The Electrodollar: Venture Capitalism, Technology, and Silicon Valley (w/ Raoul Pal & Bill Tai)

Video Transcription:

  The Electrodollar: Venture Capitalism, Technology, and Silicon Valley (w/ Raoul Pal & Bill Tai)

RAOUL PAL: Bill, great to get you on Real Vision. I've been looking forward to this conversation. You and I caught up on the phone and I think we've got lots of things to talk about. Because you've got-- and have had your finger in many, many pies. I'd love people to get a bit of background about yourself because you've got a hugely interesting and different background. BILL TAI: Yeah, well, my parents are from Taiwan. I grew up in the Midwest, mostly. I ended up becoming a hardware hacker at a teenager age following a schematic from Steve Jobs and Steve Wozniak, who had built a little phone hacking device called a Blue Box. That got me into electronics. I ended up studying electrical engineering and a little bit of computer design, became a semiconductor chip designer and I came out to Silicon Valley in the mid-80s, when it was still orchards. I joined a startup started by the CEO of Fairchild Semiconductor. That startup was called LSI Logic and the other big name startups at the time were Intel and AMD and National Semiconductor. LSI Logic was a successful company. I ended up leaving there to have a very brief stint to help the government of Taiwan put together a spreadsheet that got built out for a factory that became Taiwan Semiconductor, which is now a 200 billion market cap company. I then went to Alex. Brown & Sons, which many people don't know that name, but it was a tiny boutique investment bank, and it had taken Microsoft public on the right of Goldman Sachs and they were building out other tech areas. I started their semiconductor practice, and in the '80s, took public companies like Atmel, Zilog, Adaptec, XR, Cirrus Logic, Dallas Semiconductor. Then I went into venture capital about 30 years ago. I've funded maybe 150 companies over the years and had 20 to go public. We're using Zoom right now. Really, I was the first person to commit to Zoom, and it's become a crazy $54 billion market cap company today. RAOUL PAL: You do that in a private capacity? It's not of funds. BILL TAI: I write my own checks. Yes, I did do stints with some of the bigger firms. I was a partner at IVP in the '80s, or sorry, in the '90s. IVP, Kleiner Perkins and Sequoia were the backers of the startup I joined at LSI Logic, and I later joined IVP in the updraft during the internet era and in year 2000, I stepped off the train for a while and became a sponsored athlete in kiteboarding and then I came back into the business 2003 or so to start the Charles River Ventures Office and I'm still a partner emeritus there, but the last 10 years, I've been basically writing my own checks. June 1st , 2020 - www.realvision.com 3 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley RAOUL PAL: When you're looking, surveying the landscape, what gets you excited now? We've gone through the VC way, but what on the horizon, or the things that you're investing in, that really starts getting you excited about the future? BILL TAI: I am still incredibly excited about the wave that I would generally call data science. Let me build up to why. Technology, to me, is a series of waves that build upon each other. I got started in that first wave of basically figuring out how to take these big vacuum tubes that got hot and took up a lot of space and burned out a lot to turn them into little dots on a piece of silicon. We had this wave of basically taking complex electronics and turning them into Lego blocks. That was a very big wave that produced companies like TSMC, and Intel and AMD, etc. Once those Lego blocks were available to everybody, you could build things out of them so there was a second wave of building hardware devices, whether they were computers or routers or switches or hubs and things that were the infrastructure that we all use today for moving electrons around. That wave, the second, wave led to the third wave, which was put all that together and then you have internet. You had basically the digitization of the communication system, another wonderful wave to invest in. Then on top of that-- RAOUL PAL: Your first idea of the internet when you first saw it was the digitalization of communication? BILL TAI: Basically, yes. Yeah. Because you had circuit switch networks that were point to point calls. Then once you could chop up the conversations, you could then multiplex them and put many on a line and then you could expand greatly the capacity and you could change the characteristics of what was expressed on the screens. That led to the fourth wave, which was the user interface that went on top of that. If you think about what is Facebook, Google, LinkedIn, anything that you touch on a web page, all it really is is a user interface that controls the ones and zeros that are expressed on the screen into something that's usable to you. That was very high value. Then the next wave, which we are still in and will be a long wave, just like the other ways were 30-year waves is the data science wave where you're trying to figure out what is being done to optimize that engagement. If you think about the winners in the user interface era, the ones I named before. They were the ones that understood how to figure out what was happening behind the front cover, that user interface, and optimize to win. That wave is really massive and just beginning. You see it expressed in everything from blockchain, to physical things like Uber now. If you think about what is Uber, what's Walmart, in the face of like a retail industry that was Sears and JC Penney for many decades, Walmart is a data science cloud where everything is represented by some bits and expressed at the point of sale terminals, so they know what's inside and what's moving around. It's given them like an asset light, low working capital business, everyone and the old guys are out of business. Uber is a data science cloud with cars on the end of it. Airbnb is a data science cloud with rooms on the end of it. June 1st , 2020 - www.realvision.com 4 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley We're basically moving today into a world of virtualization of physical assets and efficiency created on top of that cloud, which is what we're doing here. Think of the efficiency right here through Zoom. You and I have been virtualized, we're not 3D but our presence has been totally virtualized in a marketplace of nodes, where you can communicate with anyone anywhere anytime, and have that unit of productivity surface to the top which is why something like Zoom today in the face of no airline travel is worth more than the top seven airlines combined. RAOUL PAL: Yeah, the whole move towards video is one of the things that obviously, I'm in the middle of with Real Vision, but that whole thing, what everybody and every business is now becoming a media company because of the impact of video. The Zoom revolution is part of that whole thing, but video has basically taking over all forms of communication there. BILL TAI: It really has. I think while the capacity was still building in the very early days of internet, it was tough to just get a voice call across that. There would be a lot of dropouts, a lot of congestion and as the speeds increased, and the ability to multiplex increased, many more bits could be put through and you could move from pages to audio to video pretty cleanly. I think what that's done is for the media business in general, like technology has disrupted all these other prior businesses, media, it's in an interesting place today because