>> Announcer: From New York, it's theCUBE covering Blockchain Week. Now here's John Furrier. >> Hello everyone, welcome back. I'm John Furrier, the host of theCUBE. We're here in New York City for on the ground coverage for three days, wall-to-wall for Blockchain Week, New York's part of Consensus 2018. Sold out show, we're out in the open. Open (mumbles) to all the cons here. Next guest is Alex Mashinsky, Founder and CEO of Celsius. Seasoned entrepreneur, great debater on stage, great brawl recently at the Milk Institute. We'll talk about that. But more importantly, he's got a great project called Celsius, welcome to theCUBE. Thanks. >> Thanks for having us, John. >> So, I love we just chatted before the camera turned on about some of the things you've done. You've gotten into a little bit of a great heated panel discussion. With someone who actually doesn't even hold cryptocurrency. He's saying it's all bullshit. >> Yes >> Right, so tell about the story. It was written up by Bloomberg, what was this famous brawl in the Milk Institute? >> Yeah, so the Milk Institute, they've been having conferences for the last 25 years and they're trying to combine the making money with doing good in the world, right? So, it's doing well and doing good at the same time. And that's what crypto is all about, right? And so, they had a panel about crypto with me and Nouriel Roubini, who's like Doctor Doom who predicted the last 15 recessions. There were only two, but they were predicted all 15 of them. So, I was telling him, even a broken clock is right twice a day, you know? He was going at me, he was going at the community, he was calling it a scam. And when you don't own any coin and you have not come to an event like this and seen 8,000 people celebrate this innovation, power to the people, then what are you talking about? So, I was there to really defend the community. It wasn't about me or him. >> Yeah, you did a good job. Well, thank you for doing that. Also, you're on a great project. I've been talking about a lot of other things I want to get to in the industry that you have a view and opinion on I would like to get. But your project Celsius. Take a minute to explain that, because I think this highlights really what's going on. I chatted earlier today about token economics. This is a new way, a new infrastructure, a new capability, a new mechanism that's really becoming powerful, of a network effect. >> Yes. >> So, the old world was DNS. 30 years-old stack on ecommerce, search engines, they're not accurate for network effects, a new dynamic, new data source is happening and it's creating new value, new data. >> Yes. >> Talk about Celsius the project and your value proposition. >> Right, so Celsius Network is basically trying to create an algorithmic cloud-based solution that does everything in your best interest. So, you have to think of it as a basket of financial services that do simple things like give you a loan or allow you to earn interest, give you access to a lot of great financial products, insurance and other things, that altogether do everything in your best interest. And what we're doing is we're enabling 100 million new people to come into the cryptocommunity and enabling them to benefit from all these things both for the increase in the value of the coins but also allowing their money to earn money for them. And today, if you think about banks, right? They take your money, right? You make a deposit, they take your money, they'll lend it to me on my credit card, they charge me 25%, they give you 1%. So, they take all that margin that you talked about. They squeeze all of that and keep it to themselves. >> And they're representing two people. It's like a realtor, who do you represent, the buyer or the seller? >> They're a toll collector in the middle, exactly. They're not adding any value. >> So, the new shift is on user value-- >> Exactly. >> And you see real-world examples of this. The whole Facebook debacle, who owns your data, and Mark Zuckerberg was testifying in front of the Senate in Congress, saying, "No, we don't sell your data." But they license the data and they use it. >> They extract all the value from it. >> They don't actually sell the data, true. But they license the shit out of it, to target you. >> They squeeze every last penny out of it. >> This is now obvious to people. >> Yes. >> That problem. >> Yes. >> Talk about the cryptobenefits, where is this shift happening, users, the power to the people, I get the phrase, but where is it happening? The token level-- >> So for example, Yeah, let's take an example, so most of the people here on this floor, they take their coins, they put them in exchanges, they celebrate the fact that the coin went up 50, 100% or whatever, but they don't realize that they leaving a lot of money on the table, because these exchanges do shorting, front-running, all kind of other stuff that should be illegal, but they do it, so they announce these amazing earnings, Binance announced amazing earnings and a lot of that earnings comes from the money that should be given back to you and me. So, if you think about the credit card company giving you two percent back, this is kind of the same thing. We are basically taking all of that earnings and giving it back to the coin-holders and we're saying, "Don't keep your money on exchanges, keep your money in a wallet that represents your best interest." It extracts all that value and gives it back to you. >> And so, what's your value proposition? You know what, you should say, "Use our wallet, use our system." >> Right. >> And then you represent their currency? >> So, we huddle together, we create a giant pool of BTC, a giant pool of ETH, or other coins, and we lend against that. So, we can do loans to the community, we charge nine percent for asset-backed loans, basically, so you need a loan against your crypto. This way you don't have to pay taxes, you can defer your tax, you can get liquidity without triggering all the tax that today you have to-- or you can just earn interest. So, without selling the coins, you can basically generate five to nine percent income that's continuous on top of that appreciation, you still get all the appreciation of the coin, but you're also generating income. >> So, you can bring contextual services around the crypto-holder interest. >> Yeah, so we find people willing to pay that. For example, other crypto-holders who want a loan, and they pay us nine percent, we give five percent to the community. Hedge funds who short BTC or ETH, they pay us ten or 15%, we give most of it back to the community. But the beauty is that the coin-holder doesn't have to do anything. They don't have to move from this account to that account. They don't do transactions. All they have to do is decide if Celsius Network is doing everything in their best interest or not. And the point is is that the next 100 million people that are going to join crypto, they're not speculators or anarchists or libertarians like most of the people here on the floor. They're people who kind of look at all this, saying, "It's too complicated, I don't know what to do, I'm not going to get in at the right time, I'm not going to get out at the right time." They don't have anyone they can trust. >> So, I'm going to be able to ask the Average Joe six-pack question, "Hey that's all fine, I love what you're doing. Come on, sign me up. But wait a minute. If you put all this crypto in one spot, the frickin' hackers are going to get it. >> Right. >> Because, how do you protect me against-- I heard, see, Mt. Gox was in the-- and all this stuff's going on, I'm worried that it's going to get hacked. Even wherever I put it." >> Exactly. And then Nouriel basically asked me the same question. So, in 10 years since BitCoin was created, there hasn't been a single instance of anyone cracking the blockchain itself. All the theft, everything that happened was because we gave somebody our private key and we entrusted them with it, and they screwed up. Mt. Gox, it basically broke into the exchange and so on. So, we keep everything in cold storage. And it's not ours, we have a custodian that is a giant company that is willing to accept all that, keep it in cold storage and we lend against it. We lend against the pull. >> So the private key's going in cold storage? >> Everything is staying in cold storage, which is the safest way to keep your crypto. It's much safer than keeping it on an exchange or keeping it in a different place. >> And it's all through--it's encryption, it's never safe to--a private key's a private key. Right, I mean, we've seen this before. >> Exactly. >> It's not rocket science. >> But even if you keep it in your home, in your safe, that's not as safe as putting it in a facility that is resistant to nuclear attack and has four layers of security and no human can get into the last room. It's a physical connection. >> I've heard this problem, just estate planning, someone dies, where's his cryptokey? >> Exactly. >> Unlocking, say 30 to 100 million dollars' worth of crypto. >> Exactly. >> It's not obvious. Well, the guy was smart, he put it in lock boxes all around the country. Wait a minute, no one knows where they are. >> But as a custodian, if you show us that you are the ultimate heir and you have the legal representation, then we can handle it, right? We can transfer that. But really, you're protecting it against a hacker coming in and stealing it from you. All the legal ramifications still apply. >> So, let's talk about the industry. What do you like about the industry right now, and what do you think that needs more work on, faster, or behavior-wise, what's your general temperature-taking of the current community? A lot of back-end work being done. Some complaints I heard about the demos, where some people say the front end was pretty sucky. >> Yes. >> But I think that's because a lot of back end work's being done. >> Well, this reminds me of 95 through 2000, I wrote some of the original Void protocols and everybody told me it's not going to work, the Internet is too slow, you can't scale, it's not safe. >> Yeah. >> I hear the same arguments again and again. >> Exactly. >> Today a billion people use Void every day and they don't even know who created it or how it works. I go in a room, I do speeches, right? And I ask, "Who here knows how Void works?" Not a single hand goes up. So, we need to get to the point where blockchain and crypto works the same way, no one needs to understand how it works, they just need to use it and trust it. So, the biggest thing I think holding us up right now is actually not technical. Because there's over 130 different blockchains. And some of them solves the scalability issues and security issues. The problem is is that we kind of have the early adopter phase, but we cannot leapfrog into the mass adoption phase. Because we're still at the early phase of operation. >> Exactly, is this just evolution or is it something specific? >> Well, the applications that we have today are not things that most of the people on the planet can use. That's what I'm saying, like for example, lending and borrowing is much more attractive than trading coins with each other. >> Yeah, it's like the Web, and Web 1.0, I mean-- >> Exactly. >> Search was the first application, and then everyone went to there, check their stock quotes. >> Looking at travel-- >> Travel, buy your car-- >> Exactly. >> Basic Maslow's hierarchy of needs kind of things. >> Yes. >> So, but that was interesting, because it was a whole new way. And by the way, same arguments I heard in the Web. "It's so slow. A mini-computer's so much faster than this AOL thing at 9600 bot modem." But the apples weren't being compared to other apples. It was replacing direct mail where I used to put stamps on envelopes and mail things. >> That's right, look. The bank gives you one percent. We pay five percent. So, that is a very attractive reason to switch from the bank to Celsius. Also, most people don't realize that the power the bank has is because we make all the deposits there. We stop depositing money there, they will have to pay us five percent, because as the money leaves them, they will have to raise the rates, they're going to have to attract you with more interest. So, it's a win-win, the community wins on the crypto side, and we're forcing the banks to do the right thing. >> Alright, I want to get your opinion, Alex, on ICOs. Did you guys do an ICO? How much did you raise? And what's your general take of the ICO market? I mean, certainly, blockchain, I've said this before, takes inefficiencies and makes them highly efficient, and we know the capital markets are very inefficient, so it's a bubble, okay. I have a choice. Tokens or VC, it's a no-brainer, go tokens. >> So look, I've had coins since 2013, I've invested in over 30 ICOs myself, and then when I couldn't find what Celsius does, I decided to start a new company, this is my eighth company as a founder. And so, I raised a billion dollars on the VC side, I know how that world works, had plenty of exits, and here we went to the community, we excluded all the VCs, we did not take money from a single venture guy because this is all about building the community. So, we just closed our round, about a month ago, we raised $15 million. We had 15,000 people sign up, 95% men. And it just drove me crazy, because half of our company's women, I thought that at least half of the people would be female. And I realized how big the problem