At the Austin Convention Center at the Consensus 2022 conference, Josh Swihart, SVP of Marketing at Zcash, and I caught up. This covers off on the original privacy token built in the spirit of Bitcoin but with ZKP properties for privacy and security.
Originally published on Thomson Reuters Insights by Gina Jurva, with Joseph Raczynski.
Is the act of mining for cryptocurrency damaging to the environment? We asked our resident technologist to assess this emerging landscape
Two hot words in the corporate and financial worlds today seem to be cryptocurrencies and ESG (environmental, social, and corporate governance issues) — yet, are the two intertwined? More specifically, are cryptocurrencies environmentally friendly or are they a global threat to meeting climate targets as articulated at the recent United Nations Conference of the Parties (COP26)?
We spoke to Joseph Raczynski, Thomson Reuters’ resident Technologist & Futurist and early adopter of cryptocurrency, about crypto-mining, the cost to the environment, and its sustainability going forward.
Thomson Reuters Institute: In its most basic terms, what is crypto-mining?
Joseph Raczynski: The traditional act of mining cryptocurrency is driven by heavy computer processing power as processors race to solve a mathematical problem first, so that the sole winner can add a grouping of transactions to the blockchain. For example, a transaction could be one person sending another person money via Bitcoin.
Computer processing power — which you can tangibly feel as your machine gets warm — means the processor is working very hard to do something. The act of mining financially rewards the first computer, or grouping of pooled computers, that solve the mathematical puzzle with that cryptocurrency’s native token. In the Bitcoin example, more than 100,000 nodes (computer groupings) all over the world are competing to win the race, and if they do, they earn 6.25 Bitcoin (valued today around $237,500) for the ability to add the grouping of transactions to the next block on the chain. This happens roughly every 10 minutes.
Baked into the code is a reduction of the reward over time, and there is a fixed supply of Bitcoin that will ever exist, so the mining becomes likely more difficult over time depending on how many computers are competing at any given moment. This process is called proof of work and is heavily energy intensive; while another form of mining consensus is proof of stake and is far more efficient.
Thomson Reuters Institute: How much does cryptocurrency cost the environment?
Joseph Raczynski: This is a very nuanced and politically divisive topic. Having been in this space since 2011, I can see both sides of the debate, and I believe I can distill its reality. Proof of work is natively inefficient, as it uses lots of electricity to solve that mathematical problem to win the reward. On its face value, this is not environmentally sound.
However, crypto-miners intrinsic interest lies in being as electrically efficient as possible because energy consumption is their principal expense after the hardware investment of fast computers and processors, which are also called mining rigs. Miners seek out the cheapest places in the world to plug their rigs into the electrical grid. They pursue renewables — solar, wind, and hydro power — and have used the blow-off captured from natural gas, which would have been lost or burned as waste.
Although the quest for clean energy is increasingly being sought, not all crypto-miners are doing this. There is little question that proof of work is a cost for the environment, but it is not as catastrophic as some suggest. An intangible effect, of course, is aligning that energy consumption and environmental impact with the benefit that cryptocurrency has created via a vast new industry. The technology has created an internet of value that we will all leverage, so there is a cost benefit that is being struck as well.
Thomson Reuters Institute: Could the impact of crypto-miners be reduced in some way?
Joseph Raczynski: Another fascinating argument about the environmental impact is that crypto-miners are essentially the new intermediary. Be it banking, legal, insurance, supply chain, or most other transactional businesses, each of these enterprises could be replaced with a blockchain. As a result, all of the physical and environmental impacts of those institutions could be negated with a move to blockchain. Think of the electricity used to build and run office buildings, the workers who travel, gas and oil used, materials needed, and all other combinations of energy and environmental impact that any such institution has on the environment — that would be reduced with the underlining technology that would serve its purpose. Ultimately, proof of stake solves this environmental issue, but proof of work is something that will persist, in a decreasing form.
Thomson Reuters Institute: One cryptocurrency, Ethereum, said it wants to reduce its energy use almost 100% this year through transitioning to a proof of stake process. How can cryptocurrencies use proof of stake to be more sustainable?
