William Mougayar: “Blockchains: Past, Present and Future” | Talks at Google


DAVID: William Mougayar is a
prolific researcher, writer, and theorist who
has been described as the most sophisticated
block chain business thinker. He is a direct participant in
the cryptotechnology market, working alongside startups,
entrepreneurs, and enterprise executives as well as serving
as an investor and an advisor to some leading
organizations in this space. William is the general partner
at Virtual Capital Ventures, an early stage
venture capital fund. He serves on the
board of directors at OB1, the OpenBazaar
open source protocol that is pioneering de-centralized
peer-to-peer commerce, and he is a board advisor to
the Ethereum Foundation, OMERS Ventures, Coin
Center, and Block. He has held senior level
positions at Hewlett-Packard, Cognizant, and
Aberdeen Group, and he has founded three startups. He is here today to present his
new book, “The Business Block Chain– Promise Practice,
and Application for the Next Internet Technology.” Please join me in welcoming
Mr. William Mougayar. [APPLAUSE] WILLIAM MOUGAYAR: Thanks,
David, and hi, everybody. And thanks very
much for inviting me to talk to you
about the blockchain, arguably one of the most
innovative technologies since the internet in terms
of impact, scope, potential benefits. And if you look back over
the last 20, 22 years and you think about
what the internet did for us– for our businesses,
our societies, our cities, our world– and then you
can imagine this new force that is coming on the
horizon, and that is really the blockchain. And that’s the impact
that we are expecting in terms of the magnitude
of the potential benefits of the blockchain. So it’s kind of strange that I’m
speaking about the blockchain at Google here. It kind of reminds
me a little bit– this is like talking about
e-commerce to Walmart in 1995 before online
retail was popular, whereas Amazon had been
already founded a year before. And I’m saying this
because visibly, there doesn’t seem to be
anything that Google has said. Or maybe you’re doing something
that we don’t know about. And actually, I was
in Paris last month speaking at a conference,
OuiShare Conference. And specifically,
one of the questions was, how come we don’t hear
from some of the big players, like Google, Facebook, Amazon? They don’t have any visible
involvements with a blockchain. And they asked me why. I said, I’m not sure yet,
but I was invited at Google to talk next month. And at least that’s a good step. So we’ll see what happens. So the blockchain
novelty started really as a melding for the
first time of the three fields of software,
engineering, cryptography science, and gaming theory. And this all started with
the paper, the famous paper that Satoshi Nakamoto has
written in 2009, where really, all he described was a
peer-to-peer system for sending money. So he described an
electronic money system that allows cash to be
sent from one person to another without the
presence of any intermediaries in the middle. So that is really the essence
of the bitcoin innovation which started in 2009
as a white paper, which was then implemented after all. So this is very important. It’s a fundamental element. If you understand that, then
you understand all the benefits and the potential implications
of the blockchain. So you might think, well, what’s
the big deal about sending electronic cash from
one person to another without the presence
of intermediaries. Because you might be
thinking, well, the banks are allowing us to do that. But here is the difference. The banks really are doing this
because they have databases. So suppose I deposit
$1,000 in my bank account. All they are doing is updating
a record, updating the database, and there is a record
that points to the fact that I have the $1,000. And if I want to send,
let’s say, $10 to David, then the two databases are going
to synchronize with each other, and they’ll take
$10 from my account, and they’ll put that
$10 in David’s account or in your account. But really, what
this transaction is all about is about
updating two databases. And hopefully they
are synchronized so that when the $10
leaves my account, then I don’t have it
anymore, and David has it. Unlike the fact that if I took
a picture with my smartphone and I sent it to somebody
here in the audience, I still have a copy. But with money, obviously,
we cannot do that. And this is what is called
the double spend problem. And what bitcoin as an
innovation and the blockchain technology behind it
did– for the first time, it solved that
double spend problem without somebody in the middle. And that is really
the innovation, is without somebody
in the middle. That is so key and so important. Because it is supposed to do
that, to allow us to do that, without the banks
being in the middle. So then we evolve this thinking. And we said, well, this
is just something digital. When we’re sending money,
it’s a digital token. So we thought, well,
why not send anything that’s a digital asset? Because if I can
send money so quickly from one person
to another, so why don’t we send bonds, financial
instruments, ownerships, titles, licenses? Whatever has a digital
form now can be sent, because it has digital value. So now the blockchain
becomes a rail. It becomes a new
rail, a new kind of internet in terms of
passing not just money, but passing any digital asset. And that is really the
future of the blockchain. Some people have called it the
internet of value, because we are now sending value between
us, each other, peer to peer, without having anybody in
the middle, not just money. And then we said, well, how
about if we program this money? Because really, it is
programmable money. Now, it’s all based on software,
so we can program the money. And how about we add some logic
to how we program the money? So then we said, OK. Let’s program some business
logic– if this, then that, and these kinds of scenarios. And this is where
what is commonly referred to now as smart
contracts is coming along. So smart contracts
is just another way of saying it’s business
logic that is often tied in with contractual
terms that often has money in the middle changing hands–
if this, then that, and then the money changes hands. So this is really the
essence of the blockchain as a starting point. Now, there are other ways
to view the blockchain. And I like to always
describe the blockchain in three different ways– a
business way, a technical way, and a legal way. And we can have three
different definitions about the blockchain
specifically. If you look at it from
a business perspective, you think of as an
exchange network for moving value between peers. If you look at it from
a technical perspective, you would think of it- it’s
like another kind of a database. It maintains a distributed
ledger that is open. Anybody can check. And thirdly, because it
has legal implications, you have to look at it from
a legal perspective as well, because it’s a transaction
validation mechanism without anybody in the middle. So when these transactions
are actually validated, then they hold. They are true, and
