Crypto Baron interviews Charles Hoskinson, CEO of IOHK and co-founder of Ethereum. Charles describes his journey and the history of Ethereum.
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Crypto Baron: Hey guys, welcome everybody to the crypto-times inaugural live stream. I am your host, the Crypto Baron. Today, we are absolutely privileged to be joined by none other than the Charles Hoskinson, the chief executive officer at Input Output Hong Kong (IOHK).
Charles Hoskinson: It’s my pleasure. Thank you for having me here.
The first time I’d heard about bitcoin was in 2010 or 2011. Somebody had sent me a via email a copy of the white paper.
I looked at it, read it and thought that was kind of early interesting thing. They got Merkle trees and this proof of work seemed to be a really interesting consensus protocol.
From a technological standpoint, it seemed like a pretty novel idea. However, I was very skeptical about economics and about being able to get kind of a scale. Therefore, I put it on the back burner.
I ended up actually getting a lot of Bitcoins at one point. I think I may have had 50,000 or 60,000 of them, but they weren’t worth a lot back then. Then, I gave them all away. It was probably less than $1,0000 of value or something. Anyway, it was a small fun thing.
Then around 2013, I started having some more free time and I remembered the cypress incident and Bitcoin went way up like $200 a coin.
I said it looked like they have achieved some network effect. After that, I started very carefully thinking about it and I said this was a really interesting space, so I probably should do something in it.
I remembered an old professor of mine used to say that those who cannot do teach. Consequently, the first thing I did in the space as was I tried to get all of the people together who were involved in Bitcoin education and created some free content to put it up on the Youtube and other sources.
The idea was to kind of establish some basic MOOCs (massive open online course) that could kind of explain what is Bitcoin, why is it special, and what are the broader implications that this technology is going to have.
Then, I created a class. I’m big Peter Sellers Fan, so I called the class Bitcoin or how I learned to stop worrying and love crypto. I ended up getting about 50,000 students, which was just unbelievable.
They sent me emails because that’s what students do. I got about 5,000 emails and I answered every single one of them, which as you can imagine, was a tremendously time-consuming endeavor.
At that point, somebody from China approached me and said I loved what you were doing. I’d love to fund you. I have some money. I was a Bitcoin early adopter and kind of wish I hung onto my Bitcoin cause I would be doing quite well too.
He said I would give you some money to start a Bitcoin venture. I said that sounded like a grand idea, but I had no idea what to do. He said you would figure it out because you were a bright guy.
After that, I asked my students what they think would be the most impactful thing to invest some time and effort to build a company around.
I got a lot of replies back, but I did get a bimodal distribution. One group of people said the decentralized exchange is really important because it doesn’t matter how decentralized the currency is. If the aggregation points, where you transact between Fiat and crypto or digital to digital are regulated exchanges, basically governments can’t levy control over those entities.
For example, if they don’t like Zcash, they can say you can’t list Zcash, or they don’t like SingularDTV because it’s a security in their mind and they’ll just say you need a broker-dealer license to trade it, and so forth.
The other group of students said this is all great, but we’re never going to replace traditional Fiat currencies if we don’t have value stability.
Value stability is where the price today for goods and services is probably about the same as the price tomorrow, which is not the case for something like Bitcoin because its value goes way up and way down.
When I came in in 2013, it went up to $248. Then, at that point, I think we were down to $80 or $100. Just under a year, its value went down more than 50%. That’s not sustainable for things like credit.
How can you give a loan when both the lender and the lender have no idea what the underlying assets going to be worth?
For example, if I’ll give you 10 Bitcoins on December 30th, 2012, you have to pay me back 11 Bitcoins on December 30th, 2013. Under an ordinary stable currency, that’d be a great deal. By the way, Bitcoin back then I think was $10 a or something along those lines.
So that was $100 of value at risk and all of a sudden you have to pay me back 11 Bitcoins around December 30th of 2013, on which its price was around over $1000/coin. It means you have to pay me back $11,000.
Let’s say we made the same deal one year later, I would actually win that bet because Bitcoin went down considerably that year.
Therefore, the other group of students said let’s do a value stable currency.
I said it would be really cool if you could roll these 2 things up. I felt that if we could do these 2 things together, it would make the cryptocurrency movement very resilient and invincible.
I remember to Henley’s Poem “Invictus”, so I said the Project Invictus and I launched a Bitcoin talk thread. The very first person to post on it was Bytemaster7, who is Danieal Larimer. He had this idea of BitShares percolating in the back of his head.
We kind of partner together and the Chinese put money into a company we set up in Virginia Tech at the Corporate Research Center. I got BitShares up to a point where it was ready to launch.
Dan and I kept fighting and fighting because we both have very strong opinions on things. At some point, I just took a buyout, left and went on to do Ethereum with a Vitalik.
