Crypto Veteran. Tokenization, DeFi and Security Tokens - Blockchain.
Ishan Pandey: Hi Matt, welcome to our series “Behind the Startup.” Please tell us about yourself and the story behind Cudos and Cudo Ventures?
Matt Hawkins: Thanks Ishan, I’m Matt Hawkins, Founder and CEO of parent company Cudo Ventures and blockchain network, Cudos. I have been building tech companies since the mid-’90s with my last business, C4L; a cloud and network infrastructure business scaling to around 1% of the UK’s internet infrastructure before exiting in 2016. At C4L, we saw a tremendous amount of underutilized computing capacity across our servers and the 150+ service provider environments that we hosted within our data center facilities during off-peak hours. That was the spark that ultimately led to Cudo, ‘what can we do to make better use of the world’s computing power?’
Ishan Pandey: According to you, how can leveraging computing power disrupt the blockchain-based mining industry?
Matt Hawkins: Every 20 years or so, there is a new cycle of computing. Mainframes in the ’60s, home computers in the ’80s, cloud in the ’00s, and now distributed/decentralized computing in the ’20s.
The invention of the proof-of-work (PoW) consensus mechanism that Bitcoin runs on, provided the first continuous and ever-increasing ‘job’ for computers, giving birth to a new industry with further projects launching in the years to come, also using the PoW consensus.
For me, I saw this as the minimum viable product (MVP) for commercialized distributed computing. Due to the decentralized nature of blockchain networks, the computing power contributed is voluntary. There is no central company buying, installing, managing, and maintaining the hardware, and that is why there is a reward system for miners, who are paid in the network's cryptocurrency for their contribution.
To build a marketplace, you must have a stock room ready to sell, and so we put our effort into creating an application for managing an unlimited amount of devices. Those devices would then earn money from their spare computing power, initially through mining PoW coins such as ETH and XMR. That enabled us to scale a distributed supply of computing power and retain that supply because the suppliers are constantly earning from the application. Now we’re in phase 2, which is focused on the demand side and sending more meaningful computing jobs to this supply and better utilizing existing hardware.
This disrupts the blockchain-based mining industry in two ways;
1) GPU/CPU miners will see an increase in profitability for their hardware over mining revenues, as cloud computing jobs pay more for the same resource; and
2) The blockchains, currently limited to small data tasks such as DeFi transactions or oracle data feeds, will have access to high-performance computing power over a distributed network of hardware via the decentralized cloud computing network.
Ishan Pandey: According to you, what is going to be the impact of the mining ban in China on the cryptocurrency market?
Matt Hawkins: There are more positives than negatives for me personally. The high use of coal in Chinese mining operations is detrimental to our global efforts to reduce carbon. There is an abundance of renewable energy regions outside of China, including the Nordics, North America, Central Asia, and South America, where hydro, geothermal, solar, and wind offer cheaper electricity than fossil fuels.
The ban is also leading to a decentralization of Bitcoin's hash rate. China was some 75% of the networks hash rate leading analysts and influential figures like Musk to denounce Bitcoins decentralization. What we have to be careful of, is that the hash rate is not simply transitioning from China to the US alone, as that doesn’t solve the problem.
The other short-term plus, at least, is for those Bitcoin miners still operating, as the same amount of BTC is being paid out every 10 minutes, but to significantly fewer miners where China has shut down operations. Those active miners are therefore receiving a much high proportionate share of the network's rewards and payments at present.
On the downside, the FUD created by the mining ban in China has pulled the market down since the announcement was made. It has remained stagnant since due to many retail buyers being scared off, and this is leading to more institutions stepping in and accumulating, contributing to a growing centralization of digital asset ownership.
On that note, the industry has a golden opportunity to focus on the incredible benefits that blockchain technology has to offer rather than the very publicly visible token price. The vast majority of newer projects are now proof-of-stake (PoS), require a fraction of the amount of power, and have the potential to democratize our financial, industrial, governmental systems, and internet infrastructure.
Ishan Pandey: What are your views on proof-of-work-based mining and the argument that it is not environmentally friendly. According to you, what will be the future of the crypto mining industry if all major public blockchains move to POS or DPOS based consensus mechanisms?
Matt Hawkins: PoW was blockchain 1.0. It proved that a decentralized financial system could be built and address the multitude of problems a centralized system creates; inflation, immutability, transfer times, cross-border interoperability. The miners secure the network, but the protocol itself is the hard-coded decision-maker. There is no central team; it is a community-run network.
PoW is hugely energy demanding and we mustn’t lie to ourselves, the PoW networks have a long way to go until they are 100% powered by renewable energy and that goes beyond the electricity consumption itself, it needs to include the manufacturing process of the hardware which has a relatively short life-cycle.
The mining ban in China will have a significant impact on the consumption side once those closed farms have transitioned over to other countries, of course, but there is still a way to go.
