a16z Podcast - a16z Podcast: Building Crypto, from Vision to Reality

Episode Date: December 18, 2018

with Brian Armstrong (@brian_armstrong), Chris Dixon (@cdixon), and Sonal Chokshi (@smc90) Where are we, really, right now -- in terms of what we can/ can't do with crypto today? And what will it take to get from vision to mainstream reality? This episode of the a16z Podcast covers all this and more. It's based on a conversation that took place between Coinbase CEO and cofounder Brian Armstrong and a16z crypto general partner Chris Dixon, interviewed by a16z editor in chief Sonal Chokshi, at our at our annual Summit in November 2018 -- following a series of presentations that covered everything from early adoption, myths, and the global need for crypto; to crypto as seen through the lens of trust; to key terms and concepts that enable entirely new use cases on top of crypto. But what are the missing pieces needed to get us there? Is crypto is too much like a religion... and if so, how does one build a company, culture, community in such an intense environment? Where does the history of open source come in? And finally, what are some of the most interesting applications and trends in the space? Please note that the a16z crypto fund is a separate legal entity managed by CNK Capital Management, L.L.C. (“CNK”), a registered investor advisor with the Securities and Exchange Commission. a16z crypto is legally independent and operationally separate from the Andreessen Horowitz family of fund and AH Capital Management, L.L.C. (“AHCM”). In any case, 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. You should consult your own advisers as to legal, business, tax and other related matters concerning any investment. Furthermore, the content is not directed to any investor or potential investor, and may not be used or relied upon in evaluating the merits of any investment and must not be taken as a basis for any investment decision. No investment in any fund advised by CNK or AHCM may be made prior to receipt of definitive offering documentation and due diligence materials. Finally, views expressed are those of the individual a16z crypto personnel quoted therein and are not the views of CNK, AHCM, or their respective affiliates. Please see https://a16zcrypto.com/disclosures/ for further information.

Hi everyone. Welcome to the A6NZ podcast. I'm Sonal. Today's episode is based on a conversation that I had with A6NC crypto general partner Chris Dixon and Brian Armstrong, CEO and co-founder of Coinbase at our annual Innovation Summit. It followed a series of presentations which you don't need to have watched to follow this discussion, but you can find on our YouTube channel if interested, that covered everything from early adoption and myths to history and principles to key terms and use cases in crypto. But this discussion begins with the question of where are we right now and what will it take to realize the bigger vision for crypto. We also cover everything from company building in an intense environment, to the history and evolution of open source, to interesting new applications

made possible by crypto, and much more. Before we begin, please note that A6 and Z Crypto is an independent fund managed by CNK Capital Management, a registered investment advisor with the SEC. The content here is for information only and should not be taken as legal business tax or investment advice. It does not constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. In fact, the content is not directed to any investor or potential investor and may not be used to evaluate or make any investment. CNK is not seeking investors. For more details, please also see A6Cripto.com slash disclosures. Thank you, guys. So I think the burning question that we are all left with here is what can

we do with crypto right now from your vantage point? Like today, can people walk out and do something with this? So it's important to note that I think still 90% of what people are doing with crypto is investment or speculation, and that's great as an initial way to get people's interest into crypto. But it's more interesting to think about

the utility phase, which is this 10%, and a few examples that I like to talk about, one of them, which is Auger, right, this global prediction marketplace where people are trying to get the wisdom of the crowds to come together and tell you what's going to happen with weather or elections. That's a really cool thing

that wasn't possible before. The second one is these emerging markets where people in Venezuela, where they can't buy goods or have a stable currency, or they want to leave the country and the guards at the border are confiscating their wealth. My overall sense is that we think about kind of how big computing buildouts have happened over the past 40 years or so, like the PC and the Internet and mobile. I kind of think this is mobile in 2005 or something. I was an entrepreneur then. And there were, all the tech people had sidekicks and trios, and like, we were SSHing and doing all these other kinds of things on our stuff, you know, and a couple million amount there. There was like an early adopter, developer, kind of enthusiast thing. And everyone felt like it's eventually going to break out and be a mainstream thing, but it hadn't happened.

