Blockchain Insider Ep. 21. Bitcoin futures & ConsenSys London launch party FILE DETAILS Audio Length: 00:44:13 Audio Quality: Good Number of Interviewers: 1 Number of Interviewees: 1 Start of Audio ST: We are here at 11FS headquarters in London WeWork for Episode 21 of Blockchain Insider. Today, we bring you, LedgerX kicks off its first long-term Bitcoin futures option, MovieCoin, a Hollywood producer wants to make movies funded by crypto, and we recorded some exclusive insights from the Consensus London launch party. On with the news. Colin, how are you, sir, Colin G Platt, welcome back to the news on Blockchain Insider. CP: Doing fantastically, how are you doing? ST: Ah, not too bad. A little hungover from the Consensus London launch party last night, but-, ain’t no party like a Consensus launch party. CP: [Laughter] absolutely. ST: There was-, there was many an Ajit Tripathi type in the room, and Alex Batlin. Good to catch up with a lot of the London community there, actually, non-Ethereum people, and everybody from around, so it was a-, a good night was had by all. CP: And I heard there were some good ICOs that were looking prospectively for clients. ST: Didn’t see that myself, quite fortunately, but apparently so. But, you know, you weren’t there, so who knows what could happen when-, when you’re not in the room, policing. CP: [Laughter] ah, yeah, you’ve got to watch out. ST: Yeah, everybody’s scared of the G. Alright, Colin, first story we have today, a story on CoinDesk. This is the one where the first long-term LedgerX Bitcoin option pegged their price at $10,000. Alright, so, walk me through this. A Bitcoin option, and a pegged price. What did somebody actually buy here? CP: Alright. So-, so, there’s some basic things in here that we’ll, kind of, break down, because it’s not entirely accurate, but it is really cool, the fact that LedgerX has launched Bitcoin futures options. So, we reported, a few months back, that LedgerX had been approved by the CFTC, the regulator for Commodities Futures Trading in the US, to operate Bitcoin futures, and now options, so, the ability to buy or sell something, dependent on a fixed price in the future. So, what I can do, essentially, is I can say, “Bitcoin, today, is about $8,000,” that could vary, when you listen to this. “At some point in the future, I am willing to sell you Bitcoin for $8,000.” Now, why would I do this? Well, that would cost you money today. So, essentially, what this has done, is it’s said, “In about a year’s time, you have the option to buy Bitcoin at $10,000, no matter what the price is, if it’s above it. Or, you just don’t buy it at all.” And that costs, on the market, about $2,250 to do, which is how they paid the price. So, it’s not really saying that Bitcoin will be at that price, or any kind of bet on that. It’s just saying, “Given the volatility of Bitcoin, given all of these parameters, the cost works out to be about $2,250 to buy Bitcoin for $10,000 in a year’s time.” ST: And so this might be valuable, in a year’s time, if the price of Bitcoin is actually higher than $10,000, they would have the option to buy it for $10,000, and, for sake of argument, if it was $12,000, then they could sell that, and instantly make themselves the-, the delta, the $2,000, less fees, there. Is that why somebody might want to buy it? CP: That’s why somebody would buy it. So, what they’re really hoping is that Bitcoin-, the price of Bitcoin should be substantially above about $12,250, because of the premium they paid upfront, the money they paid today, to enter into this trade. Now, you would ask why somebody might do it, on the other side. Well, maybe somebody owns a lot of Bitcoin, and they don’t think that Bitcoin’s going to be above $10,000 next year, or above $12,250, so they make a little bit of a premium on top of that, by collecting money from you today, and hoping that they don’t have to give you that Bitcoin for $10,000, in a year. ST: Well, and this is something that is harder to do today, with something, in a regulated environment. So, why is this significant? Is this the start of something more consistent? Like, what-, why should I care that somebody can have this type of contract, that they potentially couldn’t have before, in Bitcoin? CP: Yes, so, these products are really useful for traditional managers of money, of any sort. These exist a lot in traditional markets, so, a really simple one would be an equity index, so, something like the FTSE 100. I might own a basket of stocks that looks a whole lot like the FTSE 100, and I might be worried that the price is going to go up or down, and I want to manage some of that risk, so I would trade options, or maybe futures, on top of that. So, this is a really good way, if you are a sophisticated investor, or if you have a risk tolerance, to either increase or decrease your risk, under certain scenarios. This, potentially, makes the investment into Bitcoin more palatable for traditional investors, so, we could imagine, if these things take off, and the thing that we’ll talk about later, with the CME, if these things take off, it may bring a whole lot of traditional money into this very, very-, currently, very volatile asset class. ST: Bringing a whole lot of traditional money into this asset class. I think that’s the key sentence right there. There’s a lot of money, potentially been waiting on the side lines, but they’ve been scared off by certain things, volatility being one, and the other one we hear a lot about is all the forks, and the next story on CoinDesk, which, the beginning of this headline, “No Fork, No Fire,” I’m thinking, “That’s not how you make a fire,” but okay. But, “No Fork, No Fire: Segwit2x Nodes Stall Running Abandoned Bitcoin Code.” So, Segwit2x, we’ve been talking about this saga