Power over Bitcoin is held by a few. Is it at risk of a 51% attack?
In a special interview, Konstantin Richter of Blockdaemon also discusses the critical role of government in encouraging greater blockchain adoption.
Governments and institutions need to participate with blockchain systems in order to bring about greater adoption of the technology, said Konstantin Richter, CEO of Blockdaemon.
“We need to work with these entities,” said Richter in an interview with Forkast.News. “We can’t just build a parallel universe and then hope that to be fairer than what we currently have.”
Richter also says decentralization is a blockchain ideal that may be impossible to achieve in practice.
“Even Bitcoin, Ethereum, Ethereum Classic, obviously for different reasons, they’re all theoretically decentralized to a degree, but they have exactly the problem that you’ve mentioned, which is certain countries where mining has very particular advantages,” Richter said. “There’s large corporations, there’s probably three or four miners in the world that have enough hash rate to, in theory, corrupt the chain, right?”
New York-based Blockdaemon is a blockchain infrastructure company that manages nodes and payment rails for blockchain networks.
According to Richter, a number of crypto cypherpunks have the expectation that cryptocurrency value systems will replace existing payment systems and be fairer or more mutually beneficial.
“It’s not like we write a 10-page white paper and figure it out, and the free market will take care of everything, like that’s a little naïve, and I think blockchain deserves better.”
The growing body of international regulations surrounding cryptocurrency may be supporting adoption, but some say it goes against the anonymous, free-market nature of the technology that was birthed as a result of the 2008 financial crisis.
See related article: Are US regulators finally warming to crypto and digital assets?
“I think it’s naïve to assume that we can just come up with something very simplistic,” said Richter, referring to cypherpunks’ vision of cryptocurrency financial systems. “We actively seek the conversation with [government and industry] entities to come and start participating in these networks, start investigating how consensus works and how they can participate in the network, what’s safe, what’s not safe.”
Watch Richter’s full interview with Forkast.News Editor-in-Chief Angie Lau to find out about how proof of stake, security, governments and institutions are affecting the blockchain and crypto industry.
- Is proof of stake better than proof of work? “Proof of stake doesn’t have that much advantage over proof of work. It has efficiencies on energy and use of resources, to some extent. It just is a different system to give power to people who run nodes.”
- On security threats to blockchain networks: “I think the bigger attack angle for most chains currently is security of network participants, which is another thing we see a lot, which is large stakeholders and investors running nodes in non-secure locations or by unknown companies, and so there’s individuals working for these companies who might have a very different way of looking at it.”
- Can Bitcoin and Ethereum suffer 51% attacks? “At this moment in time, there’s no chain that really guarantees that that’s open to the public. Like even Bitcoin, Ethereum, Ethereum Classic, obviously for different reasons, they’re all theoretically decentralized to a degree, but they have exactly the problem that you’ve mentioned, which is certain countries where mining has very particular advantages, there’s large corporations, there’s probably three or four miners in the world that have enough hash rate to, in theory, corrupt the chain, right?”
- How greater adoption can be achieved: “Our view is that we need these existing governments and institutions to participate in these systems in order to bring blockchain to a wider audience, which is the raison d’etre for Blockdaemon, is that we allow these type of institutions — governments, Fortune 500s, banks — easy, reliable access to these networks.”
- Decentralization and the development of blockchain systems: “What happens if we, because we run a large percentage of the world’s nodes, for example, become a single point of failure?”
Angie Lau: Welcome to Word on the Block, the series that takes a deeper dive into blockchain and the emerging technology stories that shape our world at the intersection of business, economy and politics. It’s what we cover right here on Forkast News. I’m Editor-in-Chief Angie Lau.
Well, there’s a debate raging. It’s all about decentralization, and it centers around how easy it is for nodes to essentially be validated, distributed around the world. So is it proof of work or proof of stake? What am I talking about here? Proof of work takes a lot of work. It essentially takes a look at the entire blockchain and validates it before passing it along to the next node. And the idea is that it is immutable — everything is validated and there is nothing untoward. The problem is the latency rate, the transactions per second.
