#506 Ethan Buchman on Standardization And Interoperability

Ethan Buchman is the cofounder of Cosmos. In this conversation, we discuss sustainable economic systems, localism, sovereignty, interoperability, proof of stake, and why standardization is so important. ======================= LMAX Digital is the leading institutional crypto currency exchange with current average daily columes of $2bn. Built on proven, trusted LMAX Group trading technology, LMAX Digital delivers a market-leading solution for trading and custodial services for the most liquid crypto currencies. Trading with all the largest institutions globally, LMAX Digital is a primary price discovery venue, streaming real-time market data to the industry’s leading indices and analytics platforms, enhancing the quality of market information available to investors and enabling a credible overview of the spot crypto currency market. Learn more at lmaxdigital.com/pomp ======================= OKCoin.com is the leading crypto exchange for both beginners and experienced users. You can fund your account in under 2 minutes, and get access to the most advanced trading engine, all while paying the lowest trading fees in the industry (0.1%). Visit www.okcoin.com/pomp and open your account today. ======================= Pomp writes a daily letter to over 135,000 investors about business, technology, and finance. He breaks down complex topics into easy to understand language, while sharing opinions on various aspects of each industry. You can subscribe at https://www.pompletter.com

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

• 0:02Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Ethan Buckman is the co-founder of Cosmos. In this conversation, we discuss sustainable economic systems, localism, sovereignty, interoperability, proof of stake, and why standardization is so important. I really enjoyed this conversation with Ethan, and I hope you do as well. Before we get into this episode, though, I want to quickly talk about our sponsors. First up is LMAX Digital. They're the leading institutional cryptocurrency exchange, which offers clients a regulated, transparent, and secure trading environment. With an average of $2 billion traded per day, LMAX Digital counts all of

• 0:45Anthony Pompliano?

  the largest global crypto trading institutions as its clients. Leveraging the LMAX Group's proven low-latency technology and liquidity relationships, LMAX Digital offers the market-leading solution for crypto trading and custodial services. As a primary price-discovery venue, LMAX Digital provides streaming, real-time market data to the industry's leading indices and analytics platforms, enhancing the quality of market information available to investors. Trade like an institution with LMAX Digital. Learn more at LMAXdigital.com/pomp. Again, LMAXdigital.com/pomp. Next up is OKCoin. OKCoin is a US-based, regulated exchange. They know that you've got lots of exchanges to choose from, but what they're focused on is, they want to

• 1:30Anthony Pompliano?

  help you get from no account to a funded account as fast as possible. They serve over 184 countries, and it's super easy to use and offer some of the lowest fees in the industry. And what I love about OKCoin is that I can go from registering to verifying my profile and connecting my bank account in minutes. In fact, they're literally the fastest exchange to go from zero to having a crypto portfolio. You don't have to wait three days for your deposit to show up, or upload multiple ID documents or facial scans to get started, which by the way is a little creepy. They've also been listing popular DeFi assets, and I hear they are working on even more popular listings. You can go to OKCoin.com/pomp. Again, OKCoin.com/pomp.

• 2:10Anthony Pompliano?

  com/pomp go check them out. Lastly, don't forget that I read daily letter to over 135,000 investors about business, technology and finance. I break down complex topics into easy to understand language while sharing my personal opinion on various aspects of each industry. You can subscribe at pomp letter.com again pomp letter.com. All right, let's get into this episode with Ethan. I hope you enjoy this one.

• 2:34Speaker 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.

• 3:05Anthony Pompliano?

  All right, guys. Bang, bang. Okay, Ethan here with me. Thank you, Sash, for doing this.

• 3:09Speaker 02

  Hey, thanks a lot for having me on.

• 3:11Anthony Pompliano?

  For sure. Let's just start with with your background. You're in Toronto now, but where'd you grow up and what'd you do before you started building in the crypto space?

• 3:19Speaker 02

  Sure. So I'm in Toronto, born and raised in Toronto. I spent most of my university life at the University of Guelph, but now we're away from Toronto. See, my academic background has really been motivated by four kind of main big questions that have occupied me successively over the years. And those are, you know, what does it mean to be human? What does it mean to be alive? What does it mean to agree? And what does it mean for something to be money? And those later to sort of overlapped with with getting involved in cryptocurrencies? And, you know, I've been in that space for almost eight years now, I guess. But most of it, most of my time was really preoccupied with the sort of what does it mean to be alive? Question. And so I usually say my background was in biophysics. I studied the sort of

• 4:01Speaker 02

  biophysical origin of life and this problem of how is it in a world that's allegedly always running down according to the second law of thermodynamics and the sort of everyday experience of, you know, entropy increasing? How is it in such a world that organisms, living systems manage to run themselves up that we have these sort of amazing emergent phenomena? And it sort of came to understand living systems as fundamentally sustainable systems, as systems that preserve themselves over time in really interesting biophysical ways. And that, you know, led me to really think about You know, how we could use technology and build technological systems to resemble more of these sort of sustainable, organic biological systems than the sort of, you know, hurricanes

• 4:42Speaker 02

  or tornadoes that we're so used to building, especially in the financial world. And so sometime in my early twenties, I was turned on to, say, Austrian economics and the sort of how the financial system works and rallying against the Federal Reserve and all that kind of good stuff. And shortly thereafter, found my way to Bitcoin. And then the rest is kind of history.

• 5:03Anthony Pompliano?

  So when you found Bitcoin, what kind of caught your attention? Was it the Austrian kind of philosophy just embodied in a product? Or what was that initial thing that just yanked you down the rabbit hole?

