Bitcoin pioneer challenges cryptocurrency status quo
Jeff Garzik, a bitcoin pioneer known for his contributions to the digital currency's underlying code, has created a rival to the asset whose value he helped push into the stratosphere.
Bitcoin is being held back not only by its own limitations, as he sees it, but by the infighting that has become a permanent feature of the contentious community surrounding the digital currency.
Fed up with the politics and brinkmanship that ultimately, this past July, saw bitcoin split into two separate versions, Garzik decided to create a brand-new cryptocurrency, which he calls Metronome. Now, six months later, he is bringing it into the public spotlight.
"We've really been beating this up on the economic-model side, the engineering side, the legal and tax side," said Garzik, who serves as CEO of Bloq, a blockchain startup that focuses on enterprise applications. "When it's launched, it's launched; Bloq doesn't have any control over it at that point. So we've got to front-load all this work."
A case in point: Bloq spent more than $1 million on legal and tax review for Metronome, says Garzik. The company hired not one but three auditors to assess its software.
What could be worth so much trouble and expense? Potentially a better cryptocurrency.
As new coins and blockchain technologies proliferate, the need for them to be able to interact with each other has become a pressing issue. But Garzik thinks he has a better solution: Rather than merely making various blockchains interoperable, he wants to give them a common asset.
Metronome's MTN token doesn't have its own blockchain, as the two most valuable cryptocurrencies, bitcoin and Ethereum, do. The new cryptocurrency can jump from one blockchain to another. Instead of switching assets — selling bitcoin and buying Ethereum's ether currency, for instance — in order to escape the drama or risks associated with a particular network, people can simply move their assets to a new network.
That means Metronome could potentially be attractive to banks and payments companies, which have lately been investigating cryptocurrencies as a means of improving cross-border transactions. A cross-chain asset seems a natural fit.
What's more, MTN transactions settle in 15 seconds, according to Garzik, whereas bitcoin transactions can sometimes take an hour or more, owing to congestion in the network. Metronome also has a “mass pay” feature allowing users to send money to multiple recipients at once.
You can even authorize someone else to withdraw from your MTN account within a certain timeframe and up to a set amount, allowing it to work as a joint checking account with better security features.
"This is what results if you take years and years of experience and lessons learned and take a [clean] sheet of paper and design a new cryptocurrency," Garzik said.
'Consciously a cryptocurrency'
Metronome is planned for launch in early December. Bloq settled on a descending-price auction, open to all, as the fairest means of distributing the initial batch of eight million tokens. In this, Bloq is bucking the trend.
New tokens are typically distributed through an unregulated crowdfunding method known as an initial coin offering. But as the big money in blockchain tokens has begun attracting interest from big venture capital firms and angel investors, it has become relatively common for hot token projects to hold a pre-sale, at a preferred buy-in rate, for major investors.
"We're not letting Sequoia [Capital] in at a special price from everyone else," Garzik said, referring to one of the top venture capital firms in the world.
An additional two million tokens will be allocated to Bloq as compensation for developing the cryptocurrency, though Garzik says his company will receive none of the auction proceeds. Instead, automated software called a smart contract will use those funds, while they last, to buy MTN on the open market, thus buoying the new cryptocurrency's price.
There is no telling just how much money the token sale could capture. From January through September 2017, ICOs raised a total of $2.2 billion for blockchain projects, according to Novum Insights. Yet many token creators, even while attracting investors, are striving not to have their creations seen by authorities as financial instruments.
By classifying them as "utility tokens" — something like paid API keys or memberships that grant their holder privileges on a given software platform — some token issuers hope both to navigate past the Scylla of the Commodity Futures Trading Commission, which has declared that bitcoin and its ilk should be considered commodities, and to avoid the Charybdis of the Securities and Exchange Commission, which in July announced its intention to enforce regulations against tokens that function like securities.
Last month, the SEC charged two ICOs with selling unregistered securities and defrauding investors.
Garzik, however, is adamant that Metronome is designed to be money, like bitcoin. "It's very consciously a cryptocurrency, not a utility token for a future service," he said.
The chief obstacle is obvious: how to attract users and overcome bitcoin's immense head start?