for a few episodes now, we know that this was the fork in Bitcoin that didn’t happen, but some people were going to still potentially run it. It looks like that’s not happening, Colin? CP: It definitely looks like it’s not happening. So, we talked about Segwit2x, this was a planned change in the network. Segwit, Segregated Witness, was a change in how the transactions inside of the Bitcoin network are actually described, to make them smaller, and take less room, thus you can cram more into 1MB block. Previously, it was about 7 per second, and now they’re guessing it’s somewhere around two times as much. What this was is to then say, that bucket, that block size, let’s actually double that. A lot of people protested against this, and said that it was not a good idea, and it has lots of risks, that we won’t really get in to, but there was a contingent push by several prominent companies inside of the Bitcoin space to say, “Well, let’s just upgrade this, and point all of the exchange tickers at this, so everybody will have to follow this, or be abandoned.” A couple of weeks ago, this was called off, we reported on that in last week’s episode, two weeks ago, in that episode, but the code that was put out there as potentially taking over the Segwit2x friendly code, was still kind of a ticking time bomb, of sorts, and what happened is, a lot of people-, not a lot of people. A few people came out and said, “We’re going to try to run this anyways,” even though everything had been called off, because they either wanted to cause an issue inside the Bitcoin network, or they did fervently believe that this is the best way to go. And when it came time to activate, and everything should have gone off, and this would have either forked the network, or would have followed the network, depending on certain conditions, or possibly take over the network, there was a bug in the code, and one step before, one block before it was supposed to take off, it just cancelled itself, and stalled everybody’s computer, running this particular bit of programme. So, the normal Bitcoin was unaffected, they didn’t even know this thing happened, but the people watching this, and fighting against it, were quite pleased to-, to see that it didn’t take off, and those, I imagine, backing it, didn’t feel so great about themselves. ST: Interesting that crisis could have been averted here by-, by the fact that people backed out, and didn’t go with the-, with the fork. It’s interesting, as well, that the second layer scaling options, like Lightning Network, continue to be one of the things that people talk about, as an alternative to scaling the underlying Bitcoin network, when we’re talking about moving from 7 transactions a second to 14 transactions per second. Maybe up as high as 28 transactions a second. Still a long way from where we need to be, and if second layer scaling comes in to this, then maybe that’s a good thing, and whether or not it’s fees versus speed, and is it going to be cash, or is it going to be digital gold, that argument’s going to definitely keep marching on, I think, Colin. CP: Yeah, and if I can just say one thing on that part, on the second layer scaling, so that’s, essentially, trying to group, or batch transactions, in some forms, to move that money back and forth between different parties, and then only settle the results from time to time, inside of the actual blockchain. And, as you said, Lightning Network is-, is one of the more talked about propositions to do that. It’s worth noting, if you trade inside of a Bitcoin exchange, or if you have the actual little metal tokens that some companies produce, and you move that around, nothing actually hits the blockchain. So, some form of second layer scaling exist in a-, in a quasi-true state. ST: Colin, this reminds me a lot of how Visa and MasterCard work today. They authorise transactions, and then settle them, days later. This is something that we see quite often, in-, in many different financial services today, where transactions are netted off, and then settled later. It’s interesting that the blockchain world, that originally started out being about 100% bearer token settlement, is now starting to replicate the old world of financial services. But maybe that’s for its development, and will be useful. But I think, Colin, moving us on, the story of the week, from the Chicago Mercantile Exchange here. “Coming Soon: Bitcoin Futures.” Is it coming to a theatre near you, Colin G Platt? CP: Well, I really hope not, because it’d probably be something like The Big Short [laughter]. So, CME is the Chicago Mercantile Exchange, as you said, which is the largest exchange, of any sort, around the world. It’s primarily a derivatives exchange that started in Chicago, interestingly enough, but owns the New York Mercantile Exchange, several exchanges in Chicago, and some non-US based exchanges, as well. They just-, they announced, a few weeks ago, that they would be launching Bitcoin futures, or the ability to trade the price of Bitcoin at a fixed point in the future, so if it goes up, one person makes money, and somebody loses money, and vice versa. It’s very similar, if-, if people are not familiar with futures, to how spread betting, or CFDs work, if you’re more familiar with those. One person has to lose, for the other one to win. What was really interesting to see was, they’re pushing ahead with this, there has been pushback on this, from, amongst others, Interactive Brokers, which is a-, a very large retail and institutional trader and broker, somebody that actually goes to the exchange, when you place an order on their website, and makes that trade on your behalf, as well as with many other clients, at the same time, back to this netting thing. What was really interesting, inside of