ichthyoid

In the 10th episode of Block Stars, David Schwartz continues his conversation with Coil CEO Stefan Thomas as they delve deeper into the Interledger Protocol and Coil.

As with my previous posts in this series, here are the summary and thoughts I have for the episode!

Episode Summary

In the days before the Internet, there were different systems for varying services. For example, broadcast and radio services were one system, while television media was another, and phone and telegraph systems were yet another. The Internet unified all these communication platforms into an accessible whole.

One can then ask the question of what this would look like for payments. Payments today are similarly fragmentized. Different types of companies or institutions fund or pre-fund their different services in mostly their own ways. Those ways actually tie up a lot of money, so that there's a lot of capital that isn't liquid. For Stefan Thomas, this is the way that Interledger Protocol (ILP) is going, to provide a unified infrastructure for payments for everyone.

For example, as Thomas frames it, “You can't build Skype until the Internet exists.” The ability to video chat with someone or even multiple people required that everyone has decently robust Internet access. So Coil was designed after ILP in this same manner. After building out and solving some initial problems with ILP, Coil was launched as a project built on top of it.

While at first reaching out to anyone and everyone who showed interest in working with Interledger, Thomas' team eventually settled on only using two commercial wallets. This was because having a multitude of companies competing on the small space of Interledger would not really bring the profit needed for them to survive. They are, of course, “laying the groundwork” for other people to use Interledger as well. However, it seems like the approach that the Coil team has had on Interledger (i.e. web monetization) is paying off.

At times, it may feel like the progress is slow. But as Thomas points out, the adoption of crypto and blockchain in the fin-tech and payments space over the past decade has exponentially increased. While the early days mostly saw speculative investors who were interested in the mining and inflationary value of Bitcoin, problem solving with crypto in payments became Thomas' focus through the years. This was perhaps due to his prior experience mentioned in the first part of this episode, where banking payment systems were so atrocious in comparison to the burgeoning Internet that Stefan felt he had to help change it.

Here, Stefan Thomas makes and argument for decentralization versus centralization. In the United States, where banking is very centralized, the banking system has had a positive impact on people in the sense that very few people in the US have difficulty transferring money, since they rarely transfer money around the world. However, a centralized system cares mostly about a majority, people who have a voice in their system. And so, in this way, a decentralized system would be of benefit for the minority, where a centralized authority won't really care to cater towards or go after. In a decentralized system, people can be rewarded for serving niches that can't be catered to by the majority.

Thomas, of course, works as both an ILP developer and community member as well as the CEO of Coil. While he wants his emphasis to be on serving the Coil community (as well as employees, of course), given that the way of payments is perhaps inevitably going towards some form of interconnected ledgers, he also wants to make sure that this direction is the most beneficial for as many people as possible. In regards to Coil, he states that the emphasis they believe in is the funding of media platforms that will probably benefit from the technology. And so, whether the actual blogging or video platform of Coil performs well, their roots in other companies will provide a lift for the whole, rather than relying on a single platform.

Both Schwartz and Thomas then share a couple stories. In Thomas' story, he talked about the beginnings of Ripple, when it was called OpenCoin, and didn't have its own office spaces. He reminisces how great it was to work with Ripple as a start-up, and opines gratefully for the opportunity to work at the company. Then, after some tongue-and-cheek ribbing, Schwartz shared that, as Thomas passed the Ripple CTO position to him, he told Schwartz that, as CTO, “You can say no”. In other words, the company has the option to do many things. But the key to success is focusing on a few things, or even just one thing.

My Thoughts

This was a much shorter episode than usual. But, wow, there's a lot that I actually want say about it, and not all of it is really positive. But let's start with the things that I liked most.

ILP and the Internet

Ripple is probably the most well-known for pushing this idea of the Internet of value—the idea that, just as global communication was revolutionized by the immediacy and universality of the Internet, so payments can as well. It was quite difficult for me to wrap my mind around this idea, until I was able to send XRP from one of my wallets to another. When that transaction was almost instantaneous, it was suddenly very obvious why this kind of system could take the world by storm.

There are very real and tangible applications for this kind of thing even now. Today, as in previous years, Wikipedia is asking for donations. Many non-profit, publicly supported, and very donation-dependent services and sites do the same thing year after year. For a site as big as Wikipedia, they state that just receiving $2 from every person that views their site would support them for years to come.

Now, Wikipedia does have Brave Rewards hooked to their site, which means they do receive some tips and contributions. But the way Brave works still requires a little bit more manual input from users than they are often willing to put in (as far as I know, most people want to save the BAT they earn from the browser, rather than auto-contribute it to any sites).

However, a platform like Coil, where payments are always streamed automatically from user to the site, would be a massive boon to Wikipedia and other similar sites. Not only would they receive consistent payments, but they would be constantly receiving them, and not dependent on a company or group like Brave. I don't have anything against Brave, of course (in fact, I recently reviewed their newly proposed advertising system). But streaming real-time payments in cases like this are clearly better than what Brave can currently offer.

Beyond that, what if a large part of the Internet ran on streaming payments? Suppose Coil was able to be integrated with services similar to Amazon Web Services and other server providers. These services could be paid, partially if not wholly, by the very users that visit the sites hosted on the servers. This would heavily discount the services required, allowing the creation of several new companies and businesses on both sides of the equation (i.e. site creators as well as web host companies). Such a change in the way things work, rather than purely relying on centralized advertising or subscription models, has the potential to bring a paradigm shift to the way we think and do payments globally.

The idea of the Internet of Value moving around in real time, powered by something like Coil, is a revolution waiting to be taken advantage of. And I'm excited to see where this will all go next.

Coil's Focus...or Lack Thereof?

But here is where I will need to be slightly critical of what was revealed in the interview. As an obvious disclaimer, I'm certainly not one who leads any kind of large business, or a developer that has been in the crypto since the beginning. So I can't claim to have any authority on this kind of stuff. I'm a simple blogger, using the very platform that Thomas and the Coil team have kindly created and given, and for that I am grateful.

With that caveat, let's get into the meat of it.

Stefan Thomas said a thing that both resolved a small conundrum I had about Coil, as well as made me feel extremely critical of the entire project. From his own words (14:13 on the podcast):

As far as Coil is concerned, I really want Coil to be successful, but we also try not to be too dogmatic about how. Like, for example, we invest in companies that are media companies where we think that they will do well if web monetization takes off because they will make more money. And so even if Coil itself doesn't become a very popular web monetization provider, we'll still have these stakes in other companies that are doing well in that system. So we don't have to be as ruthless competing for marketshare as a web monetization provider, hopefully. And I think that's more in line with these other goals that we have as well.

In previous blog posts, I've written about how I think the Coil blogging platform could improve. These were based on an assumption that I had that the service, being in Beta, was going to be improved upon until its official release. But having been blogging on here for about a year, I honestly haven't seen any improvements or even any real changes at all. Instead, outside of some interface changes, things have basically been the same. Now, I know why.

And I honestly feel slightly betrayed.

Perhaps I had false expectations. But as a creator, one of the things that entices me to use a specific platform is the promise that the people behind the service will actively try to improve it, based on the feedback it gets from its users. In this relationship, the creators and the developers of the service can have a push-pull relationship that can make the actual service better. That was what I was expecting as I began to blog and write on this platform.

One of the things that Coil offers (as well as Cinnamon) is something called the Coil Boosting Pilot, which offers to pay Coil creators a bit more incentive to continue to create on the platform by giving them an additional monthly payment on top of what they get from streamed payments. Full Disclosure: I am in this program.However, in full knowledge that I may be biting the hand that feeds me, I don't actually think of the boost program as something sustainable in the long run for me as a blogger. Instead, I think of it as a temporary boost to help keep me going until the platform gets a bigger audience, so that the streaming payments from that larger audience helps supplement income. And so, over the past year, I've looked at what I've earned outside of the Coil Boost program to see if that is, indeed, what is happening.

It isn't. I actually don't earn that much more now than I did when I first started blogging. Of course, there may be a number of reasons for this. My blog may be unappealing, my writing style too formal (I've been told this plenty of times), etc. And so, in leu of that, I continue to write and try to improve.

But now, hearing the CEO of the platform say that they aren't actually focused on the platform (the majority of the interview wasn't on Coil at all, but mostly ILP), and having not seen any improvements on the site nor my income, I've come to a point where I must seriously ask myself: is this what I want to continue doing??

I'm not really saying that Coil should or has to improve according to my own standards written in my various blogs and posts. And, certainly, I don't know what other Coil bloggers' incomes are like outside of the Boost program. But really, a lack of any improvement or change, and now the lack of intentional focus to make the product better as implied by both Thomas' comments and what I've experienced this past year, really irritates and grates me.

It makes me question whether this company is being run very well at all. After all, when I get into a product or service, my expectation is that it will represent the company that built it. If I were to take a look at what I've experienced so far, I can't really say I've been using a very solid service. I've only hoped that this will all turn out well. But, in my perspective, and from what I've heard from this interview, it doesn't look like things will improve any time soon.

At this point, I've noticed that this is just mostly a rant, with no way for me to end it. So I'll just end it here.

When we look at the world of the Internet today, the vast majority of it is powered by ad-based revenue. From Youtube to Facebook to Twitter to Spotify (and of course, others besides), almost every popular service used has some sort of basis in generating income from online advertising. And while subscription services like Patreon or Disney+ or even Coil are proposing to give an alternative to this kind of system, there are others who would rather make it better than replace it completely.

As my followers know, I've been following quite a few blockchain projects and talking about them in various posts. One of these has been Brave and the Basic Attention Token (BAT), a project created to combine blockchain technology with an Internet browser experience for a more secure, and privacy-oriented way to, well, browse the Internet. If you want to see some previous posts I've made on Brave in the past, you can take a look here and here.

In two recent blog posts (Part 1 | Part 2), the team behind Brave introduced an academic research project called THEMIS. The goal of THEMIS is to try to continue the effort to provide users with privacy-oriented ad-based experience by decentralizing the middle-man that is often the fundamental negative of the ad-based system we have today. And so, in this post today, I want to explain and explore THEMIS, and see whether it can indeed create the change it is purported to.

But first, let's talk about why ad-based revenue is broken today.