in my book, the type of media business that we have grown up with for 30, 40, 50 years is an anomaly. If you think about content in general, from the time of the caveman, and let's use music as the main thing, songs were always free. You'd go to the campfire and you'd sing them and you could maybe write down some notes and sell a little sheet music, but it wasn't really a business. It wasn't until vinyl was invented and people could press that on something that had capital intensive characteristics to make that he who control capital control content. All of a sudden, you shifted to a world where the people that were capitalized control the content and could also control distribution. Once you had production and distribution, you could charge for it. We had one or two generations where people were willing to pay $17 for a $3 piece of vinyl and $14 for a 90 cent or nine cents CD, ultimately. We're now going back to what humanity was for 400,000 or 500,000 years, where content is free because production and distribution have been digitized, and it's in everyone's hands now. The business models are rapidly changing. You're seeing that just like it's empowering you to be a big player in this field or companies like Netflix disrupting the old industry. It's remaking industries. RAOUL PAL: How does that work with a subscription model? There is a free element. Obviously, we have a free element as many media companies do, but how does that work with subscription because that's basically saying you're going to have to pay for the curation or some of the work involved? BILL TAI: Yeah, it is, and you do a great job with that. It was always about drawing audience to get people to come to a destination in whatever business model existed and in the '70s, when in the US, it was CBS, NBC and PBS, there were limited choices but now, and we've already gone through that, the choices, the June 1st , 2020 - www.realvision.com 5 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley number of choices completely exploded so you really have to curate well and draw audience and build that flywheel of reputation and the ability to draw good content, just like any social circle. RAOUL PAL: Yeah. Where else, outside of the video side, where else are you seeing the developments of this data, and the application of it that you that you're talking about, this big wave? BILL TAI: Well, it's the entire stack, where we're probably 30%, 40% of the way through making available the infrastructure to anyone, and there's a lot of people that still have to learn how to use it, but at the very granular layer, you needed a different architecture to handle the data and there was an explosive wave in a techie nerdy area called Hadoop. Back, if you think about the way data and computation was handled in the '70s and '80s, you might buy a big machine from IBM and load a big instance of Oracle on it, and then get a bunch of disk drives and then store stuff in your company in some back room. When the internet started to explode, the type of data changed a lot, because it wasn't just the things that you'd run on your machine, you started to have things like tweets and JPEGs and user data of when somebody's on or what they clicked on on a page, it was a very different type of data that was not easy to store on Oracle, on an IBM machine, in disk drives. Google and Yahoo changed the game by consolidating that into data centers so instead of having a single big hunk in machines, you had many, many, many little CPUs on cards where a symphony conductor could conduct and distribute the computing. That changed everything about how data is-- how you compute, how you store, how you process, how you read and what information you can get out of it, because there's a lot more ambient data. Google created something called GFS, Google File System. Yahoo created Hadoop. Hadoop became open sourced in the '90s and became the basis for how the modern companies, the ones I mentioned, Facebook, LinkedIn, Twitter, they all use to do the user analysis and the A-B testing and the reading of ambient information to know how to steer their businesses and the ones that we're good at it, won. The ones that never tried were like the JC Penneys and Sears. That wave produced companies like-- Splunk is not specifically Hadoop, but Splunk Treasure Data was a company that I co-founded, where we made Hadoop available as a service on the cloud. Amazon has Redshift. That allowed any engineer sitting in a room anywhere to take all kinds of data stored somewhere through his internet connection on the browser, and then check what's happening. What do you do with it? How do you optimize engagement, so it spread the power of giant data centers, data analysis everywhere. That foundational layer is now available to any tech company, and the ones that really get it win, the ones that don't use it lose. Then now you can build all kinds of businesses on top of it. Whether it's the virtualization of things we talked about, cars, rooms, people. There's all kinds of things now that you can apply data science to, the reading of, the understanding of the movement, where it's headed to optimize so what I described with Walmart where you have a real time cloud, if there's somebody that buys something in Boston, and they're out of inventory, and there's extra inventory in California, they move it so the whole system becomes efficient. June 1st , 2020 - www.realvision.com 6 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley In the next decade, I think you're going to see that applied to supply chains. You're going to see a complete remaking because we're in this competitive world now and a remaking possibly of where we source our goods from a political national perspective, where everything is going to need to be identified, where it came from, where it is, where it is on the way. Whenever you get something delivered, you'd love to be able to click on that little thing to see where it is. That type of tracking is going to be pervasive in everything we do, whether it's goods, people services, and we're just really at the start. RAOUL PAL: That may be even forced by regulatory changes as well as either it's deglobalized world or regionalized, however we end up in this world because we're changing right now, we don't know where we're going to end up, but it sounds like people are going to be forced to prove providence, I guess. BILL TAI: Yes, I think so. Then this brings-- RAOUL PAL: Same with food as well. BILL TAI: Yes, definitely. Yeah, there's this movement of course. The sustainability wave is finally also real. Talk about another wave that is increasingly important, who knows whether we're all going to make the earth implode by our activities, but it's on more people's minds today than it ever was before. The safety and quality of your food and your water, everything about the brands you interact with, it matters now. I think this next generation of millennials that, I don't know where they going to get their money, maybe they'll just get it from their parents-- RAOUL PAL: Or basic income maybe. BILL TAI: Yes. Their purchase decisions are not just price performance. They don't buy things just because they're cheaper and a little bit better, they buy things because it means something to them. The brands represent something. If you don't represent something good or if you really represent something bad, it matters. I think the sheen of doing well by doing good matters for your survival going forward. I think that's also quite a big wave. I think back to the provenance point, this whole area of blockchain and cryptocurrency, it's controversial in some ways, because it hasn't