On The Brink with Castle Island - Joseph Jacks (OSS Capital) on the monetization of open source (EP.47)

Episode Date: March 2, 2020

Joseph Jacks of OSS Capital joins the show. In this episode we discuss:  - What constitutes commercial open source, and how this differs from regular open source projects - the history of the open source software movement - why programmers contribute unpaid to open source projects - whether tokens are required to monetize open source OSS Capital: https://oss.capital/ The COSS Index: https://docs.google.com/spreadsheets/d/17nKMpi_Dh5slCqzLSFBoWMxNvWiwt2R-t4e_l7LPLhU/edit#gid=0 Joseph's Twitter: https://twitter.com/asynchio

Hello and welcome back to On the Brink with Castle Island Ventures. I'm Nick Carter. There's a platitude often repeated in the crypto industry that the creation of tokens solved the problem of monetizing open source. The claim is that tokens align incentives and allow developers to monetize their typically unpaid work on open source projects. This is a pretty prominent attitude within the crypto industry. and I've wanted to interrogate it for a long time.

Our guest today is really the perfect person to do this. Our guest is Joseph Jacks. He's the founder of OSS Capital. OSS stands for open source software, and he's the founder of the OpenCore Summit. Joseph is a champion of this idea of the commercial open source business model, that is corporations that contribute to open source projects and also monetize them in the standard commercial way.

I found out about Joe because he created this index of startups that had successfully raised significant amount of capital or achieved exits with the wholly commercial open source business model. The one that most of you will be familiar with is Red Hat, but actually there's a great number of these companies. So on this episode, we talk about the history of open source and how it has changed from the origins with the Richard Stallman philosophy to where we are today. where explicit monetization of open source software is a reality. And we consider the puzzle of why talented developers contribute to these projects, even if they are not paid. This is something that has baffled economists for a long time. And it comes down to intrinsic versus extrinsic motivation. Now, we also consider whether the so-called commercial open source model can be successfully applied to crypto, whether there are relevant disenet.

In particular, the governance models that open source projects have relied on, and the unique rigors of decentralization or trying to achieve a path to decentralization. So Joseph offers a really fresh take on the industry. He is extremely knowledgeable about commercial open source. He's also quite familiar with crypto. And so I thought he would really be the perfect voice to interrogate this problem. do you really need tokens to monetize open source software or are there alternative ways? Brought down by bad mortgage investments, Lehman, which has 25,000 employees will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac,

the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's eight. economy with a new round of constituted easing. You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called the Bitcoin. Bitcoin. Hello, this is Nick Carter with On the Brink with Castle Island. I have Joseph Jacks here.

He's the founder of Open Source Capital. Welcome to the show. Thanks, Nick. Great to be here. Thank you for having me. Thank you for inviting me. Yeah, we're here in sunny San Francisco. It's actually a beautiful day outside.

It is. We're looking at the Salesforce building, relevant to the conversation. Yeah, overlooking Union Square here. Yeah, Union Square undergoing construction, not that picture us today. So Joseph is one of the world experts on commercial open source. So how you can commercialize open source projects. You have a fund related to this. Also, you're a former founder, operator.

Do you want to just tell us a little bit about your background, how you got into this line of work? Sure, yeah. I'm lucky enough, I think my second job, my second real job ever, I was working at this French open source oriented commercial open source software company called Talandie. And they're sort of at the infrastructure layer, ETL, data integration software company and tools for that. Started with an open source project and then they built an enterprise product around that and sold it. I was actually a sales engineer, a salesperson. This is like 10 years ago.

Worked there for a couple years. And then over my sort of career, I kind of stayed in sales, technical sales. Worked for a couple of different enterprise software companies, proprietary, kind of closed source enterprise software companies. And then I was lucky enough to get, become aware of a project called, an open source project called Apache Mesos. Apache Mesos sort of a predecessor to Kubernetes. It came out of the UC Berkeley Amplab at the time, run by YonC. Stoica. This is where projects like Apache Spark and other other projects came out of Ray, which is a new one out of the latest lab there, the Rise Lab. And Mesosphere early on was

commercializing Apache Mesos. Google was sort of looking at Mesos and decided to start their own project called Kubernetes. And then at Mesosphere sort of along with a couple of folks. I started the first Kubernetes company, which is sort of like a Cloudera-like-esque services support and training startup. And we educated a bunch of people about Kubernetes, kind of how it worked, the ecosystem that was starting to form around it. And I was also fortunate enough to just sort of connect the dots and think, you know, this is going to be an exciting, cool project. There's lots of, you know, there was the Docker community growing in the Docker ecosystem. I started the conference around Kubernetes, sort of like, you know, kind of an obvious thing at the time.

to do and that community grew donated that to the Linux Foundation the Linux Foundation formed its own governance sort of sub-foundation for the purpose of the decoupling Kubernetes from Google sort of a single commercial and technology contributor backer and and creator of Kubernetes the reason for that was they wanted to build a very large distributed ecosystem or maybe decentralized ecosystem you could say around Kubernetes After that, I started working on another company and did some entrepreneur and resident stuff. It was really kind of through that.

This is like the last five or six years that I got really lucky to meet some awesome people and explore some kind of intellectual curiosity I had around this kind of commercial open source world. Everything I'm working on now kind of started a bunch of blogging. So like two years ago I started blogging about observations in this kind of quote unquote commercial. open source world so not necessarily just open source or really focused not at all on open source but specifically the intersection of open source and business and making money and commercialization and from from my view what I've sort of looked at is the lens into that is companies like for-profit technology companies that are specifically structured to monetize and build a product

and sell that product but where that product is fundamentally based on a core open source technology of some kind in large part, typically a singular individual open source project. And so I started writing about some of this stuff. Actually, maybe a further data point is like the motivation for that blogging was a spreadsheet that I created from, you know, driven by some Twitter exchanges of all things, which is actually where I met you, Nick. So Twitter is the source of all interesting encounters in life for me, at least a lot of them anyway. that spreadsheet was listing large commercial open source companies. So companies like Red Hat and Cloudera and some of the Linux vendors, but also lots of other companies.

And I started updating this little spreadsheet like five years ago. And then over the last five years, it's grown from like four companies now to like close to 50. And we've classified and defined these companies in a common way. And that's really the driving category sort of theory that motivates everything that we're doing. So we have a fund and a conference and we're launching a startup school and we have a bunch of media stuff that we put out, including podcasts and research and reports and data. And everything that we do is focused on this category. And the category is called commercial open source software. So commercial open source software is basically a new type of abstract technology category, technology company category specifically.

And it's actually more abstract than SaaS than Software as a Service. Software as a Service refers much more to an actual business model as well as a way of building a company and software. so on. Commercial open source software company is a different type of company. It doesn't itself necessarily refer to any specific business model, but what it does is it serves to refer to and define a specific type of company, specifically one that fundamentally would not exist. It would have no compelling reason to exist without an open source project also existing in parallel. So for example, Cloudera would have a really hard time existing without Hadoop. Databricks would have a really hard time existing without Spark. Cassandra without, sorry, data stacks without Cassandra,

Red Hat without Linux, GitHub and Git lab without Git, HashyCorp without maybe vagrant and Terraform and a couple of projects, confluent without Kafka. And, you know, MongoDB without some of the license changes and some of the open source kind of, you know, nuances there. But fundamentally, that's the kind of definition that that we sort of observed and the primary like hypothesis and theory here is that if you look at these companies these commercial open source software companies or COSS companies also I'll just call them cost companies for the sake of brevity and concision here we think that those companies are different not just only in terms of how they get leads and you know

do marketing and and drive an efficient development paradigm we actually also think that they're fundamentally different on all these other really important dimensions like how they raise and spend money, how they hire, how they run engineering, how they actually think about strategy, how their business models work, how they think about licensing questions, which is a very complex, deep issue, how they think about product development and product management and really all the other functions. And so sales and marketing as well, which is related to business models. And so inside of that sort of set of assumptions, what we decided to do was, okay, there's like sufficient complexity and uniqueness in this category.

