Listen to Tushar Jain & Arman Dezfuli-Arjomandi on The Hotspot
Editor's Note: This podcast was originally published by The Hotspot. Please follow the related links to visit their content. The following description has been syndicated here for reference.
Visit this link to listen to the episode in full.
Tushar Jain is co-founder and Managing Partner at Multicoin Capital, a crypto-focused, thesis-driven investment firm which co-led Helium's $15M Series C round along with Union Square Ventures. He's also the founder of the DeWi Alliance, a governing body for decentralized wireless initiaives. Previously, he was the founder of health tech startup ePatientFinder which was acquired by Elligo Health Research, and before that he graduated from NYU with degrees in finance and political science.
Intro song: Lakey Inspired - Arcade https://soundcloud.com/lakeyinspired
Arman Dezfuli-Arjomandi (00:01:12): Tushar, welcome to the show.
Tushar Jain (00:01:15): Hey, Arman. It's great to be here. Thanks for having me.
Arman Dezfuli-Arjomandi (00:01:18): Awesome. Well, it's great to have you here. I was first introduced to you by just hanging out in the Helium community chat, but I had no idea you're an investor in the company. I just thought you were some guy who is really enthusiastic about the project and want to help educate people, and debate issues within the community like myself. I was shocked when I saw you casually mentioned to some person who was either doubting the project or doubting you on some topic that you were just trying to create the best outcome for your multimillion dollar investment.
Arman Dezfuli-Arjomandi (00:01:49): I honestly thought you were joking, but then I looked you up, and I was like, "No, this guy really invested millions of dollars into Helium." It's so interesting and rare to see an investor involved so directly in such a public way. Considering how many other projects Multicoin has invested in, I think the amount of time and attention you devote says a lot about your belief in this project. I want to know, how were you introduced to Helium?
Arman Dezfuli-Arjomandi (00:02:14): Did you find the project or the team first? What was the first "aha" moment that led you to realize that this project is special?
Tushar Jain (00:02:22): That's a good question. We first met Amir back in late 2017, early 2018 timeframe. I believe he had reached out to us, actually, to my partner, Kyle, and just casual conversation and talked about what you're building type scenario. We stayed in touch. We were interested in what they were building, but there wasn't really anything for us to do at that point. We started to get much more engaged with them in early 2019, when Helium was ready to raise their Series C fundraising.
Tushar Jain (00:03:04): This was something that they approached us about at Multicoin. We were quite interested in what they were building and what they were working on. Once we wrapped our minds around what Helium was building, and how this ecosystem could come together, we started to get pretty excited. We called our friends up at Union Square Ventures, and we thought that this would fit for them as well. They're a great investment firm that we like to partner with on deals like this.
Tushar Jain (00:03:40): We called them up. They started to get excited about it as well. We were able to get a fundraising done with Helium Inc. in Q2 of last year.
Arman Dezfuli-Arjomandi (00:03:51): In June of last year, you yourself penned a post on Multicoin's blog titled "Our Investment in Helium", which I highly recommend everyone to read. In the second paragraph, you wrote the following, "The helium vision is the most ambitious we've seen in the blockchain space since the advent of smart contracts on Ethereum. Helium represents a fundamentally new approach, one with a radically reduced cost structure, to deploying and managing wireless networks at scale."
Arman Dezfuli-Arjomandi (00:04:21): You continue on to describe in plain English how the Helium model subverts the traditional telco model. I'm going to read the section out loud because I think you explained it really clearly. "In order to understand how Helium aims to undercut the cost structure of existing cellular networks, we need to first consider the existing cost structures of the legacy model. One, incumbent network operators buy extremely expensive proprietary equipment."
Arman Dezfuli-Arjomandi (00:04:49): "Two, they buy or lease the land for towers. Three, they pay people to install the radio equipment. Four, they maintain the radio equipment. Five, they maintain a massive backend infrastructure for customer support, billing, et cetera. They spend aggressively on marketing and sales. Because all of this needs to happen before the network can produce any revenue, traditional telecom companies are extremely capital intensive. Helium will succeed by inverting the cost structure."
Arman Dezfuli-Arjomandi (00:05:18): "One, consumers buy commodity hardware for hundreds of dollars, this hardware is 100% non proprietary. Due to the economics of the helium blockchain, Helium Inc.'s business model does not depend on extracting margin on hardware. Two, consumers have free rent. Three, consumers plug and play hotspots in their homes and businesses. Labor cost is zero dollars. Four, consumers maintain hotspots as necessary. Labor cost is zero dollars."
Arman Dezfuli-Arjomandi (00:05:48): "Five, through public key cryptography, blockchains naturally manage consumer accounts and billing for free. The Helium blockchain coordinates per byte micro payments between everyone permissionlessly. Now, new devices can connect to the network anywhere in the global coverage area without ever needing to sign up with a telecom company. This would be impossible on legacy payment rails. The result is the Helium network is an order of magnitude less expensive to build, deploy and manage."
