Chain’s Adam Ludwin On Who Is Best Poised To Benefit From Blockchain Technology

As blockchain technology remakes financial services, some companies will be better positioned than others, says Adam Ludwin, CEO of Chain, which has partnered with incumbents like Visa, Citi and Nasdaq. Ludwin describes which types of firms will emerge winners and the mindset of the executives who really get it. He also explains why he is certain central banks will one day issue digital currency.

Show Notes

Transcript

Female:

Welcome to Forbes podcasts.

Laura Shin:

Hi everyone. Welcome to Unchained, a Forbes podcast produced by Fractal Recording. I’m your host, Laura Shin, a Forbes contributor covering blockchain, digital currencies, and fintech. Thanks for tuning in. For today’s episode I’m talking with Adam Ludwin, CEO of Chain, a blockchain enterprise company widely considered one of the leaders in a space, and also the subject of a long feature I wrote for the magazine last year.

Chain worked with NASDAQ to launch the first private blockchain in production, a product called LINQ, spelled LINQ, that uses a blockchain to manage shares in private companies. This spring Chain released the Chain Open Standard, a protocol designed in collaboration with partners such as Visa, Citigroup, Fidelity, Capital One, NASDAQ, and others, and Adam recently presented at the Federal Reserve to central bankers from 90 countries, including Janet Yellen, plus officials from the World Bank and IMF. Welcome, Adam.

Adam Ludwin:

Thank you so much.

Laura Shin:

Tell our listeners about what Chain does.

Adam Ludwin:

Chain’s a software company. We build blockchain technology, which as you pointed out means we are the authors of a blockchain protocol which we call the Chain Open Standard. We also build the software that our customers like NASDAQ and Visa and others run to implement that standard into a network. And the reason financial companies are interested in deploying these blockchain networks is that they simplify, lower the cost, and improve the security around the movement of financial assets or financial instruments across organizational lines.

We’re all familiar with a database. A database is a really powerful tool, it works extremely well within the context of a single organization. But the reality of the modern financial systems and services that we all use is that the assets that we as individuals or businesses own move across different organizations, move between people, between custodians, between banks, and databases were never really designed to consider spanning an entire ecosystem and several organizations. Whereas in contrast a blockchain network, which is essentially a next generation financial database, begins with the premise that we’re looking at the market as a whole or we’re looking at several organizations and thinking about moving digital assets, whether those be currencies i.e. money or securities, or even an asset like a loyalty point, moving those assets across organizational lines.

Chain specializes in that area of software development, and we’ve developed this protocol which we can talk more about which is geared toward these types of financial instruments. We’ve developed the software to implement these networks, and we also have a services part of our business which helps our partners to design the best possible network architecture and then operate and run it. So, that’s in a nutshell what we do and why we’re doing it.

Laura Shin:

Okay. And who are some of your clients and partners?

Adam Ludwin:

You had mentioned NASDAQ, they’re a big one, Visa is another big one in the payment space. We have many bank partners like Citigroup and State Street, and we have partners that are also more capital markets focused, companies like Fidelity on the buy side. And then there’s a much longer list, but those are some of the more well-known partnerships that we have, and sort of exemplify that the range of use cases covers not just payments but also movement of assets and securities in the capital markets and is also very much an international business and there’s international interest in this technology.

Laura Shin:

Something that was interesting to me in your answer is that you mentioned the word database, and I’ve also heard you say that people should not just think of blockchain as a better database. So, in what ways would you say it is like a database, and then what ways are you helping businesses see beyond that?

Adam Ludwin:

Yes. A blockchain is similar to a database in that it is a recordkeeping system that is digital and becomes the source of truth. It’s fundamentally different from a database in that it is also…you can consider it a network. Again, think of a database stretched over an entire market, and the way to achieve that is actually very different than traditional database architecture. The way to spread a data structure over an entire market requires cryptography, and specifically, what I mean is the component of the blockchain that’s shared or distributed is generally public data. The data that represents the assets that are on the network and then where those assets reside, that’s shared so everyone can access that.

