The talk with Armeanio, Ergo’s bizdev, was thoroughly insightful and stimulating. We discuss DeFi, blockchain, cryptocurrencies, mining, dApps, PoW, and smartcontracts.
Armeanio—Ergo Platform’s Manager of Business Development
This interview took place on July 19, 2021. More importantly, it took place before the Ethereum Merge on September 15, 2022.
Ergo is close to my heart. It’s a one-of-a-kind project. The more I delve deeper, the more I fall in love. One of the original features that I loved instantly after reading the whitepaper was resistance to pool-mining, which was scrapped following The Hardening protocol update back in February, 2021.
#1. Pool mining is now generally the only way to mine. Can you shed some light on this matter? What went wrong, and what challenges does a PoW cryptocurrency face trying to resist pools and reward the solo miner?
Non-outsourceable puzzles were based on the original design of Bitcoin. The idea was to help ensure the decentralization of mining. Decentralization is a wonderful philosophy, however, the reality in practice is a bit more complex. The reality is the crypto space has large powerful actors that have major influence on blockchain projects, this could be large mining operations, large investors, or centralized exchanges.
There is not a perfect system to promote decentralization. ASIC-based Proof of Work, ASICresistant Proof of Work, Proof of Stake, and all the other security mechanisms ultimately have some form of trade-off. I know that makes many people defensive but it is simply the truth, there is no current “perfect solution”.
The concept of non-outsourceable puzzles in and of itself has several pros and cons. The largest con of non-outsourceable puzzles is the miners’ incentive to secure the network is less economically beneficial.
Miners are used to having some “share” of the mining rewards when a block is produced. The frequency of block rewards for a miner in a chain running non-outsourceable puzzles would be less than the same miner participating in a pool. Theoretically speaking “if” a system with non-outsourceable puzzles was broadly adopted, block rewards may be quite rare. Now the beneficial aspect of this network would be that a miner would reap 100% of the block reward in the event they were first to solve the puzzle.
This is somewhat of an economic disincentive and would most likely prevent “freelance” miners from being interested in participating. The downside to this is that the overall hashrate would be missing the computing power freelance miners bring to the network. The upside is that miners overall would most likely be active participants in the Ergo network. Another incentive would be that block rewards would be more decentralized.
I still find the overall concept interesting, quite novel and would be curious to see if this concept is ever reincarnated in some form.
Autolykos 1 was broken due to Ergo’s flexibility with smart contracts. Sadly the strength in one area allowed an exploit in another area. PoW that is not smart contract enabled, or perhaps with dumber contracts could in theory run non-outsourceable puzzles. Ergoscripts smart contract functionality was actually the issue. Due to this, a workaround was found and a large pool formed which used smart contracts to share their keys trustlessly. As such the hashrate and block rewards became dominated by this party.
This development forced the community to make a choice. Non-outsourceable puzzles could be left live, with an actor exploiting the hashrate, or changes could be made. One thing to respect is this decision came with a lot of debate within the community. It was unfortunate yes, but reality was as such that, in my opinion, forced adaptation was the wise choice.
#2. Ergo is built around the concept of “smart money.” Tell me how does it help solve the problems that we have with our current financial systems – not just conventional ones involving fiat, but other more adopted cryptocurrencies as well.
Smart Money has to do with how multistage contracts in EUTxO work. The contract stages and the “token” are not separate. Each UTxO is potentially programmable.
The current financial system has a lot of systemic flaws. So where to start is the larger question.
Fiat money in and of itself has the ability to infinitely inflate. The global fiat monetary system is not pegged to any physical reality or asset. Markets are dominated by large institutions that have no financial incentive to take responsibility for their risk allocation as they have been repeatedly backstopped by central banks and governments. This in and of itself in my opinion is a flawed foundation that the entire system is built upon.
The first issue with postmodern markets is that the closing mechanism in trading has not caught up to the rate of data flow. This is exploited daily by primary dealers and market makers that have the ability to outcompete the trading rate of the broader market.
