Blockchain Insider Ep. 23. 
Bitcoin goes stratospheric, Ethereum Cryptokitties and R3 CEO interview
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Audio Length: 		01:11:10	
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Number of Interviewers:		1
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ST:	We are here at 11FS headquarters in London WeWork for Episode 23 of Blockchain Insider. Today, we bring you, Bitcoin hits even further highs, as critics get their predictions in for 2018, Cryptokitties take over the world, and we recorded an exclusive interview with the CEO of R3, the one and only David Rutter. On with the news.
[Break].
ST:	Okay. Joining me for the news is the one and only Colin G Platt, the G-Sass himself is back in the house. How was your world tour?
CP:	It was excellent. I am still super jetlagged, it feels like it’s 3 o’clock in the morning, it’s fantastic, but I’m happy to say, when you say, “We are here,” I am actually here.
ST:	Yes, we are both here, and you have an annoying amount of tan, that’s really irritating.
CP:	It’s-, it’s cold and dark in London, I don’t know what you guys did when I was gone, but I don’t like it at all.
ST:	Somebody turned off the light. But I’ve got to remind our listeners that today’s episode of Blockchain Insider is brought to you by Corda. Corda is an opensource blockchain platform that allows businesses to transact directly, in strict privacy, using smart contracts. Corda enables complex transactions using real assets, and legally binding agreements, without the need of a trusted intermediary. Corda is the result of a collaborative effort led by R3, with over 160 of the world’s largest banks and technology partners. It’s ready to build on today, and the financial community is already deploying Corda to manage their agreements and move assets globally. Now you can transform your business ecosystem with the platform selected by the world’s largest institutions. Corda. Go to Corda.net to learn more. Alright, Colin, let’s do this. It’s time to bring back the news. And I think the first story-, well, everyone said it was a bubble, it may still be a bubble, but Bitcoin’s hit yet another high. Or has the momentum gone?
CP:	You know, I-, I see people speculating that the momentum is gone. The prices are going up, up, up. We’re recording this as they’re about $12,000 US, so we’re just approaching €10,000, if you’re based on the continent. It could keep going, it may not, we’ll see. There’s a lot of interesting things coming up, which we’re going to, kind of, get into in just a second, but as things stand, I don’t know that the momentum’s quite gone yet.
ST:	There’s a story here on CNBC that says Bitcoin exchange Coinbase has more users than stockbrokerage Schwab. Like, that’s pretty significant. So, as Charles Schwab reported 10.6 million active brokerage accounts for October, in contrast with 11.7 million users in October for Coinbase, which is the leading US platform for buying and selling Bitcoin. That’s really significant. And apparently Coinbase are now much closer to 13.5, adding 300,000 users a week. I mean, is this fools rushing in? Is this a real moment of scale? It’s an interesting inflection point, if nothing else, and will it be a flash in the pan?
CP:	Yeah, so, the question I have here is-, it’s fantastic, they’re big numbers, and this is just one company of the whole blockchain/Bitcoin ecosystem, so it’s great to see that they’re having a lot more users. What I would caution is-, is particularly on looking at Charles Schwab, because setting up a Coinbase account is free, you don’t have to put anything in, whereas, going to Charles Schwab, it’s free to set up, but you still have to have a minimum amount of money on that account. So, effectively, you have to put money in. Coinbase, I could set up 1,000 accounts, if I wanted to.
ST:	Yeah, it’s apples to oranges, and how many people have struggled to get through the KYC, and maybe set up three or four accounts, and sometimes it makes sense to set up a lot of accounts, especially when you’ve got the IRS and other tax authorities starting to look at the space, a little bit, and that was the next story from the Verge, where it says despite record amounts of users, Coinbase has had to report some of its users to the Inland Revenue Service after a lawsuit defeat. So, what’s this about?
CP:	So, the IRS in the US, the tax authority, last year put out a request to receive information from Coinbase. They had speculated, because they only had about 900 people per year, filing saying they had made any money out of Bitcoins, they had heard all of this noise from Coinbase, adding in fantastic numbers of users, 300,000 a week now, and they rightfully asked why that might be happening. They called up Coinbase quite nicely, and asked for these things, and said, “We’d like to see all this information,” something they’re, I think, pretty used to getting yesses to, really quick. Coinbase turned around and said, “No, you need a subpoena,” they pushed this back in court. The court has finally come around, and agreed with the IRS, that they need to hand this information over for anybody that’s had, between the year 2013 and 2015, more than $20,000 in equivalent, at the time, so the IRS can check it out to make sure everybody’s reporting what they should.
ST:	The line here from the story is, “Anyone moving more than $20,000 on the platform.” What does moving more than $20,000 on the platform really mean? Because is that, I’ve transacted backwards and forwards and backwards and forwards? Does that mean my net gain is $20,000? What does moving it mean? Has that been defined?
CP:	I-, I don’t think it was very clear in here, I’m sure it was quite clear in the information that was sent to Coinbase, but as it said, it’s just bought, sold, sent, received more than that. It could be I’ve sent $1 20,000 times. 
ST:	Mm-hm.
CP:	More likely, they’re just going to filter out the things where they actually had high value money in. Do bear in mind, in the US, that cryptocurrencies are not like currencies, they’re taxed at any point. So, if I buy Bitcoin at $1,000, hold on to it, and sell a little bit to buy a cup of coffee, I need to report that I bought that cup of coffee with a profit in it, baked into whatever the going market price is. So, it’s quite complex. I don’t know how everybody’s going to get their head around it, even if they want to report their-, their Bitcoin profits correctly, it’s very difficult in the US.
ST:	And I think, God bless Jerry Brito and the guys at Coin Center, they’ve got a heck of a job, kind of, helping people understand the-, the complex animal that is Bitcoin. Especially when its price has gone from maybe $1,000 to $10,000 and just this year alone. That’s really, kind of, insane. But, there is something about, just, like, pay your taxes, people. Like, I know that there’s a lot of the Bitcoin community that are, like, “No, screw the taxman, tax is theft,” and all this kind of stuff, but, like, do you really want to take on governments? And, also, do you want Bitcoin to cross over, and really reinvent finance? Because the crypto asset space, it, to my mind, has the possibility of maybe starting to possibly threaten to really make a difference. Don’t be a dick.
CP:	I agree, don’t be a dick. Two things I’d add to that is, as I said, it is very complicated if you want to do things correctly, and lets’ go back to the very beginnings of what Bitcoin was, and who bought into it. These are generally people who were cypherpunks. They did not like the idea of government controlling different aspects of what happens in the world, and particularly on the internet, and they’ve used things like cryptocurrency and cryptography to help protect things that they saw as their rights and liberties, and that gained a big section of the libertarian community in the US, a lot of whom have issues with how taxes are used, how they’re levied. So, I’m not overly surprised if there is a large contingent of US citizens, who happen to be of that mind, who aren’t paying their taxes, or reporting their taxes, as the IRS says they should be.
ST:	And when it’s as complex as you say, it’s non-trivial to report your taxes (ph 07.32), I’ve spoken to some people in some different governments who’ve said, you know, “What should our tax policy be?” and, “This crypto asset animal is quite difficult.” But, just, kind of, linking, bringing this all the way back around, you know, it’s been a story for a couple of weeks now, this whole Bitcoin space, and the price explosion. Do we have the driver here, in what’s happening with CME and CBOE, beginning their Bitcoin futures trading? I know CME Group have revealed that they’ll have their first product offerings from December the 18th.
CP:	From December 18th, and I’m actually surprised that, we just heard, yesterday morning, I believe, or I don’t know what time zone I was, so it could have been two days ago, on the 10th, so, this weekend, the CBOE will actually be launching their futures contract. They wanted to be the first ones out of the gate, and beat CME. They were first on the announcements, and it looks like they’ve come around and said, “We’re ready.” Lots of big questions about what this is going to do, people are speculating that these futures contracts, which are, essentially, an ability for parties to trade, at some point fixed in the future, as the name would suggest, based on whether the price goes up or down. So, let’s say the price is 12,000 today. At the 30th of December, if it goes up, I pay you money, if it goes down, you pay me money.  And this is regulated through very big exchanges and clearing houses, like the CME and the CBOE, and it’s purely on the Bitcoin price, which is new. Why this is really important is, this is where every major bank, and every hedge fund, and every asset manager, has to go through to trade things like SNP 500 futures, or interest rate swaps that are cleared, they go through these entities.
