Will new CasperLabs token take a bite out of high gas fees?
CasperLabs, a new smart contract blockchain network, announces its CSPR token sale — which CTO Medha Parlikar likens to a ‘gas futures market.’
Editor's note: The video states that the CSPR token sale will take place on March 25 and that the token sale would be open to accredited U.S. investors. In fact, the token sale, which will take place from March 23 to 26, will not be available to U.S investors.
CasperLabs, a new layer-1 smart contract network that recently joined China’s nationwide blockchain network, announced today that its CSPR token will be open for sale from March 23 to 26 to non-U.S. “accredited investors.”
The token sale will take place on San Francisco-based platform CoinList — a project launched out of a partnership between Protocol Labs and AngelList.
“U.S. investors... will not be able to participate in the public sale unfortunately,” CasperLabs CTO Medha Parlikar told Forkast.News in a video interview. “We are looking to building a sustainable business and we believe in decentralized technology, but we also believe in compliance.”
Casper network is an enterprise-focused layer-1 proof-of-stake blockchain protocol aiming to solve the issues of scalability, security and decentralization that have plagued other smart contract blockchains such as Ethereum. Although Ethereum has launched Ethereum 2.0 in hopes of solving some of these problems, users still complain about Ethereum’s high transaction fees — also known as “gas fees.” Ethereum’s gas fee issues could worsen with the growth of decentralized finance (DeFi) and non-fungible tokens (NFTs), most of which continue to rely on Ethereum.
See related article: Ethereum’s big transformation arrives with launch of Ethereum 2.0
To tackle the problem of high transaction fees, Casper is introducing a “gas futures market” concept, Parlikar said. By tokenizing block space to allow companies to buy future block space, Casper’s gas model aims to allow its blockchain’s users to lock in prices now, to have more predictable future network usage costs.
“Enterprises do budgeting at about every half a year, so about six months,” Parlikar said. “[By] providing enterprises a six-month window, they’re going to have a pretty good sense of what their network usage is going to look like.”
CasperLabs, which recently joined China’s nationwide, government-led Blockchain Service Network (BSN), has also been attracting interest from enterprise users outside of China for its chain of custody services and ability to mitigate counterfeits by authenticating products, the network’s CEO Mrinal Manohar told Forkast.News in an earlier interview.
While blockchain is already a national priority for public and private sectors in China, Western banks and institutions such as JP Morgan and Bank of New York Mellon are just now warming up to blockchain in financial services. As such, centralized finance (CeFi) players may have to view the incorporation of blockchain technology favorably to streamline and modernize operations, which still relies on COBOL (common business-oriented language). COBOL, the programming language that is 60 years old, is being used by 43% of banking systems and 80% of in-person transactions, according to Reuters.
See related article: How Swiss banks seek to link traditional finance to blockchain
“They [CeFi] see the writing on the wall, they're not dummies,” Parlikar said. “They're going to increment their way, starting with risk reduction, and over the next three to seven years they will start implementing more public-facing products using blockchain technology.”
Watch Parlikar’s full interview with Forkast.News Editor-in-Chief Angie Lau to learn more about how Casper networks looks to interoperate with existing protocols while proposing alternatives to gas models and governance.
- Only non-U.S. accredited investors can participate in CSPR public token sale: “U.S. investors... will not be able to participate in the public sale, unfortunately. We are bound by the regulatory environment in the United States and we are doing our very best to remain as compliant as possible. Even our private token sale was a Reg. D token sale, so only accredited investors were allowed to participate.”
- Is the Casper blockchain an “Ethereum killer”?: “We think that the playing field is still very much wide open, so we don't really see ourselves as an ‘Ethereum killer’ or a ‘Cardano killer’ or a ‘NEAR killer,’ or any of those protocol killers. We think that the space is still very, very much open. And each of those protocols bring a unique use case or value proposition to their customers, their enterprise customers. We believe that our value proposition is similarly very unique.”
- How enterprises will adopt blockchain: “The way I see enterprise adopting blockchain is blockchain as part of a larger application architecture. Enterprises are going to take one tiny value proposition — one tiny piece of their larger system architecture — and they're going to implement or pilot a piece of that against blockchain. And if they're going to do that, that blockchain has got to work with all of their existing delivery mechanisms, and none of the blockchain in the space right now have thought about that.”