they are respected, and that is a
legal aspect of it. So really, you want to
think of the blockchain as a combination of
business, technical, and legal innovation. And only when you
have the three of them together that you really
have the true power of the innovation. And I’m saying this– it’s
a very important aspect. Why? Let’s look at what the banks
are doing, for example, when they are implementing
the blockchain. We cannot talk about the
blockchain without talking about what the banks are doing. There’s lots of activity
within the financial system right now, because it is
about money, after all. So what the banks do is
they look at the blockchain and they say, well,
the banks, as you know, are very much regulated. So their starting
point is regulation. So they start by saying,
well, we are regulated. We’re not going to
touch regulation. We wanted to live within our
own regulatory environment. So let’s not touch that. And then they look
at their business, and they say, well, we’ve been
in business for 100 years. The customers trust us. We’re not going to change
our business model. So they strike out
the legal innovation. They strike out the
business model innovation. What is left? Technology. And then when you
implement technology, then it starts to look like
just another IT project. Yes, it’s going to
maybe allow you to have some processes that are faster. You may be able to
save some money. But really, what you’re
doing if you’re just looking at it as a
technology is you are just implementing
something without a database, and you’re having the
blockchain there in the middle replacing some parts
of the database. Because the blockchain
maintains its own ledger. It doesn’t need, necessarily,
a database, two databses to reconcile a transaction. It is only one ledger that
everybody has if you want. So that is really
the innovation. Again, remember, the
old way was one database talking to another, so
we need two databases and we need two
owners, one for each. Whereas the blockchain
is only one ledger. And once you write a
line on the ledger, it’s just like any
accounting ledger. You cannot erase
the line above it. You just write a new
line, and then you have a chain of history. And everything is recorded,
and nothing can be erased. And the only owner of the
ledger is the blockchain itself. So the network
self-polices itself in terms of updating everything. And that is really a
very important aspect. So unfortunately,
some of the banks have a lot of activities
going on right now, but they are really looking
at it as a technology and not really innovating. But you have to think of
the innovation potential beyond just the technology. I like to describe the
blockchain in terms of its many facets
in the same way as the internet today
has many facets. And if I ask each and
every one of you what does the internet
mean to you, depending on what your focus is, you might
see it as a publishing platform if you are very
much into blogging. Or you might see it as
an e-commerce platform if you are selling
or buying something. You might see it as a
development platform if you are a
developer developing some kind of web application. You might see it as a
social media platform if you are just focused on that. So everybody started to
have their own version of what the internet is. Because the narrative over
the internet was so strong. Well, the blockchain, we’re
still in the early days. But the narrative
of the blockchain is very strong as well. And I like to describe it
in many different ways. It’s like 10 different things. It is not just a
cryptocurrency, although that is a prevalent thing that
everybody thinks about first. If you’re a consumer, if I
say blockchain or bitcoin, you going to think
cryptocurrency. And if you’re a
business– specifically a bank– if I say
blockchain, you’re going to think
distributed ledger. These are fine. These are good definitions. And yes, it is cryptocurrency. Yes, it is distributed ledger. But it is more than that. It is a computing
infrastructure. The bitcoin blockchain
has about 6,000 nodes, computers around the world. The Ethereum blockchain also
has about 6,000 computers in the world. So it’s already out there. It’s in the wild. It’s almost like having a thin
layer of cloud-based computers all networked together. It is also a
transactional platform, because we can
validate transactions. It is also a
decentralized database, because you can store
information on the ledger. And the ledger could have
many different usages. Yes, it is a distributed ledger. We talked about that. It is a development platform. Arguably, it is the next
development platform after the web. Today, web applications
are very prevalent. Obviously, everything is
on the web more or less. And we have close to 10 million
Java, JavaScript developers in the world. Java was an
incredible advancement when the web arrived. As a comparison–
I’m not sure how many would want to
guess– do you know how many blockchain developers
do we have today in the world? Approximately about 5,000 only. So compare that– 5,000
blockchain developers, 10 million Java web
developers at least. So this is where
we are, and this is where we need to
be in terms of being able to have blockchain
applications everywhere. It is open source software. All the innovation, whether it’s
Ethereum, whether it’s bitcoin, or other blockchain out there,
it’s open source innovation, so it means there
are many contributors and many developers around
the world that add to it. It is also a financial
services marketplace, because now we can buy and sell
and transfer value and assets. The capital markets is very
interested in the blockchain, because they can speed up the
clearing to settlement time frame. And then it’s obviously
a peer-to-peer network from a technological
perspective. And it’s also a
trust services layer. And I’ll talk about
some of the services that we will expect to see
on this new layer, which is called the blockchain. If you look at it from an
applications perspective, you want to think
of the blockchain as being at par with the web. So if you think about it,
the internet came first. And then the web came after. And the web was a protocol that
sat on top of the internet. And the blockchain
and the blockchains are another protocol that
sit as well on the internet. So technically speaking, you can
write a blockchain application without needing the web. You just write the application
straight on the internet. And I’ll give you some examples
of that in a few minutes. So technically, the web is
not needed for the blockchain. However, what is happening–
we have a reality. We are users of many
web applications. So the reality will be that
we’re going to have a mix. We’re going to have some
pure native blockchain applications that just go
straight on the internet, and we’re going to have
some hybrid ones that maybe have a foot on the web
and a foot on the blockchain. So it might take
data from the web and take some data
from the blockchain and put it all together. And then since we have
public and private networks, as a matter of