And then, of course, the iPhone, 2007, Android. So to me, it feels like that. Like, we still haven't had, like, there's just a lot of basic missing infrastructure, the same way there was, right? So, like, a scalable, smart contract platform. So a lot of stuff you guys are building. around like the wallets and the onboarding and the fiat rails and just like there's all this stuff that just has to happen and we know it has to happen and there's a whole bunch of people working on it but it's just not quite there to kind of tip from early adopter enthusiasts kind of use cases in my view yeah it does feel like the dial-at modem era and yeah if we get the scalability of the networks volatility fixed and just the usability of some of the apps like just simple things like you need

to be able to sign in and be able to pay to like a human readable name not like an address that looks like this long password. Yeah, naming. So you effectively know DNS, right? Let's pause for a minute. So volatility is actually one of the big topics that comes up in the headlines all the time. And most recently, I think it was like an 80% price drop

or something very significant. And the headlines are screaming, crypto is dead. Of course, we've all seen headlines of the web is dead, email is dead, et cetera, before. But how do we get around this volatility issue? So it's funny, volatility is actually a feature if you want to be an investor.

But it's a bug if you want to just have a medium of exchange. So crypto kind of now has the best of both worlds There are some coins that are still going to be quite volatile But there's this new category of coins Coming out called stable coins You heard about one of them earlier today Dye which I think is a really important innovation There's others that are a little bit

You know we call it tech light audit heavy Which is a simple idea that you just keep a dollar in a bank account And you make a one-to-one representation of it So Coinbase recently became a member of a consortium of companies in the crypto space that have a stable coin project But there's a number of stable coins out there, and I do think that's an important part to not only solve the volatility issue with crypto,

but it's also this programmable dollar that can be a part of these smart contracts. One thing that's important in all contracts is that you need the settlement amount to be in something relatively stable. So now that can be built into the Ethereum world computer. So I'm going to take a step back for a moment, though, and channel someone like Paul Krugman

who debated A6Cy Crypto General partner Katie Hahn a couple months ago. And I imagine that what he would say, He didn't actually know about stable coins specifically, but he would say, this sounds crazy. Like, you're talking about pegging a dollar to crypto in order to stabilize something that's abstract called crypto. So what would you say to that crowd?

Yeah, well, I mean, there's a much simpler version, which is we're literally just keeping a dollar in a U.S. bank account and then issuing a token that's one-to-one backed by it. So I think for most people, that's, like, a much easier concept to wrap your head around that hopefully can be trusted. But I think some of these, like, die that are being their own central bank or whatever, issuing and burning coins, I think that could work as well.

Dye, for example, has been live for over a year. The underlying assets have been super volatile and it's remained stable. I mean, if people are interested in this, I recommend, like, you know, if you want to learn about these things, like the Bitcoin white paper is great, the Ethereum white paper is great,

and then Maker, to me, is one of the most interesting things. It's interesting for a bunch of reasons, like this whole kind of mechanism they designed to do the stability, but also it's one of the few examples of really good examples of people we were talking about earlier, a Dow, a decentralized autonomous organization. So as we speak right now, Maker is running.

It's this code out in like this world computer. No one controls it, including the software developers who made it. Like it's running, it's doing its thing, it's liquidating contracts if they're under collateralized, it's making loans, it's issuing out stable coins, it's doing all these complicated things. And it's literally just happening. And one of the really cool things with these projects is the creators make them like Satoshi made Bitcoin. And then they just launch the ship out and it's its own thing. It's autonomous.

