EB104 – The Gyft Of The Blockchain And Improving Prepaid Cards

Transcript

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[Music] Hi, welcome to Epicenter Bitcoin, the show which talks about the technologies, projects and startups driving decentralization and the global cryptocurrency revolution. My name is Sebastian and my name is Brian Fabian Crane. We're here today joined by Guiam Lublu. He's originally from France but he's been living out in Silicon Valley for a long time. And it's been really interesting sort of preparing for the episode because he's actually been interested in the in the sort of topic that Bitcoin brought up for for a long time before Bitcoin was also a very early Bitcoiner and sort of most recently and and he was

a CTO of GIF and he still works uh for gift which was acquired now. So Giam, thanks so much for joining us. Thank you. Yeah. So so I thought it was was really fascinating reading your blog. So you've been quite a prolific blogger, written tons of posts and and when I was looking at your blog, you know, you seem to write about a lot of the topics that people started to think about a lot when Bitcoin came up, right? Like what are currencies, how do they work, what's value, uh, and but but before Bitcoin. So that's that was very interesting to see that. So can you get a bit of a background about yourself and how your interests evolved, I guess?

Yeah. So uh I I started to work in the financial technology sector in about 2004. I studied a company called Brics Logic that was working with uh large financial institutions, banks and insurance companies to help them implement uh web services uh around industry standards um that were popular at the time and moving the infrastructure of uh banks and payments processors from uh legacy protocols to more modern APIs. Uh the idea was that we could build a kind of a banking layer that uh people would be able to build uh easily uh new apps on

top of. So uh and uh this company was acquired by a large uh company called Debold that provides banking solutions to uh financial institutions. uh and uh after working there for a few years uh the financial crisis happened and I just felt like this was a moment where they would give some legitimacy for innovation in financial services. Around the same time uh I think a lot of people in the industry had uh similar thoughts uh you know square started around the same time uh bitcoin emerged at the time. So I uh I started to look at the part the part of uh that was interesting

to me which was how do we uh actually uh empower businesses uh anyone with some productive capacity to uh to participate in as a financial asset issuer. And so prepaid and uh any sort of business issued credits to me was a very interesting place to to to to change how you know the banking system and money works. So that's been really what I've been focusing on uh since uh 2010 through a variety of projects that uh one of them being uh Bernal Bucks which was the first uh uh neighborhood currency uh linked to a uh debit card and uh as well as credibles which was a

crowdfunding product uh using prepaid uh business issued prepaid for uh companies to uh small businesses especially in the food segment to raise Why did you see uh debt or prepaid as as such an interesting way to start? Because I mean, if you think of the like financial crisis and the way the banking system works, it's not obvious to me why that would be a good place to start changing how money works, right? It it's a it's a fair point. Uh I think what I saw is that uh essentially the banking system, you know, it it works uh through credit, right? So uh when credit expands things go well when

credits goes down things go bad. So and the only way to actually uh create credit into our system is uh through bank loans. So when banks decide not to lend money uh we basically go into a a negative uh spiral loop. Uh so giving the ability for businesses to issue their own prepaid assets would give them an ability to uh to uh uh uh go against that right so it's something that uh you know has been talked about for many years uh you know 25 30 years ago people were talking about the IBM dollar uh and uh you know large brands like Starbucks

for instance have been doing this for a while now they're doing about 1/4 of their global sales through prepaid. So the idea that you trust a brand uh that is actually delivering products and services more than a bank which is more like a collection like a leverage between uh debts and and assets uh is uh to me made sense. Uh it's uh it seems today that you know people do trust Starbucks with their money much more than they trust a lot of uh smaller institutions. So um that to me it was interesting. So there's another reason which is makes this very interesting is that it's actually u prepaid is actually a very simple

asset and uh the fact that it's closed loop. Uh the regulations that are around it are fairly uh simple, right? So since you're issuing an asset that can can technically be only redeemed at the business who issued it, uh it's uh it's uh it it doesn't doesn't really is considered as money by uh regulators throughout the world. So it's uh really easy to innovate around this. If you want to do uh prepaid on the blockchain, it's much easier than if you want to do securities on the blockchain or bank deposits. uh so it's a it's an very interesting place to experiment, innovate, deliver production ready

systems and then look at other opportunities in other spaces. So I mean the the idea that the the business issued assets space is sort of a closed loop uh and not considered money. I mean, we can get into this topic a little deeper in the show, but do you think that that can change with the advent of cryptocurrency and the ability to exchange currencies u on exchange platforms? Will that evolve in the future? Yeah, of course. So, but today, you know, the way that regulations think about money is that it's either money or it's not money. So, uh I think things uh these regulations are going to have to evolve to recognize that it's really bad liquidity. So if you have an adequate