- How users can predict their future gas prices in the Casper network: “What we are going to essentially do is we're going to tokenized block space. So when you tokenized block space, you're able to purchase space in a future block. And so this in essence creates what we're calling a gas futures market.”
Angie Lau: It's been more than a decade since bitcoin was born and the blockchain technology that enabled that cryptocurrency went on to launch, well, a few thousand more. But what's next? How has technology evolved since then? CasperLabs says it's just the beginning and they're about to tell us how.
Welcome to Word on the Block, the series that takes a deeper dive into blockchain and the emerging technologies that shape our world at the intersection of business, politics and economy. That's what we cover right here on Forkast.News. I'm Forkast Editor-in-Chief Angie Lau.
We're in the age of DeFi — decentralized finance — and CasperLabs is about to get into the game and launch its mainnet – challenging DeFi's dominant use of Ethereum that has fueled growth in DeFi, but also has become more expensive as demand grows. More alternatives like CasperLabs are emerging, from Cardano — you've heard from them, we've spoken to them — to Polkadot, and now this layer-1 solution, CasperLabs, is set to launch its mainnet this year. Let's find out more.
So, of course, we have to talk to the technology veteran who started out building computers in her basement and talks to us from her place right there in Silicon Valley in San Francisco. She is the co-founder and CTO of CasperLabs, Medha Parlikar. Thank you so much, Medha, for coming on to the show.
Medha Parlikar: Thanks a lot Angie for having me. I'm super excited to have this conversation with you.
Lau: OK, tell us, what is CasperLabs?
Parlikar: CasperLabs is — we are building a pure proof-of-stake layer-1 blockchain. That means there is no traditional proof of work. Proof-of-stake protocols are the next evolution in blockchain technology and you've seen a lot of innovation in the space around proof of stake. I'm sure your listeners are familiar with it. And we have chosen to take a start-from-scratch approach with respect to building the technology because we felt there were a lot of interesting and difficult problems that we could solve taking that approach.
Lau: So that's layer-1. Layer-1 is start from scratch, not building on top. You're not fixing somebody else's protocol and augmenting that. You're starting from scratch.
Parlikar: Yep, even the virtual machine (VM). So we're not using the Ethereum VM. We built our own VM from scratch.
Lau: So why is that important, in your view?
Parlikar: Well, there were a lot of challenges that we saw when we evaluated the Ethereum Virtual Machine and other virtual machines. And we really wanted to implement web assembly. Web assembly is the up-and-coming new ‘execution sandbox,’ if you will, and it's got broad-based adoption in industry. And we really felt that this is the future of blockchain virtual machines. And so we built our virtual machine using web assembly.
Lau: So web assembly, explain that a little bit deeper for the audience here.
Parlikar: Web assembly came out from the Web3 Foundation. It's IEEE (Institute of Electrical and Electronics Engineers) certified. It was actually developed for running HTML, basically full applications in the browser, and ironically, it wound up being an excellent application for blockchain technology.
Your listeners may not realize this, but in blockchain technology you have to have a very tightly sandboxed, secure environment in which contracts are run or code is executed. And web assembly provides this perfect, highly secure container where you can have what we call deterministic execution — you can always know whatever you run, it's going to run exactly the same on every machine. And there are many compilation targets available, so it really opens up the playing field for languages and more languages are being adopted day by day to compile to web assembly.
Lau: And so now it's ready to go public. And some news for you to share with all of us.
Parlikar: We're really excited. We're really excited that our mainnet launches in Q1 — so a couple of months away, we'll be launching the public blockchain and our associated public sale is going to happen in Q1 of this year.
Lau: We know that you raised US$14 million dollars in [a] private token sale, led by Digital Strategies in October last year. What are the targets in this public token sale that's upcoming? And what about U.S. investors? Are they going to be able to participate in the public token sale?
Parlikar: U.S. investors, unless they're accredited, will not be able to participate in the public sale, unfortunately. We are bound by the regulatory environment in the United States and we are doing our very best to remain as compliant as possible. Even our private token sale was a Reg. D token sale, so only accredited investors wwwere allowed to participate. And we want to do everything by the book. We are looking to build a sustainable business and we believe in decentralized technology but we also believe in compliance.
