 From New York, it's theCUBE, covering Blockchain Week. Now, here's John Furrier. Hello everyone, I'm John Furrier, we're here on the ground in New York City for Consensus 2018's Blockchain Week. I'm here with David Siegel as the CEO of the Pillar Project, also the author of the token economics handbooks. Entrepreneur, mentor to companies. Thanks for coming on. Thank you, John, great to be here. So I'm excited to talk with you because I've been staying all week. I love token economics. It's a core part of the business model. Disruption is part of the key formula where blockchain shines. It's where the rubber meets the road, as some say. So, let's jump in. You know, how much is being discussed here about that? I mean, obviously, ICOs are well-known and people are looking at that road, but token economics, the importance of it. First, I think it's important to understand we're at the very beginning of this. It's a steep learning curve. We have these old Model T tokens called the ERC-20 token, which we will get rid of and build better things. We have models that are mostly based on old, you know, whenever there's a new technology, we first imitate the old stuff until we see what the new. So one of the really exciting new things that's come out of this is effectively the Ethereum model where you raise some money, you build a system, and it's open source, it's free. Anyone can take it and do anything with it, but it requires its own token to work, and the people who sell those tokens, you sell about 70% to your funders, and that creates the economy, but you hold about 30% back, and as the value goes up, as the network effect kicks in, and as these things rise in value, your 30% funds the project indefinitely after you run out of the first. So that's a pretty exciting model. That's what I call sort of basic tokenomics. You have no business model. You have no income model. You're totally open source, but your token powers your platform, and you have some tokens in your back pocket. And the general formula you see is 70, 30. Roughly is that just a pattern? That's normal. Now that's in a single sale, and what we see now in an ICO land is free sale, and then the big sale. I think we'll go to a more staged model because I think too many companies are overfunded, too many projects are overfunded, $240 million for status, and maybe we don't need that much to start a project with a white paper. So I think we're, I hope we'll go to a staged model. Where you maybe- Explain staged model. Like at launches or- Yeah, you might sell 20% and raise, what do you need to get to first base? Three million to show a minimum viable product and get traction. Yeah, makes sense. You know, what projects need more than three, maybe four, I mean, you don't need 20 million. And then you do that, but now you've got 80% of tokens in reserve. So now things are going well. Your token has gone for, let's say, five cents to 20 cents, and you can sell another 20%. So the funding of the platform as the token economics kick in, for your other example, that 30%, 70 goes to raise, and 30% funds the platform indefinitely. Yeah, that's typical. If you do the staged approach, what you're saying is there's more power in reserve to fund the platform. Because if you- Also- If you get to first base, you might get to second. I think investors have been too gullible. And they're looking at these 50, 80, $100 million raises and going, oh, me too, I have fear of missing out. I want to get in on that too. That's the big deal of the day. That is the one that's probably going to have lousy returns, right? These things are overfunded and not, there's no real give and take with the market. You know, to get, like nothing ever really works the way you planned. No business plan is ever worth anything. Think of, you know, Google, Apple, Microsoft, their first business plans are for something else. So find groups of people that you can give money to, not too much, get to first base, get some traction, make something, listen to the market, continue to build what people want. And then your token will rise and then you sell the next- So I got to ask you- It's very much like venture capital, right? We do it in stages. It's pragmatic, it's the right way. I think an investor and the entrepreneur, by the way, your point is also valid because like venture capital, if you take on too much money, you could actually fail, you're not optimized. And we've seen that before. It's not a good allocation of capital now. We got a lot of innovation to do. Wouldn't it be great if we could do a thousand projects at like two or three, four million dollar level and see which ones come out of that and then give them more. David, let's walk through a use case. So I'm a entrepreneur or I'm a growing business and I maybe bootstrapped it or maybe took a little bit of seed funding and did some cloud technology open source and whoa, I got a product. And I go, you know what? The growth strategy for me as a company is to use token economics because I got a decentralized use fit there. And I see a way to scale and grow with tokens. How should I set up my token economics? I got security tokens, I got utility tokens, do I do a service vehicle? It just sounds so complicated. I'm making funny faces, John, because I see too many tokens where we always say and I'm a token designer, well, what does the token do? Well, the answer is it raises money. That is the number one answer. It raises money. Well, does it actually do anything for the token holders? Well, I'm not sure. Maybe it gives you access to the system. Is that a good answer? So I think actually we should be turning most of these token sales into equity sales. And that's a different kettle of fish. So I honestly think people misunderstand the ICO concept and we should think of ICOs as we know them today as project finance, not corporate finance, not company, not startup finance. Startup finance should be done with equity. Equity is something you hold very dear. There's only a hundred percent of it. You sell it only if you need to to get to the next level. And equity means your shareholders are along for the ride. They may have to vote you out of your job at some point. Having me before. That's