Hidden Forces: The Future of Distributed Applications and Ethereum's Blockchain

Guest: Andrew Keys (Consensys Systems)
Host: Demetri Kofinas
Date: August 3, 2017

Overview

In this Market Forces segment of Hidden Forces, Demetri Kofinas welcomes Andrew Keys of Consensys Systems for an in-depth conversation on the disruptive potential of blockchain technology—particularly Ethereum—in transforming how the world builds distributed applications, decentralizes trust, and rethinks systems of agreement. The episode goes beyond cryptocurrency speculation, elucidating Ethereum’s role as a “world computer,” the future of smart contracts, distributed ledgers, challenges of scalability, security considerations, the regulatory landscape, and the socio-economic consequences of decentralizing formerly centralized industries.

Key Discussion Points and Insights

Andrew Keys' Journey into Blockchain (00:24–02:05)

• Professional Background: Grew up in traditional finance (UBS, hedge fund, insurance-related ventures).
• Discovery of Bitcoin: Early research (2011–2012) into Bitcoin; found its breakthrough in solving the “double spend” problem but noted it lacked flexible business logic.
• Introduction to Ethereum: Met Joseph Lubin, co-founder of Ethereum, at an early meetup and was inspired by Ethereum's vision for a decentralized, peer-to-peer Web.

"Essentially that we could have a peer to peer next generation implementation of the World Wide Web without centralized intermediaries, I kind of went down a rabbit hole." – Andrew Keys [01:45]

Centralization vs. Decentralization & The Meaning of Blockchain (02:35–06:52)

• Peer-to-Peer Explained: Blockchain allows direct interaction between counterparties without intermediaries like banks, escrow agents, or tech giants.
• Contextualizing Blockchain:
  • “The Internet simplified and expanded the way we humans communicated and that the blockchain simplifies and expands the way that we agree.” – Andrew Keys [05:42]
  • Blockchain commoditizes trust, turning contracts from notarized documents into executable code (smart contracts), with distributed audit trails improving transparency and liquidity.

Ethereum vs. Bitcoin—Fundamental Differences (10:06–12:25)

• Technical Comparison:
  • Bitcoin: Peer-to-peer network with a single function (value transfer); scripting language intentionally limited.
  • Ethereum: Peer-to-peer network with a Turing-complete virtual machine, allowing developers to program any logic (smart contracts).

“At every node of the Ethereum virtual machine is a scripting language. And the Ethereum virtual machine can compile what are called smart contracts...whereas the Bitcoin virtual machine is concentrating on solely transferring value peer to peer.” – Andrew Keys [11:07]

• Developer Accessibility: Solidity, Ethereum's programming language, draws on JavaScript familiarity, spurring rapid ecosystem growth.

Major Fork Events: Ethereum Classic & Bitcoin Cash (12:43–16:54)

• The DAO Hack:
  • $50M exploited via recursion bug in an Ethereum application (The DAO).
  • Led to a contentious community debate: should “code be law”? Resulted in Ethereum splitting into two: Ethereum (ETH) and Ethereum Classic (ETC).
• Recent Bitcoin Fork (Bitcoin Cash):
  • Scaling issues prompted a split, giving birth to Bitcoin Cash, focused on larger blocks and higher throughput.

Scalability, Consensus Mechanisms, and Energy Usage (18:04–24:55)

• Current Capacities:
  • Credit card networks process ~100k TPS; Bitcoin ~4–10 TPS; Ethereum slightly higher.
• Scaling Solutions:
  • State Channels (Raiden, Lightning): Off-chain microtransactions aggregated to minimize on-chain congestion.
  • Proof of Work vs. Proof of Stake:
    • Proof of Work is energy-intensive (“equivalent to country of Denmark’s electricity” – Andrew Keys [21:22]), but Ethereum plans to migrate to energy-efficient Proof of Stake.
  • Sharding: Divides transaction validation across network subsets, boosting throughput.

“There have been estimates somewhere between the country of Ireland to the country of Denmark's electricity spend on a day is equivalent to Bitcoin and Ethereum.” – Andrew Keys [21:22]

Private Blockchains and the Role of Corporates (JP Morgan, Enterprise Ethereum Alliance) (24:55–40:33)

• Enterprise Adoption:
  • JP Morgan’s Quorum: A private, permissioned implementation of Ethereum.
  • History echoing the Internet’s shift from intranets to the public web.
• Privacy Concerns:
  • Public blockchains are transparent at the wallet-transaction level (though not always identity-resolved).
  • Zero-Knowledge Proofs (zk-SNARKs) from Zcash offer a privacy layer, likely to be introduced into Ethereum for confidential transactions.
• Consensys’ Role:
  • Develops protocol clients, open-source tools (e.g., Truffle), and educates enterprises/governments.
  • Views Ether as “crypto fuel” for the new web.
• Decentralized Platforms:
  • IPFS (InterPlanetary File System), Filecoin, Golem: Enable distributed storage, computation, alongside Ethereum’s transaction layer.