asset and Bitcoin to a degree is some somewhat of a liquid asset still you cannot really sell a million dollars worth of Bitcoin without without affecting the price. So the more liquid an asset is the more likely it's going to be used for um you know driving uh this maybe illegal transactions as well. So if you're trying to move lumber money, you may not use gift card uh because you're going to lose a lot on frict on friction on swiping. Uh but if you're gonna uh if you have an asset that you can transact a lot in it without losing too much in in transaction cost and exchange cost and it becomes basically becomes money. So I see money as really as liquidity. Uh any

asset can function as money. It's really how liquid this asset is. So I think I think regulators will need to evolve to a point where they look at uh how liquid a particular asset is and and and as a and and regulate things based on that not based on uh whether it can be transferred peer-to-peer. Uh let's uh get into the the gift card uh market before we get into what you guys have built at gift. Um, can you talk to us about what the current gift card industry looks like and specifically the infrastructure that most of us don't realize that you know when we use a gift card, when we go into a store and buy a gift card and pay with

it that there's a like there's this very complex infrastructure underneath that multiple actors. Can you sort of give us an overview of what that looks like? Yeah. So, uh the uh the gift card market as an industry is about a hundred billion I think 30 billion dollars uh a year. Uh and uh within that you have what's called open loop and and and closed loop. So I would say it's about alpha alph uh one half is open loop like your visa card that you buy at Safeway to you know put money on uh if you're unbanked or and closed loop which is merchant specific credit gift cards um and the variety of use cases go way

beyond like the typical gift card I mean gift card has has stayed as the uh the main uh term for you know basically merchantisssued prepaid um maybe because there's not not any other good uh term for it. Uh but really the use case are uh you know for instance buying for yourself uh uh making a a company doing a a g buying a gift card for their as an incentive to their employees uh rewarding people for performing certain actions online or offline. Uh so for instance, you fill up a survey at a at a grocery store, you get a gift card. So there's a lot more

use case to gift cards than just uh you know someone sending a gift to someone else. Um and the way the com the the the the market is structured is that uh you have uh a limited number of processors which are your uh you know companies that authorize transactions on these gift cards and then you have a number of players between these processors and the receiver of the gift card, the user of the gift card. And some of these processors are doing distribution or reselling or uh so buying these gift cards from each other. Right? So there's a lot of uh movement and there's a lot

of intermediaries if you want between uh the processor and the end receiver of the gift card. And nowadays you see even more more players uh appearing. For instance you have gift card exchange marketplace. So you could have uh you know from the time the gift card number is issued and provisioned to the time it is consumed you could have you know five six players. Uh so uh the security of the gift card is very similar to where you know credit cards were 20 20 30 years ago. I mean today credit cards, debit cards have been security models have been increasingly tightened uh you know with uh you know tokenization what Apple pay is using uh

it's it's a pretty tight security model but for gift card we're still using static gift card numbers. So as these gift card numbers gets transferred and as a gift card market gets digitized. So you're transferring not you're no longer transferring a gift card with a max stripe encoded uh card number. You're just sending a car number around. Uh it's prone to being stolen and compromised. So uh and and I'm not even talking about uh processors or companies that basically issue gift cards as you know sequential numbers which uh we've seen uh the uh you know there is a lot of points in that chain where uh this car number can get compromised. So, you

know, the story a lot of people have heard about is people going to a retail store, scanning the gift card uh number there and then uh look, you know, just writing scripts to check if the if the uh the card has been activated and funds have been loaded on it. So uh I think the industry is spending a lot of time trying to work against these kind of a basic attacks and so at GIF we felt like you know this needs uh kind of a a new model right and um instead of using shared secrets that we are going to send to each other uh the blockchain model of using uh you know uh publicly encryption publicly signed uh

transaction uh is is a very uh just that is a very useful uh model for securing transactions. So that's that's kind of where we started with uh with uh our interest in in Bitcoin as a platform and blockchain is how do we solve that security problem? So you you mentioned the security issues uh and specifically we're talking about card numbers getting stolen along the along the the chain uh where from where the card is produced to where it is consumed. What are some of the other pain points that we may encounter on the merchant side or on the consumer side with the way that the current Bitcoin market works or the current uh gift card

market? Sorry. Yeah. So it's not easy for us to check uh to check a balance on the card. So you have a uh you know even for us you know gift uh we have a lot of experience in the do in the area we uh we are part of first data we have access to a lot of uh uh you know processors and a lot of players in in in the space. It's still very difficult for us to to provide um you know upto-date uh balance information for these gift cards. Uh every system is different. uh it's due to the nature of closed loop that since it was closed loop everybody could kind of do whatever they wanted. So uh we

have today there you know potentially for every if there are let's say there's about 15 20 different places where you can check the balance APIs to check balances of gift card and maybe not all the merchants uh support it. So for each given merchant you may have different uh you may be able to check the balance but uh not uh not uh transfer for to another card for instance or so there are different features that are not available for different merchants and different processors. So it makes things very complicated from an application developer standpoint, right? If you're just interested to start issuing these gift cards and allowing them to be redeemed where they at the merchant

where they are issued, it's just uh it's just very complicated and you need to essentially uh you know pay all these players uh along the chain for their uh you know their services. Uh I think it's very similar to the banking the way the banking system works. Uh do you have any idea of h how much it costs a merchant on top like for every dollar uh gift card that is sold how much overhead they're they're paying for like this whole system and the security and the the loss and all this?

