Balaji Srinivasan Part 2 - Bitcoin, Coinbase and Maximalism

Welcome to the what Bitcoin did podcast.

Hi there from Taipei. How are you all? How's your week going? Welcome to the what Bitcoin podcast, which is brought to you by the mighty, mighty Kraken, the most trusted place to buy and sell bitcoin. I'm your host, Peter McCormack. And today I've got part two of my interview with Balaji Srinivasan. But before that, I've got a message from my show sponsors. So today's show is brought to you by my new sponsor, my bookie. And Sunday Night Football's back. How did your team do? Who is it you support? Let's get some banter going up on Twitter. Let's talk about it. I've been giving Bobby some stick about the jets because they still suck. And I've been celebrating a win by my team, the Rams, who are clearly going to win the Super Bowl. Yes, I love football. I love your football. I love my football. I love them both. And with my bookie, you can bet on every single NFL game and they've got live in game betting, including guess what else. They accept bitcoin because they are badasses. And of course, I'm only going to work with a bookie that accepts bitcoin because I love bitcoin almost as much as I love football. And I would only recommend a service to my listeners that I trust. And with my bookie, it's always the right play. You bet, you win and they pay. And for you listeners of my show, they've got a special offer. You can earn up to $1,000 first deposit bonus. You can double your first deposit. You just need to use the promo code WBITCOIN to activate this offer. So check it out at MyBookie AG, which is my b o o k I e dot AG and do not forget to use the promo code WBITCOIN when creating your account. Also, today's show is brought to you by my friends, Drop it. And damn.

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Kick my ass if I do. But I'm going to try and pressure them to let me announce it because it's so cool. I'm also going to be heading out to Ohio in October to hang out with them as they've got this cool event coming up that they want me to be part of and hopefully I'll get to meet some of you Buckeyes out there. And Drop it is my fave mobile app. For Bitcoin. I love them because of the innovation they've delivered with Bitcoin mobile wallets. Yes, you can paste an address or use a QR code like all other Bitcoin wallets. But with drop it, you can text Bitcoin and you can also tweet Bitcoin. It is like a Venmo for Bitcoin. You got to check it out. It's available for the iPhone and Android. Just head over to drop bit app, which is D R O P B I T app. Okay, so on to part two of my interview with Balaji. And if you didn't listen to the first part, I recommend you go back and you check that out first because we do cover a whole bunch of interesting topics which lead onto this, where we were discussing all these fascinating things around virtual worlds, AI and politics and how, how this might change how people may be able to work without a visa or how people might consider geography. So that's very cool. But with this show, we finally get onto some Bitcoin. So it was cool because Balaji explains what life was like at Coinbase for me, which is I definitely wanted to hear about. And he talks about the Earn.com acquisition.

And I also asked Balaji, you know.

Does Coinbase hate Bitcoin? Many would argue that Coinbase was on the wrong side of history regarding the New York agreement in 2017. And people also took issue with how long it took to implement Segwick and the questionable promotion of altcoins. You know, is it something that they must do to be competitive in the market or is it irresponsible? And as someone who is a big fan of Balaji's far out thoughts and the previous interviews I've seen with him where he talks about tech, I do wonder why he openly supports altcoin projects. So I have to put this to him. As someone so smart, why does he support these projects in light of so many people against them? We also get into Earn.com's integration with Coinbase. I question whether it's dangerous for newcomers to cryptocurrency is informing them of the technical merits of a project, but not the financial risk of betting on an alt versus Bitcoin negligent. So I do hope you enjoy this interview. I hope you enjoyed the first part. It was great to get Balaji on. There's so much more I could cover with him. So I will definitely get him on again. But if you do have any questions about it, you know, you can reach out to me. My email address is hellohatbitcoindid.com and by the time you listen to this, I'll be in Riga. I'll be heading there from Taipei. I'll be heading out for the Baltic Honey Badger Conference, which I'm emceeing. I'll also have in the bag four more interviews recorded for my new podcast, Defiance, which launches at the start of October. After that, I'm heading out to Wyoming for Caitlin Long's wire hackathon from the 19th to the 22nd of December. I'm going to be heading out to crypto springs on September 23rd to the 25th. I'm also going to be out in Ohio in October for the Drop Bit event and then heading to LA for cis. So it's super busy. So much happening. Hope to get to meet a bunch of you out of these events. If you do have any questions, do reach out to me. My email address is hellohotbitcoindig.com.

I'm going to take us back to the earn.com thing.

Sure.

Okay.

Because that's a good starting point for the crypto for a couple of reasons. Firstly, for understanding you. Because it was bitcoin only.

Yes.

Which was very interesting. And by the way, I was a big fan of Earn.com when I first used it, but I think it misses a couple of things.

Sure.

I think sometimes it's really way too cheap to contact somebody.

Yep.

I think $20 to contact you is not enough.

Yep.

I actually disincentivize to contact you through that. I want you to charge me $250 because then if it's important, I'm gonna pay it. And also I know you're gonna reply. I've used it a few times and had people not reply or give crappy replies.

Right.

I also think replies need to be scored.

Absolutely.

With reviews.

All this stuff was actually on our roadmap.

Yeah.

Everything you're talking about. Yep.

But I think I really like and I think on there, who should be $10,000 to contact.

Sure.

But anyway, so it's an interesting point. Also with the sale to Coinbase, I'm not going to get into the kind of valuation. But I did look at the time thing. Whoa. But one of the things I am thinking about is that I can see this kind of vision of education. And you know, when we talked about VR, the way to earn, you know, earn money is earn through crypto. So I'm seeing this kind of potential infrastructure for a future world of earning. So I do. I do find that all interesting.

