Blockchain 2.0 Applications :: Bitcoin Pacifica 2015

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A transcription of the Bitcoin Pacifica 2015 Blockchain 2.0 Panel, featuring panelists:

  • Ryan Orr — co-founder and CEO of Chronicled, a blockchain-based consumer authenticity platform.
  • Eric Jennings — co-founder and CEO of Filament, a decentralized IoT software stack that uses the blockchain to enable devices to hold unique identities and communicate on a public ledger.
  • Milana Rabkin — co-founder and CEO of Stem, a content royalty payout platform.
  • Jay Reinemann — Executive Director, Strategy, and Corporate Development at BBVA Ventures.

To follow along with the audio or simply listen to the audio instead, please visit our SoundCloud (https://soundcloud.com/pantera-capital) for this panel and other content from Bitcoin Pacifica 2015.


Ryan:  

Terrific. That’s quite an impressive list. Now let’s get into the panel itself and we’ll go into two specific non-financial use cases of block chain and then we also have a financial perspective coming from a large Spanish bank. In terms of the order of the presentations why don’t we start with Eric. Eric Jennings is the CEO and founder of Filament. Eric is working on an application to do digital identity for internet of things. I think maybe there’s a use case to do going for the usage of machines. Maybe it’s machine to machine, I’m not sure, excited to hear more about it Eric.

Eric:    

Sure, thank you. I’m Eric Jennings, I’m the co-founder of Filament. We come from a rich background of hardware and  internet of things so very much the digital connectivity. What Chris Anderson calls the peace dividend of the smart phone wars. The sensor value has gone up so much and the cost has gone down so much that we can actually leverage a lot of the benefit that has happened in smart phone industries to make very good devices that are well connected, very powerful and fairly inexpensive.

What’s fascinating about that is internet of things is almost ad nausem now, it’s just hyped up like crazy. It’s the top of the hype cycle right now. What we really want to try to build with our company is a way to give these devices autonomy. What that means is once the device is deployed, in whatever capacity it’s meant to do it should be able to operate for the lifetime of the device itself until the person managing it decided to do something else or the device physically no longer works.

Sometimes that lifetime is actually longer than the lifetime of the manufacturer who made the device. Right now we have a very siloed IOT, we’re got Nest pick on Nest lot. Nest itself is fantastic, it’s a beautiful piece of engineering, very strong team but that device won’t run very long without the cloud. It will eventually not work or the firmware won’t work and I certainly can’t connect to it directly with my own phone. I have to go through their cloud service or their mobile app.

What happens if devices can identify each other autonomously, can start to interact with each other securely and fundamentally transact value with each other? They’re some really interesting business models that have emerged when a device can pay another device for its sensor data. Even more cool if a device is under contract it gets pain monthly for use. If you have one device paying the other devices contract because it wants that other device to be around so it can continue to get it’s sensor data it’s very fascinating emerging behavior. Things that come out from this concept of simple systems and a lot of them.

Fundamentally we build that and our focus right now is on industrial customers. We have industrial customers who want to connect their legacy infrastructure. That’s a pretty boring world but it’s a very large world, very valuable market. Most of our customers don’t understand what a block chain is. We kind of leverage that a little bit. I won’t say we exploit that. They want connectivity and we want to be able to charge, regulate, retrain revenue models on our products, we don’t actually sell them outright. We use our stack that we built to enforce that through the concept of you could comb smart contracts or just block chain based payments. They like it because it’s an OPX versus CAPX issue so they know they’re going to put these devices on their books. They can start paying monthly and get them deployed in a month or so rather than six months or a year. They start getting data from their machines immediately and can start acting upon those things and see efficiency increases very quickly.

We get a recurring revenue model but more fundamentally we can actually start to realize these new business models like product as a service or machine to machine micro transactions or pay-per-use for products that need to be sold once. We’re excited about what that future means, we have a lot of work to get there and we’ve got a handful of protocols we work on. Our team is pretty technical by nature and I spent a lot of time in protocol work in the last 15 years or so. Some of the team that is working on stuff now, very early founder of Jabber invented the XMPP protocol. Actually, I’d been working with that team on a previous start-up and then we all moved over to this company so we can’t seem to get away from each other. One way or another these various protocols are getting built and we’re realizing it first on the internet of Things.

