Building the Cryptocurrency Ecosystem [Entire Talk]

Who you are defines how you build. All right, so why do we think blockchain is the most important technology of this decade? Tom gave my bio. I won't belabor it, but basically, currently CTO of Coinbase, prior to that, sold the company to Coinbase Earn, Prior to that, general partner at Anderson Horowitz. You may be familiar with the firm. I also sold a company for about $375 million. It's a genomics company. Literally came out of Biox, just down the street over there with my brother and a bunch of our friends and basically just a Stanford guy through and through. So I kind of know your pain. So that's me. But enough about me, let's talk about Bitcoin and Blockchain. So I like this particular image because I think it motivates. This is screen cap of Wireshark. And you can see the Bitcoin protocol, literally as a protocol on screen. And what's amazing about this is you can see that payments have been turned into packets. Right? This is a transmission, this is a bitcoin block. You can see the bytes over here. And what's remarkable about this is what's absent, right? There's no hsbc, there's no Wells Fargo. Right. There's no countries, there's no. There's no licenses or anything like that. What we have done is literally digitize the transmission of value. And if you think about how big a deal it was to digitize books and music and movies and newspapers and so on and so forth, the underlying technology behind Blockchain allows us to digitize now cash, stocks, bonds, mortgages, loans, derivatives and all kinds of new things, financial instruments that you haven't even maybe thought of yet. So this is really like the motivating thing. Once we've got something into the realm of computer science, well, all you folks can go to town. So this is going to be a lot of fun over the next 10 years. All right, so I'm going to give basically 10 things about blockchain, 10 things about Coinbase, and go through a fact and certainly answer all your questions. So just about Coinbase or about blockchain, I want to review Bitcoin, Blockchain and Ethereum and then talk about Coinbase a little bit and do a Q and A. So first, just for those folks, just to level set, because I know there's varying backgrounds, I want to give the very, very, very basics. And in particular, this slide over here is if you only remember one slide and you don't want to remember anything else, this Is the motivation behind why even invent bitcoin in the first place? Right? So with physical cash, if I have a dollar bill and I hand Tom that dollar bill, there's an implicit property of the dollar bill, which is when A hands that dollar bill to B, A no longer has it, and B has it. Right? I had it then, Now Tom has it. And anybody who's observing that can see that that physical bill was handed over. If I try to naively transplant that to the digital realm, okay, if I take the federal reserve serial numbers on that dollar bill and I just go and email them to Tom, okay, well, I still have a copy of those serial numbers, and I can go and email them to somebody else. Okay? And that is the fundamental issue with a naive representation of digital cash. It is the double spend problem. I could have spent those serial numbers with Tom and then with somebody else and somebody else. And so simply using serial numbers alone, that's not sufficient for basically scarcity in the digital realm. And so the way that we. Until the invention of bitcoin, the way that we represented digital cash was, was with a bank, like a centralized actor that we trusted in the middle. And this actor over here is where the scarcity enters the system. When A sends money to B digitally, C is trusted to debit A and to credit B. Right? So this is where the scarcity enters the equation. The thing about this is you're putting a lot of trust in c, right? They can debit and credit anybody they can choose not to debit or credit. They cannot allow a transaction to go through. In extremists, as in 2008, they could print billions of dollars for themselves. So this is something which is inelegant from a computer science perspective, to have a trusted central node, if you can avoid it. And so what Satoshi Nakamoto did is he came up with d decentralized digital cash. And so essentially, this central actor, this bank, was replaced with a network of miners. And any one of those miners could approve that transaction, that debit or credit between A and B. And so since any one of them could approve it, one of them disapproving it, all they would just do is be giving up some bitcoin that they would have mined otherwise. It's basically a way to combine transaction approval and senior ridge currency printing in the same unit. So the details of this aren't super important technically, at least for a talk like this, but the concept is important, which is what? We took physical cash, we tried to naively turn it digital cash that didn't work. So we had these centralized actors, and Bitcoin dispenses with those centralized actors by having anybody in theory who can connect to the Internet with sufficient computational power can now approve transactions and push them through. Okay, so the cool thing about Bitcoin is once people understood this, and once people understood what a breakthrough it was, they said, oh, well, you know, this data structure that these miners are updating, that blockchain that, that fundamental innovation behind Bitcoin that's essentially a tamper resistant database for storing arbitrary things of value. You can use it for storing cash and you can use it for storing stocks and bonds and so on and so forth. But Bitcoin itself wasn't that easy to work with. It wasn't built for programming, or it was