1.Bitcoin is the generation 0 of blockchain technology… the opening act… the gateway drug … the first inning … MySpace.
We must thank her for her work, as none of the following technology would be available without Satoshi’s Bitcoin, but we’re about to go much, much, further. While Satoshi converged a database structure with peer-to-peer networking, cryptographic tokenization, consensus formation algorithms, and game theoretical economic incentivization to create a means for trustless digital storage and transmission of value, the “Digital Gold” use case, is only one use case.
Bitcoin as a digital store of value is the least interesting use of blockchain … There, I said it.
Far more interesting are programmable money, programmable asset transfer, and shared, tamper-resistant business logic. People fixated on Bitcoin are missing the fact that we’re verging upon the next generation of the world-wide-web.
The Bitcoin protocol is the world’s largest modern-day abacus; it only enables us to move a bead (or coin) from one side to the other. The ability to do this on a global, permissionless substrate is not trivial. But I can’t overemphasize the limited scope of this initial design, due to its use of a virtual machine which isn’t Turing-complete.
The above script should serve to explain the inherent limitations of the Bitcoin scripting language. Ethereum can be thought of as Bitcoin + everything else, with a high level software language reminiscent of Javascript.
While still being able to store and transmit value (the single Bitcoin use case), we’re also able to program our agreements using Ethereum. Here are two examples of typical agreements that are now easily codified using Ethereum’s Solidity programming language.
A Loan
An Initial Public Offering or Crowdfunding
Our agreements are turning from Microsoft Word documents written by attorneys and recognized by notaries into agreements bound by code, transacting assets that are natively digital.
As the Internet commoditized the cost for communication, Ethereum commoditizes our costs of agreement and trust.
Intranets First
Similar to the evolution of the Internet that began on private Intranets, permissioned blockchains will give way to the permissionless blockchains once they successfully achieve scalability and privacy.
The Stack
The next generation of the internet will be a “stack” comprised of: (1) a decentralized transaction layer (the strongest of which I believe to be Ethereum); (2) a decentralized file storage layer (IPFS and Swarm are early leaders); (3) a decentralized messaging layer (Matrix or Whisper are strong candidates); and (4) a high throughput computing resource (Golem is an example of attempting to accomplish this).
Standards
As Jeremy Millar noted at the inception of the Enterprise Ethereum Alliance, blockchain technologies will be helped tremendously in 2018 through formal standardization processes similar to when Java evolved into Java 2 Enterprise Edition through standardization of database and web API’s to be the most widely used software language on Earth.
Consumer Facing Applications
Early use cases of consumer facing Internet applications in the 90’s were gambling, pornography, and games.
Interestingly, we’re seeing frontrunners on Ethereum in the same genres with Spankchain, Fun Fair, Virtue Poker, and Crypto Kitties consumer facing applications on Ethereum.
Developers, developers, developers, developers, developers… you get the point.
The ecosystems with the most developers typically win. I don’t see how permissioned blockchains that lack cryptoeconomic incentives will ever stand against public permissionless ecosystems.
Ethereum already has a thriving developer community. Truffle, the smart contract developer framework, has 250,000+ developer downloads. Infura, which can be seen as an Akamai for Ethereum and IPFS, now handles over 2 billion requests per day and smoothly scaled to peak at 4.5 billion requests per day one day in December. MetaMask, which brings Ethereum seamlessly to browsers, has over 500,000 active users.
As the world takes note of the societal implications of blockchain technology, we will see an uptick in humanitarian applications in 2018.
In 2017 we saw the World Food Program employ Ethereum to distribute 1.4 million food vouchers to 10,500 Syrian refugees in Jordan. And it is aiming for one million transactions, per day. This innovative program, dubbed “Building Blocks”, demonstrates how database efficiency will deliver tangible benefits to the most vulnerable. I applaud the World Food Program’s efforts and believe that its success is a sign of great things to come.
As permissionless blockchains continue their scalability and privacy upgrade process, permissioned blockchains will continue to lose the developer mindshare and potentially lose their client base similar to how AOL, Prodigy, and Compuserve services lost out to the Internet. There will be narrow use-cases for intranet-like permissioned blockchains, just as SWIFT never touched the internet, but the long tail will be using permissionless protocols.
Intranets were great training wheels, until the Internet was pervasive. The same trajectory will occur with permissioned blockchains in 2018 and beyond.
On New Years Eve ’17, the Ethereum research team dropped the testnet alpha of Casper, named after the Greediest Heaviest Observed SubTree protocol. All eyes in the blockchain space will be watching the transition of Ethereum from proof of work to proof of stake.
A proof-of-work consensus algorithm is an economic measure to deter denial of service attacks and other service abuses such as spam on a blockchain by requiring some work from the service requester, usually by processing complex equations on a GPU or ASIC computer.
In proof-of-stake public blockchains, like Ethereum’s upcoming Casper implementation, a set of validators each bet on blocks they deem likely to be validated, and the weight of each validators vote depends on the size of its deposit. Punishments are levied on bad actors who bet on more than one block at a certain depth or who don’t participate when they are supposed to.
Benefits of proof-of-stake include:
The ability to reduce the large electricity consumption and hardware costs to secure a blockchain. It is estimated the Bitcoin electric consumption will trend toward equivalent consumption of the country of Denmark by 2020.
Due to reduced energy consumption, token issuance isn’t necessarily intrinsic to the securitization of the network. Negative net issuance could occur, whereby tokens are actually burned thereby reducing the supply and increasing value per token.
51% attacks become exponentially more expensive, as you risk what you stake. Vlad Zamfir often explains that “if you participate in a failed 51% attack, PoS will burn your ASIC farm down”.
