Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Wrapping Up The Year and Looking Ahead at What’s to Come

Episode Date: January 9, 2017

It’s been an eventful year in the blockchain space, for the Epicenter podcast, and its hosts. Brian, Meher and Sebastien look back on 2016 and provide a few personal updates, give their thoughts and insights on how the space evolved, and make predictions on where they feel the industry will go in the next year. Topics covered in this episode: Brian, Meher and Sebastien give a few updates on their personal lives and professional projects The current state of VC funding in the blockchain space The application of blockchain technologies in enterprise and the corporate development cycle The current state of the Bitcoin and Ethereum ecosystems and provide our thoughts on their respective futures Predictions for 2017 and speculations on how the industry will continue to evolve Episode links: Bitcoin Venture Capital Funding Not Just Bitcoin: The Top 7 Cryptocurrencies All Gained in 2016 Validity Labs Stratumn Website Tendermint Cosmos - Internet of Blockchains Dictator's Handbook This episode is hosted by Brian Fabian Crain, Meher Roy and Sébastien Couture. Show notes and listening options: epicenter.tv/165

This episode of Epicenter is brought you by Jax. Jax is the user-friendly wallet that works across all your devices and handles both Bitcoin and Ether. Go to JAAWX.io and embrace the future of cryptocurrency wallets. Hi, welcome to the Epicenter, the show at stocks about the technologies, projects, and startups driving decentralization and the global blockchain revolution. My name is Sebassin Pugio. And my name is Brian Favann Crane. And I'm a hero. Yeah, so we have a, as you might have discerned,

Meher isn't are the new, the latest crypto entrepreneur that's joining us on the show, but it's all three of us today coming together. And well, 2016 just ended, and we wanted to take this opportunity to look back a little bit on last year and look forward a little bit. Some might have seen on Coinlist, there's been perhaps 30 articles all doing the exact same thing,

so we wanted to join that, that newest hype. Well, so let's start with some personal updates. Mayha, why don't you go ahead? Can you give us a bit, you know, run us through how your journey and your involvement in the crypto space has evolved over the last year? First, perhaps a bit about my background. Unlike most of the people who are working in this field, I'm not a software developer

or I don't have a financial background. So I actually studied biochemical engineering and I used to work in the vaccines industry. I worked in the vaccines industry for the past six months, for the past six years really. And these roles had nothing to do with either IT or finance. But the Bitcoin bug bit me in, I think, 2012 for the first time when Bitcoin was $3 a coin. And then I became really serious about it when Bitcoin. went up went up to a thousand dollars a coin and yeah those were fun days so after that i kind of

started studying about blockchains i ended up doing epicenter and this show really changed my life because it exposed me to so many new ideas and i also realized that a lot of people got to know me through the show so last year really brought me to that realization and i decided to move into this space full time and go from a comfortable job at Novartis which is like perhaps one of the largest pharmaceutical companies and the company pays really well as well and into the crypto space which is you know which is certainly a much more wilder ride you've done it it's your quicker job moment you know yeah you've done it congratulations yeah I've finally done it and

And yeah, I'm going to be doing, so my plan is to do like three things this year. And so one of them is epicenter. And the other two are, I've started a company which does education around blockchain technology, which is this company is called validity labs. This is centered like to foster blockchain education in like software developers and managers inside big enterprises. and later on also with developers in the open source movement. So in validity labs we are creating workshops around many different technologies such as Ethereum smart contracts like smart legal agreements, use case identification, etc.

And the third thing I'll be doing is working on a concept of my own, which is is the notion of an attention-backed asset. So I'll be writing a few blog articles and hopefully a short paper around the same concept in the first two quarters of this year. Can you tell us a little bit about this attention-backed asset? I mean, I know you've talked about it before, but perhaps for the listeners,

giving a bit of an overview on what that is. So the core idea is pretty simple. I want you to first imagine a newspaper. So imagine that you're reading a newspaper. So think of what goes in the production of a newspaper. So if you look at the kind of people who are involved in the production of a newspaper, it's like content writers. Those are one category of people that are in this industry.

So they write articles, they create content, they report stuff. Second category of people is there are content editors. The content editors, what do they do? They kind of classify newspaper articles that come in and decide what page each article would go to. And they figure out which piece of information of which article is more important than the other. So whatever is more important goes on top, whatever is less important goes on in the bottom. So that's the editor's job. figure out where each piece of news should go and what constitutes more important things and

what constitutes less important things. So the editor is the second kind of role in that industry. The third role is the people who would do printing and distribution. So you can imagine that there's a printing press, lots of people that are working in the printing press, and then ultimately there are distributors that will distribute these newspapers all around. The fourth kind of agent, economic agent in this system, is you, the reader. And what you're doing is you're opening in the newspaper and you're reading what the others have produced and you are paying attention to what the others have produced. And because you pay attention to what has been written, this creates, this translates into some value for the newspaper. And then the fifth

kind of agent is the advertiser. So what the advertiser wants is, he, he's a, he, and his information to be put at prominent parts of the newspaper so that the attention payer is going to look at what the advertiser wants to say. So if you see the system, a newspaper is essentially like a system where there are agents of five types. One is the content writer, the editor, the distributor, which includes printing, the attention payer which is the reader and the advertiser. And if you think of the newspaper

making organization that is an organization that is essentially coordinating all of these economic agents. So my fundamental question is can you make a DAO out of this system, a decentralized autonomous organization out of the system where we adapt the principles of Bitcoin into this system. So what do I mean when I say principles of Bitcoin? So like Bitcoin quite simply is a system which has agents of different types. There are the miners. They are the full. node owners and there are the users and then they're the business owners so these are agents with different incentives and then there's a software there's the bitcoin code base and a data structure which is the unspent transaction output data structure and this software and this data structure

