January 6, 2020 • 40 mins
Cryptocurrencies are still in their infancy, as it seems most people agree, but it also feels like we’ve reached a tipping point. Even in Crypto Winters when Bitcoin prices crash, undeniably formative companies and global leaders (Starbucks, Microsoft, Visa, Facebook, the entire nation of China!) continue to make significant bets on the space. As we move from a speculative era into today, driven by more and more people investing time and money into the Bitcoin ecosystem, how do we know that digital assets will find a regular, scalable place in the world? What happens if crypto totally upends the “real” (is that fair to say?) financial markets? Are we in danger of that? What happens if there is a recession in the U.S. again - does Bitcoin become more attractive as an alternative to a centralized federal money system? And what is money, anyway? Bethany's guest Chris McCann, partner at Proof of Capital, chats about all this and more.
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Episode Transcript
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Speaker 1 (00:00):
Thanks for downloading making a killing. I'm Bethany McLean, and
I'm cutting through the noise to reframe the stories you
know about and uncover the ones you don't know. I'll
admit it, until very recently, the word fiat mostly meant
cute little car. Okay, that's not quite fair, But if
that sentence really resonates with you, you probably think more
(00:21):
about crypto than I ever did. I remember friends telling
me years ago that I had to buy bitcoin, but
it seemed like a fad. There were too many unknowns.
Fast forward eleven years, Bitcoin is celebrating double digit birthdays,
at least if you're counting from Halloween two thousand and eight,
when Satoshi Nakamoto first anonymously released his white paper Bitcoin
(00:43):
Appeer to peer Electronic Cash System. Now bitcoin is the
popular poster child or whipping boy for cryptocurrency in general.
There are still so many unknowns, yet companies and investors
are flocking to the space, despite so called crypto winters
when bitcoin prices have crashed. Major global leaders are now
(01:05):
making significant bets on the space. Starbucks, Microsoft, Visa, Facebook,
the entire nation of China. Gone are the days of
cyberpunks and computer science majors being the only ones in
on the joke. But is it a joke? Digital assets
are still in their infancy, yet it also feels like
we're at a tipping point. What happens if cryptocurrencies totally
(01:27):
upend the real financial markets? Is real? Even the right word?
Are we in danger of that? I've learned never to
look at any technology in isolation, and when I look
at something like cryptocurrency, I think about the radiant effect
it might have on how we transact in our everyday lives,
how we value things, what the bigger effect might be
on capital markets, trade relations, the US dollar. Today I'm
(01:51):
in a San Francisco studio and my guest today is
Chris McCann, an investor at proof of Capital, which recently
announced a fifty million dollar fund to invest in blockchain
and crypto related companies. I can't think of a better
person to discuss the future of bitcoin with. Before we
dive into all things crypto, I want to understand you
and how you fit into this ecosystem. So tell us
(02:12):
how did you get interested in crypto? So back in
early twenty thirteen, I bought my first bitcoin, and the
way I found out about it was, I guess so
much to a lot of people in Silicon Valley. It
was on a sort of random internet thread in hacker
news if you know what that is. Yeah, And so
I started looking into it, and then I stumbled upon
like Silk Road and sort of tour and sort of
(02:35):
all this stuff. But the thing that sort of fascinated
me the most was not necessarily the marketplace, where I
was like, what is this thing? Everybody's paying each other
and like what is this bitcoin thing? And so it
just sort of sparked my curiosity, and then I first
bought a little bit, and then at the time I
recently enjoined Greylock Partners, which is a more sort of
traditional venture fund in the space, and so back in
(02:57):
the twenty fourteen fifteen time frame, invested in Blockstream, Zappo,
and coin Base, three sort of companies within the bitcoin space.
And that really forced me to not look at it
just from a more pure sort of currency angle, but
more the actual companies, the operators, the developers, and sort
of more like the overall market landscape, and long story short,
I just really sort of fell in love with this
(03:18):
category for a whole bunch of reasons. Yep, and what
made you say though that this made sense as an
investment as a startup landscape rather than is just a
sort of intellectual curiosity. I think bitcoin in sort of
cryptocurrency as as a whole is actually very very different
than a traditional investment per se. One of the analogies
(03:39):
I like to use is imagine if you're in a
more traditional, you know, investment role, you know, venture capital firm,
and you're looking at this bitcoin thing, and like, let's
say you actually, you know, believe in the thesis and
sort of the overall story. One of your first questions
might actually be like, Hey, this bitcoin thing is cool.
Can we have the founder the CEO come and pitch us? Right?
And no such thing? No such thing. So you're like, okay,
(04:01):
Like that's a little weird, but I can get over that.
Can I buy like equity in this company? All right? No? Okay,
who's on the board? Okay? Fine? I get over all that.
You know, if I buy some of this bitcoin thing,
what governance decisions do I get? Who actually controls this thing? Okay? Fine?
All that? How do I actually store this thing? All
(04:23):
like very normal traditional questions, But bitcoin is very counter
to all of that, which again, it's a very simple analogy,
but I think that's like a That's a major reason
why I think a lot of people have a lot
of difficulty with this is you almost sort of have
to suspend your disbelief to a certain extent and treat
(04:45):
this as kind of its own net new thing. Back
then it was much more of a curiosity sake in
wanting to learn more. But much more over the time
and sort of have this market developed, and as I
meant more people in the space, I've become much much
more convicted that this isn't just a fat or fly
by night thing like this is a much more real
market landscape that I don't feel enough people are really
(05:07):
spending the time and paying attention towards. Is there some
way in which this grew out of the global financial
crisis of two thousand and eight and a lack of
trust in the financial system as it is, and does
that form part of the founding principles of bitcoin? Or
am I just reaching actually very much? Is so bitcoin?
The first initial white paper and the first initial code
implementation and was launched in two thousand and nine. It
(05:28):
was actually very much a response to all the stuff
we were seeing in the global financial system at the time. Again,
the founder of Stosi, Nakamoto, is unknown, so you know,
you kind of have to read into the tea leaves
a little bit and a lot of his public form comments.
You can't ask him or her directly. And then the
other interesting thing is actually in the first transaction, so
(05:48):
they call it like the Genesis transaction when you look
actually look at like the hex code behind it, embedded
in that is I think at the time there was
a newspaper article about some sort of problem with one
of the central banks in the United Kingdom, so that's
actually embedded into it. So a lot of people sort
of again read the tea leaves and say like, hey,
this is actually a direct kind of correlation to it.
(06:10):
So there definitely is a large contingency of people that
just treat this as a more kind of call it
sound form of money, and they very very much kind
of buy into this thesas I was like the main
sort of front and center, call it more like cipher
punks kind of more people on the next gen sort
of own financial rails, kind of its own form of currency.
(06:32):
But now that it's it's a much much bigger market,
you have much more traditional players from you know, Facebook
to JP Morgans now even like large parts of the
Chinese government sort of getting involved in getting involved into
all this. So I would say the philosophical part is
still a very important contingency, however, not the only one today.
And that's such a major migration in a really short
(06:53):
amount of time. How does that happen? How does it
go from being this fringe thing celebrated by hackers and
thebertarians to being very mainstream. How would you chart the
key moments in that evolution. Yeah, no, it's a really
good question because, yeah, back in twenty thirteen, like when
we were looking into a lot of this stuff, nobody
could have imagined the amount of just interests in development
(07:16):
in the space today. I think at the time there's
a lot of people theorizing you maybe at some point
sort of the central bank governments would treat this more
seriously and maybe even like buy bitcoin to put on
balance sheet. But that was such a fringe for sort
of out there notion. But literally within the span of
ten years we've actually seen this only been a decade,
and that's actually pretty remarkable. Yeah, like now you're starting
(07:39):
to see much more of the larger, legitimate financial institutions,
technical institutions, and even governments from around the world do
real serious pilots in the space. Again, a lot of
the stuff is still experimental and kind of early and
a little weird, but like you're for the first time,
you're actually starting to see real institutions treat the space
as serious, not just like this really weird fringe thing.
(08:03):
Is the world of crypto a world of competing platforms
and technologies or is it a world of cooperating platforms
and technologies. As much as I would love to say cooperating,
most of the times, it feels more competitive when you
add in a lot of the more philosophical and I
almost feel sometimes more religious beliefs into and any one
(08:26):
of these. Yeah, and definitely, and probably what also compounds
this thing is you have a lot of these philosophical beliefs,
but then you also buy whatever your choice of asset is,
so then you actually really really feel strongly about it
because your money's on the line. So people almost shoot
it kind of like a religion sometimes, and you have
(08:46):
people on very different sort of camps that literally will
not even listen to an argument or not even you know,
take other sides or not even be empirical about this. Wow,
And does the divide generally fall among among uses for it,
does it fall among sort of strictly technical arguments, or
does it fall on these philosophical lines like this is
(09:07):
what bitcoin was supposed to be and how can it
be corrupted or co opted by the mainstream financial system.