Online Advertising: A Broken System

Today, the vast plethora of Internet services are 'free' to use. This has led to one of the greatest revolutions in communications, as we now have near instant communication with the entire world through our computers, tablets, and other mobile devices. One can argue the merits of this insanely fast change in society, but it's difficult to make a general case to go backwards, barring an apocalyptic event that wipes out the vast data centers around the world.

Notice the quotations around the word free above. I put those there because, while most Internet services (especially social media services) don't put any financial burden on its users, what they do instead is obtain user data. This collected data is then used to incentivize advertisers onto their platform, so that targeted ads could be created that would entice those users to buy products. And so, user information and data have become the new commodities on which online income and revenue are based.

Note: there are other advertisement-based revenue schemes, such as influencer-sponsorships et. al. However, I won't be addressing those in today's post.

There are massive problems with this, with the most obvious being that user privacy and security are easily circumvented. When hackers and scammers gain access to these centralized platforms that store user data, they obtain access to private information, such as residency, job, income, etc. Such information can be used, not just for things like impersonation or fraud, but to gain access to almost everything else about that user, such as financial and other online accounts.

There is another big problem as well. Because advertisers are the ones that give these free platforms money (in order to use the data from those platforms to target ads), the platforms are also beholden to whatever the advertisers want. We saw this recently when many big advertisers participated in a boycott on Facebook. The company was thus pressured to remove so-called hate speech and fake news from its platform. I'm not going to argue whether those things were in fact hate speech or fake news, but rather, I'll point out that whether they were is irrelevant (practically speaking). The reality is that these companies defined certain posts and comments as such, and with the monetary clout they had over the platform, were able to push for the removal of such content from the platform.

Thus, among others, we have these problems of censorship and exploitation in ad-based online business models.

How Brave and THEMIS Work

The team behind Brave goes about solving these issues through their chromium-based browser, as well as the use of the Basic Attention Token (BAT), an ERC-20 cryptocurrency. The goal of BAT is to reward users for their attention on online advertisements, as well as creators that are affiliated with the Brave Creators program, while also preserving their privacy and data.

To do this, they've set up a system where users who use the Brave Browser can opt to receive ads on both mobile and desktop class devices. An advertiser uses a Brave Campaign Manager to purchase ads, which are then distributed to users who have opted in in the form of notifications. If a user clicks on these ads, they are taken to the ads' website, and rewarded with a small amount of BAT (as determined by advertisers). In this system, private user data never leaves the browser, and Brave servers never receive any information on user browsing habits or interests. Furthermore, advertisers can specify how much users are rewarded, but this information is also never shared with other advertisers.

This, of course, means that the Campaign Manager has to be a trustable entity, which is where THEMIS comes in. While not yet implemented, THEMIS takes the job of a Campaign Manager by being a blockchain system that facilitates funding and payments through smart contracts. Furthermore, while Brave is the only facilitator between advertisers and THEMIS currently, the THEMIS protocol will allow multiple other facilitators to interact with the system as well. Furthermore, because THEMIS is a proof-of-authority blockchain system, its functions and contracts can be viewed by anyone, making it open and essentially trust-less.

Interestingly, THEMIS is not based on Ethereum, but rather its own independent blockchain. This is due to the current state of the Ethereum blockchain being unscalable for mass adoption. As the team's intention is not only for multiple advertisers to be able to choose from a number of facilitator options, but also to be able to serve millions of customers, each requesting rewards and payment on their own time, it's important for such a blockchain to be able to scale towards that purpose. While still being tested, the team reports that THEMIS can handle up to 51 million users per month, and can further scale when implementing multiple, parallel sidechains within the system.

Does It Solve the Problems?

Of course, by simply being a browser, rather than any specific platform or publisher (like Facebook or Twitter), Brave's main product is already open to allowing its users to basically navigate whatever part of the Internet they wish, and see whatever content they wish. They have even incorporated a VPN and some functions of the TOR browser in an effort to give even more anonymity for all its users. Additionally, user information and data never leaves the Brave browser, thus protecting their passwords and even crypto stored in it.

More importantly, and more pertinent to THEMIS and the whole BAT crypto ecosystem, Brave is further decentralizing its ad system in order to allow for a better advertising system that won't easily fall prey to any single entity or group of entities. There is a small caveat to this, which I will discuss later.

The key point of decentralization isn't just that the authority or control of a platform rests in multiple entities or individuals. That's just inherent in the definition. Instead, decentralization is valuable, because it incentivizes behavior that benefits users of all sides, which in this case, includes even advertisers.

For example, if Brave was the only content facilitator, then it would be the sole decider in what companies could advertise on its platform. By decentralizing this aspect, content facilitators will now be competing for advertisers, which means it will be easier for advertisers to get their content to users. This means that other browsers, such as Firefox, Puma, or even big tech ones like Safari and Chrome, can have this technology implemented if their companies so desire.

On the other hand, since users rewarded for their attention, advertisers are compelled to behave in a beneficial way towards browser users. This incentive structure can be analogized as advertisers handing out discounts or coupons to users, since every BAT given to users can potentially be used towards the purchase of those advertisers' products. However, users can also use their BAT towards the purchase of products not specific to any one company. In this way, it's no longer the simple clicks on the advertisement notification that are a good metric of how users interact, but the actual buying of advertiser products that will tell companies whether their campaign was effective. Any mistake (i.e. negative reaction) will not only disincentivize potential customers, but also may drive them to purchase competing products with the very money that the advertisers just gave them.

All this in a transparent, blockchain system in which anyone will be able to see how THEMIS is working (or not working), while preserving user privacy and data.

As mentioned, there is one small caveat to this system. Because Brave relies on BAT tokens, one could theorize that the use of this single volatile asset has the potential to severely disrupt the entire system. Just as how Facebook was pressured into censorship through a boycott of advertisers, Brave could be as well. If advertisers leave the platform en mass, it could severely devalue the BAT token itself, which could then dissuade people from using the rewards system, which could then cause more advertisers to pull out, creating a destructive cycle.

However, the fact that a browser is very much like a TV rather than network channels may be enough to prevent something like this from happening. People can't really be prevented from using their browser however they want, and with Brave's privacy system in place, no advertiser can ever see what users are looking at anyways. Furthermore, the fact that Brave is designing a system which isn't dependent on their own survival, but instead can be facilitated by any number of additional companies or browsers, helps to alleviate this kind of pressure as more and more companies adopt it. Thus, time will tell if this decentralizing system will achieve its full potential.

So THAT'S my review of Brave's Brave ecosystem, including their new THEMIS protocols (which, again, haven't yet been implemented). My goal with this was to be as un-technical as possible, so that anyone can understand what this whole thing is about. Hope it was helpful! I'll see you next time!

They say that those who don't know their history are doomed to repeat it. Actually, it's such a famous quote, that it's a bit difficult to find whom to attribute the original idea. But whatever the case may be, especially with riots and protests today that parallel many in history (including, in my opinion, the French Revolution, Russian Revolution, and Civil Rights Movement in the United States), it seems this idiom is just as relevant as ever.

But what if some of that history is missing? What if the knowledge we have of our own history is really incomplete? If the above idiom is true, and if there are parts of our history that we don't know about, then isn't our doom inevitable?

Well before we get to that, let's examine our typical model of human history.

Our Current Template for Early Human History

[Image from Pixabay.](https://pixabay.com/photos/stonehenge-monument-prehistoric-2326750/)

The current history of humanity begins around 300,000 years ago, when anatomically modern humans (basically people that look like us) began to spread around the world, beginning in Africa. By the time that the most recent Ice Age ended (around 12,000 years ago), humans had gone all around the world. During this time, human beings were mostly hunter-gatherer societies, until around 10,000 years ago, in what we now call the Neolithic Revolution, in which agriculture and farming arose, first near and around the Middle East, and then through the Indus Valley, China, Europe, and eventually the Americas.

As food became more prevalent, human beings began to have more time for things like art, pottery, writing, and even specific skills like metal working. Thus, civilizations, not just cultures, were established in areas like Mesopotamia, China, India, and Mesoamerica. By the time we get to around 3000 BCE, we have the arrival of the Bronze Age, in which large civilizations that moreso reflect today's various racial and ethnic groups begin to flourish. These civilizations include the likes of the Egyptians, Mycenaeans (early Greeks), Sumerians (Middle East), Shang dynasty (Chinese), and others. From there, because the different cultures were so far-spread geographically, and isolated from one another as well, it's difficult to follow a single trajectory that can encompass everyone. For example, the collapse of the Bronze Age capitulated Mediterranean and Mesopotamian civilizations into a dark age, but no such similar event occurred in Mesoamerica or Indus River cultures at the same time.

Template Interrupted

In 1994, a man named Klaus Schmidt began excavating a site in a south-eastern area of Turkey. The site had previously been thought to be a gravesite, but as Schmidt dug deeper, they found something extraordinary.

They discovered what we now call Gobekli Tepe.

[Image taken from TourismNewsLive.](http://www.tourismnewslive.com/2018/12/26/2019-declared-the-year-of-gobekli-tepe-for-turkey-tourism/)

Spanning around 300 meters across (at least, what has currently been uncovered), Gobekli Tepe is a large complex filled with megalithic T-shaped pillars, totems, and other artifacts, built on a mound (called a tell). Many of pillars, in addition to being as tall as 20 feet (6 meters), have figures of animals carved onto them, and there are sculptures littered about as well. They are absolutely huge and impressive structures.

[Image taken from wikipedia.](https://en.wikipedia.org/wiki/G%C3%B6bekli_Tepe#/media/File:G%C3%B6bekli_Tepe_Pillar.JPG)

Now deemed a UNESCO World Heritage Site, its excavation has continued since its discovery, but some estimate that only 5% of it has been discovered so far. This is because Gobekli Tepe seems to have been deliberately buried some time after its construction and use, though we don't really know why.

However, what's more fascinating is its age. The dating of various artifacts has led archeologists and scientists to conclude that the site was built around the 10th millennium BCE.

Why is that so interesting? Because that would mean this ancient site, a complex array of pillars and totems and walls which would have required massive organization, labor, food quantities, and artistic intent, was built at a time that we estimate in our current template to be when people were just moving into an agrarian lifestyle, and thousands of years before building something like Stonehenge.

None of this seems to make sense, unless there is a piece of human history that we have missed.