But.

But what I want to start with, is that it was Bitcoin only. Why is that? And where are your views right now? Let's start with Bitcoin.

Okay, but let me actually. Can I take one of your things first? Yeah, yeah. So Emily Choi actually gave an interview to the block, like a. Like a month or two ago, maybe two months ago, maybe June, which you can look at, which. Where she talked about Earn and so on, and she mentioned. And I think I can buttress this. The Earn acquisition has already paid for itself multiple times over. And the reason is some of these deals have actually been announced publicly. But for example, the Stellar deal with Coinbase earn was a billion XLM. Right. Which is worth more than $100 million in its own Right.

But that deal wasn't in place when it was sold.

No, no, what I mean is, yeah, post acquisition, the integration of the thing has created more value for Coinbase than like.

But that's post rationalizing.

No, so that was the rationale for the deal. Lots of times, whenever you sell or acquire a company, and Mark Anderson has written about this as well, you're calculating the value based on that startup integrated with a bigger company's distribution.

Yeah.

Right. So, you know, Earn, on a standalone basis had several hundred thousand users. Like somewhere between. I forget the exact number, but like short of a million. But like several hundred thousand users, actually doing quite well. And coinbase had like 30 million users. So if we plug some of the same dynamics, like some of the features of Earn into Coinbase, we had a few different models which said, hey, we could actually make a lot of money very quickly or generate a lot of value. So post integration, if you go to coinbase.com earn do you see what we did with make or Die?

No, I didn't.

Okay, well, I know you're not. You don't follow like the either space or what have you, but just go to like makerscan IO just for a second. If you.

If you look at that, I'm not connecting on the net, but I'll check it afterwards.

Yeah. All right, so let's take a look at afterwards. And basically one Coinbase Earn campaign resulted in more decentralized loans being opened in a few days than in the entire year beforehand. Right, right. So what basically happened with Coinbase Earn is we took one feature of Earn, which was like the tutorial aspects and so on. There's like tons of other aspects of it. Like, as you talk about, which I'll come back to, we took one feature and we integrated into Coinbase and we made it possible to not just buy crypto, but to earn crypto. And over the last year we closed, I think We've disclosed about 100 million, but total close is more than $300 million worth of deals for customers. And I know that's much more than that since I've left. Right. So what does that mean? That means that a customer can click a button, right? Watch tutorial, do a task and earn a cryptocurrency without a credit card in any country. Right, Go ahead.

So many times we're going to hit different points though. It's like one of my questions is, does a Coinbase retail customer need to learn what 0x is for?

I think so. I mean, well, here's why is any one of these. First of all, one of the biggest requests that we got at Coinbase was what do all these coins do, right? Like because, you know, obviously they're not taught in K through 12, they're not taught in college, you know, to be educated about them. There's all these, you know, what we would call shills, you know, out there pumping stuff and they'll say everything is great and you know, blockchain is a confusing area, it's decentralized and blah, blah. So there's a, there's a huge desire. One of our most important customer service request was what the heck do all these things do, right? And often they'd say like I've bought some Bitcoin. What else is interesting in the space? What else should I look at?

So nothing.

Okay, let me come back to that actually and I'll make actually, I think an argument on that. Yeah, okay.

Prepared, sure.

So let me analyze Earn, Coinbase Earn at least. And then there's Earn.com standalone, there's Coinbase Earn, Coinbase Earn. I think it suited three different groups of person. So first let's say you're starting a new coin, right? Or you've got an, you've got a scaled existing card. You're, you're, you're running Stellar or zcash or, or something for such a, such a person, if they want to acquire customers, right, and they go to Google or Facebook, well first they would need to liquidate their current crypto in order to buy USD, which tanks the price number one. Second, Google and Facebook often don't even take crypto companies or ads. And, and third, what ad you're gonna, you're gonna run is basically gonna send someone to an exchange to buy that crypto usually, right. Or to use it somehow. So essentially it's a very inefficient you know, kind of loop which you might not even be able to run. It tanks a price. You may not be able to run the campaign and you send them to something like Coinbase anyway. By contrast with Coinbase Earn, you take a million, 10 million, 50 million, $100 million of their crypto. And the channel is crypto aware, and the customer values that crypto at par. It values at a dollar or frankly more than a dollar, because I think it can go up potentially. Right. Maybe. Right. And, and some of them do, you know, depending on the time frame or whatever. Right. So this is something where you can put in a million bucks and acquire a million users and train them in your crypto and so couldn't be. CERN has become the largest scale customer acquisition channel for crypto. Right. All these crypto projects are pouring in millions of dollars to basically educate Coinbase customers. And they're taking their, let's call it monopoly money. Right. What would be monopoly money? And they're using it and they're, they're expanding the audience. Now you've got a million people who've got that coin, who've learned how to use that coin, who've used it for a decentralized exchange or a loan, they've sent a private transaction, you know, they've set up a smart contract or whatever. So, so there's a real market demand on this from the, from the coin side. Right. From the new coin side, from the user side, it is got the highest NPS of any Coinbase product. Right. Like it's like more than Apple nps. We published some of the stats on that. And the reason for that is people are getting free money. Right. And we've got, I think, pretty hyper.

But isn't that the wrong incentive? Right. And have Coinbase published the stats on whether people hold or do they just dump these figures?

Actually, it's a great question and I think we have published those stats, but I think I can tell you so, because we were looking, we were monitoring that very closely. Right. And for a typical campaign, it'll be something like 75% hold, 10% sell, and the remaining 15% buy much more. Right. And the thing is, when they sell, they can only sell one or five or ten dollars worth. When they buy, they can buy like a thousand dollars worth.

