Token Ethics Chatham Transcript

Salon producer/facilitator, participants & contributors

This discussion of #TokenEthics and ICOs included just more than a dozen participants. They represented a variety of constituencies, including Bitcoin developers, Ethereum developers, technologists, the cryptocurrency exchange community, legacy institutional investors, cryptocurrency investment, miners, entrepreneurs, and venture capitalists.

This salon was produced and facilitated by:

Participants included:

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The Transcript

This is a Chatham-rule transcript of the Token Ethics discussion from July 26, 2017. It was professionally transcribed, and then edited for obvious errors afterward, but as with any transcription of this type, you should only consider it 98% reflective of what was actually said. Some things have been elided from this transcript for privacy reasons, to preserve the Chatham rule.

Moderator: Okay, so, obviously our topic is token ethics. I thought we would first begin with a little bit of our sort of ground rules, and we’ll do a little bit of introductions, and then start figuring out how we can have something that’ll be useful not only for us but for everybody else. Basically, as in the email, we’re using Chatham House Rules. [00:00:30] Feel free to attribute yourself to anything. If you want to Twitter something you said, everything you say belongs to you, you’re welcome to do that, but don’t attribute comments to others unless you get their explicit permission and even more ideally let them post it or whatever. If you hear me say something that you think really needs to be out there, ask me and maybe even tell me, send me a Direct Message saying, “You should post that.”

The second [00:01:00] thing is that we are recording this. I am going to do a transcript of them and anonymize them. If it’s really clear that it’s “XXX” that is saying something, I might take a little bit out, I might edit it a little bit to make sure that it isn’t absolutely attributable to “XXX” saying that. Variety of reasons why we want to do that, but part of it is just so that in effect what we’re doing belongs to all [00:01:30] of us, and it belongs to the broader community that’s out there. That being said, I would like to list everybody as contributors at the top, sort of equally. If there’s some reason you don’t want to be listed in that contributor’s list, let me know. We’ll also have an opportunity to see the documents before anything gets published in case you have something specific you would like to take out like, “I really shouldn’t have said that about my client.” You’ll [00:02:00] have lots of chances in that area.

Finally, this is potentially a contentious area. A number of us are involved, or have concerns or issues. It can become emotional. It would be very helpful if we can really focus on being critical about the events and actions [00:02:30] but not the people in the companies. It’s not really useful to say, “XXX did this, he’s a spammer, he’s a scammer, he’s … whatever.” More of, “Hey, I have some real concerns about this kind of issuance in this fashion. I wouldn’t have done it that way and here’s why.” Or whatever. Try to keep that a little bit distinct. Does anybody else have anything they want to add to the guidelines or thoughts or?

Intros elided.

Moderator: To just recap, because two people came in, Chatham House rules. Feel free to attribute anything yourself, but if it’s anything anybody else says, ask permission or even more ideally, have [00:12:30] them attribute or help them attribute it. We are going to be recording this. Right now I have three microphones running simultaneously. In case one of them is bad, we still have a recording. I’m going to transcribe it and anonymize it.

If there are things that clearly it’s something that you said, it can be de-anonymized that way. [00:13:00] I’m going to try to clean it up and such. There will also be an opportunity for people to make changes or delete things if necessary. The idea is that this belongs to the community. I’m also going to, ideally, put everybody’s name as contributor to these documents, at the top. If for some reason you don’t want your name on there, let me know and we won’t include it.

Then, we really want to focus on being critical of ideas and behaviors, not people or companies. [00:13:30] The example I gave, “XXX is a scammer” or whatever and does this and this.” Instead, it’s better to say, “This kind of activity, a particular pre-mine or whatever, I don’t like for these reasons and such.” Try to depersonalize it a little bit.

Maybe another once around the table, I started off with some questions [00:14:00] that I was hoping we could maybe begin to address. Like are there some basic ethical principles that we can agree on? Can we come to a little bit of a consensus, a start, can we seed that? Are there other questions in particular that it doesn’t necessarily have to be on that list, but it’s like you came here for a reason, is there a particular thing you’d like to get out of this discussion or-

Speaker: Have you read the peering structures in crowd sales? [00:14:30] I think there’s obviously no perfect solution. There’s a trade off between many things, but I’m curious to hear different types that people are thinking about.

Speaker: For me, it’s about standards. I think that there’s a lot going on right now obviously, and it would be nice to have some kind of framework for this as a standard. This is the standard ethical, legal, type [00:15:00] of crowd sell that should be done. This is how it should be constructed, and if you check off these boxes, this is then an approved type of crowd sales.

Speaker: Yeah. I see similarly, but I think that it should be a pretty loose definition so that you can point at crowd sales that don’t conform to those. These are clearly unethical as opposed to be something that’s a little bit more a matter [00:15:30] of opinion, basically.

Speaker: I guess I’m interested in how these projects are administered after an ICO, I’m pretty curious about. I’m also interested to further the idea of how to have scalable processes for managing the ethics part, similar to using cryptography for similar use. For Blockchains, I’d really like to [00:16:00] see that the ethical ideas are managed by the system rather than something that’s imposed from the legal side. Then, also I’m interested in ways that we can reveal i nformation so that people can make more informed decisions, whether that’s some prediction markers or something like that.

Speaker: A lot of them, I think the additional one for me is how do you, especially in more decentralized systems, how do you balance the [00:16:30] current constituencies with the future constituencies that aren’t normally involved in an event? Along similar lines, I’m interested, not only in the ethical rules and guidelines for the ICOs that are coming out in the next one, two, three months but how does this look long-term, the next five to ten years? And how does this really affect the fundraising market long-term?

Speaker: Regulators want to protect the [00:17:00] economy and keep that safe. We want to be able to do that with this new, emerging economy. What I’m very interested is, much like over at “XXX”, we’re able to create a model that manages that regulation. The old regulation wasn’t that relevant. How can we create frameworks for ICOs and ECU token sales that can make regulatory intervention [00:17:30] also constantly irrelevant?

Speaker: My personal interest mainly is in fraud. Where does fraud happen? For example, if I write in my White Paper that time travel is a part of our plans down the road and we are going to develop it and we are on it, is that fraud or not? Obviously equivalent technologies that are or are not developed. I don’t mean necessarily from a legal [00:18:00] perspective, what is fraud but just in the community? What do we consider really getting over the edge of fraudulent?

Speaker: For me would be the blockchain ecosystem, if tokens are securities, what does it look like? How do we go about it?

Speaker: I have a sense of doom and so I’m wondering what to understand, what survivors [00:18:30] have to … lots of things go wrong, and how to actually preserve some core of things that this model makes sense for and can be defended as ethical even if they do fail as speculative ventures do. So, go in that line, some things that are not going to do well and a few things that will be real value, is interesting to me, may be affecting where [00:19:00] that line is drawn.

Speaker: I think that it’s interesting to think about how we decentralize regulation. There’s what essentially we’re talking about. You can call it ethics and principles but that’s what it really is, is thus far. Thus far we take this perspective that economics incentives are always sufficient in order to regulate behavior to maximize societal utility, [00:19:30] but obviously it’s not 100% the case in every situation. There needs to be some solution to that. Now, obviously the SEC and FinCEN and the various bodies in China and Russia and so on and so forth, have a perspective as to how that should be published, but that’s a little bit out of line with a lot of ethos of the states and so maybe there’s an interesting way to think about decentralized regulation, so to speak, above and beyond [00:20:00], just this simple economic voting prediction marker and so on and so forth.

Speaker: As investors in the industry, I mean, we’ve watched the token market get really frothy. As a result, it’s blown in a lot of bad actors either intentionally or unintentionally. Just interested in establishing some kind of basic best practices to help guard rails up before it careens off the cliff and hurts a lot of people in this industry. [00:20:30] I’m interested in the long-term sustainability of it.

Speaker: I’m very interested in supporting the long-term and broader than just the … Right now, we ration tokens and it clearly benefits the issuers, maybe inordinately so. It potentially helps the early [00:21:00] investors if they make right decisions and did the right … make the right choices early on. I’m more concerned about them five years from now, people who are using these systems, that because of 500 million dollar issuance of something, mean that other people who have better ideas, more sustainable ideas die because they can’t get that, because of the regulations that these other ones inspired. [00:21:30] I’d be concerned about the emphasis on legality. I think how we act is useful but it’s not but the all end all for why we’re doing this.

I keep on getting examples like … TLS. Trillions of dollars of internet commerce go through that security standard.

A couple years ago, it got to the point where one person, one quarter time, was maintaining [00:22:00] a version of it that was being used by 60% of the internet. It wasn’t enough time. That caused the heart bleed attack, which clearly says this whole dream of “The Cathedral and The Bazaar”, that many eyes makes for shallow bugs was a promise that did not happen. We have to create systems that support some of these underlying things. [00:22:30]

It’s not just us. When I taught at “XXX”, they’re all, prior to even 2009, talking about new ways of doing a jobs act financing, support comms things and new forms of nonprofits and weird nonprofit/for-profit combos that can last 50 or 100 years to sustain a force.

I’ll close with one thing. My [00:23:00] first investor, “XXX”, was at “XXX”. He’s in this beautiful room at Oxford that was built 500, 600 years ago [with] giant beams. One of the people was talking that that beam has rotted. It’s time to replace it, and they didn’t know what to do because it’s so big. There are no more trees in England that are that size. It turns out when they went to the department [00:23:30] to figure it out, there was somebody said, “Oh yeah, we have a special plot of land. When this was built 400 years ago, they planted some trees and they’re ready.”

I was in Turkey, similar type of situation. … Takes 50 years for an olive tree to become mature. They die after 300 years or so. [00:24:00] This is the Joseph’s family tree. We’re planting it now because by the time he graduates from college, it will be ripe and it will feed his family. That’s the cultural thing that they got going there. I’d like to see that kind of stuff with what we’re doing. That’s what I’m hoping for.

Moderator: Let’s pop up to the topic.

Did people have a chance … Did people find some of these things useful in the beginning, [00:24:30] that I shared? The first one I shared was this sort of levels of influence. I think one of my main points out of that one was that it’s not clear that there are sharp lines of where something is ethical and unethical. One of the classic examples is boot camp. Boot camp does thought control and indoctrination but it does it for a good reason. [00:25:00] At some limited point, post-draft, you consented to it. So, where is the lines? I don’t know but I thought that this was a good basis on that.

I used this when I taught, which was, knowingly, don’t do harm. I have a pretty broad definition of harm. It isn’t just the parties involved but external parties. Don’t misrepresent or deceive. [00:25:30] That’s sometimes really hard. Sometimes you don’t tell your child the truth because they’re not ready for it. How do we deal with that? Protect the vulnerable. More recently I might also say, in particular, protect them against the powerful. And the stewardship, the social duties of the common good. Any comments [00:26:00] or thoughts or anybody have any other ethical models or systems that they-

Speaker: My initial comment is these are the things that people have been struggling with forever. It’s not unique to blockchain or tokens. My solution is if these are [00:26:30] living, breathing systems then they should be left to be living, breathing systems. I don’t think we as human beings can come up with where the ethical lines are drawn. The system itself should come up with them. I’ll throw that out there for discussion.

Speaker: What do you mean by living systems? What kind of living systems?

Speaker: … I understand why there’s regulation. Let me give a really good [00:27:00] example, because it happened with “XXX Blockchain”. We had these flash crashes and everybody says, “Oh got to regulate this. We got to do all these things.” My view is you know what? No. Just let it g o. Let it flash crash, because I’ll come in and I’ll put a bid in at 11 cents or I’ll put a bid in at $10. Let it naturally come to its solution. That’s my perspective on it.

Speaker: … Look, I don’t know what’s right. The [00:27:30] counterpoint to that would be the same reason they brought in the Fed and they brought in other regulations is that, does that lead to a — and people argue about this for centuries — but does that lead to a stronger system or a weaker system? At least in the current financial services, they’ve put in regulation and bailed out banks and this sort of stuff, because if people lose confidence, they feel that that will harm [00:28:00] the system overall. Yes, so when there’s ethics, I guess the third, protect the vulnerable, what do we consider vulnerable? Is someone who isn’t going to read or do their due diligence on something, are they vulnerable or are they people that you want less-

Speaker: What point is informed consent, informed and consent?

