#213 Tim Swanson: Busting the Great Wall of Hype

Transcript

hi welcome to epicenter the show which talks about the technologies projects and startups driving decentralization and the global blockchain revolution my name is sebastian cuiture and my name is brian Fabien crane we're here today with Tim Swanson now some of you have been around for a long time and you may remember with him Swanson but most of you probably don't know Tim Swanson yet since most if you have recently started listening to it so Tim has been on this show twice before but I was just shaking before it's been a long time since he had was on before last time was in June 2015 so almost two and a half years ago and back then you know there was a lot of enthusiasm about Bitcoin and cryptocurrencies like today and it was

really hard to find anybody who could speak critically about it and have actually be skeptical of this whole thing and at the same time understand it there was plenty of people who said like all its nonsense but they didn't actually understand the thing so Tim was the only guy really we could find for that so we had more on a bunch of times and then Tim went to work or three he was there one of the first people and I recently left so he's been kind of one of the most astute and and critical observers of the industry for a long time and so yeah thanks so much for coming on again Tim yeah so since since your fame of the past I think has has probably gotten like drowned a bit in

piped price and noise and all the new stuff going on key share a little bit about your background like how did you originally become interested in Bitcoin and blockchain and what was your kind of story through that sure origin story we waiting for Stanley to make a movie a live-action movie this one so I initially heard that Bitcoin July 22 2010 when it was on slash dot slash org somebody posted I think was version 0.39 that time yeah that's the correct change on it and then I didn't consider it very interesting until really fast forward to end of 2012 I had this I was on a mailing list and

got into a debate with the number of people who said oh you could do do other things beyond just payments you could hatch contracts so you know all these different buzzwords that eventually became the talk of the town in 2013-2014 so I ended up mining that fall on Bitcoin and then I switched over after the happening to two litecoin and then I got rid of everything before I moved back to the u.s. into 2013 and then I want to move back out here it is interesting I think that we were all looking at the rooms it looks like we're all in the same rooms we were the last time I spoke with you so I'm still based here in San Jose my wife is a chip designer at a ittle large summit

conductor company that everyone's aware of but not gonna go into but bottom line when we moved out here primarily for her for her career I was also looking into the cryptocurrency world and that's that topic was something that people written on but primarily around prices and I'm never really interested in price action I know there's plenty of people that are I guess paper paper millionaires at this stage and have fun paying your taxes on that one anyways the my my kind of research in discovery process in early 2014 on led me to writing a book which then kind of moved me into the space and then I wrote another book and then I

ended up working for a couple companies in this space so that's a quick quick rundown of what I did prior to basically are three and then I I left a couple months ago to set my own advisory company called Post Oak Labs which basically works with about half the clients or Enterprise related and the other half for cryptocurrency related projects at this stage again just for people who are aware my role at r3 was had a market research so I had a chance to look at around 500 or so different entities these are companies startups universities working on some kind of blockchain thing that they would talk to us about and I always usually that first first entity within ours to breathe it had a chance to speak with

them so I've had a chance to see the good the bad and mostly the ugly of this space and it's good good to be back so we could knock some of these out of the park and find out what's real what's not so when you were speaking to these startups at r3 I mean we've actually spoken in that context as well and so in the context of Stratham what's like the the most craziest idea you've heard you know I was five hundred or so startups that you talked to like crazy since in terms of like absurdity or in terms of like crazy ideas that might actually come to fruition yes spectrum of various dimensions you have the things of just outright illegal which are these not

even the ICO things but ways to really make it difficult for you to trace any kind of account I don't want say kind of but you can't trace funds easily it's actually the opposite of would would have blockchain typically used for right and so that the key thing that they were trying to sell us on or saw me on was effectively money laundering and tax evasion so that was pretty I won't mention the name of the project but actually saw that more than once early on and then some of the other stuff I mean if the goal for financial institutions to use this tech is to automate processes that are either time-consuming and costly or you know

there's breaks in trade or something that if the goal is to digitize automate and then config actually proves it that stuff is taking place then some of the visions that some of the contra members had is to effectively replace entire intermediaries and market structures again I'm not saying that will happen but that's generally like one of the pictures I'm sure you guys saw this especially in 2015 during that initial hype curve going through Sipos and money 2020 all that stuff that happened at the end of that year people standing on tables saying blockchains are going to destroy you know XYZ just fill in the blank and obviously maybe that could happen but it certainly did not happen and in that

timeframe that Vlad knows you know I don't say this consultants but generally speaking the the big the big four you know trotted out their guys on stage saying this is this is exactly what's gonna happen early 2016 they they started partnering with this startups and and most of startups I'm not gonna mention names but failed to really see traction because they simply didn't realize how hard it was to get an enterprise sale that sales cycle is it's not only annoying but it's can be demoralizing because you have to sit there and explain to not just one committee of it's like fifteen different committees over a process of a year or two and then you find out that the software that you built isn't easily reproducible in other institutions not to belabor this point but you've had a lot of these really