We're going to get into the ethics now because could we argue that that's irresponsible as well, because, okay, so one of the problems I have trying to understand this whole world, you know, I'm not From Silicon Valley, I'm sure. Bedford in England. I've got no experience investment. I find it fascinating. I do, I find looking at it fascinating. But couple of things that I've noticed that feel unhealthy is that we are turning a bunch of people potentially into VCs.

Ah. I'm a huge fan of this.

But I'll come back to why potentially. I like the concept, but we're turning them into VCs in a specific sector where most people will lose money and most people have lost money. We are yet to see any breakout long term viable blockchain project outside of bitcoin. Now, I know you might argue some back.

Yeah.

But I'm, I'm a great tweet. Yesterday I saw somebody said, with bitcoin you buy the dip, with chip coins, you sell the pump. So I still think a lot of coins are seeing a negative performance against bitcoin, even as bitcoin is arguably another bull market. But anyway, we're potentially creating VCs out of a bunch of retail investors. But for most of these projects, they aren't getting the benefits of the VCs and they're investing in projects that haven't hit product market fit. Because essentially, Jill Carlson put it to me, she said, an ico, when you do an ico, you're essentially doing your seed round and your IPO at the same time.

Yep.

You get one chance of fundraising. It's not strictly true because some people get it, get the chance to invest early. Usually VCs, they get their coin discounts by the time retail gets to invest. While there might be a short term pump, there's often a dump. So we're turning these people into VCs, but they're not getting the benefits of the VCs and they don't have the experience of the VCs. And I have spoke to a lot of people who've lost a lot of money. So I worry that this is unhealthy. Okay. And potentially irresponsible. That's why I worry.

Great. Okay, so let me, let me first. Lot of stuff there.

Yeah, I know. Sorry.

But actually I think I have answers to much of that, or at least I've got a thesis on much of that. But let me come all the way actually up to root. Right. Which is from the perspective of a, like somebody who's very sympathetic actually to bitcoin. Maximum. I'm very sympathetic to it. Why have any other coin besides bitcoin? Right. Because like that's like a root question. And here's my, my take on it. For what it's worth, I do believe we need a digital gold, right? And I think it should be on its own chain. And I think that the, by fighting this incredible war at one megabyte, even if one megabyte itself, one can, you know, like debate or argue about that, meant that if that level of war was fought at 1 megabyte, then 21 million is truly sacrosanct, right? Like, you know, that is to say by, by fighting over here, you, you make, if this is that taboo, then 21 million is even more taboo, right? You don't, you don't change that ever, right? And so there's, there's like a rationality to irrationality, if that makes any sense, right? And so I think that having that immutable digital gold as the basis for this entire crypto economy, for something that the government can't seize, that can't inflate, that can't print. I think I've been one of the earliest, I mean, certainly not the earliest, but one of the earliest advocates in Silicon Valley and in tech. Got a lot of high net worth people into it, evangelized it, have held large amounts. I taught this class in 2013 on Bitcoin, among other things and got a lot of people into it. So, so I've always been pro bitcoin, always will be pro bitcoin, right? So I want to just put that down there. Okay? Now why do I think that there's more to life than just digital gold? Well, I think that it's like gear change on a bicycle, right? If you have like a brick of gold, right? Bitcoin is not going to. Let's leave aside lightning for right now. Bitcoin is not going to significantly increase its TPS anytime soon, right? And so the smart thing to do is buy and hold. Puts a minimum amount of traffic on chain. But there's other things you want to do in an economy, right? You want to, there's stocks, there's bonds, there's commodities, there's cash, right? And there's other things that are like video game items and collectibles and all this other type of stuff. And these things are transactions that just have different workloads, right? Different frequencies of use and different risks, right? So let's say for example, you do a gear change down from Bitcoin into Ethereum, right? Ethereum is, you know, because of the Dow, you know, thing in 2016, because of the fact that it doesn't have a written monetary policy. You can argue It's a chain that is more mutable and has more risk than Bitcoin. It has a higher attack surface, all that stuff. I would agree with you on that. And so if Bitcoin is suitable for storing billions, right. Well maybe you can host. And it's totally immutable. Bitcoin's totally immutable for something that is somewhat mutable, like your corporate charter. Right, Your corporate charter, for example. You change it every once in a while. There's the seed, the A round, the B round, the C round, you know, you will occasionally add it. It's A, it's a, it's a non trivial process to do so. But it's not meant to be completely immutable. Right. Every round of financing, every new person who comes on the cap table. So for a data structure like that, where you're raising money, you know, on the basis of the charter, you're editing the charter to accommodate the new investors. Ethereum is to, in my view a suitable data structure or rather suitable host for that. And this is a different use case than gold, right? Like a corporate charter and gold are just not the same thing. And let me, let me just say, why is something like that important? Well, I believe that the state is going to put, you know, the Americans say is going to put a ton of pressure on companies that are headquartered in Delaware. Right. I don't think that's today, I don't think it's tomorrow. But I think over the 2000s and certainly by like the 2000s, to be headquartered in Delaware, to be a Delaware C corp is to basically expose yourself to arbitrary levels of acts by the U.S. government. Right. And instead what people are going to want. So, so first of all, why do people incorporate in Delaware? They do so because it has the, the predictability and the experience of the Delaware Chancery Court. Right. So if you have a dispute, you know, some arcane kind of thing about oh, I had pro rata rights or oh, you know, like drag along or something like that. The Delaware Chancery Court has seen that a hundred times. Whereas I don't know, Minnesota's may not have. Right. And so Minnesota person, that jurist is trying to figure this out for the first time. Delaware person's like, okay, it's like this, this, in this case we're going to resolve it this way. Right? So people, VCs in particular want it to be a Delaware C corp because of the predictability of the thing. Right. There's something however that's even more predictable than a judge and that is a smart contract, right? And especially in this sort of trade war world where, you know, Chinese investment into the US was soaring and then it's kind of fallen off a cliff. Americans don't invest in China because they don't trust Chinese rule of law. And now the Chinese don't invest in America because they don't trust American rule of law. But both parties can diligence a smart contract in the blockchain, and they can both invest in that. And so that's how we get back global free trade. In this era of trade wars, right. You can actually have vehicles that anybody from any country who speaks any language can read the code and ask exactly what it means, and they can invest on that basis. Right. And, and that's something that I think will ultimately be shown to be superior to the Delaware Chancery Court, just the internationality of it. What you also get are benefits like programmability and automation composability. So you can actually set up a vehicle like this and clone it a thousand times. You can automatically set it up, have it funded, and then tear it down and send out distributions where if you've ever actually done that with a company, it's an enormous pain in the ass. Like you have to send out all the wires and contact all the people and so on and so forth. And once you can automate something, you can do much more of it. So buying and selling companies becomes much more frequent, much more liquid. In the same way that, like, you went from the PC to like virtual machines, you could automate the setup and tear down a machine. You get cloud services. So that's like just one example, one chain where, you know, Bitcoin for gold, Ethereum for these smart contracts and these corporate vehicles. And that's quite useful. It's a huge chunk of the economy. And I think now you go further, like something like, let's say zcash, right? Well, Bitcoin is awesome, but it doesn't have, you know, like transactions are not, are not shielded by default. Right. Zcash lets you send money with, you know, cryptographic proof and frankly, actually a lot of Maximus like Monero, which has similar kinds of properties with the ring signatures, right? So, like, I mean, in many ways, you know, Monero has more traction and adoption, like among various kinds of communities, right. Than zcash has lots of the, you know, wares guys and dark markets or whatever. Sure, Monero people won't be happy with that, but there's legitimate uses of it as well. And zcash is kind of more of like your tweety academics. But zcash is genuinely more confidential than BTC is with shielded transactions. I mean you've got guys like Chainalysis who are analyzing the bitcoin blockchain to try to de anonymize you. So okay, now there's an argument for a third chain, right? And then you can basically break out more and more use cases like this. And I kind of think what's going to happen is a polychain world where you have different chains that are just geared for different purposes and different communities and different financial instruments. And I think we need those because some of those will be like for social networks because it's not just enough to keep your gold, you need to also keep your social account and you need to be able to keep all your stocks and your bonds, your commodities. There's all these things people are going to try to deplatform you from and we're going to need different kinds of chains to keep them. So that's my like meta argument and I can go into more detail.

