Jonathan Levin, Co-Founder of Chainalysis: Catching the Bad Actors in Cryptocurrency

Jonathan Levin is Co-Founder of Chainalysis. In this conversation, Jonathan and Anthony Pompliano discuss how to build a startup, what it's like to pitch a Silicon Valley Venture Capital Fund, why Chain Analysis tools are important, what the bad actors are doing in cryptocurrency, and how Chainalysis is being used to catch them. ----- Join the Off the Chain newsletter. Pomp's daily email analyzes the crypto market for institutional investors. Simply, it’s the best crypto newsletter delivered to your inbox every morning. No frills. No bullsh*t. Just everything you need to know in a 3-minute read. https://offthechain.substack.com/ ----- ZenLedger simplifies crypto taxes for investors and CPAs. We provide the best software for importing crypto transactions, calculating gains and income, and auto-completing tax forms like 8949, Schedule D and FinCEN. If you had losses in your crypto investments, ZenLedger can help you save up to $3,000 on your income taxes, with our tax loss harvesting tool. ZenLedger is also a TurboTax partner and has the best support for EOS owners. Finally, a simple tax tool that saves you a ton of time and headache! Visit Zenledger.io/OffTheChain to get your taxes done with ease, and as an Off the Chain listener, save 20% of your 2018 tax forms! ----- Totle is a rare blockchain investment opportunity, one that offers a live product, active customers, an established revenue model. Totle solves three significant problems with blockchain asset exchange: 1) Security 2) Complexity and 3) Pricing. Over $4 trillion of blockchain assets were exchanged in 2018 and growth is forecast for at least the next 10 years. Totle’s sophisticated platform powers the blockchain economy with safe, simple decentralized asset exchanges at the best price for traders, wallets, businesses and other financial apps. Totle’s B2C Web App and B2B API are live and serving customers today. Visit totle.com/pomp for more info. ----- If you enjoyed this conversation, share it with your colleagues & friends, rate, review, and subscribe. This podcast is presented by BlockWorks Group. For exclusive content and events that provide insights into the crypto and blockchain space, visit them at: https://www.blockworksgroup.io

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:01Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off the Chain, simply the best podcast in crypto. Let's kick this thing off.

• 0:13Anthony Pompliano?

  Jonathan Levine is the co-founder of Chainalysis. In this conversation, we discuss how to build a startup, what it is like to pitch a Silicon Valley venture capital fund, why chain analysis tools are important, what the bad actors are doing in cryptocurrency, and how chain analysis is being used to catch them. I really enjoyed this conversation, and I hope you do as well. Alright guys, before we continue with this episode, a quick word from our sponsor ZenLedger. For all you accountants and crypto investors out there trying to get through this bear market, ZenLedger is a fast and simple tax reporting tool that saves you a ton of time and headache. Ain't nobody like dealing with their taxes, so let ZenLedger do it for you. You can learn more by visiting zenledger.io/offthechain to get your taxes done with ease. And as an Off

• 0:58Anthony Pompliano?

  the Chain listener, you'll save 20% of your 2018 tax forms. That's right, listening to this podcast makes you smarter and saves you money. I got you. One more time, that's zenledger.io/offthechain. Boom, another ad. Total. Total's sophisticated platform powers the blockchain economy with safe, simple, decentralized asset exchanges at the best price for traders, wallets, businesses, and other financial apps. That was a mouthful. They do a lot. Similar to using Kayak for finding the best flights, Total's platform aggregates decentralized exchanges and optimally routes trades for execution. They've got a simple API and it eliminates the need for any business partners to understand the fragmented decentralized exchange landscape, and it integrates with

• 1:42Anthony Pompliano?

  many exchanges and protocols. Total. It looks like toddle, but it's spelled total. They got the whole misspell the name on purpose to sound cool. So total is T-O-T-L-E.com/pomp. Go check it out, totle.com/pomp. When you go, take a screenshot, tweet it to me, I'll drop you some fire emojis, they'll be happy, you'll be happy, I'll think I'm cool. It's a win-win-win all around. totle.com/pomp.

• 2:10Speaker 01

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

• 2:37Anthony Pompliano?

  Let's go through your background and then we could talk about how you got into crypto and then we could talk about chain analysis and what you're building there and everything.

• 2:45Speaker 02

  Sounds awesome. Thanks for having me. We're just down the road in Union Square. So it's not too bad.

• 2:51Anthony Pompliano?

  Union Square in Manhattan is becoming like crypto like head HQ of Manhattan, isn't it?

• 2:58Speaker 02

  We should, we should start like an open cry Bitcoin market in Union Square. Take over, take over the farmer's market and start an open cry market. So I-

• 3:09Anthony Pompliano?

  There will be people there for sure.

• 3:11Speaker 02

  I, I actually got, I'm from the UK, from London originally. I got into cryptocurrency 2012, 2013. I was studying economics at the time and really I came in like Nouriel Roubini. I was super skeptical. Dr. Doom saying that crypto is never going to work. Bitcoin has all these flaws. There's no way that it could ever take off. The mining incentives are all out of whack. And yet I consistently got disproven time after time. And eventually I said, well, maybe economists aren't the best people to understand a technology that's transformative for the status quo.

• 3:55Anthony Pompliano?

  Probably a good idea.

• 3:56Speaker 02

  So essentially I was, I was in Oxford at the time. I went to the pub, had a beer with my friend Tom and he was running a cybersecurity company at the time. And he said, we need to start arbitraging between Mt. Gox and Bitstamp and Bitcoin. I was like, Tom, I don't even understand what you're talking about. And after that, I sort of fell down the rabbit hole. I started doing the first fundamental economic research on Bitcoin. So I started understanding- Yeah. How are miners incentivized to broadcast transactions and secure the network? And I really wrote some of the early academic work. But I fundamentally believed that there needed to be a company that actually tracked

• 4:39Speaker 02

  how and why people were using this technology. And I thought that the company that knows the most about how and why people use cryptocurrencies is going to be one of the most important companies in this ecosystem. And that's the only way that it can actually go mainstream. And the lack of information, I used to go to these, did you ever go to those cryptocurrency conferences where people would put pictures up on of like flying cars and, you know,

• 5:05Anthony Pompliano?

  The future.

• 5:06Speaker 02

  The future, the future is here. But I said, well, this is meant to be an open financial system. Someone needs to be putting out graphs. Someone needs to understand, you know, what is actually being used? What is actually the state of the market? And so I set off on this mission to essentially build a company that knows the most about what happens on the blockchain.

• 5:28Anthony Pompliano?

  Okay.

• 5:29Speaker 02

  So that was, that was a, it was a bedroom idea. I sort of went off and started a company called Coinometrics.

• 5:36Anthony Pompliano?

  Coinometrics.

• 5:37Speaker 02

  This is, yeah, Coinometrics. This is back in 2013.

• 5:41Anthony Pompliano?

  Okay.

• 5:41Speaker 02

  Started a company, met my co-founder on Reddit. Okay, don't do that.

• 5:48Anthony Pompliano?

  This is a, this is a classic crypto story already.

• 5:51Speaker 02

  Yeah. This is my, this is my early crypto, crypto experience. And then eventually that, that company didn't work out.