Lau: Let's actually do a couple of steps up on that from the 20,000, 30,000-foot view. The regulatory space has really shifted over the past couple of years. What is a security, what is a functional token, what is considered a utility token? And so, we all really did see some enforcement action in the U.S. and also globally, people are looking at the DeFi space. How conscious of that was the CasperLabs team and how do you think that impacts how you move forward and your innovation as you seek to grow it?
Parlikar: We've been very, very focused on the regulatory framework and being compliant within the regulatory guidelines from day one. And so we've been searching for regulatory clarity right from the very beginning. And that's the real challenge — when there's a lack of clarity, even if you want to be compliant, you don't know what you need to do to be compliant. So that's the real challenge.
With respect to DeFi, I think, having it be a wild, unregulated space, is a double-edged sword. It's really fantastic because it can be very egalitarian. It's run by the community, owned by the community, but then you see really terrible things happen. There's a lot of issues around like the Parity wallet attack, which is old news right now. But having an immutable protocol out there presents a lot of real-world challenges because software has bugs — [I’ve] been working with software for a majority of my life and I can assure you, it has bugs. When you couple that with immutability, you run into a real challenge there. In terms of doing right by your customers and even maintaining the protocol as time shifts.
Lau: And so then how do you bake that into the thinking, into the architecture of your layer-1 protocol? Governance is a huge thing. Immutability is a huge thing, obviously. But then how do you deal with the things that happen? Do you have to fork, how do you think about all of those things?
Parlikar: For those of you that don't know, I came into this space from traditional SaaS (sofware as a service) technology. I worked in SaaS for almost over 20 years. I was an engineering leader, engineering director, and I had to build platforms to support multimillion-dollar customers, four nines uptimes. So I'm intimately familiar with what enterprise needs in order to really run a business, support customers, [and] have revenue.
I built a protocol and a platform that I would use as an engineering director. And so, what does that mean? It means, well, give me the flexibility to do the things that I need to do in order to support my customers. That's really what it means. And those things need to exist at layer-1. They need to be transparent. For those that want to run a decentralized protocol, we provide tools and APIs that make it significantly easier for you to manage that protocol in a decentralized fashion.
And when you talk about managing a protocol or software, any software, you’ve got to be able to upgrade it, you've got to be able to maintain it. You have to be able to support customers.
We build features at layer-1 that enable all of these things and then we leave it up to the customer to decide how they want to use it. If they want an immutable contract, they can build an immutable contract because they have that confidence and they're willing to take the responsibility of it, whatever that responsibility they may be, or if they want to centrally manage it, they can do that as well. We felt that this was extremely important to couple the security of a public decentralized blockchain with the controls that enterprise and businesses and even governance, decentralized governance bodies need in order to do right by their communities and customers.
Lau: I'm really hearing a very unique perspective from you, Medha. As we see blockchain integration and the adoption from an enterprise point of view, it changes business logic. But of course, the protocol, the architecture was built by developers. Now you're bringing on an enterprise perspective and baking it in with your experience, the experience that you had in your SaaS experience later to, how you could use something and then fix it a little bit so that it could work for enterprise. Now you're starting from stage zero. How do you aim to differentiate yourself from competitors like Cardano and Polkadot and Ethereum? Ethereum, for example, has spent the past couple of years really building out those enterprise relationships and is very strong there. How does CasperLabs hope or aim to compete?
Parlikar: We think that the playing field is still very much wide open, so we don't really see ourselves as an ‘Ethereum killer’ or a ‘Cardano killer’ or a ‘NEAR killer,’ or any of those protocol killers. We think that the space is still very, very much open. Each of those protocols bring a unique use case or value proposition to their customers, their enterprise customers. We believe that our value proposition is similarly very unique.
One of the key things that I think is probably lost on a lot of the blockchain community, and it's kind of funny, like my background again, director of engineering, I also came from 15 to 20 years of quality assurance. And so, if you think about when I would walk into an organization, the first thing they would tell me is, ‘We're having problems shipping our code.’ And I'd be like, ‘Okay.’ The first thing I would go ahead and build — and a lot of people don't know how software is actually constructed — enterprise software. Enterprise software is constructed very much like automobiles are manufactured. There is what we call an integration pipeline, and it is almost a requirement that all enterprise software go through an integration pipeline. Now this is something that the entire blockchain industry has completely kind of glossed over.