PoS and DPoS changed this, and it was the Ethereum community that first ideated this. These consensus mechanisms consume significantly less electricity and use hardware that has a longer life cycle. Combine that with the focus on renewable energy, and we are moving in the right direction. The networks using these consensus mechanisms are secured token holders staking their tokens rather than contributing more hardware, and the network rewards are based on the number of tokens staked rather than the amount of computing power contributed. This is blockchain 2.0.
The mining industry will evolve. I cannot see Bitcoin moving away from PoW, and so that will remain the same, and the focus there will be the energy source and manufacturing. However, those currently running GPU farms will transition to running multiple POS network nodes, earn from staking, liquidity mining, and more traditional computing jobs such as AI and video rendering.
Ishan Pandey: The Enforcement Directorate has recently issued a show-cause notice to WazirX for allegedly violating the Foreign Exchange Management Act (FEMA) by conducting transactions worth over Rs 2,790 crore. This was discovered during an ongoing money-laundering investigation into “Chinese-owned” illegal online betting applications. From a regulatory standpoint, how do you think this will affect the crypto industry in India and China?
Matt Hawkins: We have seen both countries make snap decisions in the past to ban crypto trading, and so it is a possibility that this case, along with the other exchanges the Enforcement Directorate are reviewing, will place further restrictions on trading within those countries until increased regulation is in place.
In China and India, we have over a third of the world’s population and booming markets for blockchain innovation. Hopefully, any restrictions made will not stifle this innovation or the legitimate movement of digital money and is instead solely focused on removing illegitimate trading activities.
Ishan Pandey: What are your views on Digital Yuan and Digital Dollar? Is it going to change the world order?
Matt Hawkins: Isn’t everything? (chuckling). It was only a matter of time before governments started planning and in China’s case, rolling out a digital version of their currency. The global financial system is being disrupted, and governments and central banks don’t want to lose control. At the same time, though, they have grown an understanding of the benefits of blockchain and how it can be used to build trust, increase efficiency, and dare I say it…. Increase profitability.
Is it good or bad? I’m still unsure. This industry has grown to a size where more regulation is required to protect people and their finances. This could lead to updated security laws in markets such as the US, paving the way for more projects like ours to operate in the same way they can in Europe, for example. But the CBDC’s are centralized and move the power back to the governments and central banks, and in countries like China, we have seen first hand with the prohibition on mining and trading, alongside the rapid roll-out of the Digital Yuan, how one government has taken back full control.
Is it going to change the world order? The US dollar is already the default global analogue currency.
China’s race to launch a digital currency first has given them a head start in becoming the default global digital currency and that could see the Digital Yuan and China overtaking the US as the dominant economy.
Ishan Pandey: El Salvador has become the world’s first nation to accept Bitcoin as legal currency. In your opinion, will this aid in mainstream crypto adoption within the global economy?
Matt Hawkins: Yes, I believe it will. Many countries have volatile economies with high-to-hyper inflation in their local currency and therefore become dependent on the US dollar and subject to the debt system that brings. El Salvador has made the brave move to decouple their country and citizens from control and increase their independence. There are a number of other Latin American countries looking to replicate what El Salvador has done and this means 10’s, 100’s of millions of people who have never bought or used cryptocurrency before, will now start to use it in their everyday life. The technology is here to stay, I have absolutely no doubt about that and like the smartphone revolution in 2007, the vast majority of people around the world will be carrying their bank around in their hands within a decade.
Ishan Pandey: 2021 has already witnessed a major crypto boom and its subsequent collapse, all within the first half of the year. What new developments in the crypto industry do you think is in store for the latter half of 2021?
Matt Hawkins: You need certain resilience to survive the emotional rollercoaster in this space! It’s still a nascent technology with relatively low (but growing) adoption, and the market is still very much sentiment-driven. If Musk wrote a Tweet to say that he enjoys Starbucks, their stock price is very unlikely to see double-digit gains because there is a lot more stock dilution. This year has been hit by multiple sucker punches when discussing price, none larger than the China mining ban.
However, the industry, in my opinion, is extremely strong. Networks like Polygon, Solana, Polkadot, and services like Chainlink are announcing new partnerships and developments on a near-daily basis. DeFi is locking billions of dollars worth of value into blockchains, and NFTs are now starting to show glimpses of their true potential beyond art collectibles, with full metaverses being created. I believe this year will see those two areas, in particular, grow significantly. Then I think we’ll start to other more complex project builds for decentralized infrastructure start to trend.
Will these developments happen through a bull or bear cycle? I’ll leave that for the market to decide!
Disclaimer: The purpose of this article is to remove informational asymmetry existing today in our digital markets by performing due diligence by asking the right questions and equipping readers with better opinions to make informed decisions. The material does not constitute any investment, financial, or legal advice. Please do your research before investing in any digital assets or tokens, etc. The writer does not have any vested interest in the company. Ishan Pandey.
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