actually. But Satoshi turned off a lot of the more sophisticated opcodes early on just to keep it simple and attack proof. And so what happened was more recently, a new blockchain was launched in 2014 called Ethereum, about five years after the launch of Bitcoin. And to understand the improvement that Ethereum gives, here's an example of like a script in Bitcoin which is kind of almost like assembly language, like a stack based language. And here's what Ethereum solidity looks like, which is a little more like English or JavaScript or what have you. And this programmability led to a huge new surge in crypto activity. And in 2017 there was this massive ICO boom. And this went up from there were tens of billions of dollars to many hundreds of billions of dollars and then down to $100 billion. But the thing about this is, even though the ICOs came up and they went down, we think of it today, it's the winter for price, but the summer for innovation. A lot of the stuff that kind of got started back then is starting to work. For example, you've got decentralized prediction markets and decentralized loans and decentralized derivatives. That stuff is all starting to work. You know, the winter for price, the summer for innovation. One thing that ICOs themselves, by the way, is they represent, in my view, the simultaneous disruption of venture capital, swift crowdfunding and cap tables. And I'll come back to that point. But essentially you can invest in something internationally with a group at the same time and have all of the property rights recorded in the blockchain. So anybody can see that's like such a big deal and so many innovations at once that people can sometimes lose a forest for the trees because they say, oh, what are you funding, you're funding all this crazy stuff, but if you just look at it as an innovation in crowdfunding or in VC or Swift or cap table, it's actually a pretty big deal. Okay, so this brings us to the present day. So it was bitcoin, then the blockchain, then Ethereum, ico, boom, and now the present day, the crypto winter. Winter for price, summer for innovation. Okay, so you know, the way to think about the blockchain as a technology is it improves fundamental financial primitives. And one way of thinking about this is, you know, a blockchain. As I mentioned, it's a database for storing things of value. And it started with cryptocurrency, which is like digital gold. And you know, more recently we've had, you know, these so called ERC 20s, these tokens which represent like equities. But you can also use it for other stuff, right? You can use it for non fungible assets like so called. It's very technical sounding but like in game items like swords and potions, baseball cards, collectibles or even eventually pieces of real estate, you can use it for representing identity and frankly you can use it for representing almost anything scarce. Anything scarce you can think of, you can represent in a blockchain. And you might say, well, why use a blockchain for things that are scarce? Well, once you've got a database that represents all the money in the world, the first thing someone's going to try to do is write themselves a million dollars. You have to actually say, well first I want that to be tamper resistant. Second, I don't want one party to be able to write themselves a million dollars. I want it to be decentralized so that the power is split up. No one person can write themselves a million dollars. They might need more than a million dollars to write themselves a million dollars. And once you start thinking of those kinds of constraints, like a database that represents things of value, you see, you start to be led to the kinds of properties that blockchains have. And once of course, you can solve the problem of preventing someone from buying themselves a million dollars. You can stop them from buying themselves a million potions or a million acres or a million of anything else. So as I mentioned before, Bitcoin turned all this stuff into packets. They're literally protocols. Bitcoin, Ethereum, these things in that you can open up Wireshark and see the raw packets that update the underlying blockchains. Just, it's actually completely amazing when you think about that. Anybody who's on The Internet can send and receive cryptocurrency back and forth, just send packets back and forth. One consequence of this is there's another. People have talked about the unbanked, and it's an important problem that I think crypto can solve in the long term. There's another group of unbanked, which are machines. And we gave machines telephone numbers in the form of IP addresses. It used to be that you had to have a human who is associated with the telephone number. And when you give a machine an IP address, a machine can then autonomously communicate back and forth. And you do that all the time. Whenever you've written a bot that goes and interacts with Twitter or Scraper like that spiders web and connects to other computers autonomously, autonomous machine communication was a really big deal. And we believe that autonomous machine transaction where machines can hold and send money on your behalf will likewise be a very, very big deal. Here is just In a simple GitHub gist, that string over there represents money. So if you can now transmit a string, you can transmit an arbitrary amount of value, which is pretty awesome. So a lot of the stuff in the late 90s that people talked about when they talked about intelligent agents or bidding entities and so on, that's all actually starting to happen. And the primary context in which it's happening are things like exchanges, especially decentralized exchanges. You can go and write a program on your laptop that will