No, I don't have specific numbers about that but uh um the definitely I mean the the the fraud in gift card is much higher than the fraud in credit card or debit cards. Um and you know it's not it's not untypical for a merchant to give discounts uh to to this to the to the distribution channels uh of about you know five 10%. Uh which is how they kind of pay for these uh you know for these uh cost if you want uh is by basically setting their gift card at a discount to the face value. So it goes so it could go between anywhere between 20% to let's

say 3% right as a discount. Our show today is brought to you by our friends at shapeshift.io. Shapeshift is the fast and easy way to trade altcoins and they now support over 50 cryptocurrencies which includes all the ones you have ever heard of unless you have no life and spend way too much time on Bitcoin talk. So if you want to trade all coins, there's the old way of doing it, which means creating account somewhere, giving them all your data, depositing your money, and then growing old while hoping for the best. Or there's a Shape Shift way, which is fast, easy, and means getting it all done in less than a minute while not even needing an account.

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doing what's right and we'd like to thank Shape Shift for their support of Epicenter Bitcoin. So, when you guys or when you joined GIF or Gifted Company, so the thing GIF became well known for in the Bitcoin community was that they said, "Okay, we accept Bitcoin as a payment. You can buy uh gift cards with Bitcoin, right?" And at the time there was very little you could do with Bitcoin. So of course a lot of people started using gift. Now we've talked a lot about the the sort of infrastructure level problems were was gift at that time already trying to change some things there as well or was was sort of uh the I guess the main difference between other gift card

providers accepting Bitcoin. Um no we really started were thinking about this uh around yeah the beginning of the year. Um so um so this year yeah so gift you know gift is really committed to making it very easy secure instant to buy any gift card from any merchant. So uh uh I mean we we haven't really looked into adding other cryptocurrencies uh but uh you know if there was a huge demand for that uh that's something that maybe would look into um so we really started this this thought process

uh I mean the the the the conversation around security as I think it started a long time before uh we started that but specifically working around and and and and developing something that would address that uh started around the beginning of the year. Yeah. So, we're going to talk uh in in just a minute about the work you have been doing to to address this using the blockchain, but I thought it would be interesting to take a step back and and take a sort of a bigger picture view on gift cards again. So, the you mentioned Starbucks before, right? that they do a quarter of their revenues with gift cards.

Yeah. Of course, the interesting thing there, I guess, is that they're essentially like preinancing. They're getting like free financing or how exact or how do you think about that? And and how do you think about that? Also, when you maybe go beyond Starbucks and think about merchants in general, what's the potential there? Well, um I think the case for the Starbucks case is is you know some people would say is a unicorn. I think it's uh it's very difficult to uh replicate the the combination of uh you know you have a huge brand and you have a daily purchase activity uh around this brand uh at very low uh in very low

amounts. So and and also you sell a drug which is coffee. So uh all these things make it very uh uh unique I think to uh to replicate. I think it's uh if you compare to other companies I mean if if Starbucks does about 1/4 of their global revenue using uh using prepaid about 10% using their app only uh it's it's quite uh reasonable I think to expect that other businesses may be able to depending on the kinds of products they sell services they sell to to to do a lot more with with prepaid than they've done before uh maybe in the range of 5% of their revenue for instance Um, so the Starbucks case is unique, but I

think the reason why people haven't been really uh using prepaid is just because of the uh the fragility of the system. Uh if you get something and you don't know how much money there is on it, if you don't know that you can trust it, if you don't know that uh how much business has issued uh uh of it, uh if you cannot easily uh transfer it to someone else or resell it, it doesn't make it very attractive. Uh but if it had all these capabilities, uh I think a lot of people would be looking at it differently. uh and merchants would be uh using it a lot more. There is a lot of benefits for

merchants. So merchants by using prepaid they uh generally they um they get some cash up front uh which may or may not be uh interesting to them. I suspect it's not for Starbucks, but uh it may be for a small business or I know it is. Um I mean crowdfunding and Kickstarter are a form of prepayment, right? Um in in many cases uh the other aspect is that you can reduce fraud. Uh so you can uh and transaction costs. So you can ask people to pay uh you know $25, $50, $100 and then have a lot of small transactions which is going to reduce your transaction fees. Uh and also you are building a relationship your

prepayment this asset that the customer holds uh becomes a point where you can uh you know exchange or engage your customer around. So Starbucks again has been doing it with loyalty points but just having a channel that you provide updates people go to you to ask for their balance or this becomes places where you can engage with your customers and you know promote offerings and stuff like that. So it's a very uh to me it's a very uh very uh interesting asset. It's just underutilized because of I think uh u security and uh just user experience issues.

