00:00hi everyone and welcome to the a 16z
00:02podcast I'm Hannah and today's episode
00:04continues our series on all things
00:06crypto with Chris Dixon in conversation
00:08with Nick tomino founder of early stage
00:10crypto fun one Confirmation and formerly
00:13biddy at coinbase in this conversation
00:15they start off with a framework for
00:17understanding tokens to what gives them
00:20long term value what's the role of
00:22stable coins in the ecosystem as well as
00:24scaling issues Unchained versus off
00:27chain protocols Forks and other trends
00:29in crypto you can also check out more
00:31details about this episode as well as
00:33past episodes in this series and a video
00:35covering the building blocks of crypto
00:37on our site at a 16z comm slash crypto
00:40so people may have heard of tokens on
00:43coins token sometimes means like you
00:45specifically here C 20 which means
00:46tokens built on a theorem so people use
00:48the term more broadly a little bit of
00:50confusion around the nomenclature but
00:52you know broadly tokens coins the
00:54different categories of tokens I guess
00:55and maybe you can see you have a kind of
00:57framework here yeah walk us through that
00:59there's a lot of different mental models
01:00people have and this is just mine but
01:02how I think about is simply kind of two
01:05types so the first is what I call a
01:07usage token and some people call it a
01:09medium of exchange tokens some people
01:12call that a utility token but it's
01:13basically a token where ownership is
01:15required to use some digital service and
01:18you can think of any blockchain as a
01:20digital service where you have kind of
01:23bitcoins the you know most widely known
01:25usage token where our ownership is
01:28required to use this digital service and
01:30in the case of Bitcoin that digital
01:31service is a ledger that can be used by
01:33anyone to store and transfer value right
01:36the original users choking by the way
01:37we're I P addresses and domain names
01:39right I mean like the the sort of scarce
01:41Network resources of the internet but
01:42yeah you know you needed an IP address
01:44to access the Internet need a domain
01:46name set up a website yes that's right
01:48and so if you look right now at kind of
01:50coin mark comm the top 25 tokens by
01:54market value I think 24 of the 25 our
01:57usage tokens one of the interesting
01:59things is right now a lot of the icos
02:01that we're seeing are kind of
02:04masquerading as usage tokens right but
02:06how I think about whether our usage
02:08token can have long-term value is really
02:11is the digital service
02:13that's being provided it will demand for
02:15that increase in the future and are
02:17there kind of scarce unique resources
02:19underlying that digital sir yeah will
02:21there eventually become what I would
02:22call consumptive demand not speculative
02:24demand right meaning demand to actually
02:26use the service as opposed to simply to
02:28buy it and hoping it'll go up in price
02:30right in the same way that you know at
02:32the beginning of the internet domain
02:33names people bought them for speculative
02:35use cases eventually you know someone
02:37just bought pizza calm for 10 million
02:38dollars they bought it to use it namely
02:40to sell pizzas right yep and so or
02:42whatever their model is affiliate
02:43marketing for pizzas or something but
02:45but they're eventually the reason domain
02:46names eventually are IP addresses you
02:48you need them to you know if you want to
02:49have servers on the internet or
02:50something like this so eventually the
02:52consumptive man replaced the speculative
02:54attack and I think what you're saying
02:55but ICO is a lot of sort of masquerading
02:57is that there are obviously people
02:58taking advantage of the you know just
03:00the money flowing in and sort of taking
03:02what is probably just a normal company
03:04that's not a protocol and sort of
03:06calling it a protocol and making up a
03:09kind of use case as to how its usage
03:11token it's just as an excuse to raise
03:13all right so that's usage tokens and
03:15then what's the other kind so the other
03:16is what I call a work token so it's
03:18basically a token where ownership gives
03:20the token holders the right to
03:22contribute some type of work to a
03:23decentralized organization and so an
03:26example of this is something like the
03:29reputation token which is native to
03:30augur where you don't have to own rep to
03:33use the prediction market that's the
03:35design that this isn't a live product
03:36yet but ownership gives you the right to
03:39do work in this decentralized
03:41organization why would you want to pay
03:43to do work well you'd want to own a
03:46token a stake that gives you the right
03:48to do work in the future so basically if
03:51you think that millions of dollars will
03:53be flowing through the augur network in
03:56you know a couple years and you want a
03:58piece of that right because this would
04:00be kind of like if Facebook were a
04:02crypto protocol a work token might be
04:04the ability to vote on how the news feed
