2019 starts in Japan giving a series of lectures in Japanese Universities about how we can design Web 3 - more inclusion, more privacy.
The students were not aware about how the web started, the first browser, eBay or that it’s possible, for them, to be the ones who will create “the next big ‘think’ ”. This is a type of education that only elite Universities, like Stanford, offer.
Our goal as founders and investors is to spread our knowledge and give financial opportunities to new talents no matter where they are.
Education was always part of our investment thesis. We believe that opportunity should be global and that every dream deserves a chance 🙌.
Smart societies shape their future by understanding the potential of each new technological revolution and designing how it will be deployed.
But the new in order to establish itself it needs to replace the old. And that’s not easy because a lot of people LOVE the old. They made their success, their wealth, their lives based on what used to be the new, but it’s already old.
Now it’s obsolete.
This natural resistance from the old market and the government, plus the difficulty in assimilating these changes makes each great revolution go through bubbles and crashes.
How to identify a revolution
Revolutions are created by new infrastructures that allow wider and deeper market penetration at decreasing costs. Everything from canals to railways, to steamships, to highways and electricity, to the internet.
The rich, educated and young tend to be the pioneering adopters, with increasing layers of society copying their example.
Phase 1: The excitement
At its birth, technological revolution attract investments from private investors. These investors fund the technological transformation. They back the new startups, the crazy ones, the excitement. They encourage experimentation with new business models until it decouples from the real but obsolete economy.
As mentioned above, during this period there is intense polarization between the new and the old. The old represents a mature, conservative market while the new adapts a free market ideology, in order to encourage the abandonment of the old way of doing things.
Phase 2: Wild west 🌵
Now, imagine being in a “far west” like investment environment. An enviroment with tons of funds and flexibility to speculate; where you are free from regulations and government involvement.
Eventually, everything moves closer and closer to casino-like financial instruments, huge returns that lead to more speculation. All creating a “paper” economy.
Besides that, this investment-frenzy phase ends in over-investment in a relatively small market.
Both the casino-like character and the over investment in a small market end up in a major market bubble. And eventually, every bubble bursts…
In a much smaller scale the bitcoin and ICO bubble that we just experienced in 2018.
Phase 3 — Recession, the good and the bad news
The good news is that after the frenzy and thanks to private investments, the basic infrastructure of the new technology has been installed, ready for full growth potential across the entire economy.
The bad news is that immediately following the crash, private investors have become risk averse and are not ready to fund the expansion.
Also, a recession period always follows where hopelessness, inequality and unemployment is observed.
Phase 4 — Government steps in
As a result, after the major collapses, the state has historically stepped in to play an active role in favour of investment and growth. This is where were see regulations and institutional money (the old money) coming in.
In this phase, the government gives a direction that spreads the new economy across the globe.
You can read more about technological revolutions and bubbles here:
People keep repeating that money is already digital and question the usability of blockchain. But if you come to think of it, in the traditional financial systems the value transfer is not truly digital.
The digital money that banks are displaying is not truly transferring value in a digital way. It’s just a display of numbers with no sophisticated transfer of value behind it. No hard currency is transferred from one bank to the other the moment you make a wire transfer (and that’s why it’s efficient). It’s just a display that we blindly trust that it’s true. Let’s call it a display currency.
Why is this the case? Let’s dive a bit deeper
If you look at the traditional financial infrastructure, there are always five components in place:
custody is one organization
issuance is another one (central bank)
payment systems a separate one
audit at another place
the state providing the governance.
In almost every transaction, all of the above components have a role in order for the system to function efficiently.
If you look at bitcoin, we have all the components of the above-mentioned fiat system, but all managed by the same piece of code. Bitcoin network provides the payment system, the issuance, the audit, the governance, the custody, all in one network.
So what did bitcoin truly achieve?
What bitcoin achieved was a real transfer of value; the truly transition from the paper to the digital era. The moment you transfer a bitcoin to someone, you instantly transfer the actual asset. This happens without involving any trusted 3rd party. Just using math.
It’s a hard concept to understand since the line is thin, but if you do, you will see that the bitcoin network achieved a disruption on the traditional financial infrastructure play.
But what is all that noise?
The last few years we’ve seen a plethora of teams trying to repeat the genius infrastructure of bitcoin.
Teams are introducing new coins, promising innovations. But what kind of disruptions these truly are?
