GRTiQ Podcast: 167 Shermin Voshmgir

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Shermin Voshmgir (00:00:18):

Because this is something we can do with web3, blockchain networks, tokenization, et cetera, so alternative economic systems coordinate towards protecting biodiversity, capturing CO2, coordinating elderly care, creating alternative local currencies. Everything is possible.

Nick (00:01:08):

Welcome to the GRTiQ Podcast. Today, I’m speaking with Shermin Voshmgir, the author of the bestselling book, Token Economy, and founder of Token Kitchen. Shermin is also the founder of the Blockchain Hub Berlin and was the director of the Research Institute for Cryptoeconomics at the Vienna University of Economics, which she also founded. In an effort to broaden the educational benefits of listening to this podcast, I was pleased to invite Shermin on to discuss her background, her books, and her unique perspectives on the web3 industry. During our discussion, we get to learn how Shermin first engaged with the Bitcoin and Ethereum communities going back to the early days, her early experiences going to work in the industry, and then we talk extensively about her book series from the Token Economy, touching on important topics like DAOs, NFTs and web3 Infrastructure. Shermin has some very strong opinions informed by years of research and firsthand experience about the roots of this industry, where the industry is heading, and the importance of getting it all correct. Like I always do, I start the discussion asking about Shermin’s educational background.

Shermin Voshmgir (00:02:19):

Well, I’ve had quite a journey. After high school, I went on to study business management science and focused on IT management because at that time, I was very interested in the internet. So while I was getting my business degree in my master’s, I focused on information science management and did some coding, learned how the internet worked, et cetera just because I think when I was a child, my dad, 1982 or 1984, I was still 10-ish, 12-ish. I distinctly remember my dad, he came to me and he said, “You know Shermin, telecommunication is the future. This is what you have to do.” And even though I went on to study business, I remembered that. And then I couldn’t identify with the marketing controlling side of business. And the only thing that I was interested in was the internet and technology, but not only the topics, I honestly couldn’t relate too much to my fellow students at business school except for the techies. And I guess this is why I did it, and that was the beginning of my journey.

Nick (00:03:30):

So at this time in your life, what are you envisioning for your career? Have you got a vision for what you want to do professionally?

Shermin Voshmgir (00:03:36):

I was always very politically interested. In my last years of high school when I had to think about what to study, actually I wanted to study everything, except for medicine. But between architecture, astrophysics and politics, I was interested in everything. And since I couldn’t decide, I was always very politically interested. And I don’t know why, I had this intuition that business rules the world. And if I understand business, I will be able to change the world. And I went on to study business, but then really, really got frustrated along the way with the things we were taught, with the people, their attitudes of most of my fellow students who just wanted to make money and get some management positions in some fairly boring companies.

(00:04:25):

I just got less and less motivated and more and more depressed, to be honest. After my first one or two jobs, I was so depressed because I felt I didn’t understand at the time, I really couldn’t identify with all the things we were taught at business school to profit maximize over everything, right? And eventually I quit my job, left my hometown and went to Spain and was doing some working and traveling and then accidentally started enrolling in a film school. And that’s a very long story that we can’t cover today, but I was always interested in film. And then as I was learning Spanish in Madrid, I decided why not do one year of film school and see how it goes. And then I went that way for a while, yes.

Nick (00:05:12):

When did you first become interested in crypto or aware of this emerging industry?

Shermin Voshmgir (00:05:18):

Yeah, that was many years later. After I started, I had this phase of film school and art and became disillusioned that art is also about business in the end, and it’s about always profit maximizing. And as I was producing my movies, I ended up in Berlin, liked Berlin, and got a job at a startup, which was a web platform for indie artists [inaudible 00:05:45] films. At the time, that was around 2011-ish. All my background with filmmaking, tech, business came together. I co-founded this startup, which eventually stopped after a year or two. I got hooked in the Berlin startup scene and eventually somebody told me about Bitcoin, I got really hooked. That was around 2014, ’15. While I didn’t understand blockchain networks and Bitcoin in detail, what I understood from the very beginning, I had this distinct gut feeling that this brings everything together. It’s a governance layer for the internet.

(00:06:21):

I was so intrigued that I had to find out more. And now around 2014, ’15, there was really not much information out there, even online. There were GitHub repositories, there was a lot of code, Bitcoin talk, et cetera, some chats, online chats, and then there were some videos. That’s it. This is when I started a blog called Blockchain Hub, and the blog eventually also became a mini think tank out of Berlin. And then people started approaching me and created blockchain hubs all over Europe. And so it was this information hub and think tank around all things blockchain, web3. As I was trying to wrap my head around what this is, not only from a technical but especially socioeconomic level, as I was learning, I was disseminating information, we were having meetups, et cetera, working groups, trying to understand what this is collectively. At the time, there were just very, very few blockchain meetups. Most of them were in Berlin, and people like Gavin Wood and Vitalik would show up there, right? It was still a very, very small scene.

Nick (00:07:29):

Do you think that early dissatisfaction, or as you said it, depression with business and this profit maximization approach, do you think it primed you a little bit for an interest in Bitcoin? Or how would you explain that early interest in Bitcoin?

