Transcript of Extra: On COVID-19 & UBI with Bob Reid

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Jim: This is the third in a series of extra podcasts focusing on the COVID-19 crisis. Today’s guest, we have Bob Reid, who is the co-founder of a very interesting company called Everest. Everest is a decentralized platform for a new economy, incorporating a massively scalable payment solution, a multicurrency wallet, and a native biometric identity system. Everest, as far as I know, has about the most complete solution out there and we’ll probably talk about that a little bit, but more to the point, I’ve invited Bob on to talk a little bit about how best to think about phasing the deployment of the universal basic income, the UBI that has been, at least in part, specified in the relief bill that’s working its way through the US Congress as we speak. And it’s probably not enough and we’ll have to come back to the well a few times, but let’s get rolling there, Bob, and talk about, how should we think about delivering the UBI to 110 million American households?

Bob: Probably the best place to start is what do, if you will, almost all infrastructure of e-government or e-bank platforms need to have? What are the essential elements? And the way we thought about it was we literally modeled off of Estonia, the nation. And even Aadhaar with India stack in India. How do you take full government systems or banking systems and, if you will, make them digital? Now we’re coming along about 15, 20 years later after those guys and we’re able to use some blockchain technologies along with some, I would say, decentralized storage techniques to actually sort of be a next generation of that.

Bob: Now in terms of elements that we considered that are inherent in all of those are you always have to have identity at its base level to, as I call, identity is the operating system of any of these systems. Are you who you say you are? And almost everyone around the world now is arriving at biometrics. You have to have deduplication of the human being. I’m a singular piece of carbon and that means you can’t just rely on here’s my proof of address from my bank or here’s my passport. You got to get to the biometrics. The other piece of the equation is going to be an account. So you need to be able to do a wallet in today’s vernacular, but a way to actually store value and transfer in and out associated with that identity.

Bob: We did something unique at Everest where we actually made the account in distributed storage or in the cloud. So you actually don’t even need a device to reach it. The other two elements you need are you need a ledger so something that goes like [inaudible 00:03:49] to track what’s coming in and out of this account. And then you need to have some sort of a currency, unit of account. All right. So in the case of UBI, go with digital Fiat, like here’s a US dollar and it means a US dollar. Those essential elements get you the basics on how to do a system. Are you who you say you are? Here’s an account, here’s a way to, if you go in and out of that account and then here’s some digital money. Now some of the benefits you get out of doing digital is you can program it.

Bob: You can say here’s a dollar, but it has to be spent in the next 30 days. So you can make it time-bound. So that solves for example, what the US government tried to do in 2008 when they said here’s a check, everyone gets it. And it turns out 60, 70% of the people just put it into savings. So it didn’t stimulate the economy, but if you made it time-bound, well they have to spend the money. Some other things you can use, you can say, hey, this is programmed in. It can only be redeemed at the grocery store or the pharmacy for food and medicine. And so you can do some things like that. And then ultimately look, you can actually reach everybody regardless of if they have a device or not. And you can do it instantaneously. So you can inject liquidity into the system in minutes instead of sending out checks or debit cards and hoping and praying that somebody gets it, turns on their pin. Okay. And doesn’t sell it for drugs behind 711.

Jim: Yeah, it sounds great. And if we had a Manhattan Project level of investment, we could probably get that up and running in some period of time. But it seems to me that it would be dangerous to bet the first implementation of this UBI, which we presumably want to get out in a couple of weeks and on some new developments and probably a whole bunch of regulatory issues, security audits and things like that. I’ll tell you my own suggestion and I realize it’s fraught with all the errors and problems that you brought up, but it has the advantage of being brute force and fail safe minus the inevitable fairly significant losses around the edges, which would be to go with debit cards and basically scale up something like the green dot system. And of course all the big credit card companies have their own prepaid systems.

Jim: And of course they’re very expensive but that’s mostly because they go down the retail channel where everything’s expensive if you push it through retail. But if the government gave 72 hours for the biggest credit card companies to bid on sending a debit card once a month to every American, we could get that up and running in probably two weeks. And we could actually address what you discussed as what I call the time to live problem on the money. Because it’s absolutely key that if we want this money to be stimulus, it has to get into circulation and not just put into people’s bank accounts and yet, and we know that in tough times, people want to build up their bank accounts, but even with a debit card, you could say the debit card only lives for 45 days. I would provide some overlap each month but make it 45 days or 60 days.