fulfills the role of coordinating all of these diverse agents to form a system and this simple question I'm asking is, so in the news area, we have agents of these five types. And can I use a design like Bitcoin, which is like code plus a data structure in order to coordinate all of these agents and form a live system in which people generate information and consume information and it functions as an organization with its own token. And I am essentially like creating this theory around how you would value these tokens and how it would work and how kind of the selfish interests of all of these groups would be aligned in a design like that. So that's the overview of the idea. Is the idea that make a business about with this or how does that fit into

what you're doing already with Fidelity Labs and the educational and the pedagogical side of it? So these are two different things. So the validity labs is like in blockchain. education company and that has an established business model. This is something separate from from the Vailtary Labs work. This is something I'm doing on the side as a hobby, let's say, as a research hobby. So I haven't gone into the details of the architecture that I've developed and I'm writing about, but provided the architecture is correct, we essentially would have a new way of building media organizations. So if you think of media organizations, right, like the newspaper created a lot of media

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

And this would be kind of a general design that anybody could use to build a media organization. And I'm just trying to figure out the design space, make good design decisions. justify them and write economic models for them. And then provided that this research is correct, somebody could use these results in order to build tokens and organizations around media on top of blockchain technology.

Yeah, I mean, I think this is such a nice and promising idea. I think it's something that's very hard to do, but where there's a lot of projects have, you know, try to make a few steps in this direction. I think LTP coin is one, Steam is another one, the URs network, gems, it's so many projects, right, that try to tokenize this in some way. But what they're all lacking a little bit, or I think one of the things that they have been lacking, to some extent, is, you know, properly think through all the implications, all the structure, you know, how those, the economics of those tokens.

it's complicated to get that right. And so I'm really happy that you're, you know, sort of stepping in here and doing that work. One of the reasons why I think it's hard to do that, from the perspective of a company or a team trying to build this sort of new model is that they're looking at it from perhaps a perspective that doesn't encompass the interests of all the players. So if you're trying to build a new social network, sure, you're, you know, with a new model. Sure, you're building the network, but you're also creating a new model and you're not, there's more actors involved than simply the people that are using the network. There are the advertisers. There are the users. There are, you know, all these different players.

And you may not have in mind like what the interests of the advertisers are or the pain points that they're having to face. It seems like all of the attention is being. put on like users and users privacy and all this kind of things but not necessarily you know the business models interests and of you know of other participants in this entire ecosystem which is probably the case for a lot of you know disruptive technologies you know you're looking at one specific thing but not taking to account other interests my thinking on on some of these protocols is I tend to look at them as a as economic games, that should have strong Nash equilibrium

in order to ensure like convergence into a useful system. So if you look at Bitcoin, the beauty of the Bitcoin system is that you have like all of these different agents. So the miners is like one kind of agent and there's probably like, you know, like hundreds of them. And then you have the full load owner, they're another kind of agent. Then you have the user, that's a third kind of agent.

And what the Bitcoin code base essentially does is it creates incentives for each of these agents to assume a certain role in the system. And the way that these incentives are designed are such that it creates what is in game theory parlance and Nash equilibrium, where each of these agents are doing some actions and all of these actions done by different agents, kind of balance each other out into an equilibrium and none of these agents have an incentive to diverge from that equilibrium and and it is this convergence into one equilibrium that ensures that you know the system remains stable and keeps moving keeps having forward progress so a lot of the projects that i see do not have not actually reasoned why the system that they are proposing has has a strong

convergent NASH equilibrium. For example, the DAO. One of the challenges with the DAO was, the DAO was another system that was trying to build a lot of agents around. And the game

theoretical structure of that system hadn't been analyzed at all. So there wasn't any analysis of it and why that there should be a NASH equilibrium inside that system. That was something that was truly absent. And what I'm kind of, what I'm trying to do, and I'm like 90% convinced that this is possible, is you can design social media

on top of the blockchain in which there's like a code base and a data structure in the middle, and it creates incentives for all of these, like content writers, editors, distributors, attention payers, and advertisers. It creates an incentive structure for all of them, and you can design the incentive structure in a way that all of these agents, have a Nash equilibrium where it doesn't make sense for anyone to to take actions that are divergent from the Nash equilibrium. So provided this is right, provided there's like a conversion Nash equilibrium, I think this would be one general design that could be used by a lot of different projects. So what I'm trying to show is why such an equilibrium exists and the

properties of that. Cool. And you're moving to the US soon. That's another big thing, right? Yeah, so yeah, I'm also moving to the U.S. So I was based out of Switzerland and now I'll be moving to Washington, D.C. Very cool. And Brian. Yeah, now I want to Brian. What's going on with you, man? I mean, I know we know there's lots going on with you, but.

Yeah, yeah. So I, many of you probably will have known that he was working for a company called Ares that was renamed to Monax a few months ago. I joined the company in August 2015. And actually, regular listeners to this podcast, we'll have some familiarity with it as well since we did two episodes, one with Preston Byrne,

just after Ares launched before I joined, and then one with the CEO, Casey Coolman, also, I don't know, sometime after I joined. And so I was head of business development there until last month, basically, or sort of late November, I left the company. And ERIS is, you know, was, ERIS was one of the first companies to look at smart contracts

as a sort of business process automation software. And it was a, you know, very exciting time to work there. I learned so much. But then I, you know, I decided to leave the company recently. And then I did, you know, took sort of a step back, did some time of looking around, speaking with different companies, Speaking of different people, I did a trip to Silicon Valley and San Francisco as well.