Shermin Voshmgir (00:07:44):

Well, the early interest in Bitcoin, maybe I left something out because one of the things I did after film school is for two years when I was back in Vienna and before I went to Berlin. So I’ve had a very long journey over geographies and jobs I did and things I studied. For two years, I produced a documentary series around topics of democracy, so what’s called Democracy? Was the title. And was 20 Episodes over two years on different topics of democracy. And the reason I started producing this documentary series was because at the time, I was 30 something and beginning of my 30s, this was the time when there was a new EU law to be ratified. And there was this huge discussion in my country whether or not Austria should ratify this law and whether or not this was democratic or anti-democratic.

(00:08:41):

And they were discussing this up and down in the news and I wasn’t understanding a thing. And I was confused by the fact that I didn’t understand the arguments because I was like, I’m politically interested. I have a university degree, why do I not understand what they’re talking about? And this made me produce this documentary series. And as I produced this documentary series, I learned what I didn’t know about democracy. And I think most countries, we say we live in democracies, but we don’t learn enough about what makes a solid democracy and the pillars of democracy. We think it’s going to elections, that’s it, maybe some system of checks and balance. And most people even don’t know about that, or at least in Europe. So I don’t know how it’s in the US. And as I produced the TV show, I realized that it’s also very much connected to a system of checks and balances that left out the economic interests in the system of checks and balances.

(00:09:43):

And this as historic roots. The step that was left out in our democratic system was fought between what then emerged around communism and capitalism and this debate. But we haven’t finalized this, like what’s a fair society from an economic level? It’s still an ongoing debate and it’s still very polarized. And eventually I understood that I finished business school, but I don’t even know what money is. So I started to teach myself things about money and realized that I needed to actually study more what money is. And eventually a few years down the line, I stumbled over Bitcoin and that sparked the interest for the topic again.

(00:10:27):

And when I understood what Bitcoin was and why the Bitcoin network more than the Bitcoin currency was such a game changer, like the way the Bitcoin network works and the way that players are incentivized to contribute, collectively contribute to a collectively maintained infrastructure, that was a paradigm shift. And this is also what I write about in my book. So basically the way the Bitcoin network incentivizes its nodes or people to participate in the network and to contribute with network services really questions everything we know about our economic systems, and it reinvents our notion about what is capitalism and what is communism. Does that make sense? It’s a very long answer to a short question.

Nick (00:11:18):

It makes a lot of sense. And as you mentioned there, we’re speaking today because you went on to write a book that’s coming up on several editions and we’re going to explore it deeply, Token Economy. Before we get there though, I do want to ask you this question about this point in your life when you come across Bitcoin, you’ve been working in film, you have a very developed sense and understanding of things related to politics, things related to business and economy. Are you framing Bitcoin and the emergence of this crypto industry as a political issue, as an economic issue, a business issue? I mean, how are you thinking through it at that time?

Shermin Voshmgir (00:11:56):

It’s also a business issue. Most people reduce Bitcoin to a currency, but it’s much more, right? Bitcoin created the new socioeconomic framework inadvertently because in order to create a peer-to-peer electronic cash system, you needed an attack-resistant peer-to-peer electronic payment network. So the big game changer of Bitcoin was to this consensus mechanism called proof of work where individuals are incentivized, they can earn money by providing services to a public good, by providing network services. By upon proof of work, proof of computational work, they can get rewarded with Bitcoin tokens. So they provide to a public good, but they’re privately incentivized. And this is a socioeconomic revolution, in my opinion.

Nick (00:12:57):

Makes a lot of sense. Okay, so then let’s go back to your story. In 2014, 2015, you’re in Berlin, you do some startups in the crypto space, you become aware of Bitcoin clearly, and you start working on a blockchain hub newsletter and it starts to distribute and grow. And so you’re becoming more and more entrenched and interested in this space. Take us back then to where the idea, the original seeds of this idea to write a book like Token Economy came from.

Shermin Voshmgir (00:13:30):

Well, it really emerged over time because as you said, I started, it was less a newsletter, it was a website. We had a newsletter at the point, but it was more like we started disseminating information and then, well, I started disseminating information and producing information for non-techies because before blockchain hub, blockchain hub was really the first website that provided non-technological information or information for non-techies about Bitcoin and blockchain in a systematic way. And so as I was learning stuff myself, I was sharing it with the world and eventually had a team. So we were learning on the go. I guess one of the biggest learning experiences was not even one year into creating the blockchain hub website and starting organizing meetups and events. By the way, at that time by coincidence, I was looking for a co-working space and most of them were booked, fully booked already.

(00:14:30):

And I ended up in the Ethereum office in Berlin because they had some desks left and some Bitcoiners were there developing Bitcoin wallets, and some of the Ethereum people were there working out of Berlin. And eventually, I got involved in 2015 with The DAO. I don’t know if you remember that incident, The DAO was one of the biggest fundraising events or the biggest fundraising ICO of its time, and they tried to create a decentralized autonomous organization around the purpose of creating a decentralized investment fund. I got on board quite late, and this went south, and the whole Ethereum network had to fork because of buggy code and $50 million in [inaudible 00:15:14] from a smart contract.

