Programming Throwdown - Cryptocurrency and Smart Contracts

Episode Date: January 30, 2018

Today we discuss Cryptocurrency and Smart Contracts with Amy Wan, CEO of Sagewise. Amy has a legal background and combines this with expertise in cryptocurrency, blockchain, ICOs, and smart contracts. Show Notes: http://www.programmingthrowdown.com/2018/01/episode-74-cryptocurrency-smart.html ★ Support this podcast on Patreon ★

episode 74 cryptocurrency and smart contracts with amy wan take it away patrick hey everyone uh we're here with Amy, the CEO of Sagewise. And we're glad to have you here of what is obviously a much discussed topic of the day with anything dealing with cryptocurrency seems to make people excited. And increasingly more peers and random people we meet tend to want to perk up and involve themselves in any conversation involving that, mostly because they think they're going to get rich. But anyways, so Amy, why don't you take a second to introduce yourself and tell us what you're doing? Sure. So thanks so much for having me on the show, guys. My name is Amy Wan. I am founder and CEO of Sagewise, which is a dispute resolution infrastructure for smart contracts. My background

is actually, I'm an attorney by training. So, you know, I started my career off in the federal government doing international affairs, international regulatory and trade type issues. When I moved from DC back to California, there were obviously no free trade agreements to negotiate out here in California. And so, you know, kind of had to start my career all over again, was basically general counsel and employee number one of an early stage real estate crowdfunding startup. And from there, I went to become partner at a boutique securities law firm and got to a point in my career, really, where I just couldn't imagine practicing law the same way for the next 30, 40 years. So I actually left my partnership at my law firm and started this company. And the original purpose of this company was really to automate

my job as an attorney. So that's what I did. I pushed out software that would automate the drafting of small, you know, real estate funds, real estate, private equity funds, crowdfunding, syndication funds. But basically last year, I started getting a lot of calls from people who wanted to do an ICO. An ICO is an initial coin offering. And so I looked into the space and, you know, more than, you know, I basically looked into the space and I thought there was something fundamentally wrong with the space, right? If you were watching this entire space last summer, you would basically see ICOs come out. And in the first 15 minutes, they would get hacked two to $3 million. And the founders would sit there and shrug their shoulders and say, oops, sorry,

there's nothing we can do. I thought, gosh, this is really strange. In the real world, when you lose two to three million dollars, you get slapped with a lawsuit. And so I started digging into why and basically realized that smart contracts are, in many cases, not actually very smart. In fact, they're incredibly stupid, which is why we're doing what we're doing now. We're basically building an infrastructure or a layer for dispute resolution in case smart contracts fail. So that was obviously like a lot of stuff. So, you know, kind of taking it back a step, can you sort of give a high level overview? You know, when we say cryptocurrency, blockchain and, you know, kind of especially why people might just shrug their shoulders and sort of give up, you know, things like decentralized immutability.

Can you sort of give us like a brief overview of kind of what those things are supposed to mean and then, you know, kind of why you find that they aren't always what people assume? Yeah, sure. So blockchain, if you're going to define blockchain, I think we really also need to sit here and define what a distributed ledger is, right? So think about, I don't know, your bank account, for example, you kind of have a ledger there or an accounting of all the transactions you've had, but it's centralized, you know, you either you or your accountant or someone has one copy of this. And if that copy is wrong, or if that copy is forged or fraudulent, then there's obviously going to be a problem. Blockchain is the technology that kind of underlies all this cryptocurrency stuff that everyone's talking about. And what it really is, is it's meant to be a trustless system, right?

And I say trustless and it's also decentralized because it basically works like this. Instead of one person having one copy of a ledger, instead think of it as maybe we've got this whole network of people, right? And every time a transaction happens, that transaction gets recorded to the ledger, but it doesn't get recorded to one ledger. It gets recorded to everyone's ledger at the same time. And the ledgers are always syncing, right? And so there's not one person with a right or wrong copy. Everyone has the same copy and it can't really be forged because everyone's copy is the same.

So that's basically the premise of blockchain distributed ledger technology now cryptocurrency is one use case of blockchain and and you can really have many different use cases it I think cryptocurrency is just you know one of the more popular ones because basically you, you know, back in, I think was it 2008, 2009, an anonymous person, everyone calls them Satoshi, basically came out with this white paper that introduced this technology. And the way they introduced it was through a cryptocurrency. And that cryptocurrency, as everyone knows today, is Bitcoin, right? And so this anonymous person put this thing

