>> Announcer: From New York, it's theCUBE,
covering Blockchain Week.
(light, upbeat music)
Now, here's John Furrier.
>> Hello everyone, I'm John Furrier.
We're here on the ground in New York City
for consensus 2018's Blockchain Week.
I'm here with David Siegel who's
the CEO of the Pillar Project,
also the author of the Token Economics Handbooks,
entrepreneur, mentor to companies.
Thanks for coming on. >> Sure.
Thank you John.
Great to be here.
>> So, I'm excited to talk with you, because I've been
saying all week I love token economics.
It's a core part of the
business model, disruption. >> Right.
>> It's part of the key formula where Blockchain shines.
It's where the rubber meets the road as some say.
So, let's jump in. >> Sure.
>> In a, how much is being discussed here about that.
I mean, obviously ICOs are well known
and people are looking at that road,
but token economics, the importance of it.
>> First, I think it's important to understand
we're at the very beginning of this.
It's a steep learning curve.
We have these old model T tokens called the ERC20 Token,
which we will get rid of and build better things.
We have models that are mostly based on old,
you know whenever there's a new technology,
we first imitate the old stuff until we see what the new.
So one of the really exciting new things that's come
out of this is effectively the Ethereum model,
where you raise some money.
You build a system, and it's open source.
It's free.
Anyone can take it and do anything with it,
but it requires its own token to work.
And the people who sell those tokens,
you sell about 70% to your funders.
And that creates the economy, but you hold about 30% back,
and as the value goes up, as the network affect kicks in,
and as these things rise in value,
your 30% funds the project indefinitely
after you run out of the first.
So that's a pretty exciting model.
That's what I call sort of basic Tokenomics.
You have no business model.
You have no income model.
You're totally open source,
but your token powers your platform,
and you have some tokens in your back pocket.
>> Yeah, and the general form that you see is 70 30, roughly.
Is that just a pattern? >> That's about, that's normal.
Now, that in a single sale, and what we see now
in ICO land is pre-sale and then the big sale.
I think we'll go to a more staged model,
because I think too many companies are over-funded,
too many projects are over-funded.
240 million dollars for status,
maybe we don't need that much
to start a project with a white paper.
So, I think we're, I hope we'll go to a staged model.
>> Explain stage model.
>> You might sell 20% and raise what do you need to get
to first base, three million to show a
minimum viable product and get traction.
>> Yeah, it makes sense.
>> You know, what projects
need more than three, maybe four?
I mean, you don't need 20 million.
And then you do that, but now you've got
80% of tokens in reserve.
so now things are going well.
Your token has gone for let's say five cents to 20 cents.
You can sell another 20%.
>> So the funding of the platform is that token economics
kick in, per your other example, that 30%
70 goes raise and 30% funds
the platform indefinitely. >> Yeah, that's typical.
>> If you do the staged approach, what you're saying is
there's more power in reserve to fund the platform.
Cause if you can, if you get to first base,
you might get to second.
>> I think investors have been too gullible.
And they're looking at these 50, 80, hundred million dollar
raises and going oh me too.
I have fear of missing out.
I want to get in on that too.
That's the big deal of the day.
That is the one that's probably
going to have lousy returns, right.
These things are over-funded and not,
there's no real give and take with the market.
>> Yep.
>> You know to get, like,
nothing ever really works the way you plan.
No business plan is ever worth anything.
Think of, you know, Google, Apple, Microsoft.
Their first business plans are for something else.
(John laughs)
So, find groups of people that you can give money to,
not too much, get to first base, get some traction.
Make something, listen to the market,
continue to, you know, build what people want.
And then your token will rise, and then you sell the next--
>> So I got to ask you. >> You know what.
It's very much like venture capital, right.
We do it in stages.
>> It's pragmatic.
It's the right way, I think an investor
and the entrepreneur,
by the way, your point is also valid,
because like in venture capital,
if you take on too much money, you could actually fail.
You're not optimized, and we've seen that before.
>> It's not good allocation of capital now.
We've got a lot of innovation to do.
Wouldn't it be great if we could do a thousand projects
at like two or three, four million dollar level
and see which ones come out of that?
And then give them more.
>> David, let's walk through a use case.
