You Might Not Be Interested In Blockchain, But Blockchain Is Interested In You
Every new technology makes someone’s job irrelevant. Blockchain and its by-products—NFTs, smart contracts, and stablecoins—decentralize transactions that are traditionally moderated by middlemen and gatekeepers. If you’re one of those middlemen today, it may be time to find innovative ways to create value that people will pay you for.
In This Episode:
- Technology eliminates people having to do predictable work in a process or system.
- Freed from doing predictable work, people can be creative elsewhere.
- The blockchain, which allows smart contracts and cryptocurrencies such as stablecoins, is a technology that eliminates middlemen and gatekeepers.
- NFTs allow creators to sell directly to buyers, and buyers to resell directly to each other.
- Originally, CryptoPunks’ pixelated cartoons were reselling for tens of thousands of dollars.
- Like Holland’s tulip bulb craze in the 1600s or the Japanese real estate craze in the 1980s, people are using these cartoons as an investment, believing they can sell them for much more later.
- Trust is the essence of capitalism.
- The internet has made it difficult to know whom to trust, but blockchain smart contracts solve that.
- Smart contracts are tiny programs plus data deployed on a blockchain, such as Ethereum, that automatically execute an exchange once the conditions have been met.
- Instead of having a third party such as Kickstarter hold all the money during a crowdfunding campaign and then take up to a 10% cut, a smart contract can eliminate that middleman at just the cost of hosting the smart contract on the network.
- Defi, or decentralized finance, works the same way to make secure loans available to people who were turned down by banks.
- Stablecoins are cryptocurrencies that are pegged to a stable asset like the U.S. dollar or gold.
- Because they don’t fluctuate wildly, stablecoins can be used for reliable international payments.
- Stablecoins also cut out fees to banks and other institutions because there’s no currency exchange and no service charge for moving across borders.
- If you want intellectual property protection today, you must file copyrights and trademarks in every country for it to be enforceable everywhere.
- With the blockchain, Strategic Coach could upload its thinking tools in a similar way to smart contracts or NFTs to universally prove ownership of creation.
Resources:
IBM article: “What are smart contracts on blockchain?”
Forbes article: “An Introduction To Stablecoins”
Your Life As A Strategy Circle by Dan Sullivan
Episode Transcript:
Gord Vickman: Welcome to the next Podcast Payoffs. My name’s Gord Vickman, here with Dan Sullivan. How you doing, Dan?
Dan Sullivan: Really great, Gord. I have to tell you, we’re going to talk about something that I think I’ve got my toes wet, but I don’t have my feet wet with this particular topic. But it hearkens back to something that I’ve really studied for the last 30 or 40 years, and what is actually the essence of capitalism. And so, we’re going to talk about new technologies that I think are speeding capitalism up.
Gord Vickman: Mm-hmm. And if you take emerging technologies, especially in regards to the blockchain, and you put them all into one little meatball and you squish them all together, one of the themes that comes up is the elimination of the middleman, the elimination of the gatekeeper. And I’ve been doing a lot of research on this kind of stuff. It interests me in a super nerdy way. My wife eavesdrops and hears me listening to YouTube videos about smart contracts. She’s like, “What are you listening to? I can’t even eavesdrop without getting bored.” But it’s sort of like a cornucopia of technology today. And our show, Podcast Payoffs, we’re so glad you’re with us today. Thanks so much for gifting us your time. The show is about the intersection of technology and teamwork, and that’s what we do, and we’re glad you’re with us for it. It’s never been easier to find a “Who.” And Dan, when you came up with the concept of WhoNotHow, you were thinking of human teamwork and then folding into the mix technology.
Gord Vickman: Welcome to the next Podcast Payoffs. My name’s Gord Vickman, here with Dan Sullivan. How you doing, Dan?
Dan Sullivan: Really great, Gord. I have to tell you, we’re going to talk about something that I think I’ve got my toes wet, but I don’t have my feet wet with this particular topic. But it hearkens back to something that I’ve really studied for the last 30 or 40 years, and what is actually the essence of capitalism. And so, we’re going to talk about new technologies that I think are speeding capitalism up.
Gord Vickman: Mm-hmm. And if you take emerging technologies, especially in regards to the blockchain, and you put them all into one little meatball and you squish them all together, one of the themes that comes up is the elimination of the middleman, the elimination of the gatekeeper. And I’ve been doing a lot of research on this kind of stuff. It interests me in a super nerdy way. My wife eavesdrops and hears me listening to YouTube videos about smart contracts. She’s like, “What are you listening to? I can’t even eavesdrop without getting bored.” But it’s sort of like a cornucopia of technology today. And our show, Podcast Payoffs, we’re so glad you’re with us today. Thanks so much for gifting us your time. The show is about the intersection of technology and teamwork, and that’s what we do, and we’re glad you’re with us for it. It’s never been easier to find a “Who.” And Dan, when you came up with the concept of WhoNotHow, you were thinking of human teamwork and then folding into the mix technology.