The ability to then move assets in that data structure from say my account to your account, that’s what remains private and wholly owned and controlled by the individual entity. So, we may share a data structure, but the ability to modify that data structure to update it, to move an asset on that ledger, that still resides within the individual entity. So, how do you do that? Like how do you pull off that trick? How can we have a shared infrastructure but also on that where updating that shared infrastructure is controlled by the asset owners of the particular assets on the network, and the answer is what’s called public private key cryptography, and this is the same cryptographic principle that gave birth to Bitcoin. It’s the same cryptographic principle that is behind technologies like Ethereum, which you could think of it like a Bitcoin 2.0. It’s another Bitcoin or open currency network. So, it is this cryptography which is the common denominator across the entire blockchain ecosystem and industry, and that is enabling entities to reimagine what was before a pretty bad set of choices.

So, before blockchain you had two choices to move assets digitally in an ecosystem. Choice one was empowering a single organization to have a single database which held the balances for everyone in an ecosystem, and if you ever wanted to move assets between two parties you had to go to that single central intermediary and say hi, I’d like to make a payment or I’d like to swap securities for currency, whatever the case may be. And essentially, you’re creating, by necessity, a monopoly.

Now there’s a lot of efficiency to be gained through centralization, but because you end up with a monopoly, they can be expensive to the ecosystem and they can be slow to innovate, and so, we end up having ossified market structures around these systems that we build to solve a problem but tend to over time slow down progress. That’s one choice you could have made. The other choice you could have made would be to say we don’t want a central intermediary that’s going to hold onto assets for everyone and clear and settle transactions, we’re all going to maintain our own database, our own ledger of the truth. And we need to then go through some sort of reconciliation process to make sure that when I move an asset from one entity to the other, both entities at the end of that transaction, once it’s all settled, reflect the same truth. And so that’s nice because now we don’t have a central intermediary.

The challenge, of course, is that there is an expensive, lengthy, and error-prone reconciliation process that has to happen around every single transaction, and so those were your two choices prior to blockchain. What blockchain provides is a third choice, and it really is the ability to have a shared infrastructure, but one that doesn’t require reconciliation because only one party, and that is the party that actually controls the assets, can update the ledger with their private cryptographic key. So that third way is really what is driving interest and is holding promise for really transforming market structures within payments, within capital markets, insurance, and other largely financial ecosystems.

Laura Shin:

But then in this case where you were helping the enterprise companies, how is that not simply cementing the first scenario where there’s kind of like one major player that provides this function?

Adam Ludwin:

Fundamentally because it is a shared infrastructure across the ecosystem. So, in almost every case we will start with a single partner, some of the ones I mentioned earlier, but then inevitably to roll out a network requires the buy-in and participation of several entities in a market.

Laura Shin:

But then don’t they each have certain rolls? Do you know what I’m saying? Like you would still go to that one institution for whatever, to exchange currency for securities?

Adam Ludwin:

Absolutely. Organizations, and depending on the use case in the network, will have different roles to play, and it depends in every market. And this is really the strategic opportunity and threat to financial incumbents. The opportunity is to get out ahead of this and to be among the leaders who are deploying these networks, operating these networks, and therefore really as these markets transform, they’re transforming in a way that will be beneficial to these businesses that are on the forefront.

The threat, of course, is when market structures change, everything’s up for grabs again in terms of who captures what value in the value chain, and I think this is what is motivating both the opportunity and the risk is motivating a lot of investment and a lot of attention and a lot of study, and in many cases that interest and study is translating to opportunities to go build out networks, and so, I think the industry a year or two ago, or even a year ago a lot of the activity was kind of tire kicking, and now what we’re seeing are the first real strategic efforts to deploy networks, and that’s a big milestone for the industry.

Laura Shin:

Okay. Tell me about some other projects that you’re working on.

Adam Ludwin:

I, unfortunately, am bound by NDAs for virtually all of them, but I’m happy to talk about just more general directions for what people are working toward.

Laura Shin:

I actually did want to explore this idea further of are you simply helping people kind of gain monopolies over certain functions in the system, and how is that tension, because you started by saying oh blockchains enable this third opportunity, and then yet it almost feels like you’re using the technology to cement that first scenario that you outlined.