And so the thing the work you did with the other project credibles we haven't talked about yet but I I think that is very interesting too you know because it sort of tried or tries uh to roll out something similar to Starworks right but but make that accessible to small local merchants. Yeah. So the use case is is very much uh and as I said the use case is very very much valid. So I think the the challenge that you'll you'll see from anyone doing anything related to local including you know the Yelp and the Foursquare and and and or Square or all these companies uh anything that relates to local and small

business is is it's all about having a very good distribution model. uh because it's all about you're you're essentially need you need to reach uh a population of small businesses that's very difficult to uh to reach uh small business owners are not always at their store uh they have employees there you cannot just stop by and try to have a conversation about Bitcoin so I think uh anyone who's been trying to sell Bitcoin to small businesses on the street knows that uh and then actually you know getting them to sign up to change their workflows to train their employees. All of that takes a lot of time and then uh actually making sure that they stay in

business because there's a lot of turn turnover in the small small business community. So uh you know all of that make your distribution cost huge uh and there is an endless line endless number of companies that have attempted to solve this problem. So if you're in the transaction business, it's even harder because they need to change their point of sale system. They need to upgrade it. They need to do uh all kinds of things to it. So that is the main challenge I think for uh you know how to change and how to make uh you know these kinds of new blockchain based assets or cryptocurrencies available at these at these merchants is who is going to fund

the distribution cost and how do you recoup that uh later on. So I think what was very attractive to me in uh what uh gift was doing as part of first data is that they uh built a an app for small businesses uh it's called gift for business and this app is is available on a device uh called Clover uh which is basically a uh a P a POS device uh running Android that is able to accept any kind of payment method. methods, but in addition, any developer can create a new app on it. And so they've built an app marketplace. So it becomes super easy

for a developer to create a new app, deploy it to uh an app marketplace, kind of like the iTunes store, and suddenly for a small business owner who wants to try something new, they can just press a button and add it to their point of sale system, and it automatically becomes a new tender. So to me that's the future model of distribution to uh of of new software to small businesses. For small businesses the point of sale system is their central nervous system. This is their computer where they do everything.

So uh now that we have uh smart devices that are able to become a place where people smart business owners can try uh different apps uh then it becomes much easier to start accepting other kinds of things right so uh that was kind of what I thought was interesting with gift and first data compared to what I was doing before uh I was doing this as a standalone app uh and a lot of companies companies do that they they build a new standalone app that they provide to small business owners. So now it changes the workflow.

It makes it very expensive for the for the business to participate. Whereas if it can be easily added to the point of sale system as a one-click install uh that that provides this that solves the problem of how you scale to you know millions of businesses. Yeah, that's very interesting. And and just just a little bit of uh background very briefly. So the credibles I guess the idea was right that you could basically do the prepaid with a local merchant which then is is sort of a little bit like crowdfunding right so you say like okay I really like this butcher I'm you know I'm purchasing basically money there sort of like buying in bulk but I can actually use it over time.

Yeah. So credibles has been credables has been very successful with a few hundred businesses and uh you know many of these businesses have seen incredible results. So the the model has the model has has has really uh had really good response. The problem uh was always like how do we go from a few hundred to you know a few hundred thousand uh and you know that requires uh a lot of capital to to build distribution. uh you know companies like Groupon has have hired I mean I don't know I've heard thousands of salespeople to be able to do that. Uh so it's not something that uh companies

are or investors I think are very you know uh very uh warm about to do but I think the concept is is is valid. I think uh small businesses can look into you know leveraging the trust the knowledge that their customers have in them to uh you know get a little bit a little bit little bit more cash up front uh you know for a small businesses to get 10,000 20,000 $50,000 upfront from their customers that is sometimes the difference between making it or not. So uh the ability the fact that they have now this tool that they can do it uh is is very useful. I think cryptocurrencies

uh blockchain based assets are going to make that much and much much easier for uh for any kind of business of any size to do that. Today's magic word is gift g. Head over to let's talk bitcoin.com to sign in. Enter the magic word and claim your part of the listener award. [Music] So, we we've went over the the gift card industry and how it looks now and what the problems are. Can you talk to us about gift block and how you address all of these issues and make all of that so

much better with the blockchain? Yeah. So, I mean there's a couple I mean there's a couple things that I think are important. One is uh the use of uh uh public infrastructure uh at the core of every transaction and uh use of a shared ledger uh with u industry participants to uh to to drive interoperability. So right now we're not really focused on uh you know making gift block a uh industry initiative. We are open to you know and have conversations with other

companies but we're primarily thinking of how do we improve the current infrastructure that we have at GIF with this technology. So um these the the the two main uh interest was uh was to have a kind of a standard uh uh ledger uh system that we could share easily share internally within other companies of first data as well as externally uh with uh with uh you know partners and and and third parties developers that want to uh integrate with us.

