[header date=”13 November 2018″]Vitalik Buterin is not impressed by the IBM blockchain, Paul Krugman and Kathryn Haun debate crypto, and lessons are learned from the SEC’s DEX action.[/header]
On the record: Vitalik Buterin
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At Devcon4 in Prague, Ethereum founder Vitalik Buterin discussed what he’s reading, why he’s not a fan the IBM blockchain, and what blockchains might be good for. He spoke with Quartz’s Matthew De Silva.
Quartz: Tell me about what you’re reading.
Buterin: On my flight here, I read a book about democracy in Mongolia. I was visiting the Santa Fe Institute last month and this was one of the interesting books that they had on their bookshelf.
Let’s see. I also got a copy of [George Mason University economist] Tyler Cowen’s “Stubborn Attachments.” It basically says that we need to have more confidence in the ideas of economic growth and progress.
Rather than calling Ethereum the “world computer,” Ethereum Foundation research scientist Virgil Griffith suggested calling it “an arena where we can play positive-sum games.” How would you describe Ethereum today?
Hmm… It’s both. I still think the “world computer” thing is a good analogy. The idea that you have this kind of shared computing environment that anybody can build and run stuff on is still a totally legitimate and valuable thing to emphasize. Ethereum—and blockchains in general—are fundamentally about enabling cooperation, which is basically saying the same thing as “positive-sum games.”
A lot of organizations are simply using Ethereum for marketing hype in places where blockchain doesn’t make a lot of sense. For instance, the World Food Programme. What do you think of those applications?
It’s sometimes for marketing hype. Sometimes it’s just people who are genuinely excited about blockchains and kind of want the thing that they’re personally excited about and the job that they have to spend half their time at to align more with each other, which is a totally legitimate kind of human thing to want to do. In some cases, I think it leads to a lot of wasted time.
What’s been particularly wasteful?
A lot of the big corporate blockchain stuff. I read this CoinDesk article about some IBM blockchain thing. I don’t understand this deeply, but the detail that jumped out at me is they’re saying “Hey, we own all the IP and this is basically our platform and you’re getting on it.”
And like, that’s… totally not the point….
[Read more about IBM’s blockchain developments at CoinDesk and Forbes.]
What do you think of the IBM blockchain for food?
The potential value of tracking food on a blockchain is like basically that you’d get QR codes stamped on the thing at every step on the way, and that you as a consumer can just like scan the code and you’d get some confirmation about like “here is where the stuff came from.” Like, I can check if it complies with my own like moral values or standards for quality and so forth.
There’s definitely something there, but whether or not any of the actors there are doing it remotely correctly, I’m much less sure.
What if the person at the very start—the farmer or whomever—isn’t putting the right information on the blockchain?
Yeah, that’s true. But blockchains definitely make it harder to contradict yourself. They definitely do add on to the guarantees that you have.
But blockchains are a neutral tool, not arbiters of truth.
They definitely don’t provide 100% guarantees of things, especially in the real world.
Doesn’t the incentive have to be aligned for a corporation or group of corporations to institute a blockchain-verified process?
Yeah, that’s definitely one of the challenges. There’s definitely plenty of companies that try to establish higher standards.
From a marketing standpoint, that makes sense.
Exactly, higher standards of reliability as a differentiator. That exists. But, like I’m not claiming that this model is going to be viable at all in every industry.
What industries do you think blockchain is most viable for?
Cryptocurrencies and making international payments easier. All of the other ideas, whether we’re talking about products or the self-sovereign identity stuff, that’s clearly something that still needs much more time to be worked out before we can see [whether it] makes sense at a large scale.
Going beyond money, I think the value is that you create a token and you immediately have access to wallets, multi-signature wallets, decentralized exchanges, and just using it as collateral—all of this infrastructure that you wouldn’t have access to if you just created a currency and tried launching it off your own server. And I think that’s real value.
I feel like actual utilities in the space are going to start getting closer to things that are more purely digital.
This interview has been edited for length and clarity.
