0xpo 2020: Fireside Chat with Balaji Srinivasan

We're fortunate to have Balaji videoing in from Austin. So welcome Balaji, thank you so much for joining us.

Hey, well, how are you doing?

Very well. So thank you for taking the time to chat with us about tokenization. I wanted to kick it off by asking you. Well, when you were the CTO at Coinbase, you oversaw the expansion of Coinbase's expansion into a variety of new crypto assets. And you know, kind of curious how you envision centralized exchanges like Coinbase and Binance coexisting with decentralized exchanges that are out there as the number of crypto assets increases over the, over the following years.

That's a great question. Can you hear me?

Certainly can.

Okay, great. So a few things. So first I think that when you're talking about decentralized assets, typically, you know, you've got obviously different chains, you've got tokens. And right now these decentralized exchanges aren't great for, you know, like for example, trading new chains. For example, example, like a Tesla store or chain, you know, it's kind of within the Ethereum of the system of tokens. So at least for a little while, centralized exchanges, adding chains is something that only they can do. Decentralized changes, at least on the Ethereum blockchain might be able to do, you know, atomic swaps or something like that, but I haven't seen something that allows them to trade. Number two is the scalability of centralized exchanges. Maybe that's not the still higher than the decentralized Portland. And then related to that is the liquidity, not just number transactions per second. And with that said, over time, I do believe decentralized exchanges do gain traction. However, an important concept is I think that may have not regulatory arbitrage, but potentially such that folks can arbitrage between different kinds of exchanges. So some of the stuff that Starcore has been doing I think is interesting, like the Stark Deck stuff where it is possible to effectively maintain an account at one place and then also in other places like their custody is all local gravity in accounts, custody accounts. That's at least one direction in your term where I can see decentralized exchange of some sort getting traction. But it's a little different from having a.

And what about. So you know, in, in the next couple of years I think we'll start to see interesting kind of layer two solutions, non custodial exchange solutions that are plugged in like so starkware and Arwin. And I think there's a number of really high quality teams that are working on problems like this in five to 10 years, and we have million, maybe even millions or billions of different trading pairs. What role will centralized exchanges play in that type of world?

Yes, good question. So one thing that I've sort of come to realize or think about is I think there's going to be as many totems as people in the world and maybe as projects. And this is something people have talked about for a while. It's starting to finally happen. There's at least two notable things recently. Number one is Ruben Robin, who launched his CMSL till very first time. Number two, Spencer Digley Brenton, an NBA player, has basically organized himself. And whether those two particular projects were successful, they're more fully formed. I think at least Ruben has actually had transactions for. And then you start thinking about, oh, a billion tokens right now. It is possible that all of those things get listed on central privacy changes. I guess you could imagine something like Facebook, where every individual has their own account and so on. But there's also a scenario where listing on a centralized exchange is almost like a NASDAQ kind of moment. It's like a big moment. It's a hard thing to get, and then you only pursue it for something that contains your moment. Because there's a human review process, there's a diligence process, there's all this stuff associated. So it may be that decentralized chains are for those that long tail of tokens, the low liquidity things, the things that are issued for individuals and then maybe for things we can't even contemplate at the current time, things are sort of instantly securitized in the same way that people will sort of casually put up a website or a tweet for anything.

Yeah, and this is a concept that I think you, I identified and have been talking about for a while, the concept of crypto kind of turning everyone into investors. And there are a couple of tweets that I pulled from your timeline, and I think they're worth highlighting. The first one is I think we're going to have as many new tokens as new companies and as many new coins as new platforms. And then the second tweet is there will eventually be a billion crypto holders on social media who can invest in anything as quickly as they can hit the like button. That will mean trillions in liquid capital. So my question is, what does the tokenization of everything unlock and who benefits and who gets disrupted?

So that's a great question. You know, one way to sort of rephrase your question is what were the first things the Internet disrupted because those are more obvious in hindsight and were less obvious at the time. You know, so we'd say, you know, the post office, right. We would say, you know, to some extent catalogs, even though retails, you know, the retail apocalypse only started happening now, even though they were conception disrupted. Libraries also relatively early. And then a little bit later you had, you know, Blockbuster being disrupted by Netflix and Kodak, arguably by Instagram. So what does tokenization disrupt? I think in the medium to long term it disrupts venture capital and angel investing. And we're already starting to see like a V1 of that where all these people are getting seed funds. In Silicon Valley, all these people have become investors by holding crypto and some of them have pretty substantial stakes. All these folks now on Angellist, they just launched something where, you know, I call it dollowers. So naval has a new feature. It's like dollar weighted followers almost where someone can follow you not with their time but with their money, which is really cool. Right. Makes it much easier to set up a fund. It's a major innovation in that. And I think every year we get another step in this in terms of investing online. Angellist was a huge step and eventually it becomes something where you're basically disrupting in many ways. Both Silicon Valley and Wall street use the financing mechanisms of both because you can incorporate from anywhere, you can issue a token from anywhere, you can sell that token, you can receive proceeds, you can maintain a cap table and you can take in wires or the equivalent international. Now the immediate caveat is there's a number of regulatory things that need to be worked out for that to happen. And I think we're going to see a patchwork of regulations for quite a while. And there'll be some early adopter countries which make the move, whether it's Singapore or Estonia or in Israel or what have you, and then folks will go and set up shop there in order to avail themselves of kind of more progressive regulations.

