Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Erik Voorhees: Prism – The World’s First Portfolio Market Platform

Episode Date: July 4, 2017

Shapeshift CEO Erik Voorhees joined us to discuss his journey in the industry, the evolution of the decentralized exchange Shapeshift and their latest project Prism. We spent most time diving into the mechanics and enormous potential of Prism. Prism allows users to create a portfolio of digital assets that is purely managed on the Ethereum blockchain and illustrates how blockchain-based financial products can be built. Topics covered in this episode: Erik’s journey in the blockchain space from SatoshiDice to Shapeshift Shapeshift’s evolution and long-term vision Erik’s view on ICOs and why they will disrupt the stock markets Prism – The world’s first trustless portfolio market platform The mechaniscs of Prism Why Erik supports SegWit2x Episode links: Shapeshift Website Erik Vorhees' Blog: Money and State Erik Vorhees Twitter Page Prism Exchange Introducing Prism - Blog Post Epicenter 130 with Erik Vorhees This episode is hosted by Brian Fabian Crain and Sébastien Couture. Show notes and listening options: epicenter.tv/190

This is Epicenter. Episode 190 with guest Eric Forgees. This episode of Epicenter is brought you by the I-Prize and the Energy Innovation Hub. The I-Prize is an international startup competition to build the machine economy. Go to epicenter.tv slash I-Pri-E to learn how to join the competition. Hi, welcome to Epicenter. The show which talks about the technologies, projects, and startups driving decentralization and the global blockchain revolution. and my name is Sebastian Kutjure. And my name is Parenthoodman Crane.

We're here today with Eric Borges. Eric Borges, probably somebody most of you will already know. He's been on the show before. And some of you may also know him from ShapeShift. So he's the CEO and founder of Shapeshift, who of course have been a sponsor of this podcast a while ago, and they are now again. And he's also known for a whole bunch of other projects

that he has done in this industry. He got involved in 2000. 11, he has worked on a thing called Satoshi Dice, which once upon a time spammed the entire Bitcoin network in the view of some, or at least it was responsible for a lot of transactions. Then he worked on something called coinapult, but instant. And now ShapeShift and Prism, of course, which we'll talk about as well today, which is a new product they're developing at Shapeshift. So thanks much for coming on, Eric.

Thank you guys for having me. I'm sure you have told this story many times, but still people will enjoy hearing about it. Can you run us through a little bit? You know, when did you originally get involved in Bitcoin? How did that happen? So I moved to Dubai after college in early 2008. And while I was over there, I was watching the entire global financial crisis happen. And I got really interested in money and banks and central banks.

And I started realizing that government probably shouldn't be involved in money at all, and certainly shouldn't be centrally planning it, like some kind of Soviet shoemaker phenomenon. And I just, I didn't really know how that would be resolved. I didn't know what kind of money could ever replace government fiat. And then fast forward a couple years, I'd moved back to the U.S., joined the Free State Project up in New Hampshire, and I learned about Bitcoin from a Facebook post, and I was mid-2011. And I immediately realized that this was the answer to that issue.

It was a free market form of money. And the world had never had that in any sense where it could just be transferred anywhere in the world instantly. So I fell down the rabbit hole, and I stopped doing everything responsible that I had been doing. And ever since then, I've been involved in Bitcoin in helping this industry to grow. And with all the projects you've worked on, what's the common thread?

The common thread in some degree is that they are somewhat simple. I'm not a technologist. I'm not an engineer. So my understanding of blockchains is very high level. And that kind of precludes lots of projects that are very intricate and complicated from the, at least on the surface, because I wouldn't be able to understand them anyway. So, and I guess the other threat is there are services that I would want to use. So Shapeshift's conception was because I wanted to buy some kind of alt-coin several years ago.

And I had Bitcoin and I wanted to be able to do it quickly. I didn't want to have to sign up at an exchange and wait for a few hours or approvals or my bid order to fill. I just wanted to snap my fingers and have that other coin. so I realized that needed to be built. And yeah, I mean, in crypto there are a thousand good ideas just kind of hanging out waiting to be built. And so one of my challenges has just been in trying to focus on specific ideas instead of letting myself get overwhelmed with all the various things that could be done. So if there's so many great ideas, what's the process by which you arrive? at, you know, this is the one and not some other one?

I don't think there's necessarily a scientific method to it. Sometimes it's just one of those kind of eureka things when you think of a concept and you get excited about it and then the next day you're excited about it and a week later you're still excited about it. And eventually, just to get it out of your head, you have to do it. And then, you know, you dive in and you start figuring out some of the finance behind it and if it can actually be a viable business, what you would need to get it started, who you would work with. And if it starts passing all those checks, then it starts to become a viable

a viable project to pursue. Cool. Maybe one last question sort of on this, on the new evolution in the early stage. So when you think back to when you first learn about Bitcoin and started to understand the concepts and the implications and then, you know, kind of project it forward, okay, where is this all going to go? What's going to happen? What did you? What did you? get right about this and what are some things and developments that have happened that are just you know completely surprised you yeah great question um so what i got right was that bitcoin would be huge and it would start to take over the global financial system that is absolutely happening um so that's been really exciting to see you know bitcoin costing a couple thousand dollars

every major financial institution investigating this technology, tens of millions of users around the world, and really just an incredible growth in the transaction count and the number of services, and it's just continuing to expand, which is what I hoped and what I predicted would happen. What I didn't predict was that money as a usage would be just one little branch of what blockchains would. would end up doing. I'm still most interested in the money branch. I think that's what the world needs the most is a form of free market money. But blockchains have now spawned all sorts of these other tokens, some of which are really fascinating, even though they're not related to money.