Ryan:  

A couple of follow on questions. Could machine to machine payments be the killer use case for Bitcoin potentially? I imagine if I could go on an app and recharge the digital wallet in my car and recharge the digital wallet in my refrigerator and recharge the digital wallet in other appliances that I own. The car could pay the toll booth or the parking garage or the refrigerator could pay the grocery service every time the milk runs out and reorder the milk. Could machine to machine payments be something that would be substantial, new, transformative, use case for Bitcoin?

Eric:  

Yeah. I really do think so, the reason why is because micro transactions like Nick mentioned earlier are very, very important, they’ve been talked about a long time. When you talk about any sort of transaction you’ve got actors and you’ve got the actual transaction itself. All of those things need to be as friction less as possible to maximize value for everyone in that market. Perfect world kind of environment. When the actors are still humans you’re trying to do micro transactions you still have a certain amount of friction from just human limitations of speed or attention span or cognitive load like Nick mentioned. Those are still important things that matter. When you have machines that can automatically do these things very quickly and you tie into that micro transactions that’s going to be probably one of the killer use cases if that model and that protocol flow is correct and built on things …

Ryan:  

If all the machines start paying each other for stuff just think of the transaction volume on the Bitcoin network, mind blowing. I mentioned … for parking or for refrigerator or for milk. I don’t know if those are intelligent early use cases. You’ve thought a lot more about all of the different potential use cases and how you’d rank and prioritize them. What are the top early use cases on your list?

Eric:   

There’s so many. I’ll mention a couple example. We’ve seen some pilot customers of ours. One is this company in Australia who offers services to the public utilities, the power utilities in Australia and specifically the West of Australia is very, very rural. The utility company spends about $120 million a year driving around the West of Australia monitoring the power poles to see if they’ve fallen over, if they’ve shorted out. Sometimes there’s a brush fire, sometimes there’s lightning or people crash into them, all sorts of things.

They literally just drive around. It’s what we call the clipboard method or the see to them method. They just drive around and look at the stuff and write it down and come back and they usually enter it wrong and it’s just very expensive, very slow. Adding some of our devices to each of those power poles because our device is also a very long range radio, they can speak up to 9 miles with each other over line of sight, no WiFi or cellular. We can make very large mesh networks still with this kind of ability to discover and transact with each other. To put them all around the West of Australia they now know very clearly okay it’s going to cost this much per month to filament and it’s definitely going to be less than $100 million a year or $120 million. That’s a very easy use case for them to understand from just hey, I need to monitor infrastructure. We’re not even getting into payment yet.

You can imagine now you’ve got a network covering the entire West of Australia and then if we then, I assume go to someone like FedEx and say hey you know in the rural of Australia where you’re trying to send [telemetry] data from your trucks back up to headquarters and there’s no cell access why don’t you just pay per message send over our network? Because our devices can have separate contracts on them for various buyers and sellers we can actually transact multiple buyers on the same physical device based on what we’re doing. We can actually send a message packet that’s almost like a switch or a router.

Ryan: 

Pay-per-packet?

Eric:

Essentially right. Now we’re selling network connectivity to one company and we’re selling basically accelerator data if a pole has fallen to another company on the same device. Based on whatever physical phenomenon you want to monitor you can actually sell it. Our fundamental belief as a company is that the connection between physical and digital that boundary, there’s a ton of raw economic value there. Just the ability to then transact that and to sell it and to buy it we think is a very, very powerful concept.

Ryan:    

Cool, thank you, we can come back to this with the Q&A in a while. Instead of the second case, another non-financial use of block chain. Milana Rabkin – I’m not sure if I’m pronouncing your name correctly, I apologize – the CEO and founder of STEM. Milana has background in the music and entertainment industries and she’s using block chain for splitting royalties to all of the creators involved in creating unique digital content. For example if a band, a drummer and a lead singer and a guitarist and over 40 years on Spotify people are paying to listen to that track, the smart contract split the royalty stream to the drummer, the guitarist and the vocalist and the other 50 people involved in the organization to create that song. That’s a very cumbersome process I understand so I’m excited to hear a little bit more from Milana.

Milana:  

Kind of what we’re doing.

Ryan:  

Okay, you can correct me completely.

Milana: 

It’s a great … one sort of element of what we’re doing. My favorite way to describe what we’re doing comes from a story one of my engineers told me of how he went to borrow one of his friends to catch up and was telling them about how he started working at this company called STEM and that he’s creating a tool that’s going to make it really easy to ensure that artists are paid out in a fair, transparent and timely manner. His friend looks at him and he’s like cool, so you’re making a gun. If anyone’s ever seen Straight Outta Compton where Eazy E walks into the office holding a gun, that’s literally the reality of it right now.

