The global startup founded by Corridor native Brendan Blumer is becoming a central player in the race to decentralize everything. PHOTO KATHARINE CARLON

 

By Katharine Carlon
katharine@corridorbusiness.com

Brendan Blumer is an evangelist when it comes to the power of the blockchain to change the world. In company videos, the 31-year-old Cedar Rapids native and founder of block.one calls it “no less than the next evolution of human assembly,” with the potential to not just democratize the financial sphere, but to solve the seemingly unsolvable – from curbing global warming to subsidizing a universal basic income.

“What I have seen and what I’ve become convinced of is that the blockchain is capable of doing things that even governments are not,” he says as the video fades to black.

The sentiment is more than sales hype. In person, during a rare visit home to Iowa, Mr. Blumer is no less passionate about the technology everyone is talking about but few understand. To use a recent example, he says, the blockchain is like the World Wide Web in 1995: still new, still wobbling on toddler legs, but on the verge of blowing our minds.

“People think they have the choice to get involved or not, but really they don’t,” said Mr. Blumer, whose software startup has attracted tens of thousands of converts over the past year with the largest initial coin offering (ICO) in history – more than $700 million in token sales and counting.

“In the next 10-20 years, at some point you’re going to have to be in the blockchain. It’s just a matter of when you decide to do so, because this is going to consume everything.”

With the motto “Decentralize Everything,” block.one is, at heart, a software publisher, writing and publishing open source code known as EOS.IO intended to facilitate the building, launching and governance of blockchain-supported businesses and collectives – what the company calls Decentralized Autonomous Communities, or “DACs.”

According to company literature, the software supports “distributed applications that have the same look and feel as existing web-based applications, but with all of the benefits of the blockchain – namely transparency, security, process integrity, speed and lower transaction costs.”

That, Mr. Blumer said, opens the door to a secure, “re-architected” version of the Internet capable of radically transforming how commerce and even government is conducted in the future.

“When bitcoin came out, that was the very first example of the blockchain with people exchanging value directly from one person to another, all enabled by really secure data transfer,” he said. “Now everything from shares to votes to value systems to governing systems all can be re-architected by removing unnecessary intermediaries and creating a completely peer-to-peer decentralized Internet.”

The blockchain, which Mr. Blumer describes variously as a “distributed Excel sheet,” “governing system” and “voting machine,” was designed by bitcoin inventor Satoshi Nakamoto to provide a decentralized, unhackable record of exchange. It operates by distributing and synchronizing an encrypted public database across thousands of computers every 10 minutes, he said, essentially notarizing each transaction “with more computing power than every Fortune 500 company combined.”

Block.one claims its platform offers an unprecedented level of scalability with the ability to process millions of transactions per second with no transaction fees. Unlike bitcoin, which operates on a somewhat limited “proof of work” model that is costly, energy-intensive and can handle only about seven transactions per second, Mr. Blumer said EOS’ more efficient “proof of stake” model requiring buy-in via token removes the need for the “mining” the Bitcoin blockchain relies upon, bringing costs down from between $50-$100 per transaction in electricity costs alone to “around one ten-thousandth of a cent.”

That versatility makes it possible to create self-governing, consensus-based entities that eliminate the need for fee-collecting middlemen like Paypal and even currency issuers: “DAC is the next generation of the company. Through the use of open source code and blockchain-like economics or ‘tokens,’ we’re going to see the next generation of competitive organizations disrupting Facebook, Uber, Airbnb, all these companies.”

A DAC-based Facebook, for example, would mean complete transparency with each user in control of their own data and how it is used. There would be no shareholders, Mr. Blumer said, nor any corporate entity in the background “making a bunch of money on users.” Instead, users could add value by suggesting ways of improving the code or writing widely liked posts to earn tokens that could be redeemed for goods and services, or purchased by advertisers for the right to place ads on the platform.

“What it does is close the economic loop between the people who are providing the value and the people extracting the value and removing the actual company itself, so all the value is directed back to users as opposed to a group of shareholders unrelated to the project,” he said. “I believe this is the formula for the next generation. Companies are going to be disrupted by a community that is vastly different in architecture than anything we’ve seen before.”

A screenshot from the block.one website.