out into the world and slowly, slowly, slowly it began to gain adoption. But then when people were reading about it, they're like, well, I'm'm gonna make my own cryptocurrency and so that's why you have these things called alt coins alternative coins right so you know um you not only have have bitcoin today you've got things like dogecoin and all these other coins so there's a lot of different types of cryptocurrencies so um sorry so one thing so this is one thing I've always kind of wondered is going back to the blockchain, what's to stop me and like, you know, some of my friends, or maybe I make a post on Facebook, I get everyone who's following me on Facebook, what's to stop all of us from getting together, maybe me and 100 people and saying, you know, Amy Wan gave me all of her money. Or like if all of us, you know, somehow said that

and agreed to that, the hundred of us, you know, what's to stop that from being reality? In other words, like who's watching the Watchmen or who are the Watchmen, I guess? Like what's to stop, you know, like a group of people from just saying something happened when it really didn't? So, you know um right now we're talking about public blockchains as opposed to private ones and i can talk about private ones

a little bit but public ones are basically you know it's exactly as it sounds like it's out in the public and everyone who's in this network has a copy of this ledger and it's continually sinking. Right. You might not know who is who are the other nine parties or nine hundred parties or nine thousand parties that have this ledger, which makes it very difficult to basically create some sort of fraudulent transaction on the blockchain. Now, there are private blockchains. So there's a lot of like Fortune 500 companies and things of that sort that are more so looking to private blockchains. The reason why they're specifically interested in private blockchains is because you still do have a little bit more of a degree of

control, right? And so if there truly is a mistake, there actually is a way to go back and edit it a little bit more. I think the other thing, Jason, is what you find is partly the big criticism in the public news that has come up with Bitcoin about mining is because of that. So the idea is that you have to do a bunch of work in order to kind of commit a transaction to the chain. And so in order to kind of rewrite history, you would need more than 51% of that capacity in order to form a majority. And if you were going to do that, you have two problems. One, it's very expensive to do that. And the second thing is now you've sort of undermined the integrity of the very thing you're trying to steal. So you've spent all this money to commit this fraud. But at the same time,

you now hold bitcoins that you stole from Amy that are worth less because you crashed the market because everyone goes, oh, now we got hacked. Oh, I see. So and and then there's other ways of sort of like proof of stake you'll hear about or whatever that I think are trying to solve the same problem. But it basically amounts to people having to spend resources to alter something where then they actually undermine their own work in doing so i see i see so uh got it that makes sense yeah so so for me to uh pretend like amy sent me all of her money i need to sort of reverse engineer her private key and that would take so much effort that uh if someone could do that then the whole thing kind of falls apart well you know the difficulty I think aside from

the resources issue is you know you would have to attempt to go and change everyone else's record or transactional history, that ledger, right? And that is so difficult. I mean, there have been instances in which this has been done before. So for example, every time they hard fork Ethereum, right? Ethereum is a very popular blockchain or protocol. They've done it in the past very rarely, very sparingly. But when they have done it, it was to fix a big thing that was not meant to happen. Got it. Makes sense. And so, yeah, that's a good point. So you were talking first about cryptocurrency, but then smart contracts. How do smart contracts differ from cryptocurrency? A smart contract is basically, I would say it's like an English contract except written in code.

So I once heard someone say like they thought the name of it was not great. They would rather call it programmable contracts. And I would tend to agree. A smart contract is really nothing more than a set of if-then clauses, right? And so a smart contract is meant to be self-executing and immutable. So if you and I entered a smart contract to say, hey, the Raiders, you know, let's bet one Bitcoin on who's going to win the Raiders versus whatever game. And if the Raiders win, you get the Bitcoin. If the other team wins, I get the Bitcoin, right? And so when the Raiders play, there's going to be some certain outcome

and the smart contract would automatically know okay the raiders won so you get the bitcoin it's it's just a set of if then clauses really i see so the smart contracts like somehow has some interface to some other phenomena in the world like like there's maybe the nfl has an api or something that. And the smart contract has an interface to that. And as soon as that updates, the smart contract fires. Yeah, I mean, that's one way you could do it. So there are these cons, there's a bunch of different things, actually. So one concept is that of an oracle.

An oracle is some sort of, you know, third party that verifies some sort of facts. You could go to Oracle and use that to see, you know, whether the Raiders won. At the same time, you can use nodes, right? So there's a lot of different ways you can do this. But that's, you know, I'm highly simplifying all of this. But that's basically you know, I'm highly simplifying all of this, but that's basically it in a nutshell. I think one way you might be able to think of a smart contract that really kind of is in the real world today is, you know, when you go and you trade stocks and you say, hey, when ABC stock goes above $20, I want to sell it or something like that, right? And so the minute it goes above $20, it automatically executes.

Oh, okay. That makes sense. Makes sense. So you said, you know, you kind of think that the smart contracts are often dumb or, you know, that they're just programmable things. And I think that makes sense that, you know, like you said, they're just a program. They're just doing what they're being programmed to do. But what do you kind of find as like a misconception around this sort of, I don't know if it's serious or not, but the, you know, internet's view that, oh, we won't need lawyers anymore because the contract is code and the code is the contract.

