Naval Ravikant and Balaji Srinivasan on Why History Points to Crypto

This week on Upstream, we're releasing an interview with Naval Ravikant and Balaji Srinivasan focusing on decentralization and the blockchain. They describe potential societal shifts downstream of decentralization, How the blockchain will fulfill the promise of the internet, and more. Please enjoy the episode.

Naval Balaji, for the beginners out there, how do you explain what is cryptocurrency? What is blockchain? Why should people care? What's fundamental about this in 3 minutes?

I think human beings are a network species. We operate in groups. We always work in groups. We're like ants or bees in the sense that we have to cooperate to do anything interesting. And that's kind of how we conquered the world. But we are a unique species in that we cooperate across genetic boundaries. Everyone in this group is pretty much unrelated to each other, yet we're brought here by common cause and interest. And we're the only species that can do that. And so we build these networks, and these networks in history have to be governed because networks have rules, they have cheaters, they have people contributing resources, and you just have to figure out how to organize them. And historically, the way we've organized these networks is we create a country and put a king or a president or a ruler in charge, or we have an elite or an aristocracy in charge, or Or we'll have a priest in charge, or we'll put a corporation in charge, or we'll have a democracy where it's one person, one vote. So these are kind of the ways that we have organized networks throughout human history. And invariably, whoever's at the center of the network just ends up very powerful. Kings become tyrants, elites become aristocracies, corporations become monopolies, democracies turn into mob rule sometimes. So you have to worry about who's in charge of these networks that run our lives. And these networks are very important. Electricity is a network, phone system is a network, the United States is a network, money's a network, your favorite religion is a network. So it's very important who runs these networks. And the last few hundred years, we've created a new way to organize these networks, and those are marketplaces. And whether it's credit markets, debt markets, stock markets, currency markets, markets are a way to organize a network with no single ruler in between. You have a market mechanism doing the pricing and the allocation. And what blockchains are is they're a way to bring this network, this market-based networks, into all digital systems or into many kinds of digital systems. Bitcoin is the most famous one, but there we say, hey, money is too important to be controlled by any one central entity. So what we're gonna do instead is we're gonna organize it through a blockchain-based network, and we're gonna use mathematics and rules to make sure that even though nobody's in charge, nobody can cheat. No one can spend the same money twice. No one can steal the money that already exists. Or Ethereum is a network for running trustless smart contracts, financial contracts, and/or distributed and we're gonna make sure nobody can cheat, even though there's nobody in charge of this network, and we're gonna use a market-based mechanism to do it. But unlike a stock market or a market for tomatoes, we're not paying with cash, we're paying with resources. So anybody can enter this network, they can contribute the scarce resource. In Bitcoin, that might be hash power to secure the network. In Filecoin, that might be computing and storage to provide more storage resources for people who wanna use the network like a new Amazon Web Services. You could have a self-organizing network on a blockchain that controls electricity. Like today we have PG&E, Pacific Gas and Electric here controls who gets electricity. But you could create a solar network where everybody puts a solar grid on their house, solar panel on their house, and they pay into the network with solar power. They get paid back out with solar coin and nobody's actually in charge and you still make sure nobody cheats. You could do the same with a network that's allocating bandwidth. So we don't need Verizon to do our cell phones. We could all do it collectively. You could even do a social network that's run this way, so you don't have a single king like Mark Zuckerberg or Jack Dorsey being dragged in front of Congress for hearings as to how they're running the network today. So really what's happening is the internet is moving from this idea— you know, the internet was originally supposed to be a democratizing force. It was supposed to be, oh, everything's gonna be equal and even, we're all gonna have websites, and nobody's gonna be in charge. But now meet your new overlords: Google, Facebook, Twitter, Amazon. These are the people really in charge. So what blockchains do is they give us a system for taking networks that normally would have been run by individuals or kings or corporations, and instead making sure that they're leaderless. And that to me is what's really exciting about them. I didn't really describe how they worked, but that's kind of more at a meta level. And what's interesting is we're starting with the single hardest thing, which is money. Bitcoin is trying to replace gold or maybe even money at some point. And if you can do that, then you can replace any network ruler. If you can run the network for money without a single entity in charge, when everyone's trying to break it and everyone's trying to steal from it, then in theory you could make any network decentralized. And that's what I think is interesting about blockchains.

Yeah, that's great. Let me take somewhat orthogonal cut on it, maybe complementary. So let's say that you wanted to have a database of all the money in the world. Well, your first requirement for that database would be that some random person can't just update it and award themselves Lots of money, right? Everyone would try to do that. So a database has to first be highly tamper-resistant, second, very auditable, and third, it needs to be in a sense decentralized so that no one actor can just go and award themselves a million bucks, right? And we start enumerating the technical requirements to build something like that, you get something like the blockchain that underpins Bitcoin. And what a cryptocurrency is, is it's a native money on a database like that. And so once you've got a database that can represent all the money in the world in a tamper-resistant way such that no one party can hoard themselves lots of money, well, you can represent other things, not just money, but stocks and bonds and mortgages, loans, derivatives, other kinds of things. Everything from the things that have an analog in Wall Street today, like stocks and bonds, to things that don't, like video game potions or maybe a contract for hard drive space on someone else's computer, things that we wouldn't think to trade on Wall Street. So once you can solve that problem of representing digital scarcity in a way that people can't corrupt it and award themselves a lot of money, you can solve a lot of other problems of coordination and representation of financial instruments.

So I'm curious to learn more about what got you both into cryptocurrency in the space, the cryptocurrency space in the first place, because you both have had long, storied careers before cryptocurrency. So Naval, among other things, you democratized angel investing with AngelList. And Balaji, you started a biotech company, Counsyl, which sold for almost $400 million. So how do you explain your interest in blockchain as it relates to the arc of your career?

You know, my first company, Counsyl, you know, was doing genome sequencing in the biotech space and testing for Mendelian diseases. And as part of that, you know, I encountered a lot of regulations and I started to realize, wow, a lot of these rules that were written 70, 80, 90 years ago are not as relevant in the modern world and they're really holding back progress. And so I started to think, okay, well, could that be applicable in other areas as well outside of just biotech? And I started to believe that was the case. And we saw that with the rise of Lyft and Uber and Airbnb, with taxis and hotels, old rules that were holding back innovation. And it was also the case in finance. And so seeing that Bitcoin was technologically interesting, and also understanding that there was a market need from having encountered what regulations were in practice, that's one of the big things that got me from genomics into this sector.

Yeah, I didn't have any grand plan. I just read a post on Hacker News. It was actually—

What was that post?

Paul Boehm, he was the founder of Buttercoin later, but he wrote a post on the Byzantine Generals Problem, which is the underlying computer science problem that had to be solved before you could figure out how to have a network without a ruler in the center. And he wrote a post that very cogently explained how Bitcoin solves that problem. And once I read that and figured it out, I couldn't think about anything else. And so all I was doing was talking to my friends about it and brainstorming about it. And as I realized that this is a way out of centralized tech monopolies, it's a way out of gatekeepers for money. It's a way out of inflation and printing of money and towards sound money and all of these things. I just couldn't think about anything else. And it's very, very rare that you'll find something that's technologically interesting, plus something that's socially really interesting, plus it can make you rich. And that combo is really addictive.

