Dominik Schiener, Co-Founder of IOTA: How DLT Will Make Data Privacy a Reality

This is episode #1 in the Automation Series. You can learn more about the Automation Series here. You can learn more about IOTA on their website. Dominik Schiener is the Co-Founder of IOTA, a disruptive technology that enables machines to store and send money frictionlessly between one another. In 2017, Dominik co-founded the IOTA Foundation and established Germany’s first nonprofit foundation that enables and fosters permission-less ecosystems powered by distributed ledgers. Dominik is highly regarded as one the leading innovators in the global blockchain community. In this episode, Anthony Pompliano and Dominik discuss: privacy and data ownership, what is needed to make DLT a reality, the future of data privacy, and the eventuality of a machine-to-machine currency built on DLT.

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

• 0:01Speaker 00

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

• 0:13Anthony Pompliano?

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

• 0:57Anthony Pompliano?

  You can find out more about the Automation Series and IOTA in the show notes. Dominic Shiner is the founder and co-chairman of the Board of Directors of IOTA. In this conversation, we discuss the future of machine-to-machine transactions, how automation will become pervasive throughout our lives, where distributed ledger technology fits in, and how IOTA is building solutions for this new world. I really enjoyed this conversation, and I hope you do as well.

• 1:24Speaker 00

  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.

• 1:50Anthony Pompliano?

  Alright guys, bang bang. I'm sitting here with Dom, super excited to do this episode. He is one of the folks who's probably thought even more than I have about how machine-to-machine transactions are going to evolve over time. So, thanks so much for coming in and doing this.

• 2:07Speaker 02

  Thanks for having me on the show.

• 2:09Anthony Pompliano?

  Yeah, for sure. Let's jump right into your background. You've been around crypto for a really long time. So, what did you do before you got into Bitcoin crypto?

• 2:18Speaker 02

  So, before I got into crypto, I was big into gaming.

• 2:21Anthony Pompliano?

  Big into gaming?

• 2:22Speaker 02

  Yeah, exactly. Call of Duty and all kinds of PS4 games. And then I realized that with games, you can actually start making money. And so, I kind of started getting into this whole entrepreneurial career where I was trying to figure out how can I actually make money on the internet? Because I really realized that the internet is not Facebook, it's not Twitter, it's really how you can educate yourself and build something great. And I had this whole hustling period and what I settled myself down to was an advertising platform. Because I realized with cost per action, paper action, and so on and so forth, you can really start making a lot of money. And so, I went on this quest to set up my own advertising platform. I tried to get some advertisers on board. And that is actually what got me into Bitcoin in the first place in 2011.

• 3:07Anthony Pompliano?

  Wow. What was the kind of... So, as you're building up the advertising platform, you're working on getting advertisers on. How do you go from that to Bitcoin?

• 3:16Speaker 02

  Yeah, it was a very simple problem, actually. So, how can I pay my developers to make the platform? Because at the time, I was too young to have a PayPal account. And so, my friend introduced me to Bitcoin for the first time. I just started utilizing it and it really started becoming really encompassed by this vision of permissionless innovation, meaning that you can really utilize this new technology, Bitcoin, to transfer value globally. And so, it solved a very simple problem for me. How can I pay my developers? And I kind of got sidetracked with school and stuff. And so, then in 2012, I really got full-time into it. I started reading up on the technical concepts behind it and really fully understanding the whole scale of this and what is actually possible. And then I became fully convinced that I really want to do something in this space.

• 4:03Speaker 02

  And so what happened then is I started figuring out that Bitcoin is not the only cryptocurrency out there, but there is a lot of potential also in all coins. And so I started out with mining all coins. The first one I did was ProtoShares, which was created by the infamous Daniel Laverma. And so I started out with that, and I made a bunch of money with it. But then I realized that this is not the end. There's so much more. And the biggest potential that I saw back in the day is how can you solve this problem of going from fiat, from the fiat world into the crypto world? And so I went on this quest to set up a cryptocurrency exchange. Okay. Which even back then was a huge, huge drama to set up, because you had this whole

• 4:48Speaker 02

  risk with the regulatory side, with the legal side, and most predominantly with the banking side. It was impossible to get a bank account back. Because the banks just said, we're not working with any crypto companies. Yeah, absolutely. I reached out to banks in Isle of Man, I even flew there, Sweden, Malta, and so on and so forth. And every time it was like, please never contact us again. Bitcoin is against our internal policies. And this is for money laundering and so on and so forth. And that is actually what attracted me to the crypto valley in Zug. In 2013, Charles Hoskinson actually invited me to be there, because back in the day, he was the CEO of Ethereum. He said, we are setting up this whole hop in Zug, and maybe you want to join us in setting up a self-regulating organization, with the idea that I'm going

• 5:29Speaker 02

  to solve all of my problems. Banking, legal, regulatory, all solved in one soup. Yep. Which obviously didn't happen. And I lived in Switzerland, I was living in the Ethereum house back then. What was that like? What was the Ethereum house in Zug, Switzerland in 2013 like? So it was a bunch of guys. There was like two girls, the girlfriends of Mihai and some other guy. And they were just having fun, right? You could see them create a website and be amazed. Oh my gosh, it's going to be big. You could see Charles recording the video that he's going to put on YouTube, talking about his grand vision. And back then, I didn't really fully understand the full scale of this. I think nobody really understood the full scale of this, where this would go.

• 6:12Anthony Pompliano?

  Because at the time, it was, they were just working on a project like everyone else. No one realized that this one specifically is gonna go be worth tens of billions of dollars.

• 6:19Speaker 02

  Exactly. They didn't even do their ICO. So there was just like eight to ten people in one apartment, put together, sleeping on mattresses. So it was pretty crazy, but it was, it really taught me a lot, right? And so it was.

• 6:31Anthony Pompliano?

  Was it fun?

• 6:31Speaker 02

  It was a lot of fun. Yeah, so. We didn't do a lot of partying, but everybody was simply wa- wake up, go in front of your computer, drink a bunch of coffee, go out to eat, or order something and somebody cooks. And it was it, right?

• 6:45Anthony Pompliano?

  That's awesome. Alright, so you're, you're there in the house, and then where do you do from there?

• 6:50Speaker 02

  So what I did from there is, I still was in school, so I had to travel between Switzerland and Italy, where I was born. And then the first crash came in twenty thirteen, end of twenty thirteen. And I ended up losing all my money, which, which sucked at the time. So I had really this hardship with Switzerland, because I, I, I had an apartment there, trying to think through how I can really bring people to Switzerland, build up my huge company, and everything blew up, just like that, right? Uh, but then, uh, I continued, and I really got more involved on the technical side. And then it was flown in by Finbushy Capital to Shanghai, which was back, they invited me to the back then largest blockchain hackathon in the world with a hundred thousand dollar prize money.

• 7:35Speaker 02

  And I ended up winning that hackathon.

• 7:38Anthony Pompliano?

  Really?

• 7:39Speaker 02

  Yeah.

• 7:39Anthony Pompliano?

  What did, uh, what did you build?

• 7:41Speaker 02

  I built a supply chain transparency, uh, concept with Trade Finance, so you can really automate the entire, uh, process of shipping and paying.

• 7:52Anthony Pompliano?

  And you had a background in computer science, or how did you learn to code?

• 7:55Speaker 02

  Uh, I taught myself, because I got screwed over a few times by develop- a few times by developers that I hired. It was like, fuck it, I'll just learn myself.

• 8:03Anthony Pompliano?

  Uh-huh. Was it hard?

• 8:04Speaker 02

  No, it was a fun challenge, and I realized that the only way to really build something is if you can even know how to build it. So you need to teach yourself. And so I, I won the hackathon, and I told the guys I wanted a prize in Ether. So Vitalik gave me like thirty thousand Ether.

• 8:20Anthony Pompliano?

  Wow.

• 8:21Speaker 02

  For, for winning the hackathon.

• 8:24Anthony Pompliano?

  Alright, so you win the hackathon, you get thirty thousand Ether. What's the price? Is that pennies?

• 8:28Speaker 02

  Back then it was like one or two dollars per Ether. And so it was a pretty, pretty good deal.

• 8:36Anthony Pompliano?

  Yeah, yeah, yeah, absolutely. Did you sell them all?

• 8:39Speaker 02

  Yeah, yeah, of course, because then when I flew back to Europe, we really started getting serious about IOTA. And so I invested everything back into IOTA.

• 8:48Anthony Pompliano?

