David Post, Ph.D. Managing Director, IBM Blockchain Accelerator: How to Decentralize a Centralized Network

David post is Managing Director at IBM Accelerator. In this conversation, David and Anthony Pompliano discuss transaction volumes, smart cities, and how to decentralize a centralized network. ----- Curious about Cryptocurrency but don’t know where to begin? Storm Play is a free and fun way to start earning in exchange for you time. Simply download, register and discover microtasks that meet your interests and be rewarded with Storm Bolts. These Bolts can then be converted and withdrawn into your favorite cryptocurrency, including Storm Token, Ethereum (ETH) and Bitcoin (BTC.). Earn cryptocurrency rewards by playing new games and trying out cool products! Download the app to start earning crypto here! https://bit.ly/30pSxh9 (Available for iOS and Android). ----- 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. David Post is Managing Director at IBM Blockchain Accelerator. In this conversation, we discuss transaction volumes, smart cities, and how to decentralize a centralized network. I really enjoyed this conversation and found David very engaging and educational. I hope you enjoy this as well. Storm Play is a free and fun way to start earning cryptocurrency in exchange for your time. You can simply go to the App Store, download, register, and then discover microtasks

• 0:43Anthony Pompliano?

  that meet your interest, and you're rewarded with Storm Bolts. These bolts can then be converted and withdrawn into your favorite cryptocurrency, including Storm Token, Ethereum, and Bitcoin. Again, you can earn cryptocurrency rewards by simply playing new games and trying out cool new products. Go to the App Store today and download Storm Play. 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.

• 1:27Anthony Pompliano?

  Bang, bang. Alright guys, I'm here with David. We've got a lot to go over, and you are the second person from IBM that we've had come in here, which normally would scare people, but you've got a really interesting background. So let's start there, and then we'll get into all the crypto stuff.

• 1:44Speaker 01

  Yeah, so, you know, I never-

• 1:46Anthony Pompliano?

  What did you do? What did you do in your past?

• 1:49Speaker 01

  Or what didn't I do? Yeah, I think I've had a non-traditional route to somewhere like IBM. I didn't think I'd be working at IBM, period, much less for eight years. You know, got my PhD in political science, spent time at the World Bank, worked with a lot of hippies, doing stuff around anti-corruption and climate change and post-conflict reconstruction, and- When I was doing my PhD, I asked my friends at the World Bank, I got this opportunity to do strategy consulting at IBM. What should I do? They said, check it out. Come back if you don't like it. And I've been here ever since. So it's been a interesting ride and the blockchain space has been super interesting, but we're not there yet.

• 2:25Anthony Pompliano?

  Yeah, absolutely. So one, anti-corruption work at the World Bank, what is that?

• 2:31Speaker 01

  Yeah, so basically going places, you know, very high on people's to visit list, Southern Sudan, Burundi, Liberia, Sierra Leone, really working at the community level to figure out how we could put programs in place that would basically deliver results for people by empowering them. So giving communities control over budgets, having them build small scale infrastructure projects, develop micro enterprises, really fascinating work. I had a great time just going and hanging out with people and, you know, seeing the world. I mean, people are pretty much the same everywhere you go. That's what I learned. We might be separated by geography, might have been born in different places, but everyone's pretty much the same wherever you go. That's one of the lessons I've taken away.

• 3:09Anthony Pompliano?

  Yeah, everybody just wants to have fun.

• 3:10Speaker 01

  Everyone wants to have fun. Everyone wants to provide for their family. I mean, it's, we have all, you know, the same common needs. It's Maslow's hierarchy of needs. I mean, Maslow got, you know, a big portion of that right. So everyone pretty much wants the same.

• 3:22Anthony Pompliano?

  Got it. And then when you got to IBM, at some point you were working on the smart cities stuff. Maybe talk a little bit about that and then I want to, I got a lot of questions. So we're just gonna, we're gonna spend a couple of minutes on that.

• 3:33Speaker 01

  No, it's good. Yeah. So basically, you know, I was in consulting and they needed someone to write a paper for some senior executives at IBM. I was on the bench and I came in and it turned out that a new general manager for Smarter Cities came in at the same time. And I got a three-month dress rehearsal for him. Anyone who's listening, careers are a combination of a right time, right place, and, you know, having the right skills. So basically got hired as one of the first people on his management team. And we were kind of the growth business within Smarter Cities. We were kind of the equivalent of a series A. So the question was, we've got, we've got a product, we've got some buzz in the market. How do we put together, you know, a suite of tech products and services offerings that's really going to make a difference in cities? So triple bottom line business. It was very, you know, a lot of the same principles I used in public management within the World Bank.

• 4:18Speaker 01

  It was applicable to the types of things we were doing within. Cities because it's all about how you improve core processes in a way that's going to generate economic development, improve operational expenditures and ultimately create better results and fascinating opportunity traveling all around the world, meeting with city leaders. Pretty inspiring.

• 4:34Anthony Pompliano?

  So let's talk about two different types of cities. Like when you guys go into something like New York City, right? So kind of a major metro. What are the types of things where you can use technology to drive whether it's change or impact or however you kind of measure that. But like, what does that actually mean in execution in a major metro?

• 4:52Speaker 01

  Well, if you think about a city, if you think about New York City, it's a city, you know, if from an operational perspective, it's a city in name only. What really is New York City? It's the departments that deliver services for cities. For citizens. So you have the water department, you have the education department. So within each of these verticals, there are ways that you can apply technology to improve their core functions. So if you think about water management, New York City is probably pretty good, but a lot of cities, much of the water leaks out the pipes before it reaches the end users. The traditional way to maintain those pipes is to send a crew on a predetermined maintenance schedule, basically to check if everything's okay. With technology, you actually don't need to do that. You put some sensors on the pipes and the pipes will tell you when they're broken. So it's just a way of being able to use technology to act more proactively.

