The Pomp Podcast - Sam Cassatt, CSO of ConsenSys: The Scalability of Ethereum

Episode Date: February 11, 2019

Sam Cassatt is the CSO of ConsenSys. In this conversation, Sam and Anthony Pompliano discuss the history of ConsenSys, Sam's perspective of foreign governments' views on liquid crypto, why Maker is so interesting, and the current scalability conversation around Ethereum. ----- This show is sponsored by The Grove: thegrove.co/pomp Your branding and website are the first things your customers will see.  You never get a second chance at a first impression, which is why it's so important that your website is sending the right message to the world.  Luckily, you have The Grove to help you with that. The Grove is a full service creative and design agency that helps new and established companies tell their stories.  The Grove firmly believes that a brand is more than just a logo - it is the entire essence of who a company is.  That's why The Grove works with companies on every aspect of their marketing, from brand identity, to web development and design, to SEO, to specialized graphic design projects. The Grove has helped grow companies like Tiffany and Co, Bloq, AAA, The Red Cross, and the Chamber of Digital Commerce by amplifying their branding and web presence.  Get big results today, and visit thegrove.co/pomp. ----- Join the Off the Chain newsletter. Pomp's daily email analyzes the crypto market for institutional investors. Simply, it’s the best crypto newsletter delivered to your inbox every morning. No frills. No bullsh*t. Just everything you need to know in a 3-minute read. https://offthechain.substack.com/ ----- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by BlockWorks Group. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworksgroup.io

What's up, everyone? This is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off The Chain, simply the best podcast in crypto. Let's kick this thing off. Sam Kassat is the Chief Strategy Officer at ConsenSys. In this conversation, we discuss the history of ConsenSys, Sam's perspective on foreign governments' views of liquid crypto, why Maker is so interesting, and the current scalability conversation around Ethereum. This conversation was a lot of fun, and I hope you enjoyed nearly as much as I did. Before we get started, I want to talk about one of our sponsors, The Grove. As many of you know, branding and online presence is crucial to the crypto space.

With so many damn scams out there, it's tough to tell who's legit. The Grove, however, is a full-service creative and design agency that will help you amplify your brand with the perfect website, logo, collateral, or custom design project. Branding isn't just about looking pretty though, dot, dot, dot, like me. The Grove understands it's about driving revenue. If you want to check out what they're doing, you can go to thegrove.co backslash pomp. Again, that's thegrove.co, not dot com,

co, new age stuff, thegrove.co backslash pomp. Let's crash their servers and light up the webpage. Let me know when you do it and I'll shoot you some fire emojis on Twitter. Thegrove.co slash pomp. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp

as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. All right, guys. I'm here with Sam. We've got a lot to talk about, and we're going to try to get this done in 50 minutes. You ready? I'm ready. Sounds good. Awesome. Thanks for coming. Thank you. It's great. Great to be here. What's your background? So I'm a computer scientist and a neuroscientist, I guess, by background. I'm also an entrepreneur.

A long time ago, I was doing research, Johns Hopkins in cognitive science and like vision and trying to figure out the human brain and the nature of reality based on neuroscience, I guess. And I realized as the financial crisis was happening that I didn't know anything about what money was. So I got really into money, the definition of money, and joined up with some nerds and made some paper currencies in Baltimore called the Baltimore B-Note. All right, hold on, hold on, hold on.

you what year is this uh 2008 ish all right so not satoshi but in 2008 you created a paper-based currency that was used in just baltimore or aspirations to go larger than that it was intended to be local it was basically a discount to the dollar in that region and sometimes it's stretched into pennsylvania and still still around actually but the idea was to sort of close the supply loops inside of baltimore and act like a loyalty point system there but it's kind of just an experiment for me to learn about monetary theory but that same crew of people is how i got into bitcoin and uh it's permeated my life shocking that the people created their own currency ended up with bitcoin yeah all right so so you do that and then when um when do you

or well hold on let's go into uh because then you worked a couple startups right yeah and yeah so So back then, I was a scientist, basically. I was doing applied science stuff, did some DOD work. I did some stuff for Lamborghini, building biosensors, artificial intelligence, stuff like that. And followed this whole crypto world, didn't really know what to do with it. Ended up being CTO of a different company called Atmosphere as I was getting into the startup scene. I realize that service business models aren't that great. But I co-founded an applied science company before that.

Ended up being CTO of this company right during that company is when Ethereum got invented. And I followed Bitcoin the whole time, but I didn't really want to make a wallet or an exchange or something. I didn't really see a startup business model I wanted in that. But then I met Joe Lubin, heard about the white paper of Ethereum exactly at the same time, and it just clicked that it was a decentralized virtual machine that would allow programmable money allow basically decentralized any application you can think of and it clicked for me immediately and i knew i had to do something with it all right so when do you find out like when did somebody

tell you about ethereum uh it was joe lubin so joe told you yeah so it was so i had heard about this thing everyone from my bitcoin friend said this is the coolest thing ever like you gotta learn about it but like i hadn't read the white paper uh everyone that tried to explain it to me i was like what the hell are you talking about doesn't doesn't make any sense um and so i heard there was this thing ethereum go to this meetup and and and you'll hear what it is and it was it was joe and me and maybe 15 20 other people and joe told me what it was clicked immediately and uh i walked across manhattan i remember just in a altered state of consciousness realizing that the world was about to change uh and shortly after that joined up with him to help build consensus

got it and so many people i think have heard of joe but they don't know him they never met etc just give people like why did you believe him right like what was kind of the what was kind of the um the reaction that you had to him and now knowing him really well right that that um um you know left you walking across my neck figuring out what life is yeah i mean joe you know joe's a computer scientist for one and so also being a computer scientist uh you can kind of cut through the shit of a whole set of paragraphs and in one sentence decentralized virtual machine that immediately i got it and just from the level of discourse that was happening in that initial meeting of just decentralization removing intermediaries uh the fact that it behaves

