The Pomp Podcast - William Quigley, CEO of OPSkins & WAX: Crypto and the Effect of Intellectual Ownership

Episode Date: May 6, 2019

William Quigley is the CEO at OPSkins and WAX Token. In this conversation, William and Anthony Pompliano discuss working at Disney, the importance of monetizing intellectual property, why William's work at Bell Labs Capital got him so excited about crypto early, how video games are monetizing today, and what William sees as the big opportunities for the intersection of crypto and Digital Skins moving forward. ----- 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. William Quigley is the CEO of Opskins and Wax. In this conversation, we discuss working at Disney, the importance of monetizing intellectual property, why William's work at Bell Labs Capital got him so excited about crypto early, how video games are monetizing today, and what William sees as the big opportunities for the intersection of crypto and digital skins moving forward. I really enjoyed this conversation and I hope you do as well. 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. Bang, bang. I'm here with William. We're recording this in Los Angeles and Santa Monica. Thank you very much for taking the time to do this. Yeah, you're welcome. For sure. Let's talk your background, Pre-Opskins and pre-crypto, where did you kind of get started? And then we can get into what Opskins is.

All right, so a really high level, I've been doing venture capital, early stage venture capital. I've done that for about 20 years. Wow. Prior to that, I was at the Walt Disney Company in the consumer products division, licensing. And prior to that, I worked at a consulting firm called Arthur Anderson. I was doing a lot of work in financial institutions. so what was the walt disney company like working there i mean that place is just i think you know most people have the consumer experience either they've seen the movies they've seen some of the

merchandise they've gone to the locations but internally there you know you read these books about the culture and just kind of how magical the experience of actually working there is as well what was that like well i'd say when i was there that was during the eisner years i was the ceo 1980s 1990s uh it was uh it was uh generally uh work work work that's what it was there wasn't it wasn't so much uh there wasn't a lot of fun what i took away from it though was the ability to and what disney does incredibly well is take any property any asset and monetize it infinitely right that's what disney does incredibly well it's the ip almost right it's the ip yeah disney's a is an ip holding co if you think about it that way uh and of course the

ability to make new ip is the is the challenge but if you can do it as when you can exploit that across billions of consumers that's where it's it's tremendously valuable and and if you think about like when i was there in the 80s and the 90s um you know disney's uh initially anyway when i got there disney had no animation studio which is when we think of disney we either think of the theme parks or you think of the animation studio but walt disney pictures was basically abandoned And then in 1989, Roy Disney, the nephew of Walter, decided to release or make this thing called Mermaid, Little Mermaid. And everybody went, oh, wow. Yeah, really well done.

Animation is very profitable. So so my experience there was first in like the planning side of the business. And then I went to Euro Disney. So that's the theme park. And then after a couple of years there, I went to the retail division, Disney, Disney Store. And then I wound up in really the hub of consumer products for Disney. And that was in the merchandise licensing division. And the licensing division is an interesting place to look at because the licensing division takes everything Disney creates. and turns it into a service, if you will.

You know, all the standard characters, Mickey, Minnie, Donald, Pluto, Goofy, each of those can be separately unpundled and can be licensed to the waffle maker, to the T-shirt maker, to the guy who wants to, you know, slap it on a video game. So Disney does an incredibly good job of that, managing the IP portfolio. But it was at Disney where I I during that time, the Internet was born. I shouldn't even call it say it was born. It was around for many, many decades. But the Mosaic browser got released. I saw that. I thought it was incredible. Then Mark Andreessen took that and converted it into Netscape, branded as Netscape.

And of course, that began the the consumer Internet revolution. And so I got very anxious and thought, wow, this is things like this don't come along that much. So I teamed up with two other people and one of who went to a guy named Bill Gross. Bill Gross worked or created something called Idea Lab. And Idea Lab was the the the first of its kind incubator for consumer Internet companies. And Bill, the term incubator wasn't even used, wasn't even there wasn't even a concept for what he was doing. Bill was an entrepreneur, Caltech guy, and he also got inspired by the Internet and said, I want to do an Internet company, a consumer company. But there's too many ideas in my head. So we thought, what if I hire like 50 people and get every one of those people to start one of the companies that I'm thinking about?

And and so was born Idealab. So it was about a year after Idealab was formed. My partners and I went to him and said, hey, what if we could help you finance your companies? Because you're building all of these things. Now, at the time, you have to understand there were no websites or virtually no websites. No VCs had websites. You didn't even know how to reach them, right? They weren't listed numbers. So we're like, you're going to have a problem getting money and especially institutional money.

And like a lot of things, Bill is incredibly fast at seeing opportunities. In a very short period of time, he was like, I think we should do this. So our firm was born. We called it Ideal Lab Capital Partners and raising money for that, by the way, was was very, very hard for people today with the knowledge they have to imagine. Because if you said, imagine if you started a consumer Internet focused venture capital fund in 1996 and you had an incubator that was coming up with great original ideas. And oh, by the way, no one in the world has a fund focused on consumer Internet. Of course, that'd be great. Yeah, I try to raise money for that because most people are like, well, you know, this seems like it might might be like a passing fad. And by the way, you guys don't really have any experience in venture capital and so forth.

So sounds a lot like crypto today. Yeah. Well, yeah. Or especially crypto today is much easier. Maybe crypto 2011. But we we had some early wins and Idea Lab became an astonishing place for coming up with brilliant business ideas. I mean, Bill Gross invented the concept of ranking your searches based on how much you pay. That company is called was called GoTo, the fastest company I've ever been a part of that went from zero to a billion dollars. very, very fast. Of course, ultimately, Google stole the IP and a massive lawsuit, blah, blah, blah, eventually settled for billions of dollars. But they did come out the best, I will say. In fact, I'd say Google does a very good job of stealing things and monetizing them.

But we did very, very well. We really focused a lot on what at the time was odd, which was free services okay you know free internet net zero you know free free music free music.com and a lot of other things which turned out to be very very practical so i did that for about uh through about 2010 okay and the between 2000 and 2010 for your audience who know about venture they will understand uh my point of view but it was a tough time for for venture capital yeah you had some good companies built during that time but there was you had the dot-com bubble crashing you had the telecom bubble crashing you had the financial crisis um and you really didn't get the impact of mobile until uh the teams right so it was a

tough tough period basically only real interesting innovation during the time was web uh 20 which is basically social yeah i was gonna say even like facebook at the time kind of end of 2000s that people are questioning can they make the transition to mobile right and there's a whole bunch of you know the companies that we think of today one of the few companies that did and there's a great lesson which we won't talk about in this podcast but but um whenever a new transformational technology appears it is almost always the case that incumbent companies in industries that could used at tech don't exploit it it's new companies that pop up challengers in my in my space uh where i spent a lot of time the video gaming space you always see this every new platform it's a new group

of people because the incumbents don't really want to take the risk uh it was about to get to crypto um uh i was in the 2000s i was on the board of a company that um allowed people it was a marketplace that allowed people to buy and sell virtual items. They weren't crypto. They were video game virtual items. The founder of that company was the inventor of the concept of trading a virtual item in a game for fiat, you know, for money. And so I found that very intriguing.

I got involved with the company, got on the board. The company was sold. The founder took some time off. He was a technologist. His name is Jonathan. uh and uh in 2010 jonathan uh learned about bitcoin and he poked me and one of my other partners to to dive in and we had no interest quite frankly and one of the one of the other things about being a venture capitalist is uh you have scar tissue and the scar tissue is from

prior deals you've done that didn't work out. And it's a crazy thing because you know, logically, that they might have been good ideas, but executed poorly. But you just get sour on the concept. So a concept I was sour on was magic internet money. And in the 90s, there were a couple of companies that tried to and did create their own currencies and tried to popularize them. And that was needed because of this desire we all had for micropayments. And in a nutshell, the concept of micropayments is somebody can sell you something, maybe viewing a piece of content, maybe a little game that at a price so low that you would pay because it's not much, but also that could be efficiently done through the existing payment networks.

