Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Tim Swanson: Busting the Great Wall of Hype

Episode Date: December 13, 2017

In the blockchain world, few people are as brave as Tim Swanson when it comes to busting hype. Tim’s unbiased, honest, and sometimes controversial opinions provide a refreshingly realistic view of blockchain adoption and applications of this technology by people and businesses. Cutting through the hype, the over-sold press releases ad the blind optimism of a completely decentralized economy, Tim’s insights provide a sobering look at the state of the blockchain. Topics covered in this episode: Tim’s background and recent departure from R3 The current state of the enterprise blockchain market The state of Bitcoin in the context of the recent price increase Tim’s thoughts on the recent spike in ICO’s The rumors and concerns surrounding Bitfinex and Tether The rise of Bitcoin and cryptocurrencies as an asset class Current problems in Bitcoin: governance and centralization of power Tim’s new project: Post Oak Labs Episode links: Tim's Blog: Great Wall of Numbers Bitcoin Is Now Just A Ticker Symbol and Stopped Being Permissionless Years Ago Who are the administrators of blockchains? Eight Things Cryptocurrency Enthusiasts Probably Won’t Tell You Post Oak Labs This episode is hosted by Brian Fabian Crain and Sébastien Couture. Show notes and listening options: epicenter.tv/213

This is Epicenter, Episode 213 with guest Tim Swanson. Welcome to Epicenter. The show which talks about the technologies, projects, and startups driving decentralization in the global blockchain revolution. My name is Sibas Sincuu, and my name is Brian Krobyan-Krain. We're here today with Tim Swanson. Now, some of you have been around for a long time,

and you may remember Tim Swanson, but most of you probably don't know Tim Swanson yet, since most of you have reasonably started listening to it. So Tim has been on this show twice before, But I was just checking before. It's been a long time since he was on before. The last time was in June 2015, so almost two and a half years ago. And back then, you know, there was a lot of enthusiasm about Bitcoin and cryptocurrencies like today.

And it was really hard to find anybody who could speak critically about it and have actually be skeptical of this whole thing. And at the same time, understand it. There was plenty of people who said, like, oh, it's nonsense, but they didn't actually understand the thing. So Tim was the only guy, really, we could find for that. So we had won a bunch of times. And then Tim went to work at R3. He was there one of the first people, and I recently left. So he's been kind of one of the most astute and critical observers of the industry for a long time.

So, yeah, thanks so much for coming on again, Tim. Oh, my pleasure. Good to see you guys again. Yeah, so since your fame, of the past, I think has probably gotten, like, drowned a bit in hype and price and noise and all the new stuff going on. Can you share a little bit about your background? Like, how did you originally become interested in Bitcoin and blockchain?

And what was your kind of story through that? Sure. Origin story. We're waiting for Stan Lee to make a movie, a live-action movie, this one. So I initially heard about Bitcoin, July 2010, when it was on Slashdot. slash.org. Somebody posted, I think it was version 0.3 around that time. Yeah, I believe that's the correct change on it. And then I didn't consider it very interesting until really fast forward to end of 2012. I had this, I was on a mailing list and got into a debate with the number of people

who said, oh, you could do other things beyond just payments. You could hash contracts. And so all these different buzzwords that eventually became the talk of the town in 2013, 2014. So I ended up mining that fall on Bitcoin, and then I switched over after the having to Lightcoin, and then I got rid of everything before I moved back to the U.S. into 2013. And then when I moved back out here, it is interesting. I think that we were all looking at the rooms. It looks like we're all in the same rooms that we were the last time I spoke with you. So I'm still based here in San Jose.

My wife is a chip designer at a large semiconductor company that everyone's aware of that's not going to go into. But bottom line, when we moved out here primarily for her career, I was also looking into the cryptocurrency world. And that topic was something that people have written on, but primarily around prices. And I've never really interested in price action. I know there's plenty of people that are, I guess, paper millionaires at this. stage and have fun paying your taxes on that one. Anyways, my kind of research in discovery process in early 2014 led me to writing a book, which then kind of moved me into the space, and then I wrote another book, and then I ended up working for a couple companies in the space.

So that's a quick rundown of what I did prior to basically R3, and then I left a couple months ago. It's set up my own advisory company called Postoak Labs, which basically works with about half the clients are enterprise-related, and the other half for cryptocurrency-related projects at this stage. Again, just for people who are aware, my role at R3 was head of market research, so I had a chance to look at around 500 or so different entities. These are companies, startups, universities, working on some kind of blockchain thing that they would talk to us about. And I was usually that first entity within R3 that had a chance to speak with them. So I've had a chance to see the good, the bad, and mostly the ugly of this space.

And it's good to be back so we could knock some of these out of the park and to find out what's real and what's not. So when you were speaking to these startups at R3, I mean, we've actually spoken in that context as well in the context of stratum. What's like the most craziest idea you've heard of those 500 or so startups that? that you talk to. Like craziest in terms of like absurdity or in terms of like crazy ideas

that might actually come to fruition? Yeah, you have a spectrum of various dimensions. You have the things that are just outright illegal, which are these, not even the ICO things, but ways to really make it difficult for you to trace any kind of account, I don't want to say accountability, can't trace funds easily. It's actually the opposite of what a blockchain typically is used for,

right? And so the key thing that they were trying to sell us on or saw me on was effectively money laundering and tax evasion. So that was pretty good. I won't mention the name of the project, but I actually saw that more than once early on. And then some of the other stuff, I mean, if the goal for financial institutions to use as tech is to automate processes that are either time-consuming or costly or, you know, there's breaks in trade or something like that, if the goal is, is to digitize, automate, and then cryptographly proves that that stuff is taking place, then some of the visions that some of the entrepreneurs had is to effectively replace entire intermediaries and market structures. Again, I'm not saying that will happen,

