Building the Internet of Blockchains

I have said it before so I will say it again, the new data value ecosystem see data captured by the Internet of Things, managed by blockchains, automated by artificial intelligence, and all incentivised using crypto-tokens. For a summary of the thesis take a look at the introductory blog.

Clickbait headline aside, if we aren’t careful we are going to end up replicating data silos we hoped blockchains and decentralised technologies would remove. This is why the transport layer of our investment thesis: the Convergence Ecosystem, is so important. For us the transport layer includes but not limited to four components: data interoperability like say haja networks; value interoperability like Polkadot, AION, Cosmos and atomic swaps; transport and messaging protocols like telehash and whisper, and state communication protocols like Lightning Network for Bitcoin, Raiden Network for Ethereum and IOTA’s Flash Channels.

The technologies of this layer are less mature than the layers below, but will become ever more critical as blockchains and DLTs proliferate if we are to avoid the same data silos that exist today in the Web 2.0 era. It is at this layer where interoperability protocols are developing for messaging, value, data and state — and we are beginning to see the contours of a so-called ‘Internet of blockchains’. In the full paper we explore each of the interoperability protocols, this blog is an extract of value and data interoperability.

Value Interoperability

Value interoperability across multiple blockchains refers to the ability of digital assets in one blockchain to interact with assets in another. The most straightforward example for an interoperable transaction would be one in which an individual transfers a cryptocurrency on one blockchain in exchange for cryptocurrency on another, for example, Bitcoin exchanged for Litecoin or XRP. Interoperability matters as it enables multiple ledgers to compound the benefits offered by each. Through limiting the flow of value in a blockchain to a single ledger, one risks creating new “decentralised” DLT-based siloes that cannot interact with each other at scale. By enabling ledgers to interact with one another with a communication protocol layer, improvements in security, speed, cost of transactions can be attained.

There are multiple approaches to obtaining interoperability, each with a focus on a specific function. One of the simplest forms is through a relayer. These utilities check for transactions in one chain and “relay” that information to another. BTC Relay, for instance, allows Ethereum smart contracts to verify a Bitcoin transaction without any intermediary. This enables Ethereum DApps and smart contracts to accept Bitcoin payments. A new generation of cross-chain transaction enablers allows exchanges to occur without a centralised party. Atomic cross chain swaps use hash time locked contracts to enable two parties to interact with tokens from different ledgers with each other without the need for an intermediary.

Atomic cross chain swaps will be crucial in creating a new generation of decentralised exchanges. Cosmos, Polkadot and Komodo are a handful of projects with an explicit focus on the space. Interoperability protocols also often enhance privacy through zero-knowledge proofs. They enable verifying the accuracy of a computation without knowing the variables involved. Through sending a transaction across multiple ledgers, tracking the source and recipient of a transaction can be made drastically more difficult. One could also consider decentralised exchanges such as EtherDelta as an interoperability enabler. Although restricted to ERC20 tokens, they allow individuals to trade their tokens for another one without relying on a central authority. One could trade their Storj tokens received as payments for leasing their computer’s storage space out and buy INS tokens to receive discounts at a retail outlet without having to move coins from their wallet with the help of the likes of 0x and Kyber. While decentralised exchanges come with new challenges — especially liquidity — they offer the promise of delivering significant security improvements over centralised exchanges.

Value interoperability will allow value that is stored in siloed blockchains to break free. This applies equally to value stored in both public and private blockchains. NEO is already enabling cross-chain asset agreements with NeoX. Users do not need to set up wallets for every blockchain they want to use and rely on third parties every time they have to interact on a different chain. Interoperability protocols further add value to the Convergence Ecosystem by allowing multiple industry-oriented tokens to communicate with each other. For instance, one could make payments in MIOTAs for leasing IoT based sensors that pass on data using the Ocean Protocol OCN token. Similarly protocols would be used in connecting and incentivising functions in mobility and robotics. A machine can pay for access to a resource in the native token of one ledger and receive the resource itself through another ledger. As projects and protocols start delivering real-world utility at scale, the need for exchange infrastructure will increase. One could compare these protocols to hubs that route value without an intermediary.

