Unchained - Live From Distributed: Amber Baldet, Matthew Roszak and Lily Liu on 'Innovate or Reinvent?' - Ep.76

Episode Date: August 8, 2018

In July in San Francisco, I moderated a panel at "Distributed 2018: Unlocking the Global Power of Decentralized Business." The title of our discussion was "Innovate or Reinvent?" and the panelists were Amber Baldet, cofounder and CEO of Clovyr, Matt Roszak, cofounder and chairman of Bloq, and Lily Liu, cofounder of Earn.com. We had a wide-ranging discussion, which included topics such as how the "Crypto 50" combined have more budget for blockchain development services than Fortune 50 companies,  how developing in the blockchain space and revolutionize an existing market requires that the new offering be many times better than existing options, and why enterprise needs to wait to get permission rather than ask for forgiveness, which doesn't hinder new projects. We also discussed how government is also a competitor in the space, that building entities don't include only decentralized projects and corporations, and how regulation could affect the development of the space. Thank you to our sponsors! DACC: https://www.digitalassetcustody.com Quantstamp: https://www.quantstamp.com The Sun Exchange:  https://www.thesunexchange.com Episode links: Distributed conference: https://2018.distributed.com Amber Baldet: https://twitter.com/AmberBaldet Clovyr: https://clovyr.io Matt Roszak: https://twitter.com/MatthewRoszak Bloq: https://www.bloq.com Lily Liu: https://twitter.com/calilyliu Earn.com: https://earn.com Learn more about your ad choices. Visit megaphone.fm/adchoices

Hi, everyone, welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin. In July in San Francisco, I moderated a panel at Distributed 2018, unlocking the global power of decentralized business. The title of our discussion was innovate or reinvent, and the panelists were Amber Balday, co-founder and CEO of Clover, Matt Rozac, co-founder and chairman of Block, and Lily Lou, co-founder of Earth. We had a wide-ranging discussion which included topics such as how the crypto-50 combined, have more budget for blockchain development services than Fortune 50 companies, how government is also a competitor in the space,

and what factors will determine which ventures succeed. It was a great discussion that got a good reaction from the audience. Enjoy the show. Smart contracts are on the rise, and that trend will only continue. Security has become an absolute necessity, and Quantep is the standard for smart contracts. security for the blockchain. With a team of security experts dedicated to defeating the bad actors, Quant Stamp is the gold standard for safer, more reliable smart contracts. Find out more at

Quant Stamp.com. Sun Exchange is a solar power marketplace for the crypto economy. Sun Exchange members all over the world are earning cryptocurrency for helping to deliver solar power generation to businesses and communities in emerging markets. Visit the SunExchange.com to start earning solar powered money today. researchers, ICO issuers, and other institutional players, it's time to safeguard your cryptocurrency. Partner with Digital Asset Custody Company, or DAC, purpose built for secure, flexible, institutional quality cold storage solutions. Learn more at Digital Assetcustody.com. Hi, everyone. Welcome to our panel, Innovate or Reinvents. We've got some really fantastic

panelists here who are sort of working at different points along that spectrum of innovating or reinventing. So why don't we just start with having each of you describe, like, what did you do? Amber, do you want to begin? Sure, thank you. Hi, my name's Amber Balday. I'm co-founder and CEO of Clover at this point. Previously ran JP Morgan's blockchain program, and as over the course of that entire journey, realized just the large gap between what people, you know, we've been people think blockchain applications should be doing, what people are expecting out of crypto sorts of applications, and what you can really do. So it is kind of the decision, do we reinvent or do something in a greenfield kind of way, that we're working on at Clover,

building tools to be able to actually build those next generation applications. Lily? Sure. My name is Lily Liu, co-founder of Earn.com, which we recently sold to Coinbase. And so over the last few years, a company was previously called Something 21. It was pretty early in the space, Bitcoin mining, doing a lot of work on the hardware side. And so as the space kind of evolved, we also evolved with it. And eventually sort of turned into this platform, Earn.com, that was quite successful, is quite successful in helping get cryptocurrency into the hands of many people, just through something you do every day,

