Interview with DApps Fund Managing Partner Sam Yilmaz

By
Taylor Tyler @taylortylerr
October 7, 2014

The Bitcoin 2.0 scene is often talked about as being the next necessary step in the evolution of an autonomous society. It’s the world of decentralized applications that run on top of Bitcoin‘s underlying technology, the block chain. Some even say the block chain itself is the most important technology to come out of Bitcoin.

Also read: Bitcoin and The March Toward a Decentralized Future

Thus, the crypto world has been inundated with all sorts of unique developments which aim to take advantage of block chain tech: smart contracts, crypto equities, file storage, voting, internet, crowd funding — all done in a decentralized manner.

But it’s not always easy for someone with a groundbreaking idea to simply develop and implement a concept from scratch. That’s where the DApps Fund has positioned themselves into the scene: “Supporting developers in creating their applications whose access-to service tokens can be issued on top of a block chain,” according to their website. “DApps are based on a token-economy utilizing a block chain to incentivize development and adoption.”

DApps Fund is led by David Johnston, Managing Director, and Sam Yilmaz, Managing Partner, and, along with investing in various decentralized applications, DApps specializes in due diligence reports that help investors make decisions when investing in new applications. These reports are part of a free service, but for projects that DApps finds uniquely interesting, you can expect them to become more involved in strategy execution, from conception to recommended practices to monetization techniques.  Some current applications DApps Fund is leading due diligence on decentralized applications including MaidSafe, API Network, Swarm, Storj, and more recently, Paul Snow’s Notary Chains.

They’ve also contributed a few staple decentralized application whitepapers, most notably, The General Theory of Decentralized Applications, DApps; The Value of App Coins; and Crowdsale Best Practices.

If you have an idea for a new decentralized application, these are the guys to talk to.

I recently had the opportunity to sit down with Sam Yilmaz and pick his brain about what’s going on in the DApps world, and what the future may have in store.
How did you get involved in decentralized applications?

From a personal narrative, I started off my investment career in a fairly passive way. I was still but a masters student at John Hopkins before I got involved with AI and big data companies, and then while I was working with them, the Bitcoin space just dawned on me. I was working with David Johnston at that previous company, and we were looking for a way to utilize the Bitcoin protocol to have a mechanism for fair compensation and build and application or company that is in tune with our values of transparency, distributedness and employee ownership. We were looking for ways to convert our private company into a structure that took advantage of a mechanism that enabled everyone who had something to contribute to do so, and be payed for it in return for their contribution. It was through that and some circuitous paths that we arrived to the decentralized applications model. This was coupled with us saying, yea, we do need to get the word out there and bring in more money into the Bitcoin space and the applications here.

It became clear that the space did not have an angel investment group so Michael Terpin, David Johnston and I co-founded BitAngels, which was filling the void of an angel group. Then, while we continued working on that company, we realized there is actually some pent up demand for building other systems such as the one we were dreaming of: BitAngels was a great vehicle through which we could raise funds. So we put together the DApps fund which would be the next step in the ecosystem – a VC level funding system to fuel projects. This was slightly after we invested in MasterCoin, which was one of the protocols that came to our attention which was building on top of the Bitcoin block chain and offering us the ability for us to realize our dreams about the ideal company or the ideal mechanism with which value could be produced in our economy.

On a personal level, I came to DApps Fund first through Bitcoin then BitAngels then Mastercoin, then seeing that there is money interested in pouring into decentralized apps and taking advantage of that.

What is the difference between BitAngels and DApps?

BitAngels is a simple and straight forward network of investors who make their own investment decisions. Individual companies who are interested in reaching out to investors come to BitAngels and say, “this is what I do, I’m looking for an investor who might be interested in what I’m doing.” They cast their net and the investors decide if they like what they see. Whereas DApps Fund is composed of a central entity that makes the investment decisions rather than say 20 individuals making their own decisions. David and I hold the private keys. So it’s setup differently: one is a network of loose ties and associations, and DApps is a centralized fund that we are serving as general partners.

Both you and David were early Bitcoin adopters?

Yes. We started BitAngels and saw the potential in crypto 2.0 and invested in the protocol, and now are investing in DApps that can be built on top of the protocol. So the sequence for me has been, buy bitcoin, try to build infrastructure with companies, then move on to the protocol, then build companies and applications on top of the protocol.

