Brian, Meher & Sebastien: Wrapping Up The Year and Looking Ahead at What's to Come (Episode 165)

Transcript

[Music] This episode of Epicenter is brought to you by Jax. Jax is the userfriendly wallet that works across all your devices and handles both Bitcoin and Ether. Go to jx.io and embrace the future of cryptocurrency wallets. [Music] Hi, welcome to the epicenter the show which talks about the technologies projects and startups driving decentralization and the global blockchain revolution. My name is Sebastian Pu and my name is Brian Favan Crane and I'm Royo. Yeah. So, we have a as as you as you might have discerned, Mayor isn't our the new the new the latest crypto

entrepreneur that's joining us on the show, but it's all three of us today coming together and uh well, 2016 just ended and we wanted to take this opportunity to look back a little bit on last year and look forward a little bit. Uh some may have seen on Coinist there's been perhaps 30 articles all doing the exact same thing. So we wanted to join that that newest hype. Well, so let's start with some personal updates. Um Mayor, why don't you go ahead like can you give us a bit um you know run us through how your journey and your involvement in the crypto space has evolved over the last year. First perhaps a bit about my background.

I um unlike unlike most of the people who are working in this field uh I'm not a software developer or I don't I don't have a financial background. So I actually uh studied biochemical engineering and I used to work in the vaccines industry. I I worked in the vaccines industry for the past 6 months for for the past six years really and these roles had nothing to do with either it or finance. But the Bitcoin bug uh bit me in I think 2012 for the first time when Bitcoin was $3 a coin and then it I became really serious about it when Bitcoin went up went up to $1,000 a coin and

uh yeah those were fun days. So after that I kind of uh started studying about blockchain. I ended up doing Epicenter and this show really changed my life because it exposed me to so many new ideas. I also realized that um a lot of people got to know me through the show. So uh last year really brought me to that realization and I decided to move into this space full-time and um go from a comfortable job at Noatis which is like perhaps one of the largest pharmaceutical companies and the company pays really well as well and into the crypto space which is you know uh which is certainly a much more wilder wilder ride. You've done it. It's your quit your job moment you know.

Yeah, you've done it. Congratulations. Yeah, I've I've finally done it. And uh yeah, I'm going to be doing uh so my my plan is to do like three things this year and uh so one of them is Epicenter and and the other two are um I've I've started a company which does uh education around blockchain technology which is this company is called validity labs. This is um centered like to foster blockchain education in like software developers and managers inside big enterprises and later on also with uh developers in the open-source movement. So uh in validity labs we are creating workshops uh around many different technologies such as uh ethereum smart contracts like

smart legal agreements um use case identification etc. And uh the third thing I'll be doing is uh working on a on a on a concept of my own which is the notion of u an attentionbacked asset. So I'll be writing a few blog articles and hopefully a short paper around around the same concept uh in the first two quarters of this year. C can you tell us a little bit about this uh attentionbacked asset? I mean, I know you've talked about it before, but perhaps for the listeners, uh, give a bit of an overview on what that is. So, uh, the core idea is, uh, pretty simple.

I want you to first imagine a newspaper, right? So, like imagine that you're reading a newspaper, right? So, think of what goes in the production of a newspaper. So if you look at the kind of people who are involved in the production of a newspaper, it's like content writers. Those are one category of people that are in in this industry. So they write articles, they create content, they report stuff. The second category of people is uh there are content editors. So the content editors, what do they do?

they they kind of classify uh newspaper articles that come in and decide what page each article would go to and they figure out which piece of information or which article is more important than the other. So whatever is more important goes on top, whatever is less important goes on in the bottom. Right? So that's the editor's job to figure out where each each piece of news should go and what constitutes more important things and what constitutes less important things. So the editor is the second kind of role in that industry. The third role is um the people who would do printing and distribution. So you can imagine that there's a printing press, lots of people that are working in the printing

press and then ultimately there are distributors that will distribute these newspapers all around. The fourth kind of agent, economic agent in this system is you the reader. And what you're doing is you're opening the newspaper and you're reading what the others have produced. And you are paying attention to what you what the others have produced. And because you pay attention to what has been written, this creates this translates into some value for the newspaper, right? And then the fifth uh fifth kind of agent is um the advertiser. So what the advertiser wants is his information to be put at prominent parts of the newspaper so that the attention payer is going to look at what the advertiser wants to say. So if you see the system,

a newspaper is essentially like a system where there are agents of five types. One is the content writer, the editor, the distributor which includes printing, the attention payer which is the reader and the advertiser. And if you think think of the newspaper making organization that is an organization that is essentially coordinating all of these economic agents, right? So my fundamental question is can you make a DAO out of this system? A decentralized autonomous organization out of this system where we adapt the principles of Bitcoin into this system. So what do I mean when I say principles of Bitcoin? So like Bitcoin quite simply is a system

which has agents of different types. There are the miners, there are the full node owners and there are the users and then there are the business owners. So these are agents with different incentives and then there's a software. There's the Bitcoin code base and a data structure which is the unspent transaction output data structure. And this software and this data structure fulfills the role of coordinating all of these diverse agents to form a system. And the simple question I'm asking is so in the in the news area we have uh we have agents of these five types and can I use a design like Bitcoin which is like code plus a data structure in order

to coordinate all of these agents and form a live system in which people generate information and consume information and uh it functions as an organization with its own token and I am essentially creating this theory around how you would value these tokens and how it would work and how kind of the selfish interests of all of these groups would be aligned in in a design like that. So, so that's the overview of the idea. So, is the idea the make a business about with this or how does that fit fit into what you're doing already with Fidelity Labs and the educational and pedagogical uh side of it? So, so these are two different things. So the validity labs is like an

blockchain education company and that has an established business model. Uh this is something separate from from the validity labs uh work. This is something I'm doing on the side as as a as a hobby. Let's say as as a research hobby. So I I haven't gone into the details of uh the architecture that I've I've developed and I'm writing about but provided um provided the architecture is correct we essentially would have a new way of u of building uh media organizations. So if you think of med media media organizations right like the uh the newspaper created a lot of media

organizations and then and then came social media which also created a new kind of uh organization that was like Facebook and Reddit. You can think of them of as media organization of some kind. And if this is right, if the architecture is right, then you could say that this would be an architecture to build media organizations using blockchain technology. And uh these would have different properties from what came before. And uh this would be kind of a general design that anybody could use to build a media organization.