• 5:12Speaker 02

  Yeah, I mean, it took me a bit of time to really grok it. I had seen it a few times, but it was really only in 2013, around when that whole Cyprus crisis happened, that it really, really took me by storm, that like, here was something, not only that seemed to be an answer to the sort of Austrian economic tradition, but that also, you know, really appealed to my biophysical background, because it felt like this was the emergence of life in the sort of biophysical, or sorry, in the digital medium. So what I had been studying in the biophysical medium now happening in this digital reality, where you have this like, self-emergent, kind of, you know, sustaining entity. And that seemed really interesting and important. And it was in the summer of 2013 that I actually programmed my first

• 5:56Speaker 02

  Bitcoin transaction from scratch in Python, which was sort of a profound experience to be able to have, you know, a financial or economic system that's so open that a programmer, you know, in their own bedroom with no permission, or, you know, talking to anyone, can basically program a transaction that can carry an arbitrary amount of value from scratch. And so from there, I was, I was just really hooked. There was no turning back. Yeah.

• 6:18Anthony Pompliano?

  Absolutely. And so when you kind of go down that rabbit hole, you have spent a lot of time on Bitcoin, but you end up building different technology. Walk through kind of that transition, or kind of why you thought that Bitcoin alone wasn't kind of the entire ecosystem, or kind of the entire addressable technology base?

• 6:37Speaker 02

  Sure. So in 2014, you know, I was in Toronto, Ethereum was invented in Toronto. And so we started going to the Ethereum meetups here. And, and you know, really kind of were taken with this idea of fully programmable money, not just programmable money, but arbitrary computation and the sort of world computer vision. And that seemed, it didn't seem like fully the end of the story, but it definitely seemed like the next step. And so we got, you know, really involved in the early Ethereum community. I joined a company in 2014 that was trying to take the, I think the first company that was trying to actually commercialize Ethereum for enterprise. And obviously in 2014, it was still way too early, but that company is Monax Industries. They're, they're still around today.

• 7:18Speaker 02

  And in, in late 2014, me and a number of others started really thinking about, okay, what happens next? It seems there's going to be, you know, not just this Ethereum blockchain, but there's going to be a proliferation of blockchains. They can't all use proof of work. And so, you know, at that time, there had been a lot of discussion around, around this sort of proof of stake idea, this idea that you could actually use your stake in the system to secure the system rather than some external, external work. And so, you know, there was a night actually in, in 2014 where Vlad Zemvir and I spent the whole night up, you know, talking about, about proof of stake and brainstorming what all this is going to look like. And that was the night we really convinced ourselves that, that proof of stake was the future and that in this world, in this proliferation

• 8:01Speaker 02

  of blockchains, you know, proof of stake was going to play a big role in that. And, and you know, both of us have pretty much been committed to, to bringing proof of stake about ever since. And all that time, I sort of reserved my, you know, I've always considered myself like a closet Bitcoin maximalist because even though I've been sort of, you know, devoted to proof of stake for like, you know, six years now or something, I've still never, never kind of dropped this love or appreciation for Bitcoin. And I think it has a very important role in the long term. But a lot of the next few years for me were, were really about starting to bring proof of stake to light initially through tenement and then through the sort of larger idea of cosmos and how the many different proof of stake blockchains would be able to, to connect to one another and not just exist alone, but actually in sort of an interoperable web like the internet.

• 8:46Anthony Pompliano?

  Got it. So walk us through kind of Cosmos and what you're building.

• 8:50Speaker 02

  Yeah, so the idea with Cosmos, we call it an Internet of Blockchains, but it really follows.

• 8:55Anthony Pompliano?

  What does that mean? What does Internet of Blockchains mean?

• 8:57Speaker 02

  So let me explain it in terms of an analogy to the Internet, right? So, you know, when you think about the Internet and where the Internet came from, once upon a time, there were people before the Internet, there were computers. You know, and there was sort of this idea of, you know, there might just be a single mainframe, a really large computer that would be able to handle like all of the world's computing, right? Maybe IBM or some other large company was like, we got it, we're going to build the world's computer, right? And obviously, that's not the way things panned out. It didn't make sense for a million reasons, doesn't have the kind of customizability, the scale, the sort of sovereignty that individual users want out of computing devices. And now we live in a world where there's more devices than there are human beings. You have computing devices in your pocket.

• 9:37Speaker 02

  You have complete control over your device, but they're all interoperable with one another. They can all connect to each other over standard protocols of the Internet. And so the idea behind the Internet of Blockchains is something very similar. Each blockchain is itself like a computer. You can think of it like a device or a machine. And there isn't going to be just one, right? There is this sort of world computer vision that Ethereum has, like, oh, all of the world's computing needs can happen on the Ethereum blockchain. It's very similar to trying to say all the world's computing needs to happen on a single IBM mainframe. We don't believe that's true. You know, it didn't turn out to be true. And so the idea with the Internet of Blockchains and with Cosmos is to really enable that proliferation of blockchains, for there to be thousands, millions of them.

• 10:17Speaker 02

  For each community, maybe not each individual, but for each community or each city or, you know, each company or whatever, to be able to build their own blockchain to represent their own values. So they sort of have this sovereignty over these networks, control over the networks and where they're going. And yet for those different blockchain networks to still be interoperable with one another in the same way that, you know, I have sovereign control over my laptop here, but it's interoperable with yours and we're able to communicate with each other over the Internet. And so that same vision, we've been trying to bring that to the blockchain world as there's going to be this proliferation of blockchains. Many of them are still sort of siloed and not really talking to each other. They're just starting to talk to each other using, you know, bespoke ad hoc. Protocols and what we're really trying to do is define standards like TCP IP defined for the Internet

• 11:01Speaker 02

  to enable arbitrary machines arbitrary blockchains to communicate arbitrary information in a secure manner between themselves and that's really what causes us about those values of sovereignty and interoperability enabling any community to have a blockchain that is sort of theirs that's true to their values but still be interoperable with all the other blockchains in the world.