Adam Ludwin:

Not quite. Here’s where it’s different. In the first scenario you have a central party who both runs the quote unquote system, and actually takes custody and controls the assets in question. In a blockchain scenario the operators of a network do not actually control the assets flowing through that network. What we’re asking folks to consider is becoming network operators, becoming facilitators of networks, but seeding in many cases the movement and control over assets, both the issuance of those assets, the trading of them, the custody of them to an ecosystem of entities who would run on that network, and so you have to believe something, you have to believe that by doing that, by facilitating an ecosystem, by essentially transforming your business into a software company or a network company that there’s more value there, there’s a bigger pie, there’s more value overall, and the slice you capture will be greater than trying to own the whole thing in an ossified old way of doing things. It’s just different, basically, it’s different. It’s not a central custody clearing and settlement system, it is substituting intermediaries for networks and then offering intermediaries the opportunity to be those network operators.

But I will say that for the most part, the incumbents in the financial ecosystems that are best positioned to seed their central role in an ecosystem and go build out of networks, like the ones that…I won’t name names, but the ones that you sit back and you think okay, who’s best positioned in the world to build a network around the settlement of securities, or who’s best positioned in the world to build an international payments blockchain, who’s best positioned in the world to change how gift cards and loyalty are issued and managed? You’d come up with a short list. We’ve talked to every single one of those companies and all those verticals at the executive level, and the truth is if we were offering an opportunity to simply trade up to a better incumbency position, they would have all jumped at it by now.

The reality is those that are best position often have the most risk as well, and so what we’re finding is that it really comes down to which companies and which executive teams think of the future of their business more like a software business, more like a network business, and are willing to do something that is strategic and that could potentially capture share away from the incumbents in that first category we described.

Laura Shin:

Can you give me an example, like just anything hypothetical? Let’s say I’m a financial institution. When you say think of themselves as a software business, how does a financial institution do that?

Adam Ludwin:

Sure. Why do I say a software business? Well, what does a blockchain network fundamentally require in terms of capability? It requires running nodes in a network, and especially if you’re going to put up your hand and say we’d like to be the network initiating a network and getting it off the ground. There are going to be some special roles you’re going to have to play to do that.

So, running mission critical software, number one. Number two, helping to manage all the data on the network. So, the size of the blockchain data set itself is very, very large in these high-volume markets. So, managing that data at scale with great operational resiliency is a big software challenge.

And then finally again, it comes back to cryptography. The issuance and custody and movement of assets on a blockchain network is a cryptographic process, and so facility with key management and creating the secure environments for those keys, and potentially offering that as a service to ecosystem entities, all those things are essentially sophisticated software operations.

You’ve got to believe that it’s strategically valuable, and you’ve got to believe that that is where the world is going to make those investments. So, as you wouldn’t be surprised to hear, and especially because of the way I characterized them earlier, many incumbents in that first category of centralized sort of systems have not invested in technology, do not fundamentally view themselves as technology companies, do not fundamentally view innovation as the difference maker. And it’s not all of them, some of them have. Some of them have sort of committed to going in this direction, but the majority of them haven’t.

The majority of the firms that I think will win in this chapter of financial infrastructure are going to be challenger firms that are firms that are known, like you would know their names for the most part, but maybe they eye a market that they’re not in today and they want to go and capture that market. Maybe they’re the number two and number three in a market and they want to be number one. Maybe they’re huge in one geography but they want to get into another. So, in almost every case the motivation to be initiating that works is strategic, and they’re often challenger-oriented projects.

And ultimately, why are we sitting around talking about strategy and we could talk about game theory and all these other things? Why is that the nature of this discussion right now? Why isn’t it just hey, it’s technology cost-benefit compared to existing technology? Well it finally comes back to this idea that how is it different than a database? We’re talking about networks, and to deploy a network requires buy-in of many parties, requires pretty sophisticated rollout and go to market, and it is as fundamentally a strategic choice to launch a blockchain network. Yes, it’s a technology, but it’s a strategic choice enabled by new technology. And so, it’s very much a challenger-oriented opportunity.

Laura Shin:

So interesting. I actually want to go back to what you were saying, you know, this questioning that I had about oh, are you just helping cement kind of these incumbent positions. But as you were talking, I began to think about this difference that people talk about between permissioned versus private block chains, because often you just hear people sort of if they’re especially public blockchain advocates, then they just ______00:21:35 both public and private and permissioned as if they’re the same thing.

But it sounds like what you’re helping companies do, and tell me if I’m wrong, is that you’re helping them develop a permissioned network where simply because of these large customer bases they already have that it will generate a scale of a network similar to what we’re seeing with the public open blockchains. But they’re not necessarily private blockchains, they are ones where eventually they will open these up to their customers.

