Company Building in Crypto: A Conversation between Brian Armstrong and Chris Dixon

Chris Dixon (a16z crypto general partner and Coinbase board member) sat down with Coinbase CEO and co-founder Brian Armstrong to discuss the state of crypto, emerging technologies, and the future. The original conversation took place in September 2018 at SFJAZZ as an event hosted by a16z -- as a way to bring together people who are interested in, or curious about, or working in it already -- to learn about the space and meet each other. This video can also be found on Coinbase's YouTube channel at https://youtu.be/Bx78aNxwA1E. For a different conversation touching on some of these topics and much more, please also see this a16z Podcast with Brian Armstrong, Chris Dixon, and Sonal Chokshi from a16z Summit 2018: https://a16z.com/2018/12/17/crypto-vision-reality-summit-2018/ --- Please note that the content provided here is for informational purposes only, and does not constitute an offer or solicitation to purchase any investment solution or a recommendation to buy or sell a security; nor it is to be taken as legal, business, investment, or tax advice. In fact, none of the information in this or other content on a16zcrypto.com should be relied on in any manner as advice. Please see https://a16zcrypto.com/disclosures/ for further information.

• 0:19Speaker 1

  Hello. Can you hear me? Yeah? Okay, good. Great, welcome. It's a great crowd. Thanks, Brian. Thanks for being here. Yeah. We're going to have a uh hopefully a kind of a fun casual talk about about uh crypto and Coinbase and uh so maybe um maybe if you don't mind go can we go back to how you started started Coinbase.

• 0:40Speaker 0

  Sure. So let's see. I studied computer science and economics in school, and I was always even in younger than that, I was always trying to start things. Like when I was a kid on the playground in elementary school, I tried to sell candy to kids, and you know, I was always trying to start these various projects. But in school I studied computer science and economics, and I was really interested in how software was gonna disrupt these different industries out there, you know, healthcare and education and finance was one of those. So fast forward a few years after college. Um I tried a startup which you know didn't really go very well. It was in the tutoring space, and I moved to Buenos Aires, Argentina, because I was trying to figure out what I wanted to do with my life, and um that was a country that had gone through hyperinflation, right? So that was the first time I got to see a country that had experienced that, and it really just changed the entire culture of the country.

• 1:30Speaker 0

  Like I remember being in a restaurant and seeing a menu, and they had these prices on the menu with the stickers stacked on top of stickers, and like basically the prices were changing so quickly they didn't want to print a new menu every week, right? And so, you know, fast forward a few more years, I decided to move back to Silicon Valley. I wanted to think about you know, working at a startup that was doing really well so I could learn how to do it. And uh so I joined Airbnb, which I think I was an employee 40 at that time, and it had grown really quickly, it was you know grown to 600 people, and they were moving money all over the world to 190 countries. Um I got I had sort of a front row seat, you know, I was a software engineer there. I had a front row seat into how uh broken the global financial system was because it was like high fees and delays, and each country we were trying to move money into and out of had these kind of opaque broken infrastructure, like a little oligopoly of different payment companies there.

• 2:22Speaker 0

  And uh

• 2:23Speaker 1

  fraud too.

• 2:24Speaker 0

  Yeah, high fraud. So, you know, 2010, um, I was home for Christmas visiting my parents, and I happened to read the Satoshi Nakamoto white paper for Bitcoin, and I think I just saw it on hacker news one day. And I remember my mom was like, You should come down and spend time with the family, and I was like, I'm reading papers on the internet, you know, this is really exciting. Um I remember having this thought actually that like this is the most exciting thing I've read in like five years. And I think the reason it sort of captured my attention, and I didn't even really understand it at first when I read the Bitcoin white paper, it was really complicated. I had to reread it like three or four times in the coming months. But something about it captured my imagination because I remember thinking, you know, the internet was such a transformative thing in society.

• 3:09Speaker 0

  It's this global decentralized protocol for moving information around. Um, but here was another protocol that was also global and decentralized, but it was for moving value around or money. And um I remember thinking, wow, this could be as big as the internet. And um, you know, I wasn't really old enough to start it, start one of the formative internet companies because I I was still in school, but I was like, whoa, maybe if this is gonna be as big as the internet, I'll be there at the beginning, and I could start one of the formative companies. So, you know, for the next year, I just kind of couldn't get it out of my head. I started going to um Bitcoin meetups in San Francisco, and um I remember thinking actually in 2011, like maybe I'm too late to this industry, because uh there was already some exchanges in San Francisco, like Trade Hill and Mount Gox, um, it was in Japan.

• 3:55Speaker 0

  So anyway, long story short, I I ended up, I was still at Airbnb. I started working on a prototype that would eventually become Coinbase on nights and weekends, and um I applied to Y Combinator, they wrote me a check, and I was like, all right, maybe I'm not crazy, because all my friends thought it was like the stupidest thing ever. And um, so they gave me the check and I I went to go try it out. That's awesome.

