Joel Monegro:
And so we started to look at the next cycle of innovation in technology. And this was right after USB had invested in Coinbase. There was an understanding that there was something really important with blockchains in general, and Bitcoin and so on. And as we started making investments in the blockchain space, I went and studied the history of information technology and kind of found this pattern of evolution based on open source platforms, starting with the transistor which enabled the kind of hardware era that then consolidated around IBM. And then what I did IBM was the introduction of the microprocessor, which directly challenged the business model of IBM, of building these kinds of specialized machines. And then we had general purpose processors, that kick started the software era that then consolidated around Microsoft. And then what it did, Microsoft smart market power was Linux in the web and open operating system and an open distribution network.
Joel Monegro:
And then we got to where we are today. We are now consolidating into Google, Apple, Facebook, Amazon, all of which leveraged this open operating system architecture and this open distribution mechanism. And so all of a sudden blockchains seemed really important because they seemed to have the same characteristics with regards to how they counter the business models of the incumbents, because they’re based on open data and user ownership of data versus centralized data systems. So that’s what got my interest started in kind of pursuing or pulling the thread of blockchains. Around the time where we started Placeholder, that idea expanded into what would became the kind of fact protocols idea of we have an opportunity to create these decentralized systems that are protocol based, kind of like the internet, but that also deal in data as opposed to only dealing in communication the way the internet does.
Joel Monegro:
And so the intuition was that these systems were going to capture value in a way that prior generations of protocols were enabled to capture value within themselves. And so the original thesis was really based on that idea that open data systems, built in blockchains, were going to create a bunch of business model innovation and then provide a platform for innovation for startups to compete against incumbents. That was the thesis when we started. And the one thing that’s changed in the last few years-
Patrick Stanley:
It makes sense, by the way. To start there and then for it to evolve, it to adjust in the past three years.
Joel Monegro:
Yeah. Yeah. What’s cool about the job of investing is, you start with a thesis, you invest, and then you kind of evolve it and refine it. And there’s one thing that’s changed or evolved pretty significantly, which is in the beginning we were very much focused on the kind of technical innovation parts of things.
Joel Monegro:
So rebuilding key services in a decentralized way to go on and compete. And so we were thinking about things like, well, take the AWS stack for example, let’s build decentralized versions of those things. Pretty quickly, we realized that, that’s incredibly important but also incredibly difficult.
Patrick Stanley:
Difficult? Yep.
Joel Monegro:
Yeah. For a number of reasons that are quite technical. It’s a very difficult computer science problem to, for example, build a decentralized file storage system. It is possible and it is important, but you kind of have to build a perfect system from the start. And so it’s a bunch of challenges. And so we were seeing, as we were putting money to work and investing in crypto, that the more interesting opportunities were happening with people who were using the basic components of the technology, the creation of tokens, and the program ability of tokens, to create new business models around services. And started to see people having somewhat centralized architectures, but then innovating with tokens into programmability with tokens.
Joel Monegro:
And so that shift our attention to spaces like Defy, in 2018 we started investing in that as a kind of infrastructure that’s just as important as the technical infrastructure. And that’s something that we spent quite a bit of time on.
Patrick Stanley:
Yeah. Defy seems like a one chapter out of this book that’s kind of rooted in tokens and ownership and wealth creation. And I think it’s certainly a place, it’s kind of… Our head of product and I went to, we go to Defy meetups, stay up to date, and stay involved. And one of our takeaways from leaving the first one we went to, it was like, “Wow, this is like a pulsating money planet, like program that’s hard to look away from as a development.”
Patrick Stanley:
And I think that that very much is the case, and it definitely attracts intellectually curious people, and there’s a lot of really important sort of things happening there. But no doubt I believe they’re… And you probably do as well, like there are other business models to be unlocked outside of Defy that that sort of leveraged that sort of, I wouldn’t say non necessity, I would say leverage existing infrastructure. Like you can have like pretty centralized apps and still leverage elements of the token, and I think that’s a very… We’ll get to that. I should save that for later. But that’s a pretty unexplored, the users [crosstalk 00:08:16] model. We’ll get to that. But that’s a pretty unexplored area right now.
Joel Monegro:
It is. Now the interesting thing, and something that I hadn’t really considered until we got to that point of understanding, was that Defy is not so much a vertical category within the space of crypto, but it’s a horizontal layer of infrastructure, and it’s like the financial system. You know, you go start a coffee shop, you rely on the financial system to provide a whole bunch of the infrastructure that allows you to operate, even though your business has nothing to do with finance. You have credit card processing, you have a bank account, you’re taking in payments. And so what we’re going to see is people leveraging Defy to create business models that have nothing to do with finance at all, but that still use these pieces of infrastructure to create new business models.
Patrick Stanley:
I have my own interpretation of that. I’d be curious to hear you sort of unpack that a little bit further.
Joel Monegro:
So I’ll give you an example. So there’s a project called, PoolTogether, which is a savings game where people deposit their dai, which is a stablecoin [inaudible 00:09:38] to the dollar. And then that dai gets put on a system called Compound, which is a Defy peer-to-peer lending marketplace. It earns an interest rate, and then what the PoolTogether application does is it collects the total interest earned over a period of a week by everyone who deposited dai into the system, and then awards it to one of the depositors as a kind of lottery game.
Joel Monegro:
So it’s kind of like a savings lottery where all the interest becomes the price pool. You don’t lose your principal, you don’t lose your deposit, but interest is generated by the system and then given to people as a lottery. It turns out you can use that exact same model to create a business model for other kinds of applications, for example. So this is more imaginative, but imagine that the way you sign up to an application is by staking a token. And if you stake a token, and that token earns revenue in the form of interest, and that maybe goes to the application developer, and then when the user doesn’t want to use the app anymore they can unstake. And that would be an example of how you could use Defy protocols to create business models for something that has nothing to do with finance.
Patrick Stanley:
Yeah, I think there’s a couple of elements there that are interesting and worth pulling out. One is sortition. I think the sort of randomization allows for simplicity in terms of infrastructure. Like you can drastically reduce kind of like what is required to kind of like productize that business model. If you kind of like make the kind of cookie cutter template for that be one where like people are rewarded in a randomized way, versus having some sort of pooling element where any staker of any size can can participate. But there is like a middleman kind of getting in the way of your automatic recurring payments that are expected rather than randomized. I think that’s an interesting component. Why don’t we dive deeper into the users [inaudible 00:11:43] because I think…
Patrick Stanley:
So, it was interesting. I was reading your thin applications blog posts, very, very good blog posts. For me, the most potent thing, the thing that could be its own blog post and jumped out at me was the user staking model. So I’ll just briefly quote it to kind of save folks time reading that one section. Joel goes, “I’m most fascinated by the user staking model because they represent a genuine business model innovation. What I love about their staking models is how they change the user service relationship. Web users are locked in by force through the centralization… Sorry. Web users are locked in by force through the centralization of data. Crypto applications, even if they’re built more traditionally do not have the same ability to lock you in. But user staking creates a kind of opt-in, economic lock-in that benefits the user by turning them into stakeholders and success of the service. It creates defensibility through user ownership instead of user lock-in.”
