Ethereum & ConsenSys —  A Tale of Resilience

Ethereum & ConsenSys —  A Tale of Resilience

Patrick Tan 27/12/2018 8

Imagine you had US$5 billion. Just as a thought experiment, imagine that you had US$5 billion to do with as you pleased. What are the things you’d buy? Would you quit your job? Go on a lifetime holiday? Buy a new house? A plane? A yacht? A car? Seriously, close your eyes and imagine for just a few minutes, what you’d do with US$5 billion. Because late last year and towards the early months of this year, Consensys and Ethereum co-founder Joseph Lubin was worth about that much money. And according to Forbes, Lubin was the second-richest person in the cryptosphere, based largely on reports that he owned (personally) between 5% and 10% of all Ether in circulation, which at the time had a market value of US$100 billion and was trading around US$1,389.

Today, Ethereum is worth less than a tenth of that amount and at the time of writing was trading around US$126 (based on data from CoinMarketCap). And while it may be tempting to kick a man when he’s down, Lubin has arguably done more for Ethereum, cryptocurrencies and the blockchain than anyone else. Imagine that you had US$5 billion, would you go all-in to fund a future vision of the world? Fortunately, Lubin was and while the results of ConsenSys, the company he founded to promote the Ethereum blockchain, have not been all-out successes, he hasn’t given up nor is he going anywhere. And for that reason, the recent round of layoffs from ConsenSys should be viewed against the backdrop of Lubin and ConsenSys and the wider goal for Ethereum.

1. Where Lubin Came From

Whilst most of us (myself included) would be tempted to retire on a US$5 billion fortune, it is thanks to the work of idealists such as Lubin that the world has a shot at a brighter future. For that, Lubin’s unique life experiences may lay the foundation for his willingness to fund a greater good.

 

You know he’s smart cause he uses his head for something other than growing hair.

A self-described computer nerd whose mother was a realtor and whose father was a dentist, Lubin, a Canadian, attended Princeton in the mid-1980s where he played squash and was roommates with future billionaire hedge fund manager Mike Novogratz, who like Lubin has gone all-in on blockchain and cryptocurrencies. After graduating with a degree in electrical engineering and computer science in 1987, Lubin worked at Princeton’s robotics lab but eventually was lured by the siren call of Wall Street, where he ended up building software for Goldman Sachs and eventually ran his own, successful quant hedge fund. Lubin had what most of us would consider a successful life — a great career, a successful business, and money. But it was September 11, 2001 that would leave an indelible mark on Lubin forever.

Lubin’s office was not far from Ground Zero during the September 11 attacks on the World Trade Center in New York City and the experience threw him into an existential crisis. Over the next decade, he would become deeply depressed about the state of the world and when the 2008 Great Financial Crisis hit Wall Street, it would further fuel his depression and loss of trust in the institutional structures which had been the backbone of his existence thus far. Speaking at the ConsenSys Ethereal summit in May 2017, Lubin said,

“It was folly to trust all those structures that we implicitly felt had our best interests at heart. I feel we were living in a global society and economy that was figuratively, literally and morally bankrupt.”

“I was confident that our economy and society were in a slow, cascading collapse.”

According to Lubin, central bankers would eventually debase currencies to pay off mounting debts, stifling growth for decades or some “nonlinear” or black swan-type event would create great hardships and send the world into the worst economic depression it had ever seen. And while it may be easy to dismiss Lubin’s doomsday prophecy as the product of depression, there are growing signs that his dark predictions are not far off the mark.

 

Not your average dystopia.

As the specter of a trade war between the world’s two largest economies, China and the United States, looms, there are increasing concerns that China can no longer sustain its economic growth any further. With gross overcapacity (think of all the ghost cities) and troubling signs that China is goosing production (of white elephants) in order to maintain its social compact — limited freedoms in exchange for economic goods — there is sign of increasing strain on China to keep up the cycle — and its failure or inability to do so may lead to social instability and unrest. Already, factories in China are already sending workers back to the countryside for their Lunar New Year break as much as three months ahead of time (with no pay of course). The Chinese Communist Party is also increasing its involvement in private business and the reach of its state-owned enterprises, which will only add to greater opacity and the propensity for over-production.

