June 16, 2021 • 25 mins
The dynamic cryptocurrency space would likely not be possible if not for the belief and work of Fred Ehrsam. He left his position as a Goldman Sachs trader in 2012 to combine his passions of computer science with gaming - and help set up Coinbase, the largest cryptocurrency exchange in the U.S. with Brian Armstrong. In 2017, he left the day-to-day operations at Coinbase to launch his own investment firm called Paradigm, also focused on blockchain. In this latest Bloomberg Studio 1.0, Ehrsam sits down with Emily Chang to discuss his early motivations, cryptocurrency volatility, and why he thinks crypto will be the most world-changing technology of the coming decades - creating a new form of money, financial system, and internet.
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Episode Transcript
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Speaker 1 (00:00):
Hi everyone, I'm Emily Chang and this is Bloomberg Studio
One Point Oh podcast, a series where I speak with
the biggest influencers in technology and media. Over the last decade,
I've had in depth conversations with the very people shaping
the future of business of our world, sharing their vision
for what comes next. Today, we take a deep dive
(00:20):
into all things crypto as we speak to a true
crypto o g Not long after bitcoin was born, Fred
Urson became an analyst at Goldman Sachs. The new mysterious
digital currency had been invented by Satoshi Nakamoto, a pseudonym
for a person or group that wanted to circumvent the
traditional banking system. On a good day, the price was
(00:43):
mere sense and almost no one knew what it was.
But Ersome saw the potential. He bought in as much
as he could and found himself obsessively checking early cryptocurrency
exchange mount cox and scouring Reddit threads, where he met
another bitcoin enthusiast, Brian Armstraw. As mount gox was hacked
and going bankrupt, Armstrong and Ersa were building coin base,
(01:06):
which would become the most mainstream place to buy, sell,
and store cryptocurrency in the United States. In the span
of a little more than a decade, the crypto market
went from zero to more than two trillion dollars, with
some upo highs and gut wrenching lows in between. Joining
me on this edition of Bloomberg Studio at one point,
oh to talk about that wild ride and where it's
(01:28):
going next. Co founder of coin Base and the crypto
investment firm Paradigm, Fred Erson, take me to the very
beginning of your crypto journey when you were an analyst
at Goldman Sachs. What was it that drove you to
this emerging technology. Jeez, I think I was lucky because
I had three core ingredients to understand crypto. One was
(01:52):
I was a computer scientist and engineer by training. The
second is a Goldman I was trading fact specifically the
Euro him watching the European crisis unfold every day, watching
the I m F give the next tranche of bailouts
degree seeing how the Euro would trade on that, thinking hey,
maybe this isn't working so well. And the last is
(02:12):
I was a hardcore gamer in high school. I was
on the best team in the world at a video game.
Lived in these virtual worlds that had virtual currency all
the time, so that idea was pretty natural to me.
UM and this was right around the time that bitcoin
came out on the Internet. Around UH and nights and weekends,
(02:33):
I would just spend my time getting further and further
into it. Tell us about the moment when you realized
that this crypto thing was really something, when the world
and your friends probably had no idea what was going
on or thought you were crazy. Well, when we launched
coin base inve out of two bedroom apartment in San Francisco,
(02:55):
it did seem like a crazy idea. At the time
you walk down the street, nobody would know what bitcoin was.
Those people who knew about it probably thought it was nuts. Um.
The literal advertisement, even on the bitcoin subread at the time,
was a bad Microsoft paint uh painting of a wizard
that said magical Internet money. UM. So very very not
(03:16):
obvious at the time. The thing though, that really stood
out is the community was extremely strong, even though it
was small um And if you look at the early
coin based numbers, things grew really well, especially when we
added the simple feature just to buy and sell bitcoin
with any US bank account with one click. UM. So
(03:38):
while it seemed crazy to most outsiders at the time,
it was clearly growing on the inside, and I think
that's even true in crypto today. On some level you
have UM, these kind of radical believers on the inside,
and then many people on the outside who might still
be touching the elephants, still trying to figure out exactly
what's going on here. How did you meet Brian Armstrong,
(04:00):
founder of coin base, and what did you too set
out to do? UM? Well, like any great crypto venture,
it started decentralized in some sense. We met on Reddit.
On the Bitcoin subreddit, he posted a prototype of an
early version of coin base and I emailed them. We
(04:22):
met up at the now infamous creamery in San Francisco,
which is sort of the like back in twelve was
the place where everybody would would do meetings. UM started
working together fifteen hours a day for four weeks, weekends included.
It turned out we both really cared about building something
in crypto that allowed the whole thing to go mainstream.
(04:46):
And at the time where you bought in, like had
you invested your own money into this magical internet money
not knowing what would happen? Yeah, I was fully bought in.