And in 2011, I didn't imagine that kind of thing, whatever happened. And certainly, up until about late 2013, I was very much a Bitcoin maximalist, and I thought all these other digital asset coins were stupid or distractions at best. And I was totally wrong about that. So that's something I got wrong as well. It's great to see someone that has sort of a humility to be able to say, you know, I was wrong about this one thing. And now, you know, I've changed my viewpoint on that after getting all this new information.

That's something that's not really common in this space. So I applaud you for that. Yeah, I mean, I'm wrong all the time. So I don't mind admitting it. So you just recently raised a significant round. Congratulations. Yes, although compared to a token sale, not so significant. But for a Series A, back in March, we closed our Series A.

We raised 10.4 million in an equity deal for ShapeShift, led by Early Bird and Lake Star out of Berlin and Access Venture Partners in the U.S. plus Pantara, blockchain capital, and digital currency group. So tell us a bit about that round. So these investors, are they strategic for you in any way? Why did you choose to work for these specific investors? So there are sort of two groups, the crypto investors, blockchain capital, Pantara, and digital currency group, and then the more traditional VCs that have not really been focused in crypto.

You know, I probably spoke with at least 70 VCs, maybe 80 or 90, over the course of four or five months. And a lot of them really, I think, didn't understand Bitcoin very well, especially the U.S. VCs. I was really disappointed in them. The European VCs were a lot more, they had a better understanding of blockchains generally. They also had a better ability to imagine what it could be. and the US VCs, and I'm generalizing, of course, but they were largely disenchanted that Bitcoin had gone through this correction after 2013 and that the Bitcoin companies hadn't just gone directly to the moon.

I think they're sort of fair weather investors. They invest when Bitcoin is hot, which is kind of silly because if you're a sophisticated financial individual or firm, that should not be the reason why you invest in something. You should invest in things because you see the fundamental value of them and you're there before the rest of the world starts buying them up. But for all the sophistication that some VCs proclaim, they really are not able to see the potentialist technology

until the price is spiking. That's interesting. You'd say that, I mean, I've seen the same thing in this sort of understanding of, of blockchains, as you mentioned, by the European VCs. And what's interesting is that although they understand it, they seem to understand it more, at least they seem to understand the potential a lot more.

They have this sort of risk-averse. They're sort of more risk-averse. And so it's harder to get them to sign on. And we recently raised some funds at Stratum as well. And actually, we're also at DCG. And we saw a lot of BCs that, It's like they understood it. They saw the vision.

They understood the vision. They understood the potential, but it was too early for them. You know, and so, yeah, there's sort of a, you know, a difference in investment thesis between the U.S. and in Europe on that front. Yeah. I also think that U.S. VCs are just more frightened of regulation, understandably. the U.S. is really problematic in that regard. So I can understand that U.S. VCs would be more hesitant to invest in really innovative projects that push the boundaries of the things, which is really tragic that in the U.S. people are scared of that,

and projects that really provide a lot of value don't get funded because people are scared of regulations. Yeah, I mean, I would imagine, and I'd be curious on your take on this, but that a lot of VCs probably would not invest in something like shape shift because of, you know, the anonymity and, you know, no, you know, you don't have user accounts. You can't like track people properly or really, right? So the whole, I mean, of course, you guys were the, I think, first or one of the first companies to say we don't do business in New York. So I'd imagine like around these, there probably a lot of concerns we sees have.

Yeah. it's really a shame that the environment is like that. I think when the internet was getting started, it did not have a similar kind of environment where everyone was paranoid about regulations. I think being in a post-9-11 world, government agents always just have this fallback of if something increases any kind of risk of anything related to terrorism,

that thing must be illegal immediately. which is absurd because every useful technology can be used by any bad person around the world. And I feel like now the useful technologies have this greater burden of moving through that regulatory morass than they had before 9-11. And this is a little off topic, I suppose, but I might say that the terrorists kind of won. If all of Western society chills itself, chills its own business and its own business, and its own growth because of this perpetual fear of the terrorists, then I think they want. Let's talk about the product roadmap a bit. Can you tell us about what is in store for ShapeShift in the next two years?

Are you looking, is this round going to help you build more products or build more stability and scalability in the existing product style? Both. So we're trying to build new products like Prism is our latest and there's another one called Arbiter, which we're hoping to release later this year, but we haven't revealed many details about. And then we have Coin Cap, which has been sort of a side project until now. So we have these various projects that we're working on. And at the same time, ShapeShift itself has gone through absurd growth and just keeping it running and growing and scaling is an immense engineering challenge on its own. So trying to balance our resources and our people and our attention and our coordination between keeping shape shift running and growing and then, you know, kind of advancing the state of the art with some of our newer products has been interesting.

And with all of the growth that you've seen recently, how has how have you, your infrastructure and the products being able to, you know, deal with that with that growth? Have you had any issues there? We've had a million issues. Yeah, we have issues every day. Things we've got to take care of and fix. And some of the issues are our own software. Some of the issues are the blockchains themselves. And we then become like the steward and the mechanic of the blockchain itself.