Joseph Raczynski: There is great news afoot that pretty much solves the electricity issue, and in turn, the environmental problem. The primary blockchains, Ethereum, Solana, Avalanche, Cosmos, along with many others and which are the future of the industry, rely on proof of stake, which itself relies on a different mechanism to confirm and add transactions to the digital ledger. There are many flavors of proof of stake, but if someone wishes to participate as a crypto-miner in this instance, they are not using processing power to win a mathematical race. Instead, each person puts up money, or a stake, to participate. These users are hoping to earn anywhere from 7% to 1,000% on the money that they stake, by locking it into a smart contract that reinforces the resiliency of the network. The incentive is that the more money that people stake, the greater the network effect and security.
Currently, the potential of these high interest rates at are driving tens of billions of dollars into staking. Of those participating, the code dictates who actually gets to save the latest batches of transactions to the blockchain. There is a disincentive if you are a bad actor and try to upend or alter a block, by saving information to the ledger, for example. If you attempt to disrupt the network, you get slashed which means your stake could be confiscated. Proof of stake is expected to reduce the electrical consumption of crypto-mining by well over 99%. Ethereum should be upgraded to this version in 2022, and that alone will reduce the environmental impact.
Thomson Reuters Institute: Does mining and transacting with cryptocurrencies actually contribute to climate change?
Joseph Raczynski: If proof of work continued with Ethereum, which is the most-utilized blockchain in the world, then yes, crypto-mining could have had a negative impact on climate change over time. However, the upgrade to Ethereum 2.0 (ETH2), on a proof of stake model will dramatically change this.
Originally published on Cryptos on the Rise.
A DAO (Decentralized Autonomous Organization) is a revolutionary change in the manner that people and businesses can organize. Leveraging blockchain technology, it is a decentralized model of control and governance. The essence of a DAO is transparency, clarity of rule, and process driven decisions – primarily utilizing smart contracts on distributed ledgers. Once a DAO has been established, via a blockchain, participants take ownership of its token, which allow them to participate in the system. Token holders can propose changes, and can vote on those changes, with the subsequent actions being taken, “leaderlessly”. There are no CEOs, CFOs, CTOs, only code and community.
Close to 5,000 DAOs have been formed to date, expecting to grow exponentially. Many involve pooling digital money together to purchase assets, both physical and digital. ConstitutionDAO was established seven days prior to the auctioning of one of the eleven remaining copies of the US Constitution. The intent, to purchase and house it at a protected public location. Participants in the DAO contributed money in ETH (Ethereum token) to the cause, raising $45 million. Separately, the AssangeDAO raise $53 million for the criminal defense of Julian Assange. These are quick and powerful ways form decentralized autonomous organizations.
Central to a DAO is transparency. Anyone can see which individual (wallet address) owns tokens. Tokens allow for people to vote on proposals. Anyone can create a proposal. Simply stated, and in an ideal setting, it is egalitarian. Challenges to the model are its extremely democratic nature, i.e. voting on everything. As a result, it can be overly deliberate and result in a slower process compared to a more centralized formed organization like a corporation.
With this nascent, but extremely powerful organizational structure, the regulatory landscape at the state level is nearly non-existent. Wyoming, which has led the US on regulation for blockchain and cryptocurrency, recently codified rules for DAOs residing in the state. Therefore, a DAO could be created under the laws of the State of Wyoming. No other state enables this yet. Further, there is a movement afoot for corporations in the cryptocurrency space to dissolve and become DAOs. With potentially hawkish regulation on the horizon for cryptocurrency, DAOs, by their very nature, are code based, self-running, leaderless entities running via a decentralized network, which permits actions based on how users interact under brassbound, predefined rules. Theoretically, under the current regulatory landscape there is nothing the law can do about such an entity. The converted corporation to a DAO would no longer be in control of the platform, which reverts to a completely new decentralized model, unlike anything regulated currently.
