#240 Christoph Strnadl - The Intersection of Distributed Ledger Technology and IoT

This is episode #5 in the Automation Series. You can learn more about the Automation Series here. You can learn more about IOTA on their website. Christoph F. Strnadl is the VP of Innovation & Architecture at Software AG. In this conversation, Anthony and Christoph dive into the intersection of distributed ledger technology and automation. Specifically, around digital currencies, digital wallets, machine to machine transactions, and how distributed ledger technology will empower the full potential of automation. =============================== If you enjoyed this episode and want to stay updated on everything Bitcoin, blockchain, and crypto. Check out Off the Chain newsletter by visiting offthechain.substack.com and join 35,000+ other investors currently subscribed to my daily investor letter.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off the Chain, simply the best podcast in crypto. Let's kick this thing off.

• 0:13Anthony Pompliano?

  The following episode is part of the Off the Chain Automation Series, sponsored by IOTA. The goal of this special series is to explore the intersection of distributed ledger technology and automation, specifically around digital currencies, digital wallets, and machine-to-machine transactions. My core belief is that every stock, bond, currency, and commodity will eventually be digitized, and distributed ledger technology will empower the full potential of automation to be realized. IOTA is the sponsor of the Automation Series. Their mission is to support the research and development of new distributed ledger technologies, including IOTA Tangle. The IOTA Foundation encourages the education and adoption of distributed ledger technologies through the creation of ecosystems and the standardization of these new protocols.

• 0:57Anthony Pompliano?

  You can find out more about the Automation Series and IOTA in the show notes.

• 1:02Anthony Pompliano?

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. Alright guys, bang, bang. I've got Kristoff here. Super excited to talk to him about a whole bunch of things. So thanks so much for coming on and doing this.

• 1:39Speaker 02

  Yeah, thanks for having me. I'm enchanted to do that.

• 1:43Anthony Pompliano?

  For sure. So Kristoff, you've got a very different background, I think, than most people who come on to the podcast. So let's maybe start there of what you did kind of before you got the software AG, and then we can talk about the company and what you guys are doing and how you see blockchain.

• 1:56Speaker 02

  Ja, absolut. Ich würde es gerne tun. Ich bin in der Softwareindustrie für ungefähr 30 Jahre. Ich habe als Selbstbeschäftigte ein Developer gemacht, als ich die ersten PCs hatte. Ich war tatsächlich in Standards, in der Implementierung von Standards, was später interessant sein wird. Ich habe ein EDI Konverter in C implementiert, und ich habe es kommerziell verkauft. Wir hatten ungefähr 50 Installations auf dem Gerät. Das war der Zeitpunkt, als man mit Modems zu den zentralen Autoritäten kontaktieren musste. Leute rufen sich auf und plänen, dass die Rotlichter auf dem Modem Fehlersignale erzeugen, wenn es anstatt der Funktionsweise des Geräts ist. Ich weiß also ein wenig über Entwicklung. Aber dann habe ich theoretische Physik an der Technischen Universität studiert,

• 2:42Speaker 02

  die sich um Elektronen in Liquiden handelte. Das hat meine Denkweise beeinflusst. Das hatte viel mit Computerexperimenten zu tun. Wir haben einige Formeln entwickelt und sie überprüft. Wir simulierten sie auf Computern. An dem Zeitpunkt haben wir unser Institut auf die Internetseite gebracht. Erinnern Sie sich, das war vor 1991. Wir hatten die World Wide Web nicht entwickelt, also es war anonymes FTP. Es war nicht Discord an dem Zeitpunkt. Es hätte被叫Reddit oder Usenet. Also, Geschichte wird sich wiederholen.

• 3:25Speaker 02

  Ich wusste ein wenig über Netzwerken. Ich habe ein wenig über TCP/IP gelernt, was dann 25 Jahre später als unwertig ausging, als wir ein wenig IoT-Messengang und Dämmung durchführten. Das war das Netzwerken, was mich aufmerksam gemacht hat. Und dann habe ich zu Athos geändert. An dem Zeitpunkt war es ein Subsidiär von Philips, der Philips Kommunikations- und Servicen Datenverarbeitungsprovisor. Ich war sofort für neue Dinge verantwortlich. Wir hatten ein Screenphone-Projekt. Ich war der erste zu... Deliver local area networking projects, you know, with the switches that you still had

• 4:07Speaker 02

  the Ethernet yellow cable for those who who knew that, I still remember that. And I was the first one to pick that up. And we were very successful. I became leader of a business unit. And then, which is already proving to be beneficial, is we founded a strategic IT consulting department, where I developed a few methods and concepts which come in handy. I brought some papers, actually, which have been quoted over 100 times about systematically aligning business and IT. And I think that is also what still makes my background interesting