like bitcoin but it also has the ability to program behavior on top of it just that that concept resonated uh so strongly for me and joe's ability to articulate that i could tell he really believed it i also i also knew that you know joe basically had come out of retirement to do this right he was he was chilling out in jamaica uh and he doesn't need to go have a job uh but but he was having the conviction to do this so uh we immediately we also vibed on neuroscience actually joe's also a neuroscientist by background uh and so what's up with the computer science neuroscientist over in brooklyn man what are you guys doing i don't know man i think what you know i think i think we share um a desire to figure out how the world works and how

the human mind works and i i view i view ethereum frankly and i view blockchain as a way to think about the extension of human cognition and that's really what i was into it in from the beginning is is that like this is the expression of the human mind as is money right and the way to the extent that the banking industry and the central banking industry etc uh is in control of the way new money gets issued and created and the way it behaves and the way we structure financial products that that determines the course of people's lives right that you have a you have a a mortgage you spend your whole life paying that mortgage back uh the structure of how you do that and why you do that and how that integrates into your life is determined by uh some other people not most people

and that determines how humans behave in mass so the same things that i think make a neuroscientist interested in human behavior could also make them interested in money and monetary theory and that's that's where i was coming from i think partially that's where joe's coming from too that's super cool i really like that uh the way you described that all right so what is consensus right so and maybe let's start with what it is and then we can get into uh you know some of the early days and what that was like so currently consensus obviously is a lot of things right so consensus we say there are a few pillars to consensus right there's there's the the venture studio which we call consensus labs and that's where we we build we fund we cause synergies between all these portfolio

companies a lot of you heard of like metamask truffle and fura you know kaleido etc so there's that part of the company i can go into the details of why it's structured that way later there's consensus ventures where we you know we have a typical looking venture fund we also do some balance sheet investing as well you've probably seen our investments in like drum g for instance you know projects like that pretty recently we have consensus solutions which is simultaneously a consulting organization and also a digital venturing organization so things like comgo things like the amd partnership that we recently announced those are deals where we basically partner with another company or a set of other companies in the case of like comgo for

instance and we being blockchain tech experts build out the tech platform we have some equity or ownership of that thing and you know it's basically a joint venture between us and some other experts in a certain field or something right so we've got that we have consensus academy as well uh we have a social impact arm as well where we do projects that we think benefit the world um and you know a few other smaller services but basically you know we're in the business of deploying capital either in a very hands-on way or or in a or in a distant venture capital kind of way and we're in the business of helping other companies and partnerships realize the power of blockchain technology so lots of different moving pieces but that that's

where our goal set in what was it like in the early days right because I've heard plenty right now because I know a couple who have been there and it feels a little bit like a revolution right like a hey we believe something in the world that a high majority of other people don't believe and if we work together we can go build this yeah yeah so late 2014 early 2015 you know is a a bunch of crazy people in a room, a bunch of crazy smart people in a room that I think saw this thing before everyone else. And I can analogize it to people who saw that oil and steel before everything else. It felt like that. It felt like we know something that the rest of

the world doesn't know yet. And some of the smartest people I've ever met in my life were collected there and in the very early days of consensus there weren't there weren't really the tools to go get things to market really quickly right there was bitcoin there's stuff built around bitcoin but if you analogize it to the internet people people like to say you know people make up all kinds of numbers like we're 94 95 right now but i would say in the very beginning kind of like 91 right where http the protocol had been invented we knew that this http thing would be awesome, but we don't have a browser. We don't have a web server. We certainly don't have AWS and load balancers and all that stuff. Yeah. So, you know, in, in 91, if I wanted to

build Snapchat, I would have had to build all those things, right. I would have been very capital intensive. It would have been not something that a typical venture investor wanted to invest in. Right. So, so, but yet at the same time, we saw, you know, we saw Snapchat, we saw Facebook, we saw, we saw the, all the powerful things that could be built on this, that are now being built and people understand the power of. So how do you build that thing, right? How do you build the entire ecosystem at once was really the question we set out to solve. And so if we had just made a fund, it would have been too early, right?

We would have just been handing capital to people that would have had to reproduce each other's work. And if we had just made one company, we thought that was ill-advised, right? Because how many people set out to build 50 things at once and are successful in a startup company? not not many i know of so the difference is that you know strike the difference and we decided to build a company that builds companies and put everyone under one roof get them to exchange ideas get them to rapidly iterate on things and so in the early days we were basically like you know there are only a handful of people in the world who even understand how to build a an application on ethereum so let's start building them let's start building

games let's start building loan platforms let's start building prediction markets and let's use that to motivate Infura and MetaMask and Truffle, all those things that now everyone else in the Ethereum community uses, we built because we needed them to build the vision of what we were trying to do. So we said, let's build all that stuff. We'll cut it up into different companies and projects later. For every successful startup that you see come out of ConsenSys, there were a bunch of things that didn't work or that, you know, were an idea that some engineers explored for

a little bit, but didn't turn into a company. But that was the sort of capitally efficient way to seed an entire ecosystem that we designed. So lots of people working on the next generation of stuff is how it felt in the early days. In those days, employees were getting paid in fiat or ethereum um bitcoin actually a lot really yeah okay um but but some you know some people wanted to be paid in normal uh dollars and things like uh like uh sane people money right at the time yeah i think you know some their landlords weren't taking bitcoin yet no i you know i actually tried it and and none of them none of them really really would do it uh but no in the early days uh i remember when i first joined up with joe uh i i said you know let's let's let's

start this like you know and i didn't have a hiring process or something you know it was just sort of me and joe hanging out in a room and uh he was like i'll just send you some bitcoins good sure so i think a lot of the early early days people like bitcoins as good as a dollar if not better to them yep and so as you guys start this um did you start out with all of the kind of different you know bodies of work right so the venture studio and the fund and all that or was there a progression as to hey let's start building first you just described and then okay hey maybe actually now there's enough people in the ecosystem that we could fund other companies like i'm guessing it's a progression but you tell me yeah certainly a progression uh when when we started

uh the way consensus got put together was really there were a few companies like like gnosis for instance was out there um there were some some other smaller teams that were already kind of working on something and we just sort of brought them into the fold of consensus and started paying them and you know making some agreements with them about how we would collaborate um and you know like i said in the very early days uh joe and i sat down and said you know should what should this be on paper right should this be a fund should this be a company should it be something in between and and we ended up deciding that it should be a company for for the reason that it seemed too early that you know there weren't there weren't mature entrepreneurs uh everyone

would have had to duplicate each other's work it would have been an inefficient use of capital to really just make a pure fun and we wanted to be more hands-on and let people collaborate and not worry about their intellectual property getting traded back and forth etc so um yeah so those early days uh it was really just move as fast as possible and then as things have matured you know it didn't even in 2015 2016 especially if you go google ethereum and you google blockchain applications didn't take very long to find us so governments fortune 500 companies entities like that started approaching us and asking us for help and at first we said you know i'm not that interested in helping you i'm trying to you know i want to but i'm trying to make companies here