(00:15:15):

And then the whole Ethereum network had to fork, and I was in most of these chats where we’re trying to figure out what to do. This was a summer without a lot of sleep, and I learned a lot about bug fixing on the fly and how distributed networks and decentralized organizations work when things go wrong and what we can do with decentralized organizations and what that limit of decentralized organizations are, and that they can’t in fact be 100% be decentralized or without any executive positions because when things go wrong, you need some procedures and some people in place to make fast decisions.

(00:15:57):

This is what the crypto enthusiasts building The DAO at the time didn’t think of. So I took all these experiences and I started connecting economics, political science with the power of technology, of creating decentralized organizations, but also the limits of how decentralized these organizations can actually be because I realized that there were a lot of myths, some magical thinking around what this technology or blockchain networks or Bitcoin can do. The buzzwords like code can never be law, right? Code can complement law, but code cannot be law because when things go wrong, you need procedures in place. And so I guess many techies were trying to reinvent the world and forgot to include political scientists or microeconomists, macroeconomists as they were designing these blockchain networks. But later on, any type of decentralized organization created with a smart contract on a blockchain network.

Nick (00:17:02):

How would you contrast the experience you had of become acquainted with and interested in Bitcoin and becoming acquainted with and interested in Ethereum? For most guests of the podcast, it’s different in the sense that they became interested in Bitcoin because of the speculative nature of it. And then they saw Ethereum and read the white paper and it became something more technical, but you had a different entry point. You viewed and experienced Bitcoin more for its social, political, economic type of impact. And I’m just curious about Ethereum.

Shermin Voshmgir (00:17:38):

Yeah, I was not a trader. No, I didn’t come from the trading angle. I didn’t see that, I didn’t care about that. I’m like a complete risk averse person. Prior to crypto, I never invested into stock markets. I was a poker player, but never casino level. So it was maximum like maybe 10, 20 Euros at a tournament or something like that. So the speculative aspect of Bitcoin was never of my interest. I immediately saw the political aspects of Bitcoin, and Bitcoin from the beginning was political. So actually, most people I met from the very beginning were in it for the politics, not for the speculation. So obviously, your audience is very different. When I got into Bitcoin, Bitcoin was at 200 so it was very early on. Nobody at the time thought it would ever reach 60,000, 70,000, but that was not why I got into that at all.

(00:18:38):

And it became very frustrating with time because since I was one of the first people, at least in Germany and Europe to cover these topics, I was invited to a lot of media events around the world, mainly in Europe, but also some internationally like traditional media. And they always wanted to talk about Bitcoin, but Bitcoin price. And I’m like, “Listen, this is not what it is.” Bitcoin, yes, it is a crypto asset. Some would call it a cryptocurrency. I wrote a whole book about what currencies are and what currency aspects Bitcoin has or not. But most important aspect of Bitcoin is the underlying network. It is a collectively maintained infrastructure, and I don’t understand why people are not talking about this. I think that’s the big revolution. And this is one of the reasons I went out to write the latest book on DAOs, these decentralized organizations in web3, because that’s what it’s all about.

(00:19:36):

And the currency aspect is also very important. So web3 is as much of a financial revolution. It redefines our notion of currencies and merges what constitutes our notion of currencies, financial markets and the real world are merging as we tokenize everything. Everything becomes currency-like, easily tradable, highly liquid asset that you can swap over blockchain networks. And then what’s money and what’s just the derivative that you can swap like money? And so we might be entering the digital barter economy. So that’s one revolutionary aspect of web3. But the other aspect is very underreported, is that in fact, and I’m repeating myself, the Bitcoin network itself and how it works and why it works based on this consensus mechanism that’s public and permissionless, anyone can become a node operator without any centralized authority giving anyone permission to do so.

(00:20:42):

You can simply download the protocol. And if you have the right hardware, in the case of Bitcoin, then you can contribute to collectively verifying transactions, Bitcoin transactions, and adding blocks to the ledger. And if you do so, depending on the circumstances, you can earn newly minted Bitcoin tokens. That’s a socio-economic revolution. We have this distributed internet tribe, the Bitcoin network, that consists of people who do not know and trust each other, that collaborate upon the rules defined in the Bitcoin protocol and around this consensus mechanism. And they have their own currency called Bitcoin, and it’s the native currency of this distributed internet tribe or this distributed nation, or this distributed organization, however you might want to call it. And it has been called different things.

Nick (00:22:39):

Well, since 2019, which is when the first edition of Token Economy was published, you’ve gone on to do a third edition, but this time you’re breaking up the book into multiple books. Share with us what’s going on there and why you made the decision to break it up into separate books.