What we'll do is we'll really just focus on this exclusively. And we want to build kind of a loosely coupled platform that helps open source creators, open source software engineers, and specifically to understand the category better, to learn about the nuances and the differences, and to have a place to learn about how to start these types of companies from a network of successful founders that have done it before, and also raise money from people who understand the model really well, and also potentially connect and learn and network with people in this ecosystem.

So we started a conference called OpenCourse Summit. We have an investment fund that's a seed stage, very early stage investment fund, and we invest in very early stage commercial open source software companies. We also are launching kind of a, you can think of as like a hybrid of Y Combinator and Lambda School, and it's sort of meant to basically make it possible for open source creators and open source maintainers to learn about the path to becoming founders and entrepreneurs and actually start commercial open source software companies that that can be the basis for monetizing and capturing some of the value that they create through their open source projects.

So that's basically my background, kind of some high-level thoughts on what we do. Really exciting to chat with you here. obviously lots of opinions and observations and lessons to be learned from the cryptocurrency world that that you're that you're in yeah i mean i'm i'm so thrilled to have me on the show i you're um when i i came across your uh open commercial open source index and that was incredibly useful for me cool because and then i i i tried to popularize it within the crypto industry uh because there is uh this lingering view within the crypto space that there's only really really one way to monetize open source, which is through the creation of a token. This view became

in vogue in 2017. Interesting. It still lingers today. And I think it's potentially, you know, flawed in a number of ways, although it's been very interesting to see the experimentation. And so I found your body of work and I thought it was extremely useful in making the opposite case that if we imagine blockchains as open source projects, which they may not perfectly fit that definition, but most of them do rely on open source projects, there are alternative ways to monetize, more conventional ways to monetize, basically. And people will dismissively call this the red hat model. But your work made it very clear that there's actually a plethora of these business models that are revenue accretive and there's actually dozens and dozens and dozens

of such companies and it's not just one or two stray examples correct yes so that is that's why i found it so useful for making that almost skeptical case within crypto and now i refer to the index that's awesome i'm glad i'm glad you found i consider you maybe the one of the probably the main champion of this notion of commercial open source. I mean, yours is probably one of the only funds that I'm aware of that's actually devoted to this concept. I continue to be surprised that is true. I think that's changing from what I can't, things I can't speak about publicly, but it'll probably, you'll see some changes on that this year, which we're very excited about. In your world, there have to be when you're, and you're one of the founders of Castle Island Ventures,

there have to be probably, I mean, maybe on the order of north of 100 venture style firms or investment firms that are focused on blockchain cryptocurrency in the world of commercial open source shockingly they're still really just I mean we're the we're really the one firm and kind of the group having said that though every venture firm out there every like investment group you know tier one venture firms or tier two however you classify them do you have an investment thesis in this commercial open source world and they sort of like have a very positive view on it and are quite active because this is a very high growth area companies become very valuable pretty quickly.

They're super capital efficient. There's lots of success cases. We just think that it's sort of a focused, dedicated effort makes a lot of sense. Yeah, that's interesting. Yeah, I'd say we're almost in a similar position in terms of crypto. There's a lot of venture firms that are focused on crypto for sure in blockchains. We are within a very specific subsector of that, which is conventional operating businesses, building on top of the major public blockchains specifically.

And again, even further segmenting that, in particular, with the financial services angle. So we're about as specialists as you can get. Interesting. But I do concede the point. There are a lot more venture funds that are crypto-focused than costs, I guess. So people tend to have this kind of monolithic, homogenous view of like free and open source software. They tend to think of Richard Stallman or the Cathedral in the Bazaar. I think one thing you've tried to do in some of your work is to communicate the various phase shifts, the transitions that we've had from the origins of this movement, maybe in the 80s and the 90s, the Libra software movement to where it is today, which is rather different.

So maybe can you just give us an exposition, maybe of how we got from like the Stallman era of software to this like, relatively commercial approach today. Yeah, I mean, I'm happy to. I blogged very, very high level about this and something I should probably revisit and it's like a very kind of dense, not well-unpacked post. I don't think I'm that good of a writer. I just kind of like, you know, sort of spew thoughts out and try and get points across as best I can.

But I think the post is five decades of permissionless software innovation, like eras movements. And I like pull them down to three eras. So the first one is like free software, specifically free software and the sort of, from the words of like Richard Stallman, who, you know, in 1983 started the GANU project with the Free Software Foundation, with the GPL license and, you know, GCC and obviously the tool chain around that. From 1983 to 1998, it's a roughly 15-year period. This is sort of the free software era. And you could sort of say that era, you know, By the way, I'm not book-ending dates to sort of denote like a beginning and an end.

I'm just sort of like using those dates to sort of highlight points of most intent, like the most intense kind of focus on the things that occurred in that sort of, in that sort of timeframe. Centres centered around this free software movement. Motivations that Richard had were really socialistic and sort of somewhat communistically driven, if you could say, you know, sort of anti-intellectual property, very anti you know you know centralization and anti patent anti you know they weren't strictly commercial in nature well and it also wasn't strictly rejecting the idea of

charging for things and rejecting the idea of commercials is really just rejecting this idea that you know the rights that people have around you know usage of technology is constrained to just the usage and not the actual sort of verifiability of how a given system works and operates and functions. So specifically free software freedoms, codified by Freedom 0, 1, 2, and 3, or 4 freedoms, specify that anyone and everyone can have unilateral, unilateral, and discriminatory free access to view, modify, distribute, and distribute with or without changes, a given, I would say a given technology.

In the sort of case of free software, that was specifically referring to software. But I think the vision and the broad sort of idea behind it is much larger and expansive beyond software. At least I think Richard would agree with that. Oh, yeah. I mean, from my understanding, it's extremely ideological. Very ideological. The second era we think is sort of 98 to maybe 2012-2013. We sort of think of that as the open-source era.

And again, that's not to say that open source is over. In fact, it's like, you know, arguably just getting started. And I hate to sort of bookend that. But I sort of have a third era to unpack starting around, you know, five, six years ago. Seven, eight years ago, actually not at this point. Now there were in 2020, which is kind of mind-blowing. 98, because that's when Eric Raymond and Bruce Perrin and others came together and said, okay, free software is really great, but we're going to give it a new brand.

We're going to give it a new name and we're going to call it open source. And open source because, well, this is sort of just, maybe more friendly terminology is an easier way for business people to sort of become aware of this this sort of approach and paradigm without getting so sort of ideologically kind of crippled and maybe sort of overly scrutinizing those elements and and really that sort of shift happened in parallel with sort of a new congruent and aligned definition but somewhat of a different definition that was more focused on the pragmatic kind of development paradigm efficiencies and sort of business value properties of free

software and really giving it a new face, a new name, a new brand. And so with open source's terminology came to the creation of a separate foundation, the open source initiative. And the OSI is really the sort of steward of the open source definition and sort of a group of people came together around that and that and that's sort of that third that third error. Of course, this coincides with the rise of the internet, with the rise of things like Linux, the lamp stack, Apache MySQL, PHP, and lots of web technologies that were subsequently licensed in a sort of open source way, which carried forward the GPL and, you know, there's like subsequent versions there and lots of like nuances. We can stay outside of the licensing dynamic, which is a big rabbit hole.

The third error we think, well, actually, before I go on the third air, that that second era was really heightened so much more and driven much more from the pragmatic like, execution value added, a business value kind of perspectives, as opposed to ideological, so, you know, sort of like socialistic, you know, rage against the machine kind of, kind of dynamic. Not to mention the creation of licenses that were more commercial friendly. Correct. Correct.