I'm not going to consult for you. But eventually, you know, in my mind, we realized and we hired the right kind of people to basically build a consulting organization that can take our infrastructure tools like, you know, like Infura, et cetera, take all the things we built for ourselves, port that over and build solutions for different companies and governments. And that organization just become increasingly professional and more and more so. And then, you know, eventually the market has matured to a point where it does make sense to hand capital to a mature entrepreneur and not be as hands on. And that's the motivation for us having a fund and doing some balance sheet investments as well. So, you know, over time, it's just as the markets matured, we've hired the right people and and adapted to to it. But, yeah, we're a really adaptable organization. We do all kinds of weird stuff and whatever makes sense and whatever will get things over the line.

So we just acquire the right expertise and perform in whatever way we think the market needs. There's plenty of people who are huge fans, right? And I think it speaks for itself just how many people are involved, right? How much the ecosystem has been built out and a huge piece of it is attributable to the work you guys did. But there's also people who think you guys are crazy and this is never going to work type stuff. well i was gonna say what's the one detraction that people would have that you would agree with is there one it's an interesting question um i think um if i had to detract from consensus it's probably that we're early um that's fair you know this

this whole world is yet to be uh fully realized and you know sometimes it takes a while for a technology to reach maturity. And I think we all see it and we see how important it is. And I think you do too. And that's why we're here. And so I think it'll be a while before the average consumer has something in their pocket that is using blockchain, right? I think it's not going to be that. It's already the case now that, you know, industry players, financial companies, et cetera, are starting to use it. But, um, but we've, you know, we, we've got a long road and a lot of infrastructure to build and a lot of, um, a lot of roads to pave even. And so, um, if I were building a company right now, I think it would be a hell of a lot easier than us building

it four years ago. So that's, that's probably a valid criticism. Okay. I think that's definitely fair. Let's talk about some of the projects that you guys, uh, or the work you guys have done. Um, obviously you guys have done a ton in Dubai. So maybe just give us an overview, kind of what you guys have done, what you're doing now, and maybe where that's going. Yeah. So lots of governments see applications of blockchain technology, things like property rights, things like voting, things like identity systems are pretty important to them. So a couple of years ago, Dubai, the Dubai Future Foundation basically said they want to build something having to do with blockchain, right? And they have this great program where they invite you to Dubai.

you meet up with dubai holding which is their sovereign wealth group a bunch of other companies in dubai basically try to see what you can do to get dubai to the to the future because that's very much their their vibe and what they're trying to accomplish is they want to be a next generation city and a next generation society and so we along with ibm were named through that process the official blockchain advisors of dubai and we built an office there we started working with their dubai property group as our first project as well as some of the other government offices through smart dubai which runs all their basically their smart city initiative oversees all their their government services and just looking one by one to see what we can blockchainify

so to say and the first thing we identified was their property registries right because a piece of property. It gets essentially granted to a development organization. That thing goes through 20 different government offices to sign off on the plan, which usually results in literally hundreds of millions of kilometers being driven or pieces of paper being driven around Dubai per year. And then eventually ends up in the ownership of an individual. And obviously right now, I think to people listening to this that are into blockchain, they know that asset digitization and custody of assets and the cryptographic signing of assets is a pretty strong aspect of blockchain.

And they saw that back then, that instead of having a piece of property that's represented by a piece of paper that goes to 20 different offices and then ends up with 50 other pieces of paper and you buy it, instead, why don't we have a digital representation of that? Why don't we have the land titling and registry system, not only on blockchain, like Factum or something, but actually a complete application that manages that whole process. And so we started building that out for them.

And then, you know, as time goes on, we're just going through their whole government suite of services basically and blockchain-ifying it. I joke a lot that blockchain is just an assault on paper, right? Yeah. And there's a lot of paper in government, so it makes sense that's why people are looking there. Yeah, yeah, that's true.

I mean, pieces of paper are not only bulky and need to be moved around, but but insecure right and and uh you can't you can't fly with a million pages of something and you know you can steal a million pieces of a hundred dollar bills you know um there are a lot of advantages over it for sure um all right so let's move somewhere else in the world uh singapore you guys have done some work with some monetary organizations there and stuff yeah so the monetary authority of singapore is an organization that we've we've done some work with and basically just worked on some trading infrastructure for them. I think the work that we did there you can view as porting more fully

into something that we've done recently called Comgo. That's us, Societe Generale, Citi, maybe about 10 partners actually. That's a commodities trading and trade finance platform that we recently started working on. And I think that that's really the full realization of that. And so what that will allow you to do is do, at first, KYC and letters of credit. But eventually, you could view that as solving a lot of the, again, paper inefficiencies of trade finance and allowing commodities and trade finance in general to just be extremely efficient.

And it's an open platform so that anyone who wants to plug into it can. I think that's really the future, less so than a closed system that just makes something 1% or 5% more efficient, an open platform that allows anyone in the world who wants to participate in trade finance to plug into it permissionlessly. That's the direction we're going. Got it. And then you've created some identification work in Zug. Yeah. Can you talk about that? Yeah.

So Zug, for people who don't know, Zug is a canton in Switzerland. It's kind of like a state in the United States. And Zug is also the place where Crypto Valley is. A lot of companies are structured there, and the government there is really sophisticated in their understanding of blockchain, and they have been for a while. And so our platform, Uport, which is our identity management system on Ethereum, is now coupled with their official government identity system.

