Listen on: Lets Talk Bitcoin
Jason: Welcome to another episode of the [Blockridge 00:00:02] Podcast. This is the crypto podcast that analysts, fund managers, and developers alike are listening to around the world today. Because every week, we break down the latest economic and technological themes with builders and investors at the forefront of crypto.
Jason: And this week, we are continuing with our explanation of crypto governance. And this is the fourth episode in this series, which started with a discussion with Ryan Zurrer from the Web3 Foundation on how we can govern blockchains, then continued with Rocko from Consensus in our exploration of the major governance models in crypto today. And then we followed that up with a discussion with Bruna, the founder of Maker DAO, one of the largest projects in the theorem to date. And today, we're gonna bring that discussion further by focusing specifically on one thing that we discussed, which is on-chain voting.
Jason: And one of the projects that working on a very interesting model related to on-chain voting is Storecoin. They are hyper-focused on experimenting with a governance model that's somewhat inspired by their representative democracy model that we have in countries like the United States. And Storecoin is a project that's backed by BlockTower Capital and Arrington XRP Capital. And of course, shout out to Nathaniel Whittemore for introducing me to Storecoin founder, Chris McCoy. And we are very excited to have Chris explore this topic of governance, as well as on-chain voting with us today.
Jason: Now as always, this podcast is distributed by the Let's Talk Bitcoin Network. And I am an investor at Spartan Capital, the hedge fund arm of the Spartan Group, a Hong Kong and Singapore-based advisory focusing on crypto. And of course, none of what we discuss is investment advice, and we may hold positions in assets discussed on a show. Now with that out of the way, let's buckle up and dive right in.
Jason: All right. Hey, Chris. Welcome to the show.
Chris: Hey. Thanks for having me, Jason.
Jason: Of course. So just to get us started, let's get some introductions going. And just for our listeners, for context, I remember that in 2014, Mark and Jason tweeted out a series of 55 people that he thought are kind of under the radar tech rock stars. And you were, of course, one of those people. And back then, if I'm not wrong, you were working on a different start-up. So can you walk us through your experience? Talk to us about your background, how you went from the start-up world to the Storecoin project that you're working on today.
Chris: Yeah. So professionally, I've been working on payments, [Solfing 00:02:28] payments since I was 19. I started an e-commerce company. I ended up selling that company and moving into solving the historical connections of sports locally and around the world, which manifested itself into solving media rights on the internet.
Chris: We migrated that company down to Silicon Valley, started working on crowdfunding, how to actually crowdfund sports media, write payments, and then be able to share the money back to multiple parties who wanted a cut of that payment. Sports is real unique in that you just don't pay one entity, you pay multiple entities in every transaction.
Chris: So what we realized was that we wanted to be able to deal with the NFL and share money back to 10-thousand high schools that the players who played in the league, schools they went to, and there was no solution for that. And we tried to do it with a single API, tried it with PayPal, that obviously didn't work. That's how I discovered Bitcoin, And this was back in '13.
Chris: We tried to build Bitcoin as a programmable payment slayer, API based payments, and just couldn't do it. The coin is programming little bit like a lawnmower, and I got frustrated over time. It became apparent that Bitcoin wasn't going to upgrade itself, so I could solve this in-app mass payments censorship resistant problem. Clearly I really early realized that if you could solve payments, I mean micro-payments, payments with bots, you could define the future of work, and in many ways the future of finance for those businesses. Quickly realized that at the end of the day, if you can't solve for zero-fee, those businesses aren't going to adopt a new form of payment, and they're gonna stick with the standard financial rails, when they get charged two-and-a-half and three-and-a-half percent for every transaction, even when selling a hamburger.
Chris: And so we thought okay, can we plausibly solve for zero-fee peer-to-peer payments, so we went back to the industry and realized that theorem might take it off, and there was a bunch of theorem copycats more or less, and no one was focused on in-app payment problem.
Chris: I thought let's see if we can solve that, and let's specifically solve that for McDonald's and Crossfit, these franchises, these hierarchal based businesses. And we had a massive breakthrough with how to secure zero-fee. That quickly evolved into Storecoin becoming much more than just a payment system for franchising chain stores to actually becoming zero-fee programmable payments infrastructure for the entire Internet, for any app developer in the world, and so that's where we're at right now.
Jason: So just to get us started on Storecoin itself, can you talk to us a little bit about what it is? Is it meant to be a cryptocurrency, or more of a smart contract platform, or an experimented governance? What's the primary use-case here?
