COVID-19, Blockchain, and the Global Startup Scene – #39
Steve: Hi, I’m Steve Hsu
Corey: and I’m Corey Washington.
Steve: Welcome to Manifold. Appologies for the audio in today’s episode. Corey and I are locked down in our homes because of the coronavirus. We’re not in our usual studio and so the audio may not be up to its usual standards, but I hope you enjoy the episode.
Steve: Our guests today are Kieren James-Lubin and Victor Wong of BlockApps. And today, we’re going to talk about blockchain, and cryptocurrencies and digital transactions. However, we’re recording this just after the big lockdown due to coronavirus has happened in most of the United States and also in Toronto where Victor is. And so, I think we just can’t resist discussing coronavirus at least for a few minutes.
Steve: So, I thought we would do that just to start out the episode. And my thesis that I put out on my blog is the US is going to… It’s very unlikely that we are going to avoid now some serious overloads of specifically intensive care units in a fairly broad number of places in the United States. Anybody want to agree or disagree with that?
Corey: I’m not convinced of it.
Kieren: So, I think the question is how far is the current spread actually reached. I’ll give you the boots-on-the-ground perspective. If you walk around New York City, pretty much the streets are empty. We are not yet in the absolutely being required to remain in our homes stage that may yet happen, but given that basically all retail locations are closed. Everyone who can work from home is working from home.
Kieren: At least in that sense, there are many fewer opportunities for exposure than there were a week ago. This doesn’t mean that we haven’t already… There’s a delay of, what, four to six days in terms of the infection time to the manifestation of symptoms, if I understand it correctly. Also, it doesn’t mean there isn’t a large contingent who are flouting the rules who may yet still infect quite a number.
Kieren: So, I would say it’s not obvious to me. Maybe Steve has actually done the calculation and knows for sure that it’s semi-inevitable at that point. It’s not obvious to me that it’s inevitable, but I don’t know how I would know exactly, because the statistics are coming out a week to two weeks after the reality of the spread.
Steve: Yeah, I can give you my rough argument. So, there are trailing numbers for doubling timescale in some decent comparators. So, Japan has gotten it down to about 10 days and I just have a hard time believing that the US in its current status is doing better than Japan, which has been battling this for a long time and people regularly wear face masks there when they’re just out on the street.
Steve: They’ve also canceled school and things like that. So, I doubt our doubling time is any slower than once every 10 days. It probably could be a little bit faster. And so, then if you put that in, and then you start with say a few tens of thousands infected right now which is I think a reasonable baseline number, then you I think cannot avoid… Unless by magic, somehow 10 becomes 100 relatively quickly, you just cannot avoid some, at least some, regions of the country where the ICUs get overwhelmed.
Kieren: So, I guess question for you. If we had a perfect set of government technocrats and an all-seeing police force, do you think at this point in the US it could be close to stopped in its tracks or-
Kieren: Yeah, okay.
Steve: Because that’s the Taiwan experience. I think the Taiwan, and to some extent the Singapore and South Korea, experiences are the leading edge. And there, they do have very aggressive cell phone tracking. So, in other words, if they ask you to quarantine, for example, in Taiwan, they can track you by your cell phone. And if they notice you’ve violated quarantine, then they’re going to come and get you.
Steve: And so, could the US do that? I absolutely believe that both Android and iPhone OS allow Apple and Google to support that kind of enforcement, and we have enough manpower to do it if we only have say 10,000 cases right now. So, I think we could impose very strong contact tracing the way that those Asian countries have, but we won’t do it. We may do it when we’re coming out of lockdown.
Steve: That’s my main hope, that we’ll go through the lockdown. We’ll reduce the growth really a lot until the point where we’re able to come out of lockdown, and then at that point we’ll be able to enforce contact tracing and things like that.
Victor: Well, I think the thing about Taiwan and Singapore also is that they have very established healthcare systems with very strict healthcare record tracking on an individual basis, even during normal times. So, I think all of that technology put together, plus the contract tracking, plus the fact that the area of those places are fairly small and pretty dense in terms of connectivity I think has helped them a lot to handle all this. And I totally agree. Those are the two places in the world that have seemed to manage with all this the best.
Corey: Of course, however, the density works against you in an epidemic. So, although it may help technologically, it’s what’s going to drive increased contacts and more extensive contacts. And that’s going to lead to a greater spread. Steve and I went back and forth about this over email a little bit, but the US is a much larger place. There’s very low density in many, many areas.
Corey: And the data we’re getting now are largely from major urban areas like New York City, Seattle. And these are places of much higher density than the suburbs where we are right now. And so, I’m inclined to think that if you’re making projections from what’s happening in major cities to what’s happening all across the country, you’re likely to misrepresent the reality, because you’re not treating it with full heterogeneity.
Victor: Well, I just wanted to add when I was talking about technological density, I just meant more like, for example, things like cellphone wireless towers. So, they can have a much more accurate triangulation of movement than probably in most of the US.
Corey: I totally get your point. I’m saying that’s a huge benefit. There’s density, both technologically and human terms, right? So, it cuts both ways. It’s incredibly beneficial as far as tracking goes, but it’s also incredibly beneficial for transmitting the disease. Steve has his hand raised.
Steve: So, I would say Vic that actually US geolocation from mobile is actually good enough for this application. So, there is an advantage from density for that, but I think US capabilities are good enough, having looked at some of the data. To Corey’s point, I cheated a little bit because my prediction was not that every ICU would be overloaded but that there would be-
Corey: I noticed that.
Steve: … many regions of the US where ICUs are overloaded and those would be the urban regions, which are also fairly cosmopolitan. They have a lot of travel, international travel and stuff. So, I feel pretty confident. I’m actually cheating a little bit, because I actually know that in the Seattle area, they already have this problem. So-
Corey: So, they’ve got some added capacity now, because they’re going to open up the VA actually to emergency beds. And I actually don’t know the full number of beds, but a friend of mine runs a moderate size VA hospital in Massachusetts and those are going to become available, but I’m actually interested in the prediction about doubling. So, what’s extremely hard to know is how many people are actually infected right now. I think it’s plausible that… It’s Kieren? Is that-
Corey: I said that the behavior is so extreme. The response has been so dramatic that I don’t see you having a whole lot more transmission, because people are effectively quarantining themselves even in places like East Lansing where there’s no quarantine order at all. So, the question is how much more transmissions are there going to be beyond the people who are infected now.
Steve: Yeah, that’s a very key question and that’s why I used the Japan trailing 10-day number as a reference. So, in the unconstrained setting, I think their data’s pretty strong now. It shows that doubling time is about three days. And you have that data from Lombardi, and you also have it from Korea and other places. So, the question is now with the measures that have been imposed. So, where we are now, bars are closed.
Steve: Restaurants are closed. Gyms are closed. Schools are closed. I agree there’s been a huge decrease in transmission rates, so a very big increase in doubling time. The question is has it gone above 10. Has it gone above 15? I doubt it’s gone above 10 just because that’s the Japan number and Korea’s at 16 right now.
Steve: So, that still leaves a problem. If it’s at 10 for another month, we still have a problem. Can we do much better than that? Even those societies haven’t done much better than that, right? So, I think China got to 36 or something for its last doubling.
Victor: Yeah, I mean, I think another factor in all of this is whether they can handle outflows of patients in middle ground area, which is what they did in China, right? You started to have very extensive testing and moving people into isolation facilities that are not hospitals and only moving people into hospitals when they really needed it.
Victor: I know in New York, example, they’ve talked about enlisting military bases or other places to maybe possibly do that. So, that is a big question, if they will actually go forward with any of that.
Kieren: I had a point related to the density. If I recall correctly for some definition of city, suburb and rural, the United States by population is about a third each. So, a third of the people live in cities. A third live in suburbs, a third in rural, which means at least the city people, that’s still more than 100 million.
Kieren: So, I don’t know that that would change, to Steve’s point, if that would be plenty. It might not be a majority of the country, but there’s enough people in a high-density situation that it’s-
Steve: Yeah, I’m cheating. I’m cheating, because I only need to win on those 100 million that you just mentioned and still satisfy my definition. By the way, there’s an initial compliance, Corey, which is that you’re compliant and we’re all compliant, but you’re not out looking to see who’s not compliant, right? And so, when I go for long walks in my neighborhood, I saw truckloads of guys who do lawn work and stuff riding together to a site to do lawn work.
Steve: They didn’t look compliant at all in any respect. They were just goofing around. They were not taking anything seriously. They probably thought people like us are just stupid. If 10% of your population is not compliant very much, then that’s the part where it’s going to grow, right?