I’m going to tell another story cause it’s hard to understand. I don’t know how many of you are familiar with the content space. Not just music but any type of content, movies, film, TV, games. If you’re a content creator your reality is that … so imagine going to a bank to take out $60 and this is actually the opening statement of an article that was written in Billboard Magazine a couple months ago which is sort of the industry trade for the music business. It’s a writer talking about how unfair the world is to the content creators.

Imagine going to an ATM to try and take $60. The ATM takes 30 minutes to spit out the money it spits out $40 in the form of pennies, gives you no receipt and you have no idea how much money is left in your bank account, you have no idea why they gave you $40 instead of $60 and they’re paying you in the most inefficient way possible. That’s unfortunately the reality. It’s not because the streaming services don’t want to pay out the rights holders. It’s because in order for a content creator to get their content to platform they have to use a third party intermediary. A big problem of that is that copyright law is still sort of operating in a world when it was written which was really back in the day when piano sheet music was created. So you have all these different layers of copyright law which over complicate the situation and in which case today’s world doesn’t have to be that way.

For us, our sort of key audience, and again we’re content agnostic. We’re focusing initially on online video content, music but our application can work on any platform or any type of content that is consumed on Amazon, iTunes, Google, any sort of the big media companies or platforms we’ve done deals with. The idea is if you’re a content creator you use our application STEM to register a piece of content. You identify your collaborators that you’re working with on it, identify the splits, they are invited into the system, they have to confirm their position and we generate a smart contract that can authorize itself. We submit the data to the platforms that you want the content to live on; so YouTube, Sound Cloud, iTunes, Spotify, it doesn’t matter, it can go into all of them from one place. You no longer need to register with the publishing society if you’re registered with one it doesn’t matter to us, you can be, we’re going to collect the money on their behalf anyway.

When the money is received from the platforms, which sort of our issue on trust isn’t that the platforms aren’t going to pay out, it’s that the person who the platforms pay out that one entity isn’t always really transparent or honest about how they pay out the actual people who create the content. There’s all these multiple layers that are in between the song writer and the consumer. That’s unfortunate, so we’re sort of trying to get rid of all the intermediaries and create one platform that authorize trust and can self, sort of distribute the funds to everyone in a way where they can track it along the way. If you’re a collaborator you’re tagged on a piece of content, you’re invited to download the application. We have the feeds from other platforms and you can track the consumption data bout your content, you enter in your banking information and you can collect the money when it comes to you.

We’re not doing anything with the block chain right now with, we borrowed contents from it and we spend a lot of time trying to build on top of it. Quite frankly, we had a lot issues. There’s a lot of concerns we still have about the stability of some of the technology and tools that have been created. We wanted to get our application in the hands of artists to start and hoping that in the next couple of months things start to improve in the community and we can actually start implementing some of third party applications that can help us do what we want to do better.

Ryan:   

What would you need to see from the community Milana to have confidence in implementing on top of block chain?

Milana:  

Couple of things. One: there’s a lot of talk about how much activity you actually put into the ledger. There’s a big fear that information can get lost. For us, the end user, the artist, for them to create a wallet it has to be super, super easy. They can’t lose a key, if they lose a key they can’t access their money and that’s a huge problem. Other things, we can’t actually expect our users to understand the technology that underlies what we’re doing. We have to assume that they’re going to trust the user experience and not have to go through any additional friction points to get paid or see their money so it has to be totally seamless. Collecting the information we need from them to be able to pay them out has to be super, super easy and right now it’s just not. It’s not a seamless experience that you can integrate into a third party application.

Audience:

My I ask what payment sizes do you expect to see on payout or [inaudible]

Milana:

Sure. We sort of tiered it in three different structures. We’re not going after the long tail. The artists we’re working with some of them are independent, some of them are actually signed to labels. Eventually we’re building our core API in a way where larger institutions and some of these digital distributors can actually use our plumbing to distribute content more efficiently. Our lowest tier of the user makes about $100,000 a year on their content. On the highest level some one who is making on average $20,000 to $30,000 a month.

Ryan:  

How do the large record labels …? I know you’re working more than just with music but for example the record labels they’re currently playing this function of bringing together all of the participants and making a track or an album and then playing kind of this ESCROW function to collect the funds. I think it’s a whole bunch of congressionally mandated apparatus when this happens it’s a very complex and old, quite archaic industry structure. How do those record labels who are currently playing this function, how do they feel about potentially being bypassed?

