ConsenSys takes on Israel

Joseph Lubin  photo: Joe Bender
Joseph Lubin photo: Joe Bender

ConsenSys founder Joseph Lubin talks to "Globes" about his vision for Ethereum and its new development center in Tel Aviv.

One late May evening in the Tel Aviv Stock Exchange (TASE) event hall, a man dressed in a t-shirt, shorts, and flip-flops took the stage amidst enthusiastic applause from the hundreds of people waiting for him. The organizer of this rather unusual event at the TASE, attended mainly by high-tech entrepreneurs and investors rather than capital market people, was ConsenSys, one of the world's largest blockchain companies. The man who took the stage in flip-flops was ConsenSys founder Joseph Lubin, one of the pioneers of blockchain platform Ethereum.

Lubin, a Canadian, was among the first to join Ethereum inventor Vitalik Buterin in 2014 on the platform's founding team. He is also one of the founders of Ethereum Foundation, a non-profit organization managed from Switzerland that is responsible for promoting the platform. Ethereum's founders were enthusiastic about the idea of a decentralized payments chain that arose with the invention of bitcoin in 2009. They enlisted behind the innovative concept formulated by Buterin of second generation blockchain facilitating development of software and creation of smart contracts on the decentralized network.

ConsenSys, founded by Lubin in New York in 2015, focuses on the development of applications based on Ethereum's technology (or what it calls Web 3.0). The company, which currently has more than 800 employees worldwide, is now expanding its business to additional places around the world, including Israel.

Lubin's investment in Ethereum when the company was just starting out must have been worthwhile, judging by the list of cryptocurrency tycoons published by "Forbes" in February, which listed him in second place after Ripple founder Chris Larsen. "Forbes" estimated Lubin's personal wealth, based on his digital currency holdings, at $1-5 billion. Buterin's wealth was listed at around $500 million. Talking to "Globes", Lubin neither confirmed nor denied these numbers, saying, "I don't know what information the estimates are based on, and I have no interest in talking about it."

"The value of the currency doesn't interest me"

According to "Forbes", Lubin is one of the biggest holders of ether, Ethereum's digital currency (ETH). In contrast to bitcoin, ether is classified as a token that is not designed as a currency, share, or financial asset; it is merely a means of payment in computerized transactions. Ether, however, is now extensively traded on cryptocurrency exchanges around the world and is held by many speculative investors, just like bitcoin and most cryptocurrencies.

Trading in this token began in August 2015. Its current price is $500 and its market cap is $50 billion (as of June 16, following a 36% slide this year), putting it in second place after bitcoin among the 1,650 digital currencies traded worldwide. In monetary value terms, ether's share of the cryptocurrency market is 18%, compared with bitcoin's leading 40%. Bitcoin's value has dropped more than 50% this year to around $6,500.

Ethereum

"ConsenSys is developing software and constructing various systems on Ethereum's platform of decentralized applications," Lubin says. "We focus on that, and the currency's value doesn't interest me."

Lubin revealed to "Globes" that he has distant relatives in Israel. "My last visit here was 40 years ago, for my barmitzva," he said. Asked about his family, he said he was unmarried and that his only son, 29 year-old Kieren James-Lubin, managed a blockchain company in New York named BlockApps.

Lubin's involvement with Ethereum followed a long career in high tech, including 10 years in robotics and artificial intelligence (AI). He became VP technology at the Goldman Sachs investment bank in the late 1990s. He comments, "I never thought I would work for a large company, but I got an interesting offer from them. I was responsible for an information systems project in private wealth management and that was cool, but I never really connected to working at a corporation. I felt like a small insect in this big organization, so I left after a while."

After leaving Goldman Sachs in 2001, Lubin managed a small software company in the US. The 2008 financial crisis caught him when he was working for the financial industry. "I was building financial trading systems at the time, and before that I managed a hedge fund together with a friend," Lubin recalls. "I learned a lot about economics at that time, and I realized that the world was moving slowly in the direction of economic and moral bankruptcy. The centralized systems we built started to lose the public's trust. I felt that the economy was getting out of control when the central banks went over to quantitative easing and the government currencies raced one another to the bottom so that we would be able to paid debts."