• 11:20Anthony Pompliano?

  Got it. And so when you think through this interoperability, explain like how does this world work from like a user experience standpoint? Is this something where I'm using a product that I don't even understand what blockchains are kind of running underneath it similar to like the Internet protocols? I don't really understand what Internet protocols are working. I don't even know the names of some of them, but like I know if I go to Google.com, I can access this massive database and get an answer to any of my questions. Is that kind of how you see the blockchains all kind of working together, but it's it's kind of behind the scenes? It's really kind of pushed away from the user and therefore the technical community will understand it, but actually the end users don't see any of this stuff?

• 11:57Speaker 02

  Yeah, possibly. I mean, that's one route. And I think that's that's not unlikely and is a perfectly valid vision. On the other hand, I have a little bit of a hankering for this idea that users should actually not be agnostic to their infrastructure. And that a big part of the problems in society today are how much we've abstracted away the underlying infrastructure or say supply chains that support any given product or user experience. And so I think it's actually important to surface more of, you know, what you're using and how it's brought to you to individual users. And there's obviously a challenge in that in what that UX looks like. Today, I mean, a lot of people are sort of building towards that world where, you know, you don't have to worry about what blockchain you're on and the user is sort of, you know, not aware of it.

• 12:42Speaker 02

  And so maybe it functions a lot like the Internet, but you know, that's a that's a dangerous road. If the blockchain world goes the same route that the Internet went in terms of being dominated by a very small number of very large, you know, multinational corporations. I don't think that's a world any of us are really are really trying to bring about. And we, you know, we don't talk about that too much. We sort of just wave our hands and say, you know, oh, decentralization and it's all going to be great. But no, I think we really do have to have to worry about that sort of the relationship between applications and infrastructure and exposing more of the infrastructure through the application so that the user has more awareness of, you know, more awareness and more participation in the actual hosting of these networks. And I think we're not quite there yet because even, you know, even as we decentralize all these applications,

• 13:27Speaker 02

  the backbone of the internet itself is still very centralized through ISPs. But there is some work ongoing in MeshNet and even some project built on Cosmos that are actually really trying to decentralize the underlying infrastructure of the internet itself and have the users actually more involved in providing that. So I think that I think we really need to close the loop on users being aware of that, of that infrastructure. But there's a sort of long road ahead to get that. And in the short term, probably yes, UX will be very much, you don't know what you're using and it doesn't matter.

• 13:54Anthony Pompliano?

  Absolutely. I know that when you think through this, there's kind of, you know, thousands, if not millions of blockchains in your perspective. How does that work from kind of a technical point of view? Is this something where it's kind of like an Amazon AWS server where you can literally go in, you can spin one up and you can use it to host your own website? And so there's some kind of ability to like spin up a blockchain for your specific use case? Is it, no, there's like thousands of teams that build their own for their own purposes? Like, how do you just see us getting from where we are today, where I would say, you know, there's a ton of different, you know, cryptocurrency or altcoins, et cetera. But really, there's only maybe 10 to 15 blockchains that are

• 14:35Anthony Pompliano?

  actually in use and any real size or meaningful adoption. How do we get from that point to this world that you believe where there's, you know, millions and millions of blockchains?

• 14:44Speaker 02

  Yeah. So the question is sort of who runs, who runs these blockchains? How are they operated? And how is it not just, you know, Bezos or Bezos's computers? And that's a really good question. And that takes a lot of time. And Cosmos has sort of pioneered, you know, bringing proof of state networks to life and really focusing on building up the competence, the competence of the validator sets, the actual operating nodes, node operators that run these things. And so we've spent a lot of time sort of over the last few years nurturing the validator community and now just let Bitcoin Mining became a business model and now there's a bunch of Bitcoin miners. There's a growing number of proof of state validator businesses, right? Entire businesses who dedicate themselves to a highly secure, highly available operation of these networks.

• 15:29Speaker 02

  And so that as sort of a business sector is growing and is sort of one of the, you know, I think will be one of the legacies of what Cosmos has really helped bring about. And as the number of competent validators grows from currently, maybe there's a hundred or a few hundreds down the road, there will be thousands currently, you know, they tend to be somewhat larger businesses, but maybe eventually there will be more smaller or household businesses or hobbyists that are able to participate more actively in these networks, depending on the actual security requirements. So right now, when, you know, a lot of people argue that, argue this as like a critique against Cosmos, that like, oh, if I want to build an application on Cosmos, it's not like Ethereum where I just like, write a smart contract, deploy it and forget about it, the miners will run it. In Cosmos, you have to go and actually like recruit a validator set and convince them with a new token

• 16:13Speaker 02

  or whatever, that it's, that it's worth it to run your network. That's true today and we think that's actually really important. Like I was saying, that you understand sort of who's running, you know, your infrastructure and that they're involved and participating. But we're also working on, on tools and services that will make it a lot easier to actually recruit validators in a more automated way, setting up marketplaces and actually leverage existing validator sets. For instance, for the Cosmos Hub where the, where the atom token resides, to leverage those validators and their staked atoms on the Cosmos hub chain to actually validate and secure other chains. While today it may be difficult and you have to go recruit a validator set, it's only going to get easier as more validators, more competent validators come online and as we build tools and services to make it easy to spin out blockchains. There's also a number of products there.

• 16:58Speaker 02

  So Starport is a tool being built in the Cosmos ecosystem that makes it really easy to just spin up a chain, even if the nodes are running on AWS or whatever, and progressively move it to a more sort of independent validator set.

• 17:10Anthony Pompliano?

  A lot of what your viewpoint of the world is, is driven by the philosophy of Cosmos and you and the other people working on this. Maybe talk through a little bit of that philosophy and why you're so adamant about, you know, kind of defining the philosophy and then constantly checking to make sure that you're, you're kind of always working within the boundaries of it.