clever smart entrepreneurs building real useful stuff and then they bring it into an institution they customize stuff around it to make sure plugs into legacy infrastructure and then they're like oh I guess I'm gonna go try and sell this now to this other you know competing bank or whatever it might be and they find out that they had to be customize it and then they have to do the same kind of recasting ization along the way for all the all the infrastructure and all these banks so that's not to say that you shouldn't do it I don't want to say anyone listening to show don't be an entrepreneur but just you know eyes wide open its if it was easy and really quick you know get rich quick as people like to like to think this space is it's really not it's maybe get rich slowly it

most and you're gonna bet a lot of bumps in the road so yeah the enterprise side still going along we could we talked about that if you guys want in more depth but that's just one part of the space versus the middle cryptocurrency world one thing maybe this is a bit unusual question like you have this I think kind of unique perspective in having this highly like skeptical outlook on everything and and you know you really seem to like not be affected at all when you know back in 2013 and 14 there was the same kind of enthusiasm that we have today right and and like where does I come from I don't

see any benefit of being super religious about stuff okay I'm not saying you shouldn't be excited you're passionate about or is even enthusiastic about the topic but we've seen historically lots of manias that go on we've seen it in tech specially with you had a lot of companies and jump into social media world solar panels VR most recently if you are in a our world so it doesn't I don't see the benefit of becoming a fanboy of anything at this early early stage so for me I number one that wasn't really politically or ideologically motivated on any of this stuff and it's kind of I guess you could say it's

benefited in the sense that I've tried to remain as objective as possible if people would like to bring the data like I give you an example of for those viewers who hadn't seen what I wrote in the past and why I end up getting on shows like this is because I was going out of my way doing the best I could to actually get original source material from like metrics of who's actually using crypto currency or something an application or whatever and it was it was difficult but I got I got a lot of good stuff I guess bitpay was it was a company that they ended up in the crosshairs quite a bit because I know that no one talks about using Bitcoin as payments today at least on the the Bitcoin core side the maximalist it's you know all a digital narrative but

back in 2013 2014 there were people marching the march in the streets mark marching on social media you had the Andreas Antonopoulos as the world saying oh it's good to destroy Western you Westview is very much alive and growing today all these you know remittance players that are considered you know evil baby eaters by the bitcoiners still alive for the reasons that were different than the network everyone keeps on all the bitcoiners like to focus on oh there's a double spending problem that needs to be solved that's not the actual issue that for remittances we gave a whole show about that in fact I think that you guys should have a guy named Yakov coughed neuron he's a partner Berg partner he runs a website called save on send he's I would say the best expert he

doesn't have particular allegiance to one entity or the other it's as pure researcher and bottom line is that you have a cost structure around remittance companies the compliance costs actual physical entities you need to pay on the ground so anyways besides that going back to the point I like to think that if somebody presented some new data that showed people using stuff besides you know prices going up that's just that's just pure speculation at this stage speculators jumping in on on different coins and stuff like that so yeah for me I'm more interested in seeing how people actually use technology rather than sitting around and riding the coattails of others who might be buying something

and huddling no but I'm not so I'm gonna take a slightly different point of view here I mean so you said that there's there's no real point in being a fanboy well you know if you look at like the technology innovation curve like that that's the whole that's the whole cycle of that curve right that you first have the the innovators and the early adopters until right the technology comes to it to sort of massive adoption of course you know those of you who have read crossing the chasm also know that you have to cross that chasm do you think that we have an opportunity to cross the chasm or is this gonna become like in your opinion will this become

the segue audience I look at the the overall within the FinTech community the the blockchain world or whatever you know uncountable noun that no one wants to use that no one ever uses the a or D before blockchain right so no I see it split in half enterprise world and the cryptocurrency world including all the ICS I don't want to say either one necessarily become a Segway but what's in the packaging on the enterprise front is you've had multiple vendors try to build out communities ecosystems around that and that's a a real process it has to be done there is no shortcut around that

you need an organic independent community to to contribute code and applications to it so that's gonna happen no matter what or has to happen no matter what and so yes you do need people who are fans but you don't need to become religious about it what's happened on the cryptocurrency side is if effectively since you know that that that huge bear bear run into women GOx collapse all the way up until end of 2015 and all the different you know mmm global and stuff like that got onto the chinese exchanges that that year and a half process in which everything was kind of in the gutter was basically an era of self-radicalization these people like i'm not saying that you know you need to have law enforcement go in and

break up these groups but bottom line is if you look at the the kind of discussions and talked and verbiage that this these maximalists that are still around and very very local today they they effectively became their own religion creating their own religion which has allowed them to cross that chasm to where we are today in the sense that you have cryptocurrency communities some much more bully-ish than others I would say if we're gonna put a spectrum of people who actually build stuff versus people who just sit around and argue on Twitter you have you know the theme community's been very very good rallying developers to its cause you if you if we did any you know actual