According to the SEC guidance issued in 2017, they determined that “The DAO”, an entity raising money in an ICO, Initial Coin Offering, that it was indeed a security. The difference here is that many of the DAOs created now are under the auspices of “investment clubs” or are simply voting mechanisms, whereby the SEC generally does not regulate, unless met by the “Securities Act of 1933” regulating the offer and sale of those membership interests, or under the Investment Company Act of 1940 (1940 Act), or if a person who is paid for providing advice regarding the investments of the club or its members may be an investment adviser under the Investment Advisers Act of 1940 (Advisers Act) or state law. (SEC, https://www.sec.gov/reportspubs/investor-publications/investorpubsinvclubhtm.html)
The SEC is reportedly looking into true DAOs like Uniswap in the decentralized finance (DeFi) space, as a decentralized exchange (DEX), which is a code-based organization that matches buyers and sellers of cryptocurrency. One area of focus is lending pools, where users will provide their assets for other users to trade, which provide healthy yields, just as banks provide interest on your assets. This may fall into the Howey Test investment contract realm.
DAOs are in their embryonic stage with legislatures and regulators. There is little question that this space if bursting with potential and therefore creating a framework with regulation is certainly on the horizon.
The list is out! Last year was an amazing one for LegalTech talks and thought leadership. I presented over 70 times on Blockchain, Cryptocurrency, AI, Workflow, and the Legal Platform. It was also a fascinating year where edgy concepts entered the LegalTech space, including the Metaverse and NFTs. In all likelihood, these will continue to flourish in 2022.
If you’re game, you can watch the top sessions from the past year on a huge swath of LegalTech and general tech topics below:
Blockchain, Cryptocurrency, DAOs, NFTs, Metaverse:
Legal Platform & APIs
From the producers… Bitcoin: bringing FOMO since 2013.
What would your scream sound like if you had dismissed Bitcoin as a joke in your law class in 2013 at $100 dollars – when it sits at $60,000 today? Joe’s guest this week is Houman Shadab, the Director of the Innovation Center for Law and Technology at New York Law School. He’s here to tell us how lawyers can navigate, benefit from and translate today’s new wave of rapid technological advances.
Houman talks us through the greenroom snacks at the US Capitol before he testified – what we really wanted to know. And, in a throwback to Mark Zuckerberg’s uncomfortable testimony before congress (“Sir, we run ads”), he tells Joe about his experience of sitting in front of the US government explaining the implications of various securities laws on hedge funds.
We’re a curious bunch at The Hearing, so we asked Houman to tell us what lawyers and legal students can do to better enable themselves for success. The answer seems to lie in no-code. Houman explains what the heck this is and why it matters to the legal ecosystem. So, get your notepad and digital wallet ready and press play!
This is a deep dive on the future of work around the world and the technology trends that impact them.
It was a ton of fun recording this podcast with the omniscient and ever engaging Joseph Gartner at the ABA Center for Innovation – (full transparency, I sit on the Council). With Joey’s new role as Director and Counsel, we chatted all things #blockchain, #cryptocurrencies, and #NFTs and their impact on the legal industry. It is fantastic to be a part of a group pushing on #innovation in the legal industry at the ABA with Chair, Don Bivens and the entire Center for Innovation Governing Council.
In a two-part series, we will look at Non-Fungible Tokens, explaining what they are and how they will impact numerous industries; and how decentralized finance (DeFi) is critical to understanding NFT’s importance within the legal industry.
Originally published on the Legal Executive Institute.
By Joseph Raczynski
Welcome to the early days of where blockchain goes mainstream, and the legal industry needs to take notice.
While Non-Fungible Tokens (NFTs) have been around for several years — remember CryptoKitties or even the original NFT, called CryptoPunks? Even if you don’t, NFTs have officially exploded into popular culture, begging the question: So, what are they?
A Non-Fungible Token is a token stored on the blockchain, which itself is a secure distributed database with redundancy, immutability, and clarity into tracking data or ownership. A token proves ownership of an asset. For example, a deed to your house is a sign of ownership to that plot of land and building. In the case of the first digital token, Bitcoin, a single Bitcoin is the title of ownership to the underlying value of the Bitcoin.
Fungible refers to an asset that is easily exchangeable. In the classic example, a dollar is very fungible — you can hand a dollar to me in exchange for some gum, and I can then re-use that dollar for a can of soda. The physical dollar maybe different because I swapped with another in my wallet, but it is easily replaceable and exchangeable, so it is fungible.
