Y Combinator

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data-page="{"component":"ycdc_new/pages/BlogList","props":{"posts":[{"id":"61fe29f1c7139e0001a71a59","uuid":"00a3a0f7-e41b-47fe-9d1f-e9debf0d12a1","title":"Crypto Investors Linda Xie and Avichal Garg on Opportunities, Use Cases, and Regulation","slug":"crypto-investors-linda-xie-and-avichal-garg-on-opportunities-use-cases-and-regulation","html":"<a href=\"https://twitter.com/ljxie\">Linda Xie</a> is the cofounder of <a href=\"http://scalar.capital/\">Scalar Capital</a>, a cryptoasset management firm. Before that she was a Product Manager at <a href=\"https://www.coinbase.com/\">Coinbase</a> (YC S12).\n<a href=\"https://twitter.com/avichal\">Avichal Garg</a> is a Managing Partner at <a href=\"https://electriccapital.com/\">Electric Capital</a>, a digital asset management firm. He’s also an Expert at YC. Prior to that he was the Director of Product Management at Facebook.\n<hr />\n<div id=\"backtracks-player\" data-bt-embed=\"https://player.backtracks.fm/ycombinator/ycombinator/m/74-linda-xie-and-avichal-garg\" data-bt-theme=\"orange\" data-bt-show-art-cover=\"true\" data-bt-show-comments=\"true\">\n</div>\n<script>(function(p,l,a,y,e,r,s){if(p[y]) return;if(p[e]) return p[e]();s=l.createElement(a);l.head.appendChild((s.async=p[y]=true,s.src=r,s))}(window,document,\"script\",\"__btL\",\"__btR\",\"https://player.backtracks.fm/embedder.js\"))</script>\n<script>\n(function(p,l,a,y,e,r,s){if(p[y]) return;\nif(p[e]) return p[e]();s=l.createElement(a);\nl.head.appendChild((s.async=p[y]=true,s.src=r,s))\n}(window,document,'script','__btL','__btR',\n'https://player.backtracks.fm/embedder.js'))\n</script>\n<script>\n!function(n,i,s,c){n[s]||(n[s]=function(i){n[s].q.push(i)}),n[s].q||(n[s].q=[]),\nc=i.createElement(\"script\"),\nc.async=1,\nc.src=\"https://c.bktrks.com/utils-1.0.0.all.min.js\",\ni.head.appendChild(c)}(window,document,\"BTUtils\");\nBTUtils(function(use) {\n var options = {\n autoplayLinks: false\n };\n use('backtracks-autolink', options).init();\n});\n</script>\n<hr />\n<h1>Subscribe</h1>\n<a href=\"https://itunes.apple.com/us/podcast/y-combinator/id1236907421\">iTunes</a> \n<a href=\"https://www.breaker.audio/y-combinator\">Breaker</a> \n<a href=\"https://play.google.com/music/m/I7pbd3gcjjeifbnm3wf7ag66ane?t=Y_Combinator\">Google Play</a> \n<a href=\"http://www.stitcher.com/podcast/y-combinator\">Stitcher</a> \n<a href=\"https://soundcloud.com/ycombinator\">SoundCloud</a> \n<a href=\"http://backtracks.fm/ycombinator/ycombinator/feed\">RSS</a>\n<hr />\n<h1>Transcript</h1>\nCraig Cannon [00:00] &#8211; Hey, how&#8217;s it going? This is Craig Cannon and you&#8217;re listening to Y Combinator&#8217;s podcast. Today&#8217;s episode is with Linda Xie and Avichal Garg. Linda is the co-founder of Scalar Capital, which manages crypto assets, and before that, she was a Product Manager at Coinbase which was part of the Summer 2012 YC batch. Avichal, whose been on the podcast before, is a managing partner at Electric Capital, which is a digital asset management firm. He&#8217;s also an expert here at YC and prior to that he was the Director of Product Management at Facebook. All right, here we go. Let&#8217;s just start with a quick intro, so Linda, after you.\nLinda Xie [00:36] &#8211; Hi, I&#8217;m Linda. I am co-founder of a crypto hedge fund called Scalar Capital. We focus on long-term investing in the space, with a strong emphasis on privacy coins, and then before that, I was a Product Manager at Coinbase. I joined pretty early on, and just been passionate about crypto currencies for a very long time.\nCraig Cannon [00:52] &#8211; Cool.\nAvichal Garg [00:54] &#8211; Hey, I&#8217;m Avichal, serial entrepreneur, part-time at YC. I&#8217;ve been crypto since 2013, actively invest in currencies and various companies. This is where I spend a lot of my time, thinking about the way things are going and what the future holds, and where we&#8217;ll end up in the next 10 years, because this is a pretty fascinating area.\nCraig Cannon [01:14] &#8211; Cool. Well, it sounds like you guys are the right people, because we have a ton of crypto questions. Let&#8217;s start with definitions. I know a lot of the listeners probably know, or have a loose understanding of what blockchain, what Bitcoin, all of this stuff is, but just so we establish kind of a ground truth, Linda, why don&#8217;t we start with you. What is a blockchain?\nLinda Xie [01:34] &#8211; A blockchain is essentially a decentralized public ledger, where you can have a recording of all the transactions that have happened on it, without having a centralized entity that&#8217;s kind of dictating what happens, or of someone that can manipulate the data. All of this is just done in a decentralized fashion, so you don&#8217;t have to trust who&#8217;s actually controlling this data.\nCraig Cannon [01:51] &#8211; What are the other things that people ought to know?\nLinda Xie [01:54] &#8211; It&#8217;s important to separate a cryptocurrency from new coins that have come out that are essentially, people refer to them as crypto assets, because it&#8217;s essentially more than just money at this point. Ethereum&#8217;s a smart contracts platform, and smart contracts are essentially, you can think of it just like a contract that is essentially just programmable logic, where you essentially have a decentralized network of computers that&#8217;s executing this logic, without having to rely on a centralized source that can get shut down, or manipulate the information or data. A smart contract, in itself, is just really important, and you can kind of, if you want to compare it to Bitcoin, just think of it as a bit more powerful than Bitcoin, in that you can be a little bit more programmable.\nCraig Cannon [02:34] &#8211; Anything to add?\nAvichal Garg [02:35] &#8211; I agree with everything Linda said so far. The way I think about it is like, there&#8217;s four core concepts. There&#8217;s blockchain, which I think Linda covered well as distributed ledger, and it has a bunch of properties around who can read it, and how you write to the ledger, and so on. There&#8217;s this notion of consensus, which is how do we all agree on what gets written to the blockchain, and what universal truth is, and there are different mechanisms to agree on the truth. There&#8217;s the idea of a token, or token economics, which is how do we align the incentives of all the actors in the space, and there are different mechanisms to aligning the incentives, and then there&#8217;s the smart contracting layer, which is assuming you have a ledger, and you have tokens, and people who are agreeing on the state of the universe, what degree of control and programmability do we give on top of that to the users of the blockchain or the programmers to do interesting things on top of that, which is where things like programmable money, or distributed compute get really interesting. Those are kind of like the four things that I think about in this universe, and you can kind of mash them together in different ways, and different chains mash them together in different ways.\nCraig Cannon [03:34] &#8211; Yeah, absolutely. We should explain those. There are many use cases for distributed ledgers, for programmable money, all of these things. Let&#8217;s break those apart, and we had a ton of questions about it, but just from broad strokes, what are the use cases you guys see?\nLinda Xie [03:51] &#8211; Essentially, whenever there&#8217;s a middleman that&#8217;s doing programming logic and saying if/then condition, and is charging fees for that, you can replace them with a smart contract. There&#8217;s plenty of use cases for that, in the financial system, health care, legal system. I view that as really powerful, just automating things, and allowing there to not be a centralized point of failure. That&#8217;s one of the most important parts of what this produces.\nAvichal Garg [04:17] &#8211; At a high level, the way I think about it is there are kind of three buckets. There&#8217;s essentially programmable money, and there&#8217;s a bunch of different facets to that. There&#8217;s privacy, or there&#8217;s smart contracts that can be used as escrow, and you could argue ICOs effectively are an escrow. You&#8217;re locking up some ether, and then you can do something with that, and I guess so that&#8217;s just kind of like programmable money is one bucket of use cases. Distributed compute is another bucket of use cases. You can use all these computers, all around the world to execute code. And then the third bucket is distributed apps, so things like prediction markets, or distributed VPN networks, and that&#8217;s kind of the third bucket of use cases, and I think pretty much everything I&#8217;ve seen so far, kind of falls into one of those three, and sometimes there&#8217;s a little bit of an overlap. You could be kind of in two buckets, but I think those are the three buckets I think about.\nCraig Cannon [05:05] &#8211; Cool, and so to jump into a question from Twitter, J.P. asked, &#8220;What are the top use cases you guys think are going to go mainstream in three years?&#8221; And mainstream may be caveated by within this community.\nLinda Xie [05:17] &#8211; Tthe two ones that will go mainstream are decentralized exchange and probably, gaming, something along the lines of collectibles.\nCraig Cannon [05:26] &#8211; Wait, can you just define collectibles, like what&#8217;s an example of that, that&#8217;s been out in the world right now.\nLinda Xie [05:31] &#8211; Out in the world in the crypto community, there&#8217;s been crypto kiddies, so you can collect a unique digital cat on the blockchain, so that can never be destroyed. You own that permanently and so that has gotten really popular. People are just kind of collecting it, like digital beeny babies in a way. You can breed them together and produce new unique cats. People just love collecting things in general. That&#8217;s been very common with stamps and coins and cars, people just love collecting and now, you have a society where you can just collect everything in just a digital manner and you can freely trade this. And so, that pairs well, to me, with decentralized exchange because, so for context, I worked at centralized exchange where you essentially have this exchange controlling user funds. Coinbase is really trustworthy and I&#8217;m storing my funds on Coinbase. But, there are a lot of centralized exchanges out there that have risk of getting hacked or getting shut down by regulators, running with user funds, so there&#8217;s risk on the custody side. There&#8217;s also some barriers to entry, if you live in a jurisdiction that something like Coinbase doesn&#8217;t support or you don&#8217;t have the right documentations. I&#8217;m really excited about decentralized exchange because you can now have a bunch of people that can participate in these markets and trade anything they want.\nCraig Cannon [06:42] &#8211; Yeah.\nLinda Xie [06:43] &#8211; Trade digital cats if they want and it&#8217;s really cool. More people can just participate in the network at this point.\nCraig Cannon [06:51] &#8211; Do you think the same thing is true? Like, are those that use cases that happened in the next couple years?\nAvichal Garg [06:55] &#8211; Yeah, I think both of those will happen. The two others I&#8217;d had, or the big one, the other big one, I&#8217;d add is basically is programmable money. I think, like, the payment rails will all get built out, things like lightning networking plasma or zero fee payment networks that are coming up and I think the merchant side of those things will continue to get better, so I think payments as a category of stuff will happen. And then privacy is a subset of that too. Privacy tokens are actually a thing. If you talk to a lot of people, hey if XYZ thing went away, would you care about it? They&#8217;re like, yeah, it would be kind of unfortunate if that thing went away or I&#8217;d lose a lot of money because I was in the ICO. Then you talk to people and you say, well, would you miss it if Monero went away and they&#8217;re like, &#8220;Oh man, that would really be terrible because I actually use Monero to do something.&#8221; The payment side of things is what&#8217;s actually going to merge and then yeah, I agree, decentralized exchange in collectibles are too early, like rarely use cases where people actually using.\nCraig Cannon [07:48] &#8211; What about about the decentralized apps that people are talking about and kind of dreaming about now? What&#8217;s the timeline on something like that?\nAvichal Garg [07:56] &#8211; This is probably a place where we might differ. It&#8217;s probably seven to ten years out for most these. We&#8217;re really, really early in most of these cases. There might be one-off use cases, like Orchid with VPN, where there&#8217;s a real problem and being a distributed network in a decentralized network can be censorship-resistant and so that&#8217;s a core feature of the network. Beyond that, it&#8217;ll be a while. It&#8217;ll be some early cases, but by and large, it&#8217;s going to take several years.\nLinda Xie [08:25] &#8211; Yeah, I generally agree. My attention is just a little bit shortened, maybe three to five. But I think there&#8217;s a lot of scaling issues that need to be solved before anything can go mainstream. But, I&#8217;m generally pretty optimistic that there&#8217;s really a lot of smart people working on that problem right now.\nCraig Cannon [08:41] &#8211; Be more specific on the technical side, what are the scaling issues?\nLinda Xie [08:44] &#8211; Yes, with the Ethereum, crypto kiddies itself was so popular, so many people were trying to use it, Bitcoin itself, so many people have been actually trying to use Bitcoin, that the transaction fees have actually gone pretty high. At some points, it was like average $30 per transaction fee, which is like parallel to a wire at that point. You have so many people&#8230; It&#8217;s a good problem, so many people want to use it, but it&#8217;s too expensive and it starts getting really slow. In Ethereum&#8217;s case, I know there&#8217;s a lot of scaling work being done. L4 is an organization that was funded by the Ethereum community grant to essentially work on some scaling solutions. There&#8217;s a lot of different ones that they are tackling. They&#8217;re specifically working on state channels, which essentially you can kind of, if I were to compare this, it&#8217;s like a bar tab in a way, where you essentially have all these like off-line transactions, where people are just moving back and forth between each other and you can update state and essentially you can update logic and then only when you want to finalize something, you can move it back to the main chain. It&#8217;s just a bunch of off chain transactions. There&#8217;s also Plasma, which is Joseph Poon and Vitalik Buterin, which essentially you have blockchains within blockchains, and so you just have all this work being done on these blockchains within a main blockchain. And if you ever want to, because the idea is that you really don&#8217;t care about\nLinda Xie [10:05] &#8211; what everyone else is doing, you only really care about what your transactions are all about. You&#8217;re isolated in your own little blockchain and only when something goes wrong, you ever have to like leave that blockchain and go back to the main one and report something&#8217;s wrong. There&#8217;s all kinds of things going on with this.\nCraig Cannon [10:20] &#8211; Just to understand that, by your own blockchain, are you meaning individual users or individual apps on the blockchain?\nLinda Xie [10:28] &#8211; Both, essentially you can just be isolated in your own world, in whatever application, or even individual use cases. This is very theoretical right now, but there&#8217;s work being done on it. There&#8217;s also TrueBit working on doing off-chain computations, so essentially you don&#8217;t want really complex computation on Ethereum blockchain, you essentially can maybe move that off and pay people for computational, to be done, and essentially, the promise that you have to verify that the work was done correctly. They have a really cool concept, where you essentially have forced errors in the network, so you have essentially every once in a while, the network will do some wrong computation and something that is incorrect and people who catch that error, actually get compensated for that. You have this whole network where people are just constantly making sure that things are running correctly, because if they catch something, they get a pay off for it. There&#8217;s just a bunch of really cool work being done, so I&#8217;m generally pretty optimistic on the ability to actually go mainstream.\nCraig Cannon [11:29] &#8211; Do you think that many of these apps that we&#8217;re going to see are going to resemble things that are popular right now? Or is thisvery much like the beginning of the internet and we had no idea what was coming and it&#8217;ll look more like that than a dupe of what we have right now?\nAvichal Garg [11:45] &#8211; Yeah, that&#8217;s a great question. The early ideas will look like ports of stuff that we&#8217;re used to, just like the early internet was kind of like the New York Times took the newspaper and literally like <a href=\"http://NYTimes.com\" target=\"_blank\">NYTimes.com</a>.\nCraig Cannon [11:57] &#8211; The headlines for images.\nAvichal Garg [12:00] &#8211; It looks like the newspaper right? It&#8217;s the easiest way to transport to a new platform and we just couldn&#8217;t predict that social media, like actually Facebook and Twitter would be the actual media winners, or YouTube would be the actual media winner. It wouldn&#8217;t be CNN. And so, I think it would have been really challenging to predict something like Airbnb. If you could have called that, then yeah, well, you&#8217;d have done quite well as an investor, but also, Airbnb, if you look at their early funding history, it was really challenging for them &#8217;cause it was such an out there idea. But it was a native idea, it was the thing that made sense on the internet. The first set of ideas will be essentially ports and there&#8217;ll be people trying to sort of, cargo cult map the ideas over and then, a couple of years into it, people who are sort of thinking about these thing natively, will start to play with ideas and say, &#8220;Oh, well now you can do this thing that just wasn&#8217;t possible before and here&#8217;s an idea, and what do you know, if I push a button, a car can come to me, instead of me going to someplace,&#8221; right? Those ideas, I think it just takes a while for people to get used to it and for developers to play with the infrastructure and new concepts and just sort of poke around and play around and see what&#8217;s possible.\nCraig Cannon [13:03] &#8211; Do you think it&#8217;ll leaped frog by location in any ways?For example, you know how L.A. was perfectly situated to have cars, but medieval European cities weren&#8217;t? And so they kind of than get leaped frog and have the train infrastructure. Do you think that will happen with a decentralized app? Say for instance, in Africa somewhere where like, money is not the same thing as it is, in terms of payment accessablity and most things, will they take off in different places first? Or, will that not be the case?\nLinda Xie [13:34] &#8211; Personally, I never thought cryptocurrencies were going to take of in the US or anything at first. It&#8217;s going to be in countries where people don&#8217;t have bank accounts primarily and now need a method of actually storing their own funds. Or countries where the currency is just getting inflated away, so the currency is not buyable, so I find that in certain countries, their use cases of cryptocurrencies actually matter more than in countries where there&#8217;s really strong financial infrastructure. It definitely varies in my case, so there&#8217;s also something like, in China, where you have all this censorship of using different applications, I could really see decentralized applications taking off in China.\nAvichal Garg [14:12] &#8211; Yeah.\nCraig Cannon [14:13] &#8211; Yeah, I just always wondered is the Valley a good barometer of the popularity of cryptocurrency in decentralized apps or is it not, that&#8217;s what I&#8217;ve been wondering?\nAvichal Garg [14:23] &#8211; That&#8217;s a good question. In some sense, geography is just one specific way to say that there&#8217;s an underserved market. You will probably see things, like the inspiration for new ideas does tend to take hold in these underserved markets and so geography is certainly one dimension. Or, you could of argued that, college students were an underserved market and they came to social networks, and it was just they were all in one place, there was an opportunity for a bring new type of media to emerge and so there will be pockets, even in developed countries, there are pockets that are underserved and so the question is really, where are the underserved markets, where the new infrastructure gives you some fundamental advantage or some sort of new utility. There&#8217;s kind of a related question which is, even if that&#8217;s worth the inspiration for where the idea it comes from, how do the companies that build those products actually scale, which actually is a different dimension altogether. And so, if you think about where the bottleneck is for actually building companies are, I think a lot of that is tribal knowledge that&#8217;s in people&#8217;s heads. Like, what does it mean to have a fast growing startup? Coinbase for example, is a YC company. It&#8217;s actually not a coincidence to me. It&#8217;s just like what it takes to build a fast growing startup. It turns out that there&#8217;s a lot of traditional best practices about how you hire people and how you structure your teams, and how you raise capital and like a bunch of that stuff is like,\nAvichal Garg [15:42] &#8211; that tribal knowledge that&#8217;s in people&#8217;s heads in Silicon Valley and so, I think you get to have the inspiration for ideas coming from underserved. But I wouldn&#8217;t be surprised if the really big winners in crypto are actually sort of re-centralized around Silicon Valley.\nCraig Cannon [15:54] &#8211; Feel the same way?\nLinda Xie [15:55] &#8211; Yeah, generally feel the same way, I mean there is a lot of developers that are, that I hear about working on Ethereum applications in their spare time. And so you&#8217;re seeing all of the flock of developer talent from Silicon Valley into working in this space and that&#8217;s where you&#8217;re going to see a lot of innovation. Although, it is pretty nice to see that there are like different hubs around the world of watching development so there&#8217;s like, Berlin and I know places in Argentina and Switzerland is another area. It&#8217;s pretty cool to see more hubs pop up in the space.\nCraig Cannon [16:23] &#8211; Yeah and how much do you think governance and regulation is going to affect those hubs? Does it ultimately mean that there&#8217;s a certain density of people that can build this stuff, therefore I&#8217;m moving there? Or are these tax incentives, different regulations actually going to move the market?\nLinda Xie [16:39] &#8211; Yeah, it&#8217;s really going to move the market. Right now, I think the US is being smart and not tryna be overly restrictive because they&#8217;ll know that it&#8217;ll push out of the development. Especially, let&#8217;s say if you were just really be harsh on people that were developing on these projects and that would easily just cause people to move elsewhere. You&#8217;re already seeing the tax incentives play out here, so people are registering in Cayman Islands,\nAvichal Garg [17:02] &#8211; Or Puerto Rico.\nLinda Xie [17:03] &#8211; Or Puerto Rico. Yeah, people are like moving to Puerto Rico and starting a little hub over there.\nCraig Cannon [17:07] &#8211; I&#8217;ve heard of people buying houses in Puerto Rico.\nLinda Xie [17:09] &#8211; Yeah, yeah, so I actually know of people that are trying to move out of California. Especially, because California has really high taxes.\nCraig Cannon [17:17] &#8211; Well, you see Nevada plates here all the time. People have been doing it for a while.\nAvichal Garg [17:21] &#8211; Yeah, the town&#8217;s not that far.\nLinda Xie [17:24] &#8211; Yeah, even like when you have scenarios where people are like mining in China and then all of a sudden China starts cracking down on mining. These miners have to move elsewhere and you&#8217;re seeing people move over to Washington, because electricity is cheap. So there&#8217;s this movement and it&#8217;s just based off of cheap electricity as well. It&#8217;s kind of crazy.\nAvichal Garg [17:40] &#8211; It&#8217;s pretty fascinating. The whole regulatory angle to this stuff is pretty fascinating. It&#8217;s just how our government&#8217;s, the game theory around how the governments want to regulate this stuff is pretty interesting. I actually think the US government has been really, really smart about this and pretty measured and sophisticated, because I think they understand there&#8217;s a lot of potential for innovation here and a lot of value to be created and they don&#8217;t want to crush that. I&#8217;ve been actually pretty impressed with how measured they&#8217;ve been. You look at something like the BTC, the Bitcoin ETF, paperwork that went in and all these people filing for it, I thought it was so clever the way that they essentially pushed back on that. They didn&#8217;t actually reject the ETF proposals, they essentially convinced the people who put in the ETF proposals to withdraw the proposals. Yeah, which I thought was super clever, so they basically back channeled, I think, I don&#8217;t have any insider information, just to be clear, but my read on it was, what they did was, they went to the teams and said, &#8220;Hey look, there are a lot of reasons we can&#8217;t approve this right now,&#8221; and maybe it was like, &#8220;Hey we don&#8217;t want to inflate the bubble anymore or whatever else, why don&#8217;t your withdraw them and let&#8217;s keep talking.&#8221; And then that way, it wasn&#8217;t like the government rejected the ETF proposals,\nAvichal Garg [18:50] &#8211; it was the ETF proposals being withdrawn. Which is the absolutely right way to do it, right? If you&#8217;re like, &#8220;Hey look, we&#8217;re going to do this eventually, we just can&#8217;t do this right now but we don&#8217;t want to crush the market, we also don&#8217;t want to pump up the market,&#8221; really smart way to do it. They&#8217;ve actually I think been pretty sophisticated, like the regulators and inside the SEC and the CFTC, and so on. I think they&#8217;ve been pretty sophisticated in the way they&#8217;re handling this.\nCraig Cannon [19:08] &#8211; And what about on the investor&#8217;s side? How do you guys feel about accredited investors getting involved in ICOs versus non-accredited?\nLinda Xie [19:16] &#8211; That one is hard because I really believe in decentralized systems and everyone should have access to this, but at the same time, if something straight up looks like a security token and you&#8217;re issuing it in the US, I think that rightfully falls under the SEC regulations. I do believe in compliance and that&#8217;s actually something I really like about this new protocol, Harbor protocol, where they essentially try to make sure that the trading of tokens is compliant. You can have some wide list of accredited investors that plug into the smart contract and essentially say that you can only issue tokens to these investors. And there&#8217;s maybe some holding requirement, you have to hold it for 90 days or something, so this smart contract itself will have the logic that you can actually trade these tokens. It&#8217;s important to be compliant with this, as long as it&#8217;s very clear it&#8217;s a security token. Although, there are plenty of cases where like a governance token doesn&#8217;t fall under that jurisdiction, so it&#8217;s really important to make the distinction that not all tokens are the same.\nAvichal Garg [20:15] &#8211; Yeah. Agree with all that. The risk really is that&#8230; There&#8217;s lot a whole philosophical angle to this, right, which is to what degree should the government be involved and being somewhat paternal about protecting investors from themselves in a sense. And these distinctions are arbitrary&#8230; If you have a certain amount of money, you get to sort of do whatever you want, if you don&#8217;t than you don&#8217;t, right. It&#8217;s starting to change with crowdfunding regulations that have changed recently. There is some movement there. Setting aside the kind of philosophical parts of it, generally speaking, trying to prevent scammers in the ecosystem and trying to prevent people from kind of getting and losing their money. It&#8217;s and important good and to the extent that the ecosystem can do that itself, things like Harbor, which is pretty awesome project. I think that to the extent that we can kind of make that easy for people, to not lose their money or people inside the ecosystem calling out.\nCraig Cannon [21:12] &#8211; Well, this is what I&#8217;ve been wondering because the ICO market has been rife with these, not necessarily scams but sometimes straight up scams, right? It&#8217;s not actually good for anyone. Maybe it&#8217;s good for the one scammer who gets a bunch of money but in the long run, it&#8217;s not good for anyone.\nAvichal Garg [21:30] &#8211; Yeah, I agree.\nCraig Cannon [21:31] &#8211; What other methods are being put in place to avoid these scams?\nAvichal Garg [21:36] &#8211; Yeah, I&#8217;m really hoping that people who are in ecosystem are very aggressive about calling these things out and not supporting them and ultimately, if there are ways for people to call out these projects and then those projects don&#8217;t receive any funding, that&#8217;s actually the economic incentives will kind of play out in the right way. People will get smarter about it. People will get a little more sophisticated about diligence. And investors can kind of help, the people who are actually sophisticated and understand the technology and have done diligence and understand how product development works and understand all of these nuisances, actually, getting out there and saying, &#8220;Hey, this is the real good stuff,&#8221; like, TrueBit, super interesting project. You know, like, there&#8217;s real tech there and the team is really smart and like so on and just talking about it and saying by the way, this stuff over here, be careful, right? And I don&#8217;t want to call anybody out but like, you know, there&#8217;s stuff out there that if you just talk to people who are deep in it, then you can sort of poke and prod and realize it&#8217;s a little bit more vaporware and people just need to be a little bit more practical about that.\nLinda Xie [22:37] &#8211; Yeah, there was an interesting case where there was a project called, Crypto All Stars, where essentially you had different collectibles of different crypto celebrities, so there was like one for Naval and Charlie and so if you verified on Twitter that you were actually them, the card owner, you essentially got 4% of the proceeds of the card and then, the creator of the project got 4%. But anyways, this was really popular and people are trading this and it pretty much looked like a pyramid scheme in a way. Someone actually bought the website and bought it from the project owners and claiming they wanted to improve it and they actually shut it down. Someone bought it, I think it was like $10,000 or something like that and then, just shut down the website and just said like, &#8220;Hey, this is like straight up a scam and people are pumping the prices on Twitter and you people are going to lose a bunch of money, so I&#8217;m not okay with this, I&#8217;m shutting it down.&#8221; I thought that was kind of crazy. Things like that are happening as well.\nCraig Cannon [23:37] &#8211; Right. It probably like would behoove me to do some research on the beginning of the stock market. Because I imagine in the beginning, things were getting pumped in the same way.\nAvichal Garg [23:45] &#8211; Yeah, exactly. That&#8217;s the root of a lot of this regulation, is a lot of people lost a lot of money, you know, 60, 70, 80 years ago and so, collectively we all decided, &#8220;Hey, it&#8217;s probably better if we don&#8217;t let snake oil salesmen come in just like take everybody&#8217;s money.&#8221; It&#8217;s like better for everybody. Though I think it&#8217;s fair to say, maybe, I think it&#8217;s always good to revisit things that have been around for like 50 years and say, which one of these things actually apply today and how we should think about them and how we should evolve them? Even before it gets to that point, hopefully, I think there are people in the community that are good about calling these things out and stamping out the fraud before it really happens. It&#8217;s too big and too many people will lose too much money.\nCraig Cannon [24:24] &#8211; For the people in the community, the folks interested in starting companies, where do you think the opportunities are now? Maybe the real question is, where are the opportunities four years from now that they should start working on right now, to have a company?\nAvichal Garg [24:40] &#8211; That&#8217;s a great question. What do you think?\nLinda Xie [24:46] &#8211; Okay, there are so many applications that I feel rely on some sort of identity and reputation system, because in the end, even it&#8217;s a decentralized system, like if you&#8217;re doing a decentralized market place, you still have to trust that the person you&#8217;re buying your goods from is actually going to deliver to you. It&#8217;s really important to have some reputation and identity system that carries with you as you use all these different applications. We&#8217;re still at the very early days of that, so there&#8217;s things like Uport and Civic, but they&#8217;re really rudimentary compared to the identity systems that exist in like, regular financial systems. I would really like to see people work on that problem and another areas, that a lot of projects talk about doing decentralized governance and they say that they&#8217;re going to use the tokens to actually upgrade the protocol over time, but there&#8217;s so much research that needs to be done there. There&#8217;s massive opportunity to really figure out what&#8217;s the best way to handle governance in decentralized manner. That&#8217;s going to be at massive potential.\nAvichal Garg [25:47] &#8211; I&#8217;m just taking some notes. I just came up with five that I think are probably worth exploring. So if you&#8217;re a founder out there and you&#8217;re like, &#8220;Hey, what should I be thinking about.&#8221;\nCraig Cannon [25:54] &#8211; One, Cryto puppy.\nLinda Xie [25:56] &#8211; That exists already, yeah.\nAvichal Garg [25:59] &#8211; That&#8217;s a great idea. The first thing were talked about before was scaling solutions. There&#8217;s a lot of infra work to be done just around making this stuff more scalable. Everybody&#8217;s pretty much in agreement, that there is just not enough people actually working at that layer of the problem. We could use a lot more great developers poking around there. Even more broadly speaking, there are components of infrastructure missing, and so I think, identity as a component for infrastructure is interesting. I think things like oracles are interesting. I think, it&#8217;s just this general idea of like, how do we know what&#8217;s true and what&#8217;s not true and there are like potentially shared datasets that people would want to cross projects or cross chain projects. I would bucket all of that kind of stuff inside an infrastructure. I think there&#8217;s financial infrastructure and financial tooling, like a lot of the early use cases are basically payment-oriented or money-oriented and so there&#8217;s much stuff to do there. I think there&#8217;s a lot of delve tooling to be built, so just like the actual production of a smart contract, how do you test this stuff? How do you deploy it? There&#8217;s a lot of work to do there. And then, like a lot of things, I think the early use cases will probably be somewhat trivial and fun and so I think gaming and collectibles and things like that will be pretty interesting and maybe, it&#8217;s truly native stuff like, crypto kitties, maybe it&#8217;s markets to buy and sell those kinds of assets.\nAvichal Garg [27:17] &#8211; Maybe it&#8217;s games from traditional gaming companies sitting on top of crypto somehow to do digital assets inside the game or cross game digital assets. So, I think a lot of it really like fun, trivial stuff that can take advantage of the new technology will be a way to bootstrap in. And arguably, I was talking to someone earlier today about, in some sense, ICOs are kind of the gaming use case, right? It&#8217;s kind of like&#8230;\nLinda Xie [27:44] &#8211; Yeah, it is.\nAvichal Garg [27:45] &#8211; It&#8217;s a gambling use case, right? That&#8217;s actually kind of what&#8217;s happening, is people are just gambling and it&#8217;s real money. So it kind of makes sense, right, that that would take off. It kind of matches the pattern of what you see with early adoption technology. Yet again, gambling is an early adopter.\nCraig Cannon [28:00] &#8211; Oh, for sure, yeah.\nLinda Xie [28:00] &#8211; Yeah.\nCraig Cannon [28:01] &#8211; Is there a porn crypto thing yet?\nLinda Xie [28:00] &#8211; Yeah.\nAvichal Garg [28:03] &#8211; I&#8217;m sure there is.\nLinda Xie [28:05] &#8211; And there&#8217;s SpankChain which is actually really popular. It uses really cool technology, so it&#8217;s pretty great, yeah.\nCraig Cannon [28:10] &#8211; What is it doing?\nLinda Xie [28:11] &#8211; So, I think it&#8217;s like webcams where people can just pay Spank Coin or something to them, but they use like stage channel technology. It&#8217;s cutting edge technology in Ethereum which is pretty incredible.\nAvichal Garg [28:22] &#8211; Yeah, one of the more awkward things, with all of the early adopted use cases is too is, you want to understand them but you don&#8217;t want to go super deep and like, you don&#8217;t want to like, in the ecosystem, you don&#8217;t want to be known neccesarily as the SpankChain expert.\nLinda Xie [28:38] &#8211; Yeah, that&#8217;s true. Yeah, I haven&#8217;t really seen it.\nAvichal Garg [28:42] &#8211; Yeah, somebody is doing that. I don&#8217;t actually know anybody who&#8217;s really dug into it.\nCraig Cannon [28:47] &#8211; Especially, if you don&#8217;t massively cash in as the SpankChain guy, then you&#8217;re like, &#8220;Oh, I&#8217;m just kind of around&#8221; Fair enough. What about the actually, ICOs have been gigantic. People have raised hundreds of millions of dollars.\nLinda Xie [29:03] &#8211; Billions.\nAvichal Garg [29:04] &#8211; It was six billion last year, is number I read.\nLinda Xie [29:06] &#8211; Yeah, this year, three billion alone.\nCraig Cannon [29:08] &#8211; What was the largest one so far?\nLinda Xie [29:11] &#8211; It&#8217;s probably Eos.\nAvichal Garg [29:12] &#8211; Yeah, it&#8217;s probably Eos.\nLinda Xie [29:12] &#8211; Yeah.\nAvichal Garg [29:13] &#8211; I think they&#8217;re up to a billion. I think probably,\nLinda Xie [29:15] &#8211; Like two billion now.\nAvichal Garg [29:17] &#8211; Jeez, unbelievable.\nCraig Cannon [29:18] &#8211; Yeah, so this fundamentally sifts the paradigm for fundraising. We&#8217;ve kind of like gone from zero miles an hour to a hundred and twenty miles an hour, in this conversation but for people who don&#8217;t fully understand when someone raises a billion dollars straight up, what are the expectations for this company? What are people buying?\nAvichal Garg [29:40] &#8211; That&#8217;s a great question. It depends on, there&#8217;s actually a great amount of variation there too. It&#8217;s EOS or Bancor or Filecoin/Protocol Labs, or Tezos I think, across the board, people will try a lot of different models. Everything from you&#8217;re buying a utility token which is ultimately going to be used for some sort of functional utility inside the network that&#8217;s part of a product. Literally, you&#8217;re giving money to a foundation. That&#8217;s literally a donation to a foundation and you have no expectation in anything in return is like, if you read the dots, that&#8217;s actually what you did, you donated to a foundation. That&#8217;s actually a pretty broad spectrum and so there is no universal answer to that. It would be interesting to see what happens on the regulatory side on that in the next 12 months as some of these things come into fruition, where people don&#8217;t actually deliver on projects. It&#8217;s a big open question of what actually happens and which of these things are okay and which ones are not.\nLinda Xie [30:39] &#8211; Yeah, what&#8217;s crazy is you can&#8217;t even possibly spend that much money on developing applications so,\nCraig Cannon [30:44] &#8211; I disagree. I guarantee you someone is going to spend the money.\nLinda Xie [30:48] &#8211; Oh my god, I just can&#8217;t believe it. But people now, have so much excess capital that they&#8217;re giving it to crypto funds and being like, &#8220;Hey, manage this capital,&#8221; and now they&#8217;re like an LP. It&#8217;s so crazy that this,\nAvichal Garg [30:58] &#8211; Yeah, some of these projects have become funds of funds, basically.\nCraig Cannon [31:00] &#8211; Really? I didn&#8217;t know that.\nLinda Xie [31:01] &#8211; Yeah, it&#8217;s crazy.\nAvichal Garg [31:03] &#8211; In some cases, you can argue, I think&#8230; The Ethereum community fund is doing an interesting job here, where they&#8217;re saying, hey look, Ethereum is an actual real ecosystem and we want to encourage development within the ecosystem, let&#8217;s invest in teams and companies doing really interesting work that may be under invested in. A lot of this infrastructure stuff is under invested so let&#8217;s give developers an incentive to pay attention there. In certain other cases, it&#8217;s just like, &#8220;Hey, we raised two hundred million dollars and by the way, that and now we have a billion dollars. We&#8217;re not exactly equipped to handle a billion dollars, we really only needed 25 million dollars to build the thing. What are we going to do with 975 million dollars?&#8221;\nCraig Cannon [31:40] &#8211; Right, now you also have to be a money manager as a founder. How much is liquid? How much is on crypto? How much do I pay people?\nAvichal Garg [31:48] &#8211; To Linda&#8217;s point is, we probably don&#8217;t want to be money managers so let go find a money manager and then handing their money over to people to be money managers.\nCraig Cannon [31:55] &#8211; Man! That&#8217;s insane. On the founder&#8217;s side, what are you guys saying to people that are honestly considering an ICO and they passed the threshold. Okay, this actually makes sense. You&#8217;re not just generating some pyramid scheme. You&#8217;re not just trying to grab money and there&#8217;s a real reason to do it. What do tell them?\nLinda Xie [32:16] &#8211; Very, very few times is it reasonable, in my opinion, to do a token sale. There&#8217;s a lot of really great projects that can do decentralized applications or create their own block chain or whatever. They don&#8217;t actually need to do a token sale, they can just go traditional equity route. We seen that with some projects like Dharma and dYdX. I actually recommend a lot of projects to go that route, because you don&#8217;t necessarily want to tack on a token that you don&#8217;t know if it&#8217;s actually going to make sense. It creates additional frictions to the network as well. There&#8217;s still regulatory uncertainty as how this is supposed to be handled. If someone still wants to really do a token sale, I recommend that they work with lawyers that really understand this space. Don&#8217;t try to be cheap with the lawyers. I&#8217;ve heard people like, &#8220;I&#8217;ve found some discount lawyer who&#8217;s willing to do this token sale, for really cheap.&#8221; I&#8217;m like, no, you want to make sure people have expertise around this and can guide you through things. I generally also say, no one&#8217;s listened to me on this, but, I think they should raise in a series. There&#8217;s no need that you have to raise all that money up front. Let&#8217;s say, you really wanted to raise all that money up front, you should probably lock it up for some time and as you hit certain milestones, the funds then release. Because it can also be sitting on 200 million dollars, can also kind of hurt incentives of the team being like, &#8220;Oh, we just have a bunch of money, we can just spend like crazy.&#8221;\nLinda Xie [33:33] &#8211; The incentives really changed. And the last thing, which people have listened to me on this, the vesting schedule of tokens. It&#8217;s really important to kind of look like a traditional company. In that sense, you want to make sure that employees are not going to just leave and cash out their tokens when the token sale happens. On the flip side, for investors, you want to make sure that they&#8217;re aligning with you as well. Early on, a lot of projects didn&#8217;t have a vesting schedule or lock-up for these investors and the investors just came in and flipped their coins. They got their discount like 20-30% and then during the actual token sale, they just sold everything and they&#8217;re no longer investors. It really changes incentives, so it&#8217;s so important to think through how your token model will actually works. What&#8217;s the governance of it, essentially.\nCraig Cannon [34:18] &#8211; Do you recommend four-year vesting for employees? Like same deal?\nLinda Xie [34:23] &#8211; Yeah, that&#8217;s pretty much what I&#8217;ve been doing so far, like one-year lock-up,\nCraig Cannon [34:25] &#8211; One-year lock-up.\nLinda Xie [34:26] &#8211; One-year lock for your vesting schedule. That&#8217;s what I&#8217;ve been recommending, but I get, it&#8217;s,\nAvichal Garg [34:31] &#8211; It&#8217;s pretty tried and true. I mean, I think a lot of these things like vesting or being thoughtful about when you raise money and how you raise money, they&#8217;re tried and true for a reason, right? They actually like underlining it all, there&#8217;s a group of humans that get in a room or get in a telegram group and write some code. Those human dynamics haven&#8217;t really changed and so things like vesting are important. I think we figured that out over the last 20 years, that some of these things are really good. Now I think that are places where you might want to reconsider them in this new world. Where&#8217;s the value accrue, is it equity or tokens? Are your employees vesting equity or are they vesting tokens? There are like some interesting questions there, but I think some of these foundational concepts like vesting, they exist for a reason. They&#8217;re best practice for a reason and I think a lot of teams should be adopting these things, if they haven&#8217;t already.\nCraig Cannon [35:19] &#8211; Again, when you get a bunch of humans in a room, they create games and if you raise the billion, I&#8217;m going to raise a billion and one and that&#8217;s the game, unfortunately. To boil it down, you&#8217;re saying to founders, listen, you don&#8217;t necessarily have to do a token sale. It&#8217;s not required, so if you&#8217;re a founder and you&#8217;re interested in crypto, you can get in, but you don&#8217;t have to do this. When it comes back to that, are you saying to them, apply to an accelerator or go and raise money traditionally, what are you recommending them to do in that path?\nAvichal Garg [35:52] &#8211; What it comes down to is, just outside of crypto and startup world at this point, there are a lot of places to get money. I know it&#8217;s different if you&#8217;re in different parts of the world. Some places have more investor depth and investor liquidity than other places, but there are a lot of ways to raise money. You really want to be thoughtful about who you&#8217;re raising money from and what value they bring to your company. You can do the ISO and get a bunch of people to send you some eth, but what happens if things don&#8217;t go well? Those are the kinds of projects that you know, your retail investor raises up their hand and says, that person stole my money. Meanwhile, there are all these great investors like Linda who have actually been at companies and started companies and helped scale companies. That&#8217;s actually who you want involved. That&#8217;s actually who can help you over the next three, four, five years as you build your company. What we are going to see is a lot of people returning to that idea of &#8220;Oh, I could get money from five different places, who can actually add value to my company for the next three to five years and help me build this company.&#8221; I think we will see that sort of re-aggregation towards people who actually add value in the earlier stages. That could be an acceleration. That could be an early stage investor. That could be somebody who&#8217;s really early in crypto made a bunch of money but actually is very sophisticated about how they think about crypto. There are a lot of those people out there too.\nAvichal Garg [37:15] &#8211; It&#8217;s not to say that people who haven&#8217;t previously been in the ecosystem are not value add, I think there are actually a lot of people crypto-native in some sense, who really understand this stuff and have been in it for years, who are very smart and very thoughtful and you want them involved. It&#8217;s really about how do you find people who can add value and get them involved in your company and being smart and thoughtful about that.\nLinda Xie [37:33] &#8211; That&#8217;s so true because when these projects are doing token sales, they&#8217;re distributing their tokens to thousands of people and especially, if you did some heavy marketing around that, you end up getting this pump and dump kind of crowd. All they&#8217;re doing is saying, when moon, when&#8230; They just want things listed and price to pump. If you look at those Slack groups, it&#8217;s just like mayhem. They&#8217;re not adding any value, they&#8217;re creating tons of distractions for the founders. It&#8217;s so important to have value add investors, not just try to make money really, really quick or something.\nCraig Cannon [38:04] &#8211; You see the micro example in Silicon Valley already, right? If you&#8217;re a big quotes hot company, you can raise from anyone. It&#8217;s just about finding the smartest money. You see that on a larger scale here, where there&#8217;s billions of dollars just floating around.\nAvichal Garg [38:16] &#8211; Yeah, 100%. I actually think in the last three months in particular, I don&#8217;t know if you&#8217;re seeing this, but it seems like we have moved back into that world, where the really, really good teams in crypto and a lot of the teams that have a lot of early momentum, are going out and seeking out the high value investors again, and saying, &#8220;Hey, I don&#8217;t want to do a public sale, I actually want to find people who add value to the company and be thoughtful about it.&#8221; We might look at this historically you know, in five years we might look back and say, oh, that was a funny six month window in time. Kind of like, reverted to the mean the basically, so we came back to the basic principles.\nLinda Xie [38:50] &#8211; I saw some stat on that, it was saying, nowadays 60% of the funds raised in the general token sale, is actually raised in the presale round. It&#8217;s really shifted the momentum so far.\nCraig Cannon [39:01] &#8211; Just in a year.\nAvichal Garg [39:03] &#8211; The last few months, yeah. Since the beginning of the year. Yeah, things move so fast in this space.\nCraig Cannon [39:08] &#8211; Alright, so let&#8217;s go into some of the questions from Twitter, King Croasis asks, so what are thoughts on optional vs mandatory privacy in transactions?\nLinda Xie [39:18] &#8211; Yes, I have a lot of thoughts on that, so I essentially think that it needs to be mandatory privacy, if you&#8217;re going to actually have a privacy coin. If it&#8217;s ever optional, you get looked at if you&#8217;re starting to use a privacy feature, like, &#8220;Why are you using this privacy feature, do you have to something to hide?&#8221; First of all, you paint a target on your back. Second of all, of contacts, I did blockchain changes when I was at Coinbase and so Bitcoin is very easy to trace and a lot of people give information away about other people. Even if you&#8217;re being really smart and someone transacts with you, they give away information about you and so that can happen in a scenario, where you only have a small subset that&#8217;s actually being private and the rest of the users on the network are being public. They can give that information away, so it&#8217;s really important to just have mandatory privacy. That&#8217;s something I really love about Monero, all they transactions are private by default and that&#8217;s absolutely crucial.\nAvichal Garg [40:11] &#8211; Yeah, I philosophically agree. Mandatory is the way to go. It creates some interesting challenges though. That&#8217;s a harder pill for regulators to swallow, generally speaking. I heard this great story where in the early days of the internet, you know SSL, HTPS is like a standard thing. It&#8217;s on by default in a lot of cases. But actually, the Netscape team had to fight to make that a thing that was possible inside the browser because the government was worried, &#8220;Why do you need to encrypt your transactions? Are you doing something illegal?&#8221; Why shouldn&#8217;t we have this be public? It turned out that one of the selling points was commerce. You don&#8217;t want to send your credit card number over the wire unencrypted. The fact that they were like real legitimate use cases allowed things like SSL to emerge like, &#8220;Oh yeah, we should actually allow that.&#8221; That is actually the challenge for the space is philosophically, you agree with Linda which I do, I think then that the onus on us to demonstrate use cases, where default privacy is really important. Things like, if people do start to get paid in crypto, for their job, well you kind of don&#8217;t want everybody to know how much money you make and who&#8217;s paying you. That&#8217;s reasonable. It gets even more interesting if you start talking about, well let&#8217;s say, that you have a particular sexual orientation and you live in a community that doesn&#8217;t really support that and you&#8217;re donating to a charity that does, do you really want people to be able to sniff that out?\nAvichal Garg [41:41] &#8211; You take it even more extreme when you say, well if you live in a country where the government is not, you might trust the US government but there might be other governments that you don&#8217;t trust, even if it&#8217;s not your government, do you want that government to be able to sniff out your transactions on a public blockchain?\nCraig Cannon [41:55] &#8211; Right.\nAvichal Garg [41:56] &#8211; I think being really concrete about, it&#8217;s not just a philosophical thing, although I do agree with the philosophy a hundred percent. There are really practical consequences to this stuff. What would make it possible, I think, for regulators to understand why it&#8217;s so important that it be on by default.\nLinda Xie [42:10] &#8211; Yeah, absolutely, and also, there is this concept of selective transparency and both , so you can essentially have this view key where you can share with someone to now view your transactions. This you can share with auditors, if you want to be compliant or if a charity wants to display their transactions, they can share their view key to everyone in the world. The idea is that if it really mirrors the traditional financial system, we don&#8217;t broadcast everything to the world, but we download our bank account statement and give it to someone when they need to see it. I don&#8217;t think it&#8217;s far off from what we&#8217;re used to.