And this has been true of Bitcoin. This has been true of Ethereum. This has been true of almost everything that we've plugged into. They all have their different eccentricities. And we're using the node software for these coins. on a scale that generally the developers have never used or been able to test before. So for example, ShapeShift is about 2% of all the Bitcoin transactions in the world right now. And the number of transactions we do per day and the issues that causes with the fees we have to pay

and whenever blocks start getting full, 1,000 support tickets can immediately open up from people who didn't get their transaction processed when they thought. And on the Ethereum side, like these ICO transaction spikes, have just been, like, horrible for the user experience. And because this industry is growing, most users are new. And this is something a lot of people don't realize is that as long as we are doing our jobs well and this industry is growing,

the majority of people using this technology will be new to crypto. So there needs to be really a good focus and attention paid to taking care of those people and welcoming them in and understanding their issues and not dismissing them just because they're not highly technical. Yeah, I mean, that makes a lot of sense. For someone who's, even for someone who is familiar with crypto, I think it can be frustrating. Yeah. When you're trying to invest in a token sale, you didn't buy your ether ahead of time.

You're trying to get that transaction through. I had a similar experience recently with something like that. Let's take a short break to talk about the I-Price, a competition being run by the Energy Innovation Hub. The I-Prize is all about the machine economy, the rapidly evolving relationship between humans and machines, with huge technological revolutions coming like blockchain and artificial intelligence. Some crazy changes, new developments are ahead of us like autonomous driving, self-organizing, supply chains, DNA replicating robots, and so much more. If you're doing work around these areas, the I Prize is your chance to do like Elon Musk

and take it to the next level. It's a competition that's being run until July 28th. Startups can apply in three different categories and have a chance to win up to 250,000 euros in seed funding. Even if you just have an idea, you can apply as an individual and get a stipend, office basement in Berlin, and mentorship to grow your idea. So whether you're just mulberry, over or world-changing idea in your basement, have built your first prototype or founded your company, you can participate and make it to the great finale in Berlin on September 28th. So go to epicenter.tv slash iPrize, that's IPR-I-Z-E, to learn more about the competition and how you can apply. We'd like to thank Energy and the I-P-Prize for their support of

Epicenter. Talk to us about where a shape-shift is going. Like, where would you like to see ShapeShift in the next two to five years? My thesis since I started Shapeshift has been that digital assets would become greater in value and quantity than all analog financial assets combined. Which might sound a little crazy, but you could have said the same thing about digital communication or digital mail back a few decades ago, that someday digital communication. and emails would dwarf the quantity of traditional mail, and that would have sounded kind of crazy. But now, of course, it's true, and not only did it dwarf it, but people use digital communication in all kinds of ways that didn't have anything to compare it to in the analog world. So I think the same now is happening in finance, and you're going to have a whole world of

digital assets that are vast and diverse, and shape-shift is meant to be the best fastest safest easiest exchange to convert any digital asset into any other so in that future shape shift can really be a massive company and that's that's the goal I mean we we want to be processing tens of billions of dollars of trade every day on shape shift and that's the future that we're we're building for so you see kind of shape shift that is as is you know almost infrastructure structure layer that we've seen happening to some extent too, right? When you have in a wallet like Jacks or in other services where, you know,

Shapeshift is directly integrated and it's like, you know, service in a way or it's like a functionality that you can add to a product, which is kind of pervaded by ShapeShift. Yeah, and roughly 75% of our volume comes from not our website. So it comes from some partner over the API somewhere. And that's another thing we expected. We think, you know, a year or two for now, that number will actually be 99%. And ShapeShift will essentially be this utility that exists in the background

so that any service anywhere can allow their users to convert one asset into another just at the touch of a button. It should really be no harder than that. Those users shouldn't need to come to us and sign up with an account with us just in order to change one asset into another. That should be something that just happens. And ShapeShift is the technology that exists to allow that to happen. What's fascinating is this, you've managed to onboard all of those partners.

And I'm correct me if I'm wrong here, but there's no affiliate commission for any of these transactions that they send to. Like this 75% of transactions going through ShapeShift from these partners. They're doing it just out of wanting to have this feature in their wallet, correct? Well, they're also making a lot of money from it. We have a commission split with them. So some wallets, yeah, we pay roughly, well, exactly 25 basis points on any volume sent through us. And that has become a huge payment every month to some of these wallets. And we are really their only source of revenue, or at least their primary one.

And our growth has actually provided a revenue model for wallets, which didn't exist really before ShapeShift. people making wallets always had like the worst of both worlds where they simultaneously was making projects that was holding tens of millions of dollars of customer money so security was paramount and yet no one wanted to pay for the service so they had to do something that was super high risk without any financial reward and it's been really nice to see a sustainable business model now provided to some of these wallet companies you know when I first learned about shape shift I felt like it was a bit of a hack in some way, you know, in that you like you're plugging into these exchanges, right?

And it's like you're almost providing this kind of glue between exchanges. Okay, makes it easier, right? Because you don't have to sign up and, and, you know, make the account and transfer there. So you obviously take out friction from the process, but it's like you're, you know, you're writing on the back of centralized exchanges with their order books. Do you think in the, do you see in the future that this is going to disappear and the back end is going to look completely different without this big role of centralized exchanges? Shapeshift will always just plug into whichever exchanges have high liquidity.

