Blockchain and the Gaming Industry with Philippe Castonguay from Horizon GamesMar 29, 2021
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HOST: Hey, everybody. Welcome back to The Unstoppable Podcast. I’m your host, Diana Chen, and I’m joined today by my cohosts Matthew Gould and Braden Pezeshki. They are co-founders at Unstoppable Domains. And we also have our guest, Philippe Castonguay. Philippe is the Director of Product at Horizon, a Blockchain Games company. I’m really excited to talk to him more about that. Hey, Phillipe. Thanks so much for being here.
PHILIPPE CASTONGUAY: Thanks for having me.
HOST: Great. To start off, why don’t you just tell us how you got into the crypto and blockchain space in the first place.
PHILIPPE CASTONGUAY: I fully joined in 2017 mainly on the Ethereum side. Before that, I was mostly doing research, statistics, and neuroscience. And I just fell in love with the complexity of these systems that we could build and live on their own. It reminded me a lot of my prior research and I just became obsessed with it since then. And that’s how I transitioned.
HOST: Got it. So, when you first got into the space, how did you go about learning more about this very foreign concept?
PHILIPPE CASTONGUAY: The very first time I was introduced to Bitcoin was really early on. So, I think the concept was always in the back of my mind. I can’t really put a finger on when I really understood or grasped it. But I think what really helped me was when I started thinking of Ethereum and all the possible applications. I was reading Reddit obsessively and seeing the different types of applications people were starting to build and think of. I think it really helped me understand the potential. But even then, it probably took me an additional couple of months. Six to 12 months to really start fully grasping the potential of blockchain.
HOST: And then today, in 2021, we’ve got a lot more resources out there for beginners to learn about Ethereum, blockchain, and crypto. Do you have any favorite sources? Whether they’re blogs, people on Twitter, or groups on Reddit that you would recommend people go to learn more.
PHILIPPE CASTONGUAY: Yeah. Well, specifically, for Ethereum, I mostly follow what’s happening on Ethereum. Week in Ethereum News by Evan. I don’t have a specific newspaper that I follow personally. I mostly get my information actually on Discord channels. The Discord for the E3 search is my favorite. Ethresear.ch and the C-H are after the dot. It’s an awkward spelling, but this is a really good one for keeping up to date with the latest Ethereum core development research. These are the things I try to mainly keep up with. And I use Defiant for everything related to DeFi.
HOST: For sure. And when you try to explain the space to maybe your friends or people you meet who are new to all of this, how do you explain it to them to get them excited about it?
PHILIPPE CASTONGUAY: Do you guys want the one-sentence version or three minutes? But it’s pretty comprehensive.
HOST: Whatever you want.
PHILIPPE CASTONGUAY: Well, the explanation I like to give. Imagine we are the four of us. We each have a spreadsheet on our computer. And we each have $100 on that spreadsheet. So, I have my name $100, Diana $100, and Matthew $100.
And then if we want to update this, we each have to agree on what that change has to be. Say I’m going to transfer you 10. Let’s get on a Zoom call and you guys recognize my face and my voice. We ignore the defects and all. And you say, “Phillippe wants to transfer 10 to Donna. Let’s all upgrade our spreadsheet.” This is basically what Bitcoin did, but instead of having four spreadsheets, it’s in the entire world.
And instead of using Zoom calls to authenticate the request, we use cryptography. And Ethereum is a bit further. Instead of having a single spreadsheet with just single numbers of transfers and single rules of how to update these values, we can have multiple spreadsheets. A balance of cows, dogs, or whatever. But not only numbers. You can start having data, specifically. Such as Phillipe has an image and that image is this specific image.
And now, the interesting part. For the network to agree on changing that is for all the people involved to change their local copies. And there’s still a way of doing that. One is, again, I convince the rest of the network which is either in the spreadsheet example me calling you and you acknowledging that I am the one requesting to transfer my funds or updating my image. But in the case of blockchain, it’s cryptography.
The other way would be to corrupt your local copy either by exporting your computer personally. Four people are achievable, but when you have a blockchain, this is really where the security comes in. Where there are so many participants forcing the changes manually or maliciously. It’s practically impossible. And this is where the security of blockchain comes in.
HOST: Got it. I like that explanation. It’s very easy to understand. And so, what would you say are some of the main things that are preventing people from joining the space?