• 5:58Anthony Pompliano?

  Okay.

• 5:58Speaker 02

  But was still obsessed with this mission and knew that there needed to be a team out there that would be able to build this. So joined forces with Michael Gronniger and Jan Müller to form Chainalysis. And that has been what we've been doing for the last four years.

• 6:12Anthony Pompliano?

  Okay, so before we get into Chainalysis, what you guys are doing today, you guys just raised a bunch of money, et cetera. Let's talk about building companies, right? You know, on Twitter, you talk a lot about, hey, here's some of the things that founders should be thinking about. Here's how to present and pitch, all of that. Maybe let's just go through literally the kind of early days of a startup. So around ideation and once you have an idea, I think this would be interesting, kind of those first couple of steps to go test that idea. Maybe just talk a little bit about how you think about that, what you've seen people be successful and maybe some of the pitfalls as to what not to do.

• 6:46Speaker 02

  Yeah, so I think, again, for us, it started with an idea. And that didn't actually start with. Exactly who we were solving that problem for. Hmm. So I was, I sort of had this big idea that there needs to be a company that organizes the blockchain information, layers on a layer of intelligence and gives that to people, for people to understand what's going on in this ecosystem. But that's not solving a problem for anyone. And what you need to do as a startup is start with a targeted focus on like a clear problem statement where you can test certain hypotheses. And what we found was, our hypothesis was when we came to the US in two thousand and

• 7:28Speaker 02

  fifteen and we went through Techstars, we wanted to prove out that actually we could get a global financial institution to actually use our software to be able to onboard cryptocurrency businesses. Okay. So we actually. Just one. We just said like, if we could get one, if we could get one global bank to, to get to a point where they have the onboarding procedures to onboard a cryptocurrency exchange, then we are actually going to prove out that this is going to be a significant business in the future. And so that was one of the hypotheses that we need to prove. And when you're building a company, what you want to be doing is writing down those hypotheses and proving those out and meeting those objectives, which takes you to that next stage.

• 8:12Speaker 02

  So we said, if we can do that, we can raise some money from investors and then take it to the next level. Hmm. So for me, it's about getting clear on what is that initial target market? Who are you solving a problem for? Writing those things down and then proving that, those hypotheses over time. Hmm. And when you do that, you can actually explain to investors that you're going to prove out these three things that then take the company to its next inflection point. And that's where an investor is going to say, actually, it's going to take you a million and a half. It's gonna take you a million and a half dollars to get to that point to prove those hypotheses to access this market opportunity.

• 8:54Anthony Pompliano?

  What you're describing, it's funny because I probably describe it a little bit differently, but it's actually the exact same thing. Where most founders who are unsuccessful, what I've seen as a commonality when it doesn't work out is when you do kind of an after action review. And you look at, you say, what did you do and why didn't it work? There's usually not a fanatical focus on one single thing, right? So for you guys, get one institution to do this, right? And once you get one, then we'll figure out what to do from there. But if we can get one, we got a shot. If we can't get one, we're dead in the water. So kind of a very specific goal that's easily measurable, that's very concise, clear, et cetera. And that you can actually articulate to other investors.

• 9:39Anthony Pompliano?

  And then two is when fundraising, not only being able to describe that mission or that goal, but two is

• 9:50Anthony Pompliano?

  I usually see folks say, I want X dollars, or say, lead with the money. And then they get asked, what are you going to do with the money? And what they describe are the actions that they are going to take. I'm going to hire people, I'm going to spend on marketing, I'm going to do whatever. Instead of what they probably should be doing is describing the milestones they will hit with the money.

• 10:11Speaker 02

  Correct.

• 10:11Anthony Pompliano?

  Right? And I think that's what you're describing here that's super valuable.

• 10:14Speaker 02

  Yeah, so I've been, I've been mentoring on the blockchain tech stars program in New York.

• 10:19Anthony Pompliano?

  Very cool.

• 10:20Speaker 02

  And really what that is about, especially for a thematic accelerator like blockchain or crypto, there's not a generic problem that you're solving there. What you want to do is get like really tight on a market opportunity to, to say that that's what you're going after. And you're, you're going to leverage this technology. And so what I like is saying, you know, we are going to take a million and a half. We're then going to seed our marketplace. Maybe it's on the demand side or the supply side. And if we can seed that on the demand side, for example, then we can raise additional capital to attract supply or, or the other way around. So the, the key is to be clear in what are the, what are the key things that you need to prove out in order to make a massive company?

• 11:05Anthony Pompliano?

  I usually talk about this as a video game, right? So many people probably heard me use this analogy, but when you're playing a video game, you start on level one or round one, right? And you can't go from round, uh, level one to winning the game. You have to beat the first level and then you're allowed to play the second level. And once you beat the second level, you go to the third level, fourth level, fifth. But you have to be successful at each level in order to win the opportunity to go to the next level. And eventually you win the game, right?

• 11:33Anthony Pompliano?

  Company building, fundraising, sales, it's all very similar.

• 11:37Speaker 02

  So we actually have a value at Chainalysis that we call radical gradualism.

• 11:41Anthony Pompliano?

  Ah, okay. Tell me more about this. I like this.

• 11:43Speaker 02

  So, so our view is that if you're going to get into cryptocurrency, you don't believe that the state of the world is going to continue just being the status quo.

• 11:54Anthony Pompliano?

  Yep.

• 11:54Speaker 02

  Right? There has to be.

• 11:55Anthony Pompliano?

  You believe in change.

• 11:56Speaker 02

  You believe in change. You believe in something potentially radically different, right? And yet what Chainalysis does is it serves the world's leading institutions that exist in the world today, that govern our financial system, that take care of society. And we serve really important global institutions. And so they are going to gradually adapt and adopt this technology. And really what we want to be able to do is have that radical gradualism. Someone who's got to, someone who's going to see what that, what that end boss looks like, but understand all the levels that you need to take in between.

• 12:31Anthony Pompliano?

  And it's really the belief that, um, you know, tokenize the world. That probably happens at some point in the future, not happening today, not happening tomorrow, and not happening this year, right? In terms of the whole place. And so it's, you know, how much did you guys think about when you first started? Okay, we want to get one financial institution to use this. Did you have a good sense of what they would use it for? Or what that like first, you know, really specific use case would be? Or was it more the goal is to get one institution to use this? Let's go talk to a bunch of them and figure out what they need and then build it for that need? Like which path did you go down?

• 13:05Speaker 02

  So actually, we had a lot of experience internally of the problem set that we were trying to solve. So Michael, Michael was a co-founder of Kraken. And he was the chief operating officer. And his job was to go knocking down all the bank doors to try and get bank accounts. And what Michael found was that that was a pretty tough ask in. Two thousand thirteen, uh, two thousand fourteen.

• 13:27Anthony Pompliano?

  Yep.

• 13:27Speaker 02

  And so he decided that actually there needed to be a set of tools that were available to both the cryptocurrency businesses, but also the banks, to bring them together to be able to put in place controls and allow cryptocurrency businesses to get bank accounts

• 13:44Anthony Pompliano?

  Mm hmm.

