CEO Joe Lubin on ConsenSys acquisition of JPMorgan’s Quorum | Forkast.News

Hey, Angie. Thanks for having me on.

So ConsenSys and JPMorgan have been very friendly and collaborative for quite some time. JPMorgan started paying attention to Ethereum blockchain technology even before a public mainnet was released, so they started experimenting and building out some things when we were still building proofs of concept. They had a handful of different teams that focused on blockchain technology, and we've interacted with them roughly from the start. We started to interact with them in a really concerted way around the time of the advent of the Enterprise Ethereum Alliance. So we were two of the major drivers of that initiative and have been two of the major drivers of activity inside the EEA since launch, really. So we've had warm, collaborative, open channels for a long time. ConsenSys itself has done quite a bit of work using the Quorum platform. We've been offering world-class software support from our customer success and support group for somewhere around two and a half years. And so we're not new to Quorum. And from JPM's perspective, and this is partially speculation, they are configured to be a world-class financial institution. They have world-class technologists resident, but they use technology in the service of delivering financial services around the world, and they have to make choices to drive the highest value from their technology operations. So it became clear to them that Quorum was very popular, but they didn't really want to be a software infrastructure company or software product company. They didn't really want to spin up a big, strong support unit. And we did a bunch of that for different Quorum installations that we built for different institutions in consortia. So I think they faced the decision of how do they continue to offer blockchain-based applications, knowing that they needed a certain platform, a certain configuration, an enterprise Ethereum platform, without just needing to be a software company. So they considered spinning out Quorum into its own independent entity, and they shopped around with different potential partners and came to the conclusion that ConsenSys is deep enough and broad enough, with nearly a hundred protocol engineers, so that we would be effectively the ideal stewards of the platform. And that we could continue working warmly and collaboratively together to build out the roadmaps that they would like to see, to build out the roadmap that we would like to see for our Hyperledger Besu client, which essentially accomplishes very similar things to what the two layers of Quorum does. And we have two layers in our own Hyperledger Besu-based client. Both systems have confidentiality overlays and enterprise tooling effectively. And so it became clear that it was kind of a match made in blockchain heaven, because we could move both platforms forward, merge them into one platform. They're currently a single platform right now in terms of branding, with some implementation differences that people can choose to customize if they wish. And in the not too distant future, according to the Enterprise Ethereum Alliance specifications, we will achieve plug-and-play interoperability and effectively merge the code bases into one code base. So we were fortunate enough to be able to acquire the project, and that comes along with hundreds, maybe in the thousands, of customers that weren't really paying customers, but now JPMorgan is a paying customer of ConsenSys. And JPMorgan and hundreds of financial institutions will receive support from ConsenSys. And there are other hundreds of users of Quorum out in the world that we will now be able to more directly address. That came along with an investment and a commercial agreement between our two organizations.

I cannot confirm nor deny those numbers at this point. The numbers are an interesting part of an ongoing process. It's an ongoing process for ConsenSys.

The best way to think about how this helps ConsenSys is to understand how it helps the customer. So potentially hundreds, thousands, or so customers out there, up to this point they haven't had a coherent, complete enterprise Ethereum or enterprise blockchain solution anywhere. ConsenSys has been busy building out the infrastructure for the public permissionless Ethereum ecosystem. So we built lots of infrastructure, developer tooling, security tooling, security audit services, wallets. And all of that is now becoming available to Quorum clients. So our Truffle suite developer tooling will now intimately and directly support Quorum development. Our security audit software, we have some software tools and a bunch of people that do manual security audits, so they'll focus more directly on Quorum. We are in the process of configuring very sophisticated cloud architectures and the ability to deploy that, and that now becomes available to all the Quorum clients. We have an orchestration tool that enables the orchestration of simple or complex transactions, receiving receipts, keeping registries of smart contracts. We have business workflow, we have digital asset issuance and full lifecycle management, we have document management, and I could name maybe seven or eight other products and services that are now available. And so it's about finally creating a really great solution for customers, and that just enables us to do an enormous amount more business. It opens up the entire Quorum clientele directly to us. It's a huge task.