PHILIPPE CASTONGUAY: I think today almost all of it is really user experience and especially, in the last few months with NFTs. One thing a lot of people realize is that there are a lot of mainstream users that are ready for blockchain-like applications and I think Top Shot is probably one of the best examples.
Top Shot, for those who are not familiar, it’s this NBA card collectible. NTF platform is on the flow blockchain and they racked up something like 200,000 users in a very short period of time. Tens of thousands of users on daily activities which is really high for any type of application. It’s not just for blockchain applications. And these people don’t have technical knowledge of how blockchain works. Most of them also don’t understand the benefits of blockchain or the risks involved. And to me, those are really good examples.
What’s really missing is a good user experience and good applications more than anything. I think there’s plenty of technology even on Ethereum that is there to enable this experience. But it’s just going to take a little more work for most applications to be really user-friendly.
MATTHEW GOULD: I was actually going to switch gears a little bit. I actually want to talk about some of the current projects that you’re working on. I know you’re working on Horizon and Skyweaver, which is a game.
And I’m actually curious. Tell us a little bit about the projects you’re working on now and then, also, for people listening out there, I’d like to hear what you think. What do you think are the superpowers of blockchain-based games? You have normal games and you have blockchain-based games. What’s the superpower for blockchain games in your view from what you guys are working on over there?
PHILIPPE CASTONGUAY: First of all, the game we’re building is called Skyweaver. Skyweaver is a trading card game. And for those of you who are familiar with card games, we try to aim between Hearthstone and Magic: The Gathering in terms of complexity. The approach we took and I think more and more games are starting to do that. That is built on blockchain. We are a game first and blockchain second. We don’t put blockchain front and center. We actually try to hide it as much as possible in the user experience of our users which pushed us to develop a lot of additional tools and infrastructure such as a wallet and other things. To really make it so the game is the first thing the players encounter.
In fact, we have currently about 40,000 users. Maybe close to 2000 daily active users and most of them are not blockchain users. They’re gamers and this is really what we’re trying to focus on, of course. With being a blockchain game, one of the most interesting aspects is what economy can blockchains enable in games. And we haven’t released the full design of our economy yet, but we plan on launching it in the coming months.
So, for those interested, you guys will be able to see the economy. But the idea is to have a free-to-play experience where more money does not make you a better player. But also have a high NFT or a longtail of very rare collectibles that are associated with that. And that’s for Skyweaver.
And in terms of what blockchain powers and provides for games. I think there are many. And perhaps, my favorite one. Economies in gaming today are really similar to barter economies or even very primitive transactional economies where I purchase this for X amount and you purchase that for X amount. And this has been the case for perhaps the last 20 years. That’s where the economies for gaming are. Which is really far from what traditional finance is in the real world or real economies.
And one thing that I’m personally really interested in for using blockchain in video games is what are the new financial tools that suddenly come available to the players. What are financial services that suddenly become available to the players that are not possible or haven’t been created yet in these gaming economies? And to give examples, of course, there’s trading and the security which is convenient.
But what if there’s a company that wants to build a lending service where instead of players purchasing their assets from the producer, maybe they can go on that lending service and borrow assets for a day. Maybe in a card game, you just want to try a specific deck or you want to try a specific list of cards. You can just borrow it for a day for an hour or one match and you can have services provided.
Maybe there are other things. Maybe you can suddenly have a way of shorting or going along on specific assets. And how does that impact the economy of games? Well, one of the hypotheses behind leveraged trading is that shorting or going long helps with price discovery. Making sure that the asset reached the price they’re supposed to reach faster. It makes it so that bad assets drop in price faster to protect the user’s long assets.
These are two examples, but I really think there are plenty more. You can have indexes of funds. If you guys have heard of NTFX which is something I haven’t really thought about. But you can have indexes of in-game assets.
To me, all of these are interesting, but what the most interesting is they also are for the users. The players now have access to all these financial services and we don’t really know how it’s going to benefit them in the long term.
MATTHEW GOULD: Just to bring this back up for users. What you’re basically describing is the fact that users can own these assets now. There are going to be all sorts of tools built for these users. They’re going to be able to get more out of the game. Even outside of the gaming experience that you guys design.
NTFX is actually pretty interesting and I actually have not looked too deeply into that. And they’re basically creating index funds for different blockchain assets that people are depositing. Is that an accurate description from what you understand?
PHILIPPE CASTONGUAY: Yeah. Exactly.