Yeah. So there's definitely philosophy that code is law, right? But I think if you've seen what's happened over the past two years, there's a lot of problems with that philosophy. And so I think the first big example of this was the DAO. The DAO was the Decentralized Autonomous Organization. It was basically a decentralized fund, right? People pooled money together, and then they were all supposed to vote about, hey, let's fund this project, or no, let's fund this project. And the rules of the community were all written in code in a gigantic smart contract, except the problem was that the smart contract you know I guess just wasn't really well written and so one community member went in and saw a security vulnerability in the code and so they basically executed a hack against the smart contract now it wasn't against the terms of the smart contract but it was certainly against the intent of the smart contract, but it was certainly against the intent of the smart contract.

And the result of that was basically that the DAO got drained of, what, $50, $60 million worth of funds at the time. And in order to, you know, prevent the hacker from getting away with this, they had to go hard fork Ethereum. So, you know, that happened in 2016. You know, 50, 60 million dollars was lost in or almost lost in that transaction had they not reversed it or hard forked it. 2017 got even worse, right? I recently saw a statistic that the equivalent value of 1 billion US dollars was lost in smart contracts in 2017. Lots of ICOs got hacked, right? And so what you're starting to see is that smart contracts, in fact, maybe this whole immutability thing is not such a good thing, right? You've got coding errors, for example, you know, developers often are like, you know, fail fast and iterate. But if that's what you're doing with a smart contract, then a lot of smart contracts are going to fail from sloppy coding,

then you've got, you know, security vulnerabilities, you know, a lot of people today using smart contracts, they will go get a security audit on the smart contract, but that only will detect the presence of vulnerabilities. It won't necessarily detect or guarantee the absence of them, right? And then the third thing really is that the more complex people are writing their smart contracts to be, the more people are going to modify, need to modify, amend, or terminate their smart contracts to be the more people are going to modify need to modify amend or terminate these smart contracts because guess what you know the world is it's it's not just a yes-no black-and-white place it's actually really complex things happen situations change right and so know, having been an attorney who's dealt with

a lot of contracts, dealt with a lot of disputes, you see a lot of different things, right? And so that's really the problem that we see today with smart contracts. So, you know, I've always kind of wondered, which is, you know, you see someone will post up that they're you know exploring using smart contracts for escrow for real estate um how does how does so i mean a kind of like do you have any thoughts on that it's a good idea bad idea that seems awesome i don't know whatever but also like how does it end up interfacing because obviously the you know u.s law or the state law or whatever applicable law might be i'm using the wrong terms, you can correct them, doesn't have in there what to do in case of problems in a smart contract for escrow of

real estate. How does the current actual law of the land interface with this new way of trying to do stuff? Sure. So the interesting thing about smart contracts, as you say, is it can house assets, right? It can house tokens or cryptocurrency or whatever, right? And so a smart contract, in some ways, you can think of it like an escrow, except it's supposed to be self-executing. It's not centralized, right? If you go to a traditional escrow company that's highly centralized, it's run by human beings at the end of the day. So in some ways, a smart contract can act as escrow. Now, with regard to applying it in the real estate space, I actually get a lot of calls from folks who are like,

oh, we want to do some sort of real estate ICO, something with the real estate and smart contracts and blockchain, blah, blah, blah. Um, a lot of these times, I think a lot of people either don't really know what blockchain or smart contracts do or, you know, or they don't really understand real estate. I think a lot of, you know, you certainly can use a smart contract to escrow those funds. But at the same time, you know, the reason why real estate transactions take such a long amount of time isn't necessarily because of escrow. It's because of all the due diligence that needs to be done, right? You've got to walk through the house. You've got to make sure environmentally it's fine. There's no damage.

You have to go get real estate title. You have to get title insurance, all these things. So I think to say that escrowing funds for real estate transactions in smart contracts will cure all our problems and make real estate transactions go so much faster. I think that's a little bit of an oversimplification. And again, I'm speaking from a perspective of how real estate transactions work in the United States. Now, with respect to, yeah, it doesn't necessarily work the same in all countries across the globe, right? And so that brings me to my next point,

which is in terms of how the law treats it. Right now, we are at the very beginning stages of this entire industry. And I don't think the legal system has really caught up and has really contemplated how they're going to treat smart contracts or, you know, digital transactions. I mean, you know, we now have the e-sign act, which, you know, basically allows for e-signatures that took a while. It's going to take a while for the law to catch up with all the stuff around blockchain and smart contracts right delaware i would say is actually one jurisdiction that is really ahead of the curve um they recently approved a law that allows for uh corporations to um you know basically be on the blockchain if you will um will. So they're thinking a lot ahead. And then there's