which is responding to messages, and doing other sort of tasks on the Internet. Good morning. My name is Matthew Rozak. I'm co-founder and chairman of Block. We're a blockchain technology company. We do two things. We engage with enterprises with our suita software. And then we also, through Block Labs, we build new decentralized networks and applications. So we're builders and plumbers in this space. All right. So let's talk a little bit about this spectrum, innovate, to reinvent. And in a pre-paneled phone call, Matt Rosak, also throughout Disrupt. So why don't we talk about, like, where it is that you guys feel like your services fall on that spectrum and what those words mean to you? Well, I think depending on the market, right, whether in the enterprise space broadly defined for us, we engage with some of the biggest companies in the world, so let's just say Fortune 50, and then we also engage with this new enterprise customer that's emerged in the

space called the Crypto50. So, you know, some of the biggest miners and payment processors and wallets and other players. And what's interesting with this crypto 50 customer that's surfaced on this landscape is they individually have more budget than probably all my enterprise customers combined for this space. And they make more decisive kind of decisions in terms of how they want to engage in these networks and these tokenized economies. And it's interesting to watch both of them. I think over time they wind up connecting in a particular way. You see the flight path of traditional enterprise wanting to connect with these networks and these networks wanting to connect with enterprise.

So we're starting to see that fabric and that scaffolding kind of get developed in real time. But traditional enterprise regulated public companies are still, mind you, in the tokenized economies, are still having issues on how to take a budget. of that Apple. You know, the regulatory frameworks aren't as great lack of clarity there that's improving slowly but surely, but it's, that's where I think the enterprise innovation kind of gets stymied a bit, but as regulatory clarity develops, I think that that accelerates. So I think that, you know, thus far in cryptocurrency, we had a fantastic year in 2017, brought a lot of new energy and a lot of new people into the space. But I think that, you know,

like non-cryptory technology, it's important that to really gain adoption for whatever it is you're building, it's got to be 10x better, right? The speculative use case has obviously worked that way because people are making 10x returns, what they'd be making in more traditional markets. And I think that as people think about new use cases, you know, whether it's been remittance that people have been talking about for a while or sort of new consumer use cases that are coming into the market now, you've really got to think about what is the value proposition to the end user, right? In the enterprise situation, how to do you? does it actually make their lives 10x better or substantially better?

And also in the consumer world, is it 10x easier to use, right? Is it faster to take on an activity that maybe you couldn't do in the regular technology world? So I think that's something that we have to keep in mind, and as we're building out these new experiences. Yeah, I think that what people struggle with is that in order to drive adoption or usage of something new, It needs to be not only as good as the thing that you're using, but hopefully, you know, 10 times better. And so if you're doing something that's truly greenfield and therefore there is no other alternative, it can be hard to use. And that's okay. People will figure out how to struggle through a bad user experience for some period of time until that becomes a competitive disadvantage for your product.

But when you're trying to transform something that's an existing market, the bar is very high. And I think they're completely right about the enterprise budget kind of a thing. it's not coming out of this being a full business model, like you live or die based on this project working. It's like, well, let's pull this out of our innovation budget and see if it works. And so I think it results in a lot of a slower progression than people expect for moving things into production.

Yeah, so let's talk about that because I think something that's so interesting is like, basically when we say innovate or reinvent, what we're talking about is like the incumbents versus these disruptors, which are more like the crypto 50, right? This new area of crypto finance that we see being developed. And I'm just so curious because it sounds like in a certain way the incumbents are, they have like more restrictions on them or something.

So can you talk a little bit about like what the differences that you're seeing and how you think that's going to play out? Because like frankly, when I look at this race between like enterprise versus public blockchains, I just feel like the public blockchains are going to win. And granted, like obviously scaling is like such a, There's a lot of technical problems, but like when something hits there, it takes off so fast. And I just don't know if I'm seeing that on the enterprise side. I mean, I still think that the breakdown of saying enterprise means permission, means centralized,

means why didn't you just use a database versus public is somehow proletariat and decentralized and magically therefore good is just a false dichotomy. And that we should be looking at this as more of like just technical boundaries around information sets and incentivized actors and connecting them. in more logical ways. In that way, you can be using public blockchains more as a coordination layer between other kind of networks. You see people experimenting with side chains and stuff.

So I think that's going to work itself out. But from the enterprise side, they will continue. It's not that businesses don't understand the technology, and it's not even that they can't innovate and come up with new products. But I think you're right, they need to sit on the sidelines more because they have an existing business to lose if they make a regulatory misstep.

So they're not going to ask for forgiveness. They need to wait and get permission. Yeah, I mean, I agree with that. I think there's two things going on. One is public-regulated businesses don't just jump to innovation. They've got this, you know, historical staircase that they go on and they try and reduce costs. They try and grow, and then they try and innovate. And we saw this with the early Internet, with intranets and extranets.