• 13:44Speaker 02

  uh, at these financial institutions. And so our hypothesis from the beginning was Chainalysis is the company that bridges the gap between cryptocurrency businesses and financial institutions.

• 13:58Anthony Pompliano?

  Got it.

• 13:59Speaker 02

  We're going to build critical infrastructure so that cryptocurrency businesses like Kraken can get bank accounts at places like Barclays.

• 14:08Anthony Pompliano?

  And, and part of this is, um, that kind of radical gradualism, which I, I love that term. Kraken or another digital currency or cryptocurrency exchange would love to not have a dependence or a kind of a single point of failure with the legacy system, but they still need it.

• 14:24Speaker 02

  Yeah.

• 14:25Anthony Pompliano?

  And we've actually seen, um, I think it's India where, uh, last year the government came in and rather than go after the crypto companies, they said to the legacy financial institutions, you are not allowed to work with cryptocurrency companies or individuals that, that, uh, have money from cryptocurrency. And if you think about kind of a two-sided, um, you know, market to some degree of, of participants, going after the people who operate in a regulated world, who are going to listen to the government, right, for sure, is actually the better strategy than going after the crypto companies, right?

• 14:57Speaker 02

  So actually, this is actually how almost all financial regulation works. So essentially the government can't invest enough money and personnel to monitor all of the different financial transactions that are going on in the world. What happens is they write regulation that deputizes the financial institutions in order for them to monitor and comply with those regulations to protect the integrity of our financial system.

• 15:26Anthony Pompliano?

  Mm hmm.

• 15:26Speaker 02

  And so cryptocurrency is no different. And in fact, the, the regulations have in the U A, in the U S and, and actually Increasingly around the world have pushed the responsibility on the financial intermediaries. So those are the exchanges, the merchant services and those types of businesses in the cryptocurrency ecosystem. They push on those in order to for them to monitor the riskiness of their clients and the transactions that are going through. So really, the whole of financial regulation is set up in a way that the banks are sort of in our ecosystem are like the de facto regulators. They they are they are explaining to people what is possible and what's not possible.

• 16:09Speaker 02

  So our our hypothesis is if we can give banks the approach, the operational software so that they can monitor cryptocurrency businesses, then our cryptocurrency businesses will be able to access the financial institutions.

• 16:26Anthony Pompliano?

  That that makes sense. Let's um before we go talk specifically about the company, uh pitching investors. We talked a little bit about kind of once you've got the idea, what's the best way to kind of go test that idea and gain traction. You guys now have raised multiple rounds of funding.

• 16:38Speaker 02

  Yeah.

• 16:38Anthony Pompliano?

  Uh, and some of it comes from angels, some of it comes from some of, you know, Excel and and kind of Silicon Valley type tier one firms.

• 16:49Anthony Pompliano?

  First, let's just talk about in general how you approach pitching investors. And then let's talk about the difference between, you know, kind of individual high net worths versus a Silicon Valley firm.

• 16:59Speaker 02

  Yeah, sure. So we, I would say, split it out between the rounds. Raising growth fund capital is very different to raising your first check. And and really, when it came to chain analysis, we had to, we were raising our seed round in two thousand and fifteen.

• 17:16Anthony Pompliano?

  Okay.

• 17:17Speaker 02

  If you remember, two thousand and fifteen was not a fantastic time to be raising money for a cryptocurrency business.

• 17:24Anthony Pompliano?

  Yep.

• 17:24Speaker 02

  And so the story that we really needed to be able to tell was that Chainalysis actually works with stakeholders that are outside of the cryptocurrency ecosystem. We're not purely dependent on cryptocurrency to be successful. So our story in two thousand and fifteen was really around how we're building a solid SaaS company. And we have a big market in the government space, even if you don't believe that cryptocurrencies are going to take over the world and we're going to tokenize everything. And so. The initial investors, one, one consistent theme is can you explain your addressable market?

• 18:05Speaker 02

  Can you, can you really help an investor wrap their head around everyone who's going to use your product in the future? And explain how you have a big enough total addressable market? And so for us, a lot of the challenge in the early days of chain analysis was to explain that just considering the government market, we have a massive opportunity. And so I would say for people who are raising their first sort of round of funding, again, get really targeted with the idea and the hypotheses that you're trying to prove, but make sure that you have a good story about how that ends up being in a massive market where you, you've got a real shot at gaining a good share of that. So that's, that's, that's sort of the key.

• 18:49Speaker 02

  I would, I would say, look at, it's about, it's about running a process. It's about making sure you've got a target list of investors that you think are going to be, who are going to see the way you see the world and connect with that. We had to pitch seventy people to get our seed round done. Because at the time, it was a pretty contrarian view that cryptocurrency were going to be a big thing.

• 19:13Anthony Pompliano?

  For sure.

• 19:14Speaker 02

  And that, that has changed over time. And, and as we've developed as a company, our metrics and traction just speak for themselves. And really it's about comparing ourselves to the leading SaaS businesses out there. Like when we're fighting for investors or we're fighting for talent, like we're competing with the best companies in the enterprise software market. So that's how we think about it.

• 19:39Anthony Pompliano?

  Do you remember how many investors you guys had in the first round? Or like what the average check size was?

• 19:44Speaker 02

  So we actually did a, we, the average check size was, so we had a lead that, that led sort of the majority, but. We also had smaller investors writing a hundred, hundred K checks, two hundred fifty K checks. And that, that really helped begin the process. So we actually went out, closed a few notes, convertible notes, and that led to the momentum to be able to actually close the seed round.

• 20:12Anthony Pompliano?

  Somebody once told me that as you are fundraising, getting one check, doesn't even matter the size, anything, once you take the one check, everyone else believes this is happening, right? Doesn't mean that you're going to raise the round that you want to raise, doesn't mean it's going to be from the people you want to raise, but they know you have now taken money and there will be a round of fundraising, even if it's just that one check.

• 20:31Speaker 02

  A hundred percent.

• 20:32Anthony Pompliano?

  Right? And so it's, it's building the momentum. And I, I think a lot of people, especially those unfamiliar with Silicon Valley or New York, LA tech scenes, they think that the best way to raise money is to go raise millions of dollars in a single shot from one or two firms. Most companies don't start that way. Most companies actually start with small checks from people you know who frankly, might not even believe what you're going to do is going to be successful. They're betting on you, right? And then they're saying, look, you're a smart person. I trust you. I know you, and I'm going to bet that you can go figure this out rather than, oh, this is a great company and I think it's super de-risked and let me go put money in because all you need is to just keep doing what you're doing.

• 21:12Speaker 02

  Yeah. I mean, early stage, you've got, you've got to believe in the team. I think the, the other thing about that is some of those people actually are going to really be helpful to your business, right? Like if you are starting a healthcare business, getting a few of those entrepreneurs who've been successful, who've scaled those businesses, getting them in early and giving them a bit of equity can really help you along the journey.

• 21:37Anthony Pompliano?

  For sure. Okay. And then any anecdotes or kind of advice for people around specifically fundraising, pitching Sand Hill Road firms, especially being a crypto-based company? I mean, you guys went and raised money in the heart of a bear market, right? So kind of 2015, you did it to yourself and then you came back from more in 2018. It probably was a little bit easier just because you had some metrics and stuff that you could really kind of talk about and it was less about do people believe in crypto? And now it's more about is your business something that we think can grow exponentially from here? But talk about, you know, just kind of your strategy and what you guys learned along the way.