He moved to Jamaica in 2012, where he managed a music company and says that he was then exposed for the first time to the technology proposed by Satoshi Nakamoto, the unknown inventor of bitcoin, in a bitcoin white paper, a technical document presenting the concept of the digital currency. "When I read the white paper, I realized that instead of the Occupy Wall Street social protest movement (which appeared in New York in 2011, R.K.), we could use this new technology and start building alternative systems," he explains.

"Buterin is the leading voice in Ethereum"

Lubin relates that in 2013, "I visited my family in Toronto on Christmas and met Vitalik Buterin, who is also from Toronto, for the first time. The night after we met, he sent me an email containing the Ethereum white paper he had written, and it looked to me like a way to realize all the potential I saw in bitcoin and that developed in the blockchain ecosystem, and to harness it to expand the activity. In the vision described by Buterin, all the complex elements of bitcoin protocol exist, but with an application layer that's much easier for developers and that doesn't require that they understand the innards of the protocol. Instead of needing 'protocol priests' to add new applications to the platform, millions of developers can build whatever they want."

"Globes": Is this the idea that Ethereum calls a "global computer"?

Lubin: "Yes, Ethereum's technology can create a global computer. Basically, we're creating an evolution of the Internet protocols, like TCP/IP and others. We're now moving ahead to a world of Web 3.0, in which there are still Internet protocols like HTML and HTTP, but there is also Ethereum for a reliable payment transfers and creating automatic contracts. In effect, through this new infrastructure, we are automating trust, and smart software objects can work within this global computer. Furthermore, we need more protocols for decentralized digital storage, broadband, and heavy computer processing applications. For example, in this way, we can provide decentralized applications (dApps) that in principle can change the way businesses operate. Customers can receive services directly from the manufacturers or suppliers without large mediators in the middle soaking up a lot of value."

One of the complaints against Ethereum heard in the bitcoin community is that while it is an open-code platform based on public blockchain, it is centrally managed and relies to a great extent on Buterin's leadership. I asked Lubin to comment on this.

Did each one of Ethereum's founders have equal weight in making decisions about the project?

"At the beginning, we still had no official enterprise governance. We all had strong and equal voices, but when there were disagreements, we agreed that Vitalik (Buterin) would cast the deciding vote. Ethereum's form of governance has changed with the years, however. Vitalik doesn't really like making decisions; he prefers to lead by doing and by personal example. He knows how to bring together the relevant information and decide when it makes sense for him to speak up, but he in no way controls the project. Buterin is a leading voice in the Ethereum organization responsible for promoting certain aspects of the protocol and has the role of chief scientist. The organization maintains the system's stability, but this is an open-code project that anyone can contribute to. In the end, everything's based on consensus."

Did the fact that you were older and more experienced than the other Ethereum founders give you more influence than they had?

"In certain things, definitely, such as securities law. But a little like Vitalik, I also prefer, even when I have to lead, to do it by giving a personal example or by doing."

What are ConsenSys's plans in Israel?

"In the early stages of Ethereum, bitcoin already had some drawing power in Silicon Valley and Israel. When companies wanted to operate in the blockchain sector, they focused on bitcoin, so Ethereum couldn't make any significant penetration in these two places. We felt that we had to raise our level in ConsenSys before we'd be able to come to places like Silicon Valley and Israel and talk with the people active in Ethereum's field.