• 4:47Speaker 02

  with IoT. It's always, and also with blockchain, it's always, you have business needs, you have technology which could fulfill that. How do you match that? There was an impotence, there was resistance. They don't fit always together so neatly. So that's my, actually, my my profession. And then after ethos, I joined software, because I've never been into software. It was something new. I always have to change to something new after a couple of years. And there I was responsible as a chief architect for our integration offering. This is classical enterprise integration. And I picked it up very well, you know, it was the time of service oriented architectures. It was a new thing again. And with the background

• 5:32Speaker 02

  of a theoretical physicist, I'm not afraid to talk about meter models, about architectures, about, you know, the difficult stuff. If I don't understand it, I'm a little bit, you know, exaggerating and I have a big mouth. My wife would know how to counter that. So yes, if I don't understand it, let's work together, not just me, but the other people out there who know as much as I do. And together, you can move, you can push forward organizations. And in that respect, I, we then founded, I think, two, one year ago, the CTO office. It adds off to Reggie, where I'm responsible as the vice president for innovation and architecture about, for the, for the thing, how new stuff.

• 6:16Speaker 02

  Gets into our product. Of course, we have research and development. We have people who are developing the software, doing product roadmaps. But usually those products, roadmaps stop fifteen, eighteen months in the future. But we know that there are technologies like blockchain, like artificial intelligence, maybe quantum computing, which take longer than just fifteen months for implementing. You need to have a platform strategy, how to implement that into our stack. It's not just a single product. We have a platform and we have that on-premise and in the cloud. So it's a little bit more difficult than just writing a driver for that. And this is where I'm responsible and also taking care of IOT and distributed ledger

• 7:00Speaker 02

  technology stuff. The title, VP of Innovation and Architecture, already signifies that we are not indiscriminately adding new stuff to our software. So the innovation is not restrained just by budgetary issues, that of course is always a topic, but also by the long-term strategic architecture we have. Where do we want to have the platform in five years? Are there any visions? And actually, I've been doing, I've been coming up with visions, of course internal, but we have a picture of that. And it is interesting, the innovative part of that picture is especially with regard

• 7:40Speaker 02

  to completely new technologies that one person or two person cannot predict the future. It's always path-dependent. We know that people, the customers, will influence the way how IOTA evolves, how artificial intelligence things evolve. So it's a co-evolutionary field of play, innovation and architecture, then interplaying. And I'm a very structured person. So if you have ever seen my notes, just have a look at my Twitter profile. These are life examples from workshops I do as an architect. Architecture helps me and our clients and our top management and the developers to

• 8:25Speaker 02

  organize our thinking. So the combination of business and IT and technology is, has been highly interesting for the last twenty-five, thirty years, and I think it's never gonna stop, honestly.

• 8:39Anthony Pompliano?

  Yeah, and so before we get into what you guys are doing at Software AG, maybe give us some insight into kind of the decision to go join the company, right? You'd spend a lot of time kind of building and starting companies and in more of an entrepreneurial, kind of smaller organization environment. And then you go and you join Software AG, which for those that don't know is really, really large, right? It's got 10,000 customers over 70 countries. I was reading online that it's the seventh largest software vendor.

• 9:08Speaker 02

  Indeed, yes.

• 9:10Anthony Pompliano?

  Europe and the second largest in Germany behind SAP. It's just a massive company. Like, what was that decision framework like and kind of why make the jump to Software AG?

• 9:21Speaker 02

  Yeah, actually, I was coming from a large organization myself. When I left Athos, it was about 70,000 employees. So I have a corporate background. It was only in the beginning that I had a very small self-funded company. But after that, I'm a pure corporate guy. So the question was, one way how to see it, why to move from consulting and services to software? And the honest reason was I've never done software before. It was just interesting, new, and it was integration. There was a lot of new things coming and happening. I didn't want to go to SAP because that's boring. You know, it's like the purchase order and you implement that with App App.

• 10:04Speaker 02

  It looked boring from the outside. Integration looked like no one really knew how to combine all the different applications. You ended up with hundreds of them. So that looked interesting to me and I've never done software before.

• 10:24Anthony Pompliano?

  And so maybe give us an overview. As you sit in kind of the innovation office, help us understand like, what are the new technologies that you guys are spending the most time on outside of blockchain? So blockchain we'll get to in a second, but what are the other technologies that you guys are spending a lot of time on, talking to customers with, etc.?