And right now, the ones with high liquidity are the traditional order book exchanges. If that changes in the future and if people have more decentralized order books or something like that, Shapeshift will just plug into those as well. So we're kind of, we don't really care which exchanges succeed. or how many there are or what their makeup is we just plug in wherever is most liquid and we take away a bunch of friction for users that that's that's really like our our point the point of shape shift is to reduce a significant amount of friction from something that a lot of people in the industry have to do and by

offering that we accelerate the entire growth of the industry by by just removing work and time and costs from what people would otherwise be doing well let's talk about Prism. So can you just give a high level overview? What is Prism? And why did you guys choose to launch this product? Yeah. So Prism is arguably the world's first smart contract commercially available product, financial products in existence. There's a million projects that are being created with smart contracts, but few of them, if any, are really, really least yet. And we've been working on Prism for about a year and a half. And essentially it allows someone to gain exposure to a basket or a portfolio of digital assets. So someone who wants a

$10,000 portfolio, half of light coin, 25% dash and 25% rep, they can do that with Prism very, very easily. And the key is they don't have to leave their money at an exchange. And the industry has continually not learned this lesson that these centralized exchanges with hundreds of millions of dollars or even billions of dollars, in some cases of customer deposits, are a huge risk not just to the users, but to the entire industry. And we saw what happened in Gox and the whole industry was set back by a year or two because of that. Prism hopefully will help pull some of that usage away from centralized

exchange and people can hold their funds in a way that doesn't require the trust of another party. The only way to change people's behavior is to actually provide something that's easier than what they were using before. The reason people leave money at an exchange is because it's easier. It's easier than setting up a whole bunch of different accounts or node wallets. And so they're lazy or efficient depending on how generous you want to be. So Prism is easier than using an exchange and removes the counterparty risk. That's that's the idea. And also sort of adds the functionality right of having your portfolio, being able to manage your portfolio rather than having you know funds at one

exchange and another another and then sort of managing it yourself. This also has the feature of also has that feature. Yeah, it just it makes something that a lot of people are doing easier. Same thing with shape shift. And who did you launch this for? Who's your target audience here? Target audience for current version of Prism is casual and moderately serious crypto investors who want a portfolio that's between $50 and $50,000 of digital assets and want something easy and quick.

it is not meant for high-frequency traders. It is not really meant for super active day traders. It's meant for anyone who's holding a portfolio of assets over a few days to a few months to a year, that kind of thing. And I think quite a few crypto users fall into that category. They just want a safe and easy way to get exposure to this as an asset class. And one of the things that I've been thinking about, sort of, you know, trying out prism and, you know, thinking like, okay, where does this go?

I mean, first of all, you know, you can choose between different crypto assets, but I'm like, okay, what if you feel sort of bearish on crypto in general? It would be nice to sort of have fiat in there, too, or gold. And then, of course, you think, like, or, you know, shares of companies. And so do you see it going in that direction, too? Yep. Pretty much. Yeah.

Yeah, we have a lot of things to build onto Prism. And the first version is just what we're using to test the technology, get people to try it out, make sure it's all working properly, and get the UX smooth. But there are a lot of really exciting things that we will build into Prism in future versions. So can you run us through? How does Prism actually work? So it's an Ethereum smart contract. What are the kind of mechanics behind this?

First of all, the whole thing can be interacted with on the ABI layer, so Ethereum itself, without using Prism's website at all. We haven't published how to do that yet, but it can work that way if someone figures it out. But basically, a normal person, would go to the website, they would say, I want a prism of, you know, a $1,000 worth, and I want it in this allocation, 20% of this and 15 of that and 10 of that. And they give it a name, they say who created it if they want, and then it tells them to send an amount of ether. So if they did $1,000 of prism, they would send in $1,000 worth of ether. And ShapeShift will send in $1,000 of ether as well. And that $2,000 worth will go into a smart contract deployed specifically for that user.

And that smart contract then tracks the value of the components in the portfolio, tracks the prices. And then the user can close it an hour later or a day later or a month later. And if their portfolio components have risen, they will get back more ether than they put in and vice versa if it goes down. So basically, they never, the users never take delivery of the assets. That's part of the point is that they don't need to have wallets for each asset. They just need an ether wallet. They send an ether as collateral. They receive ether back after they've closed the portfolio.

And so it just really abstracts a lot of the value that some people. is trying to get by acquiring the underlying assets makes it easier and and safer to do. And then important to this, so shape shift is the opposing party. We are the ones putting up the opposite side right now, which technically means shapeshift is going short that same basket of assets. We can hedge ourselves in a number of ways, most simply by just buying the assets ourselves, but that's all irrelevant to the user. If shapeshift hedges or not, the user's prism will perform form as the code tells it to, and it's already fully collateralized. In the future, because ShapeShift does not want to go short on tens of millions of dollars of prisms, we will open up the

other side so that users can go long or short on any basket of digital assets. And that will then become the easiest way to go short on digital assets as well, which I think a lot of people would find useful. You mentioned that the smart contract is tracking the price of the assets. Can you Can you explain how that works, how you do that? Yeah, so the smart contract listens to an Oracle, and the Oracle is a program we wrote that is another smart contract on Ethereum, and it pulls in prices from various exchanges. It removes the outlier, it averages the remaining exchange prices,

and then it pushes that price into the Oracle smart contract. And then a prism will read that Oracle, and that's how it knows what prices are happening. So a critic could say that Shapeshift could manipulate those price feeds, and that's true. Long-term, there will be a large market of oracles that will come to being in this industry. So long-term prism will allow people to choose which oracles they prefer. Shapeshift will offer a default oracle or people can use other oracles if they wish. but that's

basically we'll just follow the industry there that's interesting at face value it looks like a pretty like a pretty straightforward simple product but when you look behind the scenes and look at the future

the potential is for potential like a marketplace where people can go short on on crypto assets also a marketplace for for oracles. Can you explain sort of what do you see as the as a long-term vision for shapeship as a platform?

