Speaker 1:
From the library of the New York Stock Exchange at the corner of Wall and Broad streets in New York City, you're Inside the ICE House. Our podcast from Intercontinental Exchange on markets, leadership, and vision in global business. The dream drivers that have made the NYSE an indispensable institution for global growth for more than 225 years. Each week, we feature stories of those who hatch plans, create jobs, and harness the engine of capitalism right here, right now at the NYSE and at ICE's 12 exchanges and seven clearing houses around the world. Now here's your host, Josh King, head of communications at Intercontinental Exchange
Josh King:
Intercontinental exchange, the parent company of the NYSE is hosting an event focused on bringing transparency to the crypto markets. Fair to say that no topic in recent months has been bigger in the financial discussion than cryptocurrencies and the underlying principles that govern them. It was all the talk at FIA Boca where we originated several shows back in March. And over the past year, we've seen a steep run-ups in the price of cryptocurrencies often followed by precipitous falls. In spite of this extreme volatility, the market continues to grow and some estimate it could reach evaluation as high as one trillion in 2018, making it one of the highest valued assets in the marketplace.
Josh King:
But that valuation is only the tip of the iceberg if crypto can gain acceptance by the professional or institutional marketplace. My guest today, Adam Back. Co-founder and CEO of Blockstream, a leader in blockchain technologies and financial cryptography. In March, Intercontinental Exchange and Blockstream launched a new service called the Cryptocurrency Data Feed, which captures 65% of crypto trading volume and delivers it through ICE's realtime feeds that are designed specifically for professional traders and investors. After he leaves us here in the library, Adam will sit down with ICE data services president and COO Lynn Martin for a fireside chat on the new data solutions available, and provide their perspectives on the challenges and opportunities for the industry. Our conversation with Adam Back, right after this.
Speaker 3:
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Josh King:
Dr. Adam Back is the co-founder and CEO of Blockstream and the inventor of HashCash. HashCash is the proof of work algorithm used in bitcoin mining. Adam has had an extensive career in cryptography privacy and security with a focus on distributed systems including the internet and bitcoin. He's held leadership roles at technology companies such as EMC, Microsoft, Nokia, VMware, and holds a PhD in computer science from the University of Exeter. It's our pleasure to welcome Adam Back Inside the ICE House. Welcome, sir.
Adam Back:
Hi, thanks for having me.
Josh King:
So is it odd that as some people would describe you a cyberpunk like yourself would end up as the keynote speaker at an event at the New York Stock Exchange?
Adam Back:
Well, I mean, I've had a career which has been relating to bringing cryptography to industry with startups and with larger companies, but usually with an interest in privacy or electronic payments, cryptography encryption, and that technology has a kind of intersection between providing commercial values, commercial confidentiality, and also providing value to end users for privacy. And I think we take the internet for granted these days, but in the early days of the internet, there was a tension between the democratization and direct access to publishing, for example, with blogs and so on. So seeing cryptocurrency available in the market is I think, another one of those kinds of events. So we'll see how it plays out. In many ways it's early days for technology.
Josh King:
How did your career progress, what were the first jobs you were asked to do and the things that you learned along the way to this point?
Adam Back:
Yeah. I joined a startup called Zero Knowledge Systems in the late '90s, and that startup was interested in providing privacy technology and encryption, and they were actually a licensee of a previous generation's electronic cash system. And that was how I ended up working for Nokia as well as an advisor or consultant through Zero Knowledge Systems. They were exploring electronic cash protocols for mobile phones. And I'd also implemented the brand's electronic cash system as an open source library. So I had spent quite a lot of time being interested in applied cryptography and advancing the state of year of electronic cash through the years.
Josh King:
Why did you decide to launch Blockstream?
Adam Back:
Well, it seemed that there was not that much commercial support for protocol development in cryptocurrency. So pretty much all of the work at the time, so this was late 2013, we got our funding in 2014.
Josh King:
Who funded you?
Adam Back:
So the lead investor was Reid Hoffman, and I also had some money from Khosla Ventures and a number of other investors. And that was the seed round, and in the A round, the lead investor is Horizons, which is Li Ka-shing's company.
Josh King:
And we were talking before we went on the air about Blockstream is virtual where you put People.
