Former Bitcoin Core Developer Jeff Garzik on ‘DeFi’, Stablecoins & Bitcoin – Forbes


Stablecoins and Layer 1 Days

Former Bitcoin core code contributor Jeff Garzik says stablecoins are propelling Decentralized Finance (DeFi) to the next stage. 

“Product-wise, we’re in a generational shift,” he said earlier this year at Consensus 2019 in New York where he presented as Chief Architect of Metronome (MET), a cryptocurrency released in 2018. “The stablecoin is here to stay and now people are building on top of that.”

Stablecoins are a type of crypto asset that seek to eliminate the large price fluctuations common to most digital assets by fixing the value to fiat currency, exchange-traded commodities (such as precious metals), and cryptocurrency.  

“The next big event is all of the decentralized financial products—the loans and the credit—built on top of those Layer 2 stablecoins, which are built on top of the Layer 1 cryptos like a Metronome or Bitcoin,” said Garzik, who is the CEO of Bloq, a Chicago-based company that creates blockchain technology for enterprise.

“You would not write a 30-year mortgage in BTC,” he said. “That would be financial suicide for either the mortgager or the mortgagee. But, you can do that with a stablecoin. Once you have a stable cryptocurrency, you can start creating loan products, credit products, 30-year mortgages, investments products that pay out dividends. It opens up a big, big, big world.

Stablecoins are built on top of a cryptocurrency currency like Bitcoin, and this layering function is what makes the stablecoin safe and stable. “You have unstable assets like MET or BTC as collateral and, say you have a $150 worth of unstable collateral parked in a smart contract, then that will issue $100 worth of stable token tied to the U.S. dollar. What that has done is unlocked a whole new universe, because before Bitcoin, Ethereum, etc. prices [were] volatile.” 

Despite the relative “success and survivability” of stablecoins, Garzik said by and large the blockchain industry is still in its early stages – ‘Layer 1’ days, he calls them.

“10 years in, we’re still in the ‘I’m building a blockchain’ days,” he said. “DeFi is the first ‘I’m building on top of blockchain’ kind of use case. It is built on that lower layer infrastructure plumbing that the average users should not have to think about or know about—it should be there and it should work.”

He says the industry is a couple layers away from making blockchain products safe for the average user. 

“Writ large, it’s still early days.”

In the early days, Bitcoin still plays a crucial role

Garzik, a Linux Foundation board member, says Bitcoin is still relevant today because its simpler and easier to secure than other blockchains. He also seems to believe it could lead to personal epiphanies.

“Bitcoin is like taking the red pill in the Matrix,” said Garzik. “That becomes your knowledge explosion and your intro to the cryptocurrency industry as a whole. Once you’re onboarded to Bitcoin, you find out about this whole universe of blockchains, DeFi, and the Lightning protocol,” said Garzik. The Lightning protocol refers to a scaling solution built on top of the Bitcoin blockchain. That’s the social and philosophical side of Bitcoin.

“And then the economic side is it’s the strongest chain,” he said. “Bitcoin is the root of the internet of chains. And so, if I’m pragmatically, rationally building a project, I want to build on the strongest chain. Bitcoin makes it more secure, easier to analyze, and easier to build secure software.”

The first cryptocurrency works for payments and moving assets, said Garzik, who calls Atlanta, Georgia home. But, he admits, Bitcoin is not flexible enough to achieve certain goals, especially on the enterprise side of things.

“If I want to build a completely decentralized ETF that manages 20 assets like an S&P 500 style index, Bitcoin is just not going to do that.”

Enterprise Bitcoin experiments have not gone very far, said Garzik. “Most people are looking at either Tendermint or Hyperledger on the private blockchain side for more smart contracts, supply chain, and provenance-type use cases.”

In order to illustrate where Bitcoin excels, Garzik cites BNY Mellon, a global financial services company that has experimented with Bitcoin. 

The bank’s CIO, Suresh Kumar, told the Wall Street Journal the bank was researching ways to make transactions more efficient. BNY Mellon senior developer, Arun Battu, built an application using open source code from to run on BNY Mellon’s internal network. 

The bank also reportedly tested so-called ‘BK Coins’ as incentives for the company’s corporate recognition program as a reward for creating select software services.

“[I]f we can find a way to make it tangible, in a controlled environment like our internal employee recognition program, then we have a great opportunity to help our businesses better understand the potential value,” Kumar told WSJ, speaking of blockchain and cryptocurrency. BK Coins are redeemable for gift cards, vouchers and some other perks. 

Kumar also told WSJ that there is a big change of mind set when it comes to new technologies like Bitcoin. Battu, a senior developer, noted his biggest challenge was transitioning to a peer-to-peer model from the traditional client-server architecture. Garzik agrees that the transition to blockchain-based technologies won’t be easy for many people to wrap their heads around.

“Owning your own keys is such an inversion from the banking days,” Garzik said. “Just like every technology, it is a double-edged sword. You have responsibility that comes with holding your own keys. If I stuff a bunch of hundred dollar bills under my mattress, maybe that’s keeping it safe or maybe that’s making it more vulnerable to theft. And, so it’s a new way of thinking about, ‘How do I secure my assets?”