• 4:17Speaker 1

  Yeah, uh Mark Mark Andrewson tells a story where he moved, I think he moved out in 93 for Netscape. And he was absolutely convinced or actually he moved out before Netscape, and he was absolutely convinced that he had missed like the computer revolution that like it was I mean, thinking back now 93, it was right before, you know, obviously the 90s and the whole internet thing, and apparently at the time, CD ROMs was like the hot thing in the valley. Yeah. Um sounds kind of funny today was like you know, encyclopedias and things like this. So

• 4:42Speaker 0

  yeah, but you think a lot about this, like these technology trends, you know, VR, is it is it in a winter? Is it gonna when is the time where it's gonna have its iPhone moment? So it's really hard to time these technology trends, but I don't know if you might have taken it. Yeah, no, I

• 4:55Speaker 1

  mean I one of the things I feel like I've learned over the years is the things that I don't know, me and my friends or whatever, people like you think are gonna happen. I feel like most of them have happened. Like I started a machine learning company in 2008, which turned out to be probably too early. But I think we were in the end, we were right, we were just wrong on the timing. I mean, which by the way, as a startup means you're wrong, you're you know, you're really wrong, but but uh um so you know um, but but that often the the the sort of these videos, so I mean I I yeah I'm sort of an innovation maximalist, like I think VR is actually about to come back. It was actually an exciting thing tomorrow for those in the VR. Um, you know, obviously crypto is to me, to me, it feels like the you know, like you, like you know, you only get a few of these big things in your career, and for me, this is clearly kind of a new computing paradigm and uh and uh you know a chance to really kind of make your mark.

• 5:48Speaker 0

  Yeah.

• 5:48Speaker 1

  Um and I the timing's hard to predict, who knows? Like it might take longer, and people who know about this stuff know there's issues and UX and scalability and all these other things, but

• 5:56Speaker 0

  yeah. I remember I think I like your concept of nerd energy. It's like look what the engineers are doing in their free time. And I think you were the one that told me that you know Stanford has this elective computer science class, and like you know, the number one class is AI, and the number two is crypto now in terms of an elective for computer science. So it does feel like the engineers in the world are really excited about crypto. It's a good indicator of where things are going.

• 6:19Speaker 1

  Well, I kind of think of it as like there's not that many, like when you go to work nine to five, you're working for a business manager who generally, you know, in most companies has a one to two year horizon, right? And and and so how many how many contexts are there where people can really work on things that are far farther away, right? And so government and academic, academia, things like this, like government funded projects, academia. And then the other one, like how do people in Silicon Valley kind of how do engineers kind of vote so to speak on the things they think are cool? It's the nights and weekends, right? So I think there's a deep reason why you know the homebrew computer club, like all these kind of great things in the history of technology did start in garages and you know, clubs and you know, the the Bitcoin meetups you went to were in many ways the kind of the the this decades homebrew computer club, right?

• 7:05Speaker 0

  Yeah, that's true.

• 7:06Speaker 1

  Instead of hacking on computers, they were hacking on money.

• 7:08Speaker 0

  Yeah, totally.

• 7:10Speaker 1

  Um I mean, I think we'll see. I mean, but you think so. Um, okay, so great. So then so you started the company, you know, I think you know, we invested when in uh 2013 at kind of the one of the I don't know if it was the first it wasn't really the first kind of uh I don't know you know upswing of Bitcoin, but it was one of the bigger ones that kind of got more attention, and then there was kind of what we call the winter, you know, what I guess what can you talk about that period and kind of lessons learned?

• 7:36Speaker 0

  Yeah, well, crypto keeps going through these um big run-ups that are you know enormous, and then it corrects back like 50 or 60 percent, and then it'll do another one each time it's at a new plateau. And uh it's been really kind of stressful to manage a company during those periods. You know, and I think you invested during that Series B was one of those run-up periods where um we were just feeling totally understaffed, we didn't have enough working capital to service all these people who wanted to buy crypto. And you know, that's obviously a good time to raise because like you know, it looks like things are on the up and up, and you go out there and you try to raise when there's a lot of interest. Now, of course, that's also when usually everything is on fire in the in the company, and like you know, there's a huge backlog of customer support, or you don't have enough people or whatever. So it's been interesting to manage through those cycles.

• 8:22Speaker 0

  It's also been interesting just to manage kind of you know, our own my own psychology as a CEO, like and a founder, and then the team's psychology as an extension of that. Because you know, you always have this pressure sometimes as a CEO where you're like, you know, you can step back and say, okay, this is this part isn't going well, this part is going well, what do I think the long-term potential is? But then um, you know, in the next minute you have to hop on the phone call and like sell a candidate and what why they should join. And so there's sometimes you feel like you had to put on like a really positive face, right? Yeah, and so um in the there was a crypto winter, which I guess was like you know, late 2014, 2015, where it was interesting. A lot of people, the price had come down enormously, there wasn't really that much exciting happening in the space. Um I think you know, we had probably 25% turnover that year, and I was kind of like week after week getting in front of the company, like, hey, this is this is gonna be a long game, like the fundamentals are there, it doesn't really matter what the price is.

• 9:17Speaker 0

  Um we had a lot of people who had joined kind of at the peak, and they had just seen the price go down for 18 months, two years, their friends and the I it's like the friends and family thing is a is a tough one. Like you go home for Thanksgiving and they're like, oh, you're working on Bitcoin? Like the New York Times said that was a scam or whatever, you know. And um, so the family test, like people want to be, you know, they want to feel good in their peer group about what they're working on. I think that's an important lesson about entrepreneurship generally, actually, is that everybody I've ever talked to who said um, you know, I'm gonna start this company, and I'm just gonna do this for a couple of years to kind of make some money before I go do my next thing, which is like the real thing. In the kind of in the back of my head, I'm always like, you're already done, you just don't know it. Because like the first two or three years of any startup is just setback after setback and nothing works, and within three years, that thing that was hot won't be hot anymore.