And so how technology has advanced is now proof of stake, where you just take a sliver of that information, potentially the most important part, something predetermined, and you validate that before then passing it along. It’s probably a very poor layman’s description of what’s happening in technology, so I’m going to bring in really the expert here to talk about the future of decentralization, whether or not it’s a myth, with Konstantin Richter.
He is founder and CEO of Blockdaemon, a node infrastructure company. And so I’ll let you, Konstantin, explain exactly what Blockdaemon does before we talk about all of this: nodes, distribution, and decentralization. Konstantin, welcome.
Konstantin Richter: Thank you so much, and it’s great being here. You kind of describe it in a really interesting way. So, yes, I’m the CEO and founder of Blockdaemon, and Blockdaemon is an infrastructure-as-a-service (IaaS) company in the blockchain space, and one way to describe it is, when people talk about decentralized ledger technology, blockchain, really the core component lies in the decentralized.
There’s a lot of ledger technology left, right and center, and it’s that combination that makes it special. And decentralization is the actual location of the server that runs the software that validates the physical blockchain. That’s what we call a node, is the server with the software and then a connection to other nodes in the network. That constitutes a node, and all blockchains have these different nodes. And ideally there’s a sufficient amount of nodes in the network so that not any individual person who has a server and the software can jeopardize or impact the information that is shared that each of these nodes physically store.
And we help really manage that complexity of operating these nodes for institutional customers specifically. So these nodes are complex because they are distributed and decentralized, which means there is a lot of network participants that don’t know each other, that use open-source components of software, and when you have open source communities like Ethereum or Bitcoin, for example, which are proof-of-work chains for the time being, the code evolution is very non-linear.
And so to keep the code fresh on your node, you need to be involved in the community; you need to know what’s up. You can’t just sort of buy something off the shelf that’s enterprise-grade. So we’re bridging that open-source chaos, decentralization for institutional customers who are like, “listen, I want to participate in this network. The node needs to be up and active and updated all the time.” So it’s like, “I want zero downtime, I want this to be easily accessible to me, and I don’t ever want to worry about it, because it gets complicated if you do it yourself.” And so we do that, and that’s what it means to be a node infrastructure company.
Lau: We are using this technology in many, many facets and their demands and enterprise grade professionalism to nodes, but to your point, Bitcoin, the grandfather of them all, really started as a community — open source. And so it was really fueled by the interests of one that spread to many.
Obviously, when it’s more about a community and you’re talking about society, there’s different variances of participation: somebody could be casual, spend a few hours of a day or a few minutes, versus all the way up to completely professional, this is a full-time thing. And so the varying degree, that inconsistency is almost unacceptable. So it sounds like you’re really professionalizing it at the level of enterprise-grade so that people can depend on it, expect it, trust that there’s a consistency there.
Richter: Correct. Yeah, and that’s exactly right. And so one way I, when I started the company, was thinking: how do we bring professional cloud formation tooling? So that gets a little software-y, but the last big data revolution for companies and institutions was the cloud revolution, which is moving data outside of your own protected data center into shared infrastructure that Amazon or whoever else might own.
So this is now the next evolution of that, which means that enterprises are now comfortable with their data being stored by another provider. But now they need to trust and learn that it’s actually OK if the data not just lives in the data center that you actually have a partnership with but on all the different servers and open source, decentralized systems. So it’s kind of a cloud times 100.
Lau: Yeah, this is the excitement that we’re seeing for IPFS and for Filecoin ahead of their mainnet. This is the infrastructure of Web 3.0. So it’s interesting to talk to you because you see the landscape, you see, especially with 30 protocols and helping manage the node infrastructure there, there’s almost a contradiction in terms happening at the moment. We’ve seen this in this space, and this has only grown in intensity.
So let me start with the 51% attack. Once upon a time, this was very theoretical. Once upon a time it was thought that with the nodes distributed around the world, how could it be physically or even economically feasible to take over 51% of the nodes to then dominate the rest of the system? But we’ve seen that this year, past few months. We spoke to ETC Labs CEO Terry Culver — they’ve been the target of not one, but three 51% attacks as that team, Ethereum Classic, insists on proof of work.
