Let's Get Digi-Physical: From 'Tap' Chips to Taylor Swift

Transcript

[Music] welcome to web 3 with a16z a show about building the next generation of the internet from the team at a16z crypto that includes me Robert hackit your co-host and an editor here today's episode explores the merging of the physical and digital worlds as well as what that means for the future of our interactions and identities our guests today are Chris Lee co-founder of iyk a startup that's bringing the physical close closer together with the digital through NFC chips and joining us is Michael Blau a deal partner at a16z crypto who creates generative art in a spare time in the conversation ahead we cover new consumer experiences in

everything from concert going to Commerce the intersection of high- tech and high fashion and differences between building in web 2 versus web 3 we also dig into the power of Open Standards the challenges posed by Bots and counterfeiting and debates over terminology including whether digital should be a thing as a reminder none of the following should be taken as business legal tax or investment advice please see az.com disclosures for more important information including a link to a list of our investments okay so you've got the physical world you've got the digital world these two things people consider them to be separate why would we ever want to break down the barrier between these two things don't we want to keep

our digital worlds digital and our physical worlds you know separate like these are two different universes why are we even thinking about joining them together so I think the reality of it is because so much of our lives are lived online it's just helpful to have some of the real world elements as part of our digital identity and so one big example that comes to mind is the Taylor Swift eras tour debacle let's lay out what happened so Taylor Swift she announces this giant tour and everybody is super excited to go buying tickets what happens so what happens is you have this mad rush of bots and normal people who

go to the site to order their tickets and because of that it actually like crashed their servers but the problem there to me is actually a data problem where when you're going to that website to buy a ticket the Creator is not able to differentiate between who's a bot and who's a real human or a real fan so the real impact to me was you had a lot of real fans who might have been to multiple tours who've been following her for years who weren't able to get tickets because either a scalper or some bot got the tickets before them you know it's amazing to me that this is still an issue because you know you could think

back to the 90s Pearl Jam was talking about this stuff like they were going up against Ticket Master saying that they were annoyed by all the fees that Ticket Master was taking and they testified on the Hill about it and tried to like break up Ticket Master as a monopoly so like these issues with online ticket sales have been around for literally decades and it seems like the situation hasn't improved yeah but to me the real opportunity about what we're doing is being able to prove that you were actually at the prior concert or that you own lots of merch and using that as a measure of how real of a fan you are where I think part of The Ticket Master

situation was also like maybe their servers weren't set up to handle all the load but the other side of it was just the inability to differentiate between different users who showed up to that site to be fair Taylor Swift star power is on another level I don't think many servers can handle that load for sure so explain to me exactly how this works because this idea of being able to tell a human from a bot is a problem that we're hearing a lot about now that AI is on the rise and it's certainly on the minds of everybody with this upcoming election and there's going to be deep fake videos and stuff like that now you're talking about a very specific instance of this problem being able to attest to your humanity and your

presence in the physical world how do you accomplish that yeah so the primary way we do that at iyk is by utilizing NFC chips what is an NFC chip for people who don't know yeah so it's an acronym for nearfield communication and it's basically the technology that Powers mobile payments so if you've ever used your iPhone to pay where you just like tapped your phone at the register that was using NFC yeah by the way the New York Subway system switched over to this like tap Ando payment system and it has made my life a lot better yes so it's this super seamless technology that has been around for a while actually but it's been primarily

used for financial use cases like payments and so what we're doing is using that technology but more in a consumer app type capacity where every time you tap the chip you're collecting a signature from that chip and you can use that signature to prove that you interacted with it and so we have actually two main categories of use cases where the first is we're embedding chips in physical items by having these chips in t-shirts handbags sneakers it's not only a better system of authenticity but collecting these signatures serves

as proof that you possess that item and for us we also think there's a huge opportunity where this is a new data primitive that Brands can use to create Next Generation loyalty programs and the other way we use the chips is for events so if you're at a concert or a sporting event or at a conference people have been using our NFC chips to basically allow people to memorialize their attendance this is actually not a new Behavior this is not a new consumer Behavior people do this all the time already on social media that's kind of the point right like everyone will go to the Taylor Swift concert and they'll take a selfie at the concert with their

friends and post it on their Instagram story and why do they do that well part of it's fomo and the other part is they want to show off to their friends look how lucky I am that I got to actually attend the Taylor Swift concert and then the next step of that is Instagram a while ago added this feature where you can sort of save your Instagram stories to like a folder on your Instagram profile and you could label it concerts and so if you went and you know took a selfie at every one of the concerts you've ever been to you could save it to this folder and now when I go to your digital profile on Instagram I can go back through and see all of the physical experiences that you're showing off to your friends and it enhances your profile it makes you more interesting it

brings up more things I could talk to you about things I could relate to you about and so the idea that a consumer or a person will want to show off their physical experiences in a digital world is not new right this is something that we're all used to the problem is that now look on one hand you have ai generated content well people could fake that sort of thing but the other side of it too is all of this data that people are posting on Instagram all of this showing off that they're doing is siloed to Instagram it's stuck in in this one place and people can't really take it with them around the internet like you could if I bought a Taylor Swift t-shirt for example like if I buy a Taylor Swift t-shirt I can walk down the street and people could stop me and say oh I went

to that concert too it was great right I can take it into any store that I walk into any restaurant that I walk into it comes with me because I actually own it right whereas today when you do this digitally on Instagram or whatever you don't it's siloed in this one place and it just kind of stays there yeah and going back to like the top of the conversation if you think about we have these digital identities right like you have your LinkedIn profile your Instagram profile all of that being able to hydrate our digital identity with various like real world behaviors should help with this problem of being able to differentiate between a bot and a human did you say hydrate yes all right you're gonna have

to explain what that means to me like enhance wait why why hydrate I think that's more maybe of an engineer ing term where like we hydrate properties into an existing object okay so I'm down here in Florida right now I'm actually doing this I escaped the cold New York weather yesterday was 90 degrees and I did a lot of hydrating yesterday but I I sounds like this is a different kind of hydration yes different kind of hydration we are basically enhancing your digital identity with various real world actions okay enhancing your real world identity with digital actions you said yep because you can now attest to being at a show and that is just done digitally but

