Ethereum Classic: The Ungoverned Blockchain?

How does anything get done if there are no leaders? Why hasn’t ETC died by being abandoned by the Ethereum Foundation after TheDAO hard fork? The ecosystem of participants and stakeholders working in and around the ETC network is examined in outline below.


So, where and how does ETC “governance” happen?

Making changes to Ethereum Classic consensus rules is “ungoverned” in a similar way to Bitcoin and Ethereum with little appetite for large numbers of consensus-breaking upgrades. Currently it is an ad hoc process where ECIP proposals are raised on Github, discussed in public/semi-public fora and should they be widely supported without contention locked-in to the nominally canonical “Classic-Geth” client with the other clients (Parity Labs’ eponymous software and IOHK’s Mantis) merging in response. In the case of a contentious proposed upgrade some arbitrary signalling criteria could potentially be set (i.e. % of miners upgrade/signal, on-chain carbon vote as used by ETH to justify DAO hard fork) though this has not occurred in ETC since the events which led to the creation of the network.

Source: https://medium.com/@TokenHash/the-star-improvement-proposal-standard-for-ethereum-classics-ecip-process-df20453de8e6
On-chain “Carbon Vote” for TheDAO fork on Ethereum. Source: https://elaineou.com/2016/07/18/stick-a-fork-in-ethereum/

As with other networks based on the original Ethereum design, some parameters such as adjustments to the gas limit per block — restricting the amount of EVM computation in a similar way to block size / weight in Bitcoin-derived networks — can be enacted in small increments on a per block basis via miner signalling. There is currently some discussion to motivate a decrease in the gas limit per block in order to avoid the chain growth rate issues which make running ETH full nodes a challenge in terms of burdensome resouce requirements. The likely aggregation of ETC hashrate among a small number of big mining farms, cooperatives and pools presents issues with reliance on miner signalling, as recently evidenced in Bitcoin when the merge-mined EVM Rootstock sidechains went live with 80% of network hashrate signalling. The naive downstream adoption of “default” Ethereum settings such as ETH’s 8 million gas limit per block is also a potential issue for ETC’s ungovernance to navigate.

ETC Gas Limit versus Block Height. Source: http://etcsummit.pllel.com

Two hard fork network upgrades have taken place in the ETC network — ECIP-1010 to remove the “difficulty bomb” and ECIP-1017 to institute a supply cap with asymptotic supply curve.

The decision-making process could be better organised, more transparent and clearly defined and refinements to the ECIP process are currently being discussed. At present most informal community discussion takes place on ETC’s Discord server, with ECIPs themselves posted on the nominated Github account (ethereumclassic) following a power struggle and takeover of the previous canonical Github account (ethereumproject), ostensibly related to the situation with ETCLabs discussed below. ETCLabs appear to be preparing to implement their own proposed parallel “ECLIP” improvement proposal scheme though this may be a mis-communication rather than a “consensus hostage situation” — situation is unclear at time of writing. Below are a few links to recent discussions and proposals relating to how Ethereum Classic reaches decisions relating to network upgrades and changes.

Ethereum Classic (ETC): Putting Together the New Decentralized ECIP Process

Ethereum Classic Improvement Proposals

ethereumclassic/ECIPs

Some stakeholders in ETC want to see closer collaboration with ETH, some are ambivalent and others are opposed. The recent announcement of Bob Summerwill as ETC Cooperative Executive Director is noteworthy as he was instrumental in founding the Enterprise ETH Alliance, was involved in the Ethereum Foundation, was a senior figure at Consensys. There are some existing collaborative projects between ETH and ETC, including Akomba Labs’ “Peace Bridge” to allow cross-chain transactions, Kotti unified PoA testnet and some recent discussions regarding ETC considering the adoption of aspects of the Ethereum 2.0 roadmap.

The last few months have seen a change in the composition of the ecosystem around Ethereum Classic, as a the previously pre-eminent privately funded core development team “ETCdev” collapsed due to lack of funds with another entity “ETCLabs” forming a new developer team “ETCLabs Core” with significant overlap of personnel. Some community members have described the sequence of events as a corporate takeover attempt, others do not seem so worried.

“The ETC community is still small and, in this bear market, lacks funding from volunteer investors or other sources to initiate new core maintenance and development projects or pay new core developers quickly. This is because there are no leaders, foundations, pre-mines, treasuries, protocol taxation or any other financing gimmicks that so much contaminate other centralized projects.”


