In Conversation with Joseph Lubin, Founder of ConsenSys: Blockchain is a Paradigm Shift for the Planet
What is the next big thing? As far as Joseph Lubin, Founder of Consensys, is concerned, we are already experiencing it as you read this. Lubin shares how blockchain is already a killer app, being used globally as a new database technology. He notes cryptocurrency is already enabling cross-border transactions that help facilitate trade and raise money. But how does Lubin respond to questions about governance? In this exclusive one-on-one interview at the OECD Global Blockchain Policy Forum in Paris, Forkast.News Editor-in-Chief Angie Lau talks with Lubin about the challenges that blockchain faces still, including scalability – a solution that Lubin hints we could be seeing soon from Ethereum.
- ”Technologists are drawn to the technology because they notice deficiencies in how legacy systems are constructed. And they’re very focused on building better systems for consumers, building better systems for economic, social and political systems around the planet.”
- “Even with all the complications around ICOs which raise billions of dollars for small projects and essentially democratizing the raising of money and democratizing access to investing in projects, even with all of that we’ve seen different forms… there’s still lots of utility tokens that are being sold. You just have to do it with care, with legal advice.”
- ”The SEC is “in a complicated situation where they need to apply securities law that has worked really well for the United States for decades. And they need to still foster innovation. They need to enable capital formation. And they don’t want to kill blockchain for America. But it’s a fine balance that they need to maintain.”
Listen to the podcast version
Angie Lau: Welcome to
this special edition here in Paris — I’m Forkast.News Editor-in-Chief Angie
Lau. And we are here on the second day of the OECD Global Blockchain Policy
Forum, where thought leaders and government leaders and policymakers and
regulators from the highest levels are all converging here to discuss the
innovation called blockchain technology.
This is a conversation we were not even having more than 11 years ago. It’s 2019, and here we are today. And it is the core of the conversations. And Joe Lubin was onstage. He is Co-Founder of Ethereum and Founder of ConsenSys. And he is what some in the industry would call an O.G., certainly a pioneer in this space. Joe, welcome and thank you so much for joining us on Forkast.News.
Joseph Lubin: Pleasure
to be here.
Angie Lau: When we think about blockchain, it really for a lot of people, is this complex network of ledgers and technology and language that seems very confusing. But at the onset of it, when you first saw blockchain or heard about what was blockchain about, that piqued your interest?
Joseph Lubin: So first, technologically, blockchain is just a new kind of database. It’s a new kind of database that enables different actors using the system to trust, to be certain that what they think is happening on the system is actually happening on the system, and makes it very difficult if it’s sufficiently decentralized, for minorities, sets of actors to improperly manipulate the database.
Angie Lau: And so we’re talking about, essentially, trust being baked into the system.
Joseph Lubin: It’s
a radical innovation in the trust architecture for the planet. It brings us
from subjective centralized trust systems to automated and objective trust
Angie Lau: The way that currently in our legacy in
traditional social construct to achieve trust is like this. I meet you, we
talk, we see if we’re aligned in our interests. We kind of figure it out that
way and/or our networks talk to our other networks and we figure out whether or
not we can trust each other to do business.
Joseph Lubin: Or
subjective governance systems or subjective judicial systems. And so those
things work reasonably well in many places. They work less well in some other places.
Where they work well, they can be augmented and work much better. We have a
project called Open Law that enables us to build legally enforceable
blockchain-based agreements, and that will probably save people and
organizations enormous amounts of money in legal fees, essentially because the
agreements will be available in templates and you’ll be able to customize them.
We’re already using that in our business and you will likely have fewer
disputes and reduced the costs of legal fees by orders of magnitude.
Angie Lau: We’re really talking about efficiencies here
as we create efficiencies through blockchain technology. So one of the
conversations in the thread of many of the conversations that’s happening here,
in OECD is the role of regulators, the role of policymakers, and certainly the
role of governments as they take a look at this emerging technology in its pure
disruptive state and try to figure out where the guideposts are, where to put
the lanes, and how to create an environment in which innovation can thrive.
Is this, in your mind, a fundamentally adversarial
relationship or do you feel like this is more collaborative in nature as we sit
Joseph Lubin: I
think it’s important to realize that the people, the technologists that created
and continue to build out the technology are makers and creators rather than
breakers. They’re drawn to the technology because they notice deficiencies in
how legacy systems are constructed. And they’re very focused on building better
systems for consumers, building better systems for economic, social and
political systems around the planet. And so I think the creators, the
technologists, are ultimately heavily aligned with the regulators that are
trying to keep the consumer safe and make sure our systems are working well.