• 17:29Speaker 02

  Yeah, I mean, so, you know, a lot of people think technologies are neutral in a way. I mean, they're not. They're typically driven by the values of the founders and it's really important to, you know, to stay true to those values. And we see things like, you know, Google initially founded with like, don't be evil. And now, I don't know, they changed their motto to something stupid, but it's no longer, don't be evil. You know, a lot of other people in crypto talk about this like can't be evil philosophy, which is really great because you like program things to not be evil. There's a lot in the world, the sort of political economics, and I think the blockchain space has really blown open the doors on what we can do with political economics. But fundamentally, like the problems in our time are political economic problems where, you know, there's the institutions are losing a lot of legitimacy.

• 18:13Speaker 02

  You know, the nation states have kind of gotten too big to effectively manage themselves. They're too complex and sort of like a Hayekian sense, they can't process enough of the sort of low level localist information. And so, you know, you could think of a lot of the blockchain systems today as potentially making similar kinds of mistakes, as establishing themselves as like overextended empires that are sort of trying to dominate the whole world and get everyone to use their system and kind of monopolize. And we really wanted to push back a bit against that and say, look, the most important thing is this sort of localist bottom up ideal, right? That individual communities can sort of, you know, take control of their own destinies and their own sort of infrastructure and use infrastructure that reflects their own values. And I don't know what their values are, right? I can't say to them, use this thing because this thing is correct and I'm gonna, I'm

• 18:57Speaker 02

  gonna force it on you and whatever. The important thing is to, you know, give them technologies that allow them to reflect their own values, whether I agree with them or not, right? And that was really what drove Cosmos, was this idea of sovereignty, that, you know, any community could do this, could put together their own blockchain to reflect their own values, whatever they might be, and still be interoperable with everyone else. So even though you have your own value system, you're not siloed off from others, you're still interoperable. And so from that bottom up perspective, then build, you know, global or international systems that connect different values and different nation states and so on. So while a lot of, you know, a lot of blockchain systems today might sort of position themselves as these kind of domineering empires. You can think of the Cosmos model as more like the nation state, right?

• 19:42Speaker 02

  It's like each country sort of fragments out of these empires. They have their own constitution, their own citizenry, their own culture and value system. And yet they're still kind of interoperable with all the others. And so that that balance of sovereignty and interoperability, we think is really important, not just to the blockchain space, but also to political economics writ large, right? And there's sort of the, you know, history of the last few thousand years as this kind of, you know, this tension between sovereignty and hegemony or between isolation and interconnection, right? And really trying to surface that historical political economic trend. And its importance today, like if you look at, you know, municipalities still don't have really constitutional recognition or legitimacy. They're still kind of agents of the state where more than 50% of the population now lives in cities. And, you know, we have a lot of problems because of the lack of, say, independent monetary

• 20:27Speaker 02

  policy by cities or so on, right? So the goal of Cosmos is really to sort of bring that philosophy to light and remind people that yes, you know, we do have sort of control over our destinies, or at least we should. And we can build technology that really enables that. And that's really what we what we have been prioritizing. And, you know, we think to great success as we now see arguably Cosmos is the most successful blockchain application platform after Ethereum. You know, Ethereum came first and sort of had this first mover advantage, but people have really gravitated towards this sort of sovereign ideal that, oh, I can use this tech and I don't have to subscribe to some other person's political economic ideals because I can I can assert my own, right? Yeah.

• 21:05Anthony Pompliano?

  Absolutely. And so when you think through this, you keep mentioning localism. Describe like what exactly you mean by that and why is that kind of a key focus for you? And you talked a little bit about the municipalities, but like just kind of go deeper on that.

• 21:17Speaker 02

  Yeah, so, you know, I think the world is unfathomably complex, like so complex, right? Yeah. And so the idea that that we're going to build states and governments that are going to have purview over these increasingly complex geopolitical domains, I think is really arrogant. And and we could do with a little bit more humility. And Not not just that, but the there's so much diversity in the sort of constituency of these, you know, geopolitical domains that it's really not possible for a single government with the kind, you know, a single like federal government, say, with the kinds

• 21:56Speaker 02

  of democratic mechanisms we have today to adequately or accurately represent that citizenry across the, you know, complete set of ideas and issues that that matter to them, right? And so for that reason, you know, from a sort of purely like physical information theoretic foundation, it seems to me that we very much need to move to a more a more localist, you know, political economics and governing mechanisms, and also from a sustainability perspective, because if you make a decision at such a large geopolitical scale and you're wrong, the implication of that or the impact of that is across a huge body of people, right? And so it's very hard to tinker, right? And tinkering and this sort of like ability to have a kind of convex upside and low downside, right?

• 22:41Speaker 02

  Where you where you can mess around and if you screw up, it's not a big deal, but if you find something new, you know, it's a great deal. You can't really do that at a federal level or, you know, when you're dealing with such a large geopolitical body. And so I think it's actually really important for our ability to sustain ourselves as a species and as civilization to have much more decentralized decision making. But, you know, that's not to say that like every every decision has to be voted on by like a large body of people, but that the locus of decision making should be much more local. And so that the municipalities and smaller communities shouldn't be forced to be subject to, say, a nation state that's, you know, sitting far away and and is, you know, trying to decide over a world that is way too complex for it to process. And by the time it processes the information, you know, it's already stale, right?

• 23:25Speaker 02

  And and people were raising the alarm about this, you know, Hayek especially and others over the course of the 20th century. And things have only gotten exponentially more more complex since then. And so it seems really important from both, you know, in order to make good decisions and in order to be sustainable and to preserve that ability to tinker, that we need to reduce the scope of a lot of the geopolitical decision making and be able to operate at, say, a more municipal or even provincial level.