And it was very interesting to just sort of get an overview of the industry. And it was also nice to see that because when I joined the Erez, I didn't feel like there was a lot of companies where the sort of thinking was right. I felt most companies back then were very dependent on Bitcoin. You know, you knew like they could only succeed. If they don't only execute perfectly well, you know, they manage to build a great team, they managed to raise money, all of those things. But they also needed to have wide-scale adoption of Bitcoin. And I didn't feel like there was a good risk setup for a company.

But with ERISA, a lot of the basic ideas were right. And I think today we can say that they have turned out to be a very. right and a lot of companies followed that same direction. So now when I looked around and looked at what people were doing, it was very nice to see that there's, I feel quite a lot of projects now that have, you know, good teams and I seem to have the right ideas as well. So that was exciting.

And then I, you know, I just sort of looked around it. Then earlier this week, I decided, you know, what to do next. And I took an offer. accept an offer by a tendermint, the tenement team, to join them as their new chief operating officer. And tendermint as well has been on the podcast. And actually, ERIS or Monax was based on building stuff on tendament. And so tenement is a sort of original, you know, I think original proof of stake consensus system. And the tenement guys, they are working on a public.

network called Cosmos, which is the idea there is that there will be a kind of an internet of blockchain that manages to connect lots of different blockchains and thus achieve a lot of scalability and more flexibility. And I think there's also going to be probably another podcast about Cosmos, not with me, but you know, with the two other guys, at some point in the near future, so you'll learn more about that. And yeah, so that's actually, when this episode is coming out, that will be my first day. So I'm very excited about that. Cool.

And yeah, I couldn't be happier for you. And just, yeah, congratulations on that. I'm sure you'll do very, very well there. I'm sure you'll help structure, you know, where the company's going and with, you know, sort of clear vision, clear industry vision that you bring. So, yeah, they brought on a very good, very good CEO in my opinion. Thanks so much. And you're not moving.

to the US. No, I'm staying in Berlin. I mean, Jay, the CEO is in San Francisco, so I might spend some time over there, but primarily I certainly will be staying in Berlin. So what's the rough idea behind Ben Cosmos? Well, the idea behind Cosmos is to solve a few of the, you know, core issues. And I think two of the core issues that Cosmos are solving. One is interoperability. So the idea that you can have blockchains of different types. that are interoperable so that can move tokens around. It's essentially quite similar to the side chains concept. So I would say he has a more generalized version of the side chains concept

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

Well, this is kind of one approach of scaling blockchains as well, because if he can, let's say, run different EVMs in parallel, you know, that can have a real, real benefit. And also, I think the third thing here is, so tenement's been around for quite a long time, and tenement has a lot of usage as well. You know, for example, ERIS, right, is using a tenement or the Aeros Software by Monax is using Tenement. And there are a lot of companies and organizations are using that. And the idea in Tenement is that it's kind of like a voting process.

So you can have, let's say you have seven stakeholders that are administrating a chain, and then they vote on each round, you know, approve each block. And that has some big benefits over proof of work chains. Like you can have much better scalability, right? So with tendament, I think they have benchmarks of maybe 2,000 transactions per seconds or more. And you also have finality so that when each block is confirmed, then it's definite. There's no forks.

And so those are big benefits. And Cosmos is also an attempt to make that work in a sort of public chain setting. Because so far, a tenement has only been used for private chains, essentially. And yeah, with Cosmos, the attempt is to make that work in a public chain setting. And of course, that could have potentially massive benefits as well if that really works out. Because, you know, if we look at Bitcoin, right, there's the huge amount of energy expenditure that's happening there. Also with Ethereum, of course, that's one downside. And another downside is as well, the security model of proof of work is, you know, it's the best we have at this point.

for public chains, but it's far from perfect, right? So in particular, we've done some episodes about this as well, but probably if somebody wanted to attack the Bitcoin network, it wouldn't cost all that much, right? If you look at the total amount of value that's secured by the Bitcoin blockchain, it's something like $15 billion at this point. But the cost to attack that would be, I don't know, $50 million, less. And so there's a certain disbalance there between,

the cost of attacking and the value being secured. And so potentially also proof of state could be much more secure. But again, in a public chain context, it's unproven. It hasn't been made to work properly. I mean, there are some other, I guess, some other proof of stake designs that have gotten some usage in public chains. I'm not too familiar with those, but at least tenement, which is certainly the most widely used in a permission chain context.

hasn't, you know, isn't being used currently for public chain. So that's also an attempt of Cosmos to make that possible. Okay. So I wasn't, I wasn't sure that was right then. So Cosmos is an attempt to take tendermint and allow public chains to be created from their consensus algorithm. Yeah, that's right. Yeah.

That's really cool. Okay. Yeah. Any other new and interesting things going on in your life that you want to share? no not too much else i mean i'm still running the blockchain meetup in berlin which is going pretty well although i must admit it's been sort of uh maybe a little bit neglected since it's you know it takes epicenter and then job have always taken a bigger role and uh but yeah otherwise you know i'm still it's what's kind of interesting to know this now is that it's been now quite a long time that

we've been in the space. It's three and a half years since I first discovered Bitcoin and basically said, okay, it's going to dedicate my life to this. And yeah, it's three and a half years. It's not such a short time. Yeah. I mean, it's been just over three years. I mean, I think this week will probably be, I mean, no, last week was the three-year anniversary of Epsteiner. Last week of December, right? Yeah. We did our pilot episode in December of 2013. So, but yeah, it's been over three years old now. Yeah, you're right.

I mean, it does seem like it wasn't that long ago. But, you know, three years in a space is a long time. And it's great to still be here, right? To still be doing the show. Like, I don't think that when we started it, we thought that we would still be doing it three years into the future or that they would take this much. you know, that we'll become what it has become.

