James Black (00:01):
Welcome back to the Exchange for Entrepreneurs Podcast. I'm your host, James Black, and this week we welcome back Alex Tapscott, co-founder of the Blockchain Research Institute. And today we talked to Alex about all things blockchain, decentralized finance, and Web3. And really it's a carry on conversation from, I can't believe it, but almost back from 2019 when we first interviewed Alex on our program here about why he wrote initially, or co-authored the book, The Blockchain Revolution. And he's on the precipice of launching a new book, Web3, and we get into a bunch of topics, but primarily trying to decode what had happened recently with the fall of FTX, the fall of Silicon Valley Bank and Credit Swiss, and what that really means for the world of decentralized finance and what role crypto assets played in all this. So it's a big topic set. It's a lot to digest.
(00:56):
Alex is obviously welcome back on the show to dig further in some of these topics, especially as he gets closer to launching his book. But please listen to this podcast today, and if you want to go back, I'll put in the notes my original interview from 2019 with Alex, and I think the two together provide a great synopsis of what is happening in the blockchain industry, where it may be going, and some of that practical implications of the technology in today's terms. So without further ado, my interview with Alex Tapscott, please enjoy.
(01:27):
Mr. Alex Tapscott, Alex from the Blockchain Institute. How you doing today?
Alex Tapscott (01:31):
I'm great, James. Thanks for having me.
James Black (01:33):
Cool. Well, I see just by viewing you on the screen here today, you are actually at the Blockchain Institute, which I believe is in downtown Toronto. Is that correct?
Alex Tapscott (01:41):
The Blockchain Research Institute is based in downtown Toronto and has offices also in four continents spread around the world.
James Black (01:47):
Okay, that's a good segue because I want to know, so there's a lot to talk about today, but you are a well-traveled man. You get to go around the world. You've written some books, you talk about The Blockchain Revolution, you talk about decentralized finance, which will be the corner that we'll park ourselves in today because obviously we're a stock exchange. I want to know about some of your recent travels and why you're being asked still, after all these years, since 2016 when your first book was published, to talk about the blockchain and what its impact can be on the world and on finance.
Alex Tapscott (02:18):
Well, there are a couple of ways to answer that question, but the first and most obvious way is that everything that we talked about in the book five or six years ago is happening in the world today. When we wrote the book Blockchain Revolution, the entire premium asset market had a value of maybe 8 or 9 billion dollars, and today it's about one and a quarter to one and a half trillion dollars, and that's including the down turn that we've seen in some of these assets. So obviously the underlying technology of blockchain has enabled all of these assets into existence, and that has created enormous value and created a lot of new organizations and some disruption. And that's something that is acted as a huge tailwind to everything that I've done, which is that basically the thesis has been more or less correct. Now, better lucky than smart, I'm not saying I was the only one who predicted it, but we put forth an idea for the big themes and ideas that could drive a lot of change in the world and a lot of those things have come true.
(03:17):
The other thing that's really relevant though to this question is that it's not like there are all these places all over the world where people are trying to learn about blockchain and I'm the only one who can tell them. If anything, it's the other way around, which is that unlike previous eras of technology innovation, the US is not the only place where this is happening, or the traditional idea of the so-called developed world. Innovation is happening to everything, everywhere, all at once, to paraphrase the Oscar-winning film. And if anything, for me, these travels are kind of like time travel. I get to get in an airplane and visit all these alternate futures of what the world might look like.
(04:00):
I went to Istanbul last fall where a lot of people prefer to store and move money in digital assets like stablecoins and Bitcoin than they do their local currency because the local currency is hyperinflationary and the banking system is unreliable, for example. And my hosts there, who are corporate executives from banks and other firms, were more knowledgeable, far more knowledgeable, than their counterparts here in Canada.
(04:26):
I was in Dubai in the UAE two weeks ago where one of the neighboring Emirates, Abu Dhabi, just announced a 2 billion dollar fund to support Web3 innovation. And in Dubai, I'm going to be educating the Prime Minister's office and their bureaucrats about blockchain, which is part of their effort to teach key people in government about new technologies, whether it's AI or blockchain or something else.