Corey: Yeah, that’s right. Although, we should note that there’s actually no order to quarantine yourself in East Lansing. There’s social distancing, so there’s a distribution of responses for people like you and me who are in fact going overboard and effectively quarantining ourselves.
Corey: There’s a set of people probably around the median who may in fact just be social distancing, but my experience it’s actually biased, and again I’ve got a biased sample, towards doing more than people are being asked to do. So, again I don’t know how many people are just out more or less-
Victor: There seems to be two extremes and I think maybe one end of the extreme, and then there’s a nihilism kind of extreme where people are just behaving completely like nothing’s going on. In major cities where it’s quite dense, you still see these people riding on subways in New York. So, I think there are those two extremes that are happening in people’s psychological mindsets.
Steve: These guys riding in the trucks where they have lawnmowers and stuff, and leaf blowers, were not social distancing at all. They were one flick from each other and just goofing off, goofing around. And I believe there are many, many thousands, hundreds of thousands potentially, of college students in Florida right now just rubbing on each other in drunken states I think there in March. And then, they’re going to fly home, right? So-
Corey: Well, the mayors of a few of these Southern Florida have put the kibosh on this stuff. I think they’ve outlawed large gatherings. And we have to point out that as far as I know, I checked last week, as of Friday there’s one confirmed case in Ingham County where we live. So, the risk for these guys, although they are flouting the public health recommendations, is still quite low.
Steve: Yeah, I’m not saying that here we may be starting from a very low base and have fairly good isolation to begin with, but I’m sure there are people in New York City who are not compliant.
Corey: No, really, New York City?
Victor: Oh, definitely.
Kieren: I think there’s an attitude dimension and also a necessity dimension. So, in the last week, I’ve had to take one or two Ubers just because. None of the drivers seemed stressed about the idea of letting someone into their car. I’m pressed against the window trying to stay as far away from them as I can and it’s because it’s income, right? And I think plenty of let’s say restaurant hospitality workers right now would rather risk it than be at home at this point. And-
Steve: I think it’s totally rational for the Uber guy, because he’s a young guy. And he’s probably not going to get sick, but even if he transmits it to some people, it’s no skin off his nose. So, as far as the college students, I think the percentage of college students that are infected right now is really very low. And so, sending them home only creates problems for a few families.
Steve: Whereas, if you left them on campus for a while and then dismissed them, you’d have a much bigger problem, because it’s probably spreading pretty fast on campus. So, I don’t think it’s crazy to dismiss universities or go the distance-
Victor: Well, I think there was a question also where you are in terms of timing too. If you are assuming the infection has already taken hold in your institution, sending them home obviously is probably a bad scenario for everyone involved. And I think this is the assumption that a lot of people are under that it hasn’t taken hold yet. And they may be very wrong, but that’s institution by institution, but they got to make that call.
Kieren: I can say that we as a company now have a fairly strict work-from-home policy at this point. So, had I been in the role of the university president, I probably would have done the same.
Steve: We just sent people through all of the different lab, not just lab but other areas around campus to just take inventory of how many people were using the space, what the density was and how many were practicing good hygiene and stuff. And the reports came back pretty positive. So, at least right now, I would say the transmission rate on campus has got to be really low.
Victor: Well, we also have one worker that we’ve instituted work from home who lives around the corner from our WeWork office where we have our offices. And he’s made the decision to go into the office, because he thinks there are fewer people in the WeWork than in his apartment complex at this point.
Steve: Yeah, exactly.
Corey: I’m talking to you guys from the office partly for that reason. One more I think high-level thought I’ve had is I think people are making… I think Kieren noticed this about the Uber driver or maybe it was you, Steve. People are making their own personal economic risk calculations. There is a benefit to avoiding being infected, but there’s an opportunity cost. And it’s really interesting, because you had the same kind of calculation being made during the early part of the AIDS, actually later part of the AIDS, epidemic as to how people were going to curb their behavior, sexual primarily.
Corey: And many people decided it’s worth taking a risk for certain pleasures that they always enjoyed. And people are going to make that during every single epidemic. It may be a driver going out. It may be someone having unprotected sex, but it’s a personal calculation that has implications for other people, but I think you’re seeing it on a societal-level thing.
Steve: Yeah, that’s why government has to intervene and I think probably has to lockdown society to some degree for some period of time.
Kieren: Yeah, but to this point, I guess it’s difficult for them to be unfunded mandate, because your Uber driver, your server at a restaurant is probably more living paycheck to paycheck than not. And so, you say you got to stay home. What are they going to do then? Starve.
Steve: Yeah, I totally agree. I mean, this is most difficult for the working class in America who are living paycheck and paycheck and can’t work from home, and so hence the helicopters. The helicopters are coming to dump cash all over us. And I don’t know if you guys are familiar with this joke, but helicopter money, Ben Bernanke.
Steve: Yeah, I never thought I would see the day, but the helicopters are on the horizon loaded with $20 bills, so it’s happening.
Corey: At least they’re dumping them on people this time rather than dumping them on the banks.
Kieren: So, I’d imagine usually in situations like this, people like landlords, lenders, that sort of thing make out pretty okay. Do you think we’ll start to see imposed relief on some of the more traditional halves preferencing the- [crosstalk] to a degree.
Steve: Pretty difficult political economy question, my guess from based on the last crisis is no. These guys will make out and we’ll socialize the losses. The taxpayers in future generations will pick up the tab, so that’s my guess.
Corey: I can actually speak to that somewhat with a small segment of my personal said responsibilities. I am the executor of my aunt’s estate and she owned a house in Crown Heights. And I Airbnb it for a reason that I need it to be available to a family member were they to come back, but Airbnb has this policy now that people can cancel. And it was just imposed, and without penalty.
Corey: Normally, there’s a penalty if you cancel within seven days, but the rule has been changed. You can cancel the day before you come. And you’re I think guaranteed a certain amount back, but the person can ask you for the whole amount. And so, of course I’ve been giving the whole amount back for everybody who cancels, but I think here’s a case where there’s a sense which people who are clearly owning these places are economically better off often than the people who are renting them.
Corey: And then, the cost comes out of the person who’s owning it. Again, this isn’t my personal account. It’s something I am simply the executor of, but at least that’s a smart part of the economy that seems to have responded in a positive way.
Steve: I think if you are in the hospitality business, or the hotel or airline business, you’re not going to be made whole. I mean, it’s still going to be a painful period that we look back on, but there may be bailouts, but I don’t think the bailouts are going to make them whole.
Victor: Yeah, I’ve heard in some parts of China that… And I don’t know if this comes from regulation or if it’s widespread. I know certain people who own property there or landlords there who have said they cannot evict people, which makes sense during the quarantine period. You don’t want them on the street, but-
Kieren: I think in the US also or maybe New York, et cetera, basically evictions are something that the police are paying attention to for, well, the foreseeable-
Steve: Makes sense.
Kieren: … for the near term.
Victor: I mean- [crosstalk]
Victor: Sorry, the big question in my mind is how long you need to impose these for. It seems like at least in Wuhan, things are stabilizing to a certain point, but do you have any estimates in terms of timeframes?
Steve: Oh, you’re talking about coming out the backend for these-
Steve: [crosstalk] places? Yeah. At least according to what I’ve read, they’re starting to let some people go back to work and there’s more traffic on the streets in various places. So, I think they’re experimenting with it but because they have a widespread testing regime in place, they can detect if things are starting to spike back up. And then, they can reimpose controls. I think they’re going to try to take it that way. And nobody knows whether it will work. I guess it will work, but we’ll see. It’s an experiment.
Kieren: What about in the US?
Steve: I wanted to say will it work-
Kieren: Sorry, you broke up for me for a little bit, but yeah. I was just asking when do you think lockdowns will more or less end in the US and, yes, I guess will it be effective when they end?
Steve: I haven’t thought that carefully about it, but I feel like 60 days of lockdown. That’s the Asians have, right, roughly? So, I think 60 days would be the best case for us, right?
Corey: Yeah, I think we don’t know a lot about the virus. One of the key things is the degree to which it’s affected by rising temperatures. And so, if high temperatures tamp down infections and transmissions, it’s a real benefit, but I think this open question is to whether this is going to become a new normal to some extent until we have a vaccine or widespread immunity. So, if you don’t get rid of all the cases and it remains highly transmissible, then you’ve got a problem if you go back to normal obviously, because it will come back except for the people that become immune.
Corey: And I think there’s some evidence that immunity isn’t complete. So, I think it’s really highly uncertain whether it’s going to go away, or there may be a second wave or just remain at a fairly low level, come up and down. It’s just incredibly hard to guess those things.