• 10:43Speaker 02

  Yeah, definitely, it's IOT and the industrial Internet of Things, which comes in phases and many companies still are in the first phase, asking us and talking to us, can I connect that device? So I have a very large machine, it's twenty years old. How can I connect this beast of a machine? There are no sensors built in and I'm not gonna exchange and throw it away for just something new. It has been working flawlessly for the last two decades. How do I bring those old robust machines to the Internet of Things? And there are a lot of proven technologies. What is interesting here is the need, the requirement for edge computing is gaining more traction. We can fulfill that, you know, the hyperscalers

• 11:27Speaker 02

  have had difficulties in the past, they are catching up however. So you have something local, you have an IOT platform in the cloud, combining that is where we see a lot of discussions going on. But honestly, IOT has been invented ten years ago. The new discussions around how can we leverage artificial intelligence? Can a machine learning algorithm learn from the mistakes, from the operators, from the errors, from the signals, the malfunctioning signals from the machines? You know, predictive maintenance sounds easy on paper, but if you go to the machines, you look at the limited number of sensors you have,

• 12:09Speaker 02

  it's really almost an engineering and philosophical thing, how to find the formula, the rule for indicating that something is going to need maintenance before it breaks down or before it trivially, I don't know, a bioreactor gets too hot, that's trivial. And so a few of our tools, Trend Miner for instance, already incorporate artificial intelligence to support the end users doing that. Because many organizations say, I don't wanna go to the IT department. It takes six months before I get a specialist. So how can I self-service my analytics, my artificial intelligence, intelligence things? And that's, we can't answer all of that today,

• 12:54Speaker 02

  but this is where a lot of discussion is happening because the...

• 13:00Speaker 02

  Implementation of true predictive maintenance algorithms is hard work and there is no substitute for hard work. You cannot buy that somewhere on the shelf. So that's artificial intelligence also for using it in our own platform like predicting the next step of the users. I mean, we have 10,000 users, 70% use our of the top 500 or 400,000 users our integration scenario. I mean, our software knows how SAP systems integrate with cloud systems or how your local database integrates. We have tons of examples and for us internally, how can we capture

• 13:42Speaker 02

  that, analyze that, you know, graph databases and all that thing, how can we use that wealth of neutral information that we are not collecting personal data. It's just how how are devices, how are machines connected to each other? If we can collect all these and we are in the process of setting them up in the technology and the CTO office, but that's also on the strategic horizon, that would tremendously help the customers and ourselves. So that's besides distributed ledger, some of the topics we are discussing.

• 14:18Anthony Pompliano?

  For sure. And one of the things that I think has been a recurring theme on the podcast is a lot of people talk about these individual technologies as kind of silos. So they say, you know, AI strategy, what's your blockchain strategy, whatever it is, especially for large companies, but all of these technologies are interrelated, right? There's definitely kind of a collision and a lot of the products that are being built today take various aspects of the technology in order to build that final solution. I'm assuming that's what you guys are seeing and what ultimately led you to start looking at blockchain in relation to the other technologies?

• 14:53Speaker 02

  Absolutely. Software started in the 1990s as an integration company, you know, on premise integration of the 100 or 200 or 500 of applications. That's going to explode the requirement for integration in the Software as a Service world, we have a tsunami of cloud applications. We're not talking about five hundred, but we're talking about five thousand in large corporates. I mean, three M one of our customers has simply one hundred fifty plants. Imagine every plant having ten cloud applications, I mean, which is obviously a totally an underestimate.

• 15:31Speaker 02

  So we have thousands of those applications and this is where software is honestly, this is really world-class offering and our integration. So integrating yet another technology, which is looking like a silo, like AI, like blockchain, was a natural thing for us to do and think, how would we be able to best integrate it into kind of a single cohesive integration platform, because it needs to be bigger than just a single piece of software.

• 16:01Anthony Pompliano?

  For sure. And so how do you guys see blockchain itself in terms of where customers are, you know, kind of interested in using it? And then what is your guys' kind of evaluation of blockchain in general? In terms of how it can fit into some of the products you guys are building for folks?

• 16:22Speaker 02

  Yeah, we had, we started thinking about blockchain in earnest, I think, three or four years ago, with a little bit of technology prototypes, how that would fit into our products, but also with a strategic assessment, what type, what beast of technology is distributed ledgers? And it was very clear that DLTs are in an early stage of the technology readiness, despite the fact that Satoshi Nakamoto paper has been published ten years ago, eleven years ago. So it's an early-stage technology with, and that's important, with nonlinear networking effects.

• 17:02Speaker 02

  Winner takes it all or strongly increasing returns and network effects mean for a straight from a strategic perspective, if you do a little bit of MBA strategy talk here, that you cannot

• 17:18Speaker 02

  Think you cannot in the come up with a point estimate of the future. You will not be able to succeed. There will be equilibrium. It will depend on the path customers are taking. There will be punctuate punctuations where standards have been set and everything will change. So the strategy under such a radical uncertainty cannot be to sit together and devise the best estimate of the future point. But to create awareness internally and externally to to hedge some options like investing into I Oda

• 17:58Speaker 02

  on various levels and also doing experiments, thereby influencing obviously the evolution. So what we see is that customers are very interested in talking about blockchain. But they still are looking for a compelling use case. We have if you talk about private permission blockchains, we have technical feasibility in many cases. But what is completely missing is the viability. You know which customer is going to pay money for a technology when and that's holdings blockchain back.

