Ethan Buchman: I Might Be a Covet Bitcoin Maximalist, but Future Is About Proof-Of-Stake


In an exclusive interview with ForkLog, the co-founder of Tendermint and Cosmos Ethan Buchman reveals why he sees the future of the crypto-economy in Proof-of-Stake systems. And that despite him betting long on Bitcoin.

Today, Ethan Buchman is the CEO at Informal Systems, a Canada-based company which in January 2020 spun out of Interchain Foundation, the organization promoting decentralized technologies and applications in Cosmos ecosystem. Despite certain controversies within the Cosmos team and several key members leaving the project, he is still very much active in the development process, as well as in the research of a broader PoS ecosystem.

FL: Hey Ethan, tell us more about Informal Systems, what is the company exactly doing and why it needed to spin off the Interchain Foundation into a separate entity? 

Ethan Buchman: Informal Systems grew out of the frustration we had developed both in building distributed software and running distributed organizations. In both of these contexts, there are a lot of very error-prone difficult human processes that are very hard to prove. If you want to have high assurance that the distributed system you are building is correct, or that the organization you are running is correct from the contract and bookkeeping points of view, in both cases, it requires a lot of manual work. And it is actually very hard to prove that you are doing things correctly or that if you make changes there is a high degree of certainty you haven’t broken anything.

Therefore our mission at Informal Systems, as we say it, is to verify the ability of distributed systems and organizations. In some sense, you can think of it like auditing a company for security and finances, but we really focus on developers and their tooling, helping them to build higher quality distributed systems software.

We see the distributed systems of machines and the distributed systems of humans as two sides of the same problem. This means not only having a greater assurance that their software is built correctly and functions the way it has to function, but also that they are building their corporations properly and that the organizations they are running are easier to manage.

More broadly this is known as formal verification, and formal verification has become really overaged at blockchain systems these days, because there are millions, billions of dollars locked up in smart contracts running on unaudited systems that don’t have the same recourse to corrections that traditional systems do. And if something gets wrong, the consequences are a lot direr.

We are not focusing that much on smart contracts like some auditing companies, but rather on the underlying consensus algorithms and distributed systems protocols that those smart contracts run on top of. Nearly every blockchain we have today might have a virtual machine but underneath it, there is a consensus protocol, and many of them are designed as new consensus protocols. You have those new Proof-of-Stake protocols like Polkadot, NEAR, Solana, Tezos, they all are developing their own consensus protocols, but there are very few people and companies specializing in formal verification of these underlying consensus protocols. And that is where we have tremendous expertise—we not only formally verify consensus protocols, but we also help people with getting assurances that the software they use is implemented correctly.

FL: As far as we know, currently Cosmos is Informal Systems’ sole client. Do you consider extending that list? This could be particularly relevant in light of the ongoing debates of the dangers of the state mass surveillance which becomes increasingly present in the new Coronavirus pandemic era.

Ethan: Even though we are currently more focused on Cosmos, we are absolutely open to expanding to a broader ecosystem and helping other protocols with formal verification of their systems. And we are especially interested in that network because part of the Cosmos’ goal is to interconnect many blockchains. To do that you need Inter-Blockchain Communication (IBC) protocol which is a sort of layer-zero protocol, a client for all other protocols. Getting a better understanding of their consensus algorithms and properties is a step number one of actually integrating those blockchains into Cosmos and facilitating interoperability.

Speaking more broadly, and especially when you bring it to the spectrum of mass surveillance, yes, we are absolutely interested in expanding beyond the blockchain space. We’d like to help other companies that are designing distributed systems protocols and understand what properties those protocols provide and guarantee.

With that being said, right now we are probably less focused on cryptography. Of course, cryptography plays a big role in many consensus protocols and we have to be aware of those things, but we are less focused on proving that any particular cryptographic protocol allows you to do certain things, like COVID tracing, without revealing your identity. There are other projects that have more expertise on the cryptography side of the things, but as soon as it becomes a part of a broader deployment system we will come and help for sure.

FL: You were among the co-founders of Cosmos, the project which earlier this year celebrated its one-year anniversary of the official launch. What are Cosmos’ biggest achievements over these past 15 months?

Ethan: Big achievements are the network itself running without interruptions for over a year, we have 125 validators including some major institutions, but maybe most importantly we see the technology itself being adopted by a number of large projects who are deploying their own blockchains using the Cosmos technology. Maybe the leading example of this are Binance who have adopted our technology to build their own decentralized exchange. So the level of adoption that we see and the smoothness with which the software seems to be running are obviously among those achievements.