metrics to compare you know growth or usability I'd say in a good I don't know many ether I'm not involved in the SEM community directly at this stage I think that they've probably done the best in a sense that they've attracted a very diverse group of participants you have the etherium Enterprise Alliance which is brought in various enterprises around 200 or so different organizations in it and then you also have the end of indie developers that want to you know save whales and stuff like that which is just fine but you full spectrum of people it's not just one group whereas if you look at the Bitcoin core on the other side you know these these these are the heart most hardcore maximalist it that want to like burn down institutions and they're

probably going to use you know their newfound millions to try and do that but I they have not been inclusive they've not been interested in in bringing in new blood into the fold the very cliquish and this is provable because they document this on social media they they say they posted stuff all the time so anyways you have communities are between those two I was just giving those examples of polar opposites and again I don't own any cryptocurrencies and I'm not involved in being paid by you know shills for XYZ coin or whatever I have had these views of pretty pretty consistent over the last few years I definitely want to come back to this in a little bit because he wrote him I think very interesting posts around kind of control in these decentralized

networks but maybe first so the enterprise blockchain space and then this whole you know for example are three but this needs to be a huge amount of kind of momentum and attention around all three at one point there was like new press releases like constantly a new bands joining and it seemed like it was gonna take over the world and like no time at least that I think that was kind of the perception that was generated in the media and and now I think we have had a big shift where we have all this ICO money but attention has moved kind of back to the public ball chain space but most activity is there like new

startups they they I mean there's a few new startups doing Enterprise blush and stuff so what do you how would you characterise like the state of this enterprise blockchain market like how is the progress how much progress is actually being made and then what kind of timeline sure so if you look at hype cycle I would say it's kind of in the trough for sure and how long that trough persists is not something I could particularly guess that but yeah I think that the the problem has a hole for the enterprise space is they did not manage and any of the expectations you had some sat there in some of these vendors went out there and said that you know in six months we're

gonna put all the US equities onto a a blockchain for you know for good and it's gonna be done and that that specific entity was based out here they had initials of DT I won't go into into the the enterprise but they didn't get funding because people realize that's not possible to to restructure the US equities market at least on the infrastructure side so again I going back to my point earlier I think because you had unmanaged expectations you had the enthusiasm from at least the retail consumer crowd that was kind of on looking at seeing how this stuff could impact them when they realized that Enterprise is a long-term build out a

long term cycle and to them it since it's longer than six months they decided hey let's go do something a little bit easier you know quick wins for ourselves and the metrics that we've defined in that in that case it's in this case it's the the ICO world so just to give comparisons if you look at say a dozen or so enterprise or startups working on enterprise stuff so I'll give you examples Digital Lassiter da H by the way they just had that announcement yesterday with ASX they're gonna go through and build out the chest we build the chest platform using a blockchain that they're built out again I'm not endorsing companies I'm just gonna list a bunch so da h x Oney symbionts are three they're all four those are New

York consensus enterprise which is a subsidiary of consensus also in New York and then on the in London you have cobalt DL settle s ETL that IO rise financial and then climatic full disclosure I'm actually still an advisor to both pneumatics and r3 and then on on the west coast you have companies like pure Nova chain although I would wager that chain moves away from from the enterprise space again and then ripple kind of has it does have an enterprise product that they also rely on consumer retail consumers for the XRP stuff so anyways there's got a dozen or so companies in that let this hasn't grown

much over the last year two years if you look at the funding as an aggregate those companies have raised maybe four hundred fifty million dollars had countable s maybe it may be around a thousand so like DEA has about a hundred thirty five are three is about 150 and most of the companies have much smaller headcount numbers so just for comparison I mean it's not it's not an accurate comparison i ce o--'s in the month of june raised about six hundred million dollars I believe the number was six hundred million dollars and you had this enormous amount of conference circuit kind of what we saw at the end of 2015 early 2016 on the enterprise side but that was just in like one country alone in China China alone had over sixty icos

in the first six months and half a billion dollars was put into it before it was I think rightfully tracked down on because the amount of just pure scams we're taking place out there so yeah you have a shift in enthusiasm and I think that was because you had people who were very short-sighted wanting to get rich very quickly rather than to build out the actual technology you still have to even with icos these people that raised a hundred two hundred million dollars three hundred whatever might be you can't bypass the the requirements gathering of the institutions or enterprises or here and in consumer whoever it is that they actually need you can raise as much money as you want you could pay off as many law firms to help you get out of whatever security

situation or whatever regulatory situation it is but you still need to build something that's meets the requirements you can't just take an airplane and hope you convert it into a helicopter and sell it to a bunch of helicopter enthusiasts maybe they've got to try and do that and keep it afloat for another six months or a year but ultimately someone's gonna have to build something and it's not this platform somebody's gonna have to build applications and that's why you need a community that's why ecosystem building is is so critical for the enterprise space and that's and that's why you end up really with it's kind of the consortium model is what people have kind of circled around at this stage we can go into that if you want talk about some of the consortiums out there yeah I would love to get into that but maybe