become pervasive yet. I think, to me, the blockchain looks like TCP IP for assets. What does that mean? TCP IP is this little acronym you see everywhere, Transmission Control Protocol slash Internet Protocol, and it was and is the fabric around which digital assets, meaning like emails or packets that are sent through the internet are tracked, traced. When I send it into the-- I type an email and hit send to Raoul, the TCP IP stream carries it, transmits it, knows that it got there, and it's just a bunch of bits. I think now in the blockchain world, bits represent physical assets or digital assets of value like a Bitcoin and that fabric underlying that is this blockchain. Some are specific to certain kinds of things like the Bitcoin blockchain is only the Bitcoin blockchain, but there are other blockchains that can be used for other things, those can track those assets. Whether it's a securitization of a real estate project, a building, or it's the trading of a token for another token, or insurance, execution of insurance policies or whatever the contracts may be, those can now become over time, very June 1st , 2020 - www.realvision.com 7 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley fast, automatic and guaranteed in a way that the verification was very difficult to do before, very expensive to do. I think those businesses will be remade over time as well. RAOUL PAL: As this whole space develops, so we've got these huge developments going on in cloud, I guess, that seems to be happening. Then we got the distributed computing power, edge computing and that's just all allowing more and more processing ability, and then within that, suddenly, that's allowed, it looks like this ability to create the internet of, well, assets or money or value, or whatever it is, how big a thing is this? Where is a Silicon Valley because I'm really interested, as you know, in this whole blockchain, crypto, digital assets world because it's the crossover of my world and your world. It's macro meet Silicon Valley and it's fascinating. How is that movement in the West Coast? Do people see it? Is it a really big thing because Andreessen Horowitz seemed to be really putting the whole business behind this now. Tell me a bit about this movement that's going on. BILL TAI: It is. What's interesting is that I'm going to answer that on a couple of dimensions. One is that Silicon Valley is definitely an insular place. It has its own way of thinking about things that some people call it a bubble, whether it's a financial or a thought bubble, or just whatever it is, it's a little different. There was a certain type of person that came out to Silicon Valley in the '80s, '90s and they came from all over the world. If people were interested in electronics and physical things like this was geek heaven in the '80s and early '90s, and then it started to become a little bit more commercial and transactional with the internet. Silicon Valley has its own way of looking at things and because it became the center of the universe for that development for a while, and actually, it still is, it was an interesting thing when the internet hit. I was convinced at the beginning of that, that the internet would democratize everybody and that the software engineer in Bangladesh would be equal to the one in San Jose, because they could get information equally. That was true, but what ended up happening was as the internet spread, that person in Bangladesh would wake up and say, I should be in Silicon Valley, and they would get on a plane and move. That network reached out, touched everybody and then sucked all the assets into Silicon Valley, because everybody wanted to be commercially productive. Then it imploded. Then some people went back home. Silicon Valley goes through those waves, but there's a high concentration of the more aggressive people that are willing to try new things here. That's become its own ecosystem. That said, I think what's happened in the last eight or 10 years in particular is that we had-- you know that movie, there's one of the original Star Trek movies where Spock goes back, he goes into the nuclear reactor to take out the thing, and then they have to bring it back to life because he dies, so there's the Genesis project. Then there's this like green shoot that shoots out on the ground, and it goes everywhere. Technology is like that now. You had this idea of concentration in Silicon Valley and over the last eight or 10 years, the opportunity to fund and build and create companies worldwide has expanded like crazy. I think it's a couple of dimensions. One is that in the earlier days of Silicon Valley, it was all about miniaturization of hardware devices and engineers selling to engineers things that would make their machines faster and cheaper and better. The applications layer wasn't the main thing. June 1st , 2020 - www.realvision.com 8 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley Now, we've moved to this world where technology is affecting everything and it's allowing people like a Mark Zuckerberg to start a company in a dorm room at Harvard. That one moved to Silicon Valley, but now, there's people that don't move anymore. Whether it's immigration restrictions, cost of living, what have you. I've been very successful in funding companies like Canva out in Perth, Australia, it started, it's there in Sydney now, but that company is now worth half a billion dollars and it's been profitable for three years, they're about 18 months behind Zoom in P&L and margin structure, and same P&L and margin structure, but size is about 18 months behind, or SafetyCulture's another company who just raised a billion in Australia. Treasure Data which SoftBank acquired, I started that one out of Tokyo. There's so many opportunities now that are springing up. The fabled Silicon Valley unicorn isn't just in Silicon Valley anymore, and there're unicorns everywhere. I think that that's just started. RAOUL PAL: What is your-- because you got involved in the whole Bitcoin business early on, talk us through your journey of that because that's-- BILL TAI: Oh, what a crazy thing that I never thought would become what it became. In the '90s, I was on a board of a company that went public called 8x8. One of our board members was the chief scientist of RealNetworks. He introduced me to a good friend of his who was the chief technologist, CTO of RealNetworks, because he thought we'd be snowboard buddies, and we did. We kitesurf together, we snowboard together. Around that time, I think around year 2000, '99 or 2000, I can't remember the exact year. His name's Philip Rosedale. Philip told me, Bill, I'm going to build that science fiction novel Snow Crash in real life. First, I hadn't read that book yet. I said, what's Snow Crash. If you don't know what it is, it's a science fiction novel by Neal Stevenson, that describes a digital world. This was written in the '80s, where the protagonist drops down his computer, opens the screen, drops in. He's got a virtual character representing him that goes around, and they have a ninja sword, the characters had ninja swords, and every once in a while, you get in a fight. If you lose, and you get your head cut off, you get timed out, and you're not in the world anymore. Towards the end of the book, the physical and virtual memory, and the character gets killed and the guy in real life dies. It's like first life and second life merge. Philip built Second Life, and it became this thing, this amazing world where people would create a digital representation of themselves and wander around in an unstructured environment. When it was first launched, people didn't really know what to do