Patrick Stanley:
That sounds very congruent with the sort of crypto thesis. And the last thing you said is, “This presents a universe of fascinating consequences to be explored in future work.” What I took away from this was one huge business model innovation unlocking here, especially if it has the right components around it. I still think the sort of like complimentary component aspect is vastly under explored, in addition to like this whole user staking model itself.
Joel Monegro:
Yeah.
Patrick Stanley:
And so like I think that’s ripe for opportunity. But also what’s really fascinating is you’re taking the user of an app and the stakeholder of an app, and combining them into one synthesized user. And I think the thing I love about that is it adds a focus to what you’re measuring.
Patrick Stanley:
It also creates, and it pushes the business model directly to the markets, and creates a utility for the token off the bat without trying to have sort of hamfistedly insert a token use case inside an application. And what I think, and the last thing I’ll say about that is, and I’ll give you the floor, is in creating this new user type, you’re also creating a community that has a very strong network effect with a very well defined use case.
Joel Monegro:
Yeah. Yeah, definitely. You’re completely right about all of that. And there’s an interesting parallel to unions. One thing that I’ve been really kind of thinking about under this umbrella is, can we use these technologies to create user unions the same way that once the corporations, back in the last kind of, in the turn of the industrial revolution, once they got too powerful, and the workers were upset by the disparity in power between the corporation and the worker, we came up with unions to give the workers representation with the management of the system. And if you think about the whole idea that when we’re dealing with web platforms, we’re not the customers, we’re the employees. We’re the employees of Facebook when we’re giving them our likes and our data. Could we create user unions maybe with a dai model where… There’s a whole bunch of things that you could do.
Joel Monegro:
You could have legal representation, where imagine it’s a dai representing the users, could hold a board seat in a company, and then you’re doing something completely centralized in terms of how the service is built. It’s not really a decentralized app or anything like that, but maybe there’s a way to give users representation in that model. Or you could do something a little bit more integrated with some of the things we’re seeing with user tokens where ownership of a token grants you special rights or special ownership, or lower fees.
Joel Monegro:
But a key element I think that that needs to be explored is, how do you give upside to the user and the profits of the platform and the growth, the financial growth of the platform? I think one of the big problems we have with the web is that a company like Facebook is a public company, right? In theory, you can go and buy Facebook stock and benefit from the growth of that platform. But when you look at the reality, that option’s available to very few people within the Facebook community, and it’s because Facebook is an American company listed on an unlimited number of exchanges that have a pretty high hurdle to cross in terms-
Patrick Stanley:
By the time it’s successful, it’s like [inaudible 00:16:36] too late to invest in. You don’t get-
Joel Monegro:
Yeah.
Patrick Stanley:
[inaudible 00:16:38] trading laws and have this really great code. He goes, “I think the world’s going to go from the blogger.com era of investors to the twitter.com era of investors.”
Patrick Stanley:
Let me see if I can problem solve for both those questions you outlined. For the dai creation, one could imagine app developers spinning up their own specific app chains for which who can mine is defined early on. And so that designation can sort of like define the sort of set the folks that kind of have some control over that application in a meaningful way. And so like not necessarily viewing it from a smart contract lens, or from just token generation lens, but from like a sort of blockchain of buy everything and kind of put the governance in there.
Patrick Stanley:
That could be a solution. And also I would say like proprietary governance is not a bad thing, necessarily. Like there could be a lot more proprietary governance of a model like this took off. Secondly, in terms of users gaining upside, I’m super bearish, not that you mentioned this, but I’m super bearish on folks getting like paid for their likes. You didn’t say this but like folks getting paid for their likes in the application, I’m like, that just seems like super backwards and like contrived to me.
Patrick Stanley:
What I am bullish on is folks holding a stake in the underlying sort of like AppCoin and obviously using it as a way to like log into the app potentially, but receiving sort of an earning for being a huddler. And at Blockstack we’ve actually sort of like solved this problem in a way that’s yet to be introduced until [inaudible 00:18:30] goes live.
Patrick Stanley:
So we have this concept called, Proof of Transfer Mining. So it’s a generalization of proof of burn where you sort of like secure the blockchain. So to prove a burn, you secure a blockchain by burning Bitcoin, and producing stacks from it. In proof of transfer, instead of burning it, you send the Bitcoin directly to a qualifying stacks holders. And so you can use this concept in a sort of like a fractal-like way, with app chains.
Joel Monegro:
Right.
Patrick Stanley:
So if you’re logging into an app and you’re hodling the token, you’re not only getting the benefit of the utility on the other side of that login that you’ve proven to be a stakeholder of the app in, you’re also receiving a kind of like a bond, like a bond earning for kind of like increasing your ownership in the decentralized internet.
Joel Monegro:
Definitely. And that’s a cool idea. And what you said about not paying people for their likes, it’s probably true. You know, you can think about it as, okay, do you ,want to give people income or do you want to give them capital gains? Income is kind of, you know, not as attractive as capital gains. Those are tax terms. And not only is there a clear tax advantage there, but just forget that whole part. Forget the the physical world for a moment.
Joel Monegro:
It is preferable to have user stakeholders as opposed to user workers, right? And so a stakeholder benefits from the growth of the platform, versus if you’re paying people for likes, what you’re doing is you’re going to end up with a 1% problem, because you’ve got 1% of users in a platform who are super active and then they end up concentrating all of the value. And it’s really hard to tell whether a like is more valuable than another. And so it’s a very hard thing to standardize. But if you require people to invest in the platform, to then become part owners, part stakeholders, that’s where you get that idea of voluntary economic lock-in, where I’m locked into this service, not because I’m held hostage, but because I’ve made an investment in it.
Patrick Stanley:
Yeah, and this is why I think incentives are so difficult and markets are so great.
Joel Monegro:
Yeah, definitely. Yeah.
Patrick Stanley:
I think like Eric Weinstein was on this podcast with Lee Quinn from CoinDesk. Side note, she did like a great job of navigating that interview. It’s 13 minutes and very potent. One of the quotes he said from that podcast was something along the lines of like, “Incentives do not capture the richness of human nature, whereas markets kind of do.”
Patrick Stanley:
So what I love about the user staking model is it gets people going from a standing start immediately to providing utility for its users and leverages the market in the meantime. So like use the market in the community in your favor to kind of like accelerate your apps distribution and utility and value, essentially. It’s completely fundamentally a new thing, and I think what it does is it captures all the best of crypto in a way that that makes… It captures all the best of crypto in a way that is not contrived, or like incongruent with what human nature actually is. Like if you looked at tokens like…
Patrick Stanley:
… with what human nature actually is. Like if you looked at tokens like, dude, 99% of people are investing in tokens, they don’t even understand how the core protocols work. It’s too big of an ask to actually create a market that has true signal, 99% of people are just speculating. So that is okay, and I think it’s worth almost leaning into that reality and going with the grain rather than going against it and expecting a volatile cryptocurrency to be used as a medium of exchange, which is bonkers to me. So I think over the next 10 years, the top people’s totem pole is get wealthier together and also be like pro growth pro wealth.
Patrick Stanley:
And I think that’s the first five years of this next decade, and the last five years are like the data… this part is from Fred Wilson. People realize the value of owning their own keys because they’ve experienced it through digital wealth creation, that they then begin to translate that into data ownership and we started to see that. So that’s where my head currently is at, and I’m not speaking on behalf of Blockstack per se, but like what I’ve explained is why am I so excited about your excitement in users staking.
