David Sønstebø, Founder of IOTA: Digitally Native Assets and the Future Economy

David Sønstebø is the founder of IOTA. In this conversation, David and Anthony Pompliano discuss machine to machine transactions, automation, and how digitally native assets, accounting, and contracts fit into the future digital world. ----- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by BlockWorks Group. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworksgroup.io

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?

  David Sanstibo is the founder of Iota. In this conversation, we discussed machine-to-machine transactions, automation, and how digitally native assets, accounting, and contracts fit into the future digital world. I really enjoyed this conversation, and I hope you do as well.

• 0:31Speaker 01

  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.

• 0:58Anthony Pompliano?

  Alright guys, bang, bang. I am here with David. I'm super excited about this conversation, because I think we're going to get really deep in the weeds when it comes to automation and how digital assets are going to engage with the machines and algorithms. So, thank you so much for taking the time to do this, David.

• 1:16Speaker 02

  Yeah, thanks for having me.

• 1:18Anthony Pompliano?

  Absolutely. Before we get into the fun stuff, let's start with your background, and kind of how you got into crypto, and what you were doing beforehand.

• 1:27Speaker 02

  Yep, for sure. So, I started my career, so to speak, way back when I was like 14, 15 years old, and I was really into artificial intelligence and the impact it would have on society further down the line. And all of these kind of futuristic concepts, well, today they aren't futuristic anymore, but back then, it was pretty much still seen as science fiction. So, this was where I really got my comprehension of this whole future of technology, and this was where Wei Dai and Hal Finney and these kind of Bitcoin legends hung around, the Less Wrong, and the Everything List, and so on and so forth, these communities online that were discussing these issues. At the time, of course...

• 2:10Speaker 02

  The Bitcoin White Paper came out and in the beginning I wasn't really interested because it had all these kind of presupposed ideological components like hardcore neoliberalism and all of that, which didn't interest me. I was much more interested in the technology, how it can lead to these autonomous real-world applications. But then in 2012, I had read the White Paper several times and really got into it and started communicating with some of the early members. And yeah, so I decided to devote all my time to work on blockchain. So that's how I got into blockchain. And then in 2013, I met my IOTA co-founders, Dominik Schindler, Sergey Vaceglo and Sergey Popov,

• 2:54Speaker 02

  on this project called NXT. This was back in 2013. It was the first full proof-of-stake blockchain. And we also had the first decentralized asset management, decentralized voting and so on and so forth. It was pretty much just an experimental protocol to see how far we could take blockchain. But then when we kind of went back to my deep passion, which is this,

• 3:17Speaker 02

  let's just call it decentralized Internet of Things, where you have billions and billions of devices communicating. We started thinking about how can we actually ensure that the data integrity between these devices, that the transactions between these, the agreements between these devices can be immutable and cryptographically insured in a ledger. And we realized that regular blockchain architecture, which sits behind Bitcoin, Ethereum, etc., was not sufficient. And therefore, we had to start from scratch and take the principles of blockchain, i.e. immutability and decentralization, and start kind of from scratch. And what we ended up with was the IOTA protocol, which we call Tangle, which I presume we'll get into later. And since then,

• 4:01Speaker 02

  I've been running the IOTA Foundation and yeah, working 24/7 on the IOTA project and vision.

• 4:09Anthony Pompliano?

  Got it. Talk to me about why you guys were so attracted to proof of stake early on. What was the attraction there?

• 4:14Speaker 02

  Yeah, so early on, like back in 2013, of course, it was partially experimental because back then there was absolutely no real world use cases for blockchain. Like you could make the argument that there were some gambling sites and some dark net markets, et cetera, but beyond that, it was just experimental. That's that was kind of the blockchain space in 2013. So we looked at proof of stake and we realized that it was more efficient. And you could also kind of get away from this constant mining pool, oligopolie centralization that we see in Bitcoin. Because, you know, ever since the beginning Bitcoin and the other blockchains has always been saying that

• 4:57Speaker 02

  this is decentralization, but then you look under the hood and you see the consensus mechanism and how the incentives are structured in Bitcoin. And you realize that it will always end up centralized around hashing power, which is the mining pools. So we thought, okay, let's actually explore this proof of stake route. And we implemented it. It worked very well. Of course, it was still early days, but it was good. And we also made the prediction that in the future, where you assume worldwide adoption, the energy consumption of mining will become an issue. And there will probably be regulatory issues surrounding that. And we're starting to see this now with rumors around China banning mining farms, et cetera. So that was kind of what attracted us to it.