• 23:50Anthony Pompliano?

  When you do that, what happens to the, let's say, national or international stage? Does that weaken some of those other kind of apparatuses? Or does it simply just strengthen the localism and everything else stays the same kind of on a national or international level?

• 24:05Speaker 02

  Yeah, I mean, I don't, I don't think we know exactly what that looks like. I think there are ways to continue to strengthen international ties and, and the, there's a role for a nation state, right? This isn't to say let's abolish the nation state and have like, you know, anarcho-libertarianism everywhere. Like, no, I'm not a fan of that. I'm a fan of very strong political institutions, but those institutions, I believe, should be much more local and should be much more responsive and participatory, right? And, and like I'm saying, there's no way to do that at a national level. But I would like to see sort of national political institutions that are more clearly built up out of the, the sort of subsidiary, you know, municipal institutions, let's say, rather than being appointed or, or, you know, delegated by the federal institution,

• 24:50Speaker 02

  actually have the, the federal institution be a reflection of these sort of underlying processes. So we can have a bit more of a bottom up process for developing our, our national politics and thus, and then our, our international relations. You know, I don't, I don't know exactly what this is going to look like. And I'm no, you know, expert on, on political science or even economics by any degree. This is just sort of my, you know, biophysical intuition, my understanding of information theory and so on, trying to, trying to, you know, apply itself to political economic domain. But I don't think we know exactly what it's going to look like. And anyone who pretends to, you know, is probably, probably wrong.

• 25:24Anthony Pompliano?

  So one of the things that's fascinating to me is this idea of interoperability. And it feels like everyone is arriving at the same conclusion, which is that there's tons of experimentation, there's tons of innovation and progress being made across all these different ecosystems. If you strip away the tribalism and kind of the religious zealot aspect of, of each one of these communities, and you look and say, wow, there is a lot of innovations occurring kind of on a, on a totality basis. Wouldn't it be awesome if a user or a developer or a product could leverage all of that different innovation? That would probably be pretty powerful. And so this is where kind of the idea of interoperability. Interoperability comes in, how exactly do you see where we are today? So forget kind of the promise of it and forget kind of the things that haven't worked.

• 26:08Anthony Pompliano?

  But when you look today and if we just took a snapshot, like how interoperable are certain products? Are the teams with each other trying to build like just where are we today as a as a kind of a check in? Or a state of the union for interoperability, if you will?

• 26:22Speaker 02

  Yeah, so I mean, so Ethereum from the beginning has had this this feature of interoperability. People refer to as composability, you build a smart contract on Ethereum. It can atomically communicate with every other contract on Ethereum. And that has, you know, exploded in the form of of DeFi today and all the sort of power of this sort of, you know, financial Legos that that people are building with. What's happening with all the other blockchains is that their first order of business is to build a bridge to Ethereum. Right? And so every one of them is sort of, you know, approaching interoperability by first building a bespoke or sort of ad hoc bridge to Ethereum to allow them and their functionality to interoperate with what's happening on Ethereum and extend the sort of, you know, domain of composability on Ethereum onto the other chains.

• 27:03Speaker 02

  One of the challenges is is that across those bridges, the sort of raw atomic composability of Ethereum doesn't extend cleanly, right? And so a lot of people now are trying to understand what that what that looks like to actually, you know, have these these sort of DeFi Legos on different blockchains with a bridge in between, like an asynchronous bridge in between and what that means for composability in that world. So I think we're at the, you know, we're sort of at the beginning of trying to understand composability in this world of many blockchains where not everything is on in a single state machine. The other thing that's starting to happen, and I think that that Cosmos is really driving this, is the idea of standardized interoperability protocols. And so ours is we call it IBC, the Interblocking Communication Protocol.

• 27:48Speaker 02

  You may you may know that it's actually planned to launch in about 12 hours. We're doing a major upgrade to the to the Cosmos hub, which will see the IBC protocol that we've been working on for a long time finally go live. And the idea with IBC is to really standardize, much the same way that TCP standardized communication over the Internet, to standardize communication between blockchains so that every bridge and every interoperable set of blockchains isn't just built in sort of a bespoke ad hoc way, but that we really have like clean, extensible, well-understood standards that we can then build on top of, right? And so IBC is not just a low level protocol. It's also sort of an extensible platform that people can build extensions on. And we can start to understand maybe more formally what composability is going to look like across these different blockchains.

• 28:29Anthony Pompliano?

  Got it. And so when you think through this, the name was what standardized, what was the IBC stand for?

• 28:35Speaker 02

  Interblockchain communication.

• 28:37Anthony Pompliano?

  Interblockchain communication. And so the communication part, I think, is what's so fascinating here of just, that's ultimately what is happening. And so if you, again, take away tribalism, you look at, hey, just the ability for these things to work together, ends up being kind of a one plus one equals like three or four rather than two. How do you see us moving forward? And where are the biggest obstacles? Is it a human problem or is it a technical problem? And by human, I mean, is it literally just like we're all idiots and everyone's just staring at each other, being like, now we don't want to work together? Or is there actually very identifiable technical challenges that still lay ahead that people need to solve in order for this to work on kind of a global scale across a bunch of these different open protocols?