And so, people who have Visa cards and bank with Citi and work with Fidelity or, you know, whatever, that they’ll be able to access what is a permissioned blockchain, but one where it will have this feeling of being similar to an open public blockchain. Is that kind of where this is going?

Adam Ludwin:

The technology itself that we’ve built is agnostic to whether the network is a network of two companies totally private, 10 companies in what a lot of times people would say permissioned, meaning there are 10, it starts out with 10 and then if anyone wants to join, you’ve got to get permission of some quorum of those 10 and so on, or whether it’s totally open. And the data you could go to some website and you could explore the blockchain. The level of permissioning again, is really a business choice. The technology can facilitate any of those from totally private to totally public.

The reason the financial industry tends toward more permissioned networks is that in almost every case we’re talking about financial instruments that are issued onto these networks, and we’re typically talking about money as in usually US dollar, or we’re talking about securities, and in the currency and securities cases, we essentially have an expectation that our banks, our exchanges, etcetera are not going to reveal trading information and balance information that is private to us as clients of those services. So, in most cases we see an expectation of the same sort of norms around client privacy, client security that we see with other technologies.

That’s not to say there wouldn’t necessarily be more open networks where anyone can explore the block chain data and see the circulation of certain assets and the transaction flows and so on, and maybe there are those relevant use cases for that but it’s not typically the starting point.

Laura Shin:

And is that the main reason why you have chosen to go this route? At one point in one of your answers you talk about in this chapter, so what are the different chapters that you see, and why did you make this business choice now?

Adam Ludwin:

Yeah. We made the choice fundamentally because we respond to the requirements and the problems that we’re trying to solve, and I think there’s a few ideas that are conflated when we talk about open versus closed, private, permissioned, etcetera. One of the ones that’s really important to remind people about is Bitcoin… let’s talk about Bitcoin for a moment. Bitcoin needs to be open.

The whole premise of Bitcoin is a decentrally issued digital currency where there are no network operators at all involved, where we randomly pick a server every 10 minutes to process the batch of transactions from the last roughly 10 minutes. That’s what the Bitcoin mining process does. And the entity that processed the transactions from the last 10 minutes, they might go out of business the next Thursday, and it wouldn’t matter because there’s a built-in incentive to attempt to process transactions, which is the payout of newly minted Bitcoins and the addition of fees for the transactions in that last batch, and that design decision keeps Bitcoin censorship-resistant, meaning it allows for us to have a currency that is scarce, that has value derived from its trading price against other currencies, and that similar to the Internet itself would be very hard to shut down.

And there are social benefits to that. There are people that live in certain countries and contexts in which making a donation to the wrong non-profit would land them in jail. There are people that live in certain places where their governments are hyperinflating their currency and they need to find a mechanism some ______00:27:10 with features that make it easier to move to get money out of the country. So, there are these very legitimate use cases, and then there are also use cases that I think we might say are either illegitimate or questionable or grey areas, or in certain cases clearly illegal that Bitcoin does facilitate. But like the Internet you sort of take the good with the bad. And so that’s what Bitcoin is about. Fundamentally it’s about let’s create a new currency that cannot be censored, that has no network operators, and the tradeoff with that it requires that you adopt this new currency in order to use it.

Now that is fundamentally different from the work we do, and the work that’s generally lumped into this notion of financial industry blockchains. The work we do is we say can we make existing currencies, existing assets? Can we put those into a native digital format? Can we issue them cryptographically? Can we put them onto networks so that they can move between organizations seamlessly with a signature from a private key, we can zap it from one organization to the other without a clearing and settlement of reconciliation process at very low cost, with shared infrastructure and a single source of truth?

In other words, can we get many of the benefits and features that we see in Bitcoin around the seamlessness of movement of assets, but can we do that with financial instruments that people use every single day, that businesses use every single day, that wouldn’t require the adoption of a new currency? That’s what we’re striving to do and that’s what we’re aiming for, and in order to do that, because these instruments are issued by corporations, stocks and bonds, these are corporate-issued currencies and assets, or central banks, these are government-issued currencies or brands, i.e. gift cards or loyalty points with merchants, like these are all fundamentally private company-issued assets. So, if we’re trying to facilitate the movement of these instruments which are issued by companies, and which have a stake in the operation of those instruments in the economy, and necessarily would need to play a role as facilitating the operation of those networks.