Chris: The primary use-case, so at the high level Storecoin itself is a new zero-fee public blockchain. The store token aims to become the Internet's zero-fee reserve cryptocurrency. And we think it can expand beyond the Internet.
Chris: So we look at payments on the Internet, and you go back to the genesis of HTTP, and early on there was called HTTP status code 402, which was payments required. That hasn't been fulfilled yet, and we think that's because of transaction fees. Ultimately payments on the Internet have been captured by the credit card companies who take two-and-a-half to three-and-a-half percent, and you add up all the fees across credit and debit card networks globally, including cryptocurrency, you're looking at over 250 billion dollars in fees.
Chris: So we believe that once a fast, decentralized secure, and most importantly truly zero-fee cryptocurrency is brought to the market, it can fulfill that use-case to become this Internet's reserve zero-fee cryptocurrency. We also think that creates the foundation for zero-fee computing. And we won't talk about that on this interview, but maybe on our next podcast we can go into our vision for platform.
Jason: Yeah, for sure. And before we dive into the nitty-gritty of Storecoin itself, I also noticed that there are some heavy backers behind the project. I noticed names like Blocktower and Arrington XRP, which our listeners will definitely recognize. Can you talk a little bit about are these your investors, or are they ... What drew them to Storecoin in the first place?
Chris: Yeah, we have some of the best investors in the space. The folks who I think really give the technology the potential use-case believe in. I think with Mike Arrington, known for a long time just through building technologies on the Internet, and we started talking back in 2017, and he hadn't got his fund together yet and he was starting investing crypto which I thought was cool. There weren't a lot of us at the time, at least with traditional Silicon Valley experience.
Chris: And so Mike and I wrote an essay actually on tech-crunch that advocated for the tokenization of assets, which is now a big theme in ... I think that caught Mike's attention. So we had coffee, and I walked him through my vision for zero-fee and he said "Hey, I want to invest." And all right, let's do it.
Chris: Then I was with him when he, the consensus announced his fund ... We've done everything very different than other projects. We've sort of committed to no ICOs, just milestone-based funding. We wanna prove to the public that we can execute and we can ultimately secure a new public chain.
Chris: So we did a milestone sale, sent a single email out, and it went, for the most part, super viral. Within a day we had hit a hard cap, small hard cap of a million dollars, but it was over-subscribed by like five acts within two days. We did give Mike a chance to write a check, and so he was our final investor in the sale.
Chris: So yeah, he's been an early investor and a friend of the project since the early days. And Ari is actually one of our first investors. Him and I are connected on Twitter, and I think we might have been his, one of Mike's first investors in his fund. I think we might have been one of Ari's first investments in Blocktower.
Chris: I think at the time when Ari came in, we were still focused on kind of franchising chain store mass payments through crypto with zero-fees and didn't have a real coherent plan at that time. Really was early research was the best way to think about it. And hee wrote us a check and said, "Hey, I wanna join your advisory board," and he's been very integral to the project every day actually. He probably hates how many emails I send him. Actually I know he does.
Chris: But he's been a huge asset for us. And genuinely one of the smartest thinkers in the space, globally. We're really lucky to work with him. We have a number of other investors ... We've been able to attract some really, really good talent.
Jason: Absolutely. I definitely agree that Ari and Micheal Arrington are definitely some of the brightest people in the space, and I follow them closely as well.
Jason: And I know that the purpose of this podcast, we wanna focus more on governance, but I also wanna touch on the tech a little bit. And having gone through the documents towards Storecoin, right, it seems that there are three main pillars. There's the technology pillar, there's the governance pillar, and also the economics.
Jason: So focusing on technology first, what caught my attention was that the design of Storecoin is meant to find some sort of acceptable compromise between the scalability trilemma, which our listeners will be familiar with, but also the finality trilemma, which maybe not as many people are familiar with. Can you offer some background about what those concepts refer to, and how Storecoin attempts to address them?
Chris: Yeah, so I'll back up a bit and sort of say what our view on what a protocol is. We look at it as a peer-to-peer computer. It's a set of computers coming together to a degree on what is truth, and those computers ultimately becoming like a virtual machine. And the computer itself has multiple systems, so it has a consensus algorithm system, it has a security system, an economics system, and governance essentially coordinates how the system evolves, including how the decisions, how it evolves as well.
