a16z Podcast - a16z Podcast: Which Bitcoin Players Matter?

Episode Date: May 19, 2015

Users, entrepreneurs, and investors are harnessing bitcoin’s "workaday utility" in Argentina, a place where bitcoin is arguably more widespread among everyday people than anywhere else. What conditions led to this? Is it indicative of what may happen someplace else? Or is it just an isolated case or even a stopgap? In this episode of the a16z Podcast, NYT journalist Nathaniel Popper, author of the new book Digital Gold on the "inside story of the misfits and millionaires trying to reinvent money", shares his insights on the phenomenon taking place in Argentina; what lessons other countries should (or shouldn't) take away from it; and why email is the best analogy for email. And why the people behind bitcoin really do matter ... especially because -- not in spite of! -- bitcoin being a blank slate to build on top of. The views expressed here are those of the individual AH Capital Management, L.L.C. (“a16z”) personnel quoted and are not the views of a16z or its affiliates. Certain information contained in here has been obtained from third-party sources, including from portfolio companies of funds managed by a16z. While taken from sources believed to be reliable, a16z has not independently verified such information and makes no representations about the enduring accuracy of the information or its appropriateness for a given situation. This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only, and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any fund managed by a16z. (An offering to invest in an a16z fund will be made only by the private placement memorandum, subscription agreement, and other relevant documentation of any such fund and should be read in their entirety.) Any investments or portfolio companies mentioned, referred to, or described are not representative of all investments in vehicles managed by a16z, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results. A list of investments made by funds managed by Andreessen Horowitz (excluding investments and certain publicly traded cryptocurrencies/ digital assets for which the issuer has not provided permission for a16z to disclose publicly) is available at https://a16z.com/investments/. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see https://a16z.com/disclosures for additional important information.

The content here is for informational purposes only, should not be taken as legal business, tax, or investment advice, or be used to evaluate any investment or security and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com slash disclosures. Hi, everyone. Welcome to the A6&Z podcast. This is Donald, and I'm here today with Nathaniel Popper, New York Times journalist, and the author of the book just out today, Digital Gold, Bitcoin, and the inside story of the misfits and millionaires trying to reinvent money. Welcome, Nathaniel. thank you for having me so i just wanted to kick off with an article you wrote in the new york times recently about what you describe as an experiment with bitcoin happening playing out in argentina um where people are trading pesos for bitcoin and vice versa instead of actually into other currencies could you talk a little bit about why you think that phenomenon is happening um i mean one of the things you comment on is that it's the only place where ordinary people that you you think it's the only place where ordinary people are using bitcoin for

real commercial transactions. Yeah. I mean, in the course of writing this book, I traveled to most of the places where Bitcoin has caught on in any significant way. And I was always on the lookout for people actually using Bitcoin, you know, people who weren't just speculating on the price of Bitcoin or working on it for sort of political or technological or technological reasons. I wanted to see people using it in some ordinary way. In Argentina, as I mentioned, as you mentioned, is really the one place where I saw that happening, where I saw ordinary people who didn't have any political motivations, didn't really understand the technology using Bitcoin because it allowed them to do something

they couldn't do with their ordinary currency, they couldn't do in the ordinary financial system. And so to me, it was really the most, interesting experiment for Bitcoin and the most interesting place to look at to understand how it might be used if this did catch on more. And I think the Argentinian experience is clearly a little unusual, and so it would be easy to say that, you know, Bitcoin is catching on there because it's just a totally screwed up, it has a totally screwed up currency. It is a, you you know, largely a totally screwed up country, you know, it's had hyperinflation, multiple incidents of hyperinflation, they've defaulted on their debt, all of this.