because it wasn't a structured game. You just show up. I was sitting in front of the Paragon bar in San Francisco with him around 2000, 2001 when it launched, and I said Philip, we should start an economy. I said, if you think about, what is Las Vegas, there was nothing there. Nothing's made there. It's just like a bunch of sand. I said, if you put 10 people in a circle, and you put one poker chip into the system, and said, pass it to the right a million times a year, everybody would have a million dollars a year of income. As it's moving around, you could peel stuff off and build a casino, build a resort and you have an economy. We launched- - or Philip, I should say, launched the Linden Dollar. That became-- and I took the character, my name is June 1st , 2020 - www.realvision.com 9 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley Alan Greenspan Gollum in Second Life. We had this money supply, we had universal basic income. All the netizens of Second Life would get a little stipend every month and then-- RAOUL PAL: That creates money that therefore people got distributed money and that they would spend it and create a velocity of money, and they've created an economy. BILL TAI: That's what happened, it was like Las Vegas. It was crazy because people would set up banks, there were Ponzi schemes, people would collect other people's money and offer interest with nothing really to invest in and get more money and pay interest. Everything that happened in the Wild West days of banking in the US happened in Second Life. It was just nuts. It was a fantastic experience. Then when the Bitcoin whitepaper came out, somebody sent it to me. I don't remember the date, but it sat in my in basket for a while because I didn't really know what it was. Then at some point in 2010, I read it and I went to bitcoin.org and I downloaded some software and I started running a miner. RAOUL PAL: Why? I understand you've understood the digital money. That was the big one, that the digital life and the real life can blend, and people are living two lives. Okay, I get that. That's very revolutionary and people still haven't caught up with that yet, that our kids are living now. Why in that white paper do you go, okay, this makes sense, I'm going to start mining? Most people go, oh, that's interesting-- BILL TAI: The phrase that caught my attention was peer-to-peer currency. It was more of a peer-to-peer than it was a currency at the time. Around 1999, 2000-- so back in the mid-90s, I started an ISP. I set up some routers in Taiwan at one of the first commercially-owned ISPs that became a bunch of data centers. Goldman, Morgan and Salomon ended up taking it public. I, with the team, acquired AT&T Hong Kong, and it became a company called iAsiaWorks led by then CEO of AT&T Hong Kong and it became a public company. Here I had this data center business with all these lines, and I could see clearly in my head the world was moving, had moved, from mainframes to minis to PCs to blade servers distributed around the world and it was a peer to peer fabric, effectively, of computational devices. I was experimenting at a time with peer-to-peer computing and I also set up this little entity to experiment, we've called ifrog.com and I had some coders that built a peer-to-peer content distribution network. The idea was like Akamai, to take video streams and instead of having to pay expensive bandwidth across submarine cables across the ocean, you could have a go-over once and sit in the peer nodes and each one would spread it so that would be at lower cost. I was just into that type of technology at the time and the Second Life architecture in the beginning also was going to use blade servers in a way where if you joined Second Life, your computer would be attached to a blade server in a pod and your computational device, your PC would generate a little piece of real estate in Second Life. The idea was to have many, many, many people on contributing their compute power to build the world, so that the company itself didn't have to. I think just because I was interested in those techniques and working on them and building some things and experimenting, when I saw a peer-to-peer currency, I read it. I just thought, wow, this is fascinating. This is cool. It totally made sense to me that you could have a world of June 1st , 2020 - www.realvision.com 10 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley people out there all contributing to a common goal that was a computationally based thing, whatever it was, and this just happened to be a currency. I lit up this miner and then it was computationally intensive on an old PC I had that was running some other stuff and it would crash every once in a while. In Thanksgiving weekend of 2010-- and I do all my building on holidays so if you follow me on Instagram, you'll see like, robots on fourth of like Memorial Day weekend, I built the robot and last Fourth of July, I built like a little LED red, white and blue flashing thing and I do things on holidays. In Thanksgiving of 2010, so 10 years ago, almost 10 years ago, I decided to switch from mining to possibly buying and I tweeted something that's still out there that was something like anyone else using peer-to-peer currency bitcoin.org, because I wanted to find other people. Then I ended up meeting this kid, whose father was a kite surfer. This kid named Nico Poonan [?] was mining in Finland, and his apartment was full of machines basically mining and I got to know him and bought some Bitcoin from him. Over the years, he and some other people in the open source community got together and pooled their assets and learned how to go from laptops to programming graphics cards, to programming FPGAs, field programmable gate arrays, and then they wanted to do a semiconductor chip, like a hardcore ASIC that ran the Bitcoin protocol. Having been a chip designer, my background, when he first approached me as young kid who's no education in that space. It was like, there's no way you can do this, but he and his open source buddies found some code, some programs design silicon, and they came up with a design and I looked at it, I was like, this could work. I ended up writing a check with some friends. The investor of Google Maps, some employee to Facebook, the head of infrastructure at Facebook, we funded a silicon chip that became the main computational device at Bitfury. That's how I got involved with what was for a while, the world's largest Bitcoin mining operation. RAOUL PAL: What did you see in those days? What did you think was going to happen with this Bitcoin thing? I'd love to see where you think it's going now because Bitcoin's where our worlds collide as well, because there seems to be an accelerant around us. What did you see then, and how has your evolution of thought process change? BILL TAI: Well, when I read the white paper, and then I started to understand the Byzantine Generals Problem if you've ever-- RAOUL PAL: Why don't you explain that to some people, we've had it once on before, but I think it's very useful if you explain it for some people. BILL TAI: Yeah, so at a very high level, okay-- I look at Bitcoin as primarily a store of value. It's useful in some levels of transactions, but there are improvements that need to be made to a bunch of things to make it high volume. If it's going to be a store of value like gold, then scarcity is quite important. How do you know that there's a limited quantity and how do you identify all the little pieces of Bitcoin that make up the universe of Bitcoin? There's a set of algorithms that were really based on history where if you had like a war, a bunch of Byzantine