 Live from Las Vegas, it's theCUBE, covering IBM Think 2018, brought to you by IBM. Hello and welcome to theCUBE here in IBM Think 2018. I'm John Furrier, it's theCUBE, our flagship program. We go out to the events and extract the signal noise with the number one live event coverage. We're here at theCUBE with IBM Think 2018 and next guest is Jesse Lund, who's the vice president of IBM Blockchain. He's in the financial services side. Into Blockchain, into crypto, into token economics, seeing the future, how money flows. Jesse, great to have you on theCUBE. Thanks for joining me. Yeah, thanks for having me. It's great to be here. So we had talked before on camera about Blockchain. We love Blockchain. IBM certainly put it out there as part of the innovation sandwich. Blockchain data, AI, kind of making that innovation. But it's really what it enables that I want to talk to you about. You are involved in payments. We've been saying on theCUBE that the killer app is money. In this market, you agree and you talk about it? This is a new market. So a stack is kind of developing. You got Blockchain, then you got crypto, which has protocols and you got infrastructure. Then you got decentralized applications, which you could call ICOs up top. Certainly a little bit scammy and bubbly, but that's arbitraging and optimizing the capital markets. You could argue that. But so this is a really big dynamic. Your thoughts on this trend? Sure, well, so I joined IBM from 18 years at Wells Fargo. So spent really the majority of my career in financial services. And when Blockchain came along, I sort of immediately saw the impact, the potential for, I'll call it positive disruption, disruption in the positive sense, transformational paradigm shift kind of stuff in terms of how money moves around the world and how we classify assets and how we transfer ownership of assets. I mean, that's just, the possibilities are limitless. And you're right, IBM is the place where, I think Blockchain has started as a mainstream focus for enterprises around building private networks, but that's really just the beginning. What we talked about earlier was, it gets really interesting when data and money are connected together and they move at high velocities together. Let's get into that. First, let's just suggest the IBM thing. They got to put a stake in the ground. Blockchain's a safe harbor to say, supply chain stuff, because that's their business. They've been building technologies for supply chains for companies, that's what enterprise do, that's IBM. But the game is where the money is, and that's where the businesses are going to be transformed. We're talking about disrupting structural industries. This is where the money power comes in. So money's flowing. I mean, if you want to move money from China, go to Bitcoin. You want to move it from, this is what's happening. Yeah, so think about Bitcoin. It's kind of what started it all. It's a little bit of a bad word in banks and in regulated financial circles, but let's face it, the only real mainstream blockchain application today is still Bitcoin. But we're only three years into the blockchain industry. Think about when we were three years into the internet industry, where we were still talking about which browser is going to win, and then it went on to which application server is going to win, and it wasn't until a decade later we were really focused on what are the applications, the killer apps that are enabled by an interconnected world, and that's exactly what's happening now. So other industries have already been completely disrupted, look at retail. It's just, it's banking's turn. It's financial services' turn. One of the founders, the co-founders of Ethereum, Anthony DeLorio, who I interviewed a couple of weeks ago and behind them, Obama, said, wallet is the new browser, to your points. Browser wars. If you think about the payment, wallets are now becoming part of the mechanism for money transfer. If you don't have a wallet, if you want to send me some Ripple, you want to send me some Ethereum, I need a wallet. So this has, this is a no-brainer, right? I mean, if you want to leverage any money, that's one thing. The second thing I want to get your thoughts on is behind the wallet is the fiat conversion. So these are two threshold conversations that are going on. Your thoughts, wallet, and conversion to fiat. Well, I mean, I think wallets are really important because this whole thing is based on key management. This whole concept is based on cryptography, right? So it only works on a public, private key notion and you got to keep that private key private, but you got to keep it, right? And you got to keep it safe and you got to keep it, it's like your wallet. You've got a wallet, you've got cash in your wallet, you lose your wallet, you lose your cash. It's the same kind of analogy. So wallets are really important and you're going to want to turn to providers who have made their business in encryption, who have made their business in security. Old storage, old schools kind of coming back. People are taking their keys and they're spreading across multiple lockboxes, multiple states. People are getting broken into their house or their PCs are getting broken into. Right, yeah. Security, going old school. And why not? I mean, you know, it works. If