Well, in 2015, we had this narrative emerge, the blockchain, not Bitcoin narrative, where people said, it's not about this money thing, but the underlying technology It's really valuable for me at JPMorgan or whatever enterprise company you're working for. But recently we've had sort of the opposite sort of resurgence of Bitcoin maximalism saying it's Bitcoin, not the blockchain. So I'm curious where, if you look at that as a spectrum, where your thoughts evolved on that spectrum and what do you say to both groups?

Yeah. So I think actually the full 2x2 exists, right? There's like anti-Bitcoin, anti-blockchain thinks the whole thing's a scam, right?

Okay.

Then there's pro-blockchain.

They're called no-coiners.

Yeah, exactly. That's right.

That's the term that they use. We'll get to that in a bit.

Then there's pro-blockchain, anti-Bitcoin. That's like the banks, blockchain, not Bitcoin, right? Then there is pro-Bitcoin, anti-blockchain, and that's like Bitcoin maximalists. And then there's, I think, where I'd land up and a lot of, I think, investors in technology in the space will end up, which is pro-Bitcoin and pro-blockchain, kind of, let's say, upper right corner. And the reason for that is I think you just have different solutions for different kinds of problems. I think the internet is probably the best analogy. At least the one that would be accessible to lots of folks here, which is that we went and we digitized movies and music and books and newspapers and pretty much every form of information. And that's obviously valuable 20 years later. In the same way with the blockchain, we can definitely digitize gold. That's super important. But we can also, and we should digitize stocks and bonds and loans and mortgages and derivatives and all that other stuff should get digitized as well. So that's why I'm in the Bitcoin and blockchain camp.

Yeah, I agree with that. I think with Bitcoin you're looking at sound money, gold, store of value, and possibly a currency over time. You've also got a set of currencies that do something that Bitcoin doesn't do today, which are the private currencies like Zcash and Monero and Dash and a few others. Because Bitcoin, it's, as I think a Secret Service guy called them, prosecution futures. Everything is trackable on the blockchain. You know exactly where every transaction went. So a blockchain, ironically, if it's controlled by a government, ends up like the largest tool for totalitarianism you can imagine because everything is trackable. And then you've got where Ethereum and a few others are going, which are these Turing-complete blockchains. Turing-complete means they're programmable like computers and they can in theory do anything a computer can do, although it would be more expensive and more slow. So this is trustless computing. And I think these are also very important and they're very different than what Bitcoin is optimizing for. If Bitcoin tries to be more expressive, more programmable, more like a computer, it actually becomes more attackable, more hackable. And it doesn't want that. So on the other side, you have blockchains that are like Ethereum, which are Turing-complete computable. They're more attackable, they're more vulnerable. They're not trying to be sound money, but they're the infrastructure on which you can build an entire parallel shadow financial system alongside Wall Street. And I think what may very well happen in this space is 5 years from now, we may see that you may have a whole series of applications on top of Ethereum or the next Turing-complete blockchain, where you can do loans and you can do derivatives and you can place all kinds of bets in sort of this global financial market. But you can do things that you just can't even do on Wall Street because Wall Street's not that programmable. You wanna create a new financial instrument, you gotta go to Goldman Sachs and a lot of lawyers get deployed, a lot of accountants, a lot of paper. But here, a 15-year-old kid can hack something together and then some grandma in Zimbabwe can be betting on that security contract. Now let's leave the laws aside for a second. But it's theoretically possible. And because in the internet, if it's programmable and theoretically possible, it'll happen. So I wouldn't be surprised if 5 years from now you have bankers who are working at Goldman who basically go to their boss and say, look, that custom derivative or security or bet that we want to do, I can do it, but I can only do it on the blockchain. I can only do it on this infrastructure that has been built parallel. So I have to convert out of US dollars into Ethereum or Augur or whatever the heck tokens I need to use, do that trade and then come back. So yeah, I'm a crypto maximalist. It's not a, not necessarily a Bitcoin maximalist.

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When looking back at our history to understand the future, some people like to look at the history of money to find out where crypto will go. They look at how monies have emerged over time. And the implications of that are that winners— money is winner-take-all, Lindy effect, such and such. While other people look at the history of the internet and say, you know, software is eating the world, software tends to rewrite the things in which it runs into. And the implications there are that there could be multiple winners, and you don't have to be the first search engine or social network, you just have to be the last. So as we look forward to the future, which history do you think has more predictive power? History of money or history of the internet?

So I think actually I wouldn't say that money's history is actually Totally winner-take-all because you do have the dollar and the renminbi and the pound and the euro and the ruble and what have you. So it's kind of like I would slightly object to that. I think both histories are certainly relevant. I think most people are more familiar with the history of the internet, and you can point to that parallel of, okay, we digitize everything with information. Now we're digitizing everything that's related to scarcity and to finance. And that's a very obvious thing. I think far fewer people are familiar with the history of money. But with that said, sometimes history doesn't repeat, but it rhymes. It can also lead you wrong if you're too overly levered on a historical parallel. It can tell you it's going to happen like this and it happens like that, right? So short version is I think both are relevant, but I would use them only as guides and not as hard forecasts. It must happen this way.

Yeah, I agree with that. Nobody actually knows what's going to happen here and how exactly it'll play out. When you talk about just money, it's important to break it down to its components. We use money as a store of value. So, you know, hopefully it doesn't inflate away tomorrow. If you're in Venezuela or Argentina, that may not be the case. We use it as a medium of exchange. I give you money and you accept it for bread or horses or cars or whatever I'm getting from you. Or we use it as a unit of account. That thing costs $12 and that one costs $14. Store of value does have a network effect, but it's not that powerful. Like, for example, we do use gold as a store of value. We use Bitcoin as a store of value. We use real estate as a store of value. Look at Chinese buying up apartments in Vancouver. We use oil as a store of value. We use the US dollar as a store of value. Medium of exchange has a much stronger network effect because now the money's in flow. Who accepts what? Who doesn't take what? And then unit of account is the ultimate network effect because you can only have one. I'm not quoting you something in dollars and RMB. You just care about dollars. So the network effect actually can be influenced by which one of these properties of money you end up adopting. And the truth is today, 99.9% of the people in the world aren't using crypto. So it's still a jump ball.

I think one of the mistakes that people made in terms of not understanding the history of money is one, confusing or conflating payments and medium of exchange. And two, saying, hey, I'm never gonna be able to buy, or I'm not able to buy Starbucks with Bitcoin, thus it must be—

Yeah, the use case for Bitcoin may not be Starbucks. Crypto is really good at micro, micro transactions where if, let's say that today on the internet we have denial of service and we have spam attacks, and that's because bandwidth is too cheap to meter, but it's not, people abuse it. So what if I have a server that says, says, hey, you can request a webpage from me, but you gotta pay me a trillionth of a cent. That can only be done in crypto. On the flip side, and I'm stealing this from Balaji, but it's also good as a Spanish galleon. If I wanna send a billion dollars to somebody and I wanna make sure that they don't have sticky finger— there's no sticky fingers from relayers in between, I would send it through crypto. So it's really good for the microtransactions and the macrotransactions. It may not be that good for the human-sized transactions like going to Starbucks and buying a coffee.

Right. And even if it isn't good for that, it could still be worth trillions of dollars.

