EB75 – Paul Brody: Internet Of Things And The Democracy Of Devices

Transcript

hello welcome to epicenter bitcoin the show which talks about the technologies projects and startups driving decentralization and the global cryptocurrency revolution my name is sebastian cuccio and my name is brian carbine crane today we're going to talk about a topic that may seem to some of our listeners as a little bit off topic which is the internet of things but uh there is a very interesting connection here in that uh some people including our guests today think that the blockchain is going to play a really important part in that and we have i think perhaps the best person on this topic today on the show who is paul brody so thanks so much for joining us

uh thanks for inviting me so paul was until recently he was the vice president of technology you know of mobile and internet of things at ibm and ibm wrote a very interesting white paper on how the blockchain can will play a really important or could play a really important part in the internet of things and sort of saving the internet of things uh of the future and they've also done an interesting demo at the develop a prototype which i think is ethereum based so we're gonna we're gonna have a chance to talk uh to dive into that today and get an understanding of why these two technologies

uh should connect and you know could work together so well um so paul can you a lot of people will probably not have a very good understanding of what the internet thinks even is can you give a brief introduction to that topic uh sure so the internet of things idea behind the internet of things is that we've been over the last 20 30 years computing prices have been coming down and down and down and we've gone from mainframes to mini computers to servers to pcs and phones and now we're really starting to talk about connecting up all of the devices we can start to put computing power in

everything door knobs light bulbs uh desk chairs you name it if it's a thing it's going to become smart and connected and so the internet of things is really talking about this era where we're right on the edge of now which is the one where every device everything that's around us is going to be smart and connected is that desirable in your opinion that everything around us is connected well i you know this is actually a really fair question and uh one of the most important things that we spend a lot of time thinking about is is it desirable why do we want to do that and um i think very simply the answer is it's only desirable

if it makes the thing in question better if it's not making it better then it's not necessarily a great idea to connect it that being said i'm a technology optimist i really think done correctly almost everything can be made better if we make it smarter and connected yeah i mean i think the internet thinks there are also these uh visions know of i guess some sort of totalitarian surveillance or robots taking over i think those are really uh closely connected also with that i remember there are there are a few uh science fiction books perhaps you know them as well from a guy named william hurtling

i i like quite a lot because he he tries to be so very realistic in terms of um how it could happen and of course there the internet of things in a way started playing really important role because then ai can basically use internet things to actually start having uh you know basically hiring their own data centers and started building their own things and getting information so it's they're definitely also there's this crazy futuristic scenarios a lot of them are very closely related to the internet of things as well now well i i for one don't think they're all that crazy and if anything what we've learned over the last couple of years is that we live in a surveillance state which is more extensive and

frankly at least for me more frightening than anything that could have been imagined in the novel 1984 uh the level of sort of detailed surveillance on us is is really astonishing and um if there's one thing that i personally am concerned about and i think a lot of my colleagues wanted at ibm wanted to see was we want the promise of the internet of things to be realized without this without creating a kind of dystopian nightmare of surveillance people should be able to have and enjoy smart connected is without fearing for their privacy or security so do you think this is going to be sort of an upstream uh battle uh because i presume there will be some resistance from

uh institutions like nsa the u.s government when it comes to trying to keep the internet of things decentralized uh yeah probably to some extent there will be a lot of concern about this but i think in the long run uh people who really understand security understand that you cannot selectively weaken security uh security uh is the same for everyone um if you sell if you if you weaken security for the purpose of a government agency even if it is with the best of intentions uh you effectively weaken security for everybody and so i think on balance the industry and many reasonable people are moving towards the view that uh good

security it's good for everyone but i mean beyond just good security if it makes more sense and we'll talk about the contents of the white paper but if it makes more sense for devices to just talk to each other rather than going through some centralized server uh then then it makes more sense for the the technology to be designed that way regardless of any security implications or uh any um sort of like uh surveillance implications that there may be absolutely there's we are at the convergence of a number of really big uh both technological and social trends which are driving us towards a new era in decentralized systems and

um i you know of course there's the question of trust and frankly speaking i think we live in an era kind of almost after trust the internet started as an environment where academic institutions and government agencies operated in a very high environment of trust we now live in an internet era where i'm not sure i can trust any of the participants on the internet so how do you engage in computing after trust or what we sometimes call trustless computing the second though is how do we architect systems in a way that's cost effective and sustainable and this is one of the things that really led us to thinking about the blockchain as a mechanism for managing the internet of