\nCraig Cannon [42:45] &#8211; So just default private and then, if you need to be public on anything. Cool, so transitioning from that into another governmental related question, Claudio asked, how do you see the US government or do you see the US government launching their own crypto currency backed by gold?\nAvichal Garg [43:01] &#8211; Yeah, I have very strong thoughts about this. The specific incarnation I think backed by gold, we can sort of set that aside for a second, in general, I hear a lot of people talking about how governments might regulate crypto or ban crypto and there is some risk of that. The bigger and scarier potential risk is that governments fully embrace crypto in the wrong way. Kind of back to this idea of privacy, right. Do you really want a government that you may not trust to have full visibility into everything that you are spending money on? Everyday and every transaction and every person that you&#8217;re transacting with, right? That has very, there&#8217;s fundamental human rights privacy sorts of aspects of that and they&#8217;re very practical. If your government can do it, odds are other governments are can do it, sorts of downstream consequences. Increasingly, governments are getting sophisticated in a way that they think about technology and adopting technology and using technology. The bigger risk is actually, what Claudio was calling out, is governments being really smart about adopting this in a way that makes, in my opinion, the wrong trade-offs between sort of security versus privacy. There&#8217;s not enough people, so many people are worrying about governments banning this stuff, that we&#8217;re not looking at the other side nearly as deeply of what happens if the governments fully embraces it but does it in the wrong way. What if a government you may not trust, even if you trust your government, if another government that you don&#8217;t trust embraces it in the wrong way.\nCraig Cannon [44:35] &#8211; Is there a positive outcome in which a government embraces it, creates for example, USCoin, whatever it might be, TrumpCoin in the worst case scenario, where it&#8217;s actually not a negative thing but we move from the dollar to USCoin or whatever it is, possible?\nAvichal Garg [44:53] &#8211; Yeah. That&#8217;s one of the great things about crypto is that it is global and there are all sorts of opportunities for governments, especially smaller and more nimble and willing to adopt this stuff. Estonia has done a great job of pioneering some of this stuff. Singapore&#8217;s poking around with this. There are definitely places between voting or making it easy to file your taxes to making a banking system more efficient. There are lots of places where large existing institutions could adopt this and that&#8217;ll be great. Even making stable coins, maybe some government should just say, hey, we have 500 billion dollars and you trust us and we&#8217;re just going to issue stable coins and now crypto can actually be a real thing. There are lots of positive ways governments can play in this space and hopefully some will.\nLinda Xie [45:41] &#8211; Yeah, Dubai&#8217;s been pretty good about that. They said that all visa applications and some other documents will be on the blockchain by year 2020. It&#8217;s going to save them over a billion dollars a year and just being more efficient. They&#8217;ve been pioneers in this space and I know Consensus, the company, works very closely with them. I completely agree with everything you said. What&#8217;s crazy is Venezuela already issued their own\nAvichal Garg [46:07] &#8211; You&#8217;re talking about the Petro Dollar.\nLinda Xie [46:08] &#8211; Yeah, which they claimed their 5 billion dollars was raising the presale but they haven&#8217;t proved it. But what&#8217;s crazy is all these sanctions against Venezuela and now there&#8217;s this foreign capital coming in apparently, to fund this. You run into all these issues where now you&#8217;re supporting a sanctioned country financially. That will be real interesting to watch how that plays out.\nCraig Cannon [46:30] &#8211; Right, well you see every day how little the average normal person cares about this sanctions between borders, it&#8217;s just like, &#8220;I don&#8217;t know, go buy something in Venezuela or Mexico or it doesn&#8217;t matter.&#8221;\nAvichal Garg [46:41] &#8211; Yeah, it&#8217;s fascinating.\nCraig Cannon [46:42] &#8211; Alright, another question. Navin Mischra asked, what would be the best onboarding ramps for adoption and what roles will oracles have in decision making in the future?\nLinda Xie [46:52] &#8211; Best onboarding ramps for adoption&#8230; Honestly, it&#8217;s something like Coinbase. They do a really good job of just linking up your bank account and just purchasing cryptocurrencies. Just having a nice user experience there is really important. I think the more interesting thing for me is what role will oracles have in the decision making process. I&#8217;m fascinated with this idea of decentralized oracles, so you can essentially have a system like Augur, which is a prediction market platform where anyone can create a prediction market on it. The past issues with prediction markets is they often get shut down by regulators just because it&#8217;s kind of closer to gambling. But in prediction markets on top of Augur, no one can shut this down. You can really have these markets operate and so people can start creating markets where essentially you measure the citizen&#8217;s happiness, you measure GDP, you measure all these different statistics of a country, and you can have people betting on the outcome of whether or not a different policy is going to increase or decrease these statistics. And from there, policy makers can now start making their decisions based off the outcome of this and that&#8217;s called futarchy. I just think that is so cool because people are actually putting their money where their mouth is at this point. They might say one thing, like &#8220;Yeah, I really support this policy,&#8221; but if you&#8217;re actually betting on it, then I think that&#8217;s a stronger signal. I think that&#8217;s going to be something that is totally new\nLinda Xie [48:17] &#8211; that these systems are able to produce.\nAvichal Garg [48:22] &#8211; The only thing I&#8217;ll add on the onboarding piece of it is, I suspect that the way most people get onboarded will either be very directly like Coinbase, so it&#8217;s like they know what they&#8217;re getting into, they&#8217;re buying into crypto, or of it&#8217;s going to be totally opaque to them, they&#8217;re not going to realize at all what they&#8217;re doing is interacting with blockchain and crypto, they&#8217;re just doing it a thing that you couldn&#8217;t do before. It&#8217;s going be so sideways, that people just won&#8217;t realize that&#8217;s actually what&#8217;s happening. I suspect those native use cases will be that way. It&#8217;s an interesting question of what percentage of people onboarding into the space do it very directly through something like Coinbase or they just happened to do a thing and it happens to sit on top of crypto. It kind of reminds me of several years ago, we talked about mobile companies, so right now we&#8217;re talking about crypto companies and at some point in the next five years, it&#8217;s not going to be that you&#8217;re crypto company. It&#8217;s that you offer some value to the people who use your product and it so happens that you sit on top of blockchain or use crypto economics or whatever. That will actually be how a lot of this stuff goes mainstream, in a way that people don&#8217;t even associate directly with crypto necessarily.\nCraig Cannon [49:28] &#8211; I would bet 100% on that, because if you ask the average person, &#8220;What language is Facebook in?&#8221; What? What&#8217;s a language? Why do I care about this? You see it when people are pitching their companies. They&#8217;re like, we have the fastest implementation of Python you&#8217;ve seen and you&#8217;re like, &#8220;No one cares. No user cares at all.&#8221; Good point. Thanks for coming in guys. This has been really great.\nLinda Xie [49:54] &#8211; Yeah, thanks for having us.\nAvichal Garg [49:54] &#8211; Yeah, thanks for having us.\nLinda Xie [49:56] &#8211; Alright, thanks for listening. As always, you can find the transcript and the video at <a href=\"http://blog.ycombinator.com\" target=\"_blank\">blog.ycombinator.com</a> and if you have a second, it would be awesome to give us a rating and review wherever you find your podcasts. See you next time.\n<script src=\"https://reader.podclipper.com/static/share-ycombinator.js\"></script>\n","comment_id":"1102477","feature_image":"/blog/content/images/wordpress/2018/05/Crypto-Investors-Linda-Xie-and-Avichal-Garg.jpeg","featured":false,"visibility":"public","email_recipient_filter":"none","created_at":"2018-05-01T19:25:48.000-07:00","updated_at":"2022-02-03T16:37:17.000-08:00","published_at":"2018-05-01T19:25:48.000-07:00","custom_excerpt":"Today's episode is with Linda Xie, co-founder of Scalar Capital, and Avichal Garg, Managing Partner at Electric Capital.","codeinjection_head":null,"codeinjection_foot":null,"custom_template":null,"canonical_url":null,"authors":[{"id":"61fe29e3c7139e0001a710d1","name":"Y Combinator","slug":"y-combinator","profile_image":"/blog/content/images/2022/02/1200px-Y_Combinator_logo.svg.png","cover_image":null,"bio":"Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200).\r\n\r\nThe startups move to Silicon","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/y-combinator/"}],"tags":[{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},{"id":"61fe29efc7139e0001a71176","name":"Podcast","slug":"podcast","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/podcast/"},{"id":"61fe29efc7139e0001a71172","name":"Video","slug":"video","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/video/"}],"primary_author":{"id":"61fe29e3c7139e0001a710d1","name":"Y Combinator","slug":"y-combinator","profile_image":"https://ghost.prod.ycinside.com/content/images/2022/02/1200px-Y_Combinator_logo.svg.png","cover_image":null,"bio":"Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200).\r\n\r\nThe startups move to Silicon","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/y-combinator/"},"primary_tag":{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},"url":"https://ghost.prod.ycinside.com/crypto-investors-linda-xie-and-avichal-garg-on-opportunities-use-cases-and-regulation/","excerpt":"Linda Xie is the cofounder of Scalar Capital, a cryptoasset management firm. Before that she was a Product Manager at Coinbase (YC S12).","reading_time":43,"access":true,"og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"email_subject":null,"frontmatter":null,"feature_image_alt":null,"feature_image_caption":null},{"id":"61fe29f1c7139e0001a71a54","uuid":"fb98bf4e-4556-4ebe-a1aa-fbf9a5adf3e0","title":"CoinList Cofounder Andy Bromberg and Ramon Recuero","slug":"coinlist-cofounder-andy-bromberg-and-ramon-recuero","html":"<a href=\"https://twitter.com/andy_bromberg\">Andy Bromberg</a> is the cofounder and CEO of <a href=\"https://coinlist.co/\">CoinList</a>. CoinList provides financial infrastructure for token creators and investors.\n<a href=\"https://twitter.com/ramonrecuero\">Ramon Recuero</a> is an engineer at YC. He&#8217;s the author of the Decentralized Future Series, which <a href=\"https://blog.ycombinator.com/author/ramon-recuero/\">you can read here</a>.\nIf you&#8217;d like to listen to more podcasts about crypto, here are episodes with <a href=\"https://blog.ycombinator.com/ipfs-coinlist-and-the-filecoin-ico-with-juan-benet-and-dalton-caldwell/\">Juan Benet (IPFS) and Dalton Caldwell (YC)</a> and <a href=\"https://blog.ycombinator.com/blockchain-investing-with-olaf-carlson-wee-and-aaron-harris/\">Olaf Carlson-Wee (Polychain Capital) and Aaron Harris (YC)</a>.\n<hr />\n<div id=\"backtracks-player\" data-bt-embed=\"https://player.backtracks.fm/ycombinator/ycombinator/m/70-coinlist-cofounder-andy-bromberg-and-ramon-recuero\" data-bt-theme=\"orange\" data-bt-show-art-cover=\"true\" data-bt-show-comments=\"true\">\n</div>\n<script>(function(p,l,a,y,e,r,s){if(p[y]) return;if(p[e]) return p[e]();s=l.createElement(a);l.head.appendChild((s.async=p[y]=true,s.src=r,s))}(window,document,\"script\",\"__btL\",\"__btR\",\"https://player.backtracks.fm/embedder.js\"))</script>\n<script>\n(function(p,l,a,y,e,r,s){if(p[y]) return;\nif(p[e]) return p[e]();s=l.createElement(a);\nl.head.appendChild((s.async=p[y]=true,s.src=r,s))\n}(window,document,'script','__btL','__btR',\n'https://player.backtracks.fm/embedder.js'))\n</script>\n<script>\n!function(n,i,s,c){n[s]||(n[s]=function(i){n[s].q.push(i)}),n[s].q||(n[s].q=[]),\nc=i.createElement(\"script\"),\nc.async=1,\nc.src=\"https://c.bktrks.com/utils-1.0.0.all.min.js\",\ni.head.appendChild(c)}(window,document,\"BTUtils\");\nBTUtils(function(use) {\n var options = {\n autoplayLinks: false\n };\n use('backtracks-autolink', options).init();\n});\n</script>\n<hr />\n<h1>Subscribe</h1>\n<a href=\"https://itunes.apple.com/us/podcast/y-combinator/id1236907421\">iTunes</a> \n<a href=\"https://www.breaker.audio/y-combinator\">Breaker</a> \n<a href=\"https://play.google.com/music/m/I7pbd3gcjjeifbnm3wf7ag66ane?t=Y_Combinator\">Google Play</a> \n<a href=\"http://www.stitcher.com/podcast/y-combinator\">Stitcher</a> \n<a href=\"https://soundcloud.com/ycombinator\">SoundCloud</a> \n<a href=\"http://backtracks.fm/ycombinator/ycombinator/feed\">RSS</a>\n<hr />\n<h1>Transcript</h1>\nCraig Cannon [00:00] &#8211; Hey, how&#8217;s it going? This is Craig Cannon and you&#8217;re listening to Y Combinator&#8217;s podcast. Today&#8217;s episode is with Andy Bromberg and Ramon Recuero. Andy is the co-founder and CEO of CoinList and CoinList provides financial infrastructure for token creators and investors. Ramon is an engineer here at YC. Alright, here we go. Let&#8217;s just start, Andy, with a quick intro of who you are and what you&#8217;re working on.\nAndy Bromberg [00:24] &#8211; Sure, my name is Andy Bromberg, I run CoinList. CoinList is a platform where the best digital asset companies manage their token sales and we&#8217;re also where investors find high quality deals in the space. We&#8217;re working on helping with things like compliance. Helping with things like transaction processing for deals in the space and, then, helping investors who are also our clients find these high quality deals and invest in them. Broadly, we provide full services for sales like Filecoin and Blockstack and PROPS and manage their sale on the platform and, then, our investors see the deals and, then, separately, we just run compliance for a lot of sales as well. Helping them with know your customer, anti-money laundering and investor accreditation, which would could get into but the nitty-gritty technical stuff you got to do if you&#8217;re selling&#8211;\nCraig Cannon [01:05] &#8211; Okay, cool.\nAndy Bromberg [01:05] &#8211; Yeah.\nCraig Cannon [01:06] &#8211; And Ramon, for people who don&#8217;t know you, what are working on?\nRamon Recuero [01:09] &#8211; Yeah, I work for YC and before, I have my own company and I work in video games for Zynga for a while.\nCraig Cannon [01:15] &#8211; Alright, you want to start it off?\nRamon Recuero [01:16] &#8211; Yeah, so let&#8217;s assume that we&#8217;re starting a project, how else would we think of this new mode of fundraising? What kind of projects could be perfect for a token sale versus going through an angel or a fund incubator?\nAndy Bromberg [01:30] &#8211; Right, so, really interesting. Most projects, not a good fit for this funding model. And we see a lot&#8230; CoinList has done three public on the platform, so far. We&#8217;ve gotten over 900 inbound. Most projects not really high quality and not doing ICO for the right reasons. When we think about the right reasons, for me, it really comes down to one of a couple use cases. One is, raising money for protocols that need to be distributed. Filecoin&#8217;s a great example of that from Protocol Labs which is a YC company. And there, the insight is that, historically, protocols have only been funded by governments, academic coalitions, sometimes, really huge companies because they&#8217;re just expensive to develop. When you&#8217;re developing something that foundational, it&#8217;s too costly for a startup to develop, typically. The ICO model, giving stakeholders a stake in the protocol on that network, is actually the first time that we&#8217;ve had a way for new protocols to emerge and be funded for small teams with great ideas. What that&#8217;s enabling is this world of competitive protocols where, instead of, one just being the king by default because it&#8217;s the only one that&#8217;s capitalized well enough, now, we have competitive protocols going back and forth. Protocols is one example. The second is, projects that have a disproportionate advantage by having early users be stakeholders on the network. I&#8217;ll break that down a little bit. The idea there is that, if you can give the earliest users of a platform some upside if the project&#8217;s successful,\nAndy Bromberg [03:04] &#8211; that&#8217;s, in theory, good for every project, right? If any company gave their early users some equity, if that was easier, then, maybe that&#8217;d be good, but we really think ICOs are good for ones where there&#8217;s a disproportionate impact there. One example might be if you had some sort of tokenized or distributed tor. Anonymous routing system where if there aren&#8217;t enough users on the platform, it just doesn&#8217;t work. It actually, it&#8217;s just anonymous or pseudonymous, it fails it&#8217;s mission. The idea there is if you could give those users an early incentive then, perhaps, that would be incentivized to grow the network faster, get to that critical point where it tips over and becomes useful much faster and then, be able to grow from there. The last category I&#8217;ll mention is, we&#8217;re early on this one, but&#8230; Separate from those two, securities token, so asset backed tokens that are taking an existing asset and tokenizing them, that&#8217;s appealing but almost a totally different category from the first one. We could talk more about the difference between those. The last thing I&#8217;ll say there is, I imagine we&#8217;re going to find a ton more use cases for ICOs. We&#8217;re, basically, a year into the market right now, it&#8217;s really young, and those first two categories for the more technical ones than the asset backed ones, are the ones that we find appealing so far, but there&#8217;s going to be way more beyond that as this market evolves.\nCraig Cannon [04:22] &#8211; You guys have supported three out of 900 projects that have come through. What are the criteria that you&#8217;re looking at, why did you pick those?\nAndy Bromberg [04:30] &#8211; Yeah, it&#8217;s a number of things. First of all, I think we&#8217;re looking at the team and the team quality and the technical details. Does the team have a history of shipping product? Did they build something meaningful before? A lot of the same things you&#8217;d look for, initially, in a venture capital investment, right. Does the product make sense? Have they put enough work in already, does it seem like it has a real chance of success? All of those components but, then, with the ICO market, what&#8217;s different from all the things you&#8217;d evaluate in the venture capital market, so, traditionally, team, product and market, the next step is a layer on top of that, because this is different. Tomponents there that I think are important aren&#8217;t as crucial in the venture capital world are, one, the actual structure of the sale. And when I say structure, I mean two things: I mean, legal structure and, then, how the sale is actually structured in terms of economics of the sale. In venture, both of those components are important but kind of nailed down, at this point. You don&#8217;t really see a lot of weird stuff happening there. But because the ICO market&#8217;s so young, figuring out how to structure these legally and then figuring out what&#8217;s the pricing mechanism for this sale. How do people get in? How do you decide who gets in, all of that, that becomes important to evaluate in the token industry and again we imagine it&#8217;ll become a little bit more standardized over time, but it&#8217;s early there.\nAndy Bromberg [05:49] &#8211; But then, the second piece, which is a little bit unique to tokens, is what we call the token economic model. When you have a token and people are investing in the token, you need the value of the token to have a chance of going up right, otherwise, why would you support this investment?\nCraig Cannon [06:06] &#8211; Right.\nRamon Recuero [06:06] &#8211; Yep.\nAndy Bromberg [06:07] &#8211; There&#8217;s this question of, under what conditions will value actually accrue to the token? How can you make so that the token&#8217;s actually worth something? And there&#8217;s a lot of theories out there, another theory we could dive really deep into in how to value these tokens but we look at some of these systems for our tokens and maybe they have a really great team, maybe they have a market that&#8217;s really interesting, maybe they&#8217;ve built some real technology but, then we get to the token and either it doesn&#8217;t feel like value is going to accrue or it feels like the model&#8217;s broken somehow and, either, good actors are incentivized enough to do what they have to do on the network or bad actors are overly incentivized to bad things to the network. Digging in on that model is such a new concept that I think that&#8217;ll be a really big piece of, more and more people are become experts on that.\nCraig Cannon [06:53] &#8211; Yeah.\nAndy Bromberg [06:53] &#8211; We&#8217;re so early. The best experts I&#8217;ve seen are, either, traditional economists who&#8217;ve looked at game theory, economic incentives, that&#8217;s really what this is, at it&#8217;s core or actually from the gaming industry. Because what are games but a system of incentives in getting people to do certain actions? Thinking about game economies, and how those are designed, we&#8217;re going to see people move over from that industry into this token economic evaluation.\nRamon Recuero [07:21] &#8211; Cool, let&#8217;s go back a little bit to something you said before. You mentioned that, and I agree, that this is great for projects like Wikipedia or Linux that are foundational and traditionally have been underfunded. Wikipedia is always asking for donations because they don&#8217;t have enough money to continue. If I&#8217;m starting a project like that, how do you take on the recent statement by the SEC chairman that most tokens are securities instead of&#8230; He hasnt seen any utility token, per se?\nAndy Bromberg [07:50] &#8211; Yeah, so I&#8217;ll tweak that a little bit. I should caveat that, this is not legal advice and everyone should get good counsel and talk to your lawyers but&#8230; My reading of chairman Jay Clayton, the SEC Commissioner and Chairman, his remarks over the past couple of months has been that he hasn&#8217;t seen an ICO, an initial offering of a coin, that wasn&#8217;t a sale of securities. There&#8217;s a nuance there. He&#8217;s not saying that the tokens will always be securities. He&#8217;s saying that the initial offering is securities and without getting too in the weeds on the securities law here&#8230; There&#8217;s this thing called the Howey Test which is a test in the United States whether something&#8217;s an investment contract or security and I think what he&#8217;s saying is, at the time of the offering, these things are going to be securities because one of the components of the Howey Test is, is this project dependent on the efforts of a single company, a single entity? And if it is, it&#8217;s probably a security. There&#8217;s other factors you have to consider but it&#8217;s probably a security. At the time of the offering, when the offering&#8217;s happening, almost certainly, it&#8217;s going to be dependent on the efforts of a single company and so it&#8217;s probably a security at that point but our belief and what&#8217;s being sorted out right now publicly and trying to be sorted out with the SEC and with these projects is,\nAndy Bromberg [09:08] &#8211; is it possible for something to convert from being a security at one point to a non security at some point and, if so, where&#8217;s that line and how do you determine that? What we see is this idea that, yeah, it looks like these offerings are going to be offerings of securities and that&#8217;s fine. We think a lot about how to sell securities to certain sets of investors, there are other ways to sell securities to different sets of investors and we may just need to deal with the pain of that but it&#8217;s in the interest to protect the investors and in the interest of protecting the innovation that&#8217;s happening in the space. At some point, we will figure out where that line is and how these things can be non securities at some point and be used way more freely and traded more freely among all users and investors.\nCraig Cannon [09:47] &#8211; And where&#8217;s the current thought on that conversion if ever it&#8217;s going to happen?\nAndy Bromberg [09:51] &#8211; Yeah, there&#8217;s not a really clear guidance. The Howey Test is a facts and circumstances based analysis, that&#8217;s the terms you&#8217;ll always hear from lawyers, from the SEC is facts and circumstances. There&#8217;s these facts about what the thing is and how it works and there&#8217;s circumstances of current state. There&#8217;s no, at least right now, there&#8217;s no bright line. But, when it fails the prongs of the Howey Test, is when it, if you pass the Howey Test, you&#8217;re a security. If you fail, you&#8217;re a non security, so&#8230;. Counterintuitively, we want people to fail this test. When it fails the Howey Test, at some point, when it fails these prongs and that&#8217;s when it&#8217;ll become a non security but, the way to get there isn&#8217;t, you know, someone sitting in a room and saying, &#8220;Eh, I&#8217;m feeling like this isn&#8217;t a security now.&#8221; You go to great counsel who has deep securities law experience and you say, &#8220;How about now?&#8221; They do a legal analysis on it and they come to you and they say, here&#8217;s our memo, we think this thing is, now, not a security, it may have been before, it&#8217;s now, not a security and then, you can try and operate with that assumption.\nCraig Cannon [10:53] &#8211; Okay.\nRamon Recuero [10:54] &#8211; In this line of reasoning, the SAFT that CoinList has used for Blockstack and Filecoin, it could be a security at the beginning and when the token is released, it will transition into a utility?\nAndy Bromberg [11:04] &#8211; The idea is that SAFT, the Simple Agreement for Future Tokens, which was developed by Protocol Labs and Cooley is a security in the same way the YC Safe is a security. It&#8217;s a security just like a promise of something in the future as issued by a single company. The idea is that, at some point, when the network&#8217;s live and, perhaps, the thing&#8217;s not considered a security anymore by a legal counsel, at that point, SAFT holders will redeem for tokens and those tokens will be non-securities. The SAFT will always have been a security but the tokens that get outputted at some point are non securities, that&#8217;s the theory behind what the SAFT is and how it functions.\nCraig Cannon [11:44] &#8211; Okay, and to go back a little bit on the point about sales, what is the test you guys run, like, &#8220;Okay, this seems like a legit sale,&#8221; and maybe give an example, &#8220;Oh, I don&#8217;t know about this other scenario.&#8221;\nAndy Bromberg [11:57] &#8211; Right. For us, it&#8217;s actually formal legal diligence process as as result of how we&#8217;re structured. To make sure we&#8217;re in compliance, we have, it&#8217;s called, the Registered Investment Advisory Entity and CoinList doesn&#8217;t invest in these projects, but we make an investment decision and recommend the investment to investors that are clients of ours.\nCraig Cannon [12:18] &#8211; Right.\nAndy Bromberg [12:19] &#8211; There&#8217;s actually formal process we have internally that involved a technical advisory committee, so, some of the top developers in the space. A market advisory committee, so some of the top investors and luminaries in the space giving us feedback on the project. And then, on top of that, deep legal diligence. Doing things like bad actor checks on the projects themselves. Doing things like understanding how they operate, how the company operates, how it&#8217;s built out and then really writing an investment memo and digging in on the project itself on some of the facets we mentioned before and coming out with a recommendation. It goes to our internal investment committee, they come out and they say, hey, we&#8217;re good to go, we&#8217;re not good to go and, at that point, we can promote the sale, show the sale to the investors that are clients of ours on the platform. Separate from that, we have a whole separate compliance service that we&#8217;ll provide to people that, even if they don&#8217;t pass that or even if they don&#8217;t want to go through that process, we can still help them with this compliance piece. Even though we&#8217;ve only run three of these publicly, shown them on the platform, there are 20-ish, live right now that are using our compliance solution.\nCraig Cannon [13:21] &#8211; Oh, okay. And then, do they move into evaluation area? Are you providing guidance there as well?\nAndy Bromberg [13:28] &#8211; We, informally, help these companies figure out their sales structure. If we&#8217;re going to work with them, we want to be helpful to our partners but ultimately it&#8217;s not our decision, and if they, that&#8217;s part of the investment process, the investment advisory diligence process is understand how their value, we can&#8217;t make an investment recommendation without know what the price is. That&#8217;s part of the process, we&#8217;ll go back and forth with them on that and help them sort that out based on best practices and how the market&#8217;s evolving.\nRamon Recuero [13:54] &#8211; Yeah, and as for the next step there, once the due diligence is done and you say, &#8220;Okay, this is a great project.&#8221; What are the options that a great project will have because I know there are different regulations like Reg D, Reg A, which ones?\nAndy Bromberg [14:04] &#8211; Right. This is under the assumption that you&#8217;re considered to be selling a security which, again, we believe all of these are or all of them have been, thus far. When you sell a security to investors, you have two options, and the second option has a million sub-options. One is, register the security with the SEC. That&#8217;s like when someone files publicly, right. They say, I&#8217;m registering this with the SEC and we&#8217;re selling a security. The second is to use an exemption. The SEC hasn&#8217;t accepted any securities registrations so far. We don&#8217;t expect them to, that&#8217;s the path any of these sales have taken but that&#8217;s fine. A legitimate second option is exempting. And just to give a sense there, when we do venture capital investments, we often exempt them. This is well understood. You&#8217;re allowed to exempt these things instead of registering them. There are a bunch of exemptions for selling securities and it&#8217;s actually probably instructive to run through a few of the ones that are being used a lot right now and we see as interesting. The one that CoinList deals with the most is what&#8217;s called Reg D 506(c) and this is selling only to accredited investors so people with specific criteria isn&#8217;t worth getting into but significant net worth or income, who are consider sophisticated investors, and you&#8217;re allowed to sell to them with certain restrictions and limits but that&#8217;s what we do for the most part. The Filecoin and Blockstack and PROPS sales that were helped by CoinList were all Reg D 506(c) offerings\nAndy Bromberg [15:34] &#8211; and part of that is, you need to check these people&#8217;s accreditation status to get evidence of net worth or income. That&#8217;s something we help with, so that&#8217;s one. Another is, what&#8217;s called, Reg D 506(b), the one before that and that&#8217;s for very small private sales where you have an existing relationship that ensures an existing relationship with the investors. At that point, you have have the investors attest that they&#8217;re accredited as opposed to providing all this evidence. It&#8217;s a little bit easier but it&#8217;s way more restrictive in terms of how many investors you can have in and, of course, you can&#8217;t do it publicly. Part of 506(c) is general solicitation saying publicly, this sale&#8217;s happening. 506(c), you can&#8217;t do that. It&#8217;s only private, people you have a relationship with. Outside of that, there&#8217;s a bunch more. So there&#8217;s Reg CF, crowdfunding regulation which came in after the jobs act in 2012. And that is actually allowing you to sell to unaccredited investors. But there&#8217;s, similarly, a bunch of restrictions on that. You can only raise 1.07 million dollars with Reg CF right now, that may change soon.\nRamon Recuero [16:34] &#8211; That&#8217;s similar to Republic?\nAndy Bromberg [16:37] &#8211; Exactly, I was just going to say, so Republic is a sister company of ours and they do Reg CF offerings. They sell to unaccredited investors, they have, actually, a whole Republic crypto division now that is doing just the crypto deals. For example, with the PROPS sale, sometimes you can get the benefits of more than one of these. For PROPS, we sold a bunch of PROPS to investors using CoinList and then, separately, Republic sold a million dollars worth to unaccredited investors. You got both those user sets. On top of that, just couple others that are worth mentioning Reg S is another exemption you can use to sell to international investors. So no U.S. investors, there&#8217;s geographic restrictions on how it&#8217;s transferred and all of that. But you, then, have to comply with those countries&#8217; securities laws as opposed to the U.S. You don&#8217;t need to check them to U.S. accreditation standards, you can check them against that country where the investor&#8217;s from.\nCraig Cannon [17:28] &#8211; Well, let&#8217;s go a little bit deeper on that because I know that with the crypto stuff, the international things are like, &#8220;Are you in Switzerland or Gibraltar or wherever?&#8221; Where are things going in the future? Right now, it seems completely fragmented, everyone&#8217;s operating at a different pace with different regulations, where do you see things going?\nAndy Bromberg [17:47] &#8211; We&#8217;re really going to have different projects do different things and one of the beautiful things about crypto is that it&#8217;s global, it&#8217;s distributed, right.\nCraig Cannon [17:54] &#8211; Yeah.\nAndy Bromberg [17:55] &#8211; And that&#8217;s, both, I think just practically true. A lot of, way more big projects for the stage we&#8217;re at are around the world as opposed to being right in the U.S. as compared to other industries, that&#8217;s really interesting but it&#8217;s also a philosophical thing that crypto is distributed by its nature and so people take that to its fullest extent and distribute themselves. There are advantages and disadvantages to each of these jurisdictions. I&#8217;ll probably say this 40 times on this podcast, we are so early in the industry that most of these countries have not really nailed down exactly how these things are going to be treated. Some of them need to clarify their securities laws as a result of this and we&#8217;re going to see a lot of things shift. I really believe that the U.S. is going to do the right thing. The regulators have been incredibly thoughtful so far. They&#8217;ve taken their time in understanding the space. They&#8217;re now starting to make statements but what we love to hear from them and what they&#8217;re saying is we&#8217;re going to apply existing regulations to this. They&#8217;re not trying to write a whole new book of laws on how to govern ICOs, not interesting to them, not interesting to us. What the answer is, securities law, commodities law, currency law, pretty well lit, well understood areas of the law.\nAndy Bromberg [19:05] &#8211; There&#8217;s some edge cases around crypto that we need to figure out exactly how to apply them, so that&#8217;s they challenging part, this question of when does something transition to being a utility but we&#8217;ll get there. We&#8217;ll still see a ton of sales happening in the U.S., and at the end of the day, just practically, if you want to run big token sales, there&#8217;s a lot capital in the U.S., there&#8217;s a lot of money here.\nCraig Cannon [19:25] &#8211; Yeah.\nAndy Bromberg [19:25] &#8211; If you&#8217;re selling to U.S. investors, even if you&#8217;re not in the U.S., you&#8217;ve got to comply with the U.S. securities law. So, at the end of the day, I think a lot of projects will be headquartered in the U.S. or even if they&#8217;re not, they&#8217;ll sell to U.S. investors, they&#8217;ll need to abide by these laws.\nCraig Cannon [19:38] &#8211; Right.\nAndy Bromberg [19:39] &#8211; But there are certainly advantages to being in other jurisdictions as well, for all sorts of reasons, from regulatory to even just where the talent is in some cases.\nRamon Recuero [19:47] &#8211; Yeah, another point there is that, many networks assume that the only path is to do a token sale. Are there other distribution mechanisms like airdrops, for example? what do you think about that?\nAndy Bromberg [19:58] &#8211; I love airdrops, I&#8217;m obsessed with airdrops.\nCraig Cannon [20:00] &#8211; Can you define that?\nAndy Bromberg [20:00] &#8211; Yeah, so an airdrop, well, I&#8217;m going to loosely define because people are sorting out how to do it right now.\nCraig Cannon [20:05] &#8211; Okay.\nAndy Bromberg [20:07] &#8211; An airdrop is a mechanism to give users tokens without them paying for those tokens, usually around the launch of a network or early on in a network&#8217;s lifecycle. Couple points to make here. One, airdrops are not a way to skip securities law. If your token is still a security, which many of these are, you can&#8217;t airdrop tokens to everyone, that&#8217;s actually considered, again, not legal advice, you should talk to counsel, but considered a securities offering and the case law for that dates back to the dot com boom, interestingly, when companies were giving away shares.\nRamon Recuero [20:39] &#8211; Oh, wow.\nAndy Bromberg [20:41] &#8211; The SEC said, hey, you can&#8217;t give away shares, that&#8217;s securities offering because the user, the person&#8217;s exchanging some information, they&#8217;re giving, maybe their email address, their address or some information you&#8217;re giving them securities, that&#8217;s a securities offering, you&#8217;ve got to abide by securities law. You can&#8217;t just airdrop, that&#8217;s not a way to skip the issues with securities law. But to give some examples of airdrops, because I think it&#8217;s a really powerful concept, and taking a step back for a minute. ICOs have, kind of, couple together two ideas, fundraising for an underlying company and distribution of the token to early users. We&#8217;re trying to both with ICOs. But it turns out that maybe the investors in a sale aren&#8217;t the same people as the users. The idea that maybe we could decouple those a little bit, in some cases, and have a sale to investors and then, an airdrop to users, makes a lot of sense. I break airdrops down into three categories. One is what I would call broad or universal airdrops. The way this works is that, and OmiseGO is an example of this. The way this works is that you take an existing blockchain, so Ethereum, and you just give everyone who has a balance on that blockchain, who has some of that token, your tokens. You can do it in different distributions, you could do&#8230; And so everyone gets one token. You could do it so they get it proportional to how much they have. You could use all sorts of functions there. But the idea is just broad distribution.\nAndy Bromberg [22:07] &#8211; Give everyone who has this, and this is interesting, we&#8217;ve never really been able to do this before, give someone a product because we haven&#8217;t been able to know how to reach people, right. If I wanted to just give everyone a phone, how do I give people a phone, how do I know where to find them? But because these addresses are public, you can just airdrop it&#8211;\nRamon Recuero [22:26] &#8211; And this goes back to what you said before about aligning the incentives and then everyone has a skin in the game because if I get this free token, something valuable&#8211;\nAndy Bromberg [22:31] &#8211; Yep.\nRamon Recuero [22:32] &#8211; I&#8217;m incentivized to grow the network.\nAndy Bromberg [22:34] &#8211; Absolutely, and then, the two there categories that I break airdrops down into is, one, based on off-chain data and one based on on-chain data. What I mean by that is off-chain would be if I have an existing service with users and I just want to give those users tokens. I know something about these users, not because of some blockchain status but just because I know something about them, they&#8217;re my users. Numerai is an example of this, distributed network for data scientists to solve these financial problems and make predictions about the market. They gave their users tokens, they just gave it to them. Or, recently, they actually just announced that they&#8217;re going to give all Kaggle users tokens. They&#8217;re using off-chain data to give tokens to people. The last category and one that is really interesting and hasn&#8217;t been done much, if at all, yet is using on-chain data. What I mean by that is, these blockchains are public, you can see the transactions and you can&#8217;t necessarily link them to real world identities, so, gibberish Ethereum address, you don&#8217;t know it&#8217;s me. But, you can get data out of that. We&#8217;ve got this whole ledger of transactions. There is by analyzing that, you can pick out which addresses to give tokens to. An example might be, if I was going to start Augur, a prediction market platform, already exists, but if I was starting Augur, maybe I would go to the Ethereum blockchain and I would look at, I would do transaction analysis and I would figure out\nAndy Bromberg [24:05] &#8211; which address is which users were transacting frequently with Ethereum gambling sites.\nCraig Cannon [24:09] &#8211; Hmmmm.\nAndy Bromberg [24:13] &#8211; Right, so there&#8217;s a bunch of gambling sites you can spend Ether, gamble, yeah sure. I could look at that, those addresses are known. I know which addresses belong to the gambling platforms. I could users transacting a ton with those. Those are likely gamblers, I&#8217;m building a prediction market. Seems like there&#8217;s a nice Venn diagram overlapping those users and then I could just give those users tokens immediately. The idea that you could bootstrap network effects off of existing networks because all their transactions are public&#8211;\nCraig Cannon [24:43] &#8211; Yeah.\nAndy Bromberg [24:43] &#8211; Is a really cool idea. It hasn&#8217;t been explored a lot yet, but I think we&#8217;re going to see more on-chain analysis for decided who to give tokens to.\nCraig Cannon [24:50] &#8211; That is super interesting and going back to getting things rolling. Really getting the ball rolling with your company, you mentioned Big Money before. Some of these companies, a hundred million dollars, two hundred million dollars, three hundred million dollars, someone asked, kind of, the inverted question which is, Fintech Hub asked, is there going to be a liquidity crunch for post ICO companies?\nAndy Bromberg [25:13] &#8211; Yeah. It&#8217;s such a different model, right. The way these things are developing is changing constantly. Most of these companies are trying to raise enough that they never have to raise again.\nCraig Cannon [25:27] &#8211; Right.\nAndy Bromberg [25:28] &#8211; Part of the idea there is, and this just requires, I think, a mindset shift in how these businesses are run. These companies, in their ideal form, don&#8217;t make money from transactions on the network. A big piece of this is removal of rent-seeking middle men in the process.\nCraig Cannon [25:43] &#8211; Mm-hm.\nAndy Bromberg [25:45] &#8211; A lot of these companies&#8217; business model is actually more like an investment company. They own a bunch of the tokens, they do work just as a contributor to the network trying to make the network worth more so that the value of their stake increases, but there&#8217;s nothing coming in, it&#8217;s just they have a bunch of tokens and the value should increase over time. The idea is that they raise enough to get the network out into the wild and built by them, built by other people, contributing to it, it&#8217;s totally open, and increasing the value of their stake. The investors are investing and increasingly are getting locked up for some time period, you want long-term support from your investors, so, maybe they don&#8217;t get their tokens for 12 months or 18 months or some vesting schedule, maybe it&#8217;s way longer, it&#8217;s years and years. And so, the idea of a liquidity crunch is interesting but I struggle to find out how exactly it applies&#8211;\nCraig Cannon [26:35] &#8211; Right, yeah.\nAndy Bromberg [26:37] &#8211; Because the companies, again, ideally should it work, raise the money, start building it, get it out into the wild and then, just keep building it because they want their value to increase. The investors are holding, for some period of time, way shorter than how long they hold for startups, right.\nCraig Cannon [26:55] &#8211; Which, I mean, you Dropbox IPO&#8217;d today, 11 years later&#8211;\nAndy Bromberg [26:59] &#8211; Exactly.\nRamon Recuero [27:00] &#8211; One way to think about it is that for a company, when their goal is to maximize the value for the shareholders, but if you&#8217;re a company and they&#8217;re starting a network&#8211;\nCraig Cannon [27:09] &#8211; Yeah.\nRamon Recuero [27:10] &#8211; Then, your goal, ideally, is to take the company out&#8211;\nCraig Cannon [27:09] &#8211; Yeah.\nRamon Recuero [27:14] &#8211; So then, you are just one more participant in the network with, hopefully, a lot of tokens because do you think that a lot of networks are going to suffer from not having enough tokens to support the underlying protocol?\nAndy Bromberg [27:27] &#8211; As in the company building the network or the network itself?\nRamon Recuero [27:30] &#8211; The company building the network that, years on, three or four years, they didn&#8217;t design the token economics right.\nAndy Bromberg [27:37] &#8211; Actually, the inverse is true. I think a lot of companies have too much of these networks. And it&#8217;s going to really hurt the incentives for other people to contribute. And what&#8217;s going to happen is, these networks are going to get forked.\nCraig Cannon [27:50] &#8211; Yep.\nAndy Bromberg [27:52] &#8211; If you&#8217;re sitting there and there&#8217;s a really cool, amazing technology built, this technology is open source, by nature, right. If I&#8217;m sitting there and, say, there&#8217;s an amazing bandwidth sharing, tokenized network, and the team&#8217;s great, technology&#8217;s awesome, it&#8217;s like really getting going but the team owns 50% of the network. I sit there and I say, well, that seems wrong. And I&#8217;m going to build a great team, we&#8217;re going to fork this network, we&#8217;re going to do a great public push to make people aware of that and we&#8217;re going to reduce the team stake down to 10%, 5%, 1%, who knows where these things end up.\nCraig Cannon [28:32] &#8211; Will the market push it to 0%?\nAndy Bromberg [28:34] &#8211; Well, so I don&#8217;t, I think the market, this is what I love about the token market as a whole.\nCraig Cannon [28:39] &#8211; Yeah.\nAndy Bromberg [28:40] &#8211; It is the purest form of markets, right. It&#8217;s all open, people can make decisions. Zero percent, I don&#8217;t see &#8217;cause I do think there is value to strong core contributor teams. Having a set of core contributors that are building the protocol and they&#8217;re not the only ones, they don&#8217;t have special rights or anything like that but they&#8217;re core in building the protocol, I think the market will want to reward that and when I think about that and you see, maybe, an amazing team with a 10% stake, a solid team with a 5% stake, a weak team with .2% stake and no team with a 0% stake, I think you end up, starting with the great team but, perhaps, over time, as the network value increases, the incentives change such that maybe a great team is willing to do 5% or a great team is willing to do 2% and you may see a lot of forks on the way down. I certainly think the intuition&#8217;s right. I agree with that it drives down over time but I don&#8217;t think it drives to zero.\nCraig Cannon [29:38] &#8211; Okay.\nRamon Recuero [29:39] &#8211; It&#8217;s really interesting because networks own a lot of the percentage of, these teams own a bigger percentage of the network. Worst of all, if the investor crpyo funds targeting an early releasing of a lot capital there and they&#8217;re getting a huge chunk of the network that is supposed to be owned by the all the participants?\nAndy Bromberg [29:57] &#8211; Yeah, the role of the investors is to get the network started, right. Same as an early stage company and seed investors, is to be helpful, get the relationships they need, help them build a team, do all those components. It&#8217;s the exact same situation, if the market decides at some point that too much is owned by certain parties, it may get forked. We&#8217;re going to see a lot more governance struggles over these networks as they go live because the thing to remember here is, a lot of this, and again, we&#8217;re early in the market, but a lot of this is so theoretical, there&#8217;s not a lot of networks that are live and being used right now. There&#8217;s no real incentive for governance struggles, for forks.\nCraig Cannon [30:34] &#8211; Yeah.\nAndy Bromberg [30:35] &#8211; I mean, what are you forking, there&#8217;s not much to do.\nCraig Cannon [30:38] &#8211; Right.\nAndy Bromberg [30:39] &#8211; And we&#8217;ve seen a few, obviously, the Bitcoin forks, Ethereum forks, but there&#8217;s not a lot that are live. As networks go live, which I think is going to happen this year as the ICOs of 2017 start to go live, we&#8217;ll see a lot more battles over this and it might be that if investors own a huge stake and the network doesn&#8217;t think that&#8217;s right, they may try and fork it but the piece to remember there too is, you still need to have a team behind it. Focus on building the protocol. If the best team is building it and investors own some percentage, that may be worth it to stick with, the investors owning that percentage if it means that you still get to keep the team there working on making it the best possible protocol.\nCraig Cannon [31:14] &#8211; Another question from Twitter related to this, Jordan Jackson asks, do you think there&#8217;ll basically be one dominant protocol for each of these categories? Hosting, payments, whatever it might be.\nAndy Bromberg [31:26] &#8211; I believe that, I believe a couple things. One is that, I believe a lot of things.\nCraig Cannon [31:31] &#8211; Related to this question, specifically.\nAndy Bromberg [31:34] &#8211; A couple things.\nCraig Cannon [31:34] &#8211; Yeah.\nAndy Bromberg [31:36] &#8211; One is that, I do believe that, at any given time, there&#8217;s probably one but it goes back to this markets point. It is such a free market here that there will be constant competition, whether it&#8217;s from a fork, whether it&#8217;s from a new protocol. I don&#8217;t think we&#8217;re going to get to a place where there&#8217;s a dominant one and then, we&#8217;re just in stasis and nothing every changes. I do think that there will be constant competition, things will pop up and things will go down. At any given time, there&#8217;ll probably be a couple that are competing for that title, but it does feel like there&#8217;s going to be consolidation. Interoperability is a huge, huge issue. The other belief I have, and this is one I&#8217;m, is strong belief, weakly held, I think we&#8217;re early enough that we don&#8217;t know how it&#8217;s going to play out. I lean towards fewer but more generalized protocols with platforms, networks, capabilities, technologies to allow for interprotocol, interoperability. What I mean by that is, different protocols have different advantages. We could build a generalized one that&#8217;s, to oversimplify a little bit, really fast, or one that&#8217;s slow but highly programmable, right. Or they might have all sorts of different advantages and the idea that we could then use layers on top of these protocols to link them together, and there&#8217;s a number of projects out there, so, Polkadot, Cosmos, that allow for these interprotocol interoperability is interesting to me because there would be a real pain in managing a wallet that had a thousand crypto currencies,\nAndy Bromberg [33:12] &#8211; one for every single use case I have. I go to CVS and buy something, I pay with one token. I go to this, pay with another, seems very unlikely. The idea that we&#8217;ll have a few generalized ones, but I find it hard to believe we get to one, and there&#8217;s some people that believe that there will only every be one, right.\nCraig Cannon [33:27] &#8211; Yeah, yeah.\nAndy Bromberg [33:29] &#8211; I find it hard to believe that we&#8217;ll get to a place where all those components can be satisfied.\nCraig Cannon [33:32] &#8211; Right.\nAndy Bromberg [33:33] &#8211; Because it does feel they&#8217;re just some real limitations on the trade-offs between those different components. Some are more distributed, some are less, faster, slower, secured, not secured, all these different components, so I think there&#8217;ll be a bunch but not a million and then, they&#8217;ll be interoperable between them.\nRamon Recuero [33:48] &#8211; In this train of thought, did agree with the theory of the fat protocol that they&#8217;ve thrown out, agree to that, most of the values going to accrue to the base layer that can be Ethereum and everything that is on top is going to get less and less of that value?