Milana:

They’re sort of two sides to it. The major labels are pretty much massive banks and they give you really, really, really expensive loans in order to produce your content. Back in the day there was no other way. You needed to have a record label to get your music on the radio in order for you to be discovered. You needed sort of the infrastructure, their accounting team to be able to collect all the royalties that were not trackable via digital infrastructure via any means, it was all sort of physical.

Ryan:  

Does every time a radio plays a song in America do they have to play royalty back to …?

Milana: 

They do.

Ryan:

They don’t?

Milana:   

They do.

Ryan:  

Does every time a radio plays a song there’s a little tiny royalty stream that has to come back?

Milana: 

Yeah. Up until three or four years ago there was no easy way to accurately measure the data [inaudible] now Neilsen’s is doing a pretty good job. There’s another software called Media Based which sort of covers a lot of the [inaudible] radio stations around the world. It’s a lot easier to track. Actually, Pioneer, which is the big audio tools that a lot of DJ’s and live performers use, they have a chip that they’ve built it that they can listen to live music when it’s played so calculating performance royalties and live by music is becoming significantly easier and it’s only going to get more accurate.

We’re kind of betting on those two things to update that that’s going to make it a lot easier for us to provide an artist or content creator with a real accurate portrayal of where the music is being used and how. In a way that’s not possible. It’s easier to track digital consumption but it’s harder to track consumption in the real world.

Ryan:  

In the future would it be possible for a new emerging music artists to just release their first couple of tracks straight to Spotify for example? Then based on the number of times the track gets played they would get paid out. Is that a future scenario where you don’t even need a record label to create a whole album?

Milana:  

You don’t. That’s the scenario right now. The only issue is that … there’s a distinction between the sort of streaming and download world. There’s some of the streaming platforms which I’ll classify: Spotify, iTunes, Napster, Deezer, Pandora. All are just sort of platforms that require third party partner to distribute content into them. Then there’s user generated platforms and that’s: YouTube, Sound Cloud, Facebook is sort of emerging into that space right now where any person can upload content into it.

A lot of artists are breaking today just by putting their content on YouTube and on SoundCloud and making videos. It’s funny, some of the top earning content on YouTube is actually e-game celebrities. People who actually video record themselves playing video games online and playing Minecraft and posting that content on YouTube. They’re making six to seven figures a year which is insane. They have an entirely different problem where other people are re-posting those videos to build audio to it themselves trying to monetize it. To salter it, YouTube Buckley has built content ID.

I know we talked about doing derivative works earlier, lovey for us it’s not a problem we need to solve, it’s already been solved for us. YouTube and a lot of the emerging platforms have built amazing, from your printing technologies that can identify derivative works. Tracking that is something that is quite easy today actually, the harder part is being able to aggregate the accounting from all these different channels and knowing who to pay out and when. Often times, the streaming server, the platforms only know the one person who uploaded it. They don’t actually know all of the people who were part of the creative process or who’s pulling a stake of that content. That’s one of the things we’re trying to simplify, which quite frankly it shouldn’t be that hard, at the end of the day it’s just percentages.

The reason why contracts in the music and entertainment business end up being so long is because they’re over negotiated to talk about what happens when someone doesn’t pay the other person. If it’s not up to an individual to pay out someone else then that becomes entirely more simple.

Ryan:    

Terrific, great use case. Thank you. We’re going to come now to our third panelist, to Jay Reinneman. Jay is a VC at BBVA, a major Spanish commercial bank. Jay is going to show us a perspective on how large financial institutions today are looking at block chain. There’s been a lot of interest from large financial institutions in Bitcoin and block chain.

Jay:

Seems like it, yeah.

Ryan: 

Jay is going to share as a VC within a large commercial bank what’s going on.

Jay:

Yeah. We try to merge these panels together and ironically some of these things may be the first applications that, maybe even others that a bank may implement before any sort of real financial transaction happens. Just to give some background and perspective here; I’m an investor for the bank. I invest in technology companies, specifically financial technology companies, Bitcoin is one area of course of very high interest but one investment in Coinbase, we’re still looking for more.