Yes. And so what we see is a sort of secondary as driving most digital technology innovation, so specifically software, when I say digital. you know the vast majority of the largest internet companies use that open source paradigm to remove enormous amounts of software R&D heavy lifting from their balance sheets and from their sort of capital expenses and output in terms of energy and actually use you know stand on the shoulders of hundreds of thousands or in the cases of early 2000s maybe low single-digit millions and overtime many millions of software engineers that were building open source technology now

we have tens of millions and so we've hit a third error we think and we think the third error is really you know sort of if you think the first error was really about from the lens of its relationship to kind of capitalism and commercialization specifically very antagonistic the second era's relationship to capitalism and and sort of commercialization is a lot more pragmatic sort of like you know optional but certainly you know encouraged and the second the third third error we think is explicitly embracing and integrating its core elements with commercialization and capitalism, which is that commercial open source, if you juxtapose the word commercial and you put it before open source, we think it gives rise

to sort of a new type of company category. We think that company category can be sufficiently defined as its own unique, analyzable class of companies. And we call them commercial open source software companies because the most common historical term that people apply in the industry in the venture world and founders and lots of other places just calling these companies open source companies or quote-unquote OSS companies or just open source companies we think that that terminology and we really do sort of obsess about terminology precision we think just calling a company a quote-unquote open-source company is you know so not to be pedantic but like it's sort of oxymoronic because you know if you if you considered a company an open source company that company would have to

literally open source its bank statements it's hiring practices it's P&L it's deep strategy you know, details and so on to everyone from day one without discrimination. If you look at the open source definition, that's what it's about. Like if you apply that, you know, given license that conforms to the open source definition to a piece of source code or a project, without discrimination, anyone can see the entire source code, it can modify any sort of part of the source code. They can distribute any part of the source code. They can do that distribution with or without changes that they made or someone else made.

And so, you know, if you apply that to a company sort of architecture or entity, which is like a given thing that, you know, the government views that this separate, separate entity is separately taxable and has its own fundamental unique properties. That's something that we think is just blurry thinking. So if you define that class as a separate thing, like commercial open source software companies, then you can actually assess and analyze them more accurately and more precisely and start to really understand the fundamentals better. So that's the third era. We think commercial open source software companies as an era denote this shift from indirect value capture of open source to direct value capture of open source. And that's a bit dense.

What I mean by that is most digital technology innovation in software and technology, we believe, has been enabled by open source. And we believe that's also true in the cryptocurrency blockchain world. So quite literally, we hold the view that Bitcoin would not exist without open source existing before it. I totally endorse that. In fact, we believe further that Bitcoin could not even remotely exist at the level of success it has without the foundations of open source really germinating and getting bolstered and sort of hardened by the success of the internet before it, you know, arguably, you know, well more than a decade, you know, Bitcoin's 2009.

So we're sort of, you know, 2009 is, you know, a decade after the biggest wave of the rise of the internet. So this is 10 years of really significant education and conditioning of open source practices in the world, particularly in engineering communities. And peer-to-peer like software. Yes, exactly. Exactly. So anyways, that's kind of, so we think that open source value capture has really been

mostly indirectly captured by large proprietary centralized technology companies. So specifically large internet services, but also just large software companies like Oracle and Microsoft and so on. small layer of the code that gets written there is business logic. The vast majority of it is open source software, and then it's compiled into proprietary services, the same as even true for Apple and their software products. But we think that this next couple of decades,

maybe the next 15 years, starting around 12, 13 going onwards, the next couple of decades, we think that pendulum is going to start to shift heavily towards companies that are really built around a foundation of a largely single, open source project and that open source project is actually creating a huge amount of value and the company exists to capture a small slice of that value and therefore provide a mechanism from which value capture can accrue to the creators of the technology that that that that that that service the basis for the company specifically the open source software creators

and what we think is is important is to educate those open source software creators on the details and the approach and the path to starting companies so that they can have some exposure to capturing some of the value. In fact, most of the research we've done around some of the most successful open source projects that can be commercialized are that if the founders and the creators of those open source projects had started companies and successfully grown them to some degree and sold those companies perhaps and had outcomes or maybe even gotten venture funding or not and built businesses, they would.

stand to capture the most possible value that could be captured as it relates to the value that the project creates. So this goes to open source projects create a certain amount of value, but only a very tiny percentage of that value can be captured by anyone, even the creators of the project. And so there's a few ways of capturing value as an open source creator. Obviously, you can create some kind of digital currency token. You can go and ask for donations. You can take a job as a software engineer working at a big technology company.

You can create one of these commercial open source software companies. You can be employed at one of these commercial open source software companies. There's different ways of kind of looking at access into the value capture sort of stratosphere in terms of commercialization. We just think, you know, sort of like, for example, line of stuff. Torvalds had he owned a few percentage points of Red Hat and GitHub when both those companies were sold in 2018. He would have made, you know, at minimum several tens of millions, maybe a couple billion dollars. And to date, Linus created Linux and Git, but he hasn't captured any of the value of those commercial outcomes of those companies that are fundamentally building

on projects that he created. The same is roughly true for Doug Cutting, the creator of Apache Lucene, which is the basis for Elasticsearch, a $7 billion company. Apache Hadoop, which is the basis for Cloudera, another three or four billion dollar company that's quite under value these days. And so we think that if the open source software creators can understand that in the cases where their open source projects can actually be commercialized, if they can understand that they should be the founders of those companies, and as much as it's possible for them to do that, and the right kind of conditions aligned for that, we just, we hope to see more of that. For now, it's a very small sliver of the open source developer community that A, is aware of that being a real option. And B, is it actually interested in pursuing that option.

This is something that's fascinated me for a long time. And I think there's a growing awareness in the Valley that this isn't an interesting and important question, how you monetize open source. Nadia Ekbal is one of my favorite writers on this topic. You know, I've read some of the literature, almost certainly less than you have. You know, I found this paper called Simple Economics of Open Source, a learner in Troll. I don't know if you're familiar with it. And there's this whole class of papers, which is economists puzzling over why people spend their time in energy. Elite professionals, software engineers, spend their time work on open source.

So I guess in the context of the second year, really. And it was this huge question that economists couldn't make. had nor tail of why people do this. And like they had to come up with all these explanations. So one was that like these are people with jobs in software. And working on open source is more fun for them because they get to pick specifically what they work on. They get to work on something that maybe they align with personally.

And so it's like playtime for them. Not necessarily the most satisfying explanation though. Sure. Another one was is a form of signaling. where the individuals could acquire reputation with their, you know, like GitHub account or whatever, you know, and acquire prestige as maintainers of these projects if they rose through the ranks. And that was a fairly popular explanation among economists. It's like they could monetize their reputation subsequently because in open sources,

it's like whole, you know, significant ethos around giving credit. credit to the developers. And so they, as you say, they could go work at a company building on these platforms or open source projects or they could become entrepreneurs themselves. Do those explanations satisfy you or do you think there is another explanation? I think there's two problems here. One, those explanations are very unsatisfying. So fun and scorecard ranking.

I think the deeper problem is that economists are probably the wrong people to be asking this question and analyzing potential answers. My views are, and most of these are painted by conversations with Bruce Perrin, who's one of my partners at OSS Capital. Bruce is the co-founder of the open source movement, and he's the author of the definition that is still adhered to largely in the industry. He's one of the co-founders of the OSI, the sort of foundation that governs the definition. So Bruce has been very central in this ecosystem since 1998 and even well before that with projects

like Busy Box and Debion and so on. And his primary explanations for the motivations behind why open source contribution occurs and why it's basically driven by activities and sort of behavior from highly skilled software engineers that are paid well and so on is, you know, they're voracious learners, they're hyper-curious people and they feel that the ways in which they can interact and connect and collaborate most frequently with the highest levels of sort of positive interaction and lowest feedback friction and resistance is the open source approach for fundamental reasons, right? Even if they're not monetizing it directly.