• 29:18Speaker 02

  Yeah. So I think it's funny because it's mostly a communication problem, right? So a lot of the humans are actually working very closely together. We're seeing a lot of, a lot of the different projects, or to put the tribalism aside and figure out how to build bridges to each other. And so we're all stronger if we all, we all connect together. And that's, that's probably true. But I say it's mostly a communication problem because a lot of people are still speaking different languages, or they're using, you know, the different academic backgrounds, or they're using language that is sort of informally defined. And so I think there's a real challenge right now, actually formalizing the guarantees that we get, the sort of security guarantees that we get out of interoperability and trying to understand the different failure modes, right? And, you know, DeFi sort of has this,

• 29:59Speaker 02

  has this problem, which is that it's, as much as it's transparent on Ethereum, you can see everything that's happening, it's still very complex. And to trace the routes through, you know, through a sequence of transactions, even if they're all happening atomically, you know, it's, it's led to all these kind of, you know, some people might call them hacks, but they're, they're more like arbitrage opportunities, massive arbitrage opportunities that derive from this kind of composability on Ethereum, right? Where you, you take out a flash loan over here and you end up being able to, you know, take out a huge amount of money out of some other contract and then, and then pay back your loan. Because this sort of, you know, cross chain communication is just getting started. And there are a number of ways to do it and a number of different ways these bridges are secured. I don't think we have a Really strong understanding across all the different humans, across all the different teams

• 30:42Speaker 02

  of exactly what kinds of security guarantees we get and how to think about them and how to formalize them and build applications on top of them and then how to surface those guarantees to users, both to developers and to end users who want to know, you know, when I put up some funds over here, what are the sort of terms or what are the guarantees I get out of that, right? And a lot of that people will probably try to gloss over with insurance and other things, sort of like what's happened in the in the traditional financial system. But I think we have an opportunity to really, really drill down and try to formalize our communication and and the models of interoperability here. And that's a lot of what we've been trying to do with IBC is to really formalize a standard so people can understand exactly what kind of guarantees they're getting and therefore how to use it.

• 31:26Anthony Pompliano?

  Can you give us a example of something that is not possible without interoperability? And so when you have interoperability, it then either one becomes possible or two, it's such a significant inflection point that it becomes valuable. Whereas without interoperability, it's not very valuable.

• 31:42Speaker 02

  Yeah, I mean, one of the one of the simplest things is just trading across, across chains, right? So you can imagine right now on Ethereum, if everything's built on Ethereum, it's great. You have Uniswap and you have other decentralized exchanges there and you can all, they can all trade against each other on Uniswap. But if you have coins on many different other chains and, you know, you want to, you want to have some price discovery mechanism between them. Right now, the only option is basically to send everything off the blockchain to some centralized exchange. Now you have a lot more custody risk, you have regulatory risk, you have all these other, all these other issues and and the platform is no longer extensible, you can't build around, right? And so one of the sort of, you know, initial holy grails, let's say, of interoperability

• 32:24Speaker 02

  is being able to have exchange across many more platforms without having to trust some centralized third party and incurring all that, all that custody risk. But that's a very, you know, first order sort of thing. Another sort of major thing you get out of interoperability, which is sort of one of the, again, the driving features of Cosmos and this idea of sort of sovereignty, is also fault isolation, right? So on Ethereum, if you If you build up, you know, this huge set of contracts and they're all talking to each other and whatever, a bug in any one of them can affect sort of all of them, right? Because they're all kind of composed together. Uh, in a more, uh, in the sort of interoperability model that we've been pushing for in Cosmos, where every chain is sort of independent, but is still able to communicate. If one of those chains fails for whatever reason,

• 33:09Speaker 02

  it doesn't necessarily affect all the other chains that are sort of connected up, right? Uh, you can, you can isolate those faults. And so it gives us a more, uh, kind of rigorous and fault tolerant way to actually build up these systems. Uh, and so that's not to say that, you know, necessarily that's a feature that wasn't possible without it. But, you know, having better fault tolerance, uh, is sort of the whole point of, of blockchains in the first place, right? It's sort of like the classic argument, what can you do with a blockchain that you can't do without? And people say, oh, you get fault tolerance, it says a ship resistance and all these sort of things. Um, you know, so, uh, you, you can make a similar argument for sort of the interoperability we're pushing for, that you get that sort of fault isolation, you can experiment more. You don't have to upgrade, uh, a single blockchain to get new features. You can launch another one, uh, and so on.

• 33:51Speaker 02

  So it allows a lot more, uh, experimentation and even more permissionless innovation, let's say, without putting others at risk.

• 33:59Anthony Pompliano?

  Absolutely. Let's talk about proof of stake before we go into the rapid fire questions to finish up. Uh, proof of stake, proof of work, there's two very, very different camps, uh, of thought there. Um, what is your argument as to why proof of stake is necessary? And then what do you think the advantages of proof of stake are over proof of work in your opinion?

• 34:18Speaker 02

  So, um, I believe there should be one or a very small number of proof of work blockchains. I think proof of work, uh, provides something to the world that we don't otherwise know how to achieve. And that's this sort of thermodynamic immutability, which is to say, uh, you know, a record, a legible record, um, that the, the security of which, the mutability of which is guaranteed by thermodynamics. Um, that's very powerful, especially in a highly uncertain geopolitical situation like we're in today and are likely to continue to be in for the next, you know, century, if not more. Um, so that's really important. But that said, it is, uh, a huge, huge energy cost, right? And so if we are going to have a proliferation of blockchains, which we will, because blockchains themselves are just the sort of next.

• 34:59Speaker 02

  Evolution of, you know, the automation of digital, digitization of human processes and so on. Uh, we can't have them all run on proof of work. So we need an alternative, right? And, and proof of stake has really emerged as the most viable, uh, leading alternative to proof of work. But proof of stake isn't, isn't the end either, right? I think we're sort of, we're, we're going to see a sort of natural progression from the sort of global anonymous proof of work systems towards more local and identifiable, um, uh, you know, security systems, right? And so proof of stake is a step towards that. Then you might go from, uh, you, you might step from proof of stake to something like proof of bandwidth. Where now, you know, the participation in the network is, is determined by how much bandwidth you're actually providing.

