Blockchain Insider Ep. 51. ETH Passes Dowey Test, Ripple isn't ready and is Bitcoin Un-Tethered START OF AUDIO 00:00:00 ST: We are here, in the 11FS offices in WeWork Aldgate London, for Episode 51 of Blockchain Insider, the weekly show dedicated to the news of where blockchain meets crypto, and crypto meets institutions. Today we bring you, Ethereum might not be a security after all, the EOS scrutiny continues, and has Bitcoin come untethered? [Break] ST: I'm not alone today, however, I'm joined by my esteemed co-host, G-Sass himself, Colin G Platt, are you near a field, and how are you? CP: Well, obviously I'm not near a field, Simon, I'm sitting right next to you [laughter]. ST: We could be near a field? CP: Well, London Fields, right? ST: Yeah, there's-, CP: We always use that joke whenever I'm here, though. ST: Yeah, no, but I am going to wear it out, I am going to wear the joke in to the ground, god damnit. CP: In to the field? ST: [Laughter]. I'm going to plant some stuff there. Right. How-, you've been at the BAI Conference. How was that? CP: That was very interesting. I-, I dragged our poor production crew, and good old Petrit along, and I think I petrified him, uh, but we had a great time-, ST: Did you just make a pun out of Petrit's name? CP: Maybe-, ST: [Laughter]. CP: Maybe. Maybe. What I was really disappointed with is, at this conference, with all these people with too much money that are investing in these things, and I was rocking my Centra shirt, and only, like, two or three people picked up on it, which is really fucking scary. ST: That-, Centra, of course, being the only ICO to have been arrested-, or where the founders of the ICO were arrested, is that right? CP: Only one? I mean, it-, it's definitely one of the more high profile ones-, ST: Most high profile arrests from-, they thought they were fleeing the country, but they were going to a conference, or something? CP: They were coming to Deconomy, to present, and that's where I got the shirt [laughter]. ST: Love that. Alright, and before we get started, just a quick word from our sponsors. Today's episode of Blockchain Insider is brought to you by R3, and Colin G Platt, G-Sass, himself. R3 are working with over 200 financial institutions, regulators, trade associations, professional services firms and technology companies, to develop on Corda. Its opensource blockchain platform is designed specifically for business. Corda is the outcome of over two years of intense research and development by R3 and its members. It meets the highest standards for the financial services industry, yet is applicable to any commercial scenario. It records, manages and executes institutions' financial agreements in perfect synchrony. Uh-, harmony - I think there's a song there! CP: I'm not singing. ST: Go on, sing for me, Colin, sing! - creating a world of frictionless commerce, and it's opensource. Corda is a blockchain for every business, and head over to R3.com to find out more. Also, we're not going to cover it in today's news, but I saw that the B3i insurance consortium are going to work with Corda, having moved from another platform to select them, so well done to those guys. CP: I think LG was doing something, as well, with them. ST: Yeah, indeed, big-, big news on the R3 front, lately, for sure. Alrighty, that's the shout out to our sponsor, but we've got to get to the first story, the biggest news this week, we've picked it up from Yahoo.com, but this is the SEC announcing that the cryptocurrency, Ether, is probably not a security. This comes from a speech that the Director for Corporate Finance, William Hinman, said at a-, at a recent event in San Francisco, and he's classifying both Bitcoin and Ether probably not as securities in their current form. So, I think the quote here is, "Can a digital asset, originally sold in a securities offering, eventually be sold as something other than a security? How about cases when there's no longer a company involved? I believe in those cases, the answer is a qualified yes. If a cryptocurrency network is sufficiently decentralised, and purchasers no longer have expectation of managerial stewardship from a third party, a coin then is no longer a security." So, the key word in that sentence is "decentralised". CP: I think the key word I that is "qualified". Yes, I mean, people were briefly ecstatic, I think Ether was up, like, 10% for a few hours-, ST: Mm. CP: Like, right after this happened. A really, really, really important caveat on all this. This is not an official statement. This is somebody speaking at, I believe it was a Yahoo! conference? ST: Mm-hm. CP: Um, making a general comment about cryptocurrencies, including this one about how he viewed Ethereum. Now, let's bear in mind, he is not a judge-, ST: Mm-hm. CP: He's not even making an official policy statement that this is the view of the SEC. It may be, and it may be alluding to how they're thinking, and this decentralised thing, I think is that important line of thinking that they're trying to get in to, to say, really, in the Howey Test, I guess, this-, this common enterprise. ST: And-, and-, and that's the key. Read out for me, or-, or kind of recap for me, why is it important if it is a security? Why is it important if it isn't? Maybe recount some of Preston Byrne's arguments. CP: Okay. So, a security is a specific thing, and if we kind of go back to the first principles of why these things are regulated, securities are, in one way, shape or form, a tradable instrument that allows us to finance a company, in general. Um. Now, we can get way more complicated than that, in the cryptocurrency world-, ST: Yeah, last week, Amber Baldet read out the Howey Test-, CP: Yeah-, ST: So, there's a way to tell if it's a security, I'm going to make money out of the efforts of others, but actually, and with penny stocks, and everything else, we've seen market abuses, uh, you know, mom and pop tend to get ripped off with these things, if we're not careful. CP: Exactly. And so everybody's trying to go in this other thing, and now we've created this new test, I suppose, let's call it a "Dowey Test"-, ST: Yeah [laughter]. CP: [Laughter]. ST: "The Dowey Test". CP: The Dowey! ST: There's an episode title-, CP: It's a decentralised, right? [Laughter]. ST: Yeah, the Dowey Test. Is it decentralised enough? CP: It's interesting. I don't know what a good measure of decentralisation is, and I am pretty fucking sure that the SEC does not either. ST: [Laughter]. Well, so, Coin Center wrote a piece on, you know, the level of decentralisation, and why that's the key qualifying factor. Before, we were often talking about utility, is anybody actually using these things, are consumers using these-, so, the classic example, I sell a load of cinema tickets for a cinema that I haven't built yet, but if you can use those cinema tickets at my other cinemas, then does it have utility, therefore is it a security? That was the argument. But actually, this argument's different, it's-, it's about decentralisation. CP: Yeah, this is like saying, "How many cinemas do you have?" right? ST: Yeah. CP: And-, and, "Can I use it at, like, Michael's cinemas, or Pet's cinemas?" like, yeah, that's kind of decentralised, but if you said, "Right, okay, so I'm going to make this ticket that you could use at Petrit's cinema, if Petrit decides to ever build a cinema, however, I'm going to take in $50 million to build my cinema, in case he wants to take it in the future." ST: Mm. CP: Is it decentralised, in that case? I don't know. ST: Well, I guess that's more of a question of, does it have utility, in that case, versus does it have decentralisation. And actually, this decentralisation is this-, this entirely new angle, that hadn't really been part of the discourse-, CP: Dowey Test, my friend. ST: It is! So, Balaji, who's the CTO of Coinbase, and was the Founder of Earn.com, that got acquired, and is also, I think, an a16z partner, um, wrote a post, I think in July of last year, so July 2017, quantifying decentralisation, saying, "We must be able to measure blockchain decentralisation before we can improve it," and he sort of said, "How do we measure that? How do we determine the system modification improves or reduces decentralisation? The basic idea is to enumerate the essential subsystems, determine how many entities one would need, and then use the minimum of these as the measure of effective decentralisation in the system." So, there is some thinking out there, but it's interesting, to me, how early a lot of this stuff is. I would be surprised if the Director for Corporate Finance for the SEC, whilst not making a policy judgement here, is-, I'd be surprised if they've gone off-piste. To your point, I think it's kind of speaking to the thinking that's going on, and-, and it's, uh, informative to the market, one way or another. CP: Well, yes, it is, and-, and-, and just, kind of, hitting on Balaji's piece, there's a website that I really like, that was put up by the guy that founded Dogecoin, and it's called arewedecentralizedyet.com, and I've got it in front of me here, and he's got different things, he says, you know, like, what's a consensus