00:00welcome to the a 16z podcast sonal and I
00:03are sitting here with Adam Ludwin Adam
00:06welcome Thank You Adam is one of the
00:08cofounders of chain and you guys are a
00:11block chain technology provider to large
00:14financial institutions and right there I
00:17think this is interesting because you're
00:18not a Bitcoin provider you're not sort
00:21of involved in that ecosystem in the
00:24same way at least so let's launch into
00:28blockchain and Bitcoin and where we are
00:30today and what the distinction is and
00:32how those two things are being applied
00:35in the marketplace sure well Bitcoin was
00:38the first fully functioning digital
00:41asset the world has ever seen and a
00:43digital asset is one that is minted
00:46created natively at the outset as a
00:49digital token so a Bitcoin is a digital
00:54bearer token and a bearer token is
00:57something that where the ownership that
00:58asset is defined by whoever has it in
01:01so whoever bears it right so if I have a
01:03dollar bill and I hand it to sin all
01:06there's no question of who owns that
01:08dollar she now owns it but with digital
01:12the way Digital financial services work
01:14is that what actually we do for the most
01:16part with whether it's credit cards or
01:18sending securities on an exchange
01:20trading securities we actually send
01:23messages saying I'm gonna give you my
01:25asset and then later there's some
01:28settlement process so if you're a
01:30merchant who takes credit cards you know
01:31this because you don't get the money
01:33right away you get the money right away
01:34with cash we don't get the money right
01:35away with a credit card if you trade on
01:37a stock exchange as an institution those
01:39securities don't settle right away
01:41there's some risk that happens
01:42afterwards the question of is there
01:44going to be a settlement or not and we
01:46all pay for that so what bitcoin did
01:49before anyone else or any other
01:52instrument is it really created the
01:53first digital barrier token where I
01:55could just send you Bitcoin over the
01:58and as soon as I hit send the recipient
02:03has it and now there's a record of that
02:06ownership of who bears that token at
02:07that moment on the network on the
02:09blockchain which is the ledger for for
02:12keeping track of that
02:13and that's a big deal it's it's as big a
02:18deal as voice-over-ip I think it's a the
02:21most close comparable to what's
02:23happening in this area of Technology
02:26voice over IP of course was a shift from
02:29an analog switch line Network for moving
02:34our voice which is very expensive and
02:37had many interlocking components and and
02:40of course didn't use the internet as it
02:42as the mean the medium to a world where
02:46our voice traveled over the Internet
02:48interestingly with voice over IP the end
02:51user experience wasn't dramatically
02:53different at the beginning you picked up
02:54the phone you dialed grandma you talked
02:57to her you hung up the phone you didn't
03:01necessarily know or care that the
03:02architecture behind the scenes was
03:04completely digital right but what you
03:08cared about was that it was cheaper that
03:11maybe the call clarity was a little bit
03:12better that you didn't have to pay more
03:15for long distance so that you get all
03:16these features as a result and the same
03:19is now happening in financial services
03:21so we are going to see a shift to a
03:25totally IP based internet based
03:27architecture for all sorts of financial
03:28services some like to call Bitcoin or
03:31this area of technology you know money
03:33over IP which i think is just being a
03:35fairly good analogy and now there to
03:37this debate this question of is it about
03:39Bitcoin or is it about the blockchain I
03:41actually think we could take it a level
03:42lower which is to say is Bitcoin going
03:44to be the only financial instrument that
03:47operates in a digital way no no what
03:51what about airtime on your mobile phone
03:53when you're sending it from one SMS card
03:55to to another or one SIM card rather to
03:57another using SMS what about energy
03:59credits on a smart grid what about stock
04:02certificates so as soon as we start to
04:05imagine the world functioning the way
04:07Bitcoin functions but across every other
04:09asset class and across every other type
04:11of financial instrument we we begin to
04:13think okay well maybe we can apply this
04:15technology to other things so unless you
04:19think bitcoin is the only financial
04:22asset the world will ever have in the
04:23future then you could probably start to
04:26begin to think about
04:27applying blockchain technology elsewhere
04:29and then that sounds that's exactly what
04:32chain does correct that is what chain
04:33does so we we've taken inspiration from
04:36Bitcoin and we've taken a lot of the
04:39fundamental technical architecture from
04:41Bitcoin and we've generalized that to
04:45apply to other asset classes now
04:48technically there's a very important
04:49difference between say a gift card
04:51issued by Starbucks that wants to
04:54function this way and Bitcoin and the
04:56big difference I've already sort of
04:58pointed to it is that Starbucks is
04:59involved Starbucks is going to issue
05:01that and you're gonna get you're gonna
05:04go redeem it at Starbucks so it's you're
05:06not gonna have a decentralized issuance
05:08according to a fixed schedule by
05:11anonymous miners its Starbucks saying
05:14hey here's a here's 500 Starbucks points
05:16or here's five Starbucks dollars and you
05:18think have a gift card like a merchant
05:19issue currency so already we see okay
05:23well Bitcoin doesn't actually fit quite
05:25well they're perfectly there because the
05:27only way to leverage the Bitcoin network
05:28for Starbucks would be to kind of hack
05:30the network and layer a Starbucks dollar
05:33into the Bitcoin network which is an
05:35approach called a colored coin and the
05:40challenge there is again you're still
05:41dependent on the Bitcoin network and you
05:43may not want the Bitcoin network it's