04:06algorithm works yeah yeah and you can
04:08see how you know at some point if
04:11facebook is helping to determine who win
04:13an election like having some say in that
04:15algorithm could be valuable mm-hm if
04:17these crypto networks become very
04:18important having some voice in it would
04:21seem to be valid exactly exactly and I
04:23think it could manifest itself in many
04:25ways right so I think
04:26the most interesting work token will be
04:30when aetherium switches from proof of
04:32work to proof of stake and by the way
04:34these aren't mutually exclusive so you
04:35can have tokens that are both usage and
04:38work tokens and I think many folks in
04:39the future will likely be that and the
04:41ether will be when it's which exactly
04:43exactly you'll need ether to you know to
04:45pay gas to run smart contracts and then
04:48you'll also ownership will be required
04:50to do work in the network and in that
04:53case that work is validating
04:54transactions and so when ether switches
04:57you know people will want to own ether
05:00they may want to own ether to earn the
05:03the mining fees if you will yeah I mean
05:05that's the other reason you want to wear
05:06own work tokens not just to vote on it
05:08but in the case of like the perfect
05:09steak and a theorem you get paid for it
05:10exactly zero X is another kind of
05:12example of you know what they call a
05:13work token where the work is just
05:15governance so in some cases you may just
05:17value you think this is gonna be
05:19important and you want to play an
05:20important role in it but in other cases
05:22like in the case of augur and ether
05:24it'll actually give you the right to
05:26earn fees in the network and so I think
05:28to me I'm really excited about like
05:30completely new organizational structures
05:32which Bitcoin is kind of the first but
05:35you know on the work side you can only
05:37participate if you you know have
05:40sophisticated hardware and a lot of
05:42computing power right so I think when we
05:45see proof of State we're gonna start to
05:46see kind of more inclusive ways to
05:49create decentralized organizations that
05:51lots of people can participate in
05:52there's another kind of tokens we will
05:54talk about which I would call a
05:55traditional asset securities
05:56organization you know I guess my view on
05:59that is and that is taking something
06:01that's you know a piece of real estate
06:02or something as this traditionally add
06:05value and creating a digital token that
06:08represents you know but lets you trade
06:10that or something right my own view is
06:12that's far less interesting and that's
06:14not even part of the crypto movement in
06:15a way yeah to me it's not really a
06:18cryptocurrency concept and it just may
06:20just be a kind of regulatory workaround
06:22or something yeah I agree with that I
06:24would say I think you know it could be
06:27really meaningful in the sense that we
06:30could see a lot of traditional assets
06:32tokenize but from a technology
06:35perspective I don't think it's that
06:40know that you know everyone around the
06:42world is seeing all this money that's
06:44poured into icos this year and thinking
06:49maybe we should tap into this kind of
06:51global liquidity pool and tokenize our
06:54real estate project or our security or
06:57things like that and I do think it's
06:59likely that we do see particularly
07:01jurisdictions that want to be favorable
07:03to a put regulation in place and attract
07:06kind of investors and entrepreneurs that
07:08are thinking about this do you think
07:09that the kind of tokenization has gone
07:11too far I mean the flip side would be
07:13hey maybe every project should have you
07:14know should have a token and this is
07:16just kind of like the new business model
07:17and a new way to kind of you know align
07:19incentives around a new network or
07:21something yeah I think it's gone too far
07:23my sense was that the icos had slowed
07:25down quite a bit but there was still 400
07:28million in token sales in November alone
07:31and so I think there's in this boom
07:35there's certainly people that shouldn't
07:38be doing tokens that are so how that
07:41will play out over time I'm not sure but
07:44I would caution you know anyone who's
07:46looking at investing in tokens to think
07:48a lot about whether the token can have
07:51long-term value or not or is this just
07:54an interesting project but but there's
07:57not a strong reason for the token to
07:59kind of persist over time and have
08:01significant value yeah everything we're
08:03discussing is highly speculative one
08:06thing we should say here is that we do
08:07not recommend that people listening by
08:10any of these tokens and if you do buy
08:13them and like you do a lot of research
08:15and put a very very small amount of
08:17money into them because it's super risky
08:19and I think a lot of people including me
08:21think it's very likely we're in a boom
08:23part of a cycle and while I think we're
08:27very very excited about the long term
08:28technological prospects of what's going
08:30on in cryptocurrency you know I think