• 5:34Speaker 01

  If you've been listening to what's going on the city council, people are thinking about congestion pricing. IBM pioneered some of that technology, both in London and in Stockholm. And it's really decreased the amount of wear and tear on the roads, which obviously is good for the capital budget.

• 5:46Anthony Pompliano?

  All right. So let's talk about this because in New York City, for those that don't know, they've now implemented a tax, I think it's like a, or a fee.

• 5:55Speaker 01

  Proposed, yeah.

• 5:56Anthony Pompliano?

  Well, there's the one on.

• 5:58Speaker 01

  That's right. There's one already placed.

• 5:59Anthony Pompliano?

  Taxis, Ubers, Lifts, like ride sharing that I think is like 250 or 275 just for getting in the car, right? And that's supposed to go to, go towards the improvement of infrastructure. So that's just kind of a flat fee per ride. I think people were, hey, now I get in the taxi and it's immediately $5, right? It's a little bit different than when it was 250. But now the new one that is proposed, I think you're talking about is essentially there will be higher rates or taxes for certain parts of the city that are most congested.

• 6:31Speaker 01

  Correct.

• 6:31Anthony Pompliano?

  And I'm guessing you've got the experience here. They're trying to use economic incentives to divert traffic from the most heavily congested areas, is that correct?

• 6:40Speaker 01

  That's correct, and it's been very successful in cities like London and Stockholm and Singapore. They want to effectively provide you with an incentive to ride public transportation. Don't take your car into the busiest area of the city. The revenue that's generated, my understanding, I'm not an expert on this, but it'll go to the MTA. And so there's a benefit to the transit authority from this specific proposal. And there's also a benefit because if there's less cars and there's less wear and tear on the infrastructure, which means you have to spend less money repairing the infrastructure.

• 7:07Anthony Pompliano?

  Absolutely.

• 7:07Speaker 01

  So that's the main idea.

• 7:09Anthony Pompliano?

  And so in that, like, talk about the technology that gets used and kind of the data. I'm assuming there's tons of data around just like what are the most heavily congested areas of the city, right? So like that, and some of that's anecdotal, like you and I probably could say in Manhattan, here's the places that suck to drive a car, right? But how do you use the technology and the data to come up with a here is what that solution looks like and if it's implemented, it will be impactful?

• 7:33Speaker 01

  I think there's two things you're trying to optimize if you're talking about what's the transportation sector. So if you're talking about congestion pricing, you're using license plate recognition, you have to have a billing system. That's the way you track who's coming in and how much they should be charged. And you charge based upon how many cars are in there already. So you have to have a sense of what the current situation is. That's how you set the pricing. For optimizing traffic within a city, you can do things like interconnect the traffic lights so they'll respond based upon the traffic patterns as opposed to a predetermined schedule. Once again, you're optimizing based upon data. So there's a variety of levers that you can pull if you want to improve the core functionality of a system within a city. Now, there's also ways that you can benefit from improvements or synergistic improvements between systems. So something like transportation data and economic development data.

• 8:17Speaker 01

  You might use transportation-related data to inform how you want, what's going on at various businesses, for example. So there's a way of triaging these data as you start by implementing something that improves an individual system, then you try to combine one or more systems, then you try to combine one, two, three, four, five systems. And You know, it's still a journey. Things in the public sector obviously tend to take a longer period of time. I think we did really good work. That work continues, though, and I think that what you see in New York City, most recently with the proposal for congestion pricing, is very much about, that's what smart cities is about.

• 8:49Anthony Pompliano?

  Yeah, and I guess, like, forget the underlying technology, whether it's blockchain, not blockchain, whatever, but just like from a user experienced way, the idea that, hey, there are probably going to be autonomous cars in the future, right? I think that's pretty inevitable at this point. But also, those cars may be able to communicate, pay, do certain things that we don't think those cars doing today, right? We kind of have dumb cars today, and we'll really have smart cars. But to me, it feels like it's not just, oh, I drive over something and I pay the toll, and, you know, the car somehow transacts with that sensor in the road, and now we don't have to have people sitting out in, basically, a phone booth, you know, collecting tolls at the toll booth. But actually, it can communicate

• 9:30Anthony Pompliano?

  all sorts of data that the city then can use to better understand the wear and tear on the streets, safety, policing, right?

• 9:38Speaker 01

  Exactly.

• 9:39Anthony Pompliano?

  All this kind of stuff. And it just feels like theoretically, we all see this. But how close are we from a technological standpoint? Like, is it something where it's more pipe dream than reality today, but over time, the technology's going to improve and we'll eventually get there? Or are we actually pretty close to some of this stuff?

• 9:55Speaker 01

  I think that we tend to have, we tend to be impatient, and we tend to really care about the here and now. So I think that if you look at how development occurs, and I think that, you know, technologically enabled urban development is one particular type of urban development. I think you're going to see it in stages, you're going to see it sequentially. So, specific technologies will take shorter versus longer. So, some of the core functionality, infrastructure you'd need for autonomous vehicles could do those types of things you're talking about, could tell us about wear and tear on the roads and things of that nature. It's a necessary but not sufficient condition to get to autonomous vehicles. So, I think that, you know, as in other areas of technological progression, you'll see stepping stones, and that will lead to a subsequent innovation. And that's how I think things will continue to proceed.

• 10:36Anthony Pompliano?

  Absolutely. And so, after smart cities, you went and joined the blockchain team? Or? How did you get from smart cities to blockchain? Or were you just one day you woke up and you were like, I think we're going to change the world. I'm all in.