this, is, when we’re talking about forking, the way that CME has actually set this up, provided the product takes off, when it goes live, we’re told, at some point in December this year, they will have a lot of power, concentrated in the hands of very few people, around things like forks, and particular risks on top of that. So, this could be something, very unintentionally, that becomes a very critical factor in the future development of Bitcoin. Not only because of the institutional money that comes in, but the ability of a very small group to effectively dictate what is and is not a Bitcoin, which has been an ongoing debate of people that are following forks. Our good friend, Tim Swanson, wrote a blog post on Of Numbers, the link is in here, talking a bit more about that, and I think, one other thing I’ll just add on top of this is, people may not realise, not only is-, is the CME an exchange, which comes into the name, but they’re also a clearing house, which, essentially manages risk between parties, and all of the big banks in the world are members of these things, certainly in the US, and included in there is JP Morgan. So, our friend Jamie Dimon may have traders working on Bitcoin, of some sort, unbeknownst to them, very, very quickly. ST: So, what I like about that point you’ve just made, Colin, is people have, for a long time, been concerned about, “How do I hold on to Bitcoin, and manage the risk of holding on to Bitcoin?” because I have to hold on to the whole thing. CME are talking about parking 30% as collateral, so, essentially, I give you 30% of the cost of the Bitcoin future I’m buying, and the CME holds that as collateral on our behalf, just in case anything goes wrong, or just to deal with the volatility in the market, or the fact that things could go wrong in the market, just because it’s-, it’s so early and so nascent. Which, you know, is a very large amount of collateral, compared to other assets, but it’s also a lot better than 100%. So, this is definitely a step in the right direction. And there was an op-ed I saw, in CoinDesk, from a chap by the name of William Mallers, Jr., who’s been working in, sort of, futures, since 1984, and he built-, built a particular company into one of the largest futures brokerages and sold it, you know, in 2000. He’s been in the Bitcoin space for three or four years now, and he’s talked about the, kind of, responses institutional folks tend to give him, and there’s a subtitle in here that says “Tulips in 5, 4, 3…” somebody’s going to mention that tulips reference. But, if you’ve been in this space for a little while, it’s actually quite different to that, and that there’s a lot more going on here that you should pay attention to, and he does point to overwhelming consumer demand, because we’re in an era where fiat money, in other words pounds, dollars, euros, have been printed a lot in the last ten years, and gold has rocketed, as a result. So, an asset that replicates gold, but may be easier to settle, easier to trade, like Bitcoin, could, potentially, be very, very popular. Interesting concept, check it out, this-, the title of that is “FUD on All Sides,” FUD on All Sides, on CoinDesk. Colin, next story, in Bloomberg, “Hollywood Hitmaker Plans to Fund Next Blockbuster With Crypto”. Have at it. Go. CP: Oh, man. I think WTF is the best way to put this [laughter]. So, essentially, what is happening here is, we have-, historically, movie making has been a very concentrated funding pool, based out of Hollywood. This-, this gentleman, Christopher Woodrow, would like to democratise that, and put it out to everybody. So, when you want to-, democratise and finance are put in the same sentence, naturally, your mind goes to, “Why don’t we put that on a blockchain?” because, well, why the hell not? So, he’s launching an ICO because, again, why the hell not, to raise a bunch of money, to fund a bunch of movies that he’s putting together. I’m not really sure how we’ve democratised anything other than giving him money, but, why the hell not? And he’s going to make five movies, hopefully one of them will be about crypto, I don’t know. Very interestingly, and almost ironically, he did direct a movie, previously, called Tulip, though, so hopefully that one was about Bitcoin, I haven’t seen it. ST: I think we need to hit the irony klaxon on that one. He’s-, you know, Tulip Fever is a movie he’s directed, and he’s now-, I mean, with this ICO, token sale space, there’s a lot of money on the table, potentially, and people are trying to grab it, and actually, I think that’s negative behaviour. Don’t just grab cash, because you think you can get it from investors, but do it because you have a real reason, and something of value to sell. I mean, that’s-, the thing with blockchains is a lot of this record is going to be there forever, and it’s going to be pretty hard to delete what you did. In five to ten years’ time, regulators will still have an almost perfect audit trail. But hey, you know, like, Woodrow wants to democratise filmmaking. What do you want to democratise, Colin? CP: I want to democratise shutting down bad ICOs. ST: [Laughter] well, Zilla, today’s episode sponsor, wants to democratise ICOs in general. Zilla, as you know, is an ICO marketplace app, they’re kind of like a mix between Amazon and Reddit for ICOs. You can browse ICOs, upvote or downvote them, so I guess you’d be downvoting the-, the movie blockbuster Tulip Fever this-, this time, Colin? CP: I’m so going to Sybil attack this thing. ST: [Laughter] but if you like an ICO, with Zilla, you’ll be able to participate using various tokens, or credit cards, with one click. You can preregister for the limited Zilla beta app, at Zla.io. Colin, last story this week, in Global Trade Review. This is the r3 CEO, good friend