Bitcoin Creates Freedom

At the same time, Bitcoin is putting the user in control, which creates freedom. “That’s freedom of choice, freedom of movement, freedom of association. Ultimately, I think it’s freedom of speech. Code is speech. Monetary transactions are speech. And so, if you restrict that, as some governments are doing, you’re restricting the freedom that people normally enjoy.” 

If code is considered speech, a sometimes debated topic in open-source communities, then sending and receiving bitcoins might be protected by free speech laws. I asked, Is transacting a human right? 

“The short answer is yes,” said Garzik. “The longer answer is what we’ve seen over the past 10 years, especially in the cryptocurrency industry, is bank de-risking, which we’ve seen in the US, Australia, and elsewhere.”

It’s not the regulators and legislators banning blockchain-related companies, he observes. “What they’re doing is they’re saying, ‘We don’t like bad actors,’ and then it’s up to the banks to interpret what is a bad actor. And if they are interpreting that, they then have this liability. For if [they’re] banking Osama bin Laden and don’t catch that, [they’re] liable. So, all banks see is this liability. If there’s any gray area, [they don’t] bother with that at all.”

Banks then only allow certain people to open bank accounts, Garzik said. “Everyone else, you’re just out of luck. And, from there, that is decoupling people from the monetary ecosystem. If I can’t buy bread, if I can’t buy shoes, I am forced to beg, forced to disconnect myself from society in a lot of ways.” 

He recalls how in 2013 payment processors, such as VISA, MasterCard, and PayPal, stopped processing payments for Wikileaks. “They leaked various things, pissed off various governments, who leaned on the banks, who leaned on the payment processors, who flipped the off switch,” said Garzik. “And anyone who believed in that cause and wanted to support [Wikileaks], the government—in a very real way—said ‘I’ve chosen to not allow you to support this cause.’ So, the government is becoming a gatekeeper for what causes you can and can’t support, which is totally anti-freedom.”

Bitcoin’s potential to enhance personal freedom had been made clear, he said. “As we become more cashless, it’s easier for people in power to just flip that off switch and turn off not just an individual organization, but just entirely disadvantaged populations. There are inner city minority groups that just can’t get bank accounts in the United States. This is not a third world country. They have to drive to the next city because this bank decided the entire area needs to be de-risked.”

Garzik contends limiting financial services not only dispossess the poor, but can also be a way of controlling speech, as in the case of Wikileaks. “It becomes a way of controlling what causes you can and can’t support. So, as cashless marches on, that government control increases by default. The less you use cash, the easier it is to cut you off.” 

But, blockchain is pushing back, he said—even if might take some time.

Why Garzik Gets Up in the Morning

“[Blockchain] is this autonomous layer of finance, and drives one of two reasons why I get up in the morning,” he said. “I really do believe, past all the press releases and hype, blockchain empowers people—the other 7 billion [people]. It gives you back the keys to your bank account that you didn’t know you didn’t have. That’s very, very powerful.”

The second reason Garzik gets up in the morning is his science fiction vision of the future. Bitcoin is the currency of artificial intelligence, he has previously said. 

“We’re here to build the autonomous cars that own themselves and bid for lane space on the roads and stuff like that,” he said. “The robot and human future that we watch in ‘I, Robot’ and all these other movies. [Blockchain enables] this machine where I can hire some thing to do a job for me, maybe mow my lawn, and I don’t have to care if that thing is a person or a robotic lawn mower or a drone service that drops a lawn mower off. It puts the machine web on an equal footing with your average person.”

Garzik helps this become reality with Bloq, a distributed company headquartered in Chicago and comprised of two divisions. With approximately 35 employees, Bloq is using DeFi as an inroad into a broader technological projects and experiences, he said. BloqEnterprise supplies blockchain technology to companies, with a main focus currently on BloqCloud, a platform that delivers a suite of blockchain managed services. 

The other division is BloqLabs, a technical contributor, financial sponsor, and supporter of the projects under its umbrella. The BloqLabs roster includes Metronome, TITAN, Vesper, Veriblock, Civic, and others. Projects become a part of BloqLabs one of two ways: either grown internally (e.g., Metronome, Titan) or in instances where BloqLabs operates in more of an advisory capacity (e.g., VeriBlock). 

Since Bloq chose not to raise money, the company, founded in 2015, was free from the constraints of the venture capital funding model. Garzik notices stark differences in how he is able to operate because of that decision.

“We started from day zero with zero funding to go out and look for a team,” he said. “That gave us the freedom to find the best people. Normally, at every other Silicon Valley startup, someone has an idea, they maybe build a product, and then go for some funding. When you have the freedom to look for the best people, the best team, right out of the gate, you come up with a totally different startup, a totally different flight path.” 

User Experience Makes Blockchain Secure

Ultimately, Garzik wants to make blockchain easier to use for everyone, because complex user experiences make platforms less secure. Still, it’s not about dumbing blockchain down, he insists. “[I]ts securifying it up. It’s making a secure user experience, which is one where the user doesn’t have to see this incomprehensible hash and understand what that is.” It shouldn’t be that hard, he said.

“You should just swipe a credit card, pay bitcoin, and receive a service. Simple user experiences and simple outcomes, that’s going to bring more people into the space, which generates more freedom. And so, ultimately, it’s about making it easier for this rough-edged, originally techie-focused, nerd-focused, kind of hard to use technology usable by the average person.”

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