but that's generally, like, one of the pitches. I'm sure you guys saw this, especially in 2015, you're in that initial hype curve, through Cybos and I guess money 2020, all that stuff that happened at the end of that year, people standing on tables saying blockchains are going to destroy, you know, X, Y, Z, just fill in the blank. And, obviously, maybe that could happen, but it certainly did not happen in that time frame that a lot of those, you know, I don't want to say just consultants, but generally speaking, the big, the big four, you know, trotted out there guys on stage saying this is, this is exactly what's going to happen early 2016. They started partnering with startups. And most of startups, I'm not going to

mention names, but failed to really see traction because they simply didn't realize how hard it was to get an enterprise sale. That sales cycle is not only annoying, but it's going to be demoralizing because you have to sit there and explain to not just one committee, but like 15 different committees over a process of a year or two. And then you find out that the software that you built isn't easily reproducible in other institutions. So not to belabor this point, but you've had a lot of these really clever, smart entrepreneurs building really useful stuff,

and then they bring it into an institution. They customize stuff around it to make sure it plugs into legacy infrastructure. And then they're like, oh, I guess I'm going to go try and sell this now to this other competing bank or whatever it might be, and then they find out that they have to recustomize it, and then they have to do the same kind of recustomization

along the way for all the, all the infrastructure and all these banks. So I thought to say that you shouldn't do it. I don't want to say anyone listening to this show, don't be an entrepreneur, but just eyes wide open, if it was easy and really quick, you know, get rich quick as people like to think this space is, it's really not.

It's maybe give rich slowly at most. And you're going to have a lot of bumps in the road. So, yeah, the enterprise side, still going along. We could talk about that if you guys want in more depth. But that's just one part of the space versus the whole cryptocurrency world. One of the things I'm curious, maybe this is a bit an unusual question. Like, you have this, I think, kind of unique perspective in having this highly, like, skeptical outlook on everything.

And, you know, you really seem to, like, not be affected at all when, you know, back in 2013 and 14, there was this same kind of enthusiasm that we have today, right? And like, where does that come from? Well, I don't see any benefit of being super religious about stuff. Again, I'm not saying you shouldn't be excited or passionate about or even enthusiastic about the topic. But we've seen historically lots of manias that go on. You've seen it in tech, especially with a lot of companies jump into the social media world, solar panels, VR most recently, VR and AR world. So it doesn't, I don't see the benefit of becoming a fanboy of anything at this early, early stage.

So for me, I, number one, wasn't really politically or ideologically motivated on any of this stuff. And it's kind of, I guess you could say it's benefit in the sense that I've tried to remain as objective as possible. If people would like to bring the data, like I'll give you an example of, for those viewers who hadn't seen what I wrote in the past and why end up getting on shows like this is because I was. going out of my way, doing the best I could to actually get original source material from metrics of who is actually using cryptocurrency or something, an application or whatever. And it was difficult, but I got a lot of good stuff. I guess BitPay was a company that ended up in the crosshairs quite a bit because I know no one talks about using Bitcoin as payments today, at least on the Bitcoin core side,

the maximalist that's all the digital gold narrative. But back in 2013, 2014, there were people marching in the streets, marching on social media. You had the Andreas Antonopoulos of the world saying, oh, it's going to destroy Western Union. Western Union is very much alive and growing today. All these remittance players that are considered, you know, evil baby eaters by the Bitcoiners are still alive for reasons that were different than the network. Everyone keeps on, all the Bitcoiners like to focus on, oh, there's a double spending problem that, use to be solved. Look, that's not the actual issue that for remittances. We get a whole show about that. In fact, I think that you guys should have a guy named Yakov Koffner on. He's a partner

over Gartner. He runs a website called Save on Send. He's, I would say, the best expert. He doesn't have particular allegiance to one entity or the other. He's just peer researcher. And bottom line is that you have a cost structure around remittance companies, the compliance costs, the actual physical entities you need to pay on the ground. So anyways, besides that, going back to the point, I'd like to think that if somebody presented some new data that showed people using stuff, besides, you know, prices going up, but that's just, that's a pure speculation at this stage, speculators jumping in on different coins and stuff like that. So, yeah, for me, I'm more interested in seeing how people actually use technology rather than sitting around

and writing the coattails of others who might be buying something. and hodling. No, but so I'm going to take a slightly different point of view here. I mean, so you said that there's no real point in being a fanboy. Well, you know, if you look at like the technology innovation curve, like that, that's the whole, that's the whole cycle of that curve, right? That you first have the innovators and the early adopters until, right, the technology comes to a sort of massive adoption.

Of course, you know, those of you who have read. crossing the chasm, also know that you have to cross that chasm. Do you think that we have an opportunity to cross the chasm or is this going to become like, in your opinion, will this become the segue? You know, I put things. No, so when you say it or this, so I just want to be clear for the audience, I look at the overall, within the fintech community, the blockchain world or whatever, you know, uncountable noun that no one wants to use it. No one never uses the A or D before blockchain, right? Everyone uses it as its own noun. I see it split in half enterprise world and the cryptocurrency world, including all the ICOs. I don't want to say either one necessarily

would become a segue, but what's end up happening on the enterprise front is you've had multiple vendors try to build out communities and ecosystems around that, and that's a real process that has to be done. There is no shortcut around that. You need an organic, independent community to to contribute code and applications to it. So that's going to happen no matter what, or it has to happen no matter what. And so, yes, you do need people who are fans, but you don't need to become religious about it. What's happened on the cryptocurrency side is effectively, since, you know, that huge bear run when when Gox collapsed all the way up until end of 2015 when all the different, you know,