In a world of seamless value interoperability one can expect a complex interplay between users holding tokens for particular service utility and others for store-of-value; the wallet or ‘portfolio’ balance likely optimised by a personal AI. This AI will be personalised by risk appetite, values and services; the weighting of which will lead to a new field of TPO (token portfolio optimisation) an extension of search engine optimisation (SEO) and social media optimisation (SMO). If purchasing and holding tokens is a reflection of one’s values, it’s interesting to think that token portfolios could become a new sort of social or political badge.

Data Interoperability (Off-chain)

Today, incredible amounts of data are stored on the private servers of a relatively small amount of organisations. The internet’s client-server architecture makes data-sharing inconvenient, while privacy and data protection laws limit the cases where it can be done legally. Even if this were not to be the case, there is no rational economic incentive for individuals to do anything other than give away their data. While strides are being made towards increased data accessibility, such as open Application Programming Interfaces (APIs) and open-data regulations like PSD2, the benefits are one-sided. Indeed, users can now benefit from open data, but there is still no market, and data contributors remain largely unpaid. So, are blockchains the solution?

Blockchains are not databases; they are ledgers. It sounds almost flippant to say that, but the distinction is essential in understanding why data interoperability is just as important as value interoperability. Value interoperability means tokens can be moved across chains; data interoperability allows data to move across databases. Blockchains must be lightweight with limited on-chain storage so that “anyone” can download a full history of the blockchain. If blockchains become too large, fewer people will be able to participate in the network, thus reducing the decentralisation of the network and overall security. When it is said: “blockchains will enable large datasets to be shared or stored” actually it is not blockchains where the data itself will be stored. We are talking about decentralised and distributed data storages like IPFS and Swarm. Each blockchain implementation uses different data storage for “off-chain” data, and the balance between “on-chain” and “off-chain” data depends on the use case requirements. Just like the design of the Internet and the internet protocol suites, we expect blockchains to remain as light as possible to ensure speed and reliability; it will be the “off-chain” storage that will hold the majority of the data.

But what we must avoid is a world in which value is interoperable, but the underlying data is not; leading to the same monopolistic market dynamic as we have today. Projects like Haja Networks are vital in enabling data sharing throughout the ecosystem. We need protocols that permit data to be shared seamlessly across both centralised and decentralised databases. Innovations in cryptography such as zero-knowledge proofs, differential privacy, Fully Homomorphic Encryption (FHE), and secure Multi-party Computation (MPC) will enable data to remain private and secure but still move through public networks. Without data interoperability, the Convergence Ecosystem does not work.

Only when both value and data can be shared securely, can marketplaces be built that will drive the Convergence Ecosystem. Tune in next week for more on the importance of data marketplaces to the future Web 3.0 vision.


The End of Scale: Blockchains, Community & Crypto Governance

We are excited to introduce the Outlier Ventures vision of the future and our investment thesis: The Convergence Ecosystem. The new data value ecosystem see data captured by the Internet of Things, managed by blockchains, automated by artificial intelligence, and all incentivised using crypto-tokens. For a summary of the thesis take a look at the introductory blog, today I want to take a deeper look at how important communities, governance and politics will play in this new era.

The industry is rapidly experimenting with new (and old) consensus mechanisms and decision-making techniques to coordinate and govern the emerging token economy. This experimentation began with Bitcoin and spawned thousands of tokens each with different rules to encourage or discourage behaviours within the network and allocate resources. Tokens and automated decision-making tools allow for the mass decentralisation of entire industries through a distributed coordination network. These networks are birthing new types of resource allocation structures such as decentralised and autonomous organisations, pushing forward our conception of what an organisation should be.

Crypto Tokens

Cryptographically secure and digitally scarce tokens are the key innovation that makes a group of technologies into a living, breathing ecosystem.