And Bitcoin and payments, of course, are very closely aligned, though they're not completely the same thing. But what your audience should know is that it is very expensive to do a transaction, you know, very expensive. You couldn't do we all dreamed, oh, five cents, 10 cents, 25 cents. if you've ever noticed no companies online allow you to buy something for 25 cents the reason is because the the the discrete payment event is too expensive it has to be above a certain amount to make it justified so um i was sort of interested in in in um payments these uh micro payment

companies in the 90s they turned out not to work out so well mainly because people were like yeah but we're giving you all of our money and you're issuing us these little tokens and uh there wasn't a blockchain there wasn't a decentralized ownership structure where we didn't have to give all the money to one group and hope that they're going to keep it and manage it and so forth so um it took me a couple of years until i was in singapore i was talking to a gal who was running another video game, Digital Item Marketplace. And she asked me, hey, what do you think about Bitcoin or thinking of using it? And I came back to U.S. and I thought, you know, that's the second smart person who's really pushed me on this. So I called up my former partner,

Jonathan, and said, hey, give me one more pitch. And after a couple of hours, I was sold. And from that point on uh uh he and i and a third partner uh did nothing but crypto really i did nothing but for crypto for probably uh yeah all of 2012 13 14 15 called about four years okay and uh uh so we had a um we did everything crypto we invented new crypto concepts we uh we did uh we launched crypto payment processors, crypto debit cards, crypto wallets, anything that you could see in the, let's say, like the traditional world, the internet world. If it existed there, we considered doing it again, but in a blockchain based model. And it's interesting you say this because I talk a lot about many of the companies that appear to be successful today. And I think areas that I'm

excited about moving forward. They're not necessarily new business models. They're not necessarily new mechanisms to conduct transactions, et cetera. It's just being done in a much more digitally native way. So there's been exchanges previously. We now have these digitally native exchanges for digitally native assets, right? Payment processors used to be fiat currencies. Now we can do it for digital currencies, right? You just can go down the line and you see every single one of these businesses just being rebuilt in the digital world. I actually think that's a really very it's a very simple idea but it's powerful when you start to say okay well what hasn't been digitized yet right how do i go build a business that just takes the models that we know

that work just in the digital world right yeah so whenever you have a new platform you have you have the the privilege of doing what you just said it's like you move to a new undiscovered territory. They need roads. They need hospitals. They need schools, right? They need factories and everything else. And you just rebuild it. So it doesn't take much originality. You know, that's that is a privilege that's quite rare. We saw that at the dawn of the Internet, right? You have a mail order catalog. Well, kind of the first e-commerce sites are pretty much just mail order catalogs right so i call that concept uh uh a paving over cow paths right there's an existing cow path you just pave it over and make it a little better right well uh that is essentially

what we did uh for the first like three and a half years we just took existing concepts that we knew were working and said let's uh build one with a blockchain uh backbone and and and one thing i would say about that is we did also apply another test which which even to this day is not done enough and the test is um how will a blockchain make this experience materially better for the consumer so what you will see a lot of of course is people who say hey i can do this with the blockchain so i'm going to but generally speaking applying a blockchain to an existing business makes that business worse because there's only a handful of things today for which blockchain is good and it's it's a bad approach for a lot of others so you do have to be thoughtful

about that and we were and uh uh the only other thing i'll say here is that in um mid 2015 we uh started to feel like well you know there's lots of money you can make and and it's exciting to work in this new platform the consumer adoption wasn't happening not not the way we saw with the internet and so we started to think about how that might be accelerated and what do you know we thought wow you know there's another industry where people also have virtual items they store them and they trade them and they trade them for money and there's hundreds of millions of people who do that and that's the virtual item trading industry in the video game business so we're like why don't we go and apply this blockchain stuff to that this is really important right because uh

one thing that i talk a lot about when we talk these institutional investors is um what we're talking about is three things when it comes to the blockchain or crypto world today right it's Digitally native assets with digitally native accounting, which is a blockchain, and then digitally native contracts, which is programmable smart contracts, right? The digitally native assets we've actually had for a long time, right? Music files are digital assets, right? You know, skins, all these different things are digital assets. The problem was we couldn't have financial instruments as digital assets because of the

double spend problem, the ability to duplicate computer files, et cetera. Once we had the blockchain, now all of a sudden those digitally native assets can be financial instruments or they can be non-financial instruments. And I think that part of the assets in video games are their non-financial instruments that have a value and people are willing to exchange monetary value for them. But you don't necessarily need a blockchain, but in some cases you may want one. Right. And I think that understanding when to apply it and when not to apply it is almost as important as being able to apply it. Yes. And what I'll say about that, because it's an important point, is so you're right. In 1998, my partner, Jonathan, traded a Ultima online virtual asset for cash. And so you're like, well, it's a digital asset. It went between accounts.

People got fiat money for it. Well, wow. Isn't that just like crypto? Well, the difference is, and you talk about music, this is in the same category. For most of the world's digital assets, they're in centrally controlled repositories, right? So a music licensing company or a music distributing company like like Amazon or Apple, they control the terms on which you can engage with that that digital property. Yeah. And they don't like you reselling it, for instance. And oh, by the way, you don't own that when you buy it, you license it. Almost all digital assets in the world are licensed. And even applying the word license is an insult to the word license because these licenses are so restrictive.

And so now what's happening is the blockchain comes along and it says, If you use this blockchain platform as the creation tool for these digital assets, then there is no central authority who owns them. And you, as long as you have your secret code and you can access it, you own that thing outright, no license to do what you want to with it. So that is the big contribution the blockchain provides. It is a way for people to truly own these digital assets. So the venture capitalist person in me says, OK, so what do I think of the future of digital assets? Is that a growth industry? And it is. It's very much a growth industry. Just think about one little sliver of this globally, which is the video game industry.

You know, 10 years ago, the market for in-game virtual assets, trading those things, and there were a few companies that let you trade them. Most said that's a violation of our license, but it was about $10 billion, right? And today, 2019, it's it's 50 billion dollars and growing very fast, very fast, just the trading of those digital assets. And so now that we can put them on platforms where if you own them, they're yours for as long as you want, they're not a license, you're much more likely to buy something and to want to own it if you know it can't be taken away from you. And so this is the thing I think that's going to really be helpful for the video game industry. Initially, of course, like I said earlier, anytime a new transformative technology gets introduced to an industry, the incumbents say we're doing fine, thanks. And they try to ignore it because who wants to have to learn some new thing and whatnot? And because it probably means they're going to have to modify their business model.

People don't want to do that. So what is happening today is you have thousands of little developers, small little publishing studios that are saying we may be existing businesses, but, you know, we're not top dogs. So why don't we take a chance with this new tech and maybe something will happen the same way? A lot of small developers in 2010, 11, 12 said maybe we should try building our game in a mobile environment. And, you know, what do you know? They could be very, very big because you don't have a whole bunch of entrenched, big incumbents trying to get you. So what we're seeing right now is thousands of small video game publishers experimenting with the blockchain as the place where they're creating these digital items. We thought this was going to happen. We initially in 2015, when we were trying to find how can we kind of get involved in something that's going to push the mass market adoption of crypto. And as I said, we thought a very good fit would be doing something with video game virtual items.

So initially we set out to build a marketplace to trade video game virtual items built on a blockchain. Eventually, we decided, you know what? Why don't we buy something or partner with somebody? We partnered with two young guys who had built something called Opskins, which was a marketplace for buying and selling video game virtual items. And the more we looked at it and evaluated, the more we said, wow, this is a really good platform. We ultimately wound up acquiring it. We run it. And as we have been running Opskins, we started to say, all right, what are the building block tools that we need to create a blockchain-based kind of decentralized version of what Opskins does?

