Barter, Bitcoins and Cashless Payments - A Conversation with the Founders of Qwyvr

Greetings everyone. Welcome to the Wednesday, April 15th, 2015 episode of Free Webinar Wednesdays. This is Eric Cook, and I'm with WSI Internet Consulting where we work with businesses and organizations in helping them better understand and leverage the power of the internet as a strategic business tool. You can learn more about me online at www.poweredbywsi.com. I also want to make a special announcement that just this week we have actually— and we, by myself and a social media attorney by the name of Deborah Gonzalez, who has been on the show in the past. She owns a law firm by the name of Law2SM. We've just recently launched a new service called DigitalRCP.com, which stands for Risk and Compliance Partners. Digital RCP has developed a pretty cool, we think, digital risk assessment that we've actually got in place now with a couple of our financial service customers, measuring and analyzing the risk that exists in their digital lives. So we're taking a look at policies and procedures and employee training and pretty much anything else that involves reputational risk or exposure. So if you're interested in learning more about that new service, I encourage you to stop over to digitalRCP.com Unfortunately, my good friend and Free Webinar Wednesday partner, Mr. Jeff Simpkins from Community Bank Consulting, Inc., is unavailable to join us today. But if you are a financial institution and interested in learning more about Jeff and all the great things that he does in the banking industry, visit communitybankconsulting.com and tell Jeff you heard about him here at Free Webinar Wednesdays. So, I am pretty excited about today's show. We've, uh, we've, we've had some great guests in the past, uh, although I can honestly say we've never had a couple of US Navy fighter pilots. And so, uh, today's show, we're gonna have a couple of Navy fighter pilots. Hopefully we'll get maybe a fighter pilot story. We had some, uh, pretty cool chitchat on the pre-show, uh, talking about dogfighting and engaging the enemy. And so maybe we'll get to get them to share a couple of stories with us. But before we officially get started, I want to remind everybody that all Free Webinar Wednesday shows are recorded and made available at freewebinarwednesdays.com. And if you've got questions during today's show, feel free to go ahead and use the chat box, which is located in your control panel floating on the right-hand side of your screen. So type that in there, and I'll be monitoring those during today's show, and we'll interject when we get a break in the action. So with that, it is my good pleasure to welcome Brian Sorey and David Whitmer A couple of, as I said before, I'll say retired or former or whatever the official term is, US Navy fighter pilots. We've got some pictures of them there here on the screen, and they have come together to create a new company by the name of Quiver. And we're going to hear a little bit about Quiver and what it does and chat a little bit about a service called Bitcoin, which I know I personally have got some questions on because I've been hearing Bitcoin, being a digital marketing person for a number of years now and not really sure even how it works. So with that rather long-winded intro, Brian and David, welcome to the show. We're glad that you're here with us on Free Webinar Wednesdays.

Good morning, Eric.

Thanks for having us on.

Yeah, excellent. So I'm, I'm gonna go ahead and work my little webinar magic and send the screen because I know David has got a some slides that we're going to share, but maybe while he tees that up, Brian, why don't you give us a little background about the two of you guys? I know there were some pictures there on the opening slide with you in your flight suits and what we're gonna talk about today.

Yeah, we call that a Zoom bag, so we gave you some Zoom bag pictures. So I always think it's cool how people get linked up. The wonderful writer over at The Green Sheet, Dale Lassig, Did a piece on Quiver, and then she heard a podcast that I did with my buddy John Tash and said, you ought to listen to Eric Cook's show at Free Webinar Wednesdays. I guess Dale's a—

And Jeff.

And Jeff. Dale's a loyal listener, and so I listened in and I said, man, I want to connect with these guys. So I love what you're doing, and thanks again for having us on.

Well, I can say it's the, it's the power of social media because I got a note from you on LinkedIn and we exchanged a couple of LinkedIn. But I loved your approach. We eventually, probably sooner than most times when I get engaged in a LinkedIn conversation— excuse me— you, you just picked up the phone and called me and said, you know, I love technology, but let's just get on the phone. And I think it was after about an hour on the phone of an unplanned phone call in both of our busy lives, we realized that, you know, we could probably have a really cool conversation. And what you guys are doing is pretty sweet. So that happened not more than probably a week and a half ago, and boom, you're on the show. So I love how that works. And big thanks to Dale for the heads up and making the intro. So I really, really appreciate that.

Yep. So Dave and I were squadron mates at a Navy squadron in California, and we flew a bunch of missions overseas together. And after one particular mission, Where my radios were— to put it well, my radios were not operable, really. We got back to the boat and we were watching tapes. We record everything. And Dave goes, hey man, you want to go into business together? And it was kind of from that moment where we said, I'm not sure whether we're going to build financial systems or tiddlywinks, but we want to be in business together. It's really important, I think, between founders to have that level of trust, and we sure do. Let's see. We were both Hornet pilots. Well, hell, I'll just introduce myself. Texas Tech grad, and then an ops research systems analyst degree from the US Army. Then we got pretty heavy into Bitcoin. Dave's going to walk us through today. about exactly how Bitcoin works, hopefully demystify that. And then Quiver is not Bitcoin-based. Quiver is based on the good old US dollar. It's basically prepaid debit, uses ACH funding events, and in so doing can reduce the transactional cost both peer-to-peer and from consumer to merchant. So the goods of Bitcoin were just lower and really efficient transactions between users on network. And we took that and we said, why doesn't a system that's that efficient exist that's dollar-based? And so that's what we're building with Quiver. And cool. Dave, you wanna give a quick intro?

Sure. I am a systems engineering major from the Naval Academy, and I have a MBA from the Kelley School of Business and worked on some pretty massive-scale projects during my time in addition to being a fighter pilot, including big asset planning for contingencies in case things go really, really bad with some other countries in the world that maintain our ability to have strategic resources that are necessary to keep our economy going. So if you catch my drift there. All right. So I'll just—

Wink, wink, nudge, nudge, right?