things because we think it has really enormous dramatic uh cost advantages over traditional centralized infrastructure i mean i think that's the the part of your white paper that makes me the most optimistic because i think i can certainly agree with you that you know it's this surveillance state that we are in and moving increasingly or it's getting worse that is a you know it's a extreme threat to liberty and democracy etc um but i think if we have the sort of economics as well on that side right if there is a strong economic incentive towards decentralization then i think that will just be something that will not be stoppable right i mean if

for companies it makes economic so much more sense that decentralized then even the nsa and the u.s government won't be able to keep it centralized i i think that is a it's very clear in my mind if if if that's not the case right if maybe you have a certain trade-off where you prefer from a security privacy perspective you have it centralized but from maybe an economic perspective or let's put it security perspective from the u.s government side you know they prefer it centralized you know then it becomes much more difficult but i think that this made me very hopeful about your paper so i think the economic case for decentralization is really powerful one of the things that

got us interested in this is we've been thinking about uh and and i should be when i say we this was reflecting my time at ibm in our interview today i'm only going to talk about my personal perspective i'm definitely not representing any official viewpoint of ibm just my personal opinion but um in my time working there we started to hear from clients who were talking about how much it was them to maintain centralized infrastructure for connected devices and we started to think about whether or not that was necessary in the early days of creating connected devices we looked at the cost of computing power on the device and we looked at the cost of computing power in the centralized environment and we deliberately architected systems

to move as much computing activity as possible into the cloud at time that was the right thing to do computing power was more expensive and in the cloud you could utilize it more efficiently that incentive to centralize infrastructure is now flipped around and what's flipping it around is the end of the embedded ship so historically if i was going to make a smart device i would have done so on an embedded ship today it's rapidly becoming cheaper to put an entire system on chip basically almost an iphone or an android phone on every device and with that much power on every device it's simpler to do the development in software

to do the customization software and to put kind of the entire cloud infrastructure onto the device so the economics of decentralization have changed radically over the last few years just as a result of moore's law so so that's basically because yeah we have moore's law uh when it comes to chips and computing power etc but there hasn't been something comparable when it came the data and uh the ability like the especially the cost of of transferring data is is that the reason uh so what what's really driving it is um the cost of two big things right on the heart on the technology

side one is from a hardware standpoint um historically the way companies developed embedded chips was a big non-recurring engineering cost followed by a very low marginal cost for each chip now you know i can buy a dual core system-on-chip with lte wi-fi and gps for about ten dollars a piece in volume it's really hard to beat that so you basically have an entire server that you can put on a light bulb in fact uh i've got some friends of the bitcoin mining company that actually reprogrammed one of their smart light bulbs to mine bitcoin now i don't know that's a great use of a light bulb but it shows you how much computing power is sitting on even the smallest embedded devices these days

so the hardware capability exists but what was missing is a trusted simple software architecture for managing a complex distributed application and when we really started to understand bitcoin we realized it's a financial system but if you take out the financial component it's really an amazing decentralized transaction processing engine and so we had the hardware and the software together that creates the ingredients to shift from a centralized world to a decentralized model there's lots more to talk about but before we do that let's take a short break to talk about shapeshift shapeshift is the fast and easy way to buy and sell all coins if you've ever tried to

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would send those points to and uh those would be converted and sent to the bitcoin address with no confirmations needed so it's really fast takes anywhere anywhere between 30 seconds to a minute to uh for that transaction to go through and you don't even need to create account they don't even want your email address so your privacy stays protected and did i mention it was fast because it is fast it takes uh no time at all so shift is the fast and easy way to buy and sell all coins and we'd like to thank them for the support go to shapeshift.io to give it a try before we kind of dive into the blockchain role perhaps can we spend a little bit more time on on the idea that there are specific

threats to iot i mean it sounds almost like when you read your paper that sort of if it keeps continuing on the pathway wrong you know this is not going to end well and it's not going to be financiable and so what are those threats so the internet of things is a great idea but as you pointed out there's a lot of reasons why it might not get as far as we'd like one of them is fear about security and privacy we talked a little bit about that but almost compelling as the fears about security and privacy are very legitimate concerns about the business model around the internet of things um a lot of folks have this idea that they're going to sell a device

and on top of the device people are going to pay a subscription and then maybe to add to they're going to have a um they're going to have a revenue stream from either advertising or selling user data and as we started to look at what's actually happening in the marketplace we realized that these business model concepts are really really optimistic uh probably way too optimistic in a bunch of different ways first of all uh consumers and enterprise customers don't seem to have a lot of interest in never ending subscription fees so the devices that do well in the market are the ones that often come with no ongoing subscription fee so that's one hole in your business model