Arman Dezfuli-Arjomandi (00:06:15): "And it's impossible to compete with. The network actually benefits as Chinese manufacturers build cheaper hotspots. Moreover, Helium Inc. itself could disappear, and the network would continue operating." You paint an optimistic picture of why the network should succeed here. Being an optimist myself, I get excited when I think about what you wrote, because once you see and understand the cost efficiency of the Helium model, it's hard not to think about this model superseding the entirety of public wireless infrastructure.
Arman Dezfuli-Arjomandi (00:06:48): That being said, I'm super excited. Now, I want you to try and kill my vibe. What are some of the biggest challenges that you think Helium faces in making this vision a reality?
Tushar Jain (00:07:01): That's an interesting question. Before I go there, I want to add a little bit more about what I think was a pretty strong statement at the beginning of that quote, which is that this is the most ambitious project that we've seen since Ethereum and smart contracts on Ethereum. I want to explain why I think that. If you zoom way out, think about what are blockchains good for? What is the point of this technology?
Tushar Jain (00:07:34): What it's really good at is coordinating disparate actors to all act in their own incentive, but to produce a system wide outcome that none of the actors themselves could produce. To give you a very simple example with the first real blockchain ever, with Bitcoin, all of the miners are acting in their own incentive, but by acting in their own incentive, they secure this giant global network of transactions to give you probably the most secure transactions in the world.
Tushar Jain (00:08:10): Then the next most ambitious project that launched was Ethereum, where Ethereum said, "Well, we don't need to just do payment transactions. What if we allow more interesting computation?" That was incredibly ambitious because it was building this world computer, unstoppable applications. Let's use the same infrastructure in terms of miners to do that. The thing that made me really excited about Helium is I thought, "Well, what else could be peer to peer? What else really could benefit from removing this centralized middleman?"
Tushar Jain (00:08:45): The centralized middleman that Bitcoin removed is banks, central banks and commercial banks that move your money around and actually have your money. Ethereum removes the centralized middleman of tech companies that own your data and own the customer relationship. Rather than you and I interacting directly, we might be interacting over some tech company's platform, let's say Zoom or Facebook. Ethereum goes after that. Helium really goes after connectivity.
Tushar Jain (00:09:20): What we really want is all the humans and machines and devices in the world to be connected. The traditional way that it's done is through these giant telecom companies, but that's just because centralized corporations are the best technology or social technology that we had to coordinate large wireless communications network or even wired communications networks. Now, we have this new thing called blockchain, which allows us to coordinate these disparate actors in order to create a global wireless network.
Tushar Jain (00:09:53): That's what really got me excited about Helium is it's going after a whole new category. There are so many projects in crypto. My full-time job is to keep up with everything going on in crypto, and invest in projects that I think are promising. We have a team that works on this all day, every day. A lot of things in crypto are the same. There's a lot of people going after the same exact goals. The thing that got me really excited about Helium is that it is different.
Tushar Jain (00:10:23): It is actually truly unique. It's going after a different vision. It has no competitors, really, that I'm aware of. I don't think there are any, and trust me, I'm looking.
Arman Dezfuli-Arjomandi (00:10:32): I'm looking as well.
Tushar Jain (00:10:35): That's what got me really excited. That's why I made that really strong statement at the beginning of that quote.
Arman Dezfuli-Arjomandi (00:10:42): Let's stay on that for a minute, because maybe we can have a little bit of positivity before we kill the vibe. I think you put into words very clearly a feeling that I've had, which I've been involved in various ways in crypto since the very beginning. I mean, I was mining Bitcoin in my dad's apartment in 2011. Being the investment genius I am, I sold it all at the peak at $32. But there's been a certain feeling that I've gotten, and I've only gotten it a few times.
Arman Dezfuli-Arjomandi (00:11:17): The first time was with Bitcoin of like, "Wow, this is a completely new, very interesting thing." The second time was Ethereum, because it's like, "Oh, okay, there's this interesting thing, this decentralized blockchain that now can run applications." At the time in 2016, I wasn't really sure what it meant, but I had a feeling that this was going to be a pivotal technology. I had not gotten that feeling again until I discovered Helium about a year ago.
Arman Dezfuli-Arjomandi (00:11:53): I really dug into it. As you said, it's something completely new. It's something that if someone else were to try and attempt to copy it would take years. Helium has been on this journey for seven years. They've had a blockchain integrated into their product for at least a couple of years now. They've created specialized hardware to accelerate the adoption of this decentralized wireless network, which is something unique that I just don't think is copyable.
Arman Dezfuli-Arjomandi (00:12:23): I think there's this idea that maybe since projects are open source that they can be copied, but I don't get the sense that Helium can be copied. I do get the sense that Helium is a unique opportunity to disrupt an industry in a way that no one's ever seen before.