Dan Sullivan: It’s a chicken-and-egg situation that, if you look at any technology—and humans have had technology for thousands of years, of tools that they get—that when you put teams together of skillful people, they develop something that is so predictable. In other words, they can produce such good predictable results. At a certain point, you can say it’s not really good to use humans for predictability because we have wayward tendencies. At a certain point, you would like to have technology actually replace teamwork. So anywhere you go, where you see technology, that’s because originally, it was skilled people who worked in a team, each person doing part of a process. At a certain point, it became so predictable, the training became so predictable, and it’s hard to count on human predictability. So, they said, “Well, let’s turn it into a machine or a system, a technological system, and then we’ll get predictability and free up the humans to go out and create new stuff.”
Gord Vickman: Mm-hmm. Again, a lot of the things the blockchain is preoccupied with is the elimination of those things that you just described, and also the people who could potentially say no. But before we get into that—we’re going to be talking about smart contracts, and we’re going to be talking a little bit about stablecoins as well—these are things that eliminate the gatekeeper. So, it’s all under that same umbrella of doing the things you want to do and getting the things you need without having to have anyone say “no” based on the teamwork of people. The NFT craze involving the CryptoPunks —do you remember I told that story, Dan, about the little pixelated cartoons that were created? People could initially claim them, and then they were going up for auction, CryptoPunks? Well, we had said back then that these were selling on resale marketplaces—supermarkets, what some of them are called—for tens of thousands of dollars. And that was partially accurate back then. But now, I read that the CryptoPunks valuation, when you put all of them together, top $1.95 billion in—I’m doing finger quotes here—in value; $1.95 billion and the 10,000 that we had been talking about has now crept up to a 100,000. And some of these CryptoPunks are selling resale for millions and millions and millions of dollars.
Dan Sullivan: Well, they’re speculative investments. I mean, people are… They’re investing because they think that once they purchase it, the value of what they purchase, gone up. And at some point, they can resell it for a lot more. I would say that the blockchain, which is the basis, the fundamental technology, the fundamental technology underneath all this new, the NFT, which means non-fungible tokens, it’s the early stages of a craze.
In the 1600s, tulip bulbs, not tulips, but tulip bulbs in Holland were a speculative investment. And you could go to a garden and you could see what the tulip looked like. The Dutch were crazy about tulips, and it got to the point where there were tulips, individual tulip bulbs, the thing that you plant in the ground, that were equal to royal palaces, the value of them. And it was like real estate in Japan before Japan kind of hit the wall in the 1980s. The royal palace, the Imperial Palace in Tokyo, which was about, I don’t know, several hundred acres, it was equal to the entire real estate of the state of California.
And somebody said, “Yeah, but nobody’s going to buy it and nobody’s going to sell it.” And they said, “Well, that just tells you what the other real estate in Tokyo is like.” And then it all collapsed. The Japanese had come over and they’d bought lots and lots and lots of real estate in California, New York, Rockefeller Center, they bought Rockefeller Center in New York for some amazing price, and then they had to sell it. They had to unload it 10 years later. And the Americans bought it back at 10 cents on the dollar, so New York real estate people really know what they’re doing.
Gord Vickman: Yeah.
Dan Sullivan: California real estate people really know what they’re doing, and they’re just looking for the next sucker who comes in and does it, but…
Gord Vickman: Good timing.
Dan Sullivan: …there’s something more fundamental, and what you’re talking about is the elimination of the middleman. This is a fundamental stage in capitalism that we’re going through. I mean, this is a big deal, what’s happening right now. I think you’re going to see it in everything where you just have a lot of people who are kind of gatekeepers or they pass on information, they’ve got to sign something and pass the information on. At the end of the day, you say, what value—from the moment something starts to the moment it ends—what value do these people actually contribute to the process? And they’re coming up short. They said, “I don’t think there’s any value here.”
So, if we can create a technology that replaces 10 middle people, that’d be a lot cheaper, it would be faster, it would be easier. So, I think on a global basis, this is happening, probably starting in the US faster than any other place because the US are kind of the first and the deep end of the pool with new ideas—capitalist ideas, not technological ideas or anything else, but capitalist ideas. The US really, really runs ahead of the rest of the world.
Gord Vickman: So what is the true relationship between capitalism and trust?
Dan Sullivan: Yeah. Well, that’s really an eye-opener to most people when you tell them, because they think that capitalism is about greed. Actually, it’s just the opposite. Capitalism is about cooperation. So there was a barrier to economic growth for the longest time, and there was a breakthrough within the last 500 years. And it happened in Europe and Northern Italy. It happened in the low countries, which are called Holland, Northern Germany. And it happened in Great Britain. The fundamental problem that always kept capitalism kind of cooped up was the fact you could only trust members of your family or trust close associates, friends that you actually knew.
So, you couldn’t build anything really, really big just through investment. You could build it through human power. I mean, if you had 2000 people who worked for you, it was a very, very slow process. And quite frankly, it was quite an oppressive process, because people were almost treated like slaves or they were treated like machines. What broke it open was actually legal structures that said, if you signed a contract with someone else and you had witnesses, and it was a legal contract that would be enforced by the law of the society that you live in. And the people who were best at this were these places in Europe, the Northern Italian cities, and then Switzerland was there.
