00:00hi everyone welcome to the a six in Z
00:02podcast I'm sonal there's a lot of talk
00:04about crypto currencies and tokens and I
00:06SEOs out there but beyond the hype why
00:08does it all matter it turns out the
00:10internet Believe It or Not given all the
00:11things that already built on top of it
00:13is just the beginning and as we enter a
00:15new phase of blockchain enabled
00:16innovation there's a lot more to come so
00:19in this hallway cell conversation we
00:20break down the fundamentals you need to
00:22know on the topic from incentives
00:23networks developer communities and new
00:25models of governance to the trade-offs
00:27between centralized and decentralized
00:28systems and then we briefly touch on how
00:31to tell the difference between what's
00:32promising and legitimate versus a red
00:34flag when it comes to icos as well as
00:36valuing tokens the two guests on this
00:38episode covering all of this are a
00:39general partner Chris Dixon who shared
00:41his thoughts about the topic a medium as
00:43well as on our podcast before you can
00:45check out those episodes and Fred Ayer
00:47'some who did computer science at duke
00:49and undergrad was a foreign exchange
00:50trader at goldman sachs in new york and
00:52is a co-founder of queen base which has
00:54now become the largest cryptocurrency
00:56company in the world and he's on his own
00:58now and you can check out his posts
01:00going deep on the topic on medium as
01:01well so let's go right into our favorite
01:03topic which is what we talked about
01:05whole time which is the cool stuff
01:07happening in cryptocurrencies so for
01:08people that are listening and they've
01:09heard about Bitcoin in aetherium
01:11and a few other things why is this not
01:13just some crazy internet speculative
01:15thing like why is this matter it matters
01:17because I think for the first time we're
01:19embedding economics into the internet
01:21didn't we have credit card forms and
01:23what do you mean we had economics we
01:25have Amazon may have etcetera or like
01:26what does that mean we so we didn't we
01:28didn't we had we had what I would think
01:30about his indirect economics in the
01:31sense that you could pay for literal
01:35goods and services on the internet but
01:37the building blocks of the internet
01:38themselves were not precisely programmed
01:41and parceled out into little units you
01:45could pay for directly through the
01:46protocol and that's sort of what we're
01:47seeing with the dawn of aetherium as a
01:50computational resource or file coin is
01:51sort of a global database resource and
01:54there's the other aspect of it which is
01:56they're more neutral and can make their
01:58way just into far more systems than a
02:00centralized company maybe ever could one
02:02way I think of it is we had this we had
02:03this significant design constraint we
02:05meaning the Internet community for
02:07building things right which is you you
02:08basically had like two models like one
02:11was you do something as a nonprofit and
02:13protocol that's our protocols were
02:14designed in the past and that was
02:15awesome in the beginning right you had
02:17you know academics and governments
02:19designed the core protocols of the
02:20Internet tcp/ip and HTTP and HTML and
02:23SMTP and that was great but then if you
02:26kind of look at the next 20 years like
02:27how many how much more of that happened
02:29right and then you had these situations
02:30like the heartbleed bug and SSL so SSL
02:33is a core cryptographic protocol every
02:34time you go to any website you rely on
02:35it it's what keeps your banking
02:37information in your email private and
02:39you know it turned out there was a half
02:40a developer working on that project on
02:42SSL because protocols have been
02:43basically abandoned there basically has
02:45been almost no I mean for all intensive
02:47purposes have been basically no protocol
02:49development since the beginning because
02:50there was no business behind it and
02:51meanwhile you had Facebook you know has
02:53internet advertising and Google is in
02:55turn advertising and amazon has
02:56transactions and they've gotten these
02:59massive flywheels going where they take
03:02all this money in and then reinvest it
03:03in technology and so all of the smart
03:06developers and the energy and the money
03:08has gone into these highly centralized
03:11systems meanwhile you've got a whole
03:12group of developers who have been
03:14frankly kind of abused by the platforms
03:17for a decade you just arbitrarily get
03:19banned you know or an if you're lucky
03:21you get to pay them 30% right so there's
03:23a there's a deeply unhappy group of
03:25developers all over the world who want a
03:27new way to do things and it's coincided
03:30with this new way to design and monetize
03:33and protocols as a developer do I want
03:36to build on a centralized platform all
03:37of a sudden you realize that there's
03:39probably a ceiling on your head or a
03:40guillotine over your neck depending on
03:42how you view it whereas in a
03:44decentralized protocol since it's this
03:46big mutually owned entity nobody can
03:48really come along and and and shut you
03:49off or limit your growth the other thing
03:51it's funny because people talk about you
03:52know how Bitcoin was created during the
03:54financial crisis I also think you know
03:57there's another crisis happened around