• 22:13Speaker 02

  Yeah. I mean, I think that the, in our last round of funding. Even now, what we're looking for is institutional investors who have strong conviction on the market.

• 22:24Anthony Pompliano?

  Hmm.

• 22:25Speaker 02

  They they do need to have a cryptocurrency thesis. What we what we really optimized for was someone who understood cryptocurrencies, understood our enterprise software go to market and and really could help us develop operational excellence. That's really what we need at this stage of our business. What happened with Benchmark in our Series A was we were pitching up and down Sand Hill Road. A lot of that comes from having good metrics and being able to get those meetings. But really, that's how you operate a process where you get everyone on to the same page at the same time and drive that, you know, sense of urgency among those investors.

• 23:08Anthony Pompliano?

  Hmm.

• 23:09Speaker 02

  Those investors are are pretty much like any others in the world, like operating on a sense of FOMO, operating on, am I going to lose this deal? Is this is this really something that I want to let slip?

• 23:20Anthony Pompliano?

  Hmm.

• 23:20Speaker 02

  And so we we found Sarah Tarvel early in our process and actually, as someone who operates with strong conviction, she came very fast through, understood all the intricacies of our business and moved us very quickly through her process that got us in front of the partnership very quickly. That's when you know you've got a hot iron and you're going to strike.

• 23:47Anthony Pompliano?

  Absolutely. Um. Do you remember how long the process was to raise the Series A, just in general?

• 23:52Speaker 02

  So our Series A was actually very short.

• 23:54Anthony Pompliano?

  Hmm.

• 23:55Speaker 02

  We, from meeting Sarah to closing that deal was less than a month.

• 24:00Anthony Pompliano?

  Wow.

• 24:01Speaker 02

  Yeah.

• 24:01Anthony Pompliano?

  That's incredible speed.

• 24:03Speaker 02

  So that's, so when you meet an investor that has that level of conviction, that, you know, Benchmark is a really unique firm, has just general partners and really.

• 24:16Speaker 02

  Sarah did a lot of the work herself to do the due diligence, spoke to us individually, understood what was going on in the crypto market already and had a strong conviction that actually this is what she calls a meat and potatoes company, really like critical infrastructure for their entire thesis. That was easy for them to actually get convinced that this was a great deal.

• 24:43Anthony Pompliano?

  Got it. Let's talk about what you're actually doing. So all these investors are excited, right? They've given you quite a bit of money to go and build a really large software company. What exactly do you do on a daily basis for customers?

• 24:57Speaker 02

  So Chainalysis provides anti-money laundering compliance software for cryptocurrency businesses and financial institutions. We also provide investigation software for law enforcement to prevent money laundering in cryptocurrencies.

• 25:11Anthony Pompliano?

  So let's talk about the criminals first, the bad people, right? What are they doing with crypto? What are you guys seeing? What are some of the tactics that they're trying to leverage in order to get around regulators or law enforcement? Let's talk about what they're doing and then we can talk about how you guys actually then back into preventing this or catching them doing it.

• 25:32Speaker 02

  Yeah, so I'll give a little history and people have probably read that Bitcoin's used in the Silk Road and, you know, it's only for the dark net and stuff like that.

• 25:44Anthony Pompliano?

  It's like they've never heard of US dollars, right?

• 25:47Speaker 02

  Right. So essentially, in certain stages of Bitcoin's history, in 2012, there were weeks where Silk Road was 30% of all transactions on Bitcoin. That was an initial use case of Bitcoin was the use in the dark web for drug trafficking. And that's really something that law enforcement got interested in and has been actually really successful in going after the administrators and vendors of these marketplaces. And what we found is that we could have

• 26:26Speaker 02

  We could provide the visibility into how those marketplaces were moving those funds. So that law enforcement could actually track down who was moving the majority of that those funds. Where were they cashing out and then moving from those venues into real world people? And and really disrupting that activity. And in the early days, it was cybercrime and drug trafficking, which was sort of the main illegal uses of cryptocurrency. As cryptocurrency becomes more ubiquitous, as more and more people use cryptocurrency, it really starts to touch every aspect of society.

• 27:08Speaker 02

  Like, you can't get surprised when someone robs someone's house at gunpoint. And they're looking for not just the cash, but they're also looking for cryptocurrency. And we've seen child abuse material and we've seen human trafficking and we've seen cryptocurrency touch national security programs. And even, you know, exchange hacks and stuff like that. And that really, as cryptocurrency becomes more more like the US dollar, it gets used for a whole variety of things. And so what needs to happen is the actors who are responsible for compliance need to have the software available for them to prevent that activity.

• 27:51Anthony Pompliano?

  And is most of the criminal or nefarious activity, it is true money laundering? Or is it people are using this as a medium of exchange to buy illegal things, do illegal things? Like, is it everything? Is it money laundering is like eighty percent of what law enforcement thinks people are doing bad things with? Like, just walk me through kind of how that happens.

• 28:17Speaker 02

  Yeah, so I would, it's a great distinction, right? And for listeners, let's just make sure that we know what we're talking about. So there are money laundering charges that get brought against people who are using cryptocurrency to buy goods and services, because the using laundering those proceeds of crime is money laundering.

• 28:42Anthony Pompliano?

  It's basically making money by committing a crime, then taking that money and going and buying a legitimate good or service. What you're essentially doing is you're trying to wash that capital back into the system without it being. Assigned to you anymore.

• 28:57Speaker 02

  Yeah, so, so we have a lot of what the focus is in, in law enforcement is on crime that, well, I would say crime that emanates from cryptocurrencies. So that could be ransomware. That could be darknet markets. That could be child abuse material for sale for cryptocurrency. That is a lot of the cases that we see is focused groups that are targeting, you know, how do we disrupt illegal activity that is being facilitated by cryptocurrency? Then, you know, a lot of our, a lot of

• 29:36Speaker 02

  the use of our software also gets used in money laundering cases, which have some nexus with cryptocurrency.

• 29:43Anthony Pompliano?

  Got it.

• 29:44Speaker 02

  So you have, you have basically a person who was laundering money yesterday. Um, say, say they were running a money laundering business in some part of the world. You would have them who were offering suitcases of cash yesterday. They now could be offering suitcases of cash and Bitcoin or whatever cryptocurrency today.

• 30:09Anthony Pompliano?

  Got it. Okay. And so as people are doing this, how do you guys go about the technology? Um, identifying this activities, uh, reporting the activity or even stopping it?

• 30:21Speaker 02

  Yeah. So we actually don't do the monitoring ourselves. We provide the software that enables law enforcement to do investigations and to go after that activity.

• 30:32Anthony Pompliano?

  Okay.

