Public Key Podcast

Decentralized Physical Infrastructure Networks Ep. 82

November 14, 2023 | by Chainalysis Team

Episode 82 of the Public Key podcast is here and we are happy that you love the refreshed look.  When many think of crypto and blockchain their brains tend to go to investments and finance but what about the underpinning technology that allows decentralization of physical infrastructure networks or DePIN networks for short. We talk with the Co- Executive Directors of the Web3 Working Group, Amy James and Devon James, who have been playing in this space for almost a decade.

You can listen or subscribe now on Spotify, Apple, or Audible. Keep reading for a full preview of episode 82.


Public Key Episode 82: Going deep into the “plumbing” infrastructure of web3

“Decentralization will not, absolutely not, be the reason for the average user to use Web3. The average user is not going to use Web3 until it’s as easy to use as Web2 and unlocks features that Web2 cannot provide.” 

This is a powerful quote from this episode’s conversation with Ian Andrews (CMO, Chainalysis) and the, Co-Executive Directors of the Web3 Working Group, Amy James and Devon James as they unravel the technical complexities of Decentralized Physical Infrastructure Networks (DePIN) and explain why they believe the next opportunity for wider adoption will not just be adoption in the financial space, but adoption in the technology space.

The duo also emphasizes the need for open protocols and standards to ensure interoperability and competition in the space, as well as the challenges of building in the Web3 space and the importance of educating policymakers and regulators about the potential for these technologies.

Quote of the episode

“Decentralization will not, absolutely not, be the reason for the average user to use Web3. The average user is not going to use Web3 until it’s as easy to use as Web2 and unlocks features that Web2 cannot provide.” – Amy James (Co- Executive Director, Web3 Working Group)

Minute-by-minute episode breakdown

  • (2:01) – What is the Web3 Working Group and the need for decentralized physical infrastructure networks (DePins) 
  • (6:08) – Discussing the Open Index Protocol and transitioning from manufacturing to software and Bitcoin
  • (11:20) – Advantages of the protocol and comparison to IPFS and use of BitTorrent and blockchain for indexing content
  • (16:45) – Difficulty in building web3 experiences beyond financial transactions
  • (20:50) – Decentralization won’t be the reason for average users to use Web3
  • (28:02) – Reasons for creating a not-for-profit advocacy group for Web3 and challenges of operating in the US market due to regulations
  • (34:08) – Educating regulators and policymakers on Web3 technology
  • (38:27) – Potential benefits and concerns of traditional finance players entering the crypto space

Related resources

Check out more resources provided by Chainalysis that perfectly complement this episode of the Public Key.

Speakers on today’s episode

  • Ian Andrews * Host * (Chief Marketing Officer, Chainalysis) 
  • Amy James (Co- Executive Director, Web3 Working Group)
  • Devon James (Co- Executive Director, Web3 Working Group)

 

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Past Episode Mentions

[CHAINALYSIS PODCAST EPISODE 28] Using Crypto To Connect Your Car To The Future

Episode 28 of Public Key, the Chainalysis podcast, is here! In this episode, we talk with Alex Rawitz (Co-Founder, DIMO) about using cryptocurrency, NFTs, and advanced vehicle telemetry to connect your car to the future and maintain important data.

Transcript

Ian:

Hello and welcome back to another episode of Public Key. This is your host, Ian Andrews. Today I have two guests, Amy and Devin James, who are the co-executive directors of the Web3 Working Group. It’s a lot of Ws. Welcome to this program, Amy and Devon.

Amy:

We’re really happy to be here with you today. Thank you so much for having us.

Devon:

Thank you. Yeah, we’ve joked about calling it W3 to the third or any number of things like that. I agree.

Ian:

It’s a tongue twister for me. There’s a hilarious video of me doing outtakes and it’s words like that that always trip me up. So setting aside the name, let’s jump into what is the Web3 Working Group and why did you two create the organization? Amy?

Amy:

Yeah, absolutely. So, Web3 Working Group was started to bring awareness to what’s become known now as the DePIN category, which stands for Decentralized Physical Infrastructure Networks. When we began, that acronym hadn’t caught on yet, and we are just given the mandate to bring publicity to, or awareness and advocacy for, infrastructure as a category and to have it be adjacent to the crypto industry, but distinct from it because crypto is often known for the financial applications of the technology. But there’s this whole other use case, which is the infrastructure use case, and I like to think of it as the plumbing for the web.

The way that we don’t think about the plumbing that brings water to our faucet in the morning, but we rely on it for our day-to-day activities, we rely on these infrastructure protocols for the things that we do every day, like be on this video call, like watch videos on YouTube. There’s these core infrastructure protocols that are necessary and things that we rely on day-to-day, and yet right now, most of them are closed source and controlled by a very small handful of companies and this technology, blockchain and other decentralized peer-to-peer technologies, have the power to push that power back out to the ends of the network, to re-decentralize the web in the way that it was always meant to be.

Devon:

Actually, I really especially like that analogy just because early on before utilities get standardized, they were a mess. Every local town would have its own version of different pipes and stuff like that and how could you have gas come from another town and stuff like that? And in order for them to really become utilities that you could just count on and multiple companies could operate on top of and stuff like that, they had to be standardized. And that’s exactly what we need when it comes to file storage and video transcoding and stuff like that that we’re using for this call. It’s exactly in order for that to really democratize and open up and have the right amount of competition.