(04:51):
Where else have I been? I was in South Africa 10 days ago where I was meeting with entrepreneurs that are trying to bootstrap new kinds of companies in the world's poorest continent, but where I think there's a lot of hope for the future. This is a continent that's digitally native, it's very young, it's connected. And in Africa, as one person said to me, people innovate out of necessity, and so I think it could be the breeding ground for a lot of new stuff. So I am going there to talk about blockchain, to meet with people, to build relationships and partnerships, but I'm learning more than I'm giving at this point.
James Black (05:30):
No, fair enough. That's traveling. It opens your eyes to a whole new world, and it's a big world out there. So let's talk then about that juxtaposition between North America and the world. You said things are a little more sophisticated perhaps on the topic of blockchain elsewhere. Obviously in the fall, you can watch the clip on BNN, it's post FTX collapse, you can go back and read that story, we don't need to rehash it here. But obviously a lot of things branched off from that story when it comes to the blockchain and particularly crypto. And obviously FTX and its demise was a bit of a... I don't know if a wake-up call is the right term, but it shook the foundation of the crypto world, and I want to know why that wasn't the end of crypto. Why FTX falling apart wasn't the end of crypto or decentralized finance in North America? Maybe let's use that as a jump off point, because it seems to me that the use case elsewhere in the world for decentralized finance and crypto assets and stablecoins is pretty clear, especially in inflationary environments, less stable governments. But in North America where we have stable banking system, we just had FTX collapse. Why is there still a crypto lifespan here? What's going on?
Alex Tapscott (06:41):
Well, in Canada, we can still say with a straight face that we have a stable banking system, but I'm not sure our friends in the US are still saying that today after what's happened over the last seven or eight days.
James Black (06:50):
Oh, for sure. Yeah. Well, we can argue that in another time, but in general terms, globally, it's stable. We'll see what's going to happen post SVB. But yes, my question still stands.
Alex Tapscott (07:02):
Yeah, no, the question's a good one, and I think it's more, in certain parts of the world, we have access to some financial tools that make our lives much easier than for a lot of people in other parts of the world. The fact that we have access to a bank account, or for that matter, an identity, a way to prove who we are, in order to unlock services, whether it's from our government or our banks or other entities in society, those are things that we don't even think about here in Canada. But for other people, they're woefully underserved in that respect. So it's true that being able to access a way to move money, store money and access credit, without needing a bank account or a driver's license or a passport, to be able to bootstrap an identity online and to unlock these kinds of things, that's something that's hugely powerful for a lot of people. And it doesn't need to be in places where the local currency is hyperinflationary, where the banking system is super corrupt, though certainly that helps.
(07:59):
And frankly, for most people in the world, some combination of those things is the norm. Unless you're living in Western Europe, Canada, the US, New Zealand, Taiwan, Japan, South Korea or Iceland, that is a problem that you have to deal with. And so I think that acts as a huge tailwind. The FTX was a wake-up call, I think, for a lot of people in the industry. I think that the collapse of FTX revealed that a lot of VC investors were investing unthinkingly into a lot of things based on FOMO or based on perception without doing real due diligence. I think that a lot of people were getting too obsessed with hero founders, hoping that individuals could be the people that drove big change in this industry, and as they did in Web2 with people like Zuckerberg and Dorsey and others, that maybe we were supposed to have our own crop of superstars. I think that's a dangerous thing to get seduced by.