Already again, it’s a very different picture. We’re presupposing institutional involvement because it’s institutional assets. And so now the question is what is the appropriate engineering and network architecture to facilitate the movement of those types of securities? The answer is not grab those assets and put them on an open network and completely detach the ability for governance and customer service and client management from those institutions, because they won’t do that and it wouldn’t be good for the users of those instruments.

So, we’re really talking about two very different, and in their own ways valuable, architectures, and I don’t think they’re competitive. In fact, there was a time in which there was a question about can we put US dollars on the Bitcoin network or US dollars on Ethereum? Can we wedge existing asset classes onto these networks that are facilitating new asset issuance and movement? And I think that was really the most confused era of this industry, because you had people in a room trying to design protocols with completely different goals in mind. Now you see a natural separation between if the goal is decentral issue currency, then sure in the case of the Bitcoin block size debate keep the block small. If you’re not trying to wedge in credit card payments, keep the block small. And that just really simplifies the debate.

If your goal is to build the next generation payments network that’ll one day replace credit card infrastructure, you can free yourself up to think about well what’s the appropriate highly scaled version of that and how do we think about that protocol design. So, I think that’s really where we are and I think that’s the key difference between open and permissioned.

Laura Shin:

Okay, let’s switch gears for a little bit. Because last year when I interviewed you for the magazine you told me about your parents’ BBS system and how that was the way in which you were sucked up into the first Internet revolution, but you were just a kid. Can you tell your listeners what you meant by that and how you eventually became the CEO of Chain?

Adam Ludwin:

Sure. For those of you who don’t know, a BBS stands for bulletin board system. This was one of the early networks pre-web, so we had the Internet, but we didn’t have the worldwide web yet and so a BBS system was a way to dial into essentially like first generation Internet forums, and post messages and photos and content. Later, there were some large commercial BBSs that were branded that people might have heard of like Prodigy and even AOL I think was originally a BBS system, and CompuServe, and my parents were in the optical industry and they launched a BBS specifically for the optical vertical, and they launched that and then the web was born, and so that sort of quickly rendered that BBS system irrelevant because everything was going to the web. So, then they moved over to the web, and as a result they didn’t need all of these modems that were required to run a BBS service because in the BBS every single active user requires a dedicated line.

So, we had 100 modems or something in our basement, and you could see them all lit up and you can sort of count the number of modems that were lit up and that’s how many active users were in the BBS at that moment. And if you were to cut the line, the RJ11 cable for that modem, you would disconnect the user. It was very much a hardware-enabled network.

The reason I mention that story to you when you’re reporting for the piece about Chain was that era, kind of early 90s and even into sort of mid-late 90s it was an era of everything was possible with the Internet. Everything sort of felt up for grabs, and it was a new frontier, and people were trying to sort through what’s going to be the right answer, and in the case of the Internet the right answer, of course, was really the web and everything that’s sort of been enabled by the web since then, that’s become the answer.

And as a result, when you look at fintech, fintech for the most part right now is web-enabled user interface innovation that connects into the same old financial infrastructure that’s been around for 40 years. So, yes, we have online banking, but we still have the same fundamental core banking infrastructure that we’ve always had and the same players. Yes, we have the ability to do free stock trading on our iPhone with Robin Hood, which is a great app, but still fundamentally ends up back at the DTCC.

And when I read the Bitcoin White Paper in 2010, 2011, it felt like the BBSs all over again. It felt like here is a new frontier that represents an entirely new stack fresh from the ground up to reimagine what it would mean to use cryptography to put assets into a digital format. In other words, it imagined and made real for the first time a notion of a digital bearer token that is in one-way tangible like cash, but in another way a digital item, but one that we couldn’t double spend. In the same way if I handed you cash, I can’t then keep that because you have it, I can’t give it to someone else because again, you have it. That idea never really made its way to digital money until Bitcoin, and Bitcoin enabled that. So, that was just an exciting… even though it was just a paper really at the time and a very small network, it was a very exciting thing to read.

Laura Shin:

And when did you read that?

Adam Ludwin:

Early 2011.

Laura Shin:

And you were a VC then?