ST:	And futures are considered useful because it gives you some price certainty, right? So, I want to buy an SNP 500 future, or interest rate swaps, I want to buy some currency, but I want to know what price I’m going to get for my currency in 6 to 12 months, so it gives me that additional price certainty. In the Bitcoin market, that’s really hard, but it also, kind of, gives you some forward guidance as to, actually, where’s this market headed, and which could be interesting. So, do you think this is driving the price growth in Bitcoin? That people are excited by the gradual creeping legitimisation of the Bitcoin space? What do you think happens next? Just crystal ball time.
CP:	Well, crystal ball, I think that this is a big step, and talking about gradual, creeping legitimisation, to me, this is a big slap in the face and we’re here. As of the 10th of December, one of the biggest exchanges in the world is trading something that has existed on this planet for less than nine years, and was invented by an anonymous character. That’s insane. That sounds like a long time, when I-, I heard some statistic that SMS has only be around 25 years. So, this is a good chunk the way there. Why-, why are we talking about this thing? Why are we trading it? And now that it’s on an exchange, it’s not, “It’s coming, it’s coming.” It’s here. Today, Bitcoin is going to be on the largest exchanges within a week.
ST:	And Chicago has this track record of breaking new products, and-, and financial innovation. This could be it. But surely that’s not the end of the story. Like, Bitcoin’s arrived, but it’s still a bit of a mess, right? What else is missing from the Bitcoin market for large-scale hedge funds and family offices? Because there are funds popping up all over all the time, but managing this Bitcoin thing is really hard. It forks all the time, you’ve got to have a cold storage wallet, you’ve got to really make sure that your processors are in place, when it happens. What do you actually do?
CP:	Well, yeah, so there’s a couple of big things, if we look at traditional financial markets, commodity markets, which are probably more similar to a lot of these, and the first thing is, how do you custody these? How do you hold them, and make sure that they don’t disappear? And that’s really tricky, when you’re talking about money that is supposed to be easy to hold with a password. Some companies have started to offer services around it, but they’re very expensive, when you compare them with what happens from traditional markets, which is odd, considering you’re only holding a password. But there are a lot of risks in holding that password. What happens if somebody can access it? What happens if it gets lost? Basically, you lose all the money you have in there. So, insurance is quite expensive around that. The other thing that kind of fits right into this futures story is, everybody talks about, “I want to buy Bitcoin, I want to buy Bitcoin,” and they might have a reason why. There’s not a lot of natural sellers in the market. There are people who speculate that the prices are too high, and they’re going to go down, and we talk about a bubble, we talked about it earlier in the show, is this the top (ph 11.45)? But there’s nobody that naturally wants to sell it. If you compare this with wheat, or corn, you have people that naturally need to buy, or want to buy those things, and you have people who naturally lose money when the prices go up too much. If I’m using wheat or corn to sell cereal, the price of wheat and corn directly has a negative impact. If the price of Bitcoin goes to 100,000, if you’re not shorting it, how are you losing money? I mean, we can argue about a couple of things around it, about the fees inside the network, but there’s no natural, “Oh yes, it must be these guys losing money.”
ST:	And you can’t have a market where everybody’s a winner. It just-, it just doesn’t stack up. I mean, granted, there’s scarcity, and people make that argument, that we are seeing a move towards digital scarcity being an asset class of its own variety, but as of yet, unless we’re in for a new paradigm of economics that’s never been witnessed before, there’s something missing.
CP:	It-, it really feels that way, and I think that, ultimately, before everybody can come around to the idea that Bitcoin has fully matured, not even legitimisation, because I think, as I said, I think we’ve crossed that point, but when we’ve matured to the point where we understand exactly what these things are good for, and exactly how and where they should be used in the world, we’ll arrive at that point where Bitcoin isn’t as volatile. It will probably still always be volatile for a lot of different, weird market dynamic reasons, but it won’t be, necessarily, as volatile as today, because we’ll go, “To offer this particular service that Bitcoin fills in to, we need to pay this amount,” and if it deviates from that, for whatever reason, we buy or sell it.
ST:	So, whilst we’re looking at the crystal ball, Colin, there’s an article on Forbes from a couple of weeks ago that says, “5 blockchain predictions that will define 2018.” So, I’m just going to blast through these, and then I’ll ask you to pick your favourite, or if there are any that resonate. The first one is that there’ll be more use outside of finance. So, we’ll see, probably, health, recruitment and HR, legal work, FedEx, and the likes of supply chain, obviously, have all been really, really big. The second one is blockchain meets the Internet of Things, and, of course, we saw the IOTA Protocol’s, I think, price, token price, jumped by more than 70%, after an announcement where they’ve partnered with Microsoft, so that one, I think, has the-, has real potential in 2018. Smart contracts will come into their own. Blockchain’s become smart contract possible, and we’ll-, we’ll get on to all things Cryptokitties, and why there might be some challenges there, but insurers are piloting those, to oversee complex policies. State sanctioned cryptocurrencies, Project Ubin obviously happened in Singapore. And, a large number of blockchain initiatives will fail, which is probably my favourite, because it’s true. Any of those stand out to you? What, of those, would you say is right? Or do you have your own?
CP:	Well, I’d say five is an absolute truism. We’ve seen a lot of things that are perhaps less thought out than one would like, for the amount of money that they’ve raised, and we’ve talked a lot about Tezos being, kind of, a headline failure, of sorts. I mean, it may still come off, I wish them all the luck, but we could argue that some of these things will go down that route, and it will be complicated, and they won’t make it through. The one I really like, and we’re going to get into it, is more uses outside of finance, because, honestly, this is something we’ve heard a lot about. I’d like to see it happen. Maybe it’ll be around funny games, and Cryptokitties, maybe somebody will pull something out of that, because that is a really interesting things, because, frankly, doing financial services-type things on blockchains is pretty non-inventive anymore.
ST:	It’s interesting to me, though, that you can’t have this subject without talking about finance, because there’s a token in the opensource space. Or, there’s a payment, or there’s something, somewhere, in the non-opensource space. And, as a result, it never quite gets the same billing or credibility as AI and machine learning. And there are a lot of techies who call the whole space, just, like, snake oil, still. “I can do everything here with digital signatures, so what on earth do I need this Consensus stuff for?” I completely agree, this blockchain initiatives will fail, is really the big one for me. I’m looking to see a lot more on smart contracts that aren’t based on permissionless blockchains, next year. As David Rutter said in an article a couple of weeks ago, 2018 is the year of production, and I think, if we don’t see that, from some big closed, permissioned blockchain projects, then I think they’re going to be in real trouble.
CP:	And I think seeing failure in that space is something that is absolutely going to happen, and we’re going to need to understand why those failed, so that we don’t repeatedly make the mistakes. The nice thing about these permissionless blockchains is, when things fail, they’re all out in the open, and we know exactly why they’ve failed. In the permissioned world, it’s going to be harder to decide why that has or hasn’t worked.
ST:	The learning that’s happening right now is happening very, very quickly, without question. So, another prediction is, do governments take this stuff more seriously, and focus on taxes. We saw the IRS certainly are.
CP:	The IRS definitely is, and I think 2018, for-, governments are going to focus not on the blockchain, and all these great things that it can do, and permissioned blockchains, it’ll still happen, but it won’t be the story. I think the big story is really going to be around cryptocurrencies, Venezuela came out, and they’ve got their own currency, but I think, even more than that, looking at Bitcoin as being large enough to care about now. It’s not there yet, but maybe another 10x from here, we could start talking about how it affects monetary policy, especially in smaller economies. We could start talking about how lost tax revenue, we talked about the IRS, as you said. Bermuda put something out, talking about a cryptocurrency tax force. If you’ve read any of the stuff around Paradise Papers, Panama Papers, Bermuda features in them quite a lot. So, the fact that they’re looking into it, may make those environments where people can go, and obviously, Switzerland and Zug is a very big centre for a lot of this stuff. I’d say a lot of people are probably not paying their taxes, as we said, and the question I’d have is, are people who are already not paying their taxes maybe seeing some of the regulations coming through, in these former tax havens, and saying, “I don’t want to take that risk anymore. Maybe I’ll just go and buy some of these Bitcoin”?
ST:	Entirely possible. And then what do the governments do? There was a story in Reuters, as well, about the UK government enforcing, now, KYC AML rules on exchanges and wallet providers and so on, and-, and anybody custodying Bitcoin, which I thought was interesting, that that last definition needs drilling down into some more. To me, that was largely existing regulations that-, that hadn’t been built specifically for Bitcoin, being applied to what are, effectively, money services businesses, and a sensible step, but the price rise has driven people to take it seriously, and nation states will start to do that, without question. And they have every reason to. The ongoing saga of Bitfinex and Tether is one that we’ve got to get into, and I guess the-, I love this headline from Business Insider, “Anger and confusion as crypto traders lose thousands in a 'flash crash' on $54 billion exchange.” Ooh my goodness, the drama.