Interesting. Yeah. And this is a topic that I've seen you discuss quite a bit in the past. The idea of, you know, could be decentralized networks or tokenization, but more or less kind of changing the shape of the global workforce and having a more remote and diverse workforce emerge due to these open networks for financial transactions. Yeah. I'm curious what you think, you know, in the next five to 10 years, what could we expect to see in terms of the changing shape of the global workforce?

That's a great question. So, you know, one thing that I thought was going to be a trend over 10 or 20 years that might actually get accelerated to like two or three is as a function of, you know, folks have been following what's going on with this virus. You have like 100 million people in quarantine. And, you know, Bloomberg actually had an article on this after I tweeted about it. Probably contemporaneous or thinking about the same thing, but about how the world's largest remote work experiment is being run in China. And up until this point, remote work was seen as a convenience. But once you start putting it into the category of, hey, we need this as a biodefense necessity, both for the individual and for the country and the supply chain, that goes to a completely different level. And so a whole new slate of assets, a whole new amount of prioritization. I want the Chinese people to recover from this. After that, once this crisis passes, which we're not at the end of, I think you're going to see remote work just hit a completely new level where every job that can be made remote work capable will be. Now that's an important phrasing, by the way. I'm saying remote work capable, even if you're doing it on a daily basis in person, it will be changed so that you can, for example, tele operate a crane or do a telemedical consult if you're a doctor or, you know, you can do something from your home if you're, you know, obviously if you're a knowledge worker of any kind. And so that doesn't necessarily mean every single one of the jobs will be obligate remote work, but they'll be remote work capable. But then the next step in that is once a very large percentage of jobs become remote work capable, and, you know, robotics is a big deal there in terms of teleoperation of robots. And once a bunch of those jobs become remote work capable, well, that interacts with crypto, because now, in theory, anyone anywhere in the world can do it. So in a paradoxical and interesting way, for, let's say, national security reasons, countries may push jobs to remote work capable, but then in the medium to long run, that kind of promotes decentralization and kind of international free trade. Sort of like how the Internet itself was developed, you know, either apocryphally or partially to resist a nuclear strike in the usa, which is kind of a national security reason. Then it became a very obviously international thing and promoted global trade and communication.

Yeah. And with an increasingly remote and diverse global workforce, I imagine, you know, the decision to Incorporate a company, for example, in a specific geographic location within a specific nation state. Maybe that doesn't make as much sense as creating say, for example, a decentralized organization that lives on a blockchain and that has its own assets and is able to pay its own employees. How do you view the prospects of decentralized organizations being adopted in the near term?

Yes. So one of the things I have is this concept of how the blockchain 10x is a lot more things than people realize. For example, it's Obviously Bitcoin is 10x over gold. It's cheaper, lighter, faster, 10x to transmit the gold. Wire transfers have gotten 10x in terms of their speed. If you compare Ethereum to Swift, crowdfunding has gotten more than 10x if you compare, for example, 2015 crowdfunding totals to 2017. And another thing that's gotten 10x is the speed to incorporate. It's an unfair comparison, arguably, but the time to incorporate a new company in Delaware is days and cost something, whereas the time to get a new smart contract on the blockchain is minutes, certainly not days. And so that's at least a 10x and more like 100x improvement with 1440 minutes a day. You might even say, you know, 1000x improvement. And so once you've got like a thousandx improvement in speed, what I think happens is that starts colonizing niches that were previously not suitable for incorporation. For example, you might, you know, incorporate a quick project in the same way that someone can very quickly put up a tweet or a website on something. The bar to incorporate might be so much lower that you might incorporate every open source project. You could do one click incorporation. And critically, by the way, I think the first generation of ICOs, the smart contracts themselves were relatively unsophisticated. They were just accepting and receiving funds. I think in the second generation, what you're going to find is all the conventions of VC will be incorporated into these terms of incorporation. So lockups, vesting, Paris passu, liquidation preferences, all that type of stuff. And so you're going to get essentially all the conventions that Silicon Valley has developed over time to align interests brought onto these smart contracts online. So you start getting essentially the quality of a Silicon Valley lawyer and all of the game theoretic edge cases that have been worked out, but it's available to somebody in Nigeria or in South America, Brazil, India, wherever they could just one click and get something that's about as sophisticated as a Delaware C corp, but anywhere, and enforced not by a relatively fallible human judge, but by the blockchain, maybe the Ethereum blockchain, maybe another smart contract chain.