It's like this sort of futuristic concept, right? And people are sort of thinking more and more about what are the other ways you can can use these concepts to build these, what else can these autonomous organizations do? Yeah, that's great to see that. It's already out there, and there already are Dow's and Dax, decentralized autonomous corporations and existence. And it's even more fascinating because if you think about the history of innovation,

the classic theory of the firm paper, like, why does a firm exist, was 1937, right? Kosas's paper, Ronald Kosas's paper. And it may be time to rethink the future of the corporation. But I want to take a step back and think about a company that exists today as a classic corporation like Coinbase. And I think it's really fascinating because one of the things that we've heard about that we haven't overtly talked about today when it comes to crypto is that in a lot of ways, some people might argue it's a bit like a religion, you know, even a cult to some extent. And if you think about it, like there is a prophet like Satoshi Nakamoto, a Bible, the Bitcoin

white paper, there are factions and sects. There is a holy object like the Genesis block. There's a belief, there's rituals, mining. I think Fred Erism, co-founder of Coinbase actually pointed this out originally. So my question is, how do you build a company in that type of environment? Well, I mean, tribalism runs deep in human beings, right? So it's true in politics, in countries, in your city, your team sports, like everything. So companies are just another way of having tribalism. You know, our particular brand at Coinbase is that we've rallied a bunch of people around to what I think is a very inspiring mission, which is to create an open financial system for the world. And what we mean by that is something kind of like the internet. It's global.

It's decentralized. Nobody owns it. But instead of for moving information around, it's for moving value around. And we think that's going to bring about all kinds of benefits for the world, you know, a lot of innovation, quality of opportunity, economic freedom, strong property rights for people all over the world. So that's what we've done to create. I guess our all hands meetings are a little bit like the sermon at church or something like that. Well, you actually are operating a classic company. I've actually read a post by Linda, who was on stage right before you and is a former Coinbase person. I mean, there's already a Coinbase mafia. And there's a lot of people that have come out of Coinbase doing really interesting things.

And every classic company has a way. There's the Intel way that Andy Grove wrote about. There's the Toyota way. What is the Coinbase way? How does your container of tribalism or whatever you're working towards organize to build something that people can actually use? Well, in addition to just being really mission-focused, which I mentioned already, and also being a fintech company, meaning we're about 37% engineers, we have a strong legal and compliance component. You kind of have to marry those things. I would say there's four things which really define the Coinbase way and the Coinbase culture. So the first one is clear communications. We look for people who are concise, candid, kind, good listeners, just convey information really effectively to help us get work done. The second thing we look for is positive energy, and that's our way of saying optimism about the future determination to get there, intrinsic motivation, and, you know, there's going to be a lot of setbacks on the way to creating an open financial system for the world. I mean, you're basically trying to reinvent the economy of the entire world. And so it takes a lot of, every setback is an opportunity to, like, come back with optimism. The third one is continuous learning. And this is

something I've been really passionate about is, you know, I've had an executive coach throughout being a CEO. We have lots of opportunities for people to learn. We put them in stretch roles. We're really big on two-way feedback. I try to create these environments. I try to create these environments of really high trust where a team can not be afraid to serve us what they're really thinking. And we'll go around the room and have people kind of from lowest on the tier or privilege or whatever speak up first and I'll speak last. And that's the way for me to actually feel like we're really hearing each other and learning. And then the last piece is efficient execution, which means that we try to get a lot done with a little. We think a lot about prioritization,

8020 analysis, automation. And I'm always looking for these kind of you know, judo moves, where in the company where, hey, how could we get 80% of the impact with 20% of the effort or the resources? So those are some of the things that make up the Coinbase culture, and at some point we should publish a longer deck on this. Yeah, or a book like The Coinbase Way. Dixon, from your vantage point, as an investor, you're on the board of Coinbase, but you also meet with a ton of companies as well as very early projects in crypto.

What do you think is the biggest missing piece that all these companies in the ecosystem are not doing right or that they need to do. Oh, that's a question. Well, so... I think there's a couple of different things. There's, as you mentioned, it's sort of a religious cult, and there's a lot of misconceptions around crypto. As Katie was talking about earlier,

people thinking it's for criminals or only thinking it's Bitcoin and not understanding there's a whole, like, kind of wide range of different projects. And for me, a lot of it is how do we get the message out and bring more people into the movement, right? And broaden that. So there's a lot of great engineers.

and great entrepreneurs, but like to really make this work, we need product managers, marketing folks, like just the whole, everything you have sort of throughout Silicon Valley, right? It's still in the kind of engineer entrepreneur phase, I think. So I think a lot about how can we clear up the misconceptions because it's a very powerful technology. You know, I think it's very analogous to open source.

