A Conversation About Crypto-currencies and ICOs with Andy Bromberg

Today is Thursday, which usually means that Adora or myself sit up here with someone notable and have a hopefully interesting conversation. The someone notable we have today is Andy Bromberg, my friend and the president and co-founder of CoinList, which is this really fascinating company that is doing some interesting things we'll talk about.

But Andy, maybe we can start by you talking a little bit about your entrepreneurial background because interestingly, even though you graduated from Stanford a couple of years ago, CoinList isn't your first venture, is it?

That's right. So, first of all, thank you for having me and thank you everyone for coming. This is going to be a lot of fun. The entrepreneurial background for me started even before school in high school. I was one of the people that started some web design and marketing businesses. Nothing really notable, but I think it was really valuable to get that initial experience of building something and hiring a team, managing a team, and firing people.

And figuring out how to—how did you do all those things while you were in high school?

I did, yeah. I got started. It was a lot of fun.

What made you do that? What was it about being an entrepreneur that attracted you while you were still in high school?

In high school, I was worried about other things. It was really nothing about being an entrepreneur and more about not wanting to do other jobs that I was able to do when I was in high school. You know, you can sit there and you can do whatever—scoop pizza or scoop ice cream or whatever it is.

I worked in a supermarket.

Yeah, that was awesome! I did the scooping ice cream too. It was fun. But I was looking at it and saying, like, all these businesses in my town have awful websites and I've got a bunch of friends that do this stuff in their spare time. That seems like just a way better way to make a little bit of money while I'm in high school than, you know, Circle Pizza. So I went and did that and expanded out—videos, marketing, photos, all that stuff. I ran a few websites that did pretty well. But it was really less of “I want to be an entrepreneur” and more of “I really don't want to do these other jobs.” And it then developed into a love for building things from the ground up and trying to create. But at the time, it was purely an alternative—not a primary.

So did you—so you really weren't thinking of this as like, "I'm an entrepreneur, and I'm gonna be like my family's been entrepreneurs forever." It was more an escape—an alternate route from sort of the normal high school, “I'm gonna get some, some maybe not so interesting job” and do something more interesting.

And probably you made a lot more money doing it too.

Yeah, absolutely! And I think—and not to fall into some of the immediate kind of startup clichés, but I was doing stuff that I really enjoyed doing. I was hanging out with my friends and building things, which was really fun. I enjoyed that. We built a bunch of websites around just things that we liked, and it wasn't necessarily that we were looking at it and saying, you know, “I'm gonna analyze this opportunity and do my TAM calculation and figure out this and the business strategy.” We just said, “I love playing soccer. What if I made a website that reviewed soccer cleats? Alright, let's do that.” We made one of those—it did really well.

What you know, I like messed around with computers. Let's build one around, you know, how to dig into the internals of a Mac and do things with it. Let's build that. That's it! Pretty well. It was really based on these things that we just enjoyed doing. We had figured out how to do and wanted to build these sites around our passions.

I'm intrigued. So this was going pretty well. You're probably a senior in high school. You get into a little school on the West Coast. Did you ever have the thought, like, “I'm not going to Stanford. I'm gonna just—I am the next whatever Mark Zuckerberg. I'm going…”

Yeah, I don't— I think those really truly would have been kind of delusions of grandeur at that point. They were these were like little things. They were fun and they made money. And I, you know, covered my expenses and was able to do what I wanted to do. But it was not—none of these were going to be massive businesses. And sure, of course, the thought occurs, you're like, “I could just keep doing this. I'm surviving on this. This would be fun.” But ultimately, I got a great opportunity to go to a great school and decided to do that and continue to do them for a little while while I was there and did some of that stuff, but kind of trailed off during a couple years I was there. And then eventually kind of tailed off completely.

Well, but the idea of starting companies didn't because apparently the bug hit you again while you were at Stanford, right?

Yeah, that's right. So I was there for a couple years, had a lot of fun. Really actually the most impactful bit there was tied into this whole entrepreneurship thing, which is I took this amazing class when I was there, called Startup Engineering, from a guy named Paul DS Furnivall. He's now the CTO of CoinBase, formerly COO of Calm and formally a partner at Andreessen Horowitz and founder of Counsel. Amazing guy who actually lectured at the very first ever Startup School.

And he taught this class about, you know, I think a lot of times university classes on entrepreneurship don't teach you the real skills you need to start a business. He might teach you some really high-level things or really basic fundamentals, but nothing around the pragmatic steps. And he set out to build a class much like this one that said, “No, if you're actually going to do this, what you need to do.” There's a lot of time with guest lecturers coming to classes, a lot of time with, you know, things like it was a computer science class. How do you deploy code? How do you, you know, do revision control on code? And how do you put on GitHub? And how do you do these different things—the practical pieces. And we took this class, a bunch of us, and had an amazing time.

And actually out of that, which we'll come full circle back to this, a small set of folks that were in that class ended up founding the Stanford Bitcoin Group back in 2012-2013.

I hope they bought some Bitcoin.

Not enough—ever enough. But yeah, so he convinced us all, you know, this Bitcoin thing is gonna be real. At the time, we’re looking at him and saying, “No way!” I mean, this is 2012. We were like, “This Bitcoin is magic Internet money! I don't believe you for a second! This doesn't work.” And he said, “Come on, let's do it.” And so we started the Stanford Bitcoin Group and spent a couple years in school doing a lot of awesome research and evangelism and had a lot of fun running around, you know, teaching people about crypto and building things or researching things. But then, yeah, ultimately I did end up leaving to start a different company and left even that behind.

Well, so that different company was Sidewire, which interestingly seems like it's more relevant today, maybe more than Bitcoin, because it was all about like real news, right?

Yeah, so I built this platform called Sidewire and I left school in 2014 to start this company. I left early because I found what I think is the perfect partner for it—my co-founder Tucker, good background in politics and I had this background in computer science building things. We came together to this product that was a platform where the experts in politics could chat publicly about the news of the day and everyone else could read and engage but not participate on that same level. We wanted to build a Twitter without the noise. What if you took just the experts and put them in conversation with each other?

And we did this really around the 2016 election. There was 2014—we ended up winding it down last year—2017. But it sounds like we needed it really badly. I think we still do. You know, I talked to a lot of people that are building similar products, trying to separate out the signal from the noise, and hopefully some of you in here or online are working to do that because I think it's such a critical problem. Turns out very hard problem for a variety of reasons, but I think it's critical that someone solve it.

So maybe for the benefit of these folks, and never fear, we will talk about crypto TED talk a little bit—if you would talk about the process of starting the company you left school to do it and the winding down, like what happened, and maybe if there's some lessons learned in there from that experience.

Yeah, absolutely. The starting was really—it always is kind of the best part when you have this germ of an idea and you're trying to turn it into something. And so we started—Tucker and I met and started talking. We were introduced by a mutual friend named Adam while I was still in school. We started talking about this concept that there's this crazy noise level in the discourse today, especially on politics and other topics. We separated that out with a lot of different ideas around how to do it, and iterated through a million different things.