you've collected that signature by physically being at that location and tapping that chip okay did you go to the Aros Tor concert Michael absolutely I did and it was incredible I mean her ability to command the audience is just outstanding I know this is off topic but it's sort of like this is on topic This is highly on topic well you know what's funny there's this great video online of Freddy Mercury at the live a concert yes and he's sort of like yelling AO into the audience and they're all singing it back to him and it's just this like Larger than Life this man is commanding power and it's just incredible like the whole stadium stomping and clapping with We Will Rock You just shaking the

foundations of the Arena incredible exactly and so I got that Vibe at the Taylor Swift concert when she is super real right she'll kind of come off the mic she'll get off the piano and she'll be like thank you all so much for coming in the most like humble real voice ever and the audience of 60,000 people will just completely erupt and then she starts to like tear up you could tell that she's like so happy and like it's just incredible she's a force to be reckoned with so I will say I didn't go in person to the Aros tore I did watch it the streaming service version of it it was a stunning performance Chris are you a Swifty I I would say casual on the tears of fandom I'm probably like in the middle you do not have an Aros tour

friendship bracelet is that right no I do not okay you know what's so interesting actually about the Taylor Swift concert and Digi fizzy is that when I went at least hold up hold up Digi fizzy we're gonna have to dig into that you keep going you keep well well the summary is that there's this funny debate in the community of what's the right word for digital physical interactions is it digital is it dig fizzy is it physically token like what is it and I tend to prefer dig fizzy because I think it sounds funny I don't think vigital is a good option but again I thinkal I think Chris you might disagree with me right Chris where do you stand on this no we don't use figal the phonetics are just terrible we use digy physical for like the broad category and then for like

items we use Chi Goods okay chipped Goods yeah figal I don't know that sounds like some kind of like body part or something medical term yeah true sci-fi character so what I was going to say was one of the craziest things about the tayor Swift concert I didn't even realize this until you asked me about it specifically was when you walked in they gave everybody this wristband and The Wristband it didn't have an NFC chip in it but it had like some like little computer in it some chip the control some sort of like LED light on The Wristband and what would happen is someone backstage somewhere was controlling a computer which basically depending on where you sat in the audience it knew your physical location based on The Wristband and when Taylor

Swift would sing a song any beat or tune that she would sing would sort of project across the audience through these lights a good way to visualize it is if everybody's light was shining like yellow for example and then when she would like do a big base or something there would be like this blue line that would appear to just completely move around the audience and it would be because the computer backstage would be changing individual wrist to blue and yellow based on where they were in the audience like in your location and so it was this community owned light show essentially and then of course when you left they took the wristband back because it's probably an expensive device but it was this totally insane interactive moment of digital and

physical in the real world and all I could think of at that moment was oh my God if this was an NFC chip and I could tap it and get some sort of proof that I was here at a part of this moment it would have like completed the whole picture because I'm not the person to buy a T-shirt and this would have been so much better for me so I just wanted to tell that story cuz I think it was like such a cool Cutting Edge live pitchy fizzy example yeah that's so cool sounds like the Beijing Olympics you had all these people and all these lights going that sounds incredible imagine if there was an NFC chip right you could tap ID yourself as a fan and maybe based on your tier you were allowed to like co-create a little bit where maybe you

got to pick a a few settings like you got to play along with the people who are programming The Experience exactly like you could choose a color like one of nine colors or whatever and then that would create some image across the entire audience and then at the end when you tap the chip that image was like memorialized as an nft of some form and like it was completely unique to this audience based off of this device oh that had been just amazing that is wild what was the last piece of merch that you guys bought at a concert Michael you said that you're not one to buy a t-shirt at a concert I think for me the last piece of merch that I got at a like show I'm a magician so I bought some decks of cards when I

went to see David Blaine in Vegas so that was my form of merch I guess nice nice I haven't been to a concert in a while I feel like it might be like the Watch the Throne tour with Kanye and Jay-Z nice what year was that I feel like that was five plus years ago that's awesome I guess that's the life of a startup founder you have to forego some of the uh the fun activities yeah Chris tell us about your journey to iyk where did this idea come from why pursue this idea so I was a software engineer at Major League Baseball before this and it was 2021 during covid I was bored and I actually met my co-founder online on

Discord and we were mostly building Bots to to game different drops what you said I met my co-founder on Discord is the new like I met my wife on like Tinder yeah I love that it was a very interesting time because a lot of people there was like this self- selection bias that happened where people who were just into nfts where either on crypto Twitter or like meeting on Discord and I was definitely a part of that where I was at a point in my life and career where I was looking maybe to do something something different and so by jumping into Discord it was an opportunity for me to kind of just learn about all the different things that were happening in

web 3 so during that time all these pfp projects started dropping and we were being maybe opportunistic and we spent a lot of time building different Bots trying to like game these different drops one interesting thing that happened was we saw real Brands show up and the example that kind of stood out to us was DOL and gabana said they were dropping a pair of sneakers in collaboration with an NBA player PJ Tucker and they said it came with an nft and so first of all we were like this is a little bit of validation like we thought we were in this weird corner of the internet doing weird stuff

you were but yeah yeah okay so maybe we were but we had like a very traditional fashion brand showing up saying that this $800 pair of sneakers comes with an nft and we're like whoa this is crazy so we um did a little research on like how it works and all that and ultimately we're pretty dissatisfied with the implementation and the way it worked was you would buy this sneaker and on your receipt you would get like a code where you would take that to a separate form put your e ium address and they would airdrop you the token and the reason why we thought this was

suboptimal was that these two assets even though they're kind of issued together or given together they're totally detached right like you could instantly flip that nft on openc but keep the sneaker or you could sell the sneaker on like stockx and keep the token okay so let me make sure I understood the workflow here or the the purch flow of the Del gabana sneaker they had the sneaker for sale you can go on buy it you get a receipt for it so on the receipt there was like a code QR code no just like alpha numeric characters so you could take that go to the a form with your eth address and they would send you the nft yep exactly

okay and so your point was that these two things are totally separated there's no real linkage between them because now you can go do with the NF what you want you can go sell it on whatever Marketplace you want and then the sneaker itself you can do the same thing on stockx as you said yep exactly and so what we wanted to do was figure out a way to permanently link the nft to the physical item and that's kind of where the concept of having a pullable token where anyone who Taps the chip has the ability to pull that same token into their wallet that's how that was born and for us we think a lot about these

