Decentralization of Trust Still Not Fully Solved by Blockchain says Co-Founder of Tether and Wax

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Full-text Transcript of David Berlind's Interview with William Quigley, Co-founder of WAX.io and Tether

David Berlind: Today is April 13th, 2023. This is the Blockchain Journal Podcast. I'm David Berlind. I'm reporting to you from New York City, where right now NFT New York City, one of the biggest NFT conferences, is taking place. Staying with me is William Quigley. He is the co-founder of both Tether and WAX (WAX.io), a well-known chain, and also a marketplace for NFTs. William, thanks for joining us on the show.

William Quigley: You're welcome.

Berlind: It's great to have you here. The reason I took the offer up to interview you, it was great when I got pitched on that, was because back in the offices of Blockchain Journal, we are talking about something called the William Shatner Problem. And maybe put another way, it's like the Twitter blue check mark, but for blockchain, which, as best as we can tell, doesn't exist. And so what inspired our calling it the William Shatner Problem was that we saw that William Shatner minted some NFTs on WAX, took place, what, a couple of years ago, and we couldn't tell how exactly it was that somebody who was buying those NFTs would be guaranteed that it was actually "the" William Shatner.

And then we took that same problem, we looked at it in a B2B context, and we said, "Well when enterprises are dealing at scale with other enterprises, banks dealing with other banks, big businesses, big enterprises, airlines dealing with other businesses, how do they know in the same way that theoretically everybody knew that was William Shatner, how do they know the true identity of who they're dealing with or if it's an imposter?" So I'll stop there and just ask you, is this actually a problem? And then we'll go into whether or not it's solved or not.

Quigley: So it is a problem. And, when you talk about "How do enterprises do it outside of blockchain?" As you know, you've been in the industry a long time, there's third parties that actually validate that a company is who they say it is. Like Verisign, for instance, you'll get a little digital certificate that will indicate yes, anything coming from that IP address is from that particular company that claims to be who it is. And you are also right that one of the challenges with NFTs is understanding the providence of the item. Because while anyone can go on and buy a William Shatner NFT, they would rightly want to know, "Well, did William Shatner actually approve this? Is this really his?" And anytime you mix the real world and the digital world or the blockchain world, you need some sort of bridge to connect the two. And it was mostly informal for a while.

For instance, the way William Shatner did it is he already had a public microphone, he was on Twitter, and he had a website. And so he said on his Twitter handle, which had the blue check mark, "I'm going to be doing an NFT on WAX." So okay, unless the account has been hacked, people said, "That's probably going to happen." Now, a lot of people knew me and my partner, we were involved with a video game virtual item marketplace called OPSkins, which was the biggest video game virtual item marketplace in the world. My partner actually invented the concept of trading video game virtual items back in the nineties. So, a lot of people knew who we were. So, when we said with our Twitter accounts and just our website, "We're going to be launching this with William Shatner," people had a lot of little areas where they could say, "This is coming from the right address, and it likely is true."

Now, if you were an anonymous company launching a William Shatner NFT, I think it would've been more difficult because he would have to do a lot more outreach to say, "I'm doing it on this chain. This is who these guys are." But a lot of people knew us, so it helped from that standpoint. The identity problem was partially helped already. And we did something equivalent to what you're talking about, where we have a wallet, and we can verify with the NFT standard on WAX, the equivalent of a blue checkmark — maybe it's green — that says, "This has been validated to be coming from the actual person who claims to have done it."

So when we did Hasbro NFTs and, Mattel NFTs and, William Shatner NFTs, NASCAR, all of those are born from a smart contract that's been designated as belonging to that particular company. So you do still need a certain element of trust because who's designating it trustworthy? Well, that's us. And it's not something that's completely decentralized in that respect, where you can independently, without talking to anyone, know that it's legitimate. You can, as long as you trust that that green check mark indicates it's a valid project, but if you didn't know who we were, you wouldn't care about our green check mark.

Berlind: So essentially, you are behaving like a certificate authority in the Web world - Web 1.0. We had Verisign, and they would assure us that some site is actually who they say they are. They would do the KYC equivalent. And you are essentially the certificate authority. And this gets —

Quigley: It's absolutely right. And so, this is where the goals of blockchain, the idea, and the vision isn't yet where it needs to be. The internet took a long time to build as well. There still is some trust that you have to place on the system. And for those people in blockchain, you'll know. You hear the term trustless a lot, and there's very few things that are truly trustless, yet. I think we can get there. But decentralization is a path, and it is not something that I think anyone has fully done yet because, at the end of the day, even if your blockchain is decentralized in all respects, well, you're still reliant on someone to sell computers to the people who are going to access the internet, the web browser has to have a data plan from Verizon in order to connect to the blockchain.

So, there are still dependencies. I guess how closely you ring the fence, what decentralized means, sort of will tell you how broad this can be. We're pretty darn decentralized at WAX. We launched it, [but] we don't control it. It's a bunch of independent blockchain validators who process every transaction. We don't. Those people are all independent of each other. It's pretty decentralized. But as we just talked about, if I want to sell a William Shatner NFT, I probably need William Shatner on Twitter or some other digital domain that people trust to vouch for the fact that "Yes, I'm doing this on WAX." We're still there.

