[header date=”6 November 2018″]A dispatch from Ethereum’s annual conference, an interview with Robinhood’s Vlad Tenev, and deciphering decentralized exchanges.[/header]
Devcon: A Prague perspective
The largest and most important conference for the Ethereum community, Devcon, took place this past week in the Czech Republic. Hundreds of blockchain programmers and enthusiasts from around the world flocked to the Prague Congress Centre—a multi-floor, glass-paneled behemoth—for a week of workshops, presentations, demonstrations, as well as lavish and often nerdy after-parties. (At least one featured a hacky sack circle.)
Compared to its previous iteration in Cancun last year, Devcon4 in Prague offered an austere but refreshing return to hard work. While Devcon3 attracted all sorts of hangers-on, from cryptocurrency “trading gurus” to ICO investors looking to get rich quick, this year’s installment focused on fundamentals, even while failing to tackle larger questions about what, ultimately, the technology is good for.
Two distinct—and somewhat contradictory—strands of thought emerged from the conference: First, blockchain infrastructure, comprised of consensus algorithms and “token economics,” is the primary concern, so forget about user adoption for now; and second, developers must build applications that people want to use, and soon.
The first attitude is championed by the Ethereum Foundation, as well as academics pushing alternative platforms like MIT professor Silvio Micali with Algorand and Emin Gun Sirer of Cornell and Avalanche. Each has its own consensus algorithm, which they claim makes the network faster or more secure than other systems (and could make them rich at the same time).
To some, arguing over a consensus algorithm is like fighting over how many gears a bicycle should have before you’ve even learned to ride it. Indeed, whether people want to use blockchain-based decentralized applications (dapps) remains an open question. But it’s tough to dismiss infrastructure concerns as academic because they could determine what a platform—if one becomes viable—is able to support. If a bike doesn’t have enough gears, then it’s impossible to climb certain mountains.
For now, Ethereum remains the leader in blockchain-based computing by virtue of the developer talent that it’s gathered. Within this community, there’s a belief that if so many people have assembled, and so much money has flowed into the space, that something big is bound to happen.
The elephant in the room—or, rather, the Czech palace—is that hardly anyone is using dapps. Exchanges and wallet providers are one thing, but dapps are part an uncertain future, which makes it even stranger when billions of dollars are poured into an admittedly unproven and niche movement.
Perhaps nothing made this more apparent than the Blockchains LLC launch on the third night of the conference, when attendees were whisked away on luxury buses to an undisclosed location. In a dark auditorium, we waited under blue lights while a countdown slowly ticked toward zero until a holographic little girl introduced the new company that promises to build an Ethereum-based city in the desert of Nevada.
The hologram seems apt. As indefinable and digital as she was, so is blockchain’s practical promise. As Blockchains’ founders made bold predictions about the future of technology, some people in the crowd whispered that it felt like we were part of a cult. It was hard not to agree. —Matthew De Silva in Prague
Disclosure: Private Key writer Matthew De Silva is a former reporter at ETHNews, a Blockchains LLC company.
[supplemental headline=”Market chatter: Ups and downs”]
Is bitcoin less volatile than the US stock market?
Price swings in bitcoin (also known as volatility) have collapsed in recent weeks, as measured by Cboe’s bitcoin futures prices. The week that ended Oct. 26 was the least volatile for the exchange’s bitcoin derivatives since they started trading nearly a year ago. The average for weekly volatility was 6.6%, compared with the average of 15.7% since inception, according to Kevin Davitt, a senior instructor at The Options Institute at Cboe.
[img src=”https://cms.qz.com/wp-content/uploads/2018/11/atlas_B1CbtRAn7@2x.png”]
At the same time, volatility linked to the S&P 500 index of US stocks has increased in recent weeks—so much so that measures of price swings in the benchmark US equity index are now greater than for bitcoin, a rare turn of events. While it’s anyone’s guess where prices are headed in the future, Davitt points out that volatility tends to revert to the mean.
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On the record: Robinhood co-founder Vlad Tenev
[img src=”https://cms.qz.com/wp-content/uploads/2018/11/Vlad-Tenev_Headshot.jpg”]
Launched in 2015, Robinhood is an investment platform that boasts commission-free trading and—not unrelated—explosive growth. It now has 6 million users, many of them first-time investors who can trade stocks, options, and (as of January) cryptocurrencies. It offers six tokens in 27 US states.
Private Key sat down with Robinhood co-founder Vlad Tenev over coffee in midtown Manhattan to discuss the platform’s interest in cryptocurrency trading.
Private Key: Your customers aren’t the niche investors who were the original crypto enthusiasts, but mainstream retail investors. Why did you decide to offer cryptocurrencies before other assets?