fact– for example, the financial
networks are private, so we can expect
to have variations of native and hybrid
block chain applications, both in public settings
and in private settings. So think about it that way
in terms of going forward. Some quick basic concepts
to just make sure that we all understand
them– these are the basic tenets
of the blockchain. Number one is the concept
of smart property. And a smart property is
just a thing or an asset that knows who its
owner is, really. So now if the stock
knows who the owner is, then you can trade
it peer to peer. It knows when its
ownership has changed. So that is an element. That’s what we call
smart property as part of the blockchain concept. Time stamping is a
very important element. Because once you time stamp
something on the blockchain, that’s it. It’s immutable. You cannot change it. So think about the
implications in terms of proving the
existence of something or proving that
something happened at that particular time. You can say that– you can check
the time of a particular event or a particular
validation of something. So this has enormous
implications as far as the services that
can be mounted on top of this time stamping element. It’s a very important
aspect of blockchains. Thirdly, multi-signature
transactions– and if you think about it as
an– the equivalent today is like when you sign
a document, there are some documents sometimes
that require three signatures, let’s say, not just two or one. And it is that, really, but
applied on the online world and applied with encryption
in a way that is validated. So when there are
three signatures, let’s say, on a particular
piece of transaction, where maybe there are some
rules that say if this, then that– if we have
three signatures, then you can do this, or
if you have two signatures, then you can do that– then
that’s a powerful element. So we don’t have to do
this with a paper anymore. But now imagine if there
is contracts behind it, if there is money
changing hands, if somebody verifies something,
and two other signatures go on top of it, and then money
gets transferred right away. So that’s a powerful concept. Smart contracts–
I mentioned that. That is a very basic
tenet of the blockchain. It’s really about programming
logic, business logic with money, with
rights, with contracts, with values changing hands. Oracles is a new concept. Oracles are like
information sources that the smart contracts
could be using. For example, there could be
an oracle about the weather with weather data. So I could write a smart
contract that says, well, if the temperature is over 90
Fahrenheit, then open the door or start the AC. This all could be programmed. Or pay me $10. Or there could be an oracle
that’s tracking NBA scores. And if I have a wager
between me and somebody else, automatically it’s going
to check the scores, and whoever wins,
then the money will be transferred automatically,
all invisibly by just putting the rules in, and as
soon as the game is over, then the money is transferred. And the concept of state
machine is important. Because really, blockchain
are really a state machine. That’s what it is– state
being it’s either this or it’s either that. But it maintains these multiple
states very efficiently. And it’s been said
that– people will ask, what is the blockchain for? And you have to
think of the fact that not everything
is for blockchain. It is not a replacement
for databases. It is an enhancement. It has its own uses. And one way to answer
this question very simply is by saying if you
can do it on a spreadsheet, then don’t use a block chain. Because it’s really about
tracking states of information. And that’s really the
concept of blockchain being virtual state machines. Now let’s talk about the
banks for a little bit and what’s happened in
financial technology, otherwise called
fintech, and how it is going to relate to blockchain. So if you think about
what happened with fintech and the banks, arguably fintech
was a response to the fact that the banks, for the first
10 years of the internet, did not do too much, really,
in terms of innovation. What did the banks bring us in
terms of when the internet came along after 10 years? We have online banking. We have online brokerage, so
we can buy and sell stocks. And we can pay some
bills on the internet. So OK, we’re
licking less stamps. That’s good. And then if some of you
have some advanced features depending on the
bank, now some of them allow you to take
an image of a check and deposit it there
without visiting an ATM or going to a branch. And then my question
is, why are there the same number of
branches as we had before? Why do we still
have so many ATMs if the internet was
supposed to really be that innovation platform? So the banks did
not do too much. They did the strict minimum. As a result, as a response,
a bunch of fintech companies started to spring up. And the most famous
of them is PayPal. PayPal exploited the payment
aspect of the internet and what it allowed, and now
PayPal is a huge company. Alipay in China is
bigger than Paypal, and they are doing
the same thing. There are companies
that let you get loans. I can get a loan of $20,000
to $30,000 in three minutes just by checking– they
check my profile quickly. And I would challenge you to
go and sit, go talk to a bank, and get a loan in three minutes. You won’t make it through–
it will take you that long to enter the bank
branch, perhaps, and get an appointment. And some companies now are
using robo investments, like wealth simple, wealth
[INAUDIBLE], and so on. So the point here is
that a lot of companies exploited the technology
of the internet in ways that the
banks could not. And the same thing is going
to happen with the blockchain. And all these startups
start small so they don’t bother the banks
too much, and then they get big before you know it. And the same thing is going
to happen with the blockchain. These are 300 or so companies,
blockchain companies in the financial services only. I made that landscape
a few months ago, and I update it continuously. So basically, if you’re not on
this chart, you don’t exist. That is the landscape
of blockchain companies in the financial services. And yes, many of them are
small and many of them will not make it. But some of them will make it. And some of them
are going to emerge. So really, in terms of looking
back and looking forward, where are we in terms of phases? We are really at the
beginning of a new phase here, perhaps lasting 10 years,
perhaps lasting 20 years. And the last 20 years of
the internet– and what gave birth to big
companies like Google and others– were really
about publishing information, personal communications,
e-commerce, and social interactions. And now we can say that
the new phase is really the blockchain promise now. It’s really about the
decentralization of trust. Because trust can
happen between peers without anybody in the middle. And that value can flow. It’s not just money. It’s any kind of digital value. So that is the next 10
years, the next 20 years. And I’m not wanting
to hype this. I’m not saying it’s
