Colin Platt here once more, time for another blog, exploring some of the topics that Zeth, Shaun and I found interesting and noteworthy. Last week we shared part one of our two-part interview with Paul Gordon, where he talked about where the industry has been and the trends that he’s witnessed in the crypto space.  Today he talks to us about what’s next.

CP: Let’s shift our focus on where we are today. We’ve seen the run up in crypto prices in late 2017, and subsequent slide down pretty much ever since. What are some common challenges you see people in this space discussing?

PG: With my old trader’s hat on, I’ve written some analyses looking at the various price-cycles bitcoin has followed since its beginnings, identifying many of the similarities between the well documented price bubbles that it’s mapped out on a number of occasions now.

Having been around since the time when the first businesses in the space were forming, I have also seen the same challenges being faced, albeit at smaller scales, during each of these previous cycles.

The main challenge I see, in general, is that the majority of businesses establishing themselves within the industry (up until now), have been basing their business models purely on crypto which also means they are completely exposed to the sentiment of the crypto markets. It’s like experiencing normal business cycles on steroids and very difficult to plan for.

For those in the exchange or broking space, the major challenge is how to manage scaling up and down during these extreme periods of growth followed by extreme contractions. Unfortunately there has been a lot of scaling back and enforced redundancies over the past year since the ICO bubble popped when; investment capital wasn’t hedged; teams were scaled up too fast; traction wasn’t achieved and; money ran out.

You never want to see individuals and fellow founders go through tough times. I understand the risks that entrepreneurs take only too well but hopefully lessons have been learned and won’t be repeated next time.

As I mentioned earlier, I was never a fan of the whole ICO model, concerned that its inevitable fallout would be detrimental to the industry as a whole. At least it came and went relatively quickly though.

Many solid projects that were a little more sensible have managed to survive and will hopefully thrive in the long run will and we’ll hopefully see the next wave of innovation being built upon far more solid and realistic foundations.

I think we’re already seeing the early signs of new teams forming and raising under traditional investment terms, gaining the kind of support that is critical to any early-stage project.

If those founders and investors do also want to benefit from any future uplift in the crypto markets, my suggestion (and this is not investment advice, of course) would be to invest in the native tokens of the network protocol they have decided to build upon or upon which their own solution can operate.

Right from the earliest days when businesses started forming in the ecosystem, I always thought that investing in Bitcoin projects created a bit of a conundrum to be honest.

Typical startup failure rates (i.e. 90% will fail) were naturally still going to apply so there would obviously be an equally large number of failures in this space too. At the same time it was just as likely that bitcoin would still grow and thrive on the back of all the remaining 10%’s successes, a little bit like the perfect ETF tracker really.

If you were able to go back and buy a basket of all of the crypto companies seeded between 2012 and 2014, your total investment would, without a doubt, have under-performed bitcoin itself.

There are very few out-performers out there.

CP: One of the really big things we saw during the last bull run was a proliferation of new cryptocurrencies, and tokens. It seems like focus has consolidated around crypto like Bitcoin, Ethereum and maybe a handful of others.  Do you think that this is a lasting trend or will we see a raft of new assets if the markets pick back up?

PG: I really was very sceptical of the whole thing from the very beginning to be honest. I really never could, and still don’t understand why every application would require its own token.

We’d seen earlier attempts of the idea back in 2014 when, as I said earlier, Counterparty and Mastercoin were released. Many tokens were issued but I’m pretty sure none still survive today –  with the combined market cap of Counterparty and Mastercoin’s (now called Omni) themselves being under $10m.

I’ll caveat that by making a clear distinction between the native “network tokens” that do potentially provide the necessary economic incentives to maintain the security of their underlying networks (as per BTC or ETH, for example) and the so-called “utility tokens” that fuelled much of the 2017 ICO frenzy.

A few years before the idea took hold, one of the narratives amongst the Bitcoin die-hards was that bitcoin would one day reduce the friction we have today when dealing with so many national currencies.

Why have so many when we can have one?

Fast forward to 2017, and suddenly the narrative changes to one where the world, instead, should have a dedicated token for each end every web app!

I don’t care what anyone says, and as ex-markets guy, in a world where every app has its own token, the friction (and therefore cost) of exchange between them would become restrictively high and the user experience unnecessarily bad.

Just because you can doesn’t mean you should.

If you think about it, especially through a lens whereby “decentralisation will level the playing field for all”, we’d actually run the risk of strengthening new monopolies rather than weakening old ones.

Any underlying “token” behind the most successful decentralised apps would necessarily become the most liquid ones in the market too. Being the most liquid, they would also command the tightest bid/ask spreads and therefore be the cheapest to enter and exit.