• 30:32Speaker 02

  So we have spent four years training law enforcement, educating governments around the world who are looking to target this type of activity and they, they come in usually after the fact and are looking to disrupt that type of activity. The exchanges though are now under an obligation to monitor the use of their systems. And actually we can prevent them from facilitating money laundering in real time. We have a product called Chainalysis KYT, Chainalysis Know Your Transaction, which essentially allows

• 31:12Speaker 02

  Businesses like exchanges to monitor in real time the transactions that they are receiving and sending on the cryptocurrency side and know whether they're about to deal with a dark net market or potential terrorist financing or something potentially illicit. So we're looking really for the activity and looking to see whether the users of the cryptocurrency platforms are sending or receiving money from those types of activity.

• 31:41Anthony Pompliano?

  Got it. And when you give, let's talk about the law enforcement side first. So when you give that software to law enforcement, this is like a traditional SaaS product, right? They go on, they've got some software, they can probably target certain searches or filter and all that kind of stuff. Are many of them going and doing what I'll call more targeted searching, meaning I think that you did something wrong and now I'm going to go try to figure out what you did and where it is on chain and all of those transactions? Or is it more broad to begin with where they're saying, I think that there's some kind of activity, I don't know who's doing it, and so I want to back my way in from a broad search down to identifying the individual transactions that actually broke the law?

• 32:27Anthony Pompliano?

  So do they start small and go large or do they start with a broad search and then go more targeted?

• 32:32Speaker 02

  There are definitely both. I would say both come from in general complaints. So victims. So where are the victims? So if you have ransomware, someone then should report that to law enforcement. Law enforcement will take that address that is associated with that ransomware, they'll plug it into Chainalysis and start an investigation. The nice thing about what we do is we take all cryptocurrency transactions, we then associate which ones of those are done by the same entities. And so maybe you report a small ransom payment that you had to make to unlock your computer. You pay into that, what Chainalysis does is it connects that payment to all the other

• 33:17Speaker 02

  victims. And so that can then, law enforcement can then take that payment and build it as part of a much larger investigation. So this comes up all the time when. You know, I don't know whether this has happened to you or some of the listeners, but say, for example, you get fished and there's some stolen funds and it's one Bitcoin or it's half a Bitcoin. What's important is that that goes reported because the nice thing about cryptocurrency is that there's a degree of transparency. And actually, law enforcement is gonna, is gonna be able to triage and say, well, you know, usually a $500 ransom payment isn't enough to get the FBI interested. Like, that would sit at the local office.

• 33:59Speaker 02

  But really, what Chainalysis allows them to do is to aggregate that and see, you know, which other victims are involved and maybe that fits into a much larger case. So that, a lot of times, they're working from that type of information, but sometimes they're also working for, you know, what are the major targets that we're, that they're interested in? Is it a child abuse material site? And then they'll start from the site and they'll build, they'll build out from there.

• 34:25Anthony Pompliano?

  So, um, one thing that I hear a lot when I go and I talk to institutional investors is, uh, they usually say, well, isn't this stuff really hard to track or, or is it illegal? All that. Uh, and we can, you know, pretty quickly describe to them, no, look, there's actually a transparent, public, immutable record of every transaction, so probably not the thing you wanna do or use if you're a criminal. Um, and then they usually bring up a question of, okay, great, so you understand the wallet address, which is a pseudonymous, uh, locator or identifier. How do you find who the person is behind that wallet address? Right? And I think that, obviously, if law enforcement knows, oh, somebody sent money in a nefarious activity to this wallet, that's step one. Step two, though, is who owns the wallet?

• 35:08Speaker 02

  Right.

• 35:09Anthony Pompliano?

  And it's not like they can call up a bank, right? And say, whose bank account is this? Cause it's a wallet. Where does that come in? Right? How, how do they normally navigate that to try to, um, get closer to stopping people from doing things that they shouldn't be doing?

• 35:23Speaker 02

  Sure. So. Again, the obligation sits mainly with the intermediaries. If it sits with the exchanges for them to monitor what their customers are doing

• 35:35Anthony Pompliano?

  Okay.

• 35:36Speaker 02

  on their platforms. And so if their customer is about to send to an address that is potentially nefarious, or Chainalysis has identified this activity as being high risk, then actually the exchange can prevent that activity in real time.

• 35:52Anthony Pompliano?

  Hmm.

• 35:52Speaker 02

  Or if they can't prevent it in real time, and they notice after the fact, they can then report that to law enforcement.

• 35:59Anthony Pompliano?

  Hmm.

• 35:59Speaker 02

  And when they report it to law enforcement, they send not just, "Hey, one Bitcoin went to this nefarious address."

• 36:07Anthony Pompliano?

  Hmm.

• 36:07Speaker 02

  They'll send, you know, "This person who lives at this address, who sent us this passport photo, who had this phone number, who accessed our systems this many times over this many months." They'll file that in what they call a suspicious activity report.

• 36:22Anthony Pompliano?

  Got it.

• 36:23Speaker 02

  That gets filed with the financial intelligence unit in that country. In this country, it's FinCEN. And really, that helps seed an investigation at law enforcement. So if law enforcement are starting from an address, they'll want to end up at one of those intermediaries and send legal process to say, you know, "Can we have some more information about the person behind this Bitcoin address that's controlled at your exchange?"

• 36:51Anthony Pompliano?

  Got it. And obviously Coinbase recently acquired a company that does some kind of analysis, right? And there's a whole bunch of people. Some are excited that they're doing this, some are upset, some have questions about the team, etc. Let's not worry so much about that specific team, but just the idea that an exchange acquired what, you know, again, some use the word surveillance type company, some use it as analysis, etc. Why would an exchange want this capability in-house versus the ability to, let's say, interact with a Chainalysis, etc., as like a SaaS customer?

• 37:27Speaker 02

  Right.

• 37:27Anthony Pompliano?

  What would be the difference between having it in-house versus being a customer?

• 37:31Speaker 02

  Yeah, I think there's firstly, I think it's great news. Okay. I think it's great news that a company like Coinbase deems it really important to understand what's happening on the blockchain and is investing heavily in making sure that they can be a compliant entity and understand all the risk of their customers. Like, that's a really positive market signal for me that we're doing the right thing. The It's a great validation point for you. It's a great validation point, right? It proves proves the hypothesis. The the reason why it would be good to use us as a SaaS platform is that you can actually rely

• 38:15Speaker 02

  on us to gather intelligence with what happens outside of your company. Got it. So Coinbase is going to be good at understanding all of the activity within their exchange. They're not going to be able to invest as much effort as we have in understanding what goes on in the rest of the blockchain. Got it. And the rest of the blockchain, it applies to the other exchanges who are our customers and also to all of the nefarious activity that exists in the world. That's our that's our bread and butter. That's what we do every day. That's why we raise money to invest in making sure that we know the most about what's going on on chain. So really, what companies like Coinbase need to rely us upon is to provide that intelligence about what's

• 39:00Speaker 02

  going on in the whole blockchain. I think this is this is great for them to understand sort of what's going on within their exchange. I think one point of clarification in in the communications that's that's sort of been put out on the deal is that we do work with exchanges, but we don't require people to send us customer data. Uh, okay. So. Really, what this is about, what our business is about is making sure that exchanges send us information about what transactions those exchanges are doing on the blockchain. We don't need to know that it was Bob who sent this transaction or Joe.

• 39:40Anthony Pompliano?

  You basically have the wallet address. You don't know who owns the wallet.