Open source started as a political movement in the 80s, and then it morphed into a technology movement, but was in the 90s. through things like Linux, but was dismissed by almost everybody, including Microsoft and other people, until probably a decade later, because they still saw it as that wacky Richard Stallman stuff, you know, the anti-cali. And so people still, I think the same thing's happening with crypto where it's really a new way to build digital services that are owned and operated by communities instead of being owned and operated by companies. And it's a profoundly new and important way to build digital services. And it's a technology movement. But it's misunderstood as a anarchist or being, you know, anti- government or right wing or whatever. There's always elements of truth of some of these things, the environmental impact, which are really kind of mis-framed

because, like, for example, all the new networks don't use for work and don't have that impact. And so there's a whole bunch of sort of misconceptions. So how do we clear that up? In doing so, bring more people into the movement. I mean, if you sort of think of Coinbase as kind of the browser to the web or something,

the browser needs more websites, right? Like, we just need more people building stuff. Hopefully there'll be all this other stuff kind of flourishing around. It's funny that you brought up the sort of fringe phase of open source because besides Microsoft acquiring GitHub recently IBM announced

acquiring Red Hat and I think it's so fascinating because even with Microsoft I think Steve Balmer was the one who called open source a cancer and now Microsoft I was watching recently that if you watch all the Justice Department stuff from like the late 90s or the 2000s Microsoft they talk about Java the whole time they never once

talk about Linux and look every Android phone is Linux iOS half the software stack is open source every data center and I haven't met a startup in 15 years doesn't use all open source data center software. I mean, it's 90% of the software in the world. I mean, it won. And myself has been great because they moved into services

and they were smart to. So I think very similar things. It's still misunderstood, which is great. If you're an entrepreneur and you're early in your career, like this is the greatest opportunity. I think this is the fourth big wave in my lifetime. That's the good news. The bad news is we have a lot of convincing to do

and evangelizing to do. So beyond evangelism, let's shift now into talking about not just where we are today, but how to get where we want to go. And besides volatility, which you guys mentioned, need for education, community building, more education around misconceptions, et cetera, what are some other key missing pieces of infrastructure

or features that really need to be built out to make crypto a reality in the vision we're describing here today? Yeah, I mean, so I usually break it down into there's this investment phase of crypto, then the utility phase, and we'll get to an open financial system, which I kind of define as,

there's a billion people using the open financial system, on a daily basis. And I think that could be done in five years, without a lot of hard work, it could be 10 years, 20 years. But in the investment phase, we've started, but there's still a long way to go. And the investment phase, to me, is just making it easy for people all over the world

to get fiat currency into crypto, being that bridge, if you will. So we're in 33 countries today, and we need to be in about 100 countries and get the long tail of payment methods set up and all over the world where people can just easily get fiat into crypto. That's like retail people.

Then institutions are starting to come into this space in a big way. And 90% of the capital out there is actually an institution. So there's a whole bunch of work that needs to go into making that happen. We launched a qualified custodian under the SEC rules. There's derivatives. There's SEC licensed exchanges that need to happen. There's broker-dealer stuff. And a lot of that is just U.S. focused.

But, of course, there's a whole broad world out there. So a lot of that you could think of as the investment phase. It's kind of like putting the tracks down for the railroads or laying the fiber for the internet. And a lot of that has analogs in finance 1.0. Like if there's a stock exchange in finance 1.0, there's going to be a crypto exchange in finance 2.0. Okay, great.

Now that the infrastructure is there, there's kind of this critical mass that occurs. You know, Chris Dixon coin this great phase. Come for the tool, stay for the network. So the network effect is starting to kick in for crypto, and you're seeing the utility phase come up. We're enabling people to go create all these new types of daps, decentralized apps.

