April 7, 2019 . 5 min read
Tom Shaughnessy: Hey, everyone. Welcome back to the Chain Reaction Podcast. I'm your host, Tom Shaughnessy, Co-Founder and Principal at Delphi Digital. Before we jump in to today's episode, I wanted to take a minute and remind our listeners to visit DelphiDigital.io to sign up for our unmatched institutional crypto research. You won't regret it.
Tom Shaughnessy: Today I'm excited to have on Chris McCoy, the Co-Founder of Storecoin, and Co-Founder and CTO of Storecoin, Rag. This conversation covers a complete history of Chris and Rag's journey into crypto, the issues they faced with existing cryptocurrencies, and their reasoning behind building Storecoin.
Tom Shaughnessy: We cover a lot of ground in this episode. It progresses from their reasons to building a zero-fee payments layer and the ultimate goal of building a platform layer on top of this. It's a different shade of episode, and I highly recommend a listen. With that, let's jump into the episode. Hey, everyone. Welcome back to the podcast. Today I have on Chris McCoy, the Founder of Storecoin, and Rap, also the Co-Founder and CTO. How's it going, guys?
Chris McCoy: Hey, great to have us, Tom. Thank you.
Tom Shaughnessy: Sure. A pleasure to have you guys on. Chris, let's start with you. Give us a bit about your background and how you got started in crypto.
Chris McCoy: Yeah. Back in 2009, I came down to Silicon Valley from the Seattle area. I was building a historical sports social networking, kind of the world through sports across from local, the pros, from the 1800s to today. It was a hybrid social system in a media rights platform, and met Rag about seven or eight years ago, on Quora through discussing distributed systems specifically in social networks. He came on board the project and helped turn Storecoin into this distributed social networking system. We'd meet at these random restaurants in deep Silicon Valley to brainstorm the next generation on our development cycles.
Chris McCoy: Over the course of time, we built this social system, 40 million data points connected across four million networks and probably the most structured label of sports database on the planet. It was time to build payments in, and the idea was you do a deal with the Pittsburgh Steelers and you can share revenue back to the high schools that the players that the Steelers went to, so potentially up to thousands of networks through single API call.
Chris McCoy: We do all these research looking at you're trying to build PayPal Strikers really early, but the problem was with PayPal, you get censored potentially and they just didn't have the APIs to enable that mass payment experience. That's back in 2013, 2014 that we discovered Bitcoin as this value programmable payments infrastructure that would let us potentially solve this payments problem within the social system.
Chris McCoy: We actually tried to build on chain with Bitcoin. That was quite a bit challenging. We started building with APIs that Coinbase had put out. Prototypes are really interesting projects, such as what we call fanmail at the time, which was essentially pay to email. That ended up in production over at earn.com. We prototyped tipping through Bitcoin.
Chris McCoy: There's really this vision that we could distribute Bitcoin to the masses through sports, and every iteration just ... We couldn't get to a final product because of how challenging it is to program in a rich environment with Bitcoin itself. In that course, we realize that Bitcoin was much more powerful than just payments. There was this notion that the Bitcoin ledger could generate trust around any piece information including data.
Chris McCoy: We started experiment with this idea that if you could take the identity of, let's say, Derek Jeter and write it to the Bitcoin blockchain, anytime a developer wanted to access Derek Jeter's call it authenticated identity, they would have to pay Derek Jeter Bitcoin. It's this notion that data will be represented by a private key.
Chris McCoy: As we got deeper into our Bitcoin research and development, it was clear that that was not the primary use case for the Bitcoin ledger and knew that Bitcoin wasn't going to evolve to support that. Shortly thereafter, I met the early Ethereum team and one of the first questions I asked them was: can we write identity data into the Ethereum chain and enable effectively the monetizable global API-run identity.
Chris McCoy: The answer was, no, you could go dApps with new money. That didn't quite resonate with me personally. We did some experimentation. This was pre-white paper, pre-token cell. But ultimately left the space a little bit disenfranchised based on the state of technology and our vision.
Chris McCoy: A couple of years later, we started a nonprofit called Data4America that explored looking at the role data plays in policy. We even had a prototype around a way for the government to structure all this data in JSON. The government, if it does structure data, it's in XML, which is a fairly challenging format to build with.
Chris McCoy: Then along with Data4America, we started a new company called Footprint, which was trying to solve chat and messaging within franchise and chain stores who've got higher headquarters to store communication in and quickly realized that there was a payment problem, that if we could enable bots to pay users, it could incentivize a new type of communication within the workplace.
Chris McCoy: We went back to the research white board and realized that because every time there's a transaction within traditional rails, it cost 2.5% to 3.5%, so micropayments were out of the picture. We looked at the cryptocurrency space and said, "Well, does anyone solve this kind of in-app zero-fee payment problem?" and we realized nobody had. We said, "Let's spend that research out and see if we can at least understand it." That's how Storecoin was born. We've come a long way since then, but that's the journey. It's 2019 now. It's been a wild one.
Tom Shaughnessy: That's super interesting. One of the recurring trends I'm starting to hear is that early projects got their start, or some of them, when they ran into issues with PayPal. I think I heard that first from Jed McCaleb when he was starting Mt. Gox. I think he got kicked off and banned for life from PayPal working there.
Chris McCoy: Yeah, exactly. Any of us working with payments back in the Web 2.0 days, social networking days, absolutely ran into challenges. Facebook clearly created Facebook Credits, but ultimately spun that project down.
Chris McCoy: Bitcoin, this vision for permissionless, censorship resistant programmable payments was ... I looked at it as developer infrastructure that could change social systems. I got incredibly inspired by the possibilities. Obviously, anytime you go down the rabbit hole of Bitcoin, a world of possibilities opens up. I think [inaudible 00:07:27] had the same problem that we did. There's just not a lot you can do with Bitcoin, and so he went off and invented Turing complete smart contracts and I left the space for a couple of years. Here we are now with a vision for a new type of platform.
Tom Shaughnessy: That's super interesting. Rag, tell us a bit about your background and how you got started in crypto as well. I know Chris gave us a great overview of your entire journey with him as well. We also want to hear a little bit more about yourself as well.