So first, in a sense that's an orthogonal question to our acquisition of Quorum. Over the last year plus, we have re-architected ConsenSys into a portfolio management and investment company and a sibling company, a new company called ConsenSys Software, which has absorbed some of the major properties constituting a blockchain stack. So these are our Pegasus group, our protocol engineering and systems group. They're the group that is essentially becoming the stewards of Quorum and merging with our existing client. Infura, our infrastructure group, which handles on extremely busy days up to 10 billion queries from the Ethereum ecosystem. Our Codefi group, commerce and decentralized finance, which is building many applications and services that are essentially being offered through Infura, or being offered through MetaMask or our wallet, or being offered standalone. And MetaMask is our wallet solution, which is the most secure and much larger, largest user base wallet in the ecosystem. And so all of that has been available in private permission systems, so it's all dedicated to the public permissionless space, but we can take that technology and make it available in a private permission context when we build custom solutions or increasingly, and this is happening very often, when we can simply apply our existing and maturing products to private permission networks, whether they're inside a single organization or across consortia. And so we are a software product company that does some custom work, and increasingly the custom work that we do is making heavy use of our product, so the custom work that we do is starting to look more like glue software or little pieces of middleware between our products as we build complex and composite solutions for a different clientele. So we will continue to do portfolio management and investing in our old company, ConsenSys AG, and this new company ConsenSys Software is essentially building out a blockchain operating system, so a very focused effort.

If you define prime time by adoption by naive consumers, I think we're not quite there yet, but we're moving remarkably close to that. DeFi is decentralized finance, natively digital finance. It has been described as a set of potentially inter-operating Lego block financial protocols. Some of these protocols subserve lending and borrowing, or insurance, or prediction markets, or derivatives, or synthetics, or equity issuance, or bond issuance. Decentralized exchanges are a very large part of it. These technologies really constitute the development, the emergence of a new financial plumbing layer for the planet. So I like to think of decentralized protocols like Ethereum as being a revolution in trust, where for millennia we've had to settle for the best that we could do in centralized and subjective trust systems. At this moment, we're all aware of a catastrophic failure in centralized trust systems across the planet, and I think people are crying out for a new way of doing things. And we've been saying that decentralized protocols can replace subjective trust with automated and objective trust, so build real trustworthy systems that every actor using those systems can believe in, can believe are not improperly manipulated, just because by the nature of this new database technology, everybody knows exactly what's happening on the protocol and when it happened, and there's no way to go into the history of the database and improperly manipulate it and essentially cheat the system, unless you're potentially willing to marshal prohibitively expensive resources. So a much better foundation. And upon that new trust foundation, we can now invent and build with digital assets. And these digital assets started out as ERC-20 tokens, and we've seen lots of exciting experimentation with non-fungible tokens. Price-stable currencies, stablecoins, have laid a really exciting foundation upon which we're essentially seeing this new financial plumbing for the emerging digital economy being built. So in addition to the technological excitement, there's a lot of money being made. I think that ecosystem is probably sitting around $20 billion total between staking and value of the tokens, and it's growing really rapidly. In a world in which yields are low or negative, we have this expanding, exponentially expanding ecosystem where the tokens are rising in price, but also people are achieving yield. So we're seeing it's almost a non-existent world in traditional finance right now with central banks around the world really lowering it to a level of negative rates. The interesting thing is that just because we're probably at the end of a debt super cycle, a 70-year debt super cycle, and monetary systems are maybe end-of-lifing, and we need to happen upon or construct a new monetary regime in different nations or for the planet, the regulators, the politicians, the systems are just constrained to making moves that drive more and more people in our direction. So it's a remarkable self-fulfilling prophecy.

Yes, so thank you for quoting some Reddit wisdom. It generally guides our behavior. So I would be really, really disturbed if we weren't having profound scaling issues at this point. Throughout the history of information technology, hardware and software, humans have always built out something new, a new technology, a new protocol, a new piece of hardware, whether it's memory or screen size, and immediately the industrious software developers or users max out that technology. So we're constantly bumping against this ceiling of scalability in different forms, and we need to do that in order to find out what needs to get fixed first. And so we're going to continue to bump up against scalability. I don't know if you dialed into the internet using a 9600 baud modem, but we've bumped up against lots of ceilings in my career, and I'm happy to see that we're still doing that. So where we're seeing solutions is in a bunch of different directions. So we've been talking about layer two solutions, where we have hundreds or thousands of transactions per second sitting in a network layer on top and connected into layer one Ethereum and driving its trust from Ethereum. So there are OMG Network is online with many thousands of transactions per second. SKALE is coming online momentarily. There are a bunch of the DEXes, the decentralized exchanges, are implementing roll-up technologies. There are a couple different brands of roll-up technology. We're pioneering another one that probably nobody's heard about at ConsenSys via a new mechanism. So scalability is being addressed by evolving the Ethereum 1.0 protocol, by adding literally tens or hundreds of thousands of transactions per second at layer two above layer one, and by building out Ethereum 2.0, which will multiply all of that scalability by probably around 500 early on, and then even more over time. It's already happening. Scalability is here. It's not evenly distributed. There are a bunch of applications that are able to make use of it, and it'll become more generally available.