08:33it's very likely that the prices have
08:34gotten ahead of the actual progress
08:36certainly this year has been all about
08:39the token boom right there's been over
08:41four billion dollars in token sales what
08:44I'm really spending a lot of time
08:45thinking about is like what are the
08:47actual products that people are going to
08:49use over the next year or so because I
08:51think a lot of these big
08:53jedd have raised a ton of money aren't
08:55likely going to ship anything for many
08:57years in some cases but I think there
08:59are kind of a few different categories
09:01of products that we're going to see
09:02actually start to drive real usage kind
09:05of in the next year and we're already
09:07seeing that to some extent so one
09:09example is like decentralize exchange
09:10just for the listeners what is a
09:12decentralized exchange so very simply in
09:16a centralized world which exists now in
09:19digital assets you're trusting a third
09:22party like coin base that allows you to
09:25trade right so you're storing your value
09:28on kind of a centralized service and
09:31then trading and then withdrawing the
09:33centralized exchange basically
09:34facilitates trustless exchange of assets
09:38so if you control your private keys you
09:41can trade basically and it's a more
09:44secure way and you don't have to you
09:47know give a third party your funds which
09:50is susceptible to hacking and things
09:52like that so what are some examples
09:53there so one kind of project that I
09:56think is quite interesting that's seeing
09:58traction is 0 X so 0 X 2 token sale
10:01earlier this year and they're already
10:03seeing some projects kind of built on
10:05top of what they call real layers radar
10:07relay is a good example of that and the
10:11architecture there is you use a theory M
10:13as the settlement layer but then you
10:15have sort of off chain relays or order
10:18books that do the high throughput
10:20that's where transactions an emerging
10:22architecture we're seeing more and more
10:23of which is sort of use aetherium is a
10:25less performance that you can trust it
10:27and you can send money through from our
10:29contracts and things like this and so
10:31use it for what it's good for and then
10:32do everything else off chains that 0x is
10:34sort of one of the more interesting
10:35examples of that architecture yeah and
10:37so an alternative to kind of the 0x
10:39approach is something like ether delta
10:41which does everything on chain so they
10:43do order book on chain and every time
10:45you change an order for example you're
10:47using meta mask you have to hey gasps
10:50and click a button and it's so kind of a
10:52poor user experience right so well
10:54inexpensive potentially design protocols
10:56that use both on and off chain it's very
10:59tricky right because you have to make
11:00sure that the off chain stuff is also
11:02happening in a trustworthy way yeah like
11:05on chain you get trustworthiness for
11:06free just based on the nature
11:07the blockchain architecture yeah but off
11:09chain you have to guarantee that as well
11:10right so you don't have like a row goat
11:11or a book or something like this yeah
11:13yeah and so that becomes a very tricky
11:14design problem right yep to be clear if
11:17it's still early and I think there's
11:18still even in 0x a lot to be figured out
11:20by the way I am a personal investor in
11:22many of these projects being discussed
11:24but I think what's interesting about 0x
11:25is they're solving a real problem and
11:28they're seeing a real ecosystem kind of
11:30emerge on top that's kind of
11:31characteristic of the projects that will
11:33be seeing work to get usage in the near
11:34term they tend to be more crypto focused
11:37because that's where the users are today
11:38of these crypto products right as
11:41opposed to you know I think you and I
11:43both believe that someday people will
11:44have social networks and ride-sharing
11:46and all sorts of things using crypto
11:48protocols but that might be farther away
11:49yep just given the way this is evolving
11:52that's right yeah I think one mistake
11:55ICCC a great entrepreneur on paper
11:57that's solving some you know real world
11:59problem with blockchain technology and
12:01it sounds really good but you know can
12:05they really execute is the technology
12:07stack really there at a point to solve
12:09an end-user application I'm most excited
12:11about projects that are solving problems
12:13for the existing crypto community rather
12:15than the broader landscape and what's
12:18missing why can't you solve problems to
12:20the broader landscape today is it is
12:21just the etherium scaling issues is that
12:23other services like for example identity
12:25services is it just that we're missing
12:27kind of core components there's a lot of
12:29core components that are still missing
12:31take something like augur which is a
12:33decentralized prediction market which is
12:35kind of an end user application in order
12:37for something like augur to become
12:40interesting to a mainstream even if kind
12:43of mainstream users wanted to use this
12:44type of product I think there's a lot of