So when you go get an ID card for a citizen in Zug, you simultaneously get a u-port id that's cryptographically linked to your id card and you can use that to access government services including voting actually and i think a few months ago they did some of their first votes uh on that platform um which in swiss society is actually really important to them their ability to directly vote on decisions uh is one is a unique aspect i think of swiss culture and uh they're happy to support that and i think the eventual goal is we'll keep adding things to that you know like just like in in uh in sweden you know you have a cryptographic id that lets you access all your different banks uh the vision there is let's build

a dynamic identity infrastructure that is more secure than it could normally be uh based on blockchain that will let every government service eventually be plugged into got it so we just kind of went around uh outside the united states right dubai singapore and zug um what is your perspective on those foreign governments or jurisdictions uh view on liquid crypto right so everything you're talking about is enterprise blockchain or uh building kind of more applications of the blockchain technology to solve problems right bitcoin right as digital money ethereum you know the actual liquid assets are they positive negative agnostic think that everyone's a snake oil salesman where do they come out on it yeah um i don't want to speak for any of the

governments so you know just just just and what i'm really looking for is like general sentiment Right. Do you think that most of them are intrigued or do you think they think that's all completely, you know, garbage and it's kind of the, you know, not Bitcoin, but blockchain type stuff? Yeah, I think they are intrigued, neutral to positive in my experience. Switzerland was one of the first places and Switzerland obviously has a history of being pretty forward thinking and privacy oriented in their banking. Money and privacy in Switzerland has been a hot topic for them for a while. Yeah, yeah, exactly. And so, you know, the Ethereum Foundation is structured in Switzerland. And the reason they were is one of the reasons they were is because the government there was able to understand that you could treat Ethereum as a currency even before it was put out.

And, you know, this is a time when most governments had no idea. They had no clue what we were talking about. And they were able to go so far as to actually make an agreement with them that they would treat Ether, even before Ethereum had been launched, as a currency. Wow. And so that represents, I think, a pretty forward-looking view. In places like Dubai, in places like Singapore, I think they want to be societies that advance to the next level pretty quickly. right? Dubai is looking for ways to make sure that they're leading the next wave of economic evolution of our planet. That's why you see such new stuff. Years ago, they were talking about

flying taxis. Years ago, they're talking about blockchain. And they're much more apt to move on things quickly than some other societies that are a little slower. And we already got it figured out so we don't want to mess it up is the attitude in some maybe Western democracies. Whereas a place that wants to move quickly, I think they're very open to the liquid crypto aspect of it. And I think central banks as well. Obviously, there was a report put out by Bank of International Settlements, I believe, a few days ago about how something like 70% of central banks are considering this. So I think there's a general attitude in governments that we need to do something about this. We need to have an approach. I don't think the US, for instance, is going to be

the first central bank to issue a cryptocurrency. But at the same time, I think governments would be remiss. They know that they would be remiss not to consider how they can integrate this into their existing infrastructure i think that's fair um all right let's talk about ethereum um we will call out so all of the uh the trolls on twitter know yes he is biased we know um but no seriously what where is ethereum today right in your mind kind of what are the pros and cons or maybe not even cons just what are the the things that are going well And what are the things that are challenges that need to be resolved going forward? Sure.

So going back to like 2014, when I talked to people about Ethereum, most people said, oh, that's so ambitious. That's crazy. Like it's never even going to work. Right. And every year, you know, well, you know, you're not going to be able to launch it. And then, you know, the next year is, well, no one's going to be able to develop any applications. Then, well, the applications don't have any users. And that, you know, so the criticisms keep moving and the goalposts keep moving and we keep hitting the goals.

But, you know, I think Ethereum is at a place where you can already do basic functionality that supplants existing parts of the financial system, right? Make or die. Wild. Wild. Crazy, right? Listen, shout out to Rick Burton and the Balance team. I went over there recently and they sat me down. They walked me through this whole thing.

I was blown away. Yeah. Yeah. It's crazy. You know, I basically have collateralized loans with no human beings necessary. So, okay. So this is actually good. So maybe let's talk about what could actually be done applying Ethereum and the functionality to it.

Let's use MakerDAI as an example. Maybe first describe just what is Maker's vision and kind of MakerDAI and then we can get into the CDPs and stuff. Sure. So Maker basically, it's a platform. The CDPs are the name. It's collateralized debt position on there. It's basically an Ethereum smart contract. It exists today.

It has a complementary stable coin called DAI that represents a dollar. And so the basic idea is I want a loan for a million dollars. I forget what the ratio is. I think it's 1.5x, 2x. So I can put $2 million in a smart contract. it spits out a million dollars of DAI. And as the price of Ethereum fluctuates, that contract automatically rebalances itself such that there's always the right amount of collateral that's in a certain range. So Ethereum price goes down, you need to put a little bit

more. Ethereum price goes up, you can take a little bit more DAI out, essentially. And so you've got a stablecoin and you've got a collateralized debt position. And essentially, you're doing something that normally takes weeks of conversations and AML KYC and going to bankers offices and signing things, uh, to get a, you know, to get a million dollar loan. Uh, but even if, even if it's collateralized now I can do in a smart contract in a few seconds. Um, and so that's basically the part that's pretty crazy about this is in a normal lending scenario, the lender would have to be a person that would then have to get information from the borrower or information on the asset they're lending against, they would have to have some ability to recover and liquidate

the collateral, right? The car loan or whatever. Yeah. And then there's a lot of cost that comes from issuing the loan, managing the loan, you know, recouping the loan, et cetera. In this scenario, you're putting up an over collateral, you know, you're putting up more collateral than you're taking on the loan. So there's a whole host of the complexities that are reduced and you're doing it in automated

fashion. yeah because the way here's the and i'd love to hear your thought about this so maker die is a perfect example of i think of blockchain as simply the foundation for all of the automation that everyone's waiting for right it is we're going to tokenize all the stocks bonds currencies and commodities right it is the ability for smart contracts to execute things without human intervention yeah this is all the foundational pieces you need for that automation and it looks like these cdps are one of the first applications of that yeah yeah i think that's a really really clear example and you combine that with we have a platform called open law okay what's that so

it's created by uh a really great legal team um uh out of cardozo law school uh and so basically it is a simultaneous english pros contract that is a legally enforceable contract that is connected to a smart contract deployed to ethereum so that could be something like Say I hire an employee and once a month their equity vests 1% or something like that. So instead of a lawyer having to compute that and then keep a record in the share register of who has what shares, et cetera, and then actually giving them the shares and then you IPO the company and then they have the shares, somehow they need to get onto the stock exchange, whatever. Instead, it is a smart contract that once a month sends them some tokens that represent a share to them and that's it.