Precisely because it is decoupled from the monetization aspect. And I think one other thing that Bruce pointed out, which isn't quite described this way, but he actually writes out a lot of these details in a paper that was published in 2005, that I've kind of trying to you know try to revive a bit because this is like chock full of wisdom and nuggets and just awesome. So this is pre-cloud computing, right? Is the the the title is entitled,

the paper's entitled, The Emerging Economic Paradigm of Open Source. And it's written by Bruce Perens, a couple of revisions. Basically in that paper he describes, I'm kind of paraphrasing some of this, but the reason that open source is successful is it kind of drives a new, paradigm for frictionless collaboration and frictionless value creation but also removes undifferentiated heavy lifting so if you look at the way Andy Jassy describes Amazon Web Services or cloud computing sort of we're gonna remove all this undifferentiated heavy lifting from our customers allow them to focus on

their business logic and their business requirements and just use the services that they need well really open source is the sort of ultimate realization and in fact predecessor to that notion of removing undifferentiated craft or heavy lifting and embracing, essentially embracing abstraction from people looking to build solutions and solve problems. And I think there's quite a lot of statistics now that look at just the sheer number of lines of code in a technology company, 90 plus percent of them are open source lines of code and maybe 10 percent or less are really like custom business logic elements, written, handcrafted functions piece together.

maybe composites of libraries that represent, you know, the actual, you know, core IP ingredients that a company is constructing in order to, you know, differentiate themselves. All the other things are undifferentiated. However, they're compiled as a proprietary service. So open source is really, in our view, we believe, driven the vast majority of technology innovation in the digital world, in the software world. So the vast majority of technology innovation, we believe, has been driven by open source. And we don't, I don't think that that's a controversial thing to say if you look at like really the value that has been accrued to the largest technology companies.

They've built proprietary closed services in order to actually build monopolistic dynamics behind those services. They've done a really good job. There's nothing inherently right or wrong about that. We contend that those models work and they're effective. Well, you certainly know how to convince me on the topic being the cryptocurrency outtache here. Right.

It entirely is owed to the existence of open source. Completely. But we think that this kind of commercial open source world is, yeah, it's just kind of quite, quite different. And, you know, the, yeah, the funnamboles are different. So your best explanation for this apparently irrational behavior would be that. Oh, I didn't finish the thought. I sort of got a little distracted.

So there's intrinsic motivations and then extrinsic motivations. The intrinsic ones are really, you know, they boil down to why. people do things for altruistic reasons for you know they're feeling feeling good about it they want their community to be more you know abundant they want a happier sort of you know outlook on the world that isn't driven by you know getting paid or some reward they feel like they just want to do good and they want to do good and you know in sort of like contributing to open source with the sort of like what you could think of as quote unquote forced permission permission

permissiveness, specifically permissionless permissiveness because you know, you don't need to get permission to have access to something that is highly permissive and giving you, you know, a huge amount of leverage and also enabling you to do things that you weren't able to do before and continuing in perpetuity the distribution exponent and potential of your work by really, you know, forcing others to contribute. and share and and and build something that is greater than than what you could possibly build individually in a silo that is a very powerful dynamic that if you combine a lot of the elements of open source it points back to why these

software engineers seek to kind of continue to drive a lot of that collaboration even though a lot of cases it's extraordinarily painful the cost of honoring a social contract with a community that is building you know production systems and extremely sensitive tools and is submitting issues and bugs and so on around a complex code base that cost and complexity and stress, anxiety, and pressure, and pain and suffering that open source creators have to go through in order to just deal with that massive wave of entitlement in many cases, that open source users, which is the vast majority of people that are aware of open source, they're just on the consumption, the usage side, they're not on the

contribution, the production side, present. And I would say, you know, this is really what you sign up for when you create a system and a paradigm, which is so fundamentally powerful as to remove any possible element of discrimination from the model. And that is really what open source is about. We're seeing some pockets of the technology world try to very carefully sort of, sort of, precisely introduce elements of discrimination into the open source paradigm, whether it's at the licensing level, whether it's at the sort of community contributor social contract level and other places. I don't expect any of that to succeed for one main reason. Open source itself has succeeded hugely because of a complete lack and removal of the sort of like fundamental tenets of discrimination

in the sort of like paradigm itself. People are still very discriminatory. You can't remove that element of it and obviously if you have a sort of benevolent dictator-like kind of governance model, you know, certainly you can have one maintainer that has, you know, exclusive, you know, only singular commit access to a repo discriminating against contributors like that, of course, happens. And that's a human flaw. But in terms of how a license structure governs usage and distribution of software from the contributor from the mutation standpoint and actually changing an artifact, if you strip away sort of all of the negative elements of human decision making from the way, you know, people actually are granted, you know,

access to change, you know, bits in a given system in a directory somewhere. Like that is, that is a really beautiful system. And so if you look at the extrinsic motivations, you sort of introduce the monetary element. So that's an entirely different layer from open source. Open source is exclusively not a business model. It's not a company model. It's not a way of making money. It's not a monetization approach. Open source is a development paradigm. It is a way of licensing technology. It's a way of distributing technology and it's really a movement and a community and sort of in many ways in ideology and a lot of a lot of eyes. And it's certainly a way of driving lots of positive collaboration if it's embraced in effective ways. If you look at the extrinsic motivations,

though, and you kind of tightly couple those things to open source, you know, I think the benefits are certainly there, but there's a really significant amount of dissonance and friction that starts to occur, in particular when you form a company, because the sort of onus of balancing the investments across commercial products and a new set of constituents that didn't exist before in the open source project, specifically customers, all of that starts to emerge. The thing that I'm slightly confused by today, and perhaps you have some thoughts on this, is in the cryptocurrency world, as opposed to where, let's say for the sake of maybe painting a contrast, commercial open source companies loosely couple the extrinsic motivational

layer to the intrinsic motivational layer. So if you sort of like say we have the intrinsic motivational layer, which is the open source project, and then the extrinsic motivational layer, motivational layer, which is the commercial product based on the open source project. And the commercial open source company around those two layers has to sort of contend with balancing those two dynamics. Loose coupling. Compare that to say a blockchain company or a company commercializing a given product based on a public blockchain or private one or maybe they're creating their own blockchain.

I think they have to contend with a slightly more complicated sort of circumstance. where essentially your extrinsic layer and your intrinsic layer are more tightly coupled. Perhaps they're not perfectly tightly coupled, but they're certainly not loosely coupled. And I'd say in most cases, they're completely integrated and woven between each other. Is that a fair characterization you'd say, or is it still kind of rough? That's a very interesting comment. I think in the earliest days of the existence of cryptocurrency, they were probably distinct. So, you know, it appears to me that Satoshi's intentions in creating Bitcoin were ideological

that most of his writing speaks to the underlying kind of like cypherpunk reasons for why money, which is not intermediate by third parties, should exist. I see, yeah. And the fact that his million or so bitcoins appeared never to have been touched is kind of more evidence for that. However, as the years passed, you know, people realize that by assuming positions of authority in these cryptocurrency projects, they could monetize their protocol proximity, so to speak. And this has actually been both an issue. A lot of people believe it's a virtue. I would say maybe it's more of vice. This has been something which potentially has compromised some of these crypto projects, where the developers are able to really directly monetize their local advantage. And, you know, contrary to maybe commercial open source business models, if the maintainers and developers behind these cryptocurrency protocols have a significant advantage and a huge amount of leverage in terms of being able to alter the monetary characteristics, that potentially undermines the credibility of the system. Like, you know, these are meant to be extremely neutral.

