Kathleen Breitman, CEO of Dynamic Ledger Solutions, the company behind the Tezos protocol, and Ryan Jesperson, president of the foundation, discuss the Tezos initial coin offering, which was the largest ICO at the time of sale. Kathleen explains why she wouldn’t do anything differently, except for the choice of foundation head, Johann Gevers, with whom Kathleen and her co-creator and husband, Arthur Breitman, ended up in multiple disputes. She muses as to why many people initially praised Gevers and then later revealed that he was not liked or that he’d defrauded them when they’d worked for him. Ryan and Kathleen also explain how they will attempt to help Tezos compete in the competitive smart contract platform space, despite the fact that Tezos is built in less well-known computer languages, and they explain why they’ve chosen delegated proof of stake as their consensus protocol, despite the criticism that it could create a plutocracy.
Tezos: https://tezos.com
Kathleen Breitman: https://twitter.com/breitwoman
Ryan Jesperson: https://www.linkedin.com/in/ryan-jesperson-23b0053a/
Thank you to our sponsors!
Preciate: https://preciate.org
Quantstamp: https://quantstamp.com
The Sun Exchange: https://www.thesunexchange.com
Podcast links:
Wired story on Tezos: https://www.wired.com/story/tezos-blockchain-love-story-horror-story/
Unconfirmed episode with Gideon Lewis-Kraus, author of the Wired cover story: http://unconfirmed.libsyn.com/behind-the-tezos-scandal-conflicts-of-interest-self-dealing-and-bullying-ep024
Unconfirmed with Caitlin Long on Wyoming blockchain laws: http://unconfirmed.libsyn.com/behind-the-tezos-scandal-conflicts-of-interest-self-dealing-and-bullying-ep024
Transcript:
Laura Shin:
Hi, everyone. Welcome to Unchained, your no hype resource for all things crypto. I’m your host, Laura Shin. If you’ve been enjoying Unchained, pop into iTunes to give us a top rating or review. That helps other listeners find the show.
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Laura Shin:
My guests today are Kathleen Breitman, CEO of Dynamic Ledger Solutions, the creators of Tezos, and Ryan Jesperson, president of the Tezos Foundation. Welcome, Kathleen and Ryan.
Ryan Jesperson:
Thank you. Great to be on here.
Kathleen Breitman:
Thank you, Laura.
Laura Shin:
Just a heads up for listeners, Kathleen and the foundation will not be commenting on any questions about pending lawsuits, so you won’t hear any questions about those today. Kathleen, why don’t you start with how you got into crypto, and tell us what Tezos is.
Kathleen Breitman:
Oh, well, I jokingly say that I married into cryptocurrency. So my husband and I are pretty passionate about the core promise of cryptocurrency overall, which is to make a world of online native digital asset to the internet, and so we got interested in Bitcoin pretty early on, around 2012 or so, and in 2013, we started to think a little bit more about the cryptocurrency craze, and around that time was the first sort of alt-coin boom, which we commonly refer to as a _____ 00:02:14 explosion of different forks of Bitcoin, all of which purported to have new innovations on top of the core Bitcoin protocol, which we’d been following pretty closely.
And so the common argument around that time was that this was actually great for Bitcoin overall because all of these innovations, which were seen in things like Litecoin, the first iterations of Zcash, and the first papers that led to Zcash could all be folded into the Bitcoin protocol, and the question we posed was how? You know, because Bitcoin didn’t have a very clear way to upgrade itself in the code base that was attached to it.
And so from this core observation was born Tezos, which is a smart contract platform, which was launched into a Betanet phase on June 30 of this year. So it’s been a while, but basically, the core observations and ideas that led to this originated from our close observation of the space in 2013 and led to the beginning of Tezos development in 2014, and finally, the Betanet launch, which was a few weeks ago.
Laura Shin:
And in terms of the Tezos, it is a solution to how it is that you could upgrade such a protocol that has a governance mechanism by which people can propose different upgrades. They can actually write the code for those. Maybe if the people who are using the protocol like the proposal can vote to adopt it, and then those developers can also then be rewarded in tokens for their contribution. Correct?
Kathleen Breitman:
Yeah, that’s the core promise of Tezos, is, well, blockchains are ultimately a coordination technology, and Bitcoin and every other cryptocurrency does has some form of governance mechanism, but what Tezos tries to do is by formalizing this process and giving people a way to actually amend the process itself, hopefully there’s a better means to iterate on existing innovations in this space in the ecosystem.
Laura Shin:
And just for listeners who don’t know, Kathleen’s husband is Arthur Breitman, who, he’s the CTO of Dynamic Ledger Solutions? Is that correct?
Kathleen Breitman:
Indeed. Yes.
Laura Shin:
Okay, yeah, and so he wrote the first Tezos white paper under a pseudonym, L. M. Goodman, named after a Newsweek reporter who tried to name Dorian Nakamoto Satoshi Nakamoto. All right, Ryan, describe how you got into crypto and what you do as head of the Tezos Foundation.
Ryan Jesperson:
Yeah, that’s a great question. Let me give a little bit of a background. So I was an executive and turnaround specialist in the healthcare industry, and also during that period of time, co-founded a software company that I sold, and then after that, decided to do something totally different to jump into the humanitarian space for about two years and really researching and experimenting on ways to help the poor in developing countries and how to lift them out of poverty and help them. Loved that work.
After that, decided to jump back into technology, and had an executive role at a FinTech company, and then during that time, I had a colleague introduce me to blockchain and all things blockchain, and just became incredibly passionate about it, just about the technology and about the promise that there is through the technology to see really a change in the world for, I believe, the better, and so I would just spend a ton of time researching, deep diving on different aspects of blockchain technology, different protocols, and came across Tezos.
And you know, read the white paper, and was really impressed by the ability clear back in 2014 of Arthur to be able to look into the future and to be able to see the problems that would be relevant in the space and then also to provide solutions for that, and so I became a regular contributor during the, you know, donation period, and subsequently, like many, I became concerned when I heard about the dysfunction at the Tezos Foundation.