Rag Bhagavatha: Yeah. My background has been in the distributed computing, scaling distributed systems and performance, and so on. Then Chris and I started looking into this problem. My goal was to take the knowledge that I have in the distributed computing and see if we can fix the problems related to, for example, the scalability, decentralization, and so on, which is still plaguing the blockchains and the crypto systems.
Rag Bhagavatha: We are not really coming from the cryptography perspective. We are not really inventing yet another randomization algorithm to select a leader, for example, for the consensus. We are trying to solve this problem from the distributed computing perspective because, at the end of the day, that's a practical limitation with what you can do when the nodes are worlds apart, probably connected with very unreliable network where you cannot foresee or where you cannot predict the network latency. There's going to be a practical set up where the peer-to-peer distributed systems will be working.
Rag Bhagavatha: We wanted to make it that as the center of the solution so that the algorithm is not really just grown in the lab where you have perfect virtual connections and perfectly aligned timing and so on, but it has to work in a practical environment where everything can be unreliable.
Rag Bhagavatha: To answer it in one sentence, it's somewhat a distributed computing and how can you bring that knowledge into [inaudible 00:09:57] consensus algorithms rather than looking it from a cryptographic perspective.
Tom Shaughnessy: That's super interesting. The way I understand what you guys are building at Storecoin is you're starting with a peer-to-peer payments infrastructure and then eventually you're going to morph that or build up a type of cloud platform on top of that. I think it makes sense to start at phase one here. How is Storecoin addressing peer-to-peer payments with the launch of its initial network?
Chris McCoy: Yes. Our project is laser-focused first on securing the base layer, what we call a zero-fee settlement layer. Our team right now is research and building a scalable and decentralized zero-fee payments infrastructure. As Rag was alluding to, we've had breakthroughs and a consensus algorithm that enable what we believe a truly high throughput transaction environment with real true decentralization without charting layer-2 solutions, et cetera.
Chris McCoy: Take Ethereum, for example, it's two systems interoperating with each other: a base layer and a Turing complete platform layer. We think it's incredibly hard to launch with both layers and to guarantee security, be able to get protocol market fit, so our focus is on the first layer out of the gate.
Chris McCoy: We look at the internet today, there's over $250 billion of transaction fees across credit and debit card networks and across cryptocurrencies. Every time you swipe that card, the merchant gets charged 2.5% to 3.5%. Every time you send a Bitcoin, you as the sender gets charged. We think that removing the fee is primitive to massive adoption for cryptocurrencies around the world. We're focused on solving that problem to begin with.
Tom Shaughnessy: That makes a lot of sense. Chris, I think it makes sense to address two different types of competitors here. I mean it seems to me you have competitors like EOS, which basically does free transactions through inflation. Then you have the traditional competition of Visa, MasterCard, and payment processors. Who are you most afraid of or who do you think is going to be the most competitive here? Do you think it's going to be VISA or do you think it's going to be another cryptocurrency that can do somewhat free payments as well?
Chris McCoy: Yes. We don't think anyone's really solving zero-fee in a scalable way. EOS requires the developer to own EOS, take it, and then be able to run to EOS computer and then be able to print their own token as utility token within the dApp environment. We see a world where because the base layer miners do not demand to get in these layer-2 tokens, these layer-2 tokens are more or less dream coins. They're not backed by any asset. That's a requirement for them to have properties of currency.
Chris McCoy: As we talk about what comes after a settlement layer for Storecoin is security with scalability as proven. Storecoin will open up its ... The general industry term is miners. We use the term called decentralized workers or D workers. It'll open up D worker participation to anyone, any person, any entity, any bank, any fund in the world and, from there, the secure settlement layer will fall into a P2P cloud platform for the decentralization of data and the creation of what we call new zero-fee tokenized apps or TApps and this era of zero-fee peer-to-peer computing with data coins will be born.
Chris McCoy: Throughout this evolution, Storecoin's governance, which is the coordination mechanism for the protocol, evolves from being informal but present to semi-formal with voting and then fully ratified with formal voting. Once ratified, Storecoin will be fully decentralized. The zero-fee primitive with Storecoin is we use an incredibly low inflation up to 2% of the genesis block per year up to 20 million STORE to secure the network.
Chris McCoy: This inflation replaces transaction fees. This is how we remain zero-fee. There is no SaaS model like EOS. Obviously, Visa and the card networks will never remove their fees. We think we can become the first truly programmable zero-fee payments infrastructure in the world. As we introduce the peer-to-peer cloud, payments within the cloud environment will be zero-fee as well using a similar inflationary model.
Tom Shaughnessy: Got it. That makes sense. Sticking on the settlement layer. I think zero-fee payments are important for consumers because we're obviously not generally accustomed to paying fees. But in crypto, it's more of a reality. Not a lot of people like to talk about what Bitcoin is going to do after the 21 million cap. It's a hundred years away. But it's worth pointing out that over 99% of the rewards paid to blocks produced around miners is from block awards and not transaction fees.
Tom Shaughnessy: I'm just wondering, back to that point, how do you think that zero fees removes friction for crypto users? I'm just wondering if crypto users are already just accustomed to paying fees and they won't care at this point.
Chris McCoy: Yeah, absolutely. Well, ultimately we think it just all blends in user experience, whether it's crypto or centralized services. Ultimately, the market we will just care about the best user experiences in the world.
Chris McCoy: If you think about the foundation of the internet, it was actually built with this 402 HTTP call, which essentially says payments are required. The internet was constructed with this notion that we'd have payments built into the protocol layer. That was captured more or less by the Visas of the world. They charge at 2.5% to 3.5%. There is no real frictionless background technology for payments on the internet. We think zero-fee has the ability to become the internet's reserve cryptocurrency.
Chris McCoy: Now users, we have to expand what a user is. I think what Rag and I really see, specifically with our cloud platform, is this market of machines and robots and IoT devices being able to pay each other, pay users frictionlessly in real time becomes a real use case for zero-fee. Until the fee is removed, we won't have this innovation with micro-payments, with nano-payments.
Chris McCoy: It becomes impossible for developers to incentivize their users for taking actions inside their applications, what we call paid API calls. We see zero-fee as unlocking a new platform for what could be built not just for users on the internet, but for the future machine learning, artificial intelligent-driven machines that we'll continue to see in society.