We saw this with cloud, with hybrid clouds. Same thing is happening with blockchains where they're doing some permission ledger work. And that exercise, that Toin the Water gets some, you know, these big organizations gets them a little bit more educated on what this technology is, what it isn't, how to apply it. And that's really important kind of staircaseing for them. Part one, part two, what's interesting, and it's not necessarily good or bad or this dichotomy that's happening. but over time, permissionless networks will always win. And when I say win, that means they will get the hearts and minds of developers. So the best developers will want to innovate and build on open permissionless networks.

We saw that with the Internet. We're seeing that now with Bitcoin and Crypto. But that doesn't mean it's one or the other. I think it's the regulatory dynamics, the adoption curves, the form factors for a lot of things we're doing in this space isn't, you know, enterprise ready today. And so, but that that's, that changes every day. So I think that there might be a third party in this economy of, that we should pay attention to, and that's actually the sovereign states. I think that, you know, we oftentimes talk about public chains versus private chains,

and it's kind of enterprise versus sort of the community-owned public chains. And I think the presumption in there is that if it's a public permission, that's blockchain, that it's going to be community-owned, it's going to be open, source and sort of going to be peer-to-peer in all those things that we've seen happen with Bitcoin. But I think you've started to see inklings of nation states actually becoming quite interested in this. And so we saw maybe an early example with the Petro, which may or may not be a sort of long-term, long-term coin out there. But there are countries out there that are very interested in perhaps putting together, you know, basically digitizing their national

currency, right? And being able to at once have reserve currency around the world and also have capital controls at home, for example. And that, to me, I think, is very relevant, because if you think about the nation states and countries out there, they have distribution, right? They have hundreds of millions, if not over a billion people, that they can basically, you know, almost instantly turn on identity on a blockchain, for example. And they have all the infrastructure and all of the resources to really do that. And so I think that's something that we should pay attention to. And as we think about, you know, permissionless blockchains, and we think about growing communities, you know, I think it's great that we probably increase the number of people in,

who maybe hold Ethereum or Bitcoin to somewhere, I'm guessing, around the mid or the high eight figures. But if you think about that in either sort of overall Internet adoption terms, we've still got a long way to go. And if you think about that in comparison to the ability to scale, let's say, in a social network or a, you know, just through a nation state, I think we've also got a long way to go. Yeah, we're continually, we're like bogged down in this. commodity, security, cash, regulatory kind of thing that's treating these crypto products as just a private sector issue in the United States. And I think you're completely right that that's really the wrong way to look at it. If we're thinking of public blockchains more as a public shared

commodity and good, we should be thinking of it more like the Internet. And we really take for granted how much America has benefited from so much of the underlying Internet infrastructure being developed here in the West. And it's absolutely a method of soft power projection. And that's why we see a lot of technical investment from countries that would like to kind of push back on that dominance. If you're an institution managing crypto assets, you need a secure custody solution. Digital asset custody company, or DAC, is the leading purpose-built institutional quality cryptocurrency custodian. DAC leads the industry in security and service. Experts in the tech, cybersecurity, and investment worlds,

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But so first I wanted to ask like if you guys feel like the regulations that, especially the incumbents, have to buy if that's kind of like a hindrance on them when it comes to this competition. But then in the same regard, if that could like lead to what Lily was talking about with how in a way, like, you know, public blockchains, crypto assets, they could down the line pose a threat to governments to central banks that are trying to issue Fiat money. And so in that regard, do you think that there's, I mean, Brandon, this sort of imposes this kind of like, it makes it seem like the government is just like one entity that is, you know, trying to impose its will. But I just

wonder if, like, that could play out in some regard if, like, governments might try to use regulation to keep the upper hand when it comes to the crypto space. The ScoreBet app here with Trusted Stats and Real Time Sports News. Yeah, hey, who should I take in the Boston game? Well, statistically speaking. Nah, no more statistically speaking. I want hot takes. I want knee-jerk reactions.

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CBC News. Yes. Yeah, I mean, yeah, the government isn't just one thing, right? And we see different sentiments come out of different parts, especially at these different kind of committee hearings. There's different, they take different tones and where one sounds more bullish and other sounds more bearish on it. And, you know, I think they're trying to figure out

what the right-size approach looks like, but they're very, very concerned with law enforcement, enforcement and preventing bad activity. And until there's some sort of answer for that, it's going to look like chokeholds on the entry points and egress points in and out of the open marketplace. And I also, I agree. I think that's where they're going to focus their time and energy. But this industry is moving way faster than they can keep up with.