certainly other countries across the world that are really starting to look into this. But you're right, it is a pretty complex issue. So maybe this will dovetail into the dispute resolution stuff you mentioned. But the thing that I've always tried to sort of get my head around is, so I guess to explain kind of, and I'll do my job, I'll try it, and I'll probably do a bad job and you can fix it. But so escrow, what that sort of means is like if you go to buy a house, that there's going to be a lot of people who are going to have to do a lot of work to kind of allow house buying to happen. And so until the transaction is complete, the person who wants to buy the house essentially puts some money away in the hands of a kind of third party, an escrow, someone who holds the escrow account. You put the money there in this escrow account. And once the money's there, you kind of no longer have access to it

as the person buying the property. But the person who you're buying from also doesn't have access to it. And then everyone goes through this sort of, I guess you would call it good faith effort of trying to make the sale happen. And then at the end, ideally, everyone agrees that, yay, we're now we're ready. And the escrow money gets transferred to some set of parties, but basically to the person who is selling the thing from the person who's buying it. And the reason why you might want an escrow account there is that while those real world things are happening, you know that the money is not going to go away or disappear. But for me, the other thing that I've always tried to figure out is if you kind of do this with a smart contract, like, you know, I send some Ethereum to a contract and until both Jason and I use our private keys to make some transaction that says the money should be released, it gets held there.

But the problem is like what happens when we have a disagreement? So normally, as far as I understand it, the person holding the escrow would be responsible for taking a first pass at trying to, you know, figure out what should happen to the money that's in the escrow account. But in terms of a smart contract, it never made sense to me, like, you kind of do want a human there to sort of interface with the, you know, attorneys, the law, the kind of thing that would happen when Jason and I have a dispute about what actually happened while we were trying to do this. Yeah, I mean, I really couldn't have explained it better myself, right? And so, you know, as much as I think there's definitely technologists out there who are like, oh, everything should be immutable.

Everything should be self-executing. We shouldn't have human beings involved. The truth is the world is a very complex place. And I will let you know that, you know that human beings are very complex creative creatures. Surprise! Right? And so, I mean, you would not believe the things I have seen in my career. Like, yeah, people are very, very creative in trying to get out of these things. And so that's why you will have situations, I think, where dispute resolution really is necessary for all of those edge cases where, you know,

things just aren't black and white. Yeah, that makes sense. I think that, you know, tying this into an episode we did earlier where I talked about now, like, the latest in AI for games and things like that is, is basically predicting what your opponent wants. It turns out this is like, and this is revolutionizing AI. It's also revolutionizing economics and things like that.

And basically people used to say, oh, let's find the Nash equilibrium or let's get the perfect auction and all of these things. And it's kind of similar to what you were saying that people felt like there was this like pure solution what people are finding now is no like the price of things are is based on psychology to a large degree and the way people behave in auctions is not you know as john nash would have wanted. And so what really matters is modeling the people involved and knowing sort of what their value is, whether that's rational or not, and then working within the confines of that. So if we're in an auction situation, it's playing the best response to the other people, you know, whatever auction strategy they're doing.

And so in the case of like a real estate dispute, you have two people or maybe more people who have different sets of values and you have to take those sets of values into account when you're rationalizing this dispute. And I think those values are very hard to codify because it involves sort of a lot of common sense reasoning and human nature and these kind of things that you're not going to write in a smart contract. I mean, yeah, you hit the nail on the head. The way I explain these things to technologists is, look, you know, we've been trying for millennia to figure out what justice and what fairness is,

right? And if it were truly as simple as a little bit of game theory and a couple algorithms, then, you know, we would have figured this out a long time ago. You wouldn't have, you know, philosophers since the time of Plato writing about you know what are the theories and principles of justice because you could all just distill it down to to math but you know like I said things are things are not that simple yeah yeah I mean I think as a as a technologist trying to you sort of hear like the legal code maybe i don't know if it's just the word code that like throws us off but i remember you know when in in sort of school taking a class about about law and always you know having these people who were so i took it

with mostly people who were in the cs department and everyone was always trying to figure out like what's the little loophole to the law? Like, oh, you're not allowed to scalp tickets because, you know, it's against the terms of service of the thing. But if I sell you a pencil for a very large sum of money and give you a ticket with it, you know, to a concert, like that would be okay. And all these like, you know, crafty things, because in code, that's what we do. Like, oh, if I, you know crafty things because in code that's what we do like oh if i you know oversize this buffer i can cause a buffer overflow here or if i you know my code is breaking here because there's this one corner case and so i feel like as a programmer at least i try to think of like what are the kind of cutesy loopholes i could find in the law that was like oh yeah this is