Well, okay, it's a good argument back.

Okay, okay, so and then let me get to VC stuff. This is justification for multiple coins.

But I wonder here, is there a conflict between your maximalist views and your vc? Hat on. And one of the things that I've really kind of struggled with is there going back to the point that there's this been unhealthy situation where so many blockchain projects have died, enriching founders and enriching early investors at the cost of retail investors without ever achieving a product market fit. And one of the things I felt we've missed in this world, sorry, it's just to add to this is bootstrapping.

Yep, it's kind of gone.

It's like the incentive model. It's funny research. In the interview there was your tweet that I replied back to that time where I was saying the incentive model, it doesn't exist. There is no bootstrapping. And it feels like retail has, has paid the price.

So I think that is a very real, very legitimate and also very solvable issue. Let me explain why in venture capital, right? You know your term sheet and your so called definitive documents, right. Like the term sheet is like a quick thing that you put together that has a major terms and the definitives are like a longer thing that includes edits to the bylaws and the charter or whatever. These have evolved over a long period of time to ensure not just the short and medium term alignment of incentives, but also to anticipate likely kinds of disputes that might arise in the future. Right. For example, vesting schedules are things that, that are in place so that you know that like, like a co founder doesn't just get 25% and then leave the next day. And then you know, now like they've put in no work. Right. That would be a defection edge case, like a prisoner's dilemma defection. And so tons and tons of these terms are set up to avoid those issues. And what I think is going to happen and is already happening is those concepts from venture capital will be put into smart contracts. Right. So everything that you mention, you know, like you can stop with just the appropriate terms in smart contracts. And then what will happen is savvy VCs and savvy retail investors will follow those savvy VCs into these better smart contracts. Let me give you some examples. First, vesting, easy to do, right. You can basically make it so that the smart contract shows that these addresses of the coin founders do not get all their coins at the beginning. They can't just dump it on the market. They're aligned with other people. So they've got a long term orientation, maybe a vest over four years or six years or 10 years or whatever. So that's one. Number two, you could also have limits on how much they can move out of those vesting accounts. So you have like dump limitations. Right. You can't move more than X number of coins or Y percent or something like that. Right. And so on and so forth. Right. The, you know, everything from pro rata rights to drag along or whatever, all of those concepts can be encoded in literal code. And in fact, I think we're going to get to a better situation ultimately with that because it's actually code. It's no longer legalese, it's no longer ambiguous as to what it means. It's literally in code. And then you don't have to pay lawyers to, for every freaking financing round, they make $100,000 for taking templates off the shelf and filling in stuff. I paid a lot of legal bills over the years. You now just boom, use a template like off the shelf, a smart contract.

But that all exists now that you could do that now, right?

I don't think so. You don't.

The smart contracts already exist.

