>> Narrator: Live from Nassau in the Bahamas. It's The Cube! Covering PolyCon 18. Brought to you by PolyMath. >> Welcome back everyone, we're live here in the Bahamas with The Cube's exclusive coverage of PolyCon 18, I'm John Furrier with my co-host Dave Vellante, both co-founders of SiliconANGLE. We start our coverage of the crypto-currency ICO, blockchain, decentralized world internet that it is becoming. It's the beginning of our tour, 2018. Our next guest is Hartej Sawhney who's the advisor at Pink Sky Capital, but also the co-founder of Hosho.io. Welcome to The Cube. >> Thank you so much. >> Hey thanks for coming on. Thanks for coming on. >> Thanks guys. >> We had a great chat last night, and you do some real good work. You're one of the smartest guys in the business. Got a great reputation. A lot of good stuff going on. So, take a minute to talk about who you are, what you're working on, what you're doing, and the projects you're involved in. >> So first of all, thank you so much for having me, it's really exciting to see the progress of high-quality content being created in the space. So my name is Hartej Sawhney. We have a team based in Las Vegas. I've been based in Las Vegas for about five years. But I was born and raised in central New Jersey, in Princeton. And my co-founder is Yo Sup Quan. We started this company about seven months ago and my co-founder's background was he's the co-founder of Coin Sighter in Exchange out of New York, which exited to Kraken. After that he started Launch Key which exited to Iovation. And prior to this company, my previous company was Zuldi, Z-U-L-D-I .com where we had a mobile point of sale system specifically for high volume food and beverage companies and businesses. So we were focused on Fintech and mobile point of sale and payment processing. So both of us have a unique background in both Fintech and cyber-security and my co-founder Yo, he's a managing partner of a crypto hedge fund named Pink Sky Capital. And he was doing diligence for Pink Sky, and he realized that the quality of the smart contracts he was seeing for deals that he wanted to participate as an investor in, and I'm an advisor in that hedge fund, we both realized that essentially the quality of these smart contracts is extremely low. And that there was nobody in this space that we saw laser focused on just blockchain security. And all the solutions that would be entailed in there. And so we began focusing on just auditing smart contracts, doing a line-by-line code review of each smart contract that's written, conducting a GAS analysis, and conducting a static analysis, making sure that the smart contract does what the white paper says, and then putting a seal of approval on that smart contract to mitigate risk. So that the code has not been changed once we've done an analysis of it, that there's no security vulnerabilities in this code, and that we can mitigate the risks for exchanges and for investors that someone has done a thorough code analysis of this. That there's no chance that this is going to be hacked, that money won't be stolen, money won't be lost, and that there's no chance of a security vulnerability on this. And we put our company's name and reputation on this. >> And what was the problem that is the alternative to that? Was there just poorly written code? Was it updated code? Was it gas was too expensive? They were doing off-chain transactions. I mean what are some of the dynamics that lead you guys down this path? I mean this makes sense. You're kind of underwriting the code, or you're ensuring it or I don't know what you call it, but essentially verifying it. What was the problem? And what were some of the use cases of problems? >> I would say that the underlying problem today in this whole industry, of the blockchain space, is that the most commonly found blockchain is Ethereum. The language behind Ethereum is called Solidity. Solidity is a brand new software language that very few people in the world are sufficient programmers in Solidity. On top of that, Solidity is updated, as a language on a weekly basis. So there are a very limited number of engineers in the world who are full-stack engineers, that have studied and understand Solidity, that have a security background, and have a QA mindset. Everything that I just said does exist on this Earth today and if it does, there's a chance that that person has made too much money to want to get out of bed. Because Ethereum's price has gone up. So the quality of smart contracts that we're seeing being written by even development shops, the developers building them are actually not full-stack engineers, they're web developers who have learned the language Solidity and so thus we believe that the quality of the code has been significantly low. We're finding lots of critical vulnerabilities. In fact, 100% of the time that Hosho has audited code for a smart contract, we have found at least a couple of vulnerabilities. Even as a second or the third auditor after other companies conduct an audit, we