05:44not exactly well suited from a design
05:46principle perspective for that use case
05:47so what might a suitable blockchain
05:53network look like for Starbucks and
05:55other issuers of of these merchant
05:58currencies or gift cards so those are
05:59the types of starting points that we we
06:02we begin with and then our company
06:04partners with large institutions in that
06:08case for example we're working with
06:09first data and first data is a huge
06:11issuer of gift and is interested in okay
06:16how do we make how do we evolve the
06:17model to make that more efficient and
06:20introduce new features and better
06:22customer experience using this totally
06:23digital format and and that's what our
06:26company does we partner with these
06:27institutions we and then we deploy a
06:31network with them that is geared to that
06:33asset class so we're really again trying
06:35to take this digital asset model that
06:41pioneered and apply it across the board
06:43so it's it's well it's Bitcoin without
06:45the Bitcoin I mean its blockchain
06:47without the Bitcoin in some cases or you
06:48could have both ways I suppose but yeah
06:51you don't you may want Bitcoin right as
06:55the currency token in a particular use
06:57case in many cases you just don't you
07:02know the argument that you cannot
07:04separate a Bitcoin and the blockchain is
07:06absolutely both true and false so the
07:08true version of that argument is that
07:10when it comes to Bitcoin itself it will
07:12it doesn't work without the entire
07:14solution that includes the blockchain
07:16includes decentralization includes
07:18miners that's how Bitcoin works those
07:21are the design principles of Bitcoin but
07:25as soon as you say how would we how
07:26might we digitize a giftcard how might
07:28we digitize a security how might we
07:30digitize a a minute on a mobile network
07:35then the question becomes okay if that's
07:38the asset then already we're not we're
07:41assuming we don't need Bitcoin as the
07:42asset so what type of technology would
07:45have a network do we need a deploy to
07:47facilitate the movement of those assets
07:49well one part let's pause there for a
07:51minute though because I do think this is
07:52a common misconception we should spend a
07:53moment just really getting to the bottom
07:55of it because let's the whole evolution
07:58of these networks in the past the reason
08:01a lot of decentralized efforts have
08:02never worked is because it's really
08:04tough to figure out how to allocate
08:06resources how to get people to keep
08:08those resources going how to actually
08:10move things that not just move things
08:12around to your point but also just keep
08:14it going and and have incentive to keep
08:17it going and so the whole reason that I
08:19don't think we can completely disconnect
08:21the Bitcoin aspect of blockchain is that
08:24the entire system works because people
08:26are incentive to mine and those mining
08:29resources are what is keeping the entire
08:30network going yeah it's baked into in
08:33the past we never had that which is why
08:35it's never worked before it's inherently
08:36baked in yes Bitcoin is an incredibly
08:39elegant solution to creating a totally
08:43decentralized monetary system and this
08:46is why I like to tell people like
08:47Bitcoin is never going to go away
08:49it will Bitcoin will never go away it
08:52will live on for as long as the Internet
08:54lives on and the reason for that is as
08:56you pointed out there is an economic
08:59model in the mining process that incent
09:04in sense those miners to keep mining and
09:06it works it's six years old now and it's
09:10still humming along it's improving
09:13there's a community of developers who
09:15are helping to scale the protocol to
09:17make it more robust and more secure and
09:19so for those who are interested in
09:23either not participating in the sort of
09:29existing financial system or can't
09:32participate in the existing financial
09:34system Bitcoin is very well-suited so
09:36take for example to this week so this
09:38month the price of Bitcoin skyrocketed
09:4270% we're in the middle of a big bull
09:44market right so it's over $400 now it
09:47was at 200 and the 200s for a long time
09:49for the last since nine nine ten months
09:51and if you you look at why the answer to
09:55why the Bitcoin price is going up or
09:56down is always the same it's demand
09:58because the supply is fixed so price is
10:00always just a function of demand so now
10:01I have a very simple question you say
10:03okay well where is the demand and there
10:06was a great article on Zero Hedge which
10:08did an analysis and and basically
10:12demonstrated very very clearly that the
10:16demand in this case is coming from the
10:18Chinese who are anticipating a currency
10:22devaluation which has been announced and
10:25in China and are using Bitcoin as a
10:28means to circumvent capital controls so
10:32there's a great use case of wanting to
10:35be outside of a particular financial
10:36system and leverage something that's a
10:39lot like gold but a lot more efficient
10:41it's you don't have to ship it across
10:43borders it's not heavy you can just use
10:45the internet to store value and move it
10:48anywhere else in the world and then get
10:49out so Bitcoin will continue to serve
10:53those types of use cases where and many
10:56more to come but where you you know you
10:57want to be essentially in outside of the
11:01traditional networks everything in the
11:03gray market which you know people to
11:06anything oh that means you know Silk
11:08yes that's inclusive but everything you
11:10do in the cash economy you could call
11:12the gray market you know if you if you
11:14run a little restaurant you pay your
11:15waiters and your your belt your Busboys
11:17under the table that's great market
11:19it's cash activity they have smart
11:22phones you can do that with Bitcoin now
11:23right so there's a huge massive cash
11:27economy there's a huge massive number of
11:29people who want to be outside the