someone knows you got a hundred million dollars in your house, they're going to get it. Yeah, yeah. You don't lock it. Okay, back to the reality of the money transfer. So we were talking before you came on, I've been saying on theCUBE, token economics really is where the action is, at least in my opinion. Yeah. I want to get your thoughts. Because really the business model innovation is on the table because whoever can innovate the business model has more of a chance to disrupt an existing industry. Yeah. So this is where tokenization becomes part of the money piece of it. So how do you convert that value into capture? Right. So I mean. Is that token, is that where you see it? What's your thoughts? Yeah, so well first of all, I mean, if you think of, you know, tokens as another form of currency. And by the way, you know, I think we have to be careful about what we say crypto currencies. The industry talks about, you know, thousands of crypto currencies out there where there's really not. There's maybe, you know, dozens and they're all derivatives of, you know, of just a few models, Bitcoin being one, you know, one prominent model and there's a lot of offshoots off of that. But the rest of what we call crypto currencies are really tokens that represent primarily securities, right? Which is why the SEC is getting involved. But the really interesting thing about this is these tokens move at high velocity because they're digital, right? And so, but these digital things represent a claim on real world value. And that's where it becomes really interesting. So IBM's built and launched as kind of its first foray into the solution space of financial services where IBM is an investor in this technology, a cross-border payment solution that inherently re-engineers this whole correspondent banking, this international wire process and where FX, foreign exchange, becomes a real-time capability in a series of operations that execute as an atomic unit. That's novel today, right? When you want to send money from here to somewhere else in the world, you go to your bank, your bank sends an instruction to another bank and they respond and say, yeah, you know, it's okay because the person you're sending it to is not a terrorist, is not on some kind of sanctions list. Great, now the bank has to actually go settle and it settles through another network. So the novelty is why can't the messages and the data and the value itself, the digital asset, why can't they exist and move together at the same time? And so that's what we've really built. But as we've built and deployed that and are getting banks and non-bank financial institutions to sign up for it because the cost of moving money goes way, way, way down and the user experience goes way, way, way up because instead of taking two or three days and you don't know how much it's gonna cost until it gets there, it takes 10 or 15 seconds and you know before you even press send how much it's gonna cost to get there. And it all boils down to this notion of digital assets. That's what it all comes down to is the way to settle value with finality in real time is for one party to exchange a digital asset with another party. Today, initially the only form of negotiable digital assets are cryptocurrencies, which has banks a little scared. But as we start talking through what we've learned in the enterprise blockchain space, we realize that we can tokenize all sorts of other asset classes, commodities, securities and even fiat currencies, right? Where central banks or commercial banks can issue a token that represents a claim of on deposit's held at some financial institution. And that's- So you see tokenization as a big deal? It's a huge deal. I mean, it's everything. I think it's- It's the economic value of the- I think it's the tipping point for blockchain. I think it's, you know, and the irony is it goes back to Bitcoin kind of started this all. You know, we said, well, we like the idea of the technology underneath Bitcoin and we want to focus on blockchain. I mean, forget for a sec that blockchain is actually terminology that's invented by the Bitcoin primer that was published nine years ago, right? I don't know if that applies to Toshi's too. Yeah, so it's there, it's whoever they are, it's their terminology. And it's kind of coming back full circle where you're seeing the convergence of all of these cool optimization capabilities, you know, immutability and workflow, you know, optimization, supply chain management. And there's a lot of work to be done on performance and whatnot, but the concept of decentralized immutability data is fine. Yeah. Store the data. Now, it's got to get fixed, but I think that with that enables and I think you agree that tokenization is critical. So for a company that wants to token their business or raise money via tokens or get involved in this new economic value creation, innovation trend, how do they do it? And by the way, are there tools available? You mentioned banking. I mean, the banking business got to where it was because you have to build the picks and shovels to make it happen. You had to do a swift and you had to have these stuff go on. Now, developers don't necessarily have the tools. So there's a picks and shovel market and there's also the real innovation. Yeah. And that's, I think the value contribution