Yeah, so the Argentinian pronunciation of Medalla is Medasha, and that's what everyone's going with right now, so that's canonical right now. And thank you for giving me another great setup. So testnets are there for us to find bugs, and not just for us to find bugs and fix them, but for us to find bugs and build out the processes that are required so that if we do encounter a bug on mainnet, we're already well practiced in how to address that. We've seen that on Ethereum 1.0, where there have been a small number of issues early on on the network, and the response time and the fixes came remarkably quickly. So we need issues to pop up. If there were no issues popping up, I would be very concerned. I would raise bounties just to try to get one issue on the testnet so that we can have all the teams working together to practice on how to remediate issues on mainnet. So what happened was a dependency on an external third-party service by one of the clients. There were five clients on the network at the time, and that's remarkable too, just getting these different teams, five different teams building five different pieces of software and keeping them in sync on the consensus network is incredible. So it took a few days to understand the problem and fix the problem. And what is really remarkable is that the network healed itself. So the network did not go down, and it is now back in sync, it's back in operation, it finalized blocks. So from a very ugly configuration, it actually resuscitated itself and is perfectly healthy again. Phase one is the second phase of ETH2. It's going to roll out in 2021. It's going to integrate shard chains, which really reduces the time and increases the transaction speeds and the number of transactions per second.

Yeah, so as you were indicating, there are some major phases to Ethereum 2.0. It's phase zero, one, and two, the three major phases. Phase zero goes live, I believe probably in November. We have smart people betting that it's going to be November, and that brings the heartbeat of the system to life, the beacon chain, the proof-of-stake system. You can also think of the proof-of-stake system as a DeFi application, because it's like people are staking their Ether in order to achieve yield, to essentially stand up this public good infrastructure, so sort of an infrastructure bond in a sense. And it's going to be one of the biggest and most important yield applications in the Ethereum ecosystem. It's going to require quite a large amount of Ether to be staked, but all the testnets have seen tremendous activity, so there's no concern that we won't get that much Ether staked on the network. Phase one, the next phase, does roll out probably next year. A lot of the complexity has been built into phase zero. Phase one is about adding data shards. Phase two is about adding execution engines. And phase one will bring an enormous amount of data availability to applications, and it's not going to bring initially data availability to applications on Ethereum 2.0, it's going to bring data availability to applications on Ethereum 1.0, because these layer two networks that I was talking about, one of the things that they're really starving for is guaranteed access to data or data availability. So sharding itself is going to be a tremendous scalability mechanism for Ethereum 1.0 even before it becomes a more tremendous scalability mechanism for Ethereum 2.0. The next phase, phase two, brings execution environments. My assumption is that we're going to have the ability to run certain kinds of programs very, very soon after we launch phase one, so a little bit of a phase two, or maybe phase two gets implemented in phases. And we'll see some real functionality early on, and then full-blown functionality maybe a year later or nine months later or something like that.

I think in the near term, we'll certainly see competition among protocols. In the near to middle term, as exists right now, systems like Fabric do a decent job of being a substrate for applications that are more narrowly scoped. You can't have many nodes on a Fabric network, that's not what IBM is really selling. Other good blockchain technologies: Tezos, Cosmos, DFINITY, Polkadot. It's possible that they'll carve out a niche for themselves. It is spectacularly unlikely in my opinion that they will be able to catch up to the orders of magnitude difference in size, difference in growth, differences in speed of development, differences in developer community, difference in infrastructure that Ethereum holds as an advantage over those protocols. Which really have, despite the indications in the press, they really don't have a lot of people working on those systems right now. Ethereum is at least two orders of magnitude larger than all of those systems. Any new technology is going to have to grapple with regulatory issues, where Ethereum and Bitcoin have already cleared that bar and been declared commodities. So it's going to be spectacularly difficult for a new, even high quality technology and team, to build a tokenized blockchain protocol and get real engagement for it. They're essentially going to have to distribute their token broadly and equitably in order to have legitimacy and excitement from their community, and they're really going to have to promise their community that this token is going to grow in value by the agency of some core team, and by definition that's a security. So they're in this quandary where they have to sell a security almost by definition, and therefore almost by definition they're not going to be able to distribute it broadly and equitably because they're going to have to be distributing to accredited investors. So we've seen some pretty good teams and protocols built, what are now called VC coins, that are not gaining the traction that say two years ago the VCs were excited about. There will be attempts, but the VCs don't seem to be very interested in supporting new competing protocols. So that said, I think there will be interoperation across a handful of different blockchain technologies, and there will be important interoperation between things like blockchain protocols and decentralized storage systems like IPFS and Filecoin, or decentralized bandwidth, or decentralized heavy compute systems, or decentralized identity systems. So that's what I think the increasingly decentralized worldwide web is going to look like. It is indeed a bunch of inter-operating protocols.

Thank you, Angie.