Then, Dan went on to build out the BitShares ecosystem and brought in delegated proof of stake and the graphene platform. Later did Steem. Now I guess he’s doing in the US. He’s been very successful in propagating these ideas.
There is a lot of thought going into that. In terms of decentralized exchanges, there is certainly a lot of thought going into that as well.
I think we made a lot of positive contributions there, but what most people know me for these days is Ethereum, so let’s talk about that.
Ethereum was really the accidental project. It wasn’t intended to be this 800-pound gorilla that was going to go take over the world.
What happened was after I left BitShares, I was kind of looking for something to do. Anthony Diorio had contacted me to do some educational content for the Bitcoin Alliance of Canada because at the time he was a director and he knew me from the Bitcoin education project.
Therefore, we started working. He was a great guy, kind of sharp-elbowed, but that’s his style and that’s how he gets things done.
He’s very good at getting things done, especially if you look at how fast Jaxx has grown. He said there was this brilliant kid that showed up to the Toronto Bitcoin meetups we had at the central, named Vitalik and he got a crazy white paper.
He told me to read it and let him know what I think. I looked at the paper and it was basically like a virtual machine taped on as an overlay protocol on top of the prime coin. It wasn’t even a standalone cryptocurrency. Basically, the idea was smart contracts to a cryptocurrency.
The reason why Vitalic wanted to do this wasn’t he had this grand scheme of building a decentralized world. It was more a project frustration for him because he was a core developer for Color coin as well as Mastercoin.
He was getting into all this trouble and trying to make the damn things work. Every little feature or functionality was this enormous effort.
Therefore, Vitalic wanted to attach a programming language to a blockchain and give people a much easier time building things like Namecoin, Color coin and so forth.
It was really novel idea, but the problem was we didn’t really know how to execute it.
I said this was a really interesting paper. I thought we could do something with it, but we needed to start building a team.
Anthony said we already had a team. There were 4 other people at the time. There were Mihai Alise, Vitalik, Amir Chetrit, and Anthony. I was number five in that group.
What happened at the same time was Vitalik set up a Skype group and a bunch of people started joining the Skype groups.
I don’t know exactly when Gav of York, which is his Skype handle, joined, but I think it was around November or December of 2013. I think we probably joined right around the same time, but he wasn’t in any of the initial meetings. Instead, what he was doing was just kind of figuring out how the heck you would implement this.
Meanwhile, Jeff had a skype handle called Skerin and he was actually anonymous. We didn’t know who he was because he was actually the core developer of Mastercoin at the time. I guess he was kind of hedging his bets and he was having a lot of fun building like a Go version of it.
Anyway, after we started growing, it became very clear that this was something special when Vitalik released a new version of the white paper, where this was a standalone cryptocurrency. It was like proof of work with a court coins style distribution where most of the currency would be mined in 3 years.
It wasn’t very perfect from that sense, but it was much better and actually looked like it could work.
At that point, Anthony said we’ve got to make some decisions here, so let’s all get together.
Anthony went ahead and rented a beach house in Miami in January of 2014. He said let’s just have all the people who are going to come and see what we can do together as well as kind of figure out what this project is going to be all about.
At the same time, we’ll go and present Ethereum at the North American Bitcoin Conference held at Miami and see what the community reception was.
We all bought our tickets and flew in there. This was the first time I met Gavin in person. Jeff didn’t come. Mihai wanted to come, but he couldn’t get a visa because he’s Romanian and it’s sometimes hard to get visas on short notice.
However, we did pipe them in a few times. Plus, Vitalic and Mihai knew each other really well because they did Bitcoin magazine together and the rest of us went there.
I think there were probably about 20 or 30 people who ended up going to that beach house. We all got to know each other. It was really fun. I really enjoyed the conversation. Some were philosophical. Some were business-oriented. Some were technological.
The moment of truth was when we went to the North American Bitcoin conference and we did 2 presentations. One presentation was done by Vitalik and the other was a debate, which was still actually up on Youtube, in which I did with David Johnston and Daniel Larimer.
Anyway, Vitalic’s presentation was incredibly well-received and my debate was well-received. It became very clear that we had something tremendously special that the community really wanted. That was the idea of having a programming language on a blockchain and being able to create smart contracts.
To a greater extent, this whole DAO philosophy that we first started talking about at Invictus and called it DACs. Stan Larimer actually wrote one of the first papers in the very shortly after Vitalic wrote some papers on DAOs in the Bitcoin magazine
However, the idea had been floating around since my current present at the Turing Festival in 2011 or 12. This whole notion of an autonomous company running in the web, which has no jurisdiction but can have legally enforceable contracts, was like super cool. The community was on fire for this type of stuff.
Besides, you have to understand the environment that we were in. Bitcoin went from $100 to over $1,200 in like a month. Everything was just crazy. The hype was at a maximum level. Dogecoin just came out and everybody was making money on it. Next to just come out and everybody was making money on it.