that IBM brings, right? I mean, we bring 107 years of credibility in developing and operating, mission critical transactional financial systems. And I could do just an ad for a second. That's what the IBM blockchain platform is all about. And as the industry involves, as our platform offering involves, what we want to be able to bring to small business, medium sized businesses, large businesses is the ability to develop solutions using our toolkit. As a Jesse, I want you to put your financial hat on. At the same time, put your payments hat on and your token economics hat on, three hats. Hey, I want to tokenize my business. I really want to get in. We have an innovative team. We're seeing new business model formulas and logic that we want to disrupt. What do I do? I got an existing growing business that I know has assets. And I'm not a startup but I'm not trying to pivot like Kodak. So I'm not dying throwing the Hail Mary or I'm not a startup. I've got to build a role. I'm a real business, I'm growing and I want to see tokenization as a way for me to be successful. What do I do? What's your advice? So I think you look at it from all potential angles. If you look at any business, they're always looking to improve the bottom line by shrinking cost. They're also looking to improve the bottom line by increasing the top side, increasing revenue. And I think as a mid-sized business or a growing business, you have the opportunity to use tokenization, to use blockchain and digital currencies to do both of those things. So you have the ability to accelerate the adoption of whatever your good or service or product is by if it's tokenizable and most things are, whether it's a utility access to some service you provide or whether it's an asset, some widget that you sell, you enable primary and secondary markets by creating a digital asset that can be bought by anybody anywhere around the world. I mean, that's one way to do it. And so I think getting people to realize the potential there. You've got to have your programs, you've got to call up IBM or get some developers, make it happen. Okay, so killer apps money, that's going to be a 30 plus year trend. And certainly this highlights that. But the other thing that's happening is coming out of either in the open source community as well as cloud, the notion of marketplaces and communities. So marketplaces and communities become a very important role in the token economics piece. What's your thoughts and opinion on that narrative? Well, again, for me it goes back, I always go back to digital assets, right? And we in the US and around the world when we start talking about financial instruments, we classify assets differently. But when it comes to an ecosystem and a community that becomes inherently peer to peer and inherently democratic, it's about an asset class agnostic distributed exchange where I can sell you my security token in exchange for your fiat token or I can sell you my commodity token and utility token for the same. So I think the ecosystem gets built automatically by way of new assets coming to a common network or interoperable set of networks. And that's what's missing today, by the way, is staying in capital markets, right? The holy grail in the capital market space today is how do I shrink the time between trade and settlement? So this is whole like T plus three and we're spending billions of dollars to go to T plus two, we gain a day. So the trade day and the settlement data are two days apart. I mean, you just think about kind of the absurdity of that. If you just say, well, if the security that you're buying is a digital asset and the money that you're buying it with is a digital asset and they both exist on either the same network or an interoperable network, the transfer of ownership and the transfer of value happen together as two operations or a single operation in one atomic transaction. You've solved the problem. You've solved- Like speed of light can make it happen. Right, delivery versus payment, that's what the capital markets industry is trying to optimize for, right? Because it improves the balance sheet of all sorts of finance. You had a phrase you mentioned before you came on camera, it's not about money, the future of money. What was the phrase? Programmable money. Programmable money. Yeah, right, right. I want you to take a minute to explain. Love this concept. Miko's Massimora, a thought leader, a friend of ours has a vision called open source money, which is more of an open source. He says, hey, money's flowing, it's open, it's out there, but you have a different perspective, which I like too, which is programmable money. What does that mean? Describe the concept and take a minute to unpack that. So the concept of programmable money comes out of a paper that I jointly authored with Jed McCaleb, who is the founder of Stellar and was the co-founder of Ripple and is a really smart guy. So I feel like I have a small brain when I'm around him. But we really wrote it in the context of central banking and the ultimate issuer of an asset, because central banks are the issuers of currencies. And right now the primary dealers, if you will, for currencies are commercial banks. And so that whole commercial, central, fractional reserve banking model has been replicated from the Western world to everywhere