Ep 12: How can Retail Investors Profit from Innovation of Smart Contract? – Colin Miles from Zilliqa

So how then can we make money from smart contracts? I mean, it’s been around for a while, but it’s taken centre stage and that’s what we’re going to talk about. Ethereum is one of the first guys that allows for smart contracts to be executed on their public blockchain. So, interested to find out how you can potentially make money from this? Welcome home.

Welcome to another Chills with TFC session. And this series, we want to bring on interesting, relevant people to help us learn better from various perspectives. Life is not always about learning from people that you already agree with. Perspectives shape a rounder thinker in our pursuit of the life we love while managing our finances.

Well, our guest for today is representing a highly innovative company that was born out of NUS, National University of Singapore. They somehow managed to find a way to increase that transaction numbers compared to Bitcoin and Ethereum. The reality is Ether 1.0 can only process about 15-30 transactions per second. These guys can do 2,800 transactions per second, while Visa and Masters are processing more than 5,000 transactions per second. So what does that mean? From a technological standpoint, they are really creating a breakthrough to encompass and cover all these processes and transactions that we need to keep our modern life going.

So with all the innovation going on, how then can we retail investors profit from this? How should we embrace the technology of smart contracts? So let’s welcome Mr Colin Miles, Chief Commercial Advisor of Zilliqa. 

How did you get attracted to this space? What got you there? 

Colin: Yeah, the interest was… I have seen people try and create money for so many different times and places and sites and create their own currencies, online currencies. And none of them had really worked, even as [indiscernible] in the early days, David Chaum and all those guys were cryptographically creating e-money and trying to crack that nut. No one had actually cracked that nut, not trying to put the ultimate digital currency together. 

This particular one was getting a lot of traction in my peer group and so people were saying “hey, you know, there’s this thing called Bitcoin and you can use it to buy coffee here and there”, it was just a… 

Reggie: [laughter] Who uses it to buy coffee? 

Colin: …electronic money. 

Reggie: [laughter] 

Colin: Because in 2013, it was $300 for one, right? And it was divisible by 100 million satoshi. So you could break it down and break it down and just pay a small amount of a fiat currency for anyone who had the technology, and a friend of mine had built that point of sale technology. A couple of years later, I was quite heavily involved in the startup community. So yeah, it was good to see it in action, in real life and that was our mobile ghetto. So we were always hanging around there, watching startups create interesting projects. That was my first introduction to Bitcoin and blockchain. Actually, crypto anarchists, people who really felt that they were going to disrupt the entire industry and disrupt every part of what humans do and how they exchange value, right? So, this is a fundamental change in human behaviour, when you can just literally zap each other’s currency.

Reggie: Cool stuff. And then how did you end up in Zilliqa? 

Colin: Yeah, so I had a trip out to the UK for a while and tried to set something up there. Brexit happened… wasn’t really a great environment to be fair. But during that time, I studied a couple of online courses, which I highly recommend everyone does. 6 week courses, 8 week courses in blockchain and cryptocurrencies. One was from Saïd Business School, University of Oxford. University of Berkeley was the other one that I did, which was slightly more technical, which I thought was challenging, but you had to kind of get into it so… 

Reggie: If you want to be here, you got to know what’s going on. 

Colin: Yeah I thought… you know, I’ve seen a lot of people putting blockchain on their LinkedIn profiles and having certificates from universities, which taught it as usual, gave me that sense of validation. And it’s clear that if you want a career in blockchain, then at least you’ve got the credentials to back it up. So that was why I did it. A friend of mine was setting up a company here, so … come back and invest in that company, which I did. So that’s focusing on decentralized identification, the ID, self-sovereign identity, SSI. We do have a lot of jargon in this business. And I joined in… did a year of [indiscernible] as a director, and it’s quite exciting to see that company grow.

And then someone asked if I fancy joining a company as a marketing guy for Zilliqa, a company that I’ve seen at launch in Singapore, 2018. I was very impressed with the scale of transactions that they could process, obviously 2,800+ from the testnet. So I felt that this was an opportunity to put into the retail domain, the real-life domain, a blockchain that could actually process thousands of transactions enough to at least support economy like Singapore, where previously you have Visa and MasterCard doing point of sale transactions or NETS. And now the blockchain could finally be brought into the real life… payment structures that we currently have because there was no limitation really on the processing speed, which Ethereum and Bitcoin had, so that can solve that problem. 