The bank BBVA, I don’t know if you guys have ever heard of these guys, it’s a very large Spanish, retail bank, headquartered in Madrid. There’s a bank in the U.S. called Compass, if any of you are in the remittance business you probably know about Bancomer which is the largest bank in Mexico. Banks in Turkey, all over the place. I’ve only been there for four years but I have been in the traditional financial services industry for almost my entire life. With an appreciation for what we can and can’t do.

I’ve been fortunate enough to have sort of an autonomous venture fund that is allowed to invest in stuff that can disrupt us. I’m not the typical corporate venture guy that’s looking for things where there’s a business relationship and then trying to back the companies that are going to help us. I do that also but it’s not as fun. I only get to do that because we have a chairman of this bank who looks like a banker but he’s actually, at the roots of him, he was actually a technology guy when he started. He’s been very interested in trying to make sure that we understand and can try to at least address the disruption that going to happen to us.

Just one anecdote, or just some detail; I think John was the one who mentioned how funny it is that banks can come together with these consortiums but you can’t get a checking account. I’ve tried to help my fair share of companies that have come to me to try to get them a checking account. Unfortunately, inside the reality – and I’m not a real banker as you can see, or as I’ll tell you. But I do live amongst them and understand what they’re going through. Inside the bank, the guys that control the bank, we call them control functions, legal and compliance. They live in fear of the regulators.

Because we have a very large bank in Mexico we’re also a really large remittance player. We move money as a wholesale provider of services from the US down to Mexico. It’s a decent business for us but at the end of the day we downplay that business because the risk of the fines – and I guess you guys have seen those, the fines that have happened to some of the other big banks out there – far, far outweigh the rest of our business. The reputation risk and the risk of that fine create fear in the hearts of the compliance officers. Those are the guys that control the business. What happens at the banks is basically they say no, we’re not going to do any business with anyone who has anything to do with Bitcoin, even money transmitters, just blanket statement. The problem with that is they just don’t even understand what it is.

What I’m hoping in part of my role, I want to make money on investments, I want to fund it back, the best entrepreneurs. Also on the other side I’ve got another mission to try to educate the bank, to try to get them to understand that Bitcoin is not the boogeyman. Right now, from the perspective of most bankers they have no idea what it is. Some of the guys are starting to talk about it and in the industry starting to play in it. It’s kind of the first step, it’s really good to hear. I appreciate what Dan’s comments last night about trying to bring diversity of perspectives into the room because I need that to help me to get the bank to move. I’ve been using these investments and just the conversations. We’re also an investor in Ribbit, we don’t make any more fun investments because Vulker, I don’t know if you guys know what Vulker has done to banks who fund investments. Mickey has been extremely helpful for us to try to educate our guys inside for them to understand the value of block chain.

It’s easier for them to understand and accept block chain than Bitcoins right now. Anything associated with Bitcoin they still associate it with the stuff they stuff they read in the newspaper. Every time there’s something like Ripple or what happened to Bit Pay I get a call from our compliance guy and he says “see, this is why we don’t have anything to do with these companies” I need to … when they start to see that there’s going to be real applications that have nothing to do with financial services, just to understand the technology. We’ve done some baby steps in this process. Just making direct investments in the space. Even that, for me to go through and get our compliance guys to agree to that I had to go ask our lawyers, is it legal for me to have equity in a company that has Bitcoin. It went all the way up to the Bank of Spain on that and the Fed to go ask them is this okay.

Ryan:  

How long did that take?

Jay:  

A month.

Ryan:    

That’s pretty quick.

Jay:   

Yeah. You can imagine, that’s just me making an equity investment. I made that probably faster than I … we can do that but we can’t open a checking account and that a seven figure deal. We’re doing that, as well as the – as you guys can start to see and you guys should encourage even though some of these things that the banks are doing right now in these private consortium of deals they’re just learning what is this stuff. I encourage these guys to do anything, just so we get more exposure because right now there’s almost no one.

Ryan:

What are these private consortium? You referred to this a couple of times now and you mentioned that banks are starting to look at Crypto and at this ecosystem and it’s been dipping the tail in the water. You made a couple of direct equity investments, probably more than some of the other banks. Sounds like you’ve got a chairman at the highest level who is a technology guy, gives you a little bit more kind of free rope if you will than maybe a big bank without that chairman as an advocate. What are these consortia that you’re referring to and what’s happening amongst them?