And so helped to organize the global community around a petition to be able to make sure that the community’s voice was heard in all that was happening, and through subsequent events and continuing to help organize the community, became, ultimately, you know, the president of the Tezos Foundation, someone who was seen as a trusted intermediary I think to be able to solve the situation, the dysfunction, and really to move things forward.
Laura Shin:
Yeah, so we’re going to get more into this dysfunction that existed in the Tezos Foundation before you came on board, but before we get there, the next set of questions are actually primarily directed at Kathleen, because I want to go into Tezos’ history, but Ryan, you can feel free to jump in where you see fit. Kathleen, Tezos started as a white paper that Arthur published, and that happened in 2014, but you didn’t have your ICO in 2017. So what happened in those intervening years, 2014 to 2017?
Kathleen Breitman:
Yeah, I mean, it was a pretty tumultuous time in the cryptocurrency space. During the course of those three years or so, I think some of the ideas in Tezos faded in and out of fashion, and so we kept on working on the code. We had a prototype in 2014, and a lot of the same logic from the core prototype is really what you see today in terms of divorcing three layers of the protocol, using a generic network shell in order to distinguish what’s the canonical version.
All of that logic has basically been around for the past three years or so. Mostly what’s been worked on for the past year and a half are…yeah, year and a half, give or take, has been the networking layer and the peer-to-peer messaging layer of Tezos, which is, of course, very fragile and very important to the functionality of the code base, but I think what you mean to ask is why conduct a fundraiser in 2017 and why go that route? Well, the short answer is Arthur and I kind of had a hobbyist attitude towards this project.
So it was simple enough to do this nights and weekends and have an interest in what was going on, but I think the ecosystem was very immature at the time, and it wasn’t really easy for us to gauge at what point we should jump in or if Tezos would really even garner much interest, but it became pretty obvious in 2016, for a variety of reasons, that the core premise of what we had touched upon in 2014 was at the very least in vogue, if not deeply needed by the marketplace, and so we thought that was an interesting experiment to endeavor upon.
Laura Shin:
And by that, are you talking about the issues with scaling and Bitcoin and then what happened with the Ethereum hard fork?
Kathleen Breitman:
Yeah, exactly. Basically, the Tezos white paper, when it came out in 2014, a fair amount of people picked up on it. Some of the existing advisors read it, and they were very impressed, for example. So we’ve had the same advisors for a few years now, but largely, the fanfare was not exactly there because the position paper, for example, talks a lot about, you know, some severely abstract terms, many of which have been studied now.
Like the whole notion of miner incentive alignment was something that we discussed in the position paper, but it seemed kind of far off at the time, but since then, people have studied how miners act in Bitcoin, for example, and how they may not have the same interest as token holders. So things like that tension seem very abstract in the position paper, but I think came to be sort of the discussion or part of a fruitful discussion in 2016 between the scaling to be in Bitcoin and between the contentious hard fork in Ethereum in 2016 with the DAO hack.
Laura Shin:
Yeah, I definitely agree that as events played out, it became clear that a solution like Tezos that had so-called on-chain governance could be an interesting way to try to go about or resolve these types of issues, although, you know, this doesn’t mean that it’s a certainty that on-chain governance is actually going to work. You know, obviously, everything’s an experiment now, but one other thing I wanted to ask about those years, you were working at R3, and just fill in kind of what it was that you and Arthur were doing professionally during that time.
Kathleen Breitman:
Yeah, of course. Yeah, so I guess 2014, I finished up a stint at [inaudible] Associates, which is a hedge fund in Connecticut, and then I went to work as a consultant for Accenture. By my own admission, I’m not a great consultant, and so when the opportunity came in-house to kind of build up a blockchain practice, I jumped at that because I knew quite a bit about Bitcoin as a cryptocurrency, and so I soon started working on the internal sort of blockchain working group.
I quickly found it much more interesting than any other consulting opportunities I had at the firm, and I found more and more excuses to participate in that, and I was very lucky to have a lot of guidance and mentorship within the firm that was hospitable to me actually indulging in my interests, and that soon led to an opportunity at R3, which is a FinTech that had just established a massive consortium of banks in order to use their blockchain solution. So I worked there as a senior strategy associate for I guess nine months.
And I had a great time there, but it just became pretty obvious that the opportunity to work on Tezos was too good to pass up. So, with great regret, I left I guess in September 2016, and Arthur in the meantime worked in finance for about 10 years as a market maker, an options market maker at Morgan Stanley most recently, and then he also made a pretty big pivot in his career, and he worked at Waymo, the self-driving car group out of Google X for about a year and a half prior to joining Tezos full time.
Laura Shin:
The Tezos ICO, which occurred about a year ago, was, at the time, the largest in history raising 232 million dollars. Part of the reason for that was that Tezos did not cap the funds raised. Why did you guys choose to do an uncapped sale?
Kathleen Breitman:
Well, that decision actually laid with the foundation, but the rationale at the time was that, basically, this ecosystem, this network is built on Metcalfe’s law, meaning the more users that participate in the network, the more robust and valuable it is, and so this was a rare opportunity to bootstrap that type of network and distribute the token amongst people who were very interested in it, and so that was kind of the rationale there.
Laura Shin:
Yeah, I agree with that philosophy in the sense that as we saw with things like Basic Attention Token, where only 217 addresses or something got in the sale, I feel like it leads to what I call the ticket scalper situation where, like, if you ever live in New York and try to get into a hot concert, basically, the ticket scalpers would take all the tickets, like, in the first second of the sale, and then you would be forced to spend a lot of money later and pay them.
Kathleen Breitman:
Or in California, Burning Man.