• 5:40Speaker 02

  Like, we just didn't see the reason to waste insane amounts of computation that could be otherwise outsourced via the ledger to carry out actual computation. So yeah, that's why we explored the proof of stake early on.

• 5:56Anthony Pompliano?

  Got it. And then before we get into kind of why something like Iota, you know, is important or kind of how you guys see the world, just describe how it works today, right? So like, how is it actually designed and where are you guys with the with the product development?

• 6:12Speaker 02

  Yeah, for sure. So if we can contrast it to Bitcoin, I think that will make it easier to understand. So with Bitcoin, of course, you have these blocks, and these blocks are of a finite size, and you can put a certain amount of transactions in them. And then you have one block after one block after one block. The traditional blockchain, so to speak, is sequential ordering of blocks with transactions. And this automatically creates a bottleneck, because first of all, you can only validate, or the network can only validate one block at a time, and you can only fit a certain amount of transactions in it. So right away, you have this supply and demand economy arise, where the miners, the people that are validating the blocks, will only pick the transactions with the highest fee.

• 6:55Speaker 02

  So when there's a lot of usage, we see the fees skyrocket. I think during the 2017, early 2018, yeah, the mania that happened. I think Bitcoin peaked around $90 per transaction. And that's because, in my opinion, the entire incentive structure, the entire consensus mechanism in blockchain, Bitcoin blockchain, Ethereum blockchain, is fundamentally flawed. Whereas in IOTA, what we did was, we kind of took it and turned it on its head. So we got rid of the blocks. So you no longer have this one-dimensional block after block after block architecture. Instead, you have this thing called directed acyclic graph, which is, in IOTA, we call it a tangle. And the reason we call it a tangle is that when you issue a transaction,

• 7:40Speaker 02

  that is broadcast to the entire network. And when you're issuing it, you're also validating two previous transactions from other participants in the network that have been broadcasted. And those two transactions, again, have validated two previous transactions, and so on, and so on. And then you can kind of imagine these individual transactions building up this graph, this directed acyclic graph. And it's no longer one-dimensional, it's multi-dimensional. So you can have as many transactions as people are issuing, and there is no block, there is no one-after-one bottleneck preventing performance. So instead, you end up with this scalable thing. And the other thing that this really solves is also the issue of fees. Because just like I mentioned with the block-after-block architecture in blockchain,

• 8:26Speaker 02

  Where you have the supply and demand economy in the Iota network instead when you issue a transaction, you validate transactions, meaning that validation has become an intrinsic property of utilizing the network. And therefore, you don't have to pay anyone to validate your transaction, because your transaction will be validated when someone else issues their own transaction. So that kind of kills both the scalability bottleneck, as well as the fees right off the bat. And thirdly, and finally, it also resolves this oligopoly centralization that happens in regular blockchains, because there is absolutely no incentive to own the hashing power. There is no such thing in Iota. So you won't get any block

• 9:07Speaker 02

  rewards. There is nothing like that. There is no incentive to pool resources together to control the network.

• 9:15Anthony Pompliano?

  Got it. That all makes sense. All right. So let's talk about why all of this matters, right? And I think one thing, as I've talked more and more about this idea that crypto and Bitcoin and blockchain, there's tons of hype, tons of excitement. And when I spend time with institutional investors, or just people who say, hey, look, I don't really know that much. Tell me what is going on here. I constantly go back to this idea that we're entering a digital world. In the digital world, we need digitally native assets, we need digitally native accounting, and we need digitally native contracts. And those three things empower or unleash this world of automation, right? And I think that you specifically

• 9:59Anthony Pompliano?

  have a very similar view. So take some time and really just explain how you view, you know, kind of the proliferation of automation and how blockchain plays into that.

• 10:12Speaker 02

  Yeah, for sure. So when you think about the world today, like you said, it's entirely digitized. Like, everything we do is becoming more and more and more digitized. And this will continue in perpetuity. Like, there will never, there will never be less digitalization. And the consequence of digitalization is automation. And we see this all over the place where All usually back in the day, people had to gather data, literally go there and see, okay, how much water has fallen today. And they had to take a tape measure and see how much water had fell. But today, you have a tiny, tiny, tiny sensor that just automatically gathers this data, computes it and emits this signal back to the cloud. And it's there

• 10:53Speaker 02

  and you can see the weather forecast. And this is happening on every single scale, whether it's your entertainment, whether it's the infrastructure for electricity or whatever other infrastructure, all of this is becoming automated. The problem today, however, is that this automation is not open, it's not permissionless, it's completely in the control of a few big conglomerates. Same thing with our social media, like, of course, you have the Facebooks and you have the Googles of the world that essentially control the data pipeline. And in 2019 and going forward, data is genuinely the new oil. Data is immensely valuable. We can already see this from Google and Facebook,