So therein lies the problem. And then we are also very much aware that for many of the miners, there seems to be obviously only specific geographical locations on Earth where electricity rates are low and mining costs are low, and so there is an overabundance of miners, and there seems to be a dominance of nodes there. So what’s really happening in blockchain today? Is decentralization truly a reality or is it unrealistic?
Richter: Yeah, so first of all, decentralization is an absolute that can never really fully be achieved. And so it’s a little bit like when you play the game of where do you live, “I live in this number, in this street, in this town, in this country, on this planet, and this universe, and this…” there’s always one larger layer. And the same is true for decentralization. And what that means is that there’s degrees of decentralization that you can live with at a certain moment in time.
What I would say is the first and foremost important degree of decentralization is: do you have sufficient distribution for an attack or somebody jeopardizing the network to be highly unlikely? Not impossible, because impossible is very hard to achieve, but on certain networks, the tech is an important factor, obviously, because that’s how you bring trust to it. No enterprise will put very substantial data into a public chain if there’s any sense that the data could be corrupted, for example.
And so I would say at this moment in time, there’s no chain that really guarantees that that’s open to the public. Like even Bitcoin, Ethereum, Ethereum Classic, obviously for different reasons, they’re all theoretically decentralized to a degree, but they have exactly the problem that you’ve mentioned, which is certain countries where mining has very particular advantages, there’s large corporations, there’s probably three or four miners in the world that have enough hash rate to in theory corrupt the chain, right?
Now, the fun part is, that’s just one part of decentralization, there’s also the economical part, because the reason is obviously that there needs to be, you know, why would anyone do it? The miners actually have no interest in doing it because they would kill that business, because the second you do it, you have a sort of nano-minute in which you can extract value, and then the whole thing shuts down and it’s over. And so it’s a combination of sort of technical ability as well as economic incentive mechanisms, and that’s where you see Ethereum Classic, for example, is a fairly unique proposition also in terms of volume and participants in the market where something like that could be valuable.
For a larger network like Bitcoin, that’s highly unlikely that anyone would do that, because that mining firm would put itself out of business, so they better be able to steal enough Bitcoin to make sure that they can live with never, ever participating in a centralized network again. But the economical component is super important. That really makes this decentralization. It’s a little bit like when we talk about a project or token, the cryptography is also an important component. For the whole of the network, economics play a major part.
That’s where proof of stake and that type of evolution comes in a little, which proof of stake doesn’t have that much advantage over proof of work. It has efficiencies on energy and use of resources, to some extent. It just is a different system to give power to people who run nodes. And so in theory, in proof of work, you could have one entity buying all tokens and then put all the tokens on one node, and then that node has power over the network. And so in that case, decentralization is very often more financial. The question is, in that case, do you have enough investors with sufficiently large holdings that don’t like each other so that they would never collaborate in order to take over the network?
PoS networks tend to have less nodes because the incentive to run nodes is a lot lower, because it’s directly correlated to the amount of tokens you hold, which is ultimately the yield you earn. And so it’s in the interest of maybe the first 25 large investors to do it, but then the smaller the investor, the less likely it is that they will ever participate in the physical consensus of the network. And so PoS networks tend to have less active nodes. So it’s important that the economical model and the way the network is built is efficient, which means there’s a foundation that owns sufficient tokens to balance out a possible attack, that there are enough large stakeholders who are beneficial to the network, who have an interest in growing it rather than ultimately damaging and stealing it.
So going back to your initial point, I would say that the biggest risk factor for decentralization right now is not that part of decentralization, because economically, unless you have a suicidal company, that’s like, “OK, we’re going to ruin ourselves and put ourselves in serious jeopardy,” I don’t think that would happen. I think the bigger attack angle for most chains currently is security of network participants, which is another thing we see a lot, which is large stakeholders and investors running nodes in non-secure locations or by unknown companies, and so there’s individuals working for these companies who might have a very different way of looking at it.
Because if I’m an individual, 10 million dollars might be a lot of money. If I’m the largest Chinese mining company, 10 million dollars isn’t a lot of money. I’m not going to ruin my business for 10 million bucks, for example, which is probably the amount of money you could get away with before something breaks. And so it’s really more the question of, how do we start bringing these more enterprising standards and securities and audits into place so individual employees of entities that actually have access to stuff [that is] vetted, that there is control mechanisms on an individual company level in place, and so the same holds for us, for example, because we run a lot of nodes for a lot of important people in a lot of these networks.