Joel Monegro:
Well, what’s interesting about it is that, going back to the beginning and going back to the progression of the market is that, it’s not really about technology as much as it is about value. And I think early on, a lot of people, including myself, had that fever of let’s just rebuild everything in a decentralized way and that will take care of everything.
Patrick Stanley:
Centralized until your brains fall out.
Joel Monegro:
And that creates a real problem, there’s some things that benefit from decentralization, there are some things that benefit from centralization, but the key issue is how has the boundary distributed. When you have information economy platforms that deal with information, and digital will take a bit of a philosophical or theoretical turn, the tricky thing with information as an economic good is that it’s very different from a chair or a table, an industrial economic good in that it’s kind of produced from anywhere, it can be reproduced at zero marginal cost, it can be moved at zero marginal cost. And so you achieved these levels of scale and information services thanks to the internet that you really couldn’t before, and the current financial infrastructure can’t deal with that in subtle ways, in the sense that it’s really hard for you to distribute the ownership of Facebook, for example, or a Facebook scale like service through the entire user base that is global and [inaudible 00:24:57] and multiple different jurisdictions and have different levels of participation. It’s really hard to do that with equity, it’s really hard to do that through the traditional financial rails.
Joel Monegro:
It’s much easier to do that with tokens. And so if you figure out token models that effectively give users the value of being an owner in the platform, even though it may not be an equity instrument, it could be another mechanism, then you’re getting at part of the issue with the way these platforms work. I don’t think people are so much upset about all their data being in Facebook servers as much as they are about who gets to control that data, who gets exclusive rights to that data, and them not being able to participate in that.
Patrick Stanley:
Yeah, you hit the nail on the head. The things I’d add to that… That was very information theoretical of you by the way. I think another lens to add to that is in an information economy, supply and demand are less of a constraint, it’s more a human creativity. And so you mentioned users becoming stakeholders, I think it’s important to also identify that a behavior shift needs to happen for people to understand that need to become stakeholders early on in the kind of abundance of human creativity that these low barriers to value creation in the form of crypto tokens offer.
Patrick Stanley:
So essentially if you reduce various entry and also encourage lots of human creativity to create actual real value that’s objectively measurable, I think you can actually lead to a behavior shift as I was quoting [inaudible 00:26:45] earlier about like we’re in the blogger.com era of investing and move to the investor.com era of investing. And I think people definitely miss the thread on the decentralize everything thing, it’s not about decentralizing everything, it’s about decentralizing things that unlock new opportunity and using your brain to determine what doesn’t [crosstalk 00:27:07] decentralized.
Joel Monegro:
Right. It’ll be interesting to see, as you said, in five to 10 years. Going back to business model innovation and competition and how platforms compete, will people be interested in signing up to a service that doesn’t give them upside in its growth?
Patrick Stanley:
That’s a great question to ask.
Joel Monegro:
I’m choosing between service A and service B, and service A gives me an opportunity to grow with it, to grow my wealth with it, why would I choose service B? And this is where we go into, okay, let’s… especially with information technology and information services, you have to assume that everything becomes hyper commoditized because code is open source and a blockchain data’s open, and the model of trapping data into silos is not really all that sustainable. And going back to the thin applications, this is part of what led to focusing on these questions is that that’s where you see it at the extreme, where you have applications built completely on top of open crypto protocols, that other than the user experience are completely indistinguishable from one another in terms of functionality. Because they use the exact same code, the exact same protocols, you can afford the exact same interface, and there’s only so much extra proprietary value or functionality that you can add if you’re building on top of open systems. And so then it becomes a battle of who shares most of the value.
Patrick Stanley:
Exactly. It seems like it might be a battle for value distribution and ownership and maybe human at attention, it’s almost like sometimes things can be reduced to that. Like I know Albert Wenger has done a lot of thinking around human attention and that’s the denominator of value capture. But that’s something I’m interested in exploring but don’t really have a whole lot of things to say about.
Joel Monegro:
Well what’s interesting is human intention is really hard to quantify, but if you put a token on it and create a market around it, then you can represent it as a price if you think of demand as a proxy for attention.
Patrick Stanley:
Totally. And what’s really, yeah, that’s really… Images of like… Well let me us back. Again, this is the reason why markets are so valuable and also why… I think knowing how you stack up against something that is almost objective by its own existence, like Bitcoin, I think it creates more of like a measuring stick for that value that’s kind of like contrasted against it, if that makes sense?
Joel Monegro:
Yeah, the markets point is something that… Going back to thinking of decentralized finance broadly as infrastructures, precisely because it facilitates the creation of markets in a kind of lightweight way. Whereas if you’re trying to create markets around or using the traditional rails of infrastructure, that becomes really difficult to do. But here’s one way to think about it, so one of the most popular, if not the most popular form of capital in the industrial economy is equity in a business. Right? And so they’re the instrument, the thing that you actually hold and transfer and create a market around is equity and that’s something that we understand very well.
Joel Monegro:
There’s a whole bunch of things that also have value but don’t have the same kind of instrument around it, like for example, attention. There’s no market for attention that’s really visible. It exists but there’s no trading around it because I can’t transfer units of attention, and it’s a very weird thing to think about, but we can kind of approximate that with digital tokens and programmable tokens.
Patrick Stanley:
I think programmable tokens are directionally better than attention. You have huge problems in like civil attacking a network with attention. The problem of identity, the problem with establishing unique personhood, is one where I think you can get directionally accurate about and harvest some value out of that exercise. But if it’s not the immediate path I would take in terms of trying to grow a crypto ecosystem, because it has more mystery than answers, whereas like the markets have more answers than mystery. So yeah, so I was… I’ll let you…
Patrick Stanley:
I have first hand experience with this, with trying to identify real personhood via our app mining mechanism. Thanks for the shout out by the way, that thing is totally a work in progress that the community is working on and we temporarily paused because, again, like it’s very difficult. But figuring out unique personhood and the corresponding attention is insane, I think its orders of magnitude more difficult to solve. Maybe [inaudible 00:32:50] more valuable, but its order as a magnitude more difficult to solve than merely measuring people’s or entities ownership in tokens.
Patrick Stanley:
I actually tweeted something today that I thought it was kind of relevant to our conversation, which was like people HODL to get wealthier and to have ownership and things, but… it was like roughly this, like I think it’s important to just channel that energy correctly. And that’s, to me, what the user staking model, that you’re interested in it as well represents to me, represents a proper channeling of like human nature and what is already happening in the industry.
Joel Monegro:
Yeah. I’m thinking about some of the examples that I have experience with the user staking, some of what illuminated this idea for me was, so for example… And just to give people a sense of what’s out there in practice beyond just the theory, there’s a crypto accounting platform, it’s a SaaS business, it’s as standard a business on the web as you can imagine, and you pay a couple hundred dollars a month to get this suite of tools to deal with accounting. And they have a token, and basically it’s something like you can pay them $200 a month with a credit card and that’s fine, but if you buy X dollars worth of their token and stake it, that bill goes from $200 a month, two $50 a month, and there’s a limited amount of those tokens, right? And so all of a sudden-
Patrick Stanley:
How do you think they modeled that, like the trade off there? In terms of understanding the value of a network effect they [crosstalk 00:34:47] derive from that, like how do you do that math?
