This is epicenter episode 173 with guest Olaf Carlson. We this episode of epicenter is brought to you by Jack. Jack's is the user-friendly wallet that works across, all your devices and handles. Bitcoin and either go to Jay, a double x dot IO, and embrace the future of cryptocurrency wallets. I welcome to epicenter of the show which talks about the Technologies, projects and startups, driving decentralization, and the global blockchain Revolution.
My name is Sebastian with you. And my name is Brian. Five and Krang. We're here today with all of Carlson. We, he is the founder of politician and he was also the first employee at coinbase. So he's been in this space for quite a long time in Poland chain for those. You haven't seen the new state. It has been covered quite a few times recently. He's kind of a new hedge fund, or investment fund is investing in different ico's, different tokens.
So, kind of this new Beast of venture capital hedge fund type institution. So, thanks so much for coming on, all of. Yeah, thanks for having me. It's all of you've been in the blockchain named the Bitcoin space for a very long time. Do you mind sharing with us? Like, how do you originally hear about it? And how did you get started in this whole field?
Yeah, absolutely. So I heard about Bitcoin in mid-2011 and pretty much was immediately sort of enamored with the technology and kind of the prospects of a true programmatic money source. That was Controlled basically, by nodes on the internet, instead of a centralized entity, which I think was obviously a completely new type of technology. So, I became pretty convinced pretty quickly. That this was the most important technology that I might see in my lifetime.
And so, I started reading a lot about it and that was kind of. Yeah, summer of 2011. And I kind of went down the rabbit hole there. And, you know, wired most of my meager life savings, being an indebted college student to Japan, to purchase Bitcoin, buying Bitcoin, with cash and all sorts of things like that. So, I decided that I liked the concept so much and was so fascinated by it. That I actually wanted to complete my undergraduate thesis
on bitcoin. So I was going into my senior year at University That that fall of 2011 and I decided to complete my undergraduate thesis on cryptocurrency at that time. What were you majoring in sociology? Okay interesting. And what was the reception by your thesis supervisors that academics there on that topic?
So it took a bit of convincing to say the least I think at that time Bitcoin was incredibly nascent so writing a research thesis right on something where there's clearly not a lot of research from the traditional academic world at least. Currently was a hard sell but that said I I do think that my professors were able to wrap their heads around it and say, you know, this is obviously very interesting.
So given that we kind of grabbed some Theory from other areas and from computer science and kind of Applied that to bitcoin. So what was the approach thinks? I mean, back back in 2011, this very much sort of economic, few dozen economical experience or a computer science experiments through experiment. What was your approach from the sociological point of view?
Yeah, I was thinking a lot about what are the implications if a kind of non-state non-bank based internet values stored Which can communicate between machines were to grow in size by a million times really? What would be the implications there? And I think we've seen some of this played out. I think I was probably mostly wrong in 2011, I think it's the space has expanded a lot more quickly than I anticipated. But yeah, it was it was mostly kind of what are the implications for society.
And for individuals if that happens. And then, so you went on to live on bitcoin purely for for a little while. Can you tell us a bit about that experience? Yeah, absolutely. So when I joined coinbase I opted into being paid exclusively in Bitcoin and I was paid in Bitcoin at coinbase for three and a half years. So during that time, it really changes your mentality because it actually cost money then to exit Bitcoin and go. Two dollars. So you're kind of default is is Bitcoin.
So during that time, as much as possible, I was trying to dog food the coinbase product as well, and basically interact with our own Merchant partners and like the shift debit card, and use my mobile Bitcoin base wallet and things like that.
So during that time, I was paying my rent in Bitcoin, and I was purchasing a lot of my very large purchases, like planes tickets or You know hotel rooms with Bitcoin then over time you know it was paying my friends in Bitcoin when they would you know we'd go out to some pizza or something. I would have them by my slice and then I would pay them, it kind of peer-to-peer in Bitcoin. So I always try to do that as
much as possible. You know, I wasn't, you know, 100% on bitcoin as in, you know, they were just pragmatic expenses like, gasoline or Health care or something like that, that you just got to pay in dollars. So I was doing that as well. So you mentioned the coinbase, you joined, you were the first employees that correct? What was it like when you how do you end up joining coinbase?
Great questions. So I was looking at the at the Bitcoin space very closely throughout 2012 and the Bitcoin price had sort of crashed so to speak. I still felt like the technology was going to change the world and there were not that many companies. He's at that time. There was not a lot of venture investment in companies and a lot of the companies that did exist, I didn't see a great future for having interacted
with a lot of them either. You know, by purchasing Bitcoin, I didn't feel like there was a sophisticated player in the space yet. So coinbase came out and I was actually the 30th user of coinbase. So I was very early to their website and I liked the product.
A lot. I basically thought that it was sophisticated and it was easy, you know, I didn't have to do anything complicated and at this is going to sound silly to listeners now, but I was able to purchase Bitcoin online and that was something that coinbase sort of uniquely enabled. And at that time, the easiest way to buy Bitcoin was really to go to a physical location with cash and purchase it from another person or deposit cash. Into someone's bank account.
Now, with coinbase, I was able to purchase using a bank account just over my internet connection and that is actually really hard from coin basis perspective to accept those payments via the internet, but they were able to do it. I receive my Bitcoin was able to transfer it off site and basically, yeah was sold. So I cold email jobs at coinbase.com in about February 2013. And I received a reply from Fred, the co-founder and about 15 minutes and the rest is history.