And so even me, as the CEO and founder, there’s a lot of stuff I can’t access in my own company, because it’s not in our interests that I could. We don’t want a scenario where Konstantin wants to pack up, and goes in secret God mode and tries to do anything. But I think those are the things I’m very aware of, where I’m a lot more worried about individual bad actors with access to systems who have access to a subset of things that could be misused. So for custodians and exchanges, imagine something like a big exchange like Binance, who might hold 25, 30, 40% of a token of any given currency just because there’s so much volume on there. The question is, who are the people inside of a company who can access that technology, is really probably the higher risk factor at this very moment.
Lau: So what are the best practices? You’ve highlighted a lot of vulnerabilities, but what are the best practices and are they being practiced right now?
Richter: I think we’re all learning, and it’s still very early days. And so I think one of the most important challenges and best practices and where we struggle, is to educate speculative stakeholders who hold too many tokens to use these tokens for the benefit of the network, which is not put it all on one node, with the lowest fees possible, so you suck out as much value as you can. Maybe you should run multiple different nodes in multiple locations with multiple different providers.
Give the network some latency and performance and don’t just see yourself as “I just hold these tokens, I want the highest possible, and I don’t care about the structure of this network.” So that’s one best practice that we’ve now seen as the smart projects start having that discussion with their respective investors, as well as potentially with exchanges and custodians, which is like, “we appreciate you giving us liquidity, but you have to be careful that because you’re such a big exchange, you don’t end up with 30 or 40% of the market in one bucket. And we need to know how that bucket is secured.” It’s not in the interest of the physical protocol to have that much centralization on an asset like that.
So it’s really a debate with all these different stakeholders who in theory hold a lot of power and need to constantly give some away. And as you know, when economic incentives, specifically in crypto, are very high, it’s very hard to find investors who respect projects to do that. One of the reasons why I’m excited about a lot of the newer projects is because a lot of the older projects, for example, weren’t very wise.
So let’s talk about Ethereum Classic here as an example. There’s a lot of back holders and stakeholders in the network who are maybe not as interested in bringing the network to life. They’re more interested in, “can I just get my money out, or are there other ways that I can extract value out of this network?” And so getting really smart in whose money you take and how you manage the token market without jeopardizing the market, what are the strategies on managing that type of liquidity, making sure you have multiple exchange relationships, all that type of stuff, working with custodians, I think we’re just learning as a facilitator in that arena what that can mean for a network.
The promise that a lot of the economical models for companies like us — we’re venture-backed — is always a little bit of a marketplace zero-sum game. And I’m always trying to tell my competitors and when I talk to investors, they’re like, “oh, you’ve got to be the only one.” And you know, if I’m the only node operator in the world, we have no blockchain. That’s not how this works. And so how do you create a win-win mentality in these open source networks in order to protect the networks as well as have healthy competition? That’s where I think best practice questions lie at this very moment. How do we ask these questions? How do we respond to those? How do we adjust economical models to reflect that over time? But I’d say on each network, we’re still very challenged, absolutely.
Lau: That’s a great point, because technology and the promise of blockchain was always that it would almost bake in these democratic best principles and first principles: governance, community, all of that. And then in practicality, as we’ve seen this industry evolve, all of the vulnerabilities of people essentially wanting to dominate because the economic incentives are so high. So then comes along organizations like Libra, where you have like-minded, common interests coming together. And that’s for sure a controversial example, but it’s an evolution of an attempt to create governance over a new economic model.
What do you think about that as part of the evolution? We are seeing more and more of that. We are seeing more sovereigns, we are seeing more nations in play with central bank-backed digital currencies, for example. We are seeing organizations and Fortune 50s like MasterCard coming in and trying to create an ecosystem in which CBDC can be tested and grown. As enterprise evolves to more institutional and legacy evolutions of this technology, is that part of the answer, or?
Richter: Yeah, I believe so. So first of all, Libra is a good example. I’m going to say something fairly controversial: I really like certain components of Libra. I think it’s very smart the way they’ve gone about it, which is ultimately we want participants who pay to be in this association because they believe in the vision of this association to have an equal share of ownership and say, and if you do that across 100, you probably have a fairly decentralized network.