Conversely, any subsequent competitor that came along to challenge them, whilst potentially being a better solution, would struggle to attract the same depth of liquidity for their token and so the cost would remain prohibitively high for users to access their platform when compared to the market leader.

The decentralised Amazon of the future would, no doubt, become as just as entrenched in the market as the original version is today.

Which takes us back, yet again, to “Just because you can doesn’t mean you should.”

I personally spoke to a number of projects during 2017 that were writing their whitepapers who’d say “the only thing we now need to do is work out our (so-called) tokenomics!”.

Given that the majority of these projects were planning to build on top of Ethereum, I never once heard anyone say that it might actually make sense for their applications to use Ethereum’s native token, ETH, to incentives their users instead (if financial incentives and market risk is really what their average user wants or needs in the first place) so that all of these dApps within the broader ecosystem would potentially become, you know, interoperable. Avoiding an inordinate amount of cost and inconvenience for their future users, let alone headaches for themselves with having to get tokens listed on exchanges whilst competing with thousands of others for awareness and liquidity.

You only need to look at the daily-user stats for many of these apps which once carried these ridiculous valuations to emphasise the point.

In many cases, I really don’t think there was any dishonest intent – simply a fascinating social experiment showing how easily people can get swept up in memes at a very large scale.

CP: Do you think that there will there be a place for such things in the future?

PG: Of course, there may well be. The history of new technologies is littered with examples of “right idea, too soon”. I’m just pretty convinced that any successful future versions won’t each have their own unique token.

On the flip side, we did see a much smaller number of new networks/protocols raise funding for development and subsequent (or pending) launch which may well prove themselves in the market if/when they attract a broader network of active developers and actual, viable use-cases.

In the end, I think we’ll end up with no more than 4 or 5 networks that each do something particularly well. If so, the liquidity of their native tokens will be deep enough to ensure that the friction/cost of trading between them will remain attractively low.

CP: Last question, imagine that you had a time machine, and could tell yourself one thing as you entered the space back in 2011 (other than buy more Bitcoin), what would it be?

PG: Ignore Colin’s  last question when he asks me for an interview in April 2019 and just jump in my time machine to go back and buy more bitcoins.

CP: Fair enough, thank you again for coming on, and thus proving that time travel does not exist.

PG: Big shame! Thank you again for having me.

If you missed part 1 of the interview about crypto and blockchain technology you can find it here. 

Check out the Coinscum meetup here or follow them on twitter. ​

Nothing here should be construed as financial advice, recommendation or endorsement of any project or cryptocurrency.

Colin Platt here once more, time for another blog, exploring some of the topics that Zeth, Shaun and I found interesting and noteworthy. Taking a break from our regular posts, I caught up with Paul Gordon for an insightful two-part interview covering his long history that goes back to the early days of Bitcoin and cryptocurrencies in London. We discussed what he’s seen, trends, and what the future may hold. Paul really has deep experience, so today we present part-one, and will follow-up next week with his view looking forward.

Colin Platt (CP): Hi Paul, great to see you again, and thanks for taking the time to catch up with me. Can you tell us a bit about you?

Paul Gordon (PG): Hello Colin, good to see you too, and thanks for covering me in the blog. I run the Coinscrum meetup, we started as a small group of enthusiasts in 2012 meeting at a pub in Paddington to discuss Bitcoin and have since grown, welcoming some of the most innovative people in the space.  We welcome everyone, from people first learning about Bitcoin and cryptocurrencies, to those who have been around since the beginning. I’m also a founding member of the UK Digital Currency association, one of the first industry trade associations, as well as the founder of Quantave, a company working to help bring institutional liquidity to digital assets.

CP: Paul, I want to dive right in here. What are the trends that you’ve seen in cryptocurrency and blockchain technologies?

PG: In terms of trends, given the length of time that I’ve closely been following the evolution of these technologies and since a time when it really was all about Bitcoin and not much else, I guess it’s worth looking at just a few of those trends that have persisted in some form or another since those earliest days, all if which I firmly believe will ultimately deliver positive outcomes.

Many of the most critical issues relating to the mass adoption of this technology are really quite simple. I know it feels like we have moved on in leaps and bounds since those early days but many of the most critical questions remain as true today as they did then and still await an ideal resolution.

Tribalism

One of the less-than-helpful trends that started emerging after 2012, both within the Bitcoin community and then moving beyond those borders, has been the obvious tribalism that has formed around, with mudslinging between, these various decentralised blockchain projects.