MATTHEW GOULD: Cool. And that’s another thing too. I remember buying Warcraft gold. In just thinking about being able to take all these in-game - - contract and borrowing against them. It’s wild, but it’s happening already and there are all sorts of interesting interactions there.
My next question. Who’s actually using this right now? Who do you see as the blockchain game users? There must be people really deep in the Ethereum space. And then if you’re going to project out, how long is it going to take? What do you see in the growth rate for these blockchain games and in-game items?
PHILIPPE CASTONGUAY: Especially, Ethereum folk-based games. But most games today you have to pay in order to play. There are very few free-to-play games that I think negate or really enable users that are familiar with blockchain to participate. Dapper Labs, with their Flow Top Shot game, is not really a game. They say it’s going to convert into a game. It’s a counterexample where people can purchase their assets with credit cards and I would assume most people are not blockchain enthusiasts. We see a lot of people that are brand new to blockchain. That joined because of Top Shot. I think more and more you’re going to start seeing fewer and fewer blockchain native people participating in these games.
But I think in order to really push that front forward, companies and projects need to build the game first that integrates more than the counterpart. And that means bringing into free-to-play games which are probably the easiest way to onboard people to blockchain games. If there’s a platform for free-to-play users, then I think you’re going to start seeing the percentage of non-blockchain users to blockchain users increasing quite significantly.
MATTHEW GOULD: Got it. Well, just for users out there, I’m just trying to frame this into the discussion. There are so many buzzwords here. Gaming and NTFs, essentially, can go hand in hand. And Philippe was saying that there’s actually a lot of stuff that you need to build for a game to make it so users don’t even have to be worried about the fact that they’re interacting with a blockchain. You guys built a wallet. You did all this extra work here. People don’t even know it.
But you’re actually creating these blockchain-based assets. Everyone’s very excited about NFTs now. But you can create these assets like NFTs that you can then move around into other places. And I think that’s pretty neat and I think you had a good insight there. Which is if you’re building a game, the majority of your time is still building the game. That’s the number one thing you’re going to be doing. And the blockchain’s just a component of this that increases the value for users who are interacting with your game. So, it’s a way for you to make your game more valuable.
And right now, what you’re seeing is most of the people are paying to buy these types of things and we’ll see how this evolves. Maybe this could be cool as it would be end free.
One of the topics I want to transition to. You have quite an active Twitter. I follow it and I’m a big fan. So, if you’re out there, you should definitely follow Phillipe on Twitter.
And we wanted to get into some of these more crypto-based problem questions here. The first one that’s on the mind of everyone right now is scaling. I just want to ask you, Phillipe. What’s your opinion on scaling, the issues that we’re facing on Ethereum, and the network at large? I think that’s a good place to start.
PHILIPPE CASTONGUAY: Maybe to provide more context, Ethereum only has about 20 to 25 transactions per second. This goes down depending on the types of transactions. There are some assets that are more expensive to transfer which means less per second. This is really problematic. You may have noticed the gas prices on Ethereum. The cost for transactions is extremely expensive. We’re looking at small trades costing hundreds of dollars which prevents normal people or non-wealth from really participating in projects that are on Ethereum.
And this is called the scaling problem. And there are a lot of people on projects that tried to solve this. One thing that I think is often misunderstood is that even if you have something that gives you a 10x or 100x. I don’t think that is sufficient. Projects. And this is true for Ethereum, but other projects. If you claim to only have 10x more transactions than Ethereum or 100x more than Ethereum, eventually, you’re going to face similar issues as Ethereum is facing today.
And the reason is that a lot of people look at, perhaps, Visa transactions per second as a benchmark of how many transactions a blockchain needs to achieve to support the global economy. But Visa is a tiny fraction of all types of valuable assets that get transferred. You need a lot more than achieving Visa in order to properly scale.
And this is where the biggest challenge comes because almost none of the existing blockchains or at least the ones that are considered decentralized and secure. None of them really get even close to that scale. And this is why a lot of people, especially, in the last six months, are looking into how they can have a network of blockchains or a network of chains that communicate with one another. And different chains. Perhaps, one is a sidechain. Another one is layer two. I can go into the distinctions if you guys are interested.
But some of these have different properties and different security tradeoffs. Some will be very centralized and have very high throughput. And I think this future where there are various options that projects can decide. Perhaps, a blockchain game that is brand new might not need that much security.