literally make you money as you sleep by arbitraging these decentralized exchanges. I think over time, in like the 10, 20, 30 year timeframe, every price on the Internet, every Amazon.com product will have a cryptocurrency interface. So if you have some arbitrage strategy for like wool versus fleece sweaters or whatever, you can actually arbitrage anything because everything will be priced in crypto. That's, I think, where arbitrage stuff goes in the medium to long term. Okay, fourth point. People talk a lot about the potential of blockchain, and I do think it has a lot of potential. But it's actually something where in some ways it's overhyped, but in some ways it's actually underhyped. That's to say there are fundamental financial primitives that the blockchain's already delivered. Like a 10x improvement on, and I mean a quantifiable 10x. So the easy one, the obvious one is gold. So bitcoin is infinitely lighter than, than gold. Okay? Like it's faster to transport internationally, it's cheaper to custody and to Give a concrete example of this. When the German Bundesbank tried to repatriate a bunch of gold from New York, it took them years, it cost them millions of dollars to bring back billions of dollars in gold. And while that might be an infrequent operation, it's an extremely important, valuable operation that frankly underpins a big chunk of the world economy. And if you've improved on that, that's a big deal, right? Gold is 2 trillion dollar industry. If that was the only thing that blockchain ended up doing, that'd be a pretty big deal. But it's more than that. Tom's going to buy some bitcoin now. So it's more than that. With Ethereum and other kinds of cryptocurrencies, that represents the 10x improvement over Swift. Right? Swift. If anybody's sent a wire internationally, that takes days to clear, typically. Whereas with Ethereum, I can be on the phone with somebody and just like I can wait for that email to hit, I can wait to just see it in the blockchain and I can say, oh, that transaction is done. Boom, I can now get the deal closed. And so the speed difference here is the difference between a physical mail, like sending a letter, which takes two to three days, versus an email, which takes minutes. And think about how big a difference that made when you went from physical mail to email. Just the metabolism of business changed. When you go from two to three days for international commerce to minutes, the metabolism of international business changes. Third point, crowdfunding. So in 2015, if you go to Wikipedia and you look at the list of the largest crowdfunders, you will see that it's like maybe 10 million, $15 million. By 2017, 2018, a large crowdfunder was $4 billion. So that's like a 400x improvement in about two to three years. And that's more than 10x. That's like a 4. Now you might argue, well, what are those things funding? They're all funding ICOs and crypto stuff. It's all this Ouroboros, but it's actually something where you could fund a building, you could fund pretty much anything now that folks are customized to using crypto to do this kind of thing. It's a powerful new innovation in crowdfunding. And I could go on and on, and I'd probably write an article on this, but just a few more examples. So like Delaware and corporation, in many studies, like the World bank has a study called Doing Business. And in this study they actually say, hey, you know how Long does it take you to incorporate in your country? Does it take you weeks or months? Or does it take you days? And if it takes you days, well, you're a great country for business, great country for startups. Well, Ethereum's shattered that, destroyed that. Because it's not days anymore, it's minutes. You can literally get a smart contract into the blockchain in minutes. Right. And that's amazing. That works internationally. You're not incorporating in Delaware, you're incorporating on the blockchain. And that might seem like an inapposite comparison today, but lots and lots of stuff, all these VC terms, all of these bits of Delaware law are currently, as we speak, being encoded into smart contracts. So that incorporation on the blockchain will become probably the default in like, I don't know, 10 or 15 years. And, you know, there's more like the time to set up bank accounts, the time to audit. You know, in 2013 people talked about, you know, bitcoin as a scam, but today, the big four, when they audit a blockchain firm, they use the blockchain as the source of ground truth that they check all of your transactions against. Okay, so from a scam to the gold standard in like five years. And so the point here is we're 10Xing all of these financial primitives like basic, basic fundamental things and how we move money, how we think about money. And that's going to have consequences, good consequences, hopefully. Relatedly, not only have blockchains 10x lots of things, they've already created many billion dollar entities, right? So three that have arisen in particular, the folks who founded nucoins, the miners who run these gigantic server farms and the exchanges. And each of these three groups has created and captured billions of dollars in total revenue. It's comparable sort of to the 90s Internet when it was kind of the infrastructure stage and search engines and Akamai and AOL and so on were getting built out at that time. 6th. Now people talk about blockchains as being trustless, and bitcoin is about no trust. I think a much better way of thinking about it is that they give you a choice of who to trust. So before you just had to trust a bank, you had to store your money in a bank. You can't just go and withdraw a million dollars from the bank. Or you could, but you'd be on a lot of lists