ETC History and Network Characteristics

The Ethereum blockchain launched on 30th July 2015. When the Ethereum Foundation conducted a hard fork as part of TheDAO’s exploit recovery (“irregular state transition”) on July 20th 2016, they kept the name and ticker symbol Ethereum / ETH. The canonical chain branch in which TheDAO exploiter kept their spoils survived against most observers expectations and attracted community, developer, exchange and mining support. The unforked chain came to be known as Ethereum Classic (ETC).

Ethereum Classic (ETC) is pure Proof of Work utilising the Ethash (Dagger Hashimoto) algorithm. It is the second largest network using this algorithm, marshalling approximately 15–25x times less hashrate than Ethereum (ETH). Due to its situation as a minority PoW network without 51% attack mitigations at the protocol or node levels it has been deemed to be vulnerable to thermodynamic attacks and this has been observed recently. Mining is permissionless so the identities and extent of participation of block producers are not necessarily known. Some network and blockchain analysis of the ETC mining ecosystem is being undertaken currently. There is a high degree of suspicion that covert FPGA and/or ASIC mining was employed leading to the recent majority attacks. Most of the hashrate employed in the recent attacks is suspected to be of exogenous origin to the existing Ethash ecosystem and marketplaces such as Nicehash.

Ethereum’s whitepaper was first circulated in late 2013 and there was a “token crowdfunding” (= ICO) in 2014. Approx 72 million of the 105 million supply issued were distributed in the ICO. Mining providing block and uncle rewards has distributed the remainder. Work is ongoing currently to compare the movement of balances either side of the ETC/ETH fork. Inflation was set to “5M20”, reducing mining rewards by 20% every 5 million blocks which corresponds to approximately 5% annual supply increase. The same hard fork in 2017 (ECIP-1017) also installed a fixed supply cap.

Ethereum “became” Ethereum Classic because the Ethereum Foundation asserted intellectual property rights over the “Ethereum” name despite branching away from the canonical chain. This is still a point of contention and some prefer the name “ETC” as a subset of stakeholders look for alternative nomenclature to “Classic”.


How are Development and Ecosystem Activities Funded in ETC?

What is the reference node implementation?
This is also a bone of contention in ETC. When ETCdev ceased operation, the hitherto canonical client Classic-Geth written in Golang stopped being reliably maintained. ETCLabs Core maintains Multi-Geth but not all stakeholders in the ETC ecosystem are currently comfortable using their software given their ostensible desire to have an independent ECLIP improvement proposal pathway which appears more hard-fork than soft-fork oriented.

Are there any other full node implementations?
Parity Labs maintains their Parity client written in Rust.

IOHK maintains their Mantis client written in Scala.

How is client development funded?
Development is funded by private organisations — ETCLabs, Parity and IOHK fund client development following the demise of ETCdev. ETC Cooperative (partly funded by DCG/Grayscale and DFG) also support protocol development.

There has been resistance to adopt an on-chain treasury as proposed by IOHK, some stakeholders see this as inherently centralising but given the collapse of ETCdev due to funding shortfalls and absence of alternative funding models / “build it and they will come” the status quo is at risk of prolonging a continuing tragic commons scenario. There are some grants and funding opportunities via ETCLabs but at present are focused on business/startup incubation.

Most funds are controlled by companies but ETC Cooperative is now a 501(c)(3) non profit based in the USA. There is also a small community fund controlled by a multi-signature wallet but there are no current plans to disburse this.

What other software does the entity(ies) which funds the reference node produce?
Hard to answer conclusively since there is a lack of agreement over what the reference implementation currently is.

Parity — Rust ETH client, Polkadot/Substrate, Bitcoin client, Zcash client.

ETCdev — defunct, Emerald application development framework and tools, Orbita sidechains.

ETC Cooperative — developer tooling and infrastructure e.g. recent Google BigQuery integration.

IOHK — a lot of software for Cardano, ZenCash, ETC.

ETCLabs — ?

What else do the entities which develop or fund the reference node do? (not software)

Parity — Web3 Foundation

ETCLabs — VC/Startup incubator

ETC Coop — General PR, community and ecosystem development, conference organisation, enterprise & developer relations

IOHK — PR, summits, art projects (Symphony of Blockchains), academic collaborations, VC partnership and research fellowships with dLab / SoSV / Emurgo….