Adam Ludwin:

Yes. Yeah. I was actually investing in fintech companies, and I had been involved in the investments around companies like Venmo and Braintree and Revolution Money and OnDeck through a firm in New York called RRE Ventures, and so, my mind was definitely on fintech, and when I saw Bitcoin it was just a stark contrast to again, fintech as user interface innovation, by the way, extremely valuable user interface innovation. A lot of these fintech companies I’ve mentioned and many that I haven’t, like Square and Stripe and others, not to take anything away from them, they’re very important companies and very valuable, but at some point, they all end up back on the same old rails. Bitcoin really imagined a whole new way of thinking about rails for Internet money, and the creation of digital bearer instruments through cryptography.

So, it felt like the BBS in that you just kind of knew when you read it that the next 10, 20 years were going to be shaped in some way fundamentally by these ideas. And ultimately that led to my interest in the space, my teaming up with my co-founders Ryan and Devon, and our first few employees, and starting Chain with this idea of putting these ideas into the world and figuring out how to really make assets that are used every day flow this effectively.

Laura Shin:

So, you actually mentioned some of these ideas in your talk at the Federal Reserve, and you wrote that great medium post, “Why Central Banks Will Issue Digital Currency.” Why are you so convinced that they will, and how will that work?

Adam Ludwin:

I’m convinced that central banks are going to issue central currency because it is fundamentally a medium that is consistent with where the world is going. It’s no surprise to anyone that the Internet, digital commerce, digital payments, cross border movement of assets, increasingly complex financial instruments and derivatives, etcetera, all of these things are technology-enabled, they’re software-enabled, and yet the medium in which we issue legal tender is still paper, paper is the medium of exchange. And the government’s purpose in creating legal tender, one of them originally, was to give citizens the ability to freely hold and move their money.

But if you look at where we are today, because we still mint in this antiquated paper medium, the way we live and work today is digital, we take our payroll in digital format, we want to pay for things online, we want to pay in-store with our phones or even a credit card. There’s an abstraction layer between our actual money which is in a paper format, and the way in which we transact and hold onto that money. And so, the costs to the system of building layer upon layer upon layer upon layer upon layer of custody payment rails, tools to manage if you’re a merchant or a business, wallet software, blah, blah, blah. The net of it is huge ______00:40:21 and taxes on the overall system.

And you have to wonder well, if we now have the technology to mint currency into a digital medium that would essentially take out a lot of the cost and a lot of the friction that only really exists because we don’t have assets in a digital medium today. They’re created in essentially a paper medium. And yes, we have, of course, credit money at the Federal Reserve and banks that hold accounts with the Federal Reserve, we have the correspondent banking system, and so we sort of have moved to a digital system, but one in which like I mentioned earlier, we have these two bad choices between either centralization or reconciliation. So, if central banks issue into a cryptographic medium, mint digital dollars, put those dollars onto networks, all of a sudden, we just have a much better system for businesses and for individuals.

There’s another big reason though that we haven’t really talked about today for why this is happening and why I think it’ll happen, which is from a regulation and compliance perspective. So the argument I just made was this is just better and more consistent with the medium in which the economy now functions, but the other side of this is payments within the capital markets, and what we see is that the traditional monetary policy mechanisms for controlling the money supply through interest rates and through other mechanisms like reserve ratios at banks, etcetera no longer has quite the impact it had once, and that’s because so much credit creation and money creation has moved to the so-called shadow banking system.

Laura Shin:

And what does that mean?

Adam Ludwin:

The shadow banking system is where money is created through collateralization as opposed to through deposit taking. And so, this was fundamentally one of the reasons that if you look at what was the 2007 financial crisis all about, real estate, yes, but it was the derivative instruments that caused a run on the system. And so why am I bringing that up now when we’re talking about central bank issuing digital money? Because it comes back to what does a blockchain network give you, give you in terms of the public infrastructure side? It gives you visibility into where assets are in a given point, it gives you visibility into flows and ownership of assets in real time.

And so, I think governments and regulatory bodies have an opportunity to reinsert themselves, in that they can put instruments into the economy, both currencies as well as treasuries and other types of securities that will be easier to track, where the ownership of them will be clearer, when they’re lent out, we’ll know where the collateral is and we’ll know the length of the so-called collateral chains.

In other words, digital assets bring, and blockchains bring a lot of transparency that is moving away from central banker, is moving away from supervisory authorities that will come back to them through this process. So those are the two things I laid out in that medium post.