Tokens are a native digital coordination mechanism for the Convergence Ecosystem. Until now we have been retrofitting a financial infrastructure designed for cash and cheques to the digital, software-defined era. Ever since the emergence of Bitcoin, it has been clear that distributed ledgers with automated consensus held the potential for new forms of asset and value exchange. It was not until the ERC20 smart contract on Ethereum that experimentation around digital and programmable money began at significant scale. There is now a mechanism to fund open-source protocols that would have previously struggled to raise financing because open-source lacked a business model. As Albert Wenger has noted: “Now, however, we have a new way of providing incentives for the creation of protocols and for governing their evolution.” In early 2018, we are still at the very beginning of this evolution.

Over the next year or so, we expect to see a much clearer delineation between two types of tokens: crypto-assets and cryptocurrencies.

Cryptocurrencies will be designed to be a medium of exchange and crypto-assets will be designed to be a store of value and offer utility in a digital economy. Despite the fact dominant token ecosystems have a element of both; design challenges abound when attempting to incentivise usage with digital scarcity. It is unclear if single-token systems like Bitcoin and Ethereum can provide a sustainable balance; instead it is likely we will see multi-token systems as a more effective mechanism.

Experimentation is happening at a rapid pace on both the supply and demand side.

We have tokens with a deflationary economy, scheduled inflation and others that let the community vote on how and when new tokens are minted and/or burned. That is just programmable money supply; we are also experimenting with demand-side economics: variable transaction fees, demurrage charges, interoperability, and different consensus rules. Non-fungible tokens such as cryptokitties and the new Ethereum ERC 721 NFTs will also impact demand by incorporating historical ownership creating a subclass of crypto-assets called crypto-collectables. In addition, a currently underutilized token model is the crypto-consumable, a token that is programmed to reduce in value over time using a decay or burn function. This could be a continuous decline in value like a used car or a step decline like a ticket to a live event. This sort of token design would not be a store-of-value and would be be a powerful way to increase network token velocity. Our head of cryptoeconomics Eden Dhaliwal is working with Imperial College London and our portfolio companies to experiment and design sustainable token ecoomies.

Today the industry is focused on the initial distribution of these tokens in generation events. But the initial distribution is just one stage of building a sustainable ecosystem.

Token distribution schedules will become more sophisticated over time to include staged releases like traditional equity fundraises and mechanisms such as airdrops or token faucets. Continued network engagement will separate successful networks from unsuccessful ones. 2018 and beyond will show that the much of the ICO class of 2017 was prepared for initial distributions but underprepared for sustainable growth and utility. It must be remembered that prior to 2017, tokens were distributed to the network in exchange for utility; Bitcoin distributes Bitcoin as a reward for the secure clearing and settling of Bitcoin transactions. By giving away the majority of tokens upfront, many 2017 ICO projects are left with few tokens to reinvigorate demand later down the line. Most projects will fail, but the open-source nature of the ecosystem means learnings and code will be available to all. We can learn and build faster than ever. Unlike economic modelling or theory, the industry is testing economic theories in real-time with real money. It is the greatest experiment in socio-economics we have ever seen.

Tokens are the first native coordination mechanism for the digital and now machine economy.

We expect tokens to be issued at each layer of the stack to incentivise behaviours within each particular network and to connect with the broader ecosystem through a series of exchanges and interoperability protocols. The model would be similar to today’s global economy in which each nation issues and uses their own currency within their own borders and trades foreign currency with other countries for products and services that it needs. If Bitcoin is indeed the digital store-of-value in the same way gold is the physical store-of-value, it is likely we will see a digital hierarchy of money emerge with Bitcoin as an apex token, protocol tokens like ethereum, NEO and CARDANO Labo below Bitcoin, and utility or application tokens below the protocol tokens. As the Convergence economy develops and core infrastructure is developed, tokens will become increasingly liquid and frictionless leading to extraordinarily complex economic dynamics.


Communities & Governance

Tokens themselves are simply a type of value instrument, the rules under which these instruments are generated, distributed and managed are decided by community members through agreed governance rules.

These governance rules are set and decided by the community members using different forms of decision-making. For protocol tokens like Bitcoin, Ethereum et al., governance includes decision-making on changes to the network. The explosion of tokens and blockchain-based networks has led to a renaissance in thinking about governance, especially decentralised governance.