Yeah. So for today's discussion to kind of build onto what we're doing, and we're going to heavily focus on Bitcoin because it seemed Eric had told us that that was a big question mark. So we'll focus on that on the majority, but it'll lead into what we are doing. But to get to why Bitcoin is an alluring proposition, I'm going to have to kind of build it up and talk about some of the macroeconomic problems that are going on that concern both the small businessmen and people in the economy and why this has started to catch some wind with Bitcoin. So on the macroeconomic side, there's 3 concepts that we all need to kind of understand and agree to is that wealth is created in a— there's a process of wealth creation, then that wealth gets transferred around in the economy, and then that leads to eventually having wealth distribution. There's natural wealth distribution, and then there's the government influence of wealth distribution and how that occurs. When you create wealth, you invent a new product or a new technology and it makes people more efficient, that's wealth creation, and the people that come up with that tend to be very wealthy in the process. According to Adam Smith, you need really efficient methods of wealth transfer, and inefficient methods of wealth transfer lead to natural distortions within the economy when it comes to wealth distribution. So taking a look at how wealth is distributed, it tends to follow what's known as a Pareto distribution, and wealth tends to concentrate in the hands of the few. The people that are creating it or the people that are benefiting from the inefficient transfers of that wealth, which then lead to less overall wealth because wealth is not distributed back to the most productive sources of it within the economy. So I've drawn a line on here to show where the US median income is at $51,017, and what we have here on the x-axis on the left side is what I call a wealth factor of 1, which would be just the bare subsistence level just right at the poverty line in the US. And you can see that you have a much higher probability on the y-axis of being there as a member in our economy. And then as you move to the right, you have a lower and lower amount of probability of being at those levels as you increase along the x-axis. In contrast, we've we have a I've depicted here on the next slide the U.S. GDP growth over the last sixty years, and you can see that we have had a period of unbelievable economic growth. Essentially, in just the last fifteen years, we've basically doubled our GDP. You can see on there I put China and Japan. China's now eclipsed Japan. And China is on a path right now to overtake us if we aren't careful. So this breaks— looking now at US income growth as a proxy for wealth distribution, what we can see is this is where we start to see all the movement about the $15 minimum wage and a lot of just kind of unrest about the current economic conditions. If you start looking at where the people that are participating in the lower half of that distribution are, highlighted in green and orange, they've essentially had zero wage growth, and even the people that are at 50% have had zero wage growth over a time where GDP has doubled. That's pretty troubling if you're there, especially when you start thinking about inflation. Because this slide does not account for inflation. So we will take a look at inflation here in a minute, but talking first about when we take over time and we chart out that distribution, it gives us what's called a Pareto index. And the higher you go on the y-axis here, the more distributed the wealth is, and the lower you go, the more concentrated the wealth is in the hands of the few.

Okay.

Looking at a historical distribution, then we can see that at the time of— as we were wrapping up the era of the industrial expansion of America with Carnegie and Rockefeller and those guys, wealth was extremely concentrated. Then as Roosevelt came in and started being the trust buster, You can see that wealth did start to break loose and start to distribute, and policies from guys like Ford who ran their companies of paying their workers way more than what had been previously done really started to have some benefit. We started to climb out of the hole that we were in, and there was a lot of civil unrest at the time about the wealth distribution that was occurring. And we were on a steady pace of distributing the wealth that was being created more and more within our economy. Until we got to the '50s and the '60s where we kind of hit that maximum point, which is really an interesting time period because universally, I mean, everybody— I wasn't alive in the '50s or the '60s, but everybody that I talked to that was an adult contributing member, they generally think fondly in terms of the economic prosperity that existed during that time period.

So this is like a happiness index almost, like—

It absolutely is.

Yeah, like we're French Revolution at the bottom right, or Occupy, that movement, and then, you know, the golden era up at the top in the center right.

Yeah, that's a great correlation. That's a great way to phrase it. And I think this is a really fascinating chart to look at and to think about what the events were at the time and to draw a couple really important important points out of this is that the tax rate during the '50s and '60s, the upper income, or there in the '50s at least up until 1962, was the upper income tax bracket was 90%. So, that did absolutely have an influence on this. And at that point, as that tax burden started to come down, it reached kind of the levels it's at today in about 1981, '82 timeframe with Reagan. And you can see that that certainly had an effect on this. Correspondingly, there was an explosion in GDP, so our economy benefited from those lower tax rates by increasing the overall economic activity, which is generally going to naturally lead to some more wealth concentration, but that's okay because everybody should be getting more wealthy.

Uh-huh.

So before I move on, that kind of leads me to a natural breaking point before I go on to inflation. Are there any questions?

Yeah, yeah, actually I'm glad that you asked because we do have a couple that have come through. One individual asks maybe some of the reasons why that index is so high through the '50s and the '60s. I know you mentioned tax rates. Does it have a correlation to You know, the war or other issues that were going on at that time? So take that one, and then I do have one more for you, but I'll let you answer that one first.

Sure. So, you know, always impossible to nail down the exact causal effects, but I would certainly, in my opinion, equate this to the fact that we had also broken the— the rest of the world's economic productivity was broken at the time due to World War II. So we were able to— we were in a position to capitalize on our still intact industrial base and then expand it rapidly to meet the rest of the world's demand of the rebuilding of Europe and Japan.

We essentially rebuilt the world. You know, I mean, that's going to be advantageous. What's interesting to me though is at the bottom right-hand, you just showed that incredible growth in GDP and yet average satisfaction is at a near all-time low. I just— it's fascinating.

Yeah, and so, Eric, to finish that thought on the war, that economic expansion created a huge demand for labor in this country. So the skilled factory worker and even the unskilled laborer, they benefited from that huge demand of labor, and raw materials coming out of those countries at the time were kept at very low prices. So, we had a strong dollar and everything. All those factors coming together led to very prosperous times even at the lower end of our economic spectrum. Does that answer your question? Did I answer the question?