So, yeah. Yeah. Yeah, I mean, I also spend some time going through the stats of Epicenter. You know, I like to do that every once in a while and sort of see where we are at. And yeah, so I can share some of those. Last year, we had about 450,000 downloads or plays on YouTube, video or audio downloads. So it's about a 50% increase. So, you know, we continue growing, going well.

It's not, you know, it's a very good growth, but it's not completely crazy. And so we reach about, I guess, around 9,000 people per episode. Well, 9,000 downloads, views per episode. So it might not be exactly the number of people. But so that's, yeah, I think that's pretty great, especially in such a, such a small industry, right, where we reach quite a lot of the people working in this space. Yeah. I'm always humbled, I guess, when, and I'm sure you guys to probably get this

too. Not that it happens often, but I don't want to make it look like this happens often, but it does happen sometimes where you go somewhere and you're like, you know, you meet people and they're like, I love your show. I listen to you guys. And that's always, it's always great. Yeah, totally. Actually, actually, recently, I mean, it's quite amazing to see that at events when I was at the blockchain money conference in London. It was just incredible how many people came up. And I remember me, you said the same thing about the DefCon, where I, I don't know, probably 25, 30 people came up to me and approached me about epicenter. And actually, when I was taking the plane from Berlin to London, even some guy,

I was just at the airport waiting and some guy came up. So it's pretty amazing. That's funny. Let's take a short break to talk about Jacks. Jacks is a multi-coin wallet created by the people at DeCentral. Now in the past, if he had a whole bunch of cryptocurrencies, it was a pain to handle. them. You either had to leave them on an exchange, which was insecure, or you had to have all these different wallets, which was a hassle. Fortunately, now with Jacks, those medieval days of darkness,

misery, and suffering are over. Jack supports multiple cryptocurrencies and new ones are being added. But it's not just storing cryptocurrencies you can do with Jacks, but you can also exchange them directly from within side the wallet, thanks to their shape-shift integration. Since there's only one seed, Jax makes it super easy to back up and sync to the other devices. Jax works with Windows, MacOS, Linux, Android, iOS, and has browser extensions for Firefox and Chrome. So go to jacks.io, that's J-A-A-DoubleX.I-O, to download the wallet and get started today. We'd like to thank Jax for the supportive Epicenter. Well, now let's talk about you, Sebastian.

You've also had an eventful year, I think. Yeah, it's been quite an eventful year. on the personal side, but also on the professional side. So I, after having been in the north of France in Lille for, you know, a major part of my 20s, I moved to Paris and joined Stratom. So that was a big move. And so co-founded Stratom and it's been, well, it's been a year since we started the company, just over a year. Actually, just coming back from the Christmas holidays, we moved into new offices.

So we were in a smaller, you know, a small area in a co-working space in the 11th in Paris. And now we've moved to a much larger office that can now hold up to, I guess, probably about 30 people. So that's... And you guys have a meditation room? We have a very small, probably about six-foot. by six foot meditation room, yeah. Which I think I'll be sitting in once in a while. So yeah, that's exciting.

Like we were there all week. We basically didn't have internet. We're just kind of hanging out there and working after the holidays coming back and everything. So that's really cool. So stratum is really, well, I think we've accomplished a lot this year. We're now, I guess, almost 10 people. And it's been an eventful year as well.

In that year, I think we've accomplished a lot from the point of view that we have done quite a lot, quite a few experimentations. We've done about 10 pox in different industry verticals, whether that be the financial industry, insurance, supply chain, energy, sort of the industrial space. And it's allowed us to learn quite a lot about what types of real specific industry problems we might be able to solve with the technology that we're building. So if, I think most of our listeners have probably heard the, I think it was episode 159 with Richard Katano, who's my partner and CEO, co-founder, and Anur Das Gupta, who's head of research, which is one of actually our first hire.

And so what stratum is building is a proof of process technology, which allows multiple participants in a process to collaborate and trust the data within that shared process. So you could take something like a supply chain where, well, specifically, one use case that when pock that we did with a certification agency is how do we secure all of the data coming into a tuna supply chain. So from the fishing of the tuna right on the fishing boat, all of the measurements that are taken on the boat, the weighing, you know, where the fish was caught, the type of fish, the species and everything, and then selling that to a marketplace, you know, once they arrived to the docks, transporting it in a cold truck, selling it to a transformation company that's

going to take that tuna and make products with it, and then sell it to a merchant. Well, how do all these participants traditionally trust the data in this process? Well, they rely on certification agencies, third parties that essentially hold all the data and do all the measurements. So what we're building is we're trying to build this audit trail that would allow all of these participants to trust that process using things like blockchains, modern cryptography, and KPI, right? So everybody needs to have keys in order to be able to sign the data. So it puts responsibility on all of the actors within the supply chain so that if any anomalies are detected, well, one, they won't be able to, the chain would be immutable. So there would have to be sort of correction measures.