is that we do not-- I mean, if you look at the floor here, we do not include the stronger sex. So, she's female, exactly. >> I'm promoting it here. >> I agree, I'm a big supporter too, so, I think when you think about it, if we want to be inclusive and we want this revolution to take hold, we have to solve these problems. What is the killer app, where are the female participants, how do we make it global, how do we make it inclusive, and how do we make the user interface and everything else so simple that you don't have to understand anything to use it every day. >> And what's your vision on how the ICOs are going to trend? >> Right. >> More stability, obviously. It'll level out, the bubble will-- I don't think it'll be a massive pop, I think it's going to be a small squeeze, so I think there's enough community involvement that self-governance will kick, in my opinion, but what's your take on the ICO? >> So, we definitely, this is like a Cambrian explosion. So, we are throwing money at everything. So, we're throwing money at good projects, bad projects, it's like a spray-and-pray mentality of the old days in 95 to 2000, we've seen that before. But from this some great companies are going to be born and I think the winners here are going to be bigger than Google, bigger than Apple, because the market is bigger. Money is the biggest market in the world, right? There's nothing bigger than all the money in the world, by definition. So, it's bigger than advertising, it's bigger than the social networks and it's bigger than Apple and whatever they're making. So, I believe that out of these companies, there are several thousand companies here, 8,000 participants, there were 4,000 ICOs that already took place or that are coming to be and out of that you're going to have your giant winners. And obviously Celsius is hoping to be one of them, but it's whoever builds the biggest community is the one that's going to win. And for us, it's all about giving back everything to the community. >> Your mission is awesome, I love your mission, and I love your expertise, love your experience. I think the community really is great to have you being a champion, being a mentor, I know you're doing a lot of paying it forward, great job. What's your view for the young entrepreneur out there, or someone who's got a growing opportunity that says, "Hey, you know what? I'm actually tailor-made for decentralization, I have a network community, network effect, I have all these great things going on, I want to scale." >> That's a great question because-- >> What's the playbook? >> A lot of people come to me and say, Oh, I'm too late to the game." No one is too late to the game. The experts have a six month experience. So, you talk to most of the people here, this is the first event, this is the first show. So, what I say to a lot of entrepreneurs is that if you pick the right vertical, you can very quickly become the best in the world at it. And I think the first phase of evolution here in the blockchain is all about financial products and financial solutions. I wouldn't go after healthcare, I wouldn't go after-- so like, insurance, or solving financial problems that currently have giant toll collectors who collect all the value, like the banks, or like the financial service providers, the insurance and so on. So, if you can solve those areas, you can scale very quickly, because Interen already has six or seven billion people on it, so now you can just bring them all in and haggle on their behalf in the cryptocommunity. >> I feel like I should lie down on the couch and ask Dr. Alex for some more advice. So, I'm actually going to ask you some specific questions. >> No couch here, man! There's no off switch here. >> I'll pass out, so much action going on. I mean, the vibe here is amazing. So, theCUBE, we're doing an open token model, got a great community, we want to grow and be number one at digital media, covering events with a network effect, video and media. We see token as a great opportunity. What's your advice? You're on our advisory team, what do you tell us to do? >> So, the curation is excellent, I think you guys do a great job at pulling the content. And what's missing in this community is really an automated process that kind of asks the community, "What do you guys believe in?" It's very hard for most people here to figure out which ones of these thousands of projects are trending right now, for example. And we can all vote on our app, for example. If you could create an app that allowed all of us to vote during the show, on what's trending and you had those guys being interviewed instead of me, you would have the killer apps. All of us know what they are and are not, but we should vote on it. >> So, use collective intelligence of the data-- >> Yes. >> And make a content operating system-- >> Exactly, use your metadata that you're already producing to do real-time input and bring those guys here, interview them and ask them about why their projects are hot. Celsius, people ask me all the time, "How do I get involved? How do I get involved? I saw you on Rubena, I saw you on this show." And so, we manage to create a lot of buzz around us and there are a few other projects like that, the community needs to get around the good projects and support them, because when we spend a lot of money on bad projects, we're not giving enough support to the good projects. >> You got to close loop that data, make it a community brand. That's what you're doing, that's what we're trying to do here, covering the events. So, we're going to build a content operating system. >> There we go! >> Run-time assembly, whatever the votes-- >> Let everybody vote in real-time, yes. >> Give me 50 times I see the hashtag-- >> Right, and the size of the name grows based on the adoption. >> You would have to have, like, clips instantly available, you would have to have all the metadata-- >> It's all real-time. >> You'd have to have all that stuff available. >> And the community will post it for you, you just do the final interviews, just bring these guys and say, "Okay, you won number one, number two, number three, and you give them the awards. >> Awesome, I love this conversation, even though we're kind of riffing, having fun. But the point of it is-- >> It's a new start-up let's do an ICO. >> Let's do an ICO, we can (mumbles) with that. No, but this is really fundamental for the entrepreneurs at the tech culture, we're talking about basically dev ops. >> Yes. >> Using cloud computing, we can have unlimited-- >> You can spin it up in a few days. >> You can apply automation, AI, that's your point, trust the software. >> Yes. If you're doing it for the community, they will recognize it and adopt you very quickly. >> They'll apply a human curation layer on top of it. >> With full transparency, you've got to show that you're doing everything for the community, like what we're trying to do, right? We're showing, when we tell you you're going to earn 5.1%, you can dig in and see who's getting paid and why they're getting this much money, what's the allocation, every token that's being given to anyone, all the math behind it is fully transparent, right? >> Final question-- >> Try to ask the bank for that. See what they're saying. >> Transparency? Go find another bank. Final question, your summary of the show. What's your take, was it good? Good vibes? What was the content agenda? What was the most exciting thing you saw, what's your summary of Consensus 2018? >> So, Consensus, when they organized it, they were bragging that 4,000 people are going to show up, and that's why they moved to the Hilton from the Marriott. And then 8,000 people show up, the lines were outside the whole hotel, so it proves that the demand is there. Everybody wants to come and learn about it, they want to know why this is so hot, why this revolution is here to stay, so what I'm taking out of the show is that this innovation is just in its infancy and there's a lot of people who are still yet to join. And the best ideas, the winners, have not yet been decided. So, watch out for all those new ideas that we haven't heard about yet. >> And it's accelerated from other trends. >> Yes, it definitely accelerated. >> Alex Mashinsky, CEO of Celsius, former entrepreneur of multiple startups. See, he knows the old way, he sees the new way, he's been a successful entrepreneur, seasoned community member. Thanks for coming on, we appreciate it. >> Thanks for having us. I appreciate it. >> I'm John Furrier here with theCUBE on the ground out in the open, in the community, CUBE coverage here, Blockchain Week 2018 New York. Thanks for watching. (electronic-based music)

>> Announcer: Live, from San Juan, Puerto Rico, it's theCUBE. Covering BlockChain Unbound, brought to you by Blockchain Industries. (Puerto Rican music playing) >> Hey, welcome back everyone. This is theCUBE's exclusive coverage here in Puerto Rico for Blockchain Unbound. I'm John Furrier, the co-host of SiliconANGLE Medias. theCUBE is our flagship product. We go out to the events and extract the signal from the noise. My next guest is Christian Ferri who's with Block Star, doing investments, ICO advisor, he's been in the space, great to see you, nice to meet. >> Absolutely, thanks for having me John. >> Thanks for joining. So, okay, some people are saying that we're the top of the bubble, some people are saying that it's the beginning of a revolution. Some people are, like, staying away, "Oh my God, what's going on?" Some of those investing both in equity and token deals. What's your take on this? I mean, how do you explain this? Because it is a global phenomenon, I mean, what's your take? >> Yeah, I think we're at a very early beginning right now. It's definitely, I would say 1996-97 of the internet bubble if you will. We're seeing some amazing growth, right? So, things are picking up real fast I think. You know, the moment that Bitcoin hits $10,000 a lot of people got interested in all this phenomenon. ICOs are becoming the standard for fundraising for startups. It's an interesting model, you don't have to give up any equity, you don't have to give up any board seats, it's much easier, much simpler. But there are definitely some legalities and regulatory aspects that put some concerns in a lot of people's minds. >> What are the, I mean obviously if you're an investor, you got to get a pound of flesh somewhere, the old days was equity and that was a long game, it had a different gestation period. How are you making money now on the investments? Is it just getting on the discounted tokens? Is there a little liquidity going on? So, if there's no dilution, you got to make money somewhere, so, where is the secret? >> Yeah absolutely, great question. So I think if we're looking at security tokens, to finance investment vehicles, the way you make money is by the value increases of the token, right? So, as you buy a $1 and the token goes to $1.50, you have your 50% increase, right, return. There are new companies in the ICO space, they're thinking about leveraging the equity side of things, but it's fairly new. Right now it's merely a token deal, so when you think about private sale, pre-sale, it's 99% a token deal, right? Although equity's coming in because a lot more venture capital is coming in and they're demanding a piece of the action from a company in equity perspective. >> Yeah, and some of the ICO's, because we've outlined this on theCUBE many times, Blockchain, I call it the Crypto-stack, Blockchain, Cryptocurrency, and the application on the financial is ICO, >> Christian: Right. >> But that ICO also translates into the application dynamics of token economics, tends to value creation. >> Christian: Right. >> Hence what you were talking about token value going up, kind of like how equity investment would go up if it got sold on valuation, etc. >> Christian: Right. >> Okay, ICOs are hot. Now the market is pretty aware of the scams, the scams out there. Young kid puts a fake white paper out there, raises 20 million, >> Christian: Right. >> Next thing you know it's like, "where's the money?". >> Christian: I've heard that before. >> And then you've got legit ICOs going off the blocks which a really legit, going great, how do you make sense of it as an investor? Is it classic word of mouth? >> Yeah. >> What kind of due diligence are you doing? What's your filter? >> I think what you said, word of mouth definitely plays a big role in it, I had to trust that toward your network. Having a research team kind of helps understand the technology behind it, if it's actually feasible. I go through 250 white paper a month. >> So you're a white paper reader. >> I am not, my research team oversees actually. >> Okay. >> But as an investment and advisory firm, we have a lot of inflow of companies that want to get advised on or invested in. And a lot of these white papers are total moon shots, it's like build a YouTube and it's 1982, you have a dial up, you can't do that, you need a broadband, right? >> John: Yeah. >> So, you have to have a very diligent process and team that does that. And then think about 99% of the white paper you'll see are going to be crap or junk. Only one or two percent are going to be good. And so that selection process is very key. On top of that, there are a few things in the tokenization process that can raise red flags. For example, if they're too aggressive on the discounts on the private sale, like 70% discount, 80% discount, it's not a good