• 35:40Speaker 02

  And then we can actually think about, you know, um, individuals and, and communities providing their own, uh, internet infrastructure. And then, you know, I would hope we would go to something even more local and real, like, uh, proof of produce or, or proof of carrot or whatever, right? Where the actual, um, you know, security or, or core infrastructure is provided by, say, the farmers and people who are actually providing, um, you know, the, the means to keep us alive, right? And so I think there's this gonna, gonna be this gradual progression, you know? Proof of work was necessary to get the thing started, but there'll be this gradual progression from this sort of global anonymous proof of work world to something much more local and to building systems that are based on more local work or more local, um, kinds of activity.

• 36:18Anthony Pompliano?

  Got it. And so when you think through it, if there's one kind of proof of work system that, uh, is kind of the dominant one there in the proof of stake side, is that also true where there's just one? Or is this kind of the idea of no, everybody else needs to be proof of stake? And therefore that's where you get interoperability and kind of a lot of things we talked about today.

• 36:35Speaker 02

  Yeah, there's gonna, there's gonna be many right now. I mean, if you're launching a new blockchain, the best way to do it is to use, uh, a proof of stake model. And that's sort of one of the, one of the things, you know, Cosmos has, has democratized was actually making it really easy to set up your own proof of stake chain. Sort of all the modules and everything you need for that is, is built for you. Um, so, but, you know, progressively I hope we move even away from just this sort of raw proof of stake based on your economic stake to actually other forms of more local work. Um, like I was saying, proof of bandwidth or, you know, proof of agriculture or whatever it might be. Um, and we don't know exactly what that it looked like yet. People are starting to experiment with it. Um, but I think that will sort of be the, the next evolution will have this sort of hierarchy, just like there's a hierarchy of money and a hierarchy of financial institutions. There'll be this kind of hierarchy of, um, of infrastructure security, we could call it.

• 37:21Anthony Pompliano?

  Absolutely. What's the one thing that no one's talking about when it comes to proof of stake, interoperability, or the sovereignty that you think everyone should be paying attention to? So kind of the most underrated aspect of all this work that you're doing?

• 37:37Speaker 02

  Yeah, I think it's this, money is the killer app. You know, everyone's looking for the killer app right now, and they think it's DeFi and all this kind of finance stuff. And maybe today, DeFi is having its moment. But I think ultimately, what's important about all this stuff is democratizing the institutions of money and making money a much more local phenomenon. And that's really what I'm in it for and what we're working towards. And enabling, you know, smaller, much more local communities or municipalities to take control over their own monetary policy in a way that's not, say, combative with with the central banks or the nation states, but is actually supportive of it. And to get that kind of sustainability we're in it for, from more localist monetary policy. And so, you know, a lot of people think we're just, oh, we're just democratizing Wall Street.

• 38:22Speaker 02

  I think that's a great first step, important first step. But the end goal is really sustainability of civilization, of the species. And I strongly believe that comes from localism. And that's really what we're working towards. And so, you know, I would say, we spun up a company recently called Informal Systems. And, you know, I'm the CEO of that company. And we're heavily involved in, in sort of the Cosmos network and building Cosmos technology. But our mission is really verifiable distributed systems and organizations to support localism. Right? So having those sort of strong guarantees, we were talking about having people understand the systems they're using, what they get out of those systems, not these like, you know, 20 page legalese terms and conditions that no one understands, but something that's really accessible to humans and that it can empower smaller and more local communities to sort of take charge of their own economic lives.

• 39:08Anthony Pompliano?

  For sure. Before I let you go, I always ask everyone the same three questions. You get to ask me one at the end. First question is, what's the most important book that you've ever read?

• 39:17Speaker 02

  They give you three.

• 39:18Anthony Pompliano?

  Sure.

• 39:20Speaker 02

  The Origin of Consciousness and the Breakdown of the Bicameral Mind by Dillian James, The Rainbow and the Worm by Maywan Ho, and Jitterbug Perfume by Tom Robbins.

• 39:30Anthony Pompliano?

  Start with the first one, why?

• 39:33Speaker 02

  You know, like I said, the sort of four questions that define my life. What does it mean to be human? I think this book does an incredible job of outlining human consciousness and where it came from, and how it relates to the sort of history of religion. It's a fascinating book on consciousness, where it comes from, and you know, what it means to be conscious today, and yeah.

• 39:56Anthony Pompliano?

  And then, second book?

• 39:58Speaker 02

  The Rainbow and the Worm: The Physics of Organisms is basically a tour de force on how magical and mysterious life is, and what it means to be alive. And she, Maywan Ho, is a biochemist, and she really sort of cemented this idea for me of biological organisms as sort of the quintessential sustainable systems, and this idea of, you know, building economic realities in sort of more sustainable, concentric loops, rather than like tornadoes. And so, she found out all kinds of amazing things about the magic of organisms that are just not easy to explain with traditional sort of biomedical understanding. So, anyone who's interested in sort of the nature of life, and you know, what is life? I highly recommend that book.

• 40:36Anthony Pompliano?

  That's a great one. Last one?

• 40:38Speaker 02

  And the third, yeah, Tom Robbins, Jitterbug Perfume. This is a book I wish I wrote. It is a sort of epic on the history of humanity, and also the dangers of sort of arrogant technocratism, right? And so, you know, a lot of people today are like, "Oh, we're gonna live forever", and you know, they're pursuing all this kind of stuff. But you really need to not just think about the brain, but also the heart and the rest of the body, and do things in sort of a more holistic, systemic manner. And so, to just try to preserve your mind, because you know, you're a technocrat, is really dangerous. And he does an incredible job in this story of outlining that, and sort of the right way to be immortal, let's say.

• 41:13Anthony Pompliano?

