Developing Blockchain Infrastructure – Pantera Capital

“I think a big part of this unexplored space is ‘novel social organization’. Some of the big challenges we generally have so far is that we’ve been developing interesting distributed decentralized technologies, but with largely centralized companies, foundations, et cetera. And we build these decentralized finance machines, but those machines tend to be governed, and controlled by a relatively small number of actors. Figuring out incentives, mechanism, design, user interfaces, all of these things for large scale mass participation represents the undiscovered country now.”

Pantera’s Quick Take

Nascent infrastructure is a major hurdle for developers today.

Building something in the cryptocurrency/blockchain space is more akin to building a rocket or, to biotech, than it is to building something like Snapchat. The developer environments, languages, and tooling are just so new in crypto — it makes it a difficult experience to create something. It’s like the early days of the internet when creating a simple website was difficult.

Building on Ethereum, you can use Solidity to write smart contracts. Solidity is a step up above Bitcoin’s scripting language which doesn’t allow you to do much at all. Building all this sort of stuff has only really even been possible since 2015. It’s time-consuming to test Solidity as well because there aren’t any good test frameworks for testing Solidity smart contracts.

The most significant challenge, however, is to ensure that written code is correct. There are two aspects here: your spec and your implementation. When specifying a protocol design, it is time consuming to ensure the technical specification makes sense. Notwithstanding that it is also imperative for the code to make sense economically.

Crypto is rare in that it combines computer science and economics quite intimately, and if you don’t get both right (i.e., incentive compatible), then your system will not work, or, worse yet, could catastrophically fail due to an attack. This requires many long nights of game-theoretical debates over different attack vectors and the ways something could go wrong. Once you have a spec, the next step is to implement it and, when you do so, it must essentially be a 100% perfect match to the specification. Otherwise, your system will not do what you planned for it to do.

Once you have your code written, you then have to do security audits by multiple independent third parties, bug bounty programs, manual code reviews, write copious amounts of tests, run static analysis tools that detect common vulnerabilities, and make sure these things have also been done for any critical code you rely on.

You can read our complete thoughts on developing blockchain infrastructure in our post called “A Crypto Thesis” using this link.