else in the world. And you can't get access to central bank money, as they say. But if the central banks were to issue digital currencies, which is essentially a token of fiat currency, so you own the token, you own a claim of fiat deposits held on the balance sheet of the central bank, now you have the ability to move that around. You can actually program the movement of money because it's a digital thing. It's a digital asset that's as good as cash. And if you are working with a central bank who's issuing it, not only is it electronic money, it's actually legal tender. Because if the central bank issues it, it becomes legal tender, which means everybody who accepts it has to accept that form of payment. That's pretty profound, if we can get to that point. And we're working with- And software's a big driver in that because you need software to manage digital assets. Oh, yeah, absolutely. So the software's driving it. Bill Tai is an investor, I interviewed him and he had an interesting topic and I made a highlight of it. He said, after World War II, he talked about the oil situation. When the dollar was pegged to OPEC, that was essentially tokenizing oil. So, and then, okay, that's good, so that was their ICO, right? So, that's what you're saying. You can actually put fiat to the digital token and take advantage of the efficiencies of digital. Right, yeah, okay. Taking down all the structural inefficiencies that were built prior to digital. Is that- It is. So you fast forward a little bit and think where that takes us. So, it's no secret that the US dollar is the trade currency of the world. And I want to be careful what I say because I'm an American patriot here but there are other large G20 nations who wouldn't mind dethroning the US dollar as the trade currency of the world. And so, as you see central banks starting to get involved in the issuance of digital currency, you create a situation where all of a sudden, well, maybe oil could be traded, heresy in other currencies besides the US dollar, which is all it's traded in today. Well, we're starting- It goes back to your ecosystem question. Well, no, this is a great point. This is, we can talk, look and riff on this, double, let's riff on this. Does the UK just sign a deal with Coinbase? This is a major signal. Get a legitimate country saying, we're going to give a license to Coinbase. Now they have Brexit to deal with, so they're looking at it as an opportunity. Outside of the UK coming in and doing that deal with Coinbase, it's on the web, look up Coinbase in the UK, you'll see the deal. You have other companies trying to jockey for, who's going to be the Wall Street for crypto? Meaning, I want to convert crypto to fiat. Where do I go? Do I go to Estonia? Do I go to Dubai, Bahrain, Armenia, China? There is no place yet. Your thoughts, what's going to happen? What shoe will drop first? Is there a domino effect? Yeah, well, there's a couple of things as it relates to the UK and kind of the extension to Coinbase of access to the national payment system, which is really what enables them to then convert fiat to crypto and back. That's pretty interesting. Going back to the programmable money thing though, if you have a central bank issued token, you've essentially extended the real-time gross settlement system, which has been only accessible by commercial banks to anybody that holds that token, right? So it's a trend. I think the UK sees it coming. I think the Federal Reserve sees it coming. Is it winner-take all or winner-take most? I think it creates a much more kind of purely efficient market, right? That's really what, it's a democratic system. So I don't think there is going to be a new Wall Street. I think it's going to be... Decentralized. Exactly. I mean, that's the beauty of it. So smart city... It's scary though for establishments like Wall Street to look at this. Are the banks scared? You're dealing with the banks right now. They're scared. I've actually read a recent article that Bank of America, the headline was Bank of America's Afraid of Digital Currency. You've seen Jamie Dimon who came out with a kind of a hard stance against Bitcoin and has since kind of backed away from that. Of course you probably bought in when it dropped and now it's backed up again, yeah. Right, well I think part of the bank was actually facilitating their clients and trading Bitcoin, so that might have been something. But I mean, there's a natural reaction to it, especially if you're part of the mainstream establishment. There's no proof of that. I'm just saying what we were saying on Reddit. No, we're just joking around. Jamie's a good guy, right? So I'll get your thoughts on digital nations. So we've been talking about this. Just a few years ago, Smart Cities IoT was kind of the narrative, oh it'd be a smart city, control the traffic lights and instrument the physical goods and services. Now with crypto and blockchain, front and center conversation is digital nations with sovereignty around their cash. This is kind of your point earlier. How are you seeing that? What's your view? Are you seeing that trend? Are there dots connecting for you? Because again, people are jockeying for a position on the global digital backbone to be a major part of the money flow, the fiat conversion, what is the goods and services, who's going