• 18:37Speaker 02

  When as a matter of fact, there are other proven tried cheaper solutions out there. So the problem for blockchain P O Cs and other ideas of trying that out is that in many cases you get other cheaper solutions using a cloud offering. Take Facebook Libra, that doesn't need blockchain at all, I've written a blog. Where the the Facebook Libra, that's not the blockchain, any database technology could do that. We have a thousand transactions per second, that's ridiculous. But other base can do one million. That's blockchain just for surfing the hype. But this is the problem for our clients.

• 19:22Speaker 02

  They cannot invest in hype just because it's funny to have or you get in the crypto community. You have a lot of traction if you if you do something with blockchain. We need to establish viability. We need to find someone who wants to pay, who is willing to pay money. And the only way how to find it is to to provide an opportunity to solve a business problem with blockchain, which no other existing technology can solve at the same level of non-functional requirements, at the same level of costs. And that's so tremendously hard to come up with. And that also explains where there are no, and I challenge the world,

• 20:04Speaker 02

  whoever is hearing that I am not aware of a single productive blockchain installation. And I don't mean that you have sent one ether transactions or one smart contract. I mean, that if the blockchain solution does not work, then some manager gets cold and you lose money, you lose real money. I have never heard of a single highly productive like an S P system or messaging system, highly productive use case. So we are still looking for that. And for us, for software, G D, industrial I O T space, with the pressure on operational efficiency,

• 20:45Speaker 02

  with the partnering, with the supply chain, the logistics problems, the many, but not too many parties, that would present the best kind of estimate of where blockchain would be able to become the only tool available for solving some of the business problems.

• 21:03Anthony Pompliano?

  For sure. And then one of the things that you mentioned earlier as a major focus for you guys is I O T and kind of as an extension of that automation, etc. Maybe let's talk about kind of how you see that area of software and kind of machine, machine transactions

• 21:23Anthony Pompliano?

  transpiring, maybe over the next like five, 10 years. What are you guys so excited about there?

• 21:28Speaker 02

  The first phase of the Internet of Things and also industry for the the industrial Internet is obviously connecting the machines, the devices to an I O T platform and sending data. But already at that point in time, sending data, you immediately have the problem or you need to solve that problem. How do I identify uniquely the device from which the data comes? So device identity is something which immediately comes into play. And of course, if you have a closed network, it's easy to solve. You get some device ID. It's difficult to manage. This is why IoT platforms come into play. But if you extend it a little bit to a more complex supply chain,

• 22:10Speaker 02

  who is managing the different IDs of the different companies? How do you do that? And for that blockchain technology or distributed identity systems, decentralized identities can provide and honestly are the only technical means able to provide that identity. That's number one. Number two, obviously, if you do some serious business processes with the data you get, then you need to make sure that the data has not been tampered with. So data provenance, integrity is paramount. Software has founded the Adamos Consortium, where we have, we are getting around 10 medium-sized champions in the manufacturing world.

• 22:53Speaker 02

  And they are thinking and they are operating actually via one IoT platform. But they have relationships with other suppliers and sometimes one of the use cases, touch logistics, you know, repair jobs. It's essential that the data which comes from a device which potentially triggers a repair ticket, which potentially triggers costs somewhere that this data has been vetted, that it's known, that it really originates from that machine in that plant, because there is money attached to it. And the shop floor is very cost sensitive.

• 23:36Speaker 02

  So, you know, operational efficiency as a measure prevails. So the question of...

• 23:44Speaker 02

  Linking the data really to a single device solved the business problem which right now can only be solved via replicating databases complicated trusting the many different parties setting up a complex network which can be implemented much more easily to blockchain. But if you look at the machine economy and you look you combined it with 5G for instance, where you have local cells, it's not always the case, we need to be always the case that one device talks to an IoT platform, a DIT platform does something, the get a new parameter for the device, send a message to another device, the machine to machine economy and

• 24:28Speaker 02

  communication especially with the event of 5G and local cells would be able to happen locally so that one machine sends communication items, I don't know information about the kind of the stock, kind of warehouse or whatever fuels required supplies that they need, that these communication types could run locally and only interacts sporadically with an IoT platform, so that something, this kind of machine meshes which will come in the next five to 10 years, in the dead level you need something to account for the transactions,

• 25:13Speaker 02

  this is where tokens, in the case of IOT obviously, it's the IOT token itself, where native tokens would come into play to provide an accounting, and native accounting means how to reckon you have given me that I'll give you, I'll owe you something else, that would complement the messaging capabilities.

• 25:35Anthony Pompliano?