Chris: So we look at very much what we are building on Storecoin as a zero-fee payments, peer-to-peer payments computer. Scalability and decentralization are at the opposite ends of the spectrum today. We have not seen any design; one of them is not compromised to achieve the other. We intend to, and we feel like we can, and we're proving it every day with our research, that we can achieve it with sort of the following.
Chris: Decentralization is achieved by requiring all nodes to participate in the consensus process of building and validating blocks. There is no leader or committee elected to propose a block. For the most part of every other chain, outside of Algorand. Because all nodes do participate, they are all compensated for every block that they create, so there's not like a Winnie Minor wins and everyone else loses, or going to the slot machine pulling a slot, hopefully winning. It's every participant wins every block. I think this is a breakthrough in economics for peer-to-peer protocols. Because this sort of equitable model ensures that there is no advantage to defeating the protocol. So in Storecoin, decentralization ensures more security as all nodes are watching all blocks as they're created, so it's very auditable.
Chris: And then on the scalability front, it's achieved with what we call a new consensus algorithm, [inaudible 00:12:24]. That's research from ground-zero with our team. It's a parallel and pipeline consensus algorithm where block assembly validation happens all at once, in multiple processes in parallel.
Chris: So essentially individual steps can be running parallel and the steps are pipelined, eliminating any synchronization requirements. So the nodes can go offline from time to time, which may sort of effect liveliness if greater than third nodes are offline.
Chris: To encourage the uptime, Storecoin uses bonuses incentives for nodes to give the protocol even better performance. So together, Storecoin with its consensus algorithm, with this approach to economics, can have high scale ability, well maintained high decentralization.
Jason: That sounds real interesting. And speaking of these nodes, right, I did notice that there are two major types of nodes in Storecoin, mainly the validator nodes and the message nodes. And just to give our listeners some perspective here in Bitcoin in terms of nodes. There are of course the lightweight nodes which keep track of the block-headers, and then there are the full-clients, which endow the entire blockchain and keep track of the validity of transactions. And there are mining nodes, which are, like you said, the nodes are kind of rewarded for playing the slot machine or kind of solving that proof-of-work puzzle.
Jason: And for Storecoin, can you describe a little bit about how it differs? And what are the major roles of these validator nodes and these message nodes?
Chris: Yeah. So validator nodes and message nodes are a big part of the innovation of this block fence. Bitcoin node is independent of each other and [inaudible 00:14:06]. The nodes can join the will, and each node validates the chain. By downloading the blockchain data first, and then running the chain validation logic locally.
Chris: So Bitcoin, being proof of work, Storecoin is proof of stake, we use an authenticated infrastructure where computers stake Storecoin to be eligible to participate in the network, and this two-tier network of validator and message nodes is designed to sort of divide and conquer the complex process of creation. So instead of a node doing everything, we start to get into a little division of labor to an extent.
Chris: So the message node network is responsible for actually building the blocks, while the validator network is responsible for validating and finalizing the created blocks. So this design allows for [missynchronous 00:14:55] block creation, with the finality guarantee that isn't available with Bitcoin.
Chris: So in Bitcoin, you create a fine number of blocks. Six must be built on top of the current blocker in order for the transactions in the current block to be irreversible. Within Storecoin, once the validators finalize a block, it's irreversible right then without the need for future blocks to be built on top of it. And the comparison we use sort of anecdotally is this notion that, what Storecoin does with its consensus algorithm is it takes sort of chain work and orphan block waves and turns it into near-instant block production.
Chris: So you go back to like the 1860s, gasoline was a waste product thrown into the rivers and the fields by the oil refineries. John Rockefeller, standard oil, invented a way to turn that waste and turn it to gasoline. This invention sort of gave rise to the automobile industry and beyond.
Chris: We look at blockchains today, kind of having their own waste with chain forks. Since the longest chain wins in consensus, these chain forks become wasted computes and electricity. This results in lower transaction throughput.
Chris: So for us, we turn this waste into this fast production, and we do it with [BlockFin 00:16:10] where we go from a winning node creates the block paradigm, to a new paradigm where all nodes assemble transactions in the precreated empty blocks, while validating them in a multi-synchronous stages. And so there are no chain forks in BlockFin because there's no [inaudible 00:16:28] block of the time construct. The blocks are finalized in the pipeline. So we call that invention fork tolerant.
Jason: Clarifying question here. Since all of the nodes are essentially rewarded for finding the block instead of having kind of the winner of that puzzle finding that block being rewarded, is there a situation in which you can have the tragedy of comments issue where, you know, people not contributing any work are still rewarded for finding a block?
