The Exchanges

Q Historically, it wasn't this the government that funded all this stuff?

A That's right. So, so one of the, and this is, you know, part of why I'm building protocol labs, which is that, um, there's this massive gap between Um, there's this huge open area where, like, stuff is not getting funded around, yeah, building large-scale infrastructure. Like, you couldn't, my, my claim is you couldn't build something as free and open, and that works as well as the internet today, um, because no group would fund it. Um, and, and what you would end up with is a, a massively stunted version of something that is highly centralized and controlled by a couple, by a couple of groups, um, and that wouldn't have the, the amazing generality of something like TCP IP. Like, Part, part of what's beautiful about TCP, IP, DNS, like that whole era of protocols was that people worked super hard for months and years at a time to think about the interfaces and refine it so that you could end up with something sufficiently abstract to, to support a ton of use cases and sufficiently concrete to actually work today. And that kind of development is not super fast and takes a lot of work and takes a lot of money. And that's not something that, you know, VC funds. VC funds, clear application.

AI assessment note: “That's right. So, so one of the, and this is”

Q Let's go back. You, you, you were working on distributed systems. This was interesting to you. How did this turn into the company? Like, what was the thing you applied to YC with, right? What was the timeline there?

A I applied to YC with, with the plan of doing, um, you know, this, of building both IPFS and Falcoin and a company called Protocol Apps. I mean, it was right away from the beginning. Um, it was like this large scale plan of going to do, build a whole bunch of different things. Um, all around, um, distributed peer-to-peer systems, all about decentralization, and with a business model of taking a portion of currency. Um, and this was in December, when this was a very new thing. People weren't doing this. Um, there was basically Ethereum and a couple other groups that had also gotten to the same conclusion. And I mean, it, aside from a few side projects that we've started and so on, and like basically like delaying our timelines in terms of like software taking a lot longer to build than, than expected, we've pretty much followed the plan, um, in that it, you know, from the beginning we had both IPFS and Filecoin, um, and the, the, you know, I guess connecting to, to what I was saying earlier, so I had this problem around data sets and, and versioning and so on, and that led down the rabbit hole of like really thinking through, um, how information moves Uh, in, in the network, how information moves on the internet in the first place. Um, how does addressing, um, how does it, how, how do we do addressing in general? Um, it turns out like with HTTP and so on, we don't, we do all this…

AI assessment note: “I applied to YC with, with the plan of doing... building both IPFS and Falcoin”

Q But like, that came out of the internet, right? The Linux kernel, That exists because the internet.

A Yes. The Linux Journal is an awesome example. I think like, um, you had the ability to, to undergo, undertake these major, major infrastructure projects, um, and like things that take a long time to, to create and mature, um, on the internet. And a whole other interesting avenue here is how do you fund these things? Like how do you, how can you fund these Long-term endeavors that are much more open-ended and on the internet and so on. And that's what Bitcoin and Ethereum, um, proposed one example of how you fund that. And this is, this goes back to what you were starting to bring up earlier, which is the idea of, um, you have a protocol and you have, uh, you take that protocol and you say, hey, it's gonna create a whole bunch of value. And it also has this This native token that's going to address a whole bunch of that value. Not all of it, but some subset. And that native token is going to be of limited supply. So because we were creating this token, we can take some of that token and give it to the people building the protocol, which then helps, you know, they can sell it for dollars or whatever to then feed themselves. And then that way they can like actually fund the development of the project. And this is effectively what, what Ethereum did, right? That kind of funding model, um, allows, um, people to remain very close to the, the actual protocol layer and to think deeply …

AI assessment note: “Yes. The Linux Journal is an awesome example.”

Q Wait, so to touch that though, so what, you're looking for something that doesn't use human intervention whatsoever? It's a purely algorithm of the cancer?

A I think it's fine to feed in human intervention along the way. You know, there's interesting research It's done on large companies and governments where you have all these, you know, peer reviews, uh, you know, kind of like, and manager reviews and, and, uh, all this kind of, you know, three, six, a review kind of perspective. And out of that, you can get good signal, right? Like, otherwise, if we didn't, weren't getting good signal, then there's no hope for, for any kind of company that's large, right? And so surely something's working. Um, and, and there's good research that shows, like, you can definitely get interesting human feedback on the, in the loop, and you can take that as a signal. But the hard thing is, I claim that what we need to do is, is allow the collection of that feedback to have humans in the loop, but do so in such a way that it is extremely difficult to game, because, you know, again, that's, if you, if you give people, people will quickly learn that they can just, like, give each other really high ratings, and that will translate into really big boosts and promotions and so on, or, like, you know, greater rewards. So you have to get something that doesn't, like, it's not easy to game. But then further, if you take people out of the equation in the choosing part at the very top, like, all of those feedback All that feedback always propagates all the way t…

AI assessment note: “I think it's fine to feed in human intervention along the way.”

Q Was that when they broke, broke apart the monopoly?

A That's right. So, so breaking Bell apart effectively stifled and killed Bell Labs. So a few things happened. One was the rise of Silicon Valley and the great invention, or like not invention, but like the great use of stock options, um, or just giving stock to, to everyone in the company. Working on something? Cause a ton of people, um, working on very, you know, research oriented things at the time to become quite wealthy, right? Or, or like get, you know, very significant personal returns. And that coupled with the excitement around all of the stuff that was happening in Silicon Valley in the fifties and sixties with, you know, a number of people kind of moving out and then coming back and, and, you know, talking about all the great and exciting things that were happening in the West started to drain a lot of people out of Bell Labs and out of Boston. And so, you know, it's known as this, like, brain drain. And, uh, part of that, what, what happened there was not only were people leaving and going and creating other research organizations that had different funding models, um, but Bell also started getting broken up. And, um, this is more like the eighties, nineties. I forget the exact date on this. Um, but when, when Bell got broken up, Bell Labs had to find a way to, like, charge the, you know, new separate entities for all of its work, and it just became infeasible to fund…

AI assessment note: “That's right. So, so breaking Bell apart effectively stifled and killed Bell Labs.”