of the show, David Rutter: missing full production next year would be, quote, “problematic”. Why do you think that would be, Colin? CP: Well, first, a shout out not only to our good friend David Rutter, but our good friend Todd McDonald over at r3. He keeps harassing us, so why not. ST: He’s been wanting that on Twitter for so long, hasn’t he? CP: He has. ST: Friend of the show, in fact. CP: And we have to give it to him, because we do appreciate all his feedback, thanks for listening. So, a lot of people have been talking about public blockchains and coins, and we talked about, the rest of this show, about them. A lot of people have also, kind of, forgotten about the-, the push, and the need to make money inside of these things, and this is something that David Rutter, and the guys over at r3, have been thinking about, since they ended up with a lot of money, earlier this year, as well as in last year. They’ve been putting out Corda, and a lot of people in banks, who get very antsy, and want a return on all of this money they put in there, are starting to wonder when it’s ever going to come to fruition. And David said, kind of, what everybody’s been saying for the last 12 months, if not longer, that we really need to start delivering on these things. He’s quite confident that we’re going to see things come out, trade finance is something that they’re-, they’re talking about quite a lot, and we’ve covered in this show, they did something with Calypso, as well as some of the other things that are starting to come online. I think, regardless of whether it’s r3, or Digital Asset, or IBM, or a myriad of these other permissioned and private blockchain providers or platforms, things really need to start coming online in 2018. So, I think we’re going to see a big push around this, and, kind of, the last six months where they’ve been quieter, I think it’s because their heads are down, and next year, we start-, should, hopefully, start to see some of these things come out into the light, and I imagine that’s going to be something that’s going to be front and centre, mid-time next year. ST: If we cast our minds back, it was, sort of, July, August, September-ish of 2015, when r3 first made their announcement, Digital Asset were making a splash, IBM were really starting to move into this space in a big way, and we’ve seen all of the POCs one could ever wish to see, and now it’s time for this DLT space to put up or shut up, and I think it’s interesting to see people putting their money where their mouth is, and saying, “We have to do this now, it’s time to deliver, it’s time to execute,” and a steady march towards that. CP: Absolutely, and-, and that-, that steady march is very quickly going up on the nerves of the people that are funding these things, and need to show results, because if we remember, with big companies, you don’t necessarily have all of the time in the world to get things done. ST: That’s very true. Colin, I’m going to pause there, I’ve got to tell you something [laughter]. Laura was saying on Slack that there was so much sass coming from Colin during the-, the MovieCoin bit, and then I called you “G-Sass”, and then we realised that G-Sass was your stripper name-, CP: G-Sass is my stripper name [laughter]. ST: [Laughter] don’t forget, you can let us know what you think about any of the stories we’ve covered, on Twitter @BChainInsider. That’s the letter B, Chain Insider, to share your thoughts. What do you think about MovieCoin? What do you think about CME futures? Or get in touch with @ColinGPlatt, or @SYTaylor, if you want to pick up on anything with us personally. Or, drop us an email at podcasts@11FS.com. A quick reminder, 11FS is the company that brings you this podcast, and we’re a challenger agency who help banks, asset managers, or anybody with a challenge in blockchain or DLT, to achieve more. If you want to understand how you can commercialise projects, when they’re going to be real, or just have a speaker for your next event, we hope you’ll get in touch. Drop us a line at hello@11FS.com. Alright. Next up, we have the blockchain roundtable from the Consensus London launch event, which is why I have a rather sore head today. Over to that event. [Break] ST: Alright. We are here at the Consensus launch, and I have been joined by a wonderful, wonderful panel. First up, I have Alex Batlin. Alex, tell everybody what you’re doing these days. You’ve left the banking world? AB: I have, yes. I-, I have started my own startup, called Trustology. It’s a Consensus spoke, so the good people at Consensus are currently believing in what I’m doing, so, I’m very excited to be part of the family, and also very excited about trying my hand at being a startup. ST: An entrepreneur. And, of course, we have the wonderful Charlene Chen, from BitPesa, Charlene, how are you? CC: I’m doing great, thanks, Simon. ST: Thank you for being with us. And, Ed Budd, not Ed from Bud, but Ed Budd, formerly of Deutsche Bank, now of? EB: Consensus, as well. ST: You joined! What made you leave the banking world, sir? EB: Well, I-, as you know, I retired anyway, but they managed to convince me to get off the farm and come and have a look at some of the fiat world to connect to this ever-growing ecosystem. ST: You were living on a farm, living the dream, and you came out of it. It must have been interesting. And we are joined by Lawrence Lundy from Outlier Ventures, Lawrence, how are you, sir? LL: Very well, thank you very much for inviting me on. ST: You’re very welcome. So, I’m going to throw a big jar of candy in the middle of the table, metaphorically, and just ask somebody to tell me, where do we think we’re at? And I’m going to ask Charlene to start out. You’ve, obviously, with BitPesa, been in the remittances business, and the Bitcoin