Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wis and I'm Tracy Alloway. So, Tracy, you know,
Speaker 1: there's this really big story in markets these days and
Speaker 1: in finance and it's tech, and we kind of haven't
Speaker 1: been covering it very much. I'm scratching my head because
Speaker 1: I feel like we've been covering a lot in markets.
Speaker 1: Do you mean on add thoughts or no? Yeah? Yeah,
Speaker 1: sorry on the podcast. Like every time every time I
Speaker 1: tweet that we have like some new episode, there's like
Speaker 1: there's one topic out there. They're like, when you guys
Speaker 1: going to talk about X, and you must have gotten
Speaker 1: it right. I think I have an inkling of what
Speaker 1: it is. But we had didn't you do a whole
Speaker 1: episode on this by yourself? And I wasn't there. Yeah
Speaker 1: we did, It's true, So I guess that sort of
Speaker 1: ends the suspense. It was a good effort, joke, good
Speaker 1: effort we had, like the whole Bubble series of course,
Speaker 1: remember that, of course, And every time we would like,
Speaker 1: oh and today we're talking about another bubble, and someone
Speaker 1: on Twitter like, oh, you're finally going to be talking
Speaker 1: about tokens and initial coin offerings and every time we
Speaker 1: did it, they're disappointed. But it is true. You know,
Speaker 1: we've written and there's been a lot of Bloomberg coverage
Speaker 1: about initial coin offerings, but they've become such a phenomenon
Speaker 1: and so many people are taught about I c o
Speaker 1: s and tokens and cryptocurrencies that is kind of like
Speaker 1: it feels like we have to talk more about them
Speaker 1: on odd lots. Okay, if if you insist, I've been
Speaker 1: trying to avoid the topic. In fact, I did such
Speaker 1: a good job of avoiding it that when you did
Speaker 1: that whole episode of I c O S, I wasn't
Speaker 1: even there. But for ourt listeners who don't know what
Speaker 1: they are, who've been living under a rock, I guess
Speaker 1: give us a recap of what exactly we mean. Well,
Speaker 1: basically everybody by this point is heard of like cryptocurrencies
Speaker 1: and if they don't understand them, like you know, bitcoin
Speaker 1: and so forth. But what we've seen an explosion of
Speaker 1: in the last year really is organizations and companies trying
Speaker 1: to launch their own coins and sell launching some new
Speaker 1: network with the idea that you would buy this coin,
Speaker 1: and buying the coin would fund the creation of a
Speaker 1: new network. You would have to use the coin to
Speaker 1: use the network, and if everyone wants to use the network,
Speaker 1: then the coins would rise and value and everyone can
Speaker 1: make a fortune. At least that's sort of the idea.
Speaker 1: And we've just seen, you know, day after day, it
Speaker 1: feels like there's dozens of these new coins being launched,
Speaker 1: and the question is is this a new funding paradigm,
Speaker 1: Is this a new way that markets will incentivize the
Speaker 1: creation of new platforms and networks, or is this just
Speaker 1: a bubble slash, a get rich quick scheme And there's
Speaker 1: really nothing there, and it feels like this is one
Speaker 1: of the biggest debates happening right now. Yeah, more like
Speaker 1: I see oh ha ha ha ha ha. I been
Speaker 1: saving that one. No, but there's in all seriousness, there's
Speaker 1: a subtlety here because you're talking about um initial coin offerings,
Speaker 1: which are often these sort of new digital coins that
Speaker 1: are attached to the Ethereum blockchain network. And there's also tokens,
Speaker 1: which are usually a sort of system created to exchange
Speaker 1: services basically, so there's two different things as they currently exist,
Speaker 1: but they all have a similar sort of goal, which
Speaker 1: is to get people interested in create this big network
Speaker 1: effect as you mentioned totally, and they all have some
Speaker 1: of the same language and ideology about decentralization and subverting
Speaker 1: existing organizations and stuff like that. So there's a lot
Speaker 1: to dive into. Today, we have a guest I'm very
Speaker 1: excited to talk to. We're going to be talking to
Speaker 1: Elaine Oh. She is a software engineered global financial access.