And I'm just trying to uh figure out the design space, make good design decisions, justify them, and write economic models for them. And then provided that this research is correct, somebody could use these results in order to u yeah build uh build tokens and organizations around uh around media on on on top of blockchain technology. Yeah. I mean I think this is a it's such a nice and promising idea and I think it's something that's very hard to do but where there's a lot of project have you know try to make a few steps in this direction I think LTBcoin is one steam is another one the network gems there's so many projects right that that try to

tokenize this in some way but what they're all lacking a little bit or I think one of the things that they have been lacking to some extent is you properly think through all the implications, all the structure, you know, how those the economics of those tokens because it's it's complicated to get that right. And so I'm I'm really happy that you you're sort of stepping in here and and doing that work. One of the reasons why I think it's hard to do that uh from from the perspective of a company or a team trying to build this sort of new model is that they're look they're looking at it from perhaps a perspective that doesn't um encompass the interests of all the players. Like if you're trying to build a new social network, sure you're you know with a new

model. Sure, you're building the network, but uh you're you're also creating a new model. And you know, you're not there's more uh actors involved in than simply the people that are using the network. There are the advertisers, there are the users, there are, you know, all all these different players. And you know, you may not have in mind like what the interests of the advertisers are or the you know, the pain points that uh they're having to face. It seems like all of the attention is being put on like users and users privacy and all this kind of things but not necessarily you know the business models interests and you know of other participants in this you know entire ecosystem which is probably the case for a lot of you know disruptive

technologies. You you're looking at one specific thing but not taking into account um other interests. My my thinking on uh on some of these protocols is I I tend to look at them as um as economic games that should have strong Nash equilibria in order to ensure like convergence into into a useful system. So if you look at Bitcoin, the beauty of the Bitcoin system is that you have like all of these different agents. So the miners is like one kind of agent and there's probably like you know like hundreds of them and then you have the full node owner there another kind of agent. Then you have the user that's a third kind of

agent. And what the Bitcoin codebase essentially does is it is it creates incentives for each of these agents to to assume a certain role in the system. And the way that these incentives are designed are such that it creates what is in in game theory paralance a nash Nash equilibrium where each of these agents are doing some actions and all of these actions done by different agents kind of balance each other out into an equilibrium and none of these agents have an incentive to diverge from that equilibrium.

and and it is this convergence into one equilibrium that ensures that you know the system remains stable and keeps moving keeps having forward progress. So a lot of the projects that I see uh do not have not actually reasoned why the system that they proposing has has a strong uh convergent Nash equilibrium. For example, the DAO. So one of the challenges with the DAO was the DAO was another system that was trying to build a lot of agents around and the game theoretical structure of that of that system hadn't been analyzed at all. So there wasn't any analysis of it and why that there should be a Nash equilibrium inside that

system. That was something that was truly absent. And what I'm kind of what I'm trying to do and I'm like 90% convinced that this is possible is you can design social media on top of the blockchain in which there's like a code base and a data structure in the middle and it creates incentives for all of these like content writers, editors, uh distributors, attention payers and advertisers. It creates an incentive structure for all of them and you can design the incentive structure in a way that all of these agents have have a Nash equilibrium where it doesn't make sense for anyone to to take actions that are divergent from the Nash equilibrium. So provided this is right provided there's

like a convergent Nash equilibrium I think this would be one general design that could be used by a lot of different projects. So what I'm trying to show is um why such an equilibrium exists and the properties of that. Cool. And uh you're moving to the US soon. That's another big thing, right? Yeah. So yeah, I'm also moving to the US. So I I I was based out of Switzerland and u now I'll be moving to Washington DC. Very cool. And Brian. Yeah. Now on to Brian. What's going on with you, man? I mean I know we know there's lots going on with you but uh Yeah. Yeah. So I many of you probably will have known that I was working for a company called Aerys that was renamed to Monax uh a few months ago and joined the

company in August 2015 and actually listeners regular listeners to this podcast will have some familiarity with it as well since we we did two episodes um with one with Preston Burn uh just after a launch before I joined and then one with with the CEO Casey Kman. Um, also I don't know sometime after I joined and so I was I was head of business development there until until last month basically or sort of late November uh I I left the company and uh and Aerys is you know was ARS was one of the first companies to to look at smart contracts as a sort of business process automation software and it's it was a you know very exciting time to work there. I learned so much. But then I you

know decided to leave the company recently and then I I did you know took sort of a step back did some time of um looking around speaking with different companies speaking with different people. I did a trip to um Silicon Valley and San Francisco as well and that it was very interesting to just sort of get an overview of the industry and it was also nice to see that because when I joined ARS I I didn't feel like there was a lot of companies where where the the sort of thinking was right. I felt uh most companies back then were very dependent on Bitcoin. you know, you knew like they could only succeed if they don't only execute perfectly well. You know, they they managed to build a

great team, they managed to raise money, all of those things, but they also needed to have you widescale adoption of Bitcoin and and I didn't feel like that was a good a good risk setup for a company. So but but with ARS a lot of the basic ideas were right and I think today we can say that they have turned out to be right and that a lot of companies followed um that same direction. So now when I when I looked around and and looked at what people were doing it was very nice to see that there's I feel quite a lot of projects now that have you know good teams and that seem to have the right ideas as well. Um, so that was exciting and then I I you know just sort of looked around and then earlier this week I decided um you know what to do next and I I took an