space, for a number of years. Talk me through the narrative of how you’ve seen this evolve. Because, I think, three or four years ago it-, Bitcoin was dead, wasn’t it? It was surely going to be all over. And now, it’s just tulips. CC: [Laughter] well, I can tell you that, in the early days, when I said Bitcoin, you know, people looked at me with a blank stare, and especially, you know, in the African markets where we work. So, back then, in 2014, we had launched in Kenya, and we spent a lot of time educating people on what the heck Bitcoin is, how to use it, why it would be beneficial. And now it’s been really amazing to see, four years later, we have pivoted from Bitcoin remittances to Bitcoin-powered B2B payments, but now, all those friends that I gave a dollar’s worth of Bitcoin to back then are asking me how-, how to get involved [laughter]. ST: So, Lawrence, you’ve also been involved in the space, and had a number of roles for a couple of years. How-, would you say a similar sort of thing, the interest has changed, and it’s moved from just, “Hey, it’s a remittances thing,” into a broader topic? LL: Yes, for sure. I think that one of the first entry points into the space was doing a project for Intel, where I looked at, sort of, every use case that they could potentially play a role in. So, actually, we didn’t start by looking at Bitcoin, we actually looked much broader, and even back then, which was three and a half years ago, they even called it distributed ledger technology, which is a word more-, more popular now. But I think what I’ve seen is, over the last, say, six months, even despite the ICO craze, there does seem to be a professionalisation, and I mean that by genuine-, corporates like CME, and Fidelity, as well as, you know, other big, sort of, corporates outside of the finance space, that are really taking this seriously, and not in the sense of, “We just want to do a proof of concept,” but actually thinking a bit more deeply about what, actually, their user problems are, and how to solve them, as opposed to just saying, “Hey, we want to deploy an Ethereum PSE.” ST: You mentioned CME there, that’s the Chicago Mercantile Exchange, announced they’re going to provide futures. Ed, you come from a background in financial services. How significant is that, and is that just-, is that the only thing happening? Or are there other things going on, that you think are significant? EB: It’s definitely not the only thing happening. A significant milestone? Definitely. An instrument that people understand, a name that’s extremely large in the infrastructure of financial services today. So, it’s significant they’re moving in to that, and I think, in terms of the way in which risk is managed, the way in which they understand that, that’s, you know, it’s a big step. It’s definitely not the only piece. I think it’s a good example of where the mainstream is being touched by this topic, but, you know, you mentioned the lots of proof of concepts there, Lawrence, and I think that the stage we’re at is, we see a lot of people who have been through that proof of concept craze, they’ve been feasting on it for some time, and a lot of people haven’t really done the work on business model, and on what the real benefits ultimately are, as we’ve spoken about before, and the-, the flashy lights of cost and speed are-, you know, are not proving enough to push stuff into production, quite rightly, this is a digital business model conversation, and so I think we’re beginning to see those that get that commit to much larger, you know, enterprise-ready workforces, that can really bring that in. ST: So, it’s not tech change, it’s business model change, and that’s hard for any incumbent. I mean, Alex, you and I are veterans of, kind of, the blockchain lab at banks moving into this space. How do you reflect on business model change? Do you think that is a core component here of-, of what we’re seeing? And what’s-, what have you learned in your journey from, sort of, Lab at UBS, which was very famous, and then your time at BNY, and then now stepping-, stepping away from that, as an entrepreneur? AB: Yes, it’s an interesting question. So, I think what we’re seeing is that people recognise that blockchain is about networks, and really, a token and in network is-, is a form of new type of ownership of the network. And we’ve seen quite a few, for instance, consortia, now, being formed, by the banks, for instance, and the insurance companies, and I think, right now, they’re forming consortia for the sake of collaboration, but at one point or another, they will need to figure out how to monetise these consortia, and, actually, as people get comfortable with the idea of a token being, effectively, a mechanism to monetise these consortia, we will see a gradual acceptance of this idea of a token as another form of ownership of a distributed network. So, I think people are getting there, it just takes time for people to get their head around it. ST: Gradual acceptance of token as a form of ownership. Lawrence, you were, sort of, hinting there, at this gradual acceptance of the-, of the new business models, and the professionalisation. Can you give me some examples of that? LL: I can, and I think it’s quite instructive to look back at other information and communication technologies that were network-based, to then see, kind of, place it in where we are in that industry. So, we’ve done a project where we looked back at the telegraph, and how that developed, how the telephone developed, and how the radio developed, and, kind of, tried to see-, how it started is very diversified, very decentralised, very much peer to peer, at the time, and then, over time, it became, sort of, more pragmatic, as venture capitalists got involved, and more business