Well, that's fascinating. And I'm really glad you brought that point up because if you look commercial open source, monetary governance kind of. of changes from the lens of like at what at what level are certain things more centralized than others meaning like you know there's certain elements in the stack of stuff that's like highly distributed and decentralized other things that are like a lot more centralized commercial business software companies in terms of the monetization and commercialization decisions and development paradigm and so on it's very highly centralized I mean there's a set of people that work at that company typically the founders and the board if there's an investor and you know a group of

people deciding on how the pricing how the pricing of the product occurs how it's brought to market, how it's sold, you know, what the cost to customer acquisition looks like and how you go and distribute it and how you basically manage this open and closed equilibrium, as we call it between the sort of frictions that exist in the customer base and the demands and kind of like social contracts and, you know, commitments that you have to make and investments in the sort of open source community and the developer community around that. They're very different things. I guess with the blockchain world, you have this like sort of more.

more unified kind of set of people that can both contribute to the technology primitives, as well as the value capture like data structure itself, which is, I guess, this, this blockchain system, right? Yeah. And, you know, I think in commercial open source, it's kind of okay that the governance can be somewhat centralized or the corporate entity. For monetization. And whereas in a crypto context, the whole objective was,

to have, roughly speaking, decentralized governance, decentralized protocol authority, so mining staking, and also decentralized topology. So I'm talking about the actual peer-to-peer network. So those are all individually necessary, but insufficient characteristics, decentralization across all those three layers

for the system to basically be robust and succeed long term for it to retain its credibility. If any of those layers are compromised and there's like some sort of acute centralization, the project is likely to not succeed. So there's this horrible or just rather intractable tension in crypto. It's much more efficient to have highly centralized decision making as in the cost world. However, if you do centralize any of those layers,

the system's credibility is likely to be undermined. Do you find this decentralization, maximization, point of view harmful at the early stages of getting blockchain networks going. And so, for example, like, you know, because it's a small number of very smart people working on these systems, like ostensibly everything is very centralized until it isn't. And then at what points do things become decentralized? I'm reminded of Vitalik's post sort of like defining decentralization or I forget, like, you sort of different types of decentralization.

Yeah. So my thoughts on that were informed by that post by Vitalik. It's a great post. Among others, yeah. So it is correct. There's like a definitely, there's kind of a collective delusion in crypto that like these systems can be brought into existence as fully formed decentralized projects. The truth is, in my opinion, decentralization can only emerge. It's like an emergent phenomenon.

It's not something that can be planned for. So there's this, this great quote by Friedrich Engels where he says, something to the, tune of in socialism, the state withers away over time, and then it's the people that govern, right? And so that's like a core tenet of just plain Marxism, right? Right. And we actually have the same, and it didn't work in practice, right? So like instead of achieving decentralization, Marxism or morphed into communism, which is highly, highly centralized, about as centralized as possible, right?

And so in the same vein, many folks in crypto believe that you can plan for decentralization. That implies the existence of a planner and an entity which willingly surrenders power after having it at inception. But the truth is and the unfortunate truth is in crypto, if you have power, political power, you can transform that into economic outcomes for yourself. Right. Because we're talking about these monetary protocols. Right. So the incentive to decentralize your control, you know, to take your highly privileged position and, you know, and distribute it to the various stakeholders network, it's incredibly weak, and in practice,

it doesn't tend to happen. So a lot of these networks that launch with this Engels-style idea that the state or the coordinator will wither away over time, that strikes me as highly, highly utopia and doesn't really mess with what we've actually seen in crypto so far. This is a bit of a digression from the core discussion. No, I mean, the largest open source project

by changes in production users and history and so on Linux is still in large part, you know, run and decided on by a very small number of people, core kernel maintainers, and Linus is still putting his foot down on major issues and has the ability to affect changes. And this is like, you know, a piece of software that runs in, you know, almost every major computer system

out there that is, you know, handling the world's information processing. It's pretty wild how, centralized that technology is in terms of changes you know I guess one of the pragmatic questions really is testing that assertion like if the success definition is maximum or you know ensuring decentralization in terms of governance is that really is that really a correct assertion to make about success because there's a lot of success cases of open source projects that have a different

levels of governance openness or governance decentralization, say, and maybe in changes to certain parts of sort of a code base, but not in others, that are extraordinarily successful. And I think open source is also just a new kind of governance paradigm. It's like a lot of people think of it just as a development model or a distribution model and a marketing kind of approach. And I think the governance, the distributed governance aspects are underdefined and under-defined and under-explored.

Most open-source projects have sort of like a read-me. And if you want to contribute, you have to like get cloned the thing and like read the source code and like see how things work. Some of them have a contribution markdown file. Very few of them have like contribution guidelines. And if you are still have like, you know, DCO or a CLA and like this whole, you know, definition process and like build test scripts defined and, you know, parts of the code base that you can touch and others and guidelines and, you know,

a foundation for like, you know, IP management issues and the whole license. licensing audits and you know there's a spectrum of how well architected projects are to encourage truly open distributed decentralized governance and then the question of like decentralization in the context of foundations comes up quite a bit one of the things we look at a lot is when a given open source project reaches a tipping point of pressure from its community around how decentralized and how openly governed if you will it can be the pressure point tips in the direction of demanding this question of should it be in a foundation

getting an answer. And typically the founders of the projects are faced with that question and the pressure continues to mount in terms of like answering that question. And then when they have to answer the question, they'll typically go and say, okay, we're going to create a foundation, we're going to give it to one, or we're going to do nothing. So, you know, stasis, choose an existing foundation that might suit your needs or create your own foundation. And so and that's kind of a new phenomena too just over the last five or six years as we've seen more huge open source projects get built beyond Linux like there's like a litany of projects that are absolutely enormous and huge that did not exist five or six years ago and the

governance implications of those open source projects is still fairly underdefined some of them are controlled by large individual corporations others are controlled by foundations others are sort of like viewed as controlled by a small set of individual people that might own the trademarks individually and a bunch of interesting things there. I'd wager the same as roughly true for blockchains in a way that, like, let's say you create a foundation that's sort of the arbiter of distributing out, you know, parts of the token, the token, you know, reserves and allocations and distributions and so on.

But I guess, you know, rubber meets the road. How does that actually get designed in architected is a curiosity? Yeah. And in the context of crypto, they, for the many of these new tokens adopted this foundation model. They essentially borrowed it from open source design. And I would say most of the power that they gave to foundations was merely cosmetic. You know, they didn't really give them much power. And then you have a few high profile pick cases where the foundations were able, kind of became.

rogue agents and actually really interfered with the project. So the most famous case study is Tazos, where the Swiss Foundation essentially went rogue and threatened to completely derail the entire launch. So the founders, actually of Tazos, may have given the foundation too much control. So oftentimes there will be a corporation and foundation, and then of course like the open source project, and power will be split between the two in some manner. And the best and most interesting example is probably Zcash, where there is a foundation, which is independent of the corporation, and then there's also just token holders, which aren't necessarily beholden to either. And so all of these three entities have distinct interests.

And right now, they're in the middle of a relatively contentious negotiation over who is entitled to the block rewards. So and the where we are with the negotiation, full disclaimer, I'm on a Zcash community governance panel, which does not have any power, but just wanted to mention that. The current state of affairs is the corporation was drawing a significant fraction of its revenue from, from essentially derived from protocol financing from block rewards. And They came to the end of their kind of four-year term, and now there's a renegotiation over who has the right to access that protocol-derived financing, the foundation, the corporation, or an independent kind of pool of capital that can be voted on for projects by maybe the community. And so these models are still very young and untested. And I think the main difference, I would say, between foundation models in open source world,

which are relatively well established, I would say, understood. And in crypto is that the stakes are much higher in crypto because the project itself, the open source project, is directly financialized. And so the decisions you make in the context of that project have direct financial outcomes. Of course, like changes over Linux have, you know, for instance, have significant financial outcome effects over like the various stakeholders. But here we're talking about a situation where the product in many cases is a monetary asset.

That's really fascinating. I had a Twitter exchange with one of the, one of the entries in crypto folks, trying to remember, I think it was may have been Jesse Walden, yes. And Jesse and I were talking about this sort of difference between commercial open source monetization models and this kind of decoupling of the sort of financial equilibrium from the open source project in commercial open source. And then the tight coupling or sort of like integration of you're saying that the distribution of financial incentive structure to the open source project itself. Yeah. Which I would say arguably is relatively new. We haven't really witnessed this.