We have the Bitcoin network with a strong libertarian value-system valuing decentralisation above all else. And therefore there is a separation of ‘powers’ between developers, miners and users; no one stakeholder group can ‘force’ a decision on the others. This results in a very slow-moving but stable network. Ethereum, while still aiming to be a decentralised network, does not have quite as strong libertarian streak but does have more leadership with Vitalik Buterin who is often able to push through changes because the community follows his lead. See the 2016 summer fork to return funds lost through the DAO bug.

New projects are experimenting with automated governance in an attempt to avoid messy human decision-making.

Tezos is hoping to enable governance to be ‘upgraded’ through community voting. dfinity-network is doing something similar but allowing retroactive changes to the ledger. These types of ‘on-chain’ governance as they are known are still technically immature and open up a whole new attack vector. Other projects like Augur and Gnosis are testing futarchy, a type of voting model in which the community defines a set of values and then prediction markets are used to decide which decisions will maximise those values.

We are also seeing exciting experiments with curation markets and reputation staking from projects like Colony and @Ocean_protocol. This type of decentralised and automated model is extended further with decentralised autonomous organisations (DAOs). In these sorts of organisations, all decision-making is offloaded to smart contracts and decisions would be automated based on the rules encoded in the smart contracts. One of the first examples was of course TheDAO, a DAO for venture funding, that was never able to allocate capital after a bug was exploited. Other live examples include Dash, a privacy-focused cryptocurrency; Digix, a gold payment system project; and Aragon, a platform hoping to provide the entire governance service for other token projects.

The end-point of blockchain-based automation will come through AI DAOs as articulated by Trent McConaghy These theoretical organisations will be managed and owned by AI algorithms enabling AI to interact in the economy by earning and spending tokens. An AI could own a fleet of self-driving vehicles, charging fares which it then uses to pay for maintenance, tolls, insurance, and taxes.

Blockchains and tokens will be issued, distributed, governed and owned in increasingly diverse ways. Governing models will evolve and we are likely to see an industry with multi-types of governance each co-evolving around the belief-systems of the community they serve.

Bitcoin will remain staunchly libertarian; Ethereum has more of a central leadership which appeals to pragmatic developers; and self-sovereign identity underpins the value-system of the Sovrin Foundation blockchain. We will soon see more projects with social democratic values that prioritise wealth redistribution through ‘network’ (read: State) intervention or pre-agreed taxation rules. Others will prioritise ethical and environmental values with green-friendly policies that use non-consumption based consensus mechanisms (eg Chia) and focus on common-ownership and resource sharing.

“The Convergence Ecosystem should support a diverse range of different governing models that support different communities. There is no optimal model of governance; only a perpetual tension to maintain alignment amongst stakeholders.”

We have millenia of literature exploring politics and governance, everything from Plato’s five regimes to John Locke’s libertarianism to Jeremy Bentham’s utilitarianism. Philosophers and political scientists will never settle on an ‘optimal’ governance model because ‘optimal’ can only exist for individuals in limited contexts never for society at large.

As with almost all information and communications technologies that have come before, blockchain technology was born decentralised.

Bitcoin with the first blockchain implementation was a libertarian movement created as a direct reaction to a centralised financial system. Early adopters shared this value-system. As more and more blockchains and tokens are created, the industry attracts an audience with different belief-systems. As it continues to mature, different communities will have unique objectives and priorities that will require specific design trade-offs. The financial community requires more and faster transactions and will sacrifice decentralised consensus to achieve that, as can be seen with Ripple and it’s XRP token. The healthcare community must adhere to privacy regulations and so will require more privacy than public blockchains currently afford. The ecosystem will support a variety of communities using different governance models with differing levels of decentralisation and automation depending on the values of the community and the needs of the market.

We are in the very early stages of understanding how to design token economies and the governance models that support them.

As an industry, we must be more supportive of new ideas and implementations. It is not a zero-sum game in a growing market. Some tokens, communities and governance experiments will fail. Let’s learn quickly from their failures and compound learnings.

The biggest advantage the decentralisation community has is momentum and the brightest minds from around the world are working together to solve tough problems. Communities will co-exist and thrive. Let’s be inclusive and supportive.