people, and it tended towards more, sort of, you would say centralisation, but you could argue just more efficient ways of reaching the customer. And so, what I see is that exact same model playing out today, and without bringing ideology to it, I think that what’s happening with Coinbase, as an example of a company that’s very-, VC-backed, but equally, deploying some really good, useful products, now with their new custody, I guess, product, as well, you’re starting to see some really interesting professionalisation tools, and I think that’s where we know we might be at that point, to cross the chasm, right? To go from early adopters to the mass market. ST: By professionalisation there, I assume you’re referring to Coinbase announcing that they’re providing custody services, which, as a former BNY employee, Alex, you know a little bit about custody, and the importance of that in financial markets, but I want to pick up on what Ed said, about changing the business model. Are we not just going to evolve back into the old financial services business model? Or do you see that there is an opportunity for business model change here, and what might that be? EB: Oh, there’s definitely an opportunity for it. Whether there’s also an appetite for it, it varies massively, depending on the financial institution we’re talking about, but I think you’ve got that-, you need to go a little bit further than maybe people are comfortable with, to try and evangelise a little bit, about what is possible, in order to maybe get to a very practical, you know, gradual acceptance type step, but a step forward, because you don’t really get enough bang for the buck from a gradual acceptance step forward, in a large enterprise, but it’s got to be on the-, on the journey to somewhere slightly bigger. ST: So, my Co-Founder at 11FS, Jason, often says, “Don’t try and tell people what the future is, just show it to them.” So, Charlene, are you showing people the future with BitPesa? And what can a company do with BitPesa that they couldn’t do before? And what have you learned in that process? CC: Absolutely. It’s been a wild journey, in Africa, really identifying solid use cases for Bitcoin, where Bitcoin is front and centre, and where Bitcoin is actually in the backend, and hidden from the customer. So, we’ve seen use cases where people actually want to get paid in Bitcoin, but there’s nowhere to spend Bitcoin in most African markets. So, there needs to be a player like BitPesa, to be an offramp, converting the cryptocurrency into a local African currency. I think what we’ve been most excited about seeing is really the B2B payments, and enabling, say, African businesses, that otherwise couldn’t make payments to suppliers as far as China and Dubai, to do so. They don’t know that Bitcoin’s being used simply as a token of settlement and as a payment rails, and it enables a company like BitPesa to tap into liquidity all over the globe, whether or not we’re incorporated and banked there. ST: So, there’s something about access to new markets, which is, kind of, something that wasn’t available before, that I think BitPesa really speaks to. When you look at new revenue lines, or new business models, as well. Are there new asset classes? Are there new-, Alex, how do you feel about the idea that there are new products, as well as-, as new markets? AB: Well, I’m banking on it, because that’s my startup, so [laughter]-, so, my value proposition, or my hypothesis, is that we’re moving from a time when we have mass production of trust services, to-, ST: What do you mean by that? AB: To mass customisation-based platforms. So, today, for instance, if two parties need an intermediary because they don’t trust each other, they have to go to a service provider, and if that service provider offers a foreign exchange service, or any other sort of trust intermediation, great, you buy the service. Done. If you want to tweak it, unless the intermediary is willing to change that for you, you’ve got nowhere to go. So, I talk about it as “mass production of trust,” because all you have is this service, take it or leave it. Blockchain, or some of the blockchain based solutions, like mine, are banking on the fact that people would want to mass customise the trust agreements, so you’ve now got the, kind of, the micro-trust use cases, or the long tail of trust, all sorts of new business models, they’re now afforded, because you now have a platform to trust. ST: Because people have different appetites to risk, payment times, terms, all that sort of stuff. So, take it or leave it doesn’t work for everybody. Actually, I want to shape this contract to what I need, whether that’s, I need to be able to get paid by suppliers in new markets, as one example, or-, or anything else. AB: I mean, just like, how do you calculate your asset value if you’re a fund administrator? It varies a lot. And right now, you get one, and that’s it. You can create much more innovative new investment products, if it’s really trivial to calculate your NAV across a basket of asset classes, which includes fiat, non-fiat, traditional securities and crypto assets. ST: So, Ed, you’ve walked in the world of traditional financial services companies for a long time. You’ve dealt with getting things done inside those-, those organisations. Do you think there is a role for traditional financial services companies, or is this just all going to be invented without them? EB: The answer, I think, is always there’s somewhere in between, depending on the timeframe, to be fully evasive. No-, no, one of the things I always said, from the beginning, was, there are-, there are certain types of assets that will be around for quite some time to come, and there is a regulated structure to that, the lifecycle of that asset class, and