03:58that time which is the developer crisis
04:00there was a real reckoning that happened
04:01in developer community and and there's a
04:04generation I think like the new
04:05generation developers is not going to
04:07fall for the same trap so they fall
04:09fulfil for in the past for me once I
04:11would argue that almost every developer
04:14platform and by platform I mean sort of
04:16a network where developers come together
04:17with users and so that goes back to you
04:20know Windows is a platform obviously you
04:22know iOS and I phone is a platform
04:25platform Twitter it was applied for
04:27Facebook was a platform at one point
04:28almost every platform has been
04:30characterized by massive kind of
04:33interrupt platform battles right and so
04:36you know Microsoft notoriously fought
04:39against Netscape every time Apple gives
04:41a keynote there's always this list of
04:43which startups they killed it's just a
04:45long long history of it and so one of
04:46the other exciting things in the kinda
04:47cryptocurrencies movement is it's a new
04:48way to potentially build networks where
04:50all the participants the network have
04:52inline incentives and don't need to go
04:54kill each other that really is the key
04:56word and the whole thing is incentives
04:58what are the incentives of the various
05:00actors in the networks and this gets
05:02into the frame of reference that most
05:04blockchain based people think about
05:05which is what are the incentive
05:07structures that you set forth and what
05:10is the likely emergent behavior that
05:12will result from that the primary
05:14example being Satoshi comes along in
05:172009 drops a nine page white paper which
05:21is effectively an incentive structure
05:22into the world and years later we have a
05:26seventy billion dollar cryptocurrency a
05:28whole ecosystem of companies users and
05:31investors involved and the largest
05:35supercomputer network in the world by
05:36four orders of magnitude so it just goes
05:39to show how powerful incentive
05:41structures are and one that is really
05:44well engineered can just create massive
05:47amounts of emergent behavior that are
05:50almost hard to fathom at the beginning
05:52it's because when you layer in these
05:54incentives where the user and the
05:55incentives by the way are incentives not
05:57just for the developers building the
05:59project like the way their to start up
06:00one of the brilliant things here is
06:02there's a whole new set of incentives
06:03that are given to so-called miners who
06:04are the early kind of service providers
06:06in the network and then also users of
06:07the network right but yeah these set of
06:09incentives it appears so far can make
06:12these new networks grow at a rate that
06:14we haven't seen before I think how
06:17quickly aetherium grew there's another
06:19example of that that's right
06:21one of the ideas that you turned me on
06:24to very early which i think is perhaps
06:26the most important idea the entire thing
06:27is you now are incentivizing all
06:31potential users of a potential protocol
06:34or application to join the thing early
06:36if you look at all the value that's
06:38crude over the last 15 years the vast
06:41majority of it has come from companies
06:43who have effectively built proprietary
06:45databases with strong network effects
06:47so we now live in this world where
06:49there's massively consolidating power
06:51and one of the great
06:53I think promises the whole token
06:56movement in encrypt occurence II is that
06:58for the first time you can overcome the
07:02chicken and the egg problem yeah as it
07:03relates to network effects the good news
07:05is once your critical mass they're
07:06awesome right right the bad news is
07:08until your critical mass they're
07:09terrible like a dating site with one
07:11person is like the worst website in the
07:12world dating site with a million people
07:14is hopefully a better website but how do
07:16you get to that point and I'll just tell
07:17you from my personal experience having
07:18been once an entrepreneur now an
07:20investor like 99% of the networks that
07:24are attempted fail in the bootstrap
07:26phase right and to get over it you go
07:28back and you ask you know Brian Chesky
07:30and you know the founders of eBay and
07:32all these other companies and they
07:33always have these heroic tales of how
07:34they you know through sheer force of
07:37will or clever tricks or money or
07:39whatever the thing might have been they
07:41somehow got through it but there's like
07:4215 of them on the internet that are like
07:44and scaled networks and there's 10,000
07:47others that were probably really useful
07:48and would be helpful to the world that
07:50never got through the bootstrap right
07:51and so one thing that cryptocurrency
07:53does potentially is it's like a
07:55universal solution to the bootstrap
07:56problem we call it contributing problem
07:58which is you incentivize the early users
08:01when there's not enough network value
08:02you give them financial value and then
08:05eventually you give them less financial
08:07value because they get Network value
08:08it's kind of like joining a start-up
08:09early where you get more equity yeah by
08:12taking more risk except it applies to
08:14all the users of a potential application
08:17so if you imagine a graph where on the
08:21x-axis it's the number of users on a