  And so as part of this, like, as you think through kind of this rise in machine to machine transactions, etc., one of the things that I've been thinking a lot about is, is the application of triple entry accounting, right, you basically need some, some kind of blockchain or.

• 25:54Anthony Pompliano?

  Shared ledger to keep track of everything, especially when it's automated, right? That the transactions are microtransactions and they're happening so quickly, etc. Sounds like you guys generally agree with that. And then it gets into, okay, we need some piece of technology in order to to kind of serve that purpose. What's the process you go through to evaluate which one of those technologies you guys end up either going with? Or you establish that you like?

• 26:24Speaker 02

  Yeah, the number one threat for blockchain solutions is a central cloud offering. It's always cheaper and if the parties trust each other to the extent that they subscribe to the same cloud provider and they find someone who is able to manage that. Then a central cloud solution is always cheaper than a blockchain solution. That's number one. And the second defining element is that you need to

• 27:01Speaker 02

  you need to have a situation where the participants in the in the business process are not able to find an intermediary. They do not trust anyone, any third party. And it would be too cumbersome to have them in advance agree on such a party. In Germany, we see that, for instance, there are a lot of independent insurance companies. From the government, you have to be insured in this worker. But they all peer-to-peer, so if you have a peer-to-peer situation and you do not have a natural leader. And then the peers are not two or three, but five, 10, 20.

• 27:42Speaker 02

  Then it is very hard to have them agree on something on a single provider and have negotiations with them. 20 people, 20 persons, 20 partners negotiating with one cloud provider. That's gonna be, we see that with other most, that there are limits to how far that can go. And for that blockchain and the standard contracts defined by the particular blockchain API, potentially enhanced by smart contracts, that would be easier to convince the partners to hook there. So you need to have a kind of a bunch of peers. So many that it's improbable or highly ineffective and costly that they will agree

• 28:27Speaker 02

  on a cloud partner. If that's the case, then blockchain would be better suited than other technologies. The software is fifty one years old now and we come from the database error. So many of our internal well worst and I wanted to say older, you know, the more experienced database guys, they say, hey, Christopher blockchain is just a replicated database structure like in a new in new clothes. And I said, yes, it is with a few tweaks, but if that's what solves the business problem,

• 29:12Speaker 02

  then however you call it replicated distributed peer to peer consensus mechanisms, the customers of ours are not interested in how the technologies called, but whether it solves economically the business problem and blockchain can do that in that type of setting. So we really make sure that there are no competing cheaper alternatives available. And proof of concepts are one way how to do that typically, however, we rather look into the business process first and do an evaluation and we actually would do two calculations. How much would it cost to implement that in a non blockchain technology?

• 29:56Speaker 02

  And how much would it cost also in the long term, like three or five years to implement that in blockchain? So that's a really business case driven approach. And then when that turns out to be positive, then we go into a proof of concept, but only together with customers. We're not doing that alone and only in the form of co-innovation projects.

• 30:19Anthony Pompliano?

  For sure. And so maybe give us a an understanding as best you can. I know some of this might be confidential or sensitive, but let us understand how you're currently working with clients and integrating into their existing systems or building new products for them at the intersection of I O T, blockchain and automation. Like what does that actually look like in practice, real world use cases?

• 30:43Speaker 02

  Ja, in the real world, we start with our software. We have an IoT platform, Commulosity. It's together with an American, one of the best in the world. So we would always look how to integrate the blockchain capabilities into the IoT platform. I've talked about edge computing, we have an edge component. For a particular use case, we would look to a customer. We have ideas where blockchain could sit, but we validate those ideas together with the customer. That it makes sense in a productive, for a production-ready scenario. So we have the platform and then we augment, we extend the available functionality of the platform

• 31:27Speaker 02

  by suitable blockchain code, like running a node, like writing an adapter, like integrating the blockchain data model into our own persistence layer. And we have two major product lines where we are going to do it. One is the IoT platform Commulosity and the other one is the classical, quote-unquote, integration stack with web methods, also a world-leading classical enterprise application integration/service plus/hybrid integration platform. And there you face similar discussions, you need to interface to some blockchains, probably also to two or three blockchains at the same time,

• 32:09Speaker 02

  where our software can provide a link, kind of a bridge between the two blockchain realms and at the same time connecting to your enterprises. Actually, we have come up quite early with a vision where we see software which could position itself in the blockchain area. And that is, if you, forgive me the bullshit here, we want to bridge the on-chain with the off-chain world. In the case of IOTA, the chain is obviously the tangle. So we want to bridge the on-tangle world with the off-tangle business world of the other applications.