• 10:48Speaker 01

  So basically, I was, I was running a sales for a portion of our public sector business. So government healthcare scenario that I've worked in for, for a long time. And I was on my computer getting increasingly panicked that I hadn't invested in cryptocurrency earlier. And as I saw the boom happening, I said to my, I just began learning more and more about it. And when a job came available in the blockchain group, I thought to myself, wow, I've already studied this a lot. I'm ready for it. So I jumped at the opportunity to join the blockchain group. It's within large companies. Smarter Cities was an internal startup. Lots of fun. You get the, some of the benefits of being in a more nimble, smaller organization, but you also have the access to all of the, the good stuff that a big organization brings you in terms of access to clients and a platform for action.

• 11:32Speaker 01

  So I felt very much the same going into the blockchain unit. I said, well, this is a cool place to be. And, you know, lots of potential to innovate and lots of ambiguity, which is what I really like.

• 11:41Anthony Pompliano?

  Yeah, absolutely. And so give me like an overview of what IBM is doing in blockchain. Cause my understanding is you actually have a couple of different teams working on different aspects, some internal, some external.

• 11:52Speaker 01

  Exactly. So there's, there's three ways you can have a business in the enterprise blockchain world. You can sell technology, you can sell services, or you can build networks. So we have a team that's very focused on IBM blockchain platform, which is based upon Hyperledger. So you can access that in a multi-cloud format. So if you're on AWS, you can access it. Or if you're on our cloud, you can access it. And we have a very active services organization. We've done over 500 blockchain services engagements. So that's working with big companies on various blockchain use cases or business models. And then we have blockchain networks. So IBM owns three blockchain networks. There's the food trust with Walmart and Danone and Unilever. And that's about the traceability of food from farm to store. And then there's TradeLens, which is with Maersk.

• 12:36Speaker 01

  That has to do with the provenance of shipping containers. So how do you move shipping containers more easily and in a more digitized fashion throughout the global shipping supply chain? And then we have Worldwire. Shout out to Jesse Lunt, who I know has been on, on this podcast as well. And that's about international currency transfers. So those are the networks that IBM owns. I'm managing director of our accelerator. Which is basically a program where we work with either startups and primarily medium, small and medium sized companies. When I say small and medium sized, that could be $100 million in revenue, $300 million in revenue. And we work with them to build out new blockchain network concepts. So myself and my team, we manage basically like venture

• 13:18Speaker 01

  investors would, a portfolio of different networks where IBM has some type of an upside position. And we partner very closely with the management teams of those networks to both design blockchain business models based upon our successes and what we've learned throughout those 500 engagements, and also use IBM's client relationships to take new networks to scale.

• 13:36Anthony Pompliano?

  Got it. And as you're doing this, one of the things that you've said that I think is really fascinating is that there's a lot of folks in crypto specifically that are building decentralized applications, and they're really focused on the technology, right? And I've talked at nauseam at this point about, like, it doesn't matter how good your technology is, if people don't use it, doesn't count.

• 13:59Speaker 01

  That's right.

• 13:59Anthony Pompliano?

  Like, the usage is more important than what the technology actually is. But you've got this interesting theory around, like, the aggregation of transactions or volume. Maybe explain a little bit more about, you know, what this theory is and kind of how it actually works in practice.

• 14:15Speaker 01

  Yeah, so basically, there's no shortage of blockchain ideas or crypto ideas out there, but there's a real shortage of ideas that have gotten widespread adoption. As you were talking, it made me think, if you look at why the internet has been effective, it's because it's been the layer upon which people are transacting in a variety of different ways, from sharing funny photos to buying diapers. So when you think about any platform type of business, the lifeblood of any platform business is transaction volume. And I think what I've noticed, especially in the public, unpermissioned space, is that there's a lot of protocols that are built out there, but I don't really see any reason why You want to aggregate transaction volume on one platform versus the other. So I think that's going to be, when I think about public unpermission networks,

• 15:00Speaker 01

  it's about transaction volume. If I think about private permission networks, it's about transaction volume. So the T-shirt that I wear around is, "Got transaction volume?", question mark. Because that is what really matters here. If you don't have transaction volume, you don't have a business. If you do have transaction volume, you do have something people want to use, and it's a very good market indication that you're on to something.

• 15:19Anthony Pompliano?

  And it's really, another way to say this, I guess, is just like you have product market fit to some degree, right? People like, the product has found a subset of users that want to use it, and it solves their need, right?

• 15:30Speaker 01

  Correct, yeah. I would say that. Let me talk about the private permission space, because that's what I spend most of my time when I'm chasing my three-year-old around, you know, brainstorming on. You know, basically, if you think about it in the enterprise space, there's a big bias towards revenue bubbles. So when we're looking at, what type of business should we build from an enterprise SaaS perspective? You're doing a traditional market analysis. That's how it's been done. Blockchain networks are a different flavor of business. They are enterprise SaaS-enabled, but they're fundamentally two-sided marketplaces, or maybe multi-sided marketplaces. So the way that we think about it is, not where, what revenue bubble you can, you know, you can basically go after first, it's where do pockets of transaction volume exist that you could aggregate around a business network concept?

• 16:15Speaker 01

  And the areas that we've decided to start with, the networks that we're incubating, for us, are areas where IBM has transaction volume. So every big company has suppliers that they manage. They issue financial instruments like debt. They spend money on digital advertising. They manage IT assets. They issue patents. These are all areas where IBM has a tremendous amount of transaction volume, and so do a lot of our peer companies. So if you're thinking about trying to build a blockchain network, you want to think about how you're going to aggregate that volume, because if you aggregate that volume around one use case, and you have entities transacting, you can then find a lot of other cool stuff to also allow them to do. So the first order of business in this early stage of the market has to be on aggregating transaction volume.

• 16:59Speaker 01

  And whether you have a blockchain application that you've built, or whether you have a network that you're working on, when we're assessing what partners we want to work with, it's really with transaction volume in mind. That is the first order of business, is to get entities transacting with one another.