• 11:37Speaker 02

  how many billions and billions of dollars that they are gathering. But all of this goes into one bucket. And if I'm participating in Facebook, it seems like it's a free service. But in reality, I am the product, I am the commodity which they then sell on to advertisers, etc. So today, you have a lot of automation, you have a lot of digitalization, but it has happened in a way that is not secure and it's truly not open to participate. It's very much these closed silos. And that, first of all, is very insecure and which we've seen in ad nauseam, attacks on these services where databases get leaked, passwords get leaked, private information gets leaked. You don't really own your own data, which

• 12:22Speaker 02

  is kind of very worrying. But furthermore, it also prevents this true automation where devices can actually contact each other and communicate and trade resources, whether it be data, computation, bandwidth, electricity, or assets, like if you have an autonomous fleet of vehicles, that should be able to trade it between different entities. And today, that is borderline impossible because you would have all these companies would have to sign these contracts for each individual transaction. And it's simply inefficient and extremely costly. And I can, I can, like, as a Norwegian, we are the world leader when it comes to digital money.

• 13:04Speaker 02

  I think something in the order of 95% of our transactions are digital. I, like, personally, I haven't seen cash in probably two years. Like, you just don't see it in Norway. And the same thing with our taxes, all of these are digital, but it's not, it's not frictionless because you still have these intermediaries. You have to download this app if you want to pay for that thing. You have to download this app if you want to pay for that other thing. And they don't speak to one another. And one of the reasons they don't speak to one another is the security component. Because you would have to get every single participant in the room and sign a contract every single day. And you have this cornucopia of variables to take into account. And that's just impossible for any system.

• 13:47Speaker 02

  And then you just end up with these big conglomerates that you just have to trust. And they get all the money, they get all the profits, they get all the control. And that is not good. So what we see with the IOTA ledger and the vision behind it is that literally every single microprocessor, every single sensor, every single gadget, vehicle, whatever it be, has to be autonomous in the sense that it also has its own autonomy. So a vehicle like today, let's, let's take vehicles, electrical vehicles, for instance. It's a big, big hype right now that they will become completely autonomous and you will be able to rent out your car and someone else, you have this sharing economy, someone else will ride it and then it will be rented on, et cetera, et cetera.

• 14:29Speaker 02

  But true automation is actually that vehicle not even having a single owner. That vehicle should have its own autonomy, so to speak. And you can invest in that as an asset. So let's say you own 10% of the car, for instance. And then this car is riding around like an Uber is riding around people or packages for that matter. And you have this completely openness where everyone can participate and you can build new solutions on top of that. And that is what truly excites me. I foresee this new Cambrian explosion, just like the internet was a Cambrian explosion. I think we will see the same with the digital world in distributed ledgers.

• 15:12Anthony Pompliano?

  Got it. And so let's talk about a couple of examples, right? So you gave the example of the autonomous car. What's a couple of other examples where you see this automation really taking place between machines that the everyday user or kind of citizen would see the benefit of?

• 15:29Speaker 02

  Yeah, so one very good example is the prosumption and consumption of electricity. So of course, as we are moving forward now, more and more people are installing solar panels and so on and so forth. You have this excess amount of energy. The problem with energy is, of course, the storage. It's very, very hard to store energy. So what do you do with this? So in an ideal world, you would always be able to sell it back to the grid and get money for it because you have installed the solar panels, for instance. And so you have made this investment, so you want to, of course, be able to capitalize on it. However, the problem is that they can't store it either. Like the grids can't just magically store this power. So the problem becomes how do you load balance this energy?

• 16:14Speaker 02

  How do you distribute this energy efficiently? And you could do it through the traditional centralized method of trying to send it back and they would have to have sensors everywhere and they decide where the energy goes and they decide how much money you get, if you get any at all. A better model, which we're exploring here in Norway, actually, together with NTNU, which is Norway's biggest science and technology university, as well as one of the biggest energy providers of Norway, is this self-regulating grid. So if you have excess energy, you sell it to your neighbor and that neighbor then pays you directly in real time, pay per what essentially. Because keep in mind, you don't have fees on these transactions. So you don't have to pay upfront, you don't have to pay a subscription, you don't have to pay at the end of the month.