Lubin’s experience led him to travel to Peru and Ecuador, looking for the land he could escape to when in early 2011, he stumbled upon the Bitcoin whitepaper and had his own “come to Jesus” moment.

“Decentralization was a game changer.”

2. The Birth of Ethereum & ConsenSys

Reading all that he could on Bitcoin, Lubin was eventually introduced by Anthony Di Iorio (a fellow Ethereum co-founder) to Ethereum’s then 19-year-old creator Vitalik Buterin. Having read Buterin’s Ethereum whitepaper in the winter of 2013, Lubin got in on the ground floor of the Ethereum project and attended its foundational meeting in Miami in early 2014.

 

Contract looked very much tamper-proof, lawyers remained unimpressed.

Lubin saw the potential of Ethereum, and as a computer scientist, recognized the potential of a Turing complete decentralized blockchain protocol. A Turing complete system means a system in which a program can be written that will find an answer (although with no guarantees regarding runtime or memory required). In theory, a Turing complete blockchain protocol should be able to allow programs which could solve any computational problem. Most modern programming languages, including Python, C++, C#, and Java are all examples of Turing complete languages. By comparison, Bitcoin scripts are not considered Turing complete, in favor of greater security. Being Turing complete has security trade-offs, which are beyond the scope of this piece to examine in further detail. Nonetheless, Lubin went all-in on Ethereum and at its US$18 million initial coin offering (ICO) is rumored to have been one of the biggest buyers, at prices of well below US$1 per Ether.

But as with any good backstory, the founders of Ethereum bickered — decentralization is messy — and parted ways. Buterin continued and continues to focus on Ethereum’s technology, while Lubin went about creating a business ecosystem to support the Ethereum blockchain and arguably, it is the synergy of the two paths that have led to Ethereum’s success. Because what good is a programming language or blockchain protocol if no one builds anything on top of it? Imagine a smartphone with no apps — it’s as good as a brick.

3. ConsenSys Lives Decentralization

When Lubin set about creating ConsenSys, he didn’t just want to create the companies that would eventually support the Ethereum protocol, he wanted to live the decentralized ethos. When it came to organizational structure — there was none. Dubbing it a “holocracy,” ConsenSys has no mangers or reporting structures. Decision-making was decentralized and employees chose their own title. 


“The door is that way, close it behind you.”

A decentralized future means personal responsibility. During the industrial revolution, an unspoken pact was made that the owner of the factory would provide workers with wages in exchange for their labor. In return, workers would receive less of the capital created and the economic rewards for their labor by delegating decision-making and responsibility to the owners and controllers of capital — the risk-takers. But during the information revolution, which we are currently in, the old structures provided for that compact, a unionized workforce, lifetime employment, and other social welfare structures were undermined. Technology and automation broke the compact and workers were finding that increasingly, they had to fend for themselves and become personally accountable for their own actions and decisions. Yet despite that change, labor’s share of the economy has steadily receded over the last three decades, thanks to inflation and the disproportionately larger rewards that the owners and controllers of capital received. Here then, Lubin was turning the traditional industrial-age working environment on its head. Making employees personally responsible for their actions.

But such a revolutionary management style, one that unprecedented will take time to yield results. People are by nature not fond of being accountable, especially to themselves. Just think of the number of people you know to have high levels of personal responsibility — chances are they are also likely to be the most successful.

Yet somehow, Lubin managed to make it work (for the most part). ConsenSys’s first projects, or spokes (as they are referred to), included accounting software Balanc3 for cryptocurrency transactions and a blockchain-based digital-rights platform for musicians. Balanc3 is said to have 25 customers paying at least US$25,000 a year and Kaleido, which helps companies implement blockchain technology has 1,900 users for which it has recently started charging for. Amazon Web Services recently announced that its massive cloud computing services are compatible with Kaleido’s blockchain offerings. Bounties Network, which received US$250,000 from Lubin to get started in 2017, has since generated over US$50,000 in revenues.