secondly the uh the business of selling advertising data or user data is pretty risky because in the internet the economics of information are different than the economics of physical goods physical goods have a marginal cost it's not zero but if i've got two different providers who are selling roughly the same information it could be how many parking spaces are near me here in san francisco or what uh where are people walking around shopping if i can get two or three different providers of that data uh the marginal cost is zero and the market clearing price goes to zero and sure enough when we talk to

people who are in this business over and over again what they said was we're not getting the subscription revenue once and we're not getting the advertising or the marketing data revenue we want uh and so revenues much lower than expected cost on the other hand much higher than expected because it costs a lot of money to maintain a centralized data center so you put high cost together with low revenues and you get a money losing proposition and that's scaring off a lot of companies making more investment so and so in that case what essentially the proposition you're making is that the business models associated to sort of the service side of the internet of things is not um is not scalable and it doesn't it

doesn't work long term that's right it doesn't and uh the experience of mobile phones and computers is a little bit misleading because if you take a mobile phone it comes with a lot of free cloud services but many of these phones they last for one or two years so if your cloud service cost two or three dollars per user per year uh it's only a few bucks out of a perhaps a retail price of four or five hundred or more that's that's a drop in the bucket but when you're talking about the internet of things well i'm not going to replace my light bulbs and my doorknobs every two years uh an led light bulb has an expected lifespan of about 15 to 20 years in a residential

environment and um uh is selling for somewhere between 15 and 30 today there's no margin in that product to subsidize 30 years or 20 years of cloud services so the business model at least as many people conceive it is broken and okay but so this this is a i was thinking about this right so perhaps there is not enough margin to sustain the hosting of cloud services and having that service provided to the to the the users over that long period of time however i'm not sure i agree with the fact that these devices aren't going to get replaced anyway because people like to have new gadgets and new

devices and new toys or whatnot so that uh i like this is probably an example but this light bulb um although it has the lifespan of 20 years when phillips or samsung or whoever comes up with the next version that has disco ball functionality or strobe light functionality and that's desirable people are going to want to update to that and also you know people are adding new light bulbs because houses are getting built because they may have new light fixtures in their homes or things like that so it's not as though uh these companies are not going to keep selling these products they are going to sell they're going to keep selling those products but the installed base is going to keep going up and in fact

we did a little bit of research the average age of a car on the road in the united states is 10 years the average age of a house in the u.s is currently about 40 years and by the way that's a lot younger than the average age of a house in europe so it's true installed base keeps going up new product keeps selling but the fact that new product is out there doesn't um doesn't eliminate the fact that you have to support product that is still in the marketplace uh that's still being used and so what we found was that um you know over time this infrastructure adds up to potentially a crushing financial burden hundreds of millions of dollars for large enterprises uh that might be supporting uh

potentially billions of connected devices and so one of the things that you said about doing was starting to think what can we do to drive costs down because we don't see a lot of appetite for spending a lot more money on these services surely you don't want i mean i love a disco ball i'd like it i'd like a led disco ball in my bathroom that would be great but do you want to pay an annual subscription for it uh um i don't know if i pay a subscription maybe maybe a small subscription no i mean even if you pay a subscription for the light bulb right are you going to pay a subscription or want that fancy new thing for the light bulb and the washing

machine and the door knob and you know the bedding sheet and that's right these subscriptions just keep piling up and piling up and then all of a sudden you're in the city and and also that novelty thing i mean of course in some instances that will work right and for some things but you can't expect that overall for example product replacement cycles and that sort of stuff will will dramatically shorten just because you know it's smart now and can do has like a new feature or something like that so at the end of the day you know i have a smart home um because i love to play around with this stuff i can switch on all the lights in my house i even set up a script so that when i

pulled up to the house all the lights would come on and the door would unlock and that was really cool the first time i did it and then one night i came home after everyone else gone to bed and that switched on all the lights in the house and made me really unpopular and that script was switched off and i haven't really gone back to figuring out what to do but uh you know at the end of the day it's nice to have smart functionality but in in many cases it's still just easier to get up and push on the light and so uh one of the other things we really had to think a lot about was why why do we want this and what is the value proposition around the internet of things i'm sure you could probably have some sort of ifttt script that figures out if

people in your house are also sleeping and if they are that it wouldn't turn the lights on uh well i am the i'm the biggest ifttt uh fanboy there is but i need if then else and or uh and it doesn't seem to offer quite all of those things yet so what one what sort of question i had about how this would work is so the i guess the value proposition of having these cloud services so you mentioned uh i think you use smart things in your home i mean one of the valid properties editions of the services they offer is this great user interface that allows you to connect then to um to ifttt and sort of manage uh all of the connected things in your home if those companies are not providing that