Ultimately, he was working at that time a great job. I was in school. We were looking at it as I’m sure many people are saying, “This is a big leap to take to go from very comfortable situations out a couple years left school.” He was, again, doing great at work. You could make this leap.

And so we said, “Alright, we have to get to a place where you know, nine months in a kind of casual discussions." So we're both working and learning. We said, "We think we know what we want to do here." And the timing was— I mean, it was great. We were looking at this—this is right before summer 2014, so we know I've got some lead time up into the elections to build stuff, and then launch into the election cycle. We thought we knew what we wanted to build and so we said, “Alright, well we need to get some validation for this before we get going,” which was just the state of mind that we were in.

I don’t think this is always true for entrepreneurs by any means, but our state was, you know, we’re both in great positions. This is gonna be really hard. Let's get some validation. So we went out, said, “We're gonna raise some money, and if we can successfully raise that money, let's go and do it.” And the commitment kind of was that if we could do that before the summer I would go, obviously, over my summer and working full-time and then beyond, and he would leave the job and go, and we do it together.

And so we were able to put together that money and get that validation and start building.

Did you raise from angels then?

Yeah, almost entirely from angels. Yeah, and we had an amazing set of investors. Lesson learned, and thankfully we didn't learn it in the negative way. Having great investors is such a boon throughout the business. When things run well and when things are on poorly, we'll get to the wind down, but even that part of having an amazing set of investors that were aligned with us, cared about us as people, and were supportive of what we were doing was so critical at that point. Really digging it on what their motivations were was really important.

See, we raised from a lot of people. I had—I forget the exact number now—but something like 44 investors in our seed round or something like that.

Ever think that maybe that was too many?

Yes and no. The only time I ever genuinely—I never really want to turn down money, right? The only time I genuinely thought that was too many was when I was dealing with meeting all of them to sign things. But generally, again, it goes back to the quality of the investors. They were supportive and not annoying and never nagged us, and we sent out our monthly updates and, you know, made sure they were informed, and it was never a problem. It was just sending out 44 bonds—a lot of DocuSigns to send out.

But imagine one issue with like 40 or 50 or 60 investors is that even if you really try to only get high-quality investors, the probability that one or two of those are difficult gets pretty high.

Yeah, absolutely. And of course, even within that set of 44, there was a spectrum of people ranging from absolutely perfect to slightly less perfect. But on the whole, it was a really great set, and we were fortunate to be by them. So we ended up doing that, and the short story on the company is we built for about a year and then we kind of raised the last part of that round. It was all one big round but raised last part of that round from Spark Capital, who were amazing investors. Highly recommend working with them. And they kind of completed our institutional seed round and then we launched the product and ran it for a couple of years and ultimately wound it down last summer.

Yeah, 2017, mid-2017. I think from a product perspective—just before you get there, yeah. So you went all the way through the 2016 presidential cycle. Did you guys have any insight more than the rest of us about what was going to happen in November 2016 based on the discussions that were taking place?

I can say—and things I can't say—but, yeah, what you know, we were talking to a lot of things you can’t say, exactly! There's a lot of smart people out there, and this ties in to what Sidewire was able to do, but also kind of who we were talking to. We got this amazing set of experts in the platform engaging like crazy, but a thousand people—senators, presidential candidates, reporters, analysts, staffers—all the people you would want to have talking—the really smart voices, the smart commentators having these amazing discussions going back and forth, firing back and forth, being entertaining.

And we felt like that side—it's a marketplace, right? You'd supply of content and demand content. No one is paying, but you know, supply and demand—we crushed the supply! And just no matter what we did, we couldn't get people to pay attention to it, which we thought was so interesting.

So our thesis going in, and I think a lot of times startups are about having a thesis and testing it, but a thesis we felt really strongly about—it wasn't so far as “build it and they will come,” but we thought this is a marketplace, a two-sided marketplace. If we can get the supply—if we can get smart people to have smart conversations about the news of the day, then we will be able to get people to show up, stick around, and keep engaging with those conversations and reading them. No matter what we did, there was no way to know what the issue was. We could not get people to come and stick around.

And you know, people would show up and read one conversation and then would not come back. And I think at the day, what we felt like was, you know, in that space, people—it's hard to get people to care about the smart conversations. It’s not that people say that’s what they're looking for, and it might not actually be what drives them and what they actually want.

They want 140 or 280 characters of sensational tweets.

Yeah, and I hope that that's not true, and I hope that we had issues with the product that were deeper than that or something like that that caused it to not be effective in retaining users. But at the end of the day, we had a really tough time even given just a stream of crazy high-quality content from the best people in the world on these topics.

It's tough to talk together as people with sticker.

Okay, so this is a tough question for any startup to answer, which is at some point you decided it wasn't an issue of tweaks, it wasn't an issue of being able to find product-market fit—that this you could pivot 10 degrees, 20 degrees, 180 degrees, it wasn't going to happen and you wound the company down. How did you guys come to that decision?

Yes, so we did try a couple other related, but more than ten or twenty or twenty-degree tweaks, but related topics, you know, a subscription service we tried for a little bit and pitched some enterprise-related things.

Ultimately, we decided that what we were looking at—the possibilities we were looking at even if they succeeded, couldn't be venture-scale businesses that we needed to be betting on. And these are conversations we had with our investors—super honest transparent conversations with them, with our team, with each other. And we said, “Alright, well, you know, the business, our core business that we've envisioned and been working on, we don't think that one's gonna work, at least, you know, without some crazy change and how people are thinking, or us having some insane insight of fixing something that’s terribly broken.”

These other businesses we were looking at—other business lines—there's a possibility, but these aren't the type of returns that we're looking for when we started this business, and so at that point we said, “Alright, instead of, you know, trying to keep this thing on life support, let's wind it down and move to our next thing and keep building from there.” And it was a decision that everyone was incredibly supportive of. Again, this goes right back to the good investor thing. It is easy for people to give you a lot of grief when you make a decision like that. But we were incredibly fortunate to have amazing investors that supported us in that.

Okay, last question on Sidewire. Do you think if you could have persuaded President Trump to call you fake news you might have been able to survive?

You know it’s that—we've talked about that a lot. I don’t think so. It's so bizarre, and you know, we could talk for hours about this, but people would show up and engage, and then they just kind of like disappear. They'd be like, “This just doesn’t—this doesn’t do it for me.”

And we talked to people, and they’d say, “Yeah, oh, it’s great! I like the content. It’s really good! I just— I would never like, you know, go and read it on there!” Like, really?

Pick it up. And, you know, there’s not a lot of people out there that pick up the New York Times every day and read it cover-to-cover, and that’s effectively the same type of person that we were looking for—someone that cared about that. One, you have to somehow make it a habit. This is true for any startup! You have to somehow create enough value so that you get integrated into people's lives, and it's hard to do that with news.

And I do think, like you alluded to, the people want 140 or 280 characters of crazy stuff.

