Co-Founder of Ethereum & ConsenSys Joseph Lubin: We Can Rebuild Scalability With Layer 2 Ethereum [Interview]

We have talked with Ethereum and Consensys Co-Founder Joseph Lubin for an hour in a meeting at TechCrunch Disrupt.

Interview by Salih Sarikaya | San Francisco

Why Joseph Lubin?

Joseph Lubin is one of the pioneers of the ecosystem. ConsenSys is taking the lead in most cases for mass adoption. There are more than 1,000 people working for ConsenSys to build applications and solutions on blockchain.

Joseph Lubin is the Founder of ConsenSys, a blockchain production studio that develops decentralized application and utilities for the next generation decentralized web: Ethereum. Joseph graduated cum laude with a degree in Electrical Engineering and Computer Science from Princeton, where he worked as research staff in the Robotics Lab and then at Vision Applications, Inc., a private research firm, in the fields of autonomous mobile robotics, machine vision and artificial neural networks. Later, Joseph moved to Kingston, Jamaica to work on a set of projects in the music industry. Two years into the music project, Joseph co-founded the Ethereum Project, and has been working on Ethereum and more recently ConsenSys since January 2014.

“We now have a trustworthy foundation, we can start to rebuild scalability so as we move from phase 1 in this ecosystem to phase 2. They’re not as decentralized as layer 1 Ethereum but we have technologies like plasma. If the people who are running them are corrupt, people will -without the permission of the people running these layer 2 systems- will be able to pull their tokens to safety and not lose any money. “

It all started trying to build a product…

Can you explain what ConsenSys does? From outside, it sounds like you’re like a VC fund that invests in different projects?

That’s incorrect… We do have a VC arm. I am one of the Co-founders of  Ethereum. I worked quite intensely on a project for about a year and as we were getting close to releasing version 1 of the platform there weren’t a lot of people who are building at the application layer. So I sort of tapered down my activities on the foundation and started this company ConsenSys. We intended to be a venture production studio and just gather people to build at the application layer of the platform so we started building things like counting systems and app store and realized it was really hard to build applications in an ecosystem that didn’t yet exist—on a platform there wasn’t yet released with no developer tools or anything.

Truffle Suite | Enabling software developers to have tools

So we started doing a bunch of that stuff; we built something called Truffle Suite which is probably around 900,000 downloads at this point enabling software developers to have tools that they recognize so they can build applications on a decentralized platform. We built other infrastructural elements and some of the clients in the Ethereum ecosystem.

MetaMask enables people to use applications in normal browsers

Two of the major infrastructure elements are MetaMask that enables people to use applications in normal browsers whereas before you had to download the Ethereum client to your laptop. And you have to run like in an app in a browser but connected to the blockchain, was actually running on your laptop that was the only viable thing for consumers. But it was an early necessity as we stood up the platform.

How Infura Solves problems…

We built something else called in Infura which handles these days between 8 and 10 billion queries per day from the Ethereum ecosystem. Ethereum handles somewhere approaching a million transactions per day and those write against the database, those are things that change the state of the system.

Infura handles 80% of the transactions in the entire blockchain space 

But when you’re building decentralized applications you need more than just writing to this back-end blockchain database, you need to read stuff from it and perform other kinds of queries and that’s what in Infura handles—writes the transactions. But going from about a million to 10 billion on some days that’s all reads and other kinds of queries. That million transaction number, by the way, is probably around 80% of the transactions in the entire blockchain space per day including the various bitcoins and maybe not including things that are much less decentralized like EOS, so they claim to have huge numbers of transactions, -but it’s not clear what they’re actually doing on that system-.

More than 30 network business models within Consenys…

So we have built other things like identity and reputation governance tools, accounting systems as I spoke about earlier. So we consider those core components that we and others can use in building more complex systems and we have some sort of 30 projects that are realized as network business models so these are kind of little startups within ConsenSys and some of them have spun out of ConsenSys already.