Steve: I totally agree, but I think what is meant by normal in the East Asian situation is that the government’s monitoring very carefully. And you may have a little app on your phone, which gives you your risk level. And if your risk level exceeds some threshold, they don’t let you on the metro that day. And so, new normal could be quite different from status quo a year ago.
Kieren: Yeah, that would be a radical transformation of US society if we had to come to that.
Steve: Yeah, if you read sci-fi novels about futures where we have pandemic things, these societal coping mechanisms are not really that novel, the idea that society’s just on a constant lookout. People are being tested a lot, and then there’s a fair amount of tracking and privacy invasion of people in order to keep it under control. I think these things have been thought about before.
Corey: Yeah, this is in fact what happened with the HIV epidemic. What was normal just became a very different phenomenon. People’s behavior changed and it became just standard practice.
Steve: Right, and the people that are at low risk that are being forced to go along with it are young people for coronavirus, and then our generation it was males, heterosexual males.
Corey: I think there’s a sense of which these policies may operate best, if we have a sense we’re all in it together.
Steve: Yeah, it may be a noble lie, a necessary lie. I mean, you were probably one of these guys too, that figured out fairly early on during the AIDS thing that female to male heterosexual transmission was extremely low probability. They had almost no documented cases of it and yet they were scaring all of the guys to wear condoms, because it was just better for society.
Corey: Which it was, yeah, I mean better for your partner too since male to female is of course much higher.
Steve: Yes. I think it was a deliberate obfuscation of the reality.
Corey: Absolutely, yeah, but built on I guess I’d say the reality you have to essentially lie to men to get them to do the right thing.
Steve: Yeah, yeah, exactly. So, I think we’ve been talking about coronavirus for some time now. Should we switch back to the original topic of the podcast? Have we-
Kieren: I’d say yes.
Victor: Sure, why not, yeah.
Corey: And I think the two topics are not unrelated, because I think there’s a sense of blockchain that it’s a technology that would survive the apocalypse and many people think this is the beginning of it. So, let’s move on to it, guys.
Steve: All right, let me go back to the main topic and I first wanted to start with just this funny story about how the three of us know each other, and let me just throw something out. My recollection of it which might be wrong, so you guys should correct me, but I know Victor because he was CEO of a tech startup software company in Beijing, which my former PhD student who was also CTO of my company SafeWeb was Vic’s CTO in Beijing. And that’s how I know Victor and-
Victor: Yeah, that’s good.
Steve: I know Kieren, because he contacted me out of the blue maybe because he was familiar with me through my blog to talk about some theoretical aspects of blockchain and particularly a Ethereum. And I think I might have introduced Kieren to Vic and to this other guy Jim. And so, is that how BlockApps got started?
Kieren: So, you introduced me to Jim. So, in the summer of 2014, I was working on the Ethereum project and re-enrolled at Berkeley in that fall. And you said, “Hey, I know a guy who’s very technical and he’s down the road from you. He’d probably be interested in this stuff. Why don’t you meet up with Jim?”
Kieren: And so, we met up for the first time in some sort of coffee shop in Oakland or something of that nature, and hit it off from there. And then, later, so Jim brought Victor to the conference, the two conferences I put on that week that you attended. That was the first time I met Victor. [crosstalk]-
Victor: And I think parallel to that, I was making the transition from the startup, one of my startups, in China to coming back to North America. And I was talking to Jim about various projects that we could potentially do together as a new startup. And he pointed me to say, “Yeah, so I’ve been talking to this guy. I’ve been working on this crazy thing called the Ethereum. I don’t know if there’s any business purpose behind it, but maybe you should come and take a look at it.”
Steve: Great. So, it’s one of those amazing stories where it really is personal networks that sometimes get these things founded. And actually the role of founder is such a special role in a startup that it’s not surprising that oftentimes founders are introduced to each other by friends or actually people that they themselves have founded companies with. I want to add that Kieren dropped out of a PhD program at Berkeley in mathematical physics to do this startup.
Steve: And he had a natural affinity for Jim and myself, because Jim and I are both theoretical physicists. So, there’s also that connection. What I want to do now is do a little intro to crypto. So, we have a very smart audience for this podcast, but very few of them I would say are experts on crypto. And I just want to introduce one concept which I think…
Steve: And you guys should correct me if there are other concepts that are absolutely central that we have to introduce so someone can have a decent understanding of blockchain, but I thought that we couldn’t really get into a good discussion unless we immediately said something about digital signatures. So, let me try that for a minute, and then you guys can add to what I say.
Steve: So, there’s this interesting idea that in an area called public key cryptography where you can have a public key that’s a long number that identifies you specifically. So, I, Steve Shu have my own public key, which is out there for anybody to look up. Using a private key which is paired to that public key and the private key I never share with anybody else, I can sign messages which other people can determine were definitely written by me and associated with that public identity, but only I can do that signing.
Steve: So, basically I can say something like, “I have transferred 100 bitcoin to Vic and I hereby sign it using my secret key,” which unless some hacker stole it from me, basically that means I really wanted to give the $100 to Vic. And this is a very well-understood technology within the field of cryptography and it underlies everything that we’re going to talk about. Can you guys add to that?
Kieren: So, yeah, yeah, absolutely. So, signatures are one of the really key building blocks of blockchains. Maybe there are three or four, signatures being one, hashing being another. We don’t have to talk about hashing necessarily, but we can. Peer-to-peer networking, plus Consensys algorithms being maybe the third leg, if you will. And I can’t think if there are any more, but those are the keys.
Kieren: Signatures are super common. People just don’t know. Anytime you see that block for HTTPS in your browser, there is a dependence on the signature aspect, because basically you need to know that Google.com actually is Google. Anyone can try to intercept your traffic and impersonate Google, but basically they have a certificate that’s available to your browser. And so, it knows who Google is and it can communicate with Google and authenticate that it really is Google right now.
Kieren: And so, it’s a super key technology to use the internet at all. If there were no signatures, you would just be communicating with people you thought were your friends and they would be trying to steal your credit card number all the time. So, the manifestation in blockchain is pretty much exactly what Steve said. It’s that the signatures serve as a means of identification of a person and authentication of the content of a message basically.
Kieren: So, the signature proves that, yes, Kieren, I’m sending 10 bitcoin to Victor. Good day for you, Victor. And it also proves that the exact sentence hasn’t been tampered with also. So, there’s that aspect to things, as well. I don’t know. Anything to add? Should I talk at all about hashing or [crosstalk]-
Victor: Well, I think-
Steve: I don’t-
Victor: I think there’s one concept there that’s really important there in particular application to blockchain is that you don’t need any other personal identifiable information about the person in order to verify that they signed it. So, I think we’re used to more identity mechanisms where you have to prove yourself by offering a lot of information about your background, say social insurance numbers or addresses or your name.
Victor: But I think one of the powers of digital signatures is that simply by having that digital key, you can prove that that public address refers to you. And that allows you to basically sign these transactions and later claim that that was you. And I think that’s one of the very powerful elements of people talking about blockchain-
Kieren: It makes identity more of a mirror asset, which it previously didn’t work that way. Sorry, go ahead, Steve.
Steve: So, this digital signature capability, this cryptographic capability allows you to, as Kieren said, send a message which other people can verify did really come from you and also the content is unadulterated. So, I want to give $100 to Vic in bitcoin. Now, the blockchain-
Victor: I believe it was 10 bitcoin, Steve. [crosstalk]
Steve: I don’t know. Come on, no, Kieren wanted to give you 10 bitcoin. I’m only giving you 100 bucks. I don’t actually know what a bitcoin is worth these days. But anyway, now the blockchain itself you can think of as a public ledger, which records all of this cryptographically-signed transactions. So, it actually tracks the flow, if you like, of bitcoin from one user to another to another to another.
Steve: It doesn’t have to be bitcoin. It could be flows of other things or other contractual obligations but because of the cryptography, one can verify that the messages are unadulterated and that they actually came from the person that supposedly gave away the bitcoin. And so, the idea in a way is very simple that there could be a public ledger lives. People have different copies of it, but it records all of these cryptographically-valid transactions.
Kieren: And, Steve, to your point maybe there’s an implicit question of why do you need the public ledger part at all, right? If you’ve got the signature, it’s got an IOU or that sort of thing. Vic wants to give me 15 bitcoin back. And so, why would you ever need the public thing if you’re trying to transact? Couldn’t it just be peer to peer? He’s got my signature. He could prove it.
Kieren: And basically the reason is it comes from a question of my ability to prove that I actually have the thing that I’m transferring to Victor. And so, in the normal banking world, I would have an account at the bank. And they would just have my history of transactions. They would roll that up into my current balance. And when I go to pay someone, well, it’s a timed delay. You wait for a while.