And then you had the low countries, which were Belgium and what’s now Holland, Belgium, Denmark, and Northern Europe. But the ones who really took off like a rocket were the British. The British really grasped what capitalism was about, they were an island country. They didn’t have to spend much on defense because it was hard to invade them, and they had legal structures that were based on property. And I think that if you look at the world right now and you go around the world, which countries seem to have the best handle on economics? It’s mostly countries that were started by Britain, including the United States, Canada, Australia, New Zealand.
The British really, really had a phenomenal sense that you could use the legal system and then really good financial institutions to actually expand greatly the trust that strangers would have with each other. You can go way, way beyond your family. You can go way beyond your friends and you can create contracts at a distance. So, that’s the essence of capitalism.
And the moment you create a new system for capitalism, the bad guys get ahold of it first. So, in the modern world, the internet world, we created the internet—as far as the public’s concerned, starts in the early ’90s.
And we’re reaching the point—and I think that’s why there’s a lot of confusion in the world right now— because this new system that was supposed to be so liberating and so progressive has been gamed by people. Because there isn’t a way of securing contracts; there isn’t a way of proving what was agreed to as actually true, and it’s safeguarded. So that’s where the blockchain comes in.
Gord Vickman: Yeah.
Dan Sullivan: I understand that. I mean, I can’t tell you how it exactly works because I’m still trying to find out where the cloud is.
Gord Vickman: And the cloud doesn’t exist. There’s no cloud, it’s just somebody else’s computer.
Dan Sullivan: I know that, but I had long experience with clouds before that, so I have to visualize it. But I totally understand why it exists; I totally understand why it’s so important. That has nothing to do with CryptoPunks or other things that people are doing. This is kind of froth on the top of a very deep ocean.
Gord Vickman: So, a smart contract—to sort of crudely summarize what you were saying—it’s that capitalism is about an increase in trust, and we needed trust in order to move it forward. But there’s always that human element, right? You mentioned that there are some people who want to do nefarious things with the trust that you’d bestow upon them. Well, what if you could eliminate that? And that’s one of the things that the blockchain is accomplishing right now, because everyone needs to be in agreement in order to make things happen.
So, a smart contract is just like a normal contract that you would sign. It’s a tiny computer program on the blockchain. And there are different blockchains that can support smart contracts, but Ethereum is the one we’ll use for today’s purposes. And there’s a programming language called Solidity that you use to create a tiny contract, put it on the blockchain, and you can even include money in that contract. And you can exchange anything using a smart contract. You can have money, you can have property. It’s a transparent and secure way.
So, an example, I’ll use a vending machine, okay? The vending machine for this example will be our smart contract. If there’s a Snickers bar and a vending machine and you want to purchase the Snickers bar and it’s $2, you can put a dollar in as many times as you want. It’s never going to give you the Snickers bar because you haven’t fulfilled the terms of the contract. It wants $2 and you’re not giving it $2. Now, if you put three in, you’ve fulfilled that contract and then some. So, it’s going to give you your Snickers bar and it’s going to give you whatever coins the machine determines it wants to get rid of, to make everything even-steven, again. You’re going to get your Snickers bar, you’re going to get a dollar back and maybe a dollar coin as we have up here in Canada, or a dollar bill in the States, or a Euro, or whatever division of denomination. Okay, wherever you’re listening to this, you’re going to get your change back. I hope, unless the machine is broken. Please don’t tip it on yourself; that’s dangerous. The vending machine serves the same purpose. It allows you to fulfill the terms that have been predetermined by the owner of that machine. And that’s how the smart contracts work.
Now, Kickstarter is a program that you may have heard of. It allows people to bring products to market by showing the product design, a prototype, on the internet, okay? I have a new bicycle, I have a new projector, I have a new microphone, I have something. I don’t have the funding to bring it forward. People who are a fan and want one of those things give the money to Kickstarter, and when we’ve reached our financing goal, then they will give the money to us. Now, both parties have to trust that Kickstarter is going to do that. Kickstarter may decide to just keep the money. What if they don’t want to take the money that they’ve collected and give it to us, and they don’t want to give it back to the people? Kickstarter’s run by human beings. It’s not a smart contract, it’s a website and there are people behind computers.
Smart contract works in the same way, but it eliminates that altogether because once the terms of the smart contract have been fulfilled… So if I’m going to purchase something from someone, we have the contract and it’s… Okay, first of all, it’s immutable, so you cannot change it once it’s been put on the blockchain, and you cannot alter it because everyone has to agree that this is what is going to be altered on it. And once the contract has been fulfilled, then the money will be distributed where it goes. And if it’s not, then it returns to the people who put the money in the contract in the first place.
