Crypto is down, so why am I smiling?


W. Scott Stornetta is chief scientist at Yugen Partners. a blockchain investment company. He is co-author of "How to Stamp a Digital Document", a fundamental work in cryptography cited in the bitcoin white paper of Satoshi Nakamoto. Further information on Scott and coauthor Stuart Haber is available at

The following is an exclusive contribution for the 2018 year of CoinDesk under consideration.

2018 years in review

Inigo Montoya: You're wonderful!
Man in black: Thank you. I worked hard to become like this.
Inigo Montoya: I admit. You're better than me.
Man in black: So why are you smiling?
Inigo Montoya: Because I know something you do not know.
Man in black: And what's that?
Inigo Montoya: I'm not left-handed! [switches to fighting with his right hand]

– The Princess Bride (1987)

Let's face it. This year has been a bit chaotic for blockchain efforts. Cryptocurrencies has stalled. The SEC rained on the ICO parade. Many corporate projects, announced with refined fanfare, seemed to progress at a snail's pace.

In addition to all this, someone who claimed to be Satoshi threatened to bring the price of the bitcoin to $ 1,000, while a linked faction threatened what was equivalent to a DDoS attack on a rival fork, planning to extract unnecessary blocks. (With blockchain friends like these last two, who needs a six-finger man for an enemy?) And on a darker note, we lost Tim May, who gave me an early inspiration for me and many others with crypto-libertarian aspirations.

So why am I smiling? It would be presumptuous to say that I know something that informed readers do not know. But maybe I have a longer-term perspective. When, as a community, we celebrated the tenth anniversary of Satoshi's white paper, next year is another anniversary for me. In particular, 2019 will mark 30 years since Stuart Haber and I started working on a thread that contributes to what has become the blockchain. *

From that perspective, the disturbances of last year are transitory issues that distract from the fundamentals of value creation. From financial services to social media, from cryptography-based banking services to making real assets liquid, opportunities abound. And as a chief scientist at a blockchain venture capital firm, I'm ready to recommend how to invest tens of millions of dollars in blockchain initiatives next year.

The film Jerry Maguire made famous the phrase "show me the money". Let me suggest four "show me".

Follow them in 2019 and maybe I can show you the money for investments.

1. Show me the community

Successful blockchain efforts do not start with technology. Instead they start with a community.

In fact, Tim May and other members of the cypherpunk community who helped create the common sense of that community had to do so much with the initial bitcoin growth as well as the technical merits of Satoshi's work. This point, often lost on those who have not lived the pre-bitcoin days, leads many to draw the wrong conclusions on why the bitcoin's rapid growth. His community was ready to embrace a peer-to-peer currency and was therefore willing to accept the weaknesses of bitcoins along with their strengths.

New blockchain attempts should start with a community that shares a common interest and purpose. This is the fundamental promise of the blockchain: a shared and immutable record that allows communities to realize their collective hopes in a peer-to-peer, transparent and efficient way.

2. Show me the solution to today's problems

Successful blockchain efforts will not offer solutions in search of needs, but rather should solve current and urgent problems. And these "products" should provide immediate benefits to their first users, even without the benefit of the scale.

Too many blockchain enthusiasts in 2018 have simply railed against the incumbents, the ills of the current systems and the greed of their actors. They are convinced that because their blockchain-based solutions were different from the wrong answers, their solutions must necessarily be the right answer.

Such sloppy logic will no longer work. The aspiring blockchain should ask a difficult question. That is to say, their solution is really a current "must", which also offers benefits to the first users and therefore increases in value with the network effects? Or is it just a "pleasant to have" comfort, whose value will only become apparent when the community reaches the ladder? Or worse yet, is it simply an intelligent technology that solves a problem that developers simply want one day the whole world has?

History shows that successful revolutionaries focus less on what they fight and more on what solutions they propose. The best visionaries have incremental plans, largely self-sufficient, that grow over time to achieve radically improved results.

In 2019, efforts that adapt to this short-term / long-term dynamic will be well positioned. The financial services sector presents many of these opportunities, since it is easy to quantify the benefits that can be obtained by reducing reconciliation, costs and settlement times, even in the early stages. And because these networks scale, you can add features that provide additional usefulness.

3. Show me the incentives

Successful blockchain applications avoid creating destabilizing incentives, while allocating value to participants in the ecosystem that effectively create value. Creating this value through non-centralized communities can be particularly difficult. Unlike classical corporations that rely on conventional and hierarchical commands and controls, successful blockchain systems require internal incentives that nurture community growth and stable peer-to-peer governance.

Successful incentives and related governance mechanisms avoid the kind of behavior demonstrated last year at the fork of BCH-SV and BCH-ABC. Interrogating the pure proof of work could seem equivalent to breaking the faith with the fundamental principles of decentralization. However, I am convinced that we can improve the test of work in order to avoid this type of behavior without renouncing its useful incentives.

Fundamentally, decentralized communities require incentives for members of their community to hold and validate tampering records, making them collectively immutable. With that as a secure basis, they can then assess whether a token, which represents an effective participation in the community's common activities and purposes, adapts to the circumstances. If it makes sense, then you have to make sure that the differential equation for reward redistributes tokens along the gradients of value creation and long-term stability.

In this regard, community-based social media platforms continue to offer a broad but still largely unfulfilled opportunity. Tens of millions or even billions of properly incentivized users would be a force to be reckoned with.

But the Facebook / LinkedIn / Reddit / etc. applicants the throne must also demonstrate how well the community understands and provides a convincing solution.

4. Show me flexibility, not rigid orthodoxy

Successful blockchain applications are no different than any other class of venture startups because they have to adapt to the needs of their user communities. These are the records, not the individual's approach to problem solving, which must remain unchangeable.

Since Satoshi was legitimately concerned that governments wanted to close competitors in their legal currencies, he called for massive computational redundancy as part of decentralization.

Today, however, most blockchain applications operate in a different environment. For example, it is difficult to imagine that the military are hunters of shared medical records. Therefore, since blockchain applications go beyond bitcoin, it is worth re-examining when, where and how user needs require different classes of solutions. In these early days of the blockchain, in which a dominant design has yet to emerge, innovators must be flexible enough to explore new possibilities informed by their users and think from the first principles.

More generally, an inadequate focus on fighting the last war is symptomatic of leaders who do not want to change even when conditions evolve. The initial plans almost never work. Successful leaders listen to what users say and rotate accordingly.

The promise of decentralized trust has come a long way from its early beginnings to the end of the 1980s. However, to give due respect to the significant work done by Tim, David, Nick, Satoshi, JR, David, Blythe, Caitlin, Vitalik, Joe, Dan, Ned and many others, blockchain communities should not fail to learn from the lessons of this past year.

To fulfill the promise of a fairer, more transparent and peer-to-peer world, we must put the community first, focus on solving current problems, continue to refine incentives and governance, and respond flexibly as needs change. and the circumstances.

Who does it should find himself smiling with me in 2019, since we know something that others do not know: we know the fundamental promise of the blockchain.


* Now we clarify that what Stuart and I created was a sort of proto-blockchain, and we are not claiming credit for any of the many positive innovations that have followed. But even 30 years ago many of the basic elements were in place: a system of cryptographically chained blocks whose broad distribution through appropriate incentives has led to the elimination of the need for a trusted third party. What else would you call if not a blockchain?

Have an opinion of 2018? CoinDesk is looking for proposals for our 2018 under consideration. News via e-mail [at] to learn how to be involved.

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