  Very cool. The next question is all about sleep. It's a little bit more personal. What is your sleep schedule? And really, this question comes from our friends over at Eight Sleep. I'm an investor in the business and I used to sleep like six hours. Now I sleep in the thermo-regulated bed. It's amazing. I sleep like eight, nine hours. I feel a completely different person. And so now I may convert to the sleep religion. Are you somebody who sleeps a bunch? Do you not sleep a lot? What's kind of your sleep routine? How has that evolved over time?

• 41:44Speaker 02

  It could definitely be better. Nowadays, I don't know, I get to sleep probably around midnight or so and I'm up around eight. So there's a decent eight hours in there, but sometimes it's more like six hours.

• 41:57Speaker 02

  Yeah, I would love to start tracking my sleep more. I watch a lot of comedy before I go to sleep to kind of clear my mind. Maybe that's not so great, so I'm trying to read a little bit more. Yeah, I've been meaning to track my sleep better, so maybe this will finally prompt me to do it.

• 42:12Anthony Pompliano?

  Makes sense to me. Last question, aliens. Given your earlier questions that you spent a bunch of time thinking about, your answer here will be pretty interesting. Aliens, are you a believer or non-believer?

• 42:24Speaker 02

  I am 100% a believer. I mean, so on a number front. So first of all, the dolphins are conscious in a very interesting way. And so are the cephalopods. We actually run another company called Cephalopod Equipment Corporation. That is one of these group of stake validators. So I have tremendous respect for the cephalopods and the cetaceans, the dolphins and so on. I also experimented a lot with psychedelics and there is something out there. Maybe it's just like deep unconscious psychological reality. But this is a world we do not begin to understand and sort of, you know, physical reductionism isn't going to cut it. This universe is also a universe that peoples. You know, life is not an accident. It's sort of an inevitability of the universe we live in. It happened here on earth. It definitely happened in other places.

• 43:05Speaker 02

  But, you know, if we're right about how old the universe is, then there's very likely life out there, but it may not be that much more advanced than us. And so it's sort of our duty, I think, to sustain ourselves and to achieve sustainability and not just blow ourselves up in sort of a, you know, technocratic kind of wet dream, but actually like do this right. And if we're going to get to space, you know, figure things out at home first. And that's why this sort of sustainability stuff is so important to me and localism is a big part of that.

• 43:34Anthony Pompliano?

  Makes a lot of sense to me. What one question do you have for me to finish up?

• 43:39Speaker 02

  What is your favorite book?

• 43:42Anthony Pompliano?

  My favorite book. I always answer the same three, which is kind of stupid. Or not stupid, but just like everyone's heard it before. So Rich Dad, Poor Dad, Think and Grow Rich, and The Rich Man in Babylon. I read them all when I was 20, 21 years old. You know, pretty life changing. A book that really made me think. I'll give you two other books that I read in succession with each other and found very fascinating. One was Algorithms to Live By, and the other was a book called Super Forecasters. And basically, just this whole idea of, you know, the crowd is usually right. And also, the ability to, you know, essentially look at, identify the patterns and the systems in your life, and then automate them, use algorithm software, etc. I found both those books super interesting, too.

• 44:25Speaker 02

  Have you read Metaphors We Live By?

• 44:28Anthony Pompliano?

  No. Metaphors We Live By? I have not.

• 44:30Speaker 02

  Yeah. I'm not sure if Algorithms to Live By is sort of a play on that, but Metaphors We Live By was sort of the, I think it was somewhat derivative of the Julian James book, but it sort of went more in-depth on how most of our conscious reality and understanding of the world is built out of metaphors. And the authors even wrote a whole book on how all of mathematics can be derived from the sort of metaphors of our understanding, growing up in a world with gravity and so on. So it's just a fascinating kind of embodied approach to cognition. The thing I really wanted to ask you was, what is your favorite crypto or blockchain platform besides Bitcoin?

• 45:02Anthony Pompliano?

  Bitcoin is so far ahead of everything. I would say, I'll give you kind of a category that I'm really interested in, which is

• 45:11Anthony Pompliano?

  the decentralized, like the market adopted decentralized financial applications. And so what that means is like, you know, I'm generally of the belief that 95% of all of the things that are being built right now will end up not being valuable. That doesn't mean that we shouldn't build them, like actually, in fact, like the experimentation and the pursuit of innovation is important, like the journey is almost more important than the end result, because the journey leads to the end result. But with that said, I think there's very, very few. What I do have as kind of two core theses is digital assets will be more valuable than analog or electronic Qsip assets. I think people kind of are wrapping their head around that now. But the second thing is the decentralized products will be bigger than the centralized products. And so when you start to look at some of these Decentralized products, maybe like a unit swap is a good example, right?

• 45:55Anthony Pompliano?

  Where it's just doing, you know, 600 million to a billion dollars in annualized revenue from trading fees on a decentralized exchange. Like, I don't care what your tribalism is. I don't care what your kind of religiousness is to any of these ecosystems. Doesn't actually matter what ecosystem it's being built in. It's just you can't argue against that type of market adoption. And so I think that stuff's super interesting and I'm spending a bunch of time just trying to wrap my head around it and frankly, just learn, right? I don't even know necessarily if I've got a ton of opinions about individual things. It's more so just me trying to really, really learn about, you know, why is the market adopting certain things and kind of where, what is that highlight as to what's next?

• 46:34Speaker 02

  Cool.

• 46:35Anthony Pompliano?

  Where can we send people to find you on the internet or find more about Cosmos?

• 46:39Speaker 02

  The cosmos.network for Cosmos, informal.systems for our company Informal Systems, and I am BuckManster, B U C H M A N S T E R on Twitter.

• 46:49Anthony Pompliano?

  Amazing. Listen, thank you so much for doing this, Ethan. We're going to do it again in the future.

• 46:52Speaker 02

  Sounds great. Thanks a lot.