The Mix Up

I’d expect that most of our listeners at this stage have figured out that we name every episode after a rap song. You can say “Ben-Horowitz-wannabe” if you dare, but if you ask me nicely, I’d tell you that I’ve got a true love of 1990’s hip hop. Imagine it’s 1991 — that was me pumping the bass on Public Enemy’s Fear of a Black Planet or Poor Righteous Teachers’ Holy Intellect blasting out of the Blaupunkt in my Ford LTD sedan. If you ask my co-host Eoin Fitzgerald, he came into rap somewhere between JayZ’s Reasonable Doubt and Eminem’s The Slim Shady LP. Respect.

Why does this matter? The title of this, our first MoneyNeverSleeps blogpost on Medium, is nothing less than a Beastie Boys song from an instrumental album by the same name, and that same album also has a track named ‘LTD’, just like my car back in 1991, so we’ve come full circle. It’s also totally appropriate that The Mix Up album is completely instrumental, and as we just could not get an episode out this week, you get a blog post rather than an instrumental podcast. You’ll thank us for that someday…

Why no episode this week?

Quite simply, I was bouncing around Dublin from meeting to meeting and talk to talk expending all of my creative energy like a man possessed this week, here’s a taste:

Monday — getting my decks ready for two lightning talks at the monthly Blockchain Ireland meetup, one on a resource guide for blockchain and distributed ledger technology (‘DLT’) enabled startups seeking funding in Ireland, and another one on FundAdminChain (FAC)

Tuesday — delivering those talks and then coming up with a bunch of new ideas over lunch with Paul Smyth from Top Tier Recruitment, our podcast sponsor.

Wednesday — delivering a 60-minute talk at Dogpatch Labs on my journey into fintech, along with the story behind the MoneyNeverSleeps podcast, to academics and students from the SMU Cox School of Business visiting Dublin on an entrepreneurial-themed tour all the way from Dallas, Texas (shout-out to Laura Clifford from the ADAPT Centre and Janice Gaffey from EUSA Academic Internships for making that happen!).

What’s all this about a mix up?

It was during the Q&A of the talk at Dogpatch Labs that a question from the brilliant Professor Simon Mak tripped me up, and here’s the root of The Mix Up:

Who’s making money with blockchain, Pete?

To put the Professor’s question into context — and it’s always nerve-wracking getting a direct question from a professor, especially one who regularly lectures on blockchain (as I found out later!!) — he was curious as to what business anywhere in the world was earning revenue by “selling” blockchain. I got this same question from Professor Andreas Hoepner right before he and I went on stage at a tech event last year, and I couldn’t give a very good answer then either. Depending on who’s asking, and their view of the world, the same question can mean two entirely different things. So, you need more context before responding, especially when the person posing the question is a pretty smart cookie.

Looking back, I should have stopped right there and answered the Professor’s question with a question. When talking about the commercial impacts of blockchain, the question to ask first gets more to the how than the who. Here’s what I should have asked him:

Do you mean blockchain in the pure sense, Professor, like with the bitcoin blockchain, or with wider distributed ledger technologies (‘DLT’)?

But I didn’t ask that question, as I’m always eager to share information and tell a few stories. If I had re-framed the Professor’s question, the conversation would have gone down a much different path. Recently, when I sense that the person I’m chatting with about blockchain is pretty knowledgeable about technology, I check in first to make sure we’re talking about pure blockchain or blockchain-inspired technology like DLT. That generally stops the onset of a drawn-out back and forth about what are, in effect, apples and oranges. Hence, The Mix Up.

What happened next?

At heart, I’m an entertainer, so instead of re-framing the Professor’s question, I shifted into analogy gear — sometimes this works, and sometimes it flops. When it works, we mostly move on to the next question.

To me, asking “who’s making money with blockchain” in the year 2020 is like asking Amazon’s Jeff Bezos in 1996 “who’s making money with the internet?”.

That brought a few laughs and a few raised eyebrows, and I added some color on how Amazon wasn’t selling “the internet” as a product in 1996 and they still aren’t. How they sell products is enabled by the internet and the radically different cost base that e-commerce affords compared to bricks-and-mortar retailers.

The analogy worked, but the conversation didn’t move on. I could sense that I should answer the Professor’s question.

In fitting with the analogy, I referred to Coinbase, the leading provider of financial services for holders and traders of cryptocurrencies (for transparency, I’m an independent director on the board of Coinbase Ireland). Here’s where things got sticky…

But Pete, Coinbase are not blockchain?

