 Live from San Juan, Puerto Rico, it's theCUBE. Covering Blockchain Unbound. Brought to you by Blockchain Industries. Hello, welcome back everyone. I'm John Furrier, the co-host of theCUBE. Exclusive coverage here in Puerto Rico for Blockchain Unbound, it's a global conference where a lot of the leaders are coming together as our second day of wall-to-wall coverage. Talking to all the top people, government officials, entrepreneurs, investors, and tons of great, great action here. Our next guest is Marcus Leven, who's the co-founder of XYO Network, XYO.network is the URL, interesting opportunity. Really built from the ground up, no outside funding, although that's some interesting things with their community. Great IoT example, great user of the cloud, great example of how real entrepreneurs are working with crypto and blockchain to actually grow. Welcome to theCUBE. Thank you, John. So tell me a little bit about what you guys do. Take a minute to explain to the audience what XYO Network is, how did you get here? What's it all about? Yeah, sure. So XYO Network is the world's first decentralized location oracle. Oracle means data input into smart contracts. Right now you have the problem that a lot of data sources are centralized and hackable or spoofable. So if you make a bet, for example, you need to look at the results of the bet at the website, the website could be hacked, you could collude with someone to provide wrong data. The same problem exists with GPS. GPS is easily spoofable and hackable. Like during the Pokemon Go craze, for example, all the kids just downloaded GPS spoofing up, they got all the rare Pokemons. Or allegedly the Iranians took down an American drone a few years back, sending up a wrong GPS signal, the drone just landed. So because of that, you can't do transactions based on location data. Today most applications for GPS location are navigational, but not transactional. We solve this by providing a decentralized location data or network. We do this through IoT devices and mobile phone apps and other types of partnerships. We are around since 2012, started as an IoT company, which provided location beacons, we call it XYFindIt. We have about a million of them out there and they can recognize each other's location. It's like us two taking a selfie together, we print out two copies, put our signatures on there when we leave each other, we can prove that we were here together. And it's the same thing with those devices, with our own devices, but also with partnerships, we build this mobile app distributors and IoT companies. So what can you do with this? So you could, for example, do payment up on delivery for e-commerce. So you could put a chip, small chip like an RFID chip into Amazon packaging tape. Once the package arrives at your doorstep or even in your house, the payment gets triggered. It works by your doorbell, your Tesla in the driveway, your neighbor's cell phone, any type of connected device, recognizing that the package is there, the payment automatically gets triggered. One third of Americans experienced port theft in 2016. You don't know if it was a UPS driver, for example, scanning the package or taking it or your neighbor took the package or someone random came by. This way you can prevent port theft or you can discover it. Or you can make sure your kids arrived safely at school, they arrived with their friends and they took the parts you wanted them to take. Or the hotel reviewers, for example, have the problem that they lose their users because they don't believe that the reviews are real anymore. But if you could prove someone flew from San Diego, that's where we're based, to Puerto Rico, said it's a hotel for two nights and then flew back and brought a review about it. Suddenly you have a location right if I reviewed. That's all today. But in the world, in like five to 10 years, full of AIs, robots, safe driving cars, drones, smart cities, you need transactional location data and nobody is providing that today and we want to be the center of the future. Awesome. So it's super exciting. I got to ask you about the IOT piece because do you need physical devices out there? So are you deploying sensors or are you leveraging pre-existing infrastructure? I love that selfie example. I can imagine that we do a selfie, we share it. It's a location-based opportunity. The phone's got location-based. How do you guys interface with this? How does it work? Yeah, so right now the network builds on top of our own devices. We're on since 2012, as I said, so we have a large network already. We're an existing company. It's a little rare in the blockchain space. And we build partnerships now with IOT companies like certain light bulb division company or fridges, all connected devices, mobile up-to-celebures. So you're providing your customers the IOT device folks who are proliferating out there? Yeah, we put our code basically out there. We can- Open source? It's open source. And you can plug it as an SDK into, let's say your mobile app. You can use it as a monetization tool as well because you earn tokens as you verify location and this data is part of an answer. And so you could earn XYO tokens as you become, because of Sentinel's location verification device in our network. So how do you guys tie this together on the token side? So you reward, what behavior do you reward with the token? Yeah, so there are four components in our network. There's Sentinel that spoke about, which are the IOT devices or mobile phones which verify the location. Then you have bridges which are relay the data. They relay it into something called the Archivist which is a distributed computing system. If you're familiar