(09:01):
I also think that exchanges which are supposed to be an on-ramp or facilitator for an industry, actually became the industry in a lot of respects. Ultimately, the fact that people confused DeFi or crypto with FTX itself, I think is evidence of that. Of course, the collapse of FTX is not the collapse of a blockchain or the collapse of an asset per se, or at all, actually. It's the collapse of a company that was engaging in risky and probably fraudulent behavior, and in the end, ended up going bankrupt, which is something that we've seen in many other industries throughout history. And honestly, sometimes big frauds and big setbacks can actually alter the course and the innovation in a technology and even in a really promising technology. Even the collapse of the Three Mile Island or the mini meltdown of Three Mile Island, basically changed the trajectory of nuclear power in the United States. And Chernobyl basically caused the denuclearization of Europe, which is still a process that that's ongoing.
(10:04):
But there's lots of other innovations where frauds didn't derail things. The South Sea Corporation was a massive fraud, a huge bubble, and for a hundred years the government banned the formation of new companies, which definitely set things back. But ultimately, companies went on to be the way in which wealth was created in the economy. The collapse of Enron didn't kill the energy market. Train derailments in the 19th century which killed dozens of people didn't kill the railroads. You can go through all of these different examples of whether a failure by unscrupulous business people, when wielding new technologies or new tools, changed the course of those tools but didn't kill them. Certainly. And I think that ultimately, if the underlying technology is useful and people are curious about building on it and doing interesting stuff, then it's going to continue to scale.
James Black (10:58):
So look at finance for a sec. So we've had a bit of a bubble as a result of basically zero interest environment through COVID. And now obviously things have come home to roost because of highly escalating or quickly escalating interest rates. And that led to impart the catastrophe at SVP to a lesser extent, but most likely contributed to the fall of Credit Suisse and being bought out for pennies on the dollar by UBS. Now we're in a situation where you got two benchmark events that happened a very short period of time. The fall of FTX, which you said was mostly malfeasance, not directly correlated to the assets underlying what they held, but it was still... You're always going to have that discussion of correlation. But now you've got traditional banking. Though, look at SVB, it's more of an innovative sector, innovation sector bank, and Credit Suisse was just more or less, how can you get more banking than Suisse? But the point being is you've got these two events now and you're looking at you as a thought leader in decentralized finance and talking to all these people in the world. Has anything shifted or changed for you or been basically reiterated through all this that this is why my thinking in this space matters or the technologies we're looking at really now matter even more than ever?
Alex Tapscott (12:14):
Yeah, well, I think that there is a comparison to be made between SBV and FTX, but I think it's a very tenuous connection. I worry about people who are drawing too many comparisons between these two things. But I want to clarify something that you just said, which is that it's true that in FTX's case there was malfeasance most likely, seems like that way based on the criminal charges that have been found against the founder.
James Black (12:41):
I'm no lawyer.
Alex Tapscott (12:41):
Yeah, I'm no lawyer, but they usually don't bring those kinds of charges unless they have a pretty good idea of what's going on. But also, you mentioned the underlying assets. Both of those things can be true. I think that the fact that the crypto market declined as much as it did and reduced the value of a bunch of their assets required them to sell more assets to build up collateral and so you get this death spiral, that's something that did occur as well, so both of those things did occur in an FTX. But what's really interesting is there's a difference between the value of an asset and the usefulness of the asset or the tool. So in SPV's case, the problem is that they took a bunch of short-term deposits and bought long duration bonds, and so their bond portfolio was underwater to the tune of billions of dollars because when interest rates go up, bond prices go down.
(13:35):
Anybody who's done the one course in finance, it's probably the first thing you learn about. And so their portfolio was underwater, and sure, maybe they shouldn't have done that, and that was bad risk planning. But nobody is saying bonds are a bad idea. No one is saying the underlying asset of a bond is somehow to blame here because it declined because interest rates went up. And that's happening with FTX and with crypto, which is that people are conflating the failure of a single institution of an FTX with the underlying asset that they trade in or that they engage with as a company. And it's like Enron. Enron went under and then they were trading natural gas futures and building energy plants in far flunk corners of the earth. No one's saying a hydroelectric dam is to blame for Enron's failure.
James Black (14:24):
Yeah. Thank you for making the point for me more eloquently. That's sort of what I was trying to say.