The differences between all these coins and services are nothing more but new infrastructure plays as we transition from the paper to the digital era.
What kind of infrastructure?
As we mentioned above, a payment system to function in a secure way it needs a few processes in it:
Issuance and distribution,
Before bitcoin all the above where separate entities and fully centralized.
But it doesn’t need all 5 to be decentralized in order to create a digital asset. For example, there might be a digital asset without auditing at all because some people would like to keep their transaction history completely private from the public or any central authority.
So, today the 3 states of the above 5 processes can be:
For example, the Central Bank network has all the above 5 processes fully centralized and this is why you receive a central bank currency (display currency).
Bitcoin is a fully decentralized network and this is why the digital asset that you receive is fully decentralized as well (cryptocurrency).
ZCash and Monero are decentralized networks but auditing is not possible since you can’t see the history of transactions (still a cryptocurrency).
Ripple has centralized governance and issuance (the team does both of them) but all other processes are decentralized (not a cryptocurrency since it’s centralized but it’s auditable digital currency).
Tether, or now Gemini dollar, are backed by the USD, centralized since under control of a certain organization (not cryptocurrencies, just new form of digital assets).
There is one more obstacle we have to overcome
Interconnectivity of the mentioned systems above.
For example, right now, if you want to open a website, you can do it from any browser, any device. But if you want to manage your fiat assets you cannot use Wells Fargo unless you open an account there, you can’t transfer money to another country unless Swift gets involved. Same goes for the crypto space. If you have 10 different currencies and you want to transfer value from one asset to another, you will need to use a third party service (like an exchange or atomic swaps) that will allow you to do this.
In the current state, we can describe it as having to use different browsers for different websites.
At the end, we will have a universal infrastructure, a financial internet where all assets will “talk” to each other.
Ok, but why do they need a blockchain?
As mentioned above, all the above assets are becoming digital assets and will be basically defined by the infrastructure (payment system) in which they ‘exist’.
Why? Because the basic feature that accounting system needs in order to be reliable is security. And blockchain provides the security features. It’s a mechanism for reaching consensus between multiple parties who don’t trust each other. In other words, the blockhain digitalizes the trust and the memory factor. All you need in order to transfer value.
So, blockchain is not about currency, but rather about consensus regarding the state of some digital asset. In order to achieve consensus, you need participation. In order to incentivize people to participate in such a network, you reward them with a currency. It can be a new coin built from scratch that it’s only used for this network or an existing one.
We should never forget that blockchain is just a tool for a system, like a camera for a photo, a hammer for a nail, or an engine for a car.
The creation of new digital assets
If you think about it, these are assets that we never had imagined before the digital era. Thanks to digitalization we now have the flexibility to practically create assets that never existed before. And this happened by introducing two more states, decentralized and none (for now, maybe more in the future).
As a conclusion, there are three major types of digital assets:
Display assets. Everything is fully centralized and there is no sophisticated transfer of value. It’s just a display and we just trust the banks that the numbers that we see represent the truth.
Cryptocurrencies. The ultimate level of decentralization on the infrastructure level. The trust factor is ultimately eliminated. There is no part that is centralized.
Hybrid digital assets. Some parts of the infrastructure are centralized, while others are decentralized or they don’t exist.
Digital assets are different to the tokenization of analog assets.
Don’t confuse the tokenization of analog assets with digital assets. These are two completely different things.
The former is when we take an analog asset such as real estate and we use blockchain in order to automate the ownership rights. Instead of using lawyers, we turn the analog asset and its ownerships rights into a package that we call it a token. The house didn’t turn digital, it’s still a house. We just automated the ownership infustructure using the technology of blockchain.
The latter, transformed completely the asset into a digital form. For example, bitcoin didn’t turn dollar (analog asset) into a token. Bitcoin is a stand alone digital money by itself. It made the analog asset obsolete.
As we can see above, digital assets acquire specific features depending on the context.
Currently, we make analogies with the assets that we understand and we know, “bitcoin is the new gold”, “ether is the new dollar” but what we actually build it’s something way bigger.
We gradually transit from the paper to the digital era structuring a universal infrastructure, a trust-less network where all assets will “talk” to each other and people will use them freely according to their needs.
Eventually, we will not even realize which asset we use each time. The same way we don’t really know which protocol we use every time we open a new website. Can you imagine how far this can go?