One could not go back and corrupt data. And two, it puts the responsibility on, let's say, like, a shipping company that wouldn't have properly cold-storaged the fish. So that's one example where we could use this. And we've been able to see use cases in all sorts of industries. So this is one. Also, we've worked with a major real estate promoter here in France called Buick Immolier, and we're working on a smart grid initiative to allow for production and consumption of energy to be traced

and to have better measurements and more reliable and trustworthy measurements of production and consumption of energy in a smart grid setting. So what we're doing in the next year, now that we've experimented and we sort of dabbled in a lot of different places is really focus on some key. verticals so we've identified three or four key verticals and we're going to dig real deep in those organizations with some key partners and try to find what are the specific real specific use cases and real specific pain points that we can address with our technology and how we can adapt our technology to better serve them so it's

going to be a year of a lot of research a lot of like sort of getting down into into nitty-gritty processes with operations people, IT people, business people within the organizations of our partners, which are for the most part, well, I guess all major companies in France, in Europe and in the U.S. So, yeah, that's about where we are now. We're raising a second round, so we're raising our Series A. Hopefully we'll have that closed by, we're hoping in about three or four months and that'll take us to 20 2018 or 2019 so that that'll be the you know the period that it's going to we think it's going to take for us to find a real product market fit for for what we're building so yeah it's it's really exciting it's happening really really fast it's always

uh yeah i mean keeping up with with everything that's that's happening and and sort of all the changes and has been a great learning experience. And, yeah. It's interesting that you're saying, you know, it's going to take you guys to 2018, 2019. I mean, it's certainly, you know, to find a product market fit. I mean, it's certainly also my impression from my time working at Monax that, you know, they're potentially so massive.

But finding the right use cases, finding the right fit, it takes a long time. And for those organizations, also, to get around to this different way of doing things, of structuring things. That's right. Yeah, there's a change management aspect to it that's really important to recognize. And I think that, you know, a lot of us have been talking about the change that

blockchains can bring, right? And we look at it from a theoretical point of view and there are all these ideas out there floating out there. But this is a five-year thing. Like, it's a five-to-ten-year change. And I think realizing that and being able to own that realization and say, okay, we're going to take two years to try to do this one thing and try to do it well is something that's hard to do because there's so many things happening around you. And you're always there are these forces, right, these sort of pressure, outside pressure forces saying, okay, well, we have a competitor that's doing this and they've done this. and it's hard to keep the focus sometimes

because you see all these other things happening around you. But I think that the winning strategy for any company in this space right now is just to keep laser focus on your vision and to execute on the vision and find, yeah, as you said, right, find the specific use cases and pain points that you can solve with your technology. And I would say probably even with one or two or three clients, right?

And you can look at other successes like this. I mean, just look at companies like Palantir. You know, that's what they did. They worked with the CIA for many, many years until they branched off into different industries. I think it was you, Brian, who got me to read The One Thing or Good to Great. Yeah, I think so. Yeah, these are great examples of books that talk about this, right? How do you, so what's important is to find that one thing that you can do very well.

and then branch off into different sort of adjacent service offerings and things like that. If you look at most major successes in the modern and the last 100 years, whether it be Microsoft, Apple, companies like HP, Xerox, like their lasting success has been attributed to focusing on one clear thing. And that's the path that we're taking. What I also found interesting about your explanations, I think I certainly shared them, is that when I read these coinless articles about what's going on, a lot of them, some of them were like, ah, blockchain still no real use cases.

You know, if this whole enterprise permission blockchain experiments and parks and then the ones that we're talking about, 2017, I mean, some of them were mentioning, okay, some things will go into production, but I don't think there's really an expectation even at this point that next year we're gonna see like a big breakthrough, right? still going to be, you know, a lot of experiments and then some, some more substantial experiments,

maybe some experiments that will be more public where one can actually kind of see what's going on, but basically still all experiments. Well, I think it was Monax. I get the Monax newsletter because I do look at what the competition is doing, and I get their newsletter. And I believe a few weeks ago there was a post, I don't know who wrote it, but talking about this very thing, that the last few years have been Pox. And now we're starting to move into pilots where we're still going to be in a close,

sort of, yeah, confined setting, but perhaps with real data, and it won't be until the next, you know, it won't be until 2019 or 2020 until we start seeing real production systems. And so it is sort of a, you know, five, five year change in that sense. Yeah, yeah, I mean, we'll see, I guess, maybe some of the things will also be next year. I mean, some companies have raised a lot of money and have done very close work with some, you know,

for example, digital asset, right? They raise a ton of money and they have, as far as I know, at least, very much focused on this Australia stock exchange. So maybe they, with all the resources they've thrown at that, will be able to do something earlier and come out quicker. But overall, yeah, it's just taking a long time. Yeah, let's talk about capital then. Let's get into that topic since we're talking about money.

Brian, you pointed out to this article on CoinDesk, and we were talking about this earlier before the show, that there have been some really massive funding rounds, and there seems to be a lot of money being thrown at these really big companies. Well, you know, not big companies, but companies that have amassed a lot of talent and have amassed this really clear vision and these very clear industries that they want to turn.

target and not so many smaller rounds. And curious, what you guys think that tells us about the state of the industry. Yeah. So I went through the sort of reviewed. Coinless cast this spreadsheet online with basically all the funding events in the crypto blockchain space. And I haven't, I didn't see a sort of summary, but I think probably the funding went down last year. And there was four big rounds, though, which was a digital asset of 60 million, circle of 60 million, blocks stream with 55 million, and ripple with 55 million. And my impression, too, with those companies is that they are being fairly conservative with how they're spending their money, right?

They're saying, okay, it's going to take a long time, so we raise a lot of money, and now they have a long leeway. And at the same time, I don't think there's been that much small funding rounds. And of course, the third thing to point out when it comes to capital raising is ICOs and token sales, which have taken on a big role last year. Of course, there was a Dow, but then also others like Golem first bought economy. A lot of Ethereum projects seem to choose that route first. And there hasn't been or hardly any VC fundings for those kind of projects. Trout funding does seem to have worked really well. I mean, I think it's the biggest application of Ethereum the platform today.