Tom Shaughnessy: That makes sense. Chris, one more question on zero-fee payments. I mean on Ethereum, UX and UI is obviously a big hurdle in the space. I know I always point to Dharma as having a gorgeous UX and UI. But, obviously, on Ethereum, you need to pay gas fees for any transactions. This really isn't pointed to as a hurdle. I think the hurdle is really on the user experience or the user interface. Do you think that not having any payments will help with adoption because people don't have to say start at Coinbase and acquire Ethereum just to interact with a dApp?
Chris McCoy: Yeah, I mean it's been massively overlooking the space, and we have to have this on this conversation that ... We'll just use Ethereum for an example ... most particles are built with fees. But this notion that I need to own ETH in order to send ETH or to interact with a dApp, never in the history of the world have we seen massive network effects or global adoption with that much of a hurdle. Removing the fee reduces frictional user experience for users to interact with crypto-powered apps. We think it's the absolute required primitive for global adoption.
Tom Shaughnessy: That makes a lot of sense. Let's stick to the settlement layer. Rag, I want to go into your consensus mechanism a bit. Can you describe what consensus mechanism you're using, if this is your innovation, and how it works?
Rag Bhagavatha: Yeah, sure. This is our innovation. Again, continuing from what Chris has mentioned, when we started looking at the payment infrastructure, we did look into not only the existing cryptocurrencies but also existing consensus algorithms to see if we can make use of them in our implementation to build the Storecoin network.
Rag Bhagavatha: There were two things that were very important for us as our design goal. The first thing is obviously the throughput. Even today, you can see that Bitcoin and Ethereum have the problem of the throughput. The base layer still doesn't handle massive amount of transactions similar toward Visa and other credit card processing systems do.
Rag Bhagavatha: The second one is decentralization. That one is a little bit overused in many of the context. For us, the decentralization is the ability of the network where the entire network participates in securing and validating the transactions and securing the network.
Rag Bhagavatha: These two attributes are very important for us. We didn't find any algorithm that actually satisfies these two properties together. You could do one or the other. You can actually have very high decentralization or very high throughput. But there were no other things that we could find where you could have both of them at the same time. This is where we spent our time researching and coming up with an algorithm called BlockFin, which actually ensures high decentralization and high throughput at the same time. That's basically an intro to what BlockFin is. The design goal needs to have high decentralization and high throughput at the same time.
Tom Shaughnessy: Got it. That's a great overview. Back to high decentralization and the throughput trade-off, I look at these things directionally where EOS has 21 nodes and there's a ton of issues, whereas Tezos has over 100 nodes or bakers and there haven't been any issues. Ethereum, obviously, is way up there in the thousands. How many nodes do you think you'll have to have or how many validators do you think you'll have to have in the network for Storecoin?
Chris McCoy: Right. I'll take this one. When we think about how we achieve ... It's really important to understand from a consensus perspective what we're doing that's different than Tezos and EOS and Ethereum with regards to block production. They use leader-based systems where there's one winner per block, whether it's an elected leader, whether it's a winning miner. But ultimately it's a fairly zero-sum competition.
Chris McCoy: In our system, all participants in consensus are rewarded for every block. We call it leaderless. Algorand has a similar model actually, which we have a lot of respect for. Then the second piece that's different is instead of one block being more or less published and verified at a time, we're verifying and publishing multiple blocks in parallel all at once. This is what leads to base layer throughput.
Chris McCoy: The quick explanation of this is we take what is effectively chain forks and orphan blocks and we use that as a resource to start building the next block as the current block is being finalized and audited and verified. As the current block is being finalized, the next set of incoming transactions start to get pre-written to the next set of blocks.
Chris McCoy: The analogy we use is an analogy in the oil industry. In the early days of oil, the only use case was actually kerosene. The rest of the oil that was not refined was thrown into the rivers and the lakes. It caused all sorts of environmental hazards. Over time, through research, Rockefeller and his team were able to find new ways to refine oil. Eventually they turned what was waste into gasoline. That gave the rise to the automobile industry. What we're doing is similar with orphan blocks and chain forks taking what is waste and actually turning that into fuel for fast block production.
Chris McCoy: From the decentralization perspective, from a launch perspective, we're being very conservative with regards to how we rollout settlement layer through our security model, our inflationary rewards security model. Each phase that ... Right now we're in what we call the genesis phase, which is effectively a research and development phase, where we put in governance, eight-year vesting on Rag and myself, milestone-based token cells, notable ICOs, peer review on our governance, peer review on our economics, long-term treasury schedules, you name it.
Chris McCoy: Then our first release will actually the Stone Age, and that will be early next year. It'll be our test network. We expect to have around 90 nodes in a network. Then we'll actually open up auctions for what we call seats for those 90 nodes. Whoever bids the highest will get to run the hardware and be a miner, a D worker in the Storecoin network.
Chris McCoy: Then we move from the Stone Age to the Bronze Age. Then we move into what we call the Iron Age, which effectively is our beta network, and we'll expand capacity from a number of seats perspective, a number of nodes. Then we get into the Discovery Age where we look at it as our real production-level network for a settlement layer. We expect this to be in the early part of 2021.
Chris McCoy: 2020 is really about having confidence in our security model and our ability to upgrade the protocol. Then what we do is we actually open it up to becoming an unlimited permissionless system where anyone in the world can join Storecoin to validate transactions and earn STORE. We call that the revolution.
Chris McCoy: At that point is where we begin to put a governance in places, formal governance checks and balances, where the miners effectively have the power to overrule the core dev team as a nonprofit foundation. We think that once a formal governance of checks and balances is in place, we've achieved what we call true decentralization and that there's no single person, no single entity in the system that has centralized control and that the protocol can work together to reach consensus on issues such as economic policy, such as monetary policy, such as leadership in the network. Core dev leaders can be fired for not carrying out the goals of the miners. I know we're not talking about governance, but it's core to us delivering a true decentralized network.
Chris McCoy: But in an unlimited phase, we obviously can only guess how many nodes we think we'll have in a network, but we have no idea. It's pretty dependent upon the value of the STORE. The more valuable the STORE is, the more miners want to earn STORE for securing STORE, is the more interest we'll have in participating in securing the network.
Chris McCoy: Then because we're now starting to publicly talk about our plans for platform, this zero-fee peer-to-peer cloud computing platform, we think that if miners believe these data coins to be valuable, that they'll want to get in early and become early miners in the STORE so they have a first seat, a first right to mine the data coin platform.