We are lucky to be in the beginning of this era.
We published this post on Hackernoon as well. You can read it here https://hackernoon.com/what-bitcoin-ethereum-and-other-digital-assets-will-become-3dde7e570b6d
The Bitcoin community, especially those who are around before 2014, know a thing or two about Rootstock and what they are working on. For those who don’t know, Rootstock (RSK for short) is enabling smart contract development and execution on top of Bitcoin. You can have all the goodness of Ethereum (and rest) platforms on the most secure blockchain, Bitcoin.
Smart contracts on bitcoin
RSK is a Turing-complete smart contract platform (just like Ethereum) that is connected to the Bitcoin blockchain through sidechain technology. It provides faster transactions and better scalability features, which we believe will also enable new usage scenarios.
The purpose of this article though is not to explain how exactly the smart bitcoin (RSK coins) works but rather to present something a few people know.
AWS infrastructure for the blockchain
The team at RSK is working on something bigger than smart contracts. They are working on an infrastructure framework that is built on top of RSK smart contracts and enables AWS-like services to be built and used from the development community, using a single token, the RIF token(Rootstock Infrastructure Framework). The network itself is called RIFOS.
Why this matters?
Because no developer wants to build (or figure out what to use for) their own compute engine, a storage layer, naming service every time they are thinking to develop an app. This is the reality of the Dapp development community right now and one of the key reasons we have not seen any dApps delivering on their promises. With RIFOS, developers focus on developing the apps and not figuring out things that — on the centralized world — have been solved decades ago.
Just ask any developer the effect that AWS or Google Cloud had on their business. 90% of the apps we use every day on our smartphones and web browsers, run on these services. And for a good reason: They take the headache of deploying and maintaining every little component an app will use from the developer and allow them to focus on the product they are building.
This is what RIFOS provides to the blockchain dev community.
The RIFOS is game changing for the whole blockchain ecosystem for many reasons. Developers will be able to deploy applications on top of BTC, consuming ready-made services for data storage, name resolution, oracles and payments (using their home-built Lighting network called the Lumino Payments Protocol).
The main characteristics of RIFOS
Most of these decentralized infrastructure services will be consumed utilizing a single token (RIF).
The development stack will be open to anyone who wants to become a provider of these services.
All these components might run smoothly and integrated on top of the RSK Smart Protocol while protected by the security of the Bitcoin Network.
The smart contract engine will be ethereum-compatible (i.e. you can bring your app to RIFOS with minimum migration work).
In plain words, RIFOS is enabling developers to build Services (like EC2 or a DB or a DNS system) and then provide them to DApp developers that can use them to speed up their development time and reduce their costs.
One token to handle everything
The consumption of the services will be paid using the RIF token. This is a huge step forward since developers won’t need to hold 10 different tokens and do the logistics for every service they use.
For example, a typical AI Dapp would use an AI computing engine (let’s say Hadron.cloud), a decentralized database (let’s say Bluzelle), a decentralized index (The graph) and a storage layer (IPFS). The developer would need to hold every single token of these services and pay them accordingly.
On RIFOS they can still use them and just pay them with RIF. All of them will run on top of the BTC blockchain that secures the network with the largest community of PoW miners, the bitcoin miners.
Merge-mining with bitcoin miners
RSK does not mint, nor has pre-mined coins. Instead, it rewards the existing or new Bitcoin miners via merge-mining if they participate in the RSK network. In this way, the network can achieve the same security as Bitcoin (double-spend prevention and settlement finality).
The RIF Token is used to consume all the RIFOS services built on top of (off- chain) the RSK Smart Protocol (in the graph shown below, these services are depicted in grey text within the dark blue boxes which represent service protocols).
In their own words (from the whitepaper of RIFOS that was only distributed to a handful of people):
“In summary, we aim to create an open standard infrastructure framework, which consists of a set of protocols together with corresponding API documentation enabling third-party developers to utilize such interfaces and introduce new components into the RIFOS ecosystem. This open standard framework will contain an initial working infrastructure service (i.e. the Naming Service / Directory Service referred to above) that will represent a proof-of-concept for how the protocol should work.”
Please note all opinions in this post are my own and only mentions the brief of our due diligence. Nothing in this post is intended to serve as investment advice.
Disclosure: Monday Capital is an early investor in RSK.
