin Wu, Dirt Protocol]
Fireside Chat with Sheila Warren [Amanda Gutterman, ConsenSys; Sheila Warren, WEF]
The State of Ethereum [Sam Cassatt, ConsenSys]
Panel: Global State of Blockchain: Dissecting the Current Impact and Future Challenges
The first panel of the day was moderated by Tomio Geron of the Wall Street Journal. Panelists included Nick Kritikos of ConsenSys, Sheila Warren of the WEF, and Brian Behlendorf of Hyperledger. Brief summary of the panel below:
Geron: What applications of blockchain technology are you most excited about?
Warren: The WEF is working less on specific products and more on general infrastructure and legislation at the moment. We find the most exciting application of blockchain technology is identity and privacy. With blockchain technology, people will now have control over how they are seen and tracked throughout the world. Less “sexy,” but equally important, are use cases like supply chain. Wherever we can eliminate paper, waste, and duplicate processes, we consider that a success from the social impact side.
Behlendorf: We are transitioning from R&D to people actually implementing these protocols in usable formats. We are now running platforms on top of blockchain technology, and that is most exciting.
Kritikos: What’s most exciting is the ability to grow the ecosystem. Ethereum already has the largest global developer ecosystem of any blockchain platform, and we are eager to continue to build that community.
Geron: How and where are companies implementing blockchain?
Warren: We see a lot of forum shopping in the space right now. That means people are choosing the jurisdiction where they think they will get a favorable “judge and jury.” You build where you think it’s likely that legislation and policy will support what you do. The issue is that we are trying to build something that really is global. Take the Internet, for example. Usages of the Internet are subject to national/regional policies, but the fundamental Internet is standard across jurisdictions. It is global. When we see various blockchain companies and dapps opening in different countries with different blockchain policies, we have to think: What does that mean? What are the consequences from a policy perspective?
Kritikos: We are also witnessing nation states who are embracing this technology and promoting really open policy structures as an opportunity to augment their international status. There are many regions that do not significantly play in today’s global economy, and they reasonably see this new technology as an opportunity to build their international presence. We hope this works for countries — we want this technology to rapidly improve people’s lives.
Geron: What should companies and new projects think about when starting new blockchain platforms or entities?
Kritikos: The number one thing to think about: Do they really need blockchain or not? There is a fair amount of interest from database projects that at their core simply don’t need blockchain technology. At the end of the day, the value of a technology and people’s willingness to adopt it is based on how much the technology improves their lives. Blockchain is not always the path to ease or lower cost. It can be cumbersome, brittle, and difficult. There are many solutions entering the space that will vastly improve enterprise and startup adoption, but we still need to think about if the core business model needs blockchain.
Behlendorf: There are many challenges for people in the space. Blockchains are not a fundamentally, universally faster way to do things or to reduce fees. They are a technical solution to a market structure problem. Blockchain technology is about the inverse of “playing God,” where tech companies today try to capture and control markets like Uber has (i.e. the pitch language “the Uber of X”). It is the opposite of a traditional VC view of how the world should work — it’s a compelling way to disrupt somebody who is at the center of an economy and is charging high fees (i.e. Uber).
Further Reading: Interested in learning more about the short-term future of blockchain technology? Check out 18 Blockchain Predictions for 2017
Panel: The Future of Digital Media
In the afternoon, Matthew Iles of Civil took the stage with Jarrod Dicker of Po.et and Kia Kokalitcheva of Axios to discuss the opportunities for digital media that lie ahead. Brief recap below:
Kokalitcheva: Can you explain your product and how it solves issues with journalisms in today’s media industry?
Iles: Today’s media world has created an industry where companies use social media platforms as effectively as possible from a business perspective even if it impacts the journalistic side. Platforms have leveraged social engineering to tailor content towards specific demographics at the expense of legitimate journalism. At the end of the day, the value of the information being produced by newsrooms is being captured by platforms that have no incentive to value journalism. We see this misalignment of incentives, and we aim to reorient them to facilitate wonderful, truthful journalism.