12:46things missing so one is a decentralized
12:49stable coin right so what is a stable
12:51coin so stable coin is a coin that has
12:54the volatility characteristics similar
12:58combined with the decentralization
12:59characteristics similar to that of a
13:01Bitcoin or aetherium so taking kind of
13:03the best of the stability
13:05characteristics of fiat currencies and
13:07the decentralized characteristics of
13:08crypto currencies the volatility of
13:10Bitcoin and ether are such that they're
13:13moving 5 or 10% in a given day and no
13:15one that's actually using it as a medium
13:17of exchange for something or placing
13:18bets would actually want to use that
13:20right so a decentralized
13:21coin in my view is like a core piece of
13:23middleware that's missing in the
13:25ecosystem I think another is identity a
13:27lot of these services you know really
13:30rely at the application layer rely on
13:32identity and there hasn't been an
13:34identity based protocol that's really
13:36emerged and gained a lot of traction yet
13:38so so that's like if you build a
13:40decentralized ride-sharing service how
13:41you're gonna keep track of the the rider
13:44and driver ratings as an example yeah
13:46right and how you can avoid simple
13:48attacks and always exact things I mean
13:49one of the things I'm excited about in
13:51terms of kind of new projects is like
13:53continuous token mechanisms so how do
13:55you drive usage of the product and give
13:58new users for some action new tokens and
14:01something like identity I think is a
14:03piece that's really needed in most cases
14:06to do that in a way that can't be gamed
14:07by sibling so the cycle it about stable
14:10coins so we have we're investors in a
14:13stable coin based coin first of all I
14:15think there's two categories of stable
14:16coins there's things that where they try
14:18to peg the digital asset to a physical
14:20asset right and some of these are
14:22controversial and then there are what
14:28you might call kind of like crypto
14:29native the ones like maker die and and
14:32base coin where there's no tying it's
14:35something instead there's a discount of
14:37game theoretic mechanism that's been
14:38developed so maybe we can talk a little
14:40the maker die and yeah basically work
14:42the actual mechanisms that they're using
14:44to create a stable coin or quite complex
14:47at a high level this idea of creating
14:51what some people call an algorithmic
14:55a central bank where you kind of peg
14:58some asset and based on market supply
15:02and demand the supply of the token
15:05adjusts and so in the case of Bitcoin
15:08for example Bitcoin has a very clear-cut
15:11money supply which is that 21 million
15:13Bitcoin will ever be created in the year
15:152140 and the rate at which new Bitcoin
15:18are mined decreases by half every four
15:20years in the case of something like base
15:22coin they're pegging you know the coin
15:25to some asset you could say one base
15:28coin equals one dollar and then based on
15:30the free-floating price the supply of
15:35adjusts right so if the price goes up
15:36more coins get printed if the supply
15:39goes down then a new type of token in
15:43their ecosystem called a bond gets
15:45printed and folks buy the bond with base
15:48coin so that's kind of essentially as
15:51you said you can think of it as kind of
15:52a second reserve of currency that acts
15:55like a banker or something and buys and
15:57sells or you know yeah and tries to
15:59tries to adjust the price to a target
16:01and like with a lot of these economic
16:02things it works to the extent people
16:04will believe it works because for the
16:05banking mechanism to work there has to
16:07be real value there whether there's
16:08value there partly depends whether
16:09people believe there's value there right
16:11and so it has this kind of reflectivity
16:13property until these things are running
16:16a scale for years I guess we won't
16:17really know if they work but it seems
16:18like a really important problem and one
16:20that's worth working on one kind of fair
16:22question some would argue well Bitcoin
16:25volatility has decreased you know every
16:27year and at some point it will get to a
16:31point where it's actually a good medium
16:32of exchange which will see other
16:35economists would argue well it's a fixed
16:36supply and so by definition there will
16:39be more volatility fundamentally than a
16:42coin where you know stability is the
16:45actual goal so we'll see yeah okay so
16:47let's talk about fork support for a big
16:49topic this year forking is a very
16:51powerful mechanism and it's really kind
16:53of a new concept where if you don't like
16:55how a projects being run
16:57you can copy the project and not just
16:59the code but all the data from the code
17:00there was a Bitcoin fork with Bitcoin
17:02cash there was a threatened fork with
17:04this egg with 2x that was called off
17:06there was a you know famously aetherium
17:09forked creating a theorem classic and
17:10aetherium the equivalent would be like I
17:13don't like how Facebook is running their