  Okay, so if you had thirty thousand Ether today, that would be worth a lot of money. Uh, but, but obviously, uh, when you get back, what was the, um, kind of genesis? So you win the hackathon, but you don't move forward with the supply chain and the trade finance. Why, why did you choose to kind of leave it as a concept and not pursue it?

• 9:07Speaker 02

  I saw it more as a seed funding opportunity for myself, because obviously I was broke, I had no money. And, and back then I also realized that the whole application layer on top of blockchain is simply not there yet. And it's really on the protocol level where you have the biggest opportunity. And that is why, why I, I got much more involved in IOTA. So I also helped build it all. And, and that is where we really realized the potential that IOTA had back in twenty fifteen, end of twenty fifteen. And that's why I focused full time on it and then also ended up moving to Berlin.

• 9:41Anthony Pompliano?

  Got it. Okay, and so, uh, what was the original idea for IOTA?

• 9:47Speaker 02

  So it all comes from the IoT space. We, we are all focused on automation. How can we make our devices smarter? How can we really start connecting them with each other? But the vision of IOTA goes beyond just automation, it goes towards autonomy. How can we make it possible for one machine to actually independently decide what it does with the value that it creates? Meaning data or services. And at the end of the day, what you get out of that is really a machine economy. One machine transacting with another machine and creating their own economy, which has tremendous potential for, for this vision of, of autonomy and of automation. And we realized that the only way to really realize that machine economy is to introduce a distributed ledger, because you want to remove the trust layer.

• 10:30Speaker 02

  Uh, you want to introduce a trust layer and you also want to really enable it for machines to have their own wallet, to hold their own assets and own them. And that is why.

• 10:41Anthony Pompliano?

  Yeah, so let's talk for a second about the machine-to-machine transactions. Because I think this is something that people may hear that terminology a lot that actually don't know what it means, right? So what we're specifically talking about is one machine is going to transact value with another machine. So literally machine, two-machine transactions. But this is not necessarily just something they do for fun, right? It's part of this larger automation story. And so maybe start with just like, what are some examples of where two machines would transact with each other in an automated world?

• 11:12Speaker 02

  Yeah, absolutely. I think the best IoT example is really the car. The car is, has become incredibly smart. We are talking about autonomous vehicles. We're talking about cars that are collecting gigabytes of data when you drive around. And all of that is because we want to make smart decisions with our vehicles. And the car itself cannot collect all of this data. And so it maybe wants to collect data from a traffic light, from another vehicle of what the traffic situation is like. So the most simple machine-to-machine transaction is really where one machine sells data to another machine. Really insights, so that the machine itself can start making smarter decisions based on the data that it gets.

• 11:52Anthony Pompliano?

  So take the car, drives around, right? So it has all of the GPS data, right? In terms of like, where has it actually gone? It has all of the cars' information, how many miles has it drawn? What was the mileage per hour, right? You know, all that kind of stuff. And then it also has, I'm assuming, any sort of inputs into the car, right? So that could be its interaction with sensors. It could be interactions with the passengers who put information into the car, right? Those kind, that type of data, who would you be selling that to, right? If you're the car?

• 12:23Speaker 02

  Yeah, I think the most important data buyer of the future will be governments. Because governments need to protect their citizens, they need to protect better, they need to provide better services to their citizens. And a good example is a simple parking app. Knowing where, when, and how a parking spot is available is hugely valuable. Because it really eases traffic congestion, for example. And it really introduces new business models for those that operate those parking spots.

• 12:50Anthony Pompliano?

  But today, so, and I think this is going to head down a direction, those things that you and I had talked about before. Today, we have parking apps, right? There's things that say, hey, I'll show you where the parking spots are, etc. I can go to the App Store and download them for free. Why would that app want to buy data versus just use the free users that it has today?

• 13:12Speaker 02

  I think this is, so this is an excellent question. It really goes into this broader vision of an open permissionless ecosystem.

• 13:19Anthony Pompliano?

  Okay.

• 13:19Speaker 02

  So the problem that we have today with those smart city apps is that we're simply fragmenting the entire ecosystem. We have the Uber app, we have the train app, we have their airline app. But the entire user experience is very fragmented. I need to have an app for each point where I'm traveling to. And the same with data points in the future with this traffic app or with this parking app. They are not able to get the entire data set within the city. They're only able to get those data sets where they actually have access to. And as such, we are now really limiting the user experience itself because now you don't get all of the data points within the city.

• 13:56Speaker 02

  And now the vision of IOTA is to really create an open and permissionless way for everybody to start selling and participating in this data economy. With the idea behind that, apps that are building on top of it really have to holistic picture. Where something is available, where something is not available. And the idea here is really to break down those barriers. And at the end of the day, what is a smart city for? Who are their main customers? It's the citizens. They want to make their user experience, the services that are provided to them as easy as possible and as secure as possible.

• 14:31Anthony Pompliano?

  And so as that's occurring, right? That car that's driving around and it's gathering data. Today, what would be the way that somebody could purchase the data from the car? Like what does the legacy model look like where a human would be involved, right? And saying, hey, I want to buy the data that's generated by your car. What does that look like?

• 14:52Speaker 02

  So it's simply not possible today, especially for the end users to actually purchase or sell their data. It's simply part of the entire user experience itself where the corporations simply take your data and they start selling it. Best example is Facebook and we're also seeing this with some of the car manufacturers where they're really selling your data as you're driving around. What's a good example is in the airline industry where the planes, the plane operators don't even own the turbines. But the data itself that is generated from the turbines gets back to the manufacturer so they can really do predictive maintenance. So they have like a service level agreement that is part of the entire acquisition of the turbine.

• 15:34Speaker 02

  And that means we are not really having enabling data economy. It's not there yet today.

• 15:42Anthony Pompliano?

  Because really what you're saying is there are people or organizations that are generating incredibly valuable data. Right. And right now that data is just being taken by an organization and that organization is monetizing it. But what should happen in the future and what is likely to happen in the future is that the person who creates the the data will understand the value of it and will actually monetize it themselves.

• 16:05Speaker 02

  Yeah, exactly. I think one of the most exciting parts about this data economy is how it will actually impact our products that we purchased today. Because the data component itself can, for example, offset the price of the product that you buy. You can go and say, hey, you can have access to my data for a lifetime, but I want to get a cheaper product. Or you can, for example, get the product itself for free and you submit the data. Best example is a weather station that you get for free, but you sell the weather data. And so it will be very interesting how companies in the future will start competing with each other on this data component. But what needs to happen first is that we really have this awareness that our data is hugely valuable. And also what value it actually has, meaning the price of your data.

• 16:47Anthony Pompliano?

  For sure. Well, and for me, the part that is interesting, so let's go to an extreme example, right? Uh, one of the hot topics in the United States right now is universal basic income. So this whole idea that the machines are going to displace a bunch of workers, those workers won't have skills necessary to make a living. So we should step in and we should just give these people money in order to provide some base level, you know, affordability of life.

• 17:11Anthony Pompliano?

  There's an argument to be made, right? I see the logic that somebody's using. For me, I'm probably more in the camp of those incentives seem a little off, right? But the way that I it would make sense to me to get the same impact where people have money to live would be this data monetization. So I said for a long time, you know, there's a lot of people who would love to buy how many steps I take, what my heart rate is, right? You know, did I work out today? Did I not? How did I sleep? What mobile applications did I open? What content did I consume? What music did I listen to? Where did I go from GPS? Like all of this data that my phone itself is able to track or generate.

• 17:54Anthony Pompliano?

  I'm giving it away to all of those different service providers, right? But if instead I was able to somehow hold on to it or retain it, bundle it up in different things, right? So here's all of my health data, here's all my exercise data, here's my sleep data, here's my content data, here's my entertainment data, whatever, and then have people basically come and purchase it from me, right? So whether it's, uh, people want it for research, people want it for, uh, marketing, people want it for, you know, whatever it is, you know, walkability in a city, whatever. I could probably actually, if I had the demand and I had the, uh, ownership of my data, I could probably generate a living, just by simply selling the data that I'm already generating. It's just that that mechanism isn't there and the culture of monetizing data doesn't exist yet.

• 18:37Speaker 02

  Yeah, exactly, and this is really what distributed ledgers are there for, to give people the freedom to decide what should happen with their data and what should happen with their, uh, identities. And who actually gets access to that? And you can then decide if you want to start participating in this data economy and you can really decide which part of your data you can actually monetize. And when it comes to UBI and, and these kind of concepts, I definitely think that the whole vision of automation and autonomy is to make our lives easier, to really move forward into a much brighter future.

