[header date=”18 September 2018″]Measuring the value of crypto counterculture, expressing doubts about tokenized securities, and powering up the Tezos mainnet.[/header]
Value judgment
Last week, I provoked some debate about the underlying value of ether. The conversation focused on the ability to pay network usage fees (known as “gas”) with a non-ether token—crypto people have taken to calling this “economic abstraction.” The idea is simple: if it’s possible to pay gas using another token, then ether’s price may fall as users opt for cheaper alternatives. Ethereum founder Vitalik Buterin disagreed, since non-ether mechanisms haven’t been implemented and there are “efficiency advantages” to using ether for gas, a point I conceded. Buterin also raised the possibility of capping ether issuance—currently, there are 102 million units in circulation.
What’s lost in discussing the minutiae of the platform’s tokenomics is how the Ethereum community has shaped conversation about technology—even if usage of decentralized applications remains limited. It’s important to recognize that any criticism of Ethereum (namely, its development delays) or its founders probably applies double to most other blockchain and cryptocurrency projects. Still, it’s possible to acknowledge Ethereum’s own shortcomings while admiring its community. All of this is to say, maybe I was too harsh.
Regardless of whether the project delivers on its ambitious plans, Ethereum has brought together thousands of people to rethink legacy systems in the financial sector and beyond. The counterculture that it has fostered, and the conferences where self-proclaimed nerds delve deep into digital identity, governance, and economics, have stoked the imaginations of millions. We might not have a satisfactory way to value ether itself, but Ethereum’s externalities are very valuable indeed. –Matthew De Silva
[supplemental headline=”Market chatter: Tezos comes to life”]
After a two-and-a-half month testing phase, Tezos is officially live. If you’re a tezzie (XTZ) holder, there’s no need to register or claim tokens on a new network because it’s the same chain—just a different name (“mainnet” instead of “betanet”). Tezos raised $232 million in its ICO in July last year, and then promptly descended into internal disputes and legal hot water.
But in the past few weeks, the XTZ price jumped in anticipation of the mainnet:
[img src=” https://cms.qz.com/wp-content/uploads/2018/09/XTZ-BTC-performance-chart.png”]
According to the Tezos Foundation, a Swiss organization that promotes the network’s development, the mainnet has approximately 400 validators, known as “bakers” (more on that below). There are a lot of tokens sloshing around, but is there something more substantive to it?
Earlier this month, one of the Tezos’s co-founders, Kathleen Breitman, alluded to a new video-game company she’s starting to encourage cryptocurrency adoption. Bitfinex also recently listed an XTZ/USD trading pair, which could boost trading volumes, since the trade to date has been concentrated on the smaller Gate.io, HitBTC, and Coinone exchanges.
[takeaway]Although Tezos may have moved on from its management disputes, the project still faces potential enforcement actions by US financial regulators. After waiting more than a year for Tezos to take off, a crackdown by the SEC could put tezzie holders in a tizzy. ➡️[/takeaway]
[/supplemental]
On the record: Angus Champion de Crespigny
[img src=”https://cms.qz.com/wp-content/uploads/2018/09/champion-de-crespigny.jpeg”]
Angus Champion de Crespigny is an independent cryptocurrency consultant. He was previously EY’s cryptoasset and blockchain strategy leader for financial services in the Americas. Earlier this year, he penned a critical post about blockchain-based securities, a hot area in the crypto space. He spoke with Quartz’s Matthew De Silva about it.
Quartz: Should security tokens exist?
Champion de Crespigny: Whether something should exist depends on whether it solves a problem. What I’m seeing in the security token space is [companies and entrepreneurs] looking at certain characteristics of blockchains and cryptocurrencies and saying, “We can use this”—for example, for faster settlement times. The thing is, when you look at cryptocurrencies, they’re not bringing faster settlement compared to the regular systems because they’re part of far bigger ecosystems.
[Conventional] payments are slow due to compliance, operations, and various other things. The securities space is the same way. Transposing censorship-resistant value transfer into the securities space doesn’t necessarily solve a problem that exists.
Where could blockchain technology fit into a securities settlement system?
[Blockchain-based securities] could result if the whole concept of ownership and securities issuance changes, and it’s no longer relevant to know exactly who your investors are. If [tokens] start getting adopted, people start creating decentralized organizations that use those to do something, and then people have tokens that represent some claim on assets in that decentralized space, then you start having a product that makes sense from a securities perspective.
But if we’re looking at how securities work at the moment, they’re a claim on a legal entity that can’t [facilitate] self-sovereign [ownership], because a government can come in and seize that company and then it’s all meaningless.
