Bitcoin's Early Days and Eternal September - Luzius Meisser, Bitcoin Association Switzerland

Transcript

[Music] hello and welcome to the blockchain and us we're pioneers and thought leaders talked about their journey in blockchain technology crypto assets and a token economy and I'm your host Manuel staggers this episode is brought to you by crypto storage crypto storage offers a proprietary solution to enable professional storage of crypto assets the storage is secured both physically and digitally on the highest grade hardware security modules with detailed configuration possibilities for individual based access control to learn more visit WWF dossier CH my guest today is Lucia's my sir

Lucius is a computer scientist and very early Bitcoin adopter and the co-founder and now board member of the Bitcoin Association Switzerland he is also an entrepreneur and investor in several startups and the founder of miser economics which focuses on education and consulting at the intersection of economics and computer science and now to the interview hi Lukas and many thanks for taking time today hi I'm Anna nice to be here good since we spoke almost two years ago I think about thin tech when I made a film about FinTech in Switzerland and you spoke mainly about your view from the Bitcoin angle in in these two years

quite a lot has happened so which are the major changes that you have observed so the most dramatic development was the whole ICO wave so we've seen lots and lots of I SEOs at some point in time more than a thousand I see us were running concurrently and this is now coming to an end so there will be in my view a professionalization of the ICO market which means that firms have to actually offer something today and ICO is essentially a donation and if the founders are crooks they can run they can run away with the money and the investors cannot do anything

and this obviously is not sustainable so what needs to be done is we need to create equity on the blockchain but for that the regulation is not quite ready how many of these icy OHS came out of Switzerland a lot I don't know how many but Switzerland is one of the is one of the first destinations to go to when you do an IC o---- because I remember last time we spoke it was this whole discussion is Switzerland even a good business location for FinTech and for crypto companies at all and since then I think also there quite a few things have improved yes so we had so here it is it's very early I see here in Switzerland with the foundation model

which was also used for example by tezo's where it backfired a little because one of the drawbacks of the foundation Nautilus that you have to actually be present in Switzerland sells with losses a foundation needs to be governed by people who live here so if someone from the United States or anywhere else comes here and they want to use the foundation model they need to use someone who is here if they don't really create here themselves and in that case they they appointed young gamers and then they had a dispute with him which is now resolved fortunately but this was this has led to class-action lawsuits that are still pending and this is one of the risks and

other ICO models are not structured around foundations they are trusts issuing tokens for money but they are not attaching any promise to it so and it here that's also risky and in my view a ticking time bomb so there will be disappointment in the future and the important part is to do is evolve to the next step mm-hmm and Switzerland is trying to give investors I think legal certainty but also companies who want to do an ICO so you know maybe they are making some steps in the right direction yes there's the feed my guidelines with which helps a lot I think it was the first financial market orgy in the world that created such clear guidelines if

you look at the German guidelines which are issued a little late they say more or less the same but in a much more complicated manner so the Swiss guidelines they're understandable by me but the German guidelines they're referring to paragraphs and whatever and I don't have a clue what they're actually saying so I think the Swiss have a very good tradition of making legal statement understandable to computer scientists like me so you don't need a lawyer to know what matters and what you need to do and there's also a task force by the federal government that is looking into how to regulate everything and what regulatory so it's

not about how to regulate it is about what steps need to be taken to enable certain blockchain use cases like equity on the blockchain and at the same time Lichtenstein is also stepping ahead so they are creating a blockchain law to allow entrepreneurs to issue actual equity on the blockchain and hopefully also to trade it so this is I think these are the two main obstacles first the issuance of equity on the blockchain and then to actually trade it because both is heavily regulated lootus since when have you worked with cryptocurrencies so I first learned about Bitcoin in early 2011 and then I

bought my first Bitcoin a little later I think in March 2011 or so mm-hmm from this very early beginnings of you know buying your own Bitcoin how did you make you know this progression into shaping the legislation so at one point in time a member of Parliament's at the Federal Council needs to investigate the risks of Bitcoin and then I said this is very one-sided so I went to a friend who was leading the parliamentary group of digital sustainability at the time and as I mean we need to issue a counter statement then one motion came out that said the federal council should also look at the opportunities of Bitcoin and

these posed issue directly result than in the federal country's report on Bitcoin which was quite early but quite new also very neutral so it's it but it also provided some groundwork where others could based or legal opinions on and this is something that is also very specific to Switzerland that that because the Swiss law is quite principles based it's not only the law makers that makes a law it's also the judges and the scholars so if a professor says that's how the law should be understood this can have an impact on what it was actually practice and what what is possible and here we see a very

