My Thoughts on Blockchain

Why blockchain?

This is a common question that gets asked by industry observers, at a time where business leaders are charting a vision yet to be realized by a nascent technology that is still actively scaling and evolving as we speak. The adoption of blockchain technology impacts all of us, as developers, business leaders, regulators, and members of the public. This article attempts to canvas what the impact of blockchain would mean to us all.

Why would developers care?

In turn, because real world use cases are not apparent yet, blockchain begets the question of what kind of networked software will eat the world. a16z luminaries such as Chris Dixon presents a case of market force disruption as to why developers would choose to develop on decentralized blockchain networks vs centralized platforms:

“Centralized platforms follow a predictable life cycle. When they start out, they do everything they can to recruit users and 3rd-party complements like developers, businesses, and media organizations. They do this to make their services more valuable, as platforms (by definition) are systems with multi-sided network effects. As platforms move up the adoption [curve], their power over users and 3rd parties steadily grows.”

The easiest way to continue growing lies in extracting data from users and competing with complements over audiences and profits. Historical examples of this are Microsoft vs. Netscape, Google vs. Yelp, Facebook vs. Zynga, and Twitter vs. its 3rd-party clients. Operating systems like iOS and Android have behaved better, although still take a healthy 30% tax, reject apps for seemingly arbitrary reasons, and subsume the functionality of 3rd-party apps at will.

For 3rd parties, this transition from cooperation to competition feels like a bait-and-switch. Over time, the best entrepreneurs, developers, and investors have become wary of building on top of centralized platforms. We now have decades of evidence that doing so will end in disappointment. In addition, users give up privacy, control of their data, and become vulnerable to security breaches. These problems with centralized platforms will likely become even more pronounced in the future.”

Monopolistic behavior in any marketplace would breed anti-competitive behavior. As a tech company grows in size to the scale of Facebook and Google, they are able to easily wipe out any threats to their market share by acquiring their smaller competitors and lessen external innovation, tipping the scales of power in their favor.

Competitive market forces exist with any network model, whether centralized or decentralized. The highest performing network that adds the most value to its builders and users will prevail.

Another case for decentralized networks is based on the digital path to a more democratic ownership of user data and trust minimization, as described by Mark S. Miller and Marc Stiegler:

“The ideal of [the rule of law] was of a neutral simple framework of rules, enforced impartially and justly, providing for cooperation without vulnerability -- protecting individuals from each other while enabling them to cooperate with each other. A key means of enabling cooperation was the original right of contract, where almost any mutually acceptable arrangement could be made binding, with the law serving as the mutually trusted intermediary for securing the arrangement. With smart contracts, the encoded rules themselves become the logic of their own enforcement, subject only to the honesty, not the judgment or skill, of a diverse market of competing contract hosts. This competition forms a vastly stronger and fully decentralized system of checks and balances.”

Nick Szabo highlights the aspect of trust minimization driven by consensus-based protocols:

“It's actually the protocol (Nakamoto consensus, which is highly distributed) combined with strong cryptography, rather than just decentralization per se, that is the source of the far higher reliability and much lower vulnerability of blockchains. The cryptography provides an unforgeable chain of evidence for all transactions and other data uploaded to the blockchain. Many other decentralized or peer-to-peer (P2P) technologies do not provide anything close to the security and reliability provided by a blockchain protected by full Byzantine or Nakamoto consensus and cryptographic hash chains, but deceptively style themselves as blockchains or cryptocurrency.

A big drawback is that our online and distributed blockchain computer is much slower and more costly than a web server: by one very rough estimate, about 10,000 times slower and more costly, or about the same as it cost to run a program on a normal computer in 1985. For this reason, we only run on the blockchain that portion of an application that needs to be the most reliable and secure: what I call fiduciary code. Since the costs of human ("wet") problems caused by the unreliability and insecurity of web servers running fiduciary code are often far higher than the extra hardware needed to run blockchain code, when web server reliability and security falls short, as it often does for fiduciary computations such as payments and financial contracts, it will often make more sense to run that code on the block chain than to run it less reliably and securely on a web server. Even better, the blockchain makes possible new fiduciary-intensive applications, such as posting raw money itself to the Internet, securely and reliably accessible anywhere on the globe - apps that we would never dare do with a web server.”

Developers now have the opportunity to build upon a technology that levels the playing field with increased network effects for quicker feedback loops to drive improvements, aligned by the network’s tokenomics. This reinforces the states that flow between humanity and technology: freedoms of choice, trust minimization and fairness at scale -- giving developers more equitable incentives as a network grows, in alignment with community incentives to grow the network. This decentralization of power shifts the pendulum back from monopolistic markets to society at large. Gavin Woods, former CTO of Ethereum describes the future of a blockchain-powered Web 3.0 as follows:

“The protocols and technologies on the Web, and even at large the Internet, served as a great technology preview. They each helped contribute to the sort of rich cloud-based applications we see today such as Google's Drive, Facebook and Twitter, not to mention the countless other applications ranging through games, shopping, banking and dating. However, going into the future, much of the core technology will have to be re-engineered according to our new understandings of the interaction between society and technology. ..