I guess I went in and met Brian and Fred at the time they were working out of an apartment in Soma and had had maybe a seed round of funding about five hundred thousand dollars or something like that, spoke to them for a very long time and I think there was a good fit. I really liked them quite a bit and I thought they had a very long term vision.
You know, for building sort of an Empire, which is what I wanted to be a part of. So join coinbase is the first employee and we raised that series a round of five million dollars from Union Square Ventures, probably two or three months later. And with regards to that, that vision and so the Enthusiast the enthusiasm that you had back then, but like many of us first coming into Bitcoin we're pretty enthusiastic. Do you think that they've overtime stay true to that Vision?
Yeah, so not, you know, a ton of people know Brian, from coinbase really well. He is more dedicated to Bringing cryptocurrency to everyone in the world then. One I've ever met. So I think that Brian being the CEO and founder. You know, and really being the person who is driving the culture of the company driving, the vision of the company, he is extremely focused and dedicated on bringing this 100% to the mainstream and getting Bitcoin on every mobile phone in the world.
In everyone's pocket, whether they have a bank account or not. and really making sure that all of the tooling around cryptocurrency exists, so that people can really gain more freedom than they might have otherwise by being able to both potentially control their own finances, as well as interact with new types of products that maybe weren't possible before cryptocurrency was created, So Congress has been going through a lot of changes to. I mean, recently, they've become
more interested in your theory. Mm, they just launched the exchange. It seems like they are kind of getting interested in the whole token sales Ico real mom. What's your view of where the company is at and where it is going. So first we actually had to tell it come to the office and sort I've tried to recruit him in 2013, turned out to be a great thing that he did not join us.
Because I'm very happy that he went on to create a theory of instead but we read the white paper when that came out kind of the day it came out and I was kind of following the project the whole time but it was really once that the network launched is that we started taking it more seriously. And during that time, I was in a role at coinbase where I was doing work, that was a bit more experimental and I got very, very interested in the etherium ecosystem.
And just what was possible with this turn complete scripting language and I realized that it was really enabling a whole Suite of applications that we're much easier or to do with aetherium or just straight impossible to do with it. So you know, really one of my last pushes at coinbase was to get them to adopt a theorem. This wasn't just me. I think Fred the co-founder was was also very interested in this handful of other people on the team.
But I do think there were a handful of people to company that we're really pushing it that once coinbase adopted aetherium. That's when I really realized that the timing and sort of just as General market was ready for something like Polly chain and that was a lot of the inspiration for leaving coinbase in order to start polishing. But I think overall you know, is he is serum, ecosystem is really active right now and there's a lot of experimentation
happening. There's a lot of interesting work happening and smart contracts and kind of experimental applications run through smart contracts. So if you're in the crypto space, And you're not paying attention to etherium. You're missing a lot of where the activity is and so coinbase. We've always been you know, whether it's through our products.
Not usually through the products but more the team looking at that Cutting Edge and I think in you know aetherium and ico's and just kind of tokenization and a theorem as a token platform we've been thinking about that stuff a lot. So yeah, I think it takes a while. Oh sometimes for coin basis at a very massive scale so to ship products. 25 million users safely is difficult.
So internally a lot of the discussion is usually months and months ahead of actual product launches That you mentioned and you know, we can probably come back to this later on the show. But you mentioned that a lot of the action is in the etherium space right now. On anyone not watching the Ethereal space is missing out on a lot. I'm curious. I'm, you know, I definitely
agree with that. I mean, we were just that head confit weeks ago here in Paris and a lot of the enthusiastic murmur the enthusiasm around aetherium sort of, you know, Echoes the enthusiasm that we've seen at a, you know, at the Bitcoin. Foundation conference in Amsterdam, or any of the other other conferences around that time. What are your feelings about the Bitcoin space right now, where it's at? As opposed to like where it may have been a few years ago, you
know. I think Bitcoin is really different in that because it doesn't really enable Smart contracts. There isn't an interesting application layer that is on the protocol. It's really more. About companies, you know private companies building on top of Bitcoin. I think historically Bitcoin companies have not been
successful. If you take like a large swath, there's been one point four billion dollars from Venture investors invested in Bitcoin companies and I think I can count on one hand, the companies that really have objectively sort of performed. Well, and maybe I can count them on one finger. Even If we're talking about coinbase so I think you know there has been not as much adoption in a lot of the area's people originally.
Thought there might be like say e-commerce you know, Merchants payments even remittances peer-to-peer remittances for example, I don't think have moved very quickly. So all that combined with, you know, a quick sort of toxic meltdown. Within the community around debates around the best way to scale. The protocol to me, has has created a vacuum for actually, something like aetherium to come in and offer, what I view as a lot more Innovation, where it's not just competing with existing
business models. It's not a better remittance or a better bank transfer. It's actually enabling new behaviors that were not possible before when I'm playing Blackjack against a smart contract. Tract, that's new to me. That's interesting. And to me that I see that as kind of the tip of the iceberg,
right? And you know, this, this blackjack game might be a prototype, it's slow, its maybe a little buggy but it is enabling something that just simply was not possible before and that's why it's so interesting to me. So I think I think the Bitcoin space is despite the price Rising I think is stagnating a
little bit. And I think Bitcoin is increasingly becoming mostly sort of Annie gold or store value and like you know, developments like the Bitcoin ETF if that were to be passed with sort of solidify that a bit more. So I think Bitcoin is very interesting still as eagled and as a store of value because they're, you know, I don't mean to belittle that that is a massive use case but you know, I'm increasingly becoming Skeptical of of short or midterm Bitcoin.