interesting development this year so there's been three papers two by a professor and one by Luca Miller and one of his lawyers that came out yesterday also and they all strongly went in the direction of saying we should not take the word vert appear that's a cute term for security literally it should there shouldn't be a puppy or a paper in it so it should be possible to have the security paper read out paper and they argued at with what local middle class functional equivalents that they said we should look at the function and not the literal

meaning of these words and and this is one way where you can effectively change the legal situation without adjusting the laws themselves just by saying that's that's how they are actually meant how does it work to to create these regulations so so there are these different levels so there's the the scholarly interpretation is but how do how does this interpretation flow into the actual regulation then that is supplied in the market so when a government agency tries to apply the regulation and is uncertain it looks up the literature and looks what the two

scholars say how this should be applied and that's how it is how these scholarly opinions can shape what is actually happening and what is possible and also they often provide new ideas of how the ten things be understood that that to enable certain things so and this is in the past few months that have I think a lot has been enabled through that way but there's also on the lawmakers front this is a lot going on so there's for example one proposal that says bitcoins should be extractable in case of a bankruptcy like physical property that's not a paper that you

wrote about that yes I wrote a paper about that and there's actually a law in the making that codifies this and makes the disadvantage when it actually is explicitly stated in the law you can be certain about it it's not just an interpretation but it also takes longer and is less flexible so this is there's a trade-off you come to all of this from entrepreneurship yes so you started your first company when was that in 2007 in 2007 yes and that was as cloud storage yes an encrypted cloud storage and then how did how did you get what what happened between 2007 and 2011 when you

got into Bitcoin so a lot so we sold that cloud storage company and I got into Bitcoin I co-founded Bitcoin Association Switzerland I I also did the second master's in economics how did it happen that that you co-founded the Bitcoin Association in Switzerland so we sat together and that something needs to be done we need an association like that because I saw the early bitcoiners the handful of yes yes yes so this is actually quite interesting in the first Bitcoin meetups in Zurich so if you look at who participated in there it's like a

who's who of a lot so that there was there maybe 7 to that met and there was Mike Hearn or Stephon Thomas or PT relay or Christian Decker lots of people that are now very influential in the crypto scene and you said this isn't going right we have to create an association so actually this was Stefan Greiner who said we need an association we need to have a public face and the president should be a Swiss guy and not a German guy like me that's what he said so so we said okay I'll be the president but yeah it was not my initiative actually but what was the goal of the Association I mean what was

the realization why it was we want to provide Bitcoin with the public face so that if journalists ones want to write about Bitcoin he knew who to ask and in the following months I actually had to redact quite a few articles other journalists they wrote something about Bitcoin because they had to but they knew they actually had not much of a clue about it so they sent their articles to me and I said this is wrong or this should be so I tracked the technical details so and nowadays this doesn't happen as often anymore because I think there are many more experts but in the early days I think this was quite important in and also just getting

things right and not distributing things so there are still a few things that are often repeated but wrong for example in a legal literature lawyers of the right bitcoins are data or cryptocurrencies are data and this is wrong because bitcoins are not data they cannot be rapid current cannot be represented by a series of zeros and ones it's the blockchain that consists of data but the blockchain only says where a specific Bitcoin is it doesn't contain the Bitcoin itself so what is it then if not data it's it's a fictive asset it's

something that's so it's it's quite abstract it's like for example a copyright it's also something that we invented it's nest that you can buy and sell but it's not something that exists in nature and like so one philosophical question is what happens if we delete all the copies of the Bitcoin blockchain do the Bitcoin cease to exist and I would say no so for example to copyright I think if you burn all the books all the copies of a specific book the copyright doesn't Fenny vanish it still exists it may be useless but the copyright still exists

even if all the books have been destroyed and similarly I would say a Bitcoin still exists even if you could erase all the copies of the Bitcoin blockchain so if somebody deleted the whole blockchain bitcoins would still exist yes it would not be very useful anymore because it would be very very hard to prove that you actually owned some of these bitcoins but it's like another abstract thing we have is the soul so when you die people say your soul still exists and the same I think applies to Bitcoin Bitcoin or all these cryptocurrencies they're just something an abstract idea of an asset and the blockchain is just there to tell where