But - - that handles billions of dollars probably needs very high security. And it’s really good that there’s an explosion of layers and sidechains that are emerging right now. Because it gives the project a wide range of options to choose from. To pick their tradeoffs and where they want to go in the future.
HOST: I just want to interject really quick. Listeners, if you’re not sure what Phillipe is talking about with sidechains, layer two, and things like that. We did release episodes in the past. I believe they’re episodes 16, 18, and 20. Go back and listen to those, so that you can get a background on some of the problems that we face with scaling on Ethereum right now, as well as some of the solutions that are out there that we’ve tried. And the pros and cons of all the different solutions, limitations, and things like that.
I just wanted to say that. Braden, I’m sure you have a lot of thoughts, so I’ll let you jump in.
BRADEN PEZESHKI: Oh, no. I was just about to shout out our episode too. That’s about it, though. You mentioned before the call that you were interested in the EIP for gas. I’d actually like to hear a little bit more about that.
PHILIPPE CASTONGUAY: Sure. So, you’re referring to EPI-1559?
BRADEN PEZESHKI: Yes. I believe it’s about burning miner fees.
PHILIPPE CASTONGUAY: I can summarize. EPI-1559 is a change to the Ethereum protocol that is planned to happen this summer. Hopefully, in July, there is a hard fork called London. It’s not yet confirmed, but it’s likely to be the case to happen then.
And what this change to the protocol does is currently miners on Ethereum, the entities that secure the network, earn the transaction fees from the users. Every time there’s a transaction, there’s a fee associated with that on Ethereum and that fee goes to the miner that mines the block. And this has been happening since the beginning of Ethereum. This is how Bitcoin works as well.
EPI-1559 proposes that instead of sending those transactions to the miners, instead, that transaction fee gets destroyed which means no one touches it. It means Ethereum disappears out of the supply and I guess people may ask why they would burn the fees if they’re used currently to secure the network. Because it's important to realize this is the amount the miners are paid to secure the network. If miners were not paid, then the network would not be secure at all. And removing transaction fees from miners is reducing how much revenue goes to miners which could translate into a loss of security.
So, what’s the point? Why do we want to burn the transaction fees if it potentially reduces the security? There are a few reasons, but the main reason why EIP-1559 was proposed is for helping with the prediction of gas prices. And this is something that is very precise and very few people are aware of this problem. And it’s true for all blockchains. All blockchains that have a limited number of transactions per second, somehow, need to decide which transaction will go next. Even if your blockchain has 1000 transactions per second.
What if you have enough of them for 5000 transactions per second? You need to choose which transaction goes in first and this is chosen by the miners by looking at how much fee each transaction pays.
And one problem with this is that the price that miners are willing to accept to include transactions in the chain changes very frequently, making it very difficult for me as a user. If I say I want to pay X amount of fee for my transactions, currently, that might be looking like this is the right price to pay based on the current demand.
But however, 10 seconds later, there could be thousands and thousands of transactions that come in that are a bit overbidding me. And that means that they’re willing to pay more for their transaction to be included.
And suddenly, I wanted to do a transaction right away and I priced it, let’s say, at $5, but everyone else is coming in and saying, “We’re willing to pay $10 for our transactions.” And my transaction ends up being pushed down and executed perhaps hours later. And this is a really bad user experience for users, especially when it comes to making an urgent trade. It leads to people overpaying for their transactions. It leads to a lot of complicated negative experiences for users.
The idea with EIP-1559. I won’t go too much into the details. But instead of having this auction. Because it’s often called a primary auction when you choose the price of your transaction or the cost of your transaction you’re willing to pay for. Instead, EIP-1559 allows users to know. It tells the users that there’s a minimal fee that they can pay that will guarantee their transaction to be included.
Now, instead of the users having to guess, I hope that this amount is sufficient for the network to include my transaction soon. The network tells the user this is a minimum amount that pretty much guarantees that your transaction will be included. And this is much better because the user knows how much they’re going to pay and if they pay that amount, their transaction will be included.
Sorry, that was a little convoluted. But this is really the primary reason why EIP-1559 was created.
BRADEN PEZESHKI: This is great. Because one of the big problems, especially for self-custody assets, is every single user action has to be initiated by the user. The users have to sign a transaction in order to submit it. The users have to do all this stuff to interact with the blockchain in order to play with trading cards and stuff like this.
And so, with Web 2.0, if you want to change something, you just throw it to a server, and then the server will just change it. And it will always change. That’s why this is very interesting. Because it eliminates that problem. Because you can consistently actually interact with the network.