Shermin Voshmgir (00:22:57):

Thanks for the question. So I first wrote Token Economy, by that time, I was already working in Vienna and starting to recreate the Cryptoeconomics Institute. And as I transitioned from Berlin to Vienna, it was really around that time. I was still like half a foot in Berlin and half a foot in Vienna, that was early 2018. I had started to write the book, and my original working title was The Network Economy. And as I started writing the first chapters and as I moved to Vienna and exchanged a lot of ideas with scientists there, I understood that it’s more like the killer about the tokens, right? And we can tokenize everything. And even for these decentralized organizations are steered by the purpose-driven tokens, that one or several currencies that are designed to incentivize individual action to contribute to a collective goal, as in the case with Bitcoin as previously explained.

(00:24:00):

Then I changed the title to Token Economy, from Network Economy to Token Economy. So the first edition was published, as you said, in 2019. Not even a year later, I realized that I had missed out on some chapters, so I added four new chapters and revised the existing chapters. So the second edition came out before DeFi Summer around June, 2020. So I had some DeFi chapters or a DeFi subchapter in there, but it was just the upcoming DeFi Summer, right? And then around a year and a half ago, I’m like, “Okay, a lot has changed. I want to update this book.” And I thought there would be a third edition, it would just be slightly updating a few chapters and maybe adding some. But then as I started updating, I could not hold my deadlines. I was completely overwhelmed by the scope of things that had happened.

(00:24:58):

And I realized that if I wanted to get this third edition right, it would be a mega book. I would have to do longer chapters, go more in-depth, and add a few chapters, especially around DeFi and maybe add some use cases on DAOs. And this is when I decided to split up the book into three, the third edition comes as a collection of three books. The first two books are out, Money, NFTs & DeFi came out last year. DAOs & Purpose-Driven Tokens came out two months ago, and I’m currently working on the last book in this series called web3 Infrastructure.

Nick (00:25:37):

When you think back to 2019, you had this bold ambition to write a book in an emergent industry, an emergent phenomena, Bitcoin and crypto. And you fast-forward to today, 2024, you already said there a little bit that you’ve had to break up that edition into three separate books because of all that has changed. But take us inside that journey a little bit here. I mean, what has it been like for you as an author trying to capture this industry that seems to be constantly moving, constantly changing?

Shermin Voshmgir (00:26:09):

People see these three books and it’s like a never-ending learning experience that you try to digest for people into static reading experiences. It’s been a challenge, but between writing books, I’ve been invited, I’ve been a speaker at many conferences, I’ve had a lot of consulting engagements working on token-related projects or web3-related projects. And so the way I could combine this learning experience or preparing talks, as I was preparing talks for a special conference on a new topic, I had the material for a subchapter in my book, or a lot of the work that I had to do on longer consulting jobs that went more in depth, some of the work I could translate into the book. But then of course, writing a book and making a coherent piece of text that makes sense in a static way. You can’t just copy-paste content, you have to completely reframe it and reword it. It was an ongoing learning experience that I then translated into the books, the several editions of the books. It’s been almost a six, seven-year journey so maybe it’s time to end it after the third edition. Yeah.

Nick (00:27:30):

Well, it seems to me that the industry is going to continue to evolve and we can expect more additions, but I’m sure in a lot of ways that’s exhausting for you. I do want to ask this question about a historical lens, if you will. So as somebody who’s tracking developments and changes in the industry, going all the way back to 2014, 2015 you were part of the 2015 DAO. And you mentioned the ICO craze, DeFi Summer. How do you contextualize those top level themes that seem to emerge every once in a while? And do you have any ideas what the future themes might be?

Shermin Voshmgir (00:28:08):

If we look at the history of post-Bitcoin, what some refer to as web3 Bitcoiners hate the term. So the first revolution in post-Bitcoin was alternative blockchain networks that tried to create some more private, more scalable or payment networks that were maybe also more private. So we had the innovation around alternative blockchains, that was the first round of innovations. And then when Ethereum came, Ethereum was a game changer because Ethereum made it really easy. It was the first multipurpose blockchain where you could settle all kinds of smart contracts or token contracts, issue and sell tokens via smart contracts with a few lines of code using the Ethereum network as a settlement layer. And this created the next revolution, the first of ICOs because people realized that they can issue a token and use it for fundraising just as the Ethereum network did some fundraising around with Bitcoin.

(00:29:17):

So now people could issue their own special purpose token, but they didn’t have to create their own blockchain infrastructure. On one hand, we had the ICOs. Most of the interesting products that came out of the ICOs, unfortunately, we had a lot of scams as well, but the most interesting projects that came out of and sustainable projects that came out of these ICOs were around DeFi protocols. A few years later, we started to see that or that started to manifest. But the other revolution was that people started, instead of copying the Bitcoin code base as the first blockchain protocols did, now they started to copy Ethereum system architecture to create a more scalable, more private or whatever alternative to Ethereum.

(00:30:08):

And then we had the NFT craze again around Ethereum, et cetera. So it comes in various realms, and I think one of the two things might be relevant. Right now, tokenization of real-world assets is a huge issue, but I still think that real asset tokens are the gateway drug to web3 and to tokenization. The real revolution is around not asset tokens that reflect some digital or real-world asset, but it’s the purpose-driven tokens. There’s this term I coined, the incentive tokens that are designed to steer some decentralized organization, the essence of what makes the Bitcoin network the Bitcoin network. I don’t know how far we are from that, but this will be the next big game changer after real-world asset tokenization.

