Speaker 1: Thanks for downloading making a killing. I'm Bethany McLean, and
Speaker 1: I'm cutting through the noise to reframe the stories you
Speaker 1: know about and uncover the ones you don't know. I'll
Speaker 1: admit it, until very recently, the word fiat mostly meant
Speaker 1: cute little car. Okay, that's not quite fair, But if
Speaker 1: that sentence really resonates with you, you probably think more
Speaker 1: about crypto than I ever did. I remember friends telling
Speaker 1: me years ago that I had to buy bitcoin, but
Speaker 1: it seemed like a fad. There were too many unknowns.
Speaker 1: Fast forward eleven years, Bitcoin is celebrating double digit birthdays,
Speaker 1: at least if you're counting from Halloween two thousand and eight,
Speaker 1: when Satoshi Nakamoto first anonymously released his white paper Bitcoin
Speaker 1: Appeer to peer Electronic Cash System. Now bitcoin is the
Speaker 1: popular poster child or whipping boy for cryptocurrency in general.
Speaker 1: There are still so many unknowns, yet companies and investors
Speaker 1: are flocking to the space, despite so called crypto winters
Speaker 1: when bitcoin prices have crashed. Major global leaders are now
Speaker 1: making significant bets on the space. Starbucks, Microsoft, Visa, Facebook,
Speaker 1: the entire nation of China. Gone are the days of
Speaker 1: cyberpunks and computer science majors being the only ones in
Speaker 1: on the joke. But is it a joke? Digital assets
Speaker 1: are still in their infancy, yet it also feels like
Speaker 1: we're at a tipping point. What happens if cryptocurrencies totally
Speaker 1: upend the real financial markets? Is real? Even the right word?
Speaker 1: Are we in danger of that? I've learned never to
Speaker 1: look at any technology in isolation, and when I look
Speaker 1: at something like cryptocurrency, I think about the radiant effect
Speaker 1: it might have on how we transact in our everyday lives,
Speaker 1: how we value things, what the bigger effect might be
Speaker 1: on capital markets, trade relations, the US dollar. Today I'm
Speaker 1: in a San Francisco studio and my guest today is
Speaker 1: Chris McCann, an investor at proof of Capital, which recently
Speaker 1: announced a fifty million dollar fund to invest in blockchain
Speaker 1: and crypto related companies. I can't think of a better
Speaker 1: person to discuss the future of bitcoin with. Before we
Speaker 1: dive into all things crypto, I want to understand you
Speaker 1: and how you fit into this ecosystem. So tell us
Speaker 1: how did you get interested in crypto? So back in
Speaker 1: early twenty thirteen, I bought my first bitcoin, and the
Speaker 1: way I found out about it was, I guess so
Speaker 1: much to a lot of people in Silicon Valley. It
Speaker 1: was on a sort of random internet thread in hacker
Speaker 1: news if you know what that is. Yeah, And so
Speaker 1: I started looking into it, and then I stumbled upon
Speaker 1: like Silk Road and sort of tour and sort of
Speaker 1: all this stuff. But the thing that sort of fascinated
Speaker 1: me the most was not necessarily the marketplace, where I
Speaker 1: was like, what is this thing? Everybody's paying each other
Speaker 1: and like what is this bitcoin thing? And so it
Speaker 1: just sort of sparked my curiosity, and then I first
Speaker 1: bought a little bit, and then at the time I
Speaker 1: recently enjoined Greylock Partners, which is a more sort of
Speaker 1: traditional venture fund in the space, and so back in
Speaker 1: the twenty fourteen fifteen time frame, invested in Blockstream, Zappo,
Speaker 1: and coin Base, three sort of companies within the bitcoin space.
Speaker 1: And that really forced me to not look at it
Speaker 1: just from a more pure sort of currency angle, but
Speaker 1: more the actual companies, the operators, the developers, and sort
Speaker 1: of more like the overall market landscape, and long story short,
Speaker 1: I just really sort of fell in love with this
Speaker 1: category for a whole bunch of reasons. Yep, and what
Speaker 1: made you say though that this made sense as an
Speaker 1: investment as a startup landscape rather than is just a
Speaker 1: sort of intellectual curiosity. I think bitcoin in sort of
Speaker 1: cryptocurrency as as a whole is actually very very different
Speaker 1: than a traditional investment per se. One of the analogies
Speaker 1: I like to use is imagine if you're in a
Speaker 1: more traditional, you know, investment role, you know, venture capital firm,
Speaker 1: and you're looking at this bitcoin thing, and like, let's
Speaker 1: say you actually, you know, believe in the thesis and
Speaker 1: sort of the overall story. One of your first questions
Speaker 1: might actually be like, Hey, this bitcoin thing is cool.
Speaker 1: Can we have the founder the CEO come and pitch us? Right?
Speaker 1: And no such thing? No such thing. So you're like, okay,
Speaker 1: Like that's a little weird, but I can get over that.
Speaker 1: Can I buy like equity in this company? All right? No? Okay,
Speaker 1: who's on the board? Okay? Fine? I get over all that.
Speaker 1: You know, if I buy some of this bitcoin thing,
Speaker 1: what governance decisions do I get? Who actually controls this thing? Okay? Fine?
Speaker 1: All that? How do I actually store this thing? All
Speaker 1: like very normal traditional questions, But bitcoin is very counter
Speaker 1: to all of that, which again, it's a very simple analogy,
Speaker 1: but I think that's like a That's a major reason
Speaker 1: why I think a lot of people have a lot
Speaker 1: of difficulty with this is you almost sort of have
Speaker 1: to suspend your disbelief to a certain extent and treat
Speaker 1: this as kind of its own net new thing. Back
Speaker 1: then it was much more of a curiosity sake in
Speaker 1: wanting to learn more. But much more over the time
Speaker 1: and sort of have this market developed, and as I
Speaker 1: meant more people in the space, I've become much much
Speaker 1: more convicted that this isn't just a fat or fly
Speaker 1: by night thing like this is a much more real
Speaker 1: market landscape that I don't feel enough people are really
Speaker 1: spending the time and paying attention towards. Is there some
Speaker 1: way in which this grew out of the global financial
Speaker 1: crisis of two thousand and eight and a lack of
Speaker 1: trust in the financial system as it is, and does
Speaker 1: that form part of the founding principles of bitcoin? Or
Speaker 1: am I just reaching actually very much? Is so bitcoin?