When you think about the Ethereum ecosystem, there's a lot of ecosystem providers that have actually tried to solve this very problem with things like Truffle and Ganache. And again, because we started right at the beginning, we built a virtual machine that is very much like the Java SDK and Java runtime environment and developers and enterprises can actually integrate their entire blockchain infrastructure into existing development operations pipelines.
The way I see enterprise adopting blockchain is blockchain as part of a larger application architecture. Enterprises are going to take one tiny value proposition — one tiny piece of their larger system architecture — and they're going to implement or pilot a piece of that against blockchain. And if they're going to do that, that blockchain has got to work with all of their existing delivery mechanisms, and none of the blockchain in the space right now have thought about that. And so, again, it's like dipping into what we needed because we needed that even to build our own smart contracts, where we can't test this stuff, we can't deliver this stuff. So we went ahead and built it for ourselves and now we're going to offer it to customers as part of the Casper protocol.
Lau: And so when an enterprise client comes to you and says, ‘Okay, how do we work with you, CasperLabs, what's your value proposition for us?’
Parlikar: The first value proposition is time to market. If you can't use computers to test and run what it is you're building, you're never going to get to market. It's very, very simple. It's not scalable to have 20 or 30 people testing all of your software. Computers test software. So that's the first thing we'll say. We're going to have great time to market and you're going to have fantastic confidence in what you're building on-chain because you're going to have tests that can run your software automatically. And that's hugely important.
In addition to that, we offer flexibility around upgrading your contracts. We offer flexibility around managing your customers' accounts. Customers can basically use any kind of permissioning scheme that they wish to implement. That's really important in blockchain because key management and user account management and account recovery is really an underfunded problem in terms of solutions for blockchain. And we do this all at layer-1. So if somebody makes a change to their account structure by granting you access or granting somebody access, you can see that on the blockchain. It's not on a layer-2. It's not through social consensus or social key recovery mechanism where you're sharing private keys. You don't need to do any of that with the Casper protocol, it's all in there at layer-1.
Lau: Interoperability is also huge. As you said, if it's not meant to be a killer, you're going to have to exist with like protocols at layer-1 level. And, how have you thought about that?
Parlikar: For one example, the Casper protocol supports Ethereum keys. So let's say, for example, you're creating an application and you have a set of user accounts that use Ethereum keys today and you want to work with Casper. Your users don't need to create new keys. They can actually transact with Casper using those exact same Ethereum keys. We support, and we will add more key types — it's very easy for us to do that, it's not even a protocol hard fork for us to add a new key type at all, it's a client side change. So we've been thinking about interoperability from the very beginning and we see that key types is a very easy and obvious way to interop with other blockchains.
Lau: Got it. So when we are ready to get the token, I believe you've got some news to share. You're going to place the token sale exclusively where, what time, and when is it going to be the first time that the CSPR token — the Casper token — meets the public?
Parlikar: The Casper token will meet the public in late March. I think March [23rd] is the date and we will be listing on CoinList. We are very, very excited to be partnering with the premier listing partner. We've had a great relationship with them, we've been working with them for quite some time and incubating this plan. And I'm so excited to make the token broadly available to the public. We believe in decentralization and we believe in a very egalitarian system.
We want to have everyone to be able to participate in this token sale and start taking their token with our validators. We will provide in-protocol staking and the economics of Casper's amazing in that we actually support delegator and validator selection. So you can actually help participate in which validators make it into the validator set right through delegation. And so we encourage people to participate and custody their keys, and participate in the protocol through staking.
Lau: You've really brought to light something that I think people who are just getting into the scene by investing in bitcoin and then, realizing that there's just a world of other cryptocurrencies beyond even Ethereum that makes up this space. Some people see it as an asset. Other people see it as a functioning, or a functional token that actually has some utility to it. They're two really very different dynamics at play when you're launching your token — you're going to have some very scraping the surface, ‘Hey, people seem to like this token. I want to get in on that’ to the more deeply informed token buyer that says, ‘This is actually going to fuel a new wave in DeFi. This might take X% market share from ‘fill in your other blockchain protocol or crypto there’ and understands that. Can you share how, in the light of this enormous interest from institutional and traditional investors getting into the space, how they should be thinking about these dynamics?