Kieren: And they say, “Okay, we see the transactions coming in. We think he has enough money.” And they later tell the other bank that, yeah, everything is good, thumbs up. And then, both banks update their ledgers basically. And so, there’s always this element of is the money actually there, so to speak, in the normal banking world which is part of the reason you get delays and it takes four days for payments to clear, et cetera.
Kieren: In the bitcoin model, the role of the public ledger is to provide proof in essence of the current state of accounts. Every time I transact, there will be a record and sometimes I’m a recipient, a net recipient of bitcoin. Sometimes, I’m a net spender of bitcoin. And at the end of the day, I get a tear-off receipt of my previous transactions. And that’s the thing I go on and hand to Victor.
Kieren: So, there is an acceptance process like what two banks would go through, that the network itself goes through to make that transfer final, and then give Victor the right to turn around and then send that bitcoin to someone else afterwards. And so, the role of the public ledger is to make sure the system as a whole is consistent on who owns what basically, which in a pure peer-to-peer system with no mechanism for that, that process would not have.
Steve: Right, and I just want to emphasize that the blockchain is totally decentralized, so nobody fully controls it. It’s just a big piece of data, a big string of numbers that lives on the internet and no one controls it. There’s no central authority that makes decisions about what’s right or what’s wrong with it. And so, in that sense, it could even be considered as a societally revolutionary thing.
Steve: Because rather than the fed or central bank controlling a currency, it’s actually in this case the currency, the bitcoin or your ether or whatever it is, is actually embedded in the actual thing, the blockchain which everybody has access to at the same time.
Victor: Yeah, I think that aspect of decentralization is a really core aspect about blockchains, because up until blockchains have become more popular, there have been other decentralized systems, but you always run into two problems. You have centralized systems where one party controls let’s say a bank and they keep things internally consistent. Now, the problem is that they can make changes without anyone knowing.
Victor: So, if it gets hacked or intentionally they want to make changes, then they can do it and they have [inaudible 00:37:57] and no one can game-save to check if what they did is correct or not. And then, the other alternative you have is more federated systems where everyone keeps copy of the data, but no one is quite sure who has the most accurate copy. So, there are always these synchronization issues.
Victor: Big companies, for example, spend a lot of time with auditors to just make sure that the transactions that you have in your record are the same as the buyer of your good has. So, there’s a lot of overhead in that. And, no, blockchains and this idea of decentralization really gives this third way. You can have something that’s a public record that everyone can see, but it’s also secured. So, not everyone can just change it arbitrarily. And I think that’s really, really important.
Steve: Now, I think the most difficult conceptual point for people to really understand blockchain and I don’t know exactly where we are in the blockchain moment, but there was a period maybe a year ago or two years ago where it was just incredibly hyped. And so, you had all kinds of business people and economists talking heads using the word blockchain, but I think the hardest thing for people to understand is how is it that you have this public ledger and there’s no central authority deciding what transactions are right or wrong.
Steve: And yet, somehow there is a decision-making mechanism or verification mechanism by which people all agree that, yes, this is the actual correct state of the blockchain. And that’s the hardest part to explain and that’s where things like hashing and all kinds of difficult computations, bitcoin mining, concepts like that come in.
Steve: And I’ve never come up with a really great way to explain that. I just think a lot of people just don’t fully grasp that part of it. Maybe you guys have a good way to explain it to people.
Kieren: I’ll start. Also flowing with our experience as we are not operating typically in the pure public blockchain world in which you have freely floating cryptocurrencies and all that sort of thing, and the systems are totally uncommissioned. What we serve is more of a B2B use case where businesses are transacting with each other, have more or less the same problem of really uniquely authenticating particular transactional data of certain types.
Kieren: The analogy does come from there. A blockchain network almost functions like a board that is voting on the next action. And so, in a sense, a block, it’s a chain of blocks, right? A block is like a proposal from the board sort of. In the bitcoin world, you have to do some work to even be able to be allowed to put a proposal forward. And it contains a certain set of transactions basically.
Kieren: So, as people are trying to transact with each other, so Victor’s trying to send me 20 bitcoin, that transaction is not instantly confirmed. There’s still a bit of a waiting period and the reason there’s a waiting period is because that information is broadcast to all the people who comprise the blockchain network. So, basically I’m a board member of this board. I have some friends who want to get their transactions into the blockchain network.
Kieren: They hand their transactions to me or any of the other board members for their proposal. I collate these together and when I’m ready, I feel like I’ve got a good proposal, I put that in front of everyone. And it’s up to them to ratify this proposal or not, and then continue to move forward and build their subsequent proposals atop my previous one or reject it, and then work from some sort of previous state-of-art joint company.
Kieren: I don’t know if that helps at all, but basically the idea is that it’s like voting basically. And in the bitcoin world, anyone on the planet is allowed to join and offer their vote. Now, there’s a mechanism which selects between them the one who’s allowed to put the proposal forward. In the more enterprise context, probably it’s going to be 20 companies who each have a vote, that sort of thing, but that’s the core idea. Yeah, back to Victor-
Steve: And let me unpack a little bit of what you said. So, first of all, you mentioned that BlockApps, your company, is not really actually dealing with cryptocurrencies as people think about them vis-a-vis say bitcoin or Ethereum. And so, I want to come back to what your actual business model is for your company, but some people who know a little bit about bitcoin may have heard of things like bitcoin mining or giant computers that are just doing nothing but creating in some sense or generating new bitcoins for their owners.
Steve: Now, we don’t really need to talk about that, because that’s more relevant to the cryptocurrency context, but what that activity is, is this validation or verification process for deciding which version of the blockchain is actually the canonical one. And we don’t really maybe have to go into that, but that’s the part that I think people have the most trouble understanding, so we could leave that aside.
Victor: So, I’ll just take two minutes to describe this. So, as Kieren previously discussed, one of the things about blockchains is it’s a kind of voting mechanism and that’s what makes it decentralized. However, one challenge you have with voting mechanisms is that since we don’t know who’s voting and people can vote as often as they want, you could worry about spamming the system.
Victor: And people could just vote in a way in their own self interest. So, one of the things that’s interesting about public blockchains is they’ve solved this. And the way they’ve solved this is that there is a cost to a vote and that cost, since you can’t charge them directly by taking their credit card information or getting banking information from them, the way you get that cost for a vote is you make them waste electricity and that is what mining is.
Victor: So, mining is basically making sure that there is a cost to vote. And if you vote in a way that is against the interest of everyone else, you will lose your deposit. If you vote in a way that is along with everyone else, you get entered into what is effectively a lottery so you can win more of the cryptocurrency back, which would pay for your cost plus more.
Steve: Great, I thought that was great. And to clarify, the voting that’s going on here is determining which version of the blockchain is the real one, the correct one that has the right transactions in it and the incentive. So, you risk something. You have to do a computation. You burn a bunch of energy to do that computation and you have to risk that investment.
Steve: And so, your incentive is to actually vote toward the right validation of the right blockchain. And if you’re right, then you have a chance of winning say a bitcoin or some ether.
Victor: That’s correct. And the longer you vote and continuously vote, the chances of you getting that money back increases. So, there’s a real strong economic incentive to keep doing this. Now, in our case when we do enterprise blockchains, we don’t need to put these economic incentives in there, because people already have legal contracts with their partners. So, that provides the incentive for people to vote properly.
Steve: Maybe you could just say for now what is the actual business model of BlockApps and what is the value proposition for your startup?
Kieren: Okay, yeah, great question. So, we are a SaaS business. So, we sell software on a subscription basis and the main use case we’re serving is as I described. We’re helping enterprises communicate between each other and execute transactions of different types. So, supply chain is a very popular use case for us. One of our big customers is Bayer Crop Science, for instance.
Kieren: And they are working in certain parts of the agribusiness value chain to track and trace certain products. I’ll leave it a little vague, but that’s a situation where you’ve got value flowing from company A to company B to company C, et cetera, both in a physical sense and a monetary sense. And there’s not a great system to unify everyone’s recordkeeping of where that bag of seed or eventually end product, bushel of soybeans, actually is at a given time because it requires coordination across multiple different enterprise stakeholders.
Kieren: And so, blockchain is the technology that has actually uniquely facilitated that use case where in the past, you had partial solutions that were messaging-based but didn’t create a single ledger of activity, if you will, of authenticated activity. So, again-
Corey: Can I break and ask a question? I’m trying to understand how these cases you’re describing differs from the basic use case for something like a common database. So, suppose I go to these companies and I say, “Look, I will give you the equivalent of a database, which is a giant Google Doc all of you have access to. Whenever you make a transaction, I record it in this and I’ve contracted all of you in this Google Doc, which all of you can see.