Tom Shaughnessy: Makes sense, Chris. That's a great overview. I want to go into governance a bit later and obviously the platform layer, but just two more questions on the settlement layer. For those new to the story or may be new to crypto, what would be the closest parallel do you think ... It might be a better question for Rag. But what's the closest parallel consensus mechanism you think exists in the market today?
Rag Bhagavatha: There's no direct comparison to what we are doing, especially the part that Chris mentioned. We are turning the waste into producing the future blocks as the current block is being validated. That's something that I have not seen anyone else doing it. But if you just look at the individual parts that we are doing, for example, asynchronous processing, there aren't quite a few asynchronous consensus algorithms, like Algorand, for example, and leaderless. There are certain leaderless algorithms that are in the market. But what we are doing is using the combination of these individual strands to build a BlockFin.
Rag Bhagavatha: The other core design that we have that we have not seen anywhere else is a two-tier network consisting of what we call as validator network and a messenger network. At a very high level, you can think of this like miners and the full nodes in Bitcoin, for example. But the big difference is when a transaction comes in, it is not broadcast into the validator network because there can be potentially hundreds of thousands of these nodes in the network, and broadcasting transaction to all the other nodes is a very expensive operation in terms of the communication costs. It's usually [inaudible 00:28:47] and Square complexity.
Rag Bhagavatha: We are trying to minimize that complexity by having the two-tier network where the validators basically back the transactions, incoming transactions, and then send the batches of the transactions to the messenger network, which in fact perform the consensus, run the consensus algorithm to assemble the next block. Once the block is assembled, validators will come back and then validate the transactions and finalize the block.
Rag Bhagavatha: The specifics of how we assemble the transactions into blocks, how the blocks are created, is something that is unique to us, but the individual parts such as asynchronous processing, leaderless consensus, et cetera, are available in other projects as well.
Tom Shaughnessy: Excellent. I want to go on to the cloud layer ... And one more question, just to close out the settlement discussion, Chris. What do you think your timeline is broadly, when we will see a testnet or when we will see mainnet do you think for the settlement layer?
Chris McCoy: Yeah. We're committed to delivering a testnet Q1 next year. We're shipping daily on that and starting to build out our partner network around staking, around walled infrastructure, around custodianship, baking. The complexity of building protocol, decentralized protocols, that are effectively public commons is unlike anything I've personally experienced as an entrepreneur.
Chris McCoy: I often say that it's almost like you're building 10 companies in one company, but it's not even a company, it's a public commons. The comparison I make when trying to explain what we're doing is it's like a six-sided entity. It's partly a hedge fund because you have a treasury that you need to make smart decisions on. You have an ecosystem than you invest in. It's partly a bank because you have keys that you need to allocate, you have keys you need to protect. Custodianship and security is critical to our project.
Chris McCoy: We're a quiet project because we actually don't want a lot of scrutiny. We don't want to expand our attack vector, basically. Yeah, we know that it will be a major issue as time goes on, but we want to be able to execute research with our heads down as much as possible without a large attack vector. It's obviously very much a tech company.
Chris McCoy: There's a tremendous amount of software being built and designed and communicated, software that's built in a very secure way, many attack vectors, and just how software is built. That's something we take quite seriously. It's obviously partly nonprofit because Storecoin will ultimately evolve into a nonprofit, but you're building a public commons that is coordinated by governance.
Chris McCoy: In many ways, a government comparison is it needs to be able to defend itself from attacks. Storecoin needs to be able to potentially even mount attacks. Who knows what the future holds? But there is no security for these protocols, not a lot of banking support, not a lot of government support. Constantly I'm building that in through our various partners and team members.
Chris McCoy: Then, finally, we're talking about currency, which the history of money is a story of belief. The moment that I don't believe that your currency is an invaluable, I mean I don't think someone else will accept it in a trade, your currency starts to lose belief, and belief is somewhat synonymous with religion, and so we're very much building a belief system in zero-fee payments and zero-fee cloud computing and this notion that data can be open, data could be tokenized. Open and tokenized data is the foundation for this next shift in computing. That's it.
Tom Shaughnessy: You make a lot of sense, Chris. That's super interesting. I want to switch gears just so we have enough time to discuss it. I want to talk about the state of the hyperscale market and how the next iteration of Storecoin, the platform layer, will play into this.
Tom Shaughnessy: I was previously on the cloud and communications team at Oppenheimer that covered AWS and Microsoft Azure and everything, and their growth every quarter was like 100%. It was just insane. The ecosystem and the thousand products AWS released each year was just incredible. But I want to hear your side of it. I mean what do you think is the state of the hyperscale market and what do you think are the issues with it?
Chris McCoy: Yeah. I mean just go back to ... This is more philosophical, back when [Stewart Brandt 00:33:47] said, "Hey, information wants to be free." He also said it wants to be expensive. In the internet of all, it became much cheaper to share information. It used to be very expensive. But the problem is centralized companies, on top of this centralized internet, structured that captured information into applications, structured, labeled it, and more or less built data monopolies.
Chris McCoy: We think it's time for data to be set free. If you look at the history of technology, whether it's the mainframe, IBM hardware, or Microsoft opened it up with DOS, all of a sudden there was a computing platform. But then Microsoft's created proprietary scripts that more or less closed ecosystem. Then Netscape attempted to basically front-run them with a new platform, the internet browser, and they used their monopoly to shut down Netscape.
Chris McCoy: When Netscape took them to court, that opened up a truly fascinating era with the rise of Google and the rise of Facebook. These companies who are world-class at acquiring information in a very unstructured way, structured data and structured information, and instantly structuring it and labeling it from their algorithms, for their artificial intelligent-based systems to use to rank pages, to show you what's most interesting from a friend of a friend. They became these machine learning, artificial intelligent-structured data monopolies, but a handful of companies control the world structured information.
Chris McCoy: We think that we're in a closed era of computing what's next, where these centralized apps and services own majority of the access to data. We think that the centralized peer-to-peer databases, public blockchain, is the technology shift that will open up and tokenize data in a disruptive way that will change the flow of how value is captured on the entire internet, and the role Amazon plays in that and these other cloud computing systems, public clouds.