different models of linking tokens to items and the Dolce example is something we called like a sidecar model where you just issue this thing completely separately huh so you call that the sidecar model but you thought that there were ways that you could improve that and so you came up with this other idea the pullable model you said yeah so the way the pullable model works is instead of the token kind of freely trading as usual the only way to transfer the token is by tapping the Chip And so you can think of it like normal nfts the owner has the right to do what they want right like if you own a

digital asset it's your right if you want to sell it or if you want to gift it to your friends or your family it's yours you can do what you want right in the pullable model it's actually not yours even if the token is in your wallet the token is actually controlled by the Chip And so you can think of it like the chip or the item actually controls the digital and we as humans as we get possession of it we're like temporarily borrowing the token by tapping the chip it's interesting because now these like physical objects you know the way it seems to me it's

like it's almost like an RPG game where these things they emanate this Aura you know people talk about art as having an aura but now like you're literally putting a chip that has this nearfield communication coming off of it it's like literally emanating in Aura yeah it's pretty wild huh okay so who's actually using this technology like what are the applications so for us part of the reason why we were so excited about the concept was we think it can power Next Generation loyalty Concepts where if you're a brand you now have more visibility into who has your items right so what you could do is say if you have this t-shirt and this

sneaker you unlock some colorway of like a skew or maybe you'll unlock an exclusive skew maybe if you have this hoodie you gain access to this exclusive content so we're definitely targeting a few categories as part of our go to market strategy we think the music industry just chipping merch makes a lot of sense traditional apparel Brands I think in terms of who's using it today it's definitely more crypto native Brands so we work with a lot of web 3 apparel companies that are fully embracing tokenizing physical items but I think the end game for this is

just for it to be more widespread where it's just the thing that you do when you buy products like you tap to claim or register them you mentioned DOL and gabana did this nft sneaker sale what other brands out there are experimenting in this sort of way or have experimented there's the who's who's list of brands have been experimented so companies like prda Dior balanciaga these are traditional fashion powerhouses with years and years of Heritage and they're experimenting with this I think there are degrees of how web 3 the approaches are but at its core the concept is

around like creating new consumer experiences for their customers something also is that a lot of the brands not all of them but like a good portion of the brands that have done Digi fizzy products they're actually not necessarily using the sidecar model or the pullable model they're using this other model which is like the voucher or Redemption model where in that world a consumer will buy an nft of maybe a hoodie or something and then they will redeem that nft for the physical again every single model is different but that could look something along the lines of like you actually like burn the nft delete it off the blockchain get rid of it

and then the brand will ship you the physical hoodie and the interaction is done or you get to keep the digital token it's just has this onetime claim to get possession of the physical and of course after that point then these things are now detached it reverts to the sidecar model but yeah a lot of these Brands like especially like Nike and Adidas have done this Redemption mechanism so once you redeem it and you can do with that claimed token as you will like does that still have any meaning people care about the nft once you've received the benefit that it offers you know the merch in the physical world I think so because like in theory the brand could add multiple claim experiences to it actually I think

if I'm remembering correctly like Tiffany's they have this model where you get this one nft or maybe it's Louis Vuitton one of them I'm forgetting which one it was but one one of them is you got a digital token that's an nft which is non-transferable and that token comes with multiple redemptions of physical products over a certain time Horizon like a few years or whatever and so you actually can't sell or transfer or trade the nft because it's non transferable but embedded within it has these multiple Redemption and claim components H they're all a little bit different some of them are not some of them it's one time some of them it's two times sometimes they're non transferable nfts

sometimes they are transferable everyone's sort of mixed and matched you know all these different mechanics but I see it kind of as a receipt too so even though the token's been redeemed it's kind of like your ticket stub where like okay it's already been used you've gone through the turn Styles but still some people collected their ticket stubs I actually do that yeah usually after I go to a concert I keep the stub so that makes sense to me given that there are all of these different mechanics out there all these different experiments that people have been running what has been most successful like who's doing this right and who's doing it wrong so I won't like name names but I think just as a strategy one thing we've tried very

hard to do and kind of pride ourselves on is creating more accessible user Journeys for the end consumer and so our strategy has been let's say we embed an NFC chip in a piece of merch when a fan first Taps that item they get immediate accessible value so one thing we do a lot is using content we did this drop with verite who's an independent musician she sold merch before her album came out and the merch was promoted as a way to get early access to the songs and so if you had this crew neck you could tap it and

listen to singles before they dropped publicly and so now the bar of being able to enjoy the experience is really low all you had to do is tap your phone but there was still this token that was attached to it right and so as you get more familiar with this new like digital experience off of a crew neck you could claim the token which to us is a way to kind of extend all the benefits of having the crew neck like forward where maybe nine months from now there's token gated access to some content or tickets

or whatever and one of the requirements is that you need to have one of these kwck the token is what makes that possible but for us it's like we weren't focused on just the token itself and believing that the token has value we wanted to kind of gently onboard people give them some exciting and then allow them to claim it over time and I think that's definitely helped with adoption because the experience is just a lot friendlier people came to know nfts during the Crypt Mania of the last cycle people would joke that nfts are just monkey cartoons I wonder how are you seeing consumers react to this

technology like are people receptive to nfts are you calling them nfts or something else like how are people communicating what these things are to people and and what's the reception been like from people who might not really have any particular interest in web 3 but rather have an interest in you know a fashion brand or a musical artist I would say nfts as a term is pretty much out at this point like it's out so last year it's too tainted like there's too many articles too many bad things have been said about it and for us we try to use like more relatable terms so for

items it's you're claiming your certificate of authenticity so you just bought a really expensive piece like you're either registering it or you're claiming the COA certificate of authenticity and to me the token is kind of an implementation detail where if we're crafting a campaign for Merch the the campaign is usually about like you get this merch for a chance at a meet and greet or to get early access to tickets or get access to exclusive content like the token is the mechanism that allows that to happen but it's not actually the value proposition and so

all of our language like it doesn't matter like we actually talk about what the fans care about so if nfts as a term are down and out as you said it's become tainted why use the technology at all couldn't you build something similar in a web 2 sort of way why have you decided to pursue nfts on the back end to make this all possible so the truth is everything we built at iyk today we can build it in web 2 style like using a database and there are several reasons why we chose to build with tokens one of the primary reasons is the fact fact that it's an open standard and one of the benefits of Open Standards is you