• 19:10Anthony Pompliano?

  Yep.

• 19:11Speaker 02

  Where, where machines start taking off some of our hard work and hard labor today and making much better and more individualized products. Because that is the big vision of industry 4.0. We want to make machines that are not, uh, products that are not mass-produced, but really products that are individually fit.

• 19:28Anthony Pompliano?

  Yep.

• 19:29Speaker 02

  And there's a very interesting concept and also studies in, in Germany where, for example, those cobots, meaning, uh, robots that work together with humans, that they find it very-

• 19:39Anthony Pompliano?

  They're called cobots, like C-O-B-O-T-S?

• 19:41Speaker 02

  Yeah, exactly, so collaborative. They work together with the humans in the factories and they create a much safer environment for them. And they really help them also be more efficient and also be more productive.

• 19:52Anthony Pompliano?

  So how does that work though? Like talk, like give me an example of a cobot in a, in a manufacturing facility.

• 19:56Speaker 02

  The most simple example is a human simply giving, uh, a metal piece or something to a cobot who's then processing it. And going really from the raw product to the produced product.

• 20:09Anthony Pompliano?

  Got it. So really, the cobot, if you will, it's very similar to a machine, what we used to call a machine, right, where maybe we had an assembly line and somebody took something off the assembly line and handed it to the machine and the machine, you know, stamped it or something. The person took it back and put it back on the assembly line, right? You know, that type of interaction between machine and human. The cobot you're describing is really similar. It's just that the machine now is smarter, could do more things than just it's a single-use kind of stamp or something.

• 20:37Speaker 02

  Yeah, and it really creates a much more safe environment for everybody at the factory. A good example is also in supply chain where you, for example, don't have suction cups today that can help you with delivering a product from one factory floor to another factory floor. So you're still need humans that are involved in this entire process. And Tom Lee from Fontstrat made a very interesting point that automation is really a reaction to a labor shortage.

• 21:06Anthony Pompliano?

  Interesting.

• 21:06Speaker 02

  So that means we need to start innovating in order to make up for this labor shortage because else we have some serious problems. The best example is what's happening in trucking. We have a real shortage in the US with truck drivers. And now we really need to start figuring out with autonomous vehicles how we can solve that problem. And the same is true with IOTA, right? We are moving towards a future where these technologies really start to converge. AI, IoT, DLT, and they create these new systems of systems that will really make up our future. And we really just start figuring out how we can actually enable those.

• 21:43Anthony Pompliano?

  And I guess as you start looking at the machines interacting with each other, right? Go back to that cobot example. Really, if we can get to a world where an entire factory is autonomous, right? And the factory can make decisions, the factory can produce things by simply just sending it instructions, you know, whether it's remotely or on-site. That world is going to require a lot of innovation to get there. Like, we are nowhere near being able to do that today.

• 22:14Speaker 02

  Yeah.

• 22:15Anthony Pompliano?

  Right? What do you think are the biggest challenges between where we are today and like a fully autonomous kind of automated world?

• 22:24Speaker 02

  I think a lot of this has really more to do on the philosophical and social side. Because what we really need to create is a future that is future-proof. Something that is not going to fundamentally disrupt our society, but is really something that is going to alleviate us, is going to really help us move forward into the future. So that is why we really need to start thinking about what kind of impact will AI and DLT and IOT really have on this future? And how can you make sure that we have this autonomous world functioning with our human world? And that is why we're also going to see a much bigger rise in these social sciences in universities to think about these hard problems.

• 23:05Speaker 02

  And the other problem is, obviously, we need to start upgrading our existing infrastructure with these new concepts. That is also one of the things that we've seen while we are working together with bigger corporates is like, how can you actually integrate the distributed ledger on a very old system that is currently running at the big corporate? Where they still use old IBM mainframes and stuff like that. So it's really about how can this new world really be integrated into the old world?

• 23:33Anthony Pompliano?

  Yeah. And so, one of the things that you and I have talked about previously that's very interesting to me is the way that the machines interact has various levels of complexity, right? So there's the physical interaction, right? One machine is touching another machine. One machine is handing something to another in kind of a fully robotic world.

• 23:57Anthony Pompliano?

  Another component of this is how they communicate with each other, right? So in terms of, I'm a machine in the same room as another machine, I tell it what to do. And then the third is they transact with each other, right? So I kind of think of it as there's physical things to interact with, there's information to interact with, and then there's value to interact with, right? I think that what you guys are doing is going after the value interaction.

• 24:21Speaker 02

  Exactly.

• 24:22Anthony Pompliano?

  But let's talk about the first two first, right? So... Physical interaction between two machines, I think, is pretty self-explanatory. Sending a physical item between the two can happen in all kinds of different formats. If you've seen the videos of like Boston Dynamics robots, they can do all kinds of crazy shit.

• 24:37Speaker 02

  Yeah.

• 24:38Anthony Pompliano?

  In terms of information, I think this is what most people think of as IOT. Right? It's it's the refrigerator saying, hey, milk is coming, you know, is getting low. Order more milk. Tell Amazon to send milk. Right? That to me seems like we're actually making a lot of progress so far in terms of where we are technologically. Do you agree with that or disagree with that?

• 24:58Speaker 02

  Yeah, I think I think IOT is no longer a buzzword. It was a buzzword 10, 15 years ago, but now it really is starting to bear its fruits. Meaning it's actually being productive. It's actually having an impact on our lives. That is sort of how I always measure success for technology. Can you really feel the impact of it? And with IOT, especially in the industrial world, you can truly feel it. And the most, talking about the communication side of things. The the most ironic part about the internet of things is that it's not about the internet. Because wifi, TCP/IP and so on and so forth are really too and consume, uh, uh, energy consumptive for for machines. And so we need to come up with new protocols that make it actually possible for one machine to connect,

• 25:42Speaker 02

  to talk with another machine. And that is why we really saw the rise of new communication protocols like Zigbee, LoRaWAN and so on and so forth, that make it possible with with little amount of energy to actually transmit that data. And it also brings us into this whole world of mesh networks, where a machine is no longer connected to the cloud, but it's really one machine connected to others, other machines in this fucking edge computing environment. And that is where you need to start now introducing the third layer, which is this transactional part. So that the machines themselves can really start creating their own consensus in this network, can start securing transactions and data, and can start transacting with each other from that.

• 26:22Anthony Pompliano?

  Yeah. And because to me, it feels like as you see more and more machines come online that are quote smart, right? So they have this this connectivity, if you will. The systems get smarter and they better understand how to empower this and they can also make better decisions, right? It's kind of a true machine learning in that the more data you put into the system, the better decisions they can make, the more they learn, right? And you just kind of have a compound effect to all of this, which then the incentive would be, well, let's get as many smart machines onto the system as we possibly can because it makes overall improvement.

• 26:57Speaker 02

  So whenever I give a presentation, I always have this slide where I define these three steps of IoT.

• 27:02Anthony Pompliano?

  Okay.

• 27:03Speaker 02

  So the first one was dumb decentralization.

• 27:05Anthony Pompliano?

  Dumb centralization.

• 27:07Speaker 02

  Decentralization.

• 27:08Anthony Pompliano?

  Okay, dumb decentralization, explain that.

• 27:09Speaker 02

  So think about your old washing machine that had the simple job to do. You press a button, it starts twisting around, it cleans your clothing. It was not connected, it could not talk with other machines.

• 27:20Anthony Pompliano?

  Yep.

• 27:20Speaker 02

  It was not smart. Now where-

• 27:22Anthony Pompliano?

  Most people don't even know how to talk to their own washing machine, let alone to talk to other machines, but alright, keep going.

• 27:27Speaker 02

  Exactly. So where we are today is smart centralization.

• 27:31Anthony Pompliano?

  Okay.

• 27:32Speaker 02

  That means we have those devices that actually have more computing capacity.

• 27:35Anthony Pompliano?

  Yep.

• 27:36Speaker 02

  They have connectivity, they can transfer data and most importantly, they can really start transmitting that data to the cloud. We need to connect it to your local Wi-Fi network. So now this washing machine example is your washing machine can really start figuring out when do you actually want to have your clothing washed? What temperatures, what are your preferences and so on and so forth? And it can make smart decisions, like your thermostat, Nest thermostat is a good example. Everything becomes automated because of the cloud.

• 28:03Anthony Pompliano?