Kokalitcheva: Where does the need for these platforms come from?
Iles: Recent national examples such as Cambridge Analytica. People are now, more than ever, acutely aware they’ve been using free products that have never actually been free. They have been the product. Their data has been harvested, packaged, and sold to advertisers. Journalism is useful to the major platforms insofar that it brings people back to these platforms — it just represents more data points. Today’s business model that connects news platforms with readers undermines journalism. We don’t see premium journalism being rewarded on these sites; we see far-leaning, sensationalist content being rewarded.
Dicker: We are early in blockchain and decentralized applications. It is equally scary and exciting now that we see these two waves. Blockchain will eventually do its thing and disrupt many business models. But right now is the first wave, the wave that’s creating the need for blockchain. Right now, we are seeing the caving of trust in the media. People are seeking truth with a heightened sense of urgency now more than ever before.
Kokalitcheva: Can you explain the model of Civil a bit more? What would stop a billionaire, let’s say, from buying tokens and voting to remove a piece of content they don’t like?
Iles: The Civil Council is an independent, nonprofit body that helps us mediate possible issues like that. It is made up of journalists, free press experts, and independent writers. The Civil community can appeal to this council an issue they believe is against journalistic standards or against the Civil Constitution. The council reviews the appeal and can reverse the decision made by that actor if they like. The billionaire would then lose all the money s/he invested to buy those Civil tokens and initiate the “attack.” At the end of the day, however, the community at large has a supermajority veto power to ensure that Council never becomes too centralized.
Jarrod: This new IT infrastructure changes the way we do things; it changes behavior. There’s a concern in the journalism world with information on the blockchain being permanent. If a journalist needed to change or take something down because of inaccuracy or new information, they would not be able to easily do that. For most things in life, however, we can’t just press “do-over” when something happens we don’t like. This new infrastructure and its immutability might just change the way we approach journalism from the very beginning.
Further Reading: Want to learn more about Civil and the future of digital media? Check out Civil’s blog.
Panel: Tokenized Securities
The afternoon panel on Tokenized Securities drew a large crowd as people keep seeking information and guidance for the future of regulation and crypto-assets. The panel included Jay Thakrar of Token Foundry, Josh Stein of Harbor, Nadav Hollander of Dharma, and Rafael Cosman of Trust Token. Summary of the panel below:
What is an example of a tokenized security and why are they important?
Stein: There are not a lot of examples out there. With traditional private securities, you own a share of a company. A security token represents a traditional private security interest and has a specific economic use case.
Hollander: Securities are traditionally administered through complex and manual processes. Some instruments such as stocks can be traded effectively, but there is a huge class of instruments such as real estate, derivatives, and certain debt classes that are largely traded over the counter. There is so much institutional inertia and friction because it isn’t easy to dispense payments and keep track of who is on what cap table. Right now, these systems work because there are intermediaries; but they don’t work as well as they could. That’s why it’s important we can now have a single source of truth to track the ownership of an asset. This radically opens up possibilities for how liquid markets that were previously illiquid can open up.
Cosman: There are three benefits of holding any asset in token form. First, liquidity. Previously illiquid assets, when tokenized, are suddenly available for instant, small trades, which empowers investors and opens up a whole new set of asset classes. Second, interoperability. With all these tokens built off the same tech infrastructure (blockchain technology), they become interoperable in ways current assets are not. This allows for instant trading and settlement between two assets instead of having to go through an intermediary step. Third, security. The underlying safety of blockchain technology ensures safety for the tokens built on top. Together, liquidity, interoperability, and security combine to form deep liquid markets.
Thakrar: If we look at the ConsenSys ecosystem, we see some early examples. Meridio has already tokenized a building in New York. The benefit today of tokenizing is providing transparency and eventually liquidity to a previously illiquid asset class — while at the same time reducing the asset cost. We are in the very early days, but we’re doing a great job moving forward.