So let's talk about what Opskins actually does for the people that don't understand. And then we can talk about how you kind of unbundle the different components. So if people are familiar, there is a marketplace. It's called eBay. And eBay allows you to list an item up on their site and then either through an auction model or just by setting a fixed price, people can go up to the site, say, yeah, I'd like to buy that. The seller, you contact and the seller sends you his goods and so forth. So eBay basically empowers the ability for the buyer and the seller to connect for the purchase. And then eBay leaves it to the buyer and the seller to coordinate the logistics of transferring the item.

Yeah. They're a matchmaking marketplace. And so Opskins is like eBay, but for virtual items. Right. So instead of it being, I don't know, a Pez dispenser, we sell a video game virtual item and sellers go and list all their items for sale. Kind of just like eBay, except our items are digital. Buyers come say they want to buy it. And the only difference between us and eBay in this regard is we actually handle the payment part of it. So you pay us and then we take that item and send it to the buyer and we give the money to the seller. So let's talk about the types of assets, right? Because I think people hear digital assets, they hear skins, right? But they don't actually know what that means.

Walk us through those sellers that are putting items up. What exactly are they selling? Yeah. So first, if you're if you if you're all familiar with video games, you are often video games, not always, but often you will have a character when you play and that character can have different attire, right? different shoes different hat jacket or whatever uh you can actually buy from the video game company that attire right and uh sometimes it might be a magic sword sometimes those uh virtual items have some utility value in the game that allow you to do something better in the game jump higher run faster whatever and so just so i'm clear this means that i have a character in let's say a kind of a first shooter game right so my character is running around shooting at

something i can have them have a green shirt a blue shirt you know kind of just the just the aesthetics can change or i can have them hey you can have a sniper rifle or a handgun or a grenade launcher right kind of different functionality to the accessories but also there's things like you could get a shield and that shield could make it harder for somebody to shoot you right makes you better at the game right there's kind of different components from the clothes they wear to the items and accessories that they have to actually different functionalities what you're talking about right so this this next concept is difficult often for people to to comprehend but i'm going to try which is you did a good job of explaining that there's two types of virtual items

those that are strictly of cosmetic value you know it's like the tie you wear and then there are those that provide utility the sword when back in the 2000s when i was involved with the the first video game marketplace almost all virtual items were virtual items that had utility value oh interesting right utility value they made they allowed you to do something better in 2012 ish um somebody said hey um very very smart somebody by the way said we're selling these virtual items that give you all these capabilities um what if we sold you virtual items that just changed your appearance all right no utility value just simply preference of the person who's playing the game i want it to be a man i want it to be a woman i wanted to have a

red shirt a blue shirt a green shirt or no shirt yes so i'll just say this when i discovered that it blew my mind and i said to my partners whatever the size of the market for items that give you utility the size of the market for things that are of strictly cosmetic value will be orders of magnitude bigger yeah and the reason is simple the reason is that um how many lawnmowers do you need that's an object that gives you value and utility how many i don't know snow shovels do you need right how many cutting boards you need things that offer utility value you need one of maybe a spare but you need one of now i ask you uh how many ties do you own now you say well i need a thing to wrap around my neck and hang in front of my shirt right but why do we have

a hundred of them i don't know they all provide the same utility they just look different yes how many t-shirts or for many of us how many shoes do you have right you need to wrap your shoes and make them warm when you walk out then why do you have a hundred of them why do you have 200 of them because these are things that allow us to express ourselves and humans have an infinite like desire to continually express themselves there's uh one standard for like measuring time but many people have hundreds of watches right so it's it's that part of it in a advanced capitalistic society where we put a lot of our time and energy so the most valuable virtual items uh in video gaming are ones where a they are cosmetics so they had no value of from a utility

standpoint and b they're they're rare and then the closer you go from rare to one of a kind that's unique uh often the higher the value so there are items that may go for twenty five thousand dollars to fifty thousand dollars that we sell these are literally just what you you called skins so instead of calling them virtual items uh the industry and i i like the way we developed this parlance virtual items that have utility we call virtual items okay virtual items that have no utility that are strictly for cosmetic value we call skins and that makes sense right you change your skin and so skins themselves are tradable and and what you mean by that is uh you have a character in a game and you make them put on a red jacket that has some

special signature on yeah if you want to be practical i would say it's it's mostly the skins a lot of them tend to be what you wrap your weapons in okay okay explain that more okay so you will have an olive drab appearing m4 rifle okay like a military rifle olive drab saw car then someone comes along with a really cool like red and blue designed uh artwork right gaudy generally looking um well depending on the color scheme depending on who designed it depending on how rare it is that might be worth ten thousand dollars you might have a karambit a knife right or dagger and uh there may be some emerald sparkling emerald color pattern right that might be three thousand dollars it's the same thing that we see in the real world right

people want to make their gun look special or they want that really rare knife that has some story behind it now it's just happening in the digital world not just in the analog world yeah it's i i have a lot of fun with it when uh people who are not video gamers uh uh are questioning me about this and how can this possibly be and what i usually do is i look and i'll say well you've got a a thing it's a it's a little object on your finger uh that's a diamond yeah okay uh what does it do for you does it make you run faster does it make you smarter that doesn't have any value whatsoever from a utility standpoint no uh but uh there's some non-physical value there i guess some some emotional value sentimental value uh you can't it's not physical it's just

sort of like it makes you feel better and that thing has tremendous value to you so we see this all time shoes right i mean look at the sneaker craze going on right now thousands of dollars for you know putting something on your feet that you could probably spend ten dollars for but that particular one is of a certain brand a certain rarity a certain color pattern and uh so that's that is here here's what's interesting uh years ago uh video game companies made money by making video games and selling them okay and that most of your audiences say yep that makes sense right so then a concept was born first in asia called free to play free to play free to play meant you you they gave it to you for free but while you're playing if you want to look cool

you can buy some skins if you want some magic powers you can buy some virtual items so um i i don't know the exact numbers but suffice to say maybe 10 years ago the video game global video game revenues was 25 billion and now it's 150 billion wow globally annually and um that that alone is the size of the crypto market to some degree right yeah the market cap and and further the uh 100 billion of the 150 billion is virtual items and skins wow so you can just yeah you can see so when we when we talked a little bit ago about like where are virtual items headed and why might we be interested in investing in tools and blockchains that can make uh you know trading and holding and creating virtual items better it's because we're seeing in these little pockets

massive value being shifted from traditional real world assets to the non-physical and uh the the millennial generation i think really went in big gen z now is doing it even more what we're seeing is more and more value uh and this goes from by the way from video games to fortune 500 companies uh in 1970 i think uh the the value of of the s&p 500 was if i remember right about 85 of the value of the s&p 500 was physical things plant equipment um today i think about 16% of the value of the S&P 500 is physical things. The rest is non-physical. Yeah. That's a crazy set. It's software licenses. It's intellectual property. It's the value of contracts.

So part of the reason why I love doing this podcast is because I get people like you who have these very, very deep expertise and knowledge in certain areas that I know little about. So I'm going to go really deep down the rabbit hole, just out of personal curiosity. But when you talk about some of these skins has a market developed around like the artist behind the skins right we see in the physical world you know a picasso is worth more than something else right or some artist gets a premium do we yet see uh oh you know william created these skins and therefore there's a premium or has that market not really developed around who the creator of the digital skin is it definitely exists okay uh so cleg fx uh chris lee he is uh one of the world's top

skin designers interesting and uh he he's designed stuff for us uh and yeah if uh cleg fx designed something right away it's going to be considered important or special right uh because it's just like anything else there's certain people who have a way of things right uh it's like nike right you have a pair of sneakers i got a pair of mine has a check yours doesn't somehow mine are more valuable absolutely so as it turns out chris uh lee uh also designs patterns for nike for uh for the streetwear and and you know streetwear and crypto are coming together Absolutely. All of these these like consumer trends are finding their way onto the blockchain. But, yeah, to answer your question, it's not as much as you would think just yet.

