a16z Podcast - a16z Podcast: The Blockchain, in Congress

Episode Date: May 20, 2017

There’s an interesting paradox when it comes to the U.S. government and tech: Either they’re an inventor, early adopter, and buyer of emerging new tech … or they’re a very late adopter (as in the case of government officials using Blackberries vs. iPhones). But when it comes to the blockchain, they’re trying to get ahead of and stay on top of the game — with the Congressional Blockchain Caucus, co-chaired by Reps Jared Polis (D-Colorado) and David Schweikert (R-Arizona). What exactly is a “caucus”, and what’s the government’s perception of cryptocurrencies and similar? While people have been talking about the numerous applications of blockchain for years, which ones resonate right now with the government, and why? Where do states play more (or less) of a role than federal agencies in deciding blockchain matters? Finally, what is the “hard thing” policymakers need to be willing to do in supporting the widespread application of blockchain-based technologies? The guests in this episode of the a16z Podcast — Polis and Schweikert, along with Coinbase chief legal and risk officer (and mayor of Atherton, California!) Mike Lempres — discuss all this and more, in conversation with a16z policy team partner Matthew Colford. This podcast was recorded as part of our (now-annual) podcast road trip, in conjunction with the a16z Tech Policy Summit, in Washington, D.C.

Hi, everyone. Welcome to the A6 and Z podcast. This episode continues our podcast road trip to Washington, D.C., which took place earlier this month in conjunction with our annual tech policy summit. Today's topic is all about the blockchain in Congress, moderated by A6NZ policy team partner Matthew Colford. We're recording from Capitol Hill. I'm here with Congressman Jared Polis from Colorado and Congressman David Schweigert from Arizona, along with Mike Lempress, who's the chief legal and risk officer for Coinbase. So let's get started. What is the average perception among members of Congress of blockchain and cryptocurrencies and Bitcoin? Well, this is Jared Polis. I think people still turn their heads and say, what's that? I think there's some awareness of Bitcoin, for instance, or online currencies. But outside, this is Jared Polis, I think people still turn their heads and say, what's that. I think there's some awareness of Bitcoin, for instance, or online currencies. But outside. But outside, but outside of our caucus members and perhaps a few members of Congress that have an engineering or computer science background, I don't think we're quite there yet in explaining what this is to people.

Yeah, it's one of our great difficulties is so often when we actually say, hey, distributive ledger can provide all these types of solutions in our society. They immediately want to talk about Bitcoin. And, you know, that's both wonderful, but at the same time, the underlying technology is so much broader

than just a cryptocurrency. And trying to walk through saying, Okay, let me explain the stamping of nodes and, you know, the matching and permission and levels of permission. And you get a couple moments, and Jared and I get into that, and about two minutes into it, they're just staring at us. And I assume a lot of people, when you say Bitcoin or cryptocurrency, the first thing I think about is this dark web, or if you say blockchain, like the first thing I think about is... Well, it might not even be that sophisticated. Keep in mind the demographics around

here. I mean, we have a tough time explaining cloud computing. I mean, you know, this is a challenge. Now, what members of Congress have, though, is they have talented staffs of 20-somethings that get this stuff a little bit more. Now, many of them are not hard science people, but they've lived that era in their lives. And so they certainly do get that. And hopefully it's their job to kind of explain that to the member of Congress or Senator they work for. And one of the things I think we're starting to succeed at is explaining the benefits. You know, you may be carrying around that supercomputer in your pocket. You call an iPhone. You don't know how it actually works. you just know the benefits of its utilization.

You know, we used to actually try to do on the whiteboard, the description of how a series of nodes actually talk to each other and how it stamps and time, those things. And I realize there's no reason for that. You just now explain, here's the benefit. Right. Concrete, right, showing concrete examples. So, well, it's interesting, Mike.

So this gets to a little bit which you guys are working on because at Coinbase, you guys are simultaneously trying to make the case to the government, perhaps, but then also to the public at large. So what is the narrative that you guys have been working on as far as explaining what Bitcoin is to the general population? So it's very similar to the same message you give to Congress or to anybody else, which is there are benefits to this. You don't need, as Congress Whitehall was just saying, you don't need to be an expert in the underlying technology to know the benefits from it. There are these benefits and there are trusted companies and realize that, you know, you're going to be protected as a consumer that you have access to these benefits. So let's talk a little bit about how the blockchain caucus came to be because I think our, I mean, even our DC audience is probably like,

what? There's a congressional blockchain caucus. So let's start with what the caucus is. So, I mean, outside of DC. There you go. So, you know, it's so basically this is a formalized group that members of Congress can organize under to help educate others. So it's like forming a club in college, right? You want to be juggling. You started juggling club. And, you know, all of a sudden you have a recognized group. So we're able to take out rooms here, rent rooms for briefings, all of that sort of thing in the Capitol. So, and there's a number of these. There's hundreds of these caucuses. So there was none in this area. There was no effort or way or manner of educating our colleagues about blockchain. So we really got together and said, look, let's formalize it so we