What are some challenges for wallets and the storing/trading of tokenized securities between wallets?
Hollander: There is no custody solution and no service providers. Right now, wallets are not set up for the average retail investor. For us at Dharma, we are focused on investors who are very comfortable with the cryptocurrency ecosystem. Those investors won’t blink twice about storing metamask and protecting their keys. We are starting to see some really good generalized key custody solutions break into the market. This will open doors for everyone in the market.
Stein: I think of custodianship on three levels: the legal element, practicalities (people not wanting to manage their own keys, and security (protection from hacks). The risk of loss for a security token is very different from that of cryptocurrencies. If someone hacks and steals 100 shares of an asset, nothing has happened to the actual asset. Only the record of shares has been affected. Any security token model that is compliant with law has to have robust KYC construct. They will always know the real-world ID of the individual who was hacked. That company or platform can reverse the record of the asset to the original owner once it was determined that the transfer was unauthorized.
What is a bit of wisdom you would impart to entrepreneurs entering this space?
Hollander: Launch. Actually ship something. Don’t get trapped in this space where you get funding and enter this endless cycle of Proof of Concepts until you die. There are so many common lessons people have learned in the normal start up industry that haven’t transferred over into the crypto space. The most important lesson is that you ship an MVP as early as possible to as many people as possible. The majority of the assumptions you have about your product are wrong, but you won’t know that until you get the product in front of actual users.
Thakrar: Engage legal counsel early on. Get ahead of possible compliance issues early, it’s crucial for the long-term success of your business.
Stein: I agree with Jay [Thakrar]. I think Coinbase employee #9 was Chief Compliance Officer and #12 was Internal Counsel. You can’t be too soon with that.
Cosman: Compliance, I agree. Being open with regulators is crucial to ensure long-term viability in areas that aren’t entirely figured out by the SEC.
Further Reading: Read more about Meridio, a ConsenSys project that just tokenized a building in New York.
Curation Markets and TCRs
Token Curated Registries (TCR) are an exciting application of blockchain technology starting to be implemented by a handful of companies. TCRs are essentially lists that exist on a blockchain platform and are curated by voters (token holders). The panel was moderated by David Turner of Poet, Ken Brook of MetaXchain (ConsenSys), Felipe Sant Ana Pereira of Paratii, and Yin Wu of Dirt Protocol. Summary of the panel below:
Turner: Give us a bit of background on TCRs, their benefits, and their challenges.
Brook: The incentive model for TCRs isn’t entirely complete, mostly because we don’t have too many real-world applications from which to gather information. A “TCR” is just a model. Eventually we’ll be facilitating real advertising campaigns. When we see real brand money on the protocol, there will be a real incentive for journalists to join the platform. Our project is a social experiment.
Wu: On this panel, we are all building applications. At the end of the day, a TCR is just a tool. “Tools,” however, aren’t companies or products. The challenge is actually building a company and product. You can’t just build a protocol and expect people to come. You won’t know if your assumptions about the way it works are true until you launch something and test it.
Pereira: We have to be careful not to over-engineer the launch of a TCR application. We need to put it out there and receive feedback so we can iterate and evolve into something better. Getting empirical data is crucial. Until we do, we’re just talking about hypotheses.
Turner: What’s a killer app of TCRs?
Brook: Any centralized platform that has a lot of value like Facebook or Yelp is valuable because of the community that uses their free tools. But the incentive mechanism is broken. Why write a review on Yelp? TCRs will provide a free, equitable distribution of value through community participation.
Wu: Curating trust and information around the cryptocurrency space is critical. If you want to invest in an token sale, some of those platforms claim to have investors they don’t. In other cases, some applicants to jobs claim to have degrees they don’t have. Right now, there is no easy way for people to validate information that traditionally lives on some sort of list.