indication, it's a red flag. >> Really, why not? >> It shows that the product is not that great, right? If you have to give somebody an 80%, if you're buying a Ferrari that is discounted at 80%, would you buy it or would you say, "well I'm not sure"? >> Well you could be, it's like giving warrant coverage on a equity deal, >> Christian: You could. >> You could go up to someone and say hey I'm going to give you 80% discount because I want you in my deal, and I want you to make more money than the other guys. >> And what we see. >> I mean that's the counter argument. >> Yeah and what we see. >> I guess what you're saying is there's two vehicles. >> Yeah. >> Desperation. >> Christian: Yep. >> I got to discount the shit out of it to get attraction. And what I'm saying is it's kind of like a hot deal you want the right people in, I've seen both. >> Christian: Yeah it's a good point, usually what we've seen in the past four and a half years is that the good deals don't get discount more than 35%. That's usually the max they get discounted, especially just because you said you need strategic partners to back you up, to help you out since the beginning. These people should be invested in the project, they should not be incentivized by the discount that you're giving them on a private sale. But they should be incentivized because they believe in you and believe in the product. >> So it's a judgment call. >> Yeah. >> You shouldn't have to drop your drawers, so to speak. >> That's right. >> Good feedback, that's great, now token sale economics, I'm the entrepreneur, how should I be thinking about going to you, and I have a good deal, I have a great product, I've got token economics, I'm a growing company, this is an opportunity for me to scale my business at an unprecedented level. I can get more capital than I can on the private market because it's flowing faster here. What do I got to do to get your attention? >> Well, first of all, from an advisor perspective, we only take usually established companies, they have a minimum of 10 million in ARR, so annual recurring revenue. We make a few exceptions, if there's a very strong team, a very strong advisory board, or they have a few characteristics and qualities that we look for. We kind of trying to wave that 10 million ARR, but we're looking for like stellar team, rockstar teams, with a good advisor board, with technologies actually feasible to be built in the next two or three years. And that can actually be deployed on the market. >> So they want to see product, you got to see product. >> Absolutely, absolutely. >> So you don't investing in the moon shot, as you said. >> No. >> Not really because that's essentially a seed deal. >> Yeah, exactly, there are circumstances when you have a very amazing team, that've done some crazy amazing things in the past, and they're talking about moon shots, right? They're, I'm not going to say a name but there's a big ICO right now raising billions of dollars. >> Telegram. >> Right, well I'm going to say a name. >> Telegram, are you in Telegram? >> Sorry? >> Are you in Telegram? >> Yeah I'm a user, right? >> Not a buyer of the ICO. >> I have not invested. >> Okay. >> I have lot of people that want to invest in an ICO, but I personally have different opinions on it. But there's a lot of moon shooting over there, right? >> John: Yeah. >> So you want to make sure there's a fine balance between what you're promising and what you can actually do. >> Great, so what's your advise to entrepreneurs when they're at the stage of, "I really want to do a token sale, I think we're ready". What's your advisory role? How do you come in and help? They might not be ready for capital but they might want some advisory, maybe throw in a little bit of token cash, not token cash in there, but legit cash via tokens. >> Christian: Absolutely. >> How do you engage? What's your, you mentioned some of the 10 million, but what do you bring to the table? >> So the way it works usually is that they come in with a white paper and an idea on an established business that they want to tokenize, and then we basically have a conversation, we start having a conversation to figure out what they want to do. But the first advice that I give my clients is to stop. This business has too much FOMO in it. >> John: Yeah. >> The fear of missing out. So not just because everybody's out there doing ICO you should be doing an ICO, right? >> John: Yep. >> So this is the first thing to take a step back, figure out what really makes sense for you, and your situation in your company. And number two, I always provide the example where, thinking of going ICO in a three step process. You start with the business, right? >> John: Yep. >> So back in the 90s and I think you were around back then. >> John: Yeah, I was. >> When you were asking somebody, when you were saying, "what are you doing?", it was like "oh I doing a startup, "I'm building a company, I'm building a startup", right? >> John: Yep. >> Everybody was talking about startups. You go just about anywhere in the world talking about Blockchain, and somebody stops you and says, "what are you doing?", an ICO, right? >> Everyone's doing it. >> Everybody's doing it, but an ICO is an investment vehicle and not a company, right? >> John: Yeah. >> So, start with the business, got the business mechanics down right, so free cash flow, unique value proposition, product-market fit. Once you've done the business, think about the token model. >> John: Yeah. >> The token model has to go in hand in hand with your business model and revenue model. And don't settle for the first one to come to mind. There are over 50 business, I'm actually writing a book about it, The First ICO Playbook coming out later this year. >> John: Okay, great. >> It's going to have some new token models in it, and once you figure out the business and token models, now it's time to think about compliance. And compliance can actually enable the rest, and, when under the right jurisdictions, they're a match for the token and the business model. >> John: Alright so the token playbook, great job, I'm glad you're writing that book, I think we need to get a good playbook down. Alright so here's a playbook question for you we're going to go to the playbook on this one. Security token, or utility token, okay, we've got that figured out. We got to have utility. I'm going to raise money in the US and abroad, I've decided to go with the security token, hypothetical instance, what do I do? Security to equity? Security for future cash flows? What is the playbook for the security token? >> Well it's more simple than it sounds, in a sense. So the first this is if you're not sure whether it's a utility or a security, just file it as a security. And from a security standpoint, I think you're covered whether or not you're selling to the US or are a US resident citizen, you still have to comply with the SEC regulations just because you're in the US. And so a security can actually have different terms just like you said, a security to equity, a security to token and so forth. That depends on what your revenue model is and what your structure of your company is, and so a lot of people are doing security equity. Other are doing security token, just because they don't want to give up the equity of the company or the board seats. >> John: So what's the biggest thing that you're scared of in this market, as an investor? Are you worried about regulatory? You worried about too much money chasing not enough good deals? What's your fear? >> One of the initiatives I started last year is called the BlockChain Compliance Alliance. It's a no-profit independent initiative to develop a standard for ICOs. >> John: You started that? >> Yeah, I founded it last year with a few other folks, and then five or six people, >> Trying to build some stability around the process? >> You got it, yeah, it's almost like a self regulating standard, or an SRO, right? >> Yeah. >> And we had the opportunity to engage in some regulators, some folks at the SEC and some other government agencies, not just in the US but also in Europe, and they're very open to have a self-regulating standard. >> We need self-regulating standards, the community's got to take care of business, there's a lot of scams out there. >> Yeah, absolutely, so they're open to say to have an industry of self regulating from the top down, the kind of choke innovations. >> John: Yeah. So I'm not really concerned about too much regulations coming in the regulators. >> John: Well the SEC's just been signaling, they've taken a few obvious scammers down, but they really haven't overreached, in my opinion, I think signaling has been good, but they're signaling. >> They are signaling. >> They're not looking the other way. >> Absolutely, and I think it's they're job, they have to be signaling. >> But then they don't know what they're talking about either so the communities got to step up to your point. >> Correct, right, so we're trying to kind of be that, basically that intermediary, if you will, right? >> How many people are involved in that? Just take a quick minute to explain, URLs or like a website. >> Yeah we do, it's blockchaincompliancealliance.org. >> John: Who's involved in that? >> It's five or six people we're getting on, volunteers, it's a nonprofit, so volunteers. We're looking for additional volunteers, donations, and a board of advisory. We have a few high level advisors. >> Whales, whales. >> Yeah, well. >> They're called whales, are they whales? >> Well, whales don't want to be known, it's hard to find a whale, but I said that we have a few high level advisors that would like to come onboard, we're going to make that announcement soon. >> Us minnows out there. >> But it's going to be exciting. >> That's awesome, okay now back to the token economics, I'm fascinated by the token economics. Again, you can't just whitewash a business in saying, "hey I'm tokenizing now", there really has to be a dynamic. What do you look for, what do you observe, and what's your thoughts on how to actually think about the token economics alignment with the business model? Where does that have to line up for you? >> Yeah, good question, I think there are different aspects of it, first of all, you need to define what a token is. Is that for you an incentive mechanism? In which case, you can use an airdrop model, you don't necessarily have to ask people for money. Or is it a fundraising mechanism, or both? So let's just start with these basic questions. You can think of it, you can move on to say, "who's going to be my user?", right? Who's going to use this token? Think about are they going to be moms, dads, hospitals? Like what's my target? And then how they're going to use it, are they going to hold it? Are they going to sell it, are they going to trade it? So all these different things define the token model, right? And the token model, as we said, needs to go hand in hand with the business model, the revenue model as well. So for example a lot of companies are using the token as a fundraising mechanism, but an incentive mechanism as well to incentivize this behavior. >> So talk about the dynamics of an airdrop and a token swap. We're starting to see airdrops are well known, just take advantage of explaining to folks who don't know. And then, I'll get to the token swapping, we're seeing some synergistic keiretsus for me, so airdrops and then token swaps. >> Yeah, airdrops are becoming, basically the new standard, I would say, they're a way-- >> John: Outside the US? >> Even the US, actually. >> John: Are they doing it in the US? Okay, explain what it is. >> There's a company, I think it's called Earn.com, where you can actually launch your airdrop campaign for free or you have to pay something but >> John: What's the URL? >> Earn, Earn.com >> John: Earn.com, okay yeah I see that. >> E-A-R-N, yeah. >> Explain what an airdrop is, just define it. >> So, it's a very simple term, you basically airdrop tokens, you basically give tokens to users, to people, right? So basically people sign up on your site, and you white list an address, and then you basically send those tokens to that address. So it's a way to circumvent a public sale. >> So get free tokens out? >> Christian: Yeah. >> To generate community activity, marketing buzz. >> Christian: Correct. >> So you're just going to airdrop it, kind of metaphorically. >> Right, there are some ways that people do private sales with airdropping. >> Where's the gotchas on the airdrops? Where are people getting in trouble? >> Well, if the token is a security, depends on if they're giving it to you for free, but the value increases, the token increases in value, that delta becomes dubious. From an IRS perspective, from an SEC perspective, from a CFDC perspective, that we still haven't figured out, but ideally if we give out free tokens to incentivize the community, >> Yeah that's normal marketing usage, in the SEC you view that as a utility, a legit utility. >> Yeah we see that with the new bill that passed in the past couple of days, that's how they define utility. >> Alright now let's talk about swaps, token swaps, because starting to see some activity around, self-forming, which is natural in communities, adjacent businesses saying, "hey I'll swap "two million dollars worth of tokens "for two million dollars of mine". Kind of a Barney deal, you love me, I love you back, kind of thing, but it's trying to cross pollinate communities and share value, basically