A few days ago we had a good meeting with the team of The Graph: An infrastructure that creates a decentralized index for the data we store on the blockchain.
We were very skeptical about the project before the meeting. Why do we need a decentralized index? How fast will this index perform? What about adoption — who is going to use it and why?
Being engineers ourselves, we could see the problems. After discussing with the team in person, things became more clear.
Before we start explaining the project let’s see what an index is in first place.
What is an index anyway?
Databases and file systems define the way data is stored and organized. Now, indexes are the “address book” of data. They tell us how to search and retrieve data optimally. Imagine that each index is a catalog that tells us the location of every file (or data structure) on our storage device. We can organize something by its name, by its extension, by its file type, or content.
Each time we organize something a different way, we create a new index.
So what do indexes actually do?
Answer: They speed up the way we retrieve data by orders of magnitude.
Let us explain a bit more.
A fridge is a typical example of a database and an index in our daily life.
In a real world analogy imagine this: You have a refrigerator. Consider this your storage layer. The way your store the items inside your fridge, allows you to be more efficient in the way you retrieve the items you want. For example, you may keep the most frequently used items in front, and the less frequently used items at the back of a shelf.
This is what a database (like Bluzelle) does: It allows you to organize your data in a way that makes sense to you. Now, imagine your friend asks you to bring her some milk from the fridge. This command is called “the query.” It tells you what data to retrieve. Let’s say that you don’t really know where the milk is, so you will need to go over every item in the fridge until you find the milk.
This is where the index comes in. Imagine that you have a diagram of where each item is inside the fridge. Even before you open it, you can take a look at the diagram and you know that the milk is on the second shelf bottom right. This is the index.
On the left, data as they get in the server. On the right, after they get indexed in a database.
Why do we need an index for blockchain data?
For the simple reason that there is no other way to build a fast dApp. On Ether, we need 10s in order to retrieve data from the chain. Imagine having to wait for 10s staring at a spinning wheel. In the centralized world this happens in 10ms.
Why do we need a decentralized index and why we just don’t use a centralized one?
This is the most interesting part. In a centralized world, someone can alter the index and point you in the wrong direction or the wrong file. Imagine searching for the account balance of one of your clients. You ask for it on the index. This index — because it is centralized — can point you to any version of the balance. You may want the current balance, which is $10, but it points you to the balance 3 days ago, which was $10,000.
A decentralized index avoids this problem, by using a network of nodes that have a copy of the index. They maintain it trustless. The same way we do everything on blockchain.
In case something goes wrong and the index of one node fails, we can just use another node, achieving 100% uptime of the index.
How does The graph work?
The graph is a decentralized index , that works across blockchains (ie, it can index data in multiple blockchains like eth and btc, but also on ipfs and Filecoin). It monitors the blockchains for new data and updates the index every time this happens. Once the index is updated, it tries to reach consensus among the nodes that maintain it. Once consensus is reached, it ensures that the users of the index will have the latest data available.
One of our concerns is that a bottleneck might be created during the update of the index though, once we have faster blockchains. On ethereum, new blocks come in every 10s on average. The graph updates the index (currently) at about 1s.
The index updates much faster than the data coming in but what happens when you have 10 different chains bringing in data every 1s? Will the index be fast enough to update and also reach consensus among the indexes in a way that ensures that everyone has the same fresh state?
The team explained their scalability solutions on the above during our meeting and that their goal is to prototype and experiment with these different topologies before locking themselves into any design.
Regarding the query language, The Graph uses the GraphQL, a language developed from Facebook. It’s an easy language to understand and the majority of developers are already familiar with it.
Here is how it works: Once the app executes a query, the graph routes this (using the gateway node) to the query nodes that hold the index. The query nodes return the result to the gateway node and then back to the developer.
Now, the token is used to secure and govern the network and to incentivize behaviors that are critical for the network. Briefly, it’s bonded by query nodes and they can either been staked or used as medium of exchange within the network in order to use it (will share more info about it soon).
Another challenges that we see is the governance of the network. Who decides who is a node? Who decides when we deploy changes and how these changes are adopted. The team is still working on it but we loved the fact that they envision a huge open source community that will maintain the network in a decentralized way.
You can read more about the project here https://medium.com/graphprotocol
This morning I read about the The NSA’s Hidden Spy Hubs in Eight U.S. Cities. We pretty much all know that this is happening, maybe not on that extend though.