08:22network and on the y-axis it's the
08:24utility if you're the first person on
08:26the network the value is effectively
08:27zero and then as more people join the
08:29network the value goes up drastically
08:32and there is a risk/reward thing they're
08:33just like startups where it's possible
08:35that network won't work but if it does
08:38then you stand to gain quite a bit and
08:42so goes this this sort of emergent
08:45behavior of people who are now all of a
08:47sudden much more willing to either
08:49contribute to or use these networks in a
08:52even if they might have less absolute
08:55utility at the beginning with a
08:57beautiful thing too is that if it works
08:59that it's not just the employees who
09:02benefit from this appreciation right is
09:04the users and then those people also
09:06play a role in the governance of the
09:07network I find it personally quite
09:10frustrating to read some of the news
09:12reports one column they'll say we're
09:14very frustrated with how Facebook
09:15handled the election and the other
09:17column they'll say wow cryptocurrencies
09:19this this terrible thing that Silicon
09:21Valley's doing and not realizing that
09:22the whole point of decentralization and
09:25crypto currencies and the entire
09:27movement that we're talking about here
09:28is precisely to address these kinds of
09:30grievances that people have with
09:32platforms and like that's the whole
09:33point of this movement and actually a
09:35lot of by the way the cryptocurrency min
09:36sonic winces isn't coming from Silicon
09:37Valley it's coming from other places
09:39it's got very important social and
09:42economic and broader kind of seidel
09:44implications I mean one really
09:46interesting thing to think about is in
09:48the quote-unquote real world we don't
09:49get to try that many economic or
09:52governance models right like it's not so
09:54often a new government pops up or a new
09:56central bank pops up you can view each
09:59token as basically creating its own
10:00little central bank and its own little
10:02government and they're already over a
10:04thousand tokens so in some ways what
10:07we're doing is we're creating a giant
10:09experimenting ground for all sorts of
10:12different monetary policies and all
10:13sorts of different governance schemes so
10:15this lipstick specifically okay's us as
10:17an example right yeah so for those who
10:20aren't familiar Tasos is a new
10:22blockchain that looks somewhat similar
10:25to aetherium in that it allows you to
10:28run little bits of code on the
10:29blockchain referred to as smart
10:30contracts but the the main new feature
10:33that Tasos is creating is this idea of a
10:37self amending ledger which is a fancy
10:39way of saying that the rules of Tasos
10:41the protocol itself can be modified in
10:45other words the users and token holders
10:48of Tasos can vote to change hazus itself
10:51as time goes on and the reason this is
10:54interesting is it provides this unique
10:57evolutionary mechanism within Tasos if
10:59you view it as sort of an organism where
11:01it can evolve and adapt over time based
11:06think would be most useful for tezo's
11:08through this mechanism you can imagine
11:12developers being able to contribute
11:15improvements the Tasos protocol and
11:17getting paid quite substantially for it
11:20well it's a shame because it's like if
11:21you look at the specific challenges that
11:22the theorem has you know around scaling
11:24and sharding and other things there's a
11:25there's plenty of people like I was just
11:27talking some people Stanford and they're
11:28all like experts on this and like they
11:30have no financial their holders
11:31aetherium and yeah sure they could pay
11:33them or something else but these are
11:34people that are in high demand and can
11:35work on a lot of different projects so
11:36let's take a theorem is an example it's
11:38roughly a twenty five billion dollar
11:39cryptocurrency if you're to come out and
11:42submit in an improvement like sharding
11:45for example a working implementation it
11:47could easily raise the value of the
11:49network ten or twenty percent with them
11:51we're talking two and a half to five
11:53billion dollars that's a really big
11:55potential bounty so then the question
11:56becomes well how do you match that
11:59potential value creation with the
12:01incentives to actually go and do the
12:03thing and that's where I think more more
12:06innovation needs to happen what if you
12:08could offer even half of the perceived
12:10value of one of these improvements so in
12:13this case let's say you're to offer
12:14about 1.25 billion dollars to somebody
12:18to come along and prove the protocol all
12:20of a sudden everybody wins even though
12:21the size of the bounty just seems
12:23enormous right the interesting thing
12:25about Tasos is the way they propose
12:27doing this is through token inflation
12:29you submit a pull request to the Tasos
12:32code base with a bill attached to it and
12:34the way you get paid is some new tokens
12:36are created and they're sent to you it's
12:39kind of like a new employee joining a
12:40company where everybody's stock gets
12:41diluted a little bit but it improves the
12:44overall value for everyone yep let's
12:46let's talk about staking I've heard this
12:48concept of staking coming up a lot more
12:50the most obvious place it shows up is uh
12:52aetherium moved from proof of work to