Vlad Tenev: Crypto trading, especially at the time we released it, was a mass-market phenomenon. Everyone wanted them. We heard from a lot of customers who actually discovered investing through cryptocurrency. This is probably the first time in my adult life that something like this has happened, where a new asset has come from basically nothing to approaching the mainstream. And so we added that and we saw some spectacular growth. I think there were a few days where we opened close to or above 100,000 accounts when we announced crypto.
How do you decide what tokens to offer?
Bitcoin and ether were the first two that we offered. Those were the two most mainstream, most requested coins. And then once we rolled those out, we surveyed customers and we actually created a listing committee that evaluates new coins. We looked at what coins were requested by customers that meet our criteria and those were the next three that came out: litecoin, bitcoin cash, as well as dogecoin.
Will you add to those cryptocurrencies?
Yes, we’ll grow that roster. We like adding it once we see the demand. Some crypto companies have like thousands of coins, they just put every coin in there. That hasn’t been our approach and people rely on our processes for surfacing and listing assets on the platform. And there’s an assumption that there’s a higher standard of vetting here. So we’re generally pretty careful about what we put on the platform.
Why can’t customers withdraw their cryptos from Robinhood?
It’s mostly process and regulatory. We want to make sure everything’s completely buttoned down and we do it smoothly for customers. Once we roll that out, we want to make sure customers have a simple experience where they can withdraw and it’s as high quality as our other products. It’s not trivial. Cryptos are a different type of asset. Once you withdraw it, it’s gone. So there’s a balance of providing like really, really good security, the regulatory stuff, and the customer experience.
Oct. 31 marked the 10th anniversary of Satoshi Nakamoto’s white paper that effectively launched bitcoin and, more broadly, cryptocurrencies. Have they lived up to their promise?
It’s a very interesting asset from a technical standpoint, from a global accessibility standpoint. The US is fortunate to have a very functional banking system, relatively speaking. A lot of countries don’t have functional banking, and a lot of currencies aren’t as strong as the US dollar. Go to a random country and elsewhere in the world it’s not the case. And I think you see bitcoin adoption in places like Venezuela, you saw a decent amount in Cyprus.
I’m from Bulgaria. So after I left to go to the US because of hyperinflation in the mid-90s, the currency basically became worthless. My grandparents had pensions that became worthless. My grandfather lived in the port city on the Black Sea coast, so he would go to the port and buy pots and pans, like copper ware. So that’s how he would store value. That’s all that was available, and if cryptocurrency had existed back then and the way it does now, that wouldn’t have been a huge problem.
Now bitcoin and other crypto might not be the only solution to that problem. I think in the future of people from all over the world will have access to all sorts of fungible investable assets. But I think it was sort of among the first assets that had that kind of global accessibility.
Tenev’s recommended reading, listening, and more:
Books: Antifragile by Nassim Nicholas Taleb, The Everything Store: Jeff Bezos and the Age of Amazon by Brad Stone, King Lear by William Shakespeare, and Things Hidden Since the Foundation of the World by René Girard
Podcasts: NPR’s How I Built This
Follows on Twitter: Paul Graham, Kirstena Green, The Ocean Cleanup
Bulgarian dishes: lukanka (Bulgarian salami), meshana skara (mixed grill)
[mailto filter=”Vlad” subject=”Feedback”]Know somebody who we should profile? Let us know.[/mailto]
[supplemental headline=”De-jargonizer: Decentralized Exchange (DEX)”]
A decentralized exchange is the crypto equivalent of a swap meet. While some people purchase their clothes from stores at the mall, others might prefer to buy them directly from another person, and perhaps second-hand.
Decentralized exchanges, otherwise known as DEXs, are important to crypto enthusiasts because they purportedly allow people to trade digital assets without ever granting an intermediary control of any assets (this means that the trading services are “non-custodial”). In the physical world, you might compare this to listing concert tickets on Craigslist and meeting your buyer in person instead of selling the tickets entirely through TicketMaster.
Although DEX proponents claim that this is a way to avoid the pitfalls of centralization, there’s considerable debate about the popularity of DEXs and whether the benefits of using these fairly obscure platforms outweigh the risks (namely, misplacing your digital assets). Given the rudimentary nature of many existing DEXs, users should be extremely cautious when using such platforms.
[mailto filter=”Jargon” subject=”De-jargonize this…”]Heard a new crypto term? We can tell you what it means.[/mailto]
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Please send news, tips, and ether bicycles 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, Oliver Staley, and John Detrixhe and edited by Oliver Staley and Jason Karaian. Americans, remember to vote.