For shapeshift or for Prism? No, Prism. Oh, sorry, for Prism. Yeah, so Prism will be heavily gamified. So it'll be like a highly social experience. There's a leaderboard already and people can kind of compete and see who's doing well and not. But it'll be where people acquire exposure to, digital assets long or short in a simple and easy way and they manage their their fund.

It'll remain relatively focused just doing that better and better and that'll become an important part of the industry just as shape-shift as a relatively simple tool itself of just converting an asset into another asset has now become a very important part of the crypto market as well. And often to make these simple products, it requires. requires an immense amount of behind the scenes technology. A good example is like Google, right, which is just this stupid little blank web page with a search field. Very simple. All it does is search. And yet behind Google is this vast empire of technology that they've built to continually do that one thing better and better and better and better.

And we kind of take that same principle that we offer a simple service that we know people like and we just work to keep making it better and better and better. Yeah, I mean, if one looks at Prism, it's actually the complexity of it is very interesting. And it does get very complicated, very quickly. So, for example, you know, you mentioned, okay, if I could take the other side, right? So if I want to go short some of these assets. But then, you know, like, let's say, do I put this ether into the same smart contract, but then what if that person would be balances?

and these aren't any more the assets that I wanted to go short on, for example. Yeah, so there's logistical challenges like that. So if the person going long, who is the user now, wants to rebalance, but the person who went short doesn't, how do you handle that? One way you handle it is whenever there's a change for a prism, you just invite someone else to take whatever new short position exists. And ShapeShift will always be one of the parties that can be involved, right? So if there's a prism and someone rebalances it and no other party in the market was found to take the short part,

Shapeshift will just take it. And we can hedge ourselves and do it that way. So, yeah, I mean, those are the kind of things that we have to work out to offer those features, but they're all overcomable. Well, I like about this too. You mentioned the sort of gamification aspect of it. And it's true. There's a leaderboard. You can see what users' portfoliers are performing better than others.

And I'm not sure, I'm not like, like trade effects or anything like that, but is this sort of one of the first examples of, of social, sort of applying social networking and gamification to asset management or performance? Not really. In the traditional financial world, there are a number of sites that do this. Like, I think E. Toro, they were one of the pioneers in this. And you, you know, there's a lot of sites where people can. claim what their portfolio is. But what's cool about PRISM is that because it's on smart contracts, you don't have to trust that their position is what they say it is.

Whatever you make a PRISM as, that's the PRISM. You know that the funds are absolutely there, and you know that that person has that stake. And it also, because there's no borders to it, it allows any person in the world to become like a, essentially a hedge fund manager and have people. So you can follow prisms, right?

If you know someone who's really good at picking cryptos, you can follow their portfolio, and then whenever they change their allocation, it'll change yours automatically. And future version will have like some portion of the fee of the follower go to the leader. So what this means is that like some 15-year-old kid in Africa who really knows his shit

could make a prism and have a thousand people around the world following him. And he could make millions of dollars because he has, you know, immediate access to this crypto market. And this is, I think, a really exciting aspect to this technology is that it really just flattens the whole world. Anyone who takes the time to learn this technology can rise to become, you know, a dominant figure in the new financial order,

which would have been totally impossible pre-block chain. Yeah, no, that's an excellent point. And of course, if one thinks to, you know, let's say now as shares and gold and stuff like that, also being on there. And if one thinks to, you know, countries like China or others where they have very restricted access to capital markets, that this will also be an amazing tool for people and places like that. Yeah. Yeah. Or think about someone in Venezuela, right? Like they have zero way to get exposure to traditional financial markets, either banking or more advanced things like

equity markets. Future versions of prisms that allow people to put in non-crypto assets would allow that person in Venezuela using nothing but his phone to get exposure to any asset around the world without asking permission of anyone using nothing but, you know, Ethereum is the underlying technology. That's, I think, immensely powerful and important. Let's talk about one important topic here as well, which is, so, so, so, So for example, I set up a prism, right? And, you know, it's like it a lot, but then I was, you know, kind of changed my views about how's it doing so far?

Yeah, good. Actually, I wanted to complain to you because it's up like almost 30%. But because I put in one ether and it more actually the leaderboard is showing the absolute gains instead of the relative. Yeah, so we've had lots of arguments internally about that, right? So currently the way that's ranked is the absolute gain of. the asset, right? So if you put in just 0.01f, but you had 100% gain, personally, I don't think that that is as impressive as someone who staked 10f and got half that gain. So right now,

it's the percentage gain times the principle is how it's ranked. But we've definitely had people that said it should just be ranked by the percentage gain, and this will probably be a never-ending debate. Okay. Yeah, yeah, I guess it's, or there should probably be options to just show it in different ways. Yeah. But where I wanted to go with this, so I rebalance the portfolio. And then the cost of that,

just in gas, was around $6. And of course, that kind of ties into the general question here about, you know, Ethereum, scalability, costs of transactions on there. And, you know, now with, you mentioned already in the context of ShapeShift, right, with ICOs that, you know,

like the status one, just fill up the Ethereum network for a day or even longer and you can hardly do anything. So do you think it's really possible to build a consumer-facing application that will have, you know, even a tenth the number of users that ShapeShift has on Ethereum? Yeah, totally. But these things are like a continual process of improvement. And this is true of any blockchain. They don't come into existence perfect.