DCG/Grayscale/CoinDesk — PR, financial instruments e.g. ETC Trust, OTC trading…


How is work other than development (e.g. marketing) funded?
It in unclear how funding and support for non-development activities is apportioned.

DCG/Grayscale and DFG fund ETC Cooperative

DFG funds ETC Labs


Related projects — Are there any significant projects which are related? For example, is this a fork of another project? Have other projects forked this one?
Ethereum (ETH) was a ledger fork of this project, Callisto (CLO) was a ledger fork of this project. There may have been more minor codebase or ledger forks.


Significant Entities and Ecosystem Stakeholders

ETCLabs is a for-profit company with VC/Startup and core development activities funded by DFG, DCG, IOHK and Foxconn.

ETC Cooperative is a 501(c)(3) non profit based in the USA funded by DCG and DFG.

ETCdev (defunct)

IOHK (Input Output Hong Kong) is the company led by Charles Hoskinson who previously worked on BitShares, Ethereum and now Cardano.

DCG (Digital Currency Group) is Barry Silbert’s concern which contains in its orbit Grayscale Investments, CoinDesk, Genesis OTC Trading amongst other organisations.

DFG (Digital Finance Group) is Chinese diversified group concerned with investments in the blockchain and cryptocurrency industry, OTC Trading, Venture Funds.


Wassim Alsindi directs research at independent laboratory Parallel Industries, analysing cryptocurrency networks from data-driven and human perspectives. Find him at www.pllel.com and @parallelind on Twitter.

Reaching Everyone: Are stablecoins the answer to Bitcoin’s volatility?

It depends on the question. For those most in need of value preservation and freedom of transaction, the risks likely far outweigh the benefits.

This is a brief aside from our “Reaching Everyone” article series on In The Mesh, by Matt ฿ (@MattoshiN) and Wassim Alsindi (@parallelind) on the use of Bitcoin and the technology stack built atop it to assist those living under oppressive regimes or in conflict zones, and those seeking to flee them.

There is no doubt that volatility in BTC-fiat crossrates make external measures of cryptocurrency value vary wildly, and obviously downside risk is not helpful especially with those in straightened circumstances, or even with their lives on the line. On the other hand things like this might happen:

https://www.thesun.co.uk/news/7804100/isis-war-chest-bitcoin-crash-investment-millions-cryptocurrency/

Could so-called “stablecoins” be the answer to the volatility dilemma? Well, stable with respect to what, and how to maintain price consistency? Broadly, there are three current models:

1) Central issuing authority. Confidence in value is faith-based with censorship risk — such as JPM’s upcoming offering. Additional risks with undercollaterisation.

2) Asset-backed with trusted custodian. Price maintenance depends on faith in the underlying assets and transparency of auditing. Examples include Tether or gold-backed products.

3) Algorithmic mechanisms seem like worthy but very much unproven experiments. Until tested at scale and over significant periods of time, these are no place for people on the margins to place their wealth. DAI and Basis (RIP) are examples of this approach. Additional risks arise from regulatory burden, if the stability process is deemed to be security-like and centralised oracles reporting external prices. Front-running may be an additional issue with DAI as MKR (MakerDAO’s parent token) holders would be diluted in the event of a peg failure, with more sophisticated holders jumping ship at first signs of trouble. This may resemble the Cantillon Effect playing out backwards?

There is considerable base protocol and smart contract risk for platform-issued tokens such as stablecoins, especially as the current predominant stablecoin token “hosting” platform Ethereum prepares to undergo transition to ETH1.X and ETH2.0 with some combination of ProgPoW, hybrid PoW/PoS, PoS, the bewilderingly diverse Plasma family of state channels, new virtual machines, sharding and/or state rent. Contrast this with Bitcoin’s conservative development philosophy and aversion to rapid changes in network function largely pushing innovation into “second layers” such as Lightning Network and sidechains.

Using a Stablecoin today largely redistributes risk from price volatility to technological, regulatory and/or custodial uncertainty, not necessarily a wise trade for someone with few other options compared to physical cash. Privacy is also an issued with almost all these systems, which either require some element of AML/KYC or use networks with inherently poor privacy. Historically, no stablecoin has ever defended its peg over a period of years. Stablecoins are still an experiment, no place to deal with matters of life or death. As the crowded retinue of competing fiat-pegged products grows ever larger, more concepts from traditional finance such as demurrage, censorability, discounts on par or interest are being proposed or experimented with.