Another one which we are really proud of is the level of decentralization in the community. While it takes probably 20 big validators to control around two-thirds of the stake, we see amazing governance and on-chain vote turnout which is really promising. The same applies to the development level where there is a tremendous level of decentralization as a lot of companies are literally basing their business models around the success of Cosmos and its technology and are really contributing in a big way. So it’s no longer a single company or a couple of companies that are really responsible for everything.

FL: If you had the power to go back and do some things differently, what would they be?

Ethan: If we go back and try to do something differently… Maybe we would like to push for formal verification sooner; also there’s a lot of complexity with the software which we probably could have done a better job of taming had we pushed sooner for more complete specifications. Development decentralization is another thing we could have done sooner, but it’s a complicated matter and it takes a lot of time.

As an engineer, I can always say that certain things could have been done better, but overall it was going quite well and for the most part, we are happy with current developments.

FL: Speaking about the validators, some PoS-projects have already been criticized for the concentration of large organizations capable of accumulating significant amounts of coins, not only leaving almost no chance to smaller players but also possibly endangering the decentralization of the network. What is Cosmos doing in order to prevent centralization of power?

Ethan: We are definitely concerned about smaller validators and centralization tendencies in groups of large stakers. There are some proposed protocol changes that will better incentivize decentralizing the validator set. For instance, the idea is around correlated slashing, where the amount you slash is correlated with how much stake you have and how much of your stake has been detected as faulty at a given time. That would make the consequences of being a very large validator a lot more severe.

So we either force them to run multiple validators, which we can already see in other networks, or we end up having them delegating their stake more widely.

But to be honest, I’m not sure if this something that can be entirely solved at the global blockchain level. I have always been advocating for a more local approach to blockchain scaling which means more blockchains that can be geographically defined. I mean city-based municipal blockchain systems for validators which allow to find more balance between the crypto-economic world and traditional legal systems.

FL: Will the current mechanism with a maximum of 300 validators after ten years after the launch be enough to address those concerns?

Ethan: Trying to predict the future in blockchain systems for 10 years is always hard. Cosmos design is a flexible governance mechanism, and if the validators decide a change on that, they are more than welcome to do that. It could well be that in a year or two we will see a system that supports thousands of validators. Things move so fast and anything can happen in the future. The whole point of Cosmos, its value proposition and core philosophy are about sovereignty, and if the community decides to change something, it has all the power to do that.

FL: At what stage is the development of the Inter-Blockchain Communication Protocol, that key element to provide interoperability between different blockchains?

Ethan: The IBC Protocol is at the advanced testnet stage. We are working on the specs, the software is being implemented and tested extensively. There are still a lot of changes to be made in the upcoming release and over the summer we will be engaged in a big upgrade process, but I think we can expect it to be rolled out on the mainnnet at some point this year.

FL: Cosmos’ SDK is becoming increasingly popular among various projects, including those creating DApps in the DeFi sector. What’s your take on the role of DeFi in the broader crypto economy?

Ethan: DeFi is cool and there are certainly some interesting things happening there, but I don’t think it’s quite yet there where it was meant to be. DeFi is meant to rebuild the existing financial system in a slightly more transparent way. I’m all for transparency, transparency is good, but my impression of DeFi is that looking at the traditional financial system you know that you are going to get screwed somewhere, but it’s not exactly clear how, while in DeFi you know that you are going to get screwed somewhere, and it is a lot more clear how this will happen because everything is much more transparent.

What I’m hoping for is that we can build is a financial system where you are much less likely to get screwed, where we have a much more sustainable foundation for human social economics which doesn’t involve that rat race to make more money out of money. And I don’t really think DeFi helps with that. It’s nice and fun, everyone is experimenting with new crypto-economic mechanisms, but we have a lot more work to actually make a proper foundation for a new economic system. The current trends are promising, but there are a lot of risks there, and maybe we are selling ourselves a lie.

So going back to local economics and building local sustainability, stablecoin designs will be really important. But I don’t think it’s going to be a single global stablecoin pegged against the US dollar and that it addresses the issues of the modern financial system. So current DeFi systems are incredibly risky and we are sort of kidding ourselves.

FL: Bitcoin with its PoW mechanism, and the PoS ecosystem, how will they co-exist in the future?

Ethan: I have been a leading PoS advocate for maybe five years now, I was one of the first people to push those systems in early 2014 and 2015, and together with other people working on that we realized that the only way blockchains would scale and make any sense was through PoS rather than through PoW.