Laura Shin:

Okay. Yeah. And then that solves the issue of not knowing which balance sheets held the bad mortgages.

Adam Ludwin:

Exactly.

Laura Shin:

Yeah. You’ve met with so many different enterprise companies. When you meet with them, and I know you’re very selective about your partners, what makes you decide to choose to work with one and not choose to work with another?

Adam Ludwin:

Mainly we look for executive commitment to launch a network. Especially right now, everyone wants to be prototyping and learning about blockchain technology, and there was a time when that was a reasonable strategy for us too, where we’re learning about the use cases and the problems, so we’ll take on a lot of POCs, i.e. proof of concepts, pilots.

What has changed I think in the industry, and for us, is now there are going to be some clear networks that are going to go to market, and we have to put our resources behind a small number that we’re betting on. So, if we’re making a bet on a fairly long development cycle and go to market cycle, we need to be able to look across the table at the executive team at that partner and appreciate from them that this is going to happen, that this isn’t something that will be stuck in the innovation lab and go nowhere, but that this is of strategic importance to them, and I have to believe that when I have that conversation.

So, as I said earlier, there are only a certain number of firms that have both the appropriate scale and position in the market where they can launch a network, but also are willing to be challengers and not rest on their laurels on the kind of old way of doing things. So you get down to a pretty small number, and that’s a good thing because as a startup it’s very important to focus and put your effort behind a small number of opportunities.

Laura Shin:

You’re somebody that I think of as thinking a few steps ahead of other people. Where do you think all of this innovation and change is headed? What do you think society will look like in terms of how we transact with each other, maybe even past the point of where we have digital fiat currency?

Adam Ludwin:

So, beyond digital fiat currency.

Laura Shin:

I mean you mentioned in your medium post that it’s something you can see central banks issuing digital currencies to non-financial institutions such as individuals and businesses, and I was wondering what you were thinking about that.

Adam Ludwin:

Sure. Well I guess the vision for Chain that is the North Star that we believe, we fundamentally believe, and I do think will be a long-term journey is that we see a world in which all assets, all financial assets are issued digitally, are secured through cryptography, and live on networks, and we think that when assets are digital, financial services become software.

So, the financial services industry as we know it will eventually look a lot more like Silicon Valley, and I think that will partly be because Silicon Valley will ______00:48:02 financial services in many ways, but also the winners in this next generation of financial technology will ultimately look more like Amazon, Google, in terms of workforce, strategy, capabilities, than they look like the big incumbent banks exchanges or networks of today.

That’s a good thing, because what that will mean for consumers will be more choice, more competition, more transparency, lower costs, and the frustrations we all feel when calling our bank, calling the back of the credit card when our credit card numbers get stolen or our identity gets stolen, when we don’t have a really good understanding of how our insurance policies are priced, when we feel like we’re always behind the 8-ball when it comes to investing, because we think there are machines out there that are just sort of outpacing us all.

I think all of those fundamental frustrations that I think are common frustrations with the way financial services work today will over time really, really improve, many of those problems will go away. And I think in the same way that software has touched so many other aspects of our lives but sort of seems impenetrable in terms of these core financial problems, I think that will change.

So, that’s the vision we have, and what will that mean for you as an individual? It means that yeah, your assets are going to live on your phone or other smart devices, and your money is going to feel just like data, email, photos. It’s going to be another data object that you control. The key difference is that, of course, unlike an iPhone photo, when I send you that photo, we both have a copy, I’m going to send you money and I’m going to no longer have it. And that’s the core innovation in Bitcoin, this double spending solution. And it’s the core innovation that will make all assets digital over time.

Laura Shin:

All right. Where can our listeners find more of your work or contact you?

Adam Ludwin:

Sure. You can go to chain.com, and you can learn about Chain. You can find me, my email’s [email protected], and I’m Adam Ludwin on Twitter, so, that should give anyone all they need to reach out if they’re interested.

Laura Shin:

Great. Thanks for joining us today. If you’re interested in learning more about Chain and Adam, check out the show notes which are available on my Forbes page, forbes.com/sites/laurashin. And please review, rate, and subscribe to the show in iTunes if you like what you heard. Those reviews and ratings really do make a difference, so please take that moment, and thanks again for listening.

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