And there's thousands of these out there, created. It's very new stuff, peer-to-peer lending apps, gaming, you know, stuff in emerging markets. So there's remittance tools, right? So these are all new things that are being created in the utility phase. And there's going to be this whole generation of kids that grow up and their phone is the only bank account they've ever known. They're never going to have a bank count in the way we think of it with a checkbook or something like that. And that'll be a great world because it'll allow anybody who has a good idea to accept payments all over the world. It'll make every payment in the world as fast, cheap and global as sending an email on an open

network. It'll take a lot of just waste out of the economy. I think, you know, financial services is something like 9% of GDP in the U.S. And there's no reason why there needs to be a 2% fee on every transaction when you swipe your credit card or that it needs to take three days to send your money to another bank account in the United States. And so a lot of that just inefficiency will come out once this new infrastructure gets built and the world will be better. Yeah. Well, it strikes me as a bit of a chicken egg thing, though, because the network effect is that the network becomes more valuable the more users that use it. But there is

this chicken egg problem in the sense of you can't have a lot of users when you don't have scale, but you also need to scale in order to have a lot of users. Because scalability is a pretty big bottleneck here. How is the community addressing that? So like Ethereum is a good example where you can run

any kind of arbitrary code in that crypto network, but the network can only handle like 10 transactions a second or something. And so it's just not at all ready to really be the world computer. You can look at in two ways One, it's a challenge, two, it's an opportunity. There's a whole bunch of different interesting kind of approaches to improving that. It'll get fixed.

It's all software. I mean, the good thing about all this is it's all software. I've been involved with both software and hardware, and I will tell you, they're very different. So you look at the Internet and why it took so long, it really took, you know, 20 years to reach its potential. And it's because you had to, like, literally dig ditches and put lay fiber down. And then you had to get the, you know, computer, mobile phones to plug. You think how, like where we are today, we have mobile phones, we have high speed cellular, we have fiber. Like, that's just a lot of physical, you know, digging and KAPX.

And the nice thing here is it's all software. The Internet is built. Like, everything is software. So there is a lot of work to do. And there's this sort of chicken egg problems. At some point, right, you get some tipping point. And I think at some point, I think over the next five to ten years, we'll have this sort of Internet money. And it'll either be Ethereum or Bitcoin or something or some stable coin or something else.

But this idea that, you know, there's sort of this native Internet currency, which really should have always been there. It should have been baked in. You know, error code 4 or 2, you know, you're familiar with that, 4 or 2 is payment. You know, payment required. It was actually in the original spec was going to be a native payment system and it never was built. But like, so it's sort of the missing thing.

And then depending on your perspective, my perspective is, and then we took a wrong turn on the internet and made everything based on ads and then that led to all sorts of misalignment between users and companies and all sorts of other stuff that we've see now with, you know, controversy around, you know. That's actually been a recurring theme at this conference as well.

A lot of the people have brought up that we have to move beyond the advertising-based model and think of really new internet-native ways to do things that aren't advertising. I think Benedict had this slide. You know, advertising is it only a very small... It's like, what is it, 3% of GDP or something like this. So, like, you just unlock, just from a pure business point of view,

transaction-based business models unlock a dramatically bigger kind of opportunity. Right. So I want to ask a question about the tension between centralization and decentralization. We have this thought at Coinbase sometimes because we are enabling an open financial system or decentralized, but, you know, we are a centralized company. Yes, exactly. And we actually custody a lot of crypto, you know,

10 billion or more of crypto. So the way I think about that is that, you know, there can still be pockets of centralization in an open financial system, but what it does is it gives people choice, right? In the same way that, you know, Hotmail and Gmail, they both have SMTP as the protocol underneath. So it's interoperable with all these email providers all over the world, and that's why email is free and ubiquitous to send. The same thing for crypto. So, you know, you can buy your crypto on Coinbase and it's a popular way to do it. But if people want to send their crypto off, it's a common standard. So they can send their crypto. to any other wallet or exchange that's out there.

So I don't think it'll do away entirely. I should say, by the way, also, we have, like, Coinbase wallet is a totally user-controlled wallet, so you literally, you can be in custody of it, and it's not Coinbase at all. So I think there is going to be something for everybody there, but choice is what comes out of decentralization, even if some of your choices are centralized.