offer accept an offer by Tenement the Tenement team to join them as their new chief operating officer and um Tenderintment as well has been on the podcast and uh actually or Monax was based on or building stuff on Tenement and so Tenement is a sort original you know I think original proof ofstake um consensus system and then the tenement guys they are working on on a public network called cosmos which is the idea there is that it will be a kind of an internet of blockchain that manages to connect uh lots of different blockchains and thus achieve a lot of scalability and more flexibility and I think there's also

going to be probably another podcast about Cosmos, not with me, but you know, with with the two other guys, uh, at some point in the near future, so you'll learn more about that. Uh, and yeah, so that's actually when this episode's coming out, that will be my first day. Uh, so I'm I'm very excited about that. Cool. And, uh, yeah, couldn't be happier for you and uh, uh, just yeah, congratulations on that. I'm sure you'll do very, very well there. Um, I'm sure you'll uh help structure, you know, where the company's going and with, you know, sort of clear vision, clear industry vision that you bring. So, yeah, they're they brought on a they brought on a very good uh very good CEO in my opinion. Well, thanks so much. And and and you're not moving to the US. No,

I'm I'm staying in Berlin. I mean, I'm Jay, the CEO, is in San Francisco, so I'm I might spend some time over there, but primarily I certainly will be staying in Berlin. So uh what's the rough idea behind behind Cosmos? Well the idea behind Cosmos is to solve a few of the you know core issues um and I think two of the core issues that Cosmos is solving. One is interoperability. So the idea that you can have um blockchains of different types that are interoperable so that can move tokens around. It's essentially quite similar to the side chains concept. Um, so I would say he has a a more generalized version of the side chains concept where you have a you can have a a a blockchain

which is called a hub that essentially connects different chains that are called zones. And so that hub chain keeps track of essentially how many tokens there are in each of the zones so that that you can in that way you can move tokens around from different chains uh via the hub. So that's one uh one potential benefit is that you'll be able to build applications on different types of blockchains and they can still interoperate, you can still move value around uh on those blockchains and then is also potentially just a better way of of scaling. So if you look at Ethereum, right, we have a lot of efforts into sharding and different approaches. Well, this is kind of one appro one approach

of uh of scaling blockchains as well because if you can let's say run different EVMs uh in parallel you know that can have a real uh real benefit and also I think the third thing here is so tenement's been around for quite a long time and tenement has a lot of usage as well you know for example a right is is using tenement or the aeros software by monax is using tenement and and there a lot of companies and organizations that are using that. And the idea in in tenement is that it's kind of like a voting uh voting process. So you can have let's say you have seven stakeholders that are administrating a chain and then they vote on each round you know approve each block and that has has some big benefits over proof of work chains like you can

have much better scalability right so with tenderint I think they have benchmarks of maybe 2,000 transactions per second or more and uh and you also have finality so that when each block is confirmed then it's it's definite there's no forks. And so th those are big benefits. And Cosmos is also an attempt to make that work in a sort of public chain setting because so far Tenement has only been used for private chains essentially. And uh and yeah, with Cosmos, the attempt is to make that work in a public chain setting. And of course that could have potentially massive benefits as well if that really works out because uh you know if we look at

Bitcoin right there's the the huge amount of energy expenditure that's happening there uh also with Ethereum of course that's one downside and another downside is as well uh the security model of proof of work is you know it's it is the best we have at this point for public chains but it's far from perfect right so um in particular We've done some episodes about this as well, but you know, probably if somebody wanted to attack the Bitcoin network, it wouldn't cost all that much, right? If you look at the the total amount of value that's secured by the Bitcoin blockchain, it's something like $15 billion at this point. But, uh, the cost to attack that would be, I don't know, $50 million less. Uh and so there there's a certain

disbalance there between um the cost of attacking and and the value being secured. And so potentially also proof of stake could be much more secure. But again, you know, in a public chain context, it's it's unproven. It hasn't been made to work properly. I mean, there there are some other um I guess some other proof stake designs that have gotten some usage in public chains. I'm not too familiar with those. But at least Tenement, which is um certainly the most widely used in a permission chain context, hasn't, you know, isn't being used uh currently for public chain. So that's also an attempt of Cosmos to to make that possible. Okay. So I I wasn't uh I wasn't sure that was right then. So Cosmos uh is an attempt to take tenderment and and and

allow public chains to be created from from their consensus algorithm. Yeah, that's right. Yeah, that's really cool. Okay. Yeah. Any other new and interesting things going on in your life that you want to share? Uh, no, not not too much else. I mean, I'm still running the blockchain meetup in Berlin, which is going pretty well. Although I I must admit it's been sort of maybe a little bit neglected since it's, you know, it takes epicenter and job have always taken um a bigger role and uh but yeah, otherwise, you know, I'm still it's what's kind of interesting to notice now is that it's been now quite a long time that we've been in this space. It's three and a half years since I first discovered Bitcoin and and basically said, "Okay,

this is going to dedicate my my life to this." And uh yeah, it's three and a half years. It's not such a short time. Yeah. I mean, it's been just over three years. I mean, I think this week will probably be I mean, no, last week was the three-year anniversary of Epcenter. Uh last week of December, right? Yeah. We did our we did our pilot episode in December of 2013. So, and but yeah, it's been o over three years old now. That that Yeah, you're right. I mean, it is it does seem like it wasn't that long ago, but you know, three years in a space is a long time. And uh it's great to, you know, to still be here, right? To still be doing this show. Like I

don't think that when we started it we thought that we would still be doing it three years uh into the future or that they would take this much um you know that it would become what it has become. Uh so yeah. Yeah. Yeah. I mean I also spent some time going through the stats of Epicenter. You know I like to do that every once in a while and sort of see where we are at and uh yeah so I can share some of those. Last year we had about 450,000 uh downloads uh or plays on on YouTube video or audio downloads. So it's about a 50% increase. So you know we continue growing uh going well. It's it's not you know very good growth but it's not completely crazy. And so we reach about uh I guess around 9,000