11:30financial system and there's many people
11:31around the world to have smart phones
11:32who are not because they want to be but
11:35they are because they live in certain
11:36countries they're unbanked because there
11:39isn't the financial system right but
11:40shifting gears for a moment you
11:42mentioned that the core of your business
11:43at least the initial partnerships are
11:45with like the Nasdaq and some of the
11:48other players you have listed on your
11:49website so yeah what why are they like
11:52doing this it's kind of counterintuitive
11:53actually because it's almost like
11:55they're willingly and Disrupt willingly
11:56disrupting themselves and they don't
11:58know that I mean they know that but
11:59it'll be interesting to see how that
12:01plays out so we is a great question
12:04we partner with financial institutions
12:07who view this as a strategic opportunity
12:09they view this as them there's a market
12:13structure change on the horizon where a
12:16lot of the entities who are involved in
12:19clearing settling reconciling and moving
12:25funds are going to be disintermediated
12:29so it says it again that shift from you
12:32know IP phones from analog IP phones or
12:35exactly it's the same idea so if money
12:37moves over IP and all assets move over
12:40IP we don't actually need as many of the
12:46clearing and settlement functions that
12:47we currently use today right because
12:49they exist for the fact that we're just
12:53you know today we send digital messages
12:54but then there's a settlement peace
12:55after well all that settlement peace
12:57after is going away and by the way there
12:59are big institutions were partnered with
13:01who run who run networks like Visa and
13:03Fiserv they run networks Nasdaq is a
13:07very central part of the capital markets
13:10ecosystem but the reason they've
13:12partnered with us is they've recognized
13:15that the first to deploy a network tends
13:20to get you know the lion's share
13:22of that opportunity so network actually
13:24is saying about the early bird or
13:26something what is it as ago the early
13:27early bird gets the network
13:34but you know there's a notion of network
13:36effects winner takes most and the same
13:38is going to be true here because
13:40ultimately the solution we're talking
13:42about is substituting intermediaries
13:44with cryptographic networks and so the
13:48first mover is most of whom are our
13:49partners have recognized that if we're
13:51going to go and do this it better be our
13:54network and we better set the terms and
13:56we better bring along the partners and
13:58and design in a way where we have a seat
14:01at the table so let's just like let's
14:03assume that those let's Nasdaq for
14:05example how do those networks start to
14:07look differently in act differently in
14:08the case of sure telephone invoice you
14:11know at least for the users like you
14:12said nothing changed although the cost
14:15of use dropped dramatically right what
14:18what might me we see in this transition
14:21what you'll see in the case of the
14:24capital markets is that securities and
14:28other financial products or assets will
14:31be issued at the outset as a digital
14:34asset such that when I trade on a stock
14:40I send you I want to sell one Apple
14:43share you want to buy an Apple share so
14:47I I create a transaction on the exchange
14:52where I include as the output at my
14:56transaction that Apple stock it matches
15:00me with someone who wants to buy you
15:03send a hundred and whatever dollars it
15:07is when this this thing goes live a
15:09hundred and fifteen dollars in the other
15:12side of the transaction the private keys
15:16which control those assets sign the
15:18transaction and then just seconds later
15:20the assets swap and land and our
15:24respective custodial accounts mm-hmm
15:26again managed by private keys so it
15:31really looks like a real-world
15:33transaction where I hold out a stock
15:36certificate and you hold out one hundred
15:38and fifteen dollars and we each grab the
15:39corresponding and then we pull in the
15:41opposite direction and and then we're
15:47we execute a trade you don't actually
15:50get that stock for a few days right
15:51right the promise of us can get the
15:53promise so that's what will be different
15:56behind the scenes but for the client
15:59experience what will be different is the
16:01feature the bullet points on the
16:03marketing you know brochure are just
16:04gonna say you know instant settlement
16:06low-cost you know the seven dollars for
16:09a trade a lot of that goes to
16:11intermediaries along the value chain who
16:13are clearing and settling right so the
16:15the ability to go collapse that too
16:17close to zero and the ability to buy
16:20into more complex financial products
16:22where there's transparency into those
16:26products and it's not lost in all the
16:29paperwork and Reconciliation that would
16:31normally go into a complex financial
16:33product will exist so imagine or what
16:36you will see our new products and
16:39and ultimately a more robust and a more
16:42transparent financial system and trading
16:44platform you can imagine the same then
16:46for credit card fees etc those things
16:49get squeezed in the same way yes I think
16:53most in general what we what we envision
16:57you know over time is a much smaller
17:00financial system actually because many
17:03of the players in that in the financial
17:05ecosystem are there because they are
17:08helping to clear and settle helping to
17:12ensure there's no fraud ensure that
17:14identity is is in line that all the KYC
17:19AML stuff is what's the keyway CML no
17:22your customer and anti money laundering
17:24all the all those functions which exist
17:27because there's a huge disconnect
17:28between a digital request and then the
17:31actual movement of funds so we will see
17:34a smaller financial market but one
17:37that's much faster more sophisticated
17:40better suited to customers the the very
17:43long-term and this is sort of
17:45controversial but I don't I don't I