Chris McCoy: They effectively lead the data centralization. Developers pay AWS fiat currencies for cloud computing resources. I think there are studies that show ... I think, [Shamaf 00:36:10], a social capital, said that 100% of his companies are on Amazon and collectively they pay around 16% of their operating expenses to Amazon. He has this really phenomenal quote that says that if the internet is to become this multi-deca-trillion-dollar industry, and Amazon effectively is a tax on that industry, Amazon web services, and so Amazon web services is in a great position as a business.
Chris McCoy: But we think what happens in a centralized cloud computing environment, developers end up controlling their data and typically sell ads to monetize their applications. Therefore, the public internet remains centralized and controlled by those who control the data. We think that there's a way to open up and tokenize data that give us a new platform for computing. That's where we're headed with Storecoin.
Tom Shaughnessy: That's super interesting, Chris. I like the discussion around your philosophy around AWS. That's super interesting. I guess one of the hard parts or one of the tough parts for Storecoin is going to be that transition from a settlements layer to a platform layer. Do you think this is something like Ethereum 1.0, the Serenity, or do you think that this is more of just an attachment or a component that's built on top? I'm just trying to get a sense of the breath of how hard this transition or expansion is going to be.
Chris McCoy: Yeah. I mean I think that if we do the right things and focus on security and scalability, the settlement layer that the miners of Storecoin can naturally evolve into more or less cloud computing platform. From a technology perspective, we'll have time to, through a separate team, build platform, build the tools and services so miners can effectively containerize data and decentralize data directly into the protocol layer while we continue to gain confidence and security around the settlement layer.
Chris McCoy: But the big challenge will really be a governance for us because we're committed to centralization through governance, meaning our miners vote and our miners can overrule the nonprofit through checks and balances. If, for whatever reason, our miners don't think data coins will be valuable, then it's possible they vote not to upgrade the platform.
Chris McCoy: A lot of what we're doing now, we've been researching this for quite some time, is finally starting to talk about platform, because as we get ready for our next milestone-based token cell, we ultimately want to attract STORE owners who want to mine the future data on the internet through the STORE cloud platform.
Chris McCoy: But the rest of it's just execution. You can't get away from how important just execution focuses as a team, a global team, that's growing. It's a massive effort what we're undertaking here, but execution is number one for us. We're very focused on that. But two is being able to secure what we build. Security is ultimately the number one feature that's required for us to be able to upgrade into a cloud platform.
Chris McCoy:With Ethereum, it's different because they don't have a formal governance. The land of Ethereum has, for the most part, been allocated. There's major owners already. It's fairly political to upgrade to ETH 2, which we wish them the best. It's a massive undertaking and we think, at the same time, ETH 1, there's a lot of opportunities to have a more scalable base layer.
Chris McCoy: If they did just that, if they just focused on ETH 1 to increase the scalability with security, that their vision for smart contracts, platform, DeFi, ETH 2 would probably evolve. It would open up the possibilities of what a scalable, truly decentralized in terms tens of thousands of nodes participating can look like. But they're learning as well. We're all running experiments, and none of us can claim to be right 100% of the time. I think we all recognize the importance of security and scalability. Ethereum's certainly working on trying to solve for that.
Tom Shaughnessy: Got it. Yeah, I mean that's a great point on Ethereum 1.0. I think that now there's renewed interest in making sure ETH 1.0 is here to survive. I think the developers are running into things that they'd have to contend with, like state rents and things like storage pruning and things like that, to make sure ETH 1 is here long enough for us to get to ETH 2.
Tom Shaughnessy: But back to your point, Chris, on the platform level. I don't know who said it, I think it might have been [Bill Gross 00:10:13] or somebody else, that a competitor has to be 10 times better to win. Do you envision a world where you can be, let's say, equal to AWS on transaction speed and costs, and then you're 10 times better in that consumers own their data and can use it as they want? I'm just wondering where the benefits are over AWS, just to put into perspective for the listeners here.
Chris McCoy: Yeah, absolutely. Let's go back to what our vision for data is. We talked about philosophy and centralization. We see this world that if data is an asset, it can be tokenized and decentralized into a public blockchain. Our core belief at Storecoin is that every meaningful piece of data in the world will eventually be represented by a private key, and that data will be tokenized. It will be decentralized into a public blockchain. Thus, it'll have itself a private key. We think that Storecoin will be that cloud platform that hosts these keys.
Chris McCoy: When third parties like Google want to crawl, query, and access the data, they'll actually have to pay the token representing the data, we call it data coin, back to the miners and the developers securing and storing it. The developers who really are charged with structuring, acquiring, and labeling data so it actually is viable to third parties, especially machine learning in artificial intelligent-driven organizations, they can actually pay their users as well optionally. We think the market will develop around that.
Chris McCoy: We see a world where tokenizing open data can limit the control that these data monopolies of today have on future innovation tomorrow while ushering in this new era of computing. Going back to the Stewart Brandt quote, we think that this platform is how information can finally be set free.
Chris McCoy: As we look at the benefits over, say, Amazon is we can argue that a great amount of attention and interest around platforms such as Ethereum exists is because it makes incredibly easy for anyone to "print" their own money or issues their own asset. An op ed in TechCrunch makes the case that money needs to be backed by some type of asset for it to have a monetary premium. Ethereum itself is backed by the security spend of its miners, so Ethereum as a base layer currency is definitely money, has a monetary premium, is on the path to becoming global currency.
Chris McCoy: The currencies on top are just [inaudible 00:43:54] with a few lines of code. The miners who pay for their existence and security actually don't demand to get paid on them.
Chris McCoy: We believe that for layer-2 tokens to have a monetary premium, the miners absolutely have to demand to get paid in those currencies. Otherwise, it's effectively like tokenized loyalty points. Our vision with design for platform is that the miners who secure Storecoin not only get paid STORE, but they also get paid the data coins of the applications that are being secured and stored on top.
Chris McCoy: These data coins effectively enable application developers to print their own money. That money can be used as a currency within their application, it can be used to help fund application development, and, ultimately, now their data is open and available for public to query, is they can generate new revenue streams around their data. We think that their data will be more valuable public and open than closed and centralized.
Chris McCoy: The developers themselves can continue to query the data for free, but when third parties like Google and Facebook and Amazon want to query the data, they must pay the developers and the miners for that access. That inverts the way the internet works today. We think the best developers in the world will want to build on the STORE platform as a result.