Nick (00:31:03):

It’s an amazing take and I appreciate you sharing that. A couple follow-ups on then the three books, and you mentioned them there that you’ve released one on NFTs, DAOs, and then infrastructure is in the works. And I’m shortening the titles there, forgive me. But if we take each one of those thematically, what is the future of DAOs then? You’ve done some work on writing about it, you’ve got a whole book dedicated to it. Are DAOs something they’re going to stick around or would this be maybe a fad or something that just emerged and then disappears?

Shermin Voshmgir (00:31:37):

Well, the term might not prevail, but the concept of distributed organizations over the internet is not a future. It’s already happened, right? Bitcoin is a decentralized autonomous organization. Bitcoiners hate the term. Some referred to this new phenomenon as coordination, as distributed nations, coordinations, Network States was also the title of a book that came out. So there are different ways to describe this governance revolution around blockchain networks, but blockchain networks are governance infrastructures, okay? DAOs are not the future, DAOs are already happening. As I said, Bitcoin is a DAO, Ethereum is a DAO. The level of decentralization may vary and the level of autonomy of its network participants may vary. So DAO is unfortunate term because we have to learn to see the concept of decentralization and autonomy not as a binary concept, but on a gradient from zero to 10 or zero to 100. That would help.

(00:32:48):

But whether or not the term DAO prevails the concept of distributed organizations where people who don’t know and trust each other coordinate towards a collective goal, whether that’s peer-to-peer payment network like Bitcoin or a peer-to-peer computing network like Ethereum or peer-to-peer social network like Friend.tech or a peer-to-peer, I don’t know, telecommunication network like Helium, which is all of these use cases I described them in my books, especially the book DAO’s & Purpose-Driven Tokens. These distributed networks are already happening and they have a purpose, they have one or several currencies that steer the action of their network stakeholders.

(00:33:30):

So it’s already happening. It’s not the future, it’s the reality for a minority of the current world population. I don’t know if you remember the time before Facebook, social media did not emerge with Facebook. But for most people who lived through that time as grownups, social media like Facebook was the first social media application they ever used. And Facebook was the social media application that introduced the concept of web2 to them or social networks. But social networks existed before Facebook, MySpace, IRC Chat, et cetera. There were so many social networks, but only a fringe of the population used it prior to Facebook. And we’re at the very similar time when it comes to people who understand the concept of decentralized organizations and who contribute to, in one form or another, to a decentralized network or a decentralized organization.

Nick (00:34:31):

Okay. And so if listeners want to learn more about some of those insights and dive deeper on DAOs, of course they can purchase the book, DAOs and Purpose-Driven Tokens. Let’s then talk a little bit about then the other book, Money, NFTs & DeFi. So what’s your take on the future of NFTs and DeFi?

Shermin Voshmgir (00:34:52):

The book Money, NFTs and DeFi focuses on the concept of what is money and how can tokens represent various forms of monies or crypto assets and assets that may be fungible or may be not be fungible. So the different ways to tokenize real and digital assets. And there are examples for different types of NFTs beyond art NFTs, which have become very popular or became very popular a few years ago. So I try to demystify the notion of NFTs only being representing digital art, but NFTs can represent a deed to real estate, could represent any unique asset of the real or digital world. And I delve into the use cases. The essence of the book is to understand what money is, what asset tokenization is, what different assets we can tokenize and what the issues are around that, and which of these assets are fungible and non-fungible or semi-fungible. And I also have a few chapters on DeFi, so which is why the book is called Money, NFTs and DeFi.

Nick (00:36:13):

How do you make sense of the fact that so much of what this industry serves presently in terms of use cases is related to DeFi? I mean, is that something you would anticipate or expect or is that something that you expect to change over time?

Shermin Voshmgir (00:36:29):

It will change over time. Again, I’m not sure how old you were in the early ’90s. I was already in university, so old enough to remember that in 1993 or 1994, people were struggling to understand that what the internet is beyond email. So email was the first application and they understood the concept of email, but they really didn’t understand the concept of the internet beyond email, like of a website or how you could call a website or where this information came from. So if you think back how email was the first application or mass application that people used in the internet in the early ’90s, I would say that cryptocurrencies and crypto assets are the first application of this web3.

(00:37:21):

And we’re still in the very, very beginning, most people have no idea. Even in the web3 space, what the full potential of this new technology is. And this is quite normal for such a game-changing general purpose technology because it redefines the rules of the game. It is really hard in such an early stage to fully grasp all the potential of what this technology can bring. So some people are a bit ahead of the curve and they can grasp a bit more, but it’s usually with time, we’ll still need more time. But definitely we’re at the very beginning of this journey, even though it might feel different.