So initially the you know when we started this thinking we thought okay well let's let's build this on on bitcoin there was uh there was already some people looking at you know private chains uh but we thought bitcoin was going to be uh probably the the the best place to secure some of these assets and uh I think over time we realized that uh some of the scaling issues were going to take a longer time to be resolved. And so uh we decided over the course of the summer to uh switch to a a private chain approach. So uh and uh we still think that you know uh gift block as a

private chain will uh in will work with uh bitcoin but as it is today I think most of the assets that uh will be issuing on gift block will be issued on this uh private chain. So from a from a technical perspective, how exactly does that work? Because is it just a fork of Bitcoin or or do you use some other Yeah. So So we're using uh chain.com as our uh blockchain provider. So I think they would be uh you should have them on the show to answer all these uh all these technical questions, but uh it's not really it's not a fork of Bitcoin.

So, uh, but it's, uh, it's as close at it's as close to Bitcoin as it can be without, uh, being a fork of it. That's, uh, that's where I'll I'll I'll I'll what I just say. I don't think I think you just should you should just have them on the show to, uh, to answer the question. What we are very committed to to is is um is is making interoperability with Bitcoin very easy. So what I think is very important is uh how do we take uh how do we take for instance uh an asset? How do we issue this asset on Bitcoin? Um where uh uh and and then from there how

do we move this asset to a private chain to do uh small quick fast transactions that comply with uh current regulations? uh and how does this private chain then uh maybe checks into Bitcoin on a every 10 minutes to um u provide a nonprofitable sort of a a timeline of of transactions. I'm I'm still curious though. So with private chains, right? I mean, you don't have like mining pools and stuff. So presum you're going to have

different, you know, different nodes that do the transaction processing. So, uh, are these all would these all be internal to first data or do you do you try to set up a sort of a bigger network to get, I don't know, some of the companies issuing gift cards perhaps or or third parties to also participate in in this sort of process of securing the chain. If I could just chime in here, uh, Gim, aren't you using open assets protocol uh, as the layer on top of Bitcoin for issuing these gift cards? So that's where that's where we started, but uh as I mentioned, we uh we decided to move away from that over the course of the summer. So uh I think there's still

going to be use cases for using open assets on Bitcoin. Uh I think for instance for uh issuing an initial amount of uh initial amount of asset uh is something that uh I could see some businesses do on Bitcoin as a one-off onetime transaction and then move some of these bitcoin to a a private chain effectively making the the the the private chain a side chain with uh a much more much faster uh settlement u mechanism. uh and without having to implement uh you know censorship around anti-censorship right as uh some some people would would say.

So on a private chain there's there's number of rules that we need to you know uh that we need to uh uh comply with in prepaid in terms of validity of transactions uh as well as uh brands are very keen to understand where their assets are being used. So for instance if you're Disney you don't want your gift card to be sold on the pawn site right? So uh how you can maintain some of these things and monitor these activities is is important on a uh for the gift card industry right. Uh to answer your question, what we want to do is we have this vision for uh having uh either a single chain or a

a network of chains of connected chains uh that uh you know the gift card industry players would be using. And so uh we want to have these conversations but initially it's much more about just uh us putting a product out there that's going to deliver uh much better experience and security for end users. Uh so one thing that you know we were very much focused initially on solving this the security problem but as we uh as we started to implement things what we what we realized is that um the uh the

the the model of the the the Bitcoin model of um of the redemption model if you want is is very interesting and can be used to provide a much better experience. So, one thing that uh we demoed uh uh a few months ago and also recently at money 2020 is how we can do basically push payments, how push payments, which is how I describe Bitcoin payments, how these push payments can be used to do things that were not possible before and that other wallets uh cannot do. So, a good example is for instance doing uh multiasset payments. So uh on a private chain that has you know support for an infinity

number of assets it's very easy for u to kind of uh have a slightly different version of beep 70 where uh the merchant requests you an amount and in addition to this amount they provide you with a list of assets that they're willing to accept. uh it's very easy for the wallet to retrieve that in a machine readable format and then look at it and then build a uh a transaction that's going to be uh satisfying these requirements and push that uh transactions to uh to the blockchain. Uh so effectively what you can do is you can do a multi-asset transaction. So in one one payment uh one push one click you can redeem a gift

card uh a payment with your bank deposits your credit card account your loyalty points etc. uh whereas if you look at the current experience even for what it's like you know Apple pay you you may have to go through each card uh individually. So that I think is uh you know very valuable. I think people don't want to have to to go through this hassle of selecting all these different cards. The other thing that's very interesting with uh push payments and blockchain based uh payments is that the user is in control.