MMM Global and stuff like that got onto the Chinese exchanges, that year and a half process in which everything was kind of in the gutter was basically an era of self-radicalization. These people, like, I'm not saying that, you know, you need to have law enforcement going and break up these groups. But bottom line is if you look at the kind of discussions and talk and verbiage that these maximalists that are still around and very, very vocal today, they effectively became their own religion, creating their own religion, which has allowed them to cross that chasm to where we are today.

that you have cryptocurrency communities, some much more bullyish than others. I would say if we're going to put a spectrum of people who actually build stuff versus people who just sit around and argue on Twitter, you have, you know, the Ethereum community has been very, very good at rallying developers to its cause. If we did any actual metrics to compare, you know, growth or usability, I'd say, And again, I don't own any ether. I'm not involved in the Ethereum community directly at this stage. I think that they've probably done the best in the sense that they've attracted a very diverse group of participants.

You have the Ethereum Enterprise Alliance, which is brought in various enterprises, around 200 or so different organizations in it. And then you also have the indie developers that want to save whales and stuff like that, which is just fine. But you have a whole spectrum of people. It's not just one group. Whereas if you look at the Bitcoin Core on the other side, you know, these these these heart most hardcore maximists that that want to like burn down institutions and they're probably going to use you know their newfound millions to try and do that but i um they they they have not been inclusive they've not been interested in in bringing in new blood into the fold they're very

clickish and in this is provable because they document this on social media but they they they they they post this stuff all the time so anyways you have communities between those two i was just giving those examples of polar opposites and again i don't own any cryptocurrencies and I'm not involved in being paid by, you know, shills for XYZ coin or whatever. I have had these views pretty consistent over the last few years. I definitely want to come back to this in a little bit because you wrote some, I think, very interesting posts around kind of control in these decentralized networks. But maybe first, so the enterprise blockchain space and then this whole, you know,

for example, R3, right, there used to be a huge. huge amount of kind of momentum and attention around R3 at one point. There was like new press releases, like constantly, new banks joining, and it seemed like it was going to take over the world in like no time. At least I think that was kind of the perception that was generated in the media. And now I think we have had a big shift where with all this ICO money, right, attention has moved kind of back to the public. kind of back to the public blockchain space, but most activities there are like new startups.

They, they, I mean, there's few new startups doing enterprise blockchain stuff. So what do you, how would you characterize like the state of this enterprise blockchain market? Like how is the progress, how much progress is actually being made and then what kind of timeline? Sure. So if you look at a Gartner hype curve, hype cycle, I would say it's kind of in the trough for sure. And how long that trough persists is not something. I could particularly guess at. But yeah, I think that the problem as a whole for the enterprise space is they did not manage any of the expectations. You had some that sat there and some of these vendors went out there and said that, you know, in six months,

we're going to put all the U.S. equities onto a blockchain for, you know, for good. And it's going to be done. And that specific entity was based out here. they had initials of DT. I won't go into the enterprise, but they didn't get funding because people realized that that's not possible

to restructure the U.S. equities market, at least on the infrastructure side. So again, going back to my point earlier, I think that because you had unmanaged expectations, you had the enthusiasm from at least the retail consumer crowd

that was kind of on looking at seeing how this stuff could impact them, When they realize that enterprise is a long-term build-out, a long-term cycle, and to them, since it's longer than six months, they decided, hey, let's go do something that's a little bit easier, quick wins for ourselves in the metrics that we've defined. In that case, in this case, it's the ICO world. So just to give comparisons, if you look at, say, a dozen or so enterprise, or startups working on enterprise stuff.

So I'll give you examples, digital asset or DAH. By the way, they just had that announcement yesterday with ASX. They're going to go through and build out the chess. We build the chess platform using a blockchain that they're built out. Again, I'm not endorsing companies. I'm just going to list a bunch. So DAH, X-Soney, Symbient, R3. All four of those are New York.

Consensus Enterprise, which is a subsidiary of consensus, also in New York. And then in London, you have Cobalt DL, SETL, SETL. let I.O. Rise financial and then Cleomatics. Full disclosure, I'm actually still an advisor to both Cleomatics and R3. And then on the West Coast, you have companies like Pyranova, chain, although I would wager that chain moves away from the enterprise space again. And then Ripple kind of has, it does have an enterprise product, but they also rely on consumer, retail consumers for the XRP stuff. So anyways, there's about a dozen or so companies. And that list hasn't grown much over the last year, two years.

If you look at the funding as an aggregate, those companies have raised maybe $450 million, headcount of a list, maybe around 1,000. So, like, DA has about 135, R3 has about 150. And most of the companies have much smaller headcount numbers. So just for comparison, I mean, it's not an accurate comparison. ICOs in the month of June raised about $600 million. I believe the number was $601 million. And, yeah, this enormous amount of conference circuit kind of what we saw at the end of 2015, early 2016, on the enterprise side. But that was just in like one country alone in China.