• 10:09Speaker 0

  And so the people who I see that actually make companies successful, it's like they have this, they're passionate about it for some other reason than just building a company. And they're willing, they're they've already kind of mentally signed up, like this is gonna take 10 plus years. And usually after two or three years, you you're just been like setback after setback. By the five year mark, you're starting to see some signs of success. And by 10 years, it's like it's actually working. So we're Coinbase is about six years in now, and you know, like clockwork, kind of right around the five-year mark, we started to really um see signs of success. But I think we're really like one percent of the way on this journey.

• 10:45Speaker 1

  Yeah. Um so then let's let's maybe before it then. And so then, you know, what what happened in? I mean, so there's obviously things like Ethereum and this kind of proliferation of new kind of uh you know, networks and tokens and things like this. Like where do you think we are now?

• 11:01Speaker 0

  Yeah, so I remember for a long time, you know, when Coinbase started and for a long time after that, it was Bitcoin only, right? So we were Bitcoin only, and I was under the my mental model for this was like TCP IP got invented, you know, yeah, there's some other protocols that are out there, but the like the vast majority of the network is gonna run on this one protocol, Bitcoin. And I think you know, 95% of the investor activity and entrepreneur activity was in that one protocol. And um, of course, then this kind of um scaling debate happened about you know, how is Bitcoin gonna scale? And these factions emerged in in Bitcoin, which I was very surprised by. And my initial reaction was like, all right, let me jump in there and try to help steer the industry um towards uh something that would create a global scalable payment system because you know, my my insp my motivation for starting Coinbase and our mission was to create an open financial system for the world.

• 11:50Speaker 0

  I just I thought like that would create more freedom and innovation and all these good things. Um and I saw Bitcoin sort of turning into like digital gold. It wasn't gonna work as a global payment system because it wasn't scaling. So I you know I flew to China to meet a bunch of the miners, um I went to some conferences and met a lot of the core core developers, and I I really kind of put out like a statement like, hey, I think we should move in this direction. And it turned out I totally I kind of totally overestimated my ability to influence the uh, you know, people weren't using logic, they were using emotions or tribalism or something. And um, you know, it didn't didn't go in that direction. So I remember there was a moment where it flipped in my mind, and I was like, oh wow, like we can't we can't just be a Bitcoin company because Bitcoin may not be the thing that creates the global payment network.

• 12:36Speaker 0

  It might just stay as digital gold. Um and I remember actually the moment where I I woke up, I was at this conference, and the next morning I woke up and I was like, oh

• 12:44Speaker 1

  man,

• 12:44Speaker 0

  Bitcoin's not gonna get there. And so I kind of went back to San Francisco and told the team, like, all right, we're gonna add more currencies. We're we're now a multi-currency platform. Um we started with Ethereum, uh, we now have five on there, and then we're gonna add a whole bunch more. But I think uh, you know, now I think of it as a slightly different mental model. So it's not TCP IP, that's one protocol to rule them all. Um there's gonna be a couple of these, you know, like Visa MasterCard discover or GIF JPEG PNG, if you want to use an internet analogy. And in a way that's good because it means there's multiple competing standards and you kind of de-risk any one of them becoming like this slow incumbent. Um in a way it's bad though because it means that um people who are new to cryptocurrency, they have to try to wrap their head around something that's more complicated.

• 13:30Speaker 0

  If everybody's getting into crypto is like, you know, like you always see it in Star Trek and Star Wars that are like, how many galactic credits do you get or whatever? Um so if it was everybody just used one system, that would kind of be simpler, but I guess it's not gonna be that. And so now we have this heterogeneous system with all this Cambrian explosion of new tokens and ideas and protocols, which is really amazing. Um but it's so it's de-risked it, but it means it's a little bit more complex and unappropriated. But you could

• 13:57Speaker 1

  imagine uh, you know, the one of the beautiful things about software is the way you can architect so many different interesting things. So for example, you could imagine a system where the end user deals with, let's call it a stable coin or whatever, Bitcoin or something else, has a single thing they deal with, and then maybe behind the scenes, these networks are you know are interacting using different tokens, and maybe it's you know moving across multiple networks, and each one is their trading tokens behind the scenes or something like that, right? So you could imagine like the ability to abstract away some of that complexity for the end user. Totally but still maybe get the benefits of it.

• 14:30Speaker 0

  Yeah. And that's been one of our goals, certainly at Coinbase is um I always tell the team our strategy is to be be the most trusted, like secure and compliant, and then build the products that are easiest to use. And so that that definitely falls into the easy to use category is like this technology is really powerful, it has all this potential to help the world. You know, how can we actually make it simple enough for the average person to get benefit out of it? And those kind of ideas, um, you know, like just abstracting away underneath can be really powerful. Like, you know, a great example is on a website, you go visit it, maybe it's sending JavaScript and CSS and HTML over the wire, but it doesn't really matter to the user, they're just seeing one thing.