totally legal now um but i think it was interesting to me to kind of hear like the frustration from the lawyer who is teaching the class being like, that's not how this works. You know, that there is a lot about intent and stuff that has to go before a jury or a judge. And they use their discretion about what you were trying to do and what what the law not what the law just says in terms of actual English, which isn't perfect, but what does it actually mean? Right, right. And that's what we call the spirit of the contract, right? You're really looking at intent, not just exactly what the contract says, right? And that, you know, going back, that's basically exactly what happened to the DAO dow you know the the hacker violated the

spirit of the contract the intent of the contract but not necessarily the terms of the contract so yeah that makes so i mean it is interesting to look at i'm sorry what i was gonna say so so interestingly the kind of whatever psychology of the situation is somewhat played out, though, with specifically the Dow. So there's Ethereum that sort of symboled by the ETH. But at the time of the hard fork, some people didn't agree that the funds should be reversed. And so they kept the course where those funds are still stolen. And in the, you know, presumably that person's, I don't know, I think they haven't, they've never tried to withdraw the money, but in theory they

could. And so there is a parallel or forked version of the Ethereum blockchain where those transactions were never undone, were never sort of rolled back and fixed. And that's this ETC, the Ethereum classic. And so there's actually, you can live in either version of the world you want to. But taking price as a stand in for what people and popularity of which people voted for the I mean, the price of an Ethereum token today is like I don't know what it is right now, but like a thousand dollars. And I think Ethereum classic token is like $30. So it's interesting that despite the fact that you would say the vibe of the internet at large is probably that we want these immutable blockchain crypto decentralized, you know, all of the stuff. That when the push came to shove and it was their money that got stolen, they actually voted to sort of kind of undo the immutability. And that's proven out by which one's valued at what today. It's so funny, right?

Like people have all these concepts and these high level philosophical ideals. But when they lose money, they get angry. And all the sense and all the pragmatism comes rolling right back in. But you're right. Like if you do look at the DAO as an example right up until that time everyone was like code is law whatever the smart contract says is law but then this hacker comes in and does something no one expects that isn't technically against the code it's not technically against the law but it's against what it was against the

community's expectations right and so yes you have you know obviously these these hardcore people like code is law and then you have all these people who are suddenly like no we gotta run to the police yeah you know it was really funny to to kind of just witness how the discussion went down. Yeah, the anarchists suddenly were calling for government intervention. Yeah, it was kind of funny. Yeah. And it's like, well, what police are you going to call? Like, what police understand what's going on, right?

I feel like this idea that this person is just a total anarchist, and then at the moment there's a hint of violence, they're calling 911. That's been kind of like a motif for the whole 2017. Yeah, so I'll say that the crypto blockchain space is really interesting because it know it it it's not just the technology it comes with so much underpinning right like oh you got to be decentralized oh you got to do this there's you know definitely like anti-government um anarchist tendencies and so I think when one is thinking about an ICO or when one works in this space, one also needs to sit there and think about, well, how is the community going to react to this? It's definitely a very interesting space to be in. One question to kind of circle back a bit. So we talked a little bit about Ios and uh uh can you kind of describe what that

is like like in other words how did even bitcoin bitcoin might be a special case i guess because it was so early but just how did these coins start like like like what does that mean like is it how do you like is it creating something out of nothing? Like, you know, kind of how does that actually work? Yeah, it kind of is. I mean, Bitcoin was, you know, someone published a bunch of code out there. They put it out there. It was accompanied by a white paper that, you know, described why they were doing this and how it worked. And slowly people just started mining and adopting it um and with all the other uh coins you know people are like well why do i have to you know mine or buy bitcoin i'm

going to create my own different types of coins those are all coins and and then you kind of had ethereum come along the interesting thing about eth about Ethereum is even though there is like a payment transactional value aspect to it, the special case of Ethereum is it's really a protocol in which you can build other things. Right. So you see all these applications being built on top of Ethereum, which actually increases the value of Ethereum. Most smart contracts today, for example, are done on Ethereum. Now, ICOs aren't really coins. We're getting into semantics here, but they're not really coins. They're more so tokens, right? tokens right and so uh you know part of the reason why this space evolved is because people wanted to for example uh go out there and do these interesting decentralized projects right

um maybe they wanted to create a decentralized internet or do this or do that and those types of projects to the extent they're projects, to the extent they're open source, to the extent they're decentralized, it's really hard to get funding for them. So, you know, you started getting, I think, you know, was one of the first, Dow was one of the first, but you started seeing more and more use in ico as a way to raise money for a project that otherwise might not be able to get traditional funding but might actually be an interesting project or infrastructure for the ecosystem and then obviously, it's basically exploded right now. You see everyone seems to want to ICO and get on the blockchain. They're traditional companies that their business model