they are who can control them but the blockchain doesn't actually contain them mm-hmm that's quite fascinating did you when the into early meetups were those the kinds of discussions that you had no no yet I think much more specific problems and issues actually the very first assembly of the Bitcoin Association is available on YouTube it was recorded and one of the discussion points already back then was the difficulty of getting a bank account so there was a lot of about practical problems mm-hmm when you when you got into in touch with the white paper and and Bitcoin and

maybe then the whole concept of the blockchain how important for you was that philosophy or that ideology to me at first I think it I'm more like something a practical thinker so I found it fascinating that someone created something Digital peer-to-peer currency that actually seemed to work because this is an old problem and as a computer scientist with a special shine in disputed system I've been thinking about this problem myself and I haven't found the solution so I was aware of the difficulty of the problem and then I saw this solution and it looked like it worked and it does so far let's go back

from from today to 2013 I wasn't in the space back then and and there weren't that many people really who have seen how the whole thing developed into what it is today so I'm just wondering what what were those first steps and what did this kind of this kind of ecosystem what did it what did it look like back then so it was much smaller obviously necklace from be transverse was also there at the Assembly and one of the first projects we did back then is clearing product life clarifying the legal status of Bitcoin regarding v80 it was unclear back then whether you have to charge reiative and selling bitcoins and which is important to Niklas because that's what he was yes and fortunately

we had a positive answer from the federal tax authorities and I said it's not v80 taxable so basically that's that's exactly before you said you needed a face right for Bitcoin and some kind of expert body with the Association so let's say a question like this right is this even how is this taxable and how did he how did I was a taxable with v80 so you you then went to the tax authorities and said look here's the thing called Bitcoin people are interested in trading it how should we deal with this tax wise or how did this work so my wife is an expert on vit law so she knew the right experts and and one of the authors of a very influential

VT book so we say he's the VA tipo prince with London we asked for his advice and he helped us drafting a letter for a for the tax authorities and then after many months he finally got an answer so this is not the fastest process but at least he got a good answer and then also the first companies I guess started existing they have the first crypto company I think bitcoins face has found into her 13 PT was also very early Alexis Roselle is the fan of PT he was also for quite a while on the board of the Bitcoin Association and other companies stopped existing so some of

them disappeared again but but now I think bit confess is now the largest Bitcoin companies excellent let's take a quick break for a message from our sponsors crypto storage is part of the crypto finance group providing services for professional financial intermediaries and therefore bridging the gap between traditional markets and blockchain technology the storage solution offered by crypto storage raises market standards by introducing a new security paradigm which features two layers of dedicated and redundant hardware devices this setup allows for a dedicated independent and highly flexible multi signature framework all transactions can be independently

reviewed and approved on a dedicated tamper-proof hardware the hardware security module the tamper proof signing devices and the tailored software solution are all developed by leading Swift providers with vast experience in finance and IT security to learn more visit WWF no storage eh which just spoke about some companies that started existing Nikolas I interviewed him as well and and not in our interview but in other interviews he talked about how all of this was kind of a Brotherhood at the beginning how did you experience that yes yes this was very much the case I think it was very similar in the earliest day of the

internet before the so called eternal September I don't know if you're familiar with the term so in the early days of the internet people discuss on the Usenet and there every September the new students came to the universities and where for the first time exposed the internet and start discussing there and they didn't understand how to properly discuss online so the Neva went way down and it took a while after September to restore it and to bring ERISA run up to speed and to teach them the netiquette how to talk to others not to insult him not to troll and so on but at some point in time so many new people came into the internet that it wasn't possible anymore

to restore the old high level of discussion and this is called the eternal September so where because it felt like always September with so many new people coming coming in without understanding how to have a good discussion and I think this is something that also happened a little in the Bitcoin scene like we had an eternal September so many new people came in that you stopped knowing everyone and it's so it was and so it's not a family anymore in the beginning it's like a small conspiracy or against the world and you have something completely new and then you want to shape the world and today it there's a lot of commercial interest as

if you look at the number of associations in Switzerland so their speed Khan Association which is the earliest and we still operate like back ten so you're not profit oriented the organized events we don't charge entry fees or anything we don't make any money with these events and what we care about is spreading and giving people information and allowing them to give a platform for the open discussion and this is in stark contrast to the countless conferences so there are many many conferences out there that are just about making money so they charge 2000 Swiss francs or so to participate and they sometimes even

charge the startups that want to present their so it it there's if there's a lot of money around it attracts people that want to make money and this I think this has changed a lot it's not I think in an ideal world you should meet because you're interested in topic and you should organize a gathering because you like the topic and not because you think that's an opportunity for making money and this has changed a little so I think that the old things still exist but you have to look more carefully for them for them mm-hmm I mean is it that it's maybe become a little bit too successful too