Berlind: So my theory on this is that that works, but it doesn't scale up too well. And so, I take the example, let's take this sort of as a proxy or a metaphor for a typical enterprise transaction. Siemens, the manufacturing giant, tokenized a 60-million-euro bond on Polygon, and then they fractionalized it, and they sold the fractionalized tokens to a bunch of other banks, DC Bank being one of them. I'm pretty sure that the different executives from those banks and Siemens all sat in a room, and they said, "You see that address there? That's our 60-million-euro bond. Don't plop your 50 million euros for a fractional thing. That's this other address. That's not us." And so the question is: short of a marketplace, because they're not dealing with a marketplace there that's sort of being the equivalent of a certificate authority at [the] scale that's a typical B2B context, what's the architectural solution here? Because we haven't found it.

Quigley: Yeah, and it's a real problem, but I'll also say back when I was a young VC, one of our early investments was we were actually the first institutional investor in PayPal. And we decided it would be cool to PayPal them the $5 million check. But we were the equivalent of in the room with the guys wanting to make sure that, "Is this really going to work? Are we wiring this to some random account?" So, it wasn't as much trust because it was brand new, and it was a big dollar transaction. But I would say in terms of scalability, it can scale as long as you trust that entity. It may not be able to scale in the sense that millions of people can't suddenly go on a blockchain, mint an NFT, and say, "Trust that we're the legitimate owners of this intellectual property."

But if you think about it the way corporations work, corporations have this problem. Who would trust Amazon? Who trusts Nike? Who trusts Facebook? Well, the way you trust them is they spend billions, tens of billions of dollars on marketing, and people eventually take the view that "You know, these guys have spent so much money to prove that they're legit that they wouldn't flush it down the toilet to take my $50 payment on a credit card and steal it from me." Which is why we all can trust Amazon. Amazon maybe doesn't trust us because we haven't spent billions of dollars on branding. So you could see there would be companies that would use blockchains that people knew the brand, trusted it, and therefore trusted what's on that blockchain.

Berlind: But when you go to Amazon.com, let's go back to your certificate authority analogy, you go to Amazon.com, you go into your browser, you check the lock, and the browser, and you dig your way in, and you can see that some certificate authority says, "Yeah, that's amazon.com." But out in the blockchain world, the broader blockchain world, that doesn't exist. So how do you...?

Quigley: As I said, with us, WAX, we will note, in our — and the WAX NFT standard allows for this — for us to designate it as a legitimate authorized NFT. And so, then you can say, "That NFT came from this smart contract, and that smart contract has been designated as the real William Shatner producing smart contract."

Berlind: But what about a customer who's buying that, and they're on the chain too, and they have addressed on-chain too? Can they get the green check?

Quigley: So when the customer buys that William Shatner NFT, that NFT is linked digitally to that smart contract, so wherever that NFT is traded, that certificate, that checkmark goes with it.

Berlind: I'm just saying that you are giving the green check to a smart contract, essentially, and the smart contracts are just some percentage of all the accounts that are on the WAX.io chain, so what about the identities for all the other ones?

Quigley: It's true, not... If you go and create a smart contract and maybe license something from Mattel, if people don't know you, they may not really trust the fact that that smart contract you created really has a legitimate license. So, the burden would be on you to create a website, maybe do a press release where there's Mattel people are saying, "We're really doing this." You can go onto the Mattel website, you can see the press release and say, "Yeah, it wouldn't be up there unless it was legitimate." So you would still have to do non-blockchain forensics in order to be comfortable that that was real.

Berlind: Buyer beware.

Quigley: Yeah, it is. But by the way, buyer beware on eBay, buyer beware on Craigslist, buyer beware, to be fair, all over Amazon. Massive amounts of copyrighted and counterfeit items are on Amazon. In fact, there's whole categories like cosmetics where people are like, "Buyer beware." Because Amazon, of course, has millions of third-party businesses that use its service, and they can't verify anything or everything.

Berlind: You mentioned William Shatner has a website. Is there some way to bind the digital identity of William Shatner in the blockchain world to the digital certificate that's on his website because that digital certificate in some way represents KYC [and] AML?

Quigley: Yes, and it's a good point. So, if lots of companies who were legit companies with websites people liked and trusted wanted to add an extra layer of trust, they could put metadata in the smart contract on the blockchain using what's known as an oracle, which is a way for blockchains to communicate with things, not on a blockchain and say, "We're somehow linked to that particular certificate." Technically, you could do that. So you would have to, of course, inspect it. You can't get around that. You'd have to inspect it to make sure that, "All right, this is linked to this particular digital certificate, which I can see Verisign has validated, is authentic." You could do all those things. And most people, I think get comfortable that if something's being traded on WAX, it's in the WAX cloud wallet, it has a little validation color around it, green, it's probably authentic.