Parlikar: Absolutely. So one of the big things, there are some things that are very similar to traditional investing. You definitely want to do your research — and none of this is investment advice — but you definitely want to do your research before you invest in any protocol or purchase a token if you intend on treating it like an investment class. You have some expectations on what the token is going to do. You definitely want to do your research. And the research can be very technical. There's a lot of jargon involved. There's a lot of really fine points in the protocol. I've been steeped in this for almost three years and I can tell you, if you merely skim the surface, there's a lot you still have to learn about how the protocol functions, what its key value propositions are. Why is it different? There's a lot of research to be done.
I'm particularly excited because I feel that the Casper protocol really is all about security. We care about security, and we care about the technology and we care a lot about solving customer problems. My feeling is that, us and the team, we want to build value. We want to build value for the ecosystem. We want to help customers create value using blockchain technology. I've gone on record and being fairly opinionated in saying, “If you don't have security, there really isn't any point to blockchain.” Because the one thing blockchain is supposed to provide is a trust layer. So the minute you don't have the trust layer, which means it's got to be permissionless, it's got to be decentralized, it's got to be secure, pack your bags and go home. There isn't any point. And I think the market agrees.
When you look at how bitcoin and ethereum have been performing — even compared to a lot of the proof-of-stake protocols — they've way outperformed because there's a lot of trust in proof of work. And I think we've got our work cut out for us. We've done extremely well in our Trail of Bits security audit. I'm very proud of the team. Our consensus team sits there and just dreams up new attacks every day, that's what their meetings look like, and I feel like we've done a great job with security. So I am very optimistic. But you really don't know until you get out there. Protocols got to get out there in the wild and then stand the test of time, and then we'll know whether the protocol is, in fact, as secure as we believe it is to be.
Lau: To your point, ETH 2.0 was borne out of a very stressful event that Ethereum realized it needed ETH 2.0 to address a number of things right now that the market demands that they didn't originally see when the protocol was first developed. Case in point, gas prices. OK, so let's just jump into that right now. We've observed gas prices soaring every time a megatrend appears on the Ethereum blockchain. We saw it with CryptoKitties, then more recently, DeFi. Your gas model, correct me if I'm wrong, but from what I understand, your gas model essentially allows users to predict network usage costs by stabilizing gas fees. Can you explain how this works?
Parlikar: It's a very interesting model. What we are going to essentially do is we're going to tokenized block space. So when you tokenized block space, you're able to purchase space in a future block. And so this in essence creates what we're calling a gas futures market.
Lau: Potentially hedging.
Parlikar: Yes — so our customer can predict their own requirements around block usage in the future. And we believe enterprises do budgeting at about every half a year, so about six months. You need to do projections about every six months in terms of all your infrastructure costs are going to be. So we believe, [by] providing enterprises a six-month window, they're going to have a pretty good sense of what their network usage is going to look like. And they'll be able to actually purchase that block, that block space in advance and reserve it for themselves. So irrespective of what happens, they have some guarantees that the space is going to be reserved for them and that space is reserved. You violate the protocol if you decide to stuff a transaction in that block space. Validators will not receive any transaction fees if they violate that. There is definitely an incentive for validators to adhere to the block future, the gas fees market.
Lau: Anyone who has flown Southwest Airlines before and you check out how much you're paying for a flight, you'll get it, because obviously they hedged and pre-bought jet fuel at a price when it was lower than when it actually was at market, which explained the ability to remain a very competitively-priced airline ticket.
Parlikar: That's exactly right. And the Casper protocol, we are just launching now in March, but we've already started our research for our layer, for scaling. So we're already looking at our heterogenous sharding solution. Our researchers are already working on it and we fully plan to implement heterogeneous shards as soon as it's ready. As soon as it's ready, and secure and stable, we'll implement it against the public blockchain. So heterogenous shards are absolutely coming as the first line of increase in capacity. The real solution to predictable gas cost is capacity. And so being able to add more compute, more capacity and making the validator nodes more efficient is really what gets you to a sustainable blockchain. And these are all things that we've been thinking a great deal about on the team.