Tushar Jain (00:12:41): On the point of not being copied, that's something that I'm very focused on. It's defensibility in the world of open source software. What we look for is what we call unforkable state. Actually, if you google Multicoin unforkable state, you'll see a post that we wrote, which describes this. Let me give you a simple example. I can fork Bitcoin. Lots of people have. It's actually not that hard. I can call it Tusharcoin.
Tushar Jain (00:13:10): The problem is no one's going to mine my coin. No one wants it, and so there's just no network around it. There's no community around it. Same thing applies to Helium. I can go fork Helium, and I'll call it hydrogen or lithium or something.
Arman Dezfuli-Arjomandi (00:13:25): Pick an element.
Tushar Jain (00:13:29): Yeah, but the problem is it doesn't have the wireless network. I can fork the blockchain, but unless it actually has hotspots in people houses all around the world and in offices and on top of buildings all around the world, that devices can connect to, what good is the blockchain? It's only good for coordinating those other real physical things.
Arman Dezfuli-Arjomandi (00:13:51): I think that makes complete sense. It would be very hard for someone to start from zero and get to where Helium is today, especially given the fact that there's a new batch of hotspots being delivered any day now. The network is going to go from 4,000 to 10,000 to 11,000, and just increase from there hopefully in an exponential manner. I really don't see how anyone could come and supersede that.
Tushar Jain (00:14:18): I guess let's get to your question that you originally asked around what are some of the biggest risks, or I think you asked to kill your vibe.
Arman Dezfuli-Arjomandi (00:14:30): Yeah, kill my vibe.
Tushar Jain (00:14:33): I think there are a number of risks, of course. The first and largest risk is just technical risk. There's a lot of really hard technical details that need to be implemented and be stable and continue to work. I don't want to minimize how difficult this technology is to build. I think the Helium Inc. team, engineering team, is phenomenal in terms of what they've already built. They used a lot of very specialized technologies.
Tushar Jain (00:15:05): For example, Helium is all in Erlang, which is not that popular of a language, but it's actually very good for systems that cannot go down, that you never want to go down. I believe WhatsApp is also coded in Erlang for that same exact reason. Massively concurrent, system doesn't go down, but just fewer engineers know it. It's just a very, very difficult system to actually build and maintain as it grows. That'd be one thing that is a meaningful risk is just does the technology fall over one day?
Tushar Jain (00:15:44): It seems unlikely to me, but there's unknown unknowns. We don't know that the technology will work perfectly.
Arman Dezfuli-Arjomandi (00:15:54): Definitely. I actually posted a question on Reddit about a month ago, asking this exact question to the community of, "Has there been a blockchain project in the past that has died just because it had technical issues?" People actually came up with some great answers, but the general theme that I saw was when blockchains have technical issues, they can almost always be overcome due to the existing network effects of those chains. Maybe if some really small chain has a technical issue, maybe it just dies because the people working on it give up.
Arman Dezfuli-Arjomandi (00:16:30): But with a project that has so many stakeholders as Helium, I think if there were technical issues, the community and the company and all the investors would do everything possible to make sure that those technical issues were overcome. Indeed, Helium has overcome a lot of technical issues in the past. I mean, there have been times when the block times went to hours. At this point, they're all far in the past. To me, it's been incredibly impressive how good the uptime has been, and how good just the technology.
Arman Dezfuli-Arjomandi (00:17:06): Every part really of the technology, the blockchain, the hotspots, the stability of everything has been remarkable given, as you said, the specialized language that's being used. It's not as necessarily as easy to hire for, and just the sheer complexity of this project and creating a layer one blockchain with a brand new consensus model, which is another interesting thing. To have it succeed so far has been really remarkable to watch, I think.
Tushar Jain (00:17:37): Absolutely. To be very clear, I do not view this as an existential threat. I view this as a risk that things might go slower than we would like, but I do think that any technical problems that arise, any foreseeable technical problems can be solved in this case. The way I think about it is I have a framing of, "Does this technical problem require a fundamental computer science breakthrough in order to solve, or is it just hard work that engineers need to do to implement technology that has already been invented?"
Tushar Jain (00:18:15): That's one of the things I really liked about Helium is it doesn't... While it's a bunch of new technology, and it's really powerful stuff, it's not requiring fundamental computer science breakthroughs in order to make it happen unlike something like ETH 2. Ethereum 2.0 requires fundamental computer science breakthroughs. That stuff is really, really hard. You need to invent this whole brand new thing. No one's ever done it before, and you don't have any examples.
Tushar Jain (00:18:42): You spend most of your time in research, and not even worrying about implementation because you need to theoretically prove that it works. That's a different class of risk. That doesn't mean it's not possible. It's just a different class of risk. Something that's lower risk is knowing that like, "Hey, we have all of the different Lego pieces or the different puzzle pieces. We just have to put it together, and it might take a really long time and hard work. But we don't need to invent a new puzzle piece."
