Charles Hoskinson, Founder, Cardano: On restoring trust through decentralisation

Charles Hoskinson, Founder, Cardano: On restoring trust through decentralisation
Ryan is an editor at TechForge Media with over a decade of experience covering the latest technology and interviewing leading industry figures. He can often be sighted at tech conferences with a strong coffee in one hand and a laptop in the other. If it's geeky, he’s probably into it. Find him on Twitter: @Gadget_Ry

The Block spoke with Cardano founder Charles Hoskinson about the blockchain industry and restoring trust through decentralisation ahead of the platform’s upcoming launch of smart contracts.

Hoskinson co-founded the current decentralised app platform leader, Ethereum, but left the project following a dispute about accepting venture capital and the need for a more formal governing structure. He went on to found Cardano in 2015 and became the CEO of the project’s main developer, IOHK.

“Back in 2015, I got to a point where I said: ‘Hey, you know, I have the ability to do a cleanroom approach, where we just assume nothing exists, start from the science and first principles’ and say, ‘Okay, with all that we know, how would we actually build a cryptocurrency if we could do it all over again,’” says Hoskinson.

“So we launched a very aggressive research agenda in partnership with the University of Edinburgh, and Tokyo Tech, and a lot of other institutions like the University of Athens and a small army of PhDs.”

Cardano is about to launch support for smart contracts as part of its ‘Goguen’ era during a time when decentralisation and solutions to increase trust have arguably never been more needed in modern history.

While other blockchain projects have followed the more Silicon Valley approach of “move fast and break things” – resulting in the subsequent issues with security and scalability – Cardano’s large and esteemed team has taken a notoriously academic approach and posted around 92 peer-reviewed papers.

Hoskinson and the rest of the Cardano team want to disrupt “big tech” and more fairly distribute power across society, so it shouldn’t be surprising they’re not following the Silicon Valley template.

Decentralisation and (good) governance

Blockchain is the enabling technology, but decentralisation is the movement. Cardano is aiming to be the most decentralised platform in the world and it appears to be achieving its goal. As of writing, 71.6 percent of the platform’s ADA token is being staked for a total value of $18.4 billion.

Although it gives a vague idea, this metric alone doesn’t necessarily equate to how decentralised a network is.

Hoskinson has famously said that Cardano “will be a 100 times more decentralised than Bitcoin” by pointing to the fact around four mining pools control around 50 percent of the cryptocurrency leader’s hash rate. Cardano’s system features monetary incentives to diversify the number of evenly distributed stake pools.

In May 2018, IOHK asked people that were interested in running a stake pool on test-net to register. They anticipated ~100 stake pools but ended up receiving well over a thousand applications.

As previously mentioned, one of the reasons Hoskinson jumped ship from Ethereum was a dispute over its governance structure. Cardano’s model aims to “marginalise none and give power to all” through a system which incentivises participation by individuals and votes are immutably recorded.

While IOHK currently makes the decisions, community governance will be introduced as part of the ‘Voltaire’ era of Cardano’s roadmap. Cardano’s community will ultimately decide what direction the platform will take; including technical updates and how treasury funds should be used to advance the ecosystem.

Anyone who follows Hoskinson’s adventures will know he’s a big traveller, at least until COVID-19 locked everything down. One of the things which motivates Hoskinson most is using Cardano to unleash the potential of people in emerging countries, especially the ~2.5 billion “unbanked” who cannot access the legacy infrastructures and institutions many of us take for granted.

“What gets me most excited is the merger of the markets we’ve been playing in for years, like Ethiopia and other places with DeFi. So, when we say: ‘Hey, why would a peer-to-peer lending service or peer-to-peer insurance or stable coin want to come to Cardano?’ Well, it’s because we’re going to be giving them the customers that they actually need. Not a 25-year-old kid living in his mom’s basement in New Jersey, we’re giving him a whole village in Ethiopia.

These are people that have no bank accounts and they’re rapidly building wealth, and they desperately need to globalise. When they get into your DeFi ecosystem, it’s like you’re the next JPMorgan Chase, they’re gonna be loyal to your standard and you’re the brand. You’re not displacing anybody, you’re the first mover in these marketplaces.