many of those roles that are involved are going to be around as long as those-, as long as those assets are. What will fundamentally change, though, is the economics behind delivering those-, those roles, and that’s-, it’s a business model question, again, but it’s-, it’s not about mass consolidation. It’s about people performing a role that they get paid a certain margin for today, that role may become extremely easy, or become very transparent to deliver, and so the economics behind it are going to change, and what people get paid for are going to change. So, there’s-, there’s a much bigger risk to-, there’s a risk premium that isn’t paid today, in certain processes, where the risk management of the data of the people involved, or the errors that may go wrong, and the fines that accrue therein, that there’s different ways in which some services, those roles are going to be priced, than they are today, but-, and then, you know, to answer the question fully, there are other assets where those roles may fully go away, and-, and I think, in particular, the uptake of digital assets, that are digital from their birth, then-, then you’re going to see new forms, as Alex was talking about, with that style of custody. ST: And I think that is a revenue and growth opportunity. It’s something that financial services hasn’t been talking about in capital markets for a number of years. It’s, “How do I get through compliance? How do I deal with my cost? How do I manage collateral?” I mean, these are the C-suite issues. It’s not, “What new asset classes can I be selling to my customers?” I mean, Lawrence, do you have some thoughts? LL: Yeah. I want to-, the lens of sustaining and disruptive innovation is quite useful in this context, because I think what we’ve seen in the last, I guess, at the beginning of, you know, we’ll call it the Bitcoin era, before it was blockchain, not Bitcoin, was probably that this was a disruptive force, right? Disruptive to the whole financial system. And I think what we’ve seen, over the last, and when I say professionalisation, over the last few years, it’s been, “Well, how do we use this technology to have more efficient operations?” and how to actually improve our own efficiencies. And I think we’re getting through that, in manufacturing, but also in Internet of Things-, you know, Internet of Things markets, there’s a lot of areas for which ledgers and blockchains actually improve operations. But, to your point around, I guess, new financial assets is, the more interesting areas are where we do things that we’ve never been able to do before. So, it’s not about, actually, improving processes, it’s about new revenue streams, but it’s also about whole new ways of doing-, doing things that haven’t been possible before, right? ST: So, I was in South Korea last week, and it was the first time I’d been there, and it was-, I was blown away by, one, the amount of physical stores they have selling Bitcoin, unbelievable, it’s an absolutely massive market, and second, it was the first time I’d really given the new story that I’ve been telling, which is this story of, kind of, DLT on one side, and “blockchain and crypto assets” on the other side, and, like, this convergence piece in the middle ,that comes over the next couple of years, and I know Jeremy Millar, from Consensus, has been talking about that for some time. Alex, do you think there is a convergence that we’re heading towards? Do you think? Or do you think it’s possible that you can have one or the other, and one ultimately wins out? AB: I think we’ll see a range of offerings. So, for instance, I’m betting on the fact that some people will want to have the benefits of contract as a service, but operated by a central entity. And for some use cases, that’s absolutely acceptable, because you want the performance, the cost reduction and the privacy afforded by a central operator. On the other hand, certain use cases, for instance land registry, it’s so valuable, that you’d never want to have a central operator, if you don’t have to have that, as a, kind of, sole data custodian. So, I think we will see this idea of smart contracts, but operating across a range of private, consortia and public blockchains, depending on the level of distrust. ST: So, it’s really a spectrum, and actually, depending on who you are, and what you want to achieve, there’ll be different answers. Charlene, reflect on me where you think this goes, a little bit, not just with your own business, but, kind of, the broader community. What are your thoughts on the current challenges, and how we start to overcome those? CC: Well, I find the space incredibly exciting, and I also want to make it clear that BitPesa, although we have “Bit” in our name, is actually digital currency agnostic. So, you know, for the services that we’re offering that are related to crypto, we’re seeing interest from our customers in more than Bitcoin. We’ve had people express interest in Ethereum, actually, as an asset class. For us, I think, I’m really excited about the space expanding, to really start offering value added services that really reduce inefficiencies in the market. So, in addition to, kind of, the financial use cases that we’re seeing across the continent, I’m also really interested in the non-financial applications in developing markets, such as land registry, smart contracts, medical insurance contracts stored on the blockchain, Internet of Things, for supply chain tracking, in markets where there’s mostly just paperwork being pushed across borders. So, you know, as someone who works in developing markets, I’m really excited about seeing things that are more traceable, and increasing the efficiency of cross-border payments. ST: Lawrence, Charlene mentioned Internet of Things, I know that’s