Speaker 1: She is a contributor to Bloomberg View, and she has
Speaker 1: been following the initial coin offering and cryptocurrency space herself
Speaker 1: for many years, both on her blog and in her
Speaker 1: career and stuff like that, and I think it's a
Speaker 1: perfect person to talk about some of the technical aspects
Speaker 1: and the economic aspects of initial coin offerings and sort
Speaker 1: of hopefully guide us to an understanding of whether there's
Speaker 1: something real here or whether this really is just sort
Speaker 1: of a get rich quick scheme or a bubble that
Speaker 1: will all come crashing down. I remember some of the
Speaker 1: Lane's really early work on this topic, so I'm very excited.
Speaker 1: Without further Ado Atlanto, thank you very much for joining us.
Speaker 1: Thanks Joe. What our initial coin offerings or tokens like?
Speaker 1: If someone asks you, how do you describe what's going
Speaker 1: on right now? A token is basically a native asset
Speaker 1: in a network protocol that is used to I guess
Speaker 1: represent some transferable value. It's break it down a little
Speaker 1: bit further. You say, a network protocol a native asset,
Speaker 1: What is that? What does that mean specifically? Like and
Speaker 1: sort of spell it out a little bit more. What's
Speaker 1: been going on? In simpler terms, it's just an imaginary
Speaker 1: thing that people are selling to raise lots of money
Speaker 1: in hopes of building a future product. That's pretty simple,
Speaker 1: isn't it. How about this give us the history of
Speaker 1: i c o s, because it feels like they just
Speaker 1: sort of exploded into the public consciousness this year. But
Speaker 1: I'm sure you know someone actually came up with the
Speaker 1: idea at one point in time and they were trying
Speaker 1: to solve a specific problem. There were a number of
Speaker 1: i c o s back in uh two thousand, two
Speaker 1: thousand fourteen. They weren't as prevalenta as the ones today.
Speaker 1: Probably the most well known I c O was Ethereum.
Speaker 1: They sold their ether tokens before ever building anything, and
Speaker 1: they collected bitcoin in exchange for their future ether. So
Speaker 1: the creators of Ethereum collected bitcoin to create this new
Speaker 1: You could call Ethereum a coin itself. Now, what we've
Speaker 1: seen in seventeen quite a lot is people collecting Ethereum
Speaker 1: to create new tokens that ride on the Ethereum network.
Speaker 1: So explain how that works and explain like if there
Speaker 1: are some specific ones, like you know, what do people
Speaker 1: actually proposed they'd be used for. I think Ethereum raised
Speaker 1: eighteen million dollars worth of bitcoin back when they were
Speaker 1: doing their token offering. And Ethereum runs basically decentralized apps.
Speaker 1: These are just little software programs that run on computers
Speaker 1: all around the world, and the most popular app that
Speaker 1: people are running on these computers is a token app.
Speaker 1: And a token app is basically just a ledger that
Speaker 1: keeps track of who owns um which tokens. So by
Speaker 1: sending ether, which is Ethereum's native token, to one of
Speaker 1: these token apps, people receive an allocation of token in return.