Collectively, these markets are huge. They’re worth trillions of dollars. About 70% [of people] are at or under the age of 30 and they’re internet-enabled and very savvy and aware. And they’ve already been indoctrinated for non-sovereign currencies because of things like M-Pesa and so forth. They don’t really like capital controls and their sovereign money’s crap. 

So you don’t really have to sell them on crypto. They’re like: ‘Yeah, it’s better than what we got. And it’s global.’”

I think most people would agree that societal trust is low–-in governments, banks, the media, our fellow citizens, democratic processes, and even science. While blockchains alone aren’t going to solve all of these problems, their immutability properties should help to restore trust if used correctly and transparently.

“Faith in institutions is at an all-time low, and it’s creating catastrophic consequences. I just did a video on vaccinations and I said: ‘Wow, it’s incredible that Israel’s almost at a 30% vaccination rate so imagine the world six months from now.’ If they continue this velocity there is a good chance by March to April that Israel could actually have vaccine-induced herd immunity.

What does this mean for the world? It means that by studying that data, we’re going to know everything. We’re going to know whether the vaccines provide sterilising immunity, we’re going to know whether community spread of COVID is possible with a 70% vaccination rate, we’re going to know you know what the mortality rate is post-vaccination and so forth. If that data looks good, it gives us hope that we can all be out of COVID by the end of the year.

You’d figure that that would be great news and people would be very excited. 90 percent of the comments are negative or anti-vax. Why? Because people legitimately believe that these things are poison, and either they ignore it, or they think that it’s all made up, or it’s overrated. More than a million people have died… in my country alone, 400,000. I know people that have died. My dad is a doctor, my brother is a doctor… they take care of COVID patients, and they see people come in, and they eventually leave the ICU, and their lungs are destroyed for the rest of their lives. They’re like a COPD patient or something. This is a horrible disease and we can’t even agree on basic facts. Why? Because people don’t trust institutions.

And rightfully so, because institutions have been lying to them again, and again, and again. Our mass media lied to them about Iraq, lied to them about a lot of major events, lied to them about the stability of markets, and so forth. They keep getting screwed. So, they say: ‘Well, what about this time? Are you being honest?’

Governments lie all the time—they make a policy to do that. ‘Oh, the people don’t have a right to know. They don’t have a right for transparency,’ and so forth. So, in whatever institution you can pick – it can be the American Dental Association, the US government, the Bank of England – you poll people, and you’re going to find that people don’t trust it, more often than not.

The point of blockchain, the point of our industry, is basically restoring trust through decentralisation. You take a step back and say: ‘Okay, how do we build a system that can’t lie? Not shouldn’t lie. Or there are consequences for lying.’ There’s a lot of auditing and checks and balances and the incentives are towards honesty and transparency instead of collusion and deception and dishonesty.

That may work great for just money but, honestly, that’s going to work even better for all of our social institutions. Our voting, our property ledger, the maintenance of our identity, contractual agreements, these types of things. Why I’m so bullish on this industry is that it’s not just about building a token and watching that token go up in value, it’s about the fundamental re-architecture and reinvention of society as we know it.

What’s going to happen is that governments that are most in need of restoration of credibility are going to be the first adopters, which is why I’m so keen about the developing world. One of the reasons people don’t put money into these markets – despite the fact that they grow at 15 percent per year and the demographics are very promising – is that they don’t trust the rule of law, and they don’t trust the sovereign government. They say these guys default all the time, the government changes all the time, and I’m going to get wiped out. Guess what? If you put in blockchain-style infrastructure and they go from, ‘What? We have to trust the government?’ to, ‘We don’t have to trust anybody—the infrastructure just works, the values preserve these types of things.’

So, I think that’s a huge component. It’s a necessary component to restoring faith in institutions. But it’s not sufficient, there’s a lot more stuff that has to happen. And, unfortunately, we’re still getting very siloed and fractured. People are very propagandised right now and very radicalised right now on all sides of the spectrum, and we’re no longer able to agree on basic facts. People aren’t able to think critically, there’s some cognitive damage that’s happened to society. It’s making it very difficult for people to discern fact from opinion, opinion from fiction. They just lump everything together and they go into these very strange narratives of, ‘My people are good, your people are evil’ … wherever they sit in the political spectrum, and that’s very problematic.”