Arman Dezfuli-Arjomandi (00:19:13): That's a really good point. Back to Multicoin for a second, you guys self-described as a thesis-driven investment firm. I really love Multicoin's thesis, which is the following, "Crypto will create the largest one time shift in wealth in the history of the internet." I fully agree. As Amir talked about in the first episode, it's amazing that the tokenization of assets has created an opportunity for everyday investors to get in on new technology early in a way that they can't with traditional startups.
Arman Dezfuli-Arjomandi (00:19:47): Even if someone is rich enough to become an accredited investor, there's still a lot of friction there when it comes to finding teams to invest in, crafting relationships, dealing with all the paperwork. As far as Multicoin is concerned, you guys are in some ways a traditional investment firm, but also have this very bold investment thesis and focus on blockchain and cryptocurrency projects exclusively.
Arman Dezfuli-Arjomandi (00:20:08): Are there some other investments that you guys have been working on, and that you specifically have spent your days focused on other than Helium, other companies in your portfolio that you think have an interesting synergy with the Helium model or what Helium is trying to do?
Tushar Jain (00:20:25): I mean, Helium is pretty unique to be honest. It is very, very unique. There is nothing else in our portfolio quite like it. I don't think there's anything else out there quite like it. I wouldn't necessarily compare directly. I would say that there are a number of other investments that we've made in projects that have similar attributes but are tackling different markets, and they use the power of blockchain technology to create something that was not previously possible or to democratize power and economic access in a way that was not previously possible.
Tushar Jain (00:21:16): I just want to zoom back to what I was talking about at the very beginning of this conversation and explain why I think the wealth transfer will be so big. If you are a fan of history and you think back to the pre-1500s in most of the world, businesses could not get that big. The reason was that everything was a sole proprietorship or a trading guild. There was no ability to properly incentivize employees or managers.
Tushar Jain (00:21:52): You couldn't really have branches all over the place. You had to personally manage your entire business. But then around the year 1500 in the Netherlands, they invented this idea of the publicly traded joint stock corporation. This changed everything forever, because what happened is now you could reward managers and employees with shares in the company. You could use this to better coordinate global economic activity. This created things like the Dutch East India Company, which was obviously one of the first global mega corporations.
Tushar Jain (00:22:31): What I think happens with blockchain technology is it's another innovation on par with that one, where what we're creating is a new way to coordinate human economic activity. But this time, instead of all of the power and the wealth accruing to the managers of that company, for example, whoever the CEO or president of the Dutch East India Company was, was basically like the head of a state at that time, just tremendous power. You look at Mark Zuckerberg right now, or you look at Elon Musk.
Tushar Jain (00:23:05): They're the heads of state for these giant entities. What I think that technologies like blockchain enable and enable in ecosystems like Helium is for us to all own a piece of that, and to own it from the very beginning, and to not have to go and invest millions of dollars in order to get access and not have to meet some accredited investor laws that were written back in the 1920s or something in order to be able to participate in this type of wealth creation and creation of an interesting ecosystem.
Tushar Jain (00:23:44): You can do it through your labor. That's the other very important thing is you do not want returns to accrue solely to capital. You want to have other mechanisms to have returns accrue to labor. Otherwise, you just end up with a system where everything is held at the very tippity top that owns everything. I just don't think that's the most efficient version of the world to live in.
Arman Dezfuli-Arjomandi (00:24:12): When you say returns accruing to labor, do you mean people who are working on a certain company having ownership in that company and gaining a share of the profits?
Tushar Jain (00:24:21): Looking at Helium specifically, there are people in the Helium ecosystem that are Helium Patrons. What they're doing is they're going and deploying Helium enabled endpoints across many, many different locations. That is hard work. You have to go to people's homes or offices, right? You got to convince them that, "Hey, let me put this thing here." In order to help create this wireless network, you have to maintain it a little bit in case the WiFi goes out or something.
Tushar Jain (00:24:51): You're doing that work, and in exchange for doing that work, you can earn a lot of Helium tokens, which maybe worth money at some point. That's a return to labor, as opposed to return to capital, is I go put 100 million dollars into AT&T stock. Then AT&T does everything. I think there's a very big difference there. The other big difference that I see that's enabled by blockchain technology is, I think, we're going to see the emergence of a lot of small professional teams or semi professional teams as opposed to large professional corporations.
Tushar Jain (00:25:33): By that, what I mean, once again, focusing on the Helium example, is instead of seeing two to three giant telecom companies owning a country, what I expect to see are small pods or small teams that say, "I'm going to own a city, and let me team up with five of my friends who live here in whatever my city is. And we are going to set up the Helium network for this whole city. We're going to upgrade it as new wireless networks become enabled, et cetera, in order to own this city."