people per episode. Well, 9,000 downloads views per episode. So, it might not be exactly the number of people, but so that's yeah, I think that's that's pretty great, especially in such a such a small industry, right, where we reach reach quite a lot of the people working in the space. Yeah, I'm I'm always um humbled, I guess, when uh and I'm sure you guys probably get this too. And like not that it happens often, but it I don't want to make it look like this happens often, but it does happen sometimes where you go somewhere and you're like, you know, you meet people and they're like, I love your show. I listen to you guys and and that's always it's always great. Um yeah, totally. I'm always flattered by that. Yeah, actually recently I mean it's quite amazing to see that at events when I was at the blockchain money conference in London it

was just incredible how many people came up and I remember me you said the same thing about the defcon where I don't know probably 25 30 people came up to me and approached me about epicenter and actually when I was taking the plane from Berlin to London even some guy I was just at the airport waiting and some guy came up oh I was like it's pretty amazing That's funny. [Music] Let's take a short break to talk about Jax. Jax is a multicoin wallet created by the people at the central. Now, in the past, if you had a whole bunch of cryptocurrencies, it was a pain to handle them. You either had to leave them on an exchange, which was insecure, or you had to have all these different

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Epicenter. Well, now let let's talk about you, Sebastian. You've also had an eventful year, I think. Yeah, it's been it's been quite an eventful year on sort of the personal side, but also on the on the professional side. So um I after having been in in the north of France in Leil for you know major part of my 20s I uh I moved to Paris and joined Stratam. Um so that was that was a big move and so co-founder Stratam and and it's been well it's been a year since we started the company just just over a year. Uh actually just coming back from the Christmas holidays uh we moved into new offices. So we were in a smaller you know small of sort of core like area and

a co-working space um in the 11th uh in Paris and now we've moved to a much larger office that can now hold up to I guess probably about 30 people. So uh that's and you guys have a meditation room. We have a very small um probably about six foot by six foot meditation room. Yeah. Which I I think I'll be sitting in once in a while. Um so yeah, that's that's exciting. Like the office like we were there all week. We basically didn't have internet. We're just kind of hanging out there and and uh and working uh you know after the holidays coming back and everything. So that that's really cool. Um so Stratamus really uh well we we've I think we've accomplished a lot uh this year. Um we're now uh I guess almost 10 people uh and it's been

an eventful year uh as well. Um in in that in that year we've I think we've accomplished a lot in the from the point of view that we have done quite a lot quite a few experimentations. Um we've done about 10 PS uh in different industry verticals uh whether that be uh the financial industry, insurance, um supply chain, uh energy, uh sort of the industrial space and and it's allowed us to learn quite a lot about what types of real specific industry problems we might be able to solve with the technology that we're building. Um, so if you know I think

most most of our listeners have probably heard the I think it was episode 159 with uh Richard Katano who's my partner and CEO uh co-founder and Anujas Gupta who's head of research one of actually our first hire and so what what stratum is building is uh tech what proof of process technology which allows multiple participants in a process to collaborate and trust the data within that shared process. So you could take something like a supply chain where uh well specifically like one use case that when pock that we did with a certification agency is how do we secure all of the data coming into um a uh tuna supply chain. So, from the fishing of the tuna, right, on the fishing boat, all of the measurements that are taken on the boat,

the weighing, you know, where the fish was uh was was caught, um the the type of fish, uh the species and everything, and then selling that to a marketplace, you once they arrived to the docks, uh transporting it in a in a cold truck, uh selling it to a transformation, you know, company that's going to take that tuna and build, you know, make products with it. um and then sell it to a uh to a merchant. Well, how do all these participants uh traditionally trust the data in this process? Well, they rely on certification agencies, you know, third parties that essentially hold all the data and do all the measurements. Uh so what we're building is we're trying to build this audit trail that would allow all of these participants to trust that that process uh using things like

blockchains, modern cryptography and um KPI PKI, right? So everybody needs to have keys in order to be able to sign the data. So it it puts responsibility on all of the actors within the within the supply chain so that if any anomalies are detected uh well one they won't be able the chain would be immutable. So uh there would have to be sort of correction measures. One could not go back and corrupt data and two it puts the responsibility on let's say like a uh shipping company that wouldn't have properly like cold stoaged the fish. Uh so that's you know one example where we could use this and we've been able to see use cases in all sorts of industries. So this is one uh also we've worked uh with um a major real estate promoter here in France called Boogie

Moier and we're working on a uh um smart grid initiative uh to uh allow for production and consumption of energy to be traced and to have better uh measurements and more reliable and trustworthy measurements of production and consumption of energy in a smart grid setting. Um so what we're doing in the next year uh now that we've experimented and we've sort of dabbled in a lot of different places is uh really focus on some key verticals. So we've identified three or four key verticals and we're going to dig real deep in those organizations with some key partners uh and uh try to find you know what are the specific real specific use cases and really specific pain

points that we can address with our technology and how we can adapt our technology to better serve them. Uh so it's going to be a year of uh a lot of research, a lot of like sort of um getting down into into nitty-gritty processes uh with operations people uh IT people, business people within uh the organizations of our partners which are for the most part well I guess all um major companies in France, in Europe and uh and in the US. So yeah, that's about where we are now. We're we're raising a second round. So, we're raising our series A. Hopefully, we'll have that uh closed by we're hoping in about 3 or 4 months and that'll take us, you know, to 20 2018 or 2019. Um so, that that'll be