For more on how crypto-communities and crypto-tokens will integrate with the Internet of Things and Artificial Intelligence, read the full paper here.

VC for The Decentralised Future: Introducing the Convergence Ecosystem

Today we are introducing the Outlier Ventures vision of the future and refined thesis: The Convergence Ecosystem.

The Ecosystem sees data captured by the Internet of Things, managed by blockchains, automated by artificial intelligence, and all incentivised using crypto-tokens. The Convergence Ecosystem is open-source, distributed, decentralised, automated and tokenised and we believe it is nothing less than an economic paradigm shift.

How We Got Here: The Outlier Journey

From Blockchain-enabled Convergence

In late 2016, we published a paper titled: ‘Blockchain-enabled Convergence’ outlining our investment strategy. The paper was the result of over three years’ experience researching, investing and building blockchain-based businesses. Our insight was that blockchains are not just a secure ledger for cryptocurrencies and other digital assets, but that they represented something more transformative: a decentralised data infrastructure. Infrastructure that could solve technical and market problems across a variety of emerging technologies like artificial intelligence, autonomous robotics, the Internet of Things, 3D printing and augmented and virtual reality.

In 2017, crypto-tokens proved they are the first digitally-native mass coordination mechanism

2017 saw a vast change in the cryptocurrency and blockchain markets to arguably the peak of inflated expectations as per the Gartner Hype Cycle. The ERC20 smart contract industrialised the token sale crowdfunding model, raising over 4 billion dollars in funding. Despite misplaced energy and too much focus on token prices, it is now clear, in a way that wasn’t in late 2016, that crypto-tokens are a critical missing component in decentralised networks — the first digitally-native mass coordination mechanism for humans, bots and machines. Recognising the underlying importance of crypto-tokens to create an ecosystem of converging technologies, we started investing.

From IOTA, Botanic & SEED, Evernym & Sovrin, to Fetch and Ocean

Over the last year we have partnered with and invested in IOTA, a foundation building Internet of Things infrastructure with a new type of decentralised data structure. Botanic and the SEED Vault foundation it founded, creating a platform for developers to publish trusted software bots. Evernym, a company using the Sovrin Network and Protocol to establish self-sovereign identity. Fetch, a startup building an emergent intelligence protocol combining distributed ledgers with machine learning. And most recently, Ocean Protocol, who are developing a decentralised data exchange protocol to unlock data for AI. Each of these investments have been strategically chosen because they are a complimentary piece of decentralised infrastructure required to create the Convergence Ecosystem.

Why We Need The Convergence Ecosystem

Centralised Web 2.0 has failed…

Centralised Web 2.0 digital infrastructure has failed. Too many hacks and data leaks. No individual privacy. Monopoly control over global information and communities networks. The Internet of Things is creating an unmanageable data environment, and artificial intelligence is giving those who control the most data more power than any company in history. As Tim-Berners Lee, the creator of the Web, recently wrote;

“What’s more, the fact that power is concentrated among so few companies has made it possible to weaponise the web at scale. In recent years, we’ve seen conspiracy theories trend on social media platforms, fake Twitter and Facebook accounts stoke social tensions, external actors interfere in elections, and criminals steal troves of personal data.”

Something must change.

We are 10 years into the decentralisation revolution

It has been ten years since the publication of Satoshi’s seminal paper and the introduction of the first viable decentralised solution to the problem of double-spend in digital networks. Bitcoin sparked interest and innovation in other cryptographic and decentralised technologies including blockchains and crypto-tokens. We are in a rapid period of experimentation around decentralised technologies including consensus mechanisms, identity, data structures, crypto-economic designs and smart contracts. Taken together, we see the foundations of a new data infrastructure.

Our Vision: The Convergence Ecosystem

Introducing the Convergence Ecosystem

We believe that future decentralised data infrastructure will come from the convergence of the Internet of Things (data production), blockchains (data distribution), and artificial intelligence (data consumption). The integration of these technologies will see markets become increasingly open-source, distributed, decentralised, automated, and tokenised.

The Convergence Ecosystem consists of four parts: governance, production, distribution and consumption. Each of these are explored in the paper, and we will be publishing further analysis into part throughout the year.