Tushar Jain (00:26:05): That's just like a smaller professional organization rather than a giant company, but there are still some aspect of people who are really working on this and not just passive.
Arman Dezfuli-Arjomandi (00:26:20): That's a really interesting point. I think it's especially true when it comes to things that are deployed in the physical world. I co-founded a real estate startup called Onerent in 2015. Our goal was to create the world's most scalable property management company. It turns out that residential property management companies typically don't scale beyond 100 to 150 properties for whatever reason. Well, we found out the reason. The reason is that there's a lot of local expertise required.
Arman Dezfuli-Arjomandi (00:26:50): Landlords want to talk to someone that's local and they can trust. They want that local expertise, and local expertise is huge when you're dealing with things in the real world because there are many stakeholders. You have neighborhoods. These are communities. People don't just want outsiders coming in and either managing homes or deploying wireless networks in their community necessarily. To that point, I think what you said is very true.
Arman Dezfuli-Arjomandi (00:27:15): We're already seeing that play out with the Helium Patrons. This is also what you said in regards to returning to labor. I've seen examples of multiple Helium patrons who started at the very beginning, because there were very few hotspots on network.
Arman Dezfuli-Arjomandi (00:27:30): Earned a greater share of tokens.
Arman Dezfuli-Arjomandi (00:27:32): Then once Helium tokens started being traded on OTC marketplaces or on exchanges, these Patrons took their earnings from their hotspots and sold some of them back into USD or into crypto, and bought more hotspots to expand their business. This is a really interesting positive feedback loop that's happening with Helium where hotspot owners and Patrons are earning more money than they put in. They're getting a return on their investment, and they're using that to reinvest and build the network even larger.
Arman Dezfuli-Arjomandi (00:28:03): When the network gets built even larger, the network is more valuable, and theoretically, if the network is more valuable, Helium Network Token will be traded at a higher rate. If the price of the Helium Network Token goes up, that, again, returns even more wealth to the people who put in labor to actually build the network in the first place. It's really interesting to see. I'm obviously a very small time investor. I'm just doing it for me.
Arman Dezfuli-Arjomandi (00:28:26): But when I look at an investment, I look at, "Is there some positive feedback loop or sort of flywheel effect here?" That's definitely what I see when I look at Helium.
Tushar Jain (00:28:36): I think the flywheel is what it's all about. If I had one investment thesis, it would be look for feedback loops. I think you described that feedback loop very well. The one thing I would add in there is just as the network gets bigger, both horizontally in terms of just covering more area, and vertically in terms of having more wireless protocols on the same economic layer, and having better density of coverage in dense areas, then you see more and more usage of the network, which is what really drives token value is usage of the network.
Tushar Jain (00:29:17): Speculation is fine. Look, I speculate all the time. That is literally what investing is. Sometimes, there will be speculators, but you cannot rely on speculators for long term value. It does not work. In the short term, the market is a voting machine, but in long term, it's a weighing machine. It just really matters on, "Do people really want to pay for your service?" In the case of Helium, I think that people really want to pay for this service, and that is what drives the value here.
Arman Dezfuli-Arjomandi (00:29:48): Totally.
Tushar Jain (00:29:49): This isn't a bet on a bunch of people meaning this coin into having value. That could happen, and it would be great, but-
Arman Dezfuli-Arjomandi (00:29:59): Arguably.
Tushar Jain (00:30:00): ... you don't need to believe in it for it to have value. Unlike something like Bitcoin. Bitcoin, you need to believe in it for it to have value, because it doesn't actually do anything. Now, I own a lot of Bitcoin, and this is not a knock on Bitcoin, but you need to just believe. That's true for many assets in the crypto world. You need to believe that it has value. In this case, it actually does something for you.
Arman Dezfuli-Arjomandi (00:30:24): I think this is something that very few projects in the crypto space actually do. The only two that I can really name off the top of my head are Helium and Celsius, which of course takes external money from investing people's capital. They deposit into this bank-like product, and gains investment returns from lending out that money to institutions, which I think is really interesting. That's another thing that I like to focus on is like, "How does this bring external money into the crypto ecosystem?"
Arman Dezfuli-Arjomandi (00:30:59): Because if you're just in this bubble of crypto people, you have this attention problem where you're just trying to get all the crypto people to invest in your thing instead of the other crypto things. Whereas, I believe that if you can bring external money into the equation, you have a much more sustainable business model. Helium does that. There's massive demand for LoRaWAN network. I believe there's already over a billion LoRaWAN devices deployed in the world.
Arman Dezfuli-Arjomandi (00:31:26): Where are they deployed? They're deployed where networks exist like France and Germany. I think we're just at the very beginning of how low the cost of LoRaWAN devices can go. All that we really need is the network to reach those economies of scale, so not only is Helium bringing in external money, it's bringing in external money that's dying to throw itself at the network. There are many businesses out there who are like, "We need a network to connect sensors, and we just don't have it."
