Ian Panchèvre is Founder & Principal of Amplified Software, which aids the engineering and design efforts of early and growth-stage software startups by providing outsource development resources. Previously, Mr. Panchèvre worked as a Product Manager in Intuit’s Innovation and Advanced Technologies group (now Intuit Futures). He contributed to Intuit’s R&D and product efforts for blockchain and distributed ledger technologies as one of the first people pulled into the project and the first non-technical contributor. While on an extended leave of absence from Yale, he founded and ran three different technology companies. After returning to campus, he wrote “TechnoTyranny: Introducing the Decentralized Autonomous Organization” and Immaterial World: The Virtual Politics of Bitcoin, the first-ever political history of Bitcoin. Mr. Panchèvre is now in his second year of study at the Stanford Graduate School of Business.
Part 2 of a 2-Part Series. Mr. Panchèvre again expresses his sincere gratitude to Hélène Landemore, Associate Professor of Political Science at Yale, for her supervision of his senior thesis on Bitcoin.
The Politic: Where do you think the technology is going from here?
Ian Panchèvre: I don’t think it’s going to be a completely dead technology, although when you look at the Gartner Hype Cycle, blockchain is definitely in the trough of disillusionment right now. It’s possible blockchain becomes this overhyped thing that never pans out. In other words, we never get out of this trough of disillusionment and find real purpose for the technology. But, despite my negativity, I do think it will have some impact. I think the kind of applications that will emerge are those that are native to the world of blockchain and cryptocurrency. I don’t think we’ll see decentralized alternatives to traditional services, like medical records or real estate title registries, gain any traction. But I do think completely new and weird applications that ought to be decentralized as a matter of first principle will come out of the space. These applications will be totally unfamiliar to present-day internet users. They will operate with a high degree of autonomy and virtual agency, almost taking on a life of their own. And they can’t be turned off or shut down, unless they are explicitly programmed to do so.
I’m thinking of applications like Fomo3D, the most actively-used Ethereum application last summer. It was explicitly and unapologetically a Ponzi scheme. The creators were very clear: their domain was existscam.me. So here you have a smart contract running on Ethereum, which is explicitly presenting itself as a Ponzi scheme, and it picked up a lot of traction over the summer.
What was Fomo3D?
Fomo3D was an Ethereum-based smart contract that you would send Ether to. Eventually, that Ether would be redistributed among participants. I believe half of the Ether would be distributed out to all the different contributors to the contract. The earlier you contributed, the larger your stake in the prize pool. The other half of the Ether would go to one address. If an eight-hour period went by where nobody contributed, then the last person to contribute would receive the other half of the pot. So, there was an incentive to be one of the early contributors and an incentive to be the very last contributor. So people just kept sending Ether to Fomo3D!
The contract grew to the point that it had like $40 million worth of Ether stored in it, and eventually, it did expire and pay out. What happened is that some miner sent Ether into the contract. They were in line, and as the eighth hour was coming to a close, the miner spammed the Ethereum network with tens of thousands of ETH microtransactions that slowed the network down. He spammed the entire network, and because of that, no other transaction could get mined into a block, and make its way into the contract to reset the game clock. So the eight hour window expired, and the contract paid out the Ether.
Why do I use this example? It’s this online, decentralized Ponzi scheme that runs autonomously and gained a humongous following. Should it exist? Look– it exists because someone cared to build it, other people cared to use it, and that’s all the purpose it needs. So I think these will be the types of projects that are running on blockchains years from now. Applications (or dapps, because they are decentralized apps) that no one is in control of, and they exist autonomously and run wild on the internet. The question is, how big do those use cases become? I don’t know. Maybe they’ll become big, but I don’t think blockchain will displace major services we’re using today, because people don’t respond well to a decentralized model. I feel comfortable ruling out that scenario.
I do think there’s a wave of innovation that could be quite big– these sort of natively decentralized crypto services. But those services are going to fulfill a very different set of needs, and frankly, a lot of it is going to be criminal in nature. I’m not going to say all of it is criminal, but there is a strong criminal culture in the space today, and the kinds of services that would lend themselves well to the technology are often criminal in nature. Again, because no one is in control, the logic is that no one can be held responsible and it can’t be stopped.
It can get pretty dark, too. Imagine a decentralized marketplace for assassinations. Someone posts a bounty to kill a person, a public key pings the contract to “accept” the challenge for a certain period of time, and if that person is reported dead within that time period by X number of third-party oracle services, then the bounty pays in crypto the address that accepted the challenge. It’s all automated and anonymous, of course, and how could it be stopped? I almost regret putting this sort of idea out there, but I’m surely not the first person who has thought about the intersection of dark markets and blockchains. Maybe this sort of stuff is the future.
When you say there’s a new wave of big crypto services, what are you referring to?