[supplemental headline=”Lessons from EtherDelta”]
Last week, the US Securities and Exchange Commission (SEC) fined Zachary Coburn, founder of EtherDelta, nearly $400,000 and charged him with operating an unregistered national securities exchange. Although EtherDelta is a decentralized exchange (DEX) which runs on smart contracts on the Ethereum blockchain, the fine indicates the SEC believed Coburn was ultimately in control of the trading platform, even if much of the activity was essentially automated.
According to the SEC, EtherDelta processed more than 3.6 million trades under Coburn’s watch, so depending on how you view it, $400,000 is either a hefty penalty or a light slap on the wrist. As noted by attorney Marco Santori, president and chief legal officer for Blockchain (the cryptocurrency wallet company), it’s not clear how many of the 3.6 million trades were trades of securities. Whether tokens distributed during initial coin offerings (ICOs) are securities—and represent investments—has been a longstanding point of contention in the crypto legal community. Some experts argue that certain tokens are more like goods or services than investments. (If, for instance, you purchase a token that entitles you to storage space on a decentralized network, is that an investment or a service?)
Either way, according to Santori, EtherDelta’s experience “supports common wisdom among attorneys today: DEX [decentralized exchange] is not a good way to escape securities laws.” Another crypto attorney, Brian Klein, a partner at Baker Marquart LLP, was more critical, saying that “the SEC is trying to create policy through enforcement actions.”
Although the SEC did not say which tokens traded on EtherDelta are securities, Peter Van Valkenburgh, director of research for Coin Center (a crypto lobbying group), said EtherDelta supported tokens like Centra, which has “already been the subject of SEC enforcement actions.”
The SEC’s actions signal that the agency is ready to insert itself in blockchain-related investor protection matters, which should encourage ICO investors and cryptocurrency traders alike. When everybody’s making money, few people ask questions, but as ICOs tumble a strong regulator should be welcomed.
For more on decentralized exchanges: A Twitter thread by James Spediacci, a blockchain investor who bought ether at 30 cents.
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Watch this
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Kathryn Haun, a former US prosecutor turned venture capitalist at Andreessen Horowitz, is a big believer in the future of cryptocurrency. Paul Krugman, a Nobel Prize-winning economist and New York Times columnist, is a skeptic. The two tangled in a live debate in Mexico sponsored by Versus by KIO Networks. Journalist Rodrigo Pacheco moderated.
Here’s a taste:
Krugman (4:44): “As best as we can tell, the dollar value of bitcoin transactions peaked at the beginning of this year and it’s fallen substantially since then. There’s very little sign that it’s becoming any kind of widespread means of payment, and that’s 10 years on. So when is that going to happen?”
Haun (14:53): “Look at millennials: Their confidence in banks and financial institutions and government institutions is at an all-time low. One out of three millennials would rather own bitcoin or cryptocurrencies than stocks… The other thing I think about, as a former prosecutor, centralization to me equals honeypot. Because it’s one central place, let’s go hack it. The blockchain has never been hacked.”
[supplemental headline=”De-jargonizer: Nocoiner”]
A “nocoiner” is a person who doesn’t own any cryptocurrencies, and—at least in the eyes of bitcoin proponents—actively tells everyone who will listen that cryptocurrencies are the world’s biggest scam. In the crypto world, nocoiner has become a pejorative term, meant to signal that somebody is either willfully ignorant or maybe just plain stupid.
But some nocoiners wear the label with pride. After all, it acknowledges their passion and contrarianism within the already deeply contrarian crypto sector. Indeed, it takes conviction to engage with the crypto community and yet continuously proclaim that bitcoin isn’t the seed of a financial revolution.
Some of the most famous people dubbed nocoiners include economist Paul Krugman (see above), NYU professor Nouriel “Dr. Doom” Roubini, and vice chairman of Berkshire Hathaway Charlie Munger.
It’s important to recognize that even if a person is a nocoiner, that doesn’t mean they’re anti-innovation (no matter what the crypto masses would have you believe). A nocoiner simply believes the prices of cryptocurrencies are unjustifiably high and that, practically speaking, at the moment they have little purpose beyond speculation.
[mailto filter=”Jargon” subject=”De-jargonize this…”]Were you ever a nocoiner? Know somebody who still is?[/mailto]
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