Speaker 1: The first initial white paper and the first initial code
Speaker 1: implementation and was launched in two thousand and nine. It
Speaker 1: was actually very much a response to all the stuff
Speaker 1: we were seeing in the global financial system at the time. Again,
Speaker 1: the founder of Stosi, Nakamoto, is unknown, so you know,
Speaker 1: you kind of have to read into the tea leaves
Speaker 1: a little bit and a lot of his public form comments.
Speaker 1: You can't ask him or her directly. And then the
Speaker 1: other interesting thing is actually in the first transaction, so
Speaker 1: they call it like the Genesis transaction when you look
Speaker 1: actually look at like the hex code behind it, embedded
Speaker 1: in that is I think at the time there was
Speaker 1: a newspaper article about some sort of problem with one
Speaker 1: of the central banks in the United Kingdom, so that's
Speaker 1: actually embedded into it. So a lot of people sort
Speaker 1: of again read the tea leaves and say like, hey,
Speaker 1: this is actually a direct kind of correlation to it.
Speaker 1: So there definitely is a large contingency of people that
Speaker 1: just treat this as a more kind of call it
Speaker 1: sound form of money, and they very very much kind
Speaker 1: of buy into this thesas I was like the main
Speaker 1: sort of front and center, call it more like cipher
Speaker 1: punks kind of more people on the next gen sort
Speaker 1: of own financial rails, kind of its own form of currency.
Speaker 1: But now that it's it's a much much bigger market,
Speaker 1: you have much more traditional players from you know, Facebook
Speaker 1: to JP Morgans now even like large parts of the
Speaker 1: Chinese government sort of getting involved in getting involved into
Speaker 1: all this. So I would say the philosophical part is
Speaker 1: still a very important contingency, however, not the only one today.
Speaker 1: And that's such a major migration in a really short
Speaker 1: amount of time. How does that happen? How does it
Speaker 1: go from being this fringe thing celebrated by hackers and
Speaker 1: thebertarians to being very mainstream. How would you chart the
Speaker 1: key moments in that evolution. Yeah, no, it's a really
Speaker 1: good question because, yeah, back in twenty thirteen, like when
Speaker 1: we were looking into a lot of this stuff, nobody
Speaker 1: could have imagined the amount of just interests in development
Speaker 1: in the space today. I think at the time there's
Speaker 1: a lot of people theorizing you maybe at some point
Speaker 1: sort of the central bank governments would treat this more
Speaker 1: seriously and maybe even like buy bitcoin to put on
Speaker 1: balance sheet. But that was such a fringe for sort
Speaker 1: of out there notion. But literally within the span of
Speaker 1: ten years we've actually seen this only been a decade,
Speaker 1: and that's actually pretty remarkable. Yeah, like now you're starting
Speaker 1: to see much more of the larger, legitimate financial institutions,
Speaker 1: technical institutions, and even governments from around the world do
Speaker 1: real serious pilots in the space. Again, a lot of
Speaker 1: the stuff is still experimental and kind of early and
Speaker 1: a little weird, but like you're for the first time,
Speaker 1: you're actually starting to see real institutions treat the space
Speaker 1: as serious, not just like this really weird fringe thing.
Speaker 1: Is the world of crypto a world of competing platforms
Speaker 1: and technologies or is it a world of cooperating platforms
Speaker 1: and technologies. As much as I would love to say cooperating,
Speaker 1: most of the times, it feels more competitive when you
Speaker 1: add in a lot of the more philosophical and I
Speaker 1: almost feel sometimes more religious beliefs into and any one
Speaker 1: of these. Yeah, and definitely, and probably what also compounds
Speaker 1: this thing is you have a lot of these philosophical beliefs,
Speaker 1: but then you also buy whatever your choice of asset is,
Speaker 1: so then you actually really really feel strongly about it
Speaker 1: because your money's on the line. So people almost shoot
Speaker 1: it kind of like a religion sometimes, and you have
Speaker 1: people on very different sort of camps that literally will
Speaker 1: not even listen to an argument or not even you know,
Speaker 1: take other sides or not even be empirical about this. Wow,
Speaker 1: And does the divide generally fall among among uses for it,
Speaker 1: does it fall among sort of strictly technical arguments, or
Speaker 1: does it fall on these philosophical lines like this is
Speaker 1: what bitcoin was supposed to be and how can it
Speaker 1: be corrupted or co opted by the mainstream financial system.
Speaker 1: I'd say it's a little bit of all the above. Okay.
Speaker 1: So in terms of like the bigger camps that are
Speaker 1: out there, you definitely have the people on the bitcoin side,
Speaker 1: you have the people on the ethereum side. There's a
Speaker 1: whole other world of call it more people in the
Speaker 1: traditional financial institutions, you know, mostly in York and Chicago,
Speaker 1: that are trying to take all this stuff and fit
Speaker 1: this into the existing system. Some people in the corrupted
Speaker 1: world love this because it would bring actual more distribution
Speaker 1: and adoption. Some people hate this because this is the
Speaker 1: almost antithesis of Okay, it's anathema right to the original
Speaker 1: founding belief of what they've built this for. And then
Speaker 1: you have another almost separate sidecamp that more like blockchain
Speaker 1: for enterprise applications like supply chains, or like identity networks
Speaker 1: or sort of any of the consortiums or any of
Speaker 1: these kind of things that's like its own separate side view.