Like if there’s 100 individual stakeholders who all have the same vote, that seems to be a working system to me, because the biggest problem and even the large open source PoS systems where they have 100 validators, which is mostly the max number of validators in the network that you can operate a payment-like network without having too much problems on the performance side, you probably have the first 10 nodes and most of these networks have more than 50 percent of the network.
And so when the blockchain folks scream out about Libra, this project I love, but you look at the validator list and after 10 nodes, it’s like they have 50 percent of the market… Libra’s set up of, we’re going to pick 100 entities, that makes a lot of sense. We actually work with a lot of projects where we try to educate them when we run nodes. So, for example, we have a university program. We always recommend that each network has up to 20 percent of the nodes devoted to academia and research, which are entities that aren’t necessarily just motivated by financial gain, so that you have balances and checks in place.
So we have nonprofit, you have academia and universities. You have people who would use the payment mechanism, for example. You have people who are enabling liquidity like exchanges and custodians who should own nodes. Then you have operators like us who should own nodes because they can back up the network quickly, for example. And so I think that’s a smart way of doing it in the absence of a market dynamic that actually supports true decentralization. And so I like how Libra did it.
Lau: Yeah, and I’m really hearing this description, it’s almost like what you’re trying to create is in terms of the integrity of the network, it must reflect society. So it can’t just reflect the whales. It can’t just reflect self-interested enterprises. It must reflect the diversity of our earth ecosystem, essentially, our economic model, where you have different participants. Ultimately, that would be the healthiest network of all.
Richter: Governance is a great example because, I’m based in the U.S., and we have great examples of existing governance models that were tested for hundreds of years. It’s also like sometimes the disruption is in the combination of ingredients. We should look at best practices and see, like how does the Senate in the U.S. handle this diversity of states and people and all that type of stuff? And, yes, there’s a lot of bad things to say about it, but you will have that in any community aspect. I think the one thing we all agree on is that if money is the driver of that, it tends to have bad outcomes. We see that in our current political environment.
That to me is the principal challenge, because when I talk to crypto cypherpunks, a lot of the time, there’s this expectation that these value systems will replace these existing payment systems and be fairer or more mutually beneficial, and we currently have not seen that. Just to be very clear, we’re not even remotely there. It’s so complex to imagine how to build good governance, you know, it’s not like some kids — now, I don’t mean to sound demeaning, but it’s not like we write a 10-page white paper and figure it out, and the free market will take care of everything, like that’s a little naive, and I think blockchain deserves better.
So our view is that we need these existing governments and institutions to participate in these systems in order to bring blockchain to a wider audience, which is the raison d’etre for Blockdaemon, is that we allow these type of institutions — governments, Fortune 500s, banks — easy, reliable access to these networks. For us, this is a stepping stone. We need to work with these entities. We can’t just build a parallel universe and then hope that to be fairer than what we currently have. The existing systems of governance, if you like, democracy and stuff, took hundreds of years to build.
I think it’s naive to assume that we can just come up with something very simplistic. It requires dialogue and participation, and so that’s really where we see it. We actively seek the conversation with those entities to come and start participating in these networks, start investigating how consensus works and how they can participate in the network, what’s safe, what’s not safe. It’s super important to us to also know how early we are. We are really just starting this journey, and so it’s important to keep that in mind.
Lau: Absolutely. And in fact, Blockdaemon is also starting their journey with the recent funding raise of $5.5 million. How were you able to do this during Covid? And before I let you go, I’ve got to hear about your plans expanding into Europe and right here in Asia where I am.
Richter: Yeah, sure. So we’ve raised around US$10 million today. The latest round was in March, and we were kind of fortunate. We were actually preparing larger financial moves, and then Covid happened. And then we thought, you know what, let’s just go small, with a selected group of investors we like, a lot of them based in Asia, which is a territory we’re planning to be very active in.