going to happen next month or the next six
months or the next year. This is a long term phenomenon. And I would caution
anybody to want to rush what we can
do with the blockchain and to hype expectations. Because some of you that
were around and involved with the internet
back in ’99 and 2000, what crashed the internet in
2000 is that we rushed it. Some people wanted to rush it. They wanted everything
to happen right away. They wanted public companies
to go become public without even having revenues,
without proving their business models. VCs were pouring money
without checking things, and the whole thing crashed. Arguably, maybe we
could not avoid it. Because Carlota Perez has
this paradigm shift model she analyzed. She’s a big thinker
that analyzes the technological cycles. And she figured out that
for the last 100 years, there are two phases when
new technology happens. There is the installation
phase and there is the deployment phase. So we install the technology
first, and then we deploy it. And you know what happens
between the installation phase and the deployment? A crash happens. There’s always a
correction that happens, and then everything
moves up again. And that’s what happened
with the internet in 2000, and then everything
went fine after that. So I’m not sure
where we are, when we’re going to have that crash. But we’re still in the early
days of the blockchain. So we are definitely going
to crash it at some point. Because we are pushing the
envelope in certain things. Like some of you have
heard of the DAO, the D-A-O, Decentralized
Autonomous Organization hack that happened
last month where a hacker siphoned some funds. And there’s a long
story behind it. But we were pushing
the envelope. And now we’re learning a
lot from what happened, and then we go
forward afterwards. Here’s an easy way to
remember the main aspects of the blockchain. I came up with this acronym
ATOMIC, A-T-O-M-I-C. It’s really about assets. It’s about trust. It’s about ownership. It’s about money. It’s about identity. It’s about contracts. Identity is going to be
a very important aspect of the blockchain. Because right now, if
you think about it, who owns our identity online? If you’re on Facebook,
Facebook owns your identity, because you are using Facebook. And in some cases,
Google owns my identity, because I use Google to sign
on everywhere in other things. But potentially, identity
could be decentralized as well. But identity has to come
in with applications. It’s like having a passport. What good is a passport
if you don’t travel? It sits in your drawer. It’s useless. So the identiy– e-identity
or blockchain-based identity need applications as well. The travel is the
application for the passport, and the airport are part of it. And applications are
an important aspect in terms of the identity. Now, all of this
comes with a warning, because there’s lots
of responsibility. When things are peer
to peer, it means there’s nobody in the
middle that oversees this. So you have to
trust the network, and you have to
trust the protocol so that accidents don’t happen. That’s why there’s
lots of testing. And we’re trying to
push the envelope in terms of what two entities
can do when it’s all up to them to agree on contracts
and with money. We cannot talk about the
blockchain without talking about the innovation potential
and what happens in regulated or unregulated environments. Because it is about
money, and money is regulated all over the world. There are regulatory
entities in every country. And there are maybe more than
200 countries in the world, and there are more than
200 regulatory entities. Imagine if each one
of these entities were to regulate the
blockchain in their own way or interpret it
in their own way. 200– that’s more than
the flavors of ice cream that I could name. And then imagine if
that would happen, then it would be very confusing. So there are lots of
regulators right now that are looking
at the blockchain and trying to see what kinds
of changes they have to make, what kind of regulation
they have to impose. And we are warning them right
now– people like me and others are saying, well, let’s
wait a little bit. It’s too early. It’s too early to
regulate a new technology. Let it become a little bit
more in the adult stage before regulating it. It’s the same thing as if we
had regulated the internet back in ’95 or ’96. It would have been disastrous. We would not have
allowed it and the web to prosper and to
evolve in areas of e-commerce and other things. So we have to wait until
the blockchain evolves, until the blockchain
matures, and then we can see what updates we
can do to the regulation. So my challenge to regulators
is usually I tell them, why don’t you innovate
instead of regulating? Because blockchain is
technology innovation. So innovation needs innovation
on the regulatory side as well. And it starts by being
permissionless as an innovation to the blockchain. Anybody can get on it. Anybody can get on board it. So we don’t want to make it
too restricted initially. And that is the
challenge of regulation. That’s why the most
innovative applications of the blockchain in the
financial services industry are going to happen
outside of the banks in areas that are
not regulated yet, in areas that can experiment,
that can try things. And then we can
see what regulation needs to be adapted to it. So I talked to you about
proving a lot of things. That’s what the
blockchain allows. So in the book, I have
this pyramid of– I call it the proof pyramid. So at the very bottom
on the technology side, it’s a proof in a consensus. Because the blockchain
is about consensus. The proof of work is really
the consensus element of the blockchain. It’s really proving that the
transaction is validated, that you are the owner,
and that you are sending it to this other person. So this is all being proved
in the consensus itself. And there’s many ways to
have the consensus done on the blockchain. I’m not going to go into that. And then above that, there
could be a proof as a service. And above that is
proof in a service. So the more you go higher, the
more it’s a business thing, and the lower is
more technological. So here are some examples. And this is also in the book. But these are the
kinds of services that I’d like us to see now. And this is where
some of these services would be potentially possible
on the blockchain– proving of an asset, the
proving of ownership. And I wrote an article two
months ago in “Tech Crunch” talking about the
fact that– saying what is going to be the next
Google of the blockchain. And the argument
was today, we google for information for everything. We google for information. We google for products. That’s the starting point. Where are we going to go in
the future to prove things, to prove services, to prove
ownerships, to prove receipts, to prove provenance
of something, to prove physical
address, to prove things? Maybe it will be
another form of Google. Maybe it will be
another way of doing it. But this is the promise. This is where we should be
going now, is developing these kinds of services