We actually use that in our Ujo music platform as well to manage music rights. So you could imagine what normally requires law firms and court systems and accountants and lawyers to enact, just like this loan that we're talking about. Instead, you have a legally enforceable contract with all the right pros and fallback conditions or whatever that also automatically executes of pretty arbitrary complexity. So I think that's certainly the future. That's where we're going. Yeah, it is. It's pretty wild. So let's say this all happens. Right. And we're obviously talking about it. So we believe. What is the reaction or the possible options that the legacy financial system has? Do they jump on board or do they get completely disrupted? What's more probable? It's an interesting question. Well, you know, I like to say it's not binary. Right. But what's your take on that? I mean, you look at the logo of Wells Fargo, you know, it's a it's a horse with a carriage.

Right. And that carriage was carrying gold. I did not know that. That is a dangerous, dangerous thing for me to tweet. So, you know, Wells Fargo has obviously advanced their business model beyond carrying gold and carriages and financial institutions are full of smart people that will continue to adapt. and i hope that they do um in the beginning of consensus i was honestly afraid that we would get fierce pushback from the legacy financial system and i thought that they would make huge problems for us turns out um you know if you look at the members of the enterprise ethereum alliance for instance most of the major banks are using ethereum right now um and because they realize that better to be disrupted you know better to disrupt yourself than be disrupted and so i see

the, you know, especially, you know, the like innovators and, and, you know, young people in banks at first, you know, at first it was the sort of innovation departments and now it's, now it's CIOs and, and, and, you know, the more senior people that are finally like, okay, yeah, I see. I see how this could completely disrupt our whole business model. Um, finally getting on board. So I think, you know, big institutions, big ships are slow to steer and probably some of them will fail um but you know in the big medium term picture to long-term picture i think you know the next goldman sachs and then the next you know maybe decentralized version of goldman sachs has has yet to be built uh and i think um i think there are going to be kids you know with a laptop

in africa that make up something that no one in in you know we're in manhattan right now i don't think anyone in manhattan is going to even think of and they don't even know that it violates some banking regulation in london or whatever and and they're not going to care and they don't care at all because it doesn't matter and they're going to deploy that thing uh and then people are going to start using it right whether it's cdps on maker uh or it's something else that i can't think of because i'm too old and dumb that you know a 14 year old is going to make up um i think that's going to be wildly different than our existing financial reality and i don't i think it's going to happen quickly uh and and people aren't going to be prepared but at the same time you know we're

helping financial institutions lots of companies are helping financial institutions uh jp morgan has been really uh on the forefront despite what mr diamond may say um you know they've been working on quorum which is a privacy layer for ethereum uh you know they're uh they've been pushing pretty hard and i i i see some real innovation coming out of existing institutions it is funny because um there's some institutions that don't want to be associated with this stuff at all. There's some that actually think there's a benefit to being associated, right. They want to try to own the narrative. Uh, but I don't know a single institution that's doing nothing.

And I don't know a single institution that said, we're not going to work on anything else other than this. Right. Everyone's kind of in the middle and they all have different reasons for choosing, you know, what they do. But your, your point about, um, you know, the next Goldman Sachs looks different, right. And probably has some stuff, you know has something to do with this uh ben horowitz recently was asked on a um on uh in an interview um you know about mobile phones and the internet and killer apps and all stuff and he said you know the thing that people forget about mobile phones is that uh it was actually worse in every

single way than a pc except for a very small number of ways right and it had gps it had a camera on it right it could fit in your pocket like you know things like that but people also were saying you know it's less powerful how the hell am i going to do i think his quote was like how the hell am i going to do my spreadsheet on that little ass screen right you know that type of stuff and so the the reason why it's important is you couldn't build uber or lyft without the phone yeah right without the gps and things like that you couldn't build you know the instagrams and snapchats of the world without the camera right and so you know it's um he brings it kind of full circle he says you know what does a blockchain have that other computing powers

don't have he says trust right and i would almost take it a step further has trust and the decentralization component is really important both for trust security you know a whole host of things and so when you think of the legacy financial institution the first word that pops your head is not trust right like you know we joke all the time you know long bitcoin short the bankers yeah it's it's a you know play on words but there is a lot of distrust and so i wonder how much of your view on where some of this stuff goes is reliant on people continuing to trust institutions versus one thing i think a lot about is people are just going to trust machines more than humans yeah right so the algorithms the machines like we've already you

know google maps perfect example you've already given up right you just hey that's smarter than any human i ask on the street yeah are there other things you know cdps might be a great example where people trust the algorithms in the machine more than organizations yeah i think that's uh one of the important reasons for decentralization okay explain that a lot of people say the word decentralization and you know as some kind of battle cry but i don't i don't think a lot of people really understand why that's so important and and it's for trust right it's because if no one controls it right if no one can get an outsized influence on the behavior of the system then i know the system is going to behave in the way that i think it's going to behave right

and this is why you know going back to ethereum's design for instance this is why vitalik considered like DPOS, right? Delegated proof of stake, which is the underlying protocol of EOS, for instance, and rejected it, right? Because he felt that 21 deciders, 21 validators is not enough to be decentralized. It's not enough that if a state actor wanted to go tell them what to do to censor a transaction, for instance, that it wouldn't happen, right? And so the degree to which you can trust is dependent upon the degree to which the system performs in the way that you think it will um and it requires decentralization so and i agree with you also on the point about trust that all of the systems that financial institutions are part of and the the the interfaces to them and