They come into existence as a prototype that gets built on and improved over time. And this is why it's important for blockchains to be able to have some degree of adaptability and upgradeability over time. Ethereum is running into a whole bunch of scaling problems, just as Bitcoin has. They're not the exact same problems. And just because they both ran into it doesn't mean that both technologies don't need to take it seriously. But these are the challenges that the protocol developers have to have to handle. And ultimately, whichever blockchains do a better job of adapting and making things more and more efficient, those will be the ones that win business over time.

Yeah, it's a good point. I mean, one way I've been thinking about this is that, you know, if you look at Bitcoin, I think the scaling problems are mainly political. I think it's perfectly possible, right? But then if you look at Ethereum, I think it's a much healthy community. in that, you know, if somebody proposed, like, you know, a really good way forward to scaling, I think they would actually adopt it. But it's just the scaling problem is, like, extremely harder. And they really need to have major technical breakthroughs, like sharding or proof of stake to probably both,

to actually be able to scale it, you know, to have applications like Prism, all these ICOs and all these other things that people are working on really work on Ethereum. Yeah. And there will be tradeoffs. and this is one reason why I left the camp of believing that there would just be one blockchain in the universe that would handle everything, is because if you have a blockchain that is maximized for efficiency in one way, that might actually decrease security in another way or usability in another way or simplicity in another way.

And I think there are going to be a number of blockchains for quite a while, maybe forever, and there will be millions of tokens on these different blockchains. and it's an immensely complex industry and an immensely complex set of systems and everyone is just experimenting in all different directions. It's a really intellectually exciting process and I'm hopeful that people realize

that it is a process and that this is the challenge that us in the industry face is how to make this stuff better and better and better. And the reason that's important because of that, it's important that people remain civil with each other, remain productive with each other and helpful, because we really need

a lot of people working all the time to make these blockchains increasingly useful for the broader world. So one last question on Prism. You mentioned, I think, in the Ether Review podcast, and it's come up in other conversations too, is that you can tokenize a Prism, right, so that I can basically send somebody to token and then kind of behind this, there would be a portfolio of assets, and that very interesting new applications could be built on prism or using some of these tokenized prisms. What are some of the ideas you have in this direction? What kind of applications do you think would be most exciting to see? Yeah, so to sort of reiterate that point, you can make a prism, let's say you made one that was worth $100,000

and it had the top 10 crypto assets in it. You then have a smart contract on Ethereum that is. as valuable as that $100,000 and the and the assets within it. Someone, and Shapeshift won't do this, but someone else, anyone else, could tokenize that smart contract. They could issue, let's say a thousand tokens,

each one equaling a thousandth of the right into that $100,000 basket. And those tokens now can trade around as liquid assets and move between people. And us at ShapeShift and Prism, we can't even prevent that from happening if we wanted to, which we don't. But that's kind of the cool power of this stuff. And to really blow your mind, imagine if since people will be able to go short, you can actually create negative coins.

You could tokenize a negative basket, a short basket, and you could have a token that moved around that was like a negative coin or like the antimatter. You can make like an anti-Bitcoin, which would move at the opposite direction of the price of Bitcoin. This is like the really cool kind of financial technology that's going to be normal in the future, but which we're just starting to explore now that people have figured out how to tokenize value. So we're really excited to see that kind of thing get experimented with and built on technologies like Prism. So you mentioned earlier that there were some other products that you were working on, Can you talk about some of those?

Nope. I can say the name. Our other major project is called Arbiter, and we're hoping to release it later this year, although with the growth of ShapeShift, it's really kind of gone on the back burner, unfortunately. But we aren't releasing any details on that yet, but we will when we can.

Okay, great. Okay, so moving on to other topics. So we've covered the scalability topic. at nauseam, it seems, over the last few months. And we recently did an episode with Jimmy Song talking about what is happening in the Bitcoin space at the moment, what will likely happen in the next few weeks with regards to segregated witness and all these different proposals. And so we'd like to get your thoughts on where you see sort of Bitcoin at the moment

and more broadly, what are your impressions on what's happening in the cryptos space? And by that, I mean specifically the uprising in ICOs these last few months. Yeah, so with scaling, I'm a big proponent of the Segwit 2X plan, not because it is perfect, not because it is better than any theoretical alternative, but because I think it is the only viable actual option to moving Bitcoin forward. And given that it has more than 80% of the mining hash power supporting it, or at least indicating that they will support it, I'm pretty bullish on it,

and I'm really excited for that to move forward and activate. I want Segwit on Bitcoin as soon as possible. I also want a hard fork to a larger base block size. as soon as possible and Segwit 2x hopefully will make those things happen and if it does it will move Bitcoin out of the trough of misery that it has been suffering in over the last greater than two years and this summer might be really volatile because no one's quite sure if Segwit 2x will activate or if UASF will happen on August 1st or something else so who knows what will happen in the short term but once Bitcoin moves past this

debate and actually gets Segwit and hopefully gets a larger base block size. The rally that I would expect to occur in Bitcoin will be unlike anything that people have ever seen before and it will finally allow the community to get back to its important progress of actually building on Bitcoin and making it better and building cool things on it. This stagnation has been really horrible for Bitcoin and I almost don't care. what plan moves past it, I just want something to happen. If it doesn't, if the summer fails to find some kind of resolution to this debate, then I'm pretty bearish on Bitcoin, and I think it'll probably be replaced.

