 New York, it's theCUBE, covering AWS Summit New York 2018. Brought to you by Amazon Web Services and it's ecosystem partners. Hello everyone, welcome back to theCUBE's exclusive coverage of AWS Summit in New York City. I'm John Furrier, Matt Karinsik is up here with me. He's an analyst with Crypto, ArcadiaCrypto.com. It's a blockchain segment, a little bit not cloud related, but certainly we expect Amazon to have crypto and so we wanted to get an analyst here in here. Matt, welcome to theCUBE. Thanks for coming on, thanks for driving over. You guys run a great firm, ArcadiaCrypto, one of the serious boutique and or advisor funds you're investing in crypto deals. You're the lead analyst, Richard Robbie's been on theCUBE, Nathan Eaton's been on theCUBE. You guys run a great job and great events that this New York has passed year. But crypto's going crazy. Certainly we hear a lot of commentary about it's company financing opportunity on one end, project financing on the other, utility token trying to do both, now the security token has become the big thing. There's a lot of confusion. What is crypto going to evolve into? Certainly blockchain, we're seeing public, private. We expect soon to be a hybrid model just like cloud, same kind of thing. But certainly public's where the action is. There's a token economic market. So there's a new kind of liquidity. So all these things are moving on, it's kind of crazy for the average person to figure out what the hell's going on. What's happening? Take us through like the 101 in crypto from an analyst perspective. What are you seeing? How would you describe the situation? Absolutely. So as you mentioned, the largest distinction is between security tokens and utility tokens, security tokens that are denoting ownership in an asset or in a group of assets, something like that. And utility token, that's a token that's used to power network. Something that's creating kind of a platform. So maybe you think of like an Uber and Airbnb where there's multiple people on multiple sides of it and this token is creating a series of incentives for everyone to participate in it. So that's kind of the largest taxonomy. But what I'm excited about about the space in a broader sense are components of governance. So that's on chain and off chain governance. I'm excited about currency in general, moving away from fiat money. I'm also excited about smart contract platforms. So which will lead to a lot of business model innovation as we talked about before with utility tokens. So in terms of the power of money, certainly money is where the action is. And everything's pretty much digital these days. So even a paper money, fiat, it's not a hard bridge to cross it. Okay, I can get crypto. But as a business model with innovation involved, we've seen a lot of developers using smart contract, decentralized applications. Then you've got this concept of a protocol. How do you, I hear all this stuff and I kind of have in my mind what it is. I want you to take a minute to explain what's a protocol? What does that mean? Does that mean like Ethereum? Does that mean it's a native token? Is that to be a secondary token? What does all this protocol talk about? In the simplest terms, a protocol is something that other tokens and projects could run on top of or would run beneath that protocol. One of the things that got me most excited about this space was Joe Monagro's fat protocols thesis, where they're saying value is now flowing to protocols as opposed to applications. So before with the original internet, money flowed to companies like Google, Amazon, Netflix, et cetera. Now, money could be or value could be flowing to these protocols that will all be very different. I do believe that there will be multiple sets of protocols as we mature in the space and... So protocol's a new application? Protocol's a new, well kind of, but there'll be different things. Yes, in terms of value creation, certainly. And they'll be able to do all kinds of different things and there will be protocols that will be more suited for accounting-based things and protocols that will be suited for media and transportation-based things. Give an example of some protocols, fat protocols, or protocols that you think are indicators, leading indicators of what is possible. Well, if you look at the Ethereum network, Ethereum's had a major rise in its price and its usage and its value. And for that, it's because all of these other ICOs have been built on top of Ethereum and when you're investing in them, you're using Ethereum. So that's going to ultimately increase the value of it and there's the network fees that are being paid out that will be paid in Ethereum. So all of that is going to power the network and create larger value. Is that token and Brave browser a protocol, a steam in a protocol? How would you describe those applications? I would describe them as more of applications than protocols. They have their own blockchains, which is unique for them, but I see them as different because you're not necessarily going to build on top. There will be businesses that want to use basic attention token. They want to receive it and there will be a mini economy that develops from that, but I think they're in kind of different categories. How do they make money? Is that a hot area you think? I mean, if that protocol is where the action is, how do people make money at the decentralized application? What's your analysis there? Or is it just people who have not yet figured it out or you know, steam's trading and that just got approved by Coinbase as one of their currencies. So that's a good