Fight the power(s)

Among the most controversial stories of the past few months was Twitter’s decision to ban Trump; which split opinion even among non-supporters of the former president.

Supporters of Twitter’s decision argued that Trump was spreading dangerous misinformation which had tragic consequences. Critics argue that such de-platforming stifles free speech, drives people into fringe communities, and helps to boost the claims that such platforms have a bias which silences opposing views and could influence democratic processes.

“The argument was, ‘Well, these are private companies, and they can do whatever they want.’ And there’s some truth to that. On the other hand, when private companies collude and then end up controlling an entire market, we have a term for that: it’s called a monopoly. 

There’s a reason why we have the Sherman Antitrust Act and there’s a reason why we broke up the monopolies wherever we saw them. The social consequences to monopolies are stagnation and also overwhelming control in the hands of a few who are unelected and unaccountable to the general public.

The oil of the 21st century is information and data—if a cartel formed together and controlled the flow of it, the pricing of it, and the access to it, that’s hugely problematic for society.”

Any party which can tackle social media’s problems successfully is sure to be rewarded lucratively for their efforts, but it’s a minefield that no-one can be blamed for wanting to avoid.

“I’ve done a series of videos on this where I’ve talked about, ‘Hey, it’s not good enough to just decentralise Twitter, because the bigger problem is the way we communicate with each other.’

If all we do with decentralised Twitter is silo up and only listen to opinions that we like, don’t diversify, and there’s no information flow between people, all you’re doing is building a more resilient radicalisation engine. So, as people join, they go from moderates to radicals in one political direction or the other and that solves no problems, and it’s bad for society.

You need a system that de-radicalises people, makes them more open, and gets rid of Dunning-Kruger (a cognitive bias hypothesis that people with low ability at a task overestimate their ability) and makes them challenge and question their ideas. And you need a system where the incentives and design is built in a way for people to vet and verify information.”

Hoskinson doesn’t rule out the possibility of IOHK using Cardano to take on social media’s problems but doesn’t underestimate the scale of the challenge.

“We have a whole group of people that do think about this, and there’s a lot of people thinking about this in academia from Cornell to Stanford, to MIT and so forth, because they’re really worried about the consequences of social media creating radicalisation, and they say, ‘How the hell do we get out of this?’

The other thing is, you create incentives for decentralised fact-checking and information curation, because the problem, is if you just hand out fact-checking to five actors, they become like the commissars – the ‘Ministry of Information’ that we saw in every one of the Soviet Republics – and they get to decide what’s true and what’s not. That’s horribly damaging to society, especially when it’s in the hands of an ideologically-directed private company.

And, if you support it, just take a step back and imagine how would you feel if the Klu Klux Klan were your fact-checkers? And you saw that’s obviously wrong. Well, what if half of society feels that the existing fact-checkers are just as bad as those guys? Do you think they’re going to be moderate? No, they’re going to get radicalised by those beliefs. It’s not a solution just to call them bad actors and horrible human beings and throw tar on them as they grow up. They turn to violence at some point. So you can’t solve the problem that way. 

So, if we were to enter the decentralised media space – the social media space – we’d only do so if we had the dual solution. How do you de-radicalise people? How do you create incentives for proper information curation and sharing? How do you make sure that it’s a truly decentralised system where it’s very resilient and it’s also capable of sustaining itself? If we could come up with a solution to all those things, then I think we’d enter the space. We have a lot of conversations, and there are a lot of interesting protocols.”

However, Hoskinson questions whether he’s personally willing to “enter into that swamp” after 12 years in a space that’s been anything but plain sailing.

As was usual in Bitcoin’s early days, Hoskinson faced the usual allegations hurled at people who support cryptocurrencies–-that they’re supporters or facilitators of the illegal drug trade, child pornography, white supremacy, or any of these other horrible things which all research suggests only make up a small percentage of transactions and certainly much smaller less than fiat cash.