And so that is certainly why it's being used there, but I think that despite all the unusual elements of what's going on in Argentina, when you look at it, there are a lot of lessons to be drawn for how it might be used elsewhere. where once the technology, once the protocol, once the code, once the infrastructure is improved, it will be able to compete in other places in similar ways. And so Argentina was just fascinating, and the center of that story for me in Argentina were the sort of working class Bitcoin money changers who make the whole thing work down there. I mean, a lot of people use Bitcoin to get money in and out of the country, but when they need to get their money into pesos so they can buy something, they can go to the grocery store, they rely on this money changer who frequently will come to their house, to their work, and give them pesos or give them dollars, and it's just fascinating characters, and they sort of, they give a window on the most basic level into how Bitcoin.

works. And that was, at the bottom of it, that's what I was interested in this book and why I was interested in Argentina. So, Nathaniel, speaking of Argentina, though, there are plenty of places in the world that have hyperinflation. What about the environment there made Bitcoin take off? I mean, there could have been other alternatives. I mean, it's not like it's the only option. It's not the only option. And in fact, people have lots of other ways of getting around the local currency and getting around the local financial system. And frankly, the most popular way to get around the peso is the dollar. So there's already a whole infrastructure and world of money changers in Argentina who are changing between dollars and pesos. That is something that sort of

set the stage for Bitcoin. I think that what Argentina has that a lot of other people, places don't have with dysfunctional economies is a very well-educated, literate, tech-savvy population that knew how to embrace this technology and that had the skills to do that and a comfort with the idea of a digital currency. I don't know that that's the same conditions exist in a place like Venezuela or Zimbabwe. So Argentina is somewhat unusual in that respect. Right. Well, interestingly enough, when Cazares, who you talk about in the book and in the article, is from Argentina. And I know that inspired his interest in Bitcoin. But he wrote an interesting post recently on LinkedIn about why Greece should not switch to Bitcoin. And he actually, it was really funny. He actually said, but if the euro is a problem, switching to Bitcoin would be like trying to cure a headache with a bullet to the brain, which I thought is really funny, turn a phrase. But why would he make that argument at the same time? So on one hand, you see this phenomenon in Argentina. And on the other hand, you're hearing, you know, folks say that, but countries should not think of it as, you know, as a replacement for their currency or to augment their currency.

I mean, I think, I think it's similar to the argument that the Internet in 1995 was not equipped to handle Facebook or Netflix. You just, you just didn't have the bandwidth at that point. I mean, the basics of the technology of the Internet existed in 1995, but you need a lot of stuff to go into it and to sort of create a foundation for it to allow more significant things to be built on top of it. And I think it's pretty clear that at this point, Bitcoin is not ready for prime time in that way. There are sort of basic problems.

with the protocol, with the number of transactions that can go through the system, and significant improvements that need to be made before it can become that sort of work-a-day thing for larger economies. And I think that Wences, it's interesting to hear him say that, but I think it's widely understood among a lot of the people working on this, that there's still a lot of work that needs to be done. And sometimes there's a desire to see a technology like this, you know, embraced immediately.

People want this to become the global reserve currency next year. And I think the people who are kind of really in the trenches working on this recognize that this sort of thing takes five, ten years. And Wences often would say that to me when I was talking to him in the course of reporting on this book. that, you know, if it takes 10 years, if it takes 20 years, that doesn't matter to me. I just, you know, the important thing is that this eventually catches on. And so sometimes people do become a little too focused on the very near term.

Right. Well, I mean, I think another theme there, too, is you mentioned the analogy to the Internet in the early days. There's a similarity in the sense that the Internet belonged to everybody, and it was borderless and not tied to any one country. In that vein, one interesting theme that comes up in the Argentina story that you tell, too, is this tension between decentralized and centralized players and how a lot of people don't trust centralized players like banks, but yet so many aspects of the Bitcoin ecosystem are, in fact, centralized. I mean, there are some choke points in there for better or worse. Do you have any thoughts on how that plays out? well i think it's it's certainly one of the constant tensions in my book as i tell the the history of bitcoin um and and and because in reality many of the crises that have

hit bitcoin have been as a result of people trusting their bitcoins with some central institution that was essentially allowed to hold their money in the same way that a bank does, but without any insurance. And I think obviously the most notable case of this was Mount Gox, which essentially held everyone's bitcoins and eventually lost or stole all of those bitcoins. The jury's still out on exactly what happened there. But that has been an issue that people,

people don't actually seem to trust themselves to use truly decentralized technology, or perhaps they don't have the abilities to do so. And so, you know, I think a lot of the focus in the developer community now is on building programs that can allow people to get the advantages of the decentralized technology without having to deal with all the complications of it. But I think that's a real issue. And, I mean, I think it's always at the center of these debates about the Internet, and obviously we now have this with Google and Yahoo.