Sure. There's an element of that, that is people want the crazy things that just spew up fake news, this fake news, that, whatever it is. But the other piece of that is that it's easiest to create a habit with something that's bite-sized. What we were asking people to do was read a real conversation. It was kind of like an iMessage format—like people going back and forth and having these back-and-forth conversations. It’s not bite-sized; it takes you a few minutes to read, if not longer to read these really engaging ones.

You gotta think about what they're saying. And jumping from not engaging with a service to engaging with a long conversation—you have to read—it’s a big jump to make.

And so I think, yet to your point, building habits is so crucial, and habits are easiest started with something very small that might eventually expand to something big. And think about how much time many people spend on Facebook, but it often starts with something really small there to build that habit. Facebook has great things around, you know, you sign up, “Connect with ten friends.” They’ve got these like numbers—if you need to do this, you need to do that. It’s all easy; it’s all limited time and then the habit starts to get ingrained, and you can build it out bigger from there.

Okay, so let’s transition to talk about Andy Bromberg phase 2.5 where you went back a little bit to, I would say, your crypto roots but back to some of the work you'd been doing earlier. It's at Stanford and got involved with, I guess, Namal, and AngelList, and eventually CoinList. How did that transpire?

Yeah, so even to take a step further back than that, when I left school in 2014, I was crazy interested in crypto, spending a ton of time on it with the Stanford Bitcoin Group, my friends, and people in the industry. The reason I didn't feel comfortable doing anything in crypto at that time was because of a secular issue for me, which was at that point—2014—I couldn't make a decision. It was a coin flip whether or not there was gonna be one cryptocurrency forever—Bitcoin was gonna be it, and that was gonna be the end of it—or if there were gonna be a ton of cryptocurrencies out there.

And I was looking at it and saying, “Startups have a high failure rate already. Do I want to add a 50% coin flip to that? Because anything I could think of betting on relied on one of those two outcomes. And I said, ‘I don't want to add 50% more to an already high attrition rate. I'm gonna not do this for now.’”

By the time it came back—end of later—good news, attrition rates so high that 50% hardly makes a difference. Double your chances of failure is hard to have, yeah. And so, you know, 2017, I'm looking at it and saying, “I'm now a believer there's going to be at least more than one. Who knows how many successful cryptocurrencies in the long run? We can talk more about what that number might be and how we should think about that.”

But I feel comfortable going back to the space now, and the story with CoinList is that CoinList started about a year ago—just over a year ago. We just celebrated our internal one-year anniversary. It was created as a collaboration between Protocol Labs—a proud Y Combinator company—and AngelList to run Protocol Labs token sale for their product Filecoin.

I think you have to unpack that a little bit because I was trying to think about how hopefully a lot of the people here and out there understand cryptocurrencies—and there are lots and lots and lots that's been written and said about them—but maybe we can sort of very briefly outline what a cryptocurrency is, what a token sale is, what a token is, and why you might be selling them.

Yeah, yeah—everyone, yes! You know, at its core, yeah, exactly. At its core, a token is a scarce digital asset. We’ll talk more about what each of these things mean—a scarcity that represents ownership, most commonly of a token network. So the idea here is that when you launch a token network, it goes out and no one then controls it.

So Bitcoin is a lot of—you know, it was created by the pseudonym Satoshi Nakamoto, and if that's a he or she or a single person or a group of people, no one knows who Satoshi is. And somehow she’s weird, right? Like, you make this really important thing that's made and lost fortunes for people, and maybe will be the basis of the future economy—no one knows where it came from. Weird, right?

Yeah, like really let that settle. It's worth like a hundred billion dollars right now, the total market cap of Bitcoin, and no one knows who made it. And in fact, Satoshi has some large number of tokens socked away in a wallet somewhere that has never been used. We have billions of dollars worth of Bitcoin. We have no idea who has that—literally no idea if anyone has anyone, right?

And so that is kind of the ultimate ideal of how to think about it—that that's possible. You can launch this token network and have it go out into the world and have nobody control it, and it just kind of happens. And so what these companies are now doing when they launch these new tokens, like Protocol Labs launching Filecoin—their intention is to build a network.

You’ve got a lot of code to write—they’ve got to build this thing—and they’re gonna put it out there into the world. And they’re of course going to continue to support it as, you know, core developers of the product and improve the network, but they won't actually have control over it. The users, whoever those users may be in whatever categories they may fit into that specific network, are the ones that have control of it.

Well, talk about what Protocol Labs was doing because the token, that Protocol Labs' first token that CoinList was working on, was not like you could say Bitcoin is a value, you know, itself—it's like a new currency. But the token for Protocol Labs was inextricably linked to a different value that was being delivered to consumers, right?

Yeah, yeah. We should talk about that. One other thing I want to mention, just on tokens in general—and this analogy is a little bit of use—but there's one reason I'd use it. I would think of tokens and blockchain technology, which powers many tokens, like the Internet for one really core reason.

If I asked you, “Hey, Jeff, I’ve got a website, and here's a bunch of data about it. How do you value it?” It's impossible to answer that question because if that website is nytimes.com or amazon.com or google.com or facebook.com, those are all totally different businesses. They were all built on the Internet, sure, but you look at each of their revenues—they've got different multiples.

How do you think about how these businesses are built? Saying, “How do you value a website?” is kind of a meaningless question! You have to know much more about the specific use case and how it's built, saying how do you value a website is kind of a meaningless question! You have to know much more about the specific use case and how it's built.

And in the same way, I think there's a lot of discussion—I get the question a ton from people—“Okay, but how do we value these tokens?” And to me, that's a little bit of an impossible question because tokens are built on different premises and have different applications. You can break them down into categories that go to how to value each of those categories in the same way you could say, “Well, how do we value a social networking website?” or “How do we value a news website?” or “How do we value, you know, a CPG website?”

But you have to think about those categories. And the idea of a token or blockchain technology is really just this kind of meta concept. It allows for other things to be built on top of it.

And one more piece of that analogy would be, yeah, I draw a similarity between the Internet as infrastructure for exchanging and transacting information. It moves information around. Tokens and token networks are infrastructure for transacting or exchanging value. So for the first time, we can actually kind of programmatically exchange value in this core way.

What are the strange things about the whole conversation? So here’s how I would answer your question about how to value a website. And actually, it’s the way people have always valued things, which is, well, I would say, “Huh, let me tell you about the cash flows that that website will generate over time.” And then historically, we've figured out ways to value those things using things like net present value and all these economic concepts.

But tokens seem somehow different because they don't necessarily seem to be tied to cash flows.

See, yes—let’s talk about Filecoin, like you were saying, it just as an example. And this is again just one example of many in one of many categories. I'll give kind of a quick description of Filecoin and how it works—we can go into it more in the Q&A. So Filecoin is a token that allows for the exchange of file storage of files. It's aiming to solve this problem of how do you store files and transact that until the market for storing files.