Q How do you do it over 10 years? Like, let's talk about, let's like drill down to, because that's a great point. We were just talking about it. What's the tenure? Like, how do you, do you have to keep selling bits? Not you personally, but if you're one of these folks, do you have to keep constantly reissuing tokens to keep feeding yourself?

A I mean, if it depends on whether another token appreciates, right? So if the token appreciates enough, then you're, You're gonna have to sell less and less of it over time. Yeah. So you saw this happen with Bitcoin. I mean, there were people, there were some people that were early to Bitcoin that are, are now, you know, they have their, their personal wealth at a point where, um, you know, unless there was a major crash in their assets, like they don't have to work again. Yeah. Um, and you know, Bitcoin is 10 years old now, almost. Right? So it started in 2008, dozen nine? Roughly. Yeah. Um, and so like, you know, it's roughly 10 years old. And yeah, I mean, I think, I think maybe you could claim that the origins of Bitcoin happened through the Cyberpunk mailing list, and Mojo Nation, and all these other things, and all those discussions, and so that was like long-term innovation that happened, uh, and then only was getting funded afterwards. Um, so it's like a, you know, very different approach than, say, the Bell Labs, you know, centralized perspective. Um, but, uh, yeah, I think, I think the funding of these things is gonna, uh, Depend entirely on whether these things are, are continuing to be useful, right? So if Ethereum continues to be useful five, 10 years from now, you're going to have, and continues to accrue, um, continues to grow, right? So if Ethereum becomes more a…

AI assessment note: “if the token appreciates enough, then you're, You're gonna have to sell less”

Q Yeah, yeah, I mean, like, I, I feel in the metaphor, I'm just, I'm thinking of, like, the, the part where we eat the financial world. I'm like, what's the, what's the thing that's hanging through?

A You're seeing, you're seeing, um, Um, you know, super, you, you can go today and start writing a, something that behaves like equity or something that is a derivative or, you know, all of these kinds of financial instruments that would take you a ton of time to kind of think about and reason about and, like, inject into, into the jurisdiction, you know, any kind of legal jurisdiction in the, in the world, and you're now able to do that in a, in a, Totally different way with a whole bunch of assets that represent real value. Um, and so, like, I, I think that there's a ton of these that have very direct use cases and applications, but they're not, they're not consumer. And, and so that's, that's why you're seeing a wave of things that seem weird to Silicon Valley. They seem like, oh, this would never work. And yet, there's a ton of companies out there in the world that actually need these kinds of things, that actually think through it, like, oh, wow, like, that means I don't have to spend Hundreds of thousands of dollars to millions of dollars in legal just to understand, reason about, and conduct these transactions, and then have to worry about litigation down the road of, like, in the millions of dollars to try and make sure the transaction is safe, um, you can then turn that into, into, like, single dollars, right, of, like, running transaction fees. And, like, that is a mass…

AI assessment note: “you can go today and start writing a, something that behaves like equity”

Q startup. Like there's no bottom, there's no double bottom line where people are trying to monetize. Like that's not why it's being funded. So I'm just saying like, if you want people working on this foundational stuff, it seems like if you're trying to replicate what you feel like worked really well, Do you think it needs to be direct? Does the, does the analog need to be directly replicated?

A I'm putting out that it, these kinds of projects don't get funded. Uh, and when you could see it with something like SpaceX and Tesla, um, SpaceX and Tesla both went through major, major funding issues, right? If Elon hadn't been personally wealthy, both projects would have probably failed. Yeah. And, and here, you know, you, you, that is a clear example of something that is, you know, SpaceX might maybe not directly, uh, you know, consumer perspective, but Tesla definitely, right? Like, Tesla is a, is a very consumer-oriented thing, but it was extremely difficult. It was a large-scale, long-term project that just, you know, scared the hell out of VC with good reason. Like, it's extremely unlikely that you would get any of that to work. Um, but what I'm highlighting is not that necessarily VC has to fund this. What I'm saying is that that's not what VC funds. And because that's not what VC funds, and then there is no, you know, no strong ARPA, like, organizing major, large-scale infrastructure endeavors like it used to, then you have this gap and this hole of things that weren't getting funded. And Bell Labs is a great example. Like, I, I, part of the reason that I started Protocol Labs is to try and recreate kind of the spirit of, of, of Bell Labs in an organization, at least focused around, around networks. And, and the only, like, the reason that you had something like Bell …

AI assessment note: “part of the reason that I started Protocol Labs is to try and recreate”

Q And you have to hold, right? You kind of have, like, right? Like, one of the learnings is, yeah, go ahead.

A I think the more important thing that's going on deeper, which is that a whole bunch of important things are getting built, and you can, if you find them, you can fund them, and you can be part of them, and you can help create them, and create massive amounts of value, and the people that do that are going to get greatly rewarded. And I think that goes along with, Um, diligence. Like, you can't just, I think my perspective on this, and the way that I look at a lot of the space is, is that I think deeply about each of these pieces of technology, and I, and I approach it much more like investing into, into a startup, or investing into a project that I think is worthwhile and should happen, um, even if I lose all, all the money that I invest in it. And I think about the underlying value that's being created. Like what, what is this thing going to enable in two, five, 10 years from now? Um, you know, I think within the crypto space, you, you don't even need to think in 10 years.

AI assessment note: “I think the more important thing that's going on deeper”