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Nic Carter, Jude Nelson, and Patrick Stanley on Incentivizing and Measuring Crypto Networks
June 10th, 2019

About this Episode
Today's episode features a discussion between Nic Carter, partner at Castle Island Ventures and co-founder of the blockchain analytics platform, Coin Metrics, Jude Nelson, an Engineering Partner at Blockstack, and Patrick Stanley, Blockstack's Head of Growth.

The three dig into the opportunities and challenges of crypto - in particular the problem of incentivizing development and measuring progress on crypto networks early on.
Show Notes
  • 00:41 Introductions.
  • 01:29 Patrick: "Nic, can you talk about Proof of Reserves?"
  • 01:42 Nic: "I'm on a one man quest to get exchanges to institute proofs of reserves."
  • 03:34 Nic: "Coinfloor created a proof of reserve for 60 months running."
  • 03:57 Patrick: "You're seeing similar things in the dapp space, where you have these dapp stores that are effectively ranking dapps based on transaction throughput and volume."
  • 04:13 Patrick: "What's happening is people who are cheerleaders for the apps are simulating activity."
  • 04:52 Nic: "We have the precise problem at Coin Metrics."
  • 0:05:28 Nic: "The objective becomes to game the ranking and create a semblance of vibrancy."
  • 06:21 Patrick: "My sense is that the dapp stores that continue to participate in a Red Queen's race... are going to be the ones that people don't trust and will leave for better alternatives."
  • 06:55 Patrick: "Jude, do you have any opinion on the tradeoffs of free transactions in the long term and why a crypto network would not want to bias their network in that way?"
  • 07:08 Jude: "Before I answer that, there's no such thing as a free transaction - somebody is still going to have to pay for it."
  • 07:31 Jude: "I expect some of these platforms are biting the bullet right now to make it look like there is activity."
  • 07:56 Patrick: "Why would you want to stay away from that from a long term perspective?"
  • 08:07 Jude: "My favorite story about this goes back to the early 2000s when Gmail first came online."
  • 08:31 Jude: "Someone created Gmail FS, which let you use it as a file backup. If you create something akin to free storage, someone is going to turn it into their backup solution."
  • 10:21 Nic: "The Bitcoin SV case study recently, where they kept orphaning blocks because they were making them too big is a cool real-world example of these cautionary tales we told ourselves for years and years."
  • 10:53 Nic: "So Blockstack uses Bitcoin as the anchor layer, is that right?"
  • 10:57 Jude: "Yes. ... Right now we're building the second generation Stacks blockchain."
  • 12:26 Nic: "Do you have independent validation on the Stacks chain? Or is it all dependent on Bitcoin's own security?"
  • 12:33 Jude: "We just use the hashpower and the difficulty of reorganization from Bitcoin."
  • 12:45 Jude: "We use a novel consensus protocol called proof of burn, where instead of destroying electricity to produce tokens - like a Proof-of-Work system - you destroy an existing cryptocurrency to produce Stacks blocks."
  • 13:11 Nic: "I think this is in a class of a new set of blockchains anchoring themselves to Bitcoin - Fairblock being another easy example."
  • 13:59 Jude: "Ethereum lowered the barrier of entry for creating your own alt coin."
  • 14:13 Patrick: "Nic, how'd you get into Bitcoin?"
  • 14:18 Nic: "I was really big on Reddit from 2010 onwards... and Bitcoin was fairly prominent on all the tech subreddits."
  • 15:44 Nic: "Professionally, I got into crypto while doing a Masters in Finance where I sought to learn valuation techniques and apply the ones from equity valuation to cryptocurrency, which proved to be an impossible task."
  • 16:21 Nic: "Coming out of school, I got connected to folks at Fidelity, who were super progress about Bitcoin."
  • 17:36 Patrick: "Aside from finance, you also studied philosophy, right? How did that shape your view on this space?"
  • 17:58 Nic: "One concept I think about a lot from my philosophy degree is the 'ontology of blockchains'."
  • 20:08 Patrick: "Circling back to your role in VC - outside of Bitcoin, what other public blockchains interest you?"
  • 20:47 Nic: "If you're building on the 20th most popular smart contract platform, there's a very real chance the main developers give up and you'll be marooned on this obsolete chain."