17:48think some but I don't think is is that
17:50central governments will be minting
17:52currency this way so we already have
17:54three different forms of a dollar bill
17:56today we have it literally like a dollar
17:58note we have a coinage right
18:01and we have credit money where there's
18:03there's essentially the banking system
18:06is used to create funds I think there
18:09will be a fourth medium and that fourth
18:11medium will be a digital medium where
18:13you'll be able to receive and have on
18:17deposit dollars that are essentially
18:18digital tokens that you can use in these
18:20systems so that that's the world we're
18:24transitioning to and do you think that
18:27the players that you're working with buy
18:29into that vision because right now it
18:30seems like they're smartly
18:31opportunistically thinking about how to
18:33get in the game and make sure they're
18:36staying relevant and this software money
18:38over IP world actually but that seems
18:41like that's almost too controversial or
18:43like not controversial to us but yeah
18:45our partners in every case want to run
18:47the networks right they want to be
18:49deploying the networks and and and
18:52running them then the question is what
18:57are the assets on the network so if your
18:59Nasdaq it it makes sense that you're
19:02gonna have both securities but also
19:03currencies that are using to use to buy
19:06these currents these securities so the
19:09other big role on every network is where
19:11the assets being issued who's issuing
19:12them and and in some cases you know in
19:16the case of a first data or a a telecom
19:22company like orange you they're also the
19:24issuer but in other cases the issuers
19:27are actually entities that are either
19:30government's or custodian banks or
19:33companies themselves it's not
19:36unforeseeable that Apple would issue its
19:38own stock right so Apple could issue
19:41stock and flow stock that way in a much
19:45simpler process than the current
19:46underwriting and issuance process for
19:47stock we'd love to hear more insights
19:49about what it's like behind the scenes
19:50of actually doing this because on the
19:53outside it sounds interesting and
19:55exciting they're you know working
19:56together and collaborating and
19:57partnering but what does that actually
19:59look like because you're talking about
20:00two very different cultures two very
20:02different technologies two very
20:04different I mean there's so many
20:05different things coming together like
20:06can you tell us a bit more about that
20:07shape and were you were you did they
20:09come to you or did you go to them and
20:11having to do a lot of selling or are
20:12they like oh my god we need what you
20:14guys have on this vision of the future
20:16at the outset they came to us and the
20:19reason they came to us at the beginning
20:20was that our company chain we started
20:24two years ago and we launched a Bitcoin
20:27API for developers so that it was very
20:30easy for software developers to build
20:31applications on the Bitcoin network so
20:35companies like change tip and paste
20:38change tip is for tipping with Bitcoin
20:41on Twitter bit pace is for sending
20:43Bitcoin to Africa other remittance
20:46services wallets exchanges they used our
20:48API because it made it easier to build
20:50on Bitcoin so we were powering a huge
20:52percentage of the Bitcoin apps and
20:55services that were launched over the
20:56last couple of years and financial
21:00institutions who were interested in the
21:01technology got in touch with us because
21:02they said look it looks like you guys
21:04understand the technology so can you
21:06come explain it to us
21:07first of all and then second what's
21:10working and why and so we were sort of
21:13this neutral technical platform partner
21:15and so they they first came to us and
21:20when we met with big financial
21:23institutions the thing we realized quite
21:26quickly was that Bitcoin was of interest
21:28and they were curious about it but as I
21:31said earlier they really wanted to know
21:32if they could move the asset classes
21:34that they participate in every day and
21:38and they're relevant to their business
21:39could they move those assets in that
21:41same format right right so so that was
21:44at the outset now that we've become kind
21:46of the de facto blockchain
21:48infrastructure provider to these big FIS
21:52now we have obviously a sales process
21:54and we go out and we meet people in week
21:56go to conferences and it kind of goes
21:57both ways to the question of what it's
22:01like to work with you know we're a
22:03technology company we're very Silicon
22:04Valley if we're good and bad we're out
22:09here in San Francisco and our partners
22:12are largely large institutions in place
22:13New York and Boston and London and you
22:17know it's been it's been really
22:19interesting in terms of learning about
22:21what it's like to sell into these
22:22organizations and work with them and
22:24the the first thing I'll say is we have
22:28we really only work with partners where
22:30the CEOs driving the agenda in this case
22:33it's totally necessary because this
22:35isn't like an email spam filter we're an
22:38IT department can just look at the
22:40benefits and say ok your spam filter is
22:43better than the other spam filter and it
22:44cost this much and work will sign a deal
22:46this is a strategic decision to go
22:49disrupt a market to try to capture a
22:53part of the market maybe you couldn't
22:54capture before or defend against the
22:56onslaught of some new thing you know the
22:58depending on the use case it's a very
23:00strategic choice to deploy a blockchain
23:03network very strategic so we found that
23:06when we start in the Innovation Lab it
23:08never actually gets us to the point of a
23:12decision to go do this so we found that
23:16where the CEO invited us in at the
23:18beginning or where we were able to get
23:20to the CEO or our c-level executive
23:22early we've been able to define the
23:25hypothesis and the thesis for going