Absolutely, yeah. But to what end? You can raise all this money, but, you know, what is being done with it? I mean, I'm not, I think Mayor and Brian, you guys probably have a much, much more insight. Like, I don't particularly keep super up to date on what's going on with Ethereum and all these crowd sales. But is anything actually being done with this money that is being raised in these ICOs? Well, they're using it to build whatever they promise, right? Of course, at this point, none of these projects have gotten to the point where they are really getting used in a way so that there is a demand from the usage of the application for this underlying token, which is after all the promise and the whole argument of it.

But then, you know, again, if you look at the permission blockchain example as well, right? So if you're talking about 2018, 2019, it's going to take that long to, you know, to really get product market fit, to really get their production level applications. Then, well, maybe it's not so surprising that we should see something similar on the public blockchain side. And it's also going to take a long time there. So, yeah, so far, we haven't seen that. Although what's interesting still is that because those tokens get traded immediately and there's a market immediately that even if, even if there's no usage, even if the thing hasn't really been built, they can still appreciate a lot in value. I think Auger is a good example of that, right? There's actually gained a ton in

value even though it hasn't really launched. And of course, some of them have been big financial successes, above all Ethereum, which has been a huge financial success. And there again, you can ask, you know, real usage of the platform, of course, is still very minimal. But where they have succeeded is getting a ton of developers to build on Ethereum. Today's magic word is Enterprise. E-N-T-E-R-E-R-I-S-E. Head over at less talk Bitcoin.com to sign in, enter the magic word, and claim your part of the listener award.

I'm curious what you guys think about this. we look at it, say take the Auger example, there's the crowd sale, the coin is, while the, while the system is being built, there's a lot of speculation around the coin, a lot of trading happening around the, you know, the token. Once it goes into production and people start using it, how would that change through the economic dynamics of, you know, the markets that trade these tokens and the liquidity that's in the system and all that, like, once the use goes from the speculative use to actual use. Well, then in a way, you could start having like a sort of a ceiling on the price, you know,

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

Or just because they think, you know, the price is going to increase, right? I think we see that as well. Maybe a lot of the people buying Augur today, they might not, I don't know if they think that Auger is actually going to become a big system with a lot of users, or if they just think that, you know, the price is going to keep going up. so I'm going to sell it before it ever has to go into production and I can still make money, right? So it has a curious thing here, which I don't think you have in traditional startups where it's probably quite rare for investors to have a good return if the underlying company doesn't actually succeed in getting real users, real application, real adoption. but that seems to be possible at this point in the crypto space.

So my feeling here is, when you look at the stock market, in general, like, we have a theory on how to price stocks, right? So the value of a stock is net present value of the future cash flow stream generated by the organization, whose stock it is. and I think when Bitcoin came, Bitcoin is this asset, it's like one of the few assets that doesn't have a pricing theory for it. So if you look at options or futures, you're going to find an economic model that tells you how to price these assets. But Bitcoin, Ether and the assets on coin market cap today are like one unique asset category in which we don't know how to actually price them in terms of other fundamental. So the kind of prices keep keep floating and this this results in like they're being only speculative value for for these for these commodities

Now maybe the future is going to be it's going to be different so I think two things could happen in the future Thing number one could be that this forever would stay like that like all of the assets in the crypto space would be things that you really can't price fundamentally and then it remains speculative for years on end. That could be one direction. Or the other direction could be that some of these new ideas that are coming around prediction markets, around building organizations on crypto systems, there might be new ways of completely pricing these assets based on other fundamental factors and a new kind of economic models could develop around these. And if we go down that direction,

then there'll be like, you know, fundamental factors by which we could price these things intrinsically. And then, yeah, that might be a different world where there's like, there's speculation of fundamentals, but it loses some of the pure speculative value of cryptocurrencies. Does that make sense? Well, I think for a lot of these, crowds, there's a lot of these app tokens, there is a potential, like you should be able to

value them based on fundamentals, but it's like you're only going to be able to do that once there's actual usage, right, the actual application is there before it exists, right? It's just anybody can make any kind of assumptions to justify any price. right? So maybe once these applications actually launched, you're going to have that. And then with Bitcoin, well, it's a different situation, I think, because with Bitcoin, and this is actually one of the topics we've wanted to talk about as well, so maybe it's a good segue into that. With Bitcoin, it works a bit more like gold, I would say, right? You have this digital commodity, and if its main usage is as a store of value, that, you know,

people are going to maybe people in Venezuela, right, they want to somehow put their money into something that doesn't depreciate in value because their currency does or because they want to, they just believe it's going to appreciate in the future, just like people hold gold. Then, yeah, you can't really price that based on fundamentals. I don't think there would ever be a real model. So you could say, okay, here's how the, you can't really price that. value the Bitcoin. What do you put on that, Meher? I think for Bitcoin, there might not be a model,

but certainly in the future, there might be a model, for example, valuing the Auger token or the Golem token or some of these other tokens that come over on top of these Bitcoin-Ethelike systems. I think, I think for there, they could be really good models. And I think we are yet to see get to see a good live model in action where there's intrinsic value

of some form behind a token one thing that also stood out to me reading what a lot of people have written about Bitcoin in recent time is that there seems to have taken place a bit of a change in how people look at Bitcoin I think if you look

if you look at the white paper Bitcoin is described there as an electronic cash system. And of course, cash implies payments, and the white paper talks about payments a lot. And for the longest time, the idea was very much that Bitcoin was being used for payments. And, you know, I think also talks about micropayments in the white paper, if I remember correctly, as one of the benefits. And a lot of this scalability debate has been about, well, we've got to scale it, right? Otherwise, what are you going to do with three transactions per second?