Tom Shaughnessy: Got it. I have two questions there. I want to start with the dual token structure that you described a bit there, for each app [inaudible 00:45:34] STORE. Going back to having the two different tokens where miners are paid in STORE and then they're also paid in the DAPP token, can you give listeners a parallel to what that would look like today with, say, Ethereum and MakerDAO? Let's say MakerDAO was built instead on the STORE platform. How would we secure Maker using that dual token, or how would it be different here?
Chris McCoy: With STORE, we're talking about tokenized apps, centralized applications that are effectively decentralized in your data into the protocol layer, into the base layer. There is extra need for a Web 3.0 or this ... We call it another layer of the centralization obstruction. It's the app that's decentralizing and opening its data into the base layer, and the miners take on the form of cloud compute data centers as a result. We're definitely not a platform for more dApps. It's an entirely new design for our platform.
Chris McCoy: Secondly, with regards to MakerDAO, I think ETH has a monetary premium, MakerDAO's fascinating. MakerDAO will likely attempt to recreate itself on all platforms where the base layer currency has a monetary premium. We also think that it's not crazy to think that Ethereum won't take the stake in Serenity, the stake tokens, and actually create its own version of MakerDAO to stabilize ETH price so ETH has it better, better properties as stable money. We think protocols will compete directly with things like MakerDAO.
Chris McCoy: With regards to Ethereum, the way it would work is if you're a base layer miner secure in Ether, Ethereum chain, and you're securing a 0x transaction, that you're not only getting paid in Ether, but you're also getting paid in the 0x token. That would solve economic obstruction challenges where the miners today don't get paid 0x. Ox is value based upon its future utility as a money, and because it doesn't have basic demand for the miners ...
Chris McCoy: We're big fans of the 0x project. We're just using them as an example. But any new token created on top of Ethereum doesn't have that monetary premium where the miners demand it. We think that is required for layer-2 tokens to be valuable over a long period time.
Tom Shaughnessy: Got it. Chris, is the thesis at Storecoin that the majority of the utility tokens or, say, ICO tokens or governance tokens, whatever we want to group them all as, is the view of Storecoin that these tokens have no value because they're not being paid to the miners to secure their applications per se?
Chris McCoy: Yeah. I mean I think that the way we would characterize it is we think, over a long enough period of time, that in the absence of minimum viable belief or demand for these layer-2 tokens, that only a few will accrue value because they actually do get through utility, so they're valued more like a company would be valued. But ultimately, in the absence of being backed by an asset or having demand as a currency ...
Chris McCoy: Why is this important, Tom, is the question. We look at gold. Gold is an example where I spend real money, fiat currencies, to mine gold. I do this because I know there's a market for me to sell gold, so I could recover my mining costs. Then I can speculate on some of the gold as well. Gold takes on a property of a currency because it has belief, specifically belief that I can sell it to cover my mining costs.
Chris McCoy: Bitcoin, Ethereum, AWS all have similar properties. Real resources are put up, fiat-based resources, to secure and store the assets in these ledgers. They get paid the native currency, the native token of the ledger. That native token has a monetary premium. They get paid that token because they know they can sell it through OTC desks or on exchanges and recover the mining costs. It's money.
Chris McCoy: But when we look at the design of layer-2 tokens today across, for the most part, every platform we've studied closely, we do think Dfinity is taking a novel approach to this problem, is that there is no basic demand for them. There's nothing backing them. Therefore, are they money at all is a fair question ask.
Chris McCoy: As we architect zero-fee peer-to-peer cloud platform for Storecoin, it's paramount that these layer-2 tokens not only are backed by an asset, which is data, but they have the potential to be demanded by miners. I know we'll get into it in a bit, but we have a design around platform where any developer can just buy compute directly from the miners and not actually need to get approved by governance to run for free. It's not necessarily a zero-fee platform at that point, it's just a peer-to-peer cloud computing platform that enables any developer, including governments, to tokenize and decentralize their data.
Tom Shaughnessy: Makes a lot of sense. Chris, I just wrote a report on generalized mining. I thought it was a great way for early investors, [inaudible 00:51:05] for funds to basically bootstrap a network while also accruing tokens in value beyond, say, an initial investment. It seems like, to me, from our conversation right now, that miners can take a similar role within Storecoin in securing these dApps or smart contracts for use cases and then be paid, say, in the token itself. Do you think generalized mining is a parallel here for Storecoin or do you think it's more nuanced than that?
Chris McCoy: We think it's the next evolution of generalized mining because ultimately right now in lower transactions per second environment, low data footprints, the hardware and storage costs are fairly low for miners. With the STORE zero-fee peer-to-peer cloud computing platform, there are real hardware storage costs and many other costs associated with actually securing the network.
Chris McCoy: I guess the philosophy here is proof of work is a contest to acquire the most amount of energy for the cheapest price possible so you can maximize your profits. That ultimately should give us energy breakthroughs that can take us to Mars.
Chris McCoy: Proof of stake is different. It doesn't require massive amounts of electricity, but it's skill, specifically with the cloud computing platform that we're building, is the cost of data explode, because all of a sudden you're storing application data in the ledger, in containers.
Chris McCoy: Your goal as a miner is to secure the most amount of storage for the cheapest price possible. We think what ultimately happens with proof of stake systems like STORE is miners, at least the message nodes in our system, [inaudible 00:52:50] lead into our two-tier architecture, the message nodes look more like peer-to-peer data centers and then you running STORE in your basement.
Chris McCoy: From an investment perspective, another reason governance is so critical for us because it gives miners the ability to coordinates and make decisions. We think once the peer-to-peer cloud platform exists, these D workers, these miners can more or less vote on which applications that they want to provide zero-fee computing resources to.
Chris McCoy: Again, applications today spend 16% to 20% of their opex on services like AWS or just generally infrastructure. All of a sudden the developer can have zero fees for compute, and the developer can print their own currency and the developer can have third-party revenue streams through their data. We think it will become a prominent way that the best application developers in the world want to build.
Chris McCoy: Well, these miners, they don't want anyone running on their system because, effectively, you could spam their system, and the key to a successful mining operation is that you're profitable, that your marginal revenue is greater than your marginal cost. Miners are going to want to effectively vote on the best developers and the best application proposals in the world to run for free.