23:27after going out and building one of
23:28these things and then we've been able to
23:31have obviously the organizational buy-in
23:34because it's coming from the top to go
23:36do it and so that's the most important
23:39thing we've learned and and that's how
23:41we focus our time you know the other
23:43thing we've learned that's that's kind
23:44of kind of interesting and probably is
23:46not a surprise to most of your listeners
23:47but it was a surprise to us is that at
23:50any given institution it's very very
23:53rare to find someone who actually knows
23:54how the whole thing works how the whole
23:56institution the whole institution works
23:58right all right you go into a bank you
23:59can talk to senior people at the bank
24:01and you say you ask some very basic
24:03questions about how does what happens
24:06when you know ex-client wants to take X
24:09action like can you just lay out the
24:10steps and you tend to need to get like a
24:13roomful of people together for a day to
24:15really map it out the same is true you
24:19know in energy markets telecom these are
24:22large complicated companies that have
24:25are often the result of acquisitions are
24:28often the result of years of overlapping
24:29legacy systems competing fiefdom x'
24:32different products and services and so
24:35part of what is difficult and slow
24:38working with these organizations is
24:40simply setting a baseline for what is
24:43the status quo today and when we do it
24:45this new way how does that how things
24:47change and then of course finally the
24:51implementation right so the reason
24:53companies like Accenture and PwC exist
24:55and are very successful as they they're
24:57they go ahead and implement and
24:59re-engineer business process and and
25:02this is the same thing right so we are
25:06finding ourselves increasingly
25:07partnering with large enterprises who
25:10already sell into the IT functions of
25:12big banks and big financial companies to
25:16actually pull off the implementation and
25:18so you know the net-net is you know as a
25:21small tech company out here we get
25:24leverage through you know senior
25:26partnerships identifying people in the
25:28company that really understand how the
25:29thing works and then partnering with
25:31integrators to actually pull it off and
25:33and how do these things exist within
25:35these large organizations are they sort
25:36of like okay here's the skunkworks
25:38Financial digital cryptocurrency gang
25:41and we've got them off there in the
25:43corner and the basement or is it sort of
25:45in the full light of day and you know
25:47they get to come to the holiday party
25:49too so when we started two years ago
25:51there was no one and maybe there's one
25:53one person who just wasn't you know they
25:55just had a hobby and they liked Bitcoin
25:57or something right right there's no
25:58official anything going on we called the
26:02company chain two years ago because we
26:03had this thought that you know
26:05eventually people are gonna realize that
26:07it's the layer of the blockchain that is
26:08of interest but it was kind of a bet at
26:10gamble to call the company chain two
26:12years ago then about a year ago as you
26:15had exactly as you had said there's a
26:18skunkworks that would get set up in the
26:21Innovation Lab and it was kind of like
26:24all right you guys go figure it out and
26:26if tell us if there's anything here
26:27that's interesting and then it really in
26:30the last six months but like in a very
26:33serious way in the last three and this
26:35is a very real time topic senior
26:38executives have taken this on and owned
26:43this as a part of their strategy right
26:47they've decided that whether they're
26:49gonna take an action or not they need to
26:52if they're not and if they're gonna do
26:53it they're trying to figure out how to
26:54do it so the notion that you don't have
26:57a block change strategy if you're a
26:59financial institution now is no longer
27:02possible you have to know what you're
27:05going to do and how or if you don't want
27:07to do something you better know why
27:07you're not doing something that's the
27:09status that's that's where we are today
27:11so really is a seat it's really a
27:12c-level agenda item now and I by the way
27:15I know that because you know I used to
27:18work in management consulting many years
27:20ago at Boston Consulting Group you know
27:23and I check in with them occasionally so
27:24tears ago I said does anyone any your
27:26clients asking for this no they're like
27:27a year ago a year ago anyone that said
27:29no six months ago anyone asking I think
27:32someone I think Bob down the hall is
27:33talk to someone about it now it's can
27:36you come in and present to all of our
27:38partners because they're all getting
27:40asked about this now so it really has
27:41changed tremendously in the last
27:43actually be able to say the same way you
27:46used to say before what's your internet
27:47strategy with your web strategy what's
27:49your bid Queen strategy that's actually
27:50a huge shift let me ask this question
27:51Anna you don't have to give an answer
27:53because I think I know what it'll be but
27:54but but does all that interest and all
27:56this kind of come to come to see the
27:59light way of things these days does that
28:02mean the blockchain wins I mean is that
28:04then does what could happen to derail
28:07all this I think it means that digital
28:10assets are coming in other words this
28:13hybrid we have now of analog assets and
28:16then databases it doesn't doesn't make
28:21sense so we're going to go to a full
28:24digital stack where the asset itself at
28:28the outset is issued in a digital format
28:30is move digitally over networks is
28:33settled and held digitally using
28:35cryptography I mean that's that is
28:37coming part of what's challenging for us
28:40is a startup is there is so much noise
28:42in this market right now and a lot of
28:46people are gonna do it wrong you know
28:48that expression you're doing it wrong
28:49like we look at a lot of initiatives