And it's constantly changing. And it doesn't fit any rubric or any laws. or fabrics that they're familiar with. And like even in the U.S., less than 3% of the members of Congress have any technical background. So the whole dynamic is not in our favor to get, you know, kind of these great red carpet regulations to build in this space. But we're going to see is pockets develop,

and this regulatory arbitrage thing kind of really play out. There's a crypto congressman here at the conference, Jason from Taipei, who's building out this really robust regulatory framework to bring in jobs, innovation, and money. We're going to see that play out all over the world. We've seen that in Gibraltar and Malta and Barbados and even Singapore and Switzerland. And I think regulators here are going to look at that. And once kind of this market trickles into a trillion, punches through a trillion or a couple trillion,

I think that's when they'll take it a little bit more seriously in terms of how to have kind of react and build that innovation and keep those jobs here. But until that kind of happens, I still think most regulators don't really understand this to the point that they want to promote a particular regulatory piece here in the U.S. So it's still very early in that regard. Yeah, well, actually, Amber, I wanted to ask you about that because you testified in front of the ad committee. Was it two days ago? I guess so, yeah. Yeah.

I've lost track of time at this point where I... Right. So we were just laughing backstage because it turns out that it is the agricultural community that actually regulates this kind of thing because crypto assets are commodity. I know it seems like super counterintuitive, but... Like farms, pork bellies, CFTC, crypto. Exactly. So it's just curious, like, what your impression was from that day because, like, you know,

what he was talking about with Taiwan, like, I think it's really interesting. Obviously, we're seeing a lot of... like opening of arms from Switzerland, Malta, Gibraltar, Singapore. So where would you, you know, what was your impression from that day? And then if any of you want to jump in as to where the U.S. kind of like falls in terms of this regulatory arbitrage we're seeing? Some people are more open-minded than others, which is natural. There are a few people that seem like they've kind of already made up their minds

and are just very concerned about the protectionism kind of money laundering. terrorist financing stuff and won't really consider anything else until that's worked out. But otherwise, it feels like people are trying to really understand. That said, I think most of the work of legislation has done more at the staffer level than at the actual congressional level. And there's a real, or representative level, there's a real understanding and kind of momentum there among staffers that they want to get it right and kind of move this stuff forward. So even though it kind of feels like ping pong back.

and forth of, is it good, is it bad on a given day, just the fact that there were like, literally there were two committee meetings on the same day. Like there's so many, so much attention being given to this now that it seems like it is moving forward more quickly than previously. I mean, a lot of us, you know, when we think about, you know, building, investing, and hiring, we want to spend all our time doing that. But I think if you care deeply about the space, you do need to engage with regulators. You do need to educate them.

I also serve as chairman of the Chamber of Digital Commerce or the Trade Association in the space, and we're putting out a white paper in the next week or two on responsible token issuances and actually a guide for both practitioners in the space and policymakers to actually have a framework and start setting some best practices and guidelines, not necessarily a self-regulatory organization,

but to up our game in this space, you know, to be more responsible on disclosure, and lockups and kind of more traditional things like that. Yeah. And for all of the regulatory arbitrage that is happening, I think it's a good tension between having some of these smaller jurisdictions, see this as really an opportunity to be a part of this rapidly growing economy. But at the same time, we do have to recognize that the United States,

we have some of the deepest talent, some of the deepest sort of pocket investors. And we are a very critical part of the ecosystem, right? And so what I see is being very encouraging is that there is a lot of sort of innovation in and, you know, thought about engaging with different jurisdictions. And that actually does create kind of the energy to also move some of the larger markets. So since we sort of got into, you know, what you were saying about how you're going to be releasing this best practices document, I imagine there were probably some entrepreneurs here in this space who are trying to figure out, oh, like, I'm really interested in this. How do I start working? Where should I start working? So you guys are all, you know, in various ventures in this space.

How should people think about it? Like what questions should they ask, you know, depending on the answers, which way should that guide them? Like, you know, what are some factors to think about when an entrepreneur wants to enter the space or like, or maybe even pivot an existing project or company? Well, for an entrepreneur attempting to enter the space, I mean, I don't think the questions are probably any different than for other sectors. You want to talk about founder market fit.