The answer, if there is one, lies as much in Metronome's economics as in its technical features. Whereas bitcoin has a hard cap of 21 million coins, Metronome's software is designed to mint new coins ad infinitum. Every day, 2,880 new coins will be the added to the initial supply of 10 million.
In the first year, that will mean an inflation rate of about 10%, in the second year about 5%, and diminishing thereafter until, in year 35, the annual inflation rate is only 2%, where it will stay "for the next thousand years," Garzik said.
But, unlike at a central bank, there won't be anyone with the authority to change the rules governing Metronome's issuance of new coins. "We won't have [quantitative easing]," Garzik said. "It's QE-impervious." Not even Bloq has a back door.
Not everyone is impressed. Online, in some corners of the cryptocurrency community, criticism of Metronome has been fierce.
Michael Goldstein, a longtime bitcoiner and president of the Satoshi Nakamoto Institute, described Metronome as "another shitcoin" — the vulgar, colloquial term for a worthless token. Another critic labeled Garzik "an ICO scammer."
Daniel Lee has been accepting Bitcoin at his family's seven retail stores in Fort Greene, Brooklyn since March 2013 by having customers send the digital currency to wallet addresses he manages.
Benjamin Lawsky, New York's top financial regulator, rarely sounds ambivalent. But when the topic is something as unprecedented and complex as Bitcoin, the big questions appear to give him pause.
It's still unclear what New York's planned "BitLicense" actually is, but the New York Department of Financial Services says its license is meant to encourage Bitcoin businesses to operate and innovate in the state.
Charlie Shrem, the digital currency entrepreneur indicted on money laundering charges, has resigned as vice chairman of the Bitcoin Foundation.
Goldstein is one of many so-called bitcoin maximalists, who believe the unique properties of bitcoin, including its limited supply, make it ideally suited to be a global currency or digital gold that will continue to grow in value over time.
On Tuesday, he resurfaced one of Garzik's old tweets from August 2014, in which the developer seems to be down on the whole notion of ICOs: "Just learned a new term from the #altcoin world: ICO. Initial Coin Offering. (IMO: signalling the 'dump' of 'pump-n-dump.' "
In 2017, though, others think the future lies in a multicoin, multichain ecosystem, even if bitcoin remains at its center. And despite the growing popularity of digital currency — the number of users worldwide now rivals the population of small countries — there may still be time for a new winner to emerge.
"We're in this Cambrian explosion kind of moment," said Brian Behlendorf, executive director of the Linux Foundation's Hyperledger Project. "We're still mapping out the landscape."
ICOs have drawn criticism for their lack of oversight and in some cases for the perceived greed and overblown promises of the unproven teams behind them. Cryptocurrency insiders often say that most new coins will eventually become worthless — "go to zero," in crypto parlance.
Even technically sound projects with smart founders can struggle. One high-profile blockchain, Tezos, raised $232 million this past summer in what was then the biggest ICO ever, but is now mired in backroom politics that have delayed the launch of the network.
"Bear with me," Tezos co-creator Arthur Breitman asked an audience at Money 20/20 in Las Vegas on Tuesday.
Fewer than one in 10 tokens are actively used once their ICO is over, according to Token Report. In part, this statistic merely reflects the fact that the software platforms associated with many tokens have yet to launch. But, clearly, hundreds of tokens are being bought and sold on speculation alone.
Metronome, said Garzik, is "not going to be drama-driven." Rather than lock users into a single blockchain, with all of the risk that entails, Metronome treats each individual blockchain "as sort of a railroad." Moving MTN tokens from one to another is "kind of like taking a boxcar off of one railroad and putting it on a different railroad," Garzik said.
While the MTN token will launch on Ethereum, it will soon be compatible with Ethereum Classic, Rootstock (a "sidechain" of bitcoin) and Qtum, another cryptocurrency network, according to a press release.
It remains to be seen whether Metronome can attract users, but Garzik is confident it will prove to be a more elegant solution than mere blockchain interoperability.
"If you want to make two chains talk to each other, that's still two [different] economic animals. You've still got some friction and some cost, possibly a middleman involved in going from a litecoin to a bitcoin, or a bitcoin to an ether," Garzik said. "It's one thing to be technically compatible, but you still have to consider the economics."