Where being an open source maintainer is now elevated to a new tier of influence and kind of monetary outcomes. Right. Which is, I would argue, where a lot of the kind of conflict comes from and also distinguishes crypto from this like open source world to some degree. because the stakes haven't been this high before kind of thing. Do you feel this misalignment of economic incentives between the users and the creators of the technology is the fundamental reason why whoever Nakamoto is decided to tightly couple this extrinsic and intrinsic dynamic in one system? Well, I don't know if Nakamoto made specific decisions in terms of trying to set the governance

of Bitcoin, for instance, because he or she, was was you know wrote the code shepherded the protocol as a benevolent dictator for two years and then left rather abruptly and left Gavin Anderson in charge and sort of gave no guidance over as to how you know he wanted decision making to occur over Bitcoin so it's very hard to infer what Nakamoto wanted the like governance model to be um He made some comments here and there saying, you know, like, it might be a good idea to get some Bitcoin in case it catches on, which kind of hints that like maybe he thought that the early developers behind the system should align their incentives in such a way. But, yeah, very little on the, on the like how to organize the top of the project politically. Going back to one of your first questions around cryptocurrency world, blockchain world, sort of not having awareness of any other.

way to kind of monetize or capture value other than tokenizing or putting some technology on a blockchain. Is it also true that this view of blockchains have to be defined as something that itself handles the monetization scheme and also act as this kind of technology layer for coordinating you know, resource interactions between entities or applications. Is it also true that, so for example, said differently, blockchain is not a blockchain if it doesn't have sort of like extrinsic properties. Is that true? If it doesn't have.

Monetary incentives built in. Well, then we're getting to discussion over the term blockchain specifically. But that would probably be my stance. And that's not, maybe not the most. dominant view, but I would say that we haven't necessarily yet discovered a usage for... Basically, blockchains without a token. Yeah, so... Tokenless blockchains.

Tokenless blockchains, to me, the real interesting thing about blockchains is the fact that ledger entries are costly. Specifically through proof of work, I think is still the most reliable way to achieve that. And you only really need costly ledger entries if you want a mutually untrusting set of nodes or, you know, entities to be able to agree on a chronology of the history, you know, absent essential coordinator who decides the time. And the only reason you need that is if you have a ledger, which requires extremely high assurance, which no entity has editorial control over. And this is like we're kind of drawn out. I believe the only reason you'd need that would be if you're creating a monetary asset or something of really immense significance over which fairness is paramount. So all of that to say, it seems like a public blockchain specifically is a really inefficient, costly way to do anything other than something that's very important, like create a monetary asset.

Interesting. But I guess it would then follow that. It's hard to imagine use cases for blockchains that don't tightly integrate some monetary coordination, extrinsic design alongside a given computationally intensive or computationally required application. Yeah, I almost find the concept somewhat incoherent, you know, and I think there's been, you know, this view over the last, really since 2015, I would say that, like, you could take certain cosmetic features out of Bitcoin, maybe and create something interesting. It's an open source project. You could fork it in removal. Of course.

And like, you know, Blythmasters, digital assets, they were probably the first ones to do it. To pitch the notion of a blockchain without costly ledger entries as interesting and valid in its own right. And like, I don't think that has been proven. Interesting. Just the, basically the linked list hashed structure.

And I think you very, I don't know if we were talking about this before, we talked about the on the podcast. podcast, you're saying that's basically just Git. Right. I mean, so going to the commercial open source world, this is the inverse of what we just talked about is true, which is that the extrinsic motivation is completely independent and decoupled from the intrinsic motivation. And what I mean by motivation is sort of the primitives that drive the motivation.

So like open source itself and Git drive basically the motivations for, you know, intrinsic energy and behavior by smart, talented software engineers and technology people to innovate in the open source domain. Commercial open source software companies or technology companies or businesses that are paying you a salary or customers that are sending money over for a certain amount of work are the source and building blocks for extrinsic motivations that serve to create as output value captured by, you know, the creators of software and the open source domain or technology businesses at large or, you know, what have you.

And I tend to always like over, over emphasize and highlight the distinction between value creation and value capture. Most of the value creation, which is very sort of like contributor stakeholder optimized, is exclusively that, just value creation. Not capture. Which is open source. And then, yeah, on the company side is very much value capture. I had a thought the other day, which is sort of on the surface seems very controversial.

Actually, I think it kind of is, but I sort of increasingly becoming more and more and more convinced that it's true. It's actually pretty controversial, which is that companies are the wrong abstraction for innovation, but they're the right abstraction for value capture. And open source is the right abstraction for value creation, but the wrong abstraction for value capture. So if you just look at open source itself as a value creation exponent, sort of like mechanism and companies as a value capture.

exponent and mechanism. So the maximizing value capture, right? They're sort of like thinking about how to monetize and generate revenue as output and profits and, you know, return dollars back to shareholders and make investors more money. That's the sort of optimization function and reward function that exists in companies. But the optimization and reward function, which is like, obviously like not quantifiable and therefore very nonintuitive to economics and people in the finance world is that of value creation, which actually gets me to a separate point that I did want to mention, economists have really good ways of measuring value capture, but they have no ways of measuring value creation.

Right. And so value capture would be things like market cap, revenue, margins, and so on, monetary, you know, dollars and such. And the value creation would be things like productivity, abundance, innovation, leverage, human potential, amplifying the abilities that people have like, you know, what's the value of a computer to someone who is highly skilled, obviously not a couple thousand dollars for the computer. It's infinite. You know, the ability that you know that you have access to the world's knowledge and you can do all these things is really incredible. So in that light, the prices of

computers are actually incredibly low and they should be higher, but they've only gone lower because of Moore's Law and different things. Yeah. So I guess that's really what, that's really what I think about quite a lot. And I don't know, I actually don't know if blockchains are a mechanism for value capture either. They seem to be more like a match. mechanism for distributing value capture across anyone, but sort of like uniformly, one-size-fits-all. In the context of commercial open-source companies, it's one-size-fits-one. Each company implements its own business model for the open-source project. It sort of figures things out.

Blockchains, though, prescribe one-size-fits-all business models, which is the token contract itself, driven by the governing primitives and the protocol layer. And that is one thing that all of the stakeholders and developers on that blockchain have to agree with and I don't think that that's possible. I don't think it's possible to sort of, so this is my view on the case of why tokens are sort of maybe not the right approach for a certain, a large number of open source projects that are sort of

company applicable and sort of the basis for commercial enterprise software companies like, you know, companies like in the enterprise software world, and software as a service is each company has to figure out a product and price that product according to market dynamics and figure out how that product adds a certain amount of value to enterprises. And you can't just sort of have one size fits all business model for each one of those companies.

They all have to sort of figure it out like differently. I guess with Tezos, which you mentioned briefly, there are certain blockchains that sort of have self-amending governance architectures where the community can actually augment parts of the protocol for like specific cases. But I guess the question would be how many specific cases can there be? Because, you know, if you have n number of applications and that's like a very high number, you know, that that might get sort of unsatisfied by the, you know, that might get sort of unsatisfied by smaller number of people sophisticated enough to make changes to the protocol to satisfy the

number of custom applications running on the thing. Yeah. You know, returning to your point about value capture, I happen to believe that the most successful blockchains, you know, I consider Bitcoin to be the most influential and successful one. I happen to believe that for the most part, they are margin destroyers. So they do not lend themselves that well to corporate value capture. The only businesses that have really been enabled at scale by Bitcoin are, we were talking about this before, hardware manufacturers from mining.

Bitmain. Bitmain being the biggest. And exchanges slash banks slash financial services companies that re-intermediate, really, your access to Bitcoin, people want this because it's difficult to hold it directly. And so those are the two business models that have been built. But if you think about something like a transfer-wise or remittance company, let's say Bitcoin transactions were to become more efficient or maybe there was an alternative protocol with extremely low transaction fees that got popular.