Do you know the market that you're trying to go into? Do you have the relationships to drive clients into your product or how do you plan on growing that sort of adoption of what you're building? I mean, it's really no different than anything else. If you're trying to build enterprise businesses, it's important to have enterprise relationships. And, you know, I think the 2015-2016 range of the hundreds of we're going to go build a blockchain for business, kind of people that went out there that now you don't hear

very much from demonstrated that you can't just walk in with technical knowledge and assume that you're going to solve someone's business problem. You need to actually understand the industry. Although a number of those companies are pivoting to pure crypto now. I don't know if you noticed there were a bunch of those this year. Yeah. But more to the point, you know, like if, so let's say you do want to work in this business, but you're sort of trying to figure out, oh, like, you know, should I use this technology to just innovate, like to upgrade existing services or should I create something brand new, like how should an entrepreneur kind of think about this? The way that we're thinking about this at Clover is that right now, businesses are trying to

figure out what's a blockchain use case. And you can't get people away from that right now. That's the question that they want to ask, is a blockchain good for this? But if you suss out the underlying pieces of what makes something blockcheney, whether that's, you know, a distributed system kind of, is it a shared consensus mechanism? Is it a cryptographic audit log? Is it, there's a lot of different pieces that can be useful to solve little problems that really driving developer adoption is just about getting somebody to pick up your tool to solve a problem that they have. And that organically turns into things that can be connected to each other in a more multiplayer way where you don't have to do a $20 million lift free platform. It's kind of a tail

wagging the dog right now. And I think that'll change as a lot of these initial POCs don't go very far. Well, actually something else I want to ask about is we're seeing all these new teams starting up, starting decentralized projects, how does that differ from doing a traditional startup? What I think is different about it is, you know, if you think about some of the instances of value creation more recently in the non-crypto-tech world, so Uber probably employs thousands of people, create about, let's call about 50 billion of value over the course of seven or eight years, right? On the other hand, in the crypto world, Ethereum went, basically.

basically zero to 50 billion in about three years and employs, you know, maybe 15 people, something like that, if you're just talking about the Ethereum Foundation. So what it means is that you rely much more on the community to create value, which means that your community is comprised of people who, you know, maybe just passively hold the token to people who work full-time as a developer building applications on Ethereum, right? And so you have to find a way to engage with and motivate and, you know, bring in, you know, people who are all the way

everywhere along that spectrum. And I think that that's a very different type of community engagement that is relevant in crypto, which differs from just building a normal tech company, right? Because essentially, this is your sort of distributed workforce, but they don't report to you. And some of them might

only spend a minute a month checking their balance with Ethereum, and some people might spend 80 hours a week working. So how do you engage with such a disparate community of engagement of skill set of interest? Yeah, I think this is a really important point in building these decentralized networks.

This community dynamic is a thing. We saw that where Ethereum really developed this community of developers. And there's no shortage of Ethereum killers out there now. Eos, Tesos, Quantum, you name it. And the question I have is how those developers are going to be either inspired or incentivized to move like a,

you know, a flock of birds or bees from one protocol to another, you know, whether they're tribal and it's like, hey, I learned Ethereum and, you know, I wear Ethereum colors or am I going to skip over to a new rail? And that'll be interesting to see how that plays out over the next several years whether people are going to be entrenched and saying, hey, this is my rail and I'm really particular because I'm tribal, you know, I like the, whatever, Golden State Warriors and I hate the Bulls or vice versa or whatever. Well, you're supposed to carve out some things. DC fund out of your $4 billion and then subsidized developers to come and try out their projects, right? I'm sure that's going to stick.

Yeah, I mean, those are, I mean, no, I mean, in reality, we're seeing lots of networks build a side pocket of a billion dollars to venture, invest, into everybody's project and see, see what happens through sunlight and water on the things that are starting to sprout. and that's just a more aggressive community, you know, development fund. Airdrofts are ridiculous, I think. I love to see smarter air drops to build these communities with, you know, like air drops with conditions. But I think all these are hacks to try and build these communities.

It'll be interesting to see how that plays out. We'll see how tribal or mercenary people are. Yeah. Yeah. Yeah. Yeah. Well, I think that's a good note for us to end on. It sounds like if you get into this, you'll have to do some community organizing, a lot of Barack Obama.

But anyway, thank you all so much for coming on the show, and thanks to all of you for attending.