the regulatory environments around them are all designed to produce trust right the reason why i trust a bank more than a guy on the street if i hand him a thousand dollars and say keep this for me. The reason I trust a bank more is because if a bank doesn't do it, there's a whole bunch of legal systems that cost money, court systems, regulators, police forces, whatever, and that are going to go knock on their door and say, Hey, you know, you're violating the law by not holding that thousand dollars. Right. So I'm paying for this giant societal machinery that enables that trust and, and the, the shape of a financial institution, right. I'm, you know, I'm looking across the street at you know a financial institution like probably you know how many

floors of that building are for compliance right how many floors of the building are people whose only job it is to make sure that they implement the trust framework that's been mandated by our society well how many square feet are filled with paper right like it really reduced the rent over there yeah yeah exactly um and so you know if you can do the same stuff because it's in a smart contract on a decentralized platform suddenly our whole society is a lot wealthier and happier we can do stuff for cheaper and we can probably do stuff that you couldn't do before because right now those humans can only move at the speed of a piece of paper and a and a phone call whereas a smart contract can articulate itself you know fairly quickly all right so let's switch gears

a little bit and talk about uh the amd partnership because i think this is really fascinating right it probably actually didn't get enough attention right it got some press but uh maybe just talk a little bit about what that is and why you guys are excited about uh moving forward there sure so the project is called web3 cloud or web cloud with a three instead of an e um and this is this is a partnership between us and amd uh basically to produce the next generation of cloud infrastructure uh to run things like ethereum applications on right and amd is an interesting partner because they produce cpus and gpus um unlike you know intel or nvidia or whatever there's they sort of sit across that that boundary um and then you know secondly we believe that the the architecture

uh and the workload of the web 3.0 is going to look a little bit different than the current architecture and it sort of dovetails with what we're doing with pegasus pegasus is our uh it's the name of our client for ethereum 2.0 and it's also the just the name of our team that works on that but our client is different than all the other ethereum clients in the sense that it is designed for our vision of there being what i would call state transfer you know that's a computer science word but you know basically information can go between the public ethereum network and private versions of an Ethereum network that have different characteristics and topologies, right? And so, you know, if you look at IBM's view of the world, right, the hyper ledger fabric view

of the world, they're all about selling private blockchain. So me and five other banks or 20 other banks can all trade something with each other in this private version of a blockchain. And they would argue, some people who advocate that position would argue, you don't need a token, you don't need a Bitcoin or an Ether or whatever. We don't need crypto economic guarantees because it's all inside this private network i personally and and you know to consensus to some extent doesn't believe that's the full vision you know and i think you probably uh long bitcoin uh don't believe that's the full answer either right the big picture is we create a fabric that connects the entire planet for permissionless financial behavior right with rules applied to it like

i can write a maker cdp and i can have a financial institution use that or a guy on the street use that and i can make you know a thousand other things that look like financial products that all are just sitting there like a public good that people can plug into um just like anyone can plug into the api of you know amazon or google or something right it's just sitting there you just plug into it and you can use it for something you can compose it with other things and construct this new financial reality that just sits on this fabric of the internet that everyone has access to at the same time the security guarantees the requirements for something like the public ethereum network are different than say uh a social network right i the the

security guarantees and the way ethereum is designed it's designed for me to be able to hit like you know send on a billion dollar transaction and not worry about whether it's going to get there right and that's that's the level of security and network topology etc of what Ethereum is designed for. At the same time, say I'm a financial institution that has a whole bunch of stuff happening inside my firewall with maybe with a couple partners or something. I don't necessarily want all that on the public Ethereum network. Or maybe I want something I'm doing to farm out to an Amazon Lambda instance, which is like an on-demand computing instance. Or maybe I want that to connect to an on-demand storage instance that's sitting either on Amazon or in

my own data center or whatever what the pegasus client is and the enterprise ethereum spec that uh ea enterprise ethereum alliance put out is is it's a way for one sort of one ethereum client to both connect to the public ethereum network and also connect to private things that the enterprises are used to having in their data centers so i can have different different guarantees of trust right like a like on facebook doesn't need to have the same trust as a billion dollar transaction i can do it cheaper and faster by using different topologies. I don't need to store my movie collection in the same way I store my account balance, et cetera.

So different network topologies can exist on networks that are connected to, like side chains of Ethereum, like Loom Network, for instance, and simultaneously connect to the next generation of Ethereum, which is 2.0. And so we view supporting that infrastructure, supporting that sort of state transfer between public and private blockchains as the big picture of where this whole architecture is going.

And our partnership with AMD represents our view that there's a necessity to support that infrastructurally. That's awesome. What is the one or two largest misconceptions about Ethereum? There are a lot of misconceptions about Ethereum. um i i think what's let's just talk about what do you think the biggest one if you could clear one misconception about ethereum what would it be the biggest one is is scalability right okay which is a huge conversation point right now yeah right yeah it's huge it's you know probably the

most important thing that we're trying to solve right now okay uh ethereum 2.0 is all about scalability it's about some other things too but um you know what most people don't realize though is that there are a lot of technologies that exist right now that already provide scalability for Ethereum applications, right? So as I was saying before, you know, there are different requirements of trust have different required network topologies, if that makes sense. So what I need to send a billion dollars to someone,

I want to make sure that the network completely agrees on that, right? I don't want there to be any chance that that gets messed up. I want very high security guarantees. And so sending that on the main chain Ethereum is the way to do that. And that's what Ethereum is designed to do. At the same time, if I want to send a like or I want to, you know, move a character in a game or something, it doesn't need to be the same as a billion dollar transaction. So the solution to that and what has always been the solution to that, but I think most people just don't realize, is that there needs to therefore be multiple layers of the stack of Ethereum. There needs to be what some people call side chains or what we call L2.