Chris McCoy: This, in a sense, makes miners a new type of early stage, but a long horizon investor can [inaudible 00:54:19]. D workers can vote for the apps they want to provide compute to, free compute, and the governance right gives these D workers early exposure to the data coins. They're effectively mining the data which have gone through a rigorous process being voted on by other D workers, who collectively believe that the tokenized data will actually be valuable.
Chris McCoy: It also positions these miners, these D workers to potentially become equity-based investors in these tokenized apps as well, or at least have early access. We think this is a generalized mining opportunity that is very different than what exists today. Miners can mine the data of potentially the [inaudible 00:55:04] of great companies.
Chris McCoy: Then the second piece here, Tom, that's important is let's say you're the government and you as a government want to tokenize and open up your data. Likely, miners aren't going to find government data too valuable. Does that mean that the government can't run on STORE? What we're building in is what we call a paid model where if the government, as an example, wants to open up and tokenize its data, they can pay the miners with STORE, so the base layer STORE currencies, the currency that the miners would accept to provide peer-to-peer cloud computing resources to the government.
Chris McCoy: Government is a good example on two fronts. One, the City of Oakland produces four to six terabytes of data a day, and multiply that across 9,000 cities in America, different levels obviously, explosions sensors and IoT devices, and data is only going to exponentially increase. But the government has a rich history of opening up data. In one of my work within Data4America was about studying this.
Chris McCoy: For example, GPS is provided by the government. Government's work post-World War II, going to the moon, putting satellites in space led to the creation of GPS. The government effectively open-sourced that, and that technology is what gives us cellphones and all of the tooling around cellphones and maps and drones, and you name it.
Chris McCoy: Imagine if the government, instead of open-sourcing that, could effectively tokenize that data and get paid every time it's occurred. That's a really powerful concept, and obviously not just for governments but for nonprofits and for future artificial intelligent-driven device technologies as well. Miners can get paid STORE and data coins for apps that they vote on, but miners can also get just paid STORE if apps and robots and machines want to build on this peer-to-peer cloud.
Chris McCoy: The premium for STORE moves from being less about zero-fee payments because each data coin takes on a media exchange component. It becomes effectively zero-fee currency as STORE becomes more of a resource for compute. If peer-to-peer cloud computing becomes demanded by the world, the value of STORE should grow because it's directly representatives of access to those compute resources.
Tom Shaughnessy: Super interesting. Chris, one of the things that keeps me up at night, probably more nights than I'd like, is competition between public smart contract platforms. I think a lot of developers in space hide this fact and more financial people in this space are more open about it. But a lot of people parse hairs, like they're using this SDK so it's not competitive or we're using this tooling so it's not competitive. But at the end of the day, I think Ethereum, Tezos, COS, they're all in competition with each other because there's only so much developer time in the day for each of them to spend on a specific platform. Granted, I think interoperability can make the whole pie bigger and drive new use cases.
Tom Shaughnessy: But how do you think about competition years out, five years out, 10 years out? Because it does feel to me that STORE coin is a few years away from its settlement platform. That gives things like Lightning and [Dye 00:58:47] on Ethereum chances to grow. It also gives AWS on the traditional side a chance to continue to slash costs and build out new innovations there. How do you mentally think of competition in this space and STORE coin with regard to the timeline here?
Chris McCoy: Yeah. We're less than a year away on settlement. On platform, we'll just be cautious about upgrading because we want to harden and fell very confident about our security model. Our security model is a maximum of 20 million STORE or 2% of the genesis block that incentivizes miners to secure the network and store data. 85% of that is paid to miners, 15% is actually paid to a number of other funds to incentivize things like up time, things like tenure as a miner. A miner who stakes for three years versus three months will have a larger bonus.
Chris McCoy: We even see a world where Strike and Square, for them to want to process a zero-fee payment, a zero-fee cryptocurrency, they're going to want to get paid. But it doesn't make sense for them to add fees because STORE is zero-fee. A part of our block reward will also be paid to any processors and banking partners who actually distribute the STORE currency around the world. Instead of getting fees, you're getting block awards. Then, finally, the STORE foundation will take 2.5% of every block as well to endow the protocol theoretically forever.
Chris McCoy: But from a competition perspective, I know it's been fun seeing you build a narrative around the competitive nature of these systems, and yet generally from a cultural perspective, it's been more kind of kumabaya. But we tend to side with how you think, but we'll probably think about it differently. We look at ...
Chris McCoy: Protocols are all in competition for security spend. Ultimately the base layer protocol with the most difficult economically just to attack will ultimately win, whatever that means. A good example is if you have a dollar, Tom, today, you can go join a Bitcoin mining pool to add hash power, which makes it more difficult to attack Bitcoin. You could go join an Ethereum mining pool in the future. You can add that dollar to stake Serenity.
Chris McCoy: But you have a choice with that dollar. You're taking your wealth to secure underlying peer-to-peer protocol. We think that all these protocols, it doesn't matter what their use cases are or what their level of decentralization obstruction, dApps or TApps, it doesn't matter. They're all in competition for security spend.
Chris McCoy: One thing we pay close attention to is the private intranet world or private blockchain world, which compared to the private intranet world in the '90s, ultimately most private intranet data converge into the public internet. We think private blockchains, for the most part, will go away and that these private blockchains will ultimately converge into the most secure base layer.
Chris McCoy: We're very focused on proving our security model. Then, again, as we continue to share our economic models around the potential value of data coins and data itself, if investors around the world want to take their wealth and store it into the STORE blockchain to secure the STORE blockchain and also to mine data coins, that STORE coin becomes a leader in terms of security spend.
Chris McCoy: For us, if we're talking to you as an investor a.k.a a future miner of STORE, it's important that you understand the economics of how STORE can accrue value through things such as decentralization and growing network effects, but more importantly through the value of these data coins and how we think data will have a premium on it and that ultimately that premium will resolve in profits for miners. Therefore, the wealth of the world will want to mine not just STORE but the data coins on top.
Tom Shaughnessy: Got it.
Chris McCoy: That's what we're focusing on.
Tom Shaughnessy: That's super interesting. Chris, just zooming out on crypto overall, we're in this extended bear market and you're heads down researching with Rag and the rest of the team, what do you think is something that could get us out of this bear market, or do you think that we're here to stay? I thought 3K was a low on Bitcoin. I'm a terrible trader. But I'm just trying to get a sense of where you think the entire crypto ecosystem is going from here maybe in the short term.