Speaker 1: And sometimes a lot of these different camps, a lot
Speaker 1: of them have religious and philosophical debates amongst one another,
Speaker 1: and also to some extent, like a lot of them
Speaker 1: don't even necessarily speak the whole the same language. And
Speaker 1: so a lot of people treat the blockchain or cryptospace
Speaker 1: in general as like this one monolithic thing. But the
Speaker 1: more and more time you spend with the actual people
Speaker 1: building this, it's actually much much much more divided than
Speaker 1: you might think, and the feature is much much much
Speaker 1: less clear than you might think. That's really interesting analogous
Speaker 1: in some ways, at least in the first part of it,
Speaker 1: to the financial system, which seems monolithic to people on
Speaker 1: the outside, but is actually composed of all these warring
Speaker 1: and very differently motivated entities. Right, So in some ways
Speaker 1: there's an analogy there. I guess where does bitcoin fit
Speaker 1: into this, fear? Do you still think of it as
Speaker 1: the critical part of this universe or do you think
Speaker 1: of it as a little corner of the universe that
Speaker 1: has since been eclipsed by all sorts of other more
Speaker 1: interesting developments. Yeah, so before this actually pulled some quick stats.
Speaker 1: So one, if you look at the overall market today,
Speaker 1: bitcoin is still sixty six percent of the total cryptocurrency market. Wow,
Speaker 1: that's bitcoin. So Bitcoin has been dominant, and it's still
Speaker 1: very dominant, and that market share has actually been increasing.
Speaker 1: So bitcoin alone, the asset as a whole, is worth
Speaker 1: one hundred and sixty eight billion dollars. There's three thousand
Speaker 1: to six thousand other tokens out there, depending on sort
Speaker 1: of what you look at, but by and large, bitcoin
Speaker 1: has the most dominant market share. And so again I
Speaker 1: think it's easy to get distracted by a lot of
Speaker 1: the new and emerging and sort of smart contracting, all
Speaker 1: this other stuff out there. But again, just when you
Speaker 1: look kind of empirically at the market, bitcoin is still
Speaker 1: buy and large the biggest one. That's really surprising to me.
Speaker 1: So you've likened to where we are in the crypto
Speaker 1: revolution to the early nineties, mid nineties and the Internet revolution.
Speaker 1: Talk about that a little bit. So about call it
Speaker 1: thirty to forty million people worldwide in total probably have
Speaker 1: store own or whole cryptocurrencies in totality. That's probably a rough,
Speaker 1: rough measure and that number's granted about twenty percent per year,
Speaker 1: again with the caveats of sometimes during the crazy periods
Speaker 1: it grows very very fast. Sometimes it drops much lower,
Speaker 1: but that's kind of a volatility as part of the
Speaker 1: name of the game, right. Yeah, that's kind of a rough,
Speaker 1: summed out estimation on the space. And that's analogous too
Speaker 1: in terms of the number of users and the growth
Speaker 1: rate to the mid nineties Internet. In my post you
Speaker 1: have the second portion, I was trying to plot that again,
Speaker 1: how big is this space currently and how does that
Speaker 1: look like to the Internet landscape. So again with all
Speaker 1: of that assumptions and kind of roughness to it, Yeah,
Speaker 1: we look like we're closer to nineteen ninety two to
Speaker 1: nineteen ninety four, even though we had the crazy run
Speaker 1: up that looked like the dot com. When you actually
Speaker 1: just look at the raw number of people interacting with
Speaker 1: the system, it's still a smaller subset of people. So
Speaker 1: we're still in that early phase, even though for a
Speaker 1: lot of people in the space that might not necessarily
Speaker 1: feel like that. But we're still kind of very much
Speaker 1: in that early adopter phase. We've not really moved over
Speaker 1: to the earlier late majority what are the areas that
Speaker 1: you guys are most excited about. You mentioned all these possibilities.
Speaker 1: What are the things that you're seeing real usage and
Speaker 1: that you're seeing the most opportunity and are the most
Speaker 1: excitement around. Yeah, So from a proof of capital fund standpoint,
Speaker 1: there's three broad areas we tend to gravitate towards. So
Speaker 1: there's one sort of all use cases around fintech and
Speaker 1: financial infrastructure, so think like exchanges, derivatives, wallets, lending, merchants, payments,
Speaker 1: kind of that whole world. It's the use case where
Speaker 1: we see the much more real traction in terms of
Speaker 1: like real volume and real payments, sort of real things
Speaker 1: flowing through. Secondly, which is a slightly unique tess, is
Speaker 1: we actually look at a lot of things on pull
Speaker 1: it the mining side, so mining, mutation, A six hardware,
Speaker 1: These are all the things that actually provide all the
Speaker 1: security guarantees for all the public open blockchains. You see
Speaker 1: most of the sectors tends to be mostly located in Asia,
Speaker 1: so from proof of capital we do about half investments
Speaker 1: half Asia, half US. And then the third category we
Speaker 1: tend to gravitate towards is things on the privacy and
Speaker 1: self sovereignty application side, so not necessarily the new privacy protocols,
Speaker 1: but the things more real people could use. So think
Speaker 1: like VPNs, secure messaging clients. Browser is kind of that
Speaker 1: whole more application side of things. Pause now, and that
Speaker 1: divide between the US and Asia and why that's important. Yeah,
Speaker 1: So this is another thing that's if the asset class
Speaker 1: in the space and the entrepreneurs is very different than
Speaker 1: you know, Web one or Web two. The other biggest
Speaker 1: difference is the geographical dispersion of this. It's not Silicon Valley. Yeah,
Speaker 1: that's the basic answer. But yeah, when you looked at
Speaker 1: a lot of the most significant companies in the Web
Speaker 1: two space, they all were mostly located thirty miles around
Speaker 1: Silicon Valley. Sure there were some pockets and you know
Speaker 1: a few other locations around the US, but a lot
Speaker 1: of the innovation and entrepreneurs and larger companies and everything
Speaker 1: tended to be in this space. Bitcoin and crypto very
Speaker 1: much challenge this notion where when you actually look at
Speaker 1: the entrepreneurs and where people are, Silicon Valley is a hub,
Speaker 1: but not the only one. In fact, I would actually
Speaker 1: very much argue that in this space, Asia actually plays
Speaker 1: a much much more important role because when you actually
Speaker 1: look at a lot of the trading volume and distribution
Speaker 1: and usage of this, it's actually mostly in Asia, not
Speaker 1: so much in the US. So while a lot of
Speaker 1: the technology and protocol developers and that side of the
Speaker 1: world still might be located here or visit here, a
Speaker 1: lot of the real activities actually mostly going on in Asia.