generals that were being attacked, or in some battle, and you have this June 1st , 2020 - www.realvision.com 11 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley communications, not even a grid, because you have people like running around by foot with little scrolls messaging, how do you know how to communicate with all of them in a distributed fashion and make sure that they're in sync and that the instructions that are going to each general are authentic, and that you should really follow them? An interesting problem when you're leading a troop, and you're going to go into battle against all these other people and you don't know, am I being tricked? Is this real? Is it not real? There's an algorithm that was developed that outlines the way the communication happens between those things to make sure that it's fault tolerant, and that with enough nodes, you can tell that something's authentic. The algorithm that was designed that is imputed in having a bunch of nodes that run the Bitcoin program, run them all together in a way that you can verify transactions so that if you and I have-- if you wanted to send me part of a coin, and you sent it to me, how do I know like that Byzantine messenger, that that was real, it happened. It's indelible, it wasn't fake, and that everyone can know that without having to like have watched it? That set of algorithms is coded into the software that has all these different nodes that you hear about is the hashing program and the verification of transactions that occur in the Bitcoin blockchain and that the blockchain to simplify that, it's a chain of blocks of information. Every 10 minutes or so, it's not exactly 10 minutes, but it's roughly every 10 minutes, all the little movements of coins around the world that are queued up, there's a wrapper put around that and that's a block, and then that's stuck on the chain. Over a period of time, anyone can look at that chain and see, Raoul said, Bill, this tiny amount of Bitcoin at this time on this date, and now that unit sits with him and I can then move at any time so that all of those transactions in the world all the time are being recorded and stored in multiple locations and no one can replace it, and it's indelible. There's a tracking system. It's back to this data science thing. RAOUL PAL: What is so revolutionary about it outside of Bitcoin? Bitcoin as a store of value, what is all of the excitement about Ethereum, the whole blockchain, digital assets? What world do you see looking forwards now that this has given birth and has become unproven? BILL TAI: My framework is going to be based on things that I saw happen before. To me, it's a little bit like, I would look at Bitcoin as DOS or Basic, meaning an older programming language that is or actually not even that, there's something called Assembly language, which is, when you have like a microprocessor in your computer, it's not looking at a bunch of words, you're programming that in a series of ones and zeros. It's very granular, and very precise, and you can see everything that's going wrong if it goes wrong, and if it glitches, it's going to glitch and just stop. Bitcoin is at that layer where the programming of Bitcoin is so granular that you can see everything. There's not a lot of people that like to do it because it's tedious. There was a need after Bitcoin got started to make the concept of blockchain more applicable to broader sets of things, you needed to make it easier to use. Rather than programming this laptop that I'm using Zoom on in a bunch of ones and zeros, a lot of applications on a Mac or an iPhone are built with higher level languages. In the case of applications on iPhone, there's something called XCode. You basically download it, you can drag and drop modules and user interfaces and bump, bump, bump, bump, bump. June 1st , 2020 - www.realvision.com 12 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley Software development, to some degree today is no longer development. It's permission plagiarism. You basically go out to GitHub and you go to GitLab and you find different blocks, and you paste them together and you hit run. Then you change the variables and you just tweak it. That level of programming, it's faster, it's easier. You get to results sooner, but it's not secure. What you see in the development of Bitcoin, Bitcoin's never been hacked because it's this very granular, clunky, low level thing and you can see everything going on. Ethereum's is abstracted language that took, or it's built on an abstracted language solidified. It was designed in a way that attracted every kid that could design an iPhone app. There was this flood of developers because it was easy to use, but it had these little things underneath because it was based on other things where if you put these two little gears together, maybe they don't quite match, the early days of Ethereum were filled with, oh, the wallet hung, it was hackable, this was hackable, that was hackable. There were all these gaps, because people would attack it at lower layers. I think Bitcoin, in that context, to me is such a rock solid thing, it's like the gold standard. I think Ethereum and some of the other languages and tokens around different block chains may be simpler to use, and therefore draw developers that want to apply blockchain principles to managing things, whether it's a fleet of cars, or tracking assets or different things, tracking transactions, and I did fund some things in that space, too. I'm one of the early backers of CryptoKitties, for example. RAOUL PAL: What did you see in that? Was that just you seeing Second Life all over again, basically? BILL TAI: It was one of the very, very first-- well, first of all, the team. I always back people in teams first, and then they have to be in a space that I think is a bit-- Philosophy for Venture Capital 101, you're not going to make money if you're in a dead market. You want to be in a big market going through transition that's starting to accelerate or leading up to that. You're not going to make money if you have a shitty team so you want A players. Then you're not going to make money if you overpay or you get the capital structure wrong. It's very simple. I had a conversation with Don Valentine. Don Valentine, the founder of Sequoia Capital, was a backer of that first startup that I joined. When I went into venture capital in the early '90s, I used to follow him around and we got stuck in an airport one day after a board meeting at Microchip because there was a flight delay or something, I had dinner with him, and I was like, Don, you're so good at this. By the way, if you want to see a venture capitalist that is just amazing, think about only 10 investments he ever made or a subset, Oracle, Apple, Cisco, Electronic Arts, LSI Logic, Network Appliance, just in that, there's like 1000 billion. Then his firm went on to fund Google and really everything else. Zoom, they came in late to Zoom. Sequoia Capital, they just have that DNA of a great thinker that understood markets, understood issues, and he was one of my early mentors that I followed around, and so I said, Don, what do I do to be good at this business? He said, it's very simple. You only have to get three things right, markets, management, capital. He said, if you think about those three things, if you have a great team and infinite capital and you're in a shitty market, you'll lose money every time so just make sure you're in a good market and then get the right people and if they're not working, change it out until it works. June 1st , 2020 - www.realvision.com 13 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley That was the early