Both financially and career wise. UM. I quit my job
at Goldman UM and moved out to the West Coast,
not even having a place to live. UM obviously started
(05:06):
working on coin Base, and then financially I didn't have
very much money, but the little money I did have
UM I invested in bitcoin. And it's funny, the most
expensive thing I own today is still a car I
bought in twelve. I bought it for nineteen thousand dollars UM.
At the time bitcoin was about ten dollars so an
(05:28):
opportunity cost terms, that's about a fifty million dollar car.
I still love the car, but just to give a
sense for how expensive real world goods are in bitcoin
terms over time. You were at coin base, co founder
until UM you were president I believe at the time,
and then you left. Why did you leave UM A
(05:49):
couple of reasons. One I felt like the company was
just in a very good spot. The second is for
much of crypto's history, so from ten when bitcoin sort
of came out two thousand nine up until really the
only idea that seemed possible in crypto was this idea
(06:10):
that it was a new global digital money. UM and
the thing that really changed in sen Is. All of
a sudden, the doors opened to much broader applications. Ethereum
came on the scene and showed that blockchain based applications
were possible to build, and people were both building very
(06:31):
early versions of them. Today we know those things better
as Defy or these decentralized financial applications that live on
the blockchain, and even more broadly, I think over time
we'll see mainstream consumer apps and perhaps n f t
s are a weird bleeding edge of exactly that. Um
so I found that that whole new frontier to be
(06:51):
extremely exciting. Coin bases direct listing it's now a public
company was a huge moment for mainstream institutional adoption. But
it still seems like so much of the world doesn't
get crypto and how big it can be. What do
you think they're missing? The short answer is a lot um.
(07:15):
I think. Look, crypto is its own rabbit hole UM,
and just like any new powerful technology, it's extremely powerful
because it reimagines very important systems that run the world
today from the ground up. UM. Most people primarily think
about crypto again as a new digital money. UM that's
(07:39):
really worked, especially with bitcoin, is a store of value
where we've seen bitcoin go from zero to a trillion
dollars in market capitalization over the last ten years, but
crypto goes much deeper than that. We think about crypto
at Paradigm, which is UH, the investment firm I've started,
along with Matt Long in three stages today, and of
(08:00):
course that this model will evolve over time. The first
is a new digital money, the second is a new
financial system, and the third is just a broad UH
Internet application platform. UM. So, in our minds, crypto isn't
just kind of this new digital money or new digital gold. Um.
(08:20):
It's a whole new financial system that we're seeing being
built from the ground up by talented entrepreneurs all around
the world. And while it's extremely early on the third frontier,
a new application platform, we think that over over the
course of decades, a lot of Internet applications that we're
all using will also be crypto based. I've talked to
investors who say coin Base could be the next a
(08:42):
o l it's the first exchange that's you know, really
gone mainstream, but it's too early and others will or
something else will surpass it. What do you think, I
think it's a fair question. I think history is yet
to be written. UM. My view is that it's a
very strong place to be to have the largest mainstream
(09:04):
brand trust um, not only with users but also with regulators. UM.
And that being that bridge into the crypto world is
a great place to start. Now, as you mentioned, you
now run a crypto focused investment firm called Paradigm. How
is the crypto style of venture capital different from traditional
(09:28):
venture capital? Yeah? Um, well I think in a few ways. UM.
Just to talk about why we started Paradigm in the
first place, myself and Matt Long, who was previously a
partner at Sequoia focused and running their crypto investing efforts. Um,
we we realized a couple of things. One, crypto is
(09:50):
a whole new field that needs focus. To the core
question that Matt and I asked ourselves and starting the
firm is is there anybody out there who if we
were crypto entrepreneurs building a business and Matt was a
former y Combinator startup founder, I obviously started a large
crypto company and coin base, who would we want to
(10:13):
have as our first backers? And we couldn't really come
up with a good answer to that question. UM. The
last is, uh, I think the expertise required both on
the team and operationally in crypto is very different. So
we're really trying to build a firm UH from an
engineering an entrepreneurial point of view to best support these
(10:35):
crypto native companies and protocols. The crypto VC lands game
is getting now more competitive, So where are you placing
your bets? How do you stay ahead of the curve.
The thing we're really excited about is a number of fronts.