As Earth continues to realize the advantages of natively digital assets for everything (natural resources, fiat, gold, music, loyalty points, Madonna concert tickets, software, real estate, IoT device registration, stocks, electrons, etc.) on global distributed ledgers, regulation will be necessary. Regulators will be empowered to create smart contract software specifications and develop tests that compliant companies must pass.
With respect to the tokenization regulatory process, I’m thankful to Marco Santori, Juan Batiz-Benet, and Jesse Clayburgh for taking the first crack at self-regulation through the SAFT whitepaper (hat-tip to Y-Combinator’s SAFE), but I’m not convinced that the well-intentioned SAFT is right for most tokenization projects.
ConsenSys began the Brooklyn Project to embark on a journey of self-regulatory best practices and the bright legal minds of Cardozo Law and the ConsenSys legal team wrote an exquisite paper detailing the limitations of the SAFT.
Token Foundry will be the first platform to allow regulatory compliant utility token launches without using a SAFT — meaning everyone (not just accredited people on Sand Hill Rd.) will be able to participate and purchase tokens in an initial sale, thereby continuing to democratize venture capital.
I imagine the SAFT debate will continue to evolve into 2018 to further the best practices for tokenization. I look forward to seeing ConsenSys’ tokenization best practices public unveiling in 2018.
“Education is the most powerful weapon you can use to change the world.” — Nelson Mandela
Until recently, the ones learning have been software engineers, but in ’18 there will be customized educational programs for policy makers, lawyers, project managers, executives, and MBA’s to understand the implications this technology has on their respective fields. ConsenSys Academy has rolled out many of these endeavors already, and has some exciting initiatives coming in the new year.
“Nothing can be said to be certain, except death and taxes.” — Ben Franklin
There is already a precedent in US vs. Coinbase Inc., et al. where an exchange has had to divulge their user-base’s trading history. I expect similar outreach to other exchanges. Software like Balanc3 is being used to track the p&l of a person or company’s digital assets as well as trading history. Pay your taxes.
We will continue to see the growing trend wherein people, companies, and machines manage their identity self-sovereignly rather then by a third party service provider like a bank, Facebook, or another internet service provider.
Interestingly, governments will increasingly find themselves as attestors to these self-sovereign identities, similar to how Zug, Switzerland is attesting to citizens identity usage with uPort, Ethereum leading self-sovereign identity solution.
“The supply chain stuff is really tricky” — Elon Musk
Companies and organizations will realize that for the first time, it is possible to offload basic track and trace infrastructure to the public chain. This will lead to a decrease in cost and regulatory burden, and an increase in customer brand loyalty. These two trends will set the stage for a shared track and trace infrastructure supported by the public chain.
Major Fortune 50 companies are already demanding public chain track and trace use cases for which they are using the Viant platform to build their solutions.
“The first thing we do, let’s kill all the lawyers” — Shakespeare
The lawyers of tomorrow will need to understand fundamental future aspects of computer science as much as legal precedent.
Using OpenLaw, lawyers can create, deploy, and edit next-generation legal agreements relying on Ethereum and IPFS. Here are great examples of restricted stock grant purchase, standard agreement for equity, and an ERC20-token purchase agreement.
Enterprise Ethereum Alliance has formed a working group with many of the leading law firms and legal schools to ensure the legal industry can adapt.
For the first time we’ll be able to incentivize and monetize open source work, which will feel like adding a match to nitroglycerin in a Cambrian explosion of new blockchain technology paradigms. With new tokenized projects like Bounties.Network and Gitcoin, we’re adding a cryptoeconomic layer to software engineering.
For decades software engineers created code with bugs, which was somewhat inconsequential as software primarily served as a communication mechanism. As we transition to an Internet of Value with digitally tokenized assets, bugs can mean potential loss of capital. We don’t need to re-dance the polka or revel in the DAO-Saster of 2017, and 2016 respectively to agree that smart contract security audits are necessary.
Superstars like Phil Daian and ConsenSys Diligence will become the heroes of smart contract security audit and this could be one of the largest niches/job markets within the blockchain ecosystem.
2018 will be the year of G-to-C and G-to-G (Government to Citizen and Government to Government) — laws, regulations, treaties written in smart contracts, making it 100x cheaper and more straightforward to comply with them and 100x cheaper and easier to do appropriate oversight without having to subpoena personal and company records.
Stablecoins are the basis of financial instruments for hedging and derivatives that will be necessary for this wild-west industry to cross the chasm to safe and more easily used financial products. Maker DAO, VariabL, and Basecoin are attempting this from the startup eco-system, but I think this is a great space for an enterprise banking incumbent to provide value, liquidity, and validity to the digital asset ecosystem.
I predict we’ll see a bulge bracket bank blockchain-based stablecoin in 2018 if they can get it through compliance.
After witnessing the first bitcoin futures products on regulated U.S. exchanges that are cash-settled in 2017, I foresee the market will evolve to physically settled offerings to avoid banging the close to manipulate futures. Moreover, we’ll see other digital asset derivatives, such as ether.
These derivative contracts will provide forward pricing curves that are necessary to the genesis and evolution of digital asset exchange traded funds.
“New Car, Caviar, Four Star Daydream” — Pink Floyd
The price of ether will exceed $2,000 in 2018. Ether will continue to outperform bitcoin, and the total market cap of ether will exceed that of bitcoin in 2018. Bitcoin’s governance issues, reluctance to evolve, and extremely high fees could lead it to its demise. Bitcoin Cash has a serious chance of eclipsing Bitcoin. The market cap of Filecoin will exceed that of bitcoin by 2023.
There will be a crypto-winter, though not in ‘18.
Interesting times,
