Cryptocurrency’s ~14 billion dollar market cap is largely betting that one or more blockchain-based tokens become widely used as “money.” But given crypto’s current usability, that’s not likely to happen. Amanda B. Johnson discusses why the likes of Bitcoin and others are likely currently in a bubble, and why Dash Evolution may well save cryptocurrency.
Thanks for coming y’all. And yes, I am Amanda B. Johnson.
What I want to talk about is something that I think is not talked about nearly enough in cryptocurrency — in digital — I’ll use the word “cryptocurrency” — everybody here knows what that is. I think a lot of newbies are like, crypt? Crypt what? You know it sounds scary. I don’t think it’s the proper word to use with them, but I’ll use it here.
And I don’t know if economics is not talked about enough just because like, the space is made maybe mostly populated with either programmers or, you know, just maybe like tech guys who never like looked so much into it, but I think that a lack of sound economics — we’re already beginning to see what happens when economics are lacking in these networks — and I think that will continue to see what happens when sound economics principles are lacking in networks and I’ll get into what I mean.
So right now, the reason any of these cryptocurrencies has any value — and I was actually discussing this in the car with Danny on the way here — so a grand total of what? Like 12- 13- billion dollar market cap for all of them combined? The reason that that money is in this space, is that money is betting that one or more of these cryptocurrencies becomes widely used, and actually earns the title currency.
Like I would, I would say it’s actually a misnomer to call any of them a currency right now because a currency by definition is a medium of exchange. And so until something is like a medium of exchange and I’m like hey, I can buy gas and dinner and socks with something it’s not actually currency yet. So all of this wealth and capital that in the space is basically making a bet that one or more of these networks actually earns the title of currency.
It is my belief that we currently are experiencing – the vast bulk of these digital currencies, cryptocurrencies, have the aspirations of being like a PayPal but they have the functionality — and will continue to have the functionality of like PGP email encryption. Do any of you use — like on a practically daily basis — do any of you use PGP email encryption? I don’t either. I don’t either. I even have a PGP like, public/private key set. I don’t use it either.
For anybody who might not know what that is, PGP email encryption is like a form of encryption that was invented in like, the nineties or something, by, was it Phil Zimmerman? And it’s a way to — it’s a cipher basically — it’s a way to share a lock with the world and only you have the key to that lock. So if you want to receive an email that like even the email provider cannot read, you send out this little mathematical lock to everybody and you say, hey like lock up the email that you send to me with this lock, and when I receive it, I’ll open it with my key because I’m the only one who has the key.
And so you would think, oh this is like an awesome idea, right? Especially after like, the Snowden revelations, you would think that everybody would be using PGP email encryption because who among us wants to like wonder if our emails are being read, and like swiped up into these collection points on internet cables? I would be surprised if like one percent of the world used PGP email encryption. Why? Why is that?
I don’t know if any of y’all ever heard the story but actually when Snowden, when Edward Snowden first decided to like leak his stuff, he wanted to do it privately right?
He sent a 12-minute long video tutorial to the Guardian journalist Glenn Greenwald saying, this is how you set up PGP encryption and Glenn Greenwald could not figure it out. Like he almost didn’t get the Snowden story because he could not figure it out. And every single cryptocurrency today works like that.
You would have to send somebody a 12-minute video tutorial to tell them how to download a wallet, what a blockchain is, how to generate new addresses, how to keep generating new addresses to protect their privacy, how to backup and secure their private key, and etc., etc. And if cryptocurrency remains in this state it will go the way of PGP, which is to say, probably no more than one percent of the world’s population will ever use it . And so if that is the case, what does that mean about this 13- billion dollars worth of capital that is betting that this stuff doesn’t feel like PGP but rather feels like PayPal?
It means that it’s all in a bubble right now and we’re all going to lose our shirts. That’s what it means. It means that this all will likely go down in the history books as akin to tulip mania except maybe they’ll call it like, “crypto mania” in the history books. And our pictures might even be in there and that would be really embarrassing for us.