17:15Agora though I'm creating Facebook too
17:16and it not only has all the code of
17:19Facebook but it also has all the photos
17:21and everything else like it's just the
17:23whole thing it's just Facebook - and one
17:24of the important things about is it
17:25keeps the people governing the network
17:27in check right if they start to extract
17:29rent or do other things that are bad the
17:31community can just fork them in fact
17:32that happened with like monaro came out
17:34of a fork right the Monaro is a very
17:35popular privacy coin that the community
17:38felt like the creators had taken too
17:39much of the of the initial token
17:41distribution to fork them and now Manero
17:43is far more popular and successful but
17:46it's also creates this really weird
17:47situation where you have these kind
17:48alternative timeline history things and
17:50you have these weird coins and like they
17:52know there's for example Bitcoin gold
17:54yeah what what's the story between gold
17:56I actually don't know the exact story
17:59other than it popped up a couple weeks
18:02ago and it now has a total market value
18:04of over six billion and Bitcoin cash had
18:07like a real community momentum behind it
18:08yep it was a set of sort of Bitcoin core
18:10community members who were unhappy with
18:13the governance and decided to create a
18:15new for Bitcoin cash as like a it's a
18:19twenty six billion dollar market cap now
18:21which is more than the entire crypto
18:23space a year ago yep but that at least
18:26has sort of his community and kind of
18:27use cases and reddit forums and the
18:29whole bunch of other things right
18:30where's you have these other things
18:31which are just like mystery forks or
18:33something you know we hear so much about
18:34the ICO boom but in terms of kind of
18:37like total value created this year
18:40there's actually been way more value
18:42created by Forks than I cos hey right
18:45like a total ICO raised what is it's a
18:47couple billion it's like four four four
18:49billion where as Bitcoin gold which is a
18:51fork that none of us even know if where
18:55it came from or whether it's real is
18:57worth seven billion okay yeah it's a lot
19:00of crazy stuff yeah yeah my view though
19:03is that like the the developer team and
19:05community behind the project is is the
19:07most important aspect of these projects
19:10so when you have a fork you basically
19:12have two different communities that have
19:14some just disagreement about how the
19:16future should look right and in the case
19:18of Bitcoin versus Bitcoin cash or be
19:20cash you know it's it's about the block
19:22size well yeah and the block size which
19:24is symbolic of a broader debate around
19:26being kind of digital gold or digital
19:30so but an idea and a belief is one thing
19:33but having like a team and a community
19:36that can execute on that belief is
19:38another thing so what did some of those
19:39things are excited about in the crypto
19:41world no I think you know this idea of
19:43solving skill ability problems right is
19:46very important and I think is gonna
19:48manifest itself in many different kind
19:51of directions what I call kind of
19:53middleware piece that's really needed
19:55for something really being used by
19:57millions of people is you know the
19:59ethereum blockchain or
20:00whatever blockchain you're using has to
20:02be able to process hundreds or thousands
20:04of transactions per second right and
20:05right now aetherium can process roughly
20:09fifteen Bitcoin roughly seven and so
20:11there's a lot that needs to be done
20:14there and so there's some interesting
20:16kind of approaches when bitcoins gets
20:18only gonna get worse now that the
20:19Bitcoin scaling debate seems to be over
20:21so the price the transactions will go up
20:24and the transactions per second I think
20:26will go down right but the hope with
20:28Bitcoin is that these so called layer
20:29two solutions work the etherium
20:32development team on the other hand has a
20:33different approach right which is
20:34they're actually willing to kind of make
20:35pretty dramatic changes to the core
20:38including sharding right which adds sort
20:40of parallelism to so instead of having
20:4130,000 miners all running the same code
20:43they can run different code right that's
20:46right it feels like there's a lot of
20:47interesting directions through which
20:48people are trying to improve the scaling
20:50theorem side for sure and then the other
20:52thing that I would add is kind of what I
20:54call horizontal kind of solution so
20:56something like cosmos which is trying to
20:59create some framework for new coins to
21:02be created and even poured over kind of
21:04existing Ledger's they're working on a
21:07cool project right now called ether mint
21:08which is basically taking the ether
21:11ledger porting that on top of the cosmos
21:14what they call 10 Dermot consensus
21:16mechanism and their own peer to peer
21:18layer and so if a developer is building
21:23something on a theory em but they want a
21:26thousand transactions per second or
21:27something like that they could just port