Lau: So obviously, it's the enterprise space that is really interesting here, and I'm hearing that very directly. You got another competitor in Cardano. We recently spoke to Charles Hoskinson, who told us of their strategy to high-value enterprises and to essentially target emerging and developing markets where DeFi built on the Ethereum has yet to penetrate on a substantial level. Now, what about your strategy, CasperLabs? What about the strategy that you're thinking about as you want to challenge what seems to still be an Ethereum monopoly of applications, both in DeFi and the enterprise space as well?
Parlikar: I think there's a lot of enterprises out there that are dipping their toe in the water and doing prototypes and proofs around blockchain technology. We believe that they want to leverage public layer-1 blockchain in a reasonable manner. And we believe that having those controls in place that allow them to upgrade their contracts, manage their end users and deploy code quickly will be a compelling enough use case that they will take a look at what Casper is offering. Because it's been built for enterprise by people that have worked in enterprise. We're coming at it very directly from a very user-centric perspective. We are the enterprise developer. We are the enterprise decision-maker. That's the road I've walked, that's the road that our engineering leader has walked as well, and so that's what we've built. We have received excellent feedback from many large enterprise customers that we're already speaking with, and it resonates with them very much so. Specifically, believe it or not, the development operations pipeline piece. Like I said, if you can't deliver it, you can't trust it and you can't build on it. Time to market really, really matters for enterprise, and being able to support your customers is incredibly important. We've talked with professional development shops that have spent 40,000 to 60,000 dollars just building continuous integration pipelines for their customers using Hyperledger or Ethereum. And when we tell them that this is out of the box with Casper, they almost fall out of their chair. It's a very, very compelling value proposition.
Lau: It's like, well, instead of building, adding a room to your home and expensive renovations, it's right straight out of the box. But, it also means you got to go to the city, get a city permit, get those licenses and let's talk about the regulatory space here. As you said at the beginning, you're very conscious of it and I think anybody who aims to be sustainable in the space can't ignore it. Recently, we had the opportunity to talk to SEC Commissioner Hester Peirce.
Obviously, everyone's keeping a close eye on DeFi. How do you think DeFi regulation is going to develop this year? And how are you keeping an eye on it with the perspective that you want to make sure that you're painting within the lines.
Parlikar: One of the things we definitely want to do is we believe in decentralization. So the Casper protocol is not a permissioned protocol, it is a permissionless protocol. And it is set up in a manner where we believe the community will eventually take control of the protocol itself, and it will become over time as decentralized as Ethereum and Litecoin. That is our goal. That is how we've structured the protocol.
So from a regulatory perspective, we believe that — no guarantees — but we believe that the SEC will look on us as having been very responsible in how we have approached the building and release of this protocol. We took it very seriously. We raised responsibly and we used that money to build the decentralized protocol.
Lau: Did you consult with the SEC?
Parlikar: We did not consult with the SEC, but one of my co-founders, the other primary co-founder, Mrinal Manohar, and our CEO, he worked at Bain Capital. He has worked with the SEC for over a decade, intimately familiar with the SEC's rules and regulations, and also an early bitcoin investor, a seed investor in Ethereum. So we're really lucky to have somebody like him that has firmly one foot planted in each field. He understands traditional finance and traditional capital markets and the SEC and he also understands Bitcoin and Ethereum very, very well. And so we know we're uniquely positioned to really understand what it takes to build a truly permissionless and decentralized protocol so that over time we believe, will be set up very, very well to be considered a decentralized protocol.
Lau: Well, but to your point, no one can guarantee except the SEC themselves and we don't find that out until they decide to act accordingly. That's really the kind of clarity that we're looking for, certainly as we cover this, the regulatory space is enormously important because it really does lever up or down the ability for many of these protocols to either move ahead or really fall back. Case in point, Ripple caused a lot of consternation, not only among the team there, but also in the community.