• 16:58Speaker 02

  You literally pay in real time and earn money in real time. And same thing goes for... Let's say social media that you're using this, you're generating all this data, you have ownership of the data and you can sell it back. And the whole social media platform itself could also be ran on distributed servers. Instead of Facebook, you could have, let's say, 20,000 people that have servers with storage, computation, et cetera, et cetera. And they rent this out in real time to this decentralized social media platform. And then every participant of the platform owns their own data and can choose what to do with it, whether they want to sell it or whether they don't want to sell it. And they can earn directly from that.

• 17:39Anthony Pompliano?

  Got it.

• 17:40Speaker 02

  And this literally goes for every single thing in life. You can also imagine. Yeah, go ahead.

• 17:47Anthony Pompliano?

  No, go ahead.

• 17:48Speaker 02

  Yeah, so I was just gonna, because I just saw my smartphone lying next to me. And of course, my smartphone can act as a router. So when I go out, it could literally sell bandwidth in real time to other participants instead of using these very expensive data plans. If I have excess data that I won't be using, I could sell it in real time to other participants. Because your smartphone can do a lot of things, but it doesn't have this payment settlement built into it. And that is what I O T is building. And like I said, yeah, it goes for every single thing you can imagine.

• 18:23Anthony Pompliano?

  Got it. And so let's talk about, you know, in these, many of these cases, there is, the technology enables the ability for automation, right? But how does the marketplace actually figure this out or kind of find equilibrium, if you will? What I mean by that is whether you're transacting data, you're transacting electricity or payments, there's an element of the rails make it possible, but there's got to be two sides to the transaction, right? There's a sender and a receiver, regardless of what the value is. And so how does that play into it? Is it that these machines or algorithms that are playing sender or receiver are just traditional, you know, machines and algorithms?

• 19:05Anthony Pompliano?

  Is there some sort of upgrade that legacy parties have to go through to be able to interact here? Like, how do you view that kind of compatibility between the rails and the parties that are of the transaction?

• 19:18Speaker 02

  Yeah, so of course the incumbents, they have to upgrade some of their legacy systems because of course these legacy systems weren't built for openness, they weren't built for automation, they were built for these very central top-down approaches. But we are, we as the IOTA Foundation, we are in dialogue with the biggest semiconductors of the world, the biggest energy providers of the world, the biggest automotive manufacturer of the world, and they see this as the future and they really want to be on board with this because this is coming regardless of whether it's the incumbents that do it or whether they get disrupted and perish, which none of them of course want to do. However, it's not really that difficult because most of this is software.

• 20:01Speaker 02

  Of course, there are some hardware components that will need to be integrated, like application-specific integrated circuitry for very efficient hashing of, cryptographically of the data, very efficient execution of smart contracts and offloading of outsourced computation, etc. But most of it is more about getting them to understand the vision and joining the vision, which we at least are seeing more and more. We, literally over 1,000 companies that are collaborating with the IOTA Foundation and the IOTA project and exploring it and experimenting with it. And one of the things I would say is that if you don't join this open world, it's kind

• 20:42Speaker 02

  of like you're sitting on the internet whereas the rest of the world is joining the internet. And that is of course not a way to ensure longevity of your business. And there's also another thing I want to mention. So when we think about the Internet of Things, we think about our smartphone is connected to our refrigerator, is connected to our TV and to our car, etc. These very human-centric applications. But there's also hundreds and hundreds of billions of devices that are being deployed over the next 10 to 15, 20 years that are going to sit at the edge of the network, kind of at the fog. What we are living in is what is called the cloud, where you have an abundance of resource,

• 21:25Speaker 02

  you have abundance of most of these resources, whereas at the edge of the network, whether it is climate sensors gathering data far into the forest or, or electrical vehicles that are needing over-the-air software updates in the middle of Nevada or something, this is the edge. And here is where these devices need to also... If I have excess electricity, I want to sell it. If you have excess bandwidth, I want to purchase it. This is where this true machine economy also arises at the edge of the network. And the way to think of this as a market is more like if I am a solar panel, I am gathering electricity. If you are a fog computational station, you need electricity, so you purchase that from me.

• 22:08Speaker 02

  And if I'm a sensor, I have data, so I can send that or I can sell that to the computational station, which then transforms this data into information and sells this back to the cloud as knowledge. And this is where you have this supply and demand, prosumer/consumer economy arise. And if you start, if you just start extrapolating from that where you have hundreds of billions of participants, it's a huge, huge economy, much bigger than any individual small country, for instance. It will be its complete own paradigm, its own echelon in the market.

• 22:47Anthony Pompliano?