Governance — How are protocols and communities governed and incentivised?

  • Data flow through the ecosystem is coordinated and incentivised using crypto-assets, crypto-currencies and crypto-consumables designed to incentivise behaviours for people, machines, devices and agents to the benefit of the overall ecosystem. These new types of assets will continue rapidly experimenting with supply and demand policy including fungibility mechanisms like the Ethereum ERC 721 NFTs.
  • Emergent governance models will have differing levels of decentralisation and automation depending on the values of the community. Some will value censorship-resistance and others self-sovereign identity. New decentralised projects will be guided by social democratic values that prioritise wealth redistribution through ‘network’ (read: State) intervention or pre-agreed taxation rules. Others will prioritise ethical and environmental values with green-friendly policies that use non-consumption based consensus mechanisms (eg Chia) and focus on common-ownership and resource sharing. Communities will continue to experiment with traditional governance models like corporations and newer structures like decentralised organisations or decentralised autonomous organisations (DAOs).

Production — How is data produced?

  • Data is brought into the ecosystem by either hardware connected to the Internet of Things or software such as digital, virtual or augmented spaces.
  • We are creating and collecting more data than ever, but we are storing it in insecure private databases with no incentives to share the data. Data breaches and hacks are commonplace, and the data can be censored or tampered with. Software-generated data is lost, hoarded or latent. There is no reason for consumers to do anything other than to give data away for free and for corporations to hoard it. Decentralised infrastructure offers a solution.

Distribution — How is data authenticated, validated, secured and stored? How is it transported across databases and blockchains, and how is it exchanged?

  • Once data is in the ecosystem it needs to be authenticated, validated and secured. This is where blockchains or more specifically distributed ledgers, consensus mechanisms, self-sovereign identity and reputation, and decentralised storage and data integrity solutions are valuable tools.
  • Using new data distribution protocols such as; transport & messaging, state communication; value and data interoperability, data can be efficiently moved from storage across networks and protocols to marketplaces.
  • Marketplaces are already developing going beyond just cryptocurrencies to support the buying and selling of all sorts of other data types including internet of things data, artificial intelligence data, personal data, and a range of newly emerging digital assets including but not limited to cryptokitties.

Consumption — How is data turned into insight?

  • Finally, data is processed, analysed and automated using a range of technologies including distributed computation, decentralised machine learning and smart contracts.
  • This is where data is transformed into actions and insight using traditional and distributed computing techniques, as well as newer types of computing such as quantum computing. It is at this layer where blockchains and artificial intelligence blur and it becomes clear they are intertwined and interconnected. Both smart contracts and machine learning offer differing levels of automation and decentralisation depending on the type of input data and level of trust the use case demands.

Winners will differentiate on values and trust

The open-source nature of the technology; ease of forking; almost zero costs of digital distribution; and interoperability protocols will mean projects will struggle to differentiate using technology in the long-term. Successful projects will differentiate through political values such as libertarianism, self-sovereignty and egalitarianism as well as through trust. This makes the Convergence Ecosystem structurally different from other markets in which value capture happens at friction points. With very few friction points and lock-in, we are unlikely to see the same market consolidation dynamic that has dominated previous digital markets. When technology and data are open and free, lock-in will come from brand and values. There will be as many protocols as there are value-systems and personal priorities.

There will not be one chain to rule them all. In a world of scarcity, competition is the optimal strategy. In a world of abundance, we must change our mental models. The Convergence Ecosystem drives collaboration rather than competition.

Outlier Ventures: VC for The Decentralised Future

The Convergence Ecosystem is our vision of the future. We expect the Ecosystem to support hundreds of communities that will over time outcompete their Web 2.0 competitors for developers and users using tokenised business models. This shift will not occur overnight. People will continue to focus on the price of crypto-assets and worry about the regulatory implications of public token sales.

But behind the scenes, a decentralised infrastructure is being built.

Network by network.

Protocol by protocol.

We want to invest and partner with tokenised communities to build decentralised economies. Join us to help build the decentralised future!