Adam Back:
No, the headquarters is a Canadian incorporation and then we have a subsidiary in the U.S. We have some offices in Canada, offices in the Bay Area, and we have a subsidiary in Malta through the acquisition of the Green Address Wallet. And yeah, it's a distributed company. We need to are the talents and expertise of experienced developers in bitcoin technology. And so we end up picking them up wherever they are, and people are maybe not at a point in a time where they want to relocate to the bay area, for example.
Josh King:
And you make your home very happily in Malta.
Adam Back:
I do, yes. A lot of travel involved, of course. Because of the offices in different locations and conferences and business things.
Josh King:
But the Maltese government has proven itself very hospitable to Blockstream investment and technologies.
Adam Back:
Yeah. They've recently had quite a bit of discussion about making cryptocurrency company friendly with financial regulations. And so there have been in the news in the last month, a couple of bitcoin exchanges considering locating to Malta, The Rock Exchange has been in Malta for many years, actually.
Josh King:
So you launch Blockstream in 2013, what have been the biggest shifts in the cryptocurrency space since you launched?
Adam Back:
I mean, actually the pace of interest has been much faster than we anticipated. So people talk about internet time and it seems that bitcoin or blockchain time is faster. So, back in 2014 where we got our funding, we were thinking it would be quite some years before banks would be interested in the technology. And that obviously evolved very quickly. The scale and scope of mining also was phenomenal. At this point, most banks have some personnel who are looking at blockchain and trying out different things. So that was not at all certain, and the pace was much faster than expected since when we started. And the regulations were also less clear at that time, so I think the regulatory basis is much clearer at this point.
Josh King:
I mentioned at the beginning of our conversation that you are credited as being the inventor of Hashcash. And this attracted in 2008, the interest of Satoshi Nakamoto. First for the doubters, can you confirm that Satoshi really exist?
Adam Back:
I've never met the person. It didn't occur to me when I received the email that this was a pseudonym. I assumed it was somebody's real name. From time to time, I did receive email from academics or applied researchers. So I thought it was another one of these kind of people. Yeah. So, I mean, bitcoin went on to use HashCash for far more intensive work. I mean, the kind of work for email was calculated to be about half a minute or a minute's work for a laptop or desktop to not be annoying to the sender, but to be cumulatively expensive to somebody who wanted to send millions of email. Where bitcoin does work which is trillions of times more intensive than that across thousands of computers around the world.
Josh King:
So what was Satoshi actually looking for when he contacted you?
Adam Back:
I think at that point he'd already written the paper and presumably the implementation that was released in January, 2009. And he was just looking to refer to the paper and I referred him to another paper called B-money, which he went on to site in the paper.
Josh King:
Had you thought at that point about the financial aspect of HashCash before this or were you mostly thinking it's computation capital potential?
Adam Back:
Actually, I mean the HashCash system, I posted it with source code and later released a paper. And so the original release was in 1997. So it's quite a while before. And people were intrigued and looking around for ways to make it into a re-spendable money. And so by '98, it was about a year later, Nick Szabo who's quite well known in cryptocurrency circles as the inventor of smart contracts had proposed a system called Bit Gold and Wadi had proposed a similar system called B-money. And they were sort of designs, but they weren't implemented or realized. And so in terms of their proposed functionality, it was quite similar to bitcoin, but there were gaps in the design that I guess Satoshi figure out later.
Josh King:
What did you think of it when it first came out?
Adam Back:
I mean, I thought it was pretty interesting that somebody had solved the remaining problem, a technical problem. So the problem that many of us had had when we'd try to figure out how to do this kind of thing in the late '90s was how to control inflation of the coins. Because if you can do work to create coins, you can just do more work and create more coins. And if they're valuable, you'd get runaway inflation. And so, the solutions filled out that Nick Szabo would propose and so on relied on traders and markets and outside human influence. Whereas Satoshi had managed to find a way for computers to automate that, which is he just fixed the rate of supply and let the market determine the price. So that was to my mind, one of the key insights.
Josh King:
The last six months we've seen extraordinary fluctuations up to and above $20,000 per bitcoin, and now somewhere around to the high six thousands, has this gyration surprised you? Where do you see it going?
Adam Back:
I mean, it's been volatile for a number of years now. And so I presume we'll see more volatility. Things seem to be picking up a bit. I think we've touched 9,000 a couple times in the last week. There are various theories in the market, puts theories on the price afterwards. One of them being-
Josh King:
Taxing.