Corey: I happen to be the proprietor of it and you guys are paying me money basically to ensure that it’s fair to everybody, and you guys have a copy of it. You see every transaction that goes on.” How is that different? That’s a Google Doc owned by 20 companies or an Excel sheet owned by 20 companies. How is that different from what you’re describing?
Kieren: Great question. So, to your point, the big difference is that in one scenario, you really need an entity. In one, you kind of don’t. They don’t really have to tell us what they’re doing with our software. Sometimes, they choose to. In the case that you set up this shared entity… And this has happened many times. So, if you look in financial services, you’ve got to a certain extent the Federal Reserve with ACH.
Kieren: You’ve got the DCCC. You’ve got Swift. You’ve got industry-owned clearing houses. And more or less, what the DCCC does is when you make a bunch of equity trades, at the end of the day they balance all the ledgers and say who owns what. So, in essence, it is that function that you’re describing. What we think is different about watching technology, there’s still a need for a commercial actor to support this network of activity.
Kieren: These companies are not going to be able to do it with coddling together open-source or coding things from scratch themselves. You need some coordination force, but you really don’t need to ask us for any sort of permission. Once the network is established, you really own it and operate in a way that no… We haven’t seen SaaS companies of this Web 2.0 stripe behave that way.
Kieren: The posture is that, hey, we’ve got your data. And we’ll either share it with your suppliers on a permission basis or we own it, or we’re holding it for you. It’s different cases. There are some marketplaces, B2B marketplaces like Ariba, for instance, that fulfill a similar function.
Kieren: But when you’re talking about internal core systems of these enterprises, their ERP systems, et cetera, they’re really quite hesitant to hand too much of that to any sort of vendor control on a custodial basis, if you will. So, I think the big difference is just the control that blockchain allows these companies. Sorry, go ahead, Steve.
Steve: Yeah, if I could take a shot at that for Corey. So, in this area you describe where some third entity comes, which isn’t involved in this supply chain and says, “I will set up this thing for you guys, and I’ll make sure that nobody cheats anybody else and everything works, but I have control of it.” You then have to trust them, whatever that third party is. Say McKenzie Markets comes in and they want to set this thing up for you.
Steve: You have to trust McKenzie Markets to do the right thing. What these guys have built using all this cryptographic technology is a thing which they license the software to you and you run it, but once you set it up, BlockApps doesn’t have any control over it. And the decision process for validating transactions and all that, it’s controlled completely by the actual platform.
Steve: And the companies that are in there as long as they trust the cryptography, they can be confident that no entity is cheating any other entity in that marketplace or in that supply chain. So, it’s a way of setting up a kind of autonomous system, which you have to trust crypto, but you don’t have to trust a third party. Does that make sense?
Corey: It does, but I’m just trying to get at the source of the paranoia. Well, I mean, I’m asking. Is there reason to think in the past companies have been cheated by their third-party vendors?
Steve: No, not just cheating- [crosstalk].
Victor: I think the fundamental issue that companies are running into is the question that everyone is running into is that ultimately can data be used against you. Yes, if you want to trust a central party to hand them all your data and companies have done that traditionally in a very common way. And now, people are asking the question, wait a second, that data is now a very, very powerful asset in and of themselves.
Victor: And it can give them a point of advantage that could be used against me one day. So, that’s why companies are looking into methodologies that allow them now to get out of those advantages of collectively having a shared data repository without having to give it in the hands of a single party that could use that data against them in various ways. And by against them, I don’t mean it’s directly oppositional. It can be just they increased the cost of accessing their systems as you become reliant on them.
Kieren: The transactions.
Steve: Yeah. Say there’s 100 companies in this auto supply chain that are using this platform and this is how they actually transact, and it’s a multi-billion dollar business. If it’s all entrusted into one guy who built a little database for them, what’s to stop that guy from just starting to charge a little bit more for every transaction, because he’s in a very powerful position now, right?
Steve: Plus, he sees all the data flow and he can do all kinds of stuff. Whereas, this autonomous system, nobody controls it and there’s nobody that could extort the participants on the platform.
Corey: But as far as I understand, you guys do support the blockchain, right? So, what happens if you just say, “As the network grows, you got to pay me a little bit more to support it or else I’m just going to cut it loose”? Don’t you similarly have control over the people who are using your software?
Kieren: Certainly yes to a certain degree, right. I think it’s obvious to me having worked with big companies for a long time now that big companies don’t use things that are free, because there’s no one to hold accountable. So, their preference is certainly to contract with a vendor. That said, I think that we don’t really have a technical means to just shut them off. It’s their network.
Kieren: It’s not really ours. In certain cases, we’re actually managing the infrastructure. In certain cases, it’s remotely installed. And so, we couldn’t turn it off if we wanted to, so to speak, but I think the key aspect to Victor’s point though is that even if we could shut it off, up until that point, they had direct access to all of the complete system data which is not typically the posture of other companies of this nature.
Kieren: And so, we think that we are… I don’t want to say easier to replace, but it just puts the end user in a safer position as far as downstream price increases, all that sort of thing, because again the data is more resident with them. Certainly, there would be costs to switch to another blockchain vendor or that sort of thing. It’s not going to be zero, but just architecturally our belief is that there is a real difference between us in a model in which you hand everything over in a fully posted manner, so to speak.
Victor: Yeah, I mean, Corey one way to think about it is that we see ourselves more like Windows than we do as Google. So, Google, every interaction that you do, they collect all the information and they have all that. They have all of that and they keep it, and they utilize that to create other products.
Victor: Whereas, with for example Windows, you put on the applications, but Microsoft may not know what kind of applications you’re running at. And that’s more of the model that our company follows. We don’t really try to look into the data that you’re using and sharing with other people.
Steve: Yeah, the threat here generally is assuming the company or the companies involved are running their own instance of it is not that BlockApps could ever shut it off. It could be, “Oh, we’re going to deny you this update, version 2.67.” Okay, that’s not good, but you have a lot of time to adapt to find another vendor and deal with, oh, we can’t have version 2.67. We’re running on 2.66. We’ll just keep running on 2.66 until we find another vendor to replace this platform.
Steve: So, it’s not quite as strong a threat as if BlockApps were posting the whole database, which included every mission-critical thing that was going on in this automobile supply chain or something like that. So, it’s just a question of degree, I suppose.
Corey: Sure, let me ask a question about trade-offs, because we hand a lot of our data to Google and we may complain about that, but the fact is their service is “free” in other respects. So, they’re extracting value from my data and as a result, I don’t have to pay them.
Corey: So, how about someone says, “Okay, it’s great you’re giving me control over my data, but I’d rather that I didn’t have to pay you so much, whether you actually took control of my data. You’re actually taking control of my money instead of my data.” And that’s a trade-off you might have, but nothing’s free in this world. So, is it right that you guys are simply taking a charge, basically extracting a price instead of extracting data?
Kieren: Okay, so this is an interesting question. I would also say broadly blockchain is just experimenting with different business models at this point. One of those business models is you release a token and hope it appreciates in price. This is not one that we’ve ever done and have considered, but for the listeners if you ever followed the ICO boom and bust, if you will, from mid-2018 to early, mid-2017, that is a path that people have followed.
Kieren: It’s actually an illustrative example. Though, I mean there’s plenty of issues with it, but the idea is that the systems have a certain shared ownership and people buy these tokens. They hope that the usage of the tokens drives the supply down and it drives the price up. And so, they participate in the success of these systems. There are plenty legal issues in certain cases with this idea, et cetera, et cetera.
Kieren: So, we’ve never pursued it, but some of that concept I think is still relevant. So, I think there’s a split also by who you are basically. So, if we’re talking about Fortune 500 companies, they would rather pay, right? Their data is so valuable that they would rather pay upfront. The idea that they would want a freebie is really unlikely to me in a core transactional use case.
Kieren: I just don’t really see it for really big mission-critical businesses. For certain startups and that sort of thing, I can imagine them being served in a scenario where they give a little bit of nonmonetary value and in exchange don’t have to pay the monetary side. It’s something we haven’t explored in great depth I guess I would say.
Kieren: We are largely working with the segment of the market that has really big mission-critical business processes, the value of which would be so much larger than the contract that they would have with us that it would be, yeah, almost cheaper to pay than try to work with some party that could really leverage that core data that, yeah, it might cost them more in the end. And typically, this is how big companies have just consumed enterprise software. Almost never are they inundated to someone for free. Go ahead, Steve.
Steve: Yeah, I was just going to say the way Corey’s question is basically why does enterprise software exist, right? So, why are there heavy software packages that are highly proprietary and that companies pay a lot of money to get like Oracle Databases, for example?