Yeah, yeah. And it's interesting, I think you were one of, probably the first person to really talk about, you know, in order for cryptocurrency to be widely adopted, people need to be able to earn this cryptocurrency rather than have to go and purchase it through a traditional financial system. And I'm curious, you know, what your thoughts are on different ways and modalities that people can earn cryptocurrency in this more globalized, remote world where people can work together seamlessly and collaborate more seamlessly.

That's a great question. So the reason I think earning is going to be critically important to the future of crypto is you can think of it in terms of mining and then buying and then earning. So mining was only accessible to relatively technical people early on. You know, folks who could set up computer time and so on, especially in the early days of Bitcoin. Then buying, you know, brought the next, let's say mining got, I don't know, on the order of 10,000, maybe 100,000 folks. That's. I think 100,000 is probably high. But let's say in that ballpark, within the first five years of crypto, the next five years, crypto, from, let's say roughly 2013 to 2018, 2019, was buying crypto, and certainly mining kept scaling during that period as well. But buying crypto at Coinbase, at Binance and places like that, and buying, I think, will be a major thing for a while. There's a big advantage of earning, which is that if you earn crypto, you can do it in theory, from anywhere. And there's no capital investment required, only a labor investment. And I think you might be able to 100x the number of people who will be able to get crypto if you can make it something very similar to other things they're used to doing in the browser by clicking. One example of this is the Coinbase earn program, which 0x is actually a participant in Coinbase Earn has done after we sold Earn.com to Coinbase. Coinbase Earn has done several hundred million dollars in sales. And essentially what it is is something where every asset creator, like a 0x or a Tezos or EOS or what have you, can essentially use Coinbase Earn to give people tokens or coins for doing tutorials to learn about their chain. So we call it like an Earn drop as opposed to an airdrop, because there's actually an educational aspect to it. And for example you might have to do a decentralized loan, actually take out a loan CDP with maker before you get your dai. Right, before you get your dai and you might have to send a shield transaction zcash to get some zec. So that has actually been working really well for us and that's at multi hundred million dollar scale. So earning we already have some proof points but I still think actually we're at the very beginning of that. It's going to go from multi hundred million to billions and then tens of billions because it's basically the crypto economy and it's going to like with the incorporation thing I mentioned, it's going to colonize or develop niches that are currently just infeasible in the fiat economy, especially large scale yet small denomination international transactions.

Yeah, thank you. So we've talked a lot about our vision for the future and I think we have a pretty grand vision for tokenization and the impact it can have globally. Mark Andreessen has said that there are no bad startup ideas, just ideas that are too early. So what current crypto innovations or won't be adopted in the short term, but that you're sure will succeed long term.

So I think that some of the stuff that is trying to combine crypto with other areas is probably premature because in general if you take two hard problems, you get an impossible problem. So for example, I think crypto real estate, that's probably immature and I think, you know, we'll see with crypto healthcare I can think of exactly one company or one organization that I think has a sophisticated approach that might be able to get somewhere. But in general I think that's also probably too early because you know, the Internet still hasn't fully revolutionized healthcare. It's getting there, you know, but it's been slow and long. Right. And you know, things like, you know, blockchain for supply chain and things like that though, you know again there's, it's sometimes hard to time these things. I would just say that I haven't yet seen the proof points for crypto plus other industries. I think it's going to have to work in purely digital things like crypto itself obviously like the scaling of blockchains in financial applications, like all the defi stuff probably in social networking and games like the decentralized social networks or the blockchain games. And it's going to have to work for that type of stuff before it works for crypto plus another industry, if that makes any sense.

Yeah, the only blockchain plus healthcare project I'm aware of is Dentacoin, which was an ICO for dental services. I'm curious if that's the same one you had in mind.

No, I'm not a denticoin bull. No, this is a different project.

Just had to check. So you recently launched Nakamoto. So Nakamoto is an outlet for people to share, you know, ideas, kind of expansive thoughts about crypto and philosophy. But there are. There are many other, you know, outlets for information about crypto. What do you feel Nakamoto is doing differently?