Amy:

There’s an imperfection with the analogy, which is that a lot of utilities have become monopolies and that irony there is that these utilities, these web infrastructure protocol utilities are the solution to a lot of the big tech monopolies that we’re facing now.

Ian:

Yeah, I was going to say, I don’t have a lot of choice for my water and natural gas supplier into my house. There’s only one, which I think is probably the opposite of what you’re advocating for, which is that many companies can be providers, better consumer choice, better freedom, ultimately probably more consumer rights and control over the things that train these protocols, right?

Devon:

Well, you can see why the analogy breaks down because in the physical space, if one particular utility lays all the lines for something, they have ownership of that. So, the government had to actually grant them the right to have what they call a natural monopoly where it’s like they’re not going to be prosecuted for monopoly laws, and the premise was that it was going to open up competition, allow them to work with each other, it didn’t work, obviously, they all just collude with each other to give you very few choices.

On the tech side of things and the digital analog of that, it’s more you have to separate … The protocols are just the rails and then the application is how you use them all. You don’t need to have different infrastructure for each one, and by standardizing it, it actually opens up the opportunity for multiple different applications to run on top of the same set of data, the same … et cetera, and very much democratize the whole process.

Amy:

It’s a yes and no kind of thing because I don’t know how deep we want to get into the weeds on this analogy, but in the same way that we only have a few credit cards, we have Visa, we have MasterCard, we have Discover, some places. We’re probably not going to have an endless number of protocols for-

Devon:

For each individual bank.

Amy:

… for financial exchange. There will probably be a few that we settle on. And that will also be true for things like file storage and video, transcoding and GPU rentals. There will be a few protocols that rise to the top because they’ve optimized for different niche features that make them stand out, but then there will be-

Devon:

Thousands of applications on top of them.

Amy:

Thousands of applications. And because the way they function is by creating markets, they’re no longer functioning like monopolies in terms of the price setting and that’s important about it.

Ian:

We’ve been talking about protocols a little bit in the abstract here, but I think you two have been working for a long time on something called the Open Index Protocol. How does that fit into this story and what you’re trying to do now with the Web3 Working Group?

Amy:

So, Open Index Protocol is our origin story in terms of getting into this space. So back in 2010, we were in the manufacturing sector, we made accessories for Apple products and we were looking to get out of that business. I didn’t like being in manufacturing, I wanted to be getting into software. There’s just a lot of things that can go wrong when you’re working with physical products. And I also had gotten really into the manufacturer extraction distribution disposal cycle, and we were starting to live a zero waste lifestyle and we were just really interested in the environmental side of what we were doing and how that … having our business align with our ethics a little bit more. But we heard about Bitcoin through a friend and because the business, our manufacturing business, had bumped … Do you want to talk about how we bumped into payment processing? Should we go down that-

Devon:

Oh yeah, sure. Yeah, we initially were making iPad cases and stuff like that, that totally you needed to make that in China. And when Amy was talking about it, we got into the environmental side of things and wanted to change that model. We figured out we could build something locally. We built something, we called it the CashBox. It was like a bamboo box built around the Square payment system. And we thought this could be great for coffee shops and stuff like that, to enable them to take debit cards and all that stuff. And it turns out that was true, but Square went a different direction, built it in plastic in China, of course. Because we made it locally out of a nice material, it was incredibly expensive. It was like $1,500, $1,600. So, we started looking at can we subsidize that by selling businesses, the credit card processing itself, and then use that to pay for the actual hardware and give them the hardware for free?

Well, it turns out businesses really get stuck into their payment processor, so that really didn’t work. But by doing so, we learned more about payment processing and how the fraud involved and how hard it is and how slow it is. And we’d been pushed toward Bitcoin for a little while by a friend of ours, and at that point it was like, “Oh, I get it now. I get why this makes so much sense. It’s far superior money and it’s also a far superior payment technology.” So, we spent all of 2013 trying to think how we can use it in our hardware business, et cetera.

Amy:

So initially, yeah, we were looking at some creating some sort of modular miner because we understood that the miners … things were upgrading so quickly-

Devon:

There’s going to be a lot of turnover, fast.

Amy:

… with at the time that, there would be a lot of waste in the miner product. So, we thought could we make some sort of … because our background was in manufacturing. But I wanted to get out of that. And then Devon read the white paper and that was in December of 2013, something like that. And I used to joke he hasn’t had a full night of sleep since that. That still may be true because he was just so lit up by it. And before we’d been in manufacturing, we’d been in the entertainment industry. So, Devon had worked mostly in post-production and distribution, and so he really understood the problems there.

I’d been more on the creative side, writing and directing that kind of stuff, but I also … I had a sense of the problems there. Even though it was still so early, it just really felt dangerous that you were building your entire business on somebody else’s platform. And if you wanted to do anything risky, you know that phrase, you take the king’s coin, you sing the king’s tune, and that you would be putting yourself in a situation where you wouldn’t necessarily control your own distribution even though there was this move toward independent distribution, it was this weird juxtaposition. And reading the Bitcoin white paper, Devon immediately was like, “This can apply to media distribution. Let’s do that. And so almost immediately, we closed our manufacturing business-

Devon:

Well, we had to move to move super fast because I was afraid this was such an obvious idea, everyone was going to have it and if we don’t get out in front of everyone … So we had the idea for the name, the Decentralized Library of Alexandria, and it was meant to just store everything, including pop culture stuff. Because we had this theory that the media is being manipulated and it’s a bit of a monopoly. There’s only five companies that control it all. So, if you can disrupt that because news media and that kind of stuff always rides on the same rails as pop culture media, so if you start by disrupting the YouTube side and you let individual content creators actually have individuality and independence, you could take off with that and then that creates an alternative where you can actually have someone competing with the news and maybe get a little bit more truth and transparency out of it. Turned out we were way too early. I remember we raised a client in the spring-

Amy:

Way too early.