Chris: Yes. That's a good question. We'll talk more about this when we get into our public peer review of BlockFin.
Chris: The really important piece within this equitable model is, if you're part of the network, it doesn't matter what your stake is. And this intersects with governance, is no single node can actually earn more than five percent of the rewards. So let's say you have 20 percent power and consensus. You still have a max of five percent. And this enables more of the reward to be distributed to more nodes, which further incentivizes decentralization.
Jason: So just chiming in here, just in case some of our listeners need some refreshment of their Bitcoin knowledge.
Jason: In Bitcoin we have these minor nodes that are solving complex proof-of-work puzzles, and they're trying to find their next block. However, if they extract effort in finding a block that's not included in the longest chain or in the canonical chain, then essentially all that effort on the electricity and time that they spent on finding that block is wasted, because that fork is discarded.
Jason: So what Storecoin is trying to do is to overcome this effort wasted by making sure that every node, whatever they contribute to the network, will in fact be used to secure the network by validating transactions and proposing and attaching blocks to the block chain.
Jason: However, the focus of this episode of this episode is more on he governance aspect, which is this network, this whole ecosystem of nodes, that Storecoin is intending to create. And within this ecosystem, these different nodes have defined different functions, hence creating something like a decentralized government that almost mirrors the current US government, in that we have a judiciary branch doing something, we have the executive branch doing something, and we then have the legislative arm also doing something. And the task that each of these parties are in charge of are somewhat different and rarely overlap.
Jason: And hence, they do not centralize power within one type of node, but create the system of checks and balances between different nodes. And it's such a fascinating idea, and I'm very excited to dive deeper into this. So back to the interview.
Jason: So far, I've had people from Web3, from [Pokedon 00:19:11], from Consensus, from Maker DAO on the show to discuss governance. And so far different people have been having very different views about whether a blockchain should be governed like, maybe like a corporation, which is quite efficiently and by a small elected group of leaders; or like a nation where more people have more power, but things might take longer.
Jason: And Storecoin really embraces this idea of checks and balances, and even going as far as to propose some sort of digital republic of checks and balances that mirrors an actual government. And I thought this was really fascinating, so can you walk us through kind of why you guys decided to go with that approach?
Chris: Yeah. So first and foremost, blockchains, they're not companies, they're not governments; they're multi-sided voluntary value networks, right? They're organized around a set of rules known to everyone participating, and requiring the contribution of all sides of the network. This includes core developers to app developers, to miners. To merchants who actually accept Store or whatever the cryptocurrency is in the cash register and beyond to function properly.
Chris: We see protocols, blockchains, as public comments run by those in the public and governed by those in the public. And to date ... They're governing the rules of money. And ultimately you don't have any successful models for governance is that work in any meaningful scale. So we looked at it from a fresher approach and said "What are examples of complex multi-sided networks that have been governed efficiently over a long enough period of time?" And through our studies it was clear that a democratic approach to checks and balances was a viable approach, potentially to blockchain governance.
Chris: And so we started with that question, is it possible? And as we started mapping it out, it became really clear that it was. And clearly doesn't mean that the governance is modeled after, let's say, the United States ... The approach of checks and balances is inspired by the United States. And so for us, we recognized early on that the most important thing that the framers of Storecoin do is prevents attacks, whether it's one-third byzantine fault tolerant attacks or civil attacks. Through our economic models to ensure that costs of attack are really, really high.
Chris: The second most important thing we do is ensure that the protocol can upgrade itself. That the software it's run on, individual nodes can reach consensus on actually how to change itself. And not only that, but the rules for change, those can be changed as well. And without that, Storecoin would have very low probability of becoming a payments infrastructure around the world.
Chris: And so for us, governance is the protocols that build the upgrade, and we think it's critically important.
Jason: And diving into this idea of checks and balances, and this idea of a digital republic that's inspired by something like the United States, can you describe what it actually looks like on the Storecoin protocol? What are those different stakeholders, and what functions do they perform?
Chris: Today you have a core-depth team and a non-profit, right, and you have minors who effectively ...