Well, speaking of the paradox of decentralization and centralization, I want to ask you about the paradox of choice, because besides Bitcoin and Ethereum, you're going to have a new process for listing even more, more coins. And as it is, people cannot even tell Bitcoin and Ethereum apart. So I'm curious about what drove you to this decision and how you're helping users navigate it. Yeah, well, there's people all along the spectrum, right? So there's some people who've heard of Bitcoin, but they never owned it. And actually, the number one request we get from

our customers is, hey, there's more coins that I want to start trading. And there's a whole group of people, you know, some of them are millennials, but it's really the whole gamut. This is like stock market for millennials. So they don't own any stocks, but they own like four or five or ten different cryptos. And that's a whole group. And that's a lot of people. that's the way that they're preferring to invest right now. That's great. So I actually want to shift away from talking about crypto finance and payments and remittances,

which is clearly, it seems very clear it's the first, you know, use case, killer app. What are some other projects and things going on that excite you in this space? I mean, Ali mentioned earlier CryptoKitties, which I personally think is super interesting. It hints at crypto goods and, you know, non-fungible tokens, and there's so many interesting things out there. and we could go on for hours about this,

but since we only have 15 minutes left, I'd love to hear sort of like a lightning bullet-style list from you on a favorite project or two. Yeah, maybe we can just brainstorm a few. I mean, one is that people are securitizing all kinds of assets now. On the blockchain, right, you can have fractional ownership in a home

or a piece of artwork. That's kind of interesting. You mean an actual physical home being securitized on the blockchain, not just like a virtual, good home. Exactly. Like physical assets. there's people looking to take, you know, Wi-Fi access points.

How many times have you been on an airplane or just going through a city or someone's house and it's like, I need the Wi-Fi password. And, you know, on a plane, I don't like playing out my credit card. I don't want to give them that. Oh, interesting. My phone should just have a little bit of crypto and pay little bits of value to any access point

and just automatically connect to it. You know, those are kinds of things where our current financial system today is just not necessarily adequate. The biggest areas that I look at are, again, it's like these emerging markets and people building new types of apps DAPs, some people are calling them, on the internet.

To Chris's point about the traditional apps that have succeeded today, anything that's like a like button, an upvote, you know, a star, a follower, whether it's Twitter or, you know, Stack Overflow or any app like that, Reddit, right? The whole internet today is kind of built sometimes on these fake karma points, like how many likes did you get, how many upvotes did you get? And there's no reason why those apps couldn't actually just be real value. And every upvote, you know, is real money you're receiving. And so there are new versions of many of these big web properties that we see today

that are being recreated with crypto as kind of like this native currency of the internet. Yeah, I would add, going back to the CryptoKitties, non-fungible tokens, we would call NFTs. To me, the interesting thing there is if you look at the video game business, so, you know, 10 years ago it was basically console games, you sell for 50 bucks, or like flash-based games with banner ads. And then, you know, thanks to Apple and Android and things, and then also innovation that happened on the PC side, like Steam, you saw the kind of micro-payment model, right? And so, like, League of Legends is a game that I think did $2.5 billion in-a-revenue last year, and it was all in-app purchases

of, specifically of items that are cosmetic only, right? You cannot buy items to make you better at the game. It's one of the rules. Fortnite's kind of similar. Most of it's, like, e-mos and stuff. And so that business model innovation unlocked, like, all of this creativity, and the game designers got paid very well for that, right? And then you look at other areas like music, writing, you know,

video creation on the Internet today. And it's not a good time for those groups financially. A lot of those groups would say that the Internet has made their business harder. And I think that's just an accident of us not having found the right business model yet, not something intrinsic to, look, I mean, there's the fact that you can write something, for example, and have instantly have 3 billion people read it and like it. And we've seen, every time people experiment with things like Kickstarter and Patreon and things like this and crowdfunding, like they always do incredibly well

if you can figure out kind of the right flow and the right affinity groups and things like this. And so one of the main ideas with non-fungible tokens is couldn't people, if you look at musicians today, they'd make most of their money offline because they don't get much from the labels through Spotify and through merchandising. And so the idea with NFTs is digital merchandising. Could you do digital goods as a way, you know, for example? So there's going to be a whole bunch of experiments of creative people using crypto assets as ways to, you know, kind of think about new business models.