• 32:50Speaker 02

  That is the vision we have, which needs to be tested every single step forward together with the customer in a co-innovation mode. So that's, we augment. Our platform with blockchain specific capacities. And that has a very varying degrees of difficulties. If we just write an blockchain adapter, that's easy. We have done that 2016 in a test environment. So it's uninteresting. The interesting part would be smart contracts, decentralized identifiers, which tie in and would need to be integrated at the core level of products. If we really use the ID is as the native means of identifying devices in Comulosity

• 33:35Speaker 02

  that touches the core of our software. So we are looking for use cases together with customers, whether and when that makes sense. So this augmentation, this actually integration in the sense of then we run software, node software or communication software inside our stack. That's how we would address and approach that.

• 34:00Anthony Pompliano?

  Got it. And then what do you see as the big, the big challenges or the big needs to see further adoption of this by software AG customers, right? As you begin to incorporate blockchain technology, what are those big obstacles that you guys really focused on overcoming?

• 34:19Speaker 02

  We need to find a use case, a business requirement where there is no other alternative than to use blockchain. That's the difficult task. That's easier said than found because if you do an honest calculation, then many, if not all, of the business cases, even the, you know, the supply chain tracking, food chain tracking, honestly, you can do that with a cloud application anytime. There is no, or I have not seen any true need for running data via blockchain. I mean, it's hip and obviously you can do it with the blockchain, but where is the compelling

• 35:04Speaker 02

  reason? The reason why no other competing technology, which are all cheaper and. improvement right where is that case we really and our customers even more so we are not desperately but we are honestly looking for that and it seems that this use case this compelling case is very hard to find despite the old hype and old many I don't know one thousand startups in Silicon Valley looking into where they can find that needle in the haystack but it's we are confident in IOT we will see that but we have not and our customers equally not we have not identified it yet.

• 35:48Anthony Pompliano?

  For sure and then I know one of the things that you guys are really interested in is kind of this standardization of IOT automation and protocols maybe talk a little bit about where that importance of standardization came from and then kind of how you guys are evaluating the various companies that are doing that today.

• 36:07Speaker 02

  Yeah thanks the standardization especially in IOT or I should say the lack of standardization is a pain in the ass honestly there were thousands of different adapters and protocols so it's a nightmare to implement on one hand it's good for us because the demand the requirements for our platform and services and integration services of our platform go up but it's honestly it's a very technical step nobody is interested in how many adapters you use to connect your machine that just has to work it's a conditio sine qua non there's no business value in itself

• 36:46Speaker 02

  so the more you can standardize things the easier the more energy and budget you have available to look at the business results the business process improvement and that's even harder because writing an adapter that's just technical stuff you put me and a few developers you request me for a week and we have it but changing your business process I can't do that alone I need your guys and the customer guys that's change management that's the difficult part and that's where 100 times the value of such a process. Improvement, solutions, supply chain, whatever, laser, that's the difficult part. But now everyone spends so much time looking at how to connect things that the budget is then spent.

• 37:31Speaker 02

  I'm exaggerating a little bit, that the budget is spent and you don't go looking for tough integration, business process integrations things. So the more standards we get, the easier it will be for everyone to implement the technology layer. And if we look at the, especially in I O D, the things, the talks they had, the agreements with the object management group, Richard Sole, that they are working on establishing I O D as a standard for the I O T, that would be of tremendous help. And I think, to quote Richard Sole, his experience is from I think twenty five years in standardization.

• 38:13Speaker 02

  If you have an open standard, we do not want just a U S standard, we do not want to have a European Union standard. It needs to be one standard worldwide. If you have an open standard and open source for implementation, so then anyone could do it. Of course, we would do it, but anyone else would be able to hop on that standard. That these two elements will lead to mass adoption. And then we will have the first hurdle and that is the how to economically connect to that ecosystem. If we can solve that, then I think I O D is one of the few with not the only one who is working in that direction. Then a lot of momentum could have been, or will be gained, actually.

• 38:58Anthony Pompliano?

  For sure. And obviously, you guys have spent a lot of time looking at various things. And I believe, think that I O D can serve as that standard. And I think my interest in this is, I am very convinced that we will need a blockchain or automated triple entry accounting to facilitate machine to machine transactions in I O T and automation space. What was kind of the part about I O D or when you did that diligence that really kind of caught your attention and why them over any of the other solutions that you could have gone with?

• 39:35Speaker 02

  Ja, thanks for bringing that up. Wir haben eine Recherche gemacht, wo wir unsere Zeit investieren und vorwärts schauen. Und IoT ist wirklich ein Teil seines Domänenfokus. Also, sie verstehen natürlich die Internet von Dingen. Und die Billiens von Geräten, im Gegensatz zu den 100 oder 200 Notes. Sie verstehen auch, dass Bergbau eine schlechte Idee ist für Geräte. Du kannst das nicht haben. Die Transaktionenkosten, wenn du Billiens von Geräten hast, dann bekommst du Billiens von Transaktionenkosten. Du kannst das nicht haben. Wenn du den Hersteller anschaust, und ich habe meine eigenen Kalkulationen gemacht, die haben eine große Fabrik für Automotiven, die 100.000 Sensoren hat.