Empowering a lot of the original use cases that people imagined. Yeah, it totally agree. I mean it definitely has sort of solidified its position as equal. Now it's unclear where that will go.
Now you know, with with all these debates around block size and what having just the inability for the community, I think just to come to consensus around like these massive issues, you know, and that on top of Bitcoins and ability to to to build these other these other interesting applications that we're now seeing with etherium or in other types of
protocols. So, I mean, I I'm still optimistic that, you know, the Bitcoin protocol will will last and will hold this position as with a the leading cryptocurrency for For payments. Now whether those will weather will enable micropayments or not? Is one question, you know, whether it'll be like micropayment enabling platform or simply doing settlements and as any gold. But, but yeah, I do also have reservations like yourself. And I think, I think Brian
probably had similar views. What's been interesting is I've been recently was too Bunch of times is credit is like huge discussions. And one of the things that was what was interesting when, you know, when I got into Bitcoin where it was like me 2013 and then people were saying why go Bitcoin is you know you can do transfer right like for basically nothing to anybody in the world and it arrives
instantly right? And then you people always say no they credit cards are so expensive in the ripping people off at session and now you having these discussions and people are like no It was never supposed to be cheap, that's
what I find. So fascinating about this whole debate, I was watching that old Twitter storm and to see people totally dismiss the instant micropayment, you know, buying coffee with Bitcoin, use case, when those same people probably though, three years ago or were touting that as the Mage major functionality and feature is just, it's incredible to me. Well, I mean, I think there's a couple things there.
One is, there's there's I think genuinely perhaps unforeseen concerns around the scaling of the technology. So I think a lot of the people saying this is going to be better than Western Union. This is going to be micro payments. I think we, you know, some people weren't really thinking about how scaling would be addressed because, you know, even to To reach a global scale. You need to move to these lower layer. 2 networks, like lightning like the lightning Network.
So I think lightning network will work. Eventually the thing is that there's a huge amount of cognitive dissonance right. When, when you signed up for this project, you invested money in this project, Etc. That says, oh we're building a Global electronic cash Network and suddenly it Dollar to send a payment on that Network and it didn't used to. I think there's a lot of cognitive dissonance where you want to kind of justify it or say that it's all going to as planned.
When I think the reality is no one is happy, right? That it costs a dollar instead of a penny to, you know, initiate a Bitcoin transaction. But, you know, I think it's just something we need to deal with, and it kind of accept the reality of, instead of trying to Redefine the goalposts, right, and change in our heads, what the goal actually was. So, yeah, I definitely. Yeah, yeah. And another, another, another thing that some guy was arguing
was that do usability, right? She was like, oh, it was never supposed to be more user friendly than Fiat currencies. Like this is no chance that cryptocurrency can ever be more useful if your current what. And I also remember, right? Like, 2013 people with always will show like, look, if you want to Flight with a credit card, you have to give all this information address, Etc. How easy is it with Bitcoin to
scan a QR code now? People say, no, no. It's not supposed to be user-friendly, moving the goalposts. Yeah. So yeah, you you said you you recently left Congress has started polishing, what is Paul chain and what's its structure like? Yeah, so Polly chain. Manages a hedge fund that invests exclusively in protocols. So we don't hold shares of any companies. We only invest in, you know, cryptocurrencies blockchain based assets and other kind of
protocol tokens. And when you, when you say hedge fund can for people who aren't familiar with this, that, how does the hedge fund work? Yeah. So basically a hedge fund has number of partners that all pool money and then a manager, basically invest that money on behalf of all of the partners. And so, so that manager generally has very unique strategy that that's sort of uncorrelated With the market or you know is is a better.
It's better at generating alpha or value than something like passively investing in the SNP or passively. In this case may be passively buying Bitcoin. And I mean, we're going to get a little bit more into the nitty-gritty of the investment strategy, but I guess you can set contextualized this a little bit, right? One of the challenges we've had conversations.
I think also with investors about this long time ago is said to be seized for example are and allowed really or at least for the most part to invest in these assets, right? So it's kind of this space. Also where institutional investors existing Institutional investors can't really compete who I think institutional investors you know then there's a lot of different groups of institutional investors. So there's Venture investors, there's family offices.
There's institutions and endowments and these are all really different groups of people that actually have very different needs and different legal obligations and things like that. So I think we focus a lot in the crypto World on Venture Capital, but venture capital is actually pretty small portion of just kind of the overall investment money that people are trying to deploy.
I think if you have very high conviction as one of, as a manager of one of these firms in general, it is possible to go to your partners and or your LPS, the limited partners. And convince them that this is such a big opportunity.