Absolutely. If Bitcoin just replaces gold, you know, gold is worth $7 trillion and gold is not easily divisible. It's not easily verifiable. I can't store it in my pocket or my brain. I can't send it across the internet. So it actually has quite a few advantages over gold. But unlike gold, it is trackable. Unlike gold, it's easier to hack remotely on the internet. So it's got other issues. And gold has the Lindy effect, as Nassim Taleb says, it's just been around for a long time, whereas Bitcoin is only a decade old. So we still have to see, you know, new— it hasn't been fully tested. We have not seen sovereign nation states attack Bitcoin with all of their resources yet.

I feel like I'm shilling Bitcoin, so I should specify that this is not investment advice.

Yeah, but yeah, none of this is investment advice. If you were an investor in crypto, you would have lost 20% of your money in the last 24 hours.

So, you know, one thing just to complement that is I think with the— just taking the internet analogy for a second, Voice over IP was an application of the internet, but not the application. And in fact, it's probably one of the ones which has arguably one of the least improvements over the pre-internet status quo because we had working phone lines and you could call somebody up and so on, right? Not to say that Google Hangouts or whatever isn't useful, but it's like a nice-to-have feature, not a must-have. Whereas things like search or a bookstore that had an infinite number of books were a true 100x or 1,000x over the status quo. I think one of the reasons that digital gold is really important is it didn't really have competitors in terms of where the financial system is right now, because most people are not carrying around a brick of gold. It's like truly something that was a 10x or 100x improvement over the status quo versus paying at Starbucks. There's like 15 different options to do that. There's your MasterCard, there's your Apple Pay, there's your Square terminal or whatever. And so there's reasonable options there. And so I think eventually, crypto will get into that niche. That's like one of the very last things. It's like VoIP as opposed to one of the first things.

I want to hear more about what applications outside of money you're most excited about within crypto. And, you know, we focus on often 10-to-1 use cases. Something becomes much cheaper, like email versus snail mail. But I'm curious as to the 0-to-1 applications that unlock a fundamentally new capability, like the internet with Wikipedia, or, you know, phones, you had cameras and now you have Snapchat, or you have GPS and now you have Uber. What are the 0-to-1 applications going to be for crypto?

Some of these are less sexy and less fun, but they're very infrastructure related. Routers, metering bandwidth, metering disk space and compute in distributed storage and computational grids. You can imagine that 10 years from now, the question of where do you host your website will be a nonsense question because we'll just say on the internet, right? I just write the piece of code, I drop a fraction of a crypto coin into it, and then it goes and it buys the file storage and it buys the compute power and buys all the pieces that it needs to instantiate itself and serve whatever customers show up on the web. So I think that's one interesting use case, just micro, micro transactions that current money can't address. On the flip side, I think it's— there is the sound money thing which is played up, but it's the revenge of the Swiss bank account. So it's the ultimate safe haven. If the Jews have to leave Vienna today, they're not carrying gold out, you know, they're carrying Bitcoin out. So I think that's another example. A third one would be, I think, setting up large distributed networks that kind of bootstrap themselves. And I mentioned solar power earlier as one, bandwidth would be another, sort of replace Verizon with a distributed grid of Wi-Fi access points. You could even have self-driving cars. If you had a future where you have a lot of self-driving cars driving around and they're communicating with each other, you could see them paying each other for rights of way. I want that stoplight green right now instead of red, and you bid against each other, literally congestion pricing on the fly, very efficient. Again, these are not super sexy end-user applications, but I think these are ones that are uniquely enabled by cryptocurrency. And then finally, there's a set of things that maybe we want to see exist, but the governments of the world for whatever reason don't allow them, but are legitimate applications. Like a lot of economists would tell you that prediction markets working across the board would be incredibly useful for society. Yet because they get caught up in sweepstakes laws and sports betting rules and this hodgepodge of state laws in the US and international laws, you don't really have working prediction markets. They can't get the liquidity to make accurate predictions. And if we could have good prediction markets, then we could start posing them questions like, What is the best way to address climate change? Is it A or B? And the prediction markets can opt into that. Actually, they're not good for that one, but there's others. It's hard to test that one.

Cool. So I was trying to explain Bitcoin to my mom. I should have used the Jews in Vienna line. She would have loved that. And I was explaining sort of the tribal nature of it, explaining Bitcoin versus Ethereum. I was explaining Bitcoin versus Bitcoin Cash. I was like, Mom, there was a civil war. People aren't playing around here. Everyone versus Ripple. And all these various sub-battles. And it was interesting here. I say this all to say that crypto is not just a technology phenomenon, it's a social phenomenon.

It's a religion.

Yes. And the social phenomenon, the religion is perhaps just as interesting and fundamental as technology. So how do you make sense of blockchain as social? Like, why has it captured the hearts and minds?

I can take that one. I think the thing is that, you know, when I first described it as talking about the blockchain as a kind of database, right? And it is that. It's not just about the reads and writes to this digital data structure. As or even more important are the reads or writes to all of the brains around the world to make those people value that entry in the database as money. If you think about it, everybody's had a right to your brain many times since you were a kid to value a green piece of paper as valuable, whereas a blue one would not be. And you'd kind of take that for granted. Why is this money and why is this not? There have been rights of software to all of our brains to do that, right? So as much as this is something which is writing software, it's also writing intellectual software to people's brains. And the reason that this tribalism happens is because that early group of folks who had those rights to their brains to say, okay, I can value entries in this database as being money. Well, there's a huge incentive in flipping those folks to one side or the other because They're already over the hump of thinking of this stuff as money, right? So that's a good customer acquisition strategy. This is one very meta way of thinking about it. These folks have already gotten into the blockchain space and a huge part of it is making folks value it as money so different tribes compete for them. That's one way to think about it.

Yeah, it is a form of politics because if you zoom back, these are ways of governing networks. One big way we govern networks is countries, right? So the moment you're talking governance, you're talking about Who's in charge? How do you run it? Do the developers run it? Do the so-called miners who are providing the resources to run it? Do the users run it? Do the exchanges that are in the center run it? And so they just— there's just like a big tribal fight over the whole thing. And unlike in a normal country where tribes are fighting, let's say Democrats and Republicans, or, you know, if you've been on Twitter, there's a war on— everyone's fighting, but they're fighting, but they can't— a revolution is unthinkable, right? We're not gonna take guns and go in the streets and split the country in half. But in crypto land, it's so easy to fork. You basically just take the source code, you create another copy, and now everybody who wants to be red goes over here, everyone who's blue goes over here, and now there's— now it's a shooting war between the 2 different factions. So that just happens in crypto all the time. So the downside is the moment you have digital governance, revolution is really easy, splintering, factionalism, tribalism is really easy, and so these wars come very much out in the open. But on the other hand, it's also sort of a good thing because everything is being tried as opposed to like in the US, we elect a president for 4 or 8 years, we head in one direction for a little while, then we tack back, we head in the other direction back. Here we have to keep choosing. In crypto land, you don't have to choose. Everybody can fork off at any time, wherever they want. And, you know, if we could do that in the real world, that would be kind of an interesting experiment.

Yeah.

We kind of already do. You fork to San Francisco or you go live in Texas, right?

No one specific in mind. You mentioned religion. I have to ask about crypto as religion. Unpack that a little bit. And I mean, who are the priests? Who are the deacons? Who are the clergy? Like, paint a picture for us.