Speaker: Yeah.

Speaker: I’ll also add there that there’s … I tend to be a little libertarian, but [00:28:30] there’s a time problem with libertarianism. Yes, markets will eventually thrash things out but information is unequal, power is unequal, time scales are unequal, and there is some utility to having things that either cause friction or cause other things to have the properties that we would like it to have, because I may not survive to when it will equalize. My bets are [00:29:00] — which were legitimate bets and are true — are actually worth something in the end.

Speaker: A lot of people put in money that they can afford to lose. If a lot of people buy into an IPO and they buy with a few hundred dollars, it’s not their savings. Is it more ethical even if there are problems with that ICO, because these people have not been harmed as much because there are a lot of them? Does that [00:29:30] feel like the way the accredited investor thing works currently, like they’re trying to keep people who they don’t presume to have sophisticated knowledge for investing at all?

Speaker: Do people know about Jobs Act and Reg B and Reg C? There does exist in the US, and I presume other countries have some similar things, the ability to offer securities [00:30:00] to people that aren’t accredited. Some of them actually have things like you have to demonstrate that you’re not putting your whole net worth into it, if you want to participate. The problem with the ones that are out there right now is some don’t allow you to raise very much money or cost so much in the regulation that they’re not economical.

Speaker: It’s essentially a separate lane, which means [00:30:30] if you can roll to get out of that lane, you do and thus it becomes negative signal of your quality, rather than really opening the same processes …

Speaker: It seems like there’s a lot of pressure from the difficulty around doing full IPO that has shown up over the last couple decades. It’s actually pushing people who want to speculate more, into an opportunity that will allow them to do that. I think some of the pent up demand of IPOs maybe being followed into that ICO [00:31:00] space.

Moderator: It isn’t just now. [crosstalk 00:31:02]. Go ahead.

Speaker: Well, I was going to say that I think there was a tension or a dissonance between the advice that “you should only bet when you can afford to lose then” looking at the person that is giving you that advice, he is the guy who is full time, his whole life is invested in it. If you ask him like, “What are you going to be doing in 10 years?” He’s going to say, “It’s this stuff.” I think that speaks much louder to [00:31:30] these investors often than the small print basically of like, you should — by now everybody, I’ve said it too — only invest 1% to 10% or something like that. I can understand that from a retail or whoever. Somebody who hears that might be like “Whoa, but this guy’s doing it.” That, to me, where it gets ethically murky is when people say that they’re fully invested with their life in something and then walk away a year later. [00:32:00] That is where I feel like that’s dodgy.

Speaker: Because it’s how much can you protect from this world? For that reason, in that, there would be very intelligent people that would put far too much money in because they got carried away, exuberant, because of that stuff.

Speaker: It’s also a matter of unequal opportunities. So, we had a huge influx of people come to the sustainable MBA program in 2009. Basically they were saying, “The system’s rigged. I’m looking for alternatives. I’m looking for something other [00:32:30] than this thing where only accredited investors can do this stuff, which only means accredited investors get great returns. I’m stuck out here, in a system that’s rigged against me.” I know that a lot of people in that community are the millennials and whatever that are basically putting money now into XXX… their own money. I’m seeing it. They know nothing about it. They just heard, “I don’t have to be an accredited investor to do [00:33:00] it. I want a piece of this party.”

Speaker: Yeah. The two unrelated things, that is. One on that note is assurity on the unaccredited side, even on the accredited side, I think you pretty systematically see a lot of sources where people thought there were great returns, then stop having great returns over the last decade. One thing I’ve seen a lot of is, whether you think that ethics aside in any direction, there is pressure and desire for people [00:33:30] to move into asset classes that they think have those characteristics. One way or another, things will have to get built on how do you go balance the protecting people who are moving into that while also maintaining the reason why they entered that space?

Then on what you were talking about, on how do you balance someone learning versus someone being … feeling [00:34:00] the responsibility of their decisions? I think one of the things that’s fascinating is that so much of it, like if you think about timeframe, it’s really about how many steps there are in a timeframe and how much anything is a catastrophe. Where do you draw the line on a catastrophic loss versus a loss that in the [00:34:20] longer timeframe doesn’t matter? The more that these things get empirical and the more that there’s more data and you can see it in smaller and smaller iterations, the more [00:34:30] that even how you think about the ethics of it, can lean more towards seeing it and acting on it versus having to have it all figured out before, but there’s still a whole set of things that has to be figured out. We don’t really have that much systems built around that.

Moderator: You were saying you’re representing the millennials?

Speaker: Yeah.

Moderator: How many millennials think the system is already unethical and rigged outside of this, outside of our crypto [00:35:00] world?

Speaker: I would say that millennials were left outside of the investment opportunities. Even if you don’t think about crypto just in general, and then Robin Hood is at … it made it more accessible for them to have $5 stocks and have investment opportunities that were based on the little incomes that they had. For instance, put $20 this month on [00:35:30] your stocks and that was it, instead of buying bonds of 100 stocks. So, that’s more [inaudible 00:35:36], this app that you don’t really need to be that smart. It’s so easy. You buy £10 Ethers if you want, for this month. That’s your Ether investment. I see a lot of my friends were just so excited of having one Tesla stock. They’re just like, “Oh my God, my one stock did so well this month.”

Even if they have one Ether and they get to be [00:36:00] able to brag about how their one Ether does well, I think it’s describing this introduction into investment that’s not something that a lot of millennials had as an opportunity in the crypto world, like in five years ago where you had to have your wallet, your own private key. I think this accessibility and all those app that facilitates the access to make small investments, having a fraction of an Ether, a fraction of a Bitcoin and then looking it going up and down, is the thing that [00:36:30] is exciting for most millennials, and they don’t have to go and short and use all those instruments where you can lose a lot of money and still be part of the system.

Moderator: Five years ago we had the Occupy Movement, which among other things helped bootstrap Bitcoin. A lot of historians says that really, really made a big difference when Bitcoin was at a critical [00:37:00] point. What’s the legacy of that? What’s going on as far as people’s concern about the larger system we’re in? How does that fit into our ethics?

Speaker: … from the Wall Street community, there was no legacy. No. I’ll be honest, nobody cares. Like okay, great, bunch of kids got really angry. Super. They got in the way of my bagel sandwich in the morning, [00:37:30] my coffee and that’s about it and my life goes on. That’s really true. Not trying to be an ass but that’s what people think.

Speaker: I think there was also a lot of fallout expected that didn’t. It might come still but hasn’t come yet. It’s like there’s no real pain anymore after 2008, in the West, I think. I think that might be why people shrug even outside of Wall Street, I think.

Speaker: I don’t know. I think that was the first time that I remember walking down the street and having conversations [00:38:00] with random people about the nature of the federal reserve or the gold standard and things like that. I felt like the conversation, the education about some fundamental economic structures, became common discussion.

Speaker: I could see the reason for events of 2016 as also being inextricably linked to a lot of the same sentiments. When you think about, certainly I think [00:38:30] about Trump and Sanders as being on opposite sides of the spectrum but actually they have more in common. Also, a lot in common because that was five years ago that it was expressed worse than, I would say, even much broader … in a much broader manner.

Speaker: It could be described as the institutional distrust, which is related to interest in decentralization and-

Speaker: Willing to take a chance on something that’s only a few years old.

Speaker: Right. I think there’s the [00:39:00] other aspect of investing in these technologies, which is about being interested in furthering that purpose of some kind of technological institutions that are more trustworthy, are not necessarily the case. That’s part of the … Anyway that’s [inaudible 00:39:17]-

Moderator: We’ve talked largely about users of these tokens as investors. I wanted to maybe pop it back to: that wasn’t actually, in [00:39:30] many case the point of a lot of these coins. The point was to what, be a service or to offer some utility or whatever.

I presented this rewriting of Ostrom’s Principles. It’s very easy for me to apply this to a company, a consortium, or to a blockchain or a token. I can look at all these [00:40:00] principles. Who’s allowed to use it? Again, I’m not talking about the investment side of it but what’s going to be used for? Who is this for? Where are the boundaries? Is it paying for all the costs or are you pushing some of the cost of this on the ecosystem? There’s a cost going on right now with a whole bunch of financing for smaller startups, has completely dried up because they’re basically being told, “Oh no, you have to do an ICO.” It’s having [00:40:30] external effects, et cetera.

Speaker: I’m thinking long-term that if you have a use token that’s supposed to be used by people, the assumption is that you’re going to buy in early and then people are going to need and use the service, and they’re going to need to buy the token from you at some later point, in exchange. That’s how you’re going to cash out your investment. There’s probably really obvious answers but I wonder, does the fact that there are early holders of a token make it less useful [00:41:00] in some tiny way to the users who are buying it on the exchange? I feel like they’re getting a little bit less value for their money. There must be people to make the money in the exchange.

Speaker: It’s an extra riddle then.

Speaker: Yeah, because they’re buying the token and it might go down more than it would otherwise, while they hold it, than if there weren’t early investors.

Speaker: Yeah. I’m sorry. I was just going to … Yeah. If you’ve got some people who can use the token, some people looking to speculate a hold on the token, you [00:41:30] need a pretty deep hole of some liquidity. Otherwise, it gets misbalanced because it may drastically price people out, who want to actually use it, because there are people that are holding it for larger, greater gains.

Speaker: You may have something that’s not intended to be a part of a Ponzi scheme but in fact becomes one by the nature of you killed the goose that you’re trying to support.

Speaker: I think that was actually one of your questions. [00:42:00] Can the early holders of the token actually be a detriment or unethical to the system itself? All the people who bought the technology, speculators aren’t going to use it, are not going to use it to come in-

Speaker: How is that different than the oil markets? It’s the same thing.

Speaker: Yes. [crosstalk 00:42:19]. No. I’m asking a question.

Speaker: Using these services, if anything goes well with them, will become way cheaper and scale up very fast as opposed to oil which … [00:42:30] there’s a certain amount of time you have to compete for it but the supply isn’t that elastic.

Speaker: That also helps-

Speaker: People are using tokens for digital services that with any luck, can be ten times larger, a hundred times larger in a few years.

Speaker: Then should tokens be worth nothing? [crosstalk 00:42:44]. Why not just be a utility.

Speaker: With oil, how many billions, trillions is the oil market reserves [crosstalk 00:42:52], right? Yeah. We’re dealing with what, net 100 billion? The whole [crosstalk 00:42:58]-

Speaker: Right, but presumably it’s the same [00:43:00] concept, is that you have somebody who’s going to use the oil to build something and you have the speculators. That’s what we’re dealing with in this market. I guess my question is … I don’t know if it’s good or bad. … I don’t know the answer, if it’s good or bad, but it doesn’t seem like it’s too different-

Speaker: There are some people who would say a lot of things ended up being bad but what ended up happening was that we misuse those resources and mismanage [00:43:30] those resources. We had external costs. Now we’re suffering from not investing in infrastructure, not investing in the other different types of things, so there’s a growing constituency of people that are very concerned about it, and it isn’t just the left millennials, it’s also the right in Podunk Idaho that these people are going, “We got screwed by Walmart.”

Speaker: [00:44:00] That goes back to … what we have, at least in my perspective, in the token market, is just a pure capitals market, unregulated pure capitals market so far. Is there a better system? I guess that’s what we’re getting at.

Speaker: There’s two things that I think are helpful in a token sale that I would like to … or that I think are, let’s say, either ethical or useful to people who are purchasing tokens. The first is that if the ICO itself gives you some inkling of what the [00:44:30] actual value of the token will be after the end of the ICO, thus revealing information, then I think that that’s helpful. If the token is already trading on the market and it has some history, you’re getting more information than you would probably in some sense, with little privately traded stock. If the ICO itself reveals information, then you’re more … it’s like you’re using the market to reveal the information about it

Speaker: Market transparency because of the nature of the design of development.

Speaker: How can you set an ICO to give [00:45:00] people information?

Speaker: Reverse Dutch option or if the mechanism is not a reverse-

Speaker: How does that work in an environment where it’s just scaled FOMO where people are doing that?