Arman Dezfuli-Arjomandi (00:31:57): As far as I can tell, Helium is the only attempt to bring that network to fruition on a global scale.
Tushar Jain (00:32:03): One thing that I think is an interesting conversation topic is separating the Helium blockchain and the economic incentive layer from this LoRaWAN network. The LoRaWAN network is the first wireless network built on top of the Helium protocol. I do not expect it to be the only wireless communications network built on top of the Helium economic protocol. What Helium really is is it's a new business model for deploying and managing wireless networks.
Tushar Jain (00:32:37): They started with LoRaWAN, because that was a very underserved market. It had several attributes which were quite good for Helium. One, the United States was the first market, and the United States is massively lacking in IoT network coverage. Unlike Europe, which has a wide LoRaWAN availability, there just basically wasn't any in the U.S. LoRaWAN has really long range which really helps when you're just getting started, and you may not have the ability to deploy as many devices as necessary for other wireless protocols.
Tushar Jain (00:33:20): It helps you kickstart the economic network effect, but this is what I see happening in the future. What I think is going to happen is we will see the LoRaWAN network grow globally. I think that this will drive usage on the LoRaWAN network built on top of Helium blockchain. This will drive value to the Helium Network Token because of how the token economics work. At the same time, I think that people will release new wireless networks built on top of the Helium economic protocol.
Tushar Jain (00:33:55): That can include things like a WiFi sharing network or a 4G data network. In fact, something I've been brainstorming about is 5G data networks, because 5G just requires such a high density of radio transmitters that it's going to be incredibly expensive, hundreds of billions of dollars expensive for a centralized telecom companies to roll that out. But with the Helium model of rent and labor being free at home and having this new system to coordinate that economic activity of rolling out that network, rather than a giant, centralized corporation doing it, perhaps that instead of being done for $100 billion could be done for $1 billion.
Tushar Jain (00:34:41): That's just a huge amount of wealth to be created, shared amongst the world. I really think of the future of Helium, the blockchain as being the economic network for all wireless telecommunications networks. That's the crazy, audacious, huge, long-term vision that I have.
Arman Dezfuli-Arjomandi (00:35:05): I love that. I think that's what personally attracted me to Helium in the first place is that especially when I was in high school and college, I always dreamed of having this shared WiFi network. I remember I would go to a friend's house or just go to a new location, and just end up so frustrated because I would pull up my computer, I'd pull up my phone. There are all these WiFi networks. They're all paying for different subscriber lines, and I can't connect to any of them.
Arman Dezfuli-Arjomandi (00:35:30): Even if I want to give them money, I'm like, "I want to access the internet right now." I would be willing to pay $5 or $10 for even a 30-minute session. Yet, even the so called open wireless networks like xfinitywifi or CableWiFi or all these ones you see just going all over the place, maybe there is now but at least for the longest time, there wasn't even an option to pay for access if you wanted to. It just seemed like such a tremendous waste.
Tushar Jain (00:35:56): They were terrible. I don't know. Any product that the cable companies or the big telcos put out there, they're usually just really bad user experiences. They don't actually care about the users. That's the key thing. These telecom companies don't care about their customers. They are monopolies. They know that you have no other choice. What are you going to do? Switch from Comcast if Comcast is the only ISP in your area? What incentives they have to get Xfinity right? They just don't care.
Arman Dezfuli-Arjomandi (00:36:29): Well, it's really interesting with Xfinity too, because I have to hand it to them that Xfinity WiFi was one of the most interesting successful dark patterns that I've ever come across, where they just put this hidden wireless network in everyone's routers. Make you pay for the router to rent this thing from them that broadcasts an additional WiFi signal from your home, and shares the bandwidth of your own internet connection. It was really pretty ubiquitous.
Arman Dezfuli-Arjomandi (00:36:56): I mean, it's really hard to go anywhere in a city and not see an Xfinity WiFi point being broadcast. Imagine if they had more foresight in building this into a more open ecosystem, if they had done it at a better time like now, I mean, they already have millions of installed locations. They already have the network. God, how would that even look like? Would they take the Helium blockchain and apply it to... Of course, they probably wouldn't take the Helium blockchain. They probably make their own in some way.
Arman Dezfuli-Arjomandi (00:37:28): But how do you take that existing-
Tushar Jain (00:37:30): I don't think they would. I think that they are stuck in the old paradigm. They would want you to sign up for a monthly subscription. They would want you to pay an activation fee. They're just stuck in the old way of thinking because they're an old school corporation that has no reason to innovate. This is the classic innovator's dilemma. This is how the innovator's dilemma plays out in the textbook definition from Clayton Christensen. What happens is you have these large companies that are providing a service, which is pretty good, but it's quite expensive.