a Bus Dev Bill. >> Christian: Yeah, absolutely. >> What do you think about that? >> It's great, I've seen that a lot of that in forming new partnerships between ICOs. So, let's say there are two ICOs that definitely want to have some IOJV or some partnership together, they have some qualities that they'd like to have of each other, and that's how they do it, they do a token swap. It's almost like an equity swap from a regular traditional company standpoint. It's almost like you want to have an action in the company, and I think it's a great model, it's a great incentive mechanism. >> A great legal bill too in all this, someone's got to pay for it, lawyers are having some fun with it. >> Yeah. >> Kind of new progressive laws being figured out, lawyers generating new dockets for the first time, final question for you, I know you got to run, appreciate your time spending it with us. Puerto Rico, you're observation here, you're from the bay area like we are, what are you doing here? Why are you here? What's your observation, what's the hallway conversation? Share some color commentary about BlockChain Unbound. >> So, I'll start with why I'm here. So, it's beautiful place, the weather is amazing, the water is amazing, it's a great place to take some time off. I'm speaking at a bunch of conferences, and meeting a few people. And I'm part of the movement of the Puerto Rico Crypto Movement. I think it's great, I had the opportunity to meet with some of the government officials that came here at BlockChain Unbound today, and talk a little bit about what's happening, how can we actually make sure that, create some sort of a system that is made for ICOs and BlockChain, and what I like about it is that it's very open to accept new ideas, very open to try out new things, which not always happens in the government space, so I'm very excited about >> And they're really active to open arms. >> Absolutely, absolutely. So, I have very high expectations and very good sense that things are going to pan out here. >> You do any deals here? Write any checks? Sign any commitments? Verbal MOUs, handshakes, what's happening? >> There's been some of that. I'm a big believer that you need to do enough due diligence on the process, so have a cool off period, a honeymoon period kind of cool off but I think there are some very interesting people here, I met some very interesting brains, very interesting products. And the energy, you can feel the energy. People want to try their risk and invest. >> I see a lot of people doing deals, I saw one VC, I'm sorry, VC, investor, token investor, he's done six deals already here. >> Christian: Yeah. >> He's buying tokens, handshake, verbal commitments, and MOUs. >> Yeah there's a lot of that going on. >> And a lot of money coming it, a lot of international too. >> Absolutely. >> So great to see not just here in Puerto Rico, not just US, this is a global phenomenon. >> It is, this is one of the things that BlockChain is about. It's ubiquitous, it's everywhere, and that's the beauty of it. >> Well, Christian, thanks so much for coming on theCUBE, we really appreciate it, thanks for sharing the data and advice. The BlockChain Playbook is coming out at the end of the year check it out, Christian Ferri with BlockStar. I'm John Furrier with theCUBE, SiliconANGLE Media. Live coverage here, wall to wall, two days, back with more after this short break.

(upbeat orchestral music) >> Hello, welcome to this CUBE Conversation. I'm John Furrier here at our Palo Alto studios. I'm joined with Kelsey Lemaster who's Tax Partner at Goodwin. This is theCUBE signal. Kelsey, thanks for coming in. >> Yeah, thanks for having me. Glad to be here. >> So, tax partner. Obviously, lot of things going on. Apple's bringing back cash with the United States. Big news, $380 billion. Tax reform under President Trump seems to be spurring. NASDAQ hit an all time high. Business is booming. Kind of good, good tail wind for business. But really the hot topic that I want to drill down with you in this segment is have a conversation about the ICOs. >> Yeah. >> Cryptocurrency, it's insane. It's super exciting. If you're under the age of 30 and if you're not actually so excited to get into this unregulated, uncontrolled, well some say controlled market. It's just people are going crazy. A lot of opportunities, a lot of fraud, a lot of action around building businesses around it. So, you're in the middle of it. What's going on? Give us a take on then ICO. How many ICOs you guys doing, all right. What's Goodwin's number up to now? How many ICOs you got? >> Yeah, so the number we talk about within the firm is about 40 active ICOs. That's probably not precise but it's more or less that number. You know, every day we talk with existing clients or new clients that want to go through an ICO process, and we advise them the best that we can. There's securities laws issues which people are aware of. That's not really my expertise but in the tax world -- >> Well, Grant Fonda, he's coming in next. But we've had a conversation with him. >> Right, right. >> The securities issues and this, but there's huge tax consequences. >> Yeah, so there are a lot of tax consequences. They're unusual and things that people don't expect when they're raising money, what they view as raising money through an ICO process. Cause typically when you raise money from a venture capitalist or from investors, people who will buy securities in your company for cash or property, that's usually tax free to the company. And I mean, that's been traditional law for many, many years. Problem is in an ICO, what you're selling usually is a digital asset of some sort, a token which often is a right to obtain some service on a platform that may or may not exist yet. And the tax characterization of raising capital for that kind of asset or property or service probably does not qualify for the exception. It normally qualifies when you sell stock or securities. So, it's basically taxable revenue to companies. >> So, let's drill into this, have that conversation about tax. Cause a lot of people I talk to, entrepreneurs or newbies, either new entrepreneurs or seasoned entrepreneurs, even the seasoned entrepreneurs look at the tax consequences and go, "Wow, this is crazy! I don't understand it." And it seems like the tax providers, you guys are one of them there's a bunch of other firms out there that can help with different price points all across the board. Their learning, their training wheels are on too. So, people are learning, running, tripping, falling. It seems to be that from my perspective. And it's a real, real rapid accelerated pace. It's almost like the dot com bubble but fast forward it feels like with an entire new infrastructure of corporate governance. >> Yeah. >> I mean, this is pretty crazy. So, tax is a big one. And the dollar signs could add up big time if you're a company and you need tax advice cause there's so many scenarios. What is the current state of that market? With tax providers, the tax consequences, is it as thorny and hairy? And how are you guys unpacking it? >> I think you're exactly right that a lot of us are learning together about the technology, about the business terms, the deals. Those are evolving. The tax law is what it is. It has really not caught up to any of this. The IRS issued a notice in 2014 that tells you how cryptocurrencies like Bitcoin and Ether and Dash and some of those others are taxed to individual investors but that's it. That's all we've heard from the IRS. So, a lot of us as practitioners are trying to figure out how to apply traditional tax law principles to this brand new, technological sort of device or way of raising capital. And in some instances, the answers are clear. And in others, they're not. There are a lot of square peg round hole problems that a lot of us are trying to work through. And as you said, we're doing it at a very rapid pace, real time, clients are not really waiting for us to figure out every nuance of tax law and how it's going to apply. They're just doing their ICOs. And so, there are a lot of situations where companies will do an ICO and raise, maybe this hasn't happened lately as much but at least last summer, companies would raise hundreds of millions of dollars in an ICO without really getting any significant tax advice. And the basic rules in this area, as I had mentioned, If you raise capital by issuing tokens, it's probably taxable revenue. So, if you start up as a normal corporation where you're going to build a platform, you're going to spend some money to build it, and all of a sudden you raise $200 million. Well, if you can't spend all of that money in a year, you're going to pay tax. And last year, the corporate tax rate was 35% federally. Now, that's been reduced on under the tax reform. But say you raised $200 million dollars last year and you effectively couldn't spend much more than a couple million dollars. You could have a tax bill at the end of the year of $70, $80 million dollars which nobody was expecting. You know, companies are trying to structure around and avoid -- >> It's hard to spend $200 million in one year. >> Kelsey: Yeah, exactly. >> You really got to go crazy, go on boondoggle. No but this is an important point. So, let's get down to that. So, the cash proceeds coming in, obviously the utility token, that's taxed right out of the gate. >> Yeah, there are some areas of uncertainty there. And there are positions. I mean, there are alternative ways of viewing that. Probably the right way of viewing money coming in, we say money but usually it's Ether or Bitcoin, right? So, we take the fair value of what comes in. And if it's $200 million, in a utility token context, that's probably going to be viewed as revenue for future services. Because, by having the tokens, the individual holders will be allowed to participate in your platform and get your services. So, the services income that's taxable. Now, you may be able to defer some of it for up to one or maybe two years. It depends. You're going to have to recognize all of it for tax purposes within two to three years max. And you know, people have talked about, "Well, can I just wait and see what happens and not pay any tax on this income?" And there are some sort of doctrines that you might look to one's called the open transaction doctrine where you don't really know what's going to happen. In a lot of these cases, the ICO proceeds have to be given back if the platform never gets built. So, people have talked about, "Well, can I use what's called open transaction, and wait and see? And if I build the platform, then I'll take the income in in that year in the future but not now." Personally, I think that's a losing argument. And my view is the IRS, when they start looking into this, they're going to really view this as all just services income. And you might have one or two years to spread it out, but you're going to have to pay tax on it. >> It sounds like there's a mix and a confluence between accounting and finance and tax law. Because you've got timing issues, that's revenue recognition. You mentioned services with tax practional view. What is the line? Where is the absolute, out of bounds in ICO tax policy? If you could lay it out. I know there's a gray area that your people are working through and might have a position and lean towards a certain direction based upon what they're doing. So, I can get that. But where should someone look in saying that might not be in the know in the taxing. Don't do this. What are the things that they shouldn't be doing? Obviously, fraud. We know that's ... >> You don't want to do tax fraud, for sure. I would say, in general, it's going to be risky to take a position that, if you raise a bunch of money in a utility token ICO, if you take the position that that's not revenue and you somehow view it under the open transaction doctrine, for example, I think that's a risky position. >> John: Why? >> Just because I think that it's inconsistent with the law and the open transaction doctrine space. Normally, when you receive money and it's basically yours, you have a claim of right over it, that's taxable income to you. Even if you might have to somehow give it back in the future. So, I think that would be a risky position to take. Another thing that we've heard about a lot of companies doing is, you know, for awhile everybody wanted to set up a foundation in Switzerland. I'll set up a foundation in Switzerland, they'll issue the tokens, it's all tax free because it's a foundation. I think there's ... I'm trying to remember. There's an ICO company that recently got in trouble for this because they were trying to take the funds out of Switzerland and use them for personal use. But any time I hear someone talk about setting up a foreign foundation, my antenna go up. I think that -- >> You think that's a red flag. >> I think that's a major red flag. Most of these companies that are doing ICOs, probably don't really have the kind of purpose or business that really fits with a foundation. I mean, foundations are tax exempt, charitable type entities. Like The Ethereum Foundation. That to me sounds like a foundation, right? It's not there to profit in any particular business. >> John: It's not a business hiding as a foundation. >> Kelsey: Exactly. That's a great way to put it. I think there for awhile, people thought that I could hide my business in a Swiss foundation and never pay tax. And I think that's a major