• 15:07Speaker 1

  Yeah, I mean, one thing we should say in case this this gets on the internet, um, that uh I'm I'm a big, I think you'll say the same thing. I'm still a huge fan of Bitcoin. I have a Satoshi white paper on my wall in my office if you ever come to my office. Yeah. So for people on the internet, yeah. So we are

• 15:22Speaker 0

  pro-Bitcoin uh

• 15:24Speaker 1

  Twitter. Don't blow up my

• 15:26Speaker 0

  Twitter.

• 15:26Speaker 1

  So that said, Bitcoin changed the world.

• 15:29Speaker 0

  I wouldn't wasn't for Bitcoin. I

• 15:31Speaker 1

  want to talk about why Ethereum is so cool, right? Right, which is um so and and by the way, um I I I by the way, I consider I I think you probably are saying I consider ourselves like a crypto maximalist or innovation maximist. We are pro like all of these things, um, and we hold a lot of these things, and so just just to be clear, like we're not, you know, yeah, but I'm agnostic. Yeah, but um but um but uh but but the thing about Ethereum, so like Bitcoin does have a scripting language, um, but it's it's deliberately made to be kind of limited because for security reasons, which is you know the trade-off they decided to make, um Ethereum is sort of take the opposite attack, which is uh to have an incredible you know, a JavaScript like, you know, turn complete is kind of the you know computer science lingo uh language that's relatively easy, 10 lines of code, like and and that led to, for example, the ICO thing, which was really like it was literally it was one of their examples on their homepage was how to do crowdfunding.

• 16:27Speaker 1

  Um and so it's just very it's I mean relatively easy to get going. Um and that, and that I think, at least in my mind, I know what you think kind of helped kick start the 2015, 16, 17 kind of renaissance of crypto.

• 16:38Speaker 0

  I totally agree. Yeah. Yeah. I mean, that was a fundamental innovation on top of Bitcoin was um a more sophisticated coding language, which allowed these smart contracts and all these tokens and everything to get created, which has all kinds of implications we could talk about. Um, you know, what's cool is there's all these new, it's really a Cambrian explosion of ideas. There's um, you know, privacy coins, ZK snarks, um, there's people creating, you know, next generations of top of Ethereum, things that are even more scalable. Um so I uh it's exciting to see the amount of innovation in the space.

• 17:08Speaker 1

  Yeah, if you if you look at all the protocols we use in the internet today, they're all what, 30, 40 years old. There's been almost no protocol development. Um something that struck me was remember when there was the SSL Heartbleed bug, I think it was two years ago.

• 17:20Speaker 0

  Yeah,

• 17:20Speaker 1

  it came out in that process that it turns out there was like a half a developer who maintained SSL, which is just insane. Like it was like literally like some person part-time, right? So think about SSL, so SSL, you know, is the encryption, everything on the internet that's encrypted. Oh my god, like all the banking, like all your privacy, everything, and it's a half and that's because there's been no money and there's no business model for protocol. So the only business model was government funding, right? Back when TCP IP and all these things were, you know, DARPA funded all this stuff. And Google,

• 17:46Speaker 0

  Google charity from the AdWords, you know, money printing. Yeah, and so

• 17:49Speaker 1

  they'll give now I think after that happened, like Google and companies kicked into money to SSL and things.

• 17:53Speaker 0

  Yeah,

• 17:54Speaker 1

  but but one of the things going on now, right, is just like it's this golden age of protocol development. Um so Ethereum itself is you know has all this expressiveness and excited people, but then it inspired all these other, you know, like one at Filecoin or whatever, just like all these other people said, hey, maybe there's a business model for protocols. Um and that was something no one's thought about for 40 years or something. Um, not a lot of academics now have gotten excited about it. And so just like that that level of, I don't know, for me, it's hard not to get excited about all of that, you know, like fundamental computer science, like Dan Bonet, who works with us who's at Stanford, and uh, you know, he he feels like look, it's just like unlocked to like half of you know a whole new field for him, essentially. Um

• 18:32Speaker 0

  that's true. I remember you know studying computer science and being a software engineer, there was I don't think I'd ever met anybody who'd actually created a protocol until crypto, you know, there was there's like some esoteric fields of computer science. There's people who do like compilers and operating systems, but I'd never met anybody who'd created an actual protocol, and it wasn't until the Bitcoin protocol, I remember I really tried to dig into it when building the early version of of Coinbase, and I was like, wow, this is something totally different and new, and like learning all this binary codes they were encrypting in there and everything.

• 19:02Speaker 1

  Well, and if you did distributed systems would be the closest thing uh prior to to blockchain stuff, this the core assumption was you control or you or someone you trust controls all the computers. Right.

• 19:12Speaker 0

  Right.

• 19:13Speaker 1

  And so all the algorithms are all based on that premise. It's just like they're sitting in Google's data center and you're trying to like sync up your database or whatever, right? And so this is like now, let's now what if you take away that assumption? Like there's a whole new kind of design space unlocked, which is just also you know, just really cool from like an intellectual academic point of view. Totally.

• 19:28Speaker 0

  So

• 19:28Speaker 1

  anyway, so let's talk about now. So um, so now, you know, you've how how many employees do you have now? Uh

• 19:34Speaker 0

  a little over 500.