CP:	[Laughter]. Oh yes. I do have to point out that losing thousands in a $54 billion exchange doesn’t sound that scary, though. I mean, yeah, it would suck to lose your money, especially if it’s your thousands, but I think, overall, this was-, this was blown out of proportion. There’s been a lot of speculation around Bitfinex doing things improperly, there’s-, there’s a story we’re going to get into, in just a second, but they essentially were-, underwent an attack, a DDoS, and people were not able to access it for a little while. The problem with that was, ultimately, people had put in trades that could be activated, if the price had moved. Because the exchange was off, a lot of the other people who could still access it through other trades, or through APIs, without going into the website quite directly, triggered some of those things, because they thought, “Well, maybe this exchange has gone under, we’ve seen it before,” and there was some speculation around this particular exchange, not to say anything, one way or another, whether it’s true or not, but there has been speculation, and it did panic a lot of people. Obviously, if you were trading something on top of it, you may have lost money when those things got hit.
ST:	Because it-, yes, exactly, it triggers a whole bunch of payments, right? It triggers a whole bunch of trades going through, because of this flash crash, and you’d see, in a developed exchange, that they would have circuit breakers. Once something starts crashing too much, and it starts looking like actually something is going wrong here, systemically in the market, a big trade has-, has flipped over the market, some big seller has come in and sold too much, then, actually, there’s a circuit breaker, and it stops, and then they’ve got time to figure out what’s going on, and match the trades more slowly, because the algorithm hasn’t worked. And I was speaking to a professional who’s built a couple of exchanges, and worked in Wall Street for a number of years, earlier today, and he said, “It turns out, building exchanges is really hard,” and actually, this stuff isn’t just as simple as having new tech. There is a lot of lessons learnt, in terms of how you make these things work from a business side that’s valuable, and he felt like the folks at these sorts of exchanges feel like they’re riding high, they’re making these mistakes in public, but it-, this won’t last once the institutions come in. But other stories about Bitfinex, they’ve hired a law firm to challenge some critics, which I think is interesting, that you hire a law firm to challenge your critics, and, of course, they and Tether broke their silence, and went on a media blitz. Unpick this. Who’s their critics? Why are they getting together with Tether to break their silence?
CP:	So, there was a figure who-, an anonymous figure on Twitter, has a Medium blog, as well, goes by the Twitter handle of @ Bitfinex'ed, obviously coming from-, the people that lost money in Mt. Gox were said to be “Goxxed”, so, it wasn’t overly inventive, has been putting out a lot of different analysis, and pulling stuff out of different chats, going on in the cryptocurrency community, talking about how Bitfinex may not be whole. They may be missing money, either through theft, or through loss, or a lot of other things. They were hacked, was it a year ago, and issued credits effectively became ownership inside of Bitfinex the company, and he’s been challenging how these things work. And the other thing he’s been challenging is, if there’s fake trading, and if there’s fake trading, specifically driven by something called Tether.
ST:	Yes.
CP:	Tether is, it’s a cryptocurrency that happens inside of a semi-open blockchain, and it happens to be pegged to the dollar, tethered to the dollar. They say that it is 100% backed by dollars in bank accounts, but there are a lot of people that have been having a hard time getting money out of it, for various different reasons, and they speculated that maybe that money doesn’t exist.
ST:	Interesting. Let’s unpick that, right? So, let’s just walk through that. So, they have tethered these, I guess we could call them dollar tokens, USDT, and they’ve said, “Okay, but here’s a token that represents a dollar, but don’t worry about it, we’ve got some dollars in a bank account somewhere.” And there’s now speculation that actually, they don’t. And so, when somebody’s come to try and withdraw their US dollars from Bitfinex, they’ve gone, “Mm-, no, you can’t have that yet.” And so there’s this, now, character, Bitfinex’ed, who’s walking around, calling them on their stuff, and they’ve hired a lawyer, and they’ve gone on a media blitz, to try and push back against that. I mean, what would be the consequences, if they haven’t done this? Who would-, who might they be in trouble with?
CP:	So, there’s a lot of different consequences, whether they have done that, or if they haven’t done things. So, the first-, let’s start with the second part. If they are, in fact, holding money in bank accounts, and letting people freely trade this on the internet, that could be breaking a lot of regulations, because you don’t necessarily know who has these tokens, and they could be sending them anywhere. And that-, they may not legally be allowed to move money in US dollars, if, say, they’re in a country under sanctions, like Sudan or Iran or North Korea. So, obviously, if they’re doing that thing, and those particular jurisdictions are accessing it, they could be breaking laws. Now, the accusation is, maybe the money is there, but maybe they can’t access it, because they have had some problems where Wells Fargo shut down their bank accounts, or said they wouldn’t deal with Bitfinex and Tether, so they may be in Taiwanese banks, and those banks may not know what’s going on, because of those regulations. The other thing, one of the accusations is, there may not be money there at all. They may just be making this up, and saying, “Yes, somebody sent us $100 million.”
ST:	So, they’ve printed US dollars, effectively, which the Federal Reserve is probably not going to like.
CP:	That is the accusation, from Bitfinex’ed. Now, the law firm, and Tether, and Bitfinex, which has a roundabout stake in Tether, somehow, and Bitfinex’ed has pulled this apart, have said, “That’s absolutely false,” and they’ve accused Bitfinex’ed of slander, and a bunch of other things, too.
ST:	And this is confusing. So, Bitfinex have accused an anonymous actor, called “Bitfinex’ed” of slander. 
CP:	Yes.
ST:	And that’s important, because as you’re saying it quickly, I’m like, “Bitfinex have accused Bitfinex?” No. Bitfinex have accused @Bitfinex’ed, this anonymous character, of slander, who has claimed that, “You don’t really have the money, you’re moving this stuff around, and you could be breaking all kinds of international laws whilst you’re doing it.” I mean, this-, this could be the thing that the whole house of cards is built on, and comes tumbling down.
CP:	That is-, that is one of the worries, and a lot of people have, kind of, come around, and read what this @Bitfinex’ed character has come out and said, have developed some of these ideas further, and are really questioning whether Bitfinex is doing things properly, or whether they’re making things up as they go along.
ST:	Which is a shame, because they’re one of the largest, if not the largest exchange, and also, this idea of having tokens represent a currency, is something that I think central banks have shown an interest in, and could be done with legitimacy. And, of course, Chicago, we talked about earlier, as the home of innovation, was the innovator behind the Eurodollar market, which is allowing international banks to hold dollars, effectively, and trade those. So, there’s a real opportunity for financial innovation, but if this organisation is doing it right, great, we can learn from them, and I look forward to hearing that out, but let’s hope these allegations get cleared up soon, and we know what’s happening. I would upvote that. Would you? Or what are you upvoting this week?
CP:	Well, the next story we’re going to get in to is the one that I’m all about [laughter].
ST:	Yeah, I’m going to upvote the story that you’re about to hear about. But, before we get to that, I’ve got to tell you about Zilla. Zilla is a new ICO marketplace app, kind of like a mix between Amazon and Reddit for ICOs. You can browse through ICOs, upvote or downvote them, so that good ones rise to the top, and, if you like an ICO, you’ll be able to participate using various tokens and credit cards with one click. You can preregister for the limited Zilla Beta app at Zla.io/BI, and don’t forget, /BI on Zla.io really helps us out, because then they know you were listening to us, and that’s why you went to the website. Alright, Colin. Cryptokitties.
CP:	Cryptokitties. The world has gone crazy for kitties! Everybody likes a cat.
ST:	But have you seen these things? They are ridiculously cute. Like, I-, I found myself kind of wanting one, and I know I shouldn’t. This is like Pokémon meets horse racing meets blockchain, all in one. It’s-,
CP:	Okay, so, what the hell are Cryptokitties? Let’s start there.
ST:	Yes.
CP:	If any of you are old enough to remember Tamagotchi, basically, they were these little things where you had a keychain, and you’d raise these weird things that would hatch out of eggs, and you had to feed them and take care of them, or else they would die. So, somebody has decided, “Let’s do that, but on a blockchain,” because why not, and they’ve decided to do it with cats. It came out at Ethereum Waterloo Conference that happened a few months ago, and it was just released last week into the main Ethereum network. People started putting these things together, and, surprise, surprise, they started selling them for Ether.
ST:	And one person sold one of these Cryptokitties, an extremely rare Cryptokitty-,
CP:	The first Cryptokitty, I believe-,
ST:	For $117,000 US. 