And so if you think about the simplest solution to how would one build a business to solve that problem, the simplest solution probably looks something like Amazon S3. If Jeff has files that he wants to store and I say, “I'm gonna start a business that helps him store these files,” I'm probably gonna buy a bunch of servers, and Jeff’s gonna hand me files. I'm gonna put them on the servers. When he asks for them back, I'm gonna hand them back and he's gonna pay me.

So that works—bang! This today built like that has a few problems. So one, you've got someone that's taking fees. I'm charging on top of the storage costs for him to be able to do this, but there's also issues of things like censorship. So I now have access to his files. I can censor them, I can look at them, I can do whatever I want to them and you're relying on a single third party not to mess anything up. So I could corrupt the files— I might have downtime and not be able to return them.

And so you start saying, “Well, is there a better solution than this?” And the first version of a better solution I think looks a lot like kind of the Airbnb of file storage, where you'd say, “Alright, well, instead there’s a whole bunch of people out there who have extra storage space in their computers.”
Yeah, raise your hand if you have extra storage space on your computer. You're not—seriously raise your hand! Come on, all of you—you all have extra space? No? Your computers are full? Okay, let’s do it. We’re pivoting!

So, you know, I would say, “Maybe all right, well now, Geoff Hammil, your files, I'm gonna find someone out here. I'm connected to all of you. I've got software on your computers. I'm gonna put the files on your computer and then, you know, Jeff wants them back. I'll ask in the back, I'll take them, I'll give them to him, he'll pay me, I'll pay you.”

Okay, so these people—the few people who raised their hand—so we'll rent, like Airbnb—they’ll rent a piece of their storage that they're not using to the network. So that's a good solution, but it doesn't solve all the problems we talked about. It does first of all make it a little bit cheaper—most likely because this is kind of like storage space is cheaper than buying new servers—but still, there’s a middleman, right? There’s an intermediary—me—who could go down, I could have downtime, I could censor where the file is gonna look at them.

So you’re still trusting someone. So Filecoin, Protocol Labs, building Filecoin and the underlying thing called IPFS—the interplanetary file system—is the coolest name for a file system ever!—said, “Is there a way to solve this? Can we connect Jeff directly to people out here who have extra storage space with no trusted intermediary?” That’s the problem that Filecoin is trying to solve.

They built this token for a few reasons. One, Filecoin is used as the mechanism of payment, so Jeff pays you to store his files with Filecoin. But there's a couple interesting problems we have to solve. First of all, what if one of you does something bad? You corrupt his files, you lose them, you don’t return them fast enough.

So there's first step of the solution is to make each of you that is storing his files for him already have Filecoin. So if you have extra storage space, you already have to own Filecoin, and you do what's called staking. You take those tokens and you put them up, effectively in escrow, and you say, “Here, I'm putting my own tokens up,” putting something at stake. And if I get caught doing something wrong, if I don’t return his files fast enough, I don’t—you know, return them at all—then I lose my tokens.

So you are disincentivized from doing something bad to Jeff's files. That's interesting. Step number one. You’re on to the second problem, which is who's the judge of that? If we're not trusting a central intermediary, how do we know if you are not storing the files well or corrupting them? Or how do we know if you're not returning them fast enough?

And that's where it's step two of this really interesting solution comes into play, which is that there’s a massive network outside of this room—thousands of people—of what they call verifiers. I'm gonna oversimplify what they do a little bit because they have this crazy thing called proof of space-time. Over the top, you could talk for hours about it, but a simple solution for how to make sure that each of you is storing his files correctly is that a thousand different people come to Jeff and they each say to Jeff, “Hey, Jeff, what's the 46th letter of your file? What's the 127th letter of your file? What's 196th letter of your file?”

And Jeff says, “It says J, A, and K,” right? And they go to each person that’s storing the files and ask that exact same question. That person who asked about the 47th letter says, “Hey, what's the 47th letter of the file you're storing?” You answer that—“J” and they check, “A.” And now all of a sudden when enough verifiers do that, we can say with confidence that the person storing the files for Jeff is doing so correctly.

And at that point, the network says, “Great job everyone, Jeff pays you for storing his files, you get your state two tokens back, Jeff gets his files if he wants them, and the verifiers get rewarded”—effectively mining new tokens that are minted by the network and given to the verifiers for doing that work, which makes the supply of coins expand over time.

Exactly! And so then you have this market where each of these three parties—the person with the files, the person with the storage space, and these verifiers are all incentivized to do the right thing, disincentivized from doing the wrong thing, and there is no trusted intermediary and you avoid all those problems I sided with the S3 example at the beginning.

And that really gets to the core of what this all is. And I'll stop rambling in a second here, but blockchains and tokens are about incentive alignment. It's about this question of how can you build a trustless system—a system where no party has to trust any other party in a system without anyone being involved in managing that?

And the way to do that is to properly incentivize everyone and build these economic systems that allow for that interaction to happen. And I think that's one of the best articulations I've heard—I've heard of what the blockchain-based tokens are about, incentive alignment.

But they're about one more thing, isn't it true that they're also about removing aligning the incentives of the folks in the network so that you can remove the central authority, so that you can remove Amazon in the S3 case, or the United States government, the Fed in the Bitcoin case, right?

Right, and that’s for any number of reasons. And that goes back to could be for pricing reasons, it could be that the middleman is charging fees that are unreasonable, could be for censorship reasons in the domain of censoring, it could be for fear of surveillance—it could be for any number of reasons. But ultimately, the most common and effective use of these blockchain systems is to, yes, remove that middleman—as if they make it this trustless system that can exist just between the counterparties that need to be involved in a transaction.

Kind of the ultimate, ultimately Democratic version of networking, right? Markets for everything.

So everyone out here in Startup School world might be asking themselves, “Cool, crypto, cool tokens! What does that have to do with me?” What does this have to do with startups? And, you know, I've talked a bit about the history of investing, and we've come to this place where tokens are, in fact, an important component of how startups raise money and exist. Maybe you can talk a little bit about this evolution to where ICOs—initial coin offerings—and the role CoinList is playing.

Yeah, so, probably a little bit of an unusual perspective here, right? CoinList, we run token sales. We make money when people work with us to run their token sales—that's great! I think today, token sales are a good idea for an incredibly, incredibly, incredibly small number of companies.

I think of the 27,000—Is that right?—companies in Startup School, there may be a few where it’s a really good idea for a token to exist—not all 27,000! Today there are cases I can make for in the future and making sense for a broader set, but today I think it's a very small number.

Just give you a data point on that, CoinList—we've existed for about a year—we've publicly worked with five token sales in the last year. We have had inbound people asking us to work with them—more than 2,500 token sales. And that's not a bandwidth issue—that's not, you know, being able to service that. That’s us sitting there and saying, “Yeah, these 2,495 tokens are not a good fit for us.”

And that’s kind of it! That’s like—the one of the largest euphemisms—“not a good fit for you,” meaning maybe not quite legit.

Maybe, so there's certainly a large set we see of scams and spam and frauds and people that are, you know, bad actors or just...

How much has been raised on ICOs in 2018 thus far?

Yeah, it’s a tough industry to study, but probably somewhere around $15 billion.

