[header date=”25 September 2018″]An Ethereum researcher seeks community input on a crucial decision, Clovyr’s founder opines on the future of money and work, and crypto bros party in Singapore.[/header]
Proving grounds
In the cryptocurrency realm, there are two major types of consensus algorithms, Proof of Work (PoW) and Proof of Stake (PoS). Despite their unfortunate acronyms, they have become hotly debated topics in the crypto community. The differences between PoW and PoS are important to understand because they may determine which networks survive and which become relics.
The distinction isn’t abstract: The different consensus algorithms shape how cryptocurrencies are managed, mined, and traded. Switching algorithms on existing networks might also change developer incentives, mining behavior (e.g. pooling of resources), and the extent to which networks, and the currencies they support, are decentralized.
At present, bitcoin and ethereum both use PoW consensus algorithms, which means anyone who wants to “create” a unit of currency has to earn their block reward through “work.” Unfortunately, that means digital mining on the networks—a time-consuming, energy-intensive, and extremely expensive process. Validating blocks requires a massive amount of computational power, which has real-world costs in energy usage.
Ethereum developers are in discussion about transitioning from PoW to PoS to improve network security and reduce energy consumption. In Casper, ethereum’s proposed PoS protocol, prospective miners must put up a portion of their existing holdings as collateral, or a “proof of stake,” to participate in block validation. The more ether a person puts at stake, the greater the chance that they will get to validate a block, like a raffle at a fair.
On Wednesday, one particularly influential ethereum researcher, Vlad Zamfir, the lead developer of Casper, posed a question to the crypto community of Twitter, asking whether the Ethereum Foundation—the Swiss non-profit organization dedicated to the promotion of ethereum—should participate in PoS.
While representatives of the Ethereum Foundation—which stands to reap the rewards from a switch to PoS—naturally endorsed the concept, not everybody shared that rosy view. Eva Beylin, a member of open-source payment platform OmiseGo pointed out that concentrating wealth with the Ethereum Foundation “could skew future research to favor earnings over intellectual honesty / sound design.”
Also of concern is that cryptocurrency exchanges might wield disproportionate influence in a PoS system—would we simply be swapping dominance in mining pools for a new plutocracy? If exchanges act as custodians of user funds, they might put those deposits to use through staking and mining. Zamfir seemed to dismiss these concerns, replying that staking would require exchanges to lock up funds for a long time, which they wouldn’t want to do.
While ethereum’s developers discuss Proof of Stake as a foregone conclusion, it’s not clear whether Casper is the panacea it’s being sold as. Soliciting community input is a wonderful practice but listening to that input and appropriately addressing concerns is an even greater sign of thoughtful leadership. In other words, don’t ghost your followers. —Matthew De Silva
[supplemental headline=”What happens next”]
Amber Baldet is the co-founder of Clovyr, a blockchain startup, and previously led JPMorgan’s blockchain efforts. She wrote about the future of money for What Happens Next, Quartz’s complete guide to understanding the future, which goes live this week. Here is an excerpt:
Blockchain technology—cryptocurrencies’ underlying infrastructure—makes it possible to think of our data as a scarce digital asset that can be owned, rented, and sold in new ways. As our money becomes data, our data is becoming money. We might not be able to stop the rise of the machines, but we can at least create a more consensual system: a fair day’s wage for a fair day’s data.
Markets based on data stored in personal digital vaults, referenced via blockchain-tracked tokens and financed via cryptocurrency microtransactions, could make Data Farmer and Digital Day Trader lucrative careers of tomorrow. But without thoughtful planning, these new systems might end up furthering the passive surveillance, corporate hegemony, and intrusive authoritarian regimes they were meant to thwart.
[/supplemental]
View from Singapore
Singapore’s CoinDesk Consensus conference isn’t quite the four-ring circus of its New York cousin, but it’s still at least a two-ring spectacle. Friendly tyrannosaurs cruised about the expo booths at the Marina Bay Sands (touted in 2010 as the most expensive stand-alone casino ever built), while a guy in a “Nakamoto, Buterin, Lubin, Me” t-shirt stalked investors.
Turnout was livelier than you might expect in a year when bitcoin has lost half its value. There were nearly 3,000 registered attendees, including the free expo-only tickets (New York’s event totaled more than 9,000). Including discounts, attendees paid about $800 a pop. Sponsorships sold out two months in advance.