One is the picks and shovels businesses UM so, now
that crypto has grown a lot, there are all sorts
(10:56):
of basic infrastructure businesses that are being built out to
support at ecosystem. Those of course include exchanges, also custodians,
tax providers, k y C, a mL providers, lenders, cryptos
back end as a service for any business that would
like to integrate crypto, all sorts of these picks and
(11:17):
shovel's businesses. A second big frontier, as we talked about before,
is defy all of these crypto native financial building blocks
UH that are being built out. Um and today's support
around seventy five billion dollars and user assets, up from
effectively zero three years ago. UM and This is sort
(11:40):
of the bleeding edge of what we see as a
whole series of crypto native applications. This is my conversation
with the co founder of coin base and the crypto
investment firm Paradigm thread person coming up. President Biden's sec
has made it clear that crypto regulation is coming. How
(12:02):
does Urson expect that to change the crypto landscape? And
with thousands of cryptocurrencies out there, how many is too many?
And we have to ask is dos coin a hustle?
I'm Emily Chang, this is Bloomberg Studio. At one point, Oh,
stay with us. There were something like four thousand cryptocurrencies
(12:36):
at the start of the year. I mean, is that
too many? Do you expect more? It's just like the Internet. Um,
people are going to try all sorts of things. There
will be millions and millions of cryptocurrencies and crypto assets,
just like there were millions and millions of websites. Most
of them won't work, especially early in the technology. There's
(12:57):
a lot of dedicated communities out there and lot of tribalism.
Is that a good thing? It's an interesting question. I'm
I think every new, powerful technology tends to feel very
polarizing at the beginning. UM, So I think some level
of tribalism is inevitable at paradigm. We think that we're
(13:20):
super early in this technology, so getting too caught up
in any singular view or belief or paradigm no pun intended, UM,
is probably unwise. What do you think about does is
it a hustle or do you give it more credit
than that? I think, UM, well, perhaps framing it from
(13:41):
Ellen's point of view, and it's always dangerous to guess
what's going on in the mind of Elon. Of course,
if crypto has taught us anything, it's never to dismiss
a good meme that could later manifest into UM more
concrete progress. UM. I I tend to think there's less
(14:01):
of that on the ground today. More holistically, I think
whether it's does or more the n f T phenomenon,
I do like that there are UM there are a
lot of things recently that I think have just brought
crypto to a much more mainstream awareness and audience. One
joke we often tell is UM n f T has
(14:25):
made it really obvious that most crypto insiders sort of
word nerds that tended to care a lot about monetary
theory or the intricacies of the financial system. And what
n f T s really showed us is that, um,
a lot more people, it turns out, care about culture, music, art,
basically everybody does, UM, and that that's been a huge
(14:46):
boon just for for public awareness of what the technology
can do. Okay, but howsn't the n f T market
kind of imploded over the last few weeks. I mean
sales in almost every category or drawing up what's happening there, Yeah,
is definitely down. And again I think that's natural, just
like the cycles in crypto are. I go so far
(15:06):
as to say that n f T s produced today
probably will have little to no value in three to
five years. You could say the same thing about early
internet companies in the late nineties too, though. Um, it's
sort of inevitable in a new technology that people are
going to try a bunch of stuff. Most of it
won't work at the beginning, but the technology itself is
really important and really valuable over the long run, and
(15:28):
there will be a few things that end up being
fundamental building blocks that really do matter. I want to
talk about regulation because the US government has yet to
really take a stand on crypto, but President Biden's SEC
has made it clear that some sort of stand is coming.
What kind of regulation do you expect? So, I think
the US is at a very important crossroads with crypto today.
(15:51):
The US is blessed with the best currency and the
world's reserve currency today. UM. It also tends to be
the defect of financial regulator for a whole bunch of
the world. We also have a history of being the
strongest technology country in the world. If you look at
(16:14):
the most valuable companies in the world today, most of
them are American Internet technology companies, the Google's, the Microsoft's,
the Facebook's. I do think, UH, that crypto is a
nuanced issue, UM, and that it's possible the US gets
crypto wrong. I'm I think today you have a lot
(16:37):
of regulators whose job it is to mitigate risk and
keep us all safe, and that's that's very appropriate. UM.
At the same time, I think crypto is the next
Internet sized opportunity for the United States. I think as
the potential to create as many if not more jobs
in the Internet, similar with economic growth. UM. I think
(16:58):
it has the potential to who square the circle on
the privacy Internet issues that we've been talking about with
big tech companies for the last ten years, namely, we
could use these technologies um to continue to own our
own data while still getting all the benefits of the
Internet platforms we know and love. Today, China is taking
(17:19):
a stand on crypto for better or for worse, and
that's also where most of the mining is happening. Do
you have concerns that China is going to beat the
US and crypto and that that's kind of a big deal. Yes,
and it's on multiple fronts. To your point, one is
there are government programs to explicitly build using crypto. This
(17:40):
is true both with their dc EP initiative, which is
basically making a digital remanby. It's also true of local
governments who are trying to use blockchain technology. UM. And
then to your point, historically most crypto mining has been
in China. Recently, there was actually a government crackdown in
China UM on mining, oftentimes because energy was being siphoned
(18:04):
from the Chinese grid in ways that may or may
not have been kosher. UM. So I think there's actually
a huge moment of opportunity today, UH for miners in
the United States or globally to h to step in
and on the crypto side to make it more decentralized. Um.
