Ethan Buchman, CEO of Cycles Protocol, on The History of Money, Cosmos Ecosystem, and Collaborative Finance | Ep. 337
Ethan Buchman, the co-founder of Cosmos, CEO of Informal Systems, and founder of Cycles Protocol, sat down for an exclusive interview with Matt Zahab, the host of Cryptonews Podcast.
Buchman discussed creating an internet of blockchains, understanding what money really is from a global perspective, clearing more debt with less money, and looking at ‘the other side of the balance sheet.’
Creating an Ecosystem of Blockchains
The ideas that motivated the creation of Cosmos include sovereignty, interoperability, and making the technology accessible to any community anywhere to build their own community computer, Buchman said.
The way people were approaching building blockchains several years ago was very limited, he argued. They would fork the Bitcoin software or fork the Ethereum code base.
The Cosmos team wanted to create a much more generalized platform.
Here, people could build arbitrary applications in the way that made sense to them. They make their own choices, run the network how they want to, chose their own political economy, and serve their communities.
They don’t “necessarily have to make sacrifices or pay rent or succumb to the oversight or overlordship of some other network.”
The @cosmos philosophy has been so successful in its original mission that saying "we're a cosmos chain" communicates about as much information as "we're a tech company".
Even Toly has for years been saying Solana is a Cosmos chain.
Cosmos won. Go build and brand whatever.
— Ethan Buchman (🐝,🦇) (@buchmanster) May 10, 2024
The whole point of @cosmos is to empower communities to be sovereign – over their applications, their infrastructure, and yes, even their branding
If a project built with the Cosmos philosophy and tech doesn't want to associate with the brand, that's entirely their prerogative
— Ethan Buchman (🐝,🦇) (@buchmanster) May 10, 2024
Also, the team realized that the future would have numerous blockchains. Therefore, they wanted these different, sovereign communities to be interoperable and able to communicate with each other.
And that motivated this idea of an internet of blockchains – or interchain – of many different blockchains that use a standard interoperability protocol “very much like how the internet works,” Bucham said.
This is how the IBC (Inter-Blockchain Communication Protocol), the interoperability protocol of Cosmos, was born.
“Our goal, unlike pretty much every other crypto project, was to create an ecosystem of blockchains,” Buchman remarked. “It wasn’t to siphon value or extract value into one particular blockchain or one particular token. It was to create a new philosophy for blockchain design and an entirely new approach to building blockchains.”
2/ First off, what is the ICA Controller?
The ICA (Interchain Accounts) Controller sub-module allows Cosmos Hub users to perform actions on other chains using their Hub accounts.
— Cosmos Hub ⚛️ (@cosmoshub) May 23, 2024
Cosmos Hub, with its ATOM token, was the initial chain. As the ecosystem develops, Cosmos may come to be the ecosystem specifically around the Cosmos Hub and ATOM, “while the larger internet of blockchains just comes to be referred to as the Interchain,” Buchman said.
Clearing More Debt with Less Money
It is important to understand what money is, Buchman said.
The simplest way to think of it is that it serves for payments. Yet, what many people don’t realize is that much of it is done on credit.
Even in a shop, there is a moment when you have an item without paying, or the seller has the money but hasn’t given you the item yet.
The same thing happens when ordering items, paying bills, even receiving a salary – somebody always owes something.
In banking, much of the discourse focuses on the availability of liquidity – the ability to settle the outstanding debts when they’re due. “When the debts come due, do you have the cash?”
Even healthy companies die quickly if they are cash-poor.
The killer use case is money. Specifically the atomic multilateral settlement kind that clears the most debt for the most people. https://t.co/P5Cs8sLQ2z
— Ethan Buchman (🐝,🦇) (@buchmanster) May 3, 2024
However, everything in this world is interconnected. “From a network perspective, it’s a small world,” Buchman argued.
When we take the individualist approach to paying, that creates a gridlock, he argued. For example, person A is waiting for person B so A can pay C, but B is waiting for D to pay them so they could pay A, and so forth.
“It can create all this inefficiency, huge lack of liquidity throughout the network that makes it hard for people to collect the cash they need to pay their bills because they’re not taking a global view,” Buchman said.
However, he added, “if we can simply become aware of the network structure of those debts, then we can clear those payments […] without using any money at all, or by using less money.”
Furthermore, “we can shrink balance sheets,” reduce leverage and risk, and create more accessible forms of working capital, “because now we have this network view of the graph of obligations that allows us to more intelligently manage liquidity.”
Not the Whole Story of Money
People in crypto have been obsessed with the asset side of the balance sheet. And rightly so, says Buchman.
It’s a fundamental human right for any individual anywhere in the world to be able to transact permissionlessly on a global network and to be able to settle debts, to make payments using their own assets that are counterparty free.
“But that’s not the whole story of money,” he said. “And if you think that’s the whole story of money, you’re going to miss so much more, and you’re going to fail to create the kind of change that you might actually want.”
It’s important not to miss the whole other side of the balance sheet: the liabilities.
The real power of banking comes from the ability to clear liabilities – to reduce debt with very little money. For centuries, bankers have been clearing huge volumes of debt with almost no money at all.
must reads on origins/history of capitalism https://t.co/JOpGLQyuUW
— Ethan Buchman (🐝,🦇) (@buchmanster) May 12, 2024
They control large amounts of transaction with minimal amounts of liquidity. “And that kind of function of clearing is not accessible to anyone else,” Buchman said.
The Cycles Protocol team has enabled an open clearing protocol designed to clear the most debt for the most people with the least amount of money, he added.
This, in turn, opens up new possibilities for issuing different kinds of money and using different currencies to settle debts.
The solution finds a way to optimize the use of different people’s preferred assets for payment and acceptance of debts. And it can also allow lending protocols to tap into the graph and to take advantage of the structure of the graph to reduce the risks.
“I think Cycles is the future,” Buchman concluded.
____
That’s not all.
In this interview, Buchman also discussed:
- hanging out with early Bitcoin and Ethereum supporters in Toronto, including Vitalik Buterin, creating many of the cryptoworld’s firsts;
- money being blockchains’ killer app;
- the importance of knowing the history of banking;
- traditional banking’s power lies in clearing debts;
- collaborative finance and blockchain’s missing promise;
- the inception of Cycles Protocol;
- Cosmos as the best place to launch a blockchain.
You can watch the full podcast episode here.
__________
About Ethan Buchman
Ethan Buchman is the co-founder of Cosmos, CEO of Informal Systems, and Founder of Cycles Protocol.
He has worked at the Interchain Foundation, Tendermint, and his consultancy CoinCulture CryptoConsulting.
Buchman’s academic background in Biophysics from the University of Guelph informs his interdisciplinary approach, evident in his research contributions across institutions like the University of California, USA.
He is a leading figure in blockchain technology. His innovative mindset and expertise continue to drive advancements in decentralized systems.
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