The nature of how we deliver products and services to people and businesses will change…

It’s basically exploring the hypothesis that the nature of how we deliver products and services to people and businesses will change moving from these corporations that we can invest in and expect return on investment from people who are running the corporations to these network business models. And Ethereum is a network business model in its own right, where you can essentially sell a token; a token and represents some of the business logic or utility on the system and people can also invest their time, effort and attention etc., into these network businesses.

We’re building network business models…

So we’re building those network business models or protocol-based open platforms for the music industry and supply chain and healthcare and the whole lot of real estate, and journalism and many others.

What ConsenSys is?

So many of those projects, that’s the product side of the company. We are a consultancy firm as well. We do advisory work and we write lots of software for companies, for governments and for central banks. And I can drill down into that if you want to different groups that we’ve worked with. We do a lot of Education work so ConsenSys Academy has educated about 1,500 blockchain engineers and lots of lawyers and other kinds of learners. We go into places like companies and World Bank etc., and run half-day or one day programs. We have a capital markets arm where we built a custody solutions; its not yet live but it should be a foundational element and bringing institutions into the space.

Bill Herman, director of corporate finance of the SEC gave us really clear guidelines…

We do venture investing we’ve invested in a little sort of over 20 companies and we launch token projects. So whether it’s a an investor token, a security or a consumer utility token that would not be considered a security and Bill Herman, director of corporate finance of the SEC gave us really clear guidelines about ten weeks ago and we’ve been working with regulators like them around the world.

We had to open up an ecosystem ourselves so we started building products

So we have the ability through our token foundry platform to issue consumer utility tokens that wouldn’t be considered securities. That is the essence of ConsenSys–it’s a really oddly-shaped company; it’s pretty much because we had to open up an ecosystem ourselves so we started building products we needed to build infrastructure, people started calling us from companies and governments and we spun up a consulting arm and had to educate because we couldn’t hire fast enough. So the first step started just to- just trying to build product.

“People that we hired -employees- building out their projects that we owned”

Q: Still another question about ConsenSys, you are asking so much equity or some kind of shares from the companies that you are helping… So how do you describe and position yourself?

I concur accelerator is only taking 5% and so we started as a hybrid company we started as something between a Microsoft, Apple, Google, and a VC and we were really much closer to a software company so it was just like people that we hired that were employees building out their projects that we owned.

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So probably Consensys were doing 100% of the project? Right. But we wanted to change that model, we wanted to create a situation where the people who were building it stayed ConsenSys employees but had the potential to own -basically ConsenSys would retain in the early cases 50% of the project and we would enable a cap table where people who were founders of the project founders -even though we started or contributing heavily to the project they had the potential to spin the project out. And in this world where we can do token launches it’s attractive to spin projects out to give them their own independent legal entity and create a network business model so… And so in that situation instead of just being an employee of a company people had the potential to stay at ConsenSys in some form- yeah but still own a big chunk of the company…

So you see all these founders also some kind of employees of ConsenSys, do they come to you with the project to or it doesn’t matter doesn’t matter…

So, many projects were created by me or us in-house. We’ve hired people to build out those projects. Some people were already employees at ConsenSys. They came up with the ideas. We’ve brought in some projects early on…MetaMask was a project that Baron Davis was doing, Boardroom was a project that Nick Dodson was doing but they’ve been with us for three years or something like that. So they’re fully ConsenSys projects yet still if those projects span out of ConsenSys those people will have a big chunk of it.

And there are other newer projects that where we take much less equity even though we consider them spoke projects.

Q: What are the best use cases for the blockchain technology?

It’s really anywhere that the different companies – people who don’t trust one another- want to enhance trust in their interactions. So maybe I don’t even know somebody and I want to do a transaction with them. I could do that on the blockchain and I could be comfortable that unless mathematics is wrong with unbelievably high certainty of that transaction with an entity that I don’t know is guaranteed to execute properly. So reduces counter party risk or eliminates counter party risk.