12:54proof of stake it seems to unlock
12:57greater areas of the design space you
12:59know like things it can be designed you
13:02can add negative incentives in a way
13:03that you couldn't before as an example
13:05right so it's generally a mechanism to
13:07punish bad behavior that is seen as out
13:10of consensus or untruthful with the rest
13:13of the network in it and that's
13:14obviously really important because you
13:16need to punish malicious behavior emails
13:20you don't have negative incentives and
13:22so therefore you have this deteriorating
13:24spiral of just cost zero to send an
13:26email you just go out and send a billion
13:28of them you know luckily spam fields
13:30work a little bit better but still it's
13:31a problem if you had if every time you
13:33open an email account you had to stake
13:35something and whenever you sent to spam
13:36email you lost something that would
13:38dramatically change the spam emails
13:40called overnight oh yeah it probably
13:42overnight em okay so let's talk about
13:43centralized decentralized let's talk
13:45about pros and cons sure so pros to
13:49centralization are you can potentially
13:51have more control over a process thus if
13:55you're developing a single product or in
13:57a single line that development probably
13:59happens more effectively also from a
14:02computation or efficiency standpoint
14:03side you can always do things more
14:05efficiently centralized to perform the
14:07performances over better performances
14:09better yet the downsides are in a
14:12centralized process you only really get
14:14to try one path for example there's only
14:17one Facebook in other words there's one
14:20big proprietary database and they are
14:22taking that thing as a company generally
14:23speaking in one direction absent some a
14:26be testing here or there perhaps you
14:28can't try five versions of Facebook at
14:29the same time which could yield very
14:32interesting results and as we've seen in
14:34a you know a capitalist society like the
14:36United States it turns out that when you
14:37try a bunch of different experiments you
14:39get a bunch of really valuable things
14:40that happen that you might not have
14:41expected originally you're making the
14:43analogy to essentially plan government
14:45economy versus a decentralized
14:47capitalist market economy versus a sort
14:50of a centralized exactly the the second
14:53part going back to what we talked about
14:54earlier is a lot more people are more
14:57likely to be willing to use a
15:00decentralized protocol or system so in
15:02the same way that PayPal could never
15:05really become the money of the internet
15:07but crypto currencies theoretically
15:08could or in the same way that developers
15:11are now quite scared of building on the
15:14Twitter or the Facebook API but everyone
15:17uses SMTP or HTTP is these tcp/ip as
15:20these common protocols then if
15:22everybody's using the same standard it
15:24was a strong network effect in that it
15:26enables much more powerful communication
15:28much broader communication one criticism
15:31you hear of decentralized systems is
15:33the you know user interfaces aren't as
15:35good etcetera I would personally argue
15:37the performance and the usability
15:38critiques of decentralized systems is a
15:41red herring because you need to look at
15:42these things of dynamic systems that
15:43evolve over time yes the decentralized
15:45systems will start off on day one
15:47having clunkier interfaces and slower
15:49performance but they have the benefit of
15:50having all the developers on top of them
15:52seeing them happen by the with the
15:53internet versus AOL AOL had of it was
15:55have much slicker interface and more
15:57perform in the beginning the internet
15:58was clunky and weird and slower and all
16:00these other things but you had all the
16:01developers building stuff on top of it I
16:02think the big advantage of you look at
16:04the SMT is you can build a business on
16:06email you can in fact there have been
16:07thousands of startups that have been
16:10successful that have built businesses on
16:12top of email compliance and anti-spam
16:13and the email inboxes and Microsoft
16:16that's a huge email server business and
16:17like there's a lot of interesting
16:19businesses built on email you could
16:21argue Gmail's gotten so powerful so big
16:23at this point that maybe they've
16:24actually resent relized SMTP to some
16:26extent so that maybe that's a
16:27counter-argument but generally the
16:29difference doesn't because you can lead
16:30you can exit as a developer you can exit
16:32as a user you can exit and that keeps
16:34the platform in check right like it
16:36doesn't matter if you can spur you date
16:37from Facebook all your friends are on
16:38Facebook it's a network fact that game
16:40is over there will be new games if you
16:41had to make a bet would you bet that a
16:45centralized kind of web 2.0 company
16:49doing a particular thing like creating a
16:51social network we've like Facebook as an
16:52example would win or lose in a race
16:55versus a decentralized set of protocols
16:59that was trying to accomplish the same
17:01thing if they were both starting from
17:04scratch cuz now today obviously these
17:06these centralized platforms have a ton
17:08of money and resources and other things
17:09ok well let's let's even assume the
17:11current head start that web 2.0 come I