It’s a big number! More than venture capital.

Just to repeat that in case someone maybe didn't hear that clearly: more money has been raised in ICOs than has been delivered in venture capital to companies in 2018 thus far.

Yeah, and some people look at that and say, “Wow! What a great sign for the ICO industry! We are thriving!” I look at that and say that seems really concerning to me because venture capital has been around for—as we've talked about before—almost a century of like real kind of true development in venture capital, especially for technology companies, is a pretty well-developed industry.

We figured out kind of the norms and how these things need to be created. The idea that ICOs have really only existed for four years and really in kind of their mass for about two years—the idea that we could surpass that so quickly in that stage of development I see as actually a more concerning thing than a positive thing for the ICO industry.

One thing it shows is demand because these are proxies for investing in startups, but it also, I guess, shows a propensity for people to believe things that maybe they shouldn't be believing.

Yeah, I think that's right! Now, you know, it’s also just a function about being a new industry that its brand new. It’s really hard to diligence for these investors. There aren’t norms, there’s no data points right now on what tokens are successful and which ones aren’t—we’re so early into the industry—and that’s—it’s not because everything’s failed; it’s because it’s just too early to know.

And so investors don’t have a good sense for how to do diligence, I think about, you know, understanding what they represent! Right? Because at least if you're buying a penny stock, you still know that that penny stock represents a claim on the future cash flows or that company in one way or another.

Admittedly, that is a theoretical thing, but at least it's grounded in something concrete. A lot of times these ICOs aren't grounded in anything! But I also—I don't think it has to necessarily be quantitative. I think about the YC process for admitting companies and all the data you guys have on years of startups and what succeeds and what doesn't and what are positive signals and what are—and how you look through those applications—you just can't do that in tokens right now.

There’s no training data to look at, and so that’s resulted in this kind of we’ve got to be over the aggressive mentality from investors of, “Let’s get in! Let’s get in! This thing’s gonna make us rich!”

That’s I think pumped up the amount of money that has gone into the space past where it really reasonably should be, and it may be that that's an important step in the cut in the industry’s development. Do you need this kind of huge infusion of capital to give the winners enough money to start to win? And then you can sort out how to diligence it better going forward, but certainly the vast majority of that money that has gone into ICOs is going into ICOs that are not going to be successful.

So just for the edification of everyone here, could you just step back and say, "What is an ICO? What are these token things—what does CoinList do? Why would you use CoinList? Can't you just do it?" And then maybe we can transition to like to answer the question you sort of talk about ladies who should think about doing an ICO and who shouldn't.

Yeah, so—and just on terminology for folks that are kind of newer to this space, I tend to use tokens, coins, cryptocurrencies all synonymously—crypto assets—even some people have slightly different definitions. I tend to use them all the same. And then ICO or a token sale—kind of the same thing in my eyes. So those are generally synonymous.

An ICO, or an initial coin offering, is when a new network is being created and a company is issuing tokens for the first time in this network concerned to distribute them.

And they've run this token sale to do two things: generally, one—to raise money for the future development of that network and support that network in the long term; and two—to get early distribution of those tokens because these networks, like Filecoin, only works if there are people who have it to store files, people who have it to, you know, give files to be stored, and kind of incentive alignment around that.

So you need a way to distribute these tokens initially. One way to do so is to sell them. And so they go out and conduct these sales where they go and sell tokens to investors or to users that want to eventually participate on the net, right?

And that’s a case where the network literally does not work unless you have a token.

Yeah, that’s exactly right. And so while Chrome is the first token sale that we supported at CoinList, they raised a staggering $205 million in their initial coin offering. And we’ve worked a number of other ones since—Blockstack, Props, in Origin Trust Token.

And what CoinList does is for that small set of companies, we support the logistics of the token sale. So there's a bunch of compliance work you need to do, which is probably not worth getting into, but you’ll hear these buzzwords: “Know your customer,” “KYC,” “anti-money laundering”—you need lawyers to be involved and we have many of them.

And so we, you know, handle the compliance. We handle all the transactions, have payments work, and money comes in. We handle—you have to know how this is gonna work with the SEC because they're going to be—already are intimately involved. Right? Lots of open regulatory questions, lots of closed regulatory questions. You need to know how to be able to answer correctly.

And we support these companies in that process, and then we’ll, you know, market some of these deals publicly, or offer them to the investors on our platform to be able to invest in.

We also have four other services like that. Just compliance piece—without the marketing as much—we do for a broader set of token issuers. This whole other airdrops product to give tokens away to users. So you’ll start hearing this buzzword “airdrops” more and more. I think this is a way of giving—so we talked about ICOs being a way to fundraise and to distribute tokens to users. Sometimes you might not need to do the fundraising part, and you might just want to distribute tokens to a wide set of users.

How do you do that? Give it away! And the first example of an airdrop I would argue, one of the first, was PayPal when they got started. And you signed up for PayPal, you get ten bucks of PayPal credits. It wasn't a token obviously, but they were saying, “We've got a network. We need people to use this network. We just need to give them a little bit of money to get started.”

They can send some money, you send it to a friend, pay for something, and then they're gonna get really addicted and start to put more money in. And that’s what an airdrop is. It’s a way of saying, and it worked! Yeah, it worked.

So who amongst Startup School world should think about tokens as a way to kick-start their network to raise funds potentially, and who shouldn't?

Yeah, so today—and this is again where I differentiate. Premier today, and you know, tomorrow or the future—today, I think the most valuable applications of this technology are applications where you have parties that are not willing to trust each other. They’re not willing to trust a central intermediary either, and you need to build this trustless system.

This does not describe a lot of businesses, but where trust is somehow fundamental to the functioning of whatever product you're creating...

Exactly! So if we look at an example that I would say is not a great candidate for a token, there's possibilities but not a great candidate, would be Airbnb. So on its face, you would say this actually sounds pretty good! I want to stay somewhere, someone out there I’ve never met before has a home that I can stay in. I don't trust that person—I’ve never met them before, I’ve got no connection to them—but I do trust Airbnb.

So you have this intermediary. I’ve no problem trusting Airbnb—I stay in them all the time! And I say, “Alright, if the Airbnb is vetted them and they’re backing me up, they’ve got their insurance thing—we’ve got all this—no problem! I trust Airbnb! Let’s do it!” That means not a great candidate for a token.

But if you start to have systems where you don't trust even the intermediary, much less the person the other side, that's where a token might be a good fit.

And the reason I’m not giving a Russian version of Airbnb—maybe you’d want a coin for the—totally possible, or an ICO.

Yeah, absolutely. And trust in institutions is fading. There’s all sorts of research on this—Edelman puts out a great survey on trust every year. And so there is an idea that this could be more of a thing in the future, but the reason I’m not answering your question with just a slew of examples, I can give you of like, “If your business fits this, do it! If your business fits this, do a token!”

If your business is because I just do not think there are that many today, and so it’s more about finding these very specific use cases where it’s particularly valuable to have a token than to try and fit into a category that could have a ton of tokens coming out of it.