• 39:42Speaker 02

  We don't know who owns the wallet. Law enforcement have to provide legal process to the exchange themselves to uncover who is actually behind that wallet. And so our exchanges share with us wallet addresses that they control that helps us actually understand more intelligence about what goes on in the blockchain. That gives all of our customers access to that information. And so they will know the most about where the money is coming from, where the money is going. But it's great that people are investing in what, understanding what's going on within their ecosystem.

• 40:18Anthony Pompliano?

  I'm just curious if you know this, what percentage of transactions do you think get labeled as suspicious? Do you think it's over, under 10%?

• 40:27Speaker 02

  So there is, I think it's under 10%.

• 40:29Anthony Pompliano?

  Under 10%, okay.

• 40:30Speaker 02

  Yeah, so it's on.

• 40:31Anthony Pompliano?

  And that's not even they did something wrong. That's just would be labeled as potentially doing something wrong.

• 40:35Speaker 02

  Yeah, yeah. And you're very sophisticated in your terminology. You deem something as potentially suspicious before you deem it as suspicious.

• 40:43Anthony Pompliano?

  Yep.

• 40:44Speaker 02

  And so we are flagging to our customers what could potentially be risky. And it's up to our customers to decide their risk tolerance and their protocols and how to deal with that. And so you could, you could think of it as about, yeah, less than 10% are flagged as potentially risky. Also, you could think of behavioral indicators as not just are you sending to a dark net market, but how fast are you making these withdrawals? You know, does this fit into a fraud typology? Does it?

• 41:19Anthony Pompliano?

  Well, I'm assuming somebody signs up for an exchange account and then all of a sudden puts, you know, a thousand Bitcoin on it. Something might be going on there.

• 41:27Speaker 02

  Something might be going on there.

• 41:29Anthony Pompliano?

  Yeah, I got it. Okay. And then on the exchange side.

• 41:35Anthony Pompliano?

  I've seen a number of announcements where NASDAQ and some of these large kind of traditional financial players, they have some kind of market surveillance type stuff that they use in the stock markets and things like that.

• 41:46Speaker 02

  Yeah.

• 41:46Anthony Pompliano?

  It looks like in the tokenized securities world, there's a number of players who are trying to leverage the legacy infrastructure for that stuff. Do you think that there's a separation from where you guys started on the cryptocurrency side to the tokenized securities and some of that stuff? Or do you think that really to you guys, it is wallet to wallet transaction with some, you know, unit of value and you're able to kind of interface regardless of if it's a cryptocurrency, a crypto stock or whatever?

• 42:15Speaker 02

  Yeah, we think about the most generic model as possible.

• 42:20Anthony Pompliano?

  Okay.

• 42:20Speaker 02

  So I think about cryptocurrencies as just transactional. And what we have built is infrastructure to understand transactions that happen on cryptocurrencies. And so we don't distinguish between a tokenized security versus an ETH. Like that's, that doesn't.

• 42:42Anthony Pompliano?

  Doesn't matter.

• 42:43Speaker 02

  That doesn't matter to us. What matters to me is the application and what you're really looking for. What we have found is that trade surveillance is starting to be a conversation that our customers are starting to have. And I'm glad that some of them are trying to repurpose legacy technology. There's also new companies out there trying to do this type of stuff. I think that it's an important thing for the industry to mature. It's kind of the next problem that people want to tackle after money laundering.

• 43:10Anthony Pompliano?

  Got it. Okay. Let's switch gears real quick. You've talked a lot about how to build companies, what you guys are doing. Hiring's got to be a huge issue, right?

• 43:21Speaker 02

  Yeah.

• 43:22Anthony Pompliano?

  Just in terms of anytime a company raises money, they're usually using it for marketing, just doing whatever they're doing already better, right? And then bringing on new people. What's your guys' kind of thought process, or just you personally, why somebody should come work in crypto, right? I get a lot of people, especially usually of like Twitter DM, right? They say, hey, I've got X job at Y organization. It's usually their tech company or a financial institution. I'm spending all of my personal time looking at this stuff. I need to find a way in. So those people are already convinced that they want to come work in crypto. Those you don't have to sell.

• 43:59Speaker 02

  That's easy.

• 44:00Anthony Pompliano?

  There's a lot of people who are probably really talented, who you got to sell pretty hard to come work in crypto. What's your kind of pitch to those people as to why they should come work in this industry versus maybe another SaaS enterprise type company?

• 44:13Speaker 02

  You know, for me, what keeps me interested on a personal level is that cryptocurrency continues to ask the best questions about should the financial system be structured this way? Should the internet be an oligopoly? How should things be different? Even if cryptocurrencies today, you look at them and you're like, that's not the solution to the problem. What's important is that there is enough entrepreneurial spirit and capital going in to asking those fundamental questions about the way the world should be in 10 years. And so the companies that are being built today to answer those really important questions like how should finance be structured

• 44:58Speaker 02

  and how the internet should be structured? If you want to work at a company that focuses on that type of big problem that can last for the next 10 to 20 years, you're in the right, you're in the right place.

• 45:09Anthony Pompliano?

  Got it. I think that's fair. And one of the things I keep going back to is really smart people want to work with other really smart people, right? And they want to be successful together. And the amount of intellectual capital rushing into the market is probably unlike anything else I've ever seen. And it just feels like it feeds on itself to some degree, right? Oh, my really smart friend just went and worked on this stuff. What do they know that I don't know?

• 45:36Speaker 02

  Yeah.

• 45:36Anthony Pompliano?

  And so we think a lot about for our portfolio companies, how they can leverage that, right? Like, hey, we just recruited X person who's a great engineer. How do we immediately get them to go back right out into their network and go find five more?

• 45:48Speaker 02

  Yeah.

• 45:48Anthony Pompliano?

  And there's a period in time where it's actually right when they join, they are likely to be able to convince somebody because people want to work with other smart people that they know.

• 45:56Speaker 02

  Yeah, I think for engineers in particular, we we find that people love working with the data that we have. People come to us because they say, you know, there's no other place that actually understands what's going on in this industry. Like, I want to be close to the source of truth. I want to understand why people are using it. I want to tackle some of those hard problems of analyzing these trends. And maybe they'll stay with us for a few years and learn like how and why people are using cryptocurrencies and then go off and build their own companies eventually. But that's really they they come to us because they see the data at Chainalysis is just something awesome to work with.

• 46:40Anthony Pompliano?

  That's awesome. Before I finish up, I always do a rapid fire questions.

• 46:44Speaker 02

  Sure.

• 46:45Anthony Pompliano?

  What do you think is the most important company in crypto other than your own?

• 46:51Speaker 02

  That's a great question. I'm gonna go with.

• 47:00Speaker 02

  I'm gonna go with.

• 47:05Speaker 02

  I'm gonna go with BitGo.

• 47:08Anthony Pompliano?

  BitGo, oh, interesting. Okay, why? No one's ever said that before.

• 47:11Speaker 02

  Yeah, so I think that, and not necessarily because I think BitGo is going to be the biggest company in in the space. I think that it's a very interesting sort of technical solution to actually getting people to custody cryptocurrencies and has done a really nice job of of breaking in and providing like real infrastructure for people building real businesses.