Chris: Within Bitcoin there's informal checks and balances, and even with [inaudible 00:22:32], we think that needs to be formalized in sort of a hybrid off-chain on-chain type on governance in which ultimately the core-depth teams who controls the money, and also controls connect access in the software it's run by the computers, that there's effectively a checks and balances on them first and foremost. And without that, it becomes difficult for developers at scale, organizations to scale, large companies to want to build on top of peer-to-peer databases, simply because if they don't understand how change can happen, they can't effectively price the risk associated with. They maybe tend to participate in it themselves. It's unlikely that they're going to want to at any meaningful scale build on top of these networks.
Chris: So checks and balances works like this. You have the miners in Storecoin, we call them decentralized workers or [D workers 00:23:29]. The first two D workers are the message nodes and the validators. They're the actual voters within governance. The message nodes vote first because they have the most at stake, so we believe in economic incentives, also incentivizing information. So the more you have at stake, the more incentivized you are to have knowledge to think both short and long term about the ramifications of changes to protocol.
Chris: We look at changes across, not just features, but monetary policy in economics. And we look at changes ... Storecoin has elections, so changes to leadership. We look at it, how does the protocol secure itself with sufficient checks and balances? How does it prevent collusion? So those checks and balances framework enables change to happen in a democratic process, but change is really hard. It's not easy to change over the system.
Chris: So you have the miners and the miners' vote. And if they vote for something, then the executive branch, if what we call it, effectively it's the core-depth team or the non-profits who has an elected leader ... The miners do the elections. They can overrule, they can say "no, we reject the change approved by the miners," but the miners have the ability to overrule the non-profits with a higher threshold of voting. And then if the miners do take a second vote and overrule the non-profit, then legally the IP, the trademarks, the network has to move over to the new fork. Or to whatever change that was voted on needs to occur in the software.
Chris: So we think, first and foremost, checks and balances on the core-depth team is required for decentralization to be established. And then there's other elements like, we call it judicial branch, which essentially ... In some ways, one can look at it like the supreme court. One can look at it like a corporate board of directors. We look at it as a bit of a hybrid. But they get, we'll call it approved by the executive branch, but then the miners have to then vote on who serves on the Storecoin bench, quote, unquote.
Chris: And the rule of the judicial branch is to act as a secondary checks and balances on things like monetary policy. So let's say that there's a movement to change the block-at-work structure for payment processors. The pay strike, more block rewards for processing store transactions than there are right now. Well that unilaterally can't be decided by the executive branch, and it can't just be put to a vote either because it's a monetary policy-related change. And so it can only hit a ballot if the judicial branch said "this should be voted on."
Chris: And so it's the job of the judicial branch to study the monetary policy, sort of market-to-market network of Storecoin, and make suggestions to be voted on. And the branch itself has to reach consensus. Itself takes a vote. And once they believe a monetary policy change is needed, then it goes to a formal vote by the miners. And again, checks and balances then occurs where executive branch can overrule the miners, and then the miners can then overrule the executive branch. And if they do, that becomes the new rules of the protocol.
Chris: So that's the simplest version, is the ability to reach consensus with sufficient checks and balances. There is no centralization of power, no collusion. Security matters most. And change is possible, but change is really hard.
Jason: So can someone be on both the judicial branch and the executive branch at the same time, or is there kind of one entity, one identity?
Chris: Yeah. That's a great question, and I imagine some of these questions you're going to ask, we're actually in the process of communicating to the public [inaudible 00:27:15]. We're writing on governance right now. We have about 70 people in. Some really world-class thinkers and folks from the federal reserve. Folks from IBM, BlockChain. From people that worked inside the White House, like pretty high levels. People who have run campaigns for mayors of the largest cities in the country. And developers of launching projects, launching projects themselves. It's pretty fascinating what's going on there.
Chris: But on that answer is, so you have this executive branch. It's called the core-depth team. We call it the executive branch. And right now it's sort of the founder of the project is effectively the defacto leader. And that maybe works for four years, eight years, but then what happens next when they get burnt out, or maybe they're not effective anymore, or community loses trust in them? Can they be fired, right? Can they resign? Can effectively the protocol be led at the core-depth team by someone who the community thinks is a viable leader? And so that's why we have elections.
Chris: So once Storecoin attempts to ratify its governments, we ... part of the ratification will be the miners voting on who they want to lead the project. And that leader has four years to lead, and then has to win again, another election. It can only serve up to eight years, so two terms. So somewhat inspired by the United States model. But that leader knows going in that they can serve a maximum of eight years, and that once elected, their job is to oversee the executive branch to grow, obviously execute the changes voted on by governance itself, but also the growth option for the protocol, and everything it takes to truly become zero-fee programmable currency that's adopted around the world.
