For Unhashed 19, I reached out to Eric Martindale, the CEO of Portal DeFi, to discuss the various aspects of privacy, security, decentralization, and building Bitcoin-focused applications. So, let’s dive in.
Q1: Welcome to Unhashed. Please share with us your journey in the crypto and blockchain space so far and how you became a part of Portal?
Answer: I was lucky enough to have found Bitcoin pretty early, as I was attracted by both its technological and economic properties. Hot off the heels of the 2008 Financial Crisis, Satoshi’s posts on the mailing list and emerging discussion on BitcoinTalk dragged me through the proverbial rabbit hole, leading me to join a handful of Bitcoin-focused companies over the years.
Through my travels, I had the chance to meet thousands of Bitcoiners all over the world, from high-school hackers to curious executives and passionate technologists at dozens of top-tier, global companies, all leading to the inevitable conclusion: not only was Bitcoin a powerful technology in and of itself, but as a monetary system, it seemed to have a genuine chance at radically, and perhaps permanently, altering the global economic system into one which maximized human freedom, happiness, and prosperity, centering civilization on energy as the monetary baseline for human action, and, perhaps, leading us to become a Type I Civilization.
Interest piqued and obviously intrigued, I sought to learn more, and really, I had no idea what I was in for. After the intellectual rigor of endless engineering debates, bikeshedding over esoteric payment channel implementations, hostile-environment peer reviews of sidechain designs & their consensus implications, a stint as a soldier in the infamous Scaling Wars, a handful of lost (and compromised!) wallets, and even (thankfully) the comic, yet essential, the utility of a proof-writing software known as “Coq,” it seemed like Bitcoin was the perfect answer to so many economic, political, and technological questions.
So instead of attempting to duplicate its brilliance, I thought it prudent to leverage Bitcoin for what it did best — providing the ultimate record of account, with a sound monetary policy ensuring its longevity. Self-sovereign, censorship-resistant money. Peer-to-peer digital cash, baby!
Once I understood Bitcoin as this “base layer” of monetary sovereignty, I immediately (and quite naïvely) set out to build a “World Wide Web” replacement that spoke this magical “Internet Money” language.
After cobbling together a payment channel implementation of my own (and losing a few Bitcoin in the process), I came to appreciate the difficulty of truly decentralizing the system. I’d realized that not only does the client-server model of the Web itself need to be replaced, but that the very design of the Internet itself relies on centralized infrastructure (think about systems like DNS, organizations like ICANN and ARIN, undersea cables, etc.), with each element well-defended by layers of legal protections, regulatory burdens, and corporate bureaucracies.
If I was going to tackle this problem, I knew I’d have to find a team and focus our efforts on bringing a single, tangible, user-facing product to market.
Fast forward a few dozen prototypes and over three hundred user and investor interviews by the end of 2019, I was stunned to meet Chandra Duggirala, a practicing MD, with an idea remarkably similar to my own, an application of “Homomorphic Encryption” — albeit in the interest of patient data privacy, a parallel construction to my own work on Bitcoin-powered Dark Pools. Immediately we agreed that such significant overlap existed that we should combine our efforts and work towards a singular implementation. Together with co-founders George Burke and Manoj Duggirala, two equally pedigreed entrepreneurs and skilled technologists, we came together to build what is now our flagship product; Portal, the self-sovereign wallet and peer-to-peer exchange.
Q2: “Decentralization = Privacy” is a super-common narrative floating around globally. Please critically deconstruct this narrative.
Answer: There really are too many hyperbolic claims in the cryptocurrency industry (re: privacy, security, capability, etc.). It’s a shame because many users are unwittingly giving up their privacy, which is one of the few things that once surrendered, is difficult, if not impossible, to regain.
“Decentralization” is best understood as a spectrum, across which some metric of “lack of center” could be measured; but in today’s wild west of heavily-hyped and often-oversold token sales, the word is often used as a hand-wave to distract investors from critically evaluating the technologies behind the claims of whatever fancy new system they’re being pitched.
On the other hand, privacy is the primary motivator for Bitcoin’s existence; one property that makes a currency a cash is that transactions remain private between participating parties. Its [Bitcoin’s] technological design follows, removing the vestigial third-parties through its adoption of a peer-to-peer design. Unfortunately, it’s actually quite hard to use Bitcoin (or any blockchain, for that matter) in a private fashion, so a precision-oriented engineering approach is needed to maintain strict standards around security and progress towards saner, safer, and more private defaults... Not to mention a whole hell of a lot of design reviews and iterations, as, after all, we fight for the users!
Q3: In simple words, how does Portal incentivize facilitators to coordinate two unknown users and facilitate swaps between them?
Answers: Portal creates a market for liquidity providers to provide a portion (or all) of any Layer 3 contract’s “security bond” in exchange for payments made towards their share of the contract’s execution (generally one of two operations: multiply two elliptic curve points, or validate a signature).
Bitcoin is the perfect system to run these kinds of contracts, as it already contains features enabling the requisite Layer 2 components, such as payment channels and timelocks, but nothing we saw in the market was bringing that functionality to real-world users in tangible products, let alone sensibly or affordably. So we [Chandra, George, Manoj] started thinking about how we could address those frictions, while preserving the user’s privacy, and Portal’s Layer 3 protocol was the result.