Even major currencies such as the British Pound have failed to maintain agreed trading ranges against well resourced adversaries, what chance a smart contract or non-native blockchain token with limited resources has to balance price, supply and demand through the various phases of cryptocurrency’s wild market cycles remains to be seen.

The BitShares USD stablecoin BitUSD has among the longest history of any attempt. Source https://coinmarketcap.com/currencies/bitusd/

For people outside the most developed nations, or those whose human rights are under risk stablecoins do not deliver the goods, at least in the present day.

Wassim Alsindi directs research at independent laboratory Parallel Industries, analysing cryptocurrency networks from data-driven and human perspectives. Find him at www.pllel.com and @parallelind on Twitter.

Matt B is a writer and content strategist in the cryptocurrency space with a particular interest in Bitcoin and privacy technology. He can be reached at itsmattbit.ch and @MattoshiN on Twitter.

A Brief Primer on Navigating TokenSpace

This is the second in a series of pieces focussing on TokenSpace, a novel conceptual classification framework for cryptographic assets. This Q&A provides some additional background. If you need more answers than these two pieces provide, get in touch to be a lucky proof-reader of the manuscript.

TokenSpace may be considered by analogy with our own spatio-temporal conception of reality, consisting of a three-dimensional space delineated (for convenience and visual clarity) by orthogonal axes Sbar, Mbar and Cbar. Assets may possess a score or range on each axis between 0 and 1 inclusive giving rise to an object inhabiting a region of TokenSpace described by the (x, y, z ) co-ordinates (C, M, S). Time-dependence of object properties may also be incorporated to reflect the dynamic nature of cryptocurrency protocol networks and their native assets, tokens issued atop them and network fragmentations such as ledger forks.

Sbar, Mbar and Cbar correspond to intuitively reasoned assignments of subjective classificatory meta-characteristics Securityness, Moneyness and Commodityness which together form the basis of TokenSpace classification
methods currently in development. Each asset’s location in TokenSpace is intended to be derived from a weighted scoring system based upon taxonomy, typology, intuitive, elicited and/or quantitative methods depending on the choices and assertions of the user — which may or may not be identical to those proposed in this work.

TokenSpace visual impression. Yes, those branches coming out of the axes represent taxonomies!

Definitions of the proposed meta-characteristics:
Sbar — Securityness. The extent to which an item or instrument qualifies as or exhibits characteristics of a securitised asset. For the purposes of clarity this meta-characteristic does not refer to how secure (robust/resistant) a particular network or asset is from adversarial or malicious actions.
Mbar — Moneyness. The extent to which an item or instrument qualifies as or exhibits characteristics of a monetary asset.
Cbar — Commodityness. The extent to which an item or instrument qualifies as or exhibits characteristics of a commoditised asset.

Example scores for a range of assets are outlined in the tables below with visual depiction in Figure 2. Ideal types are postulated canonical examples of particular asset types and are discussed in Section 2 of the manuscript. It is the aim of this and future research to provide suggestions for classification approaches and some examples on how TokenSpace may be utilised to comparatively characterise assets from the perspective of various ecosystem stakeholders. Time-dependence may also be significant in certain instances and can be incorporated into this framework by evaluating an asset’s location in TokenSpace at different points in time and charting asset trajectories.

TokenSpace is expected to be useful to regulators, investors, researchers, token engineers and exchange operators who may construct their own scoring systems based on these concepts. Careful review of territory-specific regulatory guidance and judicious consideration of boundary functions for example delineating “safe”, “marginal ” or “dangerous” likely compliance of assets with respect to particular regulatory regimes are recommended and an example is presented in Figure 3. Parallel Industries is developing hybrid multi-level hybrid categorical/numerical taxonomies for each meta-characteristic alongside time-dependent and probability distribution functions for anisotropic score modelling and is available to develop bespoke TokenSpaces for clients on consulting and contract research bases.

Example of cryptographic assets inhabiting TokenSpace
Example of a regulatory boundary function. Arbitrary polynomial for illustrative purposes.


Wassim on “Let’s Talk ETC” Podcast (Autumn 2018)

Recently re-uploaded to our YouTube Channel is a conversation Wassim had with Prof. Christian Seberino of Let’s Talk ETC podcast, following his appearance at the 2018 Ethereum Classic Summit. Among the topics covered were Wassim’s background, Forkonomy as an analytical lens to understand possible futures of blockchain-archtected networks and the Reaching Everyone initative to widen access to cryptocurrencies with particular emphasis on the economically and politically disadvantaged.