Now, it gets interesting. A non-fungible token is a unique token that is not easily exchangeable or replaceable with another. With the mania that is occurring with NFTs, the best example is with art. Recently, Mike Winkelmann, known as @Beeple, a renowned artist who has worked with Nike and Apple, sold 20 pieces of his own work on the digital marketplace Nifty Gateway for a total of $3.5 million. And in the latest eye-opener, he sold a collection of many of his works combined into a masterpiece, titled EVERYDAYS: THE FIRST 5000 DAYS at Christie’s for $69 million. These transactions occurred on Ethereum, the primary blockchain platform of record for storing value, but Winkelmann’s art itself was simply digital images.
With the NFTs, we are proving that rare and scarce representation of things can create value, and that value can be captured on the blockchain. Let your imagination run wild for a moment: What this means is that nearly anything and everything that is represented digitally could also carry provable value.
For example, Jack Dorsey, CEO of Twitter, is in the process of selling his first Tweet, the original Tweet of Twitter. It is, as of this writing, estimated at a value of $2.5 million and projected to go higher. Why might you ask? Well, it is feasible to collect royalties on that tweet once you own it; or, you could hopefully resell it in the future. Lastly — and again, I beg your imagination for this thought — in the not too distant future, with people living in virtual reality, these pieces of art will have a home inside those worlds, too. Other examples, the NBA has now gotten in on the action by leveraging NBA Top Shot, selling limited edition, finite numbers of virtual basketball cards, including a short clip of a LeBron James dunk, which recently sold for more than $200,000.
In the past, I discussed asset tokenization, which is the simple idea that nearly anything could be represented on the blockchain as having value. It this is now happening. This could be a painting, your car, a house, or even a Tweet. Essentially, if you have something original, that you can then prove is yours, that item can derive value.
Through the lens of the legal kaleidoscope, we are entering a complicated but colorful place, and there are an incredible number of areas this will touch. As technology push us to rethink what we know, NFTs shall do the same. In this nascent area, contemplation about the impact on both the practice and business of law will hit multiple fronts. Here are just a few:
- Intellectual property — NFTs carry a huge target on their virtual backs from the IP angle. At the heart of these tokens is uniqueness and ownership, and that means that eventually, litigation will follow.
- Trust & estates — Possession comes in the form of a digital wallet. Access to the private and public keys will need to be accounted for and administered for these sorts of new assets.
- Anti-money laundering — One worry, at the moment, is that the buying and selling of these digital assets could be a way to disguise or launder dirty money. Although the underlining technology of the blockchain is leveraged, a general misunderstanding of its complexity makes it a temporary safe haven for the scofflaw.
- Tax & accounting — Millions of dollars are being transferred, soon to be billions; and those in the tax & accounting field will need to better understand this space to assist their clients. How are sales treated? What does appreciation impact? And how can we account for the transactions?
NTFs are likely here to stay. They will continue to evolve, however, representing nearly every assets class going forward. Law firms, corporations, tax & accounting firms, and government agencies will need to pay attention to this space in order to account for how this new technology impacts their individual [digital] pictures of the law.
Published on Lifewire
Written by Michelai Graham – Interview with Joseph Raczynski
Facebook is scaling back its ambitious plans to move into the cryptocurrency sector while users on the platform aren’t showing much confidence in the site’s new addition.
The media giant will likely launch its smaller scale Libra cryptocurrency project as soon as January. Libra was originally supposed to be a new currency backed by fiat money (a currency established as money by the government) and securities (tradable financial assets). Libra will now work as a stable coin, meaning it won’t fluctuate in value as it’s pegged to something like the US dollar or a basket of currencies.
“It was only a matter of time before a private company went down the road of their own cryptocurrency,” Joseph Raczynski, a technologist and futurist for Thomas Reuters told Lifewire in an email. “I was very excited to hear this was going to happen last summer, but skeptical to see how it would transpire.”
What Exactly Is Facebook Trying to Do With Cryptocurrency Anyway?
Cryptocurrency is the private industry’s brand new way to exchange value over the internet, Raczynski said, and Facebook wants to take advantage of that.
Raczynski has been working with cryptocurrency since the creation of Bitcoin in 2011 and has even created his own cryptocurrencies before. He said the most appealing aspect of cryptocurrency is the security and ease of use. Unfortunately, cryptocurrency is still just an idea of the future for some people, which may be a struggle for Facebook as it plans to launch soon.