I mean, Aragon I think is trying to do stuff like this or trying to make libraries or smart contracts and so on. But actually I was thinking of just doing a series of blog posts like this, right? So you start and you incorporate A toy company on Ethereum and. And then you tear it down, right? Okay. Then you incorporate and you do the equivalent of a seed financing and then it's acquired and then you tear it down and you show what the liquidations would be for each person and you start to build up to more and more complex examples. Ultimately I get to like public companies, right? And like, okay, here's what proxy voting rights look like and here's the thresholds you'd have to clear. And it's actually awesome because a lot of that legalese is really basically an obfuscated programming language. And you put it into code and it becomes very clear as to what's happening. How many people need to turn their private keys at the same time for liquidation to take place. For example, in order to do a series B round, you often need a majority of common and majority of A to approve the series B. So all that's like a complex multisig that requires a bunch of folks to sign off and boom, a new share class is issued and new money comes in. You see what I'm saying? Right? And so I don't think that has been done yet. I think it's very doable and I think that's when I was tweeting about like, we're in this intermediate mediary stage between incorporating in the US and incorporating on chain. I think that's going to happen. Yeah.

It's funny, I'm not such a maximalist that I don't support ideas of people using systems to create better processes. I'm not that, but I am very much in the maximalist camp in terms of there are way too many blockchain projects that have enriched people without deserve the people who just created projects unnecessarily. I think there's been lots of people who've kind of promised dreams and ideas that haven't, you know, come to reality. One of the things I worry is that, well, I do. I don't like the fact that a bunch of people have lost, lost money. I think it's sad. But there's been, there's been little to no adoption on a lot of projects. I mean, you talked about zcash. I mean, no one's really using it to transact. Why is that? I don't even mind Monero. You know, I get, you know, the maximalist. The real ones will kill me for that. I just, I think there's something interesting in there. But still it's not. Have been heavily used. You, you know, there is very little adoption. So do you Think the whole decentralization, could it be a myth?

So. So yes, let me talk about that. So first is respect to adoption in general. I think that here's so. So the. The entire tech industry. I also tweeted about this a while back. The entire tech industry over the last 15 years, ish has been tuned on a set of metrics that are really for social networks, right? Daily active users, utilization, adoption, and so on and so forth. And the interesting thing is those metrics, when they were introduced in like the mid 2000s, were actually looked at very skeptically. And they were introduced because for early Facebook and so on, traditional measures of financial performance, profit loss, etc. Weren't there. So instead there are these like things like daily active users, right? Or engagement or what have you. And people were very skeptical about it. But now that which was the insurgent has become the conventional wisdom. And I argue that using the last generation's metrics to measure the current generation actually misses something very important. Let me explain. I think you can think of like basically at least four thresholds for involvement with something. There's like a page view viewing the site, then there's like a dau. You've set up an account and you come back every day, right? Then there's a dih, not a daily active user, but a daily inactive hodler, right? You haven't just come back. You haven't set up an account and logged in. You have bought and held the coin, right? You've made a financial commitment that's actually larger than setting up an account, which just takes a little bit of time and clicks. You've actually put real money at stake in your hodling, right? And then I'd say the highest level would be physical resident. And I think that's where technology is ultimately going, right? Like after crypto or like the next stage. But now view from this standpoint, Hodling and like the number of Hodlers, they are like dailies because they. They're still. They've got their money in the thing, right? And so many of these coins have actually been accumulating Hodlers, right? I can't tell you how many because not all the stats are public, but you can sort of analyze it from addresses. We know some of that on Coinbase. So from that standpoint, adoption is very real, right? Like lots of these coins are piling up Hodlers, right? That's kind of one thought.

But we don't know why they're piling Hodlers. We don't know if it's you know, I mean, I, I hold all my bitcoin for obvious long term reasons, right? You, I'm, I know a long term believer in bitcoin. You probably have, you hoddle for 20 years, you know, you're, you're fine with it. But I would question, is there anything out there that you would put a significant amount of money in and say, I would hold all that for 10 years.

Yeah, Ethereum for sure. Yeah.

Anything else though?

Let's see. So I don't want to get, I don't want to get into recommendations of particular coins and okay, yeah, no pumping.

But it can be a binary and it sounds binary. It's like Ethereum and Bitcoin and then probably nothing else.

No, there's a lot of other coins. So here's actually a very important mental model kind of thing. When there's a new company, a VC doesn't think of it as a shitco, they think of it as a startup. Do you know what I'm saying? Right. Like you don't think of something as a shitco simply because it doesn't have the traction or distribution or adoption of Google. Right? You look at could it have a niche, maybe could it get big someday, how big could it get? And so on and so forth. Right? And so like that's why, you know, if there's a new coin and it's, it's, I mean bitcoin is the king of coins. It's 10 years old, it's got all the traction and so on in the world. There's a coin that's like a year old and it doesn't have the traction to bitcoin. That doesn't mean to mean that it's like a failure or a shitcoin or something like that. I mean there are shitcoins. I'm not saying there aren't. Right. There's true scam coins and so on out there, but it would be like calling every new company shitty because it's only got like one person in a garage and it's not like Facebook or Google or Amazon yet. Right. That's kind of like one mental mindset, number one. The second thing is, and this is very important I think for maximalists, you know, an enormous amount empirically of the demand for bitcoin comes from the crypto economy because folks are cashing out into bitcoin.

Right, I know, and I don't feel that ever justifies it though.