have a whole ecosystem of tools that people are building that may not be for your app but because it speaks the same standard it actually works with your app and so for us it meant that we didn't need to build the world just by attaching a token to an item things like open opy became essentially like a closet app where you could see what items you own the ability to token gate Commerce experiences there were already Shopify plugins that allowed you to token gate purchases and so this concept of oh you must own this shirt in order

to buy this hoodie we didn't have to actually build that so there are a lot of like composability benefits of adopting an open standard and the other thing I would say is the verifiability that comes with being on the blockchain where anyone can verify independently like if you don't trust a certain token you can actually go to the blockchain you can see things like who deployed the contract there's a lot of these types of benefits to being on that open infrastructure when you say the second part of being able to verify things by looking at the blockchain are you talking about like okay say some

fashion brand does a release and they say they're going to sell 100 of these sneakers with nfts are you talking about the ability to verify that they indeed only issued 100 tokens or Goods Linked In this way or like what would be the advantage of inspecting data on the blockchain yep exactly so one kind of cool thing I learned was that Monclair it's this jacket company has like a really bad counterfeiting problem and there actually have been cases where their raw materials have been stolen so there's literally counterfeit Monclair jackets with the

exact same fabric so it's almost like entirely the same except for the fact of who made it exactly so you have let's say two physical items one is made by monair like officially and the other isn't but it's like literally the same materials and so okay what's real and what's fake well the benefit of having tokens on the blockchain is that Monclair they have a Wallet account let's say it's Monclair e and they created a 100 certificates of authenticity or tokens right and it's verifiably from them so even though you have effectively a real Monclair

physical product if it's not linked to a token that was issued by them by definition it's counterfeit and in my opinion what's one practical result of that well you can't service that jacket at the store because it's not like recognized by the brand and stuff like that one thing that this calls to mind to play like a little bit of Devil's Advocate here I've read research about how knockoff fashion items actually are beneficial to the luxury Brands because it opens up this lower tier that other people can access and they aspirationally want to get you know the brand did good but having those knockoff products out there it still gets the

attention people still sort of might think that it's the real thing which creates more buzz and attention and then ultimately those people like they want the real thing and when they have the ability to buy it some fraction of them will like I've read that luxury brands originally they were very stringent about cracking down on this stuff but they've actually kind of moved back and allowed some of this to operate in the shadows because it kind of ultimately benefits them I wonder if you've thought about this at all or or how connecting the digital and physical in this way in a way that you can like instantly verify might provide Clarity that eliminates that sort of Shadow market and those like weirdly possibly beneficial aspects of counterfeits I think the way I look

at it is we just make it easier to verify the authenticity whether the brands want to allow this Shadow Market to exists that's a business decision but from having the ability to as a consumer or as a brand be able to tap and within 30 seconds verify if it's real or not like that is a useful value problem yeah so it's really on the merchant themselves how they want to approach whether something's real or fake you're just providing the technology that makes it more seamless for them to do so yeah if verifying the authenticity of an item is very difficult I think that kind of like a tax on the system where it introduces

a lot of overhead so one example is marketplaces like the real re where their take rates are like 40% plus in some cases and a take rate by the way is the percent of Revenue or gross merchandise sales and volume that is claimed by the network operat the owner the network itself rather than the participants in the network the people who are actually using it to trade goods exactly and so let's assume like the real real is not being greedy and the reason why they're taking 50% of your sale is that because you had to physically ship that handbag there were humans that were like inspecting the bag maybe they worked at some of these

luxury Brands so they have a lot of experience and they know what to look for but that whole process just introduces a crazy amount of overhead where if you could just tap within 30 seconds and anyone with a smartphone could tell like that could reduce a lot of those costs significantly does that match your research Michael I know you've looked into some of these marketplaces yeah I largely agree with what you were saying with how these Brands would want these other objects to be floating around that are counterfeits but at the end of the day like if Monclair is doing a pop-up shop for example and wants to only let in actual owners of their products then they're not going to let the counterfeits in right they're going to let the actual ones in and so yeah yeah I guess I agree

with Chris as a gating mechanism you're saying like you need to have some ability to attest the fact that you've bought their products before and now we'll let you get into this pop-up shop that we're doing you were telling me about stockx too that you have to ship your goods to them then they verify it and they ship it out to the buyer is that right exactly yeah I guess it is another form of digifizz in some sense where like if you buy a pair of shoes on stockx you do have this you know quote unquote digital token of this pair of shoes it's just not on the blockchain it's it's in stock X's server and centralized database and so at any point in time you can trade this shoe you can sell it you can buy it and then when you're ready to get the physical shoes

you just redeem it for the actual one and stockx will ship it to you but yes they do this process of before they do that the shoes have to go through the stockx center verified by them they actually get tagged like this green circle tag that like this is stockx verified and then it's shipped to the user and so when they buyer gets it they can say oh it has a little tag on it stockx really verified it and so it's legit and it's good quality a tag seems easier to counterfeit than a um than a chip that's embedded inside of a product but I don't know this is true although I have not used stockx so I can't say if this is true or not but like if they put an NFC chip inside this tag then there would be like cryptographic material in

this chip and like stockx could publish on their website like you can verify whether or not the tag is in our our database of what we know to be all the tags that we verified and so like you could create that link but I don't know if they use NFC chips or not are we going to like get into a world where people are going to come at this with xacto knives and be ripping these chips out of uh products and putting them in other things like what is the vulnerability here like what are the attack vectors for counterfitters I can see a world where people are incentivized to do that and they do that I think practically speaking doing that will result in some artifact that the thing was clearly tampered with where for us they definitely are varying

levels to how these chips are being embedded in the simplest case people are just using a patch it gets sewn on and it is very easy to like cut that one piece of thread and like peel the patch off in other cases people have used like heavyduty embroidery or you know if you think about these chips more seriously including it earlier in the production process where if you're making a shoe like it's actually inside in between the material rather than an add-on or an afterthought like make it really embedded in the core of the product itself yeah exactly instead of like retrofitting it's part

of the actual creation process like I don't have a great answer here I think some of that will happen but I also think there's even other Technologies outside of maybe NFC chips that we've done a little bit of research on where I think security is never absolute it's always on a spectrum yeah and so it's just something that if this does become ubiquitous there will be adjustments and also it depends on the product right so if I'm getting something from a luxury brand the cost of extracting the Chip And embeding it in a new thing may be low relative to what this attacker can get from doing that versus if I'm