And situations where companies compete with one another but want to do something collaboratively. They need shared truck, shared trustworthy infrastructure. So for fixed income reference data systems instead of a whole lot of companies in the finance industry fixing data from prospectuses that they’ve bought from Bloomberg or Thomson Reuters and maintaining their own teams to do that. We actually have a team called TruSet that’s standing at the system to enable collaboration, of fixing data entering new data and sharing. It being incentivized to share it and to check it.

When you have lots of different actors who can all share the same network…

Finance and definitely supply chain… When you have lots of different actors who can all share the same network. So in the music industry the global repertoire database was a project in around 2008 -I think but 7 or 8 million pounds- were burned by major players in the music industry. Essentially they were trying to create a database that could be shared by the entire music industry and they went quite ways down the road but eventually couldn’t figure out who would own the IP, where the machines would sit and the project fell apart for that reason.

With blockchains you essentially get rid of your infrastructure issues…

So now we’re seeing many different consortia being formed. Because with blockchains you essentially get rid of your infrastructure issues on a public blockchain. All the infrastructure is just there and you’re just writing the front-end. And you can deploy the back-end to the public blockchain and the transaction validators and the miners take care of running the infrastructure. They get paid for that.

For a consortium you can keep it private and permissioned and you can essentially have everybody on it and nobody on it. So you can set up policies around governance but you can run it in a cloud.

We have a project called Kaleido. We lifted the team that built version 1, 2 and 3 of blockchain as a service for IBM. Kaleido is a blockchain-as-a-service. The team came out of IBM and since then we’ve grown them quite significantly through it. They built it for Fabric and they’ve now built a version (partnered with AWS) for Ethereum. In the free tier they have about a thousand consortium that are running stuff or setting up their systems. It’s only been live for about 5 months, but it’s an example of how companies want to collaborate or even companies want to put some of their internal infrastructure on a blockchain. Different departments can collaborate more effectively more trustfully more transparently and this system enables very simple deployment of blockchain systems on cloud.

There is a project that we did with the World Life Foundation, and so it was basically a project where tuna was tracked from being landed on the boat, tagged achieving its paperwork. When it’s brought on shore… I think the next phase will attract temperature so if it falls below a certain temperature and the refrigerated. Airplane seems unlikely or in the truck maybe.. After the airplane, then a certain alert would go off on the app that we have and it would be deemed perhaps an unsafe piece of fish.

So we’ve got that working and we have demonstrated that little while. The reason you want to do that on a blockchain is because you’ve got lots of different companies, lots of different actors some of whom are competing—different trucking companies etc., and they’re all part of a network that everybody needs to trust so there shouldn’t be an opportunity to basically cheat the system.

Still at the edges one could potentially enter bad data into the system. But really pushing the trust out or the potential improper manipulations out into the periphery and maybe try to control that even better in the future, enables us to build more trust into these systems.

Future of Ethereum…

Q: Can you describe your current relationship, I mean the ConsenSys’ relationship with Ethereum Foundation and the Vitalik’s team, I believe you must notice the current hot debates about the future of Ethereum…

We’ve had debates all the way through…

Q: I’ve heard someone’s talking, Vitalik and his team are facing huge challenges to upgrade Ethereum. Do you see any impact from the challenges?

So we’re just leaving phase 1 of the blockchain experience. Phase 1 is basically a whole lot of projects getting together and building what I call layer 1 blockchains basically. Blockchains where all the actors on the system have to hold all the data and have to process all the transactions and their optimizations to that. But that’s basically the truth of the situation.

It’s over secured and we need to get two architectures that are much more scalable and that’s scalable in terms of number of transactions per second. In the internet we’ve gotten to millions of transactions per second for certain kinds of sharded database architectures as Facebook etc., but we don’t have trust. Mark perform psychological experiments on us we can’t really stop that okay and we don’t really know exactly what they’re doing. It’s a dopamine slot machine we’re really being manipulated into being Facebook’s product or etc.