Two keynote speakers were Don Wilson, founder of Chicago trading giant DRW, and David Chaum, whose cryptography work helped give rise to bitcoin. Though neither are seen as true acolytes of bitcoin creator Satoshi Nakamoto, both think bitcoin (or an offshoot) was supposed to be a means of payment—rather than something like digital gold—and that it still could be.
But as usual with big conferences, much of the action took place outside the event. DRW’s marketing blitz pampered VIPs with customized itineraries the weekend before Consensus, and there were as many as 10 after-parties each evening. Crypto luminaries were there, somewhere—if you could get into the right party. The first night I stumbled into the wrong one (there were at least two in the same hotel), yet conveniently bumped into execs from Chaum’s new crypto payments venture.
The next evening, I shared a golf cart with a stablecoin founder as we (and hundreds of others) were transported to a party at the luxury Capella resort on Sentosa Island, better known as the setting of US president Donald Trump’s meeting with North Korean leader Kim Jong Un. The crypto party was hosted by investors including Primitive Ventures, which apparently invited 150 and ended up with 500. The stablecoin guy pitched me a story about emerging market collapse while we waited in line.
Inside, two Koreans took my Telegram messaging details and pitched me on a startup accelerator. A guy from a German fund didn’t pitch me anything. He said Berlin events tend to be less glittery, more socially awkward, and have more tech discussion, which was the sickest burn on Singapore all week. That said, Vlad Zamfir, a developer at the Ethereum Foundation, showed up with the kind of cred that crypto-party organizers seemingly covet, if the Twitter documentation is anything to go by.
The deepening bear market seemed far away. During the conference, Binance founder Changpeng Zhao was mobbed by fans after he announced plans for new fiat-currency exchanges. (Chaum has a similar problem at blockchain events.) He politely declined to comment on the New York Attorney General’s allegation that Binance potentially violated its rules. He also didn’t seem fussed about it.
Fans of CZ, as Zhao is known, didn’t seem fussed either. But on the sidelines, conference goers with top-tier finance pedigrees said they thought the days of running an exchange with little in the way of auditing and oversight are coming to an end. –John Detrixhe in Singapore
[supplemental headline=”De-jargonizer: Hyperbitcoinization”]
Imagine that government-backed currencies gradually become worthless due to hopeless mismanagement and unchecked inflation. In this bleak world, the global economy disintegrates and from the ashes of monetary civilization, bitcoin emerges as the sole, trusted medium of exchange. It’s used to buy everything from bread to brain surgery because it’s the only currency a government cannot devalue.
That’s “hyperbitcoinization,” a theoretical—and yes, radical—crypto utopian concept posited in 2014 by Daniel Krawisz, a co-founder of the Satoshi Nakamoto Institute. Krawisz argues that bitcoin might spur and hasten the downfall of fiat, not just replace government-backed currencies after their demise.
The idea of a society “going full bitcoin” has gained some traction as Venezuela’s economy has plunged into chaos. Since the 2017 boom, hyperbitcoinization has attracted additional adherents, but for all its intrigue, there are obvious and likely insurmountable obstacles (e.g., the widespread pricing of goods in crypto). Hyperbitcoinization serves as a fascinating thought experiment about the large-scale viability and desirability of non-government currency, but let’s hope we never reach the conditions that mandate its adoption.
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Crypto calendar
🗣 Oct. 1-2: Ripple’s Swell Conference. Bill Clinton is a keynote speaker at the San Francisco event this year. 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.
🗣 Oct. 10-11 Crypto Economics Security Conference (CESC). If there’s just one conference you attend this year, CESC—also in San Francisco— would be a fantastic choice. Keep an eye out for Dawn Song, a UC Berkeley professor and CEO of Oasis Labs, and MIT’s Silvio Micali, one of the brilliant minds behind ALGORAND. The conference also features an array of postdoctoral researchers focused on privacy, security, economics, and scalability, so there’s a little something for everyone. Matthew will be covering this event, so come say “hi!”
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Please send news, tips, and dinosaur sightings to privatekey@qz.com. If this email was forwarded to you, click here to sign up for your own subscription, which includes a free two-week trial. Today’s Private Key was written by Matthew De Silva and John Detrixhe, and edited by Oliver Staley and Jason Karaian. May all your cards come up aces.