So I'm a entrepreneur or I'm a growing business,
and I maybe bootstrapped it
or maybe took a little bit of the seed funding
and did some cloud technology, open source,
and whoa I've got a product.
And I go, you know what, the growth strategy
for me as a company is use token economics,
because I got to decentralize use fit there.
>> Sure.
>> And I see a way to scale and grow with tokens.
How should I set up my token economics?
I got security tokens.
I got utility tokens.
Do I do a
(crosstalking) purpose vehicle?
It just sounds so complicated.
>> I'm making funny faces John,
because I see too many tokens, where you know,
we always say, and I'm a token designer,
well, what does a token do.
Well the answer is it raises money.
That is the number one answer.
It raises money.
Well, does it actually do anything for the token holders?
Well, I'm not sure. >> Maybe down the road.
>> It gives you access to the system.
Is that a good answer?
So, I think actually we should be turning most of these
token sales into equity sales.
And that's a different kettle of fish.
So, I honestly think people misunderstand the ICO concept.
And they should, we should think of ICOs as we know them
today as project finance, not corporate finance,
not company, not start up finance.
Start up finance should be
done with equity. >> That's a great point.
>> Equity is something you hold very dear.
There's only a hundred percent of it.
You sell it only if you need to to get to the next level.
And equity means your shareholders are along for the ride.
They may have to vote you out
of your job at some point. >> it's happened to me before.
Happened to me before.
That's venture capital. >> You may be acquired.
You may, any number of things can happen to equity.
And project finance is different.
So, the Pillar Project is an open source project.
It's a non-profit foundation in Switzerland.
No one owns it.
It can't be bought.
Our goal is to do one project that we said
in the white paper.
We are on track to do that, but if for some reason
we couldn't do that, I think the money should go back
to the people who funded your white paper,
not some random ride off in the hay.
>> David, take a minute to talk about the Pillar Project.
I was going to get to that. Let's go to that.
What's the Pillar Project about?
How did this come to life?
>> Sure. >> What's the current status?
>> So the Pillar Project is a good example of an open source
non-profit project that uses Tokenomics
and is not a company and has no equity.
We have a token that will give you access to our wallet,
which is coming this summer.
And the wallet's meant to be, initially just a
cryptocurrency wallet, like many others,
but with so many differences John.
So, for example there will be a name look up,
an address book, and you'll find me by name,
and you'll send me tokens, currencies by name,
or you'll trade with me by name.
You'll never see an ether address.
You'll never see a Bitcoin address, no fishing, no hacking,
no whacky cut and paste errors and mistakes.
For example, the Blockchain Explorer will be built
into our wallet, so as you send me something
or trade something, you'll be getting status
information all the time.
You'll never go to a Blockchain Explorer.
All these nice things are built in.
We have lots of features for your mom to make it easy
for her to understand and keep it very simple.
>> So you've abstracted away some of the complexities.
>> We've added complexity on the back end to do the services
that make the front end very simple.
>> Okay, got it, and what's current status of the
project funding wise. >> We'll be shipping the first.
Well, we raised money last July.
We had a 20 million dollar funding last July.
That has gone up, because ether has gone up.
We got about 50 people full time.
We're in London. >> So you're at first base
or second base?
>> We'll be on first base in July.
We've got to get our product out the door.
>> It's the wallet.
>> It's a wallet to start with, but also it will help
you manage your personal data.
It will help you be GDPR compliant.
We'll have an exchange, and we'll be doing equity ICOs.
We'll be doing, in the wallet, we'll be doing,
for example, with the utility ICO, you'll issue your token,
you'll sell it to people.
They'll buy it in the wallet,
and then trading will be immediate.
You'll be listed, everything right there.
Don't move stuff around.
We're trying to create a place that's safe for consumers.
>> Got it.
Alright, I love this concept about open source.
And, it's kind of threaded.
Some people are open source guys, like me and you
who have seen that movie go from in a radical
second tier citizen to primary tier power in the world.
As Blockchain takes a community focus, we're seeing the same
business model that made Red Hat very famous,
that's powering the Linux Foundation.
This notion of projects.
>> Yeah.
>> And in open source, it's a distinction between project
and product, upstream projects,
a community, downstream products.
Downstream activity is where people productize the project.