[An aerial shot from TourismNewsLive.](http://www.tourismnewslive.com/2018/12/26/2019-declared-the-year-of-gobekli-tepe-for-turkey-tourism/)

Now, I'm not really one to be conspiratorial. However, this evidence to me does seem to point to a missing page of history. There is a great Youtube debate featuring Michael Shermer of the Skeptics Society and Graham Hancock on Joe Rogan's podcast, where they go back and forth on the meaning of this amazing find.

But it's not just this singular site which begs the question of missing human history.

Atlantis is a Myth...or is it?

For the most part, even today, the story of Atlantis is regarded as a myth or legend that has no historical merit by most historians and scientists (though one certainly could argue it has a lot of literary value).

However, (relatively) recent findings have piqued many people's interests about this supposedly mythical society once again, the most convincing of which I will talk about now.

[Artistic rendition from a blog.](https://ancientstartech.blogspot.com/2017/11/atlantis-large-scale-power-plant.html)

The first thing we need to look at is how Atlantis was first formulated. In his works, Plato talks about the island of Atlantis as the antithesis of Athens (the supposed perfect society). In it, he describes Atlantis as having been an island located near the Atlantic Ocean with mountains on its northern parts, stretching in an oblong shape of about 555 kilometers by 370 kilometers. The entire island was enclosed by three moat rings, and within each ring was land where the people of Atlantis settled, and the three moat rings were walls and gates to built to guard them.

As we know from popular myth, Atlantis completely destroyed by earthquakes and floods, due to judgment from the gods in Plato's story. But what many people don't realize is that Plato actually said that what remained of it was a mud shoal that prevented people from passing through it to the Atlantic Ocean.

So, if we were to look for the lost city of Atlantis, we shouldn't be looking for something sunk in the middle of an ocean. Rather, we would be looking for something that has been reduced to mud (or dirt, considering the time difference between then and now), with geographical markers of mountains on its northern parts. We may even find three rings that may be somewhat leftover from the described destruction of the island.

So, have we found anything like this?

I present to you, the Eye of the Sahara, also known as the Richat Structure.

[Image from wikipedia.](https://en.wikipedia.org/wiki/File:ASTER_Richat.jpg)

Located on the western fringes of the African Sahara, the Richat Structure was discovered in the early 20th century and thought to be a crater of some kind. But subsequent research has revealed that it is not an impact of any kind, and may even have been a lake in the early days of our template for human history.

More importantly, at least for us, is the fact that it almost perfectly encapsulates Plato's description. Mountains to the north. Concentric rings. As well as being covered in sand and mud, blocking the way to the Atlantic Ocean. Here is a reconstruction from satellite images (again from wikipedia) of what the area around the Richat Structure looks like.

Now compare that to the description above (summarizing Plato) as well as the artist rendition of Atlantis from before. The similarity seems a bit uncanny.

What's even more fascinating is that the destruction of Atlantis supposedly occurred around 9,000 years before the lifetime of Critias, the narrator in Platos' work describing Atlantis. He credits this knowledge to his great-grandfather named Solon, who supposedly went down to Egypt to obtain this information. Given that Plato probably lived and wrote around the 5th century BCE, it is probable that the time span being explored is around the 10th century BCE, which would make it around the same time that Gobekli Tepe was constructed, then buried. And around the Richat Structure, archaeologists have actually found freshwater fossils that are around the date of the 10th century BCE (as well as before).

Given the stories around Atlantis, it's quite clear that it was quite an advanced civilization. What kind of advanced civilization, we certainly don't know, yet. But surely, there is evidence that it was not simply on the cusp of discovering agriculture.

To give credit where it is heavily due, most of these ideas about Atlantis I found watching Bright Insight, a Youtube channel dedicated to alternative theories about history. He has far better (and more detailed) videos than the short description of things written here. You can find his Atlantis videos here, here, and here.

Additionally, someone has gone to the Richat Structure and recorded his findings here and here.

Other Discoveries

[Another one from Pixabay.](https://pixabay.com/photos/egypt-desert-egyptian-temple-giza-1179193/)

The two findings above offer pretty convincing evidence (in my mind, anyway) that our normal template for human history is missing something. But there are others as well.

In July (of 2020!), National Geographic reported finding an underwater cave with evidence of mining. This mining is estimated to have been occurring around 11,000 years ago.

Around the famous Great Sphinx of Giza, there is evidence for water erosion that had to have happened far earlier our current dating of its construction.

There's even evidence that older civilizations may have had some knowledge of electricity, with the finding of a battery recipe from a book in the early 13th century CE (which clearly points to an earlier date). Not to mention Nikola Tesla's theory that the Great Pyramids of Giza may have been used for electricity generation.

There's so much more, like the mysteries behind the Angkor Wat to the strange statues of Easter Island, and even current mainstream ideas about human migration patterns, when we take a look into early history, there seems to be so much that we don't know, and run counter to what we typically learn growing up.

Final Thoughts

So what of our missing history? Does my original question hold? If we don't know these missing pieces of history, are we doomed to repeat something we don't know?

The funny thing about human history is that it is often cyclical. The story of Atlantis is the idea that the hubris of these people is what ultimately caused their own destruction. The fact that they thought they were so great, that they could rule the rest of humanity, brought them into the anger and judgment of the gods.

But we don't often have to look far back in history to find similar lessons. From the Fall of the Roman Empire to World War II to the fall of the Soviet Union, it seems like the lessons of history are almost constantly dogging us with our own pride and brutality. And so, while these evidentially missing parts of history absolutely fascinating to learn and explore, the lessons of history are quite recent and intimate. And we don't need to wander far to learn what it is we need to know to, at the very least, avoid disaster.

A lot of these ideas about ancient civilizations, especially ancient and advanced civilizations, are so far rejected by mainstream academics and historians. The idea that our current template of history is definitive is very much etched into dogma of current culture. But, in a way, it's to be expected. This is the way I see it:

The mainstream often becomes a centralized body that has its particular philosophies and ideologies. The knowledge that was once fresh and new can often become the immovable pillars which bind ideas in a strait-jacket, until the next evidentially overwhelming idea comes and inevitably beats out the old. The issue is how violent that mainstream culture is in suppressing new ideas before it cracks under the undeniable tide of good progress.

And thus, decentralization is an essential key to the beneficial progress of humanity. The empowerment of the individual, rather than the collective, is the fight that we often have to make. Human beings are easily persuaded to build the Tower of Babel, so that we can see our collective greatness. But in the end, what we achieve as groups often result in oppression, violence, and nasty, brutally short lives. But when individuals are given the capacity to be themselves in all circumstances, then the uniqueness that each individual can bring rises to make all of us better, tested only by time and endurance. And so we must remember:

We were all geocentrists once.

Header Image credit to Pixabay.

In the 9th episode of Block Stars, David Schwartz interviews Coil's CEO Stefan Thomas! In it, they talk about the development of Bitcoin, and their resultant work on the XRP Ledger. It is the first part in a two part series.

If you want to see my summary and thoughts on other episodes, please go here. Otherwise, here is the summary and my thoughts on this 9th insightful interview.

Episode Summary

Stefan Thomas was actually a former employee of Ripple who held David Schwartz' current position at the company. Originally a freelance web developer, Thomas ran into problems while attempting to find out how to pay various international clients. It was due to these kinds of problems that both Schwartz and Thomas became involved in Bitcoin development. Thomas himself actually worked on Bitcoin while it was still in a testnet “beta” phase. One of the proposals he mentioned making was to create a browser-based cryptography system so that people who wanted to use Bitcoin didn't need to download the entire blockchain.

Thus, Bitcoin JS was created to re-implement Bitcoin for future mass adoption. Even though Satoshi Nakamoto's Bitcoin white paper didn't seem to make any effort towards any kind of mainstream adoption, Thomas felt this was the way forward to develop the technology further. However, they quickly came upon problems in how to progress Bitcoin further. Many ideas that were proposed to make Bitcoin better were never implemented, as rolling out advancements into the network could take a very long time, since any decentralized network requires that all the nodes in the network make the same change, or else there would be a hard fork. This disheartened Thomas greatly about distributed ledger projects.

And so, though he initially rejected the idea, Stefan Thomas eventually came to work on the XRP Ledger because of the team of people behind Ripple. Being able to work on the XRP Ledger seemed to be “like skipping ahead into the future” (in his own words). Being able to support different currencies and faster confirmation times and other things besides was like being able to evolve the original concept behind Bitcoin in a much more immediate way. That being said, XRP wasn't a fork of Bitcoin like much of the space at that point, but rather an entirely new blockchain built from the ground up. Because it was its own thing, the company was able to work on it on its own testnet and development phases without much public participation.

At Ripple, Thomas' job was to build a user client for XRP, since he did similar things for Bitcoin, as well as other projects. One of the more controversial moves was not building a smart contract capability into the XRP Ledger. This part of the podcast gets a little technical. But basically, this decision was due to complexities involved in using Google's Native Client, which didn't require developers to learn new programming language, but had issues like non-deterministic results (which compromise the security of the XRP Ledger) as well as lack of ease of communication between different systems. Stefan likened it to the abandoned approach of storing code inside a database, where a difference in what code is stored with which database actually created different databases, which, in distributed ledger terms, would completely halt the ability of a blockchain to continue to run.

Instead, a different approach, sometimes called the 3-tier architecture, was tried. This is where the basic data is stored backend, and a “stateless business logic layer,” which had different services which could communicate with each other (as well as with those outside of the system), existed to allow applications on top of all that to have more architecture flexibility. Had they added in functionality without this 3-tier architecture approach, it would have created an incredibly complex system like Ethereum. In such a system, things like denial of service attacks or even just extremely complex smart contracts would slow down or even disrupt the system by an incredible amount. Instead, the team decided that performance and security were the more urgent demands to be met, and that smart contracts could be a system which exist, but not within the actual ledger.

This leads the discussion to Codius and the Interledger Protocol (ILP). The idea would be to have decentralized applications that can affect change on the ledger, but are still independent from it. This was the basis for Codius, as well as ILP. In Stefan's own words, these different systems (i.e. XRP Ledger, ILP, Codius, etc.) all came about by deconstructing the whole system of blockchain, and understanding the different roles of each part of that system. The example he gives is how smart contract systems, which are essentially independent from the actual blockchain, don't always use the blockchain when running their code. In these circumstances, how do you pay the people who are running the code, without making them vulnerable to spammers? The way to pay, of course, is by allowing users to pay with whatever they want, rather than being locked into a specific blockchain. And thus, ILP, which allows transactions between blockchains and even non-blockchain forms of currency, was developed.