Alex Tapscott (14:27):
Natural gas is to blame for Enron's failure or something. The two are completely unrelated in a way. So the only way that they are related is that when technology tools evolve faster than the regulator's ability to cope with them. And in that absence, you get a what's called a regulatory vacuum. And in the vacuum there's all sorts of uncertainty. And when there's uncertainty, what happens is a lot of companies decide, well, I'd rather not be subject to those regulations. And so they start to engage in offshoring their business, or in the case of Enron, in a whole bunch of financial trickery which ultimately gets them into trouble. And I think in FTX's case, it was the former. It was, okay, until there's clarity on how the regulators feel about all of these assets, we're going to domicile ourselves offshore.
(15:16):
So this leads me to another point, which is I don't want to blame regulators for the failure of FTX. Those two things are not related. But it's true that if the US were more proactive in creating a workable framework for companies to operate in the United States, that it be would've been more likely that US customers would've engaged with regulated platforms. Because a lot of the regulated platforms couldn't offer the same amount of services as the offshore platforms, a lot of users took great pains to move their money into these other platforms, and that put them outside of the protection, so to speak, of the regulatory system. So that's one thing that could be changed.
(15:57):
But I think to the earlier point, the bigger challenge is how do we get people to de-emphasize using centralized exchanges in the first place? What are these assets? What makes them useful? Why am I so interested by this? It's the ability to move and store value in a peer-to-peer, frictionless, and private way. It's the ability to store and build wealth in an asset that is digitally native, that is not part of the legacy financial system. It's a frontier. The token is a new vehicle to program value in all sorts of creative ways, whether it's to impact financial assets in stock markets, like what you deal with, or if it's art and collectibles, or if it's virtual goods. This is the area that's so interesting to me, and I accept the fact that there needs to be these centralized exchanges for people to move, for example, Fiat currency into digital assets in order to get started in this space, or maybe as a custodian for some of their assets because they don't want to hold them all themselves. I get that that's a barrier for adoption for some people, and I know people who are like that, and I don't dispute that. But we've de-emphasize these exchanges and turn them back into the support infrastructure that they are always intended to be, rather than as these two big to fail institutions in the industry. That's something that doesn't serve anybody.
James Black (17:25):
No, it certainly doesn't. Let's talk a bit about some of the use cases then. So we've talked a lot about transfer wealth and finance and currency, but what are some of the other places, as we go back to world travels, that people are really interested in leveraging blockchain and decentralization around? So one thing that came to mind, not to answer your question for you, but Music Royalty's is one I know you guys have written a bit of a paper on, but maybe elaborate on that or talk about some other places where you're really seeing application of the blockchain in a way that is really evolving the way we transfer wealth and store information.
Alex Tapscott (18:01):
Yeah. Well, thank you for bringing up Music Royalty. It's a funny thing because I actually just interviewed an entrepreneur named Roneil Rumburg, who's the founder of Audius, which is a user-owned music streaming platform that has, I think seven and a half million monthly active users and over 250,000 artists on the platform. And basically, it's part of a new breed of organization that I think is going to be increasingly popular in the economy, and that's the idea of a user-owned software or user-owned network. So one of the superpowers of Web3 is that you can turn your users into owners. And owners care more, owners have an economic stake, owners have a say in governance, and owners are less likely to abandon something than people who are just visiting, or just renting. And so it creates this really powerful way to get people to engage more on the applications that they're using.
(19:07):
So the idea with Audius is simply that people get compensated in the native token, the more value they contribute. So artists that get lots of streams, that publish lots of music, are going to earn more proportionately than a person who's just streaming music and listening to music, even though they do add value by being a fan, they're creating value for that network. And we're seeing this also playing out in so many other aspects of the economy. I just did an interview for our podcast with the founder of Hivemapper, which is basically this really interesting business that it's at the intersection of Web3 and the internet of things. The business is essentially you get a dash cam you put in your car, and as you're driving around, it's collecting information about street level views and other mapping data, and they're building a decentralized community owned map. That is going to be an API that people and businesses can plug into rather than relying on Google a single source.