Reggie: Nice. Could you just kind of help us understand why is the scale of transactions so important?

Colin: Yeah. So simultaneous transaction processing have come through so many iterations of this. When you have multiple transactions taking place at the same time in a similar network, it can cause congestion. The design of the Bitcoin blockchain, the design of the Ethereum blockchain is kind of singular and everything gets processed in one train as it were. So everything backs up and backs up and backs up. The most famous example being CryptoKitties at the time when the whole of… 

Reggie: [laughter] 

Colin: Ethereum went crashing down and people couldn’t trade the CryptoKitties and even worse, the cost of the transactions went up proportionately. So that showed to a major flaw in Ethereum at the time. Obviously they’re addressing that now, but Ethereum was struggling. So the guys at NUS were working on a project to create an academic solution called sharding, where they looked at ways to divide up transactions and create a network that could process simultaneously a lot of transactions, enough to cope with any demand. So that was the basic theory and that’s something which is really important when you have a sudden spike of transactions, and so we can deal with a huge amount of transactions simultaneously. Transaction per second is fundamental to real-world enablement and enablement of blockchain. 

Reggie: Nice. So are you trying to tell me that you guys cracked the code that Ether couldn’t crack?

Colin: Well, uh, it’s… 

Reggie: [laughter] 

Colin: We don’t claim too much of, uh… you know, people called a lot of the early alternate networks, Ethereum killers, right? But it’s not really like that. It’s more of a generational change. So you have one blockchain which does 6 transactions per second or so like Bitcoin, then another one which does 15 per second like Ethereum 1.0, then you get other guys coming up with solutions like Zilliqa that can do 2,800+. And now I think Ethereum 2.0 is saying that they can do 10,000 per second with a new version which should roll out over the coming years. 

Reggie: Nice. 

Colin: No one’s entirely sure, but that problem is going to go away and that’s great because we don’t really want anyone to have to think about blockchains when they’re doing a transaction. “Oh, which blockchain should I choose? Because this one’s slow, this one’s medium, this one’s fast…” It’s something that should be seamless and happen behind the scenes. Hopefully, we are the major blockchain providing all of these transactions, but it shouldn’t really matter to an individual in a store. For example, when they’re paying with a credit card, which has some kind of crypto payment option, it should happen really fast. 

Reggie: Nice, kind of like the Internet, right? Nobody really cares about who’s providing WiFi and whatnot. 

Colin: Yeah. I mean, the guys at the vendors care, cause they’re trying to get you… 

Reggie: Of course, they are trying to make money. 

Colin: …$20 a month. 

Reggie: [laughter]

Colin: But the end-user… 

Reggie: It’s a commodity at some point in time. 

Colin: Completely, and the whole original thinking behind ARPANET and the Internet was, you know, packets which you couldn’t really stop. So even in a nuclear war meltdown, the defense of the US could be supported through all these nodes all around the world that would send the Internet packets without being tracked, traced or blocked.

Reggie: Yeah, exactly.

Colin: Times have changed, but… 

Reggie: [laughter]  

Colin: There’s a bit more control… 

Reggie: More innovations there. 

Colin: But there’s other ways to decentralize. So yeah, it’s an ongoing innovation. 

Reggie: Yeah. So then why should I consider using a blockchain transaction platform compared to a traditional transaction platform? 

Colin: Yeah, that’s a good question. I think people are quite pragmatic and they say “well, if really a database solves your problem and does what you needed to do, then stick with using the database.” The key part for blockchain transactions is the immutability, the verifiability, and the fact that they cannot really be corrupted or otherwise manipulated in the right conditions, such as blockchains like Zilliqa which can’t be hard forked for example, as a smart contract language, which it’s almost impossible to hack. So these things really, for items of value, for records, which are critical like certification, for example, it’s really important to have blockchain-type solutions to register in the database, something which cannot be tampered with. 

Reggie: Which is the whole NFT kind of thing. 