just one question first so you said that there was no new basically Enterprise marketing companies at this point and it certainly seems like others as little bit more of an outsider to this do you think this is because there's just so much of a head start of the ones that have started and or just because it's impossible to raise money you know what's the cause of this yeah it's it's actually the combination of the above if you are just two dudes of the laptop right now in the Bay Area trying to start up the enterprise infrastructure company you're not only late to the party but you're not going to get capital because the end user the customer infrastructure for financial infrastructure are these large investment banks insurance companies and regulators so if they're not already

part of your team or your conversation or you don't have advisors who used to work there or whatever it might be that's probably done and done on that end now that's not to say that the dozen or so that I just mentioned are the ones that will be victorious you have large enterprises themselves like Oracle s ap IB M Microsoft to budget that in the capacity to to acquire these companies and just you know Oracle I'm not saying they will do it but they have the balance sheet to buy all dozen of those companies and not really blink much of an eye again that's a hypothetical I'm not saying that they will but yeah I think you need a lot of capital it doesn't to build that financial market infrastructure there's an extra term for

viewers who are trying to understand this I've written a couple posts about FM I specifically around infrastructure that's used by regulated institutions there there's something called PF on my principles of financial market infrastructure and to build against those requirements is costly it's time consuming so I don't want to you know depress anyone from from joining in that space but I would instead of trying to build out more infrastructure I would look at building some applications on top of the the platforms that are that are coming into maturity so again I'm not gonna go into you know which ones they should or shouldn't that's a whole nother conversation although we can argue about that if you guys want that's that always makes for good fun so I would agree with you that having that it

would it would in fact be difficult today to start sort of an enterprise blockchain infrastructure startup if you don't have those advisers if you don't have those be in your capital for instance I know that in in our case it's been extremely valuable to have insurance companies invest in the company and to have those people sitting at the board and being pied advising the company however so I'd like to I'd like to come back to this idea of rolling out this technology in within enterprise and you know a lot of these stops have been you know are three included had been working on this for two three years right I think chains founded now three years ago they pivoted

to enterprise maybe maybe be like one year with an afterafter being founded and so far a lot of enterprise and I think this is true across the ecosystem regardless of you know how many press releases IBM puts out that for the most for the most part a lot of this is still at the POC or some sort of you know pilot with multiple companies like some consortiums are experimenting at a higher level and it's it's taking a lot of time to actually get anything done right or get anything implement and production why do you think it's taking so long even you know even for companies that have all this industry experience

and then this industry advisory and industry investment why do you think it's taking so long I mean I have my ideas but I'd like to hear yours yeah it's a combination of two different things by the way I didn't mean to leave off a stratum in that list that was thinking it's three specific cities to you guys certainly have been the nice of a poster boy for for France on the enterprise sides the congrats again on the on that momentum you guys have with that so with the why is it taking so long to go from proof of concept a pilot stage there's a couple different reasons in fact if you if you want to have on your show I recommend bringing in some guys like Clark Thompson he he does some of the the projects over are three in New York and

he was a first person to explain you know the PF mi stuff to me a couple years ago he just a year and a half maybe two years ago so I was pfm I it's principles for financial market infrastructures a list of recommendations for if you're gonna build out mission critical infrastructure for regulated financial institutions what should that look like and how should that how can you do it such that it reduces risks instead of increased risks because did this was these were formally formalized after the the financial crisis so that way to help at least on the infrastructure side prevent you know basically snowball domino effect kind of problems of entire systems going down in case you know

contagion took place anyways um I think the just touching legacy infrastructure you know these institutions like to DTCC or any of these central banks that exist they have infrastructure that they can't just turn off and you can't just put your your code or your network blocks or whatever these things you're trying to sell into an institution you can't just turn it on and put everything in production on that you have to run things in parallel so just from a capital standpoint to go from that first meeting with an institution like 2d TCC or central bank and then get them to approve a POC Eric Hauck and then have

that POC you know check all the marks go through committees to have you know then you know bring up highlight other issues to do in a second you know version or third phase or fourth phase then into a pilot and then into a parallel system and production and then into potentially production that could take multiple years and millions and millions of dollars and you need talent to do that so I think that that is something you can't just ignore and or there's no quick way to move your wave your hand and get rid of that that whole process unfortunately the the community thinks that once you've built a pilot it's good

as gold but unless it's in production and you're generating revenue from it that the institution may not use it to them they not only want to save money through reducing costs but they want to be able to generate new revenue through business lines or with in business science if you can't do that you won't have the support for from the actual managers inside you can get the support from a be innovating teams but that only lasts for you know a year so I'm sure you guys have seen that you know plenty of innovation bank offices or the even insurance companies have their own innovations team I'm not saying to belittle them but at some point you have to deliver value that's core to the excellent institution and unfortunately for most of these news vendors out there especially at the end of 2015 early 2016 that pivoted into it

they did not have a really good idea of how institutions worked and I won't name names but if you if you go to my I have a blog post it's called the great pivot for those who haven't been to my website that website hold up numbers numbers comm just go type in big pivot and you'll see a number of companies and at one point Adam Draper from boost loose PC he's like yeah you know I tell my portfolio of companies to call themselves a blockchain company in a Bitcoin company because because banks aren't interested in Bitcoin right now that's something that effect like he's just creating more noise by that kind of advice because then you have this euphemism everyone called themselves a