Petit that we're actually going to participate here and I think it's perhaps somewhat unusual for Venture investors to become Partners in a fund but that's what has happened with Polly chain because there's High conviction here and it you know, Polly chain, as you said, can be sort of an Avenue for these investors to gain exposure to this asset class without having
to purchase them directly. So, when you say that the politician will invest in protocols, give us some examples of types of protocols that you may invest in and types of technologies that you wouldn't invest in then. Yeah, absolutely. So I can only talk about Investments. We've made that are that are public but you know, in the portfolio we of course hold the much larger cap things like Bitcoin and aetherium. We also are invested in a lot of smaller more emerging protocols.
So for example, mkr or maker is a CRC 20 token on top of the theorem that we made sort of a public investment in. We are also invested in things that aren't built on ethereum. So for example, tase owes, which is a also a turing-complete Blockchain like etherium, but it has some really interesting qualities that differentiate it and I think provide some usefulness outside of what etherium does. So it's really all over the place. Anything that is based on the blockchain, we can invest in
anything. That's kind of an open source protocol. You'll invest in like, low level, protocols, like etherium, but also applications built on top. Yes of those protocols. Yeah. Well, and we Yeah, any anything that sort of is is because I, you know, even those higher-level protocols. I guess I used the word protocol a little Loosely here. But yeah, we'll invest in application-specific tokens as well as low level protocols, okay. So you mentioned before that,
you were just a wee visit baby. If we were talking before that you were raising, some money was coming from bzees that essentially use poaching as a sort of Avenue to invest in tokens. So how much, you know, The size of your font now, and where would you like to take that? And do you, you think much of it is going to come from VCS who are interested in this space or you more? What kind of investors are you looking for? Yeah, so we currently have 15 million under management 15
million u.s. dollars. I think this fund will be capped at some level. Some it's hard to say exactly because as the space expands it actually becomes possible to manage more and more money. But in this case, you know, a lot of funds hedge funds will grow to billions of dollars in the current with the current size of the space. This funds strategy would not scale to that. So this fund will be capped at some level. I think most of the investors that are going to invest in
apology and fund are not VCS. And like I said, you know, most startups are familiar exclusively with Venture investors but I'm actually I work a lot more closely with fund allocators. So these are in general, family offices. So family office is basically a very micro investment firm set up by a high, net worth individual to manage their assets. And family offices don't have the kind of resources in general
that a venture investor does. So family offices, don't take seats on boards, they generally don't want voting rights. They want to be passive investors. So family. Offices are some of the most
common Partners in hedge funds. Those are some of the most common fund allocators, especially for emerging funds, you know, once once we have say, two year track record at that point, we can start Talking to more large-scale allocators and these are things like endowments or foundations managing money. But generally speaking Venture, investors are actually not who we're talking to because Venture investors aren't usually, who
can allocate two phones. Yeah, I mean, of course is also a little bit of a bizarre situation with a venture investor because they're getting money from somebody else. And then then they take their like tea, For making the right allocations but then they give it to you and yummy invested and you take another fee, right? So it's hard to justify that
even yeah, exactly. Let's take a short break to talk about Jax. Jax is your wallet, your complete user interface to cover, all your blocks your needs. I've been using it not been loving and track supports a lot of different cryptocurrencies, suppose Bitcoin Easter like Colony. Theorem classic is in cash or grep and they're adding many more keep the responding to users needs that with Jackson.
Nice thing is that you can manage all of those coins within a single wallet and you are in control of your own private Keys. They're not on their server. Is a single 12 word see that you can use to back up your wallet, all your coins and sync them across different devices. Talk about devices, they're on pretty much any device that you can think of you can get it on PC Mac. Linux you can get on smartphones like Android and Apple and iPhone. You can get it on tablets or
even there. Even browser extensions for Chrome and Firefox. And on top of that in Jack's, you can actually change the different cryptocurrencies for each other, because they've integrated, As shape-shift and more Partnerships and Integrations, are coming down the line. If you have the 17 that are going to make Jack's even better, so Jax is really making blockchain and cryptocurrencies accessible for the masses easy
to use for the masses. Make sure you sure to get your own Jack's wallet at Jack's at I/O. We can get it from any of the app stores. You are using would like to thank Jacks for their support of epicenter. How would you summarize? The investment thesis of poly chain? So really broadly speaking and I think many listeners might kind of agree with this assessment. So the market capitalization of all blockchain, based assets has grown precipitously.
So when I wrote my undergraduate thesis and published at, I think, you know, early 2012, the market capitalization was 50 million dollars of, basically, all blockchain based assets. And now it's closed. Zur to 25 billion dollars or, you know, a 500x increase in value. And that's been fantastic growth over the last five and five years. But I think that we will continue to see you know, immense growth in this space.
So someday I believe that there will be trillions of dollars stored in blockchain based assets and some of this will be sort of native or endogenous. To the blockchain. Some of this will be real world or more traditional types of assets, encoded, into the blockchain. So we're talking about a area that is extremely nascent and I believe will grow substantially over the next say five or ten years. That's pretty easy to see. I think a lot of people see that more specifically though.