Colin: NFT is this on steroids. So if you think originally, Singapore went with a program called Open Sets. All of the universities signed up to provide certification for degrees and diplomas on the blockchain using the government standard, so at least all of the people with certs in Singapore could prove that they weren’t fakes and so on, which is very useful. Now we’ve gone to health sets. So health sets will be like your immunity passport, right? This is really important, you can prove that you’ve had the vaccination, right? Countries around the world are trying to find the best standard format, but all of it should be on a blockchain just to 100% prove that the individual is immunized so they can travel.

Reggie: And that is like the utility side of things. 

Colin: Yeah. Right. 

Reggie: But as an investor, why do I care? 

Colin: Yeah so the next phase, the exciting phase right now is something like NFTs. So this ownership, this access to content, which is absolutely unique, can be 100% proven to be yours and you are the one holding the private key. So you can trade that token on the market places that are currently available and generally people are looking to trade their profits. That’s something which is a key focus, looking at the right content. Whether it’s CryptoPunks or Hashmasks or anything, where you see a fit for yourself, you’re interested in maybe the digital art logic or how other people are appreciating or trading this token. So it become quite a powerful incentive for people to get involved in content, but also have a financial upside at some point. 

Reggie: So is that kind of financial upside as simple as just buying and selling at a high price, or what other kind of ways where we can profit from this? 

Colin: Yeah, so if you look at the DeFi exchanges, for example, there are ways of just having a cryptocurrency that you own and then staking it into a liquidity pool. For example, on our Zilswap platform, this enables you to get a percentage of the transactions that are made through that overall exchange. There is payments that are due to you for putting your tokens in there. So at that level, you can actually start to have residual income. Yeah.

Reggie: Okay. So what is staking? 

Colin: Staking is where you have tokens from a project. A particular project could be Zilliqa, or it could even be Ethereum. Now, of course, they’re moving to proof of stake. You take those tokens, you lock them into a smart contract for a period of time. That offers support to the network as a utility primarily, but also provides a token port, which other people can use to lend and borrow and do other trading activities. 

Reggie: Why does the network need your token? 

Colin: Well, it’s a interesting philosophy, but the commitment to the network from the community is really important. So everyone committing their tokens to lock that into support. The network is a major sign of loyalty support and also defends the network effectively. It enables us in our case to have numerous nodes and offer decentralization, further decentralization for the transaction processing.

Reggie: How does that work? Because that is very ideological. 

Colin: It is. 

Reggie: But from the utility front, why do I need to give you my tokens? 

Colin: Well, from a utility point of view, it is effectively security, right? So you’re providing security to the network. That, to me, is a fundamental commitment from those people who have our tokens to stake.

Reggie: Yeah. How does that translate to security? Give me a little bit more understanding of how me giving you my tokens in exchange for a little bit of profit gives you more secure network.

Colin: Well, the more nodes that we have, in this case, the better it is for our network, and the more decentralized that network is. Originally, we started out with most of the nodes in AWS. That was  something which most businesses go through. Most blockchains are using large cloud service providers, and eventually we can disseminate those nodes to other places and other cloud storage providers and other partners. So this is the theory of decentralization in practice. 

Reggie: Where more people participate in that, right? 

Colin: That’s right. 

Reggie: But then, if everyone is on AWS, or if most people are on AWS, Azure, Google, and they form the base cloud infrastructure, doesn’t it centralize at some point?

Colin: Yeah, so that’s the argument. The original launch of most networks is relatively centralized from a server node point of view, but going forward, they eventually managed to decentralize over time using incentives such as staking. So I think we’re at that point now where we are starting to see those models unfold quite successfully.

There are some extreme decentralizers like IPFS, which is the InterPlanetary Filing System  which is quite an interesting prospect because no one really knows where their content is stored anywhere… 

Reggie: [laughter] 

Colin: …anywhere on planet earth. And people are given an incentive token for providing that server capacity. So these models are really exploratory, innovative, and I’m looking forward to seeing where they go. 

Reggie: Okay, and where are you guys going? Based on what Zilliqa is building, what kind of innovation can possibly come out of it? 