We got lucky that we have very, very seasoned enterprise, great investors, and Comcast and a few other larger guys who all came into this round and said, “listen, we have a long-term view on what you do.” So we didn’t have nervous hands in the mix, and [they] really just wanted to set us up. I mean, we’ve seen tenfold growth over the last, I’d say, 18 months as a business. So we’ve been built to be a real software company ultimately; we’re looking very healthy and good as a software business in this space. We’ve had a relatively — I want to touch wood — easy time of it.
I think what we’re experiencing now is very rapid growth. We’re powering and providing infrastructure for most of the new big networks. You hear about that launch left, right and center. We’re obviously very keen to extend our services into Asia. We have customers and partners there, investors are like Hashkey for example. We run nodes and manage tokens for all those different entities. And we’re also actively looking for deeper protocol-centric partnerships with projects like Terra, for example, that we really like. And so there’s different projects out there.
We personally think it’s the largest opportunity market. I think the Asian blockchain ecosystem is outstanding, the convergence of a lot of excellent things like amazing engineers and amazing desire to try new things, you know, adoption rates in countries like Korea, enormous. And so I think it’s definitely a market I’m super keen on. And we’re making moves by partnering with more investors. So what’s interesting for companies like us, we’re still early and small in a way, and so when we bring in investors, we’re looking for investors who can help us expand in this region.
And that’s certainly been true for us, with our investor base, and the current next step for us is to bring in some local hires as well, in terms of helping us to grow the business, really have feet on the ground, not that anyone can go anywhere, but people who really have deep knowledge in the market, that’s key for us. I’d say the last thing in terms of strategy, the way we always thought is, we always started with a node. And we’re currently at a stage where we run nodes for foundations and large stakeholders, which is the staking environment.
We now run the infrastructure for the next layer of the onion, which is exchanges and custodians to facilitate the trade of the tokens, making it easy for people to connect to the network. And I think for us, the next third layer is actually going to be connecting all these calls to each other and to kind of build the bridges of all these different protocols to work in parallel.
Lau: So you’re talking about interoperability, you’re going to be in that layer too.
Richter: Well, kind of what we’re saying is Blockdaemon is a platform and so we onboard these protocols onto our platform and allow people to easily kind of, if you think about it, incubate a new node with a click of a button to participate in the network, a technical connectivity there. And so one layer is that when we have a protocol on our stack, we make it extra easy to connect it to other protocols on our stack. Tech stack is built in a way that these protocols can very easily bridge to each other.
Lau: Platform hegemony, you’re trying to create platform hegemony, essentially.
Richter: That’s right. And so that’s kind of, I think, where we’re heading most in 2021, to kind of enable that degree of liquidity and also think about like how do on- and off-ramps look to these protocols from a liquidity perspective, how can we keep our feet in the air and look at how volume transaction fees are going to come into play, which is currently still very low, and build a business around that. So we’re excited.
Lau: Tell us about how Blockdaemon is integrating with Blockstack’s Stacks 2.0 Testnet. How is that part of the strategy there, and what are the key factors there?
Richter: Yeah, it’s a great example. So the way we like to partner with great projects like Blockstack is, we bring the required development tooling to them for the degree of maturity of the network. Now what that means is we partner with someone like Blockstack and help them very early, build the test net and the infrastructure that they are preparing for their PoS launch, which is they have a token, and when you move to main, what you’re essentially doing is you’re onboarding your largest investors to run nodes on the network, which is a PoS network.
It means you launch, let’s say, 100 nodes and you want people to delegate tokens to it, and those are the investors. And so you need to enable and facilitate the building of these nodes, and our platform automates that. So it lowers the barrier of entry for investors and individuals to participate in running a validator. Now, there aren’t a lot of validators, so that’s a fairly wide glove service where we might run 10 or so of 100, and we might do that for an exchange. And the custodian, three investors, our own validator for Blockdaemon, we platform it.
And then with Blockstack, what’s unique is that we’ve also, in our relationship already, covered all the other layers of the onion. And so the next layer is full node deployment, tooling for exchanges and custodians, and then the layer after that is an API that people can connect to, and then the layer after that is actually on [prem] tooling where people can download scripts and actually manage their own nodes with tooling.