Chris McCoy: Yeah. We're not traders, we build, but we have to understand the macro economy to be able to navigate the complexity of the space. We thought your report at Delphi was fascinating, looking at price effects. Those hard fork updates within the Ethereum ecosystem is somewhat depressing. We feel like, because Ethereum is improving, that that shows up with a price. But there's a lot of competition coming online as well in that space specifically. It's going to be interesting to see what happens.
Chris McCoy: I think we've seen protocol market fit in terms of wealth wanting to secure base layer chains such as Bitcoin and Ethereum, but we haven't seen protocol market fit in layer-2. We think that's primarily due because of, we think, fees just completely limits the potential for global network effects and adoption. Us solving zero-fee within our protocol is core to our research.
Chris McCoy: But, secondly, ultimately, these platform systems launched not just the layer-1, but they launched layer-2. Without a secure and scalable layer-1, it's impossible to scale layer-2. You could invent new technologies and introduce technologies from distributed systems into protocols, but what we're ignoring, practically speaking, and this is why we have governance problems in the space, is people have treated protocols like truly open source where you're effectively governing data and software. But what makes everything different is that we're governing and building with money, and that changes everything.
Chris McCoy: I don't have to say much more about that, but that makes everything different. We need new types of systems for the governance and even in the scalability of money. Things like sharding, we think, potentially create cross-shard communication issues, dealing not just with data and software but money potentially create liabilities, that you'll never see us shard, for example. That will never be what we do.
Chris McCoy: We ultimately think that layer-2 platforms today don't have protocol market fit at the layer-2 level. Well, maybe anytime soon. Who knows? Maker's fascinating because it's taking money and creating a new [inaudible 01:06:23] of money. I talked about the previously. But obviously the happenings for Bitcoin will drive new retail and institutional demand as Bitcoin becomes more scarce.
Chris McCoy: But we think that the space needs a new vision for platform, for what can happen on top of settlement layer. That's what we're doing at Storecoin at a completely different vision than smart contracting and dApps. The tokenization of data and the opening up of data, the monetization of data we think is the future of the internet. It's the future of computing. We hope to be a catalyst for new types of participants to want to participate in this space.
Tom Shaughnessy: Got it. Chris, my last question for you, I just thought of it but I think it will be interesting to ask you, do you think there's anything that AWS could do within the next five years that would be extremely competitive to you guys, or do you think that what you're doing is such a rebuild of their entire DNA that they would never be able to compete on what you guys are trying to do?
Chris McCoy: We think that any of these centralized entities who have centralized cap tables and public investors can never decentralize their governance and how decisions are made. That becomes the core competency, the real killer feature of the STORE ecosystem. It's this notion that miners who secure the network with their wealth, who store the data can collectively reach agreement on the rules of the money of the software itself, reach agreement on the apps that they pay for, reach agreement on the economics of their platform in a way that ...
Chris McCoy: These aren't just individuals like you and me, Tom. This will be family offices. This will be nonprofits. This might even be governments around the world who are mining STORE. We don't think that a centralized company like Amazon or Facebook can ever compete with decentralized public commons such as Ethereum or Storecoin.
Chris McCoy: We very much think that decentralized computing is the future of computing. We think that we just have to stay on our mission and be able to get people to believe in STORE, to want to secure and host STORE so that STORE becomes an unstoppable global cloud computing platform that opens up and tokenizes data, which gives us a new computing environment where we can set the internet free again.
Tom Shaughnessy: Got it. Chris, is there anything that we didn't cover that you wanted to hit on? Also, please tell our listeners where they can follow you guys and where they can learn more about Storecoin as well?
Chris McCoy: Yeah. There's a lot we haven't gone through regarding the platform itself. We're just starting to finally communicate how this works. But if people are interested, go to Storecoin.com and there's high-level overviews that you can learn about, our designs, and the process of open-sourcing our economic models regarding the platform, in terms of what would it cost for you to mine Storecoin? What's the potential yield for mining Storecoin?
Chris McCoy: When we started our research, Tom, we assumed that there would be a zero-dollar value to these data coins. All of our research is around what's the breakeven price of STORE need to be given the expected transactions per second, the expected data payload, cost of compute, firewall, you name it, so that mining is profitable for our D workers.
Chris McCoy: Our research has quickly evolved into building out, which we haven't formalized it yet, but an actual valuation model around data itself. I think when you ask this question, what can the value of open data be, I think it's a fascinating question to explore. We'll be releasing that shortly.
Chris McCoy: But what we see is 80% of the data on the internet is unstructured. It's really hard to program with effectively. Whereas 20% is structured and labeled, or semi-structured. We believe that what we're doing is create a market economy around data to become semi-structured and structured, because semi-structured and structured data is what is valuable to third parties like Facebook, Google, Amazon, machine learning companies, artificial intelligence-based companies, IoT devices, you name it.
Chris McCoy: What we think is, based upon the quality of the structure and the type of labeling, data will take on a premium. Ultimately that premium will help drive profits to these miners. The initial economics in the platform itself, if an application is running as a zero-fee application, meaning the miners are paying for the computer, the miners earn 30% of all third party data revenues while the developers earn 70%. The developers can then continue to pay their users if they want. Again, miners are also earning ongoing block rewards from Storecoin.
Chris McCoy: Now in a paid cloud model, where the developer uses STORE to buy p2p compute from the miners, the developer takes 100% of the revenues. If the valuation around data is a premium, we think the best developers in the world, for-profit, nonprofit, government, will converge to this tokenized, decentralized peer-to-peer cloud platform.
Tom Shaughnessy: Got it. That makes a ton of sense, Chris. For those listening, Storecoin.com to check out Chris and Rag's work. You could get on their mailing list as well just to check that out, which is interesting. Chris, it's always great to have a differentiated type view and philosophy on. It's a breath of fresh air because I feel like we get caught up in what we have a lot of the time. But, Chris and Rag, it's been a pleasure having you guys on. I look forward to having you back on again soon.
Chris McCoy: Thank you, Tom.
Rag Bhagavatha: Thank you.
Tom Shaughnessy: Hey, everyone. Thanks for listening. If you enjoyed the podcast, please rate and review it so other people can find it.
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