the, you know, the period that it's going to we think it's going to take for us to find a real product market fit for for what we're building. So, yeah, it's it's really exciting. Uh it's happening really really fast. Um it's always uh uh yeah I mean keeping up with with everything that's that's happening and and sort of all the changes and uh has been uh a great learning experience and yeah it's it's interesting that you're saying you know it's going to take you guys to 2018 2019 I mean it's certainly you know to find a product market fit. I mean it's certainly also my impression from my time working at Monax that you know the potential is so massive but finding the right use cases finding the

right fit it it takes a long time and and for those organizations also to you know to get around to this different way of of doing things of structuring things. That's right. Yeah. there there's a there's a change management aspect to it that's really important to to recognize and um I think that you know a lot of us have been um talking about the change that blockchains can bring right and and we look at it from a theoretical point of view and there are all these ideas out there floating out there but this is a fiveyear thing like it's a 5 to 10 year change and I think realizing that and and being able to own that realization and say Okay, we're going to take two years to try to do this one thing and try to do it well. Uh is is is

something that's hard to do because there's so many things happening around you and you're always um there are these forces, right? These sort of pressure outside pressure forces saying, "Okay, well, we have a competitor that's doing this and they've done this and it's it's hard to keep the focus sometimes because you you see all these other things happening around you." But I think that the winning strategy for any uh company in in this space right now is just to keep laser focused on your vision and to execute on the vision and and find uh yeah as you said right find the the the specific use cases and pain points that you can solve with your technology and and I would say probably even with uh you know with one or two or three clients right uh and you can look at

other successes like this I mean just look at companies like Palunteer you know that's what they did they work with the DIA for many many years until they branched off into different industries. Um I think it was you Brian who tal brought me on who um got me to read the one thing or good to great. Yeah I think so. Yeah. Yeah, these are great examples of of books that uh um that talk about this, right? Uh how do you so what's important is to find that one thing that you can do very well and then branch off into different sort of adjacent uh service offerings and things like that. If you look at all you know most major successes in in the modern in the last 100 years uh whether it be Microsoft, Apple, companies like HP, Xerox like their lasting success has

been uh attributed to focusing on one clear thing and that's the that's the path that we're taking. What I also found interesting about you know your explanations I think I certainly shared them is that when I read these coines articles about you know what's going on a lot of them some of them were like ah blockchain still still no real use cases you know of these whole enterprise permission blockchain um experiments and pox and and then the ones that were talking about 2017 I mean some of them were mentioning okay some some things will go into production but I don't think there's really an expectation even at this point that next year we're going to see like a big breakthrough, right? It's still going to be, you know, a lot of experiments and then some some more substantial

experiments, maybe some experiments that will be more public where one can actually kind of see what's going on, but basically still all experiments. So, well, wasn't I think it was Monax? I I get the Monax newsletter because I do look at what the competition is doing and I get their newsletter and I believe a few weeks ago there was a a post. I don't know who wrote it uh but uh talking about this very thing that uh you know the last few years have been pox and now we're starting to move into uh pilots uh where we're still going to be in a closed sort of um yeah confined setting but perhaps with real data and it won't be until the next you know it won't be until 2019 or 2020 until we start seeing real production systems and so it is sort of a you know five

fiveyear uh change in that sense. Yeah. Yeah. I mean we'll see. I guess maybe maybe some of the things will also be next year. I mean some companies have raised a lot of money and have done you know very close work with some uh you know for example digital asset right they raised a ton of money and they they have as far as I know at least uh very much focused on this Australia stock exchange. Maybe they with all the resources they've thrown at that will be able to do something earlier and come out quicker. But overall, yeah, this is taking uh taking a long time. Yeah. Let's talk about capital then. Let's let's let's get into that topic since we're talking about money. Ryan, you you you you pointed out to this article on uh on CoinDesk and we were talking about

this earlier before the show that there have been some really massive funding rounds and there seems to be a lot of money being thrown at these really big companies. Uh well, you know, not big companies, but companies that have amassed a lot of talent and have amassed sort of this really clear vision and you know, these very clear industries that they want to target. Uh and not so many smaller rounds. uh and uh curious what you guys think that tells us about the state of the industry. Yeah. So I I went through the so viewed coin cast has this spreadsheet online with basically all the funding events in the crypto blockchain space and uh I I haven't I didn't see a sort of summary but I think probably the funding went down last year and there was four four

big rounds so which was a digital asset of 60 million circle of 60 million blockstream with 55 million and ripple with 50 55 million and Uh my impression too with those companies is that they are being uh fairly conservative with how they're spending their money, right? They're saying, "Okay, it's going to take a long time, so we raise a lot of money." And now they have a a a long leeway. And at the same time, I don't think there's been that much small funding rounds. And and of course, the the third thing to point out when it comes to capital raising is ICOs and token sales, which have taken on a big role last year. Of course, there was a DAO, but then also others like Golem, first bought dichconomy, a lot of Ethereum projects seem to choose that route first, and uh there hasn't been or

hardly any VC funings uh for those kind of projects. Crowdfunding does seem to have worked worked really well. I mean, it I think it's the biggest application of Ethereum the platform today. Absolutely. Yeah. But to what end? Yeah, you can raise all this money, but you know, what is being done with it? I mean, I I I'm not I I think Mayor and Brian, you guys probably have much much more insight. Like I I don't particularly keep super up to date on what's going on with Ethereum and all these crowd sales, but uh is is anything actually being done with this money that is being raised in these ICOs? Well, they they're using it to build whatever they promise, right? Uh, of course at this point none of these projects um have

gotten to the point where they are really getting used in a way so that there is a demand from the usage of the application for this underlying token uh which is after all the the promise and the whole argument of it. But then you know again if you if you look at the permission blockchain example as well right so if you're talking about 2018 2019 it's going to take that long uh to you know to really get product market fit to really get the production level applications then well maybe it's not so surprising that we should see something similar on the public blockchain side and it's also going to take a long time uh there. So yeah, so far we haven't seen that. Although what's interesting still is that because those tokens get traded immediately and there's a market