Right, But I'm just saying like for that percentage of maximalists who are what are called price maximalists and that's a significant chunk of the group. Like, you know, this whole trading economy, even if you think it's all Las Vegas, right, with bitcoin at the core of it, like, that increases the demand for bitcoin. There's absolutely no question about that. We see the stats on that, right? Like, any Dex or whatever, you know, will tell you that. Like, well, yeah, folks buy a lot of bitcoin here because that's a reliable thing to come back to. They even say cashing out into bitcoin because they know that one is not going away. Right? That's kind of. Second point, third point, and this is something I've tweeted about and talked about, speculation is installation in crypto. And here's what I mean by that. With bitcoin itself, the entire speculative process is actually something where, you know, I'm not sure if. If Satoshi intended it or there's some emergent genius, but if you had tried to turn this thing into a step function, right, and said, hey, you have to put all your net worth into bitcoin and operate in this crypto economy, which doesn't exist, right. Nobody would have done it, right? If basically, if you had to act as if bitcoin was a million dollars at the beginning, no one would have done it. So instead what's happened is we've had this stochastic process sort of rise to greatness right through various orders of magnitude. And during that entire process, people could buy and sell and belief would go up and down or whatever, but it's like coming all the way up and eventually will hit like, you know, 100,000 or a million. And so you did is you turned this vertical cliff into a series of approachable, you know, kind of steps. And crucially, you also allowed dual boot, right? You allowed people to maintain most of their net worth in USD and operate their normal life in USD and put some of it into BTC and then like, you know, just. Just operate this whole way rather than demanding people have this, you know, immediate vertical step over. And I think that that same thing is true for a lot of these other coins. Like each of them, there's some vision of the world where they become successful, right? I think Ethereum is the closest to that. And that's why, because it's got five years of traction, right? It's 2014. Bitcoin is 10 years of traction in 2009. Right?

Well, let's, let's talk about that. What is the Ethereum use case?

Because Ethereum use case.

Yeah, yeah. Because it was, you know, ICOs. And at the time, I actually thought this was brilliant. I didn't know that. I thought, this is brilliant. It's a new way to invest money, and it's a new way for people to fundraise.

I can get involved in things and.

Oh, look, I'm making money. And then I lost a load, and then a lot of people lost a lot of money. And then I realized, you know what? This, maybe this isn't healthy. I mean, was it like 400 billion of retail money has been lost?

Oh, no, it's not that much. 400 billion? No, it's not that much. I mean, that. I think that is the. We were talking about is how much the valuations came down. But. But, like, you know, something can be valued at 100 billion, but only a million has gone in. Right? Like, yeah. So let's take this.

Whatever. Just say billions have been lost. Sure.

Well, billions in nominal market cap have come down. That I agree with. Yes.

I think. Okay, well, still a lot of people have lost a lot of money.

Yes, yes. And you may also write that billions in absolute money has been lost. I think that.

But also millions, tens of millions, even hundreds of millions, has been made by founders and some funds, but I couldn't identify who. But almost certainly some have made them, and some have certainly made that money by dumping on retail. That is something that if somebody did an investigation into, they will certainly find examples of that. So it is unhealthy, it isn't great. And if we look at some of these projects, even ones that may be listed on Coinbase or other exchanges, you would argue that some of these are almost certainly destined to fail.

Well, here's a very important kind of concept, right? Investing is never about guaranteed returns, Right. Like you invest, the name of the game is there's a possibility of loss as well as a possibility of gain. Reward is not certain, but risk is certain. Right. And this kind of gets to our earlier thing about how the Internet is more upside and more downside. I do believe that people should be able to bungee jump, be able to skydive, be able to motorbike, be able to take risks. Right. And sometimes those risks will leave them in a better place, and sometimes they'll leave them in a worse place. Now, I also believe that you should have sites and organizations that provide star ratings and reviews and reputation. I believe in things like these contractual things we talked about, where you have vesting schedules, alignment of interest. But I think that at the most fundamental, there were tons of People who called bitcoin a scam in the early days still do. Lots of people still do call it a scam. Right. And they were wrong. And had they been able to prevent somebody from going and investing in bitcoin, they would have prevented that person from getting rich. Right. And so the same is true for so many startups. I mean, like, if you're in tech, like, for example, I may be the first, or at least I'm certainly one of the first investors in Soylent. My God, the amount of negative publicity that company got in the early days was just insane. Right? But it's like, you know, it's doing extremely well. Subscription business. And like, it's worth. I can't maybe say, but it's worth a lot of money now. Right? And so, like, if your antenna are tuned for technology, lots of stuff. I tweeted this actually just the other day. Like, you know these guys, journalists writing Google's toughest searches for a business model. Facebook will never make a profit. Amazon bomb. Right. And you know, so. So your biggest wins are often the ones that look bad at the beginning. Right. Because they're controversial and polarizing. Okay, so.

But history in crypto is slightly different. And firstly, we're throwing people their first opportunity to possibly make these kind of investments are in one of the highest risky, most volatile markets.

Sure.

Like, it is dangerous. But, you know, I'm up for people being able to invest, you know, to invest as they choose, use their money as they choose. I don't like these investor accreditation rules, but I don't think we have the proper mechanisms for people to actually learn about what they're investing.

But let me pause you right there. When you said learn about, whether that's actually the same thing that the customers are asking for with Coinbase Earn. They want to learn about. They want reviews, they want ratings.

I think you're learning about how to use what the tech means, But I don't think they're learning about investing. And risk management. Yeah, risk management. I mean, I've met people who've been bankrupted by crypto. But you talk about, we don't call every company that's built shitco until it achieves something. But I think because the failure rate is very different in crypto. You went on CoinMarketCap and look, you know, ultimately, if you take all the company, all the blockchains that have failed, I mean, sometimes. How do you define failure? But we know there are coins in the top 50, in the top 50 of the market cap. They've got no Active development on them.

