 This is State Tech Hawaii. Community matters here. Aloha! How you doing? Gordo the Texar here. Welcome to another exciting and thrilling episode of Hibachi Talk. I have my new and famous and infamous co-host, Rick's the Fundmeister. Nice to see you here, sir. Hey, Gordo. And we have a great guest today, JP Schmidt Esquire, which stands for Attorney. I know why that is, but it is Esquire. And you have a time. You have a terrific background, and we're going to talk about blockchain, cryptocurrencies and what's happening in the legislature and things like that. So pull up a chair, grab a libation, sit down and join us for the next 30 minutes, and we will go over what's happening in this, in one of my favorite spaces in the industry of technology right now. So JP, you are the sole proprietor, owner of Avaris Global, and we're going to learn a little bit about that in a second. And you're also set as an advisor on the Ethereum Foundation, which is a cryptocurrency. So you bring that to the table, so you've got some expertise there. But before we jump into Avaris and Ethereum, tell us a little bit about yourself. Like, where did you go to school, where did you grow up a little bit? So our viewer can know what's going on. Okay, well, I was born and grew up in upstate New York, and when I was 16, folks moved to Glendale, California. So I finished high school there and went to UC, universities, UCLA, and UC Davis Law School. And about six years after law school, I moved out to Maui. And began working there and became deputy court counsel for the county of Maui. And then became the corporation counsel for the county of Maui. And worked in private practice for a short time. And then I was appointed the insurance commissioner for the state of Hawaii. That's where Mr. Maurer meets you, I think, when you're an insurance commissioner. Yes. Yes, I was from about, you're welcome, 2003, 2010. And my attitude was that I was there to help folks out. So. That's rather anti, that's rather anti-government of you. Yes. Yes. I've seen your presentations. You know, you said to some people, people like to be adversarial and hostile. Yeah. I'm that one. And you're the one that tries to make it all work out nice. Yes. I believe in solutions. I believe in the own with reality and the own with solutions. And so I tried to bring that as insurance commissioner. And I believe the best way you do that is to talk to everybody that I don't know everything. And so I told all of the folks in the industry insurance company and agents and what I do that, I have an open door come and talk to me because sitting in my ivory tower, I don't know how things are going down on the street and working and so come and tell me about it. And I told them, you know, I am going to make decisions. You know, I want to hear from you, but then I have to make decisions that I think are best for all the people of white. And I know we're not going to agree on some stuff. And we never do. You were in the insurance commissioner for how long? 2003 to 2010. For seven years there. Yeah. Yeah. That was a nice stint. Yes. As far as we could tell the longest that anybody could stay on the job until, don't get us started. We were appointees too and we've gone through it. I went eight years before I went postal. He made it what, two? Yeah. Two years. Two little bit and that was it. Yeah. And then I went over to help the Obamacare implementation. We saw how much successful that was. Well, the current insurance commissioner, Gordon Nito, has actually been there longer. Yeah. And he was my deputy when I was there. Okay. Yeah. And I know Gordon. So, yeah. But he got to be there during the Obamacare implementation. Yeah. Exactly. Yeah. He did a nice job here. He accused me of leaving because of that. Well, it wasn't the fact that you were running out the door that gave that indication. Yeah. So, tell me a little bit about Avaris Global. Who is Avaris Global? Well, I just set up Avaris Global because I began doing consulting work. Okay. And I was doing consulting work for the Ethereum Foundation, which is based in Zube, Switzerland. And Ethereum is the second largest cryptocurrency by capitalization, right behind Bitcoin. Yeah. The big difference is, though, that Bitcoin, the underlying structure is the blockchain and the blockchain for Bitcoin basically just supports the currency, the Bitcoin. Ethereum is 20-year-old genius Vitalik Buterin, figured out how to set up the blockchain so you could do transactions on it and smart contracts. Right. And so that has turned it into a very useful thing. Mm-hmm. Now, I went out to Zube a couple of times and helped them out with corporate board meetings. I helped them out working with their Swiss regulator, FINMA, and a variety of other things. And then I gave a presentation at the first decentralized insurance conference. Mm-hmm. That's all that. Talking about insurance on the blockchain. And the government of Mexico asked me to give a presentation at their future of insurance and securities international seminar. So I've been working on those types of things. And so I brought it up so Ethereum right now is trading at $51 billion market cap. Right. Number two, next to Bitcoin. Right. And number three is Ripple, which has popped up to $27 billion. And Bitcoin cash is now at $14 billion. So we're in that, you know, this is the top four. These have been the ones that have been doing the movement. The blockchains are a little bit different, like you said, under each one of those types of currencies. Right. I liked your presentation. I saw on the, you see what could happen in the future of insurance. Right. You got a lot of questions on that presentation, I know, because people are confused. Yeah. Well, it is, the thing is with the blockchain, it