Laura Shin:
Yeah, and I felt like the same thing was happening here with these ICOs. So, in that sense, I do agree that it’s sort of like if you uncap it, then the ticket scalpers cannot make a killing for doing nothing but scamming people. Anyway, so the other thing is that why did you guys do the sale before you launched the network? I remember, you know, around maybe the spring of 2017, I asked you if you felt that you ran any regulatory risk by having the sale before the launch, and you said you felt comfortable at the timing because the launch was going to happen within five months of the sale. Obviously, that didn’t happen. So would you do things differently now if you could do them over again?
Kathleen Breitman:
I think by and large, no. There’s some personnel choices I would not have made, but that’s one way of putting it, but I think, by and large, I really do believe in the nonprofit structure, and I really do believe in the way the network was bootstrapped and the number of participants that are included, the diversity of participants. I think that’s ultimately what makes a great community, and I think these ecosystems are ultimately at the behest of a great community, right? Like, that’s what drives this ecosystem.
So what came out of this, ultimately, was a great group of people. You know, people like Ryan Jesperson, for example, participating is a testament to the virtues of the network and the capabilities and the vision around it. So, obviously, it hasn’t been without stress or without any sort of missteps, I suppose, on behalf of many people, but certainly, I don’t regret the outcome, right? I think ultimately, like, Tezos is a great community. It’s got a great ecosystem around it. I’m really excited about the future, and that’s largely because, you know, 30 thousand vaults were opened up by tremendously talented, and interesting, and excitable individuals, all of whom bring something to the table and something to the ecosystem.
Laura Shin:
But in this case where we’ve seen that the regulators now do seem to be maybe trending in the direction of making a distinction between tokens that are sold before the network is live versus tokens that are sold once the network is live, like for instance, with the Wyoming laws, which, for listeners who aren’t familiar with that, you can listen to an episode I did on Unconfirmed with Caitlin Long, who was instrumental in pushing those laws through, but that is one distinction that the Wyoming laws make, and then here with kind of…
I mean, this is very indirect, but with SEC director Hinman’s remarks about Ether no longer being a security. The way he phrased it was, you know, leaving aside the manner of sale…you know, so he was kind of implying that, at the time of sale, perhaps Ether was a security, but now it’s not, which, again, makes that distinction between whether the network is live or not, like despite, you know, this new development, and the way the regulators are talking about what determines whether something’s a security or not, you still feel that you would’ve done the sale before the network launch?
Kathleen Breitman:
Well, functionality of the AlphaNet has largely been unchanged since February 2017 when it was made public. So I think it’s a little bit unfair for you to ask me this because quite a bit has happened since the fundraiser, and I don’t know exactly what could be done today. So, you know, unfortunately, like, I don’t think that…I really can’t answer that. You know, I’d like to, but like, there’s a lot of facts and circumstances that have changed since July 2017, well, July 13, 2017 to be more precise.
Laura Shin:
You’re the CEO of Dynamic Ledger Solutions, which owns all the intellectual property for Tezos, but will eventually sell it to the foundation. What is the purpose of having two different entities, one corporate and one nonprofit?
Kathleen Breitman:
I think for us, what we kind of saw as the beauty of that was a clean break between the foundation’s responsibilities and DLS’ responsibilities, and the clear line between, like, what the founders would get and what would go back into the general ecosystem. So basically writing a clean line was kind of the benefit of that, ultimately.
Laura Shin:
And so the previous head of the foundation was a man named Johann Gevers, and this is sort of the elephant in the room that we’ve been moving around, but you had several disputes with Johann, and so I’m going to start by kind of describing what appears to have happened here, and here, I’m summarizing from the Wired cover story on Tezos by Gideon Lewis-Kraus, which I will link to in the show notes, and I interviewed Gideon for my other podcast, Unconfirmed. I’ll link it, too, in the show notes so you can listen.
So immediately after the close of the sale, Johann proposed a COO for the Tezos Foundation, who he also proposed would serve as COO for his own startup, Monetas. He then appears to have proposed a contract for tokens for himself that he told you would be worth hundreds of thousands of dollars, but privately expressed to other people was likely worth millions. After his suggestion for the part-time CEO for Tezos field, he tried to get the COO of Monetas installed as the Tezos CFO, but didn’t disclose that conflict of interest. He also directed the other foundation board members to stop talking to you and Arthur. What kind of due diligence did you perform on Johann?
Kathleen Breitman:
Good question. I think that’s something that Gideon doesn’t go into a tremendous amount in the Wired story, though, obviously, it’s a very exhaustive piece. Yeah, I mean, certainly, Arthur had encountered Johann, and he had positive interactions with him previously, but I think what’s more, Johann was both recommended by many prominent people in the so-called Crypto Valley. We did the standard background checks on him, but the man has lived in several different jurisdictions.
And so they weren’t perhaps as exhaustive or thorough in retrospect, but certainly that type of diligence was done, but what’s more, like, you know, the guy was introducing Arthur to pretty much anyone who, you know, “mattered,” all the movers or shakers in the Crypto Valley ecosystem, and so I think it stands to reason if you’re kind of importing Silicon Valley logic to general business practice that, yeah, you know, why would someone pick up the food from someone who they didn’t quite think was a credible source?
Why would politically connected and very savvy people engage and actively fraternize with someone who they didn’t think was a person of good standing or had character? So it was a mix of just general positive attractions, also the types of things that Johann had represented himself as doing. For example, he I think indulged a bit on Monetas’ success, and in fact, Laura, several people who contributed to the Tezos fundraiser are also investors in Monetas, none of whom felt the need to contact me about any of this until well after the news of Monetas’ bankruptcy came to light, for example.
So I think it was just a general air of he seemed very well respected. There was nothing terribly suspicious in his background, of what we knew, of course, and you know, the guy also I think misrepresented himself, or maybe he represented what he felt was a version of the truth, but which didn’t check out with reality.
Laura Shin:
I was curious, you know, you raised all these questions about why it is that different people in Switzerland’s Crypto Valley did respond to Johann’s calls and why they seemed open to doing business with him. Why do you think that is?