Jim: And so you get a new debit card each month and you have 45 or 60 days to spend that and now of course you go, you still have the know your customer, your identity problem. And it is kind of interesting that in the United States we do not have a national ID unlike in countries like Germany and France, et cetera, where there more or less is a registry of all citizens. But we do have the beginnings of one, which is the vast preponderance of people, I don’t know if it’s 90, 95%, file an IRS return each year. And so you could use that as the starting point. We could then have banks be authorized to do a KYC on people who aren’t in that database and go through a KYC know your customer process and basically provisionally enter them into the same or a parallel database to the IRS database. And then of course you have your final group of people who people who are homeless, et cetera, may have no ID, mentally deranged, et cetera.

Jim: In which case, I would suggest use the existing social welfare agencies. Just provide them a stack of cards knowing there’s going to be some waste and some fraud and have them pass the cards out on the street to homeless people, taking a photograph and entering it into a quick and dirty biometric database. That third part, you could not get up and running in two weeks, but the other two parts you probably could and it would provide the immediate boost. And here’s the other key thing about the debit cards, I want to get back to you when we talk about the electronic methods, the beauty of the debit card is that all the points of sale already accept it. The hard part is having to make any changes at a couple of million points of sale across the economy.

Jim: Everybody takes credit cards and debit cards. Anyone who has one of these things in their hands can literally walk into a bodega and buy whatever the heck they need right on the spot, no questions asked, no ID necessary. It’s essentially a bearer instrument, but of course that has the downside of fraud and as you said, people swapping them for beer behind the 711 or stealing them out of mailboxes. And yes, that’s true which is why we do need a better system soon. But this has the big advantage of being fail safe and deliverable at volume very quickly.

Bob: Yeah. I mean look, I mentioned previously if the plane is crashing and all we have are World War II parachutes, yeah, grab those and get out of the plane. It is brute force and it’s costly. I think it’s what we’ve seen out of human behavior and case study after case study is they will take the money out of the ATM and then go hoard it and it really won’t do much for stimulus. And the other piece you don’t get with that is, if you will, the ability of adding other things. So for example, how can I then say, here’s money just for testing? Here’s COVID-19 testing.

Bob: And once that testing is done, I now want to be able to store my COVID-19 test results that I’m positive or negative in my wallet. And so, if you will, if you have an electronic system that’s based on a biometric system or biometric ID, as I mentioned, you end up with multiple use cases where you can actually do medical docs, you can do the state of California wallet inside of there. You can do the US Treasury wallet inside of there and you can connect to Wells Fargo and Bank of America too. It becomes the uber wallet.

Bob: So that type of infrastructure, I mean, look, it’s going to be required going forward. And the only question is, how do we get there? As I mentioned, we modeled after Estonia, so I was actually just chatting with the ex president of Estonia who implemented their system and he was mentioning look, they’re all in lockdown, but every interaction with the government is electronic and is up and running and working just fine right now today. So they’re dealing with COVID-19 in a system where it’s functioning for them. And so sort of circling back, yeah, the idea of UBI and adding liquidity to the nation quickly, the policymakers are just dealing with antiquated tools and infrastructure. They don’t have four lane freeways right now. They’ve got dirt roads and so we’re going to have to invest and build something like this.

Jim: Yep. I absolutely agree. I think the context that we can place this in, I had another one of these extra podcasts with Jordan Hall yesterday and we talked quite a bit about the fact that one of the big takeaway lessons from this event is our society has to be willing to invest a lot ahead in terms of resilience and robustness. So even if no single business could ever justify building this thing out, it ought to become a socially funded program where we have this thing that you describe and may well be your system up and running for the next crisis. And this is not going to be the last crisis. I can tell you that between now and the end of the century. So, let’s just war game it a little bit. We have our World War II parachute, scaled up green dot plastic debit cards and oh by the way, I do believe we can take care of that ATM problem.