Yeah, I think that's good. The other question, and I'm not as familiar with this as the person who's asking it, and hopefully you'll make sense of this. But there was something referencing the discontinuation of utilization of the gold standard and how that kind of looks like it's coinciding with the decreasing line there. So, maybe chat a little bit about the influence of the gold standard as it relates to this graph.

Sure. So, I'm going to go on to inflation here in a couple minutes, but there's 2 key points with the gold standard. So, in the '30s, Roosevelt basically Stop the ability to domestically exchange gold for dollars, and you were only permitted— I'd have to go look up the amount that you were able to maintain of your own gold holdings, and you had to turn it, basically turn in your gold. So that was a big one. Interesting, we saw a big climb here, so not sure whether we could necessarily draw a correlation. I've never seen anything where somebody would try and draw a correlation there, but the big date, what everybody really talks about, is in '71 when Nixon took us off the gold standard. where foreign— you weren't able to exchange foreign— foreign countries weren't able to exchange dollars for gold anymore at that point. So now the government was never— did not have to tie the dollar to an actual certain amount of gold. And that has— that's certainly a very interesting correlation. And then if we go on and we talk about inflation, so remind me if I forget to talk about this specific gold standard here in a minute, and I'll circle back to it. But inflation, taking a look at it, this is a compounded inflation chart. So if we look at how inflation was up until about the '40s when we had a giant economic expansion, it started to increase and break out of its old— break out of the channel we'd been in for most of the entire Industrial Revolution in the '40s.

Right.

Then you can see there's a clear inflection point right here where we went off the gold standard. This is a compounded interest rate, so it's not necessarily the most objective. This is a chart designed to grab the user's attention or grab the reader's attention of the chart. That will lead to the next point here. The reality is that compounded inflation is a real thing. That is what you experience. If you are earning the same $8.50 an hour that you were 10 years ago, but the price of milk has doubled, even though inflation, it was only at 2.5% to 3% during that timeframe, seems like a relatively low inflation rate, but the compounding effect has led to the fact that you have less discretionary income or really negative discretionary income if you're only earning $8.50 an hour. So then if we— if I— and did that answer— let me go back for a second. Did that answer the question on kind of the— I can tell you what the effect is of going off the gold standard, and then I'll let the watchers of this draw their own conclusions as to whether that was a wise decision or not.

Yeah.

Still a little bit over my head because I'm just a country boy from Marshall, Michigan, but yeah, I think, I think that helped.

Okay. All right.

Do they have country boys in Michigan, Eric?

They do. Yeah, they do. They do.

All right.

Can't you tell by my cheesy country boy accent? It's a pretty poor one too, I know, but anyway. Yeah, let's keep going. I'll get myself in trouble if I try to do any more accents. I'll end up offending somebody, and that's not a good thing. So it's just from my poor capability of producing accents.

So we have, we have, you know, drawn our own correlations, and we have our own hypothesis about The way that wealth has been created in this country and then the way that it's been distributed over time is that we've also seen over that same timeframe where we saw a lot of inflation, we've seen a lot of economic growth and a lot of inequities in the wealth distribution in this country. We've also can see that we've seen that the financial services industry as a percentage of GDP has grown, and out of that channel here in the '40s, you can see that there's this giant increase and explosion as a percentage of GDP in the size of our financial services industry. What that indicates to me is that wealth is tending to concentrate towards our financial services industry, and the financial services industry could be very profitable and be the source of a lot of wealth creation, but it shouldn't be gobbling up a larger percentage of the economy if it's truly acting as an efficient mechanism of wealth transfer. I think Brian and I had a little discussion a couple days ago about the fact that there's this— that you see this rapid increase in the '20s, and then you see this giant decrease in the '30s and the '40s. You should naturally see during a very sharp economic downturn that there's going to be this natural in the '30s period where the financial services is going to shrink. As we were the major source of GDP growth during the late '30s and early '40s, there is where we're participating in the economies of the other countries where we're producing war materials for them in the late '30s, and then we're producing our own war materials in the '40s. That's just not a big— the financial services industry is not participating in that because that's mainly government spending directly into the industrial military base. That's why you see this precipitous decline. Then as soon as the war ends, that's where we're just off to the races. A couple problems with inflation. Inflation generally is relatively universally agreed that it exacerbates the problems with wealth distribution inequities. I probably shouldn't write words on slides that I can't pronounce. Brian, if you could say that word for me and help me out.

Well, we need the right word first, but we're all right.

So if we have the inflation, the people that have wealth are going to have the tools, really smart financial advisors and financial securities that are going to be able to fight off inflation, whereas people that are at the lower end of the spectrum, they're just trying to fight to try and keep that milk coming in the door to keep the kids fed. They're not going to have access to that, so they don't have the ability.

Right.

to fight off inflation. They just have to deal with it. So it really serves as a hidden tax on the poor, and it's a very cruel tax as well to meet up for deficiencies in government revenue versus expenditures. So when we look at what Brian led us into at first, the transactional costs that exist in today's economy, and how those are put into play in the economy through the use of credit and debit cards, we typically see somewhere between 25 to 50 cent transaction fee plus then a 1.75 to 3.5% merchant discount fee is typically what we see as we talk to potential users, merchants of Quiver. We see that as it's it's a way of multiplying the current inflationary problem that we already have. It tends to push prices higher over time, and the merchants are going to have to pass those prices along. The effect of that is that it leads to less profitability for those merchants to be able to reinvest in their businesses through jobs and into the local economy. We view these transactional costs as a way of transfer in an inefficient manner money from local economies to where the majority of the financial services are based in places like San Francisco and New York.