China alone had over 60 ICOs in the first six months and half a billion dollars was put into it before it was, I think, rightfully cracked down on because of the amount of just pure scams that were taking place out there. So, yeah, you have a shift in enthusiasm. And I think that was because you had people who were very short-sighted wanting to get rich very quickly rather than to build out the actual technology. You still have to, even with ICOs, these people that raised $100, $200,000, $300 million, whatever it might be, you can't bypass the requirements gathering of the institutions or enterprises or your income consumer, whoever it is that they actually need. You can raise as much money as you want. You can pay off as many law firms to help you get out of whatever security situation or whatever regulatory. situation it is, but you still need to build something that meets the requirements. You can't just take an airplane and hope you convert it into a helicopter and sell it to a bunch of helicopter

enthusiasts. Maybe they're going to try and do that and keep it afloat for another six months or a year, but ultimately someone's going to have to build something, and it's not this platform. Somebody's going to have to build applications, and that's why you need a community. That's why ecosystem building is so critical for the enterprise space. And that's why you end up really with kind of the consortium model is what people have felt. kind of circled around at the stage. And we can go into that if you want, talk about some of the consortions out there.

Yeah, I'd love to go into that, but maybe just one question first. So you said that there was no new, basically enterprise blockchain companies at this point, and it certainly seems like that as a little bit more of an outsider to this. Do you think this is because there's just so much of a head start

of the ones that they've started or just because it's impossible to raise money, or what's the cause of this? Yeah, it's actually a combination of the above. If you are just two dudes with the laptop right now in the Bay Area, trying to start up an enterprise infrastructure company, you're not only late to the party, but you're not going to get capital.

Because in-user, the customer infrastructure for financial infrastructure are these large investment banks, insurance companies, and regulators. So if they're not already part of your team or your conversation or you don't have advisors who used to work there, or whatever it might be, that's probably done and done on that end. Now, that's not to say that the dozen or so that I just mentioned are the ones that will be victorious. You have large enterprises themselves, like Oracle, SAP, IBM, Microsoft, to have budgets and the capacity to acquire these companies and just, you know, Oracle, I'm not saying they will do it,

but they have the balance sheet to buy all dozen of those companies and not really blink much of an eye. again, that's a hypothetical. I'm not saying that they will. But yeah, I think you need a lot of capital to build out financial market infrastructure. There's an actual term for viewers who are trying to understand this. I've written a couple of posts about FMI, specifically around infrastructure that's used by regulated institutions. There's something called PFMI principles of financial market infrastructure. And to build against those requirements is costly, it's time consuming. So I, I, I don't want to, you know, depress anyone from joining in that space, but I would, instead of trying to build out more infrastructure, I would look at building some applications on top of the, the platforms that are coming into maturity. So again, I'm not going to go into, you know, which ones they should or shouldn't. That's a whole other conversation, although we can argue about that if you guys want. That always makes for good fun. So I would agree with you that having, it would in fact be difficult today to start sort of an enterprise blockchain infrastructure

startup if you don't have those advisors, if you don't have those people in your capital, for instance. I know that in our case, it's been extremely valuable to have insurance companies invest in the company and to have those people sitting at the board and being advising the company. However, so I'd like to come back to this idea of rolling out this technology within enterprise. And, you know, a lot of these startups have been, you know, R3 included, have been working on this for two, three years, right?

I think James founded now three years ago, although they pivoted to enterprise, maybe like one year after being founded. And so far, a lot of enterprise, and I think this is true across the ecosystem, regardless of, you know, how many press releases IBM puts out that for the most part, a lot of this is still at the POC or some sort of pilot with multiple companies like some consortiums are experimenting at a higher level.

And it's taking a lot of time to actually get anything done, right, or get anything implemented in production. Why do you think it's taking so long? even for companies that have all this industry experience and this industry advisory and industry investment, why do you think it's taking so long? I mean, I have my ideas, but I'd like to hear yours. Yeah, it's a combination of a few different things. By the way, I didn't mean to leave off stratum on that list.

I was just thinking of three specific cities. So you guys certainly have been the nice little poster boy for France on the enterprise side. to congrats again on the momentum you guys have had with that. So with the, why is it taking so long to go from proof of concept to pilot stage? There's a couple different reasons. In fact, if you want to have on your show, I recommend bringing in some guys like Clark Thompson. He does some of the projects over at R3 in New York. And he was the first person to explain, you know, the PFMI stuff to me a couple years ago.

he, or I guess it's just a year and a half, maybe two years ago. So what's PFMI? It's principles for financial market infrastructure. It's these list of recommendations for if you're going to build out mission critical infrastructure for regulated financial institutions, what should that look like? And how should that, how can you do it such that it reduces risks instead of increased risks? Because this was, these were formalized after the financial crisis.

So that way to help, at least on the infrastructure side, prevent. you know, basically snowball domino effect kind of problems of entire systems going down in case, you know, contagion took place. Anyways, I think that just touching legacy infrastructure, you know, these institutions like the DTCC or any of these central banks that exist, they have infrastructure that they can't just turn off. And you can't just put your code or your network or blockchain, whatever these things, you're trying to sell into an institution. You can't just turn it on and put everything in production on that.

You have to run things in parallel. So just from a capital standpoint to go from that first meeting with an institution like the DCC or Central Bank, and then get them to approve a POC or a POC and then have that POC, you know, check all the marks, go through committees to have, you know, them bring up, highlight other issues. to do in a second, you know, version or third phase or fourth phase, then into a pilot, and then into a parallel system and production, and then into potentially production, that could take multiple years and millions and millions of dollars, and you need talent to do that. So I think that that is something you can't just ignore or there's no quick way to

move your, wave your hand and get rid of that whole process. So unfortunately, the community thinks that once you've built a pilot, it's good as gold. But unless it's in production and you're generating revenue from it, the institution may not use it. To them, they not only want to save money through reducing costs, but they want to be able to generate new revenue through business lines or with existing business lines. If you can't do that, you won't have the support from the actual managers inside. You can get the support for maybe innovation teams, but that only lasts for, you know, a year or something. So I'm sure you guys have seen that, you know, plenty of innovation bank offices or even insurance companies have their own innovations team. And I'm not saying to belittle them, but at some point you have to deliver value that's core to the excellent institution.