that that that experience then are we proposing that the manufacturers are only making the stuff and then we leave it up to other companies to connect to the to these uh devices and provide the proper ux and interaction between them um that's a tough question to answer because i don't think that we know what it looks like yet we're in an era of great experimentation i think we know a couple of things for sure number one nobody is going to live in the samsung house or the whirlpool house we cannot live in a single ecosystem or a google house and so anything that ultimately takes

hold is going to require a huge amount of interoperability which is something that most people haven't done a lot about yet secondly i think people are still struggling to nail down what the killer application is for smart connected devices and uh until until people really get their hands around that or there's going to be a lot of fumbling around so so can we talk a little bit about that the the the question of what the core value proposition is of the internet of things absolutely i i feel very strongly that i think there's two big ones first of all when it comes to kind of industrial applications or even consumer applications the most important value proposition around

the internet of things is asset utilization making the things that we own do more for us and then when it comes to individuals to our personal things especially a subcategory of internet of things which is wearables in my mind it's really all about self-improvement yeah no that's that's actually an area that i'm uh i'm personally very sort of interested involved in because i'm also one of the organizers of the quantum pets health meet up here and so i've been sort of you know closely following that very closely and of course it's their potential is very big there although it's i think today or a lot of these devices maybe don't quite deliver yet um you know what we want them to do

um so i definitely see the use case there can you elaborate a little bit more on the you know making or assets making more devices do more absolutely so um right now we live in a world where consumers and enterprises own assets we own lots of stuff the fact is our stuff doesn't do that much for us it's um if we think about offices uh we think an office is busy when it's in use 35 to 40 hours a week the week is 160 hours right the average car is only in use about 9 of the day and so i believe that asset utilization getting more

utilization out of cars houses offices these are the things that create really colossal value if you look at somebody like uber part of their value proposition is absolutely great user experience and part of their value proposition is a little bit of regulatory arbitrage right they're they're skipping out or bypassing some regulations that taxi companies normally normally have to deal with but a big chunk of their value proposition is utilization uber dr uber creates a liquid market for customers and taxi drivers in which to to engage and the data that we can see shows that people who participate in these markets the drivers for example are quite a bit busier than drivers who

use either traditional taxi services or uh traditional limo services um so it's all about increasing the utilization of assets and getting more value from them and the same thing same thing is happening with airbnb or vrbo for vacation homes as the internet of things goes forward they're going to be instrumenting billions of devices cars trucks storage spaces offices all of those can be utilized much more efficiently and of course the interesting thing right is that you start having marketplaces in those things right and you can have maybe different pricing right i mean one of the things uber is known for is that they adjust the prices depending on the demand and so you can uh

you can kind of affect both supply and demand and i guess you could imagine something similar with let's say office space where then on the weekend or an evening it's cheaper per hour and then maybe some people will shift their working hours to accommodate you know cheaper supply and those kind of things so that's i think that's really interesting though because you start having all these interactions and markets and possibilities that you know they're just not financial transactions there there's no market there are no they're not really used in that way at all today that's right it's too difficult today to create a digital marketplace for relatively smaller transactions

if you take something like borrowing somebody's car if i want to borrow your car for two hours i've got to meet you i've gotta you've got to give me the keys i've got to get it bring it back to you return the keys here in san francisco there's a startup called getaround they have created a little electronic device that you can put in your car and from that electronic device you can locate the car you want to rent from your smartphone using your smartphone you can unlock the car drive it away mileage and payments are all calculated by gps and when it's returned the car is locked and the owner is told exactly where the car was returned and that's a perfect example of how the internet of things makes something that would be too

difficult to do today actually pretty straightforward maybe one other question regarding um the the sort of decentralized uh vision that you've been you've been painting before maybe we can dive into that more so you talked about surveillance do you think that consumers demand this and will demand this like a sort of surveillance proof and you know privacy honoring infrastructure i think that the average consumer does not spend a lot of time

thinking about surveillance or data privacy however i also believe that the average consumer when it comes to buying these kinds of new services they turn to people that they trust and respect and they ask them what would you buy do you think this protects my privacy and i think a small number of people who care passionately about this have come to believe that these highly centralized systems represent a major security risk and so i think that small group of people is not only putting tremendous attention into this but they are guiding the market in the right direction and so i think ultimately the winning strategies are going to be ones that respect security and privacy

cool well diving into your your white paper a bit so the the title of the white paper is device democracy how did you guys come up with that title so the origin of the title actually came right at the end of the paper we spent a lot of time asking what are the business requirements what are the technological changes going on and we realized that decentralized systems especially the blockchain are the right mechanism and tool for creating a massively scalable secure internet of things and the blockchain in the sense is a kind of democracy