• 19:35Speaker 1

  And so um uh you've been going through this kind of rapid growth phase, and um have been, you know, kind of really, you know, hiring a lot of senior management um and kind of taking the company to kind of a more um uh you know, kind of uh just sort of the next stage of I guess the company's development or something. Can you talk about sort of some of the things you've been thinking about or learned from that or like lessons learned or

• 20:00Speaker 0

  Yeah, well, you know, at every stage of the company, something totally different has to happen, right? So initially you're in this room with 10 people and you kind of know what everybody's doing, and you're just working on a product and answering support, emails. Um and then you know get you get to 50 and you start to like not, you know, you need some layers of management, and you get to 100. And anyway, I mean, our our most recent one, we went from kind of like 150 to 500. And I remember, you know, some things change. So one thing is there's this uh you know, Dunbar number, I think it's called with 150 people. So once you cross that number, you stop being able to really remember every who everybody is, and some people in the office you walk by and you don't actually know their name for the first time. So that's pretty interesting. And then communication starts to be a challenge too, because um in a in a group where you know everybody, you can kind of just you know pass the word down and you know what everybody's doing, you can hold it all in your head.

• 20:49Speaker 0

  And when you cross that threshold, um, you know, now we're at 500. I don't actually know what every team, every single person, every team is doing, I don't necessarily know their name. And so there's a challenge in leadership, which is like, well, how do we just get everybody um moving in the same direction? And so uh that's where things like you know, values, um, your mission, your vision statement, um coming, you know, having communication channels to pass things through through through the company and say, okay, here's our Q4 OKRs. Um, we're gonna do this all hands meeting. I'm gonna make a communication to the leadership team, they're gonna tell all the first line managers and the second line managers that hey, we need to have this thing done. And so um that's a skill set that I've been learning. You know, actually I'm a big fan of uh executive coaching. That's something I advise a lot of uh entrepreneurs to do and CEOs, is um learning on the job, I think it's been really helpful for me to work with people who've previously been CEOs.

• 21:37Speaker 0

  Um, I have a board which is a really great as an advisory function, but I actually like to hire somebody to come in and like work with me on various projects too.

• 21:45Speaker 1

  I mean, one of the things is like just because you happen to start a company and you know, maybe found product market fit doesn't mean you've you necessarily know how to run a product meeting or how to just all this sort of blocking and tackling kind of basics. There's nothing wrong with that, right? Um I don't know, I find this a lot with especially with kind of inju uh entrepreneurs who used to be engineers.

• 22:03Speaker 0

  Yeah. Um

• 22:04Speaker 1

  I'm by the way, a huge fan of executive coaching, and like we do it ourselves, like we recommend it to everyone. I think it's just a fantastic thing if you can if you have the means to do it. Um because you learn about you know you learn your own your weaknesses, you kind of get your 360 kind of feedback. You know, it's like therapy. Yeah, yeah, it's like professional

• 22:19Speaker 0

  therapy.

• 22:20Speaker 1

  Um

• 22:22Speaker 0

  and um and but why but also why would you know this stuff, right? Like I

• 22:25Speaker 1

  mean, a lot of this stuff, right? I mean, just your background was mostly engineering. I mean, you worked at Airbnb, but like, you know, you know, it's just it's a ton of stuff to learn. There's nothing wrong with learning that. Um I mean having getting help learning that. So um so what so okay, so sorry, we're gonna go.

• 22:39Speaker 0

  I was just gonna say, I mean, for me, I think a lot of people like the founders, they like the early stage, they just want to focus on product, and that's fine. And then they they sort of move on to their next thing or hire a professional CEO or whatever. For me, I actually want to be a CEO, run a run a business, have it be enormous. Like, I'd like to run a public company someday. Um so for me, it was very important to go train and learn those things. And um

• 22:59Speaker 1

  you're very you're very deliberate about it. Like you do a lot of coaching, a lot of um seek out advice, like I mean, yeah. You're sort of very much you're very into kind of personal and professional development, is all right?

• 23:10Speaker 0

  That's right. And actually, one thing the board, you know, we we do 360 reviews, you've probably written a bunch for me. But um

• 23:15Speaker 1

  You always send he always sends NPS feedback after every board meeting. What can we do better in the board meeting every time you interact with Brian, you get like, how can I do it? It's great.

• 23:22Speaker 0

  Yeah, we have we have a good like two-way feedback culture. I tell the employees that too. I was like, the board gives me feedback too. So it's great.

• 23:29Speaker 1

  Um so let's let's talk a little bit more about so crypto. So uh perhaps people in the audience, some of them maybe are into it, some aren't. Um the ones that aren't a question I get a lot is you know, what is this useful for beyond um speculation, right? I mean, so far a lot of the frankly, you know, use cases have been kind of more speculative. Um that's clearly not why we're involved. Like what are the what are the end user applications to get you excited?

• 23:52Speaker 0

  Yeah, that's right. I mean, a lot of the the early ways that people get into crypto is often to try to make money or invest, but I think the potential of it is much bigger than that. And that's that's what we focus on a lot is trying to shift it to these um utility cases. So I don't my three kind of current favorite use cases um that I look I'm looking to are number one, it's emerging markets, right? So there's a lot of people out there uh who don't have access to any financial system whatsoever, and but they do have a cell phone now. That's actually described as about you know between one to two billion people in the world who have a cell phone but no access to financial services at all. And so um I'm really excited about that. In fact, you know, I started a charity that's making small direct cash payments to people in places like Venezuela with crypto, uh, which we can talk about.