can take out rooms and do briefings, which is effectively what that means and provide a forum for other members to learn more about the blockchain. Yeah. And look, I'm partially in it because it's the only club that would have me. No, I suspect you're in some others as well. Yeah. Yeah, well, I was president of my math club. There is a benefit to it because what will often happen is we worked on a concept for using blockchain or distributive ledger for scheduling at the VA to deal with the fraud issues of people were sneaking in, changing the schedules, and the benefit of, hey, there's a timestamp. You know who touched it, when, and it would get rid of that problem.

But if you present that as an idea to the VA committee, you get stared at. If you present it saying, hey, as the blockchain distributive ledger caucus, we've been working on solutions in society. Here's an example. It just has a little more gravitas. So you spent time at DOJ a while ago, but do you get the sense that there's the same interest on the executive branch side?

Are there these miniature kind of not interest groups, but sort of clubs and groups that are getting together to talk about this on the executive branch side? Even more so, I think, on the executive branch side. But I just want to stress, we called it a club. And it is a club, but it's very, very important, right? I mean, the main thing we want to do is make sure that Congress is aware

of what we do, has no reason to be afraid of it, and understands broadly what's going on. And the reason for that is it helps put things in perspective when an event good or bad occurs or makes them aware of other options that are out there. It's not the first time they hear about it when something comes up, which is really important for Congress. With regard to the executive branch, some of them are involved actively in either regulating our space today or considering regulating our space today. And those agencies are clearly very involved, and some of them are very expert. I will say, however, that it's a big executive branch. you look as a percentage of the entire executive ranch, it's a very small percentage.

But again, there are experts there who are looking at it. And there's also a concern on some of our parts that it would not be seen just as the cryptocurrency platform. And 10 minutes ago in our office, we had a number of folks talking about, could we dramatically change the cost of the transmission, the movement of value? You walk into a retailer and swipe a debit card the way it's transmitted and cleared. Could we reduce the cost? what that would be good for society. The Uber driver, the peace worker who wants to put aside 25 cents

every time they finished a drive or a project, could we dramatically lower the cost using a blockchain encrypted network to move value from one into the other, all of a sudden makes doing sort of micro savings towards your future retirement possible. And so it's trying to come and say, there are societal solutions that this technology, if it's understood, can provide.

Well, this is what's so interesting to me is that oftentimes you look at the federal government's efforts to catch up to modern day technology. It's really just an effort to catch up to the status quo, whereas a lot of the conversations that you guys are having is really leapfrogging the existing infrastructure or thinking about how to create entirely new frameworks for thinking about these things, not just catching up to where we are. But if you think about it, the blockchain is this relatively new concept, at least for most people. And so it's a much more forward-leaning position than other tech caucuses in Congress, like the modernizing IT caucus or something like that. I guess I think we were saying this is more fundamentally disruptive that yes and than some of the others in that we don't even know who or what the players will be and where it will impact. It has massive ramifications in the developing world for the unbanked and the untitled. So, I mean, there's identity confirmation and frankly tying into policy interests like identity ownership, allowing consumers to really control and own their own identity. So there's vast ramifications.

Many of them touch law and tax policy, and that's one of the reasons that we have to pay attention. Absent, a deliberate effort to create a legal ecosystem that allows for innovation, it's quite possible that efforts to do innovative things will run afoul of current law. Well, that sound that you hear that ringing noise, that bell is letting the congressman know that the house is back in session and that they have to be there in 15 minutes. What Jared just said is incredibly important. Time and time again, we've been playing with ideas of own your own information. You know, do you as a citizen, should you actually have the right to own all the data

and then sort of create a societal lease to government to look at it? But should you know if the IRS is looking at you or the FBI is looking at you or a single point where your university transcripts are? And some of that is a little bit techno-utopian, but think about how much easier your life would be, A, being able to have your government held information in a single portal, and then the elegance of being able to see a stamp that knowing if someone was looking at you. So there are these things, but that is very disruptive sort of in the current legal framework, started creating a new societal contract in what is privacy, what is a government use.