I'll change that analogy a little bit. The priests, the religious fanatics, the Jesuits, you know, the Spanish Inquisition here are the crypto people. And normally they would've allied with or competed with the kings, but here they're literally sacrificing the kings. They're saying, to the altar of crypto, we get rid of the leaders. So crypto is just another part of the grand trend line of the internet, which is getting rid of the gatekeepers. So the internet was supposed to get rid of all the gatekeepers. I keep going back to this, sorry to keep harping on it, but it's a peer-to-peer network underneath. It was supposed to get rid of all the gatekeepers. But now who are our new gatekeepers? ICANN is the big DNS gatekeeper. Google is the search gatekeeper. Twitter and Facebook are the social network gatekeepers. And as far as Silicon Valley is concerned, oh yeah, the internet revolution was great. We got rid of the old gatekeepers and now we're the new gatekeepers. This is fantastic. Revenge of the nerds. But I think this is phase 2. This is saying, no, now let's get rid of the next set of gatekeepers and keep getting rid of them until there are no more gatekeepers. Yeah.

One thing, you know, as I look at this social phenomenon, I think there's sort of a core idea that unites us all in that power needs to be more diffuse, more diffuse, more equally held, and that technology and market mechanisms can play a critical role in achieving that goal. But I think with the blockchain, community has not clearly articulated is what that society needs to look like or how that becomes possible. It's sort of technology that points in a vague direction, but not what it means or what it would look like. How do you respond to that?

I think it's going to be an evolved process. I don't think it's a top-down design thing. If you look at markets, look at the economy, for example, the economy is a giant series of markets. No macroeconomist can actually tell you how the economy works. You get enough macroeconomists in a room together, it's like politics. They're all just arguing. They can't figure it out. It's back to the blind people and the elephant story. They're all feeling different parts of the elephant trying to describe it. So crypto is like that. We've created something that's larger than just us. It's like the internet, it's larger than us. It's like the economy, it's larger than us. You have to describe it, observe it, evolve it, and try to keep up with it rather than trying to top-down say, oh yeah, this is how it should work and this is the vision we're all heading towards.

I can give some, without getting into the macro of it, I can give some examples of things I think will happen at the micro level that may be interesting. One is I do think that crypto will in the medium to long term result in what I call instant jobs. So right now, you can just land on a website and you can go and post like a forum or Facebook or Twitter. You can just go and post and post information, publish information. We take that for granted, but that's a huge thing relative to say 30 years ago when it was very hard to go and get a printing press and paper and do So instant jobs are interesting. You click a button, you do a task, you make money. We've got something like that at Earn at Coinbase, and I think there's— that's going to be a very big part of, let's say, 5, 10, 15 years out. And anywhere there's a phone, there's a job. You just have a feed of tasks, and you do those tasks, and that's your job. The second thing I think is going to happen is, at the micro level, I think we're going to get billions of investors. And this is actually something that I think is now kind of an obvious thing that's going to happen, but has been under-remarked on. I think maybe 99% of the world will be investors and maybe like 1% will be entrepreneurs. And what do I mean by that? I think everybody pretty much can buy something. You can go and buy something at Starbucks. You can swipe a credit card. Everybody here has bought something. It's pretty hard to build something. But with crypto, there's no longer any threshold for investing in something. You can invest $1. You can invest $10. People put $10 into Ethereum, they've got like $10,000 a few years later. Not every investment is obviously like that.

Yeah.

But it is the case that as you totally remove all thresholds, you can have somebody from any country in the world click a button and in 10 or 15 or maybe in 5, but probably like more like 10 years, just as easily as you'd like something or poke somebody, you could send them a dollar. And you're going to start to see fundraising rounds, maybe not in the United States, maybe in other countries, where it's like a million people putting $1 each into somebody, right? And that's going to be very commonplace. And maybe that's what you do recreationally each day. You spend a couple of bucks doing that. And that's like, you know, you're— it's your replacement for Twitter or Facebook because you're not just liking or thumbs upping something, but you have a little bit of skin in the game. It's a little fun to follow that portfolio. You can see how it's doing, and you're helping somebody get financing when they might not otherwise be able to do so. So I'm interested in this from like a microeconomic standpoint. I think it makes a lot more people think like angel investors, think like venture capitalists.

Yeah, you can have people crowdfund entire countries. You could have people crowdfund a war. You could have people crowdfund a revolution. I mean, the possibilities here are kind of endless. When people are investing a dollar in something, maybe they're not even thinking about it as investing anymore. It's somewhere between donation and investing. It's like Kickstarter. A lot of those projects fail to deliver, but the investors don't really seem to care. You know, they were kind of doing it more to just support the founder as much as anything else.

One comment I'd have there, though. If you did try to crowdfund a war, I think you'd have a lot less war because I think people wouldn't pay for it as easily.

That's true. Yeah, it's easier to fight wars with other people's money. Yeah, Nassim Taleb made the good point recently that historically people who— warmongers, people who declared wars— had skin in the game. They had to go fight at the front of the war. But today you can be sitting at your desk in Washington, D.C. or in Moscow, and you can launch a war and you never have to fight in it.

And you hide the cost by just creating money.

Exactly, you print money.

It's worth double-clicking on something Balaji said, which is if you had invested in Ethereum at 3 cents, whenever the ICO was, that's a—

30.

Whatever, 30 cents. That's a— you would know perhaps. That was a better investment than investing in Facebook or Google at the seed round.

Yeah, it's true.

700x within 2 or 3 years, fully liquid. Yeah.

Say more about some of the— so don't worry, you guys didn't miss anything. Say more about some of the—

It was open to everybody. And ironically, the people who missed it were the venture capitalists.

Yeah, there's some karma, or some great irony there. Let's talk more about what society looks like in a world in which everyone's an investor, or there are way more investors. And I'm particularly interested in— because the life of the average American—

Yeah, first it looks like a giant casino, right? First it goes completely crazy while everybody loses money. Yeah, everybody scams everybody. A lot of people—

Dead lady slots.

But you kind of have to let them go through that. It's a learning curve. It's like it took a while before the Securities Act came along and divided penny stocks from public stocks and what was considered legit And what wasn't. So it'll take a while for people to figure it out, and there'll be some money lost along the way, but it's a global learning curve. It's distributed across 7 billion people. It's happened very quickly. I would argue that, you know, the recent downturn has been great. Crypto's had 75-80% of its value wiped out. Some of these coins are down 95% and will fully disappear. That's good because it's gonna teach people that, oh, you know, you can't trust everything you read on the internet, and you certainly can't send money to strangers on the internet based on what they wrote. It'll raise the levels of diligence. It'll raise the requirements for investing. And I'm hoping that out of it, we will see at some point a real investment market will emerge. But in the short to medium term, it looks like a big casino.

Yeah, I would say a couple of things. I think a lot of the things that in Silicon Valley we've developed, like term sheets that contemplate things like liquidation preferences and drag-along and stuff like that, they're all based on previous train crashes or car crashes that happened. Big conflicts that happened in the past. And then lawyers go and bake that into contracts to avoid those things happening in the future. I think you're going to start to see a lot of that baked into smart contracts where a lot of the wisdom of, you know, how investments have worked gets baked in and folks start getting 1, 2, 3-year lockups on their crypto. You're already starting to see this type of stuff and incentives start getting aligned. And so I'm optimistic in the medium term that, you know, once you've got those contracts out there and folks have done diligence on them, and they've proven that they're also in for the long term alongside you, then you're gonna be more likely to listen to their recommendations on the coin and then you'd buy in. So I think that's a process, but I do think there's a light at the end of the tunnel.

