Ethereum co-founder Joe Lubin is calm and soft-spoken when he shares his vision of how blockchain technology and digital currencies could transform the Internet, the global economy, and many aspects of our daily lives.
But what he’s talking about could become a raging tempest, and it’s worth paying attention to—especially given the vast sums of money pouring into the sector. Companies have raised more than $1.25 billion this year through sales of digital tokens—so-called initial coin offerings or ICOs—and this method of fundraising exceeded traditional early-stage tech startup investments in June and July, CNBC reported in August.
Lubin is a former vice president of technology at Goldman Sachs, but now he’s one of the key figures trying to shepherd the growth of an emerging technology area that, if he and others are right, could reshape the banking sector, among others. Three years ago, Lubin co-founded Ethereum, a peer-to-peer platform for running decentralized software applications. The apps run on blockchain technology, a way to create a digital public ledger for transactions distributed across many computers, so that the records can be verified but are supposed to be immutable. Ethereum users can create digital tokens, called ether, that can be used as currency; it’s now the second-most valuable cryptocurrency in the world, behind Bitcoin.
Lubin is also the founder of ConsenSys, a New York-based firm that bills itself as a “venture production studio” that develops applications and tools for blockchain systems, primarily Ethereum. In September, ConsenSys reportedly launched a $50 million venture fund to provide early-stage capital to blockchain startups.
I recently sat down with Lubin in Boston, where he spoke at the inaugural Deep conference organized by cybersecurity firm Cybereason. Lubin and I talked about how blockchain technology could shift the balance of power between consumers and businesses; the global regulatory outlook for virtual currencies; and why he thinks the use of blockchain platforms will be more complicated than the World Wide Web—but ultimately have greater impact. Here are the highlights of our conversation:
Xconomy: You talked in your presentation about how blockchain technology could help consumers protect their personal information. Can we put the genie back in the bottle when it comes to how much personal data we’re sharing with social media networks and other companies online?
Joe Lubin: The genie tends to get old and less useful over time. So, no, you’re going to be out there as a known entity forever. But your aspects of identity 15 years from now or 10 years from now are going to be different from what they are right now in many significant ways, and a lot of what’s out there currently gets stale pretty quickly.
So, we are moving into a world where you’ll have your own blockchain-based identity. You’ll be fully in control of that. Everything will be encrypted and selectively disclosable by you. You’ll be able to use that to log into systems without a username and password, effectively. You’ll be able to store your own profiles on your side of the browser, and because you’re going to be hitting these applications via signed transactions or cryptographically authenticated and signed transactions, that’s the only identity that these applications will really need. They’ll know that it’s you signing it because it’s going to correspond to a public address or a public key. But the real details that you don’t want to disclose can remain under your control.
You’ll be able to interface with the world of legacy identity providers via attestations. So, your government will be able to attest to the fact that you’re a citizen. Or the DMV will attest to the fact that this person is in control of this blockchain-based identity, he’s legal to drive until January 2020. Or other people will attest to the fact that you paid your bill on time, or that you worked well together on a software project. Stuff like that.
It becomes a persistent, portable identity and reputation, and you’ll be in control of it.
And if you do want to monetize aspects of your identity or communications or other emissions—like body signals or something like that, EEG, whatever you want to attach to your body and broadcast out there—you’ll be able to monetize that yourself if you wish.
If you want to monetize your attention, you’ll be able to do that in attention markets, rather than advertising networks.
X: What do you mean by attention markets?
JL: An open market where if somebody wants to get your attention to read an ad or to interact with an advertisement in a more elaborate way, or to do a small project, perhaps—there’s sort of a spectrum there—they will pay you to do that, rather than forcing you to do that the way the Web is currently architected.
X: Investor Mike Novogratz recently said that cryptocurrencies are the “largest bubble of our lifetimes.” He’s reportedly investing in them, and obviously wants to ride the wave on the way up. What happens when the bubble pops?
JL: That Novogratz guy is a total idiot. I’m joking, he was my college roommate.
X: No way! I didn’t know that.
JL: We hang out a lot and talk a lot. Mike is correct. It is a bubble. It’s going to pop a little bit and deflate a little bit, and then we’re going to blow a much bigger bubble. And that’s going to pop and deflate a little bit. And then we’re going to blow an even bigger bubble.
These bubbles are incredibly valuable because they bring attention and value into the ecosystem. And that value can be used by people who know what they’re doing or people who don’t know what they’re doing. But the ones that know what they’re doing can build fundamental infrastructure for this new way of doing things for the decentralized global economy, [the] decentralized World Wide Web.
Bitcoin started it out with a big, speculative bubble, and then a lot of VC money poured in, and a lot of value was created out of nothing because people started believing this value token was exchangeable for goods and services. And so, it’s a wonderful mechanism, sort of unprecedented, where a lot of business and software developers are holding this thing, and they are incentivized to add value to the ecosystem.
On Ethereum, there are a lot of positive feedback loops because of all these token launches. That brings a lot of stakeholders who are interested in the project early and talk about it and build value into it, and so, the human fear/greed cycle causes essentially overshoot and then undershoot, but as long as the highs are higher and the lows are higher, we’re going to be building the decentralized economy thanks to these bubbles.
X: The SEC is starting to look at ICOs, but it has made no sweeping regulations yet. Should it step in, and what do you think regulations would or should look like?