I'd say it's a little bit of all the above. Okay.
So in terms of like the bigger camps that are
out there, you definitely have the people on the bitcoin side,
you have the people on the ethereum side. There's a
whole other world of call it more people in the
traditional financial institutions, you know, mostly in York and Chicago,
(09:29):
that are trying to take all this stuff and fit
this into the existing system. Some people in the corrupted
world love this because it would bring actual more distribution
and adoption. Some people hate this because this is the
almost antithesis of Okay, it's anathema right to the original
founding belief of what they've built this for. And then
you have another almost separate sidecamp that more like blockchain
(09:50):
for enterprise applications like supply chains, or like identity networks
or sort of any of the consortiums or any of
these kind of things that's like its own separate side view.
And sometimes a lot of these different camps, a lot
of them have religious and philosophical debates amongst one another,
and also to some extent, like a lot of them
don't even necessarily speak the whole the same language. And
(10:13):
so a lot of people treat the blockchain or cryptospace
in general as like this one monolithic thing. But the
more and more time you spend with the actual people
building this, it's actually much much much more divided than
you might think, and the feature is much much much
less clear than you might think. That's really interesting analogous
in some ways, at least in the first part of it,
(10:34):
to the financial system, which seems monolithic to people on
the outside, but is actually composed of all these warring
and very differently motivated entities. Right, So in some ways
there's an analogy there. I guess where does bitcoin fit
into this, fear? Do you still think of it as
the critical part of this universe or do you think
of it as a little corner of the universe that
(10:54):
has since been eclipsed by all sorts of other more
interesting developments. Yeah, so before this actually pulled some quick stats.
So one, if you look at the overall market today,
bitcoin is still sixty six percent of the total cryptocurrency market. Wow,
that's bitcoin. So Bitcoin has been dominant, and it's still
very dominant, and that market share has actually been increasing.
(11:15):
So bitcoin alone, the asset as a whole, is worth
one hundred and sixty eight billion dollars. There's three thousand
to six thousand other tokens out there, depending on sort
of what you look at, but by and large, bitcoin
has the most dominant market share. And so again I
think it's easy to get distracted by a lot of
the new and emerging and sort of smart contracting, all
(11:38):
this other stuff out there. But again, just when you
look kind of empirically at the market, bitcoin is still
buy and large the biggest one. That's really surprising to me.
So you've likened to where we are in the crypto
revolution to the early nineties, mid nineties and the Internet revolution.
Talk about that a little bit. So about call it
thirty to forty million people worldwide in total probably have
(12:01):
store own or whole cryptocurrencies in totality. That's probably a rough,
rough measure and that number's granted about twenty percent per year,
again with the caveats of sometimes during the crazy periods
it grows very very fast. Sometimes it drops much lower,
but that's kind of a volatility as part of the
(12:22):
name of the game, right. Yeah, that's kind of a rough,
summed out estimation on the space. And that's analogous too
in terms of the number of users and the growth
rate to the mid nineties Internet. In my post you
have the second portion, I was trying to plot that again,
how big is this space currently and how does that
look like to the Internet landscape. So again with all
(12:43):
of that assumptions and kind of roughness to it, Yeah,
we look like we're closer to nineteen ninety two to
nineteen ninety four, even though we had the crazy run
up that looked like the dot com. When you actually
just look at the raw number of people interacting with
the system, it's still a smaller subset of people. So
we're still in that early phase, even though for a
(13:05):
lot of people in the space that might not necessarily
feel like that. But we're still kind of very much
in that early adopter phase. We've not really moved over
to the earlier late majority what are the areas that
you guys are most excited about. You mentioned all these possibilities.
What are the things that you're seeing real usage and
that you're seeing the most opportunity and are the most
(13:25):
excitement around. Yeah, So from a proof of capital fund standpoint,
there's three broad areas we tend to gravitate towards. So
there's one sort of all use cases around fintech and
financial infrastructure, so think like exchanges, derivatives, wallets, lending, merchants, payments,
kind of that whole world. It's the use case where
we see the much more real traction in terms of
(13:48):
like real volume and real payments, sort of real things
flowing through. Secondly, which is a slightly unique tess, is
we actually look at a lot of things on pull
it the mining side, so mining, mutation, A six hardware,
These are all the things that actually provide all the
security guarantees for all the public open blockchains. You see
most of the sectors tends to be mostly located in Asia,
(14:11):
so from proof of capital we do about half investments
half Asia, half US. And then the third category we
tend to gravitate towards is things on the privacy and
self sovereignty application side, so not necessarily the new privacy protocols,
but the things more real people could use. So think
like VPNs, secure messaging clients. Browser is kind of that
(14:34):
whole more application side of things. Pause now, and that
divide between the US and Asia and why that's important. Yeah,
So this is another thing that's if the asset class
in the space and the entrepreneurs is very different than
you know, Web one or Web two. The other biggest
difference is the geographical dispersion of this. It's not Silicon Valley. Yeah,
(14:55):
that's the basic answer. But yeah, when you looked at
a lot of the most significant companies in the Web
two space, they all were mostly located thirty miles around
Silicon Valley. Sure there were some pockets and you know
a few other locations around the US, but a lot
of the innovation and entrepreneurs and larger companies and everything
tended to be in this space. Bitcoin and crypto very
(15:17):
much challenge this notion where when you actually look at
the entrepreneurs and where people are, Silicon Valley is a hub,
but not the only one. In fact, I would actually
very much argue that in this space, Asia actually plays
a much much more important role because when you actually
look at a lot of the trading volume and distribution
and usage of this, it's actually mostly in Asia, not
(15:40):
so much in the US. So while a lot of
the technology and protocol developers and that side of the
world still might be located here or visit here, a
lot of the real activities actually mostly going on in Asia.
And why is that? Yeah, another quick, very overgeneralized analogy.
So one, when you talk about you know, bitcoin and
all this cryptospace to a developer in Silicon Valley very generalistically,
(16:05):
most people's reactions are, this is really cool. What can
I use this for? What applications could I build? How
is the protocol constructor to tell me about the rules,
show me the code. When you say this exact same
story to somebody in call it Hong Kong, let's be
very general and you say, hey, we have this you
know new thing. It has an asset, it's like you know, traded,
(16:25):
it's on all these different exchanges. The purse the over
generalization person in Hong Kong would say, Okay, that's cool.
I get it. There's almost no question about what do
you use it for? Like, what applications can you build?
They're like, Nope, this is an asset that trades, that
has a price that is independent of all the other
things before, and then it's return profile also tends to
(16:47):
be very discorrelated with everything else, so it doesn't really
follow equities or debts. It kind of just does its
own thing. And you know, traders and speculators and quant
funds and financial people, they totally get that. In are
just much more inherently natively comfortable with that fact. Are
there some sort of cultural or personal associations with what
(17:09):
money is that dictate that? Do you think? Two things?
I had two other partners, so Edith Young's used to
be gp AT five unders start ups doing a lot
of their China and Asia investments. And our third partner's
name is Phil Chen used to be a gp AT
Horizon Adventures with le Cushing and Hong Kong. So they're
much more equipped to like talk about a lot of
the cultural aspects. But two sort of things that they're
(17:30):
out there. One is, in general, there tends to be
a lot less investment products. So in a lot of
the specific countries, like even in Korea, for example, it
was actually much harder to get access to the equity markets,
it was much harder to do a lot of the
things that people were doing in the US, so there
was a lot of pent up demand for something new.
(17:50):
And then maybe a second point is in general, like
say specifically like mainland China, people there tend to be
much more comfortable with just purely digital currencies. Like actually,
when you even look at the primary forms of moving
money in China is mainly we chat and alipay, and
in that form, like there is almost no physicality to it.
(18:11):
It's all on a phone, it's all sens people, it's
all through QR codes. So if you have something like
a bitcoin which has no physical form or not, like
they they're just more inherent inherently. Okay with that that concept,
I wonder if there's something to it that because the
US dollar has been the reserve currency of the world,
that there's something about moving away from that in the
(18:31):
in the US. There might be some sort of interesting
cultural underpinning there. But that's just pure speculation. I just
just just thinking thinking out loud. Have you during your
your adventures, I'm just going to call them adventures in cryptocurrency,
has it changed the way you think about what money is? Yes,
and I've always had a little bit of this h
bias in me. One thing I actually don't talk about
(18:54):
all too much. But back in the two thousand and
seven two thousand and eight time frame, it's so much
much longer story. But me and are a really close
college friend of mine, we actually shorted a lot of
things in the housing in sort of financial space, didn't
you You could have been a character in the big
short it was. It was aweso smaller amount. We're much
poor college students. We didn't raise like a big fund
(19:16):
or anything. I was. I tended to be a little
bit more distrustful of that side. But you don't view
money as this thing that just is that is absolutely solid,
the way you might have if it hadn't been for
this experience. Yeah, that's probably fair to say. And again
when you look at the just going back to to bitcoin,
what they do, which is a it's a very revolutionary concept,
(19:40):
but they take all of the preconditions and rules and
all that and they actually embedded into code and they
put it open source school you can read it, so
you don't necessarily have to trust the people who are
building this or trust the founders. In fact, like the founders,
SOTOSI is completely unknown. You just read it for yourself
and you see the fix. The supply sketch schedule of
(20:00):
bitcoin is fixed. There will only ever be twenty one
million bitcoin ever minted, and it has a very fixed
supply schedule that has every like one to two years
or show depending on the mining schedule, where the issuance
actually dropped. So all of that has actually known upfront
from day one. So what happens when the last one
is from mind? So right now, if you're a part
(20:21):
of the mining ecosystem, part of your reward comes from
the It's actually called a coin based reward. That's actually
where coinbase gets its name from. Oh I didn't realize that.