• 17:10Anthony Pompliano?

  Got it. And out of this, how much of... The focus is let's find areas where there's transaction volume and we're going to then start to use the technology to create more efficiency, lower costs, you know, just improve what's already happening versus are you looking at areas and you're saying whether IBM's got a business there or not, we know there's a lot of transactions in this market and so let's build a new product from scratch and then try to attract those users over, right? Like are you trying to ride the coattails of the trend or are you trying to actually get people to switch and kind of redirect their energy, their transactions, etc.?

• 17:45Speaker 01

  Yeah, so if you look at what blockchain does, this is a very interesting analogy which I've, which I took from somebody else, so it's not mine uniquely, but if you look at what ERP did for the enterprises, it basically did business process standardization within a company and that created a lot of synergies, a lot of, you know, potential benefits that people recognize, especially from an OpEx savings standpoint. If you look at what blockchain networks are very good at, I think it's, what hasn't happened is there hasn't been business process standardization between companies. So when you're looking for a blockchain network, what you really want to look for is an application that you can build that's an extension to an existing system. So we're engaged in one around supplier management. SAP, Arriba and Cooper are the biggest e-procurement tools out there. We've built an application

• 18:28Speaker 01

  around basically supplier identity. So it basically helps you with onboarding and validation. Right now, you have to prove yourself if you're a supplier to eight different companies using 80% of the same data. Much easier to have an immutable digital identity on the blockchain, digital passport for suppliers, you can use it to transact with any buyer on the network. In this particular case, we built something that is interoperable with existing systems. It's just an extension, it's an additional module. And we built it on the basis of the fact that chief procurement officers, ours first and foremost, said this is a big problem for us. It's an issue, existing systems don't really solve it as effectively as it would if it was in a network context. So let's find a solution where there's benefits on both sides of the fence and there are clear benefits to buyers and suppliers in

• 19:13Speaker 01

  this instance. So in this case, we said, is it a good blockchain use case? Yes, it is because we need to have the ability to permission identity. It's going to provide business benefits on both sides of the fence. Do we have internal transactions? Action volume. Yes, IBM has tens of thousands of suppliers. Number three, is there a partner that we can find to work with? So you asked how we pick technologically where we go. We look for partners with mature blockchain applications that are enterprise ready that can be taken to market within a year. And we pair that with the expertise we have in terms of designing blockchain business models and also aggregating transaction volumes from our client base. And then we partner together to build out a network. So the accelerator that we run is one feed into our partnership pipeline.

• 19:58Speaker 01

  Accelerator has two meanings. It's a program, but it's also kind of what we do. We incubate new ventures. And we, you know, it's not theoretical for us. We have a very clear perspective on how you build out blockchain networks. And we're currently working with partners to build those out.

• 20:13Anthony Pompliano?

  Would it be fair to say that a lot of the blockchain work that you're doing, when you go into a vertical where there's already transaction volume, there's already people using other types of technology to conduct their business. And you introduce this new kind of I think of it as triple entry accounting, smart accounting type stuff, right?

• 20:34Anthony Pompliano?

  It feels like there's just elements of automation and you're really trying to let the machines and the algorithms get better, right? And so it's less to me about like, oh, is it the decentralized versus decentralized versus, you know, some other form or fashion, however people are cutting it and debating it today. And it's much more, let me take this piece of technology and implement it into a marketplace that we already know people want to use these transactions. And then all we're really going to do is we're going to chip away at the inefficiencies, we're going to chip away at costs. And ultimately, if we are successful, we should reach near full automation because the technology is just able to do it without us humans fucking it up.

• 21:11Speaker 01

  Yeah, I think that more or less I'd agree with you. I think that what you want to do in these types of situations, you want to build something where there's a where there's a clear need. And as you said, you want to improve the efficiencies of processes. If you can standardize processes, whether that's buying a digital ad that you know will not be fraudulent, or it's tracking an IT, a computer, an IT asset from the time it's issued to an employee to the time Where it's turned back in, there's just no process standardization. And if you can bring together an ecosystem of participants around a process and allow them to transact based upon the common data and to do so using smart contracts, perhaps in a more automated fashion, that makes life easier for basically everybody. What I think blockchain is very good at and why I think it's going to be,

• 21:55Speaker 01

  it already is a huge catalyst for putting these massive B to B networks in place, which don't really exist to the meaningful scale. If you look at C to B to C marketplaces like Lyft or Airbnb or Uber or eBay, those are the marketplaces that have huge valuations, the C to B to C ones. There's not really B to B marketplaces out there at any huge level of scale. So I think that's what blockchain enables. It enables these ecosystems to come together because there's finally a method of transacting in a much more efficient way and a much more automated way. And as we go forward into innings two, three, four and five, I think you're going to see AI, machine learning get layered on top of the underlying blockchain data and that's going to further improve the process as well advances in smart, how we design smart contracts, right? As that becomes more mature. So I think that's kind of where we're going.

• 22:39Speaker 01

  It's a situation where if you're shipping food internationally, you might be able to contract directly with the restaurant as opposed to having to go through three or four different intermediaries because you have an identity that's on the blockchain as a buyer and a supplier of that particular food. So I think we're just kind of at the beginning. And as in any situation, as I said before, with the platform business, I mean, the only metric that matters at this juncture is transaction volume. That's it.

• 23:05Anthony Pompliano?

  See, it's so funny because I explained something the other day that in many transactions, there's actually not one middleman, right? There's multiple middle kind of intermediaries, if you will. And those intermediaries usually get layered in at different times. They use different technologies. They don't talk to each other very well, right? There's all kinds of inefficiencies and stuff in there. And so if you're able to look at that transaction, you're saying, you know, person A is transacting with person B, and we are going to design all of the technology to consummate this transaction from scratch in a holistic way, you're actually going to build it very differently than when it looks like what it's kind of cobbled together over time, right? And so it's this ability to almost like upgrade the transaction infrastructure to some degree.