embedding a chip in a toy I don't want to derail the conversation but like one of my favorite examples of Digi fizzy before web 3 was even a thing was Webkins right and you buy this physical toy you can link it to a digital version of the toy that you can play with and feed and play games and see your friends and stuff if it's a toy the potential reward for stealing a chip out of one toy and putting it another is probably quite low and it's not worth it so it just depends on I think what the product is yeah there is one interesting implication of having the chip linked to a token here have you guys watched the documentary sour grapes I have not Michael have you I have not but I know this I know the story I think I know where you're going with this tell me uh

what is sour grapes about okay this guy Rudy caroan or something like that he was basically counterfeiting very expensive wines oh that's a good that's a good title and the interesting part about it to me was he actually had really good taste as a connoisseur of wine and he was creating Blends that were fooling like the best restaurants in New York and la so using that example like he had a whole system at his house where he was creating the exact labels of bottles from like many many years ago and then creating these

land bottling it and selling it and so let's say you do rip out a chip from like a Birkin bag and you produce a fake Birkin with the real chip in it well one implication of this is that there's still only one real Birkin in the sour grapes example he was replicating the authentic product he was cloning them like tens hundreds of bottles in the chip scenario let's say even if you ripped it out there's still only one right and so there are still improvements to the state of the world

today by having this system and then being able to detect if it's been tampered with like I said is that's like another level where who knows what techniques we come up with it's a shame this guy was using his powers for evil when he could have been like I don't know he should have been a Venter he should have made a a winery and made all these excellent products for people for sure I'm going to definitely watch that your point about there being only one chip it limits what counterfitters can do because even if they were to take a chip out of a like you said a Birkin bag or some similar luxury product when the consumer goes to use the NFC Reader to scan that chip if it's not the right chip it's not going to show up so it's

not like they can really produce tons of these counterfeit products because there really is going to be just this one chip that links to the actual good wherever it goes yep exactly and also another attack Vector which isn't ripping a chip out of a physical product so a lot of these chips depending on the types that you use like they have cryptographic material in them that in theory should be tamper proof and like you shouldn't be able to extract these keys from the chip itself like any user should not be able to do that but there are maybe ways where if you have the right material and the right equipment you could like measure the electromagnetic emissions from the Chip And if the chip is not designed right you could potentially get some sort of data leakage of the keys

that are embedded on the chip or leakage of like how random numbers are generated on the Chip And and use that as a way to actually not rip the chip out but be able to forge the cryptographic signature on the chip and then once you can forge the cryptographic signature on the chip you can essentially like go to these tokens and present the signature as you owning a physical item when you really actually don't own it again I'm not the technical expert on on how these things work in practice but like Chris said as this becomes more standard and more people use it hopefully these types of attack vectors are accounted for in some way so what you're describing is what they call a side Channel attack in cyber security yes and I believe there are ways where like you know somebody

can be typing their password into a computer laptop and people hear the clatter of the keys or just detect the electromagnetic whatever that's coming off the computer and they're able to actually steal people's information so that's interesting how buttoned up are these chips how impervious are they to attack or resistant are they to these types of angles I would say very where one interesting thing is that these NFC chips they're not new they've been around for a long time and they're produced by large semiconductor companies so the tamper resistant Enclave where these Keys reside are

probably at the same caliber as tamper resistant enclaves in your iPhone so maybe not as good but from a scale perspective these chips are battle tested I've got a question about that you mentioned that they're coming from Big chip makers and just to tie back to something you mentioned about starting the company you said you started doing this in 2021 now there were tons of headlines at that time talking about the chip shortages people couldn't get access to chips there were all these supply chain issues the supply chain got jammed up did that impact you like you decided to start a chip business at a time when chips were just not flowing anymore through the global economy so I think that's where maybe ignorance is bliss where like we didn't really

appreciate the chip shortages at first but it very quickly became clear like as we were talking to different suppliers placing you know larger orders result in cheaper unit prices so as you inquire it's like actually we don't have that and if you want this amount you should place that order right now because there might be like a 9month backlog so we didn't know any better to start but yeah we quickly learned about it and it didn't matter as much in the beginning because we were so focused on proving the concept and making sure it was sound so like we weren't in the like scaling out period we're very much in the product R&D phase so it didn't really

affect us too much the thing I I love about that is it is such a good time to be building during a winter or during a time when nobody else is focused on the same thing maybe they're deterred because of you know reading these headlines about a chip shortage and yet you're like well we're going to go in and build something involving chips I just think that's great in the same way that we're building in web 3 right although it feels like The Vibes are shifting definitely it does feel like The Vibes are shifting lately now you said you chose nfts because it's an open standard a lot of other products are being built using it there are a lot of applications that you don't have to build that are just pre-existing is there any other name in town or was this Tech the only option for you to have all

of that yeah I think it's the only thing in town that meets all of those requirements the power of Open Standards I don't think there is a standard for product information like we piggybacked off the nft standard and everything was able to speak that language yeah I don't think there was an alternative something that I was telling Chris last night is that an nft as a technology erc721 is probably in my opinion the only if not the best way to own a digital item on the internet to actually own a

digital item and not just have it be some you know mapping and a centralized database that a big tech company owns and so yeah sure you could have like a file on your computer that in theory you own but that file is like infinitely copyable and so there's no element of of scarcity not from a value perspective but often times there is scarce goods and so if you want something scarce you need to actually own it you need to have a place to keep track of that scarcity and that's what blockchains are really good for and so when you're thinking about this whole thesis at least of I where the whole point is you are going to map physical items and physical experiences to the digital world everyone is already familiar with what it means to physically own something like I have my phone in my hand this is

mine yeah the software on my phone is owned by Apple but like no one can take my iPhone physical device away from me the shoes on my feet no one can take that away from me it's it's in my possession and that is a very strong form of possession and so if you're going to attach a digital component to it the digital component needs to have the same level of strength of ownership as the physical part because if it doesn't then like why are we all here and so for that reason if you're searching for like what's the best technology to create digital ownership well that's an nft that's like at least one model that I think about it through obviously the open St stuff I 100% agree with and composability and connecting to the existing ecosystem but also the digital component needs to be as strong

of an ownership as the physical component I will say I do find it very odd that when I sign up for all these different services online I have to like start from scratch create a new username create a new profile picture all these things I'm like can't I just come as I am and just like log in and boot up and get going and as a result I have like different names across all these different places it's highly fragmented and inconvenient yep 100% Chris Dixon talks about this in his book read WR own it is profoundly strange that this is the way the digital world operates whereas in the physical world if you went into a concert venue or an office or something and you had to like create a new name and identity and clothes for yourself that would just be bizarre but