So L1 Ethereum is the main Ethereum. L2 are things like Loom Network or things like Plasma where I can already get many thousands of transactions per second on those topologies where I don't care about sending billions of dollars. Yep. Ethereum 2.0 and even some of the changes happening right now, moving to proof of stake, et cetera, those are all designed to get main net Ethereum up to hundreds or even thousands of transactions per second. And that timeline is well on its way. A lot of it's proven. A lot of it's on test nets, et cetera. So I think most people don't get into the details of where that is and they don't realize how far that work has already gone, even though it probably won't be on mainnet for a year or a little more. But I think also people just don't realize that

that is never intended for the like on Facebook. And you are always going to need these additional network layers in L2 or even L3, if you look at it, that allow people to have the characteristics they want right and so the the future vision that we see is a network of interconnected side chains blockchains even different things that aren't blockchains maybe even that are cryptographically guaranteed that all plug into the main fabric of ethereum mainnet and right now there's really there's really nothing else that even comes close in terms of its ability to have the same trust and security guarantees and performance so that's you know maybe that'll bring out some trolls on twitter but uh if you don't got trolls you're not doing anything that's

the best job all right so before i finish up i usually uh do some rapid fire questions other than consensus what's the most important company in crypto that's an interesting question uh probably coinbase why uh because they are what most consumers see as the face of it and if i were going to build um the on ramps for normal people i would start there i'd start with really good ux simple enough for people to understand what's going on simple enough and secure enough for them to have an identity on on blockchain and uh and get it into their hands so actually i guess cash app uh is is actually more ubiquitous right now for people but but i think coinbase has a better sense of um what consumers do so they're the main entry point as it sits

right now for consumers so uh it's supposed to be rapid fires but now you got me uh i want to hear your opinion on um what usually when people ask me this question i say facebook and not because uh of what they've done yet but whatever they launch it's gonna hit you know could be two billion people so zuck bucks or face coin uh i like zuck bucks but it's just it could be the first interaction that you know two billion people have with blockchains crypto whatever token whether it's one they create or somebody else's i mean we're talking about a pretty important piece of technology and this is the exact same thought process it's just that interface right and whatever that interface is that most people interact with it's going to be important

if anyone from facebook is listening to it you know i i hope they do it in a decentralized way I hope they build on the existing infrastructure so we get this network effect on all the genius people working on this right now. If they do something closed off, I'll be sad. I'm going to go out on a limb. I usually don't comment on future ideas that people may do. But my guess right now, I work there, so I have a general sense of the internal culture. My guess is very similar to when we think about banks. There's plenty of people there who are excited about this technology and they want to apply it.

And maybe there's some people who aren't as excited, and so it slows it down or is bureaucratic. I bet you there's a lot of people at Facebook that are really excited about blockchain technology and crypto. Probably a lot of people who participate in the ecosystem, right? And I bet you there's a pretty serious conversation going on, you know, should it be decentralized or not, right? There's both sides that are probably, you know, going. And I'm with you that I think that they're going to do it decentralized. Good. it would be uh yeah it just it feels like that's the right thing there's enough people probably

you know having that conversation how you do it is hard right when you're kind of a for-profit company like that and you get some shareholders and all that but uh it'll be very interesting to see what they come out with yeah i think so all right um what is the one thing that you believe that you think a high majority of other people would disagree with hmm that's an interesting question um i think that the i think that the part of of blockchains that ends up on private architectures if you go and you know if you go into the the enterprise world of blockchain which i sit in a lot uh i i think almost none of it will end up on that i i think what's going to happen is uh when people say they want private blockchains what they're really saying is they want privacy

and and security um and maybe some like composability and control and i think the the the technology is getting to the place where you know if you you put your infrastructure on something like web 3 cloud like i just described with amd um and you know we have zk snarks and starks done and we have a bunch of the scalability of side chains done uh i think the public architecture the internet uh analogized to like ethereum is way more powerful than the intranet and i think it's mostly going to be on that man i hope you're right i i i hope um all right if you could change or improve one regulation what would it be that's also an interesting question uh i i nice i'm going i might hit 100 here

so you know i just speaking for myself as an individual yeah caveat this is not a financial advice he's speaking for himself nothing to do with consensus um i i think that we have i think the whole crypto token boom has demonstrated that there's a market gap for something between securities in a private offering to accredited investors and whether it's the JOBS Act or whatever we can do towards crowdfunding regulations, I don't think those go nearly far enough. I think there's this huge market gap in between,

and we showed that. Even though definitely some people got screwed and the SEC is going after the people who are scam artists, I think that's good. There's a market gap in between. If you look at places like Wyoming right now, actually in the last few days announced a new class of financial instrument that they want to create,

some regulators want to create i mean if you look at some other jurisdictions other than the u.s they're treating this like token uh stuff as a completely different class of financial instrument that needs a new approach not just applying laws that we wrote in 1930 um and and i think i i think we should be doing that i think we should we should consider how we can make a new framework that captures the power of these things and doesn't slow it down and if you look at you know people like hester pierce at the sec you know she understands that um uh we don't want to get left behind and i think we need to understand how our regulations can support entrepreneurs better look it is um it's very interesting to see how a lot of these regulators

there's some that you know really believe and some who think that the world's ending and we see it too at the federal and state level right to your point it has to be something the perfect example of the sec who she's been pretty blunt about what she believes right um if you look at you know the work that uh some of the uh the lawmakers and legislators in um uh wyoming right with caitlin long and all that and they've been super open to this stuff and and uh we want to push it forward or you even see you know uh josh mandel uh treasurer in ohio right say hey look bring it on right let's take it for taxes i think it's pretty interesting uh what's the most important book you've ever read interesting question as well um the web of life by frisch

what is that uh it's a book about how uh living systems are structured mathematically uh in autopoiesis which basically means that um systems that perpetuate themselves are are good at perpetuating themselves by definition right so if you look at evolution um evolution is basically saying stuff that's good at sticking around tends to stick around right it's really no more complicated than that uh and so systems that are designed to stick around stick around crypto you know it's perfect example it's infiltrated our minds and our financial systems and whatever it has a sticking power right and that's the definition of sort of an organism that has sticking power i view consensus i view crypto bitcoin ethereum i view these things as organisms

that viewpoint probably inhabits almost everything that i i view really structurally about reality and business and um that book is a is a take on that from a deep scientific and philosophical perspective and it's changed the way i look at reality interesting uh do you read uh algorithms to live by i'm not i should read that it's uh tangentially related um but it's this whole idea of that you know algorithms and math and how it uh it relates to a lot of life is a pretty cool um all right so i got one more question non-crypto related and then you get to ask me one question before uh before we end um so i used to ask people if aliens had pets because we never uh we never really think of it that way but uh i'm just gonna stick with what is the probability that aliens

actually exist what's the number uh so there's an equation called the drake equation okay i've not heard about this all right here we go you should check it out and and basically you know the number it makes sense if you think about what it is it's basically like the number of stars in the universe times like you know the number that you know the number of um solar systems that seem to have a certain like gaseous like characteristic and then you know how many times out of a you know in a probability space it would take to make, uh, some organic amino acids and stuff, you know, stuff like that. So this is an equation that people, um, uh, I don't know. It really depends on the inputs, but you know, my real answer is I think close to a hundred percent, right? I mean,