Download the full paper here

Also a big thanks to all the Outlier Ventures team including Joel John, Harry McLaverty and Shaquile Noir for their work on putting this together. Also to Jamie Burke, Aron van Ammers, Eden Dhaliwal, Anesu Machoko, and Geoff Le Fevre for their contributions and feedback.

Also a massive thank you to all of the people outside of Outlier that contributed to the paper:

Dele Atanda — CEO, metâme x (Dele Atanda)

Chris Burniske — Partner, Placeholder & Author of Cryptoassets (Chris Burniske)

Dr Rose Chan — Founder, Ladyboss.world & Former Head of Blockchain Working Group, World Bank (@I_am_rose)

Professor David Lee Kuo Chuen Professor, FinTech & Blockchain, Singapore University of Social Sciences (@DavidKChuenLEE)

Matt Chwierut — Director of Research, Smith + Crown (@Skryptical)

Dr Anne Hsu — Assistant Professor, Department of Computer Science, Queen Mary University

Dr Stylianos Kampakis — Research Fellow, UCL Centre for Blockchain Technology (@s_kampakis)

Samuel Klein — Fellow, Berkman Centre for Internet & Society at Harvard University (Samuel Jay Klein ❦)

Professor William Knottenbelt — Director, Imperial College Centre for Cryptocurrency Research and Engineering (@will_wjk)

Dr Robert M. Learney — Lead Technologist Blockchain & DLT, Digital Catapult (Robert Learney)

Trent McConaghy — Co-founder, BigchainDB & @Oceanprotocol (Trent McConaghy)

Mark Stephen Meadows — CEO & Founder, Botanic.io & SEED Token (Mark Stephen Meadows)

Teemu Paivinen — Founder, Equilibrium Labs & Author of Thin Protocols (Teemu Paivinen)

Samuli Poyhtari — Founder, OrbitDB (@haadcode)

Drummond Reed — Chief Trust Officer, Evernym (Drummond Reed)

Toby Simpson — Co-founder, Fetch.AI

Dr Phillip J. Windley — Chairman, Sovrin Foundation (Phil Windley)

Interview with Lawrence Lundy: Blockchains, Tokens and Convergence

Interview from Blockchain Live Event in London on 20 September


Q1. As Head of Research and Partnerships at one of the first Blockchain-based businesses in Europe, you are clearly heavily invested in Blockchain Technology, but where did you first encounter Blockchain and Distributed Ledger Technology? What about this technology interests you the most?

I was first introduced to Bitcoin back in early 2013 or so and saw the huge potential of a crypto-currency. At the time I had just started work as a mobile analyst and didn’t track developments as almost most of my clients were Fortune 100 companies and few were interested. In 2014, I began to write more and more about Bitcoin, the underlying blockchain and its applicability across markets to provide an alternative to trusted third-parties.

It was not the technical elegance of Bitcoin (although it is) but rather the social and political implications of math enforced decision-making and trust that fascinated me. I thought that if you could automate monetary policy, what else could be automated? This has led me to explore the ideas around distributed autonomous organisations (DAOs), automated governance, futarchy — the idea of using markets to make decisions, and most excitingly the idea of tokenized digital co-operatives. I think that tokens offer the potential to change the hierarchical design of the firm; shareholders, management, and workers. With tokens, workers can be shareholders. Co-ops do this today, and startup employee equity pools do this on a small scale. With tokens, the co-op model could potentially outcompete the traditional firm offering greater rewards for talent.


I do not think there is a more exciting field to work in today; essentially asking the philosophical question: how do we build sustainable economies? Our most recent work called Community Token Economies is an attempt to do just that. Read more here. We are also actively exploring the ideas behind digital co-operatives and building a community around the idea of network cooperativism.

Q2. Your work around Blockchain seems to have a focus on new and innovative applications for the technology — how do you keep ahead of the curve in such an innovation focused industry? What does it take to be innovative with all of the surrounding noise?


It is an ongoing challenge, and increasingly so with the mania around token sales. There is much more noise than signal today, but we have always sought to take a macro view of the industry. The best way to find insight and identify investment and partnership opportunities is to look at the intersections of technologies, as well as studying history and politics.