Speaker: The “XXX” article was interesting when they talked about the XXX ICO because it did actually … the value of the token didn’t drop below people’s expectations. Although there also is the argument that people were just pricing based on FOMO, but it actually did indicate the price of the token after it disclosed some-

Moderator: For the scribe, [00:45:30] you might want to tell him what FOMO is.

Speaker: Fear of missing out, yeah.

Moderator: Okay.

Speaker: I’m not saying that specific mechanism is perfect but I think it is in the right direction, because it reveals something about the value of the token and after the sale, rather than-

Speaker: I’m also concerned that after the sale, we don’t actually know what it’s going to buy. Like how much services?

Speaker: That was point number two, which is I want to know what the value … how the token is going to be used [00:46:00] in the context of the service and what is it that promises that that value will increase rather than decrease? For instance, with cloud storage as a commodity item, the value of that token may be just exponentially decreasing in value, in which case it was … it’s not good to purchase that kind of token.

Moderator: Have any tokens run the full cycle of the use/redeem/free till the end? Can anybody think of an example.

Speaker: Bitcoin. [00:46:30] Bitcoin [crosstalk 00:46:30]-

Speaker: Yeah. It has. For malware sales [crosstalk 00:46:35] store value.

Speaker: But it also pays for transaction fees and on the network itself.

Speaker: Within itself, its own native value.

Speaker: But it wasn’t a token sale if-

Speaker: For specific acts.

Speaker: … probably then what, Ethereum then?

Speaker: Maybe. As a platform [00:47:00] for other things.

Speaker: A lot of these issues were from regular [inaudible 00:47:03], which I view as somewhat different from a pointed discussion of at least what people are expecting tokens to be used for.

Speaker: Storage is one. Storage.

Speaker: Storage is one of the-

Speaker: Storage, yeah.

Speaker: Right? They’ve done two token sales.

Speaker: You can’t … it doesn’t have clear pricing of the token as to how the exchange for storage, which means you can’t actually value the value of the token, and so, we don’t know whether that value-

Speaker: In fact it’s very [00:47:30] potentially centralized, where [inaudible 00:47:32] … they get to decide how much storage you get for not-

Speaker: Is any of the forecast right? [crosstalk 00:47:41].

Speaker: I think one of the [inaudible 00:47:44] things for everybody doing an ICO or the market at large to figure out is — any intermediaries, activators being among them, there is some amount of value they provide to the system, whether that’s liquidity or whatever. Then, [00:48:00] there’s some amount where beyond that, they’re a drag on the ecosystem to make it hard for people who actually want to use the [pins 00:48:08] and figure out what the pricing will be.

One of the questions is how do you collectively discover or create social norms if that’s what ethics are around? How do you balance those where, I think, you could do, like one stance you could take is a pure capitalist stance of whatever happens is what happens, but I think [00:48:30] that a bunch of ethics is trying to have some kind of pressure on norms on that, which where that line should be, I don’t actually know exactly where that line should be but for sure there seems to be some tension to me, but healthy speculation versus speculation being something that obviously is going to drag on the ecosystem that wants to use the token for [inaudible 00:48:52].

Speaker: I was really concerned about the DAO, in the sense that when I, as a fairly eclectic [00:49:00] game theory, economic theory, et cetera, look at that and I go basically the DAO, even if it hadn’t had the bug, could not deliver, it was a very naïve implementation. It could not deliver what they were promising. They were basically promising the wisdom of the crowds. They had so many common mistakes in that area that even if it had worked and there’d been no attack, there had been no problems and they were entirely good-intentioned, it still would have failed [00:49:30] because it would not have delivered the results that they were promising.

Speaker: Then from a fraud perspective then it’s a question like was there willful ignorance, was there willful recklessness? By ignoring feedback from the science community basically, were they defrauding their investors by not conveying that information?

Speaker: Even if it wasn’t willful, is the responsibility on their [inaudible 00:49:58]?

Speaker: Yeah. [00:50:00] I’m actually curious as someone who’s less informed on what you think were the obvious ones for it … because one thing I struggle with is how do … multiple, rational people with different probabilistic views of what is possible or with an ecosystem of people working on something, what will be possible, how do you form a singular line in the sand on where it is between willful ignorance or-

Speaker: Intentionally in today’s [00:50:30] truthiness or whatever the current fake news, et cetera, type world, it becomes even harder because the scientists aren’t listening to-

Speaker: I feel like they all get carried away. They were just trying to raise money for slacking really [inaudible 00:50:44]. Then it was like there was a lot of hype around DAOs at the time because people’s interesting thing in Ethereum and they just went with it and it was like this is going to be the DAO now, and so that’s … People also thought there were going to be able to get their money [00:51:00] back out and that also caused, I think, people a lot of volume.

Speaker: It revealed, before the launch, there was some fairly significant things like in effect to say no, you had to lock up your funds, which was a strong enough incentive to not say no that they were speaking of strong incentive for yeses. There were all kinds of financial games you could buy. You could actually, if you had enough of the DAO and Ethereum outside of the DAO, you could actually play leverage games on [00:51:30] those two things to basically lock up funds, knowing when it’s going to be released, due calls and what’s on Ethereum side, which there was enough … the DAO was big enough as far as the overall Ethereum ecosystem’s liquidity, that you can actually play games. It was well known a week or two before that went live, that these problems ought to be addressed. They said, “No. We’re just going to … We’re going to get over it.”

Speaker: That is on how much they were going to raise.

Speaker: There’s no [00:52:00] offering right now where people are just like this is bulletproof and we’re not going to change anything for next 50 years because this is [inaudible 00:52:07], we trust it and it’s awesome. Every offering that we hear about, for instance, like Tesla who’s just like, “It’s a foundation. In the next four years, we might come up with the technology or not but still invest in us.” Bitcoin, yes, it was stagnating for a little while but now I feel like people are just [inaudible 00:52:26] and all of those tools, we can actually modify [00:52:30] the Bitcoin network in a way that is going to make sense either through Bitcoin patch or the actual Bitcoin blockchain, chain, and use it in a way that it would make sense for individual or enterprises. I think just this mentality that the technology is being worked on, is going to improve and the protocol is not static. I think there’s this incentive to, whatever you have right now, [00:53:00] just put it out. It’s going to be open-source. Go on and work on it as a community and-

Speaker: Isn’t there a moral hazard? Is it “XXX”? The one that basically we find out that their management self-destructed and there’s only a couple of engineers actually working on it anymore. They basically didn’t reveal this information beforehand. Then even if this had all happened after, which it may have, there is this [00:53:30] moral hazard when you got half a million dollars, $50 million and you haven’t really promised delivery, or not real commitment to delivery.

Speaker: I mean, it’s “won and done” models a lot coming our way. With an unlimited cap and has a lot of moral hazard.

Speaker: I mean, not naming names but also to talk about the post-ICO state, a lot of these, I’ll follow, I’ll just go into their internet sites—I’ll ask then to let me in and see what there is. There’s one project in particular, they raised the money and then they’re like, [00:54:00] “All right, we’re going to on vacation for a while. We’re not going to give you any updates. We’re cool, right?” Then, the whole community started freaking the hell out. They just didn’t talk to them at all. Then they came back, it’s like, “We might or might not be working on a plan maybe or maybe some time in the future.” It’s like-

Speaker: I see a lot of those in the white papers.

Speaker: Yeah.

Speaker: To me, one of the crucial things when it comes to the ethics of these things is whether or not the project has a minimal [00:54:30] viable product. Which when we talked about oil for example, I was like; “Oil was minimal viable, right?” You couldn’t refine it but at least you could burn it. There was something. I think the same with Bitcoin. Bitcoin was a test net that was functioning when it was launched. That’s what I miss with a lot of these ICOs, is that they’re just ideas. The broader context, to me again, is when do you start talking about fraud?

I read this to “XXX” before and maybe to some other people. I don’t know. In 2013, the SEC came out with a [00:55:00] post titled, “beware of pyramid schemes”. Then it gave a list of the hallmarks of a pyramid scheme. The top, the number one bullet point is, no genuine product or service is being offered. Then also promises of high returns in a short time period, easy money or passive income, no demonstrated revenue from retail sales, buy-in required, complex commission structure and emphasis on recruiting.

Speaker: Basically, you’ve just described the entire [00:55:30] space.

Speaker: That’s how the SEC describes pyramid schemes. I think that can be … to me at least, it’s a useful framework to look at some of these projects.

Speaker: It’s really hard to draw a line, like what’s working, what’s a viable product? I know projects, my personal opinion, they have something that works, that can trade on exchange. They’re working on technology. They putting out releases and they’re doing cool stuff. They’ve got basics on all kinds of stuff. I don’t think it’s going to go anywhere. [00:56:00] That’s my opinion but where do you draw the line of getting someone’s opinion about technical viability and then saying this actually is fraudulent?

Speaker: Yeah. You can clone Bitcoin and say, “Now we have a quantum resistant mining algorithm. It works out of the box.” Is that fraud? I don’t know.

Speaker: That’s actually a really good point. Let me try to frame it as an actionable type thing. Is it unethical to launch a token without a minimal viable product? [00:56:30] Can we come to a consensus about what an MVP is? Do we need to have a test net, for example?

Speaker: I think in the-

Speaker: I would argue that anything that claims that it’s a utility token, that is true. If it’s a pure equity token and I have equity rights and I have all these other different types of things, then I should have … This is why “XXX” wanted to be here … and he sent this to me today. He’s saying ethics is independent of decentralization, is one of his … if it was unethical centralized, it’s still unethical decentralized.

Speaker: I take the opposite of what you’re saying.

Speaker: Sure.

Speaker: Even if it’s a utility token, sophisticated consumers buy things that don’t exist yet, [00:57:30] financing new development [crosstalk 00:57:32]. Sometimes it works, sometimes it doesn’t. Why should they be allowed to do it and not other people with maybe-

Speaker: I think Kickstarter is a good example. Certainly the community standards of Kickstarter significantly change. There were a number of people, one, very, very successful and then sold themselves to Facebook … Then, the other side are big things where they never delivered.

Speaker: They got [00:58:00] us a product.

Speaker: [inaudible 00:58:01] I think the thing I struggle with it is I look at startups and I think it’s about expectation of the community investing, because certainly, we invest in companies that have no minimum viable product. There is some claim of what they’re going to build, what percentage of them end up building the thing that they claim they’re going to build, is certainly not 100%. Because our expectation — and there a lot of things are packed into that — but because [00:58:30] our expectation is that that’s actually an acceptable risk that we are taking, we’re fine with it and we don’t view it as immoral. Now depending on how they act, they may do things that are immoral that’s separate from is the shipping or not shipping tied to that.

I think part of that as you look at Kickstarter or you look at the startup ecosystem and you look at this, the thing that’s tough for me to balance is how do you judge an individual project, the need for it to be above board, [00:59:00] versus as an ecosystem, there being some acceptable amount of things that work and don’t work? Allowing for failure or over-promising or whatever, in some dimension, as long as on a long enough timeframe, from an ecosystem perspective, it’s actually robust and eventually leads to better matching between supply and demand of what the expectations are and all of that.

Speaker: There’s one sub ecosystem of Kickstarter … which [00:59:30] is games, so board games, computer games, et cetera. It’s basically evolved to the point now where you have to have a pretty well-designed game. You have to have … maybe even be able to offer prototypes upfront, people can see the game play. It may not be nicely printed or whatever.

Because people have learned.

Speaker: Because people have learned.

Speaker: There’s a cultural understanding of what-

Speaker: But it’s a lot harder with these things because when you get a Kickstarter token, it says I’m entitled [01:00:00] with this to have this [inaudible 01:00:03]. I can’t trade it back. I can’t speculate that it will be worth more. I can’t go and trade it for another thing. Adding in these other aspects all of a sudden makes it a lot more complex.