Speaker 1: And why is that? Yeah, another quick, very overgeneralized analogy.
Speaker 1: So one, when you talk about you know, bitcoin and
Speaker 1: all this cryptospace to a developer in Silicon Valley very generalistically,
Speaker 1: most people's reactions are, this is really cool. What can
Speaker 1: I use this for? What applications could I build? How
Speaker 1: is the protocol constructor to tell me about the rules,
Speaker 1: show me the code. When you say this exact same
Speaker 1: story to somebody in call it Hong Kong, let's be
Speaker 1: very general and you say, hey, we have this you
Speaker 1: know new thing. It has an asset, it's like you know, traded,
Speaker 1: it's on all these different exchanges. The purse the over
Speaker 1: generalization person in Hong Kong would say, Okay, that's cool.
Speaker 1: I get it. There's almost no question about what do
Speaker 1: you use it for? Like, what applications can you build?
Speaker 1: They're like, Nope, this is an asset that trades, that
Speaker 1: has a price that is independent of all the other
Speaker 1: things before, and then it's return profile also tends to
Speaker 1: be very discorrelated with everything else, so it doesn't really
Speaker 1: follow equities or debts. It kind of just does its
Speaker 1: own thing. And you know, traders and speculators and quant
Speaker 1: funds and financial people, they totally get that. In are
Speaker 1: just much more inherently natively comfortable with that fact. Are
Speaker 1: there some sort of cultural or personal associations with what
Speaker 1: money is that dictate that? Do you think? Two things?
Speaker 1: I had two other partners, so Edith Young's used to
Speaker 1: be gp AT five unders start ups doing a lot
Speaker 1: of their China and Asia investments. And our third partner's
Speaker 1: name is Phil Chen used to be a gp AT
Speaker 1: Horizon Adventures with le Cushing and Hong Kong. So they're
Speaker 1: much more equipped to like talk about a lot of
Speaker 1: the cultural aspects. But two sort of things that they're
Speaker 1: out there. One is, in general, there tends to be
Speaker 1: a lot less investment products. So in a lot of
Speaker 1: the specific countries, like even in Korea, for example, it
Speaker 1: was actually much harder to get access to the equity markets,
Speaker 1: it was much harder to do a lot of the
Speaker 1: things that people were doing in the US, so there
Speaker 1: was a lot of pent up demand for something new.
Speaker 1: And then maybe a second point is in general, like
Speaker 1: say specifically like mainland China, people there tend to be
Speaker 1: much more comfortable with just purely digital currencies. Like actually,
Speaker 1: when you even look at the primary forms of moving
Speaker 1: money in China is mainly we chat and alipay, and
Speaker 1: in that form, like there is almost no physicality to it.
Speaker 1: It's all on a phone, it's all sens people, it's
Speaker 1: all through QR codes. So if you have something like
Speaker 1: a bitcoin which has no physical form or not, like
Speaker 1: they they're just more inherent inherently. Okay with that that concept,
Speaker 1: I wonder if there's something to it that because the
Speaker 1: US dollar has been the reserve currency of the world,
Speaker 1: that there's something about moving away from that in the
Speaker 1: in the US. There might be some sort of interesting
Speaker 1: cultural underpinning there. But that's just pure speculation. I just
Speaker 1: just just thinking thinking out loud. Have you during your
Speaker 1: your adventures, I'm just going to call them adventures in cryptocurrency,
Speaker 1: has it changed the way you think about what money is? Yes,
Speaker 1: and I've always had a little bit of this h
Speaker 1: bias in me. One thing I actually don't talk about
Speaker 1: all too much. But back in the two thousand and
Speaker 1: seven two thousand and eight time frame, it's so much
Speaker 1: much longer story. But me and are a really close
Speaker 1: college friend of mine, we actually shorted a lot of
Speaker 1: things in the housing in sort of financial space, didn't
Speaker 1: you You could have been a character in the big
Speaker 1: short it was. It was aweso smaller amount. We're much
Speaker 1: poor college students. We didn't raise like a big fund
Speaker 1: or anything. I was. I tended to be a little
Speaker 1: bit more distrustful of that side. But you don't view
Speaker 1: money as this thing that just is that is absolutely solid,
Speaker 1: the way you might have if it hadn't been for
Speaker 1: this experience. Yeah, that's probably fair to say. And again
Speaker 1: when you look at the just going back to to bitcoin,
Speaker 1: what they do, which is a it's a very revolutionary concept,
Speaker 1: but they take all of the preconditions and rules and
Speaker 1: all that and they actually embedded into code and they
Speaker 1: put it open source school you can read it, so
Speaker 1: you don't necessarily have to trust the people who are
Speaker 1: building this or trust the founders. In fact, like the founders,
Speaker 1: SOTOSI is completely unknown. You just read it for yourself
Speaker 1: and you see the fix. The supply sketch schedule of
Speaker 1: bitcoin is fixed. There will only ever be twenty one
Speaker 1: million bitcoin ever minted, and it has a very fixed
Speaker 1: supply schedule that has every like one to two years
Speaker 1: or show depending on the mining schedule, where the issuance
Speaker 1: actually dropped. So all of that has actually known upfront
Speaker 1: from day one. So what happens when the last one
Speaker 1: is from mind? So right now, if you're a part
Speaker 1: of the mining ecosystem, part of your reward comes from
Speaker 1: the It's actually called a coin based reward. That's actually
Speaker 1: where coinbase gets its name from. Oh I didn't realize that.