Uh I mean the ethos of Bitcoin is that I own my assets. I do what I want with it and uh I don't have a bank. I sec they're secured by my I can choose where I want to you know secure them or deposit them if you will. uh and when I pay I decide what I send to the merchant or uh so in in this model of of push payments and gift card assets I can I may want to be able to review uh on my wallet which which asset do I want to use uh where uh and so I think that is uh that is very important because I

don't see that I think there is going to be a lot more assets uh that people are going to be using on a daily basis. Uh I think uh right now maybe we have five or 10 assets in our wallet. Maybe we'll have you know 50 or 100 or more. Uh so it's going to become very difficult uh for you know providing an easytouse experience uh on the point of sale system. So the point system is going to have to become something much leaner that dedicates much more of the uh of the of the decision to the wallet and the wallet is going to make a lot of intelligent decisions about uh which asset I want to use or do I want to swap an asset on the

fly uh with something else maybe sell one by one uh to make a a particular transaction. So in terms of your user experience and the security model that we can expect in this sort of new system as as opposed to the the gift card 1.0 system um if if for example if I have a gift card on my phone and my phone gets stolen is there any way for the merchant to be able to redeem that or perhaps invalidate my gift card? Like what's the level of uh control that the merchant has on these assets once they've been issued? Is it is it like Bitcoin or is it something more like what we've talked about

recently with Flemia Shalom uh of the open chain protocol where essentially there's a validating node that that has control over what can you know what assets or sorry what uh addresses can send uh assets or not. Yeah. So I think it depends on on the brand requirements. I think some brands will want to have very tight control over what can be done. And so you may you you probably want to enforce some of these things at the private chain level uh with a a signing node. Um and you know some others will be much more uh free about uh what how they want uh their assets to to flow. So I don't think there is uh I think some some

rules are going to be enforced at the network level uh on the compliance side. I think some rules are going to be enforced uh at the wallet level. So the the the the idea of a private chain is also going to be able to to maybe limit which which uh which wallets are authorized to connect to it. um and make sure that only certain wallets that have passed some compliance test are uh accepted on it. Uh so that with that mechanism you could you could enforce uh you know some rules to some uh for instance uh I don't want my gift card to be sold

uh on this type of marketplace. uh the way you're going to enforce this rule is I think much more likely to be done at the wallet level than at the at the network level. And regarding uh the the ability to exchange different gift card assets, um so we talked about this at the beginning of the show. Can you go into more detail as to what it what it would look like if we'd have a an exchange marketplace where you with your Starbucks uh asset or your Starbucks money could change could uh exchange it for like Walmart um gift cards? Is is that something that

would be desirable or even possible in this model? Can you talk a bit about that? Yeah. So, uh I think from a end user standpoint, it's very desirable to be able to take any any gift card asset and sell it, right? And it's very desirable for someone else who wants to buy this gift card as a discount uh to be able to buy it from them. Um so there's value there. Um, I think the other side of that is that if you're again if you're we're talking about brand money.

So if you put yourself in the shoes of the brand, you may not want uh to have your assets being freely traded uh at major discounts uh by by people. So um I think uh the way it works today is that um um the you know the brands provide access to their assets on certain conditions, right? that uh resellers or exchanges or distributors are going to comply with some of the rules and are going to make sure that their resellers are going to comply with with these rules as well. Uh so I think I can see a

wallet what centric model I can see that some of these things will be uh preserved. uh uh so I'm not expecting to have a freeforall kind of space where people will trade any asset for any asset uh I think it's much more likely to look like what exists today uh but uh with uh a much much higher level of of security and and uh understanding by the brands of where what's going on with their with their gift cards right so right Now, for instance, on some exchange sites like um um I'm not going to give any names, but

uh I don't think the brands like that activity a lot. Um because they basically have their gift cards discounted. um and uh people may buy gift cards from other people that may be uh criminals and so when they go redeem it, it doesn't work. So I don't think that's very that's something that that brands want to promote. But if the uh if the transactions were secure, maybe some of them will uh change their mind. Um it's it's it's unclear right now what uh to me what exactly is going to happen in the exchange uh aspect of of gift cards.