Steve: Why don’t they just show an ad to every one of the employees every time they use the database and that funds it, but I think there are deep reasons why enterprise software exists and why if you were in the shoes of a CTO at a Fortune 500 company, you would not want to do some lightweight thing that pays for itself by ads or by information arbitrage or something. You would just want to pay a price and get a nice stable really high-performing piece of software that you can run an instance of.
Victor: Yeah, and I think primarily the reason is just a cost component. To your point, Corey, is that we use free services, but we get the benefit of having access to software. Now, companies have to pay for access to these intermediary services that we talk about, so they’re already paying for them. Now, companies that typically are much more comfortable paying say a flat rate for using something, then a percentage of the cost of that good, because that can be an immense amount of value that is taking away from them.
Victor: And most of these intermediary services that we’re talking about have most of that model. And we’re talking about taking very large amounts of money away from the over-transaction. It can be anywhere from 30% of the value of the transaction. To give a concrete example, I only learned recently that in the airline business, a huge amount of the cost of a ticket is for the aggregator which is this intermediary that collects site availability from al the airlines. They charge up to 30% of the cost of a ticket just to aggregate and provide that information to people.
Steve: So, what I’d like to do now just for fun and for our listeners who some of whom have experience with startups, but many of whom are not. Maybe they’re academics, or writers or something. I would just like to role-play a little bit. And I don’t know who wants to take it, Kieren or Victor, but I’m going to be a venture capitalist that I bumped into you in an elevator and I just want to hear your elevator pitch for your company. [crosstalk 01:02:40].
Kieren: Let’s let Victor do this one. I have this beautiful brief from fundraising. We closed our Series A late last year and right now I’m actually not on the road raising capital, in part because everyone’s quarantined. And so, yeah, it’s been beautiful. For those who don’t know, capital raising is an intense endeavor. So, yeah, I think I’m going to throw it to Victor.
Steve: Vic, are you up for this?
Victor: Sure, I’ll give you our elevator pitch.
Steve: Okay, we’re going to role-play it, okay?
Victor: Okay, go ahead, you go.
Steve: I’m going to be like, hey, aren’t you that BlockApps guy?
Victor: I am. I’m one of the founders and chief product officer.
Steve: Wow, what do you guys do again? Is it a coin?
Victor: No, we don’t do anything related to crypto. So, what we basically do is we take the same technology that powers public cryptocurrencies and we use that to help enterprises track assets. And these assets can be physical like supply chain assets. They can be financial or they can be workflows.
Victor: And we believe that this is a transformative technology. Already, many top Fortune 500 companies have already spent millions of dollars into it. And it’s going to be an entirely new category of enterprise software.
Steve: Oh, so are you replacing Oracle for that?
Victor: We are basically creating a, what I would call, collaborative Oracle. So, in instances where you need to share information among other participants, for example in your partner network, we create a data store that is cryptographically secure and shareable among all those participants.
Steve: Wow, so who’s your biggest competitor?
Victor: Well, if you look at the blockchain world, our biggest competitor in the enterprise blockchain space is probably IBM and they have a product called Traveler.
Steve: It competes head to head with you guys?
Victor: In some cases, it does but rarely. Typically, people come to us, because one of the advantages that we have is we came out of the Ethereum ecosystem, which is both as a cryptocurrency but as a huge, large developer community. So, unlike other dedicated enterprise blockchain system, there is an embedded community.
Victor: And a lot of these embedded developers have gone on to enterprises and wanted to start blockchain projects inside those enterprises. So, typically what we find is those kind of developers are looking for the best in the Ethereum ecosystem and we’re one of the leaders in that space.
Steve: Wow, so do you have a lot of traction?
Victor: Yeah, we do. We have paying customers. We have our product in production. We just completed our Series A financing.
Steve: Wow, what’s your biggest install?
Victor: Well, some of our customers have publicly announced and one of our biggest customers right now is Bayer Crop Science.
Steve: Bayer, the German company?
Victor: Yes, Bayer, the pharmaceutical and agricultural giant.
Steve: Wow, awesome. How much did you guys raise?
Victor: We can’t disclose that right now.
Steve: We can stop there, we can stop there.
Steve: Rate my verisimilitude. How realistic was that?
Kieren: Spitting image. I guess I would say I think you didn’t cut Victor off enough. I think you waited just a second too long before firing the next question.
Steve: Yeah, I didn’t completely morph from my nice podcast host persona into the actual VC persona.
Victor: Correct, and you didn’t ask me about the numbers early enough. Typically, they would ask us, “What are your revenue projections, five year? What’s the burn rate?”, all of that stuff.
Steve: Yeah, I would have-
Victor: I’m glad you didn’t ask me.
Steve: No, you’re right. If I were more hard-nosed, I would have been like, “What’s your headcount? What’s your burn rate? What’s your run rate? Are you-“
Corey: That’s what I want to chime in with. Before I get there, I want to ask a background question. You guys are coming out of the Ethereum system. Why aren’t you coming out of the bitcoin system and how do the two differ?
Kieren: Maybe I’ll take this one, because Victor took the brunt of the last few. So, it’s a couple reasons. One is there’s a bit of a right place, right time aspect to it. So, the reason Ethereum exists, why didn’t the Ethereum team try to retrofit Ethereum on top of bitcoin? They actually did. Vitalik Buterin, the founder, kept basically trying to release projects that added some aspect of functionality, either directly to bitcoin or as their own standalone blockchain and found that he kept solving the same problems over and over again.
Kieren: So, bitcoin is really good at its core use, which is the storage and transmission of value and some tracking aspects. And it’s difficult to extend beyond that, basically because it’s not a programmable system, per se. I mean, it has a language so you can tell it what to do, but the set of tools in your toolbox is very limited and that was on purpose. Basically, the designers of bitcoin wanted to be sure that this system would last for 1,000 years.
Kieren: And so, they made it as simple as possible, because the security and analysis of it was simpler. What we realized though is that if you’re looking beyond just the storage of value use case, you’re going to need a little more ability to add new functionality to the system as it’s running. And basically that required a net new blockchain. So, Ethereum was born and I personally happened to join an Ethereum project in the summer of 2014.
Kieren: And so, I saw early on that there was, even before the launch, tremendous developer interest in Ethereum, early traction and saw that it would likely from a developer perspective at least eclipse bitcoin in a reasonable period of time. And for developers, that is certainly the case. Bitcoin’s still number one in market cap, but I rarely hear of people trying to build an application on bitcoin. They’re doing it on some other technology that came after bitcoin, usually Ethereum. Did that answer your question?
Corey: That did actually, yeah. Now, a question about your startup, so give me the picture. Three guys in a room, two guys in a room, what happened when you guys left that café? [crosstalk].
Corey: I want to hear the story. You left the café. You’re going to start a company. Give us a story of the company.
Kieren: [crosstalk], yeah. Victor, you take it.
Victor: Should I take this one? So, as I said, there were two parallel things happening, two groups happening. Kieren and Jim having been introduced by Steve were working on Ethereum technology and really just Jim as a technologist really wants to understand something by getting his hands dirty and building on it. So, they were working together and building what would eventually become the start of our platform that we now market.
Victor: And then, on the side, Jim and I were discussing other startup ideas. And we had really enjoyed working together at my previous startup. I was moving back to North America. We were talking about different ventures. Now, all of these coalesced in this one week where Kieren was running two events in the Bay Area. One event, it was basically the first academic blockchain conference.
Victor: And everyone in the blockchain world, though the world was very small at the time, was at this conference. And so, there were people from the bitcoin core devs. There were the founders of Ethereum. There were the starts of a bunch of other now well-known blockchain projects all in this group, but the entire blockchain world at that time was about 30 people. And then, at the same time he was running that conference, in the same week he was running a conference for O’Reilly which is a big tech publisher.
Victor: They do very shinny conferences. They rented a very expensive location down in Downtown San Francisco at the pier. There were 1,000 attendees, big people from the financial sector and well-known startup founders. And these things happen back to back. And so, the academic conference happened first. I will readily admit that I didn’t really understand almost anything about the blockchain space at the time, but what came out of it was that the way they were talking about blockchain…
Victor: I knew bitcoin and I knew people that were mining bitcoin, but they were talking about this programmable blockchain with Ethereum and Ethereum hadn’t launched it. They were really trying to create this new kind of application platform that could be shared across all these people. And it was really obvious that I’d never heard blockchain described in those terms before. And then, when we went to the O’Reilly conference, people were talking about just bitcoin.