Speaker: Sure. I was just going to say, I think if there’s not an MVP but there’s an intent to build one, I think there’s something with that, but if it depends on what happens, if it doesn’t come through … if you’re a company and [01:00:30] you realize your company’s in trouble, the best thing is to sell it, close it down, return money to shareholders. If you’re going to approach and say “Holy shit, we just raised 200 million in an ICO and we’re not going to be able to deliver on this product,” you don’t then pivot and go and build something that’s totally unrelated to what you raised the money on. The ethical thing would be to return it.

Speaker: Reimburse. Yeah.

Speaker: Yeah. [01:01:00] I guess to me, it’s not necessarily how you raise but what you do after, with the promises that you had.

Speaker: Let me just quickly … the Kickstarter thing, what happens if everybody is frozen. What happens if we make it such that you can’t easily speculate for a utility token? You can buy them but you can’t use them until there is utility.

Speaker: What if we flip and run first and say [01:01:30] what if … Imagine a Kickstarter where an investor can come in. There is this flailing startup and they’re unlikely to produce the product. This investor comes in, he’s like, “All right. Everybody who took part in the pre-sale, I’m going to give you 30 cents on the dollar back.” Now, I own all those claims and I’m going to try to … Like the way bond investors go to Argentina and be like, “Hey, can we help you kick-start your country?” Just to explore that [01:02:00] first, is it possible that Kickstarter can ethically evolve into something? I don’t know if it’s a helpful suggestion to turn around.

Speaker: To your point, I actually think … I’m not opposed to that but I think an interesting thing is right now in a lot of these, in a lot of the token markets, we view liquidity as a positive thing. Not always the case that … There are cases where a liquidity is positive for whatever, forcing people to be locked up [01:02:30] in it for some amount of timeframe, as a positive thing for the ecosystem. I think we just haven’t yet explored what those … We can implement it. We just haven’t explored it yet, partially because I think a lot of traditional markets, not with tokens, are so illiquid that people haven’t wanted … experienced the liquidity premium.

But there’s also a premium that has had, and there’s certainly something that is hugely beneficial to … in some sense, [01:03:00] part of the reason for private markets and startup investing, just is like … part of is because it’s illiquid, right? They can’t immediately pull back the money. We haven’t explored what those look like for tokens, but I think there’s a ton of interesting stuff there with tokens.

Speaker: I have a quick … venture capital … For the startup, they don’t want [01:03:30] … I mean, if there’s liquidity-

Speaker: It’s terrible.

Speaker: … the investment is terrible, right? They want people that are going to stick around until this is delivered.

Speaker: Yeah. That’s exactly … It’s a [crosstalk 01:03:40] point, is that there’s a liquidity premium, which is the person who provides the capital’s desire to be able to decide when to move in and out, which for sure you’d pay some premium for that, but there’s also on the customer receiving the money side, a premium you would give for illiquidity, because just like you want [01:04:00] it to … even though you want to go up, if you think it’s falling, you actually want to be able to say I know I have this amount guaranteed. I think the same is true for ecosystems with tokens, where there should be some benefit to having it. There’s even different association there between speculator and non-speculators on-

Speaker: Or even between different [crosstalk 01:04:21] I think there was this big mismatch between Angel investors and VCs because they had very different models. VCs would treat Angel [01:04:30] investors … like they were VCs and it became a real problem, which dried up the angel market to a certain extent, so now you have the Y Combinators and all these big, giant things.

Speaker: One of the pros of the ICO space is you trying to do the seed round, the angel round, the A round, the B round, all of them in one. They say, “We’re going to build the whole ecosystem. We want to right now.” Really, what you want is you want the proof of concept, the MVP. Then, you want the first testnet product and you want some users. [01:05:00] Then you want all the-

Speaker: There doesn’t have to be different rounds like that. It doesn’t have to be-

Speaker: Sure.

Speaker: None of them are doing that right now but we’re certainly advising projects to set aside tokens for future sale and do it more like a series A and a series B.

I think that all of the discussion around MVP, I think it’s a reasonable question but it’s neither here nor there, as long as people are properly informed. We have one core principle, which is that the purchasers need to have the opportunity to make an informed decision. In that particular respect, I have one bone to pick which is [01:05:30] uncapped offerings, because in an uncapped offering, you know what your expense is and you have no idea what you get in return. I have no idea if I’m getting 1% of the network, 0.0001% of the network or 10% of the network. Do you guys ever do a deal where you have no idea what percentage-

Speaker: By the way, you say that but one thing that’s interesting to me is employees being recruited by companies, often are told the numerator of how many stocks they get and not the denominator, which to me, seems hugely unethical.

Speaker: [01:06:00] Totally.

Speaker: Don’t you wait till the last day of an uncapped sale to know more?

Speaker: Exactly.

Speaker: Unless the project changes the terms.

Speaker: Totally [crosstalk 01:06:07].

Speaker: You realize when you get a discount if you’re early, people-

Speaker: That’s usually taking more of a risk early. You don’t know how big it’s going to be.

Speaker: I have a question. Can I [crosstalk 01:06:19]?

Moderator: Yeah, please. Let’s start with you.

Speaker: This is a model I haven’t seen before but I think it’s fine to raise funds in a token sale before a minimal viable product, [01:06:30] but I’d like to see the funds actually get locked up and at certain milestones it gets released and the community investment and the community can decide whether or not this is a minimal viable product because there’s no standard on what actually is one and so people who invested in it can determine that.

Speaker: It sounds like that would be better for the company as well in a lot of … from what you’re saying. If they’re not doing that, is it just simply to inflate a token that [01:07:00] allows them to exit pre-producing a product?

Speaker: Can you say more about how the community would decide on what the minimal viable product is? I would be thinking about more like a third party or something.

Speaker: It could be that. It really could be that the community can also decide who should determine. In the way I view things, that a lot of these token holders are the people that should be governing the project. They should be the ones determining what do they consider a milestone, what do they consider a good product. [01:07:30] That’s when the funds should get released. There could be some voting system where they’re saying-

Speaker: With the tokens.

Speaker: With the token themselves.

Speaker: They sound a lot more like equity.

Speaker: It makes it more like equity and that’s fine.

Speaker: Virtual board.

Speaker: The people are operating in the law side of things, because when it begins to resemble equity, it becomes even harder.

Speaker: I get an advisory board, 50 investors pretty much [crosstalk 01:07:49].

Speaker: Doesn’t “XXX” have milestones, I believe? If I remember correctly, they have milestones that they locked up a bunch of tokens and until they themselves pose milestones but they said, [01:08:00] “We will not sell these until we deliver X.”

Speaker: “XXX” said in his thing that he’s really concerned about new and untested development teams getting money all at once, which is directly here, so blocking up a tiny mismatch between developer awards and the token buyer’s interest. The token buyers are interested in pumping it now where the developer legitimately wants more long term-

Speaker: Or the other way around.

Speaker: Or the [01:08:30] other way around.

Speaker: Token holders setting up for five-year investments and you have a token team that flips out a project-

Spealer: I have a whole bunch of series A stock in company that are neither quite making it or failing and it’s like-

Speaker: It’s like XRP who put this three billion aside in case the value of the XRPs are too high, so they can stabilize the market, so I think it is something that it isn’t saying that exactly.

Speaker: That’s [01:09:00] to be extra explicit, because if you invest not knowing if the token’s going to get diluted … you’re kind of in a [crosstalk 01:09:09] purchasing decision.

Speaker: Really it’s [inaudible 01:09:11] the same as saying, “Give me $50,000 and I’ll either give you … I’m going to give you a car. It could be a Lamborghini or it could be a low-end $10,000 car.” You have no idea until this sale is concluded. You really don’t know what you’re getting.

Speaker: One thing that’s [inaudible 01:09:26] cars is … I think that I wonder if we’ll see happen [01:09:30] with token sales, is when cars were first invented, they all looked like carriages. Then, there was a forgotten period of time where people were like, “The constraints of carriages no longer apply. We don’t think there’s any more constraints.” And so the fragmentation of every type of shape and size and whatever of what a car looks like went crazy. Then they’ve all now re-converged on … People can sell you different trims and finishes but roughly, the structure of a car [01:10:00] is pretty standardized now. Clearly, right now, we’re in a phase where there are no clear selling points of what the structure of token sales or governance or whatever look like. That’s seriously like what ends up causing that to converge and-

Speaker: [crosstalk 01:10:22]. I’m leading just from this conversation that what “XXX” was saying here, that we need some smaller [01:10:30] rounds equivalent. If somebody goes to a VC or an Angel investor and says, “I think this idea is worth $100 billion.” You’re not buying at that level. You’re basically saying, “How much do you really need to prove the next step? The series A, what do you need to receive? What do you need to get to a MVP? And we’re not going to give you much more then.” How can we do that in these sales?

Speaker: I have a question for you. You have “XXX”, right?

Speaker: Yeah.

Speaker: [01:11:00] Do you raise “XXX” million?

Speaker: Less than that but yes, we raised “XXX” million in the beginning, yeah.

Speaker: How did you manage such an amount? You’re not worried any more about investment realms for a while.

Speaker: For a while, but we’re also potentially up against companies that are raising [more].

Speaker: For ICOs but not … it’s rare. You’re-

Speaker: I know. We’re a little bit more liquid, yes.

Speaker: Exactly. For-

Speaker: Ours is weird because our first investor, [01:11:30] “XXX”, was probably thinking more along the lines of a Mozilla style investment. Which is he didn’t necessarily need his money back, he wanted to support Bitcoin. …

Speaker: That’s really fascinating, yeah.

Speaker Then, everybody else basically came in and said, “We like [01:12:00] what ‘XXX’ does. ‘XXX’ has a track record. We’re going to follow ‘XXX’.” … It isn’t that dissimilar, in an odd way. It isn’t in some ways dissimilar to what happened in an ICO situation. I don’t know that the DAO was … I don’t remember what they finally closed at. I think they were thinking a couple million dollars [01:12:30] and they ended up getting 60 million or whatever it was.

Speaker: 50 [inaudible 01:12:35].

Speaker: 115.

Speaker: So, back to the idea of [how] we could be monitored better, how people spend things, there are some obvious ways to try to do that, like having some panel that decides, delegate it. Yet those are exactly the things that are no man’s land because of regulation, so that the obvious incremental innovations that would help are prohibited because the regulation forces you, as soon [01:13:00] as you take one of those steps, to go all the way open.

Speaker: The discussion was saying before, it sounds like it actually helps. It’s beneficial for the businesses doing this to go through these rounds, to have the liquidity locked down. So, is it a thing of essentially … I don’t know how you do it but getting that message, if you lock down A, B and C, it actually helps you.

Speaker: Yeah. I think [01:13:30] it would.

Speaker: Side note, … it also helps protect the network and keep the general ecosystem healthier, but it helps-

Speaker: Good, but you’re not allowed to take it as a small pill. As soon as you take a few of those steps, you have to then do the full registration, which means we’ll try to make it without those protections because we don’t want to step over that line into that trap.

Speaker: It sounds like what you’re saying though. It starts getting, whether or not the token is a security or not. Is the first step [01:14:00] in an ethical token sale … This is what I ask everybody that I invest in. If I remove your token, does your product still work? If they say yes, then I don’t need to invest in it. If they say no, then I can invest in it. So, is that the first step to an ethical token sale?

Speaker: I don’t know. There are some things that have tokens attached that don’t necessarily need tokens. It uses SQL database. I don’t think that’s unethical. [01:14:30] Let’s say it’s some game or something, some kind of game money that’s a token. That could be cool for players. They could trade on the exchange later. It could be interesting. It’s not necessarily unethical. I understand not wanting to invest in it.

Speaker: Well, nonprofit, yeah.

Speaker: Yeah.

Speaker: You’re saying that only access tokens are ethical?

Speaker: I’m actually just [inaudible 01:14:53] whether it’s legal or not. Whether it’s ethical or not, I think is a different situation. I’m just saying, can [01:15:00] we come up with a … That’s the question I ask. That’s my standard of whether or not this is something I want to invest in.

Speaker: As a purchaser-

Speaker: As a purchaser. Because my biggest concern is I purchase this, it’s deemed a security and then I’m liable for something. So, can we use that as a standard?

Speaker: I mean, I’m certainly very interested. Bitcoin, I think, is an example of this, of you basically don’t get any Bitcoin unless you contribute to the ecosystem. [01:15:30] You have to be a miner. It’s the only way in, is to provide a good for the ecosystem. That works.