\nAndy Bromberg [34:01] &#8211; I do generally agree with that. With a twist, in that there&#8217;s a world where some, closer to the application layer, things do well, but as securities, this is a little bit of a wonky point, but&#8230; I&#8217;m not the only person whose had this idea, there&#8217;s a few people thinking about it, but an interesting concept around, what I&#8217;m calling, index tokens right now but it&#8217;s not a great name, if anyone has a better one, please tweet at me and let me know. But the idea is that there&#8217;s a&#8230; We don&#8217;t have to have a no middle-man world. If some protocols take some fees for being helpful, or some slightly closer, some higher up protocols take some fees, it may not be the end of the world if it&#8217;s the best option. There&#8217;s kind of like a knee-jerk reaction of like, no middle man, that&#8217;s crypto. Ideally, I think we get to that place but there&#8217;s some that could be worth it, so, if we were to be designing a solution that did something for protocols. So let&#8217;s say, we built a tokenized network that made protocols more secure or encrypted protocols transactions, something like that, so it&#8217;s helping protocols, it&#8217;s sitting on top. Perhaps that layer, that token, that network could take fees from those protocols per transaction. Maybe the network chooses to pay so much, it&#8217;s helping Ethereum, so if they pay so many ether to that layer on top per transaction, what would be interesting there is that token would then be an index across all the projects that it&#8217;s helping, right, Ethereum&#8217;s paying with some ether,\nAndy Bromberg [35:51] &#8211; Bitcoin&#8217;s paying with some bitcoin, Filecoin&#8217;s paying with filecoin and it all goes into this thing and then, that one has its own token but the token isn&#8217;t used on the network, it just represents this pool of assets that are being accrued for the network. That thing, again, not a lawyer, but is probably a security, it&#8217;s an investment, you&#8217;re saying this is. But value is accruing to that token, possibly, in a very meaningful way, the more projects that get on it, the more it&#8217;s worth and so, this token, all of a sudden, has value. Maybe the protocols are accruing a ton of value because they&#8217;re being used and the value&#8217;s accruing to them but maybe there&#8217;s this layer on top that is also gaining value as the protocols do. As Ethereum gets more transactions, it&#8217;s paying more fees to this network, still worth it, but that, now, is accruing a ton of value as well. I am a believer in the fat protocols but, I think, we&#8217;ll see more layers on top of it as well.\nRamon Recuero [36:41] &#8211; Let&#8217;s talk a little bit about the end user layer. It&#8217;s nine years since the Bitcoin whitepaper was published, but many people say that and fairly we have really finite end consumer cases that are in use right now. What is your answer to that?\nAndy Bromberg [37:02] &#8211; Nine years since Bitcoin, absolutely, but it hasn&#8217;t been that long for other tokens. And I think Bitcoin&#8217;s use case, from my perspective, is store of value, it&#8217;s a digital gold. It&#8217;s doing that, so, there&#8217;s an end user use case. But that&#8217;s the one for Bitcoin, I think. These new ones are so young.\nCraig Cannon [37:22] &#8211; Yeah.\nAndy Bromberg [37:24] &#8211; We had a period of experimentation a few years ago where a few come out, obviously, Ethereum, some others but it was so early, we were figuring out how these tokens economical models work, we still are, but the ICO market and this wave of new tokens is really just 2017. And, really, just mid to late 2017. Without trying to make excuses for the industry, if you&#8217;re doing a sale in 2017 and you&#8217;re building something meaningful based on the result of that sale, you know, takes nine, 12, 15, 18, 24 months, we&#8217;re just now getting to the point where that time period&#8217;s being hit. I do think the next, call it, 12 months will be a real trial period for these networks that are just now going live. Post ICO, after some time to build and actually make that meaningful technology. Without meaning to weasel out of the question and say there&#8217;s nothing, because I agree, there are not a lot of real end user use cases out there right now, I just think we&#8217;re just now getting to the time where that&#8217;s going to happen.\nRamon Recuero [38:27] &#8211; collectibles, how many do you&#8230;\nAndy Bromberg [38:30] &#8211; I can&#8217;t answer any questions about what I own but I&#8217;m a big fan and that&#8217;s one that is worth mentioning, I think.\nCraig Cannon [38:35] &#8211; Yeah.\nRamon Recuero [38:36] &#8211; Collectibles. Is one of the few.\nAndy Bromberg [38:38] &#8211; Collectibles are interesting because they&#8217;re&#8230; collectibles protocol, the technology behind it, the ERC721 which is the component added to Ethereum to allow for collectibles or, at least, the first one, very technically challenging, CryptoKitties&#8217; team built that and that&#8217;s really impressive but, then building a collectible on top of it, just a raw collectible with no kind of interaction mechanics is actually not that hard. That&#8217;s, technically, challenging but you don&#8217;t have to build a whole new protocol. We will see a lot of value in collectibles accrue because those can just be spun out really quickly.\nCraig Cannon [39:17] &#8211; Yeah.\nAndy Bromberg [39:18] &#8211; Then, you get into more interesting mechanics around collectibles interacting with other, can you build a game where the collectibles, that&#8217;s challenging to build but I do thing with CryptoKitties showed us is you can put something out there that, in the distributed Blockchain world, that doesn&#8217;t need to have pure technical value to the end users, you can just build a really great product and people want to use it.\nCraig Cannon [39:39] &#8211; I say this all the time, most people don&#8217;t care about how websites work. They don&#8217;t care, it&#8217;s not an important part. It&#8217;s important in how in functions, it&#8217;s important in being secure and all that stuff but, at the end of the day, how many people know how Facebook functions?\nAndy Bromberg [39:52] &#8211; To that point, we are just now entering a time of&#8230; What I call, the professionalization of the space but more people with expertise building businesses, more people with expertise shipping products coming to the space.\nCraig Cannon [40:04] &#8211; Yep.\nAndy Bromberg [40:05] &#8211; So far, it&#8217;s been so beautifully driven by pure technology. Let&#8217;s build these deep protocols, the infrastructure layer that needs to exist, that has to continue forever, and it will continue forever, but we&#8217;re just not getting to a place where the user bases are big enough, the incentives are strong enough that real product builders, real product people are coming in and thinking about how to build it, and I&#8217;d argue that CryptoKitties&#8217;s team, Axiom Zen team, that&#8217;s a great example. They build products and they said, the infrastructure exists now, we see a use case, let&#8217;s build a great product.\nCraig Cannon [40:34] &#8211; Yeah.\nAndy Bromberg [40:35] &#8211; And we&#8217;re going to see a lot more of that over the coming months.\nCraig Cannon [40:37] &#8211; Another question from Twitter, Johannes asked, what are your recommendations for how someone ought to think about implementing and on-boarding users to a protocol, or something like CryptoKitties, whose primary users are non-technical? In that case, you&#8217;re talking about MetaMask, you&#8217;re doing all this stuff, what do you guys think?\nAndy Bromberg [40:57] &#8211; It&#8217;s just a function of needing better products. One really good example of this, it&#8217;s an interesting questions because it&#8217;s almost not a blockchain question.\nCraig Cannon [41:07] &#8211; Yeah.\nAndy Bromberg [41:09] &#8211; In the same way, it feels like asking, how do you on-board someone to a social graph and connect with other nodes? And the answer is, you build Facebook&#8211;\nCraig Cannon [41:20] &#8211; Right.\nAndy Bromberg [41:21] &#8211; Let me click an &#8220;Add Friend&#8221; button and that&#8217;s me on-boarding to a social graph. And so, the UIs aren&#8217;t really there yet. One example that I thought was really impressive is, for an airdrop, a company called Bloom which is a decentralized credit scoring application protocol, they did an airdrop in partnership with <a href=\"http://Earn.com\" target=\"_blank\">Earn.com</a> to airdrop a bunch of Bloom tokens to users. And they just did a great job building this product. Airdrops are hard, you have to use MetaMask and some other wallet, send an Ethereum address, this, that, the other thing. They just built a beautiful process where you basically just had to click a bunch of times and you said, I want this, and then it redirected and something else popped up and said, this is the button you want to click and here&#8217;s what it does, click that. Sure, it was still a long process but that&#8217;s just a function of the ecosystem being young and the tools not being developed fully yet but they made it really easy, explanations, click buttons. At the end of the day, the answer to that question which is a good one, how do you on-board users to the protocol if the users are non-technical is make it obvious what is happening and make it easy to click buttons and type things and have that happen. Building UIs and building the technology to support that.\nRamon Recuero [42:30] &#8211; It comes back to, what are you using the Blockchain for. For example, in the case of CryptoKitties, you&#8217;re just proving a scarcity. You have this unique kitty that nobody else has it. But the user doesn&#8217;t think about anything else, MetaMask. Even what Coinbase did that is that you own the private keys, so the user doesn&#8217;t need to deal with MetaMask. That can be a really interesting approach on this. Think more projects we&#8217;re going to see taking&#8230;\nAndy Bromberg [42:52] &#8211; Totally agree with that.\nCraig Cannon [42:53] &#8211; Yeah, and actually, on the Coinbase side, do you see index funds becoming the default way of investing?\nAndy Bromberg [43:01] &#8211; Yeah, it depends on what you mean by default, because there&#8217;s a lot of different potential parties here.\nCraig Cannon [43:04] &#8211; Sure.\nAndy Bromberg [43:06] &#8211; One note, and I&#8217;ll get back to the core question, is a tiny percentage of the money in crypto is professionally managed right now.\nCraig Cannon [43:14] &#8211; Yeah.\nAndy Bromberg [43:15] &#8211; Depending on who you ask, about 10% of capital in crypto is professionally managed by professional investors. When you look at a developed market like the U.S. equities market or any other major market, that number is 95, 96, 97, 99% professionally managed. For those people, largely, index funds won&#8217;t be the answer, although, in some cases, they&#8217;ll make significant investments in index funds but the amount of professional investment as a percentage of the total capital is going to increase dramatically and we&#8217;ve got a long way to go. Part of that, as an aside, contributes to the volatility. Professional investors tend to, in most cases, help manage volatility for an asset class because they&#8217;re professional investors and I think a lot of the volatility comes from the fact that it&#8217;s minimally professionally managed right now. For retail investors&#8230; I think that we will get to a place where index funds are really significant investments for retail investors, but in these early days, before the market really matures, people like making their crypto investments. They like thinking&#8211;\nRamon Recuero [44:20] &#8211; It&#8217;s fun, it&#8217;s gambling.\nAndy Bromberg [44:22] &#8211; Yeah, it&#8217;s gambling, it&#8217;s speculation on which ones are going to win but when people are making investments, I do think that they enjoy it at this early stage. We&#8217;ll see a significant inflow to the index funds, there&#8217;ll be some very successful index funds products that come out. But I&#8217;m not convinced that right now it&#8217;ll end up being a massive percentage in the same it is in the U.S. equities markets.\nCraig Cannon [44:45] &#8211; Do you have a default asset allocation that you recommend to people?\nAndy Bromberg [44:49] &#8211; I don&#8217;t make investment recommendations but&#8211;\nCraig Cannon [44:51] &#8211; Oh right, sorry.\nAndy Bromberg [44:52] &#8211; But I do think that, broadly, as with any asset class, it&#8217;s smart to, first of all, we&#8217;re very early, in the system for the millionth time, invest money you&#8217;re willing to burn. Like investing in seed rounds and startups, if not even more risky, invest money that you are willing to just have disappear. Don&#8217;t over index into this. And then, once you do, as with everything, a pretty traditional strategy is, of the money you&#8217;re willing to burn, most of it, you may want to put in the stronger, more established ones. It&#8217;s all early now, but breaking down kind of into the stronger, more established ones makes sense and then, if you want to, throw some bets into things you&#8217;re interested in or you have some insight into and dig in on those spaces. It makes sense for people to invest in projects they understand and so, aside from core investments, in the space or indexing into the space, one you understand is always a good bet.\nCraig Cannon [45:45] &#8211; Well, ones you understand, that should be exploded out as well, right? If you&#8217;re in retail, non technical investor, how do you come to understand some of these whitepapers?\nAndy Bromberg [45:57] &#8211; I hope we&#8217;re moving away from just whitepapers. So a whitepaper is kind of an overloaded term and it&#8217;s just become this defacto thing in the crypto industry. The best projects are moving, generally, they may have a whitepaper but they&#8217;re moving away.\nCraig Cannon [46:12] &#8211; Okay.\nAndy Bromberg [46:13] &#8211; What a whitepaper originally was is a reasonably technical explanation of the system works.\nCraig Cannon [46:18] &#8211; Yep.\nAndy Bromberg [46:21] &#8211; Some people want to really understand that. And if we were making an investment here in a big data company, maybe there&#8217;s some investors that really have the capability and the ability to understand the deep technical piece of how some set of algorithms works and maybe they do their diligence on that, but plenty of people invest in very technical companies without understanding exactly how the system works and I don&#8217;t think that&#8217;s wrong, I think that&#8217;s okay. As long as someone&#8217;s doing their diligence and then, you&#8217;re doing the diligence on things that you care about for investments because everyone will have different weightings. People will care more about the team, the market, the product or the technology and that&#8217;s totally okay. I do think these protocols should publish whitepapers or something like it, but that should be a deeply technical exploration of exactly what it is they&#8217;re building and you shouldn&#8217;t have to assume, as an investor, that you need to read and understand that. You should be able to invest in something without understanding what proof of space time is for Filecoin, that&#8217;s a&#8211;\nAndy Bromberg [47:19] &#8211; Crazy technical concept and I didn&#8217;t make that up, that is actually what it&#8217;s called. I think they&#8217;ll start to release more, we&#8217;ll see investors get more sophisticated about doing their diligence and we&#8217;ll see companies get more sophisticated about what they disclose and what materials they put out and there&#8217;ll be a happy medium where investors can get the information they need without needing to understand right how the protocol works.\nRamon Recuero [47:42] &#8211; That point, I totally agree. I think the startup fundamentals is the same, the team, the market always apply but, then, I hope we see more working networks before they try to token sell. To do a token sale.\nCraig Cannon [47:52] &#8211; Yeah.\nRamon Recuero [47:53] &#8211; So the network is already working and then, you don&#8217;t just have a whitepaper, you have a whitepaper and a working network, and especially for products that are more end-user applications. The user, as we talked before, he doesn&#8217;t need to know how it works but if it&#8217;s something that you care about&#8230;\nCraig Cannon [48:09] &#8211; Yeah.\nRamon Recuero [48:09] &#8211; And it&#8217;s working already, you may believe in that project.\nCraig Cannon [48:12] &#8211; Yeah, absolutely. What about the people who want to join these teams? What are your thoughts around vetting a project as an employee?\nAndy Bromberg [48:23] &#8211; Yeah, I think it goes back to some of the things I said earlier about how CoinList evaluates these projects.\nCraig Cannon [48:30] &#8211; Yeah.\nAndy Bromberg [48:31] &#8211; There are a lot of components that are the same as evaluating any other company, right. It&#8217;s not like a whole world, it&#8217;s&#8211;\nCraig Cannon [48:36] &#8211; The same&#8211;\nAndy Bromberg [48:37] &#8211; Evaluate those things but, then, layer on top of that some of the token specific pieces and, again, there are not a lot of people that are experts in the token specific pieces so far. Structuring these different things and token economics, so, ask smart people. In the same way that, if you&#8217;re a non technical person going to join a deep learning startup, ask some technical friends, what are the merits of this, is it interesting, ask some investors in the project, have those conversations and be intentional about finding out things about the team and the product and history and all of that but a lot of that you can do on your own, if you have good intuitions there. Spend more time with external sources, evaluating token economics, maybe the technical details if it&#8217;s not something you understand, the history of the team and digging in on that, but at the end of the day, there are people who join companies whose technology and products they don&#8217;t fully understand all the time, as necessary.\nCraig Cannon [49:34] &#8211; Yeah.\nAndy Bromberg [49:36] &#8211; And I think it&#8217;s a lot of the same mechanics there.\nRamon Recuero [49:38] &#8211; And how did you get interested in the space?\nAndy Bromberg [49:41] &#8211; I got interested in the space from a professor of mine university, Balaji Srinivasan, who now runs <a href=\"http://Earn.com\" target=\"_blank\">Earn.com</a> and he was a professor and a number of took this class at Stanford called Startup Engineering. He developed a relationship with him and after the class ended, he told a bunch of us, Bitcoin, it&#8217;s a great thing. And, you know, we looked at him, we&#8217;re like, this&#8211;\nCraig Cannon [50:10] &#8211; Leave school, buy Bitcoin.\nAndy Bromberg [50:11] &#8211; Magic internet money. I don&#8217;t think this is a real thing. But he convinced a few of us to buy just a couple and then, we ended up, as a result of that, actually starting the Stanford Bitcoin Group, this was back in 2012, 2013. We did some really cool stuff. We did research on some of the economic impacts of Bitcoin, so this was around when Cypress economic collapse happened, so how could crypto have helped that. We built some really cool projects in the space and did a lot of evangelism. Ran up and down Sandhill Road pitching Bitcoin to investors. We didn&#8217;t want to raise money, we&#8217;re just saying you should be interested in Bitcoin&#8211;\nRamon Recuero [50:51] &#8211; How did that work, at the time?\nAndy Bromberg [50:53] &#8211; It was a toss up, there were some people that got it, some that didn&#8217;t. We may have needed to hone our pitching skills a little more. It&#8217;s interesting not to see some of those people we talked to and how they&#8217;re thinking it&#8217;s evolved on the space. There were seven of us in that group, most of whom are now still in crypto. We did a lot of cool stuff there and my interest evolved from then.\nCraig Cannon [51:15] &#8211; I guess my last question is, if you weren&#8217;t working at CoinList, what would you be working on?\nAndy Bromberg [51:21] &#8211; That is a really hard question. Part of what I love about CoinList and what would inform that decision is, supporting building tools for or services for the companies that are building great protocols in this space, right. I don&#8217;t have a protocol in my head that needs to be started and tokenized, right now. Built out. There&#8217;s some great protocol teams. It is very early and, so what I love is this idea of supporting this ecosystem and bringing value to the people that do have these brilliant ideas and rather than going in and adding skills to a single project, because I like a lot of them. I would much rather say, I can I help all of these projects. It would be something else, kind of, services or tool oriented, picks and shovels for the token industry because I, fundamentally, believe in what&#8217;s happening in a meaningful way\nAndy Bromberg [52:14] &#8211; and want to support it but what I would say is, for other people thinking about the space, especially for people that are not deep in crypto already, these projects need you. They have every role open, they&#8217;re figuring out how to run these new types of businesses, whether you&#8217;re technical, or a marketer, or sales, or operations, or anything else, these companies need you and going out and finding a team that you identify with, as with any startup, but also a use case that you understand, again, you don&#8217;t understand the technology but something you believe in, whether that&#8217;s Filecoin.\nCraig Cannon [52:48] &#8211; Sure.\nAndy Bromberg [52:48] &#8211; File storage. They are potentially solving a massive problem here and introducing a whole new economic model or any of these other projects, it is worth while and they need help from people that are coming from outside crypto. It&#8217;s an exciting time in the industry.\nRamon Recuero [53:03] &#8211; Yeah, there&#8217;s a lot of energy in the space, it reminds me a little bit of the early time of the startup before the dot com boom, you can see the same kind of&#8211;\nAndy Bromberg [53:10] &#8211; Yeah, all that, energy and also, one of the things that&#8217;s so attractive about the space is just the number of A players coming into the space. The brain power concentrated here is&#8230; When I say here, I mean in the industry, but it&#8217;s worldwide, it&#8217;s so high and so much fun that you get to work with such brilliant people excited about making a meaningful change in the way that companies&#8217; projects, technologies are built in the future, that I think it&#8217;s just hard to find in any other industry right now.\nRamon Recuero [53:36] &#8211; It&#8217;s a network affect, the best people are going to attract the brightest people.\nAndy Bromberg [53:40] &#8211; That&#8217;s exactly right.\nCraig Cannon [53:40] &#8211; Yeah, totally. Alright man, well, thanks for coming in.\nAndy Bromberg [53:44] &#8211; Thanks for having me.\nRamon Recuero [53:44] &#8211; Thank you.\nCraig Cannon [53:46] &#8211; All right, thanks for listening. As always, you can find the transcript and video at <a href=\"http://blog.ycombinator.com\" target=\"_blank\">blog.ycombinator.com</a> and if you have a second, it would be awesome to give us a rating and review wherever you find your podcast. See you next time.\n<script src=\"https://reader.podclipper.com/static/share-ycombinator.js\"></script>\n","comment_id":"1102450","feature_image":"/blog/content/images/wordpress/2018/04/CoinList-Cofounder-Andy-Bromberg-and-Ramon-Recuero.jpeg","featured":false,"visibility":"public","email_recipient_filter":"none","created_at":"2018-04-18T02:26:16.000-07:00","updated_at":"2022-02-03T16:38:30.000-08:00","published_at":"2018-04-18T02:26:16.000-07:00","custom_excerpt":"Today's episode is with Andy Bromberg and Ramon Recuero. Andy is the co-founder and CEO of CoinList and CoinList provides financial infrastructure for token creators and investors. Ramon is an engineer here at YC.","codeinjection_head":null,"codeinjection_foot":null,"custom_template":null,"canonical_url":null,"authors":[{"id":"61fe29e3c7139e0001a710d1","name":"Y Combinator","slug":"y-combinator","profile_image":"/blog/content/images/2022/02/1200px-Y_Combinator_logo.svg.png","cover_image":null,"bio":"Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200).\r\n\r\nThe startups move to Silicon","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/y-combinator/"}],"tags":[{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},{"id":"61fe29efc7139e0001a71176","name":"Podcast","slug":"podcast","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/podcast/"},{"id":"61fe29efc7139e0001a71172","name":"Video","slug":"video","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/video/"}],"primary_author":{"id":"61fe29e3c7139e0001a710d1","name":"Y Combinator","slug":"y-combinator","profile_image":"https://ghost.prod.ycinside.com/content/images/2022/02/1200px-Y_Combinator_logo.svg.png","cover_image":null,"bio":"Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200).\r\n\r\nThe startups move to Silicon","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/y-combinator/"},"primary_tag":{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},"url":"https://ghost.prod.ycinside.com/coinlist-cofounder-andy-bromberg-and-ramon-recuero/","excerpt":"Andy Bromberg is the cofounder and CEO of CoinList. CoinList provides financial infrastructure for token creators and investors.","reading_time":45,"access":true,"og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"email_subject":null,"frontmatter":null,"feature_image_alt":null,"feature_image_caption":null},{"id":"61fe29f1c7139e0001a71a2b","uuid":"7744d3b2-2c16-453b-a00c-45465ad60d68","title":"The Decentralized Future Series","slug":"the-decentralized-future-series","html":"<h2>Premises, Promises, and Reality</h2>\nThere is a massive divide between the promises of cryptocurrency and the use cases they currently support. Most skeptics point out reasonably that there’s little to show regarding real adoption. At the same time, people in the industry argue that they need time to finish the infrastructure before they can deliver game changing apps. And the tribalism clouding the topic doesn’t help. There is room for dialogue that would benefit both sides.\nA good method for discovering startup ideas is to look into technological breakthroughs and think about what they unlock that wasn&#8217;t possible before. In this introductory post, we are going to use this framework. We’ll look at Bitcoin and consider potential use cases that we can directly deduce from its properties. We’ll discuss the common counter-arguments and what needs to happen for each use case to become widely adopted. Finally, we’ll outline the posts coming up in this series–each will dive deeper into specific use cases.\n<h2>Why</h2>\nWhen Satoshi Nakamoto released the <a href=\"https://bitcoin.org/bitcoin.pdf\">Bitcoin Whitepaper</a> he defined it as a peer to peer electronic cash system. Its main achievement was solving the <a href=\"https://en.wikipedia.org/wiki/Double-spending\">double spending problem</a> without any centralized authority. It was a significant leap, allowing us to transact without intermediaries. It’s not a coincidence that the whitepaper was published after the 2008 subprime mortgage crisis. Just like the printing press removed the power of knowledge from governments and religions, Bitcoin and other cryptocurrencies give people the tools to control their own money.\nBitcoin kickstarted the so-called decentralized future<a href=\"#footnote1\">1</a>, where products could be built not by centralized companies or authorities but by groups of peers that work together towards a common goal. These new products would exhibit the main features and benefits of Bitcoin. Let&#8217;s dive into the clear use cases.\n<h2>1 &#8211; A New Asset Class</h2>\nWith most cryptocurrencies anyone can make transactions but, once they are confirmed, nobody can alter or roll them back. They are tamper-proof. Most cryptocurrencies also have a limited supply of coins by design. The maximum number of coins is set in the source code and nobody can create more. Bitcoin, Litecoin, and Monero are examples of this. And its value isn’t stored in a physical object therefore nobody can destroy or <a href=\"https://twitter.com/AriDavidPaul/status/941832482256592896\">seize your coins</a>.\nThis property leads to the first real use case of cryptocurrencies, a digital store of value. Bitcoin is probably the best-positioned to dominate this use case because it&#8217;s the most adopted and its network is the most secure because it has the most miners. So far, we have seen adoption by citizens in countries with record-setting inflation rates like Venezuela<a href=\"#footnote2\">2</a>.\nHowever, for first world countries and their institutions to take the Bitcoin market seriously it needs to grow. The gold market sits at around $7T<a href=\"#footnote3\">3</a>, and the offshore-account market is about $30T<a href=\"#footnote4\">4</a>. The Bitcoin network value now is around $130 billion, so there’s still a long way to go. The release of futures by the CME and rumours about a potential ETF are signs that point in the direction that adoption is going to keep increasing.\nInvesting in crypto assets to gain a financial return has been incredibly profitable for the last few years. However, skeptics would quickly remind you that it has been a market with high volatility and big doses of speculation. That said, cryptocurrencies and crypto assets might be the philosopher’s stone of a modern portfolio. Chris Burniske and Jack Tatar suggest that crypto assets have low/negative correlation with traditional asset classes<a href=\"#footnote5\">5</a>. They could offer diversification and thus, reduce the risk of your portfolio. The asset class is starting to gain traction as an investment; according to a Citi report, it amounts to several GDP points in countries like Russia, New Zealand, Nigeria, and the UK<a href=\"#footnote6\">6</a>.\nThere are still significant risks when you use cryptocurrencies as a way to store your wealth or as an investment. The price volatility is an emotional test for investors, seeing them decrease by 60% in a week is not easy to stomach. Investing in it and keeping your investment safe is not simple. Your private keys can be damaged, lost forever, or stolen. Nobody can save you if it happens. Nobody can rollback illegal transactions made with your private keys. Multisig wallets, hardware wallets, time-locks and vaults are initial attempts to solve this problem but they are way too complicated for the normal user. In the next few years, custody is going to become more and more critical, and a new industry will be created to solve it.\n<h2>2 &#8211; Disintermediation</h2>\nThanks to blockchain technology, all transactions included in the ledger can never be altered. Every transaction contains an identifier from the previous one and you cannot change the ID without changing the content. That makes this ledger immutable and tamper-proof. Today, we resort to many layers of documentation and mediators to ensure that transactions happen. In many cases it is more costly and time consuming to prove that you did something than actually doing the work. You can see this behavior in real estate property rights and transfers.\nMany people would argue that all you need to solve this excess of paperwork is a good distributed database. However, a distributed database without incentives wouldn’t be maintained but if this distributed database is maintained by a company, you are trusting a third party. When you put sensitive data in the hands of a single trusted entity like a health company, a bank or Equifax, your information is eventually going to get exposed<a href=\"#footnote7\">7</a>. The question is not whether they are going to be hacked or not, the question is when. These are natural honeypots for hackers.\nAnother benefit of removing intermediaries is that you can perform tasks that were prohibitive before because of pricing. Now, with LTC or the Bitcoin Lightning Network you can send cents or fraction of cents to anyone in the world with nearly zero fees. Micropayments may seem like a pretty niche use case. Many people would be right to remind us than Venmo, Paypal and other solutions work perfectly for us today. Why do we need an alternative? How often do we send fraction of cents?\nA compelling answer may be then that six billion people don’t have access to these applications, let alone bank accounts. Andreas Antonopoulos argues that the same way many developing countries leapfrogged directly into mobile phones and skipped landlines, they will skip traditional banking and have a crypto account in their mobile phone<a href=\"#footnote8\">8</a>. They will still need to compete with services such as <a href=\"https://www.mpesa.in/\">M-Pesa</a> that attempt to solve this problem and are quite mature.\nCryptocurrencies provide a clear path to transact without borders and offer banking resources to the unbanked. In order to do so, they need to improve their wallet user experience considerably. Clearer and more natural ways to convert to/from fiat currencies are also needed.\n<h2>3 &#8211; Governance</h2>\nThe Bitcoin whitepaper also created a network of participants that collaborated on a single project without knowing each other. Bitcoin has a primitive governance mechanism that ensures that the incentives are aligned. Mutual trust is built-in, enforced, and ensured by the miners.\n<a href=\"https://medium.com/@homakov/stop-calling-bitcoin-decentralized-cb703d69dc27\">“But miners are centralized!”</a> Yes, they are to some degree. Decentralization is not black or white, it is a range and it is going to <a href=\"https://ycombinator.wpengine.com/crypto-evolution/\">keep evolving</a>. We can see Bitcoin as the first iteration. It is just the starting point. The mechanism for change and how to evolve a network based on consensus from the participants is what matters. <a href=\"https://dfinity.org/\">Dfinity</a>, <a href=\"https://www.tezos.com/\">Tezos</a> or <a href=\"https://aragon.one/\">Aragon</a> are exploring this space further.\nWe also touched on incentive alignment. The average tenure of an employee in Silicon Valley is less than two years<a href=\"#footnote9\">9</a>. One of the causes is the lack of alignment between employees and the owners. This is called the <a href=\"https://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem\">Principal-Agent Problem</a>. Every group of people has principals (owners) and agents (employees) and it is easy for them to become misaligned. What may be good for the employee may not be good for the company. In startups, principals and agents are the same. That’s why they are all really motivated to work together and can create enormous amount of progress in small periods of time. The velocity in crypto development teams like Ethereum exhibit this same energy along a greater number of participants.\nAnother interesting parallel happens between startups and cryptocurrencies. Most corporations govern by law and process. Startups in their early stages govern with a limited process. Most actions occur implicitly, built on trust. As companies get bigger, you have to deal with procedures and rules to get anything done. An avid reader may note that Bitcoin’s community lack of consensus also stalled the network and it precipitated the creation of several forks like Bitcoin Cash. The difference here is that there is a mechanism for evolution (forks) and the decisions are taken by all the participants, not just by the owners (consensus mechanism).\nCryptocurrencies provide a way of organizing people at scale with the potential to prevent the Principal-Agent problem and the <a href=\"https://en.wikipedia.org/wiki/Tragedy_of_the_commons\">tragedy of the commons</a>. Bitcoin participants were so aligned, and the network effect was so strong that they ended up creating the <a href=\"http://jasondrowley.com/2015/12/04/the-bitcoin-network-is-11000x-faster-than-the-top-500-supercomputers-combined/\">most prominent computer network</a>.\n<h2>4 &#8211; Tokens</h2>\nBitcoin is also programmable. It’s programmable money. You can define certain conditions to trigger transactions if they are met. For example, if you want to add extra security you could say that any transaction bigger than $1,000 USD needs to be verified by both you and your father. Ethereum took the concept a step further and supported more complex functionality in its <a href=\"https://github.com/ethereum/wiki/wiki/White-Paper\">smart contracts</a>. Everyone can now create their own token that models their network, assets or team and distribute it accordingly. We wrote more about this <a href=\"https://ycombinator.wpengine.com/the-token-effect/\">token effect here</a>.\nThe token conversation is particularly confusing because of the variety of tokens and use cases they support. Tokens are being used to raise money through <a href=\"https://en.wikipedia.org/wiki/Initial_coin_offering\">ICOs</a>. They are a way to raise funding from many contributors. It is important to note that you can also have a cryptocurrency or token without raising money through an ICO. Bitcoin or Litecoin never did an ICO.\nA common question about raising money through tokens is “how are they different from crowdfunding?” There are three key differences. First, you don&#8217;t trust any centralized entity to do the fundraising. Second, you have a lot more flexibility in what you can offer to your contributors (equity included). Third, contributors can transfer their assets instantly and easily to other people (pending regulation).\nTokens can be used to incentivize participants and prevent the rent seeking behaviour that affects many communities and networks. This problem basically states that many participants of the network look to capture value without creating any. One specific version of this is spam. Any sufficiently adopted tool will see many people advertising their own endeavors for their own personal gain, decreasing the overall quality of the network and reducing trust. Online communities are littered with this problem and all of them devote countless amounts of time and money to keep the quality of their community safe from trolls and spammers.\nTokens resolve these two problems. You need to contribute if you want to participate in the network. If you want to run some code on Ethereum you need to pay for it. It basically makes spam and rent seeking costly and, ultimately, not viable. If you have an online community, in order to post you need to stake your reputation. If your post benefits the network, you get rewarded, if it doesn&#8217;t, you get penalized and next time you want to post you will be charged accordingly. <a href=\"https://steemit.com/\">Steemit</a> is experimenting with some of these ideas.\nHistorically it’s been very complicated for companies to give equity to early adopters that help kickstart their products. Using tokens new companies can create network effects that help them compete with established incumbents. Tokens allow new ventures to bootstrap networks from the beginning with a solid wave of early adopters invested in their product that are committed to help it grow. Ethereum, from its inception and through its ICO, has created a strong decentralized community with skin in the game.\nExperts like David Sacks and Balaji Srinivasan believe that ownerships will get blockchained the same way content (video, text, and music) got packetized and sent over the internet<a href=\"#footnote10\">10</a>. Once tokenized, they can be subdivided into near infinitely small pieces and exchanged freely, providing liquidity. Legal instruments of ownerships like deeds or securities will benefit from using a blockchain in terms of affecting transfers and chains of title. At the same time, it is also true that many things that are being tokenized now are just attempts of raising quick money from unwary investors. We need some type of regulation here and a solid framework to foster innovation while minimizing bad actors.\n<h2>5 &#8211; Power (And Data) To The People</h2>\nBitcoin is cryptographically secure. You can transact with other people without ever exposing your private key i.e the series of characters that give you access to your funds. It is like signing up to many websites on the internet without communicating your password.\nBitcoin has a 150 billion dollar bounty on it. So far the protocol has never been hacked. People may argue that Mt Gox, Okcheck, and other exchanges have been hacked, but Bitcoin the protocol has never been hacked. Exchanges, wallets, and custodians were compromised. Again, central, trusted parties can be hacked and will be hacked because they are honeypots.\nIn this day and age, we see hacks happening every week. We need to handle dozens of passwords with complex passwords managers. Blockchains and cryptocurrency will solve this problem. Using a <a href=\"https://radarrelay.com/\">Decentralized exchange</a> or playing <a href=\"https://www.cryptokitties.co/\">Crypto Kitties</a> without needing to create an account is a magic moment.\nYou can now own all your data and assets. Nobody can access your information without your private key. Third parties like social networks would not be able to benefit from it without your permission. Your privacy, finally, belongs to you. This use case is gaining adoption. For example, Microsoft is working on decentralized digital identities<a href=\"#footnote11\">11</a>.\nHowever, right now you need to install browser extensions like <a href=\"https://metamask.io/\">Metamask</a> to interact with websites that enable “crypto functionality”. They are still really clunky and the average user does not know they even exist. Native and more polished experiences both on web and mobile to sign and validate transactions need to happen for this to become meaningful. Until then, only tech savvy adopters will benefit from secure identification on niche use cases.\n<h2>6 &#8211; Permissionless Innovation</h2>\nBitcoin, Ethereum, and most cryptocurrencies are open source. Every person in the world can contribute and send a pull request. Innovation is pushed to the edges. Innovation is not controlled by Satoshi, Vitalik Buterin, or any group of developers. It is permissionless. You can rely on being able to build your business on top of it.\nThe Internet started the same way. It was built on open protocols like email or TCP/IP and everyone was able to create an easy to discover website. That’s not true in the internet anymore. Closed networks like Facebook or Twitter are gated communities that use their user data to gain an unfair advantage. They also have the potential to shut you down as soon as you compete with them or violate their ToS <a href=\"#footnote12\">12</a> <a href=\"#footnote13\">13</a> <a href=\"#footnote14\">14</a>. And rightly so, they spent many years building their walled gardens and they don&#8217;t want to grow their successor in their yard.\nThese closed entities or corporations argue that it is all about blockchain, not about cryptocurrencies. They say that private blockchains would be used to empower business process and increase efficiency. In my opinion, a blockchain without a cryptocurrency is just a distributed ledger or a glorified spreadsheet. There is no censorship resistance, no alignment of incentives, no network effect, and no trustless collaboration. This is extremely important if we want to empower equal networks where any individual can participate without being censored.\nAn inclusive network allows any participant to innovate and the group benefits from it. Organizations and networks that restrict innovation will eventually stall and lose momentum. It already happened on the intranet vs internet debate. A lot of people argued for intranets at the beginning. They become really difficult to maintain and the content eventually stalls. A similar thing is happening between permissioned and permissionless blockchains right now. Permissioned blockchains will probably exist in closed organizations, but they will be interconnected by open permissionless blockchains.\nThese open blockchains are powering protocols that will support open and permissionless applications. Decentralized <a href=\"https://truebit.io/\">computing</a>, <a href=\"https://filecoin.io/\">storage</a>, and <a href=\"https://0xproject.com/\">payments</a> are setting up the groundwork for the proclaimed next web<a href=\"#footnote15\">15</a>. These decentralized alternatives are fighting a difficult battle because their unit economics and/or customer experience may not work better than centralized options like Amazon Web Services. Censorship resistant may not be appealing enough for end consumers in many applications.\nHowever, because of its permissionless nature, you now may access a global and decentralized world computer that nobody owns. Whether this world computer would become the new standard or just for use cases where censorship-resistance is important remains to be seen. It has been true in the past that open innovation trumps permissioned innovation and we can sincerely hope this trends continues. The alternative doesn’t look different from an Orwellian future where we use government cryptocurrencies. Everything is recorded but still in the possession of the few.\n<h2>Conclusion</h2>\nIn my opinion, real adoption is coming. There is an infrastructure inversion on the horizon. We have suffered several infrastructure inversions in the past century. They are never obvious, only in hindsight. Cars were made fun of when they got stuck in mud roads dominated by horses. Once the infrastructure switched and roads improved, horses could still walk on them, but cars got way faster. Telecommunication companies refused for years to switch from analog to digital to communicate more data. Once they did, it was trivial to run voice over their new infrastructure, but the other way around was almost impossible. I think the same is true with Bitcoin: traditional banking that takes days and charges high fees can be easily implemented on Bitcoin, but the opposite is not true.\nThat new infrastructure is being built today. During this series we are going to speak with subject experts that are building it to make these long held promises possible. We are going to release deep-dives on the following topics:\n<a href=\"https://blog.ycombinator.com/the-decentralized-future-series-a-new-age-of-investing/\">A New Age of Investing</a>. \nThe Future of Payments. \nThe Future of Organizations. \nTurning Assets into Tokens. \nSecurity starts with Identity. \nThe New World Computer.\nStay tuned and HODL on for more!\nNotes \n1. <a href=\"https://en.wikipedia.org/wiki/Bitcoin#Decentralization\">Bitcoin Decentralization</a>. Wikipedia.<a href=\"#footnoteid1\">↩</a> \n2. <a href=\"https://www.economist.com/blogs/graphicdetail/2018/02/daily-chart-1\">When the prices are too damn high</a>. The Economist.<a href=\"#footnoteid2\">↩</a> \n3. <a href=\"https://www.fool.com/investing/2017/08/17/how-does-bitcoins-market-cap-stack-up-next-to-gold.aspx\">Bitcoin Market Cap vs Gold</a>.<a href=\"#footnoteid3\">↩</a> \n4. <a href=\"https://www.reuters.com/article/us-offshore-wealth/super-rich-hold-32-trillion-in-offshore-havens-idUSBRE86L03U20120722\">Trillions in offshore Havens</a>. Reuters.<a href=\"#footnoteid4\">↩</a> \n5. <a href=\"http://%20https://www.barrons.com/articles/the-bitcoin-consensus-yes-its-a-bubble-buy-it-anyway-1511909599\">The Bitcoin ‘Consensus’: Yes It’s a Bubble, Buy It Anyway</a>. Barron&#8217;s. <a href=\"#footnoteid5\">↩</a> \n6. <a href=\"https://www.businessdailyafrica.com/news/Citi-warns-over-risk-of-Kenya-bitcoins/539546-4263658-format-xhtml-rxcrr3z/index.html\">Citi Bitcoin GDP study</a>. <a href=\"#footnoteid6\">↩</a> \n7. <a href=\"http://%20https://techcrunch.com/2017/09/10/unsecurity/\">Equifax Hack</a>. TechCrunch. <a href=\"#footnoteid7\">↩</a> \n8. <a href=\"https://www.amazon.com/Internet-Money-Andreas-M-Antonopoulos/dp/1537000454\">The Internet of Money</a>. <a href=\"#footnoteid8\">↩</a> \n9. <a href=\"http://www.businessinsider.com/employee-retention-rate-top-tech-companies-2017-8\">Retention Rate Silicon Valley</a>. Business Insider. <a href=\"#footnoteid9\">↩</a> \n10. <a href=\"https://www.cnbc.com/2018/02/06/ex-paypal-david-sacks-on-craft-fund-and-harbor.html\">David Sacks on Craft Fund and Harbor</a>. CNBC. <a href=\"#footnoteid10\">↩</a> \n11. <a href=\"https://cloudblogs.microsoft.com/enterprisemobility/2018/02/12/decentralized-digital-identities-and-blockchain-the-future-as-we-see-it/\">Decentralized Digital Identity</a>. Microsoft. <a href=\"#footnoteid11\">↩</a> \n12. <a href=\"https://thestack.com/cloud/2015/10/05/twitters-withdrawal-of-reliable-share-count-api-is-a-bold-monetising-move/\">Twitter ShareCount endpoint shutdown</a>. The Stack. <a href=\"#footnoteid12\">↩</a> \n13. <a href=\"http://fortune.com/2015/04/22/facebook-newsfeed-algorithm-publishers/\">Facebook Advertising Algorithm Changes</a>. Fortune. <a href=\"#footnoteid13\">↩</a> \n14. <a href=\"https://www.recode.net/2016/6/30/12067578/spotify-apple-app-store-rejection\">Apple Itunes Spotify rejection</a>. Recode. <a href=\"#footnoteid14\">↩</a> \n15. <a href=\"https://medium.com/@FEhrsam/the-dapp-developer-stack-the-blockchain-industry-barometer-8d55ec1c7d4\">The Dapp Developer Stack</a>. <a href=\"#footnoteid14\">↩</a>\nThanks to Raul San Narciso, Alex Shelkovnikov, Brad Lightcap, and Craig Cannon for reading drafts of this post.\n","comment_id":"1102207","feature_image":null,"featured":false,"visibility":"public","email_recipient_filter":"none","created_at":"2018-02-14T00:00:15.000-08:00","updated_at":"2022-02-03T16:40:21.000-08:00","published_at":"2018-02-14T00:00:15.000-08:00","custom_excerpt":"A good method for discovering startup ideas is to look into technological breakthroughs and think about what they unlock that wasn't possible before. In this introductory post, we are going to use this framework to examine Bitcoin.","codeinjection_head":null,"codeinjection_foot":null,"custom_template":null,"canonical_url":null,"authors":[{"id":"61fe29e3c7139e0001a710b8","name":"Ramon Recuero","slug":"ramon-recuero","profile_image":"/blog/content/images/2022/02/ramon.jpg","cover_image":null,"bio":"Ramon was a Hacker at YC. Before working at YC, he worked at Zynga, Moz and founded Netgamix.","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/ramon-recuero/"}],"tags":[{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},{"id":"61fe29efc7139e0001a7116d","name":"Essay","slug":"essay","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/essay/"}],"primary_author":{"id":"61fe29e3c7139e0001a710b8","name":"Ramon Recuero","slug":"ramon-recuero","profile_image":"https://ghost.prod.ycinside.com/content/images/2022/02/ramon.jpg","cover_image":null,"bio":"Ramon was a Hacker at YC. Before working at YC, he worked at Zynga, Moz and founded Netgamix.","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/ramon-recuero/"},"primary_tag":{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},"url":"https://ghost.prod.ycinside.com/the-decentralized-future-series/","excerpt":"There is a massive divide between the promises of cryptocurrency and the use cases they currently support. Most skeptics point out reasonably that there’s little to show regarding real adoption. At the same time, people in the industry argue that they need time to finish the infrastructure before they can deliver game changing apps. And the tribalism clouding the topic doesn’t help. There is room for dialogue that would benefit both sides.","reading_time":12,"access":true,"og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"email_subject":null,"frontmatter":null,"feature_image_alt":null,"feature_image_caption":null},{"id":"61fe29f1c7139e0001a71a17","uuid":"e7e794d8-36fd-4a73-914d-5c57279802e6","title":"Building for the Blockchain","slug":"building-for-the-blockchain","html":"<h2>Introduction</h2>\nIf you’re here, we assume that you’re a developer/hacker who’s intrigued by the blockchain. You’re convinced that you understand how it works and now you’re itching to figure out what the blockchain means for you and your developer skill set.\nIf you need more of a primer we’d recommend starting with the <a href=\"https://bitcoin.org/bitcoin.pdf\">bitcoin white paper</a> and <a href=\"https://github.com/ethereum/wiki/wiki/White-Paper\">Ethereum white paper</a>.\nOur goal in this post is to: \n1&#46; Explain how blockchain development differs from existing development paradigms \n2&#46; Provide context for the opportunities and challenges in this space \n3&#46; Point you to resources that will give you the foundation to start developing in this new paradigm\n<h2>Paradigm Shifts for Developers</h2>\nInternet applications benefit from network effects because they maintain centralized silos of information. Built upon shared, open protocols (e.g. TCP/IP, HTTP), companies like Yelp, Facebook, and Amazon benefit from having all of their users &#8211; and, as a result, data &#8211; in one place. This way they not only have an advantage over competitors with less data but also complete control over the way they monetize the data. <a href=\"http://www.usv.com/blog/fat-protocols\">In the words</a> of crypto investor Joel Monegro, the current Internet paradigm captures most of its value through fat application layers, whereas the thin, underlying communication protocols capture minimal value.\nAlternatively, the distribution of value in the blockchain paradigm can be described with fat protocols and a thin application layer. This paradigm shift is possible due to the innovation of cryptographic tokens, which are described well by Albert Wenger of USV:\n“Historically the only way to make money from a protocol was to create software that implemented it and then try to sell this software (or more recently to host it)&#8230; With [cryptographic] tokens, however, the creators of a protocol can ‘monetize’ it directly and will in fact benefit more as others build businesses on top of that protocol.”\nPreviously, the creators of open communication protocols for the Internet, largely <a href=\"https://en.wikipedia.org/wiki/DARPA\">DARPA</a> researchers and non-profit contributors, could not align financial incentives with protocol development. In contrast, protocol creators today can issue “tokens”, like Bitcoin and Ethereum, that represent the value of their decentralized protocols.\n<a href=\"http://www.usv.com/blog/fat-protocols\">Monegro believes</a> that this paradigm shift affects the way that developers should think about their applications: &#8220;The combination of shared open data with an incentive system that prevents “winner-take-all” markets changes the game at the application layer and creates an entire new category of companies with fundamentally different business models at the protocol layer.”\n<h2>Ethereum</h2>\nWe’ve come to the understanding that in the blockchain paradigm, developers can capture value through protocol innovation. To continue our discussion, we review how blockchain technologies evolved to eventually cater to developers. Eight years ago, Bitcoin was conceived as a virtual currency that removed the need for centralized financial systems. Initially, developers actually tried building applications upon the Bitcoin blockchain by storing data in the blockchain itself, but it turned out to be pretty inefficient (as described in <a href=\"http://joel.mn/post/104755282493/the-shared-data-layer-of-the-blockchain\">another old Joel post</a>!). One of these developers, Vitalik Buterin, was frustrated by Bitcoin’s immobilism and risk averse culture for adopting new developer-friendly features. So, he built his own platform, Ethereum.\nWhile Bitcoin was originally intended to serve as a new medium for financial store of value, Ethereum was invented to serve as a Turing complete developer environment. In Ethereum, developers write smart contracts in the Solidity programming language, and those smart contracts are run in the Ethereum Virtual Machine (EVM). Here, we observe an opportunity for developers to fork and implement their own blockchains to serve different purposes. To do so, however, would require rekindling developer support and network effects that existing blockchain technologies had previously achieved. Today, building on top of existing networks like Ethereum allows developers to become stakeholders in not only their own applications, but also the underlying protocol.