Q&A on Reaching Everyone: the Political and Humanitarian Potential of Bitcoin

This conversation with In The Mesh was recently published on their website. Wassim Alsindi, director of research at Parallel Industries, is currently co-writing a series of articles In The Mesh in which he’s deep-diving into bitcoin and the potential for cryptocurrency to be leveraged to assist those living under authoritarian rule. If you’ve missed them, be sure to check out parts I and II and come back soon for the last two installments. Wassim’s take on everything “crypto” is incisive, studied, and worth listening to, and he has an interesting background, ranging from academe to experimental music. So we chatted with him to learn more about his background and get his perspective on some current trends in the cryptosphere.

Kevin Durkin for In The Mesh

When did you first hear about cryptocurrencies and what were your thoughts about it at that time?
My life before Bitcoin and cryptocurrencies was as an experimental musician and decentralised arts organisation founder, manager of interesting creative technology projects and festival curator. Whilst on a music tour around the US West Coast in 2012 we went to a friend-of-a-friend’s place in Silicon Valley, he opened his closet and said “check this out, I’m doing this thing called mining Bitcoin”. It took a while to be convinced, the idea sounded great but everything I could find online looked quite dubious — Mt. Gox, Bitcoinica, BitInstant and so on — and as I wasn’t a computer scientist or cryptographer the detailed discussions were beyond me. It wasn’t until 2014/5 during what may have been Bitcoin’s darkest days that I started to get really interested. The idea of natively digital money that isn’t controlled by anyone has obvious appeal, but surviving the Gox incident showed me that the technology had some serious resilience and could be a long-lived proposition.

Wassim Alsindi

Lately, Bitcoin and other coins have been losing financial value. How do you see this turn of events and the claims that cryptocurrency is and always was a “bubble”?
Well, the facts don’t lie, Bitcoin had a cycle bottom in 2015 at around $180 and two years later it was trading at a hundred times that price. As much as I favour Bitcoin’s characteristics and qualities as the first natively digital commodity and (in time) money, we do have to ask ourselves if that kind of price action is really sustainable or desirable. Volatility is acceptable in a commodity or speculative vehicle, but if people around the world are going to adopt it for monetary use we need to see some more price stability, increased liquidity and less friction in the conversion of our existing state monies to cryptocurrency. Was it a bubble? Probably. But not the first, and likely not the last either. So, are they bubbles or market cycles as a new asset is adopted, matures technically and becomes monetised? That is in the eye of the beholder.

Your interest in cryptocurrency seems to peak at times of others’ fear/panic. Why is that?

Wassim is in it for the tech.

It’s somewhat of a cliché these days but I’ve been a technology researcher my whole adult life, so I really am here for the tech and the freedom. My interest has been steadily building over the years and having wrapped up previous commitments I have nothing better to do now. I don’t take pleasure in the bear market, it’s been very difficult for me and for Parallel Industries too. We’re operating on a shoestring, and the string keeps getting shorter every time the market takes a leg down. I had hoped to bootstrap the organisation on an open-source donations model but this seems very difficult at the moment — even organisations and developers who directly contribute to these protocols are struggling. All the same, every day that Bitcoin survives in the wild it gets stronger and more widely known. These days you don’t have to ask most people in the developed world if they’ve heard of it, they just want explanations and/or advice.

You’ve innovated a field of fork future studies, called forkonomy. How do you hope it will impact the crypto space?

The research area arose from a conversation with a Twitter friend who was monitoring hashrate on various networks using the Equihash algorithm. We noticed that a new coin (BTCP) had a much higher “market capitalisation” but a fraction of the hashrate of the project it had been borne from (ZCL). Due to the novel “fork-merge” operation used to generate the new ledger, a coin with an effective age greater that Bitcoin’s was created.

So we have been afforded a glimpse into a possible future of Bitcoin, albeit a nightmare scenario where the network has not achieved its goal of developing a transaction fee market before the mining subsidy attenuates. The goal is to find similar anomalies as they arise and relate them to the possible futures of major networks. Having spent some time as an experimental astrophysicist, I like to compare this idea with the stellar taxonomy of the Hertzsprung-Russell diagram which predicts the likely fates of stars based on their temperature and luminosity.

Still some way to go before we have a suite of robust and predictive analytical tools, we are very much in the alchemical phase of cryptocurrency.