Jim: Because I do think making ATM withdrawals is an option on these cards. You can make them not available for ATM withdrawal, but nonetheless, there will still be gray market. People will buy beer and trade it for cash and things of that sort. But if you turn off the ATM, it’ll reduce it significantly. So let’s say we use the World War II parachute as long as we need to. If there was a truly national at war level investment in let’s say taking your system, scaling it up and deploying it, what’s a reasonable period of time with some fallback fail safe and testing to be able to actually roll it out, first say for one medium sized state, then a couple of states and then the whole nation?

Bob: So look, we’ve actually rolled our system out or tested it in, for example, Indonesia. We were given, they had a scenario where they were handing out the energy subsidy. And they handed out physical cards and you were supposed to turn those cards into basically get a gas tank to go cook with. It’s, by the way, that’s $7 billion distributed to 50 million people a year. And what happened there is, well, it’s one of the biggest black markets in the world. The vast majority, over 50% of those vouchers end up with the maids in Jakarta and it ends up in upper class. So it just was utterly ineffective. And so we rolled out a way to show you could send this programmable money only used by the person attached literally to their face and their biometrics and they could only redeem it for this gas tank.

Bob: So we know our system, if you will, works right now today. It’s proven. We were doing villages, we were out in Buka Tingey in the Netherlands. So what would it take to roll out here in the US? Ours is eminently scalable. The issue would be registration. How do you actually get a user to scan in their face and scan in their driver’s license, for example? Driver’s license, by the way, it’s about 90% of adults age 20 to 90 actually have a driver’s license. So a driver’s license actually has your address and your photo so you can match your face with that photo and from there create a wallet.

Bob: So that would be the only impediment to scaling would be how long does it take to register. If you want to go full Manhattan Project, you do it at the post offices and the grocery stores and you register everybody as they walk in and out. You come into the post office or go to your grocery store, scan your face and your driver’s license on the tablet and boom, you’re entered and you now have a wallet that’s connected to the Fed, for example. Or the government.

Jim: How about the other half though, which I alluded to on where the debit cards are so useful? Point of sale. How do you get these systems? If someone walks into the bodega and they need to buy a half gallon of milk and two loaves of bread, how does the bodega get set up to be able to accept this?

Bob: So there’s a couple of different ways. So if they’re already doing, for example, NFC point of sales, which the vast majority are, and you have a smart phone, you can literally take your digital US dollar for groceries and scan it just like you’re doing Apple Pay or Google Wallet. You can do that today.

Jim: What’s the penetration on those? Truthfully, I’m laggard. I tend to use folding cash or worst case, a credit card. What’s the penetration on things like Apple Pay or Google Pay? I mean the ability at the point of sale.

Bob: Point of sale is actually pretty ubiquitous, I believe. It’s there isn’t as much on the smartphone penetration. That is, we all hang around with each other and all have super smart phones. Truth is on the planet, there’s four to five billion people that don’t have smart phones out of the seven and a half that exist today. So Americans have a higher penetration of smartphone, but there’s still a good percentage that don’t. And so as I mentioned before, we can actually give you a wallet up in the cloud so you don’t need a device at all. Now in that case for point of sale, for example, in the grocery store, right where you registered, you could scan your face, put in your pin and have it spit out a QR code that’s good for the money. And that QR code can be scanned at the register.

Jim: Okay. I like that. I like that. Yeah.

Bob: I mean the other way is look, if you just simply walk in and the point of sale has a camera or the clerk has a camera, like a smart phone, that’s the point of sale too.

Jim: Or I suppose people like the square payment system could augment their system with a camera and then hook back to do the biometric processing, call your database and then connect to the ledger and the wallet. And again, if you partnered with people who have those inexpensive and massively scalable point of sale devices, then that would take care of particularly the little guy. I mean the big guys, they’ll figure it out, but I’m worrying about the moms and pops. The auto mechanics and the bodega’s, etc.

Bob: Just need a smartphone. I could walk in with my wallet on my phone and say here’s a payment and just literally go peer-to-peer. And it runs across our rails to actually ledger the transaction out of my wallet and into theirs.

Jim: And now what’s the error rate? Both the false negatives and the false positives because it would be mighty annoying if, let’s say you’re a poor person without a smartphone, you go down to the grocery to buy some stuff for your kids. You know you have money in your wallet, they scan you, but the biometrics doesn’t match.