Devon:

… of 2015, where it was for media. You could publish any size movie and stuff like that, fully decentralized client and everything, and it didn’t have anything to prevent piracy. And I remember the night before, I was tossing and turning in bed, before we’re going to release it. I was tossing and turning in bed that like, “Oh my God, the Pirate Bay is going to discover this and they’re going to put up permanent versions of these movies and we’re going to be in so much trouble.”

The exact opposite happened. It took months for any individual to want to publish their own kind of thing. And so, we were a little bit too early. I think finally we’re at a point where there’s enough of the underlying building blocks in place and there’s enough awareness of this problem and need for it, and especially amongst content creators, need for it that I think something like that could really work well at this point, just 10 years later.

Amy:

So, just to thread the needle with Open index Protocol. It started as the Decentralized Library of Alexandria, but ultimately the protocol was renamed to Open Index Protocol because after a presentation, the decentralized web summit, sir Tim Berners-Lee told us, “Your technology is really interesting, but you need to name it something … you need to give it a protocol name.”

Devon:

Protocol, yeah. So, when the inventor of the web gives you that suggestion, you run with it. So after that, we actually leaned into-

Ian:

I’m curious-

Devon:

… having it work with other kinds of things other than media. We worked with the state of Wyoming and Medici Land Governance to do property records. We worked with the Middle East’s largest independent news platform to do decentralized news. Scientific records with Caltech, yeah.

Amy:

Scientific records with Caltech. We just had to find people who were interested in being on the cutting edge since we were so early. So, we found fun use cases to experiment with, which just gave us a lot of information about what would be needed to get this to mass adoption.

Ian:

And when we talk about the protocol, what are some of the advantages of it? And maybe go into a little bit of technical detail about how it’s actually built. Because I am thinking about things like the Interplanetary File System, IPFS, is maybe trying to do similar things, so I’m curious how they relate.

Devon:

So, if IPFS existed when we came out with it, we would’ve used it, but basically it was the common … You can think of the analogy of a library, where it has all the books on the shelves and then it also has a card catalog upfront to tell you where all the books are. And so, the way we saw it was that the books can be distributed on a peer-to-peer network like, at the time there was no IPFS, so we used BitTorrent. BitTorrent has these things called magnet links, which is not dependent on a hosted URL, it’s just an identifier within the network. And so, we would put those magnet links into a proof of work blockchain that had the ability to let you put text into it. It’s very limited amount of space. It was generally called flow or flooring coin, and then it became flow and now it’s called pin and it just had very limited block space. Block space is expensive, so we just thought of that as the index. That’s the card catalog reader.

And so, you could put not just the link to the decentralized version of the content itself, but also the descriptive information that you would use to find that. So, in the card catalog you would have the name and what subject it is and what category it’s under and maybe a little bit of a description and when it was published and who published it, stuff like that. So, that same kind of concept went into the proof of work blockchain data and that linked out to eventually we did adopt IPFS, it used IPFS as well. And that general premise held true, held through, or held true through the entire extent of developing it.

A few things that we figured out over time was, things like removing say the word author, or title, or description and just swapping that out for something really, really low bit space like one, two, three and then put a copy of the metadata structure into the blockchain and reference that. That way, it’s expandable, multiple different applications that all are doing say books or doing music, they’re going to have very overlapping, very similar schema.

So, that was really the whole underlying premise behind it, is normalize all the things that can be normalized between competing applications, building on top of a particular type of media so that they can all get their needs met and they can add extra fields if they want to and stuff like that, but they can overlap where is useful. Everyone benefits from that.

The content creator is able to reach the largest audience possible. The consumer of content is able to actually have access to the most content possible. They don’t have to chase down, where is my favorite musician right now? Is it on Spotify, or Apple Music, or whatever else? The whole premise is put it all in one place and then force the applications to compete based on their user experience itself, not just what they have exclusive because competing over what’s exclusive is a really crummy incentive for either party involved. And so, we still haven’t seen that yet happen on the video, user generated content video space, or the music space, but we’re seeing it in other little realms within Web3, when an NFT is available on multiple applications, it reaches the largest market possible, et cetera. So, you can see proofs of that concept. I still look forward to when we really see it in the media space, I think it’s going to be enormously beneficial to the world.

Amy:

The other thing that we did that was way too early, but we’re also now starting to see catch on, is attaching the terms of that content right inside the record. So, inside the card catalog listing that says the name, the publish date, the title, it also says, “You can use this song in your video if you give me this percent or this amount of money,” or whatever it is that the artist may want to attach. Arweave has created this thing that they’re calling the universal data license, which is that same kind of concept, where it’s atomically attaching the terms of the content with the content itself. And what’s so exciting about that, is that it creates a market at the application layer because one of the things that we’ve seen that’s been holding back these protocols, is that there isn’t enough incentive for developers to create the applications for end users. There’s been-

Devon:

On top of an already existing protocol.