Speaker 1: So you get a coin based reward, so that's the
Speaker 1: bitcoin that is is minted for you solving a new block,
Speaker 1: and then you get the transaction reward. So those two
Speaker 1: things together that's your revenue so to speak, for for
Speaker 1: mining that block. So when the last bitcoin gets mine,
Speaker 1: instead of having the coin based reward plus the transaction fee,
Speaker 1: there will be no more coin based reward anymore, and
Speaker 1: it'll just have to be purely subsidized by just the
Speaker 1: transaction fees. Okay, so it doesn't cease to exist at
Speaker 1: that point right now? Okay, back to that notion of
Speaker 1: what you believe in and what is money? There is
Speaker 1: a great tweet on Twitter that someone said about gold
Speaker 1: versus bitcoin. What do you believe in old shiny rocks
Speaker 1: or breakthrough in human incentives that enable the new species
Speaker 1: of money? Right? I mean, there's a point to that.
Speaker 1: And yet the thing I still get hung up on
Speaker 1: is that with the US dollar, with a fiat currency,
Speaker 1: it's it's backed by something. There's there's tax dollars behind it,
Speaker 1: there's a there's the government's ability to pay its bills.
Speaker 1: So how does bitcoin just float out there without any
Speaker 1: without any support? Am I thinking about that the wrong way? Yeah?
Speaker 1: So maybe two ways to answer that, one the more
Speaker 1: philosophical way, one the more real empirical way. I tend
Speaker 1: to feel have that split on a lot of things.
Speaker 1: I like that slot. So the much more philosophical version
Speaker 1: of that is, well, like, what truly is the dollar
Speaker 1: backed by a long time ago? It ud be backed
Speaker 1: by a gold standard, and you could actually redeem your
Speaker 1: dollars for amount of gold, And right now there's no
Speaker 1: sting that individually backs it. Sure it's you know, it's
Speaker 1: part of taxes. Sure, it's part of the US military,
Speaker 1: Sure it's it's it's it's a kingmaker as the worldwide
Speaker 1: reserve currency. But again, all those are valuable, and all
Speaker 1: of those are not necessarily going to stay forever, and
Speaker 1: so you know, you can get into much much more
Speaker 1: philosophical conversations like what is money and a lot of
Speaker 1: people in the bitcoin space like go back to like
Speaker 1: when people you know, treated like cshells like other sort
Speaker 1: of objects. Is money and money is really just a
Speaker 1: sort of a concept or figment of humanity to really
Speaker 1: put a unit of account in. So when you actually
Speaker 1: look into it, the definition is far more fuzzy than
Speaker 1: you might think. Again, a more realistic standpoint is the
Speaker 1: thing that actually really backs bitcoin specifically is actually all
Speaker 1: of the all of the people in the mining ecosystem,
Speaker 1: because all of the people in the mining ecosystem have
Speaker 1: to buy hardware, so specifically ASIC chips, they have to
Speaker 1: build these really huge facilities and do long term energy contracts,
Speaker 1: and so they are backs stopping or they have a
Speaker 1: fixed price on the supply side of what it actually
Speaker 1: costs to generate a bitcoin, and so that price today
Speaker 1: is about call it six to seven thousand dollars, depending
Speaker 1: on the energy sort of input in the system. So
Speaker 1: miners in general have an incentive not to let it
Speaker 1: fall before below that because their base cost for doing
Speaker 1: it is that that price. So it's really sort of
Speaker 1: that energy that mining in that hardware ecosystem that is
Speaker 1: giving it the security is also the supply input that
Speaker 1: gives it its real world sort of value to it.
Speaker 1: The short version that people say is mining ecosystem is
Speaker 1: basically converting energy into bitcoin, and the real world cost
Speaker 1: of the energy is the thing that gives the bitcoin
Speaker 1: the price weight to it. So I see you could
Speaker 1: get into a very deep philosophical argument about which is
Speaker 1: more real and which is more stable right between this,
Speaker 1: But let's go back to this the intersection of these
Speaker 1: two worlds. Now that you have these things colliding, where
Speaker 1: you have whether it's the existence of an ex change
Speaker 1: and custody, or whether it's the idea that you have
Speaker 1: this system that can convert crypto into US dollars and
Speaker 1: these stable coins, how do these two worlds coexist and
Speaker 1: does that mean some inherent corruption of the crypto ideal?
Speaker 1: So maybe answer the question in two parts one and
Speaker 1: a more broader long term time horizon. There's a certain
Speaker 1: camp of people that want to fit bitcoin in the
Speaker 1: cryptosystem into the traditional financial institutions. So think like there's
Speaker 1: a one of the more well known companies in the
Speaker 1: space as a company called Backed, which is found in
Speaker 1: and started by Ice, which is the parent company that
Speaker 1: owns the New York Stock Exchange. So back to I
Speaker 1: think around one hundred sixty two hundred and eighty million dollars,
Speaker 1: about as establishment as you can get, right as establishment
Speaker 1: as you can get. They're doing exchange and sort of
Speaker 1: features and options. They have a partnership with Starbucks, you
Speaker 1: know for all this. To try to kind of fit
Speaker 1: all this and put this into the purview of the
Speaker 1: traditional sort of financial system and fit it under the rules,
Speaker 1: there's a lot of friction in this because, you know,
Speaker 1: at its most basic level, then people start asking the question, well,
Speaker 1: like what is bitcoin? Is it a commodity, is it
Speaker 1: a currency, is it a asset? Is it a property?
Speaker 1: It sort of has a little bit of everything. It's
Speaker 1: kind of not it's not one thing explicitly, So bitcoin
Speaker 1: as a whole like doesn't really fit into an easy definition.
Speaker 1: And what a lot of also people say in the
Speaker 1: bitcoin world is bitcoin is is what bitcoin does. Like
Speaker 1: it doesn't really have a it doesn't have a need,
Speaker 1: it doesn't have a want. It's not trying to be something.