Speaker: Contribute [inaudible 01:15:40].

Speaker: Yeah. You have to contribute. I don’t know. Are there other ways, I think, with a store, “XXX” could have gone the direction of start offering storage and we’ll give you coins for it. No more coins than there actually is services and storage available. They could have gone that direction and that, I would say, is imminently [01:16:00] ethical.

Speaker: Because without doing that in the case of storage or some other thing like compute power or whatever, there isn’t a relationship between the market price and the services being offered. There’s an artificial value. In fact, it may even be an incentive to defer the use of that token system because the token value is inflated above the actual value that will be used in the system, in other words, at market price.

Speaker: I guess [01:16:30] my general heuristic for that has been … which I view the same with public markets … is like, if you look at the PE ratio for companies and you say, “Is that good or bad?” I think what it does is it gives you … the higher the multiple, it gives you cheaper cost of capital, of some form of capital, in the financial markets, as financial capital. Whether that’s good or bad depends on whether the constraining limit on the company’s success or whatever is that form of capital. So, having a high PE ratio [01:17:00] in a space where you’re building rockets or cars, may or may not be the difference between it being at all, a viable business or not.

Having high PE ration where financial capital isn’t relevant is a waste. I think the same is true in these markets, which is like if actually raising money, on the speculation side of it, is actually … raises the required amount of capital or market capital [01:17:30] or activity that actually is essential to the potential success of the thing, then I’m not really opposed to it, no. It is just speculation on top of it that actually has no contribution to that. I think that … I’m not sure if I’m opposed or not but it’s less obvious to me that is [inaudible 01:17:50] thing to the ecosystem.

That’s sort of a tension between small cap, big cap, no cap, is like the more you limit like [01:18:00] what’s there, I want to do a 1 million-dollar ICO. You are fundamentally limiting the number of people who are going to be involved in the ecosystem. The whole point of your ICO is to get people actually involved to help build the thing new. What you really want is you want the most amount of people in there incentivized to do so. You could say like, “It’s only when the service is ready and only when you can do the storage and then …” but that blocks out the-

Speaker: Of course, I only want people who are participating in the ecosystem to be in [01:18:30] it. If you don’t need storage and you don’t wish to offer storage services, in an early stage … Sure, down the line there’s utility in having market makers with different type arbitrage between things, but for the first few years, I want people that are committed to it.

Speaker: There might be a small group of people. You might not be able to raise enough capital from them. Actually that’s going to be a small benefit group. People that really want to work on it but they might only have $1000 to invest, and if you have a team building that out, that might not be enough capital [01:19:00] for you.

Speaker: Yeah, but if they have the tokens and they’re less diluted, whereas if you do a massive crowd sale, then the potentially amazing contributors will only have a tiny sliver and very … much less incentive, whereas if you kind of keep it small … I’m just trying to think it through.

Speaker: It’s also … I think it’s just a state of the market type thing. I mean, how many people invested or put money into ICOs because that was a product that they were actually going to personally use?

Speaker: I would [01:19:30] guess there are some.

Speaker: I’m sorry?

Speaker: I would guess there are some but it’s probably a small percentage. I really think some people have bought it literally because they expect to use the service in the future and they think it’s the cheapest time to secure the rights to sue it.

Speaker: You think so?

Speaker: I think there’s a small percentage but I that it’s definitely the case.

Speaker: I think they might have been with some of the earlier ones. I’m not as confident but that’s been true in the last ones [crosstalk 01:19:51].

Speaker: Why as a speculator can’t I be part of the community? That’s what I do. I don’t code but I’ve spent 20 years on Wall Street. I understand markets. [01:20:00] Why can’t I be part? Why can’t I contribute, that point, to the community?

Speaker: [crosstalk 01:20:05] Maybe you would have a different … I mean, VCs do this, which is a speculator but there are some pretty interesting terms that come along with that, which are very different than me as an employee investor. Yes, I didn’t pay money for it but I’m committing a lower salary, I’m getting stock options in return and all this kind of stuff. [01:20:30] Different tranches for different people might be okay. But when it’s all tied together, it gets-

Speaker: I’m sorry, I was just going to say I think it’s not a problem unless it’s 99% of speculators, in which case, technically, that’s not a problem, but does that lead to a healthy product?

Speaker: For sure. What’s the difference between that and taking one Angel investor?

Speaker: I was just going to say it’s 100% speculators.

Speaker: How long is that Angel investor going to stay in the business?

Speaker: A lot of times it takes eight years to [crosstalk 01:21:00]-

Speaker: Yeah. [01:21:00] I can’t sell my stock. I have no exit unless they’re successful.

Speaker: Yeah. Okay.

Speaker: There’s definitely …

Speaker: It’s not great. It’s bad but-

Speaker: Well, I mean, how many [inaudible 01:21:11]?

Speaker: No, no. In many cases, they’re regulatory as-

Speaker: Sure.

Speaker: Sometimes.

Speaker: The only problem is that if it’s the same token that is used as gas or to power the contracts that is being used sa an investment tool, and I think for most of the security [01:21:30] market, it’s not the case. You buy equity and to … and that’s why you [crosstalk 01:21:35].

Speaker: Yeah. You don’t have to use Google Stock to do a search.

Speaker: Exactly.

Speaker: I think that goes back to my original point, was that what is ethical to sell to, right?

Speaker: Right.

Speaker: If it doesn’t run the product, then it’s equity, right? In that case, all the equity rules should apply and all the lockups and everything that we’ve already [01:22:00] developed as best practices should apply.

Speaker: We want to find some way for … to not have it only be that 1% of the population can participate in that. We want to make it a larger percent, which is what? Jobs that we’re supposed to do and didn’t and [that] Red B, Red C, maybe does.

Speaker: Whether or not you can use the application really comes down … that is the Howey test, right? It was the golf course that was built. You can sell all your memberships. If it’s not built yet, you can’t sell memberships ahead of time, otherwise you’re [01:22:30] selling a security. I think that for us, for the purpose of the ethics here, whether it’s a security or it’s a utility token matters less as opposed to do you provide necessary information for prospective purchasers to make an informed decision. It can be the most moonshot crazy idea or it can be the most like, “You can use this part today if you buy the token immediately.” I think that any … I don’t think we can really draw the line at one point and say that it’s right or wrong anywhere in between there. It’s just whether or not people have … you provide enough information for people to make that decision.

Speaker: [01:23:00] I think there’s an important role for, in the community, technical experts. I think it’s really important that there’s this free speech aspect where a technical person can just say, “I think that’s a fraud,” and they’re not attacked for it. I kind of miss that. I see a lot of people being attacked, who use that kind of language but who actually have some experience to back up. At least they should be heard because-

Speaker: [01:23:30] Doesn’t SEC and the various other regulatory bodies, state and federal whatever, provide a little bit of friction where they’re basically saying, “You got to pass a little bit of a bar, insofar as what you’re reporting.” Maybe the bar is too high. I would argue it is, but there is somebody who’s saying there’s a bar that you have to pass. Right now there is … I’ve seen some of these White Papers. That bar is too high, it’s like-

Speaker: I would love for there to be a private, like a [01:24:00] nonprofit with some people that part-time … can do it sometimes.

Speaker: This is kind of where-

Speaker: When due diligence-

Speaker: … is like maybe this is a good use for prediction markets …

Speaker: Yeah, could be.

Speaker: … where if there’s some way to reveal … because the thing is that if you are not a technical expert, you don’t know whether to value opinion A or opinion B, you’re just … it’s just based on something. It’s never [inaudible 01:24:27], whereas if you can see the synthesis of [01:24:30] the critique and some summarized way that is balanced, then-

Speaker: Maybe reputation isn’t that transparent. Part of the reason you ask why “XXX” gets so much money was that there were people that basically got nothing for their work for five years, in “XXX”, and they delivered something that worked. They were leaders in that. So, there was a reputation that they were leaders in it, thus it worth investing in them. There’s a whole bunch of, okay, you say some of the things, “Have you ever shipped a product? Have you [01:25:00] ever shipped a software product? Have you ever done an enterprise launch?” This is something you’re supposed to be … Looks like an enterprise thing. Have you ever dealt with enterprise? They’re weird. I never see that kind of discussion about the team or reputation of the team or-

Speaker: I guess to that point, part of it, when I look at stocks is that if you weigh all the different factors, whether that’s [01:25:30] team or whether the existing prototype or all these different areas, there some balances of them that if you … that you infer different probability distributions of how much are you going to bet on this team that has done it before but doesn’t have a prototype yet, versus having a higher expectation of someone who has no track record of it, to have a prototype to show it in. The part of it that I don’t know how to weigh is there’ll be [01:26:00] some point where you want to solidify whether culturally or legally or whatever, what the bars are for this.

I actually think that as long as there’s not tremendous amounts of harm, you want to push back when you solidify it because you get more information on figuring out what the correct gradings to do are. You actually get to see the ecosystem play out and develop its own norms independent of putting the constraints that it’s always harder to centralize [01:26:30] it than it is to decentralize it. In fact, these massive ways of re-figuring out the norms that seem to roll around pretty infrequently, certainly a less frequent basis than once a decade. There is a question to me, which is like, what is the thing that you would see that would tell you now is the time to actually solidify it? I don’t know what the-

Speaker: Hopefully this will be that seed, is my hope.

Speaker: [01:27:00] We still, a couple months ago, saying like, “Let’s create an ICO best practices. There’ll be a checklist. This is going to help the community. It will help you provide some context for making decisions around this.” As we set out, we got in the weeds of it, oh my gosh, this stuff is all going in so many different directions right now. There are even so many different models right now. Look at the number of different token sales and different models people are trying right now. They’re radically different across them. There’s no way to solidify this and say this is what it’s going to be and really those are the [crosstalk 01:27:25]-

Speaker: I would say there’s some … I think there’s a merging just from the [01:27:30] survey of the things that I sent to you guys and discussion here. I think there are probably a few things that are kind of above the bar, at high level, high in the sky ethical principles. On my list, maybe not everybody agrees, is that fundamentally it has to serve that commons that you’re promising to build with it. If it’s purely for investment and no other benefit, then-

Speaker: Then it’s a Ponzi.

Speaker: Then it’s a Ponzi. I think that’s an above-line thing. Then [01:28:00] we head to these below-the-line things, which are there are some specific tactics like we’re saying right now, try to have more stages. Have different stages with different rules. Don’t ask for advisors to promote. All these, there’s a lot of these more specific things that we can probably say everybody should be doing now.

Speaker: Can we say it’s more ethical to have a token that doesn’t trade until there’s a version one, or use token at least, it doesn’t trade until there’s [01:28:30] a version one of the app that’s going to use it? That seems like something that’s pretty uncontroversial, right?

Speaker: Yeah.

Speaker: Except that that pushes your token into being a security because-

Speaker: Yeah, but keep people from popping it and hyping and scalping it right after the sale.

Speaker: We need more experiments with … I think we … I propose several times, to do, before this craze, to do jobs act title three or red B, red C thing under $59, under 5 million, under 2 million [01:29:00] respectively. Now everybody I talk to, every attorney who is going to help build this type of thing saying, “No, we can’t do it now because everybody is doing these ICOs. It’s not enough money to compete with the people who did an ICO.” We can’t experiment with these more modest forms that can do equity.

Speaker: Maybe that was before Tuesday. I think one thing that is … I think of the … For [01:29:30] long-term, there for sure will be a bunch of things that have real … that are very uniquely incapable of being built without tokens that … Today there’s actually probably very few of the ones that are created, look like that yet. I think one part is like, look: a bunch are overcharging the fact that there’s huge liquidity premiums we’ve had by spanning the market of people able to invest in these things should not have paid, and all of the governance structures, all of the [01:30:00] amount that is capable of being raised with this, I think what we’re seeing is like there’s a ton of pent up demand and desire to invest in these things but we have no sense of a different order of magnitude of stakeholders.