Tushar Jain (00:38:09): The managers there are complacent. You're not an innovator and decide to go work at Comcast. You just don't attract those people. Then you see startups come in or new entrants come into the market, and they offer a much worse product at a much, much, much lower price. In this case, I could say LoRaWAN could be a "worse product" for most use cases, because I can't use my cell phone on it. It's never going to power my video chat. LoRaWAN is not for that.
Tushar Jain (00:38:41): It's way lower bandwidth. It just can't power that use case. But the incumbents will see that and they'll say, "Oh, that's a toy thing. That doesn't matter. I don't need to worry about LoRaWAN. Look how small that market is. I'm going to focus on the higher-end market. I want to focus on LTE, and I want to focus on 5G, where people are willing to pay hundreds of dollars a month in order to get access to my services." But then what happens?
Tushar Jain (00:39:09): Well, the Helium network gets better. Maybe it adds a new network. Maybe it adds 3G, old school. 3G isn't that good anymore, but maybe it adds 3G because 3G is dirt cheap. Those routers are dirt cheap. You can put those in people's homes and with commodity hardware for a really low price. I don't know off the top my head, but I know it's just been around for 20 years.
Arman Dezfuli-Arjomandi (00:39:35): That's interesting. I didn't know that the hardware is so cheap at this point.
Tushar Jain (00:39:39): Yeah. Maybe Helium adds that next. The beauty of the Helium blockchain, by the way, is that it's permissionless, so anyone can go do this. One of our listeners right now could go and decide to code up the router and the connecting parts to make the 3G network work. You deploy that maybe in some of the less wealthy areas of the world that aren't well covered. Big telecoms will still ignore you. They don't care, right? They don't care about that market.
Tushar Jain (00:40:13): They're worried about the super high-end market. Then maybe as the hardware gets more commodified for LTE, you now have LTE on the Helium network. What do the big competitors do? They think, "Hey, we're just going to focus on 5G. Let's stay high end. We don't need to go and compete with this new entrant coming in and taking the really low margin business that we don't care about. We as managers of a giant corporation are paid on the high end of the market."
Tushar Jain (00:40:41): Then just gradually, the product offerings that the new entrant, in this case, Helium, offers start to become better, because it just has a different cost structure. At scale, it is mathematically impossible for these large telecom incumbents to compete with Helium. They can't do it. You can't afford to pay all the sales, marketing support, et cetera, and compete with a user-owned network that just doesn't pay any of those costs.
Arman Dezfuli-Arjomandi (00:41:12): For sure.
Tushar Jain (00:41:12): I think that what we're going to see here, this is going to take some time. I think this takes 10 years to play out, as I just described. I think what we're going to see over those next 10 years is this just textbook perfect play out of the innovator's dilemma.
Arman Dezfuli-Arjomandi (00:41:30): Wow. That's definitely food for thought. What do you see that... Let's go back to the 3G example because I find that fascinating. You mentioned emerging markets, but let's take a more mature market like the U.S. How do you see that type of 3G network rolling out in the U.S.?
Tushar Jain (00:41:48): That's a hard question, but I can speculate. Let's talk about how much it costs to use a centralized telecom provider in the United States today. If I have a device that I want to get on the AT&T network, I have to pay an activation fee, usually something like $35, right?
Arman Dezfuli-Arjomandi (00:42:10): Yep.
Tushar Jain (00:42:11): Pay that activation fee, and then I pay a monthly subscription fee. I think the lowest cost of that is like, what, 10 bucks a month.
Arman Dezfuli-Arjomandi (00:42:21): Yeah, for a smartwatch or something.
Tushar Jain (00:42:23): Exactly, for a smartwatch, you're going to pay $10 a month. What I could see is seeing those types of use cases, the smartwatches, smartwatch probably doesn't do well on LoRaWAN. You probably want to send a bit more data than LoRaWAN can handle to a smartwatch. There's probably other use cases too like, really low fidelity security cameras and other of these mid-tier cases, where you have devices that need to send data. They don't need LTE. They don't have enough economic value to justify being on the AT&T network, but maybe they don't work well on LoRaWAN because they just need a little bit more bandwidth.
Tushar Jain (00:43:06): Well, that's where a 3G network could make sense. Now, once again, that's entirely speculative. I don't think that 3G in the United States is necessarily the next best market or technology for Helium.
Arman Dezfuli-Arjomandi (00:43:18): Sure.
Tushar Jain (00:43:18): I think focus on LoRaWAN, go global in LoRaWAN. Really make that work. Then probably do something like WiFi next, because I think WiFi is just a way bigger market. There's so much more data transmitted over WiFi. There's a lot of people in cities that would love to just be able to pay for the data that they use on WiFi, but I think that there are so many different opportunities.