• 24:36Speaker 1

  It's actually it's also technically it's a very good use case because one of the features of crypto is that the recipient can verify they got the money using just math and not having to ask a third party, which is how our existing payment system works, you ask a bank. Um and those billion people, it's roughly a billion, and you get a $15 Android phone now, that will come down, you'll be able to get a three dollar phone. It'll probably be like Benedict Evans, who works with us, comes up, he does all these studies on this. It'll be there'll be something, there's like three and a half billion smartphones, it'll be five billion, like just based on the price charts and everything. And a significant number, like it's a billion, two billion, don't have bank accounts, don't have ID, don't have any kind of government issued ID. Um so, yeah, I mean, I don't know, like what are the other theories for getting them into the economic system, right? I mean, you need to give, I mean, there's ca there's a cash-based economy, is like to get them online. This is a great architecture.

• 25:22Speaker 0

  Yeah. And that it's a great example where like crypto is providing something that's substantially like a 10x improvement over what their local system is doing. Um, another thing that I'm excited about is um it's like prediction markets, right? I think that's a really cool use case where you can have kind of the wisdom of the crowds all over the world, people can come in and you know predict like what will happen in various all kinds of questions in the world, who's gonna win this election, you know, um anything, and we can sort of source that data to get wisdom about the crowds. Um I'd say another area that I'm excited about is this kind of it's like social apps that we think of today, you know, Twitter, um, Reddit, Facebook, YouTube, but there's people building new versions of those apps where every upvote or like button is money being transferred. So you know, you could imagine a version of Reddit that people, it's global, and every upvote is money being transferred.

• 26:10Speaker 0

  And so there's people actually getting paid to like answer these questions or submit great content. And it's kind of interesting, like if you imagine the internet got reinvented, um, but now it has a native currency that's inherently global. Um, what would people do with that? And you you've talked about this, I think you you're very articulated on it, just saying the business model of the internet is like um since there's such a steep curve to get someone to put in their credit card, you know, you basically just um collect all this data on the on the customers, they're the product, they're not the customer, then you sell the exhaust of their data to advertisers, and that's kind of been the default business model. But if you can actually um move money around as easily as you can sending an email, then a lot of new business models get created.

• 26:53Speaker 1

  Yeah, and I think of it as you know, what the internet's done a lot of wonderful things. Um to me, one place has fallen short is um in figuring out a good way for creative people to uh to make a living, right? So writers and musicians and right. I mean, it's it's been uh you know, musicians and I don't know, people create video games and videos and whatever. Um it's uh yeah, there's exceptions. There's like you know, PewDiePie or whatever, like the top YouTube people and things, but for the most part, it it actually has been

• 27:24Speaker 0

  PewDiePie, I don't know. You know,

• 27:25Speaker 1

  it's like top I think it's top on YouTube. He's like a he's a yeah. So you're uh you gotta get more culturally uh up to speed here. Um he's like a uh video game commentator on YouTube. So yeah. Um so um so and he makes like millions of dollars a year. So that but there are and there are those exceptions and they get highlighted. But um, but you know, the vast majority for in on on average, like musicians, for example, um, writers and things, like it should be a golden period for them, right? There's four billion people, you can write something, and seconds later, four billion people can read that, listen to that. Um and I think the willingness to pay is there, it's the mechanism. So I think we saw that to me, like we saw that with the iPhone. I remember I was in the I was in the involved in investing in the video game business back before the iPhone, and it was just a it was a just a truism in that business that the only business model was either console games sold for 50 bucks or banner ads on your thing.

• 28:15Speaker 1

  And the iPhone made it super, super easy to do in app payments, right? And now, you know, Fortnite, 300 million last month, and like I mean, it expanded to other platforms, but like you know, Supercell is uh sold for 10 billion last year, all micropayments on the iPhone because it was easy enough because it was built in, right? And so I think about that too. Like, could you have models like that for writers, musicians or whatever? There's all sorts of interesting creative things.

• 28:39Speaker 0

  Yeah. Um

• 28:39Speaker 1

  and the idea that we're 20 years into the internet and it's like done and this is it, and it's just gonna be some ads, like that's the you know, that's the model. Um I don't know. I don't know.

• 28:48Speaker 0

  Yeah. Um, I totally agree. I think you're right. Like with crypto, I think you know, we're in the dial up phase where the internet it's kind of slow and clunky, and these, you know, you have like a webcam that looks at a coffee pot, and people are like, okay, that's the internet. There's like you know, blinking gifts or whatever. Um but I think crypto's in the same phase. So these are some of the things that are gonna have to come together, I think, for crypto to have that that iPhone moment. It's like we've got to get the scalability of the networks up. Um the volatility of the coins probably needs to come down, or stable coins, which is like this whole you know, area of research happening right now with like dozen teams is gonna be a really good one. Um I think the the developer tools probably need to get better, and I know that you know, like Unity, I think is working on this for for VR, and um just even just creating like a smart contract and publishing it is still really clunky.

• 29:38Speaker 0

  Um so the developer tools need to be better.

• 29:41Speaker 1

  Yeah, I I um I agree. I think that the uh, you know, it's it's uh to me, if you sort of compare at our firm, so at the you know, uh if you compare crypto to you know, I don't know, uh SaaS or like all the other kind of you know, or machine learning AI startups. Um I'd say it's at least as many like highly qualified teams come through our doors a week as any other sector, if not more. I mean, I'd think it's like something like if you just sort of take the kind of high quality teams, it's like 20% or something.