• 23:48Anthony Pompliano?

  And it does feel like starting at the places where people are already transacting is much smarter than saying, hey, now am I going to build new infrastructure and with new technology, I'm also going to then try to convince you guys all to do some kind of transaction you haven't done before.

• 24:01Speaker 01

  Exactly. I think you're exactly right. And I think that what you're getting at is what we talked about before. It's business process standardization. So let's do it in the same way. Let's do it in a better way that connects folks in the value chain more clearly. For those in the ecosystem providing value along the way, let's incorporate them. So in the supplier management example, which is called Trust Your Supplier that I mentioned, we're inviting third-party validators to basically provide the same information that they do already, but just provide it in the context of the network as opposed to point-to-point. So if you can standardize business processes, it becomes really a way of bringing together the ecosystem. And I think that's what blockchain is really good at. And then we can talk later about how things begin to decentralize. But I think, you know, if you think about decentralization and centralization on a

• 24:43Speaker 01

  continuum, zero is maybe Ethereum and 10 is the US Army. You know, you probably have to start these types of networks at a seven or an eight in terms of being centralized, and over time, hopefully get to a five. But if you can do that, I think you'll be in a really good place.

• 24:56Anthony Pompliano?

  Yeah, because your thought here is basically if you can aggregate transaction volume for whatever it is, then what you do over time, whether that's semi-centralized or fully centralized, however you have to do it, the transaction volume is the most important thing, is the most defendable thing, and it is the mode.

• 25:12Speaker 01

  Correct.

• 25:13Anthony Pompliano?

  And then once you have transaction volume, then you can start to decentralize, and decentralize is a scale, right? In terms of, you don't go from fully centralized to fully decentralized overnight. You may actually take a transition there over months or years to do it. But again, you've got the most important thing, you've got the transaction volume, and then everything else is kind of ripping parts out of the plane as you're flying.

• 25:33Speaker 01

  Hundred percent. Everything follows the transaction volume. So if I was giving advice to people, it's pick a use case that's going to allow you to aggregate transaction volume, and, you know, tell the entities you're working with, the folks in the ecosystem, this is the first step.

• 25:44Anthony Pompliano?

  Yeah.

• 25:45Speaker 01

  Because we can't generate additional business benefits unless we're already have the ability to transact easily. So use case two, three, four, and five in the networks we're working on will follow soon thereafter. And we will decentralize some of those decisions to folks who bring the initial volume to the network. So the initial volume on a network is the most important volume by far. And you know, the commitment we make in some of these networks that are run by partners is that the governance board will make decisions on the product roadmap. So it's also interesting philosophically, it's a new type of business because you want these to be informed by your users and you might make decisions that are not the traditional revenue optimization decisions. You may make the decision to build out a product roadmap in a way that's not most lucrative, but it best satisfies your members' needs.

• 26:27Speaker 01

  So I think it kind of, you can, maybe this is another way of saying is you can kind of adhere to some of the ethos of decentralization, even if some things are centralized. It's a matter of what decision rights are kept in-house and which are decentralized. And there might be a hybrid approach here.

• 26:42Anthony Pompliano?

  Got it. And I guess, how does Bitcoin fit into all of this, right? When you think about something that got started in a highly decentralized kind of digital currency, right? So transactions are there, decentralization was at the core from the beginning. It has a lot of the elements that you're talking about, maybe just sequentially it did it differently. How do you think about that in comparison to, you know, what we've been talking about?

• 27:10Speaker 01

  Yeah, I think it's really interesting. Obviously, the movement of financial value is one use case on top of blockchain of many. But I think that if I was to look, give you a five-year view, or maybe even a 10-year view, I think that you might get to decentralization and massive aggregation of transaction volume around other types of use cases beyond the exchange of financial value in slightly different type of way. So you could imagine that private permission networks would start out and they might be interoperating with the public blockchain, so there might be a hybrid approach here. And they begin to aggregate transaction volumes in the kind of way I've been describing them. And over time, the way they decentralize is actually by incorporating crypto-economic principles into how the network is governed and how it's run. So this is kind of something that came out of our accelerator program as we were talking ideas back and forth.

• 27:54Speaker 01

  I used to think, I think I thought last year that tokenization and crypto economics would be in the enterprise space in the next couple of years. I think it's further down the road, but I think that once you begin to introduce those dynamics, after you have that transaction volume already in place, it then provides the impetus for truly decentralized networks where you can begin to build DApps where you have users in place and the ecosystem will already be there. So I think that maybe Bitcoin might have started us on the road on one particular use case, but the way that we get to scale might be going about aggregating transaction volume a little bit differently to start, but incorporating some of the same common principles over time.

• 28:31Anthony Pompliano?

  Got it. And what are the areas that you think, if you were an entrepreneur today and you wanted to start a blockchain-based business, which is a little bit of an oxymoron, because I think that you should start a business and then you should just use blockchain if it helps.

• 28:46Speaker 01

  That's right.

• 28:47Anthony Pompliano?

  But if you were to do that, what are areas maybe that you think are interesting that IBM wouldn't go to, right? Like are there certain things that you guys have identified, hey, this probably does work, it's just not ideal for us?