MATTHEW GOULD: For people at home, what we’re talking about here is some of the core issues that you might have interacting with blockchain networks. And this all flows back to UX all the way at the top. And then some of these are actually some of the other incentives that get baked into the protocol.
And what Ethereum is looking at doing is making an upgrade in the near future, so that it’s easier for users to predict their fees. And so, they don’t have to worry about finality or following up on transactions. And Unstoppable Domains, as an application. And I don’t know, Phillipe, if you guys have done this as well. We actually keep track of all these transactions for the user, so that we can hide the complexity behind them. And then we try to make sure that they go through. And sometimes, it takes a while because you have to keep following up on it.
But just stepping back a little bit. Framing it for our users. What’s happening is there’s constant innovation in the space on the incentive models for these blockchains. And one of the updates that are trying to go through right now on Ethereum is this EIP-1559. And it does a couple of really interesting things that are pretty big for the space in general. We just talked about it improves UX for sending gas.
But it also burns more Ethereum. It actually burns more of the coin at the base layer for Ethereum which could, potentially, make Ethereum a better store of value. A lot of investors are taking a look at all these Ethereum protocols and products like Uniswap or SushiSwap and they see how much money they make. And they try to get the price to earnings multiple on these based on how much money that protocol’s making. While Ethereum burns more of the fees that people pay. It’s like a stock buyback. It’s like a weird way around it. That could potentially make Ethereum a better store of value. It’s another reason why EIP-1559 is pretty good.
And then another thing that I really like that I don’t think enough people know about is that by having this gas market much clearer, it prevents gaming of the market from some participants which actually happens quite a lot. And we also saw another proposal come up on Ethereum for gas prices.
And any user out there that’s used some of these networks has seen really high gas prices recently. Specifically, Ethereum has been really bad. And they’re actually talking about getting rid of this thing called gas tokens. I was actually going to pass that over to you, Phillipe. Do you have any options on gas tokens? Hopefully, you’re not a huge gas token holder because the Ethereum core developers are looking at ripping out gas tokens. I’ll talk about what’s happening in a little bit, but I’ll get your opinion first. What are your thoughts on that move as well? Because that’s another big one that may be coming up.
PHILIPPE CASTONGUAY: Gas tokens. For those who are not familiar, gas tokens allow you to prepay gas at the current price for future users. It’s a bit like if you saw the gas at your corner store was low for your car today and you decide to go there and fill up your tanks and put them in your garage. And then maybe you resell them in the future when the gas is a lot more expensive or you decide to use them later as well. It’s the same for gas tokens.
On Ethereum, you can purchase transaction fees so to speak ahead of time while the fees are cheap in order to use them later when the transaction fees are more expensive. And this is something that has been around since 2017. Perhaps earlier, but not as directly as tokens.
And it’s been causing some issues because a lot of people are filling the transactions with what are called gas token minting. They’re creating or they’re acquiring these gas tokens when the transaction fees are low in order to either sell them later when the gas is high or use them.
And this is a bit inefficient because, in the process of creating these gas tokens and using them, there are transaction fees that are incurred. It’s not 100%. It’s a bit like if you spill your gas every time you fill it up and use it in the process. It’s not efficient and it ends up congesting Ethereum quite a bit as well.
What people are proposing is basically killing the ability to make these gas tokens or the way people make them today. And an interesting consequence of EIP-1559 is it actually allows very efficient ETFs of gas prices if you want on Ethereum or ways to track. You can create an asset that tracks the price of the transaction on Ethereum and the gas price much more easily with EIP-1559.
If we remove the gas tokens as a proxy or as an asset that drives the gas price, with EIP-1559, we can create much more efficient assets that track the gas price on Ethereum and people can start trading that instead of the actual gas tokens.
MATTHEW GOULD: And I guess my last question here. What do you think the probability is that we’ll see these updates for users this summer? For both the gas tokens if they decide to remove that and then, also, EIP-1559.
PHILIPPE CASTONGUAY: I think EIP-1559 is more likely to happen this summer. For those who are not familiar, the only controversy around EIP-1559 is basically coming from the miners. Miners will lose a significant portion of their revenue. We’re looking at something between 10 to 40%, 50%, or perhaps more depending on the time of the year you’re looking at.