today. What you can do is you can certainly still store it at a bank should you so desire. You can store it with a company like Coinbase or and this is very new, you can store it on your computer, you can store it on a USB key, you can store it in the cloud, you can basically self custody an arbitrary amount of money. And that's a major innovation because it's like you can't carry a bunch of gold bricks around with you. You might be able to carry around suitcases full of cash, but it's a little bit conspicuous. And now you can carry an arbitrary amount of money. So that's a very new thing. You don't have to trust a bank if you don't want to. And places like Venezuela. This is actually truly a killer app. Number seven, I hinted at this before, but just to drill into this point, one can argue that the single most important data structure in Silicon Valley is the cap table, namely the very simple table that shows which people or entities own what shares of the company, your common stock, your series seed, A, B, et cetera. That data structure, that little table, that Excel spreadsheet maintained thing, is what has aligned people from every country around the globe to build Silicon Valley. And the scale at which it's aligned them is tens, hundreds, sometimes thousands of people pre ipo. And then you build this huge company and then everybody hopefully does well together. But the state of the art for managing the most important data structure in Silicon Valley is an Excel spreadsheet or a Google sheet, which is kind of amazing. And now what we've got with the blockchain is you can 10 or 100 or 1000x that number of people, something like bat, for example, is 54,000 addresses that hold bat and you can see exactly who owns what, when. And this is fully programmatic. So one way I think about it is if aligning a few hundred people at a time built Silicon Valley, what does aligning a few hundred thousand people at a time or a few million people at a time, what can that build? So we can now align human beings and incentivize them like never before. That's a really, really big deal. So number eight, one way to think about this is some of you here will be like, oh, I got to see it for. Too late, I missed mobile. It's over. No, it's not over. Just beginning. So one thing we think of as like blockchain first or crypto first is like the new mobile first. It provides a weapon with which to go and attack and open many industries or areas that either close to competition or seemingly impregnable or not even thought of as the kind of thing you could innovate on, right, so Ellery mentions international wires and precious metals and messaging, and I'll talk about the social bid in a little bit more. But there's also other areas that you normally wouldn't think of as things you could even innovate on. For example, like DNS, right? With crypto you can innovate on DNS. You can innovate at the protocol level with things like Blockstack or ENS or Handshake, where you can register domain names. These are also scarce entities. You can register them in a blockchain and you can route things through them. You can have incentivized versions of BitTorrent, incentivized versions of SMTP. All these protocols that you previously thought of as kind of non monetizable are now potentially improvable and monetizable. There's also commons like Wikipedia, open source projects where you can now take a fresh gloss in them and think, okay, how could I maybe tokenize this? How could I make this even better? And so this type of stuff, there's so many different crypto first companies that are kind of swarming and attacking these different verticals that, that I couldn't even enumerate all of them, but this gives you some of the flavor of them. Coinbase Adventures alone has made like 40 investments over the course of last year. Ninth point. So blockchains break network effects and they give a completely new tool a can opener for going after scaled social networks in two sided marketplaces. One way of thinking about this is if you think about Metcalfe's law, you think about network utility. Typically the larger the network, the higher the value to the user. So if Facebook get 2 billion people, supposedly runaway advantage, you can't display something. But there's something really interesting about crypto, which is that if you have a token whose value is associated with the startup, the token's upside is maximal when the size of the network is smallest. So for example, an early investor in Snapchat had more upside than somebody who invested in the Series D round where it already had 10 million plus users. So upside is itself valuable. And now you've got a second term in the equation which can balance out that first term. Some kind of hypothetical future value that for the first time you can programmatically issue to your users for sign up and other kinds of actions that they take within your app, right? I mean, imagine if Facebook had something where the folks who signed up for it, the first hundred thousand or two hundred thousand or million users or end users, received some slice of Facebook's equity for doing that. Well, that would be a very big deal. You'd actually start making money by signing up for all these dumb social apps. So that's actually something which I think is a very powerful tool for going after scaled social networks, two sided marketplaces and things like that to split some of the upside with the user. Tenth and relatedly, blockchains I believe are going to transform social networks. So for the last 10 years, people have been liking and poking and messaging each other, wasting time. The next 10 years, well, we've done making friends, it's time to start making money. So basically those edges