Amy:

… there’s been a lot of development at the protocol layer, but not from the protocol to the user because the incentives have been-

Devon:

There’s no business model for it.

Amy:

… lacking there, yeah, right. What’s the business model for a wallet?

Devon:

You can’t charge a fee obviously because no one’s going to use it.

Amy:

And that same kind of problem has existed just in the application space overall. Well, if there is a cut, let’s say that the app that serves the user, that piece of content gets 10% of that sale-

Devon:

Then they’re competing.

Amy:

… now all of a sudden there’s … exactly.

Devon:

And you leave it up to the actual content creator to determine what that is. So, it’s a two-sided market.

Ian:

It occurs to me that open protocols, I think have actually probably fueled the web. I can think about the email protocol, SMTP, generally open. There’s lots of examples, HCP another open protocol that obviously has blossomed into billions of websites. But what seems to lock in or give the tendency towards monopoly that we see in really big tech, is that they’ve managed to aggregate users on a global scale. So, you’ve got a few billion people use Facebook every day, I think. TikTok’s well on their way, similar scale.

Even some of the smaller platforms have large audiences measured in hundreds of millions, I think if you look at Snapchat or Twitter, X now, I guess. And it seems like we collectively in Web3 and crypto, have yet to cross that chasm of actually figuring out how to build an experience that users find useful and compelling, beyond some of the financial transactions that I think draw people into crypto initially. But when I look at things like Arweave, or any of the other decentralized social media platforms, they tend to fall well short. I’m just curious, maybe Amy, you can start a reaction. Is my impression here correct in terms of how you think about it and some of the advocacy that you all are doing?

Amy:

Completely agree. It’s been, for me discouraging, to be almost 10 years into this industry and still be what feels so early and also exciting at the same time because the opportunity is still ahead of us and the ground is more fertile than ever. When we got started and Devon said we released our first decentralized client in 2015, we were heckled at a conference for having something that was not a financial use case of the technology. That people are like, “The internet can never be censored. What are you talking about? That’s ridiculous.” And now it’s common knowledge. You go to Thanksgiving and your aunt is talking about how Facebook is listening to her or whatever it might be, right?

Ian:

Yeah.

Amy:

And so, these issues of rights on the internet and of personal sovereignty and all of the kinds of things that Web3 is about, have trickled out into the larger culture and that’s really powerful in terms of making that change. What will ultimately be the thing that takes us into that space, because it’s a chicken and egg problem, people want to be where other people are and people want to have access to the content that they want to access. And all of the content and all of the people are still inside of those Web2 walled gardens right now.

And so, what we need to do is build bridges, I sometimes like to think of them as Trojan horses, that will break those walls down and help to funnel people into Web3. The key here is that right now, there are some things that need to be overcome to make Web3 products accessible to your average user. The user that doesn’t want to have to be responsible for their own private keys in a way that it’s catastrophic if they lose them and there’s some other things like that. And that’s where standards, I think-

Devon:

Right,

Amy:

… are actually really important, yeah.

Devon:

I think your analogy to email is perfect for this because email only worked, like you pointed out, there’s multiple protocols involved in email POP3 and SMTP and IMAP, and they all do very similar things with a lot of overlap, but before email was really adopted as a standard, it has network effect. It’s the same thing as Facebook. You get on email because your friend uses email and wants to email you. It became a standard because applications started … They standardized how the whole experience would work and how they would be able to interact with multiple protocols that don’t all do the exact same thing, so that they can hide that complexity from the end user and give users a similar experience, whether you’re using one email application, or a web mail application, or any number of other kind of things.

So, one of the things that we’re looking at doing in the future is working on a project to build standards on top of protocols. Like if you’ve got multiple competing protocols like you mentioned IPFS, and we’ve obviously talked about Arweave, and there’s a handful of other ones where the concept is you get storage in exchange for some token. They basically do the same thing. One is maybe permanent, one is less permanent, one is contract based, one is more private, et cetera, et cetera, et cetera. But they do generally overlapping things. So, building a set of standards above that, where you hide that complexity and just say token input becomes storage output for file, and now Web2 developers, it’s easier for them to adopt it and have an application that’s built on say both … or say Filecoin and Arweave and for different functions you might want it to be permanent and other functions you want it to be temporary and other functions you want it to be private, et cetera. We’re only going to see that once standards are built on top of these protocols. So, that’s something we’re actually hoping to do in the next year.

Amy:

I would say there’s three things that we need to come to consensus about standards on. One is decentralized ID and that has made a ton of progress in the last 10 years. There’s actually a standard for it on the Worldwide Web Consortium standards track. The other is wallets and how that works and having the interoperability between them. And the last one would be what Devon’s talking about, the-

Devon:

Standards on top of DePIN.

Amy:

… I don’t know to call … The layers, everybody has different layer one-

 

Amy:

… layer two. But the layer above the protocols that allow you to interact with protocols with the kind of interoperability that we all say Web3 will have.

Devon:

And that can create the actual network effect that brings people on board.

Ian:

We recently had the head of product from Chainlink Labs on the program and they’re trying to create something called the CCIP, which I think is maybe what you’re talking about, a third layer across the layer one and layer two blockchains for interoperability. Not just a bridge trying to move tokens, but actually-

Devon:

Functionality.

