Russ: Hi, I’m Russ Capper and this is The EnergyMakers Show. Our topic today, blockchain; specifically, blockchain in energy. And I’m very pleased to have as my guest Dr. Tyler Smith, the Director of ConsenSys Energy. Tyler, welcome to The EnergyMakers Show.

Tyler: It’s great to be here with you, Russ.

Russ: You bet. Tell us about ConsenSys. I know ConsenSys Energy is part of ConsenSys, but let’s start with ConsenSys.

Tyler: So, ConsenSys is the brainchild of Joseph Lubin.  He was one of the founders of Ethereum, which has become a platform that many people are familiar with in recent months.   Joe decided that he was not going to follow the path of the non-profit foundation, but he wanted to establish a for-profit venture that would build on this ecosystem and help businesses, but also consumers with products that would work within Ethereum. So, from that, ConsenSys has now grown to be the largest blockchain focused development studio.  So, what that means is we build products and we offer services within blockchain for the world.

Russ: Wow, so it’s a specialty blockchain development company, at the end of the day.

Tyler: That is all we do is blockchain.

Russ: Ok, and about how many people are in ConsenSys today? Employees.

Tyler: So right now, we’re growing exponentially. We’re about 250 right now. We have 14 offices around the world, so we’re a really lean company in that something like 175, 180 are developers.  So, these are people actually coding, and then the others are facilitating business engagements and others.

Russ: Does the company actually have a headquarters location?

Tyler: We do. We’re headquartered in Brooklyn, in Bushwick, but we have major offices in Toronto, and in London and soon to be Houston.

Russ: Which brings us to ConsenSys Energy.  Are you the first guy they brought on specifically targeting energy?

Tyler: Well, so what we saw was we were getting a lot of energy engagement. Several of the supermajors are our clients and then a large number of companies are becoming our clients very quickly. I recently joined ConsenSys. I was at BHP Billiton, I was at the head of blockchain for all of BHP Billiton, which is the largest mining company in the world. We were looking at opportunities across oil and gas but also mining as well. What Joe wanted to do was bring someone on who had the experience and the background to lead an energy engagement, full stop. We’ve known each other for quite a long time and he said, ‘Listen, I need someone to lead energy.’ And that’s what I’ve done now. I’ve taken that role, I’ve only been in that role for about two and a half months, but we are growing rapidly.

Russ: Sounds exciting for sure. So, I want to go down that path and we’re going to talk about specifics in energy, but before I do, I’m sure we have a lot of viewers right now who are hungry for any and all information about blockchain, so do the best you can at sort of describing the landscape as it exists today.

Tyler: The blockchain is the technology behind things that you may have already heard about; Bitcoin, Ethereum, hopefully you’re hearing about Ethereum before this interview, but there’s some people that are just clueing in right now. What it is, is a revolutionary new technology that essentially evolves the internet.  So, the internet, as we currently think about it, is basically governed by a foundational protocol called TCP/IP. That is the communication protocol whereby everything is built; Google, and Facebook, all these things are communicating with you via this protocol. But all it does is really communication. What the blockchain provides is a whole new way that the internet will interact with you, and this will govern things like value, or money, stocks, bonds, and that’s really what got the banks interested and that was the first wave of interest. But it also does things like identity, or voting, or registries, or prediction markets. Things that we’ve never had access to but it does so on a secure, a cryptographically secure, and ubiquitous sort of interface that anyone can tap into. And so it’s driving an enormous amount of innovation.

The best way I think that you can conceptualize the blockchain, and what it actually does, is I want you to think about a spreadsheet. In that, this spreadsheet is held by thousands of people around the world and it’s all being updated communally, in consensus with each other. And then what Ethereum brings to the table is that spreadsheet that we all share, and the ledger that is being updated, we can actually add programs to it, or in Excel speak it would be macros.  But the macro is held by everyone and so everyone can trust. This platform becomes a protocol of trust for the internet.

Russ: You’ve mentioned Ethereum a couple of times. Is Ethereum similar to Bitcoin?

Tyler: You can see I’m a fan, right? I’ve got my tech t-shirt on today. It’s sprung from the first thoughts that Bitcoin brought. Bitcoin is very simple. It is supposed to be money for the internet, and because it was the first implementation of a blockchain, the goal was to make it simple and secure. Right now, Bitcoin is securing 45 billion dollars’ worth of value, which is quite a bit of money. The founders, they did not want to include too many attack surfaces. So, what Ethereum did was, it’s basically Bitcoin 2.0. It said, let’s take this foundational structure where we can pass value between individuals, but now let’s make it programmable. Let’s add a Turing complete or a very rich, stateful interface so that you can program, I mean, just start to think about the things that you can do. What if you could program your money? Say, give a loan to your son and say, ‘This loan can only be spent on your college education, and if you don’t go to college the money gets returned to me.’ But you can do that in software rather than just in personal agreements.

Russ: And you mean I could confirm that that’s where he is only using the money?