is so new and innovative that the way we regulate things now doesn't really fit for it. And so it has to be changed. And it's taken a long while for the regulators to figure out what's going on, to figure out, okay, well, what's the best way to deal with it. And unfortunately right now that has resulted in a lot of uncertainty and what you can and can't do. Right. Until they've worked that out. Now the past year, when the regulators were kind of hanging fire, the cryptocurrencies exploded and a number of initial coin offerings were made. Right. And one of the developers said, look, I got this great development that I can put on the blockchain that can help with medical records or financial transactions or transportation tracking. Food tracking, if you're Walmart. Food tracking, all sorts of things. Right. And I'm going to issue my own coins instead of Bitcoin or Ether. Most of those were built on the Ether platform because, again, that allows for transactions. And they issued their own coins, ICOs, generating billions of dollars and resulted in a very large increase in the value of Bitcoin and Ethereum and a number of other. The whole thing, this market cap of the whole industry is at $342 billion in the coin space. I know they use the word coin and it gives everybody that thinks that it's money, but it really is just a form of transaction recordation. That's how I try to explain to someone that Bitcoin got into it from the money perspective. But you mentioned like, think of what will change the insurance industry and how you track an insurance policy claim and anything related to it, whether it be personal liability, healthcare, auto, home, whatever it may be. All that's going to change because of that disruptive blockchain technology. Right. Right. With blockchain, because of its structure, because it's so efficient and it's transparent and it's far more secure than the way we store information these days, Deloitte has said that if insurance companies put their internal operations on the blockchain, underwriting, claims processing, holding the information, they can save 35% of their costs. Wow. So insurance companies can save 35% of their costs. Just pushing the paper. Right. To eliminate a lot of that. Yep. To make it much more efficient. And then not the payment of a claim. Right. And then it also becomes much more secure, it's more transparent. So it's better for the clients, the customers. It's also better for the regulators because it's transparent to the regulators in real time. So instead of having to wait until the end of the year to get your annual financial statement from the insurance company and saying, well, what the heck have they been doing? You can track them real time if they're on the blockchain. So it's helpful for, that's why it's so disruptive, it's helpful for everybody. And the keyword you just used there is disruptive. Right. The internet was disruptive. Right. Right. And we've talked about this. Just think of what the internet has done to our societies worldwide over the past 10 years. Right. And what do you think blockchain is going to do over the next 10 years? Right. And some have said it's going to be even more disruptive. I think so. World economic forum. I mean, these are not just folks talking through the top of their hat. World economic forum. And so this is the future infrastructure of finance. So it's very exciting. It's still developing and so it's very interesting. The one thing to keep in mind, I mean, one thing, you know, they have all sorts of articles out there on the internet about it and they have tons about it as an investment. Now I just kind of ignore all those because they don't know how to analyze it. You're trying to use old analytics to analyze whether it's going to go up or down. Yeah. The shoulders, head and shoulders. Everybody's going, oh, it's going to go up. We should trade now. It doesn't work. Right. And instead, I look for the articles that deal with the blockchain, the underlying infrastructure, and to see what kind of developments are on there, to see where it's going. And as they have more and more applications developed, then it becomes worth more. But it's also, you know, fascinating how they do the new developments. In doing the developments, it's also important to keep separate the blockchains that are permissioned blockchains that companies are doing for their internal operation, right? And because they make it more efficient, like the wait set. And peer-to-peer blockchains. And that's where it's really going to be disruptive. I just saw an article that said, well, blockchain is not so much disruptive. It's foundational, because it's going to provide a new foundation for how we do business. And I think that's true, particularly for these permissioned blockchains that corporations are doing. But peer-to-peer, it's going to be very disruptive. Because then you don't have to go through any company. You go directly person-to-person for anything. You can trust that that transaction is going to happen. Think of what, you know, and you're very familiar with what it's going to do, the insurance industry. Think of what it's going to do to the real estate industry. I think the real estate industry, I mean, the real estate agent could go away with what happens with the blockchain. I just saw an article that Moody's said, again, you know, not some fly-by-night operation, folks that everybody trusts in their analytics, Moody said that the mortgage industry could save $1 billion by going on the blockchain. So you know, it's going to be a tremendous benefit. It's going to be a big change. You said, you know, they may get real estate agents, escrow agents. Some folks have said they're going to get rid of lawyers. Wait a minute, wait a minute. What