(20:02):
Another really interesting one is the Render Network, which harnesses latent GPU, so graphic processing units. So basically if you're... People listening to this podcast, I don't know how old you are, but maybe you're a video gamer or maybe your kids are, or whatever. If you have a PC with a GPU, you basically have a super computer under your desk, and those GPUs can be used to do all sorts of really creative stuff including rendering computer animation in real time. And the Render Network harnesses all this GPU power to help Hollywood studios render movies or TV shows or artists to create NFTs and all this really cool stuff. And so as a person contributing GPU power, you're going to earn a piece of that network, you're going to become a user owner of that software, and I think that's really powerful. So whether it's a music publishing platform, a data mapping company, or whether it's a decentralized rendering network, which is what that is, there's all these new models to get people to pool their resources so that they can own a piece of the pie. And to me, that is an incredibly powerful economic incentive that I think is going to drive a lot of new experiments and organizations. So that's one. In terms of what I see on my travels, it really depends on where I'm traveling to.
James Black (21:20):
Of course, yeah.
Alex Tapscott (21:22):
When I'm in Istanbul, it's all about Tether and Bitcoin. It's all about ways to store and move money, to get money in and out of the country, to keep it outside of the banks. That's what people care about. All this other stuff I've just described, they might be interested in it intellectually, but what they're really curious about is the financial toolkit that allows them to operate outside of the banking system, frankly.
(21:50):
But if I'm in Thailand, which is a place that I've also visited in my travels, it's very much, how do I plug into some of these new organizations, that I've just described, to maybe lend my time or my energy or my talents to earn a share of something, to actually participate in some wealth creation? Which is why play to earn games, basically games where, as part of the gameplay, you can actually earn assets that were worth something, was extremely popular in places like the Philippines and Thailand, because people there are underbanked and underemployed, and so they're hustlers. They're looking for ways to make money. Which people who are fat and happy, like me in Canada, I wouldn't think to play video games to make some extra money, but that's something that other people might care about. So it always depends on which country you're talking about. But what's so encouraging about the whole thing, and to me so fun, is that there's all these different ways that you can engage with Web3. It's not this monolithic thing. And I think a lot of people are still coming to terms with that.
James Black (22:50):
And so Alex, you've done a great job segueing into my second to last question, which is you're writing a new book, which we'll link down below, you can pre-order it, it's called Web3, available on Amazon, and I assume other places where you can get widely published documents such as this. Now, this is I think your third mainline non-fiction book that you've written, or are in the process of writing?
Alex Tapscott (23:15):
Fourth book where I've been an author, but it's actually the first book where I'm the sole author.
James Black (23:19):
You're the sole author. Wow. This is a big one.
Alex Tapscott (23:21):
The one I'm most well known for is Blockchain Revolution, which is a book I co-authored with my dad. And this book-
James Black (23:29):
With Don Tapscott. Yes.
Alex Tapscott (23:30):
The Don Tapscott.
James Black (23:32):
Oh, you're the Alex Tapscott. So why Web3? Why this book? Why this year? Just give us a quick sizzle on it.
Alex Tapscott (23:40):
Well, I would say that a lot of the things that we've talked about, a lot of the things that have happened in the last a while, especially the collapse of FTX, filled me with a new sense of urgency, in a way, to really try and wipe the mud off the windshield and clarify and explain what's really going on here for a mainstream audience. I think that when Blockchain Revolution came out, a lot of the topics that we were discussing were hypothetical, frankly, because the technology was so new. And now, with the benefit of years of innovation in trial and error and successes and failures, there's so much more to discuss, and there's so many more ways in which this is impacting our world. And so the book is written for anybody who cares about the future.