Yeah, long term you'll see that a lot of these crowdfundings online, to the extent they still happen, will require that the money goes into smart contracts that then very carefully bleed out the money to the developers or people as they hit milestones that are verified by third parties or held in escrow. Grow, and that as revenues come in, taxes are automatically paid and pieces are siphoned off and dividend to the investors and so on. Ronald Coase, the economist, famously said that a firm is just a nexus of contracts, and you can take the nexus of contracts here and you can program the whole thing. You don't necessarily need lawyers and bankers and judges watching every little piece. For a lot of the simple stuff, you can just have it be on rails. And the first company that does it, because it's open source, The second company will just copy it and copy it and copy it. You won't have to reinvent the wheel. It's just like with code. It'll create layers and layers that people will build on until our kids will probably, to them creating a company will be, they'll just hit one button and like a whole series of smart contracts will fire up and a company will get created. And they'll drag and drop in who's an employee, who's an investor, who's owed how much. And you'll be able to run this completely distributed, virtual, auditable, trackable, trustless company without needing armies of lawyers and judges.

Yeah, and actually just to just kind of emphasize that or drill into that, when you go and buy a car from somebody, right, they sell it to you and the most important thing they're selling to you is, you know, the keys. You put in the keys and the car turns on. Great, you can go with it, right? When you go and sell a company to somebody, it's not yet a machine like that, right? The owner can't just leave and you can't just operate it on your own. There's all of this hidden knowledge and, you know, how to give this instruction to this person. What's the context of this contract, etc.? The more and more of that we can encode into a nexus of contracts, a system of smart contracts, the more salable and liquid a company is, because it's like a machine that you can just sell for its future cash flows, right? I think that's going to start with just basic websites, like let's say a file conversion service or something like that. That's the kind of thing where you can start to imagine, okay, it's got this many visitors a month, it's just code that executes on inputs and returns outputs, That's the first kind of thing I could imagine that starts to get sold in this fashion. But then over time, more and more complex companies start to become machines like cars that you can just sell and then operate without the owner.

So if the firm goes away or the way we understand company building becomes radically different, what skill sets are now needed much more in order to thrive in a new blockchain economy?

It's the same skill sets that are always needed. Anything that a computer can eventually be trained to do, a computer will do. And the things that computers cannot do and probably will not do in our lifetimes— I'll take the other side of the general AI bet— is they can't be creative. So at the end of the day, you want to be creative. You want to be learning skills to create new things. Entrepreneurship is one instantiation of that. Art is another. But anytime you're solving a new problem, you're going to get paid for that. I forget who said it, but famously said that in the future, either you're telling a computer what to do or a computer is telling you what to do. And you don't wanna be on the wrong side of that transaction. So it's much better if you can be creative and then you can teach a computer how to do it rather than computers giving you instructions to do the last set of things that computers can't do yet.

One question a lot of people ask is about regulation, but I wanna ask a sort of slightly different question related to it, which is if you assume that a key role of governments and regulation in market economies is to correct for market failures, in a decentralized economy, how will you correct for market failures? Or is part of the crypto thesis that there are no true market failures Only distortions created by regulation itself.

I think that people want regulated markets in the sense that they want some trustworthy actor to ban bad actors and impose some form of quality rating on the system, which are— those are 2 different things, by the way. Banning a bad actor is not the same as giving— that's like a zero-star actor versus giving 3 stars to a well-intentioned but maybe not amazing good actor. So they want regulators to do this kind of thing. But the form that regulation can take, it could be a national regulator, or it can be an international regulator like an Amazon, an eBay, or a Lyft, or an Airbnb, which have star ratings, they have reviews, they have reputation, and people consult them and look at those star ratings prior to buying their products. It doesn't have to be a national regulator, it just has to be some trustworthy source of reviews and reputation that can deplatform bad actors. And so I think what's going to happen with the crypto space is you're going to see a wide variety of different kinds of review and reputation and other kinds of sites arise. We're already seeing this. And then those that are good enough will either be subsidized by crypto transactions or will be good enough that people will pay for it, just like the current market for buy-side and sell-side advice. So I think that will arise and then we'll see whether more is necessary than that or whether that's a whole area in its own right.

Yeah, and to the point of like if a certain crypto economy has a market failure, it's poorly designed and it's not allocating resources properly, or people are getting cheated, they'll leave. They'll fork it or they'll just go to another one. There's a Cambrian explosion of crypto experiments out there, which makes it really, really easy to hop around. And when you look at the price of one of these, it's basically how much trust people have in it right now.

I can add to that also. I think one thing that's an interesting concept is sometimes you have a period of tolerable anarchy. So for example, with email spam, it got really bad and there were all these vigilante-ish approaches that were proposed. And then, you know, finally what actually did work was a mathematical solution, Bayesian spam filtering, which maybe didn't solve 100% of the problem but solved most of it, you know, with Gmail's, you know, spam filters. And sometimes if you have somebody intercede too soon, they can lock in a solution that's not necessarily the optimal one. Like another example is in terms of spectrum auctions, you know, much later we developed things like CDMA and technologies that don't require like this government spectrum auction of, you know, frequency division bandwidth, but those weren't available and we locked in a solution based on regulation rather than tolerating a period of anarchy and letting technology develop.

Or like right now with investing rules, we have a locked-in solution called the Accredited Investor Program where you have to have a million-dollar net worth and then you're allowed to invest in a lot of private assets. And if you have less than a million dollars, you're considered a moron, and if you have more than a million dollars, you're a genius. And that's obviously not how the world world works, and it should probably be replaced by some kind of sophistication test. And everyone's known it should be replaced by some kind of sophistication test. And here we are 83 years later, still talking about what is a sophistication test. Yeah.

I want to hear more about how you two— we've talked about, you know, outlined the future and what we see, how you two want to participate in that future. So Balaji, maybe first you can describe the vision for Coinbase and your work there. And then Naval, you can get into AngelList, CoinList, and Sure.

Yeah. So what am I doing at Coinbase? So I am— oh, so I am investing, driving the addition of new assets first and foremost, the integration of Earn and, you know, making that something that I think, you know, maybe you'll be able to earn as well as buy and sell at Coinbase. And then a bunch of other cool projects I can't talk about too much. And then doing a bunch of things with Coinbase Ventures and investing in a lot of companies that are coming And talk broader about the vision of Coinbase. Oh, build an open financial system. And while that sounds maybe like generic corporate speak or whatever, what it really means is, if you think about what Linux was versus Windows, Linux was an open source system and anybody could download it and you could hack it and you could get access to it. And now you had an operating system that you could customize. And the same way, like building a more open financial system, it's hard to imagine a financial system that's more closed than our one is today, right? So a more open one is one where you can pull a blockchain and a kid in Vietnam can go and collaborate with somebody from Japan and Brazil and Turkey, because they're all using the blockchain at the same time. And we've helped onboard people into that. We've helped educate them. We've helped them get their first amount of digital currency. Maybe we've set up an exchange in their country. We've basically onboarded people into this more open financial system. And that's our mission.