What I do think is that people when when we think about putting assets like that on on a blockchain, the first thing that people think about is is exchange and trading. But there are much simpler use cases that I think are very interesting. Uh if you think of a a merchant uh issuing not a merchant but a manufacturer of a ser of a service or product issuing issuing uh prepaid credits. Uh typically uh this model has been limited to merchants that have their own retail location, right? So you buy a gift card or prepaid account from a from a provider and then you redeem that for

goods and services of that provider. But I think what without talking about uh trading and exchange what what this uh blockchain based model is going to allow you to do is is to redeem these assets at other locations, right? That are not that are selling the products of the manufacturer but are not part of the same company, right? So, example is uh Starbucks uh credits being accepted at other locations or doing a Coca-Cola uh Coke dollars and having them accepted at uh McDonald's, right? So Coca-Cola has millions of places in the world

where their products are sold. But how do they uh engage their customers uh you know uh around a prepayment account if uh none of these locations are going to trust uh the assets when they are presented to them? So I think having assets issued on on a on a blockchain means that uh each merchant can now trust that uh authenticate that they are receiving uh uh valid assets from this merchant and then they can easily trade them back to the merchant for something else. So I don't think the tra the trading may not

be something necessarily that's going to be look like a trading desk but uh the the I think there's going to be some a lot of these new scenarios enabled by blockchain based assets where there is some trading involved. Yeah, I think that's an exciting use case or the use case where just like let's say you have a bunch of organization that say okay well we're too small to do uh prepaid cards on our own but you know if you get together and say we do like consortium and accept each other's things then maybe that's something that can work too.

Yeah exactly. So I mean that's where when I when I started working on Bbucks this was kind of our idea is is uh if uh is is as as a merchant I I can issue some prepaid credits but you know maybe they're not going to be trusted. So, how can I pull them with other merchants into a uh create a new asset out of a smart contract based on other merchants prepaid credits and then we have some rules in this smart contract if any if any one of us fails and that that asset uh uh if it's kind of like a a derivative, right? uh of a variety of

assets has value to uh may have more value to consumers because now they know they can use it at different places. Uh they know that if one of us fails, they still can use it, right? So I I I don't know. I I don't know what's going to happen there, right? Uh, I think right now the most likely the most promising scenario I see is just being able for a business to issue assets and having these assets to be used at a ton of different locations. Uh, I think to me that's that's the most exciting scenario.

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Bitcoin. So give it a try. We would like to thank me for their support of web center and Bitcoin. So, so as we mentioned in the beginning, you've been working in fintech for a long time and so I'm curious at the time what was the sort of the view inside the the fintech I assume that the sort of nent fintech industry. Did you guys have the expectation back then that you know this was going to like change the world in a short time as you know today right we have that in the in the Bitcoin blockchain space there's this expectation like this will change everything is going to come very fast

people will be uh will be thinking like oh what the hell happened here how did I not see this coming uh did you have a similar experience back then or was was perspective different then yeah So, so I started in fintech in 2004 and uh mostly working with you know around uh web services implementation and I think there was a similar excitement at the time that you know web services were going to um you know change banking and change money uh that finally banks were not were going to lose their power. people were going to be using uh

apps and uh to connect to them, but banks would be basically a provider of a commodity service, right? Um and um you know, in terms of interoperability interoperability everybody thought, yeah, we're going to be able to more easily move money around, uh trade different assets with each other. uh and from my standpoint there was I mean not very little of that or none of that has happened. So, um I think the the one thing that I mention sometimes is that's different this time with blockchain is that at the time there was uh opportunities for

people to do things u um on their own and u not really look at uh the true interoperability. So uh some of these financial instruments can be complex and unless you actually agree on the on the semantics you really don't interoperate right so I think with with uh with blockchain we are forced to really uh rethink the lower the lower part of the stack and at a very simple level of basically issuing an asset and transferring assets uh and I think at that level uh because it's very very

simple, we're going to see a lot of interoperability. I think at the you know smart contract level maybe that's where we're going to see a lot of uh challenges uh in uh interoperating between different uh different assets. Uh back you know 10 years ago we we could agree to disagree. I think right now with blockchain it's really about agreeing and consensus and uh automating reconciliation between different chains. So um uh I I see a lot more I think I think we have a uh there is a real chance uh today now uh I know you know I was at

money 2020 and there is recently there's a there's a lot of excitement about this but I think it's putting into question so much uh when you think about it um it's uh I think there is Uh uh one thing that I tell some startups is that it's it's uh right now we we've seen some excitement uh we've seen starts being very excited about Bitcoin and then as the price faded a lot of companies said oh we're doing blockchain now u and and just focusing on really working with financial institutions. Uh so there's a a ton of companies that have emerged in

the past year uh doing that. Uh the problem is that financial financial institutions are are extremely slow. Um so I still see a lot of value in working uh very closely with uh around with startups trying to change the financial industry from the ground up. uh because it's very difficult for uh an existing player to put into question you know some of the things they've been doing for many years. Uh so I think the right approach when you work with all these financial institutions is uh to try to work on new projects right to try

to work as a as if you are creating a startup from the inside. So instead of saying yeah let's let's move things to the blockchain to really look at okay what are the new things that these this blockchain technology enables. So, um I'm not familiar with very familiar with NASDAQ, but what NASDAQ announced was uh a private equity market, right? Which I don't know if this was something they were very much known for before. Maybe it's a brand new market for them. So, they're not really uh saying, "Yeah, we're going to use blockchain for moving all the existing uh market activities that we have which was built on systems

over the past 30 40 years. they are building something brand new. So, um that's I think that's something that we'll probably see happen uh elsewhere. Um it's much more likely for a new startup that's part of an existing financial institution. So I think it's more likely for large bank to say okay let's set up a new a new digital bank that's going to be completely built on blockchain than to say yeah let's integrate blockchain into our existing systems that would take a longer much longer time to do.