Remitters, anyone in the money transmission business, you know, it's a huge, huge, you know, facet of financial services. There wouldn't strictly be business models there anymore. Yeah. There would just be a protocol and you would be paying. essentially commodity prices for this, which is whatever the transaction fee that like your minor or your staker is willing to accept in order to process the transaction. So it's sort of taking a service which was intermediated, which entails margins and corporate value capture.

And if it works, it destroys the existence of the corporate entity and just create some essentially a Dow or a distributed kind of two-sided network with providers on one side and consumers on the other. So, I mean, this might sound utopian, but like Bitcoin kind of works like this already. If you want to make an inter-jurisdictional transfer of a large amount of value with no settlement risk, you would use Bitcoin instead of going through like 12 core... In the context of money transfer costs and remittance markets and so on. I would be more focusing on because that's less my domain, the finance world, and my domain, my is more like company building and products and like building a service that like satisfies a

specific technology need from developers or enterprise companies the thing you mentioned around margin destroying is fascinating because I think it dovetails with another concept that open source is close to which is speeding the rate of commoditization so if you speed the rate of commoditization around a given technology and sort of it's like fairly scarce and specialized and really valuable and a few people know about it and it's not that quite quite widely distributed and so on like like obviously has a higher cost and higher cachet to it. And maybe solving edge case problems at like large scale, but then starts to become more widely useful as the world becomes more complicated.

The proprietary intellectual property angle to this is interesting because commercial open source companies have both proprietary IP. They sell the product. They license it as a traditional licensed product. And then they also have the sort of like IP resistant, anti-IP, reverse of IP open source technology that itself is like force, permissiveness and you know anyone can monetize it it's encouraging a positive some ecosystem has completely different economic primitives and fundamentals however

interestingly related to this idea of speeding the rate of commoditization one thing that we've sort of like observed about commercial open source software companies is the ones that are the most successful have the ability to regulate and control and sort of and potentially in some cases slow down the rate of commoditization or the rate of sort of, you know, how just pervasive some value-added thing would be, in particular just the value-added bits. So if you have a developer community that's using 95% of the features, but like 5% of the features are, you know, not really that interesting to the developer community, at least yet, but they're extraordinarily valuable to a small number of, you know, entities, which, you know,

for the sake of clarity in this commercial open source world, are banks, media, insurance, retail institutions, large tech companies, like these are enterprise customer buyers that spend somewhere on the order of $4 trillion per year on technology. It's the sort of IT industry. Those buyers are going through this massive shift to new types of technology stacks, cloud computing, new architectures, markets are expanding there quite significantly. They're moving to service providers. They're outsourcing quite a lot.

Some of them are insourcing. But at the end of the day, they pay for technology. So commercial open source companies regulate that rate of commoditization. In the blockchain world, if that rate of commoditization was completely disaggregated out across all of the decentralized contributors and consumers of open source, I'm really curious about how the economic sustainability emerges as a result of that. How sort of these business models work. Because it seems like a bunch of these companies like you're saying are in shadow adjacent spaces

where you've got the remittance kind of remittance 2.0 happening. And then you've got hardware companies like Bitmain basically on the spend side spending. north of five plus billion a year, like you're saying, which is the sort of total cost function going into mining more bitcoins and specifically just the Bitcoin blockchain. And then obviously the reward, you know, somehow, some, some, some level, you know, equating to the equal value of that. And so, you know, five or six billion going in and out every year just on the hardware side, this is a pretty small number of the palest in comparison to sort of IT spend. So I'm just I'm curious where the money is here beyond the speculative dynamics in terms of business models.

I mean, I think we are still in this discovery phase. You know, there was a belief really from 2015 to 2017-18 that the monetization would solve itself through the imposition of essentially a token. Yeah. This belief, from my view, has been mostly not strictly disproven, but a lot of unintended consequences and negative externalities have emerged. Yeah. With the main one being directly monetizing the protocol, introduces massive incentives for corruption, and corruption undermines the value of the system.

The other one being that, like if you have a corporate entity and you have shareholders, and then you have a token, you've token holders. Those incentives are incredibly misaligned, and that leads to failure, basically. So those are really the two issues there. But I would say it's a really valid question, what the current business models are in crypto. I think a lot of kind of crypto-native folks

would even bristle the notion of business models, per se, because what they want is to deliver stuff like computation at commodity price, and they want to, you know, it's kind of an altruistic, optimistic vision, make the world generally more efficient by disintermediating, typically intermediated services. We haven't seen like a ton of this, though, right? And so, as I said, before, the biggest businesses are mining or validation, basically, and exchange. So we're still in this period of discovery. It's fascinating to me that a lot of people in the open source world will still say,

you know, well, what are the open source business models or, you know, there are these X, Y, and Z open source business models. This is categorically false. There are no open source business models and there are no open source companies and open source is completely adjacent and separate and decoupled from monetization strategies and business models. It is a very different set of things. If you contrast that with your world, they are very explicitly, tightly the same, sort of like, The system itself is a business model and that, you know, it's not a business model, but it's a systems model for monetizing and distributing, you know, renumeration of value back to the contributors and people who behave on the system

without a central entity, of course. But then you have to sort of like think about how that affects change in behavior. And I always, for me anyway, I always go back to the, how does this play out in terms of seeing the same set of, you know, contributors, technology contributors, software engineers in particular, get rewarded for their engineering efforts on the same exact system that their technology is running on. That is very, I mean, GitHub has has some technology that they're releasing soon that's going to get into this, I think, pretty, pretty intensely in the next year. And they're starting to explore with like the sponsors.

I saw, yeah. But, you know, I think like it's, I think it's a bridge. too far basically. I think like you just introduce too much extrinsic prescriptiveness. Yeah, I mean, it's it makes things rather contentious. And it takes what should be engineering decisions into the domain of like political decisions. And that is typically a recipe for disaster. And so I guess going back to Casso Island's thesis on a lot of this is you exclusively focus on companies that are building a technology service on a public blockchain and going about the traditional company building path to develop a product or service and sell that product or

service in a sort of enterprise driven sort of way with developer adoption or with a product that's driven up through sales but building fundamentally on a public blockchain like like Ethereum or Bitcoin. Yeah, precisely. And you know like for the most of the startups in our portfolio are engaged in some sort of financial activity because that's really what I see as the proven usage of these blockchains. It's possible that there are others. I don't believe that they are necessarily market ready yet, or at least I haven't seen sufficient evidence. The contrast I would draw there to the vanilla cost model, as you describe it, would be blockchain. We don't envision these commercial entities to have a lot of discretion over the systems that they run on top of.

Because if they did, then the system itself would be compromised or people would... Like, for example, none of the companies that you look at closely or that you invest in are significantly able to change the course of any technical direction or strategy or sort of product or governance thing around either Bitcoin or Ethereum. Yeah, and I don't believe... I don't believe... I don't believe they should, yeah. So it should be more of a one-way flow of a kind of resources.