  Got it. And so let's talk a little bit about as this plays out, right? And I tend to agree with you that, again, blockchain, crypto, Bitcoin is all really just laying the foundation for automation. Why not build this all on top of the Bitcoin blockchain? What is the need or the reason for IOTA and kind of to build it on something other than the Bitcoin blockchain?

• 23:13Speaker 02

  So if we go back to what I mentioned earlier in terms of how the Bitcoin and all all the other blockchains that kind of took the model of Satoshi Nakamoto, the Bitcoin model, where you have miners and then you have users. If you take that one sequential blockchain approach, you always run into these bottlenecks of scaling and the fees skyrocket whenever there's actual usage. And this is what we we've observed all throughout the history of blockchain. It's also inevitable, you could do this back of the envelope calculation all the way back since the first day that the architecture was laid out, that if this actually gains adoption, there will be a race to the bottom to get the mining re And to collect the block rewards.

• 23:58Speaker 02

  And this will automatically create very high fees. So for us, it was very important to just turn it on its head and think completely new. We are very appreciative of the foundation that Bitcoin laid. It was a very, very good prototype of a distributed ledger. But it's completely unusable in the real world for anything other than a speculative store of value. And you can see this, like you have a handful of transactions per second. How is that going to accommodate hundreds of billions of devices that are transacting not only value, but also data and and other asset tokens? So for us, it was imperative to come up with a completely new approach that still kept the principles that the prototype Bitcoin

• 24:42Speaker 02

  brought, the immutability and the promise decentralization and the security aspect. And also in the beginning, Bitcoin was touted as having very low fees, whereas today that is not the case. So this is why we had to start from scratch. It was a very hard and long journey, of course, a lot of theory goes into that, a lot of research, a lot of experimentation, etc. But now we feel we've reached a point where, yes, it works. We already have have it running. And of course, we're still optimizing it. But yeah, this is the reason why we had to had to switch from a, let's say, version one blockchain to what we call the DAG or Directly Cyclic Graph Tangle approach,

• 25:26Speaker 02

  which you can consider as a kind of blockchain 3.0 if Ethereum is 2.0. This kind of evolution, and this is just how software evolves and technology and innovation evolves. So we got rid of the fees, the scaling limitations and the centralization components. And with this, right now, where we are right now, 2019, is to bring this to enterprise readiness, because one of the big issues that you can see with all of this hype around blockchain, etc., is that everyone has ideas. Everyone has really good ideas and long lofty goals. But very few of them take the technology seriously enough to. Spend the three, four, five years of hardcore research, testing, et cetera, the less sexy stuff

• 26:12Speaker 02

  before they actually deploy. Instead, we have just seen this wave of crazy ICOs and speculative assets. Whereas in IOTA, we took the complete opposite approach. We set up a nonprofit foundation. We did not premine a single IOTA to any of the founders, any of the, anyone. Everyone had to join at the same level as everyone else. And since then, we built this nonprofit foundation. Now we are over a hundred people in this foundation across 23 countries. And we have a community of, of course, I don't know the exact amount of people, but hundreds of thousands of people. And yeah, now we're trying to go towards this enterprise readiness. And what that means is simply that if you are an enterprise today and you want to use blockchain,

• 26:55Speaker 02

  you sort of have to hire a blockchain expert because it's so hard still to implement this technology into either existing products or future products. We want to reach the point where virtually any, any software engineer can just pick it up, use the libraries, use the tools, get, get going, build products and not have to be an expert at it. That is, that is the goal right now for the IOTA project.

• 27:19Anthony Pompliano?

  Got it. And what do you feel like is the one or two biggest challenges that you guys either have to solve or kind of get around in order to, to see that world become reality?

• 27:29Speaker 02

  Yeah, that's a good question. So of course, when we are talking about solving the scalability limitation, we have the blueprint for it. This is, this is the tangle. This is the other approach. So this is the blueprint, but now we have to optimize it so we can actually handle hundreds of thousands of transactions per second. And that is has, that is what we've been doing for the past two years. But that is still an ongoing effort. Like we have actually reached a point where we, we have mathematical proofs of our consensus algorithms, et cetera. But it still needs to be implemented and that takes time because of course you have security risks and you have a live network that is worth almost a billion dollars. So you have to be careful about deploying, et cetera. And that is of course always a balance game, but.

• 28:13Speaker 02

  Right now, it's more just about, essentially, we have to hire a lot more people. We have the funds for it, so it's not an issue of that. It's just finding the right people to implement this as efficiently and securely as possible. That is one challenge. The other challenge is to ensure that IOTA has a seat at the table when the regulators decide the future. Because it's very important that this technology does not get regulated out of existence. And fortunately, all across the globe, or not all across the globe, but most of the globe, has taken quite an open-minded approach towards blockchain, I would say. But it's still important to have a seat at the table there.