Right.

So what I'm saying is there's just such a high failure rate on these projects that they are super risky investments. And yeah, I think it's just kind of concerning or not healthy.

So what I'd actually compare this to is the dot com bubble, right? Like the dotcom bubble in 99, 2000 and so on. The sentiment around like Internet startups was exactly like what you're saying.

But we have many from the early days that were still here. Many.

No. Well, so actually let me talk about that. Billions of dollars were wiped out. Lots of retail investors lost their shirts, massive bankruptcies like Cosmo and pets.com, webvan.com, everything that you're talking about. I can find probably a number of examples. There are a few survivors, Amazon, Google, Yahoo. And actually those alone justify like all the investment that went into it. Because those few survivors in the thing, you know, are obvious in retrospect and big deals. But many, many, many, many companies raise money. They often raise money from public investors and they died.

Right.

Now here are a couple of things that are interesting. First is that led to about 5 years ish of extreme skepticism around Internet startups and so on. And it's really, I think the Google IPO in 2004 that really did it. Second, even through the last 15 years, you know, one of, one of our, you know, there's obviously the financial crisis in 2008, but one of the things that we observed as VCs and is a lot of journalists called 10 of the last zero bubbles, you know, because there's been a tech bubble or whatever, that was a huge narrative for the last ten years or so. And really there wasn't like a quote popping. Instead we've just gotten more and more and more tech startups that are working. And even if there's bankruptcies of tech startups and so on, the financing mechanisms have evolved to the point that, yeah, you know, you've got vesting schedules, you've got safe notes and so on. And you had to have all these train crashes to figure out how to not have train crashes, right? Like all these early pilots, aviation, you know, automobiles, those things blew up and from their blowups and from the accidents, we engineered them to not do that in the future or at least not do that at the same rate. So that's kind of one, one kind of thing. Second thing is, I'm actually still super bull on ICOs. In the long term. They may be called something different. For example, in the, in the late 90s and early 2000s people talked about active server pages or applets. Right. And then it was got rebranded because it was not under Java, but you did with JavaScript. And at first people called it Ajax and now you call it like dynamic web pages or what have you. Right. Though dynamic web pages are broader concepts, not always front end. So whatever the V2 of ICOs is, maybe it won't be called ICOs. I mean, IEOs are kind of like sort of a V2 in a sense.

But they're exactly the same.

Yeah.

And it's the same mechanism. It's still a dump on retail.

Yeah, yeah, but, but I think that. Let me just analyze it from a somewhat different vantage point. Right. ICOs represent the simultaneous disruption of venture capital, international wire transfers, crowdfunding and cap tables. So venture capital because the capital is coming from folks who are not on Sandhill Road, international wire transfers because it's coming from all around the world. Like you're in Turkey, you're in Brazil, Japan, India. Doesn't matter what your local laws are, with an Internet connection you can get into something, an investment. Crowdfunding may be obvious, but I'll make the point anyway. In 2015, a large online crowdfund was 10 or 15 million. By 2017 it was 4 billion. Right. That's like a 400x improvement in just the amount of money that can be moved around the world.

One example. Yeah, it's aos.

I know. Right, but, but still, like the point is that the record setter in 2015 was Star City. Right. So that was the number one crowdfunding project of all time in 2015 was 10 or 15 million. The number one of all time in 2017 was 4 billion. That just shattered the backboard of what's possible online.

Yeah, but I mean it proved that the, you know, it proved that you could move money quicker, that you could have more people involved. But I don't think it made anything better. I don't think we've improved venture capital.

Ah, well, so here's, here's my point is regardless, forget about the project, specific projects that were funded, simply the fact of a 400x improvement in something over a period of two or three years is an enormous quantitative improvement in the amount of money you can focus over the Internet into something. Right. That's kind of what I'm getting at. Right. Like maybe those projects will succeed, maybe they'll fail. Right. The fact is you can now raise a billion dollars on the Internet. That's new and different. And you could use that to build A city, you could use that for lots of other kinds of things that haven't that's not being used for. Right. So as a tool, as just a technological tool, it's a major innovation. Do you see where I'm getting?

No, I understand the innovation like the, you know, the ease of moving money around, it democratizes investment.

Right.

But like I say, I think it's done on the wrong projects because like, why are there no breakout apps in crypto?

Why.

Why is there no mass adoption? At least, at least when you look at the early days of the dot com, there were people who were using pets.com, there were people using webvan. The problem that they had is they got their mechanics wrong in terms of the, the economics of the business. You know, actually what that introduced was that the bootstrapping, right, like the webvan case proved that they invested too much in the infrastructure and not, you know, they should really have just bootstrapped. So that proved that. But I don't. We seem to have this problem in that this decentralization concept appears to be a red herring. It's almost like the innovation is in the back end, but that people aren't recreating a front end experience that anyone cares about.