And ConsenSys’s consulting arm, which essentially assists companies in becoming blockchain literate, helped create Komgo, a consortium of 15 big banks the likes of which include Citibank, French banking giant BNP Paribas and Dutch banking giant ABN AMRO, which wants to use blockchain technology to bring efficiency to the financing of goods shipped around the world, like oil. So instead of cumbersome letters of credit and the intermediary banks, the blockchain could facilitate cross-border trade with an efficiency hitherto unthinkable. And over in the Philippines, where overseas remittances constitute as much as 10% of GDP, ConsenSys consultants are working with UnionBank to speed up money transfers.

 

Not the line for Hamilton tickets.

Not bad at all for a company with arguably no hierarchy or organizational structure. But not all of ConsenSys’s projects have been as successful and understandably so. Because not everyone has the same high degree of personal responsibility. Yet given that the coming period will likely be one of gross economic uncertainty, personal responsibility is precisely what is needed. The old industrial-age concepts of labor versus management is no longer relevant. Increasing automation, artificial intelligence, and quantum computing mean that ultimately, everyone will need to discern how they can create value, instead of simply doing a job in return for a salary. To that end, ConsenSys may be well ahead of its time.

At the very least, ConsenSys insiders have reported feeling empowered by the autonomy, in particular, the opportunity to move laterally among projects.

Yet there is a method to Lubin’s apparent madness. According to Lubin, the broader goal is to turn his Ethereum ecosystem into what he’s termed a “mesh” whose strength is derived from the inter-connectivity of the various spokes (companies) within the ConsenSys ecosystem. By creating an ecosystem of complementary companies inside ConsenSys, Lubin is in many ways, creating a value proposition alongside the Ethereum blockchain, that could be worth far more than it is today.

4. Building the Tools of the Ethereum Blockchain

But perhaps, and arguably, more importantly, ConsenSys has built the tools which enable the next generation of decentralized developers to build the next generation of decentralized applications or dApps and it has done so for free.

Its MetaMask product, which lets users log in to Ethereum from a web browser has over a million downloads. Truffle, another ConsenSys product, helps developers manage and test parts of their code for building Ethereum applications — it too has been downloaded over a million times. Think of ConsenSys as Atlassian for the Ethereum blockchain.

 

Word document went out of control. Formatting tools were of little help.

And while it can be almost impossible to charge for ConsenSys’s Ethereum tools, that they are available will go a long way to helping build the Ethereum ecosystem of dApps. Because the blockchain is built on a decentralized, open-source ethos, ConsenSys is arguably and understandably hard pressed to charge for any of these tools — which benefits the Ethereum blockchain tremendously, something which Lubin himself concedes,

“The intention isn’t to create companies and send them out and make money. The intention is to create an ecosystem, which is very family-like.”

Spoken like a true blockchain entrepreneur, but also the very ethos which allowed platforms like GitHub to thrive. Collaboration is everything in software because you can’t know what you don’t know. The code is like that. You can’t see the flaws and weaknesses which you’ve left behind in your code, which is why developers go to GitHub where volunteers (for no remuneration) help to improve your code. The idea that better code for someone means better code for everyone. Similarly, a more vibrant Ethereum ecosystem means a better Ethereum ecosystem for everyone. And eventually, ConsenSys will reap its reward. As Napoleon Hill, the famed motivational speaker and writer once wrote,

“We do not profess to know what are Nature’s plans, but we strongly suspect that before man can enjoy the blessings which are here and available for him he must overcome the spirit of greed, the tendency to get without giving and come back to the bee habit of working for the “hive!”

To that end, Lubin is working for the “hive,” of Ethereum and we are all the richer for it.