21:29it over port it over and have the code
21:31work and also have the transaction
21:33history port as well both but the
21:35transaction history from that point
21:38forward is different right I think of
21:40cosmos I guess people calling a pair of
21:42chains like polka dot yeah and there's a
21:44sort of a set of proposals for doing
21:45this which is sort of for interchain and
21:47our operability yeah like this right
21:48yeah and you think of that it's like
21:50another I guess vector through which
21:52scaling will get scaling achieved yeah
21:54this kind of goes back to the original
21:55sidechain idea right yeah them back you
21:57know which was back from crypto v1
22:00crypto wave one exactly which was this
22:02idea that you'd have these side chains
22:03off Bitcoin which you could basically
22:05burn coins on Bitcoin take them over the
22:07sidechain do other things try out new
22:09software and do other experiments and
22:11then bring them back yep yeah
22:13this is kind of like v2 version of
22:14sidechains or something exactly and then
22:17there's you know new chains that are
22:19just fundamentally more scalable right
22:22it's like Definity is example yeah and
22:24the exciting thing as kind of an
22:27investor and someone interested in the
22:29space is that there's a lot of different
22:31projects kind of all happening at once
22:33right where if you look back on you know
22:35Bitcoin you know a couple years ago is
22:36really just side chains and then
22:38lightning came along but it feels like
22:39there's a lot of stuff kind of all
22:42happening at once on top of etherion I
22:44feel like the good news is the token
22:46model provided an economic model through
22:48which new projects could get funded and
22:51have sort of maybe a long-term business
22:52model as well to have the token
22:54appreciate and have the sponsoring
22:56entity hold some portion of those coins
22:58the flip side of it is almost worked too
23:00well which is now the incentive being to
23:02go join the you know work on aetherium
23:04which in the old days would be like
23:05working on Linux the incentive is to
23:07create you know your own operating
23:08system your own blockchain sometimes I
23:11worry that like this new incentive of
23:13having a token almost works too well and
23:15is creating kind of splintered
23:16development efforts it's certainly
23:18possible and yes some people are kind of
23:21hoping to see more like coin
23:24distribution for contributions and
23:26things like that which like Fredersen
23:28has this idea right this idea that you
23:30would have kind of through token
23:31inflation you would have essentially
23:33like you know bounties paid out from
23:36people that contribute helpful new code
23:37to a project mm-hmm but I think right
23:40now what is kind of interesting to me is
23:43that we are seeing all these different
23:44ideas being attempted right in my mind
23:48and kind of crypto the idea maze is kind
23:51of just accelerated like a hundred x
23:53right we're seeing all of these
23:55different ideas happen at once I think
23:58the best kind of entrepreneurs are
24:00paying attention to what's going on in
24:02all of them and seeing what's working
24:04what's not and taking kind of different
24:06pieces and that was like aetherium being
24:08the best example of that's a date right
24:09where Vitalik studied the ecosystem very
24:13carefully knew exactly how Bitcoin
24:15worked what worked what didn't knew how
24:18like the initial proof of stake systems
24:20like peercoin worked knew what was wrong
24:22with them and kind of crafted together a
24:24lot of different pieces from like
24:27texts and then built some yeah I've been
24:28involved as an investor in the space we
24:30invested in Columbus in 2013 and I've
24:32spent all a lot of 2014 and 15 16 and 17
24:35meeting with crypto companies I probably
24:37see five what I would call like highly
24:39qualified teams a week now whereas I
24:41might have seen five highly qualified
24:43teams like in the year of 2014
24:46it's just dramatic right to me it feels
24:48like the way the iPhone felt in 2009
24:51through 11 we're just like every smart
24:54person who knew had a program and design
24:56and do other things that I'm gonna build
24:57an iPhone app yeah right and of course
24:5999% of those didn't work but the ones
25:03that did work spectacularly well right
25:05any other interesting is is now its
25:07transition is not just these people that
25:09have sort of grown up in crypto at least
25:11who I'm seeing is lots of teams leaving
25:13Gaffa companies Google Facebook etc and
25:16getting into this and have really good
25:18teams yeah people with with real you
25:20know strong engineering and product
25:23backgrounds and I think for me at least
25:25it's the vast majority of it centered
25:26around the etherium ecosystem mm-hm who
25:29knows which of these projects will work
25:30but there's a lot of stuff going on yep
25:31yep agreed to be your predictions for
25:34the craziness to come over the next year
25:37or two I think that we're gonna see
25:39proof of stake really you know a lot of
25:42people are still skeptical on proof of