APIs and high-frequency trading have greatly altered the trading vs closing rate across multiple global markets. This discrepancy is continuously exploited. In the United States, the average high-frequency trader trades on a millisecond time frame, while the closing mechanism or transfer of the asset title takes in some cases 3 days to clear.
Imagine a blockchain that has the ability to process massive amounts of trading volume, yet the actual block production and verification of transfer occurred up to 3 days later. It is ripe for frontrunning, naked shorting, and other attacks. Now in the blockchain space, I would think the average user would look at such a network and think to themselves, this design is inherently dangerous.
A blockchain-based financial system ideally would have a balance between the rate at which data is aggregated and the closing or settlement mechanism. Closing this gap in and of itself would eliminate some major flaws in current markets.
The second issue that unfortunately has made a crossover from post-modern markets to crypto markets is the massive overuse of leveraged trading instruments. The options/futures markets have a great impact over the base consumer market in crypto. This in my opinion is a bit toxic and is used as a tool to manipulate markets by larger actors.
Now in crypto markets at least the collateral can be verified to exist, that is a plus, it is not some complex derivative that is backed by another derivative.
However, overleverage creates inherent instability throughout the financial system and the crypto system as a whole. At this point, I would call the amount of leverage in the crypto space as a whole quite toxic and a continuous macro risk to the overall health of markets.
The third area to look at is fraud. There are multiple accounting tricks played in standard markets to hide or pad the state of a company’s balance sheet. Fraud and inaccurate marketing are rampant in the crypto space.
It is my belief that the crypto space as a whole needs to adopt internal community-driven standards in ecosystems. Fraud and rugpulls are very hard to prevent as currently the motivating factor that people used to get rekt is greed. Users in the crypto space have a tendency to learn through pain. Often new users will throw money at things that are designed to be attractive, have all the buzzwords in the world, awesome graphics, and are complete garbage. Shitcoins are the modern-day penny stocks. Yes, there are some penny stock millionaires but the majority of penny stocks were classic pump and dump schemes. I believe the answer is education rather than regulation. Strong communities should actively police their network, if something seems sketchy there is nothing wrong with calling that out in a public quorum. I would hope community members come to protect other community members, rather than exploit them.
To be honest, in the crypto space as a whole I would say that the level of fraud is probably higher than in traditional markets. This is a serious flaw that needs to be addressed by individual ecosystems. Failure to do this is actively inviting regulatory interference.
I bring up these points to look at the trading side of crypto.
Under the hood, I believe decentralized technology is a potential creative tool to drive down the financial costs imposed on users of the current global financial system. The technology itself is in its infancy. The end game for DeFi or alternative economic systems is low-cost tools and a friendly user experience. Decentralization should drive down costs by removing intermediaries. In my opinion, the goal ideally should be stability and low cost.
Somehow open source software development transformed into a worldwide casino that operates with massive leverage, and that monetary incentive changed a lot of the original intent or idea behind open source P2P money.
In my opinion, this general attitude misses the principle of open source software. Provide tools to users for the benefit of the user, rather than provide tools to trap or exploit the user. On the backend, I would hope the goal of crypto is simple. To build systems to support an ecosystem that the developer would want to be an everyday average user in.
Personally, I am not so interested in the project fighting most traders enjoy. It is my hope for the future that multiple projects work together. If the collective mindshare of open source developers ever get on the same page the crypto space would be a force to be reckoned with, the infighting and tribalism only slow innovation. It is my belief that such a system is needed before CBDC’s become an enforced standard.
Again, the principle that is generally behind open source software. Provide tools to users for the benefit of the user, rather than provide tools to trap or exploit the user.
#3. There has been a surprising (but expected) jump in the profitability of mining Ergo. I remember the time when suddenly, complete strangers started discovering the Autolykos 2.0 algorithm – and gamers were now mining on their GPUs. What factors do you attribute this jump in Ergo mining to?
Autolykos 2.0 greatly improved the profitability of mining ERG. Previously the mining incentive was a bit nerfed from non-outsourceable puzzles. The addition of mining pools added the potential for more predictable rewards, this is one of the benefits of collective mining power in PoW.