Ian:

… any sort of data. Yeah, exactly.

So, data sharing arbitrarily. It could be tokens, but it could also be a pointer to a video like we were talking about earlier. I’m curious from a philosophy perspective, when you look across the landscape of potential users of Web3, which I would assume in theory is everybody, how do you react to the word decentralization?

Do people see that as a value point if they’re not like you all here, living in Web3? Because I feel like as an industry, we’re missing the point. We shout decentralization all over the place and I don’t think the average person puts a huge amount of value on that as the thing that they really need. No one wakes up in the morning, goes, “Gosh, I just wish there was more decentralization in the world.” Does that happen?

Amy:

I completely agree with you. Decentralization will not, absolutely not be, the reason for the average user to use Web3. The average user is not going to use Web3 until it’s as easy to use as Web2 and unlocks features that Web2 cannot provide in the story.

Devon:

It can be considered derived from decentralization, but it’s not the selling point.

Amy:

That’s right, that’s right.

Devon:

The concept itself isn’t. All the freedoms they get from it, those are great selling points, but you’re right, people don’t associate any of the challenges they have on Facebook with the fact that it’s centralized.

Ian:

Okay, good. I’m glad I’m not crazy on this point. Now, we’ve mentioned DePIN a couple times and that’s a totally new term to me. So decentralized physical-

Amy:

Infrastructure.

Ian:

… infrastructure.

Amy:

Networks.

Ian:

What is that? Yeah, infrastructure networks. Got it, thank you. So, tell me more.

Amy:

So the term was coined by Sami Kassab at Messari and it’s become his research beat now, and there have been other people who have proposed various terms in addition to that to cover this space. Decentralized digital resource networks I think is one of them, or virtual infrastructure networks, I think is another one, DeVIN. And I at one point was saying maybe we should call it decentralized public infrastructure networks, but then I was talking to somebody at one of the major studios and he was like, “No, we wouldn’t want to be public. Maybe the P can stand for private.” So, it was like, “Oh, okay, fair enough.” Maybe physical is the right word.

So, the idea here is that these are the infrastructure, like I was saying, the plumbing of the web. So this would be things … And so the categories can be broken down, some are more physical as in-

Devon:

Storage, hard drives, GPU.

Amy:

… sure, or let’s say even-

Devon:

Oh, IRG?

Amy:

… actual tangible things like the Internet of Things, or things like solar, real world kind of infrastructure that is being tracked with these systems.

Devon:

Or on the car networks, where the location of the car is being tracked around. So you could build an Uber application on top of that kind of protocol.

Amy:

Or even the mechanics of what’s going on with the car, the data inside your own car, you actually don’t have a … Weirdly that’s owned by the car company that sold it to you right now. And so, there’s a company called DIMO that’s switching that so that it’s owned by the user, that kind of thing. It’s things like Helium-

Ian:

We actually had one of the founders of DIMO on the podcast.

Amy:

Oh, awesome.

Ian:

Yeah, we have to go way back to the early episodes of the show, but so definitely familiar with DIMO. So, DIMO, Helium.

Amy:

Helium is an infrastructure network for a phone network, but then there’s also the more digital infrastructure applications. So, that would be things like file storage, video transcoding-

Devon:

Computer rentals, just alternative to AWS.

Amy:

… yeah, and then also protocols for AI training. There’s another one for a cash network I really like because they’re creating a marketplace for GPU rentals and with how popular AI is becoming and the constrained supply of access to GPUs, they’re really solving that problem because a lot of times when you’re training an AI model, you need access to GPUs for a very short period of time and yet, to buy your own hardware would be very expensive and also you might have trouble getting access to it. And so, a rental market makes a lot of sense because you can get it for the period of time that you need it without having to own it, maintain it, and all of that kind of thing. And so, it just opens up access to a lot more people.

Ian:

And the decentralized element of all these things, I imagine people are going, “Oh yeah, GPU rental, that’s kind of what a public cloud does.” Or a cell phone network like Helium. Well, that’s kind of what T-Mobile and AT&T do if you’re listening in the US. The big difference here is those infrastructure components are not all owned and operated by a single company. They’re everywhere.

Devon:

It’s a market-

Amy:

That’s exactly right.

Devon:

… where you have users are actually providing the hardware itself, so they’re able to … I mean, one of the best advantages to it is if you think about something like the really high-end gaming systems, that the majority of people that aren’t active gamers, they might play one day a year, one day a month, and then otherwise it’s just sitting on their shelf. It could be contributing to these networks and it’s going to need less cooling and infrastructure than it would need if you put it into a big warehouse that was already getting too overheated, so it can a part … It can be a node on a network that’s being used to train an AI, or process video, or any number of other things and get paid for doing that, and it has less environmental impact to do it, and it’s already deployed infrastructure. It’s already out there in the world.

I don’t remember if this is still true or not, but I remember seeing a couple of years ago, that if you put all the data centers in the world together, the storage data centers in the world together, they’re less than the amount of available hard drive space on all of end users’ computers. So, if you could financialize that and everyone made say five bucks a month from just turning over half their hard drive to the rest of the internet to use it as their cloud, there’s a higher degree of trust, higher degree of transparency, and you actually are financializing the hardware that you already purchased yourself.

Amy:

And it’s taking us back to that utility conversation we had at the very beginning because rather than these utilities being monopolies that are having their prices set-

Devon:

By a single company.