How is DApps involved in the specific projects it invests in?

We have been heavily involved in writing the defining white papers on crowd sale best practices and how to structure decentralized applications. Whenever there is an entrepreneur or group of developers interested in building their own DApps, they try to come and find us. It’s a very heavily involved education process where we are walking every developer and entrepreneur up the learning curve of how we should be taking the next steps.

And then on we are very involved in our projects. From product vision and product milestones to crowd sale best practices, timing of the crowdsale, legal concerns around them. After the launch, we also serve in the board of all the DApps and in some instances be more hands on involved with the building of the product, deliver on the milestones as VP or C-level executives.

Does DApps essentially hold shares in every start-up that you fund?

Not quite, because we are not investing in start-ups and we are not buying shares. We are investing in decentralized applications and buying tokens of those apps, and in that regard it is a venture fund that builds its own type of machinery and goes beyond that of a company. We are investing in decentralized autonomous corps or decentralized autonomous organizations. However, as the space matures these will become more nuanced and specific definitions. The term we have chosen to use mainly is “decentralized applications.” In order to not confuse the branding it would be better to not use the other DAC and DAO.

At DApps Fund we are incubating the projects, and at times find existing businesses whose service and infrastructure is a great fit for our model. There are endless possibilities for applications to issue their tokens and generate a shared economy of services that could be rendered by a distributed network of providers like you and me- apps that can enable anyone in the world to monetize their ability to offer up some very basic services to a large network of users will be very successful. We are looking for them. And yes, we are “investing” in DApps and doing that in a way that makes the word investing a metaphor because we are actually pre-buying the services of these applications.

What is your role and involvement in DApps Fund?

My day to day looks like meeting with developers and entrepreneurs and walking them through the learning stages of how to setup their decentralized application, and there are some companies whose services are basically to generate a share economy. For example, MaidSafe was one that was setting up a system where everyone could become apart of a network and receive payments for offering up their storage space. So I meet with entrepreneurs at different stages of development to educate and guide them in the process.

Then I delve into the technical when the time is right: There is a lot of concern about currency and how you are going to ensure that the money is sent, received, transacted in a fair manner so it is just the perfect match for digitizing the payment for tha tparticular service, with its own quality variables.

So a call out to entrpreneurs who are already building their share economy apps! You can build your application opensource, have huge adoption, and monetize with the tokens. Find me!

Maidsafe is a good example for those business who may consider going “Decentralized Application”. It made a lot of sense to go through a conversation because it was a technology that had already been under construction for the past 6 years and they had put a lot of time and developer hours into building up the infrastructure that enables recognizing the content of information, eliminating duplicates but also saving the same file in multiple places and infact going further to adjust where information is stored based on the availability of storage space and the bandwidth rendering it a dynamically balanced efficient mechanism of storage in a global network. That was a company that we took to the next stage and formulated into a DApp.

So my day to day is finding companies that can be decentralized, meeting with devs that want to build an app to provide a particular service, and bringing them to the decentralized model. Then overseeing the details of their crowd sale, continuing the relationship post crowd sale and guiding them through the milestones. Happy to make time for more developers and entrepreneurs.

 Do you have anything exciting going on in the DApps Fund world right now?

I’m really excited about MaidSafe, where the test network is getting good results. When the network is launched, people will truly be able to put their MaidSafe coins to use and they will be able to buy storage for these digital tokens and their data will be placed somewhere else in the world, randomly selected, and their data parsed and cryptographically secured. That will be the first use case of services rendered on a mass scale through a decentralized application, so I am really excited for the launch .

And beyond that, we are really keen on decentralized bandwidth and decentralized compute, because any app we build will have to take advantage of those three services which are fundamental and basic to any other service. STORAGE COMPUTE BANDWIDTH. If you want to be able to do a decentralized transportation for example, like a decentralized Uber, you will need a mechanism to power your search engine or price calculation, so logically decentralized compute becomes important. Then there would have to be a storage service where the profile information of the drivers and the cars would have to be stored and queried from, so that means a decentralized storage will be important. Clearly you also need connected devices to run all this and it means there is need for available connection bandwidth. That’s what I mean by “these are the pillars” – the storage bandwidth and compute will then be utilized to do higher level decentralized applications.