mechanism, blah, blah, blah, blah, talks about some of the things that Balaji talks about, which is basically, what is the percentage of monetary supply held by the top 100 accounts? Looking at Ethereum, it's 34%, Bitcoin is 19%, Ripple's 81%, though I know Ripple people challenge that, and XRP fans challenge that, but I think really key in this is the number of entities that control 50% of the mining. In both Bitcoin and Ethereum, it's three entities. ST: Yeah. CP: Is that decentralised? ST: And so this is the classic, is, yeah, are we decentralised yet? Or are these things de facto centralised, even though you-, you can't claim one entity does, you-, can you claim one entity controls the correspondent banking system? Well, there are regulators for it, there are sovereigns, but it's-, it's a global network of disconnected organisations that have come to agreement under the SWIFT organisation. Do SWIFT control it? No, their members do. So, like, the-, there are these things that are arguably more decentralised than Bitcoin right now, but that are subject to securities laws, so, like, it's in this really interesting space. Interesting, and we're going to keep watching it. Conspicuous by the absence, as you mentioned, XRP. Those letters have not passed any of the officials' lips in recent times, which may or may not indicate that, you know, either it's already considered a payment instrument, and/or they're-, they're still not sure about the way forward on that one, but ambiguity is always-, uh, always worrying with these things. CP: Ambiguity is a common theme in everything cryptocurrency, isn't it? ST: It-, it is. And for lawyers. CP: [Laughter]. Depends! ST: [Laughter]. Next story from Reuters.com. Banks are, apparently, unlikely to process payments with distributed ledgers for now, says Ripple. This was written by Anna Irrera, it comes from an interview-, CP: I love Anna. ST: Yeah, shout out to Anna, who we had on a show a couple of weeks ago, on our Money20/20 special. So, this comes from an interview with David Schwartz, uh, who's obviously one of the original founders, and has, uh-, has been, I think, their head cryptographer, for quite some time-, CP: And he's now the CTO, as well. ST: Ah, yes, indeed, since Stefan Thomas left. And the quote here is, "I will conceded, we haven't gotten there yet." He did add, however, "We hear from many of [their] customers that it's imperative to keep their transactions private, process thousands every second, and accommodate every type of currency and asset imaginable," and they believe the Ripple approach is what enabled Ripple to move beyond just tests, and start doing transactions at volume. It's this really interesting message of, like, "We're not there yet, but we think we're on the way," which actually is quite-, kind of a-, it's different PR from Ripple, this is quite sober. And shout out to, uh, David Schwartz. In any interaction I've ever had with the man, he's been very intellectually honest, about the position of where they are, and-, and talked through the pros and cons, so, you know, and shout out to Anna Irrera for, sort of, taking these comments and, you know, just kind of running with them, and, sort of, saying, look, we all kind of agree, even Ripple do, that they're maybe not as far as some of the press releases might say, but actually, that then makes you go, "Well, where are they, then?" and, "Yes, they're doing real transaction volume," so you can start to acknowledge that, "Okay, but it's-, it's coming and it's around the edges," and that's how PayPal started, right? PayPal was just this thing used by a few people on the internet for this thing called eBay that nobody used, and then suddenly, it's one of the biggest payment companies in the world. Things can come from the edge. CP: Yeah. I mean, I've-, personally, and thanks everybody in advance, for telling me it's going to be FUD, I have questions about the economics of XRP, I think a lot of the stuff that Ripple, the company, is doing that does not involve XRP is promising, though I do have lots of questions, that happens with startups. What I really do appreciate is when you compare to a lot of people who have bought in, and have big financial interest in the coin, not in the company, in the coin, in XRP, and I'm not even going to talk about if there's a link, if there's not a link, I don't care. What's very interesting is how sober this analysis is, and how they say we're not quite there yet, and I think that is a very positive sign to say, "We're trying to get better." ST: Yeah. CP: And this is what I'd like to see more and more from every company in this space. ST: It's very, very adult. And then, it's almost unfortunate that that happens in the same week that, on Fortune.com, the Western Union CEO says that Ripple's XRP is apparently not making their transactions cheaper, and he said that they are always criticised that Western Union is, quote, "Not cost efficient, but we don't see that efficiency during their tests." He says the practical matter is that using Ripple was still too expensive, noting that Western Union would only be interested in adopting XRP for payments if it proved that it could lower the company's costs." Interesting that, I think they did about ten transactions, um, so they didn't push a lot of volume through this, and-, and it makes you question, you know, sort of, were they using this at scale? What sort of timings were they using? Were their systems able to get the most out of it? And if not, you know, are other clients finding this? And I guess this is the downside of going so public about, "Hey, we've got this client, we've got this client," and then the CEO comes out and says, "Yeah, it wasn't that great." CP: Yeah, that-, that's not a great look. One of the-, the main ides, where you want to use XRP, and I'll get in to some of the other considerations in banking, but when you want to use this to move money, a lot of people argue that it's going to be a bridge currency, meaning, like-, ST: Mm-hm. CP: "Simon, I've got US dollars, I want to send you pounds, ultimately, let's use XRP as, kind of, that conveyance tool, to move that value across the border." You need to have a lot of liquidity, and I've got CoinMarketCap sitting in front of me on the 19th of June, the most liquid pair is between XRP and JPY, and I'm only looking at fiat, so it's got a lot of non-fiat pairs, like Bitcoin, USDT, Tether, I'll put in to the non-fiat box-, ST: Mm. CP: Although we can-, ST: We'll come back to that. CP: We'll come back to that. The other one's KRW. So, if you want to run this corridor between it, between both of those, and the total XRP volume moving in all pairs, according to CoinMarketCap, and yes, it's not perfect, I know, is about one third of that. So, if I wanted to move between those, yeah, we could make the argument that you could do it, however, a lot of people are out there billing this as I can move this between more exotic pairs. I don't happen to see Malawian kwacha on here. Actually, US dollar comes in at number seven, with only 5.2%, and that's a really fucking big pair. If I can't get dollars in to this thing-, I'm really looking at, well, I can move money between yen and won, personally, you know a lot more about payments, I can't imagine that's one of the worst corridors. ST: It's not, but if you are a bank in that region, that's a Tier 3 bank, you-, you-, the way you get between yen and won today is via the US dollar, and you work with one of the big US banks, who know you have to work with one of the big US banks, and price accordingly, therefore XRP suddenly seems like a-, a bit of a better idea. So, you can see arguments on both sides on this one. I do think, for some of those-, some of those corridors, where you have Tier 3 banks, the Tier 3 banks that have been clearing through the US dollar, going directly, using this as a bridge currency, is a thesis that makes sense, but I wonder if something more like, you know, trading across two central banks' balance sheets might be more what they're looking for-, for managing the settlement, and the-, the-, kind of, the credit risk, on-, on either side of that transaction. CP: So then, I guess, my question would be, to proponents of-, of XRP, wherever they are in their decentralised world, rather than out there talking about, you know, "Let's trial with a bank," wouldn't the best investment of your time and money be, "Let's get this in to weird exchange pairs, and let's push that volume up-," ST: Mm. CP: So that we can actually justifiably move money, not just between JPY, KRW, maybe US dollar or euro, but in to, like, ZAR, South African rand, in to all the South American currencies, all these really weird pairs, so we have that promise. I mean, isn't that the best investment of our time, rather than harassing me, for calling it FUD? ST: Which I think is interesting, because what you've done is pointed to an interesting business case that could grow the value of XRP, but also solve a real business case, and a real problem, so actually, I think that's a positive suggestion, even though you sound like, "Fuck off," you're actually saying, "Well here's