28:52people are taking and it's clear they're
28:54doing it wrong right and so what's going
28:56to happen what we anticipate is we're at
28:58this kind of like fever pitch in the
28:59hype cycle around this technology right
29:01now there will be a over the next year
29:05a lot of people that take half measures
29:08and they just don't get although they
29:10don't do it what we would consider the
29:12right way and and they won't have great
29:15results and they'll kind of be like and
29:16we tried that blotching thing and
29:17nothing there but then there will be a
29:20handful of networks that will be
29:22deployed by serious companies that will
29:24generate real results and then the proof
29:27will be in the pudding but today it's a
29:30strategic question and people are trying
29:32to learn for us the imperative is
29:34partner with executives who are serious
29:36who know what that why they want to do
29:38this who will commit to it for the long
29:39haul and let's go build those networks
29:41and change the world and then the and
29:44then you know people will see the
29:45results over time let's actually we
29:47don't have too much time less let's
29:48write lightning round a bunch of bits
29:51and misconceptions definitions
29:53interesting things happening in Bitcoin
29:54and blockchain but one just to start off
29:57because you mentioned you know database
29:59and your discussion about assets that we
30:02have this analog stuff and then you have
30:03a database one thing that I've heard
30:05come up Aloha is this notion of private
30:07and permissioned blockchains
30:09which feels really weird because isn't
30:11that just like a database then so could
30:14you kind of lightning around answer sure
30:15that so a blockchain is a database so we
30:19shouldn't overthink it but it's
30:21different from a traditional database in
30:23two critical ways first of all it's
30:25shared so in other words it's
30:26distributed to every participant who is
30:28participating in the network and then
30:30the critical difference that I think
30:33most miss is that in a blockchain the
30:35assets are controlled by the owners of
30:38the assets whereas in a traditional
30:41database the assets are controlled by
30:43whoever owns the database who's ever
30:45running the database right that's the
30:47big difference so it's a it's a system
30:49whereby the asset owners retain control
30:52all the time over their assets even as
30:55we're using a data model in a network to
30:58to transact so having defined that
31:00what's your take on this whole move and
31:03discussion around permission in private
31:04I think we'll have I think the future
31:07will be many many different networks the
31:10Bitcoin network will be one I think
31:12you'll have networks around prepaid and
31:14gift and loyalty I think you'll have
31:15networks for capital markets networks in
31:19market and that for the most part they
31:24will be interoperable either directly or
31:26through integrations but I don't think
31:31every asset in the world will be wedged
31:34into the Bitcoin network now I think
31:37we'll have many networks that are
31:39designed and defined for use cases now
31:41some people call those private or
31:42permission I think those words can note
31:47what we envision is simply just many
31:49interoperable networks and the way in
31:53which those emergent of the world is
31:55being defined now by companies like ours
31:58and others but regardless of path to to
32:02market I think that's the world we're
32:03heading toward from a regulatory
32:04perspective it just doesn't make sense
32:05you'd regulate like a giftcard network
32:07the same way to regulate a capital
32:08markets network for syndicated loans and
32:11also different geographies and different
32:13there's just a lot of reasons why it's
32:15natural to to have different markets how
32:17you know applicators are different or be
32:20served by different networks oh is it
32:21then next lightning round question
32:22that's a logical consequence of that
32:23which is if the entire point of having
32:25any kind of network effect is that the
32:27value increases for every user and the
32:30more people that use that network then
32:31you increase the value for those
32:32constituents this notion of having
32:34multiple networks even if they are
32:36interoperable so the interoperability
32:38takes care of some of the connection how
32:40are we then as developers as an
32:42ecosystem going to build this in a way
32:45that it is truly giving that network
32:47effect sure well I think if you look at
32:50Nasdaq Nasdaq's a private network today
32:53with a network effect of buyers and
32:55sellers Craigslist has a network effect
32:57Instagram has a network effect there are
32:58lots of services and lots of networks in
33:01the world that have Network effects so
33:03having multiple networks is not does not
33:06mean we will not have network effects
33:07within the networks that are valuable
33:09and I think the way I think really
33:12really important question how do we make
33:14sure that we don't just end up with a
33:16bunch of different protocols and siloed
33:18off then used to spend more time
33:19plumbing the connections and actually
33:21gain the benefits of what the entire
33:23thing is supposed to enable and and some
33:25networks will well like they do will
33:27sort of a Creedmoor power and center of
33:31and so then the sort of decentralized
33:32versus centralized yes gangs always hot
33:36and bothered yes well you know we
33:38already have some prior art here which
33:40is there was a period of time
33:42shortly after Bitcoin gained popularity
33:44in 2012 when there were what were called
33:46alt coins many other alternative
33:49currencies that were Forks of Bitcoin
33:51and like a dogecoin dogecoin light coin
33:55right dark coins a whole bunch of
33:57different ones and without weighing in
34:00on the value of them because I think
34:01it's pretty clear now that they're not
34:03I think it's fun but it's empirically
34:08not valuable but even though those were
34:11different networks it was actually very