CP:	That is absolutely insane.
ST:	Somebody-, like, imagine selling your Tamagotchi, or a-, that’s like a rare ass Pokémon [laughter]. Like, $117,000. But isn’t there something about them being unique, and provably unique, and provably scarce, that people are buying into here, as well?
CP:	Exactly. So, because they’re all on this blockchain that has digital scarcity, which we talked about in the Bitcoin example, they can show that there’s only one of these, or ten of these, or whatever number it is, and anybody can look in and see it. Obviously, if there were forks in the blockchain, yes, you may be able to fork your kitty, and have multiple kitties, but there is only one in the main chain.
ST:	Don’t fork your kitty, people [laughter].
CP:	Don’t fork your kitty.
ST:	[Laughter].
CP:	This idea isn’t-, isn’t brand new. There is something called Rare Pepes, if you know Pepe the Frog, of-,
ST:	Yes.
CP:	Yes. That happens in something called Counterparty, which sits on top of Bitcoin. This has been going for about a-, six months, a year now, it kind of started this trend of having unique things, and there was Spells of Genesis, which is another similar thing in Counterparty, as well. They brought this in to-, in to Ethereum, but I’m really excited about it, because of the way they did it. So, there’s this fun game that happens to be taking up 17% of the Ethereum blockchain-,
ST:	Right, let’s just pause on that.
CP:	Yes.
ST:	This fun game is taking up 17% of the Ethereum blockchain. What does 17% of it mean? It’s taking up 17% of the transactions?
CP:	The transaction volume that’s happening.
ST:	So, a silly game about cats is taking up 17% of the Ethereum transaction volume, and the Ethereum transaction volume is what? A couple of billion a day in value, as well?
CP:	Several billion a day. It’s on a $44 billion network, and this thing is clogging it up.
ST:	[Laughter] you’ve got kitties stuck in your network, it’s a real issue.
CP:	A fur ball.
ST:	[Laughter] Ethereum has a fur ball. I think we have an episode title. So, there’s the game Cryptokitties.co, I encourage you, if you’re listening on your phone right now, just to go to Cryptokitties.co and have a look at these things, and tell me you don’t find them adorable. I will tell you, you don’t have a soul, if that’s the case, and Richard Crook, if you’re listening, you don’t have a soul. There’s a CryptoKittydex.com, where you can see all of the ones that are in issue, but how-, get into a little bit more about how they’ve done it, Colin.
CP:	Yes. So, in November, part of the Ethereum community gets together on a regular basis, and they come up with something called EIPs, so, Ethereum Improvement Protocols. They started out of the Bitcoin process, BIPs, or “bips”, same exact idea. They issued something called an ERC721. Now, that sounds really boring. What this-,
ST:	It really does. How to make something sound sexy. Give it, like, a three-letter acronym, and some numbers. It does sound like a robot, though.
CP:	It really does.
ST:	But it’s also-, its parent was ERC20, which many of you know-, may know better, as being the thing that basically made the token craze and the ICO craze happen. Here is an opensource, kind of, bit of software that you can take, and use, and deploy to the Ethereum network, and it lets you have your own token, coin, thing, for whatever purpose. So, you would give it Ether, and it returns you tokens, and then your tokens can be used to do stuff. So, 721 is the new version of that.
CP:	721. So, the first one, ERC20, which you just mentioned, allows us to have a fungible token. So, I can send you any one of these 10,000 tokens, and you don’t care which one, they’re all the same. And you can do exactly the same things with them. This creates a non-fungible token, a unique, snowflake of a token, that happens to be a kitty, in this instance.
ST:	A snowflake kitty.
CP:	A snowflake kitty. So, your individual kitty lives out there, and you can prove that there’s no other kitties like your individual snowflake of a kitty. This is really exciting. You know, Cryptokitties is fun, it’s stupid, it’s ridiculous, but it’s going to change the world, and this is how it’s doing it. We are going to start seeing these things come up, and I-, I personally think, in 2018, it’s going to completely displace ICOs inside of Ethereum. They’ll still happen, but we’re going to be talking about what we’re doing with ERC721 contracts.
ST:	A super interesting idea, and I guess that idea of something being silly, I do remember in 2007, talking to some of my old bosses, at the time, who were looking at the smartphones that people had, the iPhones and the HTC Desires, and those initial touchscreens, and saying, “Ah, I don’t need to play games, I’m a serious businessperson, I’m going to hold on to my BlackBerry.” Cryptokitties has that feel of, like, “Hey, here’s a touchscreen that you can play games on,” but actually, what’s going on behind the scenes is a bit of a change that’s really quite significant. And this idea that people are investing in it, in this new token style-, but, there’s a couple of other bits and pieces to it. You know, Cryptokitty isn’t forever. Decentralised apps aren’t as decentralised as you think, Colin.
CP:	Exactly. So, what we’ve seen in the Bitcoin world, and in blockchains, with these things getting forked, you can have all these issues, as well, inside the actual contracts that happen inside of an Ethereum, where they can be copied, and people can use them, or they may fall over or be changed, inside of Cryptokitties itself, there are administrators that still do have more power. It could be that Ethereum just disappears and we-, we don’t know, but there are risks to it, it isn’t the same as having your Tamagotchi or whatever, that exists in the real world.
ST:	Well, I guess, there was a good Medium blog post by Luke Zhang, “Your Crypto Kitty isn’t forever - Why DApps aren’t as decentralized as you think,” and he actually does a code teardown, where he basically suggests that the CEO and/or person who-, oh, that is an adorable Cryptokitty. Sorry, I got completely distracted.
CP:	That is the expensive cat. The first cat.
ST:	That was the $115,000 Cryptokitty. So, the CEO, effectively, or the person who wrote the code and holds the keys to the Cryptokitties contract, could switch out the cat breeding algorithm with another one that produced some more Genesis type cats. This means that, whilst it’s running on a decentralised network, somebody has, effectively, a backdoor to the algorithm, and, which is an interesting thing to consider, because you’re buying something that’s rare, but there’s one person that’s empowered to change that, whenever they like. So, it’s kind of like Nintendo, or, even worse, EA, just launching new stuff all the time, and getting you to pay for it.
CP:	So, yes, bearing in mind it is inside of a blockchain, and that it would be visible to everyone. So, yes, they have the administrative right to do that. Now, I would have to imagine there would be complete anarchy in this, if somebody had paid $150,000 for a Cryptokitty, and then, all of a sudden, there were 100 more, they would be out lobbying against this, and a lot of people would be upset that these kitties that they’d been breeding are no longer worth anything. Because I-, I imagine there are entire contingents of 15-year-old girls who have gone in and started building these things, because they’re making money on the side.
ST:	It’s Sims for the blockchain.
CP:	It’s-, that’s really what it is. But, on that point, I think, this is something else that is really cool about Cryptokitties. If we talk about-, we talked about Coin List-,
ST:	Sorry, our Producer, Laura was really laughing at us then, from just that sentence-,
CP:	I-, I told her I was going to be excited about Cryptokitties! I’m really excited about Cryptokitties [laughter].
ST:	[Laughter].
CP:	I mean, with-, with Bitcoin, you can go in, put your credit card into Coinbase and you can have it, and your Bitcoin never leaves Coinbase. So, we can say, “Yes, we have lots of user adoption, because of all these Coinbase accounts,” but you’re not really using Bitcoin. You’ve just bought them from somebody that has them. These-, Cryptokitties is not that simple. You need to go in, you need to buy Ether, you need to sign up and have a MetaMask extension onto your browser, or a browser itself. You need to move money out of the exchange, into that, and then you need to go in and actually touch these smart contracts. If you are somebody building Cryptokitties, you’re fully enveloped, now, into the Ethereum world, and that is real adoption. It’s not some vanity metric of how many people have accounts, which they may or may not have money. People are using this.
ST:	And it’s not creating a token for something for the sake of it. This-, it-,
CP:	Well, that we can argue about [laughter].
ST:	Well, okay, fair, but there’s a-, there’s an intended purpose for them, and yes, it’s getting these silly Cryptokitties, but it’s-, people are buying and selling those silly things. But then, we’ve had an eSports version of this show, where people buy and sell videogame costumes every day for large dollar amounts, and this is big business. And it’s the sort of thing that, again, I can see the crusty old executive going, “It’s stupid,” and it sort of does feel stupid, but it’s also big business, and it’s legitimate business.