doesn't even need blockchain. They're trying to ICO. Now, I think a lot of this is driven by how frothy the market is. There's a ton of money in the space and a lot of people are just running after the money. But there still are, you know, a lot of really good projects out there that I think are critical to, you know, building out infrastructure of the space that, you know, if you go to Silicon Valley today,

like you may not be able to get funding for it. So can you talk a little bit more like sort of concretely about what actually an ICO is? So is an ICO someone implementing like cloning Bitcoin, but for tokens? Like, yeah, like tactically, concretely, what's actually going on? So it can be a number of different things. Usually it's, you know, either a company or a project that is going out

and they're either building a DApp, which is, you know, an application on top of a protocol, or they're actually building a protocol themselves and they are using an ICO as a means of funding it, right? So usually the way they go about this is they will write a white paper. It's kind of a high-level concept paper that gives you a bit of details about how the project would be technically feasible. They will go and assemble a team, right?

So you've got the founding team. You've probably got a group of advisors. And then, of course, everything else is, you know, the money-raising process you've got to get your legal together, your marketing together. Community tends to be, or building a community tends to be really important space. That's how you show traction. I actually think one of the most difficult things that people

don't think about enough when they are going out and launching an ICO is their token economics, right? I think over this last summer, I had an intern go and research a bunch of ICUs for me and pull together for me their token economics. And when I sat down to look at it, you literally had everything across the map, all different types of allocations, all different types of systems. It was kind of like someone took a shot of tequila and threw a dart against a dartboard. There was no art or science to this. But basically, folks are going out and they're saying, hey, we're going to release X number of tokens. And these are what the tokens will be used for. Sometimes they have some sort of utility like membership or ability to use someone's platform.

You know, they might be like pre-sold credits to a platform, something like that, right? That the possibilities are endless. But I think one of the problems today is that people are going out, they you know guessing on this this like mini digital token economy that they're going to try and manage and um i don't think a lot of people have thought deeply about okay how can we make this scalable not for a couple hundred users or a couple thousand users but for a couple millions of users and when you reach that point and your token economics breaks down i think people are going to have a lot of issues well i mean you point out it's even interesting to see that some some but some people want

inflationary economics and some people want deflationary economics and so it doesn't even seem people are settled out about what should happen over the long term oh yeah i mean so you see so many interesting creative different models right people are burning tokens which means like they kind of get rid get um cut out from the the finance supply yeah it's um yeah like i said human beings are creative man so um do you can i don't know if you if you can speak to it but i mean i know last year the sec also came out with an opinion about this notion of you know tokens and coins as a security versus being used as utilities. So now you see this sort of bandied about like things that are security tokens versus things that are utility tokens.

And like, what does that mean for someone who wants to kind of participate in them in the US, but specifically about someone who would want to sort of do their own, you know, coin offering or token offering or whatever? Yeah, sure. So, you know, in the early the early days of icos there was this rampant rumor running around that it was completely unregulated which was not the case um i think a lot of technologists who were doing icos just didn't know there were laws uh in in capital raising and so the sec on july 27th of 2017 came out and was like hey you guys actually the same old securities laws apply so you know if your ico raise or whatever you're doing whatever you want to call it um looks like it's a securities offering, you still have to follow the US securities laws. And they've basically reiterated that position in, you know, several statements since then.

Now, I think there is this rumor running around that a utility token cannot be a security token and that they are mutually exclusive. And that is actually not the case. You know, you can definitely have a token that is a security, but has some sort of utility function. Now, in terms of where that bright line is, it's really hard to say, right? Everyone's still sitting here waiting for the SEC to clarify a little bit more on what exactly all of this means. So, you know, anyone who's thinking about doing the ICO should definitely hire counsel and make sure that they're doing things in a compliant manner. I always say, you know, it's not necessarily the SEC that you have to be looking out for.

You also should be looking out for state regulators and the plaintiff's bar, right? Now, in terms of for investors, how this affects them, you know, it is very possible for investors to invest in an ICO that's compliant with securities law. We have the JOBS Act, which for the first time in basically forever allows non-accredited, so basically not rich investors to invest in private securities offerings. Specifically, the two regulations that allow for this are regulation crowdfunding and regulation A+. So to the extent an ICO is selling their tokens in the United States, and it is a regulatory exemption like the ones I mentioned. If they don't, they'd

either be violating the law or they can only sell to people outside of the U.S. The SEC, their jurisdiction is really only with U.S. investors. They only care about protecting U.S. investors. Foreign only care about protecting U.S. investors. You know, for investors, they don't really care. And then I guess just for people who may not know that SEC is Securities and Exchange Commission. Yes. And they're traditionally the people who make sure that stocks and brokerages and options and futures people all do the things they're supposed to and