Joel Monegro:
That’s an interesting question. What’s interesting is that I saw that I never thought about it from the point of view of how do they model it as a platform, I thought of it from a point of view of a customer. And so I went, okay, I just did some simple math, if I buy X thousand dollars of this token and I stake it, my bill goes back to it by this much and it pays for itself in 18 months or something like that. All of a sudden I’m locked into this platform for 18 months, no contract, but I voluntarily lock myself in for 18 months. But on top of that, I benefit from the appreciation in the sense that the more people sign up to the service and buy and stake the token having done the same math, I actually benefit from the value of dose tokens growing as more people sign up and do that.
Patrick Stanley:
Yeah, appreciation and remuneration I think are both important. Appreciation alone, I think might not be enough to have this model take off. You’re fighting at least more of an uphill battle, that’s why I like the concept of extending proof of transfer directly to these chains to create some extra gold fueled incentive to stay in.
Joel Monegro:
Yeah, definitely. And it kind of, now that you’re making me think about it, it plays out here because the primary motivator is I go from $200 a month, to 50. That’s basically effectively getting paid $150 a month for staking this token in the form of, I would have been paying 200 but now I pay 50. I don’t actually recall the exact numbers, but it’s something of that sort. And so it’s kind of an interesting model, but I use it only as an example of the kinds of things that people are experimenting with. Not really having to do with building DApps on blockchain in a decentralized way, but mostly around how do we create a token model for users that creates value for them and that creates value for the platform as well.
Patrick Stanley:
Yeah. And how I’m interpreting what you’re saying is like focused on the business model innovation, not the technical innovation.
Joel Monegro:
Yeah, yeah, exactly.
Patrick Stanley:
Loosely. Super interesting. I want to dig in a little bit more to this actually, this math problem. Trying to try to figure out how to think about this, so what are the elements you need to pull in here? If you had a $50 in people holding your applications, sorry your tokens rather, you assume some sort of appreciation in the token, assuming there’s a set rate of people onboarding and choosing the token buying option versus the $200 per month option. So the $200 per month option is very linear in terms of the growth rate. However, you might have an exponential growth rate in terms of your value capture as a business owner if you get enough people choosing that $50 rate fast enough essentially.
Joel Monegro:
Yeah, exactly. And so if you start as the service provider with the complete stock of tokens, right, and every time you acquire a customer and that customer is making a choice, I can pay you the $200 a month or I can essentially pre-buy or pre-purchase. It’s similar to when a service will go, it’s $20 a month if you paid month by month or it’s $15 a month if you pay a year in advance.
Patrick Stanley:
Yeah, but there’s two more variables here. One is there is an appreciating value unit, and also there’s a potential income stream as a stakeholder that’s commensurate to that appreciation and value. So you’re not just watching the price go up and down, you’re also, kind of shoehorning proof [crosstalk 00:38:58], it can be thrown out or whatever. You’re also kind of-
Joel Monegro:
There’s flows of value, there’s a transfer of value going from one person to another.
Patrick Stanley:
Yeah. Your cashflow analysis in terms of when you get… like time value of money is something that is incorporated into this equation. So if you’re going to incorporate that, then you essentially know exactly how many users you need to onboard, at what price to access your applications, at what rate, and if you can achieve… Here’s where it gets interesting, there’s an escape velocity equation here, but if you’ve come with a mining mechanism, you essentially can meter out the expectations in terms of how quickly your token is purchased and how people can even get access it.
Joel Monegro:
Right, and if you match-
Patrick Stanley:
So essentially you’ve locked in that business model. Oh yeah. Sorry, sorry, sorry, one more thing, if you’re mining and the application is using that mining to… let’s just say a really good situation is the app is using that mining to power utility, in addition to the proof of HODL login acting as utility, or maybe like a regulatory zone that you’re occupying that is like… Consult your lawyer, but like you may be occupying a regulatory zone in certain scenarios that may problem solve some of the regulatory issues that people are seeing today. And by the way, when I say that, I say this is not an endorsement of that as a regulatory safe haven whatsoever, this is a-
Joel Monegro:
Business model exploration.
Patrick Stanley:
Yeah. Well it’s not even business model exploration, it’s like do your own research, do your own research on that and understand that before you try to do anything like that. I wouldn’t want to lead anyone into thinking that this is somehow, someway to escape security [crosstalk 00:41:04].
Joel Monegro:
There’s two other elements that are important now that we’re listing them. One is, you can leave. You can leave and sell your tokens whenever you want, and kind of get your investment or whatever, let’s not touch the price, but when you leave, you can essentially sell your stake if you’re completely done with this platform. That’s something that you can’t quite do with traditional models where if I pay a year in advance in a service and by month six I realized that I want to use the service anymore, I kind of already spent that money.
Patrick Stanley:
Yeah, another way to rephrase that is you’ve solved the downsides of not being able to exit from data lock-in, and given all the upsides of capital flight at the speed of light. So you have like an exit augmenting voice.
Joel Monegro:
That’s great, that would make economists probably a little nervous, but that is a great phrase. Capital flight at the speed of light.
Patrick Stanley:
Yeah, well I mean if economists should be nervous about Bitcoin, then they should be nervous about this. If they shouldn’t be nervous about Bitcoin, then they shouldn’t be nervous about this because you’re anchoring into people’s willingness to HODL a currency all the way all the way up the chain, and that’s rooted in the PoX model based on Blockstack, which by the way, this is all idea, we don’t have this on our roadmap, I’m just exploring it conceptually with you. You extend PoX from Bitcoin to stacks to app chains, for example, you’ve one, created a new behavior, two, you’ve created essentially a mechanism that begets gets more HODLING, potentially, where if you’re able to get people to HODL your own app points by forwarding stacks, and you’re also able to get people to forward Bitcoin into stacks, that means you have a connection anchored in Bitcoin. And so you essentially extended Bitcoin’s utility through an application investing layer.
Joel Monegro:
Yeah. Yeah, that’s very cool.
Patrick Stanley:
Yeah. Sorry, I hope that makes sense. It makes sense to me, I hope it makes sense to the listeners as well.
Joel Monegro:
It does, but the key point there is what you just said, it’s extending the utility of an existing system. And it’s one of the subtleties that will probably be really important in the next a couple of years because a lot of, for example, if you imagine some of the criticisms of a proof of work system like Bitcoin, about it being energy inefficient, for example. Well if you think of a ways in which you can reuse that proof of work and extend its value, then all of a sudden the cost to value ratio continues to improve over time. If you do a lot more with that proof-
Joel Monegro:
For a time. If you do a lot more with that same proof of work than just the mining of the coin, is that if that mining of the coin now allows you to create value somewhere else, it may be the kind of thing that is missing from the analysis around, what will happen when block rewards cease being a thing? Well, if proof of transfer, and that may be a highly valuable transfer if you have a lot more utility at an application somewhere.
Patrick Stanley:
Absolutely. Like a little tact that … Sorry, can you back up and say the first thing you said in the beginning? I lost it to continue paying attention to you, and forgot the first half of it. There’s a very interesting conceptual piece there.