(24:26):
The book is called Web3: Charting the Internet's Next Economic and Cultural Frontier. And the choice of the word frontier was quite deliberate. There have been many frontiers throughout human history. Some frontiers require huge amounts of capital or require you to be an expert, like climbing Mount Everest or traveling to Mars. But the most bountiful of frontiers are the ones that are typically forged by everyday people who, because of economic circumstance or because they're seeking better world or better opportunity, pick up and explore for themselves. And that's what I think of Web3 as, this is a new frontier, and it's not something where it's like experts only. Anybody who cares about this, whether you're a student and you're considering your first career move, or you're an executive and you want to understand how this impacts your business or your industry, or you are a politician or a government leader and you're trying to figure out how to set the conditions for the innovation economy to thrive in your country, all of these different things, you need a guide and a new frontier and an unexplored land, it's helpful to have a pocket guide and with humility, that's what I hope this book becomes.
James Black (25:37):
Pocket guides. How many pages are you anticipating?
Alex Tapscott (25:39):
Well, it's like a 300-page pocket.
James Black (25:40):
Yeah. Okay. Pocket.
Alex Tapscott (25:45):
Yeah. It's a big...
James Black (25:46):
Yeah, that's okay. It'll be well worth the read. And so last question, I typically ask our guests this because I think I can see your lineage from Don to yourself, and obviously those who you hope to influence throughout the world while you're here and maybe when you're gone, these books are part of a legacy that you're building. And maybe, you've already touched on it, the new frontier and the future, and this is why you're writing the book. But maybe just touch on, does your legacy motivate you to do this? Are you wanting to build your legacy through your education of the blockchain and Web3? Is this part of the thing you're trying to leave behind? And maybe just elaborate on that, because I always find that we always get interesting answers when people talk about their legacy.
Alex Tapscott (26:29):
I've never thought about my legacy, at all. But what I do think about now, and especially in the last couple of years, is what kind of impression my kids have of me. When I first started this journey, I didn't have kids, so now I have kids. So that's something that I think you start to think a little bit more when you have children. And I won't care what society thinks of me when I'm dead, because I'll be dead. It won't matter. But I do care today about how my kids perceive me, and I want them to see someone who's trying to live a principled life of consequence. I want to be successful and live a happy life and chill out, and like the rest of you. I'm not highfalutin in that respect. But whatever I'm doing for it to be purposeful, for there to be some meaning to it beyond just making a buck. And also that in the end, it changes the world in some positive way. And that's not for me, it's for them, more than anything else. And I hope that that's an example that they lead from. It's certainly one that I got from my parents and it's helped to inspire me on my way.
James Black (27:38):
No kidding. Well, that's well said. We'll leave on that note. But Alex, I can't wait to read the book. Obviously, can't wait to see what what's written in there and what I can learn from it and possibly share with the people I work with. And I just want to leave people with the thought that currently right now, you can go to the Blockchain Research Institute website, there's a plethora of great thought papers on there that I believe are free. You can just sign up as a member and you can go on, and I think they're great. You've also got, obviously events that you do throughout the year, so Alex, next place people should catch you before the book comes out?
Alex Tapscott (28:12):
Well, you can follow all the updates on Twitter. I'm pretty active @AlexTapscott. And also check out our weekly newsletters. You can sign up at digital.ninepoint.com. Every week we do quantitative analysis, summarize the big news events, I write an essay, and we also include a link to our weekly podcast, which you can also check on YouTube. It's called DeFi Decoded. So lots of content coming your way if you want to engage with me.
James Black (28:37):
Absolutely. Well, thanks again, Alex. Thank you for your time. Good luck, and we'll see you soon.
Alex Tapscott (28:41):
All right, thanks.
James Black (28:45):
Thank you again for listening to the Exchange for Entrepreneurs' Podcast, a proud presentation from CNSX Markets Inc., operator of the Canadian Securities Exchange. As a reminder, the viewpoints on this show do not reflect those of the exchange and are solely those of the guests and do not constitute investment advice. For more information about the exchange and services enlisted companies, please visit www.thecse.com. Until the next show, thank you for listening, and don't forget to hit the like or subscribe button on your favorite listening platform. Thank you so much.