Arman Dezfuli-Arjomandi (00:43:48): I think that the idea of a 3G network with the Helium model in the U.S. is actually a very interesting one, because... I mean, you talked about developing markets. Why would you do that? Well, because they require a much lower cost, and this model enables a much lower cost. But frankly, there are so many underserved communities here in the U.S., people who can barely afford to put food on their plate at the end of the week. They're probably overpaying $20, $30, $40 a month best case scenario for a really budget wireless carrier just to do basic stuff like be able to communicate with their friends and family.
Arman Dezfuli-Arjomandi (00:44:27): I think the telecom industry in general is just quite deluded about how good their stuff is. LTE was definitely a nice step up from 3G. I don't think 5G is going to matter to almost anyone in terms of just the sheer speed increase. All the stuff we want to do on our phones, we can already do it fine over LTE. The most data intensive stuff is, what, video chat. Maybe that gets a bit better. But even go back to 3G, if I turn off LTE on my phone right now, it still works like 95% as well as I want it to.
Arman Dezfuli-Arjomandi (00:44:58): Maybe I can't FaceTime with perfect quality, or I can't stream in 1080p or whatever, but almost all the stuff that I do can be done on 3G. What happens if you're able to come in with a 3G network in a developed country that's like five to 10X cheaper that can allow normal people to connect to the internet for $3 a month?
Tushar Jain (00:45:23): I think that that's entirely possible. I don't know how much it would cost. I would need to actually do the math on what the average data usage is.
Arman Dezfuli-Arjomandi (00:45:32): I totally made up that number.
Tushar Jain (00:45:35): I do think it could be 10 times cheaper. To me, there's two fundamental types of innovation in the world. There are technical innovations, and there are business model innovations. Technical innovations is you're inventing new technology. Now, a classic example of that would be you invent a new material. You invent carbon fiber nanotubes, and that enables you to make a bunch of stuff that you previously couldn't. That is enormously valuable innovation.
Tushar Jain (00:46:08): But then there's also business model innovation, which is by configuring the way that the economic participants in the network act differently, you unlock value. I think where Helium really excels, there is some technical innovation here in terms of how the blockchain works, et cetera. That's cool. I like it too. I think that the part that really excites me about Helium is the business model innovation, because the business model innovation here is just amazing.
Tushar Jain (00:46:37): It blows my mind how powerful it can be, because I think it would enable a wireless coverage network for even 3G or 4G that's literally a 10th of the cost of the incumbents. It's not like anyone has a particular loyalty to their telecom provider. You don't actually care for Comcast or AT&T. I think that people will be more than happy to switch for a lower cost solution that provides just as good service, especially if they could own a piece of it.
Tushar Jain (00:47:10): I think that's the other key thing that's very, very important is they can own a piece of it. They can actually support the network and provide some coverage and get some ownership stake in the network. Whereas for the average person, you're never going to own anything meaningful out of AT&T. That's just not going to happen, unless you're extremely wealthy or something.
Disclosure: Unless otherwise indicated, the views expressed in this post are solely those of the author(s) in their individual capacity and are not the views of Multicoin Capital Management, LLC or its affiliates (together with its affiliates, “Multicoin”). Certain information contained herein may have been obtained from third-party sources, including from portfolio companies of funds managed by Multicoin. Multicoin believes that the information provided is reliable but has not independently verified the non-material information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This post may contain links to third-party websites (“External Websites”). The existence of any such link does not constitute an endorsement of such websites, the content of the websites, or the operators of the websites. These links are provided solely as a convenience to you and not as an endorsement by us of the content on such External Websites. The content of such External Websites is developed and provided by others and Multicoin takes no responsibility for any content therein. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in this blog are subject to change without notice and may differ or be contrary to opinions expressed by others.
The content is provided for informational purposes only, and should not be relied upon as the basis for an investment decision, and is not, and should not be assumed to be, complete. The contents herein are not to be construed as legal, business, or tax advice. You should consult your own advisors for those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by Multicoin, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Multicoin is available here: https://multicoin.capital/portfolio/. Excluded from this list are investments that have not yet been announced (1) for strategic reasons (e.g., undisclosed positions in publicly traded digital assets) or (2) due to coordination with the development team or issuer on the timing and nature of public disclosure. * This blog does not constitute investment advice or an offer to sell or a solicitation of an offer to purchase any limited partner interests in any investment vehicle managed by Multicoin. An offer or solicitation of an investment in any Multicoin investment vehicle will only be made pursuant to an offering memorandum, limited partnership agreement and subscription documents, and only the information in such documents should be relied upon when making a decision to invest.*
Past performance does not guarantee future results. There can be no guarantee that any Multicoin investment vehicle’s investment objectives will be achieved, and the investment results may vary substantially from year to year or even from month to month. As a result, an investor could lose all or a substantial amount of its investment. Investments or products referenced in this blog may not be suitable for you or any other party.