How has your background has made you sensitive to the potential uses of cryptocurrencies by people living under oppressive regimes?
Without going into too much detail, the “political and humanitarian hacking” potential of decentralised technologies in general and Bitcoin in particular are very real for Iraqi diaspora such as myself. For those who were able to leave the country under Saddam’s rule as some of my family did, one of the hardest things was to move money or value from place to place. Bank accounts had been frozen, confiscations of gold and cash were commonplace at airports, bandits would patrol the desert regions close to frontiers looking for easy pickings and scholars’ international funding was withdrawn suddenly. Given the above, it is not hard to see promise in these nascent technologies to re-empower the individual and community at the expense of tyrants, institutions and nation-states. The fact that we can engineer tools, solutions and strategies for people living under oppression or conflict to have government-hard, unconfiscatable pseudo-monetary assets completely changes things for people in the most unfortunate and compromised situations.

The “Byzantine Generals” in Wassim’s family.

What kinds of uses of cryptocurrency do you envision that can do the most for people in those situations?
I would say that only a handful of cryptocurrencies truly show the resilience (today or as future potential) to withstand these sorts of situations. These are the ones with sufficiently mature and dispersed networks that have a defined focus on immutability, privacy and censorship-resistance that also lack central points of failure such as conspicuous leaders, companies or foundations. Bitcoin, Monero and Ethereum Classic are the examples I have identified having deeply studied the cryptocurrency space for the past six and a half years. (Happy to hear of any more — please hit me up on Twitter, even if it is a smaller / newer network.) The uses are limited only by the ingenuity of the brilliant minds worldwide who do and will work on these issues, and that is what Reaching Everyone is really about — nothing more complicated than a non-profit, unorganised initiative to plant these seeds in curious minds: that we must not forget the rest of the planet as the fortunate ones create a new world of financial freedom. But we don’t have to get too hand-wringing about it — this is not about “Western guilt”. Incentives drive Bitcoin and everyone can act according to their own rational self-interests here. Furthermore, the less resources people have at hand, the more resourceful they tend to be. Anyone who has visited less wealthy countries can attest to this.

The experimental musician Goodiepal helped bring Wassim into his current exploration of the possibilities of cryptocurrency.

How did Reaching Everyone come to be?
The idea came about quite unexpectedly, despite all the above. Just over a year ago (December 2017) I was in London for a meeting with UK financial regulators as I have another project TokenSpace which has developed novel taxonomic frameworks to help see similarities and differences between cryptographic assets with the goal of preventing regulatory mis-steps. It just so happened that my much beloved Danish-Faroese friend and infamous radical experimental musician Goodiepal was performing with his band their annual Christmas show that evening. So I went along and found out that they had moved to Serbia and were raising funds for informal humanitarian work with refugees stuck in limbo there at the EU frontier. Among the biggest issues facing the people they had been helping were moving money internationally and exploitation / extortion by smugglers and mafia cartels. I simply put two and two together that cryptocurrency can provide at least a partial solution to these problems. I’m sorry that we haven’t been able to raise any money for the immediate cause but I hope we can still make a difference in the longer-term.

Your interests are wide-ranging and Parallel Industries seems to have a holistic view on the crypto world. What do you hope Parallel Industries will add most significantly in the near future to the crypto scene?
 Indeed things are moving forwards quickly on multiple fronts, and as well as pushing ahead as much as possible with Reaching Everyone, I am trying to take a wider view of what I consider the ontological meta-stack as applied to radically decentralised technologies. The “TokenSpace” supra-taxonomy research project is very close to outputting a manuscript after over a year of work and I recently revisited “Forkonomy” in early 2019 having learned some new skills at the command line for node operation, mining and directly harvesting blockchain data. There is another project entitled “DAOs and Don’ts” which investigates insider asymmetries in P2P networks, though it is a daunting prospect to comprehend the task at hand due to the sheer volume of cases encountered.

Q&A On TokenSpace: A New Conceptual Classification Framework For Cryptoassets

In search of fresh perspectives on the characteristics of cryptographic assets. This Q&A with Matt ฿ originally appeared in 21cryptos.com in December 2018. A comprehensive manuscript describing TokenSpace will be released soon, in the meantime more TokenSpace information over at pllel.com and on Twitter.


Q: Can you give a bit of background on yourself? What got you interested in cryptocurrency?