It's not going to be a payment system for anything. But I think there has been a bit of a transformation. So I saw even Brian Armstrong of Coinbase was writing an article like that, mentioning Bitcoin being more as the sort of digital store value reserve asset. There was a very interesting article by Binnie Lingham, who used to be CEO of Gift. And he's been amazingly accurate in predicting the Bitcoin. price a few times. So he was writing two about Bitcoin sort of having several phases and that there

was this first phase where Bitcoin was, you know, becoming a digital commodity. And the second phase, which he said we were going to be entering now, which is essentially proving its value as a digital commodity, which means that it will, for asset managers, they will start to say, okay, we're going to have our portfolio allocation. Some of it is in, you know, precious metal. Some of it, stock, some of his bonds, some of it in Bitcoin, right, as is a new category. And that then he thinks, okay, there could be this payment cash system based on Bitcoin later. And that seems to have become much more of a prevalent view. And of course, that has interesting implications too about scalability, because if that's the case,

maybe the whole three transactions per second small block size isn't such a massive issue. Yeah, it's an interesting when to look at it, because if you think about it, it kind of takes us back to this similar sort of notion that we're talking about earlier with enterprises trying to find the real problems to which they can use blockchains to solve with those solutions. With this, before we talk about scaling, let's first try to decide what we want Bitcoin to be. should it be this digital gold system or should it be a cash system? And once we've done that, then, you know, let's find the technological solutions that are well suited for, you know, whatever we want Bitcoin to be. And I think that's perhaps where a lot of the division is coming from is,

well, I mean, obviously it's coming from this difference in opinion on whether Bitcoin should be cash, some sort of commodity, whether it should be simply a store of value where people can store it like this digital gold idea? Yeah, although the sort of flip side of this is, if you're going to be a three transactions per second, there is no other choice, right? Bitcoin basically can only be that digital gold,

especially unless you have like segregated witness and some sort of lightning network type stuff. But if you scale it more, then it's like up to people and companies to figure out what it can be. There's no reason why it being, a digital gold type thing and store value, you know, it would still be a better store value

if it could do 1,000 transactions per second instead of three, right? Like it would be a better store of value because you can move it around more cheaply. Now, maybe it's not such an issue if it costs a lot of money to move it around, but it's still a bit of an issue. But it certainly changes a bit thinking about how pressing is the scaling, like how,

how urgently does it need to be scaled? The way I think of it is, like, Bitcoin, the system will change or will stay the same depending on the incentives of the inner circle. So recently I've been reading this academic book by, I think, a few academics, which is called the logic of political survival. And then they wrote a more popular book based on the academic theories, which is called The Dictators Handbook. And out here, they propose a very interesting theory of how political systems work, and Bitcoin is a political system. And their theory is that any political system has three kinds of constituencies.

So one constituency is what is called the actual selectorate. So the actual selector rate is, or the total selector rate is, for example, in a government, total selectorate is the set of all people that are going to vote for the government, right? So, or in a dictatorship, it's the set of all citizens. In Bitcoin, it's the set of all users plus developers plus miners. So we are, you know, all of the people that somehow matter to the Bitcoin system. but inside this bigger circle there are like two smaller circles so that that one smaller circle is called the real selectorate or the influentials these are people who can influence things and then on top of the influentials there's an even smaller circle of people these are called like these are essentially the people who matter these are the winning coalition so the winning coalition consists a group of very small numbers of people generally

who together can create a winning coalition that allows the leaders of the system to act in a certain way and distribute the rewards of the system in a certain way. And what this book kind of explains is, depending on the sizes of these three sets of people, how different political systems behave in the world. So if, for example, there's a winning coalition that is very small,

then what you're going to get is a dictatorship. If the winning coalition is a bit bigger, then what you're going to get is a democracy. And they explain all of these correlations. So when I start to think about Bitcoin, I actually think that in Bitcoin, the winning coalition or the set of people who really matter is actually very small.

It is just probably like a few developers and a few miners. It's a very small system. And today, if I look at the Bitcoin system, the value of Bitcoin is going up, and all of these people are finding that their sort of choice of limiting the block size is still resulting in a rising Bitcoin price. So the block size is limited, but the price is rising, and this very small circle of people are able to basically ride of the riding price

and keep their influence intact. So what I mean is like, for example, if it were to happen that Bitcoin would go to $100, then there would be sort of a rebellion against the core developers that really, you know, control the Bitcoin Coop Protocol and there might be a fork, then it might be a successful fork of Bitcoin.

But if you look at it today, if you look at the core developers, they have taken this idea of limiting the block size to 1MB, but that doesn't seem to impact, them at all. The price of Bitcoin is rising. Us as Bitcoin holders are happy that the price is rising. And there is no real incentive for the inner circle to really change their strategy. Why would they change? So unless there's a very huge challenge and Bitcoin as digital gold fails as an idea, only then would Bitcoin chain. Otherwise, there is no incentive to change

from the inside for the few people who control the protocol. So I think this is the direction Bitcoin would go. Yeah, although they still have the issue, right, so that even those who don't want to increase the blocks is, they want to do segregated witness, right, for the most part. But segregated witness as well doesn't look very likely to be adopted at this point because there is resistance against it and they have this activation threshold of 95%. So it seems like it's the stalemate where it doesn't really get anybody, anybody's agenda is being fulfilled. Anybody gets what they want. And okay, the price is rising. So maybe it's like,

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

has rewarded you with a higher price now why would you even want to adopt something new because anything new like a bigger block size or unlimited block size is going to come with its risks. But in the status quo itself, you have a really good position. All of your followers are rewarded by rising Bitcoin prices. So they are also happy with your leadership. And why would these inner core circle of developers and miners have an incentive to change today? I mean, for example, because they have spent so much time working on segregated witness, right? And then they don't even get that in, right? So they have this veto power, right?