Consensus engines will be used for all trustful publication and alteration of information. This will happen through a completely generalised global transaction processing system. The first workable example of which is the Ethereum project.

The traditional web does not fundamentally address consensus, instead falling back on centralised trust of authorities, such as ICANN, Verisign and Facebook, and reducing to private and government websites together with the software upon which they are built.

The … final component to the Web 3.0 experience is the technology that brings this all together; the 'browser' and user interface. Funnily enough, this will look fairly similar to the browser interface we already know and love. There will be the URI bar, the back button and of course, the lion’s share will be given over to the display of the ?App.

Due to the ever-transient nature of the information made available to the browser automatically and accidentally through the update of the consensus back-end and the maintenance of the peer network, we'll see background-?Apps or ?Applets play a great role in our Web 3.0 experience. Either through always-visible Mac OS dock-like dynamic iconic infographics or dashboard style dynamic ?Applets, we'll be kept accidentally up to date about that which we care.

After the initial synchronisation process, page-loading times will reduce to zero as the static data is pre-downloaded and guaranteed up to date and the dynamic data (delivered through the consensus-engine or p2p-messaging-engine) are also maintained up to date. While being synchronised, the user-experience will be perfectly solid though actual information shown may be out of date (though may easily not, and can be annotated as such).

As a user of Web 3.0, all interactions will be carried out pseudonymously, securely and for many services, trustlessly. Those that require third party(-ies), the tools will give the users and ?App-developers the ability to spread the trust among multiple different, possibly competing, entities, massively reducing the amount of trust one must place in the hands of any given single entity.

The changeover will be gradual, on Web 2.0, we'll increasingly see sites whose back-ends utilise Web 3.0-like components such as Bitcoin, BitTorrent, NameCoin. This trend will continue and the truly Web-3.0 platform Ethereum will likely be used by sites that wish to provide transactional evidence of their content e.g. voting sites and exchanges.

Of course, a system is only as secure as the weakest link and so eventually such sites will transition themselves onto a Web 3.0 browser which can provide end-to-end security and trustless interaction.”

Current challenges in blockchain adoption remain: scalability and performance. Great work is being done in this space to improve these issues - new, high performance and interoperable blockchains are being created by developers, such as Cosmos’ Tendermint protocol, which Binance is using to build their new DEX. Blockchain projects are competing for top blockchain engineering talent globally. Aside from permissioned blockchains, protocols with the best alignment for developer community incentives and a great leadership team, would have a competitive edge (consensus models such as DPOS, POS, POW are a whole other topic, for another time).

My foray into blockchain as a business user

I discovered blockchain as a fintech vertical in 2016, alongside P2P lending, mobile payments, AI, and more. I had been in the intersection of tech startups and finance for years prior to that, and immersing myself fully in the fintech industry was a natural transition for me. In my time at Fintonia, I pored over hundreds of different business models seeking to disrupt financial services with their prop tech, or building upon existing PaaS. I even went so far as to enroll in MIT’s 6 month Fintech Course, and was part of the second cohort in 2016. I made great connections there, some of whom are involved in blockchain today, such as Hock Lai, Kevin Pang and Branson Lee.

My first reading on blockchain was surprisingly not the Satoshi whitepaper, but an MIT paper titled “Blockchain & Financial Services: The Fifth Horizon of Networked Innovation” by Dr David Shrier, which formed part of the MIT Fintech curriculum. This paragraph piqued my interest:

“Blockchain represents a technology innovation that enables transparent interactions of parties on a more trusted and secure network which distributes access to data. Although the technical components have been in existence for decades, blockchain is a novel, resilient, and ubiquitous approach to data, transaction analytics and networks. It holds the potential to address inefficiencies, reduce cost, unlock capital, improve trust in societal fabric, and open new business models. It also could accelerate the growth of the informal economy or even criminal elements of societies, complicating efforts of governments to provide security and safety to their citizens. Like any new technology, it holds the potential for good and for harm, and benefits from an enlightened, informed, and ethical application by its users.

Blockchain has generated extensive interest and enthusiasm in financial markets. Why? Trust and confidence in the promise to meet the obligations is the cornerstone of any financial transaction. Substantial parts of financial markets are designed to solve for trust and asymmetry in the financial transactions through the risk management infrastructure.”

In their Fintech 2.0 Paper, Santander InnoVentures, Oliver Wyman and Anthemis Group stated that “distributed ledger technology could reduce banks’ infrastructure costs attributable to cross-border payments, securities trading and regulatory compliance by between $15-20 billion per annum by 2022.”

Common themes emerge within the application of blockchain technology -- one of transparency, statefulness as a technology of trust, cost efficiencies, and reduction of counterparty risk, which is so critical to financial markets.

Within fintech, blockchain-focused entrepreneurs are excited by opportunities to enable financial inclusion, particularly in growing new crypto asset markets to bridge underbanked markets to international flows of money more seamlessly at virtually zero transaction cost. For developed markets, there is the aim of financial wellness, or full financial freedom -- either by trading crypto tokens or taking up jobs created within the industry. At an institutional level, banks and governments are experimenting with distributed ledgers to improve settlement capabilities and build more secure, decentralized infrastructure for financial market operations. Examples include Ripple and Project Ubin by the Singapore government.    