Bob: That’s actually pretty solvable at scale we’ve seen across the planet. It’s not as hard as it used to be. I’ll give you a very real sense with our own government. So global entry, right when you come in to the airports from overseas, used to do four fingerprints and then take a picture of yourself. And in the last six months, they’ve phased out the fingerprints and literally just gone with face. So they do face and then they look at the name of the person that came in on your airline ticket. And that is deduplication at a 99 point something percent. It’s working well enough literally for our own borders. And DHS is deadly serious about this stuff.

Jim: Yeah. Even 99% would be considerably better than the leakage you’d expect from a plastic debit card system.

Bob: Yeah. And by the way, that’s just biometrics. As soon as I say it’s my name attached to that biometrics, then you’re at 99 point something.

Jim: Okay. So it sounds like the technology is there. Very interesting.

Bob: The biometrics is pretty commoditized now. Everyone’s shooting at the 98, 99%.

Jim: So let’s go back to my original question. Let’s say that resources were unlimited. Somehow we actually got a political and regulatory decision to go fucking do this. We know that’s not going to be easy. But let’s say we did and someone said here is essentially a blank check. How long is it going to take, including spinning up the registration process? What’s a safe number? Is it a year, nine months, two years? What would you say if someone literally tapped you on the shoulder and said, “Okay Bob, we’ve [inaudible 00:21:20], we believe it’ll scale, whatever it takes, do it,”?

Bob: We’re in the neighborhood of months and the only hesitation you’ll hear in my voice is, if you will, testing. So it’s okay. Sure, we can all go here’s hundreds or thousands of tablets. Let’s go ahead and run the city of San Diego. Or let’s go ahead and do the US military, for example, as the beta test, let’s call it, weeks. Then in terms of registering everybody. And then you would literally then have to do transactions after transactions to, if you will, make sure everything’s robust. So blank check, we’re in the neighborhood of months in terms of getting it to a position where we can show provable everything at scale.

Jim: And that does not necessarily include the spin up of registration.

Bob: No, that would be registration. You’d pick a select population. Like I said, here’s a city or the US military. We’re dealing with hundreds of thousands of people or San Diego is two million and you could literally have all of those people file in, in a few weeks, register and get their accounts and then start sending money to them or having them transact. Absolutely.

Jim: I was just thinking out loud here, I don’t know if this adds or subtracts but let’s say we want to do it in parallel while you’re doing the regional test. At a national level, we could recruit a whole core of notaries essentially. People who are vetted and are given upscale devices and anyone that comes to that notary can be registered by the notary.

Bob: Right. So in Indonesia when we rolled out, we didn’t have foundational identity. That is a government ID. We were dealing in on the poorer neighborhoods and they had a family card and in that case, we literally had to have BRI bank agents and sometimes government overseers to actually act as notaries to register people. Now in the case of the US where we’re dealing with 90 some percent that have foundational identity, you can literally do self-registration at home. You scan your driver’s license, scan your face, and boom you’re off to the races.

Jim: Yeah, that’ll work for 75% of people. Keep in mind that amazing number of Americans are totally computer illiterate, but 75% is a good place to start and then have the notaries, have banks. You have layers of backup. At the end of the day, social welfare agencies that go out and register people on the streets.

Bob: Right. Now what’s interesting is, I mean going back to what you were saying before, is all of this does rely on it has to have a common identity back plane that is I can’t register myself with my driver’s license in one area and then go to social welfare and get my biometrics there and then go to a third spot and say here’s my proof of address because I’ve got a letter from a bank. Those end up with three different identities. And so this is why we always drive towards you have to have deduplication, which is biometrics. And if you have a common identity system underneath all of that, then you’ve got a system that’ll actually not be rife with fraud. And you’ll actually be, like I said, fundamentally, are you who you say you are and is this account attached to you as a singular human being?

Jim: Yep. And yeah, that would, if, assuming that the base layer biometrics is indeed 99 plus percent, it makes fraud not worth doing. That’s interesting about crime. You don’t have to have a bulletproof system to stop crime, just have to make it such that it mostly doesn’t work and the risks for getting caught are pretty damn high. And again, as part of this, I would make a really draconian laws. I would say this is wartime. Anyone who attempts to defraud this system as an individual is going to get 10 years in the slammer. Anyone who is doing it in organized crime fashion, life without parole asshole and this is life and during wartime. We should not tolerate anybody attempting to defraud the system.