Q4: Considering Bitcoin is already a premium store of value and individuals are happily hoarding them than conducting transactions that were purportedly Bitcoin’s initial purpose, how realistic is DeFi on Bitcoin?
Answer: It’s inevitable, really. As adoption expands, and inflation drives capital flight from fiat economies, “price volatility” decreases, making it much easier to price goods and services in Bitcoin without taking on volatility risk. While many already transact in Bitcoin for basic needs on a daily basis, many more are being driven to adopt the technology for cross-border payments and remittances due to onerous regulations and accelerated inflation of their national currencies each and every day. In midst of this madness, Bitcoins’s effectiveness at providing censorship resistance, and the simplicity and efficiency of its design, will drive volume-heavy applications (including trading, lending, and many other traditional financial services) towards Bitcoin’s “unfairly cheap” security model.
Now that Taproot activation is completed, we’ll even be able to make on-chain smart contracts indistinguishable from any other transaction on the blockchain, putting Bitcoin’s privacy model in a class of its own. This will generate a boom of new privacy-preserving applications leveraging these existing Layer 2 systems, including Lighting, Liquid, RSK, Portal, and many others, setting off yet another wave of innovation and advancements in privacy research.
The argument for building on Bitcoin is simple:
1. Most likely to last (it’s a database designed to last 10,000 years)
2. Highest degree of security (measured in cost of chain reversal)
3. Efficiency-oriented design (fast, cheap, and powerful)
4. Money needs more complex applications on top, and it is inevitable on Bitcoin. Given the blockspace and other design limitations at the base layer, these will be built as Layers. It’s inevitable in our view.
Q5: Portal aims to circumvent the ‘reputation risk’ of miners using zero-knowledge constraints. How does this transition into reality considering there is value attached to the reputation of miners?
Answer: Miners have numerous game-theoretical opportunities (and even incentives) to collude or censor individual transactions or blocks. With Taproot, we gain access to powerful new functionality, including the ability to conceal information about the contents of the transaction from potentially malicious [Byzantine] miners, denying them the opportunity to discriminate against one transaction or another.
It also incentivizes the development of a free market for the production of clean, inexpensive energy and its efficient conversion into security for the users of the Bitcoin network.
Q6: Till date, millions of crypto users make use of CEXs to access the world of DeFi. How is uncensorable internet viable with millions needing centralized entities for their day-to-day transactions?
Answer: I think the history of centralized exchanges paints a clear picture; not your keys, not your coins! While we’re no longer in the Mt. Gox era, there’s nevertheless massive amounts of risk accumulating in these digital dollarydoo honeypots. It’s only a matter of time before the next big hack, authoritarian rollback, surprise ransomware, entirely-predictable rugpull — or the latest regulatory action from the jurisdiction of the week.
Millions of people already transact in Bitcoin for daily needs, cross-border payments, and remittances, but at a certain point, most centralized exchanges will either going to lose the arms race to hackers, or be subject to seizure for violating some esoteric, assuredly asinine law. You see, Bitcoin is the kind of thing you don’t realize you need, until you really need it. Financial censorship has become a huge issue in recent years, with laws growing more strict and regulations tightening crisis after crisis.
What are you going to do when they shut your custodial exchange account down? Where do you want your wealth to be? When will they come to shut you down?
Q7: Please share your thoughts on Layer 3 solutions and the need for them in building Web3 or the future of DeFi.
Answer: I think it’s clear we’ll see the average consumer taking increased ownership over their data, content, and even computation in the coming years, which will drive demand for safe, secure, and reliable infrastructure leveraging these kinds of off-chain services and the types of security they can provide; privacy included. If you see Bitcoin not as just proto money but as the rails for building many other uncensorable applications, you start to get the picture. Some examples are an uncensorable Data market, fee market for computation market, or any other markets on top of Bitcoin.
As existing Layer 2 networks develop out their ecosystems and mature, and others emerge, we’ll see both intra- and inter-network transaction volume grow strengthened by continuing fiat flight & growing cultural awareness of self-sovereign systems. As entrepreneurs rush to drain legacy industries for what grave inefficiencies they retain, more of these Layer 2 networks will come online, driving demand for cross-network interoperability.
While the number of application-specific networks expands, the need for proof-aggregating “Layer 3” systems will emerge as common behaviors of smart contracts are identified and consolidated. New networks of trust will emerge in both the public and private spheres, leading to the radical economic shift that many early Bitcoiners inspired me to imagine, in what is likely to become the single largest transfer of wealth in human history.
Whatever the future holds, we’ll be there with Portal and a suite of other Bitcoin-powered applications, as it really is time for the free market to shine.
Disclaimer: The sole purpose of Unhashed is to unhash (decode) information about projects innovating using blockchain and cryptocurrencies and share it with the community. The writer does not have any vested interest in any of the projects covered herein. Not that this article shares any, but still, taking investment advice from strangers on the internet is not a wise thing to do.