with storage in the space here, for example, or the old system like safety at home from Berkeley, it works like that. So the data is on people's personal computers. And then we have something we call the Divina algorithm which provides the answers. It works like mining. So from, you might want to ask, where's my package right now? And the question gets sent to the network a bunch of diviners which works like mining, like Ethereum transactional things. A bunch of diviners will take the data from the Archivist, the distributed computing system and try to find the best answer and try to find as close as possible to consensus as they can. What about spoofing? I mean, people might want to spoof the location. Yes. How do you prevent spoofing? Yeah, that's a good question. So we too, we could collude pretty easily, right? And, but if we are this entire room of people who you usually don't know, it's very difficult to collude. So one of them is scale. Then we build reputation over time. So as your answers are probable, you build reputation. For example, all we, all of us say, we're here at this hotel right now, but you say Novia and Shanghai, your answer is improbable and your reputation goes down. In addition to that, the disincentivist lying. She's very data driven. This is big time analytics. Extremely data driven. So what are you guys doing for analytics and what chain are you using? Cause performance becomes an issue. How's the plumbing work? What's the analytics look like? Take a minute to explain that. Yeah, it's very beautiful. We have our own chain, the XYO main chain. So our, we have an Oracle which plugs into any type of smart contract. You know, you have Ethereum and about 19 other coins there which have smart contracts. So from our, we build on our chain to lower the transaction costs, transaction times and build a more reliable network for ourselves. And then it plugs into all other smart contracts. So you have your own chain to manage this? Yes. So that's one of the reasons why you, from an operations standpoint, you would have locked that down. So you could control performance, latency, timestamps, security, what not. The openness is for the smart contracts. So you, is that what you're saying? I can do any smart contract I want. Is this basically for old-style developers? It's like an API, right? You can plug into it. It's like, we connect the real world with blockchain. So right now you have very limited applications for blockchain in a lot of cases because you can't take offline things and connect them to the chain. What we allow to do is, we call it the API to the real world where you take location data, put it into the chain and make it transactional. So I got to ask you a question. This is interesting. I love this. I'm getting to the more of the token sale and what you guys are doing raising money. In the IoT world, certainly with cloud computing, the big debate is, do you move compute to the edge where the data is? Or do you move the data back to the centralized cloud? Here, since you're decentralized with the IoT device, is the data coming back to your central network? Or where's the processing at? At the edge, what's the edge equation? Explain that. Yeah, yeah. So everything is decentralized. We believe that our company doesn't need to necessarily exist in a few years and the network will live on and grow as we grow the community. So the community is very important to us. So devices are decentralized. You own your cell phone. The data storage is decentralized. You can define like 3% of my personal computing power goes to this, for example, you earn extra tokens. And the mining is decentralized like any mining is decentralized today. So us as a company, once people start to build on that platform, we don't need to exist. Which makes it beautiful, right? This is what blockchain is all about, this centralizing and building this platform layer where people can build on top of. So there's a ton of Bluetooth and GPS out there. Talk about where you guys have got your traction. I want you to take a minute to explain. We kind of went off on a tangent on some IoT rant there that I was interested in, but I want to take it back to mainstream. There's GPS out there, you got Bluetooth. Everyone's got Bluetooth devices. So it's not like there's this massive new requirement. You guys did some interesting things how you funded your first token sale. You have customers, you've been around for how long? 2012. 2012, you've been successful, no outside capital. So you bootstrapped, you made things happen, had some revenue come in. How'd you do it? Take us through that progression. Yeah, so we co-founders worked in various ventures together previously. One of our co-founders, the main founder, I would say, R.E.TRO, he started this company in 2012. And we bootstrapped it with $7 million of our own cash. And one and a half million venture debt. We really believe in what we do. You guys put up a lot of capital. Yes, we believe in what we do. We believe in our capabilities. I try to attract the right teams. We have an amazing team. And yeah, it's... That's skin in the game. Yeah, it's skin in the game. And it's actually a lower risk investment for me because I know about the capability of what we are capable of. You're underwriting your own confidence. Exactly, exactly. So you got $7 million of your own cash. Did you pass the hat around? You all kind of contributed money in? It was mostly from R.E.T.RO. Actually, yeah. But we all have skin in the game there. But so we... So you have a community. So then you launch your idea. What happened next? Exactly. So then the VCs started to come. We did some outreach. VCs started to