Victor: And they didn’t understand. And even though banks were there that were saying, “We’re really interested in this technology. We want to do something,” they really didn’t understand where the technology was going. And this point was really hammered home for me, because during one of the lunches, we would sit at tables with other people. Some of them were primalists. After being in this academic conference for a couple days, talking about some of the concepts that I had learned over these last couple days.
Victor: And some of those people got up, repeated word for word exactly what I told them and people were like, “That guy really understands blockchain.” So, there was this clear gap between what businesses and the demand that we were seeing from businesses for blockchain technology, and the technologists and what was actually happening. It was really, really obvious in this case that there was this gap between those two sides and that the three of us, given our backgrounds and given our general approach to things, could really fill that gap.
Corey: So, what’s the next step after that? You guys built a product. Just you three or did you raise some angel money?
Kieren: Good question, maybe I’ll take this one. So, within a couple weeks, we had started working more seriously. Victor was already preparing to move back to North America and transition out of his previous business formally. Jim had been coding for a couple months to understand the stuff, but we got together and we’re like, “Okay, we have a general sense of where we want to go and set up some first technical deliverables.
Kieren: Let’s just take what we’ve got, and then wrap it in a simple API for developers and businesses to consume. And so, we set to work on this, took a couple months I guess. I was still enrolled in classes at the time. I remember distinctly thinking, okay, well, I can work on this and in parallel finish my degree, which of course just never happens.
Kieren: But yeah, so we got pulled into the coding 12 hours a day, quarantined a little bit or not leaving the house that often. We joined Consensys. So, we were always in touch. Our Consensys is my dad’s company, but-
Corey: What do they do?
Kieren: They do a good number of things. They have functioned as an incubator as they did for us and they still have that part of the business, but they’re mostly a blockchain software and services firm. So, they make certain application-layer technologies and do a fair amount of professional services in this space.
Kieren: You can check them out. They’re doing a whole bunch of interesting stuff. In any case, so we joined as a to-be-incubated model. So, in effect, we became employees a few months in, and then started to hire at that point. Vic, anything to add to that?
Victor: Yeah, two things. [crosstalk].
Victor: I handled the initial negotiation of us becoming incubated by Consensys. I didn’t realize at that time that Joseph Lubin, the founder of Consensys, was Kieren’s father. So, I probably would have negotiated much better had I known that at the time and we really came in as a company ourselves. So, we really knew the three founders.
Victor: And then, we came in with the understanding that we were beginning a company from that. Other people just joined it as more like employees or more individuals, but we were one of the first groups that joined Consensys [crosstalk]
Kieren: Yeah, to add to that, the early days of Consensys had a Betaworks model where people to some extent float from project to project and projects that got traction would eventually get turned into [crosstalk]
Corey: So, this doesn’t sound like a conventional incubator. It’s not just they have a space and we want to start a company, basically rent space there. It’s-
Kieren: For us, it’s functioned as a more or less conventional incubator, but for plenty of companies it did not or plenty of things that became companies later.
Corey: So, I want to get some understanding, sorry. Not to talk about your dad’s company, but it seems interesting. People come in on a project that’s conceived by Consensys. And then, if this project takes off, this may get spun out. So, it’s essentially a factory for spin-outs.
Kieren: More a venture production studio than an incubator, but it did a bit of both. Sorry, Steve.
Steve: This was one way to describe it, correct me if I’m wrong guys, this was early days of Ethereum. And Kieren’s father and his company Consensys were trying to build an ecosystem around Ethereum to try to just add value to the whole thing. So, the thing with Ethereum is that it’s a Turing complete system and you can build all kinds of really cool applications that have internal logic and things like this so you can do bitcoin.
Steve: So, the idea that you would have a studio or place where you would back certain developers to build really cool things that show the power of Ethereum, I think that was a strategy in the early years.
Kieren: Exactly, yeah.
Victor: Yeah, and to add to that, Consensys has since become the world’s largest blockchain studio. They have thousands of employees at this point. And at the point we joined, I think we were probably in the first dozen.
Victor: So, they were trying to work out their model, too. And now, they do things like blockchain consulting, enterprise projects. They do a bunch of different things in addition to incubating different companies like ourselves.
Corey: So, coming back to hopefully exponential growth, give me a peek at the growth of the company. The company was founded when formally?
Kieren: Well, yes, formally. So, all of this that we’re describing is early 2015. We spun out early mid-2016 and raised independent capital. So, technically, the entity was created in 2016, but the concept and the people really beginning of 2015.
Corey: And what’s your growth been like since then?
Kieren: Yeah, interesting question. I would say excellent. So, the first year, we were mostly building the project. It culminated end of 2015 with the announcement with Microsoft of Blockchain as Service. So, jointly with Consensys, we approached Microsoft with the idea that, “Hey, they’ve got enterprise customers. We’ve got blockchain software that they may want to consume. Why don’t we together figure out how to bring those customers,” either more customers to their cloud running our software or expand their existing customers in that situation, as well.
Kieren: And that whole idea that you would consume blockchain technology like you’d consume other SaaS technology is called Blockchain as a Service and we were the first example of it, if you will. And-
Corey: Microsoft signed onto that idea?
Kieren: Yes, that’s right. And so, end of 2015 was the beginning of that marketing effort. So, our product is early feature complete at that point, and then starting to really hit the market. So, we start to commercialize through 2016, though it was still mostly POCs at that stage. People are seeking to learn about the technology, use it at very small-scale production, that sort of thing.
Kieren: They’re still figuring out how to adopt it. To a certain extent, that’s true through 2017, though we got our first larger-scale, call them pilot production initiatives. And flowing through that, we got some good announcements. BHP Billiton was a customer of ours, usually world’s largest mining company that got to a production stage. And that carried us through to a maturing market in 2018, 2019, 2020 where we’re more comparable to just a traditional SaaS business.
Kieren: So, I think in the very early days, it was blue ocean and there were aspirational aspects of it, but now it’s like we’ve got a sales team. We’ve got processes. We understand quite well what the market needs and our product meets that need and is, at least we think, the best one out there. There’s also been a maturing of categories.
Kieren: So, at the beginning, if you asked, “Who are your competitors?”, we might not have had an answer to Steve’s VC point. Now, it’s this one, this one, and that one. And people who are consuming the technology or actually comparing it on granular dimensions, the problem is not-
Corey: Sorry, Kieren, I just want to get a sense. Are these companies that are younger than yours or are they mature companies that have basically entered your market?
Kieren: Both, both. So, IBM being extra mature in a sense, but there are startups as well at varying levels of maturity.
Corey: And this partnership with Microsoft, what does it involve? Is it a partnership or is it a stamp of approval? How do you work with that?
Kieren: Great question. So, there are two things. So, Microsoft, Amazon and Google, who we have all also partnered with, have a marketplace concept whereby they make third-party software available in a transactable format to their customers. So, customer wants our product which is called Strato, they can just go click, buy it through their marketplace. It’s more of a test environment in a sense than a place where customers will really consume and keep things.
Kieren: Usually, they’ll test it out there. And then, if they like it, they’ll get directly in touch with us. Though, we have had some people who just stay on the marketplace for a long time. So, the first thing we did was get our software available to be transactable in their marketplace, then we worked with them to jointly go to market where we’re working with some segments of their sales team, both the blockchain side, the people who are in industries that we’re interested in or are involved with our customers or particular accounts we’re interested in talking to. It’s in that sense a commercial go-to-market partnership.
Corey: Last question, how big are you guys as far as headcount?
Kieren: About 25.
Corey: Scattered everywhere?
Kieren: Largely in Brooklyn, I mean all at home at this point. We have a few people that are not work from home.
Corey: Growth rate?
Kieren: Substantial though, yeah, I mean we’re all expecting a bit of a slowdown from the circumstances, but venture comparable I guess I would say, which tends to be pretty aggressive.
Steve: I wanted to ask you some questions. So, Vic was running a startup in Beijing and came back to the US. Kieren, you started out in the Bay Area, and now you guys are in Brooklyn. So, first, I want Vic to say something, a little about this startup scene in Beijing or in Greater China versus here in the US. Any comments on that you want our listeners to know about?
Victor: I can talk for hours on that topic. I mean, I will say everything you hear about it is true. I mean, the level of competition and the level of quality is unsurpassed probably than any other place in the world, except maybe Silicon Valley. And I think in many ways, it exceeds the level of competitiveness there, too.
Steve: Can you explain 996?
Victor: Yes. Well, how do you want me to explain it? Well, maybe you can define it better than-
Steve: This may even be a little bit outdated, but I think I have the numbers right. I mean, for a long time, the standard work day for these Chinese startups was 9:00 a.m. until 9:00 p.m. six days a week. You don’t even see that too much in Silicon Valley, right?