uh people accept this as like the way things are in the digital world yep one of the biggest challenges for the web 3 space obviously has been getting people to create accounts like wallets but that being the obstacle in the long run that's one of the strengths of web 3 is the fact that you can have a single account that you connect with into multiple apps so I think it's just a matter of time and it feels like that inversion of control back to the user just makes a lot of sense say more about that from a user experience perspective obviously there's the core kind of web 3 community that has wallets but as you're rolling out products for people who have

no experience with a digital wallet who again are just sort of like fans of some Creator or some artist how do you make that experience seamless how do you enable people to get access to some digital token but maybe not with them coming prepared with a wallet of their own definitely through layers of abstraction so for us having maybe a traditional user account but is backed by a web 3 wallet that maybe we do spin up a default one for people but the benefit of the data or the tokens still being on chain it allows you to if you've claimed this piece of merch you

might see it in Twitter or Instagram or 10 other sites because it's not siloed to iyk like the tokens are still on chain so for us we're also looking at like there's a standard 4337 for account abstraction where it's getting easier and easier to create wallets for people and abstracting Away the need to have a seed phrase for people to start a seed phrase being like the phrase you need to recover your wallet and access your digitally owned Goods exactly yeah that's asking a lot of people if everybody had to memorize like a 12-word phrase and keep it highly secure I feel like that would deter a lot of users for

sure and for me I see it as kind of this gradual progression where you know claiming a t-shirt it's not as valuable as like claiming the Mona Lisa right so iyk we can help onboard people to web 3 and when you see all the benefits and the value then you'll have the incentive or the motivation to go and set up your own non-custodial wallet and all of that right and then you can start migrating things over but we don't need to lead with oh before you do anything like what what's your seed phrase no we can actually just bring you in you start to

see some of the benefits and then over time hopefully you're like you know what I should probably control more of this I'm going to go do this I told this to you the other day it's like the ultimate Trojan Horse to get people into to crypto because everyone's so familiar with physical items that it's like it's perfect yep so it's an incredible onboarding tool because you know people are going to get these merch products and they don't even know that they're entering like the web 3 world and yet they are yep they think they're getting shirt but it's actually a token so the shirt is the Trojan Horse the Greek soldiers and odys that's the chip and Troy is the world exactly cool so I want to ask about Michael maybe I'll just ask you this Chris said that people

are kind of down on nfts it reminds me to be honest of back in like I think it was 2016 2017 there was this meme going around you know blockchain not Bitcoin like all of a sudden Bitcoin was down and out it had been one of the many bubbles and crashes and people were like oh well but the technology behind it is good bitcoin's bad but blockchain that stuff's good since then Bitcoin has obviously had a Resurgence and I don't know I when I look at this I kind of feel like nfts might be entering that digital good not nft period like blockchain not Bitcoin yeah well I guess like the thing with that Meme it's like blockchain not Bitcoin but then like ethereum came along and it was is the

blockchain part which is like you have this computer that is incredibly powerful and people can build all these apps and we've seen that happen right and so in the same breath I guess that's true here but the way the nfts started was very narrow it was here's digital art right and now it's a lot more than just digital art as we know right it's access it's digital physical it's tickets it's avatars it's all of these things and so it's just that the first application of it it's just SC narrow view of what these things can do because at the end of the day they really are fully programmable digital objects that is what a erc721 is right and so the world is your oyer

right like you could you could you could put anything into that you can do Dynamic nfts you can do the physically linked nfts it's just more like the first version of it was pretty narrow and that's what sort of took over the world but I guess I could see how it is similar to that Meme a little bit but we''ve already seen like so many interesting examples of things that are outside of the world of digital art with nfts including iyk right like this is not digital art per se and so hopefully I think we're already seeing that Meme start to disappear yeah that's a really good point I have used some of the I products actually I have an iyk t-shirt that I scanned I have a digital replica of the t-shirt it's very nice that's awesome I haven't worn that digital t-shirt in fortnite or anything

I don't know what to do with it just yet maybe you can tell me what I can can do with it this is kind of embarrassing but I bought a champagne colored tracksuit for my du lingo owl oh wow I have like a ridiculous dual lingo streak that I've been working on for many years which language well right now I'm using they've got like a music reading thing that they just debuted this year so I switched over to to reading music but I was doing Mandarin for a long time I actually exhausted all the uh Mandarin lessons on dualingo that's amazing but uh I'd love to bring that champagne color tracksuit to other digital experiences yeah you need to be showing that thing off that should be

Instagram your Twitter I know it's just confined to this one app people need to see this and then I've also of course I mentioned Chris Dixon's read WR own book and he has a bookmark that came out of it and you guys both worked on that let's talk about that bookmark the idea behind it how it works tell me a little bit about that I feel like Michael you should you brought the cool factor to it cool Factor so the summary is if you order the book from specific stores or a specific seller online if you go to readright own.com bookmark you'll be able to be directed to the exact seller where you'll get the bookmark every book from this seller comes with a bookmark and this bookmark within it has an iyk

NFC chip there's two components to this so maybe I'll talk about the nft artwork component and then Chris you should talk about the experience component so when you tap this chip what happens is you get this option to either connect a wallet that you already own so if you're already a crypto user you already have a metamask wallet coinbase wallet Unis swap wallet whatever it might be connect it in and claim the nft that's linked to this physical bookmark or if you're completely new to crypto iyk will spin up a wallet for you and it's connected to your email and so you don't have to worry about managing a seed phrase or a private key or any of that so it's very easy to onboard you don't have to know anything about crypto to get started but when you tap this chip you get an nft or

a digital object or digital item collectible as we've been calling it in this in this chat and what's so interesting about this nft is when we made it we wanted it to be as crypto native as possible as web through native as possible to really demonstrate the power of what you get when you put art on a blockchain and so what's really interesting about this is this specific nft and the artwork of it could really only exist in the context of a blockchain it could not exist offchain and so here's basically how it works so a quick summary for any listener who doesn't know the nft token that is on the blockchain will point to some offchain location whether that's a website or decentralized storage like on ipfs or R weave and that location is where the actual image and metadata of