\n<h2>Dapps, App Coins, and Smart Contracts</h2>\nToday’s blockchain developers often build decentralized applications, or dapps, on top of existing protocols to address specific markets and end users. In doing so, developers can issue <a href=\"https://blog.0xproject.com/the-difference-between-app-coins-and-protocol-tokens-7281a428348c\">tokens, or app coins</a>, that are used to execute certain “functions” of the dapps themselves, not unlike Chuck-E-Cheese tokens are used for specific purposes like skeeball. These “functions” are the “smart contracts” that promise a dapp’s services in return for a digital asset, thereby removing the need for a middle-man to ensure the transaction. In other words, smart contracts promise that for one Chuck-E-Cheese token, you can exchange one game of skeeball.\nAs the functionality of the dapp becomes more sought after, the fixed number of app coins increase in value as a function of supply and demand. In other words, if it turns out that the Chuck-E-Cheese experience is truly remarkable and highly-demanded, the fixed supply of tokens become more valuable. This is the underlying principle that informs all ICOs (initial coin offerings), in which dapp developers solicit investment by offering app coins in return for capital to fund their projects.\nBut wait, you might ask, “Why not use an existing token as opposed to issuing your own, dapp-specific token in the first place?” Dapp-specific app coins enable small-scale economies that facilitate the application’s purpose. These <a href=\"https://ycombinator.wpengine.com/the-token-effect/\">tokens</a> serve as scarce resources that can be regulated and governed to more closely align with the functionality of a dapp. This is where Ethereum comes back into the picture &#8212; with Ethereum, developers can very easily issue their own tokens for the specified use of their own dapps.\n<h2>Early Opportunities</h2>\nWith an understanding of the underlying mechanisms of dapps, it’s important to think carefully about how decentralization would benefit your end users. Rather than jumping into a list of side projects, swapping relational databases for blockchain implementations, we urge you to consider the benefits of decentralization. For instance, <a href=\"https://augur.net/\">Augur</a> creates prediction markets by relying on decentralized participants to make correct predictions because they share financial incentives.\nAt a meta-level, there are also opportunities for innovation in the developer stack. Many blockchain developers liken the maturity of the blockchain tools and frameworks to those of the web during early days of the Internet. We spoke to Ben Yu of <a href=\"https://streamtoken.net/\">Stream</a>, who described this as a new opportunity for developers: “There is extremely low-hanging fruit in making the field more accessible, and a lot of technical infrastructure needs to be built up to bring blockchain from 1994, in internet terms, to 2017.”\nWith the innovation of the blockchain, many have identified the opportunity to build a new, decentralized web stack that does not depend on centralized government or corporate entities. The traditional web stack is composed of building blocks like TCP/IP, DNS, databases, web servers, authentication systems and CDNs, and we are in the midst of replicating these components by using platforms like Ethereum as the base layer.\n<h2>Challenges of Immutability</h2>\nUnfortunately, a technology that is likened to the early iterations of JavaScript almost certainly comes with challenges, the most apparent of which is related to the immutability of new protocols. Developers cannot change the underlying blockchain or higher-level smart contracts. Libraries or contracts cannot be easily versioned. The recent Parity bug that <a href=\"http://mashable.com/2017/11/08/ethereum-parity-bug/\">locked 150MM USD in funds</a>, among many other similar incidents, reminds us of the urgent need to build “future-proof” architectures.\nBrandon Millman, an <a href=\"http://0xproject.com\">engineer at 0x</a>, described how blockchain immutability affects the way he thinks about security concerns: “Being in this space means being a lot more careful, especially because people&#8217;s money is at risk. Part of the benefit of the blockchain paradigm is that if you&#8217;re holding onto your private key, it&#8217;s hard for people to take money from you, but a lot of scams are getting you to willingly send your money to the wrong place instead of reaching in to steal money from your wallet.”\nDevelopers, especially those accustomed to the fast pace of the startup world, are forced to consider tradeoffs between speed and security. As Ben Yu of Stream describes, “You have to move extremely fast, because the space is going enormously fast, but you can&#8217;t move fast and break things, which is the traditional philosophy for development being done now. If you break things, you lose hundreds of millions of dollars.”\nBuilding on the blockchain requires a different level of planning. Developers can no longer apply hot-fixes or overnight patches, because they no longer have centralized control over entire systems. Instead, introducing system changes often involves hard forking entire protocols, or in some cases, providing separate sources for protocol parameters that aren’t tied directly into the blockchain.\n<h2>Ethereum’s Limitations</h2>\nBeyond the general challenges of immutability, Ethereum includes several limitations that blockchain developers might encounter. For one, Ethereum is unable to access real time data from outside the blockchain. Developers need to rely on trusted third party data providers, <a href=\"http://www.oraclize.it/\">called oracles</a>, to provide smart contracts with outside information like weather, random numbers, or currency values.\nMoreover, Ethereum’s specification prevents real-time computations. Processing of block transactions takes upwards of 15 seconds (which is lightning fast compared to Bitcoin’s 10 minutes). As a result, developers need to write asynchronous code with front-end frameworks that can update states accordingly (like React).\nWith Ethereum, you are also tied to paying for your transactions by the operation with gas that translates into Ethereum’s ether. As a result, using the current version of Solidity, you could very feasibly find yourself hitting a transaction limit if the computation you intend to perform is too expensive (like verifying checkmate in a <a href=\"https://medium.com/@graycoding/lessons-learned-from-making-a-chess-game-for-ethereum-6917c01178b6\">game of chess</a>). As a result, on-chain computations because become costly in terms of money and network bandwidth. There are interesting alternatives like <a href=\"https://truebit.io/\">Truebit</a> to perform more intensive computation off-chain.\n<h2>Getting Started</h2>\nIn general, it can certainly feel overwhelming getting into this space. It’s an interdisciplinary field, spanning domains of economics, game theory, finance, computer science, math, cryptography, and more. However, that also means that there’s a lot of surface area to contribute.\nBrandon of 0x recommends diving into areas where you have some interest or experience instead of trying to learn everything at once: “If you’ve done JS development beforehand, there are a lot of JS libraries that you can contribute to. While you will definitely need to know [how everything fits together] eventually, you don&#8217;t need to feel like you need to take an entire course initially.”\nIn the spirit of decentralization, most of the code for projects on the blockchain are also available through open-source. There are a number of good resources to get your hands dirty:\n<ul>\n<li>The <a href=\"http://solidity.readthedocs.io/en/latest/\">official Solidity docs</a> are a good place to start. </li>\n<li>The <a href=\"http://truffleframework.com/\">Truffle Framework</a> is one of the best solidity frameworks. </li>\n<li>See how tokens and token sales are developed in the <a href=\"https://github.com/OpenZeppelin/zeppelin-solidity\">zeppelinOS repo</a>, one of the most trusted libraries to build dApps. </li>\n<li>Blockgeeks also provides an in-depth <a href=\"https://blockgeeks.com/guides/ethereum-token/\">Ethereum token guide</a> with code samples and high-level concepts. </li>\n<li>You can even learn from Crypto Kitties and <a href=\"https://medium.com/loom-network/how-to-code-your-own-cryptokitties-style-game-on-ethereum-7c8ac86a4eb3\">create your own digital game on the blockchain</a>. </li>\n</ul>\nIn addition, the developer communities are remarkably receptive and helpful. Check out:\n<ul>\n<li><a href=\"https://www.reddit.com/r/ethereum/\">/r/ethereum</a> </li>\n<li><a href=\"https://www.reddit.com/r/ethdev/\">/r/ethdev</a> </li>\n<li><a href=\"https://blockgeeks.com/\">https://blockgeeks.com/</a></li>\n</ul>\nIf you learn primarily by coding up your own projects, here are some ideas to get started:\n<ul>\n<li>Build your own wallet. It can be a be a web, mobile app or desktop app. </li>\n<li>Create your own ERC-20 token and deploy it on the test net. </li>\n<li>Modify crypto kitties (dogs, tanks, zombies&#8230;) and deploy it on the test net.</li>\n</ul>\n<h2>Looking Forward</h2>\nIn its current state, yes, blockchain development is messy. No, there aren’t clean frameworks and tools analogous to those that exist for modern web development. But why not see the blockchain’s nascent state as an opportunity to impact a paradigm-shifting technology?\nOn the blockchain, you don’t need to deploy any centralized servers, which means that there’s no single point of failure. If your whole stack is decentralized, there is no trusted third party involved making it censorship resistant, and your database is publicly verifiable. As the new paradigm offers opportunity to publicly share data, we observe a supreme advantage to decentralizing databases. This is the future we’re building towards on the Blockchain— where information and power are distributed systematically by cutting out the middleman.\n<a href=\"https://news.ycombinator.com/item?id=16107597\">Comment on Hacker News</a>.\n<hr />\nThanks to Ben Yu (Stream) and Brandon Millman (0x) for lending their time to be interviewed, and thanks to Niharika Bedekar, Craig Cannon, Claire Shu for reading drafts of this post.\n","comment_id":"1101697","feature_image":null,"featured":false,"visibility":"public","email_recipient_filter":"none","created_at":"2018-01-09T03:28:17.000-08:00","updated_at":"2022-02-03T16:40:50.000-08:00","published_at":"2018-01-09T03:28:17.000-08:00","custom_excerpt":"If you’re here, we assume that you’re a developer/hacker who’s intrigued by the blockchain. You’re convinced that you understand how it works and now you’re itching to figure out what the blockchain means for you and your developer skill set.","codeinjection_head":null,"codeinjection_foot":null,"custom_template":null,"canonical_url":null,"authors":[{"id":"61fe29e3c7139e0001a710cf","name":"Vincent Chen","slug":"vincent-chen","profile_image":"/blog/content/images/2022/02/vincent-chen.jpg","cover_image":null,"bio":"Vincent Chen is a student at Stanford University studying Computer Science. He is also a Research Assistant at the Stanford AI Lab.","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/vincent-chen/"}],"tags":[{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},{"id":"61fe29efc7139e0001a7118d","name":"Paths","slug":"paths","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/paths/"}],"primary_author":{"id":"61fe29e3c7139e0001a710cf","name":"Vincent Chen","slug":"vincent-chen","profile_image":"https://ghost.prod.ycinside.com/content/images/2022/02/vincent-chen.jpg","cover_image":null,"bio":"Vincent Chen is a student at Stanford University studying Computer Science. He is also a Research Assistant at the Stanford AI Lab.","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/vincent-chen/"},"primary_tag":{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},"url":"https://ghost.prod.ycinside.com/building-for-the-blockchain/","excerpt":"If you’re here, we assume that you’re a developer/hacker who’s intrigued by the blockchain. You’re convinced that you understand how it works and now you’re itching to figure out what the blockchain means for you and your developer skill set.","reading_time":8,"access":true,"og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"email_subject":null,"frontmatter":null,"feature_image_alt":null,"feature_image_caption":null},{"id":"61fe29f1c7139e0001a719f8","uuid":"ee3f3229-0ae8-418c-8bda-f570c34936f9","title":"Crypto Evolution","slug":"crypto-evolution","html":"Bitcoin has already undergone several forks. A fork defines a moment in time when a specific digital currency gets split into two different currencies. A couple months ago, a Bitcoin fork created Bitcoin Cash<a href=\"#footnote1\">1</a> (BCH). Another fork just created Bitcoin Gold last week. Segwit 2x<a href=\"#footnote2\">2</a> will follow next month<a href=\"#footnote3\">3</a>.\nAt the instant the fork happens, every holder of the first currency also gets the second one in an equal amount. For the casual observer, these forks can be seen as a mere exploit to create money from thin air—a crypto “philosopher’s stone”. However, with proper attention, this process reveals one of the best adaptive mechanisms invented in the digital age. Forks clone the original DNA, i.e programming code, of the currency and then modify it to adapt it better to the demands of the market/community.\nSuddenly, many alternative paths can be explored, experienced and measured while preserving the core ownership, idea or belief that originated them.\n<h2>Why fork?</h2>\nCryptocurrencies provide higher liquidity and flexibility to innovators. These incentives are driving an unprecedented rate of innovation and growth in the ecosystem.\nForks, in short, are an evolutionary mechanism for digital networks which allows them to try out many different futures at the same time. What if Facebook could create and explore hugely different versions that shared past data and operated entirely independently from each other? This type of experimentation is A/B testing on steroids<a href=\"#footnote4\">4</a>.\nThis evolution can happen at different times during the cryptocurrency&#8217;s life span. Many now famous cryptocurrencies like Litecoin, Dash or Zcash, started as a Bitcoin implementation. Unlike other forks, these cryptocurrencies didn’t preserve any existing data. They started from scratch, from what is called the genesis block of Bitcoin. Each one of them is exploring different futures from the beginning. Litecoin aims to provide faster confirmation after every transaction while ZCash and Dash are focusing on increasing privacy and anonymity.\nThis evolutionary mechanism can also be utilized later to move forward when there is no unanimous consensus. The ones that happened inside the Bitcoin community are a perfect example. Firstly, there was an enormous clash between people who wanted to scale with bigger blocks (Bitcoin Cash) vs segregated witness (Bitcoin Core). Now, the side that doubled capacity via segwit is arguing about using 1MB vs 2MB base blocks. These forks, unlike the ones mentioned before, split at a much later point in time, preserving all the transaction history (and balance) up to that moment.\n<h2>Natural Selection</h2>\nForks are a digital process for evolution. Just like in genetic programming, in every generation you choose the most adapted organisms and you merge them, combining the code of the most promising ones to create new individuals that will be the starting point of the future generation. The most successful ones, in this case the most supported and accepted, will survive while minority chains will eventually become extinct. This plays out in practice through miner support. Miners provide their computing power (hash rate) to secure the network. Miners choose to support the best/most profitable chain.\nSo far, this has not been a zero-sum game–the value of the two new forks combined is higher than the original one. At the time of the fork between Bitcoin Segwit (BTC) and Bitcoin Cash (BCH), BTC was valued around $2800. After the fork, BTC didn’t decrease in value while the newly minted BCH reached values up to $900. It still has non trivial support and now it trades around $300. Value of these coins can be compared directly by their price because their coin supply is almost identical.\nSome animal species are more resilient if they split up in groups of enough organisms but they become vulnerable if spread too thin or isolated. Decentralized cryptocurrencies exhibit similar behaviors.\nThere is such a thing as too many forks.\nAn extreme division would naturally collapse the value of all the resulting networks. Cryptocurrencies depend on participants (miners) verifying transactions to ensure security. If the number of participants decreases drastically, all the minor chains would be vulnerable to attacks and hence, worthless. For example, if after several Bitcoin forks, 10 different chains exist with 10% of the hash rate each, every single one would be extremely vulnerable to 51% attacks<a href=\"#footnote5\">5</a>. Brand dilution and loss of consumer trust are other perils that we may explore and test in the following posts.\n<h2>Offspring &amp; Resilience</h2>\nAnother way cryptocurrencies evolve is by the generation of digital tokens via Initial Coin Offerings (ICOs). These tokens can be seen as the offspring or children of the crypto platform. For example, assets built on top of Ethereum, like Golem, Augur or OMG are part of Ethereum’s ERC20 family. These ICOs choose the best platform for their interests based on support, quickest path to fiat and network transaction output. They are a source of necessary chaos. They test the resilience of the network and push the boundaries of what these networks offer and can handle<a href=\"#footnote6\">6</a>.\nNew cryptocurrencies test out new evolutionary paths as different species do. Then forks evolve some of these species and miners/community support will naturally select the most promising. These two mechanisms get compounded with the ‘breeding’ of these crypto assets or tokens. The resulting rate of evolution is astounding, and the possibilities to explore are vast.\nMany of these individual organisms will perish, but the species as a whole would prosper and evolve from it. Species then become antifragile. Cryptocurrencies are no different.\n<h2>Gaining from disorder</h2>\n“Recall that the fragile wants tranquility, the antifragile grows from disorder, and the robust doesn’t care too much.”<a href=\"#footnote7\">7</a> Bitcoin (and Ethereum) so far have proven to be anti-fragile. Facing significant battles within their communities, forks provided a way to move forward in difficult times and increase the value of the overall crypto market. It’s also interesting to note how the price of BTC climbed up in anticipation of some of these forks despite the chaos.\nBitcoin has been declared dead countless times<a href=\"#footnote8\">8</a>. Mt. Gox collapse, regulation doom, ETF denials or community struggles seemed to mark the end of the currency. It never did die.\nIn his latest essay, Nassim defends the thesis that volatility and stress both signal stability<a href=\"#footnote9\">9</a>. These shocks contribute directly to progress, causing them to experience posttraumatic growth. Like a hydra, Bitcoin came back every time, reaching new price highs under great volatility (although the volatility has been decreasing over the years).\n<a href=\"https://ycombinator.wpengine.com/wp-content/uploads/2017/10/Bitcoins-Many-Lives.png\"><img loading=\"lazy\" src=\"https://ycombinator.wpengine.com/wp-content/uploads/2017/10/Bitcoins-Many-Lives.png\" alt=\"\" width=\"738\" height=\"459\" class=\"aligncenter size-full wp-image-1101082\" srcset=\"https://ghost.prod.ycinside.com/content/images/wordpress/2017/10/Bitcoins-Many-Lives.png 738w, https://ghost.prod.ycinside.com/content/images/wordpress/2017/10/Bitcoins-Many-Lives-300x187.png 300w\" sizes=\"(max-width: 738px) 100vw, 738px\" /></a>\nSegwit 2X and Bitcoin Cash happened because of the differences in the community. Both can objectively be considered better alternatives to the previous state of the chain. Many of these individual organisms or currencies are fragile, but Bitcoin chain as a whole gets stronger. The same thing is happening with other major crypto chains like Ethereum. Life always finds a way.\n“It is not the strongest of the species that survives, nor the most intelligent; it is the one most adaptable to change.”\nCharles Darwin &amp; Leon C. Megginson\n<hr />\nThanks to Kat Manalac, Craig Cannon, Yuri Sagalov, Raul San, and Alex Shelkovnikov for reading drafts of this post.\n<hr />\nNotes \n1. Bitcoin Cash: <a href=\"https://en.wikipedia.org/wiki/Bitcoin_Cash\">https://en.wikipedia.org/wiki/Bitcoin_Cash</a><a href=\"#footnoteid1\">↩</a> \n2. Segwit 2x Announcement: <a href=\"https://segwit2x.github.io/segwit2x-announce.html\">https://segwit2x.github.io/segwit2x-announce.html</a><a href=\"#footnoteid2\">↩</a> \n3. List of Bitcoin Forks: <a href=\"https://en.wikipedia.org/wiki/List_of_bitcoin_forks\">https://en.wikipedia.org/wiki/List_of_bitcoin_forks</a><a href=\"#footnoteid3\">↩</a> \n4. Podcast A16z: <a href=\"https://a16z.com/2017/09/28/cryptocurrencies-networks-tokens/\">https://a16z.com/2017/09/28/cryptocurrencies-networks-tokens/</a><a href=\"#footnoteid4\">↩</a> \n5. 51% Attacks: <a href=\"https://en.bitcoin.it/wiki/Majority_attack\">https://en.bitcoin.it/wiki/Majority_attack</a><a href=\"#footnoteid5\">↩</a> \n6. Ethereum Network DDOs by ICOs: <a href=\"https://motherboard.vice.com/en_us/article/newk7m/the-ethereum-network-is-ddos-ing-itself\">https://motherboard.vice.com/en_us/article/newk7m/the-ethereum-network-is-ddos-ing-itself</a><a href=\"#footnoteid6\">↩</a> \n7. Extract from Antifragile by Nassim Taleb: <a href=\"https://www.amazon.com/Antifragile-Things-That-Disorder-Incerto/dp/0812979680\">https://www.amazon.com/Antifragile-Things-That-Disorder-Incerto/dp/0812979680</a><a href=\"#footnoteid7\">↩</a> \n8. List of Obituaries: <a href=\"https://99bitcoins.com/bitcoinobituaries/page/9/\">https://99bitcoins.com/bitcoinobituaries/page/9/</a><a href=\"#footnoteid8\">↩</a> \n9. The Calm Before the Storm: <a href=\"https://www.foreignaffairs.com/articles/africa/calm-storm\">https://www.foreignaffairs.com/articles/africa/calm-storm</a><a href=\"#footnoteid9\">↩</a>\n","comment_id":"1101078","feature_image":null,"featured":false,"visibility":"public","email_recipient_filter":"none","created_at":"2017-10-30T01:29:58.000-07:00","updated_at":"2022-02-03T16:42:47.000-08:00","published_at":"2017-10-30T01:29:58.000-07:00","custom_excerpt":"Bitcoin has already undergone several forks. A fork defines a moment in time when a specific digital currency gets split into two different currencies. A couple months ago, a Bitcoin fork created Bitcoin Cash (BCH). Another fork just created Bitcoin Gold last week. Segwit 2x will follow next month.","codeinjection_head":null,"codeinjection_foot":null,"custom_template":null,"canonical_url":null,"authors":[{"id":"61fe29e3c7139e0001a710b8","name":"Ramon Recuero","slug":"ramon-recuero","profile_image":"/blog/content/images/2022/02/ramon.jpg","cover_image":null,"bio":"Ramon was a Hacker at YC. Before working at YC, he worked at Zynga, Moz and founded Netgamix.","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/ramon-recuero/"}],"tags":[{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"}],"primary_author":{"id":"61fe29e3c7139e0001a710b8","name":"Ramon Recuero","slug":"ramon-recuero","profile_image":"https://ghost.prod.ycinside.com/content/images/2022/02/ramon.jpg","cover_image":null,"bio":"Ramon was a Hacker at YC. Before working at YC, he worked at Zynga, Moz and founded Netgamix.","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/ramon-recuero/"},"primary_tag":{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},"url":"https://ghost.prod.ycinside.com/crypto-evolution/","excerpt":"Bitcoin has already undergone several forks. A fork defines a moment in time when a specific digital currency gets split into two different currencies. A couple months ago, a Bitcoin fork created Bitcoin Cash1 (BCH). Another fork just created Bitcoin Gold last week. Segwit 2x2 will follow next month3.","reading_time":5,"access":true,"og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"email_subject":null,"frontmatter":null,"feature_image_alt":null,"feature_image_caption":null},{"id":"61fe29f1c7139e0001a719d1","uuid":"d8af7bb4-6d06-4bb3-948b-eb3887178604","title":"The Token Effect","slug":"the-token-effect","html":"Cryptocurrencies and tokens are becoming increasingly popular. In this post, we’ll explore the context that triggered this frenzy, the new possibilities tokens unlock, and why people are excited about its future.\n<h2>The Context</h2>\nDecades after the web started and seventeen years after the dot com crash, we have finally entered the golden age of Internet Apps. Companies like Airbnb or Uber can be described as centralized entities governing a network that allocates a scarce resource i.e homes and rides. These communities are built on strong network effects – where, according to Metcalfe’s law<a href=\"#footnote1\">1</a>, the value of the network is exponentially increased by the number of users who participate. In these cases, the accrued value produced by users is captured by the companies and their shareholders.\nOn the other hand, open source and decentralized projects that power the internet like TCP/IP, Wikipedia or Unix have generated huge amounts of value but historically struggle to capture most of it. Success in open source is measured by user adoption, not by revenue. For example, internet protocols like TCP/IP or Email (SMTP) have been massively underfunded despite their use by millions of people.\nCompanies heavily use these protocols while accruing the value in their own user facing layer, the end consumer application<a href=\"#footnote2\">2</a>. The downside is that the lower protocols remain massively underfunded.\nBitcoin<a href=\"#footnote3\">3</a> created the first “fair” peer-to-peer decentralized network. Bitcoin allows money to be transacted securely between parties without any central authority. Everyone verifies the transactions. Fairness is defined by rewarding good actors monetarily for contributing value to the network. In this case, actors are called miners. They contribute to the network by recording and securing all the transactions with cryptographic proofs.\n<h2>The Spark</h2>\nEthereum took the Bitcoin concept one step further. It is a decentralized network of millions of computers that execute code at the same time. Efficiency is compromised in favour of security. When someone wants to send a transaction, all the nodes execute it and update the ledger. Unlike Bitcoin, where the capabilities are really restricted for security purposes, these Ethereum nodes can execute almost any program. Its code is defined in smart contracts. A smart contract is a set of promises, specified in digital form, including protocols within which the parties perform on these promises<a href=\"#footnote4\">4</a>. One of the direct applications is the digitalization of complex financial instruments like derivatives.\nMore importantly, you can use a smart contract to build your own crypto-currency or token<a href=\"#footnote5\">5</a>. Tokens allow decentralized protocols to capture the value of the network. A token is the basic economic unit in the ecosystem and should represent a scarce resource. Tokens are spent to use this resource and are earned by contributing to the network. For example, in Filecoin you earn tokens by lending your unused hard drive space. In summary, tokens coordinate efforts in the network and motivate responsible participation.\n<h2>Excitement &amp; Gold Rush</h2>\nAt the moment, an Initial Coin Offering or ICO is the main use case of Ethereum. An ICO is for a network what an IPO is for a startup, with some major differences. These ICOs provide a sizable improvement in terms of liquidity. Unlike traditional companies, you can represent the value of your assets in terms of tokens that are liquid and tradeable from day one. Besides, you can attract thousands of early adopters with skin in the game that believe and support your project from the beginning. The capital injection and initial speculation bring attention to developers, effectively bootstrapping the network.\nUnfortunately, many startups that aren’t networks are turning to ICOs to fundraise just to get quicker access to money at higher valuations. Only a few of these actually require a token to bootstrap and track the value of the network. Protocol tokens like Ethereum are examples of currencies with strong network effects. Their model simply wouldn’t work without this ‘token effect’. The token, and its ICO, is the only way the protocol can create and retain value from its utilization.\n<h2>Looking ahead</h2>\nThe web took decades to mature. It went through periods of high speculation and subsequent crashes. It’s important to remember that even during those periods, great companies like Amazon or Google were founded. It is only reasonable to expect the Blockchain ecosystem to follow a similar timeline.\nCryptocurrencies and Tokens raised a record $1.27 billion in the first half of 2017 through Initial Coin Offerings<a href=\"#footnote6\">6</a>. Most of them won’t survive but a chosen few will, laying down the foundation of a new age.\n“Blockchains give us new ways to govern networks. For banking. For voting. For search. For social media. For phone and energy grids. Blockchain-based market networks will replace existing networks. Slowly, then suddenly. In one thing, then in many things.” &#8211; Naval Ravikant\n<hr />\nThanks to Cadran Cowansage, Stephanie Simon, Craig Cannon, and my friends outside YC Mariano Torrecilla and Raul San Narciso for reading the early drafts.\n<hr />\nNotes \n1. <a href=\"https://en.wikipedia.org/wiki/Metcalfe%27s_law\">https://en.wikipedia.org/wiki/Metcalfe%27s_law</a> <a href=\"#footnoteid1\">↩</a> \n2. See Fat Protocols <a href=\"http://www.usv.com/blog/fat-protocols\">http://www.usv.com/blog/fat-protocols</a> <a href=\"#footnoteid2\">↩</a> \n3. Bitcoin Paper by Satoshi Nakamoto <a href=\"https://bitcoin.org/bitcoin.pdf\">https://bitcoin.org/bitcoin.pdf</a> <a href=\"#footnoteid4\">↩</a> \n4. Nick Szabo <a href=\"http://www.fon.hum.uva.nl/rob/Courses/InformationInSpeech/CDROM/Literature/LOTwinterschool2006/szabo.best.vwh.net/smart_contracts_2.html\">Smart Contracts: Building Blocks for Digital Markets</a> <a href=\"#footnoteid4\">↩</a> \n5. ERC20 Token <a href=\"https://theethereum.wiki/w/index.php/ERC20_Token_Standard\">https://theethereum.wiki/w/index.php/ERC20_Token_Standard</a> <a href=\"#footnoteid5\">↩</a> \n6. CoinDesk ICO Tracker <a href=\"https://www.coindesk.com/ico-tracker/\">https://www.coindesk.com/ico-tracker/</a> <a href=\"#footnoteid6\">↩</a>\n","comment_id":"1100438","feature_image":null,"featured":false,"visibility":"public","email_recipient_filter":"none","created_at":"2017-08-16T01:59:10.000-07:00","updated_at":"2022-02-03T16:41:20.000-08:00","published_at":"2017-08-16T01:59:10.000-07:00","custom_excerpt":"Cryptocurrencies and tokens are becoming increasingly popular. In this post, we’ll explore the context that triggered this frenzy, the new possibilities tokens unlock, and why people are excited about its future.","codeinjection_head":null,"codeinjection_foot":null,"custom_template":null,"canonical_url":null,"authors":[{"id":"61fe29e3c7139e0001a710b8","name":"Ramon Recuero","slug":"ramon-recuero","profile_image":"/blog/content/images/2022/02/ramon.jpg","cover_image":null,"bio":"Ramon was a Hacker at YC. Before working at YC, he worked at Zynga, Moz and founded Netgamix.","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/ramon-recuero/"}],"tags":[{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"}],"primary_author":{"id":"61fe29e3c7139e0001a710b8","name":"Ramon Recuero","slug":"ramon-recuero","profile_image":"https://ghost.prod.ycinside.com/content/images/2022/02/ramon.jpg","cover_image":null,"bio":"Ramon was a Hacker at YC. Before working at YC, he worked at Zynga, Moz and founded Netgamix.","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/ramon-recuero/"},"primary_tag":{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},"url":"https://ghost.prod.ycinside.com/the-token-effect/","excerpt":"Cryptocurrencies and tokens are becoming increasingly popular. In this post, we’ll explore the context that triggered this frenzy, the new possibilities tokens unlock, and why people are excited about its future.","reading_time":3,"access":true,"og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"email_subject":null,"frontmatter":null,"feature_image_alt":null,"feature_image_caption":null},{"id":"61fe29f1c7139e0001a719ae","uuid":"77d497e2-a40b-445d-90f6-bbcc35a101b3","title":"Blockchain Investing with Olaf Carlson-Wee and Aaron Harris","slug":"blockchain-investing-with-olaf-carlson-wee-and-aaron-harris","html":"Olaf Carlson-Wee is the founder and CEO of <a href=\"http://polychain.capital/\">Polychain Capital</a>, a blockchain investing hedge fund.\n<a href=\"http://twitter.com/harris\">Aaron Harris</a> is a Partner at YC.\n<hr />\n<div id=\"backtracks-player\" data-bt-embed=\"https://player.backtracks.fm/ycombinator/ycombinator/m/19-blockchain-investing-olaf-carlson-wee-and-aaron-harris\" data-bt-theme=\"orange\" data-bt-show-art-cover=\"true\" data-bt-show-comments=\"true\">\n</div>\n<script>(function(p,l,a,y,e,r,s){if(p[y]) return;if(p[e]) return p[e]();s=l.createElement(a);l.head.appendChild((s.async=p[y]=true,s.src=r,s))}(window,document,\"script\",\"__btL\",\"__btR\",\"https://player.backtracks.fm/embedder.js\"))</script>\n<script>\n(function(p,l,a,y,e,r,s){if(p[y]) return;\nif(p[e]) return p[e]();s=l.createElement(a);\nl.head.appendChild((s.async=p[y]=true,s.src=r,s))\n}(window,document,'script','__btL','__btR',\n'https://player.backtracks.fm/embedder.js'))\n</script>\n<script>\n!function(n,i,s,c){n[s]||(n[s]=function(i){n[s].q.push(i)}),n[s].q||(n[s].q=[]),\nc=i.createElement(\"script\"),\nc.async=1,\nc.src=\"https://c.bktrks.com/utils-1.0.0.all.min.js\",\ni.head.appendChild(c)}(window,document,\"BTUtils\");\nBTUtils(function(use) {\n var options = {\n autoplayLinks: false\n };\n use('backtracks-autolink', options).init();\n});\n</script>\n<hr />\n<h1>Subscribe</h1>\n<a href=\"https://itunes.apple.com/us/podcast/y-combinator/id1236907421\">iTunes</a> \n<a href=\"https://play.google.com/music/m/I7pbd3gcjjeifbnm3wf7ag66ane?t=Y_Combinator\">Google Play</a> \n<a href=\"http://www.stitcher.com/podcast/y-combinator\">Stitcher</a> \n<a href=\"https://soundcloud.com/ycombinator\">SoundCloud</a> \n<a href=\"http://backtracks.fm/ycombinator/ycombinator/feed\">RSS</a>\n<hr />\n<h1>Transcript</h1>\nCraig Cannon [00:00] &#8211; Hey, this is Craig Cannon and you&#8217;re listening to Y Combinator&#8217;s podcast. Today&#8217;s episode is with Aaron Harris, who&#8217;s a partner at YC, and Olaf Carlson-Wee, who&#8217;s the founder and CEO of Polychain Capital, a blockchain investing hedge fund. Olaf was also the first employee at Coinbase, and he was part of our First Employee series, which you can check out on the YC blog. Alright, here we go.\nAaron Harris [00:19] &#8211; Hi. My name is Aaron Harris. I&#8217;m a partner here at Y Combinator, and I spend a lot of time thinking about fintech and how technology is changing the way we use and move money and how that plays into assets, banking systems, insurance systems, which all kind of comes together, for a lot of people, in cryptocurrency, which is obviously this new, not super new, but fairly new in the context of money and financial systems, set of things. And I think there&#8217;s a lot of misunderstanding about it, which is why I&#8217;m happy we&#8217;re doing a bunch of podcasts talking to people who really get this stuff, because I have ton to learn. So Olaf, I&#8217;m really super excited to talk to you about this &#8217;cause you get it way better than I do.\nOlaf Carlson-Wee [01:02] &#8211; Yeah, so thanks for having me. My name is Olaf Carlson-Wee. I&#8217;m the founder of Polychain Capital, which is the largest blockchain investing hedge fund in the world. Far before Polychain Capital, I found out about Bitcoin in the summer of 2011 and became extremely infatuated with this concept of digital assets. I decided to pen my undergraduate thesis on Bitcoin that year. I think this was probably one of the first academic works on cryptocurrency. After that, I joined Coinbase as the first employee. Coinbase was actually a Y Combinator company and it is now raising money purportedly at over a one billion dollar valuation. I was at Coinbase for three and a half years, and during that time, I was the head of risk. I was also paid exclusively in Bitcoin.\nCraig Cannon [01:54] &#8211; From day one?\nOlaf Carlson-Wee [01:55] &#8211; Day one for the entirety of my time there I was paid exclusively in Bitcoin. There were times when that was a good decision and times when that was a bad decision, but I think net, it was right. And I left last summer to launch the Polychain fund. So we launched with around four million under management and now we have about 200 million under management. We have backing from Union Square Ventures, Andreessen Horowitz, Sequoia, and Founders Fund, among others. A somewhat unusual LP base, and we can get into that a little bit.\nCraig Cannon [02:30] &#8211; Are those funds functioning as straight LPs or are they investing in the GP?\nOlaf Carlson-Wee [02:36] &#8211; They&#8217;re straight LPs.\nAaron Harris [02:37] &#8211; Okay. So I worked for a hedge fund for a while, so I have a conception of how that looks in my head, the kind of things that you look at, but there are a lot of different kinds of hedge funds. There are macro hedge funds. There are long short funds. There are activist funds. What does it mean to be a hedge fund focused on the blockchain?\nOlaf Carlson-Wee [02:54] &#8211; Yeah. So a lot of those strategies you just stated could all apply to cryptocurrency assets. Some of them are mechanically much more difficult. So for example, short positions in the space are difficult to achieve in a secure way. Also, for example, something as simple as margin trading can be hard to find for the right assets that you&#8217;re trying to trade in. For us, we&#8217;re sort of what I would call fundamental investors in that we&#8217;re long only with a long holding period. And I spend most of my time reading research papers about cryptocurrencies.\nAaron Harris [03:29] &#8211; How long of a holding period?\nOlaf Carlson-Wee [03:31] &#8211; So it really depends on how fast things grow. So we are rebalancing the portfolio roughly every 90 days. So the goal is to hold things that are good positions for years, but we may rebalance or sell down on those positions over time.\nAaron Harris [03:53] &#8211; Okay. So in terms of pace of movement, it looks less like a hedge fund and more like I think how people would think about almost a mutual fund kind of thing, but I&#8217;m guessing hedge fund because it allows you a lot more flexibility in terms of what you&#8217;re allowed to invest in and the strategies you can pursue.\nOlaf Carlson-Wee [04:10] &#8211; Yeah. So the tricky thing was I knew in my head what I wanted to do as far as investing in these assets, and that it actually looks a little bit like a venture investment in that you find things extremely early when they&#8217;re still just a specification. So these protocol specifications or white papers are extremely detailed descriptions of exactly what a protocol will do. It&#8217;s often very possible to understand a lot about what this will look like just from that specification. And I often feel comfortable investing if I meet the team and I read the specification and really like what they&#8217;re doing. So that looks very much like a venture investment in that you&#8217;re investing more in an idea than you are on proven data or numbers. But from there, these investments very quickly graduate into liquid markets. And so because these things are liquidly traded on an order book, unlike a venture firm, you really have to balance those positions. You can&#8217;t just wait for the IPO, so to speak. So because of that, I knew we needed to manage liquidity and I knew we needed to have really good risk management around our positions because we have month to month volatility, unlike a private equity or venture fund which can just sit on positions forever. But I wanted to take this long term investing approach that a venture fund would where a lot of your success is defined by very, very big winners and positions that rise substantially in value. So we invest in things at a really early stage. We form really good relationships with entrepreneurs. I&#8217;m really proud of a lot of the people we&#8217;ve backed, and then hope to hold those positions for years as those things grow.\nCraig Cannon [05:51] &#8211; So can you dig into the technical aspect of what you&#8217;re actually looking for when you&#8217;re reading the white papers?\nOlaf Carlson-Wee [05:56] &#8211; Yeah. So when we&#8217;re reading these protocol specifications or white papers, we&#8217;re looking for basically a novel concept or novel idea. So this could be a new application of existing technology. This could be an application of technology that hadn&#8217;t been tried in a cryptocurrency framework before. This could be just a kind of new game theoretic model that no one had ever designed before that allows for a novel incentive system or incentive structure, new consensus systems, just anything in this category of enabling new behaviors. So there&#8217;s a lot of technologies out there that are forks of existing technologies. So they&#8217;ll fork Bitcoin into something very, very similar. That&#8217;s usually not very interesting for us. We really like things that are written from the ground up. So Ethereum was not a fork of Bitcoin. Ethereum was written from the ground up. Tezos, whose crowd sale actually ends today, is also written from the ground up. It is not a fork of Ethereum even though it has a Turing complete scripting language like Ethereum.\nCraig Cannon [07:04] &#8211; When you&#8217;re vetting a team, given that there are very few cryptocurrencies with a long track record, are you looking for how many times they&#8217;ve committed to evaluate them or what are you looking for?\nOlaf Carlson-Wee [07:14] &#8211; Yeah, we definitely look at the code base. I think a lot of it, though, just pragmatically speaking, we can&#8217;t review every line of code in a new blockchain. We do require all our investments to get security audits from outside third parties. But even that, these are often experimental technologies and they may be broken in unforeseen ways. There are what I would call unknown unknowns here. There are things that you don&#8217;t know that you don&#8217;t know. That said, I think that I have a long history of, like at Coinbase, I did probably about 500 interviews. I&#8217;m very used to talking with technical people and getting a sense of their subject matter expertise. I also really feel comfortable betting on people if they have a great idea. So I think that it&#8217;s like seed investing, right? A lot of the time, you meet a really great entrepreneur, they have a really great idea, and that&#8217;s basically what you&#8217;re investing in.\nAaron Harris [08:17] &#8211; So there&#8217;s a dividing line or a difference between the technology being interesting and being fundamentally new in some way and there being a use for that technology down the road. And sometimes the uses are completely opaque because we don&#8217;t know what the technology is going to do to the world. The things that you invest in that do best actually change the world and create the conditions for which they will be successful. How do you evaluate that set of things or how do you think about that set of things?\nOlaf Carlson-Wee [08:48] &#8211; Yeah. So the interesting thing here is that most of what we&#8217;re investing in today are protocol or infrastructure layer things that really aren&#8217;t meant to be end user applications. Most of what we&#8217;re investing in are really almost like developer tools to be used for end user applications. So a lot of what we&#8217;re thinking about is what&#8217;s going to enable developers more than what is going to be interesting for users.\nAaron Harris [09:14] &#8211; But in that case, the developers are your users, so I think it comes back to the same question of, do you have a view of what the world looks like in five or 10 years, the things that developers will need to be able to do that guide your thoughts on, &#8220;Okay, this is not only an interesting technology, that this is a cool thing, but it will allow this piece of the future that I believe in?&#8221;\nOlaf Carlson-Wee [09:40] &#8211; Yeah. It&#8217;s so early in the development of what I would call Web 3, or this kind of user owned, decentralized Web that oftentimes right now to me, it&#8217;s pretty clear which things are really needed and which components of this infrastructure layer are obvious value added to developers.\nAaron Harris [10:01] &#8211; What are those?\nOlaf Carlson-Wee [10:03] &#8211; For example, a project like Filecoin, which is launching pretty soon, created by Juan Benet, who actually was also a YC alum. Filecoin is basically decentralized server-client architecture. So Filecoin is an incentive layer for the IPFS server system. So IPFS, instead of being location-based addressing like IP addresses, it&#8217;s actually content-based addressing. So when you click a link in the IPFS network, instead of being routed through a specific server, you&#8217;re routed to the nearest server that has a specific piece of content. What that means is that you can have a totally decentralized architecture where you have redundant hosting from many nodes across the network, and you pay Filecoin in order to submit requests to those nodes. So it&#8217;s like a distributed server architecture. Right now, you see a lot of distributed services, say OpenBazaar. OpenBazaar is a peer-to-peer marketplace, sort of like a peer-to-peer eBay. Well, OpenBazaar, right now as a user, you actually have to download an application, like a DMG, to your computer and run it locally and basically run a node in the network. This is not a great user experience. This means that in Web 3, you&#8217;d have to download a new application, sort of like it is on mobile, instead of being able to just go to a URL in the browser. With the IPFS network in place and Filecoin, which basically adds high uptime and fast bandwidth and resiliency to the IPFS network because it has this incentive layer, IPFS is mostly hobbyists right now before that Filecoin incentive layer gets added. Then, when you visit OpenBazaar in the browser, you can have a better user experience and it&#8217;s like a more clean experience of this Web 3. So Filecoin to me becomes a clear infrastructural component that&#8217;s just a huge missing layer here right now.\nAaron Harris [12:03] &#8211; So does that mean that, basically, there&#8217;s like the use case for IPFS and Filecoin is predicated on OpenBazaar being a thing, or something like OpenBazaar. There will be other things. Is the argument, then, &#8220;Okay, an OpenBazaar is fundamentally a better solution to the problem of buying and selling things than today&#8217;s centralized systems like eBay?&#8221; Do you have to believe that to be true, or is there some other world in which, no, these things actually exist side by side, some people use one, some people use the other, and because the economy is just so damn big and this thing is just, it&#8217;s all just going to get bigger, there&#8217;s two winners?\nOlaf Carlson-Wee [12:42] &#8211; Yeah. I think that over the long term, it&#8217;s possible a lot of Web 3 services will compete on cost structures with centralized services like, say, eBay. But that&#8217;s actually less interesting to me. What&#8217;s interesting is what these kind of Web 3 services do that a normal web service could not do. Because the eBay experience is actually pretty solid for buyers and sellers. It&#8217;s all smooth. I buy stuff on eBay. I think the fees they charge are reasonable, given they have services, value add services, like dispute arbitration, &#8217;cause all those sorts of things are kind of then independent on something like the OpenBazaar platform. But I do think there are going to be Web 3 apps that really are uniquely enabling behavior, so types of things that we really can&#8217;t get out of Web 2.0 or the centralized Web. And this is a hand wavy answer, but I do have this intuitive feeling that we actually don&#8217;t really know what a lot of those use cases are. And what we&#8217;re talking about is services for things like DAOs, a DAO here being a decentralized autonomous organization that&#8217;s basically a pooling of capital on the blockchain. When you think about a DAO pool of capital, I don&#8217;t think it can realistically engage in traditional legal arrangements, but it can enter into smart contract or software-based legal arrangements. So I actually think that you&#8217;ll see more and more services for DAOs, with DAOs here being just basically global pools of capital that exist only in the blockchain and not in a legal entity. So these are the types of things. They sound a little bit sci-fi right now, but I think in five years, we could see some massive, massive &#8230; It&#8217;s like in the early internet, I think it was hard to imagine Facebook. And I think there&#8217;s this video I&#8217;ve seen of Marc Andreessen explaining Netscape in like 1994, and an audience member says, &#8220;What are some websites you think are interesting?&#8221; He really stumbles. He really struggles to answer the question. And he kind of comes back to, &#8220;Well, this is really great technology. I know cool things are going to happen. Today, I don&#8217;t really know what to point to.&#8221; And I feel like pointing to things that are ostensibly better versions of the centralized Web or efficiency gains on the centralized Web is sort of the easy path. It&#8217;s kind of like, &#8220;Oh, let&#8217;s take something like a library and put it on the internet.&#8221; The kind of layer two or native internet application is Wikipedia, which you couldn&#8217;t really have in a non-internet environment. So I think we&#8217;re going to, at the beginning, be comparing or trying to port, rather, Web 2 things onto this Web 3 or decentralized, user owned Web but that over time we&#8217;ll find those Web 3 native applications, and those are the things that I really care about, even though right now they do sound somewhat sci-fi and I think it&#8217;s very unclear what they look like.\nAaron Harris [15:54] &#8211; Yeah. I think there&#8217;s kind of this, the way that I&#8217;ve tried to think about it and I&#8217;d love to know if this is wrong &#8217;cause it probably is is that the argument being made now is sort of that there is this protean mass of things happening. It&#8217;s sort of like the primordial goop from which life originated and the blockchain technologies being built now are the early amino acids. We don&#8217;t know what&#8217;s going to happen. And it&#8217;s entirely possible the whole thing is going to go to zero, that nothing will happen out of this attempt. But if you own a piece of the right amino acids, essentially, those are going to create something. Something is going to happen when you have enough creative energy focused on a small enough surface area that we will see.\nCraig Cannon [16:40] &#8211; Yeah. But even in addition to some people making money, I think it makes sense now to talk about what we were talking about before we started, which is, what are people not understanding in what&#8217;s covered? How&#8217;s cryptocurrency portrayed in the media? And then, what are things that people are essentially getting wrong or not covering that are hurting people from understanding the creative power that they might be able to have?\nOlaf Carlson-Wee [17:04] &#8211; Yeah. This makes me think of something that I saw Naval Ravikant, who&#8217;s a backer of mine, tweet, and he&#8217;s a great thinker in the cryptocurrency space. And he said something along the lines of, &#8220;Bitcoin is the largest fear of kings and those in power across the world dressed up as a get rich quick scheme,&#8221; something along those lines. And I really do think this idea that in the mainstream kind of cultural consciousness, cryptocurrencies I think mostly are perceived as a get rich quick scheme. And I actually think it&#8217;s an amazing bootstrapping mechanism to get a lot of speculation into the space, liquid markets, incentives for developers, and ultimately people building on these technologies. So I&#8217;m actually not necessarily against, per se, a lot of the speculation happening. However, I do think the mainstream media mostly views these as financial markets that are novel rather than novel technologies, if that makes sense.\nCraig Cannon [18:09] &#8211; What are the key understandings that people don&#8217;t get?\nOlaf Carlson-Wee [18:12] &#8211; Yeah. I think that these technologies are complicated, so I think a lot of people were reeling to understand Bitcoin and just the premise of a blockchain, and right when they thought they maybe understood it, all of a sudden, everyone is talking about Ethereum. And now they&#8217;re trying to wrap their head around a Turing complete language which can actually execute arbitrarily complex software in the blockchain, and all of a sudden, this concept of money or currency is a very limited metaphor for what these things are doing. And what we&#8217;re going to see is, right when you&#8217;re starting to understand Ethereum and ERC20 token, which are digital assets built on top of Ethereum that don&#8217;t have their own blockchain but are secured by the Ethereum network, and it all is kind of an order of magnitude more complex than Bitcoin, we&#8217;re now going to see just even more complicated things happening. We&#8217;re going to see Tezos, which has on chain governance where it&#8217;s an inward looking protocol that can actually use protocol rules to change itself. And something like Tezos can actually build pools of capital and incentivize developers to build on the protocol and then sort of dilute every holder of the Tezos tokens in order to reward those developers. And so now you have a protocol that incentivizes development of itself. And this is all on a native protocol layer. A lot of these things, that&#8217;s an amazing recursive feedback loop where the protocol actually builds itself in a strange way. But a lot of these things are going to be, again, another order of magnitude harder to wrap your head around, like things like DAOs, which I actually think are going to grow a lot over the next year or two. I think the kind of technology is always going to be basically a step ahead of the cultural understanding of the technology. And I think that&#8217;s okay. I don&#8217;t expect everyone to spend their days reading these protocol specifications and trying to really wrap their head around it, but I think that if you don&#8217;t dive into the technology and how it works, you can just ultimately never really have a deep understanding of this.\nCraig Cannon [20:23] &#8211; This is related to one of the questions someone sent in for you on Twitter. So this is from John Light (@lightcoin), and he writes, &#8220;Most, maybe all app coin tokens are simply used to pay for some resource, like compute, hard drive space, energy, et cetera. Why is a new token needed in these cases, and why can&#8217;t we already use existing, highly liquid tokens like Bitcoin to pay for these?