quickly for its own good almost yes I think we are in height which is now collapsing so that it's Bitcoin exchange rate went down from 20,000 to now a little above 6 and it could go down further I think this is a healthy development there also for the IC awesome as I guess many tokens the value of many tokens will go back to zero when people realize that there's not much behind or run projects do not don't get completed you can also see that so if there's quite a few tokens that try to be next easy room like the one blockchain for all smart contracts

and in the long run only one or maybe two of them can win that means all the others have got to pass it to Paisley's 0 and that means that a lot of money will be burnt and lost mm-hmm do you invest in crypto companies sometimes but I never participated in IC o---- I know you you invest in some FinTech companies when you do that what what do you look at so it should be here in Zurich or at least in Switzerland because I want to be able to meet the founders regularly do to stay in touch with them I want to understand the legal environment they operate in so it should be based in

Switzerland and I want to note so I want to understand the business idea I want to know the team so as the team is very important it should be a balanced team of no one should be working part-time for example I would never invest in start-up where people are working part-time and then the idea should be good so it should be something that where I see here potential and if this all comes together and I might invest and how do you evaluate if the team has this entrepreneurial fire or not I mean you mentioned just with the part-time let's maybe one indicator that they're not fully that they haven't fully bought in into their own idea but what else

well it's hard to tell it's a gut feeling and that's also why it is important to physically meet them and not just have Skype calls because that doesn't somehow that doesn't work for me mm-hmm do you ask them questions when you mean it or we just talk I don't know it's I think I don't have a very elaborate process it's this why maybe you're not investing in nice use because maybe yeah maybe it doesn't fit my also I think they are all overrated so even for those companies that have maybe a good idea let's say Texas has a good idea it's completely out of proportion to give them two hundred million even they themselves said initially we in our

moonshot scenario we need at most 20 million and then we can do really everything and now they got ten times that amount and they are not ten times faster now I think they're actually slower because they have too much money there were lots of problems yes yes so is that your prediction that most of these IPOs will fail and there will just be one blockchain no maybe not one but maybe three or four I think freedom we don't need ten different internets and likewise we don't need too many different block chains there can be different block chains for different purposes but there's a there's also a network effect so if every token

and every share is on a Tyrian blockchain they're tradable directly on the blockchain against each other and this is hard to bridge if they are on different block chains there are methods to do that but it's always a little cumbersome so I think there's a strong tendency for one blockchain to capture all the market for a particular use case and for I think the Bitcoin blockchain wins for digital gold because bitcoin is the oldest and if you want digital gold you need something that's old because only through age there's trust and that's why Bitcoin will always dominate use case of digital gold unless they screw up completely completely but it's still open who will win for payments and

for equity and blockchain and for smart contracts I think for smart contracts and equity on the blockchain a serum is in a pole position but if it's still possible that all a blockchain or take them because there is not so much about age and tradition it's more about having the best platform for the use case when you had your own company you know now when you compare maybe with those companies you invest in what kind of experiences are valuable to you that you made yourself I'm not sure I think it's available to go through this process yourself so you know how how it feels to do everything yourself for example

because as a start-up you cannot spend a lot on lawyers and and web design or whatever so you have to do everything yourself and this is very wearable and I still like to do things myself and get deeply involved and to look at actually look at smart contracts and not just read the documentation because I want to actually know what they are doing and I think this deep interest also in the detail also helps a little with evaluating companies today because in the end a presentation can say anything and you need if you want to have an actual judgment you need to look at what they're actually doing what do you spend most of your time with today I mean you

had your company you sold it you're investing quite a bit but what is your main focus at the moment it's I think I spent most time with my family at home so I'm not folk so there's many things I do but it's unfortunately there is nothing that has 100% focus and this is something I miss I think it's very good if you want to be very productive to focus your resources 100% on saying something but today I'm sometimes I do look at legal things publish the legal paper then look discussing with different startups what I should do or it's it's I'm involved in many things

and this is also distraction and leads to many context switches and I would actually wish to have fewer things that I'm involved in but I'm also doing is a PhD in finance where I want to create economic simulations which is something I could spend all day alone on my computer doing but I actually rarely get to it did you always want to found your own company not really it was just an option of many I think this is very if when you finish your studies it's a very interesting point in time because then you are completely free and you have so many options and and I think that you