And then if you want to view it from a
nation state point of view, to make sure that no
(18:25):
single country is in control. You're listening to my conversation
with cred or some co founder of coin base and Paradigm.
Up next, The big promise of crypto is that it's
the next so called iteration of the Internet. But how
long until we get there and we bust the biggest
(18:46):
cryptocurrency myths? Spoiler alert, It's not all about speculation. I'm
Emily Chang. This is Bloombrook Studio. One point out, stay
with us. There are folks out there who think crypto
(19:14):
is a gimmick or a Ponzi scheme, or an unsafe
hedge against inflation. What do you think are the biggest
myths about crisp crypto that you want to bust? Oh jeez,
so many good ones. Um. Well, perhaps number one that
crypto is all about speculation. Um. I think all investment
(19:35):
can be framed on some spectrum from it from speculation
to extremely long term holding. And I think as people
get more comfortable with the idea of crypto and why
it is a superior money and store of value across
all these different dimensions of money, whether it's scarcity, portability, divisibility,
(19:57):
UM that people are viewing at as a more long
term holding. In addition to the fact that there is
real utility for crypto being built today all these financial
services and new Internet applications. A second big one, of
course is energy. UM. This is one of the hot
topics no pun intended around crypto today. My meta view
(20:20):
of the issue is that it takes far more energy
and resources UH to protect and use physical assets than
it does digital ones. So does that mean you think
the energy concerns raised by Bill Gates and even Elon
Musk are a red herring. I think they should examine
(20:42):
the issue more closely UM, and I think the industry
hasn't done the best job of making legible exactly what's
going on here. So my personal view is, UM, it's
actually going to be a lot more energy efficient to
use these digital systems of value transfer over time time.
But it's understandable that there's a lot of confusion early,
(21:04):
especially given the nature of crypto, which is that it's decentralized,
so nobody has all the information in some sense, as
you said, you know, crypto is the next Internet sized
opportunity for the United States, And the big promise of
crypto is that it is the next iteration of the
Internet that could free users from the power and control
(21:24):
of the gatekeepers where whether it's the big banks, whether
it's Google or Facebook. How long until we get there
to that future that you see? Well, I think in
very small ways, we're already there today in the sense
that you can own your own global permissionless money UM,
and you can be your own bank in crypto by
(21:45):
simply downloading free desktop software that anybody in the world
can run. I think it will take decades and decades
for all of the applications to be built out around
that base, so a full blown financial system. I think
we're probably one tenth of one percent into what that
looks like in a crypto native form mainstream applications. I
(22:08):
think we're effectively at zero UM. And that's what we're
so excited about. A paradigm is watching that whole space
get built out UM and unferral. So what does that
mean for the Googles and the facebooks? Do they disappear someday?
I think this is kind of like e commerce where
you know, the world doesn't change overnight, but you can
(22:29):
see the seeds of exponential growth occurring already. Um so
I do. I do think we will live in a
future where for us to coordinate, we won't need these
centralized platforms today. That's already true of uh financial services,
in that in crypto you can be your own bank.
(22:52):
You don't need a central institution to hold your money anymore.
I think that's true in the web application sense, where
already today there are creators who are pushing their work
out over crypto rails from their own crypto wallet, where
the social graph exists directly on Shane. You don't need
Facebook or Twitter or Instagram um to have a follower graph.
(23:17):
It just all happens right on the blockchain. I think
that's where we're headed. We're headed into a world where
both users and creators don't need centralized platforms or institutions anymore.
Take me out ten twenty or fifty years. How has
crypto changed the world. What's different? I think one thing
people don't yet fully grasp about crypto is how, in
(23:41):
a world that is increasingly going digital, your crypto wallet
is the entire representation of the digital you. So that
means it's your bank account, it's your online identity, it's
your universal log in to every Internet application, it's your
(24:02):
digital resume, UM sort of your digital LinkedIn, and all
these things are in one place. You can use your
real identity, you can use a pseudonym somewhere in between. UM,
and I think, perhaps said quite simply, the future, I
(24:24):
think will run on crypto rails, and I think it
will be sort of the single source of truth and
coordination that all systems in the world use today. Well,
we'll have to check back in with you in fifty years,
but hopefully sooner. UM Renter or some co founder of
coin base in Paradigm, thank you so much for joining us.
(24:46):
It's been wonderful to have you, and thanks for answering
these very big picture questions and showing us of you
of the future. Pleasures always, m H. Bloomberg Studio at
One Point O is produced and edited by Kevin Hines.