4. How long can it last?

It’s almost impossible to say whether Lubin has swapped out most or all of his Ethereum to fund ConsenSys. For now, electricity and rent, as well as salaries, are paid out in dollars and with the value of Ethereum where it is today, Lubin has admitted that he has sold some of his Ether to fund operations. But his situation is perhaps no different from that of the hundreds of ICOs which have fallen by the wayside today.

 

Not quite the same, but I’ll take it.

For ICOs who swapped out to cash in the early days, they will likely have sufficient buffers to last a long time to build out their Ethereum-based dApps or other applications. User numbers of dApps remain painfully low, which is entirely to be expected. Ethereum is barely 5 years old and most ICOs are less than 2 years old. Hardly what one would call a long time for the development of what are arguably complicated projects based on the Ethereum blockchain.

But if, and this is a very big “if” even a fraction of these Ethereum projects reach self-sustaining speeds, it will have a big impact on Ethereum as a whole. Think of it as when Apple’s App Store started to attract more and more developers to build apps for the App Store. Because the App Store had more apps, it attracted more users of the iPhone, which attracted more developers, in a self-perpetuating cycle. To that end, that is where the true potential of Ethereum lies.

Yes, there were tons of fraudulent and failed ICOs. There were lots of scams as well. Investors have collectively lost billions of dollars. But despite the bad press, there are still companies out there today which are continuing to build their products based on the Ethereum blockchain. Not all of the ICOs were scams, many of the technologists and futurists who raised money in ICOs last year haven’t given up yet and because there were so many, a small fraction of them to succeed will be all that is needed to invigorate the Ethereum blockchain. And the core developers at the heart of Ethereum haven’t thrown in the towel either, not by a longshot. Buterin’s relative silence on Twitter and in other public spaces is allegedly due to his working non-stop on improvements to the Ethereum protocol due early next year.

So while ConsenSys has been shaving jobs and rightfully so, this doesn’t mean it’s necessarily curtains for ConsenSys, or for that matter Ethreum. Speaking to Forbes from ConsenSys’s office in San Francisco, Lubin sums it up best when discussing his Ethereum ecosystem,

I have no exit plan and I’ve never had an exit strategy for anything I’ve done.

Which is good news for the Ethereum blockchain.

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  • Will Neilson

    I trust your insight more than I trust anyone else in the crypto atmosphere. Great job!!!

  • Robert Baker

    Informative and entertaining !!

  • Ian Bizowski

    There's more gold then folks think, loads of it, only rare to us.

  • Kieran McDermott

    Ethereum is gonna moon shoot

  • Tom Sladen

    To be honest, I have lost faith in crypto

  • Nathan O'Brien

    Well said

  • Mike Glynn

    In my opinion, if BTC goes to #2 it will be over for BTC and the real bull market starts for the alts.

  • Daniel Whittaker

    Good read

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Patrick Tan

Crypto Expert

Patrick is an innovative entrepreneur and a lawyer passionate about cryptocurrencies and the business world. He is the CEO of Novum Global Technologies, a cryptocurrency quantitative trading firm. He understands the business concerns of founders and business people helping them to utilise the legal framework to structure their companies to take advantage of emerging technologies such as the blockchain in order to reach greater heights. His passion for travel, marketing and brand building has led him across careers and continents. He read law at the National University of Singapore and graduated with Honors in the Upper Division and joined one of Singapore’s top law firms, Allen & Gledhill where he was called to the Singapore Bar as an Advocate & Solicitor in 2005. He created Purer Skin, a skincare and inner beauty company which melds the traditional wisdom of ancient Asian ingredients such as Bird's Nest with modern technology. In 2010, his partner and himself successfully raised $589,000 from the National Research Foundation of Singapore under the Prime Minister’s Office. He has played a key role in the growth of Purer Skin from 11 retail points in Singapore to over 755 retail points in Singapore and 2 overseas in less than a year. He taught himself graphic design, coding, website design and video editing to create the Purer Skin brand and finished his training at a leading Digital Media Company. 

 

   

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