So there is this innovation, this disruption, and it’s going
to be a massive change in how we architect systems on the planet, and so it’s
hard to understand how new ways of doing things will fit in certain rules. And
it’s hard right now to understand how they will enable the evolution of the
laws and regulations that we operate under. And so that’s going to be a
discussion probably years and possibly decades that different jurisdictions
have to have about how this technology maps into how they want their societies
Angie Lau: Because technology is changing the rules.
Joseph Lubin: Sure,
Angie Lau: And it’s changing the rules of business as
Joseph Lubin: Yeah,
Angie Lau: How is it changing the business logic of the
startup companies that you’ve invested in at ConsenSys? You’ve invested tens of
millions across projects that affect almost every industry. In terms of the
potential of the technology as you see it, how is it changing the business logic
Joseph Lubin: Yes.
So the first thing to understand is that there is a new trust infrastructure
for the planet. It’s a baby trust system. It’s incipient, but it’s going to be
the foundational trust system for the planet. So automated objective trust,
once you have that sort of platform and you need a maximally decentralized
protocol architecture to get the trust characteristic…
Once you have that in place, you can have groups
collaborate, coordinate much better because they’re you’re trusting that no
minority set of actors can improperly manipulate the system. Once you have this
trust platform, you can have digital scarcity upon digital scarcity. You can
build digital money, cryptocurrencies, you can build other forms of digital
assets, whether they’re fungible like stocks and bonds or non-fungible, like
playing cards or some representation of bottles of wine or jewelry or real
Joseph Lubin: And so the foundational constructs of our society are moving into natively digital form. So we’ve been living analog lives for millennia. And for the last 60, 70 years, we’ve had some quasi digital representations of things that are naturally analog, like money, like identity. You know, I’ve got identity cards that index into some ledger that some government maintains.
So money assets, legal enforceable blockchain-based
agreements, securities, other kinds of financial instruments, they’re all now
just starting to get rendered in natively digital form. And that’s going to
squeeze all the delays and all the frictions out of our economy. Basically
every time we do a transaction touching on analog things like identity, like
money, like securities, the delays in clearing and settlement are pretty
enormous: in many cases, days, weeks, and months in some cases, like when
you’re selling a house or something like that.
And if you
can compact all of those transactions into the clearing and settlement into the
instance of the transaction, you can remove lots of the delays and frictions
from society. And so what we invest in is the development of the
infrastructure. We have this new trust foundation.
We have this decentralized finance or open finance
revolution happening mostly on Ethereum right now, where we’re building the
financial plumbing, the decentralized financial plumbing, lending, payments,
other sorts of instruments, essentially in trustless form so that this
financial plumbing layer will enable us to build out different verticals of the
emerging decentralized economy.
Angie Lau: You’re one of the founders of Ethereum, it’s
based in Switzerland–
Joseph Lubin: It’s
based on planet Earth.
Angie Lau: It’s based on planet Earth. But a nod to the
environment that exists there. But, at the end of the day, technologists and
developers aren’t necessarily tied to any specific policy or any specific rules
and regulations. It’s almost like–
Joseph Lubin: Of
course they are. Technologists and developers have their own very strong set of
rules and procedures.
Angie Lau: Of course, but politically driven, trading,
Joseph Lubin: Not
necessarily controlled by government, although it does operate within the
context of different governments. But yeah, there’s a lot of rigor in the
technology space, the space of developers.
Angie Lau: Well, the criticism has been about
governance. Where does governance come into play for protocols and technology?
Joseph Lubin: It
depends which one. Bitcoin would claim that it really has no governance and
that’s its strength. And that has led, in my opinion, to fairly slow
innovation. But Bitcoin is a currency. And so maybe slow innovation in a
currency makes a lot of sense. Ethereum has a crypto fuel, which some people
consider a cryptocurrency called Ether, which powers transactions on the
system, enables people to pay for storage of data.
But it isn’t a cryptocurrency. Ethereum is a platform for
decentralized applications, it’s a software platform. So it really needs to be
agile. It needs to evolve. And so it needs people figuring out what the next
important thing to do is and implementing that as quickly as possible.
Angie Lau: There’s no doubt that the price of ether is
fundamentally what drives the initiatives and the innovation that you’re
actually investing in at ConsenSys, that you’re investing in the projects.