a great idea, why not try this?" CP: I'm G-Sass. Can't it be both? ST: [Laughter]. CP: [Laughter]. ST: Yes, it can. For you, Colin, it can be anything you want it to be. Speaking of people not having a great time at the moment, a story from thenextweb.com, "Researchers continue to find vulnerabilities in," quote, this is their title, the "$9 billion cryptocurrency EOS". Is that its coin market cap right now? CP: Something like that, man. ST: Wow. Okay. Guido Vranken, the security researcher who won $120,000 in a bug bounty program discovered another vulnerability in EOS, of course, go back to Episode 50 for the previous vulnerability, but, more worryingly, it appears he's not the only one to have found new kinks in the network. He says that the new flaw he discovered has to do with, "Unbounded recursion in Binaryen WASM parsing." Wow. That was a complicated sentence, and I have no idea what that means. But, for those unfamiliar [laughter] unbounded recursion occurs when a function that calls itself from within enters an endless loop. So, it's an infinite loop, basically, until the computer runs out of resources. So, it's just-, yeah, it's an infinite loop bug. Interesting that basic infinite loop bugs, uh, are still happening there, I think it was Amber that pointed out last week, that having your code out on GitHub doesn't mean that you've had well-reviewed code, it just means it's in the open, and I think, sometimes, people confuse in the open with well-researched, and-, CP: Battle-tested. ST: Yeah, exactly. And-, and it's going through battle testing right now. CP: Yeah, and I think Amber and-, and several other researchers pointed out that, you know, even if these things have been out there for-, for a while, it doesn't mean that, uh, they're necessarily going to be battle-hardened. Sometimes, they can be battle-weakened, even [laughter]-, ST: Yeah. CP: So, EOS had lots of problems, I mean, we're talking about vulnerabilities, it also straight up stopped for, like, six hours, the other day [laughter]-, ST: [Laughter]. CP: Like-, ST: No more EOS for you! CP: No more EOS! E over. Um, like-, ST: [Laughter]. CP: I wish them all the best luck in the world, but I-, I think that they have a big uphill battle, and if you raised $4 billion, and you now have more than doubled that-, ST: And you move to Puerto Rico-, CP: And you move to Puerto Rico, then you've got a lot that you need to answer for, so, you know, good fucking luck. ST: Yeah, no, I-, I think they've got the-, the war chest to do a-, a good job here, I hope they do, and I hope they make the most of it. I know they created a fund for some interesting projects, I know it's a different kind of architecture, it's considered a third gen platform. Let's see if they can do something with it, and-, CP: We-, we met some people from a fund that's invested in-, was funded by EOS, and the interesting thing I found out about it, and they didn't say it's private, so I'm going to say it, and I won't say who it is, is EOS invested in them, and they were allowed to invest in tokens built on EOS, but not in EOS the currency itself. ST: Huh. CP: Which is-, I mean, kind of makes sense, but at the same time, it's like, if you're not ready to eat your own dog food-, ST: Yeah, how about that. Okay. Maybe there's some legal reason for that. Who knows. CP: That has ever stopped EOS, or any other cryptocurrency before? ST: Well, yeah. CP: [Laughter]. ST: Story from news.bitcoin.com, "New Report Blames Tether for Bitcoin's Bull Run". The report is called, "Is Bitcoin Really Un-Tethered?" and the research paper, their authors have taken an algorithmic, investigative approach, using blockchain analysis, to determine the extent to which timed releases of Tethers in to the crypto ecosystem may have served as a tool for artificially inflating prices. CP: #fakenews. Uh. I-, I don't believe it, personally. I mean, I-, I-, they put a lot of work in to it, and it's admirable. A really simple explanation of-, of what they're trying to argue is, basically, if you look at when a lot of Tether was released, the price of Bitcoin went up-, ST: Mm-hm. CP: [Laughter]. Um. You could also make the argument, and I think a lot of people have, very validly, made the argument, including people who are probably behind a good chunk of that Tether issuance-, ST: Mm. CP: Um, not Tether the company, but buyers of Tether, have said, "Well, look, the biggest exchange is Bitfinex. Bitfinex will accept Tether. What's the quickest way to get money in to Bitfinex? It's to send dollars to Tether, Tether's issued, it's in Bitfinex within an hour, you buy Bitcoin." So, if you have got client behind that, or if you want to take a position behind that, that's your only really fucking option-, only option-, ST: In to the biggest liquid exchange, at the time. CP: Exactly. Because it's-, it's hard, otherwise, to-, and they'll know where the-, the accounts are for Bitfinex, and I'm not saying that it's perfectly clean, but that's how it gets in. So it's-, this is kind of like the cause and effect of what might actually be legitimate economic activity. ST: But, I mean, if you go back to some of our episodes, through-, you know, Episode 25 through 35, you know, the infamous blogger, Bitfinex'ed, was calling out Tether and Bitfinex the exchange, for all kinds of, you know, lacks of transparency, um, not being willing to do audits. They-, they have horrible PR around this, but from-, from the best I can tell, nobody can ever prove material wrongdoing. CP: And if you read some of the BitMEX blogs, which is the biggest derivatives exchange, there was somebody that does research there who went back, and he actually identified where all of that money was in Puerto Rico. Like-, ST: Mm. CP: We know where the money is. Now, we can question whether that's the best place for it to be-, ST: [Laughter]. But it's real US dollars, held in a real account. CP: Yeah. So, I mean, maybe, and that's not to say that Tether isn't instrumental in one way, shape or form, in pushing that up, and they make the argument, which I thought was incredibly odd, that-, this was the bearish case, that if Tether wasn't involved, Bitcoin would have peaked out at-, at $10,000 last year, which is still above where it is today, as we record this-, ST: Yeah, absolutely. CP: So, uh, the-, I like the bearish case (? 19.38) [laughter]. ST: But actually, the-, the logic in this report states that, "Purchases with Tether are timed to follow market downturns, and result in sizable increases in Bitcoin prices. Such heavy Tether transactions are associated with 50% plus meteoric rise of Bitcoin, and 64% of other cryptocurrencies." But wouldn't it make sense that, if your only way in to the biggest exchanges is to buy a load of Tether, that loads of Tether would accumulate before people bought an asset, and if a load of people bought an asset, its price would increase? CP: When the price goes down, generally, you buy the fucking dip, right? ST: Yeah [laughter]. CP: How do you buy the fucking dip? With Tether [laughter]. ST: Yeah. It's interesting that this is-, what interests me is how much people really enjoy a bad news story about crypto. CP: People love conspiracies. ST: People love a conspiracy, and actually, some of the bad-, like, we've been calling out some of the-, the bad behaviour there, but what's really interesting about the, uh, the bear market of the last six months is-, I mean, we were talking earlier about the mature signals coming out of, uh, out of Ripple the company, the change in media messaging. The real worries and difficulties that the EOS community are having, but they're doing it in public, and that it's very honest, and very, sort of, real. It seems like we've moved in to a build phase, and a more sober phase, which I, for one, welcome. CP: Yeah, I mean, I-, I-, I went to a conference last week that was not a blockchain conference, believe it or not, those exist, I did not know. And it-, it was really funny, because I contrasted the-, the couple of blockchain-related things, and we still have this notion where we talk about, "Oh yes, this glorification of building," but in every other technology, people just fucking build, because they have to make money-, ST: Yeah-, CP: Or they have to raise money-, ST: Revenue, yeah. CP: And you need to show something. Like, I find it funny that it's become, kind of, a mini meme, that we talk about Billdal (ph 21.16), or whatever the-, however you pronounce it. That is the only way to deliver technology, and if you can't raise money off a white paper, you actually have to do work. ST: Well, it-, it's not building, it-, like, the biggest problem, uh, risk, in any product launch, is not that we can build it, it's that-, will the customer care? Propositional risk is by far the biggest issue, and when we're dealing with clients at 11FS, like, one of the ways we sell is to say, "Look, all the other companies in the world will help you build this product and ship it." Like, we can do that too, we have some amazing engineers, we have some amazing talents, we can call in a Colin G Platt, if we need to. But the thing that's most important is that we talk to