Joel Monegro:
With extending the value of [crosstalk 00:00:49]?
Patrick Stanley:
Yes. Yeah, the point I was going to add to that, just to be helpful to creating more of a story around here is, you should only need to go from proof of work for electricity, to proof of work once. Having to spin up many proof of work chains seems pretty backwards and environmentally unfriendly. And so if you trust Bitcoin as this Unix, no man’s land that even enemies can anchor into, then you should trust it for being like the king of proof of work, for an extended period of time. It’s a very low entropy carrier of information, that is very reliable. And so from that lens you essentially need to go from electricity to proof of work once, and you can extend that all the way up the chain.
Joel Monegro:
Yeah.
Patrick Stanley:
Only up to anchored chains that are anchored to Bitcoin.
Joel Monegro:
That’s a cool idea. It gets at a question that we’re still trying to answer, which is how many blockchains will there be? There will definitely be-
Patrick Stanley:
I think there’ll be one important [crosstalk 00:45:58].
Joel Monegro:
You have the answer?
Patrick Stanley:
Yeah, I think I do. I think there’ll be one important one, and then there’ll be a long tail of way less important ones. But there’ll be a web of interconnected blockchains that exist on that one important one. And people will have the ability to exit from that if that one important one should stop doing its core job.
Joel Monegro:
And do you think that, that anchor, or that connection is a technical one, or could it also be an economic one? And what’s making me ask the question is, you could have chains that are connected to each other by technical means. So for example, the proof of transfer would be an example of a technical integration, or an interoperability network like Polkadot, may play that role or something similar. But you could also have an economic relationship where, at least so far Bitcoin acting as the reserve currency of the space. You can have a blockchain or a token that has nothing to do with Bitcoin technically, but it’s still heavily influenced by whatever happens with Bitcoin.
Patrick Stanley:
Yes to that. And I think it’s very economical, very rooted in a shared knowledge that it is safe to huddle, and that there is utility in hodling. The act that you’re hodling, creates more utility. I think that’s one of the key things you want folks to take away. Everything I’ve described regarding the transferring from electricity to proof of work once, is compatible with Blockstack’s thesis of Web 3.0. It being very early news in Web 3.0, and that actually Web 3.0 will be anchored in Bitcoin. That’s something we believe. We believe Bitcoin is like Unix, and it’s like this thin waste that’s reliable.
Joel Monegro:
Right.
Patrick Stanley:
Also from … You sounded like someone who studies a little bit of information theory, and I would say to establish a civilization that is long lasting widespread, and generally wealthy, you want to build it on something that is very low entropy. Because you want that human creativity, the economic surprise, to be able to flow through it very quickly with very loss of signal. So that just means reliability. A counter example of that would be like the Fed printing 20 bazillion dollars of currency, that puts noise in the system, and that makes business and civilization less predictable. And I think that’s why bit people love Bitcoin, the predictability, security and simplicity.
Joel Monegro:
Yeah. And then it gets even more complicated, because of this entropy problem, we have to reduce everything to printing money, when it’s a wide variety of mechanisms that have the same effect as printing money. Even though it’s not actually printing money, but that’s precisely the problem. It’s this complicated machinery. Whereas with Bitcoin, you know that every 10 minutes of block is going to be produced.
Patrick Stanley:
Well you want your money to be a measuring stick, I think.
Patrick Stanley:
Exactly. That’s why Isaac Newton joined the UK Mint in the last years of his life, so he could standardize the currency, and remove … He was crazy focused on stamping out fake currency, and also on making sure that it was very pure. Because he wanted to reduce the [crosstalk 00:49:59].
Joel Monegro:
Right.
Patrick Stanley:
I believe he wanted to reduce the entropy. And I think that allowed for hundreds of years of British wealth creation, and global rule essentially.
Joel Monegro:
Right, yeah.
Patrick Stanley:
And so I think that money as measuring stick and union account thing is very important. I think that’s also where DeFi is very interesting. If stable coins can be reliable in some way. I also think there’s a world where you’re potentially able to measure the whole economy, Bitcoin’s the measuring stick and the economy is being measured in relation to it. So you can imagine what I was describing earlier with fractal proof of transfer chains.
Joel Monegro:
Right.
Patrick Stanley:
You can literally measure the growth of an economy based on people’s willingness to huddle, like take stake in all that, and it’s measured against Bitcoin as the measuring stick.
Joel Monegro:
Right. Yeah.
Patrick Stanley:
And I think there’s some stable coin that can be created out of that.
Joel Monegro:
You’re blowing my mind, because what it’s making me realize is, it would be really troubling if we changed the definition of a pound or a centimeter every so often. And if you are measuring things in a unit of account for that changes so frequently, based on whatever’s happening with the global economy, you don’t really have a desirable level of entropy in the measuring stick. And it just reminds me of a joke I like to say about Bitcoin, which is, you could say that Bitcoin is really stable and the dollars really volatile around Bitcoin. Look how crazy the economy is.
Patrick Stanley:
Sorry, my mic was muted. Someone actually tweeted to me today. I said something like, don’t expect … Yeah, I think I mentioned this earlier, don’t expect your volatile currency to be accepted as a currency or a unit of account. That’s totally backwards. And someone goes, “Isn’t the USD …” They’re just like, someone from the outskirts of Twitter coming, and they’re like, “Isn’t the USD more volatile than Bitcoin?” And I was like, “Yes, in terms of noise in the system, yes, it’s way more volatile. In terms of unit of account, it’s not.” But the thing you have to understand, if you look at Bitcoin through the lens of stable, unwavering, no noise, pure signal, then you can measure an economy against that potentially. It’s a very information theoretical way of viewing the economy. If you view the economy as an information system, as opposed to a supply and demand system, it allows you to unlock this lens of understanding money as information. And [crosstalk 00:09:01].
Joel Monegro:
Yeah, and [crosstalk 00:53:02]. And attention is related to the idea of consensus, right? We spend so much time just building these consensus machines, to agree on what is the correct information. And you reminded me of when … I forget when this was, this was a few years ago. I had a conversation with someone who helped me understand that money’s just information, and that’s what made me realize the ultimate importance of blockchains as a ledger really, at the end of the day. And how the economy as a whole is an information network. And going back to the beginning of the placeholder thesis, our focus is on creating decentralized information networks, or investing in decentralized information networks. Really the world is a decentralized information network. And so it’s really more about creating better systems of consensus around that information, than it is about the technical side of it.
Patrick Stanley:
Yeah. I would swap out the word consensus with reality.
Joel Monegro:
Yeah.
Patrick Stanley:
And I think that’s important, because you say consensus, people think technology. When you think reality, it’s easier to understand that, that is the problem at hand, establishing what is the reality.
Joel Monegro:
Right.
Patrick Stanley:
And I think if you view the whole universe as an information system, Bitcoin is one of the closest tethers to reality through its reliance on entropy.
Joel Monegro:
Yeah.
Patrick Stanley:
And if you study Gödel’s incompleteness theorem, it blows your mind, because you’re like, Wow, math is not this closed system. What’s anchoring this whole thing?
Joel Monegro:
Yeah.
Patrick Stanley:
And I think maybe a bit of that has some consequence on how Bitcoin is adopted as a religion. Because you do you have this reality binding attachment with it.
