Enter Wright’s nemesis, Vitalik Buterin, the founder of the Ethereum blockchain. It is a platform explicitly designed for smart contracts, token issues, investment vehicles, and autonomous corporations. In late May 2018, its coin—ether—claimed a market cap close to $60 billion, nearly half that of Bitcoin. In its effect on our business, technology, and economic life, Buterin’s contribution is paralleled only by Satoshi’s blockchain itself.
The primary beneficiary of most of those revenues that Wright was claiming for bitcoin—from tokens, fees, insurance, and all those smart contracts—Ethereum excels Google at a similar stage in originality and impact. Google’s awesome ingenuity is impaired by its economic dependence on mostly value-subtracted advertising. Ethereum is all value-added. Satoshi may prove to be one of history’s most transformative inventors. Buterin already reigns supreme among history’s teenage entrepreneurs and is the peer of any venturer in the history of Silicon Valley.
A lanky geek in cheeky tee-shirts (“Hard Fork Cafe” reads one) with a beetling brow and notably capacious cranium, Buterin was born in Russia in 1994 and immigrated to Canada at the age of six. His logical precision and broad mastery of business and economic concepts are uncanny, and his cool demeanor is the very opposite of the volatile Aussie’s.
While Wright flaunts flakey degrees and questionable credentials, Buterin was one of the first Thiel Fellows, leaving his university with no degrees to write about bitcoin and develop new blockchain applications. Wright is the product of years of (sometime self-inflicted) hard knocks, while the boy wonder Buterin bowled over the tech world almost as soon as he showed up. He is credited with an IQ of 257, whatever that means, and learned Mandarin as a child at home in a few months.
Wright claims to have invented the blockchain himself, while Buterin gives credit to Nick Szabo for inspiring much of the Ethereum platform and Solidity language. Wright can be an intellectual bully, scorching opponents with his invective, while Buterin coolly persuades them with logic. Wright growls and barks in the guttural barroom timbre of a Crocodile Dundee. Buterin, by contrast, speaks at a higher frequency, and in the Silicon Valley mode of aggressive humility, he inflects the ends of his sentences interrogatively, his rising tone masking a dispositive answer as a deferential query.
Buterin does not believe that Wright is Satoshi, a position he backs with algorithmic logic. On a panel with Gavin Andresen, who had endorsed Wright’s claim, Buterin retorted crisply, “I will explain why I think he is probably not Satoshi. . . . He had two choices of how to prove he is Satoshi. The easy choice was to write ‘Craig Wright is Satoshi Nakomoto’ and sign it with a private key known to be Satoshi’s. The hard choice was to issue a fog of complex arguments. He could choose between pure signal and noisy signal. He chose noise. Which probably means he could not deliver the signal.”
While this argument did not fully efface Andresen’s complacent smile, it was shockingly blunt and made Buterin Wright’s unnegotiable adversary. It is “game on” for what could become a central conflict of the information economy.
Buterin developed his idea in 2013 during a visit to Israel, which he says is in the lead in cryptographic sciences. At the time, he was a committed bitcoin evangelist, writing for Bitcoin Magazine and focused on bitcoin’s potential as a currency. But in Israel he met entrepreneurs experimenting with “colored” coins with special purposes, tokens that could be used to open new markets—Mastercoin for financial contracts, Bancor for exchanges of liquid tokens, and smart contracts based on the proposals of Szabo. Scarcely out of his teens, Buterin audaciously set out to develop a new blockchain that could serve as a security and identity substrate for an unlimited range of smart contracts.
To implement this plan, he devised a new programming language called Solidity, a new currency called ether, and a new blockchain, more flexible and capacious, called Ethereum. Each of these steps was fraught with inventions. The Solidity language would be Turing-complete, which meant it could express any set of algorithms possible on a computer. The currency would define a unit of account based on the amount of energy consumed by the computations entailed by the contract. Termed “gas,” this unit arguably gave ether a more stable basis as a monetary measuring stick than bitcoin could claim. Altogether Ethereum comprised a new global computer platform, a new software language for smart contracts and corporations, a new currency with a new measuring stick rooted in unchanging energy units, and a new business model of fund raising.