The conversation then turns to Coil and web monetization. As Thomas worked on ILP, the next step to ILP didn't seem to be a technological problem, but an adoption problem. The design of ILP made it useful for transacting any kind of currency in small amounts as well as cross-border, and was easily scalable. Concurrent to investigating problem was the problems with Youtube censorship and privacy, as well as certain web business models. Thus, it seemed like web monetization was a perfect application to build for ILP adoption. After all, advertising on the web, and the privacy invasions that result, is the primary way most things are paid for on the Internet. But that isn't really how most things are done in the real world. Instead, we pay directly for the good or service we want.

This makes creating a web business a two-fold process. First, is to invent your product or service. But second, it's also to come up with a way to get customers to pay. Thus, Coil and its new web monetization paradigm seeks to solve the payments problem. In this way, it's important to understand that Coil isn't a cryptocurrency or blockchain company (just like Uber isn't really an oil company), but rather uses cryptocurrency (currently XRP) when it's advantageous to do so.

My Thoughts

It's fascinating, and very apparent early in the interview, especially with Thomas's emphasis on paying international clients, how Ripple began its journey into cross-border payments. Given that the weaknesses he saw in Bitcoin had to do with ease of use and development as well as his origin as a web developer who found it difficult to pay international clients, it's easy to see how Stefan was drawn to the work that Ripple was doing.

It also seems like the original intent behind Bitcoin was to be a cross-border payment system. Or rather, it was meant to be a border agnostic way of payment—meaning that Bitcoin was designed to be able to circumvent any worry about borders and nations. It's similar to how the general Internet is designed.

If it is true that the basic philosophical foundation of both the Internet and blockchain (which are really one thing, and blockchain is basically Web 3.0) is found in global communication, then the speed and security of that communication, as well as ease of use and accessibility, will be the determining factors of whether any particular coin or Internet utility has value.

This can already be seen in the ways the Internet operates. The gradual development of broadband and cellular data has shown that speed is the most important infrastructure. Ease of use and accessibility are what current tech giants like Facebook, Amazon, and Apple tout, and are arguably what made those companies the most successful. Security is an interesting issue, but in the present day, most of us have some sort of trust in the sites and services we use. Or at the very least, we trust them more than the ones that we don't use.

This leads me back to blockchain. It seems pretty apparent that these principles are also what are driving much of the valuation of different cryptocurrencies today. Blockchain is, of course, natively secure due to its decentralized nature. Ease of use and access is also driving a lot of valuation. For example, cryptos like Basic Attention Token (BAT), Chainlink, Tezos, and others have arguably had a pretty great year so far. BAT in particular has a reach with creators, with now almost a million creators who receive tips and donations, as well as millions of people who use the brave browser.

Speed has yet to play a factor for crypto, however. For example, Bitcoin is valued extraordinarily highly, and yet its transaction speeds are abysmal. Ethereum recently had insanely high gas prices as well, which clogs up the speed of transactions unless one wants to pay those insane prices, and yet it is #2 in market cap. It seems as if crypto has yet to deeply value speed in spite of that important factor in how the Internet itself works.

Which brings me back to Ripple and XRP. As per the interview, the design of XRP was optimized for speed and security. In terms of valuation, it is currently sitting in the respectable #3 slot. Yet, in comparison to both Ethereum and Bitcoin, its technology is far beyond what both of those have. While Bitcoin can do around 4-5 transactions per second, and Ethereum can hit 44 transactions per second, the XRP Ledger can do 1,500 transactions per second, and if payment channels are enabled, can handle more than 65,000 transactions per second. Furthermore, because Federated Byzantine Agreement is the consensus mechanism behind XRP Ledger (rather than PoW or PoS), it is actually far more secure than those others as well.

But more importantly than tech, it seems that the work being done with XRP is much further reaching than any others. From Ripple's partnerships with Bank of America to Coil's partnerships with Wordpress and leading comedy websites, and others like Kava and Flare as well, it seems like XRP is poised to become the backbone of a new phase of the Internet going into the future.

It was great to be able to hear from Coil's CEO, and be able to see the man behind the ideas on which this blogging platform was founded on. Though this first part doesn't really go into Coil that much, it has certainly primed my excitement for the next episode. See you there!

I recently looked through my posts and realized that it's actually been a whole year since I started blogging on Coil! Actually, technically, it's been a year and a month or so. Time, along with how crazy 2020 has been, has flown by as I've had a great time on Coil blogging and enjoying some compensation through its new way of looking at web monetization.

So in the spirit of anniversaries and celebration, this small post will take a small look back at my time on Coil so far, and I'll also talk a little bit about what I'm planning going into the future.

A Year in Review

On June 28, 2019 (wow, that seems like an age ago!) I started a weekly blog talking about becoming your own bank. With that first post, I started a series of posts talking about what I've learned in my own life about taking control of our own finances, re-thinking what money actually is, and the various assets and services almost anyone can use to be able to take better control over their own life. In a way, I was trying to model what Chef Gusteau said in Pixar's Ratatouille, which was basically, “Anyone can cook.” Or rather, in the case of my first series, “Anyone can do finances well.”

In that series, I have a few posts that I really believe are a couple of the best posts that really help flesh out what I think re-capturing our own independence in finances is about, and why it's important. The first is called Inflation, which basically goes over what inflation is and how it affects all of us. The second is called Rethinking Money, in which I go over the main concepts of money and wealth. And the third I'm most proud of is a post called Putting Money to Work, in which I discuss the crucial way banks function, and how individuals can do nearly the same thing today.

When I finished the series, I began to branch out in what I wrote about, and went in lots of different directions. I talked about ways I thought Coil could improve. I began “A Study In” series, in which I wrote about various things that inspire me, from stories to video games. I even outlined my development of my own board game called Of Duchies and Polities! I was still developing that game when the coronavirus shutdown hit where I live, and I couldn't beta-test it anymore (seeing as how I wasn't allowed to go out and meet with people!). But, for those who are still interested in playing the game, I'm still developing it (and super excited about it!), and you can download, print, and play it yourself if you're a Coil subscriber!\

Along with all of that, I began to really dig deep into cryptocurrency and blockchain. Just as I started blogging on Coil about how anyone could become their own bank, I realized that in the present day and age, the best and fastest way to do so is actually with crypto and the technology that is being developed with blockchain. I went through a series where I explored blockchain in a few different ways, and even wrote some of my most recent posts on Understanding Blockchain and Cryptocurrency in an effort to help people who are new to the space really grasp what it is and how it may profoundly change the world as we know it. I also began writing a series of posts following David Schwartz's Block Stars podcast, summarizing and giving my thoughts on this important and very educational series of interviews that continue on today.

What's Next?

I've noticed a few patterns in my writing. First, I've noticed that I like to talk alot about decentralization and individual independence from systems. It's how I began my very first series on becoming your own bank, and it's why I've become more and more entrenched in the ideas of blockchain and crypto. Second, I've also noticed that I like to keep things simple and educational (albeit long-form), and I like to try to take lots of ideas (whatever that comes to my head) and try to make them as easy to understand as possible.

However, I've also noticed that I haven't yet been able to branch out from mostly financial and technology-related posts. So while I'm extremely interested in philosophy, science, art, and spirituality, I haven't been able to write much on those topics. Yet.

So, going forward, I believe I'll be reorienting slightly on what I post, and branching out on the things I cover. I'll still be talking a lot about decentralization and finances (because that's still where my current interests lie), but every once in a while, and hopefully increasingly, I want to start writing about these other areas of interest. I'll continue my “A Study In” series, and probably use those as springboards into other subjects that I like to think or talk about. If you have any suggestions, please feel free to hit me up on Twitter and let me know your thoughts!

For those that were interested in and following my development on Of Duchies and Polities, I'll be continuing that as soon as I can, but I may actually continue it on either another blog or some other medium. I'll definitely notify my readers if that's the case!

Final Thoughts

And so, we come to today, August 2020. As I've looked back on what I've done through this blog, I'm actually quite proud that (for the most part) I've been able to keep up writing at least once a week for a year. I took a few breaks here and there, but remained mostly on schedule. There's so much going on in the world that's so crazy, from COVID-19 to riots and protests erupting in the United States (where I'm from), and other, almost innumerable, happenings around the world. But as crazy as it may have gotten, I'm glad that through it all I've been able to continue blogging on Coil.

I'll admit, had Coil not been espousing its XRP-based tech for web monetization, I may never have gotten started. But, because this platform exists in the way it does, I was able to motivate myself to continue writing and blogging. So thanks VERY much to the Coil team and ALL the other bloggers on this platform that are making this possible!

I'll see you in the next post!

In the 8th episode of Block Stars, David Schwartz interviews Barry Eichengreen, who is a professor of Economics and Political Science at University of California, Berkeley, and they talk about COVID-19's effect on the global economy, as well as how cryptocurrencies factor into it all.

As I explained for episode 7, I'll be giving my thoughts on the episode first. Then, for those who are interested, an episode summary is given below that. If you're interested in what I've talked about with other podcasts, please go here. Otherwise, here are my thoughts!

My Thoughts

I've recently become obsessed with decentralization and its relationship with history (I've even written a book review on the topic!), so I was pretty excited when I saw the title of this particular podcast. With the recent announcement that the United States' GDP had fallen a record 32.7%, while cryptocurrency rose during the same period, it's pretty timely that this episode (recorded back in June) came out the time it did.

Here are a few notable things I took from this episode.

Printing Money, Hyperinflation, and the Global Economy

The world of economics is so often counter to common sense, that it's difficult to comprehend. The rule of inflation is that currency is often devalued because of an increase in circulation. An example of this is how the US Dollar has lost more than 90% of its purchasing power in comparison to gold in the past century.

Yet, despite the insane amount of money the US has printed in the past couple months, as Barry Eichengreen explains, this fact has not caused any sort of deep hyperinflation that has happened in other countries like Zimbabwe or Venezuela. Instead, due to the fact that the US Dollar is the global reserve currency, when the US economy is weak, and even when the USD is supposed to be inflating due to mass printing, around the world, other people and nations would actually buy into the US economy for cheap, thus keeping both the nation's economy and the currency afloat.