Chris: Now in the event of failure to execute, one thing that we're actually putting up to vote, or in peer review right now, is what happens if the core-depth team, the executive branch, refuses to carry out a change that has been approved by the minors? So this is where it gets interesting [inaudible 00:29:30], he talks about watching legal structures need to somewhat interface with real world legal structures. We think there's some truth to that.
Chris: We think most importantly that whatever the rules of the protocol's governance are, is that those need to be enforceable and like real courts. So let's say theoretically, Jason, you're the head of the executive branch and you don't carry out a change, well, you'll have a certain period of time to carry out that change, but if you don't in that period of time, you can be impeached. Or there could be a quote, unquote impeachment proceedings.
Chris: And so this, once the protocol decides to change, it costs everyone money if the change doesn't happen rather quickly. But as we know, changing code-based layers is a very delicate process that does require time, has to be secured or audited. So some of them are like dang, but at the same time, what happens if you have an executive director who just refuses outright to carry out the change? So we have put in processes for them to be removed in that case.
Chris: The next question is, if they're elected, can they serve on the judicial branch? We're leaning to right now, we haven't formally proposed this to our peer review, is that the elected leader of the executive branch also has a seat on the judicial branch with a single vote. And so that would be the only representative in that case.
Jason: Got it. And that was actually going to be my next question, which is this question about enforceability. Say a malicious actor, and maybe through some sort of demagoguery I made it to the executive branch, I'm in charge now, and if people propose changes and I kind of disapprove of those changes, it sounds like there would be a way for them to first dispute, and if I don't take that dispute into consideration or if I violate the rules, I can be impeached.
Jason: So in many ways it does sound almost like a direct copy of the way that the current United States government works. So I guess just a high level question is, in what ways does this system differ from the current way that the government works?
Chris: That's a good question. We think we created the simplest work flows, essentially let's call it change log, in which your protocol could change itself with sufficient checks and balances and no collusion, no centralization of power.
Chris: United States obviously has the executive branch, but then it has a number of departments that effectively serve under the executive branch. And those branches can, or not branches. Those departments can defy orders of the executive branch, right? So then you have like interbranch politics [crosstalk 00:32:05] United States all the time, especially now.
Chris: In this case, like let's say you're the executive director of Storecoin. You have a staff of people that effectively work for the non-profit, and they're funded through a variety of means [inaudible 00:32:21] we're going to discuss. If they don't perform, the executive director has sort of unilateral ability to fire them, like any non-profit organization, but there aren't additional, we'll call it entities or associations or organizations that fall underneath the executive branch. It's one entity, and it's similar to the [Fearon 00:32:41] Foundation as one entity. So is the executive branch of Storecoin.
Chris: So in that case, United States is very complex with a tremendous amount of bureaucracy. Even within just the executive branch, we intend to not enable ...
Chris: The framers of Storecoin, one thing Ari and I talk about often is what's Storecoin look like in 10 years? In 50 years? In 100 years? And our answer is we have no idea. We can only give the protocol a path to change and evolve itself based upon the economic interests and longterm interests of those who are secure in the network. And so theoretically, could Storecoin look like the United States in 10 years or 50 years? Maybe. It theoretically could. But us as framers are framing the simplest, we'll call it change log for the protocol to upgrade itself in a secure faction. Yeah.
Jason: Got it. And a lot of this system of course depends on the idea of voting, because voting happens almost at every level of the Storecoin protocol. And what interested me the most about Storecoin is this kind of idea about entity based voting. Because to me at least, I suspect that most projects are not able to kind of create some sort of satisfactory democratic system, because the way that votes work on chain are often different from the way that votes work in say, real politics, in that people can purchase votes by just owning more stake in protocol, or owning more tokens in a protocol.
Jason: And Storecoin is, of course, very aware of this, and you guys try to avoid this issue of plutocracy where if people who own more stake or more Storecoin have more power over the system, by doing some sort of guarantee that one entity can only have one vote. So can you talk a little bit about how that entity-based voting works?
Chris: The core to Storecoin is a democracy. We believe that a peer-to-peer democracy is possible within the context of public block change. It's an experiment. Hasn't been tried before as far as we know.
Chris: Right now we have, to date, proof-of-work chains are mostly fork first. So to an extent you can sort of call that [Szabo's 00:34:52] Lock. And we think that works well for energy backs, cryptocurrencies like Bitcoin.