Mostly what it is, is it's the video game company laying out sort of a template and saying, hey, this type of skin is going to be rare and is going to be done maybe by certain really qualified artists. But you're more looking at it as the the video game manufacturer. You don't see as much independent people who just create a skin and say, look at this. And part of the reason for that is because what we talked about earlier, these video game companies are mostly closed gardens. You know, they're walled gardens. I can't generally make a skin and say, hey, why don't you, Mr. Video Game Company? use my skin why don't you support it in the game yeah why don't you support it uh we at wax are pushing that concept got it and then what about um do we see the reverse right so what we just talked about was a independent artist creates a skin and then they get some premium because

they're the ones who created it what about the opposite so disney says hey we're gonna take our uh mickey mouse and we're then going to license it into some skin format that then is used in video games or have we not seen the kind of traditional ip actually get licensed into this format yeah i mean you saw that i think uh uh was it a fortnight did a collab with uh uh with uh uh uh marshmallow uh marvel and okay thanos right so you you see that but that is we are light years away from that and and of course what we know just from capitalism is when you start to remove these artificial barriers and people are free to collaborate and mix and mash uh you create way more interesting things we're not there yet because today most video game

companies are are built um as uh as closed stacks and so this gets back to blockchain so building elements of your video game with blockchain technology uh where you can and invite people who have uh virtual objects designed independent of your game to invite them to come in and use that in your game that is a it's a it's an attractive proposition to a lot of video game people um i think it's even attractive to some video game developers who are more experimental but we are still waiting it's kind of like when you know when the apple first came out with the the the app store uh there was no streaming right you were taking and buying those songs and that in itself was almost a heretical event unbundling from the lp you know uh the individual song

um to go from there to streaming even harder this reminds me i recently learned about and i should caveat all this with uh i used to play lots of video games as a kid but over the last decade or so have not played nearly enough to be well versed in this but one of the things that somebody recently explained to me that i found fascinating is in fortnite which is you know one of the most popular games in the world they have this creator mode and it's basically you can't bring things from outside of fortnite into fortnite but you can go in and they've provided tools for people to build different landscapes different structures right they kind of can create some ip or customization within the game and so it's still locked in that closed system it sounds

like but that is it almost feels like inching towards this idea of empowering people to create and really build things that they find interesting with tools that are provided to them video game people are really good at ripping off other people look at that so what that is is that's called fortnite meets minecraft right that's just yep they saw the minecraft mechanic they're like oh for your audience doesn't know minecraft think of it as like lego building blocks in a game you can kind of construct stuff uh they thought that was cool and uh video game companies also are incredibly risk averse when it comes to new mechanics okay so they wait till they see one guy do it and he succeeds and then they're like oh let's copy they all do it right but i i see

your point it's like well they're allowing some creative expression on the the player's part to do something in their platform yeah well the reason why i think it's interesting is so my understanding is today if you go in and use this creator mode or whatever and let's say you build some you know really interesting fort right or whatever you build some some building structure you get to use that in your experience and then if people play the game with you they also can use it but in that world imagine if the structure you created you could then sell to other players and say hey do you want this thing that i built right and you know you just pay me and whatever whether it's the fortnight vbucks or some other form of payment all of a sudden you know i'm fascinated

by the idea of giving people tools right so if you think of uber we give somebody a mobile app they then have a business right imagine if we could just give these creative people a tool to then build digital creative you know assets and then they build a business out off of it right And it's just feels like that could be very, very big. Yeah, I think there are some companies that embrace some of those concepts. And there's another version of this. It's you remember, I'm sure, a game mods. The concept of a game mod is where you modify the game, where the publisher says, hey, you can take the game.

And you know what? Put that software on your own server. And here's an idea. Make gravity point five of what it is, you know, now. And so people can run faster. They can jump higher or whatever. And you screw around with it. So certain game publishers over the years have kind of promoted that. And, you know, you're not messing with the main game. You're just taking a copy of it, if you will, putting it over here and doing your stuff, right? Kind of like forking a blockchain while you're sort of forking a game. So there's elements of that, and I always like when video games allow you to do that. But blockchain, of course, is a whole nother level where the the objects used in the game created, maybe even in the game, you are free to take and do what you wish with them. Now, we've done that with wax, for instance. So we created virtual items and skins.

They just have cosmetic value. And we work with a couple of companies. uh these are all like alpha stage really early stage but uh they can take those if you have a cool looking uh you know a camouflage skin for your weapon you can bring that camouflage skin into the game and put it on another weapon in the game now if you if you happen to have spent a thousand dollars on that thing and it was made by uh chris lee and people note it and in video gaming like in the real world your social status is often marked by what you are wearing you know the skins you have so being able to port those from one game to another uh most video game people would say that'd be incredible yep uh so you can do that on blockchain uh and as i said it'll take

a while for many of these companies to open that up if they ever do and so i'm gonna go to an extreme example if i think what you're you're getting at so if i play uh a first shooter game i've got you know whatever my outfit is right it's a very specific look i then could take that same character and bring it to a sports game and i could play basketball with that same character i don't think that would happen okay all right you can take you could take your wardrobe that you dressed that character with the hat the gloves the pants the shoes and then maybe go into another game now yes uh uh that's that's more likely it could be that you could bring your character but you can understand that it gets very complicated in the game mechanic if if that character isn't

accounted for yeah well so here and again uh this is me going really deep down the rabbit hole but if you take uh the technology out of it so let's just say we can wave a magic wand and make the tech work right just from the structure standpoint uh if you look at something like a bitmoji right where we basically you digitize yourself to some degree and there's some preset things right so you're holding different signs you're having different emotions all this stuff you might want to say what bitmoji is yeah well so bitmoji is basically an emoji but it's of yourself instead of it being the um the default uh things that you get in your keyboard it's basically of literally a picture of you doing the same things a close approximation as good of an artist as you can

make it right but but it would be very interesting if you could have a digital representation of yourself and you could play as yourself in fortnite or then you could go to a basketball game and play basketball as yourself right and kind of continue to uh go in and out of these games now to your point there's a lot of incentives that may the game developers may not want you to do this right there's a lot of things that from a technology standpoint may make it difficult to actually do um but when you get into this digital world there's a lot of possibility right yeah i just it feels to me kind of as an outsider looking in we're in the very very early days of this and it's going to take years for this stuff to develop until you know what i think a lot of the ideas

that are floating around today yeah yeah for sure i mean i i uh as a venture capitalist you really have to look out really 10 years, right? You have to say, because it's very hard to build things. For anyone here listening who's an entrepreneur, I mean, five years goes by very fast. You don't change much in five years. So you got to think like 10 years plus. And if you start to think in that time horizon, then you can start to see, you know, this should be possible. The processing power should be high enough the connectivity rate should be high enough where we can do because most of the interesting stuff is being done with massively multiplayer online games where there's a million people playing across the world and these they're almost like virtual countries so

you can you can start to imagine a lot more technical abilities to do the sorts of stuff that you can dream because it's very easy to dream it up it's hard to actually do it with current technology, a lot of the stuff we want to. So I think when I look out like five to 10 years, I think a lot of the stuff we're talking about will be in existence. You will have groups of game companies where a lot of the virtual objects are interchangeable. You will have and this is the more important part a culture where um it is uh it's fine for the consumer the video game person to actually own the virtual items that they spent good money for right and i can already see it uh where people are like wow i can i own my bitcoin i own my

ethereum or i own my wax and that's digital and that's that's transferable and uh has recognized value so tell me why again why i can't own my virtual skin that i use for putting on a sword like it uses the same technology the only thing different there which of course is everything but the only thing different is business model and what you find with um what you find in uh in and business and and all i think this is true globally is any any business can adapt to the introduction of a new technology it might be hard whatnot but you can they can adapt to the introduction of um of new competitors and they can adapt to even new regulations those things are all uh survivable but it looks like the introduction of a new business model is it's really like an

extinction event it's very hard for existing businesses in an existing industry with practices that they become accustomed to to adapt to a new business model usually it uh it wipes out the incumbents you know and you see this again and again and again and so one reason why i absolutely have have sympathy for any industry that's looking at let's say the blockchain as a technology and thinking that's interesting and we can see the value it might bring but what are the risks to our existing franchise if we adopt it and and we all know the rule of unintended consequences Right. It's a scary thing. And and so we could all we have to do is look back at the Internet and in fact, you know, ask people in the music publishing business. Right. What happened when people were free to transfer their MP3 formatted files using Napster and these other peer to peer systems?

