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Dan Verowski of Third Eye Array believes blockchain has the potential to change the world for the better. He weighs in on the Bitcoin vs. Bitcoin Cash debate, Ethereum’s move to proof of stake, and many other topics in his interview. Dan has a lot to say on these topics, so this DAA Manager Insights interview will be published in two parts.
Let’s take a look at the second largest digital asset by market cap: Ethereum. In your opinion, where does the future lie for Ethereum? Do you think the upcoming Ethereum switch to proof of stake will have a significant impact on its value? If so, will its impact be felt in the short, mid, or long term?
A little background info to make sure we’re on the same page.
Casper is the protocol update that will change the consensus mechanism from PoW to PoS. Sharding is a concept that will help Ethereum scale above its current 15 transactions per second by making transactions verifiable without having to read the entire blockchain. This is similar to how information is stored in the fractal architecture of DNA. The recent decision to combine Casper and sharding came as a surprise at first. Why expose a running system to a huge, complex change, rather than making two incremental ones?
Once I found out that Casper would be deployed as a shard, giving each user the option to integrate it into their node or not, I was somewhat relieved. I remembered that Ethereum is a testbed for what’s to come and in 5 years might be replaced by a more secure (in terms of smart contract language) successor.
My guess about the asset’s value is that it will have great growth in the long term. Given that Ethereum will build a strong and healthy dapp environment, the following scenarios may unfold.
A small devaluation before the change to PoS is possible, depending on the user base and their knowledge of consensus mechanisms. If this knowledge is well above average, a value increase before and shortly after is more likely, since it will be possible to earn ETH by locking up ETH tokens, as opposed to buying and maintaining mining gear. Thus, it seems rational to assume strong buy pressure on the markets.
However, once validators (previously miners) need to sell some positions to cover costs, the risk of a potential devaluation due to sell-offs is much higher in the beginning when the PoS reward and burn rates are being calibrated.
You are aiming for long-term growth and preparing for the emerging “token economy.” Can you explain what the token economy means to you? Which tokens or projects could be the basis for an anti-fragile token economy?
Toward the end of the middle ages, thought leaders looked for ways to change the trajectory of society away from death, destruction, and illiteracy and toward life, aesthetics, and reason. They did this by inspiring a revival of the classical ages, which became the Renaissance. The Renaissance paved the way for marvelous minds and many of the greatest inventions and ideas of our species.
Analogue to this pattern, given the current state of our world economy, ecology, and sociopolitical issues, it seems reasonable to explore the options of a new revival to change our current trajectory of death, destruction, and ignorance. However, since the current issues at hand are much more complicated and deep-rooted, it seems appropriate to reach further into the arcane and reconnect with patterns that existed in a place, time, and space when our species lived more closely to the nature it emerged from. Hence the proposition to disintermediate our (economic) interactions and return to how it was “back in the days of bartering.”
The inefficiency of the barter system, which led to the creation of intermediaries such as money, can now be overcome by using decentralized ledger technology. Since DLT allows us to tokenize physical, digital, and non-tangible assets, as well as to make them exchangeable with each other in a way that is both transparent and secure, there is nothing (except regulations) stopping us from creating open P2P marketplaces and prediction markets that could facilitate a circular economy, in which natural resources are recycled and reused and ownership is replaced by access.
This is essentially the token economy I’m referring to: an economy that is not debt-based, but resource-based, based on synthetic resources created with renewable resources.
The tracking and validation of large data sets, previously impossible, now makes it possible to revert back to a P2P barter economy. The overused saying “Think locally, act globally” fits like a glove. For complex systems to scale in a healthy way, they need to be anti-fragile and adapt dynamically. This can only be done if the system has closed loops, by which I mean the opposite of most systems, which deplete resources from nature and return waste.
If we look at how nature works, all we see are closed loops everywhere, conserving and reusing energy at every scale. Those who are aware of this are also involved in crypto projects. I believe in people, not institutions, which is what I’m looking for in a project. If mindful individuals like Andreas Antonopoulos, Charles Hoskinson, Naval Ravikant, or Santiago Siri support or have a stake in a project and my own fundamental analysis is positive, I’m 99.9% sure that project can be part of the basis for an anti-fragile token economy.
The most crucial use case is governance, including collective decision-making. Thus, on-chain governance projects like æternity, Tezos, DFINITY, and soon Decred are worth some extra attention. Democracy.Earth is is already knee deep in exploring e-voting for real-world governments.
The adoption and use of these systems will be primarily driven by a heavily gamified user experience, as well as by smart contract security and robustness, giving projects that recognize and act on these an enormous edge.