When engaging institutional investors on the topic of cryptoassets, the discussion usually centers on Bitcoin and its promise as a digital currency or digital gold. Given Bitcoin’s longevity and status as the “poster-child” of crypto, this shouldn’t be a surprise. However, stopping at Bitcoin misses out on the extreme number of disruptive projects being developed on the Ethereum blockchain. This conversation usually requires one to deploy new mental models for thinking through updated business models and economic incentive structures that will pervade these networks.
Ethereum is a decentralized platform that runs smart contracts. A smart contract is a piece of code that is executed on a blockchain and transfers value between parties conditional on a set of defined parameters. To date, this function is usually handled by a trusted third party. Those developing products on smart contract platforms leverage the distributed, censorship-resistant features of Ethereum to deliver new solutions.
We believe this technology will disrupt a myriad of industries where rent seeking inefficiencies currently exist. When one starts to think about the form and time horizon in which this will take place, it is necessary to spend time on individual projects that are looking to disrupt established enterprises. Each project is embedded with a series of structural decisions and tradeoffs that will impact it’s ultimate success.
Kyle Samani’s recent essay, Models for Scaling Trustless Computation, addresses the tradeoffs between various consensus mechanisms on computational blockchains such as Ethereum. He focuses on three properties:
- Scalability: the number of transactions that can be process in a specified unit of time
- Decentralized Block Production (DBP): the number of block producers
- Safety: the cost of an attack on the blockchain that would have a deleterious effect on the order of transactions or liveness of the network.
Kyle posits that blockchains where each node processes each computation and provides consensus about the order of those computations has to decide which two properties they want to feature. He provides detailed examples of how these tradeoffs work across a variety of different projects and consensus mechanisms.
Kyle Samani and Tushar Jain of Multicoin Capital have written seminal essays on a variety of cryptoasset topics. We are thrilled to have Kyle at this year’s time Summit. View Kyle’s speaker page.