(25:08):
Our executive producer is Alison Weiss. Our managing editor is
Danielle Culbertson, with production assistants from Lauren Ellis and Mallory Abelhausen.
If you like this show, please share it or write
a review. Wherever you get your podcasts, I'm Emily Chang,
your hosts and executive producer. This is Bloomberg
Hi everyone, I'm Emily Chang and this is Bloomberg Studio
One Point Oh podcast, a series where I speak with
the biggest influencers in technology and media. Over the last decade,
I've had in depth conversations with the very people shaping
the future of business of our world, sharing their vision
for what comes next. Today, we take a deep dive
(00:20):
into all things crypto as we speak to a true
crypto o g Not long after bitcoin was born, Fred
Urson became an analyst at Goldman Sachs. The new mysterious
digital currency had been invented by Satoshi Nakamoto, a pseudonym
for a person or group that wanted to circumvent the
traditional banking system. On a good day, the price was
(00:43):
mere sense and almost no one knew what it was.
But Ersome saw the potential. He bought in as much
as he could and found himself obsessively checking early cryptocurrency
exchange mount cox and scouring Reddit threads, where he met
another bitcoin enthusiast, Brian Armstraw. As mount gox was hacked
and going bankrupt, Armstrong and Ersa were building coin base,
(01:06):
which would become the most mainstream place to buy, sell,
and store cryptocurrency in the United States. In the span
of a little more than a decade, the crypto market
went from zero to more than two trillion dollars, with
some upo highs and gut wrenching lows in between. Joining
me on this edition of Bloomberg Studio at one point,
oh to talk about that wild ride and where it's
(01:28):
going next. Co founder of coin Base and the crypto
investment firm Paradigm, Fred Erson, take me to the very
beginning of your crypto journey when you were an analyst
at Goldman Sachs. What was it that drove you to
this emerging technology. Jeez, I think I was lucky because
I had three core ingredients to understand crypto. One was
(01:52):
I was a computer scientist and engineer by training. The
second is a Goldman I was trading fact specifically the
Euro him watching the European crisis unfold every day, watching
the I m F give the next tranche of bailouts
degree seeing how the Euro would trade on that, thinking hey,
maybe this isn't working so well. And the last is
(02:12):
I was a hardcore gamer in high school. I was
on the best team in the world at a video game.
Lived in these virtual worlds that had virtual currency all
the time, so that idea was pretty natural to me.
UM and this was right around the time that bitcoin
came out on the Internet. Around UH and nights and weekends,
(02:33):
I would just spend my time getting further and further
into it. Tell us about the moment when you realized
that this crypto thing was really something, when the world
and your friends probably had no idea what was going
on or thought you were crazy. Well, when we launched
coin base inve out of two bedroom apartment in San Francisco,
(02:55):
it did seem like a crazy idea. At the time
you walk down the street, nobody would know what bitcoin was.
Those people who knew about it probably thought it was nuts. Um.
The literal advertisement, even on the bitcoin subread at the time,
was a bad Microsoft paint uh painting of a wizard
that said magical Internet money. UM. So very very not
(03:16):
obvious at the time. The thing though, that really stood
out is the community was extremely strong, even though it
was small um And if you look at the early
coin based numbers, things grew really well, especially when we
added the simple feature just to buy and sell bitcoin
with any US bank account with one click. UM. So
(03:38):
while it seemed crazy to most outsiders at the time,
it was clearly growing on the inside, and I think
that's even true in crypto today. On some level you
have UM, these kind of radical believers on the inside,
and then many people on the outside who might still
be touching the elephants, still trying to figure out exactly
what's going on here. How did you meet Brian Armstrong,
(04:00):
founder of coin base, and what did you too set
out to do? UM? Well, like any great crypto venture,
it started decentralized in some sense. We met on Reddit.
On the Bitcoin subreddit, he posted a prototype of an
early version of coin base and I emailed them. We
(04:22):
met up at the now infamous creamery in San Francisco,
which is sort of the like back in twelve was
the place where everybody would would do meetings. UM started
working together fifteen hours a day for four weeks, weekends included.
It turned out we both really cared about building something
in crypto that allowed the whole thing to go mainstream.
(04:46):
And at the time where you bought in, like had
you invested your own money into this magical internet money
not knowing what would happen? Yeah, I was fully bought in.
Both financially and career wise. UM. I quit my job
at Goldman UM and moved out to the West Coast,
not even having a place to live. UM obviously started
(05:06):
working on coin Base, and then financially I didn't have
very much money, but the little money I did have
UM I invested in bitcoin. And it's funny, the most
expensive thing I own today is still a car I
bought in twelve. I bought it for nineteen thousand dollars UM.