But like I said, the idea of counterfeit merchandise is not a problem only of blockchain. I was the CFO of Disney licensing a long, long time ago, and we had an endless amount of counterfeit merchandise. A lot of it came from China, and people would call up Disney and say, "My plush doll or whatever fell apart." But of course, it really wasn't from Disney. And Disney would periodically use police forces to help crack down on it, but you could never really stamp it out. So you buy things on secondhand markets like StockX or as I said, eBay. Well, if that particular seller has 10,000 satisfied customer ratings, you probably are not going to get ripped off. And if they're a brand-new seller, maybe you don't give them as much confidence. So, there's more stuff we can do, but we haven't erased this problem that you've noted. Because even in the case of Verisign providing a digital certificate, now you're relying really on Verisign.

Berlind: We've already noted that if you go, for example, to any webpage served by a Google server, anyone like Gmail, Google search, and you click on the lock, the certificate authority is Google, which undermines the whole idea.

Quigley: Exactly. Yes, that's exactly right.

Berlind: That's a little bit of a problem with this whole idea of decentralized identities.

Quigley: Yeah, so I think one of the top five use cases for blockchain technology is identity because once you put a person's passport or driver's license or birth certificate into a smart contract as an NFT, it can never be edited. You can't append anything, which is excellent. But you would have to know that the Los Angeles Department of Motor Vehicles owned that smart contract that birthed that particular driver's license. I don't think it would be that hard, by the way, because the internet crowd is pretty vocal. You'd probably have a lot of people saying that the particular alphanumeric number that designates the smart contract is the legitimate Los Angeles Department of Motor Vehicle contract. I think you could probably pretty quickly figure it out.

Berlind: Good opportunity for an oracle.

Quigley: Yeah, it's a very good opportunity for an oracle.

Berlind: Like a registry of some sort.

Quigley: Yeah, because I do think it is –

Berlind: Centralized as that may be, but –

Quigley: That's the issue. So, I've learned being in this space for a long time, that human beings crave centralization because there's one body to go to. You have one group that you have to ask questions to. Decentralization has a lot of resiliency, but in a situation where there's problems, it's not as comforting because you're like, "Well, who do I turn to for help?"

Berlind: Well, enterprises do a single throat to choke on certain things. I think they would be comfortable with some degree of centralization because when they move to blockchain, they're coming from a completely centralized world. Anyway, so co-founder of Tether, co-founder of WAX, what's next?

Quigley: Well, I think NFTs, we've seen chapter one of NFTs. That was basically digitally wrapping media files, music, art, (and) video [and] trading it. That is just an application of NFTs. NFTs are, in reality, they're virtual machines. They're microcomputers that you can send to anyone where the underlying source code can be instantly checked and where no malicious software can be added because the NFTs don't allow it. So, I think since these are just programmable computers, the next chapter, chapter two of NFTs, is an astounding amount of software development that utilizes and benefits from a technology that can't be modified but can be easily transferred, that can be verified instantly. I'm not aware of anything in the world that has those properties.

Berlind: A lot of people that I talk to don't even realize it's a big benefit, which is in the old days, you download some software, you have to check the hash to make sure it's good software. Whereas in the blockchain world, once it's loaded up as a smart contract, it's immutable. Everybody can look at the code. It doesn't —

Quigley: How many times [do] I want to update some software and I'm going to Adobe? Now I've got to be really sure I'm not on the fake Adobe site. So, you're right, you have to be very careful.

Berlind: So, you're doing something along those lines, you're going to take build some kind of brand around that concept?

Quigley: Well, I'm basically proselytizing to the broader crypto community. What the fundamental difference of an NFT is versus just an emoji a digital item, that it has these magical properties. And so, we at WAX are trying to make sure people are educated about that because technology hits in two waves. In the first wave, you basically take the technology, and you apply it to some process you're already doing. Wave two—

Berlind: Re-platforming.

Quigley: Yeah. Better, faster, cheaper. Wave two is you take it, and you apply it in a novel way that was never possible before that technology existed. That, to me, is where we're going to go to next with NFTs because they take a while to think through, for developers to really understand [and] distill down: what are the capabilities of NFTs other than shooting pictures back and forth? That always takes a certain amount of time, a few years. So, what I foresee is in 2024 and 2025, you're going to see many more novel use cases of NFTs. I think every industry will use them. You ask any industry, "Would it be valuable to be able to transmit something that could be programmed to do a particular thing where you could send it to anybody, and they would know with certainty it's from you, that it's authentic, that takes no effort to figure out that it's valid?" I think lots of people would find that valuable. Even if you're sending people coupons, right? Digital coupons.

Berlind: Certainly enterprises, once they understand that unique value proposition, I think they'll come up with all sorts of innovative ideas.

Quigley: Yeah, there are many out there. We're working on some.

Berlind: William Quigley, co-founder of Tether, co-founder of WAX.io, thank you very much for being on the Blockchain Journal Podcast.

Quigley: Yeah, thank you. Bye-Bye.