should choose carefully and for example you should not do a PhD because this is not something that helps you in the long run you should try to do something in the real world and if you are skilled in something and can do something you should try to you make use of that skill and maybe create a company and so this is one of the main secrets of companies that they can reap the whole benefit of your talent so if you're if programmer is ten times better than another programmer in a big company he doesn't earn ten times as much even at Google that's not possible maybe he earns twice as much as his colleague but if you have your own company you have a direct impact on the

value you also get for yourself and you can also you can listen your gut feeling I think this is the secret of the agility of startups if if you have the exactly same team within a large company even if it's a innovative company like people think it's on you know if like Facebook or Google then you have to have actually apply for a budget for approach I can say I want to do this or that and then maybe it gets approved and then you work on it and after three weeks you've feel actually I should change it a little but then it's not what was approved anymore so you wait within a little within the large company until

you have data to back up your gut feeling that you should change it and then it takes three months be ugly I've actually changed the project but in if you are only accountable to yourself you can change it every day if you want and this is innovation is about experimentation also with the business model and being able to change it quickly and this gets lost in large companies this gets lost very quickly even a company of fifty or one or two employee employees is not really agile anymore and that's why innovation often comes from the smallest companies and that's also by the way and now we are back to regulation while by regulation kills innovation because if innovation

comes from small companies then and all regulation tends to burden companies with fixed costs it means that the small companies suffer the most and for example today in Switzerland it's almost impossible to create an exchange for security tokens because the law assumes a huge organization which with millions many many millions of capital and good lawyers and everything and means no innovation is is possible anymore with regards to the market structure and but other countries are affected too and I hope we can somehow get around this or maybe tear down some of the regulation in order to enable

innovation again in particular we allow small companies to create something new and try out new ideas without being burdened with all these requirements that are today in the law I mean you said before there will be a shakeout with all the ICS there will be consolidation maybe you know incumbents will also get into the space and maybe in the medium term what's on the horizon there for you I think we will see the race of the value investor on the blockchain today the ice investors they are gamblers they they wanted 10x returned within 2 months they speculate on the sentiment they don't speculate on the fundamentals but in the long run warren buffett wins so and this will

happen on the blockchain as well so the gamblers they will gamble against each other and slowly lose their money but the value investors who actually invest where they see the furthers actual value behind it they will win in the long run and they obviously they don't touch traditional I see over the utility token with no that's not hard to evaluate so they want to invest in two security tokens and there's actually huge potential for that if you look at the swiss stock market in the 80s we had 2500 listed stocks and bonds today it's half as much so and so and this is completely astonishing so why do we have

half as many listed stocks and bonds on the stock market today 10 30 years ago and that's because of the regulation it's not attractive to get listed anymore but there I would actually be a huge benefit of being listed and here is where the blockchain can step in it allows the company to be publicly traded without being listed on stock market so we can get the benefits of the listing without all the burdens of the listing on a traditional market and this the liquidity premium is said to be about 25% so that's the premium how much a share of a typical small/medium company could get more available just by being liquid and by

being on the stock market and so this means we have a technology to make every company in the world 25 percent more available and this is the potential of the blockchain in finance Wow interesting you mentioned warren buffett before do you have any role models in in your work so I think when Buffett is of course the good role model in finance because he's someone who who doesn't is not interested in the short-term fluctuations because I think in the short-term you cannot you cannot create value in the short term short term speculators they chase value of each

other and one gains dollar losses but in the long run the right allocation of capital can actually create value and that's what we should be after so and so other role models might be Richard Fineman which was a very famous scientist and always had an open curious mind and I think this is very important to be open and to do look at ideas and dismiss them or like them and adapt and this is something that often gets lost in large and and bureaucratic structures and this is also one of the reasons why people should be so I have become a big fan of decentralization I think not only

from a technical point of view also if you want political point of view it's very important there's local accountability and to think locally and not to try to mix everything and to make one a global mishmash of everything so I think this is one of the secrets also of the blockchain and this technology that it allows small local interactions and peer-to-peer transactions that bypass the whole financial system and all the regulatory monoculture we live in I mean it's really fascinating we could continue talking but I know you have to go it's really it's always really interesting to talk to you and I

hope we can do this again in the future so I really appreciate your taking time today thank you Anna thanks so much for joining us today more info on our guests and our sponsors is in the show notes of this episode and on the podcast web site the blockchain and ask.com to help people find this podcast it's important that you download subscribe and give it a top rating and review on iTunes or on the podcast platform of your choice I'm Manuel staggers and I thank you very much for listening [Music]