  Yep.

• 28:04Speaker 02

  Not because of the devices themselves, right? The devices are only a small component of this. Now, the big problem here is, and that is why distributed ledgers are so exciting, is in the smart centralization world, we really have a single point of failure, which is the cloud. The cloud is the smart component here and now if the cloud goes offline or we have no connectivity, we have a very expensive device that is super stupid, that cannot really automate my life and has actually made it more difficult because sometimes there's complete service outage, meaning I can no longer control my temperature in my home. And that is why we need to move to the third step, which is smart decentralization.

• 28:41Anthony Pompliano?

  Okay, so just as a recap, the first step of dumb decentralization is I have a system in my home, let's say the washing machine, the thermostat, whatever. It's decentralized because it's not centrally kind of aggregated with everyone else's washing machine. Right? So it's decentralized in that nature. It's a single node by itself that has no connectivity. But that's also why it's dumb, right? Because unconnected. That's step one. Step two is what you just described as smart centralization, which is now the machine actually has data capabilities and some intelligence. But the way that that was accomplished was by connecting them all to a central point, right? Which is the cloud. So Nest is, Nest HQ, if you will, is the central point

• 29:25Anthony Pompliano?

  that all of these Nest smart devices are connected to. And there's benefits to doing that because I can push updates, I can do more around learning and improve the software, whatever. The downside is that there's that central point of failure.

• 29:39Speaker 02

  Yeah, yeah. And you know, like, smart centralization is also about ownership. Do you actually own your device if it's actually connected to the cloud and can only really function with the cloud? And a very important question is also, do you own the data that is being generated? Like today, I think there was an article that said Nest owners should tell their guests that they should be aware that the Nest device can start collecting their talks, their conversations. And it's kind of a scary future, and that is exactly where we are today, where those large corporations actually own the devices, they own the ecosystem, and they make decisions of what happens with the data and with the machines that are part of this ecosystem. Nest tomorrow could just decide, hey, like, we want to discard this product because we no longer want to maintain it, it's too expensive.

• 30:24Speaker 02

  And now you, as a customer, are completely screwed.

• 30:26Anthony Pompliano?

  Yep.

• 30:26Speaker 02

  You cannot do anything about that. And that is exactly why we need to change this ownership structure of our IT ecosystems towards this smart decentralization. And we at IOT, we are really big fans of biomimetics, meaning we want to imitate nature.

• 30:45Anthony Pompliano?

  Okay.

• 30:45Speaker 02

  In our technology.

• 30:46Anthony Pompliano?

  Biomimetics?

• 30:47Speaker 02

  Yeah.

• 30:48Anthony Pompliano?

  Okay, imitating nature. Okay, go ahead.

• 30:50Speaker 02

  So a very interesting example is how ants work.

• 30:54Anthony Pompliano?

  Arms?

• 30:55Speaker 02

  Ants.

• 30:56Anthony Pompliano?

  Oh ants, okay, yeah, yeah, yeah. The, uh, the, uh, European accent is gonna throw me off. Ants, A-N-T.

• 31:01Speaker 02

  Uh, sorry. Uh, so think about an ant as, as an individual IOT device.

• 31:07Anthony Pompliano?

  Okay.

• 31:07Speaker 02

  It's dumb. It, it doesn't have the, the visual capacity to, to really figure out where to go, what, where, where's the threat? Where's food and so on and so forth. But the exciting part is when you have a collective of ants. And what they're doing is they're sharing data via pheromones.

• 31:22Anthony Pompliano?

  Mm-hmm.

• 31:22Speaker 02

  So the more ants are going in one direction, the more ants are starting to follow.

• 31:26Anthony Pompliano?

  Yep.

• 31:26Speaker 02

  Because they start to understand like over there is food or we need to help them. And that is why, uh, an ant hill is one of the most intelligent, um, environments out there, right? Because they can really start building up, uh, their own local ecosystem. I, I even saw some pictures of ants building boats and driving around in rivers. So it's really crazy how, uh, a dumb device, a dumb, uh, being can create a, a collective intelligence.

• 31:53Anthony Pompliano?

  It, it's funny because there's humans that don't have boats, but the ants got boats.

• 31:56Speaker 02

  Yeah.

• 31:57Anthony Pompliano?

  Absolutely. So, and, and really what you're talking about here is, um, that collective intelligence, right? This is, um, pretty non-controversial at this point, that the power of the crowd, right? And if we can actually use sensors and machines and all this kind of smart hardware to better collect, then to, uh, analyze and then eventually implement the learnings from this data, the world's gonna be way better off than if we couldn't do it.

• 32:24Speaker 02

  Exactly, and not only that, but you also become much more resilient against attacks. So today we live in an environment whereby we are really, uh, we should be really worried about hackers and how they can have an impact on our mission-critical infrastructure, which is really the most vulnerable part that we also have today, like our energy grid system. And with, with this concept of smart decentralization, of edge and fog computing, and of making decisions locally in the mesh of devices.

• 32:54Speaker 02

  And simply sharing data between devices with a much more secure and much more resilient environment that cannot be taken down, meaning we've removed the single point of failure that we have today.

• 33:04Anthony Pompliano?

  All right, so I'm gonna use an example that I think illustrates this. We haven't talked about this, so you gotta tell me if I'm wrong or not, and I want you to be honest.

• 33:12Speaker 02

  Yeah.

• 33:13Anthony Pompliano?

  The Apple iPhone, to me, is a great example of what you're describing in the sense that, take the biometrics. So the facial recognition, the thumbprint, right? All these things, they're locally stored on the consumer device. So if Apple, the company, gets hacked, nobody can get my facial recognition or my fingerprint. But my device is smart in that it uses all the biometrics locally, right? And there is now connectivity to my mobile carrier, right? There's some sharing back to data of other data back to Apple, etc. So it's almost like you can pick or permission what data gets shared with Apple, what data stays locally.

• 33:57Anthony Pompliano?

  Some of that's determined by them in terms of how they build the device, right? So there's just no connectivity to send your biometrics to Apple. But some of it is at the user level, I have control over the privacy of my data. Does that generally make sense around this kind of smart decentralization?

• 34:12Speaker 02

  No, that's a really good example. I can give you a better example and also transcend into why you need to create an open ecosystem with this intelligence.

• 34:19Anthony Pompliano?

  Okay.

• 34:20Speaker 02

  So the best example that we have today of a network of devices that is using these similar concepts is Tesla with their autonomous vehicles. So what Tesla does is each node, each car in the network is collecting data as it drives around. And what they do now is they start sharing this data with Tesla HQ, not with the other Tesla vehicles themselves, but with the headquarter. And now, the exciting part here is really the entire network, the entire fleet of Tesla cars becomes smarter. Meaning that I really become more resilient and I can actually really utilize with 99% failure rate my autonomous driving. But here's the problem. Tesla is a gated community. They're their own ecosystem.

• 35:04Speaker 02

  And there's millions and millions of cars out there that could actually really benefit from the data that Tesla has, but Tesla has so much more to benefit from them as well. And now here comes the vision of IOTA, and how do you break down those barriers so that the Tesla vehicle is going to share data with their Renault car, with Volkswagen car? The way you can go about this is two ways. The first one is you do the traditional way, you create a new consortium. You know corporates, they like creating consortiums, consortias. But I think now they're starting to realize that this entire permissioned environment is just creating too much friction for them. Because now, when you want to join this consortium, you have to sign a contract. You actually have to make sure that there is no conflict of interests.

• 35:48Speaker 02

  And what will most likely happen is that the other competitors are going to create their own consortium. And now we have them competing.

• 35:55Anthony Pompliano?

  You have full fragmentation of the whole thing.

• 35:57Speaker 02

  Exactly. Now you're really fragmented and now the ones that benefit, don't benefit are the end consumers, because now the data is not being shared. So how do you break down those barriers? You simply introduce an incentive mechanism. Every, every company wants to make money. That's their, that's their goal, right? And data, yeah, and a very good point that was made recently is data should be part of your balance sheet of a large corporation. And now what happens in this, in this, in this vision is that Tesla is starting to sell data to Volksland, to Renault, to Peugeot, and so on and so forth. And they start transacting with each other. So they start to benefit from each other by simply selling data. And through that, you start to get this intelligence out of that.

• 36:41Anthony Pompliano?

  So what are you guys doing in this space, right, with I O D? What, what is the vision of what you want to build? And then we can get, kind of get into what the components are like. What ultimately, when somebody says, you know, what are you building? What exactly is that?