customers, and that we go through an analysis, jobs-to-be-done framework. Let's work with those customers, let's research, do quantitative and qualitative analysis, and figure out, like, what is going to be the thing that they love? What's the minimum lovable product? That stuff is what really makes a difference. CP: I like that term. ST: Oh, we have t-shirts, available on 11shop.com right now [laughter]. CP: [Laughter]. ST: I'm not even kidding-, CP: In case you were wondering, we're also sponsored by 11FS [laughter]. ST: [Laughter]. I-, I don't mean to go, like, house message, but I really believe that. Like, the biggest risk-, and-, and so, as somebody who spends most of their time building fintech propositions for large financial incumbents, dealing with that message, day in and day out, I look at this blockchain space, and I can only really see, like, maybe Coinbase, maybe Richard Bannon's (ph 22.33) wallet, that are actually thinking beyond, like, "Let's just build the thing for geeks," and, "Let's build a thing that people love, and that they want to use, and I think that's really important. CP: And I think the big key is, there, it's not just, you know, building, it's building smart, right? ST: Yeah. CP: The-, the minimum lovable product is-, is really key. Other than Kitties, I mean, who loves any of this stuff? And even that, people don't love as much anymore, unfortunately. ST: Yeah-, CP: I think they're cute. You think (? 22.55) was pretty cute-, ST: Yeah-, CP: Which, I agree [laughter] but, you know-, ST: Damn cute-, CP: Damn cute. ST: Whoever built that was a genius. Alright, next story, Colin, Skycoin.net. Let's-, um, this is all yours. CP: So, this was from a blog post they put out on the 18th, last night, in China. What happened, Skycoin was an ICO, they raised a bunch of money. Unfortunately for, uh, some of the founders from Skycoin, they had their home invaded, and their family was-, was tied up, and they were burglarised for, uh, approximately $200,000. Other Skycoins were-, were stolen from the company, when they-, they cut off agreements with some of the-, the other people working in the team. This really highlights some interesting things, and the first thing is, you really, really need to protect these things. If you want to be your own bank, be ready for your own bank robberies. It's really, really unfortunate what happened, because people were held against their will, in their house, and tortured, for six hours, to pull out $200,000 worth of these coins? The price has dropped significantly on the project, which-, we won't even talk about that aspect, but never tell anybody how many coins you have, and if you're doing an ICO, people will assume you have it, so hire bodyguards. ST: Mm-hm. CP: At least Anthony Di Iorio figured it out. ST: So, there's a big push at the moment for, you know, "Don't forget about the non-custodial wallet." As everybody's building the custody solutions in crypto, as Coinbase announced, you know, Coinbase Custody, Nomura are doing custody with ledger, we also have the wallets out there saying, "Don't forget about non-custodial wallets. You can be your own bank. This is the original dream." But the problem with being your own bank is being your own bank robbery victim. Like, this is-, this is a real challenge, and, like, we need to think again about that user experience solution, where I can balance individual privacy, and have a level of security that's better than a bank, because banks are pretty good at looking after money. Like, alright, they've-, they didn't cover themselves in glory in the financial crisis, but, like, what's the better solution? And I don't know that somebody's really got the answer to that, other than becoming a massive crypto nerd. And again, this is what Amber pointed out last week, is, it's great to be a crypto nerd, but unless you're really good at OPSEC, then you can't use this stuff, and you've got to be able to. CP: But how do you do that? If you're a company that goes out, and you raise a market cap, $35 million, or whatever it was when I checked it earlier today, how do you do OPSEC around that? I mean, like, eventually, they're going to be like, "Alright, let's just go down the paper," or if we worked in the team, we know exactly who they are, and say, "Right, we can't hide all this from our team, from other people that have been involved, that know we raised $35 million-," ST: Yeah, and it's-, it's incredibly transparent, right? I mean, it's out there on a public, permissionless blockchain, where everybody can see the transactions and the wallet addresses, so, like, you can figure out pretty quickly, like, "Okay, so the founders have 20% of this coin, there are these wallets that have a load of coin in them. Hm." Like, you're not-, [laughter]. CP: I am quite happy to have somebody else be my bank, and that takes a lot of stuff off my-, off my plate, and I don't have to worry about these things, because I don't have these things. I don't want to tell everybody I have these things. It's stupid. ST: I think the value proposition, being, "Be your own bank," is actually one that doesn't stand up to the realities of human nature and where tech is right now. Unless we get amazing at zero-knowledge proofs, and even then, um, there's-, there's a way to go, and-, and shielded transactions, and state channels, and a lot of the things that people point at. But I don't know that they're there yet, and the user experience is a long way from-, from kind of being there. So-, CP: Have you-, did you ever see, there was like a Reddit blog post from years ago, years ago, on blockchain, three or four years ago, where it was, a time traveller from the future talked about this stuff, and it, basically, effectively, it was saying, right, this is 30 years in the future or something, Bitcoin doesn't even have a market value, because it's killed the dollar. ST: Mm. CP: But, like, the theory is, Bitcoins are worth so much money that, you know, the average person has a Satoshi worth. And the people that bought early all live in, like, this citadel, to be protected from the normies that don't have a tonne of Bitcoin, because it is so dangerous. I have a hard time thinking that people that have been involved in this, and accumulated a lot of these things, if they really ever take off in value, and I'm not talking going to $100,000, but a lot more than that, where value is really, really stored in these, even if you had the best, cool little, you know, treasure wallet, that is super secure, in, I don't know, biometrics, or whatever it is, people are still going to cut your finger off, to get your biometrics, and pull your eyes out. ST: It's always cat and mouse. Like, you invent a better mousetrap, somebody'll game it. Like, that's always going to be-, CP: I just don't want to be the mouse. ST: [Laughter]. Yeah. You-, you heard it here first. G-Sass doesn't want to be the mouse. But-, CP: I want to be the Cryptokitty [laughter]. ST: Yeah [laughter]. Damn right! Meow. CP: Meow [laughter]. ST: Uh, but I do think there is value in the-, what Richard Brown calls the "I know what I see is what you see" problem. Like, in most of financial services, what I see might not be the same as what you see, even though you've told me it is-, CP: Mm-hm. ST: That's a big problem that needs solving, across every business sector, government, you name it, um, and also digital uniqueness. Like, the fact that, if I send you an mp3, you have an mp3 and I have an mp3, and DRM is nearly impossible. If we have a ledger of, "This is the only one version of the Wu-Tang Clan album," like, that-, CP: [Laughter]. ST: [Laughter] that Martin-, CP: Topical [laughter]. ST: You know, that Martin Shkreli owned, and that, uh, Bill Murray took from Martin Shkreli, then, like, that one copy, we could prove that there is only one copy, and you are the holder of that one copy. Now, that uniqueness thing, that has value in some circles. Like, so those two things are-, like, do you start with that as a thesis, and then go figure out where, like-, where can I use these superpowers, and where can I use those capabilities, and is there a minimum lovable product, or is there something that a customer really wants, or somebody really wants, that-, that solves-, that those problems solve for, but anyway, I'll get off my soapbox, and we'll talk about the swarm.fund. So, the next story comes from swarm.fund, apparently, Swarm are going to launch new tokens, representing equity in Coinbase, Robinhood, Ripple and Didi. The blockchain for private equity today announced the launch of tokens representing equity in those tech companies, allowing investors to purchase security tokens representing fractional shares in private companies. The CEO and Co-Founder said their goal is to democratise investing, um, and, uh, it's a major step forward in their mission, that now any Swarm investor can hold equity in some of today's most prominent tech startups. Or can they, Colin? CP: Well, according to Coinbase they can't. What was really funny was, they went out, and obviously they didn't bother to really even talk to these companies and say, "Hey, we're tokenising