do you call a busload of attorneys going over a cliff? A relief. I don't know it. A good start. So actually, believe it or not, we've burned through the first, like, 14 minutes of this. So we're going to take a little break because you've been asked by the legislature down at the big square building over there to give some guidance and advice. I refuse to go because I would, like I said, I would go on the dark side and I'd get a hostile with them. So I refuse to go, but you've been going down there and advising them. So I'd like to hear what you're getting from them and convey that to our viewers. So Gorilla Texar, Rick's the Fundmeister, JP, Schmidt Esquire. I don't think Esquire. I wrote Esquire when I was looking on my report card. It didn't go over well. Anyway, we'll be back in a minute after we pay some bills. This is Think Tech Hawaii, raising public awareness. If you drink, never drive. Aloha. My name is Mark Shklav. I'm the host of Think Tech Hawaii's Law Across the Sea. Law Across the Sea comes on every other Monday at 11 a.m. Please join us. I like to bring in guests that talk about all types of things that come across the sea to Hawaii. Not just law. Love, people, ideas, history. Please join us for Law Across the Sea. Aloha. Aloha. How are you doing? Gorilla Texar here. Welcome back to the second half of Ibachi Talk. Good old buddy. Rick's the Fundmeister. Can't talk anymore. We've got JP Schmidt Esquire, who's a former with the Insurance Commission and now an advisor with the Ethereum Foundation. There was a lot about blockchain giving us a real good perspective on it. So in the second half of the show, what I'd like to talk about though is because you've been requested by the legislature to go down and be providing, I'll call it guidance. I don't know what else to say. I mean, I was requested and I tried a couple of times and I tried to rehearse and I kept getting hostile, so I just stopped. Because when they shut down Coinbase Hair, I essentially lost my latch. Yeah, well that's... Because there's a lack of understanding. Yes. But I'm glad you're down there because you're calm, cool, and collected. And they probably pay attention to you and not me. So what's happening down there in the big square building? Well, they are considering some bills that would hopefully bring Coinbase back to Hawaii. And I went down there to testify as an individual. I mean, it's not that they asked me to come. But I went down there to testify because the situation is not good right now. Where 49 states allow for exchanges to be money transmitters and for people to access exchanges to trade and exchange virtual currency. I'll accept Hawaii. Now, there's ways around it though. Yes, yes, yes. There's ways around it. Which it shouldn't be. Yeah, you know, I mean I'd rather do it the right way than do work arounds. Right. And so they've had a couple of bills in the legislature to try to rectify the situation. One bill submitted by the Director of Financial Institutions, Division of Financial Institutions. And one bill that was submitted that is a Uniform Law Commission bill. Which there's a Uniform Law Commission bill. Yeah, there's a group. How do I feel that we're going to form another department with a multimillion-dollar budget that doesn't, well, we'll pay them Bitcoin. Yeah. Well, the Uniform Law Commission bill doesn't seem to be getting traction. And no other state has adopted it. And it's gotten criticism from a number of folks in the industry. The bill by the Director of DFI allows it in the Money Transmitter bill. And allows for certain things that Coinbase had had a problem with. Primarily that. A Money Transmitter has to put aside in dollars and cash or other things. The amount to match how much they are dealing with. In case there's a problem, they can cover post. So let's get into that just for a little bit, because this is where I get irritated. Because the banks are Money Transfer Organizations, right? Yeah, except they're exempt. Except they're exempt, okay? But they still are Money Transfer Organizations. And they don't have to keep 100% fee of money in the bank. No, they don't. No bank does. They keep about 8%. Yeah. Now Coinbase could have kept 8%. Right. No, our people don't see them getting on myself by nickers in the night here. These guys down at the square barrel over at square barrel. The guys at commercial. Anyway, the guys down at the square building over there, they wanted to put 100% fee at currency in the bank. Right. That's crazy. And that's how the Money Transmitter law is written for other Money Transmitters. This bill changes it so that they can put virtual currency in there as the amount in reserve. And so that, I mean Coinbase and other exchanges said, look, we've already got all this virtual currency back and all of it. Yeah, let me put a hundred. And that's what we deal with. So putting fiat in there, putting dollars in there is crazy. Yeah, and Bitcoin is now trading at $138 billion and $8 billion in transactions. No, $6 billion in transactions in the past 24 hours. Come on, give me a break. So I mean, there was a ton of my associates. We all had to bail and went elsewhere. Right. So it's... I'll just leave it alone. Right. So are you making them up on that? Well, I hope so. And one of the things that when I go to the legislature, I mean one of the primary things is to try to educate the legislators. Right. Now, on behalf of the legislators, they have thousands of bills that they have to go through, that they have to try to get some kind of understanding on. This is a very complex new area that many people, most people don't understand. So they're saying, oh, you know, well, what is this? We want to protect consumers and all of that. Yeah, and that was the line I