• 36:54Speaker 02

  So we are focused on the value layer. We really want to be the trust layer of our digital economy. Meaning that we are the open, permissionless protocol that everybody can go to if they want to secure data. Or if they really want to enable payments, which obviously require trust, that you can trust that it's going to be submitted. And it's going to be confirmed and it's actually secure. And so we are really sort of the middle layer here that enables this vision of a machine economy. So in our, in our future, that we envision is that every device has their own wallet. And they can really start transacting through I O D.

• 37:30Anthony Pompliano?

  So going back to that example of kind of there's physical objects that can be transacted between two, right? So a machine hands something to a machine. There's information, right, which is more kind of the I O T and smart device. And then this third bucket is really what you guys are attacking, which is the, the transfer of value or transactions that you can, can make.

• 37:51Anthony Pompliano?

  How is that being done today, right? Is this simply something where, you know, I walk into Starbucks and I have to have a QR code and my device, which is my smartphone that I'm physically holding, hits the scanner and then there's a payment made in the backend? Is that kind of the the smartest version of how the quote "machine-to-machine" transaction works today when it comes to value transfer?

• 38:13Speaker 02

  Yeah, yeah, like that's that's a good example. And we we also have our own wallet where we really focus on those more consumer payments. But fundamentally, what we are doing is how can we integrate our our software into the car, into the machine itself, on the hardware? That is why we're also developing our own hardware, for example, to accelerate the algorithms and so on and so forth. Because that is the big vision. You want to remove the trust barrier here and the machine itself should be a full node. It should really participate in the network and it should be able to easily transact with another machine. And you know, the exciting part about micropayments is that it's actually a mechanism to remove trust.

• 38:53Speaker 02

  So now if you start charging with the with the charging station, in the future, how can in this autonomous future, how can the charging station actually know that a car is there? Unless we really have an identity protocol, the only way to remove this trust is by making it possible for the car to pay the charging station. And as soon as the payment, a micropayment is done, the charging station will release the energy flow. And now the car can able is able to verify, hey, I'm getting electricity, I should release more payments. And through that you start, you have a very interesting mechanism to remove trust in our society.

• 39:28Anthony Pompliano?

  So, okay, so so let's talk about, let's use a car as an example, right? Because I think that's one you guys have done some work on and I've thought about. There's a lot of payments that a car is involved in, we don't think about today, right? A normal human. I go to get gas, I get out of my car, I put my credit card in the machine, I plug in the gas right pump and then I start pumping gas into my car. I physically, as a human, had to get out of my car and do the credit card. A toll. I drive, I gotta stop my car, I gotta reach out, I gotta put change in or I give them some kind of, you know, pass, etc.

• 40:04Speaker 02

  Yeah.

• 40:06Anthony Pompliano?

  Charging, parking, right? I mean, there's a lot of things that you do with your car, a speeding ticket, right? I I went too fast, I gotta pay, right? Almost done. What you're really talking about is removing the friction of the human element of those transactions. Where the end result is the same. I get gas, I paid for it, right? Or I get electricity, I paid for it in terms of electric car. Uh, I drove on this road, I paid a toll, right? I went too fast, I paid a penalty. But what you're really talking about is just as you remove that human, it becomes more efficient on how to do that because the machine, the car itself is able to directly transact with whoever the recipient of the funds are.

• 40:50Speaker 02

  Yeah, yeah, exactly. And, and this is what I mentioned before. This is really the next step of automation, which is autonomy. And that, that fundamentally frees us humans up from, from some of these very mundane tasks. Like getting out of your car, getting a parking ticket and stuff like that. You can really start automating all of this by, by simply introducing payment mechanisms or data transfer mechanisms. And that is what we are fundamentally focused on. And that is why also so many corporates and governments are super excited about this future because for them, they also understand that these are new business models for them and new revenue streams. And they make their, their cars so much more appealing to purchase as well. For example, we, we, we have an exciting work together with Jaguar Land Rover

• 41:34Speaker 02

  where they introduced that their car can now have an IOTA carie wallet that we're working on. And now it can really start also selling data as it drives around.

• 41:42Anthony Pompliano?

  Okay, alright. So let's make sure I understand this. In this partnership that you guys have with Jaguar Land Rover, you're going to put software on the car itself that allows them to have a digital wallet. That digital wallet can do two things is my understanding. One, it can hold money, right? Digital currency. And then it can pay that to certain sensors or, or um, kind of counterparties for certain activities. So whether that's gas, tolls, electricity, whatever. But the second thing is there's also the ability for the car to sell the data it's generating. And in return, receive payment into that digital wallet for having sold the data that it was generating. Is that all right?

• 42:26Speaker 02

  Yeah, exactly. And this is what the machine economy itself is about. The machines still are not just consumers, they also become prosumers. And they start generating data, so much data that is hugely valuable to other machines. Uh, best example is the Waze app. Ways as it works today is that you as a human, you have to manually manually enter here's something, here's that blah, blah, blah, blah, right? And that creates friction because I think ninety percent of people do not want to do that because there is no incentive.

• 42:55Anthony Pompliano?

  Hmm.

• 42:55Speaker 02

  But now the car itself is the best autonomous vehicle, or like autonomous machine driving around. Because as you drive around, you generate data and you can start selling that. You have a pothole, you can sense that. And then you can submit the data. You're stuck in traffic. You can submit the data. And that is really the exciting part about this future, right? How how can we make it possible for these machines to just start functioning like ants? Start transmitting data.

• 43:20Anthony Pompliano?

  So I want to play devil's advocate, right? There's a lot of people who are listening to this who are going to say, uh, you're full of shit, right? And and not in a, uh, you know, um, what you're saying is wrong of the world that we're going into. But uh, there's other ways to do some of this, right? So I'm gonna throw out uh, what I think are the arguments, the detractors, and then you respond. So the first is, uh, yes, we're going to an automated world. Yes, there will be machine to machine transactions, but we already have a digital currency. We have Bitcoin, right? Uh, and the machines are going to use Bitcoin, not something else. So why, why don't you just go focus on Bitcoin?

• 43:56Speaker 02

  So I think the first answer to the question is that we are not competing with Bitcoin. Bitcoin has a very different appeal to uh, holders and to investors and to users. Now, the focus of IOTA, and that is exactly why we actually created IOTA, is to really be a machine currency. That that removes the friction, that has a technology as its backbone that is actually capable of running in an IOT environment.

• 44:20Anthony Pompliano?

  Okay, so so a a machine currency, I've never heard anyone talk about that before. What what does that mean?

• 44:27Speaker 02

  Simply a currency that that is is in particular designed and built to enable these machine to machine transactions.

• 44:34Anthony Pompliano?

  Okay, and and like from a technical standpoint, what is the difference in how machines transact versus how, let's say, you and I would uh, send Bitcoin back and forth?

• 44:44Speaker 02

  I think the biggest difference is simply in the size of the transactions. Us humans, we want to send around hundreds, thousands of dollars in Bitcoin for remittances purposes, right? Now a machine wants to do a simple micropayment for a data set, for a certain service that just takes a few seconds to complete. And so you want to be able to transmit a fraction of that transaction, of of that value. Of a normal value of the transaction. And now with IOTA, what we are really focused on, how can we make it possible for these microtransactions to actually happen without any fees? So that is why we introduced IOTA in 2015 with this new technological concept called the tangle, based on a DAG.

• 45:22Anthony Pompliano?

  Okay. What is that?

• 45:24Speaker 02

  So it's a directed acyclic graph.

• 45:27Anthony Pompliano?

  Oh my god, these are big words from smart people. Alright, it's a directed?

• 45:31Speaker 02

  Acyclic.

• 45:32Anthony Pompliano?

  Okay.

• 45:33Speaker 02

  Graph.

• 45:34Anthony Pompliano?

  Graph, and what does that mean?

• 45:35Speaker 02

  So, if you think about the blockchain, it's a sequential chain, block after block after block, that in certain intervals, 10 minutes for example, gets confirmed by a smaller subset of the network, which is the miners. So they're the ones that are responsible for the consensus fundamentally. Now with IOTA, instead of having the sequential chain, we remove the blocks and we remove the chain.

• 45:57Anthony Pompliano?

  Okay, so what do you replace them with?