So it completely eliminates the middle. It completely eliminates human error, and it eliminates anybody who wants to be engaged in any sneaky, slimy activities. So, you can think about the applications for this, and we’re talking about defi, decentralized finance. People who have been turned down by banks can now potentially get loans in a decentralized fashion. People who can’t qualify for insurance for whatever reason, can go to someone offering certain smart contracts for those purposes, and it eliminates that middle. It further eliminates that gatekeeper who can tell you no, because it’s the community of people, people all agreeing to a certain set of terms and limitations involving finance. And it allows projects and things to move forward without having anybody say, “No.” I just think it’s an incredibly interesting thing.
Dan Sullivan: Mm-hmm. Vastly expand investment in the world simply because all the downsides of having individual gatekeepers, individual middlemen, eliminates those. So, you’re maximizing the value on both sides. The person who’s investing, they’re not paying 10% for the gatekeepers. There’s probably a set term for any blockchain smart contract, maybe whatever it is, and it pays for the system. But people aren’t making money on your money. They just have a service fee that goes along with that, and they’ll be in competition with each other. The different blockchains will be in competition. And since they’re dealing with a scarcity, that is your attention and your loyalty to one blockchain rather than another, they’ll keep the price competitively low.
Gord Vickman: Mm-hmm. So, the creators of smart contracts, the currency they use is called gas. And you’re not literally pouring gasoline onto anything. But gas is in a weird way, kind of a stablecoin. And what the gas means that you’re using is this is the money that has been predetermined that it’s going to take per line of code to execute the smart contract. And they don’t use ether, which is the coin of Ethereum. Ethereum is not a coin, ether is the currency of the blockchain, Ethereum. So, they don’t use that because the price fluctuates so wildly. So gas is the currency that they use to execute smart contracts.
Now, I just mentioned stablecoin. So now we have two examples. We have NFTs taking out the middle, allowing artists and creators to sell directly to those consumers who want to purchase. You have the creators of smart contracts who eliminate the middle. We don’t need the lawyer anymore, we don’t need the bank, we don’t need the insurance company. You can go peer to peer. And now the third one, stablecoins. You can think, “stable coins.” Well, it is kind of what it is. These are cryptocurrencies that are pegged to a stable asset like the US dollar.
So you think about the price fluctuations in Bitcoin. If you accept a payment for some good or service in a Bitcoin, and the next thing you know, it drops 30% the next day, well, you’ve just earned 30% less than you would’ve normally or thought you would’ve earned. Or if it goes up, hey, good for you. But stablecoins are always pegged to something, for example, fiat currency. So, you have stablecoins, USDT/ USDC, which are pegged to the US dollar, or you can have commodity-backed stablecoins, which are pegged to the price of gold or silver.
You don’t have these wild fluctuations. So, you think about moving sums of money across borders, or if you have to make international payments, if you have your company set up in the United States, but you’re doing a business mostly with the Middle East, and you have all kinds of middle people who want their cut as you move the cash from Qatar to Ohio. Well, stablecoins, that’s another method to move cash across borders. And it’s not going to fluctuate. But you know that when they pay you a hundred bucks, you’re going to get pretty close to a hundred bucks. Most likely you’re going to get a hundred bucks, not 75 bucks if the cryptocurrency like Bitcoin drops 25% overnight. Once again, eliminating the middle.
Dan Sullivan: Yeah, and I think that another aspect of trust is predictability of the future. People talked about the reserve currencies. So before the United States dollar, it was the British pound, because politically, economically, it was one of the most stable countries in the world. And the US is very, very stable simply because so little of the US economy is actually tied to foreign trade. It’s not tied to foreign trade; 90% of the US economy is Americans creating things for other Americans. Like there’s these myths: “Well, the Chinese will take all their money out of the US economy, and it’ll collapse the US economy.”
China represents maybe about 2% of the total debt of the US, China; 80% of the debt that America has is to Americans. They’re buying bonds, they’re buying treasury bonds, and it’s protected. Nobody’s going to invade the United States; north, south, east, west, nobody’s going to invade the US. It’s got military might. It can enforce its interests around the world.
That might very well change 10, 20 years from now. There’s a universal blockchain, and you no longer need a country to have a particular reserve currency. I mean, that may change. I mean, lots of things have changed, and that would be one of them.
But the thing that interests me most, Gord, is that we have really endeavored right from the beginning as we were creating intellectual shortcuts—that’s what I call the tools of Strategic Coach—is I want intellectual property protection for them. And we’ve done it through copyright, we’ve done it through trademarks and everything else, but it’s a very lengthy process. And if you want to do it globally, then you have to do it for one country, then you have to do it for another country, and you have to do another country.
With blockchain, I can just get a smart contract on the Strategy Circle, and it’s protected around the world. I can take my latest thinking tool that we use in Strategic Coach, like the Certainty/Uncertainty Focus, which we just created over the last quarter, put a smart contract in it, and it’s got intellectual property protection around the world.
Gord Vickman: So Dan, if I were the middle, okay, someone approaches you and they say, “Dan, I’m the middle. I got kicked in the rear end, and the middle is now gone.” What advice would you have to the middle?