It makes sense, after thinking about it. After all, the US economy has generally been the most stable so far. Buying into that stability when the price is low will better guarantee returns in the long run. I'm not one to believe in the principles of Modern Monetary Theory, but it does make an interesting argument for printing money without needing to worry about hyperinflation—at least for the United States.

Libra and Stablecoin

In some ways, I feel like I'm one of the least informed individuals talking about crypto and blockchain. I didn't even know Barry Eichengreen had written popular scathing pieces in the Washington Post condemning Libra and central banks weighing in on climate change. Whatever the case, hearing Eichengreen talk about Libra and the potential risks it had made me feel quite a bit vindicated for what I posted on it a while back. On the other hand, I don't know if Eichengreen is giving stablecoins that are backed by more than one kind of collateral their fair shake.

I've talked before about MakerDao's DAI and why I believe that particular project is the premier stablecoin today. But Eichengreen doesn't even have to know about that particular project to understand why multiple assets backing a single product is a good thing. It's actually the same idea as index fund investing, where index funds are made up of a multitude of stocks. The large variety of index fund portfolios actually make them much more stable than individual stocks, since valuation is based on an average of them, so that even if one or a few stocks fail, there is less loss in the index.

The difference between Libra and DAI is that DAI is backed by a decentralized network and governed by a voting system that is accessible to anyone. Libra, on the other hand, is largely dependent on Facebook (at least, so far). Furthermore, Libra is also backed by hard assets, such as the US Dollar and the Euro, while DAI is soft-pegged to the US Dollar. Being soft-pegged allows the coin to exist without the need of physical assets, thus getting rid of the volatility that those physical assets may bring.

I honestly hoped David Schwartz would push a little bit more back at Eichengreen, since he actually proposed awhile ago for an XRP backed stablecoin. There hasn't been much about it out of the XRP community since that video though, so perhaps the idea hasn't really gained much traction, yet.

This was a really great interview, and I really hope this kind of branching out continues to happen in future podcasts. Continue below for the summary!

Episode Summary

Barry Eichengreen is an economic historian, studying the connection between current modern economic problems with past ones. One parallel that he's found with crypto and modern economics is the gold standard. According to him, gold has little innate value due to its limited utility. Rather, the majority of the value of gold is placed in the belief that it is and will be valued by others. Non-stablecoin cryptos like Bitcoin is valued in much the same way. Of course, Bitcoin can be better used for transactions, whereas gold is not really as liquid. And this would be why many compare the value of crypto like Bitcoin to gold.

With the way the current global economy is going, there is large uncertainty looming with regards to inflation. It is possible that the general stability that the US has enjoyed is coming to an end, and central banks will introduce fiat into their national systems en masse. This may cause a lot of people to try to find something that would hedge against that inflation. But Eichengreen doesn't believe that this will happen any time within the next decade. Instead, consumer spending may decrease, and companies will be less able to predict and project their business growth. This lack of movement would be a kind of deflation hedge against inflation.

This actually reflects the 2008 Great Recession, in which the US government printed lots of money to help with the crisis, and though lots of economists thought there would be a massive inflation hike, there wasn't. Instead, as Eichengreen sees it, the printing of money is a necessary thing to keep the economy going, even though it may result in problems down the road.

Cryptocurrency, at least on a global stage, is still a relatively small niche. The US government has actually not done much of anything to the crypto markets, despite being involved in almost everything else, including municipal and corporate bond markets. This points to the fact that crypto is not yet essential to any relevant markets.

The United States is in a unique position in the world, due to the US Dollar being the de facto reserve currency of the world. Other countries actually rush to invest into the United States when its markets are down, because they see it as a safer investment. The US Dollar is the most liquid in the world, and even when it was responsible for a world crisis, people kept reinvesting back into the country and the US Dollar. This mean, of course, that the US bears more responsibility in looking after other global markets. The US provides liquidity by purchasing into other markets to give them dollars for their economies.

The pandemic differs with other historical crises in that it forced the shutdown of all economies. Usually, demand decreases, capitulating supply. But in the pandemic, both were forced to stop. Banking and foreclosure problems are slowly coming to pass, rather than quickly, making current events are basically unprecedented.

Some may say that there are parallels with certain industries being heavily impacted (e.g. airlines), which would cause a domino effect into other the industries. However, Eichengreen doesn't think this will be the case, as something like the airline industry is more isolated, and the current help in the crisis is going towards people to keep them more financially safe.

The conversation then turns then to the idea of crypto as a store of value and as an inflation hedge. Because there are different kinds of crypto (for example, stablecoin versus Bitcoin), whether crypto is a hedge really depends on what kind of inflation is present. If the US dollar loses puchasing power against Bitcoin, that also means that the stablecoin backed by US Dollars also move lower. Eichengreen talks about two kinds of stablecoins—partially backed versus fully backed by assets. Neither seem like they will last very long, given the amount of faith needed for partially backed, while fully backed is increasingly difficult to do. Both are susceptible to great volatility or inflation of any assets those stablecoins rely on.

Libra may have been set up as an interesting example in this way, because it was originally intended to be backed by multiple different assets. But now, due to regulatory concerns, it's transforming to be just like another stablecoin. Eichengreen was responsible for an opinion piece that lambasted Libra in 2019. Both Schwartz and Eichengreen note that the diversity of collateralization would cause these stablecoins to become extremely dependent on the stability of each asset, and thus, volatility could potentially be exponentially felt. Additionally, with smart contracts being added to Libra, it may be that a black swan event would capitulate the assets Libra relies on, which would then require something like the Federal Reserve to come and rescue the whole project. But Libra doesn't have anything like that. Instead, it freezes the ability for users to get their money when they need it.

Thus, even with new technology like blockchain, it seems the typical and traditional financial instruments, such as insurance and regulation, are still required, as they create the same problems that made people want these traditional instruments in the first place. It gives a pretty strong argument for regulation even in the crypto sphere, as regulation is meant to protect consumers.

As with almost everything today, the conversation steered towards China versus the US. As many know, China is on the verge of introducing the world's first national cryptocurrency. Eichengreen points out a study conducted with Seoul merchants that revealed a distrust people have of whether China will use this new digital currency to track everyone's transactions.

However, if Central Bank Digital Currencies (CBDCs) aren't inherently decentralized, it seems that they don't really bring anything new to the table. And, in fact, if central governments will always require intermediaries like banks to send money (either to retail or even individuals), then the whole point of using blockchain is completely moot.

Schwartz brings up Eichengreen's opinion piece in 2019 which asked whether central banks should weigh in on climate change. What's interesting is that central banks are an autonomous entity of government with basically only one mandate—to keep inflation levels low. If they have to suddenly be concerned with a different objective as well, their actions could no longer be measured accurately, giving the institutions more power than needed. This doesn't mean something like climate change can't affect monetary policy. After all, it can have very real impacts on physical things like supply and distribution. There is, of course, concern that blockchain mining consumes as much energy as entire countries. But there may be hope that future proof-of-work blockchains can be more energy efficient.

Eichengreen likens the competition between different cryptos to the early 1800s up to the Civil War in the United States, where different banks issued its own currency. This resulted in currencies that fluctuated in value, despite all saying they were worth “$1”. In those days, the liquidity of each different currency had certain effects on their popularity. If the world is to go towards the idea of tokenizing everything, then it will be important to have a single unit of measure for everything (just like how the stock market is all measured in US dollars).

As they wrap up, Eichengreen talks about the future of crypto, where purely speculative investments will eventually die out. Ones that provide tangible utility like cross-border payments (i.e. XRP) are most likely to do well. Schwartz asks him to comment on the rest of 2020 and into 2021, but Eichengreen tentatively predicts a bumpy future, preferring an epidemiologist to answer the question rather than an economist.

In this series, so far, we've looked at the basic definitions of blockchain and cryptocurrency, as well as the philosophy behind decentralization. Furthermore, we've broken down the 3 main ways blockchains verify transactions, so that we can better understand how coins and tokens are created and rewarded in any network.

You'll notice though, that at the end of the second part, I ended with a description of the Federated Byzantine Agreement in which there wasn't any way for participants who work to keep the network going to be rewarded with tokens of any kind. So how are coins then distributed in any form on such a blockchain network? Furthermore, how do people who want to participate in any system, but don't want to 'mine' any coins, obtain the currency?

And so, today, I want to discuss wallets, trading, and exchanges in the blockchain and cryptocurrency system. And then, we'll go over the different types of cryptocurrencies that presently exist, so we know what the heck we're actually getting.

Digital Analogs to the Real World

With almost everything in blockchain, because of their trust-less and decentralized nature, there are natural analogs that we can make to the real world, especially when talking about cryptocurrency. So the following are simple definitions and explanations.

Wallets

Crypto wallets are actually addresses that native coins, and the tokens developed on those platforms, are attached. So, while we use terms like “receive” and “hold” when talking about how wallets and coins interact (e.g. a wallet can hold X token), this is actually a misnomer, because wallets are just addresses that coins are then assigned to. There is no real storage space needed for any kind of crypto wallet. Instead, when a coin goes from one wallet to another, what's really happening is that the coin's address is being reassigned, and that reassigning is a transaction that is recorded on the coin's blockchain.

As an example, a Bitcoin wallet is an address that only Bitcoin tokens can attach themselves to. However, an Ethereum wallet can 'hold' both ETH tokens, as well as most ERC20 coins, which are coins that are developed on the Ethereum blockchain. Nowadays, there are both hardware and software 'wallets' that are actually a collection of wallets. For example, the Ledger Nano S, a hardware wallet developed by a company called Ledger, is able to accept a multitude of cryptos (including both Bitcoin and ETH), and the company is constantly adding support for more.

Wallets are required for almost everything we do in crypto. Thus, there's a lot of hubbub about security and privacy of wallets. For example, most wallets come with 12 or 24/25 keywords that are required for various wallet activities, including activation, as well as sending and receiving coins. A popular phrase used to be “Not your keys, not your wallet”, meaning if you don't hold the previously mentioned key-phrases for a wallet that has the coins you obtained, then the people that do have those key-phrases can technically do whatever they want to your coins. This lack of awareness of ownership has led many to have lost a lot of money from hacks and scams. While it's becoming less of a problem it's still important to be aware of these ideas going into the future.