Yeah, I'm mostly involved in this space with CoinList and with MetaStable. CoinList is the legal, regulated, well-lit marketplace for ICOs that we spun out of AngelList. And we've run ICOs for Filecoin, Blockstack, and a few other pretty well-known players in the space. Now also doing legal compliant airdrops. So we just ran the DFINITY airdrop, airdrop being when they're giving out coins to influential people like developers who they want supporting the project. And then with MetaStable, we're the oldest cryptocurrency fund that bought anything other than Bitcoin. And mainly there we back teams that are building that are improving decentralization and scaling for new protocols on blockchains. So we're investors in Chia, Basis, Coda. You may have heard of a bunch of these, but a ton of them, and we're always in the first round. And what we try and do is we have a highly technical team that works with the companies to basically look at solving fundamental protocol challenges. I don't think we're quite yet in the phase yet where somebody can build large-scale working applications on blockchains. You may not have caught this at the beginning, but the solution to how to make sure somebody doesn't run off with your money in blockchain land is everybody keeps a copy of the entire database going all the way back to the beginning of time. It's incredibly inefficient, so blockchains just don't scale well. You trade off decentralization and survivability for scalability. And so now there's a whole generation of startups that are trying to solve the scalability problem, and so we back teams that do that.

You've also, of course, started AngelList. And AngelList, among other things, really tried to democratize venture capital, democratize investing in startups. I'm curious how you think about inequality as it relates to crypto, blockchain, you know, wealth inequality, social inequality.

Yeah, I mean, you got to unpack the word inequality, because some people use it to mean inequality of opportunity, and some people use it to mean inequality of outcome. So equal opportunity is, you know, the American dream. It's in theory, if the American dream works, we all have equal opportunity to to get to wherever we want with enough effort. But equal outcome is quite the opposite. I mean, that's what you get in North Korea, right? So you have to be very careful about differentiating between the two because free people make free choices. And if you make different choices, you'll get different outcomes and there will be unequal outcomes. And now we're living in an age of tremendous leverage. So if you make the choice to start a social network while you're a student at Harvard, you know, you might be Zuck and you might make billions of dollars. But if I make the choice to start I don't know, like a location tracking network, you know, 3 years ago, that goes to zero. Or if I make the choice to go study medicine, that's unleveraged. So we are seeing very unequal outcomes because the huge amount of leverage in the system. So I think that over time, what blockchains do offer is they do offer equal access. Anybody can go and contribute to the Bitcoin blockchain or the Ethereum blockchain. Anyone can contribute code to it. Anyone can contribute resources to it. And now I'm not even just talking about good old-fashioned inequality or equality of opportunity in the USA. I'm talking about globally. I'm talking across all ages. I'm talking about a 14-year-old kid who's sitting in Bangladesh can contribute to the Bitcoin blockchain. So you want to talk equal opportunity, they have equal opportunity in that regard. But on the other hand, in no way does it promise equal outcome. It's a meritocracy, and meritocracies have winners and losers.

Yeah, I'd cut the problem slightly different. I mean, complementary, you know, So, which is inequality is typically concerned with, let's call it centralization of wealth. And within crypto, people are often concerned with centralization of power, but those are actually very related things. And, you know, what I'm optimistic about blockchains for is they give us a way as a community to fork off and someone's only powerful or wealthy if effectively other folks are giving them that power, at least in the context of blockchain.

Right.

So we always have this exit, we always have this ability to vote against some kind of tyrannical force with our feet and with our wallet and fork away from it.

Yeah, in fact, I think one of the interesting things to note is that one of the ways that some of the new coins are competing with the existing coins is they're taking a model which I'll just call the fair coin model, which is they're trying to airdrop or distribute the currency as widely as possible. So you're literally seeing new coins instead of doing fundraises from investors. They're just trying to identify people and just give away the coins. And the extreme version of that would be Facebook airdropping a coin to billions and billions of users under the idea that the more widespread the money is, the more likely it will to be used as money and become valuable. As opposed to today, we're sitting in a system where land ownership goes back hundreds or thousands of years based on whose great-great-great-grandfather got there with a gun first. So that's an unequal system. It's far more equal to like reset the wealth and redistribute And then hope if you can get into enough hands that you can re-spark what money really is. Today, for example, the way the Federal Reserve distributes money is they basically drop it to the banks who have extremely sticky fingers and then slowly bleed it out in the economy. Is that the best way to distribute money? I'm not so sure. So I think at least with blockchains, we get to test new models of equal distribution of resources.

This is perhaps another version of a purity test, but I'm curious, what would need to be true or what facts would have to emerge In order to change your mind on some of these topics and maybe not become a crypto maximalist anymore? You say, you know what, maybe this is not going to have that much of a big of an impact and I shouldn't spend that much time on it. What do failure modes look like here?

I would say, like, if there's some fundamental heretofore undiscovered security issue, that's the kind of thing which— and what I mean by that is not something that can be patched, right? But like a theoretical new class of attack that renders, you know, all these different kinds of blockchains like infeasible, or you can constantly attack them and update them in a bad way. That would be the kind of thing which would, you know, make me say, okay, you know what, I thought this was a secure way of building things, but maybe it's not. I think that's hard to do because we've now got a diversity of different approaches to updating blockchains, but it's possible. So that's the kind of thing that would make me question whether that future was real.

Yeah, I think there's technological failure cases. I think that you could have, let's say, a Bitcoin or something like that gets used in like a You know, a horrible terrorist attack, and you know how the government is, like any excuse to grab power. Like after, after 9/11, we got the Patriot Act. Patriot Act gave us all these kinds of abuses, including NSA surveillance of all of our activities for the, for the rest of time. I could see politicians overreacting and blaming all of crypto and basically cracking down on next-gen internet, in which case it sort of flees to other countries and it kind of goes underground and still gets developed. It just gets developed elsewhere and more slowly.

How should governments be responding to all this?

Well, the government— the governments are in a little bit of a— they may not realize this, but they're in a little bit of a race with each other. The United States is extremely lucky that we have the reserve currency of the world today, and we're extremely lucky that Silicon Valley is parked in the US. It's not luck. I mean, a lot of it is due to good policy, but we're lucky that that good policy existed or exists that allowed those formations to happen. And I think in crypto land, what we're basically saying is at least big chunks of the next generation of the internet and possibly what is the next definition of money is up for grabs. Like if I was like, you know, running a little Singapore, I would strongly consider just buying up a bunch of some cryptocurrency, probably Bitcoin, but if it's too expensive, maybe I'll just make my own and then make sure we have all of it and make it legal tender and then make it available to the rest of the world. So then all of a sudden you have a cryptocurrency that has a lot of usage and other people in the world can adopt and use as sound money. And by being the first adopter here in a big way, the country would end up just making trillions upon trillions of dollars equivalent and would probably become the new reserve currency after the US dollar. So in some light sense, the countries of the world are in a competition against each other, but it takes a big leap.

So I would mostly agree with that. I also think there's a big mental shift you make when you go from thinking of the government to a government, because there's more than 100 governments in the world, right? You know, depending on how you count it, more than 70% of Silicon Valley is made of immigrants. And everybody here, you know, either within your lifetime or your parents' lifetime, up and left. Why? To make a better life, right? For economic opportunity. And if that economic opportunity is not in the US because it's not keeping pace with the blockchain, well, you know, it's easier to move nowadays. Now you've got mobile, you've got social, you've got all this stuff. You can get on an Uber, get to a flight right away. So, you know, the other aspect of it is you don't need huge amounts of natural resources. You don't need like a, you know, a mine of uranium or something like that to build a blockchain community. You just need an internet connection. Yeah, an internet connection and a good regulatory environment, right?