The first example of a type of surveillance that we saw on a wide scale was credit cards. Every time we make an economic transaction a record has to be made of who we did business with, what we did with them, how much money we spent, where we were physically located, and what time it took place — all of which goes into a server.
It makes it easier to buy and sell things. We very willingly participate in that, it’s convinient.
The same applies to the communication services or search enginees that we use.
We certainly can not count on the government to respect or help to protect our privacy. ( the constitution itself is not clear about it). Regulation is backward-looking. The GDPR only came after some of the most high-profile data breaches had already happened. We will need to “hack” our way on privacy.
In this post, I describe how our lives and messages get transmitted through different platforms and why they end up on third parties. Also, I will describe some tangible solutions to keep in mind everytime we design new products.
How our texts are transmitted over those apps?
When sending a message to a friend, we assume the message is securely traveling between phones and computers.
Every time a message is sent it is sent encrypted to a server from us.
By encrypted we mean that no one on the network can get between our device and the server and read our text. This is possible by using a technology called “private/public key encryption”.
For example, if Vincent wants to send a “Hi” to Mia, during the journey of his “Hi” from him to the messenger’s server the text will look like something this: fkgtjefj5gd9t3jjfkj79fjejrogdjskj7fjkjjk
So if a hacker gets between you and the server she will not be able to read it. This is amazing until the moment the text arrives to the server. And this is where the end of our privacy happens. When the text arrives to the server ( e.g. AT&T, WhatsApp, Google servers’) it is stored in plain text.
Then the text gets encrypted again and travels to Mia so she can read it.
This is how Facebook messenger, Telegram and WeChat work.
To sum it up, your data are not encrypted. The channel that transmits them is. But where you store them is not.
Most of the email/messenger services that we use today can scan through the content and extract information about your interests, habits, purchases etc and then figure out what ads to serve you later for example. If a government agency knocks on their door and ask for a bunch of user data, it’s up to the companies to decide how they are going to use them, not the users.
End to end encryption and other solutions
Many anonymizer tools or a proxy sites are available to mask your IP address and some of the info about our computer when we surf the web. Also, other strategies are worth trying, such as using multiple browsers, so we mix up our data etc. Unfortunately, most of these solutions might be a bit complicated for most people.
The thing is that if we want to keep things private we have to think about how to tackle it, which adds an additional friction.
This is because currently, security is of secondary importance to founders and people writing code and what we need is a shift in the culture of programming.
A relatively simple solution to many of these problems is to design security into products from the beginning rather than having to come up with retrofits on top of them to fix problems that may arise.
End to end encryption
One solution on how to design services is the end to end encryption. In other words, the apps are encrypted and only readable from the recipient. So even if the data are stored on the server, none but your friend can read them.
All messages are encrypted when they are transmitted but also when they are stored on messenger’s server. Signal messenger works like this.
Anonymity or pseudonym
Also, data anonymity or pseudonym is another way to prevent data exposure.
When my team and I were running Sunshine, we tried to find a fair and equal way for people to get information based on pseudonymity. Sunshine could effectively collect environmental data passively from the sensors of a smartphone and actively through users’ input, without the owner ever having to sign up on the onboarding.
We didn’t really need their actual name or phone number to provide them with personal recommendations. Users could share their information about their skin sensitivites for example and we were providing recommendations and personalize their experience, all without violating their privacy. Users could decide to delete the app without leaving any footprints behind stored.
Users appreciated this freedom from identity and it was actually a catalyst of growth.
Except for the underlying technology, we need to make sure that the services that we use or design have a clear message about why and how they use user’s input. Trading our music data preferences to get personalized recommendations on new songs is completely different than using a messenger to communicate and ending up learning that all our conversations are in the NSA.
Privacy is about consent and self-respect not about hiding and in order to get it back we need to evolve.
The internet was designed for sharing information so we can all have equal access to knowledge and information no matter our location.
We need to design systems that lead towards this direction and we need to do it before it turns against us: both in terms of privacy and the way we form our opinions.
I’d love to hear what you think and your proposals about it. Tweet at me here.
If you want to dive deeper:
Making Private Communication Simple by Moxie Marlinspike
Why are the things that we build going to crash when we put them in the real world? What’s the nature of this? What can we do to avoid that? How can we then create the next generation of systems that will do better? Also, what happens when we succeed?Read More