17:13think it's a it's a very interesting
17:14question it's a very asymmetric race on
17:16the one hand you have money and like
17:18people focus on a team sitting in the
17:21same office you know with a line mission
17:23and everything else on the other side
17:24you have the power of nights and
17:27weekends versus nine-to-five like people
17:29going to work showing up their office
17:30you get an organized army that marches
17:32together that like is told what to do
17:34that has funding and resources they have
17:37better monitors and better computers and
17:38better servers and all these other kinds
17:40of things right and then you have this
17:42kind of ragtag weakened militia and
17:45a lot more of them by the way the
17:46militia is much much bigger the nights
17:48and weekends programmers the people that
17:49work that built Linux the people to
17:51build a lot of the internet the people
17:52that built Wikipedia you know all these
17:54people people to build all the
17:55open-source projects there's probably
17:57ten million really really smart
17:58developers right and so to me it's kind
18:00of a question if you want to bet on kind
18:02of the British marching straight along
18:04or like the ragtag militia fighting
18:06against the history of this is very
18:07clear and that this side of the of the
18:09nights and weekends for the last thirty
18:10years that's been the best predictor of
18:12the future that's where I bet that's how
18:14I make my investments that's where I
18:15spend my time I have this blog post with
18:17this Marcy will do on the weekends
18:18everyone else to do it work in ten years
18:19and I think it's been one of the most
18:21predictive heuristics in technology yeah
18:24yeah you can almost view it and you
18:26could probably guess as to where the the
18:28higher intrinsic motivation levels are
18:30its motivations it's also time horizon
18:32right it's a when you're a company no
18:34matter how visionary you are I mean I
18:36think Zuckerberg and Larry Page they're
18:37extremely visionnaire and they're
18:38certainly long-term thinking but
18:39ultimately they do try to manage
18:41probably do a two to five year horizon
18:43or something right where people on the
18:44weekends and nights and research labs
18:46and they think of about ten years long
18:48is where some of the innovators dilemma
18:49stems from where if something is crazy
18:52enough it's too much of a risk it's too
18:53big of a brand risk it might not produce
18:55revenue in the short term whatever it
18:56might be it's less and less and less
18:58likely to be tried so as a result you
19:00try less things the the interesting
19:03thing about the decentralized paradigm
19:05is the ability to try many things as
19:09opposed to just one path it would be the
19:11equivalent of being able to take
19:12Facebook copy all of their source code
19:15copy their entire database and try five
19:17different versions in parallel some of
19:20those will work some might not you take
19:22the ones that work the most and then you
19:23split them again it's kind of like
19:24evolution in these token mechanisms
19:27things are inherently more chaotic
19:30because they're decentralize in the same
19:32way that things in free market system or
19:35more chaotic than a centrally planned
19:37system the thing you're you're betting
19:39on though is trying more paths you learn
19:41pretty quickly especially with the
19:43length of the feedback loops in the
19:44token ecosystem being so short what
19:47paths are worth exploring which ones
19:48aren't and then you just continue
19:50consolidating resources and splitting
19:52out again from the things that do work
19:53this is what's made me the most happy
19:55about in last year in crypto
19:56currency as opposed to 2014-15 which
19:59were pretty pretty winter wintry and
20:01whatnot and it's not the prices people
20:03say oh the Bitcoin is down now they're
20:04up and it's not to me it's not that it's
20:06exactly what you're describing it's the
20:08rate at which there isn't there's
20:09experiments getting run I'm assuming
20:11that will develop better and better ways
20:13over time to both fund decentralized
20:17innovation and to foster it in a less
20:20chaotic way namely we'll go from
20:22assembling on Bitcoin org and our slash
20:26aetherium to better threaded github
20:29repos or who knows what the next
20:31advancement will be you're spot on that
20:33perhaps the leading indicator of the
20:35whole industry is developer activity and
20:38experimentation you know back in 2014
20:40one of the main graphs we would look at
20:42at coin bases github repos that are
20:45referencing Bitcoin and one of the
20:47really interesting things now is to look
20:49at the rate of repos the reference
20:51theorem amazing experimentation was
20:53happening again all of a sudden just the
20:55the space of possibilities and the
20:58excitement and to use some of your
21:00phrasing the toying around and just just
21:02increased drastically but it did so many
21:04different things like one it showed that
21:06you could just simply have another
21:08scaled Network right I think a lot
21:09people just assumed it was gonna be one
21:11network to rule them all network effects
21:13etc etc so showed just like an existence
21:15proof that you could do another network
21:17number two is got a full you know turing
21:19complete essentially javascript solidity
21:22programming language right so lets you