Jay: 

They’re some that are talked about, some that aren’t talked about I think. It’s usually a handful of very large global banks that are coming together to have these conversations about creating a private network that might use block chain technology. We just, we announced something with R3 – maybe some of you guys know who these guys are, the XICAP guy. It’s kind of got three phases to it, nothing to do with it but I’m encouraging our business development guys to work on this. They’re looking at architecture. What is the right architecture for financial services transaction. They haven’t really defined that as the financial payment application. It could be settlement, it could be something we do with real estate, insurance. Or the second part is a sandbox so instead of exposing our systems to the outside boogeyman we’ll try this internally first. Then lastly to come up with use cases.

I have to admit it’s really a baby step and they’re talking about this … unfortunately we’re not going to really see anything for a year. At least it’s one thing. It’s not the only thing. They’re going to be doing, that’s one of them with R3 and I think they announced about nine big banks since that announcement I would think about two days ago. I would think about three or four more piled on.

Ryan: 

I haven’t followed these conversations but what I think I’m hearing is that maybe some big banks are interested in running their own block chain to replace SWIFT, to do …

Jay:

I don’t think they know.

Ryan:   

That would be an obvious use case in my mind, having spent some time with the Ripple folks. I think that if a bunch of big banks ran a block chain and used it to do all the debits and credits between themselves, that SWIFT system …

Jay:       

Yes, it’s usually an internal system.

Ryan:   

…transfers keep track of debits and credits in the banks.

Jay:   

That’s the use case that’s most talked about right now.

Ryan:  

What are some of the other use cases that they’re considering?

Jay:   

What they should be also considering is of course the remittance case. I think companies like Abra I have a lot of respect for. Where they, I think in most cases abstracts Bitcoin from the … but it also leverages it, makes it easier and the remittance business has got challenges.

Ryan:    

What would you say are some of the things that this community could do in terms of providing you with support in terms of building a beachhead inside of the bank to start to build momentum?

Jay: 

It’s really good to hear about some of the advocacy groups and the academic groups that are out there, trying to educate. That’s what I need to do a lot of and that’s educating our lawyers and our compliance guys, educating the senior, senior management at the highest level, just what is this stuff. Coming up with more use cases. I have a position of influence and I’m trying to just … not only get us to open checking accounts, because I think that’s something we should be doing. I think if we were able to participate in the system, unfortunately some people have benefited just through access to banking. The traditional banking system and that shouldn’t be my personal perspective. Hopefully, if we can have more dialog we can get these guys more and more comfortable. I think we need more guys focused on helping on the KYC side.

Ryan:  

Question in the back?

Audience: 

Based on what you said earlier today about institutions basically being run by the list officer, the compliance officer [inaudible]

Jay: 

There’s definitely a … so I sit in something called a rep office of BBVA in San Francisco. I have an examiner that comes … we’re basically VC, we have no real customers, banking customers. So if you understand the bank examiner world, they’re usually going in and looking at the books of a branch or something like that. We have no customers, we have not traditional banking business. Despite that, I have an examiner that comes in and asks me to show me my opening procedures, how do you manage your books. We don’t even have licensed people in our office. That’s the examiner side of the business. When I talk about technology with them or why we care about the next generation payment service or security or something they have no idea what I’m talking about.

What I mostly need is the guys on the other side of the house, the guys like Francois who are thinking about this and understand it to influence the other side of the house on the examiner side to give us a break here a little bit. Just to give us a little more latitude to experiment because our … to give our risk and compliance guys some more confidence that they can take some risks or at least open the dialog.

Ryan:  

Interesting, a good suggestion. Why don’t we open up the …

Audience:    

[inaudible] so you guys are more of a regulator [inaudible]

Ryan: 

Are there any reasons whatsoever at the regulatory level where you could make a case?

Audience: 

[inaudible] there’s a regulatory side of what they do and there’s an enforcement side and part of enforcement is [inaudible] an investigation brought by the FCC [inaudible] the commission itself has to approve it. That means in the case of C to CCAP, five commissioners, they all have to prove the investigation [inaudible] the investigation will come from [inaudible] technology, did have a conversation with enforcement. Say are you sure you want to go with this enforcement action given all the evidence at point here. I need to make sense just to be enough traction. One of the reasons might be to have proof [inaudible] I have seen that, part of itself but it’s still kind of difficult to [inaudible] you don’t want to be viewed by the enforcement team as [inaudible] it’s a difficult position to be in, that’s why you don’t see much [inaudible]

Ryan:     

The example you’re giving is to kind of look the other way on a potential need to enforce. But, what about on the flip side to actually be proactive to create some kind of carve out or safe harbor within which they can do innovative? Maybe that’s just too mind blowing.

