The Quest for Blockchain-Enabled Innovation amidst the FTX Trial
Reflections from the CV Summit 2023
Platforms continue to deliver value through network effects and the more complex platform-based ecosystems are clearly delivering value to their shareholders.
We talk about platform economies and the technologies that have enabled successful businesses to create systems like social networks, commerce marketplaces, and app stores.
We look up to the successful ones as they’ve created communities that are frequent users of their platforms, be it end-consumers (retail), developers, or businesses. Tencent, Apple, Amazon, Roblox, Meta, are just a few globally recognizable examples. Even capex-heavy companies in the automobile sector and the industrial equipment sector (e.g. Daimler, Siemens, Samsung), are aiming to be platforms.
Everyone believes in transforming into a Tech, Data, and Platform business.
If there was one and only one takeaway from the 2-day CV Summit in Zug, celebrating the 10yrs in Crypto Valley, it is this:
`Platform businesses and Economies themselves are Systems that enable Communities to organize`
In 2021 I wrote a chapter titled ` Cryptography Leads the Next Wave of Societal Change` in the Springer `Theories of Change `book as a reminder of the opportunity presented by Blockchain to change businesses and economies. Needless to say, one of the reasons I wrote about this was that it was becoming clear how the potential was getting hijacked by the financialization part of the technology.
Yet another reminder:
The true innovation will come from technologies that create Systems for Communities (of developers, end-users, businesses) to Organize in a Fairer Way than the current one.
And this is exactly what the tech-heavy, geeky innovations at the L1 or L2 Blockchains are supposed to deliver. We really need a reminder of this, as the financialization of cryptocurrencies and certain individuals' greed have tainted this noble cause.
The short documentary premiere from the Polygon Labs group during the CV Summit: “SCALE: Zero-Knowledge and the Quest for the New Internet” encapsulated this vision.
Jordi Baylina, Co-Founder & Technical Lead, at Polygon, is a geek who at the same time is inspired by Gaudi`s buildings that transport you into forests, fields, and surely beyond any experience we have of a building. That is how the Polygon team continues to work on designing the `The infinite scaling machine`. This has already been achieved with the ZK (Zero Knowledge) innovation. The challenge, however, continues because as Jordi said during his keynote, ` when you have a turbine you don’t have a plane. You need to build wings and all the pieces needed to fly. An old plane with a huge new engine will break the plane. So, you need to rebuild the plane for the new turbine` (free quoting).
In a nutshell, scaling blockchains that are consensus systems, doesn’t mean that you are ready to go.
For those that care to understand the core of the zkEMV innovation: `The trick is to separate the consensus mechanism around the timestamping of the data from the validity (verification) of the transaction`. Verification takes milliseconds and the time-consuming part is split apart.
The other innovation and a reminder that we are not ready to go (more pieces still missing), is the so-called Account abstraction. In plain words, this is a tech innovation that is much needed for mass adoption. It enables users to enjoy programmable access to funds by using a smart contract wallet instead of relying solely on private keys for security.
It is possible through the introduction of a new Ethereum standard, the ERC-4337. This enables an owner to directly own smart contract accounts without the need for the traditional signing process for a non-custodial wallet.
Conclusion
True innovation will come from technologies that create Systems for Communities to Organize in a Fairer Way than the current one.
Social change will come from these innovations that enable processing and orchestrating economic activities in totally different ways.
Are financial services providers (banks, fintechs, and BigTech) paying attention?
We are seeing preliminary adoption of geeky concepts from the Defi world, like Automated Money Makers (AMMs) in cross-border wholesale CBDC pilots. AAMs lower the barriers to entry in liquidity pools that have been traditionally monopolized by a few centralized entities. AAMs democratize capital markets because they alleviate the pain of being trapped in `small cap` hell.
Will Account Abstraction (AA) — Smart contract wallets — be the next geeky blockchain concept in line for consideration?
VISA has experimented with one use case — the Visa Paymaster contract.
The friction VISA is exploring to solve through AA is that a user needs to own a variety of native tokens to process a transaction on different blockchains (e.g. ETH for Ethereum, MATIC for Polkadot, SOL for Solana, etc.).
In plain words, can the Smart contract wallet, be a programmed currency conversion service? Or in Fintech parlance, an embedded currency/token converter?
VISA is also exploring using AA to pay transaction fees on blockchains with stablecoins. Think of the variety of just USD-backed stablecoins that currently exist running on different blockchains and therefore requiring different tokens for gas fee payments. USDC proudly now reports that they run on 14 blockchains.
You can think of Account Abstraction as Embedded Finance but on the new rails.
Smart Contract Wallets will enable many more use cases and network effects (like those currently enjoyed by platform businesses) but the distribution of value will be much more equitable.
While we are not ready to go and scale the new internet, we do need to remember the mission: Build Technologies that enable us to create Systems for Communities (of developers, end-users, businesses) and Organize in a fairer way.
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