Chris: But for truly global adoption where companies like McDonald's are putting 10 million dollars of transaction throughput a day, small developers are trusting it for their livelihood, there needs to be an understandable process in which change can happen for the rules of government money, in which these developers are working with. So we don't think fork first is viable.
Chris: Now, we've had an evolution of governance in other systems, and it appears to us that the default design as been, more or less, plutocracy or, let's call it those who control the money make the rules of the money. Which is sort of commonly known as one coin, one vote.
Chris: We think that might work in the beginning. We think that those, the insiders, the early framers, the early investors, that's in their best economic interest, effectively also control ... you know, put a governance in but also control the rules.
Chris: But historically a plutocracy has never worked in our world's history. We don't think it's going to work within the context of peer-to-peer networks. And so what does work is democracy, where one identity has one vote. It extends the possibilities of the number of voters, and enables ... disincentives the quality to an extent in that those with the most invested in the network only have a single vote, and those with the least invested can also have a single vote, and together they can reach consensus.
Chris: Now, you can argue that the democracy within peer-to-peer isn't possible. We make the argument, we say we think it is. And the only way it's possible is to secure democracy against effectively civil attacks.
Chris: So civil attack is to say, in a one entity, one vote style of governance is, let's say you're a McDonald's and you're putting 10 million dollars of transaction coin in the system daily. Well, you're incentivized to control the rules of the money, to control the rules of the blockchain. And so it's probable that you and McDonald's are going to spin up shell companies, and you're gonna stake from those shell companies to have more votes. Now that would undermine the entire democratic infrastructure that's being put in place.
Chris: To solve for civil attacks, it is a secure democratic approach to governance. We're introducing a concept called Know Your Voter, with a miner itself identified with each other. When they approve each other, based upon the concept of it being one entity.
Chris: So theoretically, let's say you have a node, you're staking from that node, well let's also say you have a company, an LLC. Maybe it's a shell company that's quite anonymous. That part of the K, call it KYN, Know Your Voter process is, the owners, the 10 percented rare owners of any company would have to be identified to be ensured that you're not only staking from Jason's account, but you're not also majority owner in a company that's staking. So this ensures that it's effectively one entity, one vote.
Chris: This is the only way we think it is viably possible to secure a peer-to-peer democracy. And we 100 percent believe that a democracy is possible in these networks, and that it's the model that will still sell globally.
Jason: Is there any kind of fears of compromising privacy in the sense that it sounds like you would be basically running KYC for every single entity on the Storecoin blockchain?
Chris: It's not KYC. KYC sort of assumes that everyone knows who you are publicly. We'll talk more about this in the coming weeks. We're actually about to, through our governance peer review, release our formal spec for how Know Your Voter works.
Chris: But ultimately there are trade-offs. The nice thing about markets is those who want to stay private entirely can, or even somewhat pseudo anonymous, have options. But those who believe in democracy believe in a protocol that could be participated by really an unlimited number of people around the world. We think will accept those trade-offs.
Chris: How we arrive at those trade-offs we'll explain more in the coming weeks. And we think it in itself is a new security model for governance, and we think it will be a breakthrough in research once we do it.
Jason: I'm excited to definitely check out some of the research that you guys will continue to put out. And I think this is a good chance to kind of pivot to talking about growth and strategy for Storecoin. And of course, as you know, here's so many coins out there already, so many different protocols out there.
Jason: Do you foresee a situation where, you know, a Bitcoin or large project can compete directly with Storecoin by copying some of the features over and taking a lead with the network effects that they have right now? Or in other words, how do you see Storecoin kind of standing out and competing with this kind of sea of protocols and coins out there today?
Chris: Yeah. So two things here, is we think scalable to centralized, zero-fee, peer-to-peer payments is just the beginning. We're still in day one, day two of what's possible with this centralization data, and science of data, and one form of data via payment.
Chris: So secondly, as you go back to the genesis of Storecoin and the breakthrough we had that expanded the project from being focused on zero-fee in-app payments for a messaging app, to becoming zero-fee payments infrastructure for the entire internet, was based upon our research breakthrough on how to secure zero-fees with inflation. And as our research has evolved, we've realized that we can take an incredibly low amount of inflation, let's call it two percent per year, and that secures the protocol. Not only secures the protocol, but incentivizes protocol growth. And inflation itself is actually pegged to the amount of security in the network, and so the network, at least initially, we call it a security budget, it's a security budget of 51 percent, which means that aims for 51 percent of the circulating token supply that we staked by miners, by D workers.