Enthusiastic investors, whether inspired by the promise of block.one’s EOS.IO platform or by the frenzy to cash in on the booming cryptocurrency market, have helped the company raise more money than all but 10 of the 195 IPOs carried out on U.S. stock exchanges during 2017, according to the Wall Street Journal. Social media sites like Reddit and Steemit are filled with investors and fans certain that block.one’s EOS is the Microsoft of its time, and the price of an EOS token has risen from around 50 cents in October to the $9-$11 range on exchanges like coinmarketcap.com as of last week.

But the company, whose success can’t be ignored, has also garnered some skeptical press in recent days. “Chasing the Next Bitcoin, Investors Shell Out $700 Million for Coins With ‘No Purpose,’” read a mid-December Wall Street Journal article, raising questions about the company’s Cayman Islands headquarters, its plans to offer the EOS software free-of-charge and a disclaimer on EOS token purchase agreements stating the tokens have no “rights, uses, purpose, attributes, functionalities and features express or implied.” A Bloomberg editorial on the company two days later sarcastically asked “Why bother to scam anyone?” And a recent Business Insider story called block.one’s meteoric rise and record-breaking ICO “the most mind-blowing cryptocurrency ICO of all time,” noting that not only has the U.S. Securities and Exchange Commission warned investors about the risks of ICOs, China has banned them altogether.

Mr. Blumer is unfazed by such critiques, chalking them up to a fundamental misunderstanding of what comprises value in the blockchain world: not legal guarantees and trust in corporations, but the power of healthy, self-governing communities of token holders with aligned interests to see companies succeed.

“When people say, ‘why would you buy something that has no value?’ that’s because they don’t understand the value of proper distribution. They don’t understand the value of having a list of 200,000 people, all of whom provably contributed something to be part of that community, and how that creates a healthy ecosystem of voting where everything is accurate. That list, when frozen, at the end, can be used to launch a blockchain. You could launch 10 of them. You could end up with 10 different tokens, all with slightly different governance mechanisms, one of them for this type of industry, one for that type of industry. Each blockchain has a constitution that governs how transactions are treated on the blockchain.”

Mr. Blumer said the unit of value in the new blockchain world “is networks.”

“Value has always been a consensus game,” he added. “If the masses think there’s value, that’s what value is determined by. What’s the purpose of gold? We’ve reached consensus it’s beautiful, right? We’ve reached consensus it’ll be a good store of account, of value. And because lots and lots of people agree, which is consensus, it has value. And that’s exactly what these system are.”

Value spotter

Mr. Blumer has a long history of recognizing value early. A serial entrepreneur, he started his first company, GaMeCLiFF, which bought and sold virtual assets acquired in multiplayer online games like EverQuest and Worlds of Warcraft, at age 15. He moved to Hong Kong to run it just after graduating from Linn-Mar High School in Marion as part of an acquisition deal with market leader Internet Gaming Entertainment. Although he eventually grew his division into a $5 million-a-year concern, he admits going directly from Cedar Rapids high-schooler to global business executive was a jarring experience. For a time, he moved back home to regroup.

“I went through a very hard, very fast transition of what people normally go through over the course of six or seven years,” Mr. Blumer said. “I ended up moving back for a couple months at end of [the first] year, then quickly realized things had changed here and that life was moving on. … When I went back to Hong Kong, I really started to immerse myself in the local culture and became much happier.”

It was also the last time he looked back. In 2007, Mr. Blumer founded Accounts.net, another company dedicated to trading in-game assets and avatars, then branched into global real estate, first in 2010 with Okay.com, a collaborative data-sharing “ecosystem” for brokers in the Hong Kong market, and again in 2013, with ii5, which brought the same concept to India and grew to become that country’s largest brokerage application.

“[With gaming], we were servicing a subsection of a finite market, and I wanted to do something that had a bigger ceiling in terms of how big we could grow,” he said.

With block.one, according to Mr. Blumer, the sky is now the limit. The company launched in January 2017 with partners including Dan Larimer, the brains behind BitShares and Steemit – billed as the world’s first social media platform on a blockchain – and Brock Pierce, a former child actor, prominent bitcoin investor and advisor, and the founder of Internet Gaming Entertainment, the company that bought Mr. Blumer’s gaming startup and brought him to Hong Kong more than 12 years ago.