Colin: Wow. We’re in so many areas. I mean, we have… 

Reggie: Help me imagine…

Colin: I think we sectioned it out, so let’s go section by section. Stable coins is an interesting concept. They are effectively national currencies, which are put into a cryptocurrency-type solution. We have a partner called Xfers, which runs XSGD, the Singapore stable coin. So that’s a… 

Reggie: Victor came last week. 

Colin: Compliant. Okay. So that’s a compliant token for Singapore and others will be added over time. So providing stable coins can in fact solve a lot of problems in, for example, the remittance industry where there’s middlemen taking cuts and people not getting the full value of the exchange. So if you can look at Singapore as an example, someone working here could go to Lucky Plaza and they could actually just scan a code. They could put their money in, and they could get XSGD and then send it to Indonesia. The person on the other end would get XIDR, for example, and the middleman roughly taken out of the equation. 

Reggie: Mmm mmm. So there’ll be more margins for the people that participate in that.

Colin: Yeah so that’s being taken out of the salary being sent over. So it’s quite important from a human point of view, and taking the friction out is something that technology should always do in this kind of environment. In terms of securitization, we’re obviously heavily into fractional ownership. So working with HDX, which is an exchange, again in AMIA sandbox… so, fully compliant. We launched recently the… 

Reggie: So much compliance…

Colin: We’re very careful, very careful with that. Yeah. So it’s quite interesting that Singapore has invested heavily in the sandbox approach to enable people to create and innovate with these services, which might be on the edge of current laws and practices. So obviously, we launched our first securitized asset-backed security, which is a premium whiskey earlier this year, and that went down very well. That’s basically taking a whiskey cask, dividing it up into tokens and allowing people to buy the token, which equates to one bottle of whiskey. Hopefully, that appreciates over time. 2 or 3 years then a bottle of whiskey, and either you’ve already sold your token on the market or you get the bottle of whiskey. So either or, you’re covered.

Reggie: Fair, fair, but it’s a very different business in that sense. 

Colin: Yeah. So we have a problem… 

Reggie: Because I think a lot of people in this space, they over sensationalize the function and the utility of tokens. 

Colin: Yeah. 

Reggie: Because at the very base, it is just an infrastructure for transactions. So you cannot simplify the idea of investing in an alternative asset just because it is tokenised. You still have to look at how the asset works. So it’s still a whiskey thing. 

Colin:  Yeah. So you need to understand that you’re investing in premium whiskey. You need to do your own research, you need to look at what the growth has been over the last 5 or 10 years. You hopefully have an account as an accredited investor with the partners, prime partners or [indiscernible] capital, and they guide you through that process.

Reggie: But it’s definitely interesting. 

Colin: It’s made more efficient through what we do. I mean … you know we are talking to multiple different parties on things like real estate, pre-IPO share sales, these things unlock capital. It’s really critical that we take this technology and apply it to where it’s absolutely at its most valuable. Unlocking capital, really important. And I think that pre-IPO share sales is a really good example of that. 

Reggie: So then if I’m not interested to participate in, you know, these other things because I have to learn about how that market works, right? Essentially… how then can I profit from this process?

Colin: Yeah. So I think in HDX, you have a model for people who aren’t necessarily blockchain savvy, or otherwise too worried about what’s happening under the hood. They will talk to their brokers as normal and say, “I’m interested in investing in real estate, premium whiskey, classic cars, football clubs, gold mines.” Anything that could be tokenized is going to be tokenized. There are so many exchanges now on planet earth who are doing nothing but tokenizing different asset-backed securities and making that available to a wider public. So that’s part of the theory of democratic capitalism, which I like to talk about because it makes it eventually available to a much wider investor base.

Reggie: Mmm, so fundamentally that is still the same idea where I have to learn about how that sports group make money, and that is only a token to kind of facilitate the transaction.

Colin: Sure.

Reggie: But if I am not interested to be that end investor, I just want to profit from this process with different, different tokens and be in this space of crypto. That means I only want to own the Internet in that sense. How does that work for me? As an investor, is there profit to be made in this space? 