• 45:59Speaker 02

  Transactions. So if you execute a transaction in IOTA, it doesn't get bundled into a block, it simply gets attached to this tangle. So that means your transaction references two transactions in the history. And now where the consensus comes from is that the more transactions confirm your transaction, the more secure it gets. So you have a similar principle. And now obviously the complexity is how you get that confirmation. But that is why we publish a lot of white papers, and that is also why we are right now working on removing the friction that we have today, meaning the coordinator, meaning really having a protocol that is fit for IOT. So our big goal is it for next year, 2020, to really be production ready.

• 46:43Speaker 02

  And to enable thousands of transactions per second, and to start onboarding some of the bigger corporates that we already have as partners today onto the network, meaning that they will actually utilize the permissionless network and will actually utilize the IOTA token.

• 46:57Anthony Pompliano?

  Got it, and so before we get to the token component, one of the things that you said to me before that I don't understand as well, so it would be helpful to understand, is most human-to-human digital currency transactions happen on the internet.

• 47:12Speaker 02

  Yep.

• 47:14Anthony Pompliano?

  A lot of machine-to-machine transactions don't actually happen over like TCP/IP, right? So maybe describe a little bit about what the difference is between how some of these machine transactions are occurring versus how the, like, let's say Bitcoin transactions are happening on the Internet, and how you guys are addressing the machine-to-machine side of this.

• 47:31Speaker 02

  Yeah, I think a good analogy to this is also what you want to achieve with sharding. So that means that you have a global ledger, which is the ultimate settlement layer, but then you also enable shards in this network. And one shard can be a participant of devices, meaning a cluster of devices that build their own mesh network. And the reason why you want to do that is because sometimes those devices are offline, sometimes those devices use a very different communication protocol, like I mentioned before, but you still want to enable the business model to them, meaning transacting value. And this is what we are at Ayota are really focused on is first, we want to get the base layer right, make that fully scalable, and then the next iteration is really to enable

• 48:13Speaker 02

  sharding, so that we enable those cluster of devices to really start transacting with each other. And you know how difficult sharding is with blockchain, because it wasn't really possible yet. And so we've been working on this for the last five or six years on sharding, and nothing has really come out yet.

• 48:32Anthony Pompliano?

  And so why do you think it hasn't been, there's been no progress yet?

• 48:38Speaker 02

  I think it really has to do with building on the wrong principles. And when we started Ayota, or like, we still say that everything is a proof of concept. Bitcoin is a proof of concept, Ayota is a proof of concept, Ethereum is a proof of concept. We need to actually prove that those technologies have real-world impact and are scalable. And that is why we really need to focus first on scaling these technologies and getting them production-ready. We're not there yet. And with sharding, there's a lot of interesting research around, but I've not really seen anything being concretely implemented yet.

• 49:15Speaker 02

  And if it is, some of the bigger projects like us or like Bitcoin and so on as well will hopefully start implementing those.

• 49:22Anthony Pompliano?

  Got it. So let's go back to the game of devil's advocate, right? So there's Bitcoin and then you've got the IOTA system. A lot of people I think would say, hey, you don't need a token, right? The IOTA token itself, you could do all this without a token. You say, what?

• 49:38Speaker 02

  So, so there's four different answers that I think, maybe five or six.

• 49:42Anthony Pompliano?

  Okay.

• 49:43Speaker 02

  Just thinking it through. The first answer is very simple. We don't have digital identities. And as I mentioned before, digital identities remove the trust barrier. But we don't, we are not there yet. And as such, we need to have a token so that the machine has a wallet, is able to remove the trust and the friction by transacting with the other machine and making sure that the value is actually being transferred, like their energy flow, as I mentioned before. So that is the first reason, no digital identities. The second reason is, IOT is not about the internet and we need to make it possible for these machine to machine payments to actually happen. In the future, we're not going to envision machines sending an API request to, to a bank and saying,

• 50:26Speaker 02

  please transfer money from my bank account to another bank account of a machine. That simply doesn't work and it's not scalable, especially if we talk about billions of devices transacting. We are simply going to have network congestion.

• 50:37Anthony Pompliano?

  Well, and, and also I think it's a time. So, so one of the things I always joke about is you can't have an instantaneous or automated system. If you wait a day for the bank to settle the, the payment.

• 50:47Speaker 02

  Yeah, yeah, exactly. And that's just ridiculous. The third reason is micropayments. And I don't know of any protocol or any traditional financial instrument that enables you to do micropayments in a trustless way especially. And as we discussed, IOT, machine to machine transactions are all about micropayments. And the exciting part about micropayments is that you get this fine granularity of what you're actually paying for. Meaning you don't have a monthly subscription service, but you only pay per usage unit, per minute that you use this robotic arm. And it's really unlocks so much more capital as well. And now the fourth reason is what actually got me into this whole DLT space is permissionless innovation.

• 51:32Speaker 02

  We want to have an open and permissionless network that is not owned by a single entity, where no consortium makes decisions, but where we have an open way for people to participate and to benefit from this ability to transact value.

• 51:48Anthony Pompliano?

  And so another question that I think comes up is, this isn't a blockchain, right? I think you kind of already answered that with it's the DLT components are there. It is not a chain of blocks of transactions.

• 52:02Speaker 02

  Yeah, yeah. And we were the first ones to truly introduce DAX back in 2015.

• 52:07Anthony Pompliano?

  What is it?

• 52:08Speaker 02

  A DAC.

• 52:09Anthony Pompliano?

  Okay, what is it?

• 52:09Speaker 02

  Directed ASIC Graph.

• 52:11Anthony Pompliano?

  Oh, okay. Oh, you're just trying.

• 52:13Speaker 02

  And we've seen many projects now also start utilizing DAX. So it's really a confirmation. And by the way, just so you know, my co-founder ComeFromBeyond was also the first one to develop a full proof of stake blockchain. So he was really pioneering this space since 2011, 2012. So we really have this deep technological knowledge of DLTs. But really now, our goal and our job as a project is to cross this technology chasm. As I mentioned before, everything is a proof of concept today. How do we actually make sure that those technologies are ready? And I think when it comes to making sure that these projects are ready, there is like three ways to look at it.

• 52:56Speaker 02

  First, obviously, technology, it needs to be scalable and it needs to be validated that is scalable. The second one is governance, and I think governance is one of the most underrated concepts in this space. Because you don't want to have a for-profit entity owning this protocol where we envision billions of dollars to be transacted with. Right? There's a huge conflict of interest. Because they also benefit the most from it. And governance is really where we make sure that the protocol itself is not going to be developed by one entity, but is being hosted in a vendor-neutral environment. Meaning that corporate, startups, developers, everybody can start participating and making collective decisions on what should be the future of the protocol.

• 53:41Speaker 02

  Similarly to how TCP/IP is being further developed, or the Linux kernel. Those are hugely valuable pieces of technology where we need to have a proper governance framework around that. And it's especially important for a protocol where value is being transacted. And as my governance is really what many more projects in this space should look out for. And the third one is obviously ecosystem. We need to have people built around and built on top.

• 54:08Anthony Pompliano?

  And so, talk to me about

• 54:12Anthony Pompliano?

  two, three, five years from now. What are some of the applications that come on to the network that you get the most excited about? So we talked about the car, right? And kind of the digital wallet in a car. I could see that happening very quickly, right? What are some of these other applications that you see that you're like, look, we not only are excited, but we think that they're viable in the kind of two to five year timeframe?

• 54:36Speaker 02

  Yeah, so as you mentioned, I think the machine wallet itself is going to be the biggest application because now we can really make it possible for these machines to actually start providing the service. Like manufacturing on demand will be huge in the future, where a large corporate no longer need to have huge capital expenditures on acquiring the machines, but they simply lease them on demand. So that will be huge. But I think there's many other very exciting concepts like the data economy part, where we are also really thinking about AI. And so one of the most exciting concepts for me is really federated machine learning.

• 55:11Anthony Pompliano?

  Okay, explain that.

• 55:12Speaker 02

  So federated machine learning can be explained quite simply. Instead of sending the data to the algorithm, you're sending the algorithm to the data. That means the devices are no longer transacting their gigabytes of data to the cloud, where the cloud is now the smart engine. But the edge itself, the devices. Start collecting the data, to start analyzing the data. And what they do then is they start sharing their insights with each other.

• 55:42Anthony Pompliano?

  Oh, interesting. So rather than me be the car that takes all of the data I have, send that data somewhere, it's analyzed in the cloud. And then basically I get the insights back and then everyone else gets insights. Instead, all of that computation and analysis happens at the car level. And then all I'm transacting is the final insights to whether it's a central party or another decentralized node in a network.