How do you set up governance structures or how do you set up any of these things? So, one hand, we’ve only been doing this for sub how many years. Should I be super worried that it hasn’t matured yet? I don’t know if I should be. On [01:30:30] the other hand, for sure there’s tons to be figured out on all of those governance structures, but it’s unclear to me how to say-

Speaker: That’s been … a trouble in our system. “XXX” and I have been participating in the unsupported side of the employee as investors. There’s a whole bunch of stuff where we’re not considered first in a … we’re considered last in a lot of different types of things but we are investing, [01:31:00] et cetera. [crosstalk 01:31:02]. Yeah. Our current business system doesn’t support that.

… There’s a repo in GitHub called participatory orgs, which is like how you’ll be managed and owned and whatever by the people that do the work. We have these same, completely independent token sales. We hit the same regulatory versions where all of a sudden we’re treated like we’re accredited investors or have to be accredited [01:31:30] investors to manage the company that we’re running, which is wrong. This is a governance problem that’s outside of ICOs and tokens.

Speaker: … if you look at the, once again, the Lyft and the Uber model, they didn’t follow regulations but the reputation system was built around it, essentially, made those not as important. Is it just using … To what “XXX” was saying, if [01:32:00] you or “XXX” tell me that something is cryptographic, like the cryptography in the setup just doesn’t work, I don’t know enough about that, but I know that you guys do. Would a reputation system that ranks things on technical design, transparency, utility … if there’s a payment system going out that someone is claiming is going to reduce the cost of payments by X amount, [01:32:30] I reckon I’ll know pretty well whether that’s going to work or not, because it virtually never does. Can that through a sort of Stack-overflow-type ranking system generate reputation.

Speaker: Unfortunately, Auguer and the various prediction markets don’t quite work to do that kind of predictions, that kind of reputation. I have seen a good design for reputation marketplace that incentivizes [01:33:00] people to do that kind of work.

Speaker: I would think it’s more almost like a bit more of a structured Twitter, in the sense that people can … you do your analysis from the economic standpoint on it, if they’re doing something. Or “XXX” does his own, the architectural standpoint. Things are ranked, things are in the reputation models that we’ve looked at. It would be tough [01:33:30] but I’m just wondering if rather than saying, “This is the stuff that you should follow,” Sort of say “Look, you do what you want but if this comes out and everyone’s saying that this is a terrible idea, the market’s going to solve it for you.” I’m just thinking of flipping it around. Regulators lay out the rules that you should follow. If those aren’t there, can you get the crowd to essentially address?

Speaker: … I’m sure that if I gave advice [01:34:00] on … or I or “XXX” gave advice on something, the people will say, “Well, we’re behind Bitcoin but ‘anything XXX is bad’.” Then somebody will say, “XXX would do the same in the other direction.” Or anybody else on that side of things.

Speaker: Yeah. A lot of people who would have the expertise and have the reputation for having expertise as well are unfortunately biased in various ways but talking to all the projects they’ve worked on for a long time [01:34:30] and are emotionally invested in. That’s pretty tough because-

Speaker: It would be tough but I’m just thinking the same thing but flipping it around, much like essentially most digitized things have. Like how we get around the regulation is you basically get the crowd to do it for you.

Speaker: … for financial services, you have Ernst & Young, KPMG, PwC, Deloitte who are auditors and provide quarterly reports and end of year reports. Then you have analysts who aid on [01:35:00] those, maybe impartial line by line, standardize items, make prediction and do PE ratio and stuff like that and help investor understanding if it’s a good investment or not. There’s institutions like Quintus that has a good reputation. No one is going to go after Quintus and say, “Quintus is biased.” Well, [01:35:30] sometimes. There are some not-so-biased outlets, communication outlets who can take that EY, KPMG, PwC, Deloitte place that we have in the financial services.

Speaker: Yeah, there is. I guess it goes to this point, the reason why we can be relied upon is the sheer number of regulations that we’re under, which-

Speaker: Yeah, I was going to say you have a regulatory capture situation too because you’re also helping make the regulation, by the way, too.

Speaker: [01:36:00] Yes, partly. No, but it’s … Yeah, we have as anyone who’s tried to form a partnership or alliance with a big four, we know there’s a lot of regulations.

Speaker: I have an idea I want to throw out. What I’m hearing is ideas about how to reign in bad practices. When I was a student, I studied natural law quite a bit and the history of law and how that evolved. [01:36:30] Apparently, a lot came from just judges who were basically private mediators and who got some kind of reputation in the community, got paid. Then, they would write down whatever cases they had solved and that were satisfactory, so a lot of precedence. Over time, all that got aggregated into these codexes. So, thinking about it from that perspective is like, in a way, we’re taking a trip in the time machine.

[01:37:00] We do have the government that has a legal system that’s very … lots of bureaucracy. I’m wondering, is there a way to give more voice to disgruntled investors at some point, who want … who basically want have some justice and inadvertently can help create all this precedence that will lead to better practices. Is it an idea to write into these clauses? If you launch an ICO, it’s like, if we have a conflict [01:37:30] this is how we’re going to resolve the conflict. To pre-agree on who’s going to help resolve whatever-

Speaker: Arbitrations.

Speaker: Yeah, arbitration, right? Because this was part of Bitcoin early on, of these ideas of decentralizing the arbitration market or tokenizing that even, but that’s kind of gone by the wayside. I haven’t heard much of that now. I don’t want to steer it towards how can we tokenize arbitration but more like is it a good practice to build in some of these arbitration ideas?

Speaker: [01:38:00] I think that the solution has to be an international solution. You’re talking a lot about US regulation because it has such a widespread influence. The reason to choose something that’s more a blockchain-based solution is so that it will apply in all jurisdictions. That, actually I would argue, is more ethical and safe for the community ultimately because it crosses borders.

Moderator: That’s a part of the reason why I’ve been concentrating on the ethics side of these questions. If we can do a good enough job there … I think that there [01:38:30] are a number of things in the regulatory area that make us do unethical things. I’m not entirely in agreement with the law on a number of different things, but if we can define what the ethics are, maybe we can make some of the law changes work or at least have a little bit of leeway, which right now, some of the practices I think that if anything, are going to tighten the screws more than we need to.

Speaker: One of the things I wonder is, as [01:39:00] you push towards things that are more decentralized, is it net decentralized or do you just re-figure out where things-

Speaker: A new centralization.

Speaker: Right. You just re-figure out where-

Speaker: I promise you legacy systems were designed to be more decentralized than what existed before but now there are new forms of centralization.

Speaker: … I’d love to discuss that. Maybe that actually means the same thing, which is I feel like [01:39:30] it’s so hard for me to measure if there’s such a thing as net decentralization because if you look at the different scopes, it just seems like you just shift which scope is the centralized place. I think part of this question of who handles arbitration or who decides if this crosses the line or not, is that everyone is so loathe to choose which area will be the area where it centralizes. Whoever is deciding the arbitration of it is decentralized area. That’s right.

Ethics, to some degree, [01:40:00] is a centralization, not on a specific group of people, just a centralization of standards that as you have everyone being maybe not decentralized with centralized ethics on it. So, one of the things … Whatever, whether you look at Bitcoin or Ethereum or anything to me, I think one of the things that I am almost like … it’s still so early in figuring out where the natural … There’s a whole separate conversation, which is like [01:40:30] how do natural points of centralization occur within ecosystems? It’s like they’re all figuring out where the centralization’s occurring and so it becomes this very tense thing.

Moderator: It’s nine o’clock right now and I wanted to try to get to a point where we know where to go from here. There are a couple of different avenues we could go down. One avenue is how do we continue [01:41:00] to have this dialogue and make this dialogue productive in the community? Do we hold some more salons? Do we do some design workshops like I do with the identity ecosystem or write some white papers? That’s one answer. Another answer is just simply publish what we’ve got right now, maybe each of us record an insight or tell us one thing we’ve learned from this that … I don’t know. Do people have [01:41:30] a sense of how we can have impact on the community and move things forward?

Speaker: I think we could have a list of things that are definitely unethical. At least is pretty unquestionable so at least you can call really unethical ICOs out on that.

Moderator: You’d like to see a list of “These things are unethical practices”?

Yeah. It would maybe [inaudible 01:41:50] one thing or-

Moderator: A bad practices list as opposed to-

Speaker: Yeah. [crosstalk 01:41:55] spoke through the [crosstalk 01:41:58] could use.

Speaker: [01:42:00] I would agree with that but I would say it should be one thing. Okay. No, really, because it’d just gets too complicated. What is the one thing that we can all say is unequivocally unethical?

Speaker: Then also we’d specify what is the damage that that bad practice inflicts on whom? Because that’s always the case with … That’s where it gets into maybe, I don’t know, fraud or [crosstalk 01:42:25] … it’s less subjective, when you can kind of define the damage.

Speaker: The closest of it … I can’t say [01:42:30] that an unrestricted big launch of an ICO is unethical. I think it’s very likely to become so, even if you didn’t intend it to. I think that again the moral hazard and the risks and whatever. I would say my early advice would be we need more investigation on how to do things in stages and tranches …

Speaker: Is it more important thing to speak to people who are buying [inaudible 01:42:58] ICOs or [01:43:00] people who are issuing them. If you were offering guidelines would you say, “Don’t invest in these?” or “Be wary of-“

Speaker: There’s a herd mentality that’s going on right now, so I don’t know. It’s really hard to educate that [crosstalk 01:43:11]-

Speaker: … but it’s worth it to put a stake in the ground and then see if the people will listen the first time. After they get burned, then they’ll look back and say, “If we do this [crosstalk 01:43:22]-“

Speaker: How long will it take for them to know that they’ve been burned?

Speaker: I think that list helps both, because if you’re saying [01:43:30] what’s an ethical crowdsale or what things you shouldn’t do, these are … investors should look out for these red flags. At the same time, you help structure a good crowdsale, so I think that that list would be beneficial to everyone, right?

Speaker: I mean, eventually all securities law is [to] make sure you’re showing everyone all the information and make sure you’re not doing and investing in anything that you can’t afford. That’s basically 99% of it, so it’s sort of those two, but I would think the … I mean, we’ve got some [01:44:00] reasonable Twitter influencers here and there is a — constructive as most of the arguments on Twitter are — there is a habit of saying, “ICOs are bad. ICOs are ridiculous. ICOs are out of control.” This sort of thing, but we don’t often say, “Well, why?” and “Okay, so, if it’s bad, [01:44:30] what should it be?” I think, just steering that conversation-

Speaker: I want it, but we’re just not ready for it.

Speaker: No, no, but there’s a place to start the dialogue, right?

Speaker: It could also include things like the contract size of an “XXX” contract limits our ability to do certain kinds of things right now. We can’t … Even if we come up with some wonderful design for governments or whatever, we might not be able to implement it from-

Speaker: Part of it is the conversation of getting people actually thinking [01:45:00] about this rather than sort of shutting it down, but as you probably worked out, I’m a big one for classification of stuff so you can say … and I think probably, finding out what are the different areas of ICO, of token ethics, so we can categorize and working through those [inaudible 01:45:17] …

Speaker: I’m just thinking that addressing both the investors and the projects at the same time may be useful because right now we’re on the rising wave of people doing ICOs, so, soon people are going to want to differentiate [01:45:30] themselves from the clear failures that will be in the space very shortly. I think that there will be a desire to stand out as having best practices. Then, those will become attractive features for people who wish to buy tokens. I think just defining what those … It’s hard to say best practices, but I think that those … I think that-

Speaker: I mean, if somebody … addressed in their white paper, most of the Ostrom points, addressed most of these different issues that we came up there, I’d feel [01:46:00] a lot better but I-

Speaker: Even just acknowledge it.

Speaker: Yeah. Even it could be, we don’t have an answer to this question, but we’ve thought about it.

Speaker: I mean, to some extent, Smith and Crown and some of these other sites that are popping up are starting to address that, but I think they’re not necessarily getting at the deeper questions around governance. They’re starting to hit things around what is-

Speaker: What is Smith and Crown?

Speaker: Smith and Crown analyzes token sales and they have a very short checklist. [crosstalk 01:46:27]. I’m really glad they’re in the space.