Well, it basically devastated the industry. Now, it doesn't always have to be. So I mentioned I used to work at the Walt Disney Company. Well, a few years before I got there, this thing called VHS and Betamax. you remember the little video cassettes that that technology was created and the original view of the movie studios was we must stamp out this technology can you imagine people will be able to record on their tvs our movies and then they'll be able to watch them they'll never have to go into a movie theater and in fact the studios came together and they sued sony right and said sony you're the maker of i think it was vhs uh you're gonna wipe us out and uh they lost uh and uh the funny thing is when i was at disney the most profitable uh part of the business was uh dvds and vhs cassettes amazing right i mean uh i remember still when uh the bambi

a movie was re-released that disney at that time re-released the movies every seven years uh i think it contributed like nine percent of our quarterly income that that that release so there's an example of a transformative technology that all the incumbents feared that you know god forbid now if they can't sell their movies to netflix or to at the time blockbuster that was a major blow um and even the internet it could go both ways too it brought lots of efficiencies i have always felt like the um a lot of incumbent industries looked at blockchain uh not necessarily as this is dangerous but as we don't know which way it could go so we'd prefer not to support it yeah the thing to me is it's the innovator's dilemma for sure right it's just you're addicted

to something that's working and you think it's going to last forever and no matter if you know about the innovator slumber or not you just succumb to it almost every time um the part to me that is so interesting is uh actually companies like disney in my opinion um they've seen the idea that the technology they use is not the defendable thing right if you think of it's the ip right so Mickey Mouse, whether Mickey Mouse is in a stuffed animal, is physically walking around in a costume at the Disney location, is in a movie on VHS, DVD, streaming, etc. Mickey Mouse is the valuable asset, and then it can take all these different formats, right? That's right. And so Disney is actually the perfect example of understanding as technology evolves, we're going to take our IP and we're just going to apply it to new technologies.

Now, if you go and you look at a whole bunch of technology companies, they actually get addicted to the technology and they lose sight of that new technology is simply evolutionary. And if you could just hop from technology to technology as they become kind of the latest and greatest, you have much more staying power. I mean, Disney has been an incredible company for a century. Yeah. Right. And and it only seems to be growing bigger and more powerful and kind of just building Fox, building the boat. Absolutely. And it's just I really have started to think about this idea that blockchain technology is an underlying tech is important, but it's what do you how do you apply it? Right. And I think that this digital world, right, all the video games, the skins, et cetera, it's misunderstood by a wide degree of people. But it is the perfect place for the integration of blockchain and an application because all you're doing is you're not switching out the underlying infrastructure. And when you switch out that infrastructure, it actually empowers what people already want to do.

They just previously have been stopped from doing it, right? So this idea of like, now you can own this asset, take it across platforms. You can take it in and out of games, right? All of this stuff, the tech's here now. Now, whether the video game developers will allow it, right? There's a whole bunch of things that have to happen for it to kind of reach mass adoption. But things that you think, you know, you guys are working on with Opscans and Wax is empowering something that is pretty powerful.

If this thing comes together, how I think, you know, you believe it's going to happen and I'm increasingly believe will happen. Yeah, I'll make some comment on what you just said, which so I tend to agree, though, that in fact, I hate when when when we categorize companies as technology companies, because virtually all companies, depending on how you define technology, I mean, a lead pencil is technology. I was going to say a piece of paper is a piece of technology. Yeah, we're all in technology companies. But yeah, to embrace a particular technology, hey, I'm a Flash game developer, right? Or I'm a iOS or Android game developer. I think that's where it gets dangerous. Because these technologies always evolve, new ones come along that are better. And you need to be contributing something other than the mechanism that the technology uses. And a lot of us VCs as well, we get sometimes really caught up in the tech and lose sight of the fact that the value in all of the greatest companies on earth has very little to do with the technology. In rare cases, maybe you've got Qualcomm, which has a great franchise for its WCDMA licensing. But for most part, it is the culture and it's the people and it's the way you have integrated the business model into the system to to to extract value.

And so because of that, I've wondered I wondered why it was taking so long for blockchain technology to get adopted. And we as a society and as societies across the world, we've gotten pretty good at migrating from one tech, you know, flash to another mobile. Developers are pretty quick to get retrained and learn the next thing. Blockchain itself, it seems like has been like a pause button push. So why is it taking so long? And I think one of the challenges is because blockchain is so, so different from everything else that most people, developers, business people are used to when it comes to some new piece of technology they want to incorporate in their business. it's different because the tech itself is very basic, right? It really is. It's essentially just saying we've got a giant database, almost like a spreadsheet, and we are going to allow

people to move around objects from one account to another. The concept is very similar to a lot of other things we do. The part that is hard to really get your head around is we rely so much on trusting other parties when we do things. There's usually a central controlling authority. That authority has a right to move the ledger. You trade your stocks on NASDAQ. NASDAQ provides information to your broker at jp morgan there's a ledger that some group one group is is changing and so what's what's what's um hard to to deal with when you think about blockchain is uh anyone essentially is allowed to update this ledger and you don't have to know them you don't have to trust them you you you don't have to have any relationship with them they just have to abide

by a certain set of rules, rules that anyone is allowed to read and to download on a machine and start to do. And it's all of these individual actors working in their own limited self-interest. In the case of Bitcoin blockchain, you get you get coins for doing work that doing all these things separately winds up allowing us to be able to rely on this central ledger for moving things back and forth there is no one you know uh entity that's saying this is now the controlling authority of what happens and i think that as i've i've been at now for seven years i think that is the toughest part to grasp the tech itself and we conflate it sometimes we say oh this blockchain

technology it's new it's novel people have to grasp it no the tech is is simple it's it's how the underlying mechanism works it's this protocol for uh uh eliminating trust in the transaction and and um it's not that you don't trust people it's it's that uh the need to trust people goes away. You need to simply trust the math of the way the system works. And I think that's one reason why it's taken a while. Once you get it, because remember, humans, I think humans are very comfortable with centralization. If you look at just capitalism, capitalism really likes centralization because economy is a scale, right? And network effects. And so what we see is throughout the entire world, bigger businesses tend to get bigger. And it's especially true in

the digital age where you don't have all these frictions that you have in the real world with building more factories and whatnot. I think what we're going to wind up seeing as time goes on is more businesses saying, OK, if I did think about my business as one where I didn't have to be the central trust merchant, I could sort of parse that out to third parties. Maybe I could scale faster because for people to trust you, we have a word for it in modern cash when we call it brand. Right. Brand to me is really just about trust. I trust that I know what you do right your jp morgan or your amazon or whatever your caterpillar tractor i know you do something you do it well so um you can eliminate the need for brand all you have to do is just the

actual activity what's nice about that it means the barrier to entry to run a business can go down because you don't have to spend a billion dollars creating a cool consumer brand right You can just say this. We do this activity for you. And you don't need to worry that, you know, we're not Amazon where everybody has faith that they're going to ship you the package. And if they don't, you can return it and whatever. Well, you don't need to even Amazon spend a lot of money to to to earn that privilege with consumers. You could you could see the entry points being much lower in terms of what you have to pay to get there with the blockchain, because it's crazy. the thing most people are most concerned about is is their money right and think about if you were going to try to experiment in this system uh if you and i were thinking it up we would probably do money last maybe we would have done a blockchain that gave people gift cards or or

our you know holiday cards or something and and we would get some money way down the road of course uh but instead they started with money and it's like it was great though because it was like hey if you can trust your money on this thing what about putting your supply chain records or you know other types of everything else is easy everything else is easy escrow whatever it is so um and and i think i can say as of right now that that lots and lots of people do have that degree of faith in in the bitcoin blockchain and now of course uh other types of blockchains wax for instance, uses delegated proof of stake, which is a type of consensus mechanism that doesn't work the way Bitcoin works.