Kathleen Breitman:
Well, in retrospect, I have no idea. I mean, this whole thing has been very confusing on several fronts, and some of this stuff, just, you know, it’s not worth trying to figure out what happened, because the past is the past, but certainly, a lot of things look very odd in the strange light of day.
Laura Shin:
So meaning, at the time, it seemed like he was somebody who was a really respected and a central player in Crypto Valley, which is where you wanted to set up your Tezos Foundation, and then it turns out now what is your perception of him?
Kathleen Breitman:
Well, I think the show’s very PG-13, so let’s try to keep it that way. I mean, I don’t have very nice things to say, which, I think if you read the Wired piece, is eminently clear.
Laura Shin:
And you don’t have any theories as to why things seemed one way on the surface and so different when you began working with him?
Kathleen Breitman:
Well, I think that, like, certainly the amount…so I think there’s a few things that happened, if I’m going to be a little circumspect about it, but I think that part of this was like Johann has never really had a lot of professional success, and certainly Monetas was apparently going down the tubes while Tezos was gaining a lot of notoriety and popularity in the crypto ecosystem, and I think that what might’ve been a very earnest attempt to be a board member turned into something a bit more opportunistic once a lot of money was pledged to a foundation that he had an inordinate amount of control over.
I think that another part of this is that, in general, it seems as though there’s a lot more emphasis and veneration for being agreeable rather than being confrontational in at least the Zug business culture, of which I was, you know, rather surprised and rather disheartened to kind of find out firsthand, and so I think the path of least resistance isn’t to just castigate someone who is acting in a certain way, and that’s certainly not the case in New York where I come from, and it’s really not the case in Silicon Valley. So I think there’s a cultural element to this where, like, there’s a path of least resistance to kind of have Johann do whatever Johann wanted to do.
And then what’s more, I think that this man who is middle age and has never really seen a lot of success, who I think struggles with relationships to reality, you know, kind of had an opportunity to sort of reshape his image in this area that he clearly felt a deep personal commitment to. He’s credited as being the founder of the Crypto Valley, and so I think he was trying to look for a way to recover his ego and find some success, and he was being very opportunistic in trying to change the tone or the tenor of the Tezos project when given the opportunity.
Laura Shin:
And to go back to the due diligence you guys did, who did you talk to, and what kinds of questions did you ask? Because, as you mentioned, it seems that people later did come out of the woodwork and really tell you what their history was with him, and it wasn’t very positive. So, you know, what did you do at that time? What did you ask and who did you talk to?
Kathleen Breitman:
Oh, well, you know, I’d rather not implicate anyone who’s still doing business in Zug, like, lest the foundation to work with them, but suffice to say, there are a number of different people who are very prominent in the Bitcoin ecosystem who lauded Johann for his deep pockets but short arms and his business savvy. I know several former employees of Monetas who never uttered a negative word about Johann, but who later went on the record, for example, talking about his malfeasance, and how he had defrauded many of them.
And so, yeah, you know, I’m just as surprised, frankly, that people kind of didn’t mention anything at the time, but certainly, I think we were relatively…you know, obviously, hindsight is 20/20. I certainly didn’t enjoy my time with Johann at the foundation’s head or foundation board, but certainly, we did try to understand the character of the guy, and really no one ever said anything nasty about him beforehand, but when a lot of the allegations came to light, many of the people who contacted me had also disclosed that he had threatened them with lawsuits if they ever uttered a negative word about him.
So I think there’s a fair amount of bullying going on, as well, and again, this path of least resistance to just be quiet was certainly aided and abetted by the fact that he’s a rather litigious gentleman who seems to relish bullying other people and trying to take litigious action against them if they cross him.
Laura Shin:
And just so I’m clear, are you saying that the people that you contacted for the due diligence were then later the same ones who then revealed to you what their true experience had been with him, or were they different people? So the ones who had given him positive reviews from different from the ones who later told you negative things about him?
Kathleen Breitman:
I would say there are about 40 percent more people who came out after the fact, but there was still a pretty big cohort of people who thought it was great that Johann be at the head of the Tezos Foundation, thought it was a great choice and congratulated me even on, like, nagging such a successful person in the Zug ecosystem, and then, like, I don’t know, I remember in October, I got a phone call from someone who had characterized Johann as having deep pockets but short arms and very fiscally responsible who was like, yeah, no one likes that guy.
So, you know, I have no idea what sort of tune changed, but I certainly have a rolodex of people who I knew before and after the Johann debacle, and I’m not going to name names and throw people under the bus because most of them are just innocent folks who are either early on in their careers or who are just private investors who got swindled by Johann in their own way through the Monetas debacle, which is another crazy story.
But you know, I think everyone just kind of thought what’s the worst this guy could do, and maybe they didn’t think it was worth kind of going out on a limb to just warn me about his potential malfeasance, but certainly, a lot of people came out of the woodwork and contacted me from Johann’s previous circles, and you know, what was even kind of weirder is I have a handful of mutual friends, at least on Facebook with Johann, and so I would reach out to them. It’s like, well, you know, Johann always spoke very highly of you, and I know you’re close friends, and they’d be like, wait, what are you talking about?
I met that guy once at a conference five years ago, and so I kind of got this picture of a very lonely and aggressive person, and I have no idea exactly what prompted people to do this, but I think just kind of the order of damage of what he did to myself and my husband is far greater than everyone else probably…anyone could’ve imagined, frankly, and so I don’t think that anyone could’ve ideated that someone whose incentives were so clearly aligned with the project being a success would try to push it by the wayside and basically stop the project’s productivity dead in its tracks when given the opportunity. I think it’s the combination of a lot of things, and I’m trying to be sympathetic to people who didn’t speak up before, though, as someone who’s a bit confrontational in my own personal life, I did find it a bit appalling.
Laura Shin:
Hey, listeners, after recording this episode, I asked Johann for a response to the claims about his behavior made in the podcast. He invited my questions, but did not respond to the three emails that included the questions. We’re going to discuss how you broke the deadlock and what it is that you plan to do with Tezos now that you’ve launched the Betanet, but first, I’d like to take a quick break to tell the listeners about our fabulous sponsors.