Regulators: on balancing innovation and protecting the public

Regulators exist to protect the public. Public interest, as humorously illustrated by John Oliver, has mainly revolved around Bitcoin and crypto tokens as tradable assets with volatile pricing. There is also perennial debate of crypto assets as a form of money (see Nick Szabo’s blog on the analogy of private money). The ICO market boom has helped fuel speculative interest in crypto tokens, scarring many participants in the process, which led to regulators stepping into issue cautiously positive statements (see Ravi Menon’s speech here and Christine Lagarde’s speech here) or actively begin regulating the crypto space, such as the SEC’s stance on ICOs, which states that “ICOs, based on specific facts, may be securities offerings, and fall under the SEC’s jurisdiction of enforcing federal securities laws.” SEC enforcement efforts are currently helmed by Valerie A. Szczepanik, who demonstrates a nuanced, balanced approach towards regulation and innovation in the crypto space.

It is worth noting that Singapore, as a global fintech hub, continues to spearhead a progressive fintech agenda that includes blockchain innovation. This is evidenced by the government’s own DL experimentation with Project Ubin, and MAS’ balanced, stable approach towards crypto tokens. Open dialogue and continuous engagement on how to shape the regulatory debate around crypto with industry bodies such as ACCESS, banks, and regulators are also encouraged. As a result, many blockchain projects and crypto platforms have set up operations here, among them Ziliqa, Kyber, Huobi, Binance, Liquid and more, creating high tech jobs for Singaporeans and prospering the nation’s economy.   

Capturing the imagination of the world: why Bitcoin?

One of my favorite reads on blockchain is Andreessen Horowitz’s thesis on Bitcoin, a more familiar topic that has captured the imagination of the public and created new markets for hundreds of tradable crypto assets. Horowitz’s thesis gives a good primer into the Byzantine General’s problem and how Bitcoin’s ledger logic resolves this:

“Bitcoin is the first practical solution to a longstanding problem in computer science called the Byzantine General’s Problem. To quote from the original paper defining the B.G.P.: “[Imagine] a group of generals of the Byzantine army camped with their troops around an enemy city. Communicating only by messenger, the generals must agree upon a common battle plan. However, one or more of them may be traitors who will try to confuse the others. The problem is to find an algorithm to ensure that the loyal generals will reach agreement.”

More generally, the B.G.P. poses the question of how to establish trust between otherwise unrelated parties over an untrusted network like the Internet.

The practical consequence of solving this problem is that Bitcoin gives us, for the first time, a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer. The consequences of this breakthrough are hard to overstate.

What kinds of digital property might be transferred in this way? Think about digital signatures, digital contracts, digital keys (to physical locks, or to online lockers), digital ownership of physical assets such as cars and houses, digital stocks and bonds … and digital money.

All these are exchanged through a distributed network of trust that does not require or rely upon a central intermediary like a bank or broker. And all in a way where only the owner of an asset can send it, only the intended recipient can receive it, the asset can only exist in one place at a time, and everyone can validate transactions and ownership of all assets anytime they want.”

Nicolas Taleb, author of The Black Swan calls Bitcoin “an insurance against an Orwellian future.” This brings me to my final point, the impact of blockchain in our communities.

Community

Bitcoin, alongside with other crypto tokens, have sparked the imagination of millions of people, who have rallied to support crypto projects globally. 

As a marketer, I have never seen a fintech revolution that has sparked such a global movement. We had nationalities from > 150 countries participating in our ICO in 2017. I have personally witnessed, grown and am part of blockchain movements that have actively galvanize communities, whether in my capacity as a first mover marketer at Liquid or as the co-head of the ACCESS subcommittee.

The ability of a blockchain project to cultivate strong communities with the right token incentives create network effects that ripple across the world, prospering underserved markets that do not have access to traditional banking services. People are able to make micropayments in crypto globally, at almost little to no cost, wallet to wallet in real time. This provides a safer haven of earnings for people living in tumultuous political regimes with destabilized domestic currencies and where no fintech app or financial services infra is able to reach.

I’ve personally witnessed lives transformed through crypto. A Indonesian community manager is able to quit his full time job at a local bank, to stay home and take care of his baby, and get paid in crypto based on a USD peg. He is able to spend more time with his family working from home vs wasting hours commuting in the horrendous traffic to and from his office, as well as derisk his earnings from the volatility of the rupiah. Entrepreneurs are able to take on more risk to innovate on blockchain technology with the support of a strong community. Certainly, Vitalik or Charlie Lee would not be where they are today were it not for their strong developer base and highly engaged communities. Millennials, who are turning away from banks, are more open to crypto as a currency or investment.

An aligned vision of communities, businesses and regulators for a better future together will help drive mainstream adoption of blockchain technology and cryptocurrencies in a safe and sustainable manner.