all the participants in the blockchain uh contribute to its security and its effectiveness because they do in the in bitcoin they do transaction mining and we foresee a similar kind of future where the strength of a internet of things blockchain or internet of things blockchains there might be many that comes from the participation of all of those so we love this idea of thinking about it as device democracy decentralized and really in the hands of the users and the device owners so so when we in in bitcoin right there's the the mining provides the security for

example by you know hopefully preventing people to attack and and you know if we assume that the majority of miners are honest then we can rely on on bitcoin transactions um is there going to be mining in the internet of things uh blockchain absolutely it won't be quite the same as mining in the traditional bitcoin blockchain in the blockchain for bitcoin mining is all about both securing the blockchain and making it incrementally more difficult to issue new bitcoins to manage the number of coins in circulation we don't want to make it more difficult to bring more devices onto a internet of things blockchain but we

want enough mining you want enough cryptographic work to make sure that the blockchain is cryptographically secure and that transactions are secure so so there will be mining and there will be what we might call a proof of stake which is proof of device ownership or some other mechanism to show that you're participating in the blockchain for real so so will the devices be doing mining i believe they will i think every individual device will be able to do some mining there's so much processing power i i mentioned before i know some friends who got one of their smart light bulbs to mine bitcoin um there's processing power everywhere there's no reason why it can't be used to help secure

the internet of things so this is interesting because this is something i brought up with italic uh brian i don't know if you remember but ever since i've sort of been interested in bitcoin i i've had this idea that one day all these internet connected devices would be mining and when i asked vitalik about this i don't remember exactly what context his response was well no because usually these devices are all embedded systems and in the thing with about embedded systems is that they're designed for one thing only and there's very little extra processing uh power that's left over after you're done just doing that one thing and this sort of flips everything around

because you're proposing that in fact we're not going to be using embedded systems we're going to be using these systems on a chip which would have a lot more processing power out of the box and uh and a potential for uh for i guess this these empty cycles or cycles not being used which we could use uh for mining that's exactly we are about to experience it's a complete flip over vitalik is exactly right almost every embedded chip today doesn't have any power left over to do anything else but um typically for example i worked with an appliance company they spend an average of five dollars a chip today five dollars per

product today on embedded electronics uh that is pretty close to the seven to ten dollars you're going to be able to get a system on ship for um embedded ships take a long time to design and qualify so within with moore's law within a couple of years it's not just going to be cheaper to put an entire system on chip on your refrigerator or blender your doorknob it's actually going to be faster because you can do all the customization and development in software and so almost overnight we're going to go from barely enough processing power to run the refrigerator to a thousand times more processing power than is necessary to run the refrigerator okay and now with regards to mining and bitcoin mining specifically uh i presume then that you're

not proposing that we mine like the actual bitcoin blockchain on these devices but we're talking about some other blockchain uh that doesn't require asics that's right because the bitcoin contains in it the feature of escalating mining complexity for the purpose of um they can it's escalating escalating mining complexity for the purpose of limiting the output of new bitcoins um it's the requirement today on bitcoin is far far beyond what's necessary just to be cryptographically secure uh what we just want is sufficient security that the blockchain itself functions not to make it arbitrarily difficult um but so here of course the question comes

in with the electricity costs right because if mining uh you know if the point of mining for one of those devices is basically is that to generate some revenues in terms of earning some sort of a currency no the purpose of mining is to claim kind of your share of participation in the blockchain to secure the blockchain right and to make sure that transactions are processed correctly right the mining what will protect and secure an internet of things blockchain from hijacking by any individual participant is if we have billions and billions and billions of devices out there

and those billions and billions of devices are all doing their own mining then the amount of computing power required for a hostile participant to launch a 51 attack uh is impossibly large and so by having every device do some of the transaction processing and some of the mining we are helping to secure the overall future of the blockchain from the internet of things but then we will still need some sort of proof of work that is at least semi-resistant to asics right uh that's right so you need reasonable you need a you need enough complexity for cryptographic security but without it being arbitrarily complex what i would argue is that it doesn't need to be a great deal if you're

talking about having billions and billions and billions of devices able to do mining okay now that's fascinating i i actually remember when i was at my first bitcoin conference i had dinner with manny rosenfeld and he has been uh doing a lot of work on on mining and mining incentives and stuff and we had this uh conversation back then as well you know what will the light bulb be doing my name and stuff uh super fascinating so because uh of course this is for a totally different for a totally different reason right because then the the device is not mining to generate revenue but it's the device is mining to sort of assure its right to keep participating