And unfortunately for most of these vendors out there, especially at the end of 2015, early 2016 that pivoted into it, they did not have a really good idea of how institutions worked. And I won't name names, but if you go to my, I have a blog. post. It was called Great Pivot. For those who haven't been to my website, I've a website called Up Numbers. Numbers.com, just go type in Great Pivot, and you'll see a number of companies. And I remember at one point, Adam Draper from Boost, Boost VC, he's like, yeah, you know, I tell all my portfolio companies to call themselves a blockchain company, and they're a Bitcoin company, because banks aren't interested in Bitcoin right now, or something that in effect. He's just creating more noise by that kind of advice,

Because then you have this euphemism. Everyone called themselves a blockchain company throughout 2016. And so it made my job actually much harder because I actually had to go listen to every single one of these guys is to make sure that R3 and any of the stakeholders inside R3 weren't missing out on some of these companies. So I had to listen to all these crazy pitches. It became even crazier because people came desperate when they realized that, you know, that traction wasn't occurring. They need more money. And then they end up going, becoming, you know, bank consultants or ICO makers. or both. And there's nothing bad about being consultants of large institutions.

There's, you know, you're still creating valuable things. But at the same time, if we did a post-mortem on these companies that claim to have built enterprise infrastructure, they didn't. All they did was fork Bitcoin typically and attach some kind of color coin, you know, mechanism on there and then say, hey, yeah, now you could digitize assets. And you guys are able to move your entire, you know, treasury or portfolio, whatever, whatever you've had internally, had lots of money on it or in it. They said that this was a solution for it. So yeah, it was mostly this not even half baked or like quarter baked or you know just ingredients on a table. That's that's kind of how most these startups came two years ago. If I can give give my thoughts on

why it's it's been challenging to move forward or why it hasn't sort of picked up as as as quickly as we hoped it would have. One of the reasons, one of the things we've observed is oftentimes there's especially when dealing with corporate investors we have corporate investors there's a disconnect between the venture arm and the business lines so the venture arms are interested in investing in these companies and with the hopes of being able to bring this technology to to production within the company and it's sort of strategic investment for them and also for us as a startup but then when we actually start talking to people in the business lines they either don't know about it, don't care about it, or have some sort of an annoyance that, at the fact that, like,

oh, this, you know, the VC line is trying to push this technology onto us when, like, we don't need their help to learn how to do our jobs. So that's one of the impressions that I've gotten is that there's a disconnect between venture and the actual business. And the other, especially when dealing with large institutions like insurance companies, is just the political And I don't know if this is different in the U.S., I presume it's not, but the political navigating that you have to do in order to get the right people on board, this also creates obviously some problems when wanting to move forward with a project. And I think that in order for any of this to move forward and to go to production, what I'm really seeing is a necessity for there to be a homogenous, harmonized strategy horizontally across the company.

And we can look at recent technological evolutions. So if you look at, say, you know, digital or e-commerce or mobile, early on, very similarly, these new technologies are sort of part of IT or part of marketing, right? Or they're in one department and they're very compartmentalized. And the companies that have come out of that successfully, or companies that have crossed that chasm, I guess, in a way, are the companies that have implemented a high-level strategy at the, at the, at the, at the executive. level and that execute that strategy horizontally across all business lines. And I don't think that most banks and insurance companies and large institutions are there yet. Yeah, no, I agree with you.

I don't have any. I think you said it perfectly. We should do a podcast with just Sebastian show and then do an ICO. All right. Cool. Well, let's move to the thing that's going to excite everybody, right, which is this whole, I mean, we are now in the bubbliest time we have been in this industry since certainly 2013, although now it's all on a bigger proportion, I would say, I think actually the level of enthusiasm,

or I think it's a little bit more informed, right? Back then there was just like boundless enthusiasm, including ideas like you mentioned it before, right? The idea that, okay, Bitcoin was going to be used for like payments everywhere and going to, like, drop Western Union in a year and stuff like that. Like now, I don't think there's the same kind of insane expectations around Bitcoin and some of these things, but still, right, we have just a wave of new people coming in, right, of Coinbase adding, what was it, 150,000 user or something like that, a day. And I'm sure you guys have the same experiences of all these people, like asking, hey,

I want to buy Bitcoin now. How do I, you know, should I do this? What should I, dad? What about I Yoda? Like, so many questions about that project. I get Iota all the time. Yeah. It's crazy.

How many people just want to invest in Iota? Yeah. So yeah, what's he taking on all this? What's going on? And what, how does that make you feel? Yeah. So actually, it's fine. I'm looking at my phone because my mom sent me a message this way this morning.

And she said, someone named such and such sent me a text asking me how much money he should invest in Bitcoin. I told them all of it. Not not really, but I gave him your email address. So people are reaching out to my mom to ask me or effectively what these things are. And that's been happening for this whole year because people knew I was involved with this stuff, you know, fairly early on. Number one, if you were going to take a defining moment of speculation and use it as a case study, I think that's truly what's happening. This is not, John Bogle, he's the, he's a creator of founder of Vanguard investments. Vanguard was one who popularized index funds. Because people as a whole, you and I are not particularly good at picking the best performing stock every single year to

outperform the market or at least stay at part of the market. So his thesis is, hey, what if I created a index fund that you could invest in that represents, say, the S&P 500. So you invest in there, and that way you don't have to invest in each 500 company or you didn't have to invest in, you know, a couple of companies that you didn't know much about just so you could stay in that performance gain. And as a whole, if you had done that strategy, invested in companies who have equity, who have cash flows, who build products, you would have seen enormous wealth gains since the 1970s since he created Vanguard. And he has a good, valid point about investment versus speculation. You have, in a given year, I think he says in the U.S., you have about $250 billion worth of actual investment.

either IPOs or secondary offerings, things like that, whereas everything else, the trillions of dollars of trading that takes place is actually speculation. It's just people betting against each other. And he just recently said, hey, related to cryptocurrency specifically about Bitcoin, he sees this as pure speculation. These assets, or if you want to call them an asset, don't produce any value themselves. And the same criticism goes for gold and silver and stuff like that. So I think that if you're genuinely trying to be an investor, you would try to get equity in companies that are creating value, that there are actual products being built that create utility. If you're only trying to get in on speculative mania, then you can buy these things.