Colin: Well, I assume most funds are being built to make profit and you can invest in those other companies that are looking at these assets and they’re managing it on your behalf. So that’s, of course it’s a classic investor mechanism, but for me, it’s just made more exciting by the fact that the blockchain industries effectively dominating the distribution and liquidity of capital. 

Reggie: Fair. And where do you think is the innovation and the space heading towards? 

Colin: Well, it’s really about a peer-to-peer economy. So there isn’t any Brock barrier or difficulty for anyone. Anyone with a mobile phone, anyone with a smartphone anywhere in a third world country can be their own bank, be their own trader, be their own lending, borrowing partner provider, be their own insurer. They have access to so many different things through decentralized finance, which are quick, easy, and not necessarily hugely expensive, but can just facilitate a much better life for folks who previously have not had access to any financial services in a meaningful way.

Reggie: Cool. Okay. So is there anything else you want to share with us, with our audience about the exciting projects that you guys are trying to do and whatnot? 

Colin: Yeah. So we’re working very closely with a platform called Mintable which is an FTE, a minting platform, the one that Mark Cuban has recently invested in. They are issuing a token sale for a 100-year-old piece of art this week. It’s just amazing to see the great-grandson of the artist allowing his… 

Reggie: That’s kinda cool. 

Colin: …family work to be tokenized. Therefore people just go onto a website and participate in an auction for a piece of work which has undoubted value. The artist himself had many exhibitions around the world, permanent exhibitions in the last 20, 30 years. Enabling access to fine art in this way to me is quite compelling. The ticket price could be hefty, but at least you can literally go on a website and put down to buy a piece of art, which is 100-years-old. 

Reggie: Nice. Okay. Cool. Thanks for coming. I appreciate it. 

Colin: Enjoyed it. Thank you. 

Reggie: Hey, I hope you learnt something useful today and truly appreciate that you took the time off to better your life with The Financial Coconut. Knowledge, it’s that much more powerful and interesting when shared, debated, and discussed. Join our community Telegram group, follow us on our socials, sign up for our weekly newsletter. Everything is in the description below. And if you love us, want to help us grow, definitely share the podcast with your friends and on your socials. Also, if you have some interesting thoughts to share or know someone that you want to hear more from, reach out to us through hello@thefinancialcoconut.com. With that, have a great day ahead. Stay tuned next week, and always remember, personal finance can be chill, clear and sustainable for all.

Okay, so I get that the interview today is a little bit technical, a bit like broad strokes, and I just want to take this time to just kind of add on a little bit on based on what I understand and what I’ve learnt so far over this 1 month of talking to all these people in the Bitcoin space or in the crypto space and the blockchain space.

Essentially what a lot of these guys are trying to do is to tokenize things, and when you tokenize things, you really got to understand that it is merely a tool to carry the underlying asset. Kind of like REITS, right? You’re buying REITS, but actually what is under the REIT is properties.

 So when you’re buying a particular token, what is behind that token is maybe an art piece, maybe a soccer player, maybe something. But what is important is to understand that although you need to understand the underlying asset before you can really make the decision of whether am I investing in this token or not, because there’s an underlying thing that you need to, you know, know what you’re buying.

The idea behind these kinds of tokens, behind smart contracts, behind all these kind of blockchain platforms is that it’s really empowering and allowing more of these things to exist as it becomes cheaper and more accessible to more people, but it does not change the fundamental reality that you still need to learn how to evaluate whiskey, how to evaluate sports team, how to evaluate arts. Those things don’t change. So while a lot of blockchain technology, Bitcoin, Ether, whatnot, they are really increasing access, you still need to learn the baseline, okay? 

So that is what I have to share with you. And of course, there are things like mining, things like staking and all those kind of stuff where you can essentially lease your crypto assets to all these companies so that they can continue to operate in a quote unquote, “safer” and broader, wider network. More reliable, and you get a little bit of percentage yield out of it. So it is very big. 

You can check out this website called DeFi Pulse, defipulse.com. Over there, they show you all the most interesting projects out there today. All these DeFi projects that if you want to participate, you can go ahead. But this is not a recommendation, please go and learn more stuff. And I hope this 1 month of content has given you a better understanding of what is going on in this crypto space. So, yeah. Meanwhile, take care. See ya.