But because of delegated proof of stake, what we call DPOS, because of the DPOS mechanism for validating transactions, it's much faster. So in the in the in the crypto world today, as you know, there's there's two kind of races people are going down. One is how do I get transactions process faster and how do I get transactions process cheaper? Yep. We the next way that we're evolving to do that is with what what we call consensus mechanisms. So different ways to confirm that a transaction is valid. And this is proof of work, proof of stake, delegated proof of stake, DAGs, right? The whole amount of ownership.

Yes, there's a whole bunch of them. I like the delegated proof of stake concept. It's working in several chains. It's working ours. uh uh there's no doubt i think right now anyway that delegated proof of stake can get you transaction speeds that they're they're not at the full-blown like big commercial scale that we all eventually need to get to but they've gone from kind of like test tube type transactions I mean, you know, Bitcoin and Ethereum, they're measured in like five, 10, 12 transactions a second.

That that doesn't work for big businesses. So, you know, DPOS can do hundreds. We'll get to thousands. In fact, as I think about my investment career, when when we first laid out our our our desire to invest in in Internet, we right away said uh we can't do all internet it's too big we'll do consumer internet and i remember going to people and they were laughing and they're like this internet thing is nascent it's tiny and you're gonna subdivide it further why and we're like wow because we think it's gonna need to be as it as it grows that segment ends up being pretty big yeah and you have and you have an expertise in that one yeah yeah you're seeing that in in crypto now so some people call themselves uh crypto or blockchain experts i always say wow uh it's hard to be an expert in

in all uh but you're seeing now branches we're focusing now on e-commerce blockchains some people are focusing on blockchains that do supply chain others that are doing just financial transactions and payments so uh you're you're starting to see uh this splitting off i imagine in a few years you might even see within a separate category like video gaming there'll be guys who focus on virtual reality those who focus just on on uh trading and whatnot what do you think is um kind of the 10-year outlook for what i'll call is the intersection of blockchain and uh this digital gaming world right so as these things are coming together i think we're seeing the very early days of the two worlds colliding uh you've been at this a while now and so where is this like 10

years from now i would say this game video gaming itself is a while it couldn't be big it's a side show right and so when we built wax video gaming to us was a really good use case to demonstrate how uh an existing business can benefit from adopting a blockchain technology but uh in 10 years uh what i see and that's about the time frame i'm i'm looking at when when we started to build wax he said look guys i think it's there's a it'll go on for a long time probably well past the time i'm dead but um there's one discrete period the next 10 years that looks really interesting. And what I see is a conversion of three forces. E-commerce globally, more and more of what is done in e-commerce is digital. I would put video gaming as a subset of e-commerce,

but there's many, many other things. Anything that's non-physical, like music, as you know, lots and lots of non-physical things. So you've got e-commerce, cross-border e-commerce in particular cross-border digital e-commerce you have uh the concept of trading which uh is is prevalent with about 500 600 million people globally those are video game people who own these in-game virtual objects and a big part of the of the communal experience of playing video games is trading these items back and forth um so i see e-commerce trading and blockchain so it's at the the the meeting points of those three things where i see the most interesting projects being born because so much of what blockchain brings um is evident with cross-border trading uh the

The biggest impediment to consumer cross-border trading, even for my video game business, is you've got a guy in Germany who has a desire to buy a virtual item from a guy in China. So and it's a $10 item. All right. So for anyone who knows anything about cross-border payments, trying to send a $10 transaction to somebody in another country where you need to convert currencies is going to mean that that transaction amount better be pretty big because after fees, not a lot is left. So one of the challenges that we set ourselves for at Opskins was we said, hey, if we can allow people to trade $10 items back and forth across borders, doing the currency conversion and leave the seller enough to where it's worth him doing it, we're going to do really, really well. That was the problem we solved. We solved it first doing a lot of incredibly expensive bank setups and whatnot, special deals with different payment processors. It's very expensive to do. But now imagine when you're doing these cross-border payments where the currency does not need to be converted because Bitcoin in Germany is the same as Bitcoin in China. Now, if you could convince the video game owner in China and the video game guy in Germany to accept and to use this, then it's an incredibly efficient thing. Well, it's the whole belief that, you know, Bitcoin as the digitally native currency, right, or the native currency of the Internet, and the Internet is a country that has 4 billion people in it. And it doesn't matter where you physically are, you know, located. It's just on the Internet, we all live in one country called the Internet, and it's got the same set of rules. And that currency has a native currency, right, that is called Bitcoin. And if we can get that to become mass adopted.

It won't be Bitcoin. When I created with my partners, we created a thing. Now they call it a stable coin, if you've heard the term. Well, the first stable coin that we didn't call stable coin because we didn't know what that meant. Our thought was, how do we do what I just described, but avoid the thing that your audience is saying, yeah, but it's so volatile. Well, what if we could link a token that had all the properties, the properties we like of transmitting instantly cross-border without any trust being required? What if we could we could use that mechanism and just link it to something that people consider stable in value, like a dollar? That was how we created Tether.

And by the way, Tether today, for your audience who doesn't know it, it's just. what I just described it's think of it as a Bitcoin but it's it's linked to a dollar so if you own it you can redeem it for a dollar and therefore it does it's not volatile it doesn't go up and down much now it's had a little controversy lately about where are those dollars held but when we were involved they were held in a bank anyway what do you think's going on with it right now I truly don't know I've got no visibility we sold the company in 2016 so I don't know But but I I will say, though, that when you start to bring what now we call these stable coins, cryptocurrencies linked to a particular physical or real world assets. So they're they're not volatile. That is incredibly efficient way to transfer money across border.

I see in the next 10 years a lot more being done there. In fact, the only regret I have about Tether is it never even occurred to us to patent the concept. I should have done that. But it's it's a great it's a great system. And of all things, Jamie Diamond over at J.P. Morgan, who, you know, has said nothing good about Bitcoin and crypto ever, and in fact said he would fire people who referred to it. He himself or his company is now creating a stable coin because he sees that, wow, this stuff is actually really useful. especially by the way really useful for small payments where if you're sending a million dollar wire to germany from the u.s and somebody charges you fifty dollars you don't really care right

but if you're sending ten dollars and they charge you 50 it doesn't make sense so um i foresee uh uh a lot more of what we call these stable coins evolving and it's something that we're doing at wax. We are we're not doing stable coin, but we're anticipating that people who want to do cross-border trading are going to have these tokens, these stable tokens. So a lot more people will be comfortable using them. Yeah. The funny thing is, you know, to native like U.S. currency people, we don't think of the U.S. dollar as as having volatility. And of course, relative to other currencies it doesn't but it is volatile right i mean the value of a dollar does change relative to the yen relative to the euro every day it's changed in the last 10 years in the

positive but it could have been the negative absolutely before i uh wrap up i usually ask rapid fire questions what uh we think the most important company in crypto is other than wax thank you for saying that well there's no doubt the most well company or either one yeah well clearly there is nothing more important in crypto than than bitcoin though it's not a company uh so uh there where bitcoin goes at least for now so goes all the other tokens i tend to agree with that i think that makes sense um what regulation would you change or improve if you could i think uh the money services business laws which dictate state by state what is money and what is not uh imagine trying to uh you know cipher that out i think i would have a federal mandate