Maybe a nice beach.

That's right. So any, any, maybe a nice beach, that helps, right?

But actually, the blockchain companies are the most distributed companies in the world because we invest in them all day long. We see them all day long. They're developing are spread out. Some cases they're fully anonymous, like even the team members don't know who the other team members are, and they're all over the world.

And they're not necessarily all companies, right? Some of them just go straight—

Open source groups, yeah.

Yeah, they're open source groups that just go straight crypto and may not even have traditional terrestrial bank accounts.

Yeah, there's one that's coming up that's really— people are into that. All the developers are named after Harry Potter characters, and nobody actually knows who they are or where they live.

But why isn't Singapore or other governments doing this now? Or what would— is it possible that they might, or is it too much of an innovator's dilemma?

No, they're starting, like Malta.

It'll just take one. It'll just take one forward-looking one. Someone has to be both desperate enough and smart enough. Like Venezuela is desperate, but the thugs are still in charge, right? So it's— it kind of just has to come together in the right way. You could see, for example, a post-communist Venezuela that sort of recovers when people are getting together. They're gonna have a choice of what do we do with our currency? And nobody will ever trust a bolivar ever again, hopefully. So then what do you do? Do we adopt the US dollar as legal tender? But now our monetary policy is set by the United States. So you could see that there are scenarios where if the crypto infrastructure is good enough that they might go with a cryptocurrency.

Yeah, and there's already governments that are definitely moving in a very pro-blockchain direction. So Malta, Bermuda, Estonia, and then a bunch of others that haven't necessarily announced anything publicly. But I think, you know, governments are already trying to compete, for example, for Amazon's HQ2, right? They're trying to compete for Google's Sidewalk Labs, and they're trying to compete for, you know, various investment dollars from startups and tech companies. This is just an extension of that.

And Balaji, do you have some thoughts on how blockchain unlocks or enables new career opportunities for us to think about our careers in different ways, that you don't have to be in Silicon Valley?

Oh yeah.

Unpack that a little bit.

Sure, sure. Yeah. So I have this concept that your single most important metric for your life is arguably your personal runway, which is your savings divided by your burn rate. And the thing that's interesting about that— well, you know, savings, very anti-American thing to talk about. Let's suppose it's not.

We're all immigrants. Okay, great.

So, you know, the thing that's interesting about that is it's much, much easier to reduce your burn rate by 5x or 10x by moving out of San Francisco to, you know, Thailand or India or South America or something than it is to increase your net worth by 5 or 10x.

Right.

And because like reducing your burn rate is deterministic, it's within your power, you could execute on it tomorrow. And what's interesting about crypto is it's making it even easier to go and earn like a San Francisco or first world salary, even if you're in, you know, the developing world. And the developing world has gotten a lot nicer because, you know, globalization over the last 10 or 15 years. So you can have a basically first world standard of living with, you know, 3 or 4x as much savings each year. And then you don't need angel investment. You've, you've got plenty of runway. You can work for a year and take 2 or 3 years off. So I think that's going to become a bigger deal. This combination of digital nomadism, remote work, cryptocurrency, etc. That's a trend I see growing.

Yeah, this already happened to me. I won't name the town, but I went on vacation to a beach town somewhere in Asia, and I was looking to get away from all this stuff. And I get there and they have multiple crypto coworking spaces. They have a big blockchain incubator. People are recognizing me. Next thing I know, I'm giving talks about the blockchain there. So especially when you get to those kinds of places where there are a lot of expats, you notice that a number of them are now making a living somehow in the crypto community.

We have some great audience questions that I want to get into. AI and blockchain, complementary or competitive in the long term?

So Thiel actually has a good line on this, which is he had an observation that AI is mostly centralizing and blockchain is decentralizing in the sense that First, this is like definitely buzzword bingo first.

Yeah.

Ding, ding, ding.

Right?

But if you actually engage with it to build a machine learning algorithm, you typically need to accumulate a lot of data. And that is typically a centralizing thing. You've got data from lots of different people or lots of different cameras or whatever all in one spot. You know, the Chinese government being like the zenith of that kind of centralization. It is possible with technologies like federated machine learning or homomorphic encryption to actually keep the data local and then just collect some coefficients, but it's harder, much harder. So, AI is going to be this probably centralizing force that will give more power to centralized institutions. Conversely, blockchain is a decentralizing force. And the key thing is, even though it makes it more complicated because it decentralizes everything, it creates enough money and wealth that that more than compensates for the cost of decentralization, which I think is a critical thing. And that's why I think blockchain without Bitcoin doesn't work, or blockchain without a token doesn't work. Then you're just decentralizing without that added economic incentive. So those are these 2 kind of, you know, forces, centralization, decentralization. And I think you're going to see interesting mixes and remixes between them, but those are, that's one axis on which to cut it.

How do you think about identity in a blockchain world? How does it change the concept of how we understand identity? And a lot of people talk about anonymity, privacy, but perhaps they're missing the bigger picture on how it's going to reframe our sense of identity. What are some thoughts on that?

I'll let you dig into it again, but I think at a very high level, You can have identity, you can have your wealth tied to anonymous identities in the blockchain world, which you can't do in the real world, or it's much harder to do in the real world. And then also in blockchain land, you can actually own and control your identity. Today, our choices for identity ownership are the government, which like leaks Social Security numbers left and right, credit card companies, every waiter has your credit card, or it's, you know, Experian or whoever just got, who got hacked and lost everything. It's Facebook. You trust Zuck with your identity, right? He'll sell you for like a 10-cent click ad. So all the ways that your identity gets held out there are just sieves. Like, you don't actually own your own identity. Anyone here who's been the victim of identity theft knows how incredibly frustrating and useless it is trying to like regain your identity. And then we talk about biometrics where, yeah, somebody lifts your fingerprint once and your identity is stolen for life. So I think we have a big problem where in a world where we have digital assets that our identities are all over the place. And the good news about crypto is that to secure your digital assets properly, they've had to build tools that are very, very good for preserving identity. So we're gonna see a lot of effort spent by a lot of crypto entrepreneurs to bring personal ownership of private keys, identities, and passwords to the masses. And that's one area that I'm really excited about over the next decade. So if that happens, it's not just for securing your Bitcoin ownership, It's also for securing all of your identity data, including your medical records and your credit history and all those kinds of things.

That's right. I think your crypto private keys are going to be an anchor that brings a lot of stuff local. And that doesn't mean the cloud goes away. But what it might mean, for example, is that your private keys encrypt a lot of your data in the cloud and only you can view them, or only you can compute on them or something. One aspect The effect of having private keys be local is that, you know, an identity system is effectively built into every cryptocurrency, because it's as if you have to sort of present credentials. You know, you need to sign a transaction before it can be broadcast and accepted by the network. And that process of signing it is effectively an identity verification step. And so we can build a lot of stuff on that primitive, just like, you know, your credit card might be looked at by the person at the counter, and they just see, is that actually This step of identity verification can be used to set up new kinds of social networks, right, where you're pseudonymous, but your balance shows that you're actually an actor with some investment in it. You're not just a troll. You've put $50 or $100 into a token governing this network. And now there's less incentive to just go and character assassinate people, 'cause they have no character to assassinate. You just kinda have to discuss ideas, right? And you can pseudonymously troll them, you know, But it's not, you know, where's the fun in that, right? So, I think that this, you know, this entire concept is something I call like the pseudonymous economy. I think in 20, 30 years, it's going to become much less frequent to put your real name on the internet. It's like putting a Social Security number out there or your personal phone number. It's this global identifier by which all the people who need to know it know it and the people who don't need to know it can just use a pseudonym, maybe a realistic sounding pseudonym But, you know, they wouldn't know it wasn't your real name, but they don't actually have that handle that kind of grabs you and like they can pull the database records on you.