your equity, this is great," because Coinbase came back and said, "The fuck you are-," ST: [Laughter]. CP: Um, and I think-, I think Ripple was also pushing back on them, uh, it was very funny, because when it came out, Pompliano was talking about it, Anthony Pompliano, who has now left Twitter, interestingly-, ST: Mm. CP: Because of all the trolls, was-, was talking about this, actually, specifically, and Preston put something up and said, uh, you know, "You still can't do it," and then, immediately after, uh, he updated it with this article that I'm looking at, about Coinbase and Ripple pushing back against it. I mean, if you are selling parts of people's company, whether it's in token, or any other form, you should probably ask them if you're allowed to do that, because it is their company. ST: Well, and we've seen this before, without a blockchain on it, and it was called secondmarket.com, and it was known as a great way for people with inside information to go dump a load of shares on the secondary market. Like, it's ripe for abuse, there's all sorts of things kind of go wrong, but I get the argument. Look, if, uh-, if you have, uh, $100 a month, or even $50 a month of savings, $10 a month of savings, you know, you've managed to avoid taking two coffees, like, there are-, there's only really instant access cash savings accounts that are available, and cash savings are a stupid option for retail, because you're just losing money. Like, it-, you're just deflating the value of your cash away, you might as well just start throwing it out of the window. So, like-, CP: I want to hang out next to your window. ST: Yeah? CP: [Laughter]. ST: That's kinda weird, why did you say that. CP: You're going to be throwing money out of it! ST: [Laughter] oh, right, okay-, CP: [Laughter]. ST: I thought you were just stalking me. Uh-, CP: Well, for both reasons. ST: [Laughter]. CP: [Laughter]. ST: Uh, don't hang out near my window, Colin, please, G-Sass-, CP: [Laughter] it'll be the window with money with money coming out of it-, ST: Yeah, okay. But-, but it-, look, there's a need for democratising access to savings. The goal is right, the implementation is questionable. CP: 100%, and I'm not discounting that in any way, shape or form, but just because it's on a blockchain doesn't give you the right to just be an asshole, and try all these things that are just bucket shops. ST: Hear, hear. Alright, stories we did not have time to cover. "From felines to football, non-functional tokens are crypto's hottest new buzzword," I think they've been around for a little while, this story comes from CoinDesk. Um. A story from Forbes, "No, Bitcoin won't use up all the world's energy," that's kind of a breakdown or pushback of some of the, uh-, CP: It'll be the entire universe's. Or at least 51% of it. ST: Yeah. So, um, some analysis of-, or some different ways to get to how much energy Bitcoin actually uses, a hotly debated topic, and favourite of Bitcoin haters everywhere. "Oh, it's killing the planet!" Let's ignore the fact that tech companies and banks are too. Alright, a story from Medium, John Backus, "Fat protocols aren't new: What blockchain can learn from p2p filesharing", which is a really good read, so. And then the last one, "Smart Contract Bug Disables ICON (ICX) Token Transfers". So, smart contracts, eh, Colin? CP: Not so smart. ST: Indeed. Alright, it's time for Tweet of the Week. [Tweet of the Week jingle] PB: Doo-do-do-doo! [Laughter] ST: My god. Petrit just made that sound in the room, and it was fantastic. [Laughter] ST: Alright, this was actually the Tweet of the Week last week, but since Colin's back, and this is his favourite thing in the world, it's from former NBA star Dennis Rodman. Colin, go. CP: So, obviously, everybody in the world obviously heard about Donald Trump meeting Kim Jong-un, the-, the Chairman of North Korea-, ST: Wait, that happened? CP: That-, apparently-, ST: Oh, okay. CP: Apparently. People may not have paid attention, that a while ago, Dennis Rodman, who was a-, an NBA player, and because Petrit loves it when we talk about sports, and we did not talk about football, awesome, even though it's World Cup time, Dennis Rodman was sponsored, years ago, to go over to-, to North Korea, to talk to Kim Jong-un, and he was sponsored by, none other than, PotCoin. Which, for those of you who have been hiding under a rock, is a coin built for the marijuana industry, the legalised marijuana industry, uh, mostly in the United States, but elsewhere, I guess, as well. They paid-, uh, and gave him the stuff. Now they-, they put out this tweet-, Dennis Rodman put out this tweet, when it was all happening in Singapore, with the President of the United States meeting the Chairman of North Korea, said, "Looking forward to the meeting, incredible success for the whole world to benefit by. Thank you PotCoin for supporting my mission." PotCoin has made it-, actually, I think it jumped like 30% on the day when that happened. ST: Wow. Uh, PeaceCoin is here-, peace has started-, peace has started in Singapore, all thanks to Dennis Rodman. CP: I just love that, if you were a hedge fund, you could have put money in to PotCoin, to bet on macroeconomics, and, like, world peace. ST: Let's just let that hang for a second there [laughter]. What you can't see is Colin's arms are held out to either side, like Jesus or something. Uh-, CP: PotCoin Jesus. ST: Uh, speaking of hanging out, you caught up with Stephen Palley, the Partner at Anderson Kill. CP: He promised not to swear as much this time. ST: Ah well. Over to that interview. [Break] CP: I'm here with Stephen Palley, excellent fan of-, of Guppies, as well as Partner and Blockchain and Virtual Currency Group Co-Chair at Anderson Kill. Thanks for coming on today. SP: Hey, thanks for having me. CP: So, today-, we chatted-, let's-, we wanted to catch up on Tezos, our favourite-, our favourite blockchain, saw lots of stuff about EOS, as well, and just, kind of, general, what you're hearing from the regulators, what-, what makes sense, what doesn't, because a lot of people are, kind of, I think either cheerleading what the CFTC says, or-, or accusing the SEC of FUD, or whatever-, whatever the-, their choice term is [laughter]-, SP: Yeah, I don't really think the SEC cares if someone accuses it of FUD. It's-, it's really funny, like, sometimes, um-, it's almost like, uh, there's this crossover between Reddit and, uh, like, the real world of law and regulators, so did you see John McAfee's thing last week? CP: Yeah. SP: Um, where he said, uh-, basically, it was like, "Everybody should call and email Jay Clayton and let him know that I'm going to-, I want to-, you know, we're going to have an argument on CNBC"? I mean, I just-, [laughter] it's like it's-, it's like, uh-, do you remember, um, Bizarro World, from, um, DC Comics, from the old Superman comics, I don't-, I don't know-, CP: Oh yeah. SP: Yeah, it's kind of like-, you see that, and it's like Bizarro World stuff. Then again, we're living in a world where you've got Dennis Rodman and PotCoin in Singapore, with the reality TV President, meeting with, you know, the most ruthless dictator in, uh-, in the world, um, and that's all happening, so I don't know-, CP: I see perfect continuity. SP: Yeah, honestly-, I honestly thought that, too, when I saw the John McAfee thing, I was like, "Well that's batshit crazy." And then I thought, "Well, like, in context-," I mean, I don't know. CP: At what point did the headless henchmen, or horseman, come riding through? I-, I think that we're about that stage, aren't we? SP: I mean [laughter] I think we may be past that, I don't know. But-, so you asked about regulators, and I did have a chance, in the last month, to visit with some, and it's-, the real world still exists, and, um, you know, I would say that, uh, most regulators are still taking a, kind of, sober, normal view of technological development. It's hard to take much guidance from out-of-context statements taken from, uh, you know, this or that regulator speaking in a public forum. What you have to look at is what's actually happening, either in terms of, um, regulation, and we're still not seeing much new in the area of, basically, regulation creation and, on the other hand, enforcement. I think what people don't understand is the role that regulators play in the United States. You really have two functions. One is to actually create regulations, and regulations are gap-fillers for laws. So, Congress will create a law, and Congress will-, will create legislation, which will go to the President, the President will sign it, it will become law, and the law will be very, very broad, but it will say that-, it will give an agency, which is a part of the executive branch, so it will give an agency the power or authority to, kind of, fill it in. So, on the one hand, you've got law creation, basically, and on the other hand, you have law enforcement. For the most part, what we've seen from regulators in the United States is, uh, enforcement activity, we've seen a little bit of regulatory interpretation, but we haven't seen too much, sort of, new law creation, if you will. CP: So, I