Trading

Now that we know what wallets are, trading is a simple concept. It's simply reassigning the address of a number of the same kind of coin, and thus “moving” those coins from one wallet to the next. When we “send” or “receive”, we're just adding an immutable transaction onto a particular blockchain. No matter what kind of trading you do, whether it is crypto to crypto, or fiat to crypto, or something else, everything gets recorded on a particular blockchain.

This takes us to fees and gas prices. Like any real world trading, most blockchains have some sort of fee required for conducting transactions. This serves different purposes, depending on the type of blockchain or crypto you are using. For example, Bitcoin fees are used to compensate miners, while XRP fees are simply there to prevent spam. Furthermore, as more activity is required on a particular blockchain, typically, these fees get higher, since there are only so many transactions per second that any blockchain can handle. Fees are generally paid in the native token. So, if the fee to transfer ETH is $3.00, then an amount equal to that in ETH is (typically) taken out of the ETH I am sending (unless some service I'm sending through pays it for me).

But, what if I want to exchange Ethereum for XRP, or Bitcoin for something else? This is typically where exchanges come in.

Exchanges

Exchanges are, currently and probably into the future, where the vast majority of trading takes place. Rather than relying on sending emails or texts back and forth between two non-local people to obtain addresses for sending and receiving (that actually used to happen quite a lot in the early days!), people today tend to rely on large exchanges that automate the process for them.

There are generally two types of exchanges.

Centralized Exchanges, like Coinbase or Kraken or Binance, make up the majority of popular exchanges being used today. These exchanges are typically run by people like a real business. They function similarly to foreign exchange and brokerage companies, with users being able to conduct trades, use options, bet shorts, sell and trade on margins, and other uses besides. While the number of currencies you can trade in is controlled by the people running the exchange, they are often compelled to make as many available as possible due to competition from other exchanges. Sometimes, these exchanges offer bank-like functions (e.g. reward users interest for holding a specific coin on their platform). But, critically, these centralized exchanges hold all the keys to users wallets and accounts, and are historically the target of hacks and scams.

Decentralized Exchanges, or DEX, are a small but growing type of exchange that does away with the company aspect of the aforementioned type of exchange. Instead, DEXs usually run on particular blockchains. Users connect their personal wallets to these DEXs, and do peer-to-peer exchange themselves. There is more manual work for traders, but DEXs are (for the most part) much more secure.

The downside of DEXs, of course, is that most of them function only on a single blockchain, namely Ethereum. All the most popular ones being used today, from Uniswap to Compound to AAVE, function only for Ethereum or ERC20 tokens. There are ways around this, such as using an Ethereum representation of a particular coin. For example, WBTC is an Ethereum version of Bitcoin. But this is a slow process, and restricted by popularity (e.g. unpopular coins will probably never have an Ethereum version), and thus most non-Ethereum coins are not represented. And there are certain blockchains—such as XRP, Binance Chain, and Cosmos—that are developing interoperability between blockchains. But, at least currently, these are mostly embryonic and not popularly used.

So now we know what blockchain and cryptocurrency are, and the different kinds as well as how to obtain them. The next, almost inevitable, question is often: so which one should I get?

And...I'm not going to tell you, haha. This series is not financial advice in any way. Instead, I'll talk about the different types of cryptocurrencies there are, and what they're useful for.

Tokenization: Digitizing Real World Assets

Knowing the tokens in which one would want to invest starts, in my opinion, with understanding what different types are out there. Theoretically, and again because of how well blockchain represents the real world in a digital space, there is potential for almost anything in the real world to have a digital asset to represent it. But, because blockchain is still an incredibly new technology, that potential is still a far away dream. I will be calling all of these “tokens”, but as before, tokens and coins are basically the same thing.

That being said, here are the most popular types currently:

Transactional Tokens

This is actually my own name for this type of crypto. I've searched around, and for some reason, most cryptocurrency websites list “Bitcoin” as its own type, despite its similarity in design and usage with others. And rather than calling this whole section “Bitcoin”, which just seems extremely un-informed to me, I'm going to call this type “transactional”.

Transactional cryptocurrencies are exactly that—coins that were designed to be the medium by which transactions happen. These coins have no other popular use-cases, and weren't designed to have any other either. In many ways, they are meant to replace physical fiat and be used as a medium of exchange. This comes in the form of speculative cryptocurrencies as well as stablecoins. The former, with the likes of Bitcoin, Litecoin, and others, have a volatile price, due to not being tied or backed by anything. Stablecoins, on the other hand, are transactional currencies that are either backed by an asset (e.g. USDC is backed by US Dollars), or soft-pegged to currencies through different collateral methods (e.g. MCD DAI is soft-pegged to the US Dollar). Whether one buys speculative cryptos or stablecoins, everyone should understand that all these cryptos purport to do is replace cash with a digital way of making transactions happen.

Utility Tokens

Utility tokens are cryptocurrencies that offer some functionality besides simple transactions. For example, the Ethereum blockchain is built on the ETH token, which is the foundational coin that serves to make decentralized applications, or DApps, work on the Ethereum platform. ATOM, on the other hand, is a currency that works on the Cosmos blockchain, which is a chain designed to allow different blockchains to speak to and transact with each other.

These utility tokens often come with tools that allow developers to build on the chain. Again, Ethereum is probably the best example of this, as its tools allow developers to create many different things, including smart contracts which automate conditional transactions (e.g. escrow contracts).

In my opinion, it's important to understand that the value in these tokens is not based on transactions, but rather on the ecosystem(s) they purport to bring. In other words, if the ecosystem being developed around a certain utility token is popular and/or robust, then the value of that token is probably pretty high. On the other hand, if a utility token is not being used much, and there's no one really building around it, then even if it is technologically superior, then it probably isn't very valuable.

Security Tokens

Security tokens are probably the easiest to explain, but are technologically still in their infancy. Security tokens represent securities in the real world. From stocks and commodities to real estate, security tokens are meant to represent this class of assets in the real world.

Security tokens, and the blockchains for them (e.g. Polymath, Securitize, etc.), are still being developed. They could certainly be the next wave of where crypto is going, but because it's so early, and with the current halt in the world today, it's difficult to predict when and how the space will mature.

And that's it! If you haven't read the previous parts in the series, check out Part 1 and Part 2! I'm not sure I'll be adding any more to this series anymore, as I believe these posts have given a pretty solid foundation for most people new to the whole concept to understand what this new technology is all about, and anything else out there to do with the subject can be much more easily understood with these (hopefully helpful) explanations.

Have a good one!

Last time, I began a series of posts attempting to make blockchain and cryptocurrency a bit more palatable and understandable for those who aren't familiar with or are new to the space. My goal is to explain these technologies without getting into complex financial or technical jargon, which can often hinder understanding.

I left off that article with these questions: How are cryptocurrencies obtained? How do we get our hands on it? How do we participate in this burgeoning technology?

Let's start with the first one.

3 Main Kinds of Crypto Blockchains

To begin learning how cryptocurrencies are obtained, it's important that we understand how the different blockchains come to agree on what new transactions go onto the list mentioned in the previous post (what is called a distributed ledger). What follows is a description of the main three kinds, though there are more. You may have heard of these terms before, as they are not all native to blockchain.

Proof-of-Work

This is the most popular way current blockchains which produce cryptocurrencies come to agreement (or consensus). It's really easy to start getting into jargon, so I'll try to explain it as simply as possible.

Proof-of-Work is like a competition between different people in the network. They compete by spending computing power to figure out a string of numbers and letters, called a hash. Attached to this string are the transactions that will be recorded next on the chain (in addition to all the previous transactions). Generally, one of the participants will figure out the hash (thus proving their work), the network will approve the transactions, and then move onto the next ones.

The competitive aspect here is a little bit weird, because no one really knows when their computer will figure out the hash, since the hash is semi-random. So, for the most part, people pool together with others to increase the chance they will be the ones that figure it out. Then, the reward is (presumably) distributed among the various participants.

What reward? The cryptocurrency token, of course! The participant who figures out the hash is rewarded a certain amount of the native token of the network (e.g. Bitcoin network rewards Bitcoin). This is why the process is often called 'mining'. It's like you're a miner in a cave looking for gold. You don't know where the gold is, but if you get a bunch of your friends together, you can probably find that gold faster than that poor individual working by himself.

This inevitably leads to a race to see who can get the bigger group to figure out the hash for transactions. And this race has two main results.

First, as more and more computers are added on to participate, it spreads the network wider. This is a good thing. It's often why Proof-of-Work blockchains like Bitcoin are said to have a self-induced incentive. If I want to get the token, I will want to participate in a network. I am also incentivized to make the network (or at least my group in it) the biggest one, so I have a greater chance of getting the token. Thus, I invite others into the network, and the incentives repeat for them. As this is going on, the network continues to decentralize with more participants being added on.

Second, however, it leads to an increase in the energy required to maintain these systems on the network. As the system naturally increases in size, it consumes more and more power to continue the work. This power consumption is, obviously, not really good for the environment. To illustrate how bad it's gotten, the Bitcoin mining network now requires as much electricity as and has a carbon footprint like that of entire countries.

Proof-of-Stake

With the power consumption problems of Proof-of-Work (as well as a few other problems I won't mention here), a new method was surmised to combat it. Instead of solving complex hashes to obtain more tokens or coins, participants in a Proof-of-Stake system instead hold the native coin in a sort of vault. The more coins held in that vault, the higher the chance that vault will be able to validate the next transactions. People who hold (or stake) in that vault are rewarded in interest of that same coin depending on how much they put in. Thus, the more they put in, the more they will earn of that coin.

This is a bit like how financial and banking systems work (or at least, they used to). For the most part, when we put money in a bank, especially in a 'savings account', banks will offer a small bit of interest, depending on how much you have with them. Generally, the larger the interest, the more people are incentivized to keep their money with the bank. In the same way, in Proof-of-Stake systems, people are incentivized to continue the same network effect by locking their coins in it so as to earn more.

Like Proof-of-Work, there are upsides and downsides. The main upsides, of course, is that it avoids a lot of the problems the Proof-of-Work systems have, while maintaining most of their positive aspects. The tokens in these systems are also often used in other ways, such as voting and governance. However, there are a few issues that are a bit more unsure.