25:44stake and don't think it could be pulled
25:46off but I think proof of stake is going
25:47to be a really important kind of
25:49catalyst for the broader adoption and
25:53interest in blockchains what
25:55specifically makes you think that what
25:56you say will spur broader interest I
25:58think it solves a number of problems the
26:02one problem that a lot of people point
26:03to is kind of the electricity cost right
26:06so you know hundreds of millions of
26:08dollars are being spent external to the
26:12network of Bitcoin just to secure the
26:14network this is Bitcoin mining which you
26:16know you see all these articles about it
26:17it's now passed I think it's like the
26:19country of Ecuador or something and
26:20electricity usage was just which you
26:23know is excessive yeah that's just too
26:25much but more broadly than that I think
26:27mining miners controlling a network has
26:32proven to be pretty problematic and so I
26:35think kind of aligning stakeholders and
26:37miners and putting them
26:39you know as one will be important in
26:42terms of you know progress in making
26:45changes to protocols and just kind of
26:48making blockchains more cohesive if you
26:51will it also from a technical point of
26:53view I think allows for a lot more wider
26:55space of design of blockchain consensus
26:58mekin designs that allow for scaling and
27:00other kinds of things things like
27:02Definity you can't do as far as far as I
27:04understand it without proof of stakes
27:06and that has like all these nice
27:07features like a you know a couple second
27:09a transaction finality times which you
27:11you know which is a much shorter time
27:12than on existing popular block chains so
27:15your job is to invest in new protocols
27:17what are some of the characteristics you
27:19look for for differentiating between you
27:21know attractive investment opportunities
27:23and unattractive ones so I have four
27:26characteristics that I evaluate every
27:27project based on the first esteem the
27:30second is product the third is community
27:32and the fourth is token mechanics so for
27:36me someone with kind of deep historical
27:38context on crypto is important someone
27:41that has you know deep technical
27:44understanding of consensus mechanisms in
27:47crypto economics and things like that is
27:49is very important so let me push back on
27:52that a little bit one thing I'm seeing
27:53is because the kind of movement is
27:55growing by definition you have new
27:57people entering who don't have the same
27:58history in it but do have in some cases
28:01very strong technical backgrounds in
28:02relevant fields like distributed systems
28:04ignored Rafi one thing I debate is like
28:06is that you know if someone is very
28:08strong in those areas but maybe hasn't
28:10liked you and I have like kind of lived
28:12through all the different you know
28:14events of the last four years I mean if
28:16you look at the internet as an analogy
28:18like a lot of the early teams you know
28:20that we're working on it we're kind of
28:21like you know hardcore internet
28:22believers but then eventually like this
28:24sort of different this new vintage kind
28:26of came in that was sort of more classic
28:29yeah built a lot of the important things
28:31yep no it's a good point I struggle with
28:33this I think I'm just personally more
28:35biased towards kind of the deep crypto
28:38person as opposed to the new kind of
28:41entrant I think there will be a time in
28:43the ecosystem when you know the new
28:46entrant you know builds some really
28:48important stuff I think my view is that
28:50we're still in the infrastructure
28:53out and so I think it's more likely that
28:55the deep kind of crypto person okay what
28:58about and so ii was product so how i
29:00think about product is like I'm a native
29:02crypto person myself like I was one of
29:04the early users of coinbase that's how I
29:05got involved and I spend a lot of time
29:08in reddit's and slacks and different
29:11forums just you know paying attention to
29:14to new products being developed so one
29:17take away from from coinbase I would say
29:19is that you know you need a great team
29:20but you also need fantastic product
29:22timing right there's a lot of great
29:24teams and you really need both and so I
29:26spend time thinking about like what are
29:27the right products right now
29:29specifically my experiences with
29:31investing is the risk is often being too
29:33early right as opposed to too late like
29:37you know when you're deeply into a field
29:38like it's sometimes easy to go and kind
29:40of try to jump ahead of where the
29:42reality is right now and then third is
29:44community in almost all cases having a
29:47strong community is important to being
29:49successful and so I take aetherium as
29:52the best example where like aetherium
29:55has you know great technology but even
29:58more so I would say Vitalik has done an
30:00incredible job kind of building a really
30:02healthy vibrant developer community and
30:05kind of leading in a way that's
30:06inclusive and and open and things like
30:08it also it's very technology focus so if