As a networking group, we’ve always tried to remain agnostic to any particular technology, confident that our members are educated enough to weigh up the pros and cons of anything we might put in front of them for themselves.

Nevertheless, the trend has been real and how damaging it might be in the long run is hard to tell. I think Arjun Balaji tackled it very well in his recent article, A Conflict of Crypto Visions, that applies Thomas Sowell’s concepts of Constrained and Unconstrained thinking to the design and development philosophies of any Bitcoin-inspired project you can care to name – the positive conclusion being that neither should be considered right or wrong, but that these naturally conflicting schools of thought will mutually benefit each other in the long run.

Fortunately, and no doubt tempered by the cold realities of another crypto winter, I sense that this problem is finally dissipating somewhat. Many of these projects are competing for the attention of a relatively limited number of developers and founders looking to build upon decentralised networks. The 2017 hype-cycle was driven by a narrative that every app we use will inevitably be replaced by a decentralised counterpart – often without any real consideration for the problem that was actually being solved or the trade-offs being introduced.

Early evidence suggests that we may need to go back to the drawing board and rework things a little if that vision is to become a reality.

However, I do detect some early winds of change with a softening of these tribal attitudes and that we’ll start seeing competing projects and their communities looking more closely at how they might complement each other instead.

Techno-attachment

When I started paying it attention, and having come from a markets rather than software development background, I was probably in somewhat of a minority within the Bitcoin community – although certainly not alone.

One of the things that quite quickly became apparent to me was that these very smart developers would often become somewhat glued to the novelty of an idea without necessarily questioning what problem it was they were actually solving – or worse, what new problems they might actually be introducing.

The basic concepts that Bitcoin has now brought to such broad attention go way beyond its underlying technology alone, opening up a wide number of non-technical considerations such as information asymmetry, human behaviour and other deeply-embedded social constructs.

I think this was less obvious when following the debates amongst the early Bitcoin development team who were mostly focused on patching the holes in Satoshi’s original code.

Bitcoin seemed to fix a particular problem very well and there wasn’t too much conversation around trying to make it something it wasn’t – apart from the early conversation relating to how the damn thing would eventually scale.

However, as these concepts started to inspire more ideas, it seemed clear to me (and many others) that the trade-offs that alternative use-cases might have to make in order to become viable weren’t necessarily being fully considered.

Just because you can, doesn’t mean you should.

For example, the conversation around Asset-Backed Tokens emerged in 2012 with the release of the Mastercoin whitepaper and Colored Bitcoin proposal.

On the surface, and from a technical standpoint, these seemed like very exciting propositions indeed, especially to simpletons like me – potentially offering the capacity to expand Bitcoin’s basic feature-set way beyond its original intent.

But it didn’t take long for some of the wiser minds on the forums to identify the risks they introduced or to question what problems they were actually solving.

For example, placing a huge amount of additional “value” (in the form of asset backed tokens) on top of the Bitcoin (or any similar) network would completely skew the economic game theory that underpins its network security.

Or that any asset backed token would carry exactly the same type of counterparty risk that bitcoin was designed to eliminate in the first place.

Or that tokenising or fractionalising something is not what makes it liquid in market terms – that’s an information problem, not a technical one.

Of course, this hasn’t stopped many of these ideas from being expounded ad infinitum, with the same questions and risks applying every much today as back then.

Decentralised prediction markets are another prime example. It’s intriguing that these things are now possible – it’s another question entirely as to whether the market will want them, with early traction hardly indicating otherwise, for now at least. My experience over the years in traditional markets tells me that demand for these things shouldn’t simply be assumed.

But looping back to the Arjun Balaji article I mentioned earlier, I’m not saying that the experimentation isn’t a good thing. It absolutely is. The Unconstrained school of thought is essential if the as-yet-unknown Killer-Apps that ultimately make this stuff fly are ever to be designed.

I just think the path to the ultimate adoption of these technologies will be somewhat different to that which most of us are imagining today.

Be your own bank!

Another clear trend with roots that can be traced back to the very beginning of Bitcoin relates to one of the hottest topics of the past year or so – crypto asset custody.

The early (and continuing) meme across all Bitcoin forums was that everyone could now be their own bank.

Amazing in principle, but questionable in reality.

As the numbers have gotten bigger, what seemed somewhat obvious to many, is now playing out on the ground with a realisation that people might not actually want to, or (in the case of highly regulated financial institutions) be able to, safeguard their own assets or wealth – trade-offs between technical theory and actual human nature abound again.

For now, at least, and for anything other than their crypto pocket-change, the vast majority of people (i.e. the 99% of the population that don’t yet own crypto) will not want to take on that responsibility for themselves, preferring to outsource it to others as they do now – essentially giving us what we already have today but with bigger security headaches.