Speaker: [01:46:30] If you can do anything, would your preference be that there is something that … all the people buying or creating see or is actually what your view that there should be not a template, but something that every … there’s some set of things that every white paper should have in it? Where is … do you actually have a leaning between those two?

Speaker: Good question. [crosstalk 01:46:58] 50% technical would be good.

Speaker: [01:47:00] I would say they would have to address quality. Quality is like doing what you say and saying what you do. So, if you have some of that, at least the intent is there. Then you can layer on, as these things mature, you can approach an ISO company who … Is it called ISO, the company that …?

Speaker: Yeah, yeah. [crosstalk 01:47:18].

Speaker: Yeah, yeah. You can hire them to basically validate, rubber stamp that and be like, “Hey, we’re legit. Not only do we have standards but we’re actually audited on them.” Or something like … So, I think this ethics [01:47:30] discussion could go towards quality standards. I don’t know. That’s what I would think about if I were to launch an ICO for example.

Moderator: How is any of this different than the rules and regulations we have now? Why not just use the ones we have? We’ve all agreed on them already.

Speaker: Because they’re so expensive to comply to. [crosstalk 01:47:46]. I don’t know any of that.

Speaker: Because then they build over time. [crosstalk 01:47:52].

Speaker: Okay, so maybe the answer is to work backwards and say, “These are the things that do not fit with this technology and [01:48:00] our solution to that is this. We agree with all these rules here, but these old rules just don’t fit and here’s what we would suggest is the solution.”

Speaker: That sounds really great but I think “XXX” has been working on that for years, and if the political process were really that accessible, then many things would be different.

Speaker: That’s how we work. That’s how [crosstalk 01:48:21]-

Moderator: But I also say some of that’s because the focus has been on law, and I’m kind of hoping that we pop up a level above that and say “Law’s fine. [01:48:30] You guys can deal with regulation. You can do it, but in an ideal world, here are some ethical principles we would like to abide by, we would like people’s help to abide by if we can’t do it and-“

Speaker: Isn’t that what law is, though?

Speaker: No.

Speaker: Yeah. I mean, I think-

Speaker: Should we agree upon ethics?

Speaker: What about having individual investment communities where everyone … Maybe there’s a micro-community. So, instead of having let’s say, 300 million people and having an SEC, which may or may not actually be serving [01:49:00] the interests of those 300 million people [crosstalk 01:49:03] the regulatory community-

Speaker: We have an ICO for a regulatory body for ICOs?

Speaker: I’m not suggesting that you have-

Speaker: They’d have to regulate [crosstalk 01:49:11].

Speaker: [crosstalk 01:49:11] something like maybe all of that just [crosstalk 01:49:13] the SEC or [crosstalk 01:49:14] who’s ready … who is willing to be that one … or the FinCEN point or anything like that, right? But rather, it just is like off-cuff … you have a token, a community of investors and they just [01:49:30] basically say “Here are the 10 requirements for an income [inaudible 01:49:33] we’re potentially willing to buy. It’s a free market approach and you don’t have to rely on some centralized third parties telling you the rules of the game.” So, it’s in a sense sort of collective bargaining but-

Speaker: I definitely am interested in that … This is where I try to get to them. [crosstalk 01:49:50].

Speaker: One example, why I don’t always think law is correct for that is that I think if you measure law by some number of metrics, one of which would be [01:50:00] what is the latency in which it adapts to things like how much … Where does the orders of magnitude if information had to make its decision? How much is … it actually does move, right? Law’s not static despite what a lot of people think of it. It does adjust, but if you think of the barriers to entry and how fast things move here, the cost of … the downside costs when they don’t work well, I think that there’s one [inaudible 01:50:27] … It could be our definition of how the law gets [01:50:30] defined or how regulation of it gets defined.

They look at a very different cadence of a very different structure from what we’ve had involved so far. Now, it may not but the question is, should it look different? It’s hard for me to say that I’d be … I think of the frictional forces and transactional costs and downsides, and all of these things associated with it. It doesn’t look orders of magnitude off [crosstalk 01:50:52]-

Speaker: I’ll give you an example here. Before this ICO craze I approached a couple of law firms that have some experience with Jobs [01:51:00] Act about can we make Jobs Act less expensive by, in effect … We have all these reporting requirements. Can we automate those reporting requirements? Every Jobs Act company has to do it themselves and had its … completely had to design it themselves, they have to report it themselves. There’s no organizations that can help them.

If everything was on a blockchain and every payment was a Bitcoin or an Ethereum and everything, you might be able to actually create a system by which everything [01:51:30] can be reported to meet those requirements for equity, and then have a compliant thing, but unfortunately, when I talked with them it’s like, well, “It’ll only work if we can do it for everybody and if there’s lots and lots of people who want to do that.” Whether or not it’s Jobs Act or Red C or-

Speaker: I think the way that will probably progress is a small nation will do it and they’ll create the right technology and they’ll export [01:52:00] it. I don’t think that will happen in the US.

Speaker: Yeah. Yeah, the obvious thing is within about a year, the SEC … if it doesn’t really fit, the SEC is going to tell us what it needs, right? I feel that right now, the best thing would be to at least pretend that you’re trying to abide by the SEC guidelines, but what we’re trying to do here is to a point, create something that that can work in a different level.

Speaker: On the flip side, the SEC’s guidelines [01:52:30] so far on it and on one interpretation you could have on it that is actually … I don’t think the ecosystem has played out enough yet to solidify the thing, which actually is not an unreasonable thing to [crosstalk 01:52:45]-

Speaker: No, but this was the police coming by the party saying, “Just make sure you behave yourselves.” before the SWAT team [inaudible 01:52:53].

Speaker: I was going to say this a while back, but [01:53:00] to that point, we’re jumping to this but just be sure not to forget the other side where by not having all these regulations … [inaudible 01:53:11], this is the thing that allowed all the innovations to try all these new funny mechanisms, to do all these things. We might not even know the answers to what could actually be created on this stuff.

So, before you try to stamp out the standardized process, you’re still pretty early in a lot of this stuff, and you just want to be careful of … You don’t want it [01:53:30] to be too constraint architected, which is why maybe the negative side or the ethical side or more of like how in general you think about these things, is probably better than trying to come up with the new form of the SEC to sit on this existing thing. We’re not quite ready for that yet either.

Moderator: “XXX” and “XXX” … Do you want to say something about design shops? Is this a worthy topic to try to do a design shop with some white papers [01:54:00] and things of that nature? Are we ready for it? Or is there another approach we can do things?

Speaker: I would think so. You’d want to have some background reading, make sure that people came in educated on stock because otherwise you’d, I’d imagine, have the same challenges raising reputation or identity at any web of trust workshop that you spent the first day or two days working out what you’re actually talking [01:54:30] about, but I mean, I would have thought so. You could go through the same thing but if you’re having a look at ethics you say, “Okay, well, token ethics, what are the different areas that we can look at with that?” And then say, “[crosstalk 01:54:41].” And then you take A and B and say “Okay, what are the best practices on that?”

Moderator: For those of you not familiar with it, I’ve been hosting for not quite two years, a process by which a group of people, typically around 40, get together, break up into groups based on [01:55:00] what’s going to have impact, and in three days they write a white paper, at least the first draft, with a variety of different subjects, different alternatives sometimes slightly in disagreement with each other, but they ship it.

We have to do a little bit of process afterward and massage it and make it available, but it is one way to have the bad practices list for those people who want to work on that, and other people can work on these high level principles thing and we can take to make that mature. There’s somebody else can say, “Here’s all the stuff outside [01:55:30] the United States that we’re not talking about because there is nobody in here who’s doing that.”

Speaker: Have you heard about the Balkan [inaudible 01:55:40] center?

Speaker: I mean, I know them from an educational point of view.

Speaker: I think they’re right now working them up around those lines. They’re doing a meet-up every Friday, and they’re trying to be structuring a [01:56:00] voice in the Balkan community where they’re trying to set standards and say “Hey, this is what we should … work by”. I think it’s been interesting because their point of view is like “Oh, I’m new to [inaudible 01:56:16].” The East Coast was the driving force in kind of building the infrastructure and making it happen, and something that could work.

Then, the West Coast, which is us [01:56:30] right now, was the monetization body that make it what it is in terms of financial opportunity in these cases and stuff like that. They want to be playing this role that it had to be the internet age where they were helping the structure and not the monetization part. They don’t want to focus on the ICO and stuff. They want to do-

Moderator: I mean, I’m thinking past ICOs. I want to create things that [01:57:00] have impact in the world that happen to make some money for their investors, but that’s a secondary effect of them doing good in the world. I’m trying to be respectful of people’s time because we said we were going to try to wrap things up at 9:30. Are there other things that we can do? We can try to do a design shop on this.

The nice thing with a design shop is you ship, so then if you’re wrong, people can at least fork it and go “I don’t [01:57:30] like your best practices, doctor. I can do better.” At least you started the first draft. Are there other things that we can do? What do we want to Twitter tomorrow about this? Do we want to have another salon in the South Bay? Do we want to have a zoom meeting with 50 people and what’s the-

Speaker: What I’d love to see out of this honestly is actually just a concrete list that we could share with people. Just a few things just saying there’s way more discussion that needs to happen but “Here [01:58:00] are the things we think are red flags during a crowd sale, and we’d like projects stay away from this.”

Moderator: Okay. Maybe we walk around the table. What do you wish …?

Speaker: For me I’d like to see international involvement. If we’re trying to do a international standard, we’re all obviously relatively US-based. So, I think conversation is centered around that for obvious reasons, but I would like to do a Zoom meeting where we had 30 people from international jurisdictions [01:58:30] that tried it.

Moderator: Okay.

Speaker: Out of this I would like to see red flags, like “XXX” said, but also my dream would be an unbiased technical evaluation center or something to do that, but that’s hard to do, I think.

Speaker: Yeah. Just to add on to those and the topic of distributing the investment over over a longer period of time, and [inaudible 01:58:56] products to do that would be helpful. [01:59:00] Then, just sort of brainstorming thing just to grow to the [crosstalk 01:59:03] and a lot of people that have raised, I know it would be good if there was … This is just a weird way to put it, but there’s a hotline for my ICO project is going sideways and [crosstalk 01:59:15] I need some non-judgemental assistance.

Speaker: Bless you.

Speaker: … try to structure this. [crosstalk 01:59:21].

Speaker: I actually don’t know. What do you do if it’s [inaudible 01:59:25]? You’re like, “I don’t want to walk away but also [01:59:30] don’t [crosstalk 01:59:31]-“

Speaker: [crosstalk 01:59:31] I talked with yesterday said their presale is basically twice as big as they wanted. How do you turn and say no?

Speaker: Right. Yeah. I think [inaudible 01:59:52]. Certainly, one of them to me, is what do less liquid forms of it look like but does that [02:00:00] mean best thing or whatever that means for the speculators or for whoever? What does that look like? What should the instructors look like? As well as how do you actually get a sequencing which … It may not look like startup rounds, but how do you actually get a sequencing so that it’s not just this … put all the money in or put no money in versus actually combined-

Speaker: Right, you’re putting money in later.

Speaker: … combined with how the actual [02:00:30] natural sequencing of these projects.

Speaker: Yeah. One thing maybe that’d be awesome, which I think is sort of going to happen is … so, not only the negative component to it but also just take all the stuff that you’ve written and come up with, not necessarily the white paper but the MVP or the MVP of a white paper, like the initial thing, and maybe like, post it on Twitter or Reddit or something to get the broader community world. Start thinking and talking about this stuff, because I think the SEC thing has come out and scared people, and people are now starting … this is [02:01:00] on top of mind for a lot of people. You can start to frame a discussion in some of the ways that we talked about.

Speaker: I’d like to see ways in which we can have organic crowd-based regulation. Away from having to say, “This is the stuff you need to do.” Which I mean, I think there are some obvious things people shouldn’t do, but otherwise innovate away but the crowd can manage that in a sensible [02:01:30] way. That isn’t how it currently is, where don’t invest if it’s not any good, because that clearly doesn’t work. But the crowd-based reputation system is sort of the obvious solution, but maybe but that’s very big and expansive. Maybe there are specific kind of slices that we can take out that we can do in that kind of way.