“We’re sitting here trying to solve the social problems of humanity that these governments created,” Hoskinson says. “In the meantime, the incumbents are the ones who are creating the violencetheir algorithms, the way they structure their networks, actually radicalise people and divide people.”

‘It’s always a bubble, right?’

Many financial experts believe cryptocurrencies are in a bubble that’s about to pop in a fashion often likened to the “dot-com bubble” in the late 90s. Crypto advocates, on the other hand, point to Bitcoin’s record high addresses, increasing adoption, growing interest from institutional investors, and how the world’s hardest asset is being added to the balance sheets of companies like Tesla and MicroStrategy.

“It’s always a bubble, right? The Fed printed $6 trillion last year in the United States and I ask myself: ‘Why do I even pay taxes anymore?’ I mean, honestly, if they can just print $6 trillion a year and say there’s no inflation and it doesn’t have any impact, then there’s no reason to pay taxes, there’s no reason to do anything. So the modern monetary theory is a road to nowhere. And I think the real collapse is going to be the modern banking system. And I think the real collapse is going to be the fiat currencies.

We’ve already seen tremendous deterioration in buying power for the US dollar. I mean, just look at the price of wood, simple things like lumber, oil, things like the price of gasoline… they have been going up 20, 30, 40 percent. The cost of rent… you know, we’re in a pandemic recession and rent is still going up in many places because of inflation, whereas wages do not. This is not a sustainable economy and so crypto is the escape hatch.

People are saying: ‘Wait a minute here, in an age of negative interest rates, no yield on bonds, subpar investments, and high inflation, why the hell do I keep my money in fiat? Let me go over to crypto.’

The minute when all these people go over crypto, the first thing the media starts printing over and over again is it’s a bubble, it’s a bubble, it’s a bubble. Hang on a second here, if you have an enterprise with tens if not hundreds of millions of people involved, who are putting their money into it, building infrastructure, and using it for real-life utility… that’s not a bubble, that’s an economy.”

Most blockchain projects which have survived the “crypto winter” are not the scams associated with the industry’s early days and are doing truly exciting things. In 2017, prior to when many would say when the crypto bubble really popped, projects that were nothing but hype were somehow reaching $2 billion+ market caps.

“Look at the size of the environment, we probably have three or four times as many people in Bitcoin, three or four times as many companies in the cryptocurrency space, and four years of technological progress lifting all of this up. So, in many ways, I think that’s much more sustainable than 2017.

Also, look at the top 10, all the projects have massive teams behind them and massive ecosystems behind them. They’re actually doing real and interesting things.”

Hoskinson goes on to point out that bubbles burst all the time and it doesn’t invalidate the core ideas. He points at Tesla’s high market value and says: “As good as Elon [Musk] is, I don’t think he’s better than Toyota, Ford, GM, and Honda combined. And that’s what the market is basically saying right now with the market price.”

As a thought experiment, Hoskinson proposes a scenario where Tesla lost 90 percent of its market value. “Does that invalidate the concept of battery-powered cars? Does that invalidate the concept of alternative energy and being your own energy producer? No, of course not,” he says.

Hoskinson further explains:

“Our industry is built on a foundation of ideas. Those are immutable. those are permanent. And it’s a mind virus. You know, the minute that you admit that Bitcoin can exist, you’ve already started accepting that maybe you don’t need a government for printing money in monetary policy, then you start playing the what-if game.

What if we don’t need a government to run our election system? What if we don’t need a government to run a property ledger? What if we don’t need a government to manage our health records? That’s there to stay, whether Bitcoin is here to stay, or Ethereum is here to stay, or Cardano is here to stay.”

“Who cares if it’s a bubble or not? It’s a temporary short-term thing. Bubbles don’t kill ideas,” Hoskinson concludes.

You can watch our full interview with Hoskinson here:

10/02 update: Updated current staking percentage and value to account for huge 24-hour growth.

Interested in hearing industry leaders discuss subjects like this? Attend the co-located 5G Expo, IoT Tech Expo, Blockchain Expo, AI & Big Data Expo, and Cyber Security & Cloud Expo World Series with upcoming events in Silicon Valley, London, and Amsterdam.

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