Joseph Lubin: The price of ether is important for the security of the network. And it’s absolutely important to draw talent into our ecosystem. So that is true. You were talking about governance. I assume you mean of the Ethereum platform and other platforms?
Angie Lau: Yes.
Ethereum has really quite decentralized governance. It’s
an open source system. So anybody can inspect the code, anybody can fork the
code. Anybody can even fork the running system. If people disagree with how the
system is operating, with some of the principles of the system with respect to
immutability, for instance, if somebody has a different definition of how
immutable a system should be, they can fork the running protocol and
essentially two systems, nearly identical, go off in their own different
directions or they can fork the code base.
Joseph Lubin: And
so we always relied on that characteristic to keep the core team honest. So if
you know that people can just take your system and do something that they think
is better with it, then you’re going to try to form more ConsenSys in the
community around what it should be.
Angie Lau: That does get really murky and in the weeds
for a lot of people.
Joseph Lubin: Yeah
it’s complicated. There are many different classes of actors in the Ethereum
ecosystem and in blockchain ecosystems. We have the core developers, we have
companies with lots of developers, independent developers. Nobody pays them,
but they contribute anyway. We have exchanges, we have the miners or the
validators of the transactions, we have government regulators.
And so it’s a complex discussion but it’s still moving forward incredibly rapidly, even with this. In the computer world, Eric Raymond wrote a book called The Cathedral and the Bazaar. The cathedral is a sort of top-down, highly organized way of running software projects in the bazaar represents open source projects where people show up and they do what’s necessary at the right time. And that’s the way the Ethereum ecosystem works and it’s been working very well.
Angie Lau: At the end of the day, we are still looking
for that one mass adoption, that killer app, people still talking about what is
that proof of concept that will draw businesses and enterprises. And I think a
recent study at the World Economic Forum showed that 57 percent of businesses
that were surveyed are interested in applying blockchain innovation.
The one thing that holds a lot of people back is how do
we actually use it and ensure that it actually works for us. We talk about
efficiencies. We talk about creating and unleashing all of these fantastic
things as a result. But is it actually working? And what’s your assessment?
Joseph Lubin: It’s
working remarkably well. Instead of a killer app, let’s call the killer a
paradigm shift for the planet. We’re introducing a new trust infrastructure and
introducing a new open financial system for the planet. And so the first killer
app is blockchain. It’s being used everywhere, it’s a new database technology.
The second killer app was cryptocurrency. It’s making the lives of many people
in many countries much better. It’s enabling cross-border transactions. So it’s
a pretty sizable, thriving economy. Another killer app was the ability to raise
money. Mostly it happened on the Ethereum platform.
We’re working out the regulatory aspects of all of that, but even with all the complications around ICOs which raise billions of dollars for small projects and essentially democratizing the raising of money and democratizing access to investing in projects, even with all of that we’ve seen different forms. Essentially tokenized securities and there are still lots of utility tokens that are being sold. You just have to do it with care, with legal advice. And that market is still pretty enormous in terms of killer apps for consumers. We’re starting to see games really kick in.
So, I mean, on the Ethereum ecosystem and other ecosystems, games are probably going to be a pretty big breakthrough application. We have applications in the music space. We have applications in journalism. And so we really need to fix the main issues, which are scalability, privacy, confidentiality, and usability. And once those get handled, essentially this new decentralized worldwide web will be made use of by lots of people.
Angie Lau: Scalability is huge. Where are we in terms of
the runway, the roadmap, if you will, of scalability?
Joseph Lubin: The
Ethereum ecosystem is doing a really good job on that. We knew we were building
a sort of prototype system. We knew that we wouldn’t have much scalability with
Ethereum one, but we had to put it out there to prove that something like that
could be built because most didn’t believe that we could build it. And we also
needed to enable people to build decentralized applications and figure out what
it means to build a company around a decentralized application and to build all
So even the decentralized finance stuff, which is enormously
popular right now, it doesn’t need enormous scalability. You need small, smart
contracts. And it’s not a huge number of transactions per second to build out
all that infrastructure and to explore the solution space for decentralized
finance. With respect to actual transaction throughput per second, we have
layer 2 technologies that anchor into layer 1 so that if anything bad happens
on layer 2, you can pull your assets back to the safety of layer 1. They are
two technologies are enabling us to do tens of thousands of transactions per
second for different applications.
So whether it’s state channels type technology that enables point to point transactions off the blockchain that gets settled whenever necessary on the blockchain, or whether it’s blockchain systems themselves that have less rigorous consensus mechanisms so they can run at hundreds or thousands of transactions per second.