I wanted to hop in there a little bit. So this is sort of how we got here with Quiver, Eric. It was when we were doing— when Dave and I were mining a lot of Bitcoin, then we got pretty deep into cryptocurrencies, and we learned that an on-network Bitcoin-to-Bitcoin transaction was really a beautiful thing. It's pretty efficient. So, uh, take out for a second that you lost 1% to go into Bitcoin, you lose another percent when you get out. But if you could conduct your entire transactional life in Bitcoin, there's really not a superior system to it. And so when we looked around the scope of the options within transactional systems, we didn't see anything that functions like that. And so what we wanted to do was just build basic prepaid debit such that an on-network transaction is free. And so if we went back a ways, the credit card brands used to have the no surcharge rule, which said you couldn't upcharge a card-paying customer over a cash-paying one. Now, the NSR has since been repealed. We found that most merchants don't know that, or if they did know that, they still don't take advantage of it because then it makes them have to maintain 2 price points on every single item in the store. So you see gas stations take advantage of it. The cash price is out by the highway But the card price is actually there on the pump. But notice that they don't do it inside the C-store because that would again maintain— make them have to maintain 2 price points on every single item. So we wanted to give merchants a transactional system that let them take advantage of being off a card network. And so That's sort of the tie-in between what we learned from Bitcoin and what we're doing with Quiver.

Alright, thanks, Brian. So that kind of takes us through the macroeconomic setup of why people like Bitcoin, and let me give you a little background of what Bitcoin is, is that it's a cryptocurrency that is put together through 2 key concepts. One is public key cryptography, meaning there's a key that's held in the public domain, and then you have your private key, and it's only the use of your private key that can unlock it. And it uses the same algorithm that is typically used for encoding websites like banking websites to ensure that only— that you are connected to the website that you think you are. And then we have— there's a consensus algorithm, and it's a way of a of certain members of a network to all agree on a decision. In this case, it's a decision of whether a transaction is legitimate or not. There's only 21 million units or Bitcoins that are locked inside of a mathematical puzzle. Essentially, you can— a computer, when you run the computer, it's trying different Different answers to the mathematical puzzle, and because it's just a random, a pseudo-random number, you can't really predict what the answer is going to be. And so they keep trying the different answers to that, and the network will adjust the difficulty to control the amount of Bitcoins that are unlocked. And in each block, Bitcoin, it started out that there was 50 that would be unlocked back in 2009, and now today it's down to 25, and in a couple years that will readjust to 12.5. So there is an exponential increase in the difficulty the more computing power that is contributed to the network, and it tends— the network difficulty tends to adjust about every 2 weeks. So if I buy a computer and I, for the first 2 weeks, I'm getting a lot of Bitcoin out of it, but everybody else bought the same computer, what happens is the network adjusts to the new reality and now my production of Bitcoin is going to slow down after 2 weeks to account for what everybody else has done as well. It's a peer-to-peer network, so there's no centralized server that's running Bitcoin. There's nobody to call if something's wrong with your Bitcoin. You have to figure it out on your own. It's a blockchain technology, which I'll walk through in a minute. There's more blockchain technologies out there than just Bitcoin. It is an interesting technology, but that blockchain factors into how that consensus algorithm works. I'll talk to confirmations here in just a minute, but But— and explain why the confirmations are important for if you're conducting a Bitcoin transaction. So just kind of high level, this is a depiction that gets down into the weeds of how Bitcoin works. The big thing to take away from here is that the mining— when you mine a Bitcoin, you're providing a proof of work. You had to do— your computer had to do a certain amount of work in order to unlock the block, and you provide what's called a hash that is the answer to that mathematical puzzle. And in that hash, in that new block of Bitcoin, it points back to the old block of Bitcoin through the use of the hash, so that anybody that is looking at the blockchain or the public— that's held in the public domain, they can clearly see that you couldn't have created that block without starting with the previous block and then working to get that new block. And by the fact that you hold the answer, you're providing a certain amount— you are providing proof of work. So it's like, it's just like you went to the gold mine, and the fact that you're holding the gold in your hand is the proof that you did a certain amount of work to get that gold out of the mine.

So— So is it— question for you on that. So, when you talk about mining, you know, you think of kind of the Gold Rush out in California when we were pulling wealth out of the ground. Is that essentially what is being done with Bitcoin? There was an artificial, you know, you said the 21 million Bitcoins, an artificial repository of gold, if you will, digital gold, these Bitcoins put into the ground, and all of these kind of new-age prospectors are leveraging technology and computer processing power to pull those Bitcoin golden pieces out of the digital earth so that once they pulled the gold out of the ground, they took it to somebody, they had it weighed, and it was basically given a value based on the gold market, and then you sold it, turned it into money, and went to the saloon and bought yourself a drink. And, I mean, is that kind of the old-style analogy of what's going on here?

Yeah.

We're just using computers instead of pickaxes? That is—

yeah, sorry. That's a great way to say it, Eric. So what all those miners are really doing is running the blockchain, which is validating on-network transactions, and their reward for doing that is periodic distribution of a block of Bitcoin. Did I say that right, Dave? Like, you have to reward guys for running their computer. in support of the blockchain.

So a bunch of great discussion points there. So let me answer yours, Brian. Let me dovetail on yours, Brian, and I'll circle back to your question, Eric, and expand on it a little bit. So the blockchain is enabled— when they developed Bitcoin and the blockchain, they thought of a lot of stuff. These are really smart guys. They came up with a system that rewarded people for running their computers in exchange for passing along those transactions. They knew that nobody would run their computers and consume electricity if they weren't being economically rewarded. There wouldn't be enough transaction fees until the network got big enough. To get people to do it, they had to economically reward them with being able to come with— they basically mine these Bitcoins, which leads into the answer of your question, Eric, or to expand on it, it's exactly like mining for gold because when you show up with that gold, you are providing a proof of human capital that was invested in that to come up with that gold. You had to have spent hours and days researching where to go mine and using tools, and there's an enormous amount of human capital that has to be invested in pulling an ounce of gold out of the ground. The lucky few were able to pan for it in the river, but still that required human capital to do it. And that— so it's a proof of what's called work. You are proving that you did a certain amount of work to be able to get that gold, and that's why the gold has value, because it can be universally recognized and it's a— and as a proof of human capital investment. Bitcoin is the same thing. It's a proof of investment in a certain amount of work that was done. In this case, We use computers to do the work. In theory, you could do it by hand, but you would not be able to compete against the computers, and you would have— it would be a futile effort. But in theory, you could do it. So I'm sorry to go down such a long line. I'll keep moving.