I want to save some time for questions, but just before we move on, you've talked in the past about pros and cons of tokens versus say convertibles of various kinds like YC SAFE that probably most startups used to raise money. Now, both from the perspective of a startup company and from an investor, maybe could we talk a little bit about those?

Yeah, so you know, everyone in here, you’re in this class—has done a lot of thinking about traditional financing and things like where you will, if you have it, yes absolutely, keep an eye out for those lectures—things like investor protections, what rights do investors get, how do you have to deal with them, how do you fundraise for them? You sit down and talk to them, you follow up, you do a call, there's all these things that go into a traditional funder.

Things we think about with tokens a lot of that is flipped on its head. So probably the biggest difference is that when you buy into a token—and this goes back to our original discussion of what a token is—the company does not control the network in this ideal form. They release this network, and it goes out to the wild. And you own tokens on that network—you own part of that network.

But that means you have no formal relationship to the company as an investor in these tokens. And as a company, technically, you have no formal relation to the investor that owns your tokens. And so there's this idea right now in startups of, you know, we talk about good and bad investors.

Like, they may call you, they may check in. You’ve got an obligation to update them. You’ve got an obligation to get them to sign documents at certain times and transactions happen. When people buy into a token network released by a company, none of those obligations go away, and there are pros and cons to that, certainly on both sides of the equation.

On the startup side, you know, on one hand, way easier! These people don’t have any stake in your business. You can do whatever you want with the company itself—there's no control that they have there. The downside of that is they’re not necessarily aligned with you.

So the upside of equity is that when someone wins with equity, everyone wins with equity. In the general case, obviously there are some edge cases, but incentives are aligned, and that's awesome! With tokens, the incentives of the investors are not necessarily aligned with that of the company, so if the token is pumping up for some reason—flying up the charts—an investor who invested a ton of money doesn’t have any lock-ups on it—they may just say, “Yeah, I’m getting out! I’m up 10x right now! That seems totally worth it! I’m getting out!”

And they dump it and it hurts the price, and it hurts the company by kind of second-order effect there. And so you get this kind of misalignment—you win because they don't have any stake in your company, but you lose because they don't have any stake in your company.

And from the investor perspective, the exact flipside of that, which is on one hand, you’re not obligated to the company at all—you can do whatever you want. You just own tokens on a network they’ve released. But the other side of that is that you might not get as much visibility into what's happening and get those monthly updates, and you might not be as engaged with the founders—you may have never met the founders!

The ideal in startup fundraising of raising of people that you've never met before does not really happen that much. Occasionally, you see a little bit with certain things, but you usually advise against it—you usually advise against it in token world.

You know, many of these sales have had hundreds or thousands of investors that just signed up on the website.

It doesn’t really happen! You can go to CoinList right now and sign up for token sales.

You certainly can—you can only participate if you're an accredited investor, unfortunately, site regulation sadly! But yes, you may have no relationship to the founders. Again, pros and cons on both sides there.

Yeah, it’s kind of amazing from an investor perspective because if you invest in a startup company, usually before you see any returns, it's a lot of time—five, ten years. But with a token, if the token goes up tomorrow, you can invest and sell it the next day, right?

Now do you think we are converging tokens again? I repeat this myself all the time—there is such a young industry. They are converging a little bit more towards venture capital.

We’re starting to see vesting schedules and lock-ups for investors trying to get this incentive alignment a little bit tighter than kind of the freest version that I was just describing. And I think a lot of its gonna converge that way.

You know, early in the ICO market, companies raised once, they said, “We’re gonna raise one monster token sale—that’s gonna be it! We’ll never need to fundraise again.” More and more brands are seeing people talk about kind of stage things that start to look a lot more like a traditional seed, Series A, Series B.

And so it’s gonna look more like venture capital in the future, I think, but there's still going to be these key differences of what it is that you're buying and what that means for the relationships between the people involved.

Awesome! So in the time remaining, if there’s any questions on any of the topics we’ve talked about?

Okay, right here in front of the room.

[Music]

I have two questions. One about venture investors: you said “good investors.” If you could share with us three big points.

Okay, okay. Hang out there—we'll take each one in turn. So what are the characteristics of good investors in your view?

Yeah, so I talk about a couple characteristics and a way to find out the characteristics that I think are really important for investors is, one, alignment with whatever your goals are as an entrepreneur. Not everyone’s goals in this room are going to be exactly the same. Some people might be saying, “For me, this is a ten billion dollar business or bust! That is it! That is all I'm going for, and I will always make the decision that leads towards that outcome.”

Others might say, “Listen, if I built a ten million dollar a year revenue business, I would be super happy and I'm looking for investors for that.”

If investors are not aligned with that goal, you're going to be in big trouble because you will eventually make a decision that runs exactly counter to what they want, and so you need to make sure they're aligned with you on that.

Second, how you interface with them? Is the interaction friendly? It can be intense; they may do diligence and maybe some real back-and-forth and firing back-and-forth, but do you walk away feeling good after your interaction with them? If you do not, that is not a good sign.

Because you are talking to them at a time when it's supposed to be really positive. You're talking about joining forces, a one plus one equals three situation. If you’re walking away and saying, “This does not feel totally right,” that's a really bad sign. Because at some point, in all likelihood—hate to break it to you—things will not go perfectly!

I'm not saying the business is gonna shut down or anything, but you’ll have a tough time at some point, and if an investor is not great when things are good, or you're talking about possible ways to work together and build something amazing, they will be really bad when things are going poorly! And so I'd watch out for those.

Those are kind of my two biggest things. The last one is people argue about this all the time, but the idea of value add. I don’t think every investor has to be some sort of crazy perfect—they’re gonna make some amazing difference in your business—but if they’re aligned and you need capital, and they believe it’s a good investment, that can be fine! You don’t necessarily need someone that’s going to do everything, but when you can find those investors, obviously that can make that introduction for you, give you that customer feedback, whatever it may be—recruit someone that’s tremendously valuable.

The last thing I would say on that is that a super underrated part of fundraising is due diligence and reference checks on investors. So few people do this, but it is amazing. You talk to an investor, you're getting towards it, you're saying, “Jeff, I think we've got a great relationship here. I'm really excited about working with you! I think we could do something amazing!”

And I would say, “I would love to work with you as one of my investors. Is it cool? Can I talk to some people that you've invested in before? I just want to go since you're working style and kind of like how we could work together in the future.”

Now, first of all, they say no to that—really bad signal! Right? Anytime someone says no to a reference check, bad signal! They’ll probably say yes and talk to people that he sends you. Maybe talk to a couple other people that you know he’s invested in that he didn’t send you, and just ask them those questions!

Because every founder that’s had an investor can give you a very intuitive gut check on, “Jeff's amazing! He was actually there in our darkest days, like things were tough! He came into the office, helped us figure out Product Strategy… This happened, that happened!” And then you go back to him and you say to him, “I'm even more excited now because I talked to a bunch of people and they said you were so helpful on this, you were so helpful on that!"