JL: The SEC should step in in any situation that it deems to be fraudulent, or any situation where it deems that somebody has sold an unregistered security that doesn’t clearly take advantage of any exemptions, to Americans and where Americans are harmed. Or even if Americans aren’t harmed, yes, the SEC should police that. And they will.
We’ve done a huge amount of legal work. I was the individual who drove the legal work for the Ethereum token launch. So, I’ve been doing it for a pretty long time, compared to other people in this space. And we think we understand this stuff really well.
We were not surprised at all, [we were] encouraged, pretty much, by how the SEC reported on or analyzed the DAO. It really indicated that they do need to get up to speed on how the technology works a little better. But they’re going to apply the same thinking, the same rules that they’ve been applying for decades—root out fraud and look at the details of every single situation, based on the Howey test and other things that they deem are relevant.
So, they very explicitly said that they’re not interested in throwing the baby out with the bathwater. We talked to regulators all around the world, and they’re all very excited about this technology. It’s going to drive growth.
X: But aren’t token sales, can’t those be considered unregistered securities?
JL: Some of them.
X: So, they have to look at it on a case-by-case basis?
JL: Exactly. Also, this technology is going to change everything pretty rapidly. It is catching on in a decentralized way. It’s catching on virtually everywhere in the world. And it’s going to serve as a tremendous growth engine for your country.
While you may have a young lawyer at the SEC who wants to make his or her career on a big case, they’re also probably really aware of the fact that they don’t want to be the person that kills blockchain for the United States or that casts a pall or a chill on this growth engine. I don’t see any Western country doing something really drastic or foolish.
In China, there were just a ton of total copycat knockoffs with zero intent to deliver on the project. It was a lot of real crap going on there. For that reason, it made sense to call a pause. … And China is a different kind of governance system than the U.S. They like to have some tendrils in different systems so that they can understand what’s going on and control what’s going on when necessary. So, I think it’s just the space got big enough so that it’s now relevant to them. They need to make sure that it’s architected in a way that fits in with their society.
They’ll be back in six months.
X: What’s your response to critics dismissive of cryptocurrencies, like Jamie Dimon?
JL: Jamie has his own currency that he cares about. [Laughs.]
X: What do you think are his motives for being that dismissive? Trying to protect the status quo?
JL: Yeah, certainly protect status quo. Blockchain represents a force for universal disintermediation.
We love banks, and we love bankers. We work with lots of them. We build systems with some of them. We love financial services. But we’re moving into a world where 12-year-olds won’t have bank accounts. We’re moving into a world where we’re going to be able to custody our own value tokens, move them around at will. We’re moving into a world where banks as the major intermediaries are going to have that intermediary function drastically reduced in value and scope. We’ll still need financial services, but the banks themselves are likely to shrink up significantly.
X: What happens to the venture capital industry?
JL: I think it evolves. We’re working really hard to bring a lot of that technology into our space. We started with this notion that you had to do one and done, that you’re not going to be able to do different rounds of token launches. There’s just a huge amount of great thinking and technology in the investment space—the traditional or legacy investment space. We need to port a huge amount of that over into our space, because our space is kind of [the] Wild West still. ConsenSys is working hard on that.
X: What needs to be ported over?
JL: Standard ways of representing what a token launch is; standard disclosures; tracking claims that are made by different projects; [taking a] rigorous look at compliance. There are lots of efforts in this space that are focusing on many of those aspects. [We also need to do] just analytics and analysis. We may come out with a collaborative system that enables us and a bunch of other analysts to share information on all these projects.
One thing that’s really cool about this space is you really do have to disclose. There are a lot of people who are too eager to jump in. But there are a lot of very sophisticated people who are analyzing things, and if something smells in a white paper, or if there’s no real substance that is shown for a project, people are going to be all over that pretty quickly. And there’s going to be a Reddit thread and a Medium article, and you’re going to be outed pretty quickly. It doesn’t mean there isn’t a silly amount of irrational exuberance around projects that look pretty good, but projects that are obviously ill-structured get called to task pretty quickly. And that information gets disseminated very rapidly and discussed.
As it matures, it’ll be a much better system.
X: What are the biggest hurdles to overcome in the next year or two?
JL: The constraints of time and space. We’re just building really, really quickly. We have a ton coming at us. We have a lot of really talented people in our company and in the ecosystem, and we need more people, more time. But things are going really well.
It’s complicated stuff, and it takes a lot of work to get things right. It’s even more complicated, even more difficult than building the World Wide Web because you didn’t really have money as a native element on the World Wide Web. It was sort of built in, pasted on later. But here we have value, billions of dollars worth of value, that is sitting there sort of raw, as a foundational building block of this ecosystem. And so, we need to be careful and prudent in how layers of that infrastructure are built.
There will be lots of missteps. But it’s definitely going to be a better system over time [that will be] more decentralized and have, essentially, trust baked in all the way through, or security baked in all the way through.
X: Blockchain is built on the Internet, but does it become bigger than the Internet?
JL: One of my [presentation] slides basically tried to indicate that Web 1.0 was, say, X, and Web 2.0—social and mobile—was, say, 10x. Web 3.0—trusted transactional infrastructure on blockchain—will be 100x. And once you start bringing in the entire machine economy, that’s going to be even bigger. Absolutely, it’s going to be enormous.