No, and, you know, I know I want to make sure we get time to talk a little bit about Quiver and kind of what this means to your business plan, but I guess the only other statement that just sprung to mind as we're kind of using this gold rush analogy, you know, is I've read that the real people that made the money during the gold rush weren't necessarily the prospectors looking for gold, but it was everybody that was selling the gold diggers the picks and the shovels and the axes and the, you know, the equipment, because they were the ones that had a guaranteed steady stream of income.

Right.

And the people that were looking for gold, you know, they're rolling the dice. They don't know if they stick their pan in the river if they're gonna come up with any flecks, or if they dig in a certain area or chip on a certain rock if they're gonna see anything. Is there a similar subculture around this that is providing services to those that are mining?

Absolutely. So there is a, uh, um, there are several companies, uh, there is that sell computer mining hardware. There's one in Oklahoma City. It's the only American company. It's called Butterfly Labs. They are currently under— I won't comment on my personal opinions of them, but I will just tell you the facts that the last time I checked, they were under an FTC investigation for having used the miners themselves. People would preorder the miners and they would delay shipments by about 6 months. under investigation that they were using those miners, their customers' miners, for about 6 months and then they would ship them. So that's the accusation that's currently underway. So there's some pretty shady things that have gone on in the Bitcoin community as it was starting, but very much, I'm sure there was a lot of shady things that went on in 1860.

I was going to say, you go out to California in 1949, I bet there was all sorts sorts of shady stuff going on. You just didn't know about it because the internet didn't exist, but you'd probably be in shock and awe if you knew what really happened back then. Anyway, it's just funny how what is old is new, but it's still somewhat similar in nature.

If you timed it right, and Brian and I timed it very well, the money was there to be made, and we reported all of our money that we made on our tax returns, so just as our Of course.

Absolutely.

Absolutely.

So what that leads to, the reason that's really important with Bitcoin is that there's a thing called, if anybody can ever take over 51% of the network, then they control that consensus algorithm. They control the vote. So they can do nefarious things like, if I controlled 51% of the network, I send Brian a Bitcoin Then I tell the network, hey, go back to block— I tell my computers to go back to block 5624 and start a new blockchain on 5625. Now I can do what's called a fork. As soon as I can get ahead, the longest blockchain is going to win in the consensus algorithm. Once I get to block 5627, I can basically erase the transaction that Brian— where I sent it to him, and then I can send it to myself. So this is why that confirmation is important, is each block is a confirmation. And so if you are dealing with a very large Bitcoin transaction, you're going to want to wait for a lot of confirmations to make sure that that transaction has indeed been picked up by the majority of the network and written to the new blocks. That are there. So that's a— that's, that's an important concept, and it leads to some key fundamentals of how you transact in Bitcoin that I'll get to here. I'll come back to during the demo, and I'll talk more about it. So here's just a picture of a Bitcoin miner that I built a couple years ago, where you're running graphics cards and you got lots of power. You can see this thing's running nearly 2,000 watts. It's got fans everywhere, and this is common. This happens a lot when you're mining Bitcoin is you burn out these $500 graphic cards. So that's about $2,000 worth of computer hardware there to build that thing up. So I'll move on, and you can see— so when we talk about a 51% attack, one of the things that people discovered early on in Bitcoin is that my odds of actually getting a block of Bitcoin are very low. And while I may only get one Bitcoin block every 18 months, it might— it will work out over time, but I have to wait 18 months or something before I get a block of Bitcoin. So that's a lot of electricity and a lot of time. So what people did was to smooth out their earnings, they grouped into pools where they all contribute their computing power together, and then the pool gets the block of Bitcoin and distributes it among the pool members based on the amount of computing power they They contribute. Well, the people that operate these pools are centralized, so it kind of goes against the whole decentralized nature. Right here is a depiction from just the other day of the current distribution of the network by percentage. You can see these guys are accounting for 24% of the network. The pool that Bryan and I participate in is accounting for 5% of the network. So that's how somebody could gain 51% of the network. So some money laundering issues with Bitcoin. If you haven't heard that the federal government is concerned about money laundering efforts and funding of terrorism with Bitcoin, it's probably some of the first stuff you'll cross when you start searching out Bitcoin and reading about it. And just to kind of give an example, of what their concerns are. What their concerns are. Alright, is that coming through well on the screen there?

Mm-hmm.

So if I go to this website called bitlaunder.com, they didn't even really try and hide what they're doing here.

Subtle.

Yeah, real subtle. And what they'll do is they'll— you send your Bitcoin to them and then you trust them that they're going to blast it out. They're going to bounce it around between a whole bunch of different Bitcoin addresses and break it up into different chunks and mix it up with a bunch of other people that are doing the same thing. And then you're trusting that they're going to shoot it back out to another Bitcoin address. They'll even, right here on their website, When you click on debit card, it takes you to BitPlastic and where you can order a MasterCard from a bank in Poland. And now you can fund this MasterCard with Bitcoin and they'll just— and now you can walk up to an ATM and get cash for it. So they'll take Western Union and so that's a problem. And then to add fuel to the fire, There's another website called Robocoin, and this is where I can— they have a series of kiosks where I can deposit cash into their kiosks and get Bitcoin. So I have the entry point of cash, I have a worldwide distribution mechanism for it, and then I have the ability to load a MasterCard with it and then spend it anywhere or withdraw it from any ATM in the world. So that's not exactly what the federal government wants to see, to put it lightly. So that's the—

Yeah, I was going to say, suffice to say, funds are not FDIC insured nor guaranteed against risk by the United States federal government.