Regulatory Response and Tokenization (34:51–37:36)

• Tokenizing Everything: From commodities to event tickets, blockchains can represent and transfer any asset.
• Regulatory Shift:
  • The SEC’s 2017 guidance clarifies which tokens are securities. Singapore's MAS follows suit.
  • Smart contracts can “bake in” compliance, enabling real-time regulatory oversight.

“Now you can actually bake in compliance into smart contracts...you can have regulatory oversight and you have better means by which to do so.” – Andrew Keys [37:35]

Security: Protocol Resilience vs. Application Vulnerabilities (41:54–48:31)

• Attack Surface:
  • Blockchains introduce new security challenges by directly holding digital assets.
  • Protocol layers (Bitcoin and Ethereum) have never been hacked. Vulnerabilities surface in application layers (Mt. Gox, DAO).
  • Movement towards “formal verification” and standardized, audited contract libraries.
• 51% Attacks:
  • Theoretical risk if one actor controls majority mining. However, economic and logistical barriers make such attacks unfeasible at scale and immediately noticeable.

"Neither the Ethereum protocol nor the Bitcoin protocol has ever been hacked." – Andrew Keys [45:54]

Societal Impact & The Commons (50:31–55:16)

• Solving Problems of the Commons:
  • Blockchain for government services: voting, digital IDs, medical records tied to a portable, reputation-based identity.
  • Innovation opportunities abound for unbanked populations and refugees.
• Wealth Distribution:
  • Blockchain could disrupt entrenched centralization and reduce “data monopolies.”
  • Tokenization unlocks previously illiquid assets, creating new markets and liquidity.

“What you're seeing is this next generation peer to peer mechanism that will drive down the cost of that type of intermediation and will create these price discovery mechanisms to really ask us what is the cost of trust.” – Andrew Keys [53:53]

Notable Quotes & Memorable Moments

• On the Blockchain’s Fundamental Shift:

  “The Internet simplified and expanded the way we humans communicated and that the blockchain simplifies and expands the way that we agree.”
  – Andrew Keys [05:42]

• On Ethereum’s Advantage:

  “At every node of the Ethereum virtual machine is a scripting language…whereas the Bitcoin virtual machine is concentrating on solely transferring value peer to peer.”
  – Andrew Keys [11:07]

• On Energy Consumption:

  “There have been estimates somewhere between the country of Ireland to the country of Denmark's electricity spend on a day is equivalent to Bitcoin and Ethereum.”
  – Andrew Keys [21:22]

• On Security:

  “Neither the Ethereum protocol nor the Bitcoin protocol has ever been hacked.”
  – Andrew Keys [45:54]

• On Socioeconomic Impact:

  “There are 80 people on planet Earth that have the same amount of wealth as the bottom 3.5 billion ... we've got these kind of data monopolies that are extracting tremendous amounts of value ... This next generation peer to peer mechanism ... will help planet Earth tremendously.”
  – Andrew Keys [53:21–53:53]

Timestamps for Important Segments

• Andrew’s Background & Ethereum Discovery: [00:24–02:05]
• Blockchain’s Value Proposition (Trust): [05:10–06:52]
• Ethereum vs. Bitcoin & Smart Contracts: [10:06–12:25]
• The DAO Fork & Ethereum Classic: [12:43–14:57]
• Bitcoin Cash Explained: [15:40–16:54]
• Scalability, State Channels, Proof of Stake, Sharding: [18:04–24:55]
• Private Blockchains (Quorum), Enterprise Ethereum Alliance: [24:55–40:33]
• Tokenization, Regulatory Landscape: [34:51–37:36]
• Security & Formal Verification: [41:54–48:31]
• 51% Attack Robustness: [45:54–47:53]
• Societal and Commons Applications: [50:31–55:16]

Final Thoughts

This episode offers a seminal look at Ethereum and distributed applications from the vantage of 2017, blending technical rigor and sweeping societal implications. Andrew Keys and Demetri Kofinas articulate blockchain’s promise—not just for fintech, but as a new substrate for trustworthy, efficient, and inclusive technological governance. The conversation shines in demystifying both the technical details and the grander philosophical stakes of the move towards decentralization.