I remember September 2014, we were close friends with Vlad Zamfir and were staying up all night thinking about what blockchains will be like in the next 5-10 years. It was then when I got fundamentally convinced that PoS is the future, and everything we were talking about has materialized over the next 5 years. It’s really fascinating to see that.

PoS is incredibly important for the economics of many blockchains but I am still a firm believer in the importance of at least one global PoW chain. There’s plenty of talk about how PoW is wasteful, and that’s certainly the case if you are going to run every blockchain on PoW. Also, PoW provides something that PoS cannot provide which is a more firm academically-derived source of truth.

In PoS there’s always some politics and you can’t avoid the fact that somewhere between the lines you have to deal with subjective reality. PoW systems are much less corruptible in that sense, and I am happy that Bitcoin has that immutability. I am certainly long on Bitcoin and there is a lot of value in Bitcoin’s PoW, and I also hope we can find a way for PoS systems to anchor themselves into PoW.

FL: What do you think of the recent projects creating things like Ethereum on Bitcoin, wrapped Bitcoins, etc?

Ethan: These are very exciting projects. As I said, there are a lot of risks involved in these systems, custodial risks, economic risks, and users need to be aware of them and better understand the security model these systems provide. We have that recent example when an attempt to bring Ethereum to Bitcoin lasted just a few days. Still, it’s very important that we start experimenting with these kinds of things and develop the interoperability of the infrastructure.

FL: That’s interesting, and recently you have admitted to being a closet Bitcoin maximalist yourself. Will you share more background about yourself, how you came to crypto in the first place, and what inspired you to start working on the Tendermint project?

Ethan: My background is in biophysics, that’s something I studied at the university and I became fascinated with the origins of life and the emergent phenomenon of the universe. I was interested in how do we have systems that run up, how do organisms exist, how do forests exist and got really obsessed with the sustainability of the systems around us.

In early 2013 we discussed Bitcoin with Vlad Zamfir a lot, we called each other and became really obsessed with how it could address problems in the financial system and its amazing potential in cryptography. We also got really excited about crypto-economics as a discipline.

In early 2014 we discovered Ethereum, met Vitalik, and went to meetups in Toronto where we discussed different cryptographic protocols and their ability to build more sustainable economic systems. So basically all those things that people are discussing today, how blockchain can transform different industries around us, we talked about that already in 2014. And while we all loved Bitcoin, Ethereum at the time was a much more avant-garde experiment. Bitcoin was certainly more conservative in its approach, and in the intersection between computer science and economics, Ethereum was like an open invitation.

So, in 2014 we started really into Ethereum, we were doing early PoS researches, and were trying to develop ASIC-resistant designs for PoW. Those still were early days for crypto-systems, the mechanisms were interesting, but we also realized that this wasn’t about scaling blockchain and that a better consensus mechanism was needed, especially for enterprise applications.

Earlier the same year Jae Kwon has developed a prototype of the Tendermint system which followed all that research that Vitalik, Vlad, and myself were working on, drawing on decades of academic background in consensus systems. Being an academic myself, I found it very inspiring, and in early 2015 we started working on it together. At the time we lived in what we called the “Proof of Stake Palace,” a place in San Francisco where a number of PoS enthusiasts and researches were living together and working on different PoS ideas.

That was a unique experience that helped us share thoughts about the world with thousands of blockchains and they will talk to each other. At that time I was working at a company called Monax, we needed a PoS solution for Ethereum, and Tendermint turned out to be the leading contender for an alternative. The software looked more mature than anything else, so we implemented an EVM on top of Tendermint, and the Monax team was using it.

Over time, I got more interested in the consensus mechanism itself and by the end of 2015, I decided to leave Monax to go full time with Jae and to try to build something around Tendermint. I became the co-founder of the Tendermint project, in 2016 we tried to raise venture capital, but many didn’t know what we were talking about as it were early days.

That leads us back to our initial motivation of a public cryptocurrency project and public financing and ultimately to the idea of creating Cosmos. Somewhere by 2016, we started to design Cosmos.

FL: That were the times when ICO’s were starting to gain popularity, but you didn’t go that way, right?

Ethan: We did a public fundraiser in 2017, but we didn’t call it an ICO. We didn’t really position it as such and we were very careful and conservative in our approach to raising funds. We did almost no marketing, from the very beginning this was very much about building a decentralized community of people who wanted to be validators and to have a say about the governance of the blockchain. So our focus was not on people who would buy a token and profit from it, but rather on people who were genuinely interested in the underlying technology and the vision and the values of the project.

So, In 2017 we did a public fundraiser and then made a recommendation for the initial allocation of the token, the community adopted that recommendation, and ultimately Cosmos was born into this world.