A participant that has staked 51% or more of the total number of coins has incredible power to change the system as he or she sees fit. Some argue that it would be unlikely that this person would become a bad actor, because such a person would be incentivized to keep the system running securely so as to not lose the value of their coins. I don't think much of this argument. First, it assumes there are people who don't just want to watch the world burn. But, more importantly, it also assumes that there is a positive correlation between the increasing value of an item and its utility. Which leads to the next potential problem.

In a Proof-of-Stake system, users are incentivized to keep their coins in the vaults, rather than spend or use them. It's actually a problem for cryptocurrency in general, but users in these systems won't really want to do anything with the coins other than hold them. If that is the case, then the original utility which blockchain and crypto were built upon (a source of transactional currency not tied to centralized intermediaries) is completely lost. If I would rather hold onto my coin than spend it on goods and services, then we are back with the same problem of needing to deal with fiat. And so, it seems Proof-of-Stake is not so much a solution to real-world problems as it is just to the problems of Proof-of-Work.

Federated Byzantine Agreement

This is a third category of blockchain that a (currently small) niche of cryptocurrency are based on. On the surface it's pretty simple. A group of participants come together to agree on what transactions are valid and invalid, just as the others. However, dipping one toe past this often results in a sudden rush of jargon and complexity that results in a lot of confusion (at least this was the case for me). I'll try to explain it a little bit more simply.

Imagine you're with a group of people—friends as well as friends of friends—and you're all trying to decide which of two restaurants to go to for dinner (wow, such a quaint idea in this COVID-19-ridden era). The problem is, you only know a few of these people, and it is likely that not everyone has the same idea of what good dinner food is supposed to be. How do you arrive at a decision that everyone can agree on?

The solution is actually a very human one. You trust your friends, and only your friends. Of course, your friends may trust people who are not your friends, but as long as you trust your friends, you shouldn't have a problem with whom your friends trust. Within the many circles of trust that would result, there would eventually be agreement on whom not to trust, for the sake of the majority.

In the same way, in a Federated Byzantine Agreement, each participant chooses which other participants it trusts. As the number of participants increase, the variation between who is trusted by whom also increases. This, once again, decentralizes the governance so that no single person or entity could control the entire network. Most of these kinds of blockchains require a large majority to agree before moving forward. So what's to stop one or several untrustworthy people to participate and mess the whole process up, or at least make it stop for a while?

Unlike Proof-of-Work and Proof-of-Stake, most blockchains built on Federated Byzantine Agreement have no rewards for its various participants. When you participate in the network, you are doing it because you believe that simply being part of validating the next transaction is a worthwhile task. This heavily de-incentivizes any malicious actors, as committing to any kind of spam attack or untrustworthy participation only wastes your own time. For those who are curious, Ripple's CTO, David Schwartz, has an excellent lecture on this.

But, to put it plainly, it would be as if, in our group deciding which restaurant to go to, one member just decided to start adding more options, or act crazily, or attempt to stop us from going to a restaurant at all. The group may at first humor him, but eventually, we would just ignore or leave this person. Whether or not he learns to behave well enough to be part of our group hangouts is none of our business. In fact, we don't even care, and never again invite him to our parties.

What We've Learned So Far

It may seem like I am biased towards a particular style of blockchain, but I actually think there are advantages and disadvantages in each one.

Proof-of-Work has the advantage of being self-incentivizing. Each part of participating in the network incentivizes both its growth as well as decentralization. Proof-of-Stake corrects the energy problems of Proof-of-Work, and also incentivizes people to hold or stake their coins, rather than use them, and thus, increasing the value of those tokens. Cryptos built on Federated Byzantine Agreement do away with all of those financial incentives, and instead touts a system that is robust and almost tamper-proof.

Ok, wow, I keep thinking that each of these parts are going to be nice short summaries, but I seem to always write a lot more than I intended. So I'll once again be answering the other questions in a subsequent post. Hope it's been interesting so far, I'll see you in the next one!

Header Image credit to Pixabay.

In the spirit of the “______ for Dummies” books, I've decided to write something that I hope will help people unfamiliar with blockchain and cryptocurrency to learn about it with less technical or financial jargon. I've noticed that, for the most part, a lot of wikis and other information sites on these subjects, even Blockchain for Dummies, contain lots of conceptually complex ideas or vocabulary that can often hinder people from really understanding this new technology. And given the recent massive Twitter hack, and the subsequent fallacious blame some are attributing to Bitcoin and cryptocurrency in general, I think it would be good to define some things so as to help everyone understand what this new technology is all about.

I've initially tried something similar in a previous series of posts I wrote called Exploring Blockchain (Part 1 | Part 2 | Part 3). There, I discuss how blockchain is related to different technologies, and where I believe it's going. However, today, I want to get right down to the basic concepts behind blockchain, define the main ideas in 'laymen's terms', and hopefully give a firm, but easy to grasp, foundation for someone who is new to the whole space. Keep in mind, I am also still learning daily about this space!

With that, let's start with the main definitions.

Blockchain and Cryptocurrency

For newcomers, these terms might seem synonymous. However, while related, they are different in the same way the 'Internet' and 'websites' are different. Blockchain describes the underpinning technology, while Cryptocurrency is a digital asset that is often built using blockchain technology. Let's define them in an easy to understand way.

Blockchain

A blockchain is basically a list of information agreed upon by a network of peers, in which the previous items (or blocks) on the list inform what can be added afterwards. In order to add something onto the list, I have to not only have all the data from the previous blocks, but I need to get everyone in the network to agree that the new item I am adding is legitimate.

Because of this, a blockchain is extremely secure. It is already difficult to fool one part of a network into changing its list. But even after making a change in one list, when attempting to match up with the rest of the network, you fail, because everyone else would be able to say, “No, that's not the right list,” and reject you from the network. In order to do make such a change, you would have to get a majority of the network (and sometimes more) to agree with your list. But, as the network grows with more and more peers, especially if those peers are not in one easily accessible location, it becomes exponentially more difficult to hack into and change information on the blockchain.

The secure and data-centric nature of blockchain leads it to be an easy fit for the financial world, where the integrity of transactions depends on how easy it is to modify a list of those transactions. For example, in the traditional case, I can buy a coffee with my debit card. But let's say I am able to hack into my bank records afterwards and simply erase the transaction. So now, the money that was supposedly used for the coffee is back in my bank account. This is a double-spend, in which I can now illegally use one instance of money on multiple things.

Such a scenario is theoretically impossible to do on a blockchain. Even if I were to be able to hack into a bank account and erase the transaction, if that bank is part of a blockchain network, if it tries to go back in, it will be rejected. The bank will have to change its list back so it can once again operate within the blockchain network.

Bitcoin is the first product created that used blockchain. In fact, it would be basically true to say that the invention of Bitcoin was also the invention of blockchain. But Bitcoin is also a cryptocurrency. So let's define that.

Cryptocurrency

A cryptocurrency (often shortened as crypto) is a digital asset (or token) that can be used in a digital network. While they don't necessarily have to be, the vast majority of cryptos today are built on blockchain because of its secure nature. Since transactions cannot be tampered with easily, it is natural to rely on a blockchain to legitimize all transactions. If I am accused of not sending the money, I can always refer to the part in the list where it says I did send it, and every block on the list afterwards will also agree.

But cryptocurrencies can be used in other ways as well. In terms of base use-case, crypto tokens on a blockchain network can simply be used to legitimize agreement. For example, if a blockchain is created for the purpose of voting, then the person who has the right crypto token in that network can send it to a “yes” or “no” box for a proposal. Again, since that transaction cannot be changed, we have a legitimate way to identify a vote with cryptocurrency without worrying about fraud or double-spend. These examples, as well as a variety of other potential use-cases, have spawned a whole new chapter in technological development, as well as the beginnings of entirely new economies.

So why is this important? Why is there a need to develop and build upon this new technology? Does it offer any advantages that our current systems don't have? To answer this, let's dig into the philosophy behind blockchain and cryptocurrencies.

Decentralization

If you go around forums and websites that discuss blockchain and cryptocurrency, it's almost inevitable that you'll begin to hear the word decentralization, discussions on decentralization, whether a particular coin is really decentralized, and a number of other related concepts. Related is the discussion of the nature of blockchain being trust-less (i.e. the idea that you don't need an intermediary to make a transaction happen).

This is mainly because Bitcoin (the first cryptocurrency) was borne out of the ashes of the 2008 Great Recession. As per claim of its white paper, the idea was to wrest control of money away from central banks and financial institutions which (in the creator's mind) had caused the crisis, and put the power of money back into the hands of individual people. It was a very libertarian idea, and one that, for the majority of developers in the space, drives the ethos behind different blockchain and crypto projects.

But, if you were to take the power away from these traditional institutions, how would you put it back in the hands of people without creating another entity that would probably and inevitably end up just as authoritarian and corrupt as the ones you took it away from? In other words, how do you take power and authority that was once centralized into a few entities, and be able to put it in the hands of multiple participating entities, each of which would not be required for the whole system to function?

This is the primary idea behind decentralization, in which the power and authority to govern and make changes in a system doesn't rely on a single person or entity. Notably, decentralization isn't unique to the blockchain space. In politics, it's popularly thought of as democracy (though there's dispute about this), and in economics it's known as free-market capitalism.

A blockchain, in many ways is already decentralized. This is, perhaps, the genius behind Bitcoin. While its white paper refers to a man named “Satoshi Nakamoto”, this man doesn't actually exist. He, she, or they (if it was a group of people that created it) are essentially anonymous. It's one of the cooler and stranger mysteries behind this whole space, and the fact that no one in this day and age has yet been able to truly identify Satoshi Nakamoto is a testament to this person's (or group of people's) commitment to the philosophy of decentralization.

Because blockchain offers such a strong proof-of-concept for decentralization, many people in the space have come to believe in an almost idealistic, technocratic vision that blockchain can truly bring about the libertarian ideals it was founded on. Whether this technology eventually bears that fruit, a lot of progress has been made towards this front. There are now currency exchanges that run on blockchain for the purpose of not needing to rely on a single company. There are 'smart contract' systems that don't require legal companies or developers to lock agreements into place. It has even given rise to decentralized apps, or DApps.