Sequoia culture, they're not so much like that now, but they were very hard on management at the time because they saw the management as a commodity. Anyway, I think we're in this world now where I think Bitcoin is this reference standard, Ethereum and CryptoKitties-- CryptoKitties ran on Ethereum, and they broke out as the highest volume application. RAOUL PAL: Anybody else would have looked at this and said, why the hell do we care about digital currencies on a blockchain? That's what the world's narrative was, but you saw something entirely different. BILL TAI: Well, it was, yeah. I tend to be drawn like I was to the peer-to-peer thing. When I feel like there's a new and useful technology that gets a foothold around the use case, I'm just generally interested and then whether or not I find it's a different case, but in this particular case, it represented to me the first high volume transaction machine. Because to me, I didn't care if it was a cat. It was interesting that it was a cat or set of cats, but you could put anything in there. It was representative to me of what am I going to learn about driving super high volume transactions on a blockchain here? RAOUL PAL: Is this tokenization essentially, you're seeing within the kitties? BILL TAI: Yeah, it is. Yes, that's it. RAOUL PAL: You're seeing, okay, they tokenize these kittens, but therefore, I could tokenize anything. BILL TAI: That's right. RAOUL PAL: Therefore, tokens become securities, securities have value and now, we've got this whole digital platform to exchange all of these things anyway. BILL TAI: That's it. Basically, to me, it represented one of the first steps towards digital value exchange in a universal way of anything, and like Second Life, it was its own economy. It was its own little closed world with its own currency, and back to your question about where does Bitcoin fit in the world's currency system and other value exchange? I have another weird ethereal thought on this whole-- and ethereal doesn't mean Ethereum, but I think if you think about the history of currencies, generally speaking, and let's take this recent history that we're just in. The US dollar, as we know it, has not been around that long. If you think about-- yeah, so 1944, Bretton Woods, reference to a piece of gold to give it trust so how do you impute trust? In that time, it was like there's physical gold. Now, it's blockchain if you understand blockchain. Then it ran out of gas in 1971 or 1972. Then they had it abstracted from the dollar and it became this floating thing, a reserve currency with its special advantages, but that's only been in place for 28, 29 years. Is it breaking now? Don't know, it might be. '44 to '72, I don't know-- it wasn't that long. It's like 20- or 30-year periods, and we're having these hit the wall moments within a few decades at a time. June 1st , 2020 - www.realvision.com 14 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley That doesn't give me a lot of confidence that this currency is going to be around 100 years from now. I don't know when it totally breaks, but it's going to break at some point. Now, let's go back beyond this couple of generation period to societal structure now, people exchange money. Let's go back to the revolutionary period, when a bunch of people got off boats from continental Europe and stepped on sandy beaches or wooded beaches in America, they set up colonies. Let's draw a line here. This is Connecticut. This is New York, this is Virginia. Every single one of them created their own currency. Every single one. If you think about currencies and value of exchange, anytime you have a societal group, whatever that grouping is, religious, political, cultish. You're going to have little exchanges of things. We're in a world that increasingly is able to have a gazillion micro communities exchanging value however they want. The world that we knew after World War II was temporary, because you go back before, let's say, humans have been around for 400,000 or 500,000 years in the form we are now, longer than that if we were lucky. If you think about what was society like when you were a caveman? How did you do value exchange? In the morning, you might wake up and say, hey, I'm going to go fish with Raoul and three friends. Then in the afternoon, I might pick five other people and in the middle of the day or later in the evening, I might do something else with another set. I didn't work for a company. You had a flexible fabric of need that you serviced with free molecules that could disperse, reform, apply themselves whenever you needed productivity of a certain kind and a certain thing, so work was fluid. It wasn't until the physical Industrial Revolution, just like we talked about music, that societal structure and work changed. It's only like 1% of human history, we've been locked in these big companies. After industrialization and capital intensity, we had this notion of giant companies that promised their employees that they would have pensions forever. I know you're big on this pension thing. That's all fake. It was like, come work for me. I'll take care of you for the rest of your life. That's not true. RAOUL PAL: Bullshit. That was a lie. BILL TAI: It was never sustainable. We know a certain limited history of our parents and grandparents that worked for these big companies in the aftermath of World War II, but before that, they never existed for hundreds of thousands of years. Why should this structure be what it will be in the future? I think we're going back to-- or the future is going back to what we were for all of human history. Think about every young person you know. They work on five jobs. None of them work for a big company. Think about every big company you know. They're mostly in trouble. The industrial ones. The ones that move bits around, freeform, they're not in trouble but the General Electrics, the old industrial things, no young kid's going to go work there are hardly any. We are now, we had this like societal line of this continuous society, capital intensive big companies and nations. Nope, that didn't really work. What will that do? That's going to dissolve national borders in a way and if national border's-- RAOUL PAL: [?] doing that, already. June 1st , 2020 - www.realvision.com 15 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley BILL TAI: It is. This premise of what is currency in a world that looks like caveman days with computers? It's a totally different thing. You get micro economies and all kinds of assets and I think humans like to have a reference standard. I think back to your original question, I think Bitcoin is one of those things that's very secure and if you think about the human behavioral economics around gold and the need to hold gold, and you may know the answer to this better than me, but I think all the gold in the world's worth 8 trillion? RAOUL PAL: 10 trillion and silver. BILL TAI: Okay, so if Bitcoin becomes worth a 10th of that over a decade, or less or more, whatever it is, or even 20 or 30% of it in two or three decades or 50 years, whenever this dollar regime starts to have big stress, what's it worth then, is that 100,000 or is it 200 or 500 a coin, but it's somewhere in that neighborhood. I think it's one of those things that you buy a little, you hang on. RAOUL PAL: Yeah. See, I'm really interested in this because I've been looking at the fragmentation of society and the change of the tribalism brought by the internet because we exist in two societies now. We live in a sovereign state, you live in the United States, I live in the Cayman Islands. We have our citizenships, you're originally Taiwanese by heritage, I