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Laura Shin:
I’m speaking with Kathleen Breitman and Ryan Jesperson of Tezos. So how were you able to eventually break the deadlock? And I think Ryan also might finally jump back in here.
Ryan Jesperson:
You know, I’d started hearing about the dysfunction of the Tezos foundation, and I think as well as all of the other community members, was just really concerned, obviously, about allegations that were going back and forth, and the apparent just inaction of the foundation and really providing meaningful resources, or any resources, towards what they were intended towards, you know, for the Tezos protocol, and so starting the first part of December of 2017, I started to get ideas about how to help organize the Tezos community and really make sure that the Tezos community’s voice was heard in what was happening.
And so we launched a petition the first part of December, and admittedly, initially, you know, as the first signature started to come through, I was just hoping, come on, you know, let this be something that we can rally around, and let us kind of unite our voices to make sure that we’re being heard, and it was really neat just to see the strength and the resilience of the community and to see everybody from all around the world. We ended up with almost 2 thousand signatures from over 95 countries.
And to see that wide just diversity of community members unite around these theme of, hey, like, we want to make sure our voices are heard and help to resolve this dysfunction at the foundation, it was extremely encouraging, and so because of my background more as an executive role and I’ve been boards before, I knew that it was great that, as a community, we were uniting around this cause, and that we were signing their petition.
But also at the end of the day, you know, for the people that had mattered to have hear this, they probably wouldn’t give a lot of deference or weight to a group of disparate community members signing a petition online, but we really needed to represent it in a way particularly to the supervisory authority, the authority in Switzerland that oversees foundations, just so that we could present this in a format to the body who helps, you know, oversee foundations in Switzerland. So there was a conversation I had with my wife.
She’s been a saint through all of this. I’m married, and then I have three small children, and so I remember talking to her and just saying, you know, honey, really, I believe in this project Tezos, and to really make sure that everyone’s voice is heard, I would like to hire Swiss counsel, and I need to start sending them money to be able to help this effort to move forward, and so I started paying for competent Swiss counsel to represent that voice of the community to the supervisory authority and really doing it with the perspective of just trying to help find a solution to the problem, and so not adversarial, necessarily, in nature, but just, hey, let’s figure out a way out of this, and then after that, we started to think as a community. You know, maybe we should…still no resources are flowing.
And so maybe we should start some sort of organization and just all donate ourselves to this and provide resources towards development, because the funds aren’t flowing from the foundation, and then after that, you know, we started to realize that, look, I mean, we need to solve a problem that’s bigger than that. You know, we need to make sure that there is a safe place for the network to launch if the first foundation can’t get its act together at the Tezos Foundation, and I think what’s really incredible about this time period that people don’t realize is just I think the grit and the determination of Arthur and Kathleen is incredible in all of this.
I think hats off to the development team who continue to work and progress towards the launch of the protocol and work on the code, like, heads down despite all of the conflict that was happening and the lack of resources. So we wanted to provide a safe place for the network to launch, and so we, in essence, launched what was called the T2 Foundation, which would be an alternative foundation that the network could launch if the first was not able to do so. A Swiss foundation had recruited a strong board to represent that foundation, but still the tenor and the disposition was, hey, it’s not adversarial to the Tezos Foundation. It’s really not.
We just care deeply about the technology, and we want to help find a resolution to the situation, and so I think through that process and then just because of maybe kind of the disposition, and I’m a fairly calm person. I like to just kind of logically go through things and just deeply care about the protocol, the project, and so I became this, you know, trusted intermediary to help to I think find a way out of that dysfunctional state, ultimately ending with Johann Gevers stepping down from the foundation, you know, me being made the president of the Tezos Foundation.
And then immediately after that, or very soon after that, we expanded the board to a seven-person board to help ensure that the foundation would never return to the dysfunctional state. We had very competent people on that board. You know, Olaf is on that board. We have premier research scientists. You know, the first female in Switzerland to receive a master’s degree in computer science is on that board. Just a global representative board that really, you know, cares about technology and about Tezos.
Laura Shin:
Let’s rewind to that point where there was still the standoff between the Tezos Foundation when Johann was in charge of it and Tezos or DLS. At that time, the amount that you guys had fundraised had ballooned to I think 400 million, and so what was actually happening at that point? The foundation was in control of the funds, and for that reason, you couldn’t hire developers to continue developing the network for launch? Is that what was going on there?
Kathleen Breitman:
Well, the arrangement was that after the fundraiser, the foundation would basically pick up where DLS left off, and it would fund the last bits of development, which included code reviews and audits, which are rather capital intensive, and so the expectation was that the developer contracts would be sent over to the foundation, and the foundation would renew them and carry on with employment of the development team and also contract out for a variety of other different operational rules which had to be covered for launch. I mean, I think it’s pretty well documented that they did absolutely none of that, and so the developers who, again, are the real heroes in this story…
Like, if there’s anyone who’s just above reproach, it’s the development team. I think the interview that they did with Gideon and really touched my heart quite a bit was that they just basically came into the office every day as though nothing was awry, as though they would chip this by hook or by cook, to use a phrase, and so they really kept their heads down, and they just focused on the project. There was no hemming and hawing. There was no drama in the office. It was almost eerie because we had all these, like, pieces written about us that were talking and spelling doom about the foundation.
We had people writing harassing emails to Arthur and myself and trying to extort us and give us death threats, but no, the dev team just kind of like stayed on point and just kept on doing what they were doing, but yeah, that was the expectation that the foundation would fund the last bits of development and I guess, you know, eventually, they did do that, but certainly, that was the beginning of acrimony with…the foundation was being remiss in its obligation. So I think the most successful thing that Johann did in this whole public saga is that he framed this as a personal dispute between Arthur, myself, and him.
