Larimer’s Third Act
Daniel Larimer is fast becoming the baron of the blockchain. The software engineer launched his first venture in the blockchain space five years ago. Since then, he has been through several upheavals, leaving communities or companies that he founded as his vision and theirs parted ways. Now, he’s back with his latest initiative, EOS.
Launched this month, EOS is a blockchain-based platform for building and scaling thousands of decentralized applications, and the market has united behind it to the tune of billions, making it the most successful ICO of all time.
Software engineering in his blood
Larimer leaned towards software engineering even as a child, thanks to a strong influence from his father, who was an engineer at Boeing. “I was exposed to programming in fourth or fifth grade, and my dad also exposed me to electrical engineering,” he says.
From there, the path into a computer science career was almost pre-drawn. He spent three years as a software development intern at technology integrator SAIC while also pursuing his Bachelor of Engineering in computer science. His studies taught him some of the disciplines that would later help him to make advances in blockchain programming.
“I went to Virginia Tech, and while I was there I got into virtual reality and collaborative virtual reality over the Internet,” he says. “That involved consensus over the 3D state of the environment. There was lots of networking, computer graphics and math and real-time environments.”
Ahead of its time
Directly after leaving university, he began a technology startup. The company, called OpenTech, wanted to create virtual reality software and toolkits, but it didn’t last. Larimer describes it as too far ahead of its time.
Around this time, he ventured into America’s military industrial complex, which always needs coders able to create high-performance, low-latency programs. He spent a year at Raytheon in 2005 before his final 18 months at OpenTech, and then had a four-year stint as a software engineer at TORC Robotics, which specializes in autonomous vehicle technology and serves industries including mining and defense.
It was during his time there, around 2008 when the financial crisis hit, that Larimer spent some time working on the Ron Paul campaign – a libertarian running for the Republican nomination for US President. “That’s when I became a libertarian and started learning about Austrian economics and monetary policy,” he says. This helped to form some of the beliefs that have propelled his success in the cryptocurrency space.
Free market adherent
Larimer’s experience in Austrian economics and libertarianism reinforced an emerging idea, that free markets are the basis for a functional society. “Free market competition is the check and balance that prevents people from gaining too much power or being too abusive with the power that they get,” he says.
This belief in free markets has become fundamental to his approach, and it underpins his belief about the very structure of our society. He has a strong reaction to violence and coercion, but argues that modern government is based on these principles. Governments ultimately use force to preserve themselves by getting citizens to do things, he argues. If you don’t pay your taxes, the government sends you to jail.
But, shouldn’t we have to pay our taxes to keep society functioning? Larimer argues that all transactions should be voluntary, based on a quid pro quo. Each party should feel as though it is getting value from the arrangement. He is a big fan of the Biblical motto “Do unto others as you would have them do unto you.”
This lies at the root of his own philosophy, which he calls voluntarism. Rather than coercing people into paying taxes and sending them to jail when they don’t, he envisages an economic system where people voluntarily contribute to a community for the public good.
The taxman no longer cometh
“You don’t have a choice about whether you’re in a government, but you do have a choice about whether you’re in a community. Communities are subject to free-market competition,” he says. “There must be a way to organize society that doesn’t depend on prison or taxation. And that solution must be so powerful that it can exist today.”
What happens when people do wrong in this ideal system, by failing to contribute, or by stealing from others? “There need to be deterrents, but it needs to be done in non-violent ways with co-ordinated shunning. Exiling people rather than caging them.”
This system would be reputation-based, he asserts. When someone acts maliciously in their own interests, their reputation should be affected, and everyone should be able to see it.
Bitcoin and other cryptocurrencies
It’s not surprising, then, that cryptocurrency impressed Larimer so much when he first ran across it. Bitcoin exhibited some of these concepts, securely verifying transactions but making them available for public review.
The technology embodied similar sentiments to his own. It was built to avoid centralized control yet be completely transparent. Its transactions were all entirely voluntary and under their users’ control. Cryptocurrency could be the basis for his ideal financial and political system just as easily as dollars and cents. “Money is just the most marketable commodity. Anything can be used as money.”
His excitement at cryptocurrency comes with a caveat, though; it’s a means to an end, enabling him to realize ideas that he says have been waiting for a suitable, efficient way to be implemented.
“Crypto confused everyone into thinking that everything was new, but I recognized that everything was very old,” he says, highlighting the concept of companies, corporate governance and community investment as prime examples. “The blockchain is just formalizing and automating processes that have been around for a hundred years. Processes that often don’t even have names.”