Jay:    

The European Banking Association first all of put out this paper when was it last year? Two years ago?

Audience: 

[inaudible] this included the risk of regulators [inaudible] I think the answer is – [inaudible] I understand a little bit the regulating mindset that people are on a little bit of a downside by taking risks and I used to work with colleagues at the FCA [inaudible] themselves and there are some people there but you’ve got to find the right people in the system. Actually, there’s a really interesting thing happening in the UK at the moment where the FCA has something called Project Innovate which is helping a lot of start-ups. They’re not just talking to them in a way that’s [inaudible] project catalyst and struggling to get beyond here. They’ve actually, I’ve got clients that have been helped through the application process for FCA licensing without mutual business modules by the team there and guided through. They’re going to then have them expand that to have the first year of supervision being done by a specialist team to get people used to being a regulated entity.

They have people talking to the use of working with that sort of firm. I think that is some scope to do some things and most regulators are people who care about what they do and they want to make the world a better place. If you find the right person and the right agency that’s interested in something [inaudible] to do the right way you can actually get somewhere. I think the trouble is if you’re a star-up and you’ve got a limited amount of time to do anything, it’s kind of a limited amount of money you can devote to anything. It’s kind of, you have to have a really major issue to pick through that.

The [inaudible] I think is to really enforcing it a bit more [inaudible] two and half years. Going back to the [inaudible] party point is that actually it would be really helpful to get banks and the regulators supporting this technology see some progress, any progress on [inaudible] party identity. We know that it’s time to [inaudible] the regulators [inaudible] the technical people and they are [inaudible] someone on the other end of the transaction so that at least you can comply with what’s called the [inaudible] you can work it out and send the information about the sender or the other required information.

Frankly, I think there is some progress behind these scenes on that now but it’s too late it’s causing some trouble when it’s so late. I think if we can get to the solution [inaudible] solving the wider issues and it would make it easier for regulators to sort of take a more relaxed view of the banks that want to do things to be able to give their [inaudible]

Ryan:

Terrific, thank you for those comments. Just for the sake of time we have about five minutes left and there were a few other interesting, kind of, non-financial block chain use cases presented. Why don’t we focus the balance of the last five minutes on any Q&A for the machine to machine or the music royalty? Rather than just music, I stand corrected, presentations.

Audience:  

For the music, are you also looking at the publishing space, like in books or …?

Milana:      

Yeah, absolutely. Anything that’s on Amazon, iTunes. The book space is really interesting because so many authors have ghostwriters and self-publishing has sort of taken off in a really, really big way. Yet if you use LuLu or any of the self publishing services it only pays out one person and then that one person is responsible for paying out their ghost writer, the editor, whoever else they owe a piece of the pie to.

Ryan:  

In the future could we have a 50 person collaborative book project of all these different endings and everyone could potentially …?

Milana:  

You absolutely could. The sort of thing that I’m most excited about is in the mobile gaming space when it comes to licensing third party IP in your games and paying out a royalty for it, I think that’s going to be a huge area for us.

Audience:  

Virtual reality is blowing up.

Milana:     

Virtual reality is really exciting. One of the things that I always say … one of the hardest questions I got from so many different investors was how big is your market size. Sizing our market is actually impossible because the data is not there. Our initial users are not people who have registered any of their content with any of the traditional publishers. They’re kids are making music, putting it on YouTube and Sound Cloud, they have no idea what Ask CAP BMI is. They don’t register their music, they’re not signed to a label. They’re making money but it’s not classified under sort of like the music business, revenue stream or with the music market at all. One thing that I would say is that the creator class keeps expanding. With every new content platform emerges a new story teller.

We had the YouTube star which is an entirely different storyteller than a film maker or a TV content creator. After YouTube we had Vine, the Viner is an entirely different storyteller than the YouTube star, the Snap Chat artists is an entirely different storyteller than the Viner and we’re seeing personalities that have never emerged on TV sort of become household names. With virtual reality the talent that we sort of know below the line or behind the scenes talent. Which are the cinematographer, the DP, the visual effects editor are now going to become household names because they’re going to be the primary talent that’s creating the virtual reality content.

We’re sort of seeing the creator cusp continue to grow and that I think is one of the most exciting things about what we’re doing in general. It’s sort of creating a financial solution for those people. We have tools like Quick Books and Intuit has developed all of these different applications and tools for us as business people individuals to use to manage our finances. No one’s created anything for the creative class.