Amy:

… by the monopoly, by a single company, by Amazon Web Services, or what have you, you’re turning that into a market, a competition market, where everybody around the world is competing to provide that service to you.

Devon:

And you can see that working really well. With Akash for example, if you compare Akash to AWS, their average cost is half, so that’s enormous. You know what I mean? And it’s getting off the ground, so it works.

Ian:

So, what you’re telling me is if I can get my 11-year-old to stop playing so much Fortnite on his Xbox, I could also be participating in one of these networks?

Devon:

I would not be surprised if Microsoft gets into that really fast, with how into the AI space they already are.

Amy:

It would be amazing if they would set up all of the gaming consoles to have that ability.

Devon:

It’s really powerful GPUs that are idle a lot of the time, so it would be a really, really useful application of them.

Ian:

I don’t know how many hours of idle on my son’s Xbox.

Devon:

Sure, you have an 11-year-old that’s different.

Ian:

General point, yeah. So I have to ask, I mean, you two seem like you’re multi-time entrepreneurs. You’re obviously living out on the cutting edge of this technology space. What led you to create this not-for-profit advocacy group, rather than build a company in this space that’s actually delivering a technical solution?

Amy:

So, in full transparency, we were recruited into this role, the group of infrastructure … There was a group of infrastructure projects that were meeting on a regular basis, the founders, to just share notes and talk about things, and they were feeling like the infrastructure category wasn’t getting the attention that it deserved. It was really being drowned out by DeFi and NFTs and the casino aspect of things and that we needed somebody to stand up and say, “There’s this whole other aspect that is more important to most people’s day-to-day lives and also solves a lot of the problems that regulators are grappling with when it comes to big tech monopolies, when it comes to censorship, de platforming, demonetization, all of those kinds of things. The technical solutions are far superior to regulatory solutions, are far more enforceable and will do a better job of solving those problems.”

And we happened to just be the right fit for that role, I guess. I had a background in nonprofit arts and had done some work in politics, so had Devon in terms of advocacy. And when we were building Open Index Protocol, like we said, we were so early to this that we were just doing some of this advocacy on our own because we cared about it already.

We had been meeting with various regulators just to provide education and attending … There was that event about Section 230 when people were talking about potentially changing that, that Devon attended and there was just a bunch of things that we were doing and so …

Devon:

We had the show already, Amy, and started making-

Amy:

Oh, that’s right.

Devon:

… What Kind Of Internet Do You Want? Just because Open Index Protocol was meant to be a really open, broad thing that had a lot of different application, we needed to just educate about why is the internet broken as it is and what is it that makes it not work the way you want it to and why does it feel that way and how can Web3-type technologies fix that? And so, that’s what the underlying premise of What Kind Of Internet Do You Want? was. And I think we were doing that for a year or two before-

Amy:

We started in 2019.

Devon:

… so we just had the right combo of different things.

Ian:

Wow.

Amy:

We were just really early to these ideas and so, we were having to teach people that these problems existed before we could show them what the technical solutions were, sometimes. And so yeah, we were just good spokespeople for that and so, we’re still going to build other companies and other things in our future, for sure. But this just felt like the moment that this needed to exist, because-

Devon:

Especially because congress was finally tackling it.

Amy:

Exactly.

Devon:

It took them so long and they were finally starting to show some indications that they were going to take this on. And it was really important that someone speak up for the DePIN space specifically, just because if you treat everything that has a token as a financial product, you’re going to throw the baby out with the bathwater.

Amy:

That’s right.

Devon:

There’s a whole lot of different rules that are being proposed and have been proposed that would in fact make sense in the financial space. And if you try to apply them to something that in the past we’ve called a utility coin, where its purpose is to provide utility, it makes it untenable. And so, the danger there isn’t that the protocol would break or that it wouldn’t continue to be developed. It just won’t happen in the US, it won’t happen with US customers.

And we’re very fortunate because of just lucky happenstance with Section 230, that basically the entire internet was built here and an enormous tech sector was built here, and the rest of the world took a different approach, where it’s just unsafe to build that kind of a platform anywhere else in the world for liability concerns. There’s been an assumption that because of that, we can’t screw that up and the Web3 will just be an expansion of that and just continue on.

But if they treat it with too much hostility and the rest of the world that wants to compete for this space decides to be more open-minded about it, they’re going to attract founders and they already are. We’re already seeing a lot of startups that could have been built in the US, are instead being built outside of the US, in environments that are openly saying, we want to be more hospitable to this while the US is just wasting time, dragging their feet and even indicating that they don’t want to be attractive to this. And so, it was important for us to go and just try to educate them, teach them what is different about this and why do we want to maybe have some carve outs, or some exceptions and stuff like that, so that it’s actually safe to build those kind of protocols here in the country.

Amy:

That’s absolutely right. We experienced this personally. So, when we were raising money, or looking at raising money, to build an application for Open Index Protocol, the guidance was essentially to establish an entity offshore and to not raise from US investors. And when you’re building something with the express purpose of protecting freedom of speech online, both freedom of speech and freedom of association, those two things can live side by side using this technology, and yet you’re looking at raising all of your money from Chinese investors and establishing an offshore entity.