At the time bitcoin was about ten dollars so an
(05:28):
opportunity cost terms, that's about a fifty million dollar car.
I still love the car, but just to give a
sense for how expensive real world goods are in bitcoin
terms over time. You were at coin base, co founder
until UM you were president I believe at the time,
and then you left. Why did you leave UM A
(05:49):
couple of reasons. One I felt like the company was
just in a very good spot. The second is for
much of crypto's history, so from ten when bitcoin sort
of came out two thousand nine up until really the
only idea that seemed possible in crypto was this idea
(06:10):
that it was a new global digital money. UM and
the thing that really changed in sen Is. All of
a sudden, the doors opened to much broader applications. Ethereum
came on the scene and showed that blockchain based applications
were possible to build, and people were both building very
(06:31):
early versions of them. Today we know those things better
as Defy or these decentralized financial applications that live on
the blockchain, and even more broadly, I think over time
we'll see mainstream consumer apps and perhaps n f t
s are a weird bleeding edge of exactly that. Um
so I found that that whole new frontier to be
(06:51):
extremely exciting. Coin bases direct listing it's now a public
company was a huge moment for mainstream institutional adoption. But
it still seems like so much of the world doesn't
get crypto and how big it can be. What do
you think they're missing? The short answer is a lot um.
(07:15):
I think. Look, crypto is its own rabbit hole UM,
and just like any new powerful technology, it's extremely powerful
because it reimagines very important systems that run the world
today from the ground up. UM. Most people primarily think
about crypto again as a new digital money. UM that's
(07:39):
really worked, especially with bitcoin, is a store of value
where we've seen bitcoin go from zero to a trillion
dollars in market capitalization over the last ten years, but
crypto goes much deeper than that. We think about crypto
at Paradigm, which is UH, the investment firm I've started,
along with Matt Long in three stages today, and of
(08:00):
course that this model will evolve over time. The first
is a new digital money, the second is a new
financial system, and the third is just a broad UH
Internet application platform. UM. So, in our minds, crypto isn't
just kind of this new digital money or new digital gold. Um.
(08:20):
It's a whole new financial system that we're seeing being
built from the ground up by talented entrepreneurs all around
the world. And while it's extremely early on the third frontier,
a new application platform, we think that over over the
course of decades, a lot of Internet applications that we're
all using will also be crypto based. I've talked to
investors who say coin Base could be the next a
(08:42):
o l it's the first exchange that's you know, really
gone mainstream, but it's too early and others will or
something else will surpass it. What do you think, I
think it's a fair question. I think history is yet
to be written. UM. My view is that it's a
very strong place to be to have the largest mainstream
(09:04):
brand trust um, not only with users but also with regulators. UM.
And that being that bridge into the crypto world is
a great place to start. Now, as you mentioned, you
now run a crypto focused investment firm called Paradigm. How
is the crypto style of venture capital different from traditional
(09:28):
venture capital? Yeah? Um, well I think in a few ways. UM.
Just to talk about why we started Paradigm in the
first place, myself and Matt Long, who was previously a
partner at Sequoia focused and running their crypto investing efforts. Um,
we we realized a couple of things. One, crypto is
(09:50):
a whole new field that needs focus. To the core
question that Matt and I asked ourselves and starting the
firm is is there anybody out there who if we
were crypto entrepreneurs building a business and Matt was a
former y Combinator startup founder, I obviously started a large
crypto company and coin base, who would we want to
(10:13):
have as our first backers? And we couldn't really come
up with a good answer to that question. UM. The
last is, uh, I think the expertise required both on
the team and operationally in crypto is very different. So
we're really trying to build a firm UH from an
engineering an entrepreneurial point of view to best support these
(10:35):
crypto native companies and protocols. The crypto VC lands game
is getting now more competitive, So where are you placing
your bets? How do you stay ahead of the curve.
The thing we're really excited about is a number of fronts.
One is the picks and shovels businesses UM so, now
that crypto has grown a lot, there are all sorts
(10:56):
of basic infrastructure businesses that are being built out to
support at ecosystem. Those of course include exchanges, also custodians,
tax providers, k y C, a mL providers, lenders, cryptos
back end as a service for any business that would
like to integrate crypto, all sorts of these picks and
(11:17):
shovel's businesses. A second big frontier, as we talked about before,
is defy all of these crypto native financial building blocks
UH that are being built out. Um and today's support
around seventy five billion dollars and user assets, up from
effectively zero three years ago. UM and This is sort
(11:40):
of the bleeding edge of what we see as a
whole series of crypto native applications. This is my conversation
with the co founder of coin base and the crypto
investment firm Paradigm thread person coming up. President Biden's sec
has made it clear that crypto regulation is coming. How
(12:02):
does Urson expect that to change the crypto landscape? And
with thousands of cryptocurrencies out there, how many is too many?