Ultimately, we are in the midst of the digitisation of the information and communication, and distributed ledgers, the internet of things, 3D printing and artificial intelligence are all part of the larger theme. You need to look back at the invention of the telegram (not the app), the telegraph, radio, the telephone, television and the Internet to help inform your thinking for blockchains. Bitcoin and blockchains are not the first decentralisation technology promising to shake up power structures; it is just the latest. History doesn’t repeat itself, but it does rhyme. So I try to understand the patterns.


Q3. Smart contracts are one of the more widely touted applications for Blockchain, and one in which you have a significant amount of interest — where do you see their use heading in the future? Do they have the potential to reshape industry on a massive scale as the hype seems to suggest?

All technologies go through a hype cycle as people first spot the opportunities and then see the challenges of getting a working product to market. Smart contracts are no different. But as a technology and as a legal construct (if it can ever actually be one) it is extremely early. The underlying networks that these smart contracts run on — Ethereum, QTUM, EOS, Tezos, Bancor, Aeternity, and Waves — are all at different levels of stability and security.


At an abstract level, a program that automatically processes reasonably complex transactions can bring massive system-wide efficiencies and cost reductions. In the real-world however, you encounter all sorts of legal challenges around legalese, disputes, resolution and enforcement. It is likely that when networks are mature enough to handle interacting and connected smart contracts, they will mainly be used as an extension of back-office automation rather than a replacement for lawyers. In the medium-term though much legal work is relatively simple templated contracts and opportunities abound for automating and lowering the cost of legal services.

Q4. Blockchain thus far it seems fair to say has been focused on the Finance industry. With the technology spreading into other industries, and this being an area of interest for yourself, are there any other industries you think are particularly ready for Blockchain application, and why? What makes an industry compatible with Blockchain technology and will we see the emergence of new industries as a result of Blockchain?


Bitcoin was released around the time of the 2008 financial crisis and the early interest from the libertarian right was as a replacement for the banking system. Bitcoin was designed specifically as digital cash and therefore the focus of the media and public for many years was in the finance system.

However, one of the key components of Bitcoin was the underlying transaction ledger and how this was maintained and updated using a proof-of-work blockchain. A shared transaction ledger (note: not a blockchain specifically) has applicability for virtually any transaction of value across a vast array of human and machine activity.

We are still at the stage of development where we are picking apart of the different elements of Bitcoin and testing new combinations of consensus algorithms and distributed ledgers to meet the needs of different use cases. For example, a solution for machine-to-machine transactions has very different throughput and latency requirements than Bitcoin.

Distributed ledgers and blockchains are horizontal technologies not limited by industry. As soon as you conceive of value as broader than money, you can begin to see the possibilities of personal data exchange, or bill of lading for shipping, or provenance of goods. You can argue that we already have the first blockchain industry: bitcoin. Or maybe even two: Ethereum and token issuance. The legal and compliance issues around tokens are certainly a new industry for securities lawyers. However, more broadly, I do not think blockchains will create new industries, other than blockchain SaaS and consulting, instead all industries will utilise the benefits in their technology stack.

Q5. You have a nuanced series of interests within and surrounding Blockchain — for example 3D printing and Robotics. Could you tell us how Blockchain could influence some of these more niche industries and when you think that will happen?


We spent almost all of 2016 developing our investment thesis called Convergence. The original paper can be read here. We take a systems approach and see Bitcoin, blockchains and DLTs as part of a broader macro shift from Web 2.0 to Web 3.0. Our thesis is that blockchain technology when taken broadly to include innovations in decentralised storage, compute, and automation such as smart contracts, oracles and tokens will form a decentralised infrastructure that enables other technologies like machine learning, robotics, IoT, and 3D printing to combine and converge.

We are investing in companies like: uVue, focusing on providing a decentralised software layer for autonomous economic agents primarily in the mobility sector. Botanic who are providing multi-modal trusted personality interfaces to artificial intelligence. And IOTA building a new transactional settlement and data integrity layer for the Internet of Things. All three have existing corporate clients with products today. We believe there are problems to be solved today using decentralised infrastructure and toolkits. This isn’t a 5 year time horizon. These products are being bought and sold today.

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