And so what I want to talk about this evening is basically the reason I chose — the reason Pete and I chose to start working for Dash in particular — is because in my estimation it’s the only network that has lain the foundation — and I’ll talk to you about that, basically the backend foundation. The stuff that the end user is probably never gonna care about or even need to understand — and is going in a direction of usability that will ensure that this is not a bubble. That cryptocurrency in some form is saved and does not end up as a bubble. And let me define “bubble” before I continue.
The definition of bubble that I use I got from economist Doug French. He defines a bubble as the state of, like the price of a commodity or whatever, when a large portion of the people buying that commodity are not buying it to use it, but are buying it because they expect that its price will go up.
This was found quite commonly like in the lead-up to the 2008 housing bubble break, right? Like people were buying houses that they didn’t even live in. They just bought the house because they expected that the price of the house would go up and that they could flip it. Once enough of that starts happening around a certain commodity it enters bubble phase and it’s only a matter of time until it crashes. And everybody who was left owning any of it loses.
And so using it that definition, I would say that all of these digital currencies — Dash included — we’re all holding them right now not for their utility, not because you bought your shoes with Dash or with Bitcoin – not because I didn’t either — but rather we expect that one day they will have utility. And so I want to basically just describe what is happening in Dash that I believe makes it the only crypto that I know of — and I’ve looked into, I’ve looked into most of them — the only crypto that I know of that is going in the direction that a person holding it will be holding it for its utility rather than speculating upon it.
So I want to talk first about the backend of crypto, like the boring stuff that does not get a lot of headlines. Nobody calls us like from Forbes. Nobody calls us from Bloomberg. Or Yahoo Finance. Or any of these other outlets that like, they’ll sometimes write about the flashier stuff going on in crypto. You know like, they’ll write right about the DAO and they’ll write about you know, whatever is happening in Bitcoin price movement sometimes.
The backend stuff is not glamorous but it is essential to the functioning of a network basically. The long-term functioning of a network. How do you make network-wide decisions with thousands of people you don’t know? Thousands of people you’ll probably never meet. Thousands of people whose names you don’t even know, right? Like people are using their handles online.
When cryptocurrencies are based on consensus — whatever offering we present to the world we first had to come to consensus on it — how do you come to consensus? Without a formal governance mechanism in place the way it works is this: people go on reddit or they go on Twitter and they propose an idea. And people start arguing about that idea. And people start going back and forth on it. And you got to begin to wonder — ok so this ILoveBananas78 on reddit — like does this guy even own a Bitcoin? Does this guy run a full node? Does this guy have a miner?
And all of a sudden you realize that like these million- and billion-dollar discussions going on online, you don’t even know if who you’re talking to is like a member of the network. You don’t know if they’re invested at all. And so the only form of governance that there is is just like hard forks. Is like, you’re with us or you’re against us. Like, fork or don’t. And that is, I mean, it’s just, it’s rudimentary. And it takes a long time. And it can result in highly undesirable results according to a lot of people.
As a perfect example, when Ethereum hard forked to rewind the DAO-aster most people thought that everybody would switch. They thought that at the end of the day there would be just one Ethereum. But they failed to realize that there was not a consensus and so they forked. And now we have like Ethereum and Ethereum Classic. And it’s basically like the worst thing you can do — to hard fork and have half the network competing against the other half of the network. It’s… Basically these things can be avoided if you can just find a way to find out what the rest of the network wants like pre-fork. And ideally maybe no fork has to happen at all.
So how do you do that? Like if you don’t know if ILoveBananas89 actually is running any infrastructure for your network, is like actually owning any of any coins at all, how can you figure out what all of the vested participants want?
Dash has a great way of doing this. Anybody in Dash who runs what’s called a masternode — basically they do three things for the network, and in exchange for doing these three things for the network they get voting rights. And it is their votes which make all of our development decisions.