Speaker 1: Everybody's trying to put its own definitional rules on it.
Speaker 1: But no matter what you what you want, bitcoin is
Speaker 1: just going to keep doing what it does. I think,
Speaker 1: so I think therefore I am. So there's definitely sort
Speaker 1: of that side in that world. And then on the
Speaker 1: other hand, you actually have what I think is the
Speaker 1: kind of far more interesting side of the equation, where again,
Speaker 1: when you actually look at a lot of the trading volume,
Speaker 1: most of it actually tends to be outside the US,
Speaker 1: And so what some exchanges are doing is like, well,
Speaker 1: we'll just lean into that and just completely cut off
Speaker 1: all US users, and you know, maybe we'll set up
Speaker 1: in Singapore or Hong Kong or mainland China or Malta
Speaker 1: in sort of all these other places. So there's a
Speaker 1: company that I was a personal and early investor and
Speaker 1: called Binance Finance is a started office like just a
Speaker 1: pure spot market exchange, although they've now branched off to
Speaker 1: doing their own form of derivatives they have staking they
Speaker 1: have their own decentralized exchange, and they actually created their
Speaker 1: own currency that ties all this stuff together called it's
Speaker 1: called the Binance token, so B and B token. And
Speaker 1: what gives the B and B token its value or
Speaker 1: its weight is they actually take a portion of all
Speaker 1: the profits made through the exchange, and that goes to
Speaker 1: buy back their own token so restrict the supply. So
Speaker 1: almost think like a share buy back, although it doesn't
Speaker 1: have all that definition attached to it. So Binance as
Speaker 1: a whole this past year did a billion dollars in profit. Wow,
Speaker 1: which again like for like taking a step back just
Speaker 1: as a pure empirical investor to see a company start
Speaker 1: in less than two years to a billion dollars in profit,
Speaker 1: you almost never see that. No, that surpasses Amazon, Google everything, Right,
Speaker 1: I don't think there's ever even been anything like that
Speaker 1: in history before. Yeah, I don't know if anybody's actually
Speaker 1: compared that. A lot of people show like the time
Speaker 1: to valuation and like the times of revenue, but like
Speaker 1: this isn't just revenue literally profit of the exchange. So yeah,
Speaker 1: you almost never never see this happen. And what makes
Speaker 1: this company so interesting is they are purely tied to
Speaker 1: the call it pure bitcoin and crypto world. So what
Speaker 1: actually makes this crazy is like they actually pay their
Speaker 1: employees in the own b and be token. When you
Speaker 1: look at where their company headquarters are, they don't have
Speaker 1: a place that they're in there. The whole team, I
Speaker 1: think there's three hundred people. They're literally distributed all over
Speaker 1: the place. There's no exact jurisdiction. All the employees are
Speaker 1: getting paid. And like the native asset, all the traders
Speaker 1: of this are all mostly coming from not us, so
Speaker 1: all sort of natives to the crypto world. So another
Speaker 1: contrasting vision of all this is it's going to take
Speaker 1: some more time, but the entire bitcoin and cryptocurrency is
Speaker 1: its own quasi micro ecosystem, and that economy is going
Speaker 1: to grow in and of itself, and people could get
Speaker 1: paid in bitcoin or crypto, people would spend in bitcoin
Speaker 1: or crypto, and it's actually going to live apart and
Speaker 1: outside of the system versus being one to one part
Speaker 1: of it. But will regulators around the world allow that
Speaker 1: to happen? Will governments around the world allow that to happen?
Speaker 1: I guess the following would be, can I stop it
Speaker 1: from happening. But let's start with will Let's start with
Speaker 1: will they allow it to happen, Because the government's control
Speaker 1: of its currency is what a government has right for
Speaker 1: the longest time, I think people would have assumed that
Speaker 1: this whole space is way too early. None of these
Speaker 1: questions need to be answered for the longest time, and
Speaker 1: you know, they might not necessarily like it, but it
Speaker 1: might be very sort of hard to stop and once
Speaker 1: it's big enough that these companies can kind of solve
Speaker 1: that at the end. But I think what has happened
Speaker 1: over this ten years is this space has grown faster
Speaker 1: than what most people thought, and you have far more
Speaker 1: people paying attention to this than what you've thought. And
Speaker 1: so I do think that all of these companies as
Speaker 1: a whole will need to answer all of these questions
Speaker 1: for themselves from a regulatory standpoint, from a government standpoint,
Speaker 1: to how this fits into existing financial institution standpoint, and
Speaker 1: even if not necessarily all of them are solved. Like
Speaker 1: the mean critical thing that most of these companies really
Speaker 1: have to worry about is the FIA in and out
Speaker 1: portion of this, because most financial institutions, like what they
Speaker 1: really care about is when you're in putting money into
Speaker 1: the financial institution, or when you're taking it out, where
Speaker 1: has it gone? What have you done with it? What
Speaker 1: is the source of funds? So I think from an
Speaker 1: immediate term, like most of the exchanges are around the world,
Speaker 1: are really paying attention to those portions. I don't think
Speaker 1: there's far enough emphasis on the longer term standpoint of Okay,
Speaker 1: if you treat you know, bitcoin as a as an
Speaker 1: asset with you know, a real dollar value attached to it,
Speaker 1: what does that mean for all these other things? And
Speaker 1: you know, now with the some of the announcement of
Speaker 1: what's Facebook's doing versus what China is doing, I think
Speaker 1: that makes that question even more pressing. But yeah, I
Speaker 1: don't think there's necessarily an easy answer for that yet.
Speaker 1: But we don't really have any answers. That's fascinating. And
Speaker 1: so the following question then, I want to get to
Speaker 1: what does that mean for the US dollar? But that's
Speaker 1: also equally unanswerable. Yeah, I think it's it's equally answerable.