And so we’ve thrown away the millions of transactions per second replaced it with 20 transactions per second on layer 1 Ethereum. But we now have a trustworthy foundation we can start to rebuild scalability so as we move from phase 1 in this ecosystem to phase 2. We’re seeing layer 2 technologies that enable hundreds or thousands of transactions per second.

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They’re not as decentralized as layer 1 Ethereum but we have technologies like state channels and like plasma other kinds of sidechain mechanisms. And there are many of them right now that are coming online being explored by game companies and exchanges etc. And that will enable us in this next phase to have very significant applications that consumers are interested in, traders are interested in and link them into Ethereum.

People will be able to pull their tokens to safety and not lose any money…

That linkage to Ethereum will ensure that if one of these layer 2 systems that are a little bit less trustworthy, if they fall over for whatever reason, or if the people who are running them are corrupt, people will -without the permission of the people running these layer 2 systems- will be able to pull their tokens to safety and not lose any money. So that’s an exciting new architecture for our ecosystem.

Phase 3 will involve sort of what you’re talking about I think, proof of stake in sharding of layer 1 where we get scalability built into layer 1. We’re still going to have layer 2 solutions, we’re still going to need them.

So what is our relationship to Ethereum Foundation?

Still very warm. Well it wasn’t warm for a little while during the past director… I’m not sure you know but there was a previous executive director that and didn’t enable great interaction between our company and the Ethereum Foundation. Whereas the Ethereum Foundation is much more open now, much more collaborative.

They’re publishing everything and really all the core developer meetings have been in public forever basically. Well after the first year or so. And we have people at those meetings all the time. We have people attending, Vince, Taiwan and various other places. We have our own 40 protocol engineers at ConsenSys, and we are helping to build out Sharding and Casper and we have an early Plasma team. We’re not doing a huge amount of work on plasma right now but sidechains etc., it’s good. We see them different places around the world.

The Ethereum ecosystem in my opinion is pretty warm and friendly–it’s a lot of people who do like each other who spend time together around the world. I was just at Burning Man last week, spent a lot of time, quite a bit other is from the project. Vitalik does not go to Burning Man so far, it’ll be cool if he did. But it’s still a group of people that are very communicative and collaborative. Ethereum wasn’t formed in the same way that bitcoin was. Bitcoin was essentially a response by crypto anarchists to concerns about the monetary infrastructure and centralization through the financial industry and governments etc., And because it was proposed as a an alternative money system it had that money in trading ethos.

Not just a narrow money system…

Ethereum came along because we felt that people should build everything on this new decentralized database technology not just a narrow money system. And so we’ve always been a developer community. And developer communities (open source developer communities) are traditionally pretty open and collaborative so it stayed that way.

Q: One of the questions I have is I can see some conflict coming up if you guys have a killer app. So like Crypto Kitties… Do you see any issue arising there between ConsenSys and the Ethereum Foundation over the speed and method of scaling?

I don’t think so. It’s all about coming into ConsenSys at the end of the day coming into ConsenSys every 15 seconds now. Every four or five seconds soon when the next version of ConsenSys algorithms comes to prominence. If you’re not coming into ConsenSys, with the other Ethereum clients, you’re not Ethereum. So in the Parity team and the Go team we have a new client that we’re building. We were involved building the Haskell client in the early Java client that Roman Mandalay and his team built -he was a ConsenSys member-.

If these clients don’t work out their issues and come into sync on the core aspects of the protocol, then it’s not Ethereum. And that it’s partially defined by the Ethereum foundation, but it is really defined by lots of others. So if you look at the reduction in issuance debate, there are lots of people with different agendas who weighed in on that debate. There were different signaling mechanisms, different voting mechanisms and same thing happened with the DAO (decentralized autonomous organization), lots of different signaling, voting and other mechanisms. And so there are lots of different actors that have to agree on things or the project is screwed.

Because you can fork it and if the majority dislikes what developers are trying to force on them, then Ethereum doesn’t exist as it is anymore. So we really do have to come ConsenSys at a human level in order to continue to come to ConsenSys every few seconds on the blockchain and if you know if we want scalability we can build it on our own in layer 2.