Dan Sullivan: Well, here’s the thing. If you look back at mutual funds—I’ll use mutual funds as an example—when mutual funds came out, they were a simplification. Instead of having to pay attention to 50 stocks, the 50 stocks were in a mutual fund, okay? And so, you didn’t have to worry about the 50 stocks. You could buy the 50 stocks, and the fund managers would be moving the money around in the stocks, but they would give you a fairly stable return on your money. And that was a great simplification. But what do you do when there’s 10 million mutual funds?
So, you’re right back to that. The number one product that the world always creates is greater complexity. There’s more people with more ideas, offering different value creation propositions. So, if I was a middle person, I’d say, “What is happening to the activity that I used to be the middle person, such that it’s going to be confusing from the outside, and I can give a simplified route to actually dealing with it?” So, my feeling is that ultimately, the blockchain will eliminate all sorts of middlemen, but it’ll create a vast new population of experts, experts on the blockchain, experts on different cryptocurrencies, and everything else.
So, my sense is that every simplification of eliminating the middlemen is returned later on with a new type of expertise, where it gives you overviews. But you may have some lean years between being a successful middle person and a new type of expert. So, my feeling is that you can’t really justify the value of what you’re doing. I wrote a little thing; I said, “I don’t think government workers are worthless.” But I said, “I think it’s very difficult for them to prove their value to the taxpayers.” I think it’s hard for any government worker to actually say, “This is why I’m worth 80,000, 90,000 a year.” And the person says, “Yeah, but I don’t understand why you get paid $90,000. What are you doing?”
And it’s just very, very hard. I’m not saying they’re worthless, but I’m just saying it’s really hard for them to prove their value. I think some middlemen are really, really valuable, but it’s very hard for them to prove that. And that’s when people say, “Well, is there a technology we can get for $50 that replaces your $90,000?” And I think that’s the real problem.
Therefore, you should be in the innovation world. I’m in the business of helping other people think more clearly. Well, is life going to get any simpler over the next five years? No, it’s going to get more complicated. So, I’m just constantly living off the growing complexity in people’s lives, and I said, there’s a simpler way to think about this.
Gord Vickman: I think an appropriate way to wrap this up was one of your lines that I like a lot, Dan, is, “There’s no incentive like no alternative.” I stole your thunder there. That’s not mine, that’s yours.
Dan Sullivan: Yeah.
Gord Vickman: There’s no incentive like no alternative. And there is no alternative right now than to find an incentive if you’re in the middle or you have any fears that you may be. Incentivize yourself to find the alternative.
Dan Sullivan: Well, and the alternative is a new form of value creation that other people would be willing to pay for.
Gord Vickman: Thanks so much for joining us on Podcast Payoffs today. We really appreciate your time. We know that podcasts are free, but they’re not, because you gifted us with your time today. We hope you got value out of this episode in our layman’s way of explaining the way that people and systems in the middle are on their way out, so adapt. Thanks so much, Dan.
Dan Sullivan: Mm-hmm. That’s a great, Gord. Thanks.
Gord Vickman: Mm-hmm. Again, a lot of the things the blockchain is preoccupied with is the elimination of those things that you just described, and also the people who could potentially say no. But before we get into that—we’re going to be talking about smart contracts, and we’re going to be talking a little bit about stablecoins as well—these are things that eliminate the gatekeeper. So, it’s all under that same umbrella of doing the things you want to do and getting the things you need without having to have anyone say “no” based on the teamwork of people. The NFT craze involving the CryptoPunks —do you remember I told that story, Dan, about the little pixelated cartoons that were created? People could initially claim them, and then they were going up for auction, CryptoPunks? Well, we had said back then that these were selling on resale marketplaces—supermarkets, what some of them are called—for tens of thousands of dollars. And that was partially accurate back then. But now, I read that the CryptoPunks valuation, when you put all of them together, top $1.95 billion in—I’m doing finger quotes here—in value; $1.95 billion and the 10,000 that we had been talking about has now crept up to a 100,000. And some of these CryptoPunks are selling resale for millions and millions and millions of dollars.
Dan Sullivan: Well, they’re speculative investments. I mean, people are… They’re investing because they think that once they purchase it, the value of what they purchase, gone up. And at some point, they can resell it for a lot more. I would say that the blockchain, which is the basis, the fundamental technology, the fundamental technology underneath all this new, the NFT, which means non-fungible tokens, it’s the early stages of a craze.
In the 1600s, tulip bulbs, not tulips, but tulip bulbs in Holland were a speculative investment. And you could go to a garden and you could see what the tulip looked like. The Dutch were crazy about tulips, and it got to the point where there were tulips, individual tulip bulbs, the thing that you plant in the ground, that were equal to royal palaces, the value of them. And it was like real estate in Japan before Japan kind of hit the wall in the 1980s. The royal palace, the Imperial Palace in Tokyo, which was about, I don’t know, several hundred acres, it was equal to the entire real estate of the state of California.
And somebody said, “Yeah, but nobody’s going to buy it and nobody’s going to sell it.” And they said, “Well, that just tells you what the other real estate in Tokyo is like.” And then it all collapsed. The Japanese had come over and they’d bought lots and lots and lots of real estate in California, New York, Rockefeller Center, they bought Rockefeller Center in New York for some amazing price, and then they had to sell it. They had to unload it 10 years later. And the Americans bought it back at 10 cents on the dollar, so New York real estate people really know what they’re doing.