You know, how do you invest once you see that? So we're very much interested in the what I would call sort of the decentralized or the web three internet stack. So when you think about Twitter, the protocol competing with Twitter that company you know, that's really exciting to me. And kind of a peer-to-peer sensorless version of Twitter is really exciting to me. That's totally Global and not run by specific company but rather is it just completely protocol. Now the issue there though is
that Or the company. And the platform is built on a massive stack of web technologies that are often sort of invisible to the end user. So this is like HTTP and and kind of being at the browser. This is SSL so that your traffic is encrypted, this is just kind of your server stack. So you're interacting with like a Twitter data center. You also have a stable login and and you know identity and reputation on Twitter. All of these are are components
of this internet stack. That was built long before Twitter and that Twitter sort of had to combine in modular pieces in order to get the Twitter platform into place. So I think, I think it's a little early right now. For something like Twitter, the protocol, the reason being that we need things like ipfs and file coin.
Things like Gollum you know which which is a computational Marketplace. Things like you port and kind of identity and reputation systems we need, you know, projects like meta, mask that enable you to interact with smart contracts in the browser. You really need this. These kind of low-level infrastructure and kind of middleware layer to rebuild that whole web. You know the decentralized stack or the web three stack, which
kind of mimics. A lot of the centralized web stack and you need to be able to combine all of that stack in in kind of modular Parts. In order to get It the more emergent Behavior like Twitter the protocol so to us you know projects that are enabling that distributed or decentralized web, stack are very very interesting.
Yeah, I totally agree with that. I mean, one of the things that I often say to people, when comparing so traditional web Stacks to decentralized technology stack is, if you can look at just about any type of application, that we built a web Stacks say in e-commerce website and, you know, you have a an array of stacks, right? So you can build e-commerce websites on like Magento PHP, MySQL, Apache, Apache Linux. You know, you can do, you can do it, like, maybe on like an asp.
Back in the other Stacks that are there and are valid and test it and there they work and people use the massively. But in the blockchain space, you know, there are applications that are use cases. There are types of things that people are doing but the stacks are not. Well, defined interoperable like the at the different layers, are not always super interoperable together and a lot of the Technologies are still kind of beer in a very nascent state.
So I'm really interested in seeing those Stacks starting to Starting to form. And, you know, these, you know, like Technologies coming together, around specific use cases of people pointing to those, as as sort of references and how you build a certain type of app blockchain. Do you see some of that starting to emerge? You know, do your other applications where you can see
sort of stacks emerging. Yeah, and I, you know, I almost wouldn't call them applications because I think Applications sort of assumes a what I would call like it an average or normal and user. I think we're looking at right now more like middleware. So for example, something like Gollum which is a peer-to-peer Marketplace for computation powered by an arc 20 token on etherium called GNT or Golem Network token. I think that Golem to me won't really be used by sort of People.
I've you Golem as being a developer tool so that a developer can build, you know, an emergent kind of end-user application and I think, you know, file coin, which powers ipfs, or the interplanetary file system, which is a distributed server architecture. I think similarly, you know, I see ipfs really being a tool for developers to build more complicated emergent applications.
So I think we're seeing that. Kind of middleware layer, you know, and you're seeing that on the not just on the kind of web 3 side but also on the on the financial side. So I think maker maker Dow or mkr, you know, the ultimate goal of that project is to build a stable cryptocurrency. That's fully decentralized and that to me, is sort of the equivalent of the kind of financial middleware, right? So the stable coin, In itself isn't necessarily the end
application. It's really that the stable coin stays stable, while you're in, escrow waiting for an e-commerce, purchase to complete or while you're giving out a loan, right? That that the actual asset you loaned isn't changing in value for the duration of that loan. So to me, I view a stable coin, also sort of as, as that kind of lower level or middleware layer that enables more advanced and Use your applications like peer-to-peer loans, Peter Port
Credit things like that. Yeah okay that makes sense. So then you know the stack could be composed of you know different front-end applications friends, tools some storage you know a coin you know smart Contracting language. And with that you can build perhaps some sort of application like on a Fidelity point system or like a e-commerce payment system or something like that. You wrote Somewhere, I right that you that you wrote that we're moving towards a system.
Are smart contracts for like, Lego pieces. And in this, you know, if we, if you sort of take this idea of, you know, Stacks, what type of pieces than could we see emerging within those different application type. Yeah. So and and the context there was, we were talking about the Dow and kind of, you know, what went wrong there and I think part of it was and like, the first person that really Talk to me about this eloquently was Nicolae. Who's the lead developer behind
maker? I think you know, thinking about the architecture of smart contracts is really important and so when you're building a traditional web application, you generally want to architect these days, they kind of most premier way to do this is a service-oriented architecture or SOA. And this is where you know you're Architecture of your application isn't on one monolithic code base, but is rather on different modular parts that each serve a very precise function, but that can
all interact. This means that if one modular piece fails like maybe only your site's API goes down but the web interface stays out for all your users. So this is the the benefit of a service-oriented architecture. Is that you don't get catastrophic, system-wide failure. You know, an individual piece can be upgraded or fail or things like that without
bringing down the whole system. So when we're thinking about how to build really complex smart contract bill, based applications, like for example a user, you know, controlled and owned Venture firm, which is what the Dow was trying to do. I don't think on principle, you know, that that is an untenable idea. I think it's technically
possible. it's just a question of how to architect that, so that it's kind of the safest and I think the Lego pieces metaphor resonates with me because each smart contract can perform a very specific function can be extremely battle-tested, you know, both in the field as well as by security researchers, it can be very carefully audited and just used widely such that we can feel confident that that very specific small All modular smart contract works, and from their smart contracts can be
combined to build more complicated. Emergent Behavior, sort of like, Lego pieces. Each individual piece is very simple, but when you combine them, of course, you get sort of very quickly and exponentially Rising number of possible combinations. So I think that's probably where smart contract. You know, smart contracts will go in the future. Is it kind of more modular set of very well battle? Contracts. But we'll see. I think these things are so emergent.