we think are going to now have money on them, cryptocurrency and you're going to have new kinds of social networks. What are we going to call them? Maybe digital economies or crypto economies. The fundamental difference being that your time on them is not wasted. Your time on them is actually like a form of work where you're actually remunerated for it. Some of these maybe existing social networks might be able to retrofit, but I think you're going to have to construct wholly new social networks that are based on these kinds of behaviors from the beginning where earning is part of the equation. So finally, just on the top of blockchain, blockchain is like a partial move away from the cloud and towards privacy. An amazing stat from earlier this year is that Ledger sold its millionth hardware wallet. Now I think of a hardware wallet, actually this is earlier last year, early 2018. I think of a hardware wallet as being a pretty arcane kind of thing, but when a million of them have been sold, you're probably eventually going to have a billion sold in some form or the other. And one possibility is hardware wallets like a phone charger are bundled with a phone. So you get like three devices. The the phone, the phone charger and the hardware wallet rather than two. There's lots of different distribution models you could imagine, but the fundamental concept is I think hardware wallets are going to become very popular and that's a move away from the cloud and towards privacy. Because the whole concept of a hardware wallet is you're not keeping your keys in the cloud, you're keeping it locally. One possible future model is something where your data is on the cloud, but it's encrypted with the private keys that you're using in your hardware wallet and so nobody can read it other than you. And it's only decrypted and re encrypted just in time. I think things like homomorphic encryption and so on will make that possible. So let me Briefly just give 10 things about Coinbase and then I'll take some questions. Taking a long time, I think. So you think of Coinbase itself as like the interface between fiat and crypto. And you know, we have both a retail and like a professional interface. And on the fiat side we're building like a Wall Street 2.0, right, like custody and indexes and commerce. And on the crypto side, we're doing like blockchain first apps like Earn and Coinbase Wallet. And we work closely with regulators. You know, our goal is to remain the safe, legal and trusted part of crypto. And you get all these licenses and so on, money transfer license, all that stuff. And our mission is basically to create a more open financial system for the world. And what that means is kind of two different groups of users that would benefit from that. The first group are developers, investors, power users of money who are trying to move money around in different kinds of ways, do fancy things with money. And the second group are the marginalized, the folks who are unbanked, the folks who do not have bank accounts. Both of these folks in different ways are pushing on the financial system to make it more open. And those are our folks. What does that mean, by the way? What does a more open financial system mean? It does mean upside. It sometimes means downside. Upside is that you can raise $35 million in 30 seconds or disrupt remittances. The downside is there's new kinds of hacks and new kinds of scams and so on. But I do believe in the medium term we'll mitigate the downsides with things like multisig or what have you. Coinbase. We're kind of thinking of ourselves as bridging from the investment phase to the utility phase, which is to say that crypto has sort of the opposite emergence model of social media. Social media piled up the users first and then had to prove out monetization. And crypto proved out monetization first in almost the most literal sense, and now needs to prove out utility. But we're seeing that happen. You know, I can go to lots of different things with Earn, with decentralized finance, and we think that's a big part of the next, you know, five years or so. Coinbase is actually named after where the blockchain starts. So the so called Coinbase transaction is where the new crypto is created in Bitcoin. And that's why we think it's also where the blockchain starts for users Just like Windows you started using it. The start button or Google Search is where you started browsing the Internet login with Facebook, how you started using social media. Coinbase is where you start using crypto. So we think of ourselves as kind of like this sort of on ramp, this start button for crypto. We're making headlines. You can read more about us online. And that's about it. And I'll happy to take questions. Yes, you mentioned about blockchain breaking our network effect. So I'm just wondering from the investors perspective, do you think that that would encourage more short term behaviors? Because surely all the benefits are kind of currently front loaded as opposed to the long term games and so on. Can you repeat the question? Sure, absolutely. So her question is, does this kind of model encourage short term behavior among users? And I'd say maybe, but they only really realize this value if the network is scaled. That is to say it has theoretical future value. You might be able to flip to somebody, but you're not going to get 10,000x unless the thing is scaled. While it's true that liquidity does present some short term issues, I think on net it does align people towards longer term things. How is Coinbase handling the emerging proof of stake systems? So question is, how is Coinbase handling the emerging proof of stake systems? So we are closely looking at everything. I can't talk