Victor: Well, I will say why I want to ask you a question about that is that lately one common complaint during the quarantine period is that has now become 24/7. People are expected to respond to things now that they can work from home anytime, at least in the tech world. Yeah. They work very, very long hours, not necessarily incredibly efficiently, but it’s just expected.
Victor: If I would send an email to my employees at 11 p.m. at night, I would expect an answer within a few minutes. And honestly, I don’t want to describe myself as a monster, but that was just the expectation, that you would expect people to respond to you. And particularly if you had a question or reach out, you would expect any time, any day. That’s the level of communication. And when we talk to investors that are in China, for example, that’s the level of responsiveness that people expect.
Steve: Yeah, I agree with you. I mean, in the other startups that I’m involved in, they always complain like, “Oh, we’re dealing with an American company. So, it’s Saturday. We won’t get anything back from them today.” And if it’s a European company, it could be like, “My God, it’s one of their three-day weekends or something. Are we going to hear anything from them?”
Victor: Yeah, and it’s just that that mindset of entrepreneurialism, it’s really, really common like you see. And you have an enormous amount of really, really good technical talent, both coming from local universities and coming back to China from studying abroad. So, you have all of this idea of that people are bringing ideas and bringing them to market as quickly as possible.
Victor: The other thing about China is that there’s a strong revenue focus. I think when I started companies in the early 2000s, people were more focused on creating large audiences and figuring out the business model or how we’d make money later, and China really never had that. They really focus on from day one, how do we become a profitable company and how do we grow that way. As we’ve seen the implosions of a lot of unicorns, that’s become more of a sustainable model I think.
Steve: Speaking of unicorns, I think your Brooklyn office is a WeWork office?
Steve: And so, maybe tell me a little bit or tell our listeners a little bit about the startup scene in Brooklyn, because to most old-school Silicon Valley guys, it’s like, “What, Brooklyn? That’s hipsters drinking coffee.” What’s going on there?
Kieren: So, this is a good question and I would say it’s definitely different than Silicon Valley, having spent at least a fair amount of time in Berkeley. It’s not as if every conversation that you overhear in a coffee shop is about evaluations, or Kubernetes or something of that nature. It’s not a monoculture in the same way, which I like. Of course, I also grew up in New York.
Kieren: So, I have a bias to this direction obviously. New York employs a ton of technologists, and a lot of them work for banks and all that sort of thing. And so, I think probably over the last 10 to 15 years, you’ve seen a slow transition of the good technologists at big companies, big traditional enterprises into more of a startup. You’ve seen as more capital’s been available, there have been more companies.
Kieren: New York, it’s got its traditional strengths, right? It’s good at fintech, probably better than Silicon Valley is, for proximity reasons more than anything else. It’s good at ad tech, also for obvious reasons. It’s good at certain hard tech enterprise software businesses as well, I guess I would say, but there is less of a startup monoculture I guess. So, in Silicon Valley, of course there are big tech companies that are no longer startups and they’re small tech companies, but you feel like you’re in a startup culture everywhere.
Kieren: Here, much less so. You wouldn’t really notice unless you purposely went through a meetup or something, but there are an enormous number of startups, right? And the amount of capital is maybe half of Silicon Valley, something in that ballpark. It’s just a bigger place. So, the density is way lower, but the overall activity is probably almost comparable I guess I would say.
Kieren: Boston also has an interestingly similar feel. It’s a smaller city and a little more… Boston has a lot of hard tech. New York has plenty of it but just because of all the universities there, but you less get the sense that you’re just living among startups only in Boston compared to say San Francisco.
Victor: Yeah, and I would say the flavor of the startups is different. I think in Silicon Valley, most startups that you see are consumer-focused startups. But in New York, for example, you see a lot more enterprise-focused startups, because to Kieren’s point, a lot of the technologists came out of big enterprises. So, they see the problems that exist in those kind of environments.
Steve: This is just my own limitation, but I’m struggling to think of what’s the most prominent unicorn that’s come out of your backyard in Brooklyn.
Kieren: Other than WeWork?
Steve: Yeah, no, that’s a great example.
Kieren: Yeah. Who else is in New York? Datadog I think is in New York, a pretty successful recent IPO. What’s the cloud company? We’re actually one of their customers. DigitalOcean is in New York. I mean, IBM is in New York also. I mean, they’re not a startup, but it influences the dynamics, for sure. I’ll get back to you, but there’s a sizeable number. You just don’t think of them, because they’re B2B or their some sort of niche but giant use case that they’re working on. I agree with Victor that more of the-
Steve: Got it.
Kieren: … tech successes are in Silicon Valley.
Steve: Got it.
Kieren: I might look this up right now.
Steve: So, I think we’re running a little bit low on time. If Corey doesn’t have any other questions, let me finish-
Corey: Actually, I have one question.
Steve: Go ahead.
Corey: It’s a little bit of a New York kind of thing. Is it all in Brooklyn or is it scattered? Is some part of the startup scene happening in Queens or the Bronx or even Upper Manhattan? I’m assuming that Lower Manhattan may be a bit too expensive for a startup space, but let me know.
Kieren: I would say startups seem to like Lower Manhattan up to maybe 23rd-ish Street at which point startups stop going there. People in New York joke about the, “I never go north of 14th Street,” rule. Really, it’s 23rd, so actually a fair amount of startups in Lower Manhattan, and then a good number in Brooklyn I would say. Haven’t heard of any in Queens, the Bronx or [crosstalk 01:33:27]-
Corey: It just seems like you’re needlessly burning money if you are going to those kind of locations for real estate. And there, you’re forced to spend money, because everything’s expensive, but you got pretty good connectivity around the whole area of the five boroughs. So, I’m just curious as to why people would go to Lower Manhattan since it’s just much more expensive.
Kieren: At the very least, you might want to put your sales office there. If your customers are banks, then you can walk to them.
Corey: Sure, I guess I can see that, yeah. You want to be close to your customers. That’s a solid argument.
Kieren: But yeah, sometimes it might be a mix. Engineers seem to like living in Brooklyn I guess I would say.
Kieren: Plenty of them, Green Point, all over the place, but yeah. So, I guess the creative side of the business has an increasing probability of living in Brooklyn and the commercial side could vary. They might even live in Jersey, or Connecticut or something.
Steve: All right, my last question. Let’s pick a timescale. It could be two years, three years. I hope it’s not five years. And we bring you back on the show after your successful exit. What is the story that you tell us?
Kieren: Oh, good question. Well, I hope that it’s longer, because at least my preference is more like an IPO-type outcome, and that will take longer than two years, than an acquisition-type outcome. Though, of course we’ll see as the market… as it develops, but we’re having fun. We’re doing interesting stuff and we’re solving real problems for the customers. And they would not be necessarily happy if we just became a part of a big company that may or may not continue supporting our product in the way that they’ve become accustomed to on a go-forward basis.
Kieren: So, my hope would be to just grow the thing to the point that it can IPO. There are many questions of whether that’ll happen related to how the market evolves, how we execute, how we raise financing, all that sort of thing, but yeah. IPO would be the best outcome. I think the secondary thing that might happen is… So, if you look at the big tech companies, they’re all actually entering blockchain.
Kieren: So, Microsoft, I’m sure we’re not their only partner. SAP, Oracle, Amazon, all these guys have some sort of blockchain offering, both partner and I guess I would say light first-party offerings, things that clearly they’re not throwing 1,000 people on but something they’re willing to brand and say, “Hey, this is the Oracle blockchain service,” that sort of thing. So, what I can imagine happening is that some of the players like us who are focused on the enterprise software aspect of blockchain get acquired by one of these big players let’s say.
Kieren: And maybe we might be the first one. Someone else might be the first one, et cetera. And then, what I would imagine is that they would all probably try to have a matching capability just because that’s the way these things often go basically. Once it’s strategic enough that you as a big enterprise feel that you need to bring in experts that would be hard to grow in-house or hire, and who have existing customer bases or some real product advantage, that sort of thing.
Kieren: Once one has done that, I bet the others will feel the same way. And so, they’ll switch from a mostly partner and build strategy to, all right, let’s buy a company and make this a first-party thing. At that point, if we saw that happening, we might take the idea more seriously, because the thing that big companies have is distribution.
Kieren: The thing that small companies have is an understanding of the customer needs and great products. The big company picks a great product and adds its distribution could be hard to compete with, yeah.
Steve: Got it. Well, I wish you guys luck. Our guests today have been Kieren James-Lubin and Victor Wong of the awesome startup, BlockApps. Thanks a lot, guys.
Kieren: Thank you-
Corey: Yeah, great to meet you guys.
Victor: Thanks, Corey.