• 56:06Speaker 02

  Yeah, and the exciting part is that you can really make a data privacy preserving AI application, meaning your sensitive data does not get shared. Your Fitbit is actually smart on its own. But it also becomes even smarter from all the other Fitbits that are around. Because people are sharing data, but no sensitive data gets shared. And that will really unlock so much more potential for the future whereby AI, which everybody agrees is here, is having an impact. But AI today is really something that is there just to get as much data from you as possible. That is why Google and Facebook are really dominating it today. Now with federated machine learning,

• 56:49Speaker 02

  you're really starting to solve these problems of data gathering and data collection. And make it possible for these machines to also start selling those insights with IOTA tokens. So they start paying each other and they collectively get smarter.

• 57:02Anthony Pompliano?

  And then there's a high probability this is the world we're moving to, right? I think that we kind of both agree that an autonomous automated world, it's more a question of when, not if. What's the ethical concerns or the potential downsides to doing this? Right? I think, you know, as technologists, we always get excited about, oh, look at this world we can go build and we can create all this benefit. What's the downside that people should either be aware of or thinking about as we move towards this world?

• 57:31Speaker 02

  The downside is really on building something that is not future-proof.

• 57:37Anthony Pompliano?

  Okay, what do you mean by that?

• 57:38Speaker 02

  So one of the most interesting books that I read like a year or two ago was called The Master Switch. And it talks about how those very exciting technological advances start out in a decentralized way, but then they start becoming more centralized. So it's really a cycle. Good example is what happened with the telephone system where initially it was very decentralized. You had those farmers operating the switches. And then AT&T came aboard, they started building up those huge messes and everything. And they started owning the network itself, owning the ecosystem. And now we have their ridiculous price policies. And the same happened with the internet whereby now we have those huge conglomerates that own the internet. And they also own you and own your data.

• 58:22Speaker 02

  And that is why the internet has become this double edged sword. We talked about we want to connect as many people as possible. But now we're starting to realize, damn, like, the internet is actually having an impact on our democracy. Which is what fundamentally protects us as well from bad decisions. And now we are really in an environment where the internet is having a negative impact. And with with technologies like AI and distributed letters, we also need to think about how can we make this system future proof that we don't have a similar situation again that a few monopolies, a few large companies are owning their respective ecosystems and are owning the protocol itself. And they're making bad decisions on our behalf.

• 59:06Anthony Pompliano?

  And so can we prevent some of that stuff? Or do you think it's something that we just have to be aware of? And it's a necessary evil with the progress that that it comes with?

• 59:16Speaker 02

  Sadly, I think it's the latter. Because, yeah, because that's why we have Coinbase, right? It's just too much of a pain in the ass to store your own tokens. And you're worried about losing it. Now you start going to the centralized providers. And those centralized providers are really there to solve the entire UI and UX problem that we have. So I hope that we can figure out a way on how to resolve those issues. But I think the the only way to really resolve that from ever happening is to make the right policies and the right regulation. And that obviously assumes that we have the right people in place to make those decisions. And that's why I always say is that we cannot do this alone.

• 59:58Speaker 02

  We need to bring the old world with the new world together to really start building a framework to make sure that this is something that will last decades and will truly bring prosperity to all of us. And only by bringing the nerds and the policymakers together, we can make that happen.

• 1:00:16Anthony Pompliano?

  Yeah, and I guess what do you guys do as you're building out kind of the connectivity, right? It's really how I think we're building the network where you can transact value on for these machines. How do you interface with the corporate partners? How do you interface with like industry associations, just people who are working on similar types of problems and want to see the same world, but they're just not focused on this part of the technology stack?

• 1:00:39Speaker 02

  Yeah, so I think that IOT is really one of the top three ecosystems in the space in terms of corporate adoption and also our community. And since inception, we always said is that we work forward with the industry. We are really building a technology that solves industrial problems. And we have some very big corporates that we have as our partners that are really starting to develop together with us, like Jaguar Land Rover, like ST Microelectronics, like Energinet and NG and so on and so forth, all of those really large conglomerates that are starting to realize they need to invest now into a technology like IOTA to start building business models for the future.

• 1:01:16Anthony Pompliano?

  Who are the other, who are the other two that you think are just as big?

• 1:01:19Speaker 02

  I think Hyperledger Ethereum.

• 1:01:21Anthony Pompliano?

  Really? Not Bitcoin?

• 1:01:23Speaker 02

  I think in corporate adoption.

• 1:01:25Anthony Pompliano?

  Oh, in corporate adoption?

• 1:01:26Speaker 02

  Yeah, yeah.

• 1:01:27Anthony Pompliano?

  You got it, okay.

• 1:01:28Speaker 02

  No, general adoption, I think Bitcoin is definitely the biggest.

• 1:01:29Anthony Pompliano?

  Yeah.

• 1:01:30Speaker 02

  When it comes from a user standpoint.

• 1:01:31Anthony Pompliano?

  Got it. But really from like a partnership standpoint, et cetera.

• 1:01:34Speaker 02

  Yeah.

• 1:01:35Anthony Pompliano?

  It's Bitcoin's business development department is lacking.

• 1:01:38Speaker 02

  You should call up the CEO.

• 1:01:40Anthony Pompliano?

  Yeah, call up the CEO, exactly. By the way, one of my favorite jokes in all of crypto. All right, so as you guys are building out the, this corporate partnerships, et cetera, where do you see those people today in terms of their receptivity, right? So some organizations obviously say, hey, let's, we'd love to work on this now. I'm assuming there's still some who are just, ah, we're not ready, or we kind of are skeptical of this stuff.

• 1:02:02Speaker 02

  So I think especially after the bust of 2018.

• 1:02:07Anthony Pompliano?

  Yeah.

• 1:02:08Speaker 02

  We saw a little bit of less responsiveness and less interest. But I think those companies that are truly committed, they have started investing more resources into this. And they have also shown much more commitment. And the stage that we are at right now is that we have a self-sufficient ecosystem. Meaning that corporates come to us and say, hey, like, we've actually built this on IOTA. Do we want to do a partnership announcement? And stuff like that. So that's really the stage that we're at right now, where we're starting to see this snowball rolling faster and faster. Also because we are part of some large industrial associations, we're starting to work on standardization. And corporates start to realize we need to get into this now. And also this entire space has matured a lot.

• 1:02:51Speaker 02

  We got rid of all the bullshit from 2017, where companies were bombarded by moon boys. They were bombarded by ICO projects. And now it's really about value creation. Because what distributed ledgers were really invented for, and what Bitcoin was invented for, is to truly change what is wrong today. To really change this trust level that we have today and improve it significantly. And also introduce this new, open trust layer to society that starts benefiting all of us. Not just the corporates, but also the citizens and individuals that live up in this city.

• 1:03:30Anthony Pompliano?

  For sure. When people who are listening to this leave, what's the one thing that you want them to kind of walk away with? When they think of IOTA, they think of what you guys are building. What's that, you know, one or two sentences, just, hey, here's how I want people to view the world through our perspective?

• 1:03:47Speaker 02

  I think that IOTA is not just a cryptocurrency. It's not just another speculative asset. It's really something where we are focused on what are the fundamentals? And how do we get those fundamentals right? And how can we make sure that the currency part in cryptocurrency actually comes back? Because today, all cryptocurrencies are speculative assets. And we want to make the jump and actually have something where machines start transacting with each other. Where we have an economy that is starting to really make up our future. As a we are, we as a nonprofit foundation are really focused on building towards the future. And and we don't see ourselves as as competing with other projects. We don't want to get into fights. But we are focused on value creation, and I think other projects should focus on the same.

• 1:04:32Anthony Pompliano?

  And you think cars and the and kind of this machine wallet is the first place where the adoption really is going to take off?

• 1:04:38Speaker 02

  And also on the data security part, having an audit trailer of your vehicle. And like the the telemetry data is a good example, or supply chain data. Those are the areas where I think we will see the first adoption. And then it will start really going and growing from there when it comes to smart cities. Smart cities are themselves are very interesting because. What is a smart city? Smart city is transportation, it's a supply chain, it's energy. And we need to start combining all of these different verticals and industries into one machine economy. That is why I'm also very much against utility tokens, because they serve no purpose. Because you start just creating more friction and more barriers.

• 1:05:18Anthony Pompliano?

  What um before I wrap up each uh episode, I always ask kind of rapid fire questions. What uh what's the most important company in crypto other than your own?