The world is full of white papers and intricate concepts and ambitious claims. Now competing with Ethereum are such highly touted and well-funded ventures as NEO in China, Dan Larimer’s EOS (derived from the social blockchain Steemit and the distributed exchange BitShares), and Cardano, crafted by the sophisticated BitShares and Ethereum veteran Charles Hoskinson. The amazing thing about Ethereum is not its claims or technology but the almost flawless execution by its callow founder of his entire multifaceted agenda.
A mere two years after launch, the new platform had fostered an efflorescence of entrepreneurial creativity in the face of historically hostile markets and declining business starts. Overregulation by the Securities and Exchange Commission under the Sarbanes-Oxley Act and other laws had reduced the flood of Silicon Valley initial public offerings from a flood to a trickle. Venture capitalists’ corrals were full of unicorns, with high burn rates and billion-plus-dollar valuations, that they couldn’t unpen.
Under these inauspicious conditions, Buterin directed the completion of the Ethereum platform and launched more than a thousand new company projects. The average funding for each startup was more than two million dollars. They also invented something called the “ICO,” which stood variously for initial cryptoasset offering, initial crowd offering, initial Cayman offering, or initial coin offering, depending on which name the lawyers thought was most likely to appease the baffled regulators.
The total funds raised—some eight billion dollars in less than one year—exceeded all money raised in IPOs or in venture capital for related ventures. The largest comparable venture outlay was $127 million for R3, led by ex-Googler Mike Hearn and Wright’s associate Ian Grigg, an effort by the big banks to catch up in blockchain technology. Meanwhile, several firms raised more than $150 million in ICOs designed to transform the financial industry.
In the history of enterprise there has never been anything like the launch of Ethereum. The value of ether often rising far faster than the value of bitcoin, albeit from a lower base, Buterin seems to be on track to excel bitcoin and even Satoshi in impact and importance.
Nonetheless, people betting against bitcoin have had a bad decade. Bitcoin may well end up more important even than Ethereum. The crisis of Internet technology today, from Google to Apple, is its broken security model, and Ethereum is not immune to the problem. In 2017, it survived a possibly life-threatening crisis when one of the projects using its blockchain, the Distributed Autonomous Corporation, was hacked for some $150 million worth of ether. (Two breakdowns involving Ethereum-related “wallets” followed). Under Buterin’s sure-footed leadership, much of the damage was contained, but at the cost entering the chain forcibly and reversing the offending transactions, resulting in a “hard fork” and the rise of a rival chain called Ethereum Classic, led by the former Ethereum coder Hoskinson.
This incident was not the result of flaws in the Ethereum blockchain itself, but that didn’t matter. As the ruler of the chain, Buterin could not escape the need to intervene. Proponents of Ethereum Classic contend that this arbitrary action undermined the immutability of the database and the principle of decentralization that is the heart of the blockchain. Ethereum Classic has not yet had much influence. Hoskinson has gone on to form Cardano, attempting a blockchain that redresses all the flaws of bitcoin through rigorous functional software. Saifedean Ammous, the author of The Bitcoin Standard, contends: “The fact that Ethereum could be rolled back means that all blockchains smaller than Bitcoin’s are essentially centralized databases under
the control of their operators.”5
The key difference between the bitcoin and Ethereum blockchains is that bitcoin focuses on security and simplicity while Ethereum focuses on capability and functionality. Ethereum’s superior functionality is transforming a number of industries. As Buterin puts it, “The Internet tended to displace workers doing routine work on the edge of the system; the blockchain tends to disintermediate executives in the center.”
Smart contracts may disintermediate lawyers, accountants, and bankers who do not get aboard. As Buterin says, “The Internet displaced the jobs of taxi drivers; the blockchain may displace Uber.” Indeed, an Ethereum company called Swarm is attempting to enable cab-drivers to transact directly with their customers through a cooperative scheme on the blockchain.
