In January, my Lyft driver, my barber, and a friend’s friend who runs an alternative medicine practice in Kentucky all had cryptocurrency trade tips.
Since January, the aggregate market cap of all cryptocurrencies declined by 75 percent.
The rapid rise and fall of cryptocurrency prices isn’t an indictment of the viability of distributed ledger technology, the architecture they sit on. Instead, it reflects the collective appetite for people all over the world to speculate on new technology prior to its adoption. In the future, the market forces which drive cryptocurrency prices will be transactions stemming from live applications built on the technology, not the sentiment of speculators.
If you’re long on blockchain technology, everything right now is just noise. To use an analogy, we’re in the phase of creating the design of our first distributed ledger “operating systems” — we don’t have any “apps” yet.
Bitcoin and Ethereum brought mainstream visibility to distributed ledger technology. Cryptocurrencies became a new asset class people across the world began to bet on.
The problem is, far too few took the time to understand what distributed ledger technology is and where its application makes sense.
For those who did, fewer thought through whether a good application of the technology actually requires its own cryptocurrency, or if it would be better suited to be built on top of one which already existed.
And if someone found a good application for a new cryptocurrency, the work just started — now he had to put on the hat of a “professional investor.”
- Who are the operators of the “project?” Do they have what it takes to launch a universal digital currency?
- What is the adoption strategy of the new currency? How realistic is it?
- Is the technology which powers the currency built yet? If not, is it realistic to built it to spec? How realistic?
The good news — there’ve been engineers all over the world who’ve thought through the tough questions. They’ve been hard at work building things grander than Bitcoin and Ethereum, and the first results of their efforts are drawing near.
If distributed ledger technology were a tool, it wouldn’t be a hammer or wrench. It’d be one-part wrecking ball and one-part crane.
The first results will beg us to knock everything down and build it back up again.
The State of Adoption and Architectural Readiness of “Top Projects”
One of my cofounders called me the other day. He was in Europe working to recruit one of the space’s early elite technology talents away from one of the industry’s largest organizations which was giving him a book of blank checks to build a “spoke” in their “hub and spoke” model.
My cofounder was adamant about two things:
- Berlin had become electric — engineers were up 24/7 hopping from cafe to bar to couch transitioning from group downloads to late night coding sessions.
- Most of the top 20 coins were “BS” — engineers had deemed their technology impossible to create. Of the ones which released code, they were doing it at a pace which suggested operational mismanagement; worse, oftentimes the solutions provided by the code deviated from the core marketing of the cryptocurrency.
He asked — Who do you know who has built a meaningful application on top of any platform yet?
Beyond all else, the dual requirements of any successful distributed ledger technology undertaking is its underlying technology and operational performance.
Present-Day Shortcomings in Prevailing Distributed Ledger Architecture — Things We Haven’t Collectively Thought Deeply Enough About Yet
Distributed ledger technology is every bit hardware as it is software.
Prior to cofounding beyond protocol, one of my cofounders was the former CTO of IBM Blockchain|IoT|Cloud. He often leads his presentations with a quote by a well-know computer scientist which suggests, “everything we can build with software, we can build with hardware.”
To date, we’ve had no problems imaging the revolutionary applications of distributed ledger architecture. However, present-day methodologies myopically focus on the design of software and fail to consider hardware at all. To fully harness the power of this new architecture, we must also think about the organization of the hardware it sits on. For distributed ledger technology to be able to accomplish its most ambitious applications at scale over the short-term, we need to be thoughtful about hardware architecture. This isn’t critical for just the ability for protocols to load and run — it’s critical for their complex use cases to be viable.
Take for example the autonomous vehicle use case — not only will current known protocols fail to work due to the inability for their software to load on nodes at scale; but their inability to interact deeply enough with nodes will render their applications impossible to achieve their most basic objectives as well. No bolt-on code can fix this.
When you launch a new cryptocurrency, you launch a new economy.
A lot has been written about the failure of modern economies to create systems through which humans can live out their full potential. Some will argue, the way modern economies are established lead us to do things which make us unhappy and achieve a fraction of what we are truly capable of achieving as a specie.
In theory, cryptocurrencies can do a lot to strip away perverse incentives and promote a juster, happier world.
When you interlace exponential technology with the creation of a new economy the stakes become unfathomably high. Soon AI will be able to do in one day the work it would take a thousand-person organization of humans armed with personal computers a century to do. If we create a digital economy with an imperfect incentive structure and hand it over to AI to have it, we will certainly not like where we end up.
Autonomous Vehicles as the Ultimate Use Case
Warchests are being poured into autonomous transportation. By design, few are talking about it. Companies characterize the projects as top-secret.
To be sure, it’s a core focus of every major auto manufacturer, every semiconductor manufacturer, every car sharing service, every consumer electronics company, and even some movie houses in Hollywood.
When the first autonomous grid launches, it will be on a distributed ledger architecture. Nothing else will allow for all stakeholders to know where each vehicle currently is located, where it was located in the past, and where it should go in the future in a secure, public way.
Nothing else will allow one vehicle to travel from point A to point B faster than others in the grid and compensate them for doing so.
Why the Next Wave of Distributed Ledger Technology Will Come from Silicon Valley
In the past, I was pessimistic about Silicon Valley’s lack of participation in the blockchain movement. I wrote about it. The company I cofounded, beyond protocol, chaired a private discussion with California Lieutenant Governor Gavin Newsom. There, I passionately detailed my concerns the next Apple might be built outside of California if the State’s leading technologists and policymakers didn’t take note and act. Blockchain organizations created cryptocurrencies with market caps in the billions — only one of them was Silicon Valley-based.
From left to right: beyond protocol cofounder/CTO Denis Benic, cofounder/COO Gurvinder Ahluwalia, California Lt. Governor Gavin Newsom, and cofounder/CEO Jonathan Manzi
In hindsight, these concerns are moot. Top cryptocurrencies rightfully have lost a majority of their value. Fundamental organizational, operational, and technological shortcomings plague most. They failed to do the hard work upfront — as any early-stage operator or investor knows, it’s nearly impossible to do this work after-the-fact while building and marketing product.
The new wave of distributed ledger technology will come from the thoughtful marriage of hardware and software. It will demand close collaboration with members of the Fortune 100 developing our hardware. It will require creating something the world’s brightest and most ambitious engineers will get behind and devote their time and energy building on.
As I transitioned between meetings with advisors — one who heads Cisco’s efforts in distributed ledger technology and is chairman of an alliance of for companies building IoT; the other who was Senior Advisor for Technology to President Obama — I came to the conclusion: Silicon Valley is best positioned for this type of work, for now.
Jonathan Manzi is Cofounder/CEO of Beyond Protocol, Inc., a stealth Silicon-Valley distributed ledger technology venture building “the next internet — the TCP/IP of the new era.”