Not with Bitcoin, no, no, not at all. So those are what they're—

Proceed at your own risk.

That's kind of the dark side of Bitcoin, but let me show you what people get excited about because there's lots of actually very legitimate people very excited about it and why they like it so much. So here I've got a website called Coinbase. They're in San Francisco. They're the company that I entrust because they're very well backed. They've raised about $100 million. Lots of big banks have backed them. It's kind of their Bitcoin play. And so I've got 2.5 Bitcoin here and some change, which equates to about $560. And here on the left is a Bitcoin wallet that's actually running on my computer. So this is on my computer, this is on this website, so I'm putting a lot of trust in them. So I'm going to show you how fast— are you seeing the whole screen here, Brian?

You can send that my way if you want to.

Yeah, thanks.

I can send it my way, but I wouldn't know what the heck to do with it, so you can send it to Brian and then he can buy me something cool.

Generally, you have an address that looks like this, and I can create as many addresses as I want. I'm going to copy this address, and now I'm going to come over to Coinbase and I'm going to send this. They'll do the currency conversion Apologies. And so I've taken a lot of security steps here to make sure nobody can steal my Bitcoin. So if you do this, I highly recommend setting up 2-factor authentication. So what you're not seeing here is on my phone, I just got a code right there that pops up that's only good for 20 seconds, and it switched on me while I was typing. So that system works pretty good. And there we go. So now I'm back in. And so now I'm going to send it to my wallet again here. So let's— I'm just going to send $2.50. So it's telling me it's doing the math for me. And this is for the webinar. And Now again, I do my thing and what you'll see over here is that it already picked it up. That's how fast that works. This went from this website to my computer that quick. The network already picked it up. You can see that my wallet is showing me— it's putting it in brackets, it's grayed out. The reason it's doing that is Because it doesn't have any confirmations yet. It recognizes that there's the transaction there, but this wallet, the network won't let me enter this, and even the wallet is going to enforce that it won't let me send it. Whereas these previous transactions, when I hover over them, you can see I've received 387 confirmations on that one. I don't know if you can see that on the webinar there, Brian.

Yeah, you can see it.

Okay. Then you can see some of these, 541. The more confirmations, the more secure that transaction is. It can take— typically, it might take— it just depends on when the next block is going to be unlocked. If they just unlocked a block, it might be 10 minutes before I get a confirmation. It could be 5 minutes. I would anticipate on average you're going to wait 5 minutes before you see that first confirmation. Just one confirmation, it's a risk management. If you're dealing in Bitcoin the way that I just showed you, you're taking a risk with only one confirmation. A large transaction, you might want to wait for 10 confirmations. If you're dealing with Bitcoin on a website, the problem is people aren't going to wait 4 or 5 minutes to try and check out while you're waiting for that first confirmation. Generally, the Bitcoin community recognizes this, and companies like Coinbase— there's another one in Atlanta called BitPay— what they will do is they will offer to stand as an intermediary for a fee, and as that intermediary, they'll give you the initial— they'll give you credit pretty quickly, and they'll just convert it immediately to dollars. Right here, I'm on a website called Gyft. I'm setting up to purchase an Amazon gift card for $15 with Bitcoin, and when I click on the Bitcoin and I proceed, I'm going to select BitPay. And in this case, it is showing me the Bitcoin address that I can send it to. So I'm going to copy the address, and now I'm going to send it to this address. And I've got to send it— this exact amount is what it's looking for. So I've got to copy and paste this into my wallet. And now you can see that there's going to be a transaction fee. So when people say you can transact for free in Bitcoin, that's not true. The reason transaction fees are so low right now Is because mining is still profitable enough that people aren't demanding transaction fees in order to— high transaction fees in order to add it to the network. But that's something that will change over time. So as I send this, we'll watch what happens here. And I say it's— so you can see right there, it's adding the transaction fee to make this transaction happen. So as I send it, And there it is, it's already received it. So now I have my $15 gift card that quick. So you can see that it works and it's pretty slick and pretty neat that that money from the Bitcoin never touched a financial institution in that case. So there it is, my $15 gift card is available to me. I could send it to somebody. So the concern also becomes then that This company Gift has no idea where that Bitcoin just came from. That could be— I could be sitting in Syria and giving teenagers gift cards to go to the mall in Minneapolis and trying to teach them more about my philosophy as a member of ISIS. That's a huge problem with Bitcoin.

A point of maybe clarification on that, that $15 that you just created of real economic purchasing power here in the good old US of A was essentially created as a result of your computer completing those mathematical calculations and mining the Bitcoins and producing those, you know, pulling that digital gold out of the digital soil. And that, you know, That process basically created you $15, so you didn't— other than doing that with your computer, you didn't mow a lawn, you didn't sell a product or a service, you didn't get a contract signed from a new customer. You basically leveraged the processing power of your computer deciphering mathematical algorithms to mine that coin and produce it that you turned into $15.

You are absolutely correct. That is exactly correct. And so now the price of Bitcoin, what you saw there was the— is just a floating— it's just completely market-driven supply and demand of what somebody's willing to pay for a Bitcoin. So I went out and I mined Bitcoin, just like you just described, and somebody was willing to buy them from me. And really, the only reason that people buy Bitcoin is to speculate on the higher price of Bitcoin. So that's why you see just these massive fluctuations in the value of Bitcoin. Just, I mean, Bitcoin was trading for less than a penny back in 2009 when it first started, and at one point it was up over $1,200. So, and now you can see today it was at around $220. So just massive fluctuations in the value of it. So you can't even really hold it, seriously hold it, as if you're running a business. You have to get rid of it immediately or else you are carrying an enormous amount of risk by holding it. So that kind of leads into setting up for Quiver and how Quiver works. Any other discussion or questions on Bitcoin?