for money transmission and i know all the constitutional staff are going to say no that the federal government's not allowed and i think uh uh it ain't never going to happen but uh when you think of europe where now there's pan-european uh legislation laws for transmitting In the U.S., with the way everything digital moves, it doesn't care about borders. The idea that you have state by state saying what it is, you need state by state licenses. I think that's put a lot of friction in the ability for this novel new concept, these virtual items that are stores of value like Bitcoin and whatnot. for uh i think there's it's very hard to for it to get go mainstream because there's even contradictory things right absolutely no i think i completely agree what do you think is the uh

most controversial thought you have in crypto so what do you believe that a large majority of other people would disagree with you i don't well uh a year ago i would say virtually everybody would disagree with what i'm about to say right now i would say uh most but not all uh there's this concept uh uh in the crypto investment uh community of protocols you you've heard the term so i i was really for a long time trying to understand what the hell do they mean by protocol okay so i think protocol means um uh uh cryptos or coins that are on a separate blockchain So if you were using, for instance, the Ethereum blockchain and your cryptocurrency was invented using the Ethereum blockchain, we wouldn't call that a protocol. We would call the Ethereum coin that allows you to do that the protocol.

So anytime you have a standalone piece of technology, a blockchain with its own separate rules, those are called protocols. Now, I think the overwhelming belief in the investment community is that protocols, blockchain protocols, are the places where all the value comes from. It's preposterous. This is an example of, and all VCs suffer this affliction. It's an example of what happens when we use inductive thinking and all of us use inductive thinking. If you see something like Bitcoin and then you see something like Ethereum and maybe something like Stellar or EOS and you say, wow, those all are standalone blockchains. Those all are what we'll call protocol chains. It must be that protocol chains have value.

Well, I'll give you a great example. So take Binance with the BNB token, right? It was originally built on Ethereum through the ERC-20 standard. So the protocol it used was Ethereum. The BNB token started to accrue value and Binance just decided to launch their own chain, Binance chain. And then they switched the underlying protocol in which they are operating on. The BNB token actually continues to accrue value. It was not hurt by switching the protocol.

And so if you bought into the FAT protocol thesis, this belief that the protocols acquire the value, because BNB token was built on Ethereum, Ethereum should have been able to accrue value and keep that value and then be hurt when BNB leaves. In fact, what we saw was BNB continued to accrue value and Ethereum no change. Yes. So this what we're talking about here is the probably the most controversial point and that I see in crypto today, which is radical to me that you would think that the protocols have value. And so what let me just give one theory for why this is the case in in in venture capital and in capitalism in general, it is not sufficient to create some wonderful contraption that everybody uses, that everybody loves, that is well known, that creates massive, massive value. You know what that's worth to you? Zero. Unless. Zero unless you have a mechanism to capture the value. It's never sufficient to make it. You've got to have a way to extract it. So how do protocols extract value? They they don't do it very well. Right. And in general, in our society, the businesses that extract most value are the businesses that consumers, they can be businesses, whatever. But the people who are actually using the thing recognize it's the brilliance of Amazon where they said all of these companies put together servers and switches and data centers and software fabrics to launch a Web site. Why don't we give you a layer? We'll call it Amazon Web Services. You can just plug and play and use our front end to get all of those capabilities.

making the individual companies that provide those things invisible to the business that's buying the service from Amazon. Meaning what? Amazon has commoditized all of those individual companies. The Dell server, the Cisco router, right? The data center, the content delivery network from Akamai. They've commoditized it. Well, I look at protocols as almost like like middleware companies where they provide value but nobody really sees them you don't see ethereum as a consumer you see your crypto kitty token and so it seems logical to me that over time the value is going to accrue to what we call the depths right the or to the block chains that figure out a way to do what Amazon has done and provide a service layer that is actually

providing value and extracting it. Somebody said to me, the technology that is closest to the consumer or customer accrues the most value. And what I think you've seen is that's been true on the internet. I think we're starting to see that's true in terms of the crypto and token world. But then you see these hybrids, right? So Amazon started out with actually a consumer front that they were very close to the customer. The customer literally interfaced with their technology and they started to vertically integrate behind the scenes, right? All the way to now they own AWS. But AWS is close to the customer. The customer just shifted from consumer to the IT manager at the website. Completely fair point. Completely fair point. Yep. Yeah. So they've always

stayed close to the customer here's what i think happened with this protocol thesis i think what happened was um and it happened in the internet too some of the great early businesses of the internet were infrastructure companies like ink to me you know and cisco and bay networks and microsoft so all these companies that were contributing and building the building blocks that ultimately would be used by the companies that built these front end facing websites. So it's you do need the infrastructure. And I'm not saying the infrastructure has no value. I'm just saying it ultimately leaks out of the infrastructure providers and it accrues to the the companies in the in the blockchain world.

We call them dApps or even some of these blockchains themselves that are much closer to the end user. They're not invisible. An invisible layer ultimately becomes a commodity and commodities are priced at like cost plus. So so that's a long way of saying the answer to your question. What do I think is some of the more controversial points? That's fair. Yeah. What's what's most important book you've ever read? well oh most important book um road to serfdom what is that well that's a uh uh a i guess you would call it a treaties on uh the 1930s wave of socialism taking over different societies by a guy named F.A. Hayek, who predicted that if we abandoned the role of traditional

market-based capitalism, we would not be happy. So at the time he wrote it, many societies, including Germany and Russia, were considered model templates for economic growth. And Hayek had a mixture of really solid economic thinking, as well as sociology. And he understood a very important building block of efficient markets and efficient economies. And that is the incentive layer. Right. Pretty important. Very important, the incentive layer. And so what he believed was, well, the incentive layers are not going to function in these other economic models. So that was probably the most influential book. I love that.

I got one more question and then you could ask me a question to end it. You believe in aliens? I do not believe in aliens. I have no opinion whatsoever. None? You were the first person to have no opinion. Let me ask this. uh whether you believe or not put that aside do you think it is probable that they exist

i truly can tell you i've never really thought about it but if i had to flip a coin is their life outside of earth probably yeah yeah that's fair i i don't know what state it is in don't know if they're gonna buy our music but yeah yeah that probably is jamming out Jamming out to some Kanye or something. All right. What one question do you have for me? When did you get involved in crypto or blockchain? Yeah.

So I first heard about it when I was working at Facebook in 2014 about Bitcoin specifically. It was around remittance payments. Uh-huh. And I – Working for Facebook on the concept of – No, no. So there was no – as far as I'm aware, no one was working on it. It was more of just people kind of, hey, wouldn't it be cool if type stuff.

um and i've literally turned to an engineer uh that i worked with then i said uh you know what is this bitcoin thing is it real type uh they said no it's stupid pretty much um i didn't google it i didn't pay attention you know it's just kind of one of many things that you're just around a bunch of smart people and you kind of hear these you know what some are rational ideas and some sound absolutely insane html5 right is it going to happen or not right i get it maybe right keep going um and uh and so then kind of end of 2016 uh i started early middle of 2016 i think i started to see more entrepreneurs talking about it um and then eventually my partner and i actually started out building mining facilities um and so my my family's been in the data center business

for a really long time and if you think of mining it's basically a data center just different computers and you don't have to sell a customer like a company you just rent the computing power to an algorithm and so there was a lot of similarities to you know a business model that i understood um and when we started doing it i think we were just blown away with um the idea that you could take an old business model and apply it to new technology right a lot of what we talk about digitization um and i'm really glad actually that that's where we started because you start at like the absolute foundation of a proof of work blockchain how it works the difficulty right i mean that you're just looking at different things they're just like some bolts yeah you're

just not looking at like what's the price today right you pay attention to it but you're also looking at other aspects of it you really start to understand you know hey here's how hash rate why it's important here's how it changes here's how difficult you know all that kind of stuff um and so from there i think we went very quickly from like ah should we do this to oh this is super cool to like oh wait there's a lot of value going to be created here to uh we probably should go dedicate all of our time to it right that happened in like less than 12 months um and so we uh we move very, very quickly into it. And we've probably taken a unique path in that we still invest mostly in equity of companies. And so we've stayed away from a lot of the individual tokens

with the belief that just the infrastructure is going to accrue a lot of value. So not necessarily the protocol thesis, but more of, you know, there's going to be a bunch of exchanges that are built, right? There's going to be every single business model we've seen in kind of the electronic or analog world will happen in this digital world. Let's not try to be smart And let's just go find who's building that same thing in the digital world. Right. And just kind of repeat that playbook over and over and over again. And I joke and say that we probably get not enough credit for the discipline of just saying, let's not go try to find the smart stuff. But we also will probably get too much credit for being smart at some point because we kept this, you know, we kept it simple. Right. And it's probably because we're a little stupid. And, you know, I think there's plenty of people who are at like the very cutting edge of the incentive structures of the different ways that the consensus mechanisms work. And what I would call like the web 3.0, like somebody's going to figure out the next Amazon, the next Google, right? That type of stuff.