So these things, they're coming. And this also is very exciting in kind of a left-right alliance. and both of us represent different sides of the spectrum, because there's an enormous distrust on both sides of government with private information. And the last thing we want from either the left or the right is a government that controls your information, has access to your information,

and can dispense your information to others. Many on the left, like myself, don't want corporations to play that role either, but frankly, the blockchain is a way to address both of those concerns from the left and the right. Yeah, and there's this sort of magic circle where those who may be slightly more libertarian, leaning and those who may be, so we sort of come together on some of the civil libertarian

and the right to control and own your information. And the decentralized, you know, nature of blockchain is something that's just beautiful. It's a beautiful thing, regardless of where you sit on the ideological spectrum. And the way that you guys make these arguments to your colleagues, is it the same way that you make these kinds of arguments to your constituents? Well, look, to what extent you make these arguments to your constituents and say, look, these are all the benefits of the blockchain, of blockchain technology. There should be more kind of pressure from the bottom up for the federal government to act on this. We have companies in my state, in my district, working on blockchain technologies,

startups, mid-stage companies. They're very excited that they have an ear, not only in their member of Congress, but through the caucus. I mean, these are not the kind of issues that would come up in kind of a mass town hall. There's other things on people's minds, but, you know, I'm always excited when they do. Occasionally they do. Yeah. And look, the ability to meet with a constituent and say, let me walk you through.

there is an elegant solution that may not have been discussed and there is often a technology solution. For many of us, one of the greatest frustrations here in Congress is how many problems that we see come in front of us and there's actually a technology solution if you just take a step back and think it through. Whether it be fraud at the IRS or helping people be able to get certain benefits, there are technology solutions. once you sort of drive through the bureaucratic layers. Mike, what about in Atherton? Oh, there you go.

So, Mike, in addition to being the chief legal and risk officer at Coinbase is also the mayor of Atherton, California, which is a pretty tech savvy town, generally. Lots of tech employees, tech executives. What is the perception of blockchain and cryptocurrency? Well, I think our blockchain literacy is much, much higher in the heart of Silicon Valley than it is in most of the rest of the world. And so it is a different conversation you have there. People do see the benefits.

and there's less fear of an unknown technology. That's the way it works. I will say out there that there is a concern about the role of government in this process and that it's important the federal government learn more about what's going on. Congress and the executive branch understand it better and take advantage of possible applications like David's talking about. There's some great uses the government could save tremendous money. It could expand privacy rights. Tremendous amount can be done with blockchain technology.

But I will say with my constituents as a mayor of a small town in California, there's a concern that a misstep by the government could also squish it. And I would share that concern, and I wouldn't even call it a misstep, because we know when there's any fundamentally disruptive technology, there's a bunch of incumbents and legacy operators that come to this town to try to co-op government to sustain their advantage. And we've seen that in every space. I expect it to occur here, too. So it's very legitimate fear. No, it look incredibly important. But if I came to you and let's just use a life example that's happening, I think, in both of our states, an autonomous vehicle has an accident in your neighborhood.

But who do you sue? Well, you actually sue the code. But what would make that code insurable? If the code were held in a distributive ledger, you know that if someone touched it, it has a timestamp. You know that the code is the code that was involved in the accident. And that's not esoteric. This is about to change a lot of our lives over the next decade. You know, and the concept of being able to ensure an autonomous vehicle's code is possible in a distribution. of Ledger. And that's just sort of the classic sort of creative thinking of, we know this technology is coming, but how do we make it fit into our current legal framework? And there was a solution. I will say that technology is coming more quickly than people think.

Oh, yeah. When David talks about a decade, some of this stuff is going to happen much more quickly. It's happening today, and it's going to continue to happen. The rate's going to accelerate. So, Mike, that's a government perspective. What would be the industry perspective on risk and compliance issues? Certainly in Coinbase, we believe there has to be, the space has to be regulated, There has to be trust in the space, and in order for people to have consumers and others to have trust in the space, there has to be a layer of regulation so people know the rules are being followed. No one's got an advantage. That's very important.

I should take a step back, though. We are here in the capital of what, in the federal government, but this is a space that still is largely in many ways regulated by state governments. And that's really important. And there's a whole issue about the state role versus the federal rule. And I don't think that's an easy issue. I mean, one of the nice things in an emerging technology space is that the whole issue. if you have 50, actually I think there's 55 different state jurisdictions because of territories and things like that, looking at it, if somebody makes a misstep, we can correct or the states

actually can serve as a laboratory to learn from each other, whereas when the federal government acts, it's a giant step in one direction or another. Why is the lag here between where the technology is and the interest from the government side so much shorter maybe than it is for other technologies? In other words, perhaps because some of the implications are for the public sector itself and public sector goals. So I think when things are developed by themselves completely outside of that, it takes longer for the public sector to notice. But frankly, many of the things we do publicly, whether it's taxes, whether it's titling, whether it's a variety of purposes that our public functions are directly affected. And there's great potential for efficiency

improvements through blockchain. Look, there's a brilliant example here. Arizona's legislature about three, four weeks ago, actually put into the state commercial code, smart contracts, contracts and recognition of distributive ledger. So there's already some discussion there saying who's going to be the person that shows up to the motor vehicle department and says, we're going to take all vehicle and equipment titling and just put it on a chain and you'll be able to transfer ownership of vehicles on your phone now instead of ever having to go to a DMV office. In Arizona, it would be legal now for a county to try to take its real estate ownership records and put them on a distributive ledger. So it's a brilliant example of titling, meeting the willingness of

states and local jurisdictions to actually be much more creative than trying to move the monolith that the federal government is. That's great. It gets back to what Mike was saying about the states really driving this in a lot of ways. Yeah, I was going to say, one of the reasons I think that the governments generally are engaged so early in the process is that this is a hugely disruptive technology. And the spaces it disrupts include spaces that are really important to individual consumers and are in roles that are often either themselves in very, very heavily regulated spaces are actually performed by a government.