where we can go and check things on the blockchain. And this is one of
the promise elements of the blockchain in terms
of services going forward. Here’s an example. I mentioned to you
earlier that there are some blockchain applications
that do not need the web. And this is one
called OpenBazaar. OpenBazaar is a peer to
peer protocol for commerce. Think of it as
eBay without eBay. So it’s a protocol and a
platform that allows anybody to buy and sell anything from
anywhere around the world without having to go
through licensing fees and without credit card fees. Disclosure– I am on
the board, and I’m an investor in OpenBazaar. And they’ve recently launched. And this is an example. If you download the
client, basically, you just use the application
from that client. You don’t use the browser. You don’t use the web. You just use the client
itself, and then you’re connected peer to peer with
others anywhere in the world. So that is an example of
a blockchain application that is peer to peer. It’s arguably one of the largest
right now in terms of scope. It’s on top of bitcoin. And here is the benefit. Here’s somebody that’s
done close to 20 purchases on OpenBazaar. All it cost him was $1.40 in
terms of transaction fees. That’s it. So that’s really the promise. It’s free commerce. What the blockchain
is about is really– if you look forward
now, it’s really about reconfiguring trust. And that is a big
word– changing trust. It’s really about having
humans, us people, machines– it’s a combination
of humans, machines, and regulations. I’m not implying that
regulators are not humans. That’s not why it’s a
different part of the slide. But regulation is
a fact of life. So we have to account for
it, because otherwise, some bad things will happen. So it could be self-regulation. It could be new
types of regulation. It doesn’t have to be the
old way of regulation, but it is legal. There is some legal
aspect to what the blockchain wants to do. When we send money
back and forth, money is not just a game. There’s lots of
stake when you’re moving assets that have value. So we have to keep that in mind. And it’s really about
decentralization. What the blockchain has
enabled is decentralization, if you think about. The blockchain is a
technology, and now we have decentralized services. And that is the focus
of my next research, is to really go deeper into the
types of decentralized services and the impact, whether
they are distributed autonomous organizations
or other types of services. It is really about
wealth creation. There is a new
economy out there that is being created based on
cryptotechnology services. And information is
also part of it. So now the new types
of applications that are decentralized–
everything is encrypted from day one. So security comes first. And peer to peer
encryption comes first. It’s not an after the
fact kind of thing. So there are platforms now,
like Enigma or [INAUDIBLE] that allow you to write
applications, and everything is encrypted, from the
user to the databases through the
application, anywhere. And that’s part of it. So that’s very important. And the blockchains are a
key piece of this technology. What does decentralization
look like? Just some elements– it
has no intermediaries. There is no permission required. Anybody can come in. It’s no overhead,
flat structures. The trust is built
inside of the network. There is resiliency
against attacks, because there is not one
center that you can attack. There could be 5,000 computers. What if you attack four of them
or 10 of them or 1,000 of them? The others will keep humming. There is no central
point of failure. Governance is done via consensus
according to some framework. And it’s really about peer to
peer from a technological point of view. So what’s going to
happen going forward? Again, in the book, I draw a lot
of analogies with the internet. Because I was there. I wrote another
book 20 years ago called “Opening
Digital Markets” that basically did the same thing. It explained e-commerce
and e-business at a time where businesses could
not see clarity with it. And for some of you
that were there, it took us a good three
years for everybody to really understand
the internet. And we’re maybe in the first
of those next three years with the blockchain. So what’s going to happen? We’re going to have a new
companies and new behaviors that will spring out. There will be new companies
that will be blockchain giants. We don’t know who they are yet. The same way as the internet
changed companies inside, the blockchain is going to
change companies inside, whether they are banks or other
types of industries– energy, for example, or health
care for medical records. That’s a big
potential application. Some industries were
threatened or transformed, like the publishing industry was
transformed with the internet or the retail industry was
transformed with the internet. So we’re still
waiting to see what’s going to get transformed
with the blockchain. I can guarantee you
the financial services will get transformed
by the blockchain, because that is a very
key element of it. Maybe the role of the
banks will become more as a back end service. And we’re going to have a lot of
front end services ahead of it. Like when you use your Apple
Pay, you tap your phone. It’s drawing money from your
bank account or from your card automatically. You’re not touching
your bank account. It’s being done for
you automatically. Same thing if you have an event
and you connect Eventbrite to your bank account. When they pay the
tickets, you can put that money in
your bank account, and you haven’t touched it. It’s all done via linkages. And then fourthly, the
technology– the internet is a development platform,
and the blockchain is going to be a
development platform. So in closing, I just offer
these 13 generic ideas. This is for companies that want
to implement the blockchain. So these are generic ideas,
like where do you start. Well, think about
intermediary functions. If you’re doing something
that has a trust component, maybe you can change that. Maybe you can put the
trust in the network and maybe have value added
services on top of it. We’re not saying that
all the intermediaries are going to go away. But what we’re saying is
that the roles will change. And the key thing is
to identify that change early on so you can
change it yourself as opposed to having somebody
else change it for you. Anything can be bundled and
rebundled and bunduled and then reconfigured on the blockchain. There’s a new flow value. So maybe we can earn
some cryptocurrency and then spend them
in a specific service within what I call a
crypto-based economy. There’s an app called
La’Zooz that is supposed to be a competitor to Uber. You download the app, and
then you’re driving around, let’s say. And La’Zooz is just
collecting data about your driving patterns. Because it knows
where you’re going. It knows what’s going on. And then you earn Zooz
points, for example. And then the next week, let’s
say now you want to ride. You can use your
Zooz points that you have earned to then take a ride