Ryan:    

Could it become a revenue model for open source software projects? All the people that contribute to a Github repository if that repository ends up generating revenue can potentially receive some portion of royalty.

Milana:   

Absolutely.

Ryan:

Yes, a fascinating concept.

Milana:    

One thing we played around a lot with is … so the way we sort of architect our system is we have a wallet for a piece of content which is entirely different than the way most other distribution platforms are where it’s a wallet for a user who uploads content. A piece of content has a wallet, they’re shareholders of that content. We played around with the notion of colored coins which is exciting to think about, sort of defining ownership using coins. That enables us to sort of evaluate the average value of a share and a piece of content. We can enable an artist to say hey I’m going to create a new piece of content for the last five things I’ve made. The average price per share of my content is this much, I’m going to open up this many shares and you guys can buy into my content. Now, they’re equity holders and shareholders in that content so they can actually receive dividends on it’s earnings.

Ryan:     

Terrific. If we had one final question for Eric, Steve would we have time for that?

Steve:   

Sure.

Ryan:    

Were there any questions on the machine to machine case? In the back?

Audience:    

I’m curious about what you guys are using for the B2B [inaudible]

Eric:

Penny Bank, yes. We have a software stack that’s … if any of you are familiar with the IBM Adept Project that happened earlier this year they did a CES demo with Samsung to have this washing machine purchase it’s own renewable, replenishables or detergent on Amazon using Etherium and it did never really quite work out but the vision was there. I think they ended up using a tissue box. It was the side show of CES and it got all this great press because people are really fascinated by these machines purchasing their own stuff.

The stack that we have now is really a next generation of what Adept did. Paul Brody at Adept – super great guy – their team kind of wrote this white paper called Device Democracy about what this future would look like. They outlined three different protocols of what they see for decentralized IOT future. One of them s block chain, the other one is Bit Torrent for file transfer for firmware and the last was this communications protocol called Telehash. Telehash is actually our protocol that we wrote Jeremy Miller is actually our CTO and he’s founder of Jabber XMPP Background like I mentioned. Telehash is kind of next generation of XMPP and what XMPP did for people to communicate with each other instant messaging style, Telehash is for devices in anything.

We had to include a couple of things. One was Penny Bank for micro transactions because there wasn’t really a good way to do micro transactions for us. We have some very hard constraints, one of them is we don’t have strong compute power on these little tiny devices, 48Mhz, 32KB of RAM. We can’t chew on big block chain stuff. Our devices also don’t often have connectivity to the internet so they might be online, maybe like once every three months or once every year. The constraints we had was can we actually transact small amounts of value directly to each other with infrequent connectivity to reconcile and clear on a the concept of an ESCROW. Penny Bank handles micro transactions between the two devices, Telehash is the secure communication between the devices. Then we have this other one called Block Name which is basically the way these guys have their identity inline through the block chain as well and they can discover each other through that way. It’s very much like a DNS plus block chain love child. That’s a good way to think of it.

One last one we actually do have is called Block Late as well as brand new. It’s kind of like Smart Contracts. We’re big fans of open asset protocol and colored coins and Colu is doing and some other things in that space. We’re trying to play with the idea that instead of using the opreturn to just bring back this big chunk of data about your asset and who the issuer was and about your expiration date is and the fees for back and who can get issued this. Can we get some of the capabilities within the script itself, can we put in a P2SH?  Are there enough op codes that are available in the standard function right now to enable some of that, that’s not opreturn? We’re digging deeper into that right now. We don’t know what the answer is, we think there’s something there.

Our devices actually hold contractual agreements on the device and in a security prom area but the signature, the ownership of that contract is stored in the block chain. Very much the asset. Whoever owns the contract in our world actually gets paid for the use of the device regularly. That’s how we kind of tie everything back but those collection of protocols we’re actually working with the Adept team, now to continue to push this forward because they .. IBM and Samsung are obviously very interested in this. They started working on it together. When they called out a protocol we were working on we said we should all just work together. We hosted a workshop a couple months ago in San Jose. Invited the Seoul creative team from Samsung to come out and then the Adept team as well. It lead to a wonderful, full day of deep tech talk and ended up having a lot of pilot projects and initiatives that came out of it. We can’t build a protocol like this, we’re protocol stacked by ourselves as a little start-up. We really need a lot of help.

Ryan: 

Perfect, thank you. A big round of applause for our panel.


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