I personally, I don't even call them assets. I call them network-based bearer coins. I actually have a post coming out about that. And that's because they are bearer. instruments in the sense that you need to control the private key. But I don't think it's fair to call them their own asset class when you could fork it. You can't even fork gold. You can't fork silver. And I'm not saying that this stuff is going to crash or burn. But to claim an asset is an asset, you have to prevent anything from removing the scarcity of it. And these things aren't scarce. We've seen just this past couple months, multiple forks of Bitcoin coming out. out, it's just easy to clone off.

You and I, all three of us could come up with our own versions of, you know, like coin cash, like coin class. Yeah, if I may interject there, I don't think I, I mean, of course that's true when it comes to the code base, right? Like the software, you can just copy, you can create a new network, right? But then the network effects, you cannot just fork, right? That is very, very hard. And even if you have these like Bitcoin forks, like Bitcoin,

on cash, well, okay, there's some network there, but it's much, much weaker than Bitcoin at this point. Big on gold, I don't think anybody cares about. The wallace don't even work. Like, nothing works. Nobody is really seriously interested in this project. So I think, and as you pointed out earlier, right, the challenge is building this ecosystem

and community around it, et cetera. I think that's very hard to fork. So I'm not sure I see, I agree with your point that this is a major, something that undermines the value of some of these projects. Sure, but what is the ecosystem of Bitcoin today? Since they're not interested in doing on chain payments, and they keep on using the trunk card, oh, layer two. Layer two is probably the best, you know, slide of hand that any developer could have done

by selling future utility in something that technically hasn't been built yet. Again, I'm not going to go into the whole lightning debate and stuff like that. But bottom line, if we're looking at utility and stuff that's advertised and marketed for specific platforms, I wrote a paper in May. It's not published, but it was on ICOs. I was trying to explain to internal management R3 on why ICOs were important enough to pay attention to in the sense that they'll be able to attract talent, making it much more difficult to hire, you know, developers and stuff like that on enterprise platforms. But bottom line is if I looked at 20 or so ICOs from 2013, 2014, and looked at some of the

marketing material around them and the things that were advertised. And effectively, none of them achieved any fraction of those goals. Maybe they will eventually, but not in the time frame up through, you know, mid-2017. Did they have had they done that? yet the price of each of these coins was basically seeing all-time highs. And I'm sure if we looked at it again today, definitely all-time highs. But so to me, and yet there wasn't like an actual community of developers building stuff. There's a complete divorce between the enterprise value of what these networks provide versus a speculative value.

And so I'm saying, I'm never going to go on a show and say, hey, it's going to go down to zero or crash to whatever. There's a separation between those who truly want to invest in platforms that create, utility and build communities around that. And I know that you guys are trying to build communities as well. You're not, you never struck me as someone who's pumping Brian coin or something like that. Although, I want to get on there. Not yet. Not yet.

Yeah, you can fool me on that one. But yeah, I, I don't think the price is necessarily a good, accurate measure of the utility of the system. You have effectively, in the last, what, two weeks, the price of Bitcoin is almost doubled from under 10K to probably 20K in the next couple days. Again, I'm not endorsing prices or whatever, but my point is, is in that same time frame, you didn't have a doubling of capacity on the network.

You didn't have new features on the Bitcoin network at all. There's been no new upgrades to it significant in the last couple weeks, yet everyone is piling on because they know other people are going to pile on. It's the textbook definition of, I don't want to say the greater fool theory, but effectively of a speculative mania where people, know that it's going to go up because other people are going to buy into it. So again, if we're looking for goalposts to measure success of platforms, then I don't think that you and I need to come up

with new ones. We could just look at our old videos from, you know, a couple years ago when we were talking about what would be those metrics. It'd be actual users using something for payments. And nobody even discloses payment numbers anymore. Steam just yesterday announced that they're no longer accepting Bitcoin as a payment because of the volatility and fee costs. So, I mean, if we look at the same things that we've talked about in collecting data of different companies and what they're doing in the space, the only companies that are really successful and actually do talk about some numbers are the exchanges and maybe some of the miners. But even with the exchanges, you mentioned, I think, the coin-based number, Sebastian, the challenge

with that is that those aren't probably actual even users. They're just maybe buying and holding a little bit of cryptocurrency and hoping it goes up. We saw this from the IRS lawsuit. The Coinbase was sued a year ago by the IRS saying, hey, you guys claim to have a million users, but we've looked in our records and there's only about 900 people a year who file taxes. So, you know, what gives? And either you have a lot or you don't, and we need to check this out. So in the suit that they lost, Coinbase appealed it, but they are going to have to turn over records of 14,155 individuals who traded, I believe, at one point, it was either a $20,000 trade or $60,000 trade. It was actually not much. It was 20,000 of a year, I think. Yeah. Okay. So bottom line is if you look at the, quote, unquote, millions of users they have, really

the only, there's only a small percentage. I think Coinbase is 97% of its users during that time frame between 2013. and 2015 are not at all impacted by this ruling. So if we look at the numbers that are being added today, you know, the hundreds of thousands, again, my wife and I both have verified accounts at Coinbase. We've never used them, but we're going to be counted towards that number.

