Ethereum's Joseph Lubin: "I Have a Really Cool CryptoKitties T-shirt"

So, hi, Joseph, it's very nice to meet you here. Thanks for being here with us. Tell us please, a little bit about the story behind ethereum.

In around 2012, things were gaining momentum and lots of different people around the world in the Bitcoin space started thinking, hey, this is an amazing database technology breakthrough. Not only does it enable people to be incentivized to share their resources to validate transactions and secure a network, but it provides this trust layer that we've never had before. So radically decentralized trust layer, so that people could interact with one another, transact with one another if they were competing or if they didn't even know one another and still have full trust in those transactions. So Bitcoin contemplated that sort of thing only for money, basically, cryptocurrency. And lots of people in 2012 felt, hey, we should be using this for all of our software systems. And so different things were tried. Colored coins, meta protocols, other blockchain systems Vitalik Buterin was working on. He might be right down there. He's somewhere in the vicinity. He was working on a few different. They were called Bitcoin 2.0 projects. They later evolved to be called blockchain projects. But he was working on Bitcoin 2.0 and came up with the description for the Ethereum platform that was essentially the most elegant, most powerful description of a blockchain platform up to that point. It contemplated having a computationally complete virtual machine at every node of a peer to peer network, separating the protocol layer from the application layer in Bitcoin. Up to that point, there was no separation of application from protocol, really. If you wanted to build some new app into Bitcoin or into another blockchain system, you had to do it at the protocol level. You needed a protocol priest to figure out how to fiddle a bunch of bits and architect things and create a new operation code in there, and then you'd have to create some user interface for it. So separating the protocol layer from the application layer enabled essentially millions of software engineers to not worry too much about what's going on at the protocol layer and just build with tools similar to what they're used to using when building web applications and mobile applications and identify their own problem and build their own solution. And that ended up working out pretty well because the Ethereum application layer developer base is about 40 times larger currently, according to Gartner, than the number two blockchain system, which is IBM's fabric.

And how did you meet Vitalik? How did you decide to fund?

So I'm from Toronto. Vitalik's from Toronto. I was home in December 2013, visiting family over the Christmas break, and met Vitalik about a month after he wrote the white paper describing Ethereum. Talked for a while that day. I read the white paper that night and stayed close to the growing group of people that was excited about the project. And a few weeks later we all got a house together in Miami and restructured the project. A couple days later we were basically there for the North American Bitcoin Conference in Miami and Vitalik was scheduled to deliver the Ethereum paper that he'd written. First phase of the project was structured there.

What was the most challenging time for the Ethereum network so far?

I think there are lots of challenging times for the project. It was unprecedented. Many people said it could be. Many people said it was stupid to do it because the attack service would be so big and fuzzy. And it's turned out to be a remarkable success, in my opinion. And it's still very immature. It's still very young. We are in kind of phase one of the blockchain space still, where we have these networks where all the full nodes basically have to hold all the data and process all the transactions. We're just moving for Ethereum into phase two, where we keep that not very scalable, radically decentralized trust layer. We add a layer two for scaling on top of that so that we can have 20 transactions per second in this trust layer, but we can have hundreds or thousands of transactions per second in state channels or sidechains at layer two. And so that's available now. Lots of projects are building that out. Some projects are released already using state channels and plasma is available. Different side chain mechanisms are available. If there have been difficult times for the Ethereum project, let's say technically difficult times, it's absolutely necessary. The Internet protocols evolved, the web protocols evolved because software developers were pushing on them. For decades we've had scalability concerns in information technology, and so we need to keep throwing too much at the network so that we know exactly where the weak spots are, where the bottlenecks are, and how to architect things so they can handle bigger, better applications.

There are a lot of projects right now that move from Ethereum network to create their own, like Tron, for instance. What does it mean for Ethereum?

Well, I guess it establishes Ethereum as a great birthing or launching ground for a whole lot of projects that are exploring the solution space. And I think that's really valuable. The Ethereum ecosystem is orders of magnitude larger than other ecosystems. And the mechanism is much more expressive, much more powerful than any other blockchain out there right now. The Ethereum set of teams, the many set of teams that work at the protocol layer are very open and agile and have demonstrated that they can take technologies like ring signatures or ZK snarks that are developed elsewhere and move them into Ethereum as it makes sense. So I think there should be many different projects in our ecosystem exploring how to do things. And it doesn't need to be on Ethereum, but we're paying attention.

What about the recent SEC hearing establishing the Ethereum as not a security?

So it wasn't a hearing, Bill Hinman just delivering a talk at a San Francisco event.

And so how did you feel about that? Were you feel stressed about what might happen if it were established as a security?