Other projects around were raising hundreds of millions at the time, we were happy with our $17 million, which was a lot anyway, and we have completed the hardcap in maybe 30 minutes.

FL: Will you agree with the idea of the ICOs being detrimental to the crypto space?

Ethan: Hard to say. On one hand, it created a lot of excitement and brought a lot of money, and that money is being deployed in a very productive way. The entire space of cryptography, formal verification, secure hardware… you cannot deny that the money pouring into the space are propelling the crypto science in a very fundamental way. A lot of these things are being funded from the money that came in during the ICO boom.

At the same time, there was a lot of hype and scams, people lost money, and the regulators came down hard. And that was bad because while regulators have to protect retail investors, they shouldn’t be staying in the way of innovations. So it’s unfortunate that today it’s not that easy to raise money for real innovations. At the same time, it also raises the bar to scam people.

FL: Today, when the dust has settled and you are in a position to take another look at those events when some key figures left Cosmos, do you have personal regrets things turned out that way?

Ethan: This really goes back to your previous question about what we could have done differently. Maybe we could have set a more robust governance structure earlier. A lot of issues that materialized, they really were about governance. There were only three of us at the Interchain Foundation, while Jay was the CEO and the sole board member of All In Bits, the company behind Tindermint. Maybe we could have done more work to improve the governance, to bring more community members onto the board of the foundation.

It’s not unusual, you see governance issues all the time at tech companies, just look at the dramas at Uber or WeWork. What I want to say is that no one has really left the project in any material way, everyone is still contributing to Cosmos in a major way. We are fortunate that we have figured out a way to continue to constructively work on things. We do have more companies now, companies that were contributing in the past are taking more leadership roles, some people left to create other corporate structures.

And from the perspective of decentralization and development, things are very positive today. Jay and I are on great terms and we are working on the foundation board together.

FL: Let’s wrap things up on a somewhat philosophical note. We’re all going through pretty much hard times right now. The pandemic shut down the borders, most people on the planet are isolated, and lots of enterprises halted their operation. Some people, however, disagree with this approach insisting that the normal way of life has to be restored for the sake of salvaging the economy. One of them is Elon Musk who even tweeted about the need to free America right away. Nassim Taleb commented on that saying there’s a need to free America from psychopaths. Which side would you take on in this dispute?

Ethan: I would probably stick with Taleb on that one. The economy died in 2009 and everyone is just in the denial. It doesn’t matter if this coronavirus or something else: all that we have built is so fragile and so fundamentally unsustainable. And don’t think everyone really understands that.

I’m not sure Elon Musk approaches sustainability in the right way. When Taleb talks about a sustainable financial system, for him it’s localism first, and that very much aligns with my beliefs. Elon Musk is much less concerned with localism, he’s more concerned with hi-tech and the utopian vision the technologies can solve our problems.

Technologies can go a long way, but the solution to traffic is not to build an electric vehicle or underground tunnels that you can through at hyperspeed. The solution to traffic is to reduce the need for people to drive cars, and it’s more about socio-political decisions rather than technological ones.

Our economy was due to topple one way or another, and the current pandemic is maybe one of the least bad things that could have happened. I really hope it will be taken as an opportunity to rethink the structure of our global financial system and to try to build it from the bottom again. And Elon Musk is not particularly helpful with that.

FL: Saifedean Ammous, another renowned thinker, is also among those who call for lifting up the restrictions and letting the virus have its way so that people would have herd immunity. He quotes the examples of Sweden and Belarus that refused to introduce restrictions on the state level. Was it a mistake to introduce a global quarantine? Do you agree with the idea that we should have let things have their course and hope for the better?

Ethan: No, I don’t. The problem is in the uncertainty. We don’t know when the virus will be over, and the more we learn, the more we realize how different it is from any other virus that we have had in the past, the better it will be for us.

It’s not the flu, we have no idea what this thing is doing, we don’t understand how to be immune to it, so the idea of just hoping for the best is more criminal than just pure negligence.

So all these talks about slowing down the pace of our economy… People have been talking about climate change for decades, so here’s an opportunity to actually act on that. And if you are concerned about the growth of the economy, GPD, all those things, it’s just a farce and mockery of real wealth. There’s no real wealth created in stock markets today, it’s cannibalism. So this is our chance to reset the global economy.

Unfortunately, there’s no way to do that without a tremendous amount of suffering and ultimately deaths. So for me, the idea of just opening up the economies right now is criminal. And psychopathic. Free America from psychopaths!

Ethan Buchman was interviewed by Andrew Asmakov

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