Well, okay, let me, let me. So let me take apart a few different things. Things there first is, you know, lots of the dot com ideas were kind of put right idea too early, right? Yeah, like, you know, webvan is feasible basically 20 years later with Instacart. And that required like widespread mobile phones and widespread, you know, familiarity with the Internet and so on. And so lots of those things that happened in 99, 2000, you know, they worked in 2005 or 2010 or 2015 or 2020, but not right away, right? And I think that'll be similar with crypto. Lots of the stuff that's being put out there will work eventually, but maybe not. Maybe all the pieces are in place. Number one second concept is I actually think that some of the defi apps are here, right? So in particular, the biggest one that I've seen that a lot of people are starting to use is interest, right? Because you can get way more interest with something like compound and defi than you can at your bank right now. You're taking some risk there, but it's real. Like folks who have had, you know, like a million dollars or whatever in compound or last several months have made like basically, you know, like, like on the order of 10% interest or I forget the exact number. You have to, you have to look it up, but it's way more than you'd have in a bank. That's a real application, right? That is something which is a significant amount of basically quasi free money, albeit with, with some risk of, you know, the chain or the smart contract. So interest is one. There's a lot of people who are doing so. Decentralized loans, decentralized exchanges, decentralized derivatives, decentralized prediction markets, all the DEFI stuff. There's a, there's a site called eth locked in defi. You may have seen it, Mike McDonald's site, right? Like all this stuff is up right now. There's always intermediate setbacks like Veil shut down or whatever. But the traction for that is real and you can see that another application that I think is pretty darn important, the advent of stablecoins. Not just Tether, which, who knows, it's always drama with tether. But you know, usdc, I'm biased. You know, we launched that at coinbase. I helped lead that project. And DAI make or dai, each of those I think fits different use cases. Tether for, you know, the Grand Theft Auto crowd. USDC is your, you know, banking compliant coin, which has probably maybe the lowest redemption risk. And then DAI is actually very interesting because it's a quote, truly decentralized coin, stablecoin. And the thing with DAI is you can now build a banking interface in any app without a banking license, that's like massively important, right? You can be an engineer in Nigeria, you can be in Colombia, you can be in Turkey, Russia, India, wherever. If you have an Internet connection, you can set up a US dollar denominated interface right in your app that uses DAI on the back end and you do not need a banking license from the U.S. right? That's a massive, massive breakthrough. Whenever you take something that was like a 01 and you, you know, it's like equivalent to making everybody into a publisher on Twitter, right? Like you just taken something that was extremely locked up behind, you know, armed guard basically and had anybody be able to do it. So I actually do think the applications are coming out. But, but I'd say that Hodling is really like the most important application because it speculates a future into the present. By Hodling, you boost the price. By boosting the price, you gain attention, you gain the resources to actually build those apps. And it might take like three or four or five or 10 years to build them.

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And what is it the maximus are missing them because so determined in their view that everything that isn't bitcoin is a shitcoin. And I agree with them almost entirely. I mean certainly the different use cases are more obvious. Like something like bitcoin Cash has, has no need. To me, that is a true shitcoin. Something like brave, okay, Brave. It's to me is a true shitcoin.

Okay.

Nobody needs to be making donations with a volatile coin that has no liquidity. That really was a tool for than to raise 7 million.

Okay, so let's, let's talk about this. So first, do you know the War of 1812? Are you familiar with that?

No.

Okay, so I felt like talking to you. I've not read anything.

Sorry. These are things hooks I use to remember things.

Right?

So you know, the, the United Kingdom and the USA were still on the outs during the War of 1812 and the UK actually like burned the White House. Right. They were still like mad at the U.S. it was not, you know, a pleasant time 100 something years later, they're allied during World War I and World War II and they have, you know, the special relationship over the, you know, basically the 20th century, maybe that's breaking down or whatever in some ways. But for a long time, you know, like nobody really cared. Oh maybe people in Britain would say the colonies or whatever, but nobody cared about the fact that there was a fight in 1776 or 1812, like 100 something years later. And that's because these countries kind of occupied their own niches and, and so on. And what I think kind of is, is going to happen, I'm not saying for all coins or anything like that, but these coins, they have their own communities and they differentiate and they adopt different use cases and what have you. And so for example, Litecoin is now, you know, their marketing is the testnet for bitcoin. Right, but that is maybe so. Right.

Bitcoin has a test net. Fine.

Right. But basically like, you know, the live production test net was real money or whatever. Right. And you roll out features like segwit. I'm not like, I, you know, I know Charlie, I'm like friendly with him.

Yeah, me too.

I know, I know. Beef with litecoin or Charlie. I'm just saying that that is, that is where that has kind of evolved. Right? And then you know, bitcoin cash and even like, you know, BSV or whatever. Like you know, these. I know, I know, I know, I know. Bsv like. Well, we can get into that. What I think happens with a lot of these coins is if they survive, they evolve. And you know, one or two things happens. Either they just truly have no raison d' etre whatsoever, or they just start occupying niches that, you know, the other organism or the other chain doesn't or can't or won't or whatever. Right. And I think that's actually good. And I'll give, I'll give an example of this, which is actually Benioff used to say this. He's like, choose your competitors carefully because you'll become a lot like them. But the opposite of that is like Uber and Lyft sort of differentiating marketing wise. Uber is like the sleek black car and then Lyft is like the, you know, like the friendly kind of thing. Each existence polarized. And so the market kind of opened up like this. Another example actually from the early days of my first company Council, you know.

From a dorm room.

From a dorm room. That's right. That's right, yeah. So, you know, like at the time, genotyping, like DNA testing was a technology and in theory, from like an academic standpoint, when you genotype somebody, you could get their alleles for Mendelian diseases and for, you know, their immune system, you know, like immune. The genes of all immunity and for their hair color, eye color, ancestry, all this other stuff, you could genotype all that at the same time. The technology was uniform. And eventually what happened though is we focused on the medical. Right. That is to say we went to clinics, we were covered by insurance, we were published in peer reviewed papers and so on, and we went really focused on the medical genes and 23andMe focused on. And they were forced to by the FDA really to focus on ancestry and all the fun stuff. Right. So, you know, the technological platform is actually very similar. The niches that they occupied and all the stuff that grew around them was very, very different by the end of the day, right. And we were like a medical product that was like a.