So you get a coin based reward, so that's the
bitcoin that is is minted for you solving a new block,
and then you get the transaction reward. So those two
things together that's your revenue so to speak, for for
(20:42):
mining that block. So when the last bitcoin gets mine,
instead of having the coin based reward plus the transaction fee,
there will be no more coin based reward anymore, and
it'll just have to be purely subsidized by just the
transaction fees. Okay, so it doesn't cease to exist at
that point right now? Okay, back to that notion of
what you believe in and what is money? There is
(21:03):
a great tweet on Twitter that someone said about gold
versus bitcoin. What do you believe in old shiny rocks
or breakthrough in human incentives that enable the new species
of money? Right? I mean, there's a point to that.
And yet the thing I still get hung up on
is that with the US dollar, with a fiat currency,
it's it's backed by something. There's there's tax dollars behind it,
there's a there's the government's ability to pay its bills.
(21:26):
So how does bitcoin just float out there without any
without any support? Am I thinking about that the wrong way? Yeah?
So maybe two ways to answer that, one the more
philosophical way, one the more real empirical way. I tend
to feel have that split on a lot of things.
I like that slot. So the much more philosophical version
of that is, well, like, what truly is the dollar
(21:49):
backed by a long time ago? It ud be backed
by a gold standard, and you could actually redeem your
dollars for amount of gold, And right now there's no
sting that individually backs it. Sure it's you know, it's
part of taxes. Sure, it's part of the US military,
Sure it's it's it's it's a kingmaker as the worldwide
reserve currency. But again, all those are valuable, and all
(22:10):
of those are not necessarily going to stay forever, and
so you know, you can get into much much more
philosophical conversations like what is money and a lot of
people in the bitcoin space like go back to like
when people you know, treated like cshells like other sort
of objects. Is money and money is really just a
sort of a concept or figment of humanity to really
(22:32):
put a unit of account in. So when you actually
look into it, the definition is far more fuzzy than
you might think. Again, a more realistic standpoint is the
thing that actually really backs bitcoin specifically is actually all
of the all of the people in the mining ecosystem,
because all of the people in the mining ecosystem have
to buy hardware, so specifically ASIC chips, they have to
(22:54):
build these really huge facilities and do long term energy contracts,
and so they are backs stopping or they have a
fixed price on the supply side of what it actually
costs to generate a bitcoin, and so that price today
is about call it six to seven thousand dollars, depending
on the energy sort of input in the system. So
miners in general have an incentive not to let it
(23:17):
fall before below that because their base cost for doing
it is that that price. So it's really sort of
that energy that mining in that hardware ecosystem that is
giving it the security is also the supply input that
gives it its real world sort of value to it.
The short version that people say is mining ecosystem is
basically converting energy into bitcoin, and the real world cost
(23:40):
of the energy is the thing that gives the bitcoin
the price weight to it. So I see you could
get into a very deep philosophical argument about which is
more real and which is more stable right between this,
But let's go back to this the intersection of these
two worlds. Now that you have these things colliding, where
you have whether it's the existence of an ex change
and custody, or whether it's the idea that you have
(24:03):
this system that can convert crypto into US dollars and
these stable coins, how do these two worlds coexist and
does that mean some inherent corruption of the crypto ideal?
So maybe answer the question in two parts one and
a more broader long term time horizon. There's a certain
camp of people that want to fit bitcoin in the
(24:26):
cryptosystem into the traditional financial institutions. So think like there's
a one of the more well known companies in the
space as a company called Backed, which is found in
and started by Ice, which is the parent company that
owns the New York Stock Exchange. So back to I
think around one hundred sixty two hundred and eighty million dollars,
about as establishment as you can get, right as establishment
(24:48):
as you can get. They're doing exchange and sort of
features and options. They have a partnership with Starbucks, you
know for all this. To try to kind of fit
all this and put this into the purview of the
traditional sort of financial system and fit it under the rules,
there's a lot of friction in this because, you know,
at its most basic level, then people start asking the question, well,
(25:10):
like what is bitcoin? Is it a commodity, is it
a currency, is it a asset? Is it a property?
It sort of has a little bit of everything. It's
kind of not it's not one thing explicitly, So bitcoin
as a whole like doesn't really fit into an easy definition.
And what a lot of also people say in the
bitcoin world is bitcoin is is what bitcoin does. Like
(25:32):
it doesn't really have a it doesn't have a need,
it doesn't have a want. It's not trying to be something.
Everybody's trying to put its own definitional rules on it.
But no matter what you what you want, bitcoin is
just going to keep doing what it does. I think,
so I think therefore I am. So there's definitely sort
of that side in that world. And then on the
other hand, you actually have what I think is the
(25:54):
kind of far more interesting side of the equation, where again,
when you actually look at a lot of the trading volume,
most of it actually tends to be outside the US,
And so what some exchanges are doing is like, well,
we'll just lean into that and just completely cut off
all US users, and you know, maybe we'll set up
in Singapore or Hong Kong or mainland China or Malta
(26:15):
in sort of all these other places. So there's a
company that I was a personal and early investor and
called Binance Finance is a started office like just a
pure spot market exchange, although they've now branched off to
doing their own form of derivatives they have staking they
have their own decentralized exchange, and they actually created their
(26:35):
own currency that ties all this stuff together called it's
called the Binance token, so B and B token. And
what gives the B and B token its value or
its weight is they actually take a portion of all
the profits made through the exchange, and that goes to
buy back their own token so restrict the supply. So
almost think like a share buy back, although it doesn't
have all that definition attached to it. So Binance as
(26:59):
a whole this past year did a billion dollars in profit. Wow,
which again like for like taking a step back just
as a pure empirical investor to see a company start
in less than two years to a billion dollars in profit,
you almost never see that. No, that surpasses Amazon, Google everything, Right,
I don't think there's ever even been anything like that
(27:20):
in history before. Yeah, I don't know if anybody's actually
compared that. A lot of people show like the time
to valuation and like the times of revenue, but like
this isn't just revenue literally profit of the exchange. So yeah,
you almost never never see this happen. And what makes
this company so interesting is they are purely tied to
(27:41):
the call it pure bitcoin and crypto world. So what
actually makes this crazy is like they actually pay their
employees in the own b and be token. When you
look at where their company headquarters are, they don't have
a place that they're in there. The whole team, I
think there's three hundred people. They're literally distributed all over
the place. There's no exact jurisdiction. All the employees are
(28:02):
getting paid. And like the native asset, all the traders
of this are all mostly coming from not us, so
all sort of natives to the crypto world. So another
contrasting vision of all this is it's going to take
some more time, but the entire bitcoin and cryptocurrency is
its own quasi micro ecosystem, and that economy is going
to grow in and of itself, and people could get
(28:24):
paid in bitcoin or crypto, people would spend in bitcoin
or crypto, and it's actually going to live apart and
outside of the system versus being one to one part
of it. But will regulators around the world allow that
to happen? Will governments around the world allow that to happen?
I guess the following would be, can I stop it
from happening. But let's start with will Let's start with
will they allow it to happen, Because the government's control
(28:47):
of its currency is what a government has right for
the longest time, I think people would have assumed that
this whole space is way too early. None of these
questions need to be answered for the longest time, and
you know, they might not necessarily like it, but it
might be very sort of hard to stop and once
it's big enough that these companies can kind of solve
(29:08):
that at the end. But I think what has happened
over this ten years is this space has grown faster
than what most people thought, and you have far more
people paying attention to this than what you've thought. And
so I do think that all of these companies as
a whole will need to answer all of these questions
for themselves from a regulatory standpoint, from a government standpoint,
(29:30):
to how this fits into existing financial institution standpoint, and
even if not necessarily all of them are solved. Like
the mean critical thing that most of these companies really
have to worry about is the FIA in and out
portion of this, because most financial institutions, like what they
really care about is when you're in putting money into
the financial institution, or when you're taking it out, where
(29:52):
has it gone? What have you done with it? What
is the source of funds? So I think from an
immediate term, like most of the exchanges are around the world,
are really paying attention to those portions. I don't think
there's far enough emphasis on the longer term standpoint of Okay,
if you treat you know, bitcoin as a as an
asset with you know, a real dollar value attached to it,
(30:13):
what does that mean for all these other things? And
you know, now with the some of the announcement of
what's Facebook's doing versus what China is doing, I think
that makes that question even more pressing. But yeah, I
don't think there's necessarily an easy answer for that yet.