Gord Vickman: Yeah.
Dan Sullivan: California real estate people really know what they’re doing, and they’re just looking for the next sucker who comes in and does it, but…
Gord Vickman: Good timing.
Dan Sullivan: …there’s something more fundamental, and what you’re talking about is the elimination of the middleman. This is a fundamental stage in capitalism that we’re going through. I mean, this is a big deal, what’s happening right now. I think you’re going to see it in everything where you just have a lot of people who are kind of gatekeepers or they pass on information, they’ve got to sign something and pass the information on. At the end of the day, you say, what value—from the moment something starts to the moment it ends—what value do these people actually contribute to the process? And they’re coming up short. They said, “I don’t think there’s any value here.”
So, if we can create a technology that replaces 10 middle people, that’d be a lot cheaper, it would be faster, it would be easier. So, I think on a global basis, this is happening, probably starting in the US faster than any other place because the US are kind of the first and the deep end of the pool with new ideas—capitalist ideas, not technological ideas or anything else, but capitalist ideas. The US really, really runs ahead of the rest of the world.
Gord Vickman: So what is the true relationship between capitalism and trust?
Dan Sullivan: Yeah. Well, that’s really an eye-opener to most people when you tell them, because they think that capitalism is about greed. Actually, it’s just the opposite. Capitalism is about cooperation. So there was a barrier to economic growth for the longest time, and there was a breakthrough within the last 500 years. And it happened in Europe and Northern Italy. It happened in the low countries, which are called Holland, Northern Germany. And it happened in Great Britain. The fundamental problem that always kept capitalism kind of cooped up was the fact you could only trust members of your family or trust close associates, friends that you actually knew.
So, you couldn’t build anything really, really big just through investment. You could build it through human power. I mean, if you had 2000 people who worked for you, it was a very, very slow process. And quite frankly, it was quite an oppressive process, because people were almost treated like slaves or they were treated like machines. What broke it open was actually legal structures that said, if you signed a contract with someone else and you had witnesses, and it was a legal contract that would be enforced by the law of the society that you live in. And the people who were best at this were these places in Europe, the Northern Italian cities, and then Switzerland was there.
And then you had the low countries, which were Belgium and what’s now Holland, Belgium, Denmark, and Northern Europe. But the ones who really took off like a rocket were the British. The British really grasped what capitalism was about, they were an island country. They didn’t have to spend much on defense because it was hard to invade them, and they had legal structures that were based on property. And I think that if you look at the world right now and you go around the world, which countries seem to have the best handle on economics? It’s mostly countries that were started by Britain, including the United States, Canada, Australia, New Zealand.
The British really, really had a phenomenal sense that you could use the legal system and then really good financial institutions to actually expand greatly the trust that strangers would have with each other. You can go way, way beyond your family. You can go way beyond your friends and you can create contracts at a distance. So, that’s the essence of capitalism.
And the moment you create a new system for capitalism, the bad guys get ahold of it first. So, in the modern world, the internet world, we created the internet—as far as the public’s concerned, starts in the early ’90s.
And we’re reaching the point—and I think that’s why there’s a lot of confusion in the world right now— because this new system that was supposed to be so liberating and so progressive has been gamed by people. Because there isn’t a way of securing contracts; there isn’t a way of proving what was agreed to as actually true, and it’s safeguarded. So that’s where the blockchain comes in.
Gord Vickman: Yeah.
Dan Sullivan: I understand that. I mean, I can’t tell you how it exactly works because I’m still trying to find out where the cloud is.
Gord Vickman: And the cloud doesn’t exist. There’s no cloud, it’s just somebody else’s computer.
Dan Sullivan: I know that, but I had long experience with clouds before that, so I have to visualize it. But I totally understand why it exists; I totally understand why it’s so important. That has nothing to do with CryptoPunks or other things that people are doing. This is kind of froth on the top of a very deep ocean.
Gord Vickman: So, a smart contract—to sort of crudely summarize what you were saying—it’s that capitalism is about an increase in trust, and we needed trust in order to move it forward. But there’s always that human element, right? You mentioned that there are some people who want to do nefarious things with the trust that you’d bestow upon them. Well, what if you could eliminate that? And that’s one of the things that the blockchain is accomplishing right now, because everyone needs to be in agreement in order to make things happen.
So, a smart contract is just like a normal contract that you would sign. It’s a tiny computer program on the blockchain. And there are different blockchains that can support smart contracts, but Ethereum is the one we’ll use for today’s purposes. And there’s a programming language called Solidity that you use to create a tiny contract, put it on the blockchain, and you can even include money in that contract. And you can exchange anything using a smart contract. You can have money, you can have property. It’s a transparent and secure way.