Speaker 1: And there's also another call it trend, which is sort
Speaker 1: of similar but slightly different to the whole bitcoin narrative,
Speaker 1: is there's a lot of these stable coins that are
Speaker 1: out there. So stable coins, if you've heard of these before,
Speaker 1: are basically tokens that represent one to one peering of
Speaker 1: a real world asset. So the easiest way to think
Speaker 1: about it is a US dollar stable coin. You know,
Speaker 1: one token equals one dollar, the one dollars held in reserve,
Speaker 1: you could always see, it's always there. So there's companies
Speaker 1: like USDC, which is done by coin Base and Circle
Speaker 1: that are out there. The one that is far more
Speaker 1: used than traded is this thing called USDT, which is
Speaker 1: slightly sketchier with the reserves not one hundred percent necessarily
Speaker 1: being there, but that's the one that people actually use
Speaker 1: and sort of trade with, but kind of zooming out
Speaker 1: in the longer term time frame when you look at
Speaker 1: that is that is actually very much in line, and
Speaker 1: in fact, that's almost the hyperdollarization, if you will, because
Speaker 1: you're actually getting dollars in the hands of more and
Speaker 1: more people, you're locking up more dollars, you're making dollar
Speaker 1: almost the native underpinning currency of a lot of these
Speaker 1: different things. So again, like maybe just the step back,
Speaker 1: I think it's sometimes hard to characterize this space as
Speaker 1: one monolithic thing. There's a lot of different experiments going
Speaker 1: into this, and from a venture investor, I think that's
Speaker 1: what makes the space so exciting too. Yeah, and you've
Speaker 1: had a big change in the government. There is a
Speaker 1: great quote from of all people, Senate Banking Committee Chairman
Speaker 1: Mike Krappo who said during a hearing, if the United
Speaker 1: States were to decide we don't want cryptocurrency to happen
Speaker 1: in the United States and tried to ban it, I'm
Speaker 1: pretty confident we couldn't succeed in doing that, which is
Speaker 1: a pretty big statement. Right. You have this development that
Speaker 1: could challenge the supremacy of the US dollar and could
Speaker 1: challenge many things about our world as it is, and
Speaker 1: you have powerful person and government essentially saying we can't
Speaker 1: do anything about it. That's pretty pretty dramatic, I thought. Yeah. Again,
Speaker 1: to take aside from the more purely bitcoin side, is
Speaker 1: to hold their store bitcoin, all you need to do
Speaker 1: is generate a public and private key pair. That's essentially
Speaker 1: how you hold it. And to transact with somebody else
Speaker 1: as you just need to know their public address and
Speaker 1: it goes directly to the person and it's settled with
Speaker 1: the person in about ten to twenty minutes, and you
Speaker 1: don't have to go through any third party. That was
Speaker 1: kind of the whole point of bitcoin to begin with.
Speaker 1: And so I think there's ways to restrict the feet
Speaker 1: in outpoints, there's a way to restrict like the merchants involved.
Speaker 1: But when you just look at the pure P to
Speaker 1: P side of this, it's very very hard, if not impossible,
Speaker 1: to outright ban this, even if you really wanted to.
Speaker 1: And that's that's what I think makes bitcoin to some
Speaker 1: extent so powerful. Is that like setoshi for better for worse,
Speaker 1: meet it. So there's no there's no person, there's no entity,
Speaker 1: there's no company. Yeah, it goes back to your point
Speaker 1: about why it was hard to figure out investment in
Speaker 1: the beginning, But it's also why it's hard to control
Speaker 1: and hard to figure out what to do with it. Right.
Speaker 1: It's the that that that whole point of who is it?
Speaker 1: What is it? Where is it? The basic questions are
Speaker 1: that's what that's what gives it both it's it's mystique
Speaker 1: and it's it's scariness and it's appeal, right all wrapped
Speaker 1: up into one. Okay, so I've found this quote from
Speaker 1: John McAfee, who of course has a competing um Tech
Speaker 1: kind of don't laugh, But he said, in his view
Speaker 1: of books, labor is an abomination, a twisted perversion of cryptocurrency.
Speaker 1: But it's very definition. Cryptocurrency wants to free us from control.
Speaker 1: But libra is nothing but control. Is that fair? I
Speaker 1: might not go so far in the fact to say
Speaker 1: that Facebook is the end all and be all evil.
Speaker 1: It is that it is. However, I will say from
Speaker 1: the fact that it is very opposite what many of
Speaker 1: the ideals that a lot of people in the bitcoin
Speaker 1: world share. In the fact that you know, in the
Speaker 1: Facebook world, it would have to be mediated. It would
Speaker 1: go through a big company or multiple sort of big companies,
Speaker 1: or a part of the association. It would effectively get
Speaker 1: to see all the transactions that were happening. They could
Speaker 1: probably do you know, more targeted ads on you based
Speaker 1: on what you're actually buying and selling who you're transacting with.
Speaker 1: So yeah, I don't necessarily agree with many of the
Speaker 1: things that mcaffee has to say, but to some extent,
Speaker 1: like people in the bitcoin space, do feel that Libra
Speaker 1: is opposite towards many of the ideals that they hold
Speaker 1: very strongly. Does that explain why you've had such a
Speaker 1: reaction to it. One thing I found interesting is you
Speaker 1: had so many people signing onto it initially, and then
Speaker 1: now you've had everybody saying, whoa stepping back? And is
Speaker 1: it because of pushback from regulators or is it because
Speaker 1: they figured out that it actually is just part of
Speaker 1: Facebook's ongoing bid to rule the world personally, Like, I've
Speaker 1: been somewhat critical of the Facebook leab story, so on
Speaker 1: day one when they made the announcement, I wrote this
Speaker 1: long post talking about the announcement, and my main prediction
Speaker 1: at the end of it is I thought that they
Speaker 1: would be delayed, not for any technical reasons, but majority
Speaker 1: regulatory reasons, just because of Facebook's is a very unloved
Speaker 1: company for lack of a better word. I was actually
Speaker 1: really surprised when you actually look at the NPS score
Speaker 1: for Facebook. I think it's negative forty seven, Like it's
Speaker 1: really really bad, like actually worse than most financial institutions,
Speaker 1: And so that's an astounding accomplishment. Actually yeah, so yeah,
Speaker 1: I thought there was no way that they'd be able
Speaker 1: to launch us on the timescale that they initially set
Speaker 1: out to do so, and it's looking that is likely
Speaker 1: to be the case. To say the other side, I
Speaker 1: think many people in the crypto ecosystem we're very initially
Speaker 1: excited about Libra is because one of the biggest questions
Speaker 1: that a lot of people ask in the spaces, hey
Speaker 1: when is real mainstream adoption going to happen? And Facebook
Speaker 1: had the answer was, well, we have It's about as
Speaker 1: mainstream as it gets, right, you know, we have I
Speaker 1: don't know the exact stats, we have two to three
Speaker 1: billion daily active users. So if you know, we really
Speaker 1: create this cryptocurrency, put in everybody's walls, put into a
Speaker 1: messenger like, we can push it out to many people.