We have a decentralized Internet, yes, but you do have these companies that are essentially serving as the middlemen and that have the ability to track all your emails, to give emails up when they're subpoenaed. And, you know, to a degree that does seem to defeat some of the original idealism of the project, but you obviously have managed to maintain a lot of the benefits. Well, I think it's interesting because one analogy that I've seen you use, and I feel like I'm a collector of Bitcoin analogies, I've heard Settlement Network, lots of different analogies.

And I think it's probably a better analogy than most is the financial version of email. So I think in that sense, I think that's probably one of the better analogies I've ever used and that you came up with. So maybe email is a better way of it. Maybe email is a better way of thinking of it than even saying Internet because everyone uses email. It bypasses, you know, there are central services, but it bypasses sort of a single central player. I don't know. What else about email? Why would you say, what else would you say makes it the financial version of email? Well, it's just, it's a way to send things that you have control over. Oftentimes people get focused on the idea of Bitcoin as a currency because, that's the easiest thing to grasp. Everybody understands money. Everybody understands gold. That's true even in the title of my book, Digital Gold.

But it's more than just a thing. It's more than just a token. It's a way to move things. And so I think email conveys that, that you're moving something, but the email itself is a thing that's valuable as well. And so that to me is why that metaphor makes sense. And obviously it's something that everybody understands and can use. And really, it is just a way to move money as quickly as email moves information.

And, of course, both of them are built on top of the Internet and rely on that foundation, but do something new on top of that. I think I totally agree with that. It's frictionless and cheap. I mean, one of the analogies, anecdotes that really stuck out in your article in the New York Times recently was about an artist who, if he had used, if someone had sent him euros to Argentina, he would have lost 30% of his profits, which is just insane. And he ended up using Bitcoin for that reason, which I think is another example of the cost of that, because the fact that it's so expensive to move things is huge. Yeah, and the costs are much greater in Argentina, 30 to 40% cost. In the U.S., it's pretty expensive as well, but it's not necessarily quite at the place where Bitcoin can easily compete or clearly beat the alternative, but in Argentina right now it can.

I think part of what's interesting about Argentina is that the work going on there seems like it may end up improving the Bitcoin protocol, the Bitcoin software, to the point where it can compete in places where, you know, the margin is smaller. Do you think, though, the situation in Argentina is a stopgap, or do you, was your sense from, you know, your observations there, that it's actually going to be, people are converted and they're going to continue doing this, especially as the protocol and the technology evolves. I mean, I think, I think the specific situation in Argentina is going to depend a lot, actually, on what the local government does.

The real problem with transferring money internationally there is this artificial exchange rate that the government creates. And that's where you lose most of your money when you bring currency into the country is the artificial exchange rate between dollars and pesos. And so if the government does away with that, if the government begins to deal with inflation, then the advantages of Bitcoin are going to become a lot less significant. Now, I think part of what's interesting that you're seeing in Argentina is that people are starting to use it for more than just the international transfers. I mean, that was the first big, sort of use case.

But as people are becoming familiar with it and more programmers are becoming aware of it, they're seeing the other ways in which it might be used. And one of the really interesting projects that's going on right now is actually being led by Wences's company Zappo. They have teamed up with the local social network called Taringa, which is, you know, this local sort of Reddit Facebook site. And they're using Bitcoin not as a way of transferring large amounts of money, but actually as a way of allowing for really small payments on the social network. And so, you know, micro payments is something you hear a lot about with Bitcoin that it might make it easier to make micro payments than is possible with credit card networks. And so the possibility for micro payments to take off, perhaps, you know, if the government's policies change on exchange rate and nobody is using it any longer to bring money into the country, you know, the usership on Taringo will take off. So I think, you know, once people start thinking about Bitcoin, they start thinking about the different ways in which it might be used.