CP:	But this is the whole thing with innovation, right? I mean, Pokémon Go was stupid, and if-, if a bunch of bankers, or big corporate execs, every got together, they would never talk about something like Cryptokitties and how that’s going to change their business model, but, you know, zoom back to when you and I started getting into this, at banks, and we said, “Hey, you should pay attention to this Bitcoin,” and they said, “Hey, you’re an idiot.” 
ST:	Mm.
CP:	This is how innovation happens. It happens from stupid things, and when people are laughing at it is generally the point where you should start paying attention.
ST:	Love that soundbite. So, a couple of stories we didn’t have time to cover this week, that you should pay attention to, if you get the chance, there was a story on CoinDesk, More Devs, More Destruction: Another Zcash Crypto Ceremony Is Underway, and this thing-, this thing reads like a novel. The Zcash Ceremonies read like an episode of Mr Robot. If you want to go read this thing, and have at it, that was fun. So, More Devs, More Destruction on CoinDesk. And then BBC News said the battle against deadly fake goods goes hi-tech, and this is looking, again, as we mentioned, some of the non-financial use cases in blockchain. Alright, listeners, 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, followed by Chain Insider. To share your thoughts, get in touch with @ColinGPlatt, don’t forget the G, or @SYTaylor, if you want to pick up with us personally. Otherwise, you can just drop us an email, at podcasts@11FS.com, we’d love to hear from you. 11FS, the company that brings you this podcast, are a challenger agency who help banks, asset managers, or anybody with a challenge in Blockchain and DLT, to achieve more. If you want to understand how to commercialise blockchain projects, when they’re going to be real, or just have a speaker for your next event, we hope that you’re going to get in touch. Drop us a line at podcasts@11FS.com. Now, let’s dive in to an interview with David Rutter, the CEO of R3.
[Break]
ST:	Welcome to Blockchain Insider, I am Simon Taylor from 11FS, and today, I’m delighted to chat to the one and only David Rutter, the CEO at R3. You guys work with banks and other financial institutions to apply distributed ledger technology. Thank you for joining us.
DR:	Thank you for having me. 
ST:	No, it’s good for you to come on Blockchain Insider, really appreciate it-,
DR:	Well, it’s taken me a while to get on the show, because I was-, I didn’t pass the cool factor, for a while, but-,
ST:	No, like, I think the pocket square, there was just something we were allergic to-, no, I love the pocket square.
DR:	[Laughter]. He actually asked me to wear a black hoodie today, but-,
ST:	You thought about it, though.
DR:	I did, yeah.
ST:	Do you own a black hoodie?
DR: 	Yeah, it has “11FS” on it. 
ST:	That’s the one, right, you can get the logo.
DR:	I’ll wear it next podcast we do.
ST:	I can just see you, like, going in disguise with sunglasses on-,
DR:	I think I look pretty good with it.
ST:	You could walk into any conference then, it’d be fine. Alright, so, David, let’s start out, what is your background? You’ve been in finance for a little while, you’ve done a few things.
DR:	Yeah. Yeah, 32 years, which is quite a while. So, yeah, I came up mostly in the brokerage space, capital markets, money markets, rates. My last gig was, for ten years, as the CEO of ICAP Electronic Broking, which had two big recognisable exchanges, BrokerTec, which is the largest fixed income exchange, and EBS, which is the largest FX exchange, and, you know, that’s really important, as a backdrop, because for over half of my career, I’ve been going through this frustrating task of introducing new technologies to banks.
ST:	[Laughter].
DR:	So, I was uniquely positioned to understand the frustrations involved when I recognised the promise of blockchain a few years ago.
ST:	So, talk to me about that, then. Like, what was it you were doing when this blockchain thing came along? It was, what, 2013, maybe?
DR:	Yeah, so, fortunately, and timing is everything, I had a very pleasant ten years at ICAP, with a rather unpleasant two months at the end, and so, Michael Spencer and I, who’s a good, dear personal friend of mine, and I, had a rather a stark disagreement, that led to my departure, and a one-year garden leave, which I would recommend for everyone watching the podcast, if you can get away with it. I used the one year pretty wisely, because I’m not one to-, to sit around, and-, and-, I don’t know what they say, smell the coffee or something?
ST:	Smell the roses, I think.
DR:	Smell the roses, drink the coffee-,
ST:	I don’t know, I’m sure there’s a cliché in there somewhere.
DR:	Yeah, yeah, there’s got to be one. Anyway, so-, so, the timing was great, and I decided to set up my own business, maybe because, you know, no one else wanted to hire me, and I started a little broker dealer called LiquidityEdge in US Treasuries, actually, before I started R3, and it’s doing very well, fortunately, and then, you know, started R3, and began to look at this new technology called Bitcoin.
ST:	It all got started pretty quickly, and then you met some interesting people, like Richard Brown, and others, who have become pillars, now, I think, of the-, the whole blockchain space. What were your first insights? What were your early lessons, as you looked at the blockchain space?
DR:	Okay, so, let me correct one thing. I didn’t meet guys like Richard Brown. I sought after them-,
ST:	Ooh.
DR:	Okay? [laughter] so, what happened was, and-, and, you know, my family won’t watch this, because they’ve heard this story so many times, but one of the things I wanted to do was, a lot of people said, “Okay, you’ve been introducing new technologies, you know the space pretty well, you should go out and start a fintech fund.” But, you know, at my age, you raise-, your first fund’s maybe $50 million, and in five years, you find out you’re good at it or you’re not, and if you’re not, you’ve wasted a lot of time. Plus, I’m an operational guy, at the end of the day. I’m not particularly good at-, at picking investments, necessarily. So, I decided to play with my own money. My two first Partners, I brought on Todd McDonald and Jesse Edwards, and the three of us sat in a very small room, and began to look at technology investments. Went out in, you know, 2013 or ’14, to the west coast, to meet all these Bitcoin companies and, you know, I’m going to cut this story very short, because there’s the two-day version and the really short version. The bottom line is, it reminded me of ’98, ’99, 2000, when firms with rather shallow business plans were raising tonnes of money-,
ST:	Mm-hm.
DR:	And we were trying to invest. We did a few investments, actually, interestingly, DA Holdings, and something that’s now called Veem, I can’t remember what Veem’s original name was, and-, and did a bunch of-, a few other non-blockchain investments, as well, but, you know, it just dawned on me that there was a bunch of folks that were raising a lot of money to go out and destroy DTCC, and make JP Morgan an afterthought and all, with really an underappreciation of how deep the foundations of finance run, and while the technology really intrigued me, you know, I grew up in a market where everything was about trust. As a 20-something year old kid, I was closing billion-dollar Fed funds transactions, and confirming them the following day. So-, so, the proof of work concept, you know, and-, and the need for-, for the trust lists, you know, part of that just never registered with me, but I recognised that the, you know, cryptographic proofs, and other approaches, and the brilliance that emanated from that, could help us achieve a goal that we had for many years on Wall Street, which was to take non-differentiating, non-proprietary, back office services, that everyone’s paying for, right, doesn’t distinguish you at all, move them to the Cloud, and share the expense. So, I started with a very high-level concept of, “Hey, we can use these maths (ph 43.38), hire some really brilliant people, and create something really amazing.” I didn’t know what “something” was, which, actually, played to my advantage. It’s one of the reasons I didn’t raise money early, and I went with a membership thing. But, to get back to your original question, because I do have a tendency to drift-,
ST:	[Laughter] I love that.
DR:	To drift a little bit, because I’m passionate about the story, is that I didn’t know much about Bitcoin and blockchain, so I said, just like you’re a big voice in the field now, I  just asked Jesse and Todd to look at who the big names were, and I think it was Todd that said, “You know, there’s this geezer, Richard Brown, that writes a really smart blog,” and, you know, I reached out to him and said, “You don’t know me, but I promise you I’m someone special, at least in my own mind.”
ST:	[Laughter].
DR:	“I know a bit about finance, and you’re at IBM, come on, let’s have a chat,” and I-, I call it a romance, because I-, I basically met Richard for six or eight months on a very regular basis, trying to convince him that I had the greatest idea in the world, but I didn’t really know what it was.
ST:	Richard is probably one of the most risk averse people I’ve ever met, god bless him-,
DR:	Yeah-,
ST:	But he’s also one of the most painfully, like, intelligent, in how he will construct a conversation, and a sentence, and how he will think about a problem. I remember the early days of our-,
DR:	It’s funny when you say that, I agree 100%, I find Richard both intelligent, and at times, painful [laughter] and when he watches this, he’ll know what I’m talking about, because he does like to challenge everybody’s thinking.
ST:	He challenges everything!
DR:	Yeah. Yeah.