“At its most basic, cryptocurrency is the representation of value on the Internet,” Raczynski explained. “The first stage that people should be cognizant of is that a cryptocurrency will be similar to a digital dollar.”
“It was only a matter of time before a private company went down the road of their own cryptocurrency.”
Facebook plans to launch a single dollar-backed coin, and eventually a wallet called Novi, to send and receive Libra currencies. Digital wallets are encrypted, Raczynski explained, so only the user would have access to it. With Novi, Facebook users can manage their digital coins within Facebook’s apps, including Messenger, WhatsApp, browsers, and other connected apps. With the use of a single currency, Raczynski thinks it will make the barrier to do things much easier to manage.
“Anyone using Facebook around the world could exchange their local currency for the Facebook currency,” he said. “Anything you want to buy, services rendered, or simply exchanging money could happen across the world with a unified Facebook currency.”
Are Facebook Users Ready for Libra?
With all of the changes to Facebook’s cryptocurrency plans, users may be skeptical of its efficacy, yet the appeal of being able to easily send and receive money digitally may (eventually) trump those doubts. The social media giant is no stranger to discussing privacy, so it better be prepared to talk about its plans to track cryptocurrency usage on its site.
“Facebook is a lightning rod for controversy,” Raczynski said. “What they do or don’t do with users’ personal data and tracking user habits is a constant in the news and most people’s minds. It really is a broadening of what Facebook can do to trace and track habits and data patterns.”
Facebook users are probably already using digital wallets like PayPal and Venmo, and Facebook’s Novi will work similarly to those. What they all have in common is the fact that the platforms own and manage users’ digital wallets.
In the “real” cryptocurrency world, users have full ownership of their digital wallets, which are protected by private keys—a public address to share with anyone to make transactions with and a private one that shouldn’t be shared and essentially makes the wallet yours. So, while your money would still be yours via Facebook’s digital wallet, you don’t “own” the system it runs on.
Another important aspect to note is that while Libra is slightly more decentralized than a country’s own monetary system, like the US dollar, it’s still centralized around a number of companies serving as validators. While it might be a better system to use, according to Raczynski, it’s still susceptible to hacks because there are relatively small sets of attack points.
Why Is This Important?
This new currency Facebook is creating won’t rely on the government, and will instead be backed by an extensive portfolio of companies, including those in the Libra Association.
“They have developed a governance where mega companies run computer nodes/servers that verify transactions between people or companies,” Raczynski said. “Now, in concept, this is similar to what Bitcoin established 11 years ago, only Facebook is run by upwards of 100 companies and their servers, rather than tens of thousands of computers which are not influenced by those private companies.”
In the not-too-distant future, Raczynski said, every asset people have will be represented by a cryptocurrency, from cars to real estate and beyond. This reach could also help people around the world who don’t have access to physical banks.
“Anything you want to buy, services rendered, or simply exchanging money could happen across the world with a unified Facebook currency.”
“There are few things that will be as technologically transformative in the world as cryptocurrency over the next ten years,” said Raczynski. “I am most excited about how it has the potential to help the unbanked, and [help] people living in developing countries rise up and take ownership of their own assets and build wealth.”
Despite Raczynski’s confidence in the growth trajectory of cryptocurrency over the next decade, people will have to learn more about crypto to believe using it on Facebook is a real thing, just as online shopping prompted much skepticism across the world when it first became reality. That, however, is on Facebook to prove.
From the producer: You may have watched as Mark Zuckerberg explained the internet to Congress in a way that felt a bit unnecessary. Well, this episode is sort of the opposite of that. Joe Raczynski is joined by legal and mathematical macroeconomics genius Doug Pepe, to take us through blockchain, tokens and cryptocurrency in a way that’s genuinely enlightening.
The legal industry is sometimes accused of not keeping up, but we know that’s not true. Lawyers are occupying this space now. Their clients are very active and they have a crucial role to play in the serious policy issues being debated.
Doug, a partner at Joseph Hage Aaronson, started his blockchain journey by building gaming computers with his young children, and then teaching them how to mine bitcoin. Fast forward and Doug is now an expert on blockchain privacy, smart contracts and digital identity.
Find out more at tr.com/TheHearing