I’m so glad, let's make this happen! That’s the most exciting way to close an investor conversation—highest chance close to the money! And you’ve now set expectations on what you hope the relationship will be like.

So I definitely do those calls. It takes time, but it’s worth it for an investor that you're looking at work.

So that was a solid gold answer! So please, please, please pay attention! Pay Andy's wisdom there!

Yes, okay, so the question is—given the nuclear winter of crypto land—is CoinList looking to pivot to STOs, or are you going to stick firmly with ICOs?

Yes, so to unpack that a little bit: STO is a security token offering, and this goes back to what we’re talking about before around the blockchain and token infrastructure being something that you can build a lot of different things on.

One of those things that people talk about is what’s commonly called a security token or an asset-backed token. This is an idea of taking an existing asset—something that exists in the real world, the traditional world. Maybe startup equity, real estate, maybe gold bars, whatever it may be—and building a token that represents that asset! So one token equals, you know, one percent of this building or this building’s revenue streams, whatever it is.

And the question is: are we looking to support those—where traditionally we supported ICOs of these tokens that are more kind of token networks that only exist in the network itself and not in the actual, I guess you could do an ICO of an STO. It’s really like, it’s a little dual role.

So that’s right! Where I’d go on that is that we are certainly looking to support offerings of security tokens. We don’t see that as a pivot! We actually see ourselves as just infrastructure to support sales of tokens. Thus far they’ve happened to be what are commonly called protocol tokens where these kind of network tokens, and they function on these networks alone. If the tokens we’re offering are asset-backed instead of network-backed—that makes no difference to us as the platform.

We just have to figure out if it’s a good fit for our investor base and if, you know, that can happen. But ultimately, the process for running those sales is exactly the same!

Awesome!

Yeah, our tokens—currency regulatory answer—totally depends. Practical answer: yes and no in the kind of colloquial form of currency where you’re using something to exchange for something else? Absolutely, most of these tokens are some sort of object that fits into that category. Some might not be!

So one example, often referred to Bitcoin’s value as a store of value! And that means some really think of Bitcoin most analogous to digital gold. Gold is not a currency you can use it to exchange for things, but it’s not really great for that. It’s more used to store value—put value into it, take value out of it. And that’s how I see the value of Bitcoin!

I don't think it's the same for every token. More of these tokens fall into that exchange category.

But from a regulatory standpoint of colloquial definition, the answer largely is no to that. But in certain cases, maybe yes! Again, depending on the exact characteristic—so Bitcoin cash, which is maybe a currency—totally different token!

So Bitcoin cash, but it's a totally different currency, although—yeah, okay, maybe that’s too much!

Yes, if everybody did so—if Airbnb started today, would they be a good candidate for an ICO?

I don't think necessarily. I again, I go back to I trust Airbnb. I have no problem with that, and yes, I’ll go forward and rent somewhere through Airbnb and be happy with that. There are arguments that it could be successful in that manner because maybe it's less fees if there's less of a middleman.

But Airbnb does provide valuable services to me as the consumer, and I'm willing to pay for those services. I don't feel like Airbnb is taking unreasonable fees on those transactions because they provide a lot of services.

And so you know—do they need a network? I don't think they need one. Could it be an interesting service? Could it be a potentially competitive service? Absolutely! But if I were starting that business today, I wanted to connect, you know, homeowners or apartment owners to people that wanted to stay there, I would probably go the centralized route initially, but with an eye on the crypto space and seeing if there might be opportunities in the future.

The last thing I would say on that is it is underrated today how hard it is to build these token networks. It is so hard! They’re so young! The tooling is not there; development is incredibly challenging. Augur was really the first ICO that officially launched in a big way. Three years from their ICO to launching—they just launched this summer! And the amount of work that went to that is unimaginable!

I mean, you have to replace the human beings at Airbnb who are building the processes and infrastructures to make it a trusted. No precedent for how to build these things.

And so even that alone, you’re looking at it as a business trying to raise as little money as possible and push forward of what you have, it’s a tough move!

But do you think it’s fair to say that there’s a faction of the crypto world that says, “Central authority bad! We should replace all of those with a network—a trusted network”?

Absolutely! And I think a lot of crypto has its roots in this kind of anarcho-libertarian philosophy that I think was incredibly important for the early days of crypto because that is one of its core use cases—this avoidance of middlemen.

And driving the industry forward with that philosophy is incredibly important! But that’s very different from looking at it from a really pragmatic side! And there may be some crossover there, but it's not 100%.

Right—over there!

One question at a time because it’s really fun to pile them on, but there’s a lot of people who want to ask questions, so ask them that one you really want answered first!

How do you distinguish between value and information?

Yes, it’s a really important question! I think at its core you can represent value in information, right? So I can make online transactions with the Internet without tokens and move value around.

But what that’s really doing is moving symbolic representations of value around and directing different entities to move it. So when I make a payment with my credit card on the Internet, sure, it is just information that's moving.

I'm sending authorization codes! My CVV goes here and this happens, but ultimately, what happens is it goes to one issuing—the credit card issuing entity—and conveys them the information, “Hey, I just spent $10 on this merchant. Please debit $10 or, you know, put $10 on a nice balance, and then merchants, please, here are $10. You have now been paid for your services.”

What didn’t happen there? The internet did not actually transmit that value! Those entities on either side push the value from one to the other.

They may have done it over the bridge of the internet, but they were the ones maintaining the value.

What’s interesting with this token ecosystem is that the value is actually totally contained in the network! There are no entities that are actually holding that value for you.

There’s no credit card issuer that is keeping an eye on my balance and taking payments for me. And there’s no bank on the other side that is holding on to the merchant's money! Instead, all the value is representing the network, and people actually own that value!

So I have my own keys on that network. I own those tokens, or I own the representation of those tokens. I’m not just owning information that gives me access to someone else owning that value.

So at the end of the day—going just a single player example—my bank account? It’s my money, but it’s not really my money. The bank has the money and I just have information that allows me to access that money!

In the world of tokens, I actually have ownership of that! Those are my tokens because I have the keys to access that and no one else can do anything with it aside from me who has that access.

And so when we talk about transmitting value as opposed to transmitting information, it’s about direct interactions between nodes. I can pay Jeff with tokens and it never touches a third party at all, whereas with information it requires those third parties where you’re informing them to move money between each other.

Yes, so this is I guess more of a comment on the rigidity of networks. Once you put them out there, it’s hard to then go and change them and upgrade them and make them backwards compatible to other things. Do you agree with that?

Yes and no! I think, again, early days, so there hasn’t been a lot built around the upgrade ability of these networks, and once you put them out there, it’s harder to make those changes, especially breaking changes.

There’s more and more infrastructure being built that supports that. It’s something that I’m not incredibly concerned about in the future. It’s something that feels inevitable that will get to a place where these networks can be easily upgraded.

At the same time, it goes back to this idea—no company controls that network, and so they can’t dictatorial make that change. If they make a change and the users on the network don’t agree with it, the network will do what’s called forking.