come. They're interested in our idea. They love what we do. It's all... Platform is quite sexy right now in blockchain via a platform and you can build a lot on top of it. We pushed off the VCs and we said we want to take community money first. The reason is we believe in building this strong community of evangelists, people who believe in us, who want to code with us. We went to other developer conferences, not to investor conferences or something like that. And so we marketed to about 2,300 people our token sale. And a little under 500 people put some Ethereum into our token sale. And 95% of them were under 5F. That was a very global community. Was that a utility token sale? Yes. Outside the US, because there were credit investors involved? What was this? So it's clearly a utility token because you can build on top of it last weekend in the city of San Diego. And 120 hackers in the IoT company were in our office to build on top of our chain traffic flow and parking solutions for the city of San Diego. But so it's clearly a utility token but because of the uncertain regulatory environment we are actually running it like it's a security. So we have a Reg A, Reg D, Reg S, whatever. We have 115 different jurisdictions we look at. I spoke during the whole process, I'm not lying. It's 20. That's a lot of work. Yeah, 23 lawyers I spoke with. It's a lot of hours with lawyers on the phone. The most aggressive one of them, she suggested to me is a structure with no taxes but 20% prison potential I think and on the other side. It's a good cause, you're doing it right. So you spent a lot of money to make sure that your community was involved? Yes. And then they weren't throwing a lot of money and it was like they're millionaires, they're like, what's the, $1,000? That kind of numbers? Yes, exactly. So it's not like you're breaking the bank but they feel ownership? Absolutely. So if you look at our telegram channel. You raised what, a million, two million, three million? 1.7. So from the community? From the only community, those 400 people and we had it open for about five to six days. We closed it down. It didn't take any money anymore and since yesterday I started talking with institutionals again and now we have sexy stories. So now they come again. Platforms are sexy. Exactly. We know we have one too. That's awesome. We love your project. The thing about platforms is as you know we talked about last night is that the platform wars and the platform entrepreneurial thinking has radically changed. In the old days it was I got a platform and I'm going to monetize my platform for my application. Look at Facebook. They monetize their platform. Data for advertisers, not users. I am a Google search engine. I need to make the best search result so I can get better advertising and search results for that part. But the new order is the platform value goes to the users or customers. Right, right. That's right. So not. We are not rent seeking. This is an open model with platforming. 100% open. There's a lot of the platforms are rent seeking where a certain percent of each transaction goes to the company or to some founders or something. We don't have that at all. So what we do is for every token we sell we allocate one to the company and after the token sale there's not going to be ever more expo tokens ever again. And we use our portion to build this network but we don't take any fees or anything there. How do you make money? Building partnerships with companies helping them to build on top of the chain building the community. At some point you need to take a small cut of something, right? Yeah, if you own half the tokens hopefully there's some value there. Okay, so you've got the token opportunity. So on the security token do the investors, the community and now token holders, is that an equity security token? So they own the company through the tokens, right? Non-dilutive, non-voting. Equity, is that what you're thinking? Yeah, it's not an equity token. It's still in our mind a utility token but we do something very interesting. During the token sale event we are going to launch an equity sale at the same time. So you can decide if you're comfortable in the blockchain space or you want to be an equity investor, you buy equity, the disadvantage is you have less liquidity there but you have all the protections in equity gives you, right? We are a California based company with audited financials since 2012. SCC qualified and regulated. So equity in our case is a kind of sexy concept. Yeah, and they had the long game in betting on acquisition or something else. Well, they got to get some revenue going. Well, what's next? What are you guys doing? You have token sale done, is it working? Was it going on now? Let me just check it out. You've completed it? No, it's going to start on March 20th. It's going to run for two months until May 20th and so now it's a lot of trouble speaking with people, engaging and yeah, that's the next step. Well, congratulations. I'm so glad that Kerry on Facebook got notified of me of you guys, super impressed with what you're doing and we had a great conversation last night at the monetize roof party. Great to know you guys. I think IOT really needs this kind of model because there's a lot of real critical challenges around the role of data, the role of immutability. There's all kinds of sensor devices out there. Cameras, you can't go anywhere. Digital cities are coming. Smart cities, self-driving cars. It's going to be wired up big time so I think you guys got a good opportunity. Thanks for coming on to you. It's John Furrier here in Puerto Rico for exclusive coverage of Blockchain Unbound more after this short break.