One, they need to own a thousand Dash to prove that they are vested in the outcome of their votes. This basically protects us from… what would it… The icons of the world. It protects us from like the nothing at stake problem certainly. They need to be running of course a full node — full copy of the blockchain.
And also in Dash we have two end-user functions which are like essential to our product, which is a coin-mixing for privacy, and which is instant confirmations to enable point-of-sale basically. They have like names for them, they call them like PrivateSend and InstantSend. And those functions are enabled by the masternode network. So, if a masternode has full copy of the blockchain, has proven that they own a thousand Dash — it’s like a cryptographic proof — and then runs PrivateSend and InstantSend, they get voting rights.
So as a prime example of of how this voting mechanism like savedus scads of money and like eons of time, earlier this year Evan Duffield proposed to the network, should we raise our blocksize cap – which is one megabyte just like Bitcoin – should be raise our blocksize cap from one to two megabytes if and when the time arises that it is needed? And so all of these masternodes like voted and within 24 hours a large majority of the masternodes had voted yes, if we reach that point yes, bump up that block size cap. And it was done. Like consensus was reached within 24 hours.
And so we see that just like this simple voting mechanism among like vested participants who are also you know, proving their service to the network — we don’t have to like get stuck on reddit being like, I don’t know about this ILoveBananas68 guy like, we can just clear through these potentially malicious actors actually and see what the network really wants. And and it seems like a small thing like this this whole voting thing, but it actually, I think, it may make all of the all of the difference. And like think about a centralized company.
Like think about if you’re Samsung and your design department — like while they’re making a new phone or something — your design department conducts their meetings at like r/samsung. And anybody can go talk shit at r/samsung. And like these guys are like trying to make design decisions and all of these people are flooding in and it’s like, who works for Samsung? Who doesn’t? No, it’s crazy. Of course the design department at Samsung only takes the input of people who work at Samsung. And so, you know, with a decentralized cryptocurrency a new way just had to be invented of like having these discussions and coming to proven consensus.
The second part of what I call, like, the boring backend — the stuff that Forbes and Bloomberg do not care about — is uh what I would call payroll. As I mentioned earlier, the Dash block reward, which is the new coins that are created per block — the inflation which is temporary until we reach a rate of zero inflation, and we’ll be left with roughly 19 million Dash — the Dash block reward is not consumed entirely by the miners like it is in pretty much every other network.
And that is because we recognize that miners are just like one employee class that we need to function. There are two other employee classes that are vital to the functioning of a cryptocurrency. One of them is full nodes. And one of them is developers. Like core developers. And so the way — actually no, let me preface this with, okay what happens when miners do consume the entirety of new coins created?
Let’s use Bitcoin as an example. They have the biggest market cap so it’s easiest to follow their developments as the most people notice them. So for example in Bitcoin, an 11 billion dollar network, miners consume the entirety of the block reward. That means that nodes are basically like volunteer. Like an attaboy thanks for supporting the network kind of position now.
And so naturally it’s an economic law that whatever you subsidize you’ll get more of, whatever you tax you’ll get less of. So of course Bitcoins node count has dropped dramatically over the years, and will likely continue to drop because it’s a taxed position rather than a subsidized position the way mining is subsidized.
In the development department we have seen that developers who are not getting paid from the block reward in order to have a livelihood, they have accepted sponsorship from third-party multinational corporations basically. It started out with the Bitcoin Foundation — that didn’t work so well. Then some developers took on sponsorship from MIT if I understand correctly. And then this newer company Blockstream is now paying a good portion of the core developers.
And what is problematic is that decentralized profit models and centralized profit models are like this. They are like oil and water. There is no happy medium. There is no mixing of the two. Either the profits of a network are decentralized to all of its infrastructure or the profits of a network go to like the company, like the corporation, that is writing the paychecks for the core developers. Like there actually is no middle ground.
And so that I believe, is the root of the Bitcoin blocksize debate. The decentralized profit model would be of cours,e to have no blocksize cap. And then the centralized profit model where say, for example, Blockstream needs to make a return on their investment — they’ve had a huge investment like what? Tens of millions, could it even have been hundreds of millions of dollars that was like, given to Blockstream?