Tyler: Absolutely. And that’s a personal example, but think about doing that for a company. In terms of your management staff, you could decide, well you can only travel on these airlines, and it can be programmatic in that you cannot actually spend the money with a different vendor than what’s been stated.

Russ: Ok, real fascinating. Ok, so just to get the organization chart right in my mind, what’s the relationship between Ethereum and ConsenSys?

Tyler: Our founder, Joseph Lubin, was one of the founders of Ethereum. We’re a for-profit venture, so we actually contribute resources to the community to a certain degree.  We provide developers to help the foundation in pushing the protocol along, but we also do other things. We build infrastructure for other Ethereum ventures to use.

Russ: When you mentioned the foundation, you’re talking about the Ethereum foundation because it’s not a for-profit?

Tyler: Exactly.  It’s a non-profit foundation that was set up at the very beginning, and their sole goal is to refine and mature the protocol so that it can become a global asset.

Russ: So, you’ve mentioned the secure word a couple of times, which obviously is important with all the important transactions that you’re talking about taking place in blockchain. But we hear about hacks quite often. You know, Bitcoin hacks, and millions of dollars of disappearing, and that sort of thing. How do you sync those two up?

Tyler: It’s funny you mention that. There’s actually a site that has registered every time that they’ve said the blockchain, or Bitcoin, or Ethereum is dead; it’s been hacked, right? And there’s literally thousands of these registrations by media articles. The reality is the blockchain, it’s never been hacked. Users may get hacked. You can think of the blockchain as being about the level of 1993-1994 internet, right? How many people really owned an email address? Not that many. How many really understood how to use email? Not that many. And right now, the blockchain requires the user to be responsible for what’s called their private keys. And that’s the sole way you can interact with your, either currency, or your programs, and if you aren’t responsible in holding those keys, (Russ: You can be hacked.) you can be hacked. And so, we find that a lot of people have, in plain text, copied their keys to their notes, right? On their phone. A hacker gets access to that and that’s when they lose their funds.

Russ: Well, let’s say you and I were doing transactions with each other and you let your password get out, and therefore you were hacked. Could that give them access to my account as well?

Tyler: Absolutely not.  So, each account is secured individually and as long as you have good security protocols, you’re safe.

Russ: Ok, so let’s get to the energy. That’s what started all this here, too. So, share with us first, what are the opportunities in oil and gas, production, upstream, downstream, all the things that take place in these giant companies and midsize companies. Where can blockchain really play a role?

Tyler: That’s a huge question. It’s going to be something I’m going to be exploring for the rest of my career. But, what I can say is that blockchain is going to play a significant role in every part of the value chain. We’re talking upstream, midstream, downstream, even down to utilities and energy grids; even renewables. So, energy is a very, very rich value stream for blockchain, but let me give you a few examples, because personally I think this is going to touch every single business process, every single one. And I don’t care whether you’re HR, finance, supply chain, it doesn’t matter. So, let me give you a few examples. Supply Chain: I built the very first production grade supply chain using a blockchain at BHP Billiton. This came before the Walmart or the Mercuria example.

Russ: How long ago was this?

Tyler: This went into production late last year. So, this is very recent, right? This is a technology that moves incredibly fast. But because of these examples in supply chain, every major oil company is looking at blockchain for supply chain and it makes a lot of sense. What it does is it basically reduces your back-office costs; settlement and reconciliation, collaboration with your vendors, or partners, or regulators. And what that really does is take 30-50% off of your supply chain back-office cost. But that’s just the start. That’s how we increase efficiency and productivity, and people are very interested in that because we’re in a low-price environment. But what about other things like, how about whole company identity where having an identity on your blockchain, you can access your computer, you can walk through the security gates when you go in the building.

But let’s get more interesting. What about certifications? How about safety? I can’t turn a machine on unless I am certified to use that machine.  Or what about, two machines can’t operate at the same time if there’s a safety risk? For instance, a crane can’t move on a deep-water rig if a helicopter is flying in. and you can establish these rules across your entire company. Or what about securing your refinery against terrorist threats? So that you know, because you have on a secure, immutable ledger, registered this individual as being safe.  I think that’s a huge increase.

But then there’s even more transformative things. It would take a little bit longer to talk about, but things like, how do you manage your risk portfolio across your company? Right now, that is fraught with leader bias, and we’re not looking back and learning like we should on the previous mistakes or previous investments.  You could use prediction markets on a blockchain to completely transform the incentive structure for your employees in order to properly manage the risks.

Russ: So, I take it we probably have lots of viewers that all of this might not be a surprise, although it probably is. But, you’re already getting contacted quite aggressively, are you not, from oil and gas companies?

Tyler: There’s a whole spectrum, right? Some that are more conservative, some that are more aggressive, but what I’ve seen is that people are starting to realize that this is as big as the internet was in the 1990s. And there’s no such thing as a fast follower in a paradigm shift.  I heard that quote and I think it’s a great quote. There is no fast follower in a paradigm shift. If you are trying to wait for the opportunity to just buy this off the shelf, you are going to be left with a very, very small pot of gold; whereas, those who endeavor ahead, blaze the trail, they will be ending up with the large majority of the pie.