• 30:11Speaker 0

  Well, when you guys invested it, I guess it was 2013. I mean, how did you decide to get it like make a big bet on this? Because that was a contrarian bet at the time in a big way. And I remember, you know, we weren't much to look at. We were probably 10, 15 people sitting in an apartment. You guys are still in that apartment. Yeah, yeah. Um the uh you got it's funny. Um

• 30:33Speaker 1

  yeah, so I mean, my own thing, so I had started a security company uh back way back in uh 2004, which I sold to McAfee in 2006. And so I'd been computer security, I just always found it interesting, like because it's kind of technically interesting, and it's this kind of cat and mouse dynamic, and just I don't know, I'd always follow, and I still follow it pretty closely. Um, just think, you know, Bitcoin, of course, has hash cash built in. And so I'd follow actually it started, it's funny enough, like uh talking about why combinator Paul Graham was in Boston, my company was in Boston, and I pitched him, and I'd read his anti-spam blog post, and I was trying to had this whole idea to use like hash cash. It's funny, these same characters recur, and like Dan Bonet I'd pitch too, and all these other people, and but ha hash cash was so hash cash is uh is a core uh algorithm used in Bitcoin mining. Um but that that idea actually dates back much further, and it was and originally was this idea that um how why is there spam in the world um like email spam?

• 31:22Speaker 1

  There's email spam because the internet is it's a tragedy of the commons. The internet lets anyone send a piece of email for free, and so some people abuse that and send billions of emails, and as long as two people click on it, you know, it's enough to make uh make money because they're paying zero, right? And so the idea with hash cash was what if every time you sent an email, you had to solve a puzzle uh cryptographic puzzle.

• 31:43Speaker 0

  And

• 31:43Speaker 1

  that would be j and be just it'd be such a small number that um sorry, an easy enough puzzle that like a normal computer could do it easily and it wouldn't be a big deal, but the spammer would get killed. That was hash cash, yeah. And I tried to do like a startup around it or whatever, saying, but it's like really hard chicken and egg problem, how do you get the servers and you know, it's just couldn't figure it out, so it didn't do it. But I'd followed it, and then I remember when Bitcoin came out, I was like, oh wow, someone's trying to like extend on hash cash. Yeah.

• 32:06Speaker 0

  But

• 32:06Speaker 1

  like if I mean I'd love to say I was saw the future in 2000, I saw it read it like 2010, but I thought it was like super interesting idea, but I I don't know, I just thought of what are the odds of it actually people believing that it has value and getting traction. So I kind of put it back on the bookshelf or whatever, and then you know, and then you guys came along, I don't know, and just meeting you and seeing all the energy around it, and and meeting up to some of the it's the smart people on the weekends, like just kept meeting smart people. Yeah.

• 32:32Speaker 0

  And

• 32:32Speaker 1

  it was kind of this thing where like, I don't know, I think about it like if if the friends you have, like how smart are they, and how excited are they about this area. And every time I had people that weren't excited, I was like, wait, but but did you read this paper? And like, no, and like did you do the work? And like, no, and to this day I feel like that. There's so many straw man arguments against it. Like, did you actually do read about it? Like, you know, some people are skeptical and have read about it, so I don't want to say that everyone has, but but it was sort of this. I always look at this like is there a correlation between how much they've read and how kind of open-minded and intelligent they are and how excited they are, and it just sort of seemed like more and more of the really smart people kept telling me that and just getting that chatter and following it closely and reading the technology, and I don't know.

• 33:08Speaker 0

  But you I love your theory too, by the way, about um how people are scared of everything that's new. You know, you and I have talked about this a lot, because I that's actually one thing I didn't anticipate starting a company was like how much um negativity you would get out there, like on social media and stuff like that. There's this

• 33:22Speaker 1

  there's this book called The War on Fun, and there's a blog post about it. If you Google like chess is bad for you, and it's just you can just read the medium post. It's I always I love this medium post. Um, and it's uh literally in like I don't know, 1860, there was this whole scare across the United States about kids or staring, they're like zombies. They're staring at the chessboard, and they like go, it's like and it's like exactly what you read about people on iPhones now. And like Mark Andrews and always says this, he's like, yeah, to the outsider, it looks like you're staring at the iPhone. Inside, I'm like communicating with like the smartest people in the world, and like why would I be talking to you? Sorry, you know, like you know, it's like inside outside, like right? Um, and same thing, like chess, like we have anyone who's played chess knows like this is a super interesting game, and you're not like a zombie or anything else. But this book, this it's like a cartoonish book, but it goes through and it's like bicycles, cars, oh my god, cars.

• 34:08Speaker 1

  Like you go read about that stuff, and you had to like all these rules, you had to like stop the car if you saw a horse and take apart the car and like make sure the horse didn't get close to it, and they were all there was like, oh my god, you know, um, and then it's just like and then like Dungeons and Dragons was gonna like make all the the whole generation like Satan worshippers, and like it just goes through like literally every every generation accuses the the younger generation, whatever the X, Y, and Z things are excited about is going to destroy the world and kill them and make them all zombies. And so I don't know, maybe I'm too optimistic about this, but I've read enough of these things to kind of come around to thinking, I feel like there are bad things in the world. I'm not saying like you know, there aren't bad things, but but I'm just generally skeptical of the, you know, uh, oh, the kids are doing it, it must be destroying their minds and everything. I I don't know. Like I like YouTube is a good example. Like people say, oh, it's throwing their mind.