It's hard to know. Sometimes there's been a lot of this kind of fundamental technology built in the past right that powers the internet HTTP SMTP Etc. And it seems like the pattern in the past was that those protocols weren't monetized but that then on top of it, you know, people will build Gmail and Google and Twitter and all of those things and those would turn Out to be big businesses.
So here right when we're looking at what you were talking about, now, those would be projects that are kind of more building replacing these fundamental protocol layers and then you know, you pointed out that okay, once those pieces are in place it would be possible to build you know, decentralized Gmail decentralize Twitter, Etc. Do you think that in the end we will do see a kind of issue. We're in the money is made into value is created towards the protocol.
Or do you also feel like that the biggest Returns the end will be on the level of these applications that will be on top but it's just, you know, it's too early right now. So I have pretty strong opinion on this. I really do think that, in this case, the value will be created at the protocol level and not at the application layer. I don't think this is an entirely new idea.
If you look historically, the best bet in the entire Bitcoin space was Bitcoin, the protocol, not any of these specific companies built on top even coinbase which saved for the seed round investors in coinbase. That has been absolutely fabulous return but when they did that seed round Bitcoin was about five dollars and if they would have purchased Bitcoin I think they would see you pretty similar fabulous return. So too.
This isn't a totally new idea you know and the best investment in the theorem ecosystem obviously is ether has or has been either historically more so than it was any investment in any private company built on ethereum. So I think this is starting to be empirically true. I think looking forward when you can bet on the protocol because all applications built on top of the protocol require you, To
actually utilize that protocol. I think this means that really disproportionate value goes to that protocol layer more so than the applications built on top of it and Union Square Ventures, who's want to poly. Chains investors, they have a strong thesis around this, as well, and Joel, man Eggroll who works at us, V, and is a great thinker. In this space, wrote a post about this called fat, Al's in this is about how value in this space is created more.
So at the protocol layer than the application layer. And what I would suggest is, if you look back in time at sort of the emergence of just, the normal web, the normal internet. We might think of the best investments as Google Facebook Amazon. Things like that.
I would challenge that if it were possible to own say 1% of the TCP IP protocol that that actually Lee would have been the best investment you could have made because the TCP IP protocol or the SMTP protocol or whatever it is grows in use for each application built on top. So you know that protocol it basically becomes more and more valuable with each individual application that's built on top of it.
So to me, being able to buy ether and invest in the protocol of aetherium and basically being, you know, what is Really an equity owner in etherium, is extremely powerful. If any of these networks are protocols becomes ubiquitous on the internet, like, I believe, say, ethereum could be the upside of that investment is astronomical.
So even if that probability is viewed, as very low, I think things like etherium are a fabulous bed, even if you're extremely skeptical, because the upside is so great. Cool. Excellent. I think that was a well, well, put now let's move to one of the topics that's probably on many people's mind, which is the topic of crowd sales and, and what's often called ico's. So those have been really taking off. I think I saw some stats that in the last was it six months or
something? There was as much money invested in the whole block chain space through icos as well as through traditional way. See, and that that, you know, probably or maybe this is the last year and that this year, you know, it's a good chance is even going to overtake that. What's your view of the current state of this Ico and crowd sale wave. So, on a very high level, I think it's incredibly interesting that we are seeing what I would call a handful of unprecedented effects and I'll
say what I think those are. So One. Is that broadly speaking, we are seeing open source Founders. So founders of peer-to-peer open source. Protocols are able to raise money just to develop their protocol. I think this is absolutely amazing because open source has always been built. Usually for ideological reasons and it never really has been monetized in this way where you have a great idea. You have an excellent white paper.
You assemble an excellent team and now you can actually, you know, be monetized to actually, you know, build that protocol build a network that's a never really happened before. Additionally, the fact that these teams can take an equity stake in their networks and actually you know, hold some of the tokens for themselves and gain the upside that looks sort of like a start-up founder when you start a company.
Any, you know, you're usually the largest Equity owner in that company and if that, if you can make that company 100 times larger, you know, the value of that Equity goes up by a hundred times, and I think that we're seeing that affect, that kind of economic incentive mechanism, from startups, be mimicked by open-source Founders. And I think that's also a sort of unprecedented affect one that these projects can get money
into that. The creators are really Financially to build a successful project on the flipside of that, and these kind of crowd sales is that the users of the network are the equity owners of the network. So, you know, when you're on Twitter or on Facebook or on Uber or Airbnb, Etsy Tumblr, whatever you're contributing to that platform, but you do not own that platform. Somebody else owns it and ultimately is extracting value from all of the interactions between the people on that
platform. In the case of these peer-to-peer models, the users are the equity owners and when you contribute value in a sense, Also gained a very a piece of that value based on your Equity ownership. So this idea of founders of open-source and peer-to-peer protocols, being able to monetize their networks to have an equity stake in their Network and also for that Network to be owned by the users. All of these in my mind are pretty much unprecedented effects.