Nick (00:38:07):

And I do want to go back and just get your opinion on the future of NFTs. And obviously, cynics of NFTs sometimes call these things just JPEGs, trading JPEGs digitally. But I’ve heard others and I’ve had-

Shermin Voshmgir (00:38:20):

Yeah, but you’re talking about, I’m sorry to interrupt you, you are talking about NFTs are not limited to art. So you are talking about digital art NFTs because a kilowatt-hour can also be an NFT, right? So I’m working with people who are working on energy NFTs, real estate NFTs. So what you’re talking about is JPEG NFTs that were overhyped because people didn’t understand what they were buying into. That’s like going to the casino and wasting your money on gambling because you might not understand the full potential of this technology.

Nick (00:38:59):

Exactly, so that was my question. If we go past that JPEG cynicism and you expand out to the utility at NFTs, and I’ve had prior guests on the podcast before that have worked, for example, in music, and they’ve talked about how it’s unlocking new value and opportunities with artists and creators. And I’m just curious if you track that forward, you’re talking about real estate and other things. How does that narrative around NFTs and what that looks like in the future change?

Shermin Voshmgir (00:39:29):

Yeah. So the use case around artists is a very good one when you expand it to artists and not only NFTs because it’s really about royalty management. So NFTs would be a great use case for any royalty management for any type of art that is created or any type of content creation. Maybe a very interesting use case could be around NFTs or tokenization and AI. I mean, we have the stories about the AI eating the content of the internet and using it to learn, for the learning experience of the machine, right? And then you have the New York Times, for example, suing these AI companies because their content has been copied.

(00:40:15):

So we have a very interesting use case around, for example, Ocean Protocol, which is about a decentralized data exchange. And the idea is that if you can share your royalties of data you have, whether this data is a piece of art or content you created or a prediction market, you can issue an NFT around this content or your data and then share this data with the machine learning algorithm and get paid every time this data is called or is used, or at least even if you’re a content creator and you don’t want to generate revenue, but just share your data and make sure that the AI takes it for the learning experience, at least get attributed, for example. So all these things are possible with royalty management via tokenization and a combination of NFTs and fungible tokens and non-fungible tokens. If you’re interested in such use case, I think Ocean Protocol could be interesting. And it’s one of the five or six use cases I analyze in depth in the book, DAOs & Purpose-Driven Tokens.

Nick (00:41:26):

Okay, so resetting the context here just a little bit. In 2019, you write Token Economy. And now presently, you’ve broken that text into three different editions. We’ve talked about the first two, the first was Money, NFTs & DeFi. The second one is DAOs & Purpose-Driven Tokens. And the next one in the series is web3 Infrastructure. It’s not published or released yet, but what can you tell us about what you’re writing there and some of the themes that are emerging?

Shermin Voshmgir (00:41:54):

Well, web3 Infrastructure really is about giving an introduction to non-techies or an overview even for techies who maybe come from web2 and are new to web3, an overview of the core pillars of web3. So what is web3? How did the Bitcoin journey start? Why did it not end with Bitcoin? And other web3 protocols like that blockchain networks are the backbone of web3, so I explained the principles of blockchain networks, the building blocks and alternative blockchain networks, the ones their successes and failures and issues around scalability, privacy. I analyzed the Ethereum ecosystem and the Bitcoin ecosystem and their historic developments into separate chapters. And then there is one chapter on privacy tokens and why they are very necessary in all the privacy tech.

(00:42:54):

And then there is one chapter around user-centric identities because the fact that we need more sophisticated, decentralized identity systems for web3 use cases to make sense. Any real-life use case that requires personal identification requires more metadata about a person. Supply chain use cases will require a lot of metadata about objects along the supply chain. And now, the question is how do we manage this metadata that is related to an NFT that gets attached to an NFT and is related to an object, a person or an organization? Is this data centrally managed or is it de-centrally managed? And so there is a whole chapter around this and it touches around the topic of decentralized physical identities and decentralized infrastructure networks.

Nick (00:43:52):

Am I correct in thinking, and we talked about emergent themes as the industries continue to grow and evolve. Am I correct in thinking that DePIN is a little bit of a recent theme that’s become popularized or has that always been around and fits into this narrative on infrastructure?

Shermin Voshmgir (00:44:09):

No, it’s not been around because I know people who’ve worked around decentralized physical infrastructure, most dominantly my own partner in life. Its term is relatively new and has become very hyped recently, but many projects, or maybe not many projects, but enough projects have been working around resolving some creating decentralized physical infrastructure networks around solar energy, around telecommunication. There are two or three key components that haven’t been resolved around identities, security, the last mile into the real world having a physical wallet that collects data in an uncompromisable way. So this is an emerging topic, and it might actually be the next hype topic after NFTs because I’m seeing the term deep end popping up all over social networks. And I feel that it’s not being overhyped because it is a very important topic, but it’s sometimes being misused because there is a lot of traction around this term.

Nick (00:45:17):

And given your perspective on web3 Infrastructure, how do you come in on this debate related to decentralization? And I mean it in the sense of the web3 stack, the web3 Infrastructure. I mean, does it all need to be decentralized at the end of the day?