the nft is stored and so the title of it the creator of it the actual like image or media content behind it whether that's a song or a JPEG or a PNG or a PDF or an HTML file or any type of of media doesn't matter and that pointer is with a cryptographic hash right it depends on where you're storing that location if you're storing it on a centralized server the pointer will literally just be the URL of that server but if you're storing it on ipfs or R weave where any content uploaded to those networks does have a unique content hash or unique content identifier and so if that is where it's stored then that unique content hash identifier is what's stored on the blockchain as the pointer so it just

depends what we did though is while that's great and that's how a lot of nfts work we wanted to make it so that everything about this image and the metadata is 100% stored on the blockchain so it does not have to call out or point to some offchain server or offchain network storage Network it's all onchain in the format of an SVG which is basically just a type of graphic image and the way that this works is because this data is 100% stored on chain you can essentially um generate it from the blockchain itself so if I own this nft let's say I own nft number one CU every nft has a unique token ID and then I transfer this nft to Chris even though Chris would now have

token ID number one the actual art would be completely different and it would be generated 100% based off of what Chris's wallet address is and so it's this really cool Dynamic artwork that will change based on the wallet that owns it it's 100% on the blockchain so we're not relying on any offchain server that could go down or any other decentralized storage Network a lot of people in the crypto world we just call it crypto native or 100% fully on chain so that's how it works from the art side but as we've discussed there's a lot more to these physically back tokens than just the art itself and that's where what we've done as a team at a16z and then also with partnership with iyk is add

all these other cool experiences to The Bookmark itself so like of of course when you tap this bookmark you'll get access to Unique interviews from Chris and and videos and potentially in the future maybe access to events but one of the coolest things in my opinion this is like massive is the ability that if you ever meet Chris in person Chris Dixon with his phone can tap your bookmark chip and autograph it and that autograph is permanently on the blockchain as a combination of a we'll call it physical signature like you're normally used to where people take a pen and they make some cursive that no one can read right like there's that but also it's a

digital signature in that this signature was issued from Chris Dixon's wallet and to me that is so powerful because we're all used to going up to Big celebrities that we love and asking them for an autograph in person and what do they do they just scribble something with a pen and that's great and we know that they really signed it because we were there but like the rest of the world like it's amazing how we rely on physical signatures as a form of verification when it's so easily forged but now you can actually have Chris Dixon digitally sign your physical item and that is also on the blockchain and so when you show off this nft to your friends not only will it show you the cool artwork but also it will show you Chris's digital signature on top of that artwork and to me that is like a huge unlock and just

insane yeah it's kind of like the Monclair example where it's so easy in this case to forge the actual scribble but to have it be signed by his wallet that's what gives it meaning you can't just copy and paste like you know that this is the hand that touched the hand that touched the hand of Chris Dixon or whatever Y and what's so interesting about it too is to go a level deeper on the tech side the signature itself that Chris Dixon is giving you when he Taps your Brick Mark is also an nft and who owns the signature nft it's not you the owner of that signature nft is the bookmark nft the original nft from The Bookmark it's it's basically like you physically own this bookmark which itself that ship

owns this digital twin nft which itself now owns the signature nft and it's like nfts on nfts on nfts digital Goods on digital Goods on digital Goods Turtles all the way down right and it's so cool but what's the reason why this is an important distinction to make is because if I now give you Robert my digitally signed Chris Dixon read write owned bookmark and you claim the nft out of my wallet using the pullable model which we discussed earlier right so you tap it now the nft moves from my wallet to your wallet the digital signature that christic and gave goes with it so I would now have christien signature even though I didn't get it signed you did but I got your nft just like if I had

Taylor Swift sign a T-shirt and then I sold it on eBay and you buy that t-shirt you're getting the T-shirt but you're also getting the signature with the Sharpie that's on it right and so same idea here it's moving with it which is super cool can I ask so you transfer this nft me now let's say that you pull it back I give you the bookmark back you pull the nft back if you use the same way with the art generate as it appeared before yeah so the art is deterministic based on your wallet address so as long as the same wallet address owns it it will always look the same but if you are listening to this and you are a smart contract engineer and you like to poke around in smart contracts you will find an Easter egg is this a smart contract

engineer or a smart contract engineer sorry you got to be pretty a smart smart contract engineer contract engineer can look and there's a little Easter egg and the Easter egg basically allows you to kind of override some of the deterministic nature of the way that these images are generated and set your own or at least have more control over what the gradient colors are in your in your image and so if you want to go find that I encourage you to find that and you can actually override this a little bit but yes for the most part if it's the same wallet address that owns it it's always going to be the same image Chris I don't know if you remember this but um we were at a Founder Summit event that a16z had hosted and you were demoing the bookmark for me and some

other people and we saw for the first time what Chris Dixon's art his generated art was going to be and for lack of a better term it came out puke vomit sludge green I remember that yeah just like the most disgusting green that you could imagine do we call it like Shrek swamp or something like that sh swamp green now you didn't know that that was how it was going to come out right that was sort of a surprise it just happened to be the most hideous color you could imagine we changed that wallet so you used the escape hatch the Easter egg escape hatch to make that no no no we we just like used a different wallet for the one that Chris Dixon would own okay

that was funny but I will say it took a lot of time to figure out how do we make this generative component so that no matter what it could look somewhat good obviously like you can't control what colors but you know we did spend a lot of time thinking about like should it be one color gradient two color gradients how does that work and so that was a lot of tinkering but I think where it's at it's like pretty good like 95% of the time no it's amazing my nft by the way it came out a very nice lime green sort of a neon lime green which I was pleased with but here's the thing if you are an owner of this book Mark right now and you do not like how it looks that's totally fine because all you need to do is tap the bookmark again and pull it

into a new wallet that maybe looks better and you can do that forever until you find one that you like a wallet that you like but you also like the image so it's not like it's you know stuck in its current state even if you don't find the Easter egg you can still just move it to another wallet and change the image and one lucky recipient out there will find the Shrek swamp green The elusive The elusive color I learned way too much about colors building this thing I don't know of a project that did something like this before Chris knows I like to do these Dynamic onchain things because what's so cool about that to me is that and know I said like the art view of nfts was the first example of how they came into the world and it's a little bit of a narrow view but if you