Just that contradiction didn’t sit well with us and we wanted to be part of making a path for entrepreneurs to be able to do it here legally in the US, in a very clear way. I like to say that there’s enough uncertainty in being an entrepreneur that you don’t need this sort of impending threat of the SEC coming after you five years later. It’s just too much. I think it’s a bridge too far for a lot of people.

Ian:

And this is happening in a very real way right now. I just had the CEO of CoinPayments, they’re a crypto payment processor, so not at all gambling in a casino. They’re working with merchants who want to accept payments from their customers in stable coins or other tokens. They work in 130 countries around the world, but the one that they’ve just recently shuttered is the United States.

Amy:

That’s so sad.

Ian:

And the CEO recently relocated and he’s a Canadian, but he relocated to the Cayman Islands, so completely out of the US and we had a very interesting conversation on this topic of what would convince you to come back and start servicing the US market? What would have to change from a regulatory landscape perspective? And he said, “It’s just too hard.” There’s massive opportunity in the rest of the world, at least for his business and the complexity of dealing with 50 states’ worth of differing regulations-

Devon:

Blue sky laws.

Ian:

… exactly. Plus the threat of the litigation from a financial regulator like the SEC or the CFTC, just makes the market opportunity … It doesn’t add up, and so they’ve exited. I’m curious, when you go to talk to regulators and policy makers, legislators here in the US, give me the high level of the case that you give to them. And I imagine a lot of these folks maybe have spent significant time getting familiar with the technology, but also a lot of them are probably very unfamiliar and words that we use every day sound like gibberish. But what does that talk track sound like and then what are you hearing in terms of common objections to that talk track, that we still have to overcome as an industry?

Amy:

I would say that there are two different archetypes for these folks. There’s the people who are really steeped in this. They already have a great technical understanding and they have a nuanced technical understanding, that these are things that are financial service-based technologies, but that there are also other use cases like these infrastructure use cases, that are essential and that the threat that we’re talking about of losing it is very real and very dangerous to the future of the US because the tech sector in the US is enormous. It’s larger than the GDPs of-

Devon:

Multiple European-

Amy:

… all the countries in Europe except for three of them. And there’s no huge amount of infrastructure that would have to move out of the country. It’s just people on their laptops that would have to move. And so, the threat is very real that that could happen.

So, those people are our champions. Those people understand this and are moving the ball down the field and are creating some excellent legislation that could make a huge difference, like Senator Lummis, like Patrick McHenry, like Tom Emmer, these people who are just great champions for helping to make this industry legal in the US.

Then there are the majority of people, who really don’t know that much about it, quite frankly. And oftentimes, who we’re talking to is a staffer who was recently tasked to spin themselves up on this topic. And what they have told us is that when they get that task and then they go to try to do the research, what they find is a lot of technical jargon, things that take them very far into the weeds very quickly, and that there weren’t a lot of just high level primers about this that they could get a quick understanding of something like … One of them said, “I went to go try to find out what stable coins were.” And there wasn’t just like, “This is what a stable coin is,” kind of thing that they could find.

And that totally makes sense to me, having been in this industry for as long as I have been. All of the acronyms, all of the jargon, all of the kind of industry talking to the industry, because for a long time, it was just a bunch of nerds who were talking to each other and trying to figure out how to build cool stuff and just nerding out.

And so, what we did, one of the first things that we did was we built a Web3 basics video series, which is just … It’s what you would imagine it’s wrong with Web2, what is Web3? What is blockchain?

Amy:

What is cryptography? What is all of these kinds of basic concepts that they need to understand in order to draft or vote to approve the kind of legislation that is needed here. So, that’s been our primary task, is just that first step of education, just getting people into the shallow end of the pool and helping them to have the kind of awareness that they need to know enough to make the right choices.

I think that the other thing is the, I guess I would call it disinformation, which is we saw really recently this letter, Senator Warren’s letter, that was signed by a lot of people around the Hamas funding issue, which I think you guys were the ones behind the research that showed that that was just completely ridiculous.

Devon:

Ridiculous, yeah. It was blown out by more than a 100X and it was a misunderstanding of wallets and exchanges and everything else. And yet they’re all running with it because it’s an emotional issue that they can attach to but I think honestly, a lot of them are just motivated by disliking crypto and being a little bit more servants to the banks. And the banks don’t want to have to compete on a level playing field. And so, they have blinders on, and so they’re willing to accept things that are not true just because they play well and it lets them say things that evoke empathy and stuff like that. And that’s really disingenuous and it’s unfortunate, it is-

Amy:

Well, you have to keep in-

Devon:

… not that popular, fortunately but-

Amy:

… you have to keep in mind the difference in the lobbying size, right?

Devon:

Yeah.

Amy:

I mean, the financial industry has a tremendous amount of lobbying money behind it. The crypto industry really hasn’t done much in that regard. And so, it’s really time now to step up and make sure that we’re … I think that the thing that anybody that caress about this can do is contact their legislator because hearing from an organization is one thing to get the facts, to get the information that they need, to get it in this very easily consumable way. But hearing from their constituents is what will motivate them to actually take that information in.

Devon:

But also that’s why we tend to always lean on the possibility of losing this industry just because, like Amy said, the amount of value that’s generated by just the FAANGs alone is absolutely enormous, and there’s a very real threat that we could lose the decentralized version of the FAANGs going forward. And if they’re not realizing that and comprehending that, they have the opportunity of making an enormous mistake. And it’s really unfortunate when you get … Some of them have actually responded like, “Yeah, I don’t really care if we lose it. It’s nothing but fraud and fake stories and stuff.” And they’re just disingenuous and don’t want to actually understand the details. So, that’s unfortunate.