in this network and communicate with other devices exactly okay cool and yeah sorry could you uh so we mentioned transactions it's unclear to me what exactly these transactions would represent unless there is some sort of financial uh transaction going on but in you know if my light bulb needs to i mean if my smartphone needs to tell my light bulb that i'm walking into the house there's no financial transaction there what uh does that transaction contain so uh a transaction if we step back a financial transaction is a transfer of money but from in computing terms a transaction is

just an exchange of information a single step that's processed so a tweet is a transaction for twitter right a light is a transaction for facebook a door unlock is a transaction for uh an internet of things device so that's one thing which is that actions are effectively transactions between devices so that's one way of looking at transactions the other thing is that although it might not be financial we believe that many of these devices will actually participate in non-financial marketplaces so one of the use cases that ibm and samsung worked on together is how a washing machines and dishwashers and televisions and

other home appliances work together to manage their consumption of electricity and how those they autonomously connect to each other and make sure that the house as a whole isn't consuming more electricity than say for example might be be being produced by the solar panels on the roof okay so but those transactions wouldn't be part of a blockchain right i mean unless it's actually sending money around no they could be part of blockchain we could have an energy blockchain that would allow devices and neighbors to create electricity with each other so and in fact there are a number of startups already that are looking at how to create distributed markets in energy in bandwidth

in storage right you name it these kind of digitized commodities we can create both barter based marketplaces and financial marketplaces around them and in a world where even your light bulb has as much power as the original iphone there's no reason why that's not possible so so i guess one big challenge as well will be a scalability with that no because i mean i think currently the bitcoin blockchain right is is very limited and uh i mean of course people are trying to come up with more scalable blockchains and cryptocurrencies and bitcoin itself is trying to scale more but that's very much of an unsolved problem uh transaction times as well because i mean

if if you need to send a transaction and that and an action needs to happen immediately then the transaction needs to be yeah great point so how how are these how is that going to be solved so uh i would say we we came up with a mixture of things that we definitely could solve and things that we couldn't solve right away um we talked about i mean just to give a bit of an analogy we talk about moore's law all the time but the fact is we don't exactly know how the next two or three generations of chips are going to be made but we know that there's progress i'm a real optimist i think the progression that's being made on the blockchain and improving cryptocurrencies and distributed systems is enormous so i'm confident that some of the basic issues of

block size and uh transaction processing volume can be overcome very specifically in the work that ibm and samsung did together and the detailed in the new white paper we just put out ibm just put out called empowering the edge uh last week we looked we didn't just use the blockchain we also added a couple of other pieces to address a specific point so we looked at the blockchain for for transactions of record we looked at a system called telehash which is a distributed messaging system that enabled quick transactions like i'm walking up to the door and i want to unlock it and we also enabled bittorrent as part of the

architecture prototype for transferring very large file volumes so uh any complete integrated internet of things architecture is going to have more than just blockchain but i think the foundational underpinning is going to be the blockchain and of course one of the cool things is going to be that if you you know if you have to blockchain and of course the lightbulb can have a bitcoin address and or or some currency some cryptocurrency address and and make payments and i guess also i mean you talked about sort of the barter use case but then it could also be that right the light bulb sells spare capacity to someone else earns money back to for its owner um i i i also thought one

of the things while i was reading the paper that sort of came to mind that could be kind of interesting right so if you it's sort of a new way of financing uh you know financing devices financing assets is if you sell them to a consumer but sort of at a reduced rate and in return all the revenues from maybe excess capacity that's being sold on a marketplace goes back to the manufacturer or maybe some third financing company right so you could actually imagine that uh you know connected devices would be significantly cheaper because of that i think so and i think we'll see a lot

of as the blockchain spreads one of the things that's great about the blockchain is it's an incredibly transparent and very secure marketplace so when you see a history of transactions in the blockchain you can trust it because it's been secured by all the participants and against the trusted set of transactions it's possible for us to do all kinds of insurance financial services right in general we talked about uh we talked about ibm the creation of the economy of things right so from the internet of things just connected devices to a true economy where all of these devices both are interacting autonomously with people and with each other to create different

marketplaces yeah that i mean this is sort of uh tests and very similar to uh what mike hearn has talked about extensively in talks and on this show as well is is a world where you haven't an internet of things in an economy of things where devices uh are interacting with each other and there's um there's no human intervention uh and just transaction transacting with each other today's magic word is connected c o n n e c t e d head over to let's talk bitcoin.com to sign in enter the magic word and claim your part of the listener