red flag. >> Okay, let's talk about the Cayman Islands, Switzerland, there's places to domicile or locate your business for tax reasons. And some people, there's play books out there on what to do. And it evolves. It's a moving train for sure. But what problem are we solving with the tax? Can you just elaborate on what is the core problem to be worked on with respect to taxing, the tax consequences in the ICO crypto market? >> Kelsey: Right. So, from the company's perspective, the core problem is what I was mentioning where, when you raise all this money through an ICO, the most likely treatment of that if your raise it into a U.S. corporation is that it's just taxable income. And maybe some of it's taxable this year and the rest is taxable next year, but it's going to be taxable to that corporation pretty quickly. And corporations don't want to pay tax. I mean, that's an age old problem. So, what people are doing and are still doing is there are structures where you can set up a subsidiary in a foreign jurisdiction like Switzerland, Cayman Islands. This is not a foundation, this is a normal subsidiary. And if you get the intellectual property moved into that subsidiary in an appropriate way, and there are rule around that, and then you have substance in that subsidiary where you have employees in that jurisdiction who are helping to develop the IP. Then if you do everything right, and then you sell the future services out of that subsidiary and you sell the ICO tokens out of that subsidiary, you may get some ability to defer U.S. tax until you actually take money out of the subsidiary and repatriate it to the U.S. So, that's what -- >> It's a lot of work to set up a subsidiary. >> It's a lot of work to set up a subsidiary. >> And it's costly. >> Kelsey: Yep. >> Is it worth it? >> Yeah, so prior to the tax reform bill at the end of last year, if you could do it all right, and there are a lot of issues with getting it right and complications and complexity, But if you could do all of that, and there are a lot of companies that did, then yeah, I think there are good positions for deferring tax. Which, you know, on a $200 million ICO, that's deferring $80 million dollars in tax until some indefinite period in the future. >> There's not many $200 million ICOs. >> Not many ... Right. >> Most of them are in the five to 20, 20 to 60 range. Million. >> Yep. So, I think now that we're in -- >> Still a good chunk of change. >> Kelsey: Yeah, a good chunk of change. And so, post tax reform, the tax rates last year were 35% corporate federal income tax rate. Now, they're 21%. So, there's been a huge reduction in corporate income tax rate in the U.S. So, that I think coupled with the smaller size of the ICOs is going to drive fewer companies to want to set up these offshore structures because, one, it's a smaller amount of tax liability that they're dealing with. And two, because you're raising less money it's not too difficult to spend $5 million -- >> So, pretend I'm doing an ICO. So, I say, "Oh, I'm going to do an ICO." Well, I know that I could maybe fetch $20 million might be the range. Or say I get lucky, say I do 30. I say to myself, "Okay, can I spend $30 million in two years?" Probably, yeah. But it's not so much spending money. I want to get your reaction to this. It's not just spending the money to get the tax law set. It's can I get to revenue. So, can I hit the fly wheel for critical mass in a revenue model. Which, now, a new dynamic is 2018 seems to be the year of we were looking for real deals not vapor deals. White paper and raise money. How does that work? So, if I say, "Hey, I know with $20 million in two years I can get to cash flow positive break even." What's the tax consequence on that? Is that a good deal to do? >> Yeah. So, once you turn net profitable for tax purposes you'll start paying taxes in the U.S. And so, if the idea is I'm going to raise $20 million on an ICO in January 2018, and I'm going to spend $20 million between now and the end of 2019, you can probably, you have to model this out with your accountants, but you can probably match up the $20 million you received this year with the $20 million of expense you spend between now and the end of 2019. And once that zeroes out then you probably won't pay too much tax on the $20 million you receive now. Then once you flip to net positive, right? So, you've spent the 20, took the 20, now you're at zero and you start earning income -- >> But that's a real business. >> That's a real business. And that's going to be taxed like any other business. And now you're in a much lower U.S. tax rate environment of 21%. That's probably a fair deal. >> This is the business model question that everyone's asking. Can I get, use the cash to build a business this is now the conversation in the venture community. It's the conversation in the entrepreneurial circles. >> Kelsey: Yep. >> How to do it. Not just go to the trough and take as much down as you can. Which pretty much everyone's trying to do. That's up though. Not many people doing that. >> Kelsey: Yep. >> I mean, Signal's got a big ICO coming. They were in the billions. But are you advising clients to stay in the U.S. If they don't have to go to Cayman's? What's the current state of your research note or tax note to clients? >> Kelsey: Yeah. I think this you might have different views from different practitioners. My personal view is that if it's a relatively small amount that you're raising and you expect to be able to spend it down within that one to two year period, I tend to advice clients to keep it simple, stay in the U.S. Because there are a lot of ways that you can screw up a Cayman structure or Swiss structure. And usually these companies are working incredibly hard to build their platform. >> It's also distracting. >> That's my point. Exactly. The benefit is uncertain. And it may not be much of a benefit at all. And it's probably much more important that you succeed with your business than for you to save what may or may not be a small or large amount of tax. >> So, you guys are learning on the fly, which is great. And this is a market ... It's a huge wave. Everyone's getting their surf boards and getting out there on this big wave. And it's super exciting. What are the practitioners circles, your peers, as you guys huddle on this in the industry, what is the general rule of thumb that you guys are applying? I know Goodwin's a great firm. You guys have done some great work. You're conservative but yet aggressive which is a good balance here. I think some firms won't even touch an ICO. Maybe too risky for them. But you guys take a good line there. You're pushing the envelope. What's the rule of thumb in the practitioners circles? Where's the standards evolving? What's your reaction that? >> This is probably not a super helpful answer. I don't think there are standards. I mean, this is a space that barely existed eight months ago, and now we're doing 40 ICOs at a time. So, it's a very fast-paced evolving space. We just had tax reform literally two weeks ago. I'm on an advisory group with the Ethereum Network Foundation, and it's a bunch of tax lawyers in New York and out here, and we talk every couple of weeks. Just to kind of figure out what we're doing. And there are a lot of things we talk about but I wouldn't say there are really any standards that have come up. There are other ways that people are implementing ICOs that didn't really exist six or eight months ago. >> John: Like what? >> Which you'll probably talk about with Grant to some extent. But you could just go out and have your tokens ready and sell them as a token sale ICO. We have a lot of clients that want to raise the money before they have their tokens built. They just have the white papers so they will sell SAFTs, which are a Simple Agreement for Future Tokens. But you basically agree you'll give me your Ether now and I promise I will give you tokens in the future. And that's a SAFT. Now, there are versions on that where we see investors kind of hedging their bets like, "Well, I don't really know if you're going to be successful with the platform, so what I really want to do is I'll give you money now and I want an instrument that kind of gives me flexibility to either take tokens or equity. So, you see these instruments, like one's called a SAFE, a Simple Agreement for Future Equity. Which you see in normal financings But with a dash "t" on the end of it. >> John: We're going to have pipes. We're going to have SAFE. We're going to have all this stuff going on. >> So, there are all these acronyms coming up. And there are different versions but some of those versions might give you better positions on bringing in the money now and waiting to figure out if it's going to be taxable. >> John: What have you learned? You've got ICOs under your belt. You guys are doing good work over there. Relatively new. What's the big learnings that you've walked away with, so far? And what's still in front of you? >> Yeah, I think what I've learned is just, for me personally, it's very interesting to see how these traditional tax concepts which are simple in the abstract really apply in very unexpected ways to an ICO. And the things we've been talking about on the company side is a big area there. I've also focused a lot on if you're an investor and you're participating in an ICO, odds are you're not paying cash. You're probably paying in Ether or Bitcoin. And if you've held those other cryptos for a long time, and let's say you bought Ether at $10 and you're trading it in now at $1,000 in an ICO. Well, you probably also have gain cause you've just exchanged your Ether. So, now you have $990 in gain for every Ether that you send in. And you know, there are ways to try to manage that for the investors. But that's one area that's been a surprise for investors something we've been aware of but it's something I've kind of thought about and learned that in a lot of these situations there are tax consequences not only for the company but on the investor side. So, on both sides of the table there are tax consequences. And people are often surprised by that and everybody's catching up. >> Kelsey, great to have you on. Take a minute to end the segment. Just share a little bit of the work that Goodwin's doing. You guys have a tax practice. You're head of it over there. What's some of the work you've done? Do the plug in. >> Kelsey: Yeah. So, in this space we do our work with a lot of clients on ICOs. We're working with a lot of traditional venture funds that are dipping their toe in and are reviewing ICOs that they may invest in. So, we look at it with our investor hat and with our company hat. We've also helped clients that are thinking about doing tokenized funds where they will raise capital into a venture fund but they'll do it by issuing their own tokens. So, those are very interesting structures in and of themselves. We've really kind of embraced this space and worked really in just about every way that you see these companies taking shape. We've helped them and helped the investors. >> And of course, you got funds of funds going on now. I saw a couple of decks been circulating around. Funds of funds, you've got token funds, funds of funds. This is like a new asset class. >> It's a whole new world. >> I mean, unregulated, uncontrolled, controlled probably by a few people. I mean, pretty wild. >> Yeah, yeah. >> John: Having fun? >> It is, it's been a blast. >> Kelsey, thanks for coming on theCUBE. Kelsey Lemaster, partner at Goodwin on the tax side. A lot of work. I'm sure he's busy. It's complicated. And they're learning and people are being successful in ICOs. And again, one of the big things is the tax consequences. Check out Goodwin. They've got a great firm over there. Kelsey, thanks for spending the time coming on theCUBE. I'm John Furrier. This is CUBE Conversations in Palo Alto. Thanks for watching. (upbeat orchestral music)