blockchain company throughout 2016 and so it made my job actually much harder because I actually had to go listen to every single one of these guys is to make sure that our three and you know any of the stakeholders inside arts we weren't missing out on some of these companies so I had to listen to all these crazy pitches it even became even crazier because people came desperate when they realized it's you know that traction wasn't occurring they need more money and then they end up going becoming you know Bank consultants or ICO makers or both and there's nothing bad about being consultants of large institutions there's you know you're still creating valuable things but at the same time if we did a post-mortem on these companies that claim to have built enterprise infrastructure they didn't

they all he did was fork Bitcoin typically and attach some kind of colorpoint you know mechanism on there and then say hey yeah I know you could digitize assets and and you guys are able to move your entire you know Treasury or port for whatever you've had internally it had lots of money on it or in it they said that this was a solution for it so yeah it was mostly decided half-baked or like quarter baked or you know just ingredients on the table that's that's kind of how mostly startups came two years ago so if I can give give my thoughts on why it's it's it's been challenging to move forward or why it hasn't picked up as as quickly as we hoped it would have one of the reasons one things we've served is

oftentimes there's especially when dealing with corporate investors we have corporate investors there's a disconnect between the venture arm and the business lines so the venture arms are interested in investing in these companies and with the hopes of being able to bring this technology to to production within the company and it's sort of a strategic investment for them and also for us as a startup but then when we actually start talking to people in the business lines they either don't know about it don't care about it or have some of some sort of an annoyance that at the fact that like oh this you know the VC line is trying to push this technology onto us when like we don't need their help to

learn how to do our jobs so that's one of the impressions that I've gotten is that there's a disconnect between venture and the actual business and the other especially when dealing with large institutions like insurance companies is just the political and you know I don't know if this is different in the u.s. i but the the political navigating that you have to do in order to get the right people on board this also creates obviously some some problems one one to move forward with a project and and I think that in order for any of this to move forward and to go to production what what I'm really seeing is a

necessity for for there to be a homogeneous harmonized strategy horizontally across the across the company and you know we can look at recent technological evolutions yeah so if you look at say you know digital or e-commerce or mobile early on very similarly these new technologies are sort of part of IT or part of marketing right or they're there in one department and they're very compartmentalized and the companies that have come out of that successfully or companies that have crossed that chasm I guess in a way are the companies that have implemented a high level strategy at the epoch at the executive level and

that execute that strategy horizontally across all business lines and I don't think that most companies and insurance companies and large institutions are there yet perfectly we should do a podcast with just Sebastian show and then do niceö all right cool well let's let's move to the the thing that's an exciting everybody right which is this whole I mean we are now in the bubbliest time we have been in in this industry since certainly 2013 although now it's all on a bigger proportion I would say there I think I said the level of

enthusiasm or I think it is a little bit more informed right back then there was just like boundless enthusiasm even in including ideas like you mentioned before right the idea that okay Bitcoin is gonna be useful like payments everywhere and gonna like disrupt Western Union in a year and stuff like that like now I don't think there's the same kind of insane expectations around Bitcoin and some of these things but still like we have and just a wave of new people coming in right if coinbase adding what was it hundred fifty thousand user or something at the other day and and I'm sure you guys have the same experiences of all these people

like asking hey I want to buy Bitcoin how do i you know should I do the especially dad what about a Yoda like so many questions about oh I get I oughta all the time yeah so yeah what's your take on all this what's what's going on and what how does that make you feel yes so if I'm looking at my phone cuz my mom sent me a message this this morning and she said someone names such as such sent me a text asking me how much money he should invest in Bitcoin I told him all of it not not really but I gave him your email address so people are reaching out to my mom to ask me or effectively what these things are and that's been happening for its

whole year because people knew I was involved with this stuff fairly early on number one I if you were going to take a defining moment of speculation and use it as a case study I think that's truly what's happening this is not John Bogle he's the he's a creator of the founder of Vanguard Investments Vanguard was one who popularized index funds in because people as a whole as a new at you and I are not particularly good picking the best performing stock every single year ticket out to form the market or at least stay at par of the market so his thesis is hey what if I created an index fund that you could invest in that represents say the S&P 500 so you mess

in there and that way you don't have to invest in each 500 company or you didn't have to invest in you know a couple companies that you didn't know much about just so you could stay in that performance game and as a whole if you had done that strategy invested in companies who have equity who have cash flows who build products you would have seen enormous wealth gained since the 1970s since he created Vanguard and he has a good valid point about investment versus speculation you have in a given year I think he says in the u.s. you have about 250 billion dollars worth of actual investment either IPOs or secondary offerings things like that whereas everything else the the trillions of dollars of trading that takes place is actually speculation it's