always find a vulnerability. >> And is it correct that Solidity is much more easy to work with than say, Bitcoin scripting language, so you can do a lot more with it, so you're getting a lot more, I don't want to say rogue code, but maybe that's what it is. Is that right? Is that the nature of the theory? >> Compared to Bitcoin script, yes. But compared to JavaScript, no. Because Fortune 500 companies have rooms full of Java engineers, Java developers. And now the newer blockchains are being written, are being written on in block JavaScript, right? So you have IBM's Hyperledger program, you have EOS, you have ICX, Cardano, Stellar, Waves, Neo, there's so many new projects that are coming, that all of them are flexing about the same thing. Including Rootstock, RSK. RSK is a project where they're allowing smart contracts to be tied to the Bitcoin blockchain for the first time ever. Right, so Fortune 500 companies may take advantage of the fact that they have Java developers to take advantage of already, that already work for them, who could easily write to a new blockchain, and possibly these new blockchains are more enterprise grade and able to take more institutional capital. But only time will tell. And us as the auditor, we want to see more code from these newer blockchains, and we want to see more developers actually put in commits. Because it's what matters the most, is where are the developers putting in commits and right now maximum developers are on the Ethereum blockchain. >> Is that, the numbers I mean. Just take a step there. So the theory of blockchain. Percentage of developers vis-a-vis other platforms percentages-- >> By far the most is on developed on Ethereum. >> And in terms of code, obviously the efficiencies that are not yet realized, 'cause there's not enough cycles of coding going on, it's evolution, right? >> Yes. >> Seems to be the problem, wouldn't you say? So a combination of full-stack developer requirements, >> Yes. >> To people who aren't proficient in all levels of the stack. >> Yes. >> Just are inefficient in the coding. It's not a ding on the developers, it's just they're writing code and they miss something, right? Or maybe they're not sufficient in the language-- >> It's a new language. The functions are being updated on a weekly basis, so sometimes you copied and pasted a part of another contract, that came from a very sophisticated project, so they'll say to us, well we copied and pasted this portion from EOS, so it should be great. But what that's leading to is either A, they're using a function that's now outdated, or B, by copying and pasting someone else's code from their smart contract, this smart contract is no longer doing what you intended it to do. >> So now Hartej, how much of your capability is human versus machine? >> Yeah I was going to ask that. >> ML, AI type stuff? >> So we're increasingly becoming automated, but because of the over, there's so much demand in the space. And we've had so much demand to consistently conduct audits, it's tough to pull my engineers away from conducting an audit to work on the tooling to automate the audit, right? And so we are building a lot of proprietary tooling to speed up the process, to automate conducting a GAS analysis, where we make sure you're not clogging up the blockchain by using too much GAS. Static analysis, we're trying to automate that as fast as possible. But what's a bit more difficult to automate, at least right now, is when we have a qualified full-stack engineer read the white paper or the source of truth and make sure the smart contract actually does it, that is, it's a bit longer tail where you're leveraging machine learning and AI to make that fully automated. (talking over each other) >> But maybe is that, I'm sorry John. Is that the long term model or do you think you can actually, I mean there's people that say augmented intelligence is going to be a combination of humans and machines, what do you think? >> I think it's going to be a combination for a long time. Every single day that we audit code, our process gets faster and faster and faster because once we find a vulnerability, finding that same vulnerability next time will be faster and easier and faster and easier. And so as time goes on, we see it as, since the bundle of our work today is ICOs, token generation events, there are ERC 20 tokens on the Ethereum blockchain. And we don't know how long this party will last. Like maybe in a couple years or a couple months, we have a big twist in the ICO space that the numbers will drastically go down. The long tail of Hosho's business for us, is to keep track of people writing smart contracts, period. But we think they are going to become more functional smart contracts where the entire business is on a smart contract and they've cut out sophisticated middle men. Right and it may be less ICOs, and in those cases I mean, if you're a publicly traded company, and you're going from R&D phase where you wrote a smart contract and now actually going to deploy it, I think