Shermin Voshmgir (00:45:35):

No, no. I actually thank you for the question because I’ve been trying to get this message out there for the whole duration of the interview. Decentralization is a relative term, right? And there are so many layers to decentralization. So what are we talking about when we talk about decentralization? Are we talking about geographic decentralization that, for example, nodes in the Bitcoin network or in the Helium network, which is the telecommunication network, are geographically decentralized such that there are less network latencies or there is enough network coverage or that it is censorship-resistant to nation state regulation? Right? That would be geographical decentralization. But then there is the question, and decentralization is actually, let me question the word decentralization first. I don’t like the term because it’s an anti-term. It tries to oppose centralization and it implies democracy, but it also implies that it’s a binary state, but it’s not.

(00:46:43):

So I think we need to understand that first of all, there is no such thing as fully decentralized systems, and there are different layers to decentralization. Maybe we should find other words to describe decentralization. I’d rather refer to the Bitcoin network to a collectively managed payment network. That makes much more sense because it describes the actual thing because it’s different people who collectively maintain the system, right? So this collective can consist of 10 distinct nodes or 10,000 nodes, so the level of decentralization will vary depending on the amount of nodes and the power structure between these nodes. So I think instead of talking about decentralization, we should talk about collective network maintenance and collective network usage. And we should start talking about the power structures that emerge geographically around a network. Who’s allowed to contribute to the network in code? Who’s allowed to vote over protocol upgrades?

(00:47:52):

How are these power structures distributed? Who has a stake in the system, whether it’s a currency or is a share of the system? And how is this network stake distributed over different wallets or physical identities? And do we want a system or is the system sustainable where 5% of, for example, the network users have 95% of the network tokens. As the brief history of a web3 network show, for example, Steemit, at its time a very successful social network when the economic power structures became too skewed, nobody was interested to be part of the system anymore.

(00:48:34):

So you need to understand that when you design your token systems, you need to understand the political, the policymaking power structures, the economic power structures, who understands the code, who can contribute and who can use the network because as opposed to nation states, while Bitcoin network or if Ethereum network in its complex dynamics, they’re much more similar to how nation states work or then how centralized companies work.

(00:49:03):

But as opposed to nation states, you have no coercive way to keep people in your network. So if you are not attractive enough for people to keep contributing, for example, to your decentralized social network, people will opt out. And if you don’t have contributors and you don’t have users, those who have a lot of network tokens won’t benefit from them because they won’t be worth anymore. So we have all these complex issues around power structures and different levels of what would constitute what you refer to as decentralization.

Nick (00:49:38):

When you forecast into the future and think about what this industry looks at 10 or 20 years from now, clearly we see a lot of hype right now. There’s a lot of noise, there’s meme coins, there’s a lot of things that you could argue questionable or maybe not favorable to the industry, but how do you see it? I mean, does it consolidate? Do we go back to the basics and it starts to look more like traditional tech where you’ve got a couple major players and then projects that satellite around those, or is it always going to be this fragmented with tokens launching by the thousands every cycle?

Shermin Voshmgir (00:50:15):

No, I fear that we’re going to… And we’re already seeing it, we’re re-centralizing the internet. We try to decentralize it for the second time and we’re already seeing that we’re re-centralizing it. And it doesn’t really come at a surprise, but the pace maybe came as a surprise to me. As I’m writing this third edition of the book, I feel that I’m writing a history book. All my chapters start like with the explanation of how it was intended to be and how it ended up to be. Whether it’s around stable tokens or peer-to-peer money, there is these general dynamics are already always around. There is this network because of network effects, new points of centralization will emerge or are already emerging. For example, exchanges. We are seeing centralization happen around exchanges, unfortunately. Crypto exchanges have become the new banks of this new internet because unfortunately, most people today, they don’t hold their Bitcoins or Ether or other types of cryptocurrencies or crypto assets in a hardware wallet or a self-custodial software wallet or paper wallet.

(00:51:33):

Most people buy crypto on some exchange or with a service provider, NFT service provider or cryptocurrency exchange. And these services, by the way, are merging and they use custodial wallets. We don’t control our keys when we use these services, so we’re seeing this re-centralization. What was supposed to be peer-to-peer money without banks is us having accounts with centralized exchanges predominantly and losing control over our money and over the rights to own our money because of financial market laws and banking laws all over the world. These custodians, they own our money and can freeze our assets at any time. So unless you really use a self-hosted wallet, we’re back to a centralized financial system, which is a bit more efficient but comes at the cost of surveillance date because now everything is transparent to almost everyone.

Nick (00:52:34):

So Shermin, I only have a few final questions for you before I ask you the GRTiQ 10. These are 10 questions I ask each guest of the podcast every week. They’re super fun and I think they give us the opportunity to learn more about you personally, but I always hope that they introduce listeners to new ideas or things to try or know. So the first question is, what makes you optimistic then about the future of this industry?

Shermin Voshmgir (00:52:58):

Well, in best-case scenario, and this is really the best-case scenario, we will have a lot of alternative economic systems emerge locally, but also globally around special purposes. This is at least my hope because this is something we can do with web3, blockchain networks, tokenization, et cetera. So alternative economic systems coordinate towards protecting biodiversity, capturing CO2, coordinating elderly care, creating alternative local currencies. Everything is possible.