immediately that even if there's no usage, even if the thing hasn't really been built, it can they can still appreciate a lot in value. Um I think Augur is a good example of that, right? Has actually gained a ton in value even though it hasn't uh hasn't really launched. Um and and of course some of them have been big financial successes. Above all Ethereum which has been a a huge financial success and and there again you can ask you know real usage of the platform of course is still very minimal but where they have succeeded is getting a ton of developers to build on [Music] Ethereum. Today's magic word is enterprise. E N T E R P R I S E. Head over to let's talk bitcoin.com to sign

in. Enter the magic word and claim your part of the listener reward. I'm curious what you guys think about this. So if we look at it, say take the augur example. Uh there's the crowd sale. Uh the coin is while the while the system is being built, there's a lot of speculation around the coin, a lot of trading happening. um around the you know the token once it goes into production and people start using it. Uh how would that change sort of the economic dynamics of you know the markets that um trade these tokens and the liquidity that's in the system and all that like once the use goes from the sort of speculative use to actual use? Well, then in a way you could start

having like a sort of a ceiling on the price, you know, on the on the lower end, right? So you could say there's real demand for these people, you know, they want to they're willing to spend whatever 5 cent per prediction, you know, on augur or something like that. Uh and that implies you know given with a certain volume of people that implies a certain sort of you know like lower bound of of okay how much are people going to be willing to pay for these tokens just because they want to use Augur uh to make predictions and not because they want to speculate on the token but that's of course not going to remove the fact that people are still going to speculate on the token because they have certain expectations about the future price maybe partially based on

they think this increase in usage is going to increase right or just because they think you know the price is going to increase right I think we see that as well maybe a lot of the people buying Argo today they might not I don't know if they think that Augur is actually going to become a big system with a lot of users or if they just think that you know uh the price is going to keep going up so I'm going to sell it before it ever has to go into production and I still make money, right? So, so it has a it has a curious thing here which I don't think you have in traditional startups where it's probably quite rare for investors to have a good return um if the underlying company doesn't

actually succeed uh in getting you know real users, real application, real adoption. Uh but that seems to be possible at this point in the in the crypto space. So um my feeling here is when you look at the stock market um in in general like we have um we have a theory on how to price stocks right like so so the value of a stock is net present value of the future cash flow stream generated by the organization whose stock it is and I think when bitcoin came bitcoin is this asset is like one of the few assets that doesn't have a pricing theory for it. So if if you look at options or

futures, you're going to find an economic model that tells you how to price these assets. But Bitcoin, Ether, and the assets on coin market cap today are like one unique asset category in which uh we don't know how to actually price them in terms of other fundamentals. So the the kind of prices keep keep floating and this this results in like there being only speculative value for for these uh for these commodities. Now now maybe the future is going to be is going to be different. So I think two things could happen in the future. Thing number one could be that this forever would stay like that. Like all of the assets in the crypto space would be things that you really can't price fundamentally and

then it remains speculative for years on end. That could that could be one direction. Or the other direction could be that some of these new ideas that are coming around prediction markets around uh around building organizations on on crypto systems there might be new ways of completely pricing these assets based on other fundamental factors and a new kind of um econ economic models could develop around these and if we go in down that direction then there'll be like you know fundamental factors by which we we could price these things intrinsically and then um and then yeah that might be a different world where there's like there's there's speculation of fundamentals but it loses some of the

pure speculative value of cryptocurrencies. Does that make sense? Well, I I think for a lot of these crowds, a lot of these app tokens, there is a potential like you should be able to value them uh based on fundamentals. Um but but it's like you you're only going to be able to do that once there's actual usage right the actual application is there before it exists right it's just anybody can make any kind of assumptions to justify any price right so maybe once they these applications actually launch you're going to have that and then with Bitcoin well it's a different situation I think because with Bitcoin and this is actually one of the topics we wanted to

talk about as well so maybe it's a good segue into that with Bitcoin it works a bit more like gold I would say right it's you have this digital commodity and if if its main usage is as a store of value that you know people going to maybe people in Venezuela right they want to somehow put their money into something that doesn't depreciate in value because their currency does or because they wanna uh they they just believe it's going to appreciate in the future just like people hold gold then yeah you can't really price that based on fundamentals that's I have no I I don't think there would ever be um a real model so you could say okay here's how we value the bitcoin what are your thoughts on that mayor I think for

bitcoin there might not be a model but certainly in the future there might be a model for for example valuing the augur token or the golem token or some of these other tokens tokens that that come about on top of these Bitcoin and Ether like systems. I think I think for there they could they could be they could be really good models and I I think we we yet to see yet to see a good live model in action where uh where there's intrinsic value of some form behind uh behind a token.

One thing that also stood out to me reading reading what a lot of people have written about Bitcoin in recent time is that there seems to have taken place a bit of a change in how people look at Bitcoin. I think if if you look if you look at the white paper, Bitcoin is described there as an electronic cash system and of course cash implies payments and the white paper talks about payments a lot. And for the longest time uh the idea was very much that bitcoin was being used for for payments and you know I think also talks about microp payments in the white paper if I remember correctly as one of the one of the benefits and a lot of this scalability debate has been about well we got to scale it right otherwise what are you going to do with three

transactions per second it's not going to be a payment system for anything um but I think there has been a bit of a a transformation so I I saw even Brian Armstrong of Coinbase was writing an article like that, you know, mentioning Bitcoin being more as the sort of digital store value reserve asset. There was a very interesting article by Biny Lingham who uh used to be CEO of GIF and um he's been amazingly accurate in predicting the Bitcoin price a few times. So he was writing too about Bitcoin sort of having several phases and that there was this first phase where Bitcoin was you know becoming a digital commodity and the second phase which he said was we were going to be

entering now which is essentially proving its value as a digital digital commodity which means that it will for asset managers they will start to say okay we're gonna have our portfolio allocation some of it is in you know precious metals some of in stocks some of is in bonds some of it in Bitcoin, right, as is a new category. Uh, and that then he thinks, okay, there could be this payment cash system based on Bitcoin later. And that seems to have become much more of a prevalent view. And of course, that has interesting implications too about scalability because if that's the case, maybe the whole three transactions per second small block size isn't such a massive issue.