regulate them and investigate fraud. Yeah. And, you know, every state also has its own version of the SEC. So there are state securities regulators. And obviously there is like the equivalent of an SEC in every other country. right? So even if you are selling to foreign investors, maybe you don't have to deal with the US SEC, but you might have to deal with the New Zealand's version of the SEC or Japan's version of the SEC. And some countries have been very, have come to embrace this whole ICO phenomena and other countries have actually taken a much more drastic stance than the SEC. So for example, China has pretty much banned ICOs. So this is an interesting thing that you also see on the internet. Like there's this, so I happen

to know, like you pointed out, that people in the U.S. will sort of do an ICO and say, you know, not open to U.S. investors. And then there's this kind of belief that, like, if I put some disclaimers on my page, that's kind of good enough. From a legal standpoint, does it kind of work that way? Or, like, if someone in New Zealand does invest because they didn't know, but that disclaimer was there, said, like, don't invest if this is illegal in your country. Like, how does that work out? Like, is it the burden on the person offering the security to check? Yes. And so that's why we have these wonderful AML KYC laws. AML is anti money laundering. KYC is know your customer. It basically the function of these laws is to know the identity of the investor and make sure you know the identity of that or make sure that investor isn't like on some terrorist watch list or something

or you know accused money laundering or anything like that citizen up right and so um people really should be doing accurate aml kyc checks um i've definitely seen icos less so nowadays but more so in the early wild west days where folks were like okay i'm just gonna like write this on my website or in this paperwork that no one's ever gonna really read and you know we're still gonna take u.s investors anyway we don't really care um some people you know will block u.s investors out by their ip address but then of course you know people will go and get a vpn yeah um it's really interesting last friday on the 17th um the massachusetts securities regulators came out and uh did a enforcement action against an ico uh run by a citizen of Massachusetts. And apparently an investigator had gone in to the system

to try to buy into the ICO. And the system purported to have AML-KYC. So the investigator put in a fake name know name like mickey mouse or something like that and then when they uh uh you know showed a picture of their their government id that name did not match the name that they had put in but they still got approved 29 minutes later and so the investigator was able to buy into the ico so you know that was obviously an aml kyc fail yeah see didn't i tell you about human beings being creative yeah uh i want to make comments here about i'll refrain from my commentary and on other companies

doing shady things but uh yeah it wouldn't be the first time that that company's done so how does ico so is ico would you consider it like the yeah there was a lot of crowdfunding has been around forever right i mean the idea of sort of Groupon evolved from people who would in person get together and form a coalition. And this actually literally happens in Japan. Maybe not so much anymore. But this is sort of the genesis of Groupon was in Japan, people, you know, 100 people would go to a TV store and say, all 100 of us will buy a TV right now, but you have to give us a 30% discount. That literally happened. And so crowdfunding has been around forever, that kind of idea. And then it really took off on the internet with Kickstarter and things like that. And so do you see ICOs as sort of like the next evolution of crowdfunding? Or, you know, is it related in any way?

Oh, absolutely. I mean, ICOs are one subset of crowdfunding, right? There's so many different types of crowdfunding, you can do donation based rewards based, you know, equity or debt crowdfunding, you can do token crowd crowdfunding which to me is basically an ico um and you're right crowdfunding has been around for a long time the statue of liberty you can say was actually crowdfunded right so uh icos are just you know i suppose a newer, trendier way to do crowdfunding if you have a blockchain-related project or start. Oh, so what's the connection with the... I mean, I get that an ICO kind of runs on top of the blockchain, but you could use it to crowdfund anything, right? I mean, technically you could.

There's definitely a lot of businesses today that are like, oh, we're going to go do an ICO, right? But one of the questions, one of the first questions you're going to get from any sort of ICO investor is, why is your business, why is blockchain necessary for your business, right? And then question number two will be, why is tokenization necessary for your business or project? And you do have to have really good answers to both of those. Oh, I see. So how does Dogecoin answer those questions? So Dogecoin really is a... No, I'm just... If you have a serious answer, I mean, you can answer, but I was more joking.

But I guess, I mean, if I was making anything, I don't know, cookies or a video game or whatever, couldn't I just say, you're buying one copy of this thing whenever it's done? I mean, you could i mean i know a guy up in sf who's he's tokenizing parties you know um you have to have at least 100 tokens to come to my party um you can't do it for anything but you know obviously you know not everything is a great idea to to tokenize that's why the price of gs has gone so high because everyone's trying to get into this guy's party and they just can't get in. Yeah, but you have to also remember,

like when you do something like, you know, put your business on the blockchain, it does also bring a lot of complexity to what you're doing. It does increase costs a lot, right, on security and things like that. So that's one thing I would caution folks about is, you know, maybe you might be able to get some funding from this cool thing, but you better have great justification because it's going to bring a lot more cost and complexity as well. Yeah, actually, now that you mention it, I guess, how is an ICO different from me just saying, oh, I guess the ICO is...