Joel Monegro:
Yeah. Right. Yeah, we’ve gone really deep here. It’s great.
Patrick Stanley:
Well, there’s very few sparring partners I can have this conversation with, which is why I was so excited to have you jump on. I’m happy to continue if you’d like.
Joel Monegro:
Yeah, I’m happy to, but I was having the same thought. It’s not often that you get to go this deep. And part of the challenge-
Patrick Stanley:
It’s literally fundamental.
Joel Monegro:
It is. It is fundamental. And the challenges, how do you translate this into a user experience? How you translate these insights into something that makes sense to a lot of people? [crosstalk 00:11:50]. Not that we have to do it now, but-
Patrick Stanley:
My own personal opinion is, go with the grain of human nature. Capture the richness of human nature in human behavior. How it does already behave.
Joel Monegro:
Yeah.
Patrick Stanley:
To shape future behaviors and future benefits for that end user. The benefit of Web 3.0, is not that we get to tinker around with consensus mechanisms. The benefit of Web 3.0, is that people will be made better off.
Joel Monegro:
Right.
Patrick Stanley:
And I think that’s fundamental to absorb, so that you can remove the noise of people being infatuated with certain things that are on the fringe, that don’t end up being anything. That’s not to say certain things on the fringe don’t end up being the biggest things ever, but it at least allows you to … I think if you don’t explore this stuff fundamentally, you’re missing how to actually make it happen.
Joel Monegro:
Yeah.
Patrick Stanley:
Like for me, I don’t want to waste my time. I want to channel what already is a human behavior, into something that benefits humanity. And do it in the path of least resistance, and most good, as far as I can understand it.
Joel Monegro:
Yeah. So let’s take advantage of this to explore some of the key concepts of crypto, and relate them to these philosophies. Because it’s the kind of stuff that I spend most of my time thinking about, and I’d love to get your take on these. So you mentioned your focus on harnessing the richness and diversity of humans, in a way that you can’t really do with incentives, how you quote it. [inaudible 00:13:54]. And the utility of markets as the mechanism that allows us to capture that. It feels related to the difference between reality and opinion. Where there’s so many things that, if you think of reality being objective truth, and opinion being a subjective measure of reality. And they don’t always match correctly with one another.
Joel Monegro:
If I think about blockchains and markets, you can create a protocol that is a set of rules, that defines reality. Within this closed system, this is reality and this is not reality. So if you think of something like Bitcoin, there’s a protocol, a set of rules that says, this is a valid transaction. And if you follow all those rules, that transaction is truth, is a reality. It is a fact. But then on the other side of that equation, you have say the market price of Bitcoin, which is humans opinion of the value of that reality. As far as Bitcoin is concerned, a transaction is a transaction, a Bitcoin is a Bitcoin. It does not care what you think of it. It’s not even aware of your opinion. But we have this other mechanism that allows us to judge the value of it.
Patrick Stanley:
I would say that question is best answered in I think a user staking model, where people immediately evaluate the benefits of holding such value units. And you’re leveraging the market as a measuring stick against Bitcoin, to understand the utility, the value of something is in its use. You’re either made better off, or not better off. In a staking model, you’re enabling more ownerships so people can harness goods for their benefit. So this is like [inaudible 00:59:57] saying Blogger.com to Twitter.com era. That’s the tying thread. I think objective truth is insanely hard to get, in nearly every scenario. Even when you know something in your heart as fact, if you actually open your mind up a little bit more, you might actually see a whole different movie if you pull the thread hard enough. So people’s confirmation bias is incredibly strong, and they use this to … People are just using their human faculties to navigate the world. And the best feedback mechanism for them, is the utility of an actual application, and the market price that reflects the benefit the application is creating.
Joel Monegro:
Yeah. Thinking about it as everything [crosstalk 00:16:53].
Patrick Stanley:
Sorry, what I’m saying is, the great thing is you’re closing that loop, and not leaving any room for tampering with it.
Joel Monegro:
Well, it’s important, because it’s reminding me of what a big leap forward it was in science when we finally standardized our units, when we finally defined what a pound is.
Patrick Stanley:
You can do real science.
Joel Monegro:
You can do real science, right. It was really a quantum leap. I have trouble with that phrase, because quantum is the smallest possible thing. Quantum leap would suggest that it’s a tiny leap.
Patrick Stanley:
Like an order of the magnitude to leap.
Joel Monegro:
Yes.
Patrick Stanley:
And the same thing with Isaac Newton-
Joel Monegro:
Right.
Patrick Stanley:
Standardizing the monetary system in the UK.
Joel Monegro:
Yeah, exactly. Exactly. Yeah, and everything changed. And-
Patrick Stanley:
I should say Great Britain, sorry I didn’t say Great Britain. [crosstalk 01:01:53].
Joel Monegro:
In Great Britain. And so, we’ve tried this before. We tried it with the gold standard. We tried it with other mechanisms of hey, we need to anchor ourselves to something stable, so that we can measure the economy, and treat the economy more scientifically. But even that was not … Even gold, it’s just not stable enough, because you have supply shocks, there’s not a consistent curb of production. And even if you mine all the gold in the world, you can bring gold from space, there’s an unknown ultimate quantity of that thing. So it’s an unreliable way of measuring things. But [crosstalk 00:18:33].
Patrick Stanley:
No, it’s not necessarily, because even though you can mine it from space, what it’s measuring is the technology needed to mine it. So it gets harder and harder to mine, less and less gold. And-
Joel Monegro:
Right. It’s like the difficulty adjustment, the difficulties [crosstalk 01:03:02].
Patrick Stanley:
Kind of like Bitcoin. and I think it’s fairly fair to say, Satoshi modeled Bitcoin after the gold supply. The only thing is Satoshi stopped it at a year, whereas gold will be mined on an asteroid some day in the distant future.
Joel Monegro:
Right. And you can’t know the ultimate amount of gold that would be in the system. And then you also need a standard, you need … Going back to your example, how [crosstalk 00:19:31].
Patrick Stanley:
The ultimate amount of gold that’s in the … Sorry, the ultimate amount … Yeah, that’s true. Maybe that’s tautological, or it’s not actually useful, but the ultimate amount of gold that can be an existence, is in existence. So it’s unknowable, but it [crosstalk 01:03:50].
Joel Monegro:
Right, but there’s a [crosstalk 01:03:52], there’s a limit. Yeah.
Patrick Stanley:
Yeah. I don’t actually … By the way, first time thinking about it through that lens, so I don’t know if that actually holds up. I will flag that. Just conceptually, [crosstalk 00:20:03], as a way to think about this.
Joel Monegro:
Yeah. It is the first time that we have a unit of account whose total ultimate quantity we know for sure.
Patrick Stanley:
And that may be even more high leverage as a thing to bootstrap in a world around essentially.
Joel Monegro:
Yes.
Patrick Stanley:
But I’ll avoid taking the time right now to try to dive into what the scenarios would be and where it would be. That’s super interesting, the point you’re making about reliability and Bitcoin being finite, I think … Sorry, I didn’t mean to interrupt that. I wanted to, can I hear the [crosstalk 00:20:56].
Joel Monegro:
That was pretty much it. This is something that my partner Chris, spends a lot of time thinking about with regards to Bitcoin, and its function as a store of value, where it has to do with something called the flow to stock ratio. How much of an asset is being created, relative to how much of that asset already exists?