And we have to ask is dos coin a hustle?
I'm Emily Chang, this is Bloomberg Studio. At one point, Oh,
stay with us. There were something like four thousand cryptocurrencies
(12:36):
at the start of the year. I mean, is that
too many? Do you expect more? It's just like the Internet. Um,
people are going to try all sorts of things. There
will be millions and millions of cryptocurrencies and crypto assets,
just like there were millions and millions of websites. Most
of them won't work, especially early in the technology. There's
(12:57):
a lot of dedicated communities out there and lot of tribalism.
Is that a good thing? It's an interesting question. I'm
I think every new, powerful technology tends to feel very
polarizing at the beginning. UM, So I think some level
of tribalism is inevitable at paradigm. We think that we're
(13:20):
super early in this technology, so getting too caught up
in any singular view or belief or paradigm no pun intended, UM,
is probably unwise. What do you think about does is
it a hustle or do you give it more credit
than that? I think, UM, well, perhaps framing it from
(13:41):
Ellen's point of view, and it's always dangerous to guess
what's going on in the mind of Elon. Of course,
if crypto has taught us anything, it's never to dismiss
a good meme that could later manifest into UM more
concrete progress. UM. I I tend to think there's less
(14:01):
of that on the ground today. More holistically, I think
whether it's does or more the n f T phenomenon,
I do like that there are UM there are a
lot of things recently that I think have just brought
crypto to a much more mainstream awareness and audience. One
joke we often tell is UM n f T has
(14:25):
made it really obvious that most crypto insiders sort of
word nerds that tended to care a lot about monetary
theory or the intricacies of the financial system. And what
n f T s really showed us is that, um,
a lot more people, it turns out, care about culture, music, art,
basically everybody does, UM, and that that's been a huge
(14:46):
boon just for for public awareness of what the technology
can do. Okay, but howsn't the n f T market
kind of imploded over the last few weeks. I mean
sales in almost every category or drawing up what's happening there, Yeah,
is definitely down. And again I think that's natural, just
like the cycles in crypto are. I go so far
(15:06):
as to say that n f T s produced today
probably will have little to no value in three to
five years. You could say the same thing about early
internet companies in the late nineties too, though. Um, it's
sort of inevitable in a new technology that people are
going to try a bunch of stuff. Most of it
won't work at the beginning, but the technology itself is
really important and really valuable over the long run, and
(15:28):
there will be a few things that end up being
fundamental building blocks that really do matter. I want to
talk about regulation because the US government has yet to
really take a stand on crypto, but President Biden's SEC
has made it clear that some sort of stand is coming.
What kind of regulation do you expect? So, I think
the US is at a very important crossroads with crypto today.
(15:51):
The US is blessed with the best currency and the
world's reserve currency today. UM. It also tends to be
the defect of financial regulator for a whole bunch of
the world. We also have a history of being the
strongest technology country in the world. If you look at
(16:14):
the most valuable companies in the world today, most of
them are American Internet technology companies, the Google's, the Microsoft's,
the Facebook's. I do think, UH, that crypto is a
nuanced issue, UM, and that it's possible the US gets
crypto wrong. I'm I think today you have a lot
(16:37):
of regulators whose job it is to mitigate risk and
keep us all safe, and that's that's very appropriate. UM.
At the same time, I think crypto is the next
Internet sized opportunity for the United States. I think as
the potential to create as many if not more jobs
in the Internet, similar with economic growth. UM. I think
(16:58):
it has the potential to who square the circle on
the privacy Internet issues that we've been talking about with
big tech companies for the last ten years, namely, we
could use these technologies um to continue to own our
own data while still getting all the benefits of the
Internet platforms we know and love. Today, China is taking
(17:19):
a stand on crypto for better or for worse, and
that's also where most of the mining is happening. Do
you have concerns that China is going to beat the
US and crypto and that that's kind of a big deal. Yes,
and it's on multiple fronts. To your point, one is
there are government programs to explicitly build using crypto. This
(17:40):
is true both with their dc EP initiative, which is
basically making a digital remanby. It's also true of local
governments who are trying to use blockchain technology. UM. And
then to your point, historically most crypto mining has been
in China. Recently, there was actually a government crackdown in
China UM on mining, oftentimes because energy was being siphoned
(18:04):
from the Chinese grid in ways that may or may
not have been kosher. UM. So I think there's actually
a huge moment of opportunity today, UH for miners in
the United States or globally to h to step in
and on the crypto side to make it more decentralized. Um.
And then if you want to view it from a
nation state point of view, to make sure that no
(18:25):
single country is in control. You're listening to my conversation
with cred or some co founder of coin base and Paradigm.