Chris: And if 51 is staked, then inflation is two percent. But if less than 51 percent is staked, inflation is actually lower. And so inflation rewards grow as security grows, and then it caps. After 51 percent there is no more inflation, so there really are no more incentives for new miners to join the network.
Chris: Because what we believe as a payments system, it's a payments network, it's a payments infrastructure, we actually want there to be pink. You don't call it circulating supply if they are both for a real use case, which is zero-fee payments. And in the absence of incentives, it caps [inaudible 00:42:01]. You may have a peer store value currency. Which we believe in the store value in theory. Big store value is required in the beginning. Every single network is in a race to acquire as much hatch power as possible, and or as much sort of total stake in contracts as possible.
Chris: So with Storecoin, our zero-fee primitive is baked into the, is baked into effectively the processor of the computer. So can another protocol come in and bake it into theirs? It would require governance for them to change the economic incentives of the network. For us from day zero, it's about zero-fees. So we think it's a competitive advantage for us when we have a credible security model, so zero-fee can turn into zero-fee global payments.
Chris: We actually see that as just the beginning for what's possible. We see this world ... You know, if you ask me "Chris, what's the future of data?" The agenda wasn't related to payments, but we think of payments as data. And we think information wants to be free. Stuart Grant said that, and he was right. The problem was information as it became structured became owned by the sort of centralized, effectively data monopolies.
Chris: Now the question is how can we set data free? And we see this world where the future of data is every meaningful piece of data in the world will be represented by private key. So if data is an asset, then the data can be centralized. Decentralized. And therefore it can be tokenized.
Chris: So on top of this zero-fee settlement layer for Storecoin, we see this world where a zero-fee tokenized cloud can exist. Where developers can issue their own digital assets, build their own zero-fee applications, and this zero-fee computing revolution will be born.
Jason: Yeah, absolutely. And I just want to make a note about how interesting it is to see the evolution of these ideas, because not too long ago I was looking into the way that [Livepeer 00:44:07] was bootstrapping their network, and one way that, one design that they had in their system was to have a very high inflation rate and asked the people who basically staked with the network increase than the inflation rate comes down. So that incentivizes more people to stake, but of course the people who are early into the network who stake early have to kind of withstand a very high inflation rate. And it sounds like you guys are taking an opposite approach where the inflation actually starts very low so that you incentivize people to use it as store value.
Jason: It's thinks like that that make me really excited to see kind of what works and what doesn't. And at the end of the day, so many of these projects are, like you said, experiments in this space, so I'm very excited to see how they evolve.
Jason: And just to close us off, Chris, what do you see is the mot exciting things on the roadmap for Storecoin? What's next for you guys? What are the most exciting launches? What are you looking forward to the most?
Chris: Big fan of Doug, big fan of Eric and the team at Livepeer. They're pioneers in the space. They're, what we say internally is, there are literally like a thousand different ways to design a crypto economics incentivize system. Everyone has an opinion.
Chris: We think there are only like two or three ways to actually secure, credibly secure, that model. And so what we think about all the time is how do we attack ... how can other protocols [inaudible 00:45:33] consensus algorithm, attack our economics model, our security model, even our governance, and how do we ensure that those attacks are really expensive? And that becomes a final design for what Storecoin is.
Jason: Absolutely. And on that note, what are some avenues that people can use to follow you or keep up to date about Storecoin?
Chris: Yeah. I'm on Twitter at chrisamccoy, and our project is at storecoin on Twitter. Or it's storecoin-dot-com on the web. And those are the best channels. We have an active telegram. It's t-dot-[inaudible 00:46:07], backslash storecoin. And then you can just email me as well. Chris-at-storecoin-dot-in, and I'm usually pretty responsive.
Jason: Awesome. Well thank you very much for being on the show, Chris. This was an amazing discussion.
Chris: It was awesome. Thank you, Jason.
Jason: And that wraps up another episode in the Blockridge Podcast. If you haven't already, please do subscribe on whatever platform you're listening to this on. And give us a five-star rating as well, because it helps us get this out to as many people as possible.
Jason: As always, I've been your host, Jason Troy. If you want to reach out to me, feel free to do so on Twitter at mrjasonchoi. That's at mrjasonchoi. I'm very active on Twitter, and I respond to any questions or suggestion for guests that you might have. And I look forward to talking to you again soon in the next episode.