&#8221;\nOlaf Carlson-Wee [20:47] &#8211; Yeah. So I think it&#8217;s actually a great question from John, who I actually know in real life. So I think that the disagreement that I would have is that a lot of people view tokens from a pure technology perspective. So they think, &#8220;We can do this with Bitcoin and the Lightning Network on Bitcoin or something like that which has a high throughput Layer 2 network. So why would we create a new token?&#8221; I think there is no strong reason from a technology standpoint. You could use Bitcoin for a lot of these different services, or rather Ether for a lot of these different services. However, when you create a native token, you create a different set of incentives. So for the developers who are building that network, you create a real narrow incentive around that application or around that token so that it&#8217;s not just tied to the larger value of Ethereum, which if they contribute this great application on top of Ethereum, Ether might grow in value by five or 10 percent, but that&#8217;s not really a great outcome for that founder or developer. In addition, the early backers of that application or token that sort of this app coin as John put it aren&#8217;t, if they&#8217;re just contributing to this product or service with Ether, they really don&#8217;t have this embedded incentive effect for that network to grow. Tokens in this sense are really more of an incentive structuring or like a kind of game theory hack to get really powerful network effects around a specific application. So this is kind of a rough metaphor, but ostensibly, in the United States, we all benefit from the strength of the US dollar, but when I create a new company, I create shares specific to that company, because although even though I might help the US economy and thus help the US dollar, or the underlying network as you might think about that, I want narrow network effects around what I&#8217;m building. And so I want my early backers or investors to have upside relative to my specific application, not just to the strength of the US dollar. So it&#8217;s a little bit of a rough metaphor. I don&#8217;t think it&#8217;s perfect, but I do think that tokens provide really narrow network effects and narrow incentive effects, and that&#8217;s what&#8217;s so important about them. It&#8217;s not really a technological reason but rather a game theoretic reason.\nAaron Harris [23:32] &#8211; So there are two arguments baked into that that I&#8217;m not sure how to think about, one of which is the incentive structure question itself, and a lot of the underlying message here is that money is, at the end of the day, the best incentive that you can give people to develop something. And I think there are very different opinions on this question and I know people who are motivated by money and people who aren&#8217;t, and some of those people on either side have achieved great things in life, both for themselves and for the human race. So sort of the first thing, is this the right path to say, &#8220;Hey, we&#8217;re going to break everything down, all this fundamental technology should be motivated around money?&#8221; The second question that I have is around this idea of empowering the collective to develop new things and this massed creativity versus focused creativity. And I don&#8217;t know that these are in direct opposition to one another, but one of the things you get with a central authority that does something and says, &#8220;Hey, you&#8217;re with this much, you&#8217;re worth that much,&#8221; there&#8217;s always going to be problems with the distribution of incentive there, but the thing that you get on the other side is focus of intent, which sometimes is bad when it heads in the wrong direction and sometimes is good when it&#8217;s in a positive direction. The Manhattan Project is directed focus on, &#8220;Hey, here&#8217;s the thing that we all need to do, all you great scientists. Yes, there are subgroups within that, but here&#8217;s what we&#8217;re going to do.&#8221; So I&#8217;m curious how you think of both of those things in terms of how they incentivize positive growth, I guess, and if those are the right ways to think about it or if there&#8217;s another way that I should look at this.\nOlaf Carlson-Wee [25:21] &#8211; I think we&#8217;re seeing for the first time capitalism and money incentives being built into open source projects, which I don&#8217;t think we&#8217;ve ever seen before. I always cringe a little bit inside when I see the Wikipedia banner that&#8217;s like, &#8220;Please donate two dollars.&#8221; And I can&#8217;t help but think there&#8217;s a world where Wikipedia was incentivized with a token and Jimmy Wales, for his contribution to the world, actually captured a huge amount of value, in that he created a lot of value but he did not capture a lot of value, obviously, having to go out hat in hand for two dollar donations. Whereas I think that what we&#8217;re seeing now with open source projects is the creators of something like Ethereum, they&#8217;re creating a huge amount of value for the world and they&#8217;re also capturing that value. And I think that value capture and that adding this kind of capitalist, for profit mentality to open source will absolutely accelerate development in this ecosystem. I just think that, I don&#8217;t have any question in my mind that monetary incentives drive growth and drive people to work on a project. Everyone, or most people in the United States, have a job, and they mostly do that for they money. At the end of the day, that&#8217;s a big driver or incentive. No matter how much someone is passionate about something, if you pulled out all the money from it, it would be very hard for them to continue doing that in most cases. So I think adding monetary incentives to this, while it does draw in a different group of people in some ways than you&#8217;d find in traditional open source communities like hacking on the Linux kernel or something, I do think that it ultimately will dramatically increase the pace of development here.\nAaron Harris [27:19] &#8211; Okay. And then what about this question about focused effort versus distributed effort in terms of creativity and what should get built?\nOlaf Carlson-Wee [27:29] &#8211; Yeah. I have a kind of open market view on this in that if you build something great then a lot of attention and capital and users will be pushed to what you build. I don&#8217;t know if I have a feeling of should or a moral sense about what should exist, but I do think that there&#8217;s massive opportunity right now in that when people do have a massive breakthrough the speed at which capital is coordinating to back their efforts is absolutely astounding, and I think it&#8217;s something that is unprecedented,\nAaron Harris [28:08] &#8211; we&#8217;ve never seen before in the world. I think that VCs and early seed investors have always had this somewhat unique access to these early stage projects through their network or something like that. And I think that in Silicon Valley, we take for granted that smart people with a good idea get funded. Now we&#8217;re seeing that on a global scale, and we&#8217;re seeing these things happen much faster, and we&#8217;re seeing huge amounts of capital be coordinated by just pure incentives around projects.\nOlaf Carlson-Wee [28:44] &#8211; So it&#8217;s early days, and it&#8217;s hard for me to tell this sort of crowd sale or so called ICO fundraising, how this will play out, but I do think over the long term we&#8217;re actually only seeing the very, very beginning of this, even though crowd sales are now raising more money than seed round deals in dollar terms, which is kind of astounding. I mean, this whole concept of a crowd sale is maybe two years old, and really in the mainstream spotlight about six months old, and yet it&#8217;s already surpassed seed round financing in dollar terms, and I think we&#8217;re in sort of a hypey moment right now, but over the long term, I think this trend is very real and here to stay.\nAaron Harris [29:28] &#8211; So I completely agree. The speed with which this has happened and the amounts of money getting diverted to it are mind boggling. Has the distribution of capital into the ICOs matched your model of innovative technology?\nOlaf Carlson-Wee [29:44] &#8211; No.\nAaron Harris [29:46] &#8211; So what&#8217;s actually driving? How off is it?\nOlaf Carlson-Wee [29:51] &#8211; It&#8217;s kind of like a dartboard. It&#8217;s like a 50 percent. It&#8217;s what you&#8217;d expect. It&#8217;s like a 50 percent hit rate. So for example, Tezos, I&#8217;ve talked about Tezos a lot. It&#8217;s well known that we were their first backer and largest backer, long before they were known as a public project. They&#8217;ve now raised what I think is the largest crowd sale of all time, over $200 million. And so in that sense, I think the market got it right. I think it&#8217;s one of the most exciting crowd sales, maybe the most exciting crowd sale that&#8217;s happened. And it also got the most money ever. So to me it&#8217;s like, &#8220;Okay, the market was right, maybe on accident, but the market was right there.&#8221; There are other projects, I don&#8217;t want to badmouth anyone specifically, but there are lots of other projects that have raised huge amounts of money and have had huge amounts of hype with very little real progress beyond an idea. Tezos, like the white paper was written in 2014. If you go back and read that, it&#8217;s amazing how accurately it predicted the future and a lot of problems that would face major blockchain projects like Bitcoin. And a lot of the new projects, it&#8217;s like they&#8217;re rushing to create a lot of hype very quickly and raise capital, and it ultimately feels like they&#8217;re using it more like a fundraising round and a way to amass capital than a means of distributing tokens and building a really powerful user base and network effect, which I think the power of these crowd sales is that. Yes, you can raise money this way, but in a sense, crowd sales were originally a solution to the token distribution problem. If you go back in time before people did crowd sales in mass, there was a project called Counterparty that did a proof of burn. And what this meant was they raised Bitcoin and provably destroyed the Bitcoin. And this was just a means of distributing the token, and they didn&#8217;t hold that money, which now feels like almost a little silly. It&#8217;s like, &#8220;Wow, you should&#8217;ve just held that money and used it to fund development,&#8221; which is what projects are doing now. But it&#8217;s like this was actually first envisioned as a means of distributing tokens, and I think at a latter stage envisioned as a means of fundraising. And so I think that a lot of these projects that are structuring crowd sales also in ways that incentivize a kind of first come, first serve, mass rush for the doors, basically that all the excess value between the cap on the crowd sale and the eventual market price goes to traders, or what I would maybe call ticket scalpers, rather than developers or authentic backers or users.\nCraig Cannon [32:46] &#8211; So there is a question from Twitter, again, related to this. So @JesseJumpcut asked, &#8220;Protocols like Ethereum are exciting for developers and investors, but not seeing much excitement from actual users using the apps.&#8221; What do you think?\nOlaf Carlson-Wee [32:59] &#8211; Yeah. I think it&#8217;s accurate that right now we&#8217;re absolutely still in a speculative phase more than anything. I think this is true, by the way, of Bitcoin and Ethereum, as well, not just crowd sales. With that said, I think a lot of these services, speculation actually is very important to drive those eventual network effects. There&#8217;s two reasons for this. So one is that a network effect, building a network effect, has traditionally been this chicken and egg problem, that it&#8217;s like, if I&#8217;m the first user on Instagram, it&#8217;s not a very good service. But if I&#8217;m the 10 millionth user on Instagram, maybe it&#8217;s pretty good, and if I&#8217;m the billionth user on Instagram, maybe it&#8217;s great. But it really depends on amassing a crowd of people all at once in order to get off the ground. And Instagram had a very big launch day, and I think it&#8217;s one of the reasons the service has been successful over time. So by driving in a lot of early people just through speculation, I think you sort of bootstrap that network effect in a little bit more of a raw way where you have this whole speculator base that in the future many of them will become users. And there&#8217;s this concept in Bitcoin that I think is sort of new to this asset class, where you see in Bitcoin a lot of people speculating on Bitcoin and also using Bitcoin. And they&#8217;re like a holder/user. They&#8217;re speculating, yes, and they have an unhealthy percentage of their life savings in cryptocurrency, but they&#8217;re also really fascinated by the technology and actually experiment a lot with different things and want to spend Bitcoin whenever they can. I think you bootstrap network effects with speculators, and then over time, the network becomes authentically valuable in the way that traditional networks like Instagram become valuable, and then you move from 95 percent speculation to five percent speculation over, say, 10 years of something becoming useful. The second thing is that a lot of these services depend on a market price and liquidity in order to function. So going back to something like Filecoin, with Filecoin, if I&#8217;m hosting a node in the IPFS network and I need to actually host all these various servers for the backend servers for services like OpenBazaar shops, I need to know, what kind of fixed cost can I put into this and how much money can I expect to receive from this? And if Filecoins don&#8217;t have a clear price in USD where most of my fixed costs are going to be denominated with a relatively liquid market where I know if I earn my filecoin I can sell it reliably, it&#8217;s very hard to know how much to invest into this. And it&#8217;s very hard to incentivize nodes to create high uptime, resilient, high bandwidth nodes in these various networks. And this is like Bitcoin mining. It&#8217;s very hard to incentivize someone to mine Bitcoin until they know how much Bitcoin is worth, right? And then once you have these liquid open markets, that was a really big part of what pushed Bitcoin to become successful, because before that, miners really couldn&#8217;t, they couldn&#8217;t liquidate Bitcoin and mining was sort of a hobbyist thing. No one was really going to invest money in mining when there is no clear outcome in terms of what it&#8217;s worth in dollars. And because many of these services, as they reach scale, rely on professional operators, like node operators or miners or validators, keepers, whatever you want to call these participants in the network that actually support the network, it&#8217;s very, very important that they have a liquid price and liquid markets so they can invest in their businesses, basically.\nAaron Harris [37:05] &#8211; For something like Tezos, which has now had over $200 million in funds raised, how much of that, or how much money do you think they actually need or actually makes sense, and I&#8217;m just using them as an example, for the development of the company itself underlying the protocol?\nOlaf Carlson-Wee [37:26] &#8211; Yeah, absolutely. And to be clear, there&#8217;s just a nonprofit foundation in Switzerland, similar to the structure of the Ethereum Foundation, for Tezos. So I think in the old model of venture funding and thinking about, &#8220;How much cash does a company need to execute on the Tezos vision?&#8221; They absolutely don&#8217;t need $200 million. They&#8217;re a really smart team, and they just don&#8217;t need that to execute some level of the vision. Now that said, the market is pricing Tezos at $200 million, basically market capitalization. So a lot of people have called for teams to cap their crowd sales, but the thing is that&#8217;s tricky about that model is that when you cap a crowd sale at, say, 20 million, which maybe in venture terms is more like the amount something like Tezos would raise, now the market is going to take the value to 200 million because that just is the market demand for this product. But that means $180 million of excess value basically goes to these traders or ticket scalpers, and it&#8217;s the same reason that some Britney Spears concert sells out so quickly on Ticketmaster. It&#8217;s not authentic users. It&#8217;s people coming in for a trade. They&#8217;re going to buy it quickly and then resell it. And this has two negative effects. One is that a huge amount of value, actually more value than is captured by the developer team, is captured by basically traders. And I see no reason why that value shouldn&#8217;t be captured by the developer team. I would much rather have Tezos have $200 million than $20 million. I don&#8217;t know why that 180 million should go to traders. The second aspect of that is that you actually hurt your authentic users who want to be either like a long term holder and follow the project or like a developer who wants to tinker with the Tezos tokens, you exclude them from the crowd sale because the traders are sitting there, ready to make the click on the first second. They might have co-located nodes around the world to participate on the first block. It&#8217;s just hard to compete with as a regular user. While I do think that these, an uncapped sale like Tezos, raise more money than the team strictly needs to execute the short term or midterm vision, I do think that that value is going to go somewhere, and I would rather have it go to the developer team than traders.\nAaron Harris [40:06] &#8211; But isn&#8217;t that true at $200 million as it is true at $20 million that the order of magnitude is different but you could still have traders or financial buyers, speculators, buying $190 million worth of the offering versus $18 million of the 20 million in either scenario? So you could still have the vast majority owned by speculators, which might leave too little there for the developers.\nOlaf Carlson-Wee [40:32] &#8211; Well, and so I think long term speculators are maybe okay, like a group like Polychain that buys Tezos and intends to hold it for a very long time. That&#8217;s a different group than what I&#8217;m talking about, which is that they&#8217;re very narrowly looking to basically arbitrage between the capped crowd sale limit and the eventual market price.\nAaron Harris [40:53] &#8211; But sorry, and I&#8217;m just pushing on this &#8217;cause I don&#8217;t, I get that the size of the number is different, but there&#8217;s nothing, is there something about, let me ask this, is there something about the way the crowd sale was conducted that stopped even short term speculators running it?\nOlaf Carlson-Wee [41:09] &#8211; Because the Tezos crowd sale was uncapped so there was no limit on the amount it could raise, that&#8217;s why it raised $200 million. They put no limit, which means that the crowd sale participants put in their capital, it&#8217;s $200 million. Hypothetically, when Tezos goes live and is traded on markets, it should trade at like $200 million. There is no free trade or upside between the crowd sale and between being listed on liquid markets, where when you do a capped crowd sale and the cap is below the eventual market capitalization once it reaches liquid markets, every single person that gets in on the crowd sale is basically getting a free winning trade. And that creates bad incentives for people that have no interest in the project, they don&#8217;t know what the technology is, they&#8217;re not a long term holder, they&#8217;re not a user or anything, to come in and purchase the crowd sale and then just sell it literally days later.\nAaron Harris [42:08] &#8211; I see. So when does Tezos go to liquid market state?\nOlaf Carlson-Wee [42:13] &#8211; Tezos probably will in about three to four months.\nAaron Harris [42:19] &#8211; Okay. I agree that eliminates day trading, but three to four months is not a long term positive holder. If you look at this, so you&#8217;re Polychain. If there are other hedge funds out there that are looking at these things and they say, &#8220;Yeah, you know what? Three to four months hold time, you already have a 90 day hold time, or a 90 day rebalancing time, that is very much within the window of rebalance or speculation.&#8221; So I love this idea that saying, &#8220;Okay, no, this is going to incentivize the right kind of users to come in,&#8221; but it feels as if you really wanted to do that, you&#8217;d actually want the liquid point to be something along the lines of a year or two or three or four years out, at which point a couple things happen. One, there&#8217;ll be enough development on the protocol to make it really usable, and it&#8217;ll start the second order effect of people building things on top of the protocol, and at that point, you go liquid. The financial speculators are washed out of that market &#8217;cause they&#8217;re not waiting three years. But the developers, who are really long term minded, are happy to hold for three years. And if it&#8217;s 200 million, great. If it&#8217;s 20 million, great. If it&#8217;s a billion, great. So why not do that? Why not say, &#8220;Look, we&#8217;re going to turn this into a liquid market in three years?&#8221;\nOlaf Carlson-Wee [43:30] &#8211; Part of the reason is it doesn&#8217;t take three years to develop the protocol, so it would be an artificial hold. Also, the space changes so quickly. Keep in mind, Ethereum was launched less than two years ago, did not exist two years ago today, just absolutely did not exist. That artificial hold period I think is maybe too long. The other thing is that I think it can be a little dangerous from an execution perspective, and we&#8217;ve seen these problems with Kickstarter, for example, where if you raise a bunch of money without building anything &#8220;We&#8217;re going to use the money to build something,&#8221; sometimes you can&#8217;t execute and it results in a really bad outcome. Whereas if they raise money from only sophisticated investors that understand the risk, like a group like Polychain, which Tezos did before the crowd sale, then the crowd sale really acts as a distribution and launch more than it is a fundraising event to build the protocol, if that makes sense. The other things is that these protocols are actively maintained and developed for years and years and years. So the launch moment, while not arbitrary, obviously that&#8217;s super important, it&#8217;s just the beginning of a very long future of adding features and efficiency improvements and all the rest.\nCraig Cannon [45:05] &#8211; Okay. So then @JesseJumpcut, asked another question just about protocols in general. Which ones are you excited about?\nOlaf Carlson-Wee [45:15] &#8211; I&#8217;m very excited about 0x. 0x is a decentralized exchange and order book that lives in an Ethereum smart contract. So the idea is, like my former employer, Coinbase, runs a cryptocurrency exchange. But you have to go to the centralized exchange, sign up, create an account. There are some restrictions on where you&#8217;re based in the world, all sorts of other things like that, and there&#8217;s just high friction. And then you have to deposit money and trade on a traditional centralized exchange. And then there&#8217;s also historically big counter party risk here, like Mt. Gox, which was hacked. A lot of other exchanges, I won&#8217;t name names, have been hacked. And so it&#8217;s actually sort of dangerous to hold your funds on a centralized exchange, in some cases. I think Coinbase is the best in the world at security. But when I look at 0x, it lives in a smart contract, so it allows you to basically instantaneously trade between Ethereum and tokens or tokens for other tokens natively in this Ethereum smart contract. And because this Ethereum smart contract is just like a piece of software, the 0x exchange capability can be built into any application built on Ethereum. So if you&#8217;re using some casino game that takes specific types of tokens in Ethereum and you run out of those tokens, you could natively, within the app, use the 0x protocol to exchange Ether for tokens. It should take one block, which in Ethereum is 17 seconds. You now have your new set of tokens and you can trade more or play on this casino game or something. So this idea of 0x and their exchange protocol being actually baked into every DApp, or decentralized app, that&#8217;s built on the Ethereum protocol is really amazing to me. So it just will facilitate this extremely fluid exchange of token for token and the ability to go from Ether to other token and token to another token is going to become very, very fluid. It&#8217;s going to be baked into the user experience, and it&#8217;s going to take like 17 seconds without needing to sign up for a centralized service or take on any of the counter party risk that you take on holding your funds on a centralized exchange. So 0x I&#8217;m very excited about. I&#8217;m also really excited about Maker. Maker is pretty complicated if this already wasn&#8217;t all too complicated. So Maker is trying to create a stablecoin. So this coin is pegged to the IMF currency basket, which is itself is trying to be like a steady basket of stable fiat currencies. Maker is creating a token, ERC20 Ethereum token, called the DAI. The DAI is pegged to this currency basket. And there&#8217;s market mechanisms that make the DAI either harder or easier to create based on how its market price is pegged to this currency basket. So basically, if it goes off the peg, it becomes harder or easier to issue DAI in order to keep it to that peg. And what you do when you issue DAI is you actually collateralize other Ethereum-compatible assets, so Ether or Ethereum tokens, in a smart contract in a value that exceeds the DAI you&#8217;re creating. If you want to create one dollar worth of DAI, you collateralize like a $1.50 worth of Ether. And so it&#8217;s like the DAI is basically backed by collateral that&#8217;s held in smart contracts as Ethereum-compatible assets. What this is getting at, this is all, I know that&#8217;s a lot at once, what this is getting at is a decentralized stablecoin, so a coin that is volatility free but isn&#8217;t backed by a centralized bank account which is a huge weakness from a compliance, hacking perspective, from so many different perspectives. And so now, if Maker works, basically DAI issuance has an interest rate, and that interest rate gets paid to Maker holders. Maker holders also determine, through a DAO structure, so a decentralized voting structure, what the interest rate and collateral requirements are to create DAI. So the Maker DAO, which is the decentralized organization that decides those things, is like a crypto central bank for this decentralized stablecoin. And I just find that concept totally fascinating. Now, this project is very experimental. Amazing team behind this. But this is the type of thing that I think we will see emerge over the next few years is volatility free crypto coins, and I think that&#8217;s huge, because if you&#8217;re going to see a lot of other applications work like Augur&#8217;s prediction markets or OpenBazaar, just e-commerce markets, you need a stable stored value. You could bet in an Augur prediction market and be right but then actually lose money because of volatility, and that&#8217;s a horrible experience, or bad user experience. It&#8217;s going to really limit the ability for those markets to gain adoption, and even for something like OpenBazaar where your money might be held in escrow for a couple days, you might end up paying a lot more or less than you thought or earning a lot more or less than you thought from an e-commerce transaction, which has very narrow margins. You&#8217;re talking about three, four percent margins in e-commerce. So to me, something like stablecoin and the Maker project is really exciting, as well. So yeah, those are a couple.\nCraig Cannon [51:09] &#8211; Yeah. Are there other concerns you advise people to think about whether they&#8217;re going to put money in? I&#8217;m thinking chiefly on the regulatory side right now, but both people developing tokens and putting money into tokens.\nOlaf Carlson-Wee [51:24] &#8211; I would urge anyone who wants to invest in tokens to know what they&#8217;re investing in and really do their research and understand that this is a basically experimental and highly volatile market. Don&#8217;t do anything unless you know what you&#8217;re doing, basically. For people that are creating these things, this is a much longer conversation around, do you create a sort of parent entity, like a nonprofit foundation? Where is that foundation located globally? The main places that are turning out to be friendly either from a regulatory and or tax perspective here are Switzerland, the Cayman Islands, Hong Kong, Singapore, to an extent, Gibraltar. And then there&#8217;s a handful of teams experimenting with other locales, as well. And I think we have yet to see how that plays out. I think that that is, yeah, it&#8217;s a longer conversation, definitely.\nCraig Cannon [52:29] &#8211; Okay. If someone wants to dig deeper, are there blogs you read or what do you recommend?\nOlaf Carlson-Wee [52:34] &#8211; Yeah. The problem is that just not that many people have even gone through that process, and not that many people have gone through it in a really legitimate way. I think that the IPFS team is a really great resource here, so in so far as Juan or Jesse from that team has written blog posts, or like the CoinList project, which is a partnership between IPFS and AngelList, I think they&#8217;re maybe thinking about this the most carefully, from a US-centric perspective, as well.\nAaron Harris [53:09] &#8211; Thank you so much, Olaf. This was super fascinating.\nOlaf Carlson-Wee [53:11] &#8211; Yeah, thanks, guys. I can&#8217;t believe that the hour is already up.\nCraig Cannon [53:14] &#8211; Yeah. Thanks, man.\nAaron Harris [53:16] &#8211; Yeah, thanks for chatting.\nCraig Cannon [53:18] &#8211; Okay, thanks for listening. So as always, you can read the transcript or watch the video at blog.ycombinator.com And don&#8217;t forget to rate the show and subscribe. Alright. See you next time.\n<script src=\"https://reader.podclipper.com/static/share-ycombinator.js\"></script>\n","comment_id":"1099990","feature_image":"/blog/content/images/wordpress/2017/07/Blockchain-Investing-Olaf-Carlson-Wee-and-Aaron-Harris.jpeg","featured":false,"visibility":"public","email_recipient_filter":"none","created_at":"2017-07-19T01:00:34.000-07:00","updated_at":"2022-02-03T16:44:01.000-08:00","published_at":"2017-07-19T01:00:34.000-07:00","custom_excerpt":"Today's episode is with Aaron Harris, who's a partner at YC, and Olaf Carlson-Wee, who's the founder and CEO of Polychain Capital, a blockchain investing hedge fund. Olaf was also the first employee at Coinbase.","codeinjection_head":null,"codeinjection_foot":null,"custom_template":null,"canonical_url":null,"authors":[{"id":"61fe29e3c7139e0001a710d1","name":"Y Combinator","slug":"y-combinator","profile_image":"/blog/content/images/2022/02/1200px-Y_Combinator_logo.svg.png","cover_image":null,"bio":"Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200).\r\n\r\nThe startups move to Silicon","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/y-combinator/"}],"tags":[{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},{"id":"61fe29efc7139e0001a71176","name":"Podcast","slug":"podcast","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/podcast/"},{"id":"61fe29efc7139e0001a71172","name":"Video","slug":"video","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/video/"}],"primary_author":{"id":"61fe29e3c7139e0001a710d1","name":"Y Combinator","slug":"y-combinator","profile_image":"https://ghost.prod.ycinside.com/content/images/2022/02/1200px-Y_Combinator_logo.svg.png","cover_image":null,"bio":"Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200).\r\n\r\nThe startups move to Silicon","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/y-combinator/"},"primary_tag":{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},"url":"https://ghost.prod.ycinside.com/blockchain-investing-with-olaf-carlson-wee-and-aaron-harris/","excerpt":"Olaf Carlson-Wee is the founder and CEO of Polychain Capital, a blockchain investing hedge fund.","reading_time":36,"access":true,"og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"email_subject":null,"frontmatter":null,"feature_image_alt":null,"feature_image_caption":null},{"id":"61fe29f1c7139e0001a719a4","uuid":"ae51ab2c-743e-4f8a-b409-3d4445d3ffc7","title":"IPFS, CoinList, and the Filecoin ICO with Juan Benet and Dalton Caldwell","slug":"ipfs-coinlist-and-the-filecoin-ico-with-juan-benet-and-dalton-caldwell","html":"<a href=\"https://twitter.com/juanbenet\">Juan Benet</a> is the founder of <a href=\"https://protocol.ai/\">Protocol Labs</a> (YC S14). They&#8217;re working on IPFS, Filecoin, and CoinList.\n<a href=\"https://twitter.com/daltonc\">Dalton Caldwell</a> is a Partner at YC.\n<hr />\n<div id=\"backtracks-player\" data-bt-embed=\"https://player.backtracks.fm/ycombinator/ycombinator/m/15-ipfs-coinlist-and-the-filecoin-ico-juan-benet-and-dalton-caldwell\" data-bt-theme=\"orange\" data-bt-show-art-cover=\"true\" data-bt-show-comments=\"true\">\n</div>\n<script>(function(p,l,a,y,e,r,s){if(p[y]) return;if(p[e]) return p[e]();s=l.createElement(a);l.head.appendChild((s.async=p[y]=true,s.src=r,s))}(window,document,\"script\",\"__btL\",\"__btR\",\"https://player.backtracks.fm/embedder.js\"))</script>\n<script>\n(function(p,l,a,y,e,r,s){if(p[y]) return;\nif(p[e]) return p[e]();s=l.createElement(a);\nl.head.appendChild((s.async=p[y]=true,s.src=r,s))\n}(window,document,'script','__btL','__btR',\n'https://player.backtracks.fm/embedder.js'))\n</script>\n<script>\n!function(n,i,s,c){n[s]||(n[s]=function(i){n[s].q.push(i)}),n[s].q||(n[s].q=[]),\nc=i.createElement(\"script\"),\nc.async=1,\nc.src=\"https://c.bktrks.com/utils-1.0.0.all.min.js\",\ni.head.appendChild(c)}(window,document,\"BTUtils\");\nBTUtils(function(use) {\n var options = {\n autoplayLinks: false\n };\n use('backtracks-autolink', options).init();\n});\n</script>\n<hr />\n<h1>Subscribe</h1>\n<a href=\"https://itunes.apple.com/us/podcast/y-combinator/id1236907421\">iTunes</a> \n<a href=\"https://play.google.com/music/m/I7pbd3gcjjeifbnm3wf7ag66ane?t=Y_Combinator\">Google Play</a> \n<a href=\"http://www.stitcher.com/podcast/y-combinator\">Stitcher</a> \n<a href=\"https://soundcloud.com/ycombinator\">SoundCloud</a> \n<a href=\"http://backtracks.fm/ycombinator/ycombinator/feed\">RSS</a>\n<hr />\n<h1>Transcript</h1>\nCraig Cannon [00:00] &#8211; Hey, this is Craig Cannon, and you&#8217;re listening to Y Combinator&#8217;s podcast. Today&#8217;s episode is with Dalton Caldwell, who&#8217;s a partner at YC, and Juan Benet, who&#8217;s the founder of Protocol Labs, a YC company that&#8217;s working on IPFS, Filecoin and CoinList. If you&#8217;re just getting into cryptocurrency, I highly recommend listening to episode 244 of Tim Ferriss&#8217; podcast, which does a pretty good job of covering all the terms and explaining how they all connect to each other. Before we get started, I wanna let you know that this is a really long episode, so it&#8217;s pretty much broken up into three parts. Part one starts right after this, and it&#8217;s Juan&#8217;s explanation of IPFS and Filecoin. Part two is our conversation with Dalton, and that starts around minute 11. Part three is Juan answering questions from Twitter, and that starts around one hour and 40 minutes in. All right, here we go. Let&#8217;s just start with a description of all the words we&#8217;ve been talking about, IPFS, Protocol Labs, et cetera.\nJuan Benet [00:50] &#8211; Protocol Labs is a research development and deployment lab for networks that I started to really build the IPFS project and build Filecoin, and create a place where we could create the kinds of projects that could turn into something like IPFS or Filecoin or other things. I really wanted to build an organization that someone like Satoshi could have seen as a way to build a project through and be like, oh, yeah, instead of doing this on my own anonymously, I could go and build it in Protocol Labs. It was born out of a personal frustration where when I was starting an IPFS project, I didn&#8217;t have such an organization that I could go to and go and build a project there. Really, I think the only option was either university or Google. In the university case, it would have been killed in the publish or perish world where like, hey, this is way too ambitious. Focus on this one little thing and maybe publish that and move on to the next thing. It would have not been an implementation project. Similar to how the web could have never really been built as a grassrooted project. Then the flip side, I think this kind of tech is stuff that Google might be interested in funding from the perspective of Google funds a lot of protocols and funds a lot of research. But it also kinda runs counter to basic Google positions around data, control of data and how the internet, how information flows and all that kinda stuff. It&#8217;s like in direct opposition, so it&#8217;s stuff that probably shouldn&#8217;t have been funded or in direct control by Google. It&#8217;s the kind of stuff that has the potential to really rebalance power on the internet. I figured I would start an organization that&#8217;s separate. Protocol Labs is really a group that is trying to create a number of these projects and protocols around things that we think are broken on the internet. The charge that we have for ourselves, the mission that we have is to go in and improve and upgrade a whole bunch of the software and protocol machinery that we have running the internet both in low level actual internet part or the web and more user-facing pieces. We have a very open-ended kind of perspective of like, hey, we just want to improve computing in general and improve the pipeline of going from research to a product that people use. It just happens that for now and for the next few years, we&#8217;re super focused on how information moves around the internet, how to distribute it better, how to change and rebalance power associated with information, give people sovereignty of data. Just making it more efficient, make it route around things like attacker and hostile censorship. Make it so that information has more permanence, a whole bunch of questions around this. The two projects there are, one of them is IPFS, the InterPlanetary File System. It&#8217;s used by a ton of organizations and, both businesses and projects and blockchain networks and governments and so on. It&#8217;s used in a whole bunch of cases around &#8230; A sure way to describe IPFS is saying, hey, it&#8217;s a large scale content-addressed content distribution thing. It&#8217;s a protocol. It&#8217;s a peer-to-peer protocol for moving around anything, any kind of content; files, data, hypermedia, whatever, in a peer-to-peer way, and with proper content addressing and cryptographic verification and all this kinda stuff, and a whole bunch of tooling around the guts of making all of that work, which is peer-to-peer networks and the ability to work across a whole bunch of different transports. There&#8217;s no end to the really important pieces of the peer-to-peer machinery that you have to build that the IPFS part was really about. That&#8217;s used by a ton of people both in the blockchain space and outside. It&#8217;s used in the blockchain space because it fits really well with the model of you have authenticated data structures, then you have hashes and you address things that way. It&#8217;s used outside because people want to distribute things in a better way. People want to address things by what they are, not where they are. It&#8217;s time for the internet to move from location addressing to content addressing. In a big way, we&#8217;ve been, I guess, appointed to do so. We have to slog through the really hard work that is doing that. We&#8217;re doing it and it&#8217;s great. We&#8217;re succeeding, but there&#8217;s more to go. There&#8217;s a lot more to go.\nCraig Cannon [05:49] &#8211; What&#8217;s the current status of making it all human readable? Because I knew that was an issue early on.\nJuan Benet [05:53] &#8211; Oh, like making human-readable names?\nCraig Cannon [05:54] &#8211; Yeah.\nJuan Benet [05:56] &#8211; Human-readable names are an interesting question. Human-readable names should map to content, and people should use them when they know and are aware that that name is now subject to a consensus protocol. In a way, human-readable names either require a consensus protocol that is global scale and makes everyone agree on what the value of a name is. Or they&#8217;re relative. Meaning, I think there&#8217;s a GNS which is like the new naming system, which is relative on a trust graph. It kinda maps more to how humans think about names where I might call a friend Jeremy, and I know him as Jeremy, but he actually might have a last name, as well, and he might other names that he goes by on the internet. Other people call other people Jeremy. GNS is an interesting, or the approach of using trust graphs and so on or social networks to name people, it&#8217;s a really interesting and good one, but it doesn&#8217;t give you URIs or names that you can print in a billboard that a ton of people can look at and enter into their computer, which is the whole point of human-readable naming. You really are stuck with consensus. So when you&#8217;re stuck with consensus, you either have something hierarchical like DNS and so on, or you have something like blockchain naming, so Namecoin or ENS or Blockstack. You have a situation where, human-readable naming is important for people to type, but I think we have this massive addiction to human-readable naming where it shouldn&#8217;t be used in a lot of places because it brings in a whole bunch of baggage around, hey, now you need a consensus system, now you need like a network stack, now you need a whole bunch of things that normally you shouldn&#8217;t need to just address or point to some information. We still want hashes to be the main thing that people use to link to things, just maybe allow human readability as an entry point to all of that. Do you want me to describe Filecoin first or do you wanna dive deeper?\nCraig Cannon [08:00] &#8211; Yeah.\nJuan Benet [08:02] &#8211; The Filecoin project is a, it was borne out of IPFS as a way to incentivize the distribution of content in the IPFS network. That&#8217;s where you can think about the problem of storing bytes of data in the world, and you have a situation where there&#8217;s a lot of people with disks and there&#8217;s a lot of people with data. It&#8217;s effectively a market where people want to buy storage and some people want to provide storage and provide a valuable service. In the old peer-to-peer tradition, people would just do resource sharing and kind of try and hope to achieve a right balance. It&#8217;s been shown that that works for some use cases, but doesn&#8217;t work for others. What was really missing there was an understanding that there&#8217;s actually a spectrum where on one end, some people contribute massive amounts of storage and don&#8217;t really need to use the network very much, and on the other end, you have people that are contributing or asking for massive amounts of storage to store all their data, and don&#8217;t plan to contribute any storage. This is basic, hey, introduce a currency and now you&#8217;ve mediated this market. That&#8217;s what Filecoin is about. It&#8217;s creating a currency that can mediate this market. Now, there&#8217;s a whole second aspect to it, which is you can look at a network like Bitcoin as an entity that managed to get tons of people around the planet to amass massive amounts of computing power to maintain the Bitcoin blockchain, all of the Bitcoin mining that&#8217;s going on. Can you create a different proof of work function that maintains a blockchain that instead of just trying to crunch through hashes and find the little target, that also causes a valuable side effect? That valuable side effect is, hey, you have to store a whole bunch of files in order to have power in the consensus. A way of framing it is that the Filecoin consensus, if you want to participate in a Filecoin consensus and maintain the Filecoin blockchain, what&#8217;s counted is not your CPU raw power as your influence over the consensus, but rather the amount of storage you are providing to the rest of the network. For that, we use proofs of storage and specifically a new kind of proof we came up with, we, I guess, discovered, which we call proof of replication. That checks and verifies that content has been correctly and independently stored. Independently in, it doesn&#8217;t mean different physical hardware, but rather it means that a different array of bytes somewhere is being used to store this, and you can&#8217;t de-duplicate that, and that you can&#8217;t cheat it in that you can&#8217;t generate, you can&#8217;t pre-generate a lot of the content and cheat. There&#8217;s a whole bunch, that&#8217;s a very specific problem, but the thing there is Filecoin, with this different work function, can organize massive amounts of storage to then sell in the network. You get a lot of people to mine the currency, and you have a very strong incentive to mine the currency, and then you can sell all that storage, that supply that comes on to users. Mediate this. It&#8217;s a blockchain-powered decentralize storage network. It&#8217;s the way that we can think about it.\nCraig Cannon [11:15] &#8211; Dalton, you wanna just kick it off? What&#8217;s your first question?\nDalton Caldwell [11:18] &#8211; My first question is, maybe start with the timeline of you as a founder, what your initial idea was, why you started the company and just how it got here.\nJuan Benet [11:29] &#8211; Sounds good. It was probably 2013, late 2013 or so. I&#8217;d been working on a whole bunch of knowledge tools. This means software tools that can help you learn faster or help scientists figure out what&#8217;s in papers and so on better. I found this really annoying problem, which is data sets, scientific data sets, were not well-versioned, were not well managed and so on. There&#8217;s a whole bunch to that problem, but it struck me as this hugely lacking thing that computers scientists have Git and we have versioning, and we also have BitTorrent and we know how to move around large content volumes of data very efficiently in a peer-to-peer way. What really seem to be missing was this sort of combination of getting BitTorrent that would enable these data sets to be distributed worldwide, well versioned and so on. That sent me on a path of re-engaging with a whole bunch of stuff that I&#8217;d been thinking about prior, many years before, a lot of peer-to-peer stuff. My background is in these sort of systems and networking. I studied that at Stanford. At the time, I had been looking into things like wireless networks and why peer-to-peer networks like Skype works, and so on. It always struck me that that was a very untapped area of potential. I think the potential there was vastly underutilized.\nDalton Caldwell [13:10] &#8211; A lot of the problem&#8217;s with usability, I don&#8217;t know if you know my whole background, but my first company, imeem that I started, was a peer-to-peer. It was distributed social networking. A lot of these ideas keep recycling every few years. One thing that we noticed is how hard it was for users to get the negative side effects; having something that is peer-to-peer. BitTorrent worked pretty well, but even Skype. Skype kept it really, you didn&#8217;t know that it was peer-to-peer. Unless your upstream bandwidth was saturating and you got a nasty letter from your ISP or something, you had no knowledge as a user. Sort of my takeaway during that era was that usability always trumped the elegance of peer-to-peer models. Then when I saw YouTube take off, YouTube is exactly the sort of thing you expect to be both on top of BitTorrent, but in fact was entirely centralized and they were streaming everything themselves. Holy cow, because it worked so well and Flash Video worked so well, the culmination of those events happened. My kind of knowledge going into this of even for the, going back to your story in a second, is usability, to me, is such an important concept to have these distributed systems get used by end users.\nJuan Benet [14:20] &#8211; Absolutely. Without a question. Famously, I think Drew has even pointed out how there were a whole bunch of clunky sync, file sharing sync things that really just did not work. The big thrust of Dropbox for a while was just get usability right, get the user experience flawless, and it almost doesn&#8217;t matter what you do underneath the hood as long as you make sure the UX is like-\nDalton Caldwell [14:47] &#8211; I&#8217;m sure back in the day, everyone was like, well, we have rsync, that&#8217;s good enough. We don&#8217;t need Dropbox, we have rsync.\nJuan Benet [14:52] &#8211; But then there&#8217;s this other fundamental difference, which is that, yes, absolutely, building these systems is hard and you have to pay attention to the UX, but there&#8217;s a whole bunch of places where, economically, it makes a ton of sense to do something better and to do something that has a different arrangement. I think there were a whole bunch of, there was a period of time, basically from 2003 to 2009 or so, where peer-to-peer was sort of dead. I sorta call this like the peer-to-peer winter similar to the AI winter. There&#8217;s been a series of AI winters. That was kind of like the peer-to-peer winter. There probably were more peer-to-peer winters before because peer-to-peer is actually a pretty old concept. A lot of people have been struggling with the differences between making things peer-to-peer or centralized since the beginning of the internet. I think there&#8217;s a whole bunch of reasons why a lot of the companies failed that were getting built around that time where products failed, and why there were very few success stories. I think Skype and BitTorrent are probably the biggest success stories from that entire time. Yeah, I think Skype didn&#8217;t really talk about peer-to-peer very much. BitTorrent, aside from Blizzard and a few others. it was mostly used for moving around a lot of movies. That said, though, it doesn&#8217;t, the actual CS behind it, the actual engineering reasons for choosing to do something peer-to-peer make a ton of sense. This actually connects very well with Protocol Labs as a company because the key thing is to understand deeply what the benefits of using some technology are. What are the underlying, from a research and theory perspective, what is the theoretical difference between doing one thing one way or another, between centralized models or decentralized models, between doing things peer-to-peer or doing things in a hierarchical, well-structured way? Those different properties can give you a different range of opportunities. Now, Peer-to-peer is a lot harder to build with because you don&#8217;t have a lot of control. When you build centralized things, it&#8217;s a lot easier for people to get going. Lots of established ways of doing things and so on.\nDalton Caldwell [17:04] &#8211; Rolling out changes. We could enumerate all these. It&#8217;s easy to roll out a website. It&#8217;s hard to distribute software and get everyone to upgrade.\nJuan Benet [17:15] &#8211; I would argue that it&#8217;s easy to roll out a website today because you&#8217;re working on top of decades of centralized engineering, whereas we haven&#8217;t had the same level, deep level, of engineering on the peer-to-peer side. The majority of groups that end up going into peer-to-peer end up having to create a lot of stuff from scratch because it either hadn&#8217;t been done or had been done in a way that wasn&#8217;t re-usable. This was actually one of the big thrusts of the IPFS project in general, it was create a whole bunch of, create a huge toolkit that people can use to build applications in peer-to-peer land without having to reinvent everything from scratch. It was this really huge frustration for us. Okay, great, it&#8217;s 2013, &#8217;14, at the time. We have to go back and rewrite tons of normal peer-to-peer stuff that could have been written 10 years before, mostly because the language and tooling had changed, we wanted to do a few different things. We couldn&#8217;t reuse a whole bunch of the libraries that were out there, or the libraries made a whole bunch of assumptions about reality that were broken. Very famously, a lotta people, just from the engineering perspective, things like assuming that you are gonna be working on top of TCP and that the port that you have is a TCP port, and that it&#8217;s not UDP port or whatever, or even that you don&#8217;t have some other transport, right away can make a library completely unusable for a project years down the road.\nDalton Caldwell [18:34] &#8211; I remember dealing with NAT traversal.\nJuan Benet [18:36] &#8211; Yeah. NAT traversal is a wonderful problem. It still plagues people everywhere.\nDalton Caldwell [18:42] &#8211; Let&#8217;s go back. You were working on distributed systems. This was interesting to you. How did this turn into the company? What was the thing you applied to YC with? What was the timeline there?\nJuan Benet [18:51] &#8211; I applied to YC with a plan of doing this, of building both IPFS and Filecoin, and a company called Protocol Labs. It was, right away from the beginning, it was this large-scale plan of going to build a whole bunch of different things, all around distributed peer-to-peer systems, all about decentralization, and with a business model of taking a portion of currency. This was in 2014, when this was a very new thing. People weren&#8217;t doing this. There was basically Ethereum and a couple other groups that had also gotten to the same conclusion. Aside from a few side projects that we started and so on, and basically delaying our timelines, in terms of software taking a lot longer to build than expected, we&#8217;ve pretty much followed the plan in that, from the beginning, we had both IPFS and Filecoin. Connecting to what I was saying earlier, I had this problem around data sets and versioning and so on. That led down the rabbit hole of really thinking through how information moves in the network, how information moves on the internet in the first place. How do we do addressing in general? It turns out, with HTTP and so on, we do all this location and addressing stuff. It works very well for certain kind of use cases, but absolutely terrible for a bunch of other setup use cases, and introduce a whole bunch of brittleness to the infrastructure. Exploring this set of ideas that had been well trodden by lots of groups before me, and before the current wave of peer-to-peer&#8211;\nDalton Caldwell [20:30] &#8211; Do you remember MojoNation?\nJuan Benet [20:32] &#8211; Of course.\nDalton Caldwell [20:33] &#8211; I would run it in my dorm at Stanford.\nJuan Benet [20:35] &#8211; Awesome.\nDalton Caldwell [20:36] &#8211; It had a lot of the primitives in there. I ran a node, and I had storage space on my PC. I had fast internet. It was great.\nJuan Benet [20:44] &#8211; I was not familiar with Mojo until I chatted with Zuko about it. It turns out Mojo pioneered all this, completely.\nDalton Caldwell [20:51] &#8211; I thought it was so cool. I completely drank the Kool-Aid. This was in 1999. That was my favorite thing.