• 40:20Speaker 02

  Ich meine, wenn ich eine Tensel oder 100 Cent pro Transaktion zahle, dann explodieren die Kosten. Sie produzieren 16 Terabyte von Daten in allen Planten. Niemand kann das bezahlen, also es muss permissionless sein. Es muss Transaktionen, Transaktionen ohne Kost. Und only IoT apparently was es in der Lage ist, zu identifizieren diese Requiere und von Anfang an von scratch oder von diversen Quellen die notwendige Art adaptiert.

• 40:55Speaker 02

  Dieses distribute technology von there. Also das wäre konvendant. Ehrlich gesagt, das ist das einzige, was ich nicht. Und ich verstehe wirklich nicht, ob beide die heftigen Terner die 5.7% Energieeffizienz haben. Also habe ich nicht komplett gearbeitet persönlich. Aber der klare Domänenfokus auf IoT M2M und auch inklusive later on smart contracts für smart functionality, das war ausstehend. Wenn du andere, wie Ethereum, die in Gegenkraft sind, in Gegenkraft sind, weil sie horizontal sind. Sie sind wie alle anderen. General purpose platform, the focus is what differentiate Iota.

• 41:41Speaker 02

  And that was number one, number two was the technical maturity. So I like to study blockchains on the level of the yellow paper. You know, given what the theorem couple of years ago. I mean, I could have calculated everything, but that's that's promising. As opposed to Bitcoin, where you had the code first and then the

• 42:02Speaker 02

  writing up the specification later on. Ethereum was already definition first and Iota definitely has moved that to a higher degree with the Iota foundation and the scientific underpinnings of the technology. You know, they do simulations, they have formulas. I'm a theoretical physicist, I could, I should be able honestly to work it out myself. All those probabilistic measures for the lack of time, I have not done it. I rely on the I F's mathematicians. But this is very substantial work and it's proving that they know that the basis needs to be right.

• 42:43Speaker 02

  It's like if you if you buy a new plane, you do, you calculate. There is mechanical engineering, aeronautical engineering. It's not just hacks around code. It takes much too long. So this was something not code first, but approach the fundamental information theoretical approach first. And then where we rapidly afterwards to the prototypes and tested and simulated. So this cycle was different from the other blockchains. And the third one was the governance mechanism, which is completely different and will be more different in the future.

• 43:26Speaker 02

  Not able to say, but there is we actually and also the Iota foundation. And others have been working on something in that regard. Unfortunately, the podcast is a little bit too early. I can't disclose that now, but the governance of Iota is in refreshing contrast to other things like hyper ledger, which is dominated by a single company. Bitcoin, you know, is dominated by miners and infections. And the others, the other blog, Facebook library is of course

• 43:58Speaker 02

  terrible example of a monopolist. But Iota in that respect. Is from the day one completely different and this is inspiring trust not only in us because we bet on a technology but also on our clients. I mean we can change the software but the clients would have to change every device probably and the identity. So that's a huge decision. I mean you can't just change two million devices because we have a hard fork. That's impossible. So you have to be very careful and all these elements IOT fulfill them

• 44:39Speaker 02

  in a very exemplary and outstanding things so we the joint forces but we contacted them personally and the partnership evolved in that. So and also the contact with the people. I was in the in the summer summit last June or something like that. There was one day reserved for industry. Actually that has never been broadcasted but never the rest was a vital and very important meeting with not only the developers but with Tom Holger and you get to know a little bit the feeling of how those people tick but the governance is larger than individual people which makes me

• 45:19Speaker 02

  confident because if someone leaves the company then the spirit of IOTA needs to live on and the IOTA Foundation, the OMG, the standardization efforts and some other thing to come a very trust inspiring for us because it's a long term bet, a strategic bet. Will IOTA prevail or someone else? But we are prepared to go with IOTA.

• 45:46Anthony Pompliano?

  Got it. And then I guess, how do you see the standardized protocol of the automation IOT, so IOTA or whoever wins there, how does that interface with something like Bitcoin which is being used as a currency, store of value, medium of exchange, etc.? Like how do you guys think through various blockchains for different use cases?