But the vast majority of them that we make that argument with are like, “Wow, that’s really important. And it could be the future of our country. It could be obviously directly impactful on my constituents.” And so, even if we’re not throwing money at them to get reelected and the industry doesn’t have a big entity doing that kind of work yet, at least giving them the information that shows them that it could be affected to their own jobs helps to some degree.

Ian:

Yeah, I think busting some of those myths is so critical. I think people with accurate information make much better decisions than operating off rumor and conjecture. I’m curious, since you brought up the banking sector, it actually seems like right now the thing in crypto are most excited about, is this idea that we could see some really big traditional finance players come into the space.

Everybody’s talking right now about the price of Bitcoin is up 30% I think, in the last couple of weeks. It seems mostly driven by enthusiasm for someone like BlackRock getting their ETF approved. How do you think about that in the landscape you just laid out, where potentially the traditional finance is an adversary to the broader adoption of crypto? And maybe also, does that still go along with the ethos that attracted you to the space? This idea of big traditional financial services players wanting to participate? Is that okay? Should we take that in the space? What do you think?

Devon:

I think it is okay. I don’t know yet how it’s going to actually play out. The idea of being able to sell paper version of Bitcoin to everyone that wants to, is that really going to be a good thing or is it not necessarily? I don’t know. But at the same time, I think the only way adoption is going to happen is when the large existing institutions do adopt it. And it also demonstrates it is superior technology and they spent a long time writing papers and lying to themselves that it isn’t. And then the tenor of those papers changed when they dug deep enough into it to realize, “Wow, this is way better than any proprietary payment network we can come up with, even if it’s just something we’re using at the base layer and not publicly and stuff like that.”

So, it just is awareness that this is in fact superior technology and it wouldn’t help them at all to not use superior technology if they can benefit their bottom line by doing so. So, it makes sense that they would adopt it.

I don’t think it undermines the ethos at all, really. In the sense that there have been significant players in the world, family offices and sovereign wealth funds and stuff like that, that just haven’t been able to get involved in this. And so, I think most of the reason for the excitement and the speculation, is if there’s multi trillions of dollars waiting on the sidelines that have been convinced of how valuable this is and how important this is, but have been unable to participate in it and they’re about to come flooding in, then this market is just going to just go absolutely through the roof. And that’s enormous. And it’s also beneficial because a lot of that’ll go directly into Bitcoin initially. But as people start taking profits from Bitcoin, they want to move into what else is interesting in the space and it helps them discover what else can this amazing technology do? And then more of that capital flows into whatever the new emergent thing was.

Last cycle, it was DeFi and NFTs. I think Amy was just on Bloomberg two days ago or so and pointed out that we think DePIN, because it’s been the past couple of years of bear markets for builders, they’ve done a lot of building and they’ve got a lot of applications that are actually usable right now. There’s multiple competitors to say, Dropbox. That’s a very consumer-oriented application that you could use right now.

Livepeer has an application, what is it called? Zero … I don’t remember what it is, but it’s literally a video conferencing application that’s very easy to use. So, a lot of these are ready to go, ready to use. And so, some of that excitement and value is going to come off the top of Bitcoin and flow into these other ones, and we’re going to see a boom in those and really have the opportunity for wider adoption by web developers. So, not just adoption in the financial space, but adoption in the technology space.

We’re actually talking to a major studio and technology company about how they are very interested in … I want to say who, but I wouldn’t be cool, but one of the biggest in the world, is very interested in seeing all the different ways that they can integrate this across their entire stack. And that’s huge, and that happens more often during these bull runs. And this could easily be the biggest bull run we’ve ever seen if we get something like the iShares and other ETFs approved.

Amy:

I think the question of the ethos is interesting because we came into it at a time that was very … that libertarian, we don’t need government, kind of people. And it’s been interesting to see as the cycles have gone, the different communities that have come into the space. I think that the issue in terms of it retaining that heart that was there at the very beginning about user sovereignty, is important to remember and also to keep inside the technology. So, if the protocols are built in a certain way, that ethos can never go away

Devon:

Right, no matter who’s using it.

Amy:

If the protocols are built in other ways, it can. Right?

Devon:

Like CBDCs.

Amy:

Like CBDCs, permissioned, federated networks that are-

Devon:

Similar, but not really. Yeah, yeah, right.

Amy:

Yeah, there are certain kind of proof mechanisms that are more vulnerable to attack than others. And so, as long as the technologists themselves who are building this continue to make sure that those values are baked into the protocols, we will be okay.

Ian:

Yeah, amazing. That’s, I think, a terrific optimistic outlook on where things are going. Amy, Devon, this has been a great conversation. Where can people follow you and keep up with all the work that you’re doing at the Web3 Working Group?

Amy:

So, the handle for Web3 Working Group is Web3WG. You can find us there on all the platforms. We’re at web3wg.org as well. And I’m personally AmyofAlexandria and you?

Devon:

And I’m DevonRJames on Twitter and probably Instagram.

Ian:

Amazing. We’ll link to all that in the show notes. Thanks so much for your time today. Really enjoyed the conversation.

Devon:

So did we. Thank you.

Amy:

Yeah, it was great talking with you. Thanks so much.