Whereas I think, you know, there’s a bunch of people who have a vested interest in this project and who are given employment contracts, so on and so forth, who were also very deeply hurt by the actions or inactions that he took, and so I think it was more of a miscarriage of justice against the project at large and not necessarily something that was like DLS versus the foundation. Like, in theory, we’re all, you know, rowing in the same boat, swimming in the same direction, and so there’s no reason for there to be personal acrimony over one party’s failings to do their very basic task.
Laura Shin:
And then just to understand how T2 played a role in finally moving things forward, T2 didn’t have money. Is that correct? So how were you planning to use T2 to launch the network?
Kathleen Breitman:
Ryan, would you like to take that?
Ryan Jesperson:
Sure. You know, T2 did not have any money except for the money that I paid for legal fees in different things. So I think just providing a safe place for the network was the most important thing for us. I mean, ultimately, yes, there were significant funds raised during the donation period, but what we care about mostly is to see, you know, the Tezos project succeed and to go live and to make it, and yes, the funds helped to promote the Tezos protocol, and it’s going to help the ecosystem, and there’s a lot of uses for it, but we were going to find a way, some way, to make it work.
Laura Shin:
It was reported earlier this year that the SEC had sent subpoenas to dozens of ICO issuers and other providers. Did Tezos receive a subpoena from the SEC?
Ryan Jesperson:
We don’t comment on any regulatory matters.
Laura Shin:
Okay. So you can’t say anything at all about whether you not you have received a subpoena? There was an article that came out in fall 2017 that said that you guys had not.
Ryan Jesperson:
As far as legal and regulatory matters, we don’t comment on that. So I wouldn’t take it as one way or another that we don’t comment.
Laura Shin:
Okay, and just to go back to the amount of money that you personally put in, wasn’t it 50 thousand?
Ryan Jesperson:
It was. Yes.
Laura Shin:
Okay. So, just out of curiosity, we have a lot of these ICO projects that are turning to the Swiss foundation structure. What lessons do you feel like you’ve learned about using that structure for ICOs and for managing decentralized crypto networks?
Ryan Jesperson:
You know, I think generally, I’ve certainly had a great experience as I’ve moved to Switzerland. The ecosystem, the Swiss in general, have been extremely gracious and kind to me and my family and our children. I represented after I became president of the Tezos Foundation immediately that I would move my family to Zug, and so my wife and kids, we now live there. We’ve lived there since the first part of April, but really wanted to represent that, number one, the Tezos Foundation, you know, things had changed.
We were moving forward, and also, secondarily, that we want to be the model for how this type of project, for how this type of foundation structure should work moving forward, and so, as I mentioned before, we quickly expanded the board, and I’ve had a great experience in Switzerland. I think that, you know, in general learnings, there’s probably several key points that can be takeaways as far as moving forward, as far as this kind of structure, but hindsight is always 20/20, right? But I think that a large board, a strong board, I think that a clear strategy and focus on what matters generally as the foundation, we’re not about the hype.
The focus is on delivering technology and cutting edge technology that can change the world. I think, secondarily, you know, really staying true to that ethos and that mission of decentralization, we are really focused on that. That, you know, the Tezos Foundation is part of a larger community, the Tezos community, made up of scientists, or researchers, of developers, enthusiasts, activities, and we’re all part of this community together. Now, the foundation does have a somewhat unique role, obviously. It has significant resources that’s been given.
And our job and mission, as I see it, is to be wise stewards over those resources and really use them effectively though grant-making processes and other similar means to help the community to enable them to build the Tezos ecosystem and the Tezos community and to thrive globally. So I think that a combination of those things. I think that staying true to those roots of decentralization, staying true to some basic, you know, governance rules as far as size of boards and whatnot, and then, you know, having people involved that deeply care about the technology, that combination is a combination I think that sets us up for success.
Laura Shin:
Let’s talk about what you were mentioning before about how you’re putting all these resources in to make sure Tezos succeeds. Ethereum has the lead in the smart contract platform space now. EOS launched June 1. You guys launched your Betanet June 30. We’ve got DFINITY, CADENA, Hashgraph, Polkadot, Tari, Algorin, all these others that are sort of kind of in a similar space in the blockchain / crypto world, and they’re all either going to launch soon or are in the works. What’s your plan for success with so much competition?
Ryan Jesperson:
Sure. I think generally it’s a few things. So one of them I think is deploying the resources for their intended purpose in a meaningful manner. So we just announced a grant program where we’re going to be expanding, you know, significant resources towards research institutions, local community groups, the Tezos community, people who are building tools and applications to work with Tezos’ significant grant-making process to allow the entire community to come forward and to be a part of building the future of Tezos.
So I think expanding our resources is going to be a significant part of that. We’ve already announced partnerships with premier research institutions and different kind of tooling and software helps that will help people interact with the Tezos network. I think the second part of this is an interesting one that I’ve been thinking a lot about lately. So, you know, part of it is obviously expending resources and being a wise steward. I think the second part is that, you know, I think when all is said and done, as we go forward two years and kind of look back, generally, I think it’s not just about the genesis block, and I say that broadly meaning technology.
But it’s also about the genesis story and about the network and about the community that’s created, and a lot of people look at the dysfunction of the foundation, and you’ll see a lot of headlines about, hey, here’s what went wrong, you know, this and that, and the media likes to gravitate towards, you know, a headline, right, you know, something negative, but really, I choose to see it…and I believe it’s going to be the opposite. You know, in any successful…whether it’s in someone’s personal life, whether it’s an entity or even a society, people reach these points of adversity and sometimes severe adversity, and sometimes people shrink. They step back. They decide to quit.
They give up, but those who are successful push through the adversity and push through that brick wall and come out the other side, and they’re tremendously successful, and they’re successful not in spite of what happened to them, but really because of it. So when we look at the CoreDev team, when I look at, you know, the effort that Arthur and Kathleen have made, when I look at the community, I mean, in what world does a normal community member become the president of a foundation that, depending on the time, has nearly a billion dollars worth of assets.