Yeah, it's it's a interesting way to look at it because if you think about it, it kind of takes us back to this similar sort of notion uh that we're talking about earlier with enterprises trying to find the real problem the real problems to which they can use blockchains to solve um you know with those solutions uh with this is you know before we talk about scaling like we let's let's first try to decide uh what we want Bitcoin to be should it be this digital gold system or to be a cash system and and once we've done that then you know let's find the techn technological solutions that are uh well suited for you know whatever we want Bitcoin to be and I I think that's perhaps where a lot of the division is coming from is uh well I mean obviously

it's coming from uh this uh difference in opinion on whether Bitcoin should be cash uh some sort of commodity whether it should be simply a store of value where people can uh store it like this digital gold idea Yeah. Although the sort of flip side of this is if you're going to be at three transactions per second, there is no other choice, right? Bitcoin basically can only be that digital gold, especially unless you have like segregated witness and some sort of lightning network type stuff. Um, but if you scale it more, then it's like up to people and companies to figure out what it can be. There's no reason why it being a digital gold type thing and store of

value, you know, it would still be a better u store of value if it could do a thousand transactions per second instead of three, right? Like it would be a better store of value because you can move it around more cheaply. Now, maybe it's not such an issue if it costs a lot of money to move it around, but it's still a bit of an issue. But it certainly changes a bit. Um thinking about how pressing is the scaling like how urgently does it need to be scaled. The way I think of it is like Bitcoin the system will change or or will stay the same depending on the incentives of the of the inner circle. So uh so so recently I was uh I' I've been reading this uh academic book by by I think a few

academics which is called the logic of political survival and then they wrote a more uh popular book based on the academic theories which is called uh the dictator's handbook and and out here uh they they propose a very interesting theory of how political systems work and bitcoin is a political system and their theory is is that any political system has uh three kinds of constituencies. So one constituency is what is called the actual selector rate. So the actual selector rate is u or the total selector rate is for example in a in a government total selector rate is the set of all people that are going to vote for the government right so or in a

dictatorship it's the set of all citizens in bitcoin it's the set of all users plus developers plus miners so we are you know all of the people that somehow matter to the bitcoin system but inside this bigger circle there are like two smaller circles. So that that one smaller circle is called the real selectorate or the influentials. These are people who can influence things. And then on top of the influentials there's an even smaller circle of people. These are called like uh these are essentially the people who matter. These are the winning coalition. So the winning coalition consists a a group of very small numbers of people generally who together can create a winning

coalition that allows uh the leaders of the system to act in a certain way and distribute the rewards of the system in a certain way and u and what this book kind of explains is depending on the sizes of these three sets of people how different political systems behave in the world. So if for example there's a winning coalition that is very small then what you're going to get is a dictatorship. If the winning coalition is is a bit bigger then what you're going to get is a democracy. And and they they explain all of these correlations. So um when I think when I started to think about Bitcoin I actually think that in Bitcoin uh the winning coalition or the set of people who really matter is actually very small. it is just probably like a

few developers and and a few miners. It's a very small system. And today if I look at the Bitcoin system um the value of Bitcoin is going up and all of these people are um are finding that their uh their their sort of choice of limiting the block size is still resulting in a rising bitcoin price. Right? So the block size is limited but the price is rising and this very small circle of people are are able to basically ride of the riding price and uh keep their influence intact. So what I mean is like for example if it were to to happen that Bitcoin were to go to $100 then there would be sort of a

rebellion against the core developers that really you know control the Bitcoin core protocol and there might be a fork then might be a successful fork of Bitcoin but if you look at it today if you look at the core developers they have taken this uh idea of limiting the block size to 1 MB but that doesn't seem to impact them at all the the price of Bitcoin is rising us as Bitcoin and holders are happy that the price is rising and there is no real incentive for the inner circle to really change their their strategy. Why would they change? So unless there's a very huge challenge and uh Bitcoin as digital gold fails as an idea only then would Bitcoin change otherwise there is no incentive to change from the inside for the for the few people who control the

protocol. So I think this is the direction Bitcoin would go. Yeah. Although they still have the issue, right? So that even those who don't want to increase the block size, they want to um they want to do segregated witness, right? For the most part, but segregated witness as well doesn't look very likely to be adopted at this point because there is resistance against it and they have this activation threshold of 95%. So it seems like it's the stalemate where it doesn't doesn't really get anybody anybody's agenda is being fulfilled. Anybody gets what they want and okay the price is rising so maybe it's like all right not such a problem but

yeah it seems very much like a stalemate to me and I don't think that's good for Bitcoin. I mean in in in other words like suppose you were like one of the core developers whose opinion really matters right like suppose you are a Gregory Maxwell or a Peter Todd or Peter Vulle right and you you've argued for the past two years for limiting the block size to 1 MB you've pretty much won all won the arguments right because people who opposed you Gavin uh they tried to do a fork and they failed and right now they're really outside the winning coalition, right? Nobody really u their their voice has started to matter less, right? So, you have already won on on on the 1 MB block size. The

market has rewarded you with a higher price. Now, why would you even want to adopt something new? Because anything new like a bigger block size or unlimited block size is going to come with its risks. But in in the status quo itself uh you have a really good position. All of your followers are rewarded by rising bitcoin prices. So they are also happy with your leadership. And why why would these inner core circle of developers and miners have an incentive to change today? I mean for example because they have spent so much time working on segregated witness right and and then