just people betting against each other and he just recently said hey related to cryptocurrencies specifically Bitcoin he sees this is pure speculation these assets if we want to call them an asset don't produce any value themselves if in the same criticism goes for for gold and silver and stuff like that so I think that if you're genuinely trying to be an investor you would try to get equity and companies that are creating value that there are actual products being built that create utility if you're only trying to get in on speculative mania then you could buy these things I firstly I don't even call them assets I called them network based bearer coins I actually have a post

coming out about that and that's because they are bearer instruments in the sense that you need to control the private key but I don't think it's fair to call them their own asset class when you could fork it you can't even for gold you can't fork silver and I'm not saying the the this stuff is gonna crash or burn but to to claim an asset is an asset you have to you have to prevent anything from from removing the scarcity of it in these things aren't scarce we've seen just this past you know a couple months multiple Forks of Bitcoin coming out that it's just easy to to to clone off you and I all three of us could come up with our own versions of you know like

coin cash like Quinn classes yeah if it means check the guy I mean of course that's true when it comes to the code base right like the software you can just copy you can create a new network right but then the network effects you cannot just pour right that is very very hard and and even if you have these like Bitcoin Forks like become cash well okay there's some network there but it's much much weaker than Bitcoin at this point become gold I don't think anybody cares about that Wallace don't even work like nothing works but nobody is really seriously interested in this project so I I know I think and as you pointed out earlier right they did the challenge is

building this like ecosystem and community around the etc I think that's very hard to fork so I I'm not sure I see I agree with your point that this is a major something that like undermines the value of some of these projects sure but what is the ecosystem the Bitcoin today since they're not interested in doing on Unchained payments and they keep on using the trump card oh well later too late later shoes is probably the the best you know sleight of hand the any any developer could have done by selling future utility in something that technically hasn't been built yet again I'm not gonna go into the whole lightening debate and stuff like that but bottom line if if

we're looking at utility and stuff that's advertised and marketed for for specific platforms I wrote a paper in May it's not published but it was on I cos I was trying to explain to internal management or three on on why I see is were important enough to pay attention to in the sense that they'll you know be able to attract talent making it much more difficult to hire you know developers and stuff like that on enterprise platforms but bottom line is if I looked at twenty or so I SEOs for 2013-2014 and I looked at some of the the mark the the marketing material around them and the things that advertise and effectively none of them achieved any fraction of those goals maybe they will eventually but not in

the timeframe up through you know mid 2017 did they have had they done that yet the price of each of these coins was basically seeing all-time highs I'm sure if we looked at it again today definitely all-time highs but so to me it there wasn't like an actual community of developers building stuff it there's a complete divorce between the enterprise value of what these networks provide versus a speculative value and so so I'm saying I'm never gonna go on a show and say hey it's gonna go down to zero or fraction says whatever there's a there's a separation between those who truly want to invest in platforms of create utility and build communities around that and I know that you guys are trying to build communities as well you're not you never struck me as someone who's a pumping Brian coin or

something like that although I want to get on there not yet oh yes yeah I I don't think the price is necessarily a good accurate measure of the utility of the system you have effectively in the last what two weeks the price of Bitcoin is almost doubled from from under 10k to it's gonna be probably 20k in the next up I'm not endorsing prices or whatever but my point is is in that same time frame you didn't have a doubling of capacity on the network you didn't have new features on the Bitcoin at all like there's been no new upgrades to it significant in the last couple weeks yet everyone is piling on because they know other people win to pile on

it's a it's the textbook definition of I don't wanna stay the greater fool theory but effectively a speculative mania where people know that it's gonna go up because other people going to buy into it so I'm again if we're looking for four ball posts to measure success of platforms then III don't think that you and I need to come up with new ones we could just look at our old videos from you know a couple years ago when we were talking about what we're what would be those metrics it'd be actual users using something for payments and nobody even to disclose his payment numbers anymore up steam just yesterday announced that they're no longer accepting no Bitcoin is a payment because of the volatility and fee cost so I mean if we look at the same things that we've talked about in

collecting data of different companies what they're doing in this space the only companies that are really successful and actually do talk about some some numbers are are the exchanges and maybe some of the miners but even with the exchanges you mentioned I think the coin based number Sebastian the the challenge with that is that those aren't probably actual even users they're just maybe buying and holding a little bit of cryptocurrency and hoping it goes up we saw this from from the IRS lawsuit coinbase was sued a year ago by the IRS saying hey you guys claim to have a million users but we've looked in our records and there's only about 900 people a year who file taxes so you know what gives and either you have a lot or

you don't and we need to we need to check this out so in the suit that they lost the coin base appealed it but they are gonna have to turn over records fourteen thousand one hundred fifty five individuals who traded I believe at one point losing it was either twenty thousand dollar trade or sixty thousand dollar trade it was it's actually twenty thousand of a year yeah okay so but bottom line is if you look at the the millions of users they have really the only there's only a small percentage I think claim base that 97% of of its users during that time frame between 2013 and 2015 are not it all impacted by this ruling so if we look at the numbers that are being