a subject near and dear to your heart. Is there anything that you think is different about distributed ledger blockchains or token-based blockchains, specifically, for the Internet of Things? What does it give me, that I didn’t have before? LL: Well, I think the Internet of Things is one of the most interesting of the emerging technologies, for which distributed ledgers make sense. And I guess I’ll be agnostic to the level of centralisation required, but there is no infrastructure that will support billions of end points, currently. So, the simple fact of the matter is, the existing technologies that we have are simply not secure enough, or not scalable enough, to be able to support that. So, I think you have a question, where you have to start with a blank-, a blank sheet of paper. So, you don’t have to-, you don’t have to rip out any systems. You actually have to look at the machine to machine transaction, and you have to say, “What is the most effective way that we can not only just communicate, but share value?” I think that’s the key point, to your question. How do machines share value? Not just communicate, but actually trade. Trade resources. So, it could be digital resources like bandwidth, or it could be digital resources like, you know, power. We need to be able to have a way for machines to be able to do that, in a large, scalable way, and I think, to use the word “scalable”, we have to be careful, because, of course, existing blockchains, as they are, are not necessarily scalable, but that is one of the reasons why we-, we made an investment in IOTA, because IOTA is one of those companies that has looked at this problem, and designed a solution for the problem. Right? So, I think we’re likely to see that. So, it’s an issue of Internet of Things needing a way to-, needing a way to be able to trade value, I think that’s the core that we don’t have. ST: Beautiful. Lawrence, thank you. Reflect on that for me, Ed, in terms of where you see everything going. EB: Yeah, I think the-, the-, I like the question on convergence, and the-, the piece that I see it going in is, why is the answer to that yes? It’s that you see a very multifaceted approach to that. So, by that I mean, this isn’t just about the technology maturing, and the tools like, you know, the developer tools, that Consensus puts out for-, you know, the support for the network is growing, but what’s really interesting is seeing the legal, government, central bank. So, lots of other walks of-, of commerce that are-, they’re essential for the fabric of the future to be constructed. They’re not just-, you know, they were engaging a year ago, but they’re now past engagement. They’re now understanding what they’re going to do for (? 40.55), what they’re going to do for policy. Look at Project Ubin, and actually, opensourcing, you know, Consensus involved, one of three there. You end up with, you know, entities that people didn’t think would be actively experimenting, and talking about, and opensourcing things that they were doing, really engaging, hands on. And so that-, you need all of those elements, it can’t just be tech-led, and it can’t just be business model-led, as well. And the final factor, which I think is the one most forgotten, is it’s got to be customer-led, and lots of industry verticals are experiencing their own real disruption to the business models, historical business models, and, as you rightly mentioned, you’ve-, you’ve got things like IoT that they’re developing within products that never had those, and they’re going to have to find something that just-, not just manages the data, but manages the transfer of value that nobody manages today, and I think that’s-, yes, it’s a new business, and new products, but it’s also essential to their survival. So, they’re going to drive financial services to support them, and that’s often missed. AB: To actually build on that, the other thing that’s important to really realise is that, for certain things, you absolutely want to have decentralisation for security and resiliency. If you’re trying to create highly resilient solutions, that are able to sustain massive damage to it, like 40% of the network being destroyed and needing to reconstruct in real-time, then, pretty much, blockchain is the only technology that gives you that capability. So, I think we need to start looking at our critical infrastructure, and once you identify critical infrastructure, you then need to start making a business case, saying, “Well, before, we never had the means to reduce the risk. Now we do.” So, it’s no longer a simple ROI, it’s an ROI that has to be inclusive of the cost of damage when it does occur, because it inevitably does. LL: And you mentioned earlier on, there, about-, Simon, about tokens, and I think there’s the one missing, missing gap here, which is, if you have a network that’s trading value, of course you need a way in which to incentivise actors in that network to trade in a different way. So, I think tokens and token economies are actually going to be critical to this. ST: Beautiful. Everyone, thank you very much for being on Blockchain Insider. [Break] ST: A big thank you to our guests at Consensus, and a big thank you to my regular co-host, Colin G Platt, or G-Sass, as you will now be known. Colin, hope you have a great week. CP: And you too, good luck taking care of your head. ST: [Laughter] thank you, sir, and thank you for listening. If you like what you’ve heard, please subscribe to our podcast, leave us a review on iTunes, those reviews help us so, so, much. Please, spread the word, tell all your friends and colleagues to listen, too. We’ll have more Blockchain Insider next week. Goodbye. Colin, your sass level was well over 9,000. It-, it just, that was-, that was beautiful. End of Audio