Latimer versus Satoshi Nakamoto
Latimer quickly decided that Bitcoin wouldn’t be the cryptocurrency on which to build these ideas. It fell short for him. He worried that the proof of work algorithms that it uses wouldn’t scale and argued with its creator Satoshi Nakamoto about it in the forums. This led to the now-famous discussion where Nakamoto said: “If you don’t believe me or don’t get it, I don’t have time to try to convince you, sorry.”
Larimer thinks he got it all-too well and bided his time. He took a job at model-based engineering company Phoenix Integration for a year, all while continuing to watch Bitcoin’s fortunes unfold. Then, in 2013, he co-founded Invictus Innovations, which founded BitShares.
BitShares was Larimer’s first foray into codifying some of these ideas in blockchain form, arguing that it already tested many of the ideas that others failed to execute with the decentralized autonomous organization (DAO), the failed Ethereum distributed autonomous corporation (DAC) that was hacked in 2016.
“The first DAC was actually BitShares. BitShares was far more robust in terms of governance than anything they were doing,” he says.
BitShares is a blockchain-based financial platform in which people use a cryptocurrency as the basis for financial derivatives. In part, it was a reaction to the emerging cryptocurrency exchanges, which were already starting to run into problems.
Mt Gox had its US deposits seized in 2013, causing panic among customers whose assets were trapped. Later, that company – which was built on the back of game card trading software and which had been handing the lion’s share of global bitcoin exchange transactions for a while – imploded entirely in a now-legendary failure that saw customers lose millions.
BitShares derivatives and assets
Larimer saw a way to create an exchange that didn’t require any fiat deposits by creating his own BitShares currency and using it to back financial derivatives. On one side of the equation sit savers – people who wanted to earn basic interest on their assets – and on the other sit speculators who want to take a position on an asset’s value.
They both enter into a smart contract-based derivative called a BitAsset, representing real-world assets such as fiat currency and precious metals. Savers contribute BitShares and speculators do the same for collateral.
The BitAsset then trades on an exchange, at a price that stays close to the real-world price of the asset it represents. The saver gets a return on their investment, and the speculators trading the assets can make (or lose) BitShares at a greater rate.
Graphene: blockchain memory
BitShares also saw the first deployment of Graphene, a high-performance, in-memory database designed specifically for blockchain applications. “Graphene is just a software architecture that makes evaluating a blockchain efficient. It keeps everything in memory,” Larimer says.
“Graphene is all about software architecture vs consensus or algorithms. You have to have good software architecture to have high-performance code.”
Let off Steem
After BitShares, Larimer went on to co-found blockchain-based content sharing social network Steemit in 2016. This also created an asset pegged to the dollar, which could be used to reward popular content posts.
These ventures had some things in common. Firstly, they both used delegated proof of stake, a system that Larimer invented that replaced Bitcoin’s electron-hungry proof of work system with a set of elected individuals who could process transactions and could also vote on governance issues at the behest of other members. Secondly, they both used Graphene.
The third thing that these communities have in common is that he left them both. With BitShares, the power shifted to China, where much of the community was, and it voted against employing him to update the network further.
With Steem, he left the company after disagreements over core development direction. He felt that the community’s operating structure enable bad actors to game the system and was powerless to stop it.
EOS is Larimer’s third act, and the curtain has just raised on it. This blockchain, created by his latest company block.one, is an Ethereum-killer based on Graphene and Delegated Proof of Stake (DPoS). It takes some of Larimer’s ideas around governance and embodies them on the blockchain.
EOS, launched 2 June, is effectively a blockchain-based operating system for decentralized apps, providing support for smart contracts in programming language C++.
As an open-source code base, anyone can technically download and use it to launch their own private or public blockchains, although at least for now the community is focused on what it calls the mainnet, a single blockchain used to transfer ERC20-based EOS tokens. These were sold during an ICO lasting almost a year, which raised $4bn. The overall market cap for the coin reached more than $14bn at its high. Block.one’s founders took a proportion of the tokens, as is common in these things.
The mainnet launched in mid-June after the community finally voted on the 21 entities used to validate the blocks and were able to verify the genesis block.
There is also a VC fund that has netted hundreds of millions in institutional capital for further development, and the directory of projects based on EOS is already growing substantially. They range from investment exchanges through to block explorers, and from wallets to peer-to-peer betting platforms and real estate software. It’s a sign that the community is behind block.one, and that Larimer’s prior outings into the blockchain world have earned him significant kudos.
It’s all looking very rosy indeed for EOS, and for Larimer. He has learned from his experiences with those prior initiatives to build a platform that he hopes will lead to the creation of many communities, each transacting with each other on their own terms. Perhaps it will be the final realization of his political and financial vision.
It will also have made him considerably rich in the process.