And the fact that aetherium has been become really a platform for the launch of Total assets through the ERC 20 standard so that, you know, developers can focus just on their, you know, specific application that this token is powering instead of having to rebuild mining algorithms, consensus mechanisms and the whole kind of blockchain stack and getting to scale.
So that your blockchain is secure, the fact that all that is abstracted Away by etherium and that developers can just focus on the actual digital asset in the mechanics of that digital asset is Amazing. So to me, you know, on a really high level, I think we're seeing a lot of Trends here with crowd sales that are very big and very important to look at carefully. Now all of that said, I think the specific mechanisms were seeing often play out in the space right now.
Are pretty basic as in, there's a reason Venture Capital works the way. It does and it has kind of emerged the way it does. So, for example, when you raise money for a company you don't take one big lump sum and then you know use that money forever, you raised a seed round a series a round Series be round and you kind of take Capital at different different amounts of capital at different stages of your company. That makes sense.
And you get diluted in different amounts based on those kinds of round of funding and everything. So right now, I think with icos we're not quite there were mostly in like a Hey I'm launching, I'm raising money and it's a done deal and so I think we're actually going to see the ecosystem move more towards a the structure is that traditional Venture financing created because I think I think they were created for a pretty
good reason. But yeah I am as you can probably tell I'm obviously very excited about the prospects of monetizing peer-to-peer networks and really rewarding the creators of of those peer-to-peer Networks. Yeah no I think you're putting out very well and I think you're totally right to raising in different stages and you know not selling all the tokens kind of in one go.
It's going to be quite important for projects and and I wouldn't be surprised if you're going to see some some challenges for project sound line that you know that waste all that money at once. I mean I think even a theory. Mm they got kind of Lucky with the Aether price. Just taking off at the right time, but otherwise the human Foundation would run out of money at this point. So, so given that what is your feet?
Because, you know, looking at this from, you could look at these projects and you see the amount of money they're raising and the kind of stage, they're at, and often, you know, if they went to a VC, they probably wouldn't be fine off and they probably wouldn't be able to raise Significant amounts of money often they might say. Okay. We're going to maybe invest in the seeds seed round kinds company but now they're raising maybe 10 million or something.
Do you think that there is a problem of just too much money going into projects and them being overvalued? So I have a couple thoughts there. So one is that, I think it's great. That these projects are being opened up to people outside of venture capital. And I think that it's fantastic. That startup style returns have been given to regular people like purchasers of Bitcoin from the early days purchases of ether, in say the crowd sale of aetherium have seen fantastic
returns. They were not Venture investors. So right now just in a macro environment, we're in a place where you know Venture is limited to a kind of elite group of people that all have to be accredited investors or qualified clients and basically have stringent net worth requirements. Most of these requirements are put in place after the Great Depression in like the 30s.
So to me that limits all the best investment opportunities or or rather the highest potential upside investment opportunities to a very exclusive and Elite group of people. Instead with these token sales that kind of democratizes that access and gives anyone access to these very early stage projects. So maybe what we're seeing is that there's more market demand for these early stage projects
than people thought. And when you open that up to the to anyone, Actually it's sort of like a Kickstarter style fundraise where you can raise a little bit from a lot of different people instead of, you know, a couple huge checks from one or two Venture investors. So maybe there's just more money on the sidelines for early-stage projects than people realized.
The second thing though is I do think specifically for some of the projects in the space, there is in my view a bit of irrational exuberance Since I would call it around some of these token launches. Now that said, I think individuals can disagree with the market, but I do trust that the market is efficient in some way. So the amount of money being put in here, you know, who knows? Basically, maybe some of these projects end up being 1000x
returns. And in that case, Um the maybe seemingly High valuation at this early stage. For a lot of these projects may be was justified because there was sort of a unicorn so to speak among them. Yes, those around, you know, this idea of irrational, exuberance around some of these projects and I do agree that some projects, can we see all this money flowing in and, and there's nothing really behind it or perhaps, you know,
technically, it's not install. The projects aren't being built on Solid ground or that kind of thing. Do you think that, you know, at some point we may see some sort of a crowd sale bubble that could affect negatively the price of the underlying assets like Bitcoin and ether. if there's a crowd sale bubble, I think we're maybe already past the peak, you know, with with the Dow and a lot of projects late last year or so You know, I think it's possible at the same
time, though. I think this kind of crowd funding mechanism is here to stay and even if there are kind of waxes and wanes or swings in the activity, I think net that irrational. Exuberance is maybe it's often the the signal of a larger Trend. So with Bit You could argue say that in Bitcoin in 2013 When the price went to 1,000 that, that was really irrational. Exuberance. But now I think we see in hindsight that a lot of those people maybe were right.
It's just the timing was maybe off a little bit and people were seeing something really big. That just wasn't quite production-ready that year, but was maybe production-ready two or three years out. So, yeah, I think we could see swings but I think that, this this idea of token launching and raising money through tokens is here to stay. Jay. You mentioned the Dao, from an
investor perspective. What effect, you think that may have on their desire to invest in, you know, in these tokens and future crowd sales So, the Dow was extraordinarily intellectually interesting in that. I do think that future doubts will work and will be a very important part of this ecosystem. So, I think the unfortunate part of that effect is that it made people skeptical of the concept of a dow.