With thought to regulators and regulation, we talk about decentralized, what about centralized finance? You note that there is a pedigree of traditional finance and experience on the enterprise side and hearing about how you've built the layer one architecture of CasperLabs, what are your thoughts about, as centralized finance takes a look at how they can incorporate blockchain, how they can incorporate technology tools, how do you think you'll be viewed in CeFi?
Parlikar: Well, I think we'll be viewed very favorably because centralized finance is going to have the same requirements that any software piece of software you're going to ship is going to have. They need to be able to maintain and upgrade the software. They're going to have privacy concerns. They're going to need speed to market,` and they're going to need confidence in their contracts, and testing. These are all things that CeFi is going to need. It's a universal truth.
If you're working with software, you need to be able to manage your customers, upgrade, ship maintenance fixes, and you're going to need privacy. I believe that these centralized institutions are heavily regulated. They're going to dip their toe in the water. They're not going to go all in. They probably will start by looking at, actually, risk reduction. They will look to blockchain for areas where they may actually represent their current offerings via a blockchain on their back-end. They may use blockchain on their back-end to basically power and streamline their operations as a means of risk reduction so they can reduce time to audit. They can get greater clarity in terms of how transactions are being processed. And they will look for optimizations, incremental optimizations. They will be slow to adopt. If we know anything about traditional finance, we know that they haven't upgraded their technology stack since, what, the 70s? Lots of people are still using COBOL, right? If you want to find out where the COBOL programmers are, they're working in finance. They're working for JPMorgan Chase or Morgan Stanley. So they're very slow to change and that's because they're extremely risk averse. A lot of them are going to be doing blockchain pilots. I'm 100% positive they are.
Lau: Well, JP Morgan already, you know Quorum and JPM coin.
Parlikar: Yep, exactly. So they're absolutely going to. They see the writing on the wall, they're not dummies. And I believe they're going to increment their way, starting with risk reduction. And over the next five to seven years, or three to seven years, they will start implementing more public-facing products using blockchain technology.
Lau: What do you think the challenges are that remain, you think, that hinder growth?
Parlikar: Blockchain technology is still really hard to understand. When people ask me if I work at blockchain, they want to learn about cryptocurrency, I have to really temper my vernacular, my language. Because it's not too long before their eyes are rolling to the back of their head or they're like, ‘Okay, I need a shot of something to try to keep up with you.’ It's really hard to understand.
A lot of the DeFi protocols, if you think about it, you really can't expect the average consumer to read those protocols, read that code and really understand what they are. And so, there's a pretty big gap there and I don't think it's realistic to expect end users to be able to traverse that gap. There's a lot of work that needs to be done around verifying which protocols are safe to interact with. If you reckon back to the times of the early internet, there were a lot of people that were concerned about putting their credit card into an e-commerce site — and that took a long time.
I was there in 1999 and 2000. I remember those times where e-commerce sites were, some of them were kind of shifty and people didn't trust it. I think blockchain is going to go through that same evolution and it's not going to be two years. It's going to be in the order of seven to 10 years before you really start seeing broad-based adoption of blockchain technology for all of these reasons. You need multiple trust layers. You need to know which protocols are safe. You need the code to harden both at the layer-1 protocol as well at layer-2 and these DeFi protocols. You'll need regulatory clarity. So we have a lot of work ahead of us. I'm really excited to be part of it. I think this is going to be an amazing, amazing ride and I'm just really excited to see a more egalitarian and decentralized finance come out, because given where we are right now with what's happening with the Federal Reserve and fiat currency globally, I actually think cryptocurrency is going to be here to save our skin. I think the adoption of cryptocurrency is going to come at a time when fiat will likely start losing adoption. We will slowly transition over to a harder, more sound form of money. And I think we're just really lucky to have it emerge at this time.
Lau: I really agree with many of the things that you said. I think ultimately this is why Forkast exists, is to hold everyone accountable, including the system in which we all currently live and being in business journalism for the amount of years that I've been in covering Wall Street, in covering the global economy story, it just becomes very apparent that at the end of the day, it boils down to do you trust the system? And the system will tell you of course, you should trust us. It is in their benefit to do so.