For me, no. The only other, I guess, commentary And I know Jeff couldn't be here today live, but I think he made mention of visiting a site that actually accepted Bitcoin as a payable currency in addition to Visa, MasterCard, Discover, PayPal. And I want to say it was Overstock.com is now— I don't know how long they've been doing it, but maybe you guys can— are there other merchants online that are starting to accept Bitcoin? As a native currency in the transaction process?

There are. There's, by our count, I believe the last count I heard was about 7,000 merchants online. Many of them not as mainstream. Overstock is definitely one of the bigger companies. But you can see that there's some companies like Gift that offer gift cards to all those websites and stores. So in theory, you can transact with Bitcoin at larger retailers as well.

You could buy a Dell computer with Bitcoin today.

Oh, really?

Yeah. Make no mistake, Eric, Overstock is— we don't believe Overstock is holding Bitcoin. They are using one of the intermediaries like Coinbase or BitPay to manage that risk for them. Sure.

It comes in, they convert it, and boom, it goes out, so they're not holding on to it.

Exactly. Those 2 companies, when they do that, they're carrying a lot of risk, and that's why they They had to go and raise a lot of financial backing to be able to stand in as those intermediaries. That leads us into Quiver. At Quiver, we looked at the complexity of our typical transaction that occurs today, here depicted with the card networks, and how many players there are in that card network. You have that personal information that's exposed during that process at each of those points, as well as everyone in that payment chain is going to take a cut of that transaction, which is not a very efficient process. We at Quiver have tried— what we are doing is we have simplified that process and using some technologies that didn't exist until just a couple years ago. We have the ability to manage the risk in a similar fashion that would be done with an ATM network or a credit card network, but because we can carve out all the intermediaries in the process, we can do this at an incredibly small fraction of what the card networks are doing in order to facilitate it while still the merchants and the consumers still have the very similar customer experience from the instant access to funds point of view. So that— and we are a financial technologies company, and so we have a lot of products in our pipeline that are building to build this network out and make it a very incredibly good user and merchant experience in doing so. So, and what those— some of those products are is we have a consumer app We have a merchant tablet, and we have a solution for the disconnected environment where you can plug it into any type of machine. We're going to have development boards so people can build their own projects that can be funded through our network. One of the examples I tend to use is I'd love to see somebody use one of our boards to build a set of streetlights for the basketball court, and you can then pay to turn on the streetlights, and the city would get paid, and the person that built the project would be selling their hardware. Then they don't have to worry about how the payment happens, and it's done at a very low cost. Brian, do you have anything else you wanted to add about—

Yeah, for those familiar with the regulatory environment, we had to meet know your customer, anti-money laundering statutes. Quiver is also, by definition, it would be a money transmitter. 46 states separately regulate the transmission of money in addition to the federal statutes, FinCEN. We partnered with a bank, and that gives us strength, credibility, FDIC insurance, something which Eric will be familiar, and it also gave us national scale at launch. So We just— we're an agent of a bank, and we're pretty happy with that relationship. So we meet KYC/AML requirements on the front end as well as OFAC checks, and then the bank separately monitors those same things. And so we think it's the height of security. One of the things Dave touched on but sort of glossed over is when you transact with a credit card Even once EMV comes online in October, really all that cuts out is counterfeit cards at the physical point of sale. It actually, in Europe, Great Britain, and Canada, EMV implementation has driven up card-not-present fraud, so online fraud has gone up by about 79%. When the fraudsters can't get it In the real world, they go online and get it there. So Quiver has great utility there for card-not-present, i.e., online transactional use as well. And we actually have a payments API that can be integrated to people's websites and stands as a payments alternative to presently available systems.

So if there's nothing else, I will leave you with some of our favorite video clips that are there on YouTube. And if you haven't seen some of these, they're pretty good little speeches that have been developed by some pretty creative writers that resonated with Brian and myself.

The newsroom one is great if you all haven't seen that one. It's one of my favorite clips in years.

Yeah, it starts around minute 4:30, if you only have a couple minutes, is where the really good speech goes on, but there's a good lead-in to the scene.

Excellent. One other question just came in when you're talking about kind of the— and you gotta maybe skip back a slide so we can see the pictures again, but The one that's in the bottom right-hand corner there where you've got the arrow disconnected and the phone, there seems to be an awful lot of buzz right now around Apple Pay and being able to use an iPhone with a fingerprint scanner. There's still a credit card involved in that process that you have to connect, either a credit or debit card. So it's not like you're using Apple or the Bank of Apple to make the transaction because it's still ultimately doing a credit card transaction. It's just the device that's facilitating it. Facilitating that process. But I know one of the things that I've looked at as a— this is why it is more secure than using your credit card— is the tokenization of that transaction where it's good for that one time and one time only. And then once the transaction's done, the token expires. And if somebody cracks a database and pulls that token out, it's not good anymore because it's just used for that one transaction. In this flow, I guess now that you're here, How does that really work, and then how does the Quiver process change that by eliminating the card and the identity and the security that's around that?

That's a great question. That's a great explanation of what Apple Pay does. What they do also is that they close the loop right here. I assume you're seeing my screen and can see the cursor.

Yes.

They close the loop between the issuing processor and the user where the user then basically is confirming through a 2-factor method that yes, they are intending to make that transaction. It absolutely does increase the security of the actual transaction if it's the person that owns the card that is doing it, but nothing prevents you— and this is what they got eviscerated for in the Wall Street Journal. Nothing prevents you from just having stolen somebody's card and loading it into Apple Pay. Now everybody has the assumption that that's a very secure system, so nobody questions you on the use of it. You can go around and make all those payments with that iPhone that you may have stolen from somebody, or you may have used that that card that you stole to buy the iPhone in the first place.

Interesting.