But we don't really have any answers. That's fascinating. And
so the following question then, I want to get to
what does that mean for the US dollar? But that's
also equally unanswerable. Yeah, I think it's it's equally answerable.
(30:37):
And there's also another call it trend, which is sort
of similar but slightly different to the whole bitcoin narrative,
is there's a lot of these stable coins that are
out there. So stable coins, if you've heard of these before,
are basically tokens that represent one to one peering of
a real world asset. So the easiest way to think
(30:57):
about it is a US dollar stable coin. You know,
one token equals one dollar, the one dollars held in reserve,
you could always see, it's always there. So there's companies
like USDC, which is done by coin Base and Circle
that are out there. The one that is far more
used than traded is this thing called USDT, which is
slightly sketchier with the reserves not one hundred percent necessarily
(31:21):
being there, but that's the one that people actually use
and sort of trade with, but kind of zooming out
in the longer term time frame when you look at
that is that is actually very much in line, and
in fact, that's almost the hyperdollarization, if you will, because
you're actually getting dollars in the hands of more and
more people, you're locking up more dollars, you're making dollar
almost the native underpinning currency of a lot of these
(31:44):
different things. So again, like maybe just the step back,
I think it's sometimes hard to characterize this space as
one monolithic thing. There's a lot of different experiments going
into this, and from a venture investor, I think that's
what makes the space so exciting too. Yeah, and you've
had a big change in the government. There is a
great quote from of all people, Senate Banking Committee Chairman
(32:06):
Mike Krappo who said during a hearing, if the United
States were to decide we don't want cryptocurrency to happen
in the United States and tried to ban it, I'm
pretty confident we couldn't succeed in doing that, which is
a pretty big statement. Right. You have this development that
could challenge the supremacy of the US dollar and could
challenge many things about our world as it is, and
(32:26):
you have powerful person and government essentially saying we can't
do anything about it. That's pretty pretty dramatic, I thought. Yeah. Again,
to take aside from the more purely bitcoin side, is
to hold their store bitcoin, all you need to do
is generate a public and private key pair. That's essentially
how you hold it. And to transact with somebody else
(32:47):
as you just need to know their public address and
it goes directly to the person and it's settled with
the person in about ten to twenty minutes, and you
don't have to go through any third party. That was
kind of the whole point of bitcoin to begin with.
And so I think there's ways to restrict the feet
in outpoints, there's a way to restrict like the merchants involved.
(33:08):
But when you just look at the pure P to
P side of this, it's very very hard, if not impossible,
to outright ban this, even if you really wanted to.
And that's that's what I think makes bitcoin to some
extent so powerful. Is that like setoshi for better for worse,
(33:29):
meet it. So there's no there's no person, there's no entity,
there's no company. Yeah, it goes back to your point
about why it was hard to figure out investment in
the beginning, But it's also why it's hard to control
and hard to figure out what to do with it. Right.
It's the that that that whole point of who is it?
What is it? Where is it? The basic questions are
that's what that's what gives it both it's it's mystique
and it's it's scariness and it's appeal, right all wrapped
(33:51):
up into one. Okay, so I've found this quote from
John McAfee, who of course has a competing um Tech
kind of don't laugh, But he said, in his view
of books, labor is an abomination, a twisted perversion of cryptocurrency.
But it's very definition. Cryptocurrency wants to free us from control.
But libra is nothing but control. Is that fair? I
might not go so far in the fact to say
(34:13):
that Facebook is the end all and be all evil.
It is that it is. However, I will say from
the fact that it is very opposite what many of
the ideals that a lot of people in the bitcoin
world share. In the fact that you know, in the
Facebook world, it would have to be mediated. It would
go through a big company or multiple sort of big companies,
(34:34):
or a part of the association. It would effectively get
to see all the transactions that were happening. They could
probably do you know, more targeted ads on you based
on what you're actually buying and selling who you're transacting with.
So yeah, I don't necessarily agree with many of the
things that mcaffee has to say, but to some extent,
like people in the bitcoin space, do feel that Libra
(34:54):
is opposite towards many of the ideals that they hold
very strongly. Does that explain why you've had such a
reaction to it. One thing I found interesting is you
had so many people signing onto it initially, and then
now you've had everybody saying, whoa stepping back? And is
it because of pushback from regulators or is it because
they figured out that it actually is just part of
Facebook's ongoing bid to rule the world personally, Like, I've
(35:17):
been somewhat critical of the Facebook leab story, so on
day one when they made the announcement, I wrote this
long post talking about the announcement, and my main prediction
at the end of it is I thought that they
would be delayed, not for any technical reasons, but majority
regulatory reasons, just because of Facebook's is a very unloved
company for lack of a better word. I was actually
(35:39):
really surprised when you actually look at the NPS score
for Facebook. I think it's negative forty seven, Like it's
really really bad, like actually worse than most financial institutions,
And so that's an astounding accomplishment. Actually yeah, so yeah,
I thought there was no way that they'd be able
to launch us on the timescale that they initially set
(36:00):
out to do so, and it's looking that is likely
to be the case. To say the other side, I
think many people in the crypto ecosystem we're very initially
excited about Libra is because one of the biggest questions
that a lot of people ask in the spaces, hey
when is real mainstream adoption going to happen? And Facebook
had the answer was, well, we have It's about as
(36:22):
mainstream as it gets, right, you know, we have I
don't know the exact stats, we have two to three
billion daily active users. So if you know, we really
create this cryptocurrency, put in everybody's walls, put into a
messenger like, we can push it out to many people.
And I think many people in the cryptospace will might
not necessarily have loved that per se, they might have
(36:42):
liked the fact that, hey, if you get this in
the hands of enough people, a certain subset or portion
of them are going to say, hey, now that I
have this digital asset, well, hey what about this bitcoin thing?
What about this ethereum thing? It kind of gets them
crypto curious for lack cryptocurious is the best phrase for
lack of a better phrase. I think it's dangerous because again,
(37:05):
you're giving up a lot of those ideals for the
hope of distribution and adoption. But then also, like my
personal takeaway is I think the sole reason why Facebook
was doing this from the beginning was not necessarily to
create a new, open, decentralized sort of finance ecosystem. If
they did, they would have just bought into bitcoin very
so much like what Square and Jack is doing, I
(37:28):
actually think they did this more for monetization reasons for
Facebook itself. My two cents. I don't know if this
is true or not, but when you look at the
actual LTV of a user, most of the values coming
from all their US users. They have a lot of
users outside of the US, but they an LTV, I
mean long term value just to okay, yeah, sorry for
the acronyms, but yeah, the value per users much higher
(37:51):
in the US, and when you look outside of the US,
it tends to be lower because the ad rates and
that sort of ad purchases is a lower amount. And
so my opinion, I think Facebook has always had this
dream that hey, if we can actually get into the
payment flow, in the monetary flow of particularly users outside
of the US, then we can increase the value per
(38:12):
user for all these other ones. So when you actually
look at Facebook's history, they actually did like a Facebook
credit system that they were doing, like things with PayPal
and David Marcus from before. This is kind of just
another iteration on the chain that they've been following. And
I think this is actually a much more inherently Facebook
revenue monetization sort of story. They just kind of co
(38:35):
opted bitcoin and crypto and this all other stuff in
order to push their narrative. I think it's smart and
sort of sneaky at the same time, but at least
from my opinion, I think that's the larger reason why
they did it, not necessarily because they're bought into this
new financial system. It's a perfect way of sending up
for the epitome of this conversation we've been having, right,
which is the benefits of co option and a cooperation
(38:58):
versus idealism. And Facebook's move in some ways is the
ultimate cynicism, right, And then the ideas do you celebrate
that and go along with it because it's making the
market bigger and more vibrant potentially, or do you say, WHOA,
this is not the direction we want this to go.
It's sort of a fascinating encapsulation of the whole debate
in some ways, right, Thank you so much for being here.
It's been really fun to talk to you. Yeah, I
(39:20):
think it's been really fun. Thank you for having me so.
I never would have guessed then in a conversation about Crypto,
I would have learned a new story about the financial crisis.
But maybe given crypto's philosophical underpinnings, I should have guessed
that which in Gears entirely. My producer Megan and I
were both thinking the same thing as we listened to Chris.
We were thinking Dune. Seriously, remember the famous science fiction
(39:43):
book with its warring fiefdoms, but also the hero of sorts,
Paul Atreides, becomes the one who can be many places
at once and can see many paths into the future.
Right now, we can see many paths for cryptocurrency, including
that it upends one of our most basic institute money,
but we can't yet see the path it will take.
(40:04):
Makia Killing is a co production of Pushkin Industries and
Chalk and Blade. It's produced by Ruth Barnes and Laura Hyde.