These days, Mr. Blumer is looking for a home base in London, although company employees are spread around the globe in the same distributed fashion as the blockchain.

“The DNA of the company is pretty decentralized,” he said. “We have technology built in Europe, we have technology built in the U.S. and we have a development team in Hong Kong as well. But there is some efficiency gained through centralizing certain components so we’re figuring out the global structure right now.”

While that is being sorted out, Mr. Blumer is traveling to the corners of the globe, spreading the word about blockchain’s future. Getting people to understand what a token is and why Bitcoin – why anything other than fiat currency, for that matter – has value, and the fundamental ways business, government and society will change is still a challenge at times.

“There’s a bunch of people moving in because when you start to understand this space, people become very passionate and they come in very hard. So what you’re seeing is a ton of momentum and you’re seeing everyone on the outside saying, ‘why is that happening?’ That’s the climate of the world right now.”

The past year has all been about peer-to-peer decentralized money, he added, the ability to transfer value digitally without intermediary.

“In a lot of ways, Bitcoin represents a flight from the existing system, which people feel is completely Big Brothered,” Mr. Blumer said. “You know, ‘the Federal Reserve just prints money and goes to war with it and we get taxed…’ Everyone’s tired of that system and people are leaving that system in order to take back that control. And the next evolution of that naturally is the DAC, the fact that the blockchain isn’t just going to disrupt money – it’s going to disrupt every form of value in the world. The next story is going to be how it disrupts companies – how communities start to disrupt companies, which is just insane. It’s exciting.”

 

Digging deeper

Brendan Blumer, in an exclusive, hour-long interview with the CBJ, shed light on the EOS tokens behind block.one and mused on the current and future regulatory environments facing the blockchain technology:

 What is the EOS token:
“The EOS coin represents a weighted distribution list. The EOS tokens have no purpose or functionality … they have no underlying claim to revenue or anything like that. What it essentially does is it builds a weighted community list, so that at the end of the distribution, it literally creates a JSON file. Imagine a giant list that tells how many tokens each account holds. The product of that is how broadly and fairly it was distributed. And that list can be used to launch an EOS blockchain. There could be 100 EOS blockchains, all with different types of structures, governance, mechanisms … and because we’re just creating open source software, there could be zero, theoretically. It takes the community to launch it. We can’t actually run a blockchain – block.one can’t – because then it wouldn’t be decentralized. The community needs to choose who is running these blockchains.

 What is a blockchain:
“Essentially a blockchain is a government or a governing system. So [in our case], we write the open source software, almost like an instruction manual, on how to launch a blockchain with all of our new underlying code and anyone can then take that technology and distribute it however they want. They can use our distribution list or they can use someone else’s distribution list and they can launch a blockchain, and that whole governing system is the blockchain itself.

Blockchains work by reaching consensus. If 51 percent of the token holders think they should do X, then it happens. Voting built into the software and basically every blockchain is really a voting machine. Bitcoin votes with hash power where, based on the amount of computing power you contribute to the network, you have voting. [With EOS], basically what the token really represents is a broadly, widely distributed network.”

On the current regulatory environment:
“There’s a little bit of ambiguity now, so you need to work with top law firms. We use Debevoise & Plimpton out of New York … and we get legal opinions in every single country, because blockchain-based things are essentially borderless and you’re dealing with people all around the world. But we do need – and what will happen over the next couple of years – is more definitive clarity on ‘this makes it this, this makes it that.’ Is it a currency? Is it a commodity? Is it a security? Because blockchain is all of it, it can be used for anything and it will take over everything. So we need more guidance from the government as to how exactly to categorize the things that we’re doing.”

On government adopting blockchain technology:
“I think the government of the future is a blockchain-based government. That’s going to lead to certain types of dynamic shifts in the sense you’re going to see more transparency and you’re going to see lots of things governments doing today being made redundant. We will naturally evolve into the next generation of government, which I think is a slow move away from elected officials into society really governing itself through he use of blockchain. But it’s going to be a long road and an organic process over a long period of time. … That will naturally lead to leaner government structures because they just won’t require the level of oversight and custodianship they did in the past.”