Up next, The big promise of crypto is that it's
the next so called iteration of the Internet. But how
long until we get there and we bust the biggest
(18:46):
cryptocurrency myths? Spoiler alert, It's not all about speculation. I'm
Emily Chang. This is Bloombrook Studio. One point out, stay
with us. There are folks out there who think crypto
(19:14):
is a gimmick or a Ponzi scheme, or an unsafe
hedge against inflation. What do you think are the biggest
myths about crisp crypto that you want to bust? Oh jeez,
so many good ones. Um. Well, perhaps number one that
crypto is all about speculation. Um. I think all investment
(19:35):
can be framed on some spectrum from it from speculation
to extremely long term holding. And I think as people
get more comfortable with the idea of crypto and why
it is a superior money and store of value across
all these different dimensions of money, whether it's scarcity, portability, divisibility,
(19:57):
UM that people are viewing at as a more long
term holding. In addition to the fact that there is
real utility for crypto being built today all these financial
services and new Internet applications. A second big one, of
course is energy. UM. This is one of the hot
topics no pun intended around crypto today. My meta view
(20:20):
of the issue is that it takes far more energy
and resources UH to protect and use physical assets than
it does digital ones. So does that mean you think
the energy concerns raised by Bill Gates and even Elon
Musk are a red herring. I think they should examine
(20:42):
the issue more closely UM, and I think the industry
hasn't done the best job of making legible exactly what's
going on here. So my personal view is, UM, it's
actually going to be a lot more energy efficient to
use these digital systems of value transfer over time time.
But it's understandable that there's a lot of confusion early,
(21:04):
especially given the nature of crypto, which is that it's decentralized,
so nobody has all the information in some sense, as
you said, you know, crypto is the next Internet sized
opportunity for the United States, And the big promise of
crypto is that it is the next iteration of the
Internet that could free users from the power and control
(21:24):
of the gatekeepers where whether it's the big banks, whether
it's Google or Facebook. How long until we get there
to that future that you see? Well, I think in
very small ways, we're already there today in the sense
that you can own your own global permissionless money UM,
and you can be your own bank in crypto by
(21:45):
simply downloading free desktop software that anybody in the world
can run. I think it will take decades and decades
for all of the applications to be built out around
that base, so a full blown financial system. I think
we're probably one tenth of one percent into what that
looks like in a crypto native form mainstream applications. I
(22:08):
think we're effectively at zero UM. And that's what we're
so excited about. A paradigm is watching that whole space
get built out UM and unferral. So what does that
mean for the Googles and the facebooks? Do they disappear someday?
I think this is kind of like e commerce where
you know, the world doesn't change overnight, but you can
(22:29):
see the seeds of exponential growth occurring already. Um so
I do. I do think we will live in a
future where for us to coordinate, we won't need these
centralized platforms today. That's already true of uh financial services,
in that in crypto you can be your own bank.
(22:52):
You don't need a central institution to hold your money anymore.
I think that's true in the web application sense, where
already today there are creators who are pushing their work
out over crypto rails from their own crypto wallet, where
the social graph exists directly on Shane. You don't need
Facebook or Twitter or Instagram um to have a follower graph.
(23:17):
It just all happens right on the blockchain. I think
that's where we're headed. We're headed into a world where
both users and creators don't need centralized platforms or institutions anymore.
Take me out ten twenty or fifty years. How has
crypto changed the world. What's different? I think one thing
people don't yet fully grasp about crypto is how, in
(23:41):
a world that is increasingly going digital, your crypto wallet
is the entire representation of the digital you. So that
means it's your bank account, it's your online identity, it's
your universal log in to every Internet application, it's your
(24:02):
digital resume, UM sort of your digital LinkedIn, and all
these things are in one place. You can use your
real identity, you can use a pseudonym somewhere in between. UM,
and I think, perhaps said quite simply, the future, I
(24:24):
think will run on crypto rails, and I think it
will be sort of the single source of truth and
coordination that all systems in the world use today. Well,
we'll have to check back in with you in fifty years,
but hopefully sooner. UM Renter or some co founder of
coin base in Paradigm, thank you so much for joining us.
(24:46):
It's been wonderful to have you, and thanks for answering
these very big picture questions and showing us of you
of the future. Pleasures always, m H. Bloomberg Studio at
One Point O is produced and edited by Kevin Hines.
(25:08):
Our executive producer is Alison Weiss. Our managing editor is
Danielle Culbertson, with production assistants from Lauren Ellis and Mallory Abelhausen.
If you like this show, please share it or write
a review. Wherever you get your podcasts, I'm Emily Chang,
your hosts and executive producer. This is Bloomberg
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