Maybe this is simply one of those trans-generational issues whereby only time can bring about such a drastic change in mindset and, if so, we’re probably safe to assume that the much needed improvements in key management and user experience will evolve to meet that future demand once those of us that are over 30 years old have finally popped our clogs and taken our old-world attitudes with us.

Architected correctly, simple concepts such as multi-signature transactions may well introduce significant improvements over what we have now – but we’re definitely not there yet.

—

I could probably go on and identify many similar long-standing trends but I won’t for risk of sounding like a Nouriel Roubini!

I am your archetypal crypto maximalist after all. Just a rather cynical one – or, as I prefer to say, a pragmatic one!

I can see how these trends are evolving in a positive way too.

The mind-boggling explosion in awareness and investment in the space over the past two years has clearly increased the broader mind-share now tackling these issues, with the demand to do so now far greater than it ever was – this pressing need to find solutions will no doubt lead to them being found.

Most importantly, experienced talent from all walks of life and a variety of industries have now entered the space and will be here to stay – they’ll be the ones that pull the engineers aside from time to time to take a pause and ask “why?” a little more frequently.

CP: That’s fascinating, and a lot to take in. Having been there, are there any moments that you look back on and think: “wow, I really lived through that?”

PG: Ha, I’ve often said to my friends that the past 8 years of my life has been a little bit like living inside a movie. Looking back through the whole experience is really quite mad to be honest.

I think that anyone who became aware of Bitcoin back then went out of their way to deeply understand it and grasp its implications on a technical, economic and social level and will most likely feel the same.

I can well imagine that, to many of their friends and family, their somewhat unnatural obsession with it was more than a little concerning – I was more than a little concerned myself to be brutally frank!

But it’s been crazy to witness how far the idea as a whole has come in such a relatively short time-span.

I remember one of the earliest meetups in the pub when everyone excitedly got up and left early to get home when someone got a call telling them that Trace Meyer was due to appear on Newsnight to get a grilling from Jeremy Paxman about Bitcoin.

I think that might have also been the night when, in our haste, we left a large pile of the first print editions of Bitcoin Magazine that had been delivered by one of its founders on the table. When I checked on Ebay during the height of 2017 bull run, they were each selling for $800.

I think Paxman might owe us about $30,000!

But to see it then go from such a small, niche subject to become such a global phenomenon really has been a once in a lifetime experience – especially having crossed paths at one point or another with so many of the real innovators in the space; seeing friends’ businesses go from initial concept to multi-million dollar reality; recalling moments like Brian Armstrong posting the launch of something called Coinbase on Reddit and likely being one of the very first to register; sitting in a really shitty Chinese restaurant in Wood Green on a very wet Tuesday night being told about an idea called Ethereum by one of its co-founders and thinking, “hmm, that sounds cool….”; hosting events like the one in a gig venue in Hoxton in early 2014 with Amir Taaki, Andreas Antonopoulos and the Finance Minister for Guernsey all on the same stage – the energy in the room was incredible; Hosting an event at the 02 arena that saw Max Kaiser stage a fight against the World Kickboxing Champion in the name of Bitcoin! (yes, really).

It’s been a strange, roller-coaster of a journey indeed.

Part 2 of the interview on crypto and blockchain will follow next week, read it here. 

Check out the Coinscum meetup here or follow them on twitter. ​

As always, nothing here should be construed as financial advice, recommendation or endorsement of any project or cryptocurrency.

It’s time for another blog with me Colin Platt where we explore some of the topics that Zeth, Shaun and I found interesting. 

This blog will be a bit different than normal, as I took the opportunity to cover… myself. Hopefully you’ll enjoy the playful nature of it.

I had the immense pleasure of joining Jeff Paik and his team for round 2 of Deconomy in Seoul on 4 & 5 April. As was the case last year, they pulled off one of the most interesting, and unique events in the cryptocurrency industry, blending very different viewpoints on the industry itself.

Case in point, one of the first features of the event, was the long awaited debate between Ethereum founder, Vitalik Buterin, and legendary crypto-sceptic, Dr Doom himself, Professor Nouriel Roubini. Following his appearance at the US Senate hearing on cryptocurrency and blockchain last year, Nouriel and Vitalik took to Twitter to air their differences of opinion. Deconomy 2019 was where they finally came together. Despite the obvious tension that everyone had expected, I was lucky enough to see some of their preparation behind the scenes, which were quite respectful and cordial, bummer I guess for those hoping for a cage match. I even managed to get them to wear matching T-shirts, more on that later. In hindsight, during the welcome dinner the evening before the event, Vitalik and Nouriel, though they didn’t interact much, were still very much at ease around each other.