I think we're really looking at it as this infrastructure has a high probability of happening and it still has a pretty high potential payoff, right? So you kind of get this, it's almost like a Venn diagram. Whereas the stuff on the absolute cutting edge, low probability of being successful, incredibly high payoff if it works, right? So we're more kind of balancing the two. um and as we spend more and more time we actually get more comfortable inching towards the cutting edge stuff um but we really started out kind of right down the fairway just pure infrastructure um high probability and still high uh payout potential if if it works and when you were at uh facebook you said there was uh you didn't see any internal like uh thinking that hey we should

be watching this stuff no so uh while i was there we hired david marcus uh from paypal i came over the messenger team he brought a couple of uh really smart people um over you know kind of over a period of time um and there was definitely uh some conversations around um you know remittances uh the bitcoin stuff was going on they weren't necessarily connected right like hey let's put bitcoin on messenger and use it for remittances but they're just different conversations that you could kind of piece together um also all i believe i got launched while i was there uh was the ability to almost have like a venmo like service on messenger right to actually send fiat to somebody um and so like it's natural to me to kind of have been there you know 2014 2015 and

then see them now saying hey uh you know at least the rumors are that they're going to create this digitized token that's going to be backed by fiat currencies could they put it into a whatsapp you know in a country like india you know whatever they end up doing i think that uh it wouldn't surprise me if that's the path they go just given you know kind of my data points while i was there and some of the things they were thinking about we pay and ollie pay it all makes sense yeah i've looked at them and gone what in the hell have you guys been doing i mean all of these integrated messaging apps with shopping and uber services and travel services and payment services in asia they're everywhere well i'll take it even a step further right um uh ted livingston from uh kick

uh they've got i don't know 300 million users or something uh he launched kin right so kin which is a digital currency that is used within kick as a currency and then also there's other uh mobile apps or developers that are using trivia question how many kin tokens are out there in total supply I have no clue, but I think there's a lot. $10 trillion. That's way more than I actually thought, right? But I think that the reason why I bring them up is this idea that an existing, we'll call it messaging application, right, can have these digital currencies in them and used is interesting because when you go to a Facebook, for example, they have 2 billion people using their services every month, right? So I constantly say that Facebook is one of, if not the most important company in crypto, not necessarily because I even think that they're going to build the most valuable thing.

But if you look at it from the perspective of what company is going to launch something that touches the most amount of people first, Facebook probably actually going to have a good shot at that. Right. And so let's say that they expose some sort of blockchain or crypto based product to 200 million, 500 million people on whether it's Messenger or WhatsApp or just Facebook's core app. it's actually pretty important what they launch right and does that mean it's going to be sustainable and valuable no does that mean they're going to fail no but that first exposure depending on how it's presented right if it's presented as this is a cryptocurrency it's actually really important what it is here's my prediction okay it's going to be super super lame you think so i do and i'll tell you why okay why they are going to come they'll do a stable coin okay i'm sure that and they're going to ring fence it what do you mean by that you won't be able to trade it

anywhere it'll only be used as an in-app on the messenger client payment system so i the trading part i haven't thought about but what i have thought about is will it be centralized or decentralized it'll be centralized i'm positive okay it'll be centralized so it'll be a token like any other in-game currency or you know a point system yeah now now look hopefully they're listening and they say we're gonna do something better but i have a feeling i i've seen uh so many companies look at things like this and ultimately back away from really uh untangling it and letting it just be everywhere but i have a feeling they're not going to be comparable with facebook coin trading on bitfinex so uh this is great we can we'll bet a beer i will come back

if uh if you're right the if you ask me what my most controversial thought was i actually think that facebook's coin is going to be decentralized now how they'll do it while they'll do it there's a whole bunch of things proof of work or pause i i just can't see it being proof of work for a whole bunch of reasons like a whole bunch of reasons right but when i say decentralized what i what i mean by that is uh quasi decentralized well people usually come back and say you know how decentralized right it's kind of it's run on amazon web services and google great so so what i mean by decentralized is facebook will not be the only person that controls it right in terms of like i think a lot of hardcore crypto enthusiasts their biggest fear with let's say

like the mass adoption of a facebook coin is facebook's the only one that controls it facebook's the only one that has any sort of um ability to close it off and and i don't think that's fair i don't think that's fair i think we we because we just will write it off as irrelevant right it's it's uh uh we would like to see them really embrace the full range of of capabilities blockchain but i think the impulses of a giant controlling organizations in any country is not to think about let's unleash this and let whoever wants to control it do it you know i don't see that as their path so i'm on record saying this but uh the reason why i think this is i actually think the advertising based business model is in a lot of trouble and not just for facebook for

pretty much every large social network um based some attention set aside three billion dollars facebook did oh yeah just set aside three million dollars for an anticipated judgment in three lawsuits yep brought by uh different different countries and so yes it it does it is under a lot of pressure so the reason what i think the response to that right and again this is uh the context i have here is facebook at kind of the end of 2000s into 2010 2011 and 12 uh mobile came around and they had to make the transition there's a lot of questions leading into the ipo can they make that transition is it going to go well etc they obviously did a great job with it over time right maybe they were slow to it maybe it didn't go exactly how they planned at first but they

eventually did make the transition now what i think the transition that's going to happen for these major social networks is you're going to have to shed or reduce the dependence on the advertising model. And it's going to go more into the financial services type monetization strategies. Now you brought it up early. Who's done this very well? Pretty much every single Asia-based messaging application, right? So the lines, the caca talks, right? All these guys have done a fantastic job. They're way ahead of the curve, right? I was just in Tokyo and people are walking into the subway and what are they doing? They're just putting their phone up against the public infrastructure, right? And they're just paying. And so I think that if this can happen,

right, if Facebook is able to transition, it would probably be one of the greatest pivots, right? In the last 20, 30 years where a company that has, you know, tens of, if not hundreds of billions of dollars in revenue on an advertising based model with 2 billion people using their services, if they can move over, over a five or 10 year period to become majority of the revenue of financial services, I think you and I are going to be sitting here being like, that was incredible. Now the odds of that happening, single digit percentage, right? It's just hard. I don't care how smart people are. I don't care, you know, how much you can kind of scope it out and say, this is what we want to go execute. It's just difficult to do. Why do you say that? Look how

good of a job Yahoo did. If you guys could see his face when he says that. All right. Listen, I really, really appreciate it. You took a ton of time out of your day to do this, William. This is a fascinating conversation and you have a unique view on the world. So we'll have to do this again at some point in the future. Excellent. Thank you. Hey, everyone. Pop here. If you like this episode of Off The Chain and want to help us take crypto to the top of the Apple, Spotify, and other podcast charts, please do us a favor and rate, review, and subscribe. To review, simply go to the Off The Chain homepage,

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