• 28:53Speaker 02

  And that's also the ethos of the IOTA project and the philosophy behind why we set up in Germany, set up a nonprofit foundation in Germany, rather than the more easy places like Switzerland, or one of the Isles, or some other location. We decided Germany because we wanted that rigid, onerous oversight when it comes to regulatory affairs, so we can be at the forefront of that as well. And right now, we have launched this International Association of Trusted Blockchain Applications with European Commission, and there's over 100 other entities with us there. So this is also, of course, an ongoing challenge, to make sure that people that can regulate

• 29:35Speaker 02

  understand what they are regulating, because that's usually what we see happen, that when it comes to these new technology, regulations come in, and the people that are making the regulation doesn't necessarily understand what they are regulating. So we want to ensure that we also educate people on this, and explain the bigger vision of this automation that is inevitable. And therefore, it's important that the governments, as well as the big conglomerates, are completely aligned with this.

• 30:04Anthony Pompliano?

  Got it. That makes a ton of sense. What do you think is the one area of crypto that people are not paying attention to, but they should be focused on?

• 30:15Speaker 02

  Yeah, so here I have a couple of opinions. So the first thing I would say is too many people care too much about the what's new right now, like who has the best new white paper logo or website, which doesn't mean anything. And I mean, we saw hundreds of billions of dollars just perish into thin air as a consequence of people being too FOMO, like fear of missing out on that. I would say that the entire space needs to focus a lot more on the fundamentals and the long-term vision and not get impatient. Because that's what we're seeing. Like whenever there's a new exciting technology that has promise, everyone... Bill Gates said it best many, many years ago, that people tend to overestimate what can be accomplished in two years

• 30:59Speaker 02

  and underestimate what can be accomplished in 10 years. And I think that's just a mental shift that the entire space should take. The other thing that everyone interested in crypto or involved in crypto need to start to think about is consolidation. Because you have thousands and thousands of these copy paste blockchains out there and everyone is kind of creating their own tiny community and it's so much tribalism and there's fighting against one another. When in reality, people should start to consolidate around the long-term vision and share these insights that these different projects have with one another. So we can end up with some global standards that can be adopted across the globe instead of just having thousands of fractions fight one another, which is just stupid.

• 31:44Speaker 02

  And in terms of visionary stuff, I would say certainly the Internet of Things. And Iota was the first project to care about the Internet of Things in the blockchain space. But I think it's the single most important one. Because when I say the Internet of Things space, I really mean just the future. I mean, there's not a single thing that will not be part of this digital economy and this digital universe in the future.

• 32:09Anthony Pompliano?

  Yeah, I mean, look, the thing to me that's so crazy is when you think about the world we're going into, I usually argue less about like, hey, Bitcoin's the future and more about the assets we currently have. You can only own four assets: stock, bond, currency, or commodity. Those four types of assets are incompatible with the machines and algorithms that are going to run the future. Right? They can't use paper money, paper contracts, paper deeds, paper stock certificates. But they also can't use the electronic versions either, right? If you think of a stock certificate, for example, it's simply an electronic Q SIP that represents the physical stock certificate, right?

• 32:50Anthony Pompliano?

  And so if we want to have a fully efficient global transaction system, right, which is essentially what economies are, then we have to upgrade the assets to be compatible with those machines and algorithms. And it's just, to me, it's so clear. But, you know, again, I think that people get caught up in kind of the hype and the sexiness of so many different things in crypto that that message is getting lost a lot.

• 33:14Speaker 02

  Very good point, very, very good observation. And I 100% emphatically share that view. And it's so important, and that's exactly what we're trying to do with IOTA, is to create this fungible asset, this value that exists embedded into all digital systems, whether it's the internet or whether it's the edge compute where you have mesh nets instead. You need this and you need all of these assets. Let's say you have this fleet of vehicles, like I mentioned earlier. You need every single like piece of firmware to be validated into the ledger itself. There can't be any human middleman that has to verify it because then you haven't really created anything new.

• 33:57Speaker 02

  It has to be seamless end-to-end verifiability. Same goes for the supply chain. I mean, today, supply chain is one of the hottest topics in crypto. Like, oh, we can scan this QR code and we can see which farmer created my coffee beans, which is cool as a proof of concept. But you really need to get nitty gritty into the soil sensors where the produce has actually been created from scratch, literally from seed.