really think about it there's a lot of art that you can create that is Crypton native that could only exist in the context of a blockchain and that is like what this piece is like you could not make this a JPEG that you just put on your wall it doesn't work that way right you need a blockchain to make this piece of art exist and so I like art that is really leaning into all of the cool things that nft gives you leveraging the blockchain for that yeah and you've done tons of projects like these y yep but going back one step to the concept of the autograph I think another way of looking at it is we're basically the item has its own history if we talk about the pullable model let's say you resell the item so the next person Taps and claims possession

the whole Providence here history of who's possessed that shirt will live on the blockchain and be associated with that item itself and then in this case it's like oh you actually met Chris Dixon that autograph lives with the bookmark itself maybe your shirt you check in at the Taylor Swift concert so that you know if that shirt is at some vintage store 20 years in the future when you tap it oh it's been to this show it's been held by these people it's been signed by this person like it's just giving this Rich history that implicitly exists for all the items in

the world but making it more explicit yeah it's really cool you can know the previous owners of something and sometimes the previous owners of an item can enhance the interest around it yep you know something I want to add to this is the first question you asked us right which is why even combin these worlds like what's the reason for it why can't we just leave physical physical digital digital and call it a day yeah and something that I think hopefully we all realize is that the whole world is actually not moving in that direction right the whole world is actually moving in to tight Integrations from physical to digital whether it's the fact that you have an iPhone in your pocket or the aura ring or the Apple watch on your wrist that's monitoring your health and giving you digital Health Data or now

these new like AI wearable pins that you can talk to or even in the Vision Pro where now I can have a whole person and a digital version of myself in virtual reality that when I face time with my friends they don't see my physical version but they see a digitally interpreted version of of my physical version right so the whole world is is moving to merge this and if that's the case why not do it the right way why not do it in a way where the digital pieces are implemented in the strongest most reliable transparent and open way possible so that when we do get to maybe like a fully digital world when we're you know in the world of Ready Player One everything is not just completely controlled by one company and rather everyone actually owns their digital

goods and so doing it right from the start I think is is is important and and being able to see like the providance of all this stuff on chain and verify it publicly is a huge component of that yeah in Chris's book read R own he talks about this idea of the metaverse and that the problem with Ready Player one is that this universe could be owned by any one individual at all you know it should be something that is community owned by by all the people who participate in it it's funny that that book came out not that long ago but this concept was not there for the taking at that time because the technology just wasn't it was sort of inconceivable you know what's so funny I rewatched ready play one the other day and there was an amazing Digi fizzy moment in the movie

which was that paral is going shopping in the I'm forgetting the name of the world but in that meterse Oasis The Oasis Mall Oasis yeah and he finds this suit that's like this tense haptic suit and he clicks a button to buy it and you see like the coins visually move from his body you know into this shop and then he gets a digital receipt of this suit and then the next day the suit shows up at his doorstep where he can actually wear it and so he purchased it in the digital realm and then it shows up at his doorstep which is sort of like the Redemption model that we've talked about before yeah but the weirdest part is that later on in the movie the fact that the world is owned by the centralized company

they were able to go in and figure out who the actual like Wade like the actual version of PR was in the real world because of the shipping address from The Oasis to his home and therefore they were able to go to his home and attack him right and and so but this was all enabled because the world was owned by a centralized company that has this like back door view into everything that's going on getting swatted by by Web Two Tech exactly crazy yeah this is a tangent but it's interesting to think about how things like uber are actually Digi physical right you get on your phone you click some buttons and you physically summon a car or like The

Internet of Things So my blinds or shades are actually remote controls if it's too sunny in my room I can hit some buttons and the shade comes down and then now there's no so it's like very interesting how our lives are very much being not only lived online but we have these digital touch points to actually control our environment like even the nest you're configuring the temperature in your home digitally Chris talk about the card the credit card you told me last night that was a great oh yeah another great example of this is the credit card or debit card is a Digi physical experience where you get issued a card by let's say Visa when you go to

any Merchant and they add things to your order and so then you tap your card the reader is recognizing like that chip and they map it back to your digital ID or your digital account it's like oh Robert wants this orange juice let's charge it to his digital account but that is Digi physical because you know the chip maps to your digital identity so I think for us being able to maybe for the first time enhance your identity with the items you own the different behaviors

you've done in the real world that seems like part of this natural progression or hydrating your identity yes hydrating to your point it's funny to think about the physical and digital worlds is separate I mean we conventionally do we have mail like the postal service and then we have email and we have Commerce we know shopping at the mall and then we have e-commerce we have all these sort of distinctions between the two and yet in practice in reality the lines are really blurring and it is accelerating all of our experiences are becoming this strange hybrid 100% exactly so Chris I want to return to something you had mentioned way back when you were talking about how you had met up with your co-founder you mentioned that you guys

were botting nft airdrops so just to bring this whole conversation full circle you were at one point like creating bots to acquire nfts that presumably go on and sell elsewhere and now you're developing these products that are going to hopefully help artists like Taylor Swift avoid Bots claiming all of her tickets yeah it just seems like an ironic outcome or maybe it's intentional and deliberate that you've seen the uh holes in the system yeah there's definitely some irony in there I think for us the botting it was more like you could buy an asset and there are different things at the time where

because it was such a new thing whoever could determine the Rarities quickest you had a little Edge where you could you knew what to buy and sell a little bit so the botting in that case was more just indexing some data running like some rudimentary analytics on it and then deciding what to purchase versus in you know the Taylor Swift example it's more on the identity level of who should be allowed to purchase this so I think it's definitely ironic but maybe slightly different elements to Bing here gotcha all right well thank you guys for coming

on here and talking about all things figal hey hey digy fizzy what's wrong what's wrong with digital FY fizzy it's beautiful word love it no but thank you guys this has been an awesome conversation I learned a lot yeah thanks for having us really appreciate it thanks Robert this is [Music] great Michael I know you feel very strongly I feel like you're playing koi with how you yeah your opinions on Digi physical like you should let loosen say how you really feel so the funny thing about it is I really wasn't serious about it and then I think it got funnier

as I became more serious about it and so now I'm sort of like just completely championing this word and it's funny and it's sounds like a cool drink that you would get in like willly Wonka's chocolate factory or something Digi fizzy sounds like like a soda pop to me which I kind of like it sounds like something that is maybe like kind of bad for me and sugary but I want I want it exactly listen if there's one thing that I get out of this podcast it said that anyone who listens to it takes forth and says Digi fizzy now from here on out as the official canonical word for this category all listeners out there please cast your vote Digi fizzy fital or chipped Goods fence forth that is how the industry shall be known exactly