30:11you just look at like our aetherium
30:12versus some of the other coin so it's
30:14it's focused on the technology and the
30:16applications not on just the price and
30:19they made a concerted effort early to do
30:21that right they in fact they push price
30:24discussions over to e3 yeah which is
30:27very interesting with and the community
30:29could be what it could be you know I get
30:30home yep Twitter slack yeah groups
30:34they tend to be and sort of multiple
30:36networks yeah I often look even like at
30:38a founders reddit activity so is this a
30:42founder that's kind of been deep in the
30:44community and is very engaged and things
30:47like that and then the fourth is toka
30:49mechanics yeah does the token make sense
30:51and do you have conviction that you know
30:53it's a token that could have long-term
30:55value so that's one piece of it and then
30:57the second is and I think maybe this is
31:00a little bit of a different perspective
31:02than some but I actually think kind of
31:05the way that the token
31:06priced and launched initially is pretty
31:08important to the long-term success the
31:10project so in token mechanics it's one
31:12do you think this token could have
31:14long-term value and two is it being
31:16launched in a way that is perceived fair
31:19and that can attract a lot of people
31:21from all over the world over time so the
31:23mistakes people make are sort of unfair
31:26you know investors granted deep
31:28discounts I've been hearing a lot more
31:30talk about things like air drops or
31:32other kinds of token sale mechanics that
31:36ensure broader distribution yeah I feel
31:38like there's more and more thinking
31:40around that yeah and I hope that
31:41continues right like we're air drops I
31:43think oh me sago is a good example of
31:45you know they gave everyone that owns
31:47ether some ratio of their own token I'm
31:50hopeful that more teams will be thinking
31:52about when they create a token not
31:55optimizing for like the short-term cash
31:57grab but more optimizing for product
31:59usage and so thinking about how to
32:01create a token distribution where users
32:05do an action and get tokens there's been
32:08so much attention on IC o---- is that by
32:09the way you don't need an IC Bitcoin
32:11never had an IC o---- theorem had a very
32:13relatively speaking small one eighteen
32:15yeah and and I don't think that was a
32:17key part of the network success it's
32:19really kind of a secondary part of this
32:20really about building networks and
32:22communities exactly yep and I actually
32:24think if you focus too much on the IC
32:27o---- or the you know the token sale it
32:29can actually really hurt your community
32:31and I think we've already seen that in a
32:33few cases one thing I'm surprises on
32:35your list is governance do you think
32:36about that my view is that in the early
32:38days of like a project governance is
32:41less important so I think governance
32:44once a project reaches a certain scale
32:46is very important but I don't view like
32:49traditional start-up governance is that
32:51broken it's something like aetherium
32:53which from a decision-making perspective
32:55is pretty centralized right now that's
32:58actually been a good thing for aetherium
32:59and it's allowed them to move fast and
33:01break things right once it gets to a
33:03certain level I think you know they'll
33:06recognize that shifting governance is
33:08important but I think it's really hard
33:10to have like a really decentralized or
33:13empowering governance structure or early
33:15on and really built something but
33:17there's some basic things like vesting
33:19like a bunch of projects had no vesting
33:21for the key team members and you think
33:23that then those people took their tokens
33:26and left which in start-up world like
33:27vesting is just a fundamental concept
33:29okay so you're talking less about
33:31governance from a decision-making
33:33perspective from the protocol but more
33:35how the team that's building is governed
33:38yes well I think all of the above yeah
33:40you could be on chain they're off chain
33:41governance right so you can imagine both
33:43and people have experimented with both
33:44but there can be governance in the sense
33:46of like how do you control the protocol
33:47or the upgrade the protocol do that on
33:49chain or off chain right and it's a
33:51sense it's off chain like that means the
33:53human layer and those organizations how
33:55are they formed are they for profits
33:57they nonprofits today you know do they
33:59have vesting this yellow thing right
34:01yeah yeah like is it is it run well yeah
34:03certainly important and on the the
34:06governance of the teams I think there's
34:08certainly been a kind of learning curve
34:12this year and in in at the beginning of
34:15the year I think there was a lot of
34:16abuse of icos and you know founding
34:19teams getting liquidity right upon
34:21funding and things like that and I think
34:24from that perspective there's been kind
34:27of big changes already and I think there
34:28will continue to be great
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