• 34:26Speaker 02

  And see, okay, what was the soil conditions? What was the pH levels in the soil? How much rainfall came that season, et cetera, et cetera? And when you have that entire fine granular train, uh, trail, you can start to automate insurance. You can literally have real time insurance. And this is one of the other, all other things we're exploring in the automotive sector is to see, instead of having this premium that you pay, what if, what if you actually just pay based on how you use the car? So if you are a good driver, you don't have to worry about it. If you're a bad driver, you pay in real time for the bad driving. And when the cars get autonomous, same kind of deal.

• 35:06Speaker 02

  And, and this is what I see, like virtually every single asset will be needing to be real time as well. And that's, that's, sorry for going on a tangent, but this is also one of the points I think a lot of people forget is that we are so used to this, either we pay before or we have this running subscription or we pay after the fact, this very archaic, slow system. Whereas in the future where things are increasingly automated, the economy has to match that. It has to be real time payments for the exact presumption and consumption.

• 35:40Anthony Pompliano?

  Absolutely, that, uh, that makes sense. All right, before I wrap up, I always do some rapid fire. What, uh, what's the most important company in crypto?

• 35:48Speaker 02

  Most important company in crypto? Oh, interesting, putting me on the spot here. Uh, I think the most important company in crypto would not be a crypto company. It would actually be one of the big conglomerates that are making the Internet of Things devices. And I don't want to say whether it's that company or that company, but that's, that's, I, I think the most important company for crypto are the ones that are generating the real, actual assets that we're using. Not just speculative stuff, but in terms of trading, etc. Then, of course, there's been some very recent reports or very good reports recently and over

• 36:31Speaker 02

  the last six months, actually, of wash trading. So I would just say, without mentioning names, I would say, go look at the list of the exchanges that are actually real volume, and you can probably guess which one it is already. Those I consider very, very important, because those are the ones that truly make this fluidity at the moment. So, just as an example, we're working with a lot of smart city projects. So we have this EU Horizon 2020 grant from the European Commission to embed IOTA protocol into the smart cities, so for automated parking, charging, and so on and so forth. And these companies are reliant on liquidity in the market. But if they were reliant on a fake wash trading market, that economy would not work.

• 37:17Speaker 02

  So I would definitely say that these gateways are also extremely important. Yeah, that's a bit of a tangent, but yeah.

• 37:28Anthony Pompliano?

  Makes sense to me. What's the one regulation that you would change or improve if you could?

• 37:34Speaker 02

  Very good. So, okay, so I'll take two if that's legal. The one thing I would take, and this is dependent on country, of course, but certainly the taxes on crypto liquidity is absolutely bonkers, particularly here in Norway, which is weird, given that we are at the forefront of digitalization. But the taxes around it, the way you hold it, the way you trade it, it's just absolutely asinine. Yeah, that's one of the things I would change, and I really hope the regulators will understand the technology to see why you can't regulate cryptocurrency in the same way that you regulate a random commodity. That's one thing.

• 38:18Speaker 02

  Secondly, would be data, just data ownership in general. I think that even with GDPR, which is a good first step and kind of sentiment that they care about this stuff, is to go much further and say that if I generate data, I own that data. That's literally my asset. That is my asset. That is something I would want to regulate, because that directly ties in with this whole vision of distributed ledgers and automation.

• 38:47Anthony Pompliano?

  Absolutely. What's your most controversial thought in crypto? Like, what do you believe that everyone else will disagree with you on?

• 38:55Speaker 02

  Probably that blockchain. And when I say blockchain, I mean the Bitcoin, Ethereum, that kind of model with sequential blocks is just a prototype. It's literally just a prototype. It will never work in the real world. In order to make it work, they will have to upgrade their networks towards something that is similar to Iota. And the problem they have is that they have to convince the miners that they are no longer going to get paid, which is a very hard bargain. So that was, that is probably one of my most controversial.

• 39:26Anthony Pompliano?

  You know that's controversial.

• 39:30Speaker 02

  But it's the truth, so I have to be honest here.

• 39:33Anthony Pompliano?

  I disagree with you, but I'm gonna let you go on that one.

• 39:37Anthony Pompliano?

  What's the most important book you've ever read?

• 39:40Speaker 02

  The most important book I've ever read?