about any specific assets we're adding. We did publish a blog post in December talking about specific assets we were looking at and that included several coins that implement proof of stake in different ways. Could you provide a more sort of fulsome picture of what downside scenario for crypto looks like? You've been generally positive in your presentation, but obviously there's another side. Could you highlight what that might look like? What would be the cause of death? Excellent question. So what are the risk scenarios? What are the downside cases for crypto? I'd give a few. Right. I think it's gotten pretty far. So as of 2019, for example, crypto has withstood the crackdown of the Chinese government in 2017, it's withstood enormous numbers of look at articles proclaiming Bitcoin dead and so on and tons of bubbles and whatnot. Right. Insofar as I think there's future risks, I put them in a few buckets. First is partition tolerance. So at least right now the bitcoin blockchain is not built to handle extended partitions. So if for example, the great firewall goes and blocks Port 8333 and then there's like a back and forth and eventually becomes difficult for the blockchain to synchronize across borders. Then you could have a peekaboo problem where the chain is extended in China by mining. But most transactions are happening in the rest of the world and synchronization is not happening fast enough. Now there's workarounds for this, like there's a satellite which is pumping the blocks from bitcoin into China because China has control over airspace, but not space based. There's other workarounds where you could steganographically encode packets and bring them into China. But we'd have to actually run the experiment to see if it was possible for the Great Firewall to actually intradite it. Now that firewall would have to be so tight that it would have to intradite not just the service, but any one megabyte transfer, like in all of China across billions of people. So that'd be hard, but possible. So let's call that one approach the partition tolerance. Second is if there's some CVE, really critical vulnerability that we have not seen that allows people to counterfeit large numbers of bitcoins and break the value of the system. And by the way, the reason I keep focusing on Bitcoin here is it is sort of like the fundament of the system. If it was hacked, if there are serious security issues, I think it would set back the industry at least five years or so. Like if people have to rebuild around it. With all that said, though, I think those kinds of issues I just mentioned are technological issues where it could set the thing back. But I think the fundamental concept of blockchains, of decentralized currency is out there. And then folks what they'll do is they'll fix that and then have a more robust version in the future. So that's kind of where I'm at. Open to other thoughts. You talked a little about banks serving as a trusted source for record keeping, but the other main role banks have is a monetary policy. That's why we have Federal Reserve banks. And so I can see how Bitcoin, Bitcoin does the record keeping function of banks, but I'm not seeing anything replacing the monetary policy function. And like, if economists have learned one thing in the last like 200 years, it's that that's really critical to an economy's well being. So like, how are you envisioning Bitcoin functioning as a currency without a monetary policy? Great question. So the question is if I can paraphrase, you know, like how does Bitcoin interact with monetary policy? How could it function as a currency without monetary policy? And so what I think is we are engaged in a grand experiment, which is what I think of as empirical macroeconomics, right? So basically, and I'm sure I'm going to offend some macroeconomists in the audience, I think microeconomics is pretty empirical in the sense of you've got the theory of the firm and venture capitalists are running lots of experiments all the time and you have a thesis on how a company should be organized or not. And if you're wrong, you lose money. With macroeconomics because it involves assemblages of very large numbers of people. It's hard to do like reproducible experiments until relatively recently. So, you know, I actually have these supplemental slides, blah, blah, blah, I've got every question. Okay, so blockchains make macronomics and experimental science, right? So virtual economies have been a topic of discussion for about 15 years, where this guy, Edward Castronova, smart guy, professor, has been looking at this in the context of World of Warcraft and things like that. In those kind of economies, you print money. In EVE online, you print money, you see what the effect is on prices and so on. And it's pretty cool where you can run experiments with a system of people who are actually trying and responding to incentives. And what I think is going to happen is that type of work is going to link up with crypto economies and we're going to start to get a lot of real life empirical economic data on what life is like without a central monetary policy in this opt in kind of system. And one of the really good things about this is it's like a bonanza for econometrics people because sort of like there was this vague concept of six degrees of separation in the late 90s and, and then we got this digital data structure of the social network, right? So there's a vague concept of six degrees of separation. And then you've got something that was digital and computable. You could think of it as a graph and so on. In the same way we have this sort of vague concept of the economy. And now we've got a blockchain, which is the record of every single transaction