venture capital. You may be acquired. You may, any number of things can happen to equity. And project finance is different. So the Pillar project is an open source project. It's a nonprofit foundation in Switzerland. No one owns it. It can't be bought. Our goal is to do one project that we set in the white paper. We are on track to do that. But if for some reason we couldn't do that, I think the money should go back to the people who funded your white paper, not some random ride off in the hay. David, take a minute to talk about the Pillar project. I was going to get to that. Let's go to that. What's the Pillar project about? How did this come to life? What's the current status? So the Pillar project is a good example of an open source nonprofit project that uses tokenomics and is not a company and has no equity. We have a token that will give you access to our wallet which is coming this summer. And the wallet's meant to be initially just a cryptocurrency wallet like many others but with so many differences, John. So for example, there'll be a name lookup, an address book, and you'll find me by name and you'll send me tokens, currencies by name or you'll trade with me by name. You'll never see an Ether address. You'll never see a Bitcoin address. No phishing, no hacking, no wacky cut and paste errors and mistakes. For example, the Blockchain Explorer will be built into our wallet. So as you send me something or trade something, you'll be getting status information all the time. You'll never go to a Blockchain Explorer. All these nice things are built in. We have lots of features for your mom to make it easy for her to understand and keep it very simple. I think you abstracted away some of the complexities. We've added complexity on the back end to do the services that make the front end very simple. Okay, got it. And it's current status of the project. We'll be shipping the first, well, we raised money last July. We had a $20 million funding last July. That has gone up because Ether has gone up. We've got about 50 people full time. We're in London. So your first base or second base? We'll be on first base in July. We've got to get our product out the door. So what's the wallet? It's a wallet to start with, but also it will help you manage your personal data. It will help you be GDPR compliant. We'll have an exchange and we'll be doing equity ICOs. We'll be doing in the wallet. We'll be doing, for example, with the utility ICO, you'll issue your token. You'll sell it to people. They'll buy it in the wallet. And then trading will be immediate. You'll be listed. Everything right there. Don't move stuff around. We're trying to create a place that's safe for consumers. Got it. So Nuts, I love this concept about open source and it's kind of threaded. Some people are open source guys like me and you who have seen that movie go from radical and second tier citizen to primary tier power in the world. As blockchain takes a community focus, we're seeing the same business model that made Red Hat very famous. That's the power in the Linux foundation. This notion of projects and open source is a distinction between project and product. Upstream projects, a community, downstream products, downstream activity is where people productize the project. I see a pattern happening in this world where you're starting to see some of that. Interesting. Your thoughts on this because that's ethos has proven this world has got a lot of growth to it. Are we seeing this open source ethos and principles architecting in some of the successful crypto projects? I would take this productization analogy pretty far because it's true in the profit world too. It's true startups often do this as well. It's a service. You get better at it. You productize it. That's pretty common. So I think that's part and parcel of just solving customer needs and then scaling, right? The nonprofit thing or the open source thing is different because you can't make money on your open source thing. You've got to find another way, right? And here in blockchain world, we're using scaling effects and tokens. So let's go to tokenomics, where you can start an ecosystem fresh with a token that has no value and ether had no value on day one, right? But it's almost no value. And through network effect and use and the fact that it's a limited number, the limited number is important. The limited number makes it so that it's scarcity, right? It's got value to people who can see, oh, later it might be worth more. So you've got both natural buyers and speculators coming into a system. And this is what's giving the SEC a hard time because they can't see whether it's, is it a security or is it like a gym membership? It's a serious problem because they don't understand it. They're causing a lot of, there's a ton of growth in my opinion. But the thing about token economics is what you're getting at. And this is where I kind of squint through the noise. I understand internet infrastructure. Web 1.0, you got URLs, you got DNS, you have infrastructure. Google has cost per click, all that apparatus doesn't work for network effects. So if you look at network effects as being the main value proposition of most of these opportunities, why would we use an e-commerce stack, an old model? Because how do you measure networks? Tokens are becoming and wallets are becoming a key infrastructure. I see this coming. And I see the network effect tokens becoming both an instrumentation vehicle and a transactional currency opportunity. So this is dynamic that blockchain could really, and token. So I think the huge opportunity, John, is that instead of fake news and fake everything and fragile DNS systems and things that are centralized, we can decentralize things now with a token at the center that puts skin in the game. And a great example is science. We do science pretty badly. It's whoever can get budget for whatever wacky project. And if we had a betting, a side bet system where people could bet on the outcome of projects, even when you propose them, the people who make the decisions of whether to fund these things could look at the odds first of what the crowd thinks. And if the crowd is right about the outcome, the winners take the