And of course the only way for them to pay back their investors is if they can find a way that the Bitcoin network can kick the majority of its profits back to Blockstreams like shareholders basically. Which is you know, that’s a way of doing things. But if Bitcoin doesn’t become a centralized company, if people like keep believing that it’s like decentralized peer-to-peer network, we’re going to continue having this problem because those two models just don’t mix. They’re like oil and water.
So that is the kind of problem that arises if this third class of employees — developers – are not paid from the block reward either. And so that is the second way that I believe that Dash has knocked out these unglamorous fundamentals, which is to say that it pays forty-five percent of its block reward to its miners, forty-five percent of its blocke reward to its masternodes, and then ten percent is left, and we call that our treasury. And the masternodes vote on where to pay treasury funds to.
So we’re currently — our largest treasury payout is going to our core development team. Masternodes vote on their salary. They can technically be fired. We could downvote their salary coming out of the treasury and we can hire a team who we think would do better. Pete and I are paid from the treasury. Our… There was a… I think there’s been wallet developers paid from the treasury. There’s this guy creating the Dash version of LocalBitcoins.com, he’s calling it Dashous. Dashous.com He’s being paid from the treasury. And in this way, all of our development efforts can remain like totally free of the influence of like third-party sponsors who naturally would like the profits of the network to go toward them, naturally.
And so with governance knocked out and with the payroll — the problem of payroll knocked out — that has put Dash in a really good position to move into the space of, ok now how do we attract end-users? Like how do we stop feeling like PGP? How do we actually move in the direction that all of this capital in the space is betting that one of us is going to move in?
And we are doing that with a layer of our blockchain that is set to launch in late 2017 in Alpha and it’s called Evolution. And I have dubbed it from the start like cryptocurrency your mother could use. And the way it will work will be very new, very unique to the space, in that the general… like the way we’re all used to logging into like online banking or PayPal or whatever, namely just like a basic user name and password and like the ability to say, conduct auto payments — like I pay you you know every month for whatever.
I mean, think about how many payments in your life are like auto payments. It’s a lot. And no cryptocurrency can do auto payments right now, which already I think would leave us out of the running of global finance. And like the ability of say like, joint accounts, were like you and your wife can like share an account. These sorts of things that people are used to and that they expect.
They will live in a layer on top of the Dash blockchain that’s being called Dash Drive and they will be directly accessible through what’s being called the world’s first decentralized API. So basically just using this decentralized API, DAPI, anybody will be able to launch a web or a mobile app and people can directly interface all without having to give your private keys to like any third-party service.
It will be a way that people can feel like they’re using an online bank but they are their own bank. And even the private key won’t freak them out, because it’s not going to be like 34798zr whatever, it’s gonna be just like a 12 word seed, or whatever, right?
So when you start an Evolution account you create a name and password, it gives you a seed, and from there you can log into any Evolution wallet. Like if the person who was hosting that particular Evolution wallet, like if they go down, if they lose power, if they go out of business, if… whatever, like your data is not gone. It’s not like ooooh you know, like imagine how many people would be like devastated if Coinbase just like disappeared tomorrow. Or Poloniex disappeared tomorrow. That would be a problem.
So with Evolution you can sign into any Evolution wallet. You hold your private keys, and your username and password are encrypted in the Dash Drive, so it’s like, not a problem. And… If you’re interested in seeing screenshots of this product, last week’s episode of DASH: Detailed featured screenshots of it.
And then actually the episode I release tomorrow is an interview with Evan Duffield where he is going to go like screen-by-screen through the Evolution prototype and basically just describe what’s going on on the backend. The most — no it’s not the most — the most exciting part of Evolution is the usability.
But the part that I think will enable us to be a serious competitor with banks, to be like, to be a contender, to be like a real competitor out there, and we’ll also at the same time beautifully continue to basically decentralize our infrastructure, like continue to add infrastructure to our network, is what is being called Decentralized Masternodes Shares.