They anchor into Ethereum and they get essentially the full
trust characteristic. So that’s one thing that’s going on and that’s bringing
hundreds of thousands of decentralized transactions per second right now to
Ethereum. Games are bringing their own throughput. But Ethereum itself, the
base layer, is moving towards Ethereum 2.0.
So probably in Q1 of 2020, we’ll release one phase of a
three-phase rollout that will essentially link to, Ethereum 1 and enable us to
evolve Ethereum 1 slowly into Ethereum 2. So that will provide a little more
than a thousand times the throughput of Ethereum 1. And so if you essentially
multiply all the layer 2 stuff that’s going on by a thousand times, you’ve got
pretty good, headroom for the next few years.
Angie Lau: You could say that again. But you’re really
talking about the speed of innovation of this technology. And people are still
kind of stuck at that layer one scenario in terms of understanding. But we’re
catching people up. So when we take a look at, for example, the projects that
you’ve invested in ConsenSys, have you really almost theologically thought
about investing as you kind of shape and shift the architecture of Ethereum
from one to two and potentially three, four and so on and so forth? And how are
you doing that?
Joseph Lubin: Well, we invest in things that we believe work right now and we invest in things that we believe will progress the technology.
Angie Lau: Like what? In terms of the kind of projects?
Joseph Lubin: So
there’s one really big project that we’re investing in and helping token launch
and network launch that I can’t mention right now, it’s a very important
project for immediate scalability in the Ethereum ecosystem.
Angie Lau: Ok. And so you’re investing in that. And
tokenization, you talk about that. So in the backdrop of the conversation that
we had this morning here at OECD with regulators from the S.E.C. and the E.U.
and the like. And what you often talk about the need to acknowledge and work
with regulators and think about compliance. Are you doing that?
Joseph Lubin: Yeah. All over the place. So very much in the United States we had Valerie from the S.E.C. And so we’re very familiar with many people at the S.E.C. We’ve had voluntary conversations on many occasions, and I’m personally impressed with their understanding of the technology. And they’re in a complicated situation where they need to apply securities law that has worked really well for the United States for decades. And they need to still foster innovation.
They need to enable capital formation. And they don’t want
to kill blockchain for America. But it’s a fine balance that they need to
maintain. And I think they’ve done a pretty good job of adding clarity to the
situation. Uncertainty is the most damaging. I think we still need to move
forward with that. But essentially at ConsenSys and even at Ethereum, we
believe we had clarity, decent amount of clarity with the help of our legal
advisors and our own legal staff for doing utility token launches and tokenized
So we believed that we understood what we could do all the
way through. And so far that’s panned out. But it’s expensive right now because
you really need to pay for opinions because it isn’t black and white yet.
Angie Lau: It’s not black and white. But you’re guiding
it forward. The next big thing, in your mind, that we can expect from Joe Lubin
and blockchain technology?
Joseph Lubin: More
of the same from Joe Lubin. We do so many things at ConsenSys. We’re rolling
out in our commerce and decentralized finance group, our Codefi group. We’re
rolling out a bunch of products. So those are going to be around payment
systems, around different kinds of financial instruments, around utility token
launches and tokenized security launches and network launches. I hope I didn’t
give too much away because you’ve got a bunch of announcements coming up. So
lots on that front.
And we continue to work at the application layer in
different industries and building out journalism systems and music systems and
advertising technology systems and health systems. And I have the most fun, I
think, when I work with the groups that are at the protocol level. We have
about 100 protocol engineers at ConsenSys and whether it’s building out
Ethereum 1, making it enterprise friendly as we have done a pretty good job of
at this point through the Enterprise Ethereum Alliance. And now we submitted
our code base to the Hyperledger Foundation.
So our Pantheon client, our Ethereum client which is a
Mainnet client and a private permission client, is now part of the Hyperledger
foundation. So it’s going to be exposed to all those people that didn’t have as
much access, permissioned access to Ethereum from their bosses, essentially.
The most fun I have is the Ethereum 2 stuff, I believe, just pushing out the
envelope on what we can do.
Angie Lau: Well, the thing about blockchain technology
in its purest form is really capturing the imagination of a lot of people and a
lot of industries. And there’s no doubt that the technologists are giving
everybody the tool to determine our collective futures. Joe, thanks for being
one of those architects. Thanks for this conversation today.
Joseph Lubin: Thank
Angie Lau: Thanks for joining us.