• 34:54Speaker 1

  Like I think YouTube is the greatest MOOC on earth, right? It's like it's a it's the best education system on earth. And like instead of sitting in a class and listening to two hours of stuff you already know and then five minutes of learning, it's just like boom, boom, boom, next, next. And it's like boom, you're learning, and it's like, think about it, it's like a you know, like it's like algorithmic teaching. It's like incredible.

• 35:13Speaker 0

  I don't know. I think

• 35:14Speaker 1

  I mean there's obviously things you can do that are waste of time, and not every and not everything's good and all this. But like on net, I believe these things are good, and I think the same thing is here. Like you can always find bad cases of crypto. But on, you know, if you dig into it and you see, like, of course, on net, this is going to be a very positive innovation for the world. I I mean I strongly believe that.

• 35:30Speaker 0

  Yeah, I think I've always wondered if there's something about human psychology, you know, like an evolutionary trait or something that it makes us kind of most people skittish about something that's really new, right? Like if you imagine the tribalism or you know, primitive human running around, it's like something really brand new most of the time would be dangerous or something like that. And uh just like anybody who's born, you know, I imagine there's all these knobs you can turn about are you left-handed or right-handed or whatever. And one of those is like how open are you to like new technologies or maybe new things generally? And so it's sort of a shame because I think I I personally believe like technology is the most important thing in the world improving the human condition in pretty much every field, whether it's like entertainment, medicine, education, whatever. Um, but there's a very few group of few set of people out there that are you know willing to go take brand new things and bring commercialize them and bring them into the world.

• 36:22Speaker 0

  Um and it's this rare skill set also of like you have to kind of be um maybe have the educational background to actually understand a little bit of what the potential is of this thing, but also like the communication skills to be able to talk to other people about it and kind of recruit enough people to come to your crazy idea and get your V1 out. And it's I mean, it's much easier now than it probably was 100 years ago, because there's things like all this great writing on the internet, and um, there's angel investors, you know, which 100 years ago there's probably was no such thing. So it's much easier now than it ever was, but I I think about that. Like, how can we get a thousand X as many entrepreneurs building commercial you know, cool new things with technology in the world?

• 37:02Speaker 1

  I think I mean the positive side too is all the things I just mentioned, right? Those things maybe outside of DD or something, they're all like very popular or pretty popular today or something, cars and all these things worked. So they eventually did break through. Um I think a lot of it is just requires explaining things, you know, evangelizing kind of, and then I think ultimately showing people people will really believe when they personally experience the utility, right? And that's that will be a critical moment for the crypto world, right? Is it when someone who's skeptical goes and has that moment that's sort of this magical moment that you know maybe the person, you know, the I don't know what the each person's magical iPhone moment was or something, but at some point you have that moment and you're like, okay, I can see why, you know, there's bad things, but this thing's also really cool, you know, and it made my life better, right?

• 37:47Speaker 1

  And and crypto hasn't gotten there yet, really, for most people.

• 37:50Speaker 0

  I think that's right. I mean, so there's only about 40 million people in the world today who have a little bit of crypto. Yeah, and most of them have gotten into it by buying a little bit as an investment. Um, you know, so it's how do we get to 400 million? How do we get to 4 billion? That's roughly half the world are about the amount that have internet access. So I think most of those people in the world, they don't have the you know disposable income to kind of invest in risky new technologies. They're gonna get crypto for the first time by you know completing some task or job because they want to earn money, um, or you know, a friend or a charity sends it to them, or there's a product or service they want to use where the only way to do it is like you know, to get crypto, so it's like, oh, I really want to play this game, or I really want to, you know, um upvote this thing on this social media thing, but I I don't really care about the crypto, but I'll go like get it really quick and put in my credit card just to get a little bit of crypto crypto to go use the thing I want.

• 38:45Speaker 0

  And then they'll slowly get into this ecosystem, and you know, more and more people will have a percentage of their net worth, like not just in their local fiat currency, like dollars, but hey, I have my my internet economy identity online or my gamer thing or whatever, and that's where I'm holding my crypto money, and by the way, all these crypto goods as well, you know, various things that I've picked up in various um like favorite artists or like in a game. And I think it'll flip at some point where it's like this this mentality shift of, you know, am I are you first is it you know, people have all different types of identities, right? Is my primary identity um you know, the school I went to, like, you know, this military thing, or is it the country I grew up in, or is it um like in a more global sense, like my identity is I'm a global citizen and I have this online identity, and maybe I maybe I uh feel a stronger sense of identity with like this Facebook group or like you know, why combinator or some kind of online community of people or like a Reddit, a subreddit.

• 39:40Speaker 0

  And I think that that mental shift for like there'll be a whole generation of kids that grow up that are sort of like digital natives, and um their online identities may actually be more important to them than like where they're geographically located um in any given moment. Thank you for being um an awesome board member. I feel like you've you've taught me a lot, and you're like one of the best visionary. In um technology, so thank you for inviting us be investors. Thank you all for coming.