and pay with those Zooz points. So think about it here. We haven’t touched any
dollars or any real money. You’ve just done some work. It could be active
work or passive work. That work could
have been a bounty on a– you might have
written a program, and maybe somebody
gives you some tokens that you can reuse
to buy something. So think about those elements
in terms of something we earn can be spent
in a transaction, and it’s all done
via cryptocurrency within the same ecosystem. So we’re going to see a
lot of these examples. And new legal frameworks,
updating the legal frameworks. Creating and issuing
digital assets, the banks. It all starts by
having a digital asset, by having smart properties. So either you create it at the
beginning or you convert it. And then it can be
transported on the blockchain. You have to embed trust
rules and transactions now– if this, then that,
business logic with money. Implementing digital signatures,
multi-sigs, verifying records, transactions, processes,
verifying authenticities. Am I who I say I am? Do I live where I say I live? Do I have these credentials? Have I really taken
those diplomas? So all of this could be
verified on the block chain. And then enabling smart things
to transact automatically. The internet of things is a
big aspect of the blockchain. There’s a company in
Germany, an energy company, that’s putting a device
in electric cars. And when the car is
stopped at a red light, it starts to draw some energy
in micro transaction levels. But it’s all paid by
via a cryptocurrency. And that one is
based on Ethereum. Another example is there’s
a street in Brooklyn where residents are buying and selling
energy between each other because on an Ethereum
blockchain as well. So excess energy is being
traded on a peer to peer basis. These are some examples. In closing, I have to
ask you some questions and ask us some questions. I know you will
have some questions. So we have to think
about who will be the next Google
of the blockchain. We still don’t know. And I’m not picking on
Google because I’m at Google. The same question
applies to other things, like who will be the next
Oracle of the blockchain, the database. Who would be the next
Netscape of the blockchain? If you think about it, what
Netscape did– at the time when the web arrived, all the
pieces were very disconnected. And they were the first
to come up with what was called a web server. So they put a bunch of
technologies and tools and libraries and all
of that into one server, and they said you want to be
on the web, take that server and buy it. Actually, the company
that sponsored the books that you’ll be receiving
at the end, Block, could be that– Netscape
of the blockchain. Because they’ve assembled all
of these tools into one server. Today, we’re still at the Home
Depot stage of the blockchain. If you want to start and
get involved and develop on the blockchain, it’s
like going to Home Depot. You have to buy the nails. You have to buy
the two-by-fours. You have to buy everything
and assemble it yourself. We’re not even at the Ikea stage
where you can just get it all. But that’s where we need to be. And there’s an
opportunity there. Who would be the next x? Fill in the blanks. Who would be the
first large bank to accept cryptocurrency or
bitcoin for a matter of fact? And I predict some bank
will do that this year. When are we going to
cross the $1 billion mark in terms of assets
traded on the blockchain? I predict by the
end of this year, we’re going to have
$1 billion traded in terms of assets in
the capital markets on the blockchain. It’s going to happen. There are some decentralized
clearing networks that will be emerging. And some of the existing
clearing houses, and the NASDAQ others, are working on it. And then finally,
when are we going to see the first
cryptocurrency-based businesses, like the
example I gave you where you’re earning
something and then you’re spending it on a transaction
in the same ecosystem? I’ll end by making
three predictions. Maybe it could be a little
unconventional or contrarian. Cryptocurrency
payments is not what’s going to disrupt
the existing world. It is not about payments. The blockchain is
not about payments. It goes beyond just payments. Your Visa card works well. Our payment system works well. It’s not going to
disrupt that so quickly. So let’s move beyond that. And then the second
one is more or less a message to those that
think that the distributed ledgers are really everything. It is not. Distributed ledgers
are about improvements. blockchain as a whole
are about innovation. And then you heard
me say this more than once– the cryptoeconomy
is where the value is going to be created. It is not about us moving
$1,000 into a bitcoin account or just moving some money
and buying cryptocurrency. It’s about creating
new cryptocurrency, creating new value out of
nothing, by just doing work– by doing active work
or passive work, and then creating
this new economy. So that’s what I want
to leave you with. Thank you very much. [APPLAUSE] AUDIENCE: Could you
speak a little bit about the Ethereum
DAO hacking issue that happened– what
happened, actually, and then what the effect was
on blockchain technology. WILLIAM MOUGAYAR: Yeah. I wrote last week a 3,000-word
analysis of it in terms of what I thought happened and
what we can learn from it. I think what happened
is unfortunate. It was a hack. I don’t know the details. It was a hack. Somebody exploited a weakness
in the smart contract that the DAO had implemented
which allowed that hacker to move funds to a
child DAO for no reason than just being a bad person. And I think what we
can really take away from it is really the lessons
more than what happened and should have happened. And the lesson is
that it’s not easy. It’s really about money. Programming money is not
for the faint of heart. It is not a trivial thing. And the biggest lesson
is that, again, we have to walk before we can run. So maybe there was too
much money in there. You don’t need $150
million to do an experiment on whether you can do
autonomous funding of companies and projects. You can have– $1 million is
enough, or maybe $10 million is enough in small chunks,
and giving away half a million at a time. So by taking all that big
money, it raised the attention. If I walked into this room and
I told you I have $1 million in my pocket, I won’t feel safe
walking outside on El Camino if everybody knew
I had $1 million in my pocket or somewhere. So it drew attention,
unfortunately. Now, the good thing is that it’s
calling now for more lessons, for more best practices. Fundamentally, Ethereum is fine. There’s nothing
wrong with Ethereum. It just happened– this is
like a micro manifestation of the Carlota Perez principle
that we always overshoot, and then we retract,
and then we’re good. Because we don’t know
what the boundaries are. And the DAO was like,
we pushed the boundaries a little too hard, and we
hit a wall, and we got hurt. So now we know
there’s a wall there. Let’s not go there. And we’re going to do
some things a bit better. So that’s what– I always look