So, an example, I’ll use a vending machine, okay? The vending machine for this example will be our smart contract. If there’s a Snickers bar and a vending machine and you want to purchase the Snickers bar and it’s $2, you can put a dollar in as many times as you want. It’s never going to give you the Snickers bar because you haven’t fulfilled the terms of the contract. It wants $2 and you’re not giving it $2. Now, if you put three in, you’ve fulfilled that contract and then some. So, it’s going to give you your Snickers bar and it’s going to give you whatever coins the machine determines it wants to get rid of, to make everything even-steven, again. You’re going to get your Snickers bar, you’re going to get a dollar back and maybe a dollar coin as we have up here in Canada, or a dollar bill in the States, or a Euro, or whatever division of denomination. Okay, wherever you’re listening to this, you’re going to get your change back. I hope, unless the machine is broken. Please don’t tip it on yourself; that’s dangerous. The vending machine serves the same purpose. It allows you to fulfill the terms that have been predetermined by the owner of that machine. And that’s how the smart contracts work.
Now, Kickstarter is a program that you may have heard of. It allows people to bring products to market by showing the product design, a prototype, on the internet, okay? I have a new bicycle, I have a new projector, I have a new microphone, I have something. I don’t have the funding to bring it forward. People who are a fan and want one of those things give the money to Kickstarter, and when we’ve reached our financing goal, then they will give the money to us. Now, both parties have to trust that Kickstarter is going to do that. Kickstarter may decide to just keep the money. What if they don’t want to take the money that they’ve collected and give it to us, and they don’t want to give it back to the people? Kickstarter’s run by human beings. It’s not a smart contract, it’s a website and there are people behind computers.
Smart contract works in the same way, but it eliminates that altogether because once the terms of the smart contract have been fulfilled… So if I’m going to purchase something from someone, we have the contract and it’s… Okay, first of all, it’s immutable, so you cannot change it once it’s been put on the blockchain, and you cannot alter it because everyone has to agree that this is what is going to be altered on it. And once the contract has been fulfilled, then the money will be distributed where it goes. And if it’s not, then it returns to the people who put the money in the contract in the first place.
So it completely eliminates the middle. It completely eliminates human error, and it eliminates anybody who wants to be engaged in any sneaky, slimy activities. So, you can think about the applications for this, and we’re talking about defi, decentralized finance. People who have been turned down by banks can now potentially get loans in a decentralized fashion. People who can’t qualify for insurance for whatever reason, can go to someone offering certain smart contracts for those purposes, and it eliminates that middle. It further eliminates that gatekeeper who can tell you no, because it’s the community of people, people all agreeing to a certain set of terms and limitations involving finance. And it allows projects and things to move forward without having anybody say, “No.” I just think it’s an incredibly interesting thing.
Dan Sullivan: Mm-hmm. Vastly expand investment in the world simply because all the downsides of having individual gatekeepers, individual middlemen, eliminates those. So, you’re maximizing the value on both sides. The person who’s investing, they’re not paying 10% for the gatekeepers. There’s probably a set term for any blockchain smart contract, maybe whatever it is, and it pays for the system. But people aren’t making money on your money. They just have a service fee that goes along with that, and they’ll be in competition with each other. The different blockchains will be in competition. And since they’re dealing with a scarcity, that is your attention and your loyalty to one blockchain rather than another, they’ll keep the price competitively low.
Gord Vickman: Mm-hmm. So, the creators of smart contracts, the currency they use is called gas. And you’re not literally pouring gasoline onto anything. But gas is in a weird way, kind of a stablecoin. And what the gas means that you’re using is this is the money that has been predetermined that it’s going to take per line of code to execute the smart contract. And they don’t use ether, which is the coin of Ethereum. Ethereum is not a coin, ether is the currency of the blockchain, Ethereum. So, they don’t use that because the price fluctuates so wildly. So gas is the currency that they use to execute smart contracts.
Now, I just mentioned stablecoin. So now we have two examples. We have NFTs taking out the middle, allowing artists and creators to sell directly to those consumers who want to purchase. You have the creators of smart contracts who eliminate the middle. We don’t need the lawyer anymore, we don’t need the bank, we don’t need the insurance company. You can go peer to peer. And now the third one, stablecoins. You can think, “stable coins.” Well, it is kind of what it is. These are cryptocurrencies that are pegged to a stable asset like the US dollar.
So you think about the price fluctuations in Bitcoin. If you accept a payment for some good or service in a Bitcoin, and the next thing you know, it drops 30% the next day, well, you’ve just earned 30% less than you would’ve normally or thought you would’ve earned. Or if it goes up, hey, good for you. But stablecoins are always pegged to something, for example, fiat currency. So, you have stablecoins, USDT/ USDC, which are pegged to the US dollar, or you can have commodity-backed stablecoins, which are pegged to the price of gold or silver.
You don’t have these wild fluctuations. So, you think about moving sums of money across borders, or if you have to make international payments, if you have your company set up in the United States, but you’re doing a business mostly with the Middle East, and you have all kinds of middle people who want their cut as you move the cash from Qatar to Ohio. Well, stablecoins, that’s another method to move cash across borders. And it’s not going to fluctuate. But you know that when they pay you a hundred bucks, you’re going to get pretty close to a hundred bucks. Most likely you’re going to get a hundred bucks, not 75 bucks if the cryptocurrency like Bitcoin drops 25% overnight. Once again, eliminating the middle.