So it's people trying to get stuff on there. It's still very difficult to move money onto these platforms, and you have limits and stuff like that. So again, I'm not saying that there won't be, that Coinbase won't be successful or some of these other exchanges won't generate revenue. But I think that we have to take the user numbers, not even at face value, you have to dive deeper and see how much of the activity is actually taking place per user and how much revenue is being generated. So all the simple metrics that we have for other enterprises or other companies that are generating revenue, I think can be reapplied to this space too.

And once the dust settles, once people stop being maniacly fear of missing out, I think that those measures will continue to take place. irrespective of what the price of Bitcoin may be. Yeah. I mean, I think there's a little bit of a differentiation here, right, where you have some people who are basically trying to build these networks where, you know, they would derive their value from the usage of the network, right? And there's some sort of like, you know, almost like a decentralized company, right? Where you should be able to do some kind of discounted cash flow type thing.

You say, okay, we need to have this kind of usage. which is kind of fees, and then you can justify this kind of price. And then at the same time, you have something like Bitcoin, right, which I think is very, very different, right? Because you can't do that kind of analysis there. It's literally just, okay, how much do people want to hold this thing? And yeah, at this point it's certainly holding more than spending or using it in any other way, but, you know, hold this thing that has certain attributes, like, well, you can control

yourself, like people can't confiscate it from you. You can sort of send it, even though it's expensive and somewhat slow, but you can still transfer it. So I think with something like that, you can't really value it. There's no basis on which to value it properly. And I think what's happening, so I think in some way you can say, okay, Bitcoin, of course it hasn't gotten so much more useful, you know, as the price has gone up. But it's also, there's no basis for valuing it. I think what's kind of crazy, though, is when people conflated to, and they basically, basically value these things that are more like businesses as if they were this asset that

doesn't really have a basis for valuing it. And then I think you get this like really crazy prices and valuations, especially around ICOs and different coins. Sure. So I guess the two thoughts I had about what you just said, these are good points, by the way. So thank you for bringing this up. I believe Jesse Powell, I recall seeing either interview or an email conversation, I don't think

I'll be too angry about mentioning this. This was a couple years ago. This is actually, I think, at the end of 2013, early 2014, when they had that first big bubble up to a thousand or whatever it was. And he mentioned, he's like, guys, look, you know, I put my own saving, you know, a trough of Bitcoin into paying developers during this time frame. And one of them just retired. It was like one of his German employees or something like that. Because he'd pay them a thousand, you know, Bitcoins. it's worth a thousand. So the guy's a paper millionaire. And I'm sure it's worth, you know,

significantly more today, obviously, if that person had held and didn't sell. But you have that conflict, but for entrepreneurs right now in the sense that if they, instead of actually building something, they could have just bought coins with that money and seen it go up. So why bother they're building that utility? At some point, someone will have to build it. And then we will have to be able to, then we will be able to measure, again, I think using these, traditional metrics of usage. And if you can't meet those, you know, those KPIs, then the valuation obviously is going to change. Obviously, we can jump into the ICO that that brought it to place this year, too. But I don't think that there's new economics. I don't think that the old ways of

valuing things are, it's correct to necessarily throw them out. And I think that may be a way of actually valuing the network, at least there's one arguable way. Rick Falc Vinge, the guy who the co-founded the pirate party. I'm not endorsing him or his politics or anything like that. But he, a couple years ago, basically said, hey, if we value the network based on its usage, what is that usage based on what we know. And he was suggesting it's based on the illicit goods, dark net market specifically, I believe, the price of marijuana. Again, and I'm not saying that is the price, but he was saying, you know, at the time, I think the network was a coin was worth like $400 and he was like, yeah, as it costs a buy, like a gram of marijuana,

it was like $20 or something like that. So the network is that. Again, I'm not saying that that is the example to, or the basis for measuring how much a Bitcoin should be worth, but at some stage, once the mania ends, being able to try and value the network based on some kind of usage, it seems like it would be the most proper way of doing it. But again, you know, the markets don't necessarily care what Tim Swanson says. how to how to value it and I'm sure my the tweets after this episode's released will be filling up my my notification saying how stupid and backwards and how much of a corporate you know baby eating chill I am or something like that so I look I look forward to the very

creative adjectives people throw my way in the coming months what excites you about this technology like what are the things that you like want to happen that you think like well this would be so great for the world or this would be so interesting and like so fascinating. Like, what do you want to happen? Sure. So let me, let me answer that with a question. So Simon Taylor, if you guys don't know, he runs an organization called 11FS out in London. He has also an interesting podcast as well. And he sent me a message actually the other day. I have these funny, if you guys think I'm really critical about cryptocurrencies and blockchain, so you used to see my movie reviews. I watch my wife and I watch, you know, movies every other week

or so and I post them typically on Facebook or something like that. He's like, Tim, what movie do you actually like? Because I make fun movies just in the same way. Like, here's a hole, here's a whole. And so I guess if he was going to ask me the same question, what am I really interested in, broadly speaking? I think in the fintech world, it's actually things like Rubble Advisors, not because I have any stake in wealth front or betterment or something like that,