So, you’re talking about a fundamental shift in corporate and digital structures.
I think the question is whether there’s a benefit to decentralizing organizations. Is there a reason that you need censorship resistance? In certain parts of the world, I would say yes. But when working in the US, where law and order is generally pretty good, is there a huge benefit? I question that.
What do you think of enterprise blockchains focused on securities settlement?
There’s a good amount of groupthink in this space. When you get to a certain critical mass, people are just looking sideways, without looking into the details. When you have the Australian Securities Exchange making public announcements, and the DTCC, you start to think, “Well there’s got to be something here. We should be doing something.” When we look at security tokens, to a certain extent, it’s a similar thing. We have this self-fulfilling feedback cycle.
If you understand the technology, how the securities market works, and how enterprise sales works, it doesn’t make as much sense as it might to an outsider. There are people who disagree, but I haven’t heard a convincing argument for what’s the actual problem that can’t be solved using current technologies.
Champion de Crespigny’s recommended reading, listening, and more:
Books: Mastering Bitcoin by Andreas Antonopoulos and The Bitcoin Standard by Saifedean Ammous
Podcasts: Unchained by Laura Shin and Noded by Michael Goldstein and Pierre Rochard
Follows on Twitter: Engineers Peter Todd, Sarah Lewis, Eric Lombrozo, Udi Wertheimer, and Elizabeth Stark
Projects that deserve more attention: Infrastructure projects by Lightning Labs and Casa
Advice for investors: “Firstly, don’t invest in anything you don’t understand. Secondly, if you really want to, don’t invest more than you can afford to lose, and consider that an investment in your education.”
[mailto filter=”Crespigny” subject=”Here’s a suggestion!”]Who should we profile next?[/mailto]
[supplemental headline=”De-jargonizer: Baking”]
From miners to bakers, it sometimes feels like the crypto community is a digital recreation of a renaissance fair. For the Tezos platform, founder Arthur Breitman created baking, an alternative way to randomly assign block creation and token rewards quite unlike bitcoin’s Proof of Work system. Proof of Stake systems like Tezos’s are sometimes proposed as energy-saving alternatives. Bitcoin mining consumes large amounts of electricity.
Bakers (the equivalent of bitcoin miners) deposit a bond, the size of which depends on the number of blocks that the baker has been assigned to produce. “This safety deposit ensures the honesty of the baker during the period around the block creation,” Breitman explains. Imagine, basically, if you had to lock up some bitcoin to mine more bitcoin. That’s pretty much how it works.
[mailto filter=”Jargon” subject=”Here’s a term to de-jargonize”]What other terms should we de-jargonize?[/mailto]
[/supplemental]
Crypto calendar
🗣 Sept. 19-20: Consensus Singapore. The CoinDesk-led event will feature conversations on gaming, mining, and blockchain forensics. Quartz reporter John Detrixhe will interview Don Wilson, founder of trading powerhouse DRW, on stage. If you’re there, say hello!
📚 Sept. 20: Micron Technology reports earnings. The chipmaker’s shares fell recently after analysts cut profit forecasts. The company was a market darling when crypto prices were booming; with conditions now more subdued, its report will provide a window into the state of demand for mining rigs.
🤝 Sept. 25: Capitol Hill Round Table. Warren Davidson, a Republican Congressman, will meet with blockchain and crypto industry figures, such as VC Andreessen Horowitz, crypto advocacy group Coin Center, and exchange operator Kraken. The discussion will focus on fostering “light-touch” ICO regulation.
🗣 Oct. 1-2: Ripple’s Swell Conference. Bill Clinton is a keynote speaker at the San Francisco event. At last year’s gathering, ex-Fed chairman Ben Bernanke told attendees, “bitcoin is an attempt to replace fiat currency and evade regulation and government intervention. I don’t think that’s going to be a success.”
🗣 Oct. 5-6: Scaling Bitcoin. The Tokyo event is geared toward the “engineering and academic community.”
🗣 Oct. 5-12 SF Blockchain Week. A collection of Ethereum superstars, including researcher Vlad Zamfir and 0x co-founder Will Warren will be at ETH San Francisco, the world’s largest Ethereum hackathon (Oct. 5-7). Meanwhile, Epicenter (Oct. 8-9) will feature Litecoin founder Charlie Lee and Parity Technologies CEO Jutta Steiner, among others.
[mailto filter=”Calendar” subject=”This is happening”]Tell us about your upcoming news and events[/mailto]
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