Pereira: A community taking advantage of self-governance. It’s a superficial example, but think of the Oscars. The Oscars are essentially a set of lists that is renewed every year. Movie audiences all over the world could vote on future Oscars instead of a few people in LA who are suspect to being lobbied.
Turner: UX is difficult for everyone in the crypto space. TCRs make it complex because users need to vote in a system that is established off deep crypto-economic theories. Talk more about the challenges you face and the solutions you are exploring.
Brook: We’ve experienced this first hand with our product. It is hard to get general consumers to buy ether then purchase a token, go into your dapp, download Metamask, engage with Metamask, and operate on the mainnet any time you want to engage with a TCR. There are lots of steps between point A and point B. Now that we’re live, optimizing the second layer is crucial. We are trying to reduce the number of steps it takes to go through the voting process.
Wu: Usability is a huge challenge. There are two parts to engaging with a TCR: reading the data and participating in the TCR. You can read data from the blockchain without having to actually engage with the components of a TCR. So many people could learn to trust the list that Adchain puts out without having to understand the intricacies of crypto or a TCR model. There’s another crowd, however, for which you do have to optimize UX to get them to engage with the TCR.
Turner: Say quickly what you’re trying to solve — either right now or big picture.
Brook: We are trying to fix digital advertising
Wu: We are trying to solve usability.
Pereira: We are trying to fix attention allocation.
Further Reading: Want to learn more about TCRs and Adchain, the first TCR MVP? Check out Token-Curated Registries 1.0
Fireside Chat
Later in the day, Amanda Gutterman, CMO at ConsenSys, and Sheila Warren, Head of Blockchain and DLT at the World Economic Forum, took the stage for a fireside chat exploring the future of an equitable, just, decentralized world. Summary of the discussion below:
Gutterman: What are you most excited about in blockchain right now?
Warren: I’m excited for This is the end of this first bubble. The hype is coming down, meaning there is more rationality in the space. I’m also exciting about mechanisms being developed for citizen empowerment. In this space we dodge around the word “power.” A lot of distruption in this space, however, fundamentally comes from the redistribution of powewr. The ideal world for many visions of the future is taking the present-day power model and turning it on its head so you give customers an equal ability to influence the world around them. If we don’t talk about power head-on, however, we may find ourselves in a future where we’ve only moved power a half-step and just redistributed it to a different small, closed group of people. We need to keep talking in order to truly revolutionize. There is a human tendency to have a single point of accountability, as in today’s companies and entities. We have onboard people to a different behavior, where people place their trust and accountability in a blockchain system instead of a visible entity.
Gutterman: Absolutely. These new infrastructures give us the power to shift systems from how they’ve worked in the past in ways we’ve never been able to do before. Tokenization is super interesting on that front, especially when we talk about changing power dynamics in the context of social good. Right now, either individuals sacrifice personal incentive to serve the commons or they sacrifice the commons to serve personal incentives. This new infrastructure allows us to hijack that traditional behavior model. Serving your own personal interests becomes serving common interest as well.
Gutterman: Anonymity is a common topic when discussing blockchain technology. But the opposite of anonymity is identity, which is also a powerful use case. Talk more about your thoughts and work on identity.
Warren: The aspect of identity most compelling from my work is the ability of a person to choose when and how to reveal information about themselves. There are two types of identity — core identity and credential identity. With identity on the blockchain, there is not a central identity to which you need to go to prove you are who you are. That is fundamental. That is revolutionary. The core of identity and what matters to people is the ability to map to your family and the people you care about. What matters to people is: I am who I say I am. You no longer need a third party to validate your identity.
Gutterman: Property and assets are also a tremendous part of that. During the Haitian earthquake, the government building with citizens’ land titles was destroyed and the records were lost. People had no record over their ownership and the government was not able to service its citizens. The integration of land rights into a blockchain platform can preserve and ensure land title records. ConsenSys is helping Dubai become the first city to operate off blockchain by 2020. Land title registration and maintenance is crucial for that.