But this is like the strength and the caliber of the people that we have involved in the ecosystem, in the Tezos community, and I think that people haven’t quite realized that yet, but it’ll become increasingly apparent that this is a tremendously galvanized group. It’s a group that’s gone through adversity, and we’ve come out the other side, and so I see that as this tremendous source of strength, that through the Stanisis story, I don’t know if that’s something that’s replicable, you know, easily.
Laura Shin:
Yeah, well, I think it remains to see how well you’ll come out the other side. I don’t know if this story’s completely over in that, but…
Ryan Jesperson:
It’s not, and I should phrase this correctly. There’s a long way to go, and there’s obviously a lot to be done, but I think having overcome the adversity that we have and having launched the Betanet and the direction that we’re going is an extremely positive step.
Laura Shin:
Well, let’s talk about some of the challenges because Tezos is written in these languages OCaml and Michelson, which are not very well known, and it has an interesting feature. I don’t remember if we spoke about it much yet, but you know, here it is. A lot of these blockchain platforms and smart contract platforms are dealing with or creating financial systems, and as we saw with the DAO hack where 15 million dollars was pilfered from a 115-million-dollar venture fund that was a smart contract, but the reason it was pilfered was because the code allowed somebody to do that. You know, we have seen kind of a need for something called formal verification which is what Tezos has, but I don’t know if that many developers care about that. You know, Ethereum doesn’t have it, and so this is like a high friction choice for a developer to try to building on TV. How do you plan to persuade developers to building on Tezos?
Kathleen Breitman:
So formal verification…just to clarify, Laura, formal verification isn’t a feature that different has or doesn’t have. It’s an operation that can be performed on the code base in order to prove certain things about its behavior, and so it’s kind of you could formally verify a ham sandwich, right? Like, it’s an operation you do on something, and the feasibility of doing so is kind of contingent on how things are written and what it strives to do and what you’re testing for, right?
So there’s only a certain limitation or a certain scope. It’s not a silver bullet. It’s not an end all, be all, bur principally, you know, if I do have one thing to clarify from this framework is that it’s not a feature. It’s something that can be performed more easily in Tezos, and you know, to pick up on your previous question, I think this ties together. Tezos was built with formal verification in mind, and so formally verifying certain smart contracts in Tezos is much easier because the code was constructed with those operations in mind, but I think if I’m going to just praise the team ad people who’ve been attracted to the project so far, I think that’s Tezos’ key differentiator.
These are really, really exceptionally talented folks in the OCaml community who’ve kind of come together and rallied around Tezos. The person who invented the language is part of the team that did the code review on it, for example, and so you have extraordinarily high caliber folks, many of whom often team with things like very large financial contracts, and the hedge fund industry, for example, or the aerospace industry, or nuclear engineering, so on and so forth, and so there’s a lot of academic discipline and rigor that’s been imbued in the code base and the team.
And I think that’s acted as a magnet and filter effect on the people who have been attracted to Tezos, and I’m extraordinarily proud to the people whose résumés kind of come through to the foundation, because they’re all extraordinary talented people, and so I think that’s been a very good differentiator. I also think that the team had a lot of foresight and a lot of discipline when they were building out the code base in the sense that it would’ve been very easy for Tezos to have launched with proof of work, for example, several years ago just for the sake of getting it out.
But the team has so many high internal standards, that I think that would’ve been sort of an anathema to their taste, and so, you know, I don’t know if Tezos will be blockchain in existence in 20 years, but one thing that gives me solace and comfort is that the people who’ve been attracted to it are consistently just so extraordinarily rigorous in their thought, and they’re so proud of their work, and they take a tremendous amount of pride in what they do, that compromise just isn’t something that they really focus on.
Laura Shin:
And how do you convince them, like the larger subset of developers who probably don’t know these languages, how do you convince them to come over and build on Tezos?
Kathleen Breitman:
Well, it’s funny you should ask that, because in 2014 when the Tezos white paper was published, OCaml was still relatively obscure in the US, for example. Like, I’d never heard of it, and so…well, I guess I had heard of it, but I didn’t know how to program in it. HESCO was far more popular in the US, for example, as a functional programming language, but in recent years, companies like Facebook I think has also stumbled upon the fact that OCaml is actually a really good language to write languages in.
It gives you a lot of great properties for free, and there’s a lot of extensive tools around it, and so Facebook is using OCaml to write some sort of AI engine an a proprietary language that they’re using internally, and so I think a lot of people have picked up on what we thought, which is that a blockchain is ultimately a programming language, and OCaml’s an extraordinarily useful tool for this. So I think you find some developers who want to work with Tezos who are a little bit shy about OCaml and switching into something that’s not as popular in, like, for example, the United States.
But good devs can learn languages pretty fast. I remember when Arthur was working in finance, every time he switched jobs, whether it was a banker or hedge fund, he’d have to learn their proprietary language and how they did it on the desk, and usually it was a matter of weeks before he was competing with his desk mates over who wrote the cleanest code, and so I think, you know, good devs aren’t dissuaded by that sort of stuff.
I do think that because OCaml is a little bit obscure relative to other programming languages, it does necessitate better declarative languages _____ 00:54:39 on top of Michelson and compiled onto Michelson so that more novice developers can have greater use of the platform in a more accessible way, but I think those bare bones that really have an eye on formal verification, for example, will make Tezos a really interesting option for people looking to build smart contracts.
Laura Shin:
You mentioned your consensus algorithm briefly. Well, actually, you indirectly mentioned consensus algorithms, but you guys decided to go with Delegated Proof of Stake which is a system in which people can stake tokens, but also can delegate the power of their votes to other holders. Some critics say that Delegated Proof of Stake systems are plutocracies, government by the wealthy. Is that how you would describe your system, and is that the system you want?