• 47:38Anthony Pompliano?

  Custody is huge problem. They're one of the leaders, if not the leader.

• 47:41Speaker 02

  Yeah.

• 47:42Anthony Pompliano?

  And that's it, yeah.

• 47:42Speaker 02

  And and has been building sort of infrastructure over time.

• 47:47Anthony Pompliano?

  Got it. Okay, that's fair. What one regulation would you change or improve if you could?

• 47:53Speaker 02

  I would clarify a lot of the obligations that are put on cryptocurrency exchanges to understand what their, what their, what their AML obligations are, being slightly more prescriptive around uh what US, what US regulators understand to be uh best-in-class anti-money laundering solutions and what other requirement, I mean, I think the US has done a really nice job of saying that existing regulations apply, but would love more examples of, of what those expectations are.

• 48:31Anthony Pompliano?

  That is fair. Uh what's your one thought in crypto that you think most other people would disagree with you on?

• 48:42Anthony Pompliano?

  The most controversial thing that you believe?

• 48:49Anthony Pompliano?

  While you're thinking, somebody once said to me, "I can't believe you bring guests on and then ask them to say something controversial." I said, "They usually don't say anything controversial. They usually say something that they believe, right? And some degree of other people don't agree, but, but uh it's usually not that bad."

• 49:03Speaker 02

  Yeah, I think um, so the, the thing that I said the most that people disagreed with me on was that Bitcoin is not, the Bitcoin miners do not behave rationally.

• 49:20Anthony Pompliano?

  Oh, interesting. Okay, explain that more.

• 49:22Speaker 02

  So essentially, when miners, they have a, they have a critical, they have a few critical decisions to make. One of the decisions that they need to make is how many transactions to include in a block. And so the more transactions you include in a block, the longer that block takes to go out through the whole network. And the bigger the chance that someone else's block that gets produced at the same time gets adopted by the whole network and then you lose your block reward. And essentially, I found that even today, it's still problematic for people to, for miners to actually include transactions in those blocks

• 50:07Speaker 02

  and therefore all the incentives behind Bitcoin are flawed and miners put transactions in blocks for economic reasons that we can't explain.

• 50:18Anthony Pompliano?

  Interesting.

• 50:19Speaker 02

  I think that's pretty controversial.

• 50:21Anthony Pompliano?

  I was gonna say, I think, well, definitely the Bitcoin community probably definitely disagrees.

• 50:24Speaker 02

  Yeah.

• 50:26Anthony Pompliano?

  But I, I, look, you clever articulate why you believe it, right? So it's in the.

• 50:29Speaker 02

  I, I think, I think that, and this comes down to sort of where you get bashed as an economist is, people say economists are not very good at predicting the future.

• 50:41Anthony Pompliano?

  What do you think about a Noriel, by the way?

• 50:44Speaker 02

  You know, I think that the, the type,

• 50:49Speaker 02

  the, the sort of type of communication aside, you know, he raises, he, he sometimes raises valid points. I think that it comes down to my point, which is economists look at things in static systems. Nurel doesn't understand how the intellectual capital formation in these amazing companies with loads of capital can actually adapt and change their business models and adapt the technologies. And really just continue to work on the problem, which is, you know, how should we reimagine the financial system? And that movement is something that economists can't understand. And he should, he should admit that that's something that he doesn't understand.

• 51:33Anthony Pompliano?

  My, my theory is that he actually understands some of that, but it, uh, it is more beneficial to him to not admit it.

• 51:40Speaker 02

  Right.

• 51:40Anthony Pompliano?

  Right? At least publicly.

• 51:41Speaker 02

  Okay.

• 51:41Anthony Pompliano?

  Um, what's the most important book you've ever read?

• 51:45Speaker 02

  I think the most important book I ever read, these are, these are, these are deep, deep questions. I'll tell you what I was reading last weekend.

• 51:55Speaker 02

  I've read a lot of, I mean, I, I've read a, as an entrepreneur, I've read some important books.

• 52:03Speaker 02

  I, High, High Output Management by Andy Grove is a classic, all time classic, amazing book.

• 52:11Speaker 02

  I I tend to, as an entrepreneur, I try and improve skills in different domains over time. And so what I'm trying to do best at the moment is write better, write more clearly. So last weekend, I was reading On Writing Well, which is a great book for writing nonfiction. Essentially, I feel that when you get to a certain stage in a company, I can't speak to everyone every day. But if I can write super clearly and I can explain ideas to the team, that's a place that I can get more leverage. And so trying to improve my writing skills, have been working on my communication skills as well. Hope you noticed that.

• 52:52Anthony Pompliano?

  Yeah, you're doing fantastic. You're you're better than I am. Just keep going. It's interesting, though, because I've seen those researches, and I apologize to, somebody's gonna listen to this and tell me that I messed up the name, because I don't remember who it is. But somebody on Twitter was recently saying that, you know, everyone always, the Intellectual Olympics of Twitter is like, oh, let's go all read the same books, or let's all go read the same blog posts, or whatever. And they said, look, one of the best sources of information that I've ever had was reading memos. So reading and writing these memos, which are, if you think in kind of the finance community, right, the, you know, Howard Marks, kind of periodic memos, you know, outlook on a market, some, maybe some performance stuff, how they're thinking about, you know, what may happen, or a certain

• 53:36Anthony Pompliano?

  decision or something. It's actually pretty informative. And what they were making the argument for was, rather than write tweets, blog posts, emails, if more people sat down and wrote memos, which are usually, you know, kind of three to 10 page type stuff, it's longer than a traditional blog post or email, but it's shorter than a book or anything like that. It's a really interesting way to communicate, especially inside of a company, or an asset management firm, right, where you're able to lay out, here's an idea, here's my rationale behind why I believe this, right, here's maybe some risks that are associated with it, and here's an action driven plan as to what we need to go do because I believe

• 54:17Anthony Pompliano?

  this. And you see this with, I think I recently saw, I don't know if it was a leak, or they published it or whatever, but like Mark Zuckerberg, right? And it was, hey, here's his thoughts on AR and VR. And you read through this and like it's a pretty lengthy thing. It's basically a memo. And just the clarity, right? And he's sharing it not with the whole company, but maybe, you know, 10, 20 people in and around the executive team. Pretty effective way to make sure he's saying exactly what he wants to say, right? Because he's not having a conversation.

• 54:47Speaker 02

  And it's, and it's a great commitment device. So it allows you, it allows me to synthesize my thoughts about what does our go to market? How are we, how are we thinking about particular opportunities? I think, yeah, a lot of these companies, Jeff Bezos also does this. I think the, the benefit to the individual and the team is, is enormous. My, my personal preference actually also is something a little bit more blog post in length. I think, I think the blog post actually is a great medium that people, people can use to articulate these types of ideas. In fact, I'm sitting here, working through our conversation,

• 55:29Speaker 02

  thinking about what the blog post, thinking about the blog post that drops out of this.

• 55:35Anthony Pompliano?

  Very cool. So I usually ask one non crypto question and then you get to end it by asking me a question. But the non crypto question is about aliens. Do you believe in aliens? And do you think they exist?