Patrick Stanley:
Thank you. That flow to stock ratio is useful in that equation we were talking about earlier, in terms of cost of acquiring each [crosstalk 00:21:27].
Joel Monegro:
Right.
Patrick Stanley:
We’ll have to coauthor a blog post around that [crosstalk 00:21:32].
Joel Monegro:
Chris would be the best person to do that with. And maybe you can have him on later to talk about these things.
Patrick Stanley:
Sure.
Joel Monegro:
But it is … Because one thing that we’ve been working a lot on is, how to simplify the idea that you can have something that is simultaneously volatile in the markets, but also a store of value? And I think the easy way to interpret the idea of a [crosstalk 01:06:03].
Joel Monegro:
The easy way to interpret the idea of a sort of value-
Patrick Stanley:
Sorry. Sorry. Can you say that one more time? I had an interruption in my office.
Joel Monegro:
So one thing that we’re trying to reconcile or something that I feel like we understand but we’re trying to reconcile for other people is the notion that you can have something that is both a store of value and volatile in the market. So the argument that Bitcoin is a poor store of value because it’s volatile, that is one way to interpret it. But when you look at it instead through the notion of flow to stock ratio, if you have a good whose flow to stock ratio is such that there’s less of it created relative to how much of it exists, especially if you get to a point where you can’t create any more of it-
Patrick Stanley:
And how much the miners are willing to exert energy to-
Joel Monegro:
Yes.
Patrick Stanley:
… continue mining it. That’s why the halving is so genius.
Joel Monegro:
Right. Right. You have to keep investing more into it to produce the next unit. Every time there’s a halving you’re doubling the marginal cost of production because it’s the exact same amount of electricity to produce half as much Bitcoin. And so that’s really where the store of value function of Bitcoin comes from. It doesn’t really come from the pricing. This is where I wanted to get your take on this philosophy around there’s reality and there’s opinion and market prices are just opinion, but the reality has more to do with the economic characteristics of the system than opinion.
Patrick Stanley:
Yeah. I think the conflation around store value and volatility seems to be that maybe one thing is people are adding characteristics of unit of account into store value unknowingly. That’s one possibility. The other thing is something is not a store of value because it’s predict… Things can be predictable on one dimension but not predictable on another. Like the idea of the halving is happening soon. It’s going to happen every four years and you know it’s going to happen, and people are still hodling and they’re still mining and there’s still electricity flowing through that system and that’s unlikely to go down.
Patrick Stanley:
So my conviction on Bitcoin is very much for the longterm and not for the short term. So the dimensions there are really important there. If you think it’s a store of value, yes, in the longterm, yes. On a short term basis the closer you get to short term the closer you get to unit of account. So I’d say it’s long low time preference and short high time preference Bitcoin.
Patrick Stanley:
And that’s what makes it a good measuring stick always projecting into the future and a good kind of substrate to build an economy in. The way I see it Bitcoin is not done. Bitcoin it’s not utilized. It’s underutilized. You can think of Bitcoin as like this really high leverage gear you can’t stop, and you want to plug things into that. And what we think is securing blockchains and bootstrapping blockchains sort of from a distribution of forwarded funds standpoint as something where you actually are able to kind of power Bitcoin a little bit.
Patrick Stanley:
So Bitcoin as this prime mover is I think not yet been accessed. By the way, I have strong opinions very loosely held here to quote whoever said that first, POX with proof of how the login, approved transfer plus proof of how login, and the ability to create your own app chains I think is a really nice set of tools to kick this off essentially and get Bitcoin powering a new economy that’s anchored in reality and not in noise.
Joel Monegro:
Yeah. Yeah. And it takes care of so many problems too where not always perfectly, but when you think of, for example, reputation, it’s a really hard thing to do online for a variety of reasons, but if you have to stake to log in to something and if that stake is put at risk based on the rules of the platform, if… Let’s say Twitter. Twitter has to spend an enormous amount of resources, and every online platform has to do this, spend an enormous amount of resources to enforce compliance with their rules such as no harassment or the various rules that social networks have.
Joel Monegro:
And it’s a very complex problem. You got to hire a bunch of people to do this because obviously people misbehave and then users have to report it. And then there’s either an algorithm or a team of people that deals with it.
Patrick Stanley:
It’s entirely too complex to be global scale.
Joel Monegro:
Exactly. And so it’s a mess because you can’t regulate that properly. But if I required you to stake to participate in this community and I tell you what the rules for this community are, and if you violate your rules, you might lose your stake and maybe that stake gets redistributed to the other people who are actually following the rules we might find that you are much more likely to follow community guidelines than you are if you’re able to just randomly create accounts and misbehave.
Patrick Stanley:
Yeah. I would avoid slashing in any scenario I could and keep things very simple. What I would do is like more so create a personalized shareable hellbanned list. And this can manifest itself through who has the ability to write to a certain blockchain that kind of gives kind of an order and sequence of what the reality was for that app, and thereby enforcing the rules of that app. Folks can take their data with them if they like to, but folks can also opt into ownership of sort of these value structures that may sort of hellban certain users by not showing what they’re able to do [inaudible 00:06:40]-
Joel Monegro:
What if you did this, what if you did something… Okay, no slashing. But let’s say you have to stake to sign in or sign up or to be a user, but if you misbehave it adds to the time that your coins are locked. And so every time you get reported you can’t withdraw for a day, and then if you’re massively reported you can get like 100 years lock in and then you can’t get your tokens out.
Patrick Stanley:
Yeah. This is just like more to the point of proprietary governance being a feature and not necessarily a bug of the ecosystem. If the goal is also to have applications be reliable for its users keeping things less dynamic is typically more helpful than kind of keeping complexity in the blockchain. And what I would say is if there is a way to… Oh, I’m going to try to problem solve this. Okay.
Patrick Stanley:
I think you want to like push the optionality to the users actually in terms of which information is being surfaced to them, which information they’re able to interact with. And I think those rules can be defined by the sort of governance baked into the app chain specifically. But if those rules are violating and they’re deteriorating the kind of usefulness of… This is by the way, just like exploring here, if they deteriorate the usefulness of the application then its users will fly to another protocol that has baked in rules that are better for them.
Patrick Stanley:
You want to know what the rules are and know that you can always exercise exit and access a better experience of that same experience, don’t get locked in at that first experience. Take the utility of the app and take it sort of with you but opt in to a better and better rule set. I mean, you can play the same games at the same time with the same people, but kind of not have read, write access to certain people’s data if they violate or you violate or something. That can all be done from the app logic side of things potentially even.
Joel Monegro:
So this would be-
Patrick Stanley:
This brings you more to the point of user staking, because you essentially have this concept of people are either unhappy or happy with their service. If you maximize their ability to exit from that service, you maximize people’s trust in proprietary sort of governance because they can voice by exit.
Joel Monegro:
You can leave. Yeah. Exactly.
Patrick Stanley:
Exactly.
Joel Monegro:
And so it gets us back to some of the key elements that need to be explored with user staking. One, how does a user acquire the tokens, right? [crosstalk 00:09:49]-
Patrick Stanley:
No, they can mine their own blockchain from the very jump.