ST:	I remember the early days of R3-,
DR:	Sometimes a CEO shouldn’t be challenged, though, if you know what I mean, Simon.
ST:	Oh, no, no, no. 
DR:	(? 45.09).
ST:	It’s clearly a benign dictatorship. Clearly. But, I remember the early days of R3, there was Richard’s Worry Wall. Like, things that could-,
DR:	Yes.
ST:	Could make everything go wrong.
DR:	Yes.
ST:	And he really does think through consequences of stuff in a way that people didn’t. And challenged some of the perceptions, I think, that were out there. Bitcoin was the dominant, and still is the dominant, cryptocurrency. A lot of people still associate what the whole blockchain/DLT space is about, with being very similar to Bitcoin’s technology, or Ethereum’s technology. But you guys challenged some of that convention. So, fast forward a little bit, talk to me about the founding of R3, the membership model, and then what happened next.
DR:	Yeah, okay. So, I came back from that trip, and went out to a bunch of different banks, and said, “Guys, you really have to pay attention to this,” it was the early days, and I should get my dates right. So, I think it was in September 2014, we had our first roundtable, and then we had another one in December, in California, 2014, that I remember. And I-, like, I hate roundtables. I know I see you at conferences sometimes, but, you know, that’s not my place [laughter] you know, I just kind of feel-,
ST:	You’re more of a conversation guy.
DR:	Yeah, and-, and so-, so, we hosted and paid for these roundtables, I-, I used my own money to fund the organisation in the early days, I was fortunate enough to be able to do that, and we really started with, kind of, the education piece, and-, and a lot of banks, you know, Barclays and UBS were early adopters, CBA, they were doing their own experiments, but there was no coordination, and my early pitch was, and at the end of the day, I’m, you know, I’m a salesman with a vision, was, that, “Guys, what we’re ultimately trying to do is share these expenses for middle office processing. Instead of having you guys all go through a three to five-year painful process of discovery and learning about blockchain, let’s-, let’s begin to, kind of, coordinate everybody’s efforts, let’s accelerate it, and save a lot of expense.
ST:	This was a core concept, right? We all have the same middle and back office costs-,
DR:	Yes.
ST:	We’re all doing lots of manual things with paper and, like, people, when it could be automated. But everybody’s system is kind of a black box, and as Richard likes to say, like, the big problem is, at the end of day, we’ve all got to reconcile our accounts. I’ve got to know that you’ve paid me, and you’ve-, and I’ve paid you, but I can’t see inside your black box, and you can’t see in my black box-,
DR:	Right.
ST:	So, how do we solve that?
DR:	Right, right, and that’s-, and so-, and that’s a big job for R3, which is to get the plumbing in place, to lower expenses, to automate a lot of the infrastructure, to-, to support innovation at a rate that’s much greater than-, than anything we’ve seen before, and hopefully we’ll get a chance to talk about that. But getting back to the story, so, anyway, we had our last one-, well, in December, I remember I closed the doors, we had an eight-hour session, it was glass doors, there was a bar on the other side, and I turned to a bunch of bankers, and I said, “I’m paying for this,” are you allowed to swear on podcasts?
ST:	Yes, you are.
DR:	“I’m paying for this shit,” or something like that, it could have even been worse, and I said, “So, and you guys have a lot more money than I do, so reach into your pockets and let’s go.”
ST:	[Laughter].
DR:	And that led into a conversation about, “Okay,” you know, naturally, “What are you going to solve for us?” You know, at Wall Street we’re very accustomed to, kind of, you know, things fitting into a definition or, you know, a predefined structure-,
ST:	Almost like a use case.
DR:	That we-, that we know-,
ST:	I remember you saying early on, the Wall Street guys want the use case-,
DR:	Yes.
ST:	And the technology guys want the platform, and you were, kind of, like, fighting the two sides.
DR:	Yeah, and also, I had been, you know, in the market long enough, and experienced enough, to know that it was too early in the technology cycle to really understand what we could solve. But, like, it didn’t matter, some of the banks were like, “You know, we don’t really care. Just say you’re going to solve whatever. Syndicated loans, that sounds good, or securities clearing, and we’ll get behind you.” But I refused to do that, but I also refused to continue to pay, and we were doing some great work, I hired some very smart people, we were producing very good content. We started to run some POCs, to prove the, you know, to prove the technology. No one could deny that there were some real economies in-, in sharing everybody’s experiment results. In order to do that-, that sounds easy, but in order to do that, you have to think through your IP structure, you have to have contracts-,
ST:	Anti-trust.
DR:	With everybody. The antitrust piece was key, we had antitrust counsel with us every step along the way, every meeting that we had, we started with our anti-, even my board meetings now start with an annoying, you know, three to five-minute antitrust reminder. So, we had put all that into place, and we were doing some really good work for the guys, and I stubbornly said, “I’m not going to-, I’m not going to fall into your predefinition of what I should do to go raise a Series A for, you know, $3 million, from a dozen of you guys.” So, I came up with this membership model, with the guys from Goldman, who were, kind of, you know-, interestingly, Goldman and JP Morgan were, kind of, two of the very, very early guys involved in the thinking, and what was amazing, by the time it was all done, I mean, you know the story, we had, I think nine on announcement, 12 a few days later. Within 40 days, we had 42 members, and they were-, they were paying-, it was-, it was between $250,000 and $500,000. And then we-, we closed the membership, we opened it again the following year. Now, if you take a look at our-, our partners and everything else, we’re at, like, 170 members. We have a bunch of regulators, central banks involved, and everything else. So, it’s been amazing to watch. And then, of course, we did the Series A, and we raised-,
ST:	$107 million, was it?
DR:	$107 million, yeah, it’s a very-,
ST:	That’s not a small amount of money.
DR:	No, and it’s a very engineered-, it was a very engineered number. We-, it was a very difficult ten-month negotiation, I wouldn’t recommend it for anyone, to try and negotiate with 44 banks, to do a deal. And-, and so I had done-, you know, look, I’m-, I’m experienced in this stuff, I’ve done-, I was involved in four consortiums before. R3 is not a consortium, it’s a massive, you know, collaboration, or network of investors-,
ST:	Because there’s a few bits to it, right? So, talk me through R3, and then get me to Corda, because I think there’s-,
DR:	Yes.
ST:	From the outside, it looks like one thing, but from the inside, it’s-, it’s several different things. So-, so what are the bits of it? There’s the collaboration piece, there’s the platform piece, there’s a few other bits and pieces, as well.
DR:	Yeah, so, and I’ll tell you how the company’s broken down, but real quickly, just to finish the round on the $107 million, that was for members only, and we were prescriptive about investment amounts, in part, to make sure that we had balance between Europe, Asia and the US, but also, to make sure that our board, and everything else, allowed us to operate like an enterprise software company, which is what we are. Which-, we had to be able to make decisions quickly, and we-, we couldn’t worry about whether we were going to impact, or even potentially destroy, one of our investors’ businesses. So, anyway, so we were very careful, but that’s one of the reasons it took ten months, and almost blew up about a half a dozen times. So, fast forward to where we are today, I mean, I feel ridiculously blessed in that we’ve hired, you know, amazing people. We have, I think, one of the best engineering teams in this space, and we’ve talked about Richard Gendal Brown, but, you know, I often call James Carlyle, who you know well, my MVP, he is just a solid, you know, grinding, nothing flash, gets stuff done. And then there-, and then there’s Mike Hearn, you know, the magician who, you know, who I think those three create this ridiculous balance, other smart people want to be around them-,
ST:	It’s the big three that you build a team around, right?
DR:	Yeah.
ST:	And the team, you need those team players who can make sure that the vision of these three people is executed and delivered against, and that’s a massive organisational effort.
DR:	Yeah, and it’s also-, I’ve never seen three guys work so well together, you know. They have differing views, we-, we all argue regularly. I meet with all my teams, including the platform team, every two weeks. You know, you know me, I like to dive in to the code a little bit-,
ST:	Yes, no, your engineering skills, man, just-,
DR:	Yeah, yeah, I’m just kidding, but-,
ST:	The platform that you’re talking about is called Corda.
DR:	Yeah, yeah. So, that was our strategic vision. The story on that, really quickly, there’s a story behind everything, is in September 2015, when we first raised our money, we decided that we just wanted to deliver a solution that worked for banks. I mean, the mission was-, was clear from the start, and that helped us. You know, we-, we wanted to-, it’s a massive mission, we want to, kind of, you know-,
ST:	Build an opensource platform.