Speaker: … One [02:02:00] thing which I [inaudible 02:02:03] … If you think that the crowds right now are hard to actually … whatever, educate or make actually act on this, where is actually the right point of focus for it? Is it those creds? Is it the exchanges? Is it the people launching the projects? Is it … Where is actually the place that is the most effective place to-

Speaker: Especially since we just had an [02:02:30] opinion that says that exchanges may be more liable than they thought they were. That was kind of an interesting one paragraph in that.

Speaker: I’d suppose there are the securities and exchange solutions. They [crosstalk 02:02:44] the other so-

Speaker: Yeah, I think what would be most exciting for me personally is if I look back in a few years and then identify this as a starting point of it moving towards where eventually, [02:03:00] there would be this minimum ethical standards that would be practical for institution investors to be like, “All right, maybe we’re only like a third of the whole institutional space that invest in ICOs, but this is the minimum standard.” And that you can co-invest and you know that your co-investors are also going to maybe facilitate or support that particular project, so you have to raise its standards perhaps.

Speaker: The role of that investor and-

Speaker: Yeah, yeah. Like you can have [02:03:30] something that you can just be like, “All right, this is what … this is our minimum standard.” And you just give it to the project and then they can decide whether or not they want to-

Speaker: They’re sure it’s going to be a minimum standard plus one? You’re after that, your minimum standard plus one or whatever to sell.

Speaker: Correct. Yeah, yeah.

Speaker: I would think this crowd-based reputation, I think that’s what people would be the most excited about. Yeah, a centralized ecosystem for it to centralize the technology.

Speaker: [02:04:00] Yeah. The best I think that can be hoped for in such a fluid area is to start to compile the lists of repeating patterns or subtle things to look out for. Obviously the number one rule is no fraud, but there are people who are even deceiving themselves and so you want to [crosstalk 02:04:18] … and how to look for [crosstalk 02:04:20] … so much and maybe people not being balanced to the project for a long time, so the team disappears after the money arrive.

Well, just to mention, that has happened, it [02:04:30] can happen. You might be able to prevent it with this technique. So I think it’s just lists of things that are reserved, the things that are … as experts, as people who can pay attention, and it could happen. Then, you see how things unfold for the next three months, six months, and you look back and you say, “Okay, now this ethics credibility [inaudible 02:04:48]. Maybe This wasn’t really [inaudible 02:04:50].”

Speaker: One of those could be don’t leave your funds in the funding wallet or something? I’m just saying [crosstalk 02:04:56]-

Speaker: Are they experts in managing their funds?

Speaker: Yeah, have they even paid [02:05:00] attention to that? Who on the team is stepping up and putting their reputation on the line for-

Speaker: Right. You’re right. Ironically, it’s the people that were managing your funds well that [inaudible 02:05:06].

Speaker: Mm-hmm (affirmative). Or tried to slip by me, yeah. I just take too many [crosstalk 02:05:13].

Speaker: Yeah. I mean, I think that in general there’s … I’ve reached out to a lot of the investors that invest in this ICO space, and there’s a lot of upside for people to foster positive growth here and to align their brands behind a list of best practices, any challenges [02:05:30] in constructing that list of best practices. We’ve made [inaudible 02:05:32] at it, and realized that the space is just going in so many different directions right now that it felt constraining to do that, but I think that would be a good context for the ecosystem overall. We’re able to do that, even at our basic level and be constructive.

Speaker: Well, it actually sounds like there is fair amount of consensus in this room. Lots to disagree with. If there is the ruling yesterday is basically a shot across the bow, so if you don’t do bottom-up regulations, [02:06:00] so to speak, there is going to be no qualms about having top-down regulation, right? So, it would be interesting to first of all have … I mean, there’s such incredible complexity and depth in this area that there first of all has to be a lot of education. For your average person that wants to maybe get into this, what are the risks of getting … capped or uncapped? Just a lot of learning a number of people would have to do.

So, to the extent that there could be a glossary [02:06:30] of terms or certain analytical pieces on various key terms of an ICO, I think that would be very helpful for people. Make that better, a live document, and so as the ecosystem changes, that also gets updated. Then, Smith and Crown are starting to do a little bit. They have the ICO specific pages. I actually find that to be quite helpful, but I think there could be quite a bit of additional depth to that and especially on sort of just the terms side. You could also have a technical group [02:07:00] analysis that is very [inaudible 02:07:01]. Basically equity research, right?

Equity research in all of the sort of voluntarily adopted standards that every industry gets over time. For example, in venture, there’s nothing to say that you have to be a state corp versus an LLC. There’s nothing to say you have to be a [inaudible 02:07:16] versus something else, but over time, these just sort of coalesce into not necessarily legal enforced standards, but just adopted best practices. It might not be a bad idea for us to — “Us” [02:07:30] is a generously used term — but the community to start to have that, and then also for certain communities who may have different risk preferences to be a little bit more organized and say, “We’d be happy to invest in things that adhere to at least this part of the standards.”

Whatever that might be, because it’s up to every community to choose and that’s part of the whole freedom ethos that I think a lot of us are in this core as well. So, those are a number of things that I think might be interesting and certainly I think would [02:08:00] fill a space. If you could come up with an education set like that, plus you return whatever it might be, then that ranks number one on Google for “invest in ICO”, then I think returns will be good.

Moderator: Okay. So, what do we do? What’s our step tonight, tomorrow, this week, this month? Any proposals? Commitments? I’m committed, as I said before, to [02:08:30] … I’ve hired to do the graphic here and he will basically publish that. It will not make a lot of sense to people without some of the transcript, so we also have to do that, so I’ve committed to doing a transcript. Where do we publish this? On a website, on GitHub, et cetera … is now the question.

Speaker: I would say Medium posts. I think that’s most accessible and [02:09:00] easily shareable.

Speaker: Yeah, GitHub is not accessible to most people outside.

Moderator: Okay.

Speaker: Yeah.

Speaker: The transcript could be long, so this-

Moderator: Yeah, “XXX” does a great job. I’m going to see if “XXX” will do it. If not, it’s $3 a minute through a service that does a great job.

Speaker: We’re all set, okay. [crosstalk 02:09:24]. They should be on Investopedia. [02:09:30] Right, that Investopedia guy [inaudible 02:09:32], right?

Speaker: Yeah.

Speaker: I assume media, social media. All of our-

Speaker: [crosstalk 02:09:39] trying to get these things listed on explorers blockchain explorers and [inaudible 02:09:49] that you sponsor?

Speaker: Is there a way to … if you could approach a Bitcoin or, I guess, ICO journalist, and give him a scoop. Give him the transcript beforehand so he [02:10:00] can make an article out of it. Then, give him a few days and only then launch the actual transcript. Maybe it’s a win-win where he gets the scoop and then we get the summary out in the world.

Moderator: I know I can get “XXX” to do that.

Speaker: Okay, so-

Moderator: Are we also-

Speaker: [crosstalk 02:10:17] from “XXX” [crosstalk 02:10:18]-

Speaker: Yeah, she could probably do an entire podcast on token ethics. I think she’d be down for that.

Speaker: Especially now.

Speaker: Yeah.

Speaker: I [02:10:30] want to mention one weird incentive thing, which is the weird thing is that talking about token ethics when you’re holding tokens that devalue your token are … that’s like … Like if you haven’t bought the token yet you want to get good advice. You have the token, you don’t want good advice to be given to people who are [crosstalk 02:10:51], which I think why we’re experiencing so much hate when people start to point out technical details as if there are people who don’t want [02:11:00] the market to crash. They don’t want that [inaudible 02:11:02] to come out.

Speaker: I mean, to sell it on Meta, Meta token ethics that is now-

Moderator: Do we have a name for the Medium post or the Medium’s blog name or … How do they do that? Do we have a … anybody wants to work with me on it? Are there any other [crosstalk 02:11:20] … I think I reserved just to give them space. [crosstalk 02:11:26] Yeah, no idea what to do with it, so we can do that if there are no objections. [02:11:30] Do we want to try to do a design shop? So, that’s basically a larger venue, we can get Microsoft or somebody like that to do it, try to get 30, 40 people. Does that work well or is it premature? Do we just want to publish what we’ve got so far?

Speaker: I would think we publish it, and we test the stocks.

Speaker: Yeah, it might be we get feedback from that and then I think it’d be more useful to do the the design shop from there.

Moderator: Do we want to do another salon like this in [02:12:00] another place? New York, South Bay? Do we want to do a Zoom?

Speaker: I think there’s value in once it’s published get the feedback and have us all come back and talk together and discover what the community said. These guys were right about this, they were wrong. I think there’s value in that, whether it be a salon or Zoom, I don’t know. I would find value in that and I would be interested in doing that.

Moderator: Okay.

Speaker: Yeah, I think a few shorter sessions, all in one sessions so we can … I’m not sure about [inaudible 02:12:30] [02:12:30] design shop at this point.

Moderator: Okay.

Speaker: Is there a plan or anything? Is it part of the transcript idea to link to resources that people have mentioned? I don’t know how many they would have been but …

Moderator: Well, I’ve been trying to add them to that Google Docs.

Speaker: Oh, yeah. That’s it.

Moderator: I hope to publish that Google Doc with this. So, add stuff, annotate, comment. Just recognize that Google doesn’t protect your anonymity, so if you want to comment [02:13:00] on something be aware that I can’t take your name off of it because Google is kind of bad on that.

Speaker: So, that document is going to be in public?

Moderator: I would like to. I mean, unless people have objections, because clearly any … Some of us are maybe more sensitive in some of these areas than others. I don’t want to allow anybody to be able to … basically not have to be published if they don’t wish to be. Is there anybody here who doesn’t want to be on the list of contributors to this transcript?

Speaker: [02:13:30] I might prefer not to be.

Moderator: Okay.

Speaker: Yeah.

Moderator: Okay. Okay. I think that’s our action plan. I will do the transcript. I will put it up on For now, if you tweet and say, “It was a great event. We’re working on it.”

Speaker: I have a mistyped version that I’ll send to you.

Moderator: Any other action items people want to take, join in, commit to? Everybody can add to the tape. Can everyone put their names on the page as a contributor? Then you don’t put it on and that way I know that I’ve got [02:14:30] it correct? So, the Google Doc that I shared.

Speaker: Is there any potential backlash that like … I don’t know. I’m thinking what goes into the [inaudible 02:14:42] do not have your name listed?

Speaker: Death threats.

Speaker: No, I don’t know. I’m just … Maybe I’m overlooking something or-

Speaker: I’ll be one, so I’m not … This is not officially a “XXX” thing because anything that has “XXX” theme on it, it’s going to have some pain associated [02:15:00] with it [crosstalk 02:15:01]. Okay?

Speaker: Yeah.

Speaker: But legitimate or not, it just is. This isn’t officially sponsored by “XXX”. I’m paying for this service out of my own pocket, et cetera. This is dominated by the Ethereum community. It’s part of my interest from my Bitcoin hat, is there’s nothing that stops you from using “XXX” today to do an ICO. In fact, there are some technical advantages to doing so.

Speaker: There [02:15:30] are some of us who are scared to death when people discover that you can do it. So, there are a few things I know I will edit from the transcript, and I want everybody to have the opportunity to … but I’ll put my name on it.

Speaker: Yeah.

Moderator: The only backlash that I can imagine is there is probably “Who is this group of people in a room that are deciding what the ethics on …” That’s why that photo will be taken.

Speaker: Right.

Speaker: [02:16:00] Right. [crosstalk 02:16:01]. Yes.

Speaker: You just simply don’t get a lot of love on social media.

Moderator: Yeah.

Speaker: There are not a lot of sort of positive [crosstalk 02:16:12] hugs and kisses coming in.

Moderator: I was upfront with everybody. This was not as a diverse in a variety of different mechanisms as I would like it to have been, but I think we did a reasonable job. We have a lot of different communities and people represented. Obviously, our biggest one [02:16:30] is geographic-

Speaker: Mm-hmm (affirmative). I think it’s a great first step.

Moderator: Yeah.

Speaker: Absolutely.

Moderator: Okay. Thank you for coming!