I’m also excited about FACTOM (formarly known as notary chains), which is very timely response to the existing concern around blockchain bloat where there is a tendency to store more and more info in the Bitcoin blockchain. It’s entropy! There is a void, and nature abhors vacuum and therefore information is basically flowing into the blockchain. The kinetic barrier is the miner’s fee but it is still not enough to fully give structure to the information flowing into the blockchain.Those  of us who are concerned for the future and viability of Bitcoin, and its widescale adoption even in areas of low bandwidth want to make sure that there are systems in place that will combat this flow of more information into the blockchain, and FACTOM will be able to do that. You will be able to process transactions much faster than the Bitcoin blockchain will be able to accommodate, and those transactions will then be stored on the Bitcoin blockchain in periodic instances where you will be able to store information about 10,000 transactions in one hash, in one transaction, significantly reducing the bloat on the Bitcoin blockchain, and the costs associated with a transaction, especially crucial in microtransactions and international e-commerce.

So I am excited about the three pillars of storage, bandwidth, compute services, and as the second tier apps, am also very excited about identity verification, notarization, token generation, and share economy applications. And really, Bitcoin is a decentralized application and if there is a faster cheaper easier and smarter version of it I’ll be all over it.

Is Factomimilar to side chains at all?

It is similar except it has a monetization mechanism.

 What does the future look like for DApps Fund?

It’s hard to know, because it’s hard to know what government regulations may be passed for or against Bitcoin and in response to the tendency to self-organize and decentralize… But if things go well for human flourishing, liberty, and self expression, then Bitcoin will flourish and also many applications using this as the underlying technology will grow. And in that scenario, I would see DApps Fund doing very well, whereby we are generating the shared economy applications for sharing resources very efficiently.

In addition to the power of shared economy that DApps will be able to execute against, I see the smart protocols that we are “investing in” and buying the tokens of as the realization of the human dream for ages. We wanted to have a system of governance, we wanted to have a mechanism to automate transactions and ensure that certain things will happen in the future, and we would be willing to pay some extra costs to have a court system and give up some other freedoms.

Now, with Decentralized Applications we can enable services and promises of services be delivered fairly and in fact ‘precisely fairly without having to rely on third party enforcers. You send in the tokens, man I’m telling you the vending machine will work and you will get your goody. And if you no longer agree with what the protocol is trying to do, you can vote with your behavior and sell the tokens off.

DApps can enable nearly-free transactions, early access to liquidity to build value, create a more fair model where hierarchies matter less and all is welcome to contribute, build and add value. We can bring about so many different services to the masses in a very affordable and fair manner, and if we are able to build on that vision and deploy our capital appropriately to decentralized apps that can synergize with each other, I see the

DApps Fund being very successful. That is our goal and vision.

 What would you tell someone who has an idea for decentralized app but doesn’t have any programming experience?

I’d say be able to answer these questions and put it on paper: What is the service? Who is going to be providing it? Who is going to be interested in receiving the service? Does the service exist at the moment? Is there a service provider already offering it? Will your service be better than an existing centralized offering? What do you need to build out a functional model? Can you do that in a reasonable time frame? Is this, in your conception, the quickest way to build the same service or this service in consideration? How will you ensure safety and security of the system and the network? What are possible sources of hacks? Will there be self-healing mechanism in the network where you are able to incentivize not only the growth but also repair of the system?

I would say if you are able to answer these, then put it on paper and push it out. Somebody else and other developers will hear it, and we are all building this together. I’m happy to help in any way I can. The world is so alive and there are so many people building value, please keep up the hustle and lets do it together.

Are you currently talking with any fortune 500 companies to move them toward DApps format?

We’re not talking to them about making a top down decision, but I wouldn’t be surprised if Google Drive and Dropbox end up being disrupted by MaidSafe and Storj. Where they will essentially need to be the service providers in those networks; if for nothing else, the cost of using the un-utilized storage space in the world will be at a fraction of what Dropbox is charging for it. It will be much cheaper to offer up storage that the owner expects one cent for because it’s better than zero, whereas Google is turning a huge profit over their storage capacity. So we are not necessarily talking to them, but I think eventually these applications will come to their attention because of their disruptive power. If MaidSafe was to disrupt Google and Dropbox, I can see a decentralized bandwidth app disrupting Comcast and AT&T for providing internet access, where they would need to be the participants in the network providing access to the network and providing bandwidth to the network because the market will now be able to offer up alternatives in a more efficient and cheaper manner so they will have to become part of the network. I would say we’re not really engaging one-to-one in a conversation but rather building up and explaining the proof in the pudding.

