On Saturday, August 4th, the Eden Labs team hosted an Ask Me Anything (AMA) via the Eden Labs community channel on Telegram. A variety of questions were pre-submitted and live questions were answered as well. Participants who provided answers to questions raised include Noam Levenson (Co-Founder and Vice President), Daniel Lobel (General Manager), Anaïs Urlichs (Head of Research), and Dylan Grabowski (Research and Content).
Question: When will countries develop their own cryptocurrencies? Will they last and replace cash for good?
Noam Levenson: There are two ways of looking at this question – 1. when will countries “digitize their existing currency?” or 2. When will countries implement decentralized currencies? 1 is far more likely than 2, especially when considering the power that control over a centralized currency provides a government. Even 1 is years away, although we do [believe] that it could be advantageous for governments to begin implementing digital dollars and the like. With credit cards today, many societies have moved far away from cash. The question is what a move to a digital currency – for example in the U.S. – would do to other countries that use dollars as a store of value? That could have serious impacts.
Regarding #2, this we think is a long time away. However, in some ways, it’s inevitable. As our economy becomes more and more digital, using a physical source as an exchange of value just doesn’t make sense. Even today, it’s kind of ridiculous that we need these expensive payment bridges (like PayPal and credit cards) to interact on the internet and exchange value in digital form. As the world of Internet of Things (IoT) explodes, and more and more assets exist in digital form, it does seem inevitable that we will eventually move towards digital currencies entirely.
Whether that will be decentralized currencies, centralized national currencies, or a mix of the two remains to be seen.
Question: Will regulation finally come to bitcoin and other cryptocurrencies?
Noam Levenson: Simple answer – yes, and it already is. The most pressing area for regulation is in crowdsales and initial coin offerings (ICO), [and how] the U.S. Securities and Exchange Commission (SEC) and other agencies understand this. There is a reason investments and initial public offerings (IPO) are heavily regulated and it’s generally to protect investors from losing their money or gambling their life savings. While there are certainly other incentives for governments in maintaining control over financial markets, the truth is that many people are being taken advantage of in the digital asset market as manipulation and insider trading runs rampant. We need smart regulation in this area.
In regards to cryptocurrency, this is more difficult. Cryptocurrency shouldn’t be taxed and regulated like stocks, since they aren’t stocks. How could one expect to spend their crypto eventually if every transaction requires an H&R Block account and a capital gains declaration? On the other hand, people are “investing” speculatively into crypto today and it makes sense that they should be taxed on their gains. We think likely what will happen is what the SEC has already hinted at. Digital assets will be securities until they gain functional utility within an ecosystem; at that point, they should be taxed and regulated as currencies. The question is, how should crypto to crypto transactions be taxed? This will be enormously difficult for the Internal Revenue Service (IRS) and other tax agencies to track, especially with the quantity of exchanges and the relative ease with which people can hide money and obscure transactions. In all honesty, it makes sense that eventually, cryptocurrency will be viewed as one big asset and only taxed when moving between crypto and fiat — but this won’t happen before a lot of scapegoats go down for tax evasion.
Question: How are decentralized ledger solutions providing the greatest utility currently? How do you foresee it’s future development?
Daniel Lobel: The question of utility and ledger solutions is an interesting one. From what we have seen up until today, most utility tokens are being used for delivering services coupled with incentives to drive growth.
This is a perfectly fine use case and we will see many more examples of this in the future. It is important to be diligent and make sure a token’s use-case and incentives make sense in order to avoid a problematic coin.
In the future we’re expecting to see the adoption of security tokens into the market, as well as IOT enabled machines using tokens to conduct machine-to-machine transactions. This will give birth to new economic hubs of value. Imagine driverless taxi fleets paying for their own gas and maintenance, or your smart house paying for utilities on a per use basis.
The implications are truly endless and I am sure we are all excited to see what the future holds for us.
Question: What effect will new crypto-funds have on the digital asset industry?
Noam Levenson: Institutional money will signify a change in the digital asset industry. It will likely result in the death of many mediocre projects and will likely eliminate many of the techniques projects employ now to boost their token value and entice investors. These techniques will also suffer from incoming regulation.
We hope that incoming smart money will put an emphasis on projects with solid value propositions and well thought out technology architecture instead of simply flashy marketing and celebrity promoters.
We think the most likely result will be the exclusion of many smaller investors from the ICO market. Unfortunately, as regulation increases and more institutional investors and funds begin entering, projects will focus much more on these actors and far less on raising money from the “public.”
In addition, the more money that is in the market, the less volatile it will be.