We talked about blockchain and AI. I'm curious how you see blockchain intersecting with other emerging technologies, whether it's virtual reality or Internet of Things or even something like quantum computing.

Yeah, it's buzzword bingo. You know, quantum computing gets brought up as like, oh, this could break blockchain encryption. Not really. They're already quantum resistant. hashing schemes out there, and in a very deep physics sense, quantum mechanics may— sorry, quantum computing may actually help blockchains because it turns out that doing the hash function and tangling things is easier than detangling them, even in quantum computing relative to normal computing. So it gets brought up as this, ooh, what about quantum computing thing? I'm not worried about it at that level. With VR, it's actually really interesting because VR is about— now we're in digital worlds, and I'm sure many of you have seen or read Ready Player One. The foundation of a digital world is a digital economy. And if you want a digital economy, then you're not gonna sit there in your digital economy and swipe your credit card and wait for it to go to Visa or MasterCard or PayPal, right? It's gotta be programmable. It's gotta be part of the whole ecosystem. It's gotta be permissionlessly programmable. The internet, especially if it's gonna dominate our lives to that extent, is going to have its own native money, right? Do you imagine that 100 years from now, the internet not gonna have its own native money, but it's still gonna be using dollars and RMB or—

No.

Are people shipping bricks of gold around? Of course not, right? So I think that a true functioning virtual reality ecosystem, which is probably, you know, 1 to 2 decades away, so it's still a little far out, will require its own native programmable electronic money, and crypto is the way to do it.

Yeah, let's play that out. 1 to 2 decades away, 20 to 30 years, even further, who are the big winners and losers, or what types of players are gonna be the big winners and losers?

So I think, well, winners hopefully will be the world in the sense that You're going to have way more people able to get jobs, raise capital, trade without banking fees, incorporate, exit, start companies, and invest in companies. All of that type of stuff, I think, is going to become much, much more widespread. In terms of folks who might be on the other side of it, well, I definitely think Wall Street's going to get a run for their money from all of this. And some of the firms are smart, and they know that that blockchain is important and others, you know, they're not yet there and then, you know, we'll see what happens.

So almost you have a form of governance right now that doesn't require rulers or central actors anymore. So anyone who's made a living as a gatekeeper is going to get hurt and on the converse of it, anyone who was kept back by a gatekeeper gets helped. But it's a very fuzzy statement, right? It plays out in a million different ways.

For the builders in the audience, for the engineers, for the people who are either starting to build in the space, or perhaps they work at, I don't know, Facebook and/or Google and are curious about the space and want to get into it. What's your sort of call to them? Like, where do you want to see them building, experimenting, innovating? What's your call to arms?

I think the best way to get into it is if you're a developer or an engineer, is start understanding blockchains themselves. Go contribute to some of the open source code bases. These are all open source and they're always looking for volunteers and contributors. And it's amazing how even some of these These incredibly large blockchains that have tens of billions of dollars riding on them will have a handful of developers. You can count them on one or two hands. So just people diving in, helping out, it just takes a small number of people to make a huge difference. And it automatically makes a name for you. Like if you're one of the Bitcoin developers today, you've got any number of career opportunities, whether it's at a hedge fund or whether it's at an exchange like a Coinbase or wherever, people want to work with you. So it's the ultimate—

Indeed.

Yeah, it's the ultimate resume. You could be 12. Yeah, right. It's the ult— you could be a Harry Potter character. It's the ultimate resume. Yeah, you could be 80. There's no one stopping you.

How many folks here in the audience are engineers? Okay, a few.

A lot listening as well.

Yeah. Okay, so, um, most of them have better things to do than— yeah, yeah, no, no. So, so, uh, I mean, if you are an engineer, so certainly the highest threshold is, you know, contributing to the codebase. If you aren't yet there, what you can do is Use Kubernetes, set up a private cluster of Ethereum nodes or Bitcoin nodes, and then you can actually simulate like an entire set of transactions on them. You can have them mine, you can have them send things back and forth, and you'll actually get an understanding for how the thing works in its own hothouse environment because you can like replay an economy. That's, I think, a really good way to understand how like all the pieces work.

You don't even have to build anything in crypto. I build anything in crypto. It's so incredibly complicated. It's the intersection of cryptography and mathematics and computer science and economics and governance. It's a really hard field. What can people do? Yeah, just learn about it. I mean, just go read up on it. It's really endlessly fascinating. It's like when the internet first launched, to contribute to the internet, to do something on the internet, you didn't have to go write a web server. You didn't have to go contribute to a browser. You could just understand how this thing works underneath and start thinking through how it can play out. And eventually, of course, the internet is impacting almost every aspect of our lives. So that is the potential here as well.

Yeah, that's one of the interesting things about this space. Like, 99% of people can be capitalists and 1% are labor, because the labor is this really mathematically, technically challenging thing, but everybody can at least go and buy it. So that's— it's something that's sort of an inversion of what things used to be.

can be airdropped.

Yeah, that's right.

And maybe that'll be the new basic income. And it's not quite a joke. There are people in crypto land who are talking about how do we airdrop enough coins to everybody that if this takes off, that that's the new basic income.

And I can definitely say that learning about it is its own reward. So it is my honor to have us participate in the Commonwealth Club tradition, which is with 1 minute left to ask both of you, what is your idea to change the world?

I think it's your turn. All right, my turn.

So I think that this is somewhat related to crypto. I think that the ability to collectively move large numbers of human beings, and by that what I mean is like crowd migration. You know, you take a Facebook group right now and, you know, people are just talking to each other and so on, but over time you start adding cryptocurrency to that, that becomes like a digital economy. You start adding virtual reality to that, that becomes like a true virtual economy.

People—

it's got a persistence to it. It's got, you know, money to it. You've got a job there, etc. That's, I think, where this, you know, social network thing is going in 10, 20 years. I think eventually those, you know, virtual economies, you're going to have all these folks who are, you know, some are in Arkansas and some are in New York or whatever. They're going to want to actually like move to one place. And I think that that's going to be a very important feature of the next 10 or 20 years. It's something called Tibau sorting.

Mine is not crypto-related. I think that it would be— computers are getting so cheap, tablets are getting so cheap, and I think that— and we have the entire Library of Alexandria of the modern age available on the internet— that I would love to see like a giant airdrop of tablets to the developing world where you can basically just have all the textbooks, you can have all the interesting learning materials, you can have all the courses, all the Khan Academy preloaded, ready to go. It can figure out with some simple software what language you speak, what level of education you're at, and automatically start teaching you from there. And it can connect you with a volunteer network of millions of teachers across the world who can video in at any point and help you if you're stuck. So I think we can educate the whole world much more cheaply than we're trying to do it today. I'd love to invest in that.

Thank you very much. One last huge round of applause. Naval Ravikant and Balaji Srinivasan.

Upstream with Erik Torenberg is a show from Turpentine, the podcast network behind Moment of Zen and Cognitive Revolution. If you like the episode, please leave a review in the Apple Store.