So they use the open nature of the system, because, again, these are permissionless, so they are advantaged by that. But if they were to be able to influence the direction, which does happen, you know, like certainly there's lobbying that occurs in both Bitcoin and Ethereum on behalf of commercial entities to try and change the protocol in some advantageous way. If that happens too much, then these institutions, which are meant to be manifestly neutral, are then not as neutral. So that might be the difference,

I think, from the commercial open source model, as you describe it, where the corporate entity really has a lot more discretion over the system in some cases I'll actually interrupt briefly and I'll say aquea company behind Drupal which is a very widely used CMS employs a small fraction of the Drupal commuter base and really frankly doesn't control that code base very successful company valued over a billion dollars several hundred million in revenue and they're also many other cases where, you know, the core project that a given commercial open source company might be building on, frankly, it's just building on it indirectly. And they have no,

they have no real influence over the project, but they fundamentally depend on it. In fact, it might even be controlled by a foundation that has totally different agenda and maybe it's trying to cause, you know, governance complexities for that company. So there's a lot of cases there, which is really why we've codified this category definition to be agnostic and independent of the relevant, the governance relationship between the project. on the company. And so if you think, I guess if you think of it so, so, so far as to say Ethereum and Bitcoin are just open source projects, you could classify the entire crypto blockchain ecosystem as commercial source. However, the reason we don't do that,

the reason we separate that out is, you know, blockchains, I guess, and in the way that I think the world roughly generally agrees on how they're defined, are a very different animal of sort of system and and mechanism and technology, really, that. as we've discussed here extensively on this podcast, tightly couple intrinsic and extrinsic properties in the same system. And I think that gives rise to very different behavior than we've seen in the technology and the economics world. And I think it's super fascinating to see how this, how this is going to play out. Yeah. And there's a few models which are different from the way that I describe it. So consensus and block stream are probably the two number one, um, uh, uh,

most influential corporations in their relative kind of space. So Blockstream being a place where a lot of Bitcoin core developers work. Okay. So in, you know, in 2014-15, they raised venture capital. And then most of the influential Bitcoin core developers went to work for Blockstream. Paid by, paid by venture capital in terms of salaries mostly. Yeah, yeah. So venture backed.

And the vision was to create side chains and then monetize these side chains. So basically an extension of Bitcoin block space. So with a different trust model. This caused a crisis in Bitcoin because lots of people began to rightly or wrongly, believe these conspiracies, the Blockstream was making deliberate protocol decisions or the core developers, which were working at Blockstream, were making deliberate protocol decisions in order to make their business model more viable. Sure.

Yeah. Makes sense. So, you know, I'm not like endorsing that claim. and in fact, most of the influential developers that used to work a Blackstream now do not. Greg Maxwell being the main one. But so, like, you can see how, like, what you might envision as a standard commercial open source model

in the context of crypto actually becomes perverse, you know, and potentially undermines, like, the authority of the system. Okay. Yeah, no, that would be, yeah, very evident. I mean, I guess driven by how many core commanders are there and how much influence Blockstream had on at the time, how young Bitcoin was. And now I would say it's different, like that you have five or six organizations, which are different loci of control over Bitcoin, which is good, right?

Same in Ethereum. Consensus, you know, was probably the number one holder of ether in the world for a long time. It may still be the case. And they also ran some critical infrastructure that most Ethereum users used, in Fura being basically a way to make API calls to get, access to Ethereum information without running full node, right? In so doing, and they also monopolize a lot of the financing of Ethereum-related startups and so on, and they were associated with development of one of the clients for Ethereum. So the similar situation whereby if you have a single

entity that has dominance over the protocol or the open source system, then ironically, it's like credibility is kind of undermined. Right. So there's like weird idiosyncrasies that make the cost model maybe less applicable in crypto, although that said, I think it's absolutely can be applied just like with with some like caveats. You know what I find one thing that jumps out to me

as the measure in which you can describe the level of credibility a given commercial open source of something would have as opposed to the level of credibility and the way you would measure that level of credibility in a blockchain company. Well, I would say credibility in commercial open source companies is driven by how high

your community values that company's contributions to its community and the project and also in parallel how satisfied and well taken care of and so on are the customers that run that technology in production and actually lean on and help

sort of run those systems by hiring and paying the commercial open source software company for products or services that that make that technology run well and those two constituents are very distinct the open source community specifically wants that technology to be very proven successful maintained operable and vibrant with large numbers of adopters and contributors the enterprise software kind of like customer base large companies want that technology to also be you know widely adopted and well contributed to but they also want a vendor ecosystem around that open source project so

so that they can have indemnity, risk mitigation, governance, sort of stability and contracts that can be signed to basically put a company that is outside of their risk profile under the gun and liable for unexpected events and disasters and infringement and production outages specialized expertise and additional products and services that are value added. In the blockchain world, I don't see the customer stakeholder. I see the developer community.

I see the developer sensitivity to contribution, adoption, and the sort of like empathy at the protocol layer. What I don't see is the customer-based ecosystem that would drive this credibility lever. You have users, but it seems a little strange. Talk about customers in the context of blockchain. Yeah, the stakeholders around these things are, I think, increasingly important because open source is actually about multi-stakeholder dynamics, like fundamentally. There's many stakeholders. And I know we've gone really long here, but I'd be remiss without mentioning Dr. Ed Friedman over at the University of Virginia.

He's an economist and a scholar. He's famous for the book called Strategic Management, and he's actually the founder of what's called Modern Stakeholder Theory. which contrasts to Milton Friedman's basically a shareholder theory. And, you know, Friedman basically gave rise and drove the sort of like influencing perspective on modern economics, which is, you know, sort of monopolization is the way to make money and, you know, capitalize markets and basically satisfy shareholder and sort of stockholder needs above all else. And, you know, Ed Freeman's approach has really just been.

been about highlighting the fact that businesses can build valuable companies and maximize shareholder results, but also take into account many stakeholders that form around the company and how the company impacts those stakeholders and how those stakeholders interact with the company. And the fascinating thing is a lot of this theoretical work is incredibly applicable to commercial open source companies. But it was written in years, years, years before any of these companies really materialized. So the fascinating thing with the commercial open source companies is like the developer ecosystem is super complex. Customer ecosystem is complex. The competitor ecosystem, you also have to kind of balance and manage because they're also using your open source project.

They're not really competitors. They're more like frenemies. And then you've got like the, the open source end users and then the open source contributors. So it's like this multi-dimensional stakeholder. Oh, and then the shareholders behind the company, the employees that work at the companies, you've like nine share, nine stakeholders that you have to balance, you know, pushing pulling of the lever with with traditional SaaS proprietary technology companies it's like vastly simpler you've got your customer base which is really your users as well right and then you've got your stakeholders at the company which is like employees and shareholders VCs it's such a simpler dynamic it's

incredibly simple but commercial open source software companies are just far more complicated so the cost of admission to that kind of level of innovation we think is that additional complexity but I guess maybe follow-up chat sometime would be to dig into the stakeholder theory elements of blockchain companies and blockchain ecosystems. Since maybe we're starting to see more of that emerge, become more clear. Yeah, I would say the thinking hasn't been refined yet along that dimension, although there is a growing understanding that these are kind of multi-stakeholder systems, but it's not,

the use cases aren't sufficiently developed almost that we even know who the relevant stakeholders are. Interesting. For Bitcoin or for an Ethereum. Sure. Well, Joseph, this has been an absolute education. Thank you for sharing your expertise with me. My pleasure. This is really interesting, one of my favorite topics, really. I think highly, highly germane to crypto, but also just incredibly useful and interesting from a venture perspective. So where can people follow your work? Oh, I'm on Twitter. I don't tweet too much these days. It's been pretty busy, but at ASync I. which is short for asynchronous I-O, ASY and C-H-I-O,

Joseph Jacks. You can Google me, I'm kind of in various places on the internet. To learn more about commercial open source software, we have a like a media website called cost.media, c-o-s-s-s dot media. And if you want to meet some of the best kind of technology thought leaders, investors, founders, open source maintainers, executives,

come to the OpenCore Summit. So OpenCourse Summit is in four places this year. We have the inaugural European follow-up to the first event that happened a few months ago in San Francisco and Paris in a couple months. After that, we've got Beijing, China in June, New York City in September, and Tel Aviv, Israel, and December after Hanukkah. So this is a pretty busy year for OpenCore Summit. Wherever you're at on the globe, check that out. It's opencoresummit.com. And then our venture firm is just osse.com.

online. All right. Well, I'll try and make it to the New York edition. Awesome. The summit. And definitely check out the index that Joseph has put together. Oh, thanks. Yeah, you can just go to OSS.cash in a browser. It says that's a cash like cash money, CASH. I find it very useful. I think you will too, when I first saw it, I was blown away by the size and breadth of the commercial open source industry, which has come a lot, really, really long way from the days of Red Hat. So definitely check it out. Thanks again for coming on the show. My pleasure. Thanks for having me, Nick.

This is fun.