The updated algorithm is pretty friendly to GPU’s allowing smaller-sized cards to continue to mine profitably. Many have reported lower GPU temperatures and some have decided that surging power to maximize the hashrate isn’t really necessary. I think both support for older cards and running rigs a little less aggressively both contribute.
#4. Ergo does everything better. One of the key features is allowing lighter clients. Indeed, the problem of waiting for days and even weeks to sync a blockchain hinders many from running full nodes. With this, can you tell me how much improvement you’ve seen in terms of people going for running Ergo full nodes? Is this something that should be more common in blockchains, if not the norm?
Yes, I do believe that compression mechanisms like NiPoPoWs have a very bright future. In time similar mechanisms will most likely be discovered across multiple blockchain models as the efficiency is attractive. IOHK may have something to say about that I have not kept up to date with their latest papers.
I would say given time yes ways to compress blockchains will be broadly adopted. Ergo does have the ability to support NiPoPoWs however the functional expression of the potential is currently underdeveloped. Ergo has a lot of tools and technology to play with. At this point development focus often breaks down to the priority based on time.
This will change in time, unfortunately, the technology does not currently exist to clone the active developers a few times over.
#5. The scientific approach to introducing changes and features to the ecosystem is commendable. Gravitating more towards Cardano, this approach sure saves users from surprises. This is in contrast to a blockchain like Ethereum. Where do you see these three (Ergo, Cardano, and Ethereum) shortly into the future?
Ethereum was a trailblazer, I think it’s important to give the system some serious credit for its significance and contribution to the blockchain space. Where will it be in the future? Well, that probably depends on when the shift to PoS occurs and how the miners react to that transition.
That is yet to be determined, nonetheless, I do not think Ethereum will disappear any time soon. I don’t stay up to date with what is going on in the Ethereum ecosystem to be completely honest. I am not useful in answering anything about their future.
Cardano is something I can speak to, although I would not call myself up to date on the latest news I have a much greater idea of what is occurring within their ecosystem. I do hodl and stake ADA and since well before the launch of Shelly. The stakepools that I have recent experience with are AdaNorthPool and 21ADA, both are pretty great pool operators who I have a lot of respect for.
Cardano is currently on the march towards smart contracts being launched on Mainnet. I guess this is also slower than some users had anticipated. I know projects and individuals get a lot of shit in the crypto space for delays, however, that is just a part of the software development game.
Plutus will launch on mainnet and then most likely go through a period of updating and improving. The launch of smart contracts is a new beginning point, in which I imagine the flexibility and tooling will continuously improve. Software rolls out in phases. I imagine this will be similar to Shelly launching on Cardanos mainnet. The launch was without surprises, the user experience was quite nice in comparison to the majority of projects, but it was not without its bugs, need for optimizations, certain areas left users wanting more features and functionalities. This is to be expected.
Now the one thing I would say that maybe the Cardano community might not like here is that history is a good guide. Right now there is a lot of excitement about the coming launch and all the possibilities it unlocks. I would caution users from getting too starry-eyed, that is a position to be taken advantage of. Due to over excitement people are rushing to give their money without much due diligence.
Manage your risks, I think there are some very solid projects forming, and there are some that are suspect. Use wisdom with your money. Manage your risks.
Ergo will continue its improvement grind on multiple fronts. This is something I am up to date with.
We have a few major achievements that we are marching towards. The first is mhs_sam and the team’s work with gravity. This will most likely be the first journey ERG takes beyond its native chain. That is a pretty big milestone.
Ergo.Meta will see documentation and implementation. I think Kushti’s unified framework for side chains and Layers 2 solutions will prove to reflect his style. It will be very elegant and functional. One thing I have experienced is he rarely does anything without a great deal of forethought.
Ergo.Meta will open multiple solutions.
- It can create side chains of Ergo as an example: a privacy-oriented sidechain [Personally I hope such a thing is called ogre]
- Sidechains to other projects I would imagine Cardano would be first but it depends on how timing and functionality line up on both sides.