at this in a positive light. AUDIENCE: It’s hard to formulate
exactly what I want to ask, but you touched
on the regulations for the blockchain
technology, and you mentioned that internet was not
regulated strictly when it appeared first. So now I think blockchain and
bitcoin are regulated very hard in some countries, but there
are not much regulations in other countries. So do you think there is some
risk for the countries that are not regulating it,
and what are those risks? I don’t know much
about blockchain, but for me, it seems
having a regulator kind of destroys the idea
of the decentralized place. If there will be a
regulator, then it’s not decentralized anymore. So could you please
elaborate on that? WILLIAM MOUGAYAR: Yeah, very
good question about regulation. So I think there’s
two aspects to this. One, you have to think about
regulation in the consumer sense, for consumer
markets, consumer usage, and then there is
the business aspect. And there is already
a bit of regulation, because it’s really
about money transfer. So in the US, it’s fin-syn. In Canada, it’s FINTRAC. So there’s– an exchange, a
bitcoin exchange s regulated the same way as a
money trader would be, because they are
exchanging money. So they want to make
sure that they catch money laundering, for example. So that’s fine. Bitcoin should not be the
vehicle to facilitate that. And by the way, it’s
not the great vehicle for money laundering. You’re better off putting
some green bills, US dollars, in a suitcase if you
want a money launder, because that’s really the more
preferred way for doing it. So then there’s the
business aspect. The business aspect–
the regulation there needs to be updated. For example, in the
area of capital markets, they have to recognize that
if a transaction happened on the blockchain, that
that record is valid. They have some standards. There’s the ISDA. It’s the Security Standards
Association for derivatives specifically. And they have standards. So they’re in the process of
updating their standards so that they can accept blockchain
transactions as a record that is accepted. So that’s one example of
how the relation can move up without really constricting it. To the second part of
your question about it’s better if there’s
no regulation, well, to some extent. Regulation is good if
it’s done properly. Consumer protection
is important, so you want to be protected
as a consumer as well. But we’re still in
the early stages. So if there’s no
regulation, that’s fine. Let there be more
experimentation. And then even if we fail,
even if we make mistakes, the mistakes and the
costs will be small– except for the DAO,
which was a big one. But it’s OK to fail
in small– not falling from very high levels. We’re learning. And then in two years from
now, we’re going to look back, and we’re going to have so much
experience and best practices. And then we’re going to have
the right type of regulation updates and ones
that do not impede the growth of the blockchain. But there could be
some regulations that would encourage it. If a government says yes,
blockchain transactions are good– and there
governments that are doing that. In the UK, for example,
specifically the issue they had was in issuing
grants, government grants. There was some fraud
associated with it. So they are now
saying– they’re going to use the blockchain to
issue government grants and eliminate fraud. Because the blockchain has that
trust factor in there that you cannot really cheat too easily. In Asia– I think it’s in
Hong Kong or Singapore– there was some fraud with China. It was in China. There was some fraud
with some invoices. So somebody defrauded the bank
by sending multiple invoices. And they solved that by putting
the process on the blockchain and doing unique hashes
for every invoice. So when a second invoice
came in from a hacker, let’s say, with the same
information, more or less, the system knows, because
the hash is unique. And then they are now catching
the fraud with invoices. So these are some examples. And these are good
signals that show that there are lots
of applications for the blockchain. AUDIENCE: So how would
you compare the Mt. Gox issue to the DAO? WILLIAM MOUGAYAR: Well,
one way– one comparison is that Mt. Gox losses were gone. It was very difficult.
It was impossible. Even up to today, the
funds were not recovered. The DAO is still ongoing. It’s an unraveling story, so
we don’t know the ending yet. But it appears that we can
recover the funds, at least by preventing the hacker
to take them away. So from that
perspective, the damage seems to be containable
at this point. So that’s all I can say. And we’re still in
the learning stages. Obviously, it’s a bit of a
challenge from a marketing perspective, from a
market perspective. And we have to hold our breath
and see how it’s going to end. So I’m not speaking on behalf
of the foundation specifically. This is just me as an analyst. I think they are–
that being said, there are lots of
efforts and work being done to make sure
that this hacker does not keep the funds. AUDIENCE: I recently
learned there’s a coffee shop in Palo
Alto that accepts bitcoin, so I was excited. I can see the value from
a business standpoint in order to bypass
those interchange fees and adopt bitcoin or
cryptocurrencies in general. But from a consumer standpoint,
for me to buy into– or the mainstream to buy
into cryptocurrencies, they have to have confidence in
the valuation of the currency. And as you have
seen, the valuation has jumped all over the place. So what’s your view on when
this is going to stabilize for the mainstream to jump in? WILLIAM MOUGAYAR: True. The question is about
the fact that there is lots of fluctuation
and speculation and lots of
volatility, basically, on the price of bitcoin
and other cryptocurrencies. This is kind of expected because
we’re in the early phases, unfortunately. And there’s been lots
of ups and downs. At one point, bitcoin
was close to $1,200. And it went down to $200. Now it’s back to $600,
$700 more or less. So it’s not for the
faint of heart yet. And it’s kind of risky, if
you think of it, that you’re using it for something. I think it’s going to
stabilize over time. That’s what I would expect. Unfortunately, there
are speculators. But I would expect
it to stabilize. And think of it not
just as bitcoin. There are many other
cryptocurrencies. Ethereum is one of them. There will be private
cryptocurrencies. So there will be hundreds if not
thousands of cryptocurrencies. Any company can issue
its own cryptocurrency. And it could be tied into some
value or to some kind of work that they are doing
to some services. So right now, it’s
not for the masses. That’s why I’m
saying that I don’t think that bitcoin is– that
the killer app is not payments. And we’re still
in the early days. Eventually, it’s
going to stabilize when there is more balance
between demand and supply. But we haven’t still issued
all of the bitcoin that still exists out there. We’re still mining it, so we’re
still in the very early days. DAVID: All right, great. Thank you for coming. WILLIAM MOUGAYAR: Thank you. [APPLAUSE]