Yeah, in other words, how is an ICO different than me just saying, PayPal me $10 and I'll send you this game when it's ready or something like that. I mean, I guess PayPal is a centralized system. I mean, so, you know, if I could generalize about ICOs today, a lot of them will come out and sell their tokens for a limited amount of time. And part of the reason why they do that is psychology, right? You're creating FOMO, fear of missing out. You know, EOS is one protocol that basically did an ICO, but they did it for a year long. I think they still might be doing it. And

they're basically selling like $20 million worth of tokens every day. They've raised insane amounts. But most ICOs out there are for a very short, limited amount of time. And so, you know, they want people to flock to them really quick. And, you know, it's supposed to be this whole limited time opportunity as opposed to, oh, well, you can buy it whenever you want. Oh, I see. Got it. So, Amy, before we wind up, is there anything more you want to say about, like, dispute resolution, where you think the future is, advice for people? Yeah, so I would say, you know, to the extent any of your listeners are involved in the crypto space, one of the next things that we're actually pushing out is a dispute resolution intake form. You know, I get a lot of random direct messages on Twitter and emails from disgruntled people in the crypto space who, surprise, surprise, have lost money. And so they're unhappy and they're looking for help.

And, you know, I just wanted to find a way to aggregate all of these claims so that we might actually be able to help people. So whether it's against an ICO or whether you have a grievance against exchange or whatever, people can go to the intake form, which is sagewise.io forward slash dispute. So that's S-A-G-E-W-I-S-E dot I-O forward slash dispute. And, you know, let us know what you have issues or concerns within the space and we are trying to see if we can help you know um i i think uh in order for the industry to succeed we have to you know hold people accountable and make sure they're not scamming other people. So, you know, I would personally love to, to hear what's happening, what's going on in the community.

Awesome. And then what's it like to, you know, kind of work at Sagewise? You're looking for programmers? I mean, maybe we have people who are lawyers who are listening. Yeah, are you looking for legal, you know, aides to help you and all of that? Oh, gosh. Well, we'll definitely be looking for interns. We actually do plan on hiring two developers in the near-term future, one back and one front end. I'm also looking for a chief of staff to help me out on the business marketing overall strategy side. So, yes, we're definitely hiring and if people are just interested to follow our progress and see what happens um you can you know they can find me in all the traditional social media channels so

linkedin twitter i i'm in a lot of the Facebook crypto groups, Instagram, right? And if they want to, you know, follow our progress for SageWise, they can join our telegram at t.co forward slash SageWise. All right. Very awesome. Thank you so much. I mean, this has been, you know, we've never talked to a lawyer on the show before. So, yeah, congratulations. You're the first one. Or I guess. Anyway, it doesn't matter. And, you know, it's definitely an interesting and pertinent thing today. I mean, I know lots of people out there have at least, you know, heard about cryptocurrency and wondered what smart contracts were. And so I think this is this is a great help to people. Yeah, I feel like personally, there are certain things that are kind of just really hard to grasp for me. And you kind of like I've been, you know, on the earth long enough now that I kind of can gauge where I am in understanding something. And so, for example uh like eigenvectors so eigenvectors were the sort of really nebulous thing i couldn't really you know understand it

and then it was like okay i could see how people were using it but but i couldn't like under the hood it just didn't it wasn't part of the fabric i guess of, of my consciousness. I couldn't really connect eigenvectors. I was choosing that kind of at random. It's like everything else I know, right? And then eventually I kind of figured it out, right? And so the same with, let's say, probably density functions or something, right? And so I feel like ICOs and blockchain, like blockchain at this point, I have a pretty good idea. But ICOs and, you know,

cryptocurrencies and these things, it's just, I feel like personally, it's just really hard to wrap my head around, you know, kind of what is actually going on. But I think I have a much better idea now than I did an hour ago. And I feel like I'm going to wake up tomorrow with like a ton of questions and

so are probably a lot of other people and don't hesitate to ping Amy or message on Google Plus and I'll point Amy to our post on Google Plus and Facebook and all of that so if you have any questions for her you know she'll

know where to go look for that and yeah thank you so much for coming on. This is fascinating. Fantastic. Thanks so much for having me. The intro music is Axo by Binar Pilot. Programming Throwdown is distributed under a Creative Commons Attribution Sharealike 2.0 license.

You're free to share, copy, distribute, transmit the work, to remix, adapt the work, but you must provide attribution to Patrick and I and sharealike in kind.