\nJuan Benet [20:59] &#8211; It was a great era. You had the beginning of, had just been, the first major, large-scale DHD had been deployed. You had a bunch of people building peer-to-peer networks, like Kazaa, which then turned into Skype and a whole bunch of other things. It was very promising. It was the moment where everyone was getting connected to the internet. You could now build huge, large-scale infrastructures and so on. Again, there was this peer-to-peer winter. There&#8217;s a whole bunch of reasons why that happened, and people could sit around debating, but I think it had to do with the fact that the first primary use case that people were using peer-to-peer for was copyright infringement, and that being not a viable strategy for a lot of companies. Another thing was it was right around the same time of the rise of the normal cloud. Google and other companies were investing very deeply into building large-scale distributed systems. They were building hierarchical structures. They ended up funding a ton of work down the road in a bunch of labs. A lot of the labs that were doing peer-to-peer research switched entirely to doing cloud infrastructure research. That&#8217;s another avenue, that&#8217;s another point. Then, I think, probably third or fourth where, third was there was no digital currency, so you couldn&#8217;t actually pay people correctly. You had a bunch of trusted. You had the beginnings of cryptocurrency.\nDalton Caldwell [22:24] &#8211; Mojo was a currency, as I recall.\nJuan Benet [22:25] &#8211; That&#8217;s right. You had the beginnings of digital currencies, but they were still very unproven and still, I think, relied on significant trust in a bunch of places. You didn&#8217;t have the same fungibility that you, sorry, the same level of trustlessness that you have with something like Bitcoin. I think the properties were not quite there yet with digital currencies. I think another one was just the hardware, the hardware around that people had did not warrant a peer-to-peer structure yet. Meaning, it made sense for a number of use cases, but a different set of use cases, they didn&#8217;t make that much sense. It&#8217;s interesting to think about computing and a normal computing problem this way because a lotta people always get hung up on how things scale, but when you actually think about the total magnitude of data in a problem, sometimes you realize, oh, yeah, just throw that into one server. You have one server, and maybe you replicate that to, you have five servers that are all full copies of the index, and you&#8217;re done. You don&#8217;t have to build a very complicated distributed system to deal with this because your total amount of data is way smaller than the latest disks. So, whatever.\nDalton Caldwell [23:36] &#8211; Let&#8217;s think about this, just to put this in context. In a lotta ways, history is repeating itself, and the same ideas cycle back. I&#8217;ve heard Marc Andreessen say this before, that Webvan, he&#8217;ll keep funding ideas that didn&#8217;t work over and over again &#8217;cause eventually they&#8217;ll work. Instacart and Webvan. It seems like a lot of these ideas are well known to researchers and computer scientists, we&#8217;re trying them again. There&#8217;s a bunch of things that are different. You listed a few of them. But to enumerate them so I understand, it&#8217;s just the tools are better. Is that one of them?\nJuan Benet [24:03] &#8211; Yeah, massively.\nDalton Caldwell [24:05] &#8211; Just the tools are better. Two, something about the hardware infrastructure of bandwidth plus CPU?\nJuan Benet [24:12] &#8211; Computing changed. Just the numbers, the actual raw numbers that people have, either just in disks and&#8211;\nDalton Caldwell [24:18] &#8211; So it&#8217;s Moore&#8217;s law-type stuff.\nJuan Benet [24:20] &#8211; Yeah. It&#8217;s not just Moore&#8217;s law because you have to account. You have accelerating returns in computing, in storage and so on, not so much in bandwidth. An interesting point to compare is realizing that storage is decreasing in cost super rapidly, whereas bandwidth is not. Bandwidth, it always feels like the internet is really slow because we continue building larger and larger applications and larger media, but then we can&#8217;t get to the moving around, moving around as much. Sorry, let me say that again. There&#8217;s this trade-off between storage and bandwidth where storage is significantly, it&#8217;s getting cheaper at a really rapid rate, whereas bandwidth is not. Because of that, what you end up with is the feeling that constantly you&#8217;re saturating your pipe and that constantly the internet&#8217;s slow and so on, but you&#8217;re just putting a lot more data through it. Bandwidth is just not improving as fast. Eventually, we&#8217;re gonna get to a point where it might actually be cheaper to ship around stuff to consumers.\nDalton Caldwell [25:26] &#8211; Hard drives in 747s.\nJuan Benet [25:26] &#8211; It&#8217;s crazy. Already, if you look at how large companies move data, they do not send it over the internet. They send it over packages or move it around physically in some other way.\nDalton Caldwell [25:41] &#8211; Or direct fiber. If you do data center to data center transfer, you have a direct fiber line, and it&#8217;s not actually on the internet.\nJuan Benet [25:46] &#8211; That&#8217;s right. If you have some really fast uplink, some really fast link, not really an uplink because you&#8217;re in the core, some really fast link between two data centers, then, yeah. But for example, if you&#8217;re a company and you&#8217;re trying to put some data into Amazon, Amazon will say, &#8220;Hey, just ship us a hard drive and we&#8217;ll put in on for you.&#8221; There&#8217;s packet switching, and then there&#8217;s also package switching.\nDalton Caldwell [26:14] &#8211; Are those the big difference? I did the enumeration. Am I forgetting any other major factor about why this time, we&#8217;re running the same play again, but this time it&#8217;s gonna work.\nJuan Benet [26:25] &#8211; I don&#8217;t think it&#8217;s the same play. I think it&#8217;s vastly different. I think that when you think about what the projects are trying to do and what they&#8217;re building and what applications people are going for, it&#8217;s very different. I think maybe Mojo was one exception in that they were really far ahead thinking about cryptocurrency and resource sharing and all this kinda stuff.\nDalton Caldwell [26:44] &#8211; Remember, it was hard drive space. Again, as a user, I could rent out my hard drive space, I could rent out my CPU. There was three things. It was bandwidth, CPU. You earned Mojo from each of those things.\nJuan Benet [26:54] &#8211; That&#8217;s right. If you think about people like &#8230; There were a few people around at the time, especially the Cypherpunks mailing list. You can go back and read a bunch of ideas that have just become reality in the last few years. There were definitely a lotta people already thinking about the things that we&#8217;re doing now, but nowhere close to doing them. There&#8217;s one big difference between this wave and the last wave, is that the, being able to access a range of applications that were dreams and ideas back then, but they were far away, makes this wave actually quite different in goals. When you think about peer-to-peer in 2001, you don&#8217;t think about Mojo that much. You think about Napster, you think about Kazaa, you think about those systems that. BitTorrent maybe was the, it was actually in the tail end. BitTorrent got massive and so on, but they&#8217;re right as a whole bunch of the other ones were failing and going away. When people think about peer-to-peer, and what was working really well with peer-to-peer networks at the time, it was mostly pretty simple peer-to-peer structures. Definitely, there were people using DHDs, there were definitely people doing some amount of distribution of files and so on, but it was mostly around very simple file sharing problems.\nDalton Caldwell [28:16] &#8211; Again, so to summarize, the use case really matters. That&#8217;s what you&#8217;re saying.\nJuan Benet [28:20] &#8211; I think both the tooling and the use case that people got to are very different. Ya had to have smart contracts. You had the beginnings of what smart contracts were gonna be able to do, but you didn&#8217;t have them in the level of trustlessness that, say, Ethereum gives you today. That is a very important piece of infrastructure that once you deploy something like Ethereum, a whole bunch of other things become instantly possible, which did not have at the time. You did not have this kind of worldwide computer, effectively, that allows you to runs some very expensive, but trustless code. You don&#8217;t have to trust the computers running this code on their output. You have a way to verify that all of the computation was done correctly and all this kinda stuff.\nDalton Caldwell [29:11] &#8211; Let&#8217;s try to use the same thought experiment. There&#8217;s infinite demand for free music. I remember, I&#8217;m exactly the right age. I was in college when Napster took off. There was a product that everyone wanted. Yes, it was illegal, but there was infinite demand for that. What is the closest analog for the current generation of things that you think there&#8217;s inherent consumer demand for, that can be the equivalent thing that pushes this wave?\nJuan Benet [29:40] &#8211; There&#8217;s a lot there because, first of all, it&#8217;s not about consumers. This peer-to-peer wave and the reason why it&#8217;s massive is not because consumers are using it. I think that&#8217;s one of the things that Silicon Valley has failed to understand. I think in 2013 and &#8217;14, a lot of the blockchain tech was being built in New York and Europe, and far ahead of Silicon Valley. I remember having a lot of conversations with people here and New York and Europe. The level of thought outside of Silicon Valley was vastly superior. It was very surprising and annoying to me because I was like wait. The Silicon Valley&#8217;s supposed to be the place where all of the tech gets built and so on. The reality is that it&#8217;s not that there was more thinking, and that certainly people in Silicon Valley understood all of that and had thought about it and so on, but the understanding about what businesses or what value propositions might actually be useful in Silicon Valley was dramatically centered around consumers. In reality, what Bitcoin and Ethereum did was allow you to create any kind of financial instrument extremely cheaply and with almost free verification of correct proceeding of this financial instrument, which is not normally a consumer need.\nDalton Caldwell [30:55] &#8211; Regards to the consumer part, what is that, what is the burning desire need that you think is best solved?\nJuan Benet [31:02] &#8211; But it&#8217;s not one thing. It really isn&#8217;t one thing.\nDalton Caldwell [31:04] &#8211; Can we name one?\nCraig Cannon [31:05] &#8211; Maybe you should just talk about Filecoin now.\nDalton Caldwell [31:07] &#8211; What is the burning, and it&#8217;s okay if it&#8217;s not consumers, but what is the thing that, with Filecoin, that is gonna make, whether it&#8217;s business or consumers, people get really excited about using it?\nJuan Benet [31:19] &#8211; Filecoin is not representative of the entire industry. Filecoin is one example. With Filecoin, the point is being able to, this is a whole different argument that I think makes sense with or without a peer-to-peer winter or summer. The thoughts around Filecoin are about thinking about the massive latent storage that&#8217;s out there and putting it to good use. There&#8217;s exabytes of storage that are not in use right now, and that if you were to add them to the market, you would drive the price down significantly. That&#8217;s true, whether or not there&#8217;s currently a peer-to-peer wave or whether or not people are excited about peer-to-peer in any way, or decentralization. Now, there&#8217;s a point that you can build a network, like Filecoin, that can use decentralization and can use financial assets created cryptographically to then organize a massive group of people around the planet to then do this. Forgetting all of the excitement around decentralization, just think about Bitcoin as a way to incentivize people to add a bunch of hardware to a network. There&#8217;s been nothing like it. It generated a massive, massive amount of computing power dedicated to do one single thing, which is try and find hashes that are of low target. You have tens of thousands of people around the planet that worked really hard to add a bunch of hardware to this. You end up with this insane hash rate that is, when you actually work out the amount of power and computation that it&#8217;s using, is one of the most powerful computing networks on the planet. When you take that idea, of you saying create a very strong financial incentive for people to do something around the planet, and you then couple it with building some other kind of resource-sharing network, something like file storage, you can organize this massive, massive network, as well. You can put all of that latent storage that already is there and depreciating and going to waste into valuable use. Filecoin&#8217;s a business around, you have to think about these networks as services and businesses that are solving some set of problems, but it&#8217;s not always just one problem. That&#8217;s, I think, fundamentally different about this type of thing than normal consumer products. They solve a lotta problems for a lotta people.\nDalton Caldwell [33:41] &#8211; You said financial, though. Again, they&#8217;re doing it for financial reasons. Again, what I&#8217;m looking for is what is the incentive for someone to get involved, whether it&#8217;s a business or a consumer, the reason you would put a miner on the network?\nJuan Benet [33:53] &#8211; For Filecoin specifically, the reason why somebody would add storage to the network, the primary motivator will be money. That&#8217;s what&#8217;s gonna drive this massive amount of storage. Now, a secondary and very important motivator, is also the fact that data is completely centralized and a whole bunch of providers. We get a lot of businesses and people highly concerned about this, that want to distribute their data across a number of providers and want stronger guarantees. They want a different set of features. But you don&#8217;t necessarily need the peer-to-peer to achieve that. That just happens to come with the package. Think about Bitcoin miners, and you can think about the motivations of Bitcoin miners are not fundamentally about just enabling peer-to-peer and so on. A huge motivator there is money. Now, that&#8217;s not true of the early Bitcoin miners. The early Bitcoin miners, a lot of them were primarily motivated by building a digital currency that was not controlled by any government. That&#8217;s something very different than what we have today. What we have today is a structure where it&#8217;s a massive business and people are going for it. That&#8217;s, I think, fundamentally different. But it doesn&#8217;t make sense to try and box it and to say, hey, there&#8217;s one thing that the entire industry is trying to do. Filecoin is completely different than the entire industry. We&#8217;re using things from the industry to create a very powerful service. The reason I mentioned financial instruments is because that is a fundamental innovation that both Bitcoin and Ethereum use, the ability to create financial instruments extremely cheaply without spending tens to hundreds of thousands of dollars. Instead, writing a few lines of code. You don&#8217;t have to litigate this in court. If it goes wrong, it just automatically settles in a computer. What happened with the blockchain stuff is that software began to eat finance and law in a way that had never happened before. There were a whole bunch of things that were kinda waiting, or a lot of ideas that people had had for a long time, some of them a few years, some of them decades, that got knocked loose by the existence of a digital currency that was ubiquitous. Suddenly, a ton of these applications were being able to be built. It&#8217;s a very different thing than the early peer-to-peer time. The fact that IPFS and Filecoin happen to relate a lot to the early peer-to-peer goals is a side effect. The majority of the blockchain world does not care at all about those early goals. They care about different goals. They care about a different kind of decentralization. Decentralization of power, not of resources. Filecoin happens to care about decentralization of resources and distribution and use and all that kinda stuff, but it&#8217;s a very different thing.\nCraig Cannon [36:34] &#8211; How were people incentivized with Mojo to put their drives online?\nDalton Caldwell [36:38] &#8211; You would get, Mojo was the name of the current, it was tokens, it wasn&#8217;t really a currency. You would earn Mojo, and you could spend it on other stuff. They were very vague about that, but you could spend it on other storage.\nCraig Cannon [36:52] &#8211; It wasn&#8217;t liquid in the same way.\nDalton Caldwell [36:55] &#8211; It was kind of like when Bitcoin very first came out. It was sort of like a cool thing on Slashdot. It wasn&#8217;t a serious project. What was interesting is people&#8211;\nJuan Benet [37:05] &#8211; To some people.\nDalton Caldwell [37:06] &#8211; People spent a lotta time doing black hat stuff to try to earn more. It was very fun to try to get more. I think a lotta people, I used to read the commit list. A lot of people, a lot of what they had to write was anti-hacking stuff, which you would expect. Someone with a hacking brain, whenever they see new stuff, it&#8217;s always fun to take advantage of it. Cool. What do you think? This is sort of an aside, but I read YC applications for all this stuff. I&#8217;m trying to understand what the best use. Where do smart contracts help you, as a founder? This is a little bit outside of the IPFS thing, but what is the use case that, in its current state, are most useful for smart contracts? Because I see a lotta people applying with these, and I&#8217;ve yet to see one with a non-conceptual use case. Is there a case in your business where you would use smart contracts?\nJuan Benet [38:06] &#8211; You can think of Filecoin as a smart contract, whether or not it&#8217;s implemented as a smart contract on top of Ethereum or not. You can think of the idea of a protocol declaring what the rules of a transaction are going to be, and a very clear, cryptographic way of proceeding through that transaction and verifying it at the end. That&#8217;s effectively a smart contract. You can think of Bitcoin, that whole thing, as a smart contract.\nDalton Caldwell [38:36] &#8211; I feel the metaphor. I&#8217;m thinking of the part where we eat the financial world. What&#8217;s the lowest hanging fruit?\nJuan Benet [38:45] &#8211; You can go today and start writing something that behaves like equity or something that is a derivative. All of these kinds of financial instruments that would take you a ton of time to think about and reason about and inject into the jurisdiction, any kinda legal jurisdiction in the world. You&#8217;re now able to do that in a totally different way, with a whole bunch of assets that represent real value. I think that there&#8217;s a ton of these that have very direct use cases and applications, but they&#8217;re not consumer. That&#8217;s why you&#8217;re seeing a wave of things that seem weird to Silicon Valley. They seem like, oh, this would never work. Yet, there&#8217;s a ton of companies out there in the world that actually needs these kinds of thing, that actually think, and they&#8217;re like, okay, wow, that means I don&#8217;t have to spend hundreds of thousands of dollars to millions of dollars in legal just to understand, reason about and conduct these transactions, and then have to worry about litigation down the road, in the millions of dollars, to try and make sure that transaction is safe. You can then turn that into single dollars of running transaction fees. That is a massive shift. We haven&#8217;t even begun to see the offshoots of that. There&#8217;s been the beginnings of this. You&#8217;ll see a ton of assets being created in Ethereum that have a bunch of different kinds of properties. These kinds of assets, effectively, you get to create any kinda financial instrument that you want, as long as you can reason about how to program it and you can deploy it into the network. You can solve a whole bunch of these kinds of problems. One interesting example is insurance. You can do insurance trivially on top of Ethereum. There&#8217;s, I think, a really fun one. I&#8217;ve yet to use it because my perception on a lot of these things. Maybe insurance is a interesting consumer one, actually. An insurance policy is a very simple idea. There&#8217;s a whole bunch of regulation in the regular jurisdictions when you think about how do insurance policies work, but you can definitely create structures and financial structures around insuring some activity. There&#8217;s a contract out there where you can tell it your flight, and you can buy an insurance policy for a few ether, and it pays out. If the flight gets delayed, then it pays you out. It pays out some amount. If the flight gets canceled, it pays out some amount. All that can happen by just writing a few dozen lines of smart, maybe hundreds of lines of Solidity. It needs some sort of oracle that brings in the real-world data of the flights. Once you have that, you&#8217;re set, and you can now create an insurance policy. I think this was, I don&#8217;t know exactly who built it, but there&#8217;s, it was effectively a trivial project, and you now have what normally would take a company of dozens to hundreds of people reasoning about all of the legal landscape around insurance and how to provide this, and then legal protections of how to make sure this goes correctly and how do you collect and things. Just all of that madness goes away completely by replacing it with a single smart contract. I think those are the kinds of things we&#8217;d start seeing. There&#8217;s a big bottleneck right now, which is that the fundamental innovation is one around. Let me rephrase this &#8217;cause I don&#8217;t think it&#8217;s characteristic of the entire space. One of the fundamental innovations of something like Ethereum is this decreasing software eating finance and law. When you can create these contracts and financial instruments really trivially, a whole bunch of things open up. So far, the people that have waded through the difficulty in using these platforms to do this happen to be people that are looking at large-scale transactions, things that would otherwise require a lotta money to do or things that suddenly become possible to do in the space of crypto assets, and they&#8217;re just kinda transplants of the regular world. They&#8217;re looking at some way of doing some transactions in the regular world, and they say, &#8220;Wouldn&#8217;t it be great to do that with ether?&#8221; Then they go and build it. What you&#8217;re gonna start seeing in the near term is that there&#8217;s this blocker around user experience where, right now, nobody can use these blockchain systems from normal consumer devices, and with that same kind of UX that people expect. There&#8217;s a massive barrier there where a ton of applications that can be geared towards consumers. Instead of starting from a consumer need, or rather, instead of the entire space solving consumer needs, now you can create something that now solves some important consumer need. Right now, it cannot get deployed easily and it cannot take off because the UX is so hard to get right. Every individual project has to spend an enormous amount of resources thinking about the UX of the users. One great example of this is OpenBazaar. It was a great project. They were building a completely decentralized eBay-type thing. They allow buyers and sellers to come in and buy and sell things. When the project started, they had to build all their peer-to-peer stack from the ground up. That was a huge undertaking for them. At the same time, we were building IPFS. They found IPFS. It made a lotta sense for them to switch over to IPFS, and they did that. That, hopefully, saved them a lot of time in the lower layers, but then they had to go and build all of the UX side of things. They had an application that you could download and run locally, but then thinking about mobile, you now have to think of and build that mobile application, and give people the same kind of utility. That is yet another massive undertaking. They&#8217;re doing it. I&#8217;m super impressed. They have this awesome mobile app that, I think, I don&#8217;t know if it&#8217;s out yet, but it&#8217;s super exciting. I think it&#8217;s one of the very first things in the entire space that gives you the really nice normal UX that you would expect in normal products. The entire space has to catch up. I think it&#8217;s gonna take about a year or two before you start seeing these things get mainstream consumer use. It could happen faster with a lot of these things. Maybe it&#8217;s one library away. If somebody writes a really solid library that kinda solves a bunch of the problems, and then everything gets easy. Just because you&#8217;re not seeing a ton of consumer use things yet does not mean they aren&#8217;t about to hit in a huge way.\nCraig Cannon [45:06] &#8211; That&#8217;s what I wanted to focus on before. You kind of juxtaposed 2013, 2014. People not really getting it here, things not being built here. Obviously, in 2017, things have changed. What has changed? What&#8217;s motivating people now to start building these things? I wonder, we have a lot of founders listening, and they&#8217;re trying to figure out the ideas, what&#8217;s needed. What changed to make this possible?\nJuan Benet [45:37] &#8211; What changed to make what specifically possible? &#8216;Cause there&#8217;s a lot of them.\nCraig Cannon [45:41] &#8211; One trajectory is why is San Francisco into this now? Then the other is what changed to start pushing? Obviously, Ethereum came out, but then all these products are following, as well.\nJuan Benet [45:52] &#8211; I think San Francisco and Silicon Valley got interested when the ICO craze happened. When you suddenly had projects raising tens, 20, 35, $100 million. Suddenly, everyone was like, what the hell is going on? What&#8217;s happening? It was actually the money that was the thing that drew attention. I don&#8217;t know. I think that&#8217;s pretty short-sighted. I think the underlying differences, or the underlying hard, foundational work that people are seeing, reaping the benefits of right now, all of that creation of value and so on, happened over the last two years with Ethereum, which was a project that here was seen as this crazy science project thing that was never gonna work and was too crazy and so on, and was disregarded completely by tons of people. They just failed to do the deep thinking of looking at these very contrarian perspectives and contrarian ideas that dared to question underlying base assumptions about consumer products today, which is that nobody really cares about giving your data to everyone, nobody really cares about trust, nobody really cares about running these kinds of transactions. Everyone has some easy way to use their mobile app. Everyone trusts Google, Facebook, Apple, Amazon, Airbnb, whatever. It&#8217;s really just about convenience. If you don&#8217;t have something that&#8217;s convenient, screw it. It&#8217;s never gonna work. That was just false. I think that perspective. I don&#8217;t mean to characterize the entire space value that way. I think there were a ton of people thinking very deeply about what Bitcoin was gonna do to the world, and a lotta people invested very heavily into Bitcoin and creating Bitcoin companies. That turned out, in a number of ways, really well, and in other cases, not so well. But I think what can be said about the whole space is we&#8217;re seeing projects emerging that are about building large-scale infrastructure that might take years to build out before the utility is shown. That&#8217;s just something that normal VC can&#8217;t entertain. VC is not built for long-term investment in things that are extremely high risk and building some deep, foundational technology. VC is doing for 10 year returns, which means that in two or three years, you have to show very strong sign of massive adoption and a really strong business, which means that if something is more than two years out in development, and there&#8217;s research questions to be solved, it doesn&#8217;t fit. You have to go and figure out all of that before.\nDalton Caldwell [48:36] &#8211; Historically, wasn&#8217;t this the government that funded all this stuff?\nJuan Benet [48:38] &#8211; That&#8217;s right. This is part of why I&#8217;m building Protocol Labs, which is that there&#8217;s this massive gap between, there&#8217;s this huge open area where stuff is not getting funded around building large-scale infrastructure. My claim is you couldn&#8217;t build something as free and open and that works as well as the internet today because no group would fund it. What you would end up with is a massively stunted version of something that is highly centralized and controlled by a couple of groups, and that wouldn&#8217;t have the amazing generality of something like TCP/IP. Part of what&#8217;s beautiful about TCP/IP, DNS, that whole era of protocols was that people worked super hard for months and years at a time to think about the interfaces and refine it so that you could end up with something sufficiently abstract to support a ton of use cases, and sufficiently concrete to actually work today. That kinda development is not super fast, and it takes a lot of work and takes a lot of money. That&#8217;s not something that VC funds. VC funds clear application use cases.\nDalton Caldwell [49:52] &#8211; Why should VC? In those cases&#8211;\nJuan Benet [49:54] &#8211; I&#8217;m just describing.\nDalton Caldwell [49:55] &#8211; Universities and Bell Labs. Those things exist today. It&#8217;s mostly doing AI stuff, but the closest equivalent to that are things like OpenAI or Google Brain and all of that, where there&#8217;s absolutely no practical use for that stuff, but man, there&#8217;s a lotta money in grant research.\nJuan Benet [50:11] &#8211; No practical use for Google Brain?\nDalton Caldwell [50:13] &#8211; They&#8217;re not productizing it immediately.\nJuan Benet [50:16] &#8211; I disagree very strongly. I think that a very clear use for Google Brain is massive cost reductions to a company like Google.\nDalton Caldwell [50:23] &#8211; I guess I can speak much more confidently about OpenAI &#8217;cause I actually know how that works. We&#8217;re not productizing that.\nCraig Cannon [50:30] &#8211; You see a lotta stuff being rolled in, like speech-to-text, already.\nDalton Caldwell [50:33] &#8211; But again, it&#8217;s not a startup. There&#8217;s not double bottom line where people are trying to monetize. That&#8217;s not why it&#8217;s being funded. I&#8217;m saying if you want people working on this foundational stuff, it seems like if you&#8217;re trying to replicate what you feel like worked really well, do you think it needs to be direct? Does the analog need to be directly replicated?\nJuan Benet [50:56] &#8211; These kinds of projects don&#8217;t get funded. You could see it with something like SpaceX and Tesla. SpaceX and Tesla both went through major, major funding issues. If Elon hadn&#8217;t been extremely wealthy, both projects would have probably failed. That is a clear example of something that is, it&#8217;s basically maybe not directly consumer perspective, but Tesla, definitely. Tesla is a very consumer-oriented thing, but it was extremely difficult. It was a large-scale, long-term project that just scared the hell out of VC, with good reason. It&#8217;s extremely unlikely that you would get any of that to work. But what I&#8217;m highlighting is not that necessarily VC has to fund this. What I&#8217;m saying is that&#8217;s not what VC funds. Because it&#8217;s not what VC funds, and then there is no strong ARPA organizing major large-scale infrastructure endeavors like it used to, then you have this gap and this hole of things that weren&#8217;t getting funded. Bell Labs is a great example. Part of the reason that I started Protocol Labs is to try and re-create the spirit of the labs in an organization, at least focused around networks. The reason that you had something like Bell Labs happening was because you had an entity that was very enlightened in its perspective about technology and understood how to innovate and understood how large-scale innovations could be done with deep investment over decades. They would run projects for multiple decades. Sometimes they would break up projects. These first five years are gonna be about this. These next five years are gonna be about this other thing, and so on.\nDalton Caldwell [52:38] &#8211; Out of curiosity.\nJuan Benet [52:39] &#8211; You wouldn&#8217;t see a product until much later.\nDalton Caldwell [52:40] &#8211; Do you know what their budget was if we translated it into modern dollars?\nJuan Benet [52:44] &#8211; I don&#8217;t know what the budget is, but it&#8217;s tens to hundreds of billions or more. Massive.\nCraig Cannon [52:49] &#8211; Then you figured it out with Ethereum, right, because the value gets accrued to the people that are creating and developing the protocol. There&#8217;s a fundamental shift.\nJuan Benet [52:55] &#8211; Yes. But that&#8217;s, I think, something a bit different. I wanna draw an analogy between what happened at Bell Labs and with Google Brain. Bell Labs was about constructing massive cost reductions for Bell. The reason Bell Labs got to thrive as an organization was because it represented a very strong financial interest for this massive monopoly that had enormous business. They had deep pockets to just invest deeply into things that were gonna save them a lot of money later. Bell could look at thing like, oh, wow, vacuum tubes are really inefficient, or vacuum tubes break a lot and it&#8217;s a huge pain to repair them. Wouldn&#8217;t it be great if we had something better? It basically took something like 20 years, I think it&#8217;s 10 to 20 years before the transistor. I might be wrong on those dates, but the point is Bell Labs understood the need. Bell Labs, of this massive cost reduction that happened. It had it as one of the open problems. If you were a researcher at a Bell Labs at the time, one of the things that you could work on that was seen as a very important problem to solve was replace vacuum tubes. Create something that can replace vacuum tubes. It took a whole bunch of open-ended thinking and deep fundamentalist research from a physics perspective and solid state physics, this is the story of Shockley and Bardeen and Brattain and so on, to be able to come up with something that became the transistor that solved that problem. But that was an innovation that happened over decades in time scales, and primarily motivated by cost reductions on the large-scale Bell front. The funding that Bell could feed into funding tens to hundreds of researchers thinking about all of these problems, these specific problem, on a 10-year time horizon to try and get that cost reduction is something that only massive monopolies to date have been able to fund. Basically, massive monopolies, either in business or in power. It&#8217;s either massive monopolies like Bell or Google, or massive monopolies like the US and power over being able to say we need something that connects all the computers around, and we just need it, so just fund it. Whatever it takes.\nDalton Caldwell [55:16] &#8211; Like the Space Race.\nJuan Benet [55:17] &#8211; Or the Space Race. We need to get to the moon. I don&#8217;t care how much money it takes. Just make it happen. That kind of directed power and funding can predictably innovate, which is kind of amazing. In Bell Labs, you had a place where they could chart out the things that they were working on and kinda think through when they were gonna, not exactly and precisely per year, but they would know the relative progress through a whole bunch of open-ended problems whose solutions ended up giving people Nobel Prizes. This was the kind of innovation that is seen and recognized by the world as this stroke of genius that would have been so hard and so unpredictable and so on, and yet, Bell Labs was able to reliably get a whole bunch of researchers to achieve these kinds of innovations. The questions around why Bell Labs ultimately failed and fell apart have to do more with the surrounding ecosystem, its funding source&#8211;\nDalton Caldwell [56:17] &#8211; Is that when they broke apart the monopoly?\nJuan Benet [56:19] &#8211; That&#8217;s right. Breaking Bell apart effectively stifled and killed Bell Labs. A few things happened. One was the rise of Silicon Valley, and the great invention, or not invention, but the great use of stock options, or just giving stock to everyone in the company working on something caused a ton of people working on very research-oriented things at the time to become quite wealthy, or get very significant personal returns. That, coupled with the excitement around all of the stuff that was happening in Silicon Valley in the &#8217;50s and &#8217;60s, with a number of people moving out and then coming back and talking about all the great and exciting things that were happening in the West, started to drain a lot of people out of Bell Labs and out of Boston. It&#8217;s known as this brain drain. Part of that, what happened there, was not only were people leaving and going and creating other research organizations that had different funding models, but Bell also started getting broken up. This is more like the &#8217;80s, &#8217;90s. I forget the exact date on this. But when Bell got broken up, Bell Labs had to find a way to charge the new, separate entities for all of its work, and it just became infeasible to fund and maintain a massive organization like that. It ended up breaking part. There&#8217;s a few interesting financial reasons why Bell Labs couldn&#8217;t continue existing, but the research organization itself was amazing, and continued to be amazing for a very long time.\nCraig Cannon [57:56] &#8211; According to one site, their budget was 500 million in &#8217;74, which translates to 1.5 billion today, or 2% of AT&amp;T&#8217;s gross revenue.\nJuan Benet [58:05] &#8211; 1 billion.\nDalton Caldwell [58:07] &#8211; One and a 1/2.\nJuan Benet [58:07] &#8211; 1 and 1/2 billion. I was &#8217;cause I said it&#8217;s something like 10 to 100. That&#8217;s a lot better. That is a lot cheaper than what I expected foundational research to cost, but that&#8217;s still massive. On the scale of 10 years, that&#8217;s 10 billion. You have to have 10 to 50 billion, and ready to commit them for two decades to be able to undertake some of these projects.\nDalton Caldwell [58:34] &#8211; Probably self-driving cars is getting that kind of money today. Probably AI&#8217;s getting that kind of money today. Not many, though. There&#8217;s few things that maybe, if you added all of the R and D budget being put into it, are getting that, but it&#8217;s definitely not probably for&#8211;\nJuan Benet [58:49] &#8211; I think something like Google Brain is a clear example of this kind of thing happening again, where Google saw massive advancements in machine learning. We want to apply all of those massive advancements to machine learning into a whole bunch of the normal Google applications, and we want all of our applications to get better, faster, stronger and so on, and reduce costs. Not only are we gonna be able to do a whole bunch of new things and cool things, but we&#8217;re also gonna be able to do them a lot cheaper, which, effectively, is making money. The thing to think about is once you&#8217;re an organization that&#8217;s big enough, you don&#8217;t have to sell more products to make money. You just have to cut your costs.\nDalton Caldwell [59:29] &#8211; To make sure I understand, you&#8217;re saying that is analogous to the Bell Labs model.\nJuan Benet [59:32] &#8211; That is analogous.\nDalton Caldwell [59:32] &#8211; I&#8217;m just making sure I get what you&#8217;re saying.\nJuan Benet [59:34] &#8211; I wouldn&#8217;t wanna claim that something like Google Brain or even X is akin to Bell Labs because I think that&#8217;s very different organizations. I think that Google Brain and X are much more focused on shorter term valuable things than Bell Labs was. I think both Brain and X can&#8217;t yet afford to innovate on the multi-decade time scale. They&#8217;re innovating in single decade time scales on their own. I think that if you look around the planet, they&#8217;re the closest thing, probably, but they&#8217;re still kinda far away. I think it&#8217;ll take much more, not only capital, but also reach of that organization to be able to undertake some of these larger scale fundamental. When you start seeing Google funding open-ended physics research labs, then we&#8217;re in the&#8211;\nCraig Cannon [01:00:28] &#8211; For a decade or more.\nJuan Benet [01:00:28] &#8211; For a decade or more. Where you see the budget of a Google-run physics lab have a budget for a decade or more and 50-plus researchers and you start seeing some Nobel Prizes won outta Google, then we&#8217;re talking about the same thing, but we&#8217;re far away from that. We don&#8217;t necessarily need to re-create the same kinda structure. I think what we can do is look at a different thing that&#8217;s going on, and look at how innovation happens in a very different, open-ended way in the internet. The internet has a lot of similarities with the research culture of Bell Labs in that it&#8217;s extremely open, you get a lotta people thinking about problems, you have a lot of people talking about problems. Not only talking about potential solutions, but trying them out and so on. The people sharing knowledge and ideas through the internet and working in open-ended groups has been able to have very important results achieved, but they&#8217;re of a very different nature. You don&#8217;t get something like a transistor out of random open-source collaboration. You get something like Bitcoin and Ethereum, which are, arguably&#8211;\nDalton Caldwell [01:01:39] &#8211; And the Linux kernel, just to use a very different. That came out of the internet. The Linux kernel, that exists &#8217;cause of the internet.\nJuan Benet [01:01:46] &#8211; Yes, the Linux kernel&#8217;s an awesome example. You had the ability to undertake these major, major infrastructure projects, things that take a long time to create and mature, on the internet. A whole other interesting avenue here is how do you fund these things? How can you fund these long-term endeavors that are much more open ended on the internet and so on? That&#8217;s what Bitcoin and Ethereum proposed one example of how you fund that. This goes back to what you were starting to bring up earlier, which is the idea of you have a protocol and you have, you take that protocol and you say, hey, it&#8217;s gonna create a whole bunch of value. It also has this native token that&#8217;s gonna address a whole bunch of that value. Not all of it, but some subset. That native token is gonna be of limited supply, so because we&#8217;re creating this token, we can take some of that token and give it to the people building the protocol, which then helps, they can sell it for dollars or whatever to then feed themselves. That way, they can actually fund the development of the project. This is effectively what Ethereum did. That kind of funding model allows people to remain very close to the actual protocol layer and to think deeply about the protocol itself and its concerns without having to think about a product or a service on top. This is precisely what Protocol Labs business model is.\nCraig Cannon [01:03:23] &#8211; How do we keep the funding going on? &#8216;Cause obviously there&#8217;s a certain amount of hype and excitement right now with all the ICOs happening.\nJuan Benet [01:03:30] &#8211; There&#8217;s a ton of stuff happening right now.\nDalton Caldwell [01:03:37] &#8211; If we do it over 10 years. Let&#8217;s drill down, &#8217;cause that&#8217;s a great point. We were just talking about it. What&#8217;s the 10 year? Do you have to keep selling bits, not you personally, but if you&#8217;re one of these folks, do you have to keep constantly reissuing tokens to keep feeding yourself?\nJuan Benet [01:03:51] &#8211; It depends on whether to not the token appreciates. If the token appreciates enough, then you&#8217;re gonna have to sell less and less of it over time. You saw this happen with Bitcoin. There were some people that were early to Bitcoin that are now, they have their personal wealth at a point where unless there was a major crash in their assets, they don&#8217;t have to work again. Bitcoin is 10 years old now, almost. It started in 2008, 2009.\nCraig Cannon [01:04:17] &#8211; Roughly, yeah.\nJuan Benet [01:04:20] &#8211; It&#8217;s roughly 10 years old. I think maybe you could claim that the origins of Bitcoin happened through the Cypherpunk mailing list and MojoNation and all these other things and all of those discussion. That was long-term innovation that happened, and then only was getting funded afterwards. It&#8217;s a very different approach than, say, the Bell Labs centralized perspective. I think the funding of these things is gonna depend entirely on whether these things are continuing to be useful. If Ethereum continues to be useful five, 10 years from now and continues to accrue, continues to grow. If Ethereum becomes more and more successful, continues to solve a whole bunch of problems, then an ether is gonna be worth a ton more. As that ether is worth a lot more, you&#8217;re now gonna have tens of thousands of people that right now are crypto millionaires turning into, they&#8217;re gonna have 10 million, 100 million, potentiality billionaires. Who knows? I don&#8217;t know. I think at that point, the valuation of something like Ethereum gets as high as something like Google and Apple and so on. Who knows? Maybe it is worth that, but I don&#8217;t think it&#8217;s quite there yet. You have this very different way of building a service where you take a share of the worth of the service, in a sense. Having ether is kind of having a share of the worth in the network. It&#8217;s not the worth of the network totally. The network is worth more than that, but it is a subset of that. Then if you choose to hold it, and it accrues in value, then you have now gotten a return. It&#8217;s risky. Definitely I would not encourage anyone to invest so deeply into cryptocurrencies that they have a very significant fraction of their net worth.\nDalton Caldwell [01:06:07] &#8211; During the dot com bubble, everyone was a day trader and everyone made, you couldn&#8217;t lose.\nJuan Benet [01:06:13] &#8211; Really?\nDalton Caldwell [01:06:15] &#8211; If you would have bought and held, to this day, and you were lucky enough to have enough exposure to, what, like Apple and Google, it actually woulda been okay, but if back in there you were day trading and you didn&#8217;t have one of those big winners, or if you just lost all your money in the early days.\nCraig Cannon [01:06:30] &#8211; Or if you just sold early.\nDalton Caldwell [01:06:31] &#8211; If you just sold early, it would have been rough. But it&#8217;s kinda tricky right now because it&#8217;s really hard to lose money.\nJuan Benet [01:06:37] &#8211; There&#8217;s a very big honeymoon period right now, where a ton of people have just finally understood the massive value that can be generated by these things. The excitement is around, and everyone is really stoked. If you caught Google and you invested early on, if you were one of the early investors of Google, during the height of the bubble, or PayPal or any of these amazing companies that got built through that period&#8211;\nDalton Caldwell [01:07:03] &#8211; Google didn&#8217;t go out till &#8217;04, so I stand corrected. I&#8217;m trying to think of a &#8217;99. Who could you have caught? If you were a day trader, definitely Apple.\nJuan Benet [01:07:09] &#8211; Yeah, but I wouldn&#8217;t think of this like day trading and IPO markets. You have to think about.\nDalton Caldwell [01:07:17] &#8211; I just mean it was hot. It was the same thing where it was, popular media was like, hey, you could buy this stock and make three x. It&#8217;s more of the way people.\nJuan Benet [01:07:23] &#8211; If you invested that way, you probably ended up getting thrown into the bubble and you probably lost a ton of money.\nDalton Caldwell [01:07:29] &#8211; I mean or even if you would have held and you had a decent portfolio, then you actually, even if you were the dumbest money at the top of the market, you woulda done okay.\nJuan Benet [01:07:37] &#8211; Yeah, maybe, I don&#8217;t know the math.\nCraig Cannon [01:07:40] &#8211; Is that maybe a question? Do you apply an ETF model right now and just buy some of everything?\nDalton Caldwell [01:07:45] &#8211; You have to hold it, right? One of the learnings is. Yeah, go ahead.\nJuan Benet [01:07:49] &#8211; I think the more important thing that&#8217;s going on deeper, which is that a whole bunch of important things are getting built. If you find them, you can fund them. You can be part of them and you can help create them, and create massive amounts of value. The people that do that are gonna get greatly rewarded. I think that goes along with diligence. My perspective on this and the way that I look at a lot of the space is that I think deeply about each of these pieces of technology. I approach it much more like investing into a startup or investing into a project that I think is worthwhile and should happen, even if I lose all the money that I invest in it. I think about the underlying value that&#8217;s being created. What is this thing going to enable in two, five, 10 years from now? I think within a crypto space, you don&#8217;t even need to think 10 years out.\nDalton Caldwell [01:08:40] &#8211; Just to do a minor push on that, that&#8217;s a little different, though, than basic research. Isn&#8217;t part of basic research you don&#8217;t wanna, you wanna believe that the researchers are good, but you don&#8217;t actually wanna worry about what they&#8217;re working on &#8217;cause they&#8217;re gonna do great stuff. Do you know what I&#8217;m saying? This is something I go through when I&#8217;m looking at these. You wanna understand that it&#8217;s a good team and that you believe in their vision, but if you get too in the details, you&#8217;ll miss the boat.\nJuan Benet [01:09:05] &#8211; We&#8217;re mixing so many different topics, which is awesome, by the way. I rarely get to get this deep into a lot of this conversation, and I love it. I don&#8217;t mean to imply, that Bitcoin or Ethereum in like Bell Labs. It&#8217;s a different thing. It&#8217;s a different thing that is showing off that, or what you get out of it is you can see innovation of the kind that you saw at something like Bell Labs happening in the open internet with people exchanging ideas, with people scrounging up funding in whatever way they can until later. Now that we have cryptocurrency, now a new funding model can emerge, and now we can start thinking about this in a deeper way. When I think about structuring of Protocol Labs, we think about Filecoin as a specific service and business that has a much shorter term perspective. Filecoin has to work and be successful and valuable in two, three years, not five or 10. We&#8217;re nowhere near close to be able to&#8211;\nDalton Caldwell [01:10:01] &#8211; You&#8217;re already two, three years in. It is five years in. The company&#8217;s in two or three years.\nJuan Benet [01:10:06] &#8211; Three years. We were building IPFS first. IPFS is out there and creating a ton of value for people, but IPFS is not something that we planned to monetize directly. IPFS is a large-scale infrastructure project that happens to be at a layer where you should not put money in. Money should not go and be a question on moving data. Money should be a concern that&#8217;s applied on top to a subset of those transactions. A subset of those transactions are gonna be the Filecoin transactions. Now we&#8217;re building out, we&#8217;re setting off and doing all this work. I really start the clock on Filecoin. We&#8217;ve had a whole bunch of detours. We ended up building this whole platform called CoinList. You can go and have token sales and so on because that whole madness of how do you correctly and legally do a token sale is a huge rabbit hole.\nDalton Caldwell [01:11:00] &#8211; We could burn the whole hour on that.\nJuan Benet [01:11:04] &#8211; But we built a platform that allows people to do that in a compliant way in the US, using a set of documents that we developed called the SAFT. Similar to the SAFE, but for tokens. That was a detour that took us four, six months of work, but it&#8217;s gonna end up being super vital for the entire rest of the ecosystem, and for Protocol Labs in that we will have not only Filecoin, but other projects down the road that will end up using CoinList. You invested a little bit deeper into this thing, and now you have it. Filecoin has been delayed by IPFS and its success, and by things like CoinList and so on. Now we&#8217;ve managed to successfully switch gears to go and invest very deeply into the whole thing. One of the most interesting things probably about Filecoin that you&#8217;ll see coming out very soon is we spent about a month and a 1/2 rethinking the entire protocol from scratch, and looking at all of the advancements that have happened in distributed systems and crypto and the blockchain space in general in the last two or three years since the paper came out. We got to upgrade all of the entire system while it&#8217;s still in, before it&#8217;s out and live and people are using it, and it ends up being a very different protocol. We&#8217;re about to ship the new Filecoin paper, and it&#8217;s a very different protocol than when people first saw it. Solves a whole bunch of important problems. We had, for a brief period of a month and a 1/2, something akin to a Bell Labs feel of four or five people in a house doing nothing but reading papers and working on hard research problems and reading the papers of Turing Award winners, and then being a step ahead of some of them and being like, oh, wow, they just published this thing. That&#8217;s a problem that we solved a while ago or something. You get glimpses of this happening. You can think of someone like Vitalik as operating entirely in that space, where he&#8217;s just thinking about large-scale problems in the five, 10-year time horizon.\nCraig Cannon [01:13:11] &#8211; Creator of Ethereum.