• 28:58Speaker 01

  I wouldn't say that we've looked and had an analysis like that. I think that basically if I was to give advice, it would be that you got to remember that if you believe what the analysts say and what our internal market development people have assessed is that 90% of the profit pools in blockchain over the next 12 years are going to flow to network owners. So it's a trillion dollar opportunity at network level, which we consider to be an app store, and it's a $100 billion opportunity in the technology and in the services. And I'm not that good of a mathematician, but a trillion is a lot bigger than 100 billion. So I would think about, I wouldn't get into the kind of enterprise SaaS bias where we need to build a blockchain-based application to solve a particular problem. I'd be saying to myself, what type of blockchain-based application can I build that will be strong

• 29:43Speaker 01

  enough, compelling enough to get entities transacting around it in the context of a business network? And then what type of, you know, what type of friends would I need to help me pull this network together? Blockchain is really a team sport. I mean, that's what's, it's fundamentally different. I think if you look at AI, that's a technology that's relatively immature with some pretty well-defined applications and business models. Blockchain, I think- is a relatively mature technology and what's immature is the business model because it's it's it's it's a it's a new way of working if you're trying to convene an ecosystem. That is a fundamentally different activity than if you're building a centralized business where it just depending on how effectively you can work. So I think it's more about understanding what what a good blockchain business is and what a good blockchain business isn't. Not to say you can't make money if you just build a blockchain application. You probably can.

• 30:28Speaker 01

  And there's going to be some that are going to do really well. But I think the prize and the kind of the the companies that are going to define industries and define segments. Those are necessarily going to be network based companies.

• 30:37Anthony Pompliano?

  Got it. And let's go to what somebody has built one of these, whether it's centralized or decentralized. Or I'm sorry, if it's centralized and they've got a ton of transactions and they've really kind of found that niche that people want to to use it for. How do you go from centralized down that spectrum to decentralized? Like, what does that process look like? And is it something that is you kind of go piece by piece? Or do you think it's more I can rip out the whole thing and replace it once I've got the transaction volume?

• 31:07Speaker 01

  Yeah, I think I can postulate and speculate here. I think it's got to be iterative. I think we don't really know how these businesses are going to look at it. I mean, it's pretty weird if you think about it, if you're building a P and L. And this is what I talk about with with our partners who are incubating concepts with. You're going to give decision making authority to somebody else who's not part of your business. I mean, that's that's pretty weird, right? That's not traditional way that businesses are built and run. It's work. Of course, we're going to respond to our customers, but our customers aren't going to be the ones telling us what to do. So I think it I think that there has to be some level of product maturity. You have to get have some level of functionality, which then unlocks opportunities for entities within the ecosystem broadly defined to kind of build their own stuff on top of a data layer that you have effectively established.

• 31:53Speaker 01

  And there's there's kind of data driven businesses out there like we were talking about earlier that that have moats based upon what they've collected. I think what's interesting here is can you find a way of having a viable business and will you be okay with it? If you're providing that underlying data model and data infrastructure and somebody else can go, you know, build on top of it and capture 80% of the value. Now, for me, that's okay, but it's just a different way of running a business. There aren't businesses that are necessarily run like this than I can think of. And I think that's what is super exciting about this space because there are a lot of exciting question marks and a lot of exciting opportunities to do innovative things. Because I think we're we're treading new territory here.

• 32:30Anthony Pompliano?

  For sure. What's the Ideal business for you guys to work with, right? So transaction volume, you got it, right? But like, what do those look like? Are those big? Are they small? Does it not matter? Kind of, I don't know if you can even give an example of some of the guys are working with, but just, I think there's a lot of people out there who, whether they're right or wrong, think they have a lot of transaction volume.

• 32:49Speaker 01

  Right, right.

• 32:50Anthony Pompliano?

  But I'm assuming that's not the only criteria. So what are those other pieces of criteria for what you're looking for?

• 32:56Speaker 01

  So we can actually help find the transaction volume. That's what, I have a team of people who work on is partnering with management teams to identify transaction volume and help aggregate it. So what we're looking for is partners with mature technology products, number one. So it takes a long time for, much longer for IBM to build a technology product than it does for a startup. So if we want to get a network within one year, which is our typical incubation schedule, a network in production, we've got to find partners with mature technological assets that we can use. The second, I think, part B is if you have a built-in ecosystem or you have built-in transaction volumes or customer relationships, that also makes the ability to convene a network much easier. So we have a partnership with Media Ocean, which is a, which is a big company in the ad tech space.

• 33:37Speaker 01

  It's about payment reconciliation and advertising, and the digital advertising value chain, which is very complex, a lot of inefficiencies. So that's a company that's very well established. You know, they've got a high valuation already, and they have a built-in network of potential members of the ecosystem that we will complement and will jointly work together to build out and scale this network around payment reconciliation in the ad tech space. So we've worked with them, we've worked with a series A, series B type startups, we're very comfortable with that as well. What we have, which takes a long time to build and is very expensive, is a distribution channel. So we have client relationships, number one, and number two, as I said, to the extent that IBM can bring its own transaction volume to the network, it makes other large companies

• 34:20Speaker 01

  especially, much more comfortable bringing their own transaction volume to the party. So we look, you know, we approach things like venture capitalists, we got to work with good companies, they got to be strong founders, good technology products, got to be cool people also, people who like to have a lot of fun. And then, you know, we have our methodology for getting this to, from, you know, product to network within a year.

• 34:42Anthony Pompliano?

  Outside of the blockchain team at IBM, what's the general sentiment? Do you think that there's, in my experience, there's some people who love it, there's some people who hate it, there's some people who are kind of neutral? Do you feel like maybe there's a skew to either side of that? What's the general sentiment inside of a large corporation like that?

• 35:00Speaker 01

  I think, you know, large corporations are highly diverse and, you know, a lot of it depends on the people we work with and the team you work with. If we talk, we use the New York City example, saying it's really the agencies that make up the service delivery capabilities, that's what New York City really is. I mean, it's the same with IBM. It's a company made up of people doing different types of things. And I think if you are willing to take advantage of opportunities that are presented with you and create things, it's a very interesting place to work. That's, you know, other people might have a different opinion.