Speaker 1: And I think many people in the cryptospace will might
Speaker 1: not necessarily have loved that per se, they might have
Speaker 1: liked the fact that, hey, if you get this in
Speaker 1: the hands of enough people, a certain subset or portion
Speaker 1: of them are going to say, hey, now that I
Speaker 1: have this digital asset, well, hey what about this bitcoin thing?
Speaker 1: What about this ethereum thing? It kind of gets them
Speaker 1: crypto curious for lack cryptocurious is the best phrase for
Speaker 1: lack of a better phrase. I think it's dangerous because again,
Speaker 1: you're giving up a lot of those ideals for the
Speaker 1: hope of distribution and adoption. But then also, like my
Speaker 1: personal takeaway is I think the sole reason why Facebook
Speaker 1: was doing this from the beginning was not necessarily to
Speaker 1: create a new, open, decentralized sort of finance ecosystem. If
Speaker 1: they did, they would have just bought into bitcoin very
Speaker 1: so much like what Square and Jack is doing, I
Speaker 1: actually think they did this more for monetization reasons for
Speaker 1: Facebook itself. My two cents. I don't know if this
Speaker 1: is true or not, but when you look at the
Speaker 1: actual LTV of a user, most of the values coming
Speaker 1: from all their US users. They have a lot of
Speaker 1: users outside of the US, but they an LTV, I
Speaker 1: mean long term value just to okay, yeah, sorry for
Speaker 1: the acronyms, but yeah, the value per users much higher
Speaker 1: in the US, and when you look outside of the US,
Speaker 1: it tends to be lower because the ad rates and
Speaker 1: that sort of ad purchases is a lower amount. And
Speaker 1: so my opinion, I think Facebook has always had this
Speaker 1: dream that hey, if we can actually get into the
Speaker 1: payment flow, in the monetary flow of particularly users outside
Speaker 1: of the US, then we can increase the value per
Speaker 1: user for all these other ones. So when you actually
Speaker 1: look at Facebook's history, they actually did like a Facebook
Speaker 1: credit system that they were doing, like things with PayPal
Speaker 1: and David Marcus from before. This is kind of just
Speaker 1: another iteration on the chain that they've been following. And
Speaker 1: I think this is actually a much more inherently Facebook
Speaker 1: revenue monetization sort of story. They just kind of co
Speaker 1: opted bitcoin and crypto and this all other stuff in
Speaker 1: order to push their narrative. I think it's smart and
Speaker 1: sort of sneaky at the same time, but at least
Speaker 1: from my opinion, I think that's the larger reason why
Speaker 1: they did it, not necessarily because they're bought into this
Speaker 1: new financial system. It's a perfect way of sending up
Speaker 1: for the epitome of this conversation we've been having, right,
Speaker 1: which is the benefits of co option and a cooperation
Speaker 1: versus idealism. And Facebook's move in some ways is the
Speaker 1: ultimate cynicism, right, And then the ideas do you celebrate
Speaker 1: that and go along with it because it's making the
Speaker 1: market bigger and more vibrant potentially, or do you say, WHOA,
Speaker 1: this is not the direction we want this to go.
Speaker 1: It's sort of a fascinating encapsulation of the whole debate
Speaker 1: in some ways, right, Thank you so much for being here.
Speaker 1: It's been really fun to talk to you. Yeah, I
Speaker 1: think it's been really fun. Thank you for having me so.
Speaker 1: I never would have guessed then in a conversation about Crypto,
Speaker 1: I would have learned a new story about the financial crisis.
Speaker 1: But maybe given crypto's philosophical underpinnings, I should have guessed
Speaker 1: that which in Gears entirely. My producer Megan and I
Speaker 1: were both thinking the same thing as we listened to Chris.
Speaker 1: We were thinking Dune. Seriously, remember the famous science fiction
Speaker 1: book with its warring fiefdoms, but also the hero of sorts,
Speaker 1: Paul Atreides, becomes the one who can be many places
Speaker 1: at once and can see many paths into the future.
Speaker 1: Right now, we can see many paths for cryptocurrency, including
Speaker 1: that it upends one of our most basic institute money,
Speaker 1: but we can't yet see the path it will take.
Speaker 1: Makia Killing is a co production of Pushkin Industries and
Speaker 1: Chalk and Blade. It's produced by Ruth Barnes and Laura Hyde.
Speaker 1: My executive producers are Alison McClain no relation in making Casey.
Speaker 1: The executive producer at Pushkin is Mia Loebell. Engineering by
Speaker 1: Jason Rostkowski. Our music is by Jed Flood. Special thanks
Speaker 1: to Jacob Weisberg at Pushkin and everyone on the show.
Speaker 1: I'm Bethany McClain. Thanks so much for listening. Find me
Speaker 1: on Twitter at Bethany mac twelve and let me know
Speaker 1: which episodes you've most enjoyed.