Like Amazon are not selling the internet, Coinbase are not “selling” blockchain. The services that Coinbase provide is enabled more by APIs and defense-grade cyber-security than by blockchain.

The Professor had a point. I know what he meant, but like any technology, blockchain is just one of many enablers of a value proposition, and not a product in its own right. So, by saying that Coinbase make money with blockchain, what I actually meant was “Coinbase make money providing services for holders and traders of crypto, and crypto lives on a blockchain. Blockchain enables crypto, and the needs of holders and traders of crypto drives the Coinbase business model.”

Did that do the trick?

The Professor agreed with me, but dug deeper:

OK, Pete, but who else?

I thought of all of the businesses with $1bn-plus valuations (the queasiness-inducing cliche of “unicorns”) that are enabled by blockchain being the rails of crypto. I also thought of those like R3 on the enterprise side. I could tell by the look on his face that this wasn’t what he wanted, so I skipped over my go-to list of names.

I then talked the Professor through an example of how the wider DLT, i.e., “blockchain-inspired” distributed databases secured by cryptography — have already become the enabler of a nascent replacement of the world’s financial infrastructure. Naysayers abound, yes, but with one foot in the traditional finance world and one foot in the digital finance world, I can see how things are unfolding. To a purist, DLT is not blockchain, and here’s where I think we have The Mix Up.

I think what my Professor friend wanted was for me to answer his question like I would have answered the following questions on other technologies:

Who’s making money on APIs? Twilio

Who’s making money on cloud services? AWS

Who’s making money on open-source? Red Hat (now IBM)

But with blockchain, it’s not an open-and-shut case. With all of the hype around blockchain since 2013–2014 as a thing, a lot of people equated blockchain with “the next killer app”. As with blockchain, APIs are not apps, neither are cloud services nor open source. They’re all components or methods in the digital world, but to keep things simple, people sometimes slosh them all into one bucket called “emerging technologies”.

What the Professor and I never got to cover this week in Dogpatch Labs was his view on how blockchain and DLT have evolved over the last 6–8 years as an offshoot of bitcoin, but with some roots back to the digital money pioneers of the 1990's. I’d like to do that, so I’ll reach out to him to finish our chat.

Why does this matter?

Well, it matters to me, because I spend so much time helping early-stage startups grappling with this very problem. Mainly, these startups are selling to the corporate world, so we need to get the pitch right or these magnificent solutions will never get to market.

I meet a lot of impressive founders building businesses whose products are enabled by DLT, and I keep my fingers crossed while I’m reading their pitchdeck, hoping that I don’t see the word “blockchain” anywhere. Those founders are already one step ahead of the pack, but there’s a long road ahead with a lot of stops and starts along the way before they become profitable.

The corporate world (mostly in financial services) awoke to the buzz with blockchain in 2014, and just like with cloud and APIs, CTOs around the world sent their best and brightest out on scouting missions to see how they could make blockchain work for them. What these scouts found with APIs and cloud made so much sense for the business world. But with blockchain, the only truly successful application of it they had to dig into in 2014 was the bitcoin blockchain. With the bitcoin blockchain, they learned about things like mining, proof-of-work and halving, and they saw no relevance whatsoever to the mainstream commerce. So they dismissed it.

It took till 2018 for the rest of their colleagues to do the same thing, but the smart money dismissed the bitcoin blockchain as a replicable or relevant model for mainstream financial products in 2014. The really smart money started building other kinds of distributed databases secured by cryptography in 2014. Again, this was mostly in financial services, and where we are in 2020 is a building wave of momentum driving the conversion of finance from analogue to digital, and DLT is a very big part of this change. But it’s not readily visible yet, as William Gibson said:

The future is already here — it’s just not evenly distributed.

In the financial services space, most of those driving this change are at the startup / scale-up level. They’re not screaming blockchain or DLT from the rooftops, as they’re not making money on blockchain. What they’re doing is enabling financial markets to operate at a far lower cost than today, creating new revenue streams for financial products that traditional technology cannot support, and opening up new distribution channels for digital financial products. These are the value propositions, not delivering blockchain to the masses.

I regularly get the question of “when will blockchain go mainstream?,” and never mind for now whether the they actually mean blockchain or wider DLT. My answer is always this:

We’ll know that blockchain is mainstream when we stop talking about blockchain.

So, to Professor Simon Mak, let’s talk again — we ran out of time to clear up The Mix Up, and I’d love to hear more about your thinking on all of this. I’m sure we’ll find common ground!