Maybe alternative, online currency that appreciates in value is the biggest use case. In fact, as of today, it certainly is the use case that has gained the most amount of mainstream adoption. One of the more interesting and compelling elements is that in most cases, cryptocurrencies obey a fixed supply schedule with a finite amount of currency in circulation. Only 21 million Bitcoin can be produced, for example. If you have very limited control of supply and you can’t inflate the currency, and yet you have adoption that’s spurring demand, the logic is that the value will rise dramatically.
If Bitcoin is digital gold, some of the other cryptocurrencies like Ether are digital oil that can be used as fuel to power a network. Imagine it’s the dawn of the Industrial Revolution, and there’s a very promising type of energy that powers all these industrial machines. It is called oil. Wouldn’t it make sense to acquire as much of that oil as possible? That’s the basic logic that’s driving a lot of investment in the space right now. Surely if the technology becomes more widely adopted, that will drive price further.
The “Bitcoin is digital gold” argument is still somewhat appealing to me, if only because we must recognize that all currencies are just a fiction that we’ve collectively bought into. The dollar as we know it, without a gold backing, has only been that way since the 70s, for example. And around the world and throughout history we’ve seen currencies and payment or credit systems come and go. So why not have a currency by and for the internet?
On my end– I’m not invested in the space at the moment, and from my years of investing and trading in the space, I can tell you that the market is widely manipulated and fraudulent. There’s just so much happening in the space and so much of it is market manipulation. It’s a completely fraudulent market. There are certainly waves you can ride profitably. I’m not saying the price can’t rise–because the fraudsters and manipulators have an interest in increasing the price–but I think it will trend downwards for the foreseeable future.
Absent any sort of real use case that will gain widespread adoption, the market will continue to bounce up and down according to the whims of the manipulators. So, I’m not participating in it right now. If you do want to participate, I would encourage you to invest a very modest amount. If you can afford to lose it, then fine. Throw some money in there as a lottery ticket. It could certainly swing up as the market gets manipulated and bullish sentiment reemerges among retail investors, but don’t take out a second mortgage or a student loan to finance your investment.
The people that are on the inside of the schemes will create the highs. They’re going to exit right before you do. At this point in 2019, I would say that most people who’ve put money into crypto have lost money on it. So, I’m neither bullish on the technology being adopted nor on the currencies being a good investment in the long run. I’ve actually turned into an all-around bear and a skeptic, which is part of the reason that I’ve taken a step back from the space.
One other thing to keep in mind: so much of the money in circulation merely represents paper gains. You can’t cash out $1 billion without decimating the market. There’s no way to cash out $1 billion in Bitcoin. It’s liquid enough for someone like you or me. You wouldn’t have a problem pulling out $100,000. That’s pretty quick and straightforward. Even $1 million wouldn’t be too hard.
But if there’s a seller, you need a buyer. And if there’s a buyer, you need a seller. I read a report a while ago, I think it was from JP Morgan. Anyway, they actually tried to estimate the amount of money that went into the crypto space in 2017 when we saw the market cap of the overall crypto economy explode from $25 billion to $850 billion in January of 2018. In the course of one year, the market cap went from $25 to $850 billion– but that doesn’t mean that $850 billion went into the market. That just means that the latest valuation of the currencies sums up to $850 billion, based on the most recently traded prices.
So JP Morgan tries to estimate the amount of money that actually went into the space, and their best guess was that about $20 billion worth of invested capital produced a run-up in the total market cap to over $850 billion. Back then, you probably could have pulled a billion out from the market– but now, I would estimate the number to be a lot lower. That’s one of the reasons why institutions are staying away from cryptocurrencies.
Any final thoughts?
In 2014/2015 when I first began studying the space, people would ask about potential applications and services running on public blockchains. The common answer among blockchain entrepreneurs at the time was that these services don’t exist yet because the community was still building out the core infrastructure. Now fast-forward to 2019. Billions of dollars have been invested in support of the technology. So much new talent has rushed in. We’re made millionaires and even billionaires. We have some unicorn companies like Coinbase and Bitmain. And yet there’s literally nothing running on your mom’s iPhone that relies on a blockchain.
For me, that’s a condemnation of the technology. It still hasn’t produced anything meaningful. If you talk to people on the frontlines today, they’ve staked their entire careers on this technology, so they have an incentive to think about the tech through a bullish lens. In reality, it’s more of the same.
One other little point which I’ll note. If you look at the adoption of the internet, there’s never been a year in history where adoption has contracted– in terms of the number of people that are online, the activity, the amount of time spent on the web, etc. Since it was created, the internet has literally grown every single year.
In contrast, Bitcoin did peak in late 2017, early 2018– and it has since contracted. If this were really the future of digital commerce, the future of money, the future of web infrastructure– you wouldn’t expect it to take a huge step backwards. But it did, and that’s because it’s mostly hype-driven.
See Part I for more.