Warren: People will want to invest in a place where there is authentic, indestructible, and incorruptible. That is profound. You as an individual feel empowered to make an investment in a place because that investment will be authenticated on a platform that cannot be erased or corrupted.
Gutterman: There’s also the ability to create property from nothing with identity. Reputation becomes a kind of property. As long as you have a smartphone and can access internet, you can gather reputation on the blockchain. If your community trusts you, you build reputation and could apply that towards a loan. Then with the ether or token from that loan you can start a business. You can provide transparency to stakeholders using smart contracts so they can see how your loan is applied towards your business. Then you can scale. That process is currently unavailable to un- and underbanked people in parts of the world.
Further Reading: ConsenSys Social Impact is tackling global issues through partnerships with organizations and application of blockchain technology. Read their post about the 5 causes driving their mission.
Keynote: The State of Ethereum
To close out the day, Sam Cassatt, Chief Strategy Officer at ConsenSys, took the stage to discuss The State of Ethereum. The room filled up, with many people coming to hear about how Ethereum was tackling scaling issues (a Twitter poll by ConsenSys shows scaling is still top of mind for most Ethereum devs, enthusiasts, and investors). Summary of the talk below:
The Ethereum ecosystem, if you break it down, is composed of the Ethereum Virtual Machine + Smart Contracts + Ether + Token Standards + Dapps. At this moment, the Ethereum developer network is estimated at 250k developers with 30k new developers every month. 95% of tokens trading on exchanges are built on Ethereum, and the platform has over a $50 billion market cap.
When continuing to work on Ethereum, we have to understand what we want in a blockchain: Privacy, Scalability, and Default to Openness.
Privacy: There are multiple solutions to privacy when iterating off a public blockchain like Ethereum. Permissioned chains like Quorum and PegaSys, privacy layers like ZK-SNARKS and ZK-STARKS, and off-chain solutions like databases, clouds, and IPFS.
Scalability: The scalability trilemma is the idea that you can only have two of the three on any blockchain platform: scalability, security, and decentralization. Ethereum and Bitcoin were launched with security and decentralized in mind, and now developers are tackling scalability. Delegated Proof of Stake (DPoS) is one way to achieve scalability, but at the cost of security. A better way to achieve scalability is by separating the concepts of layer 1 and layer 2 protocols. Layer 1 requires very high trust. It is fundamentally decentralized, but also slower. Layer 2 can have varying trust models based on needs (i.e. a game needs less than a bank account). Layer 2 can achieve high scalability and any disputes can be exported to the security of layer 1 to be mathematically proven.
Default to Openness: Platforms in the past have not defaulted to openness, and that decision has stifled innovation. Closed, walled gardens do have real utility, but you don’t have the network effect of being connected to the rest of the economy. As an example, the Internet was developed with a default to openness. Anyone could interact with the Internet and start building. AOL and CompuServe were developed with a default to closed. They’re not around anymore.
Ethereum’s future for scaling is captured in three stages: Casper, Sharding, and Plasma. With Casper, there is a lot of work in the EF and the dev community at large moving the platform towards Proof of Stake. With Sharding, you can break the network up into smaller pieces that can run transaction simultaneously instead of having one monolithic Ethereum chain that has to process every order. You might, let’s say, have hundreds of “mini-Ethereums” that collapse into the larger Ethereum every five seconds.
Further Reading: The State of the Ethereum Network pulls in statistics from across the Ethereum ecosystem to provide a snapshot (June 2018) of the strength and future of the network.
Check back in tomorrow for a recap of day 2. Talks and panels include Ethereum’s Roadmap, Developing Markets for Underserved Communities, and Tokenizing Business Models.
Disclaimer: The views expressed by the author above do not necessarily represent the views of Consensys AG. ConsenSys is a decentralized community withConsenSys Media being a platform for members to freely express their diverse ideas and perspectives. To learn more about ConsenSys and Ethereum, please visit our website.