want to kind of delve in to that, and I was having a discussion with Preston Byrne, our-, our favourite marmot, about one of these topics you brought up, and he talked about, in his opinion, uh, the-, and I don't know if you agree or differ on this, but that there was no delegation, meaning in some agencies, Congress, directly or indirectly says, "Right, this agency, in addition to being the police of this particular domain, they also are allowed to, kind of, make their own rules." Would you agree that the SEC, or the other regulators of finance, so the CFTC, at the federal level, are or are not delegated in their ability to create new rules? SP: Well, no, of course they are. Both agencies have power to promulgate regulations. No, the question is, are they making new law? Well, no, the regulations that they promulgate have to be within the ambit of their statutory authority. But all you have to do is go to the Code of Federal Regulations, and look at the rules that they've created. CP: So-, so then, my follow-on question, because I think that's-, that's a very helpful premise to put it in, is do they need to create new laws, to properly regulate these new things, that are ICOs, that are cryptocurrencies? SP: I'm not sure. So, there-, I think that's a-, that's a question-, that's a policy question. I think I'm kind of ambivalent when it comes to creation of new laws to allow for, um-, or to help ease token sales. I guess the question is, why? And on the one hand, the policy argument that you hear people make is, "Well, it's too difficult for the little guy, or the little gal, to invest and make money," right? That's the problem with the current statutory, um, or investment laws, and investor protections in the United States, they're too, um-, what's the world that I'm looking for? CP: Too onerous? SP: Yeah, they're onerous and, you know, they-, they impose, um, unreasonable restrictions on, uh, you know, smaller investors, and so rich people get, you know, all of the good deals. And, you know, I don't know, maybe there's some truth to that, as a matter of policy. On the other hand, you know, you've got to remember the reason why we have, you know, the-, the two main pieces of US securities law, the 33 Act and the 34 Act all happened in the wake of the Depression, which was caused, in part, by, um, you know, unfair securities, uh, practices, by big people against little people. So, I don't know. It's-, if you are, um, a hard libertarian, you're probably going to say, um, "We don't need no stinking government providing people with protection, people can protect themselves." If your views are different, then you're going to, you know, have a different view. As of now, the laws are what they are, right? I mean, we have well-established securities laws in the United States, with well-established investor protections, and the SEC has made it clear that they are going to apply those. There's not a lot of ambiguity. If Congress wants to change the law, to create maybe, you know-, maybe something like a sophisticated investor exemption for blockchain-based investments-, I'm not saying that's a good thing, I'm saying it is-, it's certainly a possibility, I recall there is some sort of, um, sophisticated investor exemption that's been discussed, I don't know what the status of that is-, CP: I was going to say, on that-, on that point, I know a lot of people have also brought up the-, the comment that, um, sophisticated investors is-, is based off your track record in investing, and your-, your own net wealth, or investable wealth, and a lot of people felt that they were qualified, not based on those criteria, but on-, on a more technical basis. Do you think there would be any scope to consider that, as-, as maybe a qualification as a "sophisticated investor"? SP: I believe that that's a proposal that's out there, I don't know what its status is, in, um-, in Congress, but I-, I want to say that that's something that's been proposed, um, I don't know where it is, in the legislative pipeline. But, you know, if you go back-, I was thinking about this yesterday. If you go back to-, when was the Ethereum sale? 2014? You know, if you wanted to buy Ether, you had to know how to get Bitcoin. It wasn't as easy, at the time, you had to be able to get Bitcoin, you had to be able to send it from a private wallet. It required a decent amount of technical sophistication that main street-, you know, there weren't a lot of main street investors who were buying in to it. Its status-, like, what it was, was probably not entirely clear to the general public. There might be something to the argument that for-, that might fit in to the rubric of highly technical, I'm not sure. As a matter of policy, I can see that-, I can see some, uh, persuasion in that context. It's pretty clear that Bitcoin, um, will be treated by the American securities regulators, and by (? 41.37) as money, for purposes of, uh-, of, um, Howey analysis, to determine whether or not something was an investment contract, but I'm not sure that in 2014 people, um, main street investors really, uh, had any idea what this stuff was, so that might be-, that might be a scenario that fits within, um, some sort of technical expertise exemption. Another-, you know, there's another-, something else to think about is the, um, sort of, FinCEN, and money transmission, and if you strictly construe the definition of money transmission, it can include a lot of things which are maybe in-, in spirit, not really what Congress was, um, trying to protect, in the context of the Bank Secrecy Act. So, take, for example, interledger protocols communicate basically data transfer, data transmutation, between a-, a main chain and a side chain. I can see the need for some statutory or regulatory clarification in those contexts, and I-, I-, I see a clear argument for stifling of, um, innovation, in that context. I'm not sure that our securities laws-, I'm not convinced that, uh, enforcement of our current securities-, the securities laws in the United States, I don't see how they really stifle innovation. Maybe they make it difficult for people to raise capital. CP: No, and I think that's an important distinction between the actual functionality of-, of what these projects are, at least publicly, stating that they're trying to deliver, and, um, what people are actually doing to raise money. And I think we've long advocated that people are able to separate the-, the phase where I'm trying to pull up a bunch of money in here, in a common enterprise, whether you call it decentralised or not, it's a common enterprise, to build and deliver this network, and-, and, by the way, Ethereum was-, was developed exactly this way, and now we can have a discussion, as the facts stand today, is it still in that phase, or is it something else? And, commonly, we hear about utility tokens here. So, on this particular topic, um, we conversed a little bit about Ethereum being classed as a security. What is your view on that? SP: For better or for worse, I am not a court [laughter] and I'm not a regulator. I have my own view of what that offering was in 2014. I might actually be persuaded that there should be some sort of technical or temporal exemption. What is it now? I think, and, you know, this is pure speculation, um, it's not like Jay Clayton is, uh, calling me, and telling me what he thinks, it is pure speculation, but I think, because of the pervasiveness of Ether now, and probably because of a desire not to hurt retail investors, I don't think that something will happen which will damage or limit the tradability of-, of Ether. I mean, the primary function of Ether, let's just be clear, to date, has been to serve as a-, essentially, it's-, basically, it's speculation, it's been a proxy for cash, and it's allowed a lot of people, or maybe allowed just a very few people, to make a lot of money. But at this point, lots of retail investors hold it. If you called it a security, and you place significant restrictions on its tradability, that would probably have an impact on its value, and if the SEC saw that, and realised that that might, uh, cause the value to drop significantly, it might have some concerns about doing that, I don't know-, but again, like, I don't know. I have no idea. I don't think the law is that-, I think the law's pretty black and white, and it's pretty clear what the purpose of that sale was, and, um, what people expected from it, but I'm just some guy. You know. I don't have any-, I'm not a judge. The really complicated part about the way these token sales have been used is-, I think the last time we spoke, I-, I pointed this out, I think it bears remembering. The United States is a great country, I-, I'm very fond of it, you know, I'm a-, a proud American, I-, I like being here, and I like our laws. I'm-, I'm a lawyer, I took an oath to protect and defend the Constitution, I'm-, I think we've got a great legal system. But, there are 180, 181 countries in the world, all of which have political-, their own political subdivisions. I have no idea what the law is in the rest of the world. The-, the real-, I think what we may see, in order for