that's ever happened down to the penny, back to T equals zero, right? And so every economic theory that one has about transactions or, or price support or whatever can be tested. And importantly, one can also develop blockchains that have inflationary policies that are connected to central banks and so on. So I think what we're going to see is just a ton of different kinds of economic experiments. Some inflationary, some deflationary, some demurrage, some weird kinds of combinations that resist political classification. I think we're going to run the experiment and see what happens. So you briefly mentioned climate base active in Venezuela and there was somewhat of, of a controversial thing. Could you expand a little bit more on what Coinbase did and how it can apply to other emerging economies or distressed economies? Yeah, sure. So I think you asked what did Coinbase do in Venezuela? And so on. I think we've announced this, but we basically gave away money to folks on the ground in Venezuela. There's a lot of theories on international aid, but one theory is just give the money to people directly. Now they've got phones, you don't necessarily need intermediaries. People are often good judges of what to do with money. And now you can actually, via the fact that all these people have smartphones, just give them money directly. So we have this site, givecrypto.org, which is funded by Brian, our CEO and co founder, and a bunch of other folks. And we're trying this experiment to see, okay, can we get the money to Venezuelans? Is bitcoin something they can use or borrow against? Is it considered currency, like in that environment? And if so, then what are the consequences? And if that works well, then maybe we can scale it up. Right, so that's what we're doing there. Can you comment on the environmental impact on cryptocurrencies? So I've read that thousand dollars worth of bitcoin. What that means physically, is it somewhere in China, $500 worth of coal are being burned to fire up a mining farm. That doesn't seem sustainable if you want to expand. So what's the solution to that? Yeah, so a couple of thoughts. You receive the question. Sure, of course, of course, yeah. So what is the environmental impact of bitcoin? Is it something where like, we're consuming tons of energy for it and so on? So that's a complex issue. But let me offer a few thoughts on that. First is that a lot of Chinese mining is actually happening at night. And the reason it's happening at night is you have like, you know, hydroelectric plants, geothermal plants that are basically spinning a water wheel at night because, you know, power can't easily be stored in the grid. You know, like what happens is power consumption is usually maximal at like 12, 12 noon and then it kind of drops off at like 4am and then comes back up. It's got this sort of sinusoidal cycle. And at night, that power is often just wasted. But now what's interesting is folks are using bitcoin mining as almost a kind of battery, where what you do, rather than just throwing away that excess power, is you mine bitcoin. And in theory, what could happen, and we're starting to see some of this, is you can have markets where while you might not be able to store power in a normal battery, you store it in the form of mined bitcoin. And then you can have aftermarkets where kind of it trades, and you might be able to balance the power grid better. So it may actually be something that leads to interesting innovations in a form of energy storage. So that's kind of one answer. The second answer is, if you think about what bitcoin represents, I don't think it's correct to compare it to, let's say, PayPal, which is someone would say, well, it's so cheap, PayPal, you just minusing and plusing things on a central server. I compare bitcoin more to like a system of property rights. Right. Like, more analogous to, let's say the miners are more analogous to the police and the military, all these extremely expensive things that maintain American property rights. And so if you think about the energetic cost of that, it's actually very substantial. And so this is a system of property rights which is developed in a different way. You can measure the amount of energy that goes into it. I think it's probably less than the police, the military, and the banking system and all the other things that enforce offline property rights. But I think that's the second comparable. That's interesting, Sarah, in the back, there's so many amazing use cases for blockchain. Some of them you allude to some of them out there for banks and whatever. What is stopping companies to adopt it at a more widespread scale today? Blockchain. And also like banks that are hesitant to enable their clients to trade in bitcoin and so on. Yeah. So what's stopping companies from adopting, on a widespread scale, what's holding blockchain back? So in some sense, the industry is actually already fairly large in the sense of we saw how many people here held cryptocurrency. So the first killer after cryptocurrency, as gauche as it sounds, is hold cryptocurrency as an investment and hope it goes up. Right. Okay. But that speculation phase was necessary. And the reason we think of it as necessary is speculation was installation that Is to say, before you have this decentralized finance environment with decentralized loans and derivatives and so on, people have to treat those packets moving back and forth as money. So the last 10 years, what that did is you have an environment where 80% of Americans have heard of Bitcoin. Everybody kind of knows it's valuable. They know a good chunk of Americans also know Ethereum is valuable and so on. And once they treat it as money, then you can actually