>> Yes.
>> I see a pattern happening in this world where we're
starting to see some of that.
>> Interesting, okay.
>> Your thoughts on this, because that's Ethos has proven,
this world has got a lot of growth to it.
Are we seeing this open source ethos and principles,
architecting in some of the successful crypto projects?
>> I would take this productization analogy pretty far,
because it's true in the profit world too.
It's true with startups often do this as well.
It's a service.
You get better at it.
You productize it.
That's pretty common.
So I think that's part and parcel of just solving customer
needs and then scaling, right.
The non-profit thing or the open source thing is different,
because you can't make money on your open source thing.
You've got to find another way, right.
And here in Blockchain world,
we're using scaling effects and tokens.
So let's go to Tokenomics, where you can start an ecosystem
fresh with a token that has no value.
And Ether had no value on day one, right, almost no value.
And through network effect and use
and the fact that it's a limited number.
The limited number's important.
The limited number makes it so that it's scarcity, right.
It's got value to people who can see
oh later it might be worth more.
So you got both natural buyers and speculators
coming into a system.
And this is what's giving the SEC a hard time, because they
can't see whether it's... >> They don't understand it.
>> Is it a security
or is it a gym membership?
>> It's a serious problem, because they don't understand it.
And they're causing a lot of,
they're stunting a lot of growth in my opinion.
But the thing about token economics is what you're getting
at, and this is where I trying to squint through the noise.
I understand in an infrastructure web one dot O.
You got URLs.
You got DNS.
You have infrastructure. >> Yeah.
>> Google has cost per click.
All that apparatus doesn't work for network effects.
So if you look at network effects as being the main
value proposition in most of these opportunities,
why were we using E-commerce stack, an old model,
because how do you measure networks?
Tokens are becoming and wallets
are becoming a key infrastructure.
I see this coming. >> Yes.
>> And I see the network effect tokens becoming both
an instrumentation vehicle
and a transactional currency opportunity.
So, this is a dynamic that
Blockchain could really and tokens...
>> So I think the huge opportunity John is that
instead of fake news and fake everything
and fragile DNS systems and things that are centralized,
we can decentralize things now with a token
at the center that puts skin in the game.
And a great example is science.
You know we do science pretty badly.
It's whoever can get budget for whatever whacky project.
And if we had a betting, a side bet system,
where people could bet on the outcome of projects,
even when you propose them, the people who make the
decisions of whether to fund these things could look
at the odds first of what the crowd thinks.
And if the crowd is right about the outcome,
the winners take the money from the losers.
And this skin in the game
concept is being used... >> Yeah, it's a marketplace.
The market dynamics of what you just said
I think is very important.
This changes the evaluation structure
based upon new information.
>> So, the price of fake news is almost zero.
And we saw that in the last election.
We see that in Facebook everyday.
We see that on the front page of the New York Times.
The price of fake news is close to zero.
If it costs you money that it, when it,
turns out your stuff is fake, if you have to put up money
alongside your news, and then we find out it's fake,
and you lose it, that will change things.
>> Yes.
>> So the skin in the game tokens,
and you can actually google skin in the game tokens
and learn a bunch of interesting models
is what's coming next.
>> Well, we have to bring you
on board theCube project that we're starting.
We're tokenizing our platforms,
and we think about this all the time.
>> Yeah. >> It's very cutting edge.
David, really great to have you on.
Talk about the book.
Where can we find it?
Are you on Medium? >> One quick thing.
You know, we're going to have token camp
coming up in Lithuania.
We've got a one week workshop
and un-conference in Vilnius, Lithuania.
I know that
sounds like nowhere. >> What is that?
What's the date?
>> It's July 15th to 22nd.
It's free.
Pillar's paying for it.
It's at a resort.
We're taking over a resort with crazy crypto people,
skin in the game tokens, token camp.
We've got a business agility camp for entrepreneurs,
for investors, for coders.
We're going to do, in fact we're, I can just announce right now
that we're doing a hackathon with Radix,
an incredible new Blockchain
and a bunch of interesting people.
Lex Okland will be there, Venay Gupta.
We're going to have learning, learning for seven days.
>> That's at a resort.
>> It's at a resort in Lithuania.