this technology to take off, and to work as a financial investment tool, people might-, may start developing things that are jurisdiction-focused, right? Like-, like real software, like real international software, where you build things for particular countries. CP: Which-, which is a-, a big change from-, I mean, at least the-, the aims and goals of-, of Ethereum and-, and of Bitcoin, at least as they've been articulated. SP: Go back 20 or 30 years, and look at-, or 20 years, and look at the World Wide Web. Just because you can throw up a website, and it can touch 180 countries, doesn't mean that it makes sense to sell your widgets in 180 countries without figuring out what the laws are in those countries. This is no different than, um, the questions people had to ask 20 years ago, or 30-, you know, 25 years ago, um, when you started seeing websites being thrown up. Just because Apple can sell computers everywhere in the world doesn't mean that Apple doesn't make sure its terms and conditions aren't, um, you know, tailored for the different countries where they import and export. It's complicated. I mean, you can either deal with it, or you can ignore it, but if you ignore it, you end up, um, you know, paying the piper later. CP: [Laughter]. Indeed. Speaking of paying the piper, can I switch us back to our-, our conversation of Tezos. You-, you've been following, quite publicly on your Twitter feed, a lot about what's developed. For those who haven't been paying attention, could you kind of recap? Since we spoke in-, I believe it was in late October 2017, they had just gone through-, there was a division between the Breitmans, their company, and the foundation. Can you kind of take us from there? What's-, what's developed, and where are we today? SP: So-, right, so, the Breitmans created this company called DLS, what is it, Distributed Ledger Systems-, Dynamic Ledger Solutions Inc., excuse me, I happen to be looking at something that was just filed on the case. Yeah, so they created this company, and then they decided that they wanted the community to be-, um, they wanted to have some sort of community representation of their thing that they were building, so they went to Switzerland, they created a Swiss foundation-, a Swiss foundation, the Tezos Foundation, or Tezos Stiftung, um, which is based, uh, in Switzerland, and, uh, the foundation did a, um-, either-, depending on the side that you're on, they either did a token sale, or they did a token contribution event. The idea was that, if you gave them money, they were going to use it to build-, the foundation was going to use it to build the Tezos blockchain, and, maybe, if they felt like it someday, and the community agreed, there'd be an allocation of tokens, "Tezzies". And Tezzies-, it sounds like it should be a Disney dinosaur character, I think I've said that in the past, so, kind of a cute name. CP: So, this is-, this is the idea, at least, it was argued that, um, I give money to UNICEF, uh, for, you know, feeding the children, or whatever it is, and they give me a tote bag. SP: Yeah, and I don't know, you know, it-, maybe that's true, maybe that was the intent, maybe it wasn't, but so far, uh, I don't think anybody's gotten tokens yet. It looks like it's gonna happen. Meanwhile, back in California, um, a bunch of people filed class action lawsuits, they were, um-, they're now, uh, for the most part, consolidated in federal court, in Northern California and San Francisco. One of the class actions was sent back to state court, so you've got, sort of, two parallel class actions in California, one in state court, one which has five or six, I can't remember, lawsuits that are all before one federal judge in California, and that case is in a-, those are basically securities class actions, the plaintiffs are saying, "Look, I-, we know you claim this was some sort of, you know, voluntary contribution, but if you look beyond the words, this was clearly a securities offering in the United States," and the plaintiffs, basically, I'm actually looking at something they just filed, "This indirect structure," I'm quoting, "This indirect structure was arranged solely for the purpose of distancing the Tezos ICO from the US, and allowing defendants to avoid the reach of US securities laws. However, at all times, the centre of gravity of the Tezos ICO was firmly planted in the US." So, basically, the defendants are saying, "Look, the sale was done by the Swiss business, uh, which had nothing to do, and it's totally independent, it had nothing to do with the United States, it's independently controlled, and, uh, you can't bring it in to the United States," right? So, they're arguing that, uh, US courts don't have jurisdiction, because the sale was done by a Swiss business, and, uh, the plaintiffs, and I'm just looking at their response right now, are saying, "Give me a break." Right? [Laughter]. "This was all-, your entire purpose in doing this, in setting up this Swiss entity, was to be able to sell securities in to the United States, and although you claim that this was, sort of, a contribution, and that people were getting tote bags, uh, that's really not what the evidentiary record will show." So, meanwhile, you asked what happened, so there was a fight between the, uh, founders of DLS, the Breitmans, and the, uh, initial head of the foundation, a guy named Johann Gevers, they ended up deposing, kicking out Gevers, they ended up getting a new board in place, it appears that, um, they-, this-, this foundation and the Breitmans are, um, sort of cooperating, though I just saw, in the last couple of days, although they're not fighting like they used to fight, apparently, the Tezos Foundation is now requiring, as a condition to receiving Tezzies, that, um, contributors go through, um, a full KYC process, which is kind of interesting. Yeah, so my suspicion is, um-, I actually think this is a very clever move, I think what they're doing is they're going to try and weed out Americans, and, uh, they're probably going to say, "If you're American, you don't get any Tezzies," so a lot of people aren't going to go through KYC, uh, either they-, they can't, or they won't, there are plenty-, well, a lot of people who contributed money, thinking that this was going to be a fairly anonymous process or procedure, when they realise they're going to have to turn over their identity documentation to a third party, they're going to balk, for a variety of reasons. So, the foundation's going to be able to keep a substantial amount of money, without issuing tokens, because some people won't go through the process. I suspect, if they discover Americans, they're going to say, "no thanks, we're not going to give Tezzies to Americans," and that may actually help an argument that they're making in court, that there's no jurisdiction over US persons. What's interesting, too, is from a, sort of a-, a war gaming it out standpoint, what's the argument, then, of US investors? What, some sort of, "You took my money, but you're demanding-, but I refuse to go through-," if you're American, you're going to have to go through the KYC, like anybody else, in order to get your tokens. I guess the question is going to be what the, uh, US plaintiffs' arguments are going to be, if they don't receive tokens because they're Americans. I mean, interestingly, deciding not to give people tokens is consistent with the argument that this whole thing was just a fundraising and contribution. I-, I think Mr Draper would probably be pissed off if he doesn't get his tokens, though. CP: Well, surely, he'd go through-, in all cases, he would-, he would fall under some kind of exemption, wouldn't he? SP: I-, I don't know. CP: I-, I'd imagine that he-, he's either structured this under his venture capital fund, or he, himself, would be a-, a sophisticated investor, that can invest in more or less anything, as long as it's not, you know-, I would-, I would assume-, I could be wrong. SP: Yeah, maybe they'll do some after-the-fact-, maybe they'll do some, sort of, after-the-fact filing, or, uh, seek an exemption, maybe they'll do a rescission offer. I think it's clever, though, um, and actually, I don't think it's the wrong move to do KYC at this point. CP: So then, here's the question, though. If you're willing to concede-, if I'm, uh, the Breitmans, and the-, the Tezos Foundation, and I'm willing to concede that today, the unlaunched product, um, is a security, and giving you these things, these Tezzies, would be construed as a securities offer, zoom-, zoom forward, 12 months from now, Tezos is-, is launched, everything's peachy, everybody's happy, and-, and I, an American, decide, "Hey, I wanna go buy these Tezzies, because I actually wanna use them as a utility." Can I do that? Or does this still fall under the, "They were securities so they are securities," kind of argument? SP: I'm not sure-, I don't think anything's going to be wrapped up in a year. I think-, A) I don't believe the class action litigation will be wrapped up in a year, a year from now, we may be, uh, in the middle of class certification arguments, and I-, I have no personal knowledge of the-, any