So so talking about the the blockchain topic or the bitcoin topic but let's say um well actually with both of them. So when you think of first of all of Bitcoin, where do you see this going? Where do you think is going to have the biggest effect 5 years down the line? And and similarly, where do you see the movement of blockchains and smart contracts, you know, in try to attempt to integrate that sort of in the base layer of of uh our economic infrastructure. Where do you see those two movements ending up?

you're saying the Bitcoin movement and the blockchain movement, right? So, I mean, I think there's I I don't maybe you see those as the same. I don't know. Um they're certainly related, of course, technologically and and there's certainly a lot of interoperability that's possible, but I think they are trying to solve kind of different problems. At least the way I see it, I I think fundamentally when you do a financial uh like a ledger, uh it's it's uh it it doesn't mean a lot without actually if your ledger is about being being uh accurate and uh resilient, etc.

Uh doing that outside of any other ledger to me doesn't make a lot of sense. So um um you know the way that companies and banks do reconciliation today is very manual. Uh so I actually see I think there's a lot of the value of blockchain is how they're going to help us automate reconciliation between different different ledgers. uh and it's it's not just for uh financial uh financial assets right u applications for supply chain management for instance are are very interesting so um I I really buy into this idea of an internet of chain uh with potentially

every company having a chain and I think that uh you know bitcoin is going to play a key piece of that. I don't know if it's going to be a central piece but I think it's going to be a major player in that uh internet of change if internet of chain if only because um you know every chain may want to uh commit to it uh on a regular basis or because uh it will become sort of the default uh asset that you use to do uh you know interchain uh uh trade trading right um that's

so I to me they are they are uh related the other aspect is that I think a lot of innovation came from bitcoin a lot of technological innovation came from bitcoin uh especially in the wallet space um and what's very exciting about bitcoin to me is that it's it's the first time that we have a uh an open-source financial stack. Um and a lot of the innovation we see now outside in in this real ledgers uh is is uh has been benefiting from that. So I u I I I I think that we're going to

continue seeing a lot of innovation on Bitcoin because of its permissionless aspect. uh that will be borrowed by private chain. I don't completely um um I don't completely uh put aside the possibility that after several years of uh experimenting with blockchain and doing some very valuable work with blockchain that we we may see a a revival as Bitcoin starts to scale or Ethereum starts to uh scale that you know people will go back to a permissionless chain. I think there's a

cultural cultural change that needs to happen there. Uh but um yeah, in all cases I I I really see Bitcoin playing a central or public chain playing a central role in this uh internet of chains. I mean, if you look at Ripple, for instance, Ripple was thought uh originally as this idea that you could, you know, you could have a lot of different people issue different assets and then you would have some kind of uh protocol to do routing and you'd be able to route any transaction from any node to any node. And when um when the the new reple this was the original

reple before ripple uh.com the new reple emerged and they created a currency as part of it to facilitate trade across uh uh across nodes. So uh maybe bitcoin will play this role meaning that if there is no liquidity available between uh uh two two nodes two chain on on on two different on multiple different chains maybe bitcoin will be the default asset to to uh execute the transaction. Cool. Yeah, that makes sense and I think that that's definitely a possible scenario and uh that would certainly be a great outcome for Bitcoin. So Kum, thanks so much for coming on. It was very interesting talking to you what one

of the projects that's best known in the Bitcoin space. No gift many people love it a lot because you know was sort of there when when people wanted to spend bitcoin. There wasn't much options but actually also doing very interesting stuff uh sort of thinking about how you know gift cards and prepaid and all could work better with with Bitcoin. So thanks so much for sharing your perspective. Thank you very much guys. And uh thanks to our listener for joining us. So we are part of the LTB network. You can find all lots of great shows uh about Bitcoin and cryptocurrencies on let's talk bitcoin.com and we put out new episodes of episode of bitcoin every Monday and you can subscribe to those on iTunes,

Soundcloud, of course in your favorite podcast app or watch the videos on youtube.com/epersonbtc. And if you're a loyal listener, so we're still doing this bribery contest. Basically, you just write a review. Uh, let us know. So, send an email to showepson bitcoin.com and you know, we'll we'll send you send you a t-shirt. So, thanks so much and we look forward to being back next week. [Music]