And all you need is one or two of those experiments to work. And then suddenly a new thing. And, you know, going back to the mobile games, there was a whole history of that. and it was a few innovative companies did that, and then everyone else figured out, and it spread like wildfire, and I say, you know, people now just forget. I can't tell you how many blog posts.

I used to defend micro-payments and games, and it was like this thing, and it was all these blog posts proving you can never happen. Now it's like literally, it's like a $50 billion a year thing in micro-payments and games, and everyone just is a blazze about it. But, you know, it's obvious probably five, ten years in that. Yeah, I think the part that excites me most about that vision

is it also democratizes creation for people on the internet, and not only in terms of creators making money, but fans can monetize as well. And even influencers on Instagram who are not Kim Kardashian can monetize their followings. And there's so many interesting things that are possible that were never possible before because economics didn't make sense.

So it is very exciting. But I have one question actually about Auger. It's really timely, given the election happened yesterday. What is the significance of prediction markets in this world? Because people have been talking about prediction markets for ages and I actually don't get what the tip is that crypto does differently for prediction markets now that was not possible before. Like what can come because of that? So I think of it as getting the wisdom of the crowds and all the incentives aligned, which is kind of what Ali was

talking about, these aligning of incentives. So I don't think it's ever been possible before where you could pose a question to the world. You know, people all over the world could bet on it. And presumably some of them have more information or, you know, better analysis or something like that. And without knowing the identity of any of these people, you know, 20,000 random people around the world could pool together their collective knowledge and you could have a better prediction about what's going to happen next. One of the things that blocked that previously was that payments are hard, right? Especially on a global scale. Think about how many companies have been able to have global reach of all their pay-ins with like an army of payment engineers and

lawyers and understand the laws and regulations of 100 countries around the world. So if you can do this with a native currency of the internet, you can suddenly get everyone around the world to participate in that in real time. These things will be regulated. They'll have to follow US law. That's not the real issue. I think the real thing is building on it. You would never build on top of a centralized protocol because people have now learned after 20, 30 years of this, that will you do that, that the platform changes the rules? And ask everyone who built on top of Twitter, all these developers and Facebook and everything else, it ended badly, right? Because in the end, like, the network's going to take all the value. And so to me, one of the exciting

things with things like Auger is that it's truly a protocol and that entrepreneurs can build things on top of it and be creative and use this kind of cool public infrastructure plumbing and build around it in interesting ways without having to really treat it. It's like the internet itself has these new capabilities. So it's like TCPIP or something. It's like truly a public good and they can build and sculpt around it, right? There's already like a whole wave of startups doing that and they have all these cool ideas and they're using this building block. It's like what's really cool it's happening now. We call it compositionality. There's like maker die and D-Y-D-X and Auger, and you go to these hackathons and it's like these Lego bricks.

People are putting like these four things together in a new way. So Auger's is like this other cool Lego brick in the set. And right now we've got like a set that's got like, you know, maybe 10 or something. We want like, you know, 100 or 1,000 or something. But like each one lets you recombine in new ways. I think that's going to happen kind of exponentially. Remember, all this code is open. That's the thing people just, they consistently underestimate the power of open source.

The fact that it's open and anyone can take it and hack it and fork it and look at it and audit it and do all these things. This is why Linux won, right? And this is why all this stuff is going to win. I think it's just the kind of the logic of the Internet and how it's evolved, and this is sort of the next stage revolution. It's another great building block. I love that because the buzzword that used to be tossed around was combinatorial innovation.

And this is literally combinatorial innovation, people recombining things, the primordial soup of ingredients to create and evolve entirely new things. It was supposed to happen on Web2. You can go back, and this is interesting. Fred Wilson used to blog about this all the time, about how Web2, every service was going to have an API, and like, you know, Twitter had one,

and Netflix had one, and then there was this whole idea of mashups, and you could, like, build these things, and it was like, all my friends were doing it, it was like this whole thing, and I did it, my startup did it, you know, so, and it was going to be this thing, and it just didn't happen.