the publicly traded company's going to do three to five audits. They're going to do multiple audits and take security as a very major concern. And in the space today, security is not being discussed nearly as much as it should. We have the best hedge funds cutting checks into companies, before the smart contract is even written, let alone audited. And so we're trying to partner with all the biggest hedge funds and tell the hedge funds to mandate that if you cut a check into a company that is going to do a token generation event, that they need to guarantee that they're going to at least value security, both in-house for the company and for the smart contract that's going to be written. >> How much do you charge for this? I mean just ballpark. Is it a range of purchase price, sales price? What's the average engagement go for, is it on a scope of work? Statement of work? Or is it license? I mean how does it work? >> So first it depends is it a penetration test of the website or the exchange? Penetration testing of exchanges are far more complex than just a website. Or if it's a smart contract audit, is it an ICO or is it a functional smart contract? In either case for the smart contract audit, we have to build a long set of custom tooling to attack each and every smart contract. So it's definitely very case-by-case. But a ballpark that we could maybe give is somewhere around the lines of 10 to 15 thousand dollars per 100 lines of functional code. And we ask for about three weeks of lead time for both a smart contract audit and a penetration test. And surprisingly in this space, some of the highest caliber companies and high caliber projects with the best teams, are coming to us far too late to get a security audit and a penetration test. So after months of fundraising and a private pre-sale and another pre-sale, and going and throwing parties and events and conferences to increase the excitement for participating in their token sale, what we think is the most important part, the security audit for a smart contract is left to the last week before your ICO. And a ridiculous number of companies are coming to us within seven days of the token sale, >> John: Scrambling. >> Scrambling, and we're saying but we've seen you at seven conferences, I think that we need to delay your ICO by two or three weeks. We can assure you that all of your investors will say thank you for valuing security, because this is irreversible. Once this goes live and the smart contract is deployed. >> Horse is out of the barn. >> It's irreversible. >> Right right. >> And once we seal the code, no one should touch it. >> It's always the case with security, it's bolted on at the last minute. >> It's like back road recovery too, oh we'll just back it up. It's an architectural decision we should have made that months ago. So question for you, the smart contract, because again I'm just getting my wires crossed, 'cause there's levels of smart contracts. So if we, hypothetical ICO or we're doing smart contracts for our audience that's going to come out soon. But see that's more transactional. There's security token sales, >> Yes. >> That are essentially, can be ERC 20 tokens, and that's not huge numbers. It could be big, but not massive. Not a lot transaction costs. That's a contract, right? That's a smart contract? >> People are writing smart contracts to conduct a token generational event, most commonly for an ERC 20 token, that's correct. >> Okay so that's the big, I call that the big enchilada. That's the big-- >> Right now that is the most important, the most common. >> Okay so as you go in the future, I can envision a day where in our community, people going to be doing smart contracts peer-to-peer. >> Sure. >> How does that work? Is that a boiler plate? Is is audited, then it's going to be audited every time? Do the smart contracts get smaller? I mean what's your vision on that? Because we are envisioning a day where people in our audience will say hey Hartej, let's do a white paper together, let's write it together, have a handshake, do a smart contract click, click. Lock it in. And charge a dollar a download, get a million downloads, we split it. >> I envision a day where you can have a more drag and drop smart contract and not need a technical developer to be a full-stack engineer to have to write your smart contract. Yes I totally envision that day. >> John: But that's not today. >> We are very far from that today. >> Dave, kill that project. >> We're so far, we're very far from that. We're light years far from that. >> Okay well look. If we can't eliminate the full-stack engineers, I'm okay with that. Can we eliminate the lawyers? At least minimize them. >> We can minimize them possibly, but we have five stacks of lawyers for our company, I don't see them going anywhere. We need lawyers all the time. >> I see that in the press sometimes, yeah it's going to get disrupted. I don't see it happening. Okay we were having a great conversation off-camera about what makes a good ICO. You see, you have a huge