was originally British, parents from different countries but now, I live online. I'm now part of the macro community. This is a whole community of people, of which most of the people I've never met before, but I talk all day on Twitter to, or via video, or whatever. We can have mediums of exchange. We have our own terminologies. We have, in jokes, own society as it is, but I may be part of another society as well. Maybe I'm part of whatever, my other interests may be, music, a different society, different groups. As you said, what becomes really interesting is once you start thinking of this new tokenization, CryptoKitties being I thought was really fascinating. Once you understand that everything can be tokenized, that has value, and particularly digital assets as well and we have this multi-tribal world, we've now just built a brand new securities market with millions of new instruments, we can trade. I'm looking at the pretty shitty fucking world that we've got now with rigged central bank buying and narrowing base of ownership of equities and all of this mess that we're all finding ourselves in, well, we're about to be given an entirely new playing field. Everyone still thinks of tokens from the first wave of tokens in 2017, that was just the start of we're going. BILL TAI: I agree. The first set of web pages suck, too. A lot of porno and a lot scammy sites, but they evolved into something cool. RAOUL PAL: Yeah. I very much think that if we were to go forward 20 years, if you're in the financial industry, you're actually trading value between tokens. I've always said the point being, let's say you take a great firm like Exxon, huge, big monolithic entity. Right now, I can buy their bonds or their equity. They employ, I don't know, 500,000 people or something crazy and maybe you want the upstream and I want the green energy component, that person wants the buildings and that we can do all of that. We don't have corporate entities any longer, which is your point, about corporate entities don't exist, they became a legal thing to turn a company into a human, a corporation. For legal entities, that all goes. June 1st , 2020 - www.realvision.com 16 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley BILL TAI: Very similar to the media business. If you think about production and distribution, if you could control the production and distribution, you could control the media, the content, the currency, and I think digitization, you eroded it all of that and put it in the hands of everyone else. Because you could, you literally could get on a computer and create your own token right now. You could easily do that, you could have a Real Vision currency if you wanted and it's a question do you or do you not have a little nation? A little cult, a little following and you could have people trading it, just like Second Life? It's in every asset, whether it's a community or as you described, the buildings or what have you. I also funded something called Fluidity, they just merged into consensus, which had released a peer-to-peer exchange, AirSwap. AirSwap's like instant exchange of tokens. They did a an experiment with the securitization or the tokenization of a Goldman Sachs led real estate project financing. Instead of getting a stack of papers around a LP stack of papers representing a chunk of a building, they securitized, or they tokenized Real Estate funding of a project and like you were referring to, it doesn't have to be a big thing. You could do one thing at a time. It's whatever has a following. Whatever you have a belief in. RAOUL PAL: Sportstars, we're seeing that and that's a no brainer. BILL TAI: You're going to have to see, take a look at CryptoKitties again, because one of the great learnings at CryptoKitties was that for their purposes in their spiky high volume transaction periods, the Ethereum blockchain wasn't designed to handle that kind of traffic, so they created their own blockchain called Flow. They are now working with major sports leagues to create-- because you had unique cats, trading cards. RAOUL PAL: The same thing. Not only that, but it can be the future income stream of Sportscars, doesn't even have to be the cards. BILL TAI: Yes, because it's their identity. They're taking little movie clips, or little clips from games like special moments, you could own the authentic one. There are micro economies around different things. There's all kinds of new assets. You talked about all the old assets, there's a new generation of different assets that have value that people may not understand today, but they will just like in Instagram-- Instagram and YouTube have created micro economies for influencers that you've never predicted. RAOUL PAL: That is all going to get digitized, all of the revenue flows and everything else and we already see that too. It's a fascinating world, so I'm going to go out of that world now into the other side of it, or no for two things from you, your thought processes, as we wrap up a bit. Going back into the big world is talking about Libra, because you're closer to that world than I am. I thought it was super interesting. Then what you think the central banks are up to with digital currencies. BILL TAI: Wow, big thing. RAOUL PAL: How does that all fit into this framework? Because a lot of people are looking at it and say, well, the central bank set up digital currencies, that makes Bitcoin worthless. My view is this is creating on ramps and off ramps and digital economy that we've been talking about, you and I, that it's exploding and June 1st , 2020 - www.realvision.com 17 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley there's no way of stopping this digital economy. Libra was something amazing because it gives a global currency, but anyway, if you can give any thoughts on this, it will be amazing. BILL TAI: Yeah. Back to this concept of a bunch of people getting on and off a boat, stepping on the land in North America, every little community, or big community can have its own currency, whether it's a military protected nation state, or a virtual community like Facebook. If you have members of a community, however you got them, you have the ability to introduce something that becomes the digital representation of value of exchange. It's obvious, when you think about what's happened in China with WeChat, and QQ and the other kinds of digital value transfer that occur there, I'm surprised it took Facebook so long to try to step into it. I'm really pleased that they decided to do it on blockchain because in my mind, that's the best way to do it. Because you can't hack it. You can't fake it. If you're running servers in WeChat, you can probably print your own and just make yourself a billionaire if you want. RAOUL PAL: The Libra thing is a bunch of stable coins and loads of currencies all put together in one basket or something like that. BILL TAI: Yes, it is. There's a reference they're trying there. I think Facebook is in an interesting position because they're so big and have such broad reach, they are the subject of regulatory controversy. I think it's hard for them as a company to try to go in the face of governments because the governments will attack them hard. I think the decisions they made are trying to thread that needle of how do we build something that is useful as a reference standard, a global reference standard amongst our community that's both on Facebook and WhatsApp and on Instagram and which is billions of people? How do we also make it usable to merchants around the world? Which that the announcement recently was Shopify, if you caught that, Shopify has been on a tear as a stock and Facebook announced the