DR:	Build an opensource platform to, kind of, recreate, be the operating system for the future of finance, you know, so that every finance-, so, it’s a massive, ambitious plan, but it’s-, but it’s still, you know, somewhat focused. So, anyway, Corda, we started in 2015 and we split our groups into two, and we worked with our banks and our members. You know, one of the things that we’ve been talking about, and we can’t talk about enough is, we’ve probably had-, well, I know we’ve had over 1,500 people contribute IP and work product, and get involved in the architectural working groups. I mean, you were involved in some of these things, when you were at Barclays, we sought your advice regularly. So, we-, we did a very good job of, kind of, collecting people’s views. We split the team in two, we had this mantra, “Adopt, adapt or build,” we picked, I think, March 15th 2016 to make a decision. So, adopt or adapt were-, we looked at Ethereum, we looked at Fabric, we looked at Sawtooth Lake, we looked at everything else out there. So, that stream worked, to see if we could adopt any of those technologies, to meet the specific requirements we were looking for. And, in parallel, we began with a whiteboard, and said, “Everything based on what we know, how would we build this?” and that became Corda. In March, we got there, and we said-, you know, we weren’t looking to spend a tonne of money in building new technology, but in March 2016, we decided that we had to build. And we did that in conjunction. It became Corda, it’s a unique platform. I think that the design choices we made back then are paying some real dividends now. So, just to make a couple, the fact that, you know, it is not a blockchain where all data is broadcast to all-, all parties. It’s completely permissionable. We can support consensus mechanisms of just about any kind, including, you know, Bitcoin, if you wanted to run it. And, so, we also chose computer languages like the Java-, you know, we’re using Java Virtual Machine, the databases we use, and everything else, were technologies that were proven, not as cool, but when you’re-, when you’re doing high-value transactions of billions a day, my old platforms, on a good day, would do over a trillion dollars a day, you’ve got to use proven technologies. You’ve got to get past the risk officers in the banks, and-,
ST:	So, I look at the problems that Coinbase have been having, and Kraken have been having, and several others, just competing (ph 55.31) with the demand that they’ve got for Bitcoin today, which is very small, by contrast to global markets-,
DR:	Yes, very.
ST:	And then some of the choices that they’ve had to make, about languages and, you know, Ethereum, for those who don’t know, is built on a new language that they created-,
DR:	Yes.
ST:	Specifically for Ethereum, on a technology that broadcasts every transaction, to everybody. And you guys said, “Well, actually, if we didn’t do that, we could do something that maybe works faster, that may be more reliable, and we could use languages that the developers, inside these organisations, already understand, they don’t have to retrain,” that sort of stuff. But, doesn’t that risk then just building, like, a faster horse? Have you missed the revolution? Or are you doing-, are you solving the problem?
DR:	No, I mean, we very much think that we’re solving the problem. This gets back to something I said at the very beginning of-, of this podcast. I had, you know, been grinding my teeth on introducing new technologies to banks. It’s really, really hard. And you mentioned Ethereum, like, we have guys that love Ethereum, and-, but the idea of practically installing something that relies on things called Solidity, and even with-, with Quorum, we think zero-knowledge proofs are cool, but, you know, there’s some combination of Geth and Go, all stuff you know a lot better than I do. It’s just really hard to get those languages, that are-, that are not proven, you know, into mission critical systems in banks, which-, which people should be happy about, because, you know, this is where your money sits, and where your 401k or retirement funds or whatever are held. So-, so, Simon, look, I-, we can do so many things. What we try to do is build maximum flexibility into the systems. What we recognise is there’s a very different market, when you look at trying to solve, say, interest rate derivatives for big banks. Or-, or, you know, private wealth solutions, or retail banks, like, the digital banking stuff that you’re looking at, which would be more retail.
ST:	Mm.
DR:	You wouldn’t-, you don’t want-, one size doesn’t fit all. You might have very, very different consensus mechanisms for those. There’s bespoke products in highly illiquid fixed income securities and the like, where any sort of data leakage is ridiculously damaging. So, really, what we did is we designed something here that we think is amazing for high-value finance, interestingly, others, because our security and privacy, as you know, is the best you can, you can get, are, you know, we’ve been approached by a lot of medical records, and medical companies, and, you know, we’re trying to stick to our knitting, but a lot of people are building on Corda opensource now.
ST:	So, that’s the thing, right? So, Corda is an opensource platform, you’ve got the R3 brand and website, but you’ve also got Corda as the platform.
DR:	Yes.
ST:	So, there’s Corda.net, and people can go there, and they can use the platform, I assume? They can do whatever they like with it?
DR:	Sure. Sure.
ST:	So, how do you guys make money, if the platform is opensource?
DR:	Well, we-, we have an enterprise version coming out in-, in January, which comes with a support package that would be a requirement for, you know, for our banks and financial institutions, and large corporates and the like. And that’s how we make money. On Corda opensource, you can download it and build whatever you want on it. When you talk about high value finance, having an opensource product is important, and-, and our core will always be opensource. But, these institutions also want, you know, helpdesk support, they want to make sure that there’s the network diagnostics, and the operations centre and everything else, to support the transactions, and-,
ST:	The code is only ever 10% of it, for these guys-,
DR:	Yeah, and-,
ST:	There’s everything that comes with it.
DR:	And that’s what we, you know, that’s where we make our money.
ST:	That makes complete sense. So, you’ve done a couple of interesting project, you guys make the headlines every week, it seems, stuff in trade finance, with Hong Kong and Singapore. The one that caught my attention was a project called Project Ubin. Can you tell me a little bit about what that is?
DR:	Yeah, I can tell you a little bit about it, and then, for those that are interested, it’s all been open-, actually, the code for that was opensource, as well, but it’s-, it’s an amazing project. Firstly, we have an incredible relationship with-, with Singapore and MAS, I’m on their ITAP committee, their advisory committee. That Fintech Festival they throw is absolutely amazing, as you know. Anyway, they-, they’re very progressive in their thinking about Sing dollars on ledger, about, you know, fixed income securities on ledger, and the works. So, we’ve had a number of public projects with the central banks around the world, and we’ve had a few private ones, so, I can talk to the public ones. It started with Jasper, with the work we’ve done with Bank of Canada. That work has-, has been published. I think a new paper just came out from Bank of Canada. And then, with MAS, we started looking at their real-time gross settlement systems. And then that project, you know, evolved beyond that, but what was interesting is that they-, they laid out quite a challenge, and they had all, you know, three platform technologies.
ST:	So, you had Hyperledger Fabric-,
DR:	Yes.
ST:	You had, I guess-,
DR:	I call it IBM Hyperledger Fabric.
ST:	And then the Enterprise Ethereum-,
DR:	(? 01.00.33). Yeah.
ST:	And then I-, I guess, which, I guess was-,
DR:	Enterprise Ethereum with Quorum on top, I think led by JP Morgan-,
ST:	Yes.
DR:	As you would expect, and then-, and then Corda.
ST:	Yes.
DR:	And Accenture ran the project, and it was a sprint-, it required a lot of resources. I mean, even though we have a lot of money, we still are a small company, we’re only 150 people. We-, we punch way above our weight, because we leverage our membership, so-, and we leverage our massive partner network, including folks like-, folks like you. But, it was a considerable amount of work, and we built some really cool stuff, including a continuous net settlement system, that recognises netting opportunities, while payments are in flight. So, we’re spending more time and money on this, but what’s really cool about it is MAS and Accenture made it clear that they weren’t going to pick a winner, even though it’s really clear, if you read the paper, that Corda won [laughter]-,
ST:	[Laughter].
DR:	So-, but you should read-,
ST:	But you’re not biased.
DR:	No, I’m not, I’m just-, I’m just stating the facts-,
ST:	[Laughter].
DR:	As I know them. And-, and the paper’s available. But, look, as you know, when you’re talking about something like that, the design choices, we talked about earlier, of being permissionable. We start with point to point, but we can support just about anything, has helped us, because other blockchains which are built on broadcast all things to all parties, have to lay filters on top. And I-, and, you know, you know more about this than I do, but the channels filter that the IBM and Hyperledger folks picked for-, for Fabric, has some severe limitations, when you’re talking about many different channels, and I think that came out in the SWIFT report, because I don’t want to pick on anyone, I respect my competitors. And then Ethereum, with JP Morgan, that is using, you know, the Quorum, and Constellation in China, adds some zero-knowledge proofs, which, by the way, we’re really excited about zero-knowledge proofs. It’s really early on, but the way we’ve built our technology, as soon as it’s ready for prime time, we just incorporate it, and-, and it’s easier for us to do that, because of these design choices that we’ve made.