Like, all those companies realized, we don't want to have an API, because we can't put ads in it because it's all ad base, right? And so this is finally that vision being realized where you just have all of these, like, you know, interesting services, and you can just build them up,

and it's kind of keep happening faster and faster, I think. I want to close by asking you guys then for that very reason, to come full circle, because I didn't even ask you this. What actually brought you to crypto in the first place? I mean, Brian, where'd you get the idea for Coinbase? You know, there's a few pieces looking back

that had to come into place for it to happen. I mean, one was that I studied computer science and economics. I was always interested in how software was going to disrupt these industries, which seemed to be the holdouts, right? You know, finance and education and health care. So that was the first piece. The second thing was that I spent a year living in Buenos Aires, Argentina, in 2009,

and I got to see really what a country looked like that had gone through. hyperinflation. And I had never seen that before living in the U.S. And I remember these little details, it affects the whole culture, right? Like I was at a restaurant and there was a menu. And the prices, you know, there was like a sticker on top of a sticker on top of a sticker on the menu because they couldn't print a new menu every week. So they had to keep putting new prices on there. And the third thing I think was that, you know, I joined Airbnb. I was probably employee 40 there or something. And I was working on some of their payment integrations.

And they were in, you know, maybe 100 countries or something at that point. And it kind of gave me a front row seat into just how broken the global payment system is. It's this patchwork quilt of different countries. They all have their own proprietary system for pay-ins and payouts, and they don't really have an incentive to innovate. It's like a little oligopoly in each country with high fees and slow movement of funds and opaqueness. I remember we were creating the payout system for Uruguay, and there was some local cash pickup thing that we were integrating with, and we were reading their documentation. We were like, we have no idea what their fees even are. Like, we couldn't tell.

And what we had to basically do was send $100, find someone to pick it up in Uruguay, and like, how much money came out the other side? It was totally opaque, right? Definitely not as easy as sending an email. Right. So in December 2010, I ended up reading the Bitcoin white paper that was written by Satoshi Nakamoto.

I just happened to see it on Hacker News. I was at home for Christmas and my parents' house and I was reading this paper. And my mom was like, you know, you need to come down and hang out with the family. And I was like, I'm reading things on the Internet. I'm really busy. I remember it captured my imagination.

I was like, wow, this is probably the most important thing I've read in like five years because I had always felt a little bit of regret like the Internet was this incredible innovation and I felt like all the major, you know, the formative companies had been built by the time I graduated. And I was like, wow, this could be another global network for the world

but for money transfer. I couldn't get it out of my head for about the next six or 12 months. Started going to some meetups in San Francisco, the early Bitcoin meetups, and I remember thinking like, oh my God, I'm too late to this thing because there was already a couple crypto exchanges in San Francisco at that time, which are now defunct.

Nights and weekends, I started hacking on a prototype, which would eventually become Coinbase and then I applied to Y Combinator, and that's what gave me the confidence to, like, quit my job and say, all right, I'm actually going to do this. Maybe I'm not crazy. Kevin Kelly has this great quote that's, you're not too late. You're never too late or something. Essentially, like, and it's like Mark Andreessen might tell the story

when he got to the Valley in 93. He was absolutely convinced 93 it was all over. And, like, the hot thing he tells it in the Valley at the time were CD-ROMs. CD-ROMs is a hot thing, and, like, why would you mess with the Internet? Because, like, the graphics are crappy and everything. CD-ROMs have better graphics. But, yeah, so I think it always feels like that. No, I think you only get a few of these giant computing waves in your career.

There's other really interesting stuff happening right now, like AI, you know, virtual reality, autonomous vehicles. Like, there'll be other interesting things in the next few years. But I actually think they'll probably start to intersect with these areas, too, so we'll get to do some of that, too. That's great. Well, Brian and Chris, thank you for taking the time. I was about to say thank you for joining the A6 and Z podcast.

I actually just said it, but I always had to stop myself from doing that. I think my big takeaway here is that it's obviously not too late. It's still early days, and that there's a lot of things that anyone in any industry can think about for how this world of crypto will change the future even today. So thank you guys.