but because it reduces the amount of fees collected by these tolls, these intermediaries. And I think that that's the same thing that John Bogle did. John Bogle with the Vanguard and index funds and robo advisors, I think, have done more for the betterment, to use that phrase of humanity is, I don't think very arguable. I don't think you could argue against the fact that they've reduced the amount of fees to where these entities in the middle, these asset managers are now on the defensive having to reduce their expense ratios on a monthly or yearly basis. If you look at the amount of money that's flooding into ETFs for this very reason, you know, you are basically having a race to zero. And that benefits all consumers and all

investors because that money is then that would have been spent on expenses. It goes back into the actual economy, if you will. It's not being extracted by. these third, fourth, fifth parties. So for me, I'm optimistic of being able to reduce the amount of frictions and intermediaries involved in the process of handling finance to give a number, another number, the Federal Reserve published a paper last year on the amount of payment, clearing, and settlement transactions that take place each year. Actually, it was a distributed ledger paper, but they mentioned there was 600 million. In the U.S. alone, there's 600 million payment, clearing and settlement transactions that take place every single day in the U.S. worth,

it was like north of $10 trillion. I think it was like $11 trillion in the paper. I'm not saying what the value should or should not be, but there's a set of bips, instead of money being extracted from all those transactions, if you could reduce that to as little as possible, then you're basically allowing those who are least capable of buying or selling or trading money across, you know, commercial entities. So I don't want to make this a plug for financial inclusion because I think that that's been very much abused in the fintech circles.

You go to all these different events and say, oh, cryptocurrency or blockchains, you're going to sell, you know, financial. I'm sure you've seen it. You could roll your eyes because you've heard all these people stand up and say, oh, we're going to save people in Africa from, you know, these transaction fees. Like, nobody, number one, really does that. one guy I know in the Philippines, Ron Hose, who does do that. Again, I'm not endorsing his company Coins.P.H., but he could have sat out here in the Bay Area

and his cushy office tweeting all day, but he's down on the ground, pounding the pavement, trying to build out actual utility for people who don't have existing infrastructure that you and I enjoy in the developed world. So my point with all that is I'm optimistic that despite all the hype and the mania, when the dust settles, there will be genuine reduction of frictions and intermediaries involved that will actually help, not just you and I with our reward points or miles on our credit card, but would help people who genuinely have no other alternative and are being, you know, basically charged exuberant fees that shouldn't be there in the first place.

So we mentioned earlier that you recently left R3 and that you've now founded a new company called, post oak labs. Can you tell us about why you found this company and what you're doing? Sure. Just a quick thing on the name. I had a lot of people ask me, what's a post oak? Well, if you're not from the southeastern or southern parts of the U.S., there are trees called postoaks. It says about oak tree. And I literally, when I was leaving, I was looking for names that had not been taken. So I went through a whole list of 200 tree names looking them up go daddy to see if they were required. So the idea with Postoak is not so much about the name.

The idea was how can I take the knowledge and education I received by being at R3 in the sense that all these really clever, smart entrepreneurs coming up to us, talking to us and informing us what's going on? And then learning from the hardships that they had to endure and then basically giving that kind of similar education to clients in the space. So as much as I may make fun of some of the participants in the space who were hot-headed and said crazy things, I think there's a lot of learning moments that we can have. And I'd like to try and help out those kind of entrepreneurs willing to listen to that. So Posto is an advisory company basically providing impactful strategic advice on the fintech world.

Specifically, most of my clients right now are related to doing something related to a blockchain, distribute letter technology or whatever we're going to call this stuff. And about half of those are doing something with a cryptocurrency. So as much as people think I hate cryptocurrencies, I don't. I think that most of the use cases and the rhetoric around it is complete BS. But I still think that you could potentially do something useful with it. And so I'm going to help clients with that. And they're global at this stage.

And I don't see that dying down anytime soon. People are very interested in seeing how they could use this type of tech for the time being. like to help out the community as much as I can make good rational decisions. If I just disappeared and didn't stick around to help out the overall entrepreneur world, then I think that that would have been a waste of a few years when I was being, again, educated by the School of Hard Knocks, this market and difficulties of going through the enterprise sales cycles and stuff like that. So yeah, it's one entity that I'm working with. There'll be an announcement with me, joining as a partner in another entity soon.

I'm not going to unfortunately disclose that on air right now. But then I'm also working on another side project, too. It's a consumer-facing wellness app. We'll see if that gets anywhere. It may not. Again, there's a gajillion different types of phone apps out there, but I feel that you could use some of this technology also to help out people incentivize wellness.

But, again, not ready to really go into that at the stage. Cool. Well, thanks so much for coming on, and thanks for sharing these plans. Now, there was quite a few things, actually, we wanted to talk about, because you are a man of long blog posts, and some of them are very interesting.

So we're going to link to them in the show notes. If people want to check them out, I do recommend that, in particular there's one, which is quite interesting about, like, who are the administrators of blockchain? So basically kind of exploring, okay, to what extent,

are they really decentralized? To what extent is there controlled by certain groups? And to what extent does that create, like, legal liability? regulatory risks, et cetera. So I think that is actually a very interesting topic, especially where it's going to be interesting is with projects that start out in a centralized way mostly,

but then they have to decentralize over time, I think, to kind of live up to the promise. And to what extent are they going to be able to do that? I think that will be very interesting to see. So, yeah, thanks so much, Tim, for coming on. As always, it's been a pleasure. So please keep doing your work, keep publishing your posts and all the best with your new project.

Thanks so much, guys. See in a few years. Good luck on the moon. Indeed, yes. Where you can plant your post oak tree then. Well, I'll give you some seats. Well, yeah, thanks so much also for a listener for once again tuning in. We are going to be back next week and in the meantime, if you want to support the show, you can do so by leaving a review for us on iTunes or somewhere else. And yeah, we're going forward to being back next week. Thank you.