"ConsenSys really wants to be a catalyzer for development of Ethereum here in Israel, and it's already beginning to be substantial. We're founding a new development center in Tel Aviv (a full-stack hub, as Lubin calls it) in which we'll work on training in the field, hire many software engineers, and give advice to entrepreneurs in the field. ConsenSys has a plan for mentoring entrepreneurs called an entrepreneurship studio. We want to start off a lot of projects here, fund them, and enable them to develop through facilities we offer in a program called ConsenSys Labs, with the aim of having them mature and be able to issue tokens to investors or consumers (utility tokens). We'll give courses here, initiate hackathons, and do community work. We hope to have a very big presence in Israel." The new development center that ConenSys is founding in Israel will be managed by Rachel Epstein and Dror Avieli.

Lubin told "Globes" that ConsenSys currently had 850 employees and was still hiring more. Employees are paid in conventional currency. "We paid salaries in bitcoin and ether for a while, but our growth was so fast that in order to make it easier to hire employees and pay taxes in the US, we switched to paying employees in ordinary money," he says. "It's a little embarrassing paying people in dollars, but I assume that it doesn't bother them so much. We're founding a lot of companies in various countries, and in a few places, we pay in cryptocurrencies. We're building systems that will enable us to pay more people this way in the future."

What is financing for ConsenSys's activity based on and what is its source of revenue?

"The company has been financed internally from the first day by many people who own it and work in it, and we have several sectors that generate revenue, such as consultation, training, and issuing tokens. We also provide security monitoring services, which is an area in which we're focusing on developing. We'd be delighted to hire Israeli cybersecurity experts as well, so that we'll be able to provide a solution for more projects in this area."

Do you issue tokens in order to raise money?

"No, when a company we found reaches a mature stage in which it has a business model based on tokens, it holds an offering. There was only one case in which we issued a token in order to raise money from investors, and that was for an independent film - a psychological thriller called Braid. It recently took part in the TriBeCa film festival in New York."

Is ConsenSys a profitable company?

"Not all sectors are profitable, but if you take into account all of our areas of activity and the issuing of tokens, we're certainly profitable."

ConsenSys is involved with talks with regulators around the world about blockchain activity. Will you also be involved in this in Israel?

"We've been talking with regulators, politicians, and central banks around the world for a long time, and we're involved in that to a great extent in the US. We don't purport to enter a country and influence the political system there, but we have relevant areas of expertise and we're always happy to respond to queries from regulators who want to understand the technology. In certain countries, suitable regulation already exists; the rules just have to be mapped according to the various uses of the technology, understanding whether or not a security is involved, for example."

"Good chance that Ethereum will switch to proof of stake this year"

Like bitcoin, Ethereum's blockchain is based on a proof of work mechanism as part of the mining of digital currencies. The miners have to solve a cryptographic problem, solving which proves that they invested a certain amount of computing resources, in order to be able to participate in the process of creating the blocks on which the currency transactions are recorded.

In contrast to bitcoin, whose mining requires great computing power and is done by mining machines with application specific integrated circuits (ASICs), Ethereum's mining is through graphic processing units (GPUs), which are cheaper and more accessible. At the same time, Ethereum has been talking for a long time about switching to a different mechanism called proof of stake. The change is superficially merely a technical one, but it has the potential to dramatically increase Ethereum's volume of activity.

Commenting on this to "Globes," Lubin says, "From Ethereum's first day, we knew that the proof of work mechanism was too centralized because it creates an arms race of miners and has economy of scale (of computing power, R.K.). Larger mining groups can mine more coins. We were therefore determined to switch later to the proof of stake mechanism, which is far less wasteful in computing power, energy consumption, and hardware. With time, we succeeded in solving the problems involved in such a mechanism and we're very confident that we can switch to it. In a proof of stake mechanism, there's a very low entry barrier, so it will make Ethereum's blockchain much more decentralized."

Will Ethereum switch to a proof of stake mechanism this year?

"I'm not predicting when it will happen, but there is a very good chance that the first stage, a transition to a hybrid proof of stake, will get underway before the end of 2018."

Published by Globes [online], Israel business news - www.globes-online.com - on June 19, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Joseph Lubin  photo: Joe Bender
Joseph Lubin photo: Joe Bender
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