Sure, it’s been a winding road though so let’s not get too lost in details! I grew up in various towns and cities in the UK mostly reading maths and sci-fi books, stargazing, misusing home chemistry crystal growing kits, making music and playing way too many computer games. Spent a decade at universities studying, researching and managing scientific research in chemistry, physics and astronomy where I really got exposed to the idea of organising knowledge to further our understanding. My chemistry mentor (now YouTube-famous) Professor Sir Martyn Poliakoff is very likely the world’s leading connoisseur of the periodic table of the elements so I’ve had classification systems such as taxonomies on the brain for a while now.

After that I spent several years working with experimental music and arts, running a record label, organising educational activities, managing interesting projects and curating a festival. Whilst on a music tour around the US West Coast in 2012 we went to a friend-of-a-friend’s place in Silicon Valley, he opened his closet and said “check this out, I’m doing this thing called mining Bitcoin”. It took a while to be convinced, the idea sounded great but everything I could find online looked quite sketchy — Mt. Gox, Bitcoinica, BitInstant and all that — and it wasn’t until 2014/5 during what may have been Bitcoin’s darkest days that I started to get really interested. The idea of natively digital money that isn’t controlled by anyone has obvious appeal, but surviving the Gox incident showed me that the technology had some serious resilience and could be a long-lived proposition. Since then it’s gradually taken over my life as I’ve worked my way through various activities as a hobbyist — watching the markets, running nodes and following on-chain activity, messing around with coloured coins and smart contracts, mining and now research of various flavours through an independent research organisation Parallel Industries.

My Bitcoin sunrise, after playing a gig in Stanislaus National Forest in Summer 2012

Q: ELI5 TokenSpace.

TokenSpace is an attempt to make a relatively simple and easy to use comparison system out of the sprawling and confusing mess of cryptocurrencies, tokens and suchlike that we find ourselves with today. Think of it as a 3D “space” to place different assets inside, with each of the axes representing a characteristic that we can use to visually compare and contrast different assets. The position of an asset along each axis is determined by a scoring system between 0 and 1 for that characteristic, so that a score of zero means the asset doesn’t have those properties at all, and a score of one means it’s a textbook case. Where the score comes from is up to the user, it can be from an intuitive ‘gut feel’ perspective, a weighted taxonomy of different properties, a consensus view from a panel of advisors and so on. It all depends on the intended application.

TokenSpace visual impression

The primary application so far has been to look at the ongoing uncertainty as to the legal and regulatory status of cryptoassets and how similar or different they are to traditional asset types such as monies, securities or commodities. Obviously there is a lot of variation from asset to asset and it is becoming increasingly clear that government bodies are looking at these things closely.

It’s important to understand that the difference between concepts like TokenSpace and the periodic table of chemical elements is that we are still very much in a subjective realm with cryptoassets, and therefore any particular score should be taken with a pinch of salt. People are not going to have the same opinions on a lot of these things — if you follow the cryptocurrency and blockchain space then you will know that humans are VERY biased creatures! A future avenue for this work is to explore different perspectives to see where they come together and where they do not. You could say we are still in the occultist and alchemical phase of cryptocurrency…


Q: Tell us about the metrics you’re using to place the assets in this 3D space.

The axes I’ve chosen are for the properties Securityness, Moneyness and Commodityness — in other words how much a coin or token embodies or exhibits the characteristics of a securitised asset, a money or a commodity. Having encountered the fruitless debate of “I think token X is a security but you think it is not” innumerable times, and given the fact that these tokens and networks are hybrids of payment mechanisms, rights to on-chain property or “cashflows” like masternodes, value stores and consumable resources it seems reasonable to engender a greater ability to differentiate between more subtle differences in these assets.

One thing that’s nice about working with a conceptual framework like this is that it could easily be adapted for another purpose — for example Parallel Industries has begun a collaboration with DAO specialists who want to apply a similar approach to characterising the organisational structures that exist around decentralised networks and providing the right dimensions are found, there’s no reason why you can’t also build a set of taxonomies or scoring systems for that purpose. It does require careful thought and design choices to ensure you end up with a useful tool that can be meaningfully used.


Q: How would you distinguish between, for instance, Bitcoin, Litecoin, Tether and Polymath with this framework?

Good question. I think it’s reasonable to say that as assets, bitcoin and litecoin are often thought of as having “commodity-like” characteristics. People often refer to the digital gold and silver memes so they would place reasonably well on that, though bitcoin has much more liquidity and market depth so it would be easy to make a case for it being the premier digital commodity. Neither have much in common with securities though you could make a case that Litecoin’s founder and Foundation are somewhat relied upon for expectation of profit. As much as it’d be nice to say otherwise, bitcoin and litecoin still aren’t great as monies compared to fiat currency so they do still have some ground to cover there.