regulatory investigation that's going on. I do recall seeing something that suggested that the SEC is investigating this offering. I-, I don't-, this is a pure guess, by the way, but I would be shocked if you could buy Tezzies on any US exchange in a year. I don't see that happening. And again, I may be totally wrong, um, I'm not a, um-, I'm not a currency speculator, but I don't see anything being wrapped up in that timeframe. This was a huge fundraising event, and there is a-, you know, a decent amount of evidence suggesting that it-, maybe people-, maybe it was a securities offering. It would take a-, I think it'll take a while to unwind some of this. Don't-, don't expect to be able to buy this stuff in the US in a year, and not-, at least not on a centralised exchange. CP: And I think the other thing that's kind of an interesting question, on top of that, is, you know, what do they do about all the people who, like myself, are-, are Americans but, you know, don't fit the mould of being residents? Um. And there's-, there's lots of companies that would also be classed as-, as Americans, who may have this stuff in there. SP: That's a good question. I don't know. CP: Ah, yeah, no [laughter]. There's lots of unknowns here, and I think-, I think that, you know, that's kind of the point. Uh. Nobody really knows, um, we're sitting here, two guys, drinking coffee, speculating. SP: I've just gone through-, so, I read the motions to dismiss that were filed in the Tezos, uh, case, um, and I've just read through, uh, the first response, and this is a response by-, who is this by? This is a response to the Tezos, um, Foundation's motion to dismiss, and, you'll recall that you've got a bunch of different defendants, people who are (? 55.42) the United States, you've got the Breitmans, you've got the LS, you've got Draper, Bitcoin Suisse, you've got the foundation, the foundation has all of the money, right? And in fact, uh, Arthur Breitman, on Reddit, you know, people-, somebody complained to him about KYC, and he said, um, it's-, basically, "It's out of my hands." You know, somebody said, "I can't believe you don't have any control," and he said, "I know," basically, right? So-, but this Tezos Foundation, uh, they filed a motion to dismiss, they said, "Look, there are not enough connections in the United States, and it would be inconvenient." They have decent lawyers, I thought the papers that they filed were good, I just read the response by the plaintiffs. I don't-, I would be really surprised if Tezos Foundation was, um, was dismissed, from the class action litigation. Uh. The plaintiffs have, um, solid counsel, their-, their briefing is good, and they made some-, their arguments, their response to the motion to dismiss, uh, was strong, and basically, you know, what they said was, "You sold-," you know, "You sold in to the United States. You've got tonnes of contacts here, um, and under the-, under US case law, under, sort of, the jurisdictional test for US courts, um, there's more than ample evidence that, uh, supports you being called in to court here." So I don't think that-, I don't think that litigation's going to go away, and it's a little bit of a cloud, um, over the, um-, over the token itself. I thought it was funny, I don't know if you saw this, some people decided to create-, file a petition, that they were going to file with the judge, saying that the class action litigation should be dismissed because they don't agree with it. Did you see that one? It's kind of-, it's Bizarro World shit, I mean, that's just not how-, it's like [laughter] you've got a lawsuit, um, seeking class action status, um, there are-, the plaintiffs are represented by a lawyer, it's not a class action yet, um, there'll be a motion to get the thing certified, and then you've got these defendants, whose lawyers will file briefs explaining why, um, the thing doesn't fit in to the-, in to the rubric, or model, of a class action. Like, it just-, people think that, uh, some US federal judge is going to read a petition filed by a bunch of random people? It's just crazy. It's like-, it's like-, this is like-, this is like Reddit meeting law, right? You know? I mean, it might make sense, it seems to, sort of, fit the-, CP: [Laughter]. I think it would make a lot of sense nowadays-, SP: It seems to kind of fit the context, right? CP: Yeah, the Breitmans could move to Pyongyang, why not? SP: I mean-, golly. PotCoin. Did you buy PotCoin, Colin? CP: Of course I did not buy PotCoin. SP: I mean, I guess you're not supposed to talk about your bag, anyway, right? CP: Yeah, never talk about your bag. The first rule about bag holding, right? [Laughter]. SP: Right, right, right. Yeah, I've got a huge Guppy bag, but they're-, they're not freely-, they're not freely transferrable. Um. So, I-, I have to say, too, while you have me, I just wanna be clear, so people understand. The Guppy thing, like-, do you know what-, you know where the-, the origin of my fascination with Guppies comes from? CP: This is Matchpool, right? SP: Yes! And, like, every couple of weeks, somebody's like, "Steve," like, you know, "Dude, what is it with you and fish?" like-, like, people don't understand that this may be the longest troll in crypto history. I'm still amazed that people spent $5 million to buy cryptographic fish for, um, some sort of so-called decentralised dating application, in which the white paper says ladies get in free. Right? But basically, every time I mention Guppies, I'm thinking about that. CP: I-, I do want to challenge your assumption that this is the longest troll in crypto history, because Dogecoin, I think-, I think is verifiably longer [laughter]. SP: But-, true, and it's profitable, too. So, like, my trolls, and my wife will confirm this, are completely unprofitable. CP: No, you just get me responding to you with stupid fish [laughter]. SP: Yeah, I mean, basically, it all comes down to, like-, to guppy gifs, and my family's, like, you know, "What are you doing? You're-, you're a trial lawyer with 20 years of experience, so, like, why are you talking about guppy gifs?" Yeah. CP: You know, a good entrepreneur would-, would tokenise these things [laughter]. SP: Well, somebody already has-, oh, what, the tweets, or Guppies? See, that's the thing, people say-, yeah, people say to me, "You should-, you should tokenise the fish, you should do a Guppy offering," it's like, "People, you don't understand. This has already happened. My comedy is totally lost on all of you." CP: [Laughter] yeah, you know, a great artist is never recognised for their art, right? SP: That's right, a prophet is never understood in his own country. Yeah. CP: Excellent. Well, thank you very much for coming on, um, where can people find out more about you? SP: So, you can go to the National Aquarium, and go to the guppy exhibit-, no, you can, uh-, you know, you-, you can check out my Twitter, it's @stephendpalley, you know, I do-, I-, I practice law, I've got a-, I've got a webpage, um, at the Anderson Kill website, I'm on old LinkedIn, under my real name, so, you know, check me out. I am-, I am a-, I'm kind of hilarious, and if you like fish, I'm a good follow. CP: I'm-, I'm an avid follower. Well, thank you very much. [Break] ST: Alright, thanks very much to both Colin and Stephen there, from EOS to Tezos, we definitely got it all this week [laughter] and yes, I just stole a line you said before we started recording in here-, CP: It was on a blockchain, it's non-fungible [laughter]. ST: [Laughter] YOU'RE non-fungible. CP: It's true! ST: Non-fungible Platt. Alright-, uh, NFP tokens. [Laughter] CP: I think that's nonfarm payrolls. ST: [Laughter] wow-, CP: Coincidence? ST: It's-, CP: [Laughter]. ST: I think not! Alright, just before we go, 11FS, the company that brings you this podcast, are a challenger agency and consultancy, who help banks, asset managers, FMIs, or anybody with a challenge delivering product, to achieve more. If you want to understand how to commercialise your project, and get that minimum lovable product that customers just love, or just have a speaker for your next event, we hope that you'll get in touch, you can find our website at 11FS.com. And Colin, where can people find out more about you? CP: On the Twitter, at @ColinGPlatt. ST: You-, you need a-, a G-Sass handle, at some point. CP: You know, I tried, the guy doesn't respond to me. ST: Damnit. Damn-, damn that other G-Sass. Damn the doppelganger. Alrighty, and I have to, of course, thank the amazing production team here at 11FS, Laura Watkins, our Producer, thank you, Laura, Petrit Berisha, our Assistant Producer, and-, CP: Petrified. ST: And Ollie Judge, who is in the room-, CP: [Laughter]. ST: Ollie, thank you [laughter]. [Laughter] CP: Who's just randomly in the room. He heard there was beer, so he showed up. ST: Thank you, Ollie. And thank you for listening. If you like what you heard, subscribe to our podcast, leave us a review on iTunes, those reviews help us so, so much, and spread the word. Tell all your friends and colleagues to listen, too. We'll have more Blockchain Insider next week. Goodbye. END OF AUDIO 01:02:23 END OF TRANSCRIPT