got. We want to protect you. And I said, you don't understand what you're talking about. Yes. Well, and I proposed to the legislature a draft bill that would exempt virtual currency from the money transmitter law because virtual currency is not money. Yeah. It's not money. And so it doesn't, again, it doesn't quite fit. Harris calls it an asset. Right. Well, and this is, I was talking about the confusion with the different regulators now. The problem is these federal regulators, CFTC calls it a commodity, the IRS calls it a currency, SEC calls it a security. States have called it property and normally the definition of property is left to states. So, you know, so what is it? And so, so they're, they're, they're looking at applying all these different things to it that don't necessarily fit. FinCEN, I think, said, we'll look at, you know, any exchange has to abide by all the banking regulations. Right. And of course, SEC says you have to comply with all the securities regulations when you're issuing coins with these ICOs. Right. And the CFTC says, well, it's a commodity. And they have actually worked to allow for ETFs and other investment vehicles that hold virtual currency to be traded on the commodity and future trading board. Well, see, Chicago Board of Options, you can buy cryptocurrencies on that exchange. Right. You can buy futures on there. Right. There's a couple of publicly traded stocks out there now that are in, that they buy and trade and sell cryptocurrencies. And you can buy into them, not as a, you buy into them just like you're buying a stock with Amazon. Right. And they're out there doing that, you know, outside of the state. Right. But they're, they're doing it and it's how I can do it that way if I want to. Right. And the head of the SEC and the CFTC went before Congress a month or so ago and they, to tell them about what they're doing in the area of virtual currency. And they said that, well, look at, you know, we recognize the tremendous benefits that this area, this new innovation can have. It's blockchain. Yep. So we are proceeding with, from a standpoint of do no harm, which is great, except they then go and subpoena all sorts of exchanges and ICOs and take all these actions in a very traditional way. Now, UK, United Kingdom, has set up a sandbox, a regulator sandbox. And they say, okay, look at these folks that are developing things with the blockchain can come to the sandbox. Want some water here? They can be there. It's okay for, you know, for a short period, we will, the regulators will work with them. We'll give no action letters and give them some leeway on some of the regulations and stuff to see how this develops. And that helps both the regulators and that helps the developers to see, okay, you know, what kind of regulations am I going to run into? Right. You know, how can I develop this thing? And they've had several cohorts, and in October they did a very interesting report on what they've learned from it. And one of the things they said is that everyone who came through the process ended up getting significant funding once they got out. And because once they got through it, you know, and the ideas had been vetted and how to do it, and the regulators have become familiar with it, then people want to invest in it. So, you know, let's see how this works. So we're winding down. We've got a few more minutes, but I want to give you a chance to give us some future think here on blockchain and what you think might happen from a regulatory, from a legal standpoint, societal, cultural, whatever. Just give us your kind of thoughts on that space. Well, the regulators are going to have to do a steep learning curve here and get a handle on it so that they have a better understanding on it. Harvard Business Reviews said, look, in an additional world we can't regulate the same way. And, you know, we have to look at different ways of regulating. I expect that they will push for that. Let's see the International Financial Commission and European various Unipering Commissions and Boards, Japan, Singapore, you know, all of the different areas around the world are looking at this and recognize the benefits and looking at, well, how do we deal with this? Right. So I predict that they will figure it out. Okay. And we'll get something better. It will be a rocky road and what have you, but they'll get something that will allow it. The blockchains currently are working on problems of scalability dealing with lots and lots of transactions and security. And I believe they will work those out and then it will be even more useful. And as I said, peer-to-peer will be extremely disrupted because you can go out into rural areas, into third world countries and what have you. Don't have insurance. Don't have financial services. And with peer-to-peer, they can get those financial insurance services and insurance. And that will be extremely disruptive. Awesome. And beneficial. And beneficial. We've burned through 30 minutes. Hopefully we can get you back here in the future, JP, because it's, you know, this is a disruptive technology. Case closed. The world is going to change as a result of it. You better pay attention to this, ladies and gentlemen, because it's going to change the way people live. We'll be talking about this 10 years from going like, wow, I never got over this. Anyway, JP, thank you so much for joining us today. It was terrific to have you here. My pleasure. I forgot the solo cups today, so I didn't get you your autographed solo cup. So I'll get you up. That'll allure you to the next show. Mr. Fundmeister, it's always a pleasure having you here. Thanks for joining us on Apache Talk. And like I say at the end of your show, one, two, three, how you doing? How you doing? I'm doing. I'm doing.