Recently, Ambrosus Blockchain Solutions Architect Professor Roger Wattenhofer (henceforth Roger), kindly answered a number of questions surrounding his role in designing the Ambrosus cryptoeconomics as well as his thoughts on blockchain and the current state of the industry. Besides being the Solutions Architect at Ambrosus, Professor Roger Wattenhofer is a full professor and the Head of the Distributed Computing Lab at the Swiss Federal Institute of Technology (ETH Zurich). Before that, he worked for some years at Microsoft Research in Redmond, Washington, at Brown University in Providence, Rhode Island, and at Macquarie University in Sydney, Australia. He also published the book “Distributed Ledger Technology: The Science of the Blockchain”, which has been translated into Simple Chinese.

Interviewer: Hello Roger, it is a pleasure to be here with you, thank you for your time in giving this interview today.

Roger: It is my pleasure.

Interviewer: To start, why don’t we take a look back at your background, and the role you have played in shaping blockchain. It’s been mentioned that you were involved in revealing the Mt. Gox cover up, and that you have written a highly recommended book on the ‘Science of blockchain’. What can you say about your background in Distributed Computing, and where your interests currently lie?

Roger: Indeed, in March 2014, we wrote a paper showing that transaction malleability was not to blame for MtGox huge Bitcoin loss. This paper caught a lot of media interest when it came out, because it contradicted MtGox’ narrative. However, the more important scientific contribution may have been the introduction of so-called “layer two” payment networks in 2015, when we published the “Duplex Micropayment Channels” paper. A slightly different proposal was released a few months later, known as “Lightning”.

More generally speaking, my scientific interests are very broadly in all kinds of networks and distributed systems: Cryptocurrencies, blockchain, consensus, internet of things are well lined up with the interests of Ambrosus, but in my group we are also doing research in positioning systems, wireless networks, social networks, deep neural networks, or online network algorithms.

Interviewer: I would imagine, that based on your role at Ambrosus, you have also branched out in to the field of cryptoeconomics. Can you discuss a little bit about how you have experienced the rise of this new form of economics, involving distributed systems, as well as what the major benefit of cryptoeconomics is?

Roger: Oh, I’ve always been interested in computational game theory and mechanism design. In game theory you want to understand and analyze a system with selfish players. In mechanism design you want to design an architecture that can deal with selfish players, such that being selfish is not an advantage. So mechanism design is the core business of a lot of blockchain systems, including Ambrosus, only that it is known in the blockchain world as cryptoeconomics.

Interviewer: With this background, I am sure you had a tall task working on the Ambrosus cryptoeconomics, as there were a lot of legal, enterprise, and administrative things to keep in mind. What can you say about how you went about designing the Ambrosus cryptoeconomic model specifically? Were there any major dilemma’s that needed to be resolved?

Roger: At Ambrosus, there are all sorts of exceptional specialists, who know much better about legal, enterprise, and admin aspects. My role so far has been to merely suggest pieces for the architecture, trying to convince the others that there is some merit in these ideas. The researchers and engineers at Ambrosus would then take what they like (and drop what they don’t), and then propose an architecture, at which point I am trying to find flaws and improvements again. Sort of like a game of ping-pong, with hits and misses.

Interviewer: On that same topic, I believe you incorporated game theory elements to your design of the Atlas Masternodes. Can you explain a little bit about your thinking behind that? Additionally, why would you say the Proof of Authority consensus algorithm is necessary in light of Ambrosus’ work with industrial grade supply chains?

Roger: Let me answer the second question first. In my opinion, putting it bluntly, proof-of-work systems are doomed. Proof-of-authority is actually a much older paradigm, and I can only think of few scenarios where proof-of-work is better than proof-of-authority. Proof-of-work was only introduced in the early 1990s (by two colleagues of mine, as a possible countermeasure to email spam), but still almost all academic research in distributed computing focuses on proof-of-authority. Unless you need a completely permissionless system, proof-of-work mining just becomes an energy problem.

Your first question: Indeed, I tried to convince others in the team to consider opening a market at several places. Atlas nodes for instance provide a service, so in my opinion they should be free to set their own price. In such a new domain it is often difficult to understand what the right price for a service should be, so having a market is often an elegant solution. But there are pros and cons, as with everything.

Interviewer: Looking forward to the growth of the Ambrosus network, did you design anything in the model related to the scalability of the network? How did you find the right equilibrium in relation to how many tokens existed, how many should be burned, and how many nodes could be on the network at a time? Could you discuss a little about the intended long-term goal you had in mind for Ambrosus’ cryptoeconomics?

Roger: Yes, we have been discussing all these questions. Scalability is a difficult word as it means different things in various contexts. We want a system that can react quickly, with a high throughput, and so on. In the blockchain context, scalability however often means “many consensus machines”. I still fail to see why many nodes makes a system more secure. In our discussions I argue in favor of having few consensus (Apollo) nodes, but independent and trustworthy ones. Many blockchain systems in the world want thousands of nodes, because that “will improve safety”. But what if most of them are compromised by installing the same rotten update?! I also argued against burning tokens, as economically this is risky because it stimulates deflation. [N.B. following the most recent cryptoeconomic update, token burning has been replaced by block reward mechanisms]

Regarding your “how many” questions: as expressed in the Atlas discussion earlier, I am always worried about what I call “magic numbers”; instead we should have markets, and these markets will decide what the right number or price is. Then we have a true equilibrium. Since I am convinced that Apollo nodes should be few only, I would argue that we should not make it too attractive to run an Apollo node; rather than a business it should be an honor to run an Apollo node. I think the main service in the backbone comes from the Atlas nodes, so they should get the the lion’s share of the fees. But that’s only my opinion, and eventually the team as a whole will decide these issues.

Interviewer: Finally, in terms of academic recognition of what is going on in the cryptocurrency space, how is that progressing? You have business schools interested in blockchain, finance and economics faculties as well, and then also computer science and distributed computing. What is the challenge for academia when they discuss Cryptocurrency and blockchain? It is quite a general area.

Roger: There is a lot of academic interest in the topic. I was in this game very early. My first PhD student in this core area was Christian Decker, who graduated in January 2016, probably the first Bitcoin/blockchain PhD in the world. After Christian left, I felt that the blockchain topic was over and done, but boy was I wrong. Daily emails continued coming in with all sorts of questions and proposals, from media and industry. If there is so much interest in a topic, you cannot just ignore it. So in my research group we started again looking into several issues, with a current focus on game theoretic questions regarding layer two solutions.

I think blockchains are a healthy area academically, with lots of interesting open questions. The main difference to other academic areas is the amount of interest from a non-academic community. Almost every academic paper that comes out is discussed on some cryptocurrency and blockchain blogs. On the other hand, blockchain startups are also innovating constantly, and academics need to follow these developments as well. In some sense this may be my main asset: I know what is going on right now in the blockchain world, yet I also know half a decade of distributed computing.

Interviewer: Thank you, Roger for the time and interesting information, it was a very nice overview of what is going on.

Roger: My pleasure — I am always happy to discuss my research interests.