  • 22:07 Jude: "Our co-founder, Muneeb, used to tell the story of how Blockstack was originally going to run on Namecoin."
  • 22:49 Jude: "One mining pool controlled over 60% of Namecoin... for months... and no one noticed or cared."
  • 23:41 Nic: "This reminds me of a pretty entertaining episode of my startup, Coin Metrics."
  • 25:27 Nic: "We still get bugs on Bitcoin. We had a critical one recently."
  • 25:33 Jude: "I predict that if such a bug like that got exploited... miners would unwind the chain to mitigate it before developers had a chance to patch it."
  • 26:16 Jude: "Bitcoin is more than just software. It's a social contract realized as a software artifact."
  • 27:41 Nic: The interesting thing about forks is there are very few cases where the developers didn't bless the chain that ended up winning."
  • 28:53 Jude: "Unless it's a case like Monero where it's one person being a jackass and that person gets jettisoned."
  • 29:43 Jude: "I think people get very emotionally invested in whatever fork they prefer, whether or not there's a crypto token involved."
  • 30:14 Nic: "I think it's been a myth in crypto in 2017, which is that developers are mercenaries and we need to fund them exclusively with built-in inflation from the protocol."
  • 30:47 Nic: "And I would say in some cases it's a risk - take the Zcash situation."
  • 31:59 Jude: "With systems like Zcash's founder's reward, beneficiaries can get complacent because they receive the reward either way, whereas with Blockstack's app mining system, you have to compete all the time to receive a reward."
  • 32:17 Patrick: "I definitely see crypto as inherently political."
  • 33:37 Patrick: "In our initial version of app mining, we actually learned a lot of really valuable lessons."
  • 35:03 Nic: "What's the aggregate value of rewards being paid out through app mining?"
  • 35:07 Patrick: "$100,000 per month in bitcoin."
  • 35:25 Patrick: "Subject to SEC Reg A filing, that would become $1,000,000 per month."
  • 36:28 Nic: "I have to say... Blockstack's SEC filing was the first disclosure I ever read that was sufficient for a token raise."
  • 38:42 Nic: "Are app mining tokens granted to developers or users?"
  • 39:10 Patrick: "Our goal is really to make developers as happy as possible while also being as fair as possible."
  • 39:34 Nic: "Where would you situate Blockstack in the existing ranking of dapp platforms?"
  • 0:40:13 Patrick: "I think we're #1."
  • 40:43 Patrick: "Our mission is really upgrade the Internet."
  • 41:51 Patrick: "The Internet we're operating on today is really like a third world country where people don't have property rights."
  • 43:21 Nic: "So much of the time in crypto we recreate these messy and ugly human institutions like voting driven governance that becomes cartelized in short order, or corrupted."
  • 44:37 Nic: "One thing I critique a lot is this modeling of humans as what I call 'rationality vending machines'."
  • 45:41 Jude: "A lot of these governance systems are designed by people maybe qualified to write software, but certainly not qualified to develop political systems."
  • 46:35 Nic: "Jude, so you would prefer that there's always a way to veto these systems or shut them down?"
  • 46:43 Jude: "Absolutely. ... We have failed as a species if we manage to build machines that enslave us."
  • 47:44 Nic: "It surprises me that the laundering scandals have not really hit crypto yet."
  • 48:55 Patrick: "What books or resources would you recommend for people to dive deeper into crypto?"
  • 49:23 Nic: "The Princeton textbook on crypto... "Applied Cryptography"... and "The Information."
  • 50:20 Nic: "I also really like Taleb's canon."
  • 51:55 Goodbyes.
  • 52:19 Credits
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About Our Guests
Jude Nelson earned his PhD in computer science at Princeton and worked as a core member of PlanetLab, which received the ACM Test of Time Award for enabling planetary scale experimentation and deployment. His research covered wide-area storage systems and CDNs. 10+ years of Vim usage.
    Nic Carter is a Partner at Castle Island Ventures, a blockchain-focused venture capital fund, as well as the co-founder of the cryptoasset analytics platform Coin Metrics. Carter is based in Boston.
      • Nic Carter
      • Jude Nelson