My executive producers are Alison McClain no relation in making Casey.
The executive producer at Pushkin is Mia Loebell. Engineering by
Jason Rostkowski. Our music is by Jed Flood. Special thanks
(40:26):
to Jacob Weisberg at Pushkin and everyone on the show.
I'm Bethany McClain. Thanks so much for listening. Find me
on Twitter at Bethany mac twelve and let me know
which episodes you've most enjoyed.
Thanks for downloading making a killing. I'm Bethany McLean, and
I'm cutting through the noise to reframe the stories you
know about and uncover the ones you don't know. I'll
admit it, until very recently, the word fiat mostly meant
cute little car. Okay, that's not quite fair, But if
that sentence really resonates with you, you probably think more
(00:21):
about crypto than I ever did. I remember friends telling
me years ago that I had to buy bitcoin, but
it seemed like a fad. There were too many unknowns.
Fast forward eleven years, Bitcoin is celebrating double digit birthdays,
at least if you're counting from Halloween two thousand and eight,
when Satoshi Nakamoto first anonymously released his white paper Bitcoin
(00:43):
Appeer to peer Electronic Cash System. Now bitcoin is the
popular poster child or whipping boy for cryptocurrency in general.
There are still so many unknowns, yet companies and investors
are flocking to the space, despite so called crypto winters
when bitcoin prices have crashed. Major global leaders are now
(01:05):
making significant bets on the space. Starbucks, Microsoft, Visa, Facebook,
the entire nation of China. Gone are the days of
cyberpunks and computer science majors being the only ones in
on the joke. But is it a joke? Digital assets
are still in their infancy, yet it also feels like
we're at a tipping point. What happens if cryptocurrencies totally
(01:27):
upend the real financial markets? Is real? Even the right word?
Are we in danger of that? I've learned never to
look at any technology in isolation, and when I look
at something like cryptocurrency, I think about the radiant effect
it might have on how we transact in our everyday lives,
how we value things, what the bigger effect might be
on capital markets, trade relations, the US dollar. Today I'm
(01:51):
in a San Francisco studio and my guest today is
Chris McCann, an investor at proof of Capital, which recently
announced a fifty million dollar fund to invest in blockchain
and crypto related companies. I can't think of a better
person to discuss the future of bitcoin with. Before we
dive into all things crypto, I want to understand you
and how you fit into this ecosystem. So tell us
(02:12):
how did you get interested in crypto? So back in
early twenty thirteen, I bought my first bitcoin, and the
way I found out about it was, I guess so
much to a lot of people in Silicon Valley. It
was on a sort of random internet thread in hacker
news if you know what that is. Yeah, And so
I started looking into it, and then I stumbled upon
like Silk Road and sort of tour and sort of
(02:35):
all this stuff. But the thing that sort of fascinated
me the most was not necessarily the marketplace, where I
was like, what is this thing? Everybody's paying each other
and like what is this bitcoin thing? And so it
just sort of sparked my curiosity, and then I first
bought a little bit, and then at the time I
recently enjoined Greylock Partners, which is a more sort of
traditional venture fund in the space, and so back in
(02:57):
the twenty fourteen fifteen time frame, invested in Blockstream, Zappo,
and coin Base, three sort of companies within the bitcoin space.
And that really forced me to not look at it
just from a more pure sort of currency angle, but
more the actual companies, the operators, the developers, and sort
of more like the overall market landscape, and long story short,
I just really sort of fell in love with this
(03:18):
category for a whole bunch of reasons. Yep, and what
made you say though that this made sense as an
investment as a startup landscape rather than is just a
sort of intellectual curiosity. I think bitcoin in sort of
cryptocurrency as as a whole is actually very very different
than a traditional investment per se. One of the analogies
(03:39):
I like to use is imagine if you're in a
more traditional, you know, investment role, you know, venture capital firm,
and you're looking at this bitcoin thing, and like, let's
say you actually, you know, believe in the thesis and
sort of the overall story. One of your first questions
might actually be like, Hey, this bitcoin thing is cool.
Can we have the founder the CEO come and pitch us? Right?
And no such thing? No such thing. So you're like, okay,
(04:01):
Like that's a little weird, but I can get over that.
Can I buy like equity in this company? All right? No? Okay,
who's on the board? Okay? Fine? I get over all that.
You know, if I buy some of this bitcoin thing,
what governance decisions do I get? Who actually controls this thing? Okay? Fine?
All that? How do I actually store this thing? All
(04:23):
like very normal traditional questions, But bitcoin is very counter
to all of that, which again, it's a very simple analogy,
but I think that's like a That's a major reason
why I think a lot of people have a lot
of difficulty with this is you almost sort of have
to suspend your disbelief to a certain extent and treat
(04:45):
this as kind of its own net new thing. Back
then it was much more of a curiosity sake in
wanting to learn more. But much more over the time
and sort of have this market developed, and as I
meant more people in the space, I've become much much
more convicted that this isn't just a fat or fly
by night thing like this is a much more real
market landscape that I don't feel enough people are really
(05:07):
spending the time and paying attention towards. Is there some
way in which this grew out of the global financial
crisis of two thousand and eight and a lack of
trust in the financial system as it is, and does
that form part of the founding principles of bitcoin? Or
am I just reaching actually very much? Is so bitcoin?
The first initial white paper and the first initial code
implementation and was launched in two thousand and nine. It
(05:28):
was actually very much a response to all the stuff
we were seeing in the global financial system at the time. Again,
the founder of Stosi, Nakamoto, is unknown, so you know,
you kind of have to read into the tea leaves
a little bit and a lot of his public form comments.
You can't ask him or her directly. And then the
other interesting thing is actually in the first transaction, so
(05:48):
they call it like the Genesis transaction when you look
actually look at like the hex code behind it, embedded
in that is I think at the time there was
a newspaper article about some sort of problem with one
of the central banks in the United Kingdom, so that's
actually embedded into it. So a lot of people sort
of again read the tea leaves and say like, hey,
this is actually a direct kind of correlation to it.
(06:10):
So there definitely is a large contingency of people that
just treat this as a more kind of call it
sound form of money, and they very very much kind
of buy into this thesas I was like the main
sort of front and center, call it more like cipher
punks kind of more people on the next gen sort
of own financial rails, kind of its own form of currency.
(06:32):
But now that it's it's a much much bigger market,
you have much more traditional players from you know, Facebook
to JP Morgans now even like large parts of the
Chinese government sort of getting involved in getting involved into
all this. So I would say the philosophical part is
still a very important contingency, however, not the only one today.
And that's such a major migration in a really short
(06:53):
amount of time. How does that happen? How does it
go from being this fringe thing celebrated by hackers and
thebertarians to being very mainstream. How would you chart the
key moments in that evolution. Yeah, no, it's a really
good question because, yeah, back in twenty thirteen, like when
we were looking into a lot of this stuff, nobody
could have imagined the amount of just interests in development
(07:16):
in the space today. I think at the time there's
a lot of people theorizing you maybe at some point
sort of the central bank governments would treat this more
seriously and maybe even like buy bitcoin to put on
balance sheet. But that was such a fringe for sort
of out there notion. But literally within the span of
ten years we've actually seen this only been a decade,
and that's actually pretty remarkable. Yeah, like now you're starting
(07:39):
to see much more of the larger, legitimate financial institutions,
technical institutions, and even governments from around the world do
real serious pilots in the space. Again, a lot of
the stuff is still experimental and kind of early and
a little weird, but like you're for the first time,
you're actually starting to see real institutions treat the space
as serious, not just like this really weird fringe thing.
(08:03):
Is the world of crypto a world of competing platforms
and technologies or is it a world of cooperating platforms
and technologies. As much as I would love to say cooperating,
most of the times, it feels more competitive when you
add in a lot of the more philosophical and I
almost feel sometimes more religious beliefs into and any one
(08:26):
of these. Yeah, and definitely, and probably what also compounds
this thing is you have a lot of these philosophical beliefs,
but then you also buy whatever your choice of asset is,
so then you actually really really feel strongly about it
because your money's on the line. So people almost shoot
it kind of like a religion sometimes, and you have
(08:46):
people on very different sort of camps that literally will
not even listen to an argument or not even you know,
take other sides or not even be empirical about this. Wow,
And does the divide generally fall among among uses for it,
does it fall among sort of strictly technical arguments, or
does it fall on these philosophical lines like this is
(09:07):
what bitcoin was supposed to be and how can it
be corrupted or co opted by the mainstream financial system.
I'd say it's a little bit of all the above. Okay.
So in terms of like the bigger camps that are
out there, you definitely have the people on the bitcoin side,
you have the people on the ethereum side. There's a
whole other world of call it more people in the
traditional financial institutions, you know, mostly in York and Chicago,
(09:29):
that are trying to take all this stuff and fit
this into the existing system. Some people in the corrupted
world love this because it would bring actual more distribution
and adoption. Some people hate this because this is the
almost antithesis of Okay, it's anathema right to the original
founding belief of what they've built this for. And then
you have another almost separate sidecamp that more like blockchain
(09:50):
for enterprise applications like supply chains, or like identity networks
or sort of any of the consortiums or any of
these kind of things that's like its own separate side view.