Speaker 1: What are some of the more esoteric or what's the
Speaker 1: word I'm thinking of? I guess unusual I c o
Speaker 1: s that you've seen, because I remember a couple of
Speaker 1: people mentioning specific examples like um synthorn, which is a
Speaker 1: token ized synthetic rhino horn afrodisiac. I'm not even sure
Speaker 1: what that means. But you know, if you go to
Speaker 1: one of the websites that lists all the active i
Speaker 1: c o s, you can find some really odd things
Speaker 1: on there. I mean, people will basically do an i
Speaker 1: c O for anything that will raise money. I mean,
Speaker 1: there are i c o s for tokens that claim
Speaker 1: straight up that they're not getting anything in return. It's
Speaker 1: just an experiment to see whether people will send money
Speaker 1: to a blank token, like there was early on the
Speaker 1: Ponzi coin. Then there was the well I mean, there
Speaker 1: was an f word token where basically you're just getting
Speaker 1: a a token named the efford. Okay, but wait, there
Speaker 1: are some actual ones that sound fairly legitimate, in which
Speaker 1: it appears that a new application or a distributed application
Speaker 1: might solve some problem and a token and in a
Speaker 1: native token might be of value. So, for example, there
Speaker 1: are ones that offer a distributed cloud storage. So we
Speaker 1: all know about you know, existing cloud storage, but if
Speaker 1: you have stuff that's maybe more sensitive and you don't
Speaker 1: want it all with companies, you can have it distributed
Speaker 1: across a network of computers and then you pay them
Speaker 1: in that native token for the service of hosting your documents,
Speaker 1: which on the service sounds reasonably legitimate. What I want
Speaker 1: to understand is how does in theory, how does the
Speaker 1: token facilitate this? So if I want to, uh, you know,
Speaker 1: store something very sensitive. Let's say I'm working on some
Speaker 1: subversive organization and a you know, and an oppressive authoritarian country,
Speaker 1: and I want to store my organizational documents across all
Speaker 1: these different computers and nobody can shut me down. Explain
Speaker 1: how in theory these I c O s or tokens
Speaker 1: could facilitate that. Well, a token is supposed to represent
Speaker 1: a transferral blastset with a market price and UM. In
Speaker 1: return for storing someone's files, UM, the person would pay
Speaker 1: you in these UM file tokens, And since these file
Speaker 1: tokens can then be sold on the open market, you're, well,
Speaker 1: you're getting compensated for storing someone else's files. So it's
Speaker 1: a sort of incentive engineering. Although there are other services
Speaker 1: like bit torrent that do offer decentralized file storage already,
Speaker 1: h you mentioned bit torrent Elaine, so on your blog
Speaker 1: you came up with a really good historical example of
Speaker 1: a previous attempt to provide a sort of token based service.
Speaker 1: Can you walk us through what that historical parallel was right.
Speaker 1: So in yearly two thousand's uh, there was a company
Speaker 1: called mojoor Nation, and I mean the intention of no
Speaker 1: mojor Nation wasn't really to create a token for people
Speaker 1: to trade, but to incentivize people to share their extra
Speaker 1: computational resources. The tokens were designed to incentivize this sharing,
Speaker 1: but they ended up adding unnecessary complexity and um, it
Speaker 1: was a distraction from the underlying service, which was offering
Speaker 1: extra storage space or CPU cycles. So people in theory,
Speaker 1: mojo Nation was supposed to encourage people to share their
Speaker 1: extra CPU cycles and then they would get paid in
Speaker 1: this token, but it didn't work and as you say,
Speaker 1: the token added extra complexity. But then what came out
Speaker 1: of mojo Nation or sort of the successor organization, was
Speaker 1: actually a huge success. To explain that when you create
Speaker 1: a transferable resource like a token, then people who have
Speaker 1: the tokens want the tokens to be scarce, and in
Speaker 1: order for a service to be widely adopted, I mean,
Speaker 1: you don't want the token holders too also want the
Speaker 1: tokens to be scarce. The reason why Bittorn was so
Speaker 1: much more successful than emog nation was well, not just
Speaker 1: the simplicity, but also they didn't try to introduce artificial
Speaker 1: scarcity with these tokens. The earliest version, people were who
Speaker 1: uploaded files were given priority in downloading the same or
Speaker 1: downloading other files, so it was sort of a tip
Speaker 1: for tat um protocol rather than actual like accounting and
Speaker 1: trying to transfer resources that they had gained. So this
Speaker 1: really gets to the heart of the question I think,
Speaker 1: which is that the theory behind all these tokens is
Speaker 1: that if you create a monetary incentive to join a
Speaker 1: specific network, then people will give up their you know,
Speaker 1: computer resources or something, and then the network will form.