So the project will start with the first part, which is a testnet we build, and then we onboard the investors, then we’re going to help exchanges and custodians over time migrate and support the token, and then in the long run, we’re going to support developers building applications on top of it. It’s a very full suite of services, and we just tick a box of like, we need to make sure we have professional developer tooling so all these different stakeholders can come to the network at their time when it’s ready and beneficial for them.
And so we’re just a tick in that box and making sure that, hey, there’s companies here that are ISO compliant — ISO is a large security standard — we get externally audited on our technology as well. When I talked about one of the biggest risks being the individuals, like we all got background checks, we have external audits, all that type of stuff done on anyone who joins us. So we bring investors and institutions to a degree of security to easily interact with the system. That’s kind of what we do for these networks.
And Blockstack has been really one of the smartest projects actually in the landscape for a while, and they very clearly saw the need for something like that. We started obviously speaking to them months, months ago, to say, “hey, we need to put in certain stakes. Yes, we want this to be a vibrant, open network, but we also want tooling and everything else so we can jumpstart certain components of this network if we need.”
Lau: So this brings us back to the reason why we started this conversation in the first place. When you have hegemony or technical dominance, you almost start to behave like a central organization. So is then truly, as this industry evolves, as blockchain evolves in the next decade to come, decentralization? Realistically, is that achievable? Or even in the way you function, the more successful you are, the less decentralized everything else is.
Richter: Yeah, and that’s a great question. And obviously, that’s one we’ve tackled right away. We get asked this all the time, which is absolutely true. What happens if we, because we run a large percentage of the world’s nodes, for example, become a single point of failure? There’s really two components. One is the systemic nature of our own architecture and how we handle the complexity and insurances of that.
As I said, you have to worry about different components of your decentralization at specific moments in time. Our set up is relevant for a specific moment in time. And then the true long term story of where we are going and where we hope blockchain is going is the last part I’ve mentioned around Blockstack helping individual developers to run their own nodes, which is actually contributing open source tooling where the deployment scripts we built internally very early on to launch these nodes, for example, we open source them over time and then what we’re monetizing is the ability to monitor them.
But that means that, for example, people can run the nodes in their own cloud and we can’t touch them anymore. So moving people from the clouds that we manage — and we have clouds above Azure, Amazon, Google, we work with all of them, Tencent — but then allow people to use Blockdaemon tooling to deploy and manage their own node that we can’t touch.
Lau: I get it, it’s like you’re the builder and the architect right now, but at some point you’ll pass along the blueprint and then people can build their own house.
Richter: And it’ll be reflected economically as well, because the long-term business model on that side of the business is actually having people pay us 5 bucks a month for alerting on their node, where it’s much more like, “hey, you need to do an update.” And, “hey, you might have to download a new script, click this button.” And so there’s services here, a lot more like Redhat probably, or Datadog, type of company. But we have those tools now. And so a lot of these projects actually already pay us to build these “on prem” is what that’s called, so people can use components of what we offer in their own cloud.
So we already support that, and so it’s not just a lip service, there’s actually development there. And I do think that actually a lot of the functioning networks will be like Libra, where there are rules and contracts and stipulations and a community of nodes that will manage that. We’ll fall into a bracket like that where we’d be one of them one day, and we’ll participate that way. But we still haven’t found a way to provide a decentralization of nodes.
One thing before I end, what people forget is, the problem is that this technology is complicated. A lot of companies and us included for certain projects, use Docker images to launch nodes. Docker has known security flaws, there’s a lot of open source software that’s used by people building, and a lot of those have flaws, too, on the security side.
You’re never going to have 100 percent. So risk mitigation and planning around what our disaster recovery plans are, that type of stuff is really what you want to look for, which again, is one of the reasons that people come to Blockdaemon, because we have that. We have all these different theoretical plans and processes to handle potential issues, and it’s just a question of time until they arise.
Lau: It’s a great point. Diversity is a safety feature. We know this in society. We know this about knowledge and we absolutely know this for blockchain. Konstantin, what a pleasure it was. Thank you so much for your deeper insight and a glimpse into this world and giving us a little bit more clarity here. It was great to have you on the show.
Richter: Awesome. Thank you so much for having me.
Lau: And thank you, everyone, for joining us on this latest episode of Word on the Block. I’m Forkast.News Editor-in-Chief Angie Lau. Until the next time.