Adam Back:
... Selling for tax season, yeah. In Japan and the U.S. particularly. And now that's over. It seems to have support the price gains they've seen the last week or so.
Josh King:
The introduction of futures contracts affecting it at all the way you see it?
Adam Back:
It's an interesting product because it gives access to different players. And some of the retail service providers have resold the futures. So it's another form factor for people who don't want to do the IT management to manage bitcoin directly.
Josh King:
After the break, we talked to Adam Back about the partnership that Blockstream now has with Intercontinental Exchange.
Speaker 3:
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Josh King:
Back now with Adam Back. You are now after the career that we've talked about Adam, the CEO of Blockstream, which you co-founded in 2014. And against the backdrop of doing this new deal with Intercontinental Exchange, it's worth laying out in as much detail as you feel comfortable sharing with our listeners exactly what Blockstream does.
Adam Back:
So Blockstream is a bitcoin and cryptocurrency and blockchain infrastructure company. So we build various pieces of infrastructure that other companies use. And we also have some retail offerings as well. So other than the price feed with the Intercontinental Exchange for bitcoin and some other cryptocurrencies, we have the Liquid Network which is a blockchain for inter bitcoin exchange settlement to improve liquidity in the bitcoin market. We also do work with Lightning, the new faster and more scalable layer for bitcoin. And we have a bitcoin wallet called Green Address that we touched on earlier, which is used by a number of users. And we have a bitcoin satellite network, which is broadcasting bitcoin transaction data down from satellites, which is pretty cool.
Josh King:
We're having this conference today at the New York Stock Exchange on cryptocurrencies and bringing more transparency to them. If we were having this conference in five years, what do you think we would be talking about?
Adam Back:
I guess, we'll see. But at the speed things go, five years was a really long time. So, I would expect ETFs. Another thing that seems to be changing is the institutional interest from funds to have a way to buy bitcoin. Another aspect that's in development at the moment is custody solutions, because even though it's digital, it's a better asset. So you do have to have strong and secure custody. So we expect to see those developed and in play.
Josh King:
As you and your colleagues at Blockstream focus on some of the things that aren't necessarily five years down the road but six months or one year down the road, what makes you most excited?
Adam Back:
Well, I mean, the pace of changes is pretty exciting. So it's a bit of a fire hose keeping up with the cryptocurrency space. We are pretty interested to see what we can do with the liquid exchange network that we're doing with some of the same exchange partners that are part of the data feed. And one of the things we want to get to there is to be able to facilitate trustless exchange and get higher liquidity.
Adam Back:
So today bitcoin exchanges operate in a similar way to a conventional exchange, which is the participants make their wire transfers to the exchange. And in terms of the cryptocurrency, they deposit the actual coins on the exchange. So there with the blockchain smart contracting, so the small programming language that can attach to assets on the blockchain, it's actually technically possible to do what we describe as trustless exchange. So to put a limit order on exchange without giving the exchange custody of the assets. So that's pretty interesting because to date, that's improving with more experienced players in the market.
Adam Back:
There have been historically issues where the exchange has lost custody of the coins. And so it's attractive to institutional investors that they can keep custody of their own assets and yet still be able to trade on the exchange. So we're interested to bring that to the market. And I think it demonstrates some of the value of blockchain versus conventional financial technology. So it should really be used to its full advantage.
Josh King:
Adam Back, thank you so much for joining us on this episode of Inside the ICE House.
Adam Back:
Thank You.
Josh King:
That's our conversation for this week. Our guest was Dr. Adam Back. Co-founder and CEO of Blockstream and inventor of HashCash. If you like what you heard, please rate us on iTunes so other folks know where us, and if you've got a comment or a question you'd like one of our experts to tackle in a future show, email us at [email protected] or tweet at us at @NYSE. Our show is produced by Pete Ash and Ian Wolff with production assistance from Ken Abel and Steven Porter. I'm Josh King, signing off from the library of the New York Stock Exchange. Thanks for listening. Talk to you next week.
Speaker 1:
Information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties express or implied as to the accuracy or completeness of this information and do not sponsor, approve, or endorse any of the content herein all of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security or recommendation of any security or trading practice.
Speaker 1:
(silence)