ability for anyone to set up a store on Instagram, or there are other sites and have it powered by Shopify. Now, they have a currency system to transact. It's this whole world of how do you get community and commerce and the payment method. RAOUL PAL: Once you have your own currency, you basically create ultra-loyalty within your community because they now have something of value. If they leave the community, it now has no value or less. Potentially less value in the outside world. BILL TAI: Yes, it's a transaction mechanism. It makes it stickier for people to stay on, you can tax it with commissions. It's another monetization method. I think the cost of delivering that is going to be lower than other methods at scale because of the size of their audience and because of the blockchain element, and I think it's an amazing thing that might happen. RAOUL PAL: Also, I've been very interested because the US dollar is part of the basket that they propose. Basically, the denominator, there's no denominator, so therefore, they could denominate by global money supply or something that's less volatile. If I'm trying to buy something from you, and you're a Facebook merchant, and I'm an individual, and I'm in Ethiopia, and you're in Taiwan, well, we'll have this currency, June 1st , 2020 - www.realvision.com 18 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley it doesn't move a lot. I'm likely to store it now, as well, because I'm in Ethiopia, and I'm more worried about my currency. I might use that currency as my bet. It's an extraordinary thing. BILL TAI: It really is. I'm going to abstract this conversation before we get to central banks again but think about what is a store of value in general if you take two commodities that have become important to our lives, oil, and electronics. You hear the term petrodollar for forever. RAOUL PAL: Electrodollar? BILL TAI: Yes, because the petrodollar has been an ephemeral period based on this industrial move. The third Industrial Revolution fueled machines with oil, so oil had value because it was the grease that ran the system. The reference standard for the US dollar became that, it broke away from gold because you could store productivity. What is currency? Currency is stored productivity in a way. As a nation, you could store your future by buying a lot of oil or having the means to buy a lot of oil in something that could be swapped, a petrodollar, for barrels of oil. The US dollar in a way was an ICO tokenization of oil. Today, if I said, Raoul, you're sitting there, you're having fun every day, I have this switch, and it can only go one direction. Either I cut off your oil, or I cut off your electricity. What do you want me to cut off? You're going to choose oil. All of our future productivity, most of our productivity already today is not based on oil. It's based on electrons. We're already, we've already moved into the world where everything about our lives-- RAOUL PAL: I've never thought about it that way but you're dead right, and oil, it's just one of the means of generating the electrons, but there are many. BILL TAI: There are. You probably have solar because you're in the Cayman. I think we're now in the process of transitioning, and it's already happened where our lives are more dependent, every unit of our productivity happens through a computer or smartphone or some device, where, yeah, we care about oil, but we really care about the electricity. RAOUL PAL: Bitcoin mining is essentially the conversion of electricity into a Bitcoin. BILL TAI: It is. All of these things, whether it's a Libra thing, or whatever they are, they're basically the tokenization of forms of electricity that you can use. It is the Electrodollar, I don't know, maybe it's called Libra, maybe it's called something else. Maybe because electricity is so fluid. RAOUL PAL: We just invented something today, the Electrodollar. This conversation created something new. BILL TAI: Yeah. It's a lot more fluid. I think back to this idea of oil and heavy machinery created physical assets that nations had to protect and create armies to protect your productivity, it's now dissolving into ones and zeros on screens. How do you store that value? How do you transact in that value? June 1st , 2020 - www.realvision.com 19 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley RAOUL PAL: You're even seeing warfare goes to cyber, the battle over the electrons. BILL TAI: Yes. Nation states are a little different now, like, is Facebook a nation state? Hard to know, but it can influence an election of a physical state. We're totally entering this new era where-- and so back to this last question about digital currency, you got these governments and banks trying to catch up. The wave has been unleashed and now they, I think, are looking at it where I think even just 24 months ago, they were trying to crush it. They were like, stop it. We're going to regulate it out of existence, and then they realized we can't, and the public might get upset and we're voted into office. Well, maybe we got to play ball a little bit here. Now, it's how do we make a digital currency? We need to have a digital currency. Let's make one. It's a little bit of a backwards look and I guess there's an assumption there that they'll be able to hang on to their community, or their nation state, which maybe they can from a physical sense, but is that going to stop me from moving my assets to other digital things? No. RAOUL PAL: No, but they can track your money. It makes it harder for the transfer if they don't want it to happen. That's one thing. The other thing is they're desperate to get away from the dollar standard. The reason they're trying to get together with digital currencies is not that necessarily, the digitization aspect means anything to them, but it does because we're in a digitized world, and it gets them out of the SWIFT system for stuff. BILL TAI: Yes, a very expensive [?]. RAOUL PAL: They have all sorts of problems and then China can create a regional currency basket very easily and its currencies and then weight it, it just becomes a much easier way to globally transact business. BILL TAI: Totally agree. Lower friction, lower cost, easier to scale. Lots of ways for water to seek its own level. It makes it much more fluid. RAOUL PAL: Without having to go through the US that's omnipotence in their dollar standard. Right now, 79.5% of every single transaction on earth is in US dollars. The US is only 25% of the global GDP. It's so screwed up. That has to change, and that's what Mark Carney from the Bank of England talked about, and the ECB have talked about is like, we need to move away from this because it just doesn't function anymore. BILL TAI: It's not fair. It's only what, the US must be 6%, 7% of the world population. Maybe. Yeah, and 79% of the transactions in US dollars. Amazing. RAOUL PAL: Incredible. Bill, fantastic conversation. Thoroughly enjoyed it, gave me tons to think about. We've invented the electro currency. It's trademarked. BILL TAI: It started here. Yes. June 1st , 2020 - www.realvision.com 20 The Interview: The Electrodollar: Venture Capitalism, Technology, and Silicon Valley RAOUL PAL: It started right here. It looks super fascinating and love it so much. Thank you so much for coming on and I look forward to talk to you again at some point soon. BILL TAI: Yeah, look forward to it, Raoul. Wonderful to be here. Thank you so much. RAOUL PAL: Thank you. BILL TAI: Okay. Take care. JUSTINE: If you're ready to go beyond the interview, make sure you visit realvision.com where you can try real vision plus for 30 days for just $1. We'll see you next time right here on real vision.