>> So it's all one compound.
>> Yeah, we're taking it over.
And there will be a little golf.
But it's good for families.
We did it last year.
>> I checked it out. It's got a lot of lake there too.
You got a lake.
You got golf courses. >> It's going to be really fun.
And we did it last year, and people were learning
until one o'clock in the morning.
>> What's the capacity you're looking at for that event?
>> 500 people.
>> So intimate.
It's a very intimate event. >> It should be perfect.
We're going to be blasting out.
You should come.
We're going to be blasting out on 4K.
We've got enough bandwidth to send to YouTube
and to wherever else you want to distribute video.
You could be part of the media center.
>> Awesome, well David Siegel, great to have you on.
Final question, your take away from Blockchain Week.
Obviously, new entrants are going to, new actors are coming
into the system, community's booming.
It's still tight knit, but now you have finance.
You have tech and you have developers all coming together.
Your thoughts of the show this week, Blockchain Week.
>> Yeah, one thing, the demos are
pretty lame in general, I think.
We still aren't paying much attention
to user experience at all. >> Yep.
>> I think the enterprise guys have a lot to learn,
because they're kind of playing
their normal enterprise game.
And it doesn't look so good here.
>> Yeah, Jace was talking about the Blockchain washing.
(David laughs)
Basically, putting a Blockchain--
>> We added Blockchain to this enterprise project and look.
>> Yeah, is that a real dynamic in your opinion?
>> I think they're figuring it out.
I think some of the academic and some of the white paper
stuff I've seen is okay and commercializing it.
They're on the path to learning how to commercialize it.
But they're not part of us.
They're not, they'll never be crypto-anarchists, okay fine.
But they don't really seem to get us and to be part of it.
They're, it's amazing to see a conference where IBM,
Microsoft, you know these other big names, are deloyed,
are, like, in their own little pockets
on the side, and no one's paying.
>> John: It's a toe in the water for them.
>> They're not paying much attention,
because you go in there,
and it's the normal marketing jargon and brochures.
And it doesn't feel like they're really engaging.
>> Yeah.
>> I'd love to see more engagement with our community.
>> And I think they got to really get engaged in.
The good news is, for IBM at least, they're part
of the Linux Foundation and Hyperledger Project.
So, we're seeing some open sourcedness there, I mean.
>> I'd like to see more thought leadership,
more real, you know, publish some papers.
Come to our conferences and give us some substance.
>> Well, I mean, I talked to Michael Dell and Pat Gelsing
for instance, and, you know, they are into Blockchain.
Michael Dell's watched watched Oslo's videos.
He'll probably watch this video.
They're learning.
And the statement is what they're doing is they're giving it
to their R and D teams, so office of the CT.
They're not really, so it's very academic, to your point.
They haven't really operationalized
the ethos and product. >> You know what?
>> It's time for experiments.
There's no way you're going to blockchain your whole company,
your whole supply chain.
It is time for experiments, and it is time for guys like
Michael Dell to jump in and say we are--
>> What's your advice to Michael?
What would you tell him to do?
>> It's time for experiments.
We're going to do some things.
We're going to try some things.
We're going to partner up.
The Hyperledger stuff, you know, try more than that.
Don't just be, go into meetings and summits and top down.
Try some bottom up stuff of empower your employees, Michael.
You're not Michael, but I'm telling you
(John laughs) Michael empower people
to try some things.
They might even not be...
They might be quasi-legal, but if it's an experiment,
you're going to learn something.
And then you can talk to the lawyers. Don't have the lawyers
and the management say what the program is.
>> Cause that'll put it in a box.
>> They won't get it.
They'll stop the action.
>> They won't find that--
>> Ask for forgiveness, not permission.
>> Ask for, go do it.
Go build.
Get, hire some crazy crypto people,
and tell them to look for inefficiencies
in your whole operation and cut them down by 90%.
>> David, great conversation.
We could go for another hour.
You're going to be a regular,
I can tell, on theCUBE.
When we do our live format,
we're going to certainly have you back.
Keep in touch. >> Sure.
>> I'm John Furrier here at Blockchain Week in Consensus as
wrapping up the day three of coverage.
I'm John Furrier.
Thanks for watching.
Be right back.
(light, upbeat music)