develop apps on top of that. But you need to have that speculative face to install it in people's heads. Now, why aren't businesses using it yet? I think what you're going to see is it's going to radiate out from the crypto sector, that is to say, businesses within the crypto economy, you know, miners, exchanges, blockchain companies, new asset issuers, et cetera. This is actually a large enough set right now we where folks pay each other back and forth in bitcoin and Ethereum. And the folks who are on the border of the crypto economy are folks like prop traders who are guys in Chicago who invest their own money or fintech developers, like Square has gotten into the game a bit. Robinhood's gone into the game. Those are the folks on the border who are kind of crossing the chasm. They weren't founded on crypto, but are starting to get into it in that environment. Those folks that'll grow for the next three to five years and then it'll kind of go out one more set and so on. So I think it's going to be a gradual process, but I think over time you start to get more businesses involved as we build it up. Yes, can you hear me already? Yes. Oh, great. So we have a Stanford Journal of Blockchain Law and Policy at the law school, which I'm an attorney and I read that. I was curious, what do you think would be some good articles? What would you like to see in the governance or legal or policies case that would kind of push further this, in my opinion, academic area. Great. So the question was articles on governance policy philosophy. Well, so happens I have some supplementary slides on that. All right, so basically, let me give you kind of one concept that I think is a very powerful one. Right. So one concept I think a lot about is that a blockchain, it's not just like a database. It's a database with a community, which is very different. It's a like a database plus a social network in some cases, plus a protocol and a compiler. Right. It was actually Pretty complicated interplay. So a blockchain's value drives from its community. Meaning you've got bitcoin maximalists, you've got your ethereum developers, like a million people are at these meetups now. You've got your XRP army and so on and so forth, right? And the thing about this is just like within a country, like the Estonians, there's the butcher, the baker, the kanche maker, they all interact with, they have the Estonian kroon or they used to before they had the euro. And then they can just use that within themselves and then has an exchange rate with the outside world. That exchange rate is their API with the outside world. They use their own currency within their own kind of country and then the exchange rate outside. And the same way, once you've got a critical mass of enough people online who just believe in something, they can just transact amongst themselves in this crypto and value it. And then offline. You may think you're crazy for valuing XYZ coin, but you're happy to buy and sell XYZ for USD with them, maybe sell. And so blockchain's value derives from its community. And one of the consequences of this is if you just take three random people, they're not economically aligned. Any one of them can lose or win together, right? Or rather lose or win on their own. But if they all hold the same cryptocurrency, then they either all lose together or they all win together. Okay, this is a way of like economically aligning human beings. This is, you know, when VCs talk about alignment, this is the underlying data structure that underpins that. And so the thing about this is you have this community forming behavior online and that community forming behavior leads to these tribes. And I think over time what it does, you know, I can talk about this bit also over time, what it leads to is experiments in self governance, right? Where once you've got a system of property rights in the blockchain, you can start doing experiments on other kinds of things. So that's the type of stuff I think you could cover, sir. We've got a lot of cases where people just lose their private keys and then there's frozen bitcoin that cannot be accessed anymore. And with the bitcoin number being capped, is the industry thinking about the solution to actually generate more liquidity? So the question is basically folks lose their bitcoins and bitcoin numbers capped, and how does the industry think about that? I think bitcoin is meant to be like cash. If you lose $100, you can't message the US government to give you another $100. There's dollar bill down the drain. Right? So that's what Bitcoin is kind of intended to be like in a sense. It actually benefits slightly every other bitcoin holder because it's like renormalizing the cap table. You lose 1% of Bitcoin, everybody else's is somewhat more valuable. The solution for this, there's a few. One of them is store your crypto with somebody else if you don't want to handle it yourself. And a lot of people do that, right? So that's certainly an option. The second option is something like multisig, where you have a few different folks who have keys to it. And there's yet other kinds of sophisticated password resets, social reset schemes that make it harder to just lose your crypto by accident. But it's something that's being worked on. One more. Yeah, hold on. One quick one. Ok, so you mentioned earlier that blockchain is a partial move away from cloud into privacy. When do you see a point where there's a tipping point where it's a full move into privacy, where it comes to really good use case for it? I think you need hundreds of millions or billions of people to have crypto and you need homomorphic encryption. I think that's what starts to tip it. But that's like at least 10 years out, maybe 20 SA.