Q: So, you said layer 2 gives you that scalability but doesn’t give you a quiet level of trust the layer 1 does?

You could set up a proof of authority blockchain where there’s a single entity that creates the blocks and tells everybody what the state transitions of the system are. What it would do is checkpoint the system, every block or every few blocks into public Ethereum, and by checkpointing the system people could essentially…

So let’s say it’s a game on this proof-of-authority blockchain with a game company in control of the blockchain. They link it in through a technology called Plasma and they issue crypto collectibles cards, digitally scarce swords, or other things. Those things can trade on a market, I could buy one of those, I could move it into the game from public Ethereum. I could pull it out of the game, not because I’m worried or anything, but maybe because I want to move it into an exchange either on Ethereum or on a different Plasma system so I could sell it.

It just gives companies or entities the ability to run higher transaction throughput applications and it gives people the comfort that nobody can steal their value tokens whether they’re fungible tokens or non-fungible tokens.

Q: Off-chain scaling?

It’s where we have to go next. Figuring out on-chain or layer 1 scaling is complicated. So I think two projects are going to get there in a radically decentralized way, well Bitcoin too. But it’s very limited in what you can do on Bitcoin. I think Ethereum is going to get there. DFINITY is working on virtually the same mechanisms. Cardano’s probably going to get there after the first two.

Q: Zilliqa?

Maybe yeah I know a little less about that project that’s possible so they’re looking at sharding in different ways but it’s incredibly hard to stand up a blockchain ecosystem. It’s like orders of magnitude of effort and activity.

Q: How do you finance all these different projects?

Yeah, so we have many lines of business. Our Academy makes money. I’ve got a Coursera course though… Probably should have said something that when I was introducing, yeah it went live yesterday. So Coursera course for non-technical people. $99 per course. We’ve been selling e-books and lots of different education around the world. We have a security audit team. One of the top teams in the world. They turn away 99% of the work that comes in because we can’t grow that team fast enough. They make a tremendous amount of money auditing smart contracts. We have a consulting group that makes many millions of dollars around the world on various different projects.

Q: Mostly with Governments?

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Mostly with companies. We’ve done government work in Dubai. Monetary Authority of Singapore, work other government work in Singapore that I can talk about South African Reserve Bank. We’re managers of the European Union blockchain Observatory so it’s a contract that we won which enables us to speak to all the member nations and write white papers and drive thought leadership.

Other business lines…

Other business lines include token foundry. We are able to tokenize and launch our own internal projects and we do that for third parties as well. It’s also a significantly lucrative business and then also when we do tokenize our own projects some of those projects have brought in a large amount of revenue for consumer utility purposes. So large amount can be in the tens or hundreds of millions of dollars.

Q: So how does it affect the projects that the market is going down?

Well, the market is so far up compared to where it used to be. So I guess we’re in great shape, we’re still growing very rapidly you see.

Q: You said ups and downs are helping the ecosystem…

It’s just natural, we see it in the legacy financial world. We see overshoots and corrections. People operate it on fear and greed cycles. And when you see something exciting, you want to pile in for various reasons. Most people want to pile in just to make money, most people don’t understand what’s going on. And so we’ve seen big overshoots, we’ve seen five or six of those since Bitcoin started. Each one seems astonishing and unsustainable in it and they’ve never doubly corrects. The first one goes to about $31-$32 in Bitcoin, the corrected down to $2 and everybody thinks it’s all over. And then it goes up to a hundred and something and then up to a thousand something then up to $20,000.

Market volatility brings attention to the ecosystem…

So the beauty of all this is that it brings attention to the ecosystem. It brings value into the ecosystem in the form of money, in the form of entrepreneurial talent, in the form of technical talent, in the form of cybersecurity talent. And each one of these surges in place causes an enormous amount of activity, so companies form, companies grow faster, more consumers start paying attention in using these systems and then it overshoots. There’s a correction but during the correction there’s so many more people who are building fundamental infrastructure which causes basically the next one.