21:24build apps it's got this whole kind of
21:25platform aspect to it which bitcoin sort
21:27of had and in the in beginning but never
21:28really developed with the scripting
21:31language and then not only do you have
21:32apps on top of a theorem but then it
21:33also inspired all these other new token
21:35networks so it's almost like three axes
21:37of like innovation going on at once it
21:40was more that that four paradigm yeah i
21:43think if it is the movement forked
21:45between kind of what i would call is the
21:47financial oriented people the people
21:48that want to create a new system money
21:50when that's where bitcoin resides and
21:51the people that want to do what more
21:53what we're talking about which is create
21:54decentralized systems right which is why
21:56i think this space is so unique and
21:58multidisciplinary right where if you are
22:01just a typical financier or wall street
22:04person increasing the number of lenses
22:07through which you can view it
22:08drastically increases
22:10is your understanding and appreciation
22:12for the power of the system in other
22:14words you need to understand it as
22:16currency and that's one way to model
22:19fundamentally what these things might be
22:20worth and how certain aspects of the
22:22system flow but if that's your only lens
22:25then you view just as money and you
22:27don't get some of the intrinsic value or
22:30why this could become a new kind of
22:32global computational platform or
22:34infrastructure I think what they are
22:35missing is that a lot of what's going on
22:38here is new internet you know it's sort
22:41of redesigning the architecture of the
22:42Internet in a way that allows for the
22:46participants of the Internet to own a
22:47piece of those of those networks and
22:49ultimately those networks will have
22:51value and those resources will have
22:53value and that any critique of this
22:55value of that should probably start with
22:56an understanding of what is being built
22:59right and and what is being built
23:00requires understanding how the internet
23:02works both from a technical level and a
23:04cultural level and then there's the
23:06stuff that we're talking about which is
23:07creating a network and token it and you
23:09use that token so let's talk about the
23:11there's all this talk about ICS which I
23:13don't like that word but it's the word
23:15people are using so let's let's talk a
23:16little about what's going on now yeah so
23:19everyone's coming out of the woodwork
23:21selling a token because they think
23:22there's free money to be had
23:23just like startups there's a small
23:25percentage that are legit and really
23:27worth funding and there's a whole glut
23:29of projects that unfortunately are not
23:31and probably won't go anywhere or an I
23:33on the other case scammers are entering
23:35this Bay I mean it's a scouser
23:36ma'am it's worth talking through what
23:38are the fundamental components or signs
23:40of something that has the initial signs
23:44of being promising or at least somewhat
23:46legitimate as an effort versus red flags
23:49on the red flag side a couple things
23:51come to mind one or tokens which we
23:53would refer to as rent-seeking meaning
23:55they extract value from the transactions
23:59that occur through the network to the
24:01token holders or some third party where
24:03and some in some ways part of the token
24:05movement is that you eliminate the
24:07middleman and that's just totally
24:09unnecessary a second is raising money
24:13purely for another investment vehicle
24:16which itself is centralized there's no
24:18reason you need a token for that if the
24:20token gets dividends in
24:23to the company's profits that's almost
24:25textbook security right and so that's
24:27also something that that should be done
24:28in the traditional way other favorites
24:31are releasing a white paper that is
24:33actually just a marketing brochure it
24:35has nothing to do with the technical
24:36specifications of a protocol which is
24:39what a token does it powers a new
24:41protocol of code so the flipside of that
24:44is things to look for that are positive
24:46is there's actual running code as an
24:47example or at least live code or at
24:49least a very technical white paper that
24:50describes the code a team that could
24:52plausibly write such custom with a
24:53software strong software background one
24:56thing I should say is that all of these
24:57things that we're discussing here
24:59cryptocurrencies icos are very
25:02complicated very fraught with risk it's
25:04very early I strongly recommend that
25:06people do a lot of work if they think
25:08about buying any of these things and
25:09treat it as an investment that could go
25:11to zero and like a venture investment
25:13and so tread very carefully we're not in
25:16any way suggesting that people should
25:18buy any of these things even though
25:20we're excited about them - what else
25:22like what are the other yeah well one is
25:24maybe matching the stage of the industry
25:26with the ambitions of the project so at
25:29the moment I think we're largely in the
25:30infrastructure building stage and if you
25:32look at what aetherium is capable of in
25:34terms of just throughput of the network
25:36it can't handle more than about 20-ish
25:38transactions a second right now which
25:40means that you're about 20,000 decks off
25:43being able to run facebook on the on the