Tether functions primarily as a monetary substitute although it’s hard to be confident about it’s supply or ability to store value in the long term, though by virtue of its stability against fiat currency relative to traditional cryptocurrencies it does fulfil that purpose reasonably well in today’s high friction on and off ramps with exchanges for example. It doesn’t look much like a commodity or a security to me.

Polymath is not one I’m very familiar with, being a security token platform they are at least being upfront with that. As an ERC20 token on Ethereum with a central administrative team it does seem to have a lot of the hallmarks of a security and though there does appear to be some “utility” being used to issue securities tokens on their platform it could be argued that it has more commodityness than the typical Ethereum ICO vintage of 2017 or something quite useless such as XRP but nowhere near as much as bitcoin or litecoin.

Placing selected assets in TokenSpace. Scores are assigned by author.

Q: You’ve taken on the seemingly insurmountable task of attempting to classify cryptoassets. What are regulators doing wrong? What sort of organisations would benefit from this?

It’s a tall order indeed, and perhaps not surprising that it’s taken a while to get to this stage. The hope is that tools like TokenSpace can help coin and token issuers, lawyers, regulators and exchange operators get a better grip on the characteristics of different assets and avoid making misinformed decisions such as blanket bans, listing or adopting assets which might cause them compliance headaches or issuing poorly designed tokens which might land them in hot water later.

I’ve met a few regulators, token issuers and exchange compliance officers and it seems that a lot of the pitfalls seen so far (and many more to come) are from a lack of understanding of how these assets and the underlying networks function and evolve over time. It’s virtually impossible to have a complete grasp on these things — even Satoshi didn’t have every angle covered! The biggest mistake I’ve seen being made so far by officials is the rush to make sweeping pronouncements without being able to back them up with justifications that make the situation even less clear.

One example are comments made by US Securities and Exchange Commission officials that the ETH crowdsale was a securities offering but the Ethereum network has since become “sufficiently decentralised” and therefore is no longer a security. Taking that at face value, it suggests that at one point, ETH has passed through a “legal / not legal” boundary, but where and how? What made the difference and how was that decision arrived at? Node distribution? Concentration of tokens amongst insiders? Decentralisation of leadership? It’s not easy to resolve that with existing securities laws guidelines like the Howey test. What about network forks and issues such as The DAO exploit? These sorts of things are going to keep happening.

Example of an Arbitrary Regulatory Boundary Function

Q: What could regulators be doing better?

Make clearer statements, do your homework to understand the technology at play and be more upfront about decision-making processes! What are the metrics that regulators deem important? Why? Don’t build rigid legal frameworks that can’t cope with the breakneck pace of cryptocurrency developments. There will always be regulatory arbitrage with borderless technologies, just look at Malta and Puerto Rico. Which small nation will be next to reposition itself to attract jurisdiction-hoppers like Binance?

There is also the perennial issue of legions of “Blockchain Experts” who usually land influential advisory roles but seem to know very little about the ins and outs of applied cryptographic networks and assets associated with them. Having spent a very frustrating year in a business school environment having to deal with fakers and imbeciles claiming said proficiencies recently, I can confirm that this is a very real problem.


Q: What else is Parallel Industries working on? What are your future plans?

Currently Parallel Industries is very much in the bootstrap phase, limping along with very little income (thanks bear market) so it’s a major priority to bring in resources through sponsorship, consulting and contract research to operate sustainably so that we can expand our research activities and yours truly isn’t spread quite so thinly! The TokenSpace paper is finally approaching readiness and our Forkonomy project undertaking comparative analysis of network forks (such as BTC/BCH, ETC/ETH, BTCP/ZCL) has already had a number of outputs including a talk at the recent ETC Summit in Korea and a well-received paper. There’s also a project in progress named DAOs and Don’ts looking at power imbalances in cryptocurrency networks which has been on the sidelines a little too long. Keep an eye out for an article series on political and humanitarian hacks and use cases for cryptocurrencies in In The Mesh magazine under the title Reaching Everyone.

If any of that arouses curiosity do a look at our website www.pllel.com or find us on Twitter @parallelind. If you’re a crypto-millionaire looking for a way to lighten your bags and fund some research in the process, we can help with that too!