And sometimes a lot of these different camps, a lot
of them have religious and philosophical debates amongst one another,
and also to some extent, like a lot of them
don't even necessarily speak the whole the same language. And
(10:13):
so a lot of people treat the blockchain or cryptospace
in general as like this one monolithic thing. But the
more and more time you spend with the actual people
building this, it's actually much much much more divided than
you might think, and the feature is much much much
less clear than you might think. That's really interesting analogous
in some ways, at least in the first part of it,
(10:34):
to the financial system, which seems monolithic to people on
the outside, but is actually composed of all these warring
and very differently motivated entities. Right, So in some ways
there's an analogy there. I guess where does bitcoin fit
into this, fear? Do you still think of it as
the critical part of this universe or do you think
of it as a little corner of the universe that
(10:54):
has since been eclipsed by all sorts of other more
interesting developments. Yeah, so before this actually pulled some quick stats.
So one, if you look at the overall market today,
bitcoin is still sixty six percent of the total cryptocurrency market. Wow,
that's bitcoin. So Bitcoin has been dominant, and it's still
very dominant, and that market share has actually been increasing.
(11:15):
So bitcoin alone, the asset as a whole, is worth
one hundred and sixty eight billion dollars. There's three thousand
to six thousand other tokens out there, depending on sort
of what you look at, but by and large, bitcoin
has the most dominant market share. And so again I
think it's easy to get distracted by a lot of
the new and emerging and sort of smart contracting, all
(11:38):
this other stuff out there. But again, just when you
look kind of empirically at the market, bitcoin is still
buy and large the biggest one. That's really surprising to me.
So you've likened to where we are in the crypto
revolution to the early nineties, mid nineties and the Internet revolution.
Talk about that a little bit. So about call it
thirty to forty million people worldwide in total probably have
(12:01):
store own or whole cryptocurrencies in totality. That's probably a rough,
rough measure and that number's granted about twenty percent per year,
again with the caveats of sometimes during the crazy periods
it grows very very fast. Sometimes it drops much lower,
but that's kind of a volatility as part of the
(12:22):
name of the game, right. Yeah, that's kind of a rough,
summed out estimation on the space. And that's analogous too
in terms of the number of users and the growth
rate to the mid nineties Internet. In my post you
have the second portion, I was trying to plot that again,
how big is this space currently and how does that
look like to the Internet landscape. So again with all
(12:43):
of that assumptions and kind of roughness to it, Yeah,
we look like we're closer to nineteen ninety two to
nineteen ninety four, even though we had the crazy run
up that looked like the dot com. When you actually
just look at the raw number of people interacting with
the system, it's still a smaller subset of people. So
we're still in that early phase, even though for a
(13:05):
lot of people in the space that might not necessarily
feel like that. But we're still kind of very much
in that early adopter phase. We've not really moved over
to the earlier late majority what are the areas that
you guys are most excited about. You mentioned all these possibilities.
What are the things that you're seeing real usage and
that you're seeing the most opportunity and are the most
(13:25):
excitement around. Yeah, So from a proof of capital fund standpoint,
there's three broad areas we tend to gravitate towards. So
there's one sort of all use cases around fintech and
financial infrastructure, so think like exchanges, derivatives, wallets, lending, merchants, payments,
kind of that whole world. It's the use case where
we see the much more real traction in terms of
(13:48):
like real volume and real payments, sort of real things
flowing through. Secondly, which is a slightly unique tess, is
we actually look at a lot of things on pull
it the mining side, so mining, mutation, A six hardware,
These are all the things that actually provide all the
security guarantees for all the public open blockchains. You see
most of the sectors tends to be mostly located in Asia,
(14:11):
so from proof of capital we do about half investments
half Asia, half US. And then the third category we
tend to gravitate towards is things on the privacy and
self sovereignty application side, so not necessarily the new privacy protocols,
but the things more real people could use. So think
like VPNs, secure messaging clients. Browser is kind of that
(14:34):
whole more application side of things. Pause now, and that
divide between the US and Asia and why that's important. Yeah,
So this is another thing that's if the asset class
in the space and the entrepreneurs is very different than
you know, Web one or Web two. The other biggest
difference is the geographical dispersion of this. It's not Silicon Valley. Yeah,
(14:55):
that's the basic answer. But yeah, when you looked at
a lot of the most significant companies in the Web
two space, they all were mostly located thirty miles around
Silicon Valley. Sure there were some pockets and you know
a few other locations around the US, but a lot
of the innovation and entrepreneurs and larger companies and everything
tended to be in this space. Bitcoin and crypto very
(15:17):
much challenge this notion where when you actually look at
the entrepreneurs and where people are, Silicon Valley is a hub,
but not the only one. In fact, I would actually
very much argue that in this space, Asia actually plays
a much much more important role because when you actually
look at a lot of the trading volume and distribution
and usage of this, it's actually mostly in Asia, not
(15:40):
so much in the US. So while a lot of
the technology and protocol developers and that side of the
world still might be located here or visit here, a
lot of the real activities actually mostly going on in Asia.
And why is that? Yeah, another quick, very overgeneralized analogy.
So one, when you talk about you know, bitcoin and
all this cryptospace to a developer in Silicon Valley very generalistically,
(16:05):
most people's reactions are, this is really cool. What can
I use this for? What applications could I build? How
is the protocol constructor to tell me about the rules,
show me the code. When you say this exact same
story to somebody in call it Hong Kong, let's be
very general and you say, hey, we have this you
know new thing. It has an asset, it's like you know, traded,
(16:25):
it's on all these different exchanges. The purse the over
generalization person in Hong Kong would say, Okay, that's cool.
I get it. There's almost no question about what do
you use it for? Like, what applications can you build?
They're like, Nope, this is an asset that trades, that
has a price that is independent of all the other
things before, and then it's return profile also tends to
(16:47):
be very discorrelated with everything else, so it doesn't really
follow equities or debts. It kind of just does its
own thing. And you know, traders and speculators and quant
funds and financial people, they totally get that. In are
just much more inherently natively comfortable with that fact. Are
there some sort of cultural or personal associations with what
(17:09):
money is that dictate that? Do you think? Two things?
I had two other partners, so Edith Young's used to
be gp AT five unders start ups doing a lot
of their China and Asia investments. And our third partner's
name is Phil Chen used to be a gp AT
Horizon Adventures with le Cushing and Hong Kong. So they're
much more equipped to like talk about a lot of
the cultural aspects. But two sort of things that they're
(17:30):
out there. One is, in general, there tends to be
a lot less investment products. So in a lot of
the specific countries, like even in Korea, for example, it
was actually much harder to get access to the equity markets,
it was much harder to do a lot of the
things that people were doing in the US, so there
was a lot of pent up demand for something new.
(17:50):
And then maybe a second point is in general, like
say specifically like mainland China, people there tend to be
much more comfortable with just purely digital currencies. Like actually,
when you even look at the primary forms of moving
money in China is mainly we chat and alipay, and
in that form, like there is almost no physicality to it.
(18:11):
It's all on a phone, it's all sens people, it's
all through QR codes. So if you have something like
a bitcoin which has no physical form or not, like
they they're just more inherent inherently. Okay with that that concept,
I wonder if there's something to it that because the
US dollar has been the reserve currency of the world,
that there's something about moving away from that in the
(18:31):
in the US. There might be some sort of interesting
cultural underpinning there. But that's just pure speculation. I just
just just thinking thinking out loud. Have you during your
your adventures, I'm just going to call them adventures in cryptocurrency,
has it changed the way you think about what money is? Yes,
and I've always had a little bit of this h
bias in me. One thing I actually don't talk about
(18:54):
all too much. But back in the two thousand and
seven two thousand and eight time frame, it's so much
much longer story. But me and are a really close
college friend of mine, we actually shorted a lot of
things in the housing in sort of financial space, didn't
you You could have been a character in the big
short it was. It was aweso smaller amount. We're much
poor college students. We didn't raise like a big fund
(19:16):
or anything. I was. I tended to be a little
bit more distrustful of that side. But you don't view
money as this thing that just is that is absolutely solid,
the way you might have if it hadn't been for
this experience. Yeah, that's probably fair to say. And again
when you look at the just going back to to bitcoin,
what they do, which is a it's a very revolutionary concept,
(19:40):
but they take all of the preconditions and rules and
all that and they actually embedded into code and they
put it open source school you can read it, so
you don't necessarily have to trust the people who are
building this or trust the founders. In fact, like the founders,
SOTOSI is completely unknown. You just read it for yourself
and you see the fix. The supply sketch schedule of
(20:00):
bitcoin is fixed. There will only ever be twenty one
million bitcoin ever minted, and it has a very fixed
supply schedule that has every like one to two years
or show depending on the mining schedule, where the issuance
actually dropped. So all of that has actually known upfront
from day one. So what happens when the last one
is from mind? So right now, if you're a part
(20:21):
of the mining ecosystem, part of your reward comes from
the It's actually called a coin based reward. That's actually
where coinbase gets its name from. Oh I didn't realize that.