Speaker 1: But history shows us that at least maybe not every
Speaker 1: time it works like this, but sometimes the monetary aspect
Speaker 1: of it can create a level of confusion and difficulty
Speaker 1: and um and friction that actually impedes the creation of
Speaker 1: the network and undermines the goal. Right you can see
Speaker 1: this happening with bitcoin right now. Bitcoin is a payment system,
Speaker 1: although there are far more people hoarding bitcoin than actually
Speaker 1: using it for payments, and I mean that that's okay,
Speaker 1: people see it as a store of value as well,
Speaker 1: but um, it's also something that makes bitcoin less usable
Speaker 1: that the fact that people are hoarding it rather than
Speaker 1: spending it. Are there anyways for people running I c
Speaker 1: O s now to kind of overcome that fundamental tension
Speaker 1: between you know, early adopters who want tokens to be
Speaker 1: scarce and the needs of creating a large network relatively quickly.
Speaker 1: I mean, the incentives are basically at odds with each other.
Speaker 1: Part of having the initial token sale is that you
Speaker 1: distribute the tokens to people who will be evangelists for
Speaker 1: the service, but then it sort of turns into a
Speaker 1: pump and dump because these evangelists try to drive up
Speaker 1: the price and then they sell off their tokens. Right.
Speaker 1: This seems to be sort of the heart of why
Speaker 1: like people think that there's a bubble, because what you
Speaker 1: have is the theory. Okay, the tokens facilitate the networks,
Speaker 1: but when you look at it, it doesn't look like
Speaker 1: any real networks are being formed. But you do have
Speaker 1: a massive amount of speculation and trading and as you say,
Speaker 1: pump and dump, so it looks like you know that
Speaker 1: it's really it appears from my side, and that the
Speaker 1: as they the card is coming before the horse. There's
Speaker 1: no real they're there with any of this stuff. Yeah,
Speaker 1: and it's unfortunate because there are people trying to develop
Speaker 1: legitimate technology, but the legitimate ones are going to get
Speaker 1: lost in the noise and be seen as a scam
Speaker 1: just like the other ones. Are there specific applications or
Speaker 1: like uses for i c O s that you think
Speaker 1: are better suited to the format than others, Like for instance,
Speaker 1: I met Yobi Benjamin randomly in Abu Dhabi last week.
Speaker 1: He used to be uh CTO for city and he's
Speaker 1: running an i c O that provides services or exchanges
Speaker 1: basically video game services and something like that. I can see,
Speaker 1: you know, playing video games is kind of a fun
Speaker 1: thing that people do. Uh, it's not necessarily critical to
Speaker 1: your everyday life, at least for some people. So maybe
Speaker 1: something like that a token makes sense. Well, ultimately a
Speaker 1: token is going to If a token is widely adopted,
Speaker 1: it becomes like a currency. And I mean the reason
Speaker 1: why we have um things like the US dollar or
Speaker 1: currencies in general is to solve for the coincidence of
Speaker 1: wants problem. And if something has or actually has a
Speaker 1: token or native token that has value, like you might
Speaker 1: as well just pay in bitcoin or either. So is
Speaker 1: this essentially us going back to a bartering system, but
Speaker 1: I guess a blockchain bartering system. It sounds like basically, yeah,
Speaker 1: when you hear people talk about a bubble or a
Speaker 1: new gold rush, let's say, yeah, yeah, there's a lot
Speaker 1: of speculation. It's a big bubble right now, and it's
Speaker 1: probably gonna burst, but something good will come out of this.
Speaker 1: And they pointed to the Internet, the dot comswood and
Speaker 1: say yeah, that I'll burst. But then we got the
Speaker 1: broadband network and now of course, and and of course
Speaker 1: many of the companies from the late nineties ended up
Speaker 1: being huge deals, like Amazon being the most obvious example.
Speaker 1: When you look at this space, do you think it's
Speaker 1: going to follow the similar trajectory? Is it safe to
Speaker 1: be that confident that something of value will come from
Speaker 1: all the speculative activity that we're seeing. Well, most of
Speaker 1: the things that these um tokens proposed to build involve
Speaker 1: open source software. So there's that aspect in that people
Speaker 1: are building open source software that could in theory be
Speaker 1: used by future applications, even if the tokens themselves don't succeed.