observation space. And you were very opinionated. A lot of companies are out there just floating a token because they're trying to raise money. And they could do the same thing with Ethereum or Bitcoin. >> That's correct. >> Your thoughts? >> My thoughts are that it's very important for companies who are sophisticated, I think, to start by giving away a little bit of equity in the business. And that if you want to be in the blockchain space, and you really firmly believe you have a model to have a token within a decentralized application, I would still start by finding quality investors in the space, in the world. They might be still in Silicon Valley. Silicon Valley didn't just disappear overnight now that the blockchain is out. I am all for the fact that Silicon Valley no longer has as much of a grip on tech because of their blockchain world. And they're not seeing as much deal flow, and there's not as much reliance on venture capitalists, that's exciting to me. But let's not forget the value, that top-tier VCs like Andreessen Horowitz and Vinod Khosla. and Fintech VCs like Commerce Ventures and Nyca Partners in New York, Propel VC, these are good Fintech VC arms that continue to time and time again add immense value to companies. >> And they have networks. They add value. >> They have strong-valued networks, but they're just not going to disappear. And those VCs, if they've invested into a company, took a board seat, fostered their growth, taught them what it means to actually be a real business that's growing at 7-15% week over week, maybe two years down the line, after they've given away a board seat to someone like Nyca Partners, I would be interested in understanding what your token economics look like. Now that you have a revenue generating business, how you've placed a token model into this already running business that makes 25 to 50 grand a month and you have a team of 10, self-sustaining themselves off of revenue. Much more intriguing of a conversation. What's happening today in the space is, hey my buddy Jim and Steve and I came up with an idea for this business. There's going to be a token, and we're starting a private pre-sale tomorrow. I'm going to give you 300% bonus and will you be my advisor? And they're going to start raising capital because of an idea. You know what we used to say in the Silicon Valley startup world, you can raise on just a PowerPoint. I think in the blockchain world, you could raise on just an idea? And then maybe a white paper? And the white paper is one page? And so you've raised a bunch of capital, you have a white paper. >> Now you got to build it. >> Now you got to build, you got to write a smart contract, you got to build it, you got to do it, and then everyone loses excitement and it goes back to our previous conversation the development talent. So, another thing not being discussed in the space is company employee retention, right? So if you have a growing number of ICOs, that have very large budgets because investors have found a way to sink millions of dollars into a company early, you've got $5 million in the hands of a company to start, well this company can afford to pay someone a very ridiculous salary to come join them to write the smart contract now. So they could offer an engineer 500 Eth a month to come join them for three months. So you have good engineers just bouncing from one ICO to the next and as soon as the ICO goes live, they quit. This is a problem to companies who are-- >> It's migration, out migration. >> How do you retain, even capital? >> Companies like Hosho, ShapeShift, companies that are selling picks and shovels of the industry, that want to be household names in the space, we have to really think about how we're going to retain our employees in the space. >> So the recruitment and bringing on the new generation, we were also talking off camera about Bill Tye and the younger generation and kind of riffing on the notion that, because there is a new set of mission-driven developers and builders, on the business side as well. Your thoughts and reaction to what you see and what you see that's good and what you see that we need more of? >> So the most powerful thing in the blockchain space that I think is so exciting is that you have a lot of people between the age of 25 and 35 that don't come from money, that didn't go to Stanford, didn't go to Y Combinator, they're probably not white, from-- >> John: Ivy League schools. >> Ivy League schools. I'm not trying to make it about race, but if you're a white male and went to Stanford and went to Y Combinator, chances of you raising VC money on sand hill are a lot higher, right? And you have a guy looking like me who didn't go to Stanford, doesn't come from money, running up and down sand hill, I have personally faced that battle and it wasn't easy. And we were based in Vegas and so being based in Vegas, I'd also have to deal with so why do you live in Vegas? When are you going to move to Silicon Valley? And if we invest in you, you're going to open an