Dan Sullivan: Yeah, and I think that another aspect of trust is predictability of the future. People talked about the reserve currencies. So before the United States dollar, it was the British pound, because politically, economically, it was one of the most stable countries in the world. And the US is very, very stable simply because so little of the US economy is actually tied to foreign trade. It’s not tied to foreign trade; 90% of the US economy is Americans creating things for other Americans. Like there’s these myths: “Well, the Chinese will take all their money out of the US economy, and it’ll collapse the US economy.”
China represents maybe about 2% of the total debt of the US, China; 80% of the debt that America has is to Americans. They’re buying bonds, they’re buying treasury bonds, and it’s protected. Nobody’s going to invade the United States; north, south, east, west, nobody’s going to invade the US. It’s got military might. It can enforce its interests around the world.
That might very well change 10, 20 years from now. There’s a universal blockchain, and you no longer need a country to have a particular reserve currency. I mean, that may change. I mean, lots of things have changed, and that would be one of them.
But the thing that interests me most, Gord, is that we have really endeavored right from the beginning as we were creating intellectual shortcuts—that’s what I call the tools of Strategic Coach—is I want intellectual property protection for them. And we’ve done it through copyright, we’ve done it through trademarks and everything else, but it’s a very lengthy process. And if you want to do it globally, then you have to do it for one country, then you have to do it for another country, and you have to do another country.
With blockchain, I can just get a smart contract on the Strategy Circle, and it’s protected around the world. I can take my latest thinking tool that we use in Strategic Coach, like the Certainty/Uncertainty Focus, which we just created over the last quarter, put a smart contract in it, and it’s got intellectual property protection around the world.
Gord Vickman: So Dan, if I were the middle, okay, someone approaches you and they say, “Dan, I’m the middle. I got kicked in the rear end, and the middle is now gone.” What advice would you have to the middle?
Dan Sullivan: Well, here’s the thing. If you look back at mutual funds—I’ll use mutual funds as an example—when mutual funds came out, they were a simplification. Instead of having to pay attention to 50 stocks, the 50 stocks were in a mutual fund, okay? And so, you didn’t have to worry about the 50 stocks. You could buy the 50 stocks, and the fund managers would be moving the money around in the stocks, but they would give you a fairly stable return on your money. And that was a great simplification. But what do you do when there’s 10 million mutual funds?
So, you’re right back to that. The number one product that the world always creates is greater complexity. There’s more people with more ideas, offering different value creation propositions. So, if I was a middle person, I’d say, “What is happening to the activity that I used to be the middle person, such that it’s going to be confusing from the outside, and I can give a simplified route to actually dealing with it?” So, my feeling is that ultimately, the blockchain will eliminate all sorts of middlemen, but it’ll create a vast new population of experts, experts on the blockchain, experts on different cryptocurrencies, and everything else.
So, my sense is that every simplification of eliminating the middlemen is returned later on with a new type of expertise, where it gives you overviews. But you may have some lean years between being a successful middle person and a new type of expert. So, my feeling is that you can’t really justify the value of what you’re doing. I wrote a little thing; I said, “I don’t think government workers are worthless.” But I said, “I think it’s very difficult for them to prove their value to the taxpayers.” I think it’s hard for any government worker to actually say, “This is why I’m worth 80,000, 90,000 a year.” And the person says, “Yeah, but I don’t understand why you get paid $90,000. What are you doing?”
And it’s just very, very hard. I’m not saying they’re worthless, but I’m just saying it’s really hard for them to prove their value. I think some middlemen are really, really valuable, but it’s very hard for them to prove that. And that’s when people say, “Well, is there a technology we can get for $50 that replaces your $90,000?” And I think that’s the real problem.
Therefore, you should be in the innovation world. I’m in the business of helping other people think more clearly. Well, is life going to get any simpler over the next five years? No, it’s going to get more complicated. So, I’m just constantly living off the growing complexity in people’s lives, and I said, there’s a simpler way to think about this.
Gord Vickman: I think an appropriate way to wrap this up was one of your lines that I like a lot, Dan, is, “There’s no incentive like no alternative.” I stole your thunder there. That’s not mine, that’s yours.
Dan Sullivan: Yeah.
Gord Vickman: There’s no incentive like no alternative. And there is no alternative right now than to find an incentive if you’re in the middle or you have any fears that you may be. Incentivize yourself to find the alternative.
Dan Sullivan: Well, and the alternative is a new form of value creation that other people would be willing to pay for.
Gord Vickman: Thanks so much for joining us on Podcast Payoffs today. We really appreciate your time. We know that podcasts are free, but they’re not, because you gifted us with your time today. We hope you got value out of this episode in our layman’s way of explaining the way that people and systems in the middle are on their way out, so adapt. Thanks so much, Dan.
Dan Sullivan: Mm-hmm. That’s a great, Gord. Thanks.