So the debate, there are a few places that you can already see it online, and the official videos for all sessions should come out in a few weeks. Nouriel landed a few very good points in my opinion, and Vitalik offered some helpful view points. Neither one of them clashed too much directly, perhaps because they really do fundamentally agree on a few key items: Proof-of-Work consumes a lot of energy, which they see as wasteful; There are a lot of scammers out there; and blockchains haven’t yet proved their value for a majority of cases that they have been billed as offering unparalleled disruption for the better. I dare go as far as to suggest that they came out respecting each other after the debate. Vitalik also did a great job at diffusing Nouriel’s criticisms regarding the uneven distribution of cryptocurrency holdings (GINI coefficients), as perhaps partially being the result of insufficient data.

Keeping with Vitalik, he did have more contentious discussions, this time with a panel on scaling Bitcoin, notably so as he wasn’t even on the panel. This panel featured several prominent supporters of Bitcoin Satoshi’s Vision (BSV), which is famously supported by Craig Wright. Hong Kong based miner, Peter Ng also joined the panel, he confirmed with me after that he wasn’t a “full blown BSV supporter”. I was sitting next to Vitalik during the panel, and he took issue with several of the points made by the BSV supporters, including legal questions surrounding segwit, and the ability for Bitcoin to scale infinitely. One of the more fun reactions was when a panellist pointed to BSV’s desire to offer services for video streaming directly in the BSV blockchain. You can see his Tweet after the panel:

Kinda disappointed @Deconomy_forum is again giving airtime to BSV shills, this time a panel of them.

At least there’s some hilarious quotes… my favorite was that Segwit is bad because separating signatures from transactions “has legal ramifications” pic.twitter.com/3M2qWUObmr

— Vitalik Non-giver of Ether (@VitalikButerin) 5 April 2019

Because I like to toot my own horn, I also want to note that yours truly got to present on my favourite topic: PTK. “What is PTK?” you ask. Well there’s a back story.

At the 2018 Deconomy event, a bunch of us arrived a day early and hung out eating pizza and talking about, what else? Cryptocurrency. One of the popular topics, the number of low quality ICO projects, and the amount of money being given to these projects. We jokingly invented the worst possible idea ever (Pitchtoken), and started intro-ing ourselves on panels and during presentations as part of the Pitchtoken team. After doing this throughout the first day of the conference, we looked it up, someone had unironically launched Pitch Token. Wow.

We quickly pivoted and called the project PTK (Pitchtoken Klassic). A few months later, I decided to make it a real token and explode the value as a playful way to show how easily it could be done.

Fast forward to Deconomy 2019, I was allowed to get up and present to the ~2000 attendees about this, with the goal of warning people about the abuse in the market and empty promises stemming from many projects. Note, I don’t think every project is a scam, but I am a strong advocate of due diligence. Of course, to go with this performance art, I had T-shirts printed for the event which said “PTK Phoundation: Always be shilling”. Of course these were the shirts that we got Vitalik and Nouriel to wear, after letting them in on the story.

It was good fun, and I managed to get a bit of media coverage, here, here and here. Oh by the way, I managed to make myself the richest person in the world in the process. Perhaps worth noting here, that the whole event took place at the Shilla hotel in Seoul. I thought it was funny at least.

The other discussions that I really enjoyed were between Phil Zimmermann, creator of PGP, Vitalik and Zooko, founder of ZCash. The discussion covered privacy and was wide ranging. They all agreed that one of the important functions and aspects to be aware of was the ability for people to control their own fate, and that privacy was one tool to help ensure that.

Outside of the onstage discussions, I noted a very different atmosphere from the year before. There was a lack of real deal making. The previous year the VCs and crypto hedge funds seemed to be actively doing side deals. This year that didn’t seem to be the case. Is this crypto-winter? Maybe. Does it mean that we’ve got further to fall? Don’t know.

Not to despair though, Crypto investors from Michael Arrington, to Bryan Chang, to Remington Ong thought that this was a great time to be an investor in the cryptocurrency and blockchain space. Remington seemed particularly bullish, and thought that the latest crop of companies that he had seen were some of the most promising yet. Cool.

Perhaps I’m also biased on this one, but the enterprise DLT companies seemed fairly content. Quieter than years past, but heads down and working. Maybe big announcements will come in time. Fingers crossed.

As always, nothing here should be construed as financial advice, recommendation or endorsement of any project or cryptocurrency.