live from Los Angeles it's the queues covering open-source summit North America 2017 brought to you by the Linux Foundation and redhead he welcome back everyone here live in LA for the open source summit in North America I'm jumper with my co-host Jeff Fritz too many men he'll be back shortly is out scouring the hallways for all the news and analysis getting all the scuttlebutt are here we're here with our next guest brian behlendorf who is the executive director of the hyper ledger project for the Linux Foundation thanks for coming on thank ledger thanks for sharing we just talking before the camera started rolling about blockchain and the coolness around the hype around it but again the hype cycle is usually a pretext to the trend hyper ledger is one of those exciting projects that like AI everyone is jazzed about because it's the future right open source is getting bigger and bigger as Jim zemulon was saying 23 million developers and growing but there's still so much work to be done the global society's relying on open source it's shaping our culture - Ledger's one of those things where it is going to actually disrupt the culture and change it potentially and even this morning Chinese band virtual currencies and icos and all based upon doesn't mean it's time to invest yes and whatever China bands it's always been successful so your thoughts go first boy star let's get into hyper ledger project it's certainly super exciting probably people are talking about it heavily what's going on with the project give a quick update what's the purpose who's involved and when some of the milestones you guys have hyper ledger is less than two years old it was launched officially in December of 2015 I joined in main and it was founded on the principle that hey there's a lot of interesting stuff happening in the cryptocurrency world but there might be some more prosaic some more directly applicable applications of distributed ledger and smart contract technology to rebooting a lot of otherwise very thorny problems for industries in the world the main problem being you've got companies doing business with each other and the recording transactions and you know they'll have to go back and reconcile their systems to get audited bugs right and a lot of the systems out there depend upon processes at a very human processes that are prone to error prone to corruption right so the idea is the more that you can pull together you know information about transactions into a shared system of record which is really with the distributed ledger it's and then the more about of the governance and the and the business processes enclosed that you can automate by smart contract the more effective the more efficient a lot of these markets will be so that's what hyper ledger is about ok so certainly the the keynote was all about open sources being dependent upon and Jim's Emlyn as well as Christine Corbett said you know traditionally control we all know that open source but I love that the deployment changing the face of capitalism because hyper ledger is a term that you can almost apply to the notion of decentralize not just distributed but decentralized business so the notion of supply chain things in finance to moving Goods around the world this is interesting this is how about the impact of how you guys are seeing some of these applications we're now a decentralized architecture combined with distributed creates an opportunity for changing the face of capitalism flowing because the word distributed can be very loaded all right you know and even decentralized right it can be very loaded and what I what I tried to popularize is the idea of minimum viable centralization right you know football games and other sports games have referees right and when we play a game like this well sometimes you know sometimes we don't need a referee it's just us playing pick-up basketball but we want somebody on the periphery we all agree to who helps remind us what the rules are and throws a red flag from time to time all right and so you see in industries ranging from finance where you're building these transaction networks to you know supply chains where you need to track the flow of like food and to know when if food has gotten spoiled possibly where that came from or diamonds that have been involved in conflict time and you know other illegal activities right you want to know where that came for a minute and it involves that industry getting together and saying we all agree we have a big net interest in making our business actually follow certain rules and norms right and using a distributed ledger to to bring that about it's something that can just provide a lot of optimizations so most people think of like Bitcoin and ether a mezda with all this ICO buzz as de as the front end to really the underlying blockchain which you're talking about yeah and that's kind of like I get that fiat currency in this market developed to look crazed bubbles some people call it whatever but you're getting at something unique and this is that there's a real business value of hyper ledger I won't say boring but it's like meat and potatoes stuff it's like really kind of prosaic is the prosaic it's like so but it's disruptive so if you think about like the old days when we were growing up or I was growing up ERP was on mini computers and the prized resource planning relationship management software those were bloated monolithic software packages yeah still out there today and they handle the so called supply chain right so is the hypervisor a disruption to that is it an augmentation of that so some try to put it in context the cost of sending a shipping container from China to the United States right half of that is in paperwork half of that is because that container on average will go through 30 different organizations from the the you know the suppliers that you're assembling the goods into to all the different ports all the different regulatory authorities right out finally to where it's delivered and if you can optimize those business processes if you can make it so that the happen in a space where it's not about paper and facts which a lot of that world is still ruled by today or a bureaucrat sitting there reviewing stuff that's coming in and having to stamp it when really all that could be automated you could cut the cost of that and take the shipping industry from what is right now a money-losing industry to potentially being viable once again so optimization is really critical for them it's optimization but it but there's also some new capabilities here so I spent a year at Department of Health and Human Services trying to help make health care records more portable for patients right and we wrote it and got it I got the industry to write a ton of open source software implemented open standards to make these records shareable the problem was the patient wasn't involved right this was about trying to take two orgs do something that all of their bean counters told them not to do which was share patient records because no that's proprietary value and the HIPAA regulations all that not exactly blackens processes basically with blocking with blocking technology that we can reinvent that as a patient driven process right we could reinvent a lot of the other business processes out there that involve personally identifiable information like the Equifax disaster right we could reinvent how the credit markets assess risk in individuals through blockchain technology in a way that doesn't require us to build these big central anonymous third parties that Coover everybody's data and become these massive privacy titanic's right we can reinvent a lot of this through blockchain tech and that's a lot of what we're working on that Nagaraja because a analytics from that kind of a unique place because you're used to driving these big open-source projects there's a lot of people and they're trying to build the wrapper around the base core of blockchain to come up with their version or their kind of application if you will whether it be Bitcoin or whatever but you guys are in kind of a special place based on your roots we believe that I mean open standards are nice but what really matters is common code right and in a world like we envision where rather than saying you one big Network like Bitcoin or one big Network like aetherium you've got thousands or tens of thousands of these permission networks that cover different industries different geographies different regions what you need is common software so that when a developer goes to work on an application that touches one or multiple of these they've got familiar idioms to work they've got familiar technologies to work with like NGO or Java or JavaScript right but they've got a community of other technologies has been trained up on these technologies that can help them bootstrap and launch their project and maybe even become a contributor to the open source so what we've figured out at the Linux Foundation is how to make that virtuous cycle go right companies you know benefit commercially from it and then feed back into the project and that's what we're mentioning the word you get almost rethink and reimagine some of these things like the Equifax disaster yeah I think it's pretty man no breathing most tech people I really seen as as viable like absolutely it's gonna happen so there's a nice trajectory vision that people are buying into because it's somewhat you can see it hanging together playing out technically what are some of the things going on the project can you share with the folks watching about some things that you're doing to get there faster what's going on with the community with some of the issues with concerns how do people get involved take some time to go tobut deep words of the project so we're not a you know an RD kind of free thinking kind of thing we're about get writing code and shipping and getting into production right so hyper ledger fabric just hit a one dot oh that was a signal from the developers that this code is ready to be run in production systems and for you to track digital assets right doesn't by far does not mean it's the end of the road it's the end of chapter one right but at least it's a place where we you know the kind of the clear intent is let's make this actually usable by enterprises the other projects we've got eight different projects total at hyper ledger some of them even compete with each other right but we're driving all of them to get to a one dot oh and over time all of them talk about how they relate to each other in kind of complimentary ways what's some of the profile developers you're getting because some people always ask I know what should I get involved what can I sink my teeth into what are some of the meaty kind of things that people are doing with it who the persona that that are coming in these enterprise developers they more traditional full-stack developers can you give a range of some of the persona attributes because this is early code still I mean this whole space is still pretty early when it comes to understanding how to use these technologies especially at scale kind of at a DevOps scale a lot of the people first coming into the tech community now are fairly advanced right are kind of the whiz kids right but we're seeing that gradually broad broaden out we now are at a point where we could use developers coming in and writing sample applications right we could use people helping us with documentation we're developing training materials that will be creative commons-licensed so everybody will be able to deliver those and as they find bugs or add features to the training they can do that too we can really use anybody all right so folks watching get involved okay get any white spaces you might want to tease them out with that you see happening obviously mentioned tracking digital assets data is a stress that's cool anything that's going on with data probably is a digital asset but you'd agree what's some of the things that people could get motivated can you share any insight that you might have that would motivate someone to jump in I think any any industry has these challenges of weaving their systems together with other businesses and then trying to do that in a way that holds each other.you account right this is a system for building systems of record between organizations right and you know you running a database to me running a database we don't get there on our own we only get there by working with consortio by working in as a community to actually build these systems and so I'd say every every business has that challenge whether they're engineers have felt free to go in and try to tackle that extranet days when you see people building citizen networks similar concept where blockchain is one big happy family collaborative network all right final question for you kind of shooting for a little bit what do you expect to happen community any thoughts on some of the goals you have is executive director obviously you got some hackathons for good we'll see blockchain being applied to some real things with one dot out what do you see rolling out which some of your goals I massively grow the developer community both the well you know the one end of the spectrum which is the the whiz kids the hardcore developers to you know move forward on a kind of the leading edge of that but really we've got to bring you know hundred thousand developers into this space or the next couple years just to meet the demand that's there in the industry for that town alright so if I'm a now an executive as a hey I saw this great Cuban in friens awesome go get involved what how did someone get involved is just jump standard community model just jump in what advice would you give someone if they want to engage and participate for every one of our projects if you give gave it an hour you'd get to a running you know instance of that software right so fabric or sawtooth within an hour you should ever running for node instance that you can start writing chain code two which is the smart contract language right and and then from there getting involved in the community as a matter of joining mailing list joining our rocket chat channels rocket chats an alternative to slack that we actually prefer and I and I think you'll find a really welcoming community of other devs who want to tell you about what the projects are and want to help you kind of climb that learning curve one of the comments just enough good note here is that Christina gave him the key no she says code can shape culture you've been in the industry a long time you've seen the wave you've been on the shoulders of others and now as the open source goes to the next level how is code gonna shape the culture in your opinion actually people started working together to take that I would say that almost I'm not a moon shot but it's really more of an imperative that culture will be changed inclusion else is huge your thoughts on code shaping culture so we've we've had a decline in trust in institutions in the United States and worldwide not just in the last seven months since November but actually for the last 20 years there's Edelman does this survey every year where they ask you your trust in brands your trust in government your trust in the process the fairness of society and for 20 years that's been on a straight-line decline to the point where we ask ourselves like can you trust any level of government can you trust businesses to look out for your interest the answer almost generically is going to be no this is a technology that can save us from this is a technology that we I believe can help us define the rules of the game help us build society but then actually automate and implement that in a way that doesn't require us to have to bribe an official or curry favor with a school official to get our kid into that school or anything like that this is a way to try I think to make the world more accountable and more fair and open source has that inclusive and staying away from the gerrymander and I love the quote it's so confusing now it's like who do you ask where's the source of truth and it used to be RTFM and check the source code now it's not only there is no manual who is the source fake news all these bots means kind of crazy so this is that a call to arms the open source I think it is I think it really is the trust as a service ok Brian thanks so much for come on if you appreciate it Thank You director for the hyper ledger project super important project really a game changer changing the face of capitalism also continuing the trend accelerate open source I'm Shaun Frechette for more live coverage from the queue after this short break