reward now with regards to uh adept um now you mentioned the three components uh blockchain technology telehash and bittorrent can you go more in depth as to what exactly is adept and perhaps it would be interesting to uh to for you to lay out like one specific use case um or perhaps a use case that we can imagine using adept sure so adapt stands for autonomous distributed peer-to-peer telemetry i believe and the idea behind it was to create a proof of concept that using the blockchain can allow us

to do many of the same things that we see in traditional centralized infrastructure systems so if you think about if this then that or smartthings or a lot of the other centralized internet of things services out there what we wanted to do was create a couple of use cases not amazing state-of-the-art stuff but show that using the blockchain we can deliver the same functionality in an entirely decentralized way so we wanted to be able to move big files we wanted to be able to secure transactions and we wanted to be able to have kind of quick actions take place between devices so the blockchain is there for securing the overall system and providing the

management of contracts telehash is for rapid transport and quick action and bittorrent is removing very large files asynchronously and in cooperation with samsung we developed a set of use cases which we showed for it live at ces back in january and those use cases do very simple things for example showing how a washing machine can diagnose its own mechanical fault check its warranty status with the manufacturing company and then go into an online marketplace and request repair services all of those things were done without

any centralized infrastructure okay so that was a good example of how it's it's not earth-shattering stuff our purpose was to show very mundane things can be done uh in exactly the same capability set as a distributed as a centralized system but without requiring any server infrastructure at all so for each of those uh actions that that you mentioned in what case does the telehash messaging system use what case is the blockchain use and what cases bittorrent use because it's unclear to me when we would simply need to send messages through telhash or when we need to actually initiate a

transaction on the blockchain so for example in the blockchain we use it to establish the kind of originating records of the device and to establish contracts between say the device the device owner and the device manufacturer for things like ownership and warranty once those things are established and recorded in the blockchain then if we want to do a very quick command like open up the door or unlock this process or start a washing cycle that can be done by telehash provided that it's checking against an already recorded contract on the blockchain right blockchain is kind of the system of record

telehash can be used for quick transactions and lookup and then something like bittorrent is very useful is let's say you want to transfer a huge file of diagnostic data to the manufacturer to figure out what's wrong with your washing machine you don't want to load that whole file into the blockchain you just want to move it efficiently across the network bittorrent is amazing for that in terms of distributed file transport cool this is so awesome yeah i mean i i i it's still so in this case they used they used ethereum i believe the samsung demo yeah the ibm samsung demo was built on ethereum telehash and bittorrent

cool so what's the what's the plan with that is the idea to actually go from a proof of concept to an actual implementation that's going to be deployed so the the main plan with adapt was to get our hands back and really get our feet wet and really understand what can this work and does it work and in fact this last week ibm published two new white papers on the topic one's called empowering the edge uh which is all about kind of the big picture of the lessons that were learned doing this uh iot demo and then the other one is a related paper

it's called it's the use case ab abstract that goes with it and it details all the use cases so um from a proof-of-con concept standpoint i think sort of mission accomplished right we know it works right now uh i'm no longer with ibm so i can't tell you what the plans are but um i can tell you being here in san francisco and and in silicon valley the number of companies that are taking core pieces of uh bitcoin and blockchain technology and figuring out how to scale them and adapt them into uh billions of devices is enormous i saw a statistic the other day saying that an estimated 600 million dollars is being invested in blockchain related startups uh

here in the us yeah yeah i know this is uh and i guess also 21 inc no the company has raised like 112 million or something like that i guess they haven't really said what they will do but it definitely seems to involve some sort of hardware component and uh so and i remember there was uh some mention as well of the idea that uh well first of all hardware mining and uh mass market right so if you take these three together uh that sort of makes no sense in the current uh mining environment because like it just makes no sense to create a hardware

device that mines bitcoin for the masses uh because you have a complete move towards centralization because the economics are just that way uh but in the sort of context of internet of things and what we've been talking about today maybe one can sort of understand how these three things could go together so yeah i don't want to speculate on what 21 is doing because i i really don't know but i i really am i'm very optim i in talking with lots and lots of bitcoin and blockchain entrepreneurs i would say uh increasingly the shift is on how to use this tech the focus is on how to use this technology to enable other processes rather than sort of the

purely focused on just a transactional mining in a digital currency now is there any source code uh out there for adapt or anywhere people can contribute or or even use this for their own project uh i'm not sure what ibm has chosen to release and unfortunately i can't give you as i said i'm really just here representing my own views i'm not with ibm anymore so uh i don't know what their specific plans are i think they've done some really cool stuff so far i was really proud to be a part of that and um in the work that i'm doing here in silicon valley and with some of the the companies that i've been talking to uh the demand for this kind of capability is enormous uh and i we see that in startups and