And frankly, yeah, I'm not at all, I wouldn't argue that Argentina is the future of Bitcoin or Argentina is paving the way for Bitcoin, you know, broader adoption by ordinary people. I just think it's a great experiment to watch because it's the place where people are trying that right now and maybe in, two or three years. If the policies change there, those sorts of experiments will move somewhere else. I agree. And I think it's interesting because the entire theme of what you've been talking about and in your book as well is about the role of people and the players behind this ecosystem. And one debate that I've seen play out and that I myself have strong opinions about on both sides is whether the people really matter, actually. Because, you know, in the case of trying to figure out who Satoshi Nakamoto is, for example, do we really need to know in terms of what

youth were actually getting out of it. But yet in your book, you paint a picture of a lot of different characters and interesting people involved with the evolution of Bitcoin. Clearly, you would make the argument that people do matter in that context. And so I'm kind of curious to hear why you think that's the case. Well, I think, you know, at the simplest level, Bitcoin is not a thing that exists unto itself. Bitcoin, and one of the most fascinating, elements of Bitcoin, the Bitcoin Protocol, is that it's a kind of blank slate that people can write their needs onto and their interests onto. And that's really what I saw in the course of reporting out this book, is that everywhere

it went, Bitcoin was used in a slightly different way. And so what Satoshi had in mind for Bitcoin, you know, he talked about something that could, a kind of money that could exist without central banks. That's, frankly, not the way it's being used right now. It's being used in all these other ways. I mean, he did talk about micropayment, so that was there at the beginning, but to understand the technology, you have to understand the way that people are using it. To understand it in the abstract is somewhat useless.

If you just described Bitcoin, this is what happened. for the first two years. Somebody described it, and everybody thought it was idiotic. Nobody, you know, there was, there was maybe 100, 200 people using it, and everybody thought they were crazy. So it wasn't, it didn't exist unto itself. It needed to get those people who were using it. And those people who began using it weren't all using it in the same way. Each person sort of used it according to their ideas about and their needs. And, you know, initially the ability to buy drugs online, the kind of political promise of Bitcoin was really important, and that was driving the use of it, and that drove the way in which the software

evolved, because this is open-source software, and it has become something different than what it was when it began. And so, you know, all of this together, it just tells you that that the technology is, I mean, the code in itself could have just disappeared. It was the people using it that made it happen and that made it evolve in the different ways that it has evolved. The people are what made this matter. The people are what turned this into something that might influence the world. The code in itself would have.

have died a quiet death, if it were not, for all of the people in this book. And that's something that's very useful for the people to think about who are using this technology and trying to improve it, because you have to think about where people are and what their needs are. And almost everybody who influenced the course of Bitcoin was somebody who looked a little bit more dispassionately at what the technology was and why people were interested in it and how they might use the technology to provide another service. And, you know, Charlie Shrem was one interesting case of that. He was a very, you know, for all of his failing in foibles, he was a

very practical guy who saw that it was really hard to buy Bitcoins at that point. And he made that possible. Wences is a later version of that. And Wences, as an entrepreneur, is fascinating because he is so good at telling stories. And I think that's a big part of the reason he has managed to influence Bitcoin the way that he has and the way, and that he has managed to build the companies that he has, because he can build stories and tell those stories and convince people that those stories matter. And in doing that, he's been one of the most successful evangelists for Bitcoin. But in doing that, he's also himself influenced the story of Bitcoin. That's great. Well, thank you, Nathaniel. And that's Nathaniel Popper from the New York

Times and the author of Digital Gold. Thank you again, Nathaniel. It was great talking with you.