Conversations with the Coop - Dr. Karl Kreder - Phonon DAO, GridPlus
Primer: In this episode of Conversations with the Coop, host Crypto Texan speaks with Dr Karl Kreder. Dr Kreder is the CEO of GridPlus, a hardware wallet provider, and a core contributor to Phonon DAO, an open-source layer 0 protocol which enables off-chain transfers of digital assets using secure hardware. Learn how GridPlus and Phonon synergizes with one another in this episode here.
Background
Heard about crypto in 2011
In 2012, he had to go through a convoluted process to buy Bitcoin
Is an engineer by training. Had a doctorate in engineering
Went to work for ConsenSys for a year after graduating
GridPlus spun out of ConsenSys. Have been working on GridPlus ever since
How Did GridPlus Came To Be?
They are the first company to spin out of ConsenSys
He and two others had an idea and spoke to Joe Lubin to figure out a way to spin out the organization
Being The CEO Of GridPlus
Thinks that a lot of the UX problems around crypto can only be solved by hardware
GridPlus’s goal is to create and maintain decentralized systems by enabling people to self-custody their assets
Without self-custody, it is just replacing J.P. Morgan with Coinbase
Being a hardware manufacturer is generally harder than software developers. For hardware manufacturers, there are plenty of dependencies that they cannot directly control
SafeCards
Is building SafeCards. SafeCards are smart cards that are used to create a pin protected seed phrase
SafeCards are protected by a pin. Hence, they can be left lying around one’s desk
Can segregate funds using a SafeCard — company funds, family funds, personal funds on separate seeds
“But as crypto becomes more and more ubiquitous, I think seed phrases are going to become more and more targeted, which is to make storing them harder.”
- Dr Karl Kreder
GridPlus sells SafeCards with 10 ETH on them. If anyone thinks that they can break the security around the SafeCard, they can buy them and attempt to break them
SafeCards have a feature called a physically unclonable function that prevents double spending
Realized that not being able to do a double spend and not being able to copy a physical unique thing are interrelated concepts that resulted in the birth of Phonon DAO
Is He Fully On Hardware Wallet?
Still have some legacy hot wallets
Everything with meaningful value is on a Lattice wallet
How Does He View His Competitors?
Working on getting more throughput and production capacity
A lot of the crypto community know about the Lattice and are using them already
In terms of product differentiation, they are not directly comparable in scope and security (e.g. a USB dongle vs the Lattice’s terminal)
For a simple Uniswap transaction, there will be several hundred bytes of data. The Ledger does not have a way to present this on its small screen
In contrast, the Lattice allows users to load an ABI pack that parses that data into a human readable format. It allows address tags to tag addresses
Hackers are targeting hardware wallets that are forcing people to blind signing:
Earlier in the year, Hugh Karp was targeted
More recently, Badger DAO was targeted
“When you're making a signature, its security is like Kabuki theatre, right? It's a security talisman that you hang around your neck to make you feel good about what you're doing, but it's not actually providing anything for you the second you blind sign.”
- Dr Karl Kreder
Best Practices To Interacting With A Smart Contract
Data payloads are in hex code
The person has to write down the string of bytes, manually look up the ABI, and figure out how to parse the set of hex strings
With Lattice, loading the ABI pack should suffice
Phonon
Phonon is a hardware enforced off-chain layer zero scaling solution for any crypto asset
It lets users deposit something into a Phonon compatible chip — it could be a smart card, a SIM card, an eSIM card, etc.
It can be interfaced with a computer/terminal and users will be able to take something from a chain and trade it entirely and privately off-chain at no fees between any other Phonon cards
It scales linearly with the number of participants
Will be able to create interoperable swaps between any blockchain
Useful for in-person peer-to-peer payments using smartphones that don’t require network connectivity
Relationship Between GridPlus And Phonon DAO
Came up with the idea at GridPlus
Was trying to solve streaming payments and microtransactions
GridPlus develops the Phonon applet/basic framework and the DAO is formed to help build additional services and applications on top of that framework
Phonon could be thought of as a layer zero
How Different Is Phonon From Other Layer Zeros?
The reason they call Phonon a layer zero is because it does not have any dependencies upon the blockchain protocol
Other protocols who market themselves as layer zeros have some protocol specific connectors that have to be built on top of the protocol
From a tech stack perspective, what’s on top is dependent on the layer beneath it. Phonon’s dependency is on cryptography; it’s not specific to any blockchain
The Phonon protocol and the Phonon applet does not have any understanding of what a blockchain is. All they understand is that they have a key pair and does swaps between those key pairs
Underlying Mechanisms Of Phonon Cards
Users will be able to create a new Phonon and public key from the Phonon client
The client would turn that public key into an address for what asset you want to send money to
The metadata describing what that asset is then loaded into Phonon
Redeeming Assets Back To Layer Ones
For UTXO-based blockchains, the private key just represents another entry in a UTXO wallet. Hence, there is no need to redeem it back to UXTO-based layer 1 blockchains
For blockchains that use an account model, there would be an on-chain sort of redemption if the user wants to reaggregate it back to their accounts
Example Of Real World Usage
In the alpha version, each Phonon is representative of an on-chain asset
Everything that is a Phonon should be thought of as a UTXO
If you wanted to pay your friend 35 bucks for your half of the dinner, you would send him 4 Phonon
The wallet could do the extraction in the most efficient way and the user does not need to specifically pick the Phonons
Security Of The Phonon Cards
Two things have to happen to ensure that the system works:
The cards need to be running Phonon code
The cards need to have the property of being unclonable
Initially, GridPlus will be attesting to these two guarantees and issuing certificates for them
In the alpha version, only GridPlus certs will be trusted between cards
Envisions a scenario where other manufacturers come in to provide attestations/certificates
GridPlus Token And Phonon Token
The GridPlus token can be converted to the Phonon token
The Phonon token is a governance token. It could also be used to create incentives and generate revenue
Has a feature called conditional transfer/conditional swap, where prior to the first person sending money, the second person basically provides a signed agreement to what they are going to swap and then their card will only accept the first half of the agreement
The DAO can create a smart contract layer. If the swap did not complete, the first party has proof that they have agreed to this transaction and would be able to go through a guilding process to receive what they have been owed
What Would He Like To See The Community Build In The DAO?
There’s a plethora of applications that could be built
Would like to see some feature facilitating cross-chain swaps
To reach critical mass, applications have to be built in the microtransaction space. The community could create incentivized Tor alternatives
The Future Of Blockchain Scaling
Thinks that there are reasonable scaling solutions that can take layer 1s up to 10,000 TPS. This is needed to keep them decentralized
Doesn’t think that L2s and rollups will be a tenable solution because of:
Things are siloed
There’s still trust issues
Tragedy of the commons
Thinks that people will figure out how to scale EVM-compatible Proof-of-Work layer ones to 10,000 TPS
Where Can People Go To Find Out More About Him And Phonon DAO?
They can go to Phonon.network
Check out their GitHub page and start developing apps using Phonon
His writings are available at the gridplus.io blog
All information presented above is for educational purposes only and should not be taken as investment advice. Summaries are prepared by The Reading Ape. While reasonable efforts are made to provide accurate content, any errors in interpreting and summarizing the source material are ours alone. We disclaim any liability associated with the use of our content.