>> Announcer: From Palo Alto, California, it's CUBEConversations with John Furrier. >> Welcome back to our special CUBEConversation here in Palo Alto. I'm John Furrier, co-founder of SiliconANGLE Media, and the co-host of theCUBE. We're with Grant Fondo who is an attorney, with Goodwin. Specializes in block chain, Initial Coin Offerings, also known as ICOs. Part two segment we just went over the high-level landscape, but I really want to walk through the playbook of ICO process. Call this the Initial Coin Offering, or ICO-101. Take me through the process, okay? Hypothetically, let's just say we want to do something, we want to have an ICO called "Crowd Coins". Something that we're looking at doing. But let's just walk through that. What's the advice, what's the playbook? Take me through the process. >> Sure. So the first question is, where are you located, and who are you targeting? So what I mean by that is, where is the founding team? Are they in the US? The threshold issue is whether they are in the US or abroad. If they're in the US, and they want to stay in the US, and most don't want to move, so they want to stay in the US, then we talk about, "Okay, you're going to be subject to US regu-- potentially subject to US regulation." And so, the next step on that is, who is your target audience for the token sales? Are you looking to do accredited investors? Are you looking for US people, are you looking for foreign, and who are those target people? So the threshold issue is, as I mentioned before, are you looking for accredited or unaccredited? Most people would rather, they believe in the democratization. >> Accredited over a million dollars of net worth? So it's like a... >> It's essentially a sophisticated-- yes, it's essentially a sophisticated investor. >> And what's the trade-off between the two of those? >> So the trade-off is, if you really want to get a large market, you do the unaccredited route. And that means anybody can participate. Accredited, if it's credited, it's a much more limited, typically from 50 to 100 people, high net worth individuals, there's a paperwork process, it's exemption under their security's rules. Most of the token sales we're seeing are unaccredited, although we're seeing a trend now, too, that people are doing a hybrid of accredited US investors, and unaccredited foreign investors. It's an interesting hybrid that we're seeing. But, so that's the initial threshold. We have many companies that say, "Well, what if we move our operations offshore? What if we open up a company in Switzerland or something like that?" And I think what they don't realize is that if they are trying to seek US money, or they are located in the US, or the money that they raise comes back to the US in some way, that they're going to be subject to US regulations. So simply sticking something offshore doesn't cut it from a regulatory perspective. So that's the first question we ask, is to trying to figure out, "Okay, where are we setting up this entity?" And typically you set up different entities to raise the token sale. >> So what if a company, say, us as an example, already exists, we're a Delaware corporation? Do I have to stand a new company up, or subsidiary? What's the playbook? So there's a clean sheet of paper is a new company, so that's where you start, I get that. But what about a pre-existing companies? >> So if you're a Delaware corporate pre-existing company, sometimes we'll set up a new, like a subsidiary. Sometimes just for typical corporate reasons it's good to set up separate entities. The other issue, threshold issue, is tax issues. We typically advise people to get sophisticated tax advice from CPAs, things like that, Deloitte's one of the players in the space, for example. And that decision then becomes, do you set that entity up in a more tax-friendly venue than the United States? The British Virgin Islands and the Cayman Islands are two of the examples of where these people set these entities up for tax purposes. >> The tax thing seems like it would take time. Does that slow things down, or is it...? It's super important, obviously. >> So, it does. It has a couple components. It slows it down because there's another player involved, you also have the potential transfer of assets and you have to figure out what are the assets that you're going to trade, move from the Delaware corporation, for example, to the Cayman Island corporation? You also have obligations of, you have to go live in the Cayman Islands for a while, which is not a bad thing. >> My wife wants me out of the house, time to go to the Cayman. >> So it's funny, I had a client who said, "Alright, let's set up in the hotel right next to the airport," and I'm like, "If you're in the Cayman Islands, go to the beach. Don't stay at the airport." >> Start scuba-diving. A lot of people would do that. Okay, so, great, so, jurisdiction and corporate structure is the first consideration. >> Yes. >> What's next? >> The next step is related to that, is what type of sale are you doing? Are you doing a token sale or a security sale? And what we mean, and that's a big threshold issue. What we mean by that is, and most of the sales are token sales. But is the token that you're using going to give someone equity in the company? Are they going to get a percentage of the profits from the company? Are they going to be able to control some of the decisions of the company? If so, that looks more like a stock. And so, therefore, it's deemed a security token. That is subject to SEC regulation, and there's a different route. Many people don't go that route, but some do. So, for example, people in real estate transactions where they want to give, use tokens, but they really want to give investors who get a percentage of the real estate profits. They'll go the accredited US investor route. For the other pivot is towards the utility token. Which is the utility token, like an arcade token, it's basically a token that works in the platform, and people use it so that they can transact on your platform, they can play games, they can get content, they can encourage people to find bugs in your software. >> John: So, transactional-type value. >> Transactional, exactly. >> So, smart network, smart contracts assume some sort of marketplace with coins and the currency, right? >> Grant: Exactly. >> Okay, so the next step. The tokens and security and utility, I get that. Okay, make that decision, now what? >> So the next step is, you need to do a white paper. And you need to hire a law firm to help you with the white paper and all the legal, all these different steps. So then we'll take a look at the white paper, and we'll advise them on what their token looks like, if they're trying to do the utility route we'll walk through the different language and things of that nature. We also try to clear it up, make it just a little bit more readable. And then, once they do the white paper, we then, also, help them with the pre-sale documents. Oftentimes they'll do two sales. So it's called a "pre-sale", which is where you give an opportunity for significant purchase, people that you believe will be significant purchases of tokens, and they'll come in and they'll buy a large amount of tokens, let's say $100,000 dollars in tokens, but at a significant discount from the price that will be for a regular token sale. So maybe a 20% discount. >> So once I have my token, security or utility, okay, now I got to go figure out how I'm going to sell this. >> Grant: Yes. >> And that's what we're getting at here. >> Yes. And so, typically you make a decision and do a pre-sale, and you raise a certain amount of money, and then you do the sale, the token sale, about a month later, typically. >> What about allocation of tokens? That comes up a lot. So I'm also thinking, "Okay, is there a structure for X percentage for the development, X percentage to sell, to offer to the community or network, how many stay in the company." we see people keep an allocation for the company, or, between 15 or some higher. So how do you put the pie chart together, or distribution of token? >> One of the things you have to figure out, is this a token that you're going to sell all your tokens right off the gate, except for some of the ones you keep, or do you envision later releasing tokens over time? So some of our token sales, every year, excuse me, token companies, will release tokens over the time to continue to provide tokens to the users. So you have to make that threshold decision. What you typically see, is you see a percentage kept by the company, you see, and it's usually, usually you see 15 to 20%, although I've seen companies up to 90%, and then you'll see a bunch of the tokens issued to the market, and they will tell people through their white paper what they intend to use that money for. Most of the times it's for R&D and development of the platform, and continued maintenance of the platform, but also legal and administrative expenses for that company. One of the big issues that companies face, is where are they in the development of that platform? Ideally, by the time they do the token sale, the platform exists and the tokens can be used immediately. That helps, we talked earlier about, being a security versus a token. That helps in that analysis. If you're building a platform, and you've already got it up and running, that looks more like utility token. If it's going to be a year or two before that platform's available for use, the SEC may say that looks more like a security. >> And a lot of people get flagged in ICOs where it's like, "We're going to see something in late 2018." And so they hope to raise money through the tokens to do development. And it can be like a Kickstarter kind of model there. But it's not legit. I mean, from a product standpoint. I shouldn't say, "not legit". It can be scrutinized. >> I think now, the SEC gave some guidance a couple weeks ago, and I think that in Coin Center, which is a very think tank in this area, they issued a spreadsheet, essentially, that talks about when are you more a token versus security. And I think that's an issue. I think, especially going forward, companies, if they can, are better off having a platform up and running by the time they issue the tokens. >> Okay, so next question is, okay, great, now I'm rockin' and rollin', now I got to do some blocking and tackling. I need a white paper, I got to have a website, what are the minimum viable elements that need to be in market for an ICO? Obviously a website. What are the elements there? >> One is the white paper, which we talked about. You also, as part of that white paper, you want to make sure you are conscious that this is a white paper that has to live and breathe potentially years, and so you want to be honest and forthcoming, and also give yourself some flexibility. But the other thing is, not every company is a super-sophisticated smart contract company. And so they'll often hire vendors to do that. >> John: Do the white paper. >> No, not to do the white paper, sorry, to do the actual smart contracts to set up the token sales. Those companies will also assist with the white paper, just like we do, but their primary platform, or purpose, is to help launch the smart contracts. You'll also have marketing companies that will assist with marketing the token sales, so that more of the community knows about your business, and that there's a platform out there and that hopefully that's a platform that you want to use tokens on, and so that's another component. And then, also, the tax advice that I mentioned before. >> Alright, so in that white paper, is also the consideration for who the service providers will be in the process. >> Sometimes. Not always, though. Sometimes it will identify who's going to get, if the service provider, for example, is