indicator. How does people and investors shake out the difference between a protocol and an application? From a market opportunity standpoint. If you're looking at it as an investor, right now with a lot of it's heavily speculative, as a lot of things are when they're early, but I tend to look at economics, how many tokens are going to be issued, then you can kind of back into what's going to be that velocity. So a lot of people use the MBE equals PQ formula, like the macroeconomic formula, and you can then derive- Not a big fan, personally, but- Yes, I mean, how do you terminate terminal value when you don't even know what the current value is? Yes, it's very difficult. We try to look at it from every possible way and through every, there's thousands of people on medium and everywhere else, writing about their valuation, their valuation methods and whatnot. So we try to experiment with everything and figure out what's best or what fits each particular model. But I look at it where value is going to come from people using network and there should be a scarcity of these tokens and as more people want to use it, whether what they're paying for is denoted in United States dollars or in Bitcoin, that network should be choked at a certain point where the price will go up. So what's the skinny on EOS? EOS is getting some good rave reviews. I'm seeing a lot of stuff in the influencer network around transactions. What's your take on EOS? I think it's a very interesting product. Hopefully they can, and I can't speak incredibly intelligently about the technical details of it, but if they're able to have the transaction throughput that they're saying they are, it will be something that will enable a whole lot of other applications. And a direct threat to Ethereum there or not? Or they could be co-existent. It's not necessarily, I think there is value in the current, excuse me, there is value in the first mover advantage that Ethereum has and projects are being built on it. Yes, they could move across these protocols relatively easily, but I think that there's some staying power within. You could see them move into more niche markets. So EOS could be powering things that require faster transactional throughput. Ethereum could be powering things that that's not as required. What are some of the cool things you've been looking at these days? What gets you excited about the space? Well, one of the projects we're working on is an AI company. So they're creating swarm intelligence. So they're taking the insights of hundreds of people and they're running it through their AI server and there's all kinds of different factors that go into that. How well they've done in previous predictions, things like that. And they're amplifying that intelligence with their AI and there's on the other end of it is a product that can give you insights into something that's going on in whether it's in a financial market or in a prediction market, something like that. Are they using tokens for that? They're working on it. They're running, this is a business that's running right now in the real world and eventually they're moving to a token model because it makes a lot of sense for them. And that seems to be the trend. People who have real businesses that are set up for token economics. I was just talking with, even just before you came on, Dr. Matt Wood, who now runs all AI for Amazon web services. And he's a genius and he's seeing everything. And it's interesting. Cloud is enabling all sorts of new things. So it's interesting with crypto and token economics, there are just some businesses that are just perfectly set up for the tokenization but never could do in the past. It was never possible. So I think there's a whole set of value creation around companies that have network effects, utility that didn't have the platform or didn't have access to cloud computing before. Who can pivot, not pivot or just not even rotate, just be into token economics. Are you seeing the same thing? Absolutely. And I think that the concept of community governance is very powerful because community and relationships have very powerful network effects. So I think people, as time moves on, people will be voting with the tokens that they're using, with the protocols that they're choosing to use because of the underlying values of it. So how do you talk to someone who says, hey, you know what, I have a utility product and I want to raise money with a security token because really a utility round has been raised, has been basically for funding the company and the project, not yet the utility. The SEC came out and you're starting to see people saying, okay, I'll do security. Is there a dual token model that you see workable out there? Is that possible? Yes, absolutely. We've worked with certain companies on dual token models and that's going to be on a case-by-case basis as to how you do it, whether that's the utility, a security token is for its future purchase of a utility token or something like that, but it's definitely something that's workable for a lot of companies. The other thing that I'm hearing is about a lot of hype around, or a lot of hype about reality around a security exchange. Yes. T zero, others. So the shift from utility to security, more exchange is coming. Do you see that same picture? 