As Wright insists, however, a simple system focused on security may in the end be more functional than a complex system focused on capabilities. Security provides the ground state for all transactions and trust. Wright contends that the stripped-down bitcoin protocol is more efficient, scalable, and reliable than the capacious Ethereum platform with its so-called Turing-complete cornucopia and broad “attack surface” of vulnerabilities.
The bitcoin path to success begins as the global money for the Internet, which may now account for more than 10 percent of all commerce despite being hobbled by cumbersome “security” rites, credit card granularity, and currency conversion fees. As micropayments advance on the Web, assuming that Wright is correct in his estimation of bitcoin’s scalability, bitcoin can both increase the spread of Internet commerce and benefit from it.
Bitcoin gains momentum with every governmental campaign against cash, which is the alternative peer-to-peer vessel for anonymous private transactions. Bitcoin appreciates every time a central bank promotes spurious growth with negative interest rates and inflation targets, raiding the retirement savings of pensioners.
The U.S. Federal Reserve’s inflation “target” is currently 2 percent a year, a program of massive ultimate devaluation. As socialism advances in many countries, debauching their currencies, people incrementally flee to the one global and relatively secure haven accessible through the Internet. Traditionally the haven currency was the U.S. dollar, but since early 2018—from Greece to Venezuela, from Argentina to Zimbabwe—the haven has increasingly been bitcoin.
The dominant monetary standard and haven currency through much of human history has been gold. With a total financial market of some $2.4 trillion, gold still dwarfs bitcoin at $128 billion. The supply of gold has grown by an average of 2 percent per year for centuries, giving it a less remorseless deflationary bias—an advantage over bitcoin, the supply of which is capped at twenty-one million units in 2140, 80 percent of which had already been “mined” by 2018. As a unit of account and store of value, two of the key facets of money, gold is the ultimate standard.
If Wright is correct about its scalability, bitcoin could establish itself as a global alternative to fiat currencies during a historical period when these moneys are vulnerable to the depredations of the world’s governments, now indebted to the unsustainable level of $280 trillion. With the value crunch for bitcoin still decades away, moderate deflation seems attractive compared to runaway devaluations.
This bitcoin path is portentous. The blockchain investment strategists Chris Burniske and Jack Tatar calculate that if bitcoin merely takes 10 percent of the market currently held by financial gold, the bitcoin price will have to rise above eleven thousand dollars.6 It passed this mark in November 2017 and kept moving up toward twenty thousand as part of a total crypto-currency market cap that exceeded half a trillion dollars in early 2018. Then it corrected back to six thousand. But it is behaving like an asset that will retain value.
This outcome, which in 2018 seems plausible, would make bitcoin enormously popular and useful. If bitcoin takes much of the $600 billion market for remittances, which seems equally plausible, its price would have to rise by another five thousand dollars or so. If it can capture a substantial portion of the market for international business-to-business transactions—volatile and freighted with fees and friction and foreign-exchange tolls—all bets are off. The B2B market is $40 trillion.
If Buterin can address his security challenges and keep the complexity of a Turing-complete chain within bounds, he could also compete with bitcoin in these markets. But his path is long and winding and uncertain.
The redoubtable blockchain scholar and evangelist Andreas Antonopoulos contends that this rivalry may turn out to be largely spurious. In a dramatic image, he compares bitcoin and Ethereum to “a lion and a shark.” Each will dominate in its own domain. Each will suffer from limitations and tradeoffs. The lion must forgo opportunities in the 70 percent of the planet covered with water: liquid currency. The shark has to give up markets on dry land. The outcome might depend on whether the land is faced with flooding.
For perspective on the contest, I visited a more direct rival of Ethereum, launched by a team of computer scientists from Princeton. Its academic guide is Michael Freedman, one of the world’s leading visionaries in the realm of peer-to-peer computer systems.
There is evidence that despite the incandescence of Buterin, Satoshi remains the first prophet of life after Google.