Kathleen Breitman:
Well, I think plutocracy is kind of a pejorative way of saying it, but I think in general, we write about the virtues of having skin in the game to make major decisions, whether it’s in governance or in other sorts of measures, and so, by necessity, I think having these large blocks of delegates and delegators provides an interesting option for governance mechanisms, particularly because Tezos has what we’re trying to call liquid proof of stake, meaning you can kind of change your delegates in a dynamic fashion, and so you can quickly pick up on malfeasance and the like and make more dynamic choices, rather than having hard-coded people who have kind of a fixed stake. So the community has another option or recourse to kind of challenge incumbents, not just kind of a fixed or hard-wired solution.
Laura Shin:
And before we move on, can you just also describe what baking is so people know it’s sort of like mining in Tezos I guess?
Ryan Jesperson:
So, you know, baking is the method by which somebody helps to validate a network. So if you’re a stakeholder in the network, you can participate in a process called baking. Now, I think it harkens back to its French roots. You know, instead of a mining or a minting or whatever you want to call it, it’s baking on the Tezos network, and so it’s really encouraging to see the dynamics within the community and all sorts of people getting involved in this baking process.
And I think the neat part about it, as well, is I think aligning everybody so, you know, the validators are very much aligned with the people that are token holders, and it’s really neat to see the dynamic within the community, and also these different services pop up where you can, you know, delegate and delegates who are baking on behalf of other people, and that can be done in a very secure way on the Tezos protocol where you basically can give your rights, you know, to bake to somebody else to do it for you.
And maybe somebody else who is a little bit more tech savvy or better able to do that function, but it’s really encouraging to see everybody get involved, and I think the last calculation I did is I think we can have roughly 76 thousand theoretically different bakers helping to validate the network based on the numbers, but it’s encouraging to see how many different people are getting involved and want to get involved and to see that ecosystem really take off.
Kathleen Breitman:
Well, just to throw out some numbers, so far, there’s over 400 people who’ve registered as delegates in the network, and around 98 percent of people who’ve activated their tokens and participated in the network have taken part of the delegation process. So it’s been extraordinarily robust, and I think Arthur and I have both been pleasantly surprised at the sheer numbers of people coming out to participate in this part of the validation.
Laura Shin:
And when you say 98 percent, that includes both delegators as well as delegates?
Kathleen Breitman:
Yeah, basically, because who’ve either assigned that right to delegate to themselves or assigned it to someone else.
Laura Shin:
Oh, interesting. So, with baking, which, you know, as we mentioned, is validating transactions, is this linked with KYC/AML? Meaning are people identifying themselves?
Ryan Jesperson:
No. You know, the KYC/AML program, that was something that was done…it’s a one-time operation. You know, really, generally behind that, it’s something that, as a board, we personally are concerned about the needless accumulation and gathering of personal data on the internet and we really value data privacy. Clearly, the landscape continues to evolve in the industry, and best practices continue to evolve, and so it became clear that current best practices are to do KYC/AML, and so we made that part of the process before someone can access their token on the genesis block. That’s separate from the baking process. There’s no tie of the record to any bakers or personal information or that sort of thing. It was just a one-time process to make sure that we were…
Laura Shin:
So people’s personal data’s not connected to any public addresses?
Ryan Jesperson:
It’s not connected to any bakers or anything like that. No. The initial process was to say, hey, if you contributed to the donation period and do the KYC/AML for this public address so we can just verify that that address went through KYC/AML, but it’s not used for anything as far as baking or the ecosystem or anything. That’s very private information.
Laura Shin:
Okay, so, to wrap up, just I wanted to take a look at what’s going to happen going forward. What will be the first apps launch? What is sort of like the foreseeable roadmap?
Ryan Jesperson:
I see the ecosystem developing, you know, really well right now. So we started to fund different tools and solutions around Tezos through this grant-making program. So we have a grant out to Obsidian System. They’re based out of New York, and they’ve been helping with baking solutions and really helping to make sure that we have solutions that people are able to use, maybe people that are more tech savvy, but with the ultimate goal to kind of make baking easily accessible for anybody.
So it’d be neat, you know, some day, if you could order a baker in a box, for example. You plug it in, and it would be a technology solution that was very easy for you to bake with. One neat thing that’s happening now is the Ledger Nano S, traditionally, it has been used for wallet functionality and sending of tokens back and forth in a secure way.
We now actually see a ledger that’s being used for baking, which is I think a way of using a Ledger Nano S that’s never been used before to my knowledge, you know, as part of a proof of stake system to help validate a network, which is really interesting, and it’s really cool. I see other types of solutions, you know, different wallets and things that are popping up, a lot of tools around the ecosystem, and we’re just starting to see different groups start to pop up around providing solutions for different real-world problems. I think a focus for us that I would like to see generally within the Tezos community.
But I think as far as from a grant-making perspective, is we really want to connect the technology to real-world applications, to things that are going to change how we do things and really benefit not only people, but institutions. You know, can something be significantly done better because of blockchain, and what is that, and how can we help to support that? So we’re just in the beginning of this grant-making process to help enable that and facilitate that, but I envision and I look forward to some real-world applications popping up sooner rather than later.
Laura Shin:
Great. Where can people learn more about each of you as well as Tezos?
Ryan Jesperson:
You know, they can go to Tezos.com and look at the website there. There’s developer resources. It’d be great to continue to grow this developer ecosystem. There is more information as far as the grant-making process at TezosFoundation.ch. So those are two good locations to look.
Laura Shin:
Great. Well, thanks for coming on Unchained.
Kathleen Breitman:
Thanks for having us.
Ryan Jesperson:
Thank you. Appreciate it.
Laura Shin:
Thanks so much for joining us today. To learn more about Tezos, check out the show notes inside your podcast episode. New episodes of Unchained come out every Tuesday. If you haven’t already, rate, review, and subscribe on Apple Podcasts. If you liked this episode, share it with your friends on Facebook, Twitter, or LinkedIn, and if you’re not yet subscribed to my other podcast, Unconfirmed, I highly recommend you check it out and subscribe now. Unchained is produced by me, Laura Shin, with help from Elaine Zelby, Factual Recording, Jennie Josephson, Rahul Singireddy and Daniel Nuss. Thanks for listening.