• 55:48Speaker 02

  So I'm actually going to an alien party tomorrow. So I'm gonna say yes.

• 55:53Anthony Pompliano?

  Okay. Well, hold on. What is the alien party?

• 55:56Speaker 02

  I'm going to an alien party in New Orleans.

• 55:59Anthony Pompliano?

  And what, what goes on at the alien party?

• 56:01Speaker 02

  I have no idea.

• 56:02Anthony Pompliano?

  Oh, it's just a alien themed party. Okay. All right. I thought you were going to meet aliens or something and I was unaware of this opportunity.

• 56:08Speaker 02

  So clearly you believe in aliens.

• 56:10Anthony Pompliano?

  I think that there is an incredibly high probability that they exist. And I even go as far as to say, it wouldn't surprise me if we discovered them during my lifetime. Okay. So let's say, you know, I got another 50 years on the planet, hopefully in the next 50 years, could we come across it? Probably. And

• 56:30Anthony Pompliano?

  The big question then comes, if you believe that aliens exist, are they more human-like, right? As you and I think about communicating, moving, organizing, intelligent, well, supposed to be intelligent, right? Versus like, there's some micro, you know, microorganism that we call alien life, but it's not what you and I would think as an alien, right? Which one do you think is more probable?

• 56:55Speaker 02

  I mean, the microorganism is definitely going to be the more probable, something I could probably get behind.

• 57:04Anthony Pompliano?

  You think they're human-like ones?

• 57:05Speaker 02

  I'm probably, I'm probably not, I'm probably not much further along than

• 57:09Anthony Pompliano?

  You're not sort of like, somebody going in a spaceship?

• 57:11Speaker 02

  Maybe, maybe something with like, two cells, or one cell. That's, that's where I'm at. So my, my question would be, where in the world do you think cryptocurrency is going to have its home?

• 57:31Anthony Pompliano?

  Have its home?

• 57:34Speaker 02

  Where is the home today? And where do you think the eventual home for cryptocurrency is going to be?

• 57:39Anthony Pompliano?

  So I recently started talking about this more. A number of people who I trust very much were like, maybe we shouldn't let you talk about this as much. My partners are all on board with it, which is great, but some others thought that this was a little out there. I think it's in the automated world. So I've been saying this thing where the machines don't want your paper money, right? And if we're moving to an automated world with machine-to-machine transactions, and algorithms are going to govern and run things, you can't use analog or even electronic value, right? So I think analog is the physical one, and then electronic is just the digital

• 58:21Anthony Pompliano?

  representation of a physical ownership, you know, stock, whatever. You need digitally native assets. So every stock, bond, currency commodity has to be digitally native in order for it to interface with that world. And so it's not just the currencies, right? It's the stocks, the bonds, and the commodities. But I think that that is something that hasn't been explored a lot by people who are way smarter than me, right? I wish more people would talk about that, think about that, write about that, so I could learn from them. And the second piece of it is, if that is true, Blockchain is like the accounting system for the automated world. Yep. Right? It's just if you think of kind of traditional accounting today, you know, take Excel,

• 59:03Anthony Pompliano?

  for example, you kind of have like one input into each cell, right? And if you get really, really complex, you can kind of move different inputs on the sheet to do some computation, but it still has one output in the cell. With blockchain, what you get is it's almost like a multi-variable accounting system. So you get more complexity that can all go into one thing that happens faster. And it's just because the assets are treated differently. The people or the organizations interacting are interacting through machines and algorithms versus, you know, you and I, et cetera. And so that world feels like much more inevitable than the argument of like Bitcoin's going to become the global reserve currency. Yeah. Right? And no matter how much I believe that's going to happen or not with Bitcoin

• 59:45Anthony Pompliano?

  becoming the global reserve currency, what I've seen is just more people buy into automation's coming, right? Like, you really stretched argue it's not coming in some form or fashion. The question then is how big is it? Do we actually need digital assets in that world, right? Can we have accounting systems that work there rather than using a blockchain? But I think that once you get people over the hump and just say, look, this, we're talking about technology, right? You're talking about with what your company does, analyzing transactions. Doesn't matter if it's you standing in a market and literally watching people pass paper money back and forth and writing it down on a piece of paper, or you're using, you know, the technology that you've built to look at stuff on a blockchain. You're analyzing transactions. And so that, I think, demystifies a lot of this.

• 1:00:28Anthony Pompliano?

  And it's funny to hear you talk about fundraising in 2015, right? Because I think a lot of people who probably came in towards the tail end in 2017 feel like 2018 has similarities to 2015. It's just a different scale, right? In terms of there's way many more people, many more people feel this is inevitable. And so when you get into that world. I think that the most like, you know, valuable or exciting part to me is watching people like switch their mindset and go Bitcoins for bad people. No way. This is all garbage. It's all a Ponzi scheme and like prices. All everyone cares about. And there's just, you know, pump and dump. That's actually a big percentage of the population believes that. And as it gets demystified, they

• 1:01:12Anthony Pompliano?

  switch over and they were, wait, we're talking about technology, you're talking about automation, you're talking about just analyzing transactions. They're like, oh, this is not even as nearly as exciting as you guys are making it out to be. The implications are exciting, but the technology is pretty straightforward. Right. Right. And then I think that's part of like, out of this conversation, I take away that, you know, there's all kinds of narratives and things that people talk about. You guys are analyzing transactions and you're giving the power to law enforcement, exchanges, you know, financial institutions of, do you want to know what people are doing or not? Yeah. It's as simple as that. Yeah. Right. Listen, thank you so much. No, thanks so much. Yeah. You were the only person who's ever come on and before the show on the live stream done,

• 1:01:57Anthony Pompliano?

  spoken in Afrikaans. So you're, you get some points for that, too. Thanks so much. We'll have to do it again. All right. Thank you. Thanks. I appreciate you guys listening to that great episode. Before we go, remember to go visit zenledger.io/offthechain. Zenledger is the best crypto accounting software available. If you had investment losses in 2018, you may be able to save up to $3,000 on your income taxes using Zenledger. Simply enter your transactions into their easy to use software, get completed tax forms, ready to be imported into TurboTax and reviewed with your CPA and sent to the IRS. That's visit zenledger.io/offthechain. No spaces or dashes, just straight zenledger.io/offthechain

• 1:02:40Anthony Pompliano?

  and you get 20% off your tax forms for 2018. Thank me later. I'm sure a lot of you have used Kayak to find the best flight. Total is kind of like Kayak, but it don't find you no flights. It helps you find liquidity on decentralized exchanges and it optimally routes your trades for execution. So Kayak, you find flights. Total, they help you find liquidity. We should get Kayak on it for this spot that I'm providing them, but Total instead is our advertiser. And you should go visit totle.com/pomp. Again, that's totle.com/pomp and let them know that I sent you. Tell them you love their product. Take a screenshot, tweet it at me. I'll drop you some fire emojis and then we'll all be happy. So totle.com/pomp. Hey everyone, Pomp here.

• 1:03:22Anthony Pompliano?

  If you liked this episode of Off the Chain and want to help us take crypto to the top of the Apple, Spotify and other podcast charts, please do us a favor and rate, review and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off the Chain.