also in the take up of platforms like ethereum and do you know of any other initiatives by any other companies are trying to they're trying to tackle the same sort of problem and with similar solutions i do but i've signed a lot of ndas okay well i guess i'll have to have you on a little bit to talk about them when once they're uh once they're released to the public so uh a listener has some interesting comments in the let's say bitcoin forum because i asked like if somebody has some questions on this and and one of the questions was like so if your developer interest in this area what kind of what should you focus on

like what kind of things are to keep in mind i guess so you don't build something that will you know not be future proof i think the single biggest opportunity for investment in the future is around development tools bitcoin is a new platform at ibm we sort of self-taught ourselves everything uh same thing with samsung engineers that we work with who did an amazing job but it's hard and as much if we think about how existing infrastructure is built today we're all building the same stuff based on the same set of open source components and the same set of development tools

it's much much harder to build the same capability using the blockchain or ethereum so we need a lot more development tools right now i would say that's the number one opportunity in the short run is development tools yeah absolutely no i mean i i actually work in the ethereum office here in berlin and um sort of i've witnessed that to some extent and i know some people building trying to build actually complex applications on top of the theorem now and it's a hugely difficult thing apparently so it's not it's not easy it's not easy i think um it's it will be incredibly rewarding as we get there

but right now it's still uh you can still tell how much of a frontier business this is absolutely um so how far do you think we'll get in the next three years um that's a great question i think uh two or three years from now we will have development tools it will be uh typical for people to start building distributed applications and uh we'll be talking about um we'll be talking about kind of platform competition between traditional cloud services and distributed cloud services okay cool and you yeah do you think

we'll except this is the sort of something i was thinking about is how do we make sure that connected devices will be able to we'll be talking the same language so let's say let's imagine that adapt uh forces into this uh really sort of nice toolkit for on which you can build uh i wish companies will be building their infrastructure and then maybe perhaps intel or some other company comes up with a different protocol that uses similar technologies but isn't quite compatible will we get to some uh do you think we'll get to some point where there are uh multiple technology stacks sort of competing against each other and we'll run into similar problems

where there's incompatibilities between them oh definitely we're going to have that the marketplace is going to ultimately decide which ones are the most attractive we have that today right we have so many different variations of unix and linux we'll have the same with the blockchain um there'll be multiple blockchains and development environments in general i would say that the market has it seems like the technology has industry has shifted from a time when standards were set and then technology was deployed now what tends to happen is standards get set quite a few years after the marketplace seems to have voted on whichever ones they like the most yeah but i mean so i guess that means it will be will once again be in this uh situation

where you have to choose your ecosystem or people will have to develop other technologies on top of that so that uh all these standards can talk to each other yeah although i i don't think that'll be all that bad of a situation the um uh this industry is incredibly adaptive and even though there's lots of different versions of things like linux ultimately it's pretty easy to move between them and they're 90 the same so i'm pretty optimistic that at least in the short run all this variability will produce a lot of innovation rather than more more confusion cool well uh paul thanks so much for for coming on today is there something else you want to

you know mention or i've got uh i'm going to be getting back into business very shortly and so watch my twitter feed at peabrody for an announcement in the next couple weeks but other than that i'm just delighted to have been invited here and i appreciate uh your your time and it was a great honor you know absolutely i mean thanks so much for coming on that was really really fascinating uh to talk to you about that and i think it's it's something that you know we sort of were aware i guess of a certain intersection between internet of things and the blockchain but certainly not at all to this and uh at least personally that i feel right now is like this is actually it could be an amazing uh

amazing fit and amazing opportunities um it i my impression very much is that i guess this is a topic that will will come to revisit uh often perhaps also when there are more mature actually actually people perhaps developing blockchain cryptocurrency protocols specifically for that i mean i guess maybe ethereum to an extent is that but uh i'm sure they won't be the only ones yeah i i sure i really share your your uh your view brian and i think that anytime that we get to talk about really talk about really practical things and i i some i really feel like this is so the somewhat coming to fruition of all these things we've been talking about in the last year and especially

what uh what mike hearn has been talking about uh with you know autonomous cars etcetera were with with this uh with the setup technology starting to see how that could actually be um applied to you know real life and that's cool so yeah so paul thanks so much for coming on and all the best with your new uh with new ventures and endeavors and uh yeah we'll uh look forward to perhaps having you back on at some point to get an update on what's been going on in this area terrific thanks very much uh and thanks for listening very much for listening we'll be back uh

next week with another episode if you want to you can follow us on twitter with epicenter btc and yeah thanks and we'll be back soon