• 1:05:26Speaker 02

  Um most important company in crypto, I definitely think right now it's. These type of exchanges that take regulations seriously and that are starting to build for the future. Because when I have, when I have a big partner, speaking with a big partner. I'm not going to send them to a corporation in Hong Kong to do K Y C. So it's really about those exchanges that are built to last as well. And take regulation, take data protection, everything very seriously.

• 1:05:57Anthony Pompliano?

  Yeah, it's kind of you have to provide value to your customers, right?

• 1:05:59Speaker 02

  Yeah, exactly.

• 1:06:00Anthony Pompliano?

  That definition is changing depending on what customer is kind of the the desired customer. What um what's the one regulation that you would change or improve if you could change any of them?

• 1:06:09Speaker 02

  In Germany or in?

• 1:06:11Anthony Pompliano?

  Anywhere in the world, you pick. You're more global than I am, so you pick which jurisdiction you would choose.

• 1:06:17Speaker 02

  I think really data protection laws. I would start introducing much more data protection laws globally. Because that is what's really required for us to also start speeding up the adoption of distributed ledgers as a whole. But we are actually seeing that in the United States, where California is really leading these new data protection acts. And I think those are really those type of laws that we need to focus on right now.

• 1:06:40Anthony Pompliano?

  What's the most controversial thought you have in all of Bitcoin, crypto, IOTA world?

• 1:06:48Speaker 02

  The most controversial thought is probably, like, can I talk about other specific projects?

• 1:06:55Anthony Pompliano?

  You can do whatever you want.

• 1:06:57Speaker 02

  That some of the major projects in the top ten, top twenty are planned pump and dump schemes.

• 1:07:06Anthony Pompliano?

  Do you want to name any of them?

• 1:07:08Speaker 02

  No, I don't think so.

• 1:07:10Anthony Pompliano?

  I thought I was gonna get you to name one. Alright, I don't know if that's controversial. I think a lot of people might agree with you.

• 1:07:18Speaker 02

  I think if I would name them, it would be controversial, maybe.

• 1:07:21Anthony Pompliano?

  Okay, what is the most important book that you've ever read?

• 1:07:25Speaker 02

  The most important book that I ever read was probably, uh... One of the most interesting one was The Age of Surveillance Capitalism.

• 1:07:35Anthony Pompliano?

  Okay, that's a recent book, right? Relatively recent?

• 1:07:38Speaker 02

  Yeah, exactly. Dan Zimmerman from my team is shilling it everywhere.

• 1:07:42Anthony Pompliano?

  Okay.

• 1:07:43Speaker 02

  But it brings very interesting perspective of how these ecosystems evolve and why these companies actually make those decisions and how they perceive you. And, but other than that, there's, I read a lot of research papers in this space. But right now, what I'm really focused on is is less about the future, more about the the present, meaning I'm starting reading a lot about management books. And how to lead a big team. Because we're in the foundation, we are now one hundred and twenty, one hundred and thirty people.

• 1:08:10Anthony Pompliano?

  Wow, one hundred and twenty, one hundred and thirty people.

• 1:08:12Speaker 02

  Yeah.

• 1:08:13Anthony Pompliano?

  That's a lot of people.

• 1:08:13Speaker 02

  In twenty-three countries, so it's very decentralized.

• 1:08:17Anthony Pompliano?

  Yeah, that's a lot of people. Where do you find them all?

• 1:08:20Speaker 02

  On the internet.

• 1:08:23Anthony Pompliano?

  Just that different like job recruiting websites. Wow, that's pretty cool.

• 1:08:28Speaker 02

  Yeah, we grew quite a lot and so you need to focus on organizational structures and so on and so forth. So that's also what excites me, being a leader of this and figuring out how we can really also start building new ventures in this ecosystem. And being a CEO type person.

• 1:08:41Anthony Pompliano?

  Yeah, that's really, really cool.

• 1:08:43Speaker 02

  But in general, I want to read more, but like during during the stressful year of the last two year, 12, 13 months, I wasn't able to read much.

• 1:08:51Anthony Pompliano?

  Yeah, just jump on Twitter. Twitter's always got an opinion about something. Before we end, you get asked me a question, but first we talk aliens, believer or non-believer?

• 1:09:02Speaker 02

  Let's put it this way, if aliens exist, I hope that they're not gonna come right now on Earth, because the world is pretty fucked.

• 1:09:08Anthony Pompliano?

  Okay, you hope that they don't come. Interesting. Why, why, why do you hope that they don't come?

• 1:09:12Speaker 02

  I mean, the world is, is in a pretty bad shape right now and we need to get our act together, especially on misinformation and how easy it is to spread it.

• 1:09:22Anthony Pompliano?

  You think if the aliens came, they would tell everyone that they're not here and then we would all believe that they're not here yet?

• 1:09:27Speaker 02

  They would probably shake their head and fly back.

• 1:09:30Anthony Pompliano?

  They'd say, you guys are idiots. We actually want nothing to do with this. Forget we were ever here. See ya. All right, what, what one question do you have for me?

• 1:09:40Speaker 02

  What question I have for you is like, how do you think that this space is going to evolve over the next year? What, what, what really excites you?

• 1:09:49Anthony Pompliano?

  Yeah, um, so when most people ask me, what does the space need? I say time. So I get more excited the longer the timeline is, right? So one year away. It looks pretty similar to where we are today, right? Yeah, maybe, you know, there's some prices move, there's some more companies that come in and start building with. You know, Bitcoin and blockchains and, and different technologies, there's more startups for sure that kind of, you know, start creating things. Um, so you get progress, right? There's only 12 months. There's only so much that can happen in that. Now, if you said to me, how excited am I about five years from now? I'm getting pretty excited, right? You say to me, 20 years from now? I'm really fucking excited, right?

• 1:10:31Anthony Pompliano?

  And yeah, and it's just because with more time comes more opportunity, right? And ultimately, I have a deep conviction in kind of where that world ends up. And so it's just the more time that we're given, the more I think that gets done. And even if you look at, you know, the easiest example is if you were to look at the number of companies, the number of people operating in the industry, and then the number of people who are signed up at exchanges or using some of these products through 2018, the numbers usually actually went up.

• 1:11:07Speaker 02

  Yeah.

• 1:11:08Anthony Pompliano?

  Right? So even when prices were going the opposite direction than where most people wanted, the usage and a lot of this stuff was actually going in the other direction, right? You know, the Bitcoin one is the one I see people cite the most on Twitter of the hash rate. So prices going down, hash rate is 4Xing, that's a pretty interesting counter signal, right? In terms of what's going on with price. And so if that's happening in the quote bear markets, well, what's going to happen when we go back into the bull markets, right? Obviously, there's going to be a lot of excitement. And I actually think that the next bull market will make the last one look pretty small, right? And so when that happens, like, let's, you know, hold on, right? Because I think it'll be pretty exciting stuff.

• 1:11:47Speaker 02

  No, I think it will be very exciting. And I think now people really understand that there's a lot of potential, and we are here to stay. And that is what everybody should understand, that this is not going away.

• 1:11:58Anthony Pompliano?

  Absolutely. Where can people find you on the internet and find out more about IOTA?

• 1:12:04Speaker 02

  So they can find out more about IOTA at iota.org, I-O-T-A dot org, and you can follow me on Twitter at Dom Schiener, D-O-M-S-C-H-I-E-N-E-R.

• 1:12:15Anthony Pompliano?

  Awesome, man. Well, listen, thank you so much for doing this. I think that, you know, you and I have talked in the past, and obviously this conversation around just automation and a kind of autonomous world that we're heading into, where machines are transactional with machines is, it's going to happen, right?

• 1:12:30Speaker 02

  It's very exciting.

• 1:12:31Anthony Pompliano?

  It's just a question of kind of, you know, who are the players? And then, you know, what's kind of the sequential rollout or adoption of this? But I don't find very many people who argue with the idea that automation is going to happen.

• 1:12:43Speaker 02

  Yeah, exactly. The only thing we really need to focus on is to do it the right way.

• 1:12:47Anthony Pompliano?

  Yeah.

• 1:12:48Speaker 02

  Make it future-proof.

• 1:12:49Anthony Pompliano?

  I love the terminology "future-proof." So we'll have to bring you back on at some point in the future and kind of get an update as to where you guys are and then get a lay of the land when it comes to machine-to-machine transactions.

• 1:12:59Speaker 02

  Yeah, thank you very much.

• 1:13:01Anthony Pompliano?

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