We could talk for hours about this, where you get to differences—and this is where the Bitcoin Bitcoin cash piece came in! You know, Facebook makes a change? I can't just make a new Facebook that goes back to the old change. That doesn’t work.

I don’t have access to all of Facebook's infrastructure and code! In the crypto world, if, you know, say Protocol Labs needed to change Filecoin and people didn’t like it, it would be totally possible for people to start back right before that change happened with the entire history of transactions with all the code and make a new version of Filecoin—by CoinCash—wholly controls—yep.

So as you vote again, goes back to this incentive alignment thing that sure, maybe someone can write to this version of the protocol and make changes to it, but they have to make sure that all the users are aligned from an incentive perspective to participate on that same network going forward instead of forking it or not, because you can fork and then that fork is then backwards-compatible and the new one isn't or vice versa, and so maybe it’s easier because of the ability to fork.

Absolutely!

Yeah, more questions over there!

Is it possible for someone who's a node, a person who's part of the network to propose a change that then gets incorporated into the network?

Yeah, absolutely! So any one node or otherwise can try to fork a network and create a new version of it with a change. There’s again no special control that these companies have over these networks other than some sort of moral authority, right?

If they created the network, I probably trust them to be kind of the best stewards of that network and know how to build it, but they’re probably the biggest experts on it; they built it in the first place.

So you’re going to probably go with their version until there’s a reason not to, and as soon as there’s a reason not to—which could either be because they do something bad or because someone else proposes something better—they could be going on a great path and making a great product!

But if someone else in another node—anyone in this room—says, “I’ve got an improvement to Bitcoin! I think it’s to be better than what the existing core developers are doing! I’m gonna propose that; I’m going to align people around it and get people's attention around it that could for can be more successful!”

It’s totally up to that person to do so.

Let me argue that for a sec, please! Isn't it true that to really let these decisions become somewhat democratic and so the network decides, but isn't it also true that these companies that do ICOs and are the creators of a token tend to hold a significant portion of the currency for themselves and therefore have the biggest voice on the network?

Yeah, so a couple things—one is when I'm answering these kind of high-level questions about crypto, I’m thinking purely of the good, the very small set of good tokens. There are lots of bad actors out there that build in all sorts of weird ways to influence the network, but just talk about the kind of ideal of these tokens and blockchain networks—that's where we’re going on these questions!

Absolutely! Some of these issuers have significant stakes in the network, but a couple things happen to one—the voices are not always based on who is the biggest stake in the network. You know, a really important voice is whoever is mining and this is a whole other topic for what the consensus mechanism is.

So on Bitcoin, the Bitcoin core developers, there’s a group of people that have kind of access and can try and change the code of Bitcoin, but it has to be adopted by all the miners, which are these people running huge server farms doing work on the Bitcoin network.

If those people choose not to adopt it, even if they've—you can think of Bitcoin core developers as being from the entity that created Bitcoin—which isn’t really true in that case again created by a pseudonymous Satoshi Nakamoto.

But you know, the miners have the power—they're not the people that are kind of core developing it. And so it depends on, again, how the network makes it. So it’s complicated!

It is complicated!

Okay, a couple more questions right there.

So what develops would I expect to see in the ICO industry before they become a viable path for more startups?

It really depends on—and again this goes back to what we mean by—so when we say ICO, we’re talking about Mitchell Coin Offering.

When we say coin or token, what are we talking about? And that's where it's so many different things. So what we've really been talking about here is a history of successful, or you know, looking to be successful protocol tokens—these tokens that are network-based that have this trust avoidance.

Our trustless networks I don’t think there's a world where every startup is going to need to do that. I trust my corner store to give me good food—I trust my guru, you know? So that will always exist, and so I don’t ever think that every company will need to do a token of that blend.

But you can imagine a world—go back to the STO question—where there are tokens that represent company equity and I am purchasing company equity via a token instead of some other document than equity round or SAFE or whatever it may be.

And maybe there’s—the underlying SAFE below it and there’s a token that represents it. For that to happen, I think what we’ll need to see is just a lot more infrastructure built out. There’s reasons that that is a good idea to have these asset-backed tokens, things like increased access to liquidity, there’s all these exchanges being built and liquidity pools for increased liquidity for these asset-backed tokens.

They’re interoperable with each other so you can move them around more easily. I think was the trend Jeff and I’ve talked about before—generally the arc of venture capital bends towards increased liquidity and speed to liquidity, and these things come faster and faster—a little bit of a speed bump in recent years—but generally, I think moving that way and tokens will only continue that trend.

So I do think as the infrastructure gets built out, it may make sense for companies to raise equity with tokens that represent that equity. And that is not some sort of crazy ICO phenomenon!

Will you be able to go out as a seed stage startup and say, “My token is worth $200 million?” No. It’s gonna represent the equity, and it’ll be worth what the equity is worth, maybe with some premium for the benefits of tokenization on top of it.

But we need infrastructure there, and until that infrastructure exists, I don’t think it’s worthwhile except as maybe a proof of concept for people to show that it’s possible. But we need more built there, and hopefully that gets built in the coming months or years.

Great! One more question right here.

Yeah, do I think the future’s gonna be a handful of blockchains or hundreds of blockchains? And you know, I think it'll be a relatively small number of blockchains but a relatively high number of tokens.

And to explain that for just a minute here—many of these token networks allow for other tokens to be issued on top of it. Most common buzzword you’ll hear? Aetherium, which is the second biggest cryptocurrency out there. It’s got a blockchain—the Ethereum blockchain—and they've created standards on top of Ethereum to issue other tokens on top of Ethereum, and the one you'll hear a lot of is an ERC-20 token.

This is a token that is issued on top of the Ethereum blockchain but represents something other than Ethereum, and its price is not necessarily correlated with that of Ethereum.

I don’t think there’s a need for hundreds and hundreds and hundreds of blockchains to exist because they are a pain to maintain! You need to have all these users on it, you know, with different mechanisms for how they interact with each other.

But I do think we’re gonna have a world with a lot of different tokens—maybe not as many as some people think. I’m not kind of a tokens-for-everything guy! But if we get to this world of asset-backed tokens where all of a sudden buildings could have tokens to represent their ownership or companies could have tokens to represent their ownership, that’s a lot of tokens that are possible out there! But they will not all have their own blockchains.

That would likely be built on something which will be very error-prone if they do—right? Because it’s all new code, and there's a brace for it to be safe and secure! And so maybe they'll all be on Ethereum, or Stellar or one of these other networks, but lots of tokens—relatively few blockchains would be my prognostication!

The last point I would make on that is, once again, we are less than a decade into crypto at all; we are less than five years into tokens beyond, you know, the very basic building blocks at all. That is the earliest, earliest days imaginable of this ecosystem!

And any prediction that makes day stands probably a worse chance of being true than a good one. So who knows? We’ll see you in the coming decades!

That's great! Wait—and thank you very much for your time and thank you! Thank you, guys!

[Applause]