Speaker 1: I mean a lot of them are not building anything
Speaker 1: at all, so that's probably less valuable. It seems like
Speaker 1: an understatement. Joe alluded to this in our intro. How
Speaker 1: do you think the UM the I c O story ends? Ultimately?
Speaker 1: Then do all of these things proved to be you know,
Speaker 1: if not outright frauds, then kind of useless endeavors. And
Speaker 1: while we're at it, how do you think bitcoin ends?
Speaker 1: Because to your point, it's supposed to be a payment
Speaker 1: system UM with a big network effect, and instead we
Speaker 1: have people who are keeping the coins because they assume
Speaker 1: they're going to rise and value. It's two big questions. Sorry, yeah,
Speaker 1: I think the token sales will eventually run their course. UM.
Speaker 1: Even today, Uh, I think we have passed the peak,
Speaker 1: and new tokens that are being launched these days, UM
Speaker 1: aren't seeing the massive influx of capital that the earlier
Speaker 1: ones saw. As for bitcoin, what one of the biggest
Speaker 1: complaints about bitcoin in recent months was that the transaction
Speaker 1: fees are really, really are getting too high. And the
Speaker 1: part of the reason for that is because transaction fees
Speaker 1: are denominated in bitcoin, and the price of bitcoin has
Speaker 1: gone up like five percent this year, so it looks
Speaker 1: like transaction fees have gone up a lot. Whend non
Speaker 1: need in US dollars. But then in terms of Bitcoin,
Speaker 1: I mean they've stayed fairly constant. One recent change in
Speaker 1: bitcoin was they did a software upgrade that now allows
Speaker 1: for Layer two transactions that don't actually happen on chain,
Speaker 1: but can people can make Bitcoin transactions with lower fees
Speaker 1: off chain and then do netting and batching on chain
Speaker 1: later on. So just to be clear that you think
Speaker 1: that the software is in theory going to be enabling
Speaker 1: it might become more conducive to payments in the future. Yeah,
Speaker 1: I think they will get around that, even though, um,
Speaker 1: I mean bitcoin did see I guess a couple of
Speaker 1: years of complaints where people felt that it was not
Speaker 1: that usable. Right, all right, well, Atlanta, thank you very
Speaker 1: much for joining us. I think that no doubt this
Speaker 1: is going to be a very widely listened to episode
Speaker 1: because I know there's just tons of interest in this
Speaker 1: topic and appreciate your perspective on it. Lano Software Engineered
Speaker 1: Global Finance, Jill Access and a Bloomberg View contributor, Thank
Speaker 1: you very much. Thanks Joe and Tracy. So Joe I
Speaker 1: managed to escape I c O S briefly at least
Speaker 1: on the Odd Loots podcast, but we cannot escape them
Speaker 1: in our day to day markets coverage, and I can't
Speaker 1: even escape them from my personal email accounts. So just
Speaker 1: last week I got an invite for a pre sale
Speaker 1: in a I C O. I'm not going to say
Speaker 1: the name of it, but I will tell you that
Speaker 1: the private pre sale password to participate in this offering
Speaker 1: is participate in success. That gives you an idea of
Speaker 1: the marketing. I don't think we need to say anything
Speaker 1: more than that. That more than anything else, that in
Speaker 1: your private email you got a offer for pre sale
Speaker 1: and that was the password. I kind of think that
Speaker 1: sums it up, doesn't it? Yeah? Should we just leave
Speaker 1: it there? Are we done? Let's leave it there. This
Speaker 1: has been another edition of the All Thoughts Podcast. I'm
Speaker 1: Tracy Alloway. You can follow me on Twitter at Tracy Alloway,
Speaker 1: and I'm Joe wisn't Thal. You can follow me on
Speaker 1: Twitter at the Stalwart. And you can follow our guests
Speaker 1: Elane Oh on Twitter at Elaine except the Ellen. Elane
Speaker 1: is an eye, so it's like Ei so and and
Speaker 1: you can follow our producer on Twitter, Sarah Patterson at
Speaker 1: Sarah Pett With two teas. Thanks for listening.