Russ: And who contacts you? Are they CTOs, or CEOs?

Tyler: It’s actually a full range. Some companies come to me from the technology side, and they say we want to explore, and they want to do some POCs that eventually they’re probably just going to trash. But then there’s others that come to me, maybe from the CEO, or perhaps from their head of supply, and they come to me and say, ‘Listen, we want to put into production in the next six months, this new process, and we want to use blockchain to do it.’ So, we’re going to start seeing production grade deployments this year, and then they will just exponentially increase in the following years.

Russ: You’ve mentioned your stint, a couple of times, at BHP Billiton, but give us your background. How did you go from wherever you started to here?

Tyler: It’s been a journey, for sure. I appreciate you calling me doctor. Right now, only my bank will call me doctor. I have a Ph.D. from Rice University in Geophysics. I worked for BHP for almost ten years, finding oil and gas all around the world. So, I was actually the guy pointing in the seismic saying, ‘Drill there. There will be oil in that reservoir.’ But in 2012, I heard of Bitcoin, and it was this crazy financial experiment on the internet. I didn’t really know if Bitcoin would become viable long term, but there’s this concept of colored coins where you could tag a little piece of Bitcoin and track a real-world asset through the transactions.  I said, ‘That, now that’s interesting. We could use that to track barrels of oil.’ What if I told you there was a gas station that sold gasoline that was produced in Texas, refined in Texas, and sold in Texas. Would you pay an extra couple cents for that?

Russ: Well, it would be worth it, wouldn’t it?

Tyler: I mean, I personally, I wasn’t born in Texas but I got here as fast as I could, and I know that Texans would pay for that because they know that those are jobs going to their cousins, their uncles, right? And this sort of technology enables that, provably.

Russ: So, what happened? You had this job, you were looking for oil, but you got sidetracked with this interest.

Tyler: Well, actually, I just ended up working my day job, which I was pretty good at, and then I would work, basically, a night job. I kind of did the five hours a night sleep with two little ones at home and my wife would nudge me after several hours of me in bed there reading on my phone, trying to keep up. What I did was I started investing in startups, and then I started advising for startups, and then I built my own hobby project with the blessing of BHP. It was actually in a, you’re going to laugh at this, video game asset trading. It was called Free My Vunk. You can actually go on the internet and still look at it, the website is still up.

Russ: And all this was based on blockchain and Bitcoin?

Tyler: On blockchain. I started presenting at conferences around the world and slowly building that credibility to the point where I actually said, you know what, what happened was I started getting requests to consult for major industry. I said, you know what, I need to actually build something for my own company. So, I put together a business case and it was received with open arms and within six months, we had built it. So, it was an incredible journey and I thank BHP for all of the opportunities that they gave me.

Russ: Well that sounds like they were a leader in accepting this idea. Of course, you sold it to them, but they embraced it, right?

Tyler: Absolutely. They became the leader for blockchain. Now, others are catching up very quickly

Russ: Well, the future is real hard to define now, but if you look at your mission as Director of ConsenSys Energy, where do you think you’ll be a year from now?

Tyler: It’s hard to predict where I’m going to be two months from now.  What we’re starting to see now is it’s not just companies, it’s governments. Recently, I was on a trip to Kazakhstan, where I’m not sure if you’re familiar, but Kazakhstan is a huge oil and gas producer.  They’re also a big mining country. And we’re seeing that countries like that are looking at changing even the policies and laws of the country in order to enable this technology. So, more and more I’m seeing myself as a facilitator of bringing together major powers around the world and enabling them with the proper knowledge of where this is going to go.

Russ: Just bringing up Kazakhstan, does that mean that governments, including our federal government should be playing a role and enabling this technology?

Tyler: We already are. The Federal Reserve has been speaking at length about how blockchain may enable whole new systems. We also have the CFTC, the commodities agency, and they’re looking at how to enable startups so that they can transform and increase productivity across the economy.  This is a boon that is extending far beyond any particular industry and we’re seeing governments play a major role.  To their credit, so far, they are pretty hands off in terms of regulation. They see the potential but they’re not trying to impose undue regulation in an industry that they don’t quite understand yet. One example of governments that are getting involved: Vladimir Putin actually pulled aside the founder of Ethereum, Vitalik Buterin, who is a Toronto born, but ancestrally linked to Russia, and pulled him aside and Putin has made very specific comments about wanting to create the Cryptoruble.

Russ: Well Tyler, I really appreciate it. It sounds like an exciting category for sure. I might want to get you back on sometime in the future.

Tyler: Oh, it would be my pleasure. It’s been a pleasure being here.

Russ: You bet. And that wraps up my discussion with Dr. Tyler Smith, the Director of ConsenSys Energy. And this is The EnergyMakers Show.