Now from the user-end experience again, like the market we are hoping to get, like they might not even ever hear the word masternode, and we hope that they don’t need to hear the word masternode or anything, to use any of our products.
But what it feels like on their end is like, in their Evolution wallet, if they put some Dash into a savings account that Dash can earn them what, maybe like 4- 5- percent, maybe even six- percent annual like return-on-investment? Like out-of-this-world way more than say what, like I don’t know, like Chase or Wells Fargo are paying on a savings account right now, or in some places in the world, isn’t it negative interest rates in banks now? Okay so this is like way outclassing that sort of model. And that’s what the user sees, they’re like, my god my savings account earning me six percent a year, this is awesome.
What’s happening on the backend? Is that something like a secondary private key that basically just acts as a form that proves that they have like collateralized something in their savings account — they don’t know that they’re providing collateral but its collateral — its collateral for another masternode.
So when a bunch of people put their savings, put Dash into a savings account, like a secondary private key is being combined with the secondary private keys of like a bunch of other users until a thousand Dash are reached, and then oh, what is that prime for? The launching of another masternode.
Who launches the masternode? Certainly not average Joe user or like, your grandmother. I don’t even think I could launch a masternode it’s really complex — I’ve read through the guides. So what’s happening is that this collateral is now available to be launched up in a masternode by like some tech guy who just, he doesn’t have the collateral himself, but anybody who wants to launch a masternode and earn a portion of its rewards can pull from the collateral of any and all of our users, and then launched it that way. That way like, everybody wins.
The masternode operator gets to keep a portion of the payouts even though he didn’t he didn’t have the full thousand Dash himself. And all of our users who didn’t have a full thousand Dash either, who just wanted to earn some return on their savings, they get a portion of that masternode payout also. And all the while this is just like growing our infrastructure, growing our infrastructure.
And so, those reasons basically are why I think that Dash is the only major cryptocurrency right now heading in a way that is not a bubble. Because any network which does not break out of this like PGP phase, where like only nerds basically can grasp how to use it — or if you’re not a nerd you leave your coins in Coinbase because you can’t figure out like how to do backups yourself, and you can’t figure out how to like generate new addresses, and you wouldn’t know the word like Electrum if you heard it, right? That kind of stuff. Like your mom, think about your mom honestly. Dash is the only coin heading in a direction where your mom could legitimately use it.
And if the capital in the space is betting that one of these networks will become usable as a currency the end… the user… usability at the end level will have to be like that. Because if not, if what people are hoping for is just that, oh everybody will use Coinbase or a competitor of Coinbase, like we will definitely have failed in the mission to be able to be your own bank . Like it’ll just be Bitcoin banks. I’ll be… That’s the stupidest thing I ever heard.
So that, I mean, that’s why I’m so like bullish on Dash. And I’m like, willing to you know, like risk my personal reputation on it because I’m so interested in money. I’m so interested in this space succeeding. And I’m so interested in this not having turned into the equivalent of tulip mania where we were all like thinking, like this is the best thing ever, but you know, none of us thought to make it usable. So that’s really the majority of what I wanted to talk about tonight.
If I had a note to end on it would be, I think that Dash is, right now, where Bitcoin was in 2012, in that it’s not like super easy to get yet, like there isn’t like a Coinbase of Dash. We’re just barely working on our first equivalent of LocalBitcoins.com.
So it’s kind of like the 2012 version of Bitcoin where you know, we maybe have like 60 merchants accepting it, that sort of thing. Except instead of how using Bitcoin still feels like using PGP, how it still felt like using PGP a year later in 2013, in a year from now Dash will feel like using PayPal. And you’ll get to, you’ll get to be your own bank.
Dash Evolution: http://dash.org/evolution
Music: “We Are One” by Vexento https://www.youtube.com/watch?v=Ssvu2yncgWU
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