• 39:46Speaker 02

  Important papers or collection of writings that I read was Nick Bostrom back in 2004, 2005. Today, there's a book out, he kind of took all his earlier work, compiled it into this book called Superintelligence, that was released in 2014, I believe, which was, actually, that book was kind of the precursor to why suddenly Elon Musk and all of these people started worrying about artificial intelligence. But I read this back in 2004, 2005, that really shaped my mind in thinking about the future, how automated it will be, and the fact that this will happen very rapidly. And if I go back to when I were

• 40:27Speaker 02

  just 14, 15, 16 years old, reading this stuff, and now that I'm 29, a lot of those things have already happened, like AI today beating the best chess engines, all of this stuff, or the best Go player in the world, or the best StarCraft player in the world. I don't think most people understand just how huge of a leap that already is. And then if you extrapolate five, 10, 15 years into the future, the level of automation is just absolutely insane, what we will see over the next few years. So it's so important to get this right. So yeah, I would say that's probably the most important Nick Bostrom's work.

• 41:06Anthony Pompliano?

  Very cool. What do you think about aliens? Real, not real? Believer, non-believer?

• 41:12Speaker 02

  Yeah, interesting question. So my view on aliens is pretty much just based on physics. If you look at physics, you have eternal inflation as the leading theory of how the universe was created, meaning that there are an infinite number of them. And virtually every configuration that can exist does exist. And by following that train of thought with logic, you end up with aliens are definitely real. Whether aliens as they are portrayed in Hollywood and they have visited Earth, et cetera. No, I don't really believe in that. I am very intrigued by the idea that our planet may just be seeded by another

• 41:53Speaker 02

  alien, far, far, far distant alien civilization, though. That life on Earth was created kind of as a seed from another planet.

• 42:03Anthony Pompliano?

  I love it. I love it. What about the depths of the ocean? Would you rather go depths of the ocean or go to space? Which one's more attractive to you?

• 42:12Speaker 02

  Oh, very good question. It depends how deep, because if we're going into space, most of it will be quite boring. It'll just be stars all around and you won't really see anything. But if I'm allowed to violate the laws of physics and go to another solar system or another galaxy, then certainly space. If I'm just going to float around in space and not be able to go to any exotic places, then certainly ocean. Like if I were asked, do you rather want to go to Mars or do you want to go to the bottom of the ocean? I would choose probably bottom of the ocean, because there's so much more exciting things of life, et cetera, that you can see on your way down there. I think Mars is, yeah, overrated.

• 42:54Anthony Pompliano?

  Mars is overrated. All right, I love it. What one question do you have for me to finish up with?

• 43:00Speaker 02

  So when you think about crypto, and you have already mentioned that automation is undoubtedly where it's all headed. How do you, what is the most important component for you? Is it data integrity, i.e. the data is generated and you have this immutable record of it that can't be changed? Or is it the transactional settlement layer?

• 43:21Anthony Pompliano?

  To me...

• 43:24Anthony Pompliano?

  Data integrity, I think, is something that improves over time, right? So if you think of, you know, take just Bitcoin, for example, what was the quality of the data in 2009 versus today? Over time, as more people come into the market and there's just kind of more capital and intellectual capital and financial capital put towards it, I think the data ultimately gets cleaner, more structured, more standardized, and really just the data integrity improves. And so that's kind of a natural evolution of technology where I think that there's got to be a very intentional focus is on the transaction settlement layer, right?

• 44:06Anthony Pompliano?

  So if you think about like payment data, there's been a very fast accelerating improvement in payment data in traditional markets for a long time. But the creation of a transaction settlement layer that's decentralized, censorship resistant, right? Kind of everything that Bitcoin brings to the table creates such an inflection point that it's very hard to compare the creation of that transaction settlement layer with data integrity, right? It's almost like you need the transaction settlement layer and then the data integrity becomes important. But if you don't have the transaction settlement layer, then the data integrity doesn't even matter, right? Because there's nothing to transact. That's kind of how I think about it.

• 44:48Speaker 02

  It's a very, it's a, it's a very good way of viewing it. And I actually do think I agree with you because this is, this is what we, at least we are doing in IOTA, that we kind of embed those into the same layer. So data integrity and transactional settlement is on the same because it doesn't cost anything to use the ledger for data integrity. So, no, I think that's a good argument.

• 45:07Anthony Pompliano?

  Love it, man. Listen, I really appreciate you doing this. I am, I'm intrigued by the fact that you guys believe in the automation and kind of the machine to machine transactions so much. And obviously you guys are doing a bunch of work to make that become a reality. So best of luck to you and then we'll have to do this again in the future and catch up on all the progress.

• 45:29Speaker 02

  Yeah, thanks for having me. It was a blast.

• 45:32Anthony Pompliano?

  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.