Crucially, all of this surrounds an environment and ecosystem that is built on the idea of trust-less, decentralized transactions. We now have a system, or multiple systems, in which we can send real value to each other without needing to rely on other parties we don't want or trust.

The Conclusion So Far

The definitions and concepts given so far are, in my opinion, what make cryptocurrencies so valuable. The fact that a double-spend is nearly impossible gives these digital assets the rarity property akin to real world physical objects. But, due to its digital nature, they are not susceptible to other issues physical objects have (e.g. weight, mass, degradation, etc.). Furthermore, the ability to transfer these objects without needing intermediaries gives further value to these assets.

Suppose I have a token that is fixed to the value of an ounce of gold. Would I rather have that ounce of gold, which is regulated, heavy, and difficult to transact with, or would I rather have this digital token that can be infinitely flexible to do anything I want with it, regardless of what other people say?

I think, or hope, the answer is obvious. But they cause us to ask other questions:

So how are cryptocurrencies obtained? How do we get our hands on it? How do we participate in this burgeoning technology?

These are important questions, and I'm definitely going to address them. However, I've just realized how incredibly long this post already is, so in the interest of making this primer more readable, I'll just split it into multiple parts.

Hope this was helpful! I'll see you in the next one.

Header Image credit to Pixabay.

In the 7th episode of Block Stars, David Schwartz interviews Ripple's General Counsel Stu Alderoty to once again talk about regulation and the crypto space. While this topic has been broached before, this week's unique take is focused on the legal frameworks and minutiae that brings light to what kind of regulation crypto needs for the industry to boom in the United States.

Starting this week, I'm going to change things up a little. First, I'll respond to a couple few quotes or topics from the podcast that I thought were significant. Then, for those who are interested in reading the summary, it will be written afterwards.

Here we go!

My Thoughts

The Howey Case and Beanie Babies

I really appreciated the more in-depth look at legality and regulation that this podcast took. It's fascinating that a half-century old Supreme Court case is what is driving the securities laws, including dealing with cryptocurrency, today. As they talked about the ruling from the case, I began to wonder: is cryptocurrency a security?

As stated in the podcast, there are several different types of cryptocurrencies. First, there is the category of fiat replacement, like Bitcoin, Litecoin, and even stablecoins like USDC, USDT, and MakerDAO's DAI. These coins literally have a single use-case, which is to be used to transact for services or goods. Certainly, these kinds of coins are not securities.

And then, there's the coins that are designed to be securities, like those attached to real estate or company shares in the stocks and investments markets. As far as I know, most of these, like the ICOs in 2017, are built from the Ethereum blockchain. These security tokens are obviously securities.

But then there's the in-between. What many want to believe are utility tokens, but often times are just coins looking for utility. Many speculators buy these coins in hopes that the utility of the token will increase, and thus the value or price of it will as well. So a majority of these tokens are being used like securities. The issue is whether that specific token will pan out in the end as a utility. But if it doesn't, do those speculators bear the responsibility of the loss they will incur?

Let's go back to Bitcoin. As stated above, and from its whitepaper, Bitcoin was meant to be a currency replacement. But today, almost no one uses Bitcoin for transactional purposes. The VAST majority of uses for Bitcoin are either cold storage or speculation. And so, we come to a new question: if the popular use-case of a coin goes against its original design, how is it classified? Is a coin classified based on popular use-case, or designed use-case?

The Beanie Baby analogy is pretty great. But I think crypto has a little more nuance than a product that literally has no use other than sentiment and collection. Different coins can do vastly different things.

Personally, I believe that crypto and blockchain are the beginnings of a technology that can absolutely change the very foundations of how the world functions. While finances are the obvious sphere where they are applicable now, broadly, blockchain has the potential to change the very infrastructure, from government to the sciences, that societies around the world rest upon. It's an exciting thing to be in the midst of, and something that keeps me pondering and engaged in this space.

“We're not asking for no regulation, we're asking for an even playing field.” (24:44)

I think this is the most important point in the whole podcast. Most entrepreneurs and investors are already making risky bets in the market on what the next big thing is. Given this risk, it's easy to understand that they want to mitigate any other potential hazards that would prevent them or cost them in the long run (which often makes the risk not worth taking).

And so Alderoty saying this made the most sense to me. The industry isn't necessarily looking for absolutely open-field anarchy, but rather wants to make sure that they can continue to work and invest in the space without fearing weird compromises in the near, or perhaps even distant, future. Both short and long term, it's not really about the laws, but about having an equal footing to compete and flourish in a growing and inevitable technological future.

Laws like those enacted in the United Kingdom would be a good start. Though there are concerns, as given above, having a broad template in which to work will help investors, developers, and entrepreneurs continue to invest and build in the space without getting burned. If coins eventually are able to be classified, and then have that classification changed, hopefully it will be a slow methodical change that, intrinsically, won't be about limitation, but the betterment of all consumers in the world.

Final Thoughts

Most of these podcast episodes so far have had people within the Ripple or XRP spheres. But the cryptocurrency and blockchain industry is so much wider than that. I'd really love for Schwartz to interview some other leading figures in the industry—perhaps someone like Vitalik Buterin, Robert Leshner, or even Anthony Pompliano (given that he interviewed Brad Garlinghouse at one point). This way, the podcast really becomes about all the 'Block Stars', and not just the ones related to XRP or Ripple.

If you're curious about my thoughts about other Block Stars episodes, please go here.

Episode Summary

As the General Counsel at Ripple, Stu Alderoty manages everything to do with legality, compliance, and even government relations. He's been working in the financial sector in legal capacities for over thirty years, including working for American Express as well as HSBC, before going to Ripple. He was attracted to it, not only because of Ripple's robust and professional leadership, but also because, as we all know, the blockchain and cryptocurrency industry is in need of good regulatory solutions, especially in the United States.

Given his position, Alderoty has a few thoughts on regulation of crypto. First, as real utility and use-cases begin to emerge in the space, any regulation put in place needs to recognize and support the innovative potential of crypto. It also need to be clear for anyone to understand, as well as adaptable to the growth of the technology. Currently, regulation is a mess, from lack of clarity in some jurisdictions to complete non-existence or even hostile in others.

There are a few that are getting it right, though, such as the United Kingdom, the United Arab Emirates, some East Asian countries. In the UK, their Financial Conduct Authority governmental department regards clarity and fostering innovation as the foundation for their regulation. From there, they categorize digital assets, and then clarify which laws would apply to each of the distinct categories. The UK also recognizes the speculative nature of most crypto assets, but clarifies that speculation doesn't automatically indicate securitization of a token (he brings up the beanie baby analogy here). In this way, they have protected both consumers and the industry while allowing it to evolve.

In regards to the United States, Alderoty suggests that the mass of ICOs that happened in 2017, which led to innumerable scams, has led to an enforcement approach rather than a helpful supportive one from the US government. Schwartz mentions that Jay Clayton, the current chairman of the US Securities and Exchange Commission (SEC), may step down, a move that may affect crypto regulation, but Alderoty hopes that regulation doesn't depend on any single person, but rather a group of principles that are, again, flexible enough to adapt to the changing landscape crypto is bringing to the tech world.

That's not to say that the SEC has done nothing, as they have released a framework for working with digital assets. However, the framework wasn't official regulation. Instead, they used past Supreme Court cases and regulation to simply suggest and guide, rather than set in stone or transparent. Thus, for many, it has created more confusion rather than bring clarity.

The two make a slight (but important) segue into the 1946 SEC v. W. J. Howey Co. case cited in the framework. The important ruling for the case was that if someone invests their money in a “common enterprise” and expects to profit from it solely due to others' efforts, then they've bought into an investment contract, which is a type of security. (I encourage anyone who wants to know more details about the case to listen to the podcast yourself. It's quite interesting!) This case, and many like it, have defined securities in the United States for decades. These rulings make sense in light of the ICO's of 2017, but with tokens that have real utility, whether these rulings apply is quite muddy.

So how does the United States step towards clarity? Of course, the US Congress can create federal legislation around it. But there is also room for state legislators to regulate. But the most helpful step may be if the SEC and CFTC (Commodities Futures Trading Commission) worked with industry developers and consumers to provide a framework as Alderoty summed above. He commends Hester Peirce for her work in this area, having worked with multiple different developers and projects. He also mentions that, with so many different projects, it's easy for regulators to get lost and begin taking everything one at a time. However, it would again be more beneficial to have general regulatory clarity.

The crypto industry, in this way, can be likened to the Internet, in that regulation could either support or kill that industry in its jurisdiction. While the United States' historically has been a leader in innovation and technology, in crypto it seems to have lagged behind. Alderoty even reports a near 20% decline in crypto investments in the United States, and the lack of good regulation so far not only discourages crypto companies from the US, but also may hurt current companies that can't adapt to the technology in the future.

China is, of course, brought up, with its dominance in 5G technology already making impacts around the world. And, more relevantly, the country is already actively developing and testing a digital version of its national currency, in addition to subsidizing Bitcoin and Ethereum mining. This is disturbing, given that the only two cryptocurrencies that the United States has officially recognized are these two coins. These are hints that, crypto companies or organizations are already going offshore instead of investing in the United States, and the fact that they are investing in a competitor to the United States does not seem to bode well for the country.

All is not lost, however. For example, in the United States, it is now law that banks inform their customers upfront how much it would cost to send money overseas. In the current legacy system, this isn't really possible, but with the use of blockchain technologies, it is. Furthermore, the Office of the Comptroller of the Currency (OCC) has issued a notice requesting commentary on what barriers there are to crypto adoption in the US. And if all goes well, blockchain, through good regulation, can bring much more transparency to the financial industry as well as give consumers much better experiences, in addition to potential future innovations that we still haven't thought of, yet.

Even with just a year and a half of experience, Alderoty sees crypto adoption as inevitable rather than optional. Around the world, different countries are already adopting it, and even JP Morgan did an about-face on crypto, issuing a report this past March on the resiliency of the industry in the face of the global shutdown. As crypto companies work with regulators, the hope is that the United States won't get left behind as the rest of the world forges ahead with this new technology. Instead, smart regulation which is principled, flexible, and goal-oriented can foster good, fair, and responsible innovation that grows inside the United States, a much freer market, rather than an oppressive, authoritarian one like China.