25:46chain so as a result it's probably a lot
25:49more valuable and relevant to build
25:51infrastructure components that lets
25:52people scale that and build apps in the
25:55future rather than trying to build
25:56Facebook right now I would assign a
25:58higher likelihood of success to systems
26:01infrastructure rather than I'm building
26:03a master still to the internet we're
26:05building optical switching and you know
26:08web servers and all sorts of other
26:10infrastructure there's a reason it took
26:11you know it took 20 years to get to
26:13Facebook you had to have AWS and you had
26:15to have all these other kinds of layers
26:17of infrastructure a mistake that's often
26:18made in paradigm shifts is we try to we
26:21try to shoehorn ideas from the existing
26:24world into the new paradigm because all
26:26we know is the existing world the whole
26:27reason the new paradigm is interesting
26:29is because it lets you do new stuff not
26:30old stuff yeah so one of the one of the
26:33biggest things I look for if not the
26:36is does this feel like a uniquely
26:38enabled behavior by the blockchain
26:39is it de novo native to the blockchain
26:42or is it a port from an on blockchain
26:44thing a car is being dragged by a horse
26:46like barnesandnoble.com not Amazon all
26:48right that's kind of the analogy I like
26:49to use it's always the one that goes
26:50kind of all in burns the boats does it
26:52fresh designs exactly the right way from
26:54first principles is not encumbered by
26:56the legacy infrastructure so I think
26:58about that a lot there's always this
26:59there's always a tendency to want to do
27:01the hybrid thing because it seems easier
27:03and it seems more familiar but the
27:04hybrid is net you look back at the
27:05internet like the hybrid stuff never
27:07worked there's always the pure all in on
27:09the internet first principles redesign
27:10it it's things like stripe hey what
27:12would be like if we made like the most
27:14awesome payment system for developers
27:16and we design it from scratch yeah and
27:17it's always gonna be better that way
27:19then hey let's take our existing bank
27:21assets and let's you know hire a few
27:23programmers on the side and like make it
27:25internet like you know one thing I think
27:27is really interesting to look at is the
27:28top 50 sites on the internet today guess
27:31how many of them were made by companies
27:33that existed before the internet was
27:35popularized I mean I don't know what so
27:37what's the answer it's it's - yeah
27:39msn.com and Microsoft com both by
27:42Microsoft every other site is made by a
27:45company that was native to the new
27:46paradigm I started after the internet
27:48was created I think the best example of
27:51this is thinking okay well the value of
27:53PayPal is X thus Bitcoin should at least
27:56be worth Y or you know uber is worth at
27:59least X so a decentralized uber token
28:01should at least be worth Y or something
28:03of this of this nature I think
28:06subconsciously most people think about
28:08the value of tokens like equity and if
28:11you're to say that directly to them they
28:13may not say oh yeah I think a token is
28:14equivalent to equity but that's just how
28:16we're used to interacting with most of
28:18the financial world today but it turns
28:20out that tokens don't really function
28:23like equity at all the key difference is
28:25that equity represents rights to a
28:30future cash flow in a company namely a
28:34company where you sell some products you
28:37sell them for more than it cost you to
28:39produce them you get a profit out the
28:41other side and that gets distributed to
28:42shareholders yes right I think about the
28:44future value I mean right now I think
28:45there's probably like the prices are
28:47very speculative but
28:48like the prices have kept our currencies
28:50I just like anything I don't know and
28:52they maybe to hire a lot of it
28:53speculation right like where how do you
28:55think about the kind of long-term value
28:57a lot of my thinking has been influenced
28:59by a guy named Chris Byrne iski who used
29:02to work at at arc invest which is a Wall
29:05Street firm and has been doing a lot of
29:06work putting together more rigorous
29:08financial models for cryptocurrencies
29:10you go through and you really kind of
29:14you know if file coin got to scale and
29:16you were using file coins to transact
29:18and the storage market were this big and
29:19people were paying willing to pay this
29:20much in fiat and like how would that you
29:22know translate into the value the token
29:24so you send some great work on them this
29:25is where tokens are fundamentally
29:27different where in my opinion the best
29:29tokens and the ones that that really
29:31follow that the token model most truly
29:33are not rent-seeking
29:34they take a cut of all the transactions
29:36that go through the platform for example
29:37just because you happen to own a token
29:40doesn't mean you're entitled to money on
29:43a process over here that in fact you
29:45didn't really do any work to earn upon
29:48closer examination tokens more closely
29:50resemble currencies where you look at
29:52some kind of monetary theory equation
29:54like MV equals PQ and it turns out that
29:57the important things to look at or not
29:58the right to a future stream of cash
30:00flows rather it's the money supply it's