• 35:27Anthony Pompliano?

  Yeah.

• 35:28Speaker 01

  But I, you know, fundamentally, I think, and this goes back to something that we, I wish I would have brought up in the cities thing, gets back to our philosophical questions about people. But, you know, as I was in the cities business, what was so interesting for me, it was really a really simple lesson, but really profound, is that to make a big difference in the world, whether it's in technology or in politics or whatever, it's just a bunch of people sitting down and saying, we want to do something a better type of way. So fundamentally, it comes down to people, wherever you are. And I feel like if you're working with good people, you're probably pretty happy because you're probably doing some cool stuff.

• 35:58Anthony Pompliano?

  You got a shot, for sure. Before we wrap up, rapid fire set of questions.

• 36:03Speaker 01

  Yep.

• 36:04Anthony Pompliano?

  What is your most controversial thought in Bitcoin, blockchain, or crypto? The thing that you believe that everyone else will disagree with you on?

• 36:10Speaker 01

  It's a good question.

• 36:14Anthony Pompliano?

  I only ask good questions.

• 36:16Speaker 01

  That's a very good question. Okay, it's probably this, it's probably, I mean, a new idea, so it's probably that cryptoeconomics are going to come in and allow private permission networks to decentralize. I think that's probably one that most people...

• 36:27Anthony Pompliano?

  So the idea that the private permission blockchains, as they stand today, are unlikely to be the final...

• 36:34Speaker 01

  Final state.

• 36:35Anthony Pompliano?

  The final state of them, and there's actually this evolution to a decentralized permission, or a decentralized blockchain in the future?

• 36:41Speaker 01

  Yeah, I think so. And then the other one might be that I don't think, you know, there's lots of public protocols out there. I think that there's going to be very few that survive because most of them are not going to be able to get that transaction volume.

• 36:50Anthony Pompliano?

  I think there's like, let's call it 3,000. I may be wrong on that. How many you think is, are we talking like two? Are we talking 20?

• 36:57Speaker 01

  Probably.

• 36:57Anthony Pompliano?

  200?

• 36:58Speaker 01

  Under 10.

• 36:59Anthony Pompliano?

  Under 10. Okay. All right. That, I don't actually think that's that crazy, right? What if there was like 80 to 90, I think, internet-related protocols and we ended up with basically five that matter to the most part, right? So that makes sense. Okay, what is the one regulation that you would change or improve if you could?

• 37:19Speaker 01

  Well, it would, you know, I think, I think clarity from the SEC on, you know, what constitutes a security is something that everybody's eagerly awaiting.

• 37:29Anthony Pompliano?

  Yeah, I think that's fair. Okay. What do you think the most important company in crypto is other than IBM?

• 37:35Speaker 01

  Most important? You got really good, these rapid-fire questions are good.

• 37:40Anthony Pompliano?

  I've done this a couple of times.

• 37:41Speaker 01

  Yeah, you have done this a couple of times. That's a good question. I mean, I really don't think I have a perspective on that. I think that for me, if I look at the crypto space especially, there's not that much differentiation that I can see. I mean, of course, there are protocols that, you know, the early leaders right now that have got adoption, but in the crypto space specifically, I'm still waiting to see how a protocol will aggregate that transaction volume because whichever one does, that's, that's where the value of the cryptocurrency is going to go up.

• 38:08Anthony Pompliano?

  Do you think it's possible? So let's dive into this a little bit. Bitcoin, for example, there's a whole bunch of people I think that believe Ethereum has certain functionality that makes it best suited for all the smart contracts and certain types of transactions. There's another group of people that believe all that can just be built on top of Bitcoin, kind of layer one, layer two type, you know, different scalability solutions, et cetera. Do they coexist? Do you think it's actually like, hey, the transaction volume's going to go to flow to one chain? And it may be on different layers of that chain, but really there's like one big winner? And then there's maybe four or five other smaller ones? Or do you think it actually is those four or five winners are kind of more coexisting together in success?

• 38:50Speaker 01

  I think that I would like to see protocols get more specialized. And what I mean by that is I'd like to see, I have to thank Adam Astrelli, who's on my team for opening my eyes to this. When I went to multi-coin last year in October, I was thinking to myself, why, as an enterprise person, of course, I mean, IBM's working with Stellar, we're working with Stover, and so we have some interactions with with with with public chains. I mean, why is this important for me if I'm building private permission networks? And after talking to some people there, I think I came to the conclusion it's important because it to the extent that layer two functionality can be integrated into layer one, public protocols can provide tooling that's really helpful for me if I have a have a private permission network. So I think that if if protocols begin to act less like infrastructure as a service and more like platform as a service,

• 39:36Speaker 01

  I think that those have a better chance of being successful. I think also that, and maybe this is my enterprise bias, but protocols that can get, you know, high level of comfort by big enterprises that have a lot of transaction volume have the opportunity to become the overall winners because volume is still concentrated, especially in some of the use case areas we're talking about amongst, you know, entities that create a lot of that volume. So I think it's going to be, I'm not sure who the winner will be, but I think there has to be some more differentiation at layer one in order to really separate what's going to be the standard from not. I think that there may be a bias right now

• 40:19Speaker 01

  in the crypto space towards kind of what's existed, which is normal because we all have a status quo bias. We're humans. But it'd be interesting to me is, you know, how, what would a, you know, a Bitcoin derivation would be that would have that layer two functionality? And could you use Bitcoin as the mode of exchange within the context of that network? So I think that there are definitely things that us in the enterprise space can learn from the crypto world. I just, my impression is, is that there's not that, I think that people are slowly, I think it's kind of happening this year in the crypto space, saying, okay, there's some lessons we can take from enterprise. So I think it's necessarily going to be the cross pollinization, or the cross pollination, pollinization, it's not a word.