Joel Monegro:
Right, right. And so you got to select what activities create tokens and what activities don’t. Early on you said paying people for their likes probably not. But if you’re providing a more essential function then maybe yes. What is their ability to leave the system and what kinds of data they get to take with them, so our… Because one form of data is your tokens, right? That is the kind of canonical form of data in crypto. But what other forms of data are you leaving or you’re taking with you.
Patrick Stanley:
Yeah. I think it’s smart in the early days decouple data from tokens. It’s insanely difficult to provide… I think it’s insanely difficult to provide the desired structures that you want to create in terms of affording exit and application usefulness with a token data model. I think sure, have something complimentary that does try to attack that problem. But I think focus on user stake holding and just the application, the value being created is the thing to focus on and decouple it from the user’s data.
Patrick Stanley:
The users should just own their data. They might just maybe for the time being they just own it in Dropbox. Dropbox is like Seagate. It’s just like a dumb drive that you store your data. But the application experiences are what is proprietary, and the access control mechanism is rooted in user stakeholder dumb.
Joel Monegro:
So there’s one thing that I struggle with user ownership of data that is part of what’s driving this desire to really understand user staking at a fundamental level and the idea of upside to the users, and it has to with one, yes, I agree that personal data ownership should be a fundamental right. Everyone probably agrees with that, and now we’re seeing the world’s governments agree with that and kind of forcing companies to have ways for people to take their data with them and download their data dumps and all of that. And you can go to Google and you can tell Google, “Hey, give me an archive of all the data that you have about me,” and they’ll give it to you.
Joel Monegro:
The thing is that’s not all that useful at the end of the day because if I download my Google data dumb, yes I have it, but it’s only useful within the context of Google’s services, right? And so one way that you can deal with that problem is protocol standard, like for example, email does a little bit of this and a lot of the ideas behind crypto are the same. And see that with Bitcoin today where look, if you don’t like Coinbase you take your Bitcoin somewhere else and you can still use the service of Bitcoin with a wide range of wallets. And so you can kind of maintain the usefulness of a service.
Joel Monegro:
But when we’re dealing with more maybe subjective kinds of data that are not tokens, right, when we’re dealing with user data like your photos or your location or the text messages, all the kinds of data that are common in web services, then you have a different kind of issue, which is that the real economic value of information isn’t so much in the data that you contribute but in the data that the service is able to generate as a result of having your contributions plus everyone else’s contributions.
Joel Monegro:
The example to understand that is there’s a difference between your real time location and traffic data. I use Google maps because I want to know traffic data, but traffic data is not based on where I am. That’s less useful to me than knowing where the traffic is. And so if you can’t… Yes, if you can leave and take your data, that’s fine, but it’s not really the true value of the service.
Patrick Stanley:
Yeah. And the reality of these things is I think you really need a critical mass of actual users using this, which is… That’s an uphill battle that’s like a very difficult behavior change to start. It’s use decentralized apps just for the data piece. It’s like, “Really?” That’s not too high on the totem pole of your average user. Wealth creation and new app experiences are though, like app experiences that get better. Yeah. I mean, personally I think you hit the nail on the head with that observation. I think data formats will come out. We’ve been calling them data collections as a concept to imagine the utility of data collections, at least from what I’ve examined. And I’ve talked to Jaron Lanier about this at the Blockstack Summit, and he’s got this idea of like mids and all that stuff.
Patrick Stanley:
And I was kind of like poking holes at investigating it further. And I’m a little dubious of mids at the moment. But I would say in terms of really creating standardization of data you need to get the big numbers and stay there in terms of app usage. So imagine you used like Intuit to scrape people’s financial transactions and bank account balances. Well, having 10,000 people’s financial data is not really enough to build a business on. You need like a million people’s financial data to have a meaningful set of people to at least market to, right? It’s one of those things where it’s a difficult problem when you’re just not even attaching a token model to it, and it’s also a difficult problem when you’re trying to go at it from a data pinning vantage point. You’re kind of confined to a small set kind of ways you can use that kind of applications in that sense.
Patrick Stanley:
And so data pinning thing I think is one of those examples that kind of as you were describing your thesis initially resonated with me. I was like, “Oh, data pinning. Okay. Yeah. But what next?” That’s a very hard suite of applications you’re trying to grow and validate a network. And so I can see how if that was something that you turned a corner on from the placeholder thesis perspective that makes total sense to me. But I think where you’re headed right now I think you’re heading on a piping red hot trajectory in terms of you’re not… Idea maze navigation. This is like as a fan.
Joel Monegro:
Thank you. It does come back to data of wealth and power where intuitively or at least it’s my belief that if you start by opening up the data you end up opening up the wealth, and when you end up opening up the wealth you end up opening up power more broadly. And what you said earlier about the economy as an information system, it really relies on data. And a lot of the inefficiency has to do with unequal access to information and equal access to data. And so there’s a relationship there that we’re really trying to explore with crypto, with our investments, with the [inaudible 01:23:39] group is what is the relationship between data, wealth, and power and how do we open those up using these technologies?
Patrick Stanley:
I would say it’s probably the… My on this is it’s probably the case that when you expand the set of current stakeholders in the current financial system, or I shouldn’t say financial system, I should say like the equity ownership system, sufficiently and created a new category of user you will essentially have earned your right to serve those people with a data model that is also [crosstalk 00:18:12]. I don’t think it happens in the reverse.
Joel Monegro:
Yeah. Yeah. And that is something that… For example, I have this debate with Brad at Placeholder every so often of which one of those three is more important to tackle first, the data, which going back to the beginning from a technical perspective is a difficult thing. For example, try creating Google Maps with the same kind of reliability and quality without a centralized data model, it’s pretty hard.
Joel Monegro:
But what if you instead worked on token models, for example, that distributed the value of the data more broadly or distributed control and power over that data more broadly? Can you get away with a centralized production model? But if you take care of distributing the wealth and the power then you effectively distributed the data. And so it’s not necessarily about the kind of quote unquote physical distribution of the data in the sense of, “Hey, let’s create a decentralized network of machines that have this information.”
Patrick Stanley:
Yeah. The physical distribution seems like a complete distraction for the time a place right now. I think you’re just hitting the nail on the head from my perspective in terms of stages of framing. It’s not that crypto doesn’t have a key use case. It’s just that I think… We all know there’s something there. It just I think it hasn’t really been channeled correctly yet, and people are kind of bumping into walls as they explore what this new thing is. I got to wrap up because I got to hop on a call. But it was great speaking with you, Joel, and-
Joel Monegro:
Same.
Patrick Stanley:
I probably have like another four hours of questions for you.
Joel Monegro:
Thank you for the brainstorm.
Patrick Stanley:
Yeah, for sure. That was my pleasure. And maybe excuse my overexcitement. I’ve been kind of thinking through this stuff for quite some time and also admiring your work from afar and seeing how I can be helpful and also how you can update my lens, which you have, and I really appreciate that.
Joel Monegro:
Thank you. So have you. I’m going to go and Google a bunch of things and learn about some of the things that came up in this conversation. So I’m definitely taking a lot from it.
Patrick Stanley:
Cool. Sounds good. All right. Well, until next time this has been The Stacks podcast. Patrick Stanley here closing out with Joel Monegro.