Yeah. So Nakamoto is like a monthly news magazine or news magazine isn't really the right term. It's like a monthly outlet where we're just trying to collect a bunch of pieces and put the them out there. Where it's sort of. It's meant to be long form builders talking to builders and you know, just interesting stuff that is outside the. You know, everybody loves crypto. Twitter and they love Reddit and they love Medium and telegram, what have you. That's all fine, but, you know, sometimes people want to compliment something that's not the sick burn or the diss or what have you and something that's a little more thoughtful and that's a troll free zone. That's what we're trying to do with Nakamoto. We have a bunch more pieces coming out soon. I'll post an update initially, kind of like a monthly pace. And then we might move to a bi weekly pace or even a weekly pace over time. Awesome. Thank you for sharing.

That's nakamoto.com nakamoto.com so one other topic I thought would be interesting to dig into with you a little bit. I've seen you discuss, you know, sometimes news out, you know, a lot. There's misinformation propagating through social networks. You know, sometimes there's censorship or information isn't, you know, able to reach the masses. And I saw you specifically having a discussion about how prediction markets and kind of bringing financial incentives into whether or not something is a reality. I'm kind of curious to get your general thoughts on the role of prediction markets in this age of fake news and alternative facts.

That's a great question. So I actually, I'm definitely bull on prediction markets, but I think I might have a perspective, which is a little bit in reverse from. From how other people think about it. Let me see if I can set the stage. So, first premise is a very large number of news articles these days, people have observed, are essentially wrappers around Tweets, and so many people look at this as regress. But I would actually argue, in some ways, at least there's an argument it can be said to be progress. And here's why. What a tweet gives you is who said what, when, and often where. If they have location on and from the context, often why. And then sometimes you might even get their device, which is how. And some people have written things on, you know, whether someone's tweeting from an iPhone or an Android. And investigative journalism, Right. So the thing is that who, what, when, where, why, how as a service is interesting. So Twitter is like fax and quotes as a service. Prior to Twitter, it was actually relatively difficult to get public figures to go on the record. And now there's just like this quote machine operating 24 7, where it's just coming out there and critically, and this is implicit, but I'll get to why it's important. People essentially trust that twitter.com is a neutral actor and has not mutated those tweets. Sometimes it'll take them down, that is true in relatively rare occasions, and it will deplatform people and so on. And that's a real thing. But at least with the tweets themselves, there hasn't been a credible accusation of them editing the tweet or changing it. And this is actually one of the reasons I think Jack doesn't want to have edit tweets, along with technical reasons. So, number one premise is many articles or wrappers around tweets which give who, what, when, where, why, how. Number two is that many blockchain type things, or rather many other things are like Twitter in the sense of being event feeds. So not just the Twitter feed, There is Facebook's news feed. There is the feed of every Zillow real estate transaction. There's the weather channels feed of temperature data. There is every analytics event, every log event. When you start thinking about it in terms of events getting logged, that's a very, very large set of things. Pretty much every company is generating an event feed of some kind. Every marriage is recorded in multiple event feeds. You walk around, you've got Fitbit steps on and on and on. Okay, so that's kind of observation number two. There's tons of event feeds out there, but they're all siloed right now. And observation number three is that with blockchains, what you can do is hash an arbitrary number of event feeds on chain through the construct of a merkle tree. You could get in o of one space, you could get all of them on the bitcoin blockchain, at least proof that that particular thing existed at that time in a very hard to fade way. Finally, observation number four is that lots of people are building oracles for those prediction markets to take these various event feeds and put them on chain. So what happens over time is driven by individual prediction markets. I think we get more and more and more event feeds on chain that become citable things. Just like people can cite Twitter, or just like people can occasionally go and cite a block explorer link to prove that a particular transaction happened. Or more and more facts will become publicly citable facts. And then there's other things that will be in this nether zone of citable, albeit to a particular group that has the decryption keys. Then finally there'll be those things that are on chain but fully encrypted, that only you have access to. So what that gets to is if you think about everything being like Twitter, this gigantic feed of everything, all these things are currently siloed, but all in one chain, or at least on chain, in some chain, you actually start to get digital history, because that collection of all those event feeds is who, what, when, where, why for everything. And it becomes citable and it becomes very hard to fake and delete. And so now we have a truly undeletable history. And I think that's where we're going by 2030. And then people have a uniform mathematically provable objective base of facts to work from. Then everything on top of that is narrative.

Interesting, I hadn't thought about that. Definitely need scaling if that's going to happen. Right? Awesome. Well, I really appreciate you taking the time to join us, Balaji. Thank you so much. Can we get a round of applause for Balaji, please?