100%, because now, and one of the reasons why I was particularly excited about this market and this space is because we can see the traditional stock market move over into this, where these are cheaper, faster, more accessible ways to create public companies. So I think once there's an infrastructure where you could have a lemonade stand and do an ICO or whatever we'll call it in the future for that, that's a really appealing proposition for businesses. All right, what's your big takeaway? You're fresh out of business school, you worked in some politics campaigns, the crowd source and the network effects. I mean, ICO is like a political campaign. You got to get the votes. You got to do the airdrops. You got to kind of work the crowd and you got to get liquid. You got to win at the end of the day. What's the parallels? What have you observed? What are your big aha moments? Well, a lot of it is the tribal nature of cryptocurrencies is very similar to the tribal nature of politics. So it's weeding through people that are forward against you. There's misinformation about a lot of things that go on and it's being on message and having people that can communicate. But what's really cool is these are kind of decentralized messengers. So there's no communications director, necessarily, that you can say, this is what we're saying. This is how we're talking about it. And the fact that that grows organically is really cool. I think it will create the most- And the role of community is super important. What's the big work challenge in terms of this new governance model that you see happening? What's the big to do item for the industry in general? Is it the governance consensus? What is something to make a real successful community system work around an ICO? I think it's user experience coupled with governance. So it's saying, you know, it's great to have a protocol that will have people voting for it and voting for its improvements. But how do we know if people are actually going to vote? Is it easy to vote? Is it understandable what you're voting on? Is it something that they're voting every day or is it something you're voting every month? How do you begin to organize those things so people can congregate around voting events and actually believe in what they're voting in and take more of an ownership stake than I want this asset to rise in value with saying I want to be a part of this for a long time and I want to shape the direction of it. What's it like we're going to create an Arcadia crypto? It's amazing. I'm learning every day, you know, our partners are brilliant coming in there and moving into the crypto space from the business world and the political world. Every day is a new homework assignment and something that I get to learn about and that's right up my alley. You got a good balance of techno nerds and then you got business experience, but risk takers but not over the top. I mean, you got a good group over there. What's your final question for you? What's your advice to the newly minted MBAs or the young guns who are going to come in and create this next generation of super wave coming in, this wealth creation, innovation creation opportunity? What's your advice if they're sitting on the fence in Harvard, Wharton, Babson, Berkeley, Harvard, I mean, Stanford, certainly some people are going to jump in. Some might be a little cautious. Is that scam? What's your take? Well, and I found a lot of an abundance of caution, you know, traditional MBA programs, people are on a track to do certain things. Be an investment banker. We'll work for Goldman Sachs. Exactly. Soon to be taken over by crypto. Exactly. And that was certainly something that I wrestled with as I was looking at opportunities, but this is the most exciting thing that's happening in the world. I tell everyone, we're both Babson alumni. I started the crypto asset club at school and that was just something where I said everyone should learn this. Everyone should have a core understanding of what's happening because these are really cool, new innovations that will affect everything that we do. You know, whether it's cryptocurrency or blockchain applications and everything in between, I tell people just learn. The killer app is money and if you follow the money, you see this is not a hyped up market. This is real money. Now it might be a little bit grotesque in terms of people drinking from the trough a little bit too much on the scam side over over playing their hand misinformation, but ultimately when that gets vetted out, you have an entire new economy, global economy, with a new money system being built from the ground up. I mean, that is just mind boggling. Well, could be more exciting. And you've got technology that's game changing. Developers are coming in, so that's what gets me excited is that I think this is where I look at companies that have the opportunity and there's the new venture, there's the Hail Mary Pivot. Just do open source and blockchain. We're going to hopefully raise some money or the company that's actually perfectly poised to be tokenized. That's the real opportunity. And I think now more and more people are understanding where that sweet spot is. And I think you're going to find some very smart people finding that soon. And you're bullish obviously on the space. That's why you're in it. Absolutely. Matt, thanks for coming on theCUBE. We really appreciate it. We expect Amazon soon to have blockchain. They have a blockchain template that was announced by their professional services group. Obviously that's great. Love blockchain, I think that's going to be a great infrastructure piece. Amazon certainly loves that. But when will Amazon have their own crypto? Will they have their own crypto? Certainly it's an international money system. We expect everyone to have crypto. So we'll be watching Amazon. We're here at theCUBE live in New York. More coverage after this short break.