So you get a coin based reward, so that's the
bitcoin that is is minted for you solving a new block,
and then you get the transaction reward. So those two
things together that's your revenue so to speak, for for
(20:42):
mining that block. So when the last bitcoin gets mine,
instead of having the coin based reward plus the transaction fee,
there will be no more coin based reward anymore, and
it'll just have to be purely subsidized by just the
transaction fees. Okay, so it doesn't cease to exist at
that point right now? Okay, back to that notion of
what you believe in and what is money? There is
(21:03):
a great tweet on Twitter that someone said about gold
versus bitcoin. What do you believe in old shiny rocks
or breakthrough in human incentives that enable the new species
of money? Right? I mean, there's a point to that.
And yet the thing I still get hung up on
is that with the US dollar, with a fiat currency,
it's it's backed by something. There's there's tax dollars behind it,
there's a there's the government's ability to pay its bills.
(21:26):
So how does bitcoin just float out there without any
without any support? Am I thinking about that the wrong way? Yeah?
So maybe two ways to answer that, one the more
philosophical way, one the more real empirical way. I tend
to feel have that split on a lot of things.
I like that slot. So the much more philosophical version
of that is, well, like, what truly is the dollar
(21:49):
backed by a long time ago? It ud be backed
by a gold standard, and you could actually redeem your
dollars for amount of gold, And right now there's no
sting that individually backs it. Sure it's you know, it's
part of taxes. Sure, it's part of the US military,
Sure it's it's it's it's a kingmaker as the worldwide
reserve currency. But again, all those are valuable, and all
(22:10):
of those are not necessarily going to stay forever, and
so you know, you can get into much much more
philosophical conversations like what is money and a lot of
people in the bitcoin space like go back to like
when people you know, treated like cshells like other sort
of objects. Is money and money is really just a
sort of a concept or figment of humanity to really
(22:32):
put a unit of account in. So when you actually
look into it, the definition is far more fuzzy than
you might think. Again, a more realistic standpoint is the
thing that actually really backs bitcoin specifically is actually all
of the all of the people in the mining ecosystem,
because all of the people in the mining ecosystem have
to buy hardware, so specifically ASIC chips, they have to
(22:54):
build these really huge facilities and do long term energy contracts,
and so they are backs stopping or they have a
fixed price on the supply side of what it actually
costs to generate a bitcoin, and so that price today
is about call it six to seven thousand dollars, depending
on the energy sort of input in the system. So
miners in general have an incentive not to let it
(23:17):
fall before below that because their base cost for doing
it is that that price. So it's really sort of
that energy that mining in that hardware ecosystem that is
giving it the security is also the supply input that
gives it its real world sort of value to it.
The short version that people say is mining ecosystem is
basically converting energy into bitcoin, and the real world cost
(23:40):
of the energy is the thing that gives the bitcoin
the price weight to it. So I see you could
get into a very deep philosophical argument about which is
more real and which is more stable right between this,
But let's go back to this the intersection of these
two worlds. Now that you have these things colliding, where
you have whether it's the existence of an ex change
and custody, or whether it's the idea that you have
(24:03):
this system that can convert crypto into US dollars and
these stable coins, how do these two worlds coexist and
does that mean some inherent corruption of the crypto ideal?
So maybe answer the question in two parts one and
a more broader long term time horizon. There's a certain
camp of people that want to fit bitcoin in the
(24:26):
cryptosystem into the traditional financial institutions. So think like there's
a one of the more well known companies in the
space as a company called Backed, which is found in
and started by Ice, which is the parent company that
owns the New York Stock Exchange. So back to I
think around one hundred sixty two hundred and eighty million dollars,
about as establishment as you can get, right as establishment
(24:48):
as you can get. They're doing exchange and sort of
features and options. They have a partnership with Starbucks, you
know for all this. To try to kind of fit
all this and put this into the purview of the
traditional sort of financial system and fit it under the rules,
there's a lot of friction in this because, you know,
at its most basic level, then people start asking the question, well,
(25:10):
like what is bitcoin? Is it a commodity, is it
a currency, is it a asset? Is it a property?
It sort of has a little bit of everything. It's
kind of not it's not one thing explicitly, So bitcoin
as a whole like doesn't really fit into an easy definition.
And what a lot of also people say in the
bitcoin world is bitcoin is is what bitcoin does. Like
(25:32):
it doesn't really have a it doesn't have a need,
it doesn't have a want. It's not trying to be something.
Everybody's trying to put its own definitional rules on it.
But no matter what you what you want, bitcoin is
just going to keep doing what it does. I think,
so I think therefore I am. So there's definitely sort
of that side in that world. And then on the
other hand, you actually have what I think is the
(25:54):
kind of far more interesting side of the equation, where again,
when you actually look at a lot of the trading volume,
most of it actually tends to be outside the US,
And so what some exchanges are doing is like, well,
we'll just lean into that and just completely cut off
all US users, and you know, maybe we'll set up
in Singapore or Hong Kong or mainland China or Malta
(26:15):
in sort of all these other places. So there's a
company that I was a personal and early investor and
called Binance Finance is a started office like just a
pure spot market exchange, although they've now branched off to
doing their own form of derivatives they have staking they
have their own decentralized exchange, and they actually created their
(26:35):
own currency that ties all this stuff together called it's
called the Binance token, so B and B token. And
what gives the B and B token its value or
its weight is they actually take a portion of all
the profits made through the exchange, and that goes to
buy back their own token so restrict the supply. So
almost think like a share buy back, although it doesn't
have all that definition attached to it. So Binance as
(26:59):
a whole this past year did a billion dollars in profit. Wow,
which again like for like taking a step back just
as a pure empirical investor to see a company start
in less than two years to a billion dollars in profit,
you almost never see that. No, that surpasses Amazon, Google everything, Right,
I don't think there's ever even been anything like that
(27:20):
in history before. Yeah, I don't know if anybody's actually
compared that. A lot of people show like the time
to valuation and like the times of revenue, but like
this isn't just revenue literally profit of the exchange. So yeah,
you almost never never see this happen. And what makes
this company so interesting is they are purely tied to
(27:41):
the call it pure bitcoin and crypto world. So what
actually makes this crazy is like they actually pay their
employees in the own b and be token. When you
look at where their company headquarters are, they don't have
a place that they're in there. The whole team, I
think there's three hundred people. They're literally distributed all over
the place. There's no exact jurisdiction. All the employees are
(28:02):
getting paid. And like the native asset, all the traders
of this are all mostly coming from not us, so
all sort of natives to the crypto world. So another
contrasting vision of all this is it's going to take
some more time, but the entire bitcoin and cryptocurrency is
its own quasi micro ecosystem, and that economy is going
to grow in and of itself, and people could get
(28:24):
paid in bitcoin or crypto, people would spend in bitcoin
or crypto, and it's actually going to live apart and
outside of the system versus being one to one part
of it. But will regulators around the world allow that
to happen? Will governments around the world allow that to happen?
I guess the following would be, can I stop it
from happening. But let's start with will Let's start with
will they allow it to happen, Because the government's control
(28:47):
of its currency is what a government has right for
the longest time, I think people would have assumed that
this whole space is way too early. None of these
questions need to be answered for the longest time, and
you know, they might not necessarily like it, but it
might be very sort of hard to stop and once
it's big enough that these companies can kind of solve
(29:08):
that at the end. But I think what has happened
over this ten years is this space has grown faster
than what most people thought, and you have far more
people paying attention to this than what you've thought. And
so I do think that all of these companies as
a whole will need to answer all of these questions
for themselves from a regulatory standpoint, from a government standpoint,
(29:30):
to how this fits into existing financial institution standpoint, and
even if not necessarily all of them are solved. Like
the mean critical thing that most of these companies really
have to worry about is the FIA in and out
portion of this, because most financial institutions, like what they
really care about is when you're in putting money into
the financial institution, or when you're taking it out, where
(29:52):
has it gone? What have you done with it? What
is the source of funds? So I think from an
immediate term, like most of the exchanges are around the world,
are really paying attention to those portions. I don't think
there's far enough emphasis on the longer term standpoint of Okay,
if you treat you know, bitcoin as a as an
asset with you know, a real dollar value attached to it,
(30:13):
what does that mean for all these other things? And
you know, now with the some of the announcement of
what's Facebook's doing versus what China is doing, I think
that makes that question even more pressing. But yeah, I
don't think there's necessarily an easy answer for that yet.
But we don't really have any answers. That's fascinating. And
so the following question then, I want to get to
what does that mean for the US dollar? But that's
also equally unanswerable. Yeah, I think it's it's equally answerable.