to clear the value? It's all digital, it's a perfect storm. Well I think there's always going to be the need for trusted entities to be the issuers of these assets because it all comes down to trust at the end of the day. And so the thing with Bitcoin is that it's purely autonomous and people are a little bit skeptical of it because they're like, well who's controlling the monetary policy and the answer is the market it, that the users of the network are controlling it. And that's why you see such volatility, right? Because the traders love it, they can go in and trade the up trends and the down trends. As long as there's volatility, traders are making money. And so I think there is still going to be a place for central authorities to add value, but that's going to be the pressure is for them to prove that they're adding value, not bureaucracy masquerading is processed. So I was reading an article that Telegram, which is doing a huge ICO, just got shut down by the Russian government, they wanted to turn over their keys, their private keys of their users. Say goodbye to the... I didn't read that, that's crazy. It's really crazy. So that's going to put a damper in the ICO, but regulatory and then government issues around countries becomes a big deal. In your experience, as Wells Fargo as in a bank, looking forward in the new digital world, is it one of those situations where path of least resistance, the countries that are more friendly, get around that, sovereignty, where you domicile, where you start your company, where you do your banking. I mean, I could start a company in Gibraltar and bank in Switzerland. Well, transparency is part of the benefit or the downside of this, right? And so I think there may be advantages that pop up, but I think they will equalize over time. I've been around the world now for IBM, talking to 20 plus central banks, and I had a really interesting conversation with one of them recently in Asia. And we're in the room with deputy director level people who are responsible for things like the anti-money laundering policy and the economics and monetary policy and things like that. And one person said, we're torn between two equally unacceptable decisions. One is to ignore cryptocurrencies altogether. And the other end of the spectrum is to make them illegal, to ban them. And I thought it was poignant that they see those as unacceptable. They have to do something in the middle. Do they wait or ban? I mean, look, the banning's happening. But okay, so you saw Trump use the executive order to prevent Americans from using or trading in the Venezuelan crypto that was issued on Ethereum, right? And I saw that Venezuelan thing as a publicity stunt more than anything, where an act of global defiance. But so there's precedent now for, and the rest of the world was talking about it. The United States of America has to step up this game because look at it, we have a lot of, I mean, I remember back on the crypto days when I was just getting into the business of the late 80s, early 90s, you couldn't even do it in the U.S., you go to Canada. So Canada's why Canada's got a lot of innovation up there. But we're risking our country. And I had one guy tell me in Puerto Rico, he's from South Africa, and he shouldn't be throwing any stones either. But his point was he says, America's becoming Europe. There's a shrinking middle class, while other emerging markets have a growing middle class. So the global impact of blockchain cryptocurrency in these applications are significant. And it has to be factored into policy decision making for governments. The U.S. can't just think about itself anymore in a vacuum. Because there's implications, otherwise the U.S. will turn into Europe. Regulated, all these rules, Byzantine stuff. It's a real problem. Good thoughts on that. Yeah, well, I mean, it's cliche, but we live and work in a global economy. The flow of information globally in real time has been around now for a while. And it's about time it came to money. The internet of money is a term I've heard. It's unavoidable. Jesse Lund here inside theCUBE. Great guest, great conversation. How do people get a hold of you on IBMs? You mentioned you got some great stuff going on. You're written a paper. You got a lot of content. Where does someone go to discover some of the stuff you're working on that can get involved with you guys? Yeah, well, I mean, the best place to go is ibm.com slash blockchain. That'll tell you a lot about what we're doing. And the program of money, paper you wrote. Is that there? It's out there as well. There's a link to that. Yeah, and you can get me directly on LinkedIn. I try to be pretty responsive with that because I really enjoy the dialogue. This is a revolution of the people's, man. It's all over the world. So it's great. It's great to be a part of it. And people are tokenizing their business as real opportunities to change the game, to bring consensus, data-driven, new kind of supply chain, whatever to the markets you're in. Great effort. And you need banking. Yeah, of course. You need to have money. You need marketplaces and communities. That's my mantra. Thanks for coming on. Thanks for subscribing to it. Thank you. Thanks for having me. Jesse Lund. I'm John Furrier here at IBM. Think 2018. Cube Coverage continues after this short break.