money from the losers. And this skin in the game concept is being used. It's a marketplace. The market dynamics of what you just said, I think is very important. This changes the evaluation structure based upon new information. So the price of fake news is almost zero. And we saw that in the last election. We see that in Facebook every day. We see that on the front page of the New York Times. The price of fake news is close to zero. If it costs you money, that when it turns out your stuff is fake, if you have to put up money alongside your news and then we find out it's fake and you lose it, that will change things. So the skin in the game tokens, and you can actually Google skin in the game tokens and learn a bunch of interesting models, is what's coming next. Well, we have to bring you on board the cube project that we're starting. We're tokenizing our platforms. And we think about this all the time. It's very cutting edge. David, really great to have you on. Talk about the book, where can we find it? Are you on media? One quick thing, we're going to have token camp coming up in Lithuania. We've got a one week workshop and unconference in Vilnius, Lithuania. I know that sounds like nowhere. What's the date? It's July 15th to 22nd. It's free. Pillars paying for it. It's at a resort. We're taking over a resort with crazy crypto people, skin in the game tokens, token camp. We've got a business agility camp for entrepreneurs, for investors, for coders. We're going to do, in fact, I can just announce right now that we're doing a hackathon with Radix, an incredible new blockchain, and a bunch of interesting people. Lex Oakland will be there, Vinay Gupta. We're going to have learning, learning, learning for seven days and seven nights. That's a resort in Lithuania. It's all one compound. Yeah, we're taking it over. And there'll be a little golf. But it's good for families. We did it last year. I checked it out. It's got a lot of lake there, too. You got a lake. It's got golf courses. It's going to be really fun. And we did it last year, and people were learning until one o'clock in the morning. That's the capacity you're looking at for that event. 500 people. So intimate. So very intimate. It should be perfect. We're going to be blasting out. You should come. We're going to be blasting out on 4K. We've got enough bandwidth to send to YouTube and to wherever else you want to distribute video. You can be part of the media center. Awesome. Well, David Siegel, great to have you on. Final question, your takeaway from Blockchain Week. Obviously new entrants are coming into the system. Community's booming and still tighten it. But now you have finance, you have tech, and you have developers all coming together. What are your thoughts of the show this week, Blockchain Week? Yeah, one thing. The demos are pretty lame in general, I think. We still aren't paying much attention to user experience at all. I think the enterprise guys have a lot to learn because they're kind of playing their normal enterprise game, and it doesn't look so good here. Yeah, Jason was talking about the blockchain washing. Basically, putting the Blockchain. We added Blockchain to this enterprise project. And look. Is that real dynamic in your opinion? I think they're figuring it out. I think some of the academic and some of the white paper stuff I've seen is okay. And commercializing it, they're on the path to learning how to commercialize it, but they're not part of us. They're not, they'll never be crypto anarchists. Okay, fine, but they don't really seem to get us and to be part of it. It's amazing to see a conference where IBM, Microsoft, these other big names are Deloitte, in their own little pockets on the side and no one's paying enough. It's a toe in the water for them. They're not paying much attention because you go in there and it's a normal marketing jargon and brochures, and it doesn't feel like they're really engaging. I'd love to see more engagement with our community. And they've got to really get engaged in. The good news is for IBM, at least, they're part of the Linux Foundation, the Hyperledger project, so we're seeing some open source is there. I'd like to see more thought leadership, more real. Publish some papers, come to our conferences and give us some substance. Well, I mean, I talked to Michael Dell and Pat Gelsinger, for instance, and they are into blockchain. Michael Dell's watched a lot of videos. He'll probably watch this video. They're learning, and the statement is, what they're doing is they're giving it to their R&D teams. So Office of the CTO, they're not really, so it's very academic to your point. They haven't really operationalized the ethos. You know what, it's time for experiments. There's no way you're going to blockchain your whole company, your whole supply chain. It is time for experiments, and it's time for guys like Michael Dell to jump in and say, we're- What's your advice to Michael, what did you tell him to do? It's time for experiments. We're going to do some things. We're going to try some things. We're going to partner up the Hyperledger stuff. You know, try more than that. Don't just be going to meetings and summits and top down. Try some bottom-up stuff. Empower your employees, Michael. You're not Michael, but I'm telling you, Michael, empower people to try some things. They might even not be, they might be quasi-legal, but if it's an experiment, you're going to learn something, and then you can talk to the lawyer. Don't have the lawyers and the management say what the program is. Because that'll put it in a box. They won't get it. They won't get it. They'll stop the action. They won't find that- Ask for forgiveness, not permission. Ask for forgiveness. Go do it. Go build, get hire some crazy crypto people and tell them to look for inefficiencies in your whole operation and cut them down by 90%. David, great conversation. We could go for another hour. You're going to be a regular, I can tell, on theCUBE. When we do our live format, we're going to certainly have you back. Keep in touch. I'm John Furrier here at Blockchain Week and Consensus is wrapping up the day three of coverage. I'm John Furrier, thanks for watching. Be right back.