• 46:15Speaker 02

  Ja, der Number One Problem, der productive Blockchains need to solve is obviously the Blockchain Trilemma: How can I get scalability while at the same time ensuring sufficient decentralization and security? Bitcoin obviously is not able to solve that, I mean with the four transactions per second. If you look at Internet of Things, a single client will produce 16 terabyte of transactions per day. So what shall I do with four transactions per second? This is completely ridiculous even to think about it. Ethereum with Lightning and then also the mining. You

• 46:57Speaker 02

  know, I can't have devices mine something. The proof of stake in Ethereum is still waiting, or we're still waiting on that. So that's the way how the structure of the tangle and POW, the simplest spam protection, how the confirmation of two transactions as a means to ensure the integrity and to avoid double spending. That was planned right from the beginning. So the fundamental data structure is IoT device oriented. So that proved to be a deciding factor when we moved to IOTA as opposed to any other blockchain technology. Of course,

• 47:40Speaker 02

  there are the competing offers, blockchains which claim to have implemented tens of thousands of transactions per second. But if you look into the development area and the governance, then you find a bunch of people, highly intelligent people, but it's innovation is not just having a brighter idea. Innovation is the new idea plus the commercialization, which includes the governance, the viele structure, the focus of the IOTA Foundation, and that's the only blockchain technology we see that is currently IOTA. Of course, Ethereum Hyperledger has a

• 48:24Speaker 02

  lot of different versions of blockchains. You could do that or R3 in the banking industry.

• 48:32Speaker 02

  But this is still in very often dominated by a few if not a single player. So I or was the open the most open standard and you know we have a tagline at software. Freedom is a service and we wanted to live up to that promise. So I cannot then go to a monopoly provider, I need to go to an open standard as opposed to a closed society. If I really want to live up to my tagline.

• 49:03Anthony Pompliano?

  Got it. And then before I let you go, my last question is just like, when you look forward in the future, let's say 10, 15 years from now, kind of what are you most excited about in terms of the technology in general and the intersection with things like IOT automation, but like what what gets you up in the morning and just super excited about what you're working on?

• 49:24Speaker 02

  The future for the IOT will look completely different because once you have absorbed the connectivity, the messaging, the token, the value transfer, the standardization problems, so hooking up the devices to the Internet of Things. Once you have mastered that, and in ten years that will be the case, then you'll see new business processes, no one of us has dreamt about. You remember, you know, obviously when Twitter surfaced, you had the iPhone, we implemented the iPhone in 2007. No one would have imagined the tsunami of apps and what they do for usability and all

• 50:09Speaker 02

  that war. So and the same will happen, the ecosystem will explode with the tsunami on IOT applications. And that will provide a boost in value, which is 10 or 100 times the current value of IOT. There is actually one of the few things.

• 50:35Speaker 02

  Which I've seen and come across was someone tried, I think it was, let me scratch my head. FS start, I think Finstra, they provided a valuation of I Oda. And they came up with a value of the token around 100, please look it up on the internet. But this would not even include the machine to machine economy. So even if you do it just a financial transaction, the wire transfer evaluation. Then you end up with a, with a, the, the, the tokens right now at 20 cent, a 500, uh, times 500. But if you, if you imagine the business process, the processes which will run on I Oda

• 51:18Speaker 02

  in 10 or 15 years, the valuation needs to go up by 10 times, 50 times. You will see a new economy, maybe it's not 10, 10 years, it's 15 years. But it'll change when the new, and that will happen over the next two decades. When the new devices, Engle, D M G Mori, all our other mass partners, the new robots, the new paint robots are all native I O T enabled. If, if you find in 10 or 15 years, every robot being I Oda enabled, no one would talk. It's like an ATM, everyone would use that.

• 51:58Speaker 02

  It's just a standard underneath and you wouldn't, you just wouldn't think, ah, where can I get the money to, to, to go to a shop and buy something? You would think about which type of shops do a setup. And this is innovation at the next level, honestly, and I believe that, but we have to sort out the technical things first. And then we can really look at what's possible and I can't even imagine that. And being part of that, you know, it's like when I, when I hooked up the institute to the internet, I'm still proud that you know, you configured all the bind them on and the gateways and that was something you, you can not only tell your children, they are not interested honestly, but personally, that's something where you said, yes, I did something

• 52:45Speaker 02

  Was participating in something which was bigger than just software or your own personality. And Iota could be the same and definitely it's so enticing that I want to be full in.

• 53:02Anthony Pompliano?

  Absolutely. Look, Kristoff, I really appreciate this. This has been fascinating to kind of hear your perspective. As you sit inside the innovation kind of hub there at software AG, given just the size of the business and kind of the impact you guys can have throughout Europe and a number of other countries outside of kind of the European region. So thanks so much for coming on to do this and then we'll have to do it again in the future. Once we get farther down the road with a lot of this development.

• 53:32Speaker 02

  Absolutely. I would love to do that to repeat that with the first live customer. Absolutely. Thanks for having me. Absolutely. It was delightful.

• 53:42Speaker 03

  Hey, everyone. Pop here. If you liked this episode of Off the Chain and want to help us take crypto to the top of the Apple, Spotify and other podcast charts, please do us a favor and rate, review and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off the Chain.