Nick (00:53:36):

And the final question, Shermin, I want to ask you is about going back to the roots then. So if we time travel back to 2014, 2015, when you first became interested and developed this conviction for Bitcoin, this consensus mechanism that you’ve referenced a couple times. And clearly as you’ve said, we’re somewhat evolving as an industry away maybe from some of those principles. But if you go back to the roots, why is the world better off with something like Bitcoin, with something like Ethereum in it?

Shermin Voshmgir (00:54:07):

As I’m learning more and as we’re seeing more and more centralization, I’m getting more and more skeptical that we will be able to leverage the full positive potential of this new technology. We have to be very wary that we’re not inadvertently leveraging the negative potential of this technology. Surveillance state, given the KYC AML laws that are getting worse by the day all over the world, this technology can be used to control us rather than free us from a social or economic level.

(00:54:48):

So I would like to warn people to learn more about the potentials, but also the dangers of tokenization, blockchain networks, which cryptographic tools we use because if we don’t go into the details, we won’t be able to co-shape these new networks, these new tokenized systems. And in the end, it’s a governance technology really. Blockchain networks are governance technologies, but governance means that you have to be active governors of the system and stop being just consumers. And I’m not sure that this is happening on a mass scale so I’m quite skeptical, I have to say. So this is not what you wanted to hear. It’s not very optimistic, I’m becoming pessimistic by the day.

Nick (00:55:37):

Well, it’s an important warning for any builder or contributor within any ecosystem within the entire industry, that there are certain principles and rules that must be followed for the technology to reach its full potential and to do what those early visions were. And so less pessimistic and more of an important warning. I appreciate you sharing your perspective. I do now want to ask you the GRTiQ 10. As I said, these are 10 questions I ask each guest of the podcast every week. And I do it because I think listeners might learn something new, try something different, or achieve more in their own life. And so Shermin, are you ready for the GRTiQ 10?

Shermin Voshmgir (00:56:11):

Yes.

Nick (00:56:23):

What book or article has had the most impact on your life?

Shermin Voshmgir (00:56:27):

Kafka, Kafka. Franz Kafka about the absurd realities of bureaucracy. It’s very relevant in the context of blockchain networks because since they’re governance technologies, the rules of the systems are in the protocol. We could over-bureaucratize this new internet so yeah, Kafka had a big impact and is also relevant here.

Nick (00:56:54):

And how about this one? Is there a movie or a TV show that you would recommend everybody should watch?

Shermin Voshmgir (00:56:59):

I really liked Donnie Darko back in the time.

Nick (00:57:02):

If you could only listen to one music album for the rest of your life, which one do you choose?

Shermin Voshmgir (00:57:08):

Oh, no. Impossible. I need diversity in music, there is no one album. Sorry.

Nick (00:57:17):

What’s the best advice someone’s ever given to you?

Shermin Voshmgir (00:57:21):

Don’t worry.

Nick (00:57:23):

What’s one thing you’ve learned in your life that you don’t think most other people have learned or know quite yet?

Shermin Voshmgir (00:57:30):

Economically speaking, unless you don’t own your own company or you’re a farmer, you have your own mini business or maxi business, you stay an economic infant in your brain.

Nick (00:57:44):

What’s the best life hack you’ve discovered for yourself?

Shermin Voshmgir (00:57:48):

Don’t overthink things, just start doing them and the next steps will follow.

Nick (00:57:54):

And then how about this one, Shermin? Based on your own life experiences and observations, what’s the one habit or characteristic that you think best explains how people find success in life?

Shermin Voshmgir (00:58:06):

Follow your passion. You can feel it with every fiber of your body to do something or not to do something. Just listen to your body.

Nick (00:58:16):

And then the final three questions are complete-the-sentence type questions. The first one is, the thing that most excites me about web3 is?

Shermin Voshmgir (00:58:25):

It’s collaborative infrastructure.

Nick (00:58:28):

And how about this one? If you’re on X, formerly Twitter, then you should be following?

Shermin Voshmgir (00:58:33):

Yeah, I don’t know if Twitter has a future, so I don’t know. Can’t answer.

Nick (00:58:39):

No problem. And then the final question, I’m happiest when?

Shermin Voshmgir (00:58:43):

I’m relaxed.

Nick (00:58:53):

Shermin, thank you so much for joining the GRTiQ Podcast. As we’ve mentioned multiple times, listeners can go and purchase the Token Economy. There are now three books with the third one on the way. The first one, Token Economy: DAOs & Purpose-Driven Tokens. Token Economy: Money, NFTs & Defi is the second one. And then we’re all excitedly awaiting the web3 Infrastructure. If listeners want to stay in touch with you, follow the work that you’re doing and get their hands on one of these books, what’s best way for them to get started?

Shermin Voshmgir (00:59:23):

Follow me on Twitter or X or LinkedIn, these are the social networks I’m still on. Otherwise, token.kitchen, all information on the books. You can find all the information’s on the books there. You can also find me on Medium. The blog, the Token to Kitchen blog is mirrored also on medium. So if you have a Medium account, you can follow everything, all the content there as well.