- Layer 2 solutions such as an ergo variant of Hydra or other styles of rollups become a possibility when needed.
The ErgoMixer launching staking will probably be a huge event within the Ergo community. Personally, I think the rush into the Mixer is going to overshadow the initial use of SigmaUSD. The question will be about initial popularity and use.
ErgoDex is a phased rollout however this launch will also be quite an interesting development within the Ergo ecosystem. I know many are greatly looking forward to this. In time native assets on the ErgoDex will be mixable in the ErgoMixer. This has the potential to be quite interesting. Ergo-wrapped assets will have the potential to be privacy empowered. Fungibility will be restored through mixability.
Morphics march towards Node v5.0 will offer some significant improvements to the network itself.
The launch of ErgoTeam and Raffle will give the community the ability to begin funding development, I hope in time we see more and more community-driven and funded projects.
#6. Cardano is PoS, Ethereum is transitioning to it. Apart from becoming greener, what else does a PoS system improve over a PoW? And how does that compete with Ergo’s PoW?
My thinking with Ethereum burning miners is that it might be a mistake. The mining community was a huge asset. Talent depth, system loyalty, and years of community burnt…
What will ETH 2.0 look like, I have no idea. However, I hope some of the miners that stuck around hop onto a chain that is committed to improving proof of work over the long term.
Both PoW and PoS are in their infancy as technologies. There is a certain defensiveness in the crypto space that is not necessarily born from common sense.
I frame the debate between PoW and PoS as having the electric engine vs gasoline engine debate in the 1930s. You can go back and read what the experts were saying in 1930. Even the words of the smartest individuals of their day. Technology will iterate, and improve in time. I think a lot of people in crypto get very strong feelings about what they are invested in and try to defend their portfolio. People get animalistic about their money. Get between a dog and a bone you get the teeth, simple as that.
There are pros, cons, and tradeoffs. Both PoS and PoW have strengths and weaknesses. Both have use cases and both have a future.
#7. Ergo slowly but steadily combats the issue of lost coins by means of enabling miners to charge for data kept in empty boxes. To some, lost coins and keys (such as in Bitcoin) or even burning coins for that matter leads to something great. In other words, people for some reason support and love depreciation and scarcity even without understanding the finer details. What’s your opinion on this, especially given the fact that Ergo actually brings older coins back into circulation? Though it’s to be noted that ERG is itself a capped-supply coin.
I think the concept that lost tokens, and UTxO’s breaking down to uneconomic dust somehow being a good thing is a short-sighted perspective. I guess the standard belief is that all deflation is good as it increases scarcity, thus increasing value.
Why do people think waste is good for the longevity of a system? I have no idea.
Personally, I think for a PoW chain “Storage Rent” is quite a useful concept. It serves three purposes simultaneously.
The first aspect is it collects UTXO dust and smelts it back into tokens. UTxO dust collection is built into the system. UTxO dust is fractionalized tokens that are so small they are economically worthless. What happens when you do not have enough ERG to pay the transfer fee, it is recycled in time. Generally, UTxO dust just sits on chain for eternity, wasting space.
The second aspect is that lost coins are recycled. The idea that lost coins should remain on a blockchain for infinity without having a use or purpose beyond wasting space doesn’t make sense. Long-term recycling incentivizes economic activity.
I don’t think cryptocurrency should be some rare collectible asset, buried in a hardware wallet for a lifetime. A part of a healthy economy is measured in the velocity of money. I think it is good to incentivize transactions, a single unit of account being transferred between multiple parties multiple times over creating the circulation of goods and services.
I think the point of P2P money is to assist with the user experience, privacy, and autonomy of trade. It is not P money, ideally, it is P2P2P2P2P2 money.
If crypto is to see mass adoption that is the ideal scenario, to greatly improve the velocity of money.
The third aspect is it creates a continual incentive for miners. Many PoW systems reach a point where there are only transaction fees. Mining needs to have some incentive for users to secure the network. Long-term smelting UTxO dust back into ERG and recycling lost coins in addition to transaction fees incentivize mining.