I think, um, the definition of life, right. Is we tend to think is things that are shaped and sized and move at the same speed as us. But, you know, if you look at any system, that's good at perpetuating itself maybe being life then i think we're deeply inhabited by things all around us that are a bit too fast or too slow or big or small or made out of stuff that we can't see that are life forms so i think maybe we're just looking in the wrong place it uh asks this question every single guest about aliens and you would be shocked at least i'm shocked how many people believe there's aliens right like when i was a kid that was not a thing right like it was like all right shut up kid right you know one day you'll grow up and realize

this isn't real I mean I believe there's something out there very similar to kind of how you just described right and and there's most people who has any sort of logical path to get that's why I asked the question right it's kind of what's the logic you use to try to determine a probability is it's pretty cool it's interesting one what uh what one question do you have for me so many things uh let's see um what do you think uh the next most successful company that exists looks like so damn it you're supposed to ask me easy ones um i'm gonna cheat i'm probably not gonna answer that directly, but I'll answer something close to it. So I have yet to see somebody build

an existing large financial institution from scratch, utilizing 100% of all of the kind of work and benefits and technology that is in this industry. And what I mean by that is kind of like your Goldman Sachs example earlier, right? So I don't even know if this is the right approach to get to the end result but i think that starting out as a pure experiment would be very interesting and so if you look at all the functions of an asset management firm or a bank and you slowly walk through every single one of them and you say what is the blockchain or crypto solution to that and just rip out the old and put in the new what does that look like right and i think the easy answer is like oh it's more efficient right all that kind of stuff but what what becomes really

interesting i think the cdp is a great example you can become better at underwriting the risk you can become much better at recovering the collateral right in loans well what does that look like with equities or with maybe um some sort of um you know income generating or yield generating type assets uh things like on-chain um you know equity right where you actually just have like an automated claim on the cash flows of an entity um all that stuff is super super interesting um there's people working on pieces of it right so it's not fair to say nobody's working on it but uh there's the unbundling and rebundling and somebody's going to come along and bundle all this stuff up maybe they're successful maybe they're not but the person who does that um

they'll have kind of an early you know beachhead with the crypto community because they're excited about all this stuff. But if you can do it in a user experience that is attractive to everyday consumers, I think you got a shot to, you know, really kind of change the way that people think about money and how they interact with their financial institutions and stuff. Um, anybody working on it, I'd love to talk to them, but yeah. Well, you know, now that you say that, I think maybe I formulated the question poorly because I said the word company, right. And maybe it's not a company a company can only articulate itself at the speed of pieces of paper and boardrooms and votes on decision making but maybe it's a set of smart contracts logic some human some not

making decisions faster and with higher complexity than a company ever could yeah yeah we um i probably shouldn't say who it is but but somebody uh who i find incredibly intelligent um gave me this uh kind of thought-provoking statement they said what if uh the companies of the futures aren't companies but they're air traffic controllers yeah right and kind of what you're describing of just you basically create some infrastructure and you're sitting there just directing right and you've kind of done it in a predefined way or rules-based way um again i don't know if that's necessarily the answer but but it's it's interesting to think about um and there's probably some potential there whether it's you know 100 that way or a piece of it there's no

reason a human or set of humans needs to be at the top of that thing we uh i tweeted yesterday and uh i had both the positive and negative benefits of twitter come after me um that i said uh algorithms over humans right and you know i full well understand that there's a ton of negative side effects and kind of dangers right with that stuff um but i do tend to lean towards this idea that most of what you and i do we're pretty dumb right and as humans uh machines are better at us they don't get tired they're not biased right the repetition and they're smarter and all that kind of stuff uh but but also um we are limited by our intelligence and machines happen to not only be more intelligent but they can actually learn now and and so if we can start

to apply some of that stuff i think that you know you really start to accelerate uh innovation you start to accelerate um all kinds of you know different industries we just need really smart people working on it right and and so uh that that's the uh the other piece of this is like what needs to occur for all of this to come to fruition and the two things that you know always come to mind for me is like we need time because it's got a right code right you got to do this stuff but two is you know i i think that we've kind of taken our eye off the ball of uh intelligent people right intellectual capital coming into the space 17 we got kind of the first wave of you know the people who probably aren't the you know anarchist type that are going to be you know

2011 2012 bitcoiners um then you've got some people in the middle there who are more computer science right then the kind of 13 to 16 and 17 it was the first time that you know you really saw bankers leave a banking job and kind of come in right or you saw kind of the non-technical silicon valley folks hey you know what i want to go do this and dedicate my career to do it but we need that to persist right and it's probably slowed down a little bit because price and hype and all that but uh if we can ramp that back up i think um those are the things that really matter in the kind of long-term sustainability i agree so long long blockchain and long humans we'll be really bad if i started saying long human short bankers

right the only thing i'll leave you with is have you ever seen uh uh and i should caveat this too i actually think that you know goldman sachs is incredibly intelligent they've obviously you know one of the best in the world at what they do um but have you ever seen uh one of the octopus things like the federal reserve and and uh all these people say about the the banks and everything it is uh long human short the bankers listen thanks uh thanks so much for coming this is awesome uh we'll have to uh do it again as you guys kind of keep going thanks so much man yeah really cool thank you all right guys i appreciate listening to that episode i enjoyed it and i hope you did too

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