A lot of miners are against it. If I recall, there’s about 60% of the current Ethereum miners are against that change for that reason. And I personally fully disagree with them and if I put it out here, I don’t think it matters really what the miners want because they are providing a service to the network. It’s a network and community that chooses what the change should be and how it should operate. That’s why 1559 is going to happen this summer regardless of what the miners say.
They want to kill gas tokens. This one is harder to see because while it is somewhat noncontroversial, it’s fairly new which means not a lot of people have thought about it. And there could still be potential security issues that people might have not thought about yet. So, it’s going to take a while for that EIP to go through the review process and for it to be accepted and proposed in the hard fork. I would not say it’s likely to happen in the summer for that one.
MATTHEW GOULD: Interesting. Well, we saw a lot of people selling their gas tokens or at least using them up. Or minting less of it because they got a little bit afraid. And there’s this weird thing that’s happening and all these crypto networks have these weird game theories and setups.
What we were seeing was actually whenever the price of sending transactions on Ethereum would drop a lot, a lot of people would go in and then they would buy gas tokens because they were expecting the price would go up in the future. And this was creating a floor in the gas price. And so, every time the gas price would come down, they would get a new floor, and then it would go up to an even new high. And then it would come down and it would get a higher new floor.
When could this end? Gas tokens could go to infinity it felt like for a couple of weeks there and it may start doing that again. At which point, I hope people tune in. Because it really is a bad experience for users. And I agree with you on that, Phillipe. We’re trying to make these for people to use them. And then all these incentives we have designed for miners, speculators on gas tokens, or whatever, there are second-order effects. The users should definitely come before that or else it’s not going to work.
I have another interesting piece of insight here on Ethereum. It’s actually the difficulty bomb. Is that still in effect and do you think that will have any type of settings or a hard deadline for people to come in and make some changes? And when should we expect that?
PHILIPPE CASTONGUAY: The difficulty bomb is still in action. It was never removed. I don’t remember exactly the date where it’s going to kick in, but I believe it’s later this year. And for those who are not familiar, the difficulty bomb basically is a setting in the Ethereum chain where if it’s not updated by consensus of participants via a hard fork, it will make the Ethereum chain basically halt very quickly. So, the transaction times are going to increase. Transactions per second will decrease.
And the reason why it was built in the first place was to ensure that the default chain or the chain that does not commit to the new proposals or the new changes to Ethereum does not win. Basically, when there’s a hard fork or modification to Ethereum, every single node in the world has to download the update and perform the update. If you don’t update your node, you’re stuck on the old Ethereum network.
And in order to prevent the old Ethereum network to be bigger than the new Ethereum network, that’s where the difficulty bomb comes in and forces the other ones to eventually upgrade their nodes. Otherwise, that specific network will become incredibly slow.
The interesting part here is that one of the fears of EIP-1559 is what if the miners basically stay on the current fork. They don’t update to that. They’re going to be supporting the default chain which, by extension, also, includes all the people that have not yet updated their node which could be a significant amount of nodes. Every hard fork requires really large coordination that happens fast and miners could be on the side of the largest majority for that reason.
And the difficulty bomb basically comes in and will eventually force those who objected to 1559 and stayed on the original version of Ethereum. It will force them to try coordination and to say, “Well, we knew to diffuse that difficult bomb somehow.” And the idea here is that if they’re not able to, then that specific chain is going to die and the new chain in the long term is going to prevail. The chain was able to reach a consensus on changing the network.
And the difficulty bomb. I don’t fully remember if it was going to happen, but it should be reset at the same time as EIP-1559 takes hold.
HOST: Got it. I want to move off of 1559 and talk more about scaling in general. Earlier, I don’t know if this was before we started recording or on the podcast, but you mentioned that you guys are building Horizon on sidechain right now. And as listeners know, if you’ve gone back and listened to our series on scaling, you know that’s one of the many solutions to the problem that we’re facing with scaling on Ethereum.
I was just wondering why you guys chose sidechain as your solution and maybe talk about some of the reasons why you chose that and also, some of the limitations that you still face with that.
PHILIPPE CASTONGUAY: In general, for those who are not familiar with sidechain versus layer two, sidechain stands to be not as secure as their parent chain to where their chains are connected to. Whereas layer two, in theory, inherits security that’s very similar to the main of their parent chains. If Ethereum is the parent chain, Ethereum’s layer two's will have very strong securities and will be decentralized. Whereas sidechains tend not to be or usually are not. They have independent security from the parent chain.