\nJuan Benet [01:13:13] &#8211; Vitalik, the creator of Ethereum. He has managed to build for himself a lab similar to one you would have at a place like Bell Labs or something, but in a very different landscape. You probably won&#8217;t see the creation of a Bell Labs like the one before. It&#8217;s possible that someone like Google and so on creates it, but I think what we&#8217;ll have instead is a much more distributed version of it, where you will have smaller labs that are able to get large-scale, 10-year time horizon funding. What I&#8217;m particularly interested in, and I&#8217;ll throw this out there now because it&#8217;s an interesting problem that I think is worth solving, and if we solve this, it can have massive implications for the world. If you&#8217;re a researcher and you wanna think about not just starting businesses and starting companies and so on, but really think deeply about what kind of problems, if we solved them today, would create enormous value for humanity worldwide. There&#8217;s a very specific problem in, and this is an economics problem, and it&#8217;s also an AI problem. It&#8217;s the credit assignment problem, which is that if you have a set of agents that are participating in a set of endeavors, and those endeavors either create or destroy value, how do you correctly propagate reward back to the agents? Meaning if you have a number of people working on a startup and you create a whole bunch of value in a startup, you capture some of that as a reward, how do you propagate that reward back? Effectively, this is equity. Equity right now is the way that this is done. In a larger scale, in the market, it&#8217;s seen as investments and capital and the capital formation world and so on. But then when you look at it in a different world, in science, for example, you have labs that are effectively accruing academic credit, economic/social credit and credibility that they&#8217;re gonna be able to use to then get further grants to fund the rest of the thing. That&#8217;s a different answer. When you think about open source, we don&#8217;t have, today, an easy way of correctly figuring out and computing what is the credit assignment on something like the Linux kernel. Linus has done an enormous amount of work and created a huge fraction of the value from the Linux kernel, but so have a ton of other people that have been slogging and wading through major, major issues. The majority of those people that are building this huge foundational thing that is now on a huge fraction of the computers on the planet did not see any kind of reward attributed to them on the scale of the companies that came after that used their technology and captured value. You can see something like Android as capturing massive amounts of value that went into the Android business and Google and all of those groups that completely rode on the value created by the Linux kernel group. You can think about this across every single business. Every single business that runs computers on a large scale has gotten value out of the Linux kernel group. How can we just propagate reward back so that all of those people now no longer have to worry about other day jobs and can really just focus on this thing? But can you do this in a big scale across all possible projects? We are super interested in solving this problem because we think if we solve this problem, even if we have a bit of a good answer to this problem, then we can fundamentally change how open source gets built, in that it would be great if people that wanna work on projects on open source can just do that without having to have a day job that they don&#8217;t like or whatever. There&#8217;s a lotta people I know that operate in that landscape where they have some job that&#8217;s kind of interesting and they do it because they have options. They&#8217;re not gonna work on something they completely don&#8217;t like or whatever, although there are a lotta people that are in that position. But at the same time, it&#8217;s not what they love the most, and it&#8217;s what will pay their bills. At the same time, they&#8217;re creating a ton of value by working on a whole bunch of interesting open-source projects, but there&#8217;s no easy way for them to get rewarded by the value that&#8217;s captured many, many layers deep after. I claim, and this is a complete guess, and I could be totally wrong about this, but I claim that if we solve that problem in a way that we have a function. Like, I could run a function over all of the people on GitHub that have contributed to all of the projects that Protocol Labs runs and all of the projects that Protocol Labs projects use. We&#8217;re taking about not only the community that&#8217;s working on one project, but also the other communities your project depends on. We depend on things like the Linux kernel. Can we figure out a way to correctly and accurately propagate reward back in a way that&#8217;s fair and that correctly gauges a whole bunch of these hard questions about opportunity cost&#8211;\nDalton Caldwell [01:18:10] &#8211; I&#8217;ll take a swing at that. Have you seen the papers about how to fairly slice a cake?\nJuan Benet [01:18:17] &#8211; Yes.\nDalton Caldwell [01:18:18] &#8211; Essentially, you slice and I pick. They found a way to extrapolate that into multiple parties. This isn&#8217;t the actual solution, but I wonder if you could use where other contributors all are slicing other people&#8217;s cake.\nCraig Cannon [01:18:35] &#8211; So they decide proof of work.\nJuan Benet [01:18:38] &#8211; That&#8217;s a good intuition, that&#8217;s a good intuition, but then are you sure that&#8217;s not gameable? Because then I could just get a collection of 10 people that we all like each other and we all give each other huge slices.\nCraig Cannon [01:18:49] &#8211; But that&#8217;s how companies work oftentimes, right? There&#8217;s someone who doesn&#8217;t always push the best code, but they might be a huge morale boost. Them being on the project is actually super valuable.\nDalton Caldwell [01:18:58] &#8211; To touch that, though, so what, you&#8217;re looking for something that doesn&#8217;t use human intervention whatsoever? It&#8217;s a purely algorithmic answer.\nJuan Benet [01:19:05] &#8211; I think it&#8217;s fine to feed in human intervention along the way. There&#8217;s interesting research done on large companies and governments where you have all these peer reviews and manager reviews and all this kind of 360 review kind of perspective. Out of that, you can get good signal. Otherwise, if we weren&#8217;t getting good signal, then there&#8217;s no hope for any kind of company that&#8217;s large. Surely, something&#8217;s working. It&#8217;s a good ratio that shows you can definitely get interesting human feedback in the loop, and you can take that as a signal. But the hard thing is I claim that what we need to do is allow the collection of that feedback to have humans in the loop, but do so in such a way that it is extremely difficult to game because, again, if you give people, people will quickly learn that they can just give each other really high ratings, and that will translate into really big boosts and promotions and so on, or greater rewards. You have to get something that doesn&#8217;t, it&#8217;s not easy to game, but then further, if you take people out of the equation in the choosing part at the very top, all of those feedback, all of that feedback always propagates all the way to the top, and it&#8217;s ultimately people making decisions of compensation and all this kinda stuff. This is in companies, but in science, it&#8217;s grant funding. People that actually choose who to give grants to and what research to fund. Or in open source, it&#8217;s like, hey, a company decided to invest deeply into this project because they thought it was super valuable and they allocated engineers to just work on it, but they&#8217;re not directly just giving money to everyone in that project. If we just take humans out of the loop in that decision process and put an algorithm that people can have confidence over, that this is gonna be a correct and fair, a correct and fair allocation of the reward, at least better than most humans would do at first pass, approximation, if we can do that, turn that into an algorithm, then, I claim, we could fix a whole bunch of cap tables around the world that really screw up, and you can fix a whole bunch of the way that grant funding is done in science because you&#8217;re not gonna rely as hard on prior success. Or rather, you&#8217;re not gonna rely as hard on social signals, and you&#8217;re gonna rely more on deep achievement. And, I claim, you can do something fundamentally new, which is you can start propagating rewards through open source to the point where a lot of people can gravitate to the things that they think are extremely valuable, and they invest their time instead of investing their money into things they think are cool and interesting and valuable. If those turn out to be valuable in such a way that reward ends up getting propagated back to them, they can then turn that contribution into eating. We&#8217;re headed for a very big economic problem, and we&#8217;re already kind of in the middle of it, but we&#8217;re gonna have bigger problems that as automation comes in and AI comes in and all this kinda stuff, it&#8217;s gonna challenge our basic notions of worth in value, in economic terms. We live in a world that&#8217;s centered very rigidly around a perspective of, hey, you get a job and you work and you contribute value to an endeavor, and you get back some pay, and you turn that pay into food. If you want food and shelter and survival, and if you want nice things, and if you wanna be able to not only survive and have good things and so on, but you wanna be able to afford school for your kids or healthcare and so on, you have to have a job. This job is mediated by a whole bunch of external forces. It prevents a ton of people from allocating their work to what they think is actually most fundamentally valuable. I claim it doesn&#8217;t do as good of a job as it should in correctly rewarding major contributions. We see people with Nobel Prizes and Turing prizes that have made massive contributions to the world, and have not net worths similar to groups that ended up doing terrible things for the world and managed to get away with it. The claim here is one that this, on the small scale, could improve dramatically something like open source, and potentially companies and how you allocate compensation there, but in the big scale, a really good answer to this problem could be a new economic model. It could be a new version of capitalism, or it could be something else that&#8217;s not called capitalism. It could be something around just correct. I don&#8217;t know, it&#8217;s a whole new world.\nDalton Caldwell [01:23:45] &#8211; I think that&#8217;s super interesting, and we&#8217;ve had a lot of discussions internally around basic income. I think where I get hung up on this is that let&#8217;s pretend that we did have the algorithm. Let&#8217;s pretend someone did the research and they found a fair way to allocate worth. Would anyone accept it? Essentially, the tricky part is not the technical challenge, it&#8217;s getting people to ever believe a computer is fair. What if the algorithm said, actually, you&#8217;re not worth very much? It&#8217;s very hard to imagine people saying, you know what, you&#8217;re right. This algorithm is inherently fair.\nCraig Cannon [01:24:19] &#8211; I think it actually meshes quite well with the American mindset, which is I can do work and create more value than the next person, rather than relying on some social system around you. You&#8217;re like, I&#8217;ll just do it. Right now, we rely on the market to decide what&#8217;s valuable, but who knows?\nJuan Benet [01:24:34] &#8211; Ideally. I think for this to work correctly, you have to have markets involved and you have to have this kind of algorithm either work in a market. You can turn an algorithm into a market. Then, ideally, you wouldn&#8217;t have one computer that decides what you&#8217;re worth, but rather, you have an entire large-scale system, and relative worth is being ascribed by other groups. You have a lot of cases where one group thinks something is really valuable, and another group doesn&#8217;t think so. That&#8217;s fine. They themselves are accruing value and worth in whatever ways, and they can propagate it however they want. Similar to companies going in opposite directions or whatever. Yes, it&#8217;s gonna call into question a bunch of hard things, like here&#8217;s what your contribution&#8217;s really worth. But my claim is right now, we have a much. I kind of describe this as similar to the self-driving car problem. People think how could a computer ever possibly drive better than me? Computers are stupid. I am a great driver. I can go fast and I can react really well and so on. I would never trust a computer. Yet, it&#8217;s taken a long time. It&#8217;s taken over 50 years since the first plans to do this appeared, but now we have computers that drive better than humans. Pretty soon, they&#8217;re gonna start getting deployed, and we&#8217;re gonna start riding in them and so on. People will see this is gonna save a ton of lives, comparatively. My claim is you can create something that&#8217;s fair and you can create something that is also provably fair. One of the things here about algorithms is you can have a computation that&#8217;s provable, that actually runs over the whole thing and can produce a cryptographically verifiable proof that it was done correctly and that it was correctly assigning the right thing. It could give you a trace of all of the validation. Here&#8217;s the argument as to why this determination was made. I think that would be a much better place to be than where we are now, where it&#8217;s extremely fuzzy. Based on a whole bunch of factors that I think are biases all over the place. Allow a few people that understand all of those biases and perspectives to then game then, and then put themselves in positions of greater and greater power, which is, by the way, I think, one of the big reasons why capital accumulates. There&#8217;s a whole bunch of reasons why capital accumulates and centralizes, but I think one of them is the fact that once you understand enough about how all this stuff works, you can then position yourself and maneuver yourself to expose yourself to things that generate a lot of capital and wealth that don&#8217;t necessarily generate or create a lot of value. There&#8217;s a very big different between capital and value that is not correctly. The value of a dollar today does not equate to just raw, fundamental value. We use an approximation, and we think that it&#8217;s a good enough approximation and continue using it, but in a lot of ways, you can see things that are worth massive amounts of money. There&#8217;s tons of companies that get a lot of value by dumping a bunch of crap into the ocean and wrecking. There&#8217;s a whole bunch of externalities that we cannot properly calculate and account in those situations. Ultimately, there&#8217;s, at least in most countries here in the world, you have groups of people that are making those decisions at the very top and deciding what are the outcomes of major bad actors, actors that have made serious mistakes, like the 2008 crisis, major mistakes. They seem like, well, all these were major mistakes. All these things should fail, but if they fail, we&#8217;re gonna be in deeper trouble, so let&#8217;s just bail them out and continue as if nothing happened, to some degree, not quite, but to some degree. A ton of these people walked away scot-free, and got away with, in some cases, they&#8217;re actually making money through the financial crisis. People that were directly responsible for the problem ended up with returns. This is screwed up. I think this is something extremely far away from a correct and fair distribution of value. I think that&#8217;s an open problem of the kind of pre-companies or capitalism or this kind of thing. If we find a good solution to this problem, it could, in decades, translate into a rewiring of how we think and how we value things and how we allocate resources and all that. In the small scale, I think that we were beginning to see a few experiments in this direction. I see things like what Ethereum was able to do with its own resources and being able to just give a lotta people ether that then accrued in value and so on, and do things through RFPs and try to get some vague measure of what this might be worth, and giving people a share of the return. Not dollars or Euros, but instead ether, which means it&#8217;s a share of the potential future value generated by the network. It&#8217;s a step in the right direction. We&#8217;re gonna &#8230; way into this, but it&#8217;s a step in the right direction. I think we are gearing up to try some things like this.\nDalton Caldwell [01:29:27] &#8211; Do you think the way, you&#8217;ve looked at the relative distribution of wealth from crypto, that that is a good model? &#8216;Cause isn&#8217;t it really concentrated on a small number of people that happened to have the resources to be early?\nJuan Benet [01:29:43] &#8211; I don&#8217;t think that. I think a few people ended up getting a lot of value. Also, with a lot of these projects, a few people ended up creating massive amounts of that value. For example, I think people should not at all undervalue Vitalik&#8217;s contribution. I think he&#8217;s contributed an enormous amount to the entire space. I use that as an example. There&#8217;s probably a whole bunch of misallocations all over the place that we can probably find.\nDalton Caldwell [01:30:11] &#8211; I&#8217;m just thinking through what you were saying about.\nJuan Benet [01:30:14] &#8211; But I also know a lot of people, in the dozens to hundreds, that made a lot of money through crypto who slogged through the creation of value in this new network who understood the value of this thing, were willing to take the risk and work on it. Really spent the better part of a year and a 1/2 working on something that was completely super high risk, unclear that it was gonna work out and so on. They&#8217;ve seen returns that are higher than most startups. Higher than what their distribution would have been in&#8211;\nDalton Caldwell [01:30:49] &#8211; Like a 400X return, right? If you bought Ethereum at the crowd sale?\nCraig Cannon [01:30:53] &#8211; It depends when you got in. Conversely, think of it like you just happen to luck into being one of the first 10 employees at a giant company, but the 25th person is the person who actually created the value, and their allocation is much less than yours. That model is not figured out yet.\nJuan Benet [01:31:10] &#8211; I am deeply frustrated by that problem. I desperately wanna fix that problem. I think that if we fix that problem, then we can have massively open-ended creation of value. It&#8217;s a strong claim, but I think fixing that issue&#8211;\nCraig Cannon [01:31:23] &#8211; It makes sense.\nJuan Benet [01:31:24] &#8211; Would make a ton of tech companies work extremely well and be able to generate tons of value. Not only tech companies, but tech projects in general. The company is fading away, or not fading away, but rather an new thing has come in, which is the network or a market that is not a company, but it functions kinda like a company. You can think of Ethereum not as a company, but rather as this network that has some shared asset that is incenting people to work on it and so on. There&#8217;s some loose organization, but not really centralized, or it&#8217;s not really central planning. That&#8217;s a whole bunch of things that are interesting and are pushing in the right direction. I would say that the distribution of wealth is probably flatter. I don&#8217;t know this to be 100% the case. I need to look at the raw data.\nDalton Caldwell [01:32:06] &#8211; I think the raw data for Bitcoin a few years ago wasn&#8217;t pretty awesome. I looked at it, for what it&#8217;s worth.\nJuan Benet [01:32:11] &#8211; For Bitcoin, what about Ethereum?\nDalton Caldwell [01:32:12] &#8211; I don&#8217;t actually know. I haven&#8217;t seen any breakdowns on that. But I remember, I was actually very curious about this, not what Satoshi has, but the other people that had, the people that bought in early, basically. What is their relative distribution and all that other good stuff?\nJuan Benet [01:32:29] &#8211; I&#8217;m kinda bothered by that. I&#8217;m kinda bothered by the fact that in crypto, right now, you&#8217;re seeing the normal issues with capital flood in, which is that if you&#8217;re a speculator that has a lotta capital, you can afford to get much greater rewards than the people that actually build the thing. That, to me, is, again, another frustrating thing that I&#8211;\nDalton Caldwell [01:32:47] &#8211; This is why I ask &#8217;cause it&#8217;s like here we are creating all this new stuff&#8211;\nJuan Benet [01:32:51] &#8211; But I think it&#8217;s incremental. I think it&#8217;s a step in the right direction and a big step, dare I say a quantum leap in the right direction. What&#8217;s interesting to me is rather not what has been done so far, but the tools we now have, meaning that, and this is starting to get into the experiments we&#8217;re gonna run next year and the year after that, but we&#8217;re looking at the possibilities of issuing a token to a whole bunch of contributors that have created a whole bunch of value to a ton of projects that we think are valuable. Mostly, right now, we&#8217;re gonna do it with our own projects, but if this works well, we can do that in an even deeper way and across projects that contribute value to us. We&#8217;re gonna issue this token, and then we either are gonna do things like issue dividends or buy it back, and create a way for us to directly share a fraction of the value that Protocol Labs creates with the people that helped create that value. This is a huge experiment. Could go completely wrong. It could change the way that people, why people contribute. It could bring in a lotta people that are not deeply interested in the right things and are kinda just looking for money. That&#8217;s what I worry about. I don&#8217;t wanna do anything that would cause that &#8217;cause I think open source is an amazing place where people are motivated to work for the project because of what you believe in. That&#8217;s super important. I would hate it if whatever kind of experiment in this direction kills the fact that the Linux kernel is built by a bunch of people that really care deeply about the problems and are fixing them. It has be to done carefully, but I think we can start running some experiments.\nCraig Cannon [01:34:42] &#8211; Right, &#8217;cause you don&#8217;t want every project to end up at some weird local maximum, where companies are using this now, value will accrue to me, I can jump to the next thing.\nJuan Benet [01:34:50] &#8211; Exactly.\nCraig Cannon [01:34:52] &#8211; Is this being wrapped into CoinList yet, these ideas?\nJuan Benet [01:34:56] &#8211; They are ideas we are thinking about. These are not being wrapped into CoinList or other things just yet. There&#8217;s a lotta things that we have to carefully consider here. The thing about incentive engineering is that it&#8217;s hard. This is why this problem is an open problem. If you&#8217;re listening to this and you&#8217;re a researcher and you care about this, get in touch because I&#8217;m probably gonna start a small research group to solve this problem. I don&#8217;t expect a successful thing in years. I think this is a long-term thing. I think this is the kind of research project that Protocol Labs could fund that is one of those long-term innovation things. I don&#8217;t think we need that many people. Probably the right 10 people can solve this problem, maybe even less. Maybe it&#8217;s a singular person that actually figures it out, as has happened in a ton of other cases in history. But I think we can start, at the very least, collecting some data to assist the theory and that data that might come with some of these experiments. We are thinking about this, this is a premise. Right now, I mostly wanna reward a lot of the people that were very early to the IPFS project that saw the value created and said, &#8220;Wow, this is an awesome project and we wanna make this a reality&#8221; and so on. We&#8217;ve been slogging through a ton of hard work for the last three years. Right now, I guess, Go IPFS turned three years old two days ago. The protocol itself is a little bit older, but that was the code base. There&#8217;s a ton of people that came in and helped out tremendously, some of them who it didn&#8217;t make sense for us to hire into Protocol Labs. Some of the people, for whatever reason. Some of those cases are academics, some of them are grad students and professors who talked with me and walked me through certain important things that ended up contributing value to the project. Then I wanna find a way to then divert some of the return that we&#8217;ll see from Filecoin. &#8216;Cause what we&#8217;re gonna do is we&#8217;re gonna create this whole Filecoin network, and that will generate a ton of value. A whole bunch of people, the miners in the Filecoin network, are gonna get a ton of value, and so will Protocol Labs. Then can we divert some of that value that Protocol Labs gets back, and pump it straight into all of the open source work that we do in a way that doesn&#8217;t hurt it? I&#8217;m very, very wary and careful about anywhere where money and open source gets mixed because it can get really screwed up and it can kill projects, but I think that things like Ethereum are examples of things being done better and right in some direction, and at least in a successful one. You can look at the Ethereum community, and it&#8217;s filled with researchers. People who are thinking deep and hard about theory and the correct application, people that are thinking about consensus and consensus problems. The kinda stuff that only Turing Award winners normally think about, or grad students that are trying to upend 20 years or research or whatever. There&#8217;s people in the Ethereum community actually doing this work. It&#8217;s amazing. It should not be undervalued. It&#8217;s extremely difficult to find communities where not only is that valued by everyone around, but it&#8217;s also greatly rewarded. That&#8217;s, I think, an example in the right direction, and I think one that we can build on and create more of. If this gets to be, I think if Ethereum and Filecoin and these networks get to be massive and end up being of the same degree and scale as a whole bunch of the other ways of doing things, the centralized tech companies and so on, then we can then start looking at rewarding people across company lines. Here&#8217;s an interesting problem. There&#8217;s a ton of people that work at Google and a ton of people that work at a bunch of the other places that could contribute massively to these projects by just spending a few hours, maybe, on a week or later on. They&#8217;re the right people that have the right insights, that have the right perspective. Right now, they can&#8217;t work for another company because it&#8217;s a conflict of interest, but they can contribute to open source. Now, in many cases, they do. Then reward can be back propagated in a weird way. People contribute, and then later, if value gets greater, then there&#8217;s this back prop that happens out of distributions of this token. I don&#8217;t know how that works with, or how that&#8217;s gonna turn out and work with IP and so on, but I think it&#8217;s gonna come in kinda like a wrecking ball in that a ton of a ton of, I know a lot of researchers that, in crypto and game theory and so on, that understood the crypto world, and then either got a bunch of Bitcoin or ether, and now can just chill out and be grad students or professors, in some cases, and just do the research that they really care about, and they&#8217;re now personally wealthy. It&#8217;s awesome. That&#8217;s fantastic. That is a great example of a correct application of the rewards problem right there. The people that generated massive amount of value by slogging through really hard theory problems for years and came up with the right solution and so on are now able to correctly make contributions, in some cases, short time span contributions. Again, knowledge work is really hard to measure in hours. You can&#8217;t measure knowledge work in hours. Somebody&#8217;s investment over a decade can put them into the right perspective to make the right contribution at the right time that creates something like Ethereum or Bitcoin or whatever. How do you correctly reward that? I think something like these cryptocurrency networks reward that better than the normal notion of yearly pay in a salaried thing that was built for the Industrial Revolution, where you needed manufacturing and you needed to just bill for hours because you had to spend a whole bunch of hours working at something. I think this is an interesting thing. I think we&#8217;re starting to see this develop. We&#8217;re thinking about things like that, of how do we build Protocol Labs as an organization that can do deep research in a bunch of different directions with a bunch of collaborators around the planet in a bunch of different organizations, and how can we structure things in such a way that if those things we collaborate on succeed greatly, everyone gets rewarded? Everyone who contributed to that thing gets rewarded fairly. That&#8217;s super hard to try and solve, but we wanna do that.\nCraig Cannon [01:41:18] &#8211; I think this is a good place to pause. You gotta roll. We do have some questions from Twitter. That would be awesome to address. Cool. We can just pause. Thank you.\nDalton Caldwell [01:41:26] &#8211; Thanks.\nCraig Cannon [01:41:28] &#8211; Let&#8217;s go into the Twitter questions. We got a handful. You can answer them however you&#8217;d like. From @StartupSanatana, how does Filecoin&#8217;s data storage network, how is it natural slash unnatural disaster proof?\nJuan Benet [01:41:45] &#8211; Ah, great question. It really depends on the scale of the natural disaster. If a comet hit the planet, that&#8217;s a little hard. There&#8217;s a few pieces here. One of them is IPFS is, by nature, what I like to call fully distributed or logically decentralized, as Vitalik calls it, which is that the nodes in the IPFS network can continue talking to each other even if the rest of the network disappears. Filecoin, because it uses IPFS and so on, Filecoin nodes will be able to talk to each other even if they can&#8217;t talk to the rest of the network. Now, there&#8217;s a question there of how can you clear transactions? That&#8217;s a thing that we have active and deep research on. We want to have a network that can shard and where you can have a subset of the Filecoin network operating, even if it can&#8217;t talk to the rest of the network, and clear transactions, that&#8217;s a hard problem. The first iteration of the Filecoin network that goes live won&#8217;t quite do that, but the way it&#8217;ll be. If you get isolated from the rest of the network, you may not be able to clear transactions, but you might be able to distribute files, at least for some period of time. Then if you are in the rest of the network, but then 1/2 of it disappears because of some huge natural disaster, I guess slightly less than 1/2, n divided by two, we can survive those failures because when people add data to the network, it gets split up into pieces, gets erasure coded. You can get this really nice replication factor where without adding too much overhead, where the replication factor does not add massive overhead, you can get a huge resilience factor where you can survive huge numbers of failures, and your data can still be there. The exact numbers on this, we&#8217;ll come up with and publish the exact details on this down the road, but it&#8217;s gonna be a tunable parameter. You can crank up the level of erasure codedness, effectively, that you want.\nCraig Cannon [01:43:42] &#8211; On the user side?\nJuan Benet [01:43:44] &#8211; On the user side, yeah. If you have a megabyte of data that&#8217;s really important, you just crank up the replication factor, the splitting into pieces and erasure coding so that you have hundreds of these. They all go out to a whole bunch of different miners. Now you are in a much better position than if only three people were storing this. That&#8217;s, I guess, one set of answers.\nCraig Cannon [01:44:11] &#8211; Next question. Robert Andrew Smith (@robertandrewsm). When will Filecoin sale details be released? Then, following up on that.\nJuan Benet [01:44:20] &#8211; Filecoin sale details will be released very soon. Unfortunately, we can&#8217;t give you an exact date, but it&#8217;s weeks away. It&#8217;s sometime in the next few weeks. Very soon. We are working as hard as we can right now to get it out the door. The reason for, that we can&#8217;t announce an exact date yet is that there are a few things, especially on, around, there&#8217;s a couple of processes that are running right now that we have a date that they were gonna finish. That&#8217;s, ideally, a week or two weeks out, but there&#8217;s a little bit of unpredictability yet there. I wanna be able to do the sale as soon as possible, but subject to that, so really weeks. Expect news very, very soon.\nCraig Cannon [01:45:12] &#8211; Then he also asked another question. What other plans do you have with CoinList?\nJuan Benet [01:45:18] &#8211; So CoinList, which is another project that Protocol Labs started. This is in partnership with AngelList. This is a token sale platform that kind of will allow token project creators to launch their networks and run token sales without having to slog through the hundreds of hours that we spent both building this kind of platform and going through legal and so on. CoinList works with the SAFT. CoinList will work with a lot of sales that are both, include the SAFT and others that don&#8217;t. Basically, there&#8217;s this important piece that if you wanted to run a token sale in the US, you want to, there&#8217;s a question there around whether or not you&#8217;re selling a security. If you think you&#8217;re indeed selling a security, then you should limit the sale of that security to accredited investors, at least in the US. When you do that, then CoinList makes that easy, and you can accredit in the same way that you would accredit through AngelList. But that&#8217;s not even the main selling point of CoinList. The main selling point of CoinList will be decreasing the amount of work for token sale creators and creating a network that focuses on finding really high signal projects. There&#8217;s a ton of projects in this space. One of the things that we care a lot about is how do you find really, really good projects, and help those gain attention and stick out, and how can you help them prove it? It&#8217;s one thing for that project to convey a lot of things, but it becomes really useful when you have third parties that are independent think about those projects. We&#8217;re very interested in solving that signal problem of how do you correctly figure out what are the really solid and outstanding projects. We think that&#8217;s gonna be an important value proposition from CoinList, of really finding the best things around.\nCraig Cannon [01:47:20] &#8211; That was actually a question I wanted to ask before, but didn&#8217;t. Do you have any rules of thumb that you can give to people around filtering out all the noise right now?\nJuan Benet [01:47:29] &#8211; We&#8217;ve gotten a ton of applications. A lot of interesting stuff is coming down the pipeline, some really, really cool stuff. We&#8217;ve also seen some scams. We&#8217;ve actually seen some applications that are outright scams. We don&#8217;t wanna be in a position to being effectively gatekeepers that prevent really good ideas from. If we don&#8217;t understand something, we shouldn&#8217;t be gatekeepers that we have to convince. But on the flip side, we also don&#8217;t want things that we can tell are outright scams on the platform. We want at least some layer of barriers there to make sure that the projects that do get listed on CoinList pass a certain bar of quality. Now, there could be some very cleverly engineered and designed scams or whatever that fool even us or whatever. Anyone investing through any kind of investment platform is ultimately responsible for doing their own diligence, but at the very least, we&#8217;re gonna, I think, cut out a huge fraction of a lot of those things. We&#8217;re working on ways of helping project creators highlight their technical strengths and the value they propose in ways that let them shine against other projects that could probably spend a whole bunch of money on marketing and so on, but actually really have no important technical depth underneath the hood. That&#8217;s a whole bunch of interesting problems that we wanna help solve with CoinList.\nCraig Cannon [01:49:04] &#8211; Obviously, accredited investors is a major part of that.\nJuan Benet [01:49:07] &#8211; Yeah, and I think accredited investors kind of weighing in on things is an important part, although I would say I think this is an important piece, or we&#8217;re gonna have to message this better in that not all sales that will go through CoinList are gonna be only for accredited investors. There will be some sales that are not securities. Then people can buy normally. There also will be the case that some sales might wanna do a Reg, a Reg D 506(c) offering in the US, so that&#8217;s accredited investors only, but are able to do a Reg S funding to the rest of the world and figure out things outside. This is similar to what Blockchain Capital did. We&#8217;re looking deeply into that, and we wanna, we expect that a number of tokens will be able to do that. I can&#8217;t definitively say that they will certainly be able to do that because there&#8217;s still some legal questions there that we need to solve. Additionally, we want to involve crowdfunding, as well. We think that it&#8217;s very important that people in the US that are not accredited, but that understand the tech really well, are able to make investments like that. It&#8217;s just the burden on doing crowdfunding is quite large. There&#8217;s questions of how does that combine with cryptocurrency and so on that we are doing the legal review on and legal work on at the moment. We hope to have news on that relatively soon. That&#8217;s stuff that we are actively working on and trying to enable because we don&#8217;t want the accredited investor limit to prevent people that truly understand the tech, and perhaps are much better investors than accredited investors, meaning having a million dollars does not mean that you know what cryptocurrency network is gonna be better or what cryptocurrency network actually will work. There were a lotta people investing in things that had a lotta money and could lose it on things that didn&#8217;t work out, and a lotta people that understood that something like Ethereum was gonna be really valuable. We wanna enable people to come into things like this, and so we&#8217;re looking at crowdfunding. We&#8217;re also looking at other ways of potentially involving people that, for whatever reason, they can&#8217;t directly invest in the presale, but maybe perhaps they can come in when the token goes live in an actual token sale, broader in live exchanges, at a discount, at some sort of discount that puts them into a good position. But sometimes that can be done by, instead of coming in and investing early, rather helping the network. One of the big parts of gathering investors for a network like this is gathering people that are really well aligned with the network and wanna help it grow. That&#8217;s what investors should be. Investors should not just be random speculators that are just trying to make a quick buck. We are interested in helping create large-scale communities that have really strong buy-in from people that wanna help create them and see the promise. One of the things that we&#8217;re thinking about is, okay, great, there&#8217;s a lotta people that maybe are, unfortunately, limited by the laws around accreditation. However, they probably have the ability to get actually involved directly with the project and contributing in another way that would then. In a sense, they could get rewarded by either getting paid for their work in tokens, or potentially being able to buy the token when it comes out at a discount that they have that other people don&#8217;t have.\nCraig Cannon [01:52:32] &#8211; That&#8217;s a good point. I hadn&#8217;t heard about that. @JesseJumpcut asks, I&#8217;m having trouble understanding the market need for Filecoin. Is storage a burning pain that consumers face?\nJuan Benet [01:52:43] &#8211; Oh, definitely. All you have to think about is how much data is being generated by computers. This is not just for consumers, although consumers do have a lotta data. Think about I have a phone here. I don&#8217;t even know how much storage this has, but it has a lot, and I use a lot of data by having applications that download video or whatever, or when you take pictures and video and so on. The right way to answer this question is look at the growth in market of cloud storage. It&#8217;s growing tremendously. Cloud storage, in general, is the idea of reselling storage for other groups. Consumers, massive businesses and so on are seeing exponential growth in data. Data and the need for storage, that&#8217;s about one of the few things you can look at and say this is growing exponentially and shows no sign of stopping anytime soon. You kinda have to extrapolate are humans gonna continue proliferating and building more cities and&#8211;\nCraig Cannon [01:53:49] &#8211; I think I would reframe.\nJuan Benet [01:53:52] &#8211; We&#8217;re gonna need more and more data.\nCraig Cannon [01:53:55] &#8211; But I think I would reframe the question, actually. What is differentiated with Filecoin to Dropbox? Why care about using it?\nJuan Benet [01:54:02] &#8211; Totally. Filecoin is not to be seen as a Dropbox replacement, although there will be Dropbox-like things that build on top of Filecoin. I think you should think about Filecoin as replacing cloud storage. It&#8217;s something that Dropbox would use. A company like Dropbox would think about, oh, do we run our own managed infrastructure or do we use AWS or do we use something like Filecoin? That&#8217;s where the economic improvement comes. What is the relative advantage of something like Filecoin to other cloud storage offerings, in a sense. The thing here is there&#8217;s a certain set of features that Filecoin will bring that other things don&#8217;t have. Being able to have decentralized data means that if Amazon doesn&#8217;t like you anymore, they can&#8217;t, just in one turn, shut you off in a way that suddenly you have to move to another provider and you have to deal with changing all of your addresses and everything. Right now, with Filecoin, it would continue to work. Two, it&#8217;s about, there&#8217;s a whole bunch of features like that and erasure coding and so on that we could go into. Then there&#8217;s a whole bunch of other things around the market dynamics in general in that Filecoin is not, you shouldn&#8217;t think of Filecoin as another provider. Think about Filecoin as a market. Filecoin is a market that layers across all providers, and enables a whole bunch of providers that right now are not selling data in the world to come in and sell it. Think about how much storage there is on the planet that right now is not being sold to other people, and if that storage came online, it would drive the price down. The storage right now is depreciating. A lotta people have invested huge amounts of money in having massive arrays of hard drives that are not giving them any money. They&#8217;re losing money on those investments. Think about creating a market that enables anybody to then sell that storage to the rest of the world for a profit. There&#8217;s a whole bunch of questions there. Wow, can you really achieve economies of scale with a network like this? Can you really get a better unit economics? Can you provide bytes cheaper than something like Google Cloud or Amazon or whatever? Our bet there is that yes. There&#8217;s a whole bunch of places and cases where certain individuals or groups in the world have access to either really cheap storage or storage that&#8217;s positioned well in the network that is somewhere between the backbone and a whole bunch of consumers. If they become Filecoin miners and storage nodes, they could actually be in a better optimization point than even something like Amazon. That&#8217;s a bet. We think it&#8217;s right. That, on its own, is an interesting reason for people to opt to choose something like Filecoin. Think about it kinda like an algorithmic market. Say, instead of this having a very inefficient market where you have to, when you wanna hire storage, you have to go and research companies and you have to look at them and you have to sign up with them. You have to be a legal entity. You have to be either a person or a company or whatever. You have to have a credit card and you have to buy. You enter into some legal agreement. Then you enter into a legal agreement. Then you can sell them bytes. It&#8217;s this huge, onerous process. When you compare them, you see their websites and so on. To something closer to an actual spot market where any file, any storage that&#8217;s available worldwide that has shown to have good metrics and shown to be online for a long period of time, show to be good or whatever, can then be sold to you at the cheapest possible price that you want immediately, algorithmically. This is about changing the market completely. It&#8217;s going from a world of centralized search providers to a world where there&#8217;s a huge market, and it&#8217;s mediated programmatically.\nCraig Cannon [01:57:59] &#8211; Okay, so adding onto that, same person, @JesseJumpcut, had another question. How does Filecoin plan to compete with companies like Sia and Storj, I don&#8217;t know them, who have been out for a while?\nJuan Benet [01:58:10] &#8211; Totally. There&#8217;s a few things there. One is the reason Filecoin is not out yet is because we spent a ton of our time building the IPFS project and getting that out of the door. There&#8217;s a ton of people that are using the IPFS project that are, that&#8217;s where they want Filecoin to be out. We know that already we have a ton of users lined up that right now are not going to those other competitors. They&#8217;re actually either in S3 or other places, and would jump directly to us. Then, the deeper question and way to look at it is just think about the technology. We&#8217;re about to release the second version of our protocol. It&#8217;s just a fundamentally different thing. It operates in a different way, it offers different guarantees and so on. We think that those different guarantees actually have a very significant market need and solve a whole bunch of different market needs than these other networks don&#8217;t. That&#8217;s how we are gonna be able to compete. Another thing is, I don&#8217;t know how it&#8217;ll play out, but I actually bet a lotta people will be mining on both networks, or all of the networks. We&#8217;ll see how that actually plays out. Right now, there&#8217;s a lot of drivers driving for either Uber or Lyft. We think the tokens and the rewards in tokens will be a, and people&#8217;s expectation on how this will end up working will drive people to mine in one. I guess an interesting question right now would be did people switch from storage to Sia, or Sia, when the Sia coin appreciated a lot? That&#8217;s an interesting question that people should look into.\nCraig Cannon [01:59:52] &#8211; Can I cross-list storage?\nJuan Benet [01:59:57] &#8211; In some ways, you will be able to. In other ways, you won&#8217;t. This actually is very protocol-dependent, and different protocols allow it in different ways. Some of the things you won&#8217;t be able to cross-list. Some of the things you will be able to cross-list. There, people will be trying to get&#8211;\nCraig Cannon [02:00:14] &#8211; Trying to game it a little bit.\nJuan Benet [02:00:15] &#8211; Yeah. People are participating in two different networks. They&#8217;re storing data. Because of the proof of replication, when you have proof of replication-backed storage, that ensures that it is unique to this particular request, and that&#8217;s a very important thing from a game theory perspective. You don&#8217;t want networks of &#8230; basically pretending to be storing huge amounts of data when they&#8217;re only storing one copy, and the thing is not replicated. That&#8217;s what the proof of replication is there for. Some things you won&#8217;t be able to cross-list, but some things, like for fast retrieval and so on, those will be cross-listable. But I think answering the question in a deeper way, I look at Filecoin as something very different than these other networks. It&#8217;s not solving exactly the same problem. Filecoin is solving the problem of how do you create a market and allow any provider? There&#8217;s actually a possibility where Sia and Storj make sense as route content to them because those networks provide a tiered structure. We&#8217;ll see what happens.\nCraig Cannon [02:01:20] &#8211; This one is a little bit in the weeds. This is user Holy Nakamoto. Referenced a GitHub issue from a couple years ago.\nJuan Benet [02:01:28] &#8211; Oh, man.\nCraig Cannon [02:01:30] &#8211; I don&#8217;t know if you remember this one. Is the idea of IPFS rendering DDoS attacks impossible hyperbole?\nJuan Benet [02:01:39] &#8211; Well, it depends on how you, it&#8217;s not hyperbole in the whole sense. There are some ways that you can take that question of DDoS prevention and say, &#8220;Oh, well, no, you can&#8217;t possibly mitigate all possible DDoS attacks on something,&#8221; but the way to think about IPFS is that when you have a piece of content, once you have the piece of content, or anybody else around in the network has it, you can retrieve it from them and it doesn&#8217;t have to come from the original source. We&#8217;ve already seen cases where people can DoS a specific location and can DoS the URL that some resource is at. But if it&#8217;s a name that, you know some providers that have that content and you can reach them, but the DoS attackers can&#8217;t know who those providers are. There could be a whole lot of reasons for this. It could be they&#8217;re actually disconnected. You&#8217;re in a network that they&#8217;re not connected to, or you have access to a network where you have the ability to search through a whole bunch of nodes that are willing to share routing information with you, but are unwilling to open it broadly to the whole world. This starts getting into private networks. When people are building private IPFS networks where they have their own set of content that is not exposed to the rest of the world. For example, you&#8217;re gonna be able to search through some network like that. Right there alone, you have entire barriers where people, the DoSsers can&#8217;t even get to the content, first of all. Can&#8217;t even get to the machines that are serving it. That solves it. The other case is, hey, if there&#8217;s some really popular piece of content and something gets replicated to tons of people, now the DoS attack gets way harder. Now you have to DoS thousands of people. In that particular case, it&#8217;s not that it&#8217;s impossible. It becomes intractable. It becomes intractable for a, even a sophisticated attacker, to DoS all possible computers that have this piece of content. This will be, especially with really incendiary things that a lot of people want to replicate, think about WikiLeaks-type stuff, a lotta people will wanna replicate it all over the place. Then very quickly will become very difficult for an attacker to actually silence all possible machines. It is not hyperbole. It is impossible in some cases, and then intractable in others.\nCraig Cannon [02:04:00] &#8211; Okay, cool. That&#8217;s a good answer. Next question. Eric Tang asks, where do you see as the most immediate industry slash tech stack slash use case for being decentralized?\nJuan Benet [02:04:18] &#8211; Basically, a way to reframe that question is where is it valuable to have decentralization.\nCraig Cannon [02:04:23] &#8211; I think he&#8217;s kind of leaning towards what is a product or use case for something built on Ethereum to be decentralized in that way? Or maybe it&#8217;s IPFS would be a better way to.\nJuan Benet [02:04:41] &#8211; I think decentralization changes the properties of the infrastructure. It shouldn&#8217;t be a thing that the end user should have to care about. In a lotta cases, some users will care about it, but I think it&#8217;s not something that they should have to care about. Meaning that developers are the ones that should think about whether decentralization matters. That has to do a lot with the, again, specific use cases and specific applications that you&#8217;re dealing with. When I look at things like Slack or GitHub or Google Docs, that are consumer applications that people use daily to do their work and talk to their coworkers or loved ones, things like messengers and so on, and all of that flow of information is passing through a set of centralized agents that can be brought down and frequently are brought down. There&#8217;s a lotta cases where GitHub does go down or Slack does go down, or your connection to them gets severed in some way. You just can&#8217;t reach them. Maybe you&#8217;re offline or whatever. That is a great example where logical centralization sucks. The fact that you can&#8217;t reach that origin server prevents you from using any of the data or working together or whatever. It gets so bad that you could have a room full of people with laptops open on Slack or on a Google Doc, and they can&#8217;t work together because their supercomputers, which are, again, let&#8217;s be clear here, these computers are more powerful than all of the computers on the planet were a few decades ago, their supercomputers that they have in front of them can&#8217;t figure out the content or an application they wanna run is really between them and the ones right next to each other, and are piping all of the data flows straight up the uplink, straight into the data center and then back. That&#8217;s just stupid and wrong. We should not live in that world. I wanna live in a world where if you have a computer and you&#8217;re trying to work with somebody across from you, that data can flow from one person to another and you can continue working whether or not some random machine somewhere else in the world is failing.\nCraig Cannon [02:06:49] &#8211; To answer the question, literally anything where interacting between people.\nJuan Benet [02:06:54] &#8211; It&#8217;s an infrastructure thing. There&#8217;s a whole bunch of cases where you wanna think about how the underlying data flows move. Answering the question for the Ethereum case, it&#8217;s really about power. Where do you want people to be able to exert power? Doing that transaction through Ethereum and having a smart contract allows you to cut out trust and power all over the place, and have a very clear thing that people agree to that is enforced by a computer, not by courts that are slow and expensive.\nCraig Cannon [02:07:25] &#8211; I think with a lot of these things, you don&#8217;t necessarily have to make it obvious to the end user that this is what you&#8217;re doing. It just works, it&#8217;s better. Eric asked one more question around decentralization. Where and how does decentralization gain advantage over centralized benefits where you think about scale and cost?