30:04the velocity of money it's the average
30:07price of goods or services in the
30:08economy and it's the number of goods or
30:11services in the economy that the that
30:13are sold it might be the money supply is
30:15how many file coin are outstanding the
30:18velocity is every year how often does
30:21the whole money supply turn over the
30:23price of goods and services in the
30:25economy could be well how much does it
30:28cost to store one gigabyte of data and
30:31then the last part of the equation is
30:33well how many times are people actually
30:35buying storage for one gig you can model
30:38out and I've seen actually pretty
30:40interesting attempts to do so you sort
30:43of make a bunch of assumptions they
30:44obviously have to do because it's
30:45speculative I would say I would argue
30:46though that that they're really kind of
30:48two things going on right now at least
30:50two and that they're sort of the Bitcoin
30:52side of the world where it which is more
30:55about kind of creating a store value
30:57replace some kind of digital money it
31:00almost resembles more of a commodity and
31:02you mean more like a commodity and it
31:04has certain attributes like you can send
31:06it all over the world and it's
31:07censorship resistant and a bunch of
31:09other things and there's some value to
31:11that and that will be modeled in the way
31:13you're describing my personal
31:14nomenclature like I think of in the
31:16first bucket the commodity bucket
31:18there's Manero and Zee cash maybe -
31:21there's other thing which is kind of the
31:23network's call them fat protocols call
31:26tokens there's this whole other sort of
31:28which is you're creating these systems
31:30where it's a network resource and I
31:32think you'd have a different valuation
31:33model for that yeah I would argue the
31:35equation actually that underlies both of
31:37them are the same though I think the
31:39commodity angle is useful from a mental
31:42model perspective I mean there's
31:43literally the concept of gas and
31:45aetherium where it's how much resource
31:48does it cost to run the machine so in
31:51the same way you pour gas into a car to
31:52make it run you need to supply some
31:55ether in the form of gas to run a
31:57computation on aetherium so from that
31:59perspective commodities make sense
32:01the flip side of that is usually
32:03commodities are sort of a use it and
32:06lose it thing there are actually some
32:08crypto currencies that do that there's
32:09this concept of proof of burn and that's
32:11another thing that people are playing
32:12with but the most common model tends to
32:14be you spend a cryptocurrency and it's
32:17not burned it just goes on to someone
32:19else kind of like money I guess I think
32:21of it is in software software is the
32:23ability to encode any idea into into
32:27machinery and there's no reason why
32:29software couldn't encode B you know you
32:31couldn't encode both ideas of equity
32:33commodities money and new things we'd
32:37never thought of the limit is just sort
32:39of what people can think of this is also
32:40why the traditional models of innovation
32:42like the Carlota Perez model don't
32:44really work in software worlds because
32:46in software it's it's bound only by the
32:48ability of people to kind of come up
32:50with new interesting ideas and one not
32:53one pseudonym - person can come up with
32:55a short white paper and you know change
32:58the trajectory of the whole thing that's
33:00certainly true on the development side I
33:01think what Carlota Perez might argue
33:04back is that that describes more of how
33:08long does it take for the idea to spread
33:11through a population that needs to adopt
33:13it and maybe the interesting thing that
33:15here is that just like the protocols of
33:17the Internet it may turn out that a lot
33:19of these underlying blockchain and token
33:21mechanisms start to become the
33:23infrastructure for a lot of the stuff
33:25that we use every day and in the same
33:28way on the funding side we'll go from
33:30this kind of crazy toga crowd sale where
33:32we sell everything to better figuring
33:34out how to reward people who do work or
33:36the concept we were talking about before
33:38which is everybody puts up a little bit
33:40of their own money through inflation and
33:43dilution to pay for new innovations you
33:45know we've had so many years of
33:48improving the theory of the firm of the
33:50centralized company we've had very few
33:53years and very very little effort on how
33:56do we actually do things better in a
33:58decentralized way on the internet so I
34:01think there's a long way to go there and
34:02a lot of efficiency gain to be had the
34:04big challenge and opportunity for
34:06incumbents whether it's a bank or one of
34:09the big Silicon Valley companies is to
34:11adapt their business accordingly
34:13and although margins and revenue
34:16opportunities in the old paradigm often
34:18compress the opportunity set keeps
34:20getting bigger and the surest way to
34:23fail is to assume it's a zero-sum game
34:25it does not have to be a zero-sum game
34:28and this is true of all technological
34:31paradigm shifts where there's a
34:33commodification of all the value
34:35creation that happened in the last
34:37paradigm so now value creation has to
34:40happen it's some new layer you just have
34:42to have an open mind
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