Scoop: Legal fight over ownership of Web3 heats up

With help from Derek Robertson

A legal fight over the software infrastructure behind a large portion of crypto activity is heating up with a new Swiss court ruling. The fight pits billionaire Joe Lubin, considered a de facto co-founder of Ethereum, against a group of his former employees at ConsenSys AG, a firm that was central to the development of the second-oldest blockchain network.

While at one level the court battle comes down to a squabble over corporate governance and the value of some key assets, it can also be seen as emblematic of a bigger question shaping the world that crypto and Web3 evangelists hope to build: Should blockchain systems embrace existing corporate and government structures, or maximize their independence from them?

In the crypto world, a more pragmatic and business-minded camp sees the involvement of big banks and government entities as validation of the technology and a prerequisite for achieving its potential. Crypto purists, on the other hand, distrust those established players, and see their arrival as a threat to the original promise of the blockchain — by, for example, collecting user data or ensuring compliance with government regulations that the purists consider unjust.

The latest ruling prolongs a feud that has split an important group of early crypto pioneers.

The former employees of ConsenSys, who are also minority shareholders in the firm, contend that it improperly transferred some important assets to a separate entity now owned by Lubin and a who’s-who of big-name investors including JP Morgan, Microsoft, Softbank and Singapore’s state-owned Temasek.

Those assets include MetaMask, a popular crypto wallet, and Infura, a suite of software tools for blockchain developers — meaning that those tools are now in the hands of a company backed by big financial powerhouses.

In March, the minority shareholders filed a request for a special audit. Soon after, it filed a demand that the transfer be put to a retroactive shareholder vote. Last month, in a previously unreported decision, a judge in the Swiss canton of Zug granted the former employees’ demand for that shareholder vote.

For the plaintiffs, the victory is purely tactical. Because Lubin himself owns the majority of ConsenSys AG shares, the vote is expected to ratify the transfer. But the decision paves the way for more legal wrangling, because the vote would produce a shareholder resolution that can be challenged in court, allowing the minority shareholders to press the substance of their legal challenge: That Lubin’s stake in the new entity represented a conflict of interest, and that the assets were purchased for too low a price — roughly $50 million.

“Any way you look at it, this is really, really bad management of our assets,” said Arthur Falls, one of the former employees who acts as a spokesman for the group. The group argues that the hundreds of millions of dollars invested into the new entity, ConsenSys Software Inc., since the transfer implyed a much higher value for the assets.

In an emailed statement, a spokesperson for ConsenSys AG, which now does business as ConsenSys Mesh, denied the allegations, saying the transfer was conducted in consultation with top law firms and on the basis of an independent valuation by PwC. The statement contends that the price was reasonable at the time the transfer happened in 2020, during a moment of pandemic-induced economic uncertainty, before the latest crypto bull run and the NFT craze pumped the value of the assets to new highs.

Given the obstacles to reversing a complex, years-old transaction, it is unclear what the outcome of a successful legal challenge might entail. But the conflict highlights the industry’s rocky transition from its roots in scrappy, informal projects fostered by idealistic computer coders to become a big global business. Falls said a privacy policy updates issued last month that allows MetaMask to collect users’ IP addresses was emblematic of MetaMask’s turn away from crypto’s ideals under its new ownership.

Read the full story here.

One of the gaming world’s pioneers has had enough of Meta.

On Friday afternoon Insider reported that John Carmack, the designer of paradigm-changing 1990s video games like Doom and Quake, was leaving Meta, where he served as a CTO and consulting CTO for Oculus since 2013.

Carmack’s rationale: That the company is being run inefficiently, with the very thing that enables its expensive and ambitious investment in the metaverse — that is, the company’s massive size — is bogging the project down in bureaucratic red tape.

“We have a ridiculous amount of people and resources, but we constantly self-sabotage and squander effort,” Carmack wrote in the post announcing his resignation, which he later posted in full on Facebook. “There is no way to sugarcoat this; I think our organization is operating at half the effectiveness that would make me happy.”

Carmack, long one of the most outspoken game developers of his generation, complained of the same issues on Lex Fridman’s podcast earlier this year. Age, however, appears to have mellowed Carmack, who nevertheless insisted in his farewell note that “VR can bring value to most of the people in the world, and no company is better positioned to do it than Meta” — and on Twitter, Meta’s CTO Andrew Bosworth wished him well by saying “it is impossible to overstate the impact you’ve had on our work and the industry as a whole… Thank you and see you in VR.” — Derek Robertson

Points, counterpoints: Not everyone is convinced that large language models like the one on which ChatGPT runs are going to “end homework.”

Robert Pondiscio, a senior fellow at the American Enterprise Institute, dissented in an essay published by the think tank last week, argued that the element of human judgment involved in communication makes it impossible to automate except for rote or functional tasks.

“…It takes knowledge to communicate knowledge — or even to have the discernment to judge whether an AI-generated piece of text makes sense or responds sufficiently to a prompt,” Pondiscio writes. He argues further that the assumption that AI could replace human writing is actually dangerous to literacy in its own right: “Artificial intelligence will provide time-saving tools for knowledge-haves, but it will be fatal to the interests of knowledge have-nots, if they are denied the opportunity to develop the language proficiency the well-educated take for granted, and which makes AI tools useful.”

In other words: As fellow wonk Samuel Hammond wrote in his own recent post about the social implications of AI, it’s not what the tech can do, but what we choose — and choose not to — do with it. — Derek Robertson