added today you know the hundreds of thousands again my wife and I both have verified accounts and claim base we've never used them but we're gonna be counted towards that number so it's people trying to get stuff on there it's still very difficult to move money onto these these platforms and you have limits and stuff like that so again I'm not saying that there won't be the coin base won't be successful or some of these other exchanges won't generate revenue but I think that we have to take the the user numbers not even at face value you have to dive deeper in to see how much of that activity is actually taking place per user and how much revenue is being generated so all the simple metrics that we have for other enterprises or other companies that are generating revenue I think can be reapplied to this space too and it wants

to dust settles once once people stop being manically fear of missing out I think that those measures will will continue to take place irrespective of what the price of Bitcoin may be yeah I mean I think there's it's a little bit of a differentiation here right where you have some people who are basically trying to build these networks where you know they would derive their value from the usage of the network right and there's some sort of like you know almost almost like a decentralized company right where you should baby basically be able to do some kind of discounted cash flow type thing you say okay we need to have this kind of usage is kind of feast and then you can try to fight this kind of price and then at the

same time you have something a Bitcoin right which i think is very very different right because you can't do that kind of analysis there it's literally just okay how much do people want to hold this thing and yeah at this point it's certainly holding more than spending or using it in any other way but you know hold this thing that has certain attributes like well you can control yourself like people can't confiscate it from you you can sort of send even though it's expensive and somewhat slow but you can sort of transfer it so having something like that you can't really value it there's no basis on which to value it properly and I think what's happening that's why I think in some way you can say okay big point of

hasn't gotten so much more useful you know as the prices gone up but it's also there's no basis for valuing it I think what's kind of crazy though is when people conflicted to and they basically value these things there are more like businesses as if they were this asset that doesn't really have a basis for valuing it and then I think you get this like really crazy prices and valuations especially around icos and different coins sure so I guess the two thoughts I had about what you just said these are good points by the way thank you for being you is that Jesse Powell I'll call seeing either interview or an email conversation I don't think he'll

be too angry about mentioning this this was a couple years ago this is actually I think at the end of 2013 early 2014 when they had that first big bubble up to a thousand or whatever it was and he mentioned he's like guys look you know I put my own say because you know trough of Bitcoin into paying developers during this time frame and and one of them just retired it was like one of his German employees because they retain you know he paid them a thousand you know bitcoins now it's worth a thousand so the guys paper millionaire and I'm sure it's worth you know significantly more today obviously if that person had held and didn't sell but you have that conflict but for entrepreneurs right now in this in in

the sense that if they instead of actually building something they could have just bought coins with that money and seen had seen it go up so why bother building that utility at some point someone will have to build it and then we will have to be able to then we will be able to measure again I think using these traditional metrics of usage and if you can't meet those you know those KPIs and the valuation obviously it's gonna change got me connected to that the ICO that that that fraud that took place this year too but I don't think that there's new economics I don't think that the old ways of valuing things it's it's correct to necessarily throw them out and that and I think that maybe way of actually valuing the network at least

there's one arguable way Rick felt vinge the guy who co-founded the The Pirate Party I'm not endorsing him or his politics or anything like that but he a couple years ago basically said hey if we if we values a network based on its usage what does that usage based on what we know and he was suggesting it's based on the illicit goods darknet markets specifically I believe the price of marijuana I'm not saying that is the price but he was saying you know at the time I think the network was a coin was worth like four hundred dollars and he was said yeah as it costs to buy like a gram of marijuana it was like twenty bucks or something like that so the network does that again I'm not saying

that that is the example to or these that the the basis for measuring how much a Bitcoin should be worth but it's some stage once the mania ends being able to try and value the network based on some kind of usage seems like that would be the most proper way of doing it but again you know the markets don't necessarily care what Tim Swanson says how to value it and I'm sure my tweets after this episodes released will be filling up my notification saying how stupid and backwards and how much of a corporate you know baby-eating chill I am or something like that so I look I look forward to the very creative adjectives people throw my way in the coming months what excites you about

this technology like what are the things that you like want to happen that you think like well this would be so great for the world or this would be so interesting and like so fascinating that cool what you want to happen sure so let me only answer that with with a question so Simon Taylor if you guys don't know he runs an organization called a limit of London he has a also a interesting podcast as well and he sent me a message actually the other day was I have these funny if you if you guys think I'm really critical but cryptocurrencies and watching so you should see my movie reviews I watch my wife and I watch you know movies every other week or so and I post them typically on Facebook or something like that he said Tim what movie do you actually like because I I make fun

movies just in the same way like here's a whole usual whole and so the same I guess if he was gonna ask me the same question what what am I really interested in in broadly speaking I think they on in the FinTech world is actually it's things like advisors not because I have any stake in wealthfront or betterment or something like that but because it reduces the amount of fees collected by these tolls these intermediaries and I think that that's the same thing the John Bogle did John Bogle with the Vanguard and index funds and Robo advisors I think have done more for the betterment of to use it that phrase of humanity is I don't think very argue I don't think you could