When I actually think that, that's a very important concept, and, and I doubt just quickly being a decentralized autonomous organization. So, I think this idea of conferring voting rights and fund allocation based on the community for a very specific purpose actually, you know, has its use cases, potentially, and is a very big idea. I think it's a classic example of something that's uniquely enabled by this technology. And and really wasn't possible
before. Now that said I think there was obviously way too much money dumped into the Dow for where it was as project, and I think that that should have been like a tiny experiment that got little bit out of hand. So to me, Yeah, it may be correctly, tempered investors interests and showed them. You can't just dump money into anything. You have to actually, you know, still have a very critical lens when you're examining these projects. But at the same time you know I
get partially. Why that happened? It's just because the Dow was so intellectually interesting that it was hard not to participate for some people because they felt like oh I you know, I want to be part of the future essentially, even From an investor perspective. As in was, the DOW going to make spectacular Venture returns. Probably not. And I think a lot of people
probably need that. Yeah, I mean, I see where you're coming from, on the other hand, I think to an investor to properly evaluate and assess whether or not a project is technically viable which you know, for all intensive purposes, the the Dow crash or hack was it was a technical issue. I think for most people. Invested in it or even observers of the space there was really no way of knowing that that would happen.
Do you think that perhaps this is installed some sort of Skeptics perhaps instill some skepticism for investors to you know maybe invest in some really interesting projects but because they don't have the ability or the experience to examine them technically May hinder the space with regards. Raising Venture money and like money from not from within the space, but yeah, like investor money. Yeah, I think if it created any skepticism, it's healthy
skepticism. I think it's really important that people understand what they're investing in which I think in the case of dialogue people really didn't and and maybe didn't understand the risk, right? Any investment and anything in. This ecosystem is extraordinarily risky and you know, including ethereum, including Bitcoin. So I think that a lot of Or maybe forget that, do you think that investors really get how
risky it is? I mean, because there's there's obviously sort of the through speculative riskmaster stuff but do people when you, when you really start looking into these Technologies to be even as observers of the space of you, like we can we can say that these are not Battleground tested Technologies. Like, you know, we're not really sure what's going to happen when the theory of moves to proof of stake. Like these, do you there?
Enormous risk around all these projects that we sort of take for granted. But do you think people really comprehend the amount of risk? I think so. I mean, I don't know, I think some people do others. Maybe not. You know, I think that the upside is so large and that's one thing that everyone gets that on some level, the risk assessment is like it still makes sense to invest in some of these things.
Even if you think there's a one percent chance of success because the upside is more than 100 X, in which case, if, as an investment, you know, that's a good investment. So II, think, you know, and you could even say that about ether itself that, you know, I consider if you're in very risky. Obviously, I'm very excited about etherium. I think if you're in the upside on the market cap is massive and I think the probability of
failure is pretty high too. So, you know, knowing there's a lot of risk doesn't mean you shouldn't invest, but Yeah, I think it's across the board people's different assessment there. So before we wrap up here, I wanted to ask you about. Yeah, so about Bitcoin in ether, these underlying assets recently, you know, we've seen the price of Bitcoin come up to the levels that it was back in
the early 2014 and even higher. And the also we've seen the price of aetherium of ether come up to, you know, sort of like $20 right now. There's there's a lot of there's a lot of speculation around You know, the these underlying Technologies and that's what's driving the price up. When we see more and more apps being developed on the core. Protocols, what do you think will drive the price of these core core tokens in the future? I mean just more use cases for a
real consumers like real people. That aren't kind of weird crypto Geeks. I think that's going to be the key driver is if we can see something like Twitter, the protocol get really big, you know, because users are remunerated, in an in creative way and suddenly you get money for retweets and some 14 year old makes million dollars, like
that's big right? I think it's going to need to, at the end of the day, of course, be kind of scale oil scaled, end-user applications in the meantime though, it's mostly people betting on the future and betting on that future sort of speculative lie based on progress in the ecosystem and increasing that probability of those end-user applications
emerging. I think it's hard to know exactly what drives all these prices but I think it's it's often just people realizing how big the potential is here. But Olaf thanks so much for coming on and sharing a bit about Paulie chain. And your vision today was super interesting, talk with you and I am excited to see where the font goes and where this whole Space goes as well.
I mean I think you are also at the very very beginning of what's probably going to be a whole wave of investment funds that are going to pursue similar strategies like you. So that's extremely exciting to to learn about, yeah. And thanks for having me. And yeah I do think that the space is seeing unprecedented growth right now, so I'm sure there will be many other funds doing what I'm doing.
Cool. So is there there are quite a few resources, I mean, Olaf's articles, and some other articles and some of the concepts we've talked about. So we'll link to those in the show notes. Now, just one piece of information for our listeners as well, so we have you probably noticed we have often been releasing episodes on Tuesday instead of Monday, like we used to So we are moving to releasing them on Tuesday, basically, always and we think we should be able to release them on time
that way almost always. I'm sure sometimes it will be Wednesday still but but so yeah. So keep a lookout for the episode since used a. And yeah, with that. We are at the end of our show. Thanks so much for tuning in. Once again, we are part of their lesser pick on networks. You can find this show and other shows on their list of we kind of calm. And yeah, thanks so much if you want to Support you showed in please, leave us an iTunes review and we look forward to being back next week.