CHAPTER 14
Blockstack
It all begins with the “Metaverse” in Neal Stephenson’s 1992 novel Snow Crash,1 a vision of a virtual world on top of the real world. A quarter-century later it still excites geek romantics with its prophetic music:
When Hiro first saw this place 10 years ago, the monorail hadn’t been written yet. He and his buddies had to write car and motorcycle software in order to get around. They would take their software out and race it in the black desert of the electronic night.2
Muneeb Ali quotes this passage from from Snow Crash in the opening of his magisterial dissertation, “Trust-to-Trust Design of a New Internet,” the product of his work with Ryan Shea and Jude Nelson and their Princeton adviser, Michael J. Freedman.3 This team went out into the electronic night and attempted to light it up with an architecture for a transformed Internet—a metaworld of trust beyond the seven layers of communications technology.
Ali, the key figure in this audacious project, called Blockstack, has come a long way since he first encountered the Internet at the age of twelve in Pakistan. As a reward for getting all As in school, his mother had given him a computer. The boy was grateful and excited. Although his father was a director of military intelligence in his country, the family was not rich. Buying the computer meant delaying the purchase of a washing machine.
“What kind of computer was it?” I asked him fifteen years later, in 2017, in Blockstack’s offices on Great Jones Street, near the Bowery in Manhattan.
“Oh, it was an Intel 386.”
“Yes,” I said, “that’s the microprocessor, but what brand of computer was it? What company made it?”
Ali looked baffled, then responded, “Oh, I don’t know. I assembled the computer myself.”
I realized we were talking serious twelve-year-old Pakistani tech talent here. In a TED talk PowerPoint he presented in Manhattan in 2016, we can see him in a photo some fifteen years before, a diminutive boy wearing the red shorts and shirt of a medallioned school uniform, with his right arm around his younger brother.4 Gaining strength from each other, they are standing on a wooden span across a turbid river in Pakistan, a metaphorical bridge between different worlds of culture and technology.
The little boy who put together that modern computer would grow up to reimagine a global network. But to break away would take audacity and ingenuity. The other end of the bridge offered no safe havens or guarantees, no more than it does now for his new trust-to-trust model of the Internet.
Ali went on to study computer science at Lahore University Management School. Taking his degree in 2005, he saw few opportunities in Pakistan, so he concocted a bold plan to obtain a fellowship at the Swedish Institute of Computer Science in Stockholm.
The Swedes were happy to have him but offered no financial support. Frustrated, with no money and no job, Ali considered retreating back over the bridge, but his bias is always to keep moving ahead.
He conceived a stratagem—a kind of bridge loan that might take him forward. He reassured the Swedes he already had a fellowship from Lahore to study abroad, and they agreed to honor it. Then he went to a bank, secured a thousand-dollar loan on the basis of his Swedish “fellowship,” and left for Stockholm with only a vague idea of food and lodging costs in a Scandinavian city.
The institute engaged Ali and housed him. But food was a daily challenge. As his thousand dollars dwindled, he would walk to McDonald’s every day at five and purchase a fish sandwich and fries. In the morning, he would graze on the institute’s coffee-hour muffins and drinks.5
His parents got word that Ali was looking wan and thin. They were worried. But talent will win out, particularly if it is hungry. His computer interface work impressed his professors, and he looks back on his three months in Stockholm as his most productive period. He wrote three major research papers, earned vital recommendations, and gained a precarious hold on the other side of the bridge.
The thousand dollars ran out just as Ali secured a research job in the Netherlands with the co-chairmen of the European Community standards body for the then-futuristic “Internet of Things” (IoT). He worked on the media access control layer for the IoT project, necessarily concerned with the security problems of connecting the “things” to the network. Having won more glowing recommendations, he then ascended to the summit of computer science studies in the United States—doctoral studies at Princeton during the school year and Stanford in the summers.
Ali’s mentor at Princeton, the computer scientist-cryptographer Michael Freedman, had worked for two decades on the theory and practice of peer-to-peer networks. He was the co-author of two chapters in the standard textbook Peer to Peer,6 and, with Martin Casado, an author of the canonical “open-flow” software-defined networking (SDN) paper. Today he is chief technical officer of TimescaleDB, an acclaimed open-source time-series database. Ali thanks Freedman for “thinking through every detail of various distributed systems problems with me. I learned the undocumented art of being a systems researcher from watching him design and optimize systems.”
Life After Google Page 16