20 thoughts on “William Mougayar: “Blockchains: Past, Present and Future” | Talks at Google”

  1. 55:03 "unfortunately there are speculators". Actually these speculators are the ones who help speed up the stabilization of the price. Without them we would not have seen the 1300:1 to 1:1300 in 6 years correction! Rock on all speculators!

  2. The blockchain is sensible because in essence it's a method of publicly displaying a contract whose veracity can be easily verified without requiring an intermediary.

    Let's imagine Jim and Tom, who live in the same village, standing up at a town hall meeting and affirming that Jim was going to sell Tom his farm, signing a contract which they then tacked to a wall, and then exchanging a deed to the farm for the money. No intermediary is needed to vet the transaction because, let's assume, scores of local townspeople witnessed the two men publicly engage in the exchange. In other words, the blockchain is part of the current wave of disintermediation which the internet has enabled.

    On the other hand, paper money and its cousin digital money are absurd on their face because they have no inherent value. Despite the proclamations of many supposed financial gurus, when it comes to financial currencies, inherent value is not difficult to define.

    For thousands of years precious metals such gold, silver, and copper have functioned as effective currencies. Therefore, they have inherent value. The value fluctuates but that is irrelevant to this discussion. When the government changes the law or disappears, its paper currency typically loses all of its value (except perhaps its value as kindling).

    Regarding the folly of bitcoin mining, merely because something is readily verifiable and difficult to obtain does not make it valuable.

    Paper money, digital currencies, and extraordinarily overpriced diamond jewelry are all mere fads that will be sooner or later tossed into the dustbin of history. Communism and Freudian psychoanalysis were deemed to be part of a "brave new world" a century ago. Now they are seen as failed relics of a bygone era. They were unmasked as mere fads that were discarded once people tired of them.

    Meanwhile, gold sitting in Spanish galleons on the bottom of the oceans will be valuable 1/2 a millennium hence as it was 1/2 a millennium ago just like farmland in Silicon Valley.

  3. 3:49 it doesn't allow to send cash, this is misleading
    5:35 there is always someone in the middle but this someone is just a buch of mining operations distributed in a relatively decentralized netowork over the world. If there's enough consensus your transaction may not be transferred at all. For example a majority of Ethereum miners decided to change the past and remove uncomfortable transactions.
    8:30 When you talk about Blockchain you have to be specific what to you mean exactly. When you talk about the network you should specify if you speak about the Internet or some internal netowork. It is important because a blockchain is a moving target in terms of qualities of immutability it provides.
    10:18 of course it needs a database. Every node has to have a database with a copy of the blockchain. For example Bitcoin uses LevelDB or SQLite. The one ledger is an abstraction of a consensus algoritm that syncrhonizes these databases.
    That's enough to me at this point for me. Sorry for a negative comment but please consult your talk with someone first. This kind of hype generation made a lot of people invest in snake oil just because it had a blockchain word in the tagline.

  4. A lot of lessons have been learned #btc #ethereum #ripple #dao #nxt, the rise of 3.0 blockchain solutions is around the corner keep an eye out for the #wavesplatform

  5. when the tide comes in…all boats now sitting dry and on their sides…will become mighty buoyant sea faring ships once again…hehe

  6. Great talk to understand the blockchain. I guess its a must watch to understand the use cases and the basic applications based on crypto currencies.

  7. Great suit jacket! Nice material! Now I'm going to go eat kosher pastrami. Shabbos is over here in Indonesia.

  8. Like in the present system, the Banks provide facility and add value in money conversions, what and how does the Blockchain add value if it enables direct transaction in a money transfer activity?

  9. Tell me…a layman , does block chain makes my life simpler or more complicated. Is it going make my activities cheaper or more expensive? Is it going to take more time or quicker to transact ??
    All these no middle man in the middle is just BS. I will never believe it. I cannot see how it can be.

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