ST:	So, you’ve started with things that you know are robust, and then you’re working, kind of, from there. So, talk to me about the future. What happens next with you guys? Does Corda become something that is rolling out? When is it going live? I saw a great interview with you, I think it was at the Singapore Fintech Festival, that-, well, there was a quote where you said, “If you’re not in production by 2018, that’s going to be a problem.” Why did you say that?
DR:	Okay. So, if we talk nine months ago, and we talk about what is strategically most important to R3, I would tell you that-, Corda, Corda, Corda, okay? Now, I’m very happy that we are on the right path. We have a defined path that we’ve communicated very well to the community, of what you can expect in enterprise and beyond. So, that’s going very, very well. Remember, my background is running these exchanges, and there’s a-, there’s a massive underappreciation for the support model that has to go with that. So, we’ve done a number of live transactions in pilot, but pilot’s easy. When you get into production, you know, you have to be able to make sure that you have secure contracts that are worth hundreds of billions of dollars. So, that, for us, has been called R3Net, we’re probably going to rebrand it Corda Connect, but the idea is we’re-, the big strategic imperative for us, now, is thinking about the production state. A lot of folks talk cheaply about interoperability as if it’s something [snaps fingers] you can just snap your fingers. What we’re trying to do is, on top of our platform, is encourage Corda app developers to-, to build their own software, and to deploy their own business networks. What we want to make sure is that the hundreds and thousands of business networks that sit on top of, and rely on the Corda platform, can all communicate with each other in a manner where you can pass contracts, whether they’re fixed income, natural gas, or even cash, from one business network to another, and get, you know, cryptographic proof, to do it in atomic settlement, delivery versus payment, and make sure that-, that that happens well. So-, so, we’re kind of focusing on our own interoperability within our own ecosystem, and then maybe we’ll look beyond that, at some point.
ST:	Great quote I heard from a professional in this space, a little while ago, which is, “In DLT, we risk recreating the maze,” because there are so many different platforms, so many different versions, so many different companies chasing the rabbit down the hole at the moment-,
DR:	Yeah, yeah.
ST:	That unless we think through that from the start, it’s really, kind of-, it could all go horribly wrong. I mean, I spoke to Scott O'Malia recently, at ISDA, and then Commissioner Brian Quintenz, from the CFTC, about some standards, so I was really interested to read about smart contract templates. Can you tell us a little bit about that, and a little bit about how you’re thinking about how your members, and how other organisations, outside of your membership, can take advantage of that?
DR:	Yeah. So, let me-, I can’t miss the opportunity you’ve just, kind of, maybe unintentionally laid in my lap. One of the things I find exhausting is that, there’s a quote from-, from the CEO from RBS when he took over, saying, you know, it’s-, “I’ve just taken over a bank with, like, 5,000 distinct systems,” okay? So, if you’re in our field, you-, you know, the way the systems that support banks were built, and most of them, at the core, still sits COBOL and Fortran, but, you know, they just were built incrementally-,
ST:	It’s like sedimentary rock, isn’t it?
DR:	Yeah, yeah, exactly, but just to support what’s the latest business that’s come in, let’s figure out how to tie it in. So, you have all these APIs and inefficiencies, and all these, kind of, you know, little apps, to-, to support big businesses, but no one ever had the time or the money, nor would undertake the risk, to rethink it all. So, we have an opportunity to rethink it all. What I find exhausting, even from my own members, and from my investors, is the mere fact that they wouldn’t-, and I think they will, I think this has already happened, there’s three platforms out there, let’s face it. You know, there’s the Ethereum community, they are amazing.  There’s the Hyperledger Group with, building on top of the IBM Fabric, and there’s Corda. And then there’s proprietary solutions. You know, the last thing we want is to recreate a future that looks like the past. We don’t want 100 proprietary solutions, and try to figure out how to make them all interoperate. As a matter of fact, over time, what they’re realising-, this is already happening, I can’t speak specifically to the firms, those that have proprietary stacks are saying, “Okay, guess what? R3 is true to their name, they are-, they’re a platform company only. They’re not building top of stack apps. They are empowering to my business. They are not a threat to my business anymore.” So, we are already seeing this convergence, but I think that-, I’m not a believer in proprietary solutions, there are some amazing companies out there, doing amazing things. I think that they migrate to one of the platforms over time, and that’s how we solve interoperability, and yes, even then, you need standards, and we’re very supportive of that. We work very closely, Scott’s a personal friend, we work closely with ISDA, we have increasing, thankfully, increasing dialogue with SWIFT, over-, over standards, and we recognise their position. You know, I regularly-, another good friend of mine is David Puth, CEO of CLS, you know, we’re talking with them regularly. So, you know, our-, our ambition is to really create a very efficient future. The efficient future does not involve 20 proprietary stacks with a bunch of-,
ST:	Recreating the maze.
DR:	Exactly.
ST:	That’s-, that’s going to be a challenge. So, we’re at the end of our time, David, I hate to say.
DR:	No! We’re just getting started, Simon!
ST:	I know, you were just getting warmed up, I could feel-,
DR:	You can have me back with the black hoodie.
ST:	Yes.
DR:	You promised.
ST:	Only if there is a black hoodie. If there’s no black hoodie-,
DR:	It has to have “11FS” on one side, and-, you know, my people will make it.
ST:	My people will talk to your people-,
DR:	[Laughter] I’m just kidding.
ST:	We’ll do it-,
DR:	I’m just kidding.
ST:	So, lastly, I’ve got to ask, where can people find out more about you, Corda, R3-,
DR:	I’m not that interesting, so don’t spend time on me, but go to-, you know, go to our R3 website, you mentioned Corda.net, is another great place. Look, we’re here-, you know, I want to point out, I want to highlight just a final point. We do want to empower, you know, entrepreneurs to-, to build applications, and we can help you deploy to these major financial firms, because you can’t even get vendor approval if you’re a small firm, but if you build on Corda, we’re really building out a suite of tools that will help these organisations be able to deploy their applications, and make a big difference. So, get in touch with us, and we’ll have our dev relations people talk to you, and-,
ST:	And so, this is the thing that surprises me, is, you guys have a dev relations team, you have an opensource codebase, developers who want to make finance different, better, more efficient, more transparent-,
DR:	And have a chance to succeed. And I don’t mean that to be cruel, but if you’re not a well-financed, recognised organisation, no large bank or-, or infrastructure, do what DTCC do with Axoni, Axoni’s a fine firm, but they wanted the IBM wrapper. So, you know, if you want to get that done, we think we can provide that-, that service, and the confidence for the banks to be able to buy your software. So, we really encourage you to develop on top of Corda, and we’re here to service you, and to work with you.
ST:	David, thank you very much.
DR:	Thank you. Take care.
[Break]
ST:	And that was the interview with Mr David Rutter, a big thank you to him, and, of course, to my co-host, G-Sass himself, Colin G Platt, thank you very much for your Cryptokitty enthusiasm-,
CP:	Oh, man, I am so excited about kitties!
ST:	I-, you’ve bought one, haven’t you? Go on [laughter].
CP:	Didn’t buy. Bred. [Laughter].
ST:	[Laughter] you’ve bred a Cryptokitty. This makes so much-, now I get the enthusiasm. Traders’ gonna trade, trade, trade.
CP:	[Laughter]. They’re also gonna breed cats.
ST:	[Laughter]. Alright, thank you for listening. If you like what you’ve heard, please subscribe to our podcast. Please leave us a review on iTunes about Cryptokitties, those reviews help us so much. And spread the word. Tell all your friends and colleagues to listen, too. We will have more Blockchain Insider next week. Goodbye. Wow, a sentient Cryptokitty, that can take custody of its own assets, and-,
CP:	And buys other kitties [laughter].
ST:	[Laughter] oh my god, a kitty-,
CP:	Starts a kitty army [laughter].
ST:	We’ll have a kitty pimp [laughter].
CP:	[Laughter]. No, people are actually doing that. Like, they’re getting paid to breed their Cryptokitties with other Cryptokitties.
ST:	So, yeah, this was what-, this was what Tom was saying, is he put his kitty out to stud.
CP:	Yeah [laughter].
ST:	Like, you know Tom? That works at 11FS-,
LW:	Yes?
ST:	He’s put his Cryptokitty out to stud, and has made some money on it.
CP:	[Laughter].
LW:	Surely he didn’t just pimp out his kitty?
ST:	Yes! Pimpyourkitty.com.
CP:	Cat in a moon suit [laughter].
ST:	[Laughter] cat in a moon suit! Look at them! Look at them! 
CP:	[Laughter].
ST:	Look at them!
CP:	[Laughter].
End of Audio