And those are some of the spaces are going to get disrupted. So in the time we have left, let's talk a little bit about the next five to 10 years. There's certainly a sense among some people in Silicon Valley, at least, that this is just going to take some time to catch on. But once it does, we're going to look back

and we're going to go, how could we have been so foolish to think that, you know, blockchain and cryptocurrencies and all the other applications we're not going to be central to our future. What does the next five to 10 years look like from your perspective, Mike? Doug years.

Doug years. So, you know, five to 10 years is, is, you know, we should think more like that, that's 35 normal years or something like that. Things are happening very quickly in the space. And I do think that the changes are going to come. They'll be led by technology and government will be chasing. And I actually think that's entirely appropriate. There's a need for regulatory compliance, obviously, to fit in that.

I think it won't be 10 years. I think it five years we'll look back and be surprised at how much the world changed, much, you know, similar to something like the iPhone or the Internet itself, how quickly things changed in response to that. We have no idea five or 10 years. However, what we've seen today is a lot of events. venture capital and funds flowing into this industry, funding all sorts of innovation. I mean, I've met with firms that, you know, invested in 20, 30 companies. And by the way, those invests,

they don't know which way it's had it either. That's why they're doing 20 or 30 companies. They're hoping that one of them is the next, you know, all-encompassing blockchain success story. So nobody really knows. But when we see all this innovation and funding behind it, when the dust settles, there's going to be some great winners out there. Now, if any of us knew who they would be, we're probably in the wrong room because we'll be, you know, we'd be best rewarded to be somewhere else right now. Yeah, and look, this sort of goes back to the beginning of the conversation.

Most of the consumers, most of government, isn't going to need to know that it's running on a distributive ledger rails. They're just going to be interested in saying, hey, did we work with NIST to create a security standard so we could all carry our medical records personally on our phone, even though it would probably be

on a distributive ledger chain in the background. That right there is a great societal good. It would help us all with, with medical costs. It's not right or left. It's just the embracing of technology. And that could happen actually almost today and solve a huge societal problem if we could build the framework saying medical records meet the HIPAA standards. If you do this type of encryption or maybe this type of token on a blockchain, go, let's have it. So it may happen much faster because VARN need policy-wise to come up with some solutions. This has been a fascinating conversation. I want to close with a

quick lightning round. So if each of you could respond in, you know, 10 seconds or less. So favorite blog or publication that keeps you up to date on blockchain issues? Coin desk. I just read the Reddit subreddits on Bitcoin. Oh, I'm one of those that has a whole chain of them on his phone. So you start in the morning with, you know, tech crunch and move on to CoinDesk and just on and on and on and on. What has been also interesting is how often this discussion is now popping up on more mainstream publications like the Wall Street Journal, which is a great sign. Okay, most underappreciated application of blockchain technology.

There's so many, but if you had to pick one that you just think the public isn't even aware of how much of a benefit this could be. I would say the ability to control your own data and know who touches it. Yeah, that's not underrated. That's a great one. I mean, that one is an overarching one

that accomplishes public policy goals on the left and the right at the same time. It's great. And American consumers demand it. global benefits for the unbanked, are enormous that's going to change the world. I'm tired of us wanting to help a poor family. That's a great idea of the same way. That's a great idea.

To help a poor family in Central Myanmar and having the money basically stolen by dictators and bureaucrats and say let me, let's help build a network where I can buy something from that person, they can sell me something, and the chain is the distribution of the value to their phone. It's a much more elegant human-to-human way to help the poor around the world than supporting bad governments. That's one incredibly exciting application that you can see. We could actually do that today, given there's some, I'm sure, regulatory and legal issues, but we can do it today. Actually, the greatest battle today is the threat to the current bureaucracies.

Whether it be on the right or the left, you often defend your own personal income stream, your own job, your own bureaucracy. And it's hard to say, hey, this is a great idea. You just put my entire department out of business, but you actually helped poor people around the world. Right. So those in the policy world, we have to be willing to do those really hard things and say, you guys are great, but you actually are a barrier to the ultimate goal. Fantastic. All right.

I think that's a good place to wrap up. Thank you all. Thank you, Congressman Schweiker, Congressman Polis, and Mike. This was a fascinating conversation. Thank you. This is always fun. Thank you.