But if we can hold some accountability and at least insert some debate into the intellectual honesty of that statement, I think it behooves us to do so. At the end of the day, this alternative system is still fairly new. It is a lot of promise. There's a lot of dollars that are coming into the space, validated now by institutional and traditional money that are coming into the space, because I think they really reflect the concerns that you've expressed and about fiat essentially losing its value. The more money is printed, you're just devaluing the money that's under your mattress, and so where do you put that?
Parlikar: It's universal basic income for the rich. So anybody that has an inflation hedge does not suffer at the hands of a reduction in the value of fiat currency because they have an inflation hedge — they have real estate, they have other forms of assets that basically account for that inflation. And it is really the individuals that do not have that inflationary hedge — do not own real estate, do not own hard assets like gold and precious metals — that suffer. In the most brutal way to look at it, it's UBI for the rich. And so this is what really excites me about cryptocurrency, is that Bitcoin and Ethereum and all of these protocols, it's an opportunity for individuals to get into a harder form of money and get that hedge. And it's very accessible to everyone.
Lau: The trust, though, on this side of the wall remains a little murky. This is why regulators are concerned. We have within the industry the good actors. I mean, even just if you look at the byzantine fault tolerance is a concept of just social behavior. Two thirds are our good actors. A third will always look to cheat the system. But in DeFi, in blockchain right now, defeating the system means that at a layer-1 protocol, you're trying to insure or defend against that — which means that governance is actually baked into the technology in a way that the system needed to be policed.
So as we end this conversation, where do you balance that philosophically, that there are governance layers, there's mutability, there's a byzantine fault tolerance concepts that are baked in, there's security. But at the same time, the regulators are coming in and they're saying, ‘Hey, who's front-running this playbook here, who just lost money here? Why is there such massive volatility in prices right now?’ And they're looking at it with concern. How do you balance these two things?
Parlikar: I think if you let the market decide, I'm a big fan of market forces.
Lau: The invisible hand, Adam Smith.
Parlikar: Yeah, exactly. I'm a big fan of that. Even if you look at the markets within crypto itself, people that work with crypto are fairly savvy in terms of the level of security that a given protocol offers. I think that's reflected in the token prices, the token valuations, like I alluded before. The protocols that offer the best security and are truly decentralized will actually be rewarded and those communities will be rewarded for that through greater adoption and greater token valuation. And in that way, it's a kind of a beautiful thing.
I do believe in the invisible hand. I mean, the fact of the matter is regulators — I might get in trouble for this, but I'm going to say it anyway — they kind of have two things that they are thinking about: One is, we have to protect consumers. I think that's a noble cause and I think, like I said, I believe that consumers need to be well informed before they get involved in any kind of DeFi protocol and looking at code is not non-trivial. But I think the other piece of it, too, is they're kind of in it to save their own skin. I do believe that government and regulatory bodies also are like an organism that seek to continuously preserve itself. I also don't believe in regulation for the sake of regulation or regulation for the sake of saying well we need to find a way to control it so we can track it, so we can tax it, so we can monitor [and] manage it, all of that.
The very libertarian in me, my haunches go up, because the internet initially, if you go back to the internet, early days, very much a cypherpunk steampunk type of attitude as well, that information is going to be free, and we were going to basically democratize information, it's all going to be great. Now, when you think about it, you read a book like Code 2.0 and it talks very much about, he predicted that, it would only increase the control. They would only learn more about us and they would only control us further. This is like a bona fide, this is the stuff that keeps me up at night, is that we're building public layer-1 technology. But we've already heard about entities basically being able to mine transactions off of the bitcoin blockchain and use that to track down actors, bad actors. They use it to track down bad actors — I think that's a good thing. I don't think it's a good thing for them to track what you and I are doing on the public blockchain. So we have to be really careful.
I'm a big fan of decentralized finance. I'm a big fan of it because I feel like regulators should go regulate something that needs to be regulated and if the market forces can handle it, then that's a fantastic thing.
Lau: Either way, we live in interesting times, which makes this conversation super fun. Medha Parlikar, CTO of CasperLabs and co-founder of CasperLabs, Medha, thank you so much for joining us.
Parlikar: Thank you so much for having me on. It was a great conversation.
Lau: It was great having you on Word on the Block. And thank you, everyone, for joining us on this latest episode. I'm Forkast.News Editor-in-Chief Angie Lau. Until the next time.