We have some security procedures in place to make sure that we're not susceptible to that same sort of fraud, but similar in concept, we aren't exposing any of the banking information during the transaction. It's a tokenized process as well.

Okay, on that, and I'd not really thought of the concept, you know, I I steal your credit card and I put it into my iPhone, and then I go someplace and I use Apple Pay to buy something, and it's connected to your card, that doesn't necessarily mean that it's really me. But then on the flip side, if I'm a criminal, I have to use my fingerprint to complete that transaction. I would think at some point within that transaction, even though it's a one-time use token, There'd have to be some way where you could go through and at least find the fingerprint of the guy that's ripping everybody's cards off and using his iPhone to do these transactions.

No, the way Apple purposefully built it so that it wasn't imposing on user privacy that your biometric fingerprint would be sent back and stored on their system. It's encrypted on the phone level itself.

Yeah.

And it creates a— if I believe correctly, reading through the developer documentation, it creates a 6-digit number that is then unlocked with the key that is then sent.

Interesting.

And it's never— that 6-digit number is never exposed to the user through the operating system. So it's a great way to make sure that the user that created the thumbprint is the same user that's putting their thumb on it now. But nothing—

okay, yeah, but, but it's not going to be able to send that fingerprint to the FBI database and go, oh, that was Eric ripping off David's card. Not that I would say I'm in the FBI database for any reason.

Oh, you are, Brian. I was looking in there the other day and he saw you in there, so—

Didn't want to tell you about that, brother.

Yeah, yeah, I'm known to be the user of really bad accents, and if it's offended people by my backwoods country accent. Well, listen, this has been really great, guys. And I think at the beginning when we were talking about, oh, well, let's talk about economics and Bitcoin and Quiver, I kind of had a little worry about how it was all going to tie together, but I think it makes logical sense by understanding the distribution of wealth and kind of everything that went into it, and then with Bitcoin, Bitcoin and the concept of, while it's very complicated, not a whole lot of fees that are involved, but not something that the average Joe is going to be able to do real easily, and how that's kind of given birth to the concept of Quiver. I'm hoping that this gets legs and takes off because Jeff and I are big proponents of the community banking space, and I know that community banks are under pressure all the time to do things more efficiently. And most community banks that offer any sort of a credit or debit card, it's something that they're doing in conjunction with a really big bank, and it's not a huge moneymaker. It's a big expense. I talked to a bank just the other day that they do instant-issue debit cards for convenience's sake because customers want to have a card right away. But when there is a theft or an ID, you know, issue where one of the big merchants gets their database compromised, that means somebody in the bank has to physically print new cards for all their customers. And they've done thousands of those, and it's not an easy thing to do. You've got a piece of plastic, you have to print the information and emboss it. And so, you know, something that can maybe give even the community institutions a way of serving their customers and saving their customers money And breaking free of the strains of some of the bigger banks and the bigger networks.

You know, Eric, you and I talked about that the other day. Dave and I are super passionate about helping community banks. I mean, they are absolutely essential, lifeblood of our economy. And how could Quiver be best used to help small banks, you know, stay profitable and win? I haven't cracked the code on that. I wish every day, I wish somebody would call me and explain to me how Quiver could best stand in service of those small community banks. We don't have that answer. I'll tell you, this is kind of interesting. The IG for the Post Office put an article in the LA Times, which I then read, about how he wanted to return the Post Office to banking services, for which there is some precedent if we went in the Wayback Machine. And so I fired off a basic kind of like a little RFP to the post office and said, hey, we would like for users to bring cash into the post office and fund their Quiver balance, which I think would be a fantastic service, right? Like, not every community has a local bank today, and those numbers are diminishing, but pretty much everybody has access to a post office. And so the— it turns out the IG can only make recommendations to the post office. They can't, you know, arm-twist them into a solution. So they do have that on the table, but I don't know that they'll act on it. So anyway, yeah, we, you know, if there was a way that Quiver could help small banks win, I would love to hear it.

Yeah, cool. Well, anytime something gets into the financial or banking realm, which is what yours does, my community banker hat comes on and the gears start turning. So this would be a fun one to think about. But yeah, so well, again, thanks again for being part of the show. If you guys are out there, those of you that are listening live, when you're done, hop over Did I spell that right?

You did. That's correct.

Yeah, and if you're listening on the recording, you can still hop over to QWYVR. Why don't you pull up your site real quick just to give everybody kind of a glimpse. And yeah, so folks can hop over and check you out and stay engaged and maybe set up a Google alert just to see what's new and what happens. But certainly looking forward to keeping in touch with you guys. I know this is the end of the show, but it's not the end of our discussions because I think there's going to be some, some cool stuff going on here with what you've got going on. So we didn't get it—

get any flying stories. Can we close with a joke?

Oh yes, we did, we did, we did. So— or we did not, but yes, we can close.

I will keep it somewhat contextual. So How do you know when a date with a Navy pilot is halfway over?

How?

When he says, that's enough about me, let's talk about flying. Yay!

I suspect becoming a fighter pilot is not an easy task, and the fact that you want to talk about it— I know it's a joke, but you got a lot to be proud of, and we certainly appreciate The service to your country and then what you guys have done. So all jokes aside, you know, thanks for your service.

Thanks for having us on today, Eric.

Yes, thank you.

Cool. Good. Well, that concludes this week's episode of Free Webinar Wednesdays. We'll get the recording up and certainly encourage you— encourage you— incorrigibly encourage you to share it with friends and coworkers at freewebinarwednesdays.com. Be sure to like us over on our Facebook page where we post updates and alerts. And if you know of anybody else that'd be interested in the show, Send them over to freewebinarwednesdays.com. Click the blue Register button, and they'll get notifications of future shows and episodes and get to listen to cool stuff just like this every week. So with that, have a great week everyone, and we'll see you next Wednesday here at freewebinarwednesdays.com. Take care. Bye-bye.

Adios.