34:13easy to swap dogecoin for Bitcoin
34:15litecoin for dojo is very easy because
34:18at the root they were all digital assets
34:21they're all digital currencies so even
34:24if we have a world with many different
34:25networks it won't be hard to exchange
34:28across those networks because ultimately
34:30we're talking about cryptographically
34:33issued and transferred assets so it's
34:36gonna be much easier than integrating
34:38two data centers with different database
34:41architectures and written entirely
34:43different ways and with different api's
34:45I mean it'll be it'll be more
34:47straightforward than that so that's one
34:49part of the answer I know it's a
34:50lightning round as long as everybody
34:52it's much Wow I didn't so the the other
35:02the other answer is you know there are
35:05many competing efforts today and some of
35:08them will just go away right like not
35:10there will not be 50 different
35:12blockchain companies serving financial
35:15companies like there will be a few and
35:17there will be a healthy amount of
35:18competition and that's fine I don't
35:20think I don't think we we will have one
35:23company that will deploy all blockchain
35:24networks for all and asset classes
35:26outside a bit and nor do we well nor do
35:28you want that right yeah that seems like
35:29it would defeat the various you
35:30mentioned color queens you touched upon
35:32that briefly earlier could you quickly
35:33pause and define that for us and other
35:35colored coins initiatives a colored coin
35:38is broadly understood as layering an
35:44other than Bitcoin or currency other
35:47than Bitcoin on to the Bitcoin network
35:49and without getting into the technical
35:52detail of how that works the reason it's
35:55called a colored coin conceptually as
35:57you imagine taking a piece of one of
36:00these coins and like marking it somehow
36:02and saying now this thing is now for
36:04from now on this represents a dollar
36:07bill and if I give you this you can come
36:10back to me later and get a real dollar
36:11mm-hmm so a colored coin was that was
36:14the first kind of technical attempt at
36:19digitizing other assets and there's
36:22there were many different approaches to
36:24doing that but what we're seeing is a
36:27shift away from that approach toward
36:29building that works from the ground up
36:31that are designed for a particular asset
36:33okay so that brings me to the next the
36:36lightning round question which is
36:38and i think if you could spend a couple
36:39minutes on this one cuz it's super
36:41interesting and read this great paper on
36:43it that came out earlier this year could
36:45you explain what they are and why they
36:46matter yeah sure so aside the basic idea
36:49with the sidechain was the Bitcoin
36:53network is big there's five billion or
36:55today seven billion dollars of value
36:56transmitting on the Bitcoin network and
36:58so we don't want to tweak the network
37:01and break it to try out new features if
37:03we're gonna try a new feature a new way
37:05that the Bitcoin network functions say
37:07if it's more optimized for micro
37:08transactions or more optimized for more
37:10confidential transactions it won't be
37:13easy to just change that on the Bitcoin
37:15network we need some we like a test
37:17network to try out a new sandbox to try
37:21out a new way to architect the network
37:23but we still want Bitcoin we want it we
37:25want to see how big coming a function in
37:27this new type of network so aside the
37:29idea with the sidechain was we can if
37:33you imagine the Bitcoin network as a
37:35circle we can take a smaller circle and
37:38attach it to add a tangent point to the
37:41Bitcoin network and we can take some
37:43Bitcoin off of the main network and
37:44funnel it over and through what's called
37:47a peg into this new network so like
37:50taking it from one country to another
37:51it's like exchanging it over this new
37:53network and and see how that approach
37:58to a network architecture would look so
38:02it was a way to test new features for
38:06the Bitcoin network without having to
38:08create an altcoin like litecoin so
38:10litecoin dogecoin those word new type
38:11they had new features but you had a new
38:13currency there so this the idea of the
38:15side chains like well we already have
38:16Bitcoin we like Bitcoin let's continue
38:18to use the Bitcoin currency but we can
38:19try new features by pegging it through
38:22this process and so that was the
38:24original impetus behind creating a side
38:26chain and the company that is involved
38:29in in that solution and that that
38:32approach includes many of the original
38:36engineers and architects of the Bitcoin
38:37network so they're really well versed
38:39and suited to innovating on the Bitcoin
38:42network and with the Bitcoin currency
38:44we're side chains potentially have a
38:48limitation is getting in to say other
38:50asset classes because there's this
38:53really fundamental question is if you
38:56don't want Bitcoin currency in the
38:59particular use case or market then why
39:02not build the network that's suited for
39:04that use case why try to bring over a
39:06Bitcoin and like connect them somehow so
39:08side chains I think are going to be very
39:11very powerful with respect to innovating
39:14the Bitcoin network less so with respect
39:16to innovating in capital markets in
39:20payments and other areas we'll see how
39:22that plays out but that's that seems to
39:24be where we're at today so then last
39:26lightning round question and then we'll
39:28you know you've talked a lot about the
39:29destruction of the FinTech and the work
39:31that you guys are doing and a lot of
39:32these new alternatives and things that
39:34are happening the experimentation that's
39:35happening on the blockchain let's talk
39:39more about some of the more interesting
39:40native apps that you're seeing because i
39:42feel like sometimes a conversation
39:43around Bitcoin and blockchain got so
39:45much into the infrastructural details
39:47that we sometimes forget about the most