that they don't even get that in right. So they have this veto power, right? They can prevent others from getting anything done, but they don't have enough power to really get done what they want. So I think if anything, I can see a certain danger here that they'll also do a similar thing that Gavin and Dre and Mike Hearn and those did, which is essentially step back and say, well, you know, whatever, I'm out of here. Right? So I I think that could totally happen where you have both the people who wanted to increase the block size and do that saying okay well I guess if we can't get anything done here we can't get consensus you know we're going to leave you're going to do something else but you might have that on the other

side too when they say like well we can't even get segregated witness through we can't get lightning network working side chains aren't possible to do uh properly so again you know with blockstream for example right? Their their main business isn't Bitcoin, right? They have they have their enterprise products and stuff they're working on. So, I think there is a risk here that in the end this division is just going to really frustrate everybody so much that there's nobody in charge and it's just the development kind of stops either becomes digital gold or fails at it. What I guess what I'm trying to say is like like the kind of the system is locked in a way that the

only experiment the Bitcoin system is going to be able to perform is try to be digital gold. If it succeeds at it, it's going to succeed at it without without there being any development at all. And if it's going to fail at being digital gold, then Bitcoin as a whole is also going to fail. And of course for digital gold you do have the situation I think that um network effects are massively important and and it being known and having recognition and you know the the point to go from let's say asset managers to say we're going to put some of our portfolio into Bitcoin.

um they might start doing that but it took a long time and Bitcoin got so much publicity and stuff. I think the chance for somebody else who you know disruptive currency to do that even if it's 10 times better technologically is extremely hard. So Bitcoin has a huge advantage on that side. Um so that even even if it is not you know technologically maybe stuck doesn't progress so much um it might still win at that or still has much better chance of winning that than anything else.

I I tend to think like you know like back in 2013 or 2014 there were like people from know the Nakamoto Institute and things like that they were arguing the case for digital gold right back then and now I feel as if you know some of the early Bitcoin adopters were were right that digital gold is the ultimate application of Bitcoin and and Bitcoin has a massive advantage there because of it, because people know it as being stable and having 21 million units and stuff and and now it's like it's it's either going to succeed at it and it's going to become huge by just being digital gold

and doing nothing else or maybe for some reason it might fail at it and then that would be the end. But I but I I do think Bitcoin has a strong chance of actually becoming big just on this. It wasn't obvious to me uh like a two years back. I used to wonder whether yeah, Bitcoin should try to be a payment system, but now I see that it it really can't even become a payment system. It either has to succeed as digital gold or or not. Okay. Um well, we're pretty much at the end of our episode. I don't know. 2017 is here. Just any predictions from anybody or important things that we should keep our eyes on.

From my perspective, I think u you know basically what we were touching on earlier that uh you know at least on the enterprise side because that's where I I've got my my eyes focused uh is uh that companies are going to keep investing but they're going to be investing um and by investing I mean enterprise uh is going to keep investing in researching how blockchains can help improve specific um parts of their business. uh but they're going to be doing so in a way that they're trying now uh going to try to be measuring those improvements, measuring the return on investment, measuring the efficiency, measuring the effectiveness so that um in 12 to 24 months uh these systems can start uh at a small scale coming into production in real IT

systems. That's that's that's uh my predictions for the next yeah year. Mayor I think I have I have I have two or two predictions. Um one prediction would one is not a prediction. It's really an observation. So in my in my feeling um the whole blockchain industry including the public side and the private side uh lacks really great business cases today where uh where we could confidently say why applying the blockchain is going to improve some factor that the customer cares about by 10, right? And as long as uh that that clarity is is missing uh the blockchain industry is going to jog

along. It's going to jog along at at the at the pace we see. There's going to be lots of technologies built, lots of lots of teams, but we won't have the blockchain industry become 10 times bigger until we find a really good product market fit that that that truly scales. And I think that still hasn't happened. So, I'm I'm hoping something like that emerges in 2017. Maybe maybe maybe a good product market fit has already been found by one of one of the private blockchain companies, but they just haven't announced it or it just hasn't become clear in in the bigger arena. So, as long as that doesn't happen, I think I'm going to predict like our industry will kind of remain like flat. It won't it won't see explosive growth unless that gets solved. Second prediction is I'm I'm pretty

bullish that uh the thing that I'm pretty bullish on is I find that there will be some way by which uh we will figure out how to how to build DAO or decentralized autonomous organizations by which we could build uh media companies on a blockchain. So there will be ways by which uh we can put the whole cycle of content writing to editing to publishing to consumption on blockchain networks and this could be a successful application. That would be the second thing. Yeah, I I agree with you. Um I think the the lack of business models is a huge huge problem, huge challenge and and I think that's right.

I think we're going to keep going uh a bit like now um in that you know people going to continue working on it to try to make it work and there's going to continue be a lot of work in the in the technology and infrastructure and scalability and privacy and there's so many open questions so many things are unresolved so that even if you found that perfect business model there's a good chance that today the technology just isn't quite there yet to actually be good enough so I think those will sort of get worked on in parallel. I think what's unclear to me is what that's going to mean for the sort of enthusiasm for this industry uh in investment in it. So it could happen that people get impatient and they say well maybe there's nothing here and and

that then investment in interest sort of drops off. Um I think actually ICOs and crowd sales are quite an important point uh to keep that investment and that interest going uh and that excitement for projects. I think if one solely had to rely on VCs, it might be challenging to fund the continued research and development in in all this technology. So yeah, I think we also we're not going to see the massive breakthrough next year, maybe 2018, but I'm sure it will be very exciting year nonetheless. So I think with that we're at the end of our episode. So thanks so much for listening. I hope you enjoyed the show.

So Epson is part of the LTB network. You can find this show and other shows and let's talk bitcoin.com. And uh if you like the show, then please leave us an iTunes review. It helps uh new people find the show. So thanks so much and we look forward to being back next week. Hey hey hey.