Bob: Right. I agree.

Jim: All right.

Bob: The other thing that’s sort of interesting along these lines as we delve into okay, how can you actually implement this is actually understanding who owns and controls everything. And, if you will, I think the Europeans have been probably the most forward thinking on this in terms of GDPR in terms of, if you will, a right to be forgotten and the identity is actually the user’s. So, if you will, in that natural social construct of the government saying I will give you something but tell me something about you. And the citizen has the right to say no and they don’t get the benefit or they have the right to say yes and they should have the right to go I can verify I’m me. So here’s a biometric verification. But you don’t have to give the biometrics to the government.

Bob: You just have to verify that you really are the guy attached to this thing and here’s my name and address and I’m an American, for example. But for example, my bank balance and my health records probably aren’t part of the social exchange of UBI. Actually take it back. Bank balance probably is. If I make too much money, I’m probably not eligible. But health records and my Instagram account certainly are not part of that exchange. And so you need to architect an identity system that allows privacy for the user and granular sharing of whatever the social contract dictates.

Jim: Nice. I like that a lot. That’s a beautiful architecture because certainly most people will be willing to share a fair amount in return for the UBI but not everything. While other things, like to validate my Roku box or something, I’m not going to give them a damn thing except my pseudo anonymous ID that’s attached to a payment mechanism.

Bob: Yeah. Look, pseudonymity doesn’t work for financial transactions as Facebook’s Libra Association found out very quickly with every financial regulator and every central bank in the world saying, no, that’s a money laundering hole. Dig a layer deeper on the identity piece, it’s important that in the 21st century, we need to think in those 21st century terms. Everyone’s used to a database. And that’s just because historically that’s all we had. It’s important that you architect a system that actually is not a centralized database that’s owned by somebody or some organization. You need to architect it so that literally the user actually has the keys and literally not even I or Everest or the government actually has the keys.

Jim: That’s dangerous. I mean, we’ve looked at this a lot and one of the advantages of things like standard American credit cards is that transactions can be reversed. When people lose their credentials, there’s a soft way to get them back. The private key signature world of blockchain has some real downsides.

Bob: Yeah. If you will, transactions are different than, if you will, identity key holding. So I’ll give you a sense. The way we architected the identity, if you will. We’ve got a couple blockchain. So our identity blockchain is really just about key holding, which is who can get in and see Jim’s account balance or his biometrics or whomever. And that just comes down to, does Everest hold the keys? Does the US Fed hold the keys? And we made it so that literally we distributed the keys so that no single entity can open your identity data store. So that’s one element on just identity. On the transactions, yeah, of course you have to architect in travel rule for example, like you have to be able to stop a transaction and freeze an account. And so that’s literally why we did a second transaction ledger where you can actually track what account is doing what activity and freeze it if you have to. Does that make sense?

Jim: Yeah. Yeah. Basically you layer services on top of the base identity. So you could essentially layer in a series of services that say exactly emulated American Express, for instance. I use American Express exclusively for all my online transactions because they’re great. You call them up and say don’t pay that asshole. He fucked me. He wouldn’t take it back and he said he wouldn’t take back a broken item when he said he would. Don’t pay him and American Express just doesn’t pay him.

Bob: Right. The other piece you get by separating the identity from the transaction is you get, if you will, you can’t collect a bunch of metadata on transactions and find out stuff about the person that probably isn’t legal or appropriate. Because you’ve separated here’s my UBI exchange. Here’s my, I can verify me, here’s my, I can prove I’m American and I’m at this income level. That’s great. That’s one transaction. If I go to my health provider, I can do the same thing. I can say here’s my identity and I will share my health record for two hours with this doctor. It’s a separate transaction, in which case you can’t look at the two separate transactions and come back and say this is Bob. He’s clearly taking his money to go to the doctor. The separation between the two actually creates a level of privacy I think that’s important in practice.

Jim: I like this. I think you guys have done some very innovative thinking here in separating the values and layers of service yet provide the ability to build privacy where necessary.