\nJuan Benet [02:07:49] &#8211; Where do decentralization benefits actually provide better unit economics, in a way, where your costs for providing the service are actually better? I think this is where you wanna think about having as effective of an optimization process as you can get. Providing cheap storage to the world or cheap distribution of content to the world is a huge optimization problem. You&#8217;re dealing with billions of computers around the planet that are all trying to store or retrieve content in a whole bunch of places where you can store it and move it. Then you are dealing with, again, billions of people that are using those computers, and that some subset of those billions of people could actually work on maintaining the network, and some of them are gonna be consumers. It turns it into a super complex optimization problem. The point is it is actually quite difficult for a centrally planned organization to correctly find and use and leverage all possible local minima in a bunch of places, where this is exactly the right place where you wanna store something or distribute it from and so on, and get the best cost, the best cost reduction. That&#8217;s, I think, where decentralization has a massive advantage over centralized services, where you literally enabling any person in the world who says, &#8220;Oh, I have a clear idea of how I can get cheap power, cheap connectivity, cheap storage, cheap disks,&#8221; whatever, and enabling them to bring in and create a service. I guess a deeper way to look at it is do you think markets are more efficient or do you think central planning is more efficient? Looking at this question kinda naively, it&#8217;s like, well, the naive answer is, well, markets are better because central planning is bad. The slightly deeper answer is, well, no. If you had a massive computer that is actually able to calculate everything correctly, then you could actually solve that. You could have correct allocation of resources with one program. But then the even deeper version of that is not all agents are similarly incented, which means that one agent might produce an answer that it is not actually optimal to everyone, it&#8217;s optimal to that agent. Markets are kinda fundamental in how we operate. Markets allow individual actors to leverage optimizations. Those optimizations might not be optimizations for somebody else. That&#8217;s, I think, where decentralization of power is really important to these networks, in that decentralization of power and choice of how to run the service affects the kind of optimizations that people may wanna do and so on. A great example of this, I know of a lot of Bitcoin mines that have super cheap power. They&#8217;re able to get super cheap power because they&#8217;re in a particular country where they&#8217;re able to get a certain deal or because they know the right people or whatever. There&#8217;s a whole bunch of reasons why they suddenly have much better unit economics than a major player would have. They don&#8217;t have enough power that they could service everyone in the world, but they could at least contribute that piece. If you collect a whole bunch of these pieces, you actually can build a large-scale service. That&#8217;s the, I guess, one of the insights.\nCraig Cannon [02:11:03] &#8211; Last question. What other projects should people be paying attention to right now?\nJuan Benet [02:11:07] &#8211; Oh, wow. That is a great question. Oh, man, there&#8217;s a ton of interesting stuff. I&#8217;ll rattle off a few names. I think there&#8217;s probably a lot that people already know about. Of course, I think if people don&#8217;t yet understand how Ethereum works and all of that, definitely dive in. It&#8217;s the best introduction to the future, I guess, than Bitcoin ever was or that kinda stuff. Definitely dive into all of that world. Definitely look at things like OpenBazaar and a whole bunch of applications that are being built with these new kinds of networks. Things like Zcash and so on that bring in a new property into the world. Then start looking at, if we wanna think about new and more earlier things, there&#8217;s a whole bunch of interesting developments around these networks. There&#8217;s a lotta people building on Ethereum. There&#8217;s 0x, which is decentralized exchange. There is Livepeer, which is a peer-to-peer distribution thing that will be interacting with that, aligns really well with a lot of the IPFS tech and the Ethereum tech. There are things like Tezos, which is a project to build a smart contracts platform that smart contracts are written in OCaml. You have a lot more certainty about the programming language, the properties of the programs. Ideally, would like to get to a point where everything it provable. That&#8217;s probably unfeasible and there&#8217;s probably a theoretic argument why you can&#8217;t do that and actually have a useful thing, but maybe there&#8217;s something there where a network could have everything be provable and still be really useful for a certain class of computation. Then, Numerai is actually super interesting. Numerai is a hedge fund run with, that kinda decentralizes the data modeling. The predictive power of the models is decentralized. Individual participants can come in and contribute different algorithms to try and leverage the hedge fund&#8217;s data to trade better. That, I think, is a very interesting mixing of both competition between those participants that are coming in, but also collaboration in that all of them together are gonna win together. Numerai&#8217;s using a token. I think those are a set of projects that are pretty interesting. There&#8217;s probably further out things that are gonna come out. If you&#8217;re into research, I would highly encourage you follow the proof of stake line of work. We&#8217;re getting ever and ever closer. I think we&#8217;re quite close to something that can succeed and work at scale. There&#8217;s already several provable protocols. Anyway, that&#8217;s some interesting stuff.\nCraig Cannon [02:14:01] &#8211; This was great. Thanks, man.\nJuan Benet [02:14:02] &#8211; Thank you. Thanks so much for having me.\nCraig Cannon [02:14:05] &#8211; Okay, thanks for listening. As always, you can check out the transcript at blog.ycombinator.com. We&#8217;ll also have the video of the interview up there. Please remember to subscribe and rate the show. See you next time.\n<script src=\"https://reader.podclipper.com/static/share-ycombinator.js\"></script>\n","comment_id":"1099819","feature_image":"/blog/content/images/wordpress/2017/06/IPFS-CoinList-and-the-Filecoin-ICO-with-Juan-Benet-and-Dalton-Caldwell.jpeg","featured":false,"visibility":"public","email_recipient_filter":"none","created_at":"2017-06-30T07:47:06.000-07:00","updated_at":"2022-02-03T16:46:04.000-08:00","published_at":"2017-06-30T07:47:06.000-07:00","custom_excerpt":"Today's episode is with Dalton Caldwell, who's a partner at YC, and Juan Benet, who's the founder of Protocol Labs, a YC company that's working on IPFS, Filecoin, and CoinList.","codeinjection_head":null,"codeinjection_foot":null,"custom_template":null,"canonical_url":null,"authors":[{"id":"61fe29e3c7139e0001a710d1","name":"Y Combinator","slug":"y-combinator","profile_image":"/blog/content/images/2022/02/1200px-Y_Combinator_logo.svg.png","cover_image":null,"bio":"Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200).\r\n\r\nThe startups move to Silicon","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/y-combinator/"}],"tags":[{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},{"id":"61fe29efc7139e0001a71175","name":"Interview","slug":"interview","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/interview/"},{"id":"61fe29efc7139e0001a71176","name":"Podcast","slug":"podcast","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/podcast/"},{"id":"61fe29efc7139e0001a71172","name":"Video","slug":"video","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/video/"}],"primary_author":{"id":"61fe29e3c7139e0001a710d1","name":"Y Combinator","slug":"y-combinator","profile_image":"https://ghost.prod.ycinside.com/content/images/2022/02/1200px-Y_Combinator_logo.svg.png","cover_image":null,"bio":"Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200).\r\n\r\nThe startups move to Silicon","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/y-combinator/"},"primary_tag":{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},"url":"https://ghost.prod.ycinside.com/ipfs-coinlist-and-the-filecoin-ico-with-juan-benet-and-dalton-caldwell/","excerpt":"Juan Benet is the founder of Protocol Labs (YC S14). They’re working on IPFS, Filecoin, and CoinList.","reading_time":95,"access":true,"og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"email_subject":null,"frontmatter":null,"feature_image_alt":null,"feature_image_caption":null},{"id":"61fe29f1c7139e0001a71905","uuid":"15bceaf8-f687-4d2a-b46e-cce465a2103f","title":"Employee #1: Coinbase","slug":"employee-1-coinbase","html":"A conversation with Olaf Carlson-Wee, Coinbase&#8217;s first employee.\nEmployee #1 is a series of interviews focused on sharing the often untold stories of early employees at tech companies.\nOlaf Carlson-Wee was the first employee at Coinbase. He currently runs Polychain Capital, a hedge fund which invests in a portfolio of blockchain-based assets. He is also an angel investor and filmmaker, based in San Francisco.\nDiscussed: The Early Days of Bitcoin, Interviewing at Coinbase, Finding Employees on R/Bitcoin, Scaling Support at Coinbase, Spotting Fraud, Vetting Founders in a New Field, Launching Polychain Capital.\nYou can <a href=\"http://eepurl.com/cbJZnj\">subscribe to The Macro newsletter</a> to receive future conversations.\n<hr />\nCraig : What are you currently working on?\nOlaf : I actually launched a company yesterday.\nCraig : [Laughter] Whoa, congrats.\nOlaf : Yeah, thank you. I don&#8217;t feel like celebrating quite yet because it’s just the beginning but it’s called Polychain Capital, “chain” here referring to the blockchain. It&#8217;s a hedge fund that invests in a diversified portfolio of cryptocurrencies.\nCraig : Man, that&#8217;s wild. Is it a big team at this point? Is it just you?\nOlaf : Just me.\nCraig : And how are you picking the currencies?\nOlaf : So I&#8217;m looking at things like novel uses of cryptography in the protocol. Or is the protocol attempting something that a blockchain has never done before. I&#8217;m also looking at core developer team quality, the developer ecosystem, and asking questions like are there a lot of apps being built on this, with GitHub forks, GitHub stars, and then looking at the community ecosystem. What&#8217;s the size of the forum? How often do people post relative to other forums? Is it an active community? Stuff like that. So part is core analysis of protocol, and part is quantitative metrics surrounding the use of the protocol.\nI’ve launched with five million under management so mostly right now I&#8217;m focused on operationally executing the portfolio perfectly. And then making sure that I&#8217;m tracking the space and developments at the protocol level. Keep in mind, my last day at Coinbase was eight weeks ago.\nCraig : Wow. Did you raise the five in that eight weeks?\nOlaf : Yeah, I&#8217;ve been on the phone a lot. I have this stupid headset that I wear all the time. [Laughter]\nCraig : [Laughter] You&#8217;re one of those guys?\nOlaf : Yeah. It&#8217;s really embarrassing.\nCraig : We’ll let it slide. Ok, so let’s talk about Coinbase. How did you find out about them?\nOlaf : So I wrote my undergraduate thesis about Bitcoin and the larger implications of open source finance in 2011. I was Coinbase&#8217;s 30th user and now we have four million. I literally cold emailed jobs@coinbase and said, &#8220;I love bitcoin. Here&#8217;s my thesis. I&#8217;ll do any job.&#8221;\nCraig : So you cold emailed these guys a document that was like 60 pages long?\nOlaf : Yeah, like 90 pages long. [Laughter] But, to be fair, I clipped the 30 page chapter that was specifically on Bitcoin and cryptocurrency. But yeah, I did. I emailed an annoyingly long and annoyingly academic document.\nCraig : And they responded?\nOlaf : Fred [Ehrsam] replied in five minutes and said, &#8220;Hey, can you hop on Skype?&#8221; That’s when I started learning how things work in Silicon Valley. The pace of things.\nWe got on Skype and talked for 20 minutes. Then I got an email from him that said, &#8220;Okay, we wanna do an in-person interview. You&#8217;re going to come to the office tomorrow. I want you to have two finished presentations, 15 minutes each. The first should explain something complicated you know very well. The second should outline your vision for Coinbase.&#8221;\nSo I got to work. At the time I was on a road trip and actually was crashing on a friend’s couch in Oakland so the scheduling worked out well.\nCraig : Did you study CS in school?\nOlaf : I majored in sociology so I&#8217;m self-taught on computer science. Though I&#8217;m not a great coder. If I&#8217;m a building a website, I&#8217;m not very good at that. But I do know cryptography pretty well and, in particular, I know game theory well, which is really important in cryptocurrency.\nCraig : Gotcha. So what were your presentations?\nOlaf : Okay. So the first one was on the pharmacological induction of lucid dreams. It is complicated, but it&#8217;s a mechanism to induce lucidity in your dreams. You can control your dream by waking up in the middle of the night and taking an over-the-counter supplement called galantamine, which increases levels of the neurotransmitter acetylcholine in the synapse. Fun fact is that I’ve been writing down my dreams for 11 years.\nThe second presentation was on Coinbase and my high level strategy for the company. Coinbase had a lot of problems at that time. When I was applying, there were really bad bugs. Actually, on the first day of my work trial, there was <a href=\"https://news.ycombinator.com/item?id=5427985\">a top Hacker News post</a> that said, &#8220;My balance is wrong. I lost all this money.&#8221; <a href=\"https://news.ycombinator.com/item?id=5245847\">Everything was broken</a>.\nMy strategy was to clean up PR problems but focus 100% on security. Bad customer experiences will eventually be forgotten but a security incident will not be forgotten. I basically was saying, &#8220;Listen, people want us to move faster than we can.&#8221; I mean, Brian [Armstrong] was literally building everything. I was saying to Brian, &#8220;We cannot hack something together that ends up leading to a security incident. Even though everything is on fire, let&#8217;s do this very carefully.&#8221; And I think that resonated with them.\nBut Coinbase, especially in its early days, had a lot of hard tradeoffs between moving really quickly like a traditional startup and operating as a financial institution. Even then we were storing tens of millions of dollars of people&#8217;s money. And of course there were security incidents. Fraud was a big problem. People trying to buy bitcoin with stolen identities. We wanted to give good customers high limits and we we wanted to give scammers low or no limits. There are a lot of hard tradeoffs. I basically took the perspective that we need to be a security juggernaut and any bad customer experiences will long-term be forgotten.\nOn the other hand, if you get hacked or you have a massive fraud incident and lose all your money, it’s catastrophic. The main thing is avoid the catastrophic events. And what&#8217;s funny is looking back, that&#8217;s really what Coinbase has done. A big way that Coinbase is the leader in the space is just that we didn&#8217;t get hacked, honestly. We did many things right. But that is honestly the number one thing.\nCraig : Ok, so you do the presentations. Is this to both of them?\nOlaf : This is just to Fred. Fred and I probably talked for 45 minutes–a long time. Then Fred gave me a really brutal mathematics problem and said, &#8220;Okay, why don&#8217;t you figure that out while I go talk to Brian?&#8221;\nSo I knew I had at least on some level passed the first part. I knew he&#8217;d walk me out without meeting Brian if it definitely wasn&#8217;t working out.\nDo you want to know the problem?\nCraig : Yeah, absolutely.\nOlaf : Okay. So there are 100 lockers in a row. They&#8217;re all closed, okay? A kid goes by. He opens every single locker. A second kid goes by. Now he closes every other locker, every second locker. Third kid comes by, every third locker. If it&#8217;s open, he closes it. If it closed, he opens it. Then the fourth kid goes by. Every fourth locker, he changes the state. And now 100 kids go by. What is the state of the lockers after 100 kids go by?\nCraig : Oh man, I’d definitely need some time for that.\nOlaf : Yeah, so don&#8217;t try to figure it out because it may take a while. So I&#8217;m sitting there and thinking like, &#8220;Okay, focus Olaf. If Brian comes down and the first thing you have is the answer to this problem, this is gonna seal the deal.&#8221; At least in my head I thought that. In retrospect, that was getting ahead of things a bit much.\nTo be honest, I don&#8217;t know what happened but I had this crazy flash of insight and had the answer. And when Brian came back, we started talking through it and I just figured it out way faster than I reasonably should have.\nCraig : Whoa. So what’s the answer?\nOlaf : The answer is perfect squares are open. The reason being, they&#8217;re the only numbers that have an odd number of factors. So the number of factors determines whether a locker is open or closed because that&#8217;s the number of kids that interacted with it. And so the odd number of factors means it&#8217;s open and even number of factors means it&#8217;s closed. And the only numbers that have an odd number of factors are perfect squares like 16, 25, 36.\nCraig : How long were you given to solve that?\nOlaf : Oh, probably like three minutes.\nCraig : Holy shit, okay.\nOlaf : Yeah. It was probably three minutes. I don&#8217;t believe in divine intervention or anything. But that was a time in my life when I had an uncanny flash of insight that I would never pretend I could recreate. But anyway, then Brian grilled me for another hour.\nCraig : [Laughter]\nOlaf : Brian&#8217;s questions were really intense. “What do you wanna do with your life?” “What drives you as a person?” “What&#8217;s a belief you have that is extremely unpopular?” He wanted to really know me.\nI think Fred had gone up to Brian and said, &#8220;Listen, Olaf&#8217;s at least sort of qualified for this. I talked to him. I think he could do the job. Now we need to figure out do we want to actually work with him.&#8221; And Brian went super deep on a lot of really intense questions about my life, what drove me, what mattered to me, why I wanted to do this, all that stuff. And we had a very intense conversation about what it meant to want to do things, what it meant to be a human trying to go about the world.\nCraig : Did you feel prepared to answer those questions?\nOlaf : I definitely had to think about each question but I tend to have a pretty crystallized ideology about the way I think about the world. It changes, but at any given moment, I know what it is. So yeah, I think it was pretty reasonable for me to say, &#8220;Here&#8217;s why I wanna do this.&#8221;\nCraig : Okay, and then how does it wrap up?\nOlaf : They say, &#8220;Okay, great. We&#8217;ll let you know.&#8221; And then they walk me out. I heard back, I wanna say, four days later. They said, &#8220;You should come in for work trial.&#8221; And that was a two week paid trial. I worked really hard because I knew this was the final test. At the end of those two weeks they said, &#8220;Okay. You have a formal job offer.&#8221;\nCraig : What was the actual job?\nOlaf : Customer support. Like I said, I came in and was willing to do anything. I did customer support by myself until we had 250,000 users.\nIt was a marathon. It was like 12-hour days of fast replying. And, to be clear, we did not have good support during that time. I&#8217;ll say that as the person who was doing it. You would get an email. It wouldn&#8217;t necessarily come right away. It wouldn&#8217;t necessarily perfectly answer your question. But we were replying. [Laughter]\nCraig : [Laughter] Okay. So then did you become involved in hiring future people?\nOlaf : Yes. So basically what happened was we were trying to hire more customer support people, because it was not scaling with just me. We did four work trials for our customer support people to join me in San Francisco. We rejected all of them. Meanwhile the problem is getting worse and worse and worse, right?\nThe delay in replies and the quality of replies is just going down in a bad way. I think at the peak, the average time to reply was five days. And this is a financial institution. It&#8217;s really inappropriate.\nSo I got really desperate and I posted a Bitcoin SAT on Reddit. What this was was a test, a Bitcoin aptitude test so to speak. And it had questions like, &#8220;What is the hash of the genesis block?&#8221; That was the first question. And the idea there was if you&#8217;re asking yourself, &#8220;What does that mean?&#8221; this isn&#8217;t the job for you. If you have no idea what that is then get out of here.\nIt was a bunch of Bitcoin-style brainteaser-y questions and <a href=\"https://www.reddit.com/r/Bitcoin/comments/1oj0l2/olaf_from_coinbase_here_were_building_a_remote/\">I just posted it</a> on Reddit’s <a href=\"https://www.reddit.com/r/Bitcoin/\">/r/bitcoin</a> and <a href=\"https://bitcointalk.org/\">Bitcoin Talk</a> and I said, &#8220;If you get a perfect score, you get an interview for remote customer support.&#8221;\nAnd we got like 250 people to take this test. Skip ahead maybe four months. I have 43 people reporting to me in a distributed team.\nCraig : Whoa.\nOlaf : This team covers merchant integrations, API support, anti-fraud investigations, compliance investigations, and did customer support. We now have all of these teams at Coinbase. They mostly came from this one Bitcoin SAT. It was so successful that I posted it a second time at some point and got a new round of candidates.\nIt was a globally distributed team. The first person I hired was in New Caledonia. It&#8217;s weird how these things work. Skip ahead two years, he works at Coinbase in San Francisco and is the director of customer support. He’s an amazing guy. He started remote and I remember thinking when we had our first talk &#8211; he had a master&#8217;s in computer science from George Washington University &#8211; and I was like, &#8220;Why do you wanna do customer support?&#8221;\nAnd he said, &#8220;I&#8217;m in New Caledonia. This is the best job I could hope for and I love Bitcoin.&#8221; And I was like, &#8220;Well, you&#8217;re hired.&#8221;\nAnd that was when I realized that the remote structure was actually going to work really well. There were hard things about it, but I now feel very confident running remote teams. This was when we were using HipChat–before Slack. Then Slack came out and that helped a lot. And then we had Google Hangouts. Basically the tooling was good enough. Like Google Docs where we can all edit something. The tooling really was good enough, just at that moment. I think if were to try to do this distributed team two or three years before, it would&#8217;ve fallen on its face.\nCraig : So you were managing support but then you eventually ran risk, right? How does that happen?\nOlaf : Yup. So I was kind of managing what was really like the whole operational part of the company and it was really burning me out. This was a year and half of 12-hour days without any vacations. I took Sundays off. We scaled to probably 30 or 40 people in San Francisco before I hired a Director of Support and became the Head of Risk.\nSo as Head of Risk the main things I focused on were account security and fraud prevention. It wasn’t like infrastructure security around preventing hackers. It’s user-facing, like they enter their password on a phishing site.\nBasically with security there are two angles: We can get your coins stolen or you can get your coins stolen.\nCraig : [Laughter] Right.\nOlaf : [Laughter] So yeah, I was responsible for the latter and anti-fraud, i.e. people buying bitcoin with stolen identities. While I was running support I had a huge part in handling all that stuff. And when fraud had gotten bad in early 2013, I designed the Risk Queue that would review people that we thought were stolen identities. At one point I would review every single buy on the website–one by one.\nCraig : Whoa.\nOlaf : These are things that absolutely don&#8217;t scale, but you can build it in one day and start working on it that day. So Brian built it and I would review every single buy. As a result I started to get an incredible eye for stolen identities. Like I had a sixth sense for whether an account was a stolen identity or not.\nCraig : Can you explain that a little bit? What are you looking for?\nOlaf : Ok, so there are a couple tiers of scammer. Let&#8217;s pretend you&#8217;re a unsophisticated scammer. You sign up. The email you use is Edward.Fitzgerald@whatever.com and the name you use is Laura Johnson. Then the bank account you use is Alexander Smith. Obviously something’s going on there. So big name mismatches are the easiest to spot.\nThen there are patterns. So, for example, scammers would buy dumps–some guy will a hack a site, he&#8217;ll get a bunch of bank account numbers and then he&#8217;ll use them all. And those dumps will often share certain traits. For example, I’d suddenly see like 20 SunTrust bank accounts get added in 20 minutes and they all share certain formatting rules or the email domain is the same, or something like that. So again, it&#8217;s basically pattern recognition.\nBut then it gets way more complicated because for sophisticated scammers, their entire job hinges on me looking at something and saying, “that’s legit.”\nAnd it can mean massive payouts for them. Our limits at that time were 50 bitcoin a day. So, if you could sneak past me, you could buy 50 bitcoin every day until the real account holder called their bank and said, &#8220;I&#8217;m seeing all these crazy charges.&#8221;\nBut yeah, I learned a lot very quickly. I learned a lot about traditional payment mechanisms. Before I knew a lot about bitcoin. Now I know a lot about credit cards. And ACH. And bank wires. And all that stuff.\nCraig : Yeah, it sounds like you’ve dug in. I assume not everyone who works at Coinbase now has the same degree of knowledge. How do you scale understanding at a company that is based around something inherently technical?\nOlaf : In the early days, everyone was a cryptocurrency fanatic. The first two engineering hires were these absolutely brilliant people who basically came to Coinbase because they wanted to work on cryptocurrency. And what&#8217;s interesting is a lot of our anti-fraud people are also super into Bitcoin. They&#8217;re not people who worked anti-fraud at Stripe. They&#8217;re Bitcoin people first.\nSo yeah, we’d sort of filter for smart people that were passionate about Bitcoin. It&#8217;s my opinion that if you&#8217;re smart you can learn a new skill and all the details. But passion and innate interest cannot really be learned. We tended to hire people who said, &#8220;I love this company. I don&#8217;t quite have the experience.&#8221; Versus people that said, &#8220;I have the experience, but I&#8217;m looking at four other places and maybe I&#8217;ll pick Coinbase.&#8221;\nMy belief is that the inexperienced, interested person will outperform the experienced, uninterested person over time.\nThat said, when we started scaling we did have to start trading between interest in Bitcoin and domain experience. The person who runs Compliance, for example, can’t just be winging it.\nCraig : What was it that made you want to join Coinbase?\nOlaf : Before I was gonna apply, I read all about the founders. There were a bunch of competitors at the time. The massive market share was MtGox, <a href=\"https://en.wikipedia.org/wiki/Mt._Gox\">which ended in tragedy</a>, as you may know. And then like there were bunch of other companies that were bigger. BitInstant, Tradehill, these are all defunct. Every single one of them is dead now. But at the time, Coinbase was like the new little company.\nCraig : Okay, so the underlying question is how do you vet founders in a new field?\nOlaf : Yeah. I have pretty strong feelings on that. I’d say meet them and make sure 100% that you like them, that you could work for them, and that you will run the whole marathon with them. Running a company and scaling a startup is so much stress, so much work. And they&#8217;re gonna be sitting next to you the whole time\nIf you don&#8217;t feel like they&#8217;re in it 110% and that you can work with them and be friends with them, it&#8217;s not gonna work. Especially in a very micro team. I mean, once a company is 40 people, that&#8217;s still like a startup but the founder matters for you personally a little less. It does for the company&#8217;s success but not for you personally. But if you&#8217;re joining like a sub-10-person startup you really need to make sure that the founder is gonna drive this all the way. This needs be a grand slam.\nSo much of it is about personality and drive. Even if you&#8217;re technically brilliant, there are these dark times. And dark like bad things are happening. There&#8217;s always gonna be bad events.\nYou have to ask, are they gonna focus in and just move forward, or are they gonna give up? And it doesn&#8217;t matter if they&#8217;re technically competent if they&#8217;re in the latter category. They could be the best person in the world at this but if at the end of the day they don&#8217;t have the drive and spirit to make this happen, it doesn&#8217;t matter. So to me the technical competency of course is vital. But if you met someone and said, &#8220;Wow, that guy is the number one expert in the world at this,&#8221; but you felt like he&#8217;s kind of flakey. Pass. Always pass.\nWith Brian and Fred, they’re two of the smartest, most focused and driven people I have ever met. And I knew that after the interview. I was like, &#8220;These guys are really not fucking around.&#8221; Seriously, it really made me wanna work there.\nCraig : So to your point of the bad things always happening, what were the bad things that happened?\nOlaf : Oh, man. I think in 2013 our user base increased 100x. And the price of bitcoin went up 100x. Our volumes went up I think even more than 100x. You know when people talk about like rapid aggressive scaling? That&#8217;s exactly what it was and a tiny number of us were scaling all of it. At the beginning of that year it was two people. At the end of that year, just eight.\nCraig : Wow.\nOlaf : Brian and Fred are very careful about hiring. They only hire people that they truly think are superstars. At Coinbase one thing that gets said a lot is, &#8220;On a candidate if you&#8217;re not a ‘hell yes’, you&#8217;re a ‘no’.&#8221; If you&#8217;re like, &#8220;I like them. I think they&#8217;re smart. I think they&#8217;re great.&#8221; That&#8217;s a &#8220;no.&#8221;\nYou really have to fight to keep that up. You have to feel like if this person does not get hired, we&#8217;re crazy. That&#8217;s how you have to feel for someone to get hired at Coinbase.\nAnd that early team was really unique individuals. Like, it was the perfect puzzle pieces. But anyway, the scaling during that time was brutal. It was absolutely brutal. And we had bugs that were really bad.\nHere’s the thing, it’s not like having bugs on Twitter where maybe something gets retweeted wrong. When you have a bug on Coinbase, balances are incorrect in what are essentially bank accounts. And transactions that are time sensitive aren&#8217;t getting sent out. The stakes are way higher yet you’re still just five people in a room making the whole thing.\nOne time the ACH file we use with banks got duplicated. That’s means that if you bought $100 of Bitcoin we duplicated the transaction so you&#8217;re buying $200 of Bitcoin. When something like that happened I would get a thousand emails in 20 minutes because these are bank accounts and people definitely notice that stuff.\nThe one thing that&#8217;s so lucky is we never had an incident where someone gained access to our infrastructure and pulled out Bitcoin from the hot wallet. That was just the blessing. I think even Brian would probably tell you that there were times in Coinbase&#8217;s history that were sort of coin flips. But we survived them. Other companies had incidents like that and had to shut down. We caught things fast enough.\nCraig : That’s funny. It’s exactly the same thing <a href=\"http://www.themacro.com/articles/2016/09/employee-1-dropbox/\">Aston said about Dropbox</a>. Basically, &#8220;Shit went wrong all the time but the one thing we never did was lose a ton of files.&#8221;\nOlaf : Exactly. This is exactly Coinbase&#8217;s story. In those early days everything went wrong except the one thing that couldn’t go wrong.\nCraig : [Laughter] Exactly. So at what point were you like, &#8220;Okay. I&#8217;m ready to do something else?&#8221;\nOlaf : Yeah. So I basically saw what, for me, has been the biggest trend in the space I&#8217;ve ever seen, and I&#8217;ve been in this heads down for five years. People are doing this new behavior where they&#8217;re actually raising capital and issuing what is essentially network ownership of their network on the blockchain. So these are like bits of equity in peer-to-peer networks that are built on the blockchain.\nA crude example here is imagine if an early user of Facebook gets a thousand shares of Facebook. Now, instead of just normal network effects, there&#8217;s also monetary incentive network effects built into this protocol. And these new types of protocols are built on new blockchains or as subtokens of existing blockchains. The opportunity for me was too big to pass up. The trend was too strong. Plus I needed a new adventure. So I left to start Polychain.\nAnd it&#8217;s only been eight weeks but Polychain has seen a lot of interest because this trend is really strong. I think that over the next year, there&#8217;s gonna be amazing opportunities here. The alternative thing that I could&#8217;ve started is a venture fund that invests in companies built on the protocols.\nBut in this new model, there&#8217;s really no place for traditional VCs because the protocol tokens themselves are the issuance of ownership. Not shares on a piece of paper. And as the company wants to raise their Series A, their Series B, their Series C, all that is them holding say 5%, 10% of the protocol tokens and those going up in value as their network becomes more valuable. And then they can sell tokens and become diluted to get liquid cash. It works very well. It&#8217;s a lot of similar mechanics to venture capital fundraising, but they can do it all with this native protocol units and crowdfunding, and there&#8217;s just no place for paper shares or VCs.\nSo, instead of betting in companies built on protocol, I&#8217;m actually buying units of the protocol. I&#8217;m buying scarce blockchain tokens and creating a portfolio of those tokens. I&#8217;m basically buying ownership in all of these new 2.0 peer-to-peer protocols.\nCraig : That&#8217;s wild.\nOlaf : Yeah, that&#8217;s why Polychain is a hedge fund instead of a venture fund. Because I&#8217;m holding solely protocol tokens. To a normal person what I’m doing is extremely esoteric.\nCraig : [Laughter] Uh, yes.\nOlaf : It absolutely is. That said a lot of smart people in Silicon Valley think it&#8217;s on that edge where this is going to grow substantially over the next five years.\nCraig : You’re definitely in the right place. Ok, random question. Aside from the Bitcoin readings you recommended, what books do you recommend?\nOlaf : I have a couple that come to mind. So I love David Foster Wallace and <a href=\"https://www.amazon.com/Infinite-Jest-David-Foster-Wallace/dp/0316066524\">Infinite Jest</a> is probably my favorite book. His short stories are also amazing.\nAnother book that comes to mind is <a href=\"https://www.amazon.com/House-Leaves-Mark-Z-Danielewski/dp/0375703764\">House of Leaves</a>. The premise is crazy. So the actual book is a manuscript written by an old man. With annotations by a narrator who has found and reconstructed this book. With annotations by an omnipotent editor. Who is finding the annotations of the person who reconstructed this old man&#8217;s book.\nCraig : Oh my god.\nOlaf : And now this is where it gets even crazier. The old man&#8217;s book is a analysis of a movie that doesn&#8217;t exist.\nCraig : [Laughter]\nOlaf : And the narrator who&#8217;s annotating and reconstructing this old man&#8217;s book is being driven crazy because there&#8217;s so much detail and he can&#8217;t find this movie. And it like actually doesn&#8217;t appear to exist. And the old man, all his sources are fake articles and things. It gets really weird but it&#8217;s much more of a page turner than David Foster Wallace.\nAnyway, I’d recommend both because they&#8217;re super long and once you get into them, they completely consume your brain. They’re my favorite kind of books.\nCraig : Right on. Ok, let’s end there. Thanks for your time.\nOlaf : Sure thing.\n<hr />\nOlaf’s Suggested Reading \n<a href=\"https://www.amazon.com/Blood-Meridian-Evening-Redness-West/dp/0679728759\">Blood Meridian</a> by Cormac McCarthy &#8211; Probably my other favorite book along with Infinite Jest. \n<a href=\"https://www.amazon.com/Programming-Metaprogramming-Human-Biocomputer-Experiments/dp/0692217894\">Programming and Metaprogramming in the Human Biocomputer</a> by Dr. John Lilly \n<a href=\"https://www.amazon.com/Journey-Ixtlan-Lessons-Don-Juan/dp/0671732463\">Journey to Ixtlan</a> by Carlos Castaneda \n<a href=\"https://www.amazon.com/Steppenwolf-Novel-Hermann-Hesse/dp/0312278675\">Steppenwolf</a> by Herman Hesse\nHere are three posts that explain the Polychain thesis well: \n• <a href=\"https://medium.com/the-coinbase-blog/app-coins-and-the-dawn-of-the-decentralized-business-model-8b8c951e734f#.d9kebtd31\">App Coins and the dawn of the Decentralized Business Model</a> \n• <a href=\"http://avc.com/2016/07/the-golden-age-of-open-protocols/\">The Golden Age Of Open Protocols</a> \n• <a href=\"http://continuations.com/post/148098927445/crypto-tokens-and-the-coming-age-of-protocol\">Crypto Tokens and the Coming Age of Protocol Innovation</a>\n","comment_id":"1096678","feature_image":null,"featured":false,"visibility":"public","email_recipient_filter":"none","created_at":"2016-09-28T03:32:34.000-07:00","updated_at":"2022-02-03T16:45:08.000-08:00","published_at":"2016-09-28T03:32:34.000-07:00","custom_excerpt":"A conversation with Olaf Carlson-Wee, Coinbase's first employee.","codeinjection_head":null,"codeinjection_foot":null,"custom_template":null,"canonical_url":null,"authors":[{"id":"61fe29e3c7139e0001a71084","name":"Craig Cannon","slug":"craig-cannon","profile_image":"/blog/content/images/2022/02/Craig-1.jpg","cover_image":null,"bio":"Craig is the Director of Content at YC. ","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/craig-cannon/"}],"tags":[{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},{"id":"61fe29efc7139e0001a71184","name":"Employee #1","slug":"employee-1","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/employee-1/"},{"id":"61fe29efc7139e0001a71175","name":"Interview","slug":"interview","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/interview/"}],"primary_author":{"id":"61fe29e3c7139e0001a71084","name":"Craig Cannon","slug":"craig-cannon","profile_image":"https://ghost.prod.ycinside.com/content/images/2022/02/Craig-1.jpg","cover_image":null,"bio":"Craig is the Director of Content at YC. ","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/craig-cannon/"},"primary_tag":{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},"url":"https://ghost.prod.ycinside.com/employee-1-coinbase/","excerpt":"A conversation with Olaf Carlson-Wee, Coinbase’s first employee.","reading_time":19,"access":true,"og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"email_subject":null,"frontmatter":null,"feature_image_alt":null,"feature_image_caption":null},{"id":"61fe29f1c7139e0001a7150c","uuid":"811bb1bc-a39c-4cdd-a1b0-2bc588106c8f","title":"Coinbase (YC S12) in the New Scientist: Launching instant Bitcoin micro payments off-blockchain","slug":"coinbase-yc-s12-in-the-new-scientist-launching-instant-bitcoin-micro-payments-off-blockchain","html":"<div class=\"posthaven-post-body\">\n<div class=\"posthaven-gallery\" id=\"posthaven_gallery[573248]\">\n\n <img class=\"posthaven-gallery-image\" src=\"https://phaven-prod.s3.amazonaws.com/files/image_part/asset/983881/jB3NSibl69HfBvAZKkNzZw5Oa2E/coinbase_office2-8768d8dc2de699632d457ba51584c71d.jpg\" />\n \n</div>\n\nThe New Scientist, in the recent magazine edition writes: &#8220;<a href=\"http://www.newscientist.com/article/mg21929304.300-micropayments-now-ready-to-slash-price-of-online-news.html#.UhJaxGSBeCg\" target=\"_blank\" rel=\"nofollow\">Micropayments now ready to slash price of online news</a>&#8220;:\n<blockquote>\nThe digital currency <a target=\"_blank\" href=\"http://www.newscientist.com/article/mg21028155.600-future-of-money-virtual-cash-gets-real.html\">Bitcoin</a> could help. Coinbase, a digital wallet and platform that lets anyone with a US bank account buy and trade Bitcoin currency, announced last week that it is now supporting instant, free micropayments, in Bitcoins, with none of these drawbacks. In a blog post, Coinbase CEO and founder Brian Armstrong <a target=\"_blank\" href=\"http://blog.coinbase.com/post/57483182558/you-can-now-send-micro-transactions-with-zero-fees\" title=\"Link: http://blog.coinbase.com/post/57483182558/you-can-now-send-micro-transactions-with-zero-fees\">wrote that Coinbase would start handling small – typically under $1 – Bitcoin transactions</a> &#8220;off-blockchain&#8221;. That means each one wouldn&#8217;t have to go through the algorithmic validation process across the whole Bitcoin network, which can take a few minutes or more, but would instead be sent directly between two Coinbase accounts and validated later.\nThese microtransactions could let users read the rest of a New York Timesarticle for a few cents instead of signing up for a full monthly subscription, Armstrong wrote, or &#8220;pay for Wi-Fi internet metered by the minute (or second!) if you just need to check one email&#8221; or &#8220;support your favorite artists or coders with a tip&#8221;.\n</blockquote>\n</div>\n","comment_id":"595940","feature_image":null,"featured":false,"visibility":"public","email_recipient_filter":"none","created_at":"2013-08-19T10:53:00.000-07:00","updated_at":"2021-10-20T14:34:18.000-07:00","published_at":"2013-08-19T10:53:00.000-07:00","custom_excerpt":null,"codeinjection_head":null,"codeinjection_foot":null,"custom_template":null,"canonical_url":null,"authors":[{"id":"61fe29e3c7139e0001a710d1","name":"Y Combinator","slug":"y-combinator","profile_image":"/blog/content/images/2022/02/1200px-Y_Combinator_logo.svg.png","cover_image":null,"bio":"Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200).\r\n\r\nThe startups move to Silicon","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/y-combinator/"}],"tags":[{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},{"id":"61fe29efc7139e0001a71173","name":"YC News","slug":"yc-news","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/yc-news/"}],"primary_author":{"id":"61fe29e3c7139e0001a710d1","name":"Y Combinator","slug":"y-combinator","profile_image":"https://ghost.prod.ycinside.com/content/images/2022/02/1200px-Y_Combinator_logo.svg.png","cover_image":null,"bio":"Y Combinator created a new model for funding early stage startups. Twice a year we invest a small amount of money ($150k) in a large number of startups (recently 200).\r\n\r\nThe startups move to Silicon","website":null,"location":null,"facebook":null,"twitter":null,"meta_title":null,"meta_description":null,"url":"https://ghost.prod.ycinside.com/author/y-combinator/"},"primary_tag":{"id":"61fe29efc7139e0001a7118f","name":"Blockchain","slug":"blockchain","description":null,"feature_image":null,"visibility":"public","og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"codeinjection_head":null,"codeinjection_foot":null,"canonical_url":null,"accent_color":null,"url":"https://ghost.prod.ycinside.com/tag/blockchain/"},"url":"https://ghost.prod.ycinside.com/coinbase-yc-s12-in-the-new-scientist-launching-instant-bitcoin-micro-payments-off-blockchain/","excerpt":"\n \n ","reading_time":1,"access":true,"og_image":null,"og_title":null,"og_description":null,"twitter_image":null,"twitter_title":null,"twitter_description":null,"meta_title":null,"meta_description":null,"email_subject":null,"frontmatter":null,"feature_image_alt":null,"feature_image_caption":null}],"filter":"(Blockchain)","featured":null,"pagination":{"page":1,"limit":10,"pages":1,"total":10,"next":null,"prev":null}},"url":"/blog/tag/blockchain","version":"b9f9744a0d3735df50a84b84982594903bcf0f3c","encryptHistory":false,"clearHistory":false,"rails_context":{"railsEnv":"production","inMailer":false,"i18nLocale":"en","i18nDefaultLocale":"en","href":"https://www.ycombinator.com/blog/tag/blockchain","location":"/blog/tag/blockchain","scheme":"https","host":"www.ycombinator.com","port":null,"pathname":"/blog/tag/blockchain","search":null,"httpAcceptLanguage":null,"applyBatchLong":"Spring 2025","applyBatchShort":"X2025","applyDeadlineShort":"February 11","ycdcRetroMode":true,"currentUser":null,"serverSide":true},"id":"ycdc_new/pages/BlogList-react-component-1754eb09-697e-4d2a-9a37-d77d75be8cd7","server_side":true}" data-reactroot=""><div class="no-scroll-behind relative isolate z-10"><div data-headlessui-state=""><header class="relative mx-auto leading-tight max-w-ycdc-page"><nav class="flex flex-row items-start border-retro-sectionBorder py-[10px] sm:flex-row sm:items-center sm:border-b sm:py-[20px]"><div class="flex w-full flex-1 items-start"><div class="mr-[26px] leading-none"><a class="inline-block h-[56px] w-[56px]" href="/" title="Y Combinator"><img 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class="shrink-0"><a href="/blog/crypto-investors-linda-xie-and-avichal-garg-on-opportunities-use-cases-and-regulation"><img width="300" class="h-48 w-full object-cover" src="/blog/content/images/wordpress/2018/05/Crypto-Investors-Linda-Xie-and-Avichal-Garg.jpeg" alt=""/></a></div><div class="flex flex-1 flex-col justify-between bg-white p-6"><div class="flex-1"><a href="/blog/crypto-investors-linda-xie-and-avichal-garg-on-opportunities-use-cases-and-regulation" class="mt-2 block">Crypto Investors Linda Xie and Avichal Garg on Opportunities, Use Cases, and RegulationToday's episode is with Linda Xie, co-founder of Scalar Capital, and Avichal Garg, Managing Partner at Electric Capital.</a></div><div class="mt-2"><a href="/blog/tag/blockchain">Blockchain</a><a href="/blog/tag/podcast">Podcast</a><a href="/blog/tag/video">Video</a></div><div class="mt-6 flex items-center"><div class="shrink-0"><a href="/blog/author/y-combinator">Y Combinator<img width="40" class="h-10 w-10 rounded-full" src="/blog/content/images/2022/02/1200px-Y_Combinator_logo.svg.png" alt=""/></a></div><div class="ml-4"><a href="/blog/author/y-combinator" class="hover:underline">Y Combinator</a><div class="flex space-x-1 text-sm text-gray-500">5/2/2018</div></div></div></div></div><div class="flex flex-col overflow-hidden rounded shadow"><div class="shrink-0"><a href="/blog/coinlist-cofounder-andy-bromberg-and-ramon-recuero"><img width="300" class="h-48 w-full object-cover" src="/blog/content/images/wordpress/2018/04/CoinList-Cofounder-Andy-Bromberg-and-Ramon-Recuero.jpeg" alt=""/></a></div><div class="flex flex-1 flex-col justify-between bg-white p-6"><div class="flex-1"><a href="/blog/coinlist-cofounder-andy-bromberg-and-ramon-recuero" class="mt-2 block">CoinList Cofounder Andy Bromberg and Ramon RecueroToday's episode is with Andy Bromberg and Ramon Recuero. Andy is the co-founder and CEO of CoinList and CoinList provides financial infrastructure for token creators and investors. Ramon is an engineer here at YC.</a></div><div class="mt-2"><a href="/blog/tag/blockchain">Blockchain</a><a href="/blog/tag/podcast">Podcast</a><a href="/blog/tag/video">Video</a></div><div class="mt-6 flex items-center"><div class="shrink-0"><a href="/blog/author/y-combinator">Y Combinator<img width="40" class="h-10 w-10 rounded-full" src="/blog/content/images/2022/02/1200px-Y_Combinator_logo.svg.png" alt=""/></a></div><div class="ml-4"><a href="/blog/author/y-combinator" class="hover:underline">Y Combinator</a><div class="flex space-x-1 text-sm text-gray-500">4/18/2018</div></div></div></div></div><div class="flex flex-col overflow-hidden rounded shadow"><div class="shrink-0"><a href="/blog/the-decentralized-future-series"><img width="300" class="h-48 w-full object-cover" src="/vite/assets/yc-blog-placeholder-Cx3N3yop.png" alt=""/></a></div><div class="flex flex-1 flex-col justify-between bg-white p-6"><div class="flex-1"><a href="/blog/the-decentralized-future-series" class="mt-2 block">The Decentralized Future SeriesA good method for discovering startup ideas is to look into technological breakthroughs and think about what they unlock that wasn't possible before. In this introductory post, we are going to use this framework to examine Bitcoin.</a></div><div class="mt-2"><a href="/blog/tag/blockchain">Blockchain</a><a href="/blog/tag/essay">Essay</a></div><div class="mt-6 flex items-center"><div class="shrink-0"><a href="/blog/author/ramon-recuero">Ramon Recuero<img width="40" class="h-10 w-10 rounded-full" src="/blog/content/images/2022/02/ramon.jpg" alt=""/></a></div><div class="ml-4"><a href="/blog/author/ramon-recuero" class="hover:underline">Ramon Recuero</a><div class="flex space-x-1 text-sm text-gray-500">2/14/2018</div></div></div></div></div></div></section><section class="relative isolate z-0 border-retro-sectionBorder sm:pr-[13px] ycdcPlus:pr-0 pt-6 lg:pt-9 pb-6 lg:pb-9"><div class="mt-2 grid max-w-lg gap-5 lg:max-w-none lg:grid-cols-3"><div class="col-span-2"><h3 class="text-xl font-semibold uppercase tracking-wider text-yellow-600">All Posts</h3><div class="flex flex-col overflow-hidden rounded-lg"><div class="mb-6 mr-6 flex flex-1 flex-col justify-between"><div class="flex-1"><a href="/blog/building-for-the-blockchain" class="mt-2 block">Building for the Blockchain</a>by <a href="/blog/author/vincent-chen" class="text-blue-500 hover:underline">Vincent Chen</a>1/9/2018If you’re here, we assume that you’re a developer/hacker who’s intrigued by the blockchain. You’re convinced that you understand how it works and now you’re itching to figure out what the blockchain means for you and your developer skill set.<div class="mt-4"><a class="inline-flex text-sm font-medium text-blue-500 md:text-base" href="/blog/building-for-the-blockchain">Read More <svg xmlns="http://www.w3.org/2000/svg" fill="none" viewBox="0 0 24 24" stroke-width="2" stroke="currentColor" aria-hidden="true" class="mx-1 h-6 w-6" width="1.25em" height="1.25em"><path stroke-linecap="round" stroke-linejoin="round" d="M13 9l3 3m0 0l-3 3m3-3H8m13 0a9 9 0 11-18 0 9 9 0 0118 0z"></path></svg></a></div></div></div></div><div class="flex flex-col overflow-hidden rounded-lg"><div class="mb-6 mr-6 flex flex-1 flex-col justify-between"><div class="flex-1"><a href="/blog/crypto-evolution" class="mt-2 block">Crypto Evolution</a>by <a href="/blog/author/ramon-recuero" class="text-blue-500 hover:underline">Ramon Recuero</a>10/30/2017Bitcoin has already undergone several forks. A fork defines a moment in time when a specific digital currency gets split into two different currencies. A couple months ago, a Bitcoin fork created Bitcoin Cash (BCH). Another fork just created Bitcoin Gold last week. Segwit 2x will follow next month.<div class="mt-4"><a class="inline-flex text-sm font-medium text-blue-500 md:text-base" href="/blog/crypto-evolution">Read More <svg xmlns="http://www.w3.org/2000/svg" fill="none" viewBox="0 0 24 24" stroke-width="2" stroke="currentColor" aria-hidden="true" class="mx-1 h-6 w-6" width="1.25em" height="1.25em"><path stroke-linecap="round" stroke-linejoin="round" d="M13 9l3 3m0 0l-3 3m3-3H8m13 0a9 9 0 11-18 0 9 9 0 0118 0z"></path></svg></a></div></div></div></div><div class="flex flex-col overflow-hidden rounded-lg"><div class="mb-6 mr-6 flex flex-1 flex-col justify-between"><div class="flex-1"><a href="/blog/the-token-effect" class="mt-2 block">The Token Effect</a>by <a href="/blog/author/ramon-recuero" class="text-blue-500 hover:underline">Ramon Recuero</a>8/16/2017Cryptocurrencies and tokens are becoming increasingly popular. In this post, we’ll explore the context that triggered this frenzy, the new possibilities tokens unlock, and why people are excited about its future.<div class="mt-4"><a class="inline-flex text-sm font-medium text-blue-500 md:text-base" href="/blog/the-token-effect">Read More <svg xmlns="http://www.w3.org/2000/svg" fill="none" viewBox="0 0 24 24" stroke-width="2" stroke="currentColor" aria-hidden="true" class="mx-1 h-6 w-6" width="1.25em" height="1.25em"><path stroke-linecap="round" stroke-linejoin="round" d="M13 9l3 3m0 0l-3 3m3-3H8m13 0a9 9 0 11-18 0 9 9 0 0118 0z"></path></svg></a></div></div></div></div><div class="flex flex-col overflow-hidden rounded-lg"><div class="mb-6 mr-6 flex flex-1 flex-col justify-between"><div class="flex-1"><a href="/blog/blockchain-investing-with-olaf-carlson-wee-and-aaron-harris" class="mt-2 block">Blockchain Investing with Olaf Carlson-Wee and Aaron Harris</a>by <a href="/blog/author/y-combinator" class="text-blue-500 hover:underline">Y Combinator</a>7/19/2017Today's episode is with Aaron Harris, who's a partner at YC, and Olaf Carlson-Wee, who's the founder and CEO of Polychain Capital, a blockchain investing hedge fund. Olaf was also the first employee at Coinbase.<div class="mt-4"><a class="inline-flex text-sm font-medium text-blue-500 md:text-base" href="/blog/blockchain-investing-with-olaf-carlson-wee-and-aaron-harris">Read More <svg xmlns="http://www.w3.org/2000/svg" fill="none" viewBox="0 0 24 24" stroke-width="2" stroke="currentColor" aria-hidden="true" class="mx-1 h-6 w-6" width="1.25em" height="1.25em"><path stroke-linecap="round" stroke-linejoin="round" d="M13 9l3 3m0 0l-3 3m3-3H8m13 0a9 9 0 11-18 0 9 9 0 0118 0z"></path></svg></a></div></div></div></div><div class="flex flex-col overflow-hidden rounded-lg"><div class="mb-6 mr-6 flex flex-1 flex-col justify-between"><div class="flex-1"><a href="/blog/ipfs-coinlist-and-the-filecoin-ico-with-juan-benet-and-dalton-caldwell" class="mt-2 block">IPFS, CoinList, and the Filecoin ICO with Juan Benet and Dalton Caldwell</a>by <a href="/blog/author/y-combinator" class="text-blue-500 hover:underline">Y Combinator</a>6/30/2017Today's episode is with Dalton Caldwell, who's a partner at YC, and Juan Benet, who's the founder of Protocol Labs, a YC company that's working on IPFS, Filecoin, and CoinList.<div class="mt-4"><a class="inline-flex text-sm font-medium text-blue-500 md:text-base" href="/blog/ipfs-coinlist-and-the-filecoin-ico-with-juan-benet-and-dalton-caldwell">Read More <svg xmlns="http://www.w3.org/2000/svg" fill="none" viewBox="0 0 24 24" stroke-width="2" stroke="currentColor" aria-hidden="true" class="mx-1 h-6 w-6" width="1.25em" height="1.25em"><path stroke-linecap="round" stroke-linejoin="round" d="M13 9l3 3m0 0l-3 3m3-3H8m13 0a9 9 0 11-18 0 9 9 0 0118 0z"></path></svg></a></div></div></div></div><div class="flex flex-col overflow-hidden rounded-lg"><div class="mb-6 mr-6 flex flex-1 flex-col justify-between"><div class="flex-1"><a href="/blog/employee-1-coinbase" class="mt-2 block">Employee #1: Coinbase</a>by <a href="/blog/author/craig-cannon" class="text-blue-500 hover:underline">Craig Cannon</a>9/28/2016A conversation with Olaf Carlson-Wee, Coinbase's first employee.<div class="mt-4"><a class="inline-flex text-sm font-medium text-blue-500 md:text-base" href="/blog/employee-1-coinbase">Read More <svg xmlns="http://www.w3.org/2000/svg" fill="none" viewBox="0 0 24 24" stroke-width="2" stroke="currentColor" aria-hidden="true" class="mx-1 h-6 w-6" width="1.25em" height="1.25em"><path stroke-linecap="round" stroke-linejoin="round" d="M13 9l3 3m0 0l-3 3m3-3H8m13 0a9 9 0 11-18 0 9 9 0 0118 0z"></path></svg></a></div></div></div></div><div class="flex flex-col overflow-hidden rounded-lg"><div class="mb-6 mr-6 flex flex-1 flex-col justify-between"><div class="flex-1"><a href="/blog/coinbase-yc-s12-in-the-new-scientist-launching-instant-bitcoin-micro-payments-off-blockchain" class="mt-2 block">Coinbase (YC S12) in the New Scientist: Launching instant Bitcoin micro payments off-blockchain</a>by <a href="/blog/author/y-combinator" class="text-blue-500 hover:underline">Y Combinator</a>8/19/2013 <div 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