Elrond and the New Crypto Spaces

I’m an advisor to a number of firms, including several in the crypto space such as Elrond (eGLD coin). When I signed on as an advisor more than two years ago, Elrond was almost completely unknown, which wasn’t surprising as they were based in Romania. I thought the Romanian base was a positive, however, because it meant that Elrond could hire extremely well-educated computer scientists, mathematicians and software engineers at below Silicon Valley prices. Moreover, the blockchain world, true to its foundations, is decentralized. Like a modern day Erdos, Vitalik Buterin operates out of his suitcase. The Silicon Valley of the blockchain is the internet. Why the blockchain world has evolved differently than Silicon Valley is an interesting question (with implications for whether SV could loses its centrality) but because it is decentralized I thought location was less important than the quality of the team. And the team, led by hard-charging founder Beniamin Mincu, is excellent. In the last two years the Elrond team has built a completely modern blockchain from the ground up using secure proof of stake and sharding to achieve a potential throughput of upwards of 16 thousand transactions per second with 6s latency and $.001 transaction cost and a toolkit for developers. I was also impressed by the commitment Elrond had to security, including formal verification methods, and especially to making Elrond accessible to the masses. Today Elrond/eGLD is on a tear and by market cap it is one of the top 50 projects in the space with a strong upward trend.

Will Elrond take over the world? I hope so! But, of course, it is unclear. Aside from ranking Elrond versus other projects the space itself still doesn’t have a killer app for the masses. In 2017 near the peak of the market at that time, Vitalik Buterin tweeted:

So total cryptocoin market cap just hit $0.5T today. But have we *earned* it?

How many unbanked people have we banked?

How much censorship-resistant commerce for the common people have we enabled?

How much value is stored in smart contracts that actually do anything interesting?

The total market cap is now close to a trillion, about twice the level when Vitalik tweeted, and these are still good questions. Bitcoin has established itself as a new asset class that is rapidly supplanting gold as a store of value (gold is lame) but not as a payments platform. Ethereum, Elrond and competitors like Algorand were built for smart contracts, including things like stable coins which will be used for payments, but smart contracts are capable of doing much more. In theory, smart contracts let people cooperate in new ways, potentially unlocking trillions in value. But we aren’t there yet.

Decentralized finance or DeFi is one suggestive hint of where things are going. Already many billions of dollars are “lent” and “saved” using DeFi. The lending and saving, however, is almost entirely done in one cryptocurrency for another. In essence, the DeFi system is leveraging off of crypto speculation and trading.

Nevertheless, something interesting is happening in DeFi. The DeX’s or decentralized exchanges have shown that automated market makers can perform the services of market order books used by the traditional exchanges like the NYSE at lower cost while being easily accessible from anywhere in the world and operating 24/7/365. Thus, every exchange in the world is vulnerable to a DeX.

Also, although DeFi is a place where you can easily lose all your money to mistakes, scams, and bugs (not to mention changes in asset values), DeFi is rapidly developing state-of-the-art security. Only the paranoid survive on the blockchain which means that the systems that do survive are robust. Balaji Srinivasan recently tweeted that Bitcoin is the most powerful algorithm in the world and few algorithms have been as battle-tested as Bitcoin. In a similar way, DeFi will be secure or die and security in a blockchain world will be more secure than anywhere else.

Combining security with accessibility is what’s hard. It’s telling that Coinbase is one of the most successful firms in the crypto space despite performing services which are in some tension with the philosophical foundations of crypto. Satoshi Nakamoto would probably be a little disappointed to learn that people were depositing their Bitcoins in a bank! I can understand the impulse, however. It’s almost magical how you can move money on a blockchain without input or permission from any authority. But when you click the button and your money disappears it’s terrifying as you pray for the invisible hand of the miners to restore your money in another account. Elrond’s soon to be released Maiar app, a wallet that interacts with the Elrond blockchain using only a phone number, will be an interesting test of whether a blockchain platform can duplicate the ease of use of something like PayPal or Zelle.

The other interesting development in the space are zero knowledge proofs. Zero knowledge proofs let someone prove that they know a piece of information or the results of a computation without revealing the information. ZK proofs started in the academic literature but research in their uses and applications has exploded as computer scientists like Silvio Micali start blockchains and blockchains like ZCash hire computer scientists who advance the scientific literature (to give just one example). Truly anonymous digital cash is one application but more generally zero knowledge proofs let people buy and sell information in a way which has always been difficult and seemed impossible (how can you sell a piece of information without showing it to someone first but then having seen the information why would they buy it?).

Bottom line is that crypto is still waiting for the killer app which will make it 21st century infrastructure but there has been tremendous scientific progress in blockchains since the ur-date, 1/3/2009. Modern platforms like Elrond are faster, more robust, and more powerful than past platforms and the potential is there for transformative growth.

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