Bob: Yeah, where necessary. I mean, look, if you’re going to do an interaction with the government, they’re going to know here’s the service, here’s the information we need to do this service.

Jim: And we know who you are and that’s the way it goes. You want to take our money-

Bob: That’s the way it goes.

Jim: That’s the way it goes. If you don’t want it, don’t give it, don’t ask for it.

Bob: Yeah, exactly. You send over $1,000 from here to the Philippines, you got to produce source of wealth, source of funds, where’s it going? Et cetera, et cetera. And that’s the, as I call it, the social contract. It’s also the social contracts or laws. So we just map in what the law is into digital to make it easier and more transparent.

Jim: All right Bob, this is great. Very well thought out. And before we wrap up here and we are trying to keep these extra episodes much shorter than our usual ones, what’s it take to get this done? I mean it sounds like you guys have done a lot of thinking. You got the system ready to go with significant funding. You could deploy it in months. Being a former manager of technology, I take whatever the damn techies tell me and double it. So let’s say the end of the year. Who has to make the decision and how do we get them to make the decision?

Bob: Oh boy, that’s the billion dollar question, isn’t it?

Jim: Quite literally.

Bob: Yeah. It might be the trillion dollar question. So our system is ready to go at scale. It’s cloud based. So anything digital in cloud, we could literally run millions of transactions, no problem. It really will be, how do we get to the decision makers and actually get the relevant stakeholders in the same room? You’re going to have the privacy advocates, you’re going to have the Fed, you’re going to have US Treasury, you’re going to have all sorts of folks that actually want to [inaudible 00:33:27] on how to actually get this out. And getting to those people, well that’s about half my day for the last two weeks.

Jim: Have you talked to Mnuchin yet?

Bob: Not yet.

Jim: Is he the guy?

Bob: I think it’s going to be somewhere between him or Jerome at the Fed. The way we approach this is we work with organizations that actually can move a million to a hundred million people with a key, if you will, application. So UBI would be a great application. Now, once it’s done, CDC or Department of Health or Department of Labor or state of California or Virginia could ride on top of what they’ve already done because you’ve got verified identities with wallets with a way to transact. So the question is, what is the killer app and who’s the decision making body to drive the first implementation? And so it very well might end up being Gavin up in Sacramento. He very well has the appetite and the budget to actually go out and do California properly and get robust systems in place so that California is ready for the next wave.

Jim: But the real answer, if we wanted to have it done for this particular crisis and oh by the way, it’s possible we won’t need it. But again, as Jordan Hall and I discussed yesterday, a part of building a robust and resilient society is making medium size bets that you might have to throw away. Let’s say it turns out magically we solve this epidemic in September long before we need to continue having UBI next year, we have to throw away a few billion dollars. Oh, well. That would be my view on it in terms of how a society ought to think about hedging its bets.

Bob: It’s interesting. I’m actually not seeing it exactly the same way. And I’ll give you some concrete examples of why not, which is the Estonian experience was literally driven by the banks. The banks got tired of paying for know your customer systems. And so they went to the government and said give me a national ID system where I can actually just KYC everybody. Well, as soon as they did that, then the government looked up and went well, gosh, now I can deliver seven government services over the same infrastructure. India did the same thing. It’s like let’s put 1,000,000,001 people with biometric identity into the system and then build some rails. So now they’re doing pensions. Now this is the way you sign up for a bank account, this is the way you do 10 other things in society. And so, we’re seeing other societies leapfrog ahead, and I think the Americans just need to catch up. So we’ll have to invest in this infrastructure. And the only question is, what are the 10 or three or 30 applications that ride on top of the new infrastructure?

Jim: Yeah, you’re right. You’re right. I was wrong. If we build this thing for COVID and we don’t need it, we still have a hugely valuable asset for our whole society to make use of.

Bob: Yeah, absolutely.

Jim: All right, Bob, this has been amazingly interesting. Anybody who knows how to get to Mnuchin, contact Bob at his… I think you can probably find how to get a hold of him at We need to get Bob sitting down with Mnuchin or the guys at the Fed. We need to get this done, God damn it.

Bob: That’s right. All right, Jim. Thanks so-

Jim: All right. Thanks, Bob. This has been remarkably interesting and I think our listeners will find it important and worth thinking about.

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