Summary of "An Inquiry into Decentralization with Erik Voorhees (WiM083)"

The "What is Money?" Show hosted by Robert Breedlove features a comprehensive discussion with Erik Voorhees, the founder of ShapeShift, focusing on the multifaceted concept of decentralization within the cryptocurrency ecosystem. Released on December 2, 2021, this episode delves deep into the definitions, implications, and real-world applications of decentralized systems, drawing comparisons between Bitcoin and Ethereum, exploring the evolution of ShapeShift into a decentralized autonomous organization (DAO), and addressing the challenges posed by Bitcoin maximalism.

1. Introduction to the Guest

Robert Breedlove welcomes Erik Voorhees, founder of ShapeShift, to discuss the latter's transition towards decentralization.

• [00:00] Eric Voorhees: "Foreign."
• [00:08] Robert Breedlove: "Maybe you could enlighten me as to what's going on over there."

2. Defining Decentralization

The conversation begins with defining what decentralization means in the context of cryptocurrencies, emphasizing that it's a spectrum rather than a binary state.

• [02:25] Eric Voorhees: "The crypto ecosystem is full of projects ranging from very centralized to very decentralized and on different metrics."

3. Comparing Bitcoin and Ethereum

Erik explains the differences in decentralization between Bitcoin and Ethereum, highlighting Bitcoin's role as a decentralized store of value versus Ethereum's broader utility.

• [09:18] Robert Breedlove: "Bitcoin is more akin to the Internet itself, like an open source protocol for moving economic value."
• [22:04] Eric Voorhees: "If I was going to place a bet on value over long term, Bitcoin's conservative culture is probably the right bet in that regard."

4. Ethereum's DAO and the DAO Hack

A significant portion of the discussion centers on the DAO hack in Ethereum's history, its implications for decentralization, and the community's response through a hard fork, resulting in Ethereum and Ethereum Classic.

• [13:53] Robert Breedlove: "Does the ability to hard fork something like that not impact our assessment of decentralization?"
• [16:00] Eric Voorhees: "If anything, it was proof that it was decentralized. Everyone was yelling at each other about what to do."

5. ShapeShift's Journey: From Centralization to Decentralization

Erik recounts ShapeShift's evolution from a centralized exchange to a decentralized platform, including the challenges faced with regulatory compliance and the decision to integrate decentralized exchanges (DEXs) like Thorchain.

• [56:00] Eric Voorhees: "We started just integrating decentralized exchanges into the ShapeShift platform."
• [58:15] Eric Voorhees: "And a few months later, we announced that we're decentralizing the whole thing."

6. DAO Governance and Fox Token

ShapeShift's transition to a DAO involves the introduction of the Fox Token, its distribution through airdrops, and the governance mechanisms that allow token holders to vote on proposals affecting the platform.

• [63:42] Robert Breedlove: "You announced that... you're migrating to a governance model that's enforced through the Fox Token."
• [71:10] Robert Breedlove: "So what should be done about that? Purely, I guess we could say hyper capitalist system..."

7. The Role of Decentralized Exchanges

The discussion highlights the importance of DEXs in maintaining censorship resistance and providing immutable financial tools, contrasting them with centralized exchanges that act as gatekeepers.

• [28:25] Robert Breedlove: "What are the big use cases right now? Is it decentralized exchange?"
• [30:00] Eric Voorhees: "These are machines that people have no conception of how powerful they are."

8. Market-Proven and Decentralized Assets

Erik emphasizes how Ethereum has been market-proven through high aggregate fees and extensive use in decentralized finance (DeFi), arguing that decentralization correlates with utility rather than mere speculation.

• [27:05] Robert Breedlove: "How do you pin that opinion for yourself?"
• [27:10] Eric Voorhees: "Ethereum is absolutely market proven."

9. The Future of Crypto and DAOs

Looking ahead, both hosts discuss the potential trajectory of decentralized systems, including the dissolution of traditional corporate structures in favor of DAOs and the broader implications for financial and social institutions.