We were extremely confident that it would never be seen to be a security. We did a huge amount of legal work, about seven months of legal work back in 2014 before we launched the Ether Token launch. So we're confident that it never was a security. The sale did not constitute the sale of an unregistered security to Americans. And we're confident that the Ether Token has never been a security. We understood the ramifications if they declared it a token, then there'd be some issues around where the Ether Token could trade. But the ecosystem's already so enormous, established, decentralized, that you can't really stop that sort of thing. There would have had to have been some adjustments. But we also been talking to regulators around the world for a long time and the SEC knows what they're talking about. We were confident that they would understand how we test maps onto this particular instrument and how the nature of the decentralized ecosystem ramifies on their decisions. And so what was even more exciting about what Director Hinman said was that I think they sort of consider Ether to be in a new class of tokens, consumer utility tokens, that essentially enable this new networked business model to be pioneered. So a different way of humans organizing for collective commercial action, where I'm not necessarily making an investment and relying on a third party to increase the value of my investment, I am buying something, a utility and participating in a network of activity. I'm adding value to that network of activity. And if we together create this protocol based open platform, and we're building a whole lot of those things at our company consensus, and it is held together logically by a token that has certain characteristics on that platform, none of which constitutes securities, then if that token or if the network itself gets utilized heavily, then supply and demand will cause that network to become much more valuable. So if we're all contributing in our different roles to that network business model, we can all make it more valuable together.

So if it's transferring to this consumer network, right, and if it's an asset of consumer utility that you said the new asset, should it be also regulated or just you feel like the regulator is not really sure about how to approach this new type of.

So it is regulated. In a sense it is. There are laws in lots of countries. There are money transmission laws, kyc, aml. This kind of activity does not currently fall under any specific detailed requirement for regulation or guidance. And so unless it's operating say in the pharmaceutical industry or something like that, there doesn't seem to be any reason to regulate it any more than you would regulate a bowling club or something like that.

What about Consensys? Can you tell us a little bit about Consensys? What does the company do? What's your role in it?

So Consensys was started about three and a half years ago, one year into the Ethereum project. We're getting to the point where it looked like we were going to release version one of the platform, but there weren't a lot of people building applications. So we started it to start building applications. We started building a few applications. We realized it was hard to build applications with no developer tools for a platform that wasn't really yet released in an ecosystem that didn't exist. And we started building those developer tools. We started building infrastructure to support applications, things like Metamask and Infura, which currently handles about 8 billion queries per day from the public Ethereum and IPFS systems. So Ethereum is a network that handles somewhere between 800,000 and a million transactions a day. Currently that's about 80% of all the transactions in the blockchain space. But those are writes against the database. So transactions change some sort of data on the blockchain. But there's so many applications that read data and do logging events and other kinds of queries on the data and you don't have to do a transaction for those things. So that's how you get from say 1 million to about 8 billion. And so we built that infrastructure. We build other products like Uport self sovereign identity and reputation systems and accounting systems and governance tools and we build many of these protocol based open platforms so in the adjacent music industry and longitudinal health data in bounties network and so lots of these Things that are essentially, they're not all running with the token right now, but they're all moving towards basically defining a protocol and turning it into an open platform. So lots of businesses can operate on these, on these platforms. So that's the product side of the company. We also do enterprise and government consulting. It's nearly all on Ethereum. So we do a huge amount of Ethereum focused work for the public blockchain ecosystem, but we use the exact same technology in work with corporations. We've done work in energy, banking, insurance, healthcare, supply chain and education and lots of work with government as well. So a couple different central banks and zug where we are right now, our identity system uport is being used for citizens to access government services and to vote in plebiscites and done a bunch of work in Dubai in the Smart Dubai Smart City project and land registry work and be sort of manager of the European Union Blockchain Observatory where we're interacting with lots of member nations and helping drive thought leadership there. And our education group Consensus Academy, we've graduated 120 blockchain engineers and a bunch of lawyers in a continuing legal education course. Other kinds of learners from different institutions. We currently have about 800 people in an online cohort right now and another 100 or 200 people in a course based in India right now. So we're and on the capital market side of a group that's building a foundational layer for custody. So custody of value tokens is essentially the big issue that's holding a bunch of serious legacy world financial institutions from jumping heavily into this space. They need a really good narrative around how their value tokens are being stored.

Are you consulting them or.