argue against the fact that they've reduced the amount of fees to where these entities in the middle these asset managers are now on the defensive having to reduce their their their expense ratios on a monthly or yearly basis on if you look at the amount of money that's flooding into ETF for this very reason you know you are basically having a race to zero and that benefits all consumers and all investors because that money is then that would have been spent on expenses it goes back into the actual economy if you will it's not being extracted by these these third fourth fifth parties so for me I am optimistic of being able to reduce the amount of

frictions and intermediaries involved in the process of handling finance to give a number another number that the Federal Reserve published a paper last year on the amount of payment clearing and settlement transactions to take place each year actually they do it was a ledger paper but they mentioned those 600 million in the US alone there's 600 million payment clearing and settlement transactions that take place every single day in the u.s. worth I was like north of 10 trillion dollars that was like 11 trillion dollars in the paper um I'm not saying that what the value should or should not be but there's a set of bits instead of money being extracted from all those transactions if you could reduce that to as little as possible then you're basically allowing

those who are least capable of buying or selling or trading money across you know commerce commercial entities so I don't want to make this a plug for Financial Inclusion because I think that that's been a very much abused in the FinTech circles you go to all these different sayo cryptocurrencies or blockchains you're gonna sell you know financial I'm sure you've seen it you can roll your eyes because you've heard all these people stand up and say oh we're gonna save people in Africa from you know these transaction fees like nobody number one really does that there's one one guy I know in the Philippines Ron hos who does do that again I'm not endorsing his company coins up eh but he Jen he could have sat out here in the

Bay Area this cushy office tweeting all day but he's down in the ground pounding the pavement trying to build out actual utility for people who don't have existing infrastructure that you and I enjoy in the developed world so my point was all that is optimistic that despite all the hype in the mania that when the dust settles there will be genuine reduction of frictions and intermediaries involved it will actually help not just you and I with our reward points for miles on our credit cards but would help people who genuinely have no other alternative intervene you know basically charge exorbitant fees the it shouldn't be there in the first place so we mentioned earlier that you recently

left r3 and that you've now founded a new company called post oak labs can you tell us about why you found this company and what you're doing it's a post oak well if you're not from the southeastern or southern parts of the US there there are trees called post Oaks oak tree and I literally when I when I was leaving I was looking for four names that had had not been taken so I went through a whole list of 200 tree names GoDaddy to see if required so the idea with Post Oak it's not so much about the name is the idea was how can I take the the knowledge and

education I received by being in art 3 in the sense that these all these really clever smart entrepreneurs coming up to us talking to us and informing us what's going on and then learning from you know their the hardship so they had to endure and then basically giving that kind of similar education to clients in the space so as much as I made you know fun of some of the participants in this space who were hot-headed instead crazy things I think there's a lot of learning moments that we can have and I'd like to try and help out those kind of entrepreneurs willing to listen to that so the post o is is an advisory company basically providing impactful strategic device on the FinTech world specifically

most of my clients right now are related to doing something related to a blockchain or distribute leather technology or whatever we're gonna call this stuff and about half of those are doing something with a cryptocurrency so as much as people think I hate cryptocurrencies I don't I think that most of the the use cases and the rhetoric around its complete BS but I still think that you could potentially do something useful with it and so I'm going to help clients with that and they're global at this stage and I don't see that dying down anytime soon people very interested in seeing how they could use this type of tech for the time being and I'd like to help out the community as much as I can make good rational decisions if I just disappeared and didn't stick around to help out the the overall entrepreneur world then I think

that would be a waste of of a few years when I was being again educated by the school of hard knocks this market and difficulties of going through the enterprise sales cycles and stuff like that said yeah it's a it's a one entity that I'm working with there'll be a announcement with me joining as a partner is another entity soon I'm not gonna unfortunately disclose that on air right now but then I'm also working on another side project too it's a consumer facing wellness app we'll see if that gets a gets anywhere it may not again there's a gazillion different types of phone apps out there but I feel that you could use some of this technology also to to help out people incentivize wellness but again not ready to really go into that

at this stage oh well things thanks so much for coming on and thanks for sharing these plans now there was quite a few things actually we wanted to talk about cuz you you are a man of long blog posts and some of them are very interesting so we're gonna link to them in the show notes if people want to check them out I do recommend that tickler there's one which is quite quite interesting about like for the administrators of blockchain so it's basically kind of exploring okay to what extent are they really decentralized to what extent is there control by certain groups and to what extent does that create like legal liabilities regulatory risks etc so I think that is a very interesting topic especially avec where it's gonna be interesting is is with

projects that you know started out in a centralized way mostly but then they have to Center us over time I think to kind of live up to the promise and you know to what extent they're going to be able to do that I think that would be very interesting to see so yeah thanks much team for coming on as always it's been a pleasure so please keep keep doing your work publishing your posts and and all the best with your new project thanks so much guys that see in a few years what on the moon indeed yes where you can plant your post oak tree then I'll give you some seats well yeah thanks so much also for a listener for once again tuning in we are gonna be back next week in any meantime

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