Yeah, no, I very much agree with this assessment. It's, I mean, it's been way too long, and Bitcoin certainly has, it's also been interesting, right, to see how it's informed a lot of new protocols. calls almost any new kind of blockchain that's being launched right whether that's cosmos or tasers or many others that are coming they all have or definitive they all you know have governance and on-chain governance as like a high priority I think we've seen in Bitcoin just a massive problem it causes when you know people is users you know you don't feel you have any say in this it's just a bunch of people

who are in a very small number of people who are really deciding where this goes. Yeah, and something to point out with that is, like, most people in the Bitcoin world read the Reddit our Bitcoin page, and I think that still feels kind of like the locus of the industry, like sort of the main information hub, even though it's gotten totally toxic. And there are like 250,000 subscribers to that. there are like 10 million users of blockchain.infos wallet alone. There are like 10 million users of Coinbase. The community is so much larger than Reddit

and people that live on Reddit, I don't realize this. So I was in Berlin last week at a meetup and Peter Smith of blockchain asked the group how many of, this was like a Bitcoin crypto meetup in Berlin. He asked the group how many of them knew about Segwit 2X. And I expected like 80 or 90% would raise their hands. And it was maybe like 5% even knew about it at a crypto meetup in Berlin. What that means is that the community is vastly larger than most people realize.

It is more diverse. And a lot of people are just using Bitcoin as an economic tool. They are not involved in the political discussion. They are not hanging out on Reddit. they're not part of all this stupid drama and all the hatred and vitriol from one person to another. And I was really inspired by that, and I was really glad to see it. So, again, I just am really hopeful some kind of conclusion will happen this summer. And then Bitcoin can get back to its important fight, which is actually taking over the world of finance.

I don't want to be like the Debbie Downer in this. But I mean, I've got like a more nuanced, I wouldn't say pessimistic, but maybe realist view. of things and I'm not entirely hopeful that if Segret 2x goes, it passes and becomes the standard that this will do anything to eliminate, you know, this drama and these fights in the Bitcoin space. I don't know what that means after Segwit 2X, if Segwit 2X gets implemented. but I don't think that Segbit Twix turns on and then like everyone's like happy, you know, just like, now we're going to go take over the world of finance. You're right, but it does move, it does move the debate forward. And the debate has not moved forward in over two years.

And what it does is people no longer will argue and bicker about whether Segwit should be activated because it will be active. People will no longer argue about whether a block size increase to two megabytes should happen because it will. will have happened or it will be locked in to happen. That doesn't mean that all debates go away and it doesn't mean that scale over the next hundred years is solved, but it does mean that we actually got through the clog of the last couple years. And I think just psychologically, that will be a huge relief to the entire community. Yeah.

I think there would be, like the pressure valve will definitely be pressed. But I think, Fundamentally, as Brian pointed out, these are the blockchain's have governance built in, and Bitcoin will still not have governance built in. A small number of people will still be controlling essentially the evolution of Bitcoin and the new features that come in. The 95% of people that don't know what's going on will continue to not know what's going on or have a say in new features and the evolution of the protocol. But that's going to be true. I think we'll just be here again, you know, for the next thing, whatever it is, like moving to Forex or some other feature in the future.

Maybe we'll have to see. But no blockchain is going to be immune from that same problem, right? You're always going to have like a central group of people that are very much skilled and with a lot of experience in the technology that spend their time developing it and really know it well. And then you're going to have the 99% of normal users that are outside of that. that'll be true on Ethereum, that'll be true on Bitcoin, that'll be true on any other different blockchain project. And so that's something that's unavoidable, but it's also okay, right? You don't need the 99% of normal casual users to be involved in deciding how the technology progresses. That's

okay. I don't think you would want that even if you could have it. That's true. I think that's true. However, I think that in this particular type of technology, those people can be greatly affected by decisions made by the small number of people. And I think that having more balance there is something that we should try to move towards. I don't know how, but having some sort of governance, at least some sort of governance that is structured that would be. a step towards that? I don't know. It's a slippery slope. When you start having structured government, governance, you start moving toward an organization

that can be compromised. Part of, you know, as difficult as Bitcoin has been in making progress on this one debate, it also is showing immense resiliency to change, which is good and bad, right? It depends what the issue at hand is. But you have to be careful if you want something like, like a blockchain project to turn into a more traditional-looking organization with a hierarchical structure and certain people who make key decisions. Like, that's not necessarily the best way that a blockchain should exist. And I don't know what the best way is either. But thankfully,

there's not just one blockchain in the world. Thankfully, people can experiment with this technology and try all different kinds of things. And the world, 40 years from now, will have the benefit of all that learning that we dealt and suffered through right now. It just occurred to me that I'm speaking to a libertarian. So I was just reminded of that. But yeah, it's, I mean, personally, I'm like you, Eric, I'm super excited about the, the, just a financial use case of, you know, money, you know, decentralized money and payments and things like that.