So we're building a product. So some people from sophisticated banks, some of them organized in this country, Switzerland, and some organized in America. And it's an outstanding team and we think we're going to have a breakthrough product for custody that can serve as the foundation for lots of things. You can build exchanges on top of that we're working on that sort of thing. We have a group called Token Foundry. So we've done token launches of investor tokens securities, we've done token launches of consumer utility tokens and we are beefing up our ability to do a lot of both of those. And so we've actually pioneered this notion of a technologically accredited token buyer. So that essentially Director Hinman in that talk that he gave, he pretty much indicated that if you architect your token correctly and you market it correctly, then it would not be seen by the SEC to be a security. And every situation is different. So we can architect it correctly. But if you take a well architected token and then you sell it in huge quantities to investor types at discounts, and you put billboards up in Times Square, all over Facebook. Exactly. So that might be seen to be an investment. If people are led to believe that they're going to have their purchase grown in monetary value by the agency of others, then that could be considered a security. So we have this infrastructure that will ensure that we're not selling tokens or the different projects aren't selling tokens in excess quantities to investor types. You're going to have to know the technical details of how to use the tokens. You may have to pledge that you are using the tokens. Tokens may not even be tradable until you've actually used them on the platform. So we've built that infrastructure.

If you want to fund your own company, is an initial coin offering the best way to do that, in your opinion?

It's too general a question. If it makes sense, talk with some experts.

So you think it's.

We don't really think about these token launches as ideal funding mechanisms. We think about them as ideal mechanisms for doing what we call incentivized mechanism design. So mechanism design is the pursuit where you have system designers defining the goals of the system, setting up rules for the system, such that the different selfish actors in the system, according to game theoretic principles, act selfishly and ultimately interact with one another to accomplish the goals of the system. So these crypto tokens are incredibly valuable for incentivizing that sort of behavior and enabling these rules to work. And a really nice side effect is that you can architect your project such that you sell a bunch of these tokens to participants in your system, and you can use that money, indeed to build your project.

During the interview, bitcoin developer Jimmy Son said his term for recent feud with you. He said that in five years.

Recent feud?

Yeah, I would say.

Do you call it a feud? We're not feuding.

Okay, what's that? Is that a dialogue?

So, yeah, we. At the consensus event in New York, we were on stage to get together and we decided that we would enter into a bet. We haven't figured out the terms of the bet.

I'm sorry, for the definition then.

Exactly. And he believed that nothing significant would be built on blockchain systems except bitcoin. Bitcoin is sort of the final word in sophistication for blockchain systems, according to Jimmy. And I said, there will be lots of sophisticated systems built on blockchain, and we have to figure out the details of the bet. I kind of figured he'd drop it because it's just so overwhelmingly obvious that sophisticated systems will be built. But then I think he went on Laura Shin's podcast, and I was asked to be on it sort of at the last minute, and I couldn't make it. But I think we're trying to arrange for Laura to help us negotiate the terms of that.

Vitalik was speaking at the tech ranch here earlier, and he said that, and I quote, I hope that centralized exchanges would burn in hell as much as possible. So my question is, where do you stand on crypto exchanges?

So I think that there are lots of different applications that humans need to build. Some of them should be architected, all of them should be architected appropriately. And centralized systems are appropriate architectures for certain applications. I think what Vitalik's trying to get at is that there are certain vulnerabilities that centralized exchanges have in certain ways to take advantage of traders on those exchanges, and there's also better user experience on those exchanges right now. So you can't do high frequency trading on blockchain systems yet, but I think we're going to get there. So I think we should keep adding more decentralized mechanisms into these exchange systems. We can also partition the different trading use cases. So there are lots of people that don't need a high frequency trade execution. They just want to buy a token and hold it for a long time. They should probably use decentralized mechanisms with better pricing mechanisms, so you can get rid of a lot of the vulnerabilities on those kinds of exchanges. But we still need more efficient architectures for other kinds of traders. And so hopefully all those applications move into decentralized mechanisms over time when the technology handle it.

So are you a crypto trader yourself?

No, no. Why? I've done. Oh, because I work. Work for a living. Oh.

Oh, no.

I mean, because I. I work 16 to 20 hours a day and don't have time to day trade.

Okay. And.

But I. I know how.

Yeah, you do know.

I know how to move tokens around. I've done that before. Okay.

And any promising project, except, of course, Ethereum and Cons sensors that you look up to in the industry.

Many. So many. I mean, we have a lot of projects going on, so. Solarius, Ujo, Uport, Governex, Metamask, Aletheo, Infura, Adchain. Yeah, the list goes on. And lots of these things are coming live, too. I mean, there's a couple high compute platforms, Golem, Sonam, iexec, a lot of ticketing mechanisms are coming alive. So it's a pretty exciting year. I think from here on we're going to see a lot of deployment of systems that have been under construction for a while on the main chain, and a huge number of sort of fun applications that that mostly in the gaming space, because it's a safe space to play in. So we're going to see a lot of that at the end of 2018 and into 2019. That will really drive a lot of interest on the network.

So I guess there is no point in asking whether you have cryptokitties.

My girlfriend has some cryptokitties and I have a really cool cryptokitties T shirt.

Cointelegraph like subscribe and Hodl.

Sam.