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Tether Co-Founder: Consumers Pray to the God of Convenience

WAX founder William Quigley is a big believer in Ethereum. He invested in the crowd sale, and decided to build the beta version of WAX on Ethereum. It’s not perfect for everything, he says.

“Ethereum does a lot of things well, but it doesn’t do small dollar amount, high frequency trading among a broad group of consumers,” he said. “It’s really not designed for that for many, many reasons.”

He says the Ethereum ecosystem is not robust enough yet, and people don’t want to spend a half an hour figuring out how they’re going to, say, play a game. Ethereum also doesn’t allow for enough throughput, at competitive enough pricing, to serve a broad base of consumers. Ethereum implements an Uber-like surge pricing. Although Ethereum always functions, sometimes you might have to pay a lot more for a certain transaction. 

The time to transact on Ethereum has been a minute or two to 17 hours for settlement. The cost has ranged from 25 cents per transaction to $40. Ethereum was not going to work for WAX, therefore. It wasn’t fast enough. 

“It’s not that Ethereum is bad or good,” explains Quigley, who also co-founded Tether, the US Dollar-pegged stablecoin. “Everything generally is good for some things and bad for others. Cars are great, but they can’t haul cattle. You need a truck for that. Ethereum is very secure and it’s secure, because proof of work is willing to sacrifice things like speed and cost.”

For WAX’s goals, Ethereum fees are too high, and they’re too variable. “Consumers like predictable things,” said Quigley. “So, if every day you go to the store to buy a can of Coke and the guy [behind the register] rolls out random numbers, pretty soon you’re going to [be annoyed],” said Quigley. “I used to work at Disney and we had a philosophy that consumers pray to the God of convenience, that everything you do has got to be convenient. Consumers will sacrifice almost everything on earth to get convenience. I eat McDonald’s, because it’s convenient.”

But, blockchain is not yet convenient. There’s no microtransactions on Ethereum. And, in order to program smart contracts, you must use Solidity, which is a good tool, says Quigley, but it is a burden to ask video game developers to learn the language. proof of work offers great security, but that comes with a cost. 

“Proof of work is pretty darn good, if you want to put lots of value on a blockchain, and lock it in there and feel comfortable,” said Quigley. “I feel more comfortable security-wise in those proof of work systems, but I also recognize, there are shortcomings. When you have to achieve consensus in a proof of work consensus mechanism, the way it’s done today, there is a time lag. I would argue that the amount of security you get for proof of work, for most of the things we do, [it] is excessive.”

That’s because proof of work only subsidizes security. “It doesn’t subsidize design, marketing, it certainly doesn’t subsidize lobbying. It’s just security. And as a result, as any economist knows, if you subsidize one thing, and you subsidize it a lot, you’ll probably get more than is needed.” 

Quigley believes this is the case with proof of work in Bitcoin and Ethereum. With the WAX blockchain, they chose to use Delegated Proof of Stake, which limits the number of participants needed to validate transactions. These are called block producers in DPoS systems.

“If you need fewer people to do a task, it takes a shorter amount of time to get the task done,” said Quigley. “That’s really the logic. There’s debate about whether you need 10 people, 20, 50,100, 200, but as you increase the number of people, you start to have a tradeoff. The tradeoff is it takes longer to get done.” 

Quigley calls DPoS not delegated proof of stake, but, rather, ‘democratic proof of stake.’ “You are electing a representative, and you elect the representative by voting for them,” he explains. “You vote for them with your tokens and you elect in our chain, EOS, and others.”

In WAX, the top 21 ‘WAX Guilds’  validate transactions. Standby WAX Guilds exist in the system as well. “If something happens to one of the 21, the standby kicks in,” said Quigley. “But, we were really fixated on the speed of the transaction being validated and the cost to do it. Now, the cost to do it on Ethereum varies. It could be 10 cents, it could be 50 cents, whatever.”

The last six months, for Bitcoin, has ranged between 50 cents and five bucks. “For some things that is great, but what if your average transaction is 50 cents to a dollar? Ethereum transaction speeds range from a minute or two, and sometimes even longer. It’s the variability that will bug you. With any proof of work system, sometimes it takes a minute, sometimes it takes five minutes.” 

He adds: “I don’t think those solutions work [for that transaction]. With delegated proof of stake, the way we’re doing it, it costs nothing to send a transaction.”

He sees massive value creation coming about in blockchain when someone disrupts it. “You cannot disrupt an industry by being better, faster, cheaper,” he said. “The way you disrupt an industry is when you take their cost center and you convert it to a profit center. Literally, you turn the economics on its head.”

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