Question: What are the potential impacts of non-fungible tokens on physical asset (i.e. house deeds, car deeds, artwork, etc.) ownership? What else is going on in the realm of NFTs and physical assets?
Dylan Grabowski: NFT’s are indivisible and represent a single, unique value. A NFT can represent an asset within a video game (such as a character’s weapon) or a NFT can represent a real world physical asset (such as a deed to a house). At this point in time, NFT’s on the blockchain are under exploration with games like CryptoKitties, which are tradable assets on the Ethereum blockchain. There are also American real estate companies that have begun to incorporate transfers of warranty deed’s as property is sold.
A potential future use of NFT representation of a physical asset, is the tokenization of a rare and valuable piece of artwork. The tokenization of the physical asset creates the opportunity to trade the ‘stake’ in ownership of the asset to investors who might not be located in the same geography as the physical asset is stored.
For now, it appears NFT’s will remain to be tested and improved upon by a slew of upcoming blockchain based video games. For example, the NEO blockchain has a ‘branch’ devoted to developing games on top of the blockchain. Once NFT standards have become agnostically universal on various blockchains, there might be a shift in paper-based proof of ownership of physical assets, to digital proof of ownership.
Noam Levenson: There’s also interesting potential with NFTs in regards to coinvesting into assets. Imagine dividing art pieces into 100 NFTs and allowing people to own 1% of a Picasso. Or allowing people to coinvest into real estate.
Question: Regarding coinvesting in artwork, will there have to be an escrow that maintains the piece of art? What does the ownership structure look like at that point? Will there have to be accredited exchanges?
Noam Levenson: This highlights a much bigger obstacle facing digital assets and smart contracts – how do they interact with the “real world?” We like to call this the “oracle problem.” It’s difficult to imagine a scenario where we don’t have some level of trust in centralized entities in this interaction. Like you said, perhaps it’s a multisig escrow account where the art is kept, or multiple ownership contracts over real estate. But we would still need to trust some level of central authority — e.g. the owner of the physical bank vault or the court that would enforce the terms of the ownership contract.
Question: How can projects aim to enhance interoperability between platforms?
Anaïs Urlichs: At the moment, we can see a variety of potential architectures which make it possible to transfer information e.g. of single transactions. This may result in the form of a blockchain hub, whereby you have a mainchain, which connects to several sidechains and other platforms over relay chains. Relay chains allow chain 2 to verify a transaction on chain 1 by accessing the block headers. A variation of this can be Proofs of Proof of Work, also implemented by Cardano. Within PoW, some blocks will have an increased difficulty, which is visible in the number of 0s in the block hashes; by taking just these blocks of blockchain 1, blockchain 2 can verify that a transaction is valid on blockchain 1.
There are a variety of other solutions, e.g. hash locking, atomic swaps, notary schemes etc.; all with their own benefits and drawbacks. Ultimately, enhanced blockchain interoperability will make it possible to have cross-chain contracts, portable assets, cross-chain oracles and much more.
Question: Wall Street seems to be warming up to blockchain tech, do you foresee any significant adoption?
Daniel Lobel: Wall Street and blockchain are terms that seem to appear together ever more frequently lately. From headlines about multi billion dollar crypto projects to distributed ledger technology (DLT) projects helping banks and other financial institutions improve their solutions. It sure seems that Wall Street has taken a keen eye towards the inherent value of blockchain technology.
This is exciting as Wall Street adoption will mark a monumental step in the evolution of blockchain solutions. It is important that we, as part of the blockchain community as a whole make sure that decentralization and security are preserved in the adoption process.
The threshold of significant adoption is hard to pin down, we imagine this will be a gradual process as major companies begin warming up to blockchain tech.
After all, it is hard to miss headlines about Wall Street giants warming up to cryptocurrencies after publicly denouncing them. It sends a message of acceptance which has been hard to achieve with the bad reputation blockchain technology has received in the past.
Question: Are security tokens coming? Do you think major public companies will adopt them?
Daniel Lobel: In regards to security tokens. It is evident that DLT projects are actively working on creating security token solutions. One example out there is Polymath which has come up with an ST-20 standard which has built-in KYC and is compliant with federal securities regulations. There are many other firms also working on security token frameworks.
Overall security tokens could capture a huge market capital if they are fully adopted. There are potentially trillions of dollars in private assets that could be tokenized and people always appreciate liquidity.
Major companies might decide to adopt security tokens alongside traditional asset classes to strengthen their positions, improve liquidity and capture as much market value as possible. It is an exciting time to witness such innovations first hand and we are optimistic about the future of security tokens in the blockchain ecosystem.
End of AMA.
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