• [119:43] Robert Breedlove: "What else is going on in that world?"
• [121:39] Eric Voorhees: "Fiat and central banking goes away. That institution is going to be absolutely obliterated by Bitcoin."

10. Responses to Bitcoin Maximalism and Tribalism

The conversation addresses the antagonistic stance of Bitcoin maximalists towards other cryptocurrencies, the importance of evaluating projects based on utility rather than adhering to strict dogmas, and the detrimental effects of labeling all non-Bitcoin assets as scams.

• [104:06] Eric Voorhees: "I think a lot of the bitcoin maxis really think they are all scams."
• [106:20] Robert Breedlove: "How do we quantify decentralization or market success?"

11. Concluding Thoughts

Erik Voorhees concludes by encouraging open-mindedness within the crypto community, advocating for the coexistence of multiple decentralized systems, and acknowledging the transformative potential of DAOs.

• [125:19] Eric Voorhees: "Yes, it's a very cool industry to be in because we're at the cutting edge of everything."
• [126:55] Eric Voorhees: "Stay healthy and learn and keep an open mind to things."

Notable Quotes

• [04:39] Robert Breedlove: "Bitcoin's the furthest down that road. So what I've been mulling over is how do we describe that road?"

• [10:27] Robert Breedlove: "Is that criteria enough to prohibit something from being decentralized in your opinion?"

• [24:10] Eric Voorhees: "It sacrifices certain efficiencies so that it can become more decentralized."

• [35:43] Eric Voorhees: "These are hyper capitalist."

• [42:51] Eric Voorhees: "Sound money requires predictability."

• [56:53] Robert Breedlove: "Bitcoin is the single most important asset you can own in the 21st century."

• [83:19] Eric Voorhees: "Yeah, a lot of the bad projects are going to lose people money. The good projects are going to make people money."

• [112:25] Robert Breedlove: "So we're coming back... how to quantify decentralization or market success?"

Key Insights and Conclusions

1. Decentralization is Multifaceted: Decentralization isn't an all-or-nothing attribute but exists on a spectrum across various metrics such as node distribution, developer diversity, and asset ownership.

2. Bitcoin vs. Ethereum: While Bitcoin serves primarily as a decentralized store of value with a conservative development culture, Ethereum offers a programmable platform facilitating a wide range of decentralized applications, including DeFi and NFTs. Their differing degrees and vectors of decentralization serve complementary roles within the crypto ecosystem.

3. DAO Governance: Transitioning from a centralized corporate structure to a DAO involves significant challenges and shifts in governance, primarily facilitated through token-based voting systems like ShapeShift's Fox Token.

4. Utility Over Dogma: The true measure of a cryptocurrency's value lies in its utility and real-world applications rather than mere market speculation. Projects that offer tangible use cases, such as decentralized exchanges or NFTs, demonstrate their worth through active adoption and functionality.

5. Market Dynamics and Regulation: The decentralized nature of cryptocurrencies inherently resists centralized regulatory attempts. However, the evolution of DAOs and decentralized platforms requires navigating uncharted legal territories, emphasizing the importance of open-source principles and community governance.

6. Combatting Maximalism: Overly rigid adherence to Bitcoin maximalism can hinder the broader adoption and evolution of decentralized technologies. Embracing a diversity of projects based on their merits and utility fosters a more robust and innovative ecosystem.

7. Future Prospects: The ongoing decentralization of financial systems, social media, and other sectors through DAOs and blockchain technology signifies a transformative shift towards open, immutable, and decentralized infrastructure, challenging traditional centralized institutions.

This episode offers a nuanced exploration of decentralization in the crypto space, advocating for a balanced understanding that recognizes the diverse applications and ongoing evolution of decentralized technologies. Erik Voorhees' insights as a pioneer in the field provide valuable perspectives on the challenges and opportunities inherent in building and sustaining decentralized organizations.