office in sand hill right? And now in the blockchain world, what's exciting is you have so many heavy-hitters running as founders, some of the most successful companies in the space, who don't come from money and a big prestigious background, but they're honest, they're hard-working, they're putting in 12 to 15 hours of work every single day, seven days a week. And to space, six weeks is like six years. And we all have a level of trust that goes back to times when we were all running struggling startups. And so our bond is, to me, even more significant than what must have been between Keith Rabois and Peter Thiel in the PayPal Mafia. We have our own mafias being formed of much stronger bonds of younger people who will be able to share much more significant deal flow so if the PayPal Mafia was able to join forces to punch out companies like eBay and Square, wait 'til companies in this space, we have young, heavy-hitters right now who are non-reliant on some of the more traditional older folks. Wait 'til you see what happens in the next couple years. >> Hartej, great conversation. And I want to get one more question in. We've seen Keiretsu Forum, mafias, teams more than ever as community becomes an integral part of vetting and by the way trust, you have unwritten rules. I mean baseball, Dave and I used to do sports analogies. >> Self-governance. >> Reggie Jackson talked about unwritten rules and it works. If you beam the batter, the other guy, your best star, your side's going to get beamed. That's an unwritten rule. These are what keeps things going, balanced through the course of a season. What are the unwritten rules in the Ethos right now? >> Honesty, transparency, and that's the key. We need self-governance. This is a very unregulated market. There's rules being broken by people who are ignorant to the rules. The most common rule I've seen being broken is by people who are not broker dealers, running around fundraising capital, they don't even know what an institutional advisor license is. They don't know what a Series 7 and a Series 63 is. I asked a guy just last night, he said I'm pooling capital, I'm syndicating, let me know if you want in on the deal. And I said when did you take your Series 7? He goes what's that? Get away from me. You're an American, you need to look up what US securities laws are and make sure that you're playing by the rules and if someone who doesn't know the rules has entered our inner circle of investors, of advisors, of people sharing deal flow, we have a good network of people that are closing the loop for companies, whether it's lawyers, investors, exchanges, security auditors, people who write smart contracts, dev shops, people who write white papers, PR marketing, people who do the road show, there's a full circle-- >> So people are actually doing work to put into the community, to know your neighbor if you will, know the deals that are going down, to identify potential trip wires that are being established by either bad actors or-- >> KYC, AML, this is a new space that's also attracting people that have a criminal background. Right? And that's just a harsh reality of the space. That in the United States if you have a felony on your record, maybe getting a job has become really difficult and you figured let's do an ICO, no one's going to check my record. That is a reality of the space. Another reality is the money that was invested into this entire ICO clean. Right, that's a massive issue for the US government right now. It's been less than 15 hours since the SEC has issued actually subpoenas to people on this exact topic, today. >> This is a great topic, we'd like to do more on. >> Dozens of them. >> We'd like to continue to keep in touch with you on The Cube. Obviously you're welcome anytime, loved your insight. Certainly we'd love to have you be an advisor on our mission, you're welcome anytime. >> For sure, let's talk about it. Come out to Las Vegas. Hosho's always happy to host you. >> John And Dave: We're there all the time. >> The Cube lives at the sands. >> It's our second home. >> Come by Hosho's office and let us know. Vegas is our home. We are hosting a conference in Vegas after DEFCON. So DEFCON is the biggest security conference in the world. You have the best black hats and white hats show up as security experts in Vegas and right on the tail end of it, Hosho's going to host a very exclusive invite-only conference. >> What's it called? Just Hosho Conference? >> Just Blockchain. It'll be called the just, it'll be by the Just Blockchain Group and Hosho's the main backer behind it. >> Well we appreciate your integrity and your sharing here on The Cube, and again you're paying it forward in the community, that's great. Ethos we love that. That's our mission here, paying it forward content. Here in the Bahamas. Live coverage here at PolyCon 18. We're talking about securitized token, a decentralized future for awesome things happening. I'm Jeff Furrier, Dave Vellante. We'll be back with more after this short break. (upbeat music)