So they could be forced to join existing decentralized networks, but do you think they might try to create their own and compete with ones that already exist?

It’s conceivable that they will create their own, but the price mechanism will still hold. It will still be a competitive marketplace where google will be competing against individuals offering unused storage. Here is a storage service that allows you to buy so much storage for a cent, and you have the option of using this one or the potential alternative that Google may offer… In the end, whether they generate their own or participate in an existing network it still means that the cost of storage will be significantly reduced. These are issues that relate to the size of the network. Is it possible that the US issues a new cryptocurrency and creates an alternative to Bitcoin? Sure, but the later they are to arrive the more difficult it will be to recapitulate the network effect. In the case of Google, it will be easier for them to be able to generate a decentralized app and integrate the utilization of that into the existing workflow of their users, but nonetheless, because it would mean undermining their own profits, I think they may actually refrain from this. In other words I see the chances of the “google alternative” winning over a decentralized model being less and less as time passes because the existing network will already have made the existing solution the service of preference.

 Which projects do you anticipate backing in the near future?

We make our portfolio known on our website. These are projects we are following and incubating and plan to invest in but we don’t divulge the amounts because it is still a fund and we want to make sure there is a reason for people to become limited partners in the fund. If we were to divulge the ratio of the portfolio then there would be no point in having the fund. But yes, we are most often buying the tokens of these DApps in the same terms as the crowd is and we let everybody know the projects we are backing on our website.

I can tell you that we are planning larger moves on the infrastructure level applications, just because we will need those before building the second and third generation of DApps.

Storage, bandwidth, compute, identity, transaction confirmation speed — things of that nature are more crucial and important to have in place first before having a real estate application that is decentralized. Where you will need to have compute and storage and enable people to gain access to it, and those are more infrastructure level involvements than other apps that go beyond just storage or bandwidth. These apps are interesting combinations of those primary services rendered, but before we can move on to those we need to build out infrastructure.

 What is the most innovative decentralized app that you can ever imagine existing?

One that hears what I say, understands what I think, and puts me in touch with the right information and right people at the right time.

It would probably be a combination of hardware and a second or third tier decentralized app. It would link an identity decentralized app with artificial intelligence that powers API calls involving speech transcription, search algorithms, search and query functions, and a storage. When I have the beginnings of a business idea, it can index it, and put me in touch with the right expertise, and then generating the tokens that would give access to the service my efforts create.

 Do you see the government ever being decentralized. Is that possible?

Sure. As my research in cell self-assembly and material self-assembly has shown me, there are fundamental mechanism in the laws of physics that favor not only higher entropy but lower energy, and that leads to more sustainable emergent orders. Nature tries an infinite number of configurations, some more stable than others… Human beings as well as the systems they have attempted to build are not exempt from laws of physics and self-organization that happens even at that microscopic scale. Michael Polanyi’s work on self-supporting economic groups is very interesting tangent to the hierarchical self-assembly we see in polymer chemistry. People can demonstrate the ability to engage in interpersonal signaling that catalyzes support groups to form, and they generate their own mechanisms with which resources will be distributed and shared. And so governance can be achieved through self-organization, and I think it has been. Think about all the ways the human society as one organism has tried different mechanisms to organize itself. It is clear to me decentralized mechanisms can help that because it does come down to being able to accommodate more information, more communication signals and brain extenders.. The human pre-frontal cortex which the higher order structures we have built are a product of, is limited to considering and calculating three to seven variables, whereas governance decisions may need consideration to more than that and AI does play a big role in that level. If decentralized apps can be brain extenders, if through nothing else besides the memory function that the tokens of those apps, it would also help decentralizing governance, around delivery of goods, services, and promises. Government is the sum total of those elements.

 Government could one day be based on a block chain of some sort?

I don’t know how it would look. By the time we can make that sort of disruption, we might be calling the blockchain something else that is slightly different, where it is not in one place or piece but there is another intelligence system that calculates the emergent blockchain at any one given moment, from its divergent pieces. In other words, the blockchain itself can be decentralized..

