Reflecting on Nouriel Roubini’s cryptocurrency testimony at the senate on 12 October 2018.
As an entrepreneur in public blockchain networks, my first reaction to this inaccurate and misleading testimony was to dismiss it as yet another horse carriage manufacturer speaking about steam cars, as a turbo propeller engine specialist referring to jet engines, as an MS-DOS user talking about Windows 1.0, or as a Nokia executive reviewing the first iPhone.
Roubini looks at the crypto industry specifically through the lens of comparing it to the existing financial system. He is ignoring the vast potential of blockchain technology to disrupt other industries such as voting, identity, legal proofs, supply chain, land registries, real estate, and so on. From this narrow, financial sector point of view, one has to agree with some of the claims he makes.
For example, I agree that crypto currencies have a long way to go before they can present a real alternative to existing fiat currencies and that existing crypto wallets do not provide enough protection for user funds.
However, I believe that these problems will be addressed with time and that blockchain will mature into a robust technology which will improve many aspects of our lives, and the way we do business.
In my view, the crypto industry should take this testimony as constructive criticism and consider how we can do better. I’ll do so for sure.
Let’s discuss his points
Consensus — I generally share his concerns around the massive energy consumption required by proof of work systems. This is why Jelurida’s core products, NXT and Ardor, are some of the pioneering solutions in energy efficient, proof of stake secured blockchain networks. But remember that these are early days for the industry and Roubini is, in a sense, looking at the first steam cars trying to predict how the Tesla 3 model will look.
Scaling — Indeed, the existing single blockchain single token model does not scale. Existing cryptocurrencies do not have a way to remove transactions once they are no longer needed thus suffering from blockchain bloat, and blockchain protocols currently require that every transaction is processed by every node. Off chain solutions are in the early stages of development and therefore lack the stability and usability required for mainstream adoption.
We at Jelurida understood these inherent problems years ago. Our flagship product, Ardor, is the first true multi-chain architecture deployed to production. It addresses the issue of blockchain bloat, and will remove the need for every node to process every transaction in the future. We have extensive plans for improving the platform in the coming months and years to make it a truly global scale solution.
Regardless, blockchain engineers have a long way to go. Windows 1.0 wasn’t a very good product, but Windows 3.0 took the world by storm.
Cloning — a sad fact that Roubini points out is that it is much more profitable to clone a blockchain and create new token supply under your control, than to contribute to an existing chain. This causes the industry to fragment into multiple, single purpose, competing products instead of consolidating into a robust and scalable blockchain ecosystem.
However, this phenomenon is an inherent part of discovering the true potential and limitations of new technologies. Many of the existing clones are single chains requiring maintenance of a network of nodes by each of those teams. As multichain solutions like Ardor get more attention, I believe we will see a long-term trend toward outsourcing those networks of nodes in favor of joining an interoperable ecosystem where your blockchain can communicate with every other business’s blockchain. At Jelurida, we are anticipating this broader consolidation in the blockchain space. That’s why we are focusing on providing the tools to launch your own business-ready blockchain as a “child chain” secured by the Ardor “parent” chain’s decentralized network of nodes. This design means all child chains are interoperable — you can even try this out now, with our three existing child chains IGNIS, BITS, and AEUR, and soon with our newly announced DOM child chain.
Security — indeed end user security is a huge problem for crypto users. Hardware wallets and multi-signature accounts provide partial solutions, but there are still big problems like sending funds to the wrong address. It is worth considering this issue exists in the current banking system as well — incalculable sums are lost by consumers each year when they make mistakes with where they wire their funds. In Ardor, we are addressing this using a foolproof feature we call transaction vouchers, which requires both parties to sign a transaction before it is submitted. You can follow a tutorial here to learn how to use this new feature.
Market Manipulation — I agree that manipulation exists with trading of blockchain tokens, but due to the pseudonymous nature of the technology, it is almost impossible to estimate its scale. I believe this phenomenon is the exception not the norm and that its scale will further decline as the markets mature. In contrast, consider how fiat currency supply is constantly and publicly being manipulated by central banks.
To summarize, Nouriel Roubini placed a mirror in front of the blockchain industry’s many faces. The picture reflected in the mirror is not pretty. Is it a picture of a frog that given the right attention from prince engineers will transform into a princess? Time will tell.