And the reason why we went with the sidechain called Polygon, previously known as MATIC, is that currently there’s no layer two on Ethereum that is ready for general computing. This means that there’s no layer two right now on Ethereum that allows us, developers, to deploy all the tools and all the smart contracts that we would otherwise deploy on Ethereum. They’re just not there. There are a few coming down very soon. There is Optimism and Arbitrum which are a class of layer two called optimistic rollup. These are going to be coming down in the coming months. Optimism, I believe, said they would come down this month.
These are really interesting because they are layer twos. They have very strong security if they’re built correctly and it will allow us to deploy all the contracts we would deploy on Ethereum to their network as well. However, for us, we don’t want to take the risk that these layer twos are going to be brand new. They’re not going to be well tested yet. They are very complex which means a lot of things could go wrong. And we don’t want to take that risk for the users, so we went with the sidechain, Polygon, which has been up and running for almost a year now.
And for us, it’s a tradeoff where we know it has lower security than Ethereum, but the security keeps on increasing. Where there are hundreds of millions of dollars now that are secured by the network and it hasn’t been an issue since it’s been up. So, for us, who’s basically starting a video game company, if we did have $50 million of assets in our video game which would be incredible, we know that the network would handle it.
If it came to a point where the value of our asset exceeds the amount of value that could be secured by the network, we also built tools that make it easier for us to migrate to another sidechain or layer two.
And this is one great aspect of a lot of the Ethereum ecosystem. Most of the sidechains and layer two are set to be EVM compatible which means that everything that works for Ethereum works for these sidechains and layer two's. For us, it took us perhaps 30 minutes to deploy everything to Polygon and all our tools were running. Everything was running. We didn’t have to code anything. And this is a great power because it allows us to move our system from one chain to the other very quickly.
HOST: Got it. Then from a user perspective. These are the technical things that you’re working on from the company side. From a user perspective, what are some of the changes that users are going to see? Like lower gas fees and more useability. You mentioned UX being the biggest problem that’s preventing people from entering the space. Tell me, from a user perspective, what changes they are going to see that are going to make their experience better.
PHILIPPE CASTONGUAY: For us, specifically, because we will be on Polygon, we’re actually going to cover all the gas costs for all the users. Our users will not pay for transactions. This is possible because we built the smart wallet for those who are familiar and the smart wallet allows these kinds of things.
Neon District, another gaming project on Polygon, also pays for its user’s gas. This is already a significant improvement. And the reason why we can do it is that the fees are incredibly low. We’re looking at perhaps thousands of transactions for maybe 10 cents. For us, as a company, it’s easy to justify that decision to pay for our users.
Another nice improvement for using a sidechain as Polygon provides is the time for the transactions to be included in the chain is much shorter. This means that if you commit an action, you try to transfer an asset, you try to buy it, instead of taking 15 seconds to a minute to two minutes, it usually happens within a few seconds. Sometimes, it’s less than five seconds. Some sidechains and especially layer twos are coming with instant finality it is said. This would provide immediate feedback that your asset was transferred. But for sidechains such as Polygon, the time it takes for a transaction to be included is about five seconds. It does increase the response time if you want to have your application.
HOST: Got it. And what are some of the limitations that users still face when using Horizon right now?
PHILIPPE CASTONGUAY: The biggest challenges for any sidechains or layer twos are basically around the fact that, sometimes, users will have to bridge their assets from Ethereum to sidechains and not all tools are available for sidechains yet. This is not so much for non-blockchain users, but if you’re familiar with Etherscan, if you’ve used Ethereum in the past, this is not available for Polygon, for example. And Etherscan is very useful for the slightly savvy users that want to keep track of what’s happening in their wallet.
Other things like Zapper Finance, if you guys are familiar, are a tool that you can use to track all your assets and the value across all your applications on Ethereum. This is not available on Polygon yet. So, there’s a bunch of tools like this that are not yet available in Polygon and there’s a lot of liquidity that is not yet available on Polygon. This means that you can’t trade everything yet on Polygon. You might have to go on Ethereum to do trades and bring it back.
I would say these are the major useability limitations. And this is something I mentioned a bit earlier. The security is not the same as Ethereum. There’s always a risk that, if the Polygon network has a fault in it or a vulnerability, users could lose a significant portion. Not to say that there’s any - - vulnerability. I'm confident that it's going to be able to secure our game and therefore secure many other projects. But it’s a risk that needs to be mentioned. It’s not the same security as Ethereum.