Q: It will be great to see the prices to go December levels again. How long do you think it will take?

Do you really think I can answer that?

Q: Among many of your projects, which is the one that you would point to and say this is the one that’s gonna be really big?

I think several of them. Two that are top of mind that are societally important, OpenLaw, enabling legally enforceable hybrid blockchain based agreements. You can basically have an agreement. It’s partly prose it’s partly programs people can cryptographically sign it. Companies can cryptographically sign it. The entirety of the agreement is on the blockchain so it’s not a piece of paper that you can lose or an email that you can lose. You can escrow money into the agreement itself. You can send data into the agreement itself. You can have the agreement a programmatic clause act when certain conditions are met. Maybe payout on a purchase agreement or an employment agreement. So that’s going to be really transformational.

We’re starting to use OpenLaw in NDA’s in our company. A company called Rocket Lawyer is partnering with this team OpenLaw—I think they have about 35 million customers— to enable the agreements that they have on their platform to make use of blockchain infrastructure. So instead of it sort of being stored on Rocket Law servers, the agreements can be partially or completely stored on Ethereum.

Arbitration systems that we’re building can be brought to bear, you can build a tokenize ecosystem around that.

If you’re doing an agreement on OpenLaw, it can either be fully transparent on the blockchain or in decentralized storage. Or you can sign something called a digest of the agreement. So a digest is basically running the text of the agreement through a program that turns it into a unique string that doesn’t make any sense to anybody. But it sort of verifies that that agreement as it was exists, that it existed at a certain time. And so, the counterparties to that agreement can sign the digest [which are] just a long alphanumeric string. And by signing that long alphanumeric string, each one can prove that that they signed the agreement. Basically it’s just like a signature but it enables the agreement to be private.

That’s one potentially, societally important project -probably commercially interesting as well-.

Civil is another project that’s doing a token launch very soon. Civil is a project as you may be aware, the journalism industry is in a bit of trouble. Maybe not in your niches but those are certainly casting the world into a difficult situation. And so this is a platform for ethical journalism, sustainable ethical journalism. It has a constitution, it has lots of newsrooms that have already joined. Lots of professional journalists and there’ll be topically focused newsrooms. They might be regional news. Vivian Schiller left NPR to run the Civil foundation.

Associated Press is now a partner there’s another major partner. That we’re going to announce, I think, in a few days and a few other major journalistic institutions may get involved as investors and/or partners. So partner means that they either use the ecosystem or use the infrastructure. With The Associated Press, they’re enabling licensing of all of their content to all of the newsrooms. Most of it for free initially and also the infrastructure will enable the AP to track licensing better than we’re able to.

Q: This is pretty exciting stuff. And what the they’re doing, a token launch?

The token lunch is a little bit similar to that in mechanism to that open venture capital platform that I was talking about. It’s basically a token that enables people to sort of vote or flag when they think an article is holding an incorrect piece of data or journalists or a newsroom is unethical in some way. So you can essentially be bumped off the platform if the readership believes that you are acting unethically. So it’s kind of like a badge. But there’s going to be a lot more infrastructure built on top of that. So for provenance of data and plagiarism there will be a token launch. Yes it’ll be a consumer utility token. So it won’t be as so that token won’t be a security.

Q: What about OpenLaw is there any plans for an ICO?

There are plans, it’s further away.

Rocket Lawyer is planning to launch rocket wallet which will be this ecosystem that utilizes that from a protocol and I think down the line they will launch a token similar to the token that’ll be launched for Civil. It will have utility in its own ecosystem but it’s not like an ICO or it can be considered as security but that’s probably a few months away, they have to figure out what exactly is…

Currently OpenLaw is a technology and we’re building a platform to enable people to easily use a library of different agreements, to fork those agreements create their own customizations, keep their own libraries etc. And there will be arbitration systems etc., attached to that. Rocket Lawyer is using the same technology and placing some of their platform on top of this technology.

Wow it’s fascinating thank you very much…

Thank you.

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