• 41:01Anthony Pompliano?

  It is now.

• 41:02Speaker 01

  Let's, let's put that in the dictionary.

• 41:04Anthony Pompliano?

  Perfect.

• 41:04Speaker 01

  That will, that will lead to this kind of innovation. And you're gonna, I think it's gonna be something like what happened with cloud. There's public cloud, there's private cloud, there's hybrid cloud. So it's gonna be, what does that hybrid, what does that Frankenstein look like?

• 41:15Anthony Pompliano?

  Yeah.

• 41:15Speaker 01

  That's, that's what probably will turn out to be the early leader.

• 41:18Anthony Pompliano?

  Got it. Makes sense. What is the most important book you've ever read?

• 41:24Speaker 01

  You Can Negotiate Anything by Herb Cohen, who, who postulates that because all rules are the product of negotiation, all rules are negotiable.

• 41:33Anthony Pompliano?

  Ah, I like that.

• 41:35Speaker 01

  Not bad, right? It's an oldie but goodie.

• 41:37Anthony Pompliano?

  Yeah. Well, there's probably some people who disagree with that, probably the people who made the rules, but for the most part. All right. I usually end up and let you ask me one question, but first, we talk about aliens.

• 41:48Speaker 01

  All right.

• 41:48Anthony Pompliano?

  Real or not, do you believe?

• 41:51Speaker 01

  There has to be other life forms out there. I mean, just, just based upon the odds. I mean, we have a, we have a human centric bias. I mean, there, there is, in my estimation, if there are, you know, billions of planets out there, there have to be aliens. And the only question whether, is, is when they're gonna find us and whether they're nice aliens or, or not nice aliens.

• 42:12Anthony Pompliano?

  The, I've talked about it before, but there was nine planets when I was in school. There's over a thousand now, and they got all kinds of weird names. And I just read more on, there are two galaxies right now that are colliding with each other. And then we are going to collide with that new galaxy in four billion years. And so the idea that like galaxies, not planets, galaxies are colliding.

• 42:41Anthony Pompliano?

  What the hell does that mean?

• 42:43Speaker 01

  Well.

• 42:44Anthony Pompliano?

  That, how small do you feel when you think about that?

• 42:46Speaker 01

  I know, so we don't, you know, we know some things about planet Earth, but what do we know about anything else that's out there? I mean, my biggest issue is, now we're getting really philosophical. What was before the Big Bang? I mean, there must be something we're missing in terms of how we interpret time. And we can't interpret time well, I mean, maybe this is a SimCity game or something like that, I don't know.

• 43:06Anthony Pompliano?

  There's some people who believe that.

• 43:08Speaker 01

  It's possible. I don't know. Take the red pill or the blue pill.

• 43:10Anthony Pompliano?

  So, I think, I think space people have thought more about it, just human nature, kinda, hey, I could see the space, I think about space, right? We've got things like SpaceX, it's just in conversation a lot more than the ocean. So I've talked to a couple of people about, like, we probably, I think it's actually, scientifically, people make the claim that we know more about, let's say, Mars or the moon than we do of our own ocean.

• 43:33Speaker 01

  Yeah.

• 43:34Anthony Pompliano?

  Uh, would you rather go to space, or would you rather go to the depths of the ocean?

• 43:38Speaker 01

  Uh, probably space, because the depths of the ocean, the lighting would be so low, you probably couldn't see anything. If I had a flashlight or something, but most of the cool, like, friendly-looking Nemo fish are closer to the surface. So it'd be kinda cool just to, you know, float around, do some somersaults, you know?

• 43:54Anthony Pompliano?

  Hang out.

• 43:55Speaker 01

  You know, look at, see if I can use my telescope to look at my house down in Brooklyn, I don't know. That'd be probably pretty fun.

• 44:03Anthony Pompliano?

  I got it. Alright, what one question you have for me?

• 44:06Speaker 01

  Uh, what's the meaning of life?

• 44:09Anthony Pompliano?

  The meaning of life? It's easy. Just have fun.

• 44:12Speaker 01

  I like it, man. That's good.

• 44:14Anthony Pompliano?

  Just have fun and be happy. Too many, too many people are, uh, I think too many people are caught up in everything else, right? And I recently was talking with, you know, one of my best friends, and his greatest issue is, uh, he's ambitious, right? And I said to him, I said, "Hey, man, you got a lot, right?" 10 years ago, when we were kids, you probably would have been really happy with this.

• 44:39Speaker 01

  Right.

• 44:40Anthony Pompliano?

  And I said, I'm not telling you to stop, but I'm telling you just to realize you've come a long way. And I think that, you know, it's funny for me to give that advice to somebody because I think, you know, every single one of us are ambitious in our own ways. And so we get caught up in this idea of like, no matter how much you have, you want more. And it's not necessarily just material things. It's more achievement, more knowledge, more whatever.

• 45:03Speaker 01

  Right.

• 45:03Anthony Pompliano?

  And I think that the people who are maybe the most free are the people who aren't stuck trying to get more. And that can mean different things for different people. But I think that is, you know, when you kind of think really in a weird way, like that is what life's about.

• 45:19Speaker 01

  I think you're right. It's about gratitude.

• 45:21Anthony Pompliano?

  Yeah.

• 45:22Speaker 01

  And it's about, you know, finding a way to feel good.

• 45:26Anthony Pompliano?

  Absolutely. Well, listen, I appreciate you doing this. I think that you've got very unique views on the world, many of which I agree with. And we will have to do this again after you guys make some more progress.

• 45:38Speaker 01

  Thanks a lot for having me. It was fun.

• 45:40Anthony Pompliano?

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• 46:21Anthony Pompliano?

  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.