Basically, it was a very hot environment and Ethereum kind of looked like the sexiest, most promising of all projects. We agreed to kind of develop a forked strategy. We would break ourselves apart into a kind of 3 different groups. Each group would handle a particular dimension of the project.
One group would worry about getting the project funded longterm. One group would worry about the underlying technology and getting it to a state of maturity where it was reasonable to fund the project.
One group would kind of be like marketing, community advertising, and business development. They have to go talk to everybody and see what kind of strategic partnerships we could do.
I felt that the single most important component was the legal structure in the ability to get the project to a fundable state, so I took that plank. Gavin and Vitalic took the development side. Anthony and another kind of took the business development and marketing. They just went around in a conference after conference and did interview after interview to kind of build up the hype, get people excited and bring in a great community.
About a month later, we also hired Stephan Tual because he was running a website that was very pro-Ethereum, but we thought he would be a good guy. He came in and took over community management as well. We had a very aggressive meetup group strategy that he helped execute.
I moved to Switzerland and we ended up setting up a GmbH there and we worked really hard. We’ve got tax rulings and we talked to lawyers very extensively.
We also had a parallel legal effort in the United States where we talked to a US law firm about writing out exactly what the Ether sale would constitute in terms of required regulation and so forth.
I spent months of my life working on that. It was very tedious and technical work, as well as a lot of hard meetings that were long. In Switzerland, some of them lasted 12 hours. Just one after another after another.
Gavin, in the meantime, formalized the EVM. He produced the yellow paper and it was ready by the Toronto conference in April of 2014.
Anthony, Joe, Amir, and others really killed it. They went to Silicon Valley. They went to Pulse conference down in Texas and talked to a lot of people. They got a lot of people very excited about Ethereum.
At the end of all of that, we converged upon Anthony’s conference in Toronto. Then, we had to start making some decisions about what the future of the Ethereum was going to be because we had gotten to a point where the hype was there, the technology was there and we had divergent options on the business side.
There was kind of how we want to run it and how we want to fund it. In terms of funding, we had 2 options. One was to take VC money and at that point, there was certainly a good market for it.
Blockstream at the same time was raising capital. I believe they got a $26 million investment. Silicon Valley was totally prepared to put equivalent amounts of money into a for-profit company if it looked like it had something very competitive.
Frankly, it would have been one of the best investments of all time in Silicon Valley had that been done.
We knew the VC money was there and we also knew that we could do a crowd sale. The only question was how that would be done and so forth, so we started those conversations in Toronto very heavily.
My opinion was that the project had grown too large. We had people in 5 different countries working for Ethereum. A lot of people had brought in their friends. We didn’t have clear contracts. It was a very flat structure. Even I was voted as the CEO by the “founders” because there were 8 founders at that point.
I didn’t have an official employment contract or any mandate of what I’m supposed to do or so forth. I was just trying to be useful.
I said we probably need to do is start a for-profit company, take VC investments, centralize in Switzerland and turtle up and build the protocol over 6 months to 1-year cycle.
Because Bitcoin is kind of in a downtrend, so it’d be better to launch it at the bottom of the market instead of right at the top and the legal risk would be tremendously lower.
Everybody would have to go through due diligence. I think we have probably over 200 people floating around the Ethereum and spectrum. We didn’t know basically these people’s backgrounds if they were going to go and do their own things, what the liabilities were, and what they’d been promised. It just grew so organically and so rapidly.
The other option was to just set up a foundation and have that foundation conduct a crowd sale. Then, we use it to fund a collection of companies to build up the ecosystem. Let anybody who wants to participate and have a horizontal power structure except for the fiduciary of the foundation.
These were viable options. Both of them could do things. My concern with the foundation approach was that if we went down that road, we’d had brain death because there was no equity and nothing chaining people investing to this foundation outside of the appreciation of the value of Ether, which you’ll get regardless.
There’s no reason for them to stay. They’re all going to scatter and start their own companies and we would lose a lot of value then.
The debate is you just start the EF and then consensus or vice versa.
Anyway, in June of 2014, we converged upon Switzerland to make the final decision. In a boardroom brawl, my side lost. I left. Amir Chetrit left. The Devs won.
It became a foundation. They went ahead a month later and did the crowd sale, then immediately set some of the money over to a new company in Germany or London.
Gavin, Jeff and Vitalic kind of ruled the roost and built Ethereum and launched it. Then, most of the founders eventually left and started their own companies.
That was the extent of my involvement in Ethereum. Some of it was just helping corral people together. Some of it was philosophical advice and strategic advice.
Some of it was a lot of hardcore business dev work where we were trying to keep everything together and make sure that the value we created would not just be scattered to the wind. Furthermore, we did that in order to keep the project from growing too quickly for its own good or becoming too fragmented for its own good and gradually break apart.
Anyway, that’s what happened there.