They can prevent others from getting anything done, but they don't have enough power to really get done what they want. So I think, if anything, I can see a certain danger here that they'll also do a similar thing that Gavin and Dries and Mike Earnan those did, which is essentially a step back and say, well, you know, whatever, I'm out of here. So I think that could totally happen. But you have both the people who wanted to increase the block size and do that saying, okay, well, I guess if we can't get anything done here, we can't get consensus, you know, we're

going to leave if you're going to do something else. But you might have that on the other side too when they say like, well, we can't even get segregated witness through. We can't get light network working. Side chains aren't possible to do properly. So again, you know, with block stream, for example. right there their main business isn't bitcoin right they have they have their enterprise products and stuff they're working on so i think there is a risk here that in the end this division is just

going to really frustrate everybody so much that there's nobody in charge and it's just the development kind of stops either becomes digital goal or fails at it but i guess what i'm trying to say is like like the kind of the system is locked in a way that the only experiment the Bitcoin system is going to be able to perform is try to be digital gold. If it succeeds at it, it's going to succeed at it without there being any development at all. And if it's going to fail at being digital gold, then Bitcoin as a whole is also going to fail. And of course, for digital gold, you do have the situation. I think that network effects are massively important and it being known and having recognition

and, you know, the point to go from, let's say, asset managers to say we're going to put some of our portfolio into Bitcoin, they might start doing that. But it took a long time and Bitcoin got so much publicity and stuff. I think the chance for somebody else who, you know, disruptive currency to do that, even if it's 10 times better technologically, is extremely hard. So Bitcoin has a huge advantage on that side So that even if it is Not technologically

Maybe stuck doesn't progress so much It might still win at that Or still has much better chance of winning that than anything else I tend to think like you know like Back into the 13 or 1014 They were like people from the Nakamoto Institute And things like that they were arguing the case for digital gold right back then and now i feel as if you know

some of the early bitcoin adopters were right that digital gold is the ultimate application of bitcoin and and bitcoin has a massive advantage there because of it because people know it as being stable and having 21 million units and stuff and and now it's like it's it's It's either going to succeed at it and it's going to become huge by just being digital gold and doing nothing else. Or maybe for some reason it might fail at it and then that would be the end. But I do think Bitcoin has a strong chance of actually becoming big just on this. It wasn't obvious to me like two years back. I used to wonder whether Bitcoin should try to be a payment system.

But now I see that it really can't even become a payment system. It either has to succeed as digital gold or not. Okay, well, pretty much at the end of our episode. I don't know. 2017 is here. Just any predictions from anybody or important things that we should keep our eyes on? From my perspective, I think, you know, basically what we're touching on earlier, that, you know, at least on the enterprise side, because that's where I've got my eyes focused,

is that companies are going to keep investing, but they're going to be investing, and by investing, I mean, enterprise is going to keep investing in researching how blockchains can help improve specific parts of their business, but they're going to be doing so in a way that they're now going to try to be measuring those improvements, measuring the return on investment,

measuring the efficiency, measuring the effectiveness, so that in 12 to 24 months, these systems can start at a small scale coming into production in real IT systems. That's my predictions for the next year. Mayer? I think I have two predictions. One is not a prediction is really an observation. So in my feeling, the whole blockchain industry,

including the public side and the private side, lacks really great business cases today where we could confidently say why applying the blockchain is going to improve some factor that the customer cares about by 10. And as long as that clarity is missing, the blockchain industry is going to jog along. It's going to jog along at the pace we see.

There's going to be lots of technologies built, lots of teams, but we won't have the blockchain industry become 10 times bigger until we find a really good product market fit that truly scales. And I think that still hasn't happened. So I'm hoping something like that emerges into 2017. Maybe a good product market fit has already been found by one of the private blockchain companies, but they just haven't announced it or it just hasn't become clear. in the bigger arena. So as long as that doesn't happen, I think I'm going to predict like our

industry will kind of remain like flat. It won't, it won't see explosive growth unless that gets solved. Second prediction is I'm pretty bullish that the thing that I'm pretty bullish on is I find that there will be some way by which we will figure out how to, how to build, DAOs or decentralized autonomous organizations by which we could build media companies on a blockchain. So there will be ways by which we can put the whole cycle of content writing, to editing, to publishing, to consumption on blockchain networks. And this could be a successful application. That would be the second thing. Yeah, I agree with you. I think the lack of business models, a huge, huge problem, huge challenge. And I think that's right. I think we're going

going a bit like now in that, you know, people are going to continue working on it, try to make it work, and it's going to continue to be a lot of work in the technology, in infrastructure, and scalability and privacy. And there's so many open questions, so many things that are unresolved. So that even if you found that perfect business model, there's a good chance that today the technology just isn't quite there yet to actually be good enough. So I think those will sort of get worked on in parallel. I think what's unclear to me is what that's going to mean for the sort of enthusiasm for this industry and investment in it.

So it could happen that people get impatient and they say, well, maybe there's nothing here and that then investment in interest sort of drops off. I think actually ICOs and crowd sales are quite an important point to keep that investment and that interest going and the excitement for projects. I think if one solely had to rely on VCs, it might be challenging to fund the continued research and development in all this technology. So yeah, I think we also, we're not going to see the massive breakthrough next year, maybe 2018, but I'm sure it will be very excited. year nonetheless. So I think with that we're at the end of our episode. So thanks so much for listening. I hope you enjoyed the show. So episode as part of the LTP network, you can find this show and other shows and let's talk bitcoin.com. And if you like the show, then please leave us

an iTunes review. It helps new people find the show. So thanks so much and we look forward to being back next week. ALEEN SULLIV.