(30:37):
And there's also another call it trend, which is sort
of similar but slightly different to the whole bitcoin narrative,
is there's a lot of these stable coins that are
out there. So stable coins, if you've heard of these before,
are basically tokens that represent one to one peering of
a real world asset. So the easiest way to think
(30:57):
about it is a US dollar stable coin. You know,
one token equals one dollar, the one dollars held in reserve,
you could always see, it's always there. So there's companies
like USDC, which is done by coin Base and Circle
that are out there. The one that is far more
used than traded is this thing called USDT, which is
slightly sketchier with the reserves not one hundred percent necessarily
(31:21):
being there, but that's the one that people actually use
and sort of trade with, but kind of zooming out
in the longer term time frame when you look at
that is that is actually very much in line, and
in fact, that's almost the hyperdollarization, if you will, because
you're actually getting dollars in the hands of more and
more people, you're locking up more dollars, you're making dollar
almost the native underpinning currency of a lot of these
(31:44):
different things. So again, like maybe just the step back,
I think it's sometimes hard to characterize this space as
one monolithic thing. There's a lot of different experiments going
into this, and from a venture investor, I think that's
what makes the space so exciting too. Yeah, and you've
had a big change in the government. There is a
great quote from of all people, Senate Banking Committee Chairman
(32:06):
Mike Krappo who said during a hearing, if the United
States were to decide we don't want cryptocurrency to happen
in the United States and tried to ban it, I'm
pretty confident we couldn't succeed in doing that, which is
a pretty big statement. Right. You have this development that
could challenge the supremacy of the US dollar and could
challenge many things about our world as it is, and
(32:26):
you have powerful person and government essentially saying we can't
do anything about it. That's pretty pretty dramatic, I thought. Yeah. Again,
to take aside from the more purely bitcoin side, is
to hold their store bitcoin, all you need to do
is generate a public and private key pair. That's essentially
how you hold it. And to transact with somebody else
(32:47):
as you just need to know their public address and
it goes directly to the person and it's settled with
the person in about ten to twenty minutes, and you
don't have to go through any third party. That was
kind of the whole point of bitcoin to begin with.
And so I think there's ways to restrict the feet
in outpoints, there's a way to restrict like the merchants involved.
(33:08):
But when you just look at the pure P to
P side of this, it's very very hard, if not impossible,
to outright ban this, even if you really wanted to.
And that's that's what I think makes bitcoin to some
extent so powerful. Is that like setoshi for better for worse,
(33:29):
meet it. So there's no there's no person, there's no entity,
there's no company. Yeah, it goes back to your point
about why it was hard to figure out investment in
the beginning, But it's also why it's hard to control
and hard to figure out what to do with it. Right.
It's the that that that whole point of who is it?
What is it? Where is it? The basic questions are
that's what that's what gives it both it's it's mystique
and it's it's scariness and it's appeal, right all wrapped
(33:51):
up into one. Okay, so I've found this quote from
John McAfee, who of course has a competing um Tech
kind of don't laugh, But he said, in his view
of books, labor is an abomination, a twisted perversion of cryptocurrency.
But it's very definition. Cryptocurrency wants to free us from control.
But libra is nothing but control. Is that fair? I
might not go so far in the fact to say
(34:13):
that Facebook is the end all and be all evil.
It is that it is. However, I will say from
the fact that it is very opposite what many of
the ideals that a lot of people in the bitcoin
world share. In the fact that you know, in the
Facebook world, it would have to be mediated. It would
go through a big company or multiple sort of big companies,
(34:34):
or a part of the association. It would effectively get
to see all the transactions that were happening. They could
probably do you know, more targeted ads on you based
on what you're actually buying and selling who you're transacting with.
So yeah, I don't necessarily agree with many of the
things that mcaffee has to say, but to some extent,
like people in the bitcoin space, do feel that Libra
(34:54):
is opposite towards many of the ideals that they hold
very strongly. Does that explain why you've had such a
reaction to it. One thing I found interesting is you
had so many people signing onto it initially, and then
now you've had everybody saying, whoa stepping back? And is
it because of pushback from regulators or is it because
they figured out that it actually is just part of
Facebook's ongoing bid to rule the world personally, Like, I've
(35:17):
been somewhat critical of the Facebook leab story, so on
day one when they made the announcement, I wrote this
long post talking about the announcement, and my main prediction
at the end of it is I thought that they
would be delayed, not for any technical reasons, but majority
regulatory reasons, just because of Facebook's is a very unloved
company for lack of a better word. I was actually
(35:39):
really surprised when you actually look at the NPS score
for Facebook. I think it's negative forty seven, Like it's
really really bad, like actually worse than most financial institutions,
And so that's an astounding accomplishment. Actually yeah, so yeah,
I thought there was no way that they'd be able
to launch us on the timescale that they initially set
(36:00):
out to do so, and it's looking that is likely
to be the case. To say the other side, I
think many people in the crypto ecosystem we're very initially
excited about Libra is because one of the biggest questions
that a lot of people ask in the spaces, hey
when is real mainstream adoption going to happen? And Facebook
had the answer was, well, we have It's about as
(36:22):
mainstream as it gets, right, you know, we have I
don't know the exact stats, we have two to three
billion daily active users. So if you know, we really
create this cryptocurrency, put in everybody's walls, put into a
messenger like, we can push it out to many people.
And I think many people in the cryptospace will might
not necessarily have loved that per se, they might have
(36:42):
liked the fact that, hey, if you get this in
the hands of enough people, a certain subset or portion
of them are going to say, hey, now that I
have this digital asset, well, hey what about this bitcoin thing?
What about this ethereum thing? It kind of gets them
crypto curious for lack cryptocurious is the best phrase for
lack of a better phrase. I think it's dangerous because again,
(37:05):
you're giving up a lot of those ideals for the
hope of distribution and adoption. But then also, like my
personal takeaway is I think the sole reason why Facebook
was doing this from the beginning was not necessarily to
create a new, open, decentralized sort of finance ecosystem. If
they did, they would have just bought into bitcoin very
so much like what Square and Jack is doing, I
(37:28):
actually think they did this more for monetization reasons for
Facebook itself. My two cents. I don't know if this
is true or not, but when you look at the
actual LTV of a user, most of the values coming
from all their US users. They have a lot of
users outside of the US, but they an LTV, I
mean long term value just to okay, yeah, sorry for
the acronyms, but yeah, the value per users much higher
(37:51):
in the US, and when you look outside of the US,
it tends to be lower because the ad rates and
that sort of ad purchases is a lower amount. And
so my opinion, I think Facebook has always had this
dream that hey, if we can actually get into the
payment flow, in the monetary flow of particularly users outside
of the US, then we can increase the value per
(38:12):
user for all these other ones. So when you actually
look at Facebook's history, they actually did like a Facebook
credit system that they were doing, like things with PayPal
and David Marcus from before. This is kind of just
another iteration on the chain that they've been following. And
I think this is actually a much more inherently Facebook
revenue monetization sort of story. They just kind of co
(38:35):
opted bitcoin and crypto and this all other stuff in
order to push their narrative. I think it's smart and
sort of sneaky at the same time, but at least
from my opinion, I think that's the larger reason why
they did it, not necessarily because they're bought into this
new financial system. It's a perfect way of sending up
for the epitome of this conversation we've been having, right,
which is the benefits of co option and a cooperation
(38:58):
versus idealism. And Facebook's move in some ways is the
ultimate cynicism, right, And then the ideas do you celebrate
that and go along with it because it's making the
market bigger and more vibrant potentially, or do you say, WHOA,
this is not the direction we want this to go.
It's sort of a fascinating encapsulation of the whole debate
in some ways, right, Thank you so much for being here.
It's been really fun to talk to you. Yeah, I
(39:20):
think it's been really fun. Thank you for having me so.
I never would have guessed then in a conversation about Crypto,
I would have learned a new story about the financial crisis.
But maybe given crypto's philosophical underpinnings, I should have guessed
that which in Gears entirely. My producer Megan and I
were both thinking the same thing as we listened to Chris.
We were thinking Dune. Seriously, remember the famous science fiction
(39:43):
book with its warring fiefdoms, but also the hero of sorts,
Paul Atreides, becomes the one who can be many places
at once and can see many paths into the future.
Right now, we can see many paths for cryptocurrency, including
that it upends one of our most basic institute money,
but we can't yet see the path it will take.
(40:04):
Makia Killing is a co production of Pushkin Industries and
Chalk and Blade. It's produced by Ruth Barnes and Laura Hyde.
My executive producers are Alison McClain no relation in making Casey.
The executive producer at Pushkin is Mia Loebell. Engineering by
Jason Rostkowski. Our music is by Jed Flood. Special thanks
(40:26):
to Jacob Weisberg at Pushkin and everyone on the show.
I'm Bethany McClain. Thanks so much for listening. Find me
on Twitter at Bethany mac twelve and let me know
which episodes you've most enjoyed.
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