But the other main thing with blockchain is that I'm most excited about is the idea of basically new forms of organization, if decentralized, forms of organizations and decision-making. So I think that's going to be one of the most exciting areas to see. And I think if you- Well, token sales are a really good prototype of that, right? Absolutely. Yeah.

Yeah. Token sales are this incredible phenomenon. I mean, they're in a mega bubble. They're mega frothy. A bunch of them are going to just fail and go to zero. And that's okay. Like most startups fail and go to zero. But the model of token sales is absolutely worthy of people

experimenting with. And I think a lot of funding of projects, both for-profit and normal organizations in the future, are going to be done through token sales. And then you get a very different dynamic of how things work today, where money comes from a small group of people, like in a VC, and instead you have millions or hundreds of thousands of users that all participated in something, and the governance of that organization will look very different. So that'll be pretty cool to see as well.

Yeah, I agree. And I think the implications, I mean, governance, but even more than the governance, right, you have to build different kinds of products because this token has to be at the center of it. So I think it will just completely change the way startups are structured, owned, organized, funded. We will really create organizations of a shape that I don't think we can even imagine today. Yeah. And one prediction I will make is that traditional. equity markets are going to go away. Like right now the world has these sort of jurisdictional-based equity markets, like the New York Stock Exchange or NASDAQ. And they're very much geographic.

You can't necessarily access them from anywhere in the world. And they have a very, you know, strict set of rules and who can participate, and there's just an immense amount of friction in actually doing an IPO on these markets. With tokens, you're actually going to discover companies don't, IPO, they do a token sale. And that is the final liquidity event. And that's what trades around the world is the token, whether it's equity token or an app coin. It's not equity is depending on the project. But I think this traditional model of these jurisdictional markets is going to go away. People all over the world will trade tokens on international markets that have no borders at all.

That's one of the things that I think blockchain's absolutely guarantee are inevitable. Cool. That's an exciting, exciting picture. Unless you're someone who wants to enforce borders. Yeah. Well, probably not most listeners or people in the industry. So if you look at the industry today, people working on blockchain, Bitcoin, Ethereum-related things, do you think there's something that people just get wrong and that, you know, you feel very strongly about that most people don't have on the radar or disagree with you on? I think there seems to be this sentiment that if a project fails, that it was never worth trying in the first place.

And that if a company does a token and issues a token and a million people invest and millions of dollars are raised and it fails, there seems to be this idea that it should have never happened, that those people got ripped off, that it was a scam necessarily, simply because it failed. and I think that's a really bad way of looking at it. I think most experiments fail, most new projects fail, and people should be allowed to fail without it being like some sort of horrible thing.

And that means that people investing in projects should expect most projects to fail. They should expect the token they buy to go to zero. Instead of, you know, assuming that just because a token is issued that the project is valid. And I think it takes a little bit of personal responsibility. and willingness to let things decay and be rebuilt. Many people are not comfortable with that, but I think it's an important part of any healthy market. So Eric, today you're working, you know, you have shape, shift and then prism

and a bunch of kind of projects that came out of this. But, you know, let's, if you kind of put yourself into position, you know, if you were where you were in 2011, you know, you're just kind of starting in this industry, in this, area, what would you do? What would you focus on? If I knew everything I know now? No, no, I meant today.

You know, we're like, you know, somebody like you, if they came to you and asked, like, what should I do? What kind of area would you work on? I mean, because you have kind of your legacy and your history and your company and your commitments, right? So you maybe don't have the same kind of freedom to just look at everything and make a decision.

based on that? Probably the most important lesson is that ideas are worth almost nothing and that it's all about execution every single time. And what that means is that people spend way too much time like looking for the next big idea and not enough time like training themselves and working with others on how to execute something. Much better to have a mediocre idea and execute well than to have an amazing idea and not execute.

And this is something that I've sort of learned over my career. career in Bitcoin. So that would be lesson, lesson number one. And lesson number two would be, don't expect to figure out what you should do right away. Like I spent a good six or nine months after I learned about Bitcoin before I was doing anything that was, you know, commercial before I joined BitInstinn or started Satoshi Dice. And it just, it takes time to really learn an ecosystem, to learn who people are, to learn what projects are happening. So just spend a lot of time like learning this stuff. Meet people, go to conferences, not because you want to strike a deal with someone,

but because you want to learn and just absorb. Spend a long time absorbing this stuff, and then the right path will probably present itself. And then it'll be wrong, and you'll fail, and you have to go do that again. And if you do that 10 times, something magical will happen. Cool. Well, that's a wonderful note to end on. So thanks so much for coming on. Eric was a great pleasure talking with you. Yeah, thanks, guys. It was fun.

Of course, thanks again for a listener as well for tuning in. We're going to have links to Prism, to Shape, Shift, and to some other resources if people want to dive more deeply or try out some of the products. And yeah, with that, we're at the end of our episode. Thanks so much for listening. We're going to be back next week with another episode. And if you want to support the show, then one valuable thing you can do is you can leave a review on iTunes or some other platform you listen to the show.

and of course you can also send a tip in Big Conner and Easter. So thanks so much. We look forward to being back next week.