going to get tokens, but oftentimes you don't see that in there. >> Alright, so white paper, probably an FAQ of some sort, but, again, thinking about this being an evergreen, living document that'll be on the web. It could bite you in the butt, or help you, so be careful, right? So that's what you're saying. Good advice. Okay. Tax considerations. Okay, now I have my tax hat on. Bring in Deloitte, bring in tax guys. What are they talking about? How does that impact the process? >> So, you mentioned the delay before. I think any time that you bring more players in it obviously delays things. But they're important players. All these are important players. And part of what you want to do, is you want to bring them in early, versus waiting, because the tax implications are significant. It takes time to set up foreign entities, it takes time to go live in the Cayman Islands, not the worst time, but it takes time. >> John: What duration in the Cayman Islands would someone have to live? >> I'm not an expert on that, but you're going to spend a couple weeks there, for sure, if not longer, and you're going to have to stay there through the token sale. >> Does the boat get paid as part of the token sale? >> I'll leave it up to you on how you decide to spend that money. >> Okay, so back on the jurisdictional thing, this is important. People, can they do it in the US? >> Yes. >> Yeah, they can. Okay. But how does that impact the process? Is it a tax issue, or is it just, comfort? What's the consideration between a Cayman Islands, foreign makes sense if you have people there, but Caymans would be the alternative to the US companies, right? >> So if you do it in the US, you can still have your operations here, and essentially you can have some people here, but the primary wallet, essentially, entity receiving the money would be in the Cayman Islands. If you decide, and that's really mostly for tax issues. If you decide to forego that, so some companies decide the tax issues are not significant enough that I want to deal with it, setting up a Cayman operation, there's a delay, there's expense, and we'll deal with the US tax issues. And so that's just a business decision. >> And because the tokens are viewed as income? >> Revenue. >> Revenue. >> Grant: It would be viewed as a revenue for the company. >> Okay, so does that mean, if a corporation wants to buy tokens, that's an expense? >> So, it's funny, we haven't had that question asked, and I'm not a tax expert, but yes, I think it would be an expense. >> We'll have to get a referral, get a tax guy in here to answer these questions. The post-ICO issues. Did we get to the ICO? So the next step is, okay, I got my tax considerations, it's time for the ICO. What happens next? Do I ring a bell? Is it a digital bell? What happens? >> It's kind of fun. Most companies, what they do is they put a countdown to when the ICO is about to start, and they usually give a window. And it's typically a two-component thing. One is, if we raise X, so let's just pick a number, $30 million dollars. It's a $30 million dollar X amount of tokens we sold, the token sale will stop at that point. And/or a time limit, so two weeks. We'll have a two week token sale. And so, you'll have the timeline, and they'll actually register for you on their website how much they've raised, how many tokens have been sold, as well as where they are in that timeline. And then the timeline ends either through one of those two mechanisms, and then the token sale is closed. >> And then I'm sure there's a protection issue around protecting the tokens. Can you add some color there? Because there's been rumors that someone raised $34 million dollars and lost it all. They've basically been robbed, digitally, by hackers. Who do you call, then? Better Coin Bureau? >> So we've dealt with that issue, and we can give advice when that happens, but it's a tough issue. Tracking, the FBI, obviously you notify the FBI... >> John: It's a fatal flaw. >> It's a real problem. Typically there are people abroad. So you have to assume it's gone. So one of the immediate things we talk about is security. And some of it is very basic security. And that is, if you are receiving all these Ethereum or Bitcoin or however you're raising it, set up a bunch of different wallets. If you're going to lose money, it's better to lose one out of 10 wallets, or one out of 20 wallets, versus one wallet with all your money there. So some of that is just prudent, in a sense, but I also think you really need to make sure. That's part of why you bring some experts in, if you don't have that inside expertise it's going to make it extraordinarily insecure. >> How do vet the service providers if I'm going to work with the company if I'm an entrepreneur or an entity to deal with the front-end of the first collection? The wallets make sense. You sprinkle it around, it's like digging a hole, or putting mattresses all over your house, so I get that. Who do I deal with on the inbound? Is there a central authority that takes the cash in before it goes to wallets, or it goes right into different wallets? >> That's where we talked about a smart contract vendor will assist you in setting things up so that it goes directly into a wallet. Part of it is just word of mouth. People get referrals, they look for who's done other ICOs. Part of it's reputational. Some of it, too, is when you talk to people, you can figure out, do they really know what they're talking about? Hopefully you have some IT security people on your team, or that at least you can rely on who can really vet, vet these providers and to say, okay, this is a really strong product, and we feel comfortable with that. And you're betting a lot on it, so it's a really important decision. >> John: So you invest in a security resource. >> I think you have to. >> Okay, now ICO is completed, everyone's high-fiving, the clock is ticking, and there's a post, maybe a trickle, or a one-shot opportunity, assuming that trickles is part of the process. What's the post ICO consideration? >> One of the issues is the money, right? So what do you do with it? So this is a pre and post token sale issue. And that is, do you provide employees, or founders, with tokens? And I think the consensus now is that the more you provide tokens for employees and founders it more looks like securities. So there's a tendency for people like advisors who come onto the company, to provide them tokens. I think there's a risk that if you do that, it looks more like securities. So you have to treat that money and that token, especially the tokens, because the company keeps some tokens, too, right? You have to continue to remember that that's a utility token, not a security token. As far as the money goes and what you want to use it for, you have to keep consistent with your mission. So it's just like crowdfunding. If you ask people to donate money to an idea, you can't change that idea. And if you do change that idea, you need to let them know about it. So you have to be very transparent. So there's no such thing as "free money", and I believe that one of the risks with the post-token sales is, some of these companies are not going to make it. And so you want to be very cognizant of that you're doing the right thing, you're making the right decisions. Pretend, in a sense, that it's truly your money, and every dollar that you spend is your own dollar. You want to use it wisely, and you never want to be embarrassed or ashamed or concerned about how you spent that money. >> As long as it's not buying a boat or having a, like on Silicon Valley, renting out Treasure Island and having a big party. Use it wisely, and to the mission of the firm. Okay, so the question I have for you, this comes up a lot is, okay, I get the utility token. That creates value for the currency, you're not selling the appreciation as an investment, it's a transactional component of a smart network with smart contracts, and values the creation and distribution of that value. I get that. If a company wants to do that, they can still have an equity plan, I assume, because you have to assume that that utility is contributing to the value of the overall enterprise itself, the company. That's where the employees would get the stock options in a normal stock option plan. >> Yeah, it's just like any other company. When you raise money, you still have equity. So I think they are generally Delaware corporations that stick with the standard structure. You can give options in the company. There's no concerns with that. >> So you have a coin vehicle going on, and a standard equity program. >> Grant: Yes. Absolutely. >> Okay, so, post-ICO, what else? Cross your fingers and hope you can use the development cash? >> I think, too, and this goes throughout the process from the beginning through the post, which is, be careful how you talk about the token sales. Don't talk about, "We're going to try to increase the value of the tokens." Remember, the token is a utility token. It's an arcade token. It's not a security. >> It's like playing a video game. Pinball Wizard. You pump it in to thing, play your game, and people get value out of that. >> So that's fine. But what you don't want to say, is you don't want to encourage people to continue to trade and buy the token for the purpose of they hope it's going to go up in value and not use the platform. >> Even though everyone's doing that. >> There's some truth to that. There's a little bit of, that's the elephant in the room, a little bit. But there's different ways to do that. As you build your community, as you talk about it and you're excited about your company, and people are. It's a great, it's a fantastic tool, and what's really been fun about it is you're seeing these companies that hadn't thought about the block chain and utility tokens and say, "Wow, this is such a great mechanism to build this huge community, and have all these people participate through these tokens. Setting aside the fund-raising aspect of it, but just this, it's a great mechanism to do this. The democratization of my platform. And I can reach internationally. So focus on that. Don't focus on the value of the token. There's another issue, which is putting them up on exchanges, particularly pre-token sale, I think you need to think twice about trying to connect with an exchange and sticking your tokens up on an exchange. >> John: Why? >> Because it sounds like security again. It sounds like you're trying to develop this market for more people to buy this token to go up in value. Now, it's okay to provide a platform, just like the arcade owner, it's okay if that arcade owner thinks that other people can sell his token for him, or her token for him, that's fine, but you got to be really careful about how you do it. >> So Brave browser, which is obviously utility, has BAT tokens. They're listed, I believe. >> So you can list, yeah and I think, you can list, I think it's just a risk. And I think what you don't want to do, is you don't want to say, "We're listing our tokens and trying to encourage people to buy the tokens." >> So it's optics. It's how you position it. >> It's important. The optics are important. >> So talking about expectations. Can we talk about this in our first segment, but I just wanted to just end this, ICO-101. Went through the process, overall expectations? Any thoughts on that? What people should expect? Duration? Fees? Costs? Is it order or manual, what solar system are they in? Million dollars is it going to cost, is it going to be $20K, how do you engage on fees, and then process timeframe? >> The process depends in part of the company. How far along are they on the white paper, how far along are they on the platform? But setting aside that issue, and more from the legal technical advisor, generally takes two to three months. We're seeing some that are longer. It takes time to put the white paper together, and we proof it and give advice, and then I'll also have some of the other advisers give advice on it. It does take time to set up the tax structure, so if you're doing the Cayman Islands, that's probably a two to three month process for sure. Depends on how much IP you transfer as well, so that can slow things down. >> John: Licensing and agreements. It's like standard legal stuff. There's no fast-track. There's no shortcuts. >> There's no shortcuts. You're bringing in an initial consultant so it takes time to negotiate. So I think safe, you're going to assume at least three months, if not, definitely more. >> Well, the number one question I think here, today, for you, is, who's going to pay for this hour? Who are we going to bill for this? >> Grant: You'll get my bill. >> I appreciate the candid conversation. Thanks for sharing your knowledge, again. This is an expensive hour here on the CUBE. The community is a freebie. Grant, thanks for sharing. You do some great work. I think I'm going to look back on this time in history and say, "Man, glory days, or hell-of-a time." It's going to crash and burn or go big, in my opinion. Great stuff. Grant Fondo. Attorney at Goodwin. Great firm, check him out. Doing great work. 25+ ICOs in the pipeline. Done a bunch of work. New area. Exploring the future of block chain, a lot of disruption, anything that has to do with supply chain, anything that has to do with technology, decentralize concepts in a distributed manner is really the rage. We see this as a game changer. It's SiliconANGLE. I'm John Furrier, thanks for watching.