39:48interesting apps are being built on top
39:49of it yeah what are some of it from your
39:51vantage point what are some of the more
39:52interesting native and promising native
39:54apps you're seeing and where do you see
39:56kind of holes in the developer ecosystem
39:58that you would love people to address
40:00sure so it's I divide that into two
40:03categories one is apps on the Bitcoin
40:05network and then the other is
40:08essentially other asset classes right
40:11provenance or whatever right right so on
40:13the Bitcoin network I think the the
40:18intersection of social media and Bitcoin
40:20is super interesting so changetip is a
40:22really good example of that where you
40:24can instead of just liking someone on a
40:27social network you can send them a small
40:29amount of Bitcoin which would be very
40:30hard with a credit card or another means
40:34like cash obviously also on the Bitcoin
40:37network I think the most Canadian TVs
40:40one of the most powerful use cases and
40:41interesting use cases is in essentially
40:45next-generation remittances so ways in
40:48which we can we find people with smart
40:50phones moving money out of their country
40:52to relatives or doing it trying to do it
40:55in a secretive way or stashing it yeah
40:57or stashing it so taking out and we're
40:59not stashing in the mattress anymore
41:01we're just stashing in our smartphone
41:02yeah what we could speculate about the
41:04future but today on the Bitcoin network
41:05that is really the most compelling use
41:08case and the most the thing that is
41:10driving demand is going around capital
41:12controls hedging against a hyper
41:14inflating currency in your home market
41:16needing to keep money out of the site of
41:19corrupt officials whatever it is and of
41:22course illicit use cases continue to be
41:24driving demand for a Bitcoin so those
41:27are the those are the killer apps today
41:30on the other asset class right so
41:35besides like Bitcoin right so think
41:37imagine a world where you know you have
41:39a bunch of loyalty points and reward
41:41points today sitting in programs locked
41:43up completely isolated you probably
41:45don't think of them as value when you
41:46think about your net worth probably
41:47don't include all the gift cards and
41:49loyalty points you have right frequent
41:52flyer miles you just they kind of exist
41:53and they're kind of a nuisance almost
41:55well well the blockchain is gonna do is
41:57unlock those and make it very fluid to
42:01move them around to have them on your
42:03smart phone to use them in new ways
42:06trade them exactly now according to
42:08whatever the restrictions are that the
42:10brand has but we envision a world where
42:13you know Bitcoin people might ask well
42:17why are there so many fiat currencies
42:18there should just be like this one
42:19currency called Bitcoin and there's
42:20something to that there's another way to
42:22look at that which is exactly opposite
42:24which is why they're so
42:25few currencies why doesn't every brand
42:26have a currency that that they give me
42:30to reward me for that night I even heard
42:31our partner new part newest partner Alex
42:33rampell at money 2020 recently talked
42:36about even like real estate like giving
42:37out like you know mm-hmm part of your
42:40own real estate as right a fraction a
42:42fraction of your real estate so when
42:43it's so easy to issue and move an asset
42:47I think what that unlocks is way more
42:49activity around that so imagine for
42:52example tweeting about coca-cola and
42:55then coke pushing you you know a couple
43:00bucks worth of coke coupons yeah and
43:04then going to make doc and then going to
43:05McDonald's and then paying with your
43:07smart phone and getting two dollars off
43:09because you bought two dollars of coke
43:11products like that that customer
43:13experience flow is just not possible to
43:16do today in an easy way but would be
43:18very possible and very easy with the
43:20blockchain and you sit in the middle of
43:21this between not necessarily coca-cola
43:23but big companies and consumers how
43:26quickly I mean you talked about how in
43:28the last year in the last couple of
43:29months things have changed quickly but
43:31how soon do we either you know get to do
43:35the coke example or even behind the
43:37scenes securities are moving along these
43:40digital rails that that we haven't used
43:42before yep so the main so the the speed
43:47of at which the market has become
43:49interested in this technology has
43:51shocked us even as a startup that moves
43:53very quickly and that speed is that's
43:56all word-of-mouth that's all talk right
43:59so things can change very quickly in
44:01terms of talking and that's sort of why
44:03the Gartner hype cycle exists because
44:04that first peak is not necessarily real
44:07things it's it's people talking and
44:10deciding oh this is the next big thing
44:11and so you get this surge of interest
44:14but then there are just the physics of
44:15how long as it takes to play a network
44:16and get it up and running and so in
44:19practice what I think you'll see and
44:21what you know I can say here is you'll
44:25see the first few networks going live
44:27next year and then I think by 2017
44:31you'll start to see some of the first
44:35winners in other words you'll see that
44:39in a particular market if you don't have
44:41a network running then you're behind
44:44you're behind your peers right and so
44:46what what we anticipate next year is a
44:48kind of a cooling-off of the rhetoric
44:49but a real investment in building and
44:51then by 2017 the emergence of the first
44:54few networks that will really start to
44:56change the game and change market
44:57structure so that's that's the best
44:59guess I have based on our roadmaps that
45:01and the this sort of timelines that
45:03we're seeing with our partners Adam
45:05thanks for your time get back to work
45:07thank you as a pleasure to be here
45:08thanks Adam that was great for having me
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