I don’t know what it might look like, but I do see governance, if not governments, possible to decentralize.

 Which decentralized app do you think will end up being the most disruptive and why?

It’s probably a hard question to answer. There will be those that are the infrastructure level apps that help build all the other ones. It’s hard to know now but you will need the gas stations before you can have cars and you will need cars before you can have Uber. And so when Uber is disrupting transportation, is it really Uber’s merit, or is it cars or gas stations that enabled that. The reason that I’m unable to come up with a good answer is we use today’s technology to build that of tomorrow’s. Is the jet engine more disruptive or generating useful energy from fossil fuels? I’d like to think we are working to build the mechanisms that will power the technology of tomorrow. I have to say, it is fun to be among the brains of today building the brains and smart systems of tomorrow.

 What excites you the most about decentralized apps?

It’s a mechanism to overcome the kinetic barriers that were there for entrepreneurship for ages. The fact that many people can contribute to it, benefit from it and benefit the users directly is huge; you don’t need to sign a contract with anyone before you start adding value and building a feature to a service. In addition it also helps overcome yet another difficulty for entrepreneurs: The difficulty in getting access to liquidity early on in a project. I can pre-sell the access to the software service by selling the tokens which are unfakable, non- dilutable, to users and they will be happy to have pre-bought the services of the application. And it’s really the model of a decentralized application that enables what used to be impossible. As a result, we as a human race can move on to greater efficiency in resource management, using the underutilized resources and consuming while still being better off.

 What worries you the most about decentralization?

I don’t think I have any fears that get in the way of my doing it.  Some challenges, would be the centralized service providers realizing the competition they have ahead of them and moving quicker than what the decentralized marketplace can do. But whether the efforts of these private groups will only be kinetic barriers to the eventual success of the decentralized application or a permanent killer, I don’t know. But chances are higher that if they do have an effect it will rather lead to an evolution of the system or a delay in adoption rather than killers. I think decentralization is here to stay.

 I’ve heard someone say that DApps are a, and I quote, “an attempt to save Mastercoin that isn’t going to work. David Johnston is simply wrong about tokens. They aren’t going to work and the Mastercoin investors are never going to recover their investment.”

What do you say to that?

I think representing the exchange of services through tokens makes a lot of sense. Whether the Mastercoin token itself has value or not, decentralized applications will be able to offer significant value. The mastercoin is the token of the platform on top of which we can build these decentralized apps, and to the extent that those DApps actually require the coin, the more valuable it will be. And this will show itself in how much the market values the coin. Even if the mastercoin token has no value, the protocol will leave behind a valuable legacy in the application. We see that there is value in building an application with its own token economy with the power to incentivizes new people to come in and make the system more valuable. Keep in mind that this mechanism also pays the service providers in the tokens native to the application in which the first comers will stand to benefit from those who join in later.The model, independent of the token associated with the platform used to build it, is strong and powerful. The decentralized apps tokens are valuable and Mastecoin will largely depend on the use case of the coin itself in the processes of issuing the DApps tokens, trading the DApps tokens, storing the DApps tokens, making contracts involving the DApps tokens or other smart property, and the more the token is required for various features, the more valuable it will be. The value of the mastercoin token will be in large part the result of the value that the software that requires it.

And I would say that this is the part where David’s opinion may need to come in, but my sentiment is, if the only heritage left of Mastercoin is all the decentralized apps that built out of the open source protocol that was enabled by Mastercoin investors, myself being one of the biggest investors, I would say I feel pretty good about that.

 Where is Mastercoin now?

It’s trading at about the starting point. At the crowd sale it was able to collect the funds at the valuation of 100th of a bitcoin and that’s where it’s about. That means that the market sees the Mastercoin as having appreciated at about as much bitcoin did and that’s still a pretty good valuation I would say and it makes sense because people were very enthused about the potential. They bought the tokens before there were any services rendered that were tied to the token. It was speculative because, at the time there was no intrinsic reason for the demand of the coin and now the coin is planned to be an integral part of the decentralized. And as an individual it’s hard to know what the emergent wisdom of the crowds will say, and what the price will be but the pricing basically will be what the market deems it to be valuable.

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Images from DApps Fund and Shutterstock.

Last modified (UTC): November 20, 2014 00:19

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