HOST: Well, the good news is that solutions are being developed very rapidly. I’m just curious, from your view, if you were to look ahead 10 years from now, where do you see us being in 10 years with scaling on the blockchain?
PHILIPPE CASTONGUAY: Whoa, 10 years. That’s a lifetime in blockchain. Well, scalability is not a theoretical issue that needs to be solved. It’s a technical one. It’s going to be solved eventually and people won’t think about it anymore.
In fact, I think there’s more work to be done on things like useability and other things. And scaling with compromising security is probably a more challenging one.
But in 10 years, I really don’t think people will talk about scalability as an issue anymore for blockchains. It’s similar how to people don’t talk about computing power per se as a bottleneck for most applications. Some applications might require more transaction throughput and perhaps could benefit from an increase in scalability. But I don’t think that’s going to be very common in the future.
HOST: For sure. Well, I can’t wait for gas prices to not be in everyday conversation anymore. I’m really looking forward to that.
This next segment we call “Explain Your Tweet”. This is where I go through your Twitter. We all know by now that Matt is a huge fan. And I have pulled out a few interesting, cryptic, or funny tweets that I’m going to give you the chance to explain. Let’s dive into that.
The first one is from February 13th. You tweeted, “Collectibles don’t need to be nonfungible to be valuable.” There’s been a lot of talk about NFTs. That’s all the rage these days. Talk about what you mean by that tweet.
PHILIPPE CASTONGUAY: NFT stands for nonfungible tokens, meaning assets that are unique. NTFs do have limitations, especially when it comes to price discovery, meaning that it’s very difficult to know what the price of an NFT is. Because there could be millions of them. Some of them are similar. Some of them are different. Why is the green hair color more expensive than the yellow hair color? As a user, that adds a lot of complexity.
But sometimes, instead of having purely unique assets, you can make the slightly fungible and that tends to help a lot with nonfungible price discovery. For example, instead of having 100 dragons that are of different colors and different attributes, you can have 10 dragons and 10 classes of dragons, and each drag have 10 copies of it. You can have a blue dragon or a red dragon. And there are 10 blue dragons and 10 red dragons.
And suddenly, the price discovery becomes a lot easier because each blue dragon is basically the same as the other blue dragons. And you end up having more transactions and sales for it which makes the price easier to discover.
And one of the greatest examples of collectibles that are fungible is Unisocks. Unisocks, for those who are not familiar, are literally socks that were created by UniSwap and there are only about 320 that can possibly exist. And the first ones were sold for maybe 10 bucks and currently, they’re worth $160,000 each.
And people think of Unisocks as collectibles, but every Unisocks is identical to every other. They’re not distinguishable. There’s no, “I have socks number one. I have the socks number two. I have the socks number three.” It’s just, “I have some Unisocks.” They’re set to be fungible with respect to that. There’s not a lot, so the fungibility, so to speak, is not as high as other types of assets, but people can still consider a collectible.
When I say, “NFTs don’t need to be nonfungible to have value,” sometimes, you can make them slightly fungible by adding decimals and making a few copies of them. And that tends to solve a lot of the user experience complications that NFTs bring to the table.
HOST: Got it. The Unisocks thing is pretty crazy. And then the other tweet I wanted to call out. This is from February 14th. That is obviously Valentine’s Day. You tweeted, “My NFT valentine gift did not impress.” What was the gift?
PHILIPPE CASTONGUAY: Well, I don’t want to exactly say the gift, but it was an NFT that I purchased. And I did show it to my wife in the morning and there was pretty much no reaction to it, so I probably won’t do that again.
HOST: Was it a piece of artwork?
PHILIPPE CASTONGUAY: Yeah. I bought her a Rarible. Exactly.
HOST: Got it.
PHILIPPE CASTONGUAY: You can’t put it on a wall.
HOST: Put in a digital photo frame, put it on the wall, and then you can look at it every day.
PHILIPPE CASTONGUAY: That could work.
HOST: Cool. Well, thanks so much, Phillipe. This was a very fascinating conversation and I